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Public private partnerships: French and European cases

Public private partnerships: French 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@missioneco.org. Outline of the presentation.

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Public private partnerships: French and European cases

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  1. Public private partnerships:French 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@missioneco.org

  2. 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

  3. France (= Texas) 550 000 km² - 342 000 sq. miles 63 millions inhabitants 22 regions 96 departments 36600 municipalities 30 millions cars 6 millions trucks

  4. 1/3 -French PPPs in transportation

  5. A very long tradition of PPPs in France Canal de Craponne (Southeast) : 1554 Canal du Midi (Southwest) : 1666

  6. 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

  7. Since 1955: The building of a 5000 mile, high-quality highwaynetworkthrough PPPs (concession) 75% of the French highways are toll highways

  8. 0.8 16 600 0.4 0.5 108 8 000 9 700 38 4.7 58 600 53 1 0.4 4 700 Networks Turnover Billion Euros Employees Urban public transportation A major field for PPPs Private sector Public sector Mixed

  9. 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

  10. 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.

  11. 2/3 - PPP schemes and key issues

  12. (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)

  13. 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)

  14. 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

  15. 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

  16. 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

  17. 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

  18. Enlarging the focus

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

  20. 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 => 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)

  21. 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

  22. 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

  23. 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

  24. PPPs Project Operated by French Companies around the world – Airports Management • Airports Management in Phnom-Penh (Cambodia), Abidjan (Ivory Cost)

  25. 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

  26. PPPs can be useful in many fields of public interest

  27. 55% 80% 45% 20% Drinking Water Sanitation Water and Sanitation in France Private sector Public sector % of the population

  28. 60% 92% 40% 8% Collection Treatment Waste Management in France Private sector Public sector % of the population

  29. Energy in France

  30. Thank You ! Sébastien Gourgouillat Transportation and Construction Attaché Embassy of France in the USA sebastien.gourgouillat@missioneco.org

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