16 Loan guarantees for the Trans-European
Transport Network
| (a)
(26431)
7280/05
COM(05) 75
(b)
(26432)
7281/05
COM(05) 76
(c)
(26433)
7282/05
SEC(05) 323
|
Commission Communication: European Initiative for Growth — Feasibility report on EU loan guarantee instrument for TEN-Transport projects
Commission Communication: European Initiative for Growth — Concept for the design of an EU loan guarantee instrument for TEN-Transport projects
Commission staff working paper: Annex to the Commission Communication: European Initiative for Growth — EU loan guarantee instrument for TEN-Transport projects
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| Legal base | — |
| Documents originated | 7 March 2005
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| Deposited in Parliament | 16 March 2005
|
| Department | Transport |
| Basis of consideration | EM of 23 May 2005
|
| Previous Committee Report | None; but see (25060) 14893/03: HC 42-ii (2003-04), para 13 (9 December 2003) and (25873) 11740/04: HC 42-xxxi (2003-04), para 6 (15 September 2004)
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information requested
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Background
Section 1.115 16.1 The Trans-European Transport Network (TEN-T)
is promoted as a key element in the creation of the internal market
and the reinforcement of economic and social cohesion. It is intended
to improve interconnection and interoperability of national networks
as well as access to such networks. Guidelines and a Financial
Regulation have been adopted governing priorities and financing
for the TEN-T. Funding from the TEN-T budget is intended to be
catalytic, with the greater part coming from either the public
authorities of the Member States or from the private sector.
Section 1.116 16.2 In December 2003 the European Council asked
the Commission to examine, together with the European Investment
Bank (EIB), the feasibility of a loan guarantee instrument for
the transport sector, intended to facilitate private sector participation
in financing projects through public-private partnerships (PPPs).
Such an instrument was one of the Commission's proposals in its
Communication of November 2003 on an "initiative for growth".[52]
The documents
Section 1.117 16.3 The Commission Communications report the
outcome of the study of the feasibility of a loan guarantee instrument
(document (a)) and outline a proposal for such an instrument (document
(b)). Document (c) is a Commission staff working paper setting
out the background to both Communications.
Section 1.118 16.4 In the Communication on the feasibility
study the Commission says that the general opinion of participants
in a market-testing exercise it carried out in cooperation with
the European Investment Bank was that a Community loan guarantee
scheme covering immediate post-construction financing risks of
transport projects (in the so-called ramp-up period) would be
welcome and useful. On the basis of the exercise the Commission
concludes that a loan guarantee instrument in support of TEN-T
projects, particularly priority cross-border schemes, would be
appropriate.
Section 1.119 16.5 In its Communication outlining a loan guarantee
scheme the Commission says the key objectives would be to:
· facilitate
completion of projects of European significance;
· encourage
private participation in such projects and new approaches to financing
them;
· fill
market gaps in the provision of guarantees; and
· avoid
excessive exposure for the Community by relying on market mechanisms
whilst maximising the value of public financial participation.
Section 1.120 16.6 It proposes that:
· there
should be a Community guarantee, up to predetermined levels, of
stand-by credit lines for PPP projects;
· guarantees
would cover unexpected debt service shortfalls due to certain
specific risks, especially traffic risks;
· guarantees
could also extend to availability and performance risks, if reasonably
assessable;
· guarantees
would be available for TEN-T projects demonstrating a near investment-grade
creditworthiness, so that calls on the instrument would be likely
to be limited;
· there
should be timely reimbursement of any guarantees called, but with
the Community being a more "patient lender" than the
private sector: a loan would be reimbursed as soon as there were
revenues left after having paid the operational costs of the projects
and servicing the debt to senior lenders; and
· a
legal basis and financial envelope for the loan guarantee instrument,
would as already foreshadowed, be in the general draft Regulation
for financing Trans-European Networks in the period 2007-13.[53]
The Government's view
Section 1.121 16.7 On the policy implications
of this proposal the Minister of State, Department of Transport
(Dr Stephen Ladyman) sets out the Government's view that the advantage
of a properly used PPP structure is identification of key project
risks and their assignment to the party (public or private) best
able to manage and mitigate them. He says that it is not clear
how the proposed loan guarantee scheme would effect the transfer
of risk to the private sector and that a "patient lender"
approach and the idea of providing stop-gap finance could create
the potential for re-involving the public sector in the management
of risks that had been transferred, so recreating the problems
of conventional procurement in which the public sector bears the
risks of overruns.
Section 1.122 16.8 The Minister adds that the
Commission's view that a significant proportion of the projects
for which the guarantee would be called would be able to service
the Community's claim in a reasonable time-frame would, if correct,
mean that the loan guarantee instrument could have a substantial
leverage effect and potentially lead to a more efficient use
of Community funds. So the Government believes there may be merit
in the Commission proposal in that:
· revenue
shortfalls during the ramp-up period of transport projects are
well documented; and
· where
these potential shortfalls act as a disincentive for the private
sector to invest, this should be addressed to ensure that the
best value-for-money solutions can be adopted.
He says the proposal may go some way towards addressing
this disincentive. However, the Government considers that:
· a
loan guarantee instrument should not concentrate solely on leveraging
in extra private finance — emphasis needs to be on value
for money, not just committing more money;
· value
for money is achieved by properly allocating risks to the party
best able to manage them and by having robust structures in place
to make sure that the private sector has proper incentives to
manage its agreed risks; and
· the
Commission should not let a loan guarantee instrument blur the
lines of risk transfer and place risks back with the public sector.
Section 1.123 16.9 The Minister concludes that
Community expenditure should deliver against objectives which
are specific, measurable, attainable, relevant and timed (SMART).
The Government would, if the proposal proceeds, seek to ensure
that the Commission develops appropriate targets, indicators and
evaluation processes to comply with this requirement.
Section 1.124 16.10 As for the financial implications
of the proposal, the Minister says that, based on the model developed
by the Commission and the EIB, the loan guarantee scheme would
require a total budget allocation of about €1 billion (£0.7
billion), which the Commission proposes should be found within
its proposed 2007-2013 budget for TENs of €20 billion (£14.3
billion). The Minister reminds us of the Government's caution
about the suggested changes to the framework of support for TENs
and its refusal to consider the 2007-2013 financial envelope for
TENs until the 2007-2013 Financial Perspective is agreed.
Conclusion
Section 1.125 16.11 As with other proposals
which are at least partially dependent on the outcome of the negotiations
on the Financial Perspective for 2007-2013, we may wish to consider
this one further when that negotiation is concluded. Moreover,
in the light of the Government's reservations about the acceptability
of the proposed loan guarantee instrument, we should like to hear
further from the Minister as to how the Government intends to
ensure that any instrument is established and implemented in an
acceptable form. In particular, has it suggested in negotiations
on the general draft Regulation for financing Trans-European Networks
in the period 2007-2013 that the article on "Forms of Support"
should elaborate a little on the format of and conditions for
"loan guarantees to cover risks after the construction phase"?
Section 1.126 16.12 Whilst we await both the
outcome of the Financial Perspective negotiations and an answer
to our questions to the Minister we do not clear the documents.
52 (25060) 14893/03: see headnote. Back
53
See headnote. Back
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