Who should foot the bill?

Date: 29/02/1996

By Tim Jones

NOTHING has generated more heated argument than the question of who should pay for the hugely-expensive projects on the TENs list.

The 14 priority transport networks alone are expected to cost up to 100 billion ecu, with around 40 billion ecu of that front-loaded into the next five economically difficult years.

As they struggle to rein in budget deficits to qualify for monetary union in 1999, member states or their highly indebted railway firms are being asked to come up with heavy long-term capital financing.

Belgium, for example, desperate to line its pockets with euros but burdened with a huge public debt legacy, had to find 770 million ecu to fund a high-speed rail link that is likely to be of more benefit to the Netherlands, Germany and the UK. Only ingenious financial engineering by Transport Minister Michel Daerden, who managed to take the costs of the TGV 'off balance sheet' and secure half of the government's receipts from the sale of a stake in Belgacom, allowed the link to go ahead.

Faced with hard times, governments want the private sector to carry as much of the burden as possible. The problem for politicians is that the rates of return on offer, once set against the risk, are simply not attractive enough to companies, as recent experience at the Welsh port of Holyhead shows.

The ferry link between the Irish port of Dún Laoghaire and Holyhead is a key element of the Ireland-UK-Benelux road network, one of the priority projects identified at the 1994 Essen summit.When operator Irish Ferries and port-owner Stena Ports decided to expand their capacity to transport lorries and cars, they took a long look at the costs and the potential returns. Last year, Irish Ferries introduced a 'super ferry' with the capacity to carry 100 trucks or 600 cars at a cost of 60 million ecu, and Stena Line launched a new large high-speed catamaran able to carry 350 cars at a cost of 78 million ecu. But a further 50 million ecu was needed to enable Holyhead to cope with the new vessels.

For Keith Young, project manager at Irish Ferries, the ten-year outlay involved was worth it, but only on the understanding that around 25&percent; of the infrastructural investment would come from the public sector, reducing his company's share of the investment costs from 26 to 18 million ecu. But instead of 25&percent;, only 5&percent; of the costs were met by the public sector. “If I had been told two years ago that it was going to be 5&percent;, I would probably not have gone ahead with it,” says Young, warning his company may, as a result, opt to direct more traffic straight to French ports and bypass Holyhead altogether as a result.

Young's experience has been mirrored throughout Europe. Wholly private-sector financed transport projects are rare, confined to highly-used links where the builder-operator can be certain of recouping his investment through user fees or tolls.

However, TENs are meant to do much more than this. They are meant to make the single market a physical reality, accelerate trade in goods and services, and link Europe's peripheries to its urban powerhouses. But as was the case in Holyhead, builder-operators will not invest more than they can expect to win back with a profit over a reasonable time-frame.

The public sector has to play a part. But how can governments busy cutting away at their budget deficits be expected to plug these gaps?

Former Commission President Jacques Delors, whose forecasters detected a funding gap of around 7 billion ecu a year, advocated the creation of a new financial instrument, a Union bond, to raise the money on the capital markets.

But the proposal was killed off by Germany and the UK at the December 1993 Brussels summit. At a time of budgetary austerity, they resisted any attempt by the Commission to turn itself into a financial authority and rejected the idea of global borrowing to finance the TENs.

Instead, they called on the European Investment Bank to look into novel ways of finding money for the projects. Through its 'TENs window' - financing interest during construction, delaying repayment of capital until projects begin operations and extending loan maturities beyond 20 years - the EIB has lent more than 7 billion ecu for projects.

Meanwhile, the European Investment Fund is redressing the shortage of loan guarantees of more than ten years on investment in transport, telecommunications and energy networks.

Finance ministers also agreed last autumn to establish a line from the Union budget worth 2.345 billion ecu between now and the end of the century.

Last October, 182.5 million ecu was allocated towards feasibility studies, interest subsidies, loan guarantees and grants. The fact that bids came in for 450 million ecu explains why the Commission remains convinced that only extra public cash will ensure these projects are completed.

Delors' successor, Jacques Santer, has raised his head above the parapet and is pushing for an extra billion ecu to be added to the budget line and, more controversially, a revival of the idea of EU bonds.

To avoid a fresh argument with Germany and the UK, Santer is suggesting issuing bonds under the name of the Economic Community (EEC), which has already borrowed 5 billion ecu in the markets to finance balance of payments loans.

The Commission is the first to admit that money is not everything, and red tape is also a problem. But, as a wise woman once said, “I've been rich and I've been poor, and rich is better.”