An extract from The Projects and Construction Review, 10th Edition
Belgium is a federal state with a civil law system and is a founding member of the European Union. The past decades of state reforms have seen the devolved administrations of the three Belgian Regions (the Flemish, Walloon and Brussels Capital Regions) having an increasingly important role in the (public) projects sector. Belgium's geographical location at the centre of Western Europe and Brussels' role as the heart of the EU has seen it become an important hub for international trade and politics.
The Belgian projects and construction sector remained strong in 2019, with a number of projects reaching financial close.
The publication in September 2016 of Eurostat's guidelines for the statistical analysis of public-private partnership (PPP) structures has brought about a revival in PPP financing after the previous years' retrenchment owing to budgetary cuts and uncertainty about the application of the European accounting rules for PPPs.
Various public entities trust the PPP model for large projects in a number of sectors, from transport infrastructure to prisons and schools.
The year in review
Major project approvals and closings continued their upward trajectory in 2019. In January 2019, the Liège tram PPP project reached financial close for a total funding requirement of €430 million for the design-build-finance-maintain (DBFM) of the first, 12km long, tramway line in the city. The Liège tram PPP was one of the first major projects to close in Belgium following publication of Eurostat's new PPP guidelines, and the first ever major PPP project in the Walloon Region. The ambitious €600 million PPP project to restore and manage the electromechanical equipment of the Walloon Region's 2300km road network reached financial close in February 2019, also structured as a DBFM project with a 20-year term. Such projects remain attractive to both national and international financing parties.
In the renewable energy sector, innovative projects including floating solar panels have seen the light. Belgium's energy and climate plan proposes a renewables target of 18.3 per cent by 2030. To reach that target, there is still a long way to go. In 2019, Belgium added another 350MW to its off-shore wind capacity, the good news being that costs of new offshore wind farms continued to fall significantly. Major changes and investments may be expected in the energy production sector in the years ahead.
The construction market (supplier side) remains highly competitive and is saturated with sophisticated players. As a result, labour costs remain high and margins low for contractors, pushing general contractors to cut back on their own Belgian labour force and work more and more with foreign subcontractors. To fight social dumping and unfair competition, decisions have been taken at both national government and EU level, and concrete measures are being implemented by the sector.
In addition, skilled general contractors continue to export their know-how and take up work where margins are more enticing, such as in Africa and the Middle East.
Outlook and conclusions
Financial close of the first two large PPP projects in the Belgian revival in 2019 bodes well for an increasing use of the model in the coming decade. The clarification by Eurostat on the application of the ESA 2010 rules continues to be welcome in the PPP sphere.
From a political point of view, there were regional, federal and European elections in May 2019. At federal level, the political standoff between the (economically conservative) Flemish majority parties and the socialist Walloon majority has continued for almost at year at the time of writing.
From an economic perspective, the covid-19 pandemic and its consequences has created a lot of uncertainty for the construction market. As a result of the stay-at-home orders and social distancing rules, most major construction sites came to an almost complete halt between 18 March and the end of April. The question is now what the economic impact will be on the pipeline of projects to come and how many projects will be frozen and for how long.
From a legal perspective, 2020 should bring us a brand new Civil Code chapter on contracts. This new chapter will not revolutionise Belgium's civil law traditions, but will rather modernise and codify the 200-year-old statute, with one major development: the introduction of the hardship principle in Belgian contract law.Footnotes