European Funding To Energise CEE Infrastructure

BMI View: Central and Eastern European infrastructure markets will experience an upswing in activity with a broad recovery in 2014 to continue over 2015. This recovery is primarily due to greater access to infrastructure funding from the European Union earmarked for projects across the region and the European Commission and European institutions accelerate infrastructure financing.

Since the end of 2013, we have held the view that Europe's construction and infrastructure markets will experience an upswing in activity, with a broad recovery in 2014 to persist over 2015 ( see 'North America And Europe In 2014: Turning A Corner', 12 December 2013). This trend is particularly prominent in Emerging Europe with a new wave of European Union (EU) infrastructure funding earmarked for the region in the coming two years. We are reiterating this view after 2013 official data from across the region's construction markets points to a more positive outlook over 2014. Among these markets, we highlight Hungary, Poland and Estonia as markets we expect to perform well over a three-to five-year time horizon.

Our forecasts show that growth is set to return to the region at a sustainable, albeit moderate rate. We are currently forecasting Emerging Europe's construction market to enjoy an average real growth rate of 3.9% per annum between 2014 and 2018, after contracting by 0.6% in 2013.

Region Returning To Positive Growth Outlook
Construction Industry Value (LHS) and Real Growth (RHS)

BMI View: Central and Eastern European infrastructure markets will experience an upswing in activity with a broad recovery in 2014 to continue over 2015. This recovery is primarily due to greater access to infrastructure funding from the European Union earmarked for projects across the region and the European Commission and European institutions accelerate infrastructure financing.

Since the end of 2013, we have held the view that Europe's construction and infrastructure markets will experience an upswing in activity, with a broad recovery in 2014 to persist over 2015 ( see 'North America And Europe In 2014: Turning A Corner', 12 December 2013). This trend is particularly prominent in Emerging Europe with a new wave of European Union (EU) infrastructure funding earmarked for the region in the coming two years. We are reiterating this view after 2013 official data from across the region's construction markets points to a more positive outlook over 2014. Among these markets, we highlight Hungary, Poland and Estonia as markets we expect to perform well over a three-to five-year time horizon.

Our forecasts show that growth is set to return to the region at a sustainable, albeit moderate rate. We are currently forecasting Emerging Europe's construction market to enjoy an average real growth rate of 3.9% per annum between 2014 and 2018, after contracting by 0.6% in 2013.

Region Returning To Positive Growth Outlook
Construction Industry Value (LHS) and Real Growth (RHS)

EU Funding To Bring Infrastructure Growth

In late 2013, the European Council officially adopted the EU's multiannual financial framework for 2014-2020, setting the parameters for the Cohesion Fund and Connecting Europe Facility (CEF) which will support the funding of the TEN-T transport corridors and the TEN-E energy networks. The projects included within the TEN programmes have a heavy weighting towards the less developed networks in Eastern and Central Europe.

  • Cohesion Fund: A total of EUR63.4bn allocated to Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia and Slovenia, with a heavy focus on transport projects, aiming to bring the less developed transport networks into line with the rest of Europe. EUR11bn will be allocated to TEN-T projects specifically.

  • Connecting Europe Facility: EUR14.9bn will be allocated to the TEN-T transport projects, while EUR5.85bn has been allocated to trans-European energy infrastructure (TEN-E). The 248 Projects of Common Interest (PCI) are also included within this funding.

While these funds will partly be distributed into direct funding for projects, the remaining funds will be disbursed as contributions to financial instruments. These instruments are developed with multilateral financial institutions such as the European Investment Bank (EIB) and include the Marguerite Fund, the Loan Guarantee for TEN Transport (LGTT) and the Project Bond Initiative. With EU-funded financing vehicles, we expect the project financing market in Emerging Europe to gain a major boost. This will be a lifeline for the capital-starved infrastructure sectors in the region, which have suffered as governments pursue austere spending policies.

Outlook Brightening For CEE
Construction Industry Real Growth Forecasts, % Change y-o-y

Although specific project proposals for funding will not be published until September 2014, we expect rail networks and electricity and gas transmission networks to be the main areas targeted for EU support. Building up Europe's core rail network is a major part of the TEN-T projects; the Baltic-Adriatic corridor, the Rhine-Danube corridor and the Orient-East Med corridor are just three examples which highlight the heavy preference for investment in rail projects.

Rail Projects Dominate
Number of Pre-Identified Projects Within TEN-T Corridors For CEF Funding

In the energy sector, we highlight that projects which stand to benefit from funding are ones with the aim of integrating Europe's energy markets, reducing dependency on Russian imports by diversifying energy sources, increasing competition and security of supply, and connecting those countries that are more isolated.

The European Commission's Projects of Common Interest (PCI) in energy are the selected 248 projects that will meet the above objectives ( see 'Projects Of Common Interest Present Upside To Forecasts', November 6 2013). In its most recent European Energy Strategy document the European Commission distilled the list to 32 energy transmission and transportation projects that should be considered highest priority (see 'Opportunities from Europe's Energy Security Strategy', 3 June 2014).

EU - Crucial Infrastructure / Projects of Common Interest
Natural Gas
Implementation: 2014- 2016
Country Project name Completed by
Lithuania, Latvia Klaip da - Kiem na Gas pipeline 2017
Poland LNG import terminal 2014
Greece, Bulgaria Natural Gas Interconnector 2016
Greece, Bulgaria Interconnector - Reverse flow 2014
Bulgaria Chiren gas storage upgrade 2017
Croatia, Hungary Reverse flow of gas pipelines 2015
Hungary, Romania Reverse flow of gas pipelines 2016
Bulgaria, Serbia Natural Gas Interconnector 2016
Slovakia, Hungary Bi-directional natural gas pipeline 2015
Implementation: 2017 - 2020
Poland, Lithuania Bi-directional natural gas pipeline 2019
Finland, Estonia Bi-directional natural gas pipeline - offshore 2019
Baltics LNG import terminal 2017
Lithuania, Latvia Interconnector - Upgrade 2020
France, Spain Midcat bi-directional pipeline TBD
Czech Republic, Poland Interconnector 2019
Poland, Slovakia Bi-directional natural gas pipeline 2019
Poland Internal gas network upgrades 2016-2018
Turkey, Greece TANAP gas pipeline 2019
Greece, Albania, Italy TAP gas pipeline 2019
Albania, Montenegro, Croatia IAP gas pipeline 2020
Croatia LNG import terminal 2019
Bulgaria Internal gas network upgrades 2017
Romania, Ukraine Reverse flow of gas pipelines TBD
Greece Compressor station, Kipoi 2019
Greece LNG import terminal, Alexandroupoli 2016
Greece FLNG import terminal, Kavala 2016
Electricity
Implementation: 2014- 2016
Baltics, Nordics Nortbalt 1&2 2015
Lithuania, Poland Electricity interconnector 2015
Implementation: 2017 - 2020
Latvia, Sweden Capacity upgrade - electricity interconnector 2019
Estonia, Latvia Electricity interconnector 2020
France, Spain High voltage, subsea electricity interconnector 2020
Source: Communication From The Commission To The European Parliament And The Council, European Energy Security Strategy, SWD(2014)330final, 28 May 2014
StrabagVinciSkanskaSaliniImpregiloJ&P AvaxGEK TernaTrackjaErbudPGEPBG

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Related sectors of this article: Infrastructure, Transport Infrastructure, Utilities - Infrastructure, Project Finance, Railways, Power Plants and T&D, Oil and Gas Pipelines, Finance - Infrastructure
Geography: Europe, Iraq
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