Instruments and development needs Nicholas Jennett European Investment Bank

Key lessons from EIB’s PPP experience 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

Evidence on PPP performance 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

Procurement & the contractor market 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

Mobilising Funding: Structural & Cohesion Funds 2007-2013 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

Blending grants and loans: the new PPP alchemy 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

Models (1) Capex subsidy Unitary payments or user charges savings construction ……….. National EU Grant Private operations 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 Unitary payments or user charges savings Separate construction contracts ……….. National EU Grant Component A Single operations SPV Private Component B Private Characteristics: Common in transport Leverage: Moderate Incentives: Moderate Issues: Interface problems Ability to slice up project

Models (3) Payment subsidy EU grants construction ? ……….. Private 2015 operations Characteristics: Similar to UK PFI credits? Leverage: High Incentives: High Issues: Only for availability schemes Eligible expenditure period Regulations unclear

Models (4) Co-Investor (Fund or Project) EU Grant National Private Investment Fund or Project projects Characteristics: Like urban regeneration funds Leverage: High Incentives: High Issues: Social objectives v profitability Selection of private partner Recycling of profits

Building public sector capacity 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

Developing PPP in the Regions: EIB initiatives 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: Public sector capacity building 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 Cinderella of the IFIs One hand EU Institution, other hand BANK Policy set by EU, don’t write lots of policy docs Operates on sound banking principles Both developed and developing world Challenge of New Member States No policy to promote PPP – its a political choice

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