Luxembourg rail protocol

Luxembourg rail protocol AfricaRail 2008 Johannesburg, 5th June 2008 Update on the Luxembourg Rail Protocol the race to modernise rolling stock in Africa Howard Rosen Principal, Howard Rosen Solicitors, Zug, Switzerland Chairman, Rail Working Group

Introduction Current problems and investment in rolling stock The Luxembourg Protocol and how it creates the conditions for private sector investment New solutions for African Railways, lessons learnt from the aviation industry and where we go from here Introducing the

Rail Working Group AAE Ahaus Alstatter Eisenbahn The Alta Group Arendt & Medernach Armfelt & Associs Ashurst Aviation Advocacy Bombardier Transportation CIT Comit international des transports ferroviaires Community of European Railways Costaferroviaria debis Financial Engineering GmbH Denton Wilde Sapte Deutsche Bahn Deutsche Verkehrs Bank DLA Piper Dresdner Kleinwort English Welsh and Scottish Railway Europe Rail Consultancy Ltd European Intermodal Association European Investment Bank Field Fisher Waterhouse LLP Freehill Hollingdale & Page Freshfields Bruckhaus Deringer LLP GE Capital Global Capital Finance GmbH & Co. Europe KG Gorrissen Federspiel Kierkegaard Howard Rosen Solicitors HSBC Rail HSH Nordbank Intergovernmental Organisation for International Carriage by Rail (OTIF) KfW Kreditanstalt for Wiederaufbau Lenz & Staehelin Mayer, Brown, Rowe & Maw

LLP McCarthy Ttrault Nauta Dutilh NIB Capital Bank N.V. Norton Rose Ober Kaler Private Wagon Federation Rajinder Narain & Co. Simmons & Simmons Stephenson Harwood Transnet Trinity Industries UIC International Union of Railways Union of European Railway Industries White & Case Wiersholm Mellbye & Bech A Global View The Railways are our past and our future Most efficient means of mass transport of goods and people Road and Air capacity limited

Environmentally friendly and fuel efficient Safer Key element in economic development A Global View Annual capital investment in rolling stock estimated to be in excess of US$ 25 billion but it needs to be much higher Minimal capital investment in rolling stock in Latin America (some exceptions in

urban transportation) Eastern Europe and Africa arguably where it is most needed Financing very difficult if no creditworthy state backing but. A Global View .. Even creditworthy states skimp on investment and what there is should go to infrastructure Guarantees may not always be bankable

And there is growing threat to state funding because of state aid/WTO considerations Geographical usage restrictions applied by banks in many current financings (e.g. Romania, Mexico) Legal opinions and documentation can be costly A Global View Very restricted operating lease environment outside of North America and the UK

No public asset based security system at all world-wide but note that a limited security system in North America has facilitated private sector funding The North American system supporting rail funders and operators is debtor and not asset based Rail Infrastructure in Africa A colonial legacy

Alexandria railway 1852; Ghana: Sekondi Kumasi 1903 A vital element of development in Africa Some innovation now in the rail sector (concessions, privatisation, commercialisation etc) Key projects for new links Brazzaville Conference April 2006 Lagos-Kano route? Rwanda-Burundi-Tanzania links Mbalam Cameroon project Benin-Togo-Burkina Faso-Niger Gautrain Rail Infrastructure in Africa Rolling Stock in Africa Starting point: Serious underinvestment Remember 1855! Infrastructure needs rolling stock and it needs to be funded Refurbishment and procurement of rolling

stock Important that new and used equipment can be financed But how do you finance the rolling stock? Rolling Stock in Africa Private Banks will not lend Unless they understand the system Their returns are secure The assets are secure and correctly

maintained They can repossess assets on default The Luxembourg Protocol provides solutions Cape Town October/November 2001 participants from 58 States and 11 international organizations at the Diplomatic Conference Luxembourg 2007 participants from 42 States and 12 international organizations at the Diplomatic Conference The Goals of the Luxembourg Protocol More extensive private sector finance for rolling stock at a lower cost Reduce barriers to entry to the rail sector Create more diverse financing systems in order to facilitate a more competitive and dynamic industry How the Luxembourg Protocol achieves its objectives Creates as an International Interest security interest held by certain types of creditors Applies to all rolling stock Provides for an international registry accessible through the internet 24/7 at which interests can be registered and searched against Allocates priorities to registered interests Adopts detailed enforcement rules for creditors on

debtor default or insolvency Luxembourg Benefits More lenders and lessors ready to finance rolling stock Cost of capital decreases with risk and availability (including Basel II advantage) Legal costs decrease Safer to move assets across borders Opens out options for more innovative financing structures The Economic Effects Assuming annual capital investment at $25 billion Simplistically, assuming just an average interest rate benefit of 1% on estimated procurement, this represents a saving of $250 mio. per annum Lease rates should fall by 5% 7.5% Multiplier effect: lower interest rates and

involvement of more funders, will make more investment economically viable, so actual savings will be higher because volumes should increase Why the Protocols important - the Different Stakeholder Perspectives Banks and Lessors Operators Manufacturers

Customers Governments Aid Agencies A New Model for Development Aid The countries of the bottom billion need rules appropriate for their societies at their level of development which address the problems they face Paul Collier, The Bottom Billion Allows redirection of aid/ECGD facilities: Give us

the law, not the money! Arguably State givers are entrepts between the capital markets and developing states; we can cut out the middle man with benefits for everyone A New Model for Development Aid The Current System Capital Markets

Donor States Recipient States A New Model for Development Aid A Different Approach Capital Markets

Banks/Lessors Operators Advantages of the New Model Targeted finance, releases aid and government resources for infrastructure development Private Sector controls of use of funds Limits of funding from economic viability, not

aid budgets No cash required from governments Avoids tied aid to suppliers or politics Removes discrimination against local financiers Less scope for corruption The Lessons from the Aviation Sector Diverse financing especially operating leasing creates a new dynamic in the industry

Private sector finance is the key to success Successful financing depends on registration of title interests and clear right to repossession The Aviation Protocol to the Cape Town Convention is already in force: African ratifying states to date: Angola, Cape Verde, Ethiopia, Kenya, Nigeria, Senegal and South Africa Implemetation Milestones Diplomatic Conference: February 2007

Preparatory Commission: February 2007 Tender Process for registry: 2008 Signatures and ratifications 2007 Into force 2009? Are 4 ratifications enough? What the rail industry needs to do Actively support the work of UNIDROIT and the RWG Educate itself seminars and articles

Create universal identification systems Press governments to sign and ratify the Cape Town Convention and Luxembourg Protocol (with the right options) Be creative AfricaRail 2008 Johannesburg, 5th June 2008 Update on the Luxembourg Rail Protocol

the race to modernise rolling stock in Africa

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