EU budget committee backs €230m funding for project bonds pilot

1 Jun 12

The European Parliament’s budget committee has agreed to fund a pilot credit guarantee scheme that will help companies raise funds for infrastructure projects by issuing bonds.

By Nick Mann | 1 June 2012

The European Parliament’s budget committee has agreed to fund a pilot credit guarantee scheme that will help companies raise funds for infrastructure projects by issuing bonds.

The committee yesterday approved an allocation of €230m of EU money for the pilot. It believes this could attract up to 20 times as much capital investment from pension and investment funds, raising some €4.6bn for major infrastructure projects in transport, energy and information technology. An estimated €1.5 trillion needs to be invested Europe-wide in these areas between 2010 and 2020.

The EU money will be used as a guarantee to improve the creditworthiness of companies involved in developing infrastructure. This should make it easier for the companies to raise money by issuing bonds to fund projects.

Of the €230m provisionally allocated to the pilot, the vast majority (€200m) will be set aside to guarantee investments in transport networks, with €20m set aside for IT projects and €10m for energy connections. If approved by the full Parliament on July 4, the pilot will be run by the European Investment Bank.

Göran Färm, the MEP charged with steering the project through Parliament, said that while the private sector should finance the bulk of the infrastructure needed to meet the EU’s growth targets, the public sector had a ‘crucial’ role to play.

‘Europe's economic crisis stems not only from the financial one, but also from declining investment. Given severe national budget restrictions and bank capital requirements, we must find new ways to boost investment for growth,’ he said.

‘Project bonds should make investing in important infrastructure projects more attractive to capital market investors, without excessive risks for taxpayers. This new scheme could play a key role in the growth strategy now being called for by many EU member states.’

The Parliament and EU member states agreed last week to move forward with the pilot of the scheme, which would be run over an 18-month period in 2012 and 2013. The pilot aims to test how financial markets react to the project bonds to fine-tune the scheme with a view to possible wider use in the period 2014 to 2020.