This is the Scottish banks’ bridge into Europe. As the La Risle viaduct in northwestern France carried its first cars and lorries high above the river Risle last Thursday morning, so have PPP deals along these lines involving the Bank of Scotland and Royal Bank of Scotland proved an important route for the Scottish financiers into mainland Europe.
The elegant concrete and steel structure — located near Brionne, in the Eure department, about 25 miles southwest of Rouen in Haute Normandy — is part of the A28 autoroute, which plays a key role in diverting traffic from Calais to the south while avoiding Paris.
The A28 project, the first PPP project in France involving a non-French bank, is a concrete example of how Scotland’s two leading banks — HBOS and the Royal Bank of Scotland — are making inroads into PPP/PFI funding projects in continental Europe.
The new 125km stretch of road of which La Risle viaduct forms a part is one of France’s largest ever infrastructure projects, with a total capital cost of €900m. The new road, which will make it easier for sunseeking motorists to head down to the Dordogne, Gascony and Spain, is significant because the project has been co-led by HBOS’s corporate banking arm, the Bank of Scotland Corporate.
Bank of Scotland Corporate is the proud owner of a 13% equity stake in Alis (Autoroute de Liaison Seine-Sarthe), the special-purpose vehicle set up to pitch for the A28 PPP contract. Other partners in Alis include the French construction group Bouygues, Société des Autoroutes Paris Normandie, EGIS Group, and IXIS Corporate and Investment Bank. Bank of Scotland provided a mezzanine bond facility to Alis, with the rest of the finance coming from a Euro-denominated index-linked bond.
“This project is hugely important for both Bank of Scotland and for France,” says Leslie Tennant, Bank of Scotland Corporate’s senior director of infrastructure finance. “While toll roads have been a feature of French infrastructure for many years, the financing structure of this deal is highly innovative and it is the first PFI/PPP-type deal in France.”
Due to the strict economic fiscal discipline imposed by the Frankfurt-based European Central Bank under the EU’s Stability and Growth Pact, most EU member states are starting to embrace the PFI/PPP funding model, particularly for infrastructure projects, hospitals and prisons.
The European statistics agency Eurostat helped speed the process in February 2004 when it announced how PPPs should be treated by national finance departments. Eurostat decided against requiring such projects to appear in EU members’ general government deficits. This precipitated a surge in planned PPP projects, as well as a likely bonanza for UK-based companies with expertise in the field.
“That certainly kindled activity,” said Jeff Thornton, managing director of infrastructure finance at Royal Bank of Scotland, “especially at the level of submitting bids.”
Two weeks ago, Dominique de Villepin, the French prime minister, who officially opened the new A28, said that PPP was providing a new “élan” to major infrastructure projects. He unveiled 35 PPP projects, including part of the TGV Rhine-Rhone line, the renovation of the zoo at Vincennes, and the rebuilding of Paris’s Maison d’Arret de la Sante.
Thornton welcomes the fact European governments are losing their antipathy to PPP but warned: “It is important to make sure the legal backdrop is right and that politicians and civil servants know how to do deals.”
In total, he said RBS has already signed in excess of €2 billion worth of PPP deals in continental Europe, compared to £10bn worth in the UK. The bank employs a 50-strong team of PFI experts spread across its offices in Edinburgh, London, Paris, Milan, Madrid and Stockholm.
RBS is already involved in the construction of three private prisons in the UK — Addiewell in West Lothian (for which it is thought likely to be named as winning bidder, in partnership with Interserve and Sodexho subsidiary United Kingdom Detention Services), Peterborough in Cambridgeshire and Ashford in Kent.
In all three, the RBS consortia will be responsible for custodial services, as well as financing, designing, building, and maintaining the detention centres.
RBS is also a member of one of four consortia bidding to finance, build, design and maintain the first of four PFI-funded prisons in France. The bid is also, paradoxically, in partnership with the French construction giant Bouygues, HBOS’s lead partner on the A28.
But Thornton said the French are adapting the PPP model for their prisons to suit local sensitivities, which, he argued, speaks volumes about the flexibility of the model. “In France, we are not providing custodial services, ” he said.
It is conceivable that the privatisation of custodial services would have met with fiercer trade union resistance than in the UK.
Thornton said that, should it prove to be successful, the RBS/Bouygues consortium will only build, finance and maintain the four prisons but that custodial services will continue to be provided by the state. “The great thing about European PFI is the way it can be adapted to meet what each individual government or local authority wants to get out of it.”
Altogether, the French ministry of justice has declared that it wants €1.3bn worth of PPP-funded prisons, a total of 18 facilities to detain 13,200 inmates.
Thornton admits that RBS, which — like HBOS — tends to work alongside local banks when pitching for such projects, was on the losing side to handle the A28 project, potentially losing some kudos to its older and more UK-centric rival.
However, this has not prevented RBS from having a greater number of PPP funded projects up and running on the Continent. Earlier this year, RBS landed the PPP project to build, finance and operate a railway tunnel that will pierce its way through the Pyrenees, connecting Perpignan in France and Figueras in Spain. “That freight project started construction in the spring and is a three-year build.”
Only last week, RBS secured a deal as part of a consortium including John Laing, Skanska and Lemminkainen Group to build and manage the €335m E18 Muurla-Lohja motorway in Finland with construction starting tomorrow.
Ceri Richards, Bank of Scotland’s head of infrastructure finance, said: “The market looks more active for PPP in Europe than ever, and this shows signs of developing beyond roads infrastructure.”
This article was published in the Sunday Herald on 30 October 2005