EU Said to Weigh Cutting EBRD, EIB Financing for Russia

Photographer: Alexei Nikolsky/AFP via Getty Images

European Union states are considering widening the scope of sanctions on Russia over President Vladimir Putin’s failure to rein in separatists in Ukraine. Close

European Union states are considering widening the scope of sanctions on Russia over... Read More

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Photographer: Alexei Nikolsky/AFP via Getty Images

European Union states are considering widening the scope of sanctions on Russia over President Vladimir Putin’s failure to rein in separatists in Ukraine.

European Union states are considering a halt on financing for projects in Russia as they seek to widen the scope of sanctions aimed at ending the conflict in Ukraine, two EU government officials said.

EU governments are considering different scenarios to stop new project funding for Russia made by the European Bank for Reconstruction and Development and the European Investment Bank, according to the two officials, who asked not to be named because of the sensitivity of the plans.

Russia is the biggest recipient of project-financing by the London-based EBRD, receiving 1.8 billion euros ($2.5 billion) in investments last year. Recent projects include a loan for pipeline valves; buying a minority stake in a property developer; and a loan to a hypermarket chain. The EIB signed loans worth about $1.4 billion in Russia in 2013.

“We won’t ease off,” German Chancellor Angela Merkel told reporters in Berlin yesterday, saying that Russia risked more sanctions from the EU if President Vladimir Putin didn’t do more to rein-in pro-Russian militias in eastern Ukraine.

The EBRD, which invests about 9 billion euros a year from Mongolia to Morocco, has been at the center of a tussle over its collaboration with the Kremlin since Russia annexed Crimea in March, with the U.S. and some fellow Group of Seven partners pressing for an examination of the bank’s role in Russia.

“As long as Russia continues to illegally occupy Ukraine, there can be no ‘business as usual,’” Canada’s government said in a statement at the EBRD’s annual meeting in Warsaw in May.

Projects Pending

Russian projects awaiting approval from the EBRD include a 300 million-euro extension of a loan facility to promote energy efficiency; a $180 million loan for leasing agricultural and forestry equipment; and a loan to a Russian manufacturer of roofing insulation material.

While curtailing lending from the Luxembourg-based EIB would pose few problems since the bank is owned and controlled by the 28 EU governments, influencing EBRD policy is trickier as other countries, including Russia, have stakes in the bank, said one of the officials. Still, EU governments sit on the board that approves projects, giving them the necessary clout, the official said.

The U.S. has a 10 percent stake in the EBRD, with each of the other G-7 countries holding 8.5 percent each. That gives the U.S. and Canada plus European G-7 countries a majority of 52.5 percent, compared to Russia’s stake of 4.05 percent

The EBRD, owned by 64 countries, the EU and the European Investment Bank, was created in 1991 to invest in former communist countries from the Balkans to central Asia to help them transform their economies. The bank expanded its geographical scope to include nascent democracies in North Africa and the Middle East in 2011.

“The European Investment Bank, as the EU Bank, acts in full accordance with the EU positions,” Dusan Ondrejicka, a spokesman at the EIB, said in an e-mail. The EBRD declined to comment on sanctions when contacted by phone.

To contact the reporters on this story: Birgit Jennen in Berlin at bjennen1@bloomberg.net; Helene Fouquet in Paris at hfouquet1@bloomberg.net; Agnes Lovasz in London at alovasz@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Leon Mangasarian

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