16 Project
Bond Initiative
| (35705)
5020/14
COM(13) 929
| Commission Report: Interim Report on the pilot phase of the Europe 2020 Project Bond Initiative
|
| Legal base
| —
|
| Document originated
| 19 December 2013
|
| Deposited in Parliament
| 7 January 2014
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| Department
| HM Treasury
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| Basis of consideration
| EM of 27 January 2014
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| Previous Committee Report
| None
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| Discussion in Council
| None planned
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| Committee's assessment
| Politically important
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| Committee's decision
| Cleared
|
Background
16.1 In June 2011, when presenting
its proposals for the Multiannual Financial Framework for 2014-20,
the Commission suggested the use of "EU project bonds"
for major EU infrastructure projects — this has become known
as the Project Bond Initiative (PBI).
16.2 The Connecting Europe Facility
Regulation, Regulation (EU) No. 1316/2013, for financing Trans-European
Networks for 2014-20 includes provision for the use of project
bonds, allowing the PBI to start up progressively within a ceiling
of €230 million (£191.75 million) during the years 2014
and 2015.
16.3 The PBI is a risk sharing
instrument created by the European Investment Bank (EIB) and the
Commission. The aim of the PBI is to enable project companies
to issue project bonds that are attractive to debt capital market
investors. The PBI achieves this by providing credit enhancement
either through a direct loan which would only be repaid after
the senior bonds have been serviced (a subordinated loan) or a
contingent credit line that, once claimed, converts into a subordinated
loan. The subordinated loan or credit line is provided by the
EIB. The EU budget's contribution serves to partly absorb the
EIB's risk by covering the first losses on a portfolio of projects
up to a set amount. The PBI focuses on Trans-European Networks
for transport, energy, telecommunications and broadband.
16.4 In October 2011 the Commission
advocated a pilot scheme for PBI bonds and presented a legislative
proposal, which became Regulation (EU) No. 670/2012. This provided
for a pilot programme to be funded by redeployment in the 2012
and 2013 budgets from existing transport, energy and telecommunication
programmes — that is up to €200 million (£166.74
million) from the Trans-European Transport Network (TEN-T) budget,
up to €20 million (£16.67 million) from the budget of
the Competitiveness and Innovation Framework Programme and up
to €10 million (£8.34 million) from the Trans-European
Energy Network (TEN-E) budget.
The document
16.5 The Commission presents this
interim report on the progress of the pilot phase of the PBI,
as required by Regulation (EU) No. 670/2012. It covers the period
November 2012 to November 2013 and has been prepared in cooperation
with the EIB.
16.6 The Commission says that:
· to
allow stakeholders to familiarise themselves with the new instrument
on the basis of actual transactions, a pilot phase was launched
on 7 November 2012;
· to
be eligible under the pilot, projects must be approved by 31 December
2014 and reach financial close by 31 December 2016;
· a
full roll out of the initiative is envisaged within the Connecting
Europe Facility; and
· the
pilot phase is subject to an independent evaluation in 2015.
16.7 The Commission reports that:
· in
the first year of the pilot eight projects in seven Member States
have been approved by the EIB Board of Directors as potential
beneficiaries of the PBI;
· of
these two projects have been successfully credit enhanced by the
EIB — Spain's Castor gas storage facility, where the EIB
supported the issue of a €1.4 billion bond (£1.17 billion),
and the UK's Greater Gabbard offshore transmission project, where
the issue of a €0.30 billion (£0.25 billion) bond was
supported;
· there
was no EU budget involvement in the Castor gas storage facility
due to EU budget constraints; and
· an
additional project (a Belgian motorway project) is expected to
be signed by early 2014 .
16.8 The Commission also notes
that:
· the
active promotion of project bonds by both the Commission and the
EIB has supported the development of the infrastructure investment
market; and
· in
2013, a number of project bond financing solutions, including
several for the UK, re-emerged on the market, without support
of the EU budget.
16.9 To develop project bonds further,
the Commission recommends:
· issue
of further project bonds so that sufficient stock is outstanding
to enable benchmarks for future issuance to be more easily defined
— it is envisaged this will make it easier for investors
and procuring authorities to assess likely funding levels and
make the pricing of bond solutions more predictable;
· development
of a stronger, more mature project pipeline — under Connecting
Europe Facility technical assistance at institutional and project
level will be available to help develop pipelines of projects
of common interest; and
· sharing
the loss protection provided by the EU budget across all three
sectors to increase diversification enabling greater leverage
on the available EU budget funds — currently there are separate
loss provisions underpinning the three separate sectoral portfolios
limiting the risk diversification and leverage which can be achieved.
The Government's view
16.10 The Economic Secretary to
the Treasury (Nicky Morgan) says that:
· the
Government supports the concept of European Project Bonds and
the work currently being undertaken to develop the PBI through
a pilot;
· Project
Bonds represent a potential solution to the challenge of maintaining
high levels of investment in infrastructure at times of severe
fiscal constraint and the absence of private sector risk takers;
and
· the
Government notes the Commission's Report, which indicates the
progress which has been achieved in the first year of the pilot
phase, and awaits the findings of the full independent evaluation
in 2015.
Conclusion
16.11 Whilst clearing this document
we draw it to the attention of the House, as illustrating what
promises to be a useful tool in promoting viable infrastructure
projects.
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