Where deals are plentiful

Amsterdam-based fund manager DIF is in the business of coming up with solutions. So, when faced with the vicissitudes of the European public-private partnership (PPP) and renewable energy markets, the firm did not sit around complaining about a lack of deal flow – it simply went out and found a new market…in Canada.

Admittedly this was an unconventional move, but when it hired Paul Huebener as the head of its new Toronto office in October 2012 it was clear that it was deadly serious. Huebener, after all, was a mainstay of the Canadian infrastructure market with over 20 years of experience under his belt – much of it at Macquarie , where he had been Canadian head of utilities, power and renewables.

Explaining the background to the move, DIF managing partner Wim Blaasse says: “We see European markets go up and down on both the PPP and renewable energy sides and it's important for us to be active in a broad number of markets in order for us to have a diverse portfolio.” With its long track record and stable deal flow, Canada fit the bill when it came to geographic expansion. 

Huebener takes up the story: “We opened in Canada really as a continuation of the strategy in Europe. It was a case of expanding the firm's geographic coverage but with the same themes of PPP and renewable energy at the heart of what we wanted to do.” 


The firm's first Canadian PPP investment came in August 2013 when it acquired a 40 percent shareholding in the Royal Jubilee Hospital project in Victoria, British Columbia, from Acciona, the Spanish construction group. 

A few months later, the firm announced its first Canadian renewable energy transaction, the acquisition of four 14-megawatt ground-mounted solar photovoltaic (PV) projects from Canadian Solar Inc. The four utility-scale power plants are based in the province of Ontario and all will sell power via 20-year feed-in-tariffs with the Ontario Power Authority.

Fast forward to September last year and DIF was announcing the purchase of 100 percent of the equity interest in the 11MW Stone Mills solar PV project – also located in Ontario – from US fund manager Stonepeak Infrastructure Partners . Huebener says that its existing investments are all expected to reach financial close by the middle of this year – at which point the firm will have six Canadian assets under management.

That's the progress to date – but plenty more is in the pipeline. Huebener says the firm is actively evaluating opportunities in primary PPPs as well as primary and secondary renewable energy deals. For example, the firm is part of a consortium bidding for the new Champlain Bridge over the St Lawrence River in Montreal; a project with a cost estimate of up to $5 billion. DIF is also part of a consortium shortlisted on the North Commuter Parkway project in Saskatoon.


Perhaps emboldened by DIF's breakthroughs so far, Huebener believes the Canadian market is an easier market than most in which to “ascertain what opportunities exist and the likelihood of projects coming to market. You have streamlined processes and projects often progress to financial close. Contracts are very well defined, deals are financeable and the provinces have optimised their procurement processes. All in all, there's not the same level of political risk as you find in other places”.

Unsurprisingly for a market which has so many attractions, competition for assets is strong. Huebener insists DIF is not too perturbed by this, in part because it has been able to team up with other European organisations. “We leverage off our European and international relationships with contractors on both the primary and secondary sides,” he says, “and consequently we often find ourselves in bidding consortia with a European flavour”. He cites Germany's Hochtief as one example of a firm DIF has partnered with on Canadian PPPs.

Expanding further on the theme, Huebener says: “We work with world-class organisations which have the ability to develop PPPs around the world. We're familiar with them and them with us. Of course, we're developing relationships with Canadian firms as well but it's helped us get up and running quickly to work with people we already know well.”

He adds: “People know that deal execution risk is pretty low with us. That's the feedback we get from the developers who like to work with us. They think of us as a firm that will find a solution, and that's a good way to get into a new market.” 


Blaasse, who is based in the firm's Amsterdam headquarters, adds his own thoughts on the opportunity in Canada as well as its demands. “From a distance, I see Canada as a very mature and predictable market where projects that are brought forward tend not to be cancelled halfway through. We feel that we've found our place within the market. The hurdle to enter it is a bit higher than elsewhere because the pre-qualification requirements for projects are tougher and that's where you really need to evidence track record from elsewhere.” 

Huebener agrees that the bar is set high for would-be bidders. “You face a very thorough Request for Qualifications (RFQ) and, if you've not done a range of PPP projects before, it's a very difficult market to crack on the primary side. But we've done over 60 projects in every sector imaginable from toll roads to hospitals, courts, schools and water…it's a very long list and it means we have the ability to contribute to pretty much any consortium at the RFQ stage.” 

The size of the Canadian market is underlined by Huebener's estimation that around a dozen large PPP procurement processes are already underway or will be coming to market over the next year or two. He also notes something of an evolution from a predominance of hospitals and other types of social infrastructure to transport and – to a lesser degree – water and wastewater.

In the renewable energy space, he says that the provinces have different resources and different procurement methods but that hydropower is “prevalent in all of them, there is high demand for it and it's attractive to DIF.”


Another trend that Huebener has noted is the growing number of municipal projects in cities such as Saskatoon and Regina which are “leveraging off the work done and the documents drawn up at provincial level and are adapting them for their specific needs and requirements”.

He adds that some cities are using provincial authorities as consultants on their projects. “You always want the counterparty to be as knowledgeable as possible as it will help to expedite processes,” Huebener observes.   

But if it seems that all is well in Canada (which it mostly is) then there are at least a couple of flies in the ointment. Towards the end of last year, Bonnie Lysyk, Ontario's Auditor General, made a highly publicised claim that – among other things – Infrastructure Ontario's use of PPPs had cost the province $8 billion more than would have been the cost of traditional public financing. 

“What this shows is that if the public sector could manage projects successfully, on time and on budget, taxpayer money could be saved,” Lysyk told the Toronto Star.  


Huebener believes it's understandable that the PPP market should come under scrutiny – as it has done in other leading markets such as the UK and Australia. “I think it's always healthy to have the market examine what types of project make sense. This type of evaluation should occur and everyone has a right to expect PPPs to deliver value for money,” he says.

He adds: “We've seen no fallout [from the comments] at this time. Instead, we've seen continuing support of PPPs because they will always deliver on budget and clearly address cost over-run issues. Moreover, it's easy to point to the cost of funding rather than the transfer of risk. Pricing risk is very hard. While public procurement is still valid, the PPP model allows the private sector to address risk and come up with creative solutions.”

Another concern is the tumbling oil price, with the cost of Brent crude at less than $50 a barrel at the time of this article being written. This is a significant development for resource-rich Canada, with provincial budgets taking a hit. As a result, some PPP projects currently in the pipeline appear to be at risk of delay if not cancellation. 

In Alberta, which has seen its budget decline by as much as C$7.0 billion (€5.0 billion; $5.9 billion) according to reports, two projects in particular have drawn attention.

One is the planned new C$1.3 billion Calgary Cancer Centre PPP, for which Requests for Qualification were due to be issued last month. An announcement about the project's future is now being anticipated in late February or mid-March with Health Ministry spokesman Steve Buick telling the Calgary Herald that the project would likely be pushed back but not cancelled. 

The second PPP under scrutiny is the South-West and West Calgary Ring Roads project (which has staggered procurements for the South-West and West elements). This is also understood to be under review, with an announcement on its future expected to coincide with that for the Cancer Centre.


However, Huebener feels that the impact of the oil price fall on Canada's PPPs is not yet clear. And, in any case – with experts predicting that the price may begin to recover later this year – any effects are likely to be relatively short lived.      

In the long term, Huebener insists, “the need for projects will not go away. Canada has a very large geography and substantial transport requirements. It needs to continue growing its transport links and social services and that need will not simply go away. PPPs can successfully deliver what is required”

It's that kind of confidence that brought DIF to Canada in the first place, and, at least so far, it has no reason to regret that decision.