The Europe 2020 project bond initiative: an alternative to finance infrastructure in Europe
Abstract
The economic and financial crisis that struck Europe over the last few years has imposed much stricter capital and liquidity requirements for commercial banks thereby reducing their ability to provide funding to infrastructure projects. To circumvent this problem the European Union has promoted the Europe 2020 Project Bond Initiative (PBI) aimed at using European funds for credit enhancement to increase the appetite of institutional investors – such as pension funds and insurance companies – to boost large-scale infrastructure financing. In this paper we describe the specific constraints and attractiveness of the PBI within Europe using the SWOT methodology to analyse the information coming from both pilot case studies and the responses that institutional investors and other stakeholders provided to the EC public consultation about the PBI. On the basis of this information we found that even though the initiative may contribute to facilitate infrastructure financing in Europe, there are still some challenges to be addressed for its right implementation.
First published online 9 January 2017
Keyword : infrastructure financing, project bonds, European Union, institutional investors, economic recession, capital markets, SWOT analysis
How to Cite
Vassallo, J. M., Rangel, T., Baeza, M. de los Ángeles, & Bueno, P. C. (2018). The Europe 2020 project bond initiative: an alternative to finance infrastructure in Europe. Technological and Economic Development of Economy, 24(1), 229-252. https://doi.org/10.3846/20294913.2016.1209251
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Jacobsson, R.; Jacobsson, S. 2012. The emerging funding gap for the European Energy Sector – will the financial sector deliver?, Environmental Innovation and Societal Transitions 5: 49–59. https://doi.org/10.1016/j.eist.2012.10.002
Latham and Watkins. 2009. Why project bonds now?, Client Alert 914: 1–6.
Marowa, Y.; Muyengwa, G. 2015. Risk assessment in infrastructural projects, in International Association for Management of technology IAMOT Conference Proceedings, 8–11 June 2011, University of Pretoria, Cape Town, South Africa.
Mbeng Mezui, C. 2012. Accessing local markets for infrastructure: lessons for Africa. Working paper, No 153, African Development Bank Group.
OECD. 2013. The potential of private institutional investors for financing transport infrastructure. Discussion Paper No.14.
OECD. 2014. Are institutional investors the answer for long-term development financing? Development Co-operation Report 2014. Mobilising Resources for Sustainable Development.
Rossi, E.; Stepic, R. 2015. Infrastructure project finance and project bonds in Europe. Basingstoke: Palgrave Macmillan. https://doi.org/10.1057/9781137524041
Scannella, E. 2012. Project finance in the energy industry: new debt-based financing models, International Business Research 5(2): 83–93. https://doi.org/10.5539/ibr.v5n2p83
Siemiatycki, M. 2013. Pension fund investors in transport infrastructure: opportunities and barrier, in Workshop “The desired and undesired effects of infrastructure and transport policy reforms”, 29 November 2013, Universidad de Barcelona, Spain.
Zaharioaie, M. 2012. Appropriate financial instruments for public-private partnership in European Union, Procedia Economics and Finance 3: 800–805. https://doi.org/10.1016/S2212-5671(12)00233-X
Bassanini, F.; Reviglio, E. 2011. Financial stability, fiscal consolidation and long-term investment after the crisis, OECD Journal: Financial Market Trends 1: 1–45. https://doi.org/10.1787/fmt-2011-5kg55qw1vbjl
Baycheva-Merger, T.; Wolfslehner, B. 2016. Evaluating the implementation of the Pan-European Criteria and indicators for sustainable forest management – A SWOT analysis, Ecological Indicators 60: 1192–1199. https://doi.org/10.1016/j.ecolind.2015.09.009
Beckers, F.; Chiara, N.; Flesch, A.; Maly, J.; Silva, E.; Stegemann, U. 2013. A risk management approach to a successful infrastructure project. Initiation, financing and execution. McKinsey Working paper on risk, 52.
Bhattacharyay, B. N. 2010. Financing Asia’s infrastructure: modes of development and integration of Asian financial markets. Working Paper, no. 229. Asian Development Bank Institute.
Blanc-Brude, F. 2014. Benchmarking long-term investment in infrastructure. Objectives, roadmap and recent progress [online]. IDEHEC – Risk Institure [cited September 2014]. Available from Internet: http://cib.natixis.com/flushdoc.aspx?filename=Benchmark_Investment_Infrastructure_EN.pdf
Boston Consulting Group. 2013. Global Asset Management. Capitalizing on the recovery.
Brown, K. 2007. Are public-private transactions the future of infrastructure finance?, Public Works Management and Policy 12: 320–324. https://doi.org/10.1177/1087724X07303680
Comino, E.; Ferretti, V. 2016. Indicators-based spatial SWOT analysis: supporting the strategic planning and management of complex territorial systems, Ecological Indicators 60: 1104–1117. https://doi.org/10.1016/j.ecolind.2015.09.003
Christophersen, H.; Bodewig, K.; Secchi, C. 2014. New financial schemes for European transport infrastructure projects. Interim Report.
Daito, N.; Chen, Z.; Gifford, J. L.; Porter, T.; Gudgel, J. E. 2013. Implementing public private partnerships during challenging economic times: case study of the 495 Express lanes on the Virginia portion of the Washington Capital Beltway Project (USA), Case Studies on Transport Policy 1(1–2): 35–45. https://doi.org/10.1016/j.cstp.2013.07.001
Della Croce, R. 2011. Pension funds investment in infrastructure: policy actions. OECD Working Papers on Finance, Insurance and Private Pensions, No. 13, OECD Publishing. https://doi.org/10.1787/5kg272f9bnmx-en
Della Croce, R.; Yermo, J. 2013. Institutional investors and infrastructure financing. OECD Working Papers on Finance, Insurance and Private Pensions, No. 36, OECD Publishing. https://doi.org/10.1787/5k3wh99xgc33-en
Della Croce, R.; Gatti, S. 2014. Financing infrastructure – international trends, OECD Journal: Financial Markets Trends 5(1): 123–138. https://doi.org/10.1787/fmt-2014-5jxvpb4jfrf1
Dhondt, T.; Krawchenko, A.; Traxler, F. 2014. Ad-hoc audit of the pilot phase of the Europe 2020 Project Bond Initiative. Reliance. Ernst & Young Global Limited.
Esty, B. C.; Chavich, C.; Sesia, A. 2014. An overview of project finance and infrastructure finance – 2014 update. Harvard Business School Background Note 210-061.
EIB. 2010. Capital markets in PPP financing: where we were and where are we going? European Investment Bank.
EIB. 2012. Financing PPPs with project bonds – Issues for public procuring authorities. European Investment Bank.
EIB. 2015. Investment plan for Europe. European Investment Bank.
European Commission. 2011a. A pilot for the Europe 2020 project bond initiative.
European Commission. 2011b. Consultation on the Europe 2020 project bond initiative.
European Commission. 2011c. A pilot for Europe 2020 project bond initiative – legislative proposal adopted by the Commission. MEMO 11/707.
European Commission. 2013a. Consultation on the Europe 2020 Project Bond Initiative: written responses [online], [cited September 2014]. Available from Internet: http://ec.europa.eu/economy_finance/articles/consultation/written_responses_en.htm
European Commission. 2013b. Report of the high level expert group on SME and infrastructure financing [online], [cited July 2014]. Available from Internet: http://europa.eu/efc/working_groups/hleg_re-port_2013.pdf
European Commission. 2014a. The pilot phase of the Europe 2020 project bond initiative – projects [online], [cited September 2014 ]. Available from Internet: http://ec.europa.eu/economy_finance/financial_operations/investment/europe_2020/index_en.htm
European Commission. 2014b. Supplementing directive 2009/138/EU of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).
European Commission. 2014c. Commission delegated regulation of 10.10.2014 to supplement Regulation (EU) 575/2013 with regard to liquidity coverage requirement for Credit Institutions.
Federal Highway Administration (FHWA). 2009. Transportation Finance Innovations: the Transportation Infrastructure Finance and Innovation Act (TIFIA). Federal Highway Administration, Office of Innovative Program Delivery, Washington, D.C.
Gatti, S. 2013. Project finance in theory and practice. 2nd ed. London: Elsevier inc.
Hellowell, M. 2013. PFI redux? Assessing a new model for financing hospitals, Health Policy 113: 77–85. https://doi.org/10.1016/j.healthpol.2013.09.008
Herring, R. J.; Chatusripitak, N. 2000. The case of the missing market: the bond market and why it matters for financial development. Asian Development Bank Institute/Wharton Seminar on financial structure for sustainable development in post-crisis Asia, Tokyo.
Hill, T.; Westbrook, R. 1997. SWOT analysis: it’s time for a product recall, Long Range Planning 30: 46–52. https://doi.org/10.1016/S0024-6301(96)00095-7
Jaber, J. O.; Elkarmi, F.; Alasis, E.; Kostas, A. 2015. Employment of renewable energy in Jordan: current status, SWOT and problem analysis, Renewable and Sustainable Energy Reviews 49: 490–499. https://doi.org/10.1016/j.rser.2015.04.050
Jacobsson, R.; Jacobsson, S. 2012. The emerging funding gap for the European Energy Sector – will the financial sector deliver?, Environmental Innovation and Societal Transitions 5: 49–59. https://doi.org/10.1016/j.eist.2012.10.002
Latham and Watkins. 2009. Why project bonds now?, Client Alert 914: 1–6.
Marowa, Y.; Muyengwa, G. 2015. Risk assessment in infrastructural projects, in International Association for Management of technology IAMOT Conference Proceedings, 8–11 June 2011, University of Pretoria, Cape Town, South Africa.
Mbeng Mezui, C. 2012. Accessing local markets for infrastructure: lessons for Africa. Working paper, No 153, African Development Bank Group.
OECD. 2013. The potential of private institutional investors for financing transport infrastructure. Discussion Paper No.14.
OECD. 2014. Are institutional investors the answer for long-term development financing? Development Co-operation Report 2014. Mobilising Resources for Sustainable Development.
Rossi, E.; Stepic, R. 2015. Infrastructure project finance and project bonds in Europe. Basingstoke: Palgrave Macmillan. https://doi.org/10.1057/9781137524041
Scannella, E. 2012. Project finance in the energy industry: new debt-based financing models, International Business Research 5(2): 83–93. https://doi.org/10.5539/ibr.v5n2p83
Siemiatycki, M. 2013. Pension fund investors in transport infrastructure: opportunities and barrier, in Workshop “The desired and undesired effects of infrastructure and transport policy reforms”, 29 November 2013, Universidad de Barcelona, Spain.
Zaharioaie, M. 2012. Appropriate financial instruments for public-private partnership in European Union, Procedia Economics and Finance 3: 800–805. https://doi.org/10.1016/S2212-5671(12)00233-X