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Presentation toDiplomatische Akademie Wien

European Infrastructure FinancingWhat new developments are occurring? 

2 June 2004

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• Created by the Treaty of Rome in 1958, to provide long-term finance for projects promoting European integration;

• Subscribed capital EUR 163.7bn;

• EIB shareholders: 25 Member States of the European Union

• EIB’s lending in 2003: EUR 42bn (EUR 34bn within the EU); funds raised via bonds

• “not for profit” - organisation

European Investment Bank: European Union’s Financing Institution

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Economic and social cohesion in an enlarged EU

Support for SMEs

i2i, R&D, Dissemination of innovation, technology networks,education, health

Environmental protection and improvement

Support for EU development aid and cooperationpolicies

Promoting European Union policies

EIB PROJECT ELIGIBILITY

Development of Trans-European and access networks

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• Low cost of "AAA" rating funding benefit passed on to clients;

• Large amounts;

• All major currencies, including more and more those of the New Member States;

• Long maturities;

• Catalytic effect of participation on other banking or financial partners.

WHAT ARE THE BENEFITS OF AN EIB LOAN

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In 2003, EUR 4.6bn for investments in the 10 New Member States in Central and Eastern Europe, Cyprus and Malta

FOCUS:

FINANCING EU ENLARGEMENT

Communications infrastructure (including TENs);

Regional development;

Industrial competitiveness (including Foreign Direct Investment);

Environmental protection;

Health and Education

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EURm

Acceding states

Accession states

Applicant states

Candidate states

--------

Energy

Communications

Water

Industry

Education,Health

Global loansA firm commitment to accession

Poland 4 860Czech Rep 3 160

Hungary 2 149

Cyprus 705

Malta 25

Slovenia 974

Lithuania 249

Latvia 276

Estonia 192

LOANS IN THE NEW MEMBER STATES1999-2003: EUR 13.5bn

Slovakia 880

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7A firm commitment to accession

LOANS IN ACCESSION, APPLICANT AND CANDIDATE STATES 1999-2003: EUR 6.1bn

Romania 2 175

Bulgaria 565

Turkey 2 197

Serbia & Montenegro 498

Croatia 446

Albania 108FYRM 93

Bosnia-Herzegovina 185

EURm

Acceding states

Accession states

Applicant states

Candidate states

--------

Energy

Communications

Water

Industry

Education,Health

Global loans7

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EIB PPP Signatures p.a.(MEUR)

0

500

1000

1500

2000

2500

3000

3500

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

/06

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• Long term Public Sector Political Commitment and adequate financial involvement of the public sector

• Focused, dedicated and experienced public sector team – PPP Task Force.

• Favourable legal and institutional framework.

• Transparent + competitive procurement (concept, construction and operation phase)

• Realistic risk sharing.

• Partnership.

“Must” for successful PPPs

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Learning Process

Extra costs

Value added

Benchmarking

Risk-sharing

Procurement

Extra costs of PPPs

Value added

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TRANS-EUROPEAN NETWORKS ANDEUROPEAN TRANSPORT CORRIDORS

Projects financed by the EIB (1993-2003)

Oil/Gas platform

Priority TENS

Section financed

Other TENS

Transport corridors, CEC

Section financed

Road/Rail

Airport

Electricity

Gas

Air traffic management

Port

Inter-modal freight centre

Projects of multi-regional character

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1. Reconfirmed European PrioritiesA new start for a quicker

implementation of TENs after the “van Miert Group” proposals

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Reasons for sluggish TENs implementation

• Absence of common priorities / timetables • Structural constraints (e.g. technical interoperability;

limited deregulations)• Administrative, legal and environmental requirements• Inadequate economic viability• Limited commitment of state funds but need for high

public financing and grant support

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TENs after “van Miert”

• Total investment requirements up to 2020 estimated at EUR 235 billion in “priority projects”.

• 8 “priority projects” concerning investments in Central Europe. Austria is represented with 6 cross-border projects, i. a. the “Brenner Basis Tunnel”

• Total investment requirements in overall TEN infrastructure estimated at EUR 600 billion.

• EIB indicated as key financier for these projects.• However : lack of financial resources is not the main

cause of slow project implementation.

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TEN Railway Priority Projects

• Completion before 2007 : – Fast rail connection Paris, Brussels, Cologne, Amsterdam, London– Cork-Dublin-Belfast- Stranraer– Betuwe Line– Öresund Link (completed)

• Completion before 2010 : – Nürnberg-München/Kufstein-Innsbruck– Madrid-Barcelona-Perpignan; Madrid-Hendaya– TGV Est– Torino-Venezia– Multimodal link Portugal/Spain with rest of Europe– Kerava-Lahti– West Coast Main Line

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TEN Road Priority Projects

• Completion before 2007 : – none

• Completion before 2010 : – Lisbon/La Coruna; Lisbon/Valladolid; Lisbon/Seville (as part of

the multimodal link Portugal:Spain with rest of Europe)– Helsinki/Turku (as part of Nordic Triangle)– IRL/UK/BENELUX road link

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TEN Long-term Horizon Projects

• Firm government commitment for projects to be operational by 2020 : – 8 railway projects in a list of total 18– 2 motorway projects– 4 intermodal projects

• Longer-term horizon projects : – 3 railway projects in a list of total 4– no road project

• Cohesion projects : – Accessibility and interconnections of networks– Cross-border connections

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TEN Long-term Benefits

• Time savings equivalent to EUR 8 bn/year• Reduction of CO2 emissions by 17 m tonnes/year• Reduction of other emissions equivalent to

external costs of EUR 700 m• Stimulate international trade, in particular in

Central and Eastern Europe• Safety improvements• Boost GDP growth by 0.23% pa

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2. Trans-European Networks Investment Facility (TIF)

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Financing for Trans European Transport networks

• Substantial public sector investment in TENs networks• EU budgetary sources, EIB finance and private sector PPP

finance as complementary sources• Role of public financing nevertheless remains a keystone in

major new infrastructure investments

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EIB’s role in TENs growth initiative

1) Expand EIB financing commitments by increasing its capacity for existing senior debt

2) Increased acceptance of project risks through the EIB “Structured Finance Facility” instruments

3) Use of financing instruments including EIB guarantees and provision for equity and mezzanine finance

4) Increase leverage of EIB financing instruments by a. more effective combination with EU budgetary funds and guarantees

b. increased co-financing with capital, banking and insurance markets

5) Capitalise on substantial EIB experience by greater utilisation of EIB expertise in support of public authorities (e.g collaboration with national PPP Task Forces and specialist infrastructure entities)

New TENs Investment Facility (TIF):5 products

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(1) Increased EIB senior lending

Proposal € 50 billion over period 2003-2010 Extra long maturities (35 years) Longer grace periods Special arrangements for exceptional cases (e.g.

up to 75%)

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Equity investors (contractor,

concession holder, etc.)

EIB

Project

Capital markets /

banks

Share capital

Long and medium

term loans

Senior secured or guaranteed

extra long term loan

(1) Increased EIB senior lending

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(2) Increased “Structured Finance Facility”

• SFF is an existing EIB senior debt product to finance higher risk projects (e.g risk during construction)

• Tripled from Euro 500 m to Euro 1500 m

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EIB

Project

Junior lenders and equity

Capital markets /

banks

Long term loans

Medium term junior loan and share capital

(2) Increased “Structured Finance Facility”

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(3) EIB and EU guarantees

• EIB to provide guarantees for private finance projects with investment grade rating

• Combine EIB guarantees with public sector guarantees so as to optimise the “value for money” and “affordability” of priority investment

• The EU financial regulators should examine the Basle II regulatory framework to ensure that TENs financing can be effectively assured through EU financial markets

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EIB

Project

Capital markets /

banks

Private

sector

Member States &

EU

Guarantees Funding

(3) EIB and EU guarantees

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(3) Equity and mezzanine finance

• Unquestionable lack of equity and mezzanine finance for infrastructure projects. However: investments must pay!

• Increase availability by leveraged investment with private sector infrastructure funds

• Equity and mezzanine available to priority TENs projects • Equity funding for PPP project companies and construction

sector

Increase multiplier effect of EIB / EU finance by establishment of infrastructure funds

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Projects

Infrastructure funds

EIB

Fund 1

EUPublic

authorities

Private financiers

Fund 2 Fund n

Equity and mezzanine

(3) Equity and mezzanine finance

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(4) Strengthen EIB Institutional Role

• Strategic Advisor to the Commission, to Member States and Public Authorities on TENS (in particular realization of QSPs).

• Information on financing techniques used in Europe.

• Proposed operator of Commission Guarantee Facility for TENs.

• Combined use of budgetary resources and EIB loans for TENs.

• Collaboration with national PPP Task Forces on TENs.

• Co-financing with specialist national financial institutions.

• Collaboration with EU-TENs Project Co-ordinators.

31http://www.eib.org

Address : 100, Boulevard Konrad Adenauer, L-2950 LuxembourgContact : Franz-Josef Vetter

Tel : 00.352.43.79.72.26e-mail : f.vetter@eib.org