Could Europe’s Money Invest in Northern Ireland?

Posted on July 3, 2013 · Posted in Business Month

Northern Ireland is lined up for some very helpful and very large funding from the European Investment Bank.  The EIB is keen to lend hundreds of millions of pounds to Northern Ireland to help improve our economy and infrastructure and strengthen our universities.  Roads are set to be the next beneficiary.

 

The EIB is the European Union’s bank, which helps provide investment in infrastructure and for other major economic projects.  It was founded back in 1958 and on average lends about €50bn (£43bn) a year to EU member states and to partner countries regarded as strategically important.  Its resources have grown as it seeks to support recovery from the global and eurozone financial crises.  As a result, it is looking to increase its future lending and is also making available some grant assistance for research and development projects. 

 

Although the EIB is backed by funds from European Union member states, the loan finance is borrowed from the private market and lent on at low rates of interest, exploiting the bank’s triple A credit rating.  Member states’ money is used to leverage the private funding.

 

As well as providing finance, the EIB also has specialist expertise both to ensure projects achieve value for money and to assist the leveraging in of additional sources of private finance.  The priority is to contribute to economic activity, growth, employment, environmental sustainability and to improve economic and social cohesion.  Given that Northern Ireland is the poorest nation within the UK, it is potentially eligible for significant support from the EIB.

 

The Irish Government has been a keen user of EIB finance and a €200m (£170m) proposal for EIB finance is currently under appraisal.  This would upgrade electricity networks and so improve the Republic’s capacity to generate and distribute renewable energy in the South West of the country.  This will involve the construction of five power substations and their network connections to improve linkage with wind turbines.  The scheme is promoted by the state-owned electricity company, the Electricity Supply Board (which also owns Northern Ireland Electricity).  The EIB would contribute nearly half of the total project costs of €429m (£365m).

 

In April this year, the EIB allocated another €200m to the Republic through an agreement with the partially state-owned AIB bank.  The funds enable AIB (owners of Northern Ireland’s First Trust Bank) to improve their lending capacity to SMEs in the Republic and follows a similar programme agreed in 2011.  The AIB says the 2011 programme attracted a high level of take-up from smaller businesses.  Average lending through EIB’s support of national banks is €91,000(£77,380) per company and is typically used to finance short and medium term investment needs.

 

Earlier this year, the EIB also provided €200m of funding to support the renovation of the water industry in Ireland by paying for new water mains, reservoirs and reducing pollution.  The measures support the Government’s substantial reform of the water industry.

 

Across all its programmes, the EIB provided more than half a billion euros’ worth of investment in the Irish Republic last year and more than €3bn over the last five years.  As well as SME lending, water supply and renewable energy, projects also supported universities and schools. 

 

Although the EIB declined to comment on the prospects of investing in Northern Ireland, it confirmed that it is keen to fund major schemes here.  It is significant that Northern Ireland makes little use of the EIB as a source of investment compared to the Irish Republic and Great Britain. 

 

Universities in England, Scotland and Wales have all borrowed heavily from the EIB, unlike those in Northern Ireland.  Strathclyde University has obtained £100m to improve its R&D capacity and the quality of its campus.  Swansea University borrowed £60m to relieve the stress of an overcrowded campus and to build student housing on land donated by BP.  Leicester University obtained £60m to build new medical facilities and improve dated buildings.

 

University College Dublin has also used EIB funds to improve its campus facilities.  The EIB recognises that many university campuses in Ireland and Britain date from the 1960s and need serious investment to bring them up to standard to enable the universities to operate in a more competitive domestic and international market.

 

The English privatised water companies have also called extensively on EIB money to assist them with programmes of improving water quality and discharges – the EIB has been the largest funding source for programmes of work undertaken by the British water industry.

 

The EIB wants to invest in Northern Ireland, both to assist the economic development of a deprived region with high unemployment and also because much of our infrastructure is recognised as being in a poor condition.  What is more, some of those weak areas of infrastructure are priority investments for the EIB – roads, water supply, universities and schools.

 

But there are barriers to achieving this.  As far as the EIB is concerned, one of these is that Northern Ireland has more restricted borrowing powers than other devolved administrations within the EU that have drawn more extensively on the EIB.  The fear within the EIB is that there is also much less knowledge of it as a major lending institution than is the case in most EU member states.  One person within the EIB complained: “People don’t always think of the EIB.” 

 

In Northern Ireland, that is changing.  A spokeswoman for the Department for Regional Development – which has responsibility for NI Water, roads and railways – confirmed that it intends to meet with the EIB in the “next couple of months” for “preliminary discussions” that have been brokered by the Strategic Investment Board.

 

The SIB stresses that the EIB already has an engagement in Northern Ireland, as one of the major funders of the new Enniskillen Hospital.  SIB chief executive Brett Hannam stresses that he and his colleagues have a strong working relationship with the bank.  “The EIB provide finance on very advantageous terms, so we are keen to involve them where possible,” he says.  “We talk to them on a regular basis to identify projects they can be involved in.”

 

But, Hannam says, it is size that has restricted EIB’s involvement, more than anything else.   “They tend not to be involved in projects less than £200m,” he explains.  “We don’t have many projects of that size.  They have come over here fairly regularly.”

 

Although there are no schemes arising immediately that are suitable for EIB engagement, that could change soon.  The Investment Strategy for Northern Ireland identifies £1.1bn of projects needing alternative (non-government) financing.  “It is possible that some of, or all of, those projects will be financed through EIB, but we are not at a stage where we are talking to financiers as yet,” continues Hannam 

 

One of the projects most likely to be financed in that way is the A6 Belfast-Londonderry road upgrade, which would cost in the region of £350m.  “That’s right in the EIB territory,” says Hannam.

 

Commuters on the slow road connecting Northern Ireland’s two major cities will be hoping there will be a fast road to improvement.  So, too, will be the construction industry and many others keen on kick-starting the Northern Ireland economy.  The EIB is very keen to be our partner in making that progress.