Slovakian government cancels €3.3bn D1 PPP

After failing to reach financial close before June’s parliamentary elections, the €3.3bn first stretch of Slovakia’s D1 highway did not survive the change of government, with the new transport minister now scrapping the PPP contract.

Slovakia’s new transport ministry, headed by Jan Figel, has decided not to pursue the public-private partnership (PPP) contract for the €3.3 billion first stretch of the D1 highway, spelling the end for the long-running project.

D1: no longer a
PPP

The road, awarded to a team led by French infrastructure group Bouygues in April 2009, had been scheduled to reach financial close by August 30 2010, but the government decided not to extend that deadline after it failed to reach an agreement with the consortium on the terms of the project.

The decision is not unexpected, with the current centre-right government signalling during the elections campaign that it considered the D1 PPP too expensive and that it would be cheaper to fund it from the state balance sheet. Under the PPP contract, the government would have had to pay availability payments to the winning consortium over a period of 30 years. Availability payments are public contributions paid in exchange for having an asset made available in good condition.

Following June's parliamentary elections, the new government announced that it would review all ongoing PPP projects.

Dusan Šamudovský, the chief executive of Slovak construction company Doprastav, a member of the winning consortium, had previously told the local press that it would not be possible to reach financial close on the D1 by the end of August. He had urged the new government to extend the deadline and create “a space to find mutually acceptable conditions to reach financial close on the project”.

But new finance minister Ivan Miklos had dismissed these claims. “This is proof that the consortium is not able to finalise the project, in my opinion because it was poorly prepared. Moreover, the project was also overpriced,” Miklos had commented earlier.

An international banker involved in the deal said the new government’s decision not to continue with the PPP contract was “political”, as the D1 PPP had originally been started by the previous centre-left government.

The first stretch of the D1 got very close to meeting its original May 18 financial close deadline. A club of 20 banks was said to have been on standby to close the deal with a debt package that could have reached €2.8 billion, including €1 billion from the European Investment Bank (EIB) and €250 million from the European Bank for Reconstruction and Development.

But environmental concerns meant the EIB loan was conditional upon further negotiations between the European Commission and the Slovak government on how to deal with some five kilometres of road that would cross protected areas.  However, a final decision was not reached before the June 12 parliamentary elections, which ousted the centre-left government.

The first stretch of the D1 highway PPP, which crosses the country, was set to run over 75 kilometres from Martin to Presov. In addition to Bouygues and Doprastav, the winning consortium also included Intertoll, Meridiam, Mota-Engil and Vahostav.

A second stretch of the D1 highway, estimated at €2 billion, was also being procured as a PPP and has been awarded to a Hochtief-led consortium. It is unclear what will happen to this contract now.