Germany's first PPP prison at Burg in eastern Germay was closed by the Projektgesellschaft Justizvollzug Burg consortium and the federal state of Saxony-Anhalt on 19 December 2005

The correctional facility in Burg-Madel near Magdeburg will accommodate 650 prisoners and go into operation in 2009.

The Projektgesellschaft Justizvollzug Burg consortium includes:

• Bilfinger Berger
• Kotter Justizdienstleistungen

The project and funding agreements with the bank consortium - led by Nord LB as MLA were signed on 19 December 2006.

As has been the case in France, Spain and the UK, Germany is turning to privately maintained prisons to solve a lack of capacity and address higher European standards in the treatment of prisoners.

Background

In Germany, overcrowding in secure prisons - the most prevalent type of correctional facility in the country - has become a particular concern.

Prisons in Germany are not supervised by the federal governmnet but managed by the 16 German states.

The local authority of Saxony-Anhalt put out a tender for legal, financial and technical advisers in November 2004.

The contract attracted a large amount of interest from UK-based and German law firms with negotiations to start in September 2005.

Residents raised concerns about the project early on, with worries that the nearest home was just 40 metres away and that it would provide a security risk to the village.

The German state named the Projektgesellschaft Justizvollzug Burg consortium as preferred bidder in October 2006.

The Project

The federal government considers PPP projects as a way to improve efficiency of infrastructure projects through long-term cooperation between local authorities and the private sector.

The introduction of a lifecycle approach where the planning, construction, running, financing and utilisation of property is optimised is one of the main reasons that the government is using PPP's for projects in Germany.

The consortium were awarded the contract for the secure plan prison on a DBFO basis with a concession period of 25 years.

For the first time in Germany - construction, facility management and non-state duties associated with the operation of a prison will be conveyed to a private operator.

Projektgesellschaft Justizvollzug Burg will be responsible for the operation of the prison and the construction and operating services will be handled by Bilfinger Berger.

The consortium will be taking responsibility for the operation of the prison in terms of

• Social services
• Health care
• Food
• Cleaning electronic supervision

The actual guarding of prisoners is still left to the state according to the constitution, similar to France where the government issues guards to look after prisoners.

In the political sense, people still believe that the government should take care of the operation of prisons as well the guarding of prisoners.

Financing

Sponsors of the project were Bilfinger Berger and Kotter Justizdienstleistungen with a capital value of €100 million.

A specific bank was not allocated as MLA on the project but Commerzbank negotiated the deal on behalf of the other banks involved which included:

• Commerzbank AG
• HSH Nordbank

Out of the €100 million - Bilfinger Berger's equity commitment is €7.5 million with the total senior debt €92.5 million, the debt:equity ratio is 93:7.

This is a breakthrough project for HSH Nordbank who beat off fierce competition for the project.

A spokesperson for the bank cited its strong relationship with saving banks in Saxony-Anhalt, which it can target in a future securitisation, as a key factor in its decision to bid for the project.

Luther acted as legal adviser to the government with West KC (part of West LB Bank) acting as financial advisers.

Lovells acted as legal adviser to the project company and PwC were the financial advisers.

CMS Hasche Sigle (part of CMS) acted as legal adviser to the banks and was led by Dr Christian Scherer-Leydecker - a partner with the firm.

The bank consortium's financial advisers were Deloitte, EC Harris as technical and commercial adviser.

Conclusion

As well as experimenting with private finance the German government is considering innovating in prison technology combining open prisons with the electronic tagging of inmates - a move away from traditional methods.

The German market is awash with PPP projects in the pipeline with a number of projects in the health sector.

Further Proton-therapy centres are planned on the back of STRIBA's 15-year contract to build and operate a centre in the city of Essen.

A PPP prison in North Reine - Westphalia has also been discussed but these talks have been put on hold for some time. The government is looking at alternatives for this project and it is hoped that an agreement will be reached.

Other projects include schools with a project under procurement in Kiel and the City of Bremen.

A defence project is also in the procurement process, one of the first pilot projects for the Fürst Wrede Barracks military real property in Munich.

Bilfinger Berger was also awarded contracts for two PPP building projects - a justice centre in Chemnitz, Saxony's first ever PPP for a 20-year DBFO contract.

The second project was the modernisation and operation of eight schools in Halle, also on a DBFO basis for €45 million.

 

The project at a glance