EIB's funding portfolio backs TENs and upgrading projects
Ivan Pilip, Vice-President of the European Investment Bank, argues that better rail links are crucial for integration of the new member states into the European Union. In this interview with Murray Hughes, Pilip puts the focus firmly on upgrading and rehabilitation, although funding for rolling stock is growing in importance
Hughes: How important is the rail business to EIB?
Pilip: Transport, both road and rail, represents the key sector of EIB activity. Successful economic development of the European Union and deeper economic integration of the EU member states are very closely linked to the construction and modernisation of transport networks. As rail in most cases has a more positive impact on the environment than road transport, it is particularly important for the Bank. A well-developed railway is an important element in a well-balanced transport sector.
Hughes: Specifically, what does that mean in terms of the European rail network?
Pilip: The EIB priority is to finance development and rehabilitation of the individual elements of the Trans-European Transport Network endorsed by the European Parliament and Council in 1996 and subsequently updated. This network has a crucial role in ensuring free movement of goods. With all transport modes combined, it carries almost half of all freight and passengers inside the European Union.
Transport infrastructure needs in the new member states were identified in co-operation with the European Commission, taking into account changing transport patterns within Europe and the needs of the countries concerned. In this regard, the resulting updated TEN Guidelines were endorsed by the European Parliament and Council in April 2004, including a list of 30 TEN priority projects. EIB financing of TENs can go up to 75% of the total project cost, while the Bank would normally finance only up to 50% of the cost. The Bank also finances urban rail transport systems and railway projects that fall into the category of sustainable transport.
Hughes: How significant for EIB is railway activity in Eastern Europe?
Pilip: About 40% of the total lending amount of around €32bn in the new EU member states and Acceding & Accession Countries of central and eastern Europe (Bulgaria, Romania and Croatia) was granted to projects in the transport sector. Better railway connections are crucial for the new member states in terms of their integration in the single market. A developed rail network contributes to better transport safety and ease of travel. In particular, upgraded railways in urban areas contribute significantly to improved mobility of the workforce and to a better quality of life.
Adequate transport connections are mentioned by investors as a necessary condition when planning investments, and they contribute to better distribution of wealth in individual countries, with a significant impact on less-developed regions. Railways play a very significant role in terms of development, and I should like to mention that the first loan ever granted by the Bank in the region was for rehabilitation of Poland's railways in July 1990.
The density of rail networks in the new member states is relatively high, representing an average of 57 km per 1000 km2, which is slightly above the EU average. However, the new member states' average motorway network density of 3 km per 1000 km2 is far lower than the EU's 18 km per 1000 km2. Consequently, increasing the size of the railway network is not a priority. Investments for rail projects are therefore focused on rehabilitation, upgrading - for higher speeds, for example - elimination of local capacity bottlenecks, and generally improving the efficiency and productivity of the existing network. The EIB also finances rolling stock; this is one of the railway disciplines in central and eastern Europe requiring significant amounts of money in the short term.
Hughes: Do you expect loans for railway projects in eastern Europe to increase in the next five to 10 years? Will the Accession Countries dominate this business?
Pilip: The EIB is interested in an increase in financing in the rail sector, with the focus on priority projects that are demanding in terms of funding and technical and environmental input. We estimate that the upgrade of long-distance transport networks, both rail and road, in the new member and candidate countries will require a total investment of up to €90bn from EU and EIB funds in the coming years to ensure successful integration into the single market.
In this context the Bank has developed a specific approach based on its financial capacity to provide very long term loans - 20 years or more - conducting financial engineering to enable risk sharing with other investors and mobilising other sources of bank finance or EU grants.
Hughes: Can you give more details of what this means in practice?
Pilip: Yes, of course. The EIB supports innovative financing schemes such as PPPs where they are appropriate, and here the Bank can draw on long experience in financing PPP projects in many countries, particularly the UK, Spain, Portugal and Greece.
With the European Commission, the Bank has developed an initiative known as Jaspers (Joint Assistance to Support Projects in the European Regions) that represents a form of technical assistance to beneficiaries in EU-assisted regions, identifying and preparing projects for financing from EU funds. The purpose of this is to utilise EU granted funds more effectively, mostly for large infrastructure projects including railways, at the same time capitalising on EIB know-how and expertise acquired over more than 45 years of financing projects in less-developed regions.
Hughes: And specifically for the new member states?
Pilip: In the framework of the European Initiative of Growth, the Bank has established a new Investment Facility designed to facilitate investment to the tune of €50bn by the end of the decade. Five priority railway projects are related to the new member states:
- High speed rail and combined transport in the corridor linking France, Italy, Slovenia and Hungary;
- Improvements to the corridor from Paris to Strasbourg, Stuttgart, Wien and Bratislava;
- Improvements to the corridor linking Athens with Sofia, Budapest, Wien, Praha, Nürnberg and Dresden;
- Upgrading in the corridor from Gdansk to Warszawa, Brno, Bratislava and Wien;
- The 'Rail Baltica' corridor from Warszawa to Kaunas, Riga, Tallinn and Helsinki.
Hughes: What are the main issues that railways in central and eastern Europe face when seeking to justify investment projects, and what conditions does EIB impose in terms of improvements in productivity or structural change?
Pilip: As with all other projects financed by the Bank, railway projects have to be economically viable, technically sound and in line with EU environmental and procurement legislation.
In the case of railways, the project appraisal carried out by the Bank includes checking the implementation of EU railway directives, notably the so-called Railway Packages. Crucial aspects include the required separation between infrastructure and operations, as well as the gradual implementation of ERTMS.
Efficient railway companies are an important factor for the viability of the rail sector as a whole and a significant process of restructuring has been taking place in the railway organisations of new EU member states since the 1990s. The projects financed by the EIB are normally associated with efficiency gains, and are therefore one of the instruments in the process of efficiency improvement.
Hughes: How do you see the long-term trend of railway business in eastern and western Europe?
Pilip: The new member states inherited a relatively dense rail network that needs to be upgraded so that the railway businesses can meet current and future needs in economic and social terms. Harmonious economic development in the countries on the external EU borders will require proper railway links with new neighbours of the enlarged Union in the East. Gradual modernisation and upgrading of the existing railways is less demanding than construction of a new motorway network that is completely missing in some of these countries.
Rolling stock is becoming an increasingly important area of EIB financing. Two of the driving forces are the gradual emergence of new operators across the whole of the EU active in both freight and passenger business, and the age of the existing rolling stock, particularly in the new member states. Rail freight in particular is expected to improve its competitive position compared to road, as the enlarged EU offers greater potential for longer trips.
The continuing implementation of ERTMS will be a reality in the foreseeable future. This is usually financed in the context of wider railway modernisation or upgrade projects. At the same time, the development of a high speed network continues apace, particularly in Western Europe. The financing of different sections of this network is likely to remain an important element in the Bank's railway portfolio.
The existence of good quality suburban railway services, particularly in large urban centres, is a fundamental factor in achieving a well-balanced and sustainable transport strategy. Although the initiative for implementing the infrastructure and operational measures necessary for such services naturally lies with the different member states, they tend to fall into the category of sustainable transport and can therefore be financed by the EIB.
This aspect is particularly relevant in the New member states, who have the opportunity to avoid the mistakes of post-war decades in Western Europe, when transport thinking relied too heavily on a road-biased strategy.
- CAPTION: Modernisation of the E30 line between Wroclaw and Opole in Poland qualified for EIB support as well as funding from the Phare programme (p39)
Eastern Europe benefits from EIB finance
EIB has been involved in financing several major railway projects in Eastern Europe.
In May 2005 EIB provided funding worth €27m for modernisation of the rail corridor between Budapest and Lökösháza in Hungary. This included rehabilitation of 131 km on the lines from Budapest Ferencv? ros to Vecsés and from Szolnok to Lökösháza . These routes form part of the Pan-European Transport Corridor IV connecting Berlin to Bucuresti via Praha and Budapest. The purpose of the project is to eliminate bottlenecks and to upgrade the railway to allow an increase in speed. A new signalling system, complying with ERTMS standards, will enhance passenger safety and help to bring technical standards in Hungary into line with those in the EU.
In November 2003 EIB provided a loan worth €34m for upgrading signalling and safety equipment on the line between Divaca and Koper in Slovenia. This is part of Pan-European Transport Corridor V, and the project increases capacity to avoid future saturation.
In September 2003 €170m was made available for modernising railway infrastructure in Hungary. The project covered modernisation of three stations and sections of line totalling 100 km in various parts of Hungary on Pan-European Corridors IV and V; the lines are important arteries for both international and local traffic.
Other major projects financed by the EIB include upgrading of sections of the E20 main line in Poland that runs from Berlin to Warszawa, Minsk and Moscow (k440m), modernisation of the Slovak network and purchase of rolling stock (k200m) and the upgrade of 216 km of the Czech section of the Warszawa - Ostrava - Wien main line (k200m).
Most railway projects financed by the EIB in Central and Eastern Europe were also supported by EU Cohesion and Structural Funds, or in the case of the Candidate Countries, by the EU Phare and ISPA programmes.
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Ivan Pilip, Vice-President of the European Investment Bank, argues that better rail links are crucial for development and deeper economic integration of the new member states in the European Union. Able to fund up to 75% of the cost of TEN projects, the EIB works closely with the European Commission, providing long-term loans and developing initiatives aimed at facilitating investment in key corridors. The new member states have the opportunity to avoid the mistakes made in Western Europe when transport thinking relied too heavily on a road-based strategy
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