WMU Lecture

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Financing Opportunities in Intermodal Freight
Transport in Europe
Jens Froese Maritime Logistics/ISSUS Hamburg
University of Technology
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Transport investment policy must strike a
difficult balance between guiding future
transport activities and following emerging
developments in demand for mobility. Transport
policy cannot be developed in isolation. Transpor
t is first of all a service to society at large.
It should accommodate, not determine, the
organisation of society and of the industry.
.
Transport Investment Policy
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The EU Member States share a few common
challenges They all face a growing demand for
new investments in infrastructure and rolling
stock as well as upgrades of the existing fleets
and systems. Publicly procured projects have a
proven track record of inefficiencies and the
public budgets are heavily constrained. A
stronger involvement of the private sector in the
realization of transport infrastructure can ease
the pressure lasting on the state-owned
infrastructure/infrastructure companies such as
railway companies. Considerable experience
throughout western Europe can be used to
replicate successes and to learn from pitfalls.
.
Financing Demand
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Long Standing Member Countries (Selection) (in
Bill. US on price basis 1995)
Austria Belgium Finland 1995 2.2 1.9 1.2 200
0 2.6 2.0 1.1 Average for all long standing
member countries 1995 1.8 2000 2.0
Total Transport Infrastructure Investment
Accession Countries (Selection)
Czech Rep Hungary Latvia 1995 1.4 0.7 0.2 200
0 1.7 1.0 0.2 Average for all accession
countries 1995 1.0 2000 1.2
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Long Standing Member Countries (Selection) ()
Austria Belgium Finland 1995 1.2 0.8 1.2 2
000 1.3 1.0 0.7 Average for all long standing
member countries 1995 1.1 2000 0.7
Transport Investment as Share of GDP
Accession Countries (Selection)
Czech Rep Hungary Latvia 1995 1.1 0.7 1.0 200
0 1.3 0.8 1.0 Average for all accession
countries 1995 1.1 2000 1.3
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Long Standing Member Countries (Selection) ()
Austria Belgium Finland 1995 53 62 68 2000
50 48 68 Average for all long standing member
countries 1995 62 2000 61
Road Shares
Accession Countries (Selection)
Czech Rep Hungary Latvia 1995 57 50 17 2000
42 42 25 Average for all accession
countries 1995 60 2000 61
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By and large the western European countries have
seen an increase in transport infrastructure
investment relative to GDP at the beginning of
the nineties and a decline, or a substancially
reduced increase at the end of the decade. In
most of the new member states the share of
transport investment of GDP continued to
increase.
.
Trend of Overall Transport Investment
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Apart from technical and planning problems, the
main difficulty facing TEN projects is
funding. Estimated costs for all TEN projects
completed by 2010 is around 400 billion more
than 100 billion for projects in the new and
future member states. Only 3 of the 14 priority
projects agreed by the Heads of State and
Government in 1994 (Essen Agreement) have been
completed. .
Financing TEN Projects
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Investment Priorities

• Maintenance
• Rehabilitation
• New .
  

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• Regulation 2236/95 adopted by the Council of
  Ministers lays down general rules for the
  granting of Community financial aid in the field
  of Trans-European Transport Networks
• up to 50 of the cost of preliminary studies
• up to 10 of the cost of the work
• the balance must be met out of public or private
  sector funds
• Amendment adopted in 1999 by the Council of
  Ministers and the European Parliament
• Community aid up to 20
• introduction of risk capital
• at least 55 of TEN-funds to be given to railway
  projects and not more than 25 to roads.
  
  .

Financing Instruments General
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• Financial Aid from Regional Funds
• European Regional Development Fund
• INTERREG III (a Community initiative, which aims
  at stimulating interregional co-operation in the
  EU between 2000 2006 financed by ERDF)
• Cohesion Fund (a special solidarity fund set up
  in 1993 to help the four least prosperous Member
  States for 2000 2006 the annual budget will
  amount to 2.5 billion)
• A number of financial instruments to assist the
  candidate countries in the preparation for
  accession (e.g. PHARE, SAPARD, ISPA)
• Various partnership agreements and specific
  pre-accession aids.
  .

Financing Instruments Regional Funds
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• Public funds (governmental agencies bank-like
  institutions) are currently the main source
• Search for financial contribution from users
  (e.g. tolls, fuel tax) according to the users
  paid principle
• Increased search for public-private
  partnernships (PPP)
• Privatization
• Private loans to government.
  .

Sources of Funding Transport Infrastructure
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• All varieties between traditional public funding
  and wholly private funding techniques including
• special funds financed with the revenue from
  specific taxes
• semi-public companies or state-controlled public
  bodies using private capital
• entirely built and financed by private sector
  but operated by a public body
• built and operated by a private undertaking but
  the owner is public and funding is private but is
  guaranteed by the state.
  .

Funding Techniques
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Another way of combining public and private
capital is to set up entities that are legally
independent of the state authorities and have
their own corporate status. This approach has
been widely used in western Europe for various
transport modes (e.g. Autoroutes de France).
.
Funding Techniques
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• European Investment Bank (EIB)
• European Bank for Reconstruction and Development
  (EBRD)
• World Bank
  .

International Financing Institutions
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Both an EU institution and a Bank, the EIB
tailors its activity to EU policies and acts in
partnership with the banking community and
international institutions. Shareholders are the
EU member states.
European Investment Bank
The cooperative ties which the EIB has forged
with the EU institutions and the European banking
community enable it to ensure optimum interaction
between its loans and EU budgetary aid, and to
mobilise sound banking resources for projects
which it supports in furtherance of the Unions
economic objectives. .
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The EIB is the EU lending institution for the
financing of projects of common interest to ist
member countries. It provides long-term loans,
adapted to the specific needs of the project,
under conditions that the commercial banking
sector would not usually match. The EIB is thus
complementary to other funding sources but often
provides a critical support for structuring the
finance of major transport projects.
.
European Investment Bank
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Loans for transport projects represent 40 of all
individual EIB loans
EIB Activity in the Transport Sector in the
EU (in million Euro)
European Investment Bank
Finance Contracts Signed 2000 2001 2002 Exce
ptional projects 310 325 - Railways 1394 16
48 2474 Roads, motorways 2582 2621 2486 Air
transport 1494 1014 2082 Maritime transport
161 623 386 Urban transport
922 1618 1771 Other - -
25 TOTAL 6863 7848 9225
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EIB Forum 2005, Helsinki Closing the Innovation
Gap 27/10/2005  - 28/10/2005 The Lisbon
Strategy remains the driving force behind the
European marketplace, developing an economy based
on knowledge and innovation. At this years
annual EIB Forum, spearhead entrepreneurs,
researchers and innovators will give invaluable
insights into the challenges posed by the Lisbon
Strategy, examining how far the Union has come
since 2000 and sharing with us their vision for
the way forward.
European Investment Bank
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• Lending activity is geared to following
  operational priorities
• Regional development and economic and social
  cohesion within the Union,
• Implementation of the Innovation 2000
  Initiative,
• Environmental protection and improving the
  quality of life,
• Preparing the Accession Countries for EU
  membership,
• Community development aid and cooperation policy
  in the Partner Countries.
• Financing SMEs via global loans and venture
  capital operations,
• Trans-European transport and energy networks
  (TENs),
• Human capital formation.

European Investment Bank
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COM(2003) 132 final, 2003/0081 (COD) Communicatio
ns from the Commission Developing the
trans-European Transport Network Innovative
Funding Solutions Interoperability of Electronic
Toll Systems
.
Outlook Innovative Funding
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• Developments of PPPs is part of the general trend
  towards increased private sector participation
  and market discipline, including privatisation
  and deregulation.
• The rationales behind this trend commonly are
• increase of financing volumes beyond public
  finance constraints
• increase of efficiency and quality of service by
  allocating responsibilities to the private sector
• Competitiveness and fair competition as a
  consequence of liberalisation and deregulation
  policies. .

Why PPPs?
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Implementing advanced risk sharing structures is
an important PPP goal. General rule is that
risks should be borne by the party being best
able to control them. Legal situation dependent
on national law. EC Green Paper on
Public-Private Partnerships and Community Law on
Public Contracts and Concessions (COM (2004) 327
final published 30 April 2004
.
PPP Risk Allocation
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• Sound and up-to-date traffic and transport
  statistics
• Public-private agreements on traffic
  generators such as ports, transshipment and
  cargo distribution centres (establishing a CDC
  requires about one year, to provide an adapted
  transport network about 10 years!)
• Forecast trade flows
• Identification of social and commercial
  interests
• Methods to assess priorities
• Portfolios of projects for external funders
• National lt-gt European investment plans and
  political commitment
• Selling plans to the public and to the
  industry.
  .

Ivestment Decisions
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• Appraisal Methodologies for Transport
  Infrastructure Investments
• Strategic Environmental Assessment (SEA)
• Environmental Impact Assessment (EIA)
• Cost-Benefit Analysis (CBA)
  .

Appraisal Methodologies
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• Port and terminals fully owned and operated by
  state/community
• State/community-owned company operates port and
  terminals
• State/community operates port and is landlord to
  terminal-operators (long-term concessions)
• State/community owns the port but port authority
  is an independent company (state-owned or
  privatized)
• Port and terminals privately owned and operated.
  
  .

Financing Ports
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A PPP project brings together government and
industry to jointly realize investments in public
infrastructure, whereby the this partnership
achieves both social and investment goals. The
quality of the partnership is thereby the key
success factor.
Public Private Partnership (PPP)
Source HSH Nordbank
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Financing of transport needs to go beyond
infrastructure and includes rolling stock and
cargo units. Currently container finance is a
highly interesting investment but has a dynamics
very different from infrastructure. The
container trade market since 1995 has grown at a
rate not less than 5 (in 2001 3.5) and is
expected to grow at about 10 in 2005. The world
container fleet in 2004 exceeded 17,000,000 TEU.
.
Rolling Stock and Cargo Units
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• Investing in portfolios of containers has become
  more attractive to more types of investors
• Shipping companies
• Container leasing companies
• Funds
  .

Container Financing
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Transport Partnerships 2005 The 5th Annual
Global Transport Infrastructure PPP
Conference 28-29 September 2005 Paris,
France
Transport Partnership
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Thank you for listening
European Invetment Bank