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Presentation to. Diplomatische Akademie Wien European Infrastructure Financing What new developments are occurring? 2 June 2004. European Investment Bank: European Union’s Financing Institution.

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  1. Presentation to Diplomatische Akademie Wien European Infrastructure Financing What new developments are occurring? 2 June 2004

  2. European Investment Bank: 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 • EIB’s lending in 2003: EUR 42bn (EUR 34bn within the EU); funds raised via bonds • “not for profit” - organisation

  3. EIB PROJECT ELIGIBILITY Economic and social cohesion in an enlarged EU i2i, R&D, Dissemination of innovation, technology networks,education, health Support for SMEs Development of Trans-European and access networks Environmental protection and improvement Support for EU development aid and cooperationpolicies Promoting European Union policies

  4. WHAT ARE THE BENEFITS OF AN EIB LOAN • Low cost of "AAA" rating funding benefit passed on to clients; • Large amounts; • All major currencies, including more and more those of the New Member States; • Long maturities; • Catalytic effect of participation on other banking or financial partners.

  5. FINANCING EU ENLARGEMENT In 2003, EUR 4.6bn for investments in the 10 New Member States in Central and Eastern Europe, Cyprus and Malta FOCUS: • Communications infrastructure (including TENs); • Regional development; • Industrial competitiveness (including Foreign Direct Investment); • Environmental protection; • Health and Education 5

  6. LOANS IN THE NEW MEMBER STATES1999-2003: EUR 13.5bn Estonia192 EURm • Acceding states • Accession states • Applicant states • Candidate states -------- • Energy • Communications • Water • Industry • Education,Health • Global loans Latvia 276 Lithuania 249 Poland4 860 Czech Rep 3 160 Slovakia 880 Hungary2 149 Slovenia974 Cyprus705 A firm commitment to accession Malta 25 6

  7. LOANS IN ACCESSION, APPLICANT AND CANDIDATE STATES 1999-2003: EUR 6.1bn Croatia 446 Bosnia-Herzegovina 185 Serbia & Montenegro 498 Albania 108 FYRM 93 EURm • Acceding states • Accession states • Applicant states • Candidate states -------- • Energy • Communications • Water • Industry • Education,Health • Global loans Romania 2 175 Bulgaria 565 Turkey 2 197 A firm commitment to accession 7

  8. “Must” for successful PPPs • Long term Public Sector Political Commitment and adequate financial involvement of the public sector • Focused, dedicated and experienced public sector team – PPP Task Force. • Favourable legal and institutional framework. • Transparent + competitive procurement (concept, construction and operation phase) • Realistic risk sharing. • Partnership.

  9. Learning Process Risk-sharing Value added Extra costs of PPPs Benchmarking Procurement Extra costs Value added

  10. TRANS-EUROPEAN NETWORKS ANDEUROPEAN TRANSPORT CORRIDORSProjects financed by the EIB (1993-2003) Priority TENS Section financed Other TENS Transport corridors, CEC Section financed Road/Rail Electricity Gas Airport Projects of multi- regional character Inter-modal freight centre Port Air traffic management Oil/Gas platform

  11. Reconfirmed European Priorities A new start for a quicker implementation of TENs after the “van Miert Group” proposals

  12. Reasons for sluggish TENs implementation • Absence of common priorities / timetables • Structural constraints (e.g. technical interoperability; limited deregulations) • Administrative, legal and environmental requirements • Inadequate economic viability • Limited commitment of state funds but need for high public financing and grant support

  13. TENs after “van Miert” • Total investment requirements up to 2020 estimated at EUR 235 billion in “priority projects”. • 8 “priority projects” concerning investments in Central Europe. Austria is represented with 6 cross-border projects, i. a. the “Brenner Basis Tunnel” • Total investment requirements in overall TEN infrastructure estimated at EUR 600 billion. • EIB indicated as key financier for these projects. • However : lack of financial resources is not the main cause of slow project implementation.

  14. TEN Railway Priority Projects • Completion before 2007 : • Fast rail connection Paris, Brussels, Cologne, Amsterdam, London • Cork-Dublin-Belfast- Stranraer • Betuwe Line • Öresund Link (completed) • Completion before 2010 : • Nürnberg-München/Kufstein-Innsbruck • Madrid-Barcelona-Perpignan; Madrid-Hendaya • TGV Est • Torino-Venezia • Multimodal link Portugal/Spain with rest of Europe • Kerava-Lahti • West Coast Main Line

  15. TEN Road Priority Projects • Completion before 2007 : • none • Completion before 2010 : • Lisbon/La Coruna; Lisbon/Valladolid; Lisbon/Seville (as part of the multimodal link Portugal:Spain with rest of Europe) • Helsinki/Turku (as part of Nordic Triangle) • IRL/UK/BENELUX road link

  16. TEN Long-term Horizon Projects • Firm government commitment for projects to be operational by 2020 : • 8 railway projects in a list of total 18 • 2 motorway projects • 4 intermodal projects • Longer-term horizon projects : • 3 railway projects in a list of total 4 • no road project • Cohesion projects : • Accessibility and interconnections of networks • Cross-border connections

  17. TEN Long-term Benefits • Time savings equivalent to EUR 8 bn/year • Reduction of CO2 emissions by 17 m tonnes/year • Reduction of other emissions equivalent to external costs of EUR 700 m • Stimulate international trade, in particular in Central and Eastern Europe • Safety improvements • Boost GDP growth by 0.23% pa

  18. 2. Trans-European Networks Investment Facility (TIF)

  19. Financing for Trans European Transport networks • Substantial public sector investment in TENs networks • EU budgetary sources, EIB finance and private sector PPP finance as complementary sources • Role of public financing nevertheless remains a keystone in major new infrastructure investments

  20. EIB’s role in TENs growth initiative • Expand EIB financing commitments by increasing its capacity for existing senior debt • Increased acceptance of project risks through the EIB “Structured Finance Facility” instruments • Use of financing instruments including EIB guarantees and provision for equity and mezzanine finance • Increase leverage of EIB financing instruments by • more effective combination with EU budgetary funds and guarantees • increased co-financing with capital, banking and insurance markets • Capitalise on substantial EIB experience by greater utilisation of EIB expertise in support of public authorities (e.g collaboration with national PPP Task Forces and specialist infrastructure entities) New TENs Investment Facility (TIF): 5 products

  21. Proposal € 50 billion over period 2003-2010 Extra long maturities (35 years) Longer grace periods Special arrangements for exceptional cases (e.g. up to 75%) Increased EIB senior lending

  22. Increased EIB senior lending Equity investors (contractor, concession holder, etc.) EIB Capital markets / banks Long and medium term loans Senior secured or guaranteed extra long term loan Share capital Project

  23. Increased “Structured Finance Facility” • SFF is an existing EIB senior debt product to finance higher risk projects (e.g risk during construction) • Tripled from Euro 500 m to Euro 1500 m

  24. Increased “Structured Finance Facility” Capital markets / banks Junior lenders and equity EIB Medium term junior loan and share capital Long term loans Project

  25. (3)EIB and EU guarantees • EIB to provide guarantees for private finance projects with investment grade rating • Combine EIB guarantees with public sector guarantees so as to optimise the “value for money” and “affordability” of priority investment • The EU financial regulators should examine the Basle II regulatory framework to ensure that TENs financing can be effectively assured through EU financial markets

  26. (3) EIB and EU guarantees Guarantees EIB Capital markets / banks Member States & EU Private sector Funding Project

  27. (3) Equity and mezzanine finance • Unquestionable lack of equity and mezzanine finance for infrastructure projects. However: investments must pay! • Increase availability by leveraged investment with private sector infrastructure funds • Equity and mezzanine available to priority TENs projects • Equity funding for PPP project companies and construction sector Increase multiplier effect of EIB / EU finance by establishment of infrastructure funds

  28. (3) Equity and mezzanine finance Public authorities Private financiers EIB EU Infrastructure funds Fund 1 Fund 2 Fund n Equity and mezzanine Projects

  29. (4) Strengthen EIB Institutional Role • Strategic Advisor to the Commission, to Member States and Public Authorities on TENS (in particular realization of QSPs). • Information on financing techniques used in Europe. • Proposed operator of Commission Guarantee Facility for TENs. • Combined use of budgetary resources and EIB loans for TENs. • Collaboration with national PPP Task Forces on TENs. • Co-financing with specialist national financial institutions. • Collaboration with EU-TENs Project Co-ordinators.

  30. Address : 100, Boulevard Konrad Adenauer, L-2950 Luxembourg Contact : Franz-Josef Vetter Tel : 00.352.43.79.72.26 e-mail : f.vetter@eib.org http://www.eib.org

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