Short Review of PBI report (2026)

Short Review of PBI report: Financing of Large-scale Infrastructure, case Nordic Connector (FLINC) 
Financing of Large-scale Infrastructure, case Nordic Connector (FLINC)

Guide: Square bullets are from the PBI report, unfilled circles are my comments

PBI’s financing perspectives for the Nordic Connector:

§  “The Nordic Connector should not be viewed as a single infrastructure project, but rather as a program investment consisting of several interrelated subprojects.”

o   Nordic Connector (NC) must be viewed as a project on its own right. Expanding it to include many subprojects overcomplicates and causes delays. Subprojects can be included later.

§  “Large-scale transport infrastructure is seldom fully self-financing through user charges. The Nordic Connector is no exception to this. Instead, investments of this scale are typically justified by broader socio-economic and strategic benefits.”

o   No “typical” case is shown. No benefit without willingness to pay! User charge is important. According to my traffic forecast, tolls on Nordic Connector over Kvarken would make NC self-financing.

§  “Financial modelling demonstrates that financial feasibility is conditional rather than fixed.  Under favourable assumptions the project can achieve financial sustainability. The analysis shows that no single factor is sufficient on its own; a combination of measures is required”

o   No such analysis was made. NPV for the favorable and optimistic scenarios is positive (and at a low traffic estimate!) and road tolls pay the loans off in 30 years!

§  “A hybrid model based on a publicly owned Special Purpose Vehicle (SPV) is identified as the most viable financing structure. In this model, Finland and Sweden Jointly establish and own SPV … Public sector involvement, including state guarantees …to enable long-term debt financing.”

o   SPV, type Öresund or E-18, are possible with state loan guarantees. EU grants are likely.

§  “Public co-financing for the Nordic Connector will be critical. EU instruments, particularly the Connecting Europe Facility (CEF) and Military Mobility, are the most relevant of 10–30% of total.”

o   CEF and Military Mobility contribution likely range is 30-50%.

§  “A central conclusion is of distinguishing between bankability and societal value. The fixed link is not bankable on user charges; it may generate substantial Wider Economic Impacts (WEI).“

o   NC road may be fully bankable on user charges plus CEF grant. Non-monetized WEI are important for public acceptance.

§  “The key question is therefore not whether the project can pay for itself, but whether its wider economic and strategic benefits are sufficient to justify the required public investment.

o   Public acceptance of NC should be assessed and developed using a professional application of Policy Delphi (such as RD Aluekehitys Delfoi) or complementary methods.

Recommended next steps from a financing perspective for the Nordic Connector:

§  “Securing TEN-T status for the Nordic Connector and key nodes along its route.

§  Clarifying eligibility potential for EU funding through early engagement with EU institutions.

§  Advancing bilateral agreements between Finland and Sweden on governance and SPV structure.”

“Nordic Connector should be considered as a logistic and redundancy infrastructure investment.”

o   Foremost NC should be considered an economic investment with widespread public acceptance. Risk Intelligence Systems ranks E12 as the most important east-west project.

Background, Aim, Scope of PBI Study

PBI report’s traffic and cost forecasts use FTIA study on Vasa-Umeå fixed link. The traffic forecast is based on many faulty assumptions. Options 4 – 6 (Fig. 2) should be rejected outright due to cost and not being financeable. Rail options are not realistic from demand, cost, and WEI perspectives.

The key questions:

§  “Is Nordic Connector bankable as an investment? If yes, under what circumstances?”

o   Yes, provided that the governments carry out the recommended next steps

o   PBI’s financing structures are conceptual. In Sweden a legal framework for tolls and for a private infrastructure investment exists. In Finland, a  similar legal framework does not, and should be updated already by the current government.

o   PBI claims: “The forecasting horizon for this type of extensive infrastructure investments are typically long (50 years).” Reference examples to such projects should be provided.  Although many transport facilities serve over 50 years they need reinvestments after 25-30, often sooner. To my knowledge no transport facility  has been justified or financed with a 50 year horizon.  

§  “Can Wider Economic Impacts (WEI) generated by the Nordic Connector … support Nordic Connector becoming bankable?”

o   It is likely that WEI will exist. They are important to inform about the project to develop public acceptance and widespread support for it. But WEI should not be included in the economic evaluation in Nordic Connector decision, only to gauge its public acceptance.

The principal questions concern organization structure and financing.

The CapEx Risk Reserve in Table 5 is too large. Normally “CapEx Risk Reserves” are part of the bidder information in procurement to evaluate bidder capability. The cost estimate contingency is often 10-15% and included in the bidder’s BAFO. The risk provision of 70% is too large.

The Annual OpEx of 10 MEUR is also large and road construction time of 7-10 years is high. The land portions are part of the National Network and not an SPV responsibility. O&M maybe for 5 years.

Risk Assessment and Bankability

Most of these risks cited are considered in the permitting or the procurement processes. Three risks are left unsaid: the contractor risk of not being able to complete the project; the risk of not having NC as fixed link; and mobilization risks. Mitigation measures and liquidated damages should be identified for the first; the loss of benefits for the second if the Gulf of Finland and the Baltic Sea are closed; and the need for air transports in the third (Kauhava airport becomes critical – not the railways, nor Narvik port).

PBI’s Summary of Recommendation

“The decision to proceed should therefore not be based solely on financial feasibility, but on a comprehensive assessment of long-term economic, strategic and societal value.”

o   In many cases, traffic estimates have been underestimated. Financial feasibility with road tolls is probable. An example of traffic forecasts when a fixed connection replaced a ferry:

ü  Welde, M and E. Tveter, J. Odeck (2018) “The Accuracy of Traffic Forecasts or Fixed Link Projects: An Empirical Study of Norwegian Bridges and Tunnels.” Paper at European Transport Conference. [Note: There was no diversion possibility from alternative routes].

Ø  Traffic growth was observed. Three years after opening the average growth was 22% and after 5 years after opening 37%.  Increase in traffic from the last full year of ferry traffic to the first full year of the fixed link up to 2015 was 116% (n=38, various opening years since 1970). The average annual growth was 6% (n=23).

§  “The financial analysis shows that the Nordic Connector is not financially self-sustaining on user revenues alone under conservative assumptions. Under more optimistic scenarios, bankability and financial feasibility NC becomes viable.”

o   Analyses show that NC is self-sustaining under reasonable assumptions, table 5. PBI need to show on what range of traffic, tolls, and construction costs NC would be self-sustaining.

§  “The results from the ongoing analysis of Wider Economic Impacts (WEI) in Work Package 2 play a central role in the overall assessment of Nordic Connector.”

o   WEI analyses cannot be falsified (even in the future) and should not be accepted in BCA analyses. Should they occur, they would be a social benefit not only to those making the WEI investments. If included in BCA, and WEI fail to occur, they would be a cost to the taxpayers.

o   Ex-ante studies, such as Delphi studies (e.g. by RD Aluekehitys), should inform the public and gauge the project outcomes on user and stakeholder groups across different geographical areas. Stakeholder groups could be: (1) transport and trade, industry, tourism and other businesses; (2) research and education; (3) public administration; and (4) civil society.

o   Ex-post WEI studies are also important for big projects. They would inform about reliability and usefulness of ex-ante WEI studies. Ex-post studies would improve travel demand forecast and cost estimation methods, and application of both. revised

 Here is the NC benefit-cost analysis with reworked traffic forecast and tolls.

(Click for larger image)