EBRD and the Infrastructure Financing

1. EBRD and the InfrastructureFinancing Agnieszka SzymczykTel Aviv, 14June2012

2. Section 1Who we are

3. What is EBRD? The European Bank for Reconstruction and Development: • International financial institution dedicated to promote transition to market economies by investing mainly in the private sector development and entrepreneurship. • Established in 1991. Headquartered in London, the Bank has 36 regional offices. • Owned by 63 countries and two intergovernmental institutions (AAA rated) • Largest single investor in the region (30 countries from Central Europe to Central Asia): €71.2bn in more than 3,389 projects since 1991

4. Mission and VisionEBRD’s operations are based on three principles Promotes transition to market economies, private ownership and good governance with respect for people and environment Supports, but does not replace, private investment. Provides financing at reasonable terms, otherwise not available Invests in financially viable projects, together with the private sector Focusing on the triple-bottom line benefits: Economic, Social and Environmental

5. Founded in 1991 after the disintegration of the Soviet Union, EBRD’s region of operations covers most countries in Eastern Europe, Central Asia and Turkey. The Bank now intends to extends its mandate to SEMED (Morocco, Tunisia, Jordan, Egypt) Monday, February 27, 2012

6. EBRD projects span every business sector Transport Municipal & Environmental Infrastructure Property & Tourism Financial Institutions Natural Resources Telecommunications, Informatics & Media Manufacturing & Services Industry, Commerce& Agribusiness Power & Energy

7. Benefits of Working with Us EBRD’s Value-Added: a unique offering • Strong, internationally recognized partner with long term perspective • Higher risk appetite than other lenders. • Long established policy dialogue with Government and Regulators • Unparalleled presence in the region provides mitigation of political and regulatory risks • Preferred creditor status in all countries of operations • Catalysts to access additional finance (every € 1 financed by EBRD leads to mobilize € 3 from other sources2) • Flexible deal structure and product matching services • Dedicated team with expertise in a variety of sectors and countries • Donor funded Technical assistance available for economically viable sustainable development projects 2. EBRD Annual Report 2010

8. Section 2Partnering for infrastructure development

9. The Infrastructure Business Group at EBRD • EBRD Infrastructure Business Group covers Transport and Municipal and Environmental Infrastructure • More than 60 banking and sector professionals. • Headquartered in London, with dedicated sector coverage bankers in regional offices • Dedicated in-team specialists to support project needs including procurement, sustainable strategies and monitoring • EBRD offers banking services (debt and equity) to clients across every infrastructure mode: railways, maritime, aviation, roads, water and waste water, district heating, solid waste and urban transport. • More info at… • Infrastructure at a glance1 • € 14.2 billion invested • Total project value: € 50 billion • Over 500 projects www.ebrd.com 1- Data at end 2011

10. Extensive offer of tailored financial products Equity Debt • Loans to the private sector (up to 35%, syndicating the rest) • Debt co-financing, working with commercial banks and IFIs • Project finance loans (incl. PPP) • Hard/local currency. Fixed/floating rates • Syndication under preferred creditor status • Access to capital markets • Investing with majority sponsor to reduce equity burden and add partnership value. No more than 25% • Common or preferred stock • Privatization and initial public offering (IPO) • Mezzanine equity and subordinated debt • Infrastructure funds • PPP Technical CooperationAs a Multilateral Development Bank, EBRD brings in additional financial capital and technical assistance (TC) to economically viable projects

11. Section 3Financing infrastructure projects EBRD promotes decentralized decision-making and financing

12. The trend in infrastructure finance in CEE • Sovereign-backed loans • Cheap but politicised • Municipality / central government loans • Self-financing independence for cities • Higher cost and burden on city debt book • Utility loans supported by cities • Off-balance sheet borrowing for the city • Need to be backed by PSC + MSA • Utility corporate loans or bonds • Self-financing independence for utilities • Entirely based on company creditworthiness / PSC • PPP/concessionaire loans • Private sector indebtedness DECENTRALISATION

13. EBRD infrastructure financing guidelines • Minimum size EUR 10 million • Maximum size • Up to 100% for small public sector infrastructure projects • Up to 35% for large infrastructure projects (public or PPP) • Maturities between 10 to 20 years • EBRD procurement rules for public sector and competitive selection for PPP partners • Market pricing linked to risk level • Security linked to creditworthiness • Local currency, where possible

14. What makes PPPs successful? An adequate legal framework Political will to champion the PPP process Reliable revenue streams Contractual payments Tariff methodology + competent regulator Sponsors’ interest ensuring competition Need the right risk allocation Sufficient loan or capital market development Long term money Local currency available

15. With public authorities General advice on acceptable process EBRD Policy for Concessions Grant funded technical assistance General letter of interest to finance With bidders Pre-bidding dialogue with interested players Review of financing instruments (equity, debt) and indicative financing terms EBRD cannot commit to exclusivity (‘open support’) After award, negotiation of detailed terms and conditions with the preferred bidder EBRD support to PPPs

16. Section 4The case of Poland An sophisticated and diverse financing market

17. Metro Warszawskie • EBRD loan PLN322m, 2011 • Loan for Transport comp. w/o recourse • Financing of a rolling stock acquisition for Metro lines I & II • Carbon monetisation mechanism • Tramwaje Warszawskie • EBRD loan PLN200m, 2010 • Key featrures: • non recourse loan to company • Financing of the rolling stock, and rails infrastructure modernization • Carbon monetisation mechanism • Gdansk-Sopot Transport • EBRD Loan €12 m, 2001 • Key features: • Non-sovereign City loan • City creditworthiness Programme • Transport Policy Development • Bydgoszcz Water/Sewerage • EBRD loan PLN 108m, 1999 • Key features: • First ISPA co-financing • First local currency loan • First MSA backed utility loan • Water company corporate development programme • Kraków Urban Transport • EBRD loan €45m, 1998-2002 • Key features: • First City rating supported by EBRD • City creditworthiness Programme • City transport policy development • One of first syndicated muni loans Sopot • Gdansk • • Poznan District Heating • EBRD equity €35m, 2002 • Key features: • One of the first privatisations Bydgoszcz • Pozna ń Warszawa • • • Kraków Płaszów Wastewater • EBRD loan €20m, 2000-2010 • Key features: • MSA structure • corporate governance/cost recovery • Utility corporate development • Dual currency loan • Wrocław Flood Damage Repair Project • EBRD loan €16m, 1998 • Key features: • First IFI muni loan • Creditworthiness Enhancement Programme Wroc ł aw • • Rybnik Kraków • • • Gliwice Sewerage Programme • EBRD loan 15 m Eur, • signed 2002 • Key features: • City loan transferable to MPWiK • City CEP • Wrocław Multi-Sector • EBRD loan €33m, 2000 • Key features: • 1 loan for 2 sectors/ISPA applications • One of first ISPA co-financings • Waste sector institutional reform • Wrocław Water Project • EBRD loan €18m, 2003 • Key features: • MSA cost recovery, corporate governance aspects • First utility syndicated loan • Outsourcing programme • Wroclaw Parking PPP • EBRD loans PLN31m, 2011 • Key features: • First parking PPP • Project finance loan • Non-recourse post completion • Rybnik Sewerage Programme • EBRD loan €17m, 2001 • Key features: • City partial guarantee & water loan • Corporate development programme • Model financing for Slask region Selected EBRD projects

18. Poland and infrastructure finance (1) • Projects implemented and financed on the municipal budgets (loans and municipal bonds): • Cheapest form of financing, competitive offers from commercial banks, attractive funding from EIB (or financing on Euro markets) • Projects implemented and financed by municipal utility companies (off-budget financing, financing on the balance sheet of the companies) • Reliance on the PSC and a municipal support agreement • more and more often utilised by public transport companies, municipal sewerage companies, local district heating companies • Often combined with EU grant funds

19. Poland and infrastructure finance (2) • Revenue bonds (off-balance) • Revenue bonds are still rarely utilised due to the requirement of the proper scale and rating of the project involved. • Due to the specific structure (security over revenues), lack of possibility of incurring additional debt, revenue bonds require long-term planning of financial needs. • Revenue bonds are addressed to municipalities/companies with large investment needs and a higher level of risk involved (requirement of maintaining a debt service reserve account). • Structuring of transactions, where many sources of revenues are involved, is more difficult – hence the preference of the market to change from revenue bonds to municipal bonds.

20. Poland and infrastructure finance (3) • PPP (depending on the structure, possibility of classifying off municipal/national budget) • PPP has been to date rarely utilised, however the interest in this form of financing is growing. It requires a thoroughly thought through structuring, balanced division of risks and long-term planning as well as implementation. • Hybrid PPP (involving EU grant funds) is a challenge of the new financing perspective. • Privatisation (mostly district heating sector) • Successful wave of privatisations in late 1990s/early 2000s • Second wave in 2011 with SPEC

21. Section 5Case Studies Poland and CEE countries

22. Dalkia Polska – debt / equity • EUR 70 million invested alongside Dalkia Group for a series of investments in Poland over the 1998-2004 timeframe. • EBRD held a 35% stake in Dalkia Polska where Dalkia International remained the controlling partner with a 65% stake. • EBRD’s funds allowed Dalkia Polska to invest throughout the region in ESCO type projects as well as district heating opportunities (privatisations, concessions, lease contracts). • EBRD exit in mid 2010 by selling shares back to Dalkia • EBRD’s involvement has enabled increased private sector participation, as well as improved energy efficiency and cost effectiveness at operating companies.

23. Sofia & Tallinn Water – debt / equity • Loan and equity investments in two water concessions established by United Utilities • Sofia • 2000 – EBRD loan to Sofia W to finance capex • 2003 – EBRD becomes 19% shareholder • 2008 – Revised Concession Agreement signed • 2010 – EBRD sells to Veolia alongside UU • Tallinn • 2002 – EBRD loan to newly privatised Tallinn W • 2003 – EBRD becomes 12.6% shareholder • 2005 – EBRD helps initiate IPO of Company • 2010 – EBRD sells shares back to UU

24. Warsaw Tramways – company loan • Modernisation of tram tracks and acquisition of 186 new articulated low-floor trams • PLN 1.9bn project, financed by EU grants, EIB and EBRD loans and company funds • EBRD PLN 200m loan to Warsaw Tram company • Signed April 2010 • Backed by public service contract and municipal support agreement • 15 years tenor with 3 years grace • Methodological support to monetise carbon credits from modal switch from car transport to electric transport

25. Wrocław Parking PPP – concessionaire loan • Design, construction and operation of an underground parking facilities of 331 places in close proximity to the historical centre of Wroclaw • Ease traffic congestion caused by drivers searching for scarce parking • Enforcement of traffic laws and restrictions • SPV supervised by Mota-Engil Group • Tenor of the concession – 40 years • EBRD Loan signed in 2011 • PLN 31.3m (equivalent to EUR 8m) • Tenor – 15 years, including a 3 year grace period • Pledge of selected assets

26. Thank you Agnieszka Szymczyk Senior Banker Tel: +48 22 520 57 00 Fax: +48 22 520 58 00 szymczya@ebrd.com European Bank for Reconstruction and Development