Two linked Belgian transport PPP projects closed at the end of September improving road and rail links around Brussels International (Zaventem) airport: the Diabolo rail project and the Via-Zaventem road scheme.
The deals set an unusual PPP template: a single construction tender was run separately from two separate tenders for investors for the rail and road project.

The Eu540 million Diabolo rail project is an underground connection between Zaventem airport and a future Schaerbeek-Mechelen railway line. A consortium comprising Babcock & Brown (75%) and HSH Nordbank (25%) was awarded the 40-year DBFT concession in September 2007, after having negotiated the project since July 2006 as non-exclusive preferred bidder. First invitation to tender for the financing launched in EJEU in Dec 2004. In Nov 2005 the parallel tender for the construction was launched.

Infrabel, the state owned infrastructure manager, chose the HSH Nordbank-Babcock & Brown consortium beating over 20 potential investors, including Macquarie, which owns 70% of the Brussels Airport Company.

During the 35-year operating phase, the project company's revenues will be predicated on three main sources: a supplement charged to the individual passenger for every trip to or from Brussels national airport station (currently Eu3.8 and indexed to inflation); a yearly indexed contribution from Infrabel of Eu9 million; (and an annual contribution from the rail operators – 0.5% of the national fare receipts). An adjustment mechanism allows the project company to request an increase in fares, if realised traffic is lower than base case forecasts, but any amendment must be ratified by Parliament.

The project company is the facilitator of the infrastructure and has no direct control over the operator of the trains and cannot compel the Brussels Airport Company to direct passengers to the station. Banks that supported losing bidders have raised concerns at the quality of the concession given these issues: lack of control of train frequency, quality of trains and the interface with the Brussels Airport Company.

However these risks are mitigated with a minimum standards and minimum timetable agreement with Infrabel, which is responsible for the granting of operator concessions. This agreement supports the financial base case, which is set low to give comfort to investors and lenders. Also, the airport station is categorized as a premier station – the highest level in the hierarchy of stations within Belgium – which will ensure a minimum frequency of trains.

The total investment for the Diabolo project amounts to around Eu370 million; Eu315 million will be privately financed. Just under Eu36 million is provided by HSH Nordbank and Babcock & Brown as equity. Babcock & Brown's 75% equity investment in the project is Eu27 million; HSH Nordbank's 25% holding equates to Eu9 million.

HSH Nordbank is sole lead arranger and the debt breaks into a 31-year Eu279 million senior term loan (with an average life of 20 years), a Eu15 million standby facility and a Eu12 million letter of credit facility. The standby facility protects cashflow in the early years of the project, and if drawn will be amortized along the same repayment schedule as the senior debt. Pricing is just over 90bp, with ASDCR modeled to be no lower than 1.4x.

A spokesperson from HSH Nordbank says given its size there is no great rush to syndicate the loan, and it is likely to invite a small syndicate of banks familiar with international PPP projects and the Belgian funding market. A syndication memorandum will be prepared at the end of the year or the beginning of 2008. First drawdown is due mid-October.

The railway works include the extension of the existing underground station, the 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 and the construction of the access ramps to the E19's central reservation for the connections along the new line Schaerbeek – Mechelen. That connection will be realised through an underground railway branch in Machelen. Construction is set to start by the end of October 2007.

The Eu60 million improvement to the road network north of Zaventem airport is joint-sponsored by Fortis (51%) and a public company, Via-Invest Vlaaderen, (49%). Via-Invest is itself owned by the Flemish PPP taskforce Participatie Maatschappij Vlaanderen (PMV) (51%) and the Flemish Region (49%).

This is the first time Fortis has invested equity in a PPP project, and on more familiar terms the bank is also is putting up Eu60 million of senior debt. The concession has a construction period of 4.5 years and an operating period of 30 years, which allows a six-month debt-free tail. The debt is structured and priced at near the benchmark for availability-based road schemes in Europe at around 50bp and around 1.25x ADSCR.

Via-Zaventem contractually passes through most of the construction and operating risks to the EPC consortium, the project company is taking only residual risks for a return of between 8% and 12% IRR.

The project company Via-Zaventem shares the mix of private and public shareholders common in the strategic partnership agreements in the UK, notably the LIFT and Building Schools for the Future schemes. The ethos is to foster greater partnership between the private sector and the awarding authority and to prevent excess profits.

One construction tender was run for both projects because engineers thought there was enough of an overlap to provide cost savings, hence the divorce of construction companies and investors. The constructors are operating under a classical lumpsum turnkey EPC contract: CEI-De Meyer, MBG, Wayss & Freytag, VINCI Construction Grands Projets and Smet Tunnelling. Some sophisticated inter-project documentation was required to allocate the risks between the overlapping rail and road projects, though the path to financial close was smoothed by some protocol agreements between Infrabel, the awarding authority on Diabolo, and the Flemish region.

Though the two projects share similar features, they were tendered to investors as separate projects because rail and road are controlled by different authorities with different competencies and financial mechanics – the Diabolo rail project, tendered by the federal body Infrabel, has some traffic risk, whereas Via-Zaventem, is based purely on availability based payments. Investors on both projects were asked to have committed underwriting plans in place.

A market participant says it is unlikely that the template of separate EPC and investor tenders will be followed for future projects because of the time it took the projects in negotiation – memorandums were produced on the projects in 2005. "It was like a double-PPP," said one participant. "The awarding authorities had to go through with separate negotiations with the constructors and the investors."

PPP in Belgium is still on a learning curve. There is political impetus for public authorities to be involved in project companies – so Belgium is likely to follow the UK example and have private-public SPVs on smaller projects and adopt traditional PPP structures on the larger deals.

Via-Invest has another five projects in the pipeline with the next to be awarded the North-South Kempen road project which will include the construction of a viaduct and boring of tunnels with a project value of over Eu100 million. The Kempen road project is likely to be awarded before year end.

Northern Diabolo NV
Status: Reached commercial and financial close late 28th September
Description: PPP financing to improve rail connectivity to Zaventem airport
Awarding authority: Infrabel
Sponsors: Babcock & Brown (75%); HSH Nordbank (25%)
Lead arranger: HSH Nordbank
Financial adviser to Infrabel: CTBR
Legal adviser to Infrabel:
Cleary Gottlieb Steen & Hamilton
Legal advisers to debt and equity: Allen & Overy (project docs and debt); Freshfields (equity docs)
Technical and traffic consultant: Scott Wilson
Insurance: Marsh
Model Audit: PkF

Via-Zaventem
Status: Financial close 12 October
Description: PPP financing to improve road connectivity to Zaventem airport
Awarding authority: the Flemish region (PMV)
Sponsor: Fortis
Lead arranger: Fortis
Legal adviser to authority: DLA Piper
Legal adviser to Fortis: NautaDutilh
Construction consortium on both projects: CEI-De Meyer, MBG, Wayss & Freytag, VINCI Construction Grands Projets and Smet Tunnelling