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The European PPP infrastructure market Performance in 2009 Perspectives for 2010. Nicholas Jennett European PPP Expertise Centre PPP Days 2010 Manila, March 2010. Timing is everything….
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The European PPP infrastructure marketPerformance in 2009Perspectives for 2010 Nicholas Jennett European PPP Expertise Centre PPP Days 2010 Manila, March 2010
Timing is everything… • EPEC established as a collaborative initiative of the EIB, the Commission and Member States on 16 September 2008 • But the world was preoccupied…..
PPP and the financial crisis • Collapse of the inter-bank lending market, causing acute liquidity shortage • Impaired bank balance sheets causing shortages of capital • Syndication market effectively stalled • Capital markets lost as source of PPP finance resulting from monoline issues • Bank margins (and bond spreads) increased substantially • Senior debt tenors significantly reduced • Many large banks have reduced their PPP activity; some have withdrawn from the market
Government analysis and response A banking liquidity problem? • Co-lending implemented in the UK, through the Treasury Infrastructure Funding Unit (TIFU). Used once (Manchester Waste), but effective market moderator • Funding facilities in place in France and Germany: first French education projects (Paris VII, Sorbonne) closed in July 2009 A banking capital allocation problem? • Debt guarantees • in place in France, • announced in Portugal and Spain • Underpinning • in place in France (Cession de créances) and Germany (Forfeiting). • Ad-hoc usage in other markets (M25, Polish A2…) • Indirect guarantees on specific projects, e.g.: • Sub-sovereignguarantee in La Réunion, • Loan Guarantee for Ten-T projects (LGTT), EIB / European Commission instrument covering traffic ramp-up risk, n Portugal (IP4 and Baixo Alentejo) and Germany (A5) • Refinancing guarantee in Belgium (Brabo I tram project)
Results in 2009 • 120 PPP/PFI transactions reaching financial close in 2009 for a value estimated at €15.8 billion; • Approximately 40% decrease in transaction value vis a vis 2008; • However, the PPP market has withstood the crisis better than the broader project finance market; • Some optimism amongst EPEC members that 2010 will see improvement, but we are not yet ‘out of the woods’.
Pricing moderated (although not much)… Loan Spreads for UK PPP/PFI projects with availability based payment mechanisms Source: Ernst & Young, EPEC research
… but banks said: ‘There’s no place like home!’ Commercial bank engagement in PPP Jan. to Nov. 2009
… but transport retained its value share (some very large deals remain)
Looking to the future • Infrastructure investment needs • TENs • Climate change • Energy • Increased public sector indebtedness places new emphasis on PPP • But long term challenges • No return to pre-crisis financing terms • Impact on market when stimulus measures are phased out • Replacing lost banks’ lending capacity • The political will is there but … • … need for new instruments and new initiatives
Nicholas Jennett European Investment Bank jennett@eib.org Telephone: +352 4379 87320 **** European PPP Expertise Centre epec@eib.org Telephone: +352 4379 85434 **** www.eib.org/epec