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Agency & Distribution Agreements under the E.U.

Greece has come to Public Private Partnerships relatively late amongst the older nations of Europe. Recognising that it will face stiff competition for resources in what is becoming an increasingly globalised market, the PPP Unit of the Ministry of Finance has taken care to plan a programme to excite interest at home and abroad. The success of this approach can be judged from the number of companies from beyond the borders of Greece attending the recent conferences to promote the PPP programme. Contractors, investors, senior lenders (including, very importantly, the European Investment Bank) and advisers from across Europe and beyond have been actively assessing opportunities.

There are 32 projects in the first wave across a wide range of sectors including government buildings, schools, hospitals, defence, leisure, security and waste. The projects range in size from €16 million to €342 million both NPV (in each case plus 20% for insurance and heavy maintenance). Some of the smaller projects fall below what would be regarded in some countries as suitable for a PPP and it will be interesting to see how the market responds to these smaller deals. One common feature of PPPs is that the bidding stages are expensive for both the procuring authority and the bidders relative to conventional procurement.

Perhaps in recognition of the cost issue, the PPP Unit has so far adopted restricted procedure for tenders for the few PPP projects that have so far come to the market. This should have the effect of simplifying and accelerating the process compared to countries where competitive dialogue is used for PPPs. There will, however, be a price to be paid by the Greek government for using restricted procedure, in terms of reduced scope for the private sector to introduce innovative solutions. It also seems possible that a single round bidding process will not yield the level of price competition that is achieved when bidders have to refine their prices through several bid rounds. It remains to be seen whether the use of restricted procedure will deliver the same value for money as is seen in PPPs elsewhere.

Historically there have been certain cultural features of tendering for public works in Greece that may have tended to deter foreign companies from becoming involved. The PPP Unit has been very open in recognising the need to address this issue head-on and its adoption of restricted procedure for all procurements so far under the PPP programme (the advisory appointments as well as the project themselves) is at least in part designed to ensure that all tenders are awarded on strictly objective and verifiable grounds. Nobody should be in any doubt as to the criteria that will be applied to select the preferred bidder and how they are going to be applied and there should be little or no scope for argument after the event.

At the time of writing (early June 2008) only two PPP projects have reached the stage of having a short-list of pre-qualified bidders and only one of those (7 new fire stations for the Hellenic fire brigade) has issued tender documents to the bidders. It was already known that the PPP Unit intended to learn from the experience of countries with more established PPP programmes, especially the UK. The fire stations Partnership Agreement very closely follows the standard form of Project Agreement published in the UK by the 4Ps, which in turn conforms to version 4 of the guidance on standardisation of PFI contracts published by HM Treasury in the UK, commonly known as SOPC4. Minimal changes have been made to convert the standard from English to Greek law. This should be comforting for everyone concerned, but especially any international participants, as the risk allocation between the public and private sectors represented by SOPC4 has been thoroughly tested and has been shown very many times to be bankable in the project finance market.
There are some areas of concern, where we must all await developments with interest. Although there have been several large BOT projects in Greece, there is relatively little experience of project finance and the disciplines that it introduces. Of necessity, there are lessons that will have to learned here.

There is almost no facilities management industry in Greece. It is an essential feature of PPP projects that there is a competitive industry able to provide the long term operation and maintenance of the facilities procured through PPPs. These projects will typically last for 25 years or more with the construction phase being complete within the first two or three years of all but the very largest projects. Most of the long term risks, therefore, arise in the operation and maintenance phase. The majority of those risks will need to be subcontracted to the facilities management or operations subcontractor, who will be locked in at a fixed price (other than indexation for inflation) for the duration of the project. One of the essential protections for the funders (senior debt and equity) is the ability to remove the facilities management subcontractor if the project is running into problems and appoint a replacement. The funders have to be confident that there will be a competitive market to which they can turn to find the replacement at a reasonable price. In many other countries there is a thriving facilities management industry quite apart from PPPs. It is reasonable to expect that the Greek PPP programme will prove to be the catalyst for the growth of such an industry in Greece and there looks to be a real gap in the market here, ripe for exploitation. Without it, the PPP programme may struggle.

The PPP Unit is promising that it will bring a first wave project to the market more or less every month. They have recognised that deal-flow is one of the keys to ensuring healthy interest from investors, senior lenders, contractors and advisers. It is also clear that there is a recognition on the public sector side that profit is not a dirty word. Private sector businesses exist to make profits and they must be allowed a reasonable opportunity to make a fair return if the PPP programme is to be a success. There is strong international competition for money, expertise and other resources for PPP projects. Greece has understood this and gone out of its way to make its PPP programme attractive. There are sure to be some hiccups along the way and doubtless things will not go quite as quickly as the government might hope, but all the signs are that the Greek PPP programme is going to be a great success.