EUROPEAN COMMISSION 
Brussels, 19.10.2011 
SEC(2011) 1237 final 
  
COMMISSION STAFF WORKING PAPER 
IMPACT ASSESSMENT 
Accompanying the document 
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 
 
  A pilot for the Europe 2020 Project Bond Initiative  
  
Proposal for a 
 
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
 
amending Decision No 1639/2006/EC establis hing a Competitiveness and Innovation 
Framework Programme (2007-2013) and Regu lation (EC) No 680/2007 laying down 
general rules for the granting of Community financial aid in the field of the trans-
European transport and energy networks 
 
{COM(2011) 659 final} 
{SEC(2011) 1239 final} 
 
 
EN 1   EN TABLE OF CONTENTS 
1. Procedural issues and consulta tion of interested parties.............................................. 3 
1.1. Background for the development of the Europe 2020 Project Bond Initiative............ 3 
1.2. Organisation and timing............................................................................................... 4 1.3. Consultation and expertise ........................................................................................... 5 1.4. Results of the consultation of the Impact Assessment Board ...................................... 5 2. Context and problem definition ................................................................................... 6 2.1. Political context and legal base.................................................................................... 6 2.1.1. Policy for the future: Europe 2020............................................................................... 6 2.1.2. Connecting Europe Facility.......................................................................................... 6 2.1.3. Funding ................................................................................................................. ....... 7 
2.2. Problem definition........................................................................................................ 7 
2.2.1. Infrastructure funding ga p: Nature and extent ............................................................. 7 
2.2.2. Funding: Drivers and underlying causes...................................................................... 8 2.3. Baseline scenario, assumptions  and affected parties.................................................. 10 
2.4. Subsidiarity .............................................................................................................. .. 11 
3. Objectives.................................................................................................................. . 12 
3.1. General policy objectives........................................................................................... 12 3.2. Operational objectives................................................................................................ 12 3.3. Link with EU Strategies............................................................................................. 13 4. Identification of possible EU options in the pilot phase ............................................ 13 4.1. Option 1: Grant funding, no new financia l instrument (baseline scenario) ............... 13 
4.2. Option 2: Regulatory incentives to incr ease infrastructure financing, no financial 
instrument................................................................................................................... 14  
4.3. Option 3: The use of a financial instrument to  attract additional in frastructure financing
............................................................................................................................... ..... 14 
4.4. Alternative financial options discarded at an early stage........................................... 17 5. Analysis of Impacts.................................................................................................... 19 
 
EN 2   EN 5.1. Option 1: Grant funding, no financial instrument...................................................... 19 
5.2. Option 2: Regulatory incentives................................................................................. 20 5.3. Option 3: Use of a financial instrument ..................................................................... 22 5.4. Budgetary impact ....................................................................................................... 24 5.5. Administrative burden................................................................................................ 24 5.6. Risk analysis/uncertain ties of policy choices............................................................. 25 
6. Comparison of options and c hoice of preferred action .............................................. 26 
6.1. Comparison of impacts of different options............................................................... 26 7. Monitoring and evaluation ......................................................................................... 29 
Annex I: Public consultation................................................................................................... . 32 
Annex II: Past EU experience w ith financial instruments ....................................................... 39 
Annex III: Past and future infrastructure financing ................................................................. 40 Annex IV: The general economic and social  case for infrastructure investment..................... 47 
Annex V: An illustrative project example................................................................................ 49 Annex VI: Detailed design and risk-sharing............................................................................ 51 Annex VII: Other issues potenti ally affecting the success of the project bond initiative ........ 55 
 
EN 3   EN 1. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES  
Identification  
Lead DG: Directorate-General for Ec onomic and Financial Affairs (ECFIN) 
Agenda Planning: 2011/ECFIN/022 
1.1. Background for the development of the Europe 2020 Project Bond Initiative 
Despite long-standing EU polic y and grant spending on Trans-Eu ropean Networks (TENs), the 
Commission has found that the comple tion of key infrastructure proj ects is delayed or abandoned 
with one of the principal reasons being lack of investment. The Connecting Europe Facility 
(CEF) for the period 2014-2020 will put Eur opean funding for transport, energy and 
telecommunications infrastructure on a solid  and coherent basis for the longer term1.  
However, Europe is facing financing problems already now. Government spending is being 
reduced and long-term bank lending continues to  be scarce. Project finance volumes, after 
recovering somewhat in 2010, have declined dramatically in the first half of 20112. Thus, at a 
point in time, where infrastructure projects coul d contribute most to aid the European recovery, 
the financing is more ch allenging than it need be3.  
Currently, infrastructure pr ojects in the EU have de facto no possibility to  access finance from the 
bond markets. Therefore, the Commission sugge sts putting in place a support mechanism that 
would increase projects' access to capital market  debt funding to complement grants and bank 
financing. The Europe 2020 Project Bond Initiative would be a cross-sector initiative to expand 
the available sources of financing of infrastructure projects, especially in the transport, energy 
and ICT sectors where current traditional sources of financing are insufficient. The aim is to attract institutional investors to the capital market financing of projects with stable, predictable 
cash flows by raising the credit qu ality of project bonds issued by private companies. The pilot 
phase of this Initiative would be rolled out w ith the European Investment Bank (EIB) in 2012 and 
2013.  
The Initiative will build on more than ten years of experience of using financial instruments
4 to 
implement EU policies. In th e 2007-2013 financial framework, a new generation of successful 
financial instruments were put in place in coop eration with the EIB, notably the Risk-Sharing 
Finance Facility (RSFF) under the 7th R&D Fr amework Programme and the Loan Guarantee 
                                                 
1 See further point 2.1.2 
2 Source Infrastructure Journal (IJ). Western Europe decl ines from EUR 33 billion to 26 billion, half of which 
is transport and energy (IJ's data for Eastern Europe distorted by Russia and Turkey, hence not included). 
3 See also the Impact Assessment on the Connecting Europe Facility and the Impact Assessment 
accompanying the legislative proposal s for the ERDF and Cohesion Fund. 
4 Pioneered in the area of SMEs 
 
EN 4   EN Instrument for TEN-T projects (LGTT)5. The mid-term reviews of the latter two, which are of 
particular relevance in the cont ext of the project bond initiative , are attached in Annex II.  
As a project bond-type, cross-sectoral financial in strument does not yet exist at European level, 
the pilot phase in 2012- 2013 would allow testing its design a nd market acceptance in order to 
improve its effectiveness under CEF for the 2014- 2020 period. In the pilot phase, the focus would 
be on projects at a rela tively advanced stage6 to accelerate the implemen tation and facilitate the 
creation of a project portfolio. In order to gather  relevant experience to ensure rapid take-up post-
2013, EIB is willing to work on conc rete operations in pa rallel with the legisl ative process (i.e. 
prior to the formal political decision) in orde r to have first transactions executed in 2012. 
This impact assessment covers mainly the pilot phase of the Europe 2020 Project Bond initiative, 
but refers to the 2014-2020 operational phase wher e relevant, and focuses on financing in the 
projects in transport, energy and telecommuni cation areas. The pilot phase will be limited in 
scope, budget and number of projects compared to the post-2013 phase. 
Finally, the instrument would not necessarily need to be limited to the areas of CEF in future; 
projects in other infrastructure sectors, such as social sectors,  renewable energy or certain space 
projects could be eligible provided they meet th e economic and financial prerequisites. Thus the 
instrument should be open to use in other policy contexts including structural and cohesion funds 
and external policies. The formul ation of the CEF proposal should not preclude this. In addition, 
further financial institutions should have the po ssibility to participat e in 2014-2020 in line with 
the Financial Regulation. 
1.2. Organisation and timing 
Since the announcement of the In itiative, Directorate General (DG) ECFIN has been working 
with EIB services in order to define its ma in parameters and with DGs MOVE, ENER and 
INFSO.  
An inter-service steering group was formed to ensure that the impact assessment for the formal 
legislative proposal captures all necessary policy as pects that have to be clarified to ensure the 
success of the Initiative. In addition to DGs ECFIN, MOVE, ENER and INFSO it comprises DGs 
BUDG, COMP, ENTR, ESTAT, MARKT, REGIO, R T D ,  S J  a n d  S G  a s  w e l l  a s  t h e  T E N - T  
Executive Agency. The group met 3 times between May and July 2011.
                                                 
5 LGTT aims to attract long-term bank lending in TEN-transport projects. Under LGTT, the EIB provides 
financing (credit enhancement) to the projects whereby the Commission covers a share of potential losses through a risk-sharing mechanism. The EU budget earmarked for LGTT amounted to EUR 500 million with 
matching funding from the EIB. The multiplier effect is  20, i.e. LGTT is expected to attract EUR 20 billion 
of senior loans.  
6 E.g. projects already at preferred bidder stage and/or refinancing of projects during construction) 
 
EN 5   EN  
1.3. Consultation and expertise 
External consultation With a view to assess market demand for the Initiative and possible obstacles prior to the 
development of a fully fledge d proposal, a public consultati on was launched on 28 February 
2011. The consultation paper was s ubsequently made available on the website of the DG for 
ECFIN. In addition, it was sent out to numerous st akeholders directly. It thus benefited from the 
maximum publicity possible to compensate  for the minimal prior notification.  
Stakeholders had until 2 May 2011 to make their contributions via the Eu ropa website or via a 
functional mailbox. Over 130 respon ses were received. In addition,  a conference was held on 11 
April in Brussels w ith more than 250 participants. The Initiative wa s generally viewed favourably 
and many suggestions made, mainly to extend its scope to social infras tructure, environmental 
infrastructure and renewable ener gy projects. The positive impact of the project bond initiative in 
attracting private finance and in pa rticular institutional investors to infrastructure projects was 
also highlighted by the stakeholde rs. The majority of responses c onsidered that the initiative will 
facilitate financing due to a more solid  structuring of l ong-dated projects.  
As the detailed summary of th e consultation in Annex I show s, the minimum standards of 
consultation were met. 
1.4. Results of the consultation of  the Impact Assessment Board 
Following the hearing with the Impact Assessm ent Board on 31 August 2011, the Board sent its 
opinion on 2 September 2011. This impact assessm ent report concentrates  on the pilot phase 
which is subject of the draft Regulation and also explaines the link to the CEF financial 
instruments as requested by the Board. Based on the recommendati ons received, the report has 
been redrafted along the following main lines: 
The Board's request to strengthen  the justifica tion of the initiative ha s been included throughout 
the document. The current market situation has been  explained more in deta ils in particular under 
points 1.1 and 2.2 with link to the impact assessment accompanying CEF. The aspect of value added of the initiative is in cluded as a new subject under poin t 4.1. A new Annex V provides an 
example of a possible project in  order to facilitate the understanding of the readers on the 
functioning of the initiative. In addition, a sect ion on pricing is included under points 5.3 and 4.1. 
As the Board considered that the options and thei r impacts should be more clearly formulated, the 
sections 4, 5 and 6 have been redrafted, includ ing subsidiarity and administrative burden, for 
which more detailed comments were provided by the Board earlier during the process. Section 7 
on monitoring and evaluation has been improved to be tter reflect the Board's request to spell out 
more extensively the monitoring and evaluation arrangements including performance indicators. 
This reflects the monitoring and evaluation arrangements laid down in the draft Regulation on the 
launch of the pilot phase.  
 
EN 6   EN 2. CONTEXT AND PROBLEM DEFINITION  
2.1. Political context and legal base 
2.1.1.  Policy for the future: Europe 2020 
Given the challenges of a changing and increasi ngly inter-connected world, the EU developed the 
Europe 2020 Strategy, which takes a holistic view of Europe's policy goals and was endorsed by 
the European Council on 17 June 2010. The objectiv e is to make Europe a smart, sustainable and 
inclusive economy, which delivers high levels of  employment, productivity  and social cohesion 
in a sustainable manner. To this end, the EU has identified seven flagship initiatives, of which the 
Digital Agenda and Resource Efficient Europe are of particular relevan ce. The Digital Agenda 
objectives are to ensure that every European ha s access to basic broadband by 2013 and to fast or 
ultrafast broadband by 20207. The  Resource-efficient Europe flagship aims to support the shift 
towards a resource-efficient and low-carbon econo my, thereby decoupling economic growth from 
resource and energy use, reducing CO 2 emissions and promoting greater energy security while 
enhancing competitiveness. This will require a significant transition in transport and energy 
systems.  
2.1.2.  Connecting Europe Facility 
CEF will provide the longer-term framework ensuring that proj ects in energy, transport and 
telecommunication are developed and implemen ted in a timely and effective manner. A 
comprehensive strategy of priori tised opportunities of infrastructu re projects, as proposed by the 
Commission on 29 June 20118, has significant potential to attract  more private sector financing 
and at the same time help to complete the inte rnal market. The strategy, including the selection of 
projects eligible for funding is transparent, thus ensuring a high level of certainty for all stakeholders. Within this strategy the setting of policy priorities, regulatio ns, incentive schemes, 
close co-ordination between stakeholders, inform ation and awareness campa igns are required to 
establish the overall framework c onditions for infrastructure inve stments, enforcing behavioural 
changes amongst stakeholders and accelerating th e pace of intervention. Grants and financial 
instruments, each under a distinct set of financia l rules, would be available in a co-ordinated 
manner.  
Financial instruments are needed to reduce specific barriers that  prevent the flow of debt and 
equity finance. Their main objective is to attract and facilitate private sect or finance of projects. 
At the same time, increased investment activity in infrastructure projects stimulates the global development of post-crisis financial markets, enhances the pace of economic recovery and 
promotes growth. The Europe 2020 Project Bond Initi ative will become an integral part of the 
risk-sharing instruments of CEF for the period 2014-2020. The main objective of the pilot phase 
in 2012-2013 would be immediate support for infr astructure projects a nd preparation of the 
operational phase of the Initiative in 2014-2020.  
                                                
 
7 The 2020 goal has two parts: (i) all Europeans have access to much higher internet speeds of above 30 
Mbps and (ii) 50% or more of European households subscribe to internet connections above 100 Mbps. 
8 COM(2011)665 
 
EN 7   EN 2.1.3.  Funding 
In the past, a large number of projects of comm on interest have benefited from grant support 
from the Union budget9. The European Investment Bank (EIB) has also greatly contributed to the 
financing of these projects through loans10. Nonetheless, many TENs remain incomplete and 
recent communications and white papers11 all indicate the lack of investment as a significant 
obstacle to the implementation of projects. The area of transport is most advanced in the use of 
financial instruments with the joint EU-EIB LGTT facility and the Marguerite Fund, where the 
EU is a co-investor alongside several banks. Expe rience so far shows a clear need to prepare the 
ground for the implementation of such schemes in order to have sufficient stakeholder awareness 
and acceptance. 
However, both grants and financial instruments have tended to be segregated by policy area until 
now, although financing requirements are often simila r. By putting its infrastructure financing on 
a more coherent footing, the EU can ensure that key projects can draw on all available sources of 
funds and funding instruments in  a cost efficient manner.  
The bond markets in Europe are de facto not used fo r the financing of infras tructure projects. The 
proposed Europe 2020 Project Bond Init iative aims to increase the access to debt capital markets 
for infrastructure projects of European inte rest, using appropriations from the EU budget.  
Initially, the three target areas transport, ener gy and telecommunication will be covered, but later 
on the Initiative may also benefit other types of infrastructure. To  allow the launch of the pilot 
phase, it is proposed that EUR 200 million ar e redeployed from the TEN-T budget, EUR 10 
million from the TEN-E budget and EUR 20 million from the CIP budget.  
As regards funding under CEF for the period 2014- 2020 up to 20% of the available budget could 
be used for risk-sharing and equity instru ments depending on the identified funding gap.  
2.2. Problem definition  
2.2.1.  Infrastructure funding g ap: Nature and extent 
Europe faces enormous infrastructure investment needs in transport, ener gy and ICT networks in 
this decade, totalling EUR 1.5 trillion to EUR 2 trillion12, to meet the policy goals of the Europe 
2020 strategy, i.e. annual financing volumes of EUR 200 billion or more. Of course, there are 
also substantial investment needs in other areas of infrastructure, but these will not be considered 
further at this stage. 
                                                 
9 TEN budget lines, Structural Funds and Cohesion Fund. 
10 See Annex III for further details. 
11 Digital Agenda for Europe COM(2010)245, European  Broadband: investing in digitally driven growth 
COM(2010)472, Roadmap to a single European Transport Area COM(2011)144, Transport White Paper SEC(2011)359 and Energy infrastructure priorities for 2020 and beyond COM(2010)677. 
12 Sources Transport White Paper SEC 0359/2011, Energy Communication 2010/677, A Budget for Europe 
2020 - Part II, COM(2011) 500, see also the impact assessment accompanying the Connecting Europe 
Facility proposal. 
 
EN 8   EN At present, public sector infrastructure invest ment in the EU averages  approximately 1% of 
GDP13 or around EUR 120 billion per annum. It  is estimated that about 80%, EUR 95  billion is 
investment in transport and most of the rest in  social infrastructure, i.e. schools and hospitals14.  
Increasingly, governments have encouraged the private sector to fi nance infrastructure 
investment, either on a purely pr ivate sector basis through priva tisation, through concessions or, 
more recently, using the public-private partnershi p (PPP) model as a basis. Traditionally, users 
paid directly for each use of an infrastructure project, e.g. in the case of toll roads. Although user 
charges work well for such cases, not all types of  infrastructure can be financed this way. The 
concept of availability payments has therefor e been developed, whereby a public sector body 
makes regular payments over an ag reed period to the supplier of th e infrastructure and associated 
services for their availability su bject to specific conditions. Such payments can also be combined 
with user charges if charging the full cost would lead to too larg e of a burden on users. PPP and 
other privately funded projects are ty pically financed with equity from sponsors or other investors 
and bank loans. 
The step change in total projected investment volumes to meet the Eur ope 2020 objectives is 
beyond the total financing available, especially gi ven that existing sources may stagnate or even 
decrease as Annex III explains15. This alone requires a reconsideration of funding generally and EU 
funding in particular.  
In addition, the financing of cross-border projects poses a par ticular challenge due to the 
implication of several governments and their regul atory/legal systems and current incentives of 
individual Member States and/ or private investors may not su ffice to realise such projects. 
Of course, there are still projec ts that are not financially viab le, but which nonetheless has great 
value to society. These will continue to be financed with grants.  
Finally, infrastructure projects typically require very long-term financing, something that is not 
widely on offer presently. Infrastructure genera lly has high costs of ca pital coupled with low 
operating costs. However, its usually stable and predictable cash flows ma ke long-term financing 
particularly attractive. The infrastructure debt ge nerally has low default ra tes and higher recovery 
rates in case of default than comparable corporat e debt. In addition, it shows a low correlation 
with other assets16, which is fundamental to the reduction of risk in a diversified portfolio and as 
such is sought after by asset managers.  
2.2.2.  Funding: Drivers and underlying causes  
During the financial crisis, due to the liquidity a nd risk challenges, banks in the EU reacted by 
shortening of maturities, increased pricing and collateral requirements. This led to a smaller 
                                                 
13 Ranging from ½ to 2% depending on the Member State. 
14 Utilities and telecom providers are generally private s ector entities, thus public sector investment is 
minimal. 
15 See also the impact assessment accompanying  the Connecting Europe Facility proposal. 
16 Moody's Special Comment on Default and Recovery Rates for Project Finance Loans 1983-2008, 20 
October 2010 and P. Davies, MBIA 
 
EN 9   EN number of lending operations and smaller volume of operations pe r bank. In addition, there are a 
large number of loans to existing projects that  were granted in 2006 a nd 2007 at high interest 
margins on a short term basis th at are now coming up and requiri ng new financing arrangements, 
often with higher financing cost. This will place an additional strain on the amount of debt available to finance the constr uction of new infrastructure.  
"Although the US has traditionally dominated the world’s bond markets, bonds issued in the US 
now account for less than half –about 44% of the global bond ma rket volume. In Europe, bonds 
are about 2/3 of the total amount of securities  outstanding in bonds and shares; in the US, the 
bond market is about the same size as the st ock market. Historically fragmented, the bond 
markets of the world comprise a great variet y of bond products with complex and different 
characteristics. About 60% of the European  bond market is govern ment bond debt, 29% is 
corporate, and 11% is asset-b acked; in the US, the proportion of bonds issued by the corporate 
sector is much larger.
17" This illustrates the fact that th e European bond markets still play a 
relatively minor role for the financing of Europ ean companies, and by extension of projects, 
which are still predominantly financed via bank loan s. Research suggests that  because most direct 
investment in bonds has traditionally been in th e government bond markets, there is a need for 
investors in the EU to increas e their understanding of corporat e and project bond related risks, 
which are generally more complex.  
Prior to 2008 a very limited num ber of EU infrastructure proj ects accessed the bond markets via 
privately guaranteed bonds. Essentially, insura nce companies known as "monolines" guaranteed 
the timely payment of 100% of the interest and principal, so the rating of the bond depended on 
the credit quality of the monoline insuran ce company and not on that of the project18. In 2009-
2010, however, the infrastructure bond markets in the EU have shown de facto no activity.  
Multilateral development ba nks did step up their le nding volumes as a cris is response. However, 
this trend may not become permanent and due to capital constraints the lending volumes need to 
be scaled down. 
As the Monti Report recognised, the full potential of  the single market can only be delivered with 
the provision of the appropriate  physical infrastructure and th e creation of a single digital 
market19"Major public infrastructure in Europe, such as the TENs, is transnational, unfit for the 
currently fragmented national sche mes, and their funding suffers from the absence of a liquid 
bond market for very long maturities, while long -term investors such as  pension funds cannot 
find a supply of bonds matching their investment needs."  
The Monti report suggests to "[...] explore all combinations be tween public and private funding 
[…]", to "[...] improve incentives for l ong term investors […] to direct their resources to long 
term infrastructure projects " by encouraging " […] the development in Europe of a liquid bond 
market for very long maturities ". 
                                                 
17 Source: Association for Financial Markets in Europe (AFME): Investing in bonds in Europe on 
www.afme.eu. 
18 See also Annex III. 
19 M. Monti: A new strategy for the single market, at the service of Europe's economy and society, p.8 
 
EN 10   EN Most institutional investors in infrastructure have so far invested by taking in particular indirect 
equity stakes. Investing in infras tructure debt is less straight-forw ard, one of the rationales for the 
Project Bond Initiative. A more de tailed review of public and priv ate infrastructure financing; 
past, current and future provided in Annex III. 
2.3. Baseline scenario, assumptions and affected parties 
In the areas of transport, en ergy and telecommunications, the c oncept of TENs was enshrined in 
the Maastricht Treaty in 1992 (now Article 170 and 171 TFEU) and has been shaped by 
successive TEN-E, TEN-T and eTEN Guidelines and corresponding financial regulations since 
1996 with EU financing being envisaged sin ce 1995 according to Council Regulation 2236/95.  
Given the long-standing commitment to infrastructur e, the natural baseline scenario would be for 
the EU to continue with grant f unding, not to cease support for infr astructure projects altogether. 
During the pilot phase, the use of financial instruments in the area of transport such as the Loan 
Guarantee Facility for TEN-T (LGTT) forms pa rt of the baseline scenario. LGTT aims at 
attracting long-term bank lending to cer tain types of transport projects. 
The LGTT20 applies only to transport projects that face re venue risk due to vari ations in traffic, 
i.e. through user charges that are directly depe ndent on actual use, in the early operational phase 
of a project. As Member States have been us ing availability payments as a basis for most 
transport projects rather than real tolls, most pr ojects have not met the LGTT eligibility criteria. 
The assumptions underlying the baseline scenari o, based on the drivers mentioned in point 2.2.2 
and discussed more in detail in Annex III, are as follows: 
• Public sector finances will continue to be under pressure for most of the next Multi-
annual Financial Framework. 
• While the impact of Basel III on liquidity in terms of categorisation of financial assets 
based on infrastructure is being kept neutral in this assessment, an increase in lending 
prices is taken into account21. Monoline insurance companies will not re-enter the 
markets.  
• There will be sufficient number of potential projects to take advantage of this instrument 
that tie in with EU strategies of project pipeline development and building institutional 
capacity among the Member States.  
• There will be investor de mand for infrastructure bonds. 
Thus the stakeholders primarily affected by the absence or presence of infrastructure are:  
• Citizens in all Member States, who benefit fr om the infrastructure and ultimately fund it, 
either as consumers or tax payers.  
                                                 
20 See footnote 9 on description of LGTT. 
21 The impact assessment on prudential requirements for credit institutions and investment firms 
(SEC(2010)949) concludes in point 5.9 that "the propos als are expected to lead to a higher cost of bank 
credit across the entire spectrum of bank customers, which is compensated by social benefits." In addition, 
the paper of the Bank for International Settlements on the assessment of long-term economic impact of 
stronger capital and liquidity requirements, August 2010, point to the fact that projected impacts arise mainly from banks passing on higher costs to borrow ers, which results in a slowdown in investment. 
 
EN 11   EN • Tendering authorities which may no t have competitive financing. 
• Project promoters which may not be able to ge t financing for their projects at present. 
This affects their employees and thos e of subcontractors, including SMEs. 
2.4. Subsidiarity 
The right for the EU to act in th e field of infrastructure financi ng is set out in Article 171 which 
provides that in order to achieve  the relevant objectives the Un ion (…) may support projects of 
common interest supported by Member States. Furthe rmore, the EU's competence in the area of 
energy is also enshrined in TFEU, Article 194.  
The Europe 2020 Project Bond Initiative complies with the subsidiarity principle as the choice of 
the EU Regulation for financing tr ans-European networks projects  with project bonds is best 
suited to provide an efficient and inexpensive m eans to attract high levels of private sector 
financing. The expected multiplier effect in term s of EU budget contribution compared to the 
overall financing is estimated at 15-2022. By focusing on optimising the use of EU funds, the 
initiative will aim to improve th e effectiveness of both EU and Me mber States action within this 
division of competencies. 
Individual Member States have  recognised there is a funding problem and have put in place 
temporary schemes which provide loans or loan gua rantees, but the schemes are about to expire.  
Whereas LGTT targets only loans to transport pr ojects, the Europe 2020 Project Bond Initiative 
will be the first EU financial instrument benefiting infrastructure projects across several sectors with similar financing needs and will as such pr oduce higher benefits in te rms of market impact, 
administrative efficiency and resource utilisat ion. It will provide a c oherent EU financial 
instrument to infrastructure st akeholders such as financiers, public authorities, construction 
companies and operators.  
As capital markets transcend national borders, so efficiency dictates that a financing scheme 
should do the same. This also avoi ds distorting financial markets.  Countries outside of the EU 
have their own policies to support infrastructure  financing. Thus, a European initiative would 
level the international playing field for European projects seeking funding. 
In summary, the EU has the potential to achieve the twin objectives of increasing infrastructure 
financing and creating an infrastructure bond market  better in the EU and more completely than 
the Member States. 
                                                
 
22 The exact multiplier depends on the financing structure and the exact risk-sharing arrangements, which may 
have to be adapted to the budget ary availability in each policy area. 
 
EN 12   EN 3. OBJECTIVES  
3.1. General policy objectives 
While the private sector is expected to continue  to play a significant role in delivering the 
required economic infrastructure, some key infr astructure investment may be delayed or 
cancelled due to the widening of the financing gap as described in Section 2 and Annex III. Thus, 
additional sources of financing are needed in order to secure future infrastructure investment and 
the long-term bond market is the obvious soluti on at a time when long-term bank lending is 
difficult to access and competitive options are requ ired. Financial instruments align the economic 
incentives of market actors, thereby facilitating such bond issues. Through appropriate pricing of 
the financial support and its limited nature, the EU  will seek to avoid distorting competition. In 
fact, the objective is to facilitate projects' acce ss to finance through alternative debt financing 
sources , i.e. project bonds. 
The general objectives of the Project Bond Initiative are therefore two-fold: 
(1) Stimulating investment in infrastructure in the area of transp ort, energy and ICT. 
(2) Establishing debt capital markets as a ne w source of financing in the area of 
infrastructure. 
3.2. Operational objectives 
During the pilot phase of the initiative, the EI B will provide guarantees or loans to eligible 
projects. This would allow the senior debt to r each a credit quality necessary to attract private 
investors and thus permit its financing via a bond i ssue. The Initiative is intended to act as a 
catalyst to create an infrastructure bond mark et, which does not rely  on 100% guarantees.  
The Europe 2020 Project Bond Initiative would aim to reach the following measurable targets: 
• Considering the budget allocations available during the pilot phase, which need to be 
committed in the respective sectors, it is expected that until 31 December 2014 up to 6 TEN-T projects can be included in the EIB portfolio, up to 1 TEN-E project and up to 3 telecommunication projects. The number of  projects will depend on the volume of 
financing required for each pr oject, ie the higher the volume, the more EU budget 
allocations are needed for one single transaction.  
• The EU budget allocation of EUR 230 million is expected to attract 15-20 times of 
additional investment, ie the multiplier eff ect is expected to be between 15 and 20.  
• The number of public and private sector ini tiatives launched to f acilitate project bond 
financing and the performan ce of these initiatives.  
Market demand and supply will determine the uptake of the scheme; it is not mandatory to use it.  
 
EN 13   EN 3.3. Link with EU Strategies 
Europe’s economic future requires smart, sustaina ble and fully interconnected transport, energy 
and digital networks. They are indeed a necessary condition for the completion of the European 
single market, sustainable growth and stability and the achievemen t of the objectives outlined in 
the Europe 2020 strategy as well as the ambiti ous energy and climate policy goals: the "20-20-
20" objectives23. 
The Initiative is an important building block fo r the CEF proposed for the transport, energy and 
ICT sectors in the Multi-annual Financial Framework (MFF) 2014-2020.  
One key aim of the MFF, and therefore the CEF, is to use a greater proportion of budget funds in 
a more efficient way by increasing the share of  financial instruments. The notion of smart 
funding was a key element of the Budget Review  COM(2010)700 with the pr oject bond initiative 
cited as an example of using EU funds to leverage  private sector capital investment. According to 
a study requested by the European Parliament's Committee on Budgets "The implications of EIB 
and EBRD co-financing for the EU budget" (2011) , co-financing has been  undertaken in areas 
which have seen considerable su ccess in delivering EU policy priorities, such as innovation, 
research and competitiveness – all of which are fundamental strategic obj ectives of the EU – 
despite some concerns that co-financing may be be st suited to those markets which are relatively 
developed. 
However, the Commission sees a need to standa rdise and simplify the use of and reporting on 
financial instruments. The Europe 2020 Project  Bond Initiative is th e first EU financial 
instrument covering several sector s with similar financing needs.  The Initiative will support the 
development of the CEF financial instruments for the post-2013 period, but may also be extended 
to other sectors that fulfill the financial criteria. Since a key aim is to attract private sector financing, the increased transparency of such a si mplification will be helpfu l in this respect and 
encourage the use of PPP structures , which is also a stated goal
24 of the EU.  
4. IDENTIFICATION OF POSSIBLE EU OPTIONS IN THE PILOT PHASE  
4.1. Option 1: Grant funding, no new fina ncial instrument (baseline scenario) 
This would entail the exclusive reliance on the us e of grants from the pub lic purse, including the 
EU, with bank loans as the main source of private sector debt financing.  
In this Multi-annual Financial Framework, under TEN-T, an amount of EUR 8 billion is available 
to support transport projects. Out of this EUR 5 80 million is dedicated to financial instruments, 
i.e. the LGTT (EUR 500 million) and participa tion in the Marguerite equity fund (EUR 80 
million).  
                                                 
23 20% reduction in greenhouse gas emissions, 20% share of renewable energy in EU final energy 
consumption and 20% improvement in energy efficiency by 2020 
24 PPP Communication COM(2009) 615 
 
EN 14   EN As banks face balance sheet and maturity constr aints for a number of reasons including higher 
funding costs, higher capital requi rements and a continuing need to  provision for losses, it cannot 
be assumed that long-term bank lendi ng will continue at th eir previous level, le t alone rise to the 
higher levels needed to implement the Europe 2020 strategy. This al so applies, albeit to a lesser 
extent, to the multilateral development banks, such as the EIB. 
4.2. Option 2: Regulatory incenti ves to increase infrastruc ture financing, no financial 
instrument 
The EU as a whole does not have, nor has it had, a true project bond market. Financing in Europe 
has traditionally been dominated by banks and a truly integrated and liquid bond market only 
started developing after the intr oduction of the single currency. This contrasts with the situation 
in e.g. the US, where banking has been fragme nted along state lines with the bond market 
providing the better financ ing terms and liquidity. 
As a result of the banks' better knowledge of thei r customer and ability to analyse infrastructure 
financing proposals, European deals have genera lly been structured to  reach a lower credit 
quality than e.g. in Canada, where bond solutions are common. Wh ere bonds were issued, they 
were guaranteed by monoline insurance companies. 
This might suggest that one way of addressing the infrastructu re financing problem, short of 
stopping the banks from lending to th e sector, would be to take re gulatory steps to improve the 
incentives for infrastructure f unding. This could take the form  of requiring better security 
packages from sponsors or more a dvantageous treatment of investme nt in infrastructure in terms 
of capital required, taxation etc  
4.3. Option 3: The use of a financial instrume nt to attract additional infrastructure 
financing  
The main proposal is to introduce a financial mark et solution to address market imperfections.  
As instruments to support of ba nk lending (LGTT) and equity (Mar guerite) already exist, the new 
instrument would aim at facilita ting project bond finance. The fina ncial instrument would take a 
form of an EIB guarantee or an EIB loan. The Initiative  would cover pre-identified transport, 
energy and ICT priority infrastructures in  2012-2013. Under CEF 2014-2020, it could be opened 
to other financial institutions, to  other sectors that wi sh to avail themselves  of project bonds, if 
considered appropriate from th e EU policy perspective.  
The Initiative will complement, rather than re place, the existing sources of project financing 
through bank loans. The aim is to expand the invest or base for private debt  funding of projects to 
bond investors. 
Added value 
Considering the stage of development of project bond markets in the EU, the fiscal situation of 
the Member States and the significant investment n eeds in the three core sectors, only the EU and 
the EIB have the credibility and can make the lo ng-term commitment required. There have been a 
 
EN 15   EN few temporary national crisis responses aiming at supporting infrastructure investments, but these 
schemes are coming to an end.  
Bond financing clearly has potenti al in infrastructure financi ng, but enabling bond financing is 
not targeted by any other EU financial inst rument. The Loan Guarantee Facility for TEN-
Transport, LGTT, targets infrastructure loans, but only in the transport sector, for very narrowly defined risks and only during th e early operational phase of pr ojects, thus the project bond 
initiative would be a complement as regards ty pe of financing, sectors and project phases.  
Marguerite, is an equity fund, thus also not focused on bond markets. Finally, project bonds will 
help redress existing distortions in markets as fo r the time being infrastructure projects can draw 
only on bank lending as a financing source. 
The expected multiplier effect is between 15 and 20 depending on the size on the subordinated 
debt of a project and the precise risk-sharing ar rangement. There is no ri sk to the budget beyond 
the determined contribution as remaini ng potential losses are covered by the EIB. 
Financial design: basic principle 
Infrastructure projects generally benefit from relatively stable revenues. Therefore they are 
normally structured on a stand-al one basis by one or more spons ors of a project, which are 
corporate entities, setting up a dedicated projec t company with the sole  purpose of financing, 
building operating and maintaining the project in question. In re turn the project company will 
receive all revenue accruing to the project. The proj ect will be financed with  a mix of equity from 
the sponsors and other investors and debt.  
The essential principle of the project bond initia tive is to split the de bt into two so-called 
tranches: a senior, or high-ra nking, tranche and a subordinated, or lower-ranking, tranche using 
standard structuring techniques. The subordinated tranche will be provided by EIB, either in the 
form of a loan or a contingent credit line (partial  guarantee) and may be up to 20% of the senior 
debt. Since the subordinated tranche is repaid after the senior debt, it can help the project absorb 
several years of revenue shortfalls  and still ensure repa yment of the senior debt. This raises the 
credit quality and attractiveness of the senior debt to  a level, i.e. investment grade as illustrated in 
the chart on page 16, where it can be issued in the form of project bonds. An example and more 
details are contained in Annexes V and VI. 
 
EN 16   EN S&P Moody's Fitch
AAA Aaa AAA
AA+ Aa1 AA+
AA Aa2 AA
AA- Aa3 AA-
A+ A1 A+
AA 2 A
A- A3 A-
BBB+ Baa1 BBB+
BBB Baa2 BBB
BBB- Baa3 BBB-
BB+ Ba1 BB+
BB Ba2 BB
BB- Ba3 BB-
B+ B1 B+
BB 2 B
B- B3 B-
CCC+ Caa1 CCC
CCC Caa2 CC
CCC- Caa3 C
CC Ca DDD
SD C DD
DDInvestment grade. 
Many investors can only 
buy such bonds 
Non-investment grade 
or high yield bonds 
 
Most infrastructure deals in Europe  are structured to have a rating th at is just above or just below 
investment grade (see chart above). Many invest ors, on the other hand, can only buy investment-
grade bonds and want to be sure that a single downgrade does not force them to sell, but they 
may not feel able to evaluate the risks properly. This asymmetr y between sponsors and investors 
would not occur in perfectly free and efficient cap ital markets, but in the real world it is possible 
to find solutions that lets an intermediary price th e risk correctly and still yields benefits to both 
sides25. 
In addition, infrastructure projects may face numer ous risks due the possibi lities of construction 
delays, payment delays etc. Investors react to ri sk and uncertainty by not undertaking or investing 
in a project, by requiring a higher rate of return or by  using insurance. At  present, only a few 
specialised investors are prepared to  do the necessary analytical work.  
Thus, the project bond initiative addresses the credit quality issue generally, as well as the issue 
of project specific risks. As mentioned, it has to be  possible to split the debt into several tranches 
in order to issue a project bond. The other crucial factor for the detailed design outlined in Annex 
V is whether it is feasible to ring-fence th e revenues of a project. Ring-fencing allows the 
earmarking of revenue to service project debt , the typical basis for project finance.  
Finally, as for LGTT, pricing woul d be set according to EIB standa rd pricing grid, which reflects 
risk of projects and includes an  administrative margin for the EIB. The Commission would be 
remunerated for the portion of the risk it takes, thus the instrument would not entail any subsidy 
element.  
                                                 
25 SEF Alliance with UNEP: Publicly backed guarantees as policy instruments to promote clean energy (2010) 
 
EN 17   EN Role of the EU and EIB  
As explained, the EU would work with the EIB to implement the pilot phase, whereas in the 
operational phase the EU is open to working with other financial partners as permitted by the Financial Regulation. 
The EIB and the Commission already have exte nsive experience implementing joint financial 
instruments using the risk sharing concept, as for example LGTT and RSFF. As an EU institution 
with the mission to support EU policies, it has,  within the EU, a unique  long-standing experience 
in the financing of infrastructure projects. Its share capital is held by the 27 member states, its 
role is long term financing in support of EU  policy objectives and it reports to all relevant 
European Institutions; it is politically accountable to  the European Parliament and subject to the 
control of the Court of Auditors where it is responsible for spending EU  Budgetary resources. 
Therefore, it is natural that th is Project bond initiative should bu ild on the experience of EIB for 
structuring; the implementation and ear ly marketing and risk management.  
The eligibility of th e projects is determined under the TEN-T, TEN-E and eTEN policy 
guidelines which are endorsed by Council and the European Parliament. Th e EIB would appraise 
individual projects, carry out the due diligence and financial analys is in the structuring phase and 
price the guarantee or loan. Projects would need  to provide stable and strong cash flows in 
addition to being economically a nd technically feasible. They w ould also need to demonstrate 
ability to run a funding competition a nd carry out a project successfully. 
If the project sponsor decides to use the facil ity, the project would be  approved by the governing 
bodies of the EIB in line with standard proced ures. The EIB would subsequently monitor the 
project in accordance with EIB‘s standard po licies and procedures including its Credit Risk 
Policy Guidelines. 
The EIB and the EU would share the risk. For the EU, this would take the form of an upfront 
budgetary contribution to cover its ag reed share of the risk of the project, concretely a share of 
the expected and the unexpected loss. The resi dual loss would be borne by the EIB. As the 
intervention is at the subordinate d debt level rather than at the senior level, where EIB normally 
lends, the activity is intrinsically riskier. Howe ver, the EIB's exposure would be limited to 20% 
of the value of the senior debt, instead of up to  50% of the project cost in its normal senior 
lending activity. 
4.4. Alternative financial options discarded at an early stage 
Direct senior lendi ng by EU or EIB 
The EU cannot lend its budgetary funds and the raising of off-budge t funds is limite d to specific 
purposes such as assistance to EU Member  States and countries outside the EU. 
The EIB, which is owned by the EU Member States , played an increasingl y important role over 
the past three years in addressing Europe’s financial crisis and recession by keeping credit 
flowing to businesses and financin g projects that promote EU in tegration and development. It 
stepped up its lending capacity dur ing the crisis, to the point wher e it now has to consolidate the 
 
EN 18   EN activity in order to safeguard its rating and cap ital base. EIB lending activity was scheduled to 
increase by EUR 15 billion above targets set for 2008 both in 2009 and 2010. In both years, the 
Bank even exceeded these targets. After total signatures amounting to EUR 76 billion in 2009, 
EIB signatures reached EUR 83.2 billion in 2010, of which EUR 72.8 billion in the EU and EUR 10.4 billion outside the EU. This represented a 43% increase compar ed to the volume of lending 
achieved in 2008 (EUR 58 billion). Further expans ion would require a capital increase even 
though the last capital increase was rather recent, in 2009
26. 
In addition to being difficult to implement, dire ct lending is one of the least efficient means of 
supporting long-term infrastructure projects. It attracts additional funds only to the extent of the 
co-investment requirement, i.e. if EIB can lend up to 50% of project co sts, the other 50% are 
from other sources. Finally, this opti on does not develop capital markets. 
Full debt service guarantee 
The EIB and/or EU could provide a full, 100%, debt  service guarantee in re spect of the payments 
due on a bond issued by a projec t company. If structured in the same manner as monoline 
guarantees, timeliness of payments  would certainly be assured, but  it creates a classic moral 
hazard issue, as investors and sponsors would not  face the consequences of excessively risky 
projects and therefore woul d not limit risk-taking. 
On the financial side, if roll-out  is required on a substa ntial scale, this opti on would also require 
an EIB capital increase. If the scheme is im plemented along the lines  of the subordinated 
instrument described, i.e. the EU provides a budge tary contribution towards the risk sharing, this 
contribution would have to be correspondingly large. Direct guarantees by the EU are not feasible 
as there is no room under the own resource ceiling. 
In addition, to being more expensive than a part ial guarantee, fully guaranteed project debt would 
create products far too similar to th e EIB's and/or EU's own bond issuance27. 
A loss reserve fund 
A fund would be created by the Commission to provision for certain losses on a portfolio of 
assets. The concept is similar to that of the pa rtial debt service guarantee, especially from the 
point of view of the Commission, but it would enta il higher direct admi nistrative costs as the 
Commission would repeat the tasks carried out by its risk-sharing partners, such as the EIB.  
Creating a European Infrastructure Bank or Guarantee Agency 
This would require the set-up of an entirely ne w institution in both cases, which could fund itself 
on the capital markets. 
                                                 
26 The EIB increased its subscribed capital by EUR 67 billion to an overall amount of EUR 232.4 billion. 
27 The Commission issues bonds in order to fund for example Balance of Payments (BoP) operations, such as 
loans granted to Hungary, Romania or Latvia, or under  Macro-Financial Assistan ce (MFA) loans granted to 
third countries.  
 
EN 19   EN The infrastructure bank would essentially be a more focused EIB, while the guarantee agency 
would have an even more spec ialised function. However, both w ould in a sense duplicate some 
functions of EIB and financial institutions such as Kreditanstalt für Wiederaufbau, Nordic Investment Bank or Cassa  Depositi e Prestiti.  
On the one hand, this entails significant expe nditure to set up the institution including 
capitalisation, which is outside the remit of teh EU budget, and develop the necessary expertise. 
On the other hand, the bonds issued by the institu tion would provide a new credit for investors to 
invest in, who would then  automatically benefit from the diversification of the institution's 
balance sheet.  
5. A
NALYSIS OF IMPACTS  
Since the objective is to attrac t additional financing to infrastructure projects, the following 
analysis considers the impacts of the financing, not the impact s of the projects themselves. 
5.1. Option 1: Grant funding, no financial instrument 
Economic impact Grant funding predominates in tran sport, energy and ICT at present (baseline scenario), thus there 
the economic impact would not change from th e current assumptions in this Mu ltiannual 
Financial Framework. It is likely that some effici ency gains could be made in the management of 
the calls for proposals and awar d of grant money, however, th ese will likely be small. 
It is clear that projects with cr oss-border elements and of wider Eu ropean interest are particularly 
disadvantaged by national funding schemes. I ndeed, the recent Commission Staff Working 
Document accompanying the White Paper Road map to a Single European Transport Area
28 
concluded that the EU already does not  have sufficient financial leverage29 and EU funding has 
not focused sufficiently on the implementation of TEN-T projects.  
From a macro-economic point of view, the EU  would continue its under-investment in 
infrastructure to the detriment of the long-te rm growth potential and competitiveness of the 
European economy (see Annex IV for further deta ils on the economic benefits of infrastructure) 
and the infrastructure implemented would be built at a higher than  necessary cost to society. In 
addition, even though marginal privat e sector efforts in the form of  debt funds for example, are 
being set up, but this is unlikely to be sufficient to create a project bond market.  
Whilst private finance will continue to be ava ilable to some projects, alternative financing 
models, which will replace or lessen the depe ndency on public sector grant financing, are 
required to sustain long-term capita l investment for infrastructure. In particular, the EU priority 
projects entail features and risks such as gree nfield development, uncertain business case as 
regards future revenue flows, regional aspects in cluding the influence of the sovereign crisis and 
                                                 
28 SEC(2011)391 
29 Page 108: "The TEN-T Programme budget is limited in size and [provides] relatively low co-funding rates" 
 
EN 20   EN cross-border impacts, such projects continue to be less attractive for privat e sector financiers and 
investors.  
In addition, in case of private sector financing, depending on the sector, the project, the economic 
situation in the country or regi on as well as national regulat ions and the maturity of the 
financial/capital markets there can be a greater need for either debt  or equity support. As the risk-
return profile of infrastructu re projects change during the pr oject lifecycle (preparation and 
planning, construction and ramp-up operations and the subsequent operational period with more 
predictable revenue flow) different  types of investors and financie rs are needed. Both debt and 
equity instruments are needed in order to be ab le to promptly respond to cyclical adjustment 
needs. 
Project finance has been proven to be extremely re silient despite all the ch allenges during the last 
few years. Moodys and Fitch have  concluded that project financ e credits have same default 
frequency and lower loss given defa ults than like rated corporates30. 
Under this option, LGTT would continue to be imp lemented by the EIB wit hout the possibility of 
proposing alternative financing stru ctures for the TEN-transport proj ects currently in the pipeline. 
In addition, the Commission would continue providing grant support. As regards TEN-E and 
INFSO, projects would continue to benefit only fr om grant support without having the possibility 
to attract additional financing to the eligible  projects and without having the possibility to 
multiply the effect of the EU budget. 
Social impact 
While the continuation of grant funding has no social impact per se , it is likely that  grant funding 
would also go to projects that could have been financed in the market with the support of 
financial instruments. This could lead to lack of  grants for weaker projects not deemed worthy of 
support to the detriment of  disadvantaged regions. 
Since there is no structural shift in the dist ribution of spending betw een the national and EU 
level, there is a risk that key EU infrastructure  would be sacrificed for national priorities. This 
would penalise cross-border proj ects disproportionately, to the detriment of cohesion in the EU. 
Environmental impact 
The environmental impact would remain neutral as  the status quo of the us e of EU funding would 
not change.  
5.2. Option 2: Regulatory incentives 
Economic impact Under certain conditions, incentives may serve either as an additio nal enhancement in an already 
attractive enabling environment for investment or  as a compensation for market imperfections 
                                                
 
30 The Need For Innovation, Mubadala. 
 
EN 21   EN that cannot be otherwise addre ssed. Improving regulatory incentives  for infrastructure financing 
might lead to more bond financing. This could take several forms: 
a) Requiring project sponsors to  put up more capital to increase the rating of the project.  
b) Lower capital charges for infrastructure invest ors through the creation of a separate asset class 
for infrastructure bonds 
Both of these solutions would depart from the Commission's principle of having a regulatory 
structure that is as neutral as possible to investment decisions. By their very nature, they would 
distort the decision making of spons ors (due to increased costs of financing, th ey are likely to be 
looking exceptionally for the highest return proj ects, which could lead to non-implementation of 
weaker but still viable projects in particular sect ors) or investor s (investors, who would invest in 
infrastructure projects due to regulatory advant ages rather than the qua lity of the underlined 
projects), which would lead to the mis-alloca tion of funds and cause potentially as many 
problems as they solve. 
In the case of (a), put ting up more capital would be costly for sponsors and limit the number and 
volume of projects due to balance sheet contraints of sponsors. Th ey would therefore likely resist 
it at first and thereafter pass on the costs to tend ering authorities and th ereby ultimately to tax 
payers. Thus, the net result would be more costly infrastructure, likely leading to less being built. 
On a more differentiated level, such a rule w ould apply to all sponsors and impose costs of 
compliance regardless of whether the sponsor wishes  to use capital market financing. There are 
two problems with this: 
• The requirement would apply to different sectors, some regu lated, perhaps in different 
ways, some unregulated, while other sector s would not face these requirements. Not 
only would this cause problems across the thre e initial sectors, it would also create a 
barrier to extending the initi ative to further sectors. 
• Compliance costs are likely to be dispr oportionately large for SMEs, which would 
therefore be penalised. 
The assessment of the relevance of the incentives, their appropr iateness and economic benefits 
against their budgetary and othe r costs, including long-term impacts on domestic allocative 
efficiency are very demandi ng. Significant improvements of the enabling environment for 
investment (e.g. the removal of undue impediment s and improvement of regulatory frameworks) 
can often be achieved at a low budgetary cost. Ne vertheless, unless the incentives go some way 
toward correcting the concrete shortcomings , their impact on investors is uncertain. 
Finally, it would be very challeng ing if not impossible, to establ ish new regulatory measures at 
the EU level which would have an impact on the availability of bond financing within the period 
2012-2013.  
 
EN 22   EN Social impact 
There are no particular social impacts of this option. To the extent that costs for sponsors are 
higher, they will look for the proj ects with the highest return. As under Option 1, this may lead to 
the non-implementation of  weaker projects. 
Environmental impact 
The use of different financing options has no partic ular environmental impact. To the extent that 
financing costs increase, less in frastructure would be built ceteris paribus, meaning that the 
(positive or negative) impacts of what ever infrastructure would be reduced. 
5.3. Option 3: Use of a financial instrument 
Economic impact Increased capital financing availability would stimulate and ease the implementation of large 
infrastructure projects with significant nation al and cross-border benefits. Thus the direct 
beneficiaries of the Project Bond Initiative woul d be mostly tendering authorities, which could 
get more competitive financing offers, and infrastructure project promoters, which would be able to attract the necessary financing to their projects.
 However, the number of projects benefiting 
from grant funding from TEN-E and CIP budget lin es would be reduced. The TEN-T projects 
would benefit from two alternat ive debt financing sources; th e possibility to draw on bank 
lending under LGTT and on bonds unde r the project bond initiative.  
EU financial instruments target specific financing ga ps. In infrastructure, projects with low risk at 
high investment grade will continue to be financed  without EU support and w ith rather attractive 
pricing. The EU will target projects for which banks  would price the risk rather expensively thus 
making access to long-term debt finance difficult for these projects. Th e EIB financing will 
reduce the risk for investors, thereby improving the credit rating of the underlying bonds and thus 
reducing the cost of th e bonds to be issued.  
Although less direct than grants, this option is  not less powerful in terms of overcoming the 
different risk perceptions of market participants and aligning their interest s. It has the advantage 
of not being imposed, but driven by market demand. If well-designed, it is highly flexible and can 
respond to market needs in a timely manner. This type of interv ention is recognised31 as being 
one of the lowest-cost ways of facilitating transactions32 and being particularly  valuable in times 
of tight credit and market uncertainty33 such as the present.  
The Initiative aims to avoid unnecessary multiplicatio n of instruments of a similar nature or with 
similar target beneficiaries, fina ncing and project structures. This will maximise the visibility of 
                                                 
31 Including by the World Bank, see for instance Matsukawa and Habeck: "Review of Risk Mitigation 
Instruments for Infrastructure Financing and Recen t Trends and Developments  (World Bank, PPIAF) 
32 Depending on the pricing of the credit line or loan 
33 UNEP-SEF, Publicly backed guarantees as policy instruments to promote clean energy, 2010. 
 
EN 23   EN such instruments, reduce the administrative bu rden on beneficiaries and intermediaries and 
results in simplification also from the viewpoint  of the Commission and also the EIB. Both EU 
individuals and business entities ar e expected to indirectly benefit from this Initiative as they 
would be the final users of the in frastructure provided at a reas onable price. In addition, it would 
also give users access to the infrastructure and services, which were not available before, thus 
enhancing the competitiveness of the EU generally.  
Instruments which are not fully commercial can distort a market, and crowd out the private 
sector, if not properly targeted at revealed market imperfections , and can restrain  the long term 
development of private sector investments in  infrastructure. On the other hand, financial 
instruments may stimulate the growth of partic ular markets and create opportunities for the 
private sector in the future, as well as help ing the infrastructure pr ojects through difficult 
economic times. The Europe 2020 Project Bond In itiative will be priced according to EIB's 
pricing methodology whereby the Commission will be remunerated for the risk it is taking. Thus, 
there is no subsidy elemen t to the beneficiaries. 
No negative impact or supplementary costs can be  identified to micro, sm all, medium or large 
enterprises in particular. Due to the complexity and resource requirements of key infrastructure 
projects, large companies and consortiums genera lly have more possibilities to participate in 
infrastructure projects. However, SMEs could also be positively a ffected due to sub-contracting.  
However, this option requires that tendering au thorities do not precl ude the option of bond 
financing in their procurement procedures. W ithout a greater acceptance of bond financing as a 
potential long-term cost-efficient financing source, the intiative will have difficulties taking off.  
In addition, project de velopment capacity, experience and kn ow how by the local, regional and 
national authorities is key. In particular at region al level the authorities often lack resources and 
expertise to develop and implement complex infra structure projects whic h require well organised 
procurement including technical an d financial specifications and negotiations with a range of 
stakeholders, also outside of the country borders.  
Finally, financial instruments need to be adequate ly promoted in order to be recognised by the 
stakeholders already at an early stage a nd in order to allow an efficient take up. 
Social impact 
The option considered in this impact assessment will benefit instituti onal investors such as 
pension and insurance funds, and therefore indirec tly policy holders. It can be anticipated that 
expected greater market integrity will lead to hi gher investor confidence and greater participation 
in financial markets, thereby making it easier for economic entities to raise capital, provide necessary infrastructure, stimulat e growth and create more jobs.  
Environmental impact 
The project bond proposal only relates to the financ ing of projects, which are the entities that 
might have environmental impacts. In extremis , to the extent the scheme accelerates financing or 
enables it for projects that woul d not otherwise have taken place,  i t  c a n  b e  s a i d  t o  h a v e  a n  
 
EN 24   EN environmental impact. This impact is, however, not separable from the projects. In general 
implementation of the Europe 2020 strategy to make  Europe a smart, sustainable and inclusive 
economy, which delivers high levels of employmen t, productivity and so cial cohesion in a 
sustainable manner, should result in an overall positive impact. Fi nally, environmental and social 
sustainability are a condition for projects to re ceive financing from th e EIB, which would be 
managing the pilot phase of the project bond initia tive. Environmental and social assessment is 
therefore an integral part  of the EIB's appraisal and monitoring process. 
5.4. Budgetary impact 
In the pilot phase, Options 1 and 2 corresponds to the status quo, while  Option 2 cannot be 
implemented due to the time consuming decisions required. Option 3 will be financed through a redeployment from the TEN-T, TEN-E and CIP budget lines totalling EUR 230 million.  
In the operating phase, Option 2, being regulator y, would have no direct budgetary impact and 
Options 1 and 3 would both be c ontained within the current budgeta ry envelopes with the amount 
and allocation eventually agreed. The project bond initiative w ould, however, attract additional 
private financing for projects and th us constitute "smarter funding" in the sense of the next MFF. 
Normally, a guarantee would establish a contingent claim on budgets
34, but here the EU benefits 
from working with the EIB or other risk-sharing partners. This means that the EU can limit the 
risk to the budget at a specified  amount, while the financial partne r takes the residual risk, which 
it is much better equipped to evaluate35. In other words, the EU budget contributions would be 
strictly capped and not create continge nt liabilities of the EU budget.  
All of the co-financed instruments in use at pr esent involve allocations to programmes which are 
capped in size and so none of these instruments pose a risk to the budget beyond that which is initially committed under the budget lines. 
However, unlike the case of grants, there may be a reflow of funds to the EU budget from fees 
that are not re-used for new projects or other purposes within the programming period.  
5.5. Administrative burden 
Options 1 and 3 discussed are not expected to cause administrative burden to entities due to legal 
obligations. Option 3, the launch of the Europe 2020 Project Bond Initiative would be managed 
in the same manner as current grant schemes unde r option 1. The main difference would be that 
applications and approval procedures would be managed by the EIB, thus the costs for 
applications by the stakeholders would remain similar to those under grant programmes managed by the Commission.  
In the past, stakeholders have complained about the complexity generated by overlapping 
financing schemes, different rules for EU support acr oss the sectors or by l ack of coordination at 
                                                
 
34 UNEP-SEF 
35 The implications of EIB and EBRD  co-financing for the EU budget  (2011), a study requested by the 
European Parliament's Committee on Budgets 
 
EN 25   EN strategic level. This is reportedl y confusing and translates into obstacles to effective access and 
correct implementation. Therefore, implementation of a single financial instrument for several 
sectors is a positive in itself and likely to resu lt in a reduction in the administrative cost and 
administrative burden for financial institutions, s ponsors and public authorit ies is strengthened by 
the one-stop shop approach to the relevant stak eholders with one progr amme managing partner 
and contact point, the EIB.  
As regards option 2, regulatory incentives and lega l requirements in terms of increased levels of 
equity could lead to sub-optimal investment deci sions by stakeholders thus  potentially increasing 
cost of capital and investment costs and havi ng a negative impact on long-term planning of 
investment programmes by Member States, utilitie s and operators. A second disadvantage of this 
option is the cost of compliance and administrative burden on invest ors as well as authorities who 
would have to monitor compliance. Lower capita l charges for investors would potentially reduce 
the overall investment cost, but would also lead to misallocation of funds in case investment 
decisions are not based on the quality of the proj ect but on the impact on capital charges. A trade-
off would have to be sought between regul atory aspects and long- term economic effects.   
5.6. Risk analysis/uncertainties of policy choices  
This is a market-driven instrument, thus its ultimate success depends on its use by project 
sponsors and its acceptability to investors and tendering authoritie s. Some flexibility would be 
needed in the design of the instru ment to make sure that it is not side-lined by changes in capital 
markets or other changes to the assumptions. Member  States would have to respond in a flexible 
manner to not preclude bond financing in their te ndering criteria and stimulating an enabling 
environment conducive for long-term investment. 
The trade-off between the advantages and disadva ntages of bank versus bond financing will have 
significant influence on the take-up. For example,  under bond financing th e amount available can 
normally not be drawn in instalments based on th e completion of the various construction phases, 
while this is possible in bank financing. Bond financing can easily  be arranged with long-term 
maturities, in contrast long-term bank financing is not readily available. Bonds can be traded 
easily, loans cannot. Bond financing may induce a dditional costs due to ratings required for 
ratings or listings at the stock exchange. This may be offset by the valu e of long-term committed 
financing and the lack of refinancing ri sk which would persist with bank lending. 
Finally, should the instrument not be continued under CEF, the stimulus for enhanced capital 
market debt financing would be left entirely on the shoulders of Member States and the private 
sector which might not have the capa city or the interest in doing so at EU level for the benefit of 
EU priorities. The Initiative is  likely to act as a catalyst fo r private sector initiatives . 
However, as the EIB covers the remaining risks there is a theoretical possibility that due to 
external events all projects under the initiative would default. Howe ver, this worst case scenario 
is addressed by EIB's risk mana gement and monitoring systems st arting at the stage of project 
appraisal and due dilligence until the terminatio n of the EIB financing. In addition, EIB's lending 
ceilings, annually and per sect or, provide further comfort. 
 
EN 26   EN 6. COMPARISON OF OPTIONS AND CHOICE OF PREFERRED ACTION  
6.1. Comparison of impacts of different options 
The table below summarises major impacts of the options identified in section 4.1 in terms of 
positive and negative effects, achieved dual objective, potential market distortion, costs and administrative burden on different kinds of st akeholders. Thorough quantititative assessment of 
the options is difficult due to the complexity of the enabling environment and the general nature 
of the options.  
 Option 
 
Criteria Option 1: 
Grants Option 2: 
Regulatory incentives Option 3: 
Financial instrument  
Main positive impact Projects would 
continue to benefit 
from grant funding. 
Transport projects 
from two existing 
instruments No direct cost to 
budget Attracts private sector 
funding, positive 
multiplier effect and 
thus lower costs  
Main negative impact No possibility to 
attract investors Impact on investors 
uncertain, potential 
unintended negative 
effects on other areasInvestor education 
required  
Achieved objectives  
TENs Partly Partly Yes 
Capital markets No Maybe Yes  
Costs  
- project sponsors As now Higher Lower 
- users As now Higher Lower 
- Member States' 
authorities (down to municipalities) As now Higher Lower 
- investors As now Higher Lower  
Market distortion As now, potential 
crowding out of 
private investment by 
EU budget  Punishes companies in 
chosen sectors Not if appropriate 
pricing and risk-taking 
including appropriate 
size of the instrument 
Administrative burden  
- project sponsors Low (as now) Low Low 
- users N/a N/a N/a 
- Member States' 
authorities  Low Medium Medium 
- investors Neutral Medium High  
 
The following summary table sets out the advantag es and disadvantages of the different options, 
related to their effectiveness in achieving the related objectives, and their efficiency in terms of achieving these options for a given level of res ources or at least cost. Impacts on relevant 
stakeholders are also considered.  
 
EN 27   EN Each scenario is rated between "---" (very negative), 0 (neutral) and "+++" (very positive). The 
assessment highlights the option which is best placed to reach the related general and operational objectives outlined in section 3 and is therefore the preferred one.
 
EN 28   EN  
 Criteria 
 
Option Impact on 
stakeholders Effectiveness Efficiency 
Objective 1: Stimulating investment in infrastructure, especially TEN-related 
Option 1: 
Grants 0 0 0  
Option 2: 
Regulatory incentives (--) some 
administrative 
burden for both 
companies and investors, but
 
(0) unchanged for Member States in 
case no additional 
monitoring required (+) partially enables 
implementation of some 
TENs
 
(--) could create 
conflicts between regulation in each sector and requirement for 
more capital (0) does not increase cost 
on budget
 
(---) increases cost to almost all types of stakeholders (--) would affect all projects and financiers, not 
only those using bonds 
Option 3: 
Financial instrument  (-) Lower 
administrative burden for companies and 
Member States, but 
(---) higher for investors  (--) requires investor education (++) facilitates the 
implementation of TENs
 
(++) encourages single market 
(+++) stimulates 
competition between bank and bond markets (---) depends on other conditions such as market acceptance, 
procurement practicies, 
regulatory framework and perceived uncertainties by investors (+) budget contributions 
will be strictly capped
 
(+++) lower infrastructure investment cost expected 
over the project lifetime  
Objective 2: Establishing debt capita l markets as a new source of financing 
Option 1: 
Grants  (---) no incentive 
available for investors and 
projects (---)  (---)  
Option 2: 
Regulatory incentives   (0) does not create 
new investment 
tool (+) some private initiatives as a niche activity 
might evolve  (+) may establish debt 
capital markets as 
financing source
 
(+) may attract some funding (---) higher financing costs
 
(---) unclear wether it will 
attract additional funding, in which case the additional cost would have been unnecessary  
Option 3: 
Financial instrument  (++) widens choice 
of financing 
instruments (--) promotion and education required (+++) stimulates new 
sources of financing and 
(++) possibly creates new asset class
 
(+++) attracts most of (++) lower financing cost 
expected  
(-) uncertainties remain as regards additional costs such as rating or listing
 
 
EN 29   EN for a novel EU 
instrument  funding 
(--) factors such as 
controlling or 
monitoring creditor requires multiple approaches 
 
Although option 2 is the least cost ly from an EU perspective, it may impose costs on all project 
sponsors, small and large, without a clearly demons trated benefit. Since th ere is no incentive for 
banks and investors to adjust be haviour, the desired development of capital markets may not take 
place. It is expected to have a rather negative im pact on stakeholders as well as perform poorly in 
terms of effectiveness and efficiency compared to other options. This is therefore the least preferred option. 
Option 1 does not per se  raise costs on any stakeholders, but nor does it generate additional 
funding from loan or capital markets. It woul d also have no influence on effectiveness and 
efficiency of achieving identified objectives. This is therefore the second-most/least preferred 
option. 
The preferred option is the use of a financial instrument (option 3), since it gives market 
participants economic incentives to adapt their behaviour wit hout imposing blanket regulatory 
costs. It is considered to be the most eff ective solution with the most positive impact on 
stakeholders and the most tangible improveme nt of the financing of infrastructure.  
7. M
ONITORING AND EVALUATION  
Monitoring of implementing fi nancial partner and markets 
The Commission may work through one or several financial institutions with a public mission, 
which will normally receive and assess the applica tions for support, the financial structure of the 
project, its economic viability et c. according to their internal rules and procedures. The pilot 
phase of the Intiative will be managed by the EIB. However, the possibility to extend it to other risk-sharing partners  will be explored. 
EIB Financing Operations will be managed by the EIB in accordance with the EIB's own rules 
and procedures, including appropria te audit, control and monitoring measures. As foreseen in the 
EIB Statute, the Audit Committee of the EIB, which is supported by external auditors, is 
responsible for verifying the regularity of th e EIB operations and accounts. The EIB accounts are 
approved annually by its Board of Governors. 
Furthermore, the EIB Board of Directors, where the Commission is repres ented by a Director and 
an alternate Director, approves each EIB Financing Operation a nd monitors that the EIB is 
managed in accordance with its Statute and with th e general directives laid down by the Board of 
Governors. 
 
EN 30   EN Furthermore, the EIB shall provide the Commissi on with statistical, financial and accounting data 
on each of the EIB Financing Operations as necessa ry to fulfil its repor ting duties or requests by 
the European Court of Auditors as well as an auditor’s certificate on the outstanding amounts of 
the EIB Financing Operations. 
Monitoring by the Commision in accordance with  sound financial management shall include the 
drawing up of regular reports on progress made in implementing the initiative by means of 
financial implementation, results and impact indicators. The Comm ission already collects data on 
the EU bond market. Provided issues are public a nd sufficiently large, th ey should be captured by 
this reporting. However, the Commission may c onsider requesting information from the banks 
that place the project bonds. The de tailed contents would have to be  specified together with the 
issuers. One key objective would be to m onitor whether unsupported issuance emerges. 
Monitoring of performance and evaluation 
Based on all of the above sources of informatio n, the Commission should have all the elements 
necessary for a review of the pilot phase by end 2013 in order to draw conclusions for the 
implementation of the risk-sharing instruments unde r CEF. Key elements to consider will be  
• the uptake and why it is high/low 
• in particular how the cost of financing comp ares with other sources  of debt financing 
• whether some of the alternative solutions have been implemented in national context 
• whether unsupported bond issuance has emerged 
• whether the risk-sharing methodology can be a pplied to other relevant IFIs or whether 
modifications are needed 
• whether other IFIs have the resources to impl ement and participate in a similar initiative 
under CEF and whether their legal st ructure allows a participation. 
Based thereon, the Commission should be able to assess whether the scheme (still) adds value 
and therefore should be continued. Information on th e financial features of the instruments such 
as risk-sharing modalities, portion of credit enhancement required by projects, pricing, etc will be collected during the implementa tion phase by both the EIB and the Commission thus feeding 
directly in the preparation of  the implementation under CEF in 2014. The following performance 
indicators will be included in the assessment: 
• The number of TEN-T, TEN-E and telecomm unication projects having received EIB 
financing under the initiative and the terms of the transactions. 
• The achieved multiplier effect, cumulative and per sector. The expected multiplier effect 
is expected to be around 15-20 in terms of  EU budget support comp ared to the total 
investment raised for the projec ts supported under the initiative. 
• Volume of capital market debt financing bein g raised for these projects, cumulative and 
per sector. 
The monitoring of the results will be based on the reporting by the EIB and market research. 
Finally, under CEF, a mid-term evaluation should  be carried out on the Project Bond Initiative 
together with the evaluation of other financial instruments planned under CEF. 
 
EN 31   EN Extension to other financial partners 
As stated, the pilot phase of the Initiative will be implemented with EIB. Th e intention is to allow 
other financing partners to pa rticipate in the 2014-2020 phase if  they wish to and have the 
statutory flexibility to do so. Th ese financing partners will typically be as international financial 
institutions (IFIs) and/or Memb er States' banks with a public mission, with experience in the 
financing of EU infrastructure projects and th e willingness to share the associated risks in 
partnership with the EU or any national or regional bodies if app licable. These financial partners 
must also have the absorption capacity and resources to implement the instruments.  
This participation could take several forms: 
• Cooperation with EIB on the Europe 2020 initiative. The practice of collaboration 
with between IFIs and other banks has alrea dy proven successful both inside and outside 
the EU. For example, IFIs and others may share aspects of the due diligence when looking at a joint project. This would also be feasible in the contex t of this initiative, 
bearing in mind of course the limitations of each institution in terms of geographical 
focus and statute. In additi on, they could perhaps contri bute with senior loans if 
required. It is more difficult to envisaged a pooling of risks between multiple IFIs. 
• Replication The Initiative is expected to be a model for other similar credit 
enhancement schemes, where other instituti ons will be required to contribute both 
funding and expertise. EU and EIB could provide advice on setting up national or 
regional schemes. 
A decision on whether to extend the Initiative to ot her financial partners is  likely to depend on the 
success of the pilot phase and tailoring to the need s and capabilities of the relevant financial 
institution and would be subject to the guidelines laid  down in the new Fina ncial Regulation, its 
Implementing Rules and any other relevant guida nce on the delivery of financial instruments. 
Exit strategies 
During 2013 the performance of the pilot phase will be known as we ll as the parameters needing 
adjustment in order to properly address project financing needs. As regards CEF instruments, 
based on the mid-term evaluation, the Commission and EIB would asse ss whether there is still a 
market requirement to continue the scheme after 2020 (subject to political agreement). 
Alternatively, given that ther in itiative is market driv en, the price of the support mechanism could 
simply be raised until the point when project companies choose to obtain an unsupported bond. 
Any exit strategy would also need to make clear  under what provisions the foreseen budget could 
be re-allocated to other financia l instruments within the CEF. 
 
EN 32   EN Annex I: Public consultation  
The consultation paper was launched on 28  February 2011 at a press conference by 
Commissioner Rehn and President Ma ystadt and subsequently made available on the website of 
the DG for Economic and Financial Affairs. In a ddition, it was sent out to  numerous stakeholders 
directly and a mid-term conferen ce took place in April. It t hus benefited from the maximum 
publicity possible. The consu ltation phase ended on 2 May 2011. 
The paper posed seven questions, to which stakeholder reactions will be described first. 
Additional stakeholder concerns will be discussed thereafter. 
Questions  
Question 1: Is the chosen mechani sm likely to attract private sect or institutional investors to the 
sectors of transport, energy and ICT in particular? If you are an investor, would you be prepared 
to buy project bonds of TEN-T and TEN-E priority projects? 
Most stakeholders were of the view that the sche me would help attract pr ivate sector investment 
to the three sectors mentioned, although some stakeholders saw less potential for broadband 
investment. This appears to be mainly due to the past low volume of project finance in this sector. 
However, PPP deals are currently been put togeth er with the debt component financed via bank 
loans. 
Commission remark: 
This is a very positive verdict overall. In some cases, it may be necessary to introduce new ways 
of thinking about financing inve stment, which has traditionally been financed on a corporate 
balance sheet. However, this is an educational process, the success of which can be evaluated in 
terms of projects financed. 
Question 2: Are there other sect ors that should be included? 
Numerous stakeholders, among them  investors, sponsors and fina ncial institutions, suggested 
including more sectors in the initiative in particular  
– low carbon generation capacity with renewables  being mentioned more frequently than 
nuclear capacity  
– the water sector (supply and treatment) 
– social infrastructure 
Some others considered renewables too immatu re generally, although this judgment must be 
refined to distinguish between establ ished and less proven technologies.  
Few stakeholders involved in fi nancing infrastructure were in favour of the narrow sector focus 
suggested by the Commission, altho ugh it was felt to be helpful in terms of investor and sponsor 
 
EN 33   EN focus. One policy think tank strongly advocated an  even narrower focus in order to ensure that 
investment would not be redirected away from the completion of core networks and compliance 
with subsidiarity concerns. 
Commission remark: 
The Project Bond Initiative will in itially focus on the core networ ks of the transport, energy and 
ICT sectors, where the EU-wide impact is most clearly seen and EU value-added most clearly 
defined. 
However, it will leave open the possibility of adding the water sector and low carbon generation 
which will facilitate the adaptati on and mitigation of climate change and is thus in line with the 
goal of creating a sustainable European economy, while meeti ng the greenhouse gas emission 
reduction goals. 
It should also be borne in mind that projec t bonds will not be the only EU-supported means of 
financing in the area of infrastructure. Indeed, th e Initiative is intended to complement traditional 
instruments using grants or supporting equity and risk sharing mechanisms for loans. These 
instruments will be covered under a general instrument for infrastructure investment currently under preparation by MO VE, ENER and INFSO. 
Furthermore, there will be a comprehensive network in addition to the core network. This will be 
defined with the input of the European Comm ission and which will, where appropriate, be 
financed by national funds and structural funds a nd which will be able to use a similar range of 
instruments. 
Question 3: Would the guarantee facilitate/accelerat e the conclusion of financing packages? 
Here it is actually necessary to distin guish between facili tating and accelerating. 
Most stakeholders were of the view that financ ing would be facilitated due to the more solid 
structuring of the project. Th e verdict on acceleration was more mixed as some thought the solid 
structuring would also help here, while others sp eculated that the inclusion of at least one more 
actor, in the form of EIB, and possibly more, in the form of one or more rating agencies, in the 
process would lengthen the time needed  to conclude a financing package. 
Commission remark: 
The EIB will do its utmost not to be the cause of a delay. As for other actors, this is not for the 
Commission to comment. However, it is of cour se conceivable that, on ce the facility and its 
conditions are well-established and -known, certa in standards develop which will accelerate 
processes. 
Question 4: Is a credit enhancement of 20% of outstanding senior bonds sufficient to cover the 
construction and operational period?  
 
EN 34   EN Only one sponsor felt that 20% of credit enhanc ement might be on the low side (coincidentally 
this sponsor also suggested riskie r projects for inclusion in the initiative), while  all others deemed 
the degree of credit enhancement likely to be sufficient although it would clearly depend on the project. 
Tranching, i.e. the 20% must be s ubordinated, is seen as crucial to  have the necessary effect on 
ratings. 
Commission remark: 
The EIB has based its assessment of the 20% on  extensive modelling as well experience gained 
operating the LGTT. The three major rating agencies have all issued special reports or comments, 
saying that they expect a subordi nated tranche of this size to improve the credit quality of a 
project sufficiently given the right conditions. 
Question 5: Is the targeted minimu m rating of the bonds of A- in your  opinion sufficie nt to attract 
investors or are there other factors influencing the investment decisions? 
A rating of BBB or BBB+ wa s widely regarded as sufficient, but  as was repeated ly pointed out, a 
rating around A gives access to a broader inve stor universe, depending on jurisdiction.  
It was felt that this rating w ould be achievable, although the usual practice of some rating 
agencies to use the sovereign ra ting as a ceiling for all ratings in  a given jurisdiction may cause 
problems. Two ratings were seen as  preferable, but one would suffice. 
Several investors stressed that they do not merely  look at ratings, but also at the general legal 
framework of the jurisdiction of the project, the exact contractual arrangements as well as the 
quality of the financial package. 
Commission remark 
Considering factors other than rati ngs are clearly vital in forming a clear opinion of a project. The 
Initiative, by seeking to create a new asset class,  intends to make it worthwhile for investors to 
conduct such analysis and devel oping the necessary expertise. 
Question 6: Which impact would the Initiati ve have on financing costs and on maturities? 
It is generally expected that the initiative will reduce the overall cost of  capital or at worst be 
neutral, while resulting in a lengt hening of maturities offered to pr ojects, so they are more aligned 
with the terms of the concession or contract.  
Nevertheless, sponsors are worried about nega tive carry as the full financing amount is 
drawdown at the outset rather than in phases as  for a bank loan. Some also feared that bond 
financing would prove less flexible . Investors, of course, favour le ss flexibility, so they can plan 
reinvestments appropriately and will already have to became more familiar with amortising maturity structures, where repayment is not at one future date, but spread over several dates. The encouraging message was that they are generally pr epared to be more flexible than is normally 
 
EN 35   EN assumed: they can handle or will learn to ha ndle amortisation structures and they will put 
together the teams necessary to an alyse a new investment class, if  they are convinced of its long-
term existence and viability. 
Some investors saw the possibility of inflati on-linked bonds as an advantage and some sponsors 
do indeed have projects with in flation-linked revenue profiles. 
Commission remark: 
Clearly the Initiative will have to produce funding that is at onc e competitive with bank loans, 
while offering investors a return sufficient to compensate them for th e structure of the bond.  
At the same time, it should open up possibilities in terms of maturities and repayment options that 
have their own intrinsic value. 
Question 7: Is it essential that a single entity acts as controlling creditor? 
Most stakeholders saw one contro lling creditor as essential, espe cially during the conclusion of 
the financial package and the construction phase, wh ere speed is of the essence. Investors seemed 
open to which entity should perform such tasks, as  long as the entity has the appropriate skills 
and experience and interests are appropriate ly aligned with that of investors. 
The need for transparency in the form regular re porting to investors, idea lly on a quarterly basis, 
was also felt to be crucial. 
Commission remark: 
The Commission keeps an open mind on this issue. 
Further feedback  
There was general support for a ny reasonable solution, and the proj ect bond initiativ e was felt to 
be one, to support capital market financing of infr astructure as this was seen as crucial to the 
development of Europe's economy. It was also felt that the initiative could act as a catalyst for 
other solutions, whether on the market or to be developed, which would easil y co-exist in view of 
the vastness of the market with  no risks of crowding out of one by the other as approaches are 
sufficiently diverse to suit the di verse requirements of investors. 
Views on which size of project is appropriate fo r bond funding varied widely with quoted ticket 
sizes per investor varying from EUR 20 million to EUR 100 million, which would translate into 
deal sizes ranging from EUR 50 to EUR 250 million, assuming a mi nimum of two investors.  
Commission remark: 
Investor rules differ widely, so it is conceivable that there is a market for all ticket sizes  
 
EN 36   EN Funded versus unfunded facility 
There was a general preference for the unfunded facility, which was widely seen to be more 
efficient and more flexible in terms of being able to reduce the fac ility post-construction.  
A minority preferred the funded so lution as more pedagogical in terms of forcing investors to 
analyse deals as well as simpler and more transpar ent. Others advocated flexibility, even allowing 
funded and unfunded facilities to be used in the same project. 
Pricing 
It was suggested by one stakeholder that pricing for the facility s hould be composed of an upfront 
and a running component with a view to not disc ouraging the use of the instrument. However, it 
should also be made sure that the guarantee woul d continue even if the running fee were not paid. 
Another stakeholder suggested that  the price should be proportionate  with the cost saving to the 
company in order not to distort competition. 
Commission remark: 
Ad 1) Having a substantial running fee, while dema nding coverage if it is not paid would seem 
incompatible. A 100% upfront fee will therefore be considered. 
Ad 2) The intention is that pricing should reflec t the risk of a project. Unless financial markets 
are deliberately distorted, this should normally mean that prici ng is related to the cost saving. 
Refinancing 
Using the scheme for refinancing was supported by some banks, which saw it as a simpler way of 
introducing project bonds to invest ors as well as poten tially providing financing on reasonable 
terms to projects that will otherwise be facing step -ups on current loans or refinancing of their 
bank loan at current high rates. The latter concer n was also cited by some legal firms. Others felt 
this would complicate the message of the sche me and perhaps become the default option.  
Commission remark: 
Form an EU-EIB perspective, offering bond solutions at the refi nancing stage would accelerate 
the building up of a portfolio. None theless projects need financing from the outset and this should 
be the initiative's priority. 
Procurement  
Practically all stakeholders conf irmed that the procurement proce ss and its obstacles in terms of 
requiring fully funded and committed fixed price offers to a tight timeline generally does not favour or even allow bond solutions. Naturally, th e process differs across Member States, but in 
general the demand was that the procurement pro cess should be more flexible to allow bond 
solutions with their different benchmark, vol atility of spread and timing requirements. 
 
EN 37   EN Commission remark 
As discussed in the impact assessment, there seem s to be a number of wa ys in which to address 
this problem, which therefore does not seem insurmountable. 
Other regulatory issues: Solvency II, CRD 
Most investors cited Solvency II as a main obstacl e to investing in longer-term, lower-rated assets 
as such bonds would attract higher capital charges,  although some actors are of the view that the 
regulation favours the longest-term assets, sinc e capital charges increase no further beyond a 
certain point. 
Insurers are at different stages of advancem ent regarding implementation of the Solvency II 
directive. Few players have a clear idea of whether the increased capital in this area will be more or less offset by the capital relief from better asset-liability matching or more diversification of assets, both of which could benefit infrastructure. It is to be hope d that more information will be 
available as insurers get closer to implementati on, but it is unlikely as th is could lead to the 
disclosure of commercially sensitive information. The matter is further complicated by the fact 
that insurers may be permitted to use their own models. 
As a result, there are no pertinent studies with suffi cient detail from insurers' associations nor has 
the Commission itself conducted one. 
Some conference participants also  advocated lower capital requireme nts for infrastructure assets, 
in view of the lower default ra tes and higher recovery rates doc umented by several studies by the 
rating agencies. 
A few banks were worried that  project bonds could fall under the ABS regulation of the CRD, 
indeed many investors would cover infrastr ucture from the ABS desk directive  
Commission remark: 
See section 6.3 of the impact assessment.  
Statistical treatment 
The need for clarification of the EUROSTAT sta tistical treatment of projects benefiting from a 
support facility was emphasised by several actors. Th is is of course of particular importance in 
countries with a high deficit. 
Commission remark: 
This shows how much the market needs reassurance.  It should be clear that an EU-EIB guarantee 
of 20% will not be classified as  the public sector debt of a ny country and the rest of the 
classification process does not change, i.e. it lo oks at the allocation of risks between the national 
public sector and the private sector. However,  availability based projects may still be 
consolidated if there is insufficient transfer of risk. 
 
EN 38   EN Other ideas:   
Stakeholders also made several practical propo sals for additional ways to support the project 
bond market including the creation of appropriate benchmarks for investors, market making by 
banks and development of trading platforms. These are questions that can be st be addressed in a 
more mature phase of the Initiative, when se veral bonds have been issued. Other suggestions 
involve EIB guaranteeing the price of a bond in one way or the other, which would potentially be 
highly distortionary of markets. Finally, some proposals such as ta x incentives for infrastructure 
investment are the remit of individual Member States.  
 
EN 39   EN Annex II: Past EU experience with financial instruments  
The initiative builds on the techniques employed by the two successful risk-sharing instruments, 
Risk-Sharing Finance Facility (RSFF) and Loan  Guarantee for TEN-Transport (LGTT) during 
2007-2013 and the lessons learned from their implementation. The RSFF, in particular, is seen as having dramatically expanded finance in the area of research, while the LGTT has helped 
infrastructure deals, which would otherwise ha ve been abandoned, reach financial close during 
the crisis. 
The mid-term reports are attach ed as Annex IIa and Annex IIb. 
 
EN 40   EN Annex III: Past and future infrastructure financing  
(1) Public sector financing in the past 
In recognition of this, most infr astructure projects were finan ced from public budgets until the 
1980s. However, from then onwards  privatisation was increasingl y seen as a way to ensure 
efficient implementation of projects in terms of both time and costs. Transport operators, utilities 
and telecommunications companies were sold off to varying extent in different countries and 
decided on new investment.  
As the complete transfer of all rights, responsibilities and risk to the privat e sector was found to 
have unintended consequences in some cases, the hybrid model of public -private partnership 
(PPP) developed in addition to existi ng public or private regulated models. 
This shift from public to private financing partly  explains the drop in pub lic sector investment 
seen in the past. However, . in the main impact  assessment text, public sector financing remains 
important. 
Finally, the European Regional Development Fund has made a major contribution to the 
development of infrastructure. For example in 2000-2006, EUR 34 billion or 28% of the total 
budget was allocated to transport. 
(2) Public sector financing – current and future trends 
In the context of the economic and financial crisis, governments have enacted substantial 
stimulus packages in addition to injecting capita l into the banks worst affected by the financial 
crisis. This has brought deficits and debt to unpr ecedented levels and public budgets will remain 
constrained as consolidation follows crisis as illustrated in Figure 1. 
 
EN 41   EN Figure 1 – Fiscal adjustment re quired until 2020 to reach a 60%  public debt/GDP ratio by 2030 
(as a percentage of GDP) 
-5.00.05.010.015.020.0
IE EL UK MT SI ES FR IT NL HU EU27 AT BE DE2010 baseline 2012 scenario (COM forecast) Programme scenario (SCPs until end programme)Cumulated budgetary effort required until 2020 to reach a 60 debt/GDP ratio by 2030
(% of GDP)
 
-10.0-8.0-6.0-4.0-2.00.02.04.06.0
SK RO CY LT PL CZ LV LU EE FI DK SE BG PT2010 baseline 2012 scenario (COM forecast) Programme scenario (SCPs until end programme)Cumulated budgetary effort required until 2020 to reach a 60 debt/GDP ratio by 2030
(% of GDP)
 
Source: Commission services.  
 
EN 42   EN (3) EIB financing volumes 
As a response to the financial crisis, similar to other multilateral development banks, the EIB 
increased its lending volumes. The table below shows a breakdown of the EIB lending volumes 
per year and per sector since 2007: 
EIB lending volumes  
(EUR bn) 2007 2008 2009 2010 2011 (to 08/2011)
Transport 11,5 14,9 17,5 14,5 9,2
Energy 6,5 9,2 11,1 14,6 5
Broadband 1,5 1,4 2,3 1,3 NA
Total 
Transport/Energy/Broadband 19,5 25,5 30,9 30,4 14,2
Total EIB lending (all sectors) 47,5 57,8 74,8 72 33
The table below shows a forecast based on th e corporate operational plan of the EIB: 
EIB lending targets (EUR bn) 2011  2012  2013  
TENs (transport+Energy) 9,8 8,6 8,5 
Energy 10,8 9,5 10,8 
Telecommunications TBC TBC TBC 
Total 
Transport/Energy/Telecom TBC TBC TBC 
Total EIB lending (all sectors) 57,6 50,6 49,6 
(4) Private sector financing – why PPP? 
Under a PPP arrangement, the public sector author ity moves from being the owner and operator 
of infrastructure to be ing a purchaser and regul ator. The private sector  finances, supplies and 
manages the assets and/or services36 usually through a dedicated project company. Most 
definitions point to the following key characteri stics: private execution and financing of public 
investment, service provision by th e private sector and risk tran sfer from the public sector 
authority to the private sector. Th e private sector keeps the revenue  from user charges (i.e. toll 
roads) or "availability payments", payments fr om some level of government that depends on the 
availability of the service.Howeve r, delivering infrastructure serv ices through PPPs is not without 
risks. The benefits of private sector partic ipation and PPP depend on several factors, ranging 
                                                 
36 Inderst, OECD 
 
EN 43   EN from correct identification of the most effici ent bidder to appropriate risk sharing and the 
contractual relationship established with a pr ivate partner. Furthermore, when PPPs are 
inappropriately used to circum vent budgetary constraints, they  present risks to government 
budgets by creating contingent liabi lities. It also has to be em phasized that success of a PPP 
project depends strongly on the structure of the c ontract and project itsel f. Thus technical and 
economic feasibility of the projects is highly import ant in order to ensure that existing resources 
are targeted to where they are most effective and needed. 
The discussion about which risks to transfer has been a constant accompaniment, both because of 
the private and public sectors arguing over which is  better equipped to manage certain types of 
risks, but also, in the EU, due to Eurostat rule s on the classification of PPPs for the purposes of 
public sector debt and deficit figures. 
The advantages are seen in terms of greater di scipline in ensuring that  only viable projects go 
ahead and in terms of efficiency gains from private sector management and innovation. These 
efficiency gains must outweigh the additional cost of capital of  the private sector and the 
complexity of the PPP contracts37.  
(5) Private sector financing in the past 
With some variations between Member States, th e financial market mode l of the EU has been 
dominated by banks rather than by capital markets as in the US.  
Bank lending has been the traditional route of PPP financing in Europe for several reasons: 
– Banks' willingness to lend long-dated on attractive terms, 
– Banks' ability to assess the risk of the project  often coupled with detailed knowledge of 
the project sponsor 
In the 1990s, a form of capital market financin g developed. However, it  depended on specialist 
insurers, the so-called monoline insurers38, which guaranteed the timely payment of 100% of 
interest and principal of the infrastructure bonds. The resulting "wrapped bonds" had a rating of 
AAA, reflecting the rating of the monoline and allowing investors to  ignore the characteristics of 
the underlying project. In addition, the monolines  monitored the underlying project on behalf of 
investors. This provided competition in the funding market with banks and monolines competing on terms.  
As a result of the crisis and a ssociated losses on their subprime business, most of the monolines 
were downgraded to varying degrees and since their business model depended on “lending” their 
rating to the bonds they wrapped, this in most cases undermined their business model. Only two monoline insurers are still active in the market, but  for much smaller amounts (see next section). 
Although the infrastructure bonds they had wrapped remained sound, this has at least temporarily 
spelled the end for new large sc ale infrastructure bond issuance.  The few bond issues since 2008 
                                                
 
37 Indeed this is one reason why the UK has limited the minimum size of PPPs to GBP 21 million  
38 Because they had only one line of business: financial insurance. 
 
EN 44   EN have been unguaranteed, generally small (less than EUR 100 million usually) and generally 
refinancings, i.e. done to replace initial ba nk loans once the operational phase is reached. 
 
(6) Private sector financing – current and future trends39 
While pre-crisis institutional financ ing was invested through project bonds  directly into 
infrastructure projects with monoline credit enhancem ent, market participants will continue to try 
to create multi-investor debt or  credit enhancemen t funds or find structured  products that can de-
risk senior debt. However, this activity is only a niche market.  
Insurance solutions 
One monoline insurer still underwrites new business, including infrastructure as it has only been 
downgraded one-two notches by the major ratin g agencies. The basic product remains a 100% 
guarantee, i.e. a full "wrap" with the attach ed monitoring services, although some of the 
provisions pertaining to informati on flow have been modified to respond to investor demands for 
more transparency. Nonetheless, as the comp any has become more cautious and the business 
environment more challenging, deal sizes are smaller than before the crisis.  
Monitoring solutions 
Another active monoline insurer is focusing on offering a monitoring service, which has been 
created in response to in vestor demand and after extenisive ma rket analysis. The tasks range from 
providing advice and due diligence during stru cturing as well as monitoring, reporting and 
decision-making after financial close of a tran saction. The service w ould be available to 
investment grade bonds from pre-construction to completion. If required to  align interest, the 
company will provide a partial guarantee of 10% maximum. 
                                                 
39 See also the impact assessment on Connecting Europe Facility, Annex 4. 
 
EN 45   EN Asset managers have approached the same pr oblem differently: they offer a package of 
investment in and day-to-day management of  corporate debt structures. The management 
includes detailed analysis and monitoring, repres ents investors on steering committees and has 
the expertise to restructure investments. This relieves clients of the often complex and time-consuming decision-making.  
Rating support solutions 
While the insurance solution clearly improves th e rating of the underlying debt, the monitoring 
solutions do not. Hybrid solutions, where a subordina ted tranche is used to improve the rating of 
the remaining debt are also being set up, however  getting the structuring right is challenging. 
While such packaging can be done on a project-by- project basis, several projects can also be 
bundled into a fund. The fund can then offer one or several cla sses of shares to investors, each 
reflecting a different part of the debt structure an d sell other tranches in the market, potentially in 
the form of bonds. 
Such solutions share some of the issues of pr oject bonds. For example, as structuring entails 
additional fees, it is likely to be more effi cient for larger projects or companies.  
Equity
 
Despite the financial crisis, infrastructure funds  have successfully continued their fund raising. 
The funds have succeeded in raising 16 new funds in 2010 in EU with a to tal target size of EUR 
6 billion. This brings the cumulative number of in frastructure equity funds  actively raising capital 
to 47 with an overall investment capacity of around EUR 23 billion40. In fact, many project 
sponsors have started setting up funds, to which th ey sell their mature, st able assets. However, 
greenfield and long-term investme nt in infrastructure sectors remain problematic due to the 
additional risks during the constr uction phase and the reluctance of equity funds to wait longer 
than five to seven years to see a proper return41. The availability of equity will not be discussed 
further in this Impact Assessment, but will be addressed in the context of the implementation of the Connecting Europe Facility.  
Debt funds
 
A few debt funds have been crea ted recently in Europe which will primarily aim to provide 
subordinated debt for infrastructure project s across the globe. An example of a credit 
enhancement fund is Hadrian’s Wall with a target  size of around EUR 1 b illion, which will use a 
subordinated debt tranche to enhance the rating of  the project debt and se ll it to capital market 
investors. As with all subordinated debt, the fund acts as a first loss compone nt of a transaction, 
and this helps to enhance the credit rating of th e project by shielding the senior debt and equity 
from a certain amount of revenue risk.  
                                                 
40 $33 billion, exchange rate of June 2011, Preqin data. 
41 A notable exception is Meridiam, which has a 25-year horizon, and the Marguerite fund, in which the 
European Commission has invested EUR 80 million al ongside EIB, Caisse des Depots, Cassa Depositi e 
Prestitii and PKO Bank. 
 
EN 46   EN Outlook  
All of these abovementioned designs contribute to the financing of th e TENs infrastructure. 
However, so far they do not have the scale to  address the enormous investment needs in the 
coming decade and do not remedy the underlying market imperfections. Also, greenfield structures, in particular, have  always required more support fr om public sources than more 
straight-forward br ownfield projects. 
As described, two monolines contin ue to provide to soma extent their previous services although 
for reduced nominal amounts
42 or as a smaller percentage of the overall debt accompanying a 
monitoring solution. 
The business model of the other monolines, as well as their ratings, depended to some extent on 
the regulatory structure in the State of New York , which permitted them to hold minimal capital. 
However, New York has changed its approach and it is therefore unlikely that any of the 
monolines that have effectively exited the market will reappear and equally unlikely that new players will appear in that same format. 
At the same time, bank lending, the dominant elem ent in project finance, had already dropped in 
the context of the crisis. According to market part icipants the liquidity of the market at the long 
end of the maturity spectrum (20 years at present) is barely enough for a single large 
infrastructure deal or alternatively for competi ng bids on a medium-sized one and comes at a high 
price in terms of spread. In future, to face stru ctural challenges are likel y as banks re-assess risk 
and match their assets and liabilities more closel y. The effect is that loans will be scarcer, 
available for even shorter maturities and at higher spreads than before.  
In addition, unregulated util ities have, to quote Moody's
43, "utilised a significant amount of their 
original debt capacity", while regulated ones typically face very unattractive incentives for anything that goes beyond incremental investment.  
                                                
 
42 It must be noted that the infrastructure business of the monolines was not th e cause of the downgrade. 
43 Moody's Special Comment "Unregulated European Utilities: Investment & political risk add to note of 
caution, 29 July 2010. 
 
EN 47   EN Annex IV: The general economic and social case for infrastructure investment  
Infrastructure has long been regarded as a key enabling fa ctor for future growth and 
competitiveness of an economy as  it links economic actors toge ther. However, such indirect 
network-type benefits are more di fficult, if not impossible, to ca pture in the form  of monetary 
returns on invest ment compared with direct effects. Inve stment in infrastruct ure is therefore at 
a level that is sub-opti mal from the point of view of th e economy and society at large.  
Direct effects  
Infrastructure projects create jobs directly, espe cially during the construction phase, but also for 
maintenance and provision of linked se rvices during the operational period. 
Indirect effects  
Infrastructure is characterised by positive external ities as it has benefits beyond its direct use, 
which accrues to beneficiaries other than the owners of the asset. Indeed infrastructure can be considered an unpaid factor of  production, an augmen ting factor and an incentive for relocation
44. 
At its simplest, connecting two points, that were not connected before, opens the possibilities of 
new ways of routing traffic, energy or informa tion which are likely to have dynamic, follow-on 
effects.  
Several papers have found a clear positiv e effect of infrastructure investment45, while others have 
presented a more mixed picture, which nonethele ss points to positive effects in the long run, even 
though they are perhaps smaller46. 
Thus, ceteris paribus, the more of the ri ght kind of infrastructure, the better. 
In addition, infrastructure may help th e EU meet its climate change goals: 
The main focus in the area of transport and en ergy will be on TEN projects rather than local 
projects in order to remove bottlenecks and wast e to yield more efficient transport and energy 
networks. This will support the move towards a resource-efficient and low-carbon economy by 
providing the networks needed to accommodate low-carbon transport modes and low-carbon 
power generation. Whereas small local projects will continue receiving financing from structural 
funds and other financial instrume nts dedicated for that purpose. 
Broadband is a genuinely transformational technology in that it supports the move to an e-driven 
economy where more transactions and work take place via the internet rather than in person. In that sense, the impact of communication tec hnology on the mobility of goods and people and in 
creating new location factors as sources of competitive advantage is perhaps not yet well 
                                                
 
44 Crescenzi & Rogriguez, EIB Pape rs Volume 13, Volume 2 (2008) 
45 Aschauer (1989): The Impact of Road Infrastructure on Productivity and Growth: Some Preliminary Results 
for the German Manufacturing sector, CIG Working Papers 
46 EIB Papers, Volume 13.  
 
EN 48   EN understood47, but is likely to be significant. For instance, the Monti report48 put the cost of "non-
digital Europe" at around 4% of GDP or almost  EUR 500 billion. This would be the gain of 
stimulating the fast development of the digital single market by 2020 and is similar to the impact 
of the 1992 internal market programme. 
Greenfield projects show the hi ghest deviations between initial  forecasts and actual operational 
performance as it is harder to forecast their use than e.g. that of the extension of an existing 
project, for which historical data exists. 
Bearing in mind the indirect eff ects and the imperative of the tr ansition to a low-carbon economy, 
it is in the general public interest  to move towards the optimal allo cation of resources in this new 
economic equilibrium as quickly as possible and at  the least cost to the economy and tax payers 
at large. The acceleration of financing would assist  this, but is not independent of the projects. 
                                                 
47 Crescenzi & Rogriguez, EIB Pape rs Volume 13, Volume 2 (2008) 
48 Monti report p.44 
 
EN 49   EN Annex V: An illustrative project example  
The following is an illustrativ e and simplified example of how  the Europe 2020 Project Bond 
initiative could function at the le vel of the project and capital market  investors. It should be borne 
in mind that the intention is to support capital market financing of  projects as an alternative to 
loan financing, not to replace other sources of financing, such as gran ts, nor to affect stages prior 
to financing, such as feasibility studies, assessmen ts or procurement, where grants are also widely 
used.  
A transport project, such as a section of railw ay, is planned by a group of companies (sponsors) 
and tendered by public authorities. The sponsors create a project company to raise the financing, construct and operate the railway for a period ag reed with the public authorities. The sponsors 
provide own funds to the project company in th e form of equity and shareholder loans. The 
remaining financing is raised by the project company in the form of debt, tr aditionally in the form 
of a bank loan.  
Project financing model
Loans
EquitySponsor(s)Special entity
Bank(s)
 
Instead of financing debt using traditional bank lending, the project company could raise the 
senior debt through project bond issues with long maturities. Capital market investors would buy 
the bonds if an investment grade credit rating, preferably at least A-, could be achieved. 
Under the Europe 2020 Project Bond initiative, the EIB would provide  a loan or guarantee (EIB 
facility) to the project company in order to rais e the likelihood of a timel y repayment of principal 
and interest to bond holders during the lifetime of  the bonds. The EU would enable the EIB to 
provide such a facility by shari ng the risks with the EIB. In ot her words, the EU would use EU 
budget to pay capital contributions  to the EIB to cover a portion of the risk the EIB incurs.  
The facility could cover all project-related risks a ffecting the cash flow generation from the start 
of the operating period, as well as any funding s hortfall during the construction period. It would 
be sized project by project as  a percentage of total bond  funding subject to a cap, for instance 
20% of the overall senior debt and could take fo r example the form of a credit line which could 
 
EN 50   EN be drawn upon either to service senior bonds or to meet fundi ng shortfalls during the construction 
phase.  
Project bond initiative
Subordinated debtSenior
debt
in form of
PROJECT
BONDS
EquityEIB
EUCompany 1
Company 3Company 2SP
VProject Bond
Guarantee Facility
Risk 
sharingInvestors 
buy or underwrite
 
Once drawn upon, the EIB facility would take the form  of subordinated debt. This debt would be 
reimbursed by the project company over time from the cash resources available after senior debt service, but prior to payments to equity and related financing (shareholder loans, other subordinated loans). As the EIB facility is re volving and available during the lifetime of the 
bonds, it may be drawn upon and repaid, and later drawn upon and repaid again. It is foreseen 
that the available amounts w ill amortise according to the am ortisation schedule of the bonds.  
 
EN 51   EN Annex VI: Detailed design and risk-sharing  
1. General principle 
As illustrated in the the example in Annex V, projects are financed using equity and debt.  
The sponsors provide equity of typically 10-20% of the project value. The project bond initiative 
employs standard structuring techniques to divide  the project debt into a senior tranche and a 
subordinated tranche49, which is in turn senior to equity. The subordinated tranche may either be 
in the form of a subordinated loan given to the company at the outset, i.e. it is funded, or it may 
be in the form of a contingent credit line, whic h the company can draw on in case of need, i.e. it 
is unfunded. Once drawn upon, the credit line become s a subordinated tranche. The key to the use 
of project bonds is that the revenue of a project can be sufficiently ring-fenced. 
The funded version has the advantag e of requiring less senior de bt; the unfunded solution has the 
advantage of being more flexible, i.e. if there is no need to draw the project has no additional 
obligations beyond paying the fee for having the guarantee available. A mix of a funded and 
unfunded tranche could also be envisaged.  The precise support would depend on the 
characteristics of the project. 
In either case, the presence of a (contingent) su bordinated tranche, whic h has a lesser claim on 
the project's resources than the senior debt, improves the risk profile of the senior debt. 
Concretely speaking, the probability of default and the loss given defau lt both decline. This 
increases the attractiveness of the senior debt to  investors, as expressed e.g. by a credit rating, 
allowing the senior tranche to be issued as a bond. Note that it is not intended to allow the project 
sponsors to reduce their equity stake. 
2. Degree of credit enhancement 
The desired credit quality can be  generally described as one r eaching a rating of BBB+ or above. 
Larger projects are likely to need a higher ratin g of e.g. single A, while smaller ones may not. In 
additional, the required credit quality may also depend on the identity of the sponsor(s), the 
source of revenues and other factors.  
Achieving this is likely to requir e a subordinated tranche of up to 20% of the senior debt of the 
project. This figure is based on Monte Carlo simulations50 of the project under a variety of 
revenue scenarios. In addition, it is la rgely in line with LGTT experience. 
                                                 
49 The senior debt has priority rights to the revenue of the project company during normal operations and to its 
assets in the event of bankruptcy, while subordinated investors are paid off afterwards, but before equity 
holders. 
50 Monte Carlo simulation is a method for iteratively evaluating a deterministic model using sets of random 
numbers as inputs. This method is often used when the model is complex, nonlinear, or involves more than just a couple of uncertain parameters. Simulation is based on probabilities of certain events. 
 
EN 52   EN 3. Pricing of subordinated tranche 
A price for the support is justified as it produces a gain to the borrower in the form of the project 
company. Indeed, the absence of a price would represent a subsidy and would distort markets 
heavily in favour of a few project  sponsors, while not ensuring alignment of interests between the 
EU, the financial intermediary and the project company. On the other hand, the price should not 
be so excessive as to disc ourage use of the scheme.  
Pricing below costs can only really be justified due to wider societal benefits and increased 
expected uptake, however , even in that case th e fee should reflect the risk of the individual 
project. In order to avoid any element of subsid y, the price should also c over costs in addition to 
reflecting the risk of the projec t, the proposed financing package and the sponsor(s) even though 
this will entail that the support may not be offered to all players at the same price. The EU will 
ensure that any financial partners have an appropriate pricing met hodology, which may be based 
on historical data or option prices if ava ilable, on the expected cost plus a margin51 or other 
appropriate data. 
In the case of the unfunded option, it is likely to be a combination of an upfront fee plus annual 
payments thereafter, while in th e case of the funded option the pr ice would be expressed as the 
interest rate margin applied to the loan. 
4. Issues associated with the managing/controlling creditor role 
By their very nature, large complex infrastructure projects rarely progress exactly according to 
plan.  
This requires investors to make numerous deci sions (waiver requests, changes to technical 
specifications) on a daily basis, especially in th e construction phase. Sinc e most investors do not 
have the experience or the capacity to handle th e volume of requests in a timely manner, most 
investors choose to delegate this function to a third party. This "managing creditor" monitors 
general financial and construc tion performance and may make routine day-to-day decisions 
linked thereto, which also has the virtue of simplifying the communication with sponsors and 
authorities.  
If a project goes badly, a decisi on on acceleration of the debt or termination of the project may 
have to be made. Investors may choose to make these decisions themselves or to delegate the 
function to one or more "controlling creditors".  
The exact responsibilities are dealt with in appr opriately formulated "int er-creditor agreements" 
as they may be different from deal to deal. 
While the EIB will certainly have to monitor a project and represent its and the EU's interests, the 
Commission encourages creditors to find mutua lly suitable arrangements to accommodate all 
parties requirements. This may or may not includ e appointing EIB or thir d parties to carry out 
                                                 
51 UNEP-SIF 
 
EN 53   EN some functions on behalf of all cred itors, but in no case does it free  those creditors entirely of the 
need to do their own due diligence analysis to  satisfy themselves th at the project is sound. 
5. Risk-sharing between financial partners and the EU 
To ensure rapid implementation, the pilot phase would be entrusted to EIB, the EU bank and 
therefore this section is drafted with reference to established arrangements with EIB. In the operational phase post-2013, the initiative would al so be open to other financial partners, 
although the exact implementation w ould naturally have to be disc ussed in the context of the 
mission and remit of these financial partners.  
Lending or contingent lending at the subordinated level in orde r to support and leverage the 
senior debt is riskier than a standard senior loan. To some extent this is mitigated by the fact that 
the financial partner's exposure to the capital stru cture is smaller, maxi mum 20% instead of the 
usual 50%. Nonetheless, if the EU wants to achi eve its objectives of increasing infrastructure 
financing and developing capital markets it woul d seem reasonable to compensate the financial 
partner for some of the extra risk taken. 
Conceptually there are two main wa ys in which this could be done 
• on a pro-rata basis (vertical risk sharing) 
• on a first-loss, second-loss etc. ba sis (horizontal risk sharing) 
Under pro-rata risk-sharing all losses are shared  project by project on a fi xed percentage basis. 
Horisontal risk-sharing on the contrary attributes specific loss events to the risk-sharing partners.  
A first loss approach w ould involve the EU absorbing the fi rst losses (i.e. from 0%) up to a 
certain pre-agreed percentage and maximum amount on a portfolio. The percentage would 
typically be set at just above the historical average loss, whic h can be modelled from previous 
lending of the financial partner in  the sectors and should thus be  fairly reliable. A second loss 
guarantee would have to cover all losses exceedi ng a certain percentage of the portfolio up to 
another fixed percentage.  
Simply put the “first losses” are more likely to oc cur than losses above a specified level, therefore 
carving out these for support would optimise the multiplier effect of EU budgetary funds as it 
provides the most efficient guarantee in terms of total guarantee liability versus size of portfolio. 
Therefore it yields the maximum benefit to sponsors and ultimatel y tendering authorities and tax 
payers with the least amount of funds. 
The pilot phase would initially apply either on ve rtical or horisontalrisk  sharing. The Commisison 
will agree the appropriate risk-sharing method with the EIB. 
However, with a larger number of projects, portfolio diversifi cation comes into play. This may 
make it advantageous to use the risk-sharing arrangement as fist-loss type risk-sharing, 
particularly in the fu lly operational phase from 2014 or if and when robust demand for the 
scheme calls for a wider roll-out. The maximum risk-sharing percentage can be revised based on 
 
EN 54   EN the properties of the portfolio which will have been built up at that stage. The financial partner 
would in any case retain a 5% share of the firs t loss piece as well as c overing the residual risk 
beyond the first loss. This will ensure alignment of interest between th e EU and its financial 
partner(s). 
 
EN 55   EN Annex VII: Other issues potentially affect ing the success of the project bond initiative  
Although the objective of the projec t bond initiative is to remove sp ecific financial barriers, it is 
clearly desirable to ensure an overall regulatory framework that is conducive to investment in 
infrastructure. A number of issues related theret o are covered below. Op tions to address these 
issues, if necessary, will be a ssessed in the light of experien ced gained in the pilot phase. 
Solvency II 
Solvency II aims to harmonise the treatment of market consistent balance sheets, risk-based 
capital, own risk and solvency assessment (O RSA), senior management accountability and 
supervisory assessment. The new regime will apply to all insurance firms with gross premium income exceeding EUR 5 million or gross techni cal provisions in excess of EUR 25 million.  
Solvency II follows the "Lamfalussy" approach, wh ereby the EU prudential framework is divided 
into three hierarchical levels : the first pillar contains the quantitative capital requirements, the 
second pillar contains qualitative requirements on undertakings such as risk management and 
supervisory activities, while the third pillar covers supervisory reporting and disclosure.  
Solvency II will move insurance companies to a risk-based solvency regime. Market risk on 
different asset categories will be reflected in capital requirements depending on their risk. Market risk is not explicitly included in the capital re quirements under the present regime. However, as 
the proposal also operates with a correlation matr ix between asset classes and a higher capital 
requirement for mismatches between assets and lia bilities, there are benefits to insurers which 
diversify their investments and which match their a ssets and liabilities more  closely. Since these 
benefits might off-set the increased risk-weighti ngs for longer-maturity, lower-rated bonds is not 
possible to say unambiguously that project bonds will be penalised as an asset class generally. It 
depends on the insurance company's business. 
Capital requirements 
The CRRI package
52 is a comprehensive review of EU banking prudential rules and supervisory 
arrangements, currently provided for in Dire ctives 2006/48/EC (the Capital Requirements 
Directive) and 2006/49/EC  
The overarching goal is to ensure that the effectiv eness of institution capital regulation in the EU 
is strengthened and its adverse impacts on depositor  protection and pro-cyclicality of the financial 
system are contained while maintaining the competitive position of the EU banking industry. 
CRRI lays down rules for when a bond is a securi tisation. The specific gui delines at EU level 
would most likely not encompass pr oject bonds. The definition of secu ritisation is the same as in 
Solvency II (so-called cross-consistency). Futu re proposals for the regulation of pension funds 
would also be likely to follow a risk-based ap proach. This would also be cross-consistent by 
design although it will not be id entical to the regulation of ba nks and insurance companies. 
                                                 
52 Adopted on 20th July 2011. 
 
EN 56   EN Procurement 
In order for a contracting authority/entity to assess the tenders in compliance with EU 
procurement rules, all aspects of an tender which are subject to its assessmentmust be fixed and 
comparable at the submission of the final offer.  This normally includes financing and here the 
main issue is to which degree of detail th e financing offer is known at this stage. 
In bond markets, as in loan markets, financial te rms are usually quoted as a spread (int erest rate 
differentials) over a benchmark interest rate, which is LIBOR or EURIBOR in the case of loans and a suitable government bond or swap rate in case of bonds.  
Although the spread of a bond financing may be know n with reasonable certa inty, in most cases 
the price is only known when it has been fully subscr ibed by investors. Therefore its cost is not 
definitively known at the time of closing, but it may be either above or below the projected cost.  
There are some potential solutions to address th is uncertainty. Solutions include accepting that 
the interest rate will not be known, developing appropriate benchm arks which will allow the least 
fluctuation of the spread
53 or addressing it either through othe r financial instruments (a bridging 
loan, or a derivative produc t to cover the risk). These solutions may be entirely at the expenses of 
the bidding company(ies) or incl ude various degrees of risk-sha ring for the tendering authority.  
In each case, the specific solution adopted should be assessed from the point of view of its 
compatibility with public procurement rules, nota bly with the principle of equal treatment. In 
particular, changes in the price may not lead to alteration of the ranking of the bids (e.g. if the 
winner's final higher price had been known at the moment of the award, it would have been less 
advantageous than another tenderer's price or  wouldn't have compensated another tenderer's 
quality advantage etc). 
ESA95 classification 
Market participants questioned whether the use of the project bond facility would automatically 
tip the project into the general government sector for national accounts purposes. However, EU risk-sharing does not change the Eurostat assessment  of whether the project 
belongs on the balance sheet of the national general government sect or or the private sector. In 
order words, if the EU takes up to 20% of the ri sk, the test would simply apply to the remaining 
80% of the project. Sin ce the intention is to at tract private funding for these 80%, the project 
should normally be classified as private. Howeve r, if the government prov ides a guarantee higher 
than the part financed by the private sector, pa rtner, this will trigger a classification into the 
general government sector. These guarantees s hould include guarantees for a loan from an 
international financial institution (IFI). In addition, if a national government unit provides minimum revenue guarantees and minimum dema nd guarantees, such that government would 
                                                
 
53 One option could be to use a basket of comparable bonds as a benchmark. Their comparability would have 
to be such in terms of credit characteristics that th e project bond would fluctuate less against this basket 
than e.g. a government bond benchmark. This will be easier once a project bond market has been established. 
 
EN 57   EN bear a majority of the risks in the project, the debt would be classified as general government 
debt.  
Capital market development 
The use of the project bond facility presupposes  a reasonably well-functioning capital market. 
Member States' financial markets are different in  terms of size, liquidit y, achievable maturities 
etc., but are progressively getting more integrated , but the initiative would contribute further to the development of an integrated capital market in the EU.  
In addition to the new instruments, it is important  to assist market players to achieve multiple 
goals including:  
– Sponsors accecpting public disclosure of proj ect financials in order to issue project 
bonds; 
– Investors developing their unders tanding of project dynamics, making asset allocation to 
infrastructure and managing e.g. the amortising structure of these bonds 
– Tendering authorities allowing more flexib ility e.g. with different benchmarks ; 
– Rating agencies benchmarking their project fi nance rating processes in a transparent and 
consistent manner; 
– Bond issuers and lead managers increasing dialogue with investor s to enhance their 
understanding of project bonds. 
Crowding out of other players 
As discussed in Section 6.2.3.2, the support for project  bonds should be appropria tely priced so as 
to avoid distortions of competition and so as to not constitute subsidies. For this reason and due 
to the vastness of the infrastructure financ ing market (EUR 100 billion and growing) in 
comparison with the volume supported initially (E UR 2-3 billion), it is highly unlikely that the 
Europe 2020 Project Bond Initiative will crowd out  other players in the market. However, the 
Commission will closely monitor th e effects on other players in th e market (see secti expressed 
on 7). 
It is the hope that the EU scheme would act as a catalyst for private schemes currently under 
development or in their early stages, a view that  has also been expreseed by the private sector. 
The emergence of privately suppor ted or unsupported infrastructure  bond finance would be a sign 
for the EU to exit the market as described in Section 7.