The criteria of the EIB investment in new gas infrastructures Thursday, November 9 2006

1. The criteria of the EIB investment in new gas infrastructures Thursday, November 9 2006 European Investment Bank

2. EIB Profile The European Investment Bank is the European Union‘s long-term financing institution. The Bank acts as anautonomous body set up to finance capital investment furthering European integration by promoting EU policies. • The EIB is the EU long-term financing institution • The EIB has been created by the Rome Treaty 1958 • The EIB is owned by the 25 EU member states • The EIB is a policy driven institution • The EIB has a subscribed capital EUR 150bn • The EIB collects its funds on the capital markets (2004: EUR 50bn) • The EIB signed loans amounting to EUR43.2bn in 2004

3. EIB Strategic Objectives • Economic and social cohesion in an enlarged EU • Development of Trans-European and Access networks (TENs) • Support of EU Development and Cooperation Policies in Partner Countries • Environmental Protection and Improvement, including Climate Change and Renewable Energy • Support for small and medium sized enterprises • Implementation of the Innovation 2010 Initiative (i2i) Six Strategic Priorities Energy priorities, including innovative technologies at crossroads of sustainability and competitiveness

4. EIB Energy priorities • Support the following five complementary areas • Large energy projects in the EU, including E-TEN’s (national and international energy grids, large energy infrastructures • Energy efficiency (financing of national efficiency programmes (SMEs & public sector), CHP and cogeneration, upgrading of existing district eating systems) • Renewable energy sources in the EU (achieving EIB targets concerning financing of renewable energy projects, development of less mature renewable energy markets in the EU, support to underdeveloped renewables (particularly biofuels) and new renewable energy technologies) • R&D in energy matters (step-up funding of energy R&D, development of risk-sharing instrument) • Cooperation with partner and neighbouring countries (integrating into EU energy market, development of new energy import routes, support to participation of the private sector in energy activities, development of financing of sustainable energy solutions (low carbon economy in developing countries))

5. EIB Energy lending (1) Over 2000-2005, Annual Bank lending for energy projects in the EU has been in the order of 3.3 bn, representing 9% of total lending in the EU

6. EIB Energy lending (2) Gas grids (including gas storage) are 13.4% of the total financing

7. EIB Energy lending (3) • The case of the gaz sector: • Large amount of funding allocated to TEN-E projects in the gas sector • Funding of the EIB supporting new power station facility (Combined Cycle Gas Turbines (CCGT) burning gas) • Supporting projects across all the EU as well as in partner countries • Main role being the provision of long term funding on competitive terms and active in the development of PPP structure • Provision of quality stamp to the project through its detailed due-diligence process • Willingness to evolve from a universal provider of funding to the role of flexible parner acting with more tailor-made products • Promotion of cooperation with other IFIs for the co-financing of major infrastructure project

8. EIB-funded TEN Gas Approved

9. EIB-funded TEN Gas Approved

10. Setting the scene: Investment needs in the gaz sector • EC estimation of investment needs in the gaz over the next 20 years: +/- 100 billion EUR • +/- 100 billion EUR for gas infrastructure • +/- 6 billion EUR for new interconnectors • +/- 22 billion EUR for storage projects • +/- 23 billion EUR for gas pipelines and Liquefied Natural Gas (LNG) projects • +/- 50 billion EUR for transmission system of operators in the Member States • Facilitate security of energy supply by reducing import dependency in a context of increased future gas consumption, through diversification of sources of gas (physical security – to cover demand; price security – to limit erratic price fluctuations, environmental security - to address climate change risks) • Accelerate the completion of the gas internal market and the interconnection between national or regional markets within the EU

11. Setting the scene: the revised TEN-E guidelines • TEN-E Revised Guidelines – key Points •  Decision 1364/2006/EC of the European parliament and the Council – 6th Sep 2006 • Overall this decision represents significant broadening and softening of TEN-E criteria. • Scope – article 2 • Electricity – all high voltage, interregional, international lines and systems • Gas – all high pressure pipe, incl- distribution; underground storage; & all LNG • Objectives – internal market, security of supply, sustainability (stimulate renewables and reduce energy transport risks) and production, transport, distribution, rational use, cohesion • Priorities – article 4 • All – internal market, bottlenecks, peripheral regions, diversification, RE • Electricity – integration RE, interoperability within EU and to accession/neighbours • Gas – network to meet demand & interoperability, also to Caspian, Gulf and ME

12. Setting the scene: the revised TEN-E guidelines • Common interest (article 6) explicitly includes environment, security and cohesion benefits • Annex I – list of priority axes incl. cross border projects already designated European Interest • Annex II – “additional criteria” • Annex III – long list of common interest projects with priority access to EU funding provided also sustainable and internal market or security or increased RE usage

13. Setting the scene: the revised TEN-E guidelines • Implementation European Interest Projects (EIP)– Art 8 and 9 • 12th April 2007 - MS to provide Commission a timetable to completion for EIP • MS to organise coordination meetings and exchange information, reporting to Commission • Bi-annual reporting by the Commission, particular attention to financing by EU • European Coordinator to be designated for problem EIP (facilitate dialogue, cross border coordination, annual reporting on obstacles) • Financing – private financing to be main source and encouraged. Market distortion to be avoided.

14. A more complex investment environment • Clear policy framework to ensure a minimum stability in the project ability to generate cash-flow for long-term assets (authorisation procedures, stable policy and clear regulatory framework, construction of related infrastructure affecting project’s profitability) • Appropriate planning and programming approach and integration of externalities and other constraints (security of supply…) in project selection and prioritization • Appropriate legal structure especially to address trans-border projects and PPP structure (involving several EU countries or neighbouring countries) • Development of appropriate risk-sharing instrument and better coordination between existing local, national and European financing support • Proper integration of environmental aspects and aspect on climate change (CO2 emissions) • Mitigating measures to address the political risk and potential conflicts between the various objectives (security of supply vs competitiveness…)

15. How EIB can contribute to TEN-E funding? EIB TEN-E BUSINESS PLAN • Annual lending targets (2004-2010): 0.5-1.0 billion € • Typically financing 20 to 30% of project cost (collaboration with the banking sector) • In certain cases up to 75% (e.g. acceleration effect) • Special focus on Quick Start projects and priority TENs • Intensification of dialogue with core promoters, and/or national authorities • Increased cooperation with the Commission to support identification efforts in relation to EU priority projects

16. EIB: Standard Terms & Conditions • Maximum loan amount: up to 50% of eligible project cost. • Loan tenors: depending on the “economic life” of the investment (generally between 10 and 20 years; exceptions). • Interest Rate: Fixed or Variable • Minimum size per loan: > EUR 7.5m (smaller loans will be handled by our partner banks through Global/Framework Loans ) • Comprehensive project information (e.g. detailed business plan) Projects should... Borrowers... …be eligible for EIB finance …comply with regulations … have to be bankable …be technically sound …be financially viable/showacceptable returns ...are so far mostly investmentgrade

17. PROJECT REQUIREMENTS • Projects should: • Satisfied a set of standard requirements • Be eligible for EIB finance I.e. focused on highest priority projects in the EU, European interest and priority TENs projects as well as TENs of common interest; • Be technically sound; • Be financially viable; • Add value and show an acceptable economic return; • Comply with environmental protection and sustainable objectives • Comply with procurement regulations; • Have adequate security Complemented by additional issues specific to the energy sector: • Incorporate the positive impact on security of energy supply into the comparative cost assessment for suitable case • Incorporate the impact on climate change

18. EIB: Standard Project Cycle Promoter’s request EIB eligibilityAssessment Staff Teams EconomicFinancialTechnicalEnvironmental Monitoring Documentation process (Lawyers) ManagementCommittee Contract Signature Board of Directors

19. Type of potential intervention How EIB financing can be structured: an example Risk Sharing Framework Direct Loan EIB lends to client’s bank(s) passing through its low funding cost and increased risk capacity. Credit risk is shared by the EIB with the bank. EIB provides financing directly to thecustomer alongside other lenders asappropriate. Credit risk can be shared on an equal basis with other bank(s). Commercial Bank(s) Loan/Guarantee Loan Loan Commercial Bank(s) Loan(s) Borrower (Promoter / SPV) Borrower (Promoter / SPV) e.g. Automotive RDI Facility (SFF) Max. EUR 12,5m individual risks Min. EUR 7,5m individual risks

20. Financing design Corporate Finance Model vs. Project Finance Model Corporate Finance Model Project Finance Model • Financing partners provide funding to the promoter on the basis of its financial strength. • A promoter can be a company, a consortium of companies or an institution • The financing partners are thereby exposed to the credit risk of the promoter, not of the project. • In the Project Finance Model, the project is realized and financed via a legally and financially standalone project company. • The promoter(s) usually have the role of a strategic partner (e.g shareholder). • The financing partners are thereby exposed to the credit risk of the project only .