A Year in Focus

As 2014 draws to a close, we asked some leading industry figures to give their view on the highlights of the PPP market over the past year and what challenges they face going into the New Year

Shane Swords
Director – Rubicon Infrastructure Advisors

What have been the highlights of 2014?

2014 has been an excellent year for Ireland in terms of improvements in the economy and a significant resurgence of the Irish infrastructure market.

Moody’s and S&P have recently upgraded the Irish sovereign rating from Baa3 and BBB+ to Baa1 and A respectively. Yields on 10-year government bonds are now below 2%, having fallen from over 14% in 2011.

The successful closing of the N17/N18 road PPP and Poolbeg energy from waste saw international financial institutions return to the Irish market and has given investors confidence that further pipeline deals can successfully close. In addition, a number of leading international banks have once again started to look at lending to Ireland and recent funding competitions have been evidence of this.

We have had first-hand experience of the strong interest in investing into Ireland from the sale process we are running to monetise the income stream from the Dublin Convention Centre.

What are the challenges to come in 2015?
The main challenge will be the continuation of this momentum to get even more lenders, institutional investors and industrial sponsors looking at Ireland. A further improvement in the Irish economy, more PPP deals closing coupled with an increased pipeline will of course help this. For such a small country the Irish government, through the National Development Finance Agency and National Roads Authority (NRA) have put in place an excellent PPP pipeline.

There are a number of significant PPP deals that are expected to close in 2015: the M11, the N25, the Dublin Convention Centre and Grangegorman. Final bids are expected for the €120m Irish Court PPP in the first quarter of 2015. Additionally, 2015 may deliver new road schemes that have recently been identified for potential PPP procurement by the NRA.

Chris Guthkelch
Project director – Skanska Infrastructure Development Americas

What have been the highlights of 2014?

From Skanska’s point of view it would be the I-4 Ultimate win and financial close, as well as the Elizabeth River Tunnels – the placing of the first immersed concrete tunnel segment on the riverbed.

There was also a deepening federal interest in P3, which was well received, as was the House Transport and Infrastructure Committee Special P3 Panel Report. The Obama Grow America Bill and Build America Transportation Investment Center were also very positive.

What are the challenges to come in 2015?
The impact of the recent Mid-Term elections on P3 programmes will be an immediate issue. As well as this, the continuing education of legislators and the public is needed on the benefits of P3 for muchneeded complex projects.

Maintaining the pipeline of credible PPP opportunities will also be key, as well as monitoring further emergence of PPP legislation for example in Washington DC, Kentucky, and New York (which has special legislation for the Dormitory Authority of the State of New York project).

Olga Generalova-Kutuzova
Director – International Investment Centre

What have been the highlights of 2014?

2014 started well, but ends up in an atmosphere of uncertainty and waiting, with rather negative perspectives for the development of the Russian economy. Political difficulties and the following economic crisis are affecting the ability of the state to run its infrastructure projects.

In this case, however, opportunities for PPP can be presented – attracting business as a partner which can help to complete already planned facilities. This is especially true for transport infrastructure, in particular projects for the upgrade and construction of airports.

What are the challenges to come in 2015?

I hope the federal law about PPP will be approved and come into force. It will simplify the procedures throughout the country and a model PPP contract will be available. In the shortage of financial resources and budget deficit any business process will demand a clear procedure with minimal paperwork. The forthcoming challenges are that we need to fight bureaucracy and corruption to strengthen PPPs.

Swati Johri
Director – Pegasus Legal

What have been the highlights of 2014?

A big highlight has been the federal government announcing that it has earmarked around AU$11bn (£6.1bn) for spending on infrastructure projects, which suggests a healthy pipeline in the coming years. Another highlight has been the success of the relatively new unsolicited proposals regime.

Significant projects instigated by the private sector under this regime have either been awarded, such as the CityLink Widening Project in Victoria, or are in the final stages of assessment such as the Cranborne-Packenham Rail Corridor Project and the NorthConnex PPP. This has been extremely encouraging as it shows that governments are keen to engage with the private sector to jointly develop and deliver future projects.

What are the challenges to come in 2015?

The clean energy infrastructure sector has been hit hard in 2014, which is ironic given the rest of the world is galvanising in favour of investment in clean energy technologies and infrastructure. The abolition of the carbon pricing mechanism, the lack of certainty around the funding and survival of the Clean Energy Finance Corporation and the Australian Renewable Energy Agency, both of which provide funding to renewable energy projects, along with the ongoing political debate as to whether the Renewable Energy Target will remain, have made participants in the sector nervous.

While it remains to be seen how the sector will respond in the long-term, it appears  that the pipeline of new projects is already slowing.

South Africa
Claire Barclay
Director – DLA Cliffe Dekker Hofmeyr

What have been the highlights of 2014?

2014 has generally been a slow year for South African infrastructure projects, with the market complaining about the lack of dealflow despite the promises of the National Development Plan.

A driver for the slowdown was the elections held in May, together with the private sector complaining that government policies are not aligned or clear, leading to the private sector taking on too much investment risk. Despite this, a number of PPP programmes and projects advanced.

Financial close under Round Three of the South African Department of Energy’s Renewable Energy Independent Power Producer Programme has been underway in 2014, following the announcement of 17 preferred bidders in October 2013. Submission for the Fourth Round of the programme occurred on 18 August 2014, and the preferred bidders are yet to be announced.

In the Small IPP Procurement programme, the First Stage 1 selected bidders were announced on 1 March 2014, followed by the First Stage Two submission on 1 November 2014. Developers are still awaiting the release of the Coal Baseload request for proposals, which is hoped will be available before the end of the year.

Within the passenger rail sector, the feasibility study for the Moloto Rail Development Corridor PPP was completed in October 2014 and will go to procurement in the New Year.

Moreover, transaction advisers have been appointed by the Gauteng Management Agency to conduct a feasibility study into providing extensions and expansions to the existing network, which is operated by the Bombela Operating Company. The feasibility study commenced in October 2014 and is expected to be completed by September 2015.

In the government office accommodation sector, the Statistics SA Head Office PPP closed in August 2014. The availability certificate for the Department of Environmental Affairs Head Office PPP was issued in July 2014. A new head office and equipment PPP for the National Metrology Institute of South Africa has recently been awarded to a team of transaction advisers. The feasibility study commenced in October 2014 and will be completed by the middle of next year.

Provincially, Gauteng and the Western Cape provinces have been the busiest. In Gauteng, three separate tenders have been released for advisers to undertake a feasibility study in respect of an intermodal transportation logistics hub in various parts of Gauteng. These tenders are still to be awarded.

The Western Cape Department of Public Works has been busy developing a PPP programme in respect of various properties around Cape Town to be developed as PPPs. They appointed advisers toward the end of 2013 on five PPP projects. Feasibility studies have been completed on most of the projects, and the province is busy developing documentation for procurement. At a municipal level, the focus has been introducing Bus Rapid Transit (BRT) systems into the major city centres. In Johannesburg, extensions are being done to the Reya Vaya BRT. Similarly, the City of Tshwane BRT is under construction and due to come on stream in the first quarter of next year.

What are the challenges to come in 2015?
One of the reasons for the slow pace of infrastructure rollout is that the national Treasury is under strain to deliver on various election promises. The purse strings are therefore tightly drawn, and education and healthcare are likely to take priority outside of the immediate demands of a ballooning public wage bill and large social security and school feeding scheme spend.

The economic forecast is not strong and therefore again, I suspect that it will be a tough infrastructure market with dealflow not keeping pace with what has been seen in previous years. The focus from an infrastructure perspective will be on the supply of (much needed) energy into the grid. It is expected that the base load programme and public transport projects will dominate in 2015.

There is also a possibility of the shelved academic hospitals PPP programme coming back on stream in the first part of next year, but it is unlikely to follow a traditional PPP procurement and funding structure.