Central and Eastern Europe (CEE) is “brimming with opportunities for investment into renewable energy, airports and infrastructure, a study by international law firm CMS found.
The “2019 CMS Infrastructure Index: Bridging Continents”, produced by CMS in conjunction with data and analytics specialist inspiratia, ranks 50 countries in order of infrastructure investment attractiveness.
The report analyses data against six main criteria — economic status, sustainability and innovation, tax environment, political stability, ease of doing business and private participation — with varying weightings to assess most attractive destinations for infrastructure investment.
Amongst the potentially lucrative projects those in renewables, airport expansions and electrification of transport stand out, “as the race towards green leadership and proactive government policies gathers pace”.
This year’s report “confirms that a crucial point has been reached in the global transition into greener, smarter and more sustainable investments and assets,” a press release emailed to bne IntelliNews said.
Among the seven CEE countries included in the 2019 index, Poland has the top spot across the region for investment attractiveness, rising three points since the 2017 index.
According to the report, Poland — which still relies heavily on coal power — is making “huge strides” in the clean energy sector.
“Poland’s strong position in the index is gratifying and reflects the strength of the primary infrastructure market and the government’s support for investment in sustainable assets,” Marcin Bejm, head of infrastructure and project finance at CMS Poland, said in the report.
“Throughout the CEE region there is growing commitment to new technologies and clean energy, with encouraging signs of foreign business partnership, which bodes well for the future,” he adds.
In addition to Poland, the report singles out Russia’s “leap into the renewables sector” where Finland’s Fortum took nearly 1GW of wind and solar capacity in an auction held in May and June 2018.
Meanwhile, the report says, “a spike in Ukrainian onshore wind activity in 2019 points to a renewables market heading in the right direction”. Ukraine has thrown itself into renewable energy, partly as it needs to wean itself off Russian gas imports. More than $4.8bn has been invested into renewable energy in the last five years and half of that was invested in the last year alone.
Russia has been late into the game, but is now actively trying to catch up. The most significant change this year was when the Russian operation of the Italian owned utility Enel sold its main coal-fired power plant in October to reduce its carbon footprint dramatically and dramatically changed its energy production portfolio. At the same time the company is continuing to ramp up its investments into solar and wind in Russia. Other companies are expected to follow suit.
In another relevant segment, the CEE region has been lagging behind the western part of the continent in electric vehicle (EV) adoption and charging infrastructure, but now, according to the report, “CEE countries are making significant strides with electric vehicles following an upsurge in demand”.
Among the potentially transformative projects, Germany-based Ionity partnered with Shell last year to deploy EV charging stations in 24 European countries including Poland, the Czech Republic, Hungary and Slovakia, while Austria’s largest electricity provider Verbund is working with Enel X, Smatrics, Greenway and OMV to develop EV charging infrastructure in Romania, Slovenia, Croatia, Hungary and other countries in the CEE region, says the report.
Air transport booms
At the same time as investments into renewables are ongoing, the air transport sector is also growing fast. European budget airlines that are already well established in Central Europe are pushing deeper into the less developed Southeast European market. For longer haul flights, new routes are opening up especially to the US and China.
“The report reveals that the infrastructure market in CEE is rapidly increasing, with the region boasting the highest growth of passenger traffic in Europe,” says the press release.
“With several attractive and profitable assets, CEE countries are providing a pocket of opportunity for airport investors in 2019 … Boasting the highest growth in passenger traffic in Europe, CEE countries are announcing big airport expansion projects, with some also planning new greenfield additions, including in Romania and Lithuania.”
Serbia’s Nikola Tesla airport is seen as a new contender to become a regional hub following its acquisition by France’s Vinci, which plans to invest around €730m to build up the facility into the best-connected airport in the region. New routes have opened up from the airport since Etihad Airways' strategic investment into Jat, now renamed AirSerbia.
In neighbouring Bulgaria, there are plans to develop Sofia airport after the transport ministry finally selected a preferred bidder — consortium including Meridiam, Strabag and Munich Airport — for a 35-year concession.
Challenging environment in Romania
However, the situation is less positive in Romania, due to uncertainty over a whole raft of projects.
In Romania, the government put forward a list of 21 PPP projects, including highways, hospitals, railways, power plants and tourist resorts in February. However, the report notes that “the plan was met with scepticism, since the country lacks the necessary experience to implement PPP projects” — on top of that the ongoing political uncertainty in Romania has made it difficult to move forward with infrastructure projects.
"Increasing uncertainty in the infrastructure sector - caused by numerous stalled or cancelled projects - and a challenging regulatory environment are two of the reasons for Romania's drop from 33rd position in 2017 to 39th in 2019,” says the report.
Germany leads worldwide
In the wider European continent, Germany is ranked in first place worldwide, overtaking its neighbour the Netherlands, and European countries occupy six of the top 10 places in this year’s Index.
Elsewhere in Europe, however, CMS points out that the “Brexit-effect” is taking its toll on the UK infrastructure sector.
Alongside Germany and the Netherlands in the top five countries offering the greatest opportunities for investors are Singapore, Australia and Canada.
Worldwide, the report finds the Asia Pacific region is home to several leaders in digital infrastructure, with various hubs “vying for supremacy in the communications sector”.
In the Middle East, private investment is growing and, according to the report, the Middle East is making “significant headway in becoming a global smart and sustainable city hub”. On top of this, the region has presented ambitious solar and onshore wind projects.
In other emerging markets, there are a number of major interconnectivity projects in Latin America, while trade ambitions in Africa are boosting interconnectivity, despite fiscal constraints and limited project finance capabilities in parts of the continent.
Pressure for investment
Kristy Duane, co-head of infrastructure and project finance at CMS, talks of the “unrelenting pace” infrastructure is connecting people worldwide.
“As our 2019 report illustrates, infrastructure assets play a vital role in climate change mitigation, with top-ranked Germany coming under increasing domestic pressure to transform its infrastructure efforts to meet more ambitious targets,” she says.
In addition, as also identified by bne IntelliNews in a cover story the rise of environmental, social and governance (ESG) criteria are becoming a top priority for infrastructure investors – however this brings with it challenges as investors navigate a complex matrix of evolving requirements and standards for different assets around the world.”