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

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

km² sq. miles 63 millions inhabitants 22 regions 96 departments municipalities 30 millions cars 6 millions trucks France (= Texas)

1/3 -French PPPs in transportation

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

Main rail network development in the XIX th century through PPPs miles By private companies, with State regulation… and many State engineers ! Private companies merged in a national publicly owned company (SNCF) in 1937

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

Networks Turnover Billion Euros Employees Urban public transportation A major field for PPPs Private sector Public sector Mixed

Since 2006: rail PPPs, an opportunity for HSR 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 SEA L N.M. by pass 2012 HSL RR 2011 HSL EE 2007 HSL Britany

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 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.

2/3 - PPP schemes and key issues

(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)

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)

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

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

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

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 Lessons learnt about risk Management

Enlarging the focus

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

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 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) The “Chunnel”: technical success, financial failure

1984 study (French and British banks): the concession is viable “Not a public penny” : the Feb treaty of Canterbury Eurotunnel Group : “small shareholders” = 65% of the equity Final cost : 16 billion euros. 7 years of works without revenue Fast financial worsening : risk of bankruptcy in 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 The channel tunnel: the concession

The Barcelona light rail: a typical PPP project  2 lines 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

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

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

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) 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

PPPs can be useful in many fields of public interest

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

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

Energy in France

Thank You ! Sébastien Gourgouillat Transportation and Construction Attaché Embassy of France in the USA