EIB IN THE WATER SECTOR Thomas van Gilst. EWA Brussels 7 November 2017

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1 EIB IN THE WATER SECTOR Thomas van Gilst European Investment Bank EWA Brussels 7 November 2017 European Investment Bank 1

2 1. The EIB: the EU Bank Natural financing partner for the EU institutions since 1958 A policy driven Bank Headquartered in Luxembourg with 40 local offices Largest multilateral lender and borrower in the World (AAA) Around 3000 staff including finance professionals, engineers, sector economists and socio-environmental experts Around 90% of lending is inside the EU Investing in Europe s growth European Investment Bank 2

3 The EIB: capital breakdown European Investment Bank European Investment Bank 3

4 EIB priorities: Environment Infrastructure Innovation SMEs EUR EUR EUR EUR 16.9bn 19.7bn 13.5bn 33.6bn European Investment Bank 4

5 The EIB: a major lender to the water sector The largest source of loan financing to the global water sector Can lend up to 50% of investment costs for individual projects (average = 30) Lends to public or private utility companies, national or local authorities Lending covers the whole water cycle (water resources, water supply, sanitation, flood protection) projects mainly water supply and sanitation 5 11/15/2017 European Investment Bank 5

6 Loan signatures in the water sector in by region (EUR m) 6.000,0 Central Asia 5.000, , , , ,0 Latin America Candidate countries Asia (excl. Central Asia) ACP States Russia, E.Europe,Sth. Caucasus Mediterranean countries Member states 0, Total loan volume: EUR 19.85Bn 11/15/2017 European Investment Bank 6

7 EU member states Lending to the water sector in (EUR m) 33% in UK > 75% in five countries Sweden Poland Portugal Slovenia Finland Greece Bulgaria Austria Cyprus Romania Ireland Hungary Netherlands Spain France Belgium Germany Italy United Kingdom European Investment Bank 7

8 NON-EU regions Lending to the water sector in (EUR m) Central Asia Asia (excl. Central Asia) Latin America 341 Candidate countries Mediterranean countries 535 ACP States 645 Russia, E.Europe, Sth. Caucasus European Investment Bank 8

9 EIB project cycle We support sound and sustainable projects Step 7 Repayment Step 1 Proposal EIB project cycle European Investment Bank Step 2 Appraisal Step 3 Approval Technical assessment Environmental Social Financial Economic EIB Management Committee Investment Committee (for operations potentially benefiting from an EU guarantee under EFSI) EIB Board of Directors Step 5 Disbursement Step 4 Signature Finance contract is signed European Investment Bank Group 15/11/ European Investment Bank 9

10 Project example: BLOMINMÄKI Wastewater Treatment Plant Scope New wastewater treatment plant in the bedrock Wastewater conveyance tunnels and water pipelines Closure of the ageing Suomenoja plant Project objectives: Provide capacity (550,000 population equivalent) to treat western Helsinki s wastewater to very high standards (i.e. including nutrient removal) COP objective: Environment and Climate Action ESPOO, KAUNIAINEN KIRKKONUMMI SIUNTIO WESTERN VANTAA Funding sources Euro million EIB loan 200 Other sources 203 Total project cost 403 European Investment Bank 10

11 Minimize impacts on landscape and population Helsinki Turku Motorway E18 E18 Helsinki Turku Motorway European Investment Bank 11

12 State of the art underground solution with innovative technologies Only visible components 1. Inlet basin 2. Fine screens 3. Grit removal 4. Primary sedimentaion 5. Aeration basins 6. Final sedimentation 7. Biological filters 8. Sludge thickening 9. Digesters 10. Reject water treatment 11. Outlet air chimney 12. Office building 13. Storage/work room 14. Exit shafts 15. Sludge and biogas treatment 16. Sludge storage silos 17. Disk filters, µm 17 European Investment Bank 12

13 Key Drivers for EIB Financed Water Projects inside EU Service Delivery/continuity Network extension Assets renewal Climate Change (adaptation) Service rationalization Post disaster emergency Compliance: Urban Wastewater Treatment Directive Water Treatment Directive Water Framework Directive Floods Directive Local regulations Micropollutants? European Investment Bank 13

14 Evolving international context Water security: a risk for economic growth in the EU Today 2030 European Investment Bank 14

15 How can EIB lending evolve to strengthen water security and economic growth? increase focus on smaller utilities (the most at risk) through EFSI loans and advisory. Increasing focus on water for industries. Increasing support to innovation in the water sector. European Investment Bank 15

16 Example of targeting smaller Utilities: Viveracqua Hydrobond Issuer 1 Issuance of Bonds Issuance of Notes Issuer 2. Issuer 9 Subscription price Remuneration and repayment of Bonds HYDRO SPV 130/99 Subscription price Interest and principal on the Notes EIB + Investors Liquidity and credit support on the Notes Veneto Sviluppo Liquidity and credit support on the Notes Cash reserve (20%) Credit Risk - highlights Local municipality-owned companies, providing regulated water services under concession agreements Internal ratings ranging from 4/Baa2 to 6+/B1 (4/Baa2: 1 case; 4-/Baa3: 2 cases; 5+/Ba1: 5 cases; 6+/B1: 1 case) EIB underlying documentation to include typical corporate clauses for operations with Italian water companies European Investment Bank 16

17 European Fund for Strategic Investments (EFSI) EU Guarantee EUR 16bn EIB EUR 5bn EFSI - European Fund for Strategic Investments EUR 21bn Infrastructure and Innovation Window EUR 15.5bn Deployed by EIB SME Window EUR 5.5bn Deployed by EIF Financing: EUR 61bn European Investment Bank Final investments: EUR 315bn European Investment Bank 17

18 Tech Transfer / VC VC / SME Funds VC / SME Funds PE / MidCap Funds Quasi-equity Co-investments/Direct Equity Funding size (EURm) Access to finance 5. EIB products for financing innovation Market Gaps and EIB Group approach Mandates/ SLA Global Loans Intermediaries (Banks) Investment Loans Intermediaries (Funds) Contingent Loans < 25m Second Valley of Death < 10m First Valley of Death Innovation finance gap < 7.5m < 1.0m Seed stage Growth Finance Gap expansion capital EUR 7.5m-25m Pre- seed Startup Emerging Small MidCaps <250 employees MidCaps Large MidCaps 500-3,000 Large Caps Stage of development European Investment Bank 18

19 4. Challenges of financing innovation in Water financing innovation The water market is mature, with limited growth rates overall. The exit opportunities for investors (IPOs/M&A), are limited The water market is fragmented The market is undervalued Regulatory constraints Water is not a strongly innovative sector Market uptake of new technologies is difficult European Investment Bank 19

20 EIB support on offer Innovation Finance Advisory Promoter/ Project definition Pre-financing Funding Appraisal Innovation Finance Advisory intervention Objective Shareholders / sponsors definition Strategy Business plan Fees applicable to be agreed on a case by case basis, depending on the scope of work involved, and in line with the agreement with the EC No fees applicable on Public Sector projects Facilitate access to long-term funding for midcaps/large-caps Review of strategy and business plan Review of key assumptions-sensitivities, risk allocation, develop credit story Review of eligibility for various financing options, advise on capital structure Support project/company to ensure that it meets EIB/EFSI eligibility and viability and risk assessment (with support of other operational services where needed) F Improved access to finance Due diligence Negotiations Structuring Documentation European Investment Bank 20

21 Would you like to know more? Consult the Hub s advisory offer Request support from the Hub Contact the Hub for more info eiah@eib.org European Investment Bank 21

22 Thank you for your attention Questions? For more information please contact: Thomas van Gilst Head of Water Management Division Projects Directorate Phone: (+352) Fax: (+352) European Investment Bank 100, boulevard Konrad Adenauer L-2950 Luxembourg European Investment Bank 22

23 Impact of regulatory uncertainty on EIB lending EIB lending to the water sector in ITALY (excluding MOSE project), EUR M Testo Unico Ambientale (2006): 450,00 new stringent limits for water quality and new managing 400,00 units (AATO) at the regional level Ronchi Decree: liberalization of the water sector New method for hydric tariffs Average increase in tariff: +2.7% compared to ,00 300,00 250,00 Referendum on the abrogation of the Ronchi Decree (2009) followed by legislative uncertainty: Italians voted YES , ,00 100,00 50,00 0, Amount disbursed Expected European Investment Bank 23