BAM PPP was formed at the end of 2004 to recognise Royal BAM Group’s increasing involvement in PPP in the company’s home markets: Belgium, Germany, Ireland, Netherlands and UK. Its current portfolio consists of 31 projects, distributed across the five markets; with a balance between accommodation and civil engineering projects.

The latest debt crisis is placing further strain on European governments’ balance sheets. Most governments, though certainly not all, view PPP as the most viable procurement option for building the assets they require. “As far as [continental] Europe is concerned, I think the PPP model has been widely accepted as a permanent model. And it’s adoption is accelerating quite successfully,” comments Richard Fielder, chief executive at BAM PPP.

Reinforcing its position in each of the home markets remains BAM PPP’s priority. Fielder reasons that a downturn in one market – say in Ireland, or the UK – can be compensated for with an upturn elsewhere – say in Belgium or the Netherlands. Revenue is up, and in May the company created a joint venture with PGGM, the Dutch pension fund, which should allow it to address declining margins by having a means of recycling equity. BAM PPP has closed on three deals recently and is preferred bidder on a further two, a respectable performance given current market conditions.

Balancing act

BAM PPP was formed from BAM’s UK-based PPP concessions company. The logic was to take the UK business, established in 2000, and expand it to the other home markets. Its UK asset base includes the £600 million ($935 million) Somerset Building Schools for the Future (BSF) programme – one of its flagship assets – and one of 15 projects closed to date.

Though the UK was the launch pad for BAM PPP, the waning influence of the UK PFI programme does not concern Fielder unduly since its importance to Royal BAM has been diminishing for some time. “Obviously the market in the UK is different, in the sense that it has been larger, and much more diverse than in Europe. Certainly in value terms a lot of projects have been outside our core sectors of education, health, law and order, roads and railways. So obviously our market concentration in the UK is less strong because of this diversity” says Fielder.

The last project BAM PPP closed in the UK was the 25-year Camden BSF. Camden, which had all-in costs of £75 million, is a rarity these days following the cancellation of New Labour’s flagship programme by the current Conservative education secretary, Michael Gove.

Fielder remains unperturbed: “We were never really that focused on the Building Schools for the Future programme because of its profile: expensive to bid and not a great deal of investment opportunity. We have three projects in the BSF programme, which is relatively small.”

Elsewhere in the Isles

BAM PPP was one of the shortlisted bidders for Borders Railway, before the project was pulled, but this has not deterred Fielder: “From a BAM perspective we have a strong base in Scotland and BAM PPP has its biggest office in Glasgow. The procurement process is one we feel comfortable with and the non-profit distributing model is one we have dealt with in the past and we understand it.”

In Ireland difficulties in accessing bank funding and the parlous state of the government balance sheet mean that the number of deals in the market has dried up. Brendan Howlin, Ireland’s Minister for Public Expenditure and Reform, recently announced a Eu10 billion ($13 billion) retrenchment in infrastructure projects. A number of key projects – Metro North and Thornton Hall prison – will be deferred indefinitely.

Ireland has been an important market historically for BAM PPP. Celtic Roads Group, with BAM PPP as one of its members, is the most successful consortium in the National Roads Authority’s toll highway programme. Its Irish asset base includes the M1 bypass around Dundalk, which was Ireland’s first PPP road deal.

BAM PPP was also named preferred bidder on two Irish projects this year. In July, the NRA named BAM PPP and Balfour Beatty preferred bidder on the Eu180 million N11 availability road. In September BAM PPP was also awarded Irish Schools 3 September, which entails the construction of 8 schools under a 25-year design- build-finance-maintain contract. This is a noteworthy landmark, being the first accommodation project for BAM PPP in Ireland.

BAM PPP’s focus on the home markets requires persistence. “Ireland is clearly one of BAM’s five home markets. We have a long-term outlook for Ireland so we are continuing to focus there. People tend to follow deal flow and if deal flow starts to diminish then organisations that don’t have roots in a market tend to look for other markets where deal flow may be more prolific” says Fielder.

Some concerns remain, though, for the PPP market in Ireland. “What has happened in Ireland over the last two years is that there have been fewer projects bid and the projects we’re at preferred bidder on started their procurement process at a much earlier phase of the financial crisis,” adds Fielder.

Emerging markets

Whereas the PPP programme in the UK tends to be more weighted towards accommodation deals, there is a palpable preference in the rest of Europe for larger civil infrastructure projects. The desire for modern infrastructure and the increasing preference for PPP as a form of procurement positions BAM PPP well in Belgium and the Netherlands, and to a lesser extent Germany. “I think continental Europe looks at infrastructure and sees that it needs the best and most up-to-date networks. If the economic need is there they look at how they can best fund them and PPP is a much newer but an increasingly accepted means of procurement” says Fielder.

The Netherlands is BAM PPP’s home market and its largest market in terms of capability and BAM PPP has closed several large deals there. The Eu145 million A59 PPP was only the second Dutch pilot project when it reached close in May 2003. BAM PPP is part of the Infraspeed consortium, which holds the concession for the Eu1.2 billion HSL South project. This was the largest PPP project awarded by the Dutch government when it closed in 2001.

“I think the Dutch market is developing quite strongly. We have a number of bids that we are actively involved with at the present moment,” says Fielder. “It has a well-structured procurement process and standard form of contract.”

BAM PPP is one of three shortlisted bidders for the 20-year N33 contract. The project is unusual in that it serves as a pilot for institutional debt in the Netherlands. ABP, the Dutch pension fund, recently provided terms to BAM PPP and the other two bidders for a potential investment as part of the long-term debt financing. BAM PPP, alongside Strabag, is also one of five groups bidding for the Eu4.4 billion A1/A6 road PPP.

Although six of BAM PPP’s thirteen active bids are in the Netherlands, it has not closed a single deal in the Netherlands in the last year. Fielder sees this as an aberration: “It is a question of timing, a number of projects were closed in late 2010, including the A12, and more are due to close in 2012, there have not been any deals closed in the Dutch market so far this year”.

BAM PPP typically seeks to invest in a project on its own, adding further participants if it deems necessary. The Eu260 million A12 project was closed by BAM PPP alongside several of its sister companies: BAM Wegen, BAM Civiel, BAM Infratechniek and BAM Infraconsult.

Belgium has proved more promising. BAM PPP, alongside Dexia, closed on two prisons in the middle of the year. The BAM PPP-led consortium has been the most successful bidder on the slate of Belgian prisons tendered by the Belgium Buildings Agency. “BAM has got a fairly strong position in the justice sector in mainland Europe generally. We are currently developing prisons in Germany, in Switzerland, Belgium and the Netherlands and have coordinated a delivery strategy across these projects” says Fielder.

Germany is a more intriguing example, and Fielder describes it as “cautiously optimistic” regarding its future in the market. The federal structure in Germany, characterised by multiple decision levels, in conjunction with public and political hostility to PPP as an alternative procurement method to state investment has meant that the German PPP market has continued to lag behind its European neighbours.

Still, in September, BAM PPP and Vinci also closed the A9, the first A-model road to be backed by availability payments. The A-models programme has been a fairly steady source of deals, something which is unusual in German PPP, and Fielder expects BAM PPP to be one of a handful of bidders in the programme. The Ministry of Transport will tender the A6 and A7 soon, though Fielder would not speculate on whether BAM PPP is likely to bid on either.

Fielder is unconvinced that any of this is sufficient to change the current system, which favours the low-risk forfaiting model: “I think of growth probably in terms of equity-based accommodation schemes coming a little bit more frequently and taking a small part of the much larger forfaiting market. But what I would not say is that it’s going to show a sort of growth that you will be getting in the Netherlands in terms of equity-based projects.”

A new hope

But a lot of BAM’s focus is pinned on the Dutch and Belgian markets. “Over the last 12-18 months, the number of projects in the UK and Ireland has diminished quite significantly and the number of projects in Belgium and the Netherlands has increased quite significantly. We see our next 2 to 3 years as led by the Dutch market” says Fielder.

Royal BAM plans to establish a presence in Switzerland. This is likely to be construction-related in the first place and BAM PPP will initially look to support the company’s presence in the PPP sector from its offices in Frankfurt. Switzerland is not a particularly large market in terms of dealflow and Fielder views this more as a continuation of its presence in Germany; a commitment to cultivating its standing within the home markets as opposed to branching out.

Revenue at BAM PPP is up. Its recent third quarter report shows an increase from Eu197 million to Eu363 million on the previous year. Margins are down from Eu6.1 million to Eu1.3 million, however, but Fielder expects profits to have risen when the company ’s annual report is published.

In December this year BAM PPP transferred three projects into its new joint venture, BAM PPP PGGM Infrastructure Coöperatie. The sale allowed to BAM to book a Eu10 million gain. Structures such as these have become common as a means of recycling equity. At roughly the same time that BAM PPP closed its first round of divestment, Strukton agreed to sell 80% of its stake in six Dutch PPP projects, valued at around Eu2.3 billion.

What is different with BAM PPP’s joint venture, suggests Fielder, is that whereas most recent deals entail existing projects being sold in the secondary market, with the PGGM deal BAM PPP has an institutional investor willing to put capital into new projects. This, he hopes, will allow BAM PPP to consolidate its position in the five home markets even further.