URBAN TRANSPORTFunding and Financing solutions of the European

Investment BankInternational Association of Public Transport

Strategies for Public Transport in CitiesLeipzig, 17-18 April 2008

Krzysztof Szyszko

• Created by the Treaty of Rome in 1958.• Subscribed capital EUR 165 bn by 27 EU Member States.• Operates in:

– EU Member, Accession and Candidate States.– New Neighbourhood and Mediterranean Partner Countries.– African, Caribbean and Pacific States.– Asia and Latin America.

• Lending in 2007: EUR 47.4 bn (EUR 44.3 bn within the EU-27).• Financing up to 50% of project cost• EU Policy-driven Bank, including:

– EU Transport Policy, in particular Trans-European Networks.– Economic and Social Cohesion within the EU.– Environmental protection and improvement.– Support for EU development aid and cooperation policies.

• EIB lending for transportation sectors in 1996 – 2007: EUR 106 bn, of which EUR 14.7 bn dedicated to urban transport

European Union Long-term Financing Institutionto Support EU Objectives

EIB’s Approach to Transport Sector Investments

• Promote an economically viable and financially sustainable transport solutions

• Focus on railways/subway/trams where they have a competitive advantage

• Foster multi-modal integration.

• Careful selection of new investment opportunities with project requirements including:– Support EU policies.– Technically sound investments.– Good economics (ERR).– Proper environmental protection (EIA, Nature Conservation, SEA).– Sufficient credit quality.

Optimising Financial Instruments Improving Efficiency of Urban Transport Investments

Standard Loan Products: Investment Loans and Framework LoansLeveraging Resources : Public Service Contracts and Leasing

Accessing the Capital Markets : Revenue BondsAttracting Private Finance : Public Private Partnerships

Standard Loan Products: Investment Loans and Framework Loans

Investment loans are designed to finance large (> EUR 50m) homogenous projects

Framework loans are designed to finance a group of smaller investment schemes withindividual cost of up to EUR 50m.

Investment schemes with individual cost of up to EUR 25m, financed under framework loans underlie simplified appraisal procedure.

Repayment schedules and financial conditions depend on both economic life of the project and the credit quality.

Leveraging Resources : Public Service Contracts and Rolling Stock Leasing

Public Authority

Leasing companyCorporate or SPV

Public transportcompany

EU

GrantFunding

Leasing agreement

Bank Capital Market

Direct agreementDebt service

Capital grant

Public service contract

RatesRolling stock

• Private sector leasing companies with large experience of procurement, maintenance and management of rolling stock

• Operating company delivers viable business plan, with equity and debt financiers at risk• Repayment of debt from commercial lease revenue (incl. Public Service Contracts PSC)• Flexibility (term of leasing contract in line with term of PSC)• Residual risk taken by lessor• Bank due diligence on lessor improves financial robustness• Direct bank and EU agreement with public authority improves solidity of structure and

increases comfort for lessor and public transport undertaking• Security over assets and cashflows should lower funding cost• Economies of scale in procurement• Outsourcing of maintenance, assured availability of rolling stock• Debt off government balance sheet.

Leveraging Resources : Public Service Contracts and Rolling Stock Leasing

Accessing the Capital Markets : Revenue Bonds

Eligible Issuers:Municipalities and associations of municipalities.Public utility companies, being controlled (over 50% shareholding) by themunicipalities.Privately owned companies, which the sole activity is providing public utility service,based on a contract with the municipality.Joint stock companies, which based on provisions of law or concession provide publicutility or public transport service.

Main Concept:

Bond proceeds finance clearly defined revenue generating project.

Project revenues are the only source of repayment of the bonds.

Project assets and revenues create a ring-fenced structure.

Bondholders enjoy priority claim against the project assets and revenues.

Project requirements (Bond Act):

Target public utility services, public transport or communication / transport infrastructure development and maintenance.

Based on contractual relationship or concession granted for the period atleast equal to the bonds maturity.

Project revenues / cash flow must be sufficient to cover the required bond service and fund for a 12-month debt service reserve.

Project requirements (Investors):

Economically and financially feasible.

Clear and transparent legal structure.

Municipal / public support and commitment to the project.

Accessing the Capital Markets : Revenue Bonds

Attracting Private Finance : Public Private Partnerships

Main Characteristics of PPPs

Risk-sharing between public and private sectors.

Long-term relationship between parties.

Public service and ultimate regulatory responsibility remain in public sector.

Using private sector skills for public sector services

Contracts for services, not procurement of assets.

Output, not input, specifications.

Payments related to service delivery.

Whole life approach to design, build and operation.

Criteria for PPPsEconomically viable for the Public Sector.Financially viable for the Private Sector.Appropriate Risk and Reward Balance for Public and Private SectorPublic Sector: value for money.

“Must” for successful PPPsPublic Sector Political Commitment.Focused, dedicated and experienced public sector team – PPP Task Force.Clear legal and institutional framework.Transparent and competitive procurement.Realistic risk sharing. Government Partnership.

Attracting Private Finance : Public Private Partnerships

CASE STUDY – GDANSK URBAN TRANSPORT PROJECT

Project costs – EUR 50M. The City of Gdansk – 32%, EU –39%, EIB – 29%.

Project scope:•Modernisation of 26 km existing tram infrastructure•Construction of new tramway line to Chelm district (3 km)•Rolling stock (3 trams)

Project economics “new tramway line”:•Before project (bus service only)2.8 million vehicle-km per year at PLN 4.81/vehicle-km•After project1.5 million vehicle-km per year at 4.81/vehicle-km (bus) and 0.4 million vehicle-km per year at PLN 3.93/vehicle-km (trams).

Saving: PLN 4,681,000 (EUR 1,300,000) p.a.+ other economic & social benefits

Public AuthorityMunicipal transport company

Rolling stockmanufacturer

EU

Grant

EIB Finance contract

Debt service

Public service contract

Rates

Direct agreement

Rolling stock

Ticket sales

Renting infrastructure

CASE STUDY – GDANSK URBAN TRANSPORT PROJECT

http://www.eib.org

Krzysztof SzyszkoLoan Officer – Polish DivisionTel.: +352 4379 87459Fax: +352 4379 67498E-mail: szyszko@eib.org