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Regional PPP Workshop Riga, March 6-8 2007 The French PPP Experience in the Rail Sector

Regional PPP Workshop Riga, March 6-8 2007 The French PPP Experience in the Rail Sector. Thomas VIEILLESCAZES Director France & Southern Europe DIF (Dutch Infrastructure Fund) www.dif.eu. Introduction Objectives of the PPP in the Rail Sector The Perpignan-Figueras Project

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Regional PPP Workshop Riga, March 6-8 2007 The French PPP Experience in the Rail Sector

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  1. Regional PPP Workshop Riga, March 6-8 2007 The French PPP Experience in the Rail Sector Thomas VIEILLESCAZES Director France & Southern Europe DIF (Dutch Infrastructure Fund) www.dif.eu

  2. Introduction • Objectives of the PPP in the Rail Sector • The Perpignan-Figueras Project • Future Developments

  3. Introduction • Objectives of the PPP in the Rail Sector • The Perpignan-Figueras Project • Future Developments

  4. Introduction • French rail sector a fully public-administered sector so far … progressively opening (1st private freight train operated on june 2005) • A sector that heavily relies on public financing, heavily indebted • Few participation of the private sector • Laws & regulation provide for monopoly of State & public companies for project undertaking and infrastructure operation & maintenance Project financing Allocation of Risks • Infrastructure manager (RFF) pays the NPV of the free cash flows • Railway undertaking (SNCF) pays for rolling stock • State & regional public authorities pay for the rest (~70 % of investment) • All risks (construction, traffic, maintenance) borne by public sector • Use of subsidies (during construction period) for Public part of financing • Important assymetry of information, few direct control on execution from administration French Public Sector Organization Is Likely to Evolve Allocation of Risk Clearly Not Optimal for Public Sector

  5. French Public debt as a % of GDP 70 Maastricht treaty limit 60 50 40 Central government 30 Various central administrations Local governments & administrations 20 Social security administrations Public administrations total 10 0 2001 2002 2003 2004 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Introduction An amibitious High Speed line 8yrs, €15 BN investment program … with ever-shrinking budgetary capabilities • 2004 : setting up of a government agency for transport infrastructure financing, to use money from the road (dividends initially) to finance rail • Use PPP as alternative means of financing projects & transfer project ownership to private companies to seek for efficiency => More for less! • Mediocre project profitability a major drawback (good projects done already!)

  6. Introduction • Objectives of the PPP in the Rail Sector • The Perpignan-Figueras Project • Future Developments

  7. Objectives for PPPs in the Rail Sector • Leverage new ressources for the rail sector with the usage of private funds; • Optimize global investment costs, construction and allocation of risks on rail infrastructure projects with a better integration of construction, operation and maintenance tasks => Lower the cost for the National community and lower the impact of the debt of RFF; • Accelerate the development of the National rail network by constructing more projects in lesser time – enforce the decision taken by the Government on dec. 18th 2003 => Improve competitiveness of rail mode

  8. Three Schemes to be Contemplated « Classical » scheme (HSL East, Rhin-Rhône ): RFF is project undertaker, subsidies to be put in place ab initio Infrastructure PPP: RFF is contracting authority, public availability payments occur during the life of the contract, demand-traffic risk generally borne by Public sector Concession: Gov't or RFF as contracting authority, Public subsidies ab initio, Project undertaking, financing and operation at the own risks of the concessionaire

  9. Risk Public Tenders PPP Concession Financing RFF Public authorities Private sector Private sector Design /Construction RFF Public authorities Private sector Private sector Operation & Maintenance RFF /SNCF-GID Private sector Private sector Availability (performance) RFF /SNCF-GID Private RFF/SNCF GID Private SNCF-GID Revenues (Infra charges) RFF (railways undertakings) RFF (railways undertakings) Private (railways undertakings) Risk Sharing Matrix

  10. Changes with the law 2006-10 of Jan. 5 2006 on the Security and Development of Transports • The State and RFF are allowed to use the PPP contract (contrat de partenariat) or the Concession for the provision of National rail infrastructure The contract can contemplate the construction, maintenance and operation of part or all infrastruction, with the exception of trafic asignment procedures and operation and maintenance of safety installations, which continue to be undertaken by SNCF. • Creation of the Rail Safety Agency, independent from RFF and SNCF, in charge of all (PPP and non PPP) projects, in charge of authorizations regarding safety, interoperability (safety certificates, safey agreements, etc.)

  11. Introduction • Objectives of the PPP in the Rail Sector • The Perpignan-Figueras Project • Future Developments

  12. Perpignan-Figueras Project

  13. Project Rationale • France & Spain have different rail gauges (1.435m -UIC gauge- in France & Europe, 1.676m in Spain) • Since 1988, Spain has progressively developed a UIC gauge network • The Perpignan-Figueras project will directly link the spanish rail network to the rest of Europe (European TEN-T top priority project) • Relieving this bottleneck will have major impact on both freight & passenger transport: • 10 hours for freight (4.2 MM added tons p.a.) • 2 hours for passengers (2.6 to 3.5 MM added passengers p.a.) • Project under discussion/study on a Franco-Spanish basis since 1992 0.5 MM inhab. 0.2 MM inhab. 2 MM inhab. 1995 Madrid Treaty : Perpignan-Figueras will be constructed as a Concession (Treaty Also Sets Up Concession Framework)

  14. Project description A 50 km-long freight & High-Speed link, the first of its kind in Europe • Freight trains : 100-120 km/h • High-Speed trains : 300-350 km/h • 5 bridges • Links to French UIC network at Perpignan • Links to Spanish new UIC line (under construction) Figueras-Barcelona • a 8 km-long tunnel • dual-tube with safety galleries • A ~ € 1 Bn investment

  15. The Concession • The concession has been granted through a bi-nationaltender process (EEC Directive – 93/37) • under the aegis of the French & Spanish States • The Concessionaire will Build & Operate the rail link (as an Infrastructure Manager), then Transfer it back to the States • Design of the Project was undertaken by States (subcontracted to a JV formed by the 2 public railways companies – no infra managers) • Concessionaire will build & finance the project at its own risk • Concessionaire will receive a subsidy for the construction of the project • Concesionaire will operate and manage the infrastructure (maintenance, availability, performance, security, …) at its own risk • Concessionaire will levy tolls on Train Operating Companies (SNCF, RENFE, others) operating freight, passenger & high speed trains – tolling scheme will be specified in the Concession contract • At the expiry of the Concession period, project will be transferred to the States in the exact shape it was at the opening of the line

  16. Tender Organization France Spain Inter-Government Commission Selection Commitee • Representatives of 2 administrations • In charge of 1995 Treaty implementation • Assists the 2 Govt’s during tender preparation & process • Evaluates & selects candidates & bids • Experts from 2 countries Negociation Commitee • Negociates the contract • Experts from 2 countries Technical group Legal group Economics & Finance group Construction Exploitation Contract issues Tarification Financing Technical support Legal counsel Financial advisor Tendering and Contract Negotiation Were Undertaken Directly & Jointly By The Two Administrations

  17. The Tender Process • Tender preparation was launched in May 2000 (Santander Franco-Spanish summit • Technical preparation • Legal framework – preparation of the Consultation Rules/ terms of reference/ draft of the Concession contract • July 2001 : Tender published at the OJEC • Oct. 1st, 2001: 6 candidates • Nov. 2001: all candidates are permitted to submit bids • April 2002: 6 bids received • July 2002: EUROFERRO (Bouygues- Dragados) selected as « preferred bidder » • Sept. 2002: negotiations start with EUROFERRO, … 6 bidders, mostly major civil works constructors in Spain & France (Bouygues-Dragados, Eiffage-ACS, SPIE-FCC, Acciona-Sacyr, Vinci-Ferrovial) and the incumbent infrastructure managers (RFF-GIF)

  18. The Tender Process (Cont’d) April 16th 2003 : negociation with Bouygues-Dragados interrupted May 8th 2003 : new tender published in OJEC • A Tender as « closed » as possible • Benefit from Tender 1 experience • Major innovation : candidates are invited to bid on an non-negociable draft contract (except a few clauses), based on Tender 1 contract as finally negociated • No technical options allowed to ease comparison • Objective : reach a conclusion as fast as possible • But doubts about number of candidacies and level of subsidies demanded • July 2003 : 4 candidacies • RFF-GIF, ACS-Dragados-Eiffage (ACS bought Dragados during Tender 1), Bouygues-FCC, Ferrovial-Vinci • All candidacies accepted, bids received October 7 2003 • November 13: TP Ferro (ACS-Dragados-Eiffage) and Ferromed (RFF-GIF – the two State-owned companies) are invited to negociate with the two governments

  19. The Tender Process (Cont’d) • December 26, after ameeting of the Council of Ministers in Spain, the two governments announce they are about to conclude with TP Ferro Concession contract signed in Madrid February 17th for a 50-year duration • Construction costs = 952 M€ (Jan 03). 32% of costs related to tunnel • Planning = 60 months delivery starting Feb. 17th 2004 • Tolling scheme in the contract, with first 3 years of operations limited fee to allow for build-up of traffic (as set in terms of reference) • State Subsidy = 540 M€ (57% of construction costs), shared by France & Spain (50%/50%) & EU, paid during construction • Sponsor equity = 102,9 M€, closing had 1 year to take place • No guarantees : concesionaire will operate the concession at its own risk • Penalty system : for construction, performance, termination, etc. • Contract is made public (integrally published in French official journal) Debt = financial closing took place Feb 10th 2005 with a « project finance » scheme, 520 M€ with limited recourse on the sponsors

  20. The Concession (Cont’d) Inter-government Commission (CIG) Security commitee (tunnel) Contractual relationship States Train Operating Companies Toll Payments Subsidies European Union Concessionaire 99.8 % regularity Sponsors Equity RFF (France) Route definition & Interfaces Banks Debt GIF (Spain) Construction company Insurances

  21. Lessons Learned • Excellent collaboration between the administrations of the 2 countries on a cross-border project • Technically, a major project within the pan-european rail network • A breakthrough project for the rail sector : • Application of the highway concession model to rail, a success so far for a project that was found difficult from the very beginning • New player – private – between two public Infra managers • Interaction with incumbent train operating companies (SNCF, RENFE) for both train operation and infrastructure management • Proof that PPP in the rail sector is feasible, with effective & full transfer of risks to a private operator: • Construction/completion risks • Operational/traffic risk & maintenance risk • Tender procedure was long and difficult but : • Administrations learned (so did the candidates) • Major innovations have been successfully introduced • Challenges still ahead : traffic, operation, completion of national connecting lines

  22. Project on Track for Opening in 2009

  23. Introduction • Objectives of the PPP in the Rail Sector • The Perpignan-Figueras Project • Future Developments

  24. Tours – Bordeaux HSL Project • LGV Sud-Europe-Atlantique, a High-Speed line project linking Paris to Bordeaux in 2 h is the next infrastructure project to be launched as a concession • Challenges: • Size of the project, over 300 km, €4,5 BN • Project economics : are they strong enough to make the project bankable? • Interfaces with existing network (several connexions) and future projects • Project divided into two phases, long period of civil works, risks • Co-financing with regional authorities needs solidarity on the long run, way over polical rythms • Concession prequalification launched in February Paris Existing High-Speed Line Bordeaux Toulouse Spain TGV SEA Will Be a Test on How Innovative Schemes Can Be Put in Place in France For Very Large Scale Projects

  25. Nîmes & Montpellier Bypass • Existing line crossing Nîmes and Montpellier is saturating progressively • The new 70 km line will create a pair of lines allowing freight trains to run out of cities • Mix High-Speed – Freight trains • TEN-T top priority project (along with Perpignan - Figueras • Cost of € 1,2 billion • Project ready, land control under way • Will be launched as a PPP (contrat de partenariat, DBFO) where RFF will pay an availability fee to the project owner • Preparation of the tender underway Will Be a Test of The PPP (DBFO) Model on Linear And Costly Infrastructure

  26. About DIF • An independant, continental Europe-based, Equity investment fund focusing on PPP projects in Europe • €150 MM closed in March 2006 (investors: individuals, Dutch pension funds, Helaba, Sumitomo Mitsui Bank, European investment bank) • An experienced team of professionals with a background in Project Financing and PPPs • Today’s focus on Western Europe, primarily Benelux, France, UK, Germany • New markets, especially Eastern Europe, to be considered in the future • A flexible, aggressive, independant fund, acquiring majority/minority positions in both Greenfield and Brownfield projects in the PPP sector • 7 projects already acquired in France, UK (including France’s first PPP project) • Participating in several tenders across Europe • Core team in Amsterdam; branch just set up in Paris

  27. Thank you for your attention Thomas VIEILLESCAZES Director France & Southern Europe DIF (Dutch Infrastructure Fund) Mobile (France) +33 6 87 96 66 61 Phone (Holland) +31 mailto : t.vieillescazes@dif.eu www.dif.eu

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