An extract from The Projects and Construction Review, 12th 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) have 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 European Union has seen it become an important hub for international trade and politics.
The Belgian projects and construction sector remained strong in 2021, 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. 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.
In 2021, the specific government measures affecting the progress of ongoing projects were as good as withdrawn, despite a winter 'lockdown light' from late 2020 until the spring of 2021. The ongoing consequences of the pandemic are now primarily seen commercially, in the form of pressure on European and global supply chains, as many parts of the global economy reach pre-pandemic levels, and demand on supply chains rises.
Despite the pandemic, the PPP project sector did not sit still in 2021. In September 2021, the Antwerp Prison PPP project reached financial close for a total funding requirement of €150 million for the design-build-finance-maintain (DBFM) of the new-build prison complex situated in the city of Antwerp, with a 25-year term.
In the renewable energy sector, innovative projects, including floating solar panels, have come to 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. There is still a long way to go to reach that target.
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. 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, which is intended to secure Belgium's electricity supply from 2025 onwards.
In 2003, Belgium decided to phase out nuclear energy from its energy mix and to decommission all seven nuclear power plants after 40 years of operation. As construction took place in the 1970s and the 1980s, the last nuclear power plants should be decommissioned by 2025; however, nuclear power plants currently still account for roughly half of Belgium's power generation.
To avoid problems with the security of supply, the government set up a capacity remuneration mechanism (CRM) to support the development of new generating capacity. The first CRM auction took place in October 2021 for the delivery period 2025 to 2026. In the months after the first auction, the political debate on the ability of nuclear energy to ensure sufficient capacity was reignited, which ended with the decision by the federal government to extend the lifetime of the two 'youngest' nuclear power stations. The CRM will ensure the continued development of energy projects (both traditional and renewable) in Belgium for the coming years, offering many opportunities for all parties operating in the energy sector.
The construction market (supply 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 the EU level, and concrete measures are being implemented by the sector.
Further, 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
Emerging from the initial global shock of the covid-19 pandemic, there were few indications that the pandemic significantly delayed major project approvals in 2021, and this trend appears to have continued into 2022. The modern monetary policy of 'spending your way out of a crisis', which appears to be popular within EU circles during the pandemic, may give an extra boost to public and private projects in the coming years.
However, the cumulative effects of the pandemic, the energy crisis and the outbreak of the war in Ukraine (which at the time of writing is ongoing) have increased pressure on supply chains and have led to global inflationary pressure. Commercial negotiations between project sponsors and contractors will continue to be affected by these issues in 2022 and potentially beyond as contractors attempt to mitigate their pricing risks through price revision, indexation and hardship clauses.
From a legal perspective, the formal legislative proposal for a brand new Civil Code chapter on contracts was adopted on 21 April 2022. It is expected to enter into force on 1 November or 1 December 2022, depending on its effective publication date in the Belgian Official Bulletin. 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. Before that, on 30 January 2020, the Belgian parliament adopted a reform of the Civil Code chapter on goods, which will have a significant impact on real estate transactions. This new chapter entered into force and applies to new transactions as of 1 September 2021.
In addition to the ongoing Civil Code reform, the Act of 4 April 2019 introduced three new sets of rules governing business-to-business (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 was auctioned in 2021, will result in a number of significant projects (including new-build projects) reaching financial close in 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 pandemic, the energy crisis and the war in Ukraine.