European PPP Center

PPP Deal of the Year EMEA - Interviews

Erik Aal, Project Manager

In your opinion which factors were helpful in reaching the set deadline for closing the tender process?

A team of highly qualified and motivated people worked very hard during a 10 months period. The relationship with the key people inside the Ministry was really productive. The mandate we had allowed us to move fast track but at the same time we managed the communication channels and this kept us tightly connected to the State Administration. It was agreed to make it a fast project and then we did it.

What would you do differently now as a project manager? What positive and negative experiences did you gain?

In retrospect I can say that we were successful where we had clear goals or we were able to establish relatively clear goals in an early stage of the process, hence we were less successful where we were not so clear about what we wanted. It is important to establish objectives, also practical ones that won’t come out of the State Administration, at the start of the project. In the next project efficiency, objectively measured, will be an important criterion as well.

In your opinion how could be the experiences gained through this project implemented in other countries?

Maybe in emerging economies the most important thing is to get PPP projects up to speed as the economic gearing effect of PPP projects is a major factor. In mature economies it is different, there it can be relevant to focus on technicalities and sophistication and take the time to sort those things out.

What impact could this success have on further PPP projects?

This depends mainly on the State Administration and the political system of course. To be able to bring a PPP project effectively to contracting is one thing, after that the effective operating of a PPP and the monitoring thereof by the State is another. As a team we have set a good example of how to contract, I believe.

Júlia Szűcs, Head of Department, Ministry of Economy and Transport

How do you evaluate the history of Hungarian PPP projects in the light of this award?

In the last years Hungary used PPP financing in many areas, such as in traffic infrastructure development or cultural, education-infrastructure investments and prison projects. Regarding Hungarian PPPs, it is usually emphasized on international conferences that it progressed with its PPP projects using its own experiences, and so doing, not only the international experiences but the constant learning also contributed to being able to set up more successful PPP projects. I believe that this award indicates that we are on the right track. It shows that we are able to create value through professionally established PPP projects, and that we do it in a way accepted – and now even recognised – by the market.

Would you say that this award can be considered as an overall recognition of the Hungarian PPP efforts?

If we follow the approach above, I have to say: yes, the award can be considered as the recognition of the PPP efforts of Hungary. Nevertheless, the recognition was given to the “M6 3rd phase” project, first of all. And it deserved it by being the largest Hungarian PPP project with the contract signed (and the financial close reached) in record time: in seven and a half month from the annunciation of the tender. That is unique among projects with such complexity, and in addition to that, this has been the first PPP tender where we had to use the new Public Procurement Act. It also has to be mentioned that we succeeded with signing the contract – the product of a public procurement process with international participants – in Hungarian language.

To what extent can this award be motivating for initiating future PPP projects?

As I already mentioned, the award acknowledges our efforts and confirms that we are progressing along the right path; but at the same time, it is also an indicator for the private sphere. I really count on this being an encouragement for their participation in the provision of public services, for it demonstrates that the Hungarian government is strongly committed to infrastructure development and that we are open and flexible enough to handle innovative financing and project implementation solutions, meanwhile also understanding and paying attention to the substantial importance of bankability. I hope that the “marketing value” of this award will further raise the interest of potential financiers and equity investors in Hungarian development projects.

In which sectors can we expect further PPP projects?

As for the Ministry of Economy and Transport, I can say that we are planning to go on using the PPP structure in our infrastructure development programme. As on the government level – apart from the ones above – further cultural, education-infrastructure and prison projects are to be expected.

Dr. Ivett Demkó, Head of Department, Ministry of Economy and Transport

You were responsible for running the public procurement procedure. What key issues did you consider and did you experience any difficulties that could have endangered the success of the tender process?

From the public procurement point of view it is important to highlight that this was the first motorway PPP project where the Public Procurement Act and the Concession Act had to be used jointly. This was the key issue to consider on the procurement side,  i.e. we had to ensure the fulfillment of all provisions of both Acts during the whole tender process and the contract signing. Other important point was to take into account the EU PPP guidelines. However, the main challenge was that PPP structures require flexibility while public procurement is a rather rigid process.

In the previous tenders both sides got used to the flexible frames provided by the Concession Act. However, this project has brought changes for both sides which were necessary for the fulfillment of the provisions of the Public Procurement Act. Both the experts and the bidders had to get adapted to the new public procurement tendering environment. In a public procurement tender the risk that one of the bidders can present a waiver against the tender process is always incorporated. With regards to the tight tender timeframe it could have been a major jeopardy.

To sum up, during the tender all steps had to be kept within the tight provisions of the Public Procurement Act. The realization was 100 % in line with all guidelines.

Béla Kilyénfalvi, Head of Structured Finance, ING Bank

In your opinion does the financial structure of the project reflect the expectations of investors and lenders? Is its application flexible for the 30 year duration?

In my opinion the financial structure is in line with the expectation of the investors and the lenders and it is also in harmony with EU requirements. In our region bank loans are available for up to 30 years term,  and this project is also financed using a 29.5 year financial package. A significantly longer financing term for a EUR 1 billion bank loan is not reachable. On the other hand a shorter term would have decreased the project’s value for money.
The project’s success is also proven by the fact, that 3 consortia formed by internationally acknowledged players participated in the tender. I would like to further point out that in the project financing structure of the winning bidding consortium 5 banks are involved which means a great success in the current difficult financing market.

What difficulties have you experienced as the financial advisor during the bidding phase and at the financial closing?

The project had to face various challenges in addition to a very tight timeframe. This was the first complex PPP transaction in Hungary, which was done under the new public procurement law. Further difficulties were caused by the fact that the official language was Hungarian. Therefore, all negotiations had to be conducted in Hungarian language whereas the representatives of the bidding consortia and the financing institutions were non Hungarians and fluent in English. Thus interpreters had to be used during the whole tender process – in accordance with the legislation. 

Looking at the financial close what are the key success factors?

In my opinion a PPP project of such scale can only succeed if the public side is fully devoted to the project and is supported by a strong political will.

Other key actors include consultants experienced in international dealings and in the proposed business structure, and generally informed of the local business and legal environment. The public partner of this project was assisted by Köves és Társai Clifford Chance as legal consultant and ING as financial consultant.

The maintenance of competitive bidding through the complete process is considered the second key factor.  This was mostly achieved by the continuous negotiations of the government side with the 3 consortia up till the submission date, and as a result of the fair and transparent tender process.

How did the international financial business respond to the success of this project?

The most commented issue was the successful completion of the tender process and financial closing in a very short term. Most analysts had been sceptical about this. It had been generally considered unlikely that financial closing could be achieved in 8 months from the issuing date.  Frankly speaking this time schedule had seemed to be rather hopeless to me but as the process was advancing it looked more and more reasonable.
The opinion  of the project financing business is clearly expressed by the PPP Deal of the Year EMEA 2007 award of PFI (Project Finance International).

Dr. Péter Köves, Partner, Köves Clifford Chance

What legal framework is available for Hungarian PPP projects and what are the recent changes that have supported or hindered PPP projects?

The effective Hungarian PPP legal framework is provided by the Public Procurement Act in the first place. In a paradox way the success of the PPP projects such as M6 Phase 3 could be reached only by efficiently combining the Public Procurement and the Concession Act. By European standars Hungary has one of the strictest Public Procurement Acts and the public procurement practice concentrates on procuring products. Therefore, it does not tolerate the flexibility required for a successful long term partnership between the public and private sector. Introducing the category “construction projects” according to European guidelines had little effects because in practice its regulatory framework and interpretation is as inflexible as any other public procurement tenders. However, in summary the current legislation in place is suitable for large infrastructural PPP project but it is less suitable for other types of PPP projects.

In light of international practice how would you evaluate the Hungarian PPP framework and how much are Hungarian experiences applicable for other CEE countries?

Personally, I would say that in the first place we need to look at the legal practice applicable in practice not at the legislation itself. Because PPP is not only theory, the legislation does not have to be evaluated from theoretical points but we need to see how to apply them to actual projects that were set up according to the legal framework in place. The adaptable Hungarian experiences actually concern the types of financing and legal techniques that can be successfully used for projects having political support. The Hungarian practice has developed such legal solutions as for example the direct agreement applicable in the CEE legal framework, or the main elements of PPP concession agreements, e.g. state control, penalties in the event of failure under the concession agreement or the legal management of the whole bidding process. These are all applicable in the CEE region.

You participated in the preparation and negotiation phase of both Hungarian PPP projects awarded by Project Finance International. How do you see the future and possibilities of PPP projects in the region?

In my opinion PPP is a suitable structure in every aspect for the region. From one hand it disburdens the state budget and enables implementation of various projects which are acutely required considering the obsolete social infrastructure. At the same time it allows integration of private sector experience, flexibility and market competitiveness into the historically bureaucratic projects to be implemented by the state.

Thomas Höfner, Strabag

How do you evaluate the management of the whole public procurement process from the tenderer's point of view?

We felt that the entire public procurement process was structured and managed in the most transparent, efficient and streamlined manner. The high level of expertise on technical and adviser’s side to state was really impressive.

The time frame of the process was the shortest one known in this field. Had it a supportive effect to the project or did it rather disadvance it?

It is true, we could not find an example of a transport PPP transaction closing faster. The fast trade negotiation process conducted with 3 bidders concurrently certainly helped to focus on the underlying essentials of the project. I have to highlight the issued risk matrix, which indicated a fair and proper risk sharing between the public and private sector parties.

What do you consider as major challenges during the forthcoming construction works?

We should endeavor to preserve the spirit of cooperation and mutual trust between the players of the project with a view to create a win-win solution. Regarding the technical specialities, mentioning the large engineering structured tunnels and viaducts, we need to pay special attention to the proper scheduling of the works to keep the deadline of opening.

What lessons have you learnt, what conclusions can be drawn?

The clear objectives by the Hungarian State to continue the PPP scheme pioneered at M5 enabled an efficient rate of new projects which is also well appreciated by financial institutions as well.

Partner Organization
Partner Organization
Partner Organization
Partner Organization

Kazakhstan PPP Center

Partner Organization
Partner Organization
Partner Organization

Your promotional space

more info