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Public private partnerships:French and European cases
Wagner School, Rudin Center, NYUNew York City, March 25, 2008
Sebastien GOURGOUILLATTransportation and Construction AttachéEmbassy of France in the [email protected]
Outline of the presentation
PPPs in France: historical and modern examples in transportation
Main frameworks and key issues Enlarging the focus:
– PPPs outside the transportation field– European examples
550 000 km² - 342 000 sq. miles
63 millions inhabitants
22 regions96 departments36600 municipalities
30 millions cars6 millions trucks
France (= Texas)
1/3 -French PPPs in
transportation
A very long tradition of PPPs in France
Canal de Craponne (Southeast) : 1554
Canal du Midi (Southwest) : 1666
Main rail network development in the XIXth century through PPPs
1832-1870 10 600 miles By private companies, with State
regulation… and many State engineers ! Private companies merged in a national
publicly owned company (SNCF) in 1937
Since 1955: The building of a 5000 mile, high-quality highwaynetworkthrough PPPs (concession)
75% of the French highways are toll highways
Networks
1
53
38
108
Ile-d
e-F
ra
nce
Pro
vin
ce
0.4
TurnoverBillion Euros
4.7
0.5 0.4 0.8
Ile-
de-
Fra
nce
Pro
vin
ce
4 700
Employees
58 600
9 7008 000
16 600
Ile-
de-
Fra
nce
Pro
vin
ce
Urban public transportationA major field for PPPs
Private sectorPublic sectorMixed
Since 2006: railPPPs, anopportunityfor HSR
In the upcoming years, RFF will build at least 3 HSLs at the same time
Constraint on public spendings
Availability of private capital
Historical practices of PPP
Public support remains necessary for rail infrastructure
HSL SEA
2013-2016
L N.M. by pass
2012
HSL RR
2011
HSL EE
2007
HSL Britany
Recent examples of PPP: railwaysLGV Sud-Europe Atlantique (South East Atlantic High Speed Line)
– 300 kilometers from Tours (240 km Southwest from Paris) to Bordeaux.– Paris-Bordeaux: 2 hours and 5 minutes instead of 3 hours– 7.2 billion euros, opening 2015, with a part of public investment.– 40 years + concession (design, build, maintain and finance at its own risks).
Charles de Gaulle Express link– 32-kilometer fast rail link between the centre of Paris and Charles de Gaulle
International Airport. – 640 million euros (120 for the rolling stock). 100% financed by the private
partner (use of existing right of way, expected high profitability).– 40 years + total concession. – RFI in July 2006, construction to begin in 2008, operation starting in 2012.
New cross-border HSL Perpignan-Barcelona (Spain)– 45-kilometer new high speed rail way crossing the Pyrenees.– Paris-Barcelona 5h and 30 minutes since 2009 (9h+ today).– 952 million euros (60% States, 40% private partner).– a 50-year concession granted to a Franco-Spanish venture.– Operation starting 2009.
2/3 - PPP schemes and
key issues
(Almost) every country faces the same dilemma !
Urgent need for infrastructures and services : – Congestion, delays
– Pollution
– Economic competitiveness… But :
– Limited public funding
– No political will to raise taxes… Find the money where it is, but with respect of the public
interest PPPs :
– decision of balance between tax and users’ money
– Allow innovation and add competition
– The public authority keeps the control but lifts the stress on its budget and benefits from the performance of the private sector (time and money saving)
The concession model The public authority entrusts by contract a private partner to design,
finance (even partly), build, operate and maintain the system The partner’s revenue directly depends on the incomes of the service
provided (gets tolls from the user) The system remains publicly owned and regulated (level of service,
price, safety, accountability) The private partner assumes the operating risks but has a right to a
balanced contract : risk related to ridership, quality of service and dynamic of revenues from users (“customers”)
Risk allocation and performance goals are specified by the contract The public authority remains the latest guarantee The (limited) duration of the contract is determined by the public
authority, depending on the time requested to pay the investment off In case of a public subsidy, this one must be predefined and inclusive. A “reasonable” profitability (balance between public money and private
financial management)
The shadow toll model
Created to face the cases where perceiving a toll is impossible or inefficient
The public authority pays a lease which level depends to the quality of service
Risk is technical more than commercial : the private partner’s income is related to the efficiency of operations
The public effort is spread on the whole contract duration
Rail PPPs Partnership contracts or concessions Consortia that include civil engineering, rolling stock
manufacturer, operator, bank 3 types: Infrastructure only, Operations and
maintenance only and Infra + operations The contract includes four major phases:
Precise definition of the object, preparation of the terms of reference Design and building of the infrastructure and the rolling stock, Operation and maintenance Transfer to the public authority
The operator’s role: important since the beginning
About the contract: risk allocation, a critical issue
– The contract must try to address as many possible events as possible
– The contract must also permit updates for events that have not been forecasted
– What happens if the PPP is very successful or not so successful ?
The project needs to be attractive to private consortiums and to bring socio-economic benefits to the community: benefit to everyone!
The public authority can increase the attractiveness (subsidies, assets, loans, extended duration of the contract…)
PPP is not always the best option : a PPP will not compensate the lack of profitability and a bad project does not become a good one thanks to PPP
PPP is not necessarily cheaper, but often faster and more innovative…
Always keep the user in mind (service, price…)
The consortium must be chosen for the whole duration of the contract, not only for the short term.
Price is not the only issue - The experience and the reputation of the members of the consortium are crucial
No “French Model” but an experience based on many projects (successes and failures) around the
world. And some lessons learnt
The risk analysis is crucial : each risk must be supported by the partner most likely to better deal with this very risk
Private sector is better at:
– managing technical and financial risks
– Controlling the costs and the schedules
– Providing a good quality of service
– Innovating
Public sector is better at:
– Managing demand and fares risks
– Managing legal and political risks : The public authority has to secure the regulatory and political framework
– Communicating with the users, citizens and taxpayers
The public authority must elaborate a good project
– It has to make accurate decisions, requiring human resources to negotiate and follow-up the contract
– It may not substitute to the partner as a project manager
Lessons learnt about risk Management
Enlarging the focus
Every country has its own experience of PPPs in transportation. For instance:
Italy : highways
United Kingdom : rail system
Spain: urban public transit
European examples
A 31 mile tunnel under the English channel, since may 6, 1994
HSR, freight, crossing services (cars and trucks)
Eurotunnel => TransMancheLink (builder, 5 French+ 5 British companies)
Works 1987-1993
33 minute crossing platform to platform, 2h15 trip Paris-London
After many attempts (since 1801), a demand from both French and British governments for a private financed project in 1986
Assessed cost 4.6 billion euros (bridge solutions = about 10 bEuros)
Eurotunnel group :
– private French-British company, concession holder for 99 years
– European leader in rail-road transportation
– Quoted in Paris, London and Brussels stock exchanges
– Business model : gets tolls from operating companies (SNCF, EWS)
The “Chunnel”: technical success, financial failure
1984 study (French and British banks): the concession is viable “Not a public penny” : the Feb. 12 1986 treaty of Canterbury Eurotunnel Group : 700 000 “small shareholders” = 65% of the equity Final cost : 16 billion euros. 7 years of works without revenue Fast financial worsening : risk of bankruptcy in 1997. Underestimation of costs, overestimation of the traffic (6,8m travelers in 2003
instead of 30m estimated in 1986), overestimated assets Outcomes : 10 years of financial chaos
– Stockholders equity = 1.7 billion euros
– Yearly turnover = 838 million euros (2003)
– Debt = 9 billion euros, yearly interests = 500 million euros
– The share reached 13.5 euros in 1989, is now less than 1 euro. Quotation stopped in 2003
– A salvation procedure and debt restructuring saved the company in 2007
The channel tunnel: the concession
The Barcelona light rail: a typical PPP project
2 lines 15+14 km Investment around 600 m€, subsidy 60% Fare decided by local authority, operation subsidy every year in order to reach a technical fare structure determined in the contract Risk sharing mechanism on revenue Huge commercial success (20 million passengers per year), good reliability
Barcelona: main feedbacks A lot of changes at the early stage: political support
was not granted for the whole system before design was initiated
Once a consensus was achieved, very efficient and fast construction and commissioning
No problems with unions ; decision to appoint and train new and young drivers.
Importance of the use of proven technology
The efficiency of the system integrator (Alstom) was a key factor
Cooperation between the Operator and the Municipality has been an asset
PPPs Project Operated by French Companies around the world – Airports Management
Airports Management in Phnom-Penh (Cambodia), Abidjan (Ivory Cost)
PPPs Project Operated by French Companies around the world – Bridges, tunnels, highways
Rion-Antirion Bridge in Greece Vasco de Gama Bridge on the Tagus River in Lisbon (Portugal) - 7.5 Miles Confederation Bridge between the continent and Prince Edward’s Island (Canada) – 8 Miles Millau bridge, tunnels in the Alps (France) SR 91 in Orange County, CA
PPPs can be useful in many fields of public interest
Drinking Water
80%
20%
Sanitation
55%
45%
% of the population
Water and Sanitation in France
Private sectorPublic sector
Collection
60%
40%
Treatment
92%
8%
Waste Management in France
% of the population
Private sectorPublic sector
Energy in France
86%
14%
80%
20%
10%
90%
Electricity Gas Heating
Private sectorPublic sector
Thank You !
Sébastien GourgouillatTransportation and Construction Attaché
Embassy of France in the USA
