URBAN TRANSPORT Funding and Financing solutions of the European Investment Bank International Association of Public Transport Strategies for Public Transport in Cities Leipzig, 17-18 April 2008 Krzysztof Szyszko
European Union Long-term Financing Institution to Support EU Objectives Created by the Treaty of Rome in 1958. Subscribed capital EUR 165 bn by 27 EU Member States. Operates in: EU Member, Accession and Candidate States. New Neighbourhood and Mediterranean Partner Countries. African, Caribbean and Pacific States. Asia and Latin America. Lending in 2007: EUR 47.4 bn (EUR 44.3 bn within the EU-27). Financing up to 50% of project cost EU Policy-driven Bank, including: EU Transport Policy, in particular Trans-European Networks. Economic and Social Cohesion within the EU. Environmental protection and improvement. Support for EU development aid and cooperation policies. EIB lending for transportation sectors in 1996 2007: EUR 106 bn, of which EUR 14.7 bn dedicated to urban transport
EIB s Approach to Transport Sector Investments Promote an economically viable and financially sustainable transport solutions Focus on railways/subway/trams where they have a competitive advantage Foster multi-modal integration. Careful selection of new investment opportunities with project requirements including: Support EU policies. Technically sound investments. Good economics (ERR). Proper environmental protection (EIA, Nature Conservation, SEA). Sufficient credit quality.
Optimising Financial Instruments Improving Efficiency of Urban Transport Investments Standard Loan Products: Investment Loans and Framework Loans Leveraging Resources : Public Service Contracts and Leasing Accessing the Capital Markets : Revenue Bonds Attracting Private Finance : Public Private Partnerships
Standard Loan Products: Investment Loans and Framework Loans Investment loans are designed to finance large (> EUR 50m) homogenous projects Framework loans are designed to finance a group of smaller investment schemes with individual cost of up to EUR 50m. Investment schemes with individual cost of up to EUR 25m, financed under framework loans underlie simplified appraisal procedure. Repayment schedules and financial conditions depend on both economic life of the project and the credit quality.
Leveraging Resources : Public Service Contracts and Rolling Stock Leasing Bank Capital Market EU Funding Debt service Direct agreement Grant Leasing company Corporate or SPV Capital grant Public Authority Leasing agreement Rolling stock Rates Public transport company Public service contract
Leveraging Resources : Public Service Contracts and Rolling Stock Leasing Private sector leasing companies with large experience of procurement, maintenance and management of rolling stock Operating company delivers viable business plan, with equity and debt financiers at risk Repayment of debt from commercial lease revenue (incl. Public Service Contracts PSC) Flexibility (term of leasing contract in line with term of PSC) Residual risk taken by lessor Bank due diligence on lessor improves financial robustness Direct bank and EU agreement with public authority improves solidity of structure and increases comfort for lessor and public transport undertaking Security over assets and cashflows should lower funding cost Economies of scale in procurement Outsourcing of maintenance, assured availability of rolling stock Debt off government balance sheet.
Accessing the Capital Markets : Revenue Bonds Eligible Issuers: Municipalities and associations of municipalities. Public utility companies, being controlled (over 50% shareholding) by the municipalities. Privately owned companies, which the sole activity is providing public utility service, based on a contract with the municipality. Joint stock companies, which based on provisions of law or concession provide public utility or public transport service. Main Concept: Bond proceeds finance clearly defined revenue generating project. Project revenues are the only source of repayment of the bonds. Project assets and revenues create a ring-fenced structure. Bondholders enjoy priority claim against the project assets and revenues.
Accessing the Capital Markets : Revenue Bonds Project requirements (Bond Act): Target public utility services, public transport or communication / transport infrastructure development and maintenance. Based on contractual relationship or concession granted for the period at least equal to the bonds maturity. Project revenues / cash flow must be sufficient to cover the required bond service and fund for a 12-month debt service reserve. Project requirements (Investors): Economically and financially feasible. Clear and transparent legal structure. Municipal / public support and commitment to the project.
Attracting Private Finance : Public Private Partnerships Main Characteristics of PPPs Risk-sharing between public and private sectors. Long-term relationship between parties. Public service and ultimate regulatory responsibility remain in public sector. Using private sector skills for public sector services Contracts for services, not procurement of assets. Output, not input, specifications. Payments related to service delivery. Whole life approach to design, build and operation.
Attracting Private Finance : Public Private Partnerships Criteria for PPPs Economically viable for the Public Sector. Financially viable for the Private Sector. Appropriate Risk and Reward Balance for Public and Private Sector Public Sector: value for money. Must for successful PPPs Public Sector Political Commitment. Focused, dedicated and experienced public sector team PPP Task Force. Clear legal and institutional framework. Transparent and competitive procurement. Realistic risk sharing. Government Partnership.
CASE STUDY GDANSK URBAN TRANSPORT PROJECT Project costs EUR 50M. The City of Gdansk 32%, EU 39%, EIB 29%. Project scope: Modernisation of 26 km existing tram infrastructure Construction of new tramway line to Chelm district (3 km) Rolling stock (3 trams) Project economics new tramway line : Before project (bus service only) 2.8 million vehicle-km per year at PLN 4.81/vehicle-km After project 1.5 million vehicle-km per year at 4.81/vehiclekm (bus) and 0.4 million vehicle-km per year at PLN 3.93/vehicle-km (trams). Saving: PLN 4,681,000 (EUR 1,300,000) p.a.+ other economic & social benefits
CASE STUDY GDANSK URBAN TRANSPORT PROJECT Municipal transport company Rates EIB Rolling stock Rolling stock manufacturer Debt service Finance contract Public service contract Renting infrastructure Direct agreement EU Grant Public Authority Ticket sales
Krzysztof Szyszko Loan Officer Polish Division Tel.: +352 4379 87459 Fax: +352 4379 67498 E-mail: szyszko@eib.org http://www.eib.org