Leveraging EU grants: the case for PPPs - « A perspective from the road concessions’ industry »

1. 2ndJune 2010, EPEC Privatesector forum Borschette center Leveraging EU grants: the case for PPPs-«A perspective from the road concessions’ industry »

2. Outline • Presentation of ASECAP • EU Legal framework / concessions • Leveraging EU funding: the case for PPPs

3. ASECAP ASECAP, the European professional Association of Tolled Road Infrastructures Concessionaires • 21NATIONALMEMBERS OPERATING 45.068 km (mainly TEN’s) • 149 TOLLED MOTORWAYS OPERATORS • 19.000.000ETC SUBSCRIBERS • OVER 23 BILLIONS EUROS OF REVENUES

5. Italy Real Toll Concessions ShadowToll UK France Finland Portugal Netherlands Greece Portugal Slovenia Pre-financing Croatia Germany Spain Belgium Austria Netherland Hungary Sweden State Budget UK Denmark Operatorsoftolls Norway Germany PAYMENT by all (tax payers) by users Motorways concessions in Europe-Range of practices

6. ASECAP main agenda & mission …High cost of infrastructure + Public budgets scarcity !!! Private investment= cost-efficiency, time-frame, risk sharing !!! • 1st sector in Europe that understood the merits of PPP at EU level, a preferred partner of the European institutions & major stakeholders: • Financing (PPPs, Tolling, EETS Interoperability) • Safety & Environment • ITS

7. ASECAP vision • There are no free roads (direct charging vs indirect taxation) ; • Motorwaysare expensive: • to build • to operate • to maintain • Socially, tolls are the fairest system for road financing; • Toll conceeded roads have delivered excellent results worldwide based on « Fair charging » and « Direct road user charging » ; • Immediate and stable source of funding; • Tariffs regulated by performance and quality indicators; • Optimal (fair, effective and efficient) risk transfer and allocation;

8. Real tolls are the answer ! • Use of roads produce externalities that need to be internalized; • Road pricing can be flexible: (time of the day, vehicle category, level of pollution); • Users have to pay for the quality of the service offered (and in the future will have to pay for the externalities they cause for the society); • Earmarking of collected revenues to the road infrastructure is the key! = Concessions (and user-payer’s principle) provide adequate solutions to match EU goals

9. EU legal framework / concessions • The EC Treaty (general principles = only solid basis!) • « Public procurement » Directives (2004/18/EC, 2004/17/CE) = distinguishing public contracts vs concessions (service concessions?) • Interpretative communications (COM2005/569, COM2000/C 121/02) on Public Procurement and Concessions • Case-law of the European Court of Justice (i.e.: TeleAustria, C-324/98) identifying notions such as “remuneration” (economic activity), “right of exploitation” and “transfer of risk” as main characterizing elements for «Concessions».

10. EU legal framework / concessions • Strong political commitment: • Establishment of the European PPP Expertise Centre (EPEC) by the Commission and the EIB; • EU Commission’s Communication on «Mobilising private and public investment for recovery and long term structural change: developing Public Private Partnerships ». But… • Many Member States do not yet have clear public sector rules; • Recent examples prove the EC could actto prevent uncertainty undermining future initiatives; = Lack of legal certainty at EU level detrimental to Internal Market ?

11. Towards new EU rules in the field of PPPs and concessions? • By favouring legal clarity, the EU can serve as theleverage/sponsor to foster political readiness in Member States to adopt a “PPP agenda” and explore more efficient ways to develop infrastructure. EU should: • Keep a flexible approach; “Clarifying” vs. “Stricter” approach • Guarantee compliance with the principles of equal treatment, non discrimination and transparency, while ensuring respect of confidentiality and intellectual property; • Limit the possibilities for unilateral alteration of the contractual position; • Establish a list of best practices & concepts underpinning the various types of PPP found in Europe; • Establish EU guidelines to clarify rules on provision of Funds.

12. Leveraging EU funding: the case for (roads) PPPs Crisis !!! The recession and the credit crisis created problems for: Existing concessions: • Dramatic HGVs traffic decline (Jan 08/09) - 33.9 % Spanish tolled network, - 20.27 % Austria, - 19.31% CZ Rep... = Strong correlation with GDP which is sharply declining. = Earnings lower than forecast, difficulties to repay interest and loans. Future concessions contracts: • Radical change in the banking sector (part or full nationalisations, collapses, etc.) = Sponsors panic & shortage of capital

13. Leveraging EU funding: the case for (roads) PPPs • Strong impact on market players: • Banks:less cash flow prospects, higher financial costs, higher uncertainty; • Grantors (Governments / State agencies): less brownfield projects being tendered, postponements and cancelations; • but, some governments are fighting recession by promoting investment in • infrastructure (Keynesian policies for greenfields projects); • Construction companies’ focus on the short-term construction business; • Operators’ focus on existing assets, domestic market, protecting cash flow • levels and mitigating risks;

14. Leveraging EU funding: the case for (roads) PPPs = Hybrid PPPs: added value / current shortage of public funding and private liquidity + 2000-2010: Increasing attention to the potential role that private finance can play in helping the investment challenge in the EU; + Significant available funding: Cohesion/Structural funds/TEN funds + EIB • NEW = Emergence of public authorities/multilateral lending for PPPs… …but no discernable EU PPP policy

15. Leveraging EU funding: the case for (roads) PPPs • EIB financial instruments: Senior debt, SFF reserve, LGTT • EIB support: JAPERS/JESSICA, EPEC • EIB = Key financer of transport infrastructure • (1994-2007: 85% PPP funding to transport projects, €25 bn.)

16. Leveraging EU funding: the case for (roads) PPPs • Advantages • Maximising absorption of EU grants by pursuing direct lending and PPPs/concessions; • Presence of public players as « catalyst » for commercial banks and « comfort » for private operators; • Main obstacles • More complex procedures to be managed jointly; • EU Public procurement procedures to be flexible enough/nuances of PPP • Time issue: (budgetary period is limited = uncertainty of available funding? Increased risk? Require governments underwriting for financial close?); • Institutional and legal framework; • Lack of information (& limited successful precedents)

17. Succesfull exemples (toll concessions) 1/2 1/ The Rion - Antirion bridge – West Greece: the longest cable stayed bridge worldwide - 2.880 m • Built: 1999-2004 (five months ahead of schedule) • Total cost: €803.000.000 EU Grant: €256.000.000 (32%) State budget: €108.000.000 (14 %) Private financing: €438.000.000 (54 %) • Duration: 35 years • A significant role in the development of the region; • 1.5 bn € influence to Greece economy (source: DG REGIO); • Reduced crossing time to 5 min; • Engineering masterpiece (remaining in operation whatever the weather conditions).

21. Other successful examples (toll concessions) 2/2 N1-M1 Dundalk bypass (Ireland) – Dublin Northern border route • Construction Drogheda bypass – 21.5 km. (Public procurement) • Operation and maintainance Drogheda bypass + other 43 km. • Dundalk bypass = 11 km new section of motorway + 7 km of new link roads (DOBF model) • Built: 2000 – 2003 (Drogheda bypass); 2004 – 2006 (Dundalk bypass) (4 months ahead of schedule) • Total cost: € 246 M (Drogheda bypass); € 500 M (Dundalk bypass) Drogheda bypass: Irish Government + EU grants (€ 61 M. ≈ 25 %) Dundalk bypass: 30-year concession (no EU funding)

22. Other successful examples (toll concessions) 2/2 • Procured separately, but becamehybrid through combined O & M concessioning • The Dundalk Western By-pass is not only an • integral link between Dublin and Belfast but • is also part of the TERN (Euroroute E01) ; • Significant project: 1.25 million m3 of • earthworks + 14 major structures; • 1st of the new generation of PPP road • schemes in Ireland; • Extensive ecological mitigation measures; • Intense archeological scrutiny.

23. Conclusions • A mix of legal uncertainty (national and EU level), complexity of combining procurement requirements of PPPs with those for grant funded projects, and lack of precedents have hampered undertaking of « hybrid » PPPs; • Need new success stories ! • EU funding (ex.: « new » Member States) shall not be in conflict with a stronger involvement of the private actors; • EC, EIB/EPEC have an crucial role in fostering EU and national public sectors’ expertise, promoting result-oriented culture in the management of public services, and eliminating administrative bottlenecks; • Coordinated action at EU level to improve leverage of EU funds would be beneficial to state of EU infrastructures.

24. “Not our wealth created our transport infrastructure; It is our transport infrastructure, which created our wealth” J.F.Kennedy, former US President, 1960 Thank you for your attention ! e.cuaz@asecap.com www.asecap.com Rue Guimard, 15 B -1040 Bruxelles + 32 289 26 23