Infrabel, the infrastructure manager for the Belgian railway network, reached financial close at the end of September on the Northern Diabolo project for the construction of a heavy rail link

The new rail line will run between Brussels Airport and the planned Schaerbeek-Mechelen railway line and ground has already been broken on it.

The Belgian rail operator invited the private sector in to fund and construct the underground railway connection between the rail station at Brussels National Airport and the planned rail line that will run along the central reservation of the E19 motorway [Transactions Database].

Infrabel started the procurement for the DB contract firstly on a traditional contract basis, which took some time to make it into a PPP contract.

The DB procurement started a year after the financing procurement (which started 4 October).

Bidding began in May 2005 and BAFOs for funders were received in May 2006. Since July 2006, Infrabel negotiated and finalised the project documents on a non-exclusive basis with HSH Nordbank and B&B.

The procuring authority started building works at the end of October 2007 with a view to it being operational mid-2012.

HSH Nordbank and Babcock & Brown were selected as the investors to the private partner - THV Dialink.

The SPV has a design-build relationship with THV Dialink only. The SPV and the key project managers and funders are B&B / HSH Nordbank.

The Belgian government, Infrabel and a number of other stakeholders are heavily involved in the deal, providing a good slice of the funding and resulting in an interesting debt:equity ratio.

Since the start of the procedure, there has been a clear separation in the tender dossier between the financing and construction. This is a model that is proving popular in Belgium and there is a healthy pipeline of projects in the offing [see conclusion].

The construction consortium - THV Dialink - consists of:

• CEI-De Meyer - Royal BAM Group
• MBG
• Smet Tunnelling 
• Wayss & Freytag - Royal BAM Group
• VINCI Construction Grands Projets

These partners were selected after separate negotiations with candidate construction consortia.

The private partners bear the construction risk and the demand risk.

During the concession period, Northern Diabolo will finance itself from the following sources of income:

• a supplement charged to the individual passenger for every trip to or from  Brussels National Airport station - excluding daily commuter traffic. The price of this supplement currently amounts to around €3.80 per trip and will rise and fall in proportion to general price levels
• an annually indexed contribution from Infrabel of around €9 million
• an annual contribution from the rail operators - 0.5 per cent of the fare receipts from domestic passenger traffic

The railway works include:

• the extension of the existing underground station
• completion of a bore-tunnel - 2 single-track tunnel tube of 1,070 metres each
• the underground train path of the Brucargo industrial retail park
• several underground junctions with the E19 motorway 
• construction of the access ramps to the E19's central reservation for the connections along the new line Schaerbeek - Mechelen

In addition, the project includes the construction of cut-and-cover tunnels and the creation of a link to the future railway infrastructure on the E19 motorway central reserve.

This railway infrastructure is constructed under a separate contract by a CEI-De Meyer-CFE consortium.

The preparatory works (laying of railway bedding) started in early July on the new railway line Schaerbeek-Mechelen - line 25N - into which the new line will plug.

Over the 35-year concession, the SPV will make the rail infrastructure available to Infrabel. After this period - in 2047 (including five years for construction) - it is transferred wholly to the national rail operator.

The construction works for the Diabolo and the 25N line will be completed by the end of 2010. The following year railway equipment, overhead contact lines and signalling works will be carried out.

The railway infrastructure of Diabolo and the Schaerbeek-Mechelen line are scheduled to be ready for testing at the beginning of 2012.

It is slated that in June 2012 Diabolo will be commissioned, as will the new railway line between Schaerbeek and Mechelen along the central reservation of the E19.

Infrabel is responsible for funding the construction of Line 25N, using €250m of public finance. This is traditionally procured and not part of the project finance transaction.

Running from Schaerbeek to Mechelen, this route will largely follow the central reservation of the E19 motorway.

At Schaerbeek the new line will connect with both the conventional Line 25 leading into the centre of Brussels and the orbital Line 26 around the eastern side of the city.

At the northern end, the new line will diverge from the motorway at Zemst on a new viaduct, paralleling the existing lines 25 and 27 through Mechelen to rejoin Line 25 at Nekkerspoel.

Financing

The all-in cost of the project - road and rail work, plus all contributions - is €370 million.

Diabolo is paying out €279 million for the rail work of which €263 million is project financed. The remainder - around €16 million - is being passed through by Infrabel. This pass-through cost is being met by the rest of the stakeholders.

The difference between €279 million for the rail element and the total deal cost - €322 million - is the amount that is being spent on roadwork. This amounts to €43 million.

However, the total cost of works included in the transport project overall amounts to €370 million.

This figure is achieved by adding to the €322 million elements including:

• capitalised interest
• SPV costs
• reserves
• fees
• supervision costs

Combined, these add up to around €100 million on top of the €370 million figure. This includes a number of set-up costs and expenses included in the PPP development.

The €370 million project financing breaks down as follows:

• equity - €36 million
• senior debt - €279 million
• revenue during construction - €55 million

Babcock & Brown and HSH Nordbank were selected as equity providers for the €36 million segment. Babcock is providing 75 per cent of the equity and HSH makes up the remainder.

HSH Nordbank is acting as mandated lead arranger for the total debt obligation of €279 million.

As Phil Green, chief executive of Babcock & Brown, says: "The funding for the project has been finalised despite the volatility in global credit markets and reflects the banking sectors ongoing support for projects with strong transparent cashflows."

Cleary Gottlieb Steen & Hamilton acted as legal adviser to the sponsor and La Compagnie Benjamin de Rothschild provided financial advice. The consortium was also advised by Allen & Overy and Freshfields. Technical advice was provided by Scott Wilson and Marsh was the insurance agent.

Conclusion

The pace is picking up in the Belgian PPP market after years of slow progress.

BAM - the SPV established by the Flemish region to oversee the Antwerp Mobility Masterplan (AMM) - is currently seeking banks for the €3 billion infrastructure initiative which covers roads, rail, bridges, tunnels, waterways and a number of other redevelopments.

The €2 billion Oosterweel Toll Tunnel PPP is still at preferred bidder (with a Vinci-led team) after a year working its way through a lengthy law suit.

The financing mandate for AMM is already in full swing with two groups of banks bidding for the €3 billion worth of mandates.

AMM's infrastructure initiative includes the:

• widening of the Albert Canal
• renovation of locks in the Port of Antwerp
• extension of tram lines towards the Antwerp's suburbs

It is expected to reach BAFO before December and the winning teams to be announced early next year.

With its bit between the teeth on PPP - although not a classic form of PPP - it looks like Belgium has a healthy future in the sector.