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European Commission

Siim Kallas

Vice-President and Commissioner for Transport

Financing European transport: the road ahead

Baltic Development Forum Summit/Copenhagen

18 June 2012

Ministers, ladies and gentlemen

Thank you for giving me this opportunity to talk about how we can finance Europe's transport infrastructure in the years ahead.

These are not the easiest of times for Europe's economy. There is a strong and understandable focus on tackling budget deficits and most EU Member States are implementing austerity measures.

While this is important, reviving growth must also be a major part of the drive to regain market confidence. For this, transport is well placed to help re-dynamise the economy. With smooth joined-up networks and proper connections across Europe, we can give our economy a good chance to grow.

This is about building the roads and bridges missing in the trans-European network, whose completion is a top priority. It is about linking east better with west, removing the many technical barriers, creating a seamless logistics chain that combines different means of transport to get goods and people from A to B.

As yet, there is no smooth and direct land connection between Brussels and Berlin. There are similar problems travelling between Berlin and Warsaw. Moving further east, the Baltic States have poor transport links to more central parts of Europe. Europe, as a continent, needs far better connections!

However, building and maintaining infrastructure is an expensive exercise.

We estimate that developing the infrastructure to match rising transport demand will cost 1.5 trillion euros up to 2030. Just up to 2020, we will need about 500 billion euros to complete the trans-European network.

Of that, around half is needed to get rid of the main bottlenecks.

This is a large amount of money, of course. But compared with – what? Between October 2008 and October 2011, the Commission approved 4.5 trillion euros in state aid measures to financial institutions.

Available public money will not be enough. So a longer-term source of investment could be the private sector.

This is where the EU can act, by helping to generate the large amounts of infrastructure investment that we need – with the Connecting Europe Facility.

This is the flexible financing instrument that the Commission has proposed for the EU's next budget period, 2014 to 2020, to invest in transport, energy and ICT infrastructures. It is the guarantee that investments will be made and that the infrastructure that Europe needs will get built.

The CEF is also designed to attract private sector involvement - by reviving, hopefully, market appetite for infrastructure investment. We are confident that the strong track record in EU funding for transport projects will help to generate some impressive leverage on the CEF money for transport.

Transport has been allocated the lion's share of CEF funding: a proposed €31.7 billion, including 10 billion only for Cohesion Fund eligible countries.

With the leverage we expect, and with co-funding, total transport investments could reach between €140 and €150 billion.

Most of this money will head towards projects identified as the most important for completing TEN-T, particularly the core network corridors and other significant cross-border sections.

The TEN-T project has achieved some remarkable successes, especially here in the Baltic region. It is a great example of the value the EU brings to its citizens. Take the Øresund bridge between Malmö and Copenhagen, Europe's longest combined road and rail bridge connecting Nordic countries to central Europe.

This link has contributed to a great increase in traffic and has very significant benefits for the development of the Copenhagen and Scania regions. Since it opened more than a decade ago, rail traffic has risen by more than 200%!

Then there is the planned Fehmarn Belt link, an extension of the Øresund bridge and a key stage in the main north–south route linking Germany and Denmark.

This project will stimulate economic development in the Baltic Sea regions of Denmark and Germany. Once completed, it will attract passenger and freight traffic estimated at 3.3 million vehicles and 30-35 thousand trains a year, and reduce travel time between Copenhagen and Hamburg by around one hour.

Ladies and gentlemen, to return to financing:

The €10 billion earmarked for cohesion countries will ensure that east gets better connected to west and that important connections also happen within and between the Cohesion countries. Most investments in these countries have so far been in roads, so this funding should mainly help to develop key rail connections missing today.

This all sounds a great deal of money. It is certainly a big increase compared with the current TEN-T budget – four times more. But in nominal terms, if you look at transport's huge overall financing needs, it is a conservative proposal.

Investing in infrastructure also helps to boost economic growth, enhance trade and mobility. It is a highly effective creator of employment: one recent U.S. study showed that infrastructure investment spending creates about 18,000 total jobs for every $1 billion in new investment spending.

But we will still need more private sector involvement to make up the shortfall. Given the gloomy economic climate, new regulatory constraints and banks' weakened liquidity over the last few years, how best to attract that investment?

One answer to this is project bonds - one of a number of risk-sharing instruments available under the Connecting Europe Facility.

The bonds are designed not only to revive market appetite for infrastructure investment. They will attract long-term private financing for individual infrastructure projects, in the form of investment capital from pension funds, insurance companies and asset managers.

Funding cross-EU infrastructure in this way is an excellent example of how the EU budget can be better used to target growth-boosting investment. I was delighted to see the Council of Ministers and European Parliament reach a compromise agreement so that the bonds can begin a pilot phase this summer.

For the bonds, our natural partner is the European Investment Bank, which can offer attractive pricing terms and large loan amounts over long maturities.

The EIB's role is not one of a traditional insurance guarantee but rather one of adding reputation and track record in dealing with project risk.

We are also looking at ways to enhance the financial structure of innovative public-private partnerships, or PPPs, in transport, to add more value for European travellers. These allow the public sector to get better value for money by transferring risk to those with the best expertise for managing it.

Lastly, I would just like to mention preciser and smarter infrastructure charging rules to raise revenue - road tolling schemes and the Eurovignette system for charging heavy goods vehicles, for example.

These reflect the maintenance costs of infrastructure, congestion, air and noise pollution, for which transport users and polluters should be paying.

Ladies and gentlemen

Attracting more private investment into transport infrastructure is one of the most cost-effective ways to achieve our goal of a cleaner, smoother and more connected transport network for Europe. This will be instrumental in reviving economic growth – because transport is a key driver of jobs, trade and wealth.

On June 7, EU transport ministers agreed with the general principles of the CEF – which is great news. Of course, the negotiations will continue and the most difficult part, about the money, is still ahead of us.

But if we are serious about linking east and west, joining up our continent and getting rid of the barriers to smooth transport, then we need consistent smart funding for transport infrastructure. That is what the CEF is intended to deliver.

Involving the private sector is not only about innovative financial instruments. This is a much larger issue. This is about a stable legal environment, and about avoiding political interference and political volatility.

It is about the belief that innovation and a creative economy can be created by a market economy, by private entrepreneurship – and not only by governments working from the top down.

In our Europe, I see too many views which consider the market economy as a problem, not a solution. This is where the Baltic region can be innovative – by making regional agreements about removing the barriers that still exist in many transport sectors in Europe, by freeing up creative forces of the economy to facilitate growth and secure employment.

Thank you for your attention.

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