The road to (pension) riches

It was bound to o happen. If your country has some of the largest pension funds in Europe (and indeed the world) and said pension funds also happen to be some of the most outspoken advocates of investing directly in infrastructure, it would be strange indeed not to capitalise on the opportunity to better tap their resources.

Perhaps realising this, a committee spearheaded by a former Dutch finance minister Onno Ruding decided to approach big institutional investors like APG Asset Management, one of the largest pension fund managers in the world with €277 billion of pension assets under management, and PGGM, the asset manager for over €105 billion in pensions in the Dutch healthcare and social work sectors, to find out what they might need to become more active debt providers to infrastructure.

If you read Infrastructure Investor’s interviews with APG’s Robbert Coomans or PGGM’s Henk Huizing last year, then you've probably already guessed what the two pension fund managers told the committee: inflation protection.

After the committee’s report made its way to the current coalition government, elected last October, the authorities decided to put pensions’debt appetite to the test with the N33 Assen-to-Zuidbroek road public-private partnership (PPP). The €152 million design, build, finance and maintain (DBFM) contract, to be tendered in the spring, will see the private sector bid to widen a busy road in the north of the country.

The difference is that the government is considering indexing the availability payments it will provide to inflation, in order to create a staple package backed by pension funds. Consortia would then compare the pension-backed staple with bank debt to see which of the two alternatives is the cheaper. 

If the outcome is successful, then it might open the door for pension debt – or combinations of pension and bank debt – to come into play to help finance four road PPPs, estimated at around €1 billion a piece, to help decongest traffic around Amsterdam, Schipol Airport and Almere, located just 30 kilometres east of Amsterdam.

The first of the four PPP contracts is expected to come to market sometime this year.

The main problem with the N33 pilot project is that, as one local industry source describes it, “neither the government nor pensions are really that interested in doing it”. From the government’s side, the pilot seems more of a political nod to the Ruding report, the source says. After all, the Netherlands had little difficulty in attracting bank financing for the two road PPPs – the €350 million A12 and the €1.5 billion A15 – it closed last year.

On the pension side, “the N33 is quite small and providing debt for it could be more of a hassle than it’s worth,” the source argues.

Whether the N33 ends up being the start of something new or a mere footnote in project finance history, it joins the likes of France’s proposed securitisation vehicle and the European Investment Bank’s project bond initiative to make 2011 the year when public authorities rehearsed their first steps to wean themselves off commercial bank debt.

Netherlands: the pipeline

In terms of size, road projects are likely to concentrate the attention of the majority of infrastructure investors – but there is more to the Netherlands’ public-private partnership (PPP) pipeline than just tarmac.

A tram project in the northern city of Groningen, worth €450 million, is currently in the early stages of its tender and is drawing interest from the market. And several smaller projects in the social infrastructure space also abound.

Another interesting initiative might come from the government’s plans to expand PPPs to more sectors, explains Arent van Wassenaer, a partner at law firm Allen & Overy: “Rumour has it that the government is looking at ways of introducing project finance to asset management. One possibility could see it bundle several assets to achieve critical size in contracts to refurbish street lighting or sewage systems,” he explains.