EUROPEAN COMMISSION 
Brussels, 19.10.2011 
SEC(2011) 1239 final 
  
COMMISSION STAFF WORKING PAPER 
EXECUTIVE SUMMARY OF THE 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) 1237 final} 
 
 
EN 2   EN 1. INTRODUCTION  
This document provides the executive summary of the Impact Assessment on the pilot phase 
of the Europe 2020 Project Bond Initiative. The intention is to put in place a support 
mechanism that would allow infrastructure projects to access capita l market funding to 
complement more traditional bank lending. In  view of the financing problems faced by 
projects at present, the need to test the desing and ensure market acceptance of a new 
Initiative it is proposed to launch a pilot pha se for the transport, energy and ICT sectors 
already in 2012-13. The pilot phase will be f unded by redeploying a total of EUR 230 million 
from the TEN-T, TEN-E and CIP budget lines. 
The pilot will serve to improve its effectiveness under the Connecting Europe Facility (CEF), 
which will place EU infrastructure financing on a more coherent basis in the 2014-2020 
period. This impact assessment covers primarily the pilot phase. 
In order to fulfill the ambitious goals of the Europe 2020 strategy significant investment is 
required. Despite the financial support of the Community budget through grants from the 
TEN-budget line, the Structural Funds an d Cohesion Fund, the Competitiveness and 
Innovation programme as well as the European Investment Bank loans, many TENs and other 
infrastructure projects remain incomplete for various reasons. The Commission has identified the lack of investment as a significant obstacle to the implementation of the goals
1. 
This Initiative is a part of the Europe 2020 strategy , which was endorsed by the European 
Council on 17 June 2010 and aims to make Eu rope a smart, sustainable and inclusive 
economy, which delivers high levels of employme nt, productivity and social cohesion in a 
sustainable manner. To boost growth and jo bs, the EU has identified seven flagship 
initiatives, two of which are the " Digital Agenda " and the " Resource Efficient Europe ". 
They relate to Trans-European Networks ( TENs) in the areas of transport, energy and 
telecommunications. 
In the period 2014-2020, 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 the economic and 
financial prerequisites. Thus th e instrument should be open to use in other po licy contexts 
including structural and cohesi on funds and external policies.  The formulation of the CEF 
proposal should not preclude this. 
2. P
ROBLEM DEFINITION  
Europe faces enormous infrastructure inve stment needs in transport, energy and ICT 
networks, estimated to be of EUR 1.5 trillion to  EUR 2 trillion, to meet the policy goals of the 
Europe 2020 strategy. Of course, there are also s ubstantial investment needs in other areas of 
infrastructure, but these will not be considered further at this stage. In other words, the 
                                                 
1 See for instance the Transport White Paper - SEC(2011) 359; the Communication on Energy 
Infrastructure Priorities to 2020 and beyond : A blueprint for an integrated European energy network - 
COM(2010) 677; Digital Agenda for Europe - COM(2010) 245; European Broadband: investing in 
digitally driven growth - COM(2010) 472. 
 
EN 3   EN aggregate figures could easily translate into an nual financing volumes of EUR 200 billion or 
more. The lack of investment as a significan t obstacle to the implementation of the goals 
presented above is the cause for the TEN projects being dela yed or abbandoned. Therefore, 
the existing problem is mainly defined by the na ture and extent of infrastructure funding gap. 
At present, public sector infrastructure invest ment in the EU averages approximately 1% of 
GDP or EUR 120 billion per annum, out of whic h about 80% is investme nt in transport and 
most of the remainder in social infras tructure such as schools and hospitals.  
Increasingly, governments have encouraged the private sector to finance infrastructure 
investment, either on a purely private sector basis through privatisa tion, through concessions 
or, more recently, using the public-private partne rship (PPP) model as a basis. Such privately 
funded projects are typically financ ed with equity from sponsors  or other investors and bank 
loans. 
However, the step change in investment needed  to meet the Europe 2020 objectives is well 
beyond "business as usual" and requires a reco nsideration of funding a nd the EU intervention. 
Without the initiative (baseline scenario) the EU would continue  with the current system of 
grant financing for individual pr ojects without any use of so- called financial instruments in 
the energy and ICT sectors. In the transport sect or, the two existing financial instruments, the 
Loan Guarantee Facility for TEN-T (LGTT), wh ich supports bank loans to certain types of 
transport projects, and the Marguerite Fund, wh ich takes equity investments in transport, 
energy and climate-related projects, will continue until their expiry. 
The lack of infrastructure fina ncing would subsequently affect all countries in the EU due to 
being transit countries or geogra phical periphery. The affected groups  include citizens in all 
Member States , who benefit from the infrastructure  and ultimately fund it, either as 
consumers or tax payers, tendering authorities  which may not have multiple competitive 
financing offers and project promoters , who may not be able to get financing for their projects 
at present, affecting employment directly. Th is would also affect their sub-contractors, 
potentially including SMEs. 
3. ANALYSIS OF SUBSIDIARITY  
The right for the EU to act in the field of infrastructure fi nancing is set out in Articles 172 and 
173 which provide that in order to achieve th e relevant objectives the Union (…) may support 
projects of common interest supported by Member States.  
The Europe 2020 Project Bond Initiative complies with  the subsidiarity prin ciple as the choice 
of the EU Regulation for financing trans-Europ ean networks projects with project bonds is 
best suited to provide an efficient and inexpe nsive means to attract high levels of private 
sector financing. It will be the first EU financia l instrument benefiting infrastructure projects 
across several sectors with simila r financing needs and will as su ch produce higher benefits in 
terms of market impact, coherence, administ rative efficiency and resource utilisation. By 
focusing on optimising the use of EU funds,  the initiative will aim to improve the 
effectiveness of both EU and Member States action within this division of competencies. 
As capital markets transcend nation al borders, so efficiency dict ates that a financing scheme 
should do the same. This also avoi ds distorting financial markets.  Countries outside of the EU 
 
EN 4   EN have their own policies to support infrastructure  financing. Thus, a Eur opean 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. 
4. OBJECTIVES OF THE EU INITIATIVE  
The general two-fold objective of the Initiative  to stimulate investment in infrastructure  and to 
establish debt capital markets as a new source of financing . The specific targets of the pilot 
phase Initiative include enhancing up to 3- 6 TEN-T projects, 1 TEN-E and up to 1-3 
broadband projects to allow them to issue bonds . The number of projects will depend on the 
volume of financing required for each project,  ie the higher the volume, the more EU budget 
allocations are needed for one single transact ion. The EU budget contri bution is expected to 
attract 15-20 times in additional investment. As the pilot phase is necessarily limited in scope, 
budget and time this can only be a first step towa rds creating an infrastr ucture bond market in 
the EU by acting as a catalyst fo r private-sector bond solutions. 
These objectives dovetail with existing EU po licies and strategies, such as Europe 2020  as 
well as the ambitious energy and climate po licy goals – the "20-20-20" objectives. The 
Initiative, together with other financial instru ments, is an important  building block for the 
Connecting Europe Facility  (CEF) proposed for the transport,  energy and ICT sectors in the 
Multi-annual Financial Framework  (MFF) 2014-2020.  
5. POLICY OPTIONS  
On the basis of the measure in use to addr ess the existing financing gap and achieve the 
identified objectives in the area of infrastruc ture, three main options have been explored: 
Option 1: Grant funding, no new fina ncial instrument (baseline scenario).  This would 
entail the exclusive reliance on the use of grants  from the public purse,  including the EU with 
bank loans as the main source of private sector  financing. In the area of transport, the two 
existing financial instruments woul d continue during the pilot phase. 
Option 2:  Regulatory incentives for infrastructure financing  The EU as a whole does not 
have a true project bond market Financing in  Europe has traditionally been dominated by 
banks and a truly integrated and liquid bond market only st arted developing after the 
introduction of the single currency. As a re sult of the banks' bette r knowledge of their 
customer and ability to analyse infrastructure  financing proposals, they are able to accept 
riskier financing structures than bond investors. Thus one  of way of addressing the 
infrastructure financing problem would be to re quire better security packages from sponsors 
or making investment more attractive to investors. 
Option 3: The use of a financial instrument The financial instrument would take a form of 
an EIB guarantee or an EIB loan. It has the a dvantage of not being imposed, but driven by 
market demand. If well-designed, it is highly fl exible and can respond to market needs in a 
timely manner.  
 
EN 5   EN The Initiative would cover pre-identified transpor t, energy and ICT priority infrastructure and 
would complement the existing sources of projec t financing through bank loans. The initiative 
divides the project debt into a senior tranche  and a subordinated tranche , 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 , which the company can draw on in case of  need, i.e. it is unfunded. A mix of a 
funded and unfunded tranche could also be envisaged, depending on the characteristics of the 
project. 
The presence of a subordinated tranche impr oves the risk profile of the senior debt , which 
increases the attractiveness of the senior debt to investors allowing the senior tranche to be 
issued as a bond. The desired cr edit quality can be generally described as one reaching a 
rating of BBB+ or above , which is likely to require a subor dinated tranche of up to 20% of the 
senior debt  of the project. The aim is to expand the investor base  for private debt funding of 
projects to bond investors. The mechanism of the Initiative would rely  on the risk-sharing 
between EIB and the EU.  
Other alternatives concidered but discarded at an early stage and not assessed in detail include 
direct senior lending by EU or EIB, a full debt service guarantee,  a loss reserve fund and 
creating a European Infrastructure Bank or Gu arantee Agency, which either do not promote 
capital market financing or distort th e incentives of the different players. 
6. ASSESSMENT OF IMPACTS  
Option 1: Grant funding would mean accepting a continuing shortfall in infrastructure 
investment and private financi ng sources, to the detriment of European long-term sustainable 
growth. The economic and social impact of built  projects would be otherwise unaffected. The 
infrastructure that would be im plemented would likely be built at a higher than necessary cost 
to society. There is a risk that key EU infrastruc ture would be sacrificed  for national priorities. 
Option 2:  Regulatory incentives  may allow more bond financing. The economic and social 
impact of built projects would be otherwise unaffected. Howeve r, the final cost to the tax 
payer is likely to be higher as the cost of additional capital is passed on. Further, the costs of 
compliance in the selected sectors may also be hi gh and lead to market distortions, but this is 
difficult to evaluate. In any case, this op tion is unlikely to be  implemented quickly. 
Option 3: The financial instrument  would take a form of a contingent credit line or a 
subordinated loan. Again, the economic and soci al impact of built projects would be 
otherwise unaffected, but the cost to ta x payers is expected to be lower. 
The table below presents an synoptic descript ion of the different impacts of the options 
considered in what concerns other econo mic, social and environmental impacts. 
 
EN 6   EN  
 Option 
 
Criteria Option 1: 
Grant funding Option 2: 
Regulatory incentive Option 3: 
Financial instrument + 
possibly regulation  of the 
capital markets 
Achieved objectives 
TENs Partly  Partly  Yes 
Capital markets No Maybe  Yes 
Impacts of the options  
Economics 
impacts - Only small 
efficiency gains possible - Continuing lack of financing 
- Relative decrease of 
the long-term EU growth potential and competitiveness  - Higher than 
necessary 
infrastructure cost to society - No cost on budget 
- Distortion of the decision making leading to the mis-allocation of funds
2 
- More costly for sponsors, 
tendering authorities and 
tax payers, thus  less infrastructure being built - Less potential of 
extension due to barriers of 
different regulation  - Disproportionately large compliance costs for SMEs - Most final funding attracted 
at lower cost - Stimulated implementation of large infrastructure projects with national and cross-border 
benefits 
- More access to the infrastructure provided at a reasonable price - More diverse financing 
possibilities created 
- Positive effect on growth and competitiveness of the EU - Market-driven 
Social impacts - Grant funding to 
projects that could be financed in the market - Potential lack of 
funding for weaker 
projects  - Key EU infrastructure subordinated to national priorities 
- Disproportionality of 
cross-border projects reducing cohesion in EU - Sponsors looking for the 
highest return projects due to higher costs - Non-implementation of 
weaker projects 
- Increasing disproportionality cross-borders and lower cohesion in EU - Pension and insurance funds 
securing a higher rate of return for pension policy holders, i.e. citizens 
- Greater market integrity 
leading to better services, higher investor confidence and greater participation in financial markets - More jobs created by 
stimulating new infrastructure 
and economic growth 
Environmental impacts - No particular 
environmental impact - Higher costs leading to 
less infrastructure built with reduced potential (positive and negative) effects - Acceleration or enabling of 
financing for projects with environmental impacts that would not otherwise take place 
- Implementation of the 
Europe 2020 strategy with positive environmental impact 
                                                 
2 Due to increased costs of financ ing, sponsors are likely to be looking exceptionally for the highest 
return projects, which could lead to non-implementati on of weaker but still viable projects in particular 
sectors, while investors might invest in infrastructure projects due to regulatory advantages rather than 
the quality of the underlined projects, which would lead to the mis-allocation of funds. 
 
EN 7   EN  
The table above shows that: 
• From an economic point of view , Option 3 seems to be pref erable overall. In fact, 
while achieving both objectives identified at lower overall costs, if appropriately 
priced it creates no market distor tion and lower administrative burden. 
• From a social point of view , both Option 2 and 3 could make it easier for economic 
entities to raise capital, provide the nece ssary infrastructure, stimulate growth and 
create more jobs. However, Option 3 is  more desirable as it would benefit 
institutional investors such as pension a nd insurance funds, who invest in financial 
instruments in order to secure  a higher rate of return fo r pension policy holders, i.e. 
citizens. 
• From an environmental point of view , the general objectives of the EU initiative 
only relate to the financing of projects. Proj ects themselves are the entities that might 
cause environmental impacts.  
The following summary table set out the advant ages and disadvantages of the different 
options, measured against the criteria of their e ffectiveness in achieving the related objectives, 
and their efficiency in terms of achieving these options for a given level of resources or at 
least cost. Each scenario is rated between "- --" (very negative), 0 (n eutral) and "+++" (very 
positive).
 
EN 8   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 for a novel EU 
instrument  (+++) stimulates new 
sources of financing and 
(++) possibly creates new asset class
 
(+++) attracts most of funding 
(--) factors such as 
controlling or monitoring creditor (++) lower financing cost 
expected  
(-) uncertainties remain as regards additional costs such as rating or listing
 
 
EN 9   EN requires multiple 
approaches 
 
Option 2  is the least costly from a Commission perspective , but it imposes costs on all project 
sponsors , small and large, without a clear benefit.  Since there is no in centive for banks and 
investors to adjust behaviour, the desired development of capital markets may not take place. 
It is expected to have rather  negative impact on stakeholders as well as perform poorly in 
terms of effectiveness and efficiency  compared to other options. It 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 would al so have no influence on effectiveness and 
efficiency of achieving identified objectives. This is therefore the second-most/least desirable 
option. 
The preferred option is the use of a financial instrument – Option 3 , since it gives market 
participants economic incentives to adapt their behaviour with out imposing blanket regulatory 
costs . It is considered to be the most effective  solution with the most positive impact  on 
stakeholders and the most tangible improve ment of the financing of infrastructure. 
7. MONITORING AND EVALUATION  
The Commission may work through one or se veral financial institutions with a public 
mission, which would normally receive and assess the applications for support, the financial 
structure of the project, its economic viability etc according to their internal rules and procedures. The pilot phase will be imp lemented in particular with EIB. 
EIB Financing Operations will be managed by  the EIB in accordance with the EIB's own 
rules and procedures, including appropriate  approval, audit, control and monitoring 
measureswhich are the subject of regular reporting to the Commission.  
The Commission already collect s data on the EU bond market and may also request 
information from the banks that place the project bonds. These sources and specific 
performance indicators will help the Commission to review the pilot phase before the end of 2013 in order to draw conclusions on the futu re design. The mid-term review of the CEF 
facility will assess whether the scheme introduced (still) adds value and should be maintained.