gib2015_instruments for increasing capital flows_fischer

This presentation was held during the 5th GIB

Summit, May 27-28 2015. The presentation and

more information on the Global Infrastructure Basel Foundation are available

on www.gib-foundation.org

The next GIB Summit will take place in Basel, May 24-25, 2016.

The information and views set out in this presenation are those of the author(s) and do not necessarily reflect the opinion of the Global Infrastructure Basel Foundation. Neither the Global Infrastructure Basel Foundation nor any person acting on its behalf may be held responsible for the use of the information contained therein.

Erste Group Bank AG

GIB Sustainable Infrastructure SummitOur approach on fostering infrastructure finance in the Central and Eastern European region

May 2015, Basel, Switzerland

Hinrich FischerProject Finance / Infrastructure

IndexMain highlights

! Erste Group at a glance

! Outlook for CEE region

! Public – Private Partnerships

! Advantages & Preconditions for successful PPPs! “Bankability” of PPPs! Current situation & outlook in Europe

! Power and Renewable Markets in CEE

! Power Market Overview! Most important Renewables Market in CEE: Poland! New RE Support Regime in Poland

GIB Sustainable Infrastructure Summit

Erste Group at a glanceCustomer banking in the eastern part of the EU Erste Group overview

! 45,000 employees serve 16.2 million customers withapprox. 2,800 branches in 7 countries in the easternpart of the EU

! One of the leading financial providers in the easternpart of the EU

! Among the TOP 3 banks in our core markets in CZ,AUT, SK, RO, HU and HR

Infrastructure finance & advisory

Sector expertise:

! Transportation (roads, airports, railways)

! Social Infrastructure (education, hospitals)

! Energy and environment (renewable energy, water& waste treatment)


InflationInflationGDPGDP

Source: ERSTE Research 1/2015

Budget DeficitsBudget DeficitsGDP (real) growth GDP (real) growth

ERSTE Research isexpecting GDP growth for theCEE region to remain flatcompared to 2014.Outlook supported by fiscalconsolidation and increasingdemand for exports.All CEE countries which hadbeen under the EDP(excessive deficit procedure)have reduced their deficitsbelow 3% of GDP; HR andRS still have to do theirhomework.Recovery in job markets isstill lagging – moreinvestments are needed;uncertainty about globaloutlook and high taxes weighon job creation.

AQ Research (2013) Best overall CEE Research Team

No.1

Real GDP growth (%) 2013 2014f 2015f 2016fCroatia -0.9 -0.7 -0.5 0.5Czech Republic -0.7 2.3 2.4 2.0Hungary 1.5 3.3 2.1 1.9Poland 1.6 3.3 3.1 3.6Romania 3.5 1.8 2.2 2.7Serbia 2.6 -1.8 -0.5 1.0Slovakia 1.4 2.2 2.5 3.0Slovenia -1.0 2.2 1.5 1.8Turkey 4.1 2.8 3.8 4.5CEE8 average 1.2 2.6 2.5 2.8CEE8+Turkey 2.4 2.6 3.0 3.5

Page 4

… ready to fund economic growth in the regionThe outlook for CEE remains positive


Public-Private Partnerships„Bankability“ of PPPs

Secure and Stable Cash-

Flows (CFADS)

RiskAllocation

Strong Government

Support

Due Dilligence

Technical Complexity

Remuneration/Availability

scheme

Project Rationale

Experience & Knowhow ofcontracting

parties

Sponsors

Early Termination

Regime

Strong political will/stable regulatoryand legal framework

Strong supportKnow-how

KEY BANKABILITY

FACTORS


London

WarsawPrague

Istanbul

Vienna

Europe

Berlin

Zagreb

Bratislava

Budapest

BucharestBelgrade

Page 6

Public-Private PartnershipsCurrent on-going projects or upcoming tenders in CEE

Romania – focus on Transport:! Highways: Comarnic-Brasov,

Sibiu-Pitesti;! Bucharest Southern ring road,

Northern suspended highway;! Galati tunnel, Braila bridge,

Buzau road rehabilitation.

Croatia – focus on Social Service:! Varaždin Hospital;! Popova!i Hospital.

Austria – focus on Social Service:! Schools: Vienna Attemsgasse,

Schule Weiz;! Vienna Radioonkologie Hospital;! 10 schools and 3 other hospitals

to be tendered in the future.

Slovakia – various projects:! D4/R7 Motorway (Bratislava bypass);! Bratislava Hospital

Czech Republic – focus on Transport:! R4 Expressway, south of Prague

Core markets of Erste GroupIndirect presence in CEE

Serbia – focus on Energy:! PPP: Vinca Waste to Energy, Belgrade


Public-Private PartnershipsCurrent situation & outlook in Europe

! In 2014, market value of PPP transactions closed: EUR18.7bn (y-o-y increase of 15%)

! 11 large transactions (> EUR 500mn) accounted for EUR11bn

! Western Europe (UK, Netherlands, Belgium, Germany)and Turkey still dominate the PPP market

! Priorities: transport sector, followed by the healthcaresector

Outlook in CEE: benchmark D4/R7 road PPP project in Slovakia

Source: EPEC market update 2014

! Mainly “greenfield” projects! Majority of projects availability based (= no market/traffic

risk)! Tight commercial terms (pricing and covenants)! Preference of traditional bank financing over bond

financing

Key features: Current situation:

Contracting Authority

Ministry of Transport, Construction and Regional Development of the Slovak Republic

Contract DBFOM (design, build, finance, operate, maintain)

Key FactsTenor: 35 years

Operation period: 30 yearsCapex: approx. EUR 1.5bn

Length: approx. 59.6 km

Remuneration Availability based


Public-Private PartnershipsConclusion: Current Trends on the PPP market in Europe

• „Wall of Money“ on the market (more diverse providers of financing) ! strongcompetition

• Limited deal pipeline: no transport PPP project closed in CEE in 2014 (boostexpected)

High Liquidity with few Adequate Projects

• Bank Loans vs. Project Bonds

• „Optimization“ of financing structures by using different facilities & guaranteeschemes

• Different sources of financing (institutional investors vs. banks), with different regulatoryrequirements and expectations

Introduction of Financing Alternatives

• EIB Project Bond Credit Enhancement (PBCE)

• Strong involvement of multilaterals (e.g. EIB) on all project levels (junior funds,guarantees, L/C)

• EFSI / Juncker plan

EU-wide Investment Programmes


Power and Renewable Energy Markets in CEE

Power Market OverviewPower Prices

1. Electricity prices at an historic low! EUR 34.40 per 1 year EEX future! Economic down-turn leading to weak demand! Low prices for CO2 allowance certificates (EUA)! Low prices for coal (US “shale gas revolution”)! German renewables shifting Europe’s merit order curve! Important differences CEE / WE: E- Consumption p. c.

(57%); overaged generation fleet (e.g. RO: 49% of 11GWto retire from the system by 2025)

2. Retroactive cuts of green subsidies! CEE: CZ, BUL, RO! WE: I, ES

3. New EU – Guideline to align Support Systems! Applicable from 1 July 2014, transition period until 2017! Higher market proximity: Quota Systems, auctions! Poland first one to implement: 2015/ 2016

Wholesale Power Prices in EUR / MWh Notable Market Developments

Page 10

Futures Cal-16 (EUR/MWh)EEX: 31,73 POLPX:40,25 PXE: 31,30 OPCOM: 37,77*13.05.2015*CAL-15

0,00

10,00

20,00

30,00

40,00

50,00

60,00

70,00

ROM CZK POL DE/AUT


0,00

0,02

0,04

0,06

0,08

0,10

0,12

0,14

0,16

0,18

0,20

0,22

PV Small PV Utility Wind onshore Wind offshore Biogas Coal lignite Coal hard CCGT naturalgas

Page 11

Source: Frauenhofer ISE, Germany Nov 2013

Power Market OverviewLCOE in € / kWh


New RES Act

Green Certificates Auctions

Concerned Existing Plants (feeding first MWh before end of 2015) New Plants (obligatory) Existing Plants (optional)

Duration 15 years 15 years

Key Changes• Substitution Fee frozen at PLN 300.03 / MWh

(no indexation)• Limited Support for biomass co-firing (0.5 GCs)• Cancelling support for existing hydro plants > 5 MW

No support for biomass co-firingNo support for biomass > 50 MW

• Right of the government to adapt mandatory quotas impose further regulatory risk on existing plants (as before).• Important parameters of the future auctions still open: Auctioned capacities, timing, reference prices (= maximum feasible bid prices per

technology and auction)

Other Comments

Page 12

Most important renewables market in CEE: PolandNew RE Support Scheme: Contract for Differences (CfD) for new Projects, Grand - fathering for operational plants


Most important renewables market in CEE: PolandNew Support Scheme: Contract for differences

I II III IV V VI VII VIII IX X XI XII

Bid

Price


Your contacts at Erste Group

Markus KrieglerManaging DirectorHead of Project Finance1060 Vienna, Mariahilferstraße 41 - 43

Tel.: +43 (0) 50100 – 12563Fax: +43 (0) 50100 - 9 12563mobile: +43 (0) 664 842 [email protected]

Marcus Hinrich FischerDirectorProject Finance / Infrastructure 1060 Vienna, Mariahilferstraße 41 - 43

Tel.: +43 (0) 50100 - 18093Fax: +43 (0) 50100 - 9 18093mobile: +43 (0) 664 818 2496 [email protected]


Disclaimer

This document was created by Erste Group. The information herein has been obtained from, and anyopinions herein are based upon, sources believed to be reliable, but we do not represent that it isaccurate or complete and it should not be relied upon as such. This document is for information purposesonly. It is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities referred toherein. All opinions, forecasts and estimates herein reflect our judgment as of the date of this documentand are subject to change without notice. While this document has been prepared in good faith, wecannot accept responsibility for the accuracy of the information contained herein and the recipient shouldnot rely on it as a substitute for an independent review. Erste Group is not liable for any damage thatarises in connection with the information contained herein. This document may not be reproduced,distributed or published without the prior consent of Erste Group.

This document is intended solely for the use of the recipient.


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