Carpeting day for extravagant bank: Plans to spend another pounds 100m on administration this year may be revised, writes Richard Thomson

THE controversy over the costs of the European Bank for Reconstruction and Development looks certain to continue this week, when the shareholder countries question the bank over why it has no plans to rein back its spending this year.

Both the industrialised Western countries and eastern European countries were outraged at revelations last week that the bank had spent pounds 200m in its first two years of operation. But the bank has budgeted to spend another pounds 100m on administrative and staff costs this year - slightly more than it spent in 1992. This makes a nonsense of its claim that its expenses in the first two years were exceptionally high because of unavoidable start-up costs - such as buying computers and fitting out offices. Its costs will continue to run at the same level for the foreseeable future.

Jacques Attali, the president and founder of the bank, is meeting Theo Waigel, the German finance minister and chairman of the bank's board of governors, on Tuesday to discuss the EBRD's costs. Meanwhile, two House of Commons select committees - Public Accounts, and Treasury and Civil Service - are planning to investigate how a pounds 40m British Government grant to help set up the bank in London has been spent. The continued high spending planned for 1993 will do nothing to improve the bank's public image, which took a battering after last week's damaging revelations.

'It has certainly set us back seriously in the public's perception,' said Ander Ljungh, a vice-president of the bank. He pointed out, however, that this year's spending had been approved by the 23 directors of the bank who represent the shareholder countries and whose salaries are paid by the EBRD.

It also emerges that the bank's administrative expenses are substantially higher than comparable multinational financial institutions such as the European Investment Bank - the central bank for European central banks - which is based in Luxembourg.

Last year, the EBRD - also known as the European Bank - spent Ecu50.7m ( pounds 40m) on administrative costs, excluding government grants. The EIB, however, spent only Ecu17m - more than pounds 25m less.

Observers are at a loss to explain how the European Bank's costs could be so much higher - particularly when it is a smaller organisation than the long-established EIB.

The EBRD's staff costs, however, were somewhat lower, partly because of the lower cost of living in London compared to Luxembourg. The bank spent Ecu45.4m on its 522 personnel, or Ecu86,000 per member of staff. This compares with the Ecu77m spent by the EIB on a personnel of 751 - Ecu103,000 per staff member.

Last week's furore over the EBRD's costs focused on items such as the pounds 750,000 spent on changing the colour of the marble in the EBRD's offices in Broadgate, pounds 500,000 on chartering private aircraft, and pounds 52,000 on a staff Christmas party. The bank also spent pounds 55m settling into Broadgate after moving from other offices that it had occupied for only 20 months.

The EBRD vigorously rejected accusations of profligacy last week. It said that it had changed some of its rules and now required all staff except the president and vice-president to fly economy class. Mr Attali insisted that he could not do his job without chartering jets.

The EBRD will announce a small loss for 1992, when it reports to its annual meeting in eight days. After Ecu10m in bad debt provisions, the bank made a loss of Ecu6m. The provisions include two specific investments, in Hungary and Poland, and a general reserve against other possible losses.

The bank pointed out last week that although it had so far only lent about Ecu200m, it had made commitments of Ecu2bn. Loan money was paid out only as it was needed on any particular project, so the amounts actually disbursed would inevitably rise more slowly than the commitments made to new projects.

The EBRD, which makes 60 per cent of its loans to private sector companies and projects, claims to be the largest single investor in the eastern European private sector. Its loans are usually made in partnership with other Western investors.

It also provides merchant banking advice to east European businesses and governments, while the rest of its lending goes to public sector infrastructure projects.

In addition, it manages about Ecu70m of the European Community's pounds 1bn a year aid fund for eastern Europe, known as Phare, as well as aid finance provided by the governments of several Western countries.

Bunhill, page 32

(Photographs omitted)