Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Mobilising private and public investment for recovery and long term structural change: developing Public Private Partnerships
Date: 2009-11-19
Institutions: European Commission
Subjects: financing, private investment, public investment, public-private partnership, reflation, structural adjustment

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 19.11.2009 
COM(2009) 615 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Mobilising private and public investment for recovery and long term structural change: 
developing Public Private Partnerships 

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Mobilising private and public investment for recovery and long term structural change: 
developing Public Private Partnerships 

1. 

INTRODUCTION  

To tackle the financial and economic crisis, the EU and its Member States are implementing 
ambitious recovery plans that aim to stabilise the financial sector and limit the impacts of the 
recession  on  citizens  and  the  real  economy.  Investment  in  infrastructure  projects1  is  an 
important means to maintain economic activity during the crisis and support a rapid return to 
sustained economic growth. Public Private Partnerships (PPPs) can provide effective ways to 
deliver infrastructure projects, to provide public services and to innovate more widely in the 
context of these recovery efforts. At the same time, PPPs are interesting vehicles for the long-
term  structural  development  of  infrastructures  and  services,  bringing  together  distinct 
advantages of the private sector and the public sector, respectively. 

PPPs are forms of cooperation between public authorities and the private sector2 that aim to 
modernise  the  delivery  of  infrastructure  and  strategic  public  services.  In  some  cases,  PPPs 
involve  the  financing,  design,  construction,  renovation,  management  or  maintenance  of  an 
infrastructure  asset;  in  others,  they  incorporate  the  provision  of  a  service  traditionally 
delivered  by  public  institutions.  Whilst  the  principal  focus  of  PPPs  should  be  on  promoting 
efficiency in public services through risk sharing and harnessing private sector expertise, they 
can also relieve the immediate pressure on public finances by providing an additional source 
of capital. In turn, public sector participation in a project may offer important safeguards for 
private investors, in particular the stability of long term cash-flows from public finances, and 
can incorporate important social or environmental benefits into a project. 

At EU level, PPPs3 can offer extra leverage to key projects to deliver shared policy objectives 
such  as  combating  climate  change;  promoting  alternative  energy  sources  as  well  as  energy 
and  resource  efficiency;  supporting  sustainable  transport;  ensuring  high  level,  affordable 
health  care;  and  delivering  major  research  projects  such  as  the  Joint  Technology  Initiatives, 
which are designed to establish European leadership in strategic technologies. They can also 
boost  Europe’s  innovation  capacity  and  drive  the  competitiveness  of  European  industry  in 
sectors with significant growth and employment potential. 

The combination of public and private capacities and money can therefore help the process of 
recovery and the development of markets that will form the basis of Europe’s future economic 
prosperity.  However,  just  at  the  time  when  the  more  systematic  use  of  PPPs  would  bring 

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Almost all Member States have been speeding up major on-going or foreseen infrastructure projects. 
The  Commission  launched  a  consultation  on  PPPs  in  2004  (COM(2004)  327)  and  reported  on  the 
results of the consultation in 2005 (COM(2005) 569) 
Three PPPs were for instance identified in the European Economic Recovery Programme: factories of 
the future, energy-efficient buildings, green cars. 

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considerable benefits, the crisis has made the conditions for these instruments more difficult. 
Although there is now some evidence of recovery, the volume and value of projects currently 
closing  is  still  significantly  below  pre-crisis  level4.  It  is  therefore  all  the  more  urgent  and 
important to look at new ways to support the development of PPPs. 

2. 

THE  CASE  FOR  PUBLIC-PRIVATE  PARTNERSHIPS
EFFECTIVE? 

5:  WHY  AND  WHEN  CAN  THEY  BE 

In  the  EU,  PPPs  have  developed  in  the  transport  sector  (road,  rail)6,  in  the  area  of  public 
buildings  and  equipment  (schools,  hospitals,  prisons)7  and  the  environment  (water/waste 
treatment, waste management)8. The experience varies greatly between sectors and from one 
country to another. Many Member states only have a limited experience of PPPs or none at 
all.  In  terms  of  overall  management  of  public  services  or  the  construction  and  operation  of 
public  infrastructure  at  global  EU  level,  the  spread  of  PPPs  is  still  very  limited  and  they 
represent  a small  part  of  total  public  investment9.  As  far  as  energy  or  telecommunication 
networks are concerned, there is already significant service provision in the private sector, but 
there could be scope for the development of more PPPs, for example in the development of 
necessary  energy  infrastructure  where  commercial  interests  provide  insufficient  investment 
incentives10  or  in  PPPs  for  broadband  –  both  fixed  and  wireless-  in  order  to  overcome  the 
digital divide and promote a rapid transition to high speed internet broadband services. There 
is now considerable evidence that PPPs can: 

–  Improve  delivery  of  projects.  PPPs  have  a  track  record  of  on-time11,  on-budget12 
delivery.  PPP  projects  in  the  Trans-European  Transport  (TEN-T)  network  prove  that 
partnership  structures  may  be  successfully  applied  to  various  projects  in  all  modes  of 
transport. Examples include the Perpignan — Figueras 50-year rail concession including a 
cross-border tunnel, the Oresund fixed railway link between Sweden and Denmark, and a 
high speed railway line in the Netherlands. Several cross-border PPP projects are currently 
planned under  TEN-T.  These  include  a rail/road bridge  between  Denmark and  Germany, 
the Seine-Nord Canal, and a cross-border inland waterways project in France and Belgium.  

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The drop in PPPs having achieved financial close in the first 9 months of 2009, is about 30 % from last 
year, both in volume and number, EPEC research, October 2009. 
Based on work within EPEC, UNECE, IMF, WB, and OECD. 
Greece, Ireland, Netherlands, Spain, the United Kingdom: Guidebook on Promoting Good Governance 
in Public-Private Partnerships, UNECE 2007, p. 20. 
France, United Kingdom idem. 
The prevailing model for private sector involvement in the environmental sector has been that of public 
service concessions. 
According to a global survey by Siemens in 2007, PPPs only account for about 4% of all public sector 
investment. 
For  instance  in  the  case  of  market  interconnectors,  projects  contribution  to  the  security  of  supply 
objectives and energy research cooperation 
A recent report (October 2009) by the National Audit Office (NAO) in the UK updates the earlier 2003 
"PFI construction performance report". This report confirms the overall better performance of PPP vis a 
vis conventional procurement in respect of on budget (65 % of PFI projects) and on-time delivery (69 
%). When costs over-run were incurred, they were caused by the authority or third party requests in 90 
% of cases. In addition, 91 % of completed projects were rated by key users as very or fairly good in 
term of construction quality and design. 
These conclusions are upheld by an EIB internal review published in 2005, based on a detailed review 
of 15 PPP" Evaluation of PPP projects financed by the EIB", 
http://www.bei.europa.eu/projects/publications/evaluation-of-ppp-projects-financed-by-the-eib.htm. 

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–  Better  value  for  money  from  infrastructure,  by  exploiting  the  efficiency13  and 
innovative  potential  of  a  competitive  private  sector  to  either  costs,  or  achieve  a  better 
quality ratio. 

–  Spread  the  cost  of  financing  the  infrastructure  over  the  lifetime  of  the  asset,  thus 
reducing  immediate  pressures  on  public  sector  budgets  and  allowing  the  completion  of 
infrastructure  projects  —  and  the  benefits  they  deliver  —  to  be  brought  forward  by  a 
number of years. 

–  Improve  risk  sharing14  between  public  and  private  parties.  Provided  it  is  properly 

apportioned, more efficient risk management reduces the overall costs of projects.  

–  Boost  sustainability,  innovation  and  research  and  development  efforts  for  delivering 
the breakthroughs needed for new solutions for society's socio-economic challenges : this 
is linked to the basic mechanism underpinning a PPP:  

•  It  is  a  competitive  process;  innovation  (in  terms  of  hardware  or  systems)  that 

provides a competitive edge will be promoted. 

•  It is based on undertakings by the private party to deliver a performance that can 

be linked to technical as well as environmental and social criteria. 

–  Give  the  private  sector  a  central  role  in  developing  and  implementing  long-term 

strategies for major industrial, commercial and infrastructure programmes. 

–  Enlarge  EU  companies'  market  shares  in  the  field  of  government  procurement  in 
third  country  markets.  Through  the  award  of  Build,  Operate  and  Transfer  (BOT)  work 
and  service  concessions  as  well  as  the  setting  up  of  special  vehicle  solutions,  European 
public  works  and  utilities  companies  can  gain  important  contracts  in  certain  markets  of 
major trading partners as regard e.g. airport construction and management, motorways and 
water supply and treatment.  

In  addition,  PPPs  offer  capacity  to  leverage  private  funds  and  pool  them  with  public 
resources. These benefits are of particular importance in the present economic conditions as 
Member  States  are  seeking  to  accelerate  investments  in  response  to  the  crisis,  whilst  being 
acutely aware of the need to preserve budgetary discipline. 

3. 

THE EU CONTRIBUTION TO PPP PROJECTS  

The crisis is placing renewed pressure on public finances in many Member States, and at the 
same time makes it more difficult to secure long term private investment in capital intensive 
projects. EU financing through the Structural Funds, the European Investment Bank or TEN-
T instruments can help to mobilise PPP solutions for essential investment in projects even at a 

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Results  of  a  global  study  on  the  impact  of  private  sector  participation  in  water  and  electricity 
distribution (May 2009) show that private sector delivers on expectations of higher labour productivity 
and operational efficiency, http://www.ppiaf.org/content/view/480/485/. 
Canoy  et  al.  (2001)  underscore  that  risk  sharing  arrangements  within  PPP  provide  an  instrument  to 
create incentives for both parties to increase efficiency of the project. 

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time of reduced availability of national public or private resources. The EU also influences the 
environment in which PPPs operate through its regulatory framework. 

3.1. 

Community rules 

Several sets of Community rules have a direct or indirect impact on PPPs. Going forward, it 
will be important to ensure that the applicable rules are appropriate and supportive while fully 
respecting the principles of the Internal Market. 

In the past, there was a concern that Member State governments could use PPPs as a way to 
conceal their expenditure and new liabilities on public balance sheets, loading up costs for the 
future, in contradiction with the Stability and  Growth Pact rules. Similar concerns might be 
raised  in  the  current  context  of  public  debts  incurred  due  to  the  crisis.  Eurostat  developed 
rules on the statistical accounting of PPPs15, which clearly determine in which cases a PPP’s 
asset(s) should be recorded on the government’s balance sheet. These rules are based on the 
distribution  of  the  main  risks  of  the  project  between  the  government  and  the  PPP  operator. 
Where the financial risk of the project rests mainly with the government, the PPP asset(s) is 
recorded on the government balance sheet. Given the pressure on public finances due to the 
ongoing economic crisis, a smooth return to budgetary discipline would require that Member 
States  be  aware  of  the  impact  of  individual  projects  on  their  balance  sheets  and  the  related 
consequences (debt and deficit treatment). 

PPPs are structured around a public contract or as work or service concessions. When public 
contracts or works concessions are involved, they are subject to the provisions of the public 
procurement  directives  if  their  value  exceeds  the  Community  thresholds16.  Following 
extensive  modifications  in  2004,  EU  public  procurement  legislation17  now  provides  for  a 
range  of  procedures  that  contracting  authorities  can  employ  when  awarding  contracts. 
Notably, to enter into dialogue with tenderers in particularly complex cases, the EU rules now 
allow opting for competitive dialogue. Its use may be appropriate in case of PPPs where the 
contracting authority may not always be able to determine the technical specifications and the 
appropriate price level in advance. 

Service concessions do not fall under the scope of public procurement directives, but the case 
law  of  the  European  Court  of  Justice  has  confirmed  that  the  EC  Treaty  principles  (such  as 
transparency and equal treatment) also apply to service concessions18. A reflection is ongoing 
on  the  need  to  improve  transparency,  equal  treatment  between  all  economic  operators,  and, 

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Eurostat  News  Release  18/2004:  Treatment  of  public-private  partnerships  and  ESA95  Manual  on 
government deficit and debt 2004 Edition: Chapter on Long term contracts between government units 
and non-government partners (Public-private partnerships). 
For public contracts or works concessions below the thresholds, Treaty principles apply (transparency, 
equal treatment, non-discrimination). 
Directive 2004/17/EC of the European Parliament and of the Council of 31 March 2004 coordinating 
the  procurement  procedures  of  entities  operating  in  the  water,  energy,  transport  and  postal  services 
sectors (OJ L 134, 30.4.2004, p. 1-113). Directive 2004/18/EC of the European Parliament and of the 
Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, 
public supply contracts and public service contracts ( OJ L 134, 30.4.2004, p. 114–240).  
Judgement  of  26  April  1994,  case  C-272/91,  Commission  v.  Italy  (Loto);  Judgement  of  9  September 
1999,  case  C-108/98,  RI.SAN;  Judgement  of  7  December  2000,  case  C-324/98,  Telasutria  Verlags; 
Judgement  of  21  July  2005,  case  C-231/03,  Consorzio  Aziende  Metano  (Coname);  Judgement  of  13 
October 2005, case C-458/03, Parking Brixen; Judgement of 6 April 2006, case C-410/04, Associazione 
Nazionale Autotrasporto Viaggiatori (ANAV); Judgement of 18 July 2007, case C-382/05, Commission 
v. Italy (Municipal waste produced in the Region of Sicily). 

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thus,  legal  certainty  in  the  award  procedures  for  service  concessions.  The  Commission  is 
preparing  an  impact  assessment  to  assess  which  future  initiatives  are  necessary  to  ensure  a 
clear and predictable framework in this area. 

Finally, it should also be recalled that PPPs, as long as they carry out an economic activity, 
are subject to the application of competition rules and, in particular, of State aid rules. 

3.2. 

EU-level PPPs: the case of Joint Technology Initiatives 

The Seventh Framework Programme for Research introduced a new type of European public-
private partnership at programme level: the Joint Technology Initiative (JTI) based on Article 
171  of  the  EC  Treaty19.  This  new  instrument  was  created  to  promote  European  research  in 
fields where the objectives pursued are of such a scale and nature that traditional instruments 
are  not  sufficient.  The  first  JTIs  have  been  set  up  in  five  fields:  innovative  medicines, 
aeronautics, fuel cells and hydrogen, nanoelectronics and embedded computing systems. The 
JTIs have total budgets ranging between € 1 bill ion and € 3 billion in  the period up to 2017. In 
three JTIs (Innovative Medicines Initiative, Clean Sky, and Fuel Cells and Hydrogen), public 
resources are exclusively composed of Community funds, provided through the budget of the 
JTI;  in  two  other  JTIs  (ARTEMIS  and  ENIAC),  they  are  combined  with  funds  of  the 
participating  Member  States  or  countries  associated  to  the  Seventh  Framework  Programme, 
provided through national funding agencies. The private partners' contribution is made up of 
'in  kind'  contributions  to  the  projects  funded  by  the  JTIs  in  which  the  private  partners 
participate.  Both  public  and  private  partners  contribute  to  the  running  costs  (administrative 
costs) of the JTI. 

These partnerships make it possible: 

–  To develop commercially-viable solutions by supporting large-scale multinational research 

activities in areas of major interest to European industrial competitiveness. 

–  To  integrate  and  internalise  objectives  of  high  societal  relevance,  such  as  promoting 
alternative  energy  sources  and  using  energy  and  resources  more  efficiently20,  supporting 
more sustainable transport, combating climate change and ensuring high quality, affordable 
health care.  

–  To  pool  and  leverage  (private,  European  and  national)  funding  and  know-how  and  to 
reduce  the  fragmentation  created  by  multiple  national  projects  pursuing  similar  or 
overlapping objectives. 

–  To  harness  the  skills  and  innovation  of  the  private  sector  within  appropriate  risk  sharing 

arrangements. 

The  experience  of  the  five  existing  JTIs  as  they  become  autonomous  and  fully  operational 
will enlighten the approach to creating further research PPPs. 

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Article  171  TEC  allows  the  Community  to  set  up  Joint  Undertakings  for  the  efficient  execution  of 
Community research, technological development and demonstration programmes. 
PPPs can in particular drive further development of the pan-European energy research cooperation and 
will  be  promoted  through  the  recently  adopted  Commission  Communication  on  Investing  in  the 
Development of Low Carbon Technologies (SET-Plan), COM(2009)519 

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3.3. 

Structural funds 

PPP projects can be partly funded by resources from the Structural Funds. Nevertheless, few 
Member  States  so  far  seem  systematically  to  design  programmes  that  bring  Community 
funding  into  PPP  structures21.  PPP  projects  can  be  partly  funded  by  resources  from  the 
Structural Funds. There is a perception that combining different sets of EU and national rules 
and  practices  and  timetables  in  one  project  may  be  complex  and  act  as  a  disincentive. 
However, in many cases a PPP may offer the optimal approach for implementing projects. 
Strengthening Member States’ institutional capacity and providing more practical guidance on 
combining Community funding with PPPs should help national administrations to have more 
recourse to PPPs when taking decisions about financing future major projects. 

Harilaos Trikoupis Bridge: 

This bridge over the straits of Corinth, the longest cable-stayed bridge in the world, connects 
the Peloponnese with mainland Greece. In 1996, the Greek state granted the Franco-Hellenic 
consortium  Gefyra  S.A.  a  42-year  concession  for  the  conception,  construction,  use  and 
maintenance of the Harilaos Trikoupis bridge. The EU extended significant financial support, 
in the form of an ERDF grant and a loan from the EIB, to this building project.  

The  Structural  Funds  for  the  period  2007-2013  offer  important  opportunities  to  Member 
States  to  implement  operational  programmes  through  PPPs  organised  with  the  EIB,  banks, 
investment  funds  and  the  private  sector  in  general.  Initiatives  aiming  to  combine  Structural 
Funds with PPP projects can draw on: 

–  JASPERS22,  a  project  development  facility  launched  together  with  the  EIB  and  the 
European  Bank  for  Reconstruction  and  Development  (EBRD),  which  aims  at  providing 
assistance as required for any stage of a PPP/infrastructure project cycle. 

–  The  JESSICA23  initiative  for  sustainable  urban  investment  for  PPPs/urban  projects 

included in an integrated urban development plan. 

–  The  context  of  the  JEREMIE24  initiative  in  support  of  new  business  creation  and 

improving access to finance for enterprises. 

3.4. 

European Investment Bank (EIB) 

The EIB, the EU's long term lending institution, has actively sought to support efficient PPP 
schemes  across  Europe,  and  in  particular  in  transport  infrastructure.  The  Bank  has  made 
nearly  € 30bn  available  in  loans  for  PPPs  since 
the  late  1980s.  The  EIB  is  also  the  leading 
financier of the TEN-T networks. It is expected to contribute 14 % of total TEN-T investment 
between 2007 and 2013.  

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According  to  DG  REGIO  survey,  7  Member  States  have  experience  of  PPP  with  a  Structural  Fund 
component. 
Joint Assistance to Support Projects in European Regions. 
Joint European Support for Sustainable Investment in City Areas. 
Joint European Resources for Micro to Medium Enterprises. 

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The EIB group is at the forefront of EU efforts to finance innovation and enterprises. Using 
the  expertise  of  the  EIB  and  its  SME  financing  arm,  the  European  Investment  Fund  (EIF) 
provides the EU with an efficient tool to develop new PPPs. 

Furthermore, the EIB has  established together with the Commission and Member States the 
European PPP Expertise Centre (EPEC), which aims to strengthen the organisational capacity 
of  the  public  sector  to  engage  in  PPPs  through  network  activities  and  policy  support  to  its 
members.  

The Commission will work closely with the EIB and the private sector in order to increase the 
overall leverage effect of EIB funding, for instance through the blending of grants from the 
EU budget and EIB loans.  

3.5. 

TEN-T instruments 

Three  financial  instruments  designed  for  TEN-T  projects  were  introduced  under  the  current 
TEN  Financial  Regulation,  all  of  which  aim  to  increase  private  participation.  These  new 
instruments are designed to benefit projects by targeting specific needs (such as optimal risk 
transfer, financing cost). Not only do they allow a targeted response, they also guarantee the 
highest leverage effect of the available EU funds. 

The value of such EU level financial support to PPP projects often goes beyond simple capital 
provision. They are also an expression of a political commitment by the EU that often makes 
financing institutions look more favourably at the risk profile of a project and therefore make 
it easier to secure its financing at more favourable conditions. EU level guarantees serve the 
same function. 

Loan Guarantee Instrument for TEN-T Projects (LGTT) 

PPPs  for  TEN-T  projects  in  which  the  private  sector  takes  on  risk  relating  to  the  possible 
variations  in  demand  often  face  difficulties  in  attracting  competitively  priced  private 
financing.  The  LGTT  is  a  guarantee  facility  that  helps  by  partially  covering  these  risks  by 
making  up  shortfalls  in  revenue  that  result  from  lower  than  expected  traffic  growth  in  the 
early  operational  periods  of  projects.  In  this  way,  it  improves  the  financial  viability  of  a 
project  and  its  overall  credit  quality.  Individual  LGTT  guarantees  are  available  through  the 
EIB. Three PPP schemes have already benefited25 and in total the LGTT facility is expected 
to support 25-35 TEN-T projects by 2013. Planned projects include a high speed rail line, an 
airport  express,  motorway  concessions  in  some  new  Member  States  and  innovative  freight 
projects. 

Construction cost based grant in the framework of availability payment schemes 

This special grant scheme encourages the project promoter to enter into a PPP agreement with 
a private partner rather than use public grants to finance the construction. The TEN-T grant, 
equivalent  to  up  to  30 %  of  the  total  construction  cost,  is  used  by  the  promoter  to  support 
payment  obligations  only  once  the  project  is completed.  This  improves  affordability  for  the 
public sector, while maintaining risk transfer to the private partner. 

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Motorway  schemes  ‘IP4  Amarante  —  Villa  Real’  and  ‘Baixo  Alentejo’  in  Portugal,  and  the  A5 
Autobahn A-model PPP in Germany. 

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Provision of risk capital — equity participation in TEN-T projects 

Up  to  1 %  or  € 80  million  of  the  TEN-T  budget  can  be 
invested  in  projects  in  the  form  of 
equity or quasi-equity through a dedicated infrastructure fund. The Commission is currently 
exploring  options  for  using  this  instrument  to  invest  in  the  2020  Fund  for  Energy,  Climate 
Change and Infrastructure (Marguerite)26 which targets a fund size of € 1.5 billion. 

3.6. 

Risk Sharing Finance Facility and Competitiveness and Innovation Programme 

The  Risk  Sharing  Finance  Facility  (RSFF),  an  innovative  credit  risk  sharing  scheme  jointly 
set up by the European Commission and the EIB, as well as the financing instruments under 
the Competitiveness and Innovation Programme (CIP), support public private partnerships in 
the areas of research, technological development, demonstration and innovation. 

Both RSFF and financial instruments of the CIP have proved their success: 

–  Since  the  launch  of  RSFF  in  July  2007,  € 4.4  billion  in  loan s  have  been  approved  for 
investments in R&D and innovation. The European Economic Recovery Plan foresees an 
accelerated implementation of RSFF. 

–  By  the  end  of  the  second  quarter  of  2009,  under  the  CIP,  partnerships  with  the  private 
sector were concluded in 16 agreements with venture capital funds from 14 countries. For 
the guarantee instrument, partnerships with public and private organisations resulted in 16 
agreements  with  financial  intermediaries  from  10  countries.  By  the  end  of  first  quarter 
2009, over 30 000 SMEs had received financing supported by the instruments.  

3.7. 

PPPs outside the EU 

The EU has made also contributions to PPPs outside the EU. For example, the Global Energy 
Efficiency  and  Renewable  Energy  Fund  is  a  PPP  offering  risk  sharing  and  co-funding 
opportunities for commercial and public investors in developing countries. Currently funded 
by the European Commission and the German and Norwegian governments, it will invest in 
private  equity  funds  that  specialise  in  providing  equity  finance  –  financing  in  return  for 
shareholdings  –  to  small  and  medium-sized  regional  projects  and  enterprises.  In  the 
enlargement process the EC has also participated in PPPs through programmes such as ISPA 
and Phare. Guidelines were elaborated to this effect in 2003 to address issues of concern for 
external cooperation27. 

In  negotiations  with  our  trade  partners,  the  European  Commission  seeks  to  enlarge 
transparency and obtain market access commitments for PPP as it does with traditional public 
procurement  contracts  when  dealing  with  government  procurement  in  free  trade  and  other 
bilateral  agreements.  The  most  recent  achievement  in  this  respect  is  the  inclusion  of  Build 
Operate  Transfer  (BOT)  contracts  and  work  concessions  in  the  FTA  to  be  concluded  with 
South Korea. This is also the case in negotiations with third countries, which are party to the 
WTO Government Procurement Agreement (GPA).  

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The proposal for creating such fund which would invest in the core infrastructure areas of EU interest 
was endorsed by the European Council in December 2008. 
http://ec.europa.eu/regional_policy/sources/docgener/guides/ppp_en.pdf. 

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4. 

CHALLENGES: WHY ARE PPPS NOT REACHING THEIR FULL POTENTIAL? 

4.1. 

Challenges in the current crisis28 

The recent crisis has had a major negative impact on PPP projects since (i) there has been a 
marked reduction in the availability of bank lending and other forms of credit for PPPs, and a 
significant  deterioration  of  the  financial  conditions  offered  for  PPP  lending,  a  development 
associated with a change in the assessment of risk of PPP projects on the part of banks, and 
(ii) some national governments and regional authorities have reduced or put on hold their PPP 
programmes. 

The development of PPPs is, therefore, currently being restricted by: 

•  significant increases in the cost of debt for PPP projects as a consequence of the credit 

crunch; 

•  the substantially reduced maturities being offered by banks29 on their debt; 

•  the fact that committed finance is only available at the end of the procurement process. 

Faced with this situation, responses in Member States vary. Some authorities have decided to 
reduce, or temporarily suspend, their PPP programmes. However, others are taking supporting 
measures,  ranging  from  state  guarantee  schemes,  which  have  been  introduced  in  France, 
Belgium  and  Portugal,  to  new  public  sector  debt  facilities  introduced  in  the  United 
Kingdom,  Germany  and  France.  A  number  of  public  authorities  are  also  modifying  the 
management  of  procurement  of  PPP  projects  or  simplifying  national  public  procurement 
rules  and  practices,  which  often  go  beyond  the  minimum  procedural  requirements  of 
Community  rules  in  this  field.  These  developments  reflect  governments’  commitments  to 
ensure  that  PPPs  play  a  more  important  role  in  investment  —  a  role  that  will  become  still 
more important as public finances remain under pressure for the foreseeable future30. 

Reduced  access  to  finance  may  also  have  an  impact  on  the  effectiveness  and  extent  of 
competition  in  the  public  procurement  process.  The  fact  that  there  is  not  enough  banking 
capacity in the market to support two or more fully funded bids, and that banks are unwilling 
to  commit  significantly  in  advance  of  contract  signature,  has  significant  implications  for 
procurement.  The  issue  is  therefore  how  to  ensure  that  deals  are  still  closed,  and  that  the 
public sector gets the best value for funding while not infringing the public procurement rules. 
The Commission will explore ways to deal with these difficulties (Section 5). 

At the EU level, the European Council of 11 and 12 December 200831 supported the use of 
accelerated  procedures  during  2009  and  2010,  recognising  the  exceptional  nature  of  the 
current economic situation and the need to accelerate public spending during the crisis32. 

28 

29 

30 
31 
32 

Material in this section draws on analysis by the European PPP Expertise Centre (EPEC) as part of its 
work  on  the  impact  of  the  credit  crisis  on  PPPs.  EPEC  was  established  as  a  joint  initiative  by  the 
Commission, Member States and EIB. Further details are available at www.eib.org/epec. 
Maturities of 7 to 10 years are now the market standard. Previously, maturities of 25 to 30 years were 
not uncommon for major infrastructure projects. 
Support measures for PPPs might constitute state aid, which needs to be notified to the Commission. 
Point 11, 8th indent. 
IP/08/2040 of 19.12.2008. 

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The  Commission  has  also  put  in  place  a  ‘Temporary  Community  framework  for  State  aid 
measures to support access to finance’33, which contains a number of relevant provisions for 
PPPs. It provides a flexible complementary instrument allowing Member States to intervene 
where general measures, interventions in line with market conditions and interventions under 
the normal state aid rules are insufficient to respond to the exceptional conditions created by 
the crisis. 

4.2. 

Challenges inherent to complex procurement models such as PPPs 

There  are  a  number  of  inherent  difficulties  in  setting  up  PPPs,  which  need  to  be  addressed 
more broadly: 

–  They  may  require  committing  significant  resources  at  the  preparation  and  bidding  stage 

and often involve important transaction costs. 

–  They require a  set  of specific skills  within  the public sector, involving the preparation, 
conclusion  and  management  of  contracts.  The  range  of  complex  financial  arrangements 
required for PPPs and the relative lack of expertise in such matters may limit the capacity 
of the public sector to deliver good PPPs. Training and assistance are therefore necessary 
to accumulate the necessary knowledge for the sound preparation of PPP projects. 

–  In cases involving Community funding, in the short term Member States may view PPPs 
unfavourably  compared  to  grant  funding  for  projects  procured  and  implemented  through 
traditional  means.  The  long-term  benefits  of  potentially  greater  efficiency  from  private 
sector participation tend to be forgotten when seen against the more urgent need to meet 
the requirements of EU procedures. Moreover, a level playing field between public and 
private management of public infrastructure and services in the allocation of EU funding 
to  investment  projects  should  be  guaranteed.  To  this  end,  rules  and  practices  should  be 
reviewed  in  order  to  ensure  that  there  is  no  discrimination  in  the  allocation  of  funds  for 
investments projects in which the private sector participates. 

–  PPPs  require  long-term  governmental  commitment  and  political  will  to  sharing 
investment in major projects with the private sector. In particular, the possibility of future 
changes  in  policy  in  various  regulatory  domains  (environment,  local  authorities' 
autonomy, fiscal policy, economic policy) may introduce uncertainty into the procurement 
process and can increase costs. 

–  Successful PPPs need to be designed to allow private partners the potential to generate a 
return proportionate to the risks they undertake. Since risks are shared with public partners, 
returns  should  also  be  shared.  Bidding  processes  must  be  competitive  and  require  an 
appropriate  regulatory  and  financial  framework  at  national  level.  Public  entities  should 
have flexibility in the types of agreements they can conclude, and retain the possibility to 
award contracts according to value for money, provided for by the best mix of private and 
public risk allocation. 

4.3. 

Specific challenges of Joint Technology Initiatives 

PPPs  in  the  research  field  are  oriented  towards  coordinating  public  and  private  investment 
into  generating  new  knowledge  and  technological  breakthroughs.  The  outputs  are  therefore 

33 

OJ C 83, 7.4.2009, p. 1. 

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less  predictable  and  tangible  than  for  the  procurement  of  infrastructure  and  services,  but 
potentially enormous. 

The  first  five  JTIs  were  set  up  as  "Community  bodies",  according  to  Article  185  of  the 
Financial  Regulation,  subject  to  rules  and  procedures,  such  as  the  Framework  Financial 
Regulation  for  Community  bodies,  the  staff  Regulations  and  the  Protocol  on  privileges  and 
Immunities,  which  were  conceived  in  the  interest  of  minimizing  risks  for  European  public 
funds  rather  than  facilitating  co-investment  with  private  partners  in  research  in  fast-moving 
markets.  These  JTIs  will  soon  become  operationally  autonomous  and  the  new  instrument 
responds to a need that the industrial research community has highlighted. At the same time, 
the partners express the view that the instrument could be implemented more effectively if the 
set-up and operational procedures were simplified and the legal and administrative framework 
better tailored to PPPs operating close to the market.  

These concerns should be addressed properly to make sure that the existing  JTIs deliver on 
their promises and do not hinder the interest of the private sector in new JTIs in fields where 
PPPs  are  necessary.  The  Commission  therefore  intends  to  explore  alternative  models  that 
could  lead  to  a  more  streamlined  process  for  setting  up  and  implementing  public-private 
partnerships in European research. In the light of the first experience with JTIs and in view of 
setting-up  new  long-term  PPPs,  the  Commission  will  consider  all  options  in  reviewing  the 
legal framework  and the financial  rules (as well as the operational procedures) to provide a 
simple  and  cost-efficient  model,  based  on  mutual  understanding,  true  partnership  and  risk 
sharing.  

Moreover, contributions from the main EU research and innovation programmes (FP7, CIP) 
directly to PPPs can only be made through grants or public tenders. This is a limitation where 
the  most  efficient  form  of  cooperation  would  be  an  investment.  To  improve  investment  in 
innovation, the Commission will explore options to allow PPPs to make investment decisions 
that include Community funds.  

5. 

THE WAY FORWARD: WHAT NEEDS TO BE DONE? 

To release fully the potential of PPPs as a tool for facilitating economic recovery and building 
sustainability,  competitiveness  and  high  quality  public  services  for  the  future  as  well  as 
maintaining  high  level  of  environmental  standards,  the  Commission  intends  to  build  an 
effective and enabling co-operation framework between public and private sector. Drawing 
on a dialogue with all relevant stakeholders through a dedicated PPP group to be set up by the 
Commission,  a  series  of  actions  will  complement  Member  States’  actions  to  remedy  the 
obstacles to the development of PPPs and to promote their use. These proposed actions will 
focus, on the one hand, on the Community instruments and regulatory framework, and on the 
other  hand,  on  enhanced  measures  aimed  at  improving  the  access  to  financing  of  PPP 
initiatives and increasing the EIB's role in financing essential projects. The ultimate decision 
to use PPPs lies with the Member States' public authority and it is for the Member States to 
review the national framework as necessary to enable it. The Commission will: 

1. Improve access to finance for PPPs through:  

•  Reinforcing and broadening the scope of the Community instruments currently available to 
support PPPs, such as LGTT and EPEC and other initiatives that, although not specifically 

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aimed  at  PPP  schemes,  can  support  the  implementation  of  PPP  projects  (JASPERS, 
JESSICA, RSFF, Marguerite Fund).  

•  Coordinating closely with the EIB in order to explore possible ways to increase the Bank's 
participation  in  EU  infrastructure  financing,  in  particular  regarding  key  initiatives  in  the 
EU  with  socio-economic  and  European  added  value  (e.g.  cross-border  projects, 
environmentally friendly initiatives, etc.). The EIB should also be supported in its efforts to 
make full use of the multiple instruments available for PPPs and to integrate PPPs as one 
of the core objectives of the Bank. Furthermore, the EIB is invited to further develop and 
implement guarantee instruments to facilitate the financing of PPPs, by promoting the role 
of the capital markets, institutional investors and the public sector as liquidity providers for 
PPP schemes. 

2. Facilitate the setting up of PPPs through public procurement of PPPs by : 

•  Examining the impact of the Community crisis response on the availability of finance for 
the  need  for  an  adjustment  of  procurement 

infrastructure 
programmes and processes to take account of reduced access to finance.  

investment, 

including 

•  Completing  ongoing  impact  assessment  and  other  preparatory  work  with  a  view  to 

considering a legal proposal in the area of concessions in 2010.  

3. Ensure proper debt and deficit treatment of PPPs through: 

•  Examining  the  implication  on  the  ‘balance  sheet’  treatment  of  PPP  assets  of  revised 
financing  arrangements  and  issue  clarifications  on  the  existing  accounting  treatment  in 
national accounts of PPP contracts. 

•  Providing  guidance  on  the  accounting  treatment  of  guarantees  provided  in  the  context  of 

PPP schemes. 

•  Continuing  to  provide  clear  advice  to  Member  States  on  the  statistical  recording  of 

individual PPP contracts, should they request it. 

4. Improve information and disseminate relevant expertise and know-how, by: 

•  The  Commission  will  issue  guidance  on  the  legal  and  methodological  issues  involved  in 
combining EU funds with PPPs, in particular in the framework of the JASPERS initiative, 
in order to facilitate and increase the uptake of PPPs in structural funds. Guidelines on the 
applicability  of  PPPs  for  simpler  forms  of  PPP  such  as  Design-Build-Operate  contracts 
will also be issued.  

•  Pilot  PPP  projects  that  could  serve  as  models  of  best  practices,  good  governance  and 
solutions  should  be  developed  and  replicated  on  a  wider  scale  with  the  use  of  technical 
assistance elements of relevant funding programmes. 

•  Working  with  the  European  PPP  Expertise  Centre  (EPEC)  to  identify  means  to  deliver 
enhanced long term support to those Member States that seek to use PPP to optimise their 
use of structural and cohesion funds as a component of programmes of investment. EPEC 
should be strengthened and be developed into a platform for the exchange of information 
and  best  practices  and  act  as  a  focal  point  for  a  European  network  of  national  bodies 

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established  to  support  PPPs.  It  can  also  complement  the  role  of  JASPERS  and  the 
Commission, both of which support individual grant applications and projects. Options to 
promote  better  project  preparation  and  design  projects  that  are  better  suited  for 
private sector involvement will be explored. 

•  Disseminating good practice, in cooperation with EPEC, in order to enhance public sector 
management  capability  and  reduce  PPP  costs.  For  example,  EPEC  has  developed  an 
analysis  of  potential  remedial  actions  to  support  PPP  initiatives  in  the  prevailing 
circumstances of the financial markets34.  

•  Working with Member States to identify provisions in national legislation that prevent or 
hinder  setting  up  PPPs,  as  part  of  the  implementation  of  the  European  Economic 
Recovery  Plan.  Where  the  EU  funding  is  involved,  it  should  be  ensured  that  there  is  no 
discrimination  in  the  allocation  of  funds  to  investments  projects  depending  on  the 
management of the project, be it private or public. The Commission will examine together 
with  Member  States  the  EU  and  national  rules  and  practices  and  present  its  findings, 
accompanied by proposals for modifications, where appropriate, by the end of 2010. 

5. Address the specific challenges of JTIs and financing for innovation by: 

•  Moving the current JTIs rapidly to autonomy and examining the lessons learnt, while at the 
same  time  exploring  options  for  streamlining  the  legal  and  administrative  framework 
applicable  to  JTIs.  While  ensuring  the  protection  of  the  EU's  financial  interests,  the 
objective  should  be  to  strike  the  right  balance  between  control  and  risk  and  be  flexible 
enough to permit an efficient partnership with the private players, ensuring the protection 
of the EU's financial interests based on an equitable sharing in the costs and benefits 

•  Taking a strategic perspective with JTI leaders and other stakeholders to identify what the 
specific  obstacles  are  and  how  they  can  best  be  addressed,  including  changes  in  the 
Community  rules  that  govern  them,  such  as  the  Financial  Regulation,  as  necessary.  A 
report including policy recommendations will be presented in the coming months. On the 
basis  of  the  recommendations  of  this  report,  the  Commission  will  propose  a  new 
framework  for  JTI,  which  could  be  based  on  private  law  bodies.  This  new  framework 
will  be  taken  into  account  in  the  revision  of  the  Financial  Regulation,  which  will  be 
presented during the first half of 2010.  

•  Working with the EIB group and other stakeholders to see how the financial instruments 
could  be  strengthened  in  order  to  improve  finance  for  innovation.  This  work  should  also 
examine  whether  and  how  the  participation  by  the  EU  in  private  law  bodies  could  be 
facilitated  as  a  means  to  delivering  our  innovation  policy  goals.  The  output  of  this  work 
could  be  included  in  Commission  proposals  for  a  new  innovation  policy,  due  to  be 
presented in early 2010, and taken into account where appropriate, in the coming revision 
of the Financial Regulation.  

The Commission will take stock of the results of these initiatives aiming at improving the EU 
framework for PPPs before the end of 2011 and if necessary, propose new initiatives.  

34 

C.f. European Expertise Centre- EPEC-publication "The financial Crisis and the PPP market, potential 
remedial actions" of August 2009 at www.eib.org/epec. 

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6. 

CONCLUSION 

Developing  PPP  as  an  instrument  becomes  critical  as  the  financial  and  economic  crisis  is 
taking its toll on the ability of the public purse to raise adequate financial means and allocate 
resources  to  important  policies  and  specific  projects.  The  interest  of  the  public  sector  in 
innovative  financing  instruments  has  increased  and  so  has  the  political  readiness  to  create 
conditions  for  more  efficient  ways  of  delivering  infrastructure  projects,  whether  in  the 
transport,  social,  energy  or  environmental  sectors.  On  the  other  hand,  the  private  sector's 
interest  in  pursuing  PPPs  could  be  limited  by  the  prevailing  regulatory  framework  and  new 
economic  constraints,  as  well  as  other  longer  established  underlying  factors  such  as 
limitations in the public sector's capacity to deliver PPP programmes in many parts of Europe. 
In order to ensure that PPPs continue to play a role in the longer term, in particular five key 
actions are indispensible in 2010: 

•  The  Commission  will  set  up  a  PPP  group  inviting  relevant  stakeholders  to 
discuss their concerns and further ideas with regard to PPPs. Where appropriate, it 
will issue guidance assisting Member States in reducing the administrative burden 
and delays in the implementation of PPPs: in this context, it will explore ways to 
facilitate and to speed up the attribution of planning permits for PPP projects. 

•  The Commission will work with the EIB with a view to increasing the funding 
available  for  PPPs,  by  re-focussing  existing  Community  instruments  and  by 
developing financial instruments for PPPs in the key policy areas. 

•  The  Commission  will  review  the  relevant  rules  and  practices  in  order  to  ensure 
that  there  is  no  discrimination  in  the  allocation  of  public  funds,  where 
Community  funding  is  involved,  depending  on  the  management  of  the  project, 
be it private or public. It will make proposals for amendments, where appropriate. 

•  The  Commission  will  propose  a  more  effective  framework  for  innovation, 
including  the  possibility  for  the  EU  to  participate  in  private  law  bodies  and 
directly invest in specific projects. 

•  The  Commission  will  consider  a  proposal  for  a  legislative  instrument  on 

concessions, based on the ongoing Impact Assessment. 

The  actions  set  out  above  aim  at  creating  a  supportive  Community  framework  for  PPPs 
designed  to  meet  the  needs  of  citizens,  furthers  Community  goals  through  a  prospective 
analysis and ensures that actual delivery meets these needs. 

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