Brussels, 30 October 2009

1st EPEC Private Sector Forum in Brussels

Agenda09.00 Welcome by European Commission (EC) and EPEC

Moderator – A. Carty, EPEC

09.20 What is EPEC? N. Jennett, EPEC

10.00 The EPEC private sector forum, what should it be? G. von Thadden, EPEC

10.45 Coffee break

11.00 The Credit Crisis - EPEC’s analysis P. Coindreau, EPEC

11.30 The Credit Crisis - An investor’s perspective E. Fuentes Egusquiza, Grupo Ferrovial

12.00 Delivering Public Infrastructure in the 21st Century J.-C. Banon, Veolia

12.30 The Credit Crisis - The EC’s communication on PPPs E. Visnar Malinovska, EC SEC GEN

13.00 Lunch

1st EPEC PRIVATE SECTOR FORUM

What is EPEC ?

Nicholas Jennett

European PPP Expertise Centre

Brussels, 30 October 2009

1. What is EPEC ?

2. What are EPEC’s activities ?

3. The future of EPEC

4. What are the key lessons learned so far ?

EPEC’s mission: helping public sector deliver more, and better, PPP deals EPEC is:

A major collaborative initiative between the EIB, the Commission and Member States, established September 2008Open to membership to public sector PPP taskforces in Member States and candidate countries

EPEC works by:Sharing information, experience and expertiseStrengthening the organisational capacity of the public authorities to develop PPP programmesPromoting good practice across the public sector

EPEC’s activities:Information sharing – a public good. Based on member working groups supported by EPEC executivePolicy and programme support – a private good. Bilateral working with member organisations

www.eib.org/epec

EPEC’s resources

Steering Group drawn from EIB and Commission senior management

EPEC staff provided by EIB and through secondment agreements with:Public sector PPP taskforceFinancial advisory firmLegal advisory firmsRegional public authority

Core funding provided by the EIB and additional financial support from the European Commission

Team of 8-10 professionals by 2010

EPEC’s team currently includes nationals of France, Germany, Ireland, Italy, Greece, Romania, Russia, United Kingdom

EPEC’s Membership

27 Member organisations (October 2009)All have policy responsibility for PPP in their jurisdicationsMembership from each of the ´three tiers´of European PPP experience:

Central governmentRegional administrationsPrivate entities with a wholly public sector mission (eg Partnerships UK, Partnerschaften Deutschland)

Informal collaboration with the private sector

Next forum to be held October 2009

IFI collaboration being explored – principally through staff secondments

Policy and Programme Support. Range of organisational and policy capacity building support activities for individual members. EPEC does not offer project specific support or seek to replicate services of the advisory community:

EPEC is currently working with four Member organisations on structuring their PPP programmes and refining the role of their PPP taskforces

EPEC has advised the European Commission at both a policy level, and in developing guidance for the TEN-T investment programme

Helpdesk and information service. Responding to ad hoc membership queries and providing regular market updates. Evidence based approach to assessment of PPP performance

Network Activities. Structured approach to identifying best practice in issues of common concern to members. Drawing extensively on the experience and expertise of membership

EPEC - three types of activities

EPEC’s deliverables to its Members

Network activities: Value for Money, Guide to Guidance, Eurostat

Responses to the credit crisis

Market intelligence and dissemination

Focus on TEN-Transport

Work with individual members on their PPP Policies and Programmes

• Application and development of Eurostat Guidance

• Implementing Competitive Dialogue

• PPP and value for money:

• Analysis of independent audit reports

• Assessing the wider benefits of PPPs

• The European PPP Report 2009 (with DLA Piper)

• Impact of the credit crisis

EPEC- Network activities

Responses to the credit crisis

Memberships workshops:Understanding the impact of the financial and economic crisisGuarantees and co-lending instrumentsImplications for procurement

Membership working papersPrivate sector perspectivesPublic sector initiativesThe capital market

Consultation paper on responses to the crisis

Available at www.eib.org/epec

Market intelligence and dissemination

Market updates

Market monitoring

Specific analysis

Case studies

Analysis of project data

Newsletters

Development of EPEC

Support for less mature markets post-crisis

Development of market conditions data set, case studies etc

Development work with PPP Units (including developing secondments)

Supporting regional networks

Focus on TEN-Transport

Conclusions: Key lessons learned

(a) Management and organisation

The importance of a ‘light’ structure. EPEC has no legal personality. Membership obligations limited to general commitment to share resources and information

Development of EPEC as a public sector club has been the key to effective information sharing between public sector bodies

Ability to cross check market issues with EIB and other financial institutions lending teams has been a valuable source of information and synergies

The market transactions and policy experience of EPEC Executives has been key to their ability to analyse strategic issues to communicate their expertise

Secondees bring extremely valuable additional perspectives as well as expertise but at possible cost of lack of continuity

Conclusions: Key lessons learned

(b) Engaging the membership

The extent and diversity of PPP practice and experience amongst the Membership and the lack of culture of experience sharing is a challenge but also the main rationale for EPEC

Members are encouraged to widen participation within their organisations

Challenges of engaging the entire EPEC membership – the credit crisis has shifted the EPEC’s centre of gravity towards the more mature markets as well as major new markets

Strong links with the private sector PPP community are essential – but how to give the private sector something in return?

Capacity for bi-lateral working with member organisations is essential to ensure relevance for the wider membership

Thank You

Nicholas JennettEuropean Investment Bank

jennett@eib.org

****

European PPP Expertise Centreepec@eib.org

Telephone: +352 4379 85434

****

www.eib.org/epec

1st EPEC PRIVATE SECTOR FORUM

Dr Goetz von Thadden

European PPP Expertise Centre

Brussels, 30 October 2009

The EPEC Private Sector Forum - what should it be?

EPEC – A traditional Gentlemen’s Club?

• EPEC allows the public sector to share experience

• Joint working groups help to make the public sector a stronger and more focussed partner

• Programme and policy support strengthens the institutional capacity to engage in PPPs

• EPEC “primes” the public sector for a partnership

Public-Private Partnership – A Match made in Heaven?

• PPPs are long-term relationships

• Both partners need to see them as advantageous

• Quality of PPPs is only as good as the input specifications

• Public sector needs to assess its motivation for each individual PPP project

• PPPs need knowledgeable and rational partners

EPEC – An alternative to a PPP Forum?

• (National) PPP Fora normally discuss issues of mutual interest to both public and private sector.

• EPEC is the first platform for discussing issues of mutual interest within the public sectors of EU member and candidate countries.

• Members appreciate the exchange of experience (good and bad) in a non-competitive and like-minded group.

• EPEC is an additional network, not an alternative.

Why would EPEC Members want a regular Private Sector Forum?

• To define areas of needed research / improvement.

• As a sounding board for new ideas.

• To collect the private sector’s explanations for new developments.

• To get additional input into EPEC working streams

• Private Sector Forum trades input into public sector discussions for early briefings on new developments.

What format should the Forum have?

• A semi-annual event in Brussels or Luxembourg.

• An update on the results of EPEC’s work streams.

• One topic chosen for more detailed discussion with presentations from different stakeholders.

• Agreement of next topic for discussion.

• Unlike the core-EPEC, this is intended as “EU PPP Forum” and ownership and format are open for discussion.

Communication between meetings?

For more information…

http://www.eib.org/epec

Goetz von Thadden

thadden@eib.orgTel: +352 4379 87613Fax: +352 4379 65499

Coffee Break

The financial crisis and the PPP market

Pierre Coindreau

European PPP Expertise Centre

Brussels, 30 October 2009

Credit crisis, the symptoms

Collapse of the inter-bank lending market, causing acute liquidity shortage

Banks lending reduced dramatically

Fly to safety: project finance loans have to compete with more attractive corporate opportunities

Disappearance of the syndication market leads to less flexible Club transactions

Banks reduced liquidity and limited refinancing prospects penalizes long tenors. « Mini-perms » become new standard in certain markets

Sharp increase in margins and fees

Many large banks phase down PPP activity. Some withdraw.

Regional focus and relationship banking back in force

No viable capital market solutions to replace the failed monoline model

and,

Longer term impact of the Basle II rules and other upcoming banking regulations

► Seller’s market turns into buyer’s market

Credit crisis, the consequences

Project finance market strongly hit from last quarter 2008: Pfi magazine reports 58% drop in activity in first half 2009. Up to 65% in EMEA region.

PPP market weathers the blow better than global market*: EPEC’s analysis indicates 30% drop in PPP signatures across Europe, up from 70% in first quarter.

*based on publicly available data

EPEC’s first responses

Early 2009, EPEC makes the credit crisis as a priority workstream

In March, EPEC undertakes a market survey of over 20 key public and private stakeholders, PPP units, banks, investors, advisors and contractors, including extensive interviews

In April 2009, EPEC holds a member’s meeting to review outcome of its survey and exchange views and experiences

In May EPEC publishes its first « credit crisis » paper (for members only)

In July, a member’s meeting is organized to discuss the procurement issues linked to the credit crisis

Early August, an updated version of the credit crisis paper is posted on EPEC’s public website: « The financial crisis and the PPP market: Potential remedial actions ».

The first draft of a « capital market » paper is also circulated to members

In September, EPEC initiates a review on the ways PPPs are being procured across Europe. A final report is expected in the first quarter 2010.

It is expected that a public version of the capital market paper will be available by the end of the year

Potential remedial actions

The report identifies 3 main streams for potential actions

Remedial actions within the procurers’ control

→ Addresses mainly procurement issues

Remedial actions within States’ or Public Authorities’ control

→ Addresses State financial support and guarantees

Remedial actions facilitating the entry of new investors into the PPP market

→ Addresses capital market issues

1. Remedial actions within the procurer’s control

Adjust procurement programmes

→ Avoid ‘XXL’ projects

Adjust procurement process

→ How best to cope with the competitive dialogue constraints in the current financial context, while respecting the 2004-18 Procurement Directive

Adjust contract durations or make the best of « mini-perms »

→ When long term debt is not available, « mini-perms » can be advantageous to the procurers as long as the refinancing risk remains with the bidders, at a reasonable cost

Improve the risk-reward balance

→ There is higher a price to pay for unusual/unreasonable risk transfer

2. Remedial actions within States’ or Public Authorities’ control

Up-front Government payments

→ May add value for revenue based projects, but what upside for the Authority ?

Provide liquidity under private sector guarantees

→ Most direst response to liquidity crisis. Low risk for the state, but almost impossible to refinance

Co-lending

→ More complex to put in place. Short-term, reversible solution. Act as market moderator.

Direct guarantee facilities: easier to implement, contingent only but no claw-back

Indirect guarantee facilities: underpinning, sub-sovereign and refinancing guarantees

3. Remedial actions facilitating the entry of new investors into the PPP market

Revive the monoline model

→ A highly rated government or multilateral body to provide bond wraps

Develop infrastructure bonds

→ Facilitate, through fiscal incentives or guarantees a focused infrastructure bond market (e.g. for TEN-T projects)

Stimulate the « un-wrapped » bond market

→ Lift the senior debt rating, through structural changes (e.g. adding a layer of sub-debt on top of equity) in order to raise uncovered bonds or highly rated senior debt

Debt funds: Raise long term debt from institutional investors

Results achieved so far

Multilateral lending sharply stepped-up

Co-lending being tested in the UK, through the Treasury Infrastructure Funding Unit (TIFU). Used only once (Manchester Waste), but appears to act as a good market moderator

State guarantees put in place in France and Portugal: first French project expected to close by year end (Tram-Train La Réunion). Many more to follow.

Funding facilities in place in France and Germany: first French education projects (Paris VII, Sorbonne) closed in July

Underpinning already common practice in France (Cession de créances) and Germany (Forfeiting). Ad-hoc usage in other theatres (M25, Polish A2..)

Results achieved so far (continued)

Other indirect guarantees also used on specific projects, e.g.:

→ sub-sovereign guarantee in La Réunion, → LGTT: « Loan Guarantee for Ten-T projects » (EIB), covering trafic ramp-up

Used in Portugal (IP4 and Baixo Alentejo) and Germany (A5), → refinancing guarantee in Belgium (Brabo I Tramway, through April 2004 « de Lijn »

decree)

Several private sector initiatives in progress in order to bring capital markets back to PPP financing

EIB considering a programme to facilitate TEN-T funding through various forms of credit enhancements.

Progress ?

The UK PFI market has remained quite healthy, with 32 projects closed in the first 9 months of 2009, ranging from £4m to £1,300m, for a total value of close to £5billion, within 20% of last year.Margins in the UK stabilize around 250 bps. The TIFU appears to serve as an efficient market moderator.The rest of Europe appears to be down by over 40%, with 6 large road projects accounting for 2/3 of the total value. Government support was able to preserve large critical projects (often at high costs), rather than sustain mid market deal flow.Financing conditions seriously deteriorated, with margins often in the 250-400 bps range. A real challenge to the PPP financing model

►Short term successes, although the jury is still out as to the best approach to deal with the financial crisis

►Serious long term challenges, (i) on the market, when stimulus measures are phased out and (ii) on the PPP model if the impact of increased financing costs cannot be mitigated.

1st EPEC PRIVATE SECTOR FORUM