Carty morning EIB TEN-T Project Financing and Specialised ...

1European Investment Bank

Seminar on TEN-T PROJECT FINANCE AND PPPs

EIB TEN-T Project Financing and Specialised Financial Products

Andy CartyBrussels, 01 June 2010


The European Investment Bank (EIB)Long-term finance promoting European objectives

European Union’s 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 –EIB’s executive body Audit Committee – independent, non-resident


The European Investment Bank (EIB)European priority objectives

Within the Union:Cohesion and convergence Small and medium-sized enterprises (SMEs)Environmental sustainabilityKnowledge EconomyTrans-European Networks (TENs)Sustainable, competitive and secure energy


Trans-European transport network (TEN-T) Progress until end 2009


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


EIB’s support for Trans-European Networks (TENs)

Large transport and energy infrastructure networksTransport supporting development and integrationSecurity and diversification of internal energy supply

Loans of EUR 12.7bn in EU in 2009:EUR 10.7bn for TEN TransportEUR 2.0bn for TEN Energy

Total loans of EUR 49.9bn 2005-2009EUR 42.9bn for TEN TransportEUR 6.9bn for TEN Energy


Clear step-up in EIB TEN lending activityTotal TEN signatures (EUR bn)

0.02.04.06.08.0

10.012.014.016.0

2004 2005 2006 2007 2008 2009

27%27%46%37%42%40%Percentage of total TEN-T in Rail

0.81.60.50.00.20.0SFF in TEN-T

11.18.37.87.97.16.6Senior loans

1.12.90.91.30.20.3PPP in TEN-T

10.16.75.25.24.44.4Other Projects

1.83.23.12.72.92.2Priority Projects

TEN-T

11.99.98.37.97.36.6TEN-T

2.02.71.40.40.91.3TEN-E

13.912.69.78.38.27.9TEN

200920082007200620052004EIB Funding


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.


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 Europe’s 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.


EIB support for major transport PPPs

TRANSMONTANA MOTORWAY (PT) - €289m

IP4 AMARANTE-VILA REAL (PT) - €200m

DOURO LITORAL PPP (IC 24) (PT) - €350m

A1 MOTORWAY - 2ND PHASE (PL) - €575m

2ND COEN TUNNEL PPP (NL) - €194

AEROPORTI DI ROMA II (IT) - €80m

M6 DUNAUJVAROS-SZEKSZARD (HU) - €200m

BAIXO ALENTEJO MOTORWAY (PT) - €225mE-K-P-P-T MOTORWAY PPP PROJECT (GR) - €200m

SCUT ACORES (PPP) TRANCHE BBVA (PT) - €60mAUTOROUTE A88 PPP (FR) - €102m

SCUT ACORES (PPP) TRANCHE BST (PT) - €60mTRAMWAY DE REIMS PPP (FR) - €107m

M80 MOTORWAY PPP (GB) - €157mAUTOROUTE A 19 (TEN/SFF) (FR) - €200m

M25 WIDENING TRANCHE A (GB) - €448mAUTOVIAS RENOVACION PPP (ES) - €211m

METRO DE SEVILLA DBFO 1&2 (ES) - €10mMETRO DE MADRID IV- TR C (ES) - €50m

AUTOBAHN A-5 PPP TEN (DE) - €225mINFRABEL RAIL TUNNEL PPP (BE) - €313m

2009200920082008


EIB Structured Finance Facility - SFFPurpose of SFF is to create value added by financing riskier parts of selected transactions and by increasing EIB leverage and financing capacity. EIB’s total SFF financing of EUR 4.2 bn in 2008, EUR 5.8 bn in 2009

SFF Target Companies risk profile

Moody's S&P and Fitch… …A1 A+A2 AA3 A-

Baa1 BBB+Baa2 BBBBaa3 BBB-Ba1 BB+Ba2 BBBa3 BB-B1 B+… …

Corporate Ratings

SFF allows EIB to increase the leverage on its own Funds and those of the EU Budget through Structured Finance


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.


European PPP Expertise Centre

- European PPP Expertise Centre a collaborative initiative of the EIB, the Commission and EU Member States.

- EPEC’s mission to assist the public sector to address shortcomings in organisational capacity and promote expertise and experience sharing.

- Good practice guidance is disseminated among EPEC’s members with the aim of enhancing public sector management, reducing PPP costs and increasing deal flow.

- Analysis of the impact of the credit crisis, and the responses of the public sector (guarantee instruments, co-lending facilities, funding competitions and book building) has been the core component of EPEC’s work in 2009.


Technical Assistance – JASPERS

Joint Assistance to Support Projects in the European RegionsJoint policy initiative of EIB, DG REGIO, EBRD and KfWAssistance for absorption of Structural & Cohesion Funds period 2007 to 2013Assistance with project presentation and identificationAnalysis of horizontal issues such as grant/loan blendingProject implementation support to follow in second phase


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:

(i) intelligent traffic management (e.g. variable message signs, advanced traveller information systems, advanced driver’s 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).

16European Investment Bank 16European Investment Bank

EIB Fund Investments

5285243Total

Renewable Energy, TEN-T, TEN-E

EU

100710Dec-09

2020 European Fund for Energy, Climate Change & Infrastructure [Marguerite]

Energy Efficiency & Renewable Energy

SE Europe including Turkey

2595Dec-09

SE Europe Energy Efficiency Fund

PPPEU50175Dec-09

Meridiam Infrastructure Fund II

Timberland assetsWorldwide (40% Europe)1785May-09Dasos Timberland Fund I

PPP / Renewable Energy

NW Europe35220Dec-08

DIF Infrastructure Fund II

Renewable EnergyES,PT1596May-08

Espirito Santo Infrastructure Fund

Renewable EnergyES,PT1541Dec-07Green Alliance Renewable Fund

PPPEU50547Oct-06Meridiam Infrastructure Fund

ITC expansionCentral & Eastern Europe351531Aug-07Mid Europa Fund III

Renewable EnergyBenelux, FR, DE, Scandinavia25314Sep-07

DIF Renewable Energy Fund

Renewable EnergyCEE2598Jun-07Enercap Power Fund

PPPIT18120Dec-06San Paolo IMI Infrastructure Fund

PPPUK, IE, FR, DE28315Jul-06Barclays European Infrastructure Fund

PPPNW Europe15121Aug-05Dutch/Northern EU Infrastructure Fund

PPPFR, IT, ES, PT25120Mar-06Dexia Southern EU Infrastructure Fund

ITC expansionCEE50655Aug-05Emerging Europe Convergence Fund

EUR (M)EUR (M) Sector FocusGeographical Focus

Total EIB CommitmentFund Commitment

First closingFund

17European Investment Bank 17European Investment Bank

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


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

Comprehensive Network EU 27, 2020 horizonTranseuropean Transport Network 2007-2013

EU 27

Cost (€ billion)TEN-T Basic Network 390- New Member States (EU 12) 70- Old Member States (EU 15) 320

Community contribution (€ billion)Programme TEN-T 8Cohesion Fund 35ERDF (regions convergence ) 9EIB Loans and guarantees (estimated) 60-70

Total Community contribution (€ billion)Grants 52Grants and Loans 112-122

Balance to be financed from public (national) or private sources 270-280


Europe 2020 StrategyCommunication from the Commission

3 mutually reinforcing priorities:Smart growth, developing an economy based on knowledge, innovation, education and digital society; Sustainable growth, promoting a low-carbon, resource-efficient and competitive economy; and Inclusive growth, fostering a high employment economy delivering social and territorial cohesion.

Seven Flagship initiatives:Innovation union - re-focussing R&D and innovation policy on major challenges;Youth on the move - enhancing the quality and international attractiveness of Europe's higher education system;A digital agenda for Europe - delivering sustainable economic and social benefits from a Digital Single Market based on ultra fast internet;Resource-efficient Europe - supporting the shift towards a resource efficient and low-carbon economy;An industrial policy for the globalisation era - helping the EU's industrial base to be competitive in the post-crisis world;An agenda for new skills and jobs - creating the conditions for modernising labour markets;European platform against poverty - ensuring economic, social and territorial cohesion.


EIB’s 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


Facilitation of the issuance of bonds through subordinated debt instrumentsGreater 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 ratingInstitutional 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.

Shareholder funding

Subordinated Tranche

Senior Tranche –

Project Bond

Normal or elevated level of equity/shareholder/mezzanine debt

Size depends on the project

Target rating A/AA

Expansion of Investment by Capital Market Institutions


Guarantor

Project SPV

Capital Market Investors

Proceeds of Project Bond Issue

Guarantee Facility Agreement

Debt service guarantee Other senior

debt providers

senior debt

Public Authorities

Facilitation of the issuance of bonds through guarantees

• Instead of loans EIB can provide guarantees – the provision of guarantees is subject to substantially the same requirements and terms & conditions as loans. • Such guarantees could also be provided using Community Budgetary funds on Risk Sharing basis.

Expansion of Investment by Capital Market Institutions


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.

This innovation could substantially open Rail PPPs to Capital Market Financing.


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.


Contacts

http://www.eib.org

Andy Carty, Special Advisor, [email protected], tel +352 43 79 77012

Jukka Luukkanen, Head of Division, [email protected], tel +352 43 79 86412

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