1. Financing and Procurement of EU Infrastructure
Thomas C. Barrett, Director
European Investment Bank
Irish Centre for European Law Dublin, 28 June 2012

2. European Investment Bank
EIB/EC as European Partners to Public and Private sectors
Europe 2020 Strategy
Infrastructure Investment needs of
EUR trillion until 2020
EIB/Commission collaboration on:
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
smart
growth
inclusive
sustainable
New sources of finance & smarter use of public resources
European Investment Bank 2

3. European Investment Bank Group
Priorities for the EIB – The EU bank
LENDING
BLENDING
ADVISING
Loans
But also:
Guarantees
Equity participation
Combining EIB loans and EU grants
Leveraging EU and Member States budget resources
Strong in-house expertise
Technical and financial advice
Technical assistance initiatives
Attracting FUNDING for long-term growth
European Investment Bank Group 3

4. 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.

5. EIB signatures and disbursements continue to increase as a countercyclical response to weak investment

6. 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) 6

7. Regulatory and Procurement impact on Infrastructure Investment
Legal framework
Procurement
Systems
Political support
Sound Pipeline
Regulatory Framework
Local players & Competitive Market
counterparts
Creditworthy
SPV’s
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
Figure 1 shows the different contractual agreements available to the public administration to procure goods and services and link them to the risks borne by either the public or the private part.
The left-hand side shows simple O&M services provided by the private sector where the ownership of the facilities remains to the public sector. Lease of public goods by private counterparties is a possible alternative. The only risk shifted to the private party is the operational risk, being the construction/investment and commercial risks retained by the public sector.
The second column of figure 1 is occupied by concession agreements with public ownership of the facilities. Here, the private counterparties can: 1) rehabilitate an existing facility, manage and transfer it. At least part of the construction risk is limited by the fact that the facility already exists or 2) design, build, operate and transfer (DBOT) the facility at no final indemnification for the public administration. In DBOT schemes, the public administration plays the role of the exclusive buyer of the services (commercial risk is absent or strongly limited by the purchase contract signed by the public administration).
The third column of figure 1 shows contractual arrangements – often in the form of concession agreements – where the private sector becomes the owner of the facility . Furthermore, here we include concessions where the public sector is not the direct buyer of the services and the private sector bears part or full commercial/market risk (like in the case of power and energy merchant plants).
In the fourth column of figure 1, the private sector gains full control of the assets and is in charge of all the risks involved in the deal as a consequence of the full exit of the public sector from the management of businesses through asset sales/divestitures or privatization processes.
European Investment Bank 7 7 7 7

8. 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)

9. European Investment Bank
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 9

10. European Investment Bank
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 10

11. European Investment Bank
EIB Financing Instruments for infrastructure
EIB has at its disposal an extensive range of instruments to finance public and private sectors
EIB lending instrument for Investment Grade operations
Structured Finance Facility
For low and sub investment Grade operations
Project Finance
Direct Loans
Project
SPV
Project finance with direct project risk
LGTT
(Mezzanine)
Equity through
Funds
Intermediated Loans
Banks
Innovative financing: the A5 Autobahn, Germany
Widening of an existing motorway between Baden-Baden and Offenburg to six lanes drawing on EIB senior, mezzanine and equity finance.
Public Sector Financing
European Investment Bank 11

12. European Investment Bank
The European PPP Market in
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 12

13. EIB lending volume to PPP transactions by year – EUR billion
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.
EIB lending has been a key source of medium and long term debt for the European PPP market since 2007
Population =
( premises
incl businesses)
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. 13

14. 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 14 14

15. Total investments of more than European Investment Bank
Track record of Structured Credit Enhancement ……. through EIB/EC Blended Loan Guarantee for TEN-T (LGTT)
List of Transactions
IP4 Amarante – Vila Real (PT)
First LGTT to close (2008)
EUR 20 million LGTT
30-year DBFO
Baixo – Alentejo (PT)
344 km motorway
EUR 25 million LGTT
Autobahn A5 (DE)
Range of EIB instruments applied
EUR 25 million
Successful closing in the middle of the financial crisis
C-25 Eix Transversal (ES)
One of few demand-risk PPPs in Spain
EUR 70 million LGTT
Autobahn A8 (DE)
Both shortlisted bidders submitted offers with LGTT
EUR 60 million LGTT
LGV SEA (FR)
First rail project to include LGTT
Largest HSR PPP in France
EUR 200 million LGTT, largest to date
London Gateway (UK)
First port project to include LGTT
LGTT protects container throughput
GBP 100 million LGTT
Total investments of more than
EUR 12bn enhanced by LGTT
European Investment Bank

16. European Investment Bank
EC/EIB;
New Project Bond Initiative
Objective
To increase the debt financing availability for large scale infrastructure projects
Target Sectors
Transport
Energy
Broadband
How?
EU/EIB joint support to project companies issuing bonds and raising loans to finance infrastructure projects
Form of support
Funded/unfunded subordinated credit enhancement by EIB to ensure investment grade rating of the senior debt
Result
More private sector financing attracted from the capital markets to finance key infrastructure
Potential investors
Long-term institutional investors and
financial institutions.
European Investment Bank

17. European Investment Bank
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

18. European Investment Bank Group
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 18 18

19. Examples: London Green Fund (Holding Fund)
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
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.
London Development Agency
London Waste &
Recycling Board
ERDF 18 m
£32m 50 m
London Green Fund
£100m*
Managed by EIB
£35m
£50m
Waste Urban Development Fund
Energy Efficiency
Urban Development Fund
Private finance
Private finance
Equity type investment
Loan type investment
Min £35m
Min £50m
Low risk
High risk
Urban Projects
Urban Projects
* The remaining £15m may, as an option, be invested in one or both UDFs in due course
Aiming to deliver outputs/impacts on job creation, tons of carbon saved, and minimum energy usage savings

20. 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
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
JESSICA
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 20

21. European Investment Bank
Contacts at EIB
Simon Barnes
Western Europe
Director
Chris Blades
EPEC
Head of Division
Gianni Carbonaro
Municipal and Regional
Head of Unit
Jacobs Peter
Western Europe
Head of Division Project Finance
Stefan Kerpen
Technical Assistance Management
Head of Unit
Bernard Gordon
Western Europe
Head of Division – Public sector
European Investment Bank