If the headline grabbing projects in the neighbouring Netherlands were all about roads in 2010, then Belgium’s public-private partnership (PPP) pipeline can be said to have been all about social infrastructure last year.
It’s not that Belgium doesn’t have its fair share of transportation projects – including roads – in its PPP pipeline. It does. But it’s the country’s social infrastructure projects that have been closing more readily and, in the process, grabbing the headlines.
Consider last year’s Flemish schools PPP. At €1.5 billion, the 30-year contract was not only the largest PPP project to close in Belgium last year, but also one of the biggest PPP deals to close in the education sector in 2010.
It was also wonderfully ambitious and idiosyncratic, requiring the winning team of Fortis Real Estate and BNP Paribas Fortis to design, build, finance and maintain (DBFM) 211 schools by 2016 under a single contract. To further complicate matters, the concessionaire will subcontract the construction of each project, drawing from a pool of some nine construction companies.
Understandably, this peculiar structure involved added due diligence which caused some delays to reaching financial close. But the project did indeed close last June, allowing Belgium to successfully conclude procurement of what in other countries would amount to a whole programme of education infrastructure in one fell swoop.
Nothing quite as exciting is on the agenda for this year, but a steady stream of social accommodation projects are expected to reach financial close, perhaps as early as the first half of 2011. The most active sector at press time is the prisons sector, with four prison DBFMs worth a combined €200 million to €240 million in capex in the final stages of their respective tenders, with preferred bidders set to be announced soon.
Not content with adding several hundred cells to its penal system with these four contracts (two in Flanders and two in Wallonia, the French speaking southern region of the country), Belgium is also expected to release a tender this year for a large prison in the Brussels region, with a capacity for over 1,000 cells and an estimated capex of more than €100 million.
Its roads pipeline is even more robust, with four projects worth over €800 million in capex currently in different stages of procurement.
However, it’s still unclear how many of them will actually reach financial close in 2011.
At least two of the roads – the North South Kempen and the R4 Merelbeke, both in the Flanders region, worth €120 million and €60 million in capex respectively – have been in procurement for over two years. As Steven Steppe, director of consultancy RebelGroup, the financial advisor to the government on the prisons programme and sveral road projects, puts it:
“The process has been very long and cumbersome. Most road PPPs in Belgium are not greenfield projects, they are actually missing links that need to be built. They are also technically complex projects that have encountered a lot of opposition.”
In this sense, the government’s decision to separate procurement for the construction and management of the roads from their financing – what it calls DBM + F (design, build, maintain + financing) has actually helped with delays, he explains:
“I’m not always in favour of DBM + F. It’s certainly not always the best of both worlds, as it’s commonly sold. In practice however, it has helped protect us from even more delays as we have been able to wait with the procurement of the financing lot until the situation regarding environmental and building permits is totally clear.”
He adds: “Separating DBM + F (to join them in a DBFM contract in the end) does demand a lot more interface management from the tendering authority and its advisors, thus complicating procurement.”
Reverted to standard
While the government felt that DBM + F was the best solution given tight bank liquidity following the financial crisis, it has reverted to a standard DBFM structure for the €350 million A11 Bruges road and the €320 million North-South Limburg project (capex values), on which RebelGroup is advising.
Both projects are in procurement, with the government currently holding negotiations with the five pre-qualified consortia for the two roads. The teams include a mixture of regional players like Jan de Nul, Heijmans, Aswebo, DG Infra +, DIF, and international groups like Macquarie, Eiffage and Strabag.
“Belgium is a pretty active PPP market,” surmises Steppe. Judging from the above – and considering that the country’s PPP pipeline also includes tram projects, bus depots, additional roads and possibly even more schools – it’s hard to disagree with him.