Chapter 7 Amendments to the Agreement Establishing the European Bank for
Reconstruction and Development, adopted at London on 30 September 2011
On 28 February 2012, the Amendments to the Agreement Establishing the
European Bank for Reconstruction and Development, adopted at London on
30 September 2011 were tabled in the Commonwealth Parliament.
The proposed amendments to Article 1 and Article 18 of the Agreement
Establishing the European Bank for Reconstruction and Development will allow
the European Bank for Reconstruction and Development (the Bank) to expand its
geographic scope to the Southern and Eastern Mediterranean region and allow the
use of Special Funds in potential recipient countries. The proposed amendments
were approved by the Bank’s Board of Governors on 30 September 2011.
The proposed amendments will enter into force seven days after the date
of the Bank’s formal communication confirming the requisite number of members
have accepted them. The proposed amendment to Article 1 (that aims to include
the designated Southern and Eastern Mediterranean countries) must be accepted
by all members before it can enter into force. The proposed amendment to
Article 18 requires the consent of not less than three-fourths of the Bank’s
members, having not less than four-fifths of total voting power.
The European Bank for Reconstruction and Development,
established in 1991, has fostered the transition towards open market oriented
economies and promoted private and entrepreneurial initiatives in 29 countries
of operation from central Europe to central Asia following the widespread
collapse of communist regimes. The Bank is owned by 61 countries, the European
Union and the European Investment Bank. Australia is a financing member of the
Bank, which means that Australia contributed to the Bank’s capital resources by
The Bank provides project financing for banks, industries and businesses
(including publicly-owned companies) through new ventures and investments in
existing companies. This can occur through loan and equity finance, guarantees,
leasing facilities and/or trade finance.
Unlike the lending of the International Monetary Fund (IMF), the Bank’s
lending is directed at private sector businesses rather then governments. The
...the Bank is generally working with private sector entities
rather than sovereigns. It has conditions around what sorts of countries it
will operate in and looks at their democratic record, transparency and
openness. It obviously has guidelines around procurement accountability and
those sorts of things on its lending, but unlike the IMF, it is not lending to
support sovereign programs; it is supporting private sector initiatives. Their
conditions are basically on those companies, and they are around accountability
and transparency rather than putting policy conditions on a country in exchange
for lending into that country's sovereign operations.
The Bank’s share capital is provided by its members. The subscribed
capital base totals €30 billion (€6 billion paid-in and €24 billion callable).
To be eligible for Bank funding, a project must be located in one of the Bank’s
countries of operation, as defined in Article 1 of the Agreement, have strong
commercial prospects, involve significant equity contributions in cash or in kind
from the project sponsor, benefit the local economy, help develop the private
sector and satisfy banking and environmental standards. Projects are approved
by the Bank’s Board of Directors before funds are disbursed.
Sectors supported by the Bank include: agribusiness; energy efficiency;
financial institutions; manufacturing; municipal and environmental
infrastructure; natural resources; power and energy; property and tourism;
telecommunications, information technology and media; and transport.
Australia’s contribution to the Bank is relatively limited, and is part
of the aid budget. However, it is in
Australia’s interest to remain a shareholder. The Treasury explained:
...we only have a fairly small shareholding of 1.01 per cent
of the Bank. Nevertheless, we try to use our influence to encourage the Bank to
reflect on its role and strategic direction.
Reason for and effect of amendments
In response to the events in the Middle East and North Africa in 2010
and 2011 – the so-called ‘Arab Spring’ – the Bank was called upon by the
international community to extend its geographic scope to support the
transition of the Southern and Eastern Mediterranean countries to market
In February 2011, G20 Finance Ministers stated that they stood ready to
support Egypt and Tunisia with responses coordinated with international
institutions and regional development banks. At their meeting on 10 September
2011, G8 Finance Ministers welcomed the Bank’s proposal to extend the
geographic mandate of the Bank and called for a transitional facility to be
On 30 September 2011, the Bank’s Board of Governors voted
unanimously to amend the Agreement to expand the scope of the Bank’s operations
to the Southern and Eastern Mediterranean.
This expansion is to occur in a three stage process:
Stage 1 – ‘Cooperation Funds’, funded by voluntary member
contributions will be used to provide technical cooperation and project
preparation. This stage has begun and Australia and other donors have
Stage 2 - ‘Special Funds’, resourced by the Bank from its capital
funds and potentially additional voluntary contributions received from members,
will be established to deliver a full range of the Bank’s investment operations
in the new region. This stage requires a sufficient number of member countries
to accept the proposed amendments to Article 18. The proposed amendments
to Article 18 clarify that Special Funds can be used in recipient countries and
potential recipient countries.
Stage 3 – The final stage requires the acceptance of the proposed
amendments to Article 1 by all member countries. The proposed amendment to
Article 1 expands the scope of the Agreement to include ‘countries of the
Southern and Eastern Mediterranean’. This will allow countries in the new
region to become fully fledged countries of operation and recipients of the
Bank’s capital resources.
Potential countries of operation from the new region in the foreseeable
future are Egypt, Morocco, Jordan and Tunisia. Egypt and Morocco have been
members of the Bank since 1991. However, as ‘non-operational’ countries (that
is, outside the current scope of Article 1), they have not been eligible for
the Bank’s lending. The Executive Director who represents Australia on the
Bank’s Board of Directors also represents Egypt. Jordan and Tunisia became
members of the Bank in December 2011.
Overview and national interest summary
The Government assesses that it is in Australia’s national interest to accept
the proposed amendments to allow the Bank to extend its operations to eligible
countries in the Southern and Eastern Mediterranean and thus support their
transition to democracy. Egypt, Morocco, Jordan and Tunisia have taken steps so
that they may potentially benefit from the Bank’s expansion. The Bank is
well-placed to support countries that are transitioning towards open and
democratic market economies. Through its role in supporting private sector
activity, the Bank can potentially add value to the work of other multilateral
banks and donors operating in the region. The proposed amendments do not impose
any obligatory costs on Australia, although Australia has already made a
voluntary contribution to Cooperation Funds.
There is also a foreign policy imperative in supporting these
amendments. The Treasury explained:
...full acceptance by all member countries will benefit those
countries in the southern and eastern Mediterranean, which in turn will
contribute to development and stability in an area of high geopolitical
importance... I note that the expansion to the bank is strongly supported by a
range of other members, including the US and Europe, and that those countries
are vigorously pursuing its implementation.
Reasons for Australia to take the proposed treaty action
Advantages of the proposed treaty action
Australia supports the expansion of the Bank’s activities to the
Southern and Eastern Mediterranean. It reflects positively on Australia to be a
member of such a well functioning and useful organisation.
Acceptance of the proposed amendments would also be consistent with Australia’s
G20 commitment to encourage Multilateral Development Banks to play an enhanced
role in addressing global financial challenges.
Effect if Australia does not take treaty action
In accordance with Article 56, the proposed amendment to Article 1 will
not come into force unless it is adopted by all members of the Bank. If
Australia does not accept the proposed amendments, the countries of the
Southern and Eastern Mediterranean will not be able to become countries of
operations in the Bank.
The proposed amendment to Article 18 will only come into force when
not less than three-fourths of the members (including at least two specified countries
from Central and Eastern Europe), having not less than four fifths of the total
voting power of members, have accepted the proposed amendment. Non-acceptance
by Australia could delay entry into force of the proposed amendment to Article
Australia will not incur any new obligations as a result of the proposed
amendments to the Agreement. However, Australia may be called to vote on whether
a country qualifies as a potential recipient country under Article 18(1)(i).
The Treasury explained the processes through which such a vote would take
The issues that were looked at in terms of expanding the
countries of the operation were particularly around whether the Bank would be
able to add value working alongside other partners in those countries. The Bank
would also be looking at whether those countries met the criteria of a country
of operations. For the Bank to be putting that to a vote, they would be looking
at whether there was a democratic transition occurring in that country and
whether that country met the requirements that the Bank imposed in terms of
democracy and private sector freedom before the bank would be willing to take
them on as countries of operation. From Australia's point of view in advising
the governor, we would be looking at whether we saw the Bank's particular
expertise as adding value and supporting the transition of that economy to a
more modern market based economy.
Criteria for assistance
The Committee was concerned about the democratic status of some of the
countries being considered by the Bank for assistance. There were concerns
expressed that in countries like Egypt or Tunisia minority groups were not
being given their full expression of democratic rights and that there was a lack
of freedom of the media.
In response to questions about the nature of the democracy being
practiced in the recipient countries, i.e. if human rights, gender equality or
respect for minorities was being recognised, Treasury responded:
There aren't established criteria for the governor's vote on
additional countries entering as countries of operation, but it is open to the
governor to consider whatever factors they consider to be appropriate... It
would be open to Australia's governor to take into account any factors they
thought were relevant to whether Australia believed a country should be a
country of operations.
Australia has a representative in the Bank who is either an
executive director or an alternate executive director. That person works
permanently in the Bank and does a lot of work with the bank and on providing
advice back to us on individual issues involving the Bank... The situation is
that we rely on our people on the ground and in the Bank headquarters—they are
certainly aware of a lot more of the detail about how these decisions are
made—but I think we get a reasonable service by providing advice back to the
government through that process... The Bank has a range of ways of monitoring
those sorts of issues.
The European Bank for Reconstruction and Development Act 1990
(Cth) will need to be amended in order to give effect to the proposed
amendments, as the Agreement is set out in Schedule 1 to the Act. Section 6 of
the Act allows Schedule 1 to be amended by regulation.
The proposed amendments to the Agreement will not impose obligatory costs
on the Australian Government, State and Territory governments, business or
industry. The Bank may ask donors for an additional voluntary contribution to
‘Special Funds’; however, Australia will not be obliged to contribute.
At the moment, as I said, we have 1.01 per cent of the shares
in the bank. The total value of that is around €237 million. Most of that is a
contingent liability. We have only paid in €62.6 million, which is around $77
million, as at January. The bank has that capital. It has not required to make
any further calls and is operating on the paid-in capital. We do not anticipate
any further calls or funding requirements as a result of this extension.
The Committee agrees that newly emerging democracies should be supported
to help transform their economies. Acceptance of the proposed amendments are
also consistent with Australia’s G20 commitment to encourage Multilateral
Development Banks to play an enhanced role in addressing global financial
challenges and the Committee supports the amendments proposed here.
Australia’s contribution is relatively modest, but does allow us to have
some influence in this institution. This influence is to be welcomed and
The Committee is, however, concerned about the democratic status of some
of the countries being considered by the Bank for assistance. The Committee
would expect that Australia, the European Union, United States and other
shareholders of the Bank would work to ensure that countries which are granted
assistance are in fact meeting international human rights standards before
assistance is provided.
||The Committee supports the Amendments to the Agreement
Establishing the European Bank for Reconstruction and Development, adopted at
London on 30 September 2011 and recommends that binding treaty
action be taken.