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EPEC – Private sector Forum II Europe 2020 – A view of the future Brussels June 2nd 2010

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Title: EPEC – Private sector Forum II Europe 2020 – A view of the future Brussels June 2nd 2010


1
EPEC Private sector Forum II Europe 2020 A
view of the future Brussels June 2nd 2010

2
The European Investment Bank (EIB) Long-term
finance promoting European objectives
  • European Unions long-term lending bank set up in
    1958 by the Treaty of Rome.
  • Shareholders 27 EU Member States
  • Governance
  • Board of Governors EU Finance Ministers
  • Board of Directors - Member States European
    Commission
  • Management Committee EIBs executive body
  • Audit Committee independent, non-resident

3
The European Investment Bank (EIB) European
priority objectives
  • Within the Union
  • Cohesion and convergence
  • Small and medium-sized enterprises (SMEs)
  • Environmental sustainability
  • Knowledge Economy
  • Trans-European Networks (TENs)
  • Sustainable, competitive and secure energy

4
Trans-European transport network (TEN-T)
Progress until end 2009
5
Infrastructure financing needs Transport
Trans-European Networks (TEN)
  • The estimated TEN-T investment requirement in
    2007-2013 is ca. 390bn
  • Potential Sources of Finance
  • National Public resources finance ca. 40-50
  • Private sector risk finance needed to finance
    20-25
  • EIB loans finance ca. 15-20 of TENs investments
  • Commission resources (Structural Funds and TENs)
    cover ca. 15

Source DG MOVE, EIB
6
EIBs support for Trans-European Networks (TENs)
  • Large transport and energy infrastructure
    networks
  • Transport supporting development and integration
  • Security and diversification of internal energy
    supply
  • Loans of EUR 12.7bn in EU in 2009
  • EUR 10.7bn for TEN Transport
  • EUR 2.0bn for TEN Energy
  • Total loans of EUR 49.9bn 2005-2009
  • EUR 42.9bn for TEN Transport
  • EUR 6.9bn for TEN Energy

7

Clear step-up in EIB TEN lending activity
8
  • In addition to standard EIB Senior loans for
    TENs projects, EIB also provides
  • Structured Finance Facility (SFF) to fund
    projects with a higher risk profile and enable
    equity financing mezzanine and guarantee
    operations for infrastructure schemes
  • Loan Guarantee Instrument for TEN Transport
    projects (LGTT) EUR 5 bn EIB guarantee programme
    for which EUR 1 bn risk capital has been jointly
    provided by the EIB and EU budget. LGTT shares
    the revenue risk in the early years of TENs
    projects
  • Investments in Equity Funds EIB invests in
    equity funds, e.g. Marguerite, which in turn take
    direct equity participations in infrastructure
    investments
  • European PPP Expertise Centre (EPEC) Expertise
    service provided by the EIB and European
    Commission to support programme and policy
    development as well as best practice by the
    public sector for PPP transactions.
  • Joint Assistance to Support Projects in the
    European Regions (JASPERS) a joint policy
    initiative of EIB, DG REGIO, EBRD and KfW to
    provide assistance for absorption of Structural
    Cohesion Funds period 2007 to 2013
  • European Clean Transport Facility (ECTF) is a
    major EIB financing programme to support
    investments targeting RDI (Research, Development
    and Innovation) emissions reduction and energy
    efficiency in the European transport industry.
    EIB lending under the ECTF facility currently
    amount to EUR 4.2 bn and targets automotive
    (OEMs/Suppliers), railroad, aircraft and shipping
    industries as well as related infrastructure.

9
EIB as a financier of PPPs
  • PPP an important additional instrument for
    infrastructure investment
  • Since 1990, EIB has progressively broadened
    geographic and sectoral spread of its PPP lending
  • The Bank is now Europes foremost funder of PPP
    projects. Portfolio of 120 projects and
    investment of around EUR 25 billion
  • Signatures in 2008 in excess of EUR 3.5 billion.
    Despite difficult economic conditions in 2009,
    signatures exceeded EUR 2 billion.

10
EIB support for major transport PPPs
11
EIB Structured Finance Facility - SFF
Purpose of SFF is to create value added by
financing riskier parts of selected transactions
and by increasing EIB leverage and financing
capacity. EIBs total SFF financing of EUR 4.2 bn
in 2008, EUR 5.8 bn in 2009
SFF Target Companies risk profile
SFF allows EIB to increase the leverage on its
own Funds and those of the EU Budget through
Structured Finance
12
LGTT EUR 5 bn Loan Guarantee instrument
  • LGTT is a specialized risk based instrument
    developed by the EIB in cooperation with the
    European Commission.
  • The LGTT Guarantee Facility is designed to
    provide contingent mezzanine debt and thereby to
    protect senior debt in TENs projects that are
    exposed to traffic risk.
  • It provides up to 20 of additional mezzanine
    debt funds to meet traffic down side scenarios
  • LGTT makes the capital structure more robust to
    traffic project and financial uncertainties
  • In current market circumstances, LGTT proved
    decisive to attract senior lenders and to close
    PPP projects with traffic risk components.

13
LGTT State of play
  • The pipeline at the end of 2009 stands at 17
    active projects
  • The project pipeline is estimated to represent 20
    projects by the end of 2010 and roughly 25 - 35
    projects by the end of 2011.
  • LGTT is fully on track, facilitating the progress
    of traffic based PPP throughout the Union.
  • It covers the majority of eligible deals in the
    market.

14
Technical Assistance JASPERS
  • Joint Assistance to Support Projects in the
    European Regions
  • Joint policy initiative of EIB, DG REGIO, EBRD
    and KfW
  • Assistance for absorption of Structural
    Cohesion Funds period 2007 to 2013
  • Assistance with project presentation and
    identification
  • Analysis of horizontal issues such as grant/loan
    blending
  • Project implementation support to follow in
    second phase

15
European Clean Transport Facility (ECTF)
  • ECTF facility is targeting RDI (Research,
    Development and Innovation) investments in
    emission reduction and energy efficiency in the
    European transport industry.
  • This Risk Sharing facility targets larger scale
    investments with corporate sponsors (or project
    finance structures).
  • Such risk-sharing facility is used for example
    for investments in
  • intelligent traffic management (e.g. variable
    message signs, advanced traveller information
    systems, advanced drivers assistance, speed
    advisory/control, electronic tolls, etc.), and
  • (ii) Smart vehicles (e.g. Advanced Drivers
    Assistance, accident sensors, automated guided
    vehicles, navigation systems, inter-vehicle
    communications systems etc.), and Green
    vehicles (application of ICT in reducing the
    congestion of vehicles).

16
EIB Fund Investments


16
European Investment Bank
17
2020 European Fund for Energy, Climate Change and
Infrastructure the Marguerite Fund
  • The Fund targets an equity base of EUR
    1.5bn and an associated Debt Co-
  • Financing Initiative (DCI) of EUR 5bn
  • Major publicly funded Core Sponsors (EIB,
    CDC, CDP, ICO, PKO and KfW) as
  • well as the European Commission, CGD and
    Bank of Valetta are backing this
  • Fund also Nordic Investment Bank and
    Black Sea Trade Development
  • Bank support it through the Debt
    Co-financing Initiative. Public and private
  • sector investors from all EU countries
    are expected to join at a later stage.
  • Target sectors TEN-T, energy and climate
    change
  • Focus on solid IRR targets - Fund to give
    preference to projects with
  • satisfactory Economic Rates of Return
    (ERR)
  • Expected to be a model in the future for
    other similar public and private funds so
  • as to attract Capital Market
    Institutions (including private and public
    pension
  • funds and insurance companies) to invest
    in TENs infrastructure


17
European Investment Bank
18
Future Financing of Trans-European Networks (TEN)
  • TEN-T investment programme is so large that there
    is currently uncertainties relating to the scale
    of investments and the way it is to be financed.
  • Continued EIB effort to develop private sector
    participation in TENs funding

Source DG MOVE, EIB
19
Ideas on Future Financing of TEN-T Europe 2020
Strategy Communication from the EC
  • Europe 2020 Strategy
  • Priority 1 Smart growth (Innovation, Education,
    Digital Society)
  • Priority 2 Sustainable growth (Climate, Energy
    and Mobility, Competitiveness)
  • Priority 3 Inclusive growth (Employment and
    Skills, Fighting Poverty)
  • 4 Working Groups to determine how the EIB can
    best support the new policy framework
  • Preliminary outcomes
  • A lot can already be done with our current
    offering
  • However, to close market gaps, the Bank may
    need to expand or develop
  • Ways to leverage EU Budgetary funds
  • Risk-sharing activities
  • Capital-light structures

20
EIBs Role in Facilitating additional TEN-T
investment
  • Facilitating Investment by Capital Market
    Institutions in infrastructure through guarantee
    and subordinated debt instruments
  • Establishing Equity Funds to finance TEN-T
    Infrastructure such as the 2020 European Fund for
    Energy, Climate Change and Infrastructure the
    Marguerite Fund
  • Improvement of the coordination of EU Funds
  • Expand the development of knowledge
    sharing/expertise advice such as EPEC and JASPERS
  • European Clean Transport Facility (ECTF)
  • Possible broadening of the scope of LGTT

21
Facilitation of the issuance of bonds through
subordinated debt instruments
Expansion of Investment by Capital Market
Institutions
Senior Tranche Project Bond
  • Greater availability of subordinated debt
    tranches could enhance the credit of projects.
    The size of this tranche would depend on the risk
    profile of the project/portfolio as the purpose
    is to uplift the credit profile of the higher
    ranking senior debt financing to single-A rating
  • Institutional investors would be interested to
    invest in the sector. The subordinated tranche
    could, inter alia, be provided on contingent
    basis by EIB (subject to its standard credit and
    other requirements), which would make it similar
    in structure to LGTT,
  • Suitable for risk sharing between public and
    private institutions.
  • TEN-T budget could contribute to such instrument
    through risk sharing.

Target rating A/AA
Subordinated Tranche
Size depends on the project
Shareholder funding
Normal or elevated level of equity/shareholder/mez
zanine debt
22
Ideas on Future Financing of TEN-T Possible
broadening of the scope of LGTT
  • In order to reach a larger pool of candidate
    projects, EIB/EC consider that broadening the
    scope of LGTT to availability-based schemes is
    worth examination.
  • This would allow targeting significant
    investments in the rail and inland waterway
    projects which are in many cases being procured
    as availability-payment based PPPs.
  • A clear focus would be to introduce even stronger
    support for TEN-T priority Projects, most of them
    in the Rail sector, but also including priority
    projects like SESAR or Canal Seine Nord.
  • This innovation could substantially open Rail
    PPPs to Capital Market Financing and provide
    ground braking solution for difficult
    multi-national projects like SESAR.

23
Guarantee for Availability based
Projects Definition / Objectives
  • Unfunded guarantee instrument designed to enhance
    the credit of the project.
  • The unfunded nature provides a supplementary
    buffer to down sides, as they exceed the project
    funding and are more cost efficient.
  • Encourage primarily the bond but also the bank
    debt financing of TEN-T railway projects
  • The GAP Facility would
  • Improve the rating be assigned to the senior
    debt/bonds to A, AA-levels
  • Consequently
  • enable certain institutional investors to invest
    in an asset class that matches their own
    liabilities
  • maximise provided service to institutional
    investors lacking specialist expertise in the
    sector, project finance or PPPs

24
Improvement of the Coordination of EU Funds
  • The TEN-T budget and Cohesion Fund are among the
    most important providers of Community support
    for the implementation of the TEN-T projects
  • Their roles, availability, as well as the way
    they are managed vary substantially.
  • An improved system of coordination could be
    envisaged, perhaps based on EC/EIB/National Task
    Forces
  • These task forces could i) assists national
    authorities to make the best use of the available
    Community resources and ii) oversee and
    coordinate the implementation of the TEN-T
    network, ensuring the commitment to individual
    projects.

25
Contacts
  • Thomas C. Barrett, Director
  • Barrett_at_eib.org, tel 352 43 79 87006
  • Jukka Luukkanen, Head of Division
  • Luukkane_at_eib.org, tel 352 43 79 86412
  • Matthias Woitok, Deputy Head of Division - LGTT
  • m.woitok_at_eib.org, tel 352 43 79 87336

Institutional and Operational Policies within the
EU Alfredo Panarella Head of Unit PANARELL_at_eib.or
g, tel. (32)(0)2 235 00 82 José Brito Liaison
with European Parliament britoant_at_eib.org, tel.
(32)(0)2 235 00 76
http//www.eib.org
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