THE Covid-19 pandemic continues to cause major issues for European railways. While passenger ridership and freight volumes are on the rise as lockdown restrictions ease, market analysts suggest that traffic is unlikely to recover to 2019 levels until 2022 at the very earliest.

The Community of European Railways and Infrastructure Companies (CER) says its members suffered a combined loss of €26bn, or 40% of revenues in 2020. In such an environment, observers might be forgiven for thinking that the outlook for investment is poor. But on the contrary, some of the continent’s most high-profile lenders say that rail’s sustainable credentials hold it in great stead as a long-term investment opportunity and they are enthusiastic to support upcoming projects.

Strong political support is feeding this confidence, emphasised by the current European Year of Rail initiative and the European Union’s (EU) Green Deal, the current guiding policy for the EU, and the recently adopted European Taxonomy Climate Delegated Act.

Both cite rail as a solution in the continent’s quest to become carbon neutral by 2050. The taxonomy, which offers a common classification system for sustainable activities that will help to deliver the Green Deal objectives, references rail operation and assets such as electric trains as contributing substantially to the EU’s climate change mitigation objectives.

With investors and financiers keen to build green and sustainable portfolios, they are looking to support rail as much as they can. One such bank is ING. Based in the Netherlands but very much a global player, ING works across the spectrum of the rail industry, providing loans and financial products to railways and operators, transit authorities, rolling stock leasing companies, and even leading manufacturers such as Alstom and CRRC.

Ms Juliette van Enckevort, ING’s global lead for land transport, says that the bank’s KPIs stipulate that it will continue and ultimately increase support for sustainable industries; around 40% of the bank’s land transport portfolio is currently regarded as green, and it is looking to increase this to the majority of new financing activities by 2025. Enckevort says rail is a natural target to support this objective. “Whether it goes further depends on how the industry develops,” she says. “But definitely from ING’s point of view, we have all of the resources that we need to boost sustainable rail clients in any way they require.”

The European Investment Bank (EIB) is also looking to increase its support. The lending arm of the EU, and the biggest multilateral financing institution in the world, signed loans worth €4.5bn for rail sector projects in 2020, an increase from €3.2bn in 2019 even as the Covid-19 pandemic took hold.

The bank’s Climate Roadmap, adopted in 2020, sets the ambition of becoming the “EU Climate bank,” under which loans that support climate action and environmental sustainability will account for at least 50% of the bank’s total outlay by 2025. EIB’s vice-president, and former Belgian MEP and deputy prime minister of the Belgian federal government, Mr Kris Peeters, describes this programme as very ambitious. He says it is going to increase the bank’s appetite for well-prepared and sound rail projects “because they are one of the largest contributors to climate action in our portfolio.”


“We are convinced that rail has a significant role to play as a gamechanger to achieve the climate and carbon neutrality objectives by 2050,” Peeters says. “Now is the time to invest in rail to modernise the sector and to improve integration with other transport facilities. This is our main message to all the companies and stakeholders active in rail transport and to the member states: that they must invest.”

Peeters says drops in ridership and revenue experienced by operators during the pandemic is only a temporary phenomenon. He firmly believes that passengers will return, with initiatives such as those to boost night train ridership strong indicators of a coming resurgence. Likewise, Enckevort says ING is continuing to monitor the situation closely, and although not an ideal scenario, rail has shown to be resilient during a period where some sectors of the economy have floundered.

Kris Peeters of EIB
Photo: Caroline Martin ©

“What we saw was strong support from national authorities,” she says. “While we expected and knew that would be there, it was still good to see. This period has emphasised how strongly supported public transport operators are nationally. From a bank’s point of view, this is a very strong signal that this is an industry that is sound and that will be supported in times of need.”

EIB has allocated €39.5bn to rail, or 32.13% of all investment in land transport over the last 10 years. In 2020 alone the bank supported investment projects to build or modernise 629km of new track, build or redevelop 21 stations, and purchase or modernise 2400 units of rolling stock. Notable projects include high-speed infrastructure development in Spain, and more recently a €500m loan to support Danish State Railways’ (DSB) procurement of a new fleet of EMUs from Alstom.

Rolling stock financing has actually grown to 60% of all EIB loans signed in 2020 from 33% in 2017, something Peeters attributes to liberalisation of the market and the steady entry of new passenger and freight players, along with transport authorities’ desire to update fleets. He says the broad range of actors in the sector simply increases the opportunity for EIB to support more and more rail schemes. However, fair access to finance for new entrants compared with their state-owned competitors remains a challenge.

For example, private operators are not accessing the financial products offered by Eurofima, a non-profit organisation, which finances rolling stock projects on behalf of its shareholders: 26 of Europe’s largest state-owned railways from 25 countries. Around 3000 loans worth more than SFr 90bn ($US 98bn) have financed the procurement of 200,000 rolling stock units.

We have all of the resources that we need to boost sustainable rail clients in any way they require.”

Juliette van Enckevort, ING

Often its products are more favourable than those offered by banks, including longer term loan agreements. However, shareholders are also required to hold equity and have state-backed guarantees, which is not always possible for new entrants.

This apparent disadvantage has led some to take what might be seen as drastic action to reduce the cost burden of rolling stock as they have become more established in the market. For example, Austrian private operator Westbahn sold its original fleet of trains to German Rail (DB) in 2019 in order to access improved financing conditions for a new fleet. While this resulted in a short-term reduction in service, the operator says this will place the business on a more stable long-term financial footing (IRJ March 2020, p18).

The Association of New Rail Entrants (AllRail) says offering the same conditions for new entrants as incumbents - including state guarantees - would lead to a situation where there is a more balanced market. However, the association’s secretary general, Mr Nick Brooks, is keen that this does not come at an additional expense to the taxpayer. “Give them the same financing conditions and they will probably do it themselves,” he says.

The European Commission (EC) has proposed making centralised pools of rolling stock available to different operators as a way of improving access (IRJ June 2021, p18).

Peeters was pragmatic when asked about such a plan, saying he was certain the market would answer this demand should it arise. Enckevorts says that while private firms certainly have different profiles, they remain attractive. She says the bank supported Italian private high-speed operator Italo-NTV, agreeing €1.1bn of green loans with the company in 2019, and expects to see the rise of more of these companies in both passenger and the freight sector.

As well as encouraging the development of rail projects over other modes of transport, favourable financial terms are likely to incline transport authorities and governments, operators and manufacturers to make green and sustainable choices in their capital investment decisions.

For example, Peeters says EIB is backing the development of hydrogen infrastructure for regional services in the Netherlands, while the Climate Roadmap stipulates that the bank will no longer support the procurement of diesel locomotives, instead focusing on fleets that do not contribute to climate change. He adds that there is a general debate going on within the bank about its support for sectors that are active in fossil fuels or areas that might be harmful to the environment and how it might alter its support to discourage such activities. Peeters would not be drawn on when they might reach a conclusion but said that he hoped it would be as soon as possible.

Now is the time to invest in rail to modernise the sector and to improve integration with other transport facilities.”

Kris Peeters, EIB

There are projects that boost rail’s sustainability that do not generate an economic return so are unlikely to secure support from banks such as ING and EIB. This includes some electrification schemes, emphasising the need for governments to take the lead on financing these capital projects.

Identifying which projects are bankable and proceedable is inevitably a key part of the banks’ work. This requires intimate knowledge of the sector to minimise potential risk. Enckevort says ING staff are often referred to as “sector nerds” such is their commitment to secure market intelligence to gain a clear understanding of the dynamics at play.

“We’re known as the bank of 10,000 questions,” she says. “We like to present ourselves as really understanding what is happening in the industry in which the company is active and what is important to them. On this basis you can best support the client by identifying the most optimal financial solutions because you know where they need the flexibility, and you understand the risks they face as they progress in their development. Also, when the business does not go so well, we understand where it is going.”

Peeters refers to EIB’s effort to build trust with its partners through confidential relationships, which helps to identify the most bankable solution for the bank, but also the most effective product for the client depending on their specific needs. He says this is particularly apparent during the pandemic where EIB was ready with tailor made solutions even in this difficult period.

ING experts’ close working relationship with their clients also serves to increase knowledge development, helping the sector to modernise and become more efficient. Digitalisation is a key trend and is an area where there is crossover between the banking and rail sectors. Enckevort says ING recently hosted a breakfast seminar on blockchain, which was attended by CFOs from various competing firms. “We make sure we organise ourselves to be as agile as possible so we’re able to stay in sync with changing customer behaviours and regulations,” she says.

This work can also increase the opportunities for rail companies to access products such as green loans and bond schemes, which have started to emerge in recent years. Enckevort says that while there was not much difference in the benefits on offer when these green products first came on the market, there is an increasing trend in this area to offer financial benefit and incentives, which will only benefit rail and the environment.

The importance of the banks’ advisory activities is especially apparent in work to help make projects bankable in the more challenging financial environments found in developing countries. ING’s land transport portfolio is split between Europe 75% and North America 25%, where it supports the rail freight and passenger sector. Among the projects to benefit in other countries are Tel Aviv light rail, high-speed projects in Turkey, many of which have been developed as public-private partnerships (PPPs), Lithuania’s section of Rail Baltica and Belgrade metro.

EIB is also active in developing markets. Peeters says around 5-10% of its annual support is for projects outside of Europe. The challenges of working here include unstable political environments and there is great emphasis in the EIB’s work on establishing the conditions for greater security in the finance it can offer. Peeters says EIB provides significant resources to offer technical advice and assistance to improve the bankability of specific projects, making the bank unique among similar lenders around the world. Often this work will involve securing agreements with other multilateral lenders such as the World Bank and European Bank for Reconstruction and Development (EBRD).

Shared values

Increasingly this work involves aligning with the EC’s objectives to promote democracy and its shared values in other areas of the world. Indeed, while not looking to undermine or conflict with the role of the EBRD, Peeters says active discussions are taking place within the EIB about how the bank can follow the conclusions of a recent study by the EC that it should focus more on becoming a development bank for the EU.

“We are very ambitious about this new possibility, that we are not only the bank for Europe and the member states, but also the European development bank,” Peeters says. “We already have offices and a lot of activities outside of Europe, and we can go at an even higher volume and speed than we are now. This is a very clear ambition for the next few years.”

With the EIB’s Climate Roadmap likely to extend the green principles it is applying in Europe to its work in the developing world, this bodes well for encouraging the development of sustainable infrastructure in areas struggling to combat emissions (p4). The climate for accessing finance for rail schemes it seems has rarely been so buoyant, and project developers and governments would be wise to seize the initiative.