EIB Project Bonds

Author:Mr Garrett Monaghan
Profession:Arthur Cox

In order to meet targets laid down in the Climate Change Package, the Europe Union and/or Member States need to commit and source large sums for infrastructure and energy investment. Conversely given the fiscal/austerity restraints being imposed in European countries the European Commission has signalled a recognition that innovative large scale funding solutions are required to facilitate the investment requirements.

In 2010 the European Investment Bank (the "EIB") increased its total lending by nearly 40% to €79 billion, of which €26 billion was for major energy and transport projects. This level of funding in the area is still not sufficient to cater for the EU's infrastructure needs Jose Manuel Barroso, President of the European Commission, unveiled new plans to establish EU "project bonds" and raise sources of finance to fund infrastructure projects in his "State of the Union" address to the European Parliament on 7 September 2010.

Such EU "project bonds", on the basis of available information, appear likely to be issued in conjunction with the European Investment Bank. According to President Barroso, the project bonds would be issued by private entities for large infrastructure project financing. EU funds could then be used to support private project funding and attract investment from the EIB, capital market investors and other financial institutions. The creation and wider application of such project bonds could have large implications for project financing of new greenfield (off-shore wind) and traditional projects.

The President of the EIB, Mr. Philippe Maystadt, subsequently clarified that the "project bonds" would not be issued by a sovereign or EU entity, and are best described as a mechanism for enhancing the credit rating of bonds issued by project companies themselves. Mr. Maystadt was at pains to point out that the EU "project bonds" initiative was different from previous efforts to institute a form of "Euro-bond". These included a proposal by President Jacques Delors in 1993 that the EU use the...

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