y a majority, France has financed, equipped and developed its motorway network by resorting to the tolling con-cession system. Over 60 years, more than 9,000 km in motorways were built, hence structuring the country with levels of service and of safety unanimously recognized, furthermore without any recourse to public budgets.
Now that public spending is constrained, it is useful to recall the principles that have made the “French-Style” system so successful and the necessity of carrying on its expansion to answer the double call for permanent mobility and for an economic restart.
A public service mission;
the “user = payer” principle
Within the frame of contracts signed with the State (the grantor) and under its permanent control, the concessionaire companies see themselves entrusted with a mandate by the public service to fi nance, to build, to run and to maintain their networks. In return, they collect a tolling revenue based on the “user=payer” principle which makes for the totality of the network’s users –inclusive of foreign clients– as opposed to taxpayers contribute to the fi nancing. Further to the initial investments by the motorway companies –with a return on investment only on the long run– come those targeted to improve the motorways’ network and to expand innovative services. At the end of the concession’s term, the work is remitted in its totality to the State which has been the owner ever since the beginning.
A reinforced contract since 2006
Although the motorway companies bear in totality and “at their own tremendous risks and costs” all of the uncertainties that come with the construction, the traffi c’s evolution, the debt…, the privatization of six of them in 2006 came with a revision of the concession contracts that appear to be more transparent albeit more constraining with norms offollow-up and new penalties. This process occurs upon every contractual evolution when are revised after a 5-year period the planning contracts. The latter allow the planning of the rate changes granted by the State based on the investments that the State prescribes and determined by the concession’s equilibrium.
Financial backing, “adossement”,
the key to the system’s success
Up to the year 2000, the motorway network blossomed thanks to the principle of “the back-ing”. The point is to use the revenues and the investment capacities of a mature concession to fi nance the realization of a less-traveled network, while answering spatial planning requirements, by extending the duration of the mature network’s concession. Thus, the tolling revenues continue being collected on the oldest sections in order to fi nance the most recent ones.The year 2000 reform called into question this system of solidarity among territories to match the European set of regulations concerning trading competition. Ever since, any new project needs to form the subject of a European public tender. The newborn concessionaire companies (Adelac, Albea, Alicorne, A’lienor, Alis, Atlandes, Arcour, CEVM) operate relatively short sections from 18 to 150 km long. The calling into question of the backing reaches its limits when concerned by the State’s fi nancing diffi culties; because of estimated traffi c levels, those sections are more expensive than the “backed” historical networks and depend on public subsidies. Within the frame of the 2009 stimulus package, the backing has been put back into the center of the debate with the “Green Motorway Package” which, with the European Commission’s authorization, made it possible for 5 motorway companies to start up an immediate 1 billion € investment program fi nanced by a
one-year extension of their concessions.
The concession model “French style”
Issue 5
October 2015
PROFESSIONAL ASSOCIATION OF FRENCH TOLLED MOTORWAY, TUNNEL, BRIDGE OPERATING COMPANIES
SPECIAL ISSUE
Within the 40
or so last years,
backing helped
finance close
to
7,000 km
in networks
around “historical”
companies: APRR,
ASF, Cofiroute,
Escota, Sanef.
Ph ot o: C ofi r ou te - F . V ig ou ro uxB
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MILESTONES
April 18TH, 1955 Law As of 1956 1970 -1979 1980 -1989 1990 - 2000 2002 - 2006 2006
The State is authorized to create concessionaire companies to build and run
motorway infrastructures. The set-up of 5 public companies The set-up of 4 private companies The set-up of 2 new companies to build/run alpine tunnels
The smallest companies turn into subsidiaries of the largest ones, thus
becoming 3 large regional Groups (ESCOTA, a subsidiary of ASF; SAPN,
a subsidiary of SANEF; AREA, a subsidiary of SAPRR) 6 motorway companies seek new investors Total privatization of the motorway companies
Is backing still relevant?
In the same spirit and in endless favor of an economic restart, a motorway stimulus package, shouldered on the mechanisms of the concession and of the backing system, is immediately started after a memorandum of understanding was signed on April 9th, 2015 between the government and
the main concessionaires and after the ordinances validating the riders to the concession contracts last August 21st.
According to this stimulus package, an imple-mentation –at their expense exclusively– of twenty major operations for 3.27 billion €, is planned.
They are implemented against an 2.5 up to 4 years lengthening of the concessions, as authorized by the European Commission on October 29th, 2014;
it encompasses the realization of new sections being created in the network, the widening of heavily congested parts and the resumption/ requalifi cation of non-conceded sections, moreover some environmental developments and studies. Furthermore, the concessionaire companies offer to use the assets of the concession’s model to solve mobility issues by developing new services and a better use of the infrastructures (express bus lanes, lanes reserved for carpooling…) where the needs are the most urgent and the least satisfi ed, especially around large cities.
As opposed to investments incurred within a classical budgetary frame, the infrastructures that were completed throughout concession contracts do not make an impact on public fi nancing. The tolling revenues guarantee the continuity of such a sharing which will not be subject to a reclassifi cation into a sovereign debt. Ph ot o: A PR R - L a F ra nc e V ue d u C ie l
THE ASSETS OF THE CONCESSION’S SYSTEM
THE BUILDING OF MORE THAN 9,000 KM OF MOTORWAY NETWORK WITH A HIGH LEVEL OF SERVICES
• without public budget
• at the entire peril
of the concessionaire
THE GUARANTEED POSSIBILITY FOR THE STATE TO RECOVER –AT THE END OF THE CONTRACTS– INFRASTRUCTURES WITH THE HIGHEST LEVEL OF SERVICES AND TOTALLY DEBTLESS PRICING FRAMED BY A CONTRACT
• based on the
concession’s
fi nancial equilibrium
• based on the investments
prescribed by the State
THE RISKS LINKED TO THE CONCESSIONAIRE AND SHOULDERED BY THE PRIVATE SECTOR(debt, traffi c, etc…)
SUSTAINABILITY OF RESOURCE ALLOCATION• 18 billion
€
invested during
the last decade
THE 2015 STIMULUS PACKAGE:
KEY FIGURES
3.27
billion
€
of investmentsmore than
20
major operations7
French motorway concessionaires17
regions,23
departments8,200
jobs/year
during 3 years on average
5,700
direct jobs2,500
indirect jobs1,000
additional jobsover 3 years for biodiversity-related operations
Privatization has been most profi table to the State. In 2006, at the end of a
tender, thanks to the deal, the State cashed in 14.8 billion € to which have to be
added the 2 billion already received in 2002 upon the opening of ASF’s capital. The selling off by the State of its shares when the Stock Exchange was at its peak was a strategic and budgetary choice.
Overall, investors have paid 22.5 billion € for the motorway concessions and moreover
added to that their debt for 20 billion as well as their 5 billion in committed investments already contracted at the time. It is important, at this point, to recall that motorways remain the ownership of the State which, at the completion of the concession contract, will get back –free of charge and debt-free– infrastructures inclusive of a high level of services.
Motorway concessions bear on behalf of the State the debt incurred
to fi nance the realization of the motorway network. When the concession
expires, the State recuperates the network –sound and pristine– without
having spent a single.
By 2014/2015, motorway concessionaire companies find
themselves at the heart of a political and mediatic controversy
and harshly criticized for their alleged “excess earnings”
as well as because of an unprecedented reconsideration of
the motorway concession pattern assimilated to an annuity.
Some truths need to be recalled to understand a system
indeed profitable for… the State and the economy.
The concessionaire companies that have a built a 9,000 km network have been doing the same job for more than 60 years and, according to their Requirements’ terms, will continue to do so for yet another twenty years. If their shareholding
structure has changed with the 2006 privatization, the rest has not been modifi ed; they remain and will remain proxy for the State’s public service, for the investors and manufacturers subtracted by the State and for the suppliers of the citizens’ mobility services and… carry out today a debt for 300 billion € in the name of the State.
Actually… YES! Ever since the privatization the Requirements’ terms have been made
tougher along with the plan contracts which defi ne investments and price lists; all of this in agreement with a recommendation by the Competition Authority in 2005. Furthermore, fi nancial controls have considerably increased and a general transparency has prevailed ever since. A contract is the only real asset of a concessionaire which is why they follow it to the letter and have never been caught insofar as their contractual commitments have been concerned.
The State exercises a tight control over the motorway concessionaires;
it determines the increases of prices and checks that they respect their
Requirements’ terms.
“Motorway
concessions have
been sold off during
the privatization”
was a strategic and budgetary choice.
been sold off during
NO
“The privatization
of the motorway
concessionaires has
brought a rupture”
they remain and will remain proxy for the State’s public service, for the investors
“The privatization
concessionaires has
NO
Ph ot o: A PR R - C hr is to ph e H ur etWhat one
has to know
about motorway
concessions
So ur ce : A SF A / I nf og ra ph ie :
It is moreover the model itself of the concession that –from a structural point of view– demands it. The start-up of a motorway concession requires an important
capital in order to fi nance heavy investments and consequently creates an important debt. The return on these investments needs to occur all along the (limited) time line of the concession because, upon the contract’s completion, the conceded object is returned –free of charge and totally operational– to the grantor. The profi tability of a concession is calculated on the total length of a contract. During the fi rst years, results are weak, even unprofi table. It’s only with time and with a confi rmed traffi c that a return on the realized investments becomes possible, that the results can help reimburse the contracted loans and, last but not least, can remunerate the invested equity.
This consequent time difference can explain the particular profi le
of a concession’s fi nal results which can therefore not be qualifi ed
as an “annuity”.
The profi tability of a concession, of which the life span is limited in time by defi nition cannot be quantifi ed and with an accurate relevance, like in other domains, by the ratio between the year-end result and the turn-over. The latter can
only produce a snapshot of the motorway concessionaire’ situation but in no way a reliable measure of the shareholders’ investments’ profi tability. This explains why the only relevant indicator to measure the profi tability of the privatized motorway companies is the internal rate of return of the concessions calculated upon their entire life time. The concessions’ estimated internal rate of return is of 8%, a rate applied according to usual practice by public investors for their investments’ projects.
The European Commission validated the recovery program proposed
by the motorway concessionaires and believes that the internal rates
of return of this program are in phase with a reasonable profi t.
“These margins
produce excess
profi ts which benefi t
private shareholders”.
reliable measure of the shareholders’ investments’ profi tability. This explains why the
profi ts which benefi t
NO
“The motorway
concessionaires’
activity generates
high profi ts”
(limited) time line of the concession because, upon the contract’s completion, the
YES
Ph ot o: G ro up e S an ef - B en oi t D ec ou tMotorway concessionaires are alone to shoulder, at their entire peril, the uncertainties linked to the fi nancing, to the construction, to the running and to the traffi c. However, the most recent past has revealed that motorway activity
is most sensitive to times of crisis whether because of the huge hikes in oil prices, the drops in industrial activity and trading exchange or even the falls in household consumption. Today, the heavy goods vehicle traffi c’s level is the same as in the beginning of the years 2000; we are therefore quite far from the optimistic forecasts that accompanied the 2006 privatization and of the forecasts of revenues. The same goes for the fi nancial parameters because the 2008 crisis of the fi nancial tools has heavily impacted the debt and its refi nancing. The period inaugurated ever since 2008 isn’t auspicious to a fast improvement of these indicators on the short run; it is furthermore impossible to plan the evolutions from now on to the end of the concessions. It is therefore and indeed a risky business that justifi es its remuneration in order for the investors to maintain their trust and adequate debt service coverage.
Ever since 2008, the motorway traffi c has been inferior to the assumptions
that accompanied the privatization.
Ever since the privatization, the motorways’ sector has more invested in the name of the community than it has paid dividends to its shareholders. The State has
entrusted the motorway companies with a public service mission: to maintain the network’s quality and the safety of the motorway users while at the same time protecting the environment. On the basis of the concession contracts, these motorway companies have invested 15.6 billion € into their network between 2006 and
2014, an average, in other words, of 2 billion € per year.
Over the same period, they paid 17 billion € in IRS and taxes to the State to which
needs to be added the VAT collected on tolls for a more or less the same amount. In all, the contribution of the toll business to the State’s resources corresponds to 1.4% of its budget when the motorway sector only represents 0.4% of the GDP.
By and large, the sector is the main fi nancial contributor to the different transportation infrastructures in France. Ever since the creation of the AFITF (Agency for the Financing of the Transportation Infrastructures in France) in 2005, 11 billion € from the motorway concessions have nourished its
budget, which represents approximately 60% of the cumulative budget, to fi nance… rail, river and road unconceded projects.
The motorway companies widely contribute to the State’s tax revenues
and are the main fi nancers of the transportations infrastructures.
time protecting the environment. On the basis of the concession contracts, these
NO
“The
concessionaires’
activity comes with
very few hazards”
prices, the drops in industrial activity and trading exchange or even the falls in
activity comes with
NO
Ph ot o: A PR R - l a F ra nc e v ue d u c ie l Sou rc e: AS FAThe evolution in the traffic for light vehicles (LV) & heavy good vehicles (HGV)
on the conceded motorway network (2007)
Real LV Traffic Real HGV Traffic Theoretical traffic at 1.5% / year 80 85 90 95 100 105 110 115 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
“By selling off the
concessionaire
companies, the State
has lost a signifi cant
fi nancing source”
Concessionaires build, run and maintain the motorways. Tolls constitute their only means to fi nance the operating expenses and the investments. With tolls based on
the “user-payer” principle, the State has favored the fact of making the user pay over the taxpayer; which means that tourists and the heavy goods vehicles using the French road network also contribute to its maintenance.
On the other hand, the price increase –less acute however these last years than the one of other transportation modes– strictly matches the running and maintenance expenses, the compensation of the investments required by the State and the fi nancing of the capital. This increase also takes into account the infl ation and the additional taxes aimed at funding other transportation modes than the road and withdrawn by the State… the State that collects 37% of all tolls’ revenues. This price increase is determined by the State in the concession contracts’ Requirement terms.
Toll rates have less increased after the privatization than before.
The 2009 stimulus package also called “Green Motorway Package” allowed the implementation –in less than 3 years– of an environmentalist levelling program to upgrade the oldest motorways in a partnership with the State.
This 1 billion € investment strategy co-signed by 5 motorway companies against a
one-year extension of their concessions was neither an obligation in the Requirement terms nor in the regulations applicable to these old networks.
This stimulus package highly scrutinized by the State services and by the European Commission (regular technical follow-up, economic-parameters-used-for-calculations follow-up…) was fi nally prized with a full confi rmation by those State services.
In 2015, in the same spirit, still in favor of the economic restart and in particular of the public works’ segment branch, a new stimulus package has been signed after long negotiations with the State: the concessionaire companies will mobilize 3.27 billion €
in private revenues at the service of public investment with a creation of 8,200 jobs/ year during 3 years. For this stimulus package, the long-term economic assumptions were determined by an inter-ministerial mission which left no maneuvering margins at all to the concessionaires; the compensability of the investments was scrutinized and controlled by the services of the Ministry for the Environment.
The Green Motorway Package (2009) has allowed a win-win partnership
in terms of the economy vs. the environment and considerably dynamited
the economic activity and the employment’s situation at the peak of the
crisis. Along those lines, the 2015 stimulus package could generate up to
8,200 jobs/year during 3 years on average devoted to the users’ safety
and services.
“The stimulus
packages
negotiated in 2009
and 2015 favor the
concessionaires and
greatly compensate
operations otherwise
not open to
compensation”
“The toll rates
are too high
compared with the
costs showcased by
the concessionaires”
the French road network also contribute to its maintenance.
compared with the
NO
one-year extension of their concessions was neither an obligation in the Requirement
NO
So ur ce : A SF A - I N SE E / I nf og ra ph ie :Publishing Director: Jean Mesqui Editor: Florence Portelette Conception: [email protected]
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