Public Private Partnerships in Europe

Nick Gray
The quality of a country’s infrastructure can have a profound impact on its prospects for sustained economic growth. Many European governments are turning to Public Private Partnerships (PPP) to finance their investment in infrastructure.

Public Private Partnerships (PPP) become a catalyst for growth as European economies seek recovery

The quality of a country's infrastructure can have a profound impact on its prospects for sustained economic growth. The 2008-09 banking crisis has left most advanced western economies facing substantial reductions in public sector capital spend. Many are struggling to restrain excessive borrowing resulting from falling tax revenues as a consequence of negative growth. One of the many challenges facing governments today is how to reduce spending whilst continuing to invest in infrastructure.  

Europe turns to PPP

The PPP model of procurement has increasingly found favour with European governments. In the first half of 2010, the volume of infrastructure investment financed through PPP in Europe rose 19% to €25.7 billion on the same period in 2009.

Western Europe leads the way

Western Europe remains the dominant region for PPP, accounting for over 50 projects with a combined value of €14.9 billion. One of the largest projects to reach financial close was the Karolinska Hospital in Sweden. At a capital cost of €1.4 billion, this is the world's largest PPP healthcare project. Faithful+Gould acted as Technical Advisor to a syndicate of 12 banks comprising commercial lenders and two multilateral institutions, the European Investment Bank and the Nordic Investment Bank.

The Benelux region is enthusiastically embracing PPP. Belgium recently structured an ambitious project to redevelop over 200 schools during the next 6 years. The project includes shared equity participation from both the public and private sectors. Meanwhile, work continues on transactions which have already reached financial close. These include a scheme to develop new bus hubs in Brugge, Zomergem and Overrijse, where Faithful+Gould is acting as Technical Advisor to the lending banks. The Netherlands is using PPP across a wide range of sectors, most recently to develop new custodial facilities in a €100 million project outside Amsterdam.

Eastern Europe climbs on board

In Eastern Europe, PPP projects rose to a record €2.8 billion in the first half of 2010. The Moscow-St Petersburg highway at €1.7 billion was the largest PPP project globally to reach financial close in the period. Latvia and Lithuania are also exploring PPP, having identified a number of 'pathfinder' projects in the education sector. Sovereign credit risk remains a potential issue in some of the emerging Eastern European markets and this may be holding back further growth. However appetite for PPP procurement in those regions is apparent.

UK can export PPP expertise

As the PPP model becomes more widely used not only in Europe but globally, the UK is in a position to export a vast bank of expertise acquired during the development of the domestic PPP market. Faithful+Gould is actively engaged with a variety of international banks, sponsors and governments, assisting them in the development of new projects.

Finding capital to secure the necessary investment in infrastructure will remain an enormous challenge. The goal of sustained economic growth resulting from such improvements, however, makes a worthy prize in meeting that challenge.

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