Sunday, 19 October 2008

State slashes PPP target by a quarter amid funding chaos

THE GOVERNMENT has slashed its forecast for public-private partnership (PPP) investment in infrastructure up to 2012 by over 25% amid a rapid deterioration in finance availability for PPP schemes.

According to Mathias Pahlke, the head of European infrastructure at leading PPP player Nord/LB, it has become almost impossible to raise finance for schemes worth more than €100 million.

His comments raise the prospect that Irish PPP schemes such as Metro North, the rail interconnector and the school building programme may be hampered by the ongoing banking crisis.

"Large projects have got problems because they now need banks more than in the past. Because of the current situation, the number of banks willing to lend is limited and the syndication methods for spreading risk among banks have stalled," said Pahlke.

Pahlke said that were funding was available, it was considerably more expensive than previously, meaning projects were costing more and were missing affordability targets.

"The spreads are risen. Previously, you could get funding for 70-80 basis points above Libor, now its more likely to be 170-180 basis points," he said.

Pahlke said that he was confident the market would recover within five years but said that the cost of funding would remain high.

However, some industry sources have indicated that the €2.3 billion cut in PPP forecasts, which was made last week, may also have been down to planning and procurement delays to specific projects.

But one source said that finance could soon become an issue as there were serious doubts about the availability of long-term funding for major projects throughout Europe.

"Once the banks start lending again though, public infrastructure projects will be the sort of opportunities they will be looking for but the lending terms may never be as good as before".

Bank of Ireland, which has supported Irish PPP bidders in the past, said that it believed that PPPs remained a "very strong asset class".

A bank spokeswoman said, however, that it was clear that PPPs "will not remain fully insulated from the general tightening of credit markets".

She indicated that the bank believed that the protracted procurement processes involved for some PPPs would "increase the challenges associated with certainty of funding, and the terms and pricing of that funding".

The Department of Finance declined to comment.

Sunday Tribune

No comments: