1. Infrastructure Finance
Nikos Mantzoufas
PPP Secretary, Greece

2. Infrastructure Finance
Contents
Key Questions
Lessons Learned
Routes to Finance Infrastructure
Sources of Infrastructure Finance
Social Infrastructure PPPs – Global
PPPs in Europe
Role of European Investment Bank & PPPs
Role of European Investment Bank & PPPs in Greece
Hellenic PPP Practice: EU Grants & PPPs: Unfolding “blending”

3. Infrastructure Finance
Key Question 1: What do we consider as infrastructure?
economic infrastructure
projects that generate economic growth and enable society to function.
Transport facilities (air, sea and land)
Utilities (water, gas , electricity)
Flood defense
Waste management
ICT Networks
social infrastructure
assets to support the provision of public services.
Educational Establishments
Public Buildings
Urban Development
Health Facilities

4. Sustainability & Environmental Impact
Infrastructure Finance
Key Question 2: Why do we need infrastructure?
Economic Growth
Every EUR spent on public economic infrastructure further increases GDP by
Looking Further…
Competitiveness
Social Impact
Access
Connection
Safety
The set of institutions, policies, and factors that determine the level of productivity of a country.
Sustainability & Environmental Impact
Energy Supply Mix
Better Quality Standards
Safe Maintenance (pipes, transport)
Key competitiveness index! Quality of Infrastructure
Medium to Long Term

5. Infrastructure Finance
Key Question 2: Why do we need infrastructure?
Global Infrastructure Gap
“The difference between infrastructure needs and infrastructure spending”
Shortfall of Supply and Demand
US $ 1 TRILION
or 1,25% of Global GDP
Infrastructure Spending or Supply
(amount that is being invested in infrastructure ) = $2.7 trillion per year
Is Lower than
infrastructure needs or Demand
(amount that OUGHT to be invested) = $3.7 trillion per year
$57 trillion will be needed in infrastructure investment between now and 2030 – simply to keep up with projected global GDP growth. McKinsey Global Institute
Infrastructure investment both to maintain existing and build new, remains a challenge, for example in emerging economies 880 million people live without safe drinking water.
While global infrastructure requirements are huge, governments’ fiscal budgets are increasingly constrained.

6. Infrastructure Funding Infrastructure Financing
Infrastructure Finance
Key Question 3: How to fund and finance infrastructure?
Infrastructure Funding
Revenue sources
General Purpose tax revenues
Revenues from user charges
Other charges or fees dedicated to infrastructure
Infrastructure Financing
Revenue sources that are turned into capital TODAY to build or improve infrastructure
Only if funding infrastructure issues are addressed, financing options will expand.
Successful Infrastructure Projects have three (3) characteristics in common:
Strong Underlying Business Case
Support by a strong financing and contractual structure
Depend on sustainable funding sources
Source: World Economic Forum - Accelerating Infrastructure Delivery –
New Evidence from International Financial Institutions
Key Constraint:
Public Budgets - the largest contributor of infrastructure finance - have not recovered from the financial crisis worsening the gap in the market for infrastructure finance.

7. Infrastructure Finance
Key Question 4: Who should pay for infrastructure?
Users
User charges are typically tied directly to the cost of producing the service for which the fee is charged. This source of funding is limited to those forms of infrastructure that are amenable to the collection of user charges.
Moreover, infrastructure competes for space in household budgets. 1
Tax -Payers
Governments have two (2) options to pay for projects’ construction & operating costs
Own Resources
Tax Receipts / Asset Sales / Bond Launches 2
Public Private Partnerships
Project Finance Solutions
Mixed user-pay & tax payer funding solution 3
Without predictable revenue sources the broader benefits of a project can never be realized.

8. Infrastructure Finance
Key Question 5: Which method of procurement should governments choose for infrastructure?
Traditional procurement: governments design infrastructure assets & tender out the construction works to the contractor who has the lowest price.
If the government uses traditional or design & build procurement approaches:
it must ensure that sufficient funds are set aside for routine maintenance and,
that the maintenance quality is monitored. 1
Design & Build contracts: require private sector contractors to tender for designing and building the infrastructure. 2
Whole life-cycle cost of assets: require either public works departments to optimize the whole life-cycle cost in the design, building and maintenance of assets OR it can invite the private sector to build & operate assets with long-term contracts.
Allows the initial investment & future maintenance cost relation - or Total “Ownership” Cost - to become clearer 3
“Even well-designed and built infrastructure will not achieve the intended benefits unless it is maintained.” - World Economic Forum

9. Public Private Partnerships
Infrastructure Finance
Key Question 6: Assuming the government chooses whole life-cycle cost approach what are the criteria for governments to choose the public works route?
Experienced in latest design techniques.
Can minimize total cost of ownership.
Able to negotiate and purchase construction materials more effectively than private companies.
Able to build the assets more efficiently than private competitors.
Able to maintain the assets to the required output/outcome-based specifications more effectively than private companies.
If most of those criteria are not met the government may want to consider a privately provided Whole Life Cycle Cost approach.
A long term contract between a private party and a government agency, for providing a public asset or service, in which the private party bears significant risk and management responsibility.
Public Private Partnerships
Source: World Economic Forum

10. Infrastructure Finance
Key Question 7: What are the potential advantages of Public Private Partnerships? Or their value proposition?
Key Fact: Transactions require the devotion of multiple stakeholders with conflicting goals.
Potential Advantage
Description
Improved
Project
Selection
“White elephant” or Wasteful projects – economically underproductive projects - are potentially filtered out as both the government and private investors tend to conduct a very thorough due diligence process
Accelerated Infrastructure Provision
Accelerated Delivery
Better on-time construction performance
Principle of “no service-no payment” ensures that the private sector is incentivized to deliver to time
Enhanced Delivery
Applied lifecycle approach and assured maintenance
High service quality
Clearly defined governance structure
On-going commitment to maintenance, leading to better asset condition
Better defined project scope
Improved output from defined service standards
Whole life-cycle cost optimization
PPPs address the life-cycle dependencies between design, construction and operations effectively as they assign the full asset responsibility to a single party.
PPPs attempt to unbundle risks & allocate to the best party able to manage them.

11. Economic, Political and Execution hard-won lessons for successful PPPs
Infrastructure Finance
Lessons Learned
However PPP’s are not a PANACEA. What are the lessons learned from their challenges?
Success in infrastructure investment, especially for Public Private Partnerships (PPPs) (which are generally very complex legally, financially and technically), is dependent on well designed projects i.e. on effective project preparation.
High Level Panel – Recommendations to G20
Support a transparent, competitive bid process
Build Stakeholder Support
Secure Political Champions
Structure partnership to optimize COST, QUALITY, INVESTOR RETURN
Ensure sound economic fundamentals
Economic, Political and Execution hard-won lessons for successful PPPs

12. Infrastructure Finance
Routes to Finance Infrastructure Investments
Ways of financing the build
Examples
Corporations
Existing Cash resources
Some large companies are able to fund investments from existing cash flows.
Corporate Finance/Debt
Companies can utilize the funds they borrow for their company’s general operations with the debt backed by the company’s balance sheet.
Project Finance
Off-balance sheet: Ratio of debt to equity is higher than for many corporate loans.
Public Entities
Government Bond Issues
Government uses bond receipts to fund the building of the assets.
Government asset sales
Government privatizes companies or sells land to finance new infrastructure.
Existing Cash Reserves
Some governments running a fiscal surplus may have spare cash reserves.
Financing perspective ?
infrastructure opportunities are usually capital intensive
there is a tangible asset to operate and maintain, and
the asset is expected to generate cash over the long term.
Both equity and debt can be used to finance infrastructure projects.
While evaluating the financing of infrastructure projects, careful consideration needs to be given to risk and uncertainty.
Global Project Finance Deals for 2013: 548
Global Project Finance Volume: US $280 billion
Closed Deals – Social Infrastructure: 58, US$13 billion
Source: Infrastructure Journal

13. Certain Issues need to be addressed
Infrastructure Finance
Sources of Infrastructure Finance
Debt
Equity
Direct
Project developers involved in the project may be prepared to loan money to fund the project.
Corporate equity is still important although much of the focus on potential sources of funding is on commercial debt and institutional equity.
Commercial Bank Loans
This is the most common source of debt.
Institutional investments
Much institutional equity has been committed to or invested in infrastructure funds.
Public Capital Markets
The bond markets can be used to finance infrastructure investments. However during the current financial turbulence the bond markets for standalone projects have been negatively affected.
DEBT + EQUITY = CAPITAL STRUCTURE
There are two main reasons why the capital structure is important.
First, understanding the likely leverage will give an indication of the amount of debt and equity that may be needed to finance an infrastructure opportunity.
Second, knowing the likely proportion of debt to equity will help determine the cost of the transaction because equity carries more risk than debt and is also a more expensive form of finance.
What about Project Bonds?
Certain Issues need to be addressed

14. Infrastructure Finance
Sources of Infrastructure Finance
The biggest lenders to infrastructure are no longer the European banks. Asian banks and Australian institutions have continued to usurp this historic paradigm.
Across the medium and long term many governments would benefit from establishing and maintaining more structured and systematic processes around the tendering and management of projects.
A more direct approach to infrastructure development should see the markets rise still further, whilst the creation of a greater internal capacity to lead projects in national governments will open the way for greater private investment.

15. Infrastructure Finance
Sources of Infrastructure Finance
Pre-financial crisis
Post-financial crisis
Project Bond Financing
European PPP market relied heavily on project finance debt provided by commercial banks and/or public financing institutions (e.g. EIB)
Commercial bank debt ?
More difficult to secure and lending terms (e.g. pricing, tenors, loan volumes) have deteriorated.
Project bonds are debt instruments issued by PPP project companies & bought by institutional investors.
“They can play a major role in bridging the financing gap for infrastructure investments.”
EPEC 2012
Issues to consider
Maturity/refinancing risk
Credit quality
Transaction size
Pricing
Termination provisions
Preparatory costs

16. Infrastructure Finance
Social Infrastructure PPPs - Global
The sector received US$13 billion in infrastructure investment across 58 projects; out of this US$10 billion was debt.
The social infrastructure sector was dominated by healthcare (24 per cent), education (23 per cent) and waste/recycling projects (18 per cent).
Drivers & Risks
Government spending reductions are still adversely affecting the global pipeline of social and defence projects, with various national administrations reluctant to antagonise the electorate with high capital spending programmes.

17. Infrastructure Finance
PPPs in Europe
80 PPP transactions reached financial close in 2013, significantly more than the 68 recorded for 2012.
The average transaction size increased to reach EUR 203 million (EUR 188 million in 2012) in 2013.
Over 90% of the transactions closed were authority-pay PPPs (e.g. availability payments). Only six projects involved user payments or the transfer of demand/traffic risk.
Source: European PPP Expertise Center

18. Infrastructure Finance
Role of European Investment Bank & PPPs
The EIB:
Has long-standing experience in the analysis and successful closing of infrastructure Public Private Partnerships (PPPs).
Since 1990 has progressively broadened the geographic and sectorial spread of its PPP lending and is now one of the major funders of projects in Europe with a portfolio of 130 projects and investment of around EUR 30 billion.

19. European Investment Bank
Infrastructure Finance
Role of European Investment Bank & PPPs in Greece
EIB has financed three out of three PPP – Availability Payment transactions in Greece
European Investment Bank
EUR 9 million
April 2009
EUR 19,1 million
April 2014
EUR 16,7 million
May 2014
Fire Stations SPV
Attica Schools 1 SPV
Attica Schools 2 SPV

20. Infrastructure Finance
Case Study 1: Role of Multinational Development Banks
Case Study 1 – Revenue Backed Finance - the Panama Canal
In 2008, five MDBs (European Investment Bank, the Japan Bank for International Cooperation, the Inter-American Development Bank, the International Finance Corporation and Corporacion de Fomento) offered US$ 2.3 billion to finance part of the US $5.2 billion Panama Canal Expansion.
Why approach the MDBs?
The finance was raised at the time of the Lehman Brothers bank collapse. MDBs were selected as they were able to offer longer-term loan than commercial banks.
How will the MDB loans be repaid?
The loans are not secured against the new canal, but rely instead on being funded from future toll charges.
Source: Adopted from WEF Report

21. Infrastructure Finance
Case Study 2: Bridge PPP
Case Study 2 – Disraeli Bridges PPP - Canada
The Disraeli Bridges project is a 2-kilometer (1.2-mile) PPP initiative consisting of two new vehicular structures and three new stretches of reconstructed roadway. The existing bridge over the Red River was retrofitted as an active transportation corridor.
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Disraeli pedestrian bridge under construction
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Background: The bridges were originally constructed in A condition assessment found numerous deficiencies that need rehabilitation or upgrade. The City of Winnepeg will make payments to Plenary (SPV) based on a lump sum payment upon commissioning that provides partial payment for capital costs, followed by regular payments over 30 years that pay for the remainder of the capital cost as well as regular maintenance costs.
“This active transportation bridge is all about cyclists and pedestrians’ safety and helping to reduce gas emissions by promoting active living,” declared MP Toet, on behalf of the Minister of Infrastructure, Communities and Intergovernmental Affairs.
Value:$154.72m USD
Equity:$14.69m USD
Debt:$140.03m USD
Debt/Equity Ratio:91:9
Finance Type: Project Finance
Concession: Design Build Finance Maintenance Operate
Concession Period:30 years
PPP: Yes
Financial Close: 2010
Operation Commencement: 2013
Source: Adopted from Infranews

22. Infrastructure Finance
Hellenic PPP Practice: EU Grants & PPPs: Unfolding “blending” 1
European Union Structural Funds
Robust investment planning
Safeguarded projects from a legal, technical and financial perspective
Transparency in PPP finances
Long established institutions
Adaptability to market needs 2
European Investment Bank 3
JESSICA 4
Private Investment
Blending EU instruments with private capital addresses specific challenges. This process enables for a coherent and controlled procedure that is safeguarded from a variety of institutions.
Project Inception
Project Delivery 22

23. Variants of EU blending & PPP
Infrastructure Finance
Hellenic PPP Practice: EU Grants & PPPs: Unfolding “blending”
Variants of EU blending & PPP
1. Non- Revenue DBFO - JESSICA & EIB
2. Non-Revenue DBFO – EU Grants
3. Revenue Generating DBO - EU Grants
4. Revenue Generating DBFO - EU Grants & JESSICA
5. Revenue Generating DBFO – JESSICA & EIB
Case Study 1: Attica Schools PPP (€ 110 mil)
The Schools Organization will award the PPP contract for the Design-Build- Finance-Operate and Maintenance phases to the private entity through a single DBFO contract.
Operational phase
Availability Payments by the State
Construction phase
Private Investment
-Loan repayment
-Operational, maintenance etc costs
-Dividends
EIB
JESSICA
EIB’s role to support the PPP drive in Member States towards the improvement of public services through increased private sector participation is highlighted in the Schools Project with a 40% loan participation.
JESSICA Investment Board approved funding of 40% on favorable terms against commercial banks, based on the viability of the project. 23

24. Variants of EU blending & PPP
Infrastructure Finance
Hellenic PPP Practice: EU Grants & PPPs: Unfolding “blending”
Variants of EU blending & PPP
1. Non- Revenue DBFO - JESSICA & EIB
2. Non-Revenue DBFO – EU Grants
3. Revenue Generating DBO - EU Grants
4. Revenue Generating DBFO - EU Grants & JESSICA
5. Revenue Generating DBFO – JESSICA & EIB
Case Study 2: Attica Urban Transportation-Automatic Fare Collection System & Telematics System (€ 129 mil & € 52mil)
Both projects are through a Design-Build-Finance-Operate contract for 10 years.
First ICT PPP projects to be implemented and at the same time the first initiative in Greece, to combine EU funds with private finance in availability-based PPP projects.
Operational phase
Availability Payments by the State
Construction phase
Private Investment
-Loan repayment
-Operational, maintenance etc costs
-Dividends
EU grants
JASPERS was a critical member in the financial and socio-economic analysis conducted by the Awarding Authority (Organization for Athens Urban Transportation).
European Regional Development Fund approved the funding of €30 mil. 24

25. Variants of EU blending & PPP
Infrastructure Finance
Hellenic PPP Practice: EU Grants & PPPs: Unfolding “blending”
Variants of EU blending & PPP
1. Non- Revenue DBFO - JESSICA & EIB
2. Non-Revenue DBFO – EU Grants
3. Revenue Generating DBO - EU Grants
4. Revenue Generating DBFO - EU Grants & JESSICA
5. Revenue Generating DBFO – JESSICA & EIB
Case Study 3: Broadband development in Greek rural areas (> € 200 mil)
The Project was subject to individual notification on the compatibility of Aid.
Following the European Commission’s assessment of the measure, the decision (SA.32866) was issued on stating that the measure is compatible with the internal market, pursuant to the Treaty on the Functioning of the European Union (TFEU).
Fair profit margin level
Construction phase
Revenues by the private investors
Private Design, Build & Construction VAT
-Loan repayment
-Operational, maintenance etc costs
-Dividends
Operational phase
EU grants
CLAW-BACK MECHANISM: if “profits surpass the level of a fair profit margin then a percentage of the exceeding part may remain at the contractor’s disposal, increasing its total profit levels, while the majority percentage of the exceeding part will form a special taxable reserve which can be used during the next year for specific broadband development initiatives.”
JASPERS 25

26. Variants of EU blending & PPP
Infrastructure Finance
Hellenic PPP Practice: EU Grants & PPPs: Unfolding “blending”
Variants of EU blending & PPP
1. Non- Revenue DBFO - JESSICA & EIB
2. Non-Revenue DBFO – EU Grants
3. Revenue Generating DBO - EU Grants
4. Revenue Generating DBFO - EU Grants & JESSICA
5. Revenue Generating DBFO – JESSICA & EIB
Case Study 4: Waste Management Projects
Design, financing, construction, maintenance and operation of the respective waste management facilities for a period of 25 years.
Gate-Fee Revenues by the private investors
Construction phase
Private Investment
-Loan repayment
-Operational, maintenance etc costs
-Dividends
Benefit from use of EU grants & potential 3rd party revenues
JESSICA
Operational phase
EU grants
Objectives for Waste Management Projects
To reduce the usage and impact of illegal landfills
To complement the Region to meet EU landfill diversion targets for 2020
To achieve a fair gate fee
To effectively absorb available EU funding opportunities 26

27. Variants of EU blending & PPP
Infrastructure Finance
Hellenic PPP Practice: EU Grants & PPPs: Unfolding “blending”
Variants of EU blending & PPP
1. Non- Revenue DBFO - JESSICA & EIB
2. Non-Revenue DBFO – EU Grants
3. Revenue Generating DBO - EU Grants
4. Revenue Generating DBFO - EU Grants & JESSICA
5. Revenue Generating DBFO – JESSICA & EIB
Case Study 5: Western Macedonia Waste Management Project
Design, financing, construction, maintenance and operation of the Integrated Waste Management System in the region of Western Macedonia for a period of 27 years.
Gate-Fee Revenues by the private investors
Construction phase
Private Investment
-Loan repayment
-Operational, maintenance etc costs
-Dividends
Benefit from use of EU grants & potential 3rd party revenues
EIB
Operational phase
JESSICA
The first waste management project is heading towards the announcement of the preferred bidder.
EIB’s participation approved in principle. No EU grant funding 27

28. Infrastructure Finance
Nikos Mantzoufas
PPP Secretary, Greece