Examination of witnesses (Questions 20
WEDNESDAY 13 MAY 1998
DERICHS and MR
20. Does it worry you, this trend of large
companies always appearing to win? This is really the point Lord
Ponsonby was asking. Is there any attempt made to bring new people
in? How do you bring new people in?
(Mr King) Absolutely. It does worry me slightly
but not a great deal. We do make an effort to bring in small companies.
In fact I have just gone through an evaluation process recently
and there are some fairly small companies bidding.
21. If I can add a comment to that, having
come from a small and medium sized business background myself
and having had from time to time consultants, I find the language
was much better if I was working with a company which was itself
a medium sized company rather than a very large company, who I
found very often did not understand how difficult it was for my
company because we did not have the resources. I am thinking particularly
of a comment you made earlier when you said that there are some
people who would rather pay the fines than invest in putting the
work right. I think that the whole idea of this is to try and
encourage people and I think that possibly that element of encouragementand
this is a personal comment from mecertainly would not come
from such companies like Coopers & Lybrand. If I was a small
company in a country that found what it had been doing for years
was not acceptable, I would need a little bit of coaxing and encouragement
to want to bring my standards up and to feel that I could even,
that I could even make those first steps and that it was not that
the world was going to be run by huge companies doing huge things
all the time. That is merely a comment and I apologise for taking
the Committee's time.
(Mr King) It is worth mentioning that quite a
lot of consultancy work for the EBRD in terms of environment and
due diligence is done by local experts. There are a number of
firms emerging from the region, particularly in the PHARE region,
which have proved to be of a very high standard, delivering very
reliable work, and we are using them in the TACIS region as well.
Lord Hughes of Woodside
22. It has been suggested that in the awarding
of contracts there is a sort of proportionality in relation to
countries, that if one country is paying 50 per cent money into
the programme, it can expect to get 50 per cent of the contracts,
and if it pays 10 per cent, it can expect to get 10 per cent of
the contracts. Is that so?
(Ms Derichs) No, that is definitely not the case.
When we are evaluating expressions of interest in order to come
to a short list, we will look at the technical quality of the
expression of interest submitted, and the CVs submitted, and the
background of the company, but we will definitely not look into
any issue of the contribution from a particular country to TC
funds. That is not a criteria at all in establishing the short
23. We have been told that organisations
who have carried out feasibility studies and provided technical
assistance under the TACIS programme have been precluded from
submitting tenders for subsequent contracts financed by yourselves
and other international financial institutions, because they are
considered to have the privilege of prior information. Is this
true? If so, how does the Bank satisfy itself who is the most
suitable western commercial partner for a particular venture?
(Ms Derichs) If I understand your question correctly,
yes, it is true, but let me elaborate on that and tell you a little
of what I think you are meaning with your question. We have, for
instance, a particular framework contract for work which has already
been used several times for small, short-term assignments. One
of these assignments could be, for instance, preparation of terms
of reference for a feasibility study. The company that made available
the experts to prepare the terms of reference for this feasibility
study cannot bid for that feasibility study because they have
prior knowledge of what a project is going to be about, they would
have much more time to prepare their offer and also it could be
detrimental to the client if this was allowed because of the fact
that the terms of reference could be biased to that particular
company. So that is indeed the case.
24. I think what I was thinking of is a
stage further, somebody who has actually carried out a feasibility
study is then not allowed to be short listed for the contract
which hopefully will come up?
(Ms Derichs) Then we are talking about the next
stage of procurement of works and goods?
(Ms Derichs) Yes, then it is true as well. I can
read you a short paragraph from the Procurement Policies and Rules
of the Bank concerning this issue which states, "Where a
firm, its affiliates or parent company, in addition to consulting,
also has the capability to manufacture or supply goods or construct
works, that firm, its affiliates or parent company normally cannot
be a supplier of goods or works on a project for which it provided
26. So it is true?
(Ms Derichs) Because otherwise the consulting
firm could, for instance, prepare in their consultancy assignment
the technical specifications for the project in such a way that
only their company could ultimately construct that particular
project or provide the goods which are 100 per cent in compliance
with the specifications which the same company has prepared. So
there is a conflict of interest there and therefore it is not
Chairman: It is a
useful safeguard, is it not.
27. Do you think TACIS is sufficiently demand-led?
How does one ensure advice and assistance offered is what the
recipient countries actually want?
(Ms Derichs) It is actually not for me representing
EBRD to comment whether the TACIS programme is actually demand-driven.
When I look at how we are preparing our TC programme, based on
investments in our pipeline for which there is a demand coming
from the recipient countries, and linking technical co-operation
activities to that investment, then the TACIS Bangkok facility
programme, as we call it, from EBRD is demand-driven. Whether
the country programmes from TACIS are demand-driven is not for
me to comment on.
Lord Hughes of Woodside
28. You have no views on that nor on the
fact that it has been argued the widespread use of consultants
acting for the Commission or international financial institutions
is difficult to reconcile with the aims of TACIS as a "people-to-people"
programme? It is not directly involved, no work is happening.
Do you have any impression about either demand-led or people-to-people?
(Ms Derichs) About the people-to-people programme,
perhaps a good example here would be our financial intermediary
training programme, which is actually a particular people-to-people
programme because we are trying to train the people in the recipient
institutions in our financial intermediaries, and we are training
the training institutes within these financial intermediary institutions
and they can then train their local people again. So that is a
programme which we think is for the benefit of the people of that
recipient country in a way.
(Mr King) In terms of technical assistance at
the due diligence stage of project feasibility, the Bank has public
information and consultation policies which would apply to any
29. Have you any comments on the relationship
between UK and other European partners and their partners in the
recipient countries? What is the relationship?
(Ms Derichs) In the recipient countries we have
of course our EBRD offices and our EBRD representative who works
together with other countries who have representatives there as
well. Depending on the sector and depending on the country, I
know that there are quite a number of people who work at an operational
level together coming from the Commission, coming from the UK
or other EU delegations in that recipient country, and with the
EBRD representative there as well. On the establishment of the
programmes financed by the UK on a bilateral basis, I have no
knowledge of how this is being done. I do know that we have a
trust fund within the EBRD with the UK Government, also for the
TACIS region, and that we discuss in that aspect priorities et
cetera with the UK Government.
30. Can you tell me a bit more about the
reference in your paper to a "corporate development partner"?
What exactly is a "corporate development partner" and
how does it work?
(Ms Derichs) I think that we mentioned this in
the context of the Moldova Chisinau Water Services Project as
well as of the Ukraine Zaporozhzhia project. These are in fact
municipal infrastructure projects, they are with a sovereign guarantee
but we would like to bring in certain expertise from a western
private company like a private water utility for instance, to
work together with the recipient water utility in Moldova in Chisinau
or in the Ukraine, to have a corporate development programme undertaken
between the western utility and the utility in the recipient country
in order to have a transfer of know how and introduction of western
management culture. Certain people working for a western utility
will be financed from TC funds to be stationed in that recipient
country for a while with their "brother" or "sister"
utility in order to train them in western methods and thinking
and setting up procedures, et cetera. That is what we call a corporate
development partner. They are not co-investing, they are simply
financed from technical assistance funds, procured through open
tendering, so utilities in the west can express their interest
in order to have a counterpart relationship with an institution
in the recipient country.
31. I think you may be reluctant to comment
on the Commission's procedures for monitoring TACIS, is that right?
(Ms Derichs) Yes, I think that is also not for
us to comment on. We are audited, as I said, every year by the
Commission and by the Court of Auditors, but how they themselves
are monitoring their own programmes and their own projects is
not something for EBRD to be involved with. TACIS are following
up on EBRD projects though. We undertake our own evaluations.
Actually the financial intermediary framework contracts are at
present under evaluation by TACIS as well, to see if the quality
of the programme is indeed in relation to the expectations that
TACIS have of our utilisation of their funds, but these projects
are monitored by EBRD. How TACIS monitor their own programmes,
it is very difficult for me to have any statement.
Lord Ponsonby of Shulbrede
32. About the follow-up to TACIS projects,
to what extent do you feel you can evaluate and measure the success
of follow-on projects. I wonder if you can give examples of projects
which have developed as a result of the original TACIS project
work? Could you also talk about other financing arrangements,
particularly whether you have looked at insurance arrangements
rather like the JFC has done as well as trying to encourage private
investment? Can you provide essentially supernational insurance
for private investors who want to go into individual projects?
(Mr King) With regard to the follow-up of projects
and whether there have been any subsequent activities, a good
example is the TACIS environmental training programme for the
financial institutions because there we are seeing the banking
staff being trained in environmental due diligence and then subsequently
using that training to make sound decisions in terms of the environmental
impact of the loans or investments they make. Therefore, we have
seen the environmental procedures working, so after the Bank has
been trained, virtually all of their activities then are follow-on
activities in the sense of the training programme. The Bank monitors
obviously on a regular basis and we can judge how well they are
implementing the environmental procedures.
33. Presumably some projects go on from
year to year, do they not, so to that extent you must be noticing
whether they are successful in the first place for you to provide
further funding for the same sort of project?
(Ms Derichs) Well, as far as this training is
concerned and as far as the success of the training is concerned
and the ongoing continuity of the programmes, maybe it is a bit
of a strange benchmark to use: quite a number of people have been
trained by EBRD in these financial intermediaries and they have
been upgraded to such a level that they are very wanted people
in the market. They are leaving these financial intermediary institutions
and they are setting up their own businesses or they are going
to give training themselves. So in that way we can continue our
training with new people very often. It is also an indicator of
the success that these people who have been trained and have acquired
the knowledge of EBRD's procedures and having been acquainted
with the environmental awareness are then themselves creating
environmental awareness within the region where they work. I think
that is indirectly definitely a success for the programme as well,
even though we have to start training new people within that same
Lord Ponsonby of Shulbrede
34. Another criterion for measuring success
is the amount of private capital that can be invested into follow-on
projects. I was wondering whether you have measured that. I was
also wondering whether you have any insurance arrangements to
try and encourage private investors who may be reluctant to invest
in TACIS countries.
(Ms Derichs) Well, it is indeed true that investors
are still quite reluctant to invest in TACIS countries. We see
that the priority of private investors, especially where it concerns
environmental investments, is at the moment very much with the
accession countries because of the meeting of the acquis communautaire
and the huge potential there for investments which are much
less risky than those in the TACIS countries. When we look at
our portfolio in the TACIS countries as far as the environmental
investments are concerned, I would say that at the moment, although
I would not like to be quoted on these figures precisely, we perceive
that about 80 per cent is still public sector, state sector, and
only 20 per cent private sector. If you want to get definite figures
on that, we could come back to you, but that already indicates
that even for EBRD it is very, very difficult to work outside
sovereign guarantee. We are starting up now on projects with municipal
guarantees which are still public sector operations, but these
are not considered really state sector operations because we do
not get the sovereign guarantee from the governments, but at the
municipal level. We are trying to do something about the establishment
of the credit-worthiness of municipalities, for instance, in St
Petersburg, and if we can then indeed upgrade the credit-worthiness
of such a city, that could attract potential private investors
in projects in that city, but I would say that for private capital
to be attracted to TACIS countries, we have still some way to
(Mr King) As far as insurance is concerned, EBRD
has projects which finance insurance companies. I do not think
we are the best people to discuss financing mechanisms, not being
bankers ourselves, but I can tell you that the Bank has a number
of innovative financing mechanisms, not just simple credit arrangements,
and there are guarantee facilities available of course. We can
provide you with additional information, if you wish.
35. We would be most grateful, and particularly
on the balance between public and private sector funding which
would be very useful indeed. I am enormously grateful to you.
I have learnt a great deal this morning, so thank you very much
indeed, and thank you for your helpful paper as well which ended
on an optimistic note. Do you feel slightly optimistic about TACIS
(Ms Derichs) Well, I think definitely that in
the medium term we will see an increase in demand in TACIS countries
and also a higher awareness and a bigger absorption capacity really
to make effective use and efficient use of resources that will
become available, either for investment in hopefully co-financing
agreements with TACIS or for technical co-operation and in that
aspect obviously they are lacking some years behind the PHARE
countries, but we definitely think that there is a future there.
36. We are most grateful to you. Thank you
very much indeed for your help.
(Mr King) We have the Bank's environment and procedures
here and the latest copy of the Bank's environmental bulletin
which we can leave with you.
2 The complete unabbreviated text can be found in EBRD's
publication: Procurement Policies and Rules, February 1998,
page 12, Eligibility to submit tenders, section 3.28. Back