The financial crisis is casting a shadow on infrastructure financing. State, regional and municipal bodies have been equally affected, Henrik Normann, President & CEO at the Nordic Investment Bank said in a speech today.
He continued: “At the same time, bank lending is constrained by stricter capital requirements and the higher cost of bank funding. In fact, banks are deleveraging, not taking more assets, and maturities are getting shorter.”
In a situation where both public and private long-term money is scarce, a wider variety of tools is needed to mobilise capital for infrastructure projects.
Normann explained: “Public–private partnerships (PPPs) could play a greater role in filling the gap, but so far the development has been somewhat disappointing. Between 1994 and 2012, only around 60 such projects were implemented in the Nordic and Baltic countries with a total value of EUR 5.9 billion. This is a low figure which shows that there could be some potential.”
However, Normann emphasised that PPPs are not a panacea and listed conditions that need to be fulfilled for wider use of such structures.
First, there should be clear added value compared with project structures financed by the public sector alone. Second, projects need to be well-structured, based on genuine and balanced risk-sharing, with risks carried by the parties best able to manage them. Third, documentation should be simple and transaction costs reasonable to allow for smaller projects being implemented as PPPs.
Normann sees a wider role for multilateral and official agencies—including his own institution—to mobilise capital for infrastructure projects:
“NIB is a significant infrastructure financier in the Baltic Sea region and we have also been involved in many PPP projects. Our role is highlighted during these financially difficult times. We are open for business.”
For a recent example of NIB financing a public–private partnership, please click here.
Finnish Fortum has inaugurated the first waste-to-energy combined heat and power plant in the Baltic countries.
15 May 2013
NIB has issued its fourth increase, AUD 100 million, to its 10-year Kangaroo issue due 19 April 2022.
15 May 2013
A loan agreement has been signed with the Swedish company Vimmerby Energi & Miljö AB to finance a new bio-fuelled combined heat and power plant.
8 May 2013