1. Highways: cost and regulation in Europe
HIGHWAYS IN EUROPE
Concession & PPP, toll
Alain FAYARD
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)

4. Integration of the TINA network into an enlarged (TEN-T)
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
stoa112_fr.pdf

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

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
low
high
Extent of Private Sector Participation
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:

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:

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
User pays
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 German A 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 not a weaker one A changing role
To protect the general interest
Planner
Legal and administrative framework provider
Financial facilitator
Economical / financial profitability
Choosing : economic profitability
Feasibility: financial profitability
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