The EIB recognises that issue of the choice between public and private finance for the delivery of infrastructure lies with its shareholders and customers. From a European perspective, however, it is clear that the economic crisis (and resulting increase in public sector indebtedness) has significantly reduced the capacity of EU Member States to finance investment from budgetary resources.
The value of investment finance required remains very significant. By way of example, meeting the European Commission's commitments for the trans-European transport network alone will require finance in excess of €20 billion during the period 2007-13. Significant additional funds will be needed to meet commitments for energy and the environment, to help lagging regions and implement the knowledge economy.
This suggests that increasing recourse to private finance will be essential if European governments are to meet their economic commitments. As noted above, this is now being explicitly recognised by the European Commission which is committed to addressing some of the legislative and administrative barriers to PPPs. However, the balance between public and private finance should be determined above all by the role private finance plays in securing value for money from these investment programmes.
It is clear that, as a result of the financial crisis and difficulties suffered by the banking market, the price of risk has increased and is unlikely in the foreseeable future to return to pre-crisis levels. Against this background, it will be more challenging for PPP projects to meet the value for money test. There are alternative means of engaging the private sector in the delivery of public infrastructure. It is clear, however, that the project financed PPPs in which the risks taken on by the private sector are underpinned by a mix of equity and third party debt is a tried and tested model, as well as the only sustainable means of matching the private sector's commitment to asset maintenance and service delivery to the economic lifetime of the infrastructure required.
Looking to the future, a focus on service delivery can be expected to be increasingly important. In other words, the contribution of the private sector to innovation in the delivery of strategic public services should be an important issue in assessing the long run role of private finance. In this respect of focus on service delivery, it is clear the UK has led the European market. In most of Europe, the focus remains predominantly on PPP as a means of delivering hard infrastructure. In the post crisis financial environment, the role that PPP can play in modernisation of public service delivery will be an increasingly important part of the value for money case for private finance.