Executive Summary This report elaborates on the nature and the implications of the Danish state guarantee model for financing large-scale transport infrastructure as well as on the experience Denmark has made with this instrument. The state guarantee model was used for the development of the fixed links across Store-bælt (between the Danish islands of Fyn and Zealand) and Øresund (between the Danish capital Copenhagen and the city of Malmö in Sweden). The realisation of these two large-scale projects would not have been possible if they would have had to be financed from the public purse of Denmark (and for the Øresund link also of Sweden). Both projects stand on economically solid grounds today and remain within their loan repayment schedules. The same state guarantee model will also be used for the upcoming Fehmarnbelt link (between the German town Puttgarden on Fehmarn and the Danish town Rødby on Lolland). The model is characterised by transferring the responsibility to design, construct, finance – as well as operate and maintain the project – to a 100 per cent state-owned company with its own board of directors and management. Funding is based on the company raising loans in financial markets or from the state. The state guarantees the loans through a guarantee commission. With the Danish state's high credit rating, therefore, favourable loan terms are obtained. Toll charges are collected, which, after covering operating and maintenance costs, are used to pay interest and loan instalments. It is a key element of the state guarantee model that revenues from user payment repay the debt, which has arisen in connection with the planning and construction phase of the project. The project company will not receive government subsidies in addition to the value that lies in the guarantee – on the contrary, it must in most cases pay a guarantee fee to the state. The main benefit of the state guarantee model – compared to the traditional Finance Act model – is its flexibility: it allows both full and partial user payment. This means that the project is not (or is to a lesser degree) a burden on public finances. This makes it possible to support and implement even mega-projects with good economics. In effect, it would otherwise be politically difficult to realise such projects in the first place, because they are both large in scale and span a large number of years, often exceeding a decade and thus put constraints on the public funds for infrastructure in general for many years and influence and limit the public prioritisation of public money over several election periods. The repayment period is key in evaluating the project's financial strength. With regard to the adoption of the project, the expected repayment period is calculated based on e. g. anticipated costs for construction (including design etc.), operation, maintenance and interest as well as on the expected traffic revenue and EU support. Since these factors are obviously subject to uncertainty, looking so many years into the future, there is of course also uncertainty over the repayment period. In order to use the state guarantee model for a given project, it is essential that the repayment period falls below the facility’s useful economic life by a good margin. With Danish projects, the repayment period is typically Page 3/16 September 2014
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