Ministry of Finance and World Bank PPP Seminar Legal, Implementing and Economic Issues, Warsaw,...

Ministry of Finance and World Bank PPP Seminar Legal, Implementing and Economic Issues, Warsaw, 17-18 June 2008

PPPs and EU Funds, Cross-Border ProjectsThe case of the Rail Sector PPPs

Thomas VieillescazesDirector, DIF

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French Public debt as a % of GDP

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Central governmentVarious central administrationsLocal governments & administrationsSocial security administrationsPublic administrations total

Maastricht treaty limit

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!)

EU Funding issues and PPPs

Why PPPs ?

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Project management

• Concentrations of funds (TEN-T) at pan-european bottlenecks => at the borders

• ‘National’ sections are harder to get EU (TEN-T) financed, although have a european purpose. Example of the TGV East

• European coordination + cross-border coordination

Project financing

• More for less: private sector implication, EU funding to decrease national funding of course

• Need to adjust the EU funding procedures (pluri-annual programme) to the difficulties of managing PPP projects (tender procedures)

• On the other hand, efficiency of PPP schemes for construction (milestone payments, full transfer of construction risk to EPC contractor) allows for strong monitoring of costs and control over planning

• EIB implication?

EU Funding issues and PPPs

Some issues to be discussed

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• Leverage new ressources for the rail sector with the usage of private funds (formerly 100% public funded), to face growing scarcity of public 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 (PPP efficiency in construction)

=> Improve competitiveness of rail mode

Inject some fresh blood in the system?

PPP in the Rail Sector

What rationale for the usage of PPPs?

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« Classical » scheme, public tenders (HSL East, Rhin-Rhône ): RFF is

project undertaker, subsidies to be put in place ab initio by Central and

Local Governments + EU (TENT)

Infrastructure PPP: RFF is contracting authority, public availability

payments occur during the life of the contract, demand-traffic risk

generally borne by Public sector. Some subisidies could be paid ab initio, but

usually the bulk of them is paid during project life, thus making harder to fit

in EU Funding

Concession: Gov't or RFF as contracting authority, Public subsidies ab initio

(National + EU Funds, paid during construction milestones), Project

undertaking, financing and operation at the own risks of the concessionaire


3 schemes to be contemplated

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PrivateSNCF-GID

PrivateRFF/SNCF GID

RFF/SNCF-GID

Availability(performance)

Privatesector

Privatesector

RFFPublic authoritiesFinancing

Private(railways

undertakings)

RFF(railways

undertakings)

RFF(railways

undertakings)

Revenues(Infra charges)

RFF/SNCF-GID

RFFPublic authorities

Public Tenders

Privatesector

Privatesector

PPP

Privatesector

Privatesector

ConcessionRisk

Operation &Maintenance

Design/Construction


Risk Matrix

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The Perpignan-Figueras Rail PPP project

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• 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.)

1995 Madrid Treaty : Perpignan-Figueras will be constructed as a Concession (Treaty Also Sets Up Concession Framework)

1995 Madrid Treaty : Perpignan-Figueras will be constructed as a Concession (Treaty Also Sets Up Concession Framework)

2 MM inhab.2 MM inhab.

0.2 MM inhab.0.2 MM inhab.

0.5 MM inhab.0.5 MM inhab.


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• Freight trains : 100-120 km/h• High-Speed trains : 300-350 km/h• 5 bridges• 50 km of tunnels• 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


Project description

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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


Tender Process

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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)

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)


Tender Process (cont’d)

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April 16th 2003 : negociation with Bouygues-Dragados interruptedMay 8th 2003 : new tender published in OJEC

April 16th 2003 : negociation with Bouygues-Dragados interruptedMay 8th 2003 : new tender published in OJEC

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


Tender Process (cont’d)

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Concession contract signed in Madrid February 17th for a 50-year duration

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 Capex), shared by France & Spain (50%/50%) & EU, paid during construction (milestones)

• 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

Debt = financial closing took place Feb 10th 2005 with a « project finance » scheme, 520 M€ with limited recourse on the

sponsors


Concession and Financing Scheme

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Inter-government Commission (CIG)Inter-government Commission (CIG)

Security commitee (tunnel)

Concessionaire

Construction company

Construction company

France/Spain 50%/50%

France/Spain 50%/50%

TEN-T Budget 20%

TEN-T Budget 20%

SponsorsSponsors

BanksBanks

InsurancesInsurances

Train Operating Companies

Train Operating Companies

RFF(France)

RFF(France)

ADIF(Spain)

ADIF(Spain)

Toll Payments

Subsidies

=57%

99.8 % regularity

Route definition

& Interfaces

Equity

Debt

Contractual relationship


Concession and Financing Scheme

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• Excellent collaboration between the administrations of the 2 countries on a cross-border project

• Long and discontinued tender

• Project team was mobilized for 3 years (costs, availability of people)

• Collaboration with EU Commission with respect to funding went smoothly:

• Coordination between the two member states a must

• Cross-border project and top-priority for TEN-T network allowed for substantial increase of EU funding

• PPP also a magnet for EU grants

• Unfortunately, risk profile was not compatible with EIB funding at closing

• Technically, a major project within the pan-european rail network

• Mixed usage freight/passenger high-speed

• First UIC-cauge connection to Spain

• Project on budget and on schedule!

• Next on the list, Lyon-Torino?


Lessons Learnt

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• A breakthrough project for the rail sector :

• Strict 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 :

• Candidates and administration learnt from the process

• Major innovations have been successfully introduced

• Challenges still ahead

• Completion of Spanish connection lines delayed – negotiation underway

• Develop the usage and build connecting infrastructure projects


Lessons Learnt

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DIF Thomas VieillescazesWTC Schiphol Airport Director (head of Paris office)Schiphol Tel. +33 1 76 74 92 58The Netherlands Mob. +33 6 87 96 66 61www.dif.eu E-mail [email protected]

Contact details DIF

Ministry of Finance and World Bank PPP Seminar Legal, Implementing and Economic Issues, Warsaw,...

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