The European Investment Bank has received a mandate from the European Union to invest in infrastructure projects in the Pacific, including in Papua New Guinea. Adam Bruun, Head of the EIB’s Pacific Regional Office, explains to Business Advantage PNG some of the priorities and operational practices of the Bank.

The European Investment Bank’s Adam Bruun. Source: EIB

‘In general, what the Bank does in the Pacific is support the European Union’s development work,’ says Bruun.

‘We do this with a particular focus on financing infrastructure: roads, bridges, power plants, water and sanitation. Any projects that have an economic purpose and require substantial and long term funding. Our current focus is on climate action, both mitigation and adaptation.’

Bruun says the Bank specialises in providing long term funding that matches the economic life of the underlying project.

‘For example, a road will typically have an economic life, if maintained properly, of something like 20 to 25 years,’ he tells Business Advantage PNG.

‘In PNG, we typically lend in US dollars, so we can lend in hard currency.’

‘So, our loan duration will be commensurate with that and therefore we will stretch out the repayments over that period. It provides some advantages to the borrowers in terms of reducing the need to repay the loan on an annual basis.’

AAA rated

Bruun points out that the EIB’s shareholders are the Member States of the European Union, which is very important for the capital markets. Because of the shareholder structure, the EIB is rated AAA.

‘Since we are not for profit—obviously we require a bit of a margin to cover our operational costs and capital cost—we are able to pass that AAA advantage on to our clients.

‘In PNG, we typically lend in US dollars, so we can lend in hard currency. Depending on project risk, there is a very clear correlation in the pricing that we provide and the US dollar Treasury market. Currently, it is very low interest rates, reflecting AAA type of pricing.’

‘We are relatively small here in the Pacific, so we need some scale in what we do.’

Bruun says some projects can attract an interest rate subsidy.

‘This is particularly relevant in the Pacific because whenever we talk about climate action projects we can subsidise the interest rate.

‘We also do work in the financial sector where we basically lend through the national development banks, or local commercial banks.

‘That way, we are able to reach out to smaller borrowers. We are relatively small here in the Pacific so we need some scale in what we do.’

Portfolio

Bruun says the Bank’s total portfolio in the Pacific is about €200 million (K750 million). ‘We have one large loan in PNG, which is US$58.4 million (K186 million). We call it the PNG Rural Bridges loan; it is for rural bridges in East Sepik and Madang and co-financed with the Asian Development Bank.’

Bruun says the Bank’s approach is opportunistic. ‘We can lend both to the sovereign and also to the private sector.

‘We look only at stand-alone projects and appraise them on their merit.’

‘Given the fact that the PNG government has fiscal constraints, we are trying to support infrastructure through off-balance sheet interventions.

‘In particular, in the power sector we are trying to originate projects in renewable energy with independent power producers who would enter into long term agreements with PNG Power. This is a way for the government to invest in critical infrastructure but do so off-balance sheet.

Budget

Bruun says the Bank does not support government budgets. ‘We look only at stand-alone projects and appraise them on their merit.

‘We work very closely with the World Bank, the IFC and the Asian Development Bank. The ADB is the biggest multi-lateral development bank in PNG in terms of its portfolio.

‘We think that our value-add is to leverage development projects not only with financial products, but also our know-how and experience that we can bring to bear from the rest of the world in the Pacific region, and PNG in particular.’