HIGHWAYS IN EUROPE

Concession & PPP, toll

Alain FAYARD

alain.fayard@equipement.gouv.fr

November 2004

Highways: cost and regulation in Europe

The views expressed in this presentation are those of the author and not necessarily those of the organizations which the author belongs to

EU 25

ROAD TRAFFIC FLOWS IN

WESTERN EUROPE

Source : Fédération routière internationale (IRF) - 1995

BLUE BANANA&

RED BANANA

Source: EUROPEAN PARLIAMENT

STOA working document 2002

Integration of the TINA network into an enlarged (TEN-T)

by Alain Fayard and Michel Gaspard

www.europarl.eu.int/stoa/publi/pdf/stoa112_fr.pdf

8,85

580

1,4

4

67 840

34

5 593

2 6101771

629

69

1 342

916

12 000

6 840

2 271

973

1 450

4

916

16

2 000

1 729

10 500

629

10 383

550

2 300

3 476

: Total length of the motorway network

: Motorway network under concession

2000

EUROPEAN MOTORWAY NETWORK DENSITY (in 2000)

of inhabitants

Comparison EU 15 and USA: passengers transport for the year

1998

Source eurostat

Comparison EU 15 and USA: freight transport for the year

1998

Source Eurostat

OVERVIEW OF EUROPEAN PRACTICES IN HIGHWAY CONCESSIONS (with or without

toll)

12000

3476

2000

973

1729

10500

603

10383

916,5

6840

130

2300

1450 1341,9

4580

1,4 69

5593,3

5504

1771

16 8,85

2271

6290

916,5

2000 2610

7840

34

0

2000

4000

6000

8000

10000

12000

14000 km

Length of the motorway network Length of the motorway network under concession

9%

12%

35%4%

25%

3%8%

1%3%

U.K.

Austria

Spain

France

Greece

Italy

Norway

Portugal

Other countries

Practice of higway concession in Europe (in terms of kms under concession)

CONCESSIONAIRE COMPANIES (public/private)

0

1000

2000

3000

4000

5000

6000

7000

8000

Km

Public

Private

INFRASTRUCTURE AND DEVELOPMENT

INFRASTRUCTURE versus SERVICES– Major projects – Basic services de base ( water, sanitization,

« capillary » road network, NTIC…..)– Maintenance

Economic growthCompetitiveness

INFRASTRUCTURE and SERVICES– Symbiosis between infrastructure and services– Importance of operation– life long cycle cost– Distinction infra/services for regulation

0

5000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70Years

Operating expenses represent about 75% of construction costs after 35 years

Euros

Evolution of operating expenses(discounted aggregate total in M€)

Hypotheses : concession of 35 years, traffic : 10,000veh/day, and construction cost : 5 M€

A TRANSPORT POLICY IN A MARKET ECONOMY

A POLICY– To choose : socio-éco. / financial profitability– Un system

» Synergy between transport modes » Significance of interchange points

» Significance of information (data & processing) A MARKET ECONOMY

– Incentives / regulations

– A unavoidable fact: User chooses

USER CHOICE

THE EU LEGISLATION (1/2)

Council Directive 71/305/EEC of 26 July 1971 concerning the co-ordination of procedures for the award of public works contractsexcluding concession but a optional procedure:Declaration by the Representatives of the Governments of the Member States, meeting in the Council, concerning procedures to be followed in the field of public works concessions (26 July 1971)Council Directive 89/440/EEC of 18 July 1989 amending Directive 71/305/EEC concerning coordination of procedures for the award of public works contracts(contracting authorities & concessions)

Council Directive 93/37/EEC concerning the co-ordination of procedures for the award of public works contracts concerning the coordination of procedures for the award of public works contracts

THE EU LEGISLATION (2/2)

Commission Interpretative Communication on concessions under Community law of 12 April 2000 (risk mainly of operation)SEC 95 and Eurostat: debt consolidation rulesEU commission green paper on PPP announced, Green Paper on public-private partnerships and Community law on public contracts and concessions/* COM/2004/0327 30/04/2004Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts Official Journal L 134 , 30/04/2004 P. 0114 - 0240

PUBLIC PRIVATE PARTNERSHIP : THE USUAL

SITUATION

Procurement contract General contractor Performance or specification-based contract Turnkey contract Build – Operate - Transfer, concession

Back to the future : a centuries old story

The key issue : co-operation / competition

Labels used in PPP jargon such as Turnkey contracts, BOT, DBFO or performance-based maintenance contract have no single and clear definition. Each PPP solution is too complex and too unique to be characterized in one word or acronym.

Adapted from World BankToolkit: http://rru.worldbank.org/toolkits/highways

A CONTINUUM OF ALTERNATIVES

Works & Services Contract

s

General Contracts

Turnkey Contracts

Concession

B.O.T.

Full Privatisatio

n

low highExtent of Private Sector Participation

PPP equalizer

Scope of work : tasks assigned to the private sectorAutonomy : initiative left to the private actors Pooling : number and type of projects concerned by the agreementRisks : how to share them among actorsCost recovery : how to pay back,mainly users/tax payersFinance : project/corporate finance ; Gvt involvementWorld bank Toolkit: http://rru.worldbank.org/toolkits/highways

PUBLIC PRIVATE PARTNERSHIP : RATIONALE

(1/4)

– PARTNERSHIP “ CORPORATIZATION ”» Autonomous public or quasi public body» Delegated management

More efficient organization of service Earmarking of resources Benchmarking Discipline of management with/without privatization

Public-private-partnership /public-public partnership

– A COMPREHENSIVE & LONG RANGE APPROACH» Performance criteria / means obligations» A set of tasks including services

PUBLIC PRIVATE PARTNERSHIP : RATIONALE

(2/4)

– RISKS reasonably and a priori shared» Political and legal risks » Economical and financial risks » Technical risks: construction and operation» Commercial risks (tariff x traffic) (?)

One indicator: balance of profits and losses account(commercial risk is only a part of it)

» Risk for the Gvt in case of default of the private partner» Acceptance of profit (<=> risks)

Private financing seems more expensive but public financing hides the risk

« Reasonable » level of profit => concession fee, flexible duration... PPP: as an organisation process as a financing mechanism

PUBLIC PRIVATE PARTNERSHIP : RATIONALE

(3/4)

A possibility: toll– User pays– Supplementary resource– Leverage effect by backing by collateral (after competition and inside a package or the whole sector and not an

existing cy alone)– Diversion of traffic (lower economic profitability)

Shadow toll is not a toll– No user’s charge (and no new resources)

– Slight or no traffic risk (traffic band, availability payment….)

Shadow toll added to a toll

the German A Betriebermodell

PUBLIC PRIVATE PARTNERSHIP:RATIONALE (4/4)

To award the contract in partnershipTo award the contract in partnershipCompetitive dialogueCompetitive dialoguePayment of expenses for biddingPayment of expenses for bidding

To perform the contract in partnershipTo perform the contract in partnershipResult objectives and notResult objectives and not

process process obligationobligation« Rendez-vous » provision« Rendez-vous » provision

A MATRIX APPROACH OF THE TOLL AND THE PPP

No Toll Toll

Risks not

shared

Govt. Administration

Autonomous Org.

Govt. Administration

Autonomous (e.g., so called

concessionaire)

Risks shared

’’Concession’’

Construction and/or Operation

* With Traffic Risks :

Shadow Toll Without Traffic Risks : Lease

’’Concession’’

Construction and/or Operation

A THIRD DIMENSION : A COMPREHENSIVE VIEW FROM INVESTMENT TO SERVICES TO USERS THROUGH MAINTENANCE

ROLE OF THE GOVERNMENT

To protect the general interest

Planner

Legal and administrative framework provider

Financial facilitator

– Economical / financial profitability

Choosing : economic profitability

Feasibility: financial profitability– Risks out of market

A changing role not a weaker one

GOVERNMENT

– long term vision and protection of

users and citizens :

distinction between interest for

the community and financial

feasibility

minimize public subsidies

CONCESSION CONTRACT

– reflects the share of risks

– an adjustment process

CONCESSIONAIRE– efficiency

– remuneration

GOVERNMENT

CONTRACT

CONCESSIONNAIRE

A PPP : IN SEARCH OF A BALANCE

CONCESSION : IN SEARCH OF A

BALANCE

A BALANCE BETWEEN SUBOPTIMA :– Wrong allocation of resources by earmarking (taxes, tolls...) Scarcity of resources Increase of transaction costs

A BALANCE BETWEEN :– Competition Transaction costs

Cooperation– Eviction effect Need of infrastructure– Profit Risk

Public utility– Regulation Contract

SOME LESSONS

MORE THAN PRIVATIZATION, CORPORATIZATION » IS KEY TO SUCCESS Efficient way to earmark funds

Discipline of management

Benchmarking between concessionaires

A better balance between investment and maintenance

A way for innovation

ONLY TWO PAYERS :

TAXPAYER AND / OR USER

THANK YOU