ECONOMY

Application of IAS is threatening future of private project financing

In addition to delays of many years due to red tape and the big realignments in the construction sector after the spate of mergers, Greece’s six large road projects, planned under the so-called Public Private Partnership (PPP) schemes, are facing two more problems. The first is that some of them do not appear to be attractive enough investment propositions to private enterprise. The Central Greece highway is the most characteristic example: It looks likely to fall victim to the same tribulations as the Thessaloniki metro project – being postponed for ever – as it appears doubtful that it will produce a reasonable return on investment from toll revenue, calculated on the projected traffic for the set period of the concession. The second problem is a negative international climate, linked to the adverse effects on companies’ balance sheets of changes brought on by the planned adoption of International Accounting Standards (IAS). There is also concern among banks active in project financing over the similar effect of decisions reached by European bankers within the framework of the Basle Agreement, setting new rules for the industry. The climate of general uncertainty is reflected in the data for the international market for self-financed projects in the first half of 2003. According to Dealogic, which compiles the data, the 117 such agreements that were signed by banks in this period totaled $37.52 million internationally, against $40.65 million for 122 agreements in the respective period of 2002. The recently announced withdrawal of France’s Bouygues from the Thessaloniki metro concession agreement is attributed by some to fears among the members of the consortium it leads over the feared effects of changes under IAS. It is said that Bombardier – also a French member of the consortium – has clashed with Bouygues over the issue. Even before the Thessaloniki metro project, a number of the foreign members of the consortiums competing for the six new projects had also withdrawn, while other consortiums collapsed after some Greek members merged. In the three years since the tenders were issued, Spain’s Dragados, one of the world’s largest construction companies, withdrew from the tenders, while Germany’s Holzman went bankrupt. The result of such developments was that certain groups were effectively dissolved, others were strengthened, while the definitive list of competitors was only finalized last June. The uncertain future of jointly financed projects is also linked to differences within the European Commission; one directorate is trying to resurrect the famous plan for inter-European networks, while another has not yet decided what percentage of public sector participation in a project would not be considered a subsidy to private contractors. The confusion in Brussels is reflected by the progress of inter-European networks to date: Only three of the 14 priority projects set by the Commission in 1994 have been completed, while several of the rest are still at the stage of study. Most of them, particularly rail and cross-border networks, are hampered by the lack of interest on the part of private firms. In recent years, the 15 EU member states have invested 15-20 billion euros annually in the networks, which is considered not nearly adequate for the completion of the projects by 2010 – the original date set.