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Financial instruments under the Connecting Europe Facility State-of-play Matthieu Bertrand Policy Officer, Connecting Europe – Infrastructure Investment strategies, DG Mobility and Transport Information Session on Project Bonds Brussels, 19 February 2013 Transport Financial instruments under the CEF – Why? • Huge investment needs identified for EU transport system • €1500bn for EU transport system by 2030 • €500bn on the TEN-T alone by 2020 • €250bn on the TEN-T Core Network by 2020 • Financial constraints • Reduction of national infrastructure investments programme • Restriction of bank lending for long-term/risky projects • Need to attract new sources of funding for infrastructure Transport Financial instruments under the CEF – Why? • Transport investment = investment in future growth • Immediate job creation. Jobs that cannot be offshored • Improving territorial cohesion • More efficient transport system for passengers & goods • Enhancing competitiveness of the industry • Greening of the EU transport system • Need to use the untapped potential of private investments to finance infrastructure needs Transport Financial instruments under the CEF – Why? • Added Value of EU Financial instruments: Leveraging • 3 types of leverage Financial – multiplication of scarce budgetary resources by attracting additional finance Policy – financial intermediaries pursue EU policies Institutional – EU can capitalise on the resources and expertise of financial intermediaries • Addressing suboptimal investment situations FIs address projects with low financial profitability (but positive) and high risks => investors would not go there alone Allows keeping grants for projects that have no financial profitability but • Multiplier effect for EU policy goals Attracting private investment greater than EU contribution • Guiding private investments towards EU policy goals Transport Financial instruments under the CEF – How (much)? • €31.7 billion for transport => now €23.174bn : • Innovative financial instruments estimate of market take-up: €1 to 2bn with an estimate leverage of up to 15 or 20 could generate total investments of €30bn to €40bn. • Grant component estimate: €19.7bn => now €11 or 12bn Need to estimate the impact, need re-prioritisation. • + €10bn earmarked in the Cohesion fund (grants) => stays! with an estimated average co-funding rate of 85% could generate €11.5bn • Total amount of investments that could be generated: €140bn to €150bn on the basis of COM proposal Transport Financial instruments under the CEF – How? • Eligibility under CEF • The whole TEN-T network, Core & Comprehensive • All modes of transport • Horizontal priorities (e.g. SESAR, ERTMS…) • Type of Financial instruments • Equity intruments Risk-capital, e.g. Marguerite Fund Investing in equity reduces the need for debt and reduces its riskyness • Debt instruments Guarantees and risk-sharing instruments, e.g. LGTT, RSFF and Project Bonds LGTT and RSFF made to support bank lending Project Bonds made to support investment from Capital Market investors (Pension funds, insurance companies) Transport Example of an LGTT project: Tours – Bordeaux High Speed Line • High speed line between Paris and Tours exists, after Tours only traditional tracks • Construction and operation of a 300km high speed rail link between Tours and Bordeaux • €200 million LGTT supporting €3 billion senior debt and €7.8 billion total investment • LGTT proved decisive to attract senior lenders; state guarantee more protected • Break-through: First time a rail transaction has been structured this way. • Benefit: journey time between Paris and Bordeaux will be reduced from 3 hours to 2 hours; substantial stimulus for the French economy Transport Financial instruments under the CEF – How? • Management of FIs under the CEF • Implementation by financial partners (EIB) in accordance with Financial Regulation • Possible combination of innovative financial instruments and grants to optimise the impact of financing • Possibility for MS (directly or through Structural Funds), other EU funds and/or investors to top up the CEF financial instruments • Role of EU and EIB • EU determines general eligibility criteria (TEN-T Guidelines + CEF article 7) • EU helps develop project pipeline where appropriate • EIB selects specific projects using standard eligibility criteria and credit risk policies, select type of support • EU and EIB share risk, but EU risk capped at budgetary contribution, no contingent liabilities. • Building institutional capacity for PPPs in MS through EPEC Transport Financial instruments under the CEF – How? • Role of the TEN-T Programme and the TEN-T Executive Agency • TEN-T EA is responsible for grant management Acts as a facilitator for TEN-T programme financial instruments offered through EIB • TEN-T Programme offers support for PPP project preparation Grant funding for project preparation targeting PPP screening and PPP tender preparation (€ 47m offered through Annual Calls 2010, 2011, 2012) Build solid EU level project pipeline to exploit Project Bond Initiative and other financial instruments Send clear signal to private sector of commitment to PPPs Consolidate experience to achieve consistency and standardisation where feasible and to share best practice • First results: added value of the TEN-T EA Better preparation of technical, financial and legal aspects of projects through calls and expert advisors Improved project discipline and communication through milestones Upstream advice on EU financial instruments , more informed decision-making for all partners Better preparation of procurement authorities & procurement documentation and procedures bond-friendly Advice on opportunities for combining TEN-T investment grants with financial instruments Transport Annual Call 2012: Support for PPP project preparation - feasibility to maturity • Feasibility studies necessary for value for money assessment and preparation of business case: Market scan, Risk analysis Affordability & 'Bankability' – development of funding and financing models Identification of output requirements Development of public sector comparator and ‘shadow bid’ • Mature project preparation phase, studies necessary to bring project to tender: Defining output requirements and service quality standards Financial studies to explore sources of financing, including capital markets solutions Preparation of draft PPP contract Support during procurement phase to make tender bond-friendly Steady growth of EU level PPP project pipeline • Annual Call 2010 €7 million offered, 3 projects selected 2010-NL-93302-S – Implementation study to prepare PPP to improve maritime access to TEN-T at Amsterdam – Sea Lock • Annual Call 2011 €15 2011-CZ-94064-S 2011-ES-94123-S 2011-FR-94036-S 2011-IT-94006-S 2011-IT-94030-S 2011-NL-94111-S • Annual Call 2012 € 25 million offered Evolution towards stronger linkage with financial instruments million offered, 6 projects selected PPP for D3 motorway PPP for intermodal logistics platform PPP for CNM train stations PPP for Port of Venice PPP for rail link at Malpensa Terminal 2 PPP for Beatrix locks and Lekkanaal Financial instruments under the CEF – on-going negotiations • Budgetary allocation to CEF • European Council Agreement of 8th February • Waiting for the position of the European Parliament – consent needed • Negotiations on the text (Objectives, Mechanisms, %...) • Vote in the Parliament TRAN/ITRE committee in Dec 2012 Support to the use of financial instruments under CEF • Partial General Approach in Council in June 2012 Points left out: – Continuation of the Project bonds from 2014? – Annex & delegated acts on the main terms, conditions & procedures for Financial instruments Transport Questions? Thank you for your attention! matthieu.bertrand @ec.europa.eu Transport