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 added.
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 Projects.
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 traffic.
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.