Construction firms should look eastwards as growth slows in mature markets



    TORONTO, July 2 /CNW/ - As the pipeline of construction projects comes
under pressure in the mature markets of the US, UK and Western Europe,
construction firms are increasingly looking to Central and Eastern Europe
(CEE) to diversify their opportunities, according to research launched today
by PricewaterhouseCoopers (PwC). The scale of infrastructure investment needed
in CEE and the steps taken by local government to enhance the attractiveness
of these investments are key drivers attracting international interest in the
region.
    "It's not only construction companies that are looking to CEE for
investment opportunities," says Michael Clifford, Canadian Industrial Products
Tax Leader - Engineering and Construction, PwC. "There is also significant
interest from global asset management companies including specialized
investment funds who are focussed on acquiring, investing and/or managing
infrastructure assets."
    As a result of historic underinvestment in public and social
infrastructure within CEE, namely Bulgaria, Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, Ukraine, the region is
facing an 'infrastructure gap'. There is an estimated (euro)500 billion of
capital investment needed to modernize the region's infrastructure,
particularly in transport and water supply. The European football
championships, planned for 2012 in Poland and Ukraine, are providing
particular impetus to investment in roads, airports and rail in addition to
stadia and hotels. Investment need is driving activity in the civil
engineering sector throughout the region, which in many CEE countries is
expected to achieve higher output in the short to medium term relative to
housing and non-residential construction.
    A significant proportion of the infrastructure investment needs will be
funded from public sources backed by European Union funding. But these sources
are finite so private investment and in particular, Public Private Partnership
(PPP) structures, are emerging as popular models for funding investment, which
are already widely used in Western European markets. Aside from the simple
need for new financing sources, CEE governments are increasingly coming to
appreciate the potential benefits of PPP: value for money, breadth and depth
of skills brought by the private sector.
    "The potential opportunities for international construction companies,
and others, in infrastructure projects in Central and Eastern Europe are
extensive," says Clifford. "The expanding size of some of these projects and
the need for technical expertise to implement them will present further
potential for consortia led by global companies, many of which are already
active in the region. Due to the lower financial intermediation in the Central
and Eastern Europe region compared to Western Europe and the USA, and the
willingness of banks to provide debt financing for PPP deals, the 'credit
crunch' conditions currently do not appear to be significantly affecting PPP
deal flow in and Eastern Europe."
    To date PPP activity in CEE has been limited, with about a dozen PPP
transactions completed, mainly in Hungary's transport sector but there are
currently more than 50 ongoing and upcoming PPP projects expected to be
completed during or after 2008. PPP activity in the region has already
attracted some of the world's leading developers and construction companies,
keen to take 'first-mover' advantage, but there is certainly room for growth.
    Recently, there has been an increased drive by CEE governments to improve
PPP investment frameworks, with initiatives such as the creation of specific
legislation governing concession contracts and PPP procurements and the
implementation of relevant EU directives into each country's PPP legislation.
    "For international firms, careful project selection is a critical factor
for PPP success along with an appropriate legal and regulatory framework,
political support, and an effective tendering process, as well as efficient
deal structuring and partnerships with local players," says Clifford. "Each
project has unique requirements with corresponding opportunities and
challenges. It has to be accepted that some countries in the region do not
score well on corruption indices, but this has to be balanced with the
emerging stability of Central and Eastern Europe and significant growth
prospects. Looking forward, the need to factor sustainability and climate
change considerations into budgeting and project designs will become a
differentiator for bid competitiveness and PPP success. Once the precedent is
set the ball will start rolling."
    For a copy of the report, Building New Europe's Infrastructure: Public
Private Partnerships in Central and Eastern Europe please visit
www.pwc.com/e&c.
    PricewaterhouseCoopers has been advising on PPP projects across the
Central and Eastern Europe region for many years for both governments and
developers. We understand that each project has unique requirements with
corresponding opportunities and challenges.
    PricewaterhouseCoopers was ranked as number one advisor on project
finance deals globally and in EMEA for 2007, by number of closed deals
(source: Project Finance International, January 2008).

    PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance,
 tax and advisory services to build public trust and enhance value for its
clients and their stakeholders. More than 146,000 people in 150 countries
across our network share their thinking, experience and solutions to develop
fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP
(www.pwc.com/ca) and its related entities have more than 5,200 partners and
staff in offices across the country.
    "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, an Ontario
limited liability partnership, or, as the context requires, the
PricewaterhouseCoopers global network or other member firms of the network,
each of which is a separate and independent legal entity.





For further information:

For further information: Carolyn Forest, PricewaterhouseCoopers LLP,
(416) 814-5730, carolyn.forest@ca.pwc.com

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