Public private partnerships: French and European cases

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Public private partnershipsFrench and European
cases

• Wagner School, Rudin Center, NYU
• New York City, March 25, 2008
• Sebastien GOURGOUILLAT
• Transportation and Construction Attaché
• Embassy of France in the USA
• sebastien.gourgouillat_at_missioneco.org

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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

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France ( Texas)
550 000 km² - 342 000 sq. miles 63 millions
inhabitants 22 regions 96 departments 36600
municipalities 30 millions cars 6 millions trucks
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• 1/3 -French PPPs in transportation

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A very long tradition of PPPs in France

• Canal de Craponne (Southeast) 1554
• Canal du Midi (Southwest) 1666

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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

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Since 1955 The building of a 5000 mile,
high-quality highwaynetworkthrough
PPPs (concession)
75 of the French highways are toll highways
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Urban public transportation A major field for PPPs
Private sector Public sector Mixed
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Since 2006 railPPPs, anopportunityfor HSR
HSL EE 2007

• 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 Britany
HSL RR 2011
HSL SEA 2013-2016
L N.M. by pass 2012
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Recent examples of PPP railways

• LGV 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.

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• 2/3 - PPP schemes and key issues

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(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)

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The concession model

• The public authority entrusts by contract a
  private partner to design, finance (even partly),
  build, operate and maintain the system
• The partners 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)

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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 partners income is related to the
  efficiency of operations
• The public effort is spread on the whole contract
  duration

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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 operators role important since the beginning

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No French Model but an experience based on many
projects (successes and failures) around the
world. And some lessons learnt

• 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

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Lessons learnt about risk Management

• 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

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• Enlarging the focus

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European examples

• Every country has its own experience of PPPs in
  transportation. For instance
• Italy highways
• United Kingdom rail system
• Spain urban public transit

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The Chunnel technical success, financial
failure

• A 31 mile tunnel under the English channel, since
  may 6, 1994
• HSR, freight, crossing services (cars and trucks)
• Eurotunnel gt 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)

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The channel tunnel the concession

• 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

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The Barcelona light rail a typical PPP project

• 2 lines 1514 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

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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

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PPPs Project Operated by French Companies around
the world Airports Management

• Airports Management in Phnom-Penh (Cambodia),
  Abidjan (Ivory Cost)

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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 Edwards Island (Canada) 8 Miles
• Millau bridge, tunnels in the Alps (France)
• SR 91 in Orange County, CA

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PPPs can be useful in many fields of public
interest
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Water and Sanitation in France
Private sector Public sector
of the population
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Waste Management in France
Private sector Public sector
of the population
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Energy in France
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Thank You !
Sébastien Gourgouillat Transportation and
Construction Attaché Embassy of France in the
USA sebastien.gourgouillat_at_missioneco.org