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The European PPP infrastructure market Performance in 2009 Perspectives for 2010

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 market Performance in 2009 Perspectives for 2010

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  1. The European PPP infrastructure marketPerformance in 2009Perspectives for 2010 Nicholas Jennett European PPP Expertise Centre PPP Days 2010 Manila, March 2010

  2. 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…..

  3. 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substantially • Senior debt tenors significantly reduced • Many large banks have reduced their PPP activity; some have withdrawn from the market

  4. 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)

  5. 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’.

  6. Market analysis – the trend is clear…

  7. …. and impacted on the largest deals

  8. Pricing moderated (although not much)… Loan Spreads for UK PPP/PFI projects with availability based payment mechanisms Source: Ernst & Young, EPEC research

  9. … but banks said: ‘There’s no place like home!’ Commercial bank engagement in PPP Jan. to Nov. 2009

  10. Share of transport deals has fallen…

  11. … but transport retained its value share (some very large deals remain)

  12. 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

  13. 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

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