EBRD’s Financing o pportunities in Romania Municipal infrastructure - transport

1. EBRD’s Financing opportunities in Romania Municipal infrastructure - transport March 2017, Bucharest

2. What is the EBRD? • Public financing institution established in 1991 to foster transition to market economies • Owned by 65 countries from 5 continents, the EU and the EIB • Operates in 35 countries, including ROMANIA • The EBRD has invested over EUR 7 billion in Romania to date and has mobilized more than EUR 14 billion from other sources of financing • 3 key operational principles • Sound banking • Transition impact • Environmental sustainability

3. EBRD’s role in the municipal sector • Facilitatecommercial loans for (co-)financing investments anddonor grants for technical assistance • Structure financing of municipal investments • Promote commercialisation of services • Support development of regulatory structures • Promote appropriate private sector involvement • Improve environmental, social, health and safety

4. Key municipal sectors covered by EBRD • Water & Wastewater – improved quality of service and environmental compliance • Urban Transport – improved roads and public transport services (buses, LRT, metro, ferries, etc.), efficient and safe network, e-ticketing, parking • Solid Waste Management – improved efficiency and frequency of collection; adequate disposal; prevention of groundwater contamination • District Heating – renewal of obsolete heating and distribution systems to promote efficiency gains • Street Lighting – renewal of obsolete street lighting systems • Energy Efficiency

5. Mainstreaming green financing: EBRD strategies • Since 2006 the EBRD has adopted cross-sectorial strategies: • to mainstream across the Bank’s operations, and • to increase the share of Bank business represented by measures which enhance the efficient use of energy and resources (water, materials) and contribute to the mitigation of, and adaptation to, climate change. • The latest strategy, the Green Economy Transition (GET) aims to further scale up the Bank’s green business, and to include new areas of activity, such as environmental protection and technology transfer.

6. Mainstreaming green financing: The business model Tailored financing instruments • Direct financing • Indirect-financing via local banks (SEFFs) • Investment grant support for climate technology transfer • Blended concessional finance so as to overcome affordability and risk perceptions PROJECTS & INVESTMENTS Targeted activities: • Energy and resource audits to identify green investments • Integrated technical, financial and marketing teams to support client banks in developing sustainable energy lending • Assessments of risks related to climate vulnerabilities • Transition gaps and market scoping studies POLICY DIALOGUE TECHNICAL ASSISTANCE Working with governments • To address sustainability and environmental market failures • To strengthen the institutional and regulatory context and create optimum conditions for green investments to take place

7. Water sector financing EBRD Finance for the Romanian water sector evolved with the market: • A. Sovereign structures (1995-1999) – On-lending for 16 water operators. Introduced FOPIP (Financial and Operational Performance Improvement Program) which was key in improving commercialisation and long term sustainability of water utilities • B. Non-sovereign (2000-2006) loans to water operators with local authority guarantees for ISPA co-finance. Strong emphasis on implementation. In addition, municipal loans for street rehabilitation, regional roads • C. Today – Lending to utility operators without guarantee

8. Water/R2CF – Co-financing EU Water projects • EBRD R2CF – EUR 330 million framework to co-finance Cohesion Funds projects (EU SOP Environment 2007-2013); • Structural reforms have resulted in improvement in the municipal infrastructure sector - non-recourse Financing Structures • 20 water operators (out of 43 regional operators) that implemented reforms have the ability to borrow based on their own cash flow, without any guarantee. • Tariff policy – essential; • Benchmarking – to increase transparency, efficiency and competitiveness in the sector; • FOPIP – on a case by case basis Main challenges of the sector – 2018 (conformation target) vs. investment needed (approx. EUR 13 billion)

9. Investment challenges – Urban Transport • Rehabilitation of public transport, urban road network and traffic management systems, to counter the negative effects of rapid motorisation • Improve financial performance of transport operators to allow access to financing • E-ticketing • New equipment needs to comply with national and EU emission standards

10. Common Situation in Public Transport:Sub-optimal unsustainable arrangements CITY Downward spiral effect Annual, ad hoc subsidy payment (Dependent on budget availability, other priorities) FARE REVENUE PASSENGERS Chronic financial gap SERVICES TRANSPORT OPERATOR

11. Public Service Contracts • Signed betweenthetransport operator and the City • PSC defines: • Rights and obligations of both parties (who is responsible for what?) • Quantity and quality of services delivered under the contract • Service payments to the operator for delivering services under the contract PSC is a commonly used regulatory tool in EU (EU Regulation 1370/2007, in force Dec 2009)

12. EBRD Proposed Structure for Municipal Operator Financing CITY GUARANTEE OR MUNICIPAL SUPPORT AGREEMENT COMPENSATION BASED ON OBJECTIVES FARE REVENUE PASSENGERS PUBLIC SERVICE CONTRACT LOAN (DISBURSEMENT & REPAYMENT) SERVICES INSURANCE COMPANY TRANSPORT OPERATOR BUS INSURANCE

13. Financing principles - UT sector • Investments based on sound banking principles and on sustainable urban transport strategies and plans • Commitment towards market reforms • Work with clients to define suitable financing structures together with transition package • PSC – key component, condition for loan financing

14. EBRD financing structures in the UT • Corporateloans • Borrower: transport company, public or private • Loan repayment based on service payments under PSC • Backed by a municipal guarantee or a municipal support agreement (MSA) • Preferred, as it makes the PT company responsible for investments • Ex: rolling stock

15. EBRD financing structures - UT • Municipalloans • Non-sovereign loans • Ex. Rehabilitation of tram tracks, traffic management systems, ticketing systems, line extensions, etc. • Support outsourcing of bus supply or contracting out of bus services to private operators • Performance guarantees to the private contractor • Guaranteeing contractual payment obligations of the client

16. EBRD / MEI financing guidelines (I) • Maturities between 10 to 15/18 years • Flexibilityfor projects above EUR 5 million • Market pricing and security • Local currency, where possible • IFI public procurement rules for works, goods and services and competitive procurement for private partners in PPP arrangements • Equity investments, where appropriate • EBRD SMART facility – EUR 120 million, available for (co)financing UT investments in Romania

17. EBRD / MEI financing guidelines (II) • Investments with a beneficial effect on local economy • Long term finance on self supporting basis at project level - no “soft loans” • Commercialisation of companies and services • Tariffreform with full cost recovery, e-ticketing • Technical assistance (TA)to promote institutional reform and commercialisation, including for project preparation and implementation • Key TA donor partners: EU and various countries on multi/bi-lateral basis • Compliance with national and EU environmental standards

18. EBRD - TC • Technical Cooperation (grants) to beneficiaries, in support of EBRD Financing: • Project preparation (Sector Strategies; Feasibility Studies, EIA) • Tender preparation and procurement support • Development of PSC and training of operator • Corporate development (Business plan, Management Information System, benchmarking on efficiency and costs, twinning arrangements, etc) • Regulatory development (tariff planning, e-ticketing development, PSC monitoring, etc)

19. Galati Urban Transport • Borrower – Galati Municipality • City – 280,000 people • Project components • Rehabilitation of streets • Acquisition of 17 trolley-buses • E-ticketing system • Total Investments – Lei 100 million • TC: • Preparation of a SUMP • Support for introduction of an e-ticketing system • Project Implementation support • Commercialisation of Public Transport Services • Amend the Public Service Contract between the City and the Company

20. Arad Urban Transport: efficient and reliable urban transportation • Borrower – Arad Municipality • City – 165,000 people • 3 projects: • rehabilitation of main trams and road infra • acquisition of energy efficient rolling stock (6 new trams) • modernisation of the main tram depot • Total Investments – € 35 million • TC: • PSC, e-ticketing, parking plan

21. Pitesti Urban Transport • Borrower – Publitrans • Pitesti – 165,000 population • Structure – EBRD loan, backed by a PSC and a MSA with the City • Project: up to 70 Euro-6 buses Total Investments– €13 million (loan in lei) • TC: • Support for e-ticketing • Twinning with another EU company - Commercialisation of Public Transport Services • Amend the PSC between the City and the Company

22. Sibiu Urban Transport • Borrower - Tursib • Structure – EBRD loan backed by a PSC and a MSA with the City • Sibiu – 150,000 population • Project components – two loans: • Purchase of new buses; • Relocation of the depot. • Total Investments– €15 million TC : • Amend the PSC between the City and the Company • Support for e-ticketing • Twinning with another EU company - Commercialisation of Public Transport Services

23. Belgrade Urban Transport Project • financing of 110 new buses • refurbishment workshops • workshop equipment • tram track renewal • power supply • TC: • assistance with procurement • new regulatory framework for public transport

24. Krakow public transport project • tram infrastructure upgrading • new tramline (fast tram) • new rolling stock • TC: • introduction of PSC • urban transport strategy

25. Croatia: Dubrovnik and bus projects • Bus fleet renewal • TC • sustainable transport strategy for historic cities • environmental standards for buses and maintenance • procurement assistance • twinning programme with Graz (Austria)

26. Lithuania: Kaunas Bus Project • Financing of 50 new buses, spare parts and workshop equipment • Direct loan to (municipal) bus company • € 10 million • No municipal (or sovereign) guarantee • TC: • Company Business Plan and restructuring PT sector • Introduction of a PSC between the Company and the City

27. Loan Conditions and Technical Cooperation City and Company 􀂃Signing the Public Service Contract (PSC) 􀂃EBRD Procurement Policies and Rules Company 􀂃Adoption of a Business Plan 􀂃Transformation into a joint-stock company 􀂃Corporate Development Programme City 􀂃Signing Municipal Support Agreement with EBRD 􀂃Sound model for financing public transport 􀂃Review of tariff system 􀂃Restructuring public transport network 􀂃Review regulatory and institutional framework

28. Final remarks • Municipality • - long term vision and strategy on city development and PT, investment needs identified and prioritised • - UT infrastructure rehabilitation, prior to rolling stock renewal • - support the transport company by a fair, transparent and sustainable model for service payments - PSC • Transport Companies • -change from product-oriented to client-oriented • -think as a Company, act as a Company • -learn from your colleagues / best practices / benchmarking • EBRD can help with: • (co)financing investments (via commercial loans) • technical assistance (via grants)

29. Contact details Venera Vlad Associate Director, MEI vladv@ebrd.com Dana Ionescu Principal Specialist ionescud@ebrd.com Tel: +40 21 202 7100 Fax: +40 21 202 7110