Brussels, 21/12/2011 (Agence Europe) - Project bonds and public-private partnerships (PPPs) are the financial instruments favoured by the European Investment Bank (EIB) for investing in transport infrastructure, as both can attract private investment. Two EIB directors, Dominique de Crayencourt and Tom Barrett, carried the message to MEPs on the European Parliament (EP) transport and tourism committee on Tuesday 20 December. The detailed information brought by de Crayencourt and Barrett fell at just the right moment for MEPs: the European transport strategy is at a critical point, with publication this year of the White Paper and the Commission proposals on revising the trans-European transport network (TEN-T).
The economic situation in which Europe finds itself means loans are in short supply. However, “investment is essential for growth and competitiveness, and to prepare for the future. Nowhere is this more true than in transport. In times of crisis, private finance has to be focused, and we have the knowledge to fill the gaps”, said de Crayencourt. Under the leadership of the EIB and with its expertise, project bonds and public-private partnerships attract private investment by creating a leverage effect.
Project bonds can come to the aid of projects which are not rated highly enough to attract the necessary funding (from pension funds, for example). In such cases, where the return on investment is lower, credit becomes harder as the risk is increased. Thus a stakeholder has to take the initiative and bear the risk. That is where the EIB comes in, bearing some of the risk to encourage private investors to purchase project bonds. On a project costing €100 million, for example, €4 million could come from the EU budget, €20 million from the EIB, as a guarantee, and the remainder from outside investors, perhaps even creating a leverage effect that could bring in up to €150 million, de Crayencourt said.
Barrett said that PPPs were becoming ever more important in the public sector toolbox. Transport has always been a favourite sector for applying this model, with a greater breakthrough in railway transport recently. PPPs are key to the public sector's sourcing of additional funding from the private sector. The EIB is also promoting best practice in this area so that public authorities are more able to manage partnerships.
In general terms, the two experts reminded MEPs that the EIB does not commit taxpayers' money. The institution remains a bank, but not one that is based on profit, and it is this that allows it to offer excellent credit terms. The EIB is also some 400 experts who can testify to the value of a project, not simply from a purely financial angle, but also in social and environmental terms. (MD/transl.rt)