1. Leveraging EU grants: the case for PPPs - « A perspective from the road concessions industry » 2 nd June 2010, EPEC Private sector forum Borschette center

2. Outline Presentation of ASECAP EU Legal framework / concessions Leveraging EU funding: the case for PPPs

3. ASECAP ASECAP, the European professional Association of Tolled Road Infrastructures Concessionaires 2121 NATIONAL MEMBERS OPERATING 45.068 km (mainly TENs) 149149 TOLLED MOTORWAYS OPERATORS 19.000.000 ETC SUBSCRIBERS 23OVER 23 BILLIONS EUROS OF REVENUES

5. Motorways concessions in Europe - Range of practices UK Shadow Toll Finland Netherlands Portugal Pre-financing Germany Belgium State Budget Sweden Denmark Operators of tolls Norway Germany Spain Real Toll Concessions Real Toll Concessions Greece Portugal Italy France Slovenia Croatia UK Hungary Austria Netherland by all (tax payers) by users PAYMENT

6. ASECAP main agenda & mission …High cost of infrastructure + Public budgets scarcity !!! Private investment = cost-efficiency, time-frame, risk sharing !!! 1st sector in Europe that understood the merits of PPP at EU level, a preferred partner of the European institutions & major stakeholders: Financing (PPPs, Tolling, EETS Interoperability) Safety & Environment ITS ASECAP's mission is to promote concessions schemes (DBFO model) and toll as the most efficient tool to finance the construction, operation and maintenance of safer, greener and smarter road infrastructures.

7. ASECAP vision There are no free roads (direct charging vs indirect taxation) ; Motorways are expensive: to build to operate to maintain Socially, tolls are the fairest system for road financing; Toll conceeded roads have delivered excellent results worldwide based on « Fair charging » and « Direct road user charging » ; Immediate and stable source of funding; Tariffs regulated by performance and quality indicators; Optimal (fair, effective and efficient) risk transfer and allocation;

8. Real tolls are the answer ! Use of roads produce externalities that need to be internalized; Road pricing can be flexible: (time of the day, vehicle category, level of pollution); Users have to pay for the quality of the service offered (and in the future will have to pay for the externalities they cause for the society); Earmarking of collected revenues to the road infrastructure is the key! = Concessions (and user-payers principle) provide adequate solutions to match EU goals

9. EU legal framework / concessions The EC Treaty (general principles = only solid basis!) « Public procurement » Directives (2004/18/EC, 2004/17/CE) = distinguishing public contracts vs concessions (service concessions?) Interpretative communications (COM2005/569, COM2000/C 121/02) on Public Procurement and Concessions Case-law of the European Court of Justice (i.e.: TeleAustria, C- 324/98) identifying notions such as remuneration (economic activity),right of exploitation and transfer of risk as main characterizing elements for «Concessions».

10. EU legal framework / concessions Strong political commitment: Establishment of the European PPP Expertise Centre (EPEC) by the Commission and the EIB; EU Commissions Communication on « Mobilising private and public investment for recovery and long term structural change: developing Public Private Partnerships ». But… Many Member States do not yet have clear public sector rules; Recent examples prove the EC could act to prevent uncertainty undermining future initiatives; = Lack of legal certainty at EU level detrimental to Internal Market ?

11. Towards new EU rules in the field of PPPs and concessions? By favouring legal clarity, the EU can serve as the leverage/sponsor to foster political readiness in Member States to adopt a PPP agenda and explore more efficient ways to develop infrastructure. EU should: Keep a flexible approach; Clarifying vs. Stricter approach Guarantee compliance with the principles of equal treatment, non discrimination and transparency, while ensuring respect of confidentiality and intellectual property; Limit the possibilities for unilateral alteration of the contractual position; Establish a list of best practices & concepts underpinning the various types of PPP found in Europe; Establish EU guidelines to clarify rules on provision of Funds.

12. Leveraging EU funding: the case for (roads) PPPs Crisis !!! The recession and the credit crisis created problems for: Existing concessions: Dramatic HGVs traffic decline (Jan 08/09) - 33.9 % Spanish tolled network, - 20.27 % Austria, - 19.31% CZ Rep... = Strong correlation with GDP which is sharply declining. =Earnings lower than forecast, difficulties to repay interest and loans. Future concessions contracts: Radical change in the banking sector (part or full nationalisations, collapses, etc.) =Sponsors panic & shortage of capital

13. Leveraging EU funding: the case for (roads) PPPs Strong impact on market players: Banks: less cash flow prospects, higher financial costs, higher uncertainty; Grantors (Governments / State agencies): less brownfield projects being tendered, postponements and cancelations; but, some governments are fighting recession by promoting investment in infrastructure (Keynesian policies for greenfields projects); Construction companies focus on the short-term construction business; Operators focus on existing assets, domestic market, protecting cash flow levels and mitigating risks; = Need to quickly adapt, restructure and focus on financial strength

14. Leveraging EU funding: the case for (roads) PPPs = Hybrid PPPs: added value / current shortage of public funding and private liquidity + 2000-2010: Increasing attention to the potential role that private finance can play in helping the investment challenge in the EU; + Significant available funding: Cohesion/Structural funds/TEN funds + EIB NEW = Emergence of public authorities/multilateral lending for PPPs… …but no discernable EU PPP policy Today PPPs are carried out without EU funding, while EU money is spent on traditional projects

15. Leveraging EU funding: the case for (roads) PPPs EIB financial instruments: Senior debt, SFF reserve, LGTT EIB support: JAPERS/JESSICA, EPEC EIB = Key financer of transport infrastructure (1994-2007: 85% PPP funding to transport projects, 25 bn.)

16. Leveraging EU funding: the case for (roads) PPPs Advantages Maximising absorption of EU grants by pursuing direct lending and PPPs/concessions; Presence of public players as « catalyst » for commercial banks and « comfort » for private operators; Main obstacles More complex procedures to be managed jointly; EU Public procurement procedures to be flexible enough/nuances of PPP Time issue: (budgetary period is limited = uncertainty of available funding? Increased risk? Require governments underwriting for financial close?); Institutional and legal framework; Lack of information (& limited successful precedents)

17. Succesfull exemples (toll concessions) 1/2 1/ The Rion - Antirion bridge – West Greece: the longest cable stayed bridge worldwide - 2.880 m Built: 1999-2004 (five months ahead of schedule) Total cost: 803.000.000 EU Grant: 256.000.000 (32%) State budget: 108.000.000 (14 %) Private financing: 438.000.000 (54 %) Duration: 35 years A significant role in the development of the region; 1.5 bn influence to Greece economy (source: DG REGIO); Reduced crossing time to 5 min; Engineering masterpiece (remaining in operation whatever the weather conditions).

21. Other successful examples (toll concessions) 2/2 N1-M1 Dundalk bypass (Ireland) – Dublin Northern border route Construction Drogheda bypass – 21.5 km. (Public procurement) Operation and maintainance Drogheda bypass + other 43 km. Dundalk bypass = 11 km new section of motorway + 7 km of new link roads (DOBF model) Built: 2000 – 2003 (Drogheda bypass); 2004 – 2006 (Dundalk bypass) (4 months ahead of schedule) Total cost: 246 M (Drogheda bypass); 500 M (Dundalk bypass) Drogheda bypass: Irish Government + EU grants ( 61 M. 25 %) Dundalk bypass: 30-year concession (no EU funding)

22. Other successful examples (toll concessions) 2/2 Procured separately, but became hybrid through combined O & M concessioning The Dundalk Western By-pass is not only an integral link between Dublin and Belfast but is also part of the TERN (Euroroute E01) ; Significant project: 1.25 million m3 of earthworks + 14 major structures; 1st of the new generation of PPP road schemes in Ireland; Extensive ecological mitigation measures; Intense archeological scrutiny.

23. Conclusions A mix of legal uncertainty (national and EU level), complexity of combining procurement requirements of PPPs with those for grant funded projects, and lack of precedents have hampered undertaking of « hybrid » PPPs; Need new success stories ! EU funding (ex.: « new » Member States) shall not be in conflict with a stronger involvement of the private actors; EC, EIB/EPEC have an crucial role in fostering EU and national public sectors expertise, promoting result-oriented culture in the management of public services, and eliminating administrative bottlenecks; Coordinated action at EU level to improve leverage of EU funds would be beneficial to state of EU infrastructures.

24. Not our wealth created our transport infrastructure; It is our transport infrastructure, which created our wealth J.F.Kennedy, former US President, 1960 Thank you for your attention ! e.cuaz@asecap.com www.asecap.com Rue Guimard, 15 B -1040 Bruxelles + 32 289 26 23