LGTT has shown that blending EU Funds into PPPs works. The remit of the LGTT, which is currently restricted to revenue-based PPP payment mechanisms, could be expanded to mitigate early stage risks for any PPP payment mechanism (e.g. availability payment mechanisms). The LGTT could be re-designed to be as flexible as possible in its eligibility conditions to adapt to new developments in PPP arrangements, in terms of payment mechanisms and risk allocations. However, the procedure to amend the TEN Regulations requires a full co-decision procedure and could take several years. With regard to JESSICA, there are strong indications that JESSICA, once established by the Managing Authority responsible for the region, may become an important element in the financing of municipal PPPs. The instrument could therefore be marketed as such and package solutions offered. It may be worth exploring the establishment of a PPP financing facility along the lines of JESSICA, which could cover PPPs that are currently excluded from JESSICA for their sector and from Marguerite for their size.
In addition, new instruments should be considered, which can facilitate the financing of European infrastructure. The existing financial engineering instruments try to improve project structures and mitigate some of the project risks to make the investments more attractive to banks, investors, and sponsors. Yet, in times of unprecedented investment needs and an increased interest in PPPs, which coincide with a reduction of bank financing, attempts to attract new financial resources from private investors and pension funds need to be made. Bonds are long-term and can be cheaper than bank debt. PPP capital structures would, however, need credit enhancement to make them attractive as an asset class. Such underpinning could be made from EU Funds. EU guarantees or equity-like instruments (applied directly or, more likely, through the EIB) would sufficiently enhance the level of risk capital in infrastructure projects to enable the senior debt to reach investment grade. In turn, this should facilitate lending to the infrastructure sector, and ultimately also improve its liquidity.
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8 Please see also Annex I.