Draft European Bank for Reconstruction and Development (Further Payments to Capital Stock) Order 2024
(1 week, 5 days ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
I beg to move,
That the Committee has considered the draft European Bank for Reconstruction and Development (Further Payments to Capital Stock) Order 2024.
It is a pleasure to serve under your chairmanship, Sir Roger.
Allow me briefly to take the Committee through the background and purpose of the draft order. The European Bank for Reconstruction and Development is a multilateral development bank headquartered in London. It provides high-quality project financing to support economic and private sector development in 40 different countries. The UK is the bank’s joint second-largest shareholder and hosts the EBRD’s headquarters in Canary Wharf, London.
The UK engages with the EBRD on several UK foreign, development and economic policy priorities across its countries of operation, including assistance for Ukraine, supporting the transition to a green, low-carbon economy, and promoting equality of opportunity for women, young people and other underserved communities. The EBRD has been a long-standing partner to Ukraine. Over the past 30 years, it has been the largest institutional investor in Ukraine, with more than €20 billion invested in almost 600 projects. The bank provides technical assistance, lending, guarantees and grants to support policy reform and financial assistance in key sectors including energy, infrastructure and agribusiness. The UK welcomes the EBRD’s distinctive contribution to supporting Ukraine’s resilience and recovery in the face of Russia’s illegal invasion. The EBRD’s support since 2022 has amounted to over €4.5 billion for essential priorities, including supporting Ukraine’s critical national infrastructure against deliberate and repeated attacks by Russian forces.
The UK and other shareholders have agreed that the EBRD should continue its operations to support Ukraine, and that this support should be long-term and predictable. Given the exceptional circumstances in Ukraine and the EBRD’s commitment to sound banking principles, continued financial support was not possible without additional shareholder support. Last year, shareholders concluded that a paid-in capital increase is the most effective, efficient and broad-based means of enabling the EBRD to continue to finance Ukraine. Accordingly, in December 2023, the UK and other shareholders agreed to increase the EBRD’s paid-in capital by €4 billion.
The draft order is being made to enable the Government to participate in the capital increase in proportion to its current shareholding, with a contribution of €343.6 million paid in five equal annual instalments between 30 April next year and 30 April 2029. As determined by the OECD’s Development Assistance Committee, 71% of that contribution will be classified as official development assistance. The capital increase enables the EBRD to continue to support Ukraine’s resilience and recovery during wartime and in reconstruction through the provision of high-quality project financing, while securing the EBRD’s financial standing and its ability to maintain support to its other countries of operation.
With the additional capital, the EBRD plans to provide a sustained level of annual investment to Ukraine of about €1.5 billion during wartime, increasing to €3 billion annually once reconstruction begins. Over the course of a decade, that will result in tens of billions of euros of financing for Ukraine as the EBRD leverages the paid-in capital on the financial markets. I hope the Committee will agree that this complements the UK’s military and fiscal support for Ukraine and enables the EBRD to continue providing financing in support of the sustainable development goals across its countries of operation.
This is a topic that all parts of the House have been united on in support of Ukraine. I therefore recommend the draft order to the Committee.
Gareth Davies (Grantham and Bourne) (Con)
It is a pleasure to serve under your chairmanship as always, Sir Roger.
It is worth remembering that the European Bank for Reconstruction and Development was founded in 1991 to support the transition to market-oriented economies in central and eastern Europe following the collapse of socialist and communist regimes. Since then, the bank has invested more than €200 billion in more than 7,000 projects across three continents.
As a founding member of the EBRD, the UK is a generous contributor to the bank’s work. It was one of the first donors to contribute to the bank’s Ukraine stabilisation and sustainable growth multi-donor account and, in October 2023, it signed a statement of intent with the bank to help UK companies do business in Ukraine. The draft order enables the Government to make a payment of €343.6 million to the EBRD for the purchase of additional capital stock. As the Minister rightly said, this follows a decision by the EBRD’s board of governors in December 2023 to increase the bank’s capital by €4 billion.
The Opposition fully support the Government’s decision to purchase additional stock in the EBRD. Alongside ensuring that the UK maintains its stake and voting power in the EBRD, the capital increase is vital to sustaining the ongoing work in Ukraine and ensuring the bank’s ability to meet the needs of other countries in its portfolio. However, given the size of the UK’s investment, it is right that the Opposition should seek clarity on three specific, simple points, which I hope will be straightforward for the Government.
First, can the Minister tell us whether other member countries of the EBRD are increasing, decreasing or maintaining their stock shares in the bank? Secondly, as she mentioned, the EBRD has green objectives, so is support for Ukraine subject to the EBRD’s target for at least half of its business volume to be green and does that allow for Ukraine’s most urgent funding needs to be prioritised? Finally, does she believe that this capital increase will be sufficient for the EBRD to fulfil its overall mandate, or should we expect further capital requests in the future? We support the draft order, but we would be grateful for clarification of those points.
Tulip Siddiq
It is always a pleasure to see the hon. Member for Grantham and Bourne in his place. I thank him for his support for the measure, and he is right to ask those questions.
The other shareholders of the bank have confirmed their intention to participate in the capital increases. That includes other members of the G7. I am happy to write to the hon. Member with specifics if that would be helpful.
The capital increase will ensure that the EBRD can increase lending to support Ukraine’s resilience, while maintaining activity in all its countries of operation; it is not dependent on other factors. In 2023, the EBRD’s total investment in Ukraine was €2.1 billion, compared with a total investment of €13.1 billion across all countries of operation.
The hon. Member also asked about climate change. The EBRD’s aim is for more than 50% of its total investment in 2025 to be towards green projects, reducing net annual greenhouse gas emissions by at least 25 million tonnes. Since 2006, the EBRD has invested €49 billion in more than 2,600 green projects, which are expected to reduce carbon emissions by 124 million tonnes yearly. I thank the hon. Member for his constructive comments and his questions.
The draft order will enable the UK to participate in a capital increase for the EBRD, which will improve the bank’s financial capacity to increase lending to support Ukraine’s resilience while maintaining activity in all countries of operation. I am happy to write to the hon. Member on the point about the G7 countries. I hope the Committee will join me in supporting the draft order.
Question put and agreed to.