Wanting to go up a gear

“You can’t stand around at the end of a government procurement pipeline and wait,” says Giles Frost, chief executive of Amber Infrastructure and a veteran investor in public-private partnerships.

“At Amber, we don’t build our business plans just around governments having new requirements. You have to develop ideas yourself and we look at lots of ideas outside traditional PPPs, for example in the real estate and energy markets.”

Amber, through its INPP fund, is a big fish in the PPP pool. Investing mainly in the UK, INPP had a market capitalisation of more than £970 million (€1.2 billion; $1.6 billion) at the end of last year. But Frost’s words betray a sobering reality about the UK PPP market in particular: the pipeline is much smaller than it used to be during the Private Finance Initiative (PFI) boom that was fuelled by the New Labour government between 1997 and 2010.

When the coalition government came to power in 2010, a more sceptical attitude towards the PFI model prevailed and a review ensued – leading to the creation of “PF2”. While the new model was in the workshop, the deal pipeline began to dry up. Once by far the leading PPP market in Europe, the UK now vies with France for the honour and is not far ahead of a number of other markets.


INPP has sought “to identify and develop areas of investment activity which are new but have similar characteristics” to PPPs. Frost cites the offshore transmission (OFTO) market – where INPP has been a major player – as “a classic example” and says that “the hunt is on to find other examples” and that this is where investment managers differentiate themselves.

One point to note is that, with a UK general election around the corner in May 2015, things could change once again with a new administration. “The coming election could be significant,” notes Frost. “Will a Labour government revert to further investment in social infrastructure, or has that boat sailed?”

Either way, you won’t find Frost twiddling his thumbs waiting for an answer – and neither are Europe’s other PPP investment firms.

Many have responded to the dearth of deals in the UK by scouring the rest of the continent for pockets of activity. The market rarely disappoints in this respect because there is almost always a PPP programme underway somewhere – it’s just a matter of having the bases covered. Wim Blaasse, managing partner at Amsterdam-based fund manager DIF, says the key to covering those bases effectively is to have a pan-European strategy.

“The overall level of deal flow is stable but varies per market per year. In the UK for example we see lower activity than before,” says Blaasse. “For those funds based in London, they may have been impacted by it. It’s important to be active in as many countries as possible.”

He continues: “We see deals coming through in a given country for a couple of years at a time, that’s how long a pipeline typically lasts. You get new markets that become active and replace the volume lost in the less active ones. Even in the UK it could be different again in one or two years’ time, so I’m not pessimistic about deal flow.”


Blaasse’s words are backed up by the fact that DIF has so far managed to commit around 60 percent of the €800 million fund it closed in March 2013 in a total of approximately 30 deals. Two provisos: one, that the fund also invests in renewable energy deals; two, that the investment mandate now stretches outside Europe to include Canada (where the fund has since closed several deals).

Nonetheless, Blaasse believes it provides ample evidence that the death of the European PPP market has been greatly exaggerated. “We have to look a bit harder than we did two years ago and the average deal size is a bit smaller, but you can still get a significant amount done,” he insists.

DIF has been helped by the fact that its home market, the Netherlands, represents one of the more obvious pockets of activity at the current time. This has enabled DIF to complete deals such as increasing its stake in the Delfluent wastewater PPP in February this year, when it purchased a stake held by French utility Veolia.

“The Netherlands is one of the most active markets in Europe at the moment,” says Blaasse. “It was very slow when we first looked here ten years ago but finally the market has arrived, which is good news for us.”


Andy Matthews says that 3i Infrastructure, where he works as a partner in London, has also found rich pickings in the Netherlands. He describes the public authorities there as “very focused and very determined with a well-structured procurement process and a visible pipeline”. He adds: “The government there is determined to deliver infrastructure and we have engaged with the authorities and helped them move things forward.”

In October, 3i Infrastructure invested €5.3 million for an 80 percent equity stake in a PPP for the A12 motorway, which connects The Hague with the German border. Other recent deals completed by the firm have included the RIVM project to build new premises for the National Institute for Public Health and the Environment and the Dutch Medicines Evaluation Board in Utrecht; and the Dutch Military Museum project south-east of Amsterdam.

Market observers predict that the country will continue to see a steady flow of deals over the next few years. A high proportion of these will be in roads, as part of an effort to reduce congestion and deliver a boost to the economy, as well as canal and sea locks.

“The Netherlands has found PPPs to be successful and value for money and I would expect them to continue to develop the pipeline, although you have to bear in mind it’s a relatively small economy,” says Matthews.

Both Germany and Belgium have also seen their PPP markets flickering into life, meaning that the focus has remained largely on relatively healthy Northern European markets. However, speak to PPP professionals and it won’t be long before talk turns to economies that – to put it mildly – have experienced some tough times. Into this category fall the likes of Spain and Ireland.


“We have been quite focused on the Spanish PPP market for a while and we recently advised on the Toledo General Hospital,” says Mark Bradshaw, an executive director and head of PPP for Europe at Macquarie Capital. “We anticipate Spain will become a core PPP business in the next 12 to 18 months for us. It won’t revert back to boom conditions any time soon but we have people on the ground in Madrid and also in London who are focused on that market.”

“Spain is coming through its troubles,” Matthews reflects. “There were for example problems with a number of road PPPs and we need to see the resolution of some of the issues there have been around shadow and real tolls. We are likely to see more availability-based projects and municipal-type deals rather than large trophy projects but we see Spain coming back.”

He adds: “On the secondary deal front in Spain, there are still some projects that need to be turned round and where potential investors will need to be confident that structural reform will be carried out and the same mistakes will not be repeated going forward.”

Another country where investors are hoping the past will not be revisited is Ireland, one of the first economies to sink in the face of the Crisis and where a number of high-profile PPPs – most notably Dublin Metro – were shelved. But hopes appear to be high, since the Irish authorities appear keen to pull out all the stops to get the programme restarted.

“Ireland is coming back with renewed prosperity and we’re seeing a sensible government approach,” says Matthews. “They cancelled projects when the financial crisis hit, so they are looking to reduce bid costs and propose sensible risk allocation in order to attract investors back.”

Frost says that Ireland has “come back into fashion and restored some confidence by having an open dialogue with investors and being realistic about what it can do”.

Other markets also under scrutiny include those to the east of the region with fledgling PPP programmes. These include potentially large markets such as Turkey and Poland, and also the likes of Croatia, Lithuania and Slovakia. There can be challenges, however, around such factors as credit ratings, risk allocation and a bias to local operators that make things difficult for international firms.

There is no doubt, though, that a close eye is being kept on developments in all corners of the region. With the UK PFI heyday in the past, and the Crisis having caused many countries to rein back ambitious infrastructure programmes, no one can afford easily to overlook any small sign of a deal pipeline tap being turned on.