In newer PPP markets, EIB funding was often critical to whether or not projects proceeded - or if they had proceeded, it would only have been possible in a substantially different form.
All projects benefited from at least one form of EIB financial value-added, e.g., a lower cost of EIB funding, longer maturity or grace period, diversification of funding, etc. In some cases this meant that the public sector was able to increase the scope of its project. Conversely, there were also cases where the financial value-added only became significant when EIB released third-party guarantees. Prior to release, EIB participation actually increased the cost of the project. As guarantee release is conditional, the EIB financial value-added can therefore be contingent on the project performing properly.
The benefit of lower-cost EIB loans was not always passed on, either wholly or partly, to either the public sector or end-users. This was particularly true for some early PPP projects where the Bank only entered after a preferred bidder had been selected and the final bids had not taken into account the benefit of EIB funding. In all the projects evaluated, the availability of funding or financial value-added, including the provision of loans with maturities extending beyond those available from commercial banks, were the primary reasons for EIB involvement. If these had not existed, the EIB would not have been asked to lend for the projects. Having said this, all parties acknowledged that once the EIB was involved a number of ancillary benefits could be identified, such as :
- The Bank helped to "validate" projects, both by reassuring the public sector that an appropriate structure was being used, and by giving reassurance to private-sector lenders that the project had been reviewed by "another pair of eyes" whose expertise was generally recognised.
- EIB expertise in PPP structures and contract negotiations was generally valued by other project parties, but was particularly important in countries with limited experience of PPP operations. In addition to support given on individual projects, EIB staff have contributed formally and informally to the development of PPP policies in a number of countries.
- Public-sector partners valued the EIB's presence as an "honest broker" and felt that the EIB, as a public organisation, would act in their best interests. The private sector sometimes felt that involving the Bank meant additional work, but respected the Bank's professionalism and thought the Bank could play a useful role in persuading the public sector to adhere to the PPPs original intentions.
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EV Recommendation |
Accepted Yes / No |
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1. |
In cases where the Bank does not enter at an early stage, e.g. single round bidding with a large number of potential bidders, it should make every effort to ensure that the funding cost advantage is passed on to the public sector or end user. (§8.1) |
Yes |
Ops: The principle that part of the EIB financial benefit should be passed on to the public sector/end users is accepted. Where this is not possible (for whatever reason) the non-financial benefits of EIB involvement (as highlighted, inter alia, in §8.2) also justify EIB participation. Early stage involvement in the PPP process is not always the most effective way to ensure the transfer of EIB financial benefit to the public sector/end-users as PPP procurement differs markedly across the EU. EIB value-added is maximised through a tailored approach to each PPP market. PJ: Whenever possible, it is clearly desirable that the Bank's financial value added is shared by the public sector and/or users. |
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2. |
To manage PPPs properly, the Bank's procedures and systems need to be modified to suit: • Multi-stage approval procedures; • Waivers; • Complex contracts and contractual relationships; • Multiple clients at appraisal. |
Yes |
OPS/PJ/RM: Following Internal Audit recommendations, a joint Ops/PJ/RM/JU working group is reviewing policy and procedures for project finance deals, including PPPs. PJ: PJ is preparing internal guidelines on the Appraisal and Monitoring of PPPs, including a review of the current 2-stage approval procedure and PJ's role in physical monitoring vis-à-vis RM during both construction and operation where the bank is at risk. RM: This comment is mainly relevant where the operation is structured as a project finance operation. |
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3. |
PPPs offer substantial opportunities for the Bank to add value. The Bank should therefore reinforce the existing Centre of Expertise (CoE) and consider establishing a horizontal Department with responsibility for structured finance operations including PPPs. (§5.6) |
Yes |
OPS: agrees that PPPs offer the Bank opportunities to add value. It also agrees that PPP projects make more demands on OPS staff (in terms of time input and specialised knowledge) than traditional projects. The Bank can increase its value added and ensure a consistent credit quality in PPPs by sharing experience across countries: this underpinned the creation of The TENs/PPP CoE early 2004. Strengthening the CoE may be appropriate in due course to support country teams with a regular deal flow, and possibly to execute transactions in markets where the irregularity of deal flow precluded any accumulation of expertise. PJ: PJ has put in place an internal PPP network to disseminate experience and good practice. This network is under the responsibility of a PJ Co-ordinator who liaises closely with the Ops Centre of Expertise. The creation of a horizontal PPP Department is an Ops matter. Allocated PJ sector experts remain within Sector Departments and retain their independent opinion on the economic rationale and financial viability of projects Further development in the Bank's role in advising on or even developing PPPs should be demand led, incremental and dependent on additional resources being available. RM: RM believes this comment refers to loan origination. Within RM, operations are handled on a structural, rather than geographic basis. Therefore RM has no comments on this point. |
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4
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A number of Promoters would have benefited from guidance and support when variable rate funding was being swapped into fixed. Although not a traditional Finance Directorate role, the Bank could increase its value-added by offering such guidance to less experienced Promoters in the areas of swap pricing and competitive tendering procedures. (§8.1) |
Yes - where Promoters are inexperienced and/or do not have access to suitable advice. |
FI : . Sophisticated borrowers and experienced users of the PPP procedures would not normally need such support, and many project promoters already retain financial advisors for this purpose. For less sophisticated or experienced project promoters, more exotic currencies, etc., FI would be willing to co-operate with OPS on an ad-hoc basis, providing informal opinions on the pricing of swaps. This would not be on a fee-paying basis. The legal framework and the issues of subsidiarity and EIB policy would need to be reviewed and approved by the CD. However, if OPS believed this to be a value added service, then FI would certainly go through this type of approval process. OPS : Promoters on PPP projects normally employ financial advisors, and they are best placed to offer guidance and support to ensure that the swap pricing process is competitive. |
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5.
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When approaching financial close, there is a need for the Bank's decision making to be as rapid and flexible as possible. The Bank should therefore review its approval process to allow increased delegation to the operational levels of the bank. (§5.3) |
Yes - to flexibility |
OPS: The use of the two-stage procedure - i.e. Board approval with detailed terms and conditions approved by Management Committee shortly before financial close provides sufficient flexibility. PJ: In preparing PPP guidelines, PJ will review how it could be more responsive to the realities of financial close deadlines. RM: This issue will be examined as part of the process referred to in Recommendation 2. |
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* Comments from directly relevant Directorates only