Combining PPPs with EU grants
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Transcript of Combining PPPs with EU grants
Combining PPPs with EU grants
Radek Czapski, Operations Officer
PPPs in InfrastructurePPPs in Infrastructure
This presentation benefitted from contribution by MM. Cledan Mandri-Perrot, Michel Noel and Sophie Sirtaine (World Bank Specialists)
Ample EU funding is available for infrastructure Programming Period: 2007-
2013 Cohesion Instruments:
€308bn EU grant funds Up to 85% project costs Public Infrastructure
(transport, environment, municipal)
Major projects: > 50m transport etc. > 25m environment
Concerns: New Member States
absorption capacity Project quality
EU Grant funding should dominate
public sector investment in NMS Source: European Investment Bank, presentation by Hugh Goldsmith, PPP Coordinator, Projects Directorate, March 2008
Rationale for PPPs – The EIB’s view Why?
Balance sheet treatment à la mode Cost & date certainty of
construction contracts Operational performance Private sector skills Leverage of private
finance Public procurement reform
Why not? Maturity of Legal
Framework Project preparation time &
cost in n+2 context Efficient scale of co-
financing Enhanced public sector
capacity requirements Poor experiences in New
member States
Value-for-MoneySource: European Investment Bank, presentation by Hugh Goldsmith, PPP Coordinator, Projects Directorate, March 2008
PPPs in Europe have been used successfully…
There are few examples which combine EU grant funding with private finance, e.g. Price Waterhouse Cooper Report on Hybrid PPP (2006)
Key challenge is how to bring together public and private funding and thus leverage EU resources
Use of EU Grants can allow: Economic & Social Cohesion Dealing effectively with externalities Acquis compliance Affordability:
To users To paying agency / taxpayers
Cost recovery policy: User Charges v Taxes
…although to varying extent in Western Europe …
Source: PPIAF / PricewaterhouseCoopers, Hybrid PPPs, 2006
… and in the NMS
Source: PPIAF / PricewaterhouseCoopers, Hybrid PPPs, 2006
So what do we mean by ‘hybrid’ projects…..
Until 2007, hybrid PPPs have been implemented using two main routes
Project ring-fencing
National underwriting of EU grants
Project ring-fencing relies on “divisible” projectsRoad project example
The Constanta Water and Wastewater Project used such ring-fencing scheme
National underwriting of EU grant was also used, as for the Athens Ring Road
For existing projects, it is likely to be difficult to attract EU grants
Would need to prove that existing PPPs meet all requirements set in Council Resolution and other relevant legislation
Accounting treatment of grant might complicate how it is integrated into asset base (if at all)…
Sector specific directives would also apply e.g. Water Framework Directive
For new single PPP projects, EU grants can be used in similar ways as prior to 2007 …
1. Capex subsidy model
National
EU Grant
Private
constructionconstruction
operationsoperations
savingssavings Unitary payments or Unitary payments or
user chargesuser charges
………………....
2. Parallel co-financing / project ring-fencing
Component AComponent A
Component BComponent B
National
EU Grant
Private
Single operations SPVSingle operations SPV
………………....
Private
Separate construction Separate construction contractscontracts
… provided all Council Resolution requirements are met
3. Payment subsidy
Private
constructionconstruction
operationsoperations
EU grants
………………....
??
20152015
The FEI structure probably offers the main avenue for future hybrid PPPs
Financial Engineering Instrument (Urban Development Fund)
NationalEU Grant Private
projectsprojects
Option 1: EU as co-investor in Urban Development Fund
Based on articles 43-46 of Commission Regulation 1828/2006 and article 44 of Council Regulation 1083/2006
Holding Fund
NationalEU Grant Private
projectsprojects
Option 2: EU as co-investor in Holding Fund
Urban Development Fund 1 Urban Development Fund 2
NMSs could consider establishing a local infrastructure equity fund as FEI
Fund invests equity in project companies established as joint ventures (JVs) with local governments (regions, municipalities) Fund managed by independent fund manager selected by
competitive tendering Fund manager selected on the basis of track record in raising
equity and in supporting local governments in project development and management of municipal assets
Fund capital originating from fund manager, domestic and international institutional investors, IFIs
Fund manager required to bring in its own equity alongside third party shareholders to incentivize project identification and development
Fund aims at balanced and diversified portfolio of investments
Fund has controlling stake in JVs (not necessarily majority)
The proposed structure presents several advantages
Enables to attract EU grant at three potential levels holding fund local government FEI
Enables to attract institutional investors in holding fund Diversified portfolio of infrastructure investments Investment leveraged with EU grant and IFI funding Appetite tested in feasibility study in Romania Successful examples in UK and other OECD countries
Enables to attract PPP sponsors Investment leveraged with EU grant and fund equity investment
Enables implementation of coherent local infrastructure program
Concluding remarks - 1
Issues are still uncertain
1828 Regulation is a start but not a finish line
Legal precedent (i.e. jurisprudence or case law) will likely set agenda (e.g. Stade Halle case)
Creativity is required
Use of Technical funds to pay for specialist input e.g. EIB is a plus
Concluding remarks - 2
Uncertainties still exist on: Definition of public vs. private expenditure Treatment of availability payments Co-financing rate calculation Private beneficiary as “initiator” Timing of application & grant decision Implications of N+2 rule to availability schemes
From a procurement perspective, the following still needs to be considered: Models for grant blending in different sectors Appropriate tender/bid criteria
THANK YOU!
PPPs in Infrastructure