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

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Presentation on theme: "European Week of Regions and Cities Open Days T.C. Barrett Director Brussels, 10th October 2006."— Presentation transcript:

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

2 2 Table of Contents 1. Equity Funds 2. 3. EPEC Environmental Financing and Carbon Funds

3 3 Equity Portfolio Summary Active development commenced early 2005 Signed transactions: –EECFGeneral Infra50m –Dexia SEIEFPPP25m –DIFPPP15m –Barclays EIF2PPP38m Approved transactions: –SPIMI Fondo ItaliaPPP20m –ECEFClean energy25m

4 4 EIB and infrastructure funds - Rationale for future development EIBs 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 5 EIB as an infrastructure fund investor Logical extension of EIBs 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 6 Table of Contents Equity Funds 2. 3. EPEC Environmental Financing and Carbon Funds 1.

7 7 Europes PPP challenge PPPs have a key role in modernising Europes infrastructure Increasing evidence of PPPs track record on –effectiveness and –efficiency But weakness of public sector organisational capacity still constraining further developments

8 8 Wide recognition of the need to 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 EIBs Financing of PPPs (2005) EBRD and UNECE proposals on financing concessions in Transition Countries and capacity building Developing PPPs in New Europe (PriceWaterhouseCoopers)

9 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 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 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 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 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 14 Table of Contents 1. Equity Funds 2. 3. EPEC Environmental Financing and Carbon Funds

15 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 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 17 MCCF Countries in Transition and applicable emissions trading regimes

18 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 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 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)

21 21 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 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 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 24 Carbon Credit Transaction steps from origination to delivery

25 25 Contacts for EPEC /innovation_2010_initiative_en.pdf Thomas Barrett +352 4379 7006 Director Action for Growth Instruments Department Chris Knowles +352 4379 7306 Head of Division Action for Growth Instruments Department Nicholas Jennett +352 4379 7320 Senior Loan Officer Action for Growth Instruments Department

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

27 27 Table of Content 1. European Investment Bank 2. 3. RSFF – Key Elements RSFF Implementation Strategy 4. Develop Synergies with Financial Intermediaries

28 28 European Investment Bank EIB 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 Unions 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 29 European Investment Bank Innovation 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. mEUR/year Year

30 30 European Investment Bank What 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 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 ModelProject 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 32 European Investment Bank How do we define eligible costs? ELIGIBLE COSTS 20m Project related CAPEX on tangible & intangible assets Research staff cost Incremental working capital Related operating costs Time Year 1 10mYear 2 30mYear 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

33 33 Table of Content 1. European Investment Bank 2. 3. RSFF – Key Elements RSFF Implementation Strategy 4. Develop Synergies with Financial Intermediaries

34 34 RSFF – Key Elements 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)

35 35 RSFF – Key Elements RSFF 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.

36 36 Table of Content 1. European Investment Bank 2. 3. RSFF – Key Elements Develop Synergies with Financial Intermediaries 4. RSFF Implementation Strategy

37 37 Implementation Strategy Key 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 38 Generating Projects and Portfolio Building RSFF Product Development : rationale for SMEs/ Midcaps MidCaps/ SMEs SFF Financing (low/sub-investment grade) for RDI projects RSFF Financing Needs Complementary Products 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 39 Key counterpart groups Generating 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 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 sciencesTextiles R&D Infrastructure ETP projects Waterborne / Energy production

41 41 Financing Corporates and Projects (I) Corporates / Projects (SPV) Low/Sub-Investmentgrade Co-Financing Bank(s) R&D Project(s) Senior Loans Junior Loans Mezzanine 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

42 42 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

43 43 Table of Content 1. European Investment Bank 2. 3. RSFF – Key Elements RSFF Implementation Strategy 4. Develop Synergies with Financial Intermediaries

44 44 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 45 RSFF Facilities (i) SME/MidCap Corporates Sub- investmentgrae Funding Partner Bank Managed delegation Selection of partners performing project evaluation, transaction implementation; EIB focus on quality of partners credit process and eligibility verification RSFF Contribution EIB 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 Profile Sub-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 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 ! Develop synergies with Financial Intermediaries

47 47 Next steps Negotiation with « lead partners » Product Development Deployment across EU Develop synergies with Financial Intermediaries

48 48 Practical Implementation of Strategy Continued awareness raising for RSFF EIB Directorates OperationsProjects Brussels Office European Commission DG Research ETPs ETP Workshop on financing 17/10 ETP Events (14 in Q3) Participation in Finance Workshops (eg. Hydrogen and Fuel Cells) Support of JTIs and Research Infrastructures Conferences Presentation to Member States 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 49 Contacts for i2i /innovation_2010_initiative_en.pdf Thomas Barrett +352 4379 7006 Director Action for Growth Instruments Department Kim Kreilgaard +352 4379 7313 Head of Division Action for Growth Instruments Department Dietmar Dumlich +352 4379 7317 Senior Loan Officer Action for Growth Instruments Department

50 TEN Objectives and Priorities Tilman Seibert

51 51 Table of Content 1. TEN Objectives and Priorities 2. Loan Guarantee for TEN-T Transport

52 52 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

53 53 Trans European Transport Network (TEN-T) /innovation_2010_initiative_en.pdf 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

54 54

55 55 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

56 56 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

57 57 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 58 Table of Content 1. TEN Objectives and Priorities 2. Loan Guarantee for TEN-Transport


60 60 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.

61 61 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.

62 62 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 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.

64 64 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.

65 65 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.

66 66 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.

67 67 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.

68 68 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.

69 69 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.

70 70 Contacts for LGTT Thomas Barrett +352 4379 7006 Director Action for Growth Instruments Department Tilman Seibert +352 4379 7335 Head of Division Action for Growth Instruments Department Matthias Woitok +352 4379 7336 Senior Loan Officer Action for Growth Instruments Department

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