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EU Financial Backing to Hybrid Transport PPPs

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Handbook on Public Private Partnerships in Transportation, Vol II

Part of the book series: Competitive Government: Public Private Partnerships ((CGPPP))

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Abstract

This chapter explains how a specific policy and operational framework for “hybrid” transport PPPs has progressively taken shape within the European Union (EU). Over the past three decades the parallel evolution of the EU policy environment and the PPP market has affected how EU budgetary support can be combined with other funds into “hybrid” or “blended” PPPs in EU member states. In this context, managing the process aimed at achieving a timely and cost-effective coordination across decisions taken by diverse stakeholders, at different time scales and governmental levels, has proved challenging. Nevertheless, since the early 2000s the interaction between the EU policy framework and the PPP market has facilitated the consolidation of an increasingly articulated ecosystem, populated by public sector agencies, project sponsors, infrastructure operators and financiers, active throughout the transport PPP project life cycle. I rely on two recent hybrid PPP road operations to gain insight in this process and show how the EU budgetary support to transport PPPs has moved from an exclusive focus on cash subsidies in the construction phase to a far more articulated set of tools encompassing a variety of financial instruments bolstering PPPs in different phases of the project life cycle. Going forward, this evolution may foster a more effective combination between EU budgetary resources and those coming from other private and public sources.

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Notes

  1. 1.

    The Luxembourg-based EIB is often presented as the “in-house” bank of the EU. EU member states and the European Commission (EC), the executive arm of the EU, are its main shareholders.

  2. 2.

    For a previous discussion of transportation PPPs in Europe, see Medda, Carbonaro, and Davis (2013).

  3. 3.

    This depends in part on how you delimit the notion of a hybrid PPP arrangement, as we will explain shortly.

  4. 4.

    This may also be relevant in the wider context of impact investment tools. See for instance the discussion in OECD (2018) and GIIN (2018).

  5. 5.

    On this see the discussion in Carbonaro et al. (2017).

  6. 6.

    https://www.eib.org/epec/, in particular EPEC (2019a, 2019b).

  7. 7.

    See the WB Public-Private Infrastructure Advisory Facility (PPIAF) literature, including the 2006 PriceWaterhouseCoopers study (PWC-PPIAF, 2006) exploring PPP arrangements in Europe, as well as EPEC (2016a).

  8. 8.

    This followed a wider worldwide trend towards transport privatization. On this, see Gomez-Ibanez, John, and Meyer (1993).

  9. 9.

    The Turin-Milan motorway opened in 1932 was an early example of privately managed toll motorway.

  10. 10.

    Note that the tunnel was not financed via the EU budget, so it cannot be classified as a hybrid PPP, although the EIB contributed significantly to its funding.

  11. 11.

    Henning Christophersen was at the time the Commissioner for Economic and Financial Affairs and Vice-president of the European Commission. For details on the birth and development of TEN, see Turro (1997).

  12. 12.

    The rationale, development and ex-post performance of the LGTT pilot phase are presented in European Investment Bank (2014) and European Commission (2014c).

  13. 13.

    On the Project Bond initiative, see Ernst and Young (2015) and Vassallo, Rangel, Baeza, and Bueno (2018).

  14. 14.

    For further details, see European Commission (2014b).

  15. 15.

    These arrangements are generally implemented through dedicated agreements with the EIB and other financial institutions.

  16. 16.

    For instructive presentations of the effects of the financial crisis on road PPP contracts in Spain, see EDHEC Infrastructure Institute (2018) and Baeza & Vassallo (2014).

  17. 17.

    For a more detailed illustration of the changes aimed at facilitating blending in PPPs in the 2014–2020 period, see Carbonaro et al. (2017).

  18. 18.

    The EFSI also includes the Small and Medium Enterprise (SME) Window, implemented by the European Investment Fund (EIF), which is the arm of the EIB Group dedicated to SMEs.

  19. 19.

    See EPEC (2012b).

  20. 20.

    According to European Commission (2014a) the requirement is of the order of EUR 1.5 trillion for the 2010–2030 time horizon, of which the TEN-T network would require EUR 550 billion.

  21. 21.

    Reported in Deloitte (2017) on the basis of 2001–2014 OECD data.

  22. 22.

    See European Investment Bank (2019a, 2019b).

  23. 23.

    This is compatible with a GDP at current prices of the order of EUR 15–16 trillion, which in line with Eurostat statistics.

  24. 24.

    The cohesion fund is a cohesion policy budgetary tool aimed primarily at supporting larger projects in environment and transportation located in less developed regions.

  25. 25.

    The CEF 2014–2020 programme budget foresees EUR 23.7 billion for transport, of which EUR 10.0 billion are earmarked from the cohesion fund. Thus, the order of magnitude of additional CEF budgetary resources is approximately EUR 2.0 billion per year.

  26. 26.

    This represents approximately 17% of EU lending, see European Investment Bank (2019a, 2019b).

  27. 27.

    Source: EPEC PPP market database, and EPEC PPP EU market updates (various years).

  28. 28.

    In addition, some of the most active PPP markets are mature markets where procedural complications and the limited availability of EU budgetary support in transport infrastructure, which focuses more on the less developed regions, are likely to discourage the use of hybrid solutions.

  29. 29.

    European Commission (2019), section 4.2, based on 2016 OECD data.

  30. 30.

    An important difference between these budgetary tools is that those addressed to regional assistance are co-managed with national and regional authorities (so-called shared management) while the others are managed directly by the EC Directorates General, for instance DG for Mobility and Transport.

  31. 31.

    Carbonaro et al. (2017).

  32. 32.

    Vassallo and Garrido (2019) provide an excellent synthesis of the role played by the EU budget in supporting the transport sector.

  33. 33.

    For sites providing ample critical documentation on PPPs, although not focused on the transport sector, see for instance https://eurodad.org/ or https://www.psiru.org/.

  34. 34.

    The studies are Carbonaro et al. (2017) and EURODAD (2018).

  35. 35.

    Carbonaro et al. (2017), study carried out for the European Parliament.

  36. 36.

    The transportation cases are the Vasco da Gama bridge in Lisbon, the Eleftherios Venizelos International Airport in Athens and the D4-R7 bypass in Bratislava.

  37. 37.

    This applied to the Greek cases—the PPP route however had the (initial) merit of enabling large-scale road investment through a low number of procurement procedures.

  38. 38.

    Standalone here meaning without EU budgetary involvement.

  39. 39.

    On the relationship between ecosystem players and PPP operation life cycle see Deloitte (2017).

  40. 40.

    On this aspect see Deloitte (2017), pp. 24–27.

  41. 41.

    As an example, consider the establishment of dedicated PPP units in several EU member states, which in the case of Greece has led to a notable increase in hybrid PPPs, including in the transport sector.

  42. 42.

    On these issues, see CEE Bankwatch - Counter Balance (2016) and European Investment Bank (2017).

  43. 43.

    SIH is a joint stock company 100% owned by the Slovak Guarantee and Development Bank, a public promotional bank established by the Slovak Ministry of Finance.

  44. 44.

    The London-based EBRD is an international financial institution established in 1991 to assist the countries of the former Eastern Bloc in their transition to a market economy.

  45. 45.

    The ERDF (European Regional Development Fund) is one of the European Structural and Investment Funds (ESIF) used to pursue Cohesion Policy objectives.

  46. 46.

    The full payment is conditional on the achievement by the concessionaire of minimum quality targets during operation.

  47. 47.

    The evidence on the comparison was based on interviews with Slovak authorities carried out as part of the Carbonaro et al. (2017) study.

  48. 48.

    From Carbonaro et al. (2017). The study contains a relatively detailed description of the D4–R7 operation.

  49. 49.

    See https://www.eib.org/en/infocentre/press/releases/all/2016/2016-162-successful-long-term-financing-of-a-german-a-modell-project-a8-motorway.htm. Retrieved April 2019.

  50. 50.

    The rationale for the use of financial instruments such as the Debt Facility in the implementation of CEF policy was studied in a dedicated ex-ante analysis, see European Commission (2014a, 2014b, 2014c). For an assessment of the use of financial instruments, including the CEF Debt Facility see European Commission (2017).

  51. 51.

    Information based on Lacher (2019).

  52. 52.

    These were UniCredit, BBVA and the Baden-Württemberg LandesBank.

  53. 53.

    For instance the movement away from user charges towards availability payments, or a mix of the two, in road PPPs.

Abbreviations

BOT:

Build operate transfer

CEF:

Connecting Europe facility

CF:

Cohesion fund

DBFO:

Design build finance operate

DG REGIO:

Directorate General for Regional and Urban Policy

EBRD:

European Bank for Reconstruction and Development

EC:

European Commission

ECA:

European Court of Auditors

EFSI:

European Fund for Strategic Investments

EIB:

European Investment Bank

ESIF:

European Structural and Investment Funds

EPEC:

European PPP Expertise Centre

ERDF:

European Regional Development Fund

EU:

European Union

FI:

Financial instruments

GDP:

Gross domestic product

GFCF:

Gross fixed capital formation

IIW:

Infrastructure and innovation window

INEA:

Innovation and Networks Executive Agency

InvestEU:

EU Investment Programme (2021–2027)

LGTT:

Loan Guarantee Instrument for Trans-European Transport Network projects

NPBI:

National Promotional Banks and Institutions

PFI:

Private finance initiative

PPP, PPPs:

Public private partnership(s)

SIH:

Slovak investment holding

SPV:

Special purpose vehicle

TEN:

Trans-European Networks

TEN-T:

Trans-European Transport Network

TEN-T EA:

TEN-T Executive Agency

WB:

World Bank

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Acknowledgements

I thank my colleagues at CSIL, Centre for Industrial Studies, Milan, for allowing me to rely on a study on PPPs in EU Cohesion Policy carried out in 2017 for the European Parliament. The results of the study are presented in Carbonaro et al. (2017) and Carbonaro, Catalano, Delponte, and Vignetti (2018).

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  1. CSIL-Centre for Industrial Studies, Milan, Italy

    Gianni Carbonaro

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  1. Gianni Carbonaro
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Correspondence to Gianni Carbonaro .

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Editors and Affiliations

  1. Professor of Economics and director of the Center for Competitive Government in the College of Liberal Arts at Temple University, Philadelphia, PA, USA

    Simon Hakim

  2. Environmental Engineering & Public Health Consultant, Cincinnati, OH, USA

    Robert M. Clark

  3. Professor of Economics andmember of the Center for Competitive Government at Temple University, Philadelphia, PA, USA

    Erwin A. Blackstone

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Carbonaro, G. (2022). EU Financial Backing to Hybrid Transport PPPs. In: Hakim, S., Clark, R.M., Blackstone, E.A. (eds) Handbook on Public Private Partnerships in Transportation, Vol II. Competitive Government: Public Private Partnerships. Springer, Cham. https://doi.org/10.1007/978-3-031-04628-5_11

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