Standard Bearer

Having already established itself as one of the most mature PPP markets across Europe, the Netherlands is continuing to go from strength to strength. Dan Colombini examines the secret of the country’s success

When Partnerships Bulletin examined the landscape of Dutch PPPs back in 2014, the picture was one of a country that had weathered the economic crisis of 2008 and harnessed the use of the model to build an impressive pipeline of deals.

In a nutshell, over the past few years, the Dutch market has become an impressive advert for how to develop a PPP pipeline. While the Netherlands economy has had its ups and downs, it remains one of the most stable in the eurozone, with its PPP programme now considered one of the most predictable anywhere in the world.

But how has the Netherlands achieved this at a time when other countries across the world seem to be struggling to get a grip of the model?

The key to the success, according to experts across the industry, comes through the standardisation of contracts for Dutch deals. This, alongside an extremely stable pipeline of cross-sector deals, provides a degree of reassurance not seen in many other destinations in Europe or beyond.

“For a long time now, the Dutch market has operated with standardised documentation and reaped the benefits as a result,” explains Gideon Tilburgs, managing director of primary investment for Continental Europe at developer John Laing.

“For many years in the Netherlands, we have been working with a standard concession agreement whereby the private sector is always invited to provide comment. But most importantly, investors and banks know what is involved and trust the documentation.”

“The ethos behind the model has not changed very much. As a country, the Netherlands do it very well indeed,” adds Ian MacFarlane, director at JCRA. “It is fairly well known that they have a transaction framework that they stick rigidly to. From BAFO onwards it is a pretty regimented process and clearly they have demonstrated that it works well time and time again.”

This all stems from impressive levels of organisation surrounding the tendering process that allows the country to not overcomplicate the delivery of new deals.

For a start, the country has made minimal changes to legislation that was issued in the early 2000s. It has two bodies overseeing tendering in the country, Rijkswaterstaat and Rijksvastgoedbedrijf, which cover a wide selection of infrastructure projects from locks through to government buildings.

These two bodies operate under the Ministry of Infrastructure and the Ministry of Finance, which traditionally only become involved if there are any changes to a concession agreement or any material changes in risk allocation. One source claims that this neat arrangement allows projects to hit the market with little complication.

“The tendering has been done this way for many years,” the source explains. “They have government specialists that are highly qualified, something that is not always the case in some countries. That makes it a lot easier for the Netherlands to issue top notch deals.”

The government is also keen to accommodate international investors, with documentation for these projects available in English – something that improves accessibility even more.

This is reflected in the number of international players bidding on some of the deals that we have seen in the country over the past few years.

For example, key names from across the globe including Macquarie, Fluor and John Laing have all been successful on closed deals since 2014.

“The usual suspect bidders for the hard infrastructure categories know exactly what they need to and where they need to be for projects in the Netherlands,” says MacFarlane. “This makes bidding on the projects a lot more straightforward in the long-term”.

And it is the success of these projects across numerous sectors that has kept the appetite of the money men so strong in recent years.

Especially when you consider the speed and efficiency with which deals are undertaken.

Since it was first mooted back in 2014, the Dutch government has now made clear headway on its lock programme, with the fifth deal hitting the market at the end of November.

Rijkswaterstaat issued the deal for the Afsluitdijk project, with financial close on the design-build-finance-maintain (DBFM) agreement expected summer 2018. A shortlist of three candidates will be invited to the second phase dialogue in June 2017.

The appetite for this project is clear to see, with over 200 industry attendees recently on hand for a government open day on the plans.

The lock programme has also been run alongside a successful highway pipeline, which is now being wound down after a series of successful closes in the past six months alone, the most recent being the A27/A1 road project in October.

So where next for the market? “The pipeline is still extremely good,” says MacFarlane. “The road programme from a motorway perspective is coming to an end in the next year or so, although that is not to say the re-financing opportunities won’t be there, like the recent A1/A6. There will also be more projects for the smaller highways continuing to hit the market.”

A new project will be issued in December for the development of the A16, part of the Rotterdam ring road. It is likely that this will be followed by new deals next year for similar projects valued between €400-500m, according to sources close to the plans.

One investor also points to renewable energy as a likely strong sector in the country. “We expect the Netherlands to continue developing offshore wind,” the source says.

Meanwhile, on the social side, Rijksvastgoedbedrijf is building a stable programme of government building projects that provides the Dutch pipeline with an impressive diversity in its portfolio. However, for investors looking for the ‘traditional’ PPP markets of health and education, the market is “limited if not nonexistent” according to one.

Like anywhere in the world, there remains room for improvement, according to Tilburgs.

“From a financial investor’s point of view, we would still like to see increased dealflow,” he says. “Another thing to mention is that projects tend to be on the smaller side. The Dutch authorities tend to always use completion payments, which involve capital contributions made available directly by the authority at the end of a project.

“These have the effect in the longer term that financing needs will be diminished and as a result, the equity investment too. So a large project of multi-billion euros can therefore be scaled down quite considerably if you look at the level of investment – that is not so good for financial investors.”

Furthermore, one investor points out that the fact that almost all projects are concentrated through Rijkswaterstaat means that the potentially impressive pipeline may be squeezed, creating “a limitation on procurement delivery”.

The investor also points out that, for those not already in the market, the Netherlands could prove a difficult place to start business. “Most players (industrial and financial) have sealed partnerships so that the market is relatively closed to new entrants,” the source explains, adding that there is also a highly competitive domestic construction market in the country.

Nonetheless, if the country continues to deliver stable deals which reach close with the efficiency which has been demonstrated in recent years, further growth can certainly be expected. The country is also able to enjoy the rare prospect of relative political stability: “General elections must take place on or before March 2017 but we do not expect a change in market dynamics,” explains the investor.

As MacFarlane concludes: “There is still a huge appetite to lend to these projects and while that remains the case, the Netherlands is going to continue to lead the way, both with demonstrating efficiency and wider use of the PPP model.”