The typical EIB PPP loan structure, used in most of the projects examined, is for the EIB to provide a long-term loan to the Provider. This is 100% bank-guaranteed, at least until after completion of works and early operation of the project. The guarantee may then be partly or wholly released in stages, provided the project is achieving its preset targets. After this point, the Bank is taking full project risk.
However, on a road infrastructure project, the EIB's long-term loan is backed by shorter-term guarantees from commercial banks. The terms of the guarantees reflected the unwillingness of commercial banks to take a longer risk on the projects, and these terms were reflected in their own direct loans. If the guarantees are not renewed, the EIB loan is defaulted and must be repaid, but the projects would not be able to do this without other financing being available. If financing is not available, then there would be a call on the guarantee, and the risk would be transferred to the guarantor. Assuming the loans will be renewed, the project's interest-rate risks have not been hedged for the extension period.
Several Providers said that while EIB funding was good for their projects, it also created extra risk for their investors. The Bank tends to set guarantee release conditions which are more stringent than those which would be accepted by commercial banks. While this approach is prudent, it could lead to the Bank refusing to release guarantees on a project which was performing satisfactorily in all respects except one critical ratio. The impact of a guarantee release being refused could be significant for both the Provider's investors and the Promoter, depending on the structure of the contracts.