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European Bank For Reconstruction And Development – 25 Years In Review

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European Bank for Reconstruction and Development

EBRD at 25: Transforming the infrastructure of people’s lives

 

 

 

 

 

Changing economies in Russia, Turkey and Romania

Infrastructure was and probably remains one of the most challenging areas in the countries where the EBRD invests. Infrastructure has a direct impact on people’s welfare and their quality of life and therefore it has always been a top priority for the Bank.

Over the past quarter of a century, the Bank has been a game-changer in infrastructure financing across its region, says Thomas Maier, EBRD Managing Director for Infrastructure.

“We’ve helped big countries with large infrastructure needs – such as Russia and Turkey – embrace private-public partnerships to tap private sector financing. We’ve encouraged Romania to adopt new solutions to bridge its infrastructure gap and have also been part of a coordinated approach for infrastructure investment in the Western Balkans with other development partners,” Mr Maier says.

Russia

As the world’s biggest country, Russia has huge infrastructure needs. In fact, they are too big for the public sector to finance alone. As a result, the EBRD has been promoting private-public partnerships (PPPs) in the country from its early days.

The reconstruction of St Petersburg’s Pulkovo airport in 2010 was where the PPP model was pioneered with the support from the EBRD, partner international financial institutions and Vnesheconombank.

The EBRD’s first PPP in the road sector in Russia was the Western High-Speed Diameter, a toll motorway in St Petersburg. The Bank was the sole international debt provider alongside local banks and also provided significant input into developing a bankable project structure and ensuring the highest environmental standards.

An enabling legal framework has been vital to facilitate PPPs so the Bank has engaged with the authorities and public institutions to help bring this about. As a result, other Russian cities like Perm, Nizhny Novgorod and Ekaterinburg have been able to finance their infrastructure needs by tapping private sector resources after supportive laws were adopted.

Turkey

Now the EBRD’s largest market, Turkey has also welcomed PPPs with open arms.

It all started with Istanbul’s insatiable need to cross the Bosphorus. In 2012 the EBRD participated in a landmark transaction which will see the Eurasia Tunnel built under the straits. Once it is completed in 2017, the tunnel will connect the city’s European and Anatolian sides, but also Turkey’s European and Asian road networks.

“The project is not only a milestone in connecting Asia and Europe,” said Thomas Maier at the time. “As the first major private-public partnership in the road sector with predominantly foreign financing, it will open the way for the financing of Turkey’s impressive pipeline of infrastructure projects. The Eurasia Tunnel will accelerate the future in many ways.”

And indeed it has.  Building on the success of the Eurasia Tunnel financing model, the EBRD has paved the way for greater private sector involvement in the hospital sector.

Faced with the need for large investments, the Turkish government decided to tap private sector resources and know-how to construct and manage hospital facilities more quickly and efficiently. It launched a €12 billion programme for some 60 hospitals across the country in collaboration with the private sector.

The arrangement allows the Ministry of Health to focus on what it does best – providing healthcare – while working with private investors doing what they do best,  raising finance and designing, constructing and managing what will be a state-of-art hospital facility.

The EBRD worked with the Turkish Ministry of Health on the necessary legal framework and once all rules and regulations were in place, investors came in. Demonstrating its strong support, the Bank secured a long-term financing package for the very first project, a high-tech hospital in the south-eastern Turkish city of Adana.

The transaction, involving international financing institutions and commercial banks, provided a blueprint for further deals. Since then, tenders for 21 hospitals worth €8 billion have been completed and eight projects reached financial close.

Turkey’s infrastructure push is not restricted to hospitals, however. Roads and airports are being built or upgraded on a long-term concession basis as well. In 2015, for example, the EBRD arranged financing for the construction and operation of a new privately-operated domestic terminal at Dalaman airport in the south-western Turkish province of Muğla, in a move to boost tourism in the Turkish Riviera.

The EBRD is now seeking to help Turkey employ similar schemes in the education and wastewater sectors. This will enable authorities to use private sector financing and expertise for building much-needed schools and water treatment plants across the country.

Romania

In Romania, the EBRD’s work is best illustrated by the dramatic transformation of the Transylvanian city of Sibiu over the last decade.

Modernising urban infrastructure became a priority for the municipality after 2004 when Sibiu, formerly known as Hermannstadt, was selected as the European Capital of Culture for the year 2007.

Since then, the reform-minded municipality has become one of the largest recipients of EBRD municipal financing with over €70 million to date. Investments in roads, public transport, water and wastewater networks, supported by the EBRD and grants from the EU, have boosted Sibiu’s economic growth and encouraged its transformation into a tourism, cultural and trade hub.

Since 2005, more than 200 streets have been modernised using a combination of local budget funds, EBRD loans and EU structural funds. In 2006, the public transport company used an EBRD loan to purchase new buses. A second loan, agreed in 2014, is currently financing the construction of a new bus depot.

The city’s water and wastewater company Apa-Canal Sibiu has also received EBRD funds to co-finance projects that will modernise its infrastructure.

The Bank’s latest investment in Sibiu, signed at the end of last year, will finance the rehabilitation of streets in the town’s newly redeveloped areas and will improve road maintenance by engaging private sector companies under multi-annual performance-based contracting.

To help the transformation of Sibiu and many other cities in Romania, including the capital Bucharest, the Bank has worked hand in hand with the authorities to create a legal and regulatory framework. The EBRD and the EU have jointly financed 24 water companies across Romania as municipalities have sought to upgrade infrastructure, improve services and become more efficient.

More remains to be done, including encouraging municipalities to tap capital markets for financing needs. In 2015, Bucharest became the first municipality to issue a bond in local currency in order to raise funds to finance urban development projects.

From millions to billions to trillions

According to Thomas Maier, close cooperation with other IFIs, donors and the private sector has enabled the EBRD to move from millions in our early days to billions in infrastructure financing over the years.

“‎The infrastructure gap is growing but with a broad effort with other IFI-s to mobilise and catalyse private sector investment, we can indeed help shift from billions to trillions,” he warns.

This means the EBRD’s job is far from over.

{Source: European Bank for Reconstruction and Development – Media Relations – By Olga Rosca}

[Photo credits-featured image: A picture of the Berlin Wall: the red text on it reads, “Irgendwann fällt jede Mauer” — “Sooner or later every wall falls”. – By Frederik Ramm, read http://www.remote.org/frederik/culture/berlin/license.html for his licensing terms – http://www.remote.org/frederik/culture/berlin/tour1.html, Copyrighted free use, https://commons.wikimedia.org/w/index.php?curid=683918]

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Background Note:

The European Bank for Reconstruction and Development (EBRD) was established to help build a new, post-Cold War era in Central and Eastern Europe. It has since played a historic role and gained unique expertise in fostering change in the region – and beyond.

Commitment to entrepreneurship

The EBRD is committed to furthering progress towards ‘market-oriented economies and the promotion of private and entrepreneurial initiative’. This has been its guiding principle since its creation at the beginning of the 1990s and, new challenges and the welcoming of new countries to the EBRD world notwithstanding, will continue to be its mission in years to come.

A turning point in the history of Europe

The EBRD was set up in haste to meet the challenge of an extraordinary moment in Europe’s history, the collapse of communism in its East. In fact, a mere 18 months elapsed between the first mooting of the idea of a European bank, by President François Mitterrand of France, in October 1989 and its opening for business with headquarters in London in April 1991.

Urgency and the ability to respond to momentous events swiftly and decisively, whether it be the end of the Soviet Union, financial crises or the ‘Arab Spring,’ have been among the EBRD’s hallmarks from the start.

During the frenetic years of the early 1990s the EBRD’s emphasis on the private sector as the main driver for change in Central and Eastern Europe was vindicated many times over. This was the period that established the EBRD’s reputation as an expert on transition to the open market.

It was heavily involved in areas such as banking systems reform, the liberalisation of prices, privatisation (legalisation and policy dialogue) and the creation of proper legal frameworks for property rights, all vital ingredients for change.

Expanding the EBRD’s region of operations

Such reforms were supported by sound advice, training and technical expertise, and supplemented by major investments in the private and public sectors. With domestic capital on its own insufficient to finance transition, the EBRD helped to bring in external capital from both private and public sources.

Such experience has stood the EBRD in good stead when it has expanded its original region of operations into new countries such as Mongolia (in 2006), Turkey (2009),Jordan, Tunisia, Morocco, Egypt and Kosovo (in 2012), Cyprus (2014) and Greece (2015). It is currently active in more than 30 countries from central Europe to central Asia and the southern and eastern Mediterranean. The Czech Republic is the only member to have ‘graduated’ from the EBRD and no longer receives investment from the Bank.

The EBRD’s understanding of how a market economy works and engagement with other international financial institutions also allowed us to play a crucial role in stabilising the region and planning for recovery after the shock of the global financial crisis in 2008.

The EBRD’s unique mandate

Uniquely for a development bank, the EBRD has a political mandate in that it assists only those countries ‘committed to and applying the principles of multi-party democracy [and]pluralism’. Safeguarding the environment and a commitment to sustainable energy are also central to the EBRD’s activity.

The EBRD serves the interests of all its shareholders – 65 countries plus the European Union and the European Investment Bank – not just those countries which receive its investments (€9.4 billion in 2015). We all stand to gain from the EBRD region’s closer and deeper integration into the global economy.

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