Much of the greater Black and Caspian Seas region has a substantial history of economic development, but in most countries, infrastructure to support a modern economy is either weak or absent altogether. If their countries are to succeed, leaders will have to address a wide range of infrastructure needs, develop the industrial, human, and other capacities to address those needs, and somehow find the financing necessary to make this happen. What are the key infrastructure requirements around the region? How will these be met, and what will be the likely mix among local and foreign suppliers? What company, national, and regional strategies can help to secure, support, and finance the infrastructure the region needs?

CHAIR: Mr. Obie Moore,** Chief Executive Officer, DP Holding SA


  • Mr. David Arkless, President, Corporate and Government Affairs, ManpowerGroup
  • Ambassador Leonidas Chrysanthopoulos, Secretary General, Black Sea Economic Cooperation Organization
  • Mr. Matthias Kollatz-Ahnen, Vice President, European Investment Bank
  • Dr. Werner Weihs-Raabl, Head of Group Infrastructure Finance, Erste Group


Location: Istanbul, Turkey

Time: 3:45 p.m.
Date: Friday, November 18, 2011

Transcript by
Federal News Service
Washington, D.C.

OBIE MOORE: Good afternoon. My name is Obie Moore. I have the distinct pleasure of being the chair for this panel of the distinguished practitioners in the field of infrastructure, finance, including even resource infrastructure.

Well-functioning, interconnected infrastructure networks are the backbone of prospering economies. There’s a vast need for large infrastructure investment, both new projects and to update old ones. It is essential for the economic integration of the countries of this region, the Balkans, the Black Sea, Caspian area.

That economic growth-enabling infrastructure, including the trained work force infrastructure, continues to keep pace with demand to avoid crippling undersupply of finance for projects that are essential for growth in this region. However, currently the financial crisis has left a deep mark on the supply of infrastructure finance. Finance at long maturities are very difficult to obtain. Long-term, 10-year-plus project finance has been scarce since 2009.

I’d like to sort of open the – turn the questioning to my first panelist, who is Matthias Kollatz-Ahnen, the vice president of the European Investment Bank, who is a skilled and highly recognized practitioner in the field of infrastructure finance, and just ask first, in this sort of context, about where the EIB is in its priorities for infrastructure finance projects, the terms, the costing, the requirement for partnering.

You know, has project finance lending hit bottom? Or is it now starting to recover?

MATTHIAS KOLLATZ-AHNEN: Thank you very much. The European Investment Bank is, as far as I know, the only international financial institution which is active in all countries of the Black Sea region. And we are trying to be the largest financial partner.

So to start perhaps with a question, the support of international financial institutions is especially valuable in times where we are when it’s about large tickets and when it’s about long turnouts. Large tickets means higher volumes and long turnouts means rather longer maturities, because this is not such often found in the market. We work in different structures in the region, as member states of the EU, Romania and Bulgaria have direct access to the EIB funding, with all the levels of products we have.

As a candidate country of the EU, Turkey can benefit from the pre-accession mandate, which is a rather widespread mandate. Just to give you an impression of the volume, the European Investment Bank is financing year-by-year progress of some 2 billion euro in Turkey.

And therefore, the mandate is on basically old infrastructure, also helping to build so-called "acquis communautaire." And transport, I think, which you mentioned, Mr. Chairman, plays a crucial role, just mentioned a few of the – (off mic) – projects we are financing. The first wave, the tunnel under the Bosporus, the high-speed train in Istanbul to Ankara, and for the urban population being – (off mic) – the metro system of Istanbul itself. And then, we have, in the framework of the EU Neighborhood Policy, we do finance countries like Moldova, Armenia, Azerbaijan and Georgia and with a special relationship also with Russia. By and large, we do projects with more than 3 billion a year in the region.

And beyond the financing we, with a certain emphasis in the countries which are part of the union, we try to support the countries in the preparation of the big projects, because this is a second issue. It is not only about money, it’s also about preparation of complex projects to have it so prepared that, for example, the grants which are given by the European Commission could be properly spent. And then afterwards, to have also proper skills to have implementation, which is oriented on a delivery – (off mic) – cost structure. This we are doing a lot.

And we observe that this arm of our support is increasingly requested by – (off mic) – commercial banks, the governments, municipalities. And we see an example now, as we are here today, in Istanbul – an example is that we are involved with the Turkish government in trying to shape the PPP system for the Eurasia tunnel, which is a car tunnel under the Bosporus as well. (Off mic) – that this could be then replicated easily as a PPP also following international standards.

There’s a lot to do. The needs for the transport system are high. And our mission, as European Investment Bank, is to finance step by step. It’s not a one-year effort. It’s a trans-European effort, which comprises also such pipelines as we have discussed now during the lunch, but mainly also transport system, energy grids and so on and so on. And the needs for the transport system are huge, and if this is a growing trend within the European countries and also inside the countries of the region, the infrastructure has really to be developed.

We are, I think, under way, but what we called at the beginning the Trans-European Network on transport (backbones ?) is not yet there. And I think we have an effort for the next decade for us.

MR. MOORE: Let me ask, before turning to another panelist, what do you see as the real obstacles to furthering project of finance? I mean, Basel III, is it – with rises in the Tier 1 capital – (off mic) – requirements, total capital and minimum common equity, is there a consensus about how this will affect project finance banking?

MR. KOLLATZ-AHNEN: What we have seen after the crisis emerged with the growth of subprime loans in the United States in the summer of 2007 is that the requirement for project funds on loan funds has really raised up. So if you will come with a larger project, usually you have now to bring more funds that it was expected before. This is an increased difficulty. We try to support in this respect, as we try to encourage market players to develop instrumental infrastructure funds and we take also minority shares on this to encourage this development.

But this is one issue. And the second one is that the monoline business, which is – I don’t know how specialized – (off mic) – which are used often to create kind of an insurance solution for project finance, which allows pension funds or others to go into long-term financing of projects, which they did not really make due diligence on themselves. They rely on the insurance that it will remain good one, AAA one (and that’s basically a fact ?). This monoline insurance system for projects is not anymore there.

This leads to a situation that we had to develop ways which bring this class of investors which are not basically very experienced and have not – not each pension fund has to be an expert on offshore wind projects or on weather – (off mic) – whatsoever. But, however, they have investment ideas for long-term, which they use for also their inflation hedge in their funds.

And the specific role of the European Investment Bank is to develop, with the European Commission and a number of our banking partners, a system that perhaps IFIs, like we, take a – (off mic) – piece and allow them to come in more senior financing in these projects, which would then not be anymore AAA but perhaps A or BBB+, which would allow for this additional class of investors to come in.

The banking sector alone will not be sufficient to finance all the infrastructure needs. This is perhaps not very profitable, but it’s a situation that – (off mic).

MR. MOORE: Well, let me turn now to Werner Weihs-Raabl of Erste Investment Group in Vienna. As a long-time private bank practitioner and project finance infrastructure, finance – (off mic) – there’s huge competition right now for capital within your own bank, in different sectors and – (off mic) – class of project finance is just one of them. From your private banking perspective, what are the key components today for you winning the right to go forth and find a successful infrastructure project?

WERNER WEIHS-RAABL: Yeah, I think from Erste Bank’s point of view, first one should keep in mind that Erste is a traditional savings bank, a retail bank and a commercial bank and just decided about three years ago that infrastructure is more than just a project finance; it is actually the foundation for regional economic success and for regional economic growth.

Erste is focusing only on Eastern European countries; that means everything east of basically Vienna up until the Black Sea. We are very, very active in the countries where we have a banking effort that’s Ukraine, Romania, Serbia and Czech Republic, Hungary and Slovakia. And we have found different success stories. Some of the countries, like in Hungary, projects were developed pretty fast, in 2008, 2009 when all the rates were structured – (off mic) – markets, some of which was IFI support, some of which – (off mic) – finance.

At the same time, and parallel to all of that activity, we have also started in Romania by trying to develop certain regional transfer finance infrastructure projects. And when we looked at this now, after three years, we look at some of these projects which came to the market successfully. And some of these projects which equally, at the same time, started in being debated and politically discussed but nothing has happened. Nothing has been completed. And that was actually – there are some drawing their conclusions, why this was the case.

First of all, in many situations where there was not a very good success, or a failure, these projects came to the market premature. There were not enough detailed visibility studies, not enough technical studies and enough political pressure to deliver, but not enough day-to-day hard work involved. Then, some of these projects came to the market very close to the election, because some politicians need to show some sort of development, but they were simply not professionally prepared.

So either the EIB, the EBRD or a commercial bank have all the same problem. We cannot finance just something which is some source of (trial and error ?). We don’t have expropriation rights, which are (tiered ?), which give the authority, the right to expropriate land, to – (off mic) – or if you don’t have environmental assessment for restructuring, then there’s nothing either a commercial bank or IFI can do. And therefore, a lot of these projects get postponed.

And I think what it needs to do or what it needs to take going forward is that to get with IFIs, such as the European Investment Bank or Black Sea Development Bank, we should put a lot more effort into the preparatory stage of these projects. Before commercial banks, before politicians talk about the next motorway or the next airport which is to be built and which needs to be opened before the next election, why don’t we find a common ground, a feasibility study of necessities or – (off mic) – studies, which are being supported by the IFIs, under general rules and guidelines which are actually the framework for any commercial bank to step into this project.

So my message is, a commercial bank finds it difficult to pay for a feasibility study, because as a commercial bank we can only lend if it’s a viable project. We cannot spend 100,000 euros on technical consultants and at the end find out, well, the money was spent – (off mic) – because expropriation rights were not clear, the project didn’t develop. So before we go through the detailed stage of a difficult infrastructure project, which is being presented to commercial banks, make sure the homework has been done properly and financed, that there is enough commitment.

I think right now we’re in the middle of a very difficult situation. The Basel III issues and going forward, the longer these maturities are, the more difficult it becomes for commercial banks to finance them. And therefore we have to make sure we have the IFIs on board and also I think export credit agencies to come with support for the (political ?) risk or the economic risk, because this (expert credit agency ?) guarantee gives a commercial bank a zero-risk waiting on their RWA assets, risk-weighted-assets.

MR. MOORE: Let me come back to a couple of things you raised there. First, you mentioned IFIs.

Let me turn to Ambassador Leonidas Chrysanthopoulos, who is the secretary-general of Black Sea Economic Cooperation Organization, which includes in it the Black Sea Trade and Development Bank, which is based in – (off mic) – supports economic development group project financing and other investments in the region.

Leonidas, just tell us, in the midst of this economic crisis, what are the projects that BSEC is committed to and currently ongoing? And what are some of the obstacles that you are facing and some of the things where there could be coordination to help facilitate the success of key projects?

LEONIDAS CHRYSANTHOPOULOS: Well, we started our projects before the financial crisis. Anyhow, we have two which are very important and they’re actually begun on the ground. One is the Black Sea Ring Highway, which is a project – a 7,700-kilometer project that would connect the Black Sea countries.

MR. MOORE: That’s the Black Sea Ring Highway. That’s the official name of it?

MR. CHRYSANTHOPOULOS: Yes, yes, yes. And this is – the work is being done by a steering committee of both of the member states. There is a technical secretariat – (off mic) – Egnatia Odos. It’s actually the public company who made the Egnatia Highway that connects the Ionian Sea to the Turkish border. And it’s part of the Black Sea Ring Highway, also. And so that’s how it’s being done.

Now, Turkey has also done its part to – (off mic) – the highway from the Georgian border up to the Bulgarian border. Now, we are slowly proceeding towards the north. Bulgaria is doing slowly, slowly its part – (off mic). Russia wants to do the part that is in Russia and do the Sochi extension by 2014, when we have the Winter Olympic Games there. So it’s a big project that is being done.

Now, as far as the financing of this project, the countries that – what Greece did with EU funds, Turkey did with her funds. Russia has told us that they can do it – they have the funds to do it by themselves, but that’s not the case of the other countries.

So what we have done now is we have asked the participating countries to make a gross estimate, how much it would cost them to – (off mic) – and how much they can cover from their own budgets. And from there on, we will find out what the cost will be, what they will need from external finance.

The Black Sea Trade Development Bank, as you said, they must work to assist us there, particularly in getting them in contact with the other banks that – (off mic) – both banks here have contacts with – work together with the Black Sea Trade Development Bank. And that’s where we are, as far as that project.

Now, the other project that we have is the motorways to the sea in the Black Sea region, which is that we want to go back to the future and make the Black Sea what it was in the 1850s, where it was (rich ?) with commercial shipping. But it was easier then, because then we only had two empires involved, the Ottoman and the Russian. Now it’s a little bit more complicated. But the basic idea is to upgrade (reports ?) so that we can try to do – so that we can have normal passage of shipping. We don’t have passage –

MR. MOORE: This is on each side of the littoral border of the Black Sea, all the –

MR. CHRYSANTHOPOULOS: Yes, yes. And the Russians recently, because the Russian chairmanship of BSEC, we had a ministerial of the ministers –

MR. MOORE: Russia is one of the 12 members –

MR. CHRYSANTHOPOULOS: Yes, yes, yes. And they came out with a very nice proposal of the development of a – (off mic) – freight capacitor Black Sea ferry lines, which is something that we need. The only ferry boat that exists today is the one between Odessa and Istanbul. The – (off mic) – but nothing more. I tried to go from – (off mic) – to Sochi. They said, "Yes, we have one." But what they didn’t tell us is that the boat leaves when it’s full. (Laughter.)

So these are the two basic infrastructure projects that we are working on. And it’s something that the regional organizations would make a difference to the life of the people, because nobody very much is concerned about what changes these projects make to our people, the people of our – (off mic). These are projects that will definitely make big changes in their life. The highway will also connect the European road (transport network ?) to that of Asia.

MR. MOORE: What’s the timetable for those two projects?

MR. CHRYSANTHOPOULOS: Well, I thought back in 2007 that 2014 would be good, but I was too optimistic. I think 2014 would be good for the Sochi thing. I think realistically, if you look at 2020, we will have most of it done by then.

MR. MOORE: OK. Let me turn to our final panelist now, before we follow up, because there’s lot there to follow up. David Arkless is here from ManpowerGroup, which is a New York Stock Exchange-listed leader in the global work force solutions, from recruitment, training, outsourcing. And in terms of the growth in this region, part of the infrastructure need certainly has a human component to it. And David, his company is truly an expert in this.

What are some of the challenges that you see, David, listening to your three colleagues here about the needs for infrastructure projects?

DAVID ARKLESS: Some of the challenges, right, so let’s be frank and just put it on the table, challenges in terms of human capital development support for all of the projects you’re talking about is just huge. We’re the biggest employer in the world, with about 5 million full-time employees. Sorry, that’s a lie. The governments are the biggest employers in the world. We’re number two. One person in every five in the world works for a government. But outside of that, in the private sector we’re pretty big. So we get to advise a lot of governments. We get to advise a lot of regions.

This region, we just finished a forensic analysis of both demographics, labor, labor supply and demand through the Black Sea Region and through to the Caspian area. Frankly, the prognosis is not good. I’ve never seen such a toxic mix of polytomography and lack of investment in developing human capital infrastructure, so that you can have the right skills in the right place at the right time.

If you look at fertility rates around the region, everywhere is pretty disastrous. Even Iran kind of plateaus out about 15 years from now. Turkey is still growing somewhat. Kazakhstan is growing. But everybody else, the population’s falling.

Along with those very poor demographics, you actually need people to expand economies, so we’ve got to work out some way to increase productivity hugely, because you’re not going to have enough heads in the region to develop the projects you need.

If you look just beyond that initial demography, what happens is there are lots of big forces moving people around this whole region. We’ve seen some conflict situations; we’ve seen transit migrants; we see movements from East of the region to the West of the region, because the pay rates are higher in the West of the region when you get into Turkey. We see people migrating from the center of the region around the lake and around the Black Sea, to the North. So what we see in many of the core, pivotal countries that should be developing the kind of raw engine, the big energy projects, the hopefully diversified industrial projects, they are just not developing the right human resources.

We did a survey through 16 countries, which we just got back last week and there is an acute shortage of vocational workers, technical workers, low-level engineers, midlevel engineers, midlevel management, you name it, we can’t find those people anywhere. Now some people would say there is one good thing about the central and eastern part of the region: the pay rates are low.

And you can use the Chinese model of productivity and I’ll tell you what the Chinese model of productivity is. You’re working on a production line. If you’re not doing enough and you’re not productive enough, I’ll put somebody else next to you, because the pay rate is nothing. So I’ll put two of you and if two of you aren’t good enough, I’ll put three of you.

You get into a problem with that kind of productivity, when pay rates start to rise, as they do in any economy where we get foreign direct investment, a big consumer cycle. As the pay rates go up, you can’t afford to put two or three people on the same job. You need per capita productivity to rise. Already we see distinct signs to the east of this whole region that pay rates are starting to escalate because of shortage of skills. You can’t find the right people, right place, right time, so pay rates are going up. So it is not conceivable you can put one, two and three people on the same job.

Now, the other thing that I know from my past, I used to run a consulting company that advised ABB on every one of their billion-dollar-plus projects, infrastructure, power generation, the whole thing. Let me tell you, in the 50 of those projects that you consulted on from the outside, it was not the financial solution, the consortium structure, the management, necessarily, of the place, the technical solution, the support of government, the support of organizations. It was human capital that made the difference between the P and the L every time in those projects.

So looking around this region, I’m saying it’s losing its skills. It hasn’t got enough of the right skills. People are moving to the west of the region and out of the region. One of the biggest supporters of some of these central and eastern economies is foreign direct remittances. When I see that kind of movement of people, foreign direct remittances growing, where people are going abroad with certain skills and sending money back, we’re starting to see a real problem in the economy.

So I would preface any of your large project developments by saying, if we don’t develop a platform of human development in the human age that we’re in, then I’m afraid we’re going to see a very bleak economic future from this region.

MR. MOORE: Let me follow up, because that – I’ll turn to the audience here in a minute. But maybe to – (off mic) – a couple of comments that you alluded to, because maybe there’s some overlap in what David has suggested. It’s essential to have this labor trained-proper work force into this equation of infrastructure needs. That means you have to get state policies involved, national policies involved.

Is there any precedent for any countries in which you’ve worked in or maybe Matthias, yourself, where there was a national policy in prioritizing the infrastructure needs to even include – and why is that important, from your perspective?

MR. KOLLATZ-AHNEN: Unfortunately, there is in some countries now sort of an infrastructure priority plan which is being drafted. For example, Romania is pulling out now all the resources to come up with a priority plan. But on the other hand is the educational aspect. There is the fact that the government, or the officials in the government, are very poorly paid, very poorly paid. They are extremely afraid if they do something wrong, then they get into jail and therefore they better do nothing. Or they are very cautious.

So what we need is a government educational program to progress the pre-planning and the development, developing and the delivering of big infrastructure projects, with Western engineers and Western European standards. That could be people from construction companies, people from engineering, universities or even from IFI.

But this is what we need, because if those budgets are not properly developed inside the government and they are then prioritized and saying, "What can we do?" and then proceed to be put on a list – we cannot say, "I want this motorway to be built with new funds." This is a lengthy process. You need to put it on the list of the national infrastructure program in order to qualify. It’s the government which then needs to apply for new funds.

And if this whole system is not working properly because the minister’s changing all the time and there’s different priorities all the time and there is an election coming up and everything shifts completely – even if after an election, there’s a new minister, the next problem is he takes away and brings in totally new people, up to the very lowest level of the department head and the minister of transport; they’re all gone every four years. (Laughter.)

MR. MOORE: (Off mic) – your project finance –

MR. KOLLATZ-AHNEN: Yes, it has to fit, because infrastructure projects have a very long list time, until they are ready to be brought to the market.

MR. MOORE: Therefore we need these engineering –

MR. ARKLESS: Totally, totally. I mean, I couldn’t agree more that we need to build capacity in governmental institutions to start with. And there are two world-class examples of doing that within a very short period of time globally, if anybody’s interested to go into it.

One was the government response to the huge investment of foreign extraction companies in Mongolia, because Mongolia has gone through the fastest development of foreign-led project development for all of their extraction areas. And the first thing they did was they said, "Our institutions, including government, are not capable of dealing with these foreign companies and these huge projects."

So they got huge help in from organizations, like in Germany – (off mic) – the International Labor Office, the OECD, the IMF, all sent help. And very quickly, Mongolia started to put certain things in place which helped investment from the private sector coming in.

The other one was, at the state level, or provincial level, it was the way that the government of Alberta turned around their support for the Alberta sands project, because that project was going nowhere until two years ago. And the government of Alberta built a special governmental team to assist with the development of those projects.

So it can be done. I agree. But start with those basic institutions or else you don’t stand a chance.

MR. MOORE: Turning to the two other – (off mic) – here on the right, I, as a practitioner in this region for 20 years now, I can’t overemphasize the capacity issue being a true obstacle about implementing these types of very sophisticated projects.

EIB has, Matthias, a budget for technical assistance, as does the Black Sea Trade and Development Bank. Is this something that you guys tie into your financing packages, imposing requirements on this, that it gets carried out with the talented people? Is there a budget for a company like David’s to come forth and provide training and develop the capacity before a project finance project is launched?

MR. KOLLATZ-AHNEN: We make it. We make it more – I lost it. So we make it more – (off mic) – as the question was what assistance in the region. In the region Turkey has a rather long-standing tradition with planning institutions, so there is a – (off mic) – undersecretary of state, which is the head of the planning organization. It’s for the basic infrastructure, preparing in cycles, I’d say about seven years, basic planning documents, also the – (off mic). So, at least in my personal knowledge this is the most developed national planning instrument.

We tried to develop this as an offer, just to make an example on a municipality level. We tried to convince the municipalities, with visible success, that, for example, to do expansive urban projects you need a kind of integrated urban plan. So this can be different. As a question, it might be different, not one-size-fits-all, but it is very much a different approach if you go with a project which could be also in the – (off mic) – sense and only – (off mic) – project or if you go with a kind of integrated urban plan.

And this is how we tried to make it offered, so for the countries inside the EU, it’s now like this. If they go for an urban project with this, then we support them with studies and with planning. And then, also an additional benefit is that this – (off mic) – funds could be that also if it is able to do it (on these grounds ?) only but with a mixture that this will benefit the revolving fund, first example.

Second example, we offer inside the union and increasingly also in accession countries, which is Croatia and Turkey, we offer to use technical assistance, as we call it, to prepare large projects. So this would be normally – (off mic) – countries can do it by themselves. They can do it with this kind of assistance.

And in the second phase, which is now in the development, we offer also to come with project implementation units, which have to be paid. So this sounds perhaps a little bit unpopular, but in my opinion, this is important, because if it is not paid then you have organizations working one against the other. I think there is an understanding that this is paid and then the challenge for the project implementation unit always has been that they have to bring more efficiency to the project than the costs they bring into the project. This is their official goal. And we looked into this and we want to do this. And usually they achieve it. (Off mic) – also was one example. It was a big achievement of the project implementation unit on this railway system, where we have the tunnel under the Bosporus. They contributed significantly. We had to shut down the traffic of the existing system significantly less than it was from the previous plan – (off mic). And, for example, another example, which is also in another country, out of the early stage planning process, it was possible to find out, in a country like Slovakia, that they had a rather small capital; they had a plan to raise their tube system that was much better served with an efficient tram system by comparison to a tube system. And it goes without saying that the savings for the future development of the – (off mic) – significant.

Therefore, this is always – we try to develop it as an offer and with a goal that’s a result of these means should – (off mic) – basically savings for new opportunities. So we are doing – I think this is developing in a good way. So perhaps it is a small contribution to make the picture less bleak.

MR. MOORE: Well, I turn to the audience. There’s a question out there just to open up any topic. We want to come back to a couple of other things here. Is there a question you wanted to ask, that they wanted to ask? Yes?

Q: It’s a fascinating subject. I couldn’t agree more that it’s crucial. One of the aspects of infrastructure progress is also making sure that they bring economic return, that it brings revenue back in. And, for example, I’m not sure the extent of which, as you’re developing your manpower, you’re also teaching people about not only the good aspects of project economics, but also trying to figure out how you’re going to get revenue and where is the revenue going to reside until the project succeeds.

I mean, the classic case we’re all looking at now is China, which makes this great decision on high-speed railroads and is now finding that they’re going to make money with it. And so they’re making a decision. I’m not saying that’s what you’re doing in the Black Sea area, but I’m listening to a bunch of projects here like building roads, et cetera.

I did some of this work in Africa on rail lines years ago and the key was determining traffic patterns and doing the detailed work and actually then making sure that we had an ongoing (proper ?) activity that was going to raise revenue for the state to support these projects, because a lot of them I hear as being sort of state interest projects – (off mic) – as opposed to a gas pipeline or an electric grid transmission, which would hopefully give money back into an electric utility and still might be a problem, because no single electric utility can pay them. So I’d be interested and curious for some reaction to my concern and whether it’s totally unfounded or not.

MR. WEIHS-RAABL: (Off mic) – something like that, which is, absolutely right, two different classes of infrastructure projects: the ones which are basically state-sponsored, which there is a demand for infrastructure and then the other one, which is kind of a concession business; there would be different varieties of different things.

When we talk about the commercial infrastructure concession business, you’re absolutely right. If you do not have the cash flow the project will not be bankable or it will be financed, but it won’t be repaid. It will be a disaster of – (inaudible) – et cetera. If there is not enough cash flow, it doesn’t work.

But on the other hand, there is also the need for new social infrastructure – (off mic) – it’s difficult to assess the commercial return and reward and our expectations of a hospital or school or university, which are equally important. I think this is the benchmark, where a pure commercial viable infrastructure project can be financed by commercial banks, if it is properly prepared. That’s – (off mic) – other institutions to come in and other players to manage the authorities in the government, to manage the tender and the preparation.

And there are social infrastructure projects which might not be 100 percent crystal clear, calculable, the return, but which are equally important for the development of a nation. And they will need more new funds, more IFI support and more other institutions, other than commercial banks, because commercial banks cannot go on the lottery, whether a hospital is repaired or not.

MR. KOLLATZ-AHNEN: I’ll also add how many projects – I’m sorry for not making this fully clear. For the public project, in the framework of the public project should be a viable project. So, therefore, this is very much – at least our understanding, just to give you one example, we are now under the rather early stages of the so-called regional Danube strategy and therefore then, I think, one-half year ago there was a ministers meeting and I was at – also participated in the conference.

The ministers, the evening before, decided – I think it was – background of what you said – it’s the most important thing – (off mic) – together it will be the high-speed train from Germany to the Black Sea. Then it’s unpopular – (off mic) – then the next day, it’s a conference to tell that it shall be a revival of railways. But a revival of railways in this region will be driven by freight. And as it will be driven by freight, this is not really the case of the TGV or this kind of high-speed train. I can’t tell you if this was not the utmost popular situation, but I’m convinced that it is like this. And I’m convinced that this is also the right approach, just to answer.

Our understanding goes always about the viability of the project. Even if it is developed in the public sector, there are slightly other parameters. And sometimes one has simply to see the situation – (off mic) – classical calculation and interconnector doesn’t buy – (off mic) – then you have to look at the other parameters.

For example, if you look at electricity grids, the power of Europe, Spain and Portugal and France are de-connected, even if nobody understands it. But the economy to bring an interconnector is a difficult one, because this doesn’t really pay off. So – but in the long run it does because you can’t have a very efficient – (off mic) – management with a – (off mic) – electricity grid, which was before impossible. These things we finance, but we bring in there careful conservation. In this situation, we have to go beyond the classical profit and loss, because it is not visible in the right regulatory framework, as it is for the moment, things like this. So – (off mic) –

Q: Could I ask one more question?

MR. MOORE: Sure, sure, please do.

Q: I got into the subject about 10 years ago, when I was in India and China trying to figure out they were going to do the – (off mic) – they didn’t have any institutions in place to even train the people. And back to David’s question, that even if you could get the – (off mic) – they couldn’t even figure out to train – they needed to train people to even think about the subject matter. So there was a whole need to build educational institutions within the country.

And it seems to me, from what you were saying, the demographics which you saw, there was a real lack of a number of people – not that there weren’t some – but there’s a lack of enough people to seriously think about what the country needs and to figure out how to do it and then how to run businesses to do it. So education seems to me one of the best investments that you might make, although we don’t need a bunch of educated people that don’t have jobs in the interim. So it doesn’t mean you try to educate everybody. You may want to put some real money into some higher education –

MR. MOORE: National policies –

Q: The national policy, that national policy might be major activity. I know the Chinese have done that. And I think the Indians are trying a little bit.

MR. MOORE: John, just think of this: There’s more than 170 billion sitting there in EU structural and cohesion funds ready to be deployed and designated to Central-Eastern European countries to catch them up with Western Europe. Countries like, for example, one that’s near and dear to my heart, Romania, just is unable to have the coordination, the coherency of what projects are sustainable financially, toll roads, you know – I just say build it and they will come. Charge whatever you want. Just don’t have to risk your life to drive on the highways of an EU country.

It’s really absurd. So there is, I think, some practical things that businesses like – (off mic) – can do to work with the IFIs who are there, dealing with the reality as it is, but more of a sort of bottom-up approach I think is something that over the next year this forum will try to address and bring some attention to.

MR. ARKLESS: Just one quick comment on your notion of China.

You’re absolutely right. The Chinese put it right in a very Chinese way. What they did was that they decided they needed to design what the future needed. So what they did – I’ll give you an example, because we did this for them – the city of Shanghai is now a city that’s bigger than 20 European countries, 26 million people. They had us go out to every company in greater Shanghai and get them to input a one-year strategic plan, five-year, 10-year strategic plan for the company, with absolutely detailed manpower and skills forecasts. It was just huge. It was a huge piece of work.

But then the city authorities labor authorities sat down and said, "Oh my God, if we don’t develop 250,000 logistics experts, 197,000 port authority experts, these number of voltage engineers, these number of software developers, our economy is going to stop." So within three years in Shanghai, they built five vocational training universities. And this year – we only started this five years ago – this year they’ll have a quarter of a million skilled technical and vocational workers. That’s the kind of intensity to say what do we need in the future? And then build it back.

What I’m trying to do in this region – I put a motion to BSEC and said, all of your institutions need to commit to going out to private and public investors that are building infrastructure, that are building projects, that are building economies that hopefully will generate better consumer economy, the whole thing, and find out what the hell they need for the next five years. And then you, as a region, need to put the educational and "skilling" institutions in place to provide those people. It’s not rocket science. It’s just how many governments really do it?

Q: And even if you get it wrong slightly, out of the 200,000 people that were trained, 50,000 could move onto a different subject because at least they’ve been trained in something.

MR. ARKLESS: Absolutely.

MR. MOORE: Leonidas, any thought on that?

MR. CHRYSANTHOPOULOS: Yeah, I totally agree with you, David. (Off mic) – did not agree to do it on a regional basis. They might do it bilaterally, by themselves. But they wouldn’t do it on a regional basis.

Q: But that’s another problem, because most of the projects that you need to worry about are regional projects, not just local projects.

MR. MOORE: Let me turn to – (off mic) – Siemens Istanbul, here.

Q: I just have a question, I think, for Mr. Weihs-Raabl and also Mr. Arkless. If you have just observed, over years, in Turkey with respect to the skilled labor force, did you find any change over years because for the first time in the republic, the government, the existing government partly, won the elections, third time in a row. So maybe the skilled labor has not been changed, because this was the issue some years ago when we just tried to introduce the Istanbul Metropolitan Municipality to what PPP is. And the response we got was, "We cannot do any project in Istanbul Metropolitan Municipality more than three years," because they said, first year we just dig in the files to understand what has been going on, and the last year, we just get prepared for the next election. So forget it. I don’t know what your – for the least seven, 10 years maybe.

MR. WEIHS-RAABL: Generally speaking, this is exactly the point. We do not develop infrastructure projects from one election cycle to the next. Therefore, full cooperation must be long-term. When you asked me about Turkey, I’m not the right person to make any comment – (off mic) –

MR. ARKLESS: I think all of your comments are very incisive with regard to Turkey. We find, through an historical analysis, the institutions within Turkey of course are much more evolved than many of the other institutional structures around the region. So you started from a higher level, in terms of governmental institutions. And that might surprise you, given that our big customers tell us exactly the same as you’re saying. You know, you can’t do business in three years, because things are changed out and the skills in the institutions and the government offices change so quickly.

But I think, to be fair to the institutions in Turkey, the economic environment of Turkey has become much more sophisticated very, very fast. I think you’ve got a different case between Turkey and the rest of the Black Sea-Caspian region of countries. I think you’re dealing with a different set of problems to the rest of the region. But just generically on skills, yes, I think there is a need to understand how the transfer the skills and knowledge from one set of governmental organizations to the new evolution, after a transition. And by the way, people tell me because of the three consistent governments things have gotten a lot better in dealing with – all the way from the municipal level to national level.

The other one I just wanted to mention is on the generic skills issues for Turkey; we do an annual survey around about 50,000 employees across the whole country. And we found that the biggest shortfall in skills in Turkey today, which is somewhat shocking for me, is low and mid-level vocational skills, basic technical skills, basic engineering skills – lots of university degrees available, but absolutely useless for what the job market needs right now. And that’s what our customers are telling us.

So we need that shift, a little bit, if you like. The biggest skill shortages in the world, indeed in Turkey, are in vocations, not in academically qualified top-level engineers or technicians. So it’s a very good question, thank you.

MR. MOORE: Another question – follow up from the panel here. One of the things I also wanted to address with Werner is the notion of funding options to be put forward in this environment by project finance developers. Is there a mix of funding options here that you wanted to –

MR. WEIHS-RAABL: It’s coming more and more to be the case – (off mic) – because the fact is that every single euro in financing needs to be – (off mic) – financing, needs to be – (off mic) – risk-free assets or – (off mic) – export credit agency support and you’ll find IFI support – (off mic) – commercial banks – (off mic) – easier to be made available. And that’s actually the biggest challenge, to get sophisticated bank loan of financings together to accomplish these.

So imagine how complex it is to prepare it and then get to – (off mic) – Denmark or to whoever export credit agency and get – (off mic) – sourcing of equipment, which you need because you cannot get the German export rating if you don’t have a German supplier, and bundle it all together.

That really is the biggest challenge for us, the biggest chance for us to get more involved into these projects. But I also wanted to say – just one second to go back to the comment from the auditorium, I think you cannot wait until everybody’s trained to then start building infrastructure. So we need to do something immediately.

There is an idea which I think could work, if those areas, those regions where the government is not having enough trained people, why don’t you let the private sector develop projects and then participate in the tender – (off mic) – change the tender laws because the private participant spends a million in preparation of the project and loses it and then it’s not getting paid any – (off mic) – twice. So I think that the problem is that if the private sector participates in the preparatory phase of the project, they are excluded in participating in the tender as a supplier, because he has this preparatory knowledge, of course.

So if we found a way to change this, then we have an intermediate solution. But the private sector – (off mic) – because the government can’t handle it for the time being. But the tender law will allow that the private company either gets fully reimbursed for all its costs, or he’s able to participate in the tender, although he has prepared this. And if he doesn’t win it, the winning construction company or the winning party needs to reimburse the losing party. If this is somehow – (off mic) – legal framework, we probably could get – (off mic) – and just wait until the next generation of government requirements – (off mic).

MR. ARKLESS: I like the notion of a no-cost tender. That sounds fantastic.

Q: Is this applicable in other jurisdictions, this no-cost tender?

MR. WEIHS-RAABL: No, not that I know – (off mic) – it’s the opposite. The government needs to be aware that if this – (off mic) – they don’t like to proceed, then they get full reimbursement.

MR. ARKLESS: It’s not just if you lose.

MR. KOLLATZ-AHNEN: Basically it’s against the existing law and it’s not so much hopeful that this law will be changed, at least not as – (off mic) – it was a long development – (off mic). But I see, and I don’t know it, but I see that the only possibility is to have this purview as not an option for you, that one creates really a development phase of the project and pays for it.

This is a project that is doable, but bear in mind, the company who is developing the project – (off mic) – another solution. If you want to have something like a fast result this could be done and this should be done, but to change fundamentally this law of tendering will be not possible and it would not like the results, because what you mentioned about your experience in Romania would – (off mic) – we would then see now.

So therefore, we would not like the results. Therefore, the only opportunity I see would be to accept that project preparation is complex and is a work on its own, which has to be paid on its own. And this is one of the problems we have, that we have an underestimation of the project preparation. And this could be really done and I am convinced that this will be done. And this is a way we complicate the solution.

MR. MOORE: Ladies and gentlemen, thank you very much – (applause) – thank you very much. Thank you very much.