Opportunities for Foreign Investors in Finnish Public-Private Partnership Projects
June 2014

Opportunities for Foreign Investors in Finnish Public-Private Partnership Projects

An overview

Management of infrastructure investment by way of public-private partnerships (PPP) has found its way to Finland. To date, only a handful of major infrastructure projects have been implemented via PPP. However, more projects are in the pipeline. Foreign investors are going to be in a key position in this development.

When public-private partnerships are discussed in Finland, they are usually referred to as ‘lifecycle projects’ (elinkaarihanke). This concept includes all projects in which the initial construction as well as lifetime maintenance and servicing are procured from the same provider. In this meaning, lifecycle models have been employed in Finland for decades, particularly on the local level.

Conversely, the idea of utilising private parties as financing partner is rather new in Finland. The PPP concept has increasingly attracted interest from public investors as pressure on public budgets continues to grow: Finland’s public debt is projected to exceed EU limits in 2015. In a PPP project, the public balance sheet usually remains unaffected by investment costs.

Development of PPP in Finnish national infrastructure projects

The public-private partnership model was first introduced in Finland in 1997 when the Finnish Transport Agency (liikennevirasto, ‘FTA’) procured a large-scale road construction project, the E4 motorway between Helsinki and Lahti, using a DBFO model (design-build-finance-operate). Since then, two other large-scale traffic infrastructure projects, forming both part of the EU’s TEN-T core network and the so-called Nordic Triangle’, have been carried out using this same model. Both projects, worth EUR 600-700 million each, concerned sections of the E18 motorway.

Foreign investors have been involved in all of these early public-private partnerships in Finland. In all three projects, the special-purpose vehicles acting as PPP service providers were jointly owned by Finnish construction companies and an international PPP expert – John Laing in two cases, Meridiam Infrastructure Projects in the third.

The FTA, which is the exclusive procurer for all nationwide road and railroad construction projects, has continuously analysed these pilot projects and is working on the further development of a functional PPP model for Finland. There has been a learning curve, particularly in terms of finding a workable risk allocation that makes project financing feasible for private investors. For example, the FTA has given up the idea of traffic-based service fees and is now applying usability-based fees.

The FTA continues to develop PPP projects. In spring 2014, it opened another tender process worth EUR 660 million for the construction of the final section of E18 motorway between Hamina and Vaalimaa. Again, the DBFO model is being used.

The local level

The role of local authorities is very strong in Finland as each municipality has powers of self-government supported by local democracy and the right to levy taxes. The municipalities also have variety of responsibilities for the provision of public services. Due to this, local authorities have been frequent users of lifecycle procurement. The lifecycle model is often used in the procurement of services related to construction, maintenance and the operation of local facilities such as schools, daycare centres, swimming pools and sewage treatment plants.

At present, these local lifecycle projects are mostly realised without recourse to private financing. This is not due to a lack of demand – quite the opposite. Local authorities have very clearly stated that they would welcome private financing initiatives. However, service providers have proved reluctant to provide such financing. This may in part be attributable to the fact that the tax arrangements tailored for PPP projects do not apply to municipal projects.

Taxation of PPP projects

The general rules of Finnish tax law with regard to profit and cost allocation do not properly reflect the economic realities of a typical public-private partnership. Investment costs cannot be depreciated over a period longer than ten years; and a substantial part of the overall contract price is allocated to the financial year in which the infrastructure is ready to use.

However, special allocation rules have been enacted in respect of road and railroad construction projects procured directly by the State of Finland (via its agency FTA) that accommodate the needs of public-private partnerships.

In respect of such projects, the effect of these special provisions is as follows:

the PPP operator’s income is subject to taxation in each financial year in which the operator actually receives service fees for the operation of the infrastructure; and

the whole of the initial construction costs is depreciated over the complete service period under the service agreement.

Similar provisions have been enacted with regard to value-added taxes.

Municipalities interested in public-private partnerships have embarked on an initiative in order to bring about legislative change that would extend the PPP-tailored taxation rules to municipal infrastructure projects.

The role of international sponsors and investors

It is no coincidence that all PPP projects realised in Finland thus far have involved international sponsors and investors. Domestic financing capacity is limited by the small size of the country. In addition, project financing – an essential cornerstone of PPP projects – is a relatively new phenomenon in Finland.

Only a few domestic construction companies are sufficiently large to carry out a large scale infrastructure project, and these companies have shown themselves reluctant to take responsibility for financing. The domestic market largely lacks dedicated project financiers and sponsors.

This situation creates a strong incentive for international sponsors and investors to break into the Finnish market. This fact was evidenced by the FTA’s recent initiation of the procurement of the E18 motorway between Hamina and Vaalimaa. As the time of writing, three consortia have prequalified to take part in the negotiated procedure which is about to commence. Each of these is formed around an international PPP expert organisation (Meridiam, 3i Investments, and Hochtief PPP Solutions).


The focus of traffic infrastructure development in Finland is slowly shifting from road to rail. In addition to large-scale road projects, several major rail projects, as a part of the EU’s TEN-T core network, are also under construction or in the planning phase. For example, the Helsinki–Riihimäki line, worth EUR 350 million, is currently in the planning phase with construction to commence in 2014-2015. The Nordic Triangle and the Bothnian Corridor, which connects Finland and Sweden on both sides of the Gulf of Bothnia, will continue to create investment opportunities in Finland especially in the railway sector.

Another forthcoming TEN-T railway project is the Helsinki City Rail Loop (Pisararata) which the Government included in its decision on spending limits in March 2014. The planned urban railway line is to be built underground, and is intended to ease congestion in Helsinki city centre which causes disturbances to the whole regional and national train traffic. The estimated cost of the project is EUR 740 million. The potential financing model for the project is under preparation at the moment, and there have been some indications that the financing might not come from the state budget. The City of Tampere is also planning to create a new city tram network, and the lifecycle model has been considered as a potential financing model for the intended project.

The extension of Rail Baltica to Finland, by means of a tunnel or combination of a tunnel and a bridge between Helsinki and Tallinn, looms on the horizon. The rail link between the two countries is a hot topic at the moment, as the City of Helsinki (in Finland) and the City of Tallinn and the County of Harju (in Estonia) launched a tender process for a pre-feasibility study called ‘TalsinkiFix’ in April 2014.