Delegated Authority

Background

This study was requested by the Board Effectiveness and Efficiency Group following implementation of a pilot which increased EBRD’s delegated authority threshold from €10 million to €25 million. On the completion of this pilot, the increased threshold became the Bank’s permanent policy and EvD was asked to analyse the changes in the Bank’s approvals structure, quality of information provided to the Board on sub-projects approved by delegation, as well as quality of reporting on framework and sub-project performance.

Main findings

Portfolio characteristics: The raised threshold pushed the number of delegated approvals to 54 per cent of total approvals in 2017 from 44 per cent in 2016. Volume almost doubled to 15 per cent. Financial Institutions (28 per cent), Manufacturing & Services (23 per cent) and Municipal and Environmental Infrastructure sectors (15 per cent) accounted for the largest share of the volume approved under the expanded threshold. Only 3 of 111 projects were equity transactions, accounting for 3.5 per cent of the total volume. Larger countries, such as Turkey, Ukraine and selected EU and SEMED countries were the main beneficiaries of the expanded threshold. Early transition countries and Western Balkans continued to dominate the number of all projects approved by delegated authority (55 per cent).

Time savings: Delegation reduces approval time by 2.5 weeks on average, and saves Management an estimated 65 staff-hours and Board 75 staff-hours per project. In terms of the total project life-cycle, Board approval is a minor element adding only 7-10 per cent to the total appraisal and approval time. Projects where speed of approval was key, such as investments into bonds or involving competitive bidding, accounted for 16 per cent of projects approved under the expanded threshold. The downside is limited opportunities for knowledge transfer and learning, with fewer internal discussions.

Quality of project design and reporting: The quality of project approval documents under Delegated Authority was largely in line with that of Board Reports, but some suffered from unambitious transition benchmarks, weak additionality justification or vague descriptions of the use of funds. Older documents had no transition impact or additionality sections; transition impact sections were submitted separately and difficult to locate. Selected frameworks had pre-determined transition impact ratings per country (according to country-specific transition challenges), providing an incentive to direct more financing to countries with the widest gaps, but less inducement to set more ambitious transition benchmarks. Delegated Approval Reporting Sheets were a useful tool for informing the Board about delegated approvals, but some contained information gaps. The Bank lacks a system for informing the Board about material changes to projects approved by delegation. Bank online information systems generate useful summary lists of delegated approvals, but the systems are not integrated and are not presented in a common currency, preventing group analysis. There are useful annual reports on frameworks, but these have room for improvement. 

Evaluation results: EvD did not find significant differences in the performance of projects approved under delegated authority relative to existing norms and trends.

Other issues: EBRD delegation is by far the highest among all IFIs; the International Finance Corporation is second with 21 per cent. The increase of the delegated threshold had no impact on the frequency of projects from smaller countries of operation being presented at the Board, as most such projects were below €10 million. However, it substantially decreased the frequency of Board discussions on projects from selected medium-sized countries, such as Belarus, Jordan or Morocco. Most Board 24respondents to EvD’s survey were broadly satisfied with the Bank’s current delegated authority approval system, but indicated room for improvement (e.g. better Delegated Approval Reporting Sheets, longer time for host country no-objections, improved ‘user-friendliness’ of online information systems).