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Tuesday, May 22, 2012

The EU launches a pilot phase on European project bonds

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News A pilot phase on European project bonds was decided today between the Council of the European Union and the European Parliament. This remains an important milestone, and the Danish presidency has therefore played an important role in the efforts towards strengthening European infrastructure. Concretely, the project will contribute to enhancing Europe’s competitiveness and thereby enhance the prospects for economic growth. The pilot phase on project bonds makes cooperation between private stakeholders and the European Investment Bank (EIB), EU and the member states on infrastructure projects within transport, energy, and information- and communication technology easier.

The Commission presented a proposal on a pilot phase for project bonds under the current multiannual financial framework (2007-2013) in October 2011. After the Council reached an agreement on the Commission’s proposal, the Council and the European Parliament entered into negotiations on the proposal. These negotiations have now been concluded, and the institutions agreed to work for a fast formal adoption of the proposal to ensure that implementation can be launched already in July 2012.

The rationale behind project bonds is to ensure easy capital access for profitable projects that are hampered by the short term economic situation. In this way, a leverage effect can be generated, which is greater than the normal EU-budget support for infrastructure projects. The EU and EIB will guarantee a share of the project bonds and thereby enhance the prospects for a better credit rating. An improved credit rating will enable the specific projects to attract investments from the capital market such as pension funds, making it possible to finance larger infrastructure projects in the EU by issuing project bonds with a longer time frame.

According to the Commission, it is possible to attract private investors in the size of 15-20 times the EU contribution, and thereby investments up to €4.5 billion could be mobilised. The number of issued project bonds under the pilot phase will depend on the number and the size of eligible projects and the interest from private investors.

The pilot phase comes before a later decision on whether and how project bonds and other financial instrument will be included in the EU’s multiannual financial framework 2014-2020. The pilot phase makes it possible to acquire experience with project bonds on a smaller scale. In the period 2012-2013, €230 million is set a side for the pilot phase from EU’s existing infrastructure budget.

Source :  Danish Presidency - Article


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