Public-private partnerships: Netherlands switches on to public-private deals

Author: | Published: 23 May 2005
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

Jaap Koster, Houthoff Buruma

The market for privately financed infrastructure is growing in the Netherlands. As in many other European countries, it has been the public sector that has traditionally developed and financed infrastructure. In recent years, PFI projects in the UK have led Dutch government bodies to realize the potential benefits of public-private partnership (PPP) in infrastructure development.

Several infrastructure projects have come to market since the mid-1990s. The government has awarded two large PPP contracts: the €1.2 billion ($1.46 billion) design, build, finance and maintenance (DBFM) contract for the infrastructure of the HSL-South High Speed Rail Link between Amsterdam and the Belgian border (connecting Amsterdam to Paris) and the €480 million design, build, finance and operate contract for the construction and redevelopment of a wastewater treatment facility in Delfland serving the Hague region. Two smaller road projects have been put on the market: the recently closed A-59 contract and the N-31 contact, which is at the preferred bidder stage.

Until recently, the Dutch government had no budgetary reason to follow the PPP model. Private-sector money was not specifically needed to provide the infrastructure needed for the Dutch economy. In these four pilot projects, the challenge was therefore to show that PPP had advantages: the delivery of the same or a better quality of work for a lower price.

The Dutch PPP Expertise Centre (Kenniscentrum PPS) is a taskforce set up by the Dutch Ministry of Finance and is comparable to Partnerships UK in the United Kingdom. To establish whether the pilot projects provide value for money, the PPP expertise Centre developed a way of measuring how these private sector projects compared with public sector equivalents. All four projects offered significant advantages over the public sector.

One would therefore expect a more stable flow of PPP projects. Nevertheless, the market for this type of project is growing slower than it could. Although a number of road projects are in the preparation stage, there is no stable deal flow yet. An important push in this market could result from the Dutch government's concern over the declining economy. There is a sense of political urgency that new rail and road infrastructure is needed, but budgetary deficits are, in the short term, stalling construction. As in the UK, where budgetary concerns were the driver of the private finance initiative, the current economic situation could well be decisive in a broader development of the Dutch PPP market.

Growth in the PPP market in the Netherlands might also come in the area of facility PPPs. With the support of the PPP Expertise Centre, the government is now tendering the first DBFM contract for the construction of a school. The market has shown great interest in this project. Successful completion of the tender could lead to a range of new school projects all over the country. If a trend develops in the area of education, then the health sector might follow close behind. The development and operation of hospitals and other health care facilities is already being studied.

For the PPP market in the Netherlands to grow, a reduction in transaction costs will be necessary. In the initial projects both the public sector and the private sector had to expend substantial amounts in advisory costs. In many projects, UK advisers were used, along with Dutch advisers, to take advantage of the UK's experience with PPP. This duplication will no longer be necessary. The Dutch adviser market has reached a level of sophistication that makes reliance on UK experience unnecessary.

A Dutch-oriented approach would also help create a more efficient standard in the legal documentation used in PPP projects. Under the common law influence of the PFI examples, the initial Dutch projects were largely structured along English contractual lines, although officially Dutch law was applicable. More recent projects have reflected an increasing and more efficient reliance on traditional Dutch civil-law culture and on the tried-and-true Dutch Civil Code. There is a trend away from relying on the complicated and detailed structure of common law contracts. The PPP Expertise Centre is taking initiatives to develop standardized documentation for specific types of contracts. Naturally, standardization would also help to reduce transaction cots.

Overall, there are several valid and objective arguments for the more frequent use of PPP in the Netherlands. All projects so far have benefited the public sector. Both the public sector and the private sector have invested in expanding their PPP knowledge and expertise. It is now time to benefit from that investment. Finally: at a time when the government is cutting expenditure, the private sector is able and willing to finance public sector projects that are necessary and unavoidable.

Jaap Koster is head of the Infrastructure Group of Houthoff Buruma in the Netherlands.