Issue November 2018

Dear Reader,

This Newsletter deals extensively with the impact of Chinese activities on development and infrastructure financing and the consequences that arise for European international contractors.

On our own behalf, EIC is very happy to present HOMY as our new Associated Company Member. Please find a short description of HOMY’s profile and link to the company website below.

Yours Sincerely,
The EIC Team

Meeting of the Working Group Corporate Responsibility

 

Frankfurt. On 31 October, the EIC WG Corporate Responsibility met at Frankfurt Airport in order to ensure an appropriate follow-up to the EIC CR brochure.
The EIC secretariat collected input from member companies on CR frameworks, international guidelines and standards that may serve as basis for a toolkit for sustainable procurement.

EIC Toolkit in the making

The Working Group agreed to elaborate a toolkit that will explain the different stages of sustainable procurement starting with the prequalification phase and ending with the tender award based on quality rather than price. In order to provide future users with sufficient flexibility, the toolkit will include a catalogue of sustainable tender criteria from which contracting authorities can choose in line with their specific needs.

The Working Group concurred to advocate the selection of the Most Economically Advantageous Tender (MEAT). In order to increase the competitiveness of European international contractors, the EIC toolkit should advocate a formula which truly reflects the value of non-price criteria such as quality, sustainability, innovation, etc. in addition to price-related criteria.

Innovative Selection Method: Two-Envelope System

One option to detach tender weighting from the appeal of low prices is the so-called “two-envelope system” in which information on technical aspects and information on costs are assessed separately. The advantage of such a system is that contracting authorities can determine the most attractive solution based solely on technical criteria without being biased  by low priced tenders. A downside to this principle may be that bidders have little opportunity for complaints if their technical solution is rejected by the contracting authority.

Instead of using a point system in connection with assessing the Most Economically Advantageous Tender (MEAT) the Working Group considered the use of a fictitious price reduction based on good performance regarding non-price factors. Such system would stipulate a discount on the total price offered if a chosen tender performs above average on sustainability, quality, etc. aspects thus taking into account the bidder’s additional cost for sustainability, compliance and innovation.

You can find the EIC CR Brochure online.

Meeting of the Working Group Africa

Paris. On its Meeting in Paris on 07 November, the EIC Working Group Africa met to discuss a new Africa Narrative.

Assessing the current state of the African construction market, the Working Group felt that China had taken the lead in infrastructure finance in Africa.

Analysing the African Infrastructure Market

While many multilateral and bilateral development banks have withdrawn from financing hard infrastructure, China put infrastructure investment back on top of the global development agenda and offered financing options to African countries that had not existed previously. However, Chinese benevolence has come at the price that financing is tied to domestic contractors and of deals manufactured outside of the rules of official international export and development finance.

The Working Group established that the typical approach taken by Chinese infrastructure financiers in Africa is that of a full-project or lump-sum government-to-government agreement in which a “preferential” policy bank loan is supposed to cover 70-90% of the contract value. The contract bundle usually includes a promise for additional investment with interest rates varying considerably depending on the bargaining power or the project country.

Impacts on the international financial system

A study commissioned by EIC concluded that the unregulated official finance practices of China stand in opposition to the rule-based system developed by the international community and thus represent a threat to the global financial framework. China’s massive financial support for developing countries outside of the rule-based international system distorts international competition and creates significant advantages for its domestic export industry.

The Working Group decided to send a letter on the matter to BusinessEurope.

Workshop on the Internationalisation of  Construction Companies

Brussels. On 8 November 2018, EIC participated in a workshop organized by the European Commission on European Small&Medium Sized Construction Companies going global.

The workshop featuring speakers from the industry had the goal to identify challenges due to market entry barriers. Participants concluded that the two main challenges are market intelligence and access to finance. Companies often struggle with international logistics and lack expertise in local languages.

Assistance with financial risk assessment

In order to deal with these challenges, ministries of foreign affairs and economic development as well as the chambers of commerce and their financial agencies ought to be better staffed so they can assist in financial risks assessments. Mechanisms that need assessment are local regulations, political fluctuations and financial bureaucracy – e.g. obligations to set up local bank accounts and transfer “stat-up” equity at uncertain conditions. Furthermore, governmental agencies ought to take on the role of mediators in cases of non- or delayed payment.

Related to the role of the EU Commission, European policy makers ought to implement a harmonised and centralised supporting agency that is able to consult on regulations, deliver training on procurement modalities, share best practices and lessons-learned as well as support in mediation and the application of European funds.

Need for Roadmap

Companies voiced their need for a comprehensive roadmap of financial tools and possible partners while existing financial risk covering such instruments are deemed as insufficient. The EU ought to establish an easy-to-follow and straightforward institution to be better able to support international companies with export credits and blending facilities.

EU-China Connectivity Platform Meeting

Brussels. On 20 November, the 4th  Expert Group meeting under EU-China Connectivity Platform took place in Brussels, Belgium.

The Connectivity Platform is an important policy forum established between the EU and China that aims to create synergies between EU policies and projects and China’s “Belt & Road” initiative. Specifically, the Platform promotes cooperation on infrastructure, including financing, interoperability and logistics.

Broad participation from Europe and China

The Expert Meeting was organised under the titled “Opportunities of financial Cooperation in EU and EU neighbourhood’s Infrastructure Projects” and brought together experts from both sides. The Chinese delegation consisted of representatives of the National Development and Reform Commission, China Development Bank, Bank of China, ICBC and CCCC, amongst others. The European Commission Services were represented by various Directorate-Generals, for instance DG MOVE, DG NEAR, DG ECFIN, DG GROW, DG TRADE, EEAS as well as the EIB and EBRD. EIC and FIEC were invited as observers.

Government representatives from the Western Balkan and from CIS countries took the opportunity to present infrastructure projects which could provide a link to the EU through the Ten-T Network and for which they are seeking financing.

Common understanding required for future collaboration

EU Representatives emphasised that key factors for a broader collaboration include open procurement and reciprocity as well as transparency and a level playing field. It cannot be in the interests of both sides if the Belt and Road initiative developed into a one-way street. Whilst it became clear during the discussion that Chinese contractors have become a dominant force in the Caucasus region on EBRD financed infrastructure projects, CDB admitted that non-Chinese contractors could only participate in their tenders when asked for by the loan recipients.

PARTNER’S CORNER

 

EY Construction, Engineering & Infrastructure Round Table

Paris. The 17th European Construction, Engineering & Infrastrcture Round Table is going to take place in Paris on 29 November.

EY Construction & Infrastructure invites to its round table on topics dealing with fast transforming industries. The goal of the event is to share ideas and discuss current trends and developments. Please find the detailed programme online. Registration can be completed on this website.

PARTNER’S CORNER

 

New ACM: Welcome HOMY

Lugano. EIC is delighted to welcome HOMY as new Associated Company Member.

The company based in Lugano, Switzerland and with a technical hub in northern Italy provides General Contractors, Oil&Gas and Mining Companies with new generation, safe and strong prefabricated building solutions for Site Camps, compliant with international standards. HOMY also provides solutions for affordable and low-income massive Housing Projects, and high-end residential, commercial and taylor made applications such as additional storeys, facades, partition walls.

Please find more information on the company website.

BRIEF NOTICES

 

FIDIC: International Contract Users’ Conference

 

London. FIDIC’s International Contract Users’ Conference 2018 will take place on 04-05 December in London with Contractor & Claims Workshops taking place on 03 December and Modified Contracts & Dispute Resolution Workshops on 06 December.

FIDIC offers 20% off on participation at the conference for EIC newsletter readers. If you are interested in the discount, please follow this link: https://goo.gl/jdWks7.