There is general agreement among the respondents that the recent financial crisis has had a significant impact on their procurement practices.
As a consequence of the credit crisis and the ensuing acute liquidity shortage, funders' appetite for the type of long-term lending required to finance PPPs has decreased sharply. Many lending institutions have withdrawn from the PPP market, reducing competition between the remaining funders. The tightening of syndication markets has forced sponsors to revert to often cumbersome "club deals". This has a significant negative impact on the financial terms of a PPP and leads to a more conservative lenders' approach toward risk sharing. In this context, agreement on financial terms is more difficult to reach and / or takes much longer.
The results of the survey show that more than 60% of the respondents are not able to receive committed offers before financial close and only a third is able to obtain such commitments at the preferred bidder stage. The main reasons quoted for failures to obtain compliant financial offers include:
■ Insufficient amounts available (75% of the respondents);
■ Lack of credit committee approval (60% of the respondents);
■ Unacceptable terms (45% of the respondents).
In addition, funders are generally unwilling to complete their due diligence before the selection of a preferred bidder and tend to wait until the negotiations are finalised and all members of the funding group are assembled before confirming their commitments. All these issues postpone the availability of a committed financing package toward the end of the procurement process, generally near financial close.
Numerous instances of projects being delayed or put on hold were reported in our survey. Some projects had to be stopped, having become non-viable (either unaffordable or no longer offering value for money) as a result of the deteriorated financial terms.
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9 For more details on this please see The financial crisis and the PPP market. Potential Remedial Actions, European PPP Expertise Centre - EPEC (Abridged version, August, 2009).