Commissioner Kinnock highlights private sector's role in development of trans-European networks

In a speech delivered at the EIB Conference in Amsterdam on 18 May 1995, Mr. Neil Kinnock, Commissioner responsible for transport, highlighted the important role to be played by the private sector in the development of trans-European networks. The objectives for the developme...

In a speech delivered at the EIB Conference in Amsterdam on 18 May 1995, Mr. Neil Kinnock, Commissioner responsible for transport, highlighted the important role to be played by the private sector in the development of trans-European networks.

The objectives for the development of trans-European networks (TENs) are to:

- Support the operation of the single market;
- Contribute to economic growth, competitiveness and employment;
- Improve the links to peripheral regions in order to help economic and social cohesion within the Union.

Up until now, transport and other infrastructures have been planned largely on a national basis. In an increasingly integrating European economy, this needs to change. Investment must be made in a European infrastructure which helps to reduce obstacles to international movement and trade, and which helps to spread the benefits of the resulting growth.

At the end of last year, the European Council in Essen gave the Commission a special remit to find ways of accelerating a selection of priority TENs projects, in particular 14 in transport with a total investment expenditure requirement of ECU 90 billion.

This ambitious programme of infrastructure investment on a European scale has been conceived at a time when public budgets everywhere are very tightly stretched. It is therefore necessary to supplement public investment with alternative ways of financing infrastructure projects and of achieving more efficiency in implementing them. Private/public partnerships are an important way of doing this.

- What is meant by private/public partnerships?

Private/public partnerships do not mean the privatization of public responsibilities or the nationalization of private assets. It is a matter of partners teaming up to mobilize resources to provide better services to European businesses and citizens. The private sector will have to take into account the public service obligation, inherent in transport, energy or telecommunications networks.

The benefits of private/public partnerships are not confined to the use of private money to build TENs. The skills and knowledge available in the private sector are positive assets in themselves.

- Encouraging private/public partnerships:

As far as large infrastructure projects are concerned, the Commission is looking into the ways in which to encourage private/public partnerships:

. The need to allocate risks appropriately. It is clear that the relationship between risk and reward is vital to the private sector's willingness to undertake large infrastructure projects.

. Each party should attempt to minimize the risk over which it has most control. This implies that financial, design, construction and traffic risks will be borne by the private sector whilst the public sector must minimize the political, legislative and planning risks. There must also be a carefully structured dialogue between the two sectors throughout the life of the project.

. The recognition that user charges are likely to be important for the development of private/public partnerships.

The private sector needs to have a flow of income to compensate for the costs and risks. Work is under way into user charges and the best system for their application. While such charges are common in the telecommunications, energy, and rail transport fields, they are less common for road transport. Applied as tolls, however, they can be implemented as part of a wider transport policy which uses their effect on traffic flows.

. Attention must be given to the rules, regulations and procedures applied in the planning, evaluation, construction and operation of large infrastructure projects.

Many of the obstacles to private/public partnerships have their origin in the incompatibilities between the attitudes and methods of the public and private sectors. The aim should be to use competition as a catalyst in building infrastructure and providing services, while safeguarding the public interest.

- What can be done at the European level?

Although encouraging private/public partnerships has to be done primarily at the Member State level, there are also aspects that need to be examined at the Community level.


. Competition policy:

Reflection is needed on how the use and pricing of infrastructure should be controlled through competition policy, which covers issues such as open access and fair user charges.

The extent to which competition by new operators is prevented should be limited to the minimum necessary to secure the funding of the project, and the rights granted should be proportional to the contribution to funding. A systematic way of establishing what these rights are is needed at the start of the project.
. Public procurement:

The application of public procurement rules also requires close examination, to ensure open and fair tendering procedures, without obstructing fresh ideas from the private sector.

. Community funding procedures and instruments:

Funds will be directed towards feasibility studies, interest rebates on loans both from the EIB and commercial banks, and paying for guarantees underwritten by the European Investment Fund and other bodies.

The Commission will be taking a more stringent attitude to allocating Community funding, in particular to transport projects, than the Member States have been used to in the past. It will want to see evidence that a financing plan which makes good use of Community funds has been worked out and has looked at ways of involving the private sector.

. Project authorities:

The Commission is considering setting up flexible project authorities or corridor authorities to help bring the different parties involved in the project together. In general, the project authorities would bring the various interests together at an early stage and then be involved in their preparation, construction, operation and financing.

- Level of Community financing:

Many of the major TENs projects are transnational in nature. The immediate economic benefits are not always going to be felt by the countries or regions that bear the main costs of the projects. It is therefore right that the wider EU is involved in their financing.

With the advent of the Essen priority projects, the potential demands on the TENs budget have grown significantly. So far, however, the resources needed for that budget have not. It has been estimated that the total expenditure needed to upgrade the transport networks could be as high as ECU 220 billion in the period up to 1999, and ECU 400 billion by 2010. As far as the 14 top priority major projects selected at Essen are concerned, the total funding needs will be about ECU 90 billion, half of which should be spent by the year 2000.

Against this, resources at Community level stand at less than ECU 2 billion. There will be an estimated ECU 8 billion in resources for transport from the Cohesion Fund and a further ECU 15 billion for transport from the Regional Development Fund.

The European Investment Bank is also heavily involved in lending to TENs projects, especially through its newly formed TENs "window". The European Investment Fund also plays a role of growing importance using guarantees.

There is, however, still a need for more funds. This was recognized at the European Council in Essen last December when the Heads of Government asked the Council and the Commission to "adopt the necessary decisions and to top up funds currently available for TENs".

It is certain that the necessary resources will not be provided in the time or on the scale necessary from the public purse. Private participation in funding is therefore crucial, and is potentially commercially profitable.