European Infrastructure Finance Yearbook - Investing In Bonds ...

Publication Date:
Nov. 2, 2007
Primary Credit Analyst:
Lidia Polakovic,
London,
(44) 20-7176-3985
Secondary Credit Analysts:
Karin Erlander,
London,
(44) 20-7176-3584
Michael Wilkins,
London,
(44) 20-7176-3528
SWEDEN MOVES CLOSER TO PPP MODEL AS ALTERNATIVE
FINANCING FOR INFRASTRUCTURE ASSETS
Sweden is making significant steps in
developing a model for public-private
partnerships (PPPs) to provide an alternative
means of financing public infrastructure. On June
18, 2007, a joint working group commissioned by
the Swedish government--made up of the public
rail authority (Banverket), the public road
authority (Vägverket), and the Swedish National
Road and Transport Research Institute (VTI)-published
a proposal for a Swedish PPP model
and identified a number of potential future
PPP projects.
Recently, the country’s public road and railway
authorities announced the deferral of a substantial
number of state-funded investments. A solution
involving PPP financing could minimize future
delays in necessary infrastructure developments.
For private investors, the existence of a project
pipeline detailing projects in terms of both
number and size is important, given the relatively
high costs associated with PPP bidding. It is also
important for the public sector, to keep
transaction costs low.
For now, however, it is not clear if the PPP
model will be selected and used on a larger scale,
and, if so, how long implementation will take.
Large Investment Needed, But Grants Might
Not Suffice
Currently, transportation infrastructure
investments are funded mainly through the state
budget on a year-by-year basis. State budget
grants for road investments for the 2006-2009
period total about Swedish krona (SEK) 70 billion
(SEK17 billion-SEK18 billion per year), while
earmarked spending on rail for the period comes
to about SEK52 billion (SEK11 billion-SEK14
billion per year) (see table 1).
While the need for investment in infrastructure,
Table 1 - Major Rail Projects In State Budget
Project Investment (bil. SEK) Details
Malmö city tunnel 9.5 (4.6 used) Financed by the government, the municipality of
Malmö, the county council of Skåne, and EU
contributions
Hallandsåsen railroad tunnel 7.5 N.A.
Citybanan line in Stockholm 13.7 (1.0 used) SEK4 billion to be financed by Stockholm
municipality and Stockholm county council
Botniabanan railroad in northern Sweden
SEK--Swedish krona. N.A.--Not available.
13.2 (9.5 used) N.A.
STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK
PROJECT FINANCE/PUBLIC-PRIVATE PARTNERSHIPS
mainly roads and rail, is evident in certain regions
to develop economic growth, in other areas
investment is needed to alleviate congestion. In
these cases, the approval of projects via the
budget on a year-by-year basis could prove too
slow to meet increasing demand. In addition,
budgeted state contributions for the infrastructure
sector have remained largely unchanged, failing to
reflect cost increases. Recently, both the
Vägverket and the Banverket announced
significant investment reductions due to
insufficient funding. As an example, total
Vägverket investment grants for 2007 amount to
SEK42.5 billion, unchanged from 2004, while
construction costs have increased by 16% since
2004. Consequently, the Vägverket has had to cut
spending on projects by a similar amount.
Although investments can be delayed on a shortterm
basis, the Vägverket is concerned about the
long-term effects on road quality and safety if this
situation continues. The rail sector faces a similar
situation, with capacity shortages in major cities
and traffic disruptions. If investment spending
remains unchanged, investments in infrastructure
are likely to slow further.
The current system, in certain cases, allows
public authorities with access to budget funds to
finance major projects by taking loans from the
national debt office. Total debt issued by the
national debt office to the Vägverket and the
Banverket stood at SEK32.4 billion at year-end
2006. In some cases the government (Kingdom of
Sweden; AAA/Stable/A-1+) has guaranteed private
debt, as in the case of the Öresund bridge
between Sweden and Denmark. In rare cases,
infrastructure investments are financed by charges
paid by the user (for example the train link
between Stockholm and Arlanda airport and the
Svinesund bridge between Sweden and Norway).
NOVEMBER 2007 ■ 129