Study Reports

SITE VISITS TO EUROPEAN UNION MEMBER STATES

1.  
    
   1. 1. United Kingdom
      2. Denmark
      3. Germany
      4. The Netherlands
      5. EU Secretariat

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Appendix 4-1 - United Kingdom

Meetings: 7

Government Departments:	Treasury Department Department of Environment, Transport and the Regions (DETR)  Department of Trade and Industry (DTI)
Financial Institutions:	UK's Export Credit Guarantee Department
Consultants/PSBSs:	London Economics, Cons. Economists  The Nichols Group, Management Consultants Ove Arup & Partners, Cons. Engineers

Summary

The above meetings with three government departments provided a good and up-to-date overview of the governments "Partnership for Prosperity - The Private Finance Initiative (PFI)" in the United Kingdom. There is no doubt that the UK is the most advanced country in carrying out the provision of services, previously provided by the public sector, by a partnership between the public and private sector. The key meetings were those with the Treasury Department and the recently formed Department of Environment, Transport and the Regions (DETR). Most of the important reference materials were obtained from these two groups. As of November 20, 1998, 100 projects (each worth over £5 million) for a total expenditure of 11,271 million has been underway. (see Table UK-1). Since then additional 21 local government PFI schemes have got the go-ahead, including schools, housing, transport, old people's centres and electronic information network. DETR itself handles about 20 large projects worth over 6,600 million. The types of projects are very varied. (Table UK-1)

In addition three private firms and the UK Export Credit Guarantee Department were visited. These meetings provided very useful additional information, as well as a perspective somewhat different than governments.

The reference material provided, particularly UK 1 to 5, give policy and procedures of how PIF works. Other countries wishing to move in the direction of greater participation of the private sector in the provision of infrastructure and services would do well to learn from the UK experience.

Treasury Department

Mr. Tim Wilson, Head of Private Finance Policy Team, was unavailable. In his place Mr. Ben Prynn, who had worked for Mr. Wilson on PFI for two years, explained the programme and provided several reference materials (UK 1-6, 17-19).

The UK's Partnerships for Prosperity - The Private Finance Initiative (PFI) was launched by the previous government in 1992, and revised by the current government in 1997 (UK1). It appears to be the only country in Europe, perhaps the world, who has formed interdepartmental collaboration between the Treasury (Finance Dept.), the newly created Department of Environment, Transport and the Regions (DETR) and several other government departments involved in services through the creation of the Task Force. The Treasury has the policy responsibility and economic functions. Transport was the main initial emphasis (rail, roads). It is now shifting to public services, such as prisons, schools, hospitals, airports, office accommodation, courts, military housing, water and other environmental services and embassies. The private sector builds and operates the facilities for a fee per service unit provided. Overall, the UK is leading EU countries in the privatization programme by a wide margin. Recently the Labour Government has put a hold on further road programmes (except for shadow' toll roads), to review its policies with respect to provision of public transport systems. However, local authorities are continuing to expand their road system through Public Private Partnership (PPP).

Much progress has been made (see Table UK-1). 100 projects, each worth over £5 million, for a total of £11,271 million have been completed or are underway. 15 departments are involved, with DETR being responsible for the largest projects worth £6,615 million. The huge variety of projects can be seen from Table UK-1.

It is still early days for reviews of the success of PFI. The construction of facilities has usually been on schedule, and at a lower cost through PFI. The private partner does not earn any income until the service starts. It has also resulted in a reduction in government employment by shifting some to the private sector, where more flexible employment practices prevail.

Environmental considerations were not explicitly considered in the earlier days, but built in to make the life of a project last as long as needed. For example, hospitals are meant to last for 60 years, but the contract for services with the private sector is for 30 years. Whether this will cause unusual renovations/maintenance costs at the end of the contract, remains to be seen. Perhaps rapid technology changes make a shorter life sensible.

An analysis of the UK's PFI programme is presented in Chapter 4, Section 4.6.1 of Literature Review. The completed Financial Institution Questionnaire by Mr. Prynn on behalf of the Treasury Department is presented in Tables UK-3, 4 and 5 in Appendix 4-1 and is analyzed in Chapter 7.

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Table UK-1 PFI (Public Private-Partnerships): Signed Deals as at 20 November 1998
(Values refer to capital values in  £m. Projects worth £m and above only included)

 

 

DETR   CTRL  3,000 Northern tine Trains 400 8 DBFO roads 563 Second Severn Crossing 330 Dartford Bridge 150 Heathrow Express 440 Midland Metro  145 Croydon Tramlink 200 Manchester Metrolink 125 CAA OFDPS 30 DLR Extension 200 Waltham Forest HAT 15 Isle of Wight waste manage't  13 Kirklees Waste Management 33 Luton Airport 100 LU Power  500 LU Prestige 370 Other projects  1 TOTAL 6,615     DEFENCE   Army Personnel IT System 150 Helicopter Simulator 100 Helicopter Flying School  118 German White Vehicles  52 NRTA  25 LISA (IT) 30 RAF White Fleet   35 TAFMIS 14 HMS Nelson 20 Material Handling Equ't 18 Fixed Telecoms 70 Army mail 11 Hawk Simulator 10 Tidworth Water & Sewerage  6 Joint Service College 68 Other projects  31 Attack Helicopter training  165   Yeovilton  8 Lossiemouth  31 Lyneham sewerage  5 TOTAL  967     SCOTLAND   Skye Bridge  24 Lothian/ Forth Health Bd  5 Northern NHS Trust 6 Inv'ness/ Ft William water  45   M74/M6 160 Baldovie Waste to Energy 43 Highlands & Islands Airport  10 Bowhouse Prison Kilmarnock  32 Hairmyres Hospital  67   Glasgow Law Hospital  100   Falkirk  65 Edinburgh Royal Infirmary  180   Other projects  55   TOTAL 792     TRADE AND INDUSTRY   National Physical Laboratory  82 Science Research IT  5 RA Strategic Partnership  12 ELGAR 30 Other projects 2

TOTAL  131     WALES   Bute Avenue 45 Osiris  34 University Hospital 10 Chepstow Community Hospital 8 Other projects 3 TOTAL  100     SOCIAL SECURITY   PRIME   350 NIRS 2 150 BA/POCL 120 Newcastle Estate   120 TOTAL  740     HOME OFFICE   Bridgend Prison 74 Fazackerley Prison 88 Lowdham Grange Prison  32 Agecroft Prison  55 Pucklechurch Prison  35 IND: IT  41 IND Gatwick  12 PABX: IT 8 Cookham.Wood STC  10 Passport Agency Data Supply  30 Other projects 5 TOTAL 400     HEALTH   Norfolk and Norwich. 214 South Bucks 39 Dartford & G'sham Hos'l  115 Carlisle Hospital  63 North Durham Hospital  96 Greenwich Hospital  117 Other projects 102 Wythenshawe   86 Calderdale  76 Surrey CC; homes (LA) 29 LB Westminster; homes (LA) 5 TOTAL 942     DfEE   Colfox School 15   Clarendon College 16   UCL 28   Greenwich Student Acc'n 11 12 separate Sports facilities 30 Kings/UMDS 142 Employment Service IT 116   Other projects 9 TOTAL 367     INLAND REVENUE   Edinburgh Accommodation 9 Manchester Accommodation  25 Glasgow Accommodation   9 Stockport Accommodation 6 TOTAL 49     DCMS   Royal Armouries Museum   42

B Library Bibliograhy 22 Other projects 8 TOTAL 72     LCD   LOCCS(IT). 14 ARAMIS 30 TOTAL 44     FCO   Berlin Embassy 20 Other projects 4 TOTAL. 24     NORTHERN IRELAND   Medical Equipment.  7 Training and Employment IT 7 Other projects  11 TOTAL 25     SFO   Other projects 4 TOTAL 4     SUMMARY   DETR 6,615 Defence  967 Scotland  792 DTI   131 Waltes 100 DSS  740 Home Office 400 Health 942 DfEE 367 Inland Revenue 49 Culture Media & Sport 72 LCD 44   FCO  24 Northern Ireland 25 SFO   4 TOTAL  11,272

Mr. Crispin Tuckley, Head of the Private Finance Unit (PFU) within DETR is a member of the Taskforce for Partnership for Prosperity. Three colleagues from other units of the department attended the meeting (see Appendix 4-1.1). DETR is the largest player in projects under PFI. In addition, DETR encourages other units of the government to be environmentally friendly and energy efficient (Richard Mellish). A model policy framework has been produced (UK9, 10). Special emphasis on Sustainable Development of Buildings (UK7, 8), Construction (UK11 and 12) was explained by Cathy Jenkins. Roger Hinds outlined an Environmental Management System (EMS) throughout government departments, and specifically for making PFI projects as 'green' as possible. These programmes are relatively new and it will take time to evaluate success.

DETR agreed to consider completing the EU country questionnaire. None was received although the Treasury's response covered some of DETR's responsibilities and projects.

Department of Trade and Industry (DTI)

Mr. Michael Massey, Head, Sustainable Development Environment Directorate reviewed the brief history of implementing sustainable development programmes in the UK and the role of DTI. The Round Table on Sustainable Development was set up by the Conservative Government, consisting mainly of representatives of senior leaders from British business, environmental groups, trade unions, church organizations and NGO's, such as Lord Alexander, Sir Crispin Tickell, etc. This group of part-time appointees has been grappling with sustainability, biodiversity and related issues. In addition, a government panel on sustainable development has been set up to identify and develop guidelines, indicators and criteria for sustainable development. Under the Labour Government, much increased emphasis has been put on sustainable development issues. The most significant change has been to include the social element together with the economic and environmental side. This trend is also in agreement with the EU emphasis on the social aspects of sustainable development. DTI has considerable interaction with the EU Commission on Sustainable Development, particularly DGIII (Industry and Trade), and DGXI (Environment).

DTI's short definition of Sustainable Development is: "Better quality of life for everyone, now and in the future? The Government Panel on Sustainable Development is now busy reducing the originally developed 130 indicators down to about 10-15. With respect to completing a questionnaire, Mr. Massey felt that DETR and Treasury Department are the more appropriate units to do so.

London Economics - Messrs. Rob Frances and Mahmud Nawaz.

In the unavoidable absence of Dr. Ian Alexander, these two economists provided information on London Economics and its involvement in private sector financing of infrastructure development and related issues.

London Economics (UK15, 16) is Europe's leading independent economics consultancy, started in 1986. London is head office, with subsidiaries in Boston, Melbourne, Brussels and Tokyo. The worldwide professional staff numbers over 80 persons. The business is about two-thirds in the UK and Europe, and one-third international. In Asia, consultancies have been carried out in Thailand, Bangladesh and the Philippines.

Their business activities relevant to this study include:

• • Development of Strategies for privatization
  • Regulations needed for privatization of utilities/services
  • Projects in the energy sector, water sector and in transport
  • Cost/Benefit analysis for the several sectors and specific projects

Privatization of many other sectors has occurred in recent years (for details see Treasury write-up). Overall this is viewed as a good thing. Some concern and opposition comes from labour and unions, who see employment in the public sector reduced, and the employment opportunities in the private sector taking over being often smaller, leading to higher unemployment.

London Economics agreed to consider completing a questionnaire, but felt that it will be difficult for their business to do so. None was received.

The Nichols Group - Mr. Keith Berryman

The Nichols Group is a management-consulting firm with a staff of about 80. Their primary activities are in the utilities field (water, railroads, airports, etc.) and focussed primarily in the UK. Mr. Berryman spent 16 years in Hong Kong working with the MTRC and the Jockey Club. He joined the Nichols Group in 1989.

Although Britain is the leading country for privatization of public services the experience is only recent (5-10 years). Previously all projects were carried out with government funds (central or local). However, in the early days (19^th century) of major infrastructure construction private initiatives built 'public works in Britain for profit'. Now in Britain, governments still decide what needs to be built, but then find private companies and funding to get it done. The role of local governments is now smaller, as the central government plays a much greater role in the development of needed 'public' services, even though it now turns more and more to the private sector to carry it out. The greatest extent of privatization occurs in railroads, gas and electricity, airports, and in the water sector. There has been little privatization in roads as yet, with the exception of bridges, tunnels, and recently "shadows toll roads", where the private sector builds the toll road, government pays a fee for 20 years. Users do not pay a toll. Methods of regulation of these sectors are still in government hands. For example, rate increases must be approved by government, and are normally related to inflation.

In transferring the UK experience to other "cultures" one must be very careful. European countries are mature, developed countries, whereas many Asian countries are still in the developing stage. For private sector to become interested in providing public services, there must be an enforceable legal system with independent courts, clear and fair regulations, a stable financial system, and a stable political system. If these do not exist privatization of public services is not likely to attract companies willing to do so at competitive prices.

The Nichols group agreed to complete a Private Sector Company questionnaire, which has been received and is summarized in Section 6.2.1.

Ove Arup & Partners - London Office

Mr. Peter Braithwaite, Director, Arup Environmental, Birmingham

Ms. Laura Walker, Director, Arup Environmental, London

Ove Arup & Partners is a very large international consulting firm with offices worldwide. Arup Environmental is one of its specialty areas.

A few of the many projects carried out by Arup Environmental were outlined. It was agreed that three projects would be chosen for the completion of the Private Sector (PSC) Questionnaire. It was received and is summarized in Section 6.2.1.

UK Export Credit Guarantee Department (ECGD)

See Chapter 7.3 for write-up.

Summary of PSBSs Questionnaires ?United Kingdom

We received two PSBSS questionnaires from the United Kingdom from the companies (I) Ove Arup & Partners and (ii) The Nichols Group. Ove Arup & Partners provided information on 2 projects and The Nichols Group on 3 projects. The information is summarized below and commented on in Chapter 6.

Table UK-2 : Project Characteristics: U.K.

Project characteristics		OVE ARUP & PARTNERS		THE NICHOLS GROUP
		Project 1	Project 2	Project 1	Project 2	Project 3
1	Project name	Pride Park	Channel Tunnel Rail Link	Luton Airport redevelopment	Docklands Light Railway Lewisham Extension	Northumbrian Coast Sea Outfalls
2	Location	Derby, England	-	Luton, Bedfordshire, England	South East London, England	Northumberland/ Durham Coast, England
3	Status	Under construction	Under construction	Under construction	Under construction	Completed
4	Project Category	Others ?Urban Regeneration	Urban and Interurban Railways	Airports	Rapid transit / Subways	Sewerage / Treatment
5	Total Project Cost	US$50 mio to US$100 mio	-	US$100 mio to US$500 mio	US$100 mio to US$500 mio	US$50 mio to US$100 mio
6	Cost of Supporting Infrastructure	< US$50 mio	-	< US$50 mio	None required	None required
7	Involvement of third party other than project sponsors in the development of supporting infrastructure	Yes	-	Yes	No	No
8	% of project cost used for environmental issues	15%	-	Not specifically identifiable	Not specifically identifiable	Not specifically identifiable
9	Construction phase of the project (years)	6	-	1.5	3	1.5
10	Operation phase of the project (years)	25+	-	30	30	Indefinite
11	Project Revenue Currency	Local currency	-	Local currency	Local currency	Local currency
12	Payback period of the project (years)	8	-	6	22	NA
13	Expected internal rate of return of the project (%)	-	-	-	-	-
14	Minimum rate of return guaranteed by the host government	No	-	No	No	No
15	% of rate of return guaranteed by the host government	NA	NA	NA	NA	NA
16	Currency of guaranteed return by the host government	NA	NA	NA	NA	NA
17.1	Economic viabilitya	2	-	1	1	4
17.2	Environment viabilitya	3	-	3	4	1
17.3	Social responsibilitya	1	-	4	3	3
17.4	National prioritya	4	-	5	5	2
17.5	High rate of returna	5	-	2	2	5

Table UK-3 : Sources of Financing: U.K.

Sources of Financing		OVE ARUP & PARTNERS		THE NICHOLS GROUP
		Project 1	Project 2	Project 1		Project 2	Project 3
1	Type of financing	Public-Private sectors	-	Private sector		Public-Private sectors	Private sector
2	Total cost funded by the private sector	60-80%	-	-		60-80%	-
3	Debt/Equity ratio of the project	1:8	-	9:1		9:1	NA
4	Parties involved in arranging equity	Project Sponsors & Purchasers of Project Output	-	Suppliers of essential products/ services		Suppliers of essential products/ services	Project Sponsors
5	Equity financing is sourced through	Commercial Banks and Credit Companies; Committed Investment Funds	-	Shareholders		Shareholders	Shareholders
6	Political and / or commercial risks insurance	75% commercial risk insurance only	-	Commercial risk insurance only for construction risk		Commercial risk insurance only for construction risk	Commercial risk insurance only for construction risk
7	Project Type	Others ?Private/Public Finance, Design ?Build ?Transfer to Private sector	-	BOOT		BOT	Perpetual Franchise
8	The above mentioned project type was selected because it met the following criteria:
8.1	Host government wanted private entity to assume principal responsibility for the project's financial obligations;	Yes	-		Yes	Yes	Yes
8.2	Private entities could not raise the full purchase price for developing the existing facility	-	-		-	Yes	-
9	Direct lenders to the project	Others ?Government	-		Domestic and International Commercial Banks; American and European Investment Banks	Domestic and International Commercial Banks; Capital Markets e.g. Project Bonds	Domestic Commercial Banks
10	Financing facilities	Others ?Receipts against land sales	-			-	-

Financing Structure and Techniques		OVE ARUP & PARTNERS		THE NICHOLS GROUP
		Project 1	Project 2	Project 1	Project 2	Project 3
1	Construction financing is achieved through	Direct loans by the project sponsors; Land sale receipts	-	Long term bank loan; direct loans by the project sponsors	Long term bank loan; direct loans by the project sponsors; bonds	-
2	Permanent financing is achieved through	Private placement of long term (> 5 yrs.) debt	-	Private placement of long term (> 5 yrs.) debt; Commercial banks	Private placement of long term (> 5 yrs.) debt; Project bond offering; Commercial banks	-
3	Drawdown schedule of various debt tranches	Equity injection followed by debt drawdown	-	Equity injection followed by debt drawdown	Simultaneous drawdown of equity and debt in specific ratio	-
4	Debt repayment schedule	Grace period for repayment followed by principal + interest repayment	-	Grace period for repayment followed by principal + interest repayment	Amortization schedule	-
5	Debt repayment is denominated in which currency	Local currency	-	Local currency	Local currency	-

Risk Mitigation		OVE ARUP & PARTNERS		THE NICHOLS GROUP
		Project 1	Project 2	Project 1	Project 2	Project 3
1	Construction/ completion risk	For Project 1 only: charging the contractor liquidated damages capped at some percent of the project cost for completion delay.		For all 3 projects: fixed cost, date certain, turnkey EPC contract; For project 1 only: pledging of contractor's capital through an equity stake in the project
2	Market risk	Project 1: government guarantee / minimum guaranteed return bearing risk of non-payment by customers; independent appraisal from a third party about demand for project output such as electricity consumption; project bundling such as combining water treatment and sewage disposal utilities.		Project 3: project bundling such as combining water treatment and sewage disposal utilities.
3	Currency exchange / convertibility risk	Project 1: NA		For all 3 projects: NA
4	Regulatory / political risk	Project 1: establishment of an independent regulatory authority; all parties involved in the project must provide guarantee for project completion		For all 3 projects: NA
5	Environmental risk	Project 1: conduct Environmental Impact Assessments ("EIA") prior to funding; funding project designing that are inherently less damaging to the environment e.g. using cleaner technologies; developing management systems that minimize the risk of unforeseen problems and include plans to deal with emergencies and contingencies; allowing only reputable and pre-qualified tenderers to bid the project		For all 3 projects: conduct Environmental Impact Assessments ("EIA") prior to funding; developing management systems that minimize the risk of unforeseen problems and include plans to deal with emergencies and contingencies; allowing only reputable and pre-qualified tenderers to bid the project. For projects 1& 2: contractual measures to allocate risks between various parties involved in the deal. For projects 2 & 3: introducing anti-pollution measures such as equipment to reduce power station emissions. For project 3 only: funding project designing that are inherently less damaging to the environment e.g. using cleaner technologies
6	Interest rate risk	NA	-	No hedging	No hedging	NA

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Appendix 4-1(UK-1) - People visited

• • Mr. Tim Wilson (unable to meet, referred to Mr. Ben Prynn)
    Head of Private Finance Initiative (PFI) Policy Team
    1 Parliament Str.
    London SW1 P3AG
    Tel.: 44-171-270-4702
    Fax: 44-171-270-5760
    E-mail: Tim.Wilson@hm-treasury.gov.uk

• • Mr. Ben Prynn,
    (formerly Treasury Dept)
    Price Waterhouse Coopers
    1 London Bridge
    London, SE1 9SL
    Tel.: 44-171-939-3000 ext. 4464
    Fax: 44-171-403-5265
    Home: 44-171-703-8645

• • Mr. Crispin Tuckley
    Head of PFU (Private Finance Unit)
    Floor 8/D11, Ashdown House
    123 Victoria Street
    London SW1E 6DE
    Tel.: 44-171-890-5014
    Fax: 44-171-890-5009

• • Mr. Richard Mellish
    Greening Government Operations Team
    Floor 8/D11, Ashdown House
    123 Victoria Street
    London SW1E 6DE

• • Mr. Roger Hinds
    Greening Government Operations Team
    Floor 8/D11, Ashdown House
    123 Victoria Street
    London SW1E 6DE

• • Ms. Cathy Jenkins
    Sustainable Construction Deputy Business Manager
    Floor 3/J1, Eland House
    Bressenden Place
    London SW1E 5DU
    Tel.: 44-171-890-5717
    Fax: 44-171-890-5759
    Email: cjenkins@detr-cirm.demon.co.uk

• • Mr. Michael Massey
    Head, Sustainable Development Environment Directorate
    151 Buckingham Palace Road
    London SW1W 9SS
    Tel: 44-171-215-1873
    Fax: 44-171-215-1621
    E-mail: michael.massey@envd.dti.gov.uk

• • Ms. Nancie Cowie
    Underwriting Manager, Asia-Pacific
    2 Exchange Tower, Harbour Exchange Square
    London EI4 9GS
    Tel.: 44-171-512-7620
    Fax: 44-171-512-7962

• • Mr. Simon Chater
    External Relations Division
    2 Exchange Tower, Harbour Exchange Square
    London EI4 9GS
    Tel.: 44-171-512-7214
    Fax: 44-171-512 7930
    E-mail: schater@ecgd.gov.uk

• • Dr. Ian Alexander (unable to meet)
    66 Chiltern Str.
    London W1M 1PR
    Tel: 44-171-446-8418

• • Mr. Mahmud Nawaz
    Senior Consultant Economist
    66 Chiltern Str.
    London W1M 1PR
    Tel.: 44-171-446-8450
    Fax: 44-171-446-8484
    E-mail: robertf@londecon.co.uk

• • Mr. Keith Berryman
    Project Management Consultant
    Premier House, 10 Greycoat Place
    London SW1P 1SB
    Tel.: 44-171-233-0433
    Fax: 44-171-799-2530

    Head Office: 2 Savile Row, London W1X 1AF
    Tel.: 44-171-494-1511
    Fax: 44-171-494-2675

• • Mr. Peter Braithwaite
    Director, Arup Environmental
    Edgbaston House
    Duchess Place, Edgbaston
    Birmingham BI6 8NH
    Tel.: 44-121-454-6261
    Fax: 44-121-454-8853
    E-mail: peter.braithwaite@arup.com
     
  • Ms. Lorna Walker
    Director, Arup Environmental
    13 Fitzroy Str.
    London W1P 6BQ (Head Office)
    Tel.: 44-171-465-3394
    Fax: 44-171-465-3510
    E-mail: lorna.walker@arup.com

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Appendix 4-1(UK-2) - Reference Material

 

 

UK1	Treasury Task Force - Private Finance (undated): "Partnership for Prosperity, The Private Finance Initiative", 22 pp.
UK2	Treasury Task Force - Private Finance (April 1998): "Step by Step Guide to the PFI Procurement Process". 22 pp.
UK3	Treasury Task Force (October 1997): "Policy Statement No. 1: PFI and Public Expenditure Allocations", 4 pp.
UK4	Treasury Task Force - Private Finance (March 1998): "Policy Statement No. 2: Public Sector Comparators and Value for Money", 20 pp.
UK5	Treasury Task Force - Private Finance (August 1998): "Policy Statement No. 3: PFI and Public Expenditure Allocations for Non-Departmental Public Bodies", 5 pp.
UK6	Treasury Task Force - Private Finance (October 1998): "Policy Statement No. 4: Disclosure of Information and Consultation with Staff and Other Interested Parties", 14 pp.
UK7	DETR (August 1998): "Sustainable Development and Buildings"  Report of the DETR Property Advisory Group, 23 pp.
UK8	ERM Consultants, London (October 1998): "Analysis of the Responses to the UK Government's Consultation Paper on Sustainable Construction", 94 pp.
UK9	DETR (January 13, 1999): "Model Policy Statement for Greening Government Operations", 8 pp.
UK10	DETR (January 13, 1999): "Model Improvement Programme for Greening Operations", 8 pp.
UK11	DETR (1999): "Opportunities for Change: Consultation Paper on a UK Strategy for Sustainable Construction", 23 pp.
UK12	DETR (1998): "Opportunities for Change: Consultation Paper on a revised UK strategy for sustainable development? 25 pp.
UK13	Highways Agency/Private Finance Panel Executive (undated): "DBFO" Value in Roads: A case study on the first eight DBFO road contracts and their development? 36 pp.
UK14	Export Credits Guarantee Department (ECGD)(undated): "Financing Capital Projects", 12 pp.
UK15	London Economics (LE), "Company Brochure".
UK16	London Economics (LE) (January 1999), "Capability Statement".
UK17	Updated List of Contacts for "Partnership for Prosperity?in various government departments".
UK18	H.M. Treasury News Release (Oct. 21, 1998): "Geoffrey Robinson unveils second significant projects list" (on PIF projects).
UK19	DETR News Release (Dec. 3, 1998): "More PFI schemes get the go-ahead".
UK20	Arup Environmental; Company Brochure.

 

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Appendix 4-2 - Denmark

Meetings: 5

Government Departments:

• • Ministry of Environment and Energy
  • Ministry of Housing and Urban Affairs
  • National Building Research Institute
  • Institute of Local Government Studies
  • Forest and Landscape Research Centre

The Scandinavian countries, - Sweden, Norway and Denmark -, have a high reputation for environmental consciousness and action. Only one could be visited because of time and resource constraints, and Denmark was chosen, however some contrasting information on the other two countries were also obtained.

All five meetings were with government departments in the areas of environment, transport, housing, forestation and local government administration.

The meetings with the several Ministries officials provided a good overview of the situation with respect to infrastructure provision, especially housing, and the roles of the public and private sectors. So far there has been very little participation of the private sector in financing or managing of public infrastructure. Currently there are discussions ongoing about two projects (a bridge between Sweden and Denmark, and the Great Belt bridge between two major inland islands) to be built by a public/private consortium. Toll charges would be used to recover costs over many years. There was considerable public opposition to the building of new bridges in Denmark believing that they will benefit more the inter-European transport, rather than benefit Denmark.

The several agencies involved in public housing have technically and socially well advanced programmes which may be of interest to APEC Member Economies.

Background

Denmark is a small country with a population of about 5 million overall, and in its capital city, Copenhagen and surroundings, about 1.5 million. It has a stable political system, currently a coalition government, and a strong tradition of a welfare state, with free health care and education, including university. Its economy depends on agriculture (still large but decreasing), manufacturing and service industries. Denmark is financially stable with a small budget surplus and some long-term debt.

Environment

Denmark has a long history of environmental leadership. The first environmental law dates back to 1865. It was the first European country to establish a Ministry of Environment in 1971. In recognition later the European Union chose to base its own European Environment Agency in Denmark.

The Ministry of Environment and Energy employs about 3000 staff in seven agencies, with about half of the employees in the National Forest and Nature Agency.

• • The Department (Administration) and Spatial Planning Department (visited)
  • The Danish Environmental Protection Agency
  • The Danish Energy Agency
  • The National Forest and Nature Agency
  • The National Environmental Research Institute
  • The Danish Forest and Landscape Research Institute (visited)
  • The Geological Survey of Denmark and Greenland

The National Forest and Nature Agency is the Ministries largest agency, signifying the importance attached to reforestation in Denmark. 200 years ago only 1% of the land area remained as forest, today this has increased to 12%, and is aimed to become 25% by 2100, in natural and private forests. Although the "forest industry" is much smaller than agriculture in economic terms, it is growing in importance. In addition, recreational activities, hunting and wildlife, protection of scenic areas and biodiversity, and protection of monuments, buildings, castles and medieval homes are also the agency's responsibility. The rationale for massive reforestation lies in its "green lung function (green house gas)", protection of groundwater, biodiversity protection, recreational facilities and for timber production. Christmas tree farming is also a specialty. The Danish Forest and Landscape Research Institute (visited) provides the needed research facilities for the agency and other government departments.

Infrastructure Status

Water/Wastewater

Most water supplies come from groundwater of high quality. Some difficulties are encountered in a few localities. Wastewaters receive high quality treatment, as needed. This is financed through water rate charges, 75% of which go to wastewater treatment costs.

Roads

Almost all existing roads whether major highways or local roads are publicly funded. There are discussions on future funding of new major roads through public/private partnerships. Two examples currently under construction are a bridge between Sweden and Denmark, and the Great Belt Bridge between major islands inland, both built by public/private consortium. Toll charges will be used to recover costs. A further bridge, connecting the island on which Copenhagen is located to Germany, is under discussion. At present ferries are used instead of bridges. There was considerable public opposition to the building of the new bridges, believing that they will benefit more to inter-European transport, rather than benefit Denmark. A new underground rail link from downtown Copenhagen to the airport is also under consideration.

Air

Air quality is generally not a problem in Denmark because of relatively low densities except in the Copenhagen area. Strict controls on emissions from vehicles and industry are enforced. The extensive public transit and rail system, and the universal use of bicycles for short distances keep the number of cars manageable. Copenhagen has also quite a few roads in the inner city which are for pedestrians only.

Solid Waste Management/Recycling

Recycling is extensively used in Denmark for the past thirty years. The emphasis on cleaner production methods in industry and agriculture have also reduced volumes of wastes. Incineration in cities and landfills in smaller towns are practiced.

Sustainable Buildings/Housing

The Ministry of Housing and Urban Affairs and its Danish Building Research Institute were visited. There is much work going on in Denmark in this field. The Ministry is responsible for the Building Act, Urban Renewal, Urban Ecology, Housing and Construction Policy, a draft "Green Housing Plan", reduction in consumption of resources for building construction and operation, and indoor air quality.

20% of the housing stock in Denmark is public, mostly located in the cities. Financing for their construction comes mostly from public bonds. For private housing mortgages up to 80% of value are available, and insured by a government programme. Planning and construction is the responsibility of the municipalities, but under national regulations.

The Danish Building Research Institute (visited) of the Ministry carries out research for the government (~50%) and for municipalities and private clients.

It focuses on three areas: Energy and Indoor Climate, Productivity and Construction, and Sustainability and Ecology of Housing.

Mr. Dan Ove Pedersen, Senior Researcher, Housing and Urban Research Division of the Danish Building Research Institute provided a Questionnaire response on 720 state infrastructure projects. The questionnaire response is summarized in Section 7.3.1.

The Institute of Local Government Studies (visited) carries out work in three areas: 1) Energy and Environment (as Policy Instruments), 2) Regional Economics: Financing, Grants, Projects and Programmes and 3) Social Labour Market: (How to keep the social welfare state intact).

Energy Production

The Ministry of Energy was founded in 1974. In 1994, it was combined with the Ministry of Environment into today's Ministry of Environment and Energy, with the mandate to promote energy efficiency and to integrate environmental considerations into all aspects of production and consumption. The sources of energy used in Denmark are natural gas, coal, oil and several forms of renewable energy sources such as wind power and solar energy. On the Denmark island of Aero is located the largest "alternative" energy plant (wind turbines) in Europe. One important Danish export is the technology and machinery for wind turbines. There are no nuclear reactors used in Denmark because of significant public opposition. Power production and distribution is in private hands, but rate controls are exercised by government. In future there may be changes because of EU wide competition.

Telecommunication is still in government's hands but is now intended to be privatized. Again, EU wide competition is about to come.

Public/Private Partnership in Infrastructure

Very little has been privatized so far in Denmark, which is a reflection of the general satisfaction in Denmark with the welfare state system. The country is relatively wealthy, not as industrialized as some of its neighbours, and much more conservative towards privatization. However, some inroads, mentioned above, have been made to private involvement in building and operating current and future infrastructures. Its neighbour, Sweden, has had a similar attitude in the past, but financial difficulties in Sweden in the early 1990s have necessitated privatization of several previously owned government operations, which is proceeding more quickly in Sweden. Norway is much more decentralized than its neighbours, is an oil exporter, has a small population of 4 million in quite a large country. Its policy on privatization was not clear to the Danes visited.

Danish International Development Agency (DANIDA)

Denmark, in spite of being a small country, is at the forefront of international aid to developing countries, spending 1.5% of GDP for this purpose. To highlight the importance of environmental considerations in projects in developing countries, 0.5%, - or one-third of the total funds -, are earmarked for environmental aid. Quite a significant portion is spent on certain countries in Southeast Asia.

Summary of Questionnaire Response by the Danish Building Research Institute, Housing and Urban Research Division, Mr. Dan Ove Pedersen, Senior Researcher

• • The respondent considered 720 projects that include all state infrastructure projects. These projects belong to the categories (i) Expressways/ Highways; (ii) Urban and Interurban Railways; and (iii) Rapid transit/ Subways. While the total project cost for most of the projects is not provided, there are 5 projects that cost more than US$1 billion.

• • The construction phase of the projects last more than 5 years and are operational for more than 20 years.

• • The project revenue is denominated in local currency only and the projects have a payback of more than 20 years. The mean internal rate of return (IRR) of the projects is 3.5% and IRR range is between 0-7%.

• • All the projects have guaranteed return by the host government that is guaranteed in local currency.

• • All the projects are supported by either only public funds or by both public and private funds. In case private sector participates in financing, it provides 80-100% of funds.

• • These projects have as high as 80-100% debt. In case equity financing is used it is provided by intermediate independent limited companies guaranteed by the state. Equity financing is sourced through commercial banks and credit companies and committed investment funds.

• • Political and commercial risks are irrelevant to the projects.

• • The projects belong to BOO, BOOT, BTO or Government funded separate design-build project types. These project types are chosen because they meet the following criteria:

(i) higher efficiency; (ii) technological advancement; (iii) advances in
a.	regulatory framework; (iv) commitment to private resources; and (v) early cost recovery
b.	host government was interested in ownership reversion from private to public sector after smooth operation of the facilities
c.	host government wanted private entity to assume principal responsibility for the project's financial obligations

• • The direct lenders to the project are (i) domestic and international commercial banks; (ii) EU's investment fund for infrastructure development; and (iii) capital markets e.g. project bonds. The loan provided by these institutions is in the form of construction loan, term loan and standby contingent facilities.

• • The construction financing is achieved in the form of (i) short-term funds from commercial funds; (ii) direct loans by the project sponsors; and (iii) public funding.

• • The permanent financing is achieved in the form of (i) private placement of long-term (> 5 years) project debt; (ii) borrowing through multilateral funding institutions; and (iii) public funding.

• • There is no restriction on the drawdown schedule of various debt tranches. The debt repayment is in the form of sinking fund repayment. Furthermore, debt is denominated in local currency (50%), US$ (25%), and others (25%).

• • Risk Management:

1. 1. 1. In Denmark the construction / completion risk is mitigated by entering into fixed cost, date certain, turnkey Engineering, Procurement, and Construction (EPC) contract.
      2. Market risk is mitigated by government guarantee / minimum guaranteed return bearing risk of non-payment by customers.
      3. Currency exchange / convertibility risk is mitigated by (i) indexing tariff rate to exchange rate fluctuations and (ii) indexing tariff rate to interest rate changes.
      4. Regulatory / political risk is mitigated by (i) establishment of an independent regulatory authority and (ii) Federal and State government commitment expressed in the form of Letter of Support or Guarantee.
      5. Environmental risk is mitigated by (i) conduct Environmental Impact Assessments (“EIA? prior to funding; (ii) funding projects designing projects to be inherently less damaging to the environment for e.g. using cleaner technologies; (iii) introducing anti-pollution measures such as equipment to reduce power station emissions; and (iv) allowing only reputable and pre-qualified tenderers to bid the project.
      6. Floating rate based interest rate risk exposure is not applicable for projects in Denmark.

• • The importance of various factors to the majority of projects is as shown below (where 1 = most important and 5 = least important):

1. 1. 1. economic progress of the economy (1)
      2. social progress of the economy (5)
      3. environmental viability of the project (2)
      4. social acceptability of the project (3)
      5. economic viability of the project (-)
      6. high internal rate of return of the project (-)
      7. national priority (4)
      8. other factors (-)

Appendix 4-2(D-1) - People visited
 
 

Ministry of Environment and Energy: http://www.mem.dk/	Dr. Kirsten Worm Coordinator of International Projects Spatial Planning Department Hojbro Plads 4, DK-1200 Copenhagen K Denmark Tel.: 45 33 92 76 00 45 33 92 59 87 (Direct line) Fax: 45 33 43 33 37 Email: kw@mem.dk
Ministry of Housing and Urban Affairs:	Mr. Ole Wagner Smitt, Economist Head of Section International Relations Division Slotsholmsgade 1 DK-1216 Copenhagen K Denmark Tel.: 45 33 92 61 00 Fax: 45 33 32 34 71 and  Jens Hartmann Eisling
Danish Building Research Institute:               AKF Institute of Local Gov't Studies:	Mr. Hans Christensen, Sociologist Vice-Director Dr. Neergards Vej 15 DK-2970 Horsholm Denmark Tel.: 45 45 86 55 33 Fax: 45 45 86 75 35 Email: hk@sbi.dk Mr. Anders Larsen Director of Research Nyropsgade 37 DK-1602 Copenhagen V Tel.: 45 33 11 03 00 45 33 14 59 49 ext. 35 (Direct line) Fax: 45 33 15 28 75 Email: anders@afk.dk
Danish Forest and Landscape Research Institute:	Mrs. Gertrude Jorgensen Horsholm Kongevej 11 DK-2970 Horsholm Denmark Tel.: 45 45 76 32 00 Fax: 45 45 76 32 33 Email: gej@fsl.dk

Appendix 4-2(D-2) - Reference Material
 

D1	"Denmark's Ministry of Environment and Energy" (1996)
D2	Ministry of Environment and Energy, (1995): "Strategic environmental assessment of bills and other government proposals", 55 pp.
D3	Danish Ministry of Environment and Energy, (1995): "Denmark's Nature and Environment Policy, 1995 - Summary Report", 94 pp.
D4	Danish Ministry of Environment and Energy, (undated): "Spatial Planning in Denmark", 24 pp.
D5	Ministry of Foreign Affairs etc., (1996), "The Danish Natural Report to Habitat II", 99 pp.

 

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Appendix 4-3 - Germany

Meetings: 2

Government Department:	Federal Ministry of Environment, Nature Protection and Reactor Safety (BMW), Bonn
Insurance Group:	Hermes Kreditversicherungs AG, Hamburg

Summary

Germany is a federal state with 16 Lander (Provinces). The role of provision of infrastructure services is divided between the federal government and the Lander, but with the major responsibility resting with the Lander. It is this fact that made it difficult to arrange appropriate meetings at the federal level. Fortunately, the one meeting in Bonn with Ministerialrat Dr. Alfred Walter, Leader of the Economic Section of the Federal Ministry of Environment (BMU), was very productive as he was able to explain the German experience very well because of his background in economics and environment, and his long service.

For roads, the Federal Government only deals with the development of the major country-wide road network (Bundestrassen). The Lander deal with the provincial road net and the "Gemeinde" with the local community/city road system. There are no toll roads at this time in Germany. There is discussion to introduce some in the former East Germany, where major rebuilding is needed.

Railroads are fully privatized under the name "Deutsche Bahn".

In environment, the Federal Government sets laws for waste management, air pollution control and noise abatement and on some other environmental matters. It is the "Lander" and/or the local communities which must legislate, implement, enforce and operate the necessary facilities.

Energy production is mostly in private hands but some "Lander" have shares in them. Deregulation throughout Europe may bring international competition. Other public facilities such as airports, postal services, telecommunication, natural gas are more and more privatized.

Overall it is more difficult to obtain concrete information about infrastructure and financing as Germany is a very decentralized country in this respect. The financing of infrastructures is still mostly from the several levels of governments, with additional funding through banks, insurance companies and other financial institutions.

The Federal Government has been very active internationally on environmental issues. Sustainability (Nachhaltigkeit) in Germany is defined as "requiring the inextricable linkage of ecology, economy and social security. Sustainable development requires that improvements in economic and social living conditions accord with the long-term process of securing the natural foundations of life".

APEC Member Economies can certainly learn from the German experience, but the task of doing so is made much more time consuming as for example in Britain, because of the highly decentralized situation in Germany.

1.     In the fields of infrastructure development and for environmental protection the roles of the federal government, the
        Lander government and the communal government are defined as follows:

Bundesstrassen (major countrywide roadnet)

Landerstrassen (provincial road system)

Gemeindestrassen (communal/city roads)

• • • At this stage there are no toll roads, state or privately owned, in Germany. There is discussion to introduce them in the future, particularly in the Lander formerly part of East Germany, as new sources of funds need to be found for massive reconstruction. The system of "vignettes" (fees for driving on major highways) as practiced in Austria and other European countries may need to be considered throughout Europe in the future.

Environment
The Federal Government has the concurrent legislative competence for waste management, air pollution control and noise abatement. For nature conservation, landscape management and water balance, the Federal Government can only outline provisions which must be supported by legislation of each of the Lander, which are also responsible in all cases to enforce federal and Lander legislation within their region. In turn they can, and often are, delegating to local communal governments the enforcement of environmental laws. Thus in the role of actual creating environmental infrastructure and administration the local communities play a very important role. Financial assistance from senior governments may occur in certain instances (G-2). The Federal Government sets countrywide environmental standards, the Lander collect funds to finance construction of necessary works by the community/city. 90% of wastewater have biological treatment. The polluter pays principle is firmly practiced. For solid waste management, the responsibility lies strictly at the local level.

Energy Production
Most power plants (hydroelectric, black coal, brown coal, nuclear, mineral oil, natural gas etc.) are privately owned and operated, but often the Lander have shares in the companies. Rate changes must be approved by government. Big changes may be coming, because of deregulation, competition from power producers in other countries, and attempts to phase out nuclear power plants in Germany.

Airports
Are privately organized and administered, but often owned by various levels of government.

Postal Services
Still government owned and operated through a holding company, but is in the process of being privatized.

Telecommunications
More and more private companies. May become a Europe-wide network of private companies competing for customers.

Natural Gas Supply
Much of the supply comes from Russia through a privately built pipeline. Distribution network in cities is either community owned or private.

Dams/Reservoirs
Owned either by Lander or Community.

Overall:
Most infrastructures are still built by various levels of governments (Lander, local communities) with very few private industries involved, except for their own needs.

2.    Sustainability (Nachhaltigkeit) as postulated in Germany "requires the inextricable linkage of ecology, economy and
        social security. Sustainable development requires that improvements in economic and social living conditions accord
        with the long-term process of securing the natural foundations of life (G1)".

• • The term 'sustainable' is not used in Germany for individual projects, as it is too difficult to quantify.

• • Environmental laws in Germany are very strict. This is demanded by an educated public. The German Ecolabel system (Blue Angel) has been of help to make wise consumer choices and has been accepted by quite a few industries.

• • Environmental Impact Assessment is widely required, including public participation. This has resulted in a lengthy process before decisions on a project can be made. Because of the urgent need for reconstruction in the "New Lander" (formerly in East Germany) and for environmental improvements a 'fast-track system' is being developed there to speed up the process, but the standards used are the same throughout Germany.

• • European Union (EU) influence: It is better to talk to individual countries to learn of local issues, but there are some EU wide laws/regulations, on which EU administrators should be consulted. At this time there are different standards within the EU community in environmental matters, as there are differences in many other areas.

3.    Financing of Infrastructures

• • Mostly still through several levels of governments, with additional funding through banks, insurance companies etc.

• • Banks in Germany are beginning to understand environmental concerns. Some have declined to participate in funding certain infrastructure projects, within and outside of Germany, because the projects had serious environmental risks.

• • ISO 14000 and EMAS (the European forerunner to ISO 14000) have helped a lot in getting industry to comply with their own environmental performance.

Appendix 4-3(G-1) - People visited
 

Federal Ministry of Environment, Nature Protection and Reactor Safety:	Dr. Alfred Walter Ministerialrat Leader of Economic Section Postfach 12 06 29 D53048 BONN, GERMANY Office: Bernkastelerstr. 8 Tel.: 49-228-305-2450 Fax: 49-228-305-3524
Hermes Kreditversicherungs AG:	Mr. Wolf-Bernhard Kersten Diplom-Kaufmann International Consulting Friedensallee 254 D-22763 HAMBURG, GERMANY Tel.: (49-40)8834-2882 Fax: (49-40)8834-2888 and Dr. jur. Susanne Bennert Manager, Subsidiaries/Associate Companies Secretariat of the Board of Management (address as above) Tel.: (49-40)8834- 1004 Fax: (49-40)8834-1015 Email: susanne.bennert@hermes-kredit.com

G-1	Federal Ministry for the Environment (1997), "Towards Sustainable Development in Germany", Bonn, 86 pp.
G-2	Federal Ministry for the Environment (1992), "Environmental Protection in Germany", Bonn, 232 pp.
G-3	Bundesumweltministerium (BMU) (1997), "Umweltpolitik: Rechtliche und wirtschaftliche Aspekte bei der Einbeziehung privater Dritter in dem Bereich der Abwasserbeseitigung", Bonn, 115 pp. (Environment Politics: Legal and economic aspects for the participation of private third-parties in the sector of waste-water disposal)
G-4	Umweltbundesamt (1997), "Umweltschutz and Beschaftigung: Brückenschlag fur eine lebenswerte Zukunft", Berlin, 160 pp. (Environmental Protection and Employment: Building bridges to a livable future)
G-5	Bundesumweltministerium (BMU), 1998, "Nachhaltige Entwicklung in Deutschland: Entwurf eines umweltpolitischem Schwerpunkt-programmes? Bonn, 145 pp. (Sustainable Development in Germany: Development of a Strategic Programme for environmental politics)

G-6	Bundesministerium fur Umwelt (BMU), 1998, Umwelt Politik: Umweltbericht 1998, Bonn, 209 pp. (Environmental Politics: Report on the Environment 1998)
G-7	Kreditanstalt fur Wiederaufbau (KfW), 1997, "Ihr Vorhaben verdient Unterstutzung: Die Forderkredit-programme der KfW? Frankfurth am Main, 35 pp. (Your Programme deserves support: The financial support programmes of the Credit Institution for Rebuilding (KfW))
G-8	Hermes Kreditversicherungs ?AG, Annual Report 1997, 73 pp. and associated material

 

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Appendix 4-4 - The Netherlands

Meetings: 7
 

• • Ministry of Housing, Spatial Planning and Environment
  • Ministry of Public Works
  • Ministry of Finance (by correspondence only)
  • Ministry of Economic Affairs (by correspondence only)

• • Vrije Universiteit Amsterdam
  • Technical University of Delft

• • Bugel Hajema Adviseurs BV, Assen

Issues on Sustainability and Infrastructure Development involve at least six Ministries in the Netherlands Government. They are:

1. 1. Ministry of Housing, Spatial Planning and the Environment
   2. Ministry of Economic Affairs
   3. Ministry of Agriculture, Nature Management and Fisheries
   4. Ministry of Transport, Public Works and Water Management
   5. Ministry of Finance
   6. Ministry of Foreign Affairs

The meetings with government, university and consultants, officials were very informative. Unfortunately, no meetings could be arranged with officials of the Ministry of Finance and Ministry of Economic Affairs. Subsequent efforts to arrange for input from them through correspondence did not result in useful additions to the material obtained during the site visit.

There is no question that the Netherlands has accomplished a great deal of quality environmental management in spite of its very high density of population. Its people are well educated in environmental matters and support the government's effort toward sustainable development.

There is considerable cooperation between government and industry on environmental issues. However, with respect to public-private financing of infrastructure, there is as yet little use of it. Telecommunication is entirely in private hands - a new industry which did not need to be transferred to the private sector. The railroads were partly privatized a few years ago, but the government is still the largest shareholder. Roads are mostly publicly financed, only a few toll roads tunnels and bridges exist, but they are government built and operated. Again the airport at Amsterdam, and the national airline, KLM have been privatized, but the government is still the largest shareholder. For water supply, wastewater and solid waste management local, but public boards are managing them.

APEC Member Economies may be able to learn a lot from the Netherlands experience of how to provide for sustainable development and a clean environment in a dense industrial country. However, there is as yet little experience on the issue of financing infrastructure through private or public/private means.

Background (Excerpt from N6, N1 to 4)

The Netherlands is a small and densely populated country of 15 million people. Its economy depends on industry, - particularly chemicals and metal processing - intensive agriculture and horticulture and on the country's geographical position at the heart of Europe's transportation network. These factors have led to major pressures on the environment.

In the mid-1980's, it was concluded that traditional environmental protection measures, based on regulation of substances or processes, which posed a risk to human health, had largely failed. In most respects, the quality of the Dutch environment was deteriorating and would continue to deteriorate unless radical changes were made.

The National Environmental Policy Plan (NEPP), 1989 was drawn up. It is a national strategy for the environment, which aims to achieve sustainable development in the Netherlands within one generation. It establishes key environmental quality objectives and sets out a long-term programme of actions to ensure that objectives are achieved. The plan is characterized by a management approach to environmental problems, involving:

• • the adoption of quantified (measurable) targets and time frames;
  • the integration of environment into decision making by all sectors of society;
  • clear identification of responsibility for actions;
  • creativity in the design and use of policy instruments;
  • a commitment to long-term reshaping of social and economic structures;
  • recognition of the Netherlands' dependence on international cooperation and action.

Every four years an updated NEPP is published to evaluate the progress and develop additional measures if necessary. In December 1993 the second National Environmental Policy Plan (NEPP2) was presented based on the evaluation of NEPP1. NEPP2 considered three central themes: (1) strengthening the implementation of NEPP, (2) creating additional measures for objectives that do not meet existing policies, and (3) paying attention to the issue of sustainable production and consumption.

NEPP divides environmental issues into eight themes including climate change, acidification, eutrophication, pollution by toxic and hazardous substances, waste disposal, disturbances, ground-water depletion and squandering. In addition to these themes NEPP considers target groups which are the sectors that influence the policy. These target groups include agriculture, industry, the refineries, the energy supply sector, the retail trade, consumers, transport, construction, the water supply industry and waste disposal companies. Current emphasis in Dutch environmental policy is on implementation. The government is initiating improvement in the quality of existing policy instruments such as licensing and enforcement and to increase the scope for instruments available and their scope and applicability.

NEPP3 sets forth broad policy to be pursued for the period 1999 to 2002 inclusive, taking as its horizon the year 2010. It integrates national and international environmental policies towards sustainable development for the plan period.

The Government's goal is to achieve economic growth combined with a reduction in environmental pressures. The process of transformation to a sustainable, environmentally efficient economy will require effort from society as a whole: industry, consumers and the government. Hence, policies are designed at the government and industry levels which are to be implemented in the various sectors over the coming years. These policies include:

Generic Government Policy

The government will influence the development of an environmentally efficient economy mainly through:

1. 1. Incentives - The government will be the market player to encourage the supply of environmentally friendly goods and services by aiming its public procurement policy at such products.
   2. Technology policy - Increase and expansion of the Economy, Ecology and Technology (EET) program; Continuation of Sustainable Technological Development program in partnership with industry; establishment of  "first mover" facility to enhance the economic feasibility of projects involving higher than normal technical risks.
   3. Influencing prices- lowering of Value added taxes (VAT) on environmentally-friendly foods and services and increasing eco-taxes; implementation of 'green tax' package to encourage the development of services and to reduce the environmental pressure.
   4. Investments in infrastructure and land - Launching of incentive program for intensive Land-Use to promote efficient, multifunctional urban and rural land-use; introduction of Innovation fund for the Construction industry.

• • Joint steps for strategic integration of environmental considerations into company management including research, pilot projects etc.
  • Efforts to identify and remove existing laws and regulations that might hinder the integration of environment in management.
  • The government and industry will draft a protocol in which companies pledge to be among the world leaders in energy efficiency and those companies not among the world leaders must take supplementary measures.
  • Industry will step up its cooperation with research institutes to develop new sustainable products and processes and to speed up commercial introduction of clean technology.
  • Government and industry will launch 'Innovative Construction' program to encourage underground, flexible and disassembly construction.
  • Development of program for the sustainable use of both new and existing industrial estates.
  • Companies in the food sector will draft a plan of action to promote sustainability improvements in the food chain.
  • Promotion for the use of sustainable agro-elements in the non-food industry such as use of natural proteins in water-soluble paint and glue.
  • Application on integrated environmental approach to the environment in agriculture, horticulture and fisheries.
  • Encourage sustainable development through financial services by improving utilization of commercial green funds, opening of environmental cooperatives etc.
  • Encouragement of multimodal transport such as shared-car-schemes.
  • Enhancing the management and coordination of transport flows for improved efficiency of freight transport.
  • Implementation of technology based innovative and transports system such as integrated underground freight transport system, innovative hybrid drives etc.
  • Implementation of Sustainable Housing and Buildings through a combined efforts of several Ministries and the Construction Industry through voluntary agreements initially, and through legislation later, if needed.

Water/Wastewater

The Water Act (early 1970's) established some 30 regional Water Boards, whose responsibility is to provide high quality potable water for consumers from groundwater and surface water sources throughout the country. The Boards are composed of representatives of government, industry and local consumers. Protection of water sources from potential pollution by wastewater is also the responsibility of the Boards. The 'polluter pays principle' allows them to levy charges against polluters, based on the strength of the wastewater's. Financing for the Boards?work comes from charges for potable water use and from pollution charges. Certain industries needing a lesser quality of water are allowed to purify their own water supply. Overall this is a real success story, where the quality of drinking water is very high, surface waters are much cleaner, and overall pollution has decreased much, in spite of a high level of industrialization and population density.

Air Quality

There is much use of natural gas and oil (imported). Coal is used generally for power plants, which practice desulfurization. The automobile is a major source of air pollution. However, a very good rail and public transit network, and the extensive use of bicycles keep air pollution manageable.

Solid Waste Management / Hazardous Wastes

Recycling and reuse is practiced extensively by consumer and industry, with strict separation of materials at source. Incineration is used extensively. Landfills are only used in small communities, as land is scarce. A central facility for hazardous waste destruction at high temperatures is located in Rotterdam.

Railways were partly privatized a few years ago, extensive network throughout the country. The government is still the largest shareholder. There are plans for major new high-speed trains (Amsterdam to Brussels and Rotterdam to Germany).

A development issue applicable to all types of public transport facilities concerns the direct involvement of landowners near the new stations built, whose land values rise dramatically through such public expenditure. Sharing of costs and rewards needs to be equitable.

Roads/Waterways

There is an extensive network of roads and canals throughout the country. Roads are mostly publicly financed. Recently, two new expressways, one bridge and several tunnels do collect tolls, but in general the collection of fees from users is not favoured. Financing occurs through general taxation. Parking in Amsterdam and other cities has been privatized. The Ministry of Economic Affairs is, however, investigating the possible implementation of future road pricing for raising revenue.

An interesting example of nature protection within a heavily built up country is the example of a large nature park in the middle of the Netherlands. Major roads traverses the park, but great care was given to provide for separation of traffic and animal trails through construction of natural 'bridges' or 'underpasses'. Biodiversity protection was also taken very seriously in this project.

Airport/KLM

Both the international airport, Shiphol, and the nations airline, KLM, have been privatized, but the government is still the largest shareholder. Aircraft noise around shiphol is bad, as development around the airport has occurred. Plans for a new international airport on an artificial island in the North Sea have been discussed for twenty years, but no action so far. It may need to happen eventually.

Sustainable Buildings/Housing

The Sustainable Housing Action Plan was drawn up in 1995 in cooperation with various parties. It has four goals: (i) clear information through nationwide consultation; (ii) sustainable housing in practice: grants and pilot projects; (iii) sustainable housing and the law: planning and regulation; (iv) preparing for the future: innovation and education.

Legislation creates opportunities such as tax incentives to encourage investment in environmentally friendly projects whereby investors pay less tax on their investment income and mortgages for green projects can be obtained more cheaply. Increased use of sustainable energy sources such as sun and wind, aims to obtain 10% of Dutch energy to come from sustainable sources by the year 2020.

There are special grants for renovation projects to ensure sustainable renovation. Sustainable renovation is good in three ways: buildings are preserved, alterations are carried out without causing unnecessary environmental damage, and there is less wastage of energy and drinking water.

Extensive research has been carried out through several government departments under the leadership of Min. of Housing, Spatial Planning and Environment (VROM) with collaboration from universities (Profs. Charles Hendricks, Seifeld, Steiner and Weijnen, TU of Delft) on sustainable buildings for offices, apartments, hospitals, utilities and housing. Approximately 6.5 million dwellings serve the countries population of 15 million. About 40% are public rental dwellings, and 60% are privately owned. The initial target was to build 15% of new housing stock sustainably, and to increase this to 80% by 2000. The strategy is to work with the environmentally highly educated public to demand sustainable housing (i.e. through proper land space utilization, energy from solar reflectors, indoor air quality, etc.). The government is entering into voluntary agreements with developers/builders to build sustainable housing. Legislation may have to be introduced at a later stage, if not sufficiently successful by voluntary means. So far it looks promising. At this time overall cost increase for sustainable housing is about 7% of construction costs, but will result in lower operating costs. The average cost of a private home is about 300,000 Guilder (or about US$150,000).

Telecommunications

National Telecom is truly privatized. It provides excellent service

Appendix 4-4(N-1) ?People Visited

Government Departments

• Dr. Ineke Lemmen, Product Manager
  Ministry of Housing, Spatial Planning and the Environment
  Bureau of Sustainable Building / IPC 103
  Rijnstraat B, Postbus 20951
  2500 EZ Den Haag
  The Netherlands
  Tel: 31 70 339 4029
  Fax: 31 70 339 1335
  E-mail: Lemmen@dubo.cs.minvrom.nl

• Dr. C.J.M. (Karin) Holthuis and Mr. Paul Cools
  Policy Advisor Environment Head, Infrastructure Raw Materials
  Ministry of Public Works
  Van der Burghweg 1, P.O. Box 5044
  2600 GA, DELFT
  The Netherlands
  Tel: 31 15 251 8475 Tel: 31 15 269 9207
  Fax: 31 15 251 8555 Fax: 31 15 261 1361
  E-mail: c.j.m.holthuis@dww.rws.minvenw.nl

• Mr. Dick Sluimers (by correspondence only)
  Deputy Treasurer - General
  Ministry of Finance
  Government of the Netherlands
  P.O. Box 20201
  2500 EE Den Haag
  The Netherlands
  Tel: 31 70 342 7052

• Mr. Noe van Hulst (by correspondence only)
  Director, Marketwerkung
  Ministry of Economic Affairs
  Government of the Netherlands
  Den Haag, The Netherlands
  Fax: 31 70 379 6094

Universities

• Prof. Dr. Ir. M.P.C. Weijnen
  Chair of Process and Energy Technology
  Faculty of Systems Engineering, Policy Analysis and Management
  Technical University of Delft
  Jaffalaan 5, PO Box 5015
  2600 GA DELFT
  The Netherlands
  Tel: 31 15 278 8074
  Fax: 31 15 278 3422
  E-mail: m.p.c.weijnen@sepa.tudelft.nl

• Dr. Huib M.A. Jansen and Frans Oosterhuis
  Research Coordinator
  Institute for Environmental Studies
  Vrije Universiteit Amsterdam
  De Boelelaan 1115
  1081 HV AMSTERDAM
  The Netherlands
  Tel: 31 20 444 9555
  Fax: 31 20 444 9553

Consultants

• Prof. Dirk Bolt and Mr. M.P.W. Dubbeling
  Bugel Hajema Adviseurs BV
  Vaart nz 48-50, Post bus 274
  9400 AG ASSEN
  The Netherlands
  Tel: 31 592 316 206
  Fax: 31 592 314 035

Appendix 4-4(N-2) - Reference Material
 

N1	Government of the Netherlands (several depts.) (1998): "Summary: Policy Document on Environment and Economy: Towards a Sustainable Economy", 11p.
N2	Ministry of Housing, Spatial Planning and the Environment, (1997): "The Netherlands?Environmental Programme 1997-2000", A Summary, 28 pp.
N3	Government of the Netherlands (several depts.)(1998): "National Environmental Policy Plan 3 (NEPP 3)", A summary, 55 pp.
N4	Ministry of Housing, Spatial Planning and Environment, (1997): "Environmental Policy of the Netherlands: an Introduction", 27 pp.
N5	Both Ends Publication, (1997): "Green and Grey Below Sea Level: An access guide to Environmental and Development Organizations in the Netherlands", Amsterdam, 123 pp.
N6	Ministry of Housing, Spatial Planning and the Environment, (1997):"Towards a Sustainable Netherlands", 28 pp.
N7	Jansen, H.M.A. (1991): "West European Experiences with Environmental Funds", Report of Institute for Environmental Studies, Vrije Universiteit, Amsterdam, 42 pp.

 

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Appendix 4-5 - European Union Secretariat

An approach was made to several EU Directorates with the assistance of Mr. Etienne Reuter, Head of the Office of the European Commission in Hong Kong. Eventually DG VII (Transport), DG XI (Environment, Nuclear Safety and Civil Protection), DG XIII (Telecommunications), DG XVI (Regional Policy and Cohesion), and DG XVII (Energy) were contacted. A review of selected reports is presented in Appendix 4-5. The country Questionnaire was completed by DG XI (Environment) but only on Part B Sustainability and the response is included in Appendix 4-5, and also presented in Chapter 3.

The responding people were :

• • Mr. Nicholas Banfield
    Directorate General XI: Environment, Nuclear Safety and Civil Protection
    200 Rue de la Loi, B-1049 Brussels (Mail)
    174 Blvd. De Triomphe, 1160 Brussels
    Tel.: 32 2 296 8761 Fax: 32 2 296 9558
    Email: nicholas.banfield@dg11.cec.be

• • Mr. Peter Mehlbye
    Directorate General XVI: Regional Policy and Cohesion
    European Spatial Development Perspective (ESDP)
    200 Rue de la Roi, B-1049 Brussels
    Tel.: 32 3 396 0864 Fax: 32 2 296 3271

1. Definition of Sustainability

2. Did not agree with the interim definition of sustainable development (as proposed for Hong Kong and this study). The reasons included:
 

3. Did not agree with tentative definition of sustainable infrastructure because of vagueness of  "acceptable" and "to whom acceptable".

4. Environmental and social aspects of a project are considered by the EU before financing decisions are made. If the project definition fails to integrate all relevant environmental and sustainability criteria adequately, it is refused.

5. Top three issues/characteristics/trends which may negatively impact the sustainability of infrastructure projects are:

1. 1. Social, economic and environmental needs are essential.
   2. Both needs of present generation (~40%) and of future generation (~60%) need to be considered.
   3. Achievements of a vibrant economy, social progress and better environmental quality were not considered relevant to a definition of sustainability.
   4. Local, regional, national and international aspects need to be considered.
   5. Efforts of the community, local governments, national government, the private sector, civil society stakeholders, and individuals need to be included.
   • • The definition fails to be either general (i.e. is too detailed) or specific (too limited in scope).
     • The phrases/words "needs", "vibrant", "progress", "quality", "locally and internationally" are too subjective and broad.
     • The definition fails to mention natural resources.
     • The definition fails to properly reflect either the Brundtland or Agenda 21 definitions.

• • • Lack of an environmental and/or strategic impact assessment.
    • Lack of consultation with all players
    • Lack of adequate care concerning utilization of natural resources.

1. 6. Top three issues/characteristics/trends which may positively contribute to the sustainability of infrastructure projects are:

• • • Solid environmental/strategic impact assessment and identified mitigation measures
    • Track record and comparative experience/or lack of the project proposers
    • Local partnerships

1. 7. Financing techniques, if any, which would more likely enhance sustainability, and why.

• • • Agreements on standard procedures for projects at UN or similar level to be adopted, as parameters and/or guidelines on strategic environmental assessment.

1. 8. In case of low likelihood of enhancing sustainability by the financing techniques outlined, can you suggest financing techniques that might enhance sustainability of the project?

• • • Incorporation into project structure of expertise capable of improving project performance (in environmental terms, priority) of infrastructure projects.

DG VII (Transport), DG XIII (Telecommunications) and DG XVII (Energy). No names of contact persons were provided.

Letters to these three directorates were written on May 3, 1999. Telephone conversations took place in June 1999 with all three, but the general feeling was that our study was an interesting one but did not directly apply to their directorate.

DG XVI supplied later EU reports, which are reviewed below.
 
 

Review of Selected EU Reports

The six reports supplied by DG XVI (see Appendix 4-5(EU-1)) were reviewed and materials relevant to this project are briefly summarized in this section. As there was no opportunity to have this section reviewed by anyone at the European Commission (EC) our understanding may be incomplete.

The principle of economic and social cohesion and the principle of environmental protection are mentioned in the preamble to the Treaty on the European Union. For the environment this means that environmental protection measures must be integrated into the definition and implementation of other Community policies (Article 130r of the Treaty). This requirement is particularly relevant to the Structural Funds because of the context in which they operate as well as the links between structural policy (particularly its regional aspect and environmental policy)?(EU4, p.19).

Of the many policies and funding mechanism of the EC two important funds are relevant to financing of sustainable infrastructure projects. They are:

• • Structural Funds
  • Cohesion Fund

The EC's transport policy, as set out in the Treaty (Articles 129b, c, d) foresees the development of trans-European transport networks, which should make up for some shortcomings in outlying regions in terms of infrastructures and connections with the central regions of the Community. Guidelines define the objectives, priorities and broad lines of measures envisaged, and identify projects of common interest. Multimodal transport systems (road networks, railway networks, ports, airport networks) are eligible for financial assistance, involving part-financing of feasibility studies, loan guarantees, interest-rate subsidies, and in certain cases, direct grants for investment to supplement resources committed by the Member States. A budget of 2345 million ECU for the period 1995-99 for transport, telecommunications and energy networks was established. Projects in all Member States are in principle eligible for support.

Structural Funds and Urban Problems (EU6, 0.24)

The Commission has embarked on a dialogue on the future of urban development, with the objective to draw up a coordinated and coherent response to a growing number of urban problems. Community policies on the environment, transport, employment, social integration, energy, research and technological development (RTD), economic and social cohesion are already having an impact on the towns and cities of the Union.

Cities are the motors of economic growth, competitiveness and employment, and their relative strength and weaknesses are reflected directly in regional disparities across Europe. At the same time, the problems experienced in Europe's cities are steadily worsening: traffic congestion, unemployment, environmental nuisances, poverty and exclusion, poor housing, and crime and drug addiction. Nevertheless, cities may afford opportunities for a better quality of life, in cultural and social, as well as economic terms. Moreover, by allowing concentration of activities, they provide considerable advantages in achieving a model of sustainable development.

The Structural Funds can be used for measures to respond to urban problems, for example, by improving infrastructure and public transport systems to enhance the accessibility of the outskirts. An urban forum organized in Vienna in November 1998 would be the culmination of a number of activities on urban matters, which will eventually result in action programmes.

The Cohesion Fund (EU1, 2 and 3)

Economic and social cohesion ranks as one of the main objectives of the Treaty on European Union. The Cohesion Fund was set up in 1993 for several years to 1999 and is exclusively designed to finance infrastructure investment in the fields of transport and the environment, in approximately equal proportions. This makes the Cohesion Fund the largest environmental investment measure in the Union. Furthermore, the Cohesion Fund only applies to a number of the less prosperous Member States. For the past few years, these include Spain, Portugal, Greece and Ireland. The appendices to EU1, 2 and 3 detail the many transport and environmental projects carried out in these four countries. In March 1998 the Commission proposed that the Cohesion Fund should be maintained in its present form for the period 2000-06. Member States with a per capita GNP of less than 90% of the Union average ?even if they are just joining the economic and monetary union ?will continue to be eligible for assistance from the Fund. Macroeconomic conditionality would continue to apply. The Commission was proposing a budget of EUR$3 billion per year for the Cohesion Fund after 1999.

Relevance of EU transport and environmental activities to APEC

Individual APEC Member Economies, as well as APEC as a whole, may benefit from the experience of the European Union in upgrading transportation networks, rebuilding of cities and environmental performance in the region. They may also benefit from their economic and social cohesion programme, designed to assist less prosperous members with specific programmes for transport and environmental facilities.

Unfortunately the contact by the Consultants with the EU Secretariat was too small to draw any further conclusions relevant to this study.

Appendix 4-5(EU-1) - Reference Material

All are publications of the European Commission

EU1	DG XVI (Regional Policy and Cohesion): Annual Report of the Cohesion Fund, 1995; Luxembourg, 1997-11, 113 pp. (ISBN 92-827-9688-4)
EU2	DG XVI (Regional Policy and Cohesion): Annual Report of the Cohesion Fund, 1996; Luxembourg, 1997-111, 153 pp. (ISBN 92-828-1107-7)
EU3	DG XVI (Regional Policy and Cohesion): Annual Report of the Cohesion Fund, 1997; 139 pp.
EU4	European Commission: The Structural Funds in 1995 (7th Annual Report); Luxembourg, 1996, 340 pp. (ISBN 92-827-8941-1)
EU5	European Commission: The Structural Funds in 1996 (8th Annual Report); 357 pp.
EU6	European Commission: The Structural Funds in 1997 (9th Annual Report); Luxembourg, 1999, 214 pp. (ISBN 92-828-5275-x)