Brussels, 11/01/2008 (Agence Europe) - On Friday 11 January, the European Commission and the European Investment Bank (EIB) signed a cooperation agreement establishing the Loan Guarantee Instrument for trans-European transport network (TEN) projects (LGTT). This new instrument will facilitate greater participation of the private sector in the financing of transport infrastructure of European significance, especially for investments in TENs projects where there is a high level of revenue risk in the early operational period of a project. The LGTT, which forms part of the Trans-European Transport Network (TEN-T) programme and the EIB's Action for Growth initiative, will partially cover this risk and thereby significantly improve the financial viability of TENs investments. The capital contribution of €1 billion (€500 million each from the Commission and the EIB) is intended to support up to €20 billion of total capital investment.
“LGTT is a significant new instrument for financing European infrastructure. Not only are we making this innovative instrument available to the market today, but we also reiterate that private participation in the financing of transport infrastructure of European interest is welcome and needed”, said Jacques Barrot, Commission Vice-President in charge of transport, when signing the agreement. “For some projects, a partnership between the public and the private sector can prove to be the most efficient way forward”, he added. Philippe Maystadt, EIB President, considers the main aim of the LGTT is to “facilitate private sector involvement in core transport infrastructure”.
For the period 2007-2013 alone, the investment needs in TEN infrastructures are expected at some €300 billion in total. A significant financial gap in public sector resources is anticipated and it will only be overcome by mobilising private investment in large infrastructure projects. The LGTT - an EIB guarantee for subordinated debt in form of a stand-by liquidity facility to be provided by commercial banks - counters this problem by providing security for the initial traffic revenue risk over the first 5-7 years of a project's operation. The LGTT assists the project to cope with the initial risk while relying on the long-term perspective of the project being financially viable.
The LGTT, by improving the ability of borrower to service senior debt, enhances the overall credit quality and thereby encourages a reduction of risk margins applied to senior loans to the project. These savings should surpass the cost to the borrower of the guarantee, resulting in added financial value for the project. The LGTT will complement two other financial instruments of the European Commission tailored for TEN-T projects and aimed at increasing the participation of private capital. The Risk Capital Facility offers risk capital to investment funds focused on providing equity for TEN projects, whereas availability payment schemes can benefit from a construction cost based grant during the operational, post-construction phase of the project. (O.L.)