European Infrastructure Finance Yearbook - Investing In Bonds ...

PROJECT FINANCE/PUBLIC-PRIVATE PARTNERSHIPS
130 ■ NOVEMBER 2007
Public And Private Support For Change
The active search by the Swedish government
together with public entities and private parties
for a new model to finance public infrastructure
marks a change from the past. Infrastructure
Minister Åsa Torstensson has said that the
government is looking at alternative financing for
infrastructure investments, with the intention of
finding ways to achieve PPP solutions.
The minister considers that there is a direct
connection between new jobs, welfare, and
efficient infrastructure.
If the government and parliament approve a
broad domestic PPP initiative, a concessional
framework will have to be developed. A
standardized PPP regime with similarities to
existing regimes in Europe and elsewhere could
attract more potential bidders. Concessions must
be designed to provide optimum value, not only
financially but also in terms of other targets.
Environmental issues have recently become
increasingly important in Sweden, as in many
other countries. Setting the right goals and
requirements from the start is key due to the longterm
commitments involved.
These considerations have been addressed
by the findings of the joint working group,
which propose a Swedish PPP model and
potential projects.
Working Group Scrutinizes PPP Alternative
The findings center on the profitability of projects
both from a social and economic perspective,
transparency of state funding, procurement
competition to ensure efficiency and lower costs,
and a system that allows for program evaluation.
Innovation to introduce more efficient solutions,
flexibility, and the potential to start projects at
short notice were also identified as key features of
a future PPP program.
The key findings are:
• Quality, safety, and environment. The
investment should be of good quality, open
to traffic, fulfill safety requirements, and
ensure that environmental regulation is met.
• Effective risk allocation. The project
company should carry construction,
operational, and lifecycle risks. The state
should be left with risks associated with the
use of the asset (for example traffic volume
risk) as well as those risks that could be
STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK
better managed by the state (such as
acquisition of land, permit processes,
pollution, and archeological finds). In the
longer term, the working group believes
more appropriate risk allocation measures
should be developed.
• Financing. This should be a combination of
a project’s own capital and borrowing to
ensure that the sponsors’ incentives are in
line with the aim of the project and that
they remain committed.
• Public financing as a last resort. If the
agreements between companies and
local/regional authorities fall short, the
project should ultimately be financed by
the state.
• A long-term pipeline. PPP projects should be
selected in line with long-term plans in order
to control the expansion of infrastructure.
Importantly, the working group believes it
would be reasonable for the Swedish
parliament and government to ultimately
decide on the projects to be tendered, as
long as taxes continue to finance the asset.
• Comparison with public finance. The
working group believes that a rule should be
established to enable the government to
directly compare the cost of a project, to
ascertain whether it should be financed via a
PPP contract or purely via public funds.
• Drilling down. The PPP model should be
applicable to smaller projects in the future,
once the fixed costs of the bidding process
are decreased.
Essential Criteria Identified To Facilitate
Project Selection
In the same report, the working group identified
projects it believed suitable for PPP financing. It
achieved this by first establishing the criteria a
project must fulfill:
• Investment volume: The amount invested
should be between SEK1 billion and SEK3
billion.
• Planning stage: The design plans should be
final and must be legally approved.
• Profitability: The project’s profitability
should measure “nettonuvärdeskvot” (NNK;
a ratio that calculates society’s benefit from
a project) of at least 0.5x.
• Competition: The project should attract