Private sector expertise and funds speed up the modernisation process
The right to move freely between countries – whether East or West – was one of the most immediate and celebrated benefits for the people who had been caught behind the Iron Curtain once the communist regimes started to collapse in 1989.
Improving the crumbling transport networks and building new ones was vital to help the region open up –for people to travel and unite separated families, for goods to flow freely across borders and to prepare the ground for private businesses to flourish.
“There had been a lack of investments for decades leading to dilapidated roads and railways, ports and aviation infrastructure,” says Sue Barrett, the EBRD’s Director for Transport. “It was a monumental task as so many aspects of a modern economy and our everyday lives depend on a reliable infrastructure and efficient services related to it.”
Entry points for the private sector
The private sector’s expertise and funds were crucial to speeding up the modernisation process. However, to attract them, the transport sector was in urgent need of comprehensive reform first.
“The state had owned all transport infrastructure – and taken all economic decisions – for almost five decades. We needed to create an environment that was conducive to private sector participation through policy dialogue, regulatory advice and restructuring,” Sue Barrett remembers.
In many cases this involved the creation of commercially-viable enterprises such as independent rail cargo entities. The EBRD supported them with advice on corporate governance and best practices to prepare them for future investments, commercial partnerships and eventual privatisation.
In Kazakhstan, for example, the EBRD has fostered comprehensive reform in the railway sector for more than a decade. After supporting the initial restructuring of the national railways company KTZ, the Bank made several investments to help the company finance increasingly advanced efficiency measures. The Bank also participated in a bond issuance, which helped the company finance much-needed logistics infrastructure to increase cargo transit along the trade route from China to Europe.
Along the Moroccan coast, the EBRD is providing a loan of up to €200 million to finance the basic infrastructure for a new port close to Nador, with the port terminals expected to be tendered to the private sector.
The EBRD, with the EU and other partners, is helping improve roads and railways in Bosnia and Herzegovina – to the benefit of businesses and Bosnia’s citizens, too.
An efficient transport infrastructure is vital to connect countries to neighbouring markets and the global economy. For example, in the Western Balkans EBRD investments have contributed to the construction and modernisation of key transport corridors. This includes roads and railway upgrades for the Pan-European Corridor X, which connects the countries in south-eastern Europe with EU markets in the north, and Corridor Vc, connecting Bosnia and Herzegovina and other countries to the Adriatic Sea.
“Regional integration has been one of our priorities since the Bank’s establishment 25 years ago,” says Sue Barrett. “We have worked closely with partners such as the EU and European Investment Bank to invest in vital cross-border transport arteries. Furthermore, we have helped to upgrade local roads both to improve the quality of citizens’ lives and to support local businesses.”
The EBRD also helped attract many commercial lenders to participate in complex transport infrastructure projects. In the 1990s, the EBRD supported the Hungarian government’s ground breaking public-private partnership (PPP) programme. This early experience shaped the structure of future PPPs across the EBRD region – in Slovakia, for example, the R1 motorway was the first sich project.
In Turkey, the Eurasia Tunnel under the Bosphorus Straits was the first PPP in the country. A Turkish-Korean joint venture was selected through an international tender to build and operate the tunnel. This project created a blueprint for future PPPs in other sectors.
“Our work to stimulate private sector participation in the transport sector has clearly paid off over the years,” Sue Barrett explains.
As the economies in the EBRD region evolved, new priorities shaped the international community’s and also the Bank’s agenda. Most prominent is climate change mitigation. The transport sector can play an important role by promoting carbon-efficient and sustainable services and infrastructure. The EBRD is tackling these new challenges and embracing new opportunities as it expands its activities. One way is through efficient logistical services. For example, in 2015 the Bank participated in the initial public offering of InPost S.A., an innovative and energy-efficient parcel delivery provider, on the Warsaw Stock Exchange.
“The goal of our investments is twofold,” says Sue Barrett. “Modern transport services and infrastructure supports citizens and businesses in their activities every day. They can serve as an important catalyst for growth. At the same time, they need to be sustainable, so that they provide long-term economic and social benefits.”
Since 1991, the EBRD has invested €14.2 billion in 280 projects in the transport sector, including 47 per cent in roads, 33 per cent in the rail network, 14 per cent in port, intermodal and logistics operations, as well as 6 per cent in the aviation sector.