eib lending for health and education - financing europe’s human capital

8/9/2019 EIB lending for health and education - financing Europes human capital

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E u r o p e a n I n v e s t m e n t B a n k

EIB lending for

health and education


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E I B l e n d i n g f o r h e a l t h a n d e d u c a t i o n E I B l e n d i n g f o r h e a l t h a n d e d u c a t i o n E I B l e n d i n g f o r h e a l t h a n d e d u c a t i o n


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EIB lending for health and education 1

B l e n d i n g f o r h e a l t h a n d e d u c a t i o n E I B l e n d i n g f o r h e a l t h a n d e d u c a t i o n E I B l e n d i n g f o r h e a l t h a n d e d u c a t i o n

S

ince 1997, the European Investment Bank (EIB) has been contributing to European policy on

growth and development through its lending to support the formation of human capital

health and education.

A s a result of their critical importance to European development, health and education have

gained a permanent presence in the Banks lending portfolio. They are key to the Banks contri-

bution to the Lisbon Strategy and underpin its activity in fostering social cohesion and financing

innovation. Investment in education, to the extent that it helps to implement the Lisbon Agenda,

is also included in the Innovation 2010 Initiative (i2i), a top lending priority for the Bank.

Between January 1997 and December 2005, the EIB lent EUR 22.1 billion for investment in health

and education.

Why invest in humancapital?

In parallel to the development of infra-

structure and industrial investment, eco-

nomic growth requires societies to invest

in their people: investment in human cap-

ital. The consensus view defines this as

the knowledge, skills, competences and

other attributes of individuals that are rel-

evant to productive activity and to par-

ticipation in community activity.

There is a positive relationship between

growth and human capital stocks, and

economic returns on education invest-

ment are at least comparable to those

obtainable from investment in physical

capital. The economic evidence suggests

strongly that increasing peoples levels of

human capital is a good way of increas-

ing their productivity. This does not justapply to their levels of education but also

to their health: sick people are unproduc-

tive people.

Across the developed world, investment

in human capital is the driving force for

growth and both regional and national

development. Modern health and edu-

cation services are critical to this devel-

opment. Better education will improve

opportunities in the labour market. In

rapidly changing economies, education

services have never had a more impor-

tant role to play in social and economic

development.

EIB lending for health and education:

financing Europes human capital


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EIB lending for health and education2


How does the EIB investin human capital?What kinds of projectare eligible?

A wide range of economically viable and

environmentally sustainable investment

projects is eligible for EIB f inance. Invest-

ments can include the construction,

expansion or refurbishment of school,

college and university buildings, of clinics

and of hospitals. The equipment needs of

health and education buildings are also

eligible (for example, laboratory equip-

ment, medical scanners, and so on). Infor-

mation and communications technology

(for example, e-health, digital imaging

and electronic patient record or clinical

decision support systems in hospitals)

and the infrastructure and systems to

support e-learning. However, not all of

the Banks interventions are in the area of

bricks and mortar. While physical invest-

ment is certainly important, modern

economies also need substantial invest-

ment in non-physical assets (intangibles

through R&D, human capital through

education). With a view to enhancing the

employability of European workers and

their ability to acquire the skills required

by a modern knowledge-based economy,

it is important to improve access to higher

education and R&D.

The EIB supports this goal, and the Banks

financing for intangible investment, such

as student loan schemes and R&D in uni-

versities and hospitals, including pharma-

ceuticals and other medical research and

development, is on the increase.

The Bank can also finance programmes

of investment that may cover a related set

of a number of individual projects over a

period of time.

EIB financing of educationsector projects

The education system needs to be sig-

nificantly boosted to generate major

contributions to future European pro-

ductivity growth.

While Europe has sought massifica-

tion of its education (especially higher

education) systems, however, financial

resources have not been augmented

accordingly. It does not look likely that

public resources will be made available

in the future on a scale that will allow the

systems to flourish.

The EIB has made a substantial contribu-

tion to bridging this gap: the volume of

the Banks lending for higher education

rose progressively from EUR 380 million in

1997 to about EUR 2 000 million in 2005.

The sophistication of certain underlying

projects has grown over the years.

Private resources are also increasingly

important. The Bank has become a signifi-

cant provider of finance to public-private

partnerships (PPPs), where the private

sector is called on to contribute in inno-

vative ways to the funding, construction,

upgrading and operation of health and

education facilities. Some recent exam-

ples are the Cork School of Music, the Irish

National Maritime College and the Inter-

national University Bremen (IUB), an insti-

tution financed mostly from fees.

Support for the UKeducation sector

The UK is one of the countries that have

attracted most of the Banks financing in

education. Since 1997, the EIB has signed

projects for almost EUR 1 billion in the

UK. Lending to ten of these projects was

advanced under a public-private part-

nership financing scheme. Five were

financed using the Structured Finance

Facility 1.

In 2005 the Bank supported two key PPP

education projects in Objective 1 and 2

areas in Scotland, which address localeducational improvement needs while

at the same time contributing to human

capital formation and economic devel-

1 In order to match the types of funding to the requi-

rements of projects with a high-risk prole and topursue its equity nancing and guarantee operations

in favour of large-scale infrastructure schemes, the

EIB established a Structured Finance Facility (SFF)in 2001. The Bank can provide a broad mix of nan-

cial products under this heading: senior loans and

guarantees incorporating pre-completion and early

operational risk; subordinated loans and guaranteesranking ahead of shareholder subordinated debt;

mezzanine nance, including high-yield debt for in-dustrial companies in transition from SME scale or

in the course of restructuring; project-related deriva-

tives.


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opment in a disadvantaged region. The

Banks participation in these projects is

significantly improving the terms and

conditions on which the respective bor-

rowers can finance the investment. This

results in a lower cost of funding and, ulti-

mately, a lower cost to the public sector

the final beneficiary of the North Lan-

arkshire and Argyll and Bute projects.

E-learning

Universities play a major role in devel-

oping new ICT techniques, teaching and

disseminating results and of course

they need to equip themselves appropri-

ately to use the technologies internally.

In addition to providing the broadband

infrastructure and related hardware,

helpdesk services are required, as are

appropriate content, teacher training and

so on. All these components are eligible

for EIB finance.

Most EIB-financed projects incorporate

advanced ICT systems. For example, the

Bank financed the Computer Technology

Institute in Patras, which plays a leading

role in Greece in all these aspects of e-

learning technologies.

E-learning access

enhancement loan to Poland

In 2005 the Bank advanced a EUR 75

million loan to fund the States budg-

etary contribution to financing invest-

ment expenditures connected with the

implementation of the operational pro-

gramme supporting the education sec-

tor in Poland. Projects in the education

sector include increasing access to edu-

cation promoting life-long learning,

and improving education quality and rel-

evance to the labour market. The European

Social Fund (ESF) is financing 75% of the

total programme. The project is fostering

the implementation of the Sectoral Oper-

North Lanarkshire Schools PPP

In June 2005, the EIB signed a loan of around EUR 100 million (GBP 70 million)

with Transform Schools (North Lanarkshire) Ltd, a special purpose company

sponsored by Balfour Beatty and Innisfree. This Education 2010 PPP project will

involve the construction and maintenance of 3 secondary schools and 18 primary

schools located throughout the towns and environs of North Lanarkshire, an

area of relatively high unemployment and low educational achievement result-ing from underlying economic difficulties. The new schools will deliver a range

of services, offering life-long learning opportunities and sporting facilities for

local communities as well as extending the use of school premises beyond tra-

ditional classroom time. Once the new facilities are completed, the consortium

will be responsible for maintaining the buildings and providing other, non-edu-

cational services (e.g. grounds maintenance and security) to the Council for the

remainder of the 32-year concession period.

Argyll and Bute Schools PPP

In September 2005, the Bank signed a loan of around EUR 58.5 million (GBP 40

million) with ABC Schools Limited, the special purpose company (SPC) appointed

by Argyll and Bute Council to design, finance, build and operate 10 new schools

in Argyll and Bute, in the west of Scotland. Certain schools within the project

will offer facilities for adult and continuing education and a number will make

provision for pupils with complex and multiple special educational needs. The

project also includes a range of facilities management services, including build-

ing and grounds maintenance, cleaning, energy and waste management, and

infrastructure for ICT and telecommunications.

The structure of this project is particularly innovative as ABC Schools is a non-profit

distributing organisation. Any distributable profits made by the SPC will be passed

to a charity established to support educational objectives in the region.


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ational Programme Human Resources

Development 2004-2006, which contrib-

utes to the promotion of employment

and development of the knowledge

society

EIB financing of intangibles:student lending

The Bank has financed two student loan

operations a pilot project with Banca

Intesa for the Politecnici of Milan, Turin

and Bari, and a subsequent project with

Hungarys Dikhitel Kzpont, a state

agency for the sector, which has cut its

cost of capital significantly thanks to the

EIB loan and passed this gain on to stu-

dents. In the same vein, EIB staff carried

out with others a major and influential

sector study on reforming the Tertiary

Education Sector in Poland, which also

highlighted the need to resuscitate the

student lending system.

EIB financing of research,development andinnovation (RDI)

The Banks RDI financing drive is broadly

based, as it covers both private sector

research and research undertaken by

universities.

Eligible expenditures are not limited

to infrastructure financing, but also

include operational costs such as per-

sonnel expenses, staff training costs, the

financing of research projects, and the

creation of intellectual property rights

and patents.

EIB support for National Maritime College in Ireland

The National Maritime College in Ireland is centred on state-of-the-art marine sim-

ulation equipment, which simplifies and speeds up maritime industries training.

The EIB provided total lending of EUR 67 million, of which EUR 29 million to be used

for the design, construction, financing and facilities management of the College.

The agreement was signed in 2003 with FocusEducation (NMC) Ltd, a special pur-

pose company jointly owned by Bovis Lend Lease and Halifax Bank of Scotland.

The Irish Department of Education and Science and Cork Institute of Technology,

promoters of the project, awarded the 26.5-year concession contract following an

international call for tenders. EUR 38 million was also provided by the Bank as part

of the funding for the design, construction, operation and maintenance of post-

primary schools in the country. The concessionaire and beneficiary of this second

EIB loan is Schools Public/Private Partnership Ireland Ltd., a special purpose com-

pany owned by Barclays Infrastructure Ltd and Jarvis plc.

Banca Intesa student loan in

Italy

The EUR 25 million loan to Banca

Intesa was designed to facilitate

access to higher education for

students of technological univer-

sities, the Politecnici of Milan,

Turin and Bari. Banca Intesa acted

as the EIBs intermediary, on-lend-

ing to students enrolled in one of

the three Politecnici and having

successfully completed the first

two years of studies, as final bene-

ficiaries. The project comple-

mented the financing of several

key infrastructure investments

in these universities, also carried

out by the EIB, to improve their

internal efficiency and the quality

of facilities. Along with Fondazi-

one Cariplo, the banking foun-

dation of the Banca Intesa group

and the largest foundation of this

kind in Italy, the Politecnici also

established a EUR 1 million fund

partially to cover the default risk

and potentially to enhance credit

terms under the scheme. Later,

Banca Intesa extended the pro-gramme to several other universi-

ties. Currently, there are 15 higher

education institutions participat-

ing in the programme and 6 more

are ready to join.


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EIB support for French hospitals

The EIB is committed to supporting the investment drive launched by the French government under the Hospitals Plan 2007.

Additional to direct support for very large-scale projects, two French hospitals operations were launched in 2005, enabling

the Bank to finance medium-scale French hospital schemes to the tune of EUR 1 bill ion. In order to undertake these long-term

investments under their multiannual investment programmes (generally for amounts of between EUR 25 and 150 million), the

public healthcare institutions and private not-for-profit participants in the public hospitals service raise bank loans. The EIB

programme enables them to obtain the keenest maturity and interest rate terms. Implementation of these projects rests on a

partnership with the main banks lending to healthcare institutions (Dexia, Caisse dEpargne, Crdit Agricole and Socit Gn-

rale groups). More than one hundred hospitals are in the frame, presenting a range of projects: rebuilding or extension of hos-

pital sites; construction of new hospital units; restructuring of medical or medico-technical services; refurbishment of existing

hospitals; and construction of joint logistics or technical bases operating from a single point.

Dikhitel Kzpont student loan scheme in Hungary

The EUR 100 million loan to Dikhitel Kzpont is providing financial aid to eligible

undergraduate and graduate higher education students regardless of their social

or educational background. This is of particular significance in Hungary, whose

higher education structure has undergone massive transformation in recent

years. Undergraduate and graduate numbers have more than doubled over the

past decade, reflecting the evolution from an elite to an inclusive system. The

EIB loan can cover part of new student loans in the academic years 2005/2006

(autumn term), 2006/2007 and 2007/2008.

The EIBs loan also offers Dikhitel Kzpont longer maturities than those available

to the company to date as well as the option of drawing down local currency.

Dikhitel Kzpont, a non-profit organisation, expects to enhance its borrowing

profile in the markets and to reduce the impact of earlier short-term interest

hikes on its borrowing and lending activities.


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At the corporate level, the EIB has con-

centrated its lending on companies pur-

suing substantial R&D programmes, on

research at the technology frontier (nano-

technology, optics, biotech, etc.) and on

the establishment of centres of excel-

lence in R&D, such as clusters of innova-

tive industries in science parks around

universities.

In Germany, the Bank is supporting the

public sector R&D projects of the Federal

States by financing up to 50% of selected

parts of their science and R&D expendi-

ture. In Poland, the Bank has set up three

operations stimulating human capital for-

mation: a multi-sector support facility,

part of which is dedicated to the financ-

ing of academic R&D; an academic uni-

versity research loan and a science and

innovation loan.

EIB financing of healthsector projects

Health projects financed by the EIB are

always viewed in the context of a wider

set of health services in the region in

question. The focus of the EIBs appraisal

of projects is to ensure that investments

contribute to cost-effective improvement

in the health of the people for whom they

are designed.

The EIBs appraisal looks for evidence

that a project (or programme) is part of a

clearly articulated health strategy aimed

at improving the efficiency and/or qual-

ity of health care delivery. This strategic

context needs to be set out by borrow-

ers and is discussed, in the course of the

appraisal, by the promoter and the Banks

projects staff.

The Bank ensures that it understands the

particular context of healthcare delivery

in each of the countries in which it oper-

ates. That is why the EIB participates in

collaborative ventures such as the Euro-

pean Observatory on Health Care Systems

(see box). This also ensures that the Banks

healthcare specialists remain in profes-

sional contact with leading experts on

Europes healthcare systems.

Finance for Sittard-Geleenshospital of the future

In 2005 the EIB financed with a EUR 180

million loan the construction of the

Orbis Medical Park (OMP) in Sittard, the

Netherlands. The OMP was conceived

in the framework of a totally innovative

approach to healthcare, in which preven-

tion, cure and care go together. The new

hospital is set up for a New Way of Work-

ing: the work is not divided up between

different departments, but is organ-

ised with the patient at the centre. What

makes all this possible are intelligent

care-related logistics and full ICT support.

The project, requiring investment worth

EUR 360 million, is expected to boost the

economy of the Sittard-Geleen region.

This was an important element in attract-

ing EIB financing, along with the ground-

breaking approach of the project, the

cross-border nature of the facility, and its

plans to cooperate with other hospitals in

the region. The OMP indeed satisfies one

of the Banks objectives: to finance human

capital projects within the context of the


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Loan to European Institute

of Oncology

Istituto Europeo di Oncologia (European

Institute of Oncology) is a private non-

profit comprehensive cancer centre with

research laboratories, clinical facilities and

226 in-patient beds. It focuses on the pre-

vention, diagnosis and treatment of can-

cer by developing advanced clinical and

scientific research and using innovative

technology.

The EIB advanced EUR 140 million for the

first phase of the development of this

Italy-based European centre of advanced

biomedical research. The project includes

different elements: construction of a new

clinical facility providing space for day

hospital and day surgery; construction

and equipment of a specialised centre

for advanced proton therapy treatment;

research and development activities in

the medical field; and construction of the

centres accommodation facilities.

2 The EIF has a tripartite shareholding, which includes

the EIB (around 60%), the European Union represen-ted by the European Commission, and a number of

European banks and nancial institutions in the pu-

blic and private sectors. The EIF acts in a complemen-tary role to its majority shareholder, the EIB.

Lisbon Agenda and the European growth

and employment strategy.

The EIF and R&D

The European Investment Fund (EIF), the

specialised EU vehicle providing ven-

ture capital and guarantee instruments

for SMEs 2 , also has a role to play in R&D.

It recently signed a cooperation agree-

ment with the European Commissions

DG Research to develop a technology

transfer scheme, the goal of which is to

bridge the pre-seed/seed financing gap

and to stimulate universities to commer-

cialise their research.


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Finance for investment projects

As a supplementary source of financing, the EIB can cover up to 50% of projects invest-

ment costs with its loans. The EIBs goal is to facilitate the establishment of a finance

plan tailored to the proposed project in partnership with other financial institutions and

banks. EIB loans can be additional to local, national and EU budgetary aid (e.g. European

Regional Development Fund, Structural Funds).

Outside the Union, EIB funding can also be combined with finance from the World Bank

Group, the European Bank for Reconstruction and Development and the Council of Europe

Development Bank. Indeed, the EIB understands the need to cooperate closely on sec-

tor work and financing possibilities with the World Banks ECA Region departments in

the human capital sectors in the new Member States, the Acceding and Accession Coun-

tries, the Western Balkans and possibly more widely in the area.

Every project submitted to the Bank is appraised in cooperation with the promoter in

order to verify its economic, financial, technical and environmental viability. In addi-

tion, the EIB evaluates the f inancial robustness of the promoter and the borrower and

the suitability of the proposed security.

Each project appraisal includes an environmental impact assessment, whereby the EIB

checks that current national, European and international standards are being observed

and that the requisite studies have been carried out. The information that the Bank

receives in the course of a project appraisal is treated in the strictest conf identiality.

Lending conditions

Individual loansFor investments exceeding EUR 25 million

Beneficiaries: Any creditworthy borrower in the public, private or not-for-profit sectors.

In the human capital sector, typical borrowers include universities, hos-

pitals, regional or municipal authorities, central governments, research

bodies and private companies.

Financing

framework: Normally up to 50% of the total cost of new projects. No upper limit.

Maturity: For health and education projects, maturities can be up to 30 years or

more. Loans can include grace periods fitted to meet the projects needs.

The EIB also acts as a lever or catalyst for financing from others and coop-

erates closely in co-financing with the private banking sector.


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Interest rate: Fixed rate (with or without review clause) or variable rate. The interest

rate is based on the Banks cost of funds, plus a small mark-up to cover

its administrative costs. The cost of funds is in line with the rates for AAA

government bonds.

Currencies: Loans may be extended in one or more currencies, including the euro

and other EU Member State currencies, as well as the US dollar, the Swiss

franc and the Japanese yen.

Repayment: Usually equal annual or semi-annual instalments. Bespoke repayment

schedules, including grace periods and repayment in a single instalment,

are possible.

Guarantees: Guarantees are negotiated individually and typically involve a bank guar-

antee or other first-class security.

Global loans

For investments of less than EUR 25 million

Beneficiaries:Small and medium-sized enterprises. Local authorities and other

public agencies or special-purpose groupings.

Financing

framework: Up to 50% of total project cost.

Loan period, interest rates, repayment, currencies, guarantees,provisions/fees:

Determined by the EIB partner bank.


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Contacts

For general information:

Daniela Sacchi-Cremmer

Communication and Information Department

3 (+352) 43 79 31 00 5 (+352) 43 79 31 99

U [email protected]

For press enquiries:

Press Office Secretariat

Communication and Information Department

3 (+352) 43 79 21 00 5 (+352) 43 79 21 99

U [email protected]

European Investment Bank

100, boulevard Konrad Adenauer

L-2950 Luxembourg

www.eib.org [email protected]

EIB 09/2006 QH-X1-06-072-EN-C

EIB Graphic Workshop. Photos: EIB, Cork Institute of Technology, P.O. David Jones Irish Naval Service.

eib lending for health and education - financing europe’s human capital

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