1. Page 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. Page 2 1.Introduction 2.Objectives of the PPP in the Rail Sector 3.The Perpignan-Figueras Project 4.Future Developments

3. Page 3 1.Introduction 2.Objectives of the PPP in the Rail Sector 3.The Perpignan-Figueras Project 4.Future Developments

4. Page 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 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) Allocation of Risks 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 French Public Sector Organization Is Likely to Evolve Allocation of Risk Clearly Not Optimal for Public Sector

5. Page 5 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!) Introduction

6. Page 6 1.Introduction 2.Objectives of the PPP in the Rail Sector 3.The Perpignan-Figueras Project 4.Future Developments

7. Page 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. 18 th 2003 => Improve competitiveness of rail mode

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

10. Page 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. Page 11 1.Introduction 2.Objectives of the PPP in the Rail Sector 3.The Perpignan-Figueras Project 4.Future Developments

12. Page 12 Perpignan-Figueras Project

13. Page 13 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 1995 Madrid Treaty : Perpignan-Figueras will be constructed as a Concession (Treaty Also Sets Up Concession Framework) Project Rationale 2 MM inhab. 0.2 MM inhab. 0.5 MM inhab.

14. Page 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. Page 15 The Concession 1. The concession has been granted through a bi-national tender process (EEC Directive – 93/37) under the aegis of the French & Spanish States 2. 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. Page 16 Tender Organization Inter-Government Commission FranceSpain Selection Commitee Technical groupLegal groupEconomics & Finance group Construction Exploitation Contract issuesTarification Financing Technical supportLegal counselFinancial advisor Negociation Commitee Representatives of 2 administrations In charge of 1995 Treaty implementation Assists the 2 Govts during tender preparation & process Evaluates & selects candidates & bids Experts from 2 countries Negociates the contract Experts from 2 countries Tendering and Contract Negotiation Were Undertaken Directly & Jointly By The Two Administrations

17. Page 17 The Tender Process 1.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 2.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. Page 18 April 16th 2003 : negociation with Bouygues-Dragados interrupted May 8th 2003 : new tender published in OJEC April 16th 2003 : negociation with Bouygues-Dragados interrupted May 8th 2003 : new tender published in OJEC The Tender Process (Contd) 1.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 2.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. Page 19 Concession contract signed in Madrid February 17th for a 50-year duration The Tender Process (Contd) December 26, after ameeting of the Council of Ministers in Spain, the two governments announce they are about to conclude with TP Ferro 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. Page 20 The Concession (Contd) Inter-government Commission (CIG) Security commitee (tunnel) Concessionaire Construction company States European Union Sponsors Banks Insurances Train Operating Companies RFF (France) RFF (France) GIF (Spain) GIF (Spain) Toll Payments Subsidies 99.8 % regularity Route definition & Interfaces Equity Debt Contractual relationship

21. Page 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. Page 22 Project on Track for Opening in 2009

23. Page 23 1.Introduction 2.Objectives of the PPP in the Rail Sector 3.The Perpignan-Figueras Project 4.Future Developments

24. Page 24 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 Tours – Bordeaux HSL Project TGV SEA Will Be a Test on How Innovative Schemes Can Be Put in Place in France For Very Large Scale Projects Paris Spain Toulouse Bordeaux Existing High-Speed Line

25. Page 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. Page 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 Todays 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 Frances first PPP project) Participating in several tenders across Europe Core team in Amsterdam; branch just set up in Paris

27. Page 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