Eastern promise

At a time when faster-growing emerging markets continue to grab the limelight, it’s easy to forget there may be new, fertile ground for public-private partnerships (PPPs) within Europe. On paper at least, Central and Eastern European states seemingly tick a number of boxes: they’re growing faster than the rest of Europe, yet present more robust institutional structures than many other developing economies; they remain in crucial need of more and better infrastructure, yet lack the resources and skills necessary to build it.

Recent developments suggest things have started to move in the right direction. Granvia, the Meridiam- and Vinci- led consortium that holds the 30-year concession to build and operate four sections of Slovakia’s R1 Expressway, last month received a BBB+ rating on a €1.2 billion bond issue from Standard & Poor’s. The accolade – two notches above investment grade –underlined the project’s stable revenue streams, government support and low construction risk, marking a vote of confidence for what was the first PPP ever signed in the country.

Other signs are equally encouraging. Poland closed its largest PPP in April, when a waste thermal treatment plant, to be built and operated by a consortium that includes the European Union-focused Marguerite Fund and a subsidiary of Suez Environnement, won the PLN900 million (€217 million; $282 million) backing of three local lenders. PPP deal value for the region’s first nine months of the year, reported to be around $7.0 billion, is on track to reach a possible new high.

Yet compared to the continent’s more mature economies, the trend remains modest: the value of partnerships sealed this year by the whole region, which also includes Russia and Turkey, roughly equates to that completed by the UK alone. High-profile deals, meanwhile, remain the exception rather than the rule. So is the region really ready for a surge in PPPs?

It depends where you look, answers the European Bank for Reconstruction and Development (EBRD). In a country ranking released this summer in collaboration with the Economist Intelligence Unit (EIU), the institution paints a nuanced picture of the region, with some markets already equipped with a sophisticated understanding of PPPs and others still lacking some of the foundations needed for the framework to deliver. “The level of maturities and priorities across the region are very different,” says Toshiaki Sakatsume, a senior economist at the EBRD.

Top-ranked Croatia, for example, is seen as having a long history of private investment in infrastructure, a recently updated regulatory framework, a strong institutional set-up and an agency solely dedicated to supervising PPPs. Yet, just like fellow best-in-class Lithuania, its capacity to implement remains largely untested.

Taking it to the next level

Meanwhile, countries with more experience of signing deals, such as Bulgaria, Russia and Slovenia, remain hampered by poorer regulatory, legal and institutional frameworks – seen by the EIU as giving rise to loosely arranged planning structures, itself a source of inefficiencies and risks. Others, like Hungary, had it all pretty much in place until frosty political attitudes put a chill on the investment climate.

It would probably be presumptuous to expect CEE states to get it fully right in just a few years, at a time when the earliest proponents of the scheme, such as the UK, are still working on refining their model. In addition, Sakatsume points out that statistics largely fail to capture the vast number of small PPPs that happen at the local level, to finance projects such as sport facilities, schools or government buildings.

So there is much hope for PPPs to flourish out East – but just like in the West, much will now depend on the will of the powers that be to take things to the next level.