CMS has just published its latest report Bridging Continents — Infrastructure Index 2019 in which data from 50 jurisdictions are analyzed against six criteria to create a guide to the most attractive destinations for infrastructure investment. The 2019 Infrastructure Index uncovers four key areas that present exciting opportunities for investors: Public Private Partnership in new markets, 5G, subsidy-free renewables and floating technologies. The Index criteria are:
- Economic status,
- Sustainability and innovation,
- Tax environment,
- Political stability,
- Ease of doing business,
- Private participation.
On the global level the most attractive market is Germany, followed by Netherlands, Singapore, Australia and Canada. Poland is the best ranked country among all Central and Southeast Europe (CSE). It’s the 19th, and the next CSE country is Czech Republic (23rd), Slovakia (24th), Hungary (28th), Russia (31st), Romania (39th). Bulgaria (41st) and Ukraine as the 46th country. When comparing with the previous Infrastructure Index from 2017 Russia is the country that made the biggest progress.
Public-Private Partnership demand in new markets
CMS experts write that PPP’s popularity grows the most outside of Europe — in Latin America, Asia Pacific, the Middle East and Africa. These regions provide opportunities for investors to leverage their expertise, as well as their capital, in structuring large projects. According to CMS continents with significant infrastructure deficits, such as Latin America and Africa, will drive demand for PPPs to support their economic transformations.
Growing digital appetite
According to CMS investors are positioning themselves for opportunities in the technology sector with some involved in the broadband PPP tenders. APAC countries are in the best position in the race to implement 5G. South Korea boasts the world’s first nationwide 5G network which reached one million subscribers in 2019.
Poland is brimming with opportunities
Poland climbed the Infrastructure Index rankings from 21st position in 2017 to 19th in 2019 thanks to its political stability, ease of doing business and improved private participation. Favorable policies implemented in the energy sector have boosted renewable project development.
CMS notes that Europe’s renewables sector marches towards merchant power projects with market disruptors well positioned to capitalize on the subsidy-free renewables boom. The rise in the popularity of corporate Power Purchase Agreements (PPA) has also reached CSE with Poland taking the lead.
CMS experts stress that PGE (the largest energy group in Poland) is instrumental in expanding the Poland’s PPAs, having signed new agreements in 2019 with the leading chemical company Grupa Azoty. In 2019, Signify signed its first European renewable energy virtual power purchase agreement (VPPA) in a 10-year deal with Green Investment Group’s Kisielice, an onshore wind farm in Poland.
CMS writes that Poland’s ambitious coal generation reduction target, necessitating a 50 per cent decrease by 2040, is a driver of investment in renewables, and the country is set to become one of the most promising offshore wind markets globally. The Polish government is targeting the development of 10GW offshore wind capacity by 2030.
Another goal for Poland is making headway on the EU recycling target of processing 50 per cent of the country’s waste by 2020. Thus Poland’s waste-to-energy market is thriving. CMS reminds that waste management laws in Poland are being revised regularly and changes are frequently introduced to secure the appropriate infrastructure and successful operation and maintenance of facilities.
As an example CMS gives Poland’s new WtE hub (waste-to-energy) located in Olsztyn (north-east Poland) that in June 2019 was awarded to a Meridiam-led consortium under a 30-year PPP contract.
Total project costs are estimated at EUR780m with Meridiam taking ownership of an 80 per cent stake. China’s Urbaser — an environment management company — holds the remaining 20 per cent share.
The new combined heat and power plant for Olsztyn aims to provide clean energy for the 173,000 inhabitants of the city, replacing an ageing fleet of coal-fired stations. The project will receive EUR40m in funds from the European Union. Approximately EUR100m in debt finance will be provided by a consortium of lenders including the European Investment Bank.
Developing the next European airport hub
Boasting the highest growth in passenger traffic in Europe, CSE countries are announcing big airport expansion projects. With several attractive and profitable assets, CSE is providing a pocket of opportunity for airport investors in 2019 with new greenfield operations in Romania and Lithuania. In July 2019, a new contender as a regional hub emerged, with Vinci taking control of Serbia’s Nikola Tesla Airport. Vinci plans to invest about EUR730m to build up the facility into the best-connected airport in the region.
Other important infrastructure projects in CSE
CMS lists other major infrastructure projects in the region that took place in 2019. Macquarie Infrastructure and Real Assets entered a deal worth EUR1.8bn, taking over the regulated gas distribution network, Innogy Grid Holding in Czech Republic. Another noteworthy project there is the ongoing D4 highway PPP procurement process.
Slovakia and Poland are cooperating in construction of a gas interconnector. This project has begun in September 2019 and is being executed by the Slovak transmission system operator EUSTREAM with its Polish counterpart GAZSYSTEM.
In April 2019, the reconstruction of the 152km Hungarian section of the Budapest-Belgrade rail line was awarded to a Chinese-Hungarian consortium. The value of the project is EUR2.3bn.
In February 2019, the Romanian government proposed a list of 21 PPP projects, including highways, hospitals, railways, power plants and tourist resorts. One of the most advanced projects is the Ploiesti-Brasov motorway, thus the Romanian government decided to declare it a project of national importance and to finance it from government funds.
Bulgarian Transport Ministry selected a consortium including Meridiam, Strabag and Munich Airport as the preferred bidder for a 35-year concession of operating Sofia Airport. Meanwhile in Ukraine CMS notes a spike in onshore wind activity. In June 2019, a wind farm, the 200MW Primorskaya, raised funds from a group of German banks. The project’s total cost is approximately EUR150m.