Barroso talks up project bonds for infra

The president of the European Commission has called for new sources of finance to fund European Union infrastructure projects including 'EU project bonds', to be issued together with the EIB, and more public-private partnerships.

Infrastructure development is firmly on the agenda on both sides of the Atlantic now that European Commission (EC) president Jose Manuel Barroso unveiled plans today to raise alternative sources of finance to help fund European infrastructure.

“We should explore new sources of financing for major European infrastructure projects,” Barroso said in a speech to the European Parliament. “For instance, I will propose the establishment of EU project bonds, together with the European Investment Bank (EIB). We will also further develop public-private partnerships,” the president of the EC added.

While Barroso did not provide any details on how these project bonds would function, the idea has been in discussion in Brussles for some time.

In an exclusive interview published in the April issue of Infrastructure Investor, Dario Scannapieco, a vice-president at the EIB and governor of the European Bank for Reconstruction and Development, explained how the project bond mechanism might work.

The idea, Scannapieco said, would be for the EIB to guarantee bonds issued by project companies, improving the underlying ratings of the projects they sponsor and opening the door for institutional investors to hold long-term infrastructure debt.

“The revitalisation of the project bond market was the result of a work group set-up in 2009 by the vice-president of the European Commission and the EIB. And one of the possibilities that came out of that work group was for the EIB to guarantee bonds linked to privately or publicly funded infrastructure projects,” Scannapieco said at the time.

If implemented, the EIB would effectively step in for the defunct monoline insurers in order to raise these bonds to investment grade so that pension funds or life insurers would feel comfortable investing in them. “The appetite [for infrastructure bonds] is still there with certain categories of institutional investors,” Scannapieco insisted.

Barroso's speech follows a similar infrastructure-related announcement yesterday by US president Barack Obama. At a Labor Day event held in Milwaukee, the US president unveiled a six-year infrastructure programme requiring upfront spending of at least $50 billion.

Obama called for the creation of a national infrastructure bank that would deploy a mix of public and private capital to help fund significant infrastructure projects.