PPP is no longer a UK bank-wagon and there is no shortage of PPP activity outside the UK. Deals have been completed from Japan to Sweden and Finland, and there are many new mandates shaping up elsewhere.

In Europe, one of the earliest non-UK PPP schemes was the Beira Interior Shadow Toll Road scheme in Portugal. The Iberian peninsular remains one of the hotbeds of PPP potential, along with Italy, where the first non-recourse PPP transaction was signed for Rome-based Crediop in January this year. A newcomer to the market is Ireland, whose National Roads Authority (NRA) is now putting together a PPP scheme to finance its expansion programme. ?It is a struggle to think of a mainland European country where PPP projects are not being considered,? says Nick Chism at KPMG in London, which is advising Ireland's NRA on the scheme.

But the extent to which other countries in Europe can smoothly implement a PPP programme depends on a number of factors. What experience does the country already have of privatisation? Is there an adequate concession law in place? How financially acute and consistent are the local authorities that would become involved? How much local investor education would be needed? These factors clearly vary widely across the region and mean that the extent to which the UK experience can be used as a blueprint for others is significantly limited.

The familiarity of the central government with the concept of privatisation is crucial. Some of the countries that have shown most interest in the scheme are based in central and eastern Europe, where the history of privatisation activity is relatively short. The result is a misunderstanding over the role that the private sector can play. ?Governments will have a very hard time if they have no experience of privatisation,? says Jeremy Church, associate director at Fitch in London. He describes instances where governments have simply awarded contracts on the basis of best price, assuming that their level of subsidy to the industry will be cut simply by the private contractor getting involved.

But the enthusiasm for PPP from this region means that the protagonists are likely to get up to speed very quickly in order to get the deals done. Chism at KPMG believes that this problem is more down to individuals than previous experience. ?I have spoken to government officials in one-time hardline communist countries and they have totally understood the [PPP] concept in the time it has taken to smoke a packet of cigarettes,? he says. ?But in other far more sophisticated countries it has taken much longer to be understood.? Chism spends much of his time conquering misconceptions about PPP. ?People either think that all risks will be transferred to the private sector or they want to retain all of the traditional sources of comfort that come with the public sector,? he says. ?It is a question of getting people to see 30 years down the line.? The biggest sources of confusion that he comes across are the perception that private sector funds always cost more than public sector funds and that PPP is about procuring services, not assets.

One of the main hurdles to these deals is what became readily apparent during their introduction in the UK: the time and cost involved in making a bid. The fact that the scheme has been in place for some time in the UK means that other countries should now be able to benefit from the mistakes that were made in order to shortcut the process.

Clearly, a similarity to the UK legal framework will make replication of documents far simpler. But the uniqueness of every transaction means that there is only limited potential for standardisation. ?You are only really starting to see similar concession documents now in the UK,? says Church. He believes that the only areas of documentation that lend themselves in any way to standardisation are the payment mechanism and the terms in which facilities managers might be penalised. But even then you are always going to get a trust coming in wanting uniqueness for their situation. Anthony Forshaw head of PFI/PPP at Deutsche Bank in London (which has been one of the most active banks in promoting new PPP business in Europe) believes that the usefulness of the UK experience is overstated. ?The lessons from the UK, the fifth largest economy in the world, are very difficult to learn for a country like Hungary which has a population of 5 million people,? he says.

But the NRA in Ireland has found the UK model useful. The country is extremely well-placed to learn from the UK as it is geographically adjacent and has a similar legal system. The NRA PPP projects now being discussed involve the Waterford Bypass, including a major river crossing, the Limerick Southern Ring Road Phase 2 and the construction of a second bridge on the M50 in Dublin (DBFO contract negotiations for which were completed in 1999). The basis of these schemes is that an alternative, toll-free route must be available for road users and that a pragmatic approach will be used towards private sector funding, with public sector money being made available for high-cost schemes. Ireland's Department of the Environment has studied the UK PPP market in detail and came up with its own set of guidelines for Irish sponsors in an attempt to pre-empt as many problems as possible.

?We have learned from the UK experience,? says Michael Kennedy, project manager for transportation at the NRA in Dublin. ?We basically used the [UK's] Highways Agency documentation and took the sections that applied to our situation.? The main difference between Ireland and the UK is that whereas in the UK shadow tolling has been used for the road network PPPs, the NRA proposes to use hard tolling ? therefore the payment mechanism for this project will be different than its UK predecessors. ?There will be a performance payment together with a long-term payment over the lifetime of the concession,? says Kennedy.

The NRA has chosen this route partly due to the cash-rich nature of the country's exchequer. There will be a substantial upfront grant from the government as it is clear that toll revenue will not cover the cost of the projects. ?Ireland has learned from the mistakes that the UK made,? says Chism at KPMG. ?They therefore will not get bogged down in the same issues.?

The main criticisms that have been made of the PFI scheme in the UK are that there was a lack of coordination upfront, too many projects were tackled too quickly, bid costs were excessive and there was not enough focus on closure. ?In Ireland PPP is seen as delivering additional infrastructure rather than substituting for traditional procurement schemes. Furthermore, the Department of Finance was established as a central co-ordinating unit to ensure a consistent approach to PPP across all sectors. In the UK there was also a strong emphasis on getting capital expenditure off-balance sheet which is not an issue in Ireland. It could be argued that the emphasis on getting capital expenditure off-balance sheet could, in certain cases, result in inappropriate risk transfer,? adds Kennedy.

Whereas Ireland has benefited from its legislative similarity to the UK, in other countries there are substantial obstacles to be overcome. ?Japan has a completely different legal system [to the UK] and the idea of huge amounts of PFI legislation is completely alien,? says Chism. But the country is working hard to replicate this documentation and signed off its first PFI project (the Kazusa waste disposal plant) in July this year.

Concession law is top of the list in many financiers' minds. ?In many countries it is not clear whether there is an adequate concession law in place,? explains Forshaw at Deutsche Bank. ?Lenders need to have sufficient comfort to know that they can sue the government if they need to,? he says. This has been a problem in Italy, which has recently introduced a concession law. Italy has been a prime target for PFI in Europe, and the Italian government set up an advisory taskforce for such schemes in March this year. But while the introduction of new legislation is to be welcomed, Forshaw points out that ?There is no point in having such a law in place if no-one understands how to apply it.? This raises the very real question of the power that provincial governments hold in many European countries and the responsibilities of the local authorities that are essentially the pass-through trusts for these transactions.

Forshaw points out that the PPP concept has been incubated in the UK, which has an extremely centralised governmental system ? ?regional governments have much more power in Europe.? While he accepts that European governments will benefit from a borrowing of technology (from the UK) at a central government level, he feels that such deals will often be put together by regional authorities with no budget and no expertise to produce adequate documentation. An example of this problem can be found in Italy where there is the potential for several water treatment facility deals. ?The Scottish experience simply cannot be exported in these cases,? says Forshaw. ?The deals in Scotland were all under the auspices of a single government authority and the Scottish Office, whereas in Italy they would be controlled by a large number of very small regional authorites.?

The role of the local authority is of paramount importance in PPP transactions. ?Lenders anywhere entering into PPPs want to understand the nature of the body making the payment,? says Chism at KPMG. Whereas in the UK the payment being passed through the trust is directly from the central government, in many European jurisdictions it would be from the local authority. ?The investors need to know that the local authority will pay promptly,? says Church at Fitch. ?It needs to have a track record of consistency of payment.? This issue is of particular importance in Europe as many of the potential PPP deals that have been mooted are relatively small and involve small local authorities ? which increases the payment risk. But, as lenders in the UK learned to their cost with London local authority Hammersmith and Fulham's financial fiasco in the 1980s ? there are payment risks involved in dealing with any local authority, large or small.

But while there are definitely issues to be addressed in rolling PPP out across Europe, there is no shortage of enthusiasm for the projects involved. More than 500 people showed up to the launch of the NRA's road scheme, indicating the level of interest from around the whole region. ?We were surprised at the extent to which UK interest was only a portion of this,? says Chism. ?The interest was very international.? And there will be no shortage of other potential deals for them to sink their teeth into: transportation and rail schemes in the Netherlands, more road deals in Spain and Portugal, road, school and leisure deals in Scandinavia, motorway and bridge deals in Italy and waste and light rail deals across the region. The NRA's bidding invitations go out in Spring 2001 with closing scheduled for early 2002.

But there is still some way to go to educate local investors ? particularly those that may not even have a portfolio to invest in this type of debt yet. ?Local banks need to be brought up the learning curve as many of these deals will look to the local community for investment,? says Church at Fitch. ?Lending will often be relationship-driven and will need to be on a par with what has happened in the UK.? For this reason, there is a strong likelihood that the first deals in any jurisdiction will be structured as rated bonds as it will make them much easier to sell. ?The first transactions are always over structured and overly cautious in terms of risk,? says Church. ?That is why I always advise people to buy them.? Forshaw agrees that the bond market is where these deals will happen. ?The fact that some deals have been done won't make these deals any easier to finance,? he says. ?They might get something away in the bond markets though.?