HIGHWAYS IN EUROPE Concession & PPP, toll Alain FAYARD alain.fayard@equipement.gouv.fr

1. Highways: cost and regulation in Europe HIGHWAYS IN EUROPE Concession & PPP, toll Alain FAYARD alain.fayard@equipement.gouv.fr November 2004 The views expressed in this presentation are those of the author and not necessarily those of the organizations which the author belongs to

2. EU 25

3. ROAD TRAFFIC FLOWS IN WESTERN EUROPE Source : Fédération routière internationale (IRF) - 1995

4. 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

5. 629 69 550 629 1 450 16 973 34 580 3 476 12 000 2 300 4 4 1 729 1,4 : Total length of the motorway network 2 000 1 342 6 7 840 10 383 8,85 6 840 5 593 2 610 10 500 1771 2 271 916 916 : Motorway network under concession 2000

6. EUROPEAN MOTORWAY NETWORK DENSITY (in 2000) of inhabitants

7. Comparison EU 15 and USA: passengers transport for the year 1998 Source eurostat

8. Comparison EU 15 and USA: freight transport for the year 1998 Source Eurostat

9. OVERVIEW OF EUROPEAN PRACTICES IN HIGHWAY CONCESSIONS (with or without toll)

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

11. CONCESSIONAIRE COMPANIES (public/private)

12. INFRASTRUCTURE AND DEVELOPMENT • INFRASTRUCTURE versus SERVICES • Major projects • Basic services de base ( water, sanitization, « capillary » road network, NTIC…..) • Maintenance Economic growth Competitiveness • INFRASTRUCTURE and SERVICES • Symbiosis between infrastructure and services • Importance of operation • life long cycle cost • Distinction infra/services for regulation

13. Evolution of operating expenses (discounted aggregate total in M€) Euros 5000 Operating expenses represent about 75% of construction costs after 35 years 0 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 Years Hypotheses : concession of 35 years, traffic : 10,000veh/day, and construction cost : 5 M€

14. 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

15. USER CHOICE

16. 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 contracts excluding 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 contractsconcerning the coordination of procedures for the award of public works contracts

17. 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 rules • EU commission green paper on PPP announced, Green Paper on public-private partnerships and Community law on public contracts and concessions/* COM/2004/0327 30/04/2004 • Directive 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

18. 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

19. A CONTINUUM OF ALTERNATIVES Works & Services Contracts General Contracts Turnkey Contracts Concession B.O.T. Full Privatisation 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 low high Extent of Private Sector Participation

20. PPP equalizer Scope of work : tasks assigned to the private sector Autonomy : initiative left to the private actors Pooling : number and type of projects concerned by the agreement Risks : how to share them among actors Cost recovery : how to pay back,mainly users/tax payers Finance : project/corporate finance ; Gvt involvement World bank Toolkit: http://rru.worldbank.org/toolkits/highways

21. 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

22. 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

23. PUBLIC PRIVATE PARTNERSHIP : RATIONALE(3/4) • A possibility: toll • Userpays • 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 GermanA Betriebermodell

24. PUBLIC PRIVATE PARTNERSHIP:RATIONALE(4/4) To award the contract in partnership Competitive dialogue Payment of expenses for bidding To perform the contract in partnership Result objectives and not process obligation « Rendez-vous » provision

25. A MATRIX APPROACH OF THE TOLL AND THE PPP A THIRD DIMENSION : A COMPREHENSIVE VIEW FROM INVESTMENT TO SERVICES TO USERS THROUGH MAINTENANCE

26. ROLE OF THE GOVERNMENT • To protect the general interest • Planner • Legal and administrative framework provider • Financial facilitator • Economical / financial profitability Choosing : economicprofitability • Feasibility: financialprofitability • Risks out of market A changing role not a weaker one

27. A PPP : IN SEARCH OF A BALANCE • 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

28. 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

29. 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

30. THANK YOU