EC considers Project Bond Initiative

By Sandy Guthrie07 March 2011

A public consultation has been launched by the European Commission (EC) on the Europe 2020 Project Bond Initiative, which aims to boost the funding of projects with long-term revenue potential in line with the Europe 2020 policy priorities.

The EC said the objective was to help the private project companies to attract capital market funding from investors such as pension funds and insurance companies. The Europe 2020 Project Bond initiative has been identified in the EC's Annual Growth Survey as a priority measure to enhance growth.

The public consultation follows the announcement made by EU President José Manuel Barroso in his State of the Union Address last September. President Barroso told MEPs then that new sources of financing for major European infrastructure projects should always be explored, and that he proposed the establishment of EU project bonds with the European Investment Bank.

These proposed new financing sources outlined by the EU President were welcomed by FIEC (the European Construction Industry Federation).

FIEC President Luisa Todini said in September, "We fully share the underlying conviction that these investments at the European level are necessary for jobs, not only in the construction industry, and the further development of the EU."

At the recent launch of the initiative, European Commissioner for Economic & Monetary Affairs Olli Rehn said: "Financial instruments should play a larger role in the funding of public-interest projects.

"Today, public budgets are in need of consolidation, but at the same time we need to promote sustainable growth in Europe. EU budget resources must be used more effectively so that such projects attract capital market financing. This is why we are joining forces with the European Investment Bank in this Project Bond Initiative."

European Investment Bank President Philippe Maystadt said: "Infrastructure finance in Europe has suffered since the financial crisis, and banks face new constraints on long-term lending. Project bonds could be a way to attract capital from other investors, such as pension funds and insurance companies, and be a useful addition to traditional financing options."

In the transport area, the EC said the assessment of the investment plans of the Member States revealed that around € 21,5 billion per year was needed in the post-2013 period to remove significant bottlenecks, construct missing cross-border links, and interconnect transport modes.

The stakeholders' consultation paper has been prepared under the guidance of President Barroso and in close collaboration with Vice-President Siim Kallas (responsible for Transport), as well as Vice-President Neelie Kroes (Digital Agenda) and Commissioners Günther Oettinger (Energy) and Janusz Lewandowski (Budget).

The EC said that over the next decade, record investment volumes in Europe's transport, energy, information and communication networks would be needed in order to underpin the Europe 2020 flagship actions. Developing smart, upgraded and fully interconnected infrastructures would foster the completion of the internal market, it said. Preliminary estimates are said to point to investment needs of €1,5 trillion to € 2 trillion for Trans-European Transport Networks (TEN-T), the energy sector, and information and communication technologies. These needs, said the EC, combined with the fact that government budgets face severe constraints, made it "crucial to foster the participation of the private sector in the financing of infrastructure projects".

It explained that the Project Bond Initiative should provide EU support to private "project promoters" issuing bonds to finance infrastructure projects in particular. It said this should help them to attract capital market financing from institutional investors.

The key role of the Commission and the EIB will be to absorb part of the risk of a project. As the EU participation will be capped, there will be no unlimited or contingent liabilities for the EU budget.

According to the EC, the Initiative could be available to projects that have been assessed to be economically and technically feasible, cost-effective and that have a prospect of financial viability.

The consultation is open for comments, and the deadline for contributions is 2 May. On 11 April, the Commission, together with the EIB, will organise a conference on the Project Bond Initiative which will feed into the consultation process.

Following the completion of an impact assessment, the Commission will bring forward a proposal for the implementation of the Initiative.

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