EIB gives conditional approval for €1bn D1 loan

Brussels has some environmental concerns regarding the €3.3bn first stretch of Slovakia's D1 highway PPP that need solving before full approval is granted. The government wants to close the deal – which faces political opposition at home – by May 18, before parliamentary elections take place in June.

The European Investment Bank (EIB) has approved a €1 billion loan to help finance the €3.3 billion first stretch of Slovakia’s D1 highway public-private partnership (PPP) on the condition that some of Brussels’ environmental concerns regarding the project are addressed.

D1: Racing to close
before new elections

The first stretch of the D1 highway, which crosses the country, will run over 75 kilometres from Martin to Presov. The private sector will operate it for 30 years during which it will receive availability payments – public contributions paid to the concessionaire in exchange for making the road available in good condition.

Specifically, the European Commission (EC) wants to negotiate how the Slovak government plans to deal with an estimated five kilometres of road that cross protected areas, a Slovak public sector source said. The EC gave its approval to the deal, allowing the EIB to finance it and construction works to start, on the condition that there will not be any construction around the protected areas until Brussels is satisfied that the project conforms to European Union environmental norms.

The public sector source said transport minister Lubomir Vazny is going to Brussels to personally take charge of negotiations in a bid to have the project reach financial close by May 18. Even if the project doesn’t close on this exact date, it is imperative for the government to close it before Slovakia’s June 12 parliamentary elections, the source said.

If it doesn’t – and if the incumbent government is ousted – the project might be in trouble, as opposition parties are against the deal.

A report in the Slovak Spectator says that opposition parties estimate the PPP model has inflated the project’s cost by €546 million and that it would be cheaper to fund it from the state balance sheet. One of the parties has even threatened to lodge a criminal complaint against the current government if it rushes the financial close before elections.

A club of 20 banks is on standby to close the deal with a debt package that could reach €2.8 billion, including €1 billion from the EIB and €250 million from the European Bank for Reconstruction and Development. The commercial banks are also prepared to guarantee €800 million of the €1 billion EIB loan until the Slovak government receives state-aid clearance from the EC.

That would leave the concessionaire – comprising Bouygues, Colas, Doprastav, Intertoll, Meridiam, Mota-Engil and Vahostav – to write an equity cheque of some €500 million. However, the consortium has recruited Dutch pension fund managers APG and PGGM together with DIF to contribute about half of that amount, a banking source had previously said.

Financial close for this first stretch of the D1 would allow a Hochtief-led team to start working on closing the second part of the D1, which costs an estimated €2 billion.