In a recent interview, Gerrit Zalm, deputy prime minister in the current Liberal/Conservative coalition government in the Netherlands, was quoted as saying that he is striving to achieve a 'decent volume of PPS (Publieke Private Samenwerking - the Dutch term for PPP) deals' and that the Netherlands is ready for it.

Zalm's measured words are not as encouraging as many in the private sector had hoped for. Nevertheless they are welcome at a time when the future of PPS in the provision of Dutch public infrastructure is at a crucial stage in its development.

It was under Gerrit Zalm's ministerial guidance in a previous Labour/Liberal coalition that the first real PPS milestone was achieved - the establishment, in January 1999, of the Kenniscentrum.

The Kenniscentrum's remit is to promote PPS in the Netherlands, which it has done under a programme based on a small number of pilot projects with a high degree of focus on gaining added value for the state, efficiency gains and obtaining the benefits of innovative thinking. And despite a number of changes of government since 1999, the PPS programme the Kenniscentrum initiated has progressed unhindered: the first wave of true PPS projects (those that conform to the limited recourse, project finance-based model usually associated with PPP) have all now reached financial close.

Ambitious beginnings

The first project to close in October 2001 was the much publicised Eu1.3 billion ($1.6 billion) high-speed rail link (HSL Zuid) which will run between Schiphol Airport/ Amsterdam and the Belgium border where it will connect with a Belgian rail link to Brussels. Completion is scheduled for late 2006.

For a pilot PPS project, HSL Zuid was relatively ambitious - not least because of its size and complexity. For example, only one of three elements to the project was procured under the PPS programme, creating a number of potentially difficult interfaces. The underlying infrastructure for the rail link (sub-slab) was procured under a number of traditional design and build contracts. Infraspeed BV, the PPS concessionaire, won the contract to build the actual rails and associated infrastructure on top of the sub-slab and to operate the system for the concession period. A further contract with a train operating company was then awarded.

The second pilot project reached financial close in early May 2003. This involves a DBFM contract for the construction/upgrading of 9km of the A59 highway in North Brabant (a province in the south of the Netherlands). The genesis of this project was a lack of availability of funding at central government level for the road until 2008. The province did not wish to wait five years for the road and therefore decided to use a PPS scheme, funded by ING and BNG, to commence the project. The obligations of North Brabant are intended to be assumed by the state when the funds become available as budgeted.

The third pilot project is the Eu400 million-plus Delfland wastewater project which involves the construction of a new wastewater treatment facility at Harnaschpolder near The Hague and the refurbishment and downsizing of an existing facility at Houtrust (also in the same area), as well as bringing it up to new environmental standards.

A consortium consisting of Veolia Water (formerly Vivendi Water), Delta, Heijmans, Rabobank, Strukton, and WBE was awarded the DBFO contract and financial close was achieved in early December 2003. Funding is being provided by an EIB/commercial bank package arranged by Rabobank and Dexia Crédit Local.

Lastly the N31 road project also closed in early December 2003 and involved a DBFM contract for the construction/ upgrading of a road in the north of the Netherlands funded by NIB Capital and BNG.

All four of these projects are in their construction phases. There is also a small schools project in the Hague that is currently at BAFO stage. This project is the only project which is in the tendering phase.

Public awareness of PPS is growing although, as yet, its impact has not been sufficient for it to have a high public profile. In contrast, the signs are that political awareness is growing much more rapidly and that the political mood is now generally positive towards expanding the use of PPS.

Apart from Gerrit Zalm's championing of PPS, the government now requires that the ministries responsible for awarding PPS project contracts report to parliament on the projects they have awarded, something which was previously left to the Kenniscentrum (which is part of the ministry of finance). This new approach forces the spread within government of familiarity and understanding of PPS.

In addition, a parliamentary motion proposed by a Labour member of the opposition requiring the government to produce a concrete action plan for the use of PPS before 1 July 2004 was passed in November 2003. This demonstrates that there is a potential for political consensus for adopting PPS among the largest parties in parliament and across the most significant parts of the political spectrum.

Although the budget surpluses common in the Netherlands in the 1990s are now a distant memory, the position adopted at that time - that budgetary reasons should never be the principal reason for using PPS - is consistently maintained. The government expects to see value for money in all cases and also to be able to clearly justify the use of PPS on technical innovation and efficiency-gain grounds.

Establishing the actual levels of savings over the public sector can be difficult and led to controversy in 2002 when the national audit office report on the HSL Zuid project stated that the 5% saving claimed for the project was too high and suggested a revised figure of 1.5% as more realistic. More recently the indications for the Delfland project are that the savings may be as high as 20%.

Due to the technical and financial gains recognised in the projects which have already reached financial close, the authority responsible for roads and water (the Rijkswaterstaat) appears to be reassessing the way it is organised and the focus of its activities. Specifically there is discussion regarding a move towards greater concentration on its policy and regulatory roles and a move away from service provision which can be contracted to the private sector.

Can the Dutch market meet private sector expectations?

From a deal flow perspective there is no escaping the fact that the PPS programme has so far not lived up to the private sector's hopes and expectations. Arguably the private sector is impossible to satisfy in this regard. But deal flow has been so low that the private sector has regularly questioned the benefit to it of committing resources to PPS and whether the allocation of appropriate resources will ever be justified. The Kenniscentrum and Zalm are acutely aware of the problems thrown up by the lack of deal flow and the situation is currently being actively evaluated by the government.

Given that the only project being tendered for is the Hague schools project the proposed deal pipeline represents a potential second wave of projects. Included in the proposed deals are a number of roads that are slated to undergo improvement and widening in the near future among which is the A2 near Maastricht, two sections of the A4 (which is the main north/south corridor between Amsterdam and Rotterdam), as well as a new Coen Tunnel on the western side of Amsterdam's ring road. Although opinion in the Netherlands is generally against real tolls, these are being considered for the more southerly of the A4 sections.

Another road related issue, which is receiving a considerable amount of attention within government, is how to deal with the problems that arise out of letting a PPS contract for a stretch of road which only constitutes part of a transport corridor. The potential for competing requirements if different concession companies operate different sections of a road corridor, the distorting effects on traffic flow arising from tolls or roads constructed in the proximity in the future and the government's requirement that it retain control over the road network, are all issues that need to be taken into account when formulating policy and giving form to a proposed road project. These issues are particularly acute in the case of the proposed A4 projects, not least because the A4 passes through the most densely populated part of the Netherlands.

Disappointingly, the initial PPS programme for schools has been reduced from three projects to one. However there are likely to be further developments within the education sector based on the anticipated success of the remaining pilot schools project in The Hague. The Kenniscentrum is encouraging more education projects and promoted PPS to the public education sector with the help of interested parties from the private sector in a series of four roadshows which it conducted last year.

Bundling of projects is something that has been shown outside the Netherlands to help small projects and from which the schools sector in the Netherlands would in particular benefit. This is a point not lost on the Kenniscentrum but the responsibility for schools in the Netherlands is delegated to a local level which means bundling is difficult due to the lack of governmental entities with sufficient educational establishments under their authority.

There is also soon likely to be the first substantial project in the accommodation sector. In December 2003, the ministry of finance approved a PPS solution for the upgrading of its main building in the Hague. This is intended to be a pilot for further government accommodation schemes.

A report published by the Kenniscentrum in October 2002 proposed that a pilot PPS programme should be initiated in the healthcare sector. Structurally the healthcare sector is already a complicated mix of public and private interests which may explain why no pilot programme has emerged since the report was published. However applying PPS to the healthcare sector remains on the agenda.

There has been no obvious interest to date in applying PPS to prisons, detention or removal centres. However, even in this area consideration is being given to its use. All the indications are that any initiative in this sector will not include the private sector providing security services as this is generally accepted in the Netherlands as a step too far.

PPS a viable alternative

The PPS deals that have closed to date should provide the public sector in the Netherlands with sufficient evidence that PPS is, in appropriate circumstances, a viable and effective alternative to the infrastructure procurement methods it has used in the past which can bring financial and practical benefits to projects. In addition, the Netherlands has demonstrated conclusively that it is a jurisdiction that welcomes international participation at every level of a project (the projects that have closed include international sponsors [both industrial and financial], lenders and contractors) and that it has sophisticated domestic players who are willing to give PPS a chance and participate in PPS projects.

The government needs to build on the foundations laid by the first wave of projects and make the future of PPS in the Netherlands clear by mapping out the opportunities for future private sector involvement, providing a regular flow of viable new projects and ensuring that the lessons that can be learnt from the deals closed in the Netherlands (and indeed elsewhere) are effectively applied to the new wave of projects.