Guy Norton in London -

Slovakia is hoping to achieve another major landmark in its public-private partnership (PPP) programme, with the country on track to finalise commercial bank funding for phase one of the €3.3bn D1 motorway project. But environmental concerns promise a bumpy road ahead.

Given the relative scarcity of Central European infrastructure deals, the appetite from commercial banks to offer finance for the D1 road scheme is reported to be strong and adviser Royal Bank of Scotland is aiming to reach financial close on the initial phase of the three-phase project shortly, which will connect the cities of Bratislava and Kosice. The Slovakian transport ministry is looking to build on the successful €984m project financing for the R1 motorway project in 2009, which was voted the best infrastructure transaction in bne's "Deals of the Year" poll.

The project's Bouygues-led Slovenske dial'nice consortium is looking to secure around €3bn worth of funding in total. Around €1.6bn is due to come from commercial banks, while the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) are set to commit at least €1bn. Three Dutch equity investors are looking at investing equity – pension funds APG and PGGM, plus Dutch Infrastructure Fund (DIF). BBVA, BTMU, Calyon, Erste, Espirito Santo, ING, KfW Ipex, Natixis, Societe Generale and UniCredit have already been appointed structuring banks for phase one, committing €100m apiece. The D1 phase one facility will be closely followed by project financiers, as it will create the structuring and pricing benchmarks for phases two and three of the D1 project. The 30-year concession for phase one is to design, build, finance and operate 75 kilometres of road connecting the northern cities of Martin and Presov.

Environment concerns

While the commercial bank portion of the financing looks to be in the bag, there's more uncertainty about the fate of the funds from the EIB and the EBRD. Like many new road projects in Europe the D1 motorway has provoked its own fair share of controversy. In December, environmental group Friends of the Earth lodged a complaint with the EIB, alleging breaches of EU and national environmental laws in the planning of the Turany-Hubova section of the D1. Friends of the Earth protested that a less-damaging route that had been recommended by the project's environmental impact assessment was overlooked in favour of an alternative that crosses two national parks - in Mala Fatra and Velka Fatra - and protected areas of the Natura 2000 network, as well as running through the village of Sutovo. "We are seeing this time and again across Central and Eastern Europe - big new road projects clashing with EU law, local communities and places of immense natural value. And the major European public funders that are being asked to back these schemes have really got to up their game and assess these projects with a lot more rigour and scrutiny on the ground," says Lucia Lackovicova, a director for Friends of the Earth-CEPA.

In response to the complaints, the EIB has announced that the bank will not sign off on €700m of financing for the project until all relevant documentation is provided by the Slovak transport ministry. Friends of the Earth has also been in communication with the EBRD regarding the problematic aspects of the D1 motorway construction. The EBRD is mulling a €250m loan, which is due to be approved by the end of March.

The Slovakian government, meanwhile, has signed a provisional agreement with a Hochtief-led consortium for the third phase of the D1, a €2bn project to build a 25-km section, including a 7.5-km tunnel.