A group of supra-national banks, capitalised by equity from governments rather than private investors, have emerged as important players in port finance (and infrastructure finance, generally). These banks, or international financial institutions, known as IFIs, provide finance, in the form of actual loans, but also guarantees to support commercial bank credits, to both governmental entities and private businesses in their target regions, sometimes in robust economic regions, but more often in areas now undergoing economic development.

One the largest of the agencies in the transport space is the European Investment Bank (EIB), actually created in the late 1950s, along with what is now the European Union (EU),under the Treaty of Rome.The EIB has been a key financier of ports on the European continent and among EU trading partners. Its list of recent activities reads like a page out of Lloyd’s Shipping Atlas with funding provided towards projects in Hamburg, Tripoli, Tangier, Durres, Madiera and Le Havre, among others. The EIB provided €62.7bn ($84.2bn) in overall transport loans over the five-year period to end-March 2007.

The imprint of another key player, the European Bank for Reconstruction and Development (EBRD) is evident by looking at a swath of ports stretching from the Baltic Sea to the Adriatic and then across to Central Asia. Since its formation in the early 1990s, the EBRD, with a mission of stimulating the transformation towards private sector economies in the Former Soviet Union and Eastern Europe, has participated in port projects in Ventspils, Dubrovnik, Constanza, Poti and inland sea ports at Baku, Turkmenbashi and Aktau. According to EBRD figures, it has provided loans of €4.4bn ($5.9bn) to the transport sector from 1991 through 2005.

Other IFIs include the African Development Bank (AFDB), the Manila-based Asian Development Bank (ADB),and three entities within the World Bank Group – the International Finance Corporation, Inter-American Development Bank and International Development Association.

Though similar at first blush, the various agencies have widely differing aims – which play an important role in their choice of projects. The EIB financings seek to further objectives of the European Union and its members. The ADB, with a mission to improve conditions and eliminate poverty in its region, sees private investment as an engine for economic growth that will expand the tax base. Business plays a critical role in economic development.

Robin Earle, senior banker at the EBRD, describes the bank’s dual missions of “transitionality”(supporting the move from state to market economy) and “additionality” (providing “something more” than a commercial lender would on a given deal). Constanza, at the mouth of the Danube on the Black Sea, has benefited from two EBRD projects, during the transition from State ownership towards privatisation.

In 1997, the EBRD participated in a $23.4m project, spearheading a loan of $14m to Silotrans SA,a business venture (jointly owned by Cypriot grain merchants and a Romanian cargo handler) building a grain storage and handling terminal.The loan was syndicated among a group of banks.

Then, in 2004, the EBRD lent €16m ($21.5m) to the state-owned National Company Maritime Ports Administration Constanta SA (MPAC), for the construction of a barge terminal that would facilitate the transfer of some 40m tonnes of transhipment cargo from the inland river system to the deep-sea carriers calling at the port. MPAC is a landlord, which subcontracts the operation of the terminal. Because of difficulties in securing proper accounting information from MPAC that would enable a proper evaluation of the credit, the Government of Romania provided a Sovereign Guaranty on the debt.

The EBRD’s Mr Earle explains to Port Strategy that his institution needs to bring some value, as he says “adding something in addition to what the commercial market might offer”. In explaining the financing offered, he adds: “We don’t offer soft loans – we can’t offer subsidised financing because it would crowd out the private market. But, our finance could be different from what private banks might offer – for example, it could have a longer tenor.”

Within Constanza, two private-sector companies, Navrom Gatati SA (a barging company and, not surprisingly, a major user of the EBRD-financed barge terminal) and logistics company Transport Trade Services SA benefited from an International Finance Corp (IFC) loan of approximately €30m to upgrade capital equipment. The 2005 credit involved $15.6m for upgrading the engines on Navrom’s fleet of push boats used to move barges down the Danube, $3.3m for refinance of existing obligations on a floating crane, and $5.8m for building a new grain terminal and storage silo.

The IFC, founded in 1956 and tied to the well known World Bank, supports the private sector in developing countries throughout the world, with a variety of financing structures. Recent maritime projects reveal the breadth of structures and segments.

In a 2003 deal in Mexico, the IFC provided $45m of long term debt for SSA Mexico, part of the larger Carrix SA (the parent of SSA Marine), as part of a much bigger package to support the purchase of TMM Purtos y Terminales,SA de CV,a company operating terminals in the four ports of Manzanillo, Veracruz, Progresso and Cozumel. TMM’s business includes a concession to operate the container terminal in Manzanillo on the Pacific Coast, as well as an automobile shipment facility in Veracruz.

Importantly, the SSA transaction illustrates the IFC’s ability to provide funds alongside a syndicate of banks led by Citibank,that provided the balance of the overall $127.3m, under a five-year loan. Manzanillo is one of several ports in Mexico likely to benefit as planners seek workarounds for congestion in Long Beach/Los Angeles in southern California.

Besides illustrating the co-financing capabilities of the IFIs, the Mexico transaction shows how the agencies can step in to fill gaps, where the commercial banking markets are unable to finance a project. In a discussion of the SSA Mexico transaction, the IFC, which has a long-standing relationship with Carrix, comments that: “IFC will provide long term financing which is otherwise not available from the commercial market.

The current difficult international market conditions limit access to external long-term private financing available to project sponsors.” The IFC has committed approximately $1bn overall to transportation infrastructure. Besides Romania and Mexico, other IFC projects include Rio Grande, where the IFC provided an aggregate of $47m (actually funded in 1997 and 2004) to container terminal operator Tecon Rio Grande SA.

It has also recently organised an $18m loan (consisting of $10m of IFC money, alongside $8m from a syndicate of Dutch banks) for an operator of a cruiseship terminal in Kusidasi,Turkey.And, in Sokhna, a Red Sea port serving the Egyptian market, the IFC has provided a $20m loan to the operator, under a government concession, of Egypt’s first private port. Uses of the funds include investment in warehouses and in an IT system.

Trade growth requires an infrastructure beyond merely the ports. In the case of Constanza, in addition to the EBRD and IFC involvement,the EIB has also lent funds to the Romanian government,which in turn,made them available to Constantza’s port authority for projects including wastewater treatment and power generation.

And both EIB and EBRD have supported projects bolstering motorways, railroads and bridges, in Romania and elsewhere throughout their regions.AFDB activity in Africa includes road and rail linkages to the ports. The ADB’s 2005 funding of “Transport & Communications” totalled $1.7bn – some 30% of its total lending for the year.

But IFI involvement is about more than concrete and mortar; EBRD’s Robin Earle describes a more subtle aspect of meeting the transitioning aspect of his institution’s mandate, telling PS: “We also help entities with their transition – for example, getting their accounts into an IFRS format, as we are now doing in Constanza, so that their credits can then be assessed like any private-sector company.

“In many ways, our scrutiny is similar to that of commercial lenders. The projects must be solid – they need to pass financial muster and meet our mandates.” Mr Earle goes on to explain that the EBRD, from inception in the early 1990s,required an environmental analysis of port projects, something now de rigueur, even from commercial lenders.