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Leveraging EU grants: the case for PPPsLeveraging EU grants: the case for PPPs
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«« A perspective from the roadA perspective from the road concessions’ industry » concessions’ industry »
22ndnd June 2010, June 2010, EPEC Private sector forumEPEC Private sector forum
Borschette centerBorschette center
OutlineOutline
• Presentation of ASECAP
• EU Legal framework / concessions
• Leveraging EU funding: the case for PPPs
ASECAPASECAP
ASECAP, the European professional Association of Tolled Road Infrastructures Concessionaires
• 2121 NATIONAL MEMBERS OPERATING 45.068 km (mainly TEN’s)
• 149149 TOLLED MOTORWAYS OPERATORS
• 19.000.000 ETC SUBSCRIBERS
• OVER 2323 BILLIONS EUROS OF REVENUES
Motorways concessions in EuropeMotorways concessions in Europe--
Range of practicesRange of practicesUKShadow TollFinland
Netherlands
Portugal
Pre-financing Germany
Belgium
State Budget SwedenDenmark
Operators of tolls Norway
Germany
Spain
Real TollConcessions
Greece
Portugal
Italy
France
SloveniaCroatia
UK
HungaryAustria
Netherland
by all (tax payers) by usersPAYMENT
ASECAP main agenda & mission
…High cost of infrastructure + Public budgets scarcity
!!! Private investment = cost-efficiency, time-frame, risk sharing !!!
1st sector in Europe that understood the merits of PPP
at EU level, a preferred partner of the European institutions & major stakeholders:
Financing (PPPs, Tolling, EETS Interoperability)Safety & Environment ITS
ASECAP's mission is to promote concessions schemes (DBFO model) and toll as the most efficient tool to finance
the construction, operation and maintenance of safer, greener and smarter road infrastructures.
ASECAP vision
• There are no free roads (direct charging vs indirect taxation) ;
• Motorways are expensive: to build to operate to maintain
• Socially, tolls are the fairest system for road financing;
• Toll conceeded roads have delivered excellent results worldwide based on « Fair charging » and « Direct road user charging » ;
Immediate and stable source of funding; Tariffs regulated by performance and quality indicators; Optimal (fair, effective and efficient) risk transfer
and allocation;
Real tolls are the answer !
• Use of roads produce externalities that need to be internalized;
• Road pricing can be flexible:
(time of the day, vehicle category, level of pollution);
• Users have to pay for the quality of the service offered (and in the future will have to pay for the externalities they cause for the society);
• Earmarking of collected revenues to the road infrastructure is the key!
= Concessions (and user-payer’s principle) provide
adequate solutions to match EU goals
EU legal framework / concessions
• The EC Treaty (general principles = only solid basis!)
• « Public procurement » Directives (2004/18/EC, 2004/17/CE)
= distinguishing public contracts vs concessions (service concessions?)
• Interpretative communications (COM2005/569, COM2000/C 121/02) on Public Procurement and Concessions
• Case-law of the European Court of Justice (i.e.: TeleAustria, C-324/98) identifying notions such as “remuneration” (economic activity), “right of exploitation” and “transfer of risk” as main characterizing elements for «Concessions».
EU legal framework / concessions
• Strong political commitment:
Establishment of the European PPP Expertise Centre (EPEC) by the Commission and the EIB;
EU Commission’s Communication on « Mobilising private and public investment for recovery and long term structural change:
developing Public Private Partnerships ».
But…
Many Member States do not yet have clear public sector rules; Recent examples prove the EC could act to prevent uncertainty
undermining future initiatives;
= Lack of legal certainty at EU level detrimental to Internal Market ?
Towards new EU rules in the field of PPPs and concessions?
• By favouring legal clarity, the EU can serve as the leverage/sponsor to foster political readiness in Member States to adopt a “PPP agenda” and explore more efficient ways to develop infrastructure.
EU should:
• Keep a flexible approach; “Clarifying” vs. “Stricter” approach• Guarantee compliance with the principles of equal treatment, non
discrimination and transparency, while ensuring respect of confidentiality and intellectual property;
• Limit the possibilities for unilateral alteration of the contractual position;• Establish a list of best practices & concepts underpinning the various types of
PPP found in Europe;• Establish EU guidelines to clarify rules on provision of Funds.
Leveraging EU funding: the case for (roads) PPPs
Crisis !!! The recession and the credit crisis created problems for:
Existing concessions:
• Dramatic HGVs traffic decline (Jan 08/09)
- 33.9 % Spanish tolled network, - 20.27 % Austria, - 19.31% CZ Rep...
= Strong correlation with GDP which is sharply declining.
= Earnings lower than forecast, difficulties to repay interest and loans.
Future concessions contracts:
• Radical change in the banking sector
(part or full nationalisations, collapses, etc.)
= Sponsors panic & shortage of capital
Leveraging EU funding: the case for (roads) PPPs
Strong impact on market players:
• Banks: less cash flow prospects, higher financial costs, higher uncertainty;
• Grantors (Governments / State agencies): less brownfield projects being tendered, postponements and cancelations; but, some governments are fighting recession by promoting investment in infrastructure (Keynesian policies for greenfields projects);
• Construction companies’ focus on the short-term construction business;
• Operators’ focus on existing assets, domestic market, protecting cash flow levels and mitigating risks;
= Need to quickly adapt, restructure and focus on financial strength
Leveraging EU funding: the case for (roads) PPPs
= Hybrid PPPs: added value / current shortage of public funding and private liquidity
+ 2000-2010: Increasing attention to the potential role that private finance can
play in helping the investment challenge in the EU;
+ Significant available funding: Cohesion/Structural funds/TEN funds + EIB
NEW = Emergence of public authorities/multilateral lending for PPPs…
…but no discernable EU PPP policy
Today PPPs are carried out without EU funding, while EU money is spent on traditional projects
Leveraging EU funding: the case for (roads) PPPs
EIB lending to roads & motorways PPP (MEUR)
0
500
1000
1500
2000
2500
3000
3500
4000
2000 2001 2002 2003 2004 2005 2006 2007 2008 4
EIB financing for PPPs85% to the transport sector
EIB signatures for PPP projects (1994-2007)EUR 25.2 bn in total
36%
31%
1%2%4%4%6%
15%
Roads and Motorw ays Urban Development, Renovation & Transport
Social Infrastructure (Education & Health) Tunnels and Bridges
Traditional and High Speed Trains Airports
Water Energy
EIB financial instruments: Senior debt, SFF reserve, LGTTEIB support: JAPERS/JESSICA, EPEC
EIB = Key financer of transport infrastructure
(1994-2007: 85% PPP funding to transport projects, € 25 bn.)
Leveraging EU funding: the case for (roads) PPPs
• Advantages
Maximising absorption of EU grants by pursuing direct lending and PPPs/concessions;
Presence of public players as « catalyst » for commercial banks and « comfort » for private operators;
• Main obstacles
More complex procedures to be managed jointly; EU Public procurement procedures to be flexible enough/nuances of PPP Time issue: (budgetary period is limited = uncertainty of available
funding? Increased risk? Require governments underwriting for financial close?);
Institutional and legal framework; Lack of information (& limited successful precedents)
Succesfull exemples (toll concessions) 1/2
1/ The Rion - Antirion bridge – West Greece: the longest cable stayed bridge worldwide - 2.880 m
• Built: 1999-2004 (five months ahead of schedule)• Total cost: €803.000.000
EU Grant: €256.000.000 (32%)
State budget: €108.000.000 (14 %)
Private financing: €438.000.000 (54 %)• Duration: 35 years
A significant role in the development of the region; 1.5 bn € influence to Greece economy (source: DG REGIO); Reduced crossing time to 5 min; Engineering masterpiece (remaining in operation whatever
the weather conditions).
Other successful examples (toll concessions) 2/2
N1-M1 Dundalk bypass (Ireland) – Dublin Northern border route
Construction Drogheda bypass – 21.5 km. (Public procurement)
Operation and maintainance Drogheda bypass + other 43 km. Dundalk bypass = 11 km new section of motorway + 7 km
of new link roads (DOBF model)
• Built: 2000 – 2003 (Drogheda bypass);
2004 – 2006 (Dundalk bypass) (4 months ahead of schedule)• Total cost: € 246 M (Drogheda bypass); € 500 M (Dundalk bypass)
Drogheda bypass: Irish Government + EU grants (€ 61 M. ≈ 25 %)
Dundalk bypass: 30-year concession (no EU funding)
Other successful examples (toll concessions) 2/2
Procured separately, but became hybrid through combined O & M concessioning
The Dundalk Western By-pass is not only an
integral link between Dublin and Belfast but
is also part of the TERN (Euroroute E01) ;
Significant project: 1.25 million m3 of
earthworks + 14 major structures;
1st of the new generation of PPP road
schemes in Ireland;
Extensive ecological mitigation measures;
Intense archeological scrutiny.
Conclusions
• A mix of legal uncertainty (national and EU level), complexity of combining procurement requirements of PPPs with those for grant funded projects, and lack of precedents have hampered undertaking of « hybrid » PPPs;
• Need new success stories !
• EU funding (ex.: « new » Member States) shall not be in conflict with a stronger involvement of the private actors;
• EC, EIB/EPEC have an crucial role in fostering EU and national public sectors’ expertise, promoting result-oriented culture in the management of public services, and eliminating administrative bottlenecks;
Coordinated action at EU level to improve leverage of EU funds would be beneficial to state of EU infrastructures.
“Not our wealth created our transport infrastructure; It is our transport infrastructure, which created our wealth”
J.F.Kennedy, former US President, 1960
Thank you for your attention !
www.asecap.comRue Guimard, 15B -1040 Bruxelles
+ 32 289 26 23
