Financing by investment banks

EU & Development Bank Financing for Northern Dimension Transport Projects

Tero Lausala, 26.11.2002

Tero Lausala / Project Advisory Services / 26.11.2002 / 2

Contents

• Finpro & Project Advisory Services• EU financing: ISPA, Phare, Tacis• European Investment Bank (EIB)• European Bank for Reconstruction

and Development (EBRD)• Nordic Investment Bank (NIB)• World Bank (IBRD & IFC)


Finland Trade Centers 51 in 39 countries

=

Finpro Marketing Ltd

InternationalMarketing Services

InnovationPrograms

Networking projects with stakeholders

Consulting

Internationalizationplans & operations

MarketInformation Center

Call Center, Advisory and Market Intelligence

Services

Chairman of the Board

Support ServicesHR, Finance, IT, Marketing

President - Finpro

Finpro and Finpro Marketing Ltd


51 Finland Trade Centersin 39 countries

Our personnel• 210 in Finland Trade Centers• 130 in Helsinki

The Finpro Network Covers Main Target Market Areas


Finpro Project Advisory Services - Mission

• To assist Finnish firms in their international operations through EU, IFI and UN financed projects in developing and transition economy countries by helping them to find:• business opportunities in procurement

for projects financed by these institutions

• financing for projects identified / sponsored by themselves


Financiers Monitored By Project Advisory Services

• European Union external aid programs: Tacis, Phare, ISPA, Sapard, EDF, ALA, MEDA, CARDS

• World Bank Group: IFC, IBRD, IDA, MIGA• European Bank for Reconstruction and

Development (EBRD)• European Investment Bank (EIB)• Asian Development Bank (ADB)• Inter-American Development Bank (IDB)• African Development Bank (AfDB)• Nordic finance: NIB, NEFCO, Nopef, NDF• UN system


International Project Finance Flows Monitored By Finpro/PAS

IFI /PROGRAMME € BILLION REGIONS (SECTORS)WB 23,3 GlobalIDB 8,4 Latin AmericaADB 5,5 AsiaAfDB 1,6 AfricaEIB 5,6 Outside of EUEBRD 3,6 CEE, CIS countriesPHARE 1,5 CEEISPA 1,0 CEE (transport and environment)SAPARD 0,5 CEE (agriculture)CARDS 0,7 BalkanTACIS 0,5 CISCEB 1,6 Europe (social sector)ACP/EDF 2,3 ACP (Africa, Caribbean, Pacific)MED/MEDA 1,0 Mediterranean countriesALA 0,7 Asia and Latin AmericaUN 3,5 GlobalTOTAL 61,3


Project Advisory Services Network

BRUSSELS• EU programmes

• EIB• EBRD

WASHINGTON• WB Group

• IDB

HELSINKIBasic information and

database on all financiers

MANILA• ADB

ST PETERSBURGleasing office


Project Advisory Services Staff

• Head of Project Advisory Services Pentti Kotiranta (PAS Brussels)

• Head of PAS Washington Kari Janhunen

• Head of PAS Manila Cristina Marquinez

• Head of PAS Helsinki Tero Lausala

• Head of PAS St. Petersburg Timo Koponen


Pas Services & Products

• Project consulting and partner search• Project financial consulting• Seminars & training on IFIS and EU: e.g.

World Bank procurement, making Tacis applications, ISPA, ADB

• Emergency aid surveys: e.g. Balkans, India, Afghanistan

• Project database: www.finpro.fi/projectdatabase

• EU Public Procurement Alert Service: www.finpro.fi/tedalert


EU Finance Instruments

• PHARE: Assistance for the reconstruction of economies in Central and Eastern Europe

• ISPA: Instrument for Structural Policies for Pre-Accession

• TACIS: Technical Assistance to the Commonwealth of

Independent States


Balkan5 %

others9 %

Latin America3 %

humanitarian aid4 %

food aid4 %

EDF25 %

Asia4 %

South Africa1 %

Mediterranean11 %

PHARE15 %

ISPA10 %

NIS + Mongolia4 %

SAPARD5 %

TotalEUR 9,6 billion

EU’s External Actions in 2000


EU External Aid Programmes

• Projects are identified by the EU together with the beneficiary countries.

• EC external aid is given by means of contracts to provide services, supplies or works to beneficiary countries.

• Service, supplies and works contracts are awarded after a tendering process.

• Contracts are open on equal terms to all natural and legal persons of the EU Member States and the countries and territories of the regions covered.


EU Competition Rules

SERVICES

>200.000 EURRestrictedinternational tender,4-8 service providersinvited

< 200.000 EURFramework contract, orSimplified procedureafter consultationwith at least 3 serviceproviders

< 5.000 EUROne single quote

SUPPLIES

> 150.000 EUROpen internationaltender

30.000 < …<150.000 EUROpen local tender

< 30.000 EURSimplified procedure after consultation withat least 3 suppliers

< 5.000 EUR One single quote

WORKS

> 5.000.000 EUROpen international tender; Restricted international tender (special case)

300.000<…<5.000.000 EUROpen local tender

< 300.000 EURSimplified procedure after consultation withat least 3 contractors


Tacis in 2000-2006

• The new Tacis regulation in force from January 2000• EUR 3 138 million for the period 2000 to 2006 • Move from “demand-driven” to “dialogue-driven” programming• Increased promotion of investment• Greater emphasis on regional and cross-border co-operation• Increase in the number of assistance instruments• Improving the quality of assistance• Incentive Scheme


Tacis - Areas of Cooperation

• Democracy and the rule of law

• Private sector and economic development

• Social consequences of transition

• Infrastructure networks

• Environmental protection

• Rural economy

• Regional and cross border cooperation

• Nuclear safety


P R E - A C C E S S I O N A I D T O C E E C O U N T R I E S 2 0 0 0 - 2 0 0 6

P H A R E 1 5 6 0 m i l l i o n € 3 0 % i n s t i t u t i o n b u i l d i n gp e r y e a r 7 0 % i n v e s t m e n t s

P H A R E L S I F 1 0 0 m i l l i o n € i n v e s t m e n t s i n t r a n s p o r t( 1 9 9 8 - 9 9 ) p e r y e a r a n d e n v i r o n m e n t

S A P A R D 5 2 0 m i l l i o n € s u s t a i n a b l e a g r i c u l t u r e p e r y e a r a n d r u r a l d e v e l o p m e n t

( S a p a r d - S p e c i a l A c c e s s i o n P r o g r a m m e f o r A g r i c u l t u r e a n d R u r a l D e v e l o p m e n t )

I S P A 1 0 4 0 m i l l i o n € l a r g e i n f r a s t r u c t u r e i n v e s t m e n t sp e r y e a r i n t r a n s p o r t a n d e n v i r o n m e n t

( I S P A - I n s t r u m e n t f o r S t r u c t u r a l P o l i c i e s f o r P r e - a c c e s s i o n )

(LSIF - Large Scale Infrastructure Facility)


Phare

• The Phare programme aims to help the countries of Central and Eastern Europe to meet economic and institutional obligations for their eventual membership in the EU.

• Phare provides know-how for a wide range of non-commercial, public and private organisations.

• A specific programme of support, CARDS, covers Albania, Bosnia and Herzegovina, Croatia, the Federal Republic of Yugoslavia and the FYROM.


Phare

• Implementation decentralized to applicant countries

• Priorities:• 1.Institution-building 30% of the budget is

channelled to the reform of institutions and the encouragement of twinning, legislation harmonisation with the EU, and public administration.

• 2. Mobilisation of investments 70% is allocated to investment projects in industry and infrastructure to meet EU standards and legislation.

• Bridge to the Structural Funds after accession


ISPA: Sectors Receiving Assistance

1. The environment - bringing the applicants up to EU standards

2. Transport - expanding the trans-European transport networks

3. Technical assistance - directly related to the projects being funded

Eligible countries: Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland, Czech Republic, Romania, Slovenia and Slovakia.


ISPA - Instrument for Structural Policies for Pre-Accession

• Pre-accession aid from the year 2000 (until max 2006)• Coverage: initially the 10 central and eastern European candidates; changing according to

accession • Aims: prepare Central and Eastern European Countries for full EU membership• Environmental measures: waste water, drinking

water, solid waste (landfills), air pollution• Transport infrastructure measures: highways, roads, railways, aviation• Budget: EUR 1 billion per year


ISPA - Instrument for Structural Policies for Pre-Accession

• Criteria: population, per capita GDP and land surface area• ISPA-financing 50-80%, needs national contribution• Consulting, supplies and works• Projects are identified by the candidate

countries in co-operation with the Commission• Minimum size usually 5 MEURO• Contracts for technical assistance, supplies and works are tendered either locally or internationally


ISPA – Financial Provisions by Country

Bulgaria 8.0% - 12.0%Czech Republic 5.5% - 8.0%Estonia 2.0% - 3.5%Hungary 7.0% - 10.0%Lithuania 4.0% - 6.0%Latvia 3.5% - 5.5%Poland 30.0% - 37.0%Romania 20.0% - 26.0%Slovenia 1.0% - 2.0%Slovakia 3.5% - 5.5%


M O N IT O R IN G A N D E V A L U A T IO N

P R O JE C T IM P L E M E N T A T IO N

T E N D E RP H A R E

F IN A N C IN G M E M O R A N D U M

P R O JE C T A P P L IC A T IO NIS P A M A N A G E M E N T C O M M IT T E E

N A T IO N A L S T R A T E G Y O N T R A N S P O R T A N D E N V IR O N M E N T

N A T IO N A L P R O G R A M M E F O R T H E A D O P T IO N O F T H E A C Q U ISN A T IO N A L D E V E L O P M E N T P L A N

A C C E S S IO N P A R T N E R S H IP

ISPA Procedure


How to Succeed in EU Projects ?

Follow up on project pipeline Information gathering: web sites (EuropeAid),

Official Journal, local press Personal contacts with key players - >Act locally

! Networking, alliances, consortium Tender preparation: carefully correspond to

requirements; pay attention to the quality of the bid

National networks (beneficiary countries & EU headquarters & home bases)


Cohesion / Structural Funds

• Structural Funds are already committed for 2004-2006: EUR 23 billion

• Funds will be 3-4.5 x larger than ISPA (Cohesion Funds)

• Funding available in new sectors (health, urban renewal, urban transport etc)

• prepare large projects to be ready for Structure Fund / Cohesion Fund co-financing after accession

• prepare and finance pilot projects for implementation after accession

• work with regions to develop programmes suitable for regional development funds

Partners can help:Structural Funds 2004-2006



CURRENT EXTERNAL EU LENDING MANDATES

A global economic development partner 31

EUR million

Central and Eastern European countries 9 280 (2000-2007) (350m for Yugoslavia)

Pre-accession facility (EIB risk) 8 500 (2000-2003)

Mediterranean countries 6 425 (2001-2007)

Euro-Med mechanism (EIB risk) 1 000 (2001-2007)

ACP Countries 3 965 (2001-2007)

South Africa 825 (2000-2006)

Latin America Asia 2 480 (2000-2006)

Russia (2000-2005) 100


LOAN SIGNATURES OUTSIDE THE EU EUR 23bn (1997-2001)

Executing the EU’s external policies32

In EURm: Accession

Countries

Western Balkan countries

Euro-MediterraneanPartnership countries

Africa, Caribbean,Pacific, OCTSouth Africa

Asia, LatinAmerica

5 366

11 898

625

251

16

776

1 51735

728

1 396


Regional development

European communicationsinfrastructure

Natural and urban environment

Energy

International competitiveness ofEuropean industry and support for SMEs

i2i, R&D, Dissemination of innovation, technology networks, education, health

EIB PROJECT ELIGIBILITY

Projects promoting Union objectives47


FINANCING OPTIONS

Tailor-made finance to fit project and promoter49

Large-scale projects ( project size over EUR 25 million)

direct financing indirect financing

Small and medium-scale projects ( EUR 40 000 - EUR 25 million)

Global loans with partner banks High-growth innovative SMEs: investment funds,

venture capital or development capital companies

EIB participation is limited to 50% of a project’s cost.


EIB: PROJECT CYCLE

A sound project portfolio50

EIB eligibility

Contractsignature

Monitoring

Promoter’s request

Banking criteria

Staff teamsEconomicFinancialTechnical

Environmental

ManagementCommittee

LawyersContract

negotiation Board ofDirectors

Loan approval

ProjectBorrowerGuarantor


RATIONALE FOR EIB PARTICIPATION IN A PROJECT

52

Up stream, where the EIB financial contribution is critical and the EIB’s technical know-how can influence the project’s concept

Down stream, where the the EIB’s contribution supports the overall financial package

The EIB can become involved either


Technically sound

Financially viable

Show an acceptable economic return

Comply with environmental protection and procurement regulations

Have adequate security

A project assessment with many facets

PROJECT REQUIREMENTS:

Projects should be:

Eligible for EIB finance


Cumulative commitments€ 20.2 billion

0

5

10

15

20

1995 1996 1997 1998 1999 2000 2001

€ bn

Introduction to EBRD

• International financial institution founded in 1991, owned by 62 national and supranational shareholders, including EU and CEE countries

• Promotes market-based economies in 27 countries in Central & Eastern Europe and the former Soviet Union

• Provides finance to public and private sectors


• EU Accession countries

EBRD Geographical Focus

• Western Balkans

• Russian Federation and CIS states


EBRD Features

• Mandate to foster transition from planned to market economies

• EBRD promotes environmentally sound and sustainable development in all its activities

• Helps facilitate EU grant co-financing and mobilise Technical Cooperation funds to assist municipalities in implementation of projects

• Can finance suitable projects without bank guarantees or sovereign guarantees


EBRD Investment Selection Criteria

• Financial, economic and technical viability

• Priority projects (environmental, national, local)

• Credit quality borrower• strong economic base (municipality)• financial strength/creditworthiness• institutional capability and potential

• Readiness to implement changes• cost recovery/tariff increases as appropriate• financial and operational performance

improvement• creditworthiness enhancement


EBRD / ISPA Co-financing

• Memorandum of Understanding between EBRD and ISPA signed in April 2000

• EBRD project appraisal consistent with ISPA evaluation process

• Co-operation in organising technical assistance

• Assistance to municipalities in preparation of applications to ISPA for co-financed projects

• Agreement on procurement requirements

• Approximately €400 million in EBRD-ISPA co-financing

• Total project value of almost €1.3 billion

• Over €650 million of projects in pipeline

• Projects in Czech Republic, Estonia, Lithuania, Poland, Romania, etc.

Co-operation with ISPA EBRD-ISPA Track Record


Types of EBRD Co-financing with ISPA

• Loan to municipality (eg.Wroclaw, Gliwice)

• Loan to utility with municipal support agreement (eg. Krakow, Bydgoszcz, Kaunas)

• Loan to utility with municipal guarantee (eg. Rybnik)

• Loan to private concession company (eg in preparation - Warsaw)

• Regional facility (eg. in preparation - Dolnysląsk


EBRD loan terms and costs

• EBRD loan size normally > EUR 10 m

• EBRD can offer up to 15 years maturity if appropriate for infrastructure financing

• Grace periods based on construction

• Loan margins based on credit risk of municipality / utility and market pricing

• Pricing depends on project risk• Loan fees reflect Bank costs• Structure provides low all-in annual

costs for municipality / utility customers

• EBRD Procurement Policies and Rules apply

Grace Period Grace Period

Maturity Maturity

Margins and FeesMargins and Fees

ProcurementProcurement

Loan Size Loan Size


Nordic Investment Bank

• Finances projects of common interest within the Nordic region

• Finances international investments projects of mutual interest to the customer country and the Nordic countries


NIB Mission & Strategy

• Promoting Nordic industrial cooperation by financing new investments, infrastructure projects and structural improvements.

• Participating in the financing of projects in the emerging markets thus promoting the globalisation of Nordic industry

• Contributing with financing to the economic transformation and development in the areas adjacent to the Nordic region

• Playing an important role in the financing of environmental improvement investments particularly in the Baltic Sea and Barents Sea regions

NIB:s primary purpose is to promote sustainable economic growth by means of long-term financing.NIB endeavours to reach this goal by:


NIB Financing Activities

7777 per cent within the 5 Nordic countries per cent within the 5 Nordic countries

2233 per cent in 3 per cent in 377 countries outside the countries outside the Nordic Nordic region region

Total assets in December 200Total assets in December 20011 EUR 1 EUR 155 billionbillion


NIB Loan Portfolio

EUR million

Total outstanding loans 30.06.2002 9.780

of which International Loans in more than 30 countries 2.133


NIB Loans Outstanding

0

2 000

4 000

6 000

8 000

10 000

12 000

1994 1995 1996 1997 1998 1999 2000 2001

mE

UR

International loans

Nordic loans


0100200300400500600700800900

1000

Africa Asia Balticcountries& Poland

Centraland

EasternEurope

LatinAmerica

MiddleEast

NIB Int. Loans Outstanding / Geographical Spread as of 30.06.2002


NIB Int. Loans Outstanding by Sector / Dec. 2001

Communications25 %

Trade and other services

7 %

Other7 % Manufacturing

22 %

Energy39 %


NIB Loan Terms & Conditions

• Sovereign loans or guaranteesMaturity: Up to 20 yearsGrace period: Up to 5 years

• NIB financing maximum 50 % of total project cost

• Private sector loans- Terms and conditions similar to other lenders and depending on the project risk

• Loans untied in respect of sources of origin of project components


NIB Loans to CEE as of 6/2002(EUR million)

Outstanding Signed, not yet

disbursedCroatia 21,9 7,1Czech Republic 111,9 29,8Estonia 88,6 102,2Hungary 0,0 20,1Latvia 59,2 44,6Lithuania 47,0 65,4Poland 197,3 34,0Romania 38,6 35,0Russia 9,5 0,0Slovak Republic 1,5 0,0

TOTAL 575,5 338,2


The World Bank Group

International Bank for

Reconstruction and

Development

IBRDEstablished: 1945

IDAEstablished: 1960

IFCEstablished: 1956

MIGAEstablished: 1988

International Development Association

International Finance

Corporation

Multilateral Investment

Guarantee Agency


IBRD & IDA Lending FY 2002Share of Total Lending of USD 19.5 billion

South Asia 18%$3.5 billion

Middle East and North Africa 3%$0.6 billion

Latin America and theCaribbean 22%$4.4 billion

Europe and Central Asia 29%$5.5 billion

East Asia and Pacific 9%$1.8 billion

Africa 19%$3.8 billion


IBRD and IDA Lending by Sector FY 2002

Education7%

Agriculture, Fishing &Forestry6%

Water, Sanitation, & FloodProtection3%

Transportation12%

Law & Justice & PublicAdministration27%

ICT1%

Health & Other SocialServices12%

Finance15%

Energy & Mining10%


Transportation Sector IBRD and IDA Lending by Region, FY 2002

Latin America and the Caribbean 19%

Europe and Central Asia 3%

Middle East andNorth Africa 3%

East Asia and Pacific 23%

South Asia 31%

Africa 21%

Documents

Financing by investment banks