Appetite for funding infrastructure projects in the Balkans
will be tested in the coming weeks as a flagship E1.58 billion
highway across Montenegro vies for funding amid reports of
concerns over the viability of public-private partnerships
(PPP) in the region.
The race to secure the financing from development banks and
commercial lenders in the next three to four months is now
underway after a Greek-Israeli consortium, made up of
construction groups Aktor and HCH, clinched a tender on Tuesday
to build the road.
This effort, after a winning bidder from Croatia last
year failed to raise the funds, will be a real test
for PPP initiatives in a region that is famous for
failures, Vojislav Kandic, senior advisor on
infrastructure services at the International Finance
Corporation (IFC), told Emerging Markets.
The funding hinges on the participation of institutions
which the consortium will now approach: the EBRD, IFC and the
European Investment Bank (EIB). Even if this is secured, the
involvement of commercial banks, through co-financings, is
still expected to be minor and hard to obtain, Kandic
While long-term bank lending for such projects receded
globally because of the financial crisis, the bigger problem in
the Balkans remains investors confidence in the legal
framework and economic risks, said Cedric Dubois, business
development manager at infrastructure developer Egis
Traffic risk is a big problem, Dubois said.
Kandic echoed this view, adding that consumers weak
spending power in the region would limit the profitability of
toll road ventures. In the Montenegrin case, the government has
had to pledge to subsidise any shortfall from lack of
Others hope, however, that initiatives to improve frameworks
and capacity for these in the Balkans will override
lenders worries and boost PPPs in the region.
Lack of capacity is the key issue, said Kamilo
Vrana, managing director of the agency for PPP of the Republic
of Croatia. Vrana added that he definitely did not
agree that raising financing for projects was in itself
an obstacle. He said that the bigger immediate challenge was a
lack of people skills and regional expertise in the PPP
process, which the agency was addressing.
Geoffrey Hamilton, chief of section within the economic
cooperation and integration division of the UN Economic
Commission for Europe, said there was an overkill
of demand from potential project lenders looking for fees.
Hamilton said the bigger problems were a lack of a regional
dialogue surrounding PPPs and a nation by nation process
that isnt working. PPP officials are now working on
a regional approach under the auspices of the Regional
Cooperation Council, he said.