London – 11 November – LAWFUEL – The Law News Network – The value of public private partnership (“PPP”) projects now in tender has more than doubled from May 2004 and is now around €54 billion according to the fourth annual report on the state of the European PPP markets, released today by DLA Piper Rudnick Gray Cary (“DLA Piper”).
The report provides a snapshot of activity in each European country market and a review of influencing events over the last year. It was compiled using survey results from over 120 key players in the European market and looked at the five criteria for a successful PPP market: pipeline, time and complexity of procurement process, supply side competition, risk allocation and availability of funding.
In last year’s report, DLA Piper stated that there was a pipeline of projects of around €95 billion which would be completed within the next three – five years. Today’s value represents a significant proportion of that pipeline, but not necessarily its peak. Once again Italy and Spain led the field in terms of value of projects at tender, but this year France was knocked out of third place by Germany, where there are many projects across the sectors both at federal (A-Model roads) and regional level. Germany also experienced the highest growth in tender value over the period.
The significant rise in the tender value mostly represents substantial road programmes coming on stream – such as the A – model roads in Germany, the Ostregion road projects in Austria and the Spanish regional roads, by value around 60% of the whole market. However, an increasing proportion of the total tender value is for hospitals and there is now a real health infrastructure market in Europe with projects in Italy, Spain, Portugal, France, Germany and the Czech Republic, as well as the UK. Rail also represents 15% by tender value of the market but that is mostly light rail projects rather than heavy rail. The infrastructure for heavy rail has been delivered using a PPP model in only a few cases such as the Perpignan to Figueras cross border rail link. The scale and politics of such projects make them difficult to deliver. However there are several big schemes currently in development for high speed links in Portugal, Austria and the Netherlands.
Angela Brewis, Editor of the Report, said: “The European markets are evolving rapidly with transfer of know how both on the public and private sector side. This does not mean that all projects are structured in the same way across sectors and borders – governments are developing structures which suit their own environment – being everything from the legal framework, public expectations to commercial practice. What the market needs in 2006 is a wave of project completions across Europe which, given the number of projects now in tender, is feasible. If this does not come the private sector may be tempted to invest in other more dynamic markets.”
In addition to input from each of the DLA Piper Infrastructure Finance teams working locally in the markets across Europe, the report drew on the responses to a survey undertaken with private sector sponsors and funders from across Europe and discussions of each major market in Europe which took place at the DLA Piper European PPP Roundtable held in Vienna earlier this year. One interesting finding is that the private sector do not perceive the lack of uniformity within the market in terms of the structure of projects or the procurement process as being a restraining factor either on a market or their participation in it. The more sophisticated players within the markets see the variation as a barrier to entry for competitors which favours them.
The Report also warns of the effect on the European PPP market of the emergence of PPP markets in the Americas, Asia and CIS which are currently engaging in the political debate and going through legislative processes in preparation for launch of programmes. Already there is activity in the US and Canada in the roads market and, not surprisingly given their experience in this field, the majority of companies and banks involved are European in origin. It may soon be a sellers’ market with governments having to compete for the attention of quality providers and funding.
Mark Swindell, Co- Chair of the Commercial Group said: “The momentum behind PPP as a globally accepted form of infrastructure and public service procurement by government has far exceeded our expectations. There is a flow of ideas and know how from the European markets to the Americas, Asia and Africa and the private sector are heavily involved in that process. For those who have invested their time, money and reputation carving out the pathfinder deals in the UK and continental Europe the current global opportunities are great, and I am delighted that their day has finally arrived.”
He added: “My only concern is that an overheated market may lead to less rigorous evaluation of projects and less well defined deals which may deliver short term benefits, in terms of completed projects, but in the long run will devalue the currency of PPP. Everybody involved has to behave responsibly to ensure a sustainable market.”