Troubled times

Infrastructure investments have not been at the centre of the furore regarding Southern Europe’s unfolding debt crisis, which has seen riots erupt in Athens amid fears of government cutbacks and mass redundancies. But that doesn’t mean the infrastructure ambitions of countries like Greece or Portugal have not been affected.

Riots in Athens: debt
crisis had led to social
unrest 

Portuguese Prime Minister José Socrates, who had based his government’s economic strategy on a multi-billion-euro infrastructure public-private partnership (PPP) programme, had to swallow hard recently and announce the delay of Lisbon’s €5 billion new airport and his ambitious mega-bucks high-speed rail (HSR) programme, as the country aims to reign in its deficit.

While the €1.45 billion first stretch of the country’s HSR programme has recently reached financial close, the €2 billion second stretch that forms part of the Lisbon-Madrid line is set to be revised and re-tendered. The other lines that were part of what was once estimated to be an €8.5 billion HSR network have been shelved indefinitely.

Impact unclear
In Greece, the focal point of investor concerns and recipient of an unprecedented multi-billion euro European Union-sponsored bailout, the future of its infrastructure programme is less clear.

So far, says the head of project finance at a well-known Greek bank, there have been many meetings between lenders and sponsors to re-evaluate the business cases of projects already built. This process includes, for example, studying the impact of falling GDP growth on traffic and cash-flow projections for completed motorways.

This is not to say the crisis hasn’t already had an impact on Greece’s future projects. One social accommodation PPP project to build government prefectures was cancelled after the authorities reportedly concluded that it was a luxury in the current context, the banker explains.

However, he expects other deals that form part of the country’s bulging social accommodation pipeline to continue with procurement, albeit very slowly. He also says that even though lending for new projects will be trickier, “it will not be the end of the world” for the smaller ones.

The real test, though, will come in September, when international investors will be invited to bid for the €1 billion privatisation of Castelli airport on the island of Crete.  Even though Crete is a popular tourist destination, the banker admitted he had no idea if investors will bid for it – “we will just have to wait and see,” he says.

Anecdotal evidence suggests European PPP investors are not really convinced that any of these countries will default, and as such are not particularly alarmed. But that doesn’t mean they are willing to back those convictions with hard cash.

One fund manager who said he had no qualms about doing PPPs in Southern Europe put it best when asked if he would enter into such agreements right now: “No, I’ll wait until things calm down,” he answered. And when things will calm down is anyone’s guess.