ten-t case study, oman transport summit

Oman Transport Infrastructure Summit -

Oman, Sep. 2012

Case Study

LOAY GHAZALEH – ADVISOR – MOW, BAHRAIN MBA, BSC. CIVIL ENG.

TEN-T Case Study - Oman Infrastructure Summit, Sep,2012

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CONTENTS

TEN – T Overview

EU Commission, TENs Budgets, Policies & Funds

EIB TENs Financing Role

EIB 2012 Preview & Financial Standing

EIB Financing Facilities , Funds & PPP’s

Lessons Learnt: TEN – T Financing Shortfalls

Lessons Learnt: Compelling PPP Logic

Lessons Learnt: Regulatory & Standardization

Lessons Learnt: Barriers to Cross-Border Projects

Lessons Learnt: Europe Single Railway Area

Lessons Learnt: Privatization Future - The British Railways Example

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TEN – T OVERVIEW



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“EUROPE 2020”

The “Europe 2020” Strategy was endorsed in March 2010 by the European Council

“Europe 2020” Priorities:

Priority 1: Smart growth (Innovation, Education, Digital Society)

Priority 2: Sustainable growth (Climate, Energy and Mobility, Competitiveness)

Priority 3: Inclusive growth (Employment and Skills, Fighting Poverty)


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TEN – T PROJECT TEN-T – European Union Investment challenges

75,200 kilometers of roads 79,400 kilometers of railways 430 Airports 270 International seaports 210 Inland ports Traffic Management Systems, User Information and

Navigation Services TEN-T – Objectives

The development of TENs aims to provide: High-quality infrastructure supporting the links between

the 27 EU Member States and connecting the EU and the countries of the European Neighborhood

Interconnection and interoperability of existing national networks

Access to the basic networks, permeating the benefits of the Trans-European Networks over the whole EU territory


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TEN – T CALL FOR PROPOSALS

30 PRIORITY PROJECT IDENTIFIED


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TEN-T FUNDING PERSPECTIVES Full Ten-T Network Cost - EUR 900 billion (from 1996 to 2020). EUR

500 billion remaining, as of 2009

Cost of Priority Projects alone - EUR 415 billion (from 1996 to 2020). EUR 253 billion remaining, as of 2009

The estimated TENs investment requirement in 2007-2013 is over €350bn

TEN-T investment programs are too large for the public sector to develop alone without increased private sector risk participation.

The credit crisis has had significant impact on the volume of transactions, speed of closing, margins, and tenors. Syndication and wrapped bond markets dried up.

Currently uncertainties relating to the scale of investments and the way it are to be financed.


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FINANCING OF TEN-T

EU, Budget Lines and Structural & Cohesion Funds - 15% EIB Loans Finance - 15-20% National Resource Finance - 40-50% Private sector risk finance needed to finance 20-25%

Volume of Investments (2007 - 2013)

EUR bn

Support Rate

Member States 196

TENT-T Budget (direct) 8 Up to 30% (10% in reality)

Cohesion + Structural (CS) Funds

47 Up to 85%, grants, technical support

EIB loans 54

Funding Gab 45

Total 350


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PPP OPTIONS IN TRANSPORT PROJECTS IN THE EU

PPP/concessions have been used widely for road, bridges/tunnels, light rail, heavy rail, airport and seaports projects at national and subnational level in the EU.

Several EU Member States have used transport projects concessions like Austria, Belgium, Bulgaria, Czech Republic, Cyprus, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, the Netherlands, Latvia, Poland, Portugal, Romania, Slovakia, Spain and the United Kingdom

Despite extensive use of concessions in transport sector ,YET NO explicit reference to PPP in 2004 EU public procurement legislative package. EU now are Introducing new process of Competitive Dialogue in new legislative package (intended to make PPP easier)


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EU COMMISSION, TENS BUDGETS AND FUNDS


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COHESION POLICY - (2007-2013) “Convergence” Objective: regions in which GDP per head does not reach

75% of the EU average – Funds set at € 283 billion (81.5% of EU budget) for 84 regions – 154 million people

“Regional Competitiveness & Employment” Objective: regions facing difficulties or changes in key sectors, decline of traditional activities, economic/social crisis, deterioration in urban areas, depopulation of rural areas - Funds set at € 55 billion (16%) ,168 regions – 314 million people

“Territorial Cooperation” Objective - Funds set at € 8.7 billion (2.5%)

The policies focus on enhancing accessibility and strengthening regional economies and achieving cohesion and competitiveness with railways, mobile rail assets, motorways, multimodal and inland waterways being a key element. (Consumes nearly 1/3 of the budget).

Cohesion Policy builds capacities in Member States for project identification, selection, implementation and management in addition to financial engineering project preparation and financing.

Cohesion Policy finances up to 85% of the total costs of the project in convergence regions.

Cohesion Policy finances up to 50% in competitiveness and employment regions.


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EIB LARGEST SUPRANATIONAL LENDER EU’s long term lending bank set up in 1958 by the Treaty of

Rome, to promote EU objectives and policies in several sectors. Shareholders: 27 EU Member States. The EIB supports projects through loans, guarantees and

venture capital. Employs about 1500 people. World’s largest multilateral financial institution with total

assets of EUR 300bn, mainly financed by bond issuances. Rated AAA by S&P, Moody’s and Fitch. EIB - European Priority Objectives within the Union

Cohesion and convergence Small and medium-sized enterprises (SMEs) Environmental sustainability Knowledge Economy (i To i) Trans-European Networks (TENs) Sustainable, competitive and secure energy


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EIB TRANSPORT LENDING POLICY Mobility is essential for the free movement of people and economic growth.

EIB strives for the most efficient, most economic and most sustainable way of satisfying transport demand.

The EIB will continue its strong commitment to the funding of TENs as the backbone of transport investment in the EU and essential for the functioning of the internal market.

Funding railways, inland waterways and maritime projects will continue to be a priority as these are intrinsically the most promising in terms of reducing greenhouse gas emissions per transport unit. The same applies to urban transport and intermodal hubs.

Further emphasis will be given to RDI activities with vehicle manufacturers whatever the sector involved. This should primarily focus on ensuring energy efficiency, emissions reduction and safety enhancement.

Preliminary Outcomes

EIB is well placed with its current product portfolio Refinement of EIB offers in order to close market gaps that have become visible

during the recent economic and financial crisis EIB does and will continue to support of safer/smarter/cleaner transport

infrastructure and vehicles

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2004 2005 2006 2007 2008 20090.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

EIB Total TEN signatures (EUR bn)

EIB Funding 2004 2005 2006 2007 2008 2009

TEN 7.9 8.2 8.3 9.7 12.6 13.9

TEN-E (energy) 1.3 0.9 0.4 1.4 2.7 2.0

TEN-T ( transport) 6.6 7.3 7.9 8.3 9.9 11.9

TEN-T

Priority Projects 2.2 2.9 2.7 3.1 3.2 1.8

Other Projects 4.4 4.4 5.2 5.2 6.7 10.1

PPP in TEN-T 0.3 0.2 1.3 0.9 2.9 1.1

Senior loans 6.6 7.1 7.9 7.8 8.3 11.1

SFF in TEN-T 0.0 0.2 0.0 0.5 1.6 0.8

Rail % of total 40% 42% 37% 46% 27% 27%


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EIB PREVIEW – 2011 STANDING

Lending EUR 50 bn (EUR 61 in 2011)Borrowings EUR 60 bn (EUR 75 in 2011)Profit - 2011 EUR 2.3 bn , (EUR 2.1 in 2010) Total Borrowings EUR 415.8 bnDisbursed Loans EUR 395.4 bnImpaired Loans .1%Subscribed & Reserves

EUR 263bn (callable Capital 220.8 bn)

Own Funds EUR 42.5 Capital Adequacy Ratio

24.9%


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EIB VALUE ADDEDEIB adds value to TENs Transport and Energy : Mobilize on competitive terms the large amounts necessary to co-finance the

building of this infrastructure; Offers maturities tailored to the long construction and operating periods of

the schemes concerned; Provides structured finance as a complement to commercial bank and capital

market funding. Establishes equity funds to finance TEN-T Infrastructure such as the 2020

European Fund for Energy, Climate Change and Infrastructure – the Marguerite Fund - to invest in minority participations with other strategic investors greenfield infrastructure projects in TEN-T, TEN-E and renewable energy (loan facility of €5 billion, Investment period of 4 years, Duration of the Fund: 20 years)

Many green field transport projects are sub-investment grade unless supported or guaranteed by government/pubic authorities or credit enhanced. EIB provides such support

Senior lenders require expensive additional buffers (e.g. lower gearing/ higher cover ratios, contingent mezzanine debt and equity). EIB provides such facilities.

In current market circumstances, projects need supplementary robustness in order to attract private financings in traffic related infrastructure investments. EIB provides rump up guarantees.


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It is desirable for projects to be presented to the Bank at the earliest possible stage by potential Promoters , Commercial Banks , Public Authorities and International or National Development Finance Institutions.

EIB PROJECT LENDING CYCLE

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EIB PROJECT FUNDING RULES Project scope must fall under EIB eligible sectors (e.g.

transport, environment, energy, education, health, etc.) and at least one of the EIB objectives

EU procurement rules, particularly publicity and environmental legislation must be observed.

Technical and economic feasibility must be demonstrated under conservative assumptions including market, job creation, and economic rate of return.

Satisfactory credit risk level under EIB own assessment. Information to be provided to EIB also include;

General and legal information about the main shareholders;

Financial information, historic and forecast (balance sheet, P&L, business plan);

Confirmation legislation;

Collateral information, if applicable.


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EIB FINANCING FACILITIES


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EIB LOAN FACILITIES Loan Guarantee Instrument for TEN Transport projects (LGTT): EUR 5 bn EIB

guarantee program for which EUR 1 bn risk capital has been jointly provided by the EIB and EU budget. LGTT shares the revenue / traffic risk in the early years of TENs projects

Structured Finance Facility (SFF): to fund projects with a higher risk profile to enable equity financing; mezzanine and guarantee operations for infrastructure schemes

Investments in Equity Funds: EIB invests in equity funds, e.g. Marguerite, which in turn take direct equity participations in infrastructure investments

European PPP Expertise Centre (EPEC): expertise service provided by the EIB and European Commission to support program and policy development as well as best practice by the public sector for PPP transactions.

Joint Assistance to Support Projects in the European Regions (JASPERS): a joint policy initiative of EIB, EBRD and KfW to provide assistance for absorption of Structural & Cohesion Funds period 2007 to 2013

European Clean Transport Facility (ECTF) : is a major EIB financing program to support investments targeting RDI (Research, Development and innovation); emissions reduction and energy efficiency.

EIB participation in PPPs


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LGTT – EUR 5 BN INSTRUMENT LGTT is a specialized risk based instrument created in 2008 jointly EIB

& European Commission to support demand-based PPPs with transfer of traffic risk. Both have committed evenly a total of €1 billion over the next years (until 2013) .All TEN-T projects are eligible

The LGTT Guarantee Facility is designed to provide contingent stand-by mezzanine debt to promoters and thereby to protect senior debt. EIB will only be repaid out of cash available post senior debt service.

The Capital Commitments of €1bn enable LGTT Guarantees of € 5bn to be issued based on a 20% provisioning ratio with a maximum €300 per transaction and up to 7 years from construction completion (ramp-up phase). Residual risk is borne by the EIB Balance Sheet.

In current crises, LGTT proved decisive to attract senior lenders and to close sound TEN-T PPP projects with traffic risk components from near-investment grade to better funding cost.

LGTT is particularly useful to mitigate refinancing risk in Mini-Perm structures.


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SFF- STRUCTURES FINANCE FACILITY

Purpose of SFF is to increase EIB leverage value added and financing capacity while limiting amounts financed. SFF financing of EUR 4.2 bn in 2008, EUR 5.8 bn in 2009

SFF allows EIB to increase the leverage on its own funds and those of the Commission Budget through structured finance.

SFF allows EIB to reach projects with a credit quality that previously might not have qualified for EIB financing.

Strategic objectives established by the Bank include the building of a significant and sustainable SFF program, transforming these activities into a mainstream element of the Banks’s lending with a focus on high priority sectors of TENs, i2i (Knowledge Economy), energy and cooperation in partner countries.

SFF may also be used for other priority objectives where

appropriate, such as SMEs.


30 30European Investment Bank

EQUITY FUNDSFIRST CLOSE

FUND TOTAL

EIB SHARE

AREA SECTOR EUR (M)

EUR (M)

Emerging Europe Convergence Fund

Aug-05

655 50 CEE ITC expansion

Dexia Southern EU Infrastructure Mar-06 120 25 FR, IT, ES, PT PPP

Dutch/Northern EU InfrastructureAug-05

121 15 NW Europe PPP

Barclays European Infrastructure Jul-06 315 28 UK, IE, FR, DE PPP

San Paolo IMI Infrastructure Fund Dec-06

120 18 IT PPP

Enercap Power Fund Jun-07 98 25 CEE Renewable Energy

DIF Renewable Energy FundSep-07

314 25Benelux, FR,

DE, Scandinavia

Renewable Energy

Meridian Infrastructure Fund Oct-06 547 50 EU PPP

Green Alliance Renewable Fund Dec-07

41 15 ES,PT Renewable Energy

Espirito Santo Infrastructure Fund May-08

96 15 ES,PT Renewable Energy

DIF Infrastructure Fund IIDec-08

220 35 NW EuropePPP / Renewable

Energy

Dasos Timberland Fund IMay-09

85 17 Worldwide (40% Europe)

Timberland assets

Meridian Infrastructure Fund IIDec-09

175 50 EU PPP

SE Europe Energy Efficiency FundDec-09

95 25 SE Europe including

Turkey

Energy Efficiency & Renewable Energy

2020 Marguerite European FundDec-09

710 100 EURenewable Energy,

TEN-T, TEN-E

Total 5243 528


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EUROPEAN PPP EXPERTISE CENTRE

A collaborative venture between the EIB and European Commission

Membership open to PPP taskforces in Member States and candidate countries

Allows members to share experience and expertise

Staffed by experienced transactors capable of synthesizing experience and disseminating guidance

27 organizations already signed up


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TECHNICAL ASSISTANCE – JASPERS

Joint Assistance to Support Projects in the European Regions

Joint policy initiative of EIB, EBRD and KfW Assistance for absorption of Structural &

Cohesion Funds period 2007 to 2013 Assistance with project presentation and

identification Analysis of horizontal issues such as

grant/loan blending Project implementation support to follow in

second phase


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EUROPEAN CLEAN TRANSPORT FACILITY (ECTF) ECTF facility is targeting RDI (Research, Development and Innovation)

investments in emission reduction and energy efficiency in the European transport industry.

Lending under ECTF amounted to EUR 4.2 bn and targets automotive (OEMs/Suppliers), railroad, aircraft and shipping industries as well as related infrastructure.

This Risk Sharing facility targets larger scale investments with corporate sponsors (or project finance structures).

Such risk-sharing facility is used for example in:

Intelligent traffic management (e.g. variable message signs, advanced traveller information systems, advanced driver’s assistance, speed advisory/control, electronic tolls, etc.), and

“Smart” vehicles (e.g. Advanced Drivers’ Assistance, accident sensors, automated guided vehicles, navigation systems, inter-vehicle communications systems etc.), and “Green” vehicles (application of ICT in reducing the congestion of vehicles).


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EIB PARTICIPATION IN PPPS Involvement since pre-qualification stage; Principle of non-exclusivity during tender; Public tender compliant with EU requirements; Non-discriminatory treatment; Tight cooperation with public sector; Tenor shorter concession termination (need of

“tail”); Usual coverage ratios (debt service, loan life); Benefits of EIB financing must be transferred to

private and public sector; Complementary with banking sector and capital

markets.


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STRUCTURES OF EIB PPP LOANS Fully guaranteed or intermediated by acceptable

financial institutions until final loan maturity; Guaranteed during construction and early

operations and confirmation of project meeting minimum technical / financial requirements.

Structure Finance Facility, if eligible, the EIB would participate with other Senior Lenders, assuming construction and operation risks. Maximum amount of EUR 200m.

LGTT –TENs Guarantee Instrument: funded by the EU budget and managed by the EIB taking the revenue ramp-up risk in the early years of TENs projects.

Participate through Infrastructure Fund.


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EIB AS A FINANCIER OF PPPS Since 1990, EIB has progressively broadened geographic and sectorial

spread of its PPP lending. 2009 approvals amounted to EUR 36bn The Bank is now Europe’s foremost funder of PPP projects. Portfolio of

120 projects and investment of around EUR 25 billion Despite difficult economic conditions in 2009, signatures exceeded EUR

2 billion.

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INFRABEL RAIL TUNNEL PPP (BE) - €313m

AUTOBAHN A-5 PPP TEN (DE) - €225m

METRO DE MADRID IV- TR C (ES) - €50m

METRO DE SEVILLA DBFO 1&2 (ES) - €10m

AUTOVIAS RENOVACION PPP (ES) - €211m

M25 WIDENING TRANCHE A (GB) - €448m

AUTOROUTE A 19 (TEN/SFF) (FR) - €200m

M80 MOTORWAY PPP (GB) - €157m

TRAMWAY DE REIMS PPP (FR) - €107m

SCUT ACORES (PPP) TRANCHE BST (PT) - €60m

AUTOROUTE A88 PPP (FR) - €102m SCUT ACORES (PPP) TRANCHE BBVA (PT) - €60m

E-K-P-P-T MOTORWAY PPP PROJECT (GR) - €200m

BAIXO ALENTEJO MOTORWAY (PT) - €225m

M6 DUNAUJVAROS-SZEKSZARD (HU) - €200m

AEROPORTI DI ROMA II (IT) - €80m

2ND COEN TUNNEL PPP (NL) - €194

A1 MOTORWAY - 2ND PHASE (PL) - €575m

DOURO LITORAL PPP (IC 24) (PT) - €350m

IP4 AMARANTE-VILA REAL (PT) - €200m

TRANSMONTANA MOTORWAY (PT) - €289m

EXAMPLES OF EIB PARTICIPATION IN TENS PPP’S


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LESSONS LEARNT FROM THE TEN-T’S TO THE REGION

39TEN-T Case Study - Oman Infrastructure Summit, Sep,2012

LESSONS LEARNT:TEN – T FINANCING SHORTFALLS


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1. INSTRUMENTS LIMITED SCOPE LGTT does not extend the guarantee period to cover risks of difficult revenue

scenarios after the initial ramp-up period. This unfunded guarantee instrument can provide a supplementary buffer to down side scenarios.

A specific instrument for availability of PPPs payment schemes is not there. Many projects in rail and inland waterway projects can benefit from facility like a guarantee or subordinated debt instruments which can substantially open PPPs to capital market financing.

The use of escrow accounts in order to better support PPPs on the entire duration of the contract concession and to avoid the constraints of the EU / Governments budgetary cycle is not available.

Project bonds credit enhancement instruments are not available under EU initiatives. This would facilitate bond issuance at appropriate rating (at least single A) to attract interest of institutional investors and pension funds lacking specialist expertise in the sector, project finance or PPPs.

No GAP Facility is available. This facility would improve the rating assigned to

the senior debt/bonds to A, AA-levels and consequently enable certain institutional investors to invest in an asset class that matches their own liabilities.


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2. EU REGULATORY REGIME TEN-T budget Cohesion Fund roles, availability, as well as

the way they are managed vary substantially. No National Task Forces are there to oversee and coordinate the implementation of the TEN-T network to the community.

Some elements to be improved in EU funding constraints with respect to PPP projects. Duration of EU budgetary cycle and duration of PPP contracts often mismatch.

EU TEN-T funds must be allocated in a 3 years maximum after the financing decision

Confidentiality issues : EU reimburses real costs incurred, which some time can create issues for the private partner


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3. EXPANDING THE CREDIT MARKET Facilitation of the issuance of bonds through subordinated debt

instruments is something that can be done with ease.

Greater availability of subordinated debt tranches could enhance projects credits. The size of this tranche would depend on the risk of the project/portfolio as the purpose is to uplift the credit profile of the higher ranking senior debt financing to single-A rating.

In this instance, TEN-T budget and EIB can provide / contribute to such instrument. In this case Instead of loans, EIB can provide guarantees and EC could also provide the same using Community Budgetary funds on Risk Sharing basis.

Institutional investors would be interested to invest in the sector with suitable risk sharing between public and private institutions. The subordinated tranche could be similar in structure to LGTT.


LESSONS LEARNT: TEN – T PPP COMPELLING LOGIC


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RAIL PPP OBJECTIVES IN EU Environment

Support green and sustainable transport Improve air quality Reduce Noise

Safety Safeguard public safety Improve transport security

Economy Value for money Improve transport efficiency and encourage competition Support businesses and create employment opportunities

Accessibility Improve access to transport, interoperability and cross-border Increase transport options Reduce severance

Integration Improve transport interchanges Integrate transport policy with land use Consistency in legislation and regulations


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INCREASE USE OF PPP IN TRANSPORT Need to improve cost and quality in strategic public services as

infrastructure

Scarcity of public capital – infrastructure investment needs outstrip the ability of the public sector to fund

Procurement Procedures that improve Value for Money for public sector

Maturity Of PPP Market Varies Across EU Member States: some committed to very significant programs (UK, Germany: target for PPP to meet 15% of public infrastructure investment requirements)

Diversity of PPP models across Europe – a key advantage of PPP is its flexibility to meet different economic and political priorities

Strong Track Record Of Operational Projects In Europe; focused on transport, but also waste, water, defense, health, education, custodial services etc.


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PPP CHALLENGES IN TRANSPORT Importance of strategic planning and management among all

levels of government Forecasting demand/transferring demand risk Determining how much users can pay and how Dealing with policy issues and setting priorities. Need for

effective regulation Scoping projects (size/ability to finance) Blending PPP with EU / EIB Budget Funds, Structural Funds

and Guarantees Complexity of during procurement processes & contracts

management - public sector skills needed Managing competition for proprietary technologies (vertical

separation on rail lines is an important option in PPP- wheel-rail interface design)

protections from abuse of monopoly powers and future development - Industry-wide codes and rules, proper incentives and fair market behavior are needed


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SPECIFIC RAIL PPP RISKS Recognize that transport is more complex than energy, water

broadcasting & telecommunications Construction, ground conditions risks Acquisition of land rights Interface & integration with existing management systems Integration with port and other facilities / assets Partners (many) – need maturity + competence / capacity of

counterparties, construction industry + others Rolling stock design & approval International and local supplies , interoperability issues Revenue risk / Traffic forecasts Safety and economic regulation Change over time – how much does the structure

accommodate it Termination & hand back


LESSONS LEARNT: REGULATORY & STANDARDIZATIONS


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REGULATORY AUTHORITY’S ROLE

Importance of regulatory authority’s competence often underestimated or misunderstood

Sound and durable regulatory system is a major protective regime for everyone:

Infrastructure manager Infrastructure users Final customers Taxpayers Government

Requires regulatory authority to have professionalism, technical and legal competence, resources and ability to do its job


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TRAFFIC MANAGEMENT SYSTEMS Road (Intelligent Transport Systems – ITS); EASYWAY – Europe-

wide ITS deployment on main trans-European road network corridors. Advantages near 15% reduction of congestion, less fatalities and less co2 emissions.

Rail (European Rail Traffic Management System – ERTMS). ERTMS aims at creating cross-border rail traffic that enables speeds higher than 200 km/

Aviation (Air Traffic Management – ATM); SESAR (Single European Sky ATM Research) Development Phase

Inland waterways (River Information Services – RIS) Maritime (Vessel Traffic Management and Information Services –

VTMIS) GSM-R: A radio system similar to GSM (but with specific frequencies

for voice and data exchange between the driver and central control ETCS: European Train Control System

Speed limits are transmitted from track to train

Driver response is monitored continuously

On-board computer stops train if speed limit exceeded


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TECHNICAL STANDARDIZATION At shared interfaces,

Everything necessary to meet the essential requirements like safety, healthy, availability, reliability, environmental protection and especially technical compatibility.

Elsewhere That which is necessary to ensure mutual recognition of

vehicle authorization and Safety Management Systems

Where market opening for common components adds value

Everything else – Beware! Too much standardization (e.g. couplings, design technical

solutions) inhibits innovation and market entry.

Interchangeability of vehicles and components Is not necessary for interoperability

Can often be achieved voluntarily


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LESSONS LEARNT: BARRIERS TO CROSS-BORDER PROJECTS


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REGULATION & ACCOUNTABILITY ISSUES Cross-border infrastructure development has impact

on country’s sovereignty that must be balanced with other stakeholders. Political nervousness can arise.

For effective cross-border infrastructure planning key political, economic and financial, technical, social and environmental, institutional and coordination issues need to be discussed.

Measures can be undertaken to minimize these effects thru mechanisms like committee exchanges and frequent coordination meetings

The asymmetrical distribution of costs and benefits among the different groups of stake holders need to be addressed with both appropriate institutional arrangements


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ECONOMIC AND FINANCIAL ISSUES Allocations of resources “huge sunk-costs “are usually

questioned due to the indirect and long term benefits. An Infrastructure Development Fund can reduce capital cost, debt service requirements and pressure on increasing tolls.

The issue of incentives compatibility should be dealt with as early as the planning and design stage. It is crucial that incentives and financing arrangements are aligned to ensure equitable benefit from the project.

Interests of pure transit countries are different from those benefiting from such a link and need to be balanced and regional alternative competitiveness need to be observed. For example land freight cost make up near 30 - 40% of the value of exports from landlocked countries.

Often upfront external financial support is needed in the identification and design of cross-border infrastructure projects catering a large market.


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INSTITUTIONAL AND COORDINATION FACTORS A project-based approach to cross- border infrastructure development

tends to have a high failure rate. Institutional coordination and enabling regulatory framework help minimize project failure risks. Difference in institutional and human capacities across border can become serious barriers.

Despite private sector involvement, Governments play important role in cross-border infrastructure. In situations where relationships are governed by commercial benefits, differences are more easily resolved.

Projects, like those involving power, rail, and water require harmonization of legal and regulatory framework as well as standardization of rules and procedures. The non-tariff barriers and policy environment are equally important and must be addressed under sector reforms.

While investors are encouraged to participate, selection of lead partner or partners in various countries can become an issue especially in any major change in shareholding structure or technology selection.


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LESSONS LEARNT:EUROPE SINGLE RAILWAY AREA Cross – Acceptance, a “Bridge” to Interoperability

Private companies normally work together to deliver interoperability and standardization for mutual commercial benefit

Public bodies find it more difficult to work together due to national pride and politics which often takes precedence.

The importance of Technical Compatibility (horizontal Integration) as every (infrastructure) project left to its own devices will develop its own solution

The role of the Government Defining the role and responsibilities thus ensuring the separation

of powers (Areas of Transparency)

Regulating the (monopoly) Infrastructure Managers thus ensuring technical compatibility of different infrastructure projects

Setting the specifications at the shared interfaces thus balancing risk and cost between the infrastructure Managers and Train Operators


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In 1993 the Railways Act 1993 was introduced by John Major's Conservative government. The operations of the British Railways Board (BRB) were broken up and sold off. This process was very controversial at the time, and the Labor opposition announced its intention to re-nationalize the railways, although this was not implemented by the subsequent Labor government. The manner in which privatization was carried out has also received criticism for the number of companies involved (over 20), and its complexity.

The UK: WHAT WENT WRONG?

Railway industry restricted and privatized too fast

Inadequate experience and expertise, stewardship was flawed

Infrastructure manager’s (Rail track) accountability to train operators and public interest confused, complex and weak

Infrastructure manager abused its monopoly power, neglected its assets and was hostile to its customers

Deferred maintenance, inadequate asset knowledge and stewardship, incompetent management, poor contracting practices with suppliers.

LESSONS LEARNT:UK RAILWAYS PRIVATIZATION


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UK RAIL PRIVATIZATION REMEDY

The Financial Regime - review of charges which introduced stronger incentives on infrastructure provider to maintain network properly and grow capacity while controlling costs and driving out waste and insufficiency

Review the Infrastructure Provider’s License to Operate - thru monitoring the adequacy of maintenance, renewal and development of network

The Contractual Regime - proper specification of what is required from each party and remedies when things go wrong

Clear And Understood Industry-Wide Common Procedures - for changes to timetable, network, rolling stock; for dealing with operational disruption; etc.

Competent Infrastructure Manager - by focusing on the key drivers of performance improvement while engaging its customers, its regulator and the public. A culture of co-operation

Track-train Interface Design - the most important of all. Interoperability is not just about safety

Loay Ghazaleh – Advisor – Undersecretary office

[email protected]; [email protected]

00973-36711547 , Skype: loay.ghazalehhttp://bh.linkedin.com/in/loayghazaleh

Ministry of Works - Bahrain

THANK YOU

mailto:[email protected]

http://bh.linkedin.com/in/loayghazaleh

ten-t case study, oman transport summit

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