Best practices in transport infrastructure financing 1/23/2013 The Baltic Institute of Finland/BSRP Transport Cluster
Best practices in transport infrastructure financing BSRP Transport Cluster report 1/38 Best practices in transport infrastructure financing 1/23/2013
The Baltic Institute of Finland/BSRP Transport Cluster Best practices in transport infrastructure financing BSRP Transport Cluster report
Authors Marja Aho-Pynttã¤ri, The Baltic Institute of Finland Publisher The Baltic Institute of Finland, Helsinki branch
Aleksanterinkatu 16-18 FI-00170 Helsinki 2/38 Best practices in transport infrastructure financing 1/23/2013
The Baltic Institute of Finland/BSRP Transport Cluster Table of contents Introduction Funding sources EU instruments TEN-T grants
Marco polo grants Motorways of the Sea Modal shift Common learning Catalyst action Traffic avoidance Regional Development Fund grants & Cohesion Fund grants
European Investment Bank (EIB EIB loans LGTT guarantees The Europe 2020 Project Bond Initiative loans
Marguerite Fund equity financing Nordic Investment Bank (NIB NIB loans BSAP Fund grants European Bank for Development and Reconstruction (EBRD
Loans, equity financing, guarantees, grants Private funding PPP models National Funding Example country: Finland Case examples
Air Introduction Norway Lithuania Evaluation and best practices Water Introduction Latvia Sweden Norrkã ping†s access fairway
Nynã¤shamn†s LNG terminal Conclusion and best practices Railways Introduction Denmark Finland 3/38
Best practices in transport infrastructure financing 1/23/2013 The Baltic Institute of Finland/BSRP Transport Cluster
Estonia England and France Evaluation and best practices Roads Introduction Norway Poland Sweden Finland Evaluation and best practices
Conclusion 4/38 Best practices in transport infrastructure financing 1/23/2013 The Baltic Institute of Finland/BSRP Transport Cluster
Introduction The â€oebsr Transport Cluster for sustainable, multimodal & green transport corridors†includes 8 projects from the Baltic sea Region countries
and will last for one year until September 2013. The Transport Cluster co-operation started in 2012 when the
Baltic sea Region Programme provided funding to the cluster. The goals of the co-operation are to share experiences about the development of green transport
solutions and together create a common standpoint on future EU and macroregional transport and regional growth policies
The transport cluster initiative outputs focus on four themes: Corridor investments Smart logistics and governance, Clean shipping and Business solutions for green
transport. This report is one of the Cluster†s outputs and concerns the best practices
in transport infrastructure financing The creator of this report is The Baltic Institute of Finland, BIF.
BIF is participating the transport cluster as a leader of the BSR Innoship project The report is divided into two sections.
The first section presents different funding sources and funding types. The chapter includes also subsections concerning the
use of different PPP models in infrastructure funding and best transport infrastructure financing practices applied in Finland.
The goal of the chapter is to demonstrate the large scale of available funding instruments and the different
targets which each instrument or investor has The second section consists of case examples of different infrastructure projects
around the Baltic sea region. The case-examples are divided into four categories Air, Water, Railways and Road.
Each example describes the main features of the project and summarizes the used funding sources
Funding sources Funding for a massive construction projects comes in small pieces from different sources.
As mentioned in the Introduction there are several organizations that provide funding for infrastructure projects. Funding sources and institutions can be
seen as tools. It is wise to consider carefully in every project which tools are best for
the specific project. Not all the funding sources can be applied at once and it is important to remember the EU legislation that denies cumulative EU financing.
There are several examples of different financing combinations and examples of different funding arrangements in the section that examines successful and not so successful
examples from the BSR region EU funding sources can be combined in a variety of ways in PPP projects and
according to EPEC the European commission has made three different groups of instruments available to projects that are formed using PPP model
•Financial engineering instruments that leverage private finance in order to enable private finance to be used where it would not otherwise
5/38 Best practices in transport infrastructure financing 1/23/2013 The Baltic Institute of Finland/BSRP Transport Cluster
have been the case. LGTT, Loan Guarantee Instrument for TEN-T projects is designed for this purpose.
With LGTT it is possible to get funding from private investors to public related infrastructure
Marguerite Fund has the same goal, it catalysts private funding to projects that try to for example prevent climate change
•Sectorally focused grants that incentivise promoters to undertake projects in the pan-European interest for example EU€ s TEN-T grant
When using PPP model it is recommended possible and to combine the EU grants with national funding and private investments
•Grants that support the cohesion policy of the Union and individual EU Member States.
Grants from Regional Development fund or Cohesion fund are part of the funding and rest of the project†s funding may come
for example from the public and private partners. Also project†s own revenues can form a part of project†s budget
Other non-EU related funding instruments are also in an important role when financing transport infrastructure at the Baltic sea region.
For example Nordic Investment Bank has created its own financing instruments in order to fulfill its specific targets and action plans
In every case it is not wise or financially worthwhile to gather money from several
sources. The traditional budget financing is common and it is sometimes the only way to implement a big construction project.
On the other hand there are transport infrastructure related projects that are funded solely privately. Sometimes the application process for EU grants or other financial support is complicated too and
time consuming when it would be is easier to finance the whole project with private
money. All applications and application processes are not successful but the preparation of an application demands time and recourses
Loans are also a part of the project†s finance arrangements and Commercial banks and Investment banks such as NIB
and EIB are the main lenders Source http://www. eib. org/epec/resources/epec-using-EU-funds-in-ppps-public. pdf
EU instruments TEN-T grants EU has founded the Trans-European transport network, TEN-T network in order to
promote territorial cohesion and economical growth. TEN-T program facilitates and coordinates the implementation of the European trunk network
TEN-T program is founded and managed by European Comission (DG Move) which defines the policy
and takes all the financing decisions. The practical work and implementation of the program is done by TEN-T EA, Trans-European transport
6/38 Best practices in transport infrastructure financing 1/23/2013 The Baltic Institute of Finland/BSRP Transport Cluster
network executive agency. According to the legislation the main task of the program is to start and facilitate important infrastructure projects in the Europe and in The
Baltic sea region. Grants for infrastructure projects are shared out via two different categories, Annual and Multi-Annual call
Annual call is launched a yearly call for infrastructure projects. In year 2012 the applications should be in line with the following priorities
â Priority 1-Acceleration and facilitation of the implementation of TEN-T projects â Priority 2-Measures to promote innovation and new technologies for transport
infrastructure and facilities contributing to decarbonisation or the reduction of external costs in general â Priority 3-Support to Public-Private Partnerships (PPPS) and innovative financial
instruments â Priority 4-Support to the long term implementation of the TEN-T, in particular corridors
Source http://tentea. ec. europa. eu/en/apply for funding/follow the funding process/2012 annual programme call. htm In year 2012 the budget for the Annual call was 250 Million euros
Multi-Annual call consists of several different work programs, all of which have their own goal and objective.
For example different programs in year 2012 are â TEN-T Priority Projects â European Rail Traffic Management Systems (ERTMS
â River Information Services (RIS â Air Traffic Management (ATM â Motorways of the Sea (Mos
â Intelligent Transport Systems (ITS) including EETS During the budget period 2007-2013 the TEN-T Program has supported around 350
projects. These projects have involved all EU Member States and covered all transport modes. The projects have varied from feasibility studies to complex and
concrete infrastructure works Sources http://tentea. ec. europa. eu/en/news events/newsroom/10 more implementation su ccesses show the continuous impact of the ten-t programme. htm
http://tentea. ec. europa. eu/en/apply for funding/follow the funding process/calls fo r proposals 2011 -map. htm http://tentea. ec. europa. eu/en/apply for funding/follow the funding process/annual
call 2011. htm Marco polo grants 7/38 Best practices in transport infrastructure financing 1/23/2013
The Baltic Institute of Finland/BSRP Transport Cluster Marco polo is funded EU program for companies which are willing to shift freight
efficiently from road to any other transport mode, including water, air and railways The overall budget for year 2013 is about 60 Million euros
and the budget for the whole budgeting period is 450 Million euros. There are several different action types
Motorways of the Sea Motorways of the Sea is a funding category in the European Union†s TEN-T program
and Marco polo grant is one of the funding possibilities in TEN-T†s Motorways of the
sea priority project. Marco polo program†s Motorway of the Sea grant is targeted for private-sector transport services which are willing to create door-to-door transport
service using other transport modes than road traffic. In this category the proposed action must lead to an average of 200 million tkm modal shift per contract year
Length of the funding contract is from three to five years. The available subsidy rate
is 35%.%This action must cover at least two member states or one member state and
a nearby third country Modal shift Seventy nine percent (79%)of all Marco polo funding goes to this category.
Main idea is to take freight off the road and transfer it to other modes of transport.
The duration of the contract is up to three years and the amount of shifted freight should
be average of 60 million tkm per every contract year. Thirty five percent (35%)of
the eligible costs concerning the Modal shift action can be compensated. Still the maximum amount of the grant is 2 Euros for every shifted 200 km.
There must be participants from at least two countries, either member states or member state and a
nearby third country Common learning This category is aimed for projects that try to offer an alternative commercial service
for road transportation. Main target is to share knowledge and increase co-operation. Funding is for projects that are innovative and last up to three years
The amount of grant is 50%of all the eligible costs. It is highly important that the
project creates added value for Europe Catalyst action 8/38 Best practices in transport infrastructure financing 1/23/2013
The Baltic Institute of Finland/BSRP Transport Cluster The idea of catalyst action is to overcome structural barriers when developing new
non-road transport modes. These actions are both innovative and shift freight from the road.
The minimum quantity of shifted freight per contract year is 30 million tkm and the funding period is from three to five years.
There should be at least two partners in the action, either two member states or one member state and a nearby
third country. Maximum support is 35%of all the eligible costs Traffic avoidance It is crucial to avoid traffic and transportation in this category.
Traffic avoidance is possible by integrating transportation into production process. The goal is to shift 80
million tkm from the road per contract year. As in the categories above, the highest
rate of the grant is 35%of all the eligible costs and the action must involve at least
two member states or one member state and a nearby third country. The contract period varies from three to five years
Sources http://ec. europa. eu/transport/marcopolo/getting-funds/index en. htm Regional Development Fund grants & Cohesion Fund grants
European union has its regional policy and during the period 2007-2013 total investments in the regions will be a total of 347 Billion euros and about 82 billion
Euros will be spent on transportation. TEN-T projects will receive about 38 billion Euros in all transport modes.
During the budget period 2007-2013 investments to transport sector will be concentrated to the Convergence regions
The Commission negotiates and approves development programs and is in charge of allocating resources. It is member states†responsibility to manage the programs
and select projects which are funded. Member states also control and asses the projects. The Commission monitors the program and pays out approved
expenditures and verifies the control system With the policy EU tries to reach three objectives â Convergence
â Regional Competitiveness and Employment â European Territorial Cohesion EU is trying to solve the problems in all the three sectors with European Regional
Development Fund (ERDF. The Cohesion fund was founded in order to improve the Convergence at EU. The European Social Fund concentrates on Convergence
and Regional competitiveness and Employment objectives but it doesn†t support 9/38 Best practices in transport infrastructure financing 1/23/2013
The Baltic Institute of Finland/BSRP Transport Cluster infrastructure or transportation projects The biggest problems in the Baltic sea region are in the field of Convergence and
Regional Competitiveness and Employment. The south coast of the Baltic sea (some parts of Germany, Poland, Lithuania, Latvia and Estonia) may receive grants from
the EU in the field of Convergence. The Scandinavian part of the BSR (Finland Sweden and Denmark) is a territory
which may receive support under the priority of Regional Competitiveness and Employment. The Eastern part of Finland is also a
part of the phasing out region; it may get phasing out assistance. The third priority European Territorial Cohesion, covers the whole European union and it is
implemented with Cross-border co-operation program, Transnational co-operation program and Interregional co-operation program
Sources http://ec. europa. eu/regional policy/how/index en. cfm http://eur-lex. europa. eu/Lexuriserv/Lexuriserv. do?
uri=OJ: L: 2006: 210: 0079: 0081: EN PDF http://eur-lex. europa. eu/Lexuriserv/Lexuriserv. do?
uri=OJ: L: 2006: 210: 0001: 0011: EN PDF http://ec. europa. eu/regional policy/financial/index en. cfm
European Investment Bank (EIB EIB loans EIB€ s main financing instruments are medium and long-term loans with fixed or
variable interest rates. EIB lends for both public and private borrowers Individual project loans are provided for projects of at least 25 Million euros and EIB
covers up to 50%of the investment costs, but the average loan amount is approximately one-third.
Rest of the financing must come from other sources. The project must be economically, financially, technically and environmentally sound.
The lending conditions depend on the investment target and securities that third parties offer Indirect lending or intermediate lending is designed for smaller projects than 25
Million euros. Smaller loans are made available through intermediate loans to partner banks. Loan conditions are flexible
and vary in time, size and duration. The intermediate institution does the lending decision and EIB has no contractual
relationship with the beneficiaries EIB gives additional support for priority projects, with higher risk profile than normally
in a form of Structured finance. For example trans-European transport and energy networks and other infrastructure, the knowledge economy, energy and SMES are
10/38 Best practices in transport infrastructure financing 1/23/2013 The Baltic Institute of Finland/BSRP Transport Cluster
priorities that can apply support from Structure Finance Facility (CFF. The facility uses a mix of the following instruments
â senior loans and guarantees incorporating pre-completion and early operational risk â subordinated loans
and guarantees ranking ahead of shareholder subordinated debt â mezzanine finance, including high-yield debt for SMES experiencing high-growth or are
undergoing restructuring â project-related derivatives Source: http://www. eib. org/products/sff/index. htm
Sources http://www. icafrica. org/fileadmin/documents/Knowledge/EIB/1%20eib climate action ENGLISH. pdf http://www. eib. org/products/sff/index. htm
LGTT guarantees LGTT is an acronym for Loan Guarantee Instrument for Trans-European Network projects and it is a part of the EU€ s TEN-T program.
With LGTT Commission and EIB try to facilitate and accelerate the private sector†s participation to the financing of the
big TEN-T projects. Big transport infrastructure projects are often having difficulties in attracting private-sector funding because in the beginning of the project the
revenue risk is relatively high. LGTT will improve the viability of the project and partly
cover the revenue risk. By improving the risk profile of the senior debt, LGTT facilitates the difficult â€oeramp-up†period of the projects
The projects of common interest in the field of transport can benefit from the LGTT
instrument. The projects should also be compliant with Community laws and the financial viability of the project should be based on revenues, tolls or other
user-charges based income. TEN-T projects that have an appropriate level of private finance participation are eligible for LGTT operation
Maximum amount of the guarantee is 200 Million euros per project and the guarantee should not exceed 10%of the senior debt.
The support is available from five to seven years after the completion of the project
Sources http://europa. eu/rapid/press-release memo-08-12 en. htm? locale=fr http://www. eib. org/products/lgtt/index. htm
http://www. eib. org/about/press/2008/2008-005-european-commission-and-european -investment-bank-launch-new-instrument-to-finance-european-transport-network. htm
http://ec. europa. eu/economy finance/financial operations/investment/europe 2020 /documents/annex 2a en. pdf 11/38 Best practices in transport infrastructure financing 1/23/2013
The Baltic Institute of Finland/BSRP Transport Cluster The Europe 2020 Project Bond Initiative loans
EIB is searching for new w ays of f inancing infrastructure projects and after the pilot phase Euro bonds w ill be one
of the funding instruments and support the aims of Connecting Europe Facility, CEF. EU tries to create a new class
of securities and the pilot phase of 2012-2013 w ill facilitate their introduction to the markets
Projects that are relevant according the TEN and CIP policy guidelines may get Project Bond funding.
During the pilot phase only a limited number of projects approximately 5-10, can be funded.
The projects should be developed at relatively stage or require refinancing after the building phase Bonds will not replace direct grants
because some of the project will need financing during their whole life-cycle and are not suitable for private funding.
The main objective of Project Bond 2020 is to attract private investors to finance infrastructure
projects and close the infrastructure gap in infrastructure project†s funding â€oeby providing credit enhancement to project companies raising senior
debt in the form of bonds to finance infrastructure projects; The improved credit quality of the bonds will facilitate their placement with
institutional investors. †Source: http://www. eib. org/about/news/the-europe-2020-project-bond-initiative. htm
Sources http://ec. europa. eu/economy finance/financial operations/investment/europe 2020 /documents/com2011 660 en. pdf http://europa. eu/rapid/press-release memo-12-370 en. htm
http://www. eib. org/about/news/the-europe-2020-project-bond-initiative. htm Marguerite Fund equity financing
Marguerite fund is the European 2020 Fund for Energy, Climate change and Infrastructure. It is funded by Europe†s leading public financial institutions.
The fund is an equity investor and it aims to act as a catalyst in the development of Greenfield
infrastructure in the Europe. The fund focuses mainly in new development in construction, portfolio of projects and retrofitting, modernization and capacity
increase Marguerite fund is a value-adding partner for developers because it has the ability to
take construction and ramp-up risk, it has a strong experience in arranging project finance and it doesn†t have immediate cash yield requirements during construction
period Marguerite fund tries to reach geographical diversification in its total commitments each member country may have a total commitment of 20%.
%In order to receive support from Marguerite fund the project should have a minimum of 65%total
12/38 Best practices in transport infrastructure financing 1/23/2013 The Baltic Institute of Finland/BSRP Transport Cluster
commitments in Greenfield. 30-40%of the fund†s investments go to core transport sector and the size of the funded projects should be over 200 Million euros
Sources http://www. aer. eu/fileadmin/user upload/Programmes/Training academy/TA 11 06 21-22/Marguerite presentation 20110621. pdf http://www. eib. org/about/press/2009/2009-242-europes-leading-public-financial-instit
utions-launch-marguerite-the-2020-european-fund-for-energy-climate-change-and-i nfrastructure. htm
http://www. margueritefund. eu/index. php? pageid=1 Nordic Investment Bank (NIB NIB loans Nordic Investment bank has several loan products
â Corporate loans are the most common way of lending for NIB. Corporate loans are
targeted for NIB€ s member countries â Loan programmes are disbursed in several tranches through intermediates and they
are granted for both member and nonmember countries â NIB arranges also project and structured finance for projects that make a strong
contribution to its mandate. Financing is provided in co-operation with other international financial institutions and with both public and private sector lenders.
NIB may arrange financing in a form of non-and limited-resource project financing structured loans for complex financings and leveraged borrowers, A b loans, mezzanine
financing through funds or private public partnership (PPP) financing â Sovereign loans â Loans to municipalities
â Environmental loans which are provided via following lending facilities -Baltic sea Environment Financing Facility (BASE -Climate Change, Energy efficiency and Renewable Energy Facility (CLEERE
-Environmental Lending Facility for member countries'neighboring area in Eastern Europe â NIB may also provide guarantees
BSAP Fund grants 13/38 Best practices in transport infrastructure financing 1/23/2013 The Baltic Institute of Finland/BSRP Transport Cluster
The BSAP-fund is managed by NIB, Nordic Investment Bank and NEFCO, the Nordic Environment Finance Corporation.
The letters BSAP stand for Baltic sea Action Plan and the aim of the fund is to support
and finance the implementation of the Baltic Sea Action Plan by providing grants for technical assistance.
The main target of the fund is to help to restore the ecological status of the Baltic sea
The fund tries to facilitate and expedite the preparation of the bankable and viable project.
Both public and private bodies may receive a grant from the fund. The main funding sectors are agriculture,
wastewater treatment, shipping and ports and in general the reduction of hazardous waste in the Baltic sea region.
The fund awards grants for the following â Expenditures for project preparation and development, including
feasibility studies, development of business ideas, and cash-flow models â Technical assistance for institutional support, that is, training and support
needed for project preparation, development and implementation â Improving efficiency and quality in project implementation through, for
example, supporting the acquisition of equipment for demonstration purposes Source: http://www. nib. int/loans/loan products/trust funds/bsap fund
Sources http://www. nib. int/loans/loan products/trust funds/bsap fund http://meeting. helcom. fi/c/document library/get file?
p l id=18971&folderid=1673242 &name=DLFE-49127. pdf European Bank for Development and Reconstruction (EBRD Loans, equity financing, guarantees, grants
The main task of EBRD is to promote transition to market economies. European Bank for reconstruction and development has 63 member countries and also the European union and the
European Investment Bank are participating. The EBRD cooperates with other international financial institutions such as the World bank
European Bank for Development and Reconstruction provides financing for projects that couldn†t gather funding from another source on similar terms.
EBRD provides 14/38 Best practices in transport infrastructure financing 1/23/2013 The Baltic Institute of Finland/BSRP Transport Cluster
project financing for banks, industries and businesses and also for publicly owned companies in a form of loan and equity finance, guarantees, facility leasing and trade
finance. Direct investments for projects range from 5 Million euros to 230 million Euros. The funding rate is up to 35%of the total project costs
EBRD may consider participating to the financing if the project is located in an EBRD country of operations, it will be profitable in the future
and the project sponsor have significant equity contributions in cash or in kind. The project should also benefit the
local economy and satisfy both EBRD's environmental standards and those of the host country The EBRD supports projects in 29 countries.
At the Baltic sea region Poland Lithuania, Latvia and Estonia can benefit from EBRD finance Sources
certain standards and for fixed price and carries the risks. The private sector may construct the asset in less time and for less
The video surveillance system of the terminal was upgraded in 2005. The whole project costs were 1. 3 Million euros and the European Regional Development Fund
and the risks are enormous, because the relevance of an international airport for a State is
In Berlin Brandenburg airport the investments and risks were transferred to a Special Purpose Vehicle (SPV), Berlin-Brandenburg International Partner (BBIP
and carried the risks 23/38 Best practices in transport infrastructure financing 1/23/2013 The Baltic Institute of Finland/BSRP Transport Cluster
partner and bare most of the costs and risks EU supports the construction works at the cross-border sections with approximately
and clarify the sharing of risks and costs Roads 34/38 Best practices in transport infrastructure financing 1/23/2013
used to the extent that this form of contract involves the transfer of risk and where the total cost of the project is lower than in traditional
High degree of security and few accidents could provide bonus compensation Sources http://www. vegvesen. no/en/Roads/Financial/Private+Public+Partnership+PPP/Project
construction and financing is shared so the risks won†t be too high for any participant
and safety and security of users are crucial factors when EU funds are allocated Source http://eur-lex. europa. eu/Lexuriserv/Lexuriserv. do?
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