Financing efficient and sustainable transport networks EBRD experience promoting rail transport solutions in the Danube Region November 2015

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1 2nd Symposium: Modernisation of Railway Infrastructure; EU Strategy for the Danube Region ÖVG - Österreichische Verkehrs-wissenschaftliche Gesellschaft Financing efficient and sustainable transport networks EBRD experience promoting rail transport solutions in the Danube Region November 2015

2 The EBRD 2

3 The EBRD The European Bank for Reconstruction and Development: An international financial institution promoting transition to market economies by investing mainly in private sector development and entrepreneurship Established in 1991; headquartered in London, the Bank has 42 regional offices Owned by 64 countries and two intergovernmental institutions AAA rated, largest single investor in the region of operations (36 countries from central Europe to central Asia and the southern and eastern Mediterranean): EUR 90 billion in more than 4,100 projects since

4 Mission and Vision Three Key Principles Promotes transition to market economies, private ownership and good governance with respect for people and environment Invests in financially viable projects, together with the private sector Transition Impact EBRD Supports, but does not replace, private investment. Provides financing otherwise not available, at reasonable terms Sound Banking Additionality 4

5 Where the EBRD invests 6 November,

6 EBRD presence in the countries of the Danube region Danube Region EU Member States: Austria Bulgaria Croatia Czech Republic Germany Hungary Romania Slovak Republic Slovenia Accession countries: EBRD Country of Operation No Yes Yes Graduated No Yes Yes Yes Yes Bosnia and Herzegovina Montenegro Serbia Neighbourhood countries Moldova Ukraine Other countries: Kosovo Yes Yes Yes Yes Yes Yes 6 November,

7 Projects in all key business sectors Transport Municipal & Environmental Infrastructure Property & Tourism Nuclear Safety Financial Institutions Natural Resources Telecommunications, Informatics & Media Climate Finance Manufacturing & Services Power & Energy Agribusiness Equity Funds 7

8 Extensive offer of tailored financial products Debt Loans to the private sector (up to 35% syndicating the rest), including SME Sovereign, sovereign guaranteed and loans to state owned companies Debt co-financing, working with commercial banks and IFIs Project finance loans (incl. PPP) Hard/local currency. Fixed/floating rates Syndication under preferred creditor status Access to capital markets Equity Investing with majority sponsor to reduce equity burden and add partnership value. No more than 25% Common or preferred stock Privatisation and initial public offering (IPO) Mezzanine equity and subordinated debt Infrastructure funds PPP Technical Cooperation EBRD brings in additional financial capital and technical assistance (TC) to economically viable projects 8

9 Benefits of working with us EBRD s Value-Added: a unique offering Strong, internationally recognised partner with long term perspective Higher risk appetite than other lenders Long established policy dialogue with Government and Regulators Unparalleled presence in the region provides mitigation of political and regulatory risks Preferred creditor status in all countries of operations Catalyst to access additional finance (every EUR 1 financed by EBRD mobilises EUR 1.6 from other sources 1 ) Flexible deal structure and product matching services Dedicated team with expertise in a variety of sectors and countries Donor-funded technical assistance available for economically viable sustainable development projects 1. EBRD Annual Report

10 EBRD in the Transport Sector 10

11 The Transport Team at EBRD Transport Team is part of EBRD Infrastructure Business Group with over 30 banking and sector professionals Headquartered in London, with dedicated sector coverage bankers in local EBRD resident offices Dedicated in-team specialists to support project needs including procurement, sustainable strategies and monitoring EBRD offers banking services (debt and equity) to clients across every transport mode: railways, maritime, aviation and roads 1 More info at 1. Urban Transport is competence of the Municipal & Environmental Infrastructure Team 2. Data at end July 2015 Transport at a glance 2 EUR 13.3 billion invested Total project value: EUR 50.3 billion 263 projects 30 of the EBRD s countries of operation 11

12 EBRD s presence in Transport Sector Portfolio by Region Portfolio by Sector South-Eastern Europe 26% 62 projects/ 3.2 bn Turkey, 3% 11 projects/ 0.6 bn Central Asia 9% 32 projects/ 1.7 bn Central Europe and Baltics 20% 60 projects/ 2.4 bn Road 47% 81 projects/ 6.3 bn Aviation 7% 40 projects/ 0.9 bn Intermodal 5% 13 projects/ 0.6 bn Ports and Shipping 7% 51 projects/ 1.0 bn SEMED 1% 1 project/ 0.1 bn Russia 21% 41 projects/ 2.7 bn Regional 2% 4 projects/ 0.2 bn Eastern Europe and Caucasus 18% 52 projects/ 2.4 bn Rail 34% 78 projects/ 4.5 bn The Bank supports the development of efficient multimodal networks, investing a total of EUR 13.3 billion as of end July 2015 across all sectors and regions to support 263 projects 12

13 EBRD invests in a broad range of transport projects Road Rail Ports & Shipping Logistics & Intermodal Aviation Road rehabilitation and construction of new highways, secondary and rural roads, by-passes, maintenance equipment and contracting, toll-motorway construction and operation Rehabilitation, maintenance and construction of rail infrastructure (track, signaling, power supply, civil structures), rolling stock, maintenance and ancillary facilities Rehabilitation and construction of port infrastructure (berths, quays, land access), superstructure (warehouses, gantries), inland waterways, and vessels (acquisition and retrofitting) Construction of intermodal terminals & logistic centres, fleet and equipment, support to intermodal operators Rehabilitation and construction of airport infrastructure and terminals for passenger & cargo, airline finance, air navigation services (ANS) 13

14 EBRD in the Rail Sector EBRD financing supports rail development through long-term sovereign debt to state-owned companies, in addition to and non-sovereign debt to private operators. Typical investments include: Infrastructure investments, including track construction or rehabilitation, rolling stock, signalling, and power supply, which together can promote a more competitive rail system as well as bringing infrastructure to international standards of safety, security and environmental compliance Balance Sheet restructuring and corporate finance Private Freight Operations, including support to Intermodal operators and logistics providers for investments in infrastructure and mobile assets In parallel EBRD aims to support governments in their efforts to introduce rail sector reform and restructuring. At a Glance No. projects: 78 (30% of portfolio) No. Countries: 23 EBRD Finance/Project Value: EUR 4.5 billion / EUR 15.1 billion 14

15 EBRD Rail investments at a glance Summary Total Danube No. projects: No. Countries: 23 12(*) EBRD Finance: 4.5 bn 1.4 bn Total project value: 15.1 bn 8.8 bn Some clients in the rail sector

16 EBRD Rail Projects in the Danube Region Year Operation Name Country Type Instru ment EBRD M Projec t M 1994 Slovenske Zeleznice p o Slovenia Sovereign Debt Railway Restructuring Project Bulgaria Sovereign Debt Ceske Drahy s.p. - Czech Railway Corridor Czech Republic Sovereign Debt Railway Rehabilitation Romania Sovereign Debt Croatian Railways Locomotive Rehabilitation 1998 Project Croatia Sovereign Debt MAV - Railcar Modernisation and Marketing 1998 Project Hungary Sovereign Debt Railway Development Project Ukraine Sovereign Debt Railways Recovery Project Bosnia & Herzegovina Sovereign Debt ZTP Belgrade Reconstruction Project Serbia Sovereign Debt Siemens - SKV Czech Republic Non-Sovereign Debt CFR City Stations Enhancement Project Romania Sovereign Debt Grandi Stazioni Ceska Republika Czech Republic Non-Sovereign Equity Ukraine Railways: Fast Passenger Trains 2004 Project Ukraine Sovereign Debt Bosnia and Herzegovina Regional Railway 2005 Project Bosnia & Herzegovina Sovereign Debt CFR Rail Traction Project Romania Sovereign Debt Serbian Railways : Rollingstock Serbia Sovereign Debt ,076.8 Montenegro Rail Infrastructure Emergency 2007 Project Montenegro Sovereign Debt Montenegro Rail Infrastructure Emer Rehab 2009 Project II Montenegro Sovereign Debt Serbia Railways EMUs Serbia Sovereign Debt ,123.0 Ukraine Railways: Rolling Stock Renewal 2009Project Ukraine Non-Sovereign Debt Montenegro:ZPCg Rolling Stock Renewal 2010 Project Montenegro Sovereign Debt Serbian Railways Corridor X Serbia Sovereign Debt LEF: PORR Sleepers Factory Serbia Non-Sovereign Debt Interleaseinvest Ukraine Non-Sovereign Debt CFR Financial Restructuring Romania Sovereign Debt JSC Serbia Railways Serbia Sovereign Debt UNPK Rail Ukraine Ukraine Non-Sovereign Debt Croatia: HZ Infrastructure Modernisation Croatia Sovereign Debt Moldovan Railways Restructuring Project Moldova Sovereign Debt Railway Rehabilitation Project Kosovo Sovereign Debt

17 Case Studies 17

18 EBRD supported institutional restructuring of SNCFR (Romanian State Railways) In the 1990s, aspiration for EU membership, coupled with a collapse in rail freight and passenger volumes, created a strong impetus to restructure SNCFR and implement market reforms SNCFR was restructured in line with principles set out in EU directives. The three primary companies created were: The Infrastructure Manager (CFR) Passenger operator (CFR Calatori) Freight operations (CFR Marfa) By isolating historic debt in the legacy company SNCFR, the new companies were able to commence operations with a clean balance sheet. Non-core businesses were isolated and have been largely privatised Public Service Obligations (PSO) were implemented to improve transparency of financing of passenger services

19 EBRD in the rail sector - Case Study Delivering modern rolling stock in Serbia Client: EBRD finance: Type of finance: Total Project cost: Serbian Railways EUR 100 million Sovereign guaranteed loan EUR 221 million Year: 2009 Project description Impact: EBRD Value Added: 25 two or three car sets of Electrical Multiple Units (EMUs) for use on the main inter-city services in Serbia. > 130,000 tonco2/a abatement based on improved energy performance of new trains and modal shift Continued emphasis on the PSO and the Corporate Strategy Energy assessment to identify opportunities Development of a service costing system for the passenger business Through a long term collaboration with Serbian Railways, the EBRD has also financed rail infrastructure, rolling stock and rail reforms, also providing donor funded TA to move forward in terms of energy efficiency. The company now has its own Energy Efficiency Team in-house and it is developing an energy management system

20 EBRD in Poland: a Long Term Partner in Rail Reform Polish State Railways (PKP) had lost a significant proportion of its freight volumes after restructuring of coal and steel industries. It was over-staffed and received insufficient funds from the state EBRD has worked with the company on five operations extending over 20 years, beginning in 1994 by assisting the Government to develop an ambitious restructuring programme Operation name: Portfolio Risk type EBRD EURm Project EURm PKP Railway Modernisation Project State Sovereign PKP Restructuring & Privatisation Project State Sovereign PKP Second Railway Restructuring & Privatisation Project State Sovereign PKP Energetyka Network Management Project State Non-Sovereign PKP Cargo Private Non-Sovereign Year In EBRD provided finance for both financial and labour restructuring, and to assist with divestment and potential privatisation In 2004 EBRD helped PKP Energetyka with investments designed to achieve savings in maintenance & operating costs. PKP Energetyka has recently acquired by a private equity fund In 2000 PKP Cargo was spun off from PKP. It is the largest railway freight-carrier in Poland and in 2013 EBRD helped launch a successful IPO EBRD has worked closely throughout these operations with other IFIs such as IBRD and EIB.

21 Kosovo Railway Rehabilitation Project Modernisation of transport infrastructure and regional integration are key priorities for EBRD in the Western Balkans. The project will: improve the connection between Kosovo s railway network and the European network through Corridor VIII and Corridor X in FYR Macedonia in the south of the country and the Serbian border in the north. is EBRD's first investment in Kosovo s transport sector a senior loan of 39.9 million to finance, with parallel financing from EIB The project also benefits from investment grants provided by the European Union and grants for project preparation and implementation from the Western Balkans Investment Framework. EBRD provides support through this project for improved asset management practices, track access charging methodology, and equal opportunities, with particular emphasis on workforce diversity and gender equality. The loan to Infrastruktura e Hekurudhave të Kosovës (Infrakos), the national railway infrastructure company, will provide funding to upgrade Kosovo s only international rail link, Rail Route 10. It is 148 kilometres long and divided into three sections: the southern section Fushë Kosovë -FYR Macedonian border; the central section Fushë Kosovë- Mitrovicë; and the northern section Mitrovicë -Serbian border. The Kosovo Rail Route 10 project is part of the Western Balkans core railway network, an extension of the Trans- European Transport Networks, which is part of a wider European Union agenda to promote transport connectivity in the region.

22 Some lessons for rail sector reform: Political Support Identify Reform Leaders Ultimately the success of the reforms will rest on robust and consistent political support for the process Individuals should be identified to lead the reform process within the Ministries and Railways Clear Aims and Communication A clear set of objectives should be agreed and articulated to all stakeholders at all levels Defined Timescales The reform process cannot be rushed, but momentum is important if the reforms are to progress

23 alongside pragmatic lessons on ensuring the reforms work and are sustainable Historic Debt Labour Restructuring Public Service Obligation Commercial Training Relieving newly created railway companies of historic debt can support commercialisation of operations Extensive consultation with unions and employees can ease the process with adequate provision of assistance The PSO framework requires political commitment and consensus on providing necessary public funding Invest in training to create a new generation of commercially oriented managers

24 Later stages of reform EBRD invested in a private railway station operator in the Czech Republic Rail companies in the region have been highly focused on market reforms, carrying out financial and institutional restructuring However, in the post-reform environment, the commercial potential of railway property is being explored Major railway stations can offer significant commercial opportunities, due to the volume of passengers and their central location Czech Railways tendered a 30 year concession for the refurbishment and operation of three railway stations This approach utilises private sector capital for the refurbishment, and private sector skills to operate the stations on a commercial basis The tender was won by Grandi Stazioni, itself a joint venture between state-owned Italian Railways and the private sector

25 EBRD PPP Experience: Czech Republic: Grandi Stazioni Project involves rehabilitation & commercial exploitation of 3 Czech Railway Stations: Prague, Marianske Lazne & Karlovy International public tender of year concession with no public sector involvement State has no investment obligations, but has some participation in the profit of the SPV after a certain number of years EBRD s first equity investment in a transport PPP, provided in EBRD relies on dividend income and long term exit returns EBRD is a financial partner with a seat on the Supervisory board Long-term debt financed by commercial banks Milestone opening of Prague New Hall achieved in July 2009

26 Key requirements for a bankable PPP project: At a minimum a PPP project must: be financially feasible, based on a secure source of cash-flows; have a sound economic basis established by rigorous cost/benefit analysis meet the Government s development objectives while having the support of an underlying political consensus ensure any environmental and social concerns can be effectively mitigated while respecting the essential development needs of the project.

27 EBRD Infrastructure Project Preparation Facility EUR 40 million Facility, split roughly equally, for the development of: 1) sustainable public sector infrastructure; and 2) developing PPPs. The IPPF is a facility managed and administered by a dedicated unit within the Infrastructure Business Group. The IPPF has been initially established for a period of three years (starting 2015) with a possibility for further extension. Objectives of the IPPF: 1. Promote more efficient delivery of projects within context of EBRD s unique transition mandate 2. Improve quality of service offered to clients 3. Deepen focus on commercialised approaches to infrastructure 4. Strengthen institutional capacity 5. Facilitate the integration of project preparation with systematic higher level policy dialogue 27

28 Contacts For all further enquiries, please contact : Sue Barrett Director Transport tel: barretts@ebrd.com EBRD One Exchange Square London EC2A 2JN, United Kingdom OFFICIAL USE 28