PPPs and the role of the LTA
In the coming weeks I will be supporting a major consultancy in its role as Lenders’ Technical Advisor LTA) for a new PPP project in Germany. The project involves the refurbishment / widening / upgrade of a highly congestion section of the A1 Autobahn between Münster and Osnabrück.
Public Private Partnerships (PPPs) involve a long-term project contract (e.g. 20 – 30 years) that combines construction / upgrading of an asset with a subsequent maintenance period. To deliver the contract, industry partners (contractors / investors) typically form a dedicated SPV, financed with non-recourse debt (plus equity from the project shareholders / sponsors).
Prospective lenders require comprehensive assurance prior to making any such investment, and independent LTA due diligence is one of the critical determinants that ensures the project is financeable.
PPPs are less commonplace in the UK today than they have been historically. The UK’s PPP track record – most commonly via the so-called PFI (Private Finance Initiative) model – has been mixed, with reviews undertaken by the NAO amongst others giving a less than favourable assessment.
Nevertheless, new forms of PPP have emerged. The Welsh Government’s Mutual Investment Model (MIM) is one such example; it aims to maximise advantages around public-private risk allocation, whole-life cost optimisation and performance enhancement.
The MIM also involves joint public-private ownership of the SPV, ensuring the public sector gets its share of the spoils on successful projects.
German motorway PPP programme
Germany’s programme of upgrades to its autobahn network in recent years has included a series of PPPs projects – around a dozen so far. One of the earliest – the A4 Eisenach bypass project – reached construction completion back in 2012. (I was part of Scott Wilson’s LTA team providing construction programme monitoring).
Over time the tendering authority DEGES has modified the PPP model, drawing on experience from previous projects. DEGES takes a pragmatic, “open door” approach to public and industry engagement – an example being the recent information event held for the A1 project.
It’s great to see an example of how PPPs can develop and evolve to produce better outcomes for everyone. I’m delighted to be involved in this programme.