Consultation on Europe 2020 Project Bonds to fund infrastructure
The European Commission 2011-02-28 launches a public consultation on the “Europe 2020 Project Bond Initiative” which aims at boosting the funding of projects with long-term revenue potential in line with the Europe 2020 policy priorities. This follows the announcement made by President José Manuel Barroso in his State of the Union Address1. Its objective is 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 Annual Growth Survey as a priority measure to enhance growth.
In the launch of this initiative, European Commissioner for Economic and 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 assessment of the investment plans of the Member States reveals that around € 21.5 billion per year is 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).
Huge infrastructure investment needs in the this decade
Over the next decade, record investment volumes in Europe’s transport, energy, information and communication networks will be needed in order to underpin the Europe 2020 flagship actions. Developing smart, upgraded and fully interconnected infrastructures will foster the completion of the internal market. Preliminary estimates point to investment needs of €1.5 to 2 trillion for Trans-European Transport Networks, the energy sector and information and communication technologies. These needs, combined with the fact that government budgets face severe constraints, make it crucial to foster the participation of the private sector in the financing of infrastructure projects.
Europe 2020 Project Bond Initiative
The Project Bond Initiative should provide EU support to private “project promoters” issuing bonds to finance in particular infrastructure projects. This should help them attracting 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. Technically, the instrument will improve the rating of the senior debt issued by the the project entities. This will ensure that such debt can be placed as bonds with institutional investors. As the EU participation will be capped, there will be no unlimited or contingent liabilities for the EU budget.
The Initiative could be available to projects that are assessed to be economically and technically feasible, cost-effective and that have a prospect of financial viability.
Options for the increased use of financial instruments for EU policy goals, as well as for their streamlining within the next multiannual financial framework for the period after 2014, were presented in the EU Budget Review. 2
What is next?
The consultation is open for comments from today (2011-02-28). The deadline for contributions is 2 May 2011. 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 Europe 2020 project Bond Initiative.
1 SPEECH/10/411 of 7.9.2010.
2 COM(2010) 700 final, 19.10.2010.