June 2022 saw Danish renewable energy solutions builder and operator Ørsted and institutional investor ATP, sign a deal with GlobalConnect to develop the Danish government’s North Sea Energy Island – a cross-border digital hub. Timetabled for tender this year, it aims to be the world’s first energy island project.
That was followed by the signing of a new national partnership with Danish Metal, Danish Maritime and Maritime DTU by the Danish defence ministry. Then, just this month, the Danish Defence Intelligence Service (DDIS) signed a DKK2bn (£237m), 30-year PPP deal, the largest in Danish history, for its new home in Copenhagen.
Meanwhile, the City of Helsingborg in Sweden published a request for information (RFI) to consider how a permanent link can be established between the city and Helsingør in Denmark, through private sector investment. Municipal commissioner Chrisian Orsing expressed the belief that PPP practitioners could come up with considerable cost and time savings.
That’s a real turnaround when you consider that PPPs are relatively uncommon in Sweden and that the most high profile PPPs in the country, including the New Karolinska Hospital (completed in 2017) have been heavily criticised. Accusations of a lack of transparency and high costs led to an independent report recommending that at least a quarter of planned investments in other public hospitals be postponed to accommodate the high public costs incurred for the Karolinska hospital, at a time of critical shortages of hospital beds.
Some industries, though, have taken the route of excluding PPP altogether in their expansion plans: Sweden’s strategy for record spending in its national transport infrastructure plan unveiled last year, projected to cost around £72bn over the five years to 2027, is a prime example of the financing of many large-scale projects in the country. There is currently no mention of the involvement of any private investment as part of the funding, as the state intends to finance all needed projects.
In a contrasting approach, Norway’s National Transport Plan 2022-33 includes the E10 Hålogalandsvegen, northern Norway’s largest transport project. This NOK 18.3bn (£1.5bn) large-scale development of the national road network between Sortland, Kvæfjord, Lødingen, Tjeldsund and Harstad, is expected to come to financial close in the summer of 2023.
Even Iceland, the smallest of the main Nordic nations, with a population of just half a million, had positive PPP news in 2022. The Ministry of Transport and Local Government announced it was preparing tender documents for Sundabraut – a road project that will be the largest PPP project in the country to date. However, it was put on hold last month.
Despite these promising shoots, Meridiam's director for the Nordic region, Jaakko Kouvalainen, sees a less than rosy PPP picture in this area of Europe. He calls the Nordics market “very thin”, with a limited supply of genuinely new PPP activities. He cites “sticking to the traditional procurement methods” as one of the main headwinds creating obstacles to PPP projects in the region. He and others believe that those methods require partners to shoulder too much of the risk at a time of inflationary, economic and supply chain uncertainty.
This is not unique to Scandinavia, but in Norway, the E10 Hålogalandsvegen certainly suggests that Kouvalainen has a point: by September 2022, over a year into the bidding process, two of the three qualified provider groups (Borealis and Nordland Connect) had withdrawn from the competition to deliver the project.
It is hard to imagine that the difficulties of fixed costs in the current context were not in the mix of considerations when those decisions were taken.
Another concern is that the bigger projects are seen as too complex, with Martin Grønnslett, regional director of the Machine Contractors’ Association, suggesting that the contract is too big, becoming too complicated and jacking up the risk for the bidders to unacceptable levels. Local lawyer, Robert Myhre, who has worked in public procurement for two decades, has described the resulting scenario with just a single bidder as less than ideal for the prospects of a good deal for the Norwegian Public Roads Administration.
Nevertheless, there are some bright spots: “In Finland, PPP is becoming a more and more acceptable procurement method if we think about public opinion; this is a positive change possibly enabling new projects in future,” says Kouvalainen. He is well-placed to judge, with Meridiam the leading partner in the design, build, financing and maintenance PPP of the ‘Schools in Shape’ programme which is under construction in Espoo, the second largest city in Finland.
This high-profile, 22-year project to construct and run five schools and three daycare centres for over 4,000 pupils is progressing precisely as planned. The first schools (for around 2,600 pupils) were successfully delivered in summer 2022 and opened for use in the autumn. The remaining schools are progressing on schedule and will be completed by the end of 2023.
As well as being the country’s first social infrastructure PPP and the first to be delivered by a local authority, ‘Schools in shape’ was chosen by the UN as a demonstration of what cities can do to achieve the UN’s Sustainable Development Goals. The intention to embed safe and healthy spaces for students and school staff by improving air quality in the premises has been described as ‘pioneering’.
The entry of Spanish infrastructure developer and operator Acciona, into the Finnish market, as the leader of the consortium selected in June 2022 to design and build the world’s third longest undersea tunnel, is certainly another promising development for Finland. The €400m project is subject to an alliance contract and aims to recover heat from seawater at the Salmisaari for its use in the district heating system for Helsinki. The development phase is expected to last until late 2024, with a five-year implementation phase to follow.
South Finland has also been chosen by the EU as one of the first two hydrogen valley projects, with the aim of offering sustainable energy to the region. In February this year, the Clean Hydrogen Partnership (the European Commission, fuel cell and hydrogen industries represented by Hydrogen Europe together with the research community, represented by Hydrogen Europe Research) started the relevant grant preparations for what is likely to be a €500m undertaking.
What’s more, the Global Infrastructure Investor Association and Alvarez and Marsal’s Q4 2022 Infrastructure Pulse Europe study reported the Nordics as the most appealing investment prospect in western Europe. One reason for that was an increased focus on investments with the goal of achieving Net Zero, despite the challenging economic conditions.
In fact, Alvarez & Marsal managing director and head of its UK energy & infrastructure transaction advisory group, Wayne Jephson, said: “Dry powder is at historical highs and respondents suggest that, whilst activity in 2023 may be below the 2021/22 highs, there remains significant appetite for energy transition, digital and renewable platforms.”
It is perhaps not surprising then, that the energy sector is where Kouvalainen is seeing an increasing number of opportunities coming to light, particularly in energy production, storage and transmission in the Nordics and adjoining Baltic states. This is evidenced by the existence of numerous onshore wind power projects in various stages of development, a growing number of offshore wind power projects and a rising number of green hydrogen projects in the planning phase.
According to Kouvalainen, “several municipalities in the region are looking for new ways to ‘lighten’ their balance sheets and reduce their holdings. For example, partnerships with private investors are sought for the district heating or other utility network, and the network may have a significant repair debt. As a trend, it can be observed that municipalities are focusing more and more on their core functions and buying more of those services that they previously executed with their own organization.”
This could usher in an era of somewhat different relationships between public and private partners. They could see private entities taking outright ownership of assets (such as those for energy provision) and not simply taking the roles of builders and service providers for facilities ultimately owned by public authorities.
How pervasive that will be in the Nordics, is likely to be substantially influenced by two factors: political support (or otherwise) for traditional PPP usage; and the pressures on budgets at both national and municipal levels as it becomes progressively more costly to satisfy the increasing infrastructure needs of the population.
The political aspect is especially important in Norway, where the use of PPP has been a highly debated and politically charged topic for the better part of the last 30 years. As a result, any significant project is often the subject of intense legislative debate and public scrutiny. Any approval, if it comes, is usually only on the basis of political compromise.
Meanwhile in Denmark, the general public and political consensus on PPPs is much more positive. Consequently, despite the ups and downs of their use by its regional neighbours, it is likely to remain the frontrunner in the number of PPPs coming to market, potentially with Finland coming up on the outside.