EIB project bonds to arrive early with pilot programme

The European Commission is proposing to use €230m to fund a test phase for its Europe 2020 Project Bond initiative, to be implemented in 2012-2013. The pilot programme, part of a wider €50bn infrastructure facility, will target up to 10 projects and ‘is expected to mobilise investments of up to €4.6bn’.

The European Commission has heeded European Investment Bank (EIB) president Philippe Maystadt’s call to implement the Europe 2020 Project Bond initiative – a credit enhancement mechanism designed to bring private sector infrastructure bonds into A-rated territory – earlier than its proposed 2014 launch date.

“Personally, I think that it would be a mistake to wait until 2014 to launch the first [project bond] initiatives,” Maystadt told Infrastructure Investor in an exclusive interview published over the summer. “To have this project bond initiative fully up and running in 2014, it would be in our common interest to apply this instrument to real projects before that date. But this is my personal view – I can’t speak for the European Commission (EC),” he added.

Yesterday, though, the EC echoed Maystadt’s thoughts and announced that it wants to launch a €230 million pilot programme designed to test the project bond mechanism on five to 10 projects in 2012 to 2013. “The Commission has seen from experience with other financial instruments that they often require a significant lead time prior to becoming fully operational,” the European body stated.

The EC explained the pilot project will focus on supranational transport, energy and broadband projects targeting deals “that are at a relatively developed stage of bidding and financing or require refinancing after the construction phase”. Since project bonds are a credit-enhancing mechanism, the €230 million “is expected to mobilise investments of up to €4.6 billion”.

The Europe 2020 Project Bond Initiative aims to credit-enhance private sector infrastructure bonds into A-rating territory by using either a fully funded subordinated debt tranche or an unfunded subordinated debt guarantee – both provided by the EIB and covering up to 20 percent of a project’s debt. The EIB will manage the pilot programme, once it is approved by the European Parliament and Council, the EC said.

The pilot programme was part of a wider EC announcement on a new, €50 billion facility – the Connecting Europe Facility – dedicated to funding cross-border transport, energy and ICT projects across the European Union. According to the EC, €31.7 billion will be used to fund transport projects, €9.1 billion will be channelled to trans-European energy infrastructure and the remaining €9.2 billion will be used to support broadband investments.

As reported by Infrastructure Investor last week, between 15 to 20 percent of the €50 billion is earmarked to be leveraged via financial instruments – including project bonds and public-private partnerships (PPPs), explained Antoine Quero-Mussot, adviser to the EC’s director of budget.

Quero-Mussot also highlighted that “the Connecting Europe Facility is not just about money, it’s also about governance. There is going to be a regulatory push to make [cross-border projects] happen as part of the proposal.”

* To read our exclusive interview with EIB president Philippe Maystadt, please click here. To find out more about the European Union’s cross-border transport programme, please click here.