FIEC calls for more

By Sandy Guthrie04 May 2011

FIEC (the European Construction Industry Federation) has said it doubts that the European Commission's initiative on European infrastructure project bonds on its own will be able to close the huge financing gaps repeatedly identified by European institutions.

A public consultation was launched by the 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.

In a contribution to the public consultation, FIEC welcomed the EC initiative. It said that as a complementary option to direct co-financing of specific projects, the initiative provided more innovative methods of meeting the challenge of financing large European infrastructure projects in a difficult post-crisis public and private financial context.

FIEC said, however, "It is evident that the EU and the Member States will have to invest much more than the modest sums provided in the EU or national budgets."

It said the implementation of EU project bonds should not be used as a means of reducing the continuation and/or development of other types of public co-financing and private co-investment.

It also said that the bonds should not be "abused" by the EU and Member States to reduce their co-funding of public infrastructure.

FIEC said that public funding had an important leverage role to play in attracting private co-investment.

It stressed that it had to be public and private funding, rather than public or private financing, which FIEC considered not to be an option on its own.

"The further development of all kinds of infrastructures is of fundamental importance for Europe's competitiveness, long-term growth, the well-being of the citizens, as well as for reaching 2020 and 2050 sustainability, energy supply and energy efficiency goals."

FIEC said it noted there was a huge gap between western and eastern European countries in terms of transport and energy infrastructure, in particular related to modernisation needs. It suggested that specific measures or instruments should be set up to close this gap.

Setting project bonds for large infrastructure projects in Europe would help attract private sector investors, said FIEC, as well as mobilising the necessary financing to meet the EU's strategic infrastructure needs.

"Using appropriations from the EU budget as well as EIB (European Investment Bank) guarantees and expertise would be a powerful leverage to enhance the credit rating of bonds issued by project companies themselves and increase the attractiveness of long-term investment to private sector participants."

FIEC said it agreed with the need to draw up strict eligibility conditions for projects benefiting from this initiative.

However, it called for the development of a more precise definition of the projects of high European economic interest to be selected - the priority projects to be identified in the next multi-annual framework.

FIEC felt that in this framework, the EU needed to assess clearly by itself the risks and financial viability of such projects and financial operations.

The concept of risk-sharing between the EU and the EIB should be further developed, said FIEC, adding that uncertainties also remained regarding the financial and political controls over the system, as well as on the governance of the project entities.

FIEC's submission to the EU public consultation added that it had to be ensured that the corresponding works, supply and services contracts of projects benefiting from such EU support and EU funds could only be awarded to enterprises from such countries as members of the EU, the EEA (European Economic Area) or the WTO-GPA (World Trade Organisation-Government Procurement Agreement).

"At the same time, it has to be ensured that investment or forbidden state-aid from third countries does not have any impact on fair competition between enterprises on a level playing field," said FIEC.

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