European Week of Regions and Cities Open Days T.C. Barrett Director Brussels, 10th October 2006.

European Week of Regions and CitiesOpen Days

T.C. BarrettDirector

Brussels, 10th October 2006

2

Table of Contents

1. Equity Funds

2.

3.

EPEC

Environmental Financing and Carbon Funds

3

Equity Portfolio Summary

• Active development commenced early 2005

• Signed transactions:– EECF General Infra €50m

– Dexia SEIEF PPP €25m

– DIF PPP €15m

– Barclays EIF2 PPP €38m

• Approved transactions:– SPIMI Fondo Italia PPP €20m

– ECEF Clean energy €25m

4

EIB and infrastructure funds- Rationale for future development

• EIB‘s interest is in the development of EU infrastructure on an economically viable basis.– Developing financial capacity is critical– Infrastructure funds broaden financial resources– Third party equity has significant commonality of interest with the public

sector Sole interest is the performance of the underlying project Minimise risk and consequence of underperformance Negotiate appropriate contractual terms with contractors and financiers Beneficial in the overall development of PPP / renewable energy markets

• UK fund market more advanced than continental Europe

5

EIB as an infrastructure fund investor

• Logical extension of EIB‘s traditional role as a senior lender• Complement to the traditional role, which will continue to develop• Purpose threefold:

– Develop market capacity for PPP / renewable energy projects

– Catalytic effect in attracting other long-term investors into the asset class

– Transfer of best practice between markets• Open in principle to all fund models:

– Existing fund managers developing their activities– New funds sponsored by major financial institutions– New funds developed by independent teams So long as the general requirements are met and the fund is well placed

to meet its objectives in its chosen market

6

Table of Contents

Equity Funds

2.

3.

EPEC


1.

7

Europe’s PPP challenge

• PPPs have a key role in modernising Europe’s infrastructure

• Increasing evidence of PPPs track record on– effectiveness and – efficiency

• But weakness of public sector organisational capacity still constraining further developments

8

Wide recognition of the needto increase public sector expertise

• Van Miert High Level Group on TENs Transport (2004)• Dutch Ministry of Finance Report on Co-financing and Reform of TENs

(2004)• Trans European Transport Network Report on Financing of TENs (2004)• DG Market Report on PPP Green Paper Consultation (2005)• European Economic & Social Committee Report on EIB’s Financing of

PPPs (2005)• EBRD and UNECE proposals on financing concessions in Transition

Countries and capacity building• Developing PPPs in New Europe (PriceWaterhouseCoopers)

9

The analysis

• Low level of public sector experience, knowledge and organisational resources are barriers to development and implementation of PPP programmes in various countries

• Many common issues arise across different national programmes• PPP expertise is not shared effectively between public authorities in the

Member States• ‘Reinventing the wheel’ can lead to poor value PPP transactions or

failure of programmes• Some public authorities not realising the full, or expected, benefits of

PPP programmes• Implications for the private sector of public sector weaknesses include

excess bid costs and delay as well as dissatisfied public sector clients and negative image amongst the public

10

Recent High Level Recommendations

• “Importance of ‘initiatives to educate .. public authorities” (Economic and Social Committee)

• “Many contributors favour exchange of best practice and need to learn from bad experiences” (DG Market)

• “General consensus among national PPP Task Forces that infrastructure development could be further improved if the public sector had more effective means of sharing experiences in PPP policy, programme development and project implementation” (European Commission)

• “The Commission should set up a cross-EU group, whose role would include .. acting as a centre of knowledge in PPPs for the EU .. coordinating requests for information and assistance” (PriceWaterhouseCoopers)

11

How would EPEC work• Sharing of knowledge and expertise on policy development and

programmes through review of key issues by EPEC Secretariat in response to member requests

• Provision of information resources, network facilitation and communication channel between public sector institutions

• Preparation of review papers on EU experience and issues; meeting / discussion facilitation. Both multilateral and bilateral as required

• Preparation of case studies, generic guidance, review and dissemination of tried and tested PPP structures

• Provide preparation support for major flagship or demonstrator projects in selected countries

• Strategic programme support according to demand

• Extensive use of web based dissemination tools

12

EPEC would:

• Seek to help the public sector to be a better informed client in dealing with private partners and advisors

• Be demand driven

• Be a joint Member State / Commission / EIB initiative

• Provide support on PPPs for the JASPERS Programme

• Be established with a phased time mandate, subject to extension

• Be funded on a multi-year basis by EU and multi-lateral institutions

13

EPEC would not:

• Compete with private sector

• Replicate advisory services (financial, technical, legal) provided by private sector on individual projects

• Compete for advisory mandates

• Require a large, dedicated infrastructure

14

Table of Contents

1. Equity Funds

2.

3.

EPEC


15

Carbon Funds

• Multilateral Carbon Credit Fund A climate change initiative from EBRD and EIB• IBRD – Carbon Fund for Europe - Ops B• KfW – Value added fund for SMEs - AGI• Multilateral – > 2012 - AGI

16

Objectives of the MCCF

• Procure quality carbon credits from EBRD/EIB financed projects in the 27 Countries in Transition

• Increase investment flows in low-carbon and clean technologies• Promote carbon based PF structures• Support the development of emission trading • Encourage private sector involvement• Promote dissemination of best practices

17

MCCF Countries in Transition and applicable emissions trading regimes

18

Key features of MCCF

• Co-sponsored and managed by EBRD and EIB• Open to:

– shareholders of EBRD or EIB,

– and also private companies and other public entities (compliance/voluntary buyers)

• Aims to buy credits under JI, CDM, and ETS– from EBRD- and/or EIB- funded projects

• Can also facilitate Green Investment Schemes

19

MCCF Management

• MCCF secretariat - light:– Develops legal framework / structure

– Interface with Participants, Carbon Managers, Project Companies, and Governments

– Co-ordinates with EBRD and EIB via a high-level Steering Committee

– Two staff - one EBRD, one EIB – apply soon.

• Carbon Managers (‘Wranglers’) – 3 private firms:– Regionally specialised, performance paid

– Individual project carbon due diligence

– Completion of baseline study

– Structure and negotiation of individual project ERPAs

20

The “Sovereign Window”

• Open to all shareholders of EBRD or EIB• Cooperation Fund between EBRD and each Participant

– Funds channelled through the Cooperation Fund

– EBRD purchases credits from Carbon Managers for the account of Sovereign Participants (via Master Off-take ERPA)

• Launched when at least three countries have signed a contribution agreement for a minimum aggregate €15 million

• Currently expecting €74million– one sovereign signature Luxembourg €10m

– Four sovereign pledges €64 million (Belgium, Finland, Spain, Sweden)

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The “Private Window”

• Parallel to the Sovereign Window• Joint Governance with Sovereign Participants• MCCF will set further participation criteria:

– Compliance buyers,

– minimum rating/financial strength and integrity

• Different participation mechanism, with no EBRD intermediation:– Direct off-take of Carbon Credits from Carbon Managers

– Direct payments for Carbon Credits to Carbon Managers

• Currently EOIs for €110 million – 8 companies, 4 countries

22

Acceptance of Commitments

• Total signatures/EOI €184m, plus €50m Green AAUs• Target total commitments - €150m (excluding Green AAUs)• Target minimum commitments under each Window - €50m• Reduced demand under one Window can be transferred to the other

Window• Maximum individual commitment - €35m• Minimum individual commitment - €2m (Sovereign) and €5m (Private)• All commitments accepted on a first come first served basis • Non-sovereigns subject to due diligence

23

How EBRD / EIB add value

• Unique knowledge of Countries in Transition, potentially the largest global supplier of Carbon Credits

• One of the main non-governmental investors in the region• Strong commitment to energy efficiency and renewable energy;

growing pipeline of emission reduction projects• High standards of underlying project due diligence (financial, integrity

and environment)• Carbon finance expertise • Direct Host Government access and track record in policy dialogue• Catalyst for private sector involvement • Risk mitigation through size and diversification

24

Carbon Credit Transaction stepsfrom origination to delivery

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Contacts for EPEC

http://www.eib.org/Attachments/thematic/innovation_2010_initiative_en.pdf

Thomas Barrett

[email protected]

+352 4379 7006

Director

Action for Growth Instruments Department

Chris Knowles

[email protected]

+352 4379 7306

Head of Division


Nicholas Jennett

[email protected]

+352 4379 7320

Senior Loan Officer


mailto:[email protected]



Financing Research, Development & Innovation (RDI)RSFF – Risk Sharing Finance Facility

Kim Kreilgaard

27

Table of Content

1. European Investment Bank

2.

3.

RSFF – Key Elements

RSFF Implementation Strategy

4. Develop Synergies with Financial Intermediaries

28

European Investment BankEIB Profile

• The EIB has been created by the Rome Treaty 1958

• The EIB is owned by the 25 EU member states

• The EIB is a policy driven institution

• The EIB has a subscribed capital EUR 163.7bn

• The EIB collects its funds on the capital markets (2005: EUR 50bn)

• The EIB signed loans amounting to EUR 47bn in 2005

The European Investment Bank is the European Union‘s long-term financing

institution. The Bank acts as an autonomous body set up to finance capital

investment furthering European integration by promoting EU policies.

29

European Investment BankInnovation 2010 Initiative – Track Record

• The EIB financing of i2i investment reached EUR 34bn since 2000

• Financing of RDI (public and private sector combined) is the largest component, 47% of signatures in 2005, or EUR 17bn.

-

2.000

4.000

6.000

8.000

10.000

12.000

2000 2001 2002 2003 2004 2005

Approvals Signatures Disbursements

mEUR/year

Year

30

European Investment BankWhat do we finance in RDI?

Fundamental Research

Innovation

Demonstration Projects

Pilot or Demonstration Projects

Production Facilities

Commercialisation

Technology Parks

Definition stage or feasibility studies

Pre-competitive development activity

31

EIB - Financing RDI Projects

• Financing partners provide funding to the promoter on the basis of its financial strength.

• A promoter can be a company, a consortium of companies or an institution

• The financing partners are thereby exposed to the credit risk of the promoter, not of the project.

Corporate Finance Model vs. Project Finance Model

Corporate Finance Model Project Finance Model

• In the Project Finance Model, the project is realized and financed via a legally and financially standalone project company.

• The promoter(s) usually have the role of a strategic partner (e.g shareholder).

• The financing partners are thereby exposed to the credit risk project only .

32

European Investment BankHow do we define eligible costs?

ELIGIBLE COSTS

€ 20m• Project related CAPEX

on tangible & intangible assets

• Research staff cost• Incremental working

capital• Related operating costs

Tim

e

Year 1

€ 10mYear 2

€ 30mYear 3

Year 3 € 60m

€ 30m MAX. EIB LOAN50%

• Eligible project cost include: project capital expenditures in tangible & intangible assets, research staff cost, incremental working capital needs and other related operating expenses.

• R&D budgets typically cumulated over 3 years

• Up to 75% of the total project cost

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Table of Content


2.

3.




34


Basic and follow-on RDI with investmentgrade corporations and public

sector entities

FP7

STANDARD EIB LOANS

Basic and follow-on RDI with low/sub-investment grade

corporations of all size and ownership

HIGHER RISK LOANS

BENEFITS

Increase Debt Capacity of Beneficiaries

Stimulate/Facilitate Private Sector Financing

Widen scope of EIB beneficiaries

Extend range of EIB products to meet requirements of all companies

Contribution

Risk Sharing Finance Facility (RSFF)

Risk Sharing Finance Facility (RSFF)

35

RSFF – Key ElementsRSFF Eligibility: Source of funds and criteria

FP7 contribution to RSFF*• EUR 800 million from SP

COOPERATION, and • EUR 200 million from SP

CAPACITIES

RSFF eligibility criteria: higher risk projects (SFF risk level) in the area of RDI, including:

• Innovation investments• RTD&D activities, including those outside the scope of FP7

themes Research infrastructures

EIB contribution for co-provisioning

RSFF

Eligibility criteria for using EU funds from SP COOPERATION:

RTD&D activities, within scope of FP7 themes and of European interest

Eligibility criteria for using EU funds from SP CAPACITIES:

Research infrastructures of European interest

EIB contribution to RSFF

up to EUR 1 billion

* The amounts quoted above will be made available progressively to the EIB, taking into account the level of demand for RSFF.

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Table of Content


2.

3.


Develop Synergies with Financial Intermediaries4.


37

Implementation StrategyKey objectives

Extend EIB financing to new groups of counterparts through the introduction of new products RSFF Product Development

Develop co-financing and risk sharing with financial institutions for small projects / SMEs RSFF Facilities

Enhance and extend RDI investment by expanding debt capacity of EIB counterparts and lending capacity of financial intermediaries.

Collaborate with the Commission on financing FP7 projects Synergies with ETPs, EUREKA, ESFRI etc.

38

Generating Projects and Portfolio Building RSFF Product Development : rationale for SMEs/ Midcaps

MidCaps/SMEs

SFF Financing (low/sub-investment grade)

for RDI projectsRSFF

Fin

anci

ng

Nee

ds

Co

mp

lem

enta

ry P

rod

uct

s

Limited debt capacity:equity gap/volatile cash-flows

Limited access to capital markets

Scarcity of capital is an obstacle for RDI / growth

Consolidation pressure +internationalisation

Extend Debt Capacity

Subordinated Debt/Mezzanine

Interest Contingent Loan

Extend Lending Capacity

Risk Sharing Facilities

Co-financing/leverage of mezzanine funds

39

Key counterpart groupsGenerating Projects and Portfolio Building

Risk Sharing with Banks

NEW PRODUCT DEVELOPMENTS

Risk Sharing with Universities

Corporate /Project Finance

Financing R&D Consortia

• Targeted beneficiaries: SMEs & MidCaps(low/sub-investmentgrade)

• Product Ideas: RSFF Facilites; Interest Contingent Supplier Facility, Co-financing, Global Authorisations

• EIB value added: Banks: risk sharing, capital relief, new customers/cross selling, Beneficiaries: risk sharing, higher debt capacity, lower financing cost

• Targeted beneficiaries: Universities

• Product Idea: Royalty fund for scientific research projects

• EIB value added: Facilitate financing for universities, utilize royalty streams of research results (e.g. patents, lower financing cost

• Targeted beneficiaries: JTIs, Technology Platforms, EUREKA Joint Ventures,…

• Product Ideas: SPV based structures for individual R&D consortia

• EIB value added: Provide structuring know-how (Project Financing) and facilitate private sector funding

• Targeted beneficiaries: Mid-sized and large corporations (low/sub-investmentgrade),

• Product Ideas: Structured individual corporate loans for R&D projects (senior/junior debt, mezzanine)

• EIB value added: Lower Financing Cost, increase of debt capacity (in case of subordination), project risk sharing

40

Generating Projects and Portfolio Building RSFF Product Development : scope

RSFF will involve low/sub investment loans and guarantee products (including variants)

EIB applies “bottom-up” approach to product development in cooperation with banks, RDI promoters, ETP associations, Credit Rating agencies, national authorities etc.

Examples of flagship projects already under discussion:

Corporate and Project Finance Models will be widely used

Solar Energy, Photovoltaic, Wind Energy

Automotive sector

Life sciences Textiles

R&D Infrastructure

ETP projects

Waterborne / Energy production

41

Financing Corporates and Projects (I)

Corporates / Projects (SPV)Low/Sub-Investmentgrade

Co-Financing Bank(s)

R&D Project(s)

Senior Loans Junior LoansMezzanine

• Loan Size: min. EUR 7.5m (max. 75% of Project Cost)

• Size of eligible R&D Project: min. EUR 15m

• Financing Structures: Senior/Junior Loans, Mezzanine Financing, Full/Limited/Non Recourse

• Due Diligence: Financial, Technical, Market & Legal DD performed by EIB services and/or external consultants.

• Pricing: based on EIB analysis and close to market conditions

• Relationship to Co-Financing Partner: Typically Pari-Passu

• EIB co-financing with commercial banks in individual corporate/project finance transactions is possible for low/sub-investmentgrade corporates and SPVs (project finance).

• In general, the role of the EIB can range from a senior loan provider to a mezzanine investor (see next slide).

• The maximum loan from EIB depends on the definition of eligible costs (max. 75% can be financed) and the due diligence results.

Generating Projects and Portfolio Building

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Generating Projects and Portfolio Building Synergies with ETPs : collaborate with Commission under FP7

EIB role as the “house bank” to the ETPs to support them in identifying and meeting financial R&D needs of low/subinvestment grade

ETP participants and in financing JTI projects as PPPs.

Projects receiving FP7 grants will be eligible for EIB loans/guarantees

EIB value added is created through its sector knowledge, pan-EU focus

and ability to build custom-made solutions for each sector.

SRA support provides a coherent framework for RDI financing

Thematic / sector approach contributes to efficiency and

scaleability of RSFF implementation

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Table of Content


2.

3.




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Develop synergies with Financial Intermediaries… based on EIB core competences

Knowledge of SME markets and needs Network of more than 150 bank partners across EU 27 and Associated Countries

Track record on financing of public and private i2i More than EUR 17bn RDI lending since 2001

European Infrastructure financing (CERN, IMEC, FEL, INMARSAT)

Extensive financing of Public Private Partnerships (PPPs)

Organisation and financial commitment to develop an extensive Risk Sharing SFF Programme

45

RSFF Facilities (i)

SME/MidCapCorporates

Sub-investmentgrae

FundingPartner Bank

Managed delegation Selection of partners performing project evaluation, transaction implementation;

EIB focus on quality of partners’ credit process and eligibility verification

RSFF ContributionEIB Risk Sharing typically on the basis of a guarantee, can involve refinancing

of an intermediary or of co-financing with the intermediary

Develop synergies with Financial Intermediaries

Risk Sharing

ProfileSub-projects : small/medium sized RDI investments;

Promoters : SMEs (< 250 staff), Mid Caps (< 3.000 staff);Individual allocations : EUR 20.000 – 12.5M (25M)

Financing

/

46

RSFF Facilities (ii)

Value added

For banks For RSFF

• Capital relief (bank solvency ratio)

• Alleviate sector and counterpart

financing constraints

• New product development

• Signaling effects to markets

through EIB presence

• Sharing of Know-How

• Rapid rollout of existing network

throughout EU

• Efficiency gain through delegation

• Expand range of SME products

• Widen scope of SME beneficiaries

• Scaleability of products

• Sharing of Know-How (sector,

local market)

Support and involve banks, not crowd them out !


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Next steps

Negotiation with « lead partners »

Product Development

Deployment across EU


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Practical Implementation of StrategyContinued awareness raising for RSFF

EIB Directorates

Operations ProjectsBrussels

Office

European CommissionDG Research

ETPs

• ETP Workshopon financing 17/10

• ETP Events (14 in Q3)• Participation in Finance

Workshops (eg. Hydrogen and Fuel Cells)

• Support of JTIs andResearch Infrastructures

Conferences

• Presentation to MemberStates

• EUREKA, ESFRI Conferences

• FP7 Launch Events

Roadshows Banks, Corporates, Associations

RSFF Internet

RSFF Brochure

Internal Communication

• Presentations to EIB Offices and staff

Target Beneficiaries, Intermediaries and Stakeholders

49

Contacts for i2i


Thomas Barrett

[email protected]

+352 4379 7006

Director


Kim Kreilgaard

[email protected]

+352 4379 7313

Head of Division


Dietmar Dumlich

[email protected]

+352 4379 7317

Senior Loan Officer





TEN Objectives and Priorities

Tilman Seibert

51

Table of Content

1. TEN Objectives and Priorities

2. Loan Guarantee for TEN-T Transport

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Objectives of TEN-T

• improve territorial cohesion over EU-27 and neighbourhood countries• boost competitiveness and growth potential of enlarged Union• reduce congestion on the major routes• encourage intermodality

Effects of TEN-T Implementation• time savings of some EUR 8 bn/year• reduce CO2 emissions by 17 m tonnes/year and other emissions with

external costs of EUR 700 m/year• stimulate international trade, particularly in NMS• boost economic growth by 0.23% of GDP

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Trans European Transport Network (TEN-T)


Investment challenges for the European Union :

• 75 200 kilometers of roads

• 79 400 kilometers of railways

• 430 airports•• 270 international seaports

• 210 inland ports

• traffic management systems, user information and navigation services

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Van Miert Group Proposals Priority Projects Finish the 14 “Essen” Priority Projects by 2010 at an estimated

remaining cost of EUR 112 bn Start 18 (19) additional Priority Projects by 2010, each project to

be fully operational by 2020 Criteria and recommendations Work to begin by 2010 at the latest on all sections concerned EIB invited to concentrate on the funding of Priority Projects

without “neglecting projects of common interest” Complete “inland infrastructure projects” of missing links and

eradicate bottlenecks Improve interoperability Modal shift from road to rail and waterways Galileo Satellite Navigation System as “key priority” Better management of European transport system Total TEN-T “project basket” worth EUR 600 bn

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EU Growth Initiative

• Context : some figures…- Total cost of TEN-T programme : EUR 600 bn up to 2020.- Priority Projects : EUR 220 bn.- TEN-T Quick Start Programme : EUR 38 bn.

• Expected Private Sector Contribution : 10-100%

• Private investment is to be a substantial additional resource for implementing TENs on projects that deliver sufficient profitability.

• Critical role of PPPs in the Transport Sector

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Help to Deliver TEN-T Maximise availability and impact of EC funding

Increase of TEN budget in 2007-2013 to EUR 8 bn Leveraging EC budget through LGTT and other new financial instruments Adopting multi-period approach in line with long construction and operating periods of

infrastructure (funding of Availability Based PPP projects as well as Demand Based payments) Optimise EU participation to up to 20% of project costs in conjunction with public and private

sectors Improve management of the programme

Scale of investment flagship necessitates prioritisation on most important projects Agree priorities between EU level and national aspirations Sponsor infrastructure projects to create useful models

Demonstrate EU-wide benefits EU-wide calculation of cost/benefits to strengthen the case of investments where benefits

accrue outside national economies Prioritising support where benefits accrue to “third parties”, in particular in cross-border projects

Leveraging private sector finance Investment programme cannot be delivered from public sector resources only Better use of private sector capabilities in optimisation of design, construction, operation,

finance and risk sharing Develop Member States legislation to facilitate PPPs

58

Table of Content

1. TEN Objectives and Priorities

2. Loan Guarantee for TEN-Transport

Loan Guarantee for TEN-Transport

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LGTT – Loan Guarantee for TEN-Transport

• European Council requested the European Commission, in collaboration with EIB, to examine the feasibility of a loan guarantee instrument for transport projects.

• Projects eligible under the TEN-T Financial Regulation will be eligible under the Guarantee, provided they benefit from a substantial level of financial support from the Member States and/or other public authorities.

• The combined support of EU, national level grants and private capital should be such that project debt should be capable of reaching near-investment grade credit quality prior to benefiting from the Guarantee.

• Guarantee will provide security for standby credit facilities aimed at covering post construction risks during the early operational phase.

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Allocation of Risks/Risk Pricing

• The TENs Guarantee will be issued in favour of stand-by facilities to cover shortfalls due to traffic/revenues/costs /net cash shortfalls lower than predetermined levels during the ramp-up period of up to 5 years from completion of project construction.

• The TENs Guarantee does not relieve shareholders, contractors, operators and other risk parties from their obligations for construction and long-term market risks; business or legal risks or equity risks as dividend distribution ranks lower than repayment of the stand-by facilities.

• National authorities are expected to provide equivalent support through matching guarantee or other support.

• Risk premium to be applied to cover « expected loss » calculated on each investment project according to its merits.

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Size of the TENs Guarantee

• EUR 1 billion to be provided by EIB and EU TENs Budget has been agreed for the TENs Guarantee to ensure « critical mass » to :

– build up a portfolio of approximately 30 projects.– achieve an adequate level of diversification.– provide the necessary framework over the 7 years of the

Financial Perspectives 2007- 2013 to ensure the development of the market throughout EU-25 in all four TENs-transport sub-sectors.

• TENs Guarantee to be seen as a natural complement to other instruments in TENs budget.

63

Eurostat: ESA-95 Compliance

• Recourse to the EU TENs Guarantee is not expected by Eurostat to have an impact on whether a project financing should be consolidated in Government accounts and play little or no role in the allocation of risk for statistical purposes provided that Eurostat rules are met.

• Under current ESA-95 rules Government Guarantees are considered contingent liabilities without impact on Government debt or deficit.

• Eurostat continues to monitor developments in this area closely and to work with national and external experts ensure its requirements are respected.

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Clear need for the TENs Guarantee

• Most green field projects are non-investment grade unless supported or guaranteed by government/public authorities or credit enhanced.

• Conventional stand-by facilities typically provide for construction costs overruns.

• However, the banking / capital markets do not generally provide facilities for early operation risk and …

• … when available, such facilities are typically senior or super-senior and therefore increase the cost of senior debt.

• Projects are deferred/less robust in cases where early operational risk cannot be externalised.

• TENs Guarantee proposal is both additional and innovative in view of its subordination to Senior Debt and proposal to manage portfolio of near investment grade projects.

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Value-Added of TENs Guarantee

• Policy Benefit : Accelerate Implementation of TEN-T projects.

• Financial Benefit: Reduce financing costs of investment, Improve Project Selection: Diversify and improve Risk Management.

• Develop Organisational Capabilities: Facilitate partnership between public and private sectors.

• Budget Impact: more efficient utilisation of EU Budgetary resources.

• Extend the availability of new financial products capable of attracting capital market financing for all TENs sectors throughout all EU Countries.

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Policy Benefit: Accelerate implementation of TEN-T projects

• Further significant progress required in development of TEN-T Network across EU-25/27.

• Not only the largest most visible cross-border projects are behind schedule …

• … but also a wider network of smaller projects that will feed the large crossings.

• TEN-T investment programme identified by Van Miert is too large for the public sector to develop alone without increased contribution from private sector risk participation.

• Early operation « ramp-up » uncertainty is a difficult risk which private sector lenders are unwilling to take unless mitigated by additional time, increased price, other mitigants etc.

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Financial Benefit: Reduce Financing Costs

• Analysis shows that TENs Guarantee should have a positive impact on capital structure; creditworthiness of project investments and therefore on cost of overall debt financing.

• Financing costs typically one half to one third of total costs of capital investment over the whole life-cycle of a project.

• Marginal reductions in financing rates can have important impact on Value for Money, affordability and robustness.

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Financial Benefit: Improve Project Selection, Diversity and Improve Risk Management

• TENs Guarantee support should strengthen project selection procedures due to criteria for near investment grade and objective of increasing access to capital markets and bank instruments over project life as well as the increased due diligence by public sector authorities, private sector and Guarantee Fund Manager.

• In a portfolio of projects structured and selected as near « investment grade » and diversified across the EU and different sectors and actively monitored and managed by the Guarantee Fund, the majority can be expected to succeed and only a minority to fail; repayments on guarantees called expected to fall within an acceptable range.

• Portfolio management practice (e.g. EIB SFF, external mandates) proves that leverage and sharing of risk can be achieved without excessive utilisation of guarantee.

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Develop Organisation Capabilities to Facilitate Partnership between Public and Private Sectors

• PPPs-private sector participation in the provision of public infrastructure has grown extensively across the EU and in various world markets and demonstrated VfM (Value for Money) for the public sector since early ’90s despite the many obstacles that both public and private sectors have had to overcome.

• The private sector well suited to finance the « utility » type risk of a public infrastructure but is taken aback by complexities of the national EU policy environment; by sub-optimal projects and by the various business and other risks associated with new modes.

• Public sector also taken aback by the resources, working methods and different forms of expertise required to negotiate successfully with private sector on a sufficient scale to ensure VfM.

• Manifest need therefore to improve decision making processes and development of common financing techniques across EU such as the TENs Guarantee that focuses on key policy objectives and have an organisational framework, committed resources and a time scale appropriate to the size of the task.

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Contacts for LGTT

Thomas Barrett

[email protected]

+352 4379 7006

Director


Tilman Seibert

[email protected]

+352 4379 7335

Head of Division


Matthias Woitok

[email protected]

+352 4379 7336

Senior Loan Officer





European Week of Regions and Cities Open Days T.C. Barrett Director Brussels, 10th October 2006.

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Transcript of European Week of Regions and Cities Open Days T.C. Barrett Director Brussels, 10th October 2006.