1. ETF Conference, Building & Financing European Transport Infrastructure, Brussels, 23rd Oct. 2003 1 Building & Financing European Transport Infrastructures The Role of Private Participation Panel I ETF Conference Brussels, 23rd October 2003 Wilfried Rammler Work Group Finance, European International Contractors

2. ETF Conference, Building & Financing European Transport Infrastructure, Brussels, 23rd Oct. 2003 2 European International Contractors (EIC) legally independent federation 1984Berlin EIC was founded as a legally independent federation in 1984, registered under German civil law in Berlin construction industry federations 15 European countries has as members construction industry federations from 15 European countries international dimension embodies the international dimension of the European construction industry 77 billion € annual volume of international business of member companies in 2000: 77 billion € FIEC works in close co-operation with FIEC promotes the interests promotes the interests of the European construction industry in all questions relating to international construction activities

3. ETF Conference, Building & Financing European Transport Infrastructure, Brussels, 23rd Oct. 2003 3Need Major economic importance: EUR 1.000 billion, 10% of Union GDP Employment (EU: 10 million) Increasing demand for mobility (+24% in 2010) Increasing transport capacity requirements (+38%) Congestion increase and persistence of bottlenecks 12 additional countries with rapidly growing infrastructure needs are to join the EU The European Transport Network represents a back- bone of the economic development of the continent. Why improve transport?

4. ETF Conference, Building & Financing European Transport Infrastructure, Brussels, 23rd Oct. 2003 4Progress Administrative constraints Difficulties with cross-border projects Conflict between policy and user demand Low economic growth Fiscal consolidation and growing financial con-straints of the public sector (invest < 1% of GDP) Progress in implementation of the TEN projects has been below expectations: Only some 20% of the 14 projects identified in 1994 for year 2010 have been completed. If the rate of funding does not increase substantially, targets will not be met in 2010. Reasons:

5. ETF Conference, Building & Financing European Transport Infrastructure, Brussels, 23rd Oct. 2003 5Cost Total cost of the trans-European transport network is estimated at EUR 600 billion until year 2020 22 identified Priority Projects (TEN) up to year 2020 will cost EUR 235 billion “The Commission is keen for the private sector and private capital to be brought into projects as soon as possible, at the planning stage.” Private sector contribution to these projects is expected at 20% The 2003 report by the EU High Level Group chaired by Karel Van Miert defined expectations and goals:

6. ETF Conference, Building & Financing European Transport Infrastructure, Brussels, 23rd Oct. 2003 6 PPP - Reasons for Failure (1) Hostile politics and / or public Inexperienced administration Lack of legal framework (regulation, taxation, enforcement etc.) Insufficient technical and environmental project preparation Insufficient investigation and assessment of economic, commercial and financial project basis Unfit tender and evaluation procedures Private investments in public transport have remained far behind expectations. Reasons:

7. ETF Conference, Building & Financing European Transport Infrastructure, Brussels, 23rd Oct. 2003 7 PPP - Reasons for Failure (2) Intransparent criteria for performance & evaluation Inadequate tariff- and payment regulations Unbalanced distribution of technical and environ- mental risks (geology, hydrology, pollution etc.) Unbalanced distribution of political risks (legislative action, approvals and licences, protester action, terrorism, connection projects etc.) Lack of financial risk mitigation Extreme guarantee requirements Lengthy and expensive bidding process Lack of competent regulatory authority

8. ETF Conference, Building & Financing European Transport Infrastructure, Brussels, 23rd Oct. 2003 8 PPP - Accepting the Challenge There are enough examples proving that PPP schemes are efficient and successful - if prepared properly: Political (and public) support, competent authorities Standardized legal, administrative and tax basis Stable economic project basis Proper technical and commercial project preparation Transparent bid and evaluation procedures Balanced technical, political & financial risk allocation: - early identification of project related risks & consequence analysis - assessment of probability for risk events and associated costs - assessment of probability for risk events and associated costs - allocation of risks to those parties that are best suited to handle - allocation of risks to those parties that are best suited to handle - set up of mitigating measures for risk events to minimise effects - set up of mitigating measures for risk events to minimise effects

9. ETF Conference, Building & Financing European Transport Infrastructure, Brussels, 23rd Oct. 2003 9 Conclusion and Outlook Private capital is imperative for the financing of the European Transport Network. Privately financed transport projects require very careful arrangement and optimization. EU planning agencies and governments need to join forces in the process of preparation, tender and implementation. EU, European multilaterals (EBRD, EIB) & bilaterals must enhance their role in the preparation, financing and guaranteeing of private transport infrastructure. EU or public financing assistance and innovative financial engineering may open the way to overcome financing restrictions due to economic limitations.