Case Studies: E18 Muurla-Lohja, Finland

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Project Overview
E18.png
Figure 1: E18 Muurla-Lohja in operation, Finland
E18 Muurla-Lohja, Finland
Project Type: Greenfield
Type of Project Financing: Public-Private Partnership (PPP)
Contract duration: 24 years
Budget: ca. 700 M€
Project Time Line
2004: Official announcement to call for tenders, expressions of interest, and first call for tenders
2005: First and second round of tenders, procurement decisions, contract negotiations and signing of the service contract
2005-2009: Construction
2008 & 2009: Openings to traffic


Introduction

E18 Muurla-Lohja motorway is part of the international East-West connection from Turku to Helsinki. The project included 51 km of motorway, 12.5 km other roads, 27 km private roads, 7 tunnels (total length 5.2 km) and 8 interchanges.

The project is part of a larger investment strategy program of the Finnish Ministries and government, where the east-west connections to St. Petersburg played a vital role. The road also improves connections between the largest (Helsinki) and second largest (Turku) cities of the country.

The Contracting Authority (Public Party)

The task of organizing the call for tenders was allocated to the national transport infrastructure authority, Finnish Road Administration (later Finnish Transport Agency). The Administration was the state infrastructure manager responsible for the entire public (state) network in the country.

The Concessioner (Private Party)

The concessionaire was a consortium of private investors and construction business actors. Figure 2 below shows the synthesis of actors involved in the project.

E18 1.png

Figure 2: Concession actors and roles (Source: KPMG 2013)

Sources of Financing

Experienced infrastructure equity investors such as Skanska and Laing Roads Ltd. were in the core of the project company, providing major equity stakes. EIB, NIB and Nordic large commercial banks were issuing debt for project company Nelostie Ltd.

Users

The road is a public state road. A large share is heavy transport and commuting.

Key Purpose for PPP Model Selection

E18 Muurla-Lohja was the second PPP project in Finland. Encouraged by the positive experience of the first (Main Road 4 /E75 Helsinki-Lahti) PPP project, the second PPP was launched. The E18 Muurla-Lohja, however, has a different revenue mechanism.

The actual link improvement was necessary and part of national investment program.

Project Timing

Following, the political decision to deliver the project through the PPP model, the public procurement processes was completed within approximately one year (2004-2005). The construction phase was in its entirety four years (2005-2009), and the road was opened to traffic in two parts, in 2008 and 2009, respectively.

The concession contract signed in 2005 ends in 2029.

Project Locality and Market Geography

The road links two major Finnish cities, Turku and Helsinki. Also, the corridor of E18 forms a notable economic area with the country’s strongest concentration of population and business. A railway line, also one of the busiest in the country, runs along the same corridor, and there is a natural competition between modes. The new road seems to have strengthened the road transports’ competitiveness.

Procurement& Contractual Structure

The project company Ykköstie Ltd. representing the consortium and assuming the concession was the signing party. The other side was the Finnish Road Administration.

Tendering

Following the political decision to go ahead with the PPP model of delivery, the official public announcement for expressions of interest was made in March 2004. The expressions of interest were submitted in July 2004. Selected calls for tenders were released in September 2004, and first bids were submitted in March 2005. These were evaluated and a second round of qualified bidders was launched in May 2005. Bids were submitted in June 2005. Contract negotiations followed between June-October 2005, after which the final service contract was signed.

Several international and domestic consortia took part in the bidding process.

Contract Structure

Two parties are in the contract: the concessioner YkköstieLtd. and the Finnish Road Administration. The contract covered the construction and operation of the road. The state owner pays availability payments to the concession company when the road is in impeccable condition for the road users. The exact payment mechanism is not publicized. Indexing of the works and availability payments were not made public. Any possible changes to the contracts were also not publicized.

Risk Allocation

The risk allocation is depicted in Figure 3.

E18 2.png

Figure 3: Risk allocation (author’s own estimate)

Performance

A number of performance indicators are associated with the contract and availability payments. These include, in addition to availability, safety, standard conformance, certain functionality requirements, etc.

Project Outcomes

The process of project execution, starting from political decisions and ending to the commencement of the service, has been deemed very efficient, especially when compared to international experiences (KPMG 2013). For example, the period (i.e. months) spent for contract negotiations was considered short and efficient but at the same time challenging. The second half of the project was opened to traffic two months after scheduled because of challenges and discussions on the tunnel safety systems’ conformance and testing. However, the total project schedule was still ahead of the original one. (KPMG 2013)

So far, the road has been serving the road users well without any major interruptions or defects in construction or maintenance.

References

  • KPMG (2013).Elinkaarimallinjälkiarviointi [Ex post evaluation of life-cycle PPPs]. Report for the Finnish Transport Agency, available at:

http://www2.liikennevirasto.fi/julkaisut/pdf3/lr_2013_elinkaarimallin_jalkiarviointi_web.pdf