An extract from The Projects and Construction Review, 11th 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 2020, despite the ongoing covid-19 pandemic, 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 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
Like all countries in Western Europe and generally across the world, Belgium was hard hit by the covid-19 pandemic from March 2020. In the spring of 2020, a general lockdown was enforced that affected all sectors of the Belgian economy. The measures taken by the Belgian authorities to reduce the spread of covid-19 meant that work on many construction sites had to be stopped by construction companies or by their principals. However, by the end of May 2020, the strict and general measures were eased, enabling the construction sector to continue working (under certain safety conditions), and cross-border restrictions on travel for work purposes were lifted.
Despite the pandemic, the PPP project sector did not sit still in 2020. In February 2020, the Dendermonde Prison PPP project reached financial close for a total funding requirement of €194 million, for the design-build-finance-maintain (DBFM) of the new-build prison complex situated between the cities of Antwerp and Gent, with a 25-year term.
In the renewable energy sector, innovative projects including floating solar panels have seen the light, and the largest solar park in Benelux reached completion and began commercial operation. 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 2020, Belgium added another 497MW to its offshore wind capacity with the completion of the SeaMade wind farm in the Belgian North Sea, to bring the total offshore capacity to 2,262MW. Belgian offshore wind farms generated 6.7TWh of electricity in 2020, and is therefore punching well above its weight in this sector in Europe and on the world stage. Major changes and investments may be expected in the energy production sector in the years ahead, with the nuclear phase-out being confirmed by the new federal government and a new capacity remuneration mechanism providing a framework for a capacity auction being announced, intended to secure Belgium's electricity supply from 2025 onwards.
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 the 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
From a political point of view, after the regional, federal and European elections of May 2019, a federal government was finally formed in October 2020, with a seven-party coalition formed between centre-right and centre-left parties. The formal federal government replaced the temporary emergency government, which had been formed in March 2020 primarily to combat the covid-19 crisis. 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 2020. However, there is no clear sign that the ongoing pandemic will significantly delay major project approvals in 2021 and beyond, and the modern monetary policy of 'spending your way out of a crisis', which appears to be popular within EU circles during the pandemic, may in fact give an extra boost to public and private projects in the coming years.
From a legal perspective, the formal legislative proposal for a brand new Civil Code chapter on contracts was put before parliament in February 2021. 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 into Belgian contract law. On 30 January 2020, the Belgian parliament adopted a reform of the Belgian Civil Code chapter on goods, which will have a significant impact on real estate transactions. The new chapter should enter into force and apply to new transactions as from July 2021.
In addition to the ongoing Civil Code reform, the Act of 4 April 2019 introduced three new sets of rules governing B2B-relationships: a prohibition of unfair market practices (which entered into force on 1 September 2019), a prohibition of abuse of economic dependence (which entered into force on 22 August 2020), and rules on unfair or prohibited B2B contract clauses (which entered into force on 1 December 2020). Parties in the private construction sector should pay specific attention to this far-reaching legislation on commercial transactions.
The new federal government's energy policy, particularly relating to the confirmation of Belgium's nuclear phase-out in 2025, will shake up the energy market further, as Belgium seeks to secure its future electricity supply. The federal government's new capacity remuneration mechanism, through which the first post-2025 capacity will be auctioned in 2021, will result in a number of significant projects (including new-build projects) reaching financial close in 2021 and 2022 and being constructed in the coming years.
Belgium remains an attractive and sophisticated market for both private and public projects, which should remain the case in coming years regardless of any economic fallout from the covid-19 crisis.