New development: Public support of bond-based infrastructure finance: the EU 2020 PBI

ABSTRACT

Facing enormous infrastructure project volumes in the near future, the European Union (EU) has tried to unlock the project bond market by designing a project bond credit enhancement (PBCE) mechanism to attract private investors for large-scale infrastructure projects. This article examines the EU 2020 Project Bond Initiative (PBI) and discusses its success.

IMPACT

Getting a bank loan for public sector projects was extremely difficult after the global financial crisis. Alternatives needed to be developed. The authors explain the idea of infrastructure financing via project bonds and critically evaluate the original EU 2020 Project Bond Initiative (PBI) as well as its latest version. Pilot projects demonstrated that the PBI was not just feasible, but superior in some respects to traditional credit enhancement instruments. Nevertheless, the number of supported projects was small, partly because of the nature of the administrative procedures involved. This article shows that the PBI should be continued, and simplified. However, the EU is not doing this and the authors fear that the PBI might not have a long-lasting effect on the project bond market as a result. Further action is necessary by politicians, public sector managers and by market actors like issuers and investors.

KEYWORDS:

• Credit enhancement
• EU 2020 PBI
• infrastructure project finance
• project bond
• state support

Disclosure statement

No potential conflict of interest was reported by the authors.