Latvia eyes PPP law in mid-2009

The law will enable the Riga City Council, one of advisors on the law, to move forward with its $2 billion Northern Corridor highway project. It is the largest PPP-type project currently under development in Latvia and the Baltic Region and may go to bid as early as 2010.

A public-private partnership (PPP) law currently under consideration by the Latvian Parliament is expected to be enacted by the middle of 2009, enabling the country's Northern Corridor project, the largest PPP in the Baltic States, to move forward, according to people familiar with the matter.

“In the summer of 2009, we expect that the new PPP law will be in action,” said Nika Kotovica, acting manager of the Northern Corridor Development Project at the Riga City Council. The council is one of several members of a working group established by the Latvian Ministry of Justice in February 2008 to draft the new law.

“95 percent of our suggestions have been taken and incorporated, so there is very positive outlook for implementation,”  she said.

Riga: looking to ease congestion

The Baltic nation of 2.3 million people has had a basic concession law in action since 2000 and public procurement laws in action since 2006, according to the Latvian Republic Economic Ministry. The new law, currently before the Latvian Parliament, would replace those statutes and allow for significantly longer concession periods, Kotovica said.

The council is pushing for the legislation to go through so it may move ahead with its estimated $2 billion Northern Corridor highway project. The goal of the project is to build a new east-west highway integrating Riga, Latvia's capital, with the Riga port and the trans-European road network. It is the largest PPP-type project in Latvia and the Baltic region.

Martin Bright of Faber Maunsell, a transportation consultancy advising the council on the project, envisons a concession period longer than anything available under current law.

“There's got to be time for loans to mature and for equity returns to be available, so 30 years might be too tight for a project of this size,” he said.

Once the law goes into effect, the council will seek to put the project to bid by the end of 2010, Kotovica said.

Bright hopes that the project will attract a mix of both financial sponsors as well as a consortium of big European construction companies such as Germany's Hochtief and Spain's ACS.

“It depends how Merrill Lynch and Goldman Sachs view European projects, but they are the sort of people we would be interested in on the investment banking side. Typically in Europe you would get consortia of major infrastructure providers,” Bright said.

Grants from the European Union's €70 billion Cohesion Fund, a fund devoted to integrating European infrastructure, as well as the Latvian State, will support the Northern Corridor project. Revenue from a congestion charge imposed on the Riga City Centre will support the availability payment that will remunerate the private partner, according to a recent Northern Corridor investor presentation.