eib

1. New Lisbon Airport Workshop 22 Nov 2005 Lisbon http://www.eib.org

2. 1. THE EIB GROUP – THE EIB AND THE EIF EIB - European Union’s financing institution: • Created by the Treaty of Rome in 1958, to provide long-term finance for projects promoting European integration; • Subscribed capital EUR 163.7bn; • EIB shareholders: 25 Member States of the European Union; • Lending in 2004: EUR 43bn (EUR 40bn within the EU); • Borrowing in 2004: EUR 50bn (EUR 28bn in EU currencies).

3. 2. Strategic Outlook Priorities • Economic and social cohesion in an enlarged EU • Implementing of the Innovation 2010 Initiative (i2i) • Development of Trans-European and Access networks (TENs) • Support of EU Development and Cooperation Policies in Partner Countries • Environmental Protection and Improvement, including Climate Change Financing Facility and Renewable Energy. EIB implements EU policies; a policy driven Bank

4. 3. Main features of EIB involvement • Support for European Union policies. • Multi-sector and trans-national technical experience in the EU. • Long-term lending (typically 25 years or more for infrastructure, but in project finance depends on the life of the concession ) • Can finance significant proportion of capital requirement (typically 25-45% but up to 50% possible). • Flexible amortisation schedules reflecting project cash flow and long grace periods. • Competitive funding cost and various financing structures offered.

5. 4. EUROPEAN COMMMUNICATIONS INFRASTRUCTURE 2000-2004: Individual loans: EUR 44.8bn 9% 13% 59% 19% • Land-based transport • Air transport • Telecommuni-cations • Sundry Arteries of the single market

6. 5 Sector split within transport sector Ports 2% Urban transport 12% Aviation 16% Railways 24% Roads, motorways 40% Major infrastructure projects 6%

7. 6. Why project finance ? • Accelerate priority infrastructure under strict budgetary constraints. • Implement projects of national interest within a definite timescale. • Compare and control costs (value for money/public sector comparator). • Minimise public sector funding but maintain ultimate public sector ownership (concession with reversion). • Identify, define and allocate risks to the parties best able to carry them. • Reinforce the competitive environment. • Specify measurable outputs and services to be provided (performance testing).

8. 7. Value added from EIB • Experienced partner in project finance deals : capacity to conduct own technical and financial due dlligence. • Complementarity with banking sector and capital markets • Catalysing agent (deal making experience, more resources available for investments, facilitating private investment and private involvement in investment of public interest) • Cautious risk philosophy approach but readiness to assume post completion risk (subject to compliance with rigorous tests). • Recent developments : possibility of assumpting limited amounts of preconstruction risk for high priority projects (SFF facility). Also prospects for new facility for promotion and funding of TEN’s (Community Guarantee Instrument for TEN-Transport – CGIT).

9. 8. The EIB and project finance • In-house due diligence capacity: stamp of approval. • Non exclusivity : arm’s length approach with all bidders (stimulate competition). • Strict compliance with EU procurement rules but flexible appraisal and decision structures adapted to national tender framework (with or without prequalification, shortlisting/preferred bidder approach). • Careful attention to environmental considerations and compliance with European and national regulation and decisions.

10. 9. Essential conditions for successful PPPs • Adequate planning and legal/administrative context • Adequate definition of technical characteristics and long-term project operation • Competitive and transparent procurement (Nb, for EIB, no exclusivity, open tendering in line with EU Directives) • Balanced concession structure, adequate distribution of risks and rewards. • Sustainable and bankable financial structure : cost effective investment ; realistic demand and revenue forcasts ; transparent and enforceable definition of public sector financial support for investment and operation, if needed (preferably at tender stage) ; adequate coverage of debt finance and returns to equity shareholders. • Experienced private partners with a long-term vision • Public sector expertise (preparatory, investment and supervisory phases).

11. 10. Planning Context • Site selection methodology • Public Inquiry • Surface access issues • Strategic Environmental Assessment • Impacts of environmental constraints

12. 11. Technical Aspects • Coherent master plan providing long term flexibility • Detailed terms of reference for development requirements • Phasing strategy • Appropriate development to serve all users • Capacity to meet demand and levels of service • Residual value and suitability at concession end

13. 12. EIB Appraisal Process • Two-stage appraisal exercise for PPP/Concession contracts • Stage 1 – prior to or during procurement • Review of project feasibility (cost, technical, economic) • Environment and procurement • Review of draft concession agreement • Stage 2 – following selection of concessionaire • Financial Profitability analysis • Final design solution • Risk mitigation

14. http://www.eib.org