Financing and Procurement of EU Infrastructure
Thomas C. Barrett, Director
European Investment Bank
Irish Centre for European Law
Dublin, 28 June 2012
1
EIB/EC as European Partners to Public and Private sectors
Infrastructure Investment needs of
EUR 1.5-2.0 trillion until 2020
Europe 2020 Strategy
EIB/Commission collaboration on:
smart
Joint financial instruments to leverage public and
private finance
Promoting grant/loan blending
PPP and energy efficiency
Private finance and broadband
The EU2020 Project Bonds initiative
Financial and technical assistance
JASPERS
JESSICA
EPEC
growth
inclusive
sustainable
New sources of finance & smarter
use of public resources
European Investment Bank
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Priorities for the EIB – The EU bank
LENDING
Loans
BLENDING
Combining EIB loans
and EU grants
ADVISING
Strong in-house
expertise
But also:
Guarantees
Equity participation
Leveraging EU and
Member States
budget resources
Technical and
financial advice
Technical assistance
initiatives
Attracting FUNDING for long-term growth
European Investment Bank Group
3
EIB support for EU Policy
EIB selects and prioritises projects in various sectors to maximise its impact on the
real economy in line with EU priorities for growth, employment, cohesion, climate
change and economic sustainability
EIB supports EU strategies, including “Europe 2020”, through direct lending as well
as through technical and financial assistance by undertaking joint initiatives with the
European Commission (and other IFIs)
4 Core Priorities
Innovation and Skills including financing of research and development as well
as the modernisation of educational and vocational training systems
SME and MIDCAP Access to Finance by the provision of debt, venture capital
and guarantee through the banking system and through Funds, both directly
and on a risk sharing basis
Resource Sustainability by supporting the development of clean and
renewable energy; sustainable transport; climate action and energy efficiency
Strategic EU Infrastructure: finance for development of modern broadband
networks (Digital Agenda) as well as transport and energy networks to complete
missing links; improve competitiveness; expand services and reduce
congestion.
4
EIB signatures and disbursements continue to increase as a
countercyclical response to weak investment
5
Overview of EIB lending in Ireland
Total signatures:
• 2009: EUR 1,020m
• 2010: EUR 256m
• 2011: EUR 475m
Sectors and priorities:
• SMEs through banks (Bank of Ireland, Allied Irish Banks, Ulster Bank)
• Knowledge Economy through universities (University College Dublin, Trinity
College Dublin) and the Irish School Programme
• Infrastructures with
- PPP financing of Irish roads and motorways (M7, M50, N6)
- Transmission and distribution networks (ESB, Eirgrid, Bord Gais)
- On-shore wind farms (ESB renewable programme)
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Regulatory and Procurement impact on
Infrastructure Investment
Coherent regulatory,
procurement and legal
rules necessary for
sustained investment
Need to improve sector
performance to meet
economic and social
priorities
Imperative of a
sustainable fiscal
framework
Utilise reliability of
regulatory, procurement
and legal structures to
minimise credit and
institutional risks
Procurement
Systems
SPV’s
Creditworthy
counterparts
Political
support
Legal
framework
Local players
& Competitive
Market
Sound
Pipeline
Regulatory
Framework
European Investment Bank
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Some information from EC public consultations on Concessions
41% of respondents declared existence of entry barriers to the market due to the
fragmented national frameworks on concessions
37,3% of the respondents are aware of concession contracts being awarded without any
publication or transparency
44% of the business community declared being aware of direct awards of concession
contracts
32,4% of the respondents considered that diverging rules and practices regarding
concessions constituted an obstacle to the cross-border award of the contracts
61,6% of the respondents considered that publication of the concessions notice in OJEU
would increase transparency
Lack of legal certainty (with regard to the definition and award of concessions)
Existence of entry barriers (stemming from the disparity of national rules and unlawful
practices of contracting authorities/entities)
Insufficient legal protection of tenderers (not available for services concessioners)
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Conditions for Growth in Infrastructure Productivity
Infrastructure planning:
Effective management of existing infrastructure
Fundamental review to replace incremental planning
Prioritisation to be based on contribution to long term growth
Infrastructure finance:
Greater share of Public sector capital to be deployed as risk based financial
instruments rather than purely as grant finance
Should result in significant change in public / private funding mix and increased
private share
Government role is a variable mix of planner; economic catalyst; regulator and
investor depending on country and project requirements
Markets/ Banks:
Real challenges arise from reduction in longer term bank
financing; reduction in market capacity and bank
deleveraging
Policy challenge:
Achievement of long term strategic growth despite
short and medium term capital constraints
European Investment Bank
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Blending of Budget and non-Budget resources;
 Blending can contribute to investment; improves financial impact;
curtails the risks borne by public authorities; and offset the requirements
on the banking sector
 Need to grow the volume of Innovative Instruments across the EU &
candidate countries.
The investment requirements of the transport; energy climate change and digital
broadband sectors are approximately EUR 2 trillion over the next decade.
Financing needs for major transport infrastructure investments go well beyond
the means of national budgets
PPPs currently finance an important but minority share of EU infrastructure
investments
 Investment needs are so significant that they will require smarter use
of public finance
Innovative and blended financial instruments can expend the role of private
finance and leverage public grant funding of projects
Greater co-financing of infrastructure by EU capital markets, currently a
significantly under-utilised source of finance for large economic infrastructure
required to compensate for the lesser role of banks.
European Investment Bank
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EIB Financing Instruments for infrastructure
EIB has at its disposal an extensive range of instruments to finance public
and private sectors
Public Sector
Financing
EIB lending instrument
for Investment Grade
operations
Project Finance
Direct Loans
Banks
Intermediated Loans
Project
SPV
Project finance with
direct project risk
Structured
Facility
Finance
For low and sub
investment Grade
operations
LGTT
(Mezzanine)
Equity through
Funds
European Investment Bank
Innovative financing: the
A5 Autobahn, Germany
Widening of an existing
motorway between BadenBaden and Offenburg to
six lanes drawing on EIB
senior, mezzanine and
equity finance.
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The European PPP Market in 2011 Global Overview
Key figures:
Value
EUR 17.9 billion in 2011
EUR 18.4 billion in 2010
Deals
84 in 2011
112 in 2010
Average deal value
EUR 213 million in 2011
EUR 163 million in 2010
Large deals (>EUR 500 million)
7 in 2011
10 in 2010
Source: EPEC PPP database
Successively, the UK (2009), Spanish (2010) and French (2011) markets accounted for the largest share of EU
PPP markets in those years.
In value terms, the 2011 market was in line with that of 2010, but it shrunk significantly in terms of the number of
transactions. The EUR 5.4 billion Tours-Bordeaux HSR project was the largest PPP in the Rail sector in recent years.
European Investment Bank
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EIB PPP Financing
EIB lending volume to PPP transactions by year – EUR billion
EIB has provided
substantial policy
support and
organisational
capacity to foster the
development of PPP
markets and
investments since the
1990s.
Population = 535 000
(266 000 premises
incl. 25 000 businesses)
EIB lending has been a
key source of medium
and long term debt for
the European PPP
market since 2007
Source: EPEC PPP database
EIB Annual signatures averaged above EUR 2.5 billion since 2000, reaching EUR 3.8 billion in 2010 with EUR 2.6
billion in the transport sector. In 2011 signatures reached EUR 3.6 billion of which EUR 2.7 billion in the transport sector.
The Bank is now one of the major funders of projects in Europe with a portfolio of about 140 projects and investment of
around EUR 30 billion.
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Growth & jobs:
Building Europe’s infrastructure
• EUR 9bn for EU transport networks
• Favouring rail over roads
• Almost a third of financing achieved through
private public partnerships - PPPs
European Investment Bank Group
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Track record of Structured Credit Enhancement …….
through EIB/EC Blended Loan Guarantee for TEN-T (LGTT)
List of Transactions
IP4 Amarante – Vila Real (PT)
C-25 Eix Transversal (ES)
-
First LGTT to close (2008)
EUR 20 million LGTT
-
One of few demand-risk PPPs in
Spain
-
30-year DBFO
-
EUR 70 million LGTT
Autobahn A8 (DE)
- Both shortlisted bidders submitted
offers with LGTT
Baixo – Alentejo (PT)
- 344 km motorway
-
EUR 25 million LGTT
30-year DBFO
-
EUR 60 million LGTT
LGV SEA (FR)
Autobahn A5 (DE)
-
Range of EIB instruments applied
EUR 25 million
-
First rail project to include LGTT
Largest HSR PPP in France
-
Successful closing in the middle of the
financial crisis
-
EUR 200 million LGTT, largest to date
London Gateway (UK)
Total investments of more than
-
First port project to include LGTT
LGTT protects container throughput
EUR 12bn enhanced by LGTT
-
GBP 100 million LGTT
European Investment Bank
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EC/EIB;
New Project Bond Initiative
Objective
How?
Result
To increase the debt
financing availability for
large scale infrastructure
projects
EU/EIB joint support to
project companies
issuing bonds and
raising loans to finance
infrastructure projects
More private sector
financing attracted from
the capital markets to
finance key infrastructure
Target Sectors
Transport
Energy
Broadband
Form of
support
Funded/unfunded
subordinated credit
enhancement by EIB to
ensure investment
grade rating of the
senior debt
European Investment Bank
Potential
investors
Long-term institutional
investors and
financial institutions.
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EIB Equity Funds
The EIB invests in, advises and manages equity funds to provide a full range of
financial products in support of European priority objectives
Infrastructure and Environmental Funds: Within the EU and in the
Mediterranean Partner Countries (FEMIP) the Bank is an active investor in
infrastructure and environmental equity and debt funds. It supports both traditional
and innovative fund concepts.
20 Funds with total equity of Eur 3.6 billion.
Carbon Funds: The EIB is a major sponsor of carbon funds with a view to extend
market capacity and complement rather than substitute for private sector
participants and intermediaries.
5 Funds with total equity of Eur 500 million
JESSICA Urban Funds (Joint European Support for Sustainable Investment
in City Areas): The EC/EIB/CEB is active in the promotion of urban development
funds as part of the JESSICA initiative.
15 Funds with total equity of Eur 2 billion
European Investment Bank
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Climate Action: EIB Equity and Debt
Favouring renewables and energy efficiency
• Financing the installation of over 4000 mega watts
of wind and solar plants, to power over 2 million
households
• EUR 7bn for renewables and energy efficiency
European Investment Bank Group
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Examples: London Green Fund (Holding Fund)
London
Development
Agency
London Waste &
Recycling Board
£18m
The London Green Fund (a
JESSICA Holding Fund)
established in late 2009 to invest
in carbon reduction projects in
line with the Climate Change
component of the London Plan
ERDF
£32m
£50m
London Green Fund
£100m*
Managed by EIB
£35
m
Private
finance
Min
£35m
High risk
Waste Urban
Development Fund
Equity type
investment
Urban Projects
£50m
Energy Efficiency
Urban Development
Fund
Loan type
investment
Urban Projects
Private
finance
Min £50m
Low risk
* The remaining £15m may, as an option, be invested in one or both UDFs in due course
Focused on energy efficiency,
waste and decentralised energy
as the “3 biggest carbon
reduction opportunities for
London”
Governed by representatives
from the Greater London
Authority, the Environmental
Agency and the London Waste
and Recycling Board.
Aiming to deliver outputs/impacts on job creation, tons of
carbon saved, and minimum energy usage savings
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EIB Advisory programmes in partnership with EC and EDFIs
Enhancing infrastructure investment in Europe through technical and financial advisory
programmes
EPEC - European PPP Expertise Centre
Strengthen the ability of the public sector to engage in Public Private
Partnership (PPP) transactions by building up Members organisational
capacity and sharing experience and expertise, analysis and good practice
JESSICA – Joint European Support for Sustainable Investment in City Areas
JESSICA
Advisory services on the structuring and management of Jessica Funds, an
Innovative financing instrument for integrated urban development, launched by
EU Commission (DG Regio), EIB and CEB.
Higher productivity of EU / public funds – uses Financial Leverage Effect and
Expertise
JASPERS - Joint Assistance to Support Projects in European Regions
Technical assistance between DG REGIO, EIB, EBRD, and KfW to prepare
major projects in cohesion countries
Increases the capacity of the beneficiary countries to abort EU funding in
support of priority investment
09/11/2011
European Investment Bank
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Contacts at EIB
Simon Barnes
Western Europe
Director
barnes@eib.org
Chris Blades
EPEC
Head of Division
blades@eib.org
Jacobs Peter
Western Europe
Head of Division Project Finance
p.jacobs@eib.org
Gianni Carbonaro
Municipal and Regional
Head of Unit
G.Carbonaro@eib.org
Bernard Gordon
Western Europe
Head of Division – Public sector
gordon@eib.org
Stefan Kerpen
Technical Assistance Management
Head of Unit
S.Kerpen@eib.org
http://www.eib.org
European Investment Bank
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