Belgium, no stranger to the PPP market, has been a trendsetter in using creative procurement mechanisms for social infrastructure projects.

In June 2010, the country closed one of its biggest social infra projects yet - the €1.5 billion (US$2.2bn) schools PPP deal. The project covers a total of 211 schools in the country, and despite taking a total of four years from tender to financial close, banks came together successfully to finance the project in the midst of a turbulent financial environment.  

Belgium's Ministry of Justice reached financial close on three prisons projects in June 2011 with one awaiting close later this year. Prison projects had been on the priority list of the Ministry for several years due to a capacity shortage. A pilot scheme comprising four prisons totalling €400 million was finally put out as seperate tenders in 2009 and attracted good interest from both developers and banks.

The PPP market in Belgium is expected to grow as the government is in the midst of planning more prison and healthcare projects for the country. Belgium's three political regions approach the use of PPP in different ways, with the Flemish (Dutch) region being most advanced. The Walloon region is now looking to develop its use of PPPs, and Brussels has recently embraced PPPs for a number of major projects.

Two large scale Belgian transport projects that are currently in advanced stages of procurement are the Kempen North-South Road PPP [Projects Database] and A11 Bruges-Westkapelle project [Projects Database].

Project Overview & Financing

The Belgian Ministry of Justice began the tender process for the four prison projects in 2009 and developers had the chance to bid on all the projects as a package even though each was under a different procurement agreement.

As many as 13 consortia submitted pre-qualification questionnaires (PQQ) for the prisons and French construction majors like Bouygues, Vinci and Eiffage were part of the bidding race.  

BAM PPP beat other rivals to bag two out of the four projects ahead of their financial close earlier this year. Project Director at BAM PPP Dieter Van Hassel says that the projects looked attractive to developers from the very begining since, "the projects were economically priced and even though they were pilot projects for the ministry, Belgium is familiar with the DBFM model and has had a good record with timely procurement of infrastructure projects."

While each project is in the range of €100 million and is a straight forward PPP, Hassel says that it is encouraging that the Belgian Government stuck to its procurement timetable for the highly sensitive justice projects.

Here's a closer look at each prison project:

Dendermonde Prison [Transactions Database]:

Dendermonde is the largest among the four prisons in terms of cost, at €120 million. The prison is located in the Vlaanderen region of Belgium. Once developed, the 27-year DBFM prison project will have a capacity of 432 detainees.

The project was financed by the following banks:

• ABN Amro
• Dexia
• KBC

Each of the three banks picked up a ticket of €40.1 million on the debt providing a total of €120.3 million in debt in the shape of a term loan of €107 million, and an equity bridge loan €13.3 million.

Beveren Prison [Transactions Database]:

The €111 million Beveren prison was also financed by the same three lenders. Once built the new prison will have a capacity of 300 detainees.

Each of the three banks picked up a ticket of €37 million on the debt for the 27-year DBFM concession providing a total of €111 million as a term loan (€98.7mn) and equity bridge loan (€12.3mn).

The loan tenor on both projects is around 26 years and the margins were geared in the region of 200 bps with a step up after 5 to 7 years.

Marche-en-Famenne Prison:

An Eiffage-led consortium bagged the third Belgian prison project to be located in Marche-en-Famenne in Wallonia.

The €80 million 27-year DBFM concession was financed by:

• BNP Paribas Fortis
• NIBC are

The new prison will have a capacity of about 300 detainees.

All three prison projects are expected to complete construction by 2013, in accordance with the Belgian masterplan for prison infrastructure.

A fourth prison - located in Leuze-en-Hainaut - is still awaiting financial close, likely to be completed in the next few months [Projects Database].  

Advisory roles 

Rebel Group is providing financial advice to the authority on all of the projects, while Orientes, the ELD partnership and Procos are acting as technical advisers. Stibbe is providing legal counsel.

For BAM PPP, Ernst & Young and Maple Finance jointly provided financial advice while Freshfields gave legal advice.

For ABN Amro, Dexia and KBC, legal counsel was given by Nauta Dutilh while Mott McDonald gave technical advice.

Challenges

While the projects have not faced any major complications up until financial close, the construction stage could pose minor challenges.

Katrijn Quaghebeur of KBC Bank who has worked on the projects closely says that building permits have always been something of a challenge in Belgium. "Permits can be challenged in court even after projects reach financial close."

The Dendermonde Prison has hit one such roadblock recently, which will not stall the project, but could cause minor delays. The Council of State in Belgium, the supreme administrative court of the country, has ruled that the tendering authority had not provided sufficient information regarding the site plan (Ruimtelijk Uitvoeringsplan) for the new prison, after a local campaigner filed an appeal against it in the court in August 2011.

Quaghebeur informs that this is part of the construction procedures in Belgium and so it should not pose a major problem. The tendering authority will now need to take suitable steps and make sure there is full public disclosure of the plans to make sure a construction permit is granted soon.

Conclusion and looking ahead..

While the success of all these prisons in terms of meeting construction timelines is awaited, Belgium is already on track for procuring a fifth prison project in Brussels. This would be the fifth and largest prison PPP yet in Belgium likely to complete construction in 2017.

The €300 million prison development project would be located close to Brussels International airport. While the project is still in preliminary stages, it is understood that the new development will completely replace three existing prisons in the area. The ministry has been working on the project assessment for a year now and hopes to ready it for tender in the next four to six months.

The social infrastructure PPP project pipeline has been slimming down for most western European countries and same remains the case with Belgium. While experts do not forsee any projects in the education sector, a few are seen in the prison and hospital space.

A slow pipeline, however, does not detract from Belgium's solid experince in procuring projects on a PPP basis. Even though it has been a relatively smaller dealmaker when compared with its other European peers, it has made every effort to stand out in the eyes of both developers and financiers and continues to set a positive example.