ADBI Working Paper Series Managing Multinational Infrastructure: An Analysis of European Union Institutional Structures and Best Practice Willem van der Geest and Jorge Núñez-Ferrer No. 296 July 2011 Asian Development Bank Institute Willem van der Geest is presently trade policy advisor, Ministry of Economy, Republic of Armenia and Jorge Núñez-Ferrer is an independent consultant and senior associate researcher with the Centre for European Policy Studies. This is a revised version of a background paper prepared for ADB/ADBI's Flagship study on Infrastructure and Regional Cooperation and the book ”Infrastructure for a Seamless Asia”. The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of ADBI, the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms. The Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI’s working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. Suggested citation: Van der Geest, W., and J. Nunez-Ferrer. 2011. Managing Multinational Infrastructure: An Analysis of European Union Institutional Structures and Best Practice. ADBI Working Paper 296. Tokyo: Asian Development Bank Institute. Available: http://www.adbi.org/working- paper/2011/07/15/4645.managing.multinational.infrastructure.eu/ Please contact the author(s) for information about this paper. Email: [email protected]; [email protected] Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan Tel: +81-3-3593-5500 Fax: +81-3-3593-5571 URL: www.adbi.org E-mail: [email protected] © 2011 Asian Development Bank Institute ADBI Working Paper 296 Van der Geest and Núñez-Ferrer Abstract Creating the framework for cross-border infrastructure cooperation often requires the active role of a third party, an “honest broker”, to forge convergence of interests. It is often argued that “deep” European Union (EU)-style integration is a necessary, though not sufficient, condition for successful cross-border infrastructural cooperation. The EU institutions, in particular the European Commission and the European Investment Bank (EIB), have performed such a facilitating and enabling role, though not without encountering challenges along the way. However, this paper argues that the EU experience underscores the vital importance of national governments and good governance in the context of cross-border multinational infrastructure. Hence, the authors argue that “deep” EU-style integration is an enabling but not a strictly necessary condition for successful implementation of cross-border infrastructure projects. The authors take issue with the myth that transnational cross-border infrastructure cooperation is the result of supra-national decision-making at the EU level. For a particular cross-border infrastructure project to succeed requires tri-partite and multilateral initiatives. These may take the form of “coordinators” (akin to the European Coordinators for TEN-T projects) or special-purpose state-owned companies alongside the Asian (and/or other) Development Banks as co-owners. The second myth which this paper seeks to address is that the management of trans- national and cross-border infrastructure is primarily supra-national. Although additional co- financing may be sought from the European Community budget and/or the European Investment Bank, these resources always complement national budgetary allocations and private funding. Contingent liabilities always remain at the national and sub-national levels and never at the supra-national EU level. The implications for management of cross-border multinational infrastructure in Asia, where the framework for regional cooperation is not yet well articulated, are to some extent positive. Within the Asian context, the need for an honest broker can be fulfilled by multi- lateral institutions such as the Asian Development Bank and the United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP). They can appoint “coordinators” drawing on the growing pool of top-level decision makers in Asia. Most importantly, these initiatives can be realized within the present-day context of Asia’s “shallow” integration. JEL Classification: F36, H54, O19 ADBI Working Paper 296 Van der Geest and Núñez-Ferrer Contents 1. Introduction ................................................................................................................ 3 2. The Evolution of Multinational Infrastructure in the EU’s History ................................ 3 2.1 Origins and Priorities of the EU ........................................................................ 3 2.2 Emergence and principles of EU regional policy .............................................. 5 2.3 The creation of specific Trans-European Networks .......................................... 6 3. TEN-T, From a Sluggish Start to a Central Policy ...................................................... 8 3.1 Decision-making and management of Trans-European Networks .................... 8 3.2 The European Coordinators ........................................................................... 12 3.3 Financial aspects of TEN-T infrastructure ...................................................... 23 3.4 Project appraisal ............................................................................................ 24 3.5 Mini case study of multinational infrastructure: Thalys International ............... 25 4. The TEN-E Development ......................................................................................... 28 4.1 The first liberalization package ....................................................................... 28 4.2 The second liberalization package ................................................................. 29 4.3 The third liberalization package ..................................................................... 29 4.4 Infrastructure and electricity exchange markets ............................................. 30 5. The E-TEN............................................................................................................... 34 6. Conclusions and Lessons from the EU .................................................................... 34 Bibliography ........................................................................................................................ 36 Appendix: Advancement in the completion of the TEN-T .................................................... 38 ADBI Working Paper 296 Van der Geest and Núñez-Ferrer 1. INTRODUCTION The European Union (EU) has accumulated much of its power in an ad hoc and pragmatic way. This pragmatism was found in the earliest statements by one of its founders, Jean Monnet, who famously argued that the “union between individuals or communities is not natural; it can only be the result of an intellectual process … having as a starting point … the need for change. Its driving force must be the common interests between individuals or communities”. This “neo-functionalist” thinking prompted the well-known Schuman declaration that “Europe … will be built through concrete achievements which first create a de facto solidarity”. In the words of Moussis, a long term observer of European integration, the neo-functionalist assumptions have “proved correct by European experience”.1 This pragmatic way of proceeding has also characterized the distribution of functions in economic integration between different types of actors with different levels of competence and authority. As Molle has argued, “neither the optimum mix of union and national measures nor the areas where further integration will be most beneficial can be determined a priori on theoretical grounds”.2 For our investigation, these theoretical perspectives imply that the path of integration that may be followed in Asia (and elsewhere), and in particular the role of cross- border infrastructure may differ fundamentally from the European experience. This discussion paper will argue that the creation of cross-border infrastructure can be realized with a limited number of specific process and project innovations, facilitating regional cooperation and the capturing of positive spill-over effects from this. These do not necessarily require the deep integration which characterizes the European Union today. 2. THE EVOLUTION OF MULTINATIONAL INFRASTRUCTURE IN THE EU’S HISTORY 2.1 Origins and Priorities of the EU Multinational infrastructure and Trans-European Networks are late entrants to the kaleidoscope of the EU’s common policymaking and implementation. One of the earliest concerns of the European Community, once the basic issues of security and stability had been addressed, was the need of a structural development of the agricultural sector. As will be demonstrated below, infrastructure is only a relatively recent addition to the EU’s work programs and responds to specific demands to underpin the single and integrated European market. The origins of the EU