Instruments and development needs

Nicholas Jennett

European Investment Bank

• The evidence on project performance• Key success factors

– The importance of procurement and the contractor market

– Mobilising funding sources– Building scale & expertise in PPP programmes

• EIB initiatives– New financial instruments– JASPERS– European PPP Expertise Centre

Key lessons from EIB’s PPP experience

• National audit authorities commit significant resources to assessing PPP VFM– Reports are an important source of information,

learning and benchmarking

• Tribunal de Contas, Portugal• Hungarian State Audit Office• UK National Audit Office• German Bundesministerium für Verkehr, Bau u.

Stadtentwicklung

Evidence on PPP performance

• Competitive procurement consistently a key to delivering value for money

• Importance of attracting high quality bidders• Depth in the bidder / contractor market delivers

multiple benefits• Local contractor market may require education• Public sector may need to show:

– Attractive pipeline of deals;

– High degree of professionalism in procurement management

– Political commitment and credibility

Procurement & the contractor market

• Will dominate the infrastructure market in eligible areas

• Potential for unprecedented investment in transport, energy and telecommunications

• EUR 350 billion of grant funding – over EUR 300 billion for major infrastructure

Mobilising Funding: Structural & Cohesion Funds 2007-2013

• Successful models include:– Tagus Bridge (Portugal)– Sparta Airport (Greece)– West Lothian College (UK)– M1 Drogheda bypass (Ireland)– Perpignan-Figeras rail link (France-Spain)

• But new rules (on additionality & grant rate calculations) apply since most of these projects closed

• Four basic models under investigation

Blending grants and loans:the new PPP alchemy

Models (1)Capex subsidy

National

EU Grant

Private

constructionconstruction

operationsoperations

savingssavingsUnitary payments Unitary payments

or or

user chargesuser charges

………………....

Characteristics:

• Most common model

• Leverage: Low

• Incentives: Low (depends on grants)

Issues:• Timing of grant commitment• Scale for private finance

Models (2)Parallel Co-finance

National

EU Grant

Private

Single operations SPVSingle operations SPV

savingssavingsUnitary payments Unitary payments

or or

user chargesuser charges

………………....

Private

Separate Separate construction construction

contractscontracts

Component Component

AA

Component Component

BB

Characteristics:

• Common in transport

• Leverage: Moderate

• Incentives: Moderate

Issues:• Interface problems• Ability to slice up project

Models (3)Payment subsidy

Characteristics:• Similar to UK PFI credits?• Leverage: High• Incentives: High

Issues:• Only for availability schemes• Eligible expenditure period• Regulations unclear

Private

constructionconstruction

operationsoperations

EU grantsEU grants

………………....

??

20152015

Models (4)Co-Investor (Fund or Project)

Investment Fund or Project

NationalEU Grant Private

projectsprojects

Issues:• Social objectives v

profitability • Selection of private partner• Recycling of profits

Characteristics:• Like urban regeneration

funds• Leverage: High• Incentives: High

• Lack of public sector capacity shown to be consistent constraint on the development of PPP programmes

• Public and private sector will need to acquire new skills including legal, financial, procurement, risk analysis, contract management

• Significant challenge for regional authorities with limited PPP experience

• National PPP Task Forces can play key role in securing VFM in programmes

• An important means of demonstrating political commitment

Building public sector capacity

New financial instruments• New debt instruments for low investment grade lending (Structured

Finance Facility)

• Equity investments through PPP investment funds

• Loan Guarantee for TENs Transport (LGTT)

JASPERS

• Joint Assistance to Support Projects in the European Regions• Joint policy initiative of EIB, EBRD and European Commission (DG

REGIO)• Assist EU countries (principally new Member States and Acceding

Countries) to absorb Structural & Cohesion Funds period 2007 to 2013• Assistance with project presentation and identification, including PPP

Developing PPP in the Regions:EIB initiatives

European PPP Expertise Centre (EPEC)• Sharing of policy knowledge and expertise • Information resource and network facilitation• Policy support services for programme planning

and development• Preparation of synthetic review papers on EU

experience• Preparation of case studies, generic guidance,

tried and tested PPP structures

Developing PPP in the Regions:Public sector capacity building

Critical success factors for PPPs in the Regions

 

Clear legal & institutional framework Public Sector political commitment –

national as well as regional Support from focused, dedicated and

experienced public sector team – PPP Task Force

Transparent & competitive procurement Well designed, bankable projects A committed contractor market Ability to mobilise funding Realistic risk sharing