For years people have been claiming that Greece is about to finally deliver on its Eu7 billion road infrastructure programme. But with four out of six concessions now signed this time the refrain rings true, however hard it is to imagine a project finance landscape without the waiting for them.

Technically the last infrastructure deal to reach financial close remains the Athens Ring Road project, which closed in 2000, even though some roads in the current programme were first launched almost a decade ago. However, the final delay – in getting European Commission approval – is widely seen as a procedural matter, and the possibility exists that all six deals will have closed by the end of the year.

Attention is now starting to switch to Greece's emerging PPP pipeline for accommodation style projects, which is now worth Eu2.5 billion. It is optimistically hoped that the first deals from this will start closing in 2008, though given the country's track record for delays, some people might need to see this before believing it.

However, before schools and hospitals take centre stage there remains the matter of syndicating Greece's infrastructure debt, which will total upward of Eu5 billion.

Although tendering of the projects was spaced out over two years, delays disproportionately affected the earlier deals creating a pile up. The first to sign was the Eu472 million Thessaloniki submerged tunnel, which reached commercial close in October 2006 and is now expected to reach financial close in July – several months behind schedule. If past form is anything to go by, the delay should get shorter on subsequent deals, with the result that all six projects could end up closing within a few months of each other.

Fortunately, the debt will be hitting the market at a time of high liquidity coupled with low European deal flow, which should ensure there is no problem with take up, though some individual deals might suffer if they syndicate at the same time as stronger deals in the programme.

"Not so long ago France launched three major road acquisition deals at the same time and there were concerns then too, but the market absorbed them," says one banker involved in a couple of the Greek deals. "There is a dearth of opportunity elsewhere. Italy is at a standstill, there are some deals in France, Russia and Ireland and there is also the M25 in the UK, but that is still a long way off. The market is not like it was three years ago, deals are still coming to market but they are only trickling through."

Indeed, some bankers speculate that the total amount of debt ending up on the syndications market could prove relatively small. Though the Greek roads programme is large as a whole, some deals ended up smaller than expected and have large MLA groups.

Unfinished business

When the Thessaloniki tunnel closed at the end of last year it was thought that only a few remaining loose ends needed to be tied before financial close – mainly getting the Greek parliament to ratify the project. Parliamentary ratification duly came in February with cross party support – the socialist opposition launched the road programme while still in government – but financial close still remained contingent on getting clearance from the European Commission that EU state aid regulations had not been breached.

"It's a bureaucratic process," says one banker linked with the deal. "Sometimes an application can generate more questions that have to be answered before final approval is granted, and this deal is quite complex in terms of documentation and risk allocation."

Under the terms of the concession, the MLAs – HVB, Millennium BCP, EFG Telesis Finance – could have pulled the plug on the deal if it was not verified within four months. Though previous delays in the project had already resulted in Bank of Ireland dropping out last year, after so much toil such a drastic measure was never an attractive option, so in April the banks granted a six-month grace period. The Commission was given the application in its final form before Easter and must make its decision by July.

Insofar as the delay might be an ominous portent for the remaining deals, bankers insist this is unlikely as the Thessaloniki tunnel – the only greenfield project in the programme – is more complex than the remaining deals. And they are confident the appropriate lessons in getting the documentation right will have been learnt from the Thessaloniki experience.
"For each deal the process of getting approval goes better than on the one before it," says one banker who has worked on several.

The two deals that now remain to be signed are the first and the last to be tendered. The Eu2.1 billion Corinth-Patras project, the largest of the deals, is expected to reach commercial close over the summer, which given that the concession was only awarded to the Vinci/Hochtief-led consortium in April represents remarkably speedy progress. The MLAs on the deal are Alpha Bank, BCP, Natixis and Calyon, which also acted as financial advisor.

The same Vinci/Hochtief consortium is also expected to sign the Eu700million Maliakos-Kleidi road soon, which was initially awarded to a consortium of Hochtief and Bilfinger Berger in 2005, after being re-tendered two years prior to that. Legal challenges from the losing bidder held up the project throughout 2006, with Bilfinger Berger eventually dropping out. However, when Hochtief joined forces with the Vinci-led consortium that came second in the bidding, the project was finally able to move forward again.

Given how long it took to get these projects moving, the idea doing more road deals in Greece might seem a little exhausting. Nevertheless, although as yet no plans have been announced to tender new ones, there are some projects under discussion. One is a re-tendering of the East Athens Ring Road, which went through the pre-selection procedures along with the current six, before being ditched. Two more are the Elefsina-Thiva road in the mountainous northeast and the Elinikon-Simatari road linking the east Athens suburbs to the PATHE network. Bunched deals for smaller roads in Athens are another possibility.

Bonanza

Despite the delays, the fact remains that Greece's road programme presents a substantial outlet for Europe's liquidity-drenched project finance banks. Aside from the Thessaloniki tunnel, the three projects that have already to reached commercial close are the Eu1.1 billion Corinth-Tripoli-Kalamata road, awarded to Hellenic Technodomiki with debt underwritten by HVB, BNP and RBS, and two schemes awarded to a Cintra-led consortium – the Eu1.5 billion E65 Central Motorway and the Eu1.1 billion Ionian Road project.

All of these projects bar the Thessaloniki tunnel comprise a mix of brown and greenfield development along two axes that form part of the Trans-European Road Network: the north-south PATHE (Patras-Athens-Thessaloniki-Evzoni) highway and the west-east Egnatia Odos, the ancient route that linked Rome and Byzantium, modern-day Istanbul. The importance of these routes to the Greek transport network should ensure that the level of traffic risk is small for most of them.

Despite this small downside risk, the undeveloped state of the PPP market compared to Spain and northern Europe puts a slight premium on the deals' margins, enticing for bankers who are getting EU country risk. The pricing on Ionian Road, for example, is slightly on the high side, compared to many other European projects, at 95-115bp.

Moreover, the delays on the Thessaloniki tunnel and Maliakos-Kleidi have in some ways been a blessing in disguise for banks, which have seen margins elsewhere fall steadily across the board since the term sheets on these deals were agreed. Pricing on the tunnel will typically range between 140bp and 155bp, high in today's market even allowing for the fact it is for a greenfield project.

Switching focus

With the roads almost done and dusted, eyes are now turning to the next stage of Greece's PPP development – the creation of a pipeline for smaller accommodation style projects. Although this has been a work in progress for nearly two years now, so far the projects are at a preliminary stage. However, a real pipeline has emerged with 19 projects worth a total of Eu2.5 billion now approved. The first tenders for schools are set to launch in the third quarter of this year and advisory tenders will also go out for a few sizable hospital projects.

When they close, these deals will be the first fruit to bear from a law passed in 2005 to create a PPP market in Greece and streamline the tendering process. The law set up a central PPP committee and taskforce, modelled on the UK PPP taskforce, charged with helping to spot potential PPP projects and helping to facilitate the tendering process. The law also standardised certain elements of how risks are allocated, thereby avoiding many of the pitfalls of the early infrastructure deals, where projects frequently collapsed or were delayed because the tender documents were not up to scratch.

The challenge for Greek PPPs is to avoid the interminable litigation from losing bidders that plagued the road projects.

Madhavi Gosavi, a partner at Norton Rose, is optimistic that the deals will have a smoother passage. "The government has learnt a lot from the road deals," she says. "Also, those deals were massive, creating a more difficult dynamic because of the higher risks. Schools and hospitals are much less complex."

The PPP law was passed with much fanfare in 2005, and some eyes roll that the resultant deals are all still in a preliminary stage. However, Leonidas Korres, head of the PPP taskforce, counters that the intention is not to conjure up a list of projects to present to the project finance world but rather to create the right conditions for a sustained PPP market to emerge.

"We are not working to achieve specific targets for number of deals but instead evaluating projects and trying to see which could benefit from going down the PPP approach instead of traditional procurement routes," he says, adding that his committee are currently evaluating six more projects worth Eu500 million in sectors such as waste management, social infrastructure and wastewater.

The first project to launch has been a relatively small Eu38 million DBFO deal for seven fire stations over a 24-year concession. The tender was launched in March, six expressions of interest were received in May and the appointment of a preferred bidder is scheduled for the first quarter of 2008.

Although many of the deals in the pipeline are similar in scale, the three hospitals for which advisory tenders have been launched are a Eu396 million oncological hospital in Thessaloniki, a Eu389 million children's hospital, also in Thessaloniki, and a Eu131 million general hospital in Preveza. These hospitals will follow the standard UK model and not include medical provision.

Four grouped schools projects have also been approved, the largest of which is a Eu180 million project for 27 new schools in Attica. As well as achieving economies of scale, by grouping the schools together the deals are reaching the critical mass needed to attract foreign investment.

In terms of preventing the process getting bogged down in legal wrangles, by bringing the taskforce's expertise to bear Korres hopes to avoid the inconsistencies in tender documentation that often form the pretext for challenges. However, he insists that no law can prevent challenges and what is needed is a change in attitude from the private sector contractors.

"The option to appeal will always be there under EU legislation," he says. "It's a matter of the mentality. A culture change is needed in the private sector, for it to conform with best practices of other countries."