Challenges in Financing Infrastructure Projects: Insights from the European Investment Bank

1. What challenges does the EIB face in financing infrastructure projects?European Parliament Budgetary Control CommitteeApril 20th, BrusselsNeil Valentine, Mobility Department – EIB Projects Directorate European Investment Bank Group

2. The EU bank • Largest multilateral lender and borrower in the world • Raise our funds on the international capital markets • Pass on favorable borrowing conditions to clients • Some 450 projects each year in over 160 countries • Headquartered in Luxembourg and 33 local offices • Around 2 900 staff: • Not only finance professionals, but also engineers, sector economists and socio-environmental experts • More than 50 years of experience in financing projects Investing in Europe’s growth European Investment Bank Group

3. Customer Relationships • EIB is both a public institution and a bank. It provides services alongside commercial financial institutions and follows “best banking practice”. • Our only ‘real” relationship with customers is through the finance contract we agree and sign with them. • EIB’s standard contract requires compliance with EU and national laws and makes specific reference to environmental and procurement legislation. It also includes specific integrity clauses. • EIB relies on the application of EU law by the Member States and the associated recourse and enforcement mechanisms. This is not the case outside the EU. European Investment Bank Group

4. Lending and staffing - MDBs European Investment Bank Group

5. What are steps of EIB lending? The Project Cycle European Investment Bank Group

6. Project Appraisal • Transport project selection and appraisal is performed via: • multi-stage and multi-dimensional approach • designed to maximize the value added of the Bank’s lending • to best contribute to further EU policy European Investment Bank Group

7. Transport Lending Policy Developing a more efficient and sustainable European transport system with a further use of • Renewable sources • Contributing to reducing oil dependency • Enhancing competitiveness of European industry

8. What challenges does the EIB face? Potential Barriers to financing infrastructure projects: • Regulatory Framework • Regulatory burdens and barriers • Projects outside EU: challenge of applying principles of EU Directives • Project Preparation and Management • Project pipeline: what projects are available for financing? • Mismatch between political aspirations and long-term projects • Project structuring: Is cost of project justified? Does it foster EU policy objectives? Does the promoter have the capacity to implement the project? European Investment Bank Group

9. How does the EIB respond to these challenges? • We screen projects to ensure that projects meet EU objectives and offer economic benefits • Our experts engage pro-actively with promoters and where necessary assist in project optimisation • We are not one-time lenders: we support the development of infrastructure networks in countries • We cooperate with EU-counterparts to ensure that projects are in line with EU Directives, Regulations and Laws European Investment Bank Group

10. Project selection – screening out • Three main filters: • Eligibility • Project quality • EIB operational constraints Filtering is an upstream process; projects not normally initiated if they do not pass filters Consequence: MC and BoD rarely need to reject a project • We cooperate with other institutional stakeholders for project preparation and optimisation. Such as JASPERs and the European Investment Advisory Hub (EIAH). • No formal list of screened out projects is compiled • Projects can be re-submitted after optimisation European Investment Bank Group

11. Port of Calais • EUR 365m loan to support the expansion and rehabilitation of the Port of Calais provided through • project bond credit enhancement facility that: • Mitigated the traffic risk for senior lenders • Instrument provides extra liquidity in case the project company is unable to meet its (senior) financial obligations • Increased the rating of the project: allowed institutional investors to invest in the project • Institutional investors are looking for investment grade investments with (very) long tenors After project completion Existing Situation European Investment Bank Group

12. The early involvement of EIB allowed a discussion to reduce the construction costs and improved the overall cost-benefit balance of the project. • The Port de Calais project is an example of how an authority can use public money in a smart way. With a minimum of public grants, the Région was able to implement an important and complex infrastructure project. • The EIB credit enhancement product made it possible to improve the financial cost of the project. The bonds were issued at a competitive yield and their repayment could be spread over a very long period. • A combination of EIB instruments and subsidies is a very useful instrument to catalyse the implementation of difficult and complex projects. European Investment Bank Group

13. Metro Line Plans to construct second metro in a city to reduce congestion, create East-West connection and boost economic growth • Demand expected to grow from 128 to 179 million passengers per year. • BUT project was highly complex as it crossed city-center and river JASPERs reviewed feasibilitystudy and environmental documents: Assessment concluded that the proposed design and contract structure is unnecessarily high due to an unrealistic calendar requiring more expensive construction methods and resources • Artificial deadline implications: • Procurement process -very high costs: • EUR 1.5 billion • Undermines project justification European Investment Bank Group

14. Bank’s analysis confirmed that the price per km under the original tender was too high and construction time was too short • JASPERS experience indicating that the acceptance of a bid at that price would, when running the CBA, render the project uneconomic and therefore not suitable for funding under the structural funds. • Jaspers close relationship with the client, through its local office also helped to get the advice accepted by the promoter and the Mayor in particular • Result: • different procurement procedure (open competition) • longer construction period, no artificial deadline • SAVING of EUR 0.5 billion • *Project cost EUR 938m instead of EUR 1447m European Investment Bank Group

15. Poland Rail and Road Network • EIB has supported rail investments in Poland for more than 25 years, investing around EUR 4bn from 1990-2015 in 36 separate operations • Across this same time period, the EIB provided EUR 16bn to construct and upgrade the roads network in 61 separate operations European Investment Bank Group

16. Spanish State Ports Accessibility EUR 115m loan to create special purpose entity (SPE) that will finance small road and railway projects to improve land-access to main national ports Project Structure: • Benefits • Project not delayed until 2020 • Improved access to ports • Ports operate effectively, handling optimal capacity of passengers and freight • Contributing to sustainable growth and employment in the respective regions

17. Thank You More information at: www.eib.org info@eib.org or n.valentine@eib.org Tel.: +352 4379-22000 European Investment Bank Group