Von Erlend W. Holstrøm, Partner, Alf Amund Gulsvik, Senior Lawyer, und Vilde Hannevik Lien, Senior Associate, Wikborg, Rein & Co, Oslo

Die Reform im norwegischen Transportsektor bietet privaten Unternehmen neue Geschäftsmöglichkeiten. Das staatliche Straßenbauunternehmen Nye Veier AS wird in den nächsten 20 Jahren 130 Milliarden NOK in den Straßenbau investieren. Die norwegische Regierung will einige der künftigen Vorhaben als Public-Private-Partnerschaft-Projekte realisieren. Das bringt zusätzliche Herausforderungen hinsichtlich der zu erwartenden Tender und der Umsetzung der Projekte. Die geschäftlichen Aussichten, die diese Bauvorhaben repräsentieren, sind es aber Wert, sich mit dem Thema zu beschäftigen.

The reforms in the Norwegian transport sector provide new possibilities for private companies. The new state-owned road construction company, Nye Veier AS, is planning to spend approximately NOK 130 billion on road construction within the next 20 years. The Norwegian Government wants several of these projects to be implemented by way of public private partnerships. This may prove to be more challenging for both the public and the private parties with respect to the tender process and implementation. However, the possibilities that these projects represent for the contractors might make it worth the extra efforts.

The Norwegian transport sector is in the process of going through extensive reforms, both at a general level in the form of a new National transport plan for 2018-2029, and to various extents within the road, railway, coastal and aviation fields, jointly referred to as „the transport reform“. The purpose of the reform is to increase the socio-economic profitability in the sector, financed within the limits set by the budgetary rule[1].

An important element in the reform is a framework for increased use of public private partnerships, so-called PPP. PPP involves a contract between a public sector authority and a private party based on the public party’s description of the assignment, such as construction of a new road, with functional requirements and defined standards and qualities that must be met. Within these limits, the supplier is given the freedom and overall responsibility to develop, construct, operate and maintain the project for a set time period, usually 20 to 30 years.

PPP has previously been used in three road projects in Norway. An evaluation of these[2] indicates that PPP has resulted in both quicker implementation of the projects and a more favourable distribution of risks between the private and public sector. The trial projects were not significantly construction cost saving, but innovative solutions were observed in respect of project organisation, contract strategy and project financing.

The Norwegian Government has stated that it considers PPP to be a suitable way to organise the development, operation and maintenance of future transport infrastructure.

„The Government wishes to cultivate PPP as an implementation strategy. By seeing development and maintenance in connection with each other, with the same responsible developer, this may trigger both innovation in the implementation with new technical solutions and construction methods that are more cost efficient in a lifetime perspective, and may thus result in more roads for the money“[3] [our translation]

The Norwegian Government argues that PPP contributes to innovation and improved efficiency because it allows for choosing long term cost limiting solutions at an early stage, both in the design of the project, operation and maintenance, as well as in logistics and implementation. By such organisation, the supplier is responsible for making use of all possibilities in a long-term perspective by seeing the planning, construction and operation/maintenance as a whole. Expert knowledge about historical operational conditions is included in the project from the start, and cost focus based on a lifetime perspective is introduced early in the development stage. In the transfer to operation, the risk of conflicts is reduced since the transfer takes place internally within the PPP organisation.

Traditionally, the PPP-company receives payment from the public party after completion of the development period, and as long as the company is responsible for the operation, according to an ongoing operation agreement. No income risk is placed on the PPP-company, the government remains responsible for the income, and any potential toll collection is subcontracted to toll road companies. The revenues from the toll collection go to the government, and are included in the total remuneration to the PPP-company together with public funds. The intention is that the party considered to be best equipped to handle the various risk elements in the project, is given the responsibility for these elements. Generally, the private contracting party assumes more risks from the public authorities than is the case in traditional contracts.

In future use of PPP, the Government intends to change the payment mechanism compared to the mechanism used in previous PPP projects that have been carried out on roads in Norway. The objective is to reduce the PPP-company’s total financing costs. The major part of the investment costs shall be disbursed earlier in the contract period than has been the case in previous projects. Consequently, the PPP-company’s need for loan financing will normally be limited to the construction period. This gives the PPP-company a strong motive to complete the road quickly. A minor part of the investment costs will however be disbursed during the operation period, motivating the company to make life-cycle quality a priority. The PPP-company will still receive an annual remuneration through the entire contract period for operation and maintenance.

In the national budget for 2015, it was announced that three new projects are to be planned carried out by way of PPP. These are RV 555 „Sotrasambandet“ in Hordaland, RV 3/25 between Hamar and Elverum, and E10/Rv85 between Tjeldsundet and Langvassbukt in Nordland. In addition, the routes E16 Oppheim – Skulestadmo in Hordaland, E134 Haukelitunnelen in Telemark and Hordaland, E6 Sørfoldtunnelen in Nordland and the routes and fjord crossings on E39 are considered for PPP.

This has been followed up in the proposal for a new National transport plan for 2018-2029. However, there is some uncertainty as to whether there will be sufficient funding for the „Sotrasambandet“ project.  It is the Ministry of Transport’s intention that further use of PPP shall be considered in the audit of the National transport plan. The transport agencies have therefore been asked to consider which projects, from a proposed portfolio, that they consider suitable for implementation as PPP projects. The transport agencies have selected the project E6 Åsen–Steinkjer and E6 Megården–Mørsvikbotn.

The road reform also comprises the establishment of a separate development company for roads – Nye Veier AS, which was established in May 2015 and has been operative since January 2016. The company is state owned and is responsible for planning, construction, operation and maintenance of the important primary roads in Norway. The company administers NOK 130 billion which shall be spent on roads over the next 20 years. Nye Veier AS has pointed out priority routes for the first stage (until 2019-2020). These are selected based on the National transport plan 2014-2023. It remains to be seen whether Nye Veier AS will make use of the PPP model. The company as per today is not authorised to do so.

The government has listed a number of criteria which must be fulfilled in order to use PPP:

• It should be a sufficiently long route, which can be operated and maintained efficiently by the developer.
• It must be possible for the private developers to properly assess the risks of the project. This means avoiding projects that involve reconstruction of existing infrastructure with heavy traffic and complicated traffic situations which must be operative during the construction period and that is situated in complicated urban areas, and consequently entail significant unpredictability.
• The projects must be limited and well defined in order for the participants to best be able to assess the risks.
• The projects should be of a certain scope given that PPP projects involve a comprehensive and demanding procurement process. At the same time, the projects should not be too comprehensive, resulting in a total risk that is too high for the developer.
• The implementation provided by PPP should give added value compared to other relevant methods of implementation, such as better socio-economic profitability or other effects.
• It is important that the developer is given some freedom when it comes to detailed design, choice of method and material etc. – in order to be able to benefit from the incentives that lie within the PPP model.

 

The PPP-contract is assigned subject to a public procurement procedure. The contract mainly regulates the relationship between the public authority and the private company, and cooperation (partnership) between the two parties is envisaged. The distribution of risks makes this a challenging type of agreement, and the private company must consider the project carefully before submitting a tender in such a competition.

The PPP is a demanding model for the tenderer. The planned changes is the financing of the projects, may however cause an increased interest in these contracts, both in Norway and abroad, thereby making the competition tougher.  This is confirmed by enquiries we have received from major PPP environments in Europe. It will therefore probably become even more important to be well prepared in the tender process and to do a solid job when preparing the tender.

[1] (Norwegian: handlingsregelen), a rule concerning the use of capital gains from The Government Pension Fund – Global of Norwa, stating that a maximum of 4% of the fund’s value should be allocated to the yearly government budget.

[2] Made by Transportøkonomisk Institutt and Dovre International AS, 2007 (The last project was in fact not completed at the time of the evaluation, and the assessment was partially based on preliminary estmiates. It later turned out that the construction budget was exceeded by more than MNOK 800.)

[3] St. Meld. 25 (2014-2015), På rett vei.

 

Kontakt:
Erlend W. Holstrøm
+47 911 32 417
ewh@wr.no