PPP round-up

NORTH AMERICA

US POISED TO BECOME WORLD’S LARGEST P3 MARKET

Buoyed by significant needs for new infrastructure and a growing urban population, the US has the potential to become the largest market for P3s in the world, according to Moody’s.

In a report assessing trends for public-private partnerships around the globe, the rating agency found that an increasing number of states are authorising their use for transportation projects, which it says are typically the first type of P3s developed in new markets.

Two main drivers would help make the scheme a popular funding solution in the country: the need to upgrade, replace or build out existing infrastructure assets and the inability of governments to finance these new infrastructure investments entirely on their balance sheets.

Looking across North America, Moody’s hailed Canada as the most mature market, as P3s there have predominantly been availability-payment projects. Mexico, by contrast, was said to primarily rely on demand-risk P3s, where private developers and investors are paid back through the user fees they collect.

The US was seen as standing somewhere in the middle, with a history of demand-risk P3s but a growing number of availability-payment projects.

Last year, these have included the I-69 in Indiana (for $370 million), the Goethals Bridge P3 for the Port Authority of New York and New Jersey (for $1.5 billion), and the $2.3 billion availability-payment P3 to fund the I-4 in Florida.

SASKATCHEWAN ISSUES RFQ FOR SCHOOLS P3

The government of Saskatchewan has issued a Request for Qualifications (RFQ) for the design, build, financing and maintenance of 18 new schools that will be bundled into two projects, according to a statement.

The schools will be built on nine joint-use sites in: Regina, the province’s capital; Saskatoon, its largest city; as well as Martensville and Warman, which according to the statement are “high-growth communities”.

“Financial analysis, conducted by external experts, demonstrated that a P3 model will deliver the best value for Saskatchewan taxpayers,” said Gordon Wyant, the Minister responsible for Sask-Builds, a government agency charged with reviewing procurement options and making recommendations.

A shortlist of no more than three candidates will be invited to proceed to the Request for Proposal (RFP) stage, which is expected to be announced in the autumn.
Construction of the schools, which will be owned and operated by the public sector, is scheduled to begin in September 2015. They will be ready to open in time for the start of the 2017 school year.

The government of Saskatchewan did not disclose the estimated cost of the project, which it said will be determined through the procurement process and released at the end of procurement.

VIRGINIA’S I-66 PROJECT MOVES FORWARD

The I-66 project, which aims to provide relief to the ‘traffic-choked’ Interstate 66 corridor, is one step closer to realisation as it enters the second phase of an environmental study, Virginia Governor Terry McAuliffe said in a statement.

The Tier 2 Environmental Assessment will evaluate site-specific conditions and potential effects the project would have on air quality, noise, neighbourhoods, parks, recreation areas, historic properties, wetlands and streams, according to the statement.

The Tier 1 Environmental Impact Statement was approved by the Federal Highway Administration in November 2013.The second phase of the study is expected to take 17 months to complete.

“By the end of 2016, our plan is to complete environmental work, identify funding sources, receive federal approval, and move forward on a plan to turn I-66 into the efficient, multi-modal corridor that Virginia’s economy needs,” McAuliffe said in the statement.

The I-66 project, which involves improvements on a 25-mile segment of the highway, has been under consideration for some time.

Last July, Virginia’s Office of Transportation Public-Private Partnerships (OTP3) announced that the candidate project, estimated to cost between $2 billion and $3 billion, would have moved into the procurement stage in 2013-2014.

I-66 is still a candidate as a public-private partnership, according to the VDOT spokesperson.

EUROPE

LITHUANIA RAMPS UP PPP PROGRAMME

Lithuania, which is becoming increasingly active in PPPs, has announced two more projects – both centred on the capital city of Vilnius.

One of the projects sees Vilnius seeking a private partner for a PPP to establish and operate a so-called “multi-functional hub” in a 22.9-hectare territory adjacent to the city’s busiest commercial area.

The mandate for the hub includes: a pre-school educational facility; a conference hall; commercial premises for start-up businesses; a public library; four football fields; nine running tracks; three university sports halls; accommodation for 100 people; administrative premises; a sports museum; venues for indoor cultural events; and an outdoor national/municipal public events venue with 20,000 seats and a parking area.

In a separate development, three technical solutions have been put forward for a design, build, finance, maintain (DBFM) project for a new court building in Vilnius. The proposals will be evaluated later this month, with those meeting the necessary requirements moving on to “competitive dialogue”.

Ultimately, the winner of the tender will deliver a modern building for the Vilnius Regional Court, the Court of Appeal of Lithuania, the Supreme Court of Lithuania and the National Court Administration, in 2017.

DUTCH DEAL AS 3i STEPS UP PPP EXPOSURE

3i Infrastructure, the London Stock Exchange-listed infrastructure investment firm, has committed to invest €5.1 million for a 28 percent interest in the RIVM project in the Netherlands.

The project is a primary PPP to build the new premises of the National Institute for Public Health and the Environment and the Dutch Medicines Evaluation Board in Utrecht.

In a statement, 3i Infrastructure said the deal was consistent with its strategy of increasing its portfolio of primary PPP projects where it can “achieve attractive risk-adjusted returns and enhance the overall portfolio” alongside its European core economic infrastructure portfolio.

Peter Sedgwick, chairman of 3i Infrastructure, described the investment as “a further step in the continued delivery of the investment strategy to increase in a measured way our portfolio of primary PPP projects over time”.

The project was procured by the State of the Netherlands, represented by the Central Government Real Estate Agency, which is part of the Ministry of Interior and Kingdom Affairs.

It involves the design, build, finance, operation and maintenance (DBFOM) of a 70,000 square-foot facility comprising an office building and laboratories on the site of the Utrecht Science Park. Construction is expected to complete in November 2018.

FINANCIAL CLOSE REACHED FOR €600M GERMAN PPP

A consortium comprising the Netherlands’ DIF and German developers Hochtief and KEMNA Bau Andrea has reached a financial close on the German A7 road public-private partnership (PPP).

The project, which involves planning, financing and undertaking an upgrade of the main road link between Denmark and Germany, is budgeted at €600 million. DIF owns 41 percent of the project, with Hochtief and KEMNA holding the remainder.

Long-term debt, provided by a bond facility, will be issued by a club of European and US investors.

The project is the first German-based project to benefit from the European Investment Bank’s (EIB) Project Bond Credit Enhancement initiative (PBCE), through which the institution is providing a €90 million subordinated loan (representing about 20 percent of the volume of senior debt) to help bump up the instrument’s credit rating. The bond is rated AAA by Moody’s – a 1.5-notch uplift on its original rating.

The EIB is also an investor in the bond, on the same level as the project’s other bond investors. These include insurers AXA, MassMutual and Sun Life; pension firm Aegon; and German development banks KfW.

The project consists of the extension of a 65 kilometre-long section between the Bordesholm junction in Schleswig-Holstein and the Hamburg Nordwest junction, which will be widened from four to six lanes (with a 500-metre stretch enlarged to eight lanes). It also involves operating and maintaining a 59-kilometre section of the A7 for 30 years.

ASIA AND ROW

ADB OPENS NEW PPP OFFICE

Responding to growing demand for infrastructure investment in Asia, the Asian Development Bank (ADB) has opened a new office that aims to provide governments with independent advice on shaping public-private partnerships.

Infrastructure investment is expected to reach $8 trillion till 2020 in Asia, and using the PPP model is one of the best ways to meet this massive need, “given the significant amount of private capital that is waiting to be deployed to well-structured and bankable deals,” said Ryuichi Kaga, head of the new PPP office.

ADB has provided PPP transaction advice on several infrastructure projects. They include the $1.3 billion Combined Heat and Power Plant 5 in Mongolia, the ongoing Lae Port, the largest port in Papua New Guinea, and the cross-border Turkmenistan-Afghanistan-Pakistan-India gas pipeline, it said in a statement.

ADB’s PPP transaction advisory service will help to ensure that ADB’s client countries are able to bring to market bankable transactions. Located in Manila, Philippines, the new office will provide advice on project marketing, deal structuring, bid packaging and strategy so that governments are able to complete their transactions and achieve financial close.

The advice will not be tied to any ADB lending and would be provided on a fee basis.

PALISADE BUYS HOSPITAL STAKE FROM HASTINGS

Palisade Investment Partners, the Sydney-based fund manager, has reached financial close on the acquisition of a 100 percent equity stake in the Newcastle Mater Hospital PPP project from Westpac Essential Services Trust, a fund managed by Melbourne-based Hastings Funds Management.

The A$185 million (€131 million; $173 million) hospital project was delivered as a public-private partnership (PPP) with NSW Health, a department of the New South Wales government. The facility was built in 2009 and is operated under a 25-year concession agreement.

A statement from Palisade said it had acquired and will manage the project on behalf of an unnamed direct investment mandate client. Financial terms of the deal were undisclosed.

The deal marks the third recent transaction struck by Palisade in the PPP space. Earlier this month, it acquired 49.9 percent of the AgriBioscience Research Centre in Melbourne. Earlier in the year it was part of the North West Rapid Transit consortium selected as preferred operator for the North West Rail Link project’s “Operations, Trains and Systems” PPP contract.

Palisade’s Australian Social Infrastructure portfolio now has seven investments – all of which are in the operating phase. The portfolio has delivered an investor return of 16.8 percent since inception in 2011 including 7.4 percent income.

FINANCIAL CLOSE FOR NZ$1BN ROAD PPP

The Wellington Gateway Partnership (WGP) consortium has achieved financial close for the delivery of the NZ$1 billion (€630 million; $850 million) Transmission Gully motorway in New Zealand.

The project is availability-based and arises from an agreement between WGP and the New Zealand Transport Agency. WGP includes: Leighton Contractors, the Australian construction firm; HEB Construction, the New Zealand construction firm; Bank of Tokyo-Mitsubishi UFJ (BTMU), the Japanese bank; and the New Zealand Accident Compensation Corporation (ACC), a Crown entity which provides compensation for personal injuries.

InfraRed Capital Partners, the UK fund manager, is providing around NZ$55 million in equity for the project (which is about 40 percent of the total equity) while Leighton Contractors and ACC are also providing equity. BTMU is financial advisor to the project, with funding being provided by unnamed local and international banks.

The consortium – which was named preferred bidder in December last year – will finance, design and construct the project, with work set to start imminently and the project expected to employ up to 700 people at the peak of construction. The consortium will be in charge of operating and maintaining the motorway from 2020 for a period of 25 years.
Transmission Gully is the first state highway in New Zealand to be delivered as PPP.