Public-Private Partnerships for infrastructure in the European Union Chris Hurst Director, Infrastructure Department

Investment requirements to 2020 in the EU-25 TENS 600 billion of which ~ 2/3 rail Water same order in the New Member States TENS 100 billion Water 50 billion

EIB lending to infrastructure, EU25 Billion

EIB is a major funder of PPPs

Advantages of PPPs Life-cycle approach Better preparation Better risk management Improved affordability for government

1. A life cycle approach PPPs are long-term service contracts integrating: Design Construction Maintenance …. but some contracts are complicated to write... and assets return to the state at some point Clear advantages with stand-alone projects

2. Better prepared projects Environmental mitigants Land acquisition PPPs mean more effort to define projects and careful scrutiny by bankers …. but contract renegotiation in +½ of cases

3. Better risk management ? Market risk Allocate risks to the party best able to manage them Low financial profitability Design-Construction-Maintenance Uncertainty & reactions to tolling Unexpected competition

Traffic forecasts are optimistic Source: Standard and Poors (2005) Actual traffic ~ ¾ expected

3. Better risk management Market risk or availability payments Allocate risks to the party best able to manage them CASE BY CASE SOLUTION Design-Construction-Maintenance

4. Affordability Long-term budgetary impact Stretching public budgets Priorisation and phasing Value for money Off-balance sheet if private sector takes most of the risk (construction plus demand or availability)

4. Affordability Tendering Competition essential Plan for transaction costs: Public sector 1-7%, average 3½% Winning bidder 3-6%, average 3¾% by critically assessing the efficient number of bidders and bidding rounds Review government capacity to deliver

Key success factors Public sectors capacity to manage Competitiveness of bidding process Appropriateness of risk sharing Economic fundamentals Competition Risk allocation Economic Fundamentals Delivery

Thank you