Still On Hold

Firm plans for a number of new projects have put the spotlight back on Norway, but can it get a strong PPP pipeline off the ground, asks James Kenny

After a long period on the sidelines, Norway’s change of government last year promised to put the country’s infrastructure front and centre.

And following a year of waiting, this October saw the first fruits of the new administration’s infrastructure focus, with a Budget pledging NOK55bn (€8bn) to be spent on projects over the next 12 months, representing a NOK5bn (€600m) increase from the previous year.

PPPs, long absent from Norwegian public life, had at one time been expected to form the backbone of the new government’s infrastructure plans. Three road schemes were included in the Budget to be delivered through the model, representing a start on the path back towards private investment in public infrastructure.

The projects are the €330m E10/rv 85 Harstad - Gullesfjordbotn - Long-water Bay road in Nordland and Troms, the €487m Route 3 / rv 25 Ommangsvollen - Grundset / Bast-corner in Hedmark, and the €867m Route 555 Sambandet Sotra in Hordaland.

The news was welcomed by an already strong economy and will give international investors pause to look again at the Nordic country. However, three simple road PPPs seem a bit of a damp squib compared to some of the excitement last year when new Prime Minister Erna Solberg (pictured) was elected.

In October 2013, Solberg and her Conservative Party came to power on a mandate of improving Norway’s infrastructure – including through the implementation of new PPP projects. The previous government had been a coalition between the Labour Party, Socialist Left Party, and Centre Party and was in power from 2005 until 2013. Although it was not officially against the PPP model, the pipeline slowed significantly over the period – in part due to the economic crisis but also because of political apathy.

Fredrik Lindblom, head of Norwegian finance and projects at law firm DLA Piper, explains: “In Norway, unfortunately, PPP is an ideological thing. So if you’re Conservative or capitalist you’re with PPPs and if you’re left or Labour you’re against them. This is what hampered the market for a long time and it is only now with a new government and leadership that we are starting to see some change.”

The question now is whether the three recently announced new road PPPs are the start of a bigger pipeline. And can Norway attract the kind of investors it needs from across Europe after such a long time out of the sector when it has only a small pipeline to offer?

Norway’s most recent activity in the PPP market had been the E18 Grimstad, E39 Lyngdal and E39 Klett motorways, all of which reached financial close almost a decade ago, with the final stretch of motorway completed in 2012.

Since then, however, progress has stalled, and not just for political reasons. Christian Nørgaard Madsen, chief executive at consulting and engineering firm Multiconsult, points to a PPP road deal that saw private contractor Bilfinger overshoot by around NOK1bn (€118m), and which “slowed the trend a bit”.

Solberg was seen by many as the catalyst to change things, given her firm pre-election promises to help revitalise the dormant PPP market. This pledge was reiterated following her arrival in office, with plans to create a NOK100bn (€12.4bn) domestic infrastructure fund over five years, as part of an aggressive plan to boost government spending across a whole range of sectors, including roads, railways and the expansion of broadband internet.

She also indicated that the government would establish a road development company to make future projects and PPPs in that sector more streamlined and less bogged down by political tape. There have also been rumours that a similar body could be set up in the rail sector, although nothing has been confirmed yet.

However, once these initial announcements were made there was no immediate follow-up.

“This was big news but then everything went dark and there was no word from the government,” says Lindblom. He suggests that the main reason for this is that even members of the ruling centre-right government are at odds about PPPs and infrastructure.

“This has become very emotional for some people. They don’t want to see capitalism brought into some public services. Norway has never really been privatised unlike some of our neighbours such as Finland and Sweden.”

Delivering on promises

This is why getting the three road projects through the Budget could prove so crucial to the country’s future PPP plans. If they can be procured efficiently and demonstrate the value of using private sector investment, it could help win round the sceptics within the current government.

Madsen says that transport is by far the sector where most attention needs to be paid. However he adds that there are increasing needs elsewhere, especially as the country as a whole has been barren of PPP activity for so long. “There are a lot of infrastructure needs, especially within road and rail,” he says. “But also water and sewerage are important.”

He adds that while the recent discussions have been positive, the market is still waiting for more. “The main challenges are to get the public tenders out in the market. The entire business is waiting for increased and promised activity.”

Given the fact that Norway is among the healthiest economies in Europe, there are plenty of advocates for the country to use its relatively strong balance sheet to fund new projects, rather than using more expensive private finance. Jane Wesenberg, an Oslo-based partner at Ernst & Young, points to Norway’s strong economy due to its oil revenues, meaning it does not necessarily need to do PPPs to save money.

Coupled with the political pressure against PPPs coming from both within and outside the ruling party, the government may be tempted to follow a more conventional procurement route.

A large programme is far from certain to attract international investors to the market, either. “Logistics are extremely expensive within Norway, which is a big factor for setting up projects,” Wesenberg adds. “Also, any foreign companies or contractors who seek to do business in the market may find it expensive and more difficult to gain a foothold.”

Fears of political opposition and subsequent delays, plus questions over whether the country can attract the big investors, may force Solberg’s administration down the path of least resistance.

As one lawyer says: “I don’t see PPPs ever being a mainstay in Norwegian life and politics, but I think we can develop so that there are at least one or two tenders every year released.”

Indeed, many in the market agree that the country will never be seen as a PPP powerhouse in Europe, or rival nearby successful countries such as the Netherlands.

“The recent budget is important and it’s clear the current government wants to invest in infrastructure and PPPs,” says Wesenberg. “There is definitely a buzz in the market, but whether it will lead to anything, who’s to say?”