cost action tu1001 public private partnerships in transport: trends & theory p3t3
TRANSCRIPT
1
COST Action TU1001 Public Private Partnerships in Transport: Trends & Theory
P3T3
2013 Discussion Papers Part II Case Studies
Edited by
Athena Roumboutsos
Sheila Farrell Champika Lasanthi Liyanage
Rosário Macário
2 COST Action TU1001 Public Private Partnerships in Transport: Trends & Theory P3T3 2013 Discussion Papers Part II Case Studies Edited by A. Roumboutsos, S. Farrell, C. L. Liyanage and R. Macário This publication is supported by COST. Cover by Maria Stafida Original Cover Rail Photos courtesy of Niklas Alm Year of publication: 2013 ISBN 978-88-97781-61-5 © 2013, for the papers by Authors © 2013, for the editing by A.Roumboutsos, S. Farrell, C. L.Liyanage and R. Macário © COST Office, 2013 No permission to reproduce or utilise the contents of this book by any means is necessary, other than in the case of images, diagrams or other material from other copyright holders. In such cases, permission of the copyright holders is required. This book may be cited as: COST Action number- title of the publication. Legal Notice by COST Office Neither the COST Office nor any person acting on its behalf is responsible for the use, which might be made of the information contained in this publication. The COST Office is not responsible for the external websites referred to in this publication.
3
Contents
Foreword 7
The COST Programme 8
Preface 9
Introduction 11 Public Private Partnerships in Transport: Case Study Structure Athena Roumboutsos and Champika L. Liyanage
2 COST Action TU1001 Public Private Partnerships in Transport: Trends & Theory P3T3 2013 Discussion Papers Part II Case Studies Edited by A. Roumboutsos, S. Farrell, C. L. Liyanage and R. Macário This publication is supported by COST. Cover by Maria Stafida Original Cover Rail Photos courtesy of Niklas Alm Year of publication: 2013 ISBN 978-88-97781-61-5 © 2013, for the papers by Authors © 2013, for the editing by A.Roumboutsos, S. Farrell, C. L.Liyanage and R. Macário © COST Office, 2013 No permission to reproduce or utilise the contents of this book by any means is necessary, other than in the case of images, diagrams or other material from other copyright holders. In such cases, permission of the copyright holders is required. This book may be cited as: COST Action number- title of the publication. Legal Notice by COST Office Neither the COST Office nor any person acting on its behalf is responsible for the use, which might be made of the information contained in this publication. The COST Office is not responsible for the external websites referred to in this publication.
3
Contents
Foreword 7
The COST Programme 8
Preface 9
Introduction 11 Public Private Partnerships in Transport: Case Study Structure Athena Roumboutsos and Champika L. Liyanage
4
Case Studies
Roads and Motorways A19 Dishforth DBFO, England, UK 21 Christopher Boles and Champika L. Liyanage Attica Tollway, The Athens Ring Road, Greece 28 Bill Halkias, Athena Roumboutsos and Aristeidis Pantelias Coen Tunnel, The Netherlands 39 Johannes, T. Voordijk Horgos-Pozega, Toll Motorway Concession, Serbia 47 Nevena Vajdican and Goran Mladenovic
Ionia Odos Motorway, Greece 55 Nikolaos Nikolaidis and Athena Roumboutsos M6 Toll (BNRR), England, UK 62 Christopher Boles and Champika L. Liyanage M80 Haggs to Stepps, UK 73 Christopher Boles and Champika L. Liyanage Olympia Odos Motorway, Greece 81 Athena Roumboutsos and Nikolaos Nikolaidis Via-Invest Zaventem, Belgium 90 Martijn van den Hurk and Kit Van Gestel
Rail ARN-STO Rail link (Arlandabanan), Sweden 101 Robert Ågren and Stefan Olander
FERTAGUS Train, Portugal 108 Rosário Macário, Joana Ribeiro and Rui Couchinho
5
Ports and Airports Piraeus Container Terminal, Greece 118 Sheila Farrell Sines Container Terminal, Portugal 129 Sheila Farrell Valencia Cruise Terminal, Spain 141 Maria del Carmen Juan Martinez and Eva Pérez García
Port of Antwerp Deurganckdock Lock, Belgium 154 Céline van Nieuwenhuysen and Thierry Vanelslander Larnaca and Paphos International Airports, Cyprus 161 Charalambos A. Christodoulou and Christos O. Efstathiades International Airport of Tirana 175 Ali Dedej and Vera Shiko
Urban Public Transport Brabo 1, Flanders, Belgium 186 Martijn van den Hurk and Kit Van Gestel The Caen' TVR, France 193 Géraldine Bonnet and Gilles Chomat Metro Sul do Tejo, Portugal 202 Rosario Macário, Joanna Ribeiro and Rui Couchinho The Reims' Tramway, France 208 Géraldine Bonnet and Gilles Chomat SEVICI, Spain 217 Sastre, Julián
4
Case Studies
Roads and Motorways A19 Dishforth DBFO, England, UK 21 Christopher Boles and Champika L. Liyanage Attica Tollway, The Athens Ring Road, Greece 28 Bill Halkias, Athena Roumboutsos and Aristeidis Pantelias Coen Tunnel, The Netherlands 39 Johannes, T. Voordijk Horgos-Pozega, Toll Motorway Concession, Serbia 47 Nevena Vajdican and Goran Mladenovic
Ionia Odos Motorway, Greece 55 Nikolaos Nikolaidis and Athena Roumboutsos M6 Toll (BNRR), England, UK 62 Christopher Boles and Champika L. Liyanage M80 Haggs to Stepps, UK 73 Christopher Boles and Champika L. Liyanage Olympia Odos Motorway, Greece 81 Athena Roumboutsos and Nikolaos Nikolaidis Via-Invest Zaventem, Belgium 90 Martijn van den Hurk and Kit Van Gestel
Rail ARN-STO Rail link (Arlandabanan), Sweden 101 Robert Ågren and Stefan Olander
FERTAGUS Train, Portugal 108 Rosário Macário, Joana Ribeiro and Rui Couchinho
5
Ports and Airports Piraeus Container Terminal, Greece 118 Sheila Farrell Sines Container Terminal, Portugal 129 Sheila Farrell Valencia Cruise Terminal, Spain 141 Maria del Carmen Juan Martinez and Eva Pérez García
Port of Antwerp Deurganckdock Lock, Belgium 154 Céline van Nieuwenhuysen and Thierry Vanelslander Larnaca and Paphos International Airports, Cyprus 161 Charalambos A. Christodoulou and Christos O. Efstathiades International Airport of Tirana 175 Ali Dedej and Vera Shiko
Urban Public Transport Brabo 1, Flanders, Belgium 186 Martijn van den Hurk and Kit Van Gestel The Caen' TVR, France 193 Géraldine Bonnet and Gilles Chomat Metro Sul do Tejo, Portugal 202 Rosario Macário, Joanna Ribeiro and Rui Couchinho The Reims' Tramway, France 208 Géraldine Bonnet and Gilles Chomat SEVICI, Spain 217 Sastre, Julián
6
Terminals and Depots Cargo Center Graz-Werndorf, Austria 225 Walter Scherrer Central Public Transport depot of the city of Pilsen, Czech Republic 234 Petr Witz
7
Foreword
COST Action TU1001 on Public Private Partnerships in Transport: Trends and Theory (P3T3) is a research network, including over 100 researchers from 29 countries, funded by the EU COST Programme with the aim of developing the theoretical basis for Public Private Partnerships (PPPs) in the transport sector and making the shift from a descriptive approach to a normative one.
More specifically, the objective is to develop theoretical models and tools needed to support the implementation of PPPs in the transport sector that take into account the different contexts in which projects are implemented. Research work within the network is conducted through the establishment of working groups, where research is accelerated by combining existing findings and setting common research agendas. Deductive and inductive research is applied within the network for theory building through in-depth analysis and model building to predict and forecast behaviour. Notably, case analysis is a powerful tool for both research approaches, particularly in environments characterized by the growing frequency and magnitude of changes. This is the case of PPPs in transport.
The 2013 P3T3 Discussion Papers presented in Part I and Part II comprise a collection of cases following a specifically structured protocol. They are organised in country profiles with respect to PPP development (Part I) and transport projects at various levels of implementation (Part II).
P3T3 Action researchers are well aware of the limitations of case research. “Validity” is a major concern, especially in terms of objectiveness and robustness but, also with respect to the timeliness of the information. This publication opens our initial collection to discussion and invites contributions. On behalf of the COST Action TU1001 members Athena Roumboutsos, Action Chair Thierry Vanelslander, Action vice-Chair Nunzia Carbonara, Champika L. Liyanage, Geert Dewulf, Koen Verhoest, and Rosario Macário, Working Group Leaders
Web: www.ppptransport.eu
6
Terminals and Depots Cargo Center Graz-Werndorf, Austria 225 Walter Scherrer Central Public Transport depot of the city of Pilsen, Czech Republic 234 Petr Witz
7
Foreword
COST Action TU1001 on Public Private Partnerships in Transport: Trends and Theory (P3T3) is a research network, including over 100 researchers from 29 countries, funded by the EU COST Programme with the aim of developing the theoretical basis for Public Private Partnerships (PPPs) in the transport sector and making the shift from a descriptive approach to a normative one.
More specifically, the objective is to develop theoretical models and tools needed to support the implementation of PPPs in the transport sector that take into account the different contexts in which projects are implemented. Research work within the network is conducted through the establishment of working groups, where research is accelerated by combining existing findings and setting common research agendas. Deductive and inductive research is applied within the network for theory building through in-depth analysis and model building to predict and forecast behaviour. Notably, case analysis is a powerful tool for both research approaches, particularly in environments characterized by the growing frequency and magnitude of changes. This is the case of PPPs in transport.
The 2013 P3T3 Discussion Papers presented in Part I and Part II comprise a collection of cases following a specifically structured protocol. They are organised in country profiles with respect to PPP development (Part I) and transport projects at various levels of implementation (Part II).
P3T3 Action researchers are well aware of the limitations of case research. “Validity” is a major concern, especially in terms of objectiveness and robustness but, also with respect to the timeliness of the information. This publication opens our initial collection to discussion and invites contributions. On behalf of the COST Action TU1001 members Athena Roumboutsos, Action Chair Thierry Vanelslander, Action vice-Chair Nunzia Carbonara, Champika L. Liyanage, Geert Dewulf, Koen Verhoest, and Rosario Macário, Working Group Leaders
Web: www.ppptransport.eu
8
The COST Programme COST- the acronym for European COoperation in the field of Scientific and Technical Research- is the oldest and widest European intergovernmental network for cooperation in research. Established by the Ministerial Conference in November 1971, COST is presently used by the scientific communities of 35 European countries to cooperate in common research projects supported by national funds.
The funds provided by COST - less than 1% of the total value of the projects -support the COST cooperation networks (COST Actions) through which, with EUR 30 million per year, more than 30.000 European scientists are involved in research having a total value which exceeds EUR 2 billion per year. This is the financial worth of the European added value, which COST achieves.
A “bottom up approach” (the initiative of launching a COST Action comes from the European scientists themselves), “à la carte participation” (only countries interested in the Action participate), “equality of access” (participation is open also to the scientific communities of countries not belonging to the European Union) and “flexible structure” (easy implementation and light management of the research initiatives) are the main characteristics of COST.
As precursor of advanced multidisciplinary research COST has a very important role for the realisation of the European Research Area (ERA) anticipating and complementing the activities of the Framework Programmes, constituting a “bridge” towards the scientific communities of emerging countries, increasing the mobility of researchers across Europe and fostering the establishment of “Networks of Excellence” in many key scientific domains such as: Biomedicine and Molecular Biosciences; Food and Agriculture; Forests, their Products and Services; Materials, Physical and Nanosciences; Chemistry and Molecular Sciences and Technologies; Earth System Science and Environmental Management; Information and Communication Technologies; Transport and Urban Development; Individuals, Societies, Cultures and Health. It covers basic and more applied research and also addresses issues of pre-normative nature or of societal importance.
Web: www.cost.esf.org
9
Preface
Private sector involvement in the delivery of major public infrastructure is not new, but in the past it was either restricted to financing or long-term provision of services. Returns were achieved either directly from the “consumers” of services or through government payments on behalf of tax payers. “Public Private Partnerships” have become more popular since the mid-1980s, as governments have sought to tap into private sector finance and its technical, management and entrepreneurial skills. Over time infrastructure projects, especially in the transport sector, have become larger and more complex in terms of the activities “bundled” into the contractual arrangements, and the number of parties involved in transactions. So the diversity of PPP projects, even in the relatively small number of cases following, is not surprising: it’s to be expected.
Part II of the 2013 P3T3 Discussion Papers includes 24 cases originating from 13 countries in Europe: Albania, Austria, Belgium, Cyprus, Czech Republic, France, Greece, the Netherlands, Portugal, Serbia, Spain, Sweden and the UK. The largest group, nine cases in total, are road and motorway projects: one of the best known application areas for PPPs. Cases presented range from conventional toll motorways in Greece through a road tunnel in the Netherlands financed by availability payments, to an airport access road built by the Flemish Government using a public sector corporate entity and a “shadow” DBFM agreement.
Rail projects have found it harder to attract private finance, particularly for track and other basic infrastructure. This has been partly because of the scale of investment required, the complexity of rail networks, uncertainties surrounding the interface with rail services, and the high level of regulations. In this collection of case studies, rail has two representatives, in Sweden and Portugal.
Ports and airports often find it easier than roads to attract private finance because of the ease with which profitable terminal operations can be separated from expensive items of infrastructure from which it is difficult to generate revenues, like channels, breakwaters and runways. However, the BOT contract for Larnaca and Paphos Airports in Cyprus and the International Airport of Tirana show that there can be strong private sector interest in “whole” airports when demand is strong and competition limited. The four case studies from the ports sector highlight the difference between the standard approach to terminal concessioning adopted at Sines and Piraeus, and the more public-sector
8
The COST Programme COST- the acronym for European COoperation in the field of Scientific and Technical Research- is the oldest and widest European intergovernmental network for cooperation in research. Established by the Ministerial Conference in November 1971, COST is presently used by the scientific communities of 35 European countries to cooperate in common research projects supported by national funds.
The funds provided by COST - less than 1% of the total value of the projects -support the COST cooperation networks (COST Actions) through which, with EUR 30 million per year, more than 30.000 European scientists are involved in research having a total value which exceeds EUR 2 billion per year. This is the financial worth of the European added value, which COST achieves.
A “bottom up approach” (the initiative of launching a COST Action comes from the European scientists themselves), “à la carte participation” (only countries interested in the Action participate), “equality of access” (participation is open also to the scientific communities of countries not belonging to the European Union) and “flexible structure” (easy implementation and light management of the research initiatives) are the main characteristics of COST.
As precursor of advanced multidisciplinary research COST has a very important role for the realisation of the European Research Area (ERA) anticipating and complementing the activities of the Framework Programmes, constituting a “bridge” towards the scientific communities of emerging countries, increasing the mobility of researchers across Europe and fostering the establishment of “Networks of Excellence” in many key scientific domains such as: Biomedicine and Molecular Biosciences; Food and Agriculture; Forests, their Products and Services; Materials, Physical and Nanosciences; Chemistry and Molecular Sciences and Technologies; Earth System Science and Environmental Management; Information and Communication Technologies; Transport and Urban Development; Individuals, Societies, Cultures and Health. It covers basic and more applied research and also addresses issues of pre-normative nature or of societal importance.
Web: www.cost.esf.org
9
Preface
Private sector involvement in the delivery of major public infrastructure is not new, but in the past it was either restricted to financing or long-term provision of services. Returns were achieved either directly from the “consumers” of services or through government payments on behalf of tax payers. “Public Private Partnerships” have become more popular since the mid-1980s, as governments have sought to tap into private sector finance and its technical, management and entrepreneurial skills. Over time infrastructure projects, especially in the transport sector, have become larger and more complex in terms of the activities “bundled” into the contractual arrangements, and the number of parties involved in transactions. So the diversity of PPP projects, even in the relatively small number of cases following, is not surprising: it’s to be expected.
Part II of the 2013 P3T3 Discussion Papers includes 24 cases originating from 13 countries in Europe: Albania, Austria, Belgium, Cyprus, Czech Republic, France, Greece, the Netherlands, Portugal, Serbia, Spain, Sweden and the UK. The largest group, nine cases in total, are road and motorway projects: one of the best known application areas for PPPs. Cases presented range from conventional toll motorways in Greece through a road tunnel in the Netherlands financed by availability payments, to an airport access road built by the Flemish Government using a public sector corporate entity and a “shadow” DBFM agreement.
Rail projects have found it harder to attract private finance, particularly for track and other basic infrastructure. This has been partly because of the scale of investment required, the complexity of rail networks, uncertainties surrounding the interface with rail services, and the high level of regulations. In this collection of case studies, rail has two representatives, in Sweden and Portugal.
Ports and airports often find it easier than roads to attract private finance because of the ease with which profitable terminal operations can be separated from expensive items of infrastructure from which it is difficult to generate revenues, like channels, breakwaters and runways. However, the BOT contract for Larnaca and Paphos Airports in Cyprus and the International Airport of Tirana show that there can be strong private sector interest in “whole” airports when demand is strong and competition limited. The four case studies from the ports sector highlight the difference between the standard approach to terminal concessioning adopted at Sines and Piraeus, and the more public-sector
10 oriented PPP approach used for the provision of basic infrastructure in a traditional landlord port such as Antwerp. The Valencia Cruise Terminal is included to highlight trends in a new and rapidly growing part of the sector.
Urban public transport PPPs have been dominated by franchises or management contracts for bus networks, and schemes involving private investment in metros or light rail, as illustrated by the Brabo 1 tramway system in Antwerp. But the need to improved interoperability has led the French to bundle the entire urban public transport network into one concession, as illustrated by the case studies for Caen and Reims. Bundling can also be used to fund smaller scale initiatives such as the Sevici cycle hire and mobile advertisement scheme in Seville.
Small, free-standing projects such as the Graz-Werndorf cargo center in Austria have faced fewer problems in finding private investors, but some like the public transport depot in Pilsen have been difficult for the public to accept.
All of the case studies follow a pre-specified structure, which facilitates systematic data collection and cross-comparisons. The introductory paper provides a guide to this structure and explains the specific protocol. The cases are organized by mode of transport. They could have equally well been organized by country, project size, award procedure, or many other different aspects.
Part II of the 2013 P3T3 Discussion Papers summarises some of the Transport PPPs we have been looking at, but does not extend as far as their analysis. However, it challenges readers to identify clusters of similar approaches, the underlying reasons for their development, and their suitability for application elsewhere. They have been set up to answer the “why”, “what”, and “which-way” issues of Public Private Partnerships in transport. They also highlight the need to continue observing cases as they evolve over their contract life cycle, influenced by external events such as the economic crisis and internal events such as changes in ownership.
Sheila Farrell Athena Roumboutsos
11
Introduction
Public Private Partnerships in Transport:
Case Study Structure Athena Roumboutsos
University of the Aegean [email protected]
Champika Liyanage University of Central Lancaster
1 Introduction Usage of the Public Private Partnership (PPP) model for project delivery,
especially for infrastructure projects, has increased over the past decades. Along with PPPs’ growing economic importance for society, research interest has equally grown over the past decades reflecting on both the understanding of relationships and their cause-and-effect phenomena and resulting in theory building and theory testing (Tang et al, 2010). Case study analysis has been an important part of this research. Notably case research is a powerful research method, particularly in the development of new theory, in environments characterized by the growing frequency and magnitude of changes (Lewis, 1998). This has been equally significant for PPPs in transport.
In many instances, the central notion is to use case studies as the basis from which to develop theory inductively. The theory is emergent in the sense that it
10 oriented PPP approach used for the provision of basic infrastructure in a traditional landlord port such as Antwerp. The Valencia Cruise Terminal is included to highlight trends in a new and rapidly growing part of the sector.
Urban public transport PPPs have been dominated by franchises or management contracts for bus networks, and schemes involving private investment in metros or light rail, as illustrated by the Brabo 1 tramway system in Antwerp. But the need to improved interoperability has led the French to bundle the entire urban public transport network into one concession, as illustrated by the case studies for Caen and Reims. Bundling can also be used to fund smaller scale initiatives such as the Sevici cycle hire and mobile advertisement scheme in Seville.
Small, free-standing projects such as the Graz-Werndorf cargo center in Austria have faced fewer problems in finding private investors, but some like the public transport depot in Pilsen have been difficult for the public to accept.
All of the case studies follow a pre-specified structure, which facilitates systematic data collection and cross-comparisons. The introductory paper provides a guide to this structure and explains the specific protocol. The cases are organized by mode of transport. They could have equally well been organized by country, project size, award procedure, or many other different aspects.
Part II of the 2013 P3T3 Discussion Papers summarises some of the Transport PPPs we have been looking at, but does not extend as far as their analysis. However, it challenges readers to identify clusters of similar approaches, the underlying reasons for their development, and their suitability for application elsewhere. They have been set up to answer the “why”, “what”, and “which-way” issues of Public Private Partnerships in transport. They also highlight the need to continue observing cases as they evolve over their contract life cycle, influenced by external events such as the economic crisis and internal events such as changes in ownership.
Sheila Farrell Athena Roumboutsos
11
Introduction
Public Private Partnerships in Transport:
Case Study Structure Athena Roumboutsos
University of the Aegean [email protected]
Champika Liyanage University of Central Lancaster
1 Introduction Usage of the Public Private Partnership (PPP) model for project delivery,
especially for infrastructure projects, has increased over the past decades. Along with PPPs’ growing economic importance for society, research interest has equally grown over the past decades reflecting on both the understanding of relationships and their cause-and-effect phenomena and resulting in theory building and theory testing (Tang et al, 2010). Case study analysis has been an important part of this research. Notably case research is a powerful research method, particularly in the development of new theory, in environments characterized by the growing frequency and magnitude of changes (Lewis, 1998). This has been equally significant for PPPs in transport.
In many instances, the central notion is to use case studies as the basis from which to develop theory inductively. The theory is emergent in the sense that it
12 is situated in and developed by recognizing patterns of relationships among constructs within and across cases and their underlying logical arguments. According to Eisenhardt and Graebner (2007) a major reason for the popularity and relevance of theory building from case studies is that it is one of the best (if not the best) of the bridges from rich qualitative evidence to mainstream deductive research. The challenge is in developing theoretical constructs that are derived and could be tested through case research completing a circle of inductive theory building from cases and deductive theory testing by using cases to test theory.
This discussions series is based on an on-going project funded by COST. The targets of this project, i.e. COST TU1001 on “Public Private Partnerships in Transport: Trends & Theory” (P3T3), include the identification of clusters of similar approaches and their underlining reasons of development and suitability for knowledge transfer but also the testing of theory developed. Therefore, sample cases for case research had to be developed so as to both serve for inductive and deductive research. The challenges of this task are presented in the following section. The proposed case “protocol” is presented in the third section. This paper concludes with a discussion on the validity and applicability of this protocol over time.
2 Addressing the Case Study Challenges in Transport PPPs According to Yin (2009), case studies are the preferred research strategy
when, ‘a “how” or “why” question is being asked about a contemporary set of events, over which the investigator has little or no control’. Case research may be on a single case (see Flyvbjerg (2006) for an interesting reference to Galileo pg. 225) or multiple cases. In this sense each case serves as a distinct experiment that stands on its own as an analytic unit. Like a series of related laboratory experiments, multiple cases are discrete experiments that serve as replications, contrasts, and extensions to the emerging theory (Yin, 2009). Taylor et al. (2009) suggest that case study research should attempt to achieve depth by including multiple, polar cases and including multiple, analytically similar cases. What is achieved through this approach is the element of verification or testing of theory as it shifts from deductive to inductive or the need to apply replication logic (Eisenhardt, 1989).
Scholars over the years have identified the challenges facing case research, especially as research relying on rich qualitative data is becoming more common and, thus, care is needed in drawing generalisable conclusions from a limited set of cases and in ensuring rigorous research.
13 Yin (in 2009 and previous publications) has described in detail case
research design. Glaser and Strauss (1967) described the grounded theory method. Eisenhardt (1989) brought together much of the previous work on building theory from case research. Voss et al (2002) provide a roadmap for designing, developing and conducting case-based research. The present work draws on that of Yin (2009) and Voss et al (2002). According to the latter it is important to identify when to use case research.
The authors propose a template to guide researchers. In table 1, their proposal is extended to address P3T3 working group (WG) and auxiliary working group (AWG) objectives. Transferability of results (table 2) is an additional feature required and addressed in the proposed approach. More specifically, WG1 addresses decision making within PPPs in transport, WG2 identifies Key performance indicators and links them to PPP success factors, WG3 identifies the impact of institutions and market drivers, AWG1 reviews findings with respect to country/national perspectives and, finally, AWG2 reviews and tests theory developed in the various WGs with respect to PPP implementation in the various modes of transport infrastructure and service.
Based on table 1, P3T3 research objectives require and could be based on case research. However, the challenge is for all working groups to benefit from the similar data sets that can be compared against each other.
The next important challenge is developing the design of case studies (Yin, 2009) or otherwise the research framework, constructs and questions (Voss et al, 2002). This challenge includes the study questions, its propositions, its unit(s) of analysis, the logic linking the data and, finally, the criteria for interpreting the findings. This ultimately leads to developing a theory with respect to the subject under study or identifying the basic “factor” connecting the various actors and elements of the study.
In PPPs there is substantial institutional, archival and popular literature and debate concerning the political, social and economic acceptance of the scheme. The latter has been generally focused in varying forms around the issue of Value for Money (VfM), loosely defined as the optimum combination of life cycle costs and quality to meet user requirements (Grimsey and Lewis, 2005; Akintoye et al., 2003; Debande, 2002). However, at the heart of it, there remains a risk-sharing problem between two (or more) risk-averse agents. In PPPs this has been the “factor”. This “factor” is identified in both research (cf Tang et al, 2010) as well as in basic policy documents (cf. EU Green Paper; EIB, 2005). Furthermore, it is also important to consider the specificities of transport PPPs with respect to risk (Roumboutsos et al, 2011).
12 is situated in and developed by recognizing patterns of relationships among constructs within and across cases and their underlying logical arguments. According to Eisenhardt and Graebner (2007) a major reason for the popularity and relevance of theory building from case studies is that it is one of the best (if not the best) of the bridges from rich qualitative evidence to mainstream deductive research. The challenge is in developing theoretical constructs that are derived and could be tested through case research completing a circle of inductive theory building from cases and deductive theory testing by using cases to test theory.
This discussions series is based on an on-going project funded by COST. The targets of this project, i.e. COST TU1001 on “Public Private Partnerships in Transport: Trends & Theory” (P3T3), include the identification of clusters of similar approaches and their underlining reasons of development and suitability for knowledge transfer but also the testing of theory developed. Therefore, sample cases for case research had to be developed so as to both serve for inductive and deductive research. The challenges of this task are presented in the following section. The proposed case “protocol” is presented in the third section. This paper concludes with a discussion on the validity and applicability of this protocol over time.
2 Addressing the Case Study Challenges in Transport PPPs According to Yin (2009), case studies are the preferred research strategy
when, ‘a “how” or “why” question is being asked about a contemporary set of events, over which the investigator has little or no control’. Case research may be on a single case (see Flyvbjerg (2006) for an interesting reference to Galileo pg. 225) or multiple cases. In this sense each case serves as a distinct experiment that stands on its own as an analytic unit. Like a series of related laboratory experiments, multiple cases are discrete experiments that serve as replications, contrasts, and extensions to the emerging theory (Yin, 2009). Taylor et al. (2009) suggest that case study research should attempt to achieve depth by including multiple, polar cases and including multiple, analytically similar cases. What is achieved through this approach is the element of verification or testing of theory as it shifts from deductive to inductive or the need to apply replication logic (Eisenhardt, 1989).
Scholars over the years have identified the challenges facing case research, especially as research relying on rich qualitative data is becoming more common and, thus, care is needed in drawing generalisable conclusions from a limited set of cases and in ensuring rigorous research.
13 Yin (in 2009 and previous publications) has described in detail case
research design. Glaser and Strauss (1967) described the grounded theory method. Eisenhardt (1989) brought together much of the previous work on building theory from case research. Voss et al (2002) provide a roadmap for designing, developing and conducting case-based research. The present work draws on that of Yin (2009) and Voss et al (2002). According to the latter it is important to identify when to use case research.
The authors propose a template to guide researchers. In table 1, their proposal is extended to address P3T3 working group (WG) and auxiliary working group (AWG) objectives. Transferability of results (table 2) is an additional feature required and addressed in the proposed approach. More specifically, WG1 addresses decision making within PPPs in transport, WG2 identifies Key performance indicators and links them to PPP success factors, WG3 identifies the impact of institutions and market drivers, AWG1 reviews findings with respect to country/national perspectives and, finally, AWG2 reviews and tests theory developed in the various WGs with respect to PPP implementation in the various modes of transport infrastructure and service.
Based on table 1, P3T3 research objectives require and could be based on case research. However, the challenge is for all working groups to benefit from the similar data sets that can be compared against each other.
The next important challenge is developing the design of case studies (Yin, 2009) or otherwise the research framework, constructs and questions (Voss et al, 2002). This challenge includes the study questions, its propositions, its unit(s) of analysis, the logic linking the data and, finally, the criteria for interpreting the findings. This ultimately leads to developing a theory with respect to the subject under study or identifying the basic “factor” connecting the various actors and elements of the study.
In PPPs there is substantial institutional, archival and popular literature and debate concerning the political, social and economic acceptance of the scheme. The latter has been generally focused in varying forms around the issue of Value for Money (VfM), loosely defined as the optimum combination of life cycle costs and quality to meet user requirements (Grimsey and Lewis, 2005; Akintoye et al., 2003; Debande, 2002). However, at the heart of it, there remains a risk-sharing problem between two (or more) risk-averse agents. In PPPs this has been the “factor”. This “factor” is identified in both research (cf Tang et al, 2010) as well as in basic policy documents (cf. EU Green Paper; EIB, 2005). Furthermore, it is also important to consider the specificities of transport PPPs with respect to risk (Roumboutsos et al, 2011).
14
Table 1: Matching research purpose with methodology
(Extended from Voss et al (2002) Purpose Research
Questions Research Structure
P3T3 needs
Exploration Uncover areas for research and theory development
Is there something interesting enough to justify research?
In-depth case studies Unfocused, longitudinal field study
Potential similarities and differences between country and modal applications of PPPs. Changes over time and with respect to external events (e.g. economic crisis) [WG2, WG3, AWG1 and AWG2]
Theory building Identify/describe key variables Identify linkages between variables Identify ``why’’ these relationships exist
What are the key variables? What are the patterns or linkages between variables? Why should these relationships exist?
Few focused case studies In-depth field studies Multi-site case studies Best-in-class case studies
Identify such key factors is the primary objective of WG2 and AWG1
Finally, case research needs to be based on constructs, internal and external validity and reliability. These issues are addressed in the structure protocol of the case studies as presented in the next section. Notably, extra rigor is placed on this item, as cases are collected within different environmental contexts and comparability of cases is challenged both on the subject (various modal applications of PPPs) and cultural perception level of the actual application and its investigators.
15
Table 1: Matching research purpose with methodology (Extended from Voss et al (2002) continued
Purpose Research Questions
Research Structure
P3T3 needs
Theory testing Test the theories developed in the previous stages Predict future outcomes
Are the theories we have generated able to survive the test of empirical data? Did we get the behaviour that was predicted by the theory or did we observe another unanticipated behaviour?
Experiment Quasi-experiment Multiple case studies Large-scale sample of population
The primary scope of WG1 is theory building. Cases should provide adequate cases and data to test theories over time.
Theory extension/ refinement To better structure the theories in light of the observed results
How generalisable is the theory? Where does the theory apply?
Experiment Quasi-experiment Case studies Large-scale sample of population
All WGs and AWGs should be able to test theories through case sets.
Table 2: Transferability as an additional need Purpose Research
Questions Research Structure
P3T3 needs
Transferability To identify the extent that theories may be applied to other sectors and/or subject areas
Under which conditions to theories apply in other sectors or subjects
Experiment Quasi-experiment Multiple case studies Large-scale sample of population
Input from other PPPs sector applications and output from transport PPPs to other sectors. The same applies for countries and/or regions.
14
Table 1: Matching research purpose with methodology
(Extended from Voss et al (2002) Purpose Research
Questions Research Structure
P3T3 needs
Exploration Uncover areas for research and theory development
Is there something interesting enough to justify research?
In-depth case studies Unfocused, longitudinal field study
Potential similarities and differences between country and modal applications of PPPs. Changes over time and with respect to external events (e.g. economic crisis) [WG2, WG3, AWG1 and AWG2]
Theory building Identify/describe key variables Identify linkages between variables Identify ``why’’ these relationships exist
What are the key variables? What are the patterns or linkages between variables? Why should these relationships exist?
Few focused case studies In-depth field studies Multi-site case studies Best-in-class case studies
Identify such key factors is the primary objective of WG2 and AWG1
Finally, case research needs to be based on constructs, internal and external validity and reliability. These issues are addressed in the structure protocol of the case studies as presented in the next section. Notably, extra rigor is placed on this item, as cases are collected within different environmental contexts and comparability of cases is challenged both on the subject (various modal applications of PPPs) and cultural perception level of the actual application and its investigators.
15
Table 1: Matching research purpose with methodology (Extended from Voss et al (2002) continued
Purpose Research Questions
Research Structure
P3T3 needs
Theory testing Test the theories developed in the previous stages Predict future outcomes
Are the theories we have generated able to survive the test of empirical data? Did we get the behaviour that was predicted by the theory or did we observe another unanticipated behaviour?
Experiment Quasi-experiment Multiple case studies Large-scale sample of population
The primary scope of WG1 is theory building. Cases should provide adequate cases and data to test theories over time.
Theory extension/ refinement To better structure the theories in light of the observed results
How generalisable is the theory? Where does the theory apply?
Experiment Quasi-experiment Case studies Large-scale sample of population
All WGs and AWGs should be able to test theories through case sets.
Table 2: Transferability as an additional need Purpose Research
Questions Research Structure
P3T3 needs
Transferability To identify the extent that theories may be applied to other sectors and/or subject areas
Under which conditions to theories apply in other sectors or subjects
Experiment Quasi-experiment Multiple case studies Large-scale sample of population
Input from other PPPs sector applications and output from transport PPPs to other sectors. The same applies for countries and/or regions.
16
3. P3T3 Case Study Protocol The development of the P3T3 Case Study Protocol was effected in phases
and elaborated through a continuous process of irritations and piloting in order to address the needs of its working groups at their various levels of research development. One of the key challenges, as may be identified from table 1 above, is the different levels of analysis and data coding needed to understand all issues investigated. “The devil is in the detail” was an expression commonly used to describe the importance of in-depth descriptions of cases. However, numerical data were required to verify theoretical developments.
Roumboutsos (2010) presented a contextual framework based on the transport PPP context for risk analysis in order to compare and identify the potential of knowledge transfer between the road and port transport subsectors. This contextual framework based on a set of “what”, “why”, “who”, “whom”, “whichway”, “where”, “when” and the “whole” compromise the proposed “contextual Ws Risk Analysis Framework” (figure 1) and forms the basis of the P3T3 Case Study Protocol. The framework taken to reflect a PPP case, allowed for a structured “story telling” description necessary to WGs and AWGs undertaking research on an “exploration level”.
Figure 1: Contextual Ws Risk Analysis Framework (source: Roumboutsos, 2010)
In order to apply the framework to the next levels of research, a linguistic (pre-fuzzy analysis) approach was undertaken by Vaneslander et al (accepted article) in order to address the comparison of transport PPP case studies from
17 different sub-sectors. This approach concerned the identification of key variables under each “W” of the “Ws” Framework and their qualitative quantification on a Likert Scale. These sets of “variables” have been further elaborated in the P3T3 Case Study Protocol and set under the fundamental headings of the PPP setup.
This work was further advanced to include “narratives”, in order to provide the required detail and justify the assessment of respective variables. In addition, one more element of PPP importance is added: performance, how it is measured and how it is monitored (ex-ante, ex-post and on-going).
4. Conclusions and Further Research The process described in this introduction reflects on the structure of the cases presented in Part II of the 2013 P3T3 Discussion Papers, where some cases of the Transport PPPs P3T3 Action is studying are summarised. They have been set up to answer the “why”, “what”, and “which-way” issues of Public Private Partnerships in transport. They also highlight the need to continue observing
cases as they evolve over their contract life cycle, influenced by external events such as the economic crisis and internal events such as changes in ownership.
References Akintoye, A., Beck, M., Hardcastle, C. (2003) Public-Private Partnerships:
Managing Risks and Opportunities, Blackwell Science, Oxford COM (2004) 327 final, Green Paper on Public-Private Partnerships and
Community Law on Public Contracts and Concessions Debande O. (2002) “Private Financing of Transport Infrastructure: An
Assessment of the UK Experience” Journal of Transport Economics and Policy 36(3):355-387.
European Investment Bank (2005) Evaluation of PPP Projects Financed by the EIB. EIB Publications.
Eisenhardt, K. M. (1989) Building theories from case study research. Academy of Management Review, 14, 532–550.
Eisenhardt K. M. and Graebner M. E. (2007) Theory Building from Cases: Opportunities and Challenges, Academy of Management Journal, 50(1), 25-32
Flyvbjerg, B. (2006) Five Misunderstandings About Case-Study Research, Qualitative Inquiry, 12 (2), 219-245
16
3. P3T3 Case Study Protocol The development of the P3T3 Case Study Protocol was effected in phases
and elaborated through a continuous process of irritations and piloting in order to address the needs of its working groups at their various levels of research development. One of the key challenges, as may be identified from table 1 above, is the different levels of analysis and data coding needed to understand all issues investigated. “The devil is in the detail” was an expression commonly used to describe the importance of in-depth descriptions of cases. However, numerical data were required to verify theoretical developments.
Roumboutsos (2010) presented a contextual framework based on the transport PPP context for risk analysis in order to compare and identify the potential of knowledge transfer between the road and port transport subsectors. This contextual framework based on a set of “what”, “why”, “who”, “whom”, “whichway”, “where”, “when” and the “whole” compromise the proposed “contextual Ws Risk Analysis Framework” (figure 1) and forms the basis of the P3T3 Case Study Protocol. The framework taken to reflect a PPP case, allowed for a structured “story telling” description necessary to WGs and AWGs undertaking research on an “exploration level”.
Figure 1: Contextual Ws Risk Analysis Framework (source: Roumboutsos, 2010)
In order to apply the framework to the next levels of research, a linguistic (pre-fuzzy analysis) approach was undertaken by Vaneslander et al (accepted article) in order to address the comparison of transport PPP case studies from
17 different sub-sectors. This approach concerned the identification of key variables under each “W” of the “Ws” Framework and their qualitative quantification on a Likert Scale. These sets of “variables” have been further elaborated in the P3T3 Case Study Protocol and set under the fundamental headings of the PPP setup.
This work was further advanced to include “narratives”, in order to provide the required detail and justify the assessment of respective variables. In addition, one more element of PPP importance is added: performance, how it is measured and how it is monitored (ex-ante, ex-post and on-going).
4. Conclusions and Further Research The process described in this introduction reflects on the structure of the cases presented in Part II of the 2013 P3T3 Discussion Papers, where some cases of the Transport PPPs P3T3 Action is studying are summarised. They have been set up to answer the “why”, “what”, and “which-way” issues of Public Private Partnerships in transport. They also highlight the need to continue observing
cases as they evolve over their contract life cycle, influenced by external events such as the economic crisis and internal events such as changes in ownership.
References Akintoye, A., Beck, M., Hardcastle, C. (2003) Public-Private Partnerships:
Managing Risks and Opportunities, Blackwell Science, Oxford COM (2004) 327 final, Green Paper on Public-Private Partnerships and
Community Law on Public Contracts and Concessions Debande O. (2002) “Private Financing of Transport Infrastructure: An
Assessment of the UK Experience” Journal of Transport Economics and Policy 36(3):355-387.
European Investment Bank (2005) Evaluation of PPP Projects Financed by the EIB. EIB Publications.
Eisenhardt, K. M. (1989) Building theories from case study research. Academy of Management Review, 14, 532–550.
Eisenhardt K. M. and Graebner M. E. (2007) Theory Building from Cases: Opportunities and Challenges, Academy of Management Journal, 50(1), 25-32
Flyvbjerg, B. (2006) Five Misunderstandings About Case-Study Research, Qualitative Inquiry, 12 (2), 219-245
18 Grimsey, D. and Lewis, M.K. (2005) “Are Public Private Partnerships
value for money? Evaluating alternative approaches and comparing academic and practitioner views” Accounting Forum 29:345–378
Lewis, M.W. (1998), Iterative triangulation: a theory development process using existing case studies, Journal of Operations Management, 16, 455-69.
Roumboutsos, A. (2010) A Ws Contextual Risk Analysis Framework: Mapping knowledge transfer potential between Road and Port Public Private Partnerships, CIB World Congress, The Lowry, Salford Quays, United Kingdom
Roumboutsos A., Pellegrino, R., Vanelslander, T. and Macario, R. (2012) Risks and Risk Allocation in Transport PPP projects: a literature review In Roumboutsos Α. and Carbonara, N. COST Action TU1001, Public Private Partnerships: Trends & Theory, 2011 Discussion Papers, ISBN 978-88-97781-04-2
Taylor, J., Dossick, C. and Garvin, M. (2009) Conducting research with case studies, in Proceedings of the 2009 Construction Research Congress, Seattle, WA, ASCE, Reston, VA, 5–7 April.
Tang, L. Y., Shen, Q., Cheng E. W. L. (2010) A review of studies on Public–Private Partnership projects in the construction industry, International Journal of Project Management, 28 (7), 683–694
Yin, R. K. (2009) Case study research: design and methods (4th ed.). Applied social research methods V.5, SAGE Publications Inc.
19
Roads and Motorways
18 Grimsey, D. and Lewis, M.K. (2005) “Are Public Private Partnerships
value for money? Evaluating alternative approaches and comparing academic and practitioner views” Accounting Forum 29:345–378
Lewis, M.W. (1998), Iterative triangulation: a theory development process using existing case studies, Journal of Operations Management, 16, 455-69.
Roumboutsos, A. (2010) A Ws Contextual Risk Analysis Framework: Mapping knowledge transfer potential between Road and Port Public Private Partnerships, CIB World Congress, The Lowry, Salford Quays, United Kingdom
Roumboutsos A., Pellegrino, R., Vanelslander, T. and Macario, R. (2012) Risks and Risk Allocation in Transport PPP projects: a literature review In Roumboutsos Α. and Carbonara, N. COST Action TU1001, Public Private Partnerships: Trends & Theory, 2011 Discussion Papers, ISBN 978-88-97781-04-2
Taylor, J., Dossick, C. and Garvin, M. (2009) Conducting research with case studies, in Proceedings of the 2009 Construction Research Congress, Seattle, WA, ASCE, Reston, VA, 5–7 April.
Tang, L. Y., Shen, Q., Cheng E. W. L. (2010) A review of studies on Public–Private Partnership projects in the construction industry, International Journal of Project Management, 28 (7), 683–694
Yin, R. K. (2009) Case study research: design and methods (4th ed.). Applied social research methods V.5, SAGE Publications Inc.
19
Roads and Motorways
20
Contents
A19 Dishforth DBFO, England, UK
Christopher Boles and Champika L. Liyanage
Attica Tollway, The Athens Ring Road, Greece Bill Halkias, Athena Roumboutsos and Aristeidis Pantelias
Coen Tunnel, The Netherlands
Johannes, T. Voordijk
M80 Haggs to Stepps, UK Christopher Boles and Champika L. Liyanage
Horgos-Pozega, Toll Motorway Concession, Serbia
Nevena Vajdican and Goran Mladenovic
Ionia Odos Motorway, Greece Nikolaos Nikolaidis and Athena Roumboutsos
M6 Toll (BNRR), England, UK
Christopher Boles and Champika L. Liyanage
Olympia Odos Motorway, Greece Athena Roumboutsos and Nikolaos Nikolaidis
Via-Invest Zaventem, Belgium
Martijn van den Hurk and Kit Van Gestel
21
A19 Dishforth DBFO United Kingdom
Christopher Boles University of Central Lancaster [email protected]
Champika L. Liyanage University of Central Lancaster
20
Contents
A19 Dishforth DBFO, England, UK
Christopher Boles and Champika L. Liyanage
Attica Tollway, The Athens Ring Road, Greece Bill Halkias, Athena Roumboutsos and Aristeidis Pantelias
Coen Tunnel, The Netherlands
Johannes, T. Voordijk
M80 Haggs to Stepps, UK Christopher Boles and Champika L. Liyanage
Horgos-Pozega, Toll Motorway Concession, Serbia
Nevena Vajdican and Goran Mladenovic
Ionia Odos Motorway, Greece Nikolaos Nikolaidis and Athena Roumboutsos
M6 Toll (BNRR), England, UK
Christopher Boles and Champika L. Liyanage
Olympia Odos Motorway, Greece Athena Roumboutsos and Nikolaos Nikolaidis
Via-Invest Zaventem, Belgium
Martijn van den Hurk and Kit Van Gestel
21
A19 Dishforth DBFO United Kingdom
Christopher Boles University of Central Lancaster [email protected]
Champika L. Liyanage University of Central Lancaster
22
Project Overview A19 Dishforth Project Profile, UK Project Type: Brownfield Greenfield Both Contract duration: 30 years (including construction period) Budget: GBP 29,4M Cost to upgrade to the prescribed standard Project time Line Tender: 1995; Contract award: 14 October 1996; Construction start: 24 February 1997; Start of operations 02 September1998.
Highways Agency. (n.d.). A19 Dishforth to Tyne Tunnel Design, Build, Finance and Operate (DBFO) Contract. Retrieved 04 30, 2013, from Highways Agency.gov.uk:
http://www.highways.gov.uk/our-road-network/managing-our-roads/private-finance-initiatives-design-build-finance-and-operate-dbfo/a19-dishforth-to-tyne-tunnel-design-build-finance-and-
operate-dbfo-contract/ Figure 1: A19 PPP road as part of the area network
23
1 Introduction The A19 project was one of several PFI road projects let in the mid-1990s as part of the government’s Tranche 1A PFIs (Partnership UK, 2009). This tranche was more sophisticated than its predecessors, with scope for the private partner to improve the road through innovation and better service delivery.
The road is 118km in length and consists of 2 and 3 lane carriageways. The project is a DBFO scheme within the existing A19 carriageway alignment.
The project upgrades and maintains a vital economic link to Tyneside in the North East of England. The areas of Newcastle, Sunderland and Middleborough are major conurbations, and the A19 provides the main link between them.
The road required upgrading to meet capacity targets and industrial needs. The project also provides an alternative route to the more important A1(M), which is part of the East Coast route to Scotland.
2 The Contracting Authority (Public Party) The government department with controlling responsibility is the Department of Transport. The regulatory body responsible for contractual aspects on behalf of the government is the Highways Agency.
Following the formal inception of road PFIs by the Highways Agency in 1992 - initially for the maintenance and upgrading of existing road infrastructure - the Design, Build, Finance and Operate (DBFO) procurement model was adopted in 1994 (Highways Agency, 2012). The Highways Act 1980 and the New Road and Street Works Act 1991 allow the award of concessions for road infrastructure, and also permit tolling, although this was deemed to be impractical in this case.
As this was a wholly private investment, the Government’s role is that of the regulatory and legislative authority for the project. The Highways Agency has no stake in the special purpose vehicle (SPV).
3 The Concessionaire (Private Party) The current owner of the SPV is Sir Robert McAlpine Ltd., although the original consortium included a number of companies.
22
Project Overview A19 Dishforth Project Profile, UK Project Type: Brownfield Greenfield Both Contract duration: 30 years (including construction period) Budget: GBP 29,4M Cost to upgrade to the prescribed standard Project time Line Tender: 1995; Contract award: 14 October 1996; Construction start: 24 February 1997; Start of operations 02 September1998.
Highways Agency. (n.d.). A19 Dishforth to Tyne Tunnel Design, Build, Finance and Operate (DBFO) Contract. Retrieved 04 30, 2013, from Highways Agency.gov.uk:
http://www.highways.gov.uk/our-road-network/managing-our-roads/private-finance-initiatives-design-build-finance-and-operate-dbfo/a19-dishforth-to-tyne-tunnel-design-build-finance-and-
operate-dbfo-contract/ Figure 1: A19 PPP road as part of the area network
23
1 Introduction The A19 project was one of several PFI road projects let in the mid-1990s as part of the government’s Tranche 1A PFIs (Partnership UK, 2009). This tranche was more sophisticated than its predecessors, with scope for the private partner to improve the road through innovation and better service delivery.
The road is 118km in length and consists of 2 and 3 lane carriageways. The project is a DBFO scheme within the existing A19 carriageway alignment.
The project upgrades and maintains a vital economic link to Tyneside in the North East of England. The areas of Newcastle, Sunderland and Middleborough are major conurbations, and the A19 provides the main link between them.
The road required upgrading to meet capacity targets and industrial needs. The project also provides an alternative route to the more important A1(M), which is part of the East Coast route to Scotland.
2 The Contracting Authority (Public Party) The government department with controlling responsibility is the Department of Transport. The regulatory body responsible for contractual aspects on behalf of the government is the Highways Agency.
Following the formal inception of road PFIs by the Highways Agency in 1992 - initially for the maintenance and upgrading of existing road infrastructure - the Design, Build, Finance and Operate (DBFO) procurement model was adopted in 1994 (Highways Agency, 2012). The Highways Act 1980 and the New Road and Street Works Act 1991 allow the award of concessions for road infrastructure, and also permit tolling, although this was deemed to be impractical in this case.
As this was a wholly private investment, the Government’s role is that of the regulatory and legislative authority for the project. The Highways Agency has no stake in the special purpose vehicle (SPV).
3 The Concessionaire (Private Party) The current owner of the SPV is Sir Robert McAlpine Ltd., although the original consortium included a number of companies.
24 The small size of the project means that, financing could be obtained by the
contractor fairly easily. The original bank lenders were CIBC Bank from Canada and IBJ Bank from Japan.
4 Users Both domestic and commercial traffic use this road, which links the smaller conurbations in the region. This gives better access to the network and an alternative route to Newcastle and the A1(M).
5 Key Purpose for PPP Model Selection Value for money was the main driver for adoption of the PPP solution
6 Project Timing The early 1990s were a period of recession to which this area of the UK was particularly sensitive. The road upgrade was therefore needed to ensure that there was no barrier to the manufacturing base that dominated the area.
The call for tenders was issued in 1995, and the time from initial call to signing of the contract was 15 months.
7 Project Locality and Market Geography This project is significant from a local and regional perspective. The road
network in this area is dominated by the A1(M) trunk road, and the A19 supports this route by providing additional capacity. The A19 also serves a number of communities within the North East with local traffic needs which cannot be met by the A1(M).
8 Procurement & Contractual Structure Tendering The contract was tendered based on performance objectives and bidders’ requirements for shadow tolls.
Contract Structure The contract is fully privately financed and covers upgrading works, operations and maintenance. Although the project is a DBFO scheme, the small size of the
25 initial capital investment means that the main emphasis is on the maintenance and operation phases.
Direct tolling was seen as inappropriate (Local government chronicle, 1993), so shadow tolling was used as the mechanism for repayment of the concessionaire. Revenues from shadow tolls are based on vehicle-km travelled, with penalty measures related to availability and safety performance.
The contract period was set at 30 years. This is longer than the estimated break-even period of 20 years needed to recover costs and repay debt, and includes a “cushion” to protect the investor against lower than expected returns if vehicle numbers fail to reach anticipated levels.
The issue of changes to the financial position of the SPV and its shareholders was not explicitly incorporated into the contract, although there are review processes, which give some protection to the government. However there was no provision for the Government to share in any “windfall profits” brought about by refinancing, which as in the case of the M6 Toll led to an enquiry by Parliament.
Risk Allocation Design and construction risks - Local authorities have explicit funds and responsibilities for improving the roads within their jurisdiction, which includes sections of the network not covered by the DBFO. This restricts the ability of the private partner to make innovative improvements to the network.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue
Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 2. Risk Allocation The main element of the contract is the maintenance of the road.
Maintenance risks are borne mainly by the private partner, but affected by the actions of neighbouring local authorities. Operating risk is complex, as the private sector can gain increased net income when local authorities are assisting with the cost of maintenance.
24 The small size of the project means that, financing could be obtained by the
contractor fairly easily. The original bank lenders were CIBC Bank from Canada and IBJ Bank from Japan.
4 Users Both domestic and commercial traffic use this road, which links the smaller conurbations in the region. This gives better access to the network and an alternative route to Newcastle and the A1(M).
5 Key Purpose for PPP Model Selection Value for money was the main driver for adoption of the PPP solution
6 Project Timing The early 1990s were a period of recession to which this area of the UK was particularly sensitive. The road upgrade was therefore needed to ensure that there was no barrier to the manufacturing base that dominated the area.
The call for tenders was issued in 1995, and the time from initial call to signing of the contract was 15 months.
7 Project Locality and Market Geography This project is significant from a local and regional perspective. The road
network in this area is dominated by the A1(M) trunk road, and the A19 supports this route by providing additional capacity. The A19 also serves a number of communities within the North East with local traffic needs which cannot be met by the A1(M).
8 Procurement & Contractual Structure Tendering The contract was tendered based on performance objectives and bidders’ requirements for shadow tolls.
Contract Structure The contract is fully privately financed and covers upgrading works, operations and maintenance. Although the project is a DBFO scheme, the small size of the
25 initial capital investment means that the main emphasis is on the maintenance and operation phases.
Direct tolling was seen as inappropriate (Local government chronicle, 1993), so shadow tolling was used as the mechanism for repayment of the concessionaire. Revenues from shadow tolls are based on vehicle-km travelled, with penalty measures related to availability and safety performance.
The contract period was set at 30 years. This is longer than the estimated break-even period of 20 years needed to recover costs and repay debt, and includes a “cushion” to protect the investor against lower than expected returns if vehicle numbers fail to reach anticipated levels.
The issue of changes to the financial position of the SPV and its shareholders was not explicitly incorporated into the contract, although there are review processes, which give some protection to the government. However there was no provision for the Government to share in any “windfall profits” brought about by refinancing, which as in the case of the M6 Toll led to an enquiry by Parliament.
Risk Allocation Design and construction risks - Local authorities have explicit funds and responsibilities for improving the roads within their jurisdiction, which includes sections of the network not covered by the DBFO. This restricts the ability of the private partner to make innovative improvements to the network.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue
Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 2. Risk Allocation The main element of the contract is the maintenance of the road.
Maintenance risks are borne mainly by the private partner, but affected by the actions of neighbouring local authorities. Operating risk is complex, as the private sector can gain increased net income when local authorities are assisting with the cost of maintenance.
26 The use of shadow tolls exposes the concessionaire to traffic risks.
However revenues are more than covering costs. Finance is totally privately sourced, with the private partner bearing the whole of the risk.
Changes to the regulatory framework could impact upon the private sector. The government accepts this and indemnifies the private sector against it.
Risk is allocated as depicted in the figure 2.
Performance The A1 portfolio of road PFI projects has a series of technical requirements related to: Availability; Safety; Compliance with legislation; Environmental constraints.
Figure 3: Income generation (Bain, 2008)
Between 1996-2006 revenues totalled GBP 136M compared with the initial capital investment of GBP 29.4M.
Core requirements have to be achieved on a monthly basis, and there are penalties for failure. The contractual requirements are said to have been always achieved.
The limited availability of other published indicators makes it difficult to evaluate performance from a user perspective, and there is no measure of maintenance performance which is complicated by local highway authorities’ involvement in maintenance schemes.
0
5
10
15
20
25
96 97 98 99 0 1 2 3 4 5 6
GBP m
27 A series of voluntary performance indicators offered by the private partner
– including an incident response indicator - led to an amendment to the contract in 2009.
Financial performance has fluctuated significantly during the project’s 12 years of operation. Revenues were highest in the period 1998 to 2001, then fell considerably between 2001-3. There has been some recovery, but revenues have not yet returned to their 2001 level.
References A One Integrated Highway Services. (2012). About area 14. Retrieved 09
12, 2012, from A One: http://www.aone.uk.com/File/ourprojects.asp Bain, R. (2008). PRIVATE FINANCE RATES OF RETURN:EVIDENCE
FROM THE UK’S PFI ROADS SECTOR. University of Leeds, Institute for Transport Studies. Leeds UK: RB Consult Ltd.
HA knowledge Centre. (2012). A brief history of our roads. Retrieved 08 05, 2012, from Highways Agency Website: http://www.highways.gov.uk/knowledge/1813.aspx
Highways Agency. (2012). DBFO payment mechanisms. Retrieved 07 21, 2012, from Highways Agency Government website: http://www.highways.gov.uk/roads/33513.aspx
Highways Agency. (2012, 08 10). DBFO -Value in Roads. Retrieved 08 29, 2012, from The National Archives: http://webarchive.nationalarchives.gov.uk/20120810121037/http://www.highways.gov.uk/roads/2987.aspx
Highways Agency. (2012). Private Finance Initiatives - Design Build Finance and Operate (DBFO). Retrieved 08 15, 2012, from HA. Gov: http://www.highways.gov.uk/our-road-network/managing-our-roads/private-finance-initiatives-design-build-finance-and-operate-dbfo/
HM Government. (1980). Highways Act . London UK: Parlimentary Press. HM government. (1991). New Roads and Street Works Act. London:
Parlimentary Press. Local Government Chronicle. (1993, May 28). Paying for better
Motorways . Retrieved 09 20, 2012, from LGC: http://www.lgcplus.com/lgc-news/paying-for-better-motorways/1653117.article
Partnership UK . (2009). Advanced Search - roads. Retrieved 06 30, 2012, from PartnershipUK.org: http://www.partnershipsuk.org.uk/PUK-Projects-Database-advanced-search.aspx
26 The use of shadow tolls exposes the concessionaire to traffic risks.
However revenues are more than covering costs. Finance is totally privately sourced, with the private partner bearing the whole of the risk.
Changes to the regulatory framework could impact upon the private sector. The government accepts this and indemnifies the private sector against it.
Risk is allocated as depicted in the figure 2.
Performance The A1 portfolio of road PFI projects has a series of technical requirements related to: Availability; Safety; Compliance with legislation; Environmental constraints.
Figure 3: Income generation (Bain, 2008)
Between 1996-2006 revenues totalled GBP 136M compared with the initial capital investment of GBP 29.4M.
Core requirements have to be achieved on a monthly basis, and there are penalties for failure. The contractual requirements are said to have been always achieved.
The limited availability of other published indicators makes it difficult to evaluate performance from a user perspective, and there is no measure of maintenance performance which is complicated by local highway authorities’ involvement in maintenance schemes.
0
5
10
15
20
25
96 97 98 99 0 1 2 3 4 5 6
GBP m
27 A series of voluntary performance indicators offered by the private partner
– including an incident response indicator - led to an amendment to the contract in 2009.
Financial performance has fluctuated significantly during the project’s 12 years of operation. Revenues were highest in the period 1998 to 2001, then fell considerably between 2001-3. There has been some recovery, but revenues have not yet returned to their 2001 level.
References A One Integrated Highway Services. (2012). About area 14. Retrieved 09
12, 2012, from A One: http://www.aone.uk.com/File/ourprojects.asp Bain, R. (2008). PRIVATE FINANCE RATES OF RETURN:EVIDENCE
FROM THE UK’S PFI ROADS SECTOR. University of Leeds, Institute for Transport Studies. Leeds UK: RB Consult Ltd.
HA knowledge Centre. (2012). A brief history of our roads. Retrieved 08 05, 2012, from Highways Agency Website: http://www.highways.gov.uk/knowledge/1813.aspx
Highways Agency. (2012). DBFO payment mechanisms. Retrieved 07 21, 2012, from Highways Agency Government website: http://www.highways.gov.uk/roads/33513.aspx
Highways Agency. (2012, 08 10). DBFO -Value in Roads. Retrieved 08 29, 2012, from The National Archives: http://webarchive.nationalarchives.gov.uk/20120810121037/http://www.highways.gov.uk/roads/2987.aspx
Highways Agency. (2012). Private Finance Initiatives - Design Build Finance and Operate (DBFO). Retrieved 08 15, 2012, from HA. Gov: http://www.highways.gov.uk/our-road-network/managing-our-roads/private-finance-initiatives-design-build-finance-and-operate-dbfo/
HM Government. (1980). Highways Act . London UK: Parlimentary Press. HM government. (1991). New Roads and Street Works Act. London:
Parlimentary Press. Local Government Chronicle. (1993, May 28). Paying for better
Motorways . Retrieved 09 20, 2012, from LGC: http://www.lgcplus.com/lgc-news/paying-for-better-motorways/1653117.article
Partnership UK . (2009). Advanced Search - roads. Retrieved 06 30, 2012, from PartnershipUK.org: http://www.partnershipsuk.org.uk/PUK-Projects-Database-advanced-search.aspx
28
Attica Tollway The Athens Ring Road
Greece Bill Halkias
Attikes Diadromes [email protected]
Athena Roumboutsos University of the Aegean
Aristeidis Pantelias University College London
29
Project Overview Attica Tollway (Athens Ring Road), Greece Project Type: Brownfield Greenfield Both Contract duration: maximum of 25 years or earlier if the maximum Return on Equity has been reached. Budget: EUR 1300M This budget includes Project Development Costs
Project Time Line Conception: 1963; Tender: 1992; Contract Award: March 1996; Date of contract ratification: 23/5/1996 Law 2445/1996; Financial Close: 6 of March 2000; Open to traffic (1st section): March 2001 to serve the new Athens International Airport; Open to traffic (2nd section) and Project Completion: August 2004 in time for the Athens Olympic Games; Works Completion Certificate (WCC) issued: Dec. 2004.
Photo Courtesy of Attica Tollway Figure 1: Overview of Attica Tollway (detail)
28
Attica Tollway The Athens Ring Road
Greece Bill Halkias
Attikes Diadromes [email protected]
Athena Roumboutsos University of the Aegean
Aristeidis Pantelias University College London
29
Project Overview Attica Tollway (Athens Ring Road), Greece Project Type: Brownfield Greenfield Both Contract duration: maximum of 25 years or earlier if the maximum Return on Equity has been reached. Budget: EUR 1300M This budget includes Project Development Costs
Project Time Line Conception: 1963; Tender: 1992; Contract Award: March 1996; Date of contract ratification: 23/5/1996 Law 2445/1996; Financial Close: 6 of March 2000; Open to traffic (1st section): March 2001 to serve the new Athens International Airport; Open to traffic (2nd section) and Project Completion: August 2004 in time for the Athens Olympic Games; Works Completion Certificate (WCC) issued: Dec. 2004.
Photo Courtesy of Attica Tollway Figure 1: Overview of Attica Tollway (detail)
30
1 Introduction Attica Tollway in Greece forms part of the Trans European Network, as planned by the European Commission. It extends along 70 km and connects the 30 municipalities of the Attica basin. It actually constitutes the backbone of the entire transport network of the metropolitan area of Athens and it meets the transportation needs of millions of people on an annual basis.
Attica Tollway is an urban motorway, with three traffic lanes in each direction and an emergency lane. In the centre, it has a special traffic island, reserved for the operation of the suburban railway that has been constructed and is operated by another entity.
Attica Tollway has full control of its access points through toll stations and consists of three sections:
The Elefsina – Stavros – Spata A/P motorway (ESSM), extending along approximately 52 km;
The Imittos Western Peripheral Motorway (IWPM), extending along approximately 13 km; and
The Egaleo Western Peripheral Motorway (EWPM), extending along approximately 5 km.
Photo from http://www.trg.soton.ac.uk/prime/attiki_odos/descr1.htm
Figure 2: Attica Tollway sections
31 The idea of building the Attica Tollway dates back to 1963, when Wilbur
Smith came from the United States to undertake the first ever regional traffic planning study for the city of Athens and its metropolitan area. Sprawling development to the north of Athens over the years, the decision in the late 1970’s to build the new airport in its present location at Mesogeia and the decision to build a city connector road along the foothills of the Mountain of Imittos in the early 1990’s departed from the concept of a “ring” road, and transformed the Attica Tollway into an urban tollway that serves the heart of the city.
In addition, the Attica Tollway during its construction and operation introduced a number of innovations to the Greek construction and motorway operation sector. More specifically, construction within urbanized area under adverse geotechnical conditions called upon employing vibration recorders to restrict peak particle velocity below 6mm/sec in open-cast mining excavations; the ΝΑΤΜ (Drill & Blast) method, the tunnel construction method using Roadheader machinery was also applied to reduce vibrations (the peak particle velocity was limited to 0.7 mm/sec) and to avoid using explosives in areas of historical interest (monuments, churches etc.) for tunnel construction; the Incremental Launching System has also been used for constructing the superstructure of bridges; road pavement was constructed using the latest construction methods and mechanical equipment, reliable materials and specialized laboratory measurements and tests to ensure durability over time. A deep level sewer installation, employing a trenchless technology method (pipe-jacking) was used for the first time to drive sections over 200 m in length under the city. (Sofianos et al, 2004). In operations, the Attica Tollway was the first to introduce in Greece an electronic toll collection system.
Finally, the project was constructed in parallel with flood protection works (contract value of EUR 791M), as the Attica Tollway passes through the three large hydrographic basins of Attica (Thriasio Pedio, Athens basin and Mesogeia) and interrupts the surface runoff coming from the Parnitha, Penteli and Imittos mountains to the sea. The morphology of the aforementioned areas, now featuring minimum natural receptors, the exponential expansion of the land use and the various types of human interventions had rendered the construction of substantial extensive flood protection works within the scope of the Attica Tollway implementation imperative. The flood protection works constructed were dimensioned to be adequate for the existing and future land use.
30
1 Introduction Attica Tollway in Greece forms part of the Trans European Network, as planned by the European Commission. It extends along 70 km and connects the 30 municipalities of the Attica basin. It actually constitutes the backbone of the entire transport network of the metropolitan area of Athens and it meets the transportation needs of millions of people on an annual basis.
Attica Tollway is an urban motorway, with three traffic lanes in each direction and an emergency lane. In the centre, it has a special traffic island, reserved for the operation of the suburban railway that has been constructed and is operated by another entity.
Attica Tollway has full control of its access points through toll stations and consists of three sections:
The Elefsina – Stavros – Spata A/P motorway (ESSM), extending along approximately 52 km;
The Imittos Western Peripheral Motorway (IWPM), extending along approximately 13 km; and
The Egaleo Western Peripheral Motorway (EWPM), extending along approximately 5 km.
Photo from http://www.trg.soton.ac.uk/prime/attiki_odos/descr1.htm
Figure 2: Attica Tollway sections
31 The idea of building the Attica Tollway dates back to 1963, when Wilbur
Smith came from the United States to undertake the first ever regional traffic planning study for the city of Athens and its metropolitan area. Sprawling development to the north of Athens over the years, the decision in the late 1970’s to build the new airport in its present location at Mesogeia and the decision to build a city connector road along the foothills of the Mountain of Imittos in the early 1990’s departed from the concept of a “ring” road, and transformed the Attica Tollway into an urban tollway that serves the heart of the city.
In addition, the Attica Tollway during its construction and operation introduced a number of innovations to the Greek construction and motorway operation sector. More specifically, construction within urbanized area under adverse geotechnical conditions called upon employing vibration recorders to restrict peak particle velocity below 6mm/sec in open-cast mining excavations; the ΝΑΤΜ (Drill & Blast) method, the tunnel construction method using Roadheader machinery was also applied to reduce vibrations (the peak particle velocity was limited to 0.7 mm/sec) and to avoid using explosives in areas of historical interest (monuments, churches etc.) for tunnel construction; the Incremental Launching System has also been used for constructing the superstructure of bridges; road pavement was constructed using the latest construction methods and mechanical equipment, reliable materials and specialized laboratory measurements and tests to ensure durability over time. A deep level sewer installation, employing a trenchless technology method (pipe-jacking) was used for the first time to drive sections over 200 m in length under the city. (Sofianos et al, 2004). In operations, the Attica Tollway was the first to introduce in Greece an electronic toll collection system.
Finally, the project was constructed in parallel with flood protection works (contract value of EUR 791M), as the Attica Tollway passes through the three large hydrographic basins of Attica (Thriasio Pedio, Athens basin and Mesogeia) and interrupts the surface runoff coming from the Parnitha, Penteli and Imittos mountains to the sea. The morphology of the aforementioned areas, now featuring minimum natural receptors, the exponential expansion of the land use and the various types of human interventions had rendered the construction of substantial extensive flood protection works within the scope of the Attica Tollway implementation imperative. The flood protection works constructed were dimensioned to be adequate for the existing and future land use.
32
2 The Contracting Authority (Public Party) The Attica Tollway project was planned on a central government level, by the Ministry of Development, Competiveness, Infrastructure and Transport Networks (previously called Ministry of Environment, Physical Planning and Public Works). Ε.Υ.D.Ε. / L.S.E.P is the special agency of the Ministry which undertakes the supervision of the motorway’s operation and maintenance.
3 The Concessionaire (Private Party) Initially, the project sponsors were 14 different construction companies: Aktor SA, Attikat, Egis Projects SA, Ergas, Meton SA, Sarantopoulos, TEV, Alte, Arax, Elliniki Technodomiki, Etheth, Pantechniki, TEG, and Zeus. Currently, the project sponsors are Ellaktor (60%), J&P AVAX (30%) and Piraeus-ATE Bank (10%).
The Concessionaire has established contracts back to back with the Concession Agreement with “ATTIKI ODOS CONSTRUCTION JOINT VENTURE” for the project construction and with “ATTIKES DIADROMES S.A.” (also known as Attica Tollway Operations Authority) for the operation and maintenance of the project.
4 Users Attica Tollway serves mainly passenger cars and the main purpose of travel of its users is commuting. It provides links to the Athens International Airport and to the two main National Roads (NR Athens –Thessaloniki and NR Athens-Corinth-Patras). In addition, many large logistics centers have emerged or relocated to the western part of the Tollway, since this location combines large open spaces and quick access to ports, railway and National Roads.
The Average Annual Daily Traffic (AADT) rose from 231,000 entries on the motorway in 2004 to a peak of 307,000 in 2009 prior to onset of the financial crisis in Greece. In 2010, traffic levels were just off to 281,000 AADT, which corresponds to approximately 6-10 % of the total traffic in the Athens metropolitan area (Harito and Morello, 2011).
5 Key Purpose for PPP Model Selection The Greek Authorities and the European Commission had agreed within the framework of the Community Support Framework 1994 -1999 (CSF II) to maximize private sector partnerships in the development of transport related
33 infrastructure (PwC, 2005). For Greece, this provided funds and off-balance sheet debt. The Athens Tollway was an opportunity.
The hybrid structuring of the project was essential to the project’s success. The public sector, the Greek Government, wanted to allocate most of the project risks to the private sector. It was clear from the beginning, however, that due to several factors (e.g. this was the first PPP in the road sector in Greece, construction difficulties were envisaged, and help was needed in dealing with 30 local authorities), the project required strong state help. This financial help was necessary because, at that time, sponsors considered that the road traffic levels and the tolls the users were prepared to pay were not enough to provide an adequate return on the investment they were required to make.
Figure 3. Attica Tollway Concession Structure
6 Project Timing
After the 1960’s, decades passed by without any attempts to start the road project, mainly due to the lack of funding, coupled with its expected high cost. The project’s real advancement began in 1985, when it became part of the official transportation infrastructure plans for metropolitan Athens, along with
32
2 The Contracting Authority (Public Party) The Attica Tollway project was planned on a central government level, by the Ministry of Development, Competiveness, Infrastructure and Transport Networks (previously called Ministry of Environment, Physical Planning and Public Works). Ε.Υ.D.Ε. / L.S.E.P is the special agency of the Ministry which undertakes the supervision of the motorway’s operation and maintenance.
3 The Concessionaire (Private Party) Initially, the project sponsors were 14 different construction companies: Aktor SA, Attikat, Egis Projects SA, Ergas, Meton SA, Sarantopoulos, TEV, Alte, Arax, Elliniki Technodomiki, Etheth, Pantechniki, TEG, and Zeus. Currently, the project sponsors are Ellaktor (60%), J&P AVAX (30%) and Piraeus-ATE Bank (10%).
The Concessionaire has established contracts back to back with the Concession Agreement with “ATTIKI ODOS CONSTRUCTION JOINT VENTURE” for the project construction and with “ATTIKES DIADROMES S.A.” (also known as Attica Tollway Operations Authority) for the operation and maintenance of the project.
4 Users Attica Tollway serves mainly passenger cars and the main purpose of travel of its users is commuting. It provides links to the Athens International Airport and to the two main National Roads (NR Athens –Thessaloniki and NR Athens-Corinth-Patras). In addition, many large logistics centers have emerged or relocated to the western part of the Tollway, since this location combines large open spaces and quick access to ports, railway and National Roads.
The Average Annual Daily Traffic (AADT) rose from 231,000 entries on the motorway in 2004 to a peak of 307,000 in 2009 prior to onset of the financial crisis in Greece. In 2010, traffic levels were just off to 281,000 AADT, which corresponds to approximately 6-10 % of the total traffic in the Athens metropolitan area (Harito and Morello, 2011).
5 Key Purpose for PPP Model Selection The Greek Authorities and the European Commission had agreed within the framework of the Community Support Framework 1994 -1999 (CSF II) to maximize private sector partnerships in the development of transport related
33 infrastructure (PwC, 2005). For Greece, this provided funds and off-balance sheet debt. The Athens Tollway was an opportunity.
The hybrid structuring of the project was essential to the project’s success. The public sector, the Greek Government, wanted to allocate most of the project risks to the private sector. It was clear from the beginning, however, that due to several factors (e.g. this was the first PPP in the road sector in Greece, construction difficulties were envisaged, and help was needed in dealing with 30 local authorities), the project required strong state help. This financial help was necessary because, at that time, sponsors considered that the road traffic levels and the tolls the users were prepared to pay were not enough to provide an adequate return on the investment they were required to make.
Figure 3. Attica Tollway Concession Structure
6 Project Timing
After the 1960’s, decades passed by without any attempts to start the road project, mainly due to the lack of funding, coupled with its expected high cost. The project’s real advancement began in 1985, when it became part of the official transportation infrastructure plans for metropolitan Athens, along with
34 the goal of obtaining the Centennial Olympic Games in 1996 (they marked the 100th anniversary of the modern Olympic Games). It was in the early 1990’s that the Greek Ministry of Public Works adopted the method of co-financing the road through a Build–Operate–Transfer contract.
The construction work started in 1997 and the motorway was given to traffic in sections. The first one opening to traffic was in March 2001, achieving the milestone of serving the new Athens International Airport. The last section was opened to traffic in 2004. Attica Tollway was built on time and within budget and it met the crucial deadline for the Athens Olympics Games in 2004.
7 Project Locality and Market Geography Attica Tollway is part of the Tran European Network (TEN) and it connects the 30 municipalities of the Attica basin, allowing quicker access to areas, which, before its construction, required a great amount of travel time.
8 Procurement & Contractual Structure
Tendering An international tender was announced in 1992 and in March 1996, the project was awarded to the lowest bidder of the three international consortia that participated in the process. The Concession Contract was ratified by law by the Greek Parliament on the 23rd of May 1996.
The Concession Agreement provides a maximum toll rate that can be charged. It also includes a safety mechanism, securing the interests of the Greek State through a maximum Return on Equity. The Concession period will extend for a maximum of 25 years (including construction period), or it will end earlier, in the case that the maximum Return on Equity (13.1%) has been reached.
Contract Structure The project financing has been ensured through State contributions including EC Structural Cohesion Funds, private equity and loans. Construction cost of about EUR 1300 M was covered as follows: 33% Greek State contribution; 16% private equity and 51% loans (9% Commercial Banks loans and 42% EIB loans).
Commercial banks involved include: Bank of Tokyo-Mitsubishi, HypoVereinsbank, Commercial Bank of Greece, HSBC Athens, National Bank
35 of Greece, Société Generale, European Investment Fund, ABN AMRO Bank NV, Agricultural Bank of Greece, Alpha Credit Bank, Banca Monte dei Paschi di Siena (London), Bank of Scotland, De Nationale Investeringsbank NV, Piraeus Bank Greece, European Investment Bank, ING Bank NVand Ergobank.
Expropriation cost was undertaken entirely by the Greek State. Loan guarantees were provided by the concessionaire during construction and by the State for the operations phase.
Risk Allocation A project of such scale met significant difficulties during its realisation. The financial close was delayed, mainly because of uncertainties surrounding the project. These uncertainties increased the risks for the banks, delaying the signing of the financial agreement and forcing the public sector to provide funds to the sponsors to begin construction before financial close was reached. Other difficulties were due to variation orders issued by the State, mainly for environmental reasons, which involved significant design changes.
Furthermore, the concession contract did not include mechanisms for extensions of time and delay make-up in case of State-instructed variations. Solutions were found after extensive negotiations between all parties involved, and amendments to the concession contract were introduced, leading to the satisfaction of the banks and reaching financial close.
Risk allocation is depicted in Figure 4. Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure Land acquisition Environmental
Tota
lly P
rivat
e
Totally Public
Figure 4: Risk allocation
34 the goal of obtaining the Centennial Olympic Games in 1996 (they marked the 100th anniversary of the modern Olympic Games). It was in the early 1990’s that the Greek Ministry of Public Works adopted the method of co-financing the road through a Build–Operate–Transfer contract.
The construction work started in 1997 and the motorway was given to traffic in sections. The first one opening to traffic was in March 2001, achieving the milestone of serving the new Athens International Airport. The last section was opened to traffic in 2004. Attica Tollway was built on time and within budget and it met the crucial deadline for the Athens Olympics Games in 2004.
7 Project Locality and Market Geography Attica Tollway is part of the Tran European Network (TEN) and it connects the 30 municipalities of the Attica basin, allowing quicker access to areas, which, before its construction, required a great amount of travel time.
8 Procurement & Contractual Structure
Tendering An international tender was announced in 1992 and in March 1996, the project was awarded to the lowest bidder of the three international consortia that participated in the process. The Concession Contract was ratified by law by the Greek Parliament on the 23rd of May 1996.
The Concession Agreement provides a maximum toll rate that can be charged. It also includes a safety mechanism, securing the interests of the Greek State through a maximum Return on Equity. The Concession period will extend for a maximum of 25 years (including construction period), or it will end earlier, in the case that the maximum Return on Equity (13.1%) has been reached.
Contract Structure The project financing has been ensured through State contributions including EC Structural Cohesion Funds, private equity and loans. Construction cost of about EUR 1300 M was covered as follows: 33% Greek State contribution; 16% private equity and 51% loans (9% Commercial Banks loans and 42% EIB loans).
Commercial banks involved include: Bank of Tokyo-Mitsubishi, HypoVereinsbank, Commercial Bank of Greece, HSBC Athens, National Bank
35 of Greece, Société Generale, European Investment Fund, ABN AMRO Bank NV, Agricultural Bank of Greece, Alpha Credit Bank, Banca Monte dei Paschi di Siena (London), Bank of Scotland, De Nationale Investeringsbank NV, Piraeus Bank Greece, European Investment Bank, ING Bank NVand Ergobank.
Expropriation cost was undertaken entirely by the Greek State. Loan guarantees were provided by the concessionaire during construction and by the State for the operations phase.
Risk Allocation A project of such scale met significant difficulties during its realisation. The financial close was delayed, mainly because of uncertainties surrounding the project. These uncertainties increased the risks for the banks, delaying the signing of the financial agreement and forcing the public sector to provide funds to the sponsors to begin construction before financial close was reached. Other difficulties were due to variation orders issued by the State, mainly for environmental reasons, which involved significant design changes.
Furthermore, the concession contract did not include mechanisms for extensions of time and delay make-up in case of State-instructed variations. Solutions were found after extensive negotiations between all parties involved, and amendments to the concession contract were introduced, leading to the satisfaction of the banks and reaching financial close.
Risk allocation is depicted in Figure 4. Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure Land acquisition Environmental
Tota
lly P
rivat
e
Totally Public
Figure 4: Risk allocation
36
Performance The Independent Engineer was responsible for evaluating construction performance, along with the awarding authority, which is responsible for evaluating operating performance during the operations period.
Table 1 below shows the performance indicators set out in the Operation and Maintenance Agreement with the Attica Tollway Operation Authority.
Attica Tollway Operations Authority (Attikes Diadromes S.A.) has adopted an integrated monitoring system, based on measured Key Performance Indicators (KPIs). The system consists of 35 indicators covering all the major aspects of operation, such as traffic management, toll operation, infrastructure maintenance, human resources, violation enforcement, etc. The results of the KPIs are widely used for the continuous improvement of the operation and the services provided to the Tollway users (Tyrogianni et al, 2012).
Table 1: Attica Tollway Performance Indicators Ref. Item Planned Level of Service
1 Response time in case of incident 20 minutes
2 Repair time for damage of equipment causing danger to users
Action shall start within 12 hours
3 Repair time for other serious damage of equipment
Action shall start within 24hours
4 Average waiting time in each Toll Station Level A: waiting time between 0 and 120 seconds Level B: waiting time above 120 seconds
Waiting Time Level B must not exceed 90 hours per year, unless due to exceptional circumstances outside the control of the Operator
5 Standards for money handling: Maximum Accepted Toll Collection Discrepancy (MATCD) between the system and the amount deposited in the Banks
MATCD as per the Manuals Phase B
37 Furthermore, Attica Tollway considers carbon footprint assessment to be a
very powerful tool in understanding the impact of the tollway’s operational activities on global warming. In this context, the company has installed measuring devices and carries out calculations of its carbon footprint (Mandalozis et al, 2012).
Finally, the tollway holds one of the best safety records in the world (Papaioannou, 2006). It serves over 250,000 users daily for short and long trips and has exceeded its forecasts by more than 30% (see figure 5).
References Attiki Odos Contract, Greek Law 2445/1996 of the Official Gazette. Halkias, B., Tyrogianni, E., “PPP projects in Greece: The case of Attica
Tollway” Routes/Roads PIARC, April 2009. Halkias, B., Tyrogianni, E., Kitsos, D., “A significant infrastructure project
within the urban environment of Athens: The case of Attica Tollway” IABSE September 2008
Harito, J. and Morello, S. (2011) Performance Plus, ITS International, 17(3) 44-45
Mandalozis, D. Halkias, B., Tyrogianni, H. Kalfa, N. (2012) The Carbon Footprint of Attica Tollway, TRA-Europe 2012, Prodedia- Social and Behavioural Sciences, 48, 2988-2998
Papaioannou, P. (2006) Recent Experience on Success and Failure Stories from Funding Large Transportation Projects in Greece, 1st International Conference on Funding Transportation Infrastructure, Banff, Alberta, Canada, 2-3 August 2006
Papandreou, K., Tyrogianni, E., “Level of Service in Concession Motorway Projects” XXXV ASECAP Study and Information Days
PricewaterhouseCoopers (2005) Delivering the PPP promise*: A review of PPP issues and activity, PricewaterhouseCoopers LLP
Sofianos, A.I., Loukas, P., Chantzkos, Ch. (2004) Pipe jacking a sewer under Athens, Tunnelling and Underground Space Technology, 19(2), 193-203
Tyrogianni, H., Halkias, B. Politou, A., Kotzampassi, P. (2012) The Attica Tollway Operations Authority KPI Performance System, TRA-Europe 2012, Prodedia- Social and Behavioural Sciences, 48, 2999-3008
www.aodos.gr
36
Performance The Independent Engineer was responsible for evaluating construction performance, along with the awarding authority, which is responsible for evaluating operating performance during the operations period.
Table 1 below shows the performance indicators set out in the Operation and Maintenance Agreement with the Attica Tollway Operation Authority.
Attica Tollway Operations Authority (Attikes Diadromes S.A.) has adopted an integrated monitoring system, based on measured Key Performance Indicators (KPIs). The system consists of 35 indicators covering all the major aspects of operation, such as traffic management, toll operation, infrastructure maintenance, human resources, violation enforcement, etc. The results of the KPIs are widely used for the continuous improvement of the operation and the services provided to the Tollway users (Tyrogianni et al, 2012).
Table 1: Attica Tollway Performance Indicators Ref. Item Planned Level of Service
1 Response time in case of incident 20 minutes
2 Repair time for damage of equipment causing danger to users
Action shall start within 12 hours
3 Repair time for other serious damage of equipment
Action shall start within 24hours
4 Average waiting time in each Toll Station Level A: waiting time between 0 and 120 seconds Level B: waiting time above 120 seconds
Waiting Time Level B must not exceed 90 hours per year, unless due to exceptional circumstances outside the control of the Operator
5 Standards for money handling: Maximum Accepted Toll Collection Discrepancy (MATCD) between the system and the amount deposited in the Banks
MATCD as per the Manuals Phase B
37 Furthermore, Attica Tollway considers carbon footprint assessment to be a
very powerful tool in understanding the impact of the tollway’s operational activities on global warming. In this context, the company has installed measuring devices and carries out calculations of its carbon footprint (Mandalozis et al, 2012).
Finally, the tollway holds one of the best safety records in the world (Papaioannou, 2006). It serves over 250,000 users daily for short and long trips and has exceeded its forecasts by more than 30% (see figure 5).
References Attiki Odos Contract, Greek Law 2445/1996 of the Official Gazette. Halkias, B., Tyrogianni, E., “PPP projects in Greece: The case of Attica
Tollway” Routes/Roads PIARC, April 2009. Halkias, B., Tyrogianni, E., Kitsos, D., “A significant infrastructure project
within the urban environment of Athens: The case of Attica Tollway” IABSE September 2008
Harito, J. and Morello, S. (2011) Performance Plus, ITS International, 17(3) 44-45
Mandalozis, D. Halkias, B., Tyrogianni, H. Kalfa, N. (2012) The Carbon Footprint of Attica Tollway, TRA-Europe 2012, Prodedia- Social and Behavioural Sciences, 48, 2988-2998
Papaioannou, P. (2006) Recent Experience on Success and Failure Stories from Funding Large Transportation Projects in Greece, 1st International Conference on Funding Transportation Infrastructure, Banff, Alberta, Canada, 2-3 August 2006
Papandreou, K., Tyrogianni, E., “Level of Service in Concession Motorway Projects” XXXV ASECAP Study and Information Days
PricewaterhouseCoopers (2005) Delivering the PPP promise*: A review of PPP issues and activity, PricewaterhouseCoopers LLP
Sofianos, A.I., Loukas, P., Chantzkos, Ch. (2004) Pipe jacking a sewer under Athens, Tunnelling and Underground Space Technology, 19(2), 193-203
Tyrogianni, H., Halkias, B. Politou, A., Kotzampassi, P. (2012) The Attica Tollway Operations Authority KPI Performance System, TRA-Europe 2012, Prodedia- Social and Behavioural Sciences, 48, 2999-3008
www.aodos.gr
38
Fi
gure
5: A
ttica
Tol
lway
Tra
ffic
(Rea
l vs A
ntic
ipat
ed)
39
Coen Tunnel The Netherlands
Johannes, T. Voordijk University of Twente
38
Figure 5: Attica Tollway Traffic (Real vs Anticipated)
41
1 Introduction The Second Coen Tunnel project is the first and largest (estimated value EUR 300 million NPV) Competitive Dialogue (CD) procured service-led infrastructure project in the Netherlands. It involves the maintenance of an existing, forty-year old tunnel and the construction of a second tunnel alongside the current one. More specifically, the project concerns the widening of approximately 14 km of highways at the north and south entrances to the existing Coen Tunnel, and expanding the tunnel’s capacity from two lanes to three in each direction plus two further reversible lanes, enabling five lanes of traffic in one direction during peak hours.
The road works (and subsequently operations and maintenance) consists of reconstructing one interchange, the main motorway, access roads, emergency lanes, an infrastructure fuel station, and parking facilities. The project used innovative technology (the RotorTug concept) to transport the tunnel elements from construction site to tunnel location, significiantly improving the maneuverability of tunnel elements which benefits the safety of the tunnel elements and all surrounding objects.
The Project is the cornerstone of a series of infrastructure capacity enlargements aimed at improving access to the main road network of the Northern Conurbation of the country (Noordelijke Randstad) and addresses daily bottleneck problems, which affect security on the road as well as having a negative impact on the environment. Discussions to increase the capacity of the tunnel were initiated in the early 1980s. These plans were not further developed until 2000, partly due to a lack of funds. In 2000, extra funds were made available for improving the national infrastructure, enabling the Coen Tunnel’s capacity to be expanded. Formally there was a governmental agreement in June 2004 that the Coen Tunnel contract would be a PPP.
2 The Contracting Authority (Public Party) The Dutch Highway Agency – Rijkswaterstaat- was the authority responsible for contracting on behalf of the public sector and, following this, the implementation of a new project monitoring system.
The project was procured as a Public Private Partnership to design, build, finance and operate. The PPP contract was awarded under the competitive dialogue procedure in accordance with the Directive 2004/18/EC of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts.
40
Project Overview The Coen Tunnel, The Netherlands Project Type: Brownfield Greenfield Both Contract duration: 30 Years (2008-2037) Budget: EUR 571 M This is the initially planned budget. Project Time Line Plans were initiated in the early 1980s; PPP Model Government Decision 2004; Call for Tender: Sept. 2005; Competitor alternative solutions: 2006; Final selection: 2007; Contract Approved: April 2008; Financial Close: June 2008; Construction is due to be completed in 2013 An audit was carried out by the rating agency VIGEO in 2007.
Figure 1: Overview of the Coen Tunnel Project-- the existing tunnel (left) and the new
tunnel (right)
41
1 Introduction The Second Coen Tunnel project is the first and largest (estimated value EUR 300 million NPV) Competitive Dialogue (CD) procured service-led infrastructure project in the Netherlands. It involves the maintenance of an existing, forty-year old tunnel and the construction of a second tunnel alongside the current one. More specifically, the project concerns the widening of approximately 14 km of highways at the north and south entrances to the existing Coen Tunnel, and expanding the tunnel’s capacity from two lanes to three in each direction plus two further reversible lanes, enabling five lanes of traffic in one direction during peak hours.
The road works (and subsequently operations and maintenance) consists of reconstructing one interchange, the main motorway, access roads, emergency lanes, an infrastructure fuel station, and parking facilities. The project used innovative technology (the RotorTug concept) to transport the tunnel elements from construction site to tunnel location, significiantly improving the maneuverability of tunnel elements which benefits the safety of the tunnel elements and all surrounding objects.
The Project is the cornerstone of a series of infrastructure capacity enlargements aimed at improving access to the main road network of the Northern Conurbation of the country (Noordelijke Randstad) and addresses daily bottleneck problems, which affect security on the road as well as having a negative impact on the environment. Discussions to increase the capacity of the tunnel were initiated in the early 1980s. These plans were not further developed until 2000, partly due to a lack of funds. In 2000, extra funds were made available for improving the national infrastructure, enabling the Coen Tunnel’s capacity to be expanded. Formally there was a governmental agreement in June 2004 that the Coen Tunnel contract would be a PPP.
2 The Contracting Authority (Public Party) The Dutch Highway Agency – Rijkswaterstaat- was the authority responsible for contracting on behalf of the public sector and, following this, the implementation of a new project monitoring system.
The project was procured as a Public Private Partnership to design, build, finance and operate. The PPP contract was awarded under the competitive dialogue procedure in accordance with the Directive 2004/18/EC of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts.
40
Project Overview The Coen Tunnel, The Netherlands Project Type: Brownfield Greenfield Both Contract duration: 30 Years (2008-2037) Budget: EUR 571 M This is the initially planned budget. Project Time Line Plans were initiated in the early 1980s; PPP Model Government Decision 2004; Call for Tender: Sept. 2005; Competitor alternative solutions: 2006; Final selection: 2007; Contract Approved: April 2008; Financial Close: June 2008; Construction is due to be completed in 2013 An audit was carried out by the rating agency VIGEO in 2007.
Figure 1: Overview of the Coen Tunnel Project-- the existing tunnel (left) and the new
tunnel (right)
42
3 The Concessionaire (Private Party) The Coentunnel Company is a PPP consisting of Dura Vermeer, TBI-Bouw, Vinci concessions, Besix Group, CFE, Arcadis, and Dredging International. Construction was carried out by Dura Vermeer, TBI-Bouw, Arcadis, Vinci Grand Projects, and Besix Dredging International, and a key subcontractor was Croon Maintenance.
Financing is achieved through senior debt (EUR 550M) provided by Fortis, Bayern LB, Royal Bank of Scotland, Bank Nederlandse Gemeenten (BNG), KfW IPEX-Bank and the European Investment Bank (EIB). Mezzanine-loans (EUR 21M) were provided by Fortis and BNG. Equity bridge-facility was offered by Fortis.
4 Users The Coen Tunnel is a major road link and open to all road traffic (private users, public transport, cyclists and freight transport). Olympia Odos serves private passenger and freight traffic. Freight transport is related to the Amsterdam and IJmuiden ports’ connections to the hinterland.
5 Key Purpose for PPP Model Selection The government assumed the potential for advantages in terms of finance, and innovativeness before procurement of the PPP. This was in the context of the central government’s policy of transferring tasks and financial responsibilities from the public to the private sector.
The Coen Tunnel project is not included in TEN-T but certain aspects of the network are. These include:
2008-EU-90001-S: Study on the external costs and charging for terrestrial modes on the Paris-Amsterdam corridor;
2010-NL-93302-S: Implementation study to prepare a Public Private Partnership to improve maritime access to the TEN-T network at Amsterdam.
6 Project Timing Constructing the Second Coen Tunnel and the new Westrandweg (A5) ensures better accessibility to the northern part of the Randstad (the urban agglomeration of the western Netherlands) and better access to the western port area of Amsterdam. The importance of environmental impact is stressed.
43 The project falls under the requirements of Annex I of the EU Directive
97/11/EC on environmental impact assessment, and has been the subject of a full EIA including public consultation. (The EIA process followed fully meets the relevant requirements of EU Directive 97/11/EC. Further, the Birds Directive (79/409/EEC) and Habitats Directive (92/43/EEC) are incorporated into Dutch law through the “Natuurbeschermingswet”).
The contract has been set at 30 years, from 2008 to 2036. The competitive dialogue was less promising than expected due to the risk aversion demonstrated by the parties involved.
7 Project Locality and Market Geography The Second Coen Tunnel is located in the northern part of the Dutch Randstad. Furthermore, Amsterdam port’s connections to the hinterland have had to be continuously upgraded and refined, introducing minor and major adaptations and innovations on a regular basis.
Figure 2: The site of the tunnel, at the north side of Amsterdam
42
3 The Concessionaire (Private Party) The Coentunnel Company is a PPP consisting of Dura Vermeer, TBI-Bouw, Vinci concessions, Besix Group, CFE, Arcadis, and Dredging International. Construction was carried out by Dura Vermeer, TBI-Bouw, Arcadis, Vinci Grand Projects, and Besix Dredging International, and a key subcontractor was Croon Maintenance.
Financing is achieved through senior debt (EUR 550M) provided by Fortis, Bayern LB, Royal Bank of Scotland, Bank Nederlandse Gemeenten (BNG), KfW IPEX-Bank and the European Investment Bank (EIB). Mezzanine-loans (EUR 21M) were provided by Fortis and BNG. Equity bridge-facility was offered by Fortis.
4 Users The Coen Tunnel is a major road link and open to all road traffic (private users, public transport, cyclists and freight transport). Olympia Odos serves private passenger and freight traffic. Freight transport is related to the Amsterdam and IJmuiden ports’ connections to the hinterland.
5 Key Purpose for PPP Model Selection The government assumed the potential for advantages in terms of finance, and innovativeness before procurement of the PPP. This was in the context of the central government’s policy of transferring tasks and financial responsibilities from the public to the private sector.
The Coen Tunnel project is not included in TEN-T but certain aspects of the network are. These include:
2008-EU-90001-S: Study on the external costs and charging for terrestrial modes on the Paris-Amsterdam corridor;
2010-NL-93302-S: Implementation study to prepare a Public Private Partnership to improve maritime access to the TEN-T network at Amsterdam.
6 Project Timing Constructing the Second Coen Tunnel and the new Westrandweg (A5) ensures better accessibility to the northern part of the Randstad (the urban agglomeration of the western Netherlands) and better access to the western port area of Amsterdam. The importance of environmental impact is stressed.
43 The project falls under the requirements of Annex I of the EU Directive
97/11/EC on environmental impact assessment, and has been the subject of a full EIA including public consultation. (The EIA process followed fully meets the relevant requirements of EU Directive 97/11/EC. Further, the Birds Directive (79/409/EEC) and Habitats Directive (92/43/EEC) are incorporated into Dutch law through the “Natuurbeschermingswet”).
The contract has been set at 30 years, from 2008 to 2036. The competitive dialogue was less promising than expected due to the risk aversion demonstrated by the parties involved.
7 Project Locality and Market Geography The Second Coen Tunnel is located in the northern part of the Dutch Randstad. Furthermore, Amsterdam port’s connections to the hinterland have had to be continuously upgraded and refined, introducing minor and major adaptations and innovations on a regular basis.
Figure 2: The site of the tunnel, at the north side of Amsterdam
44
8 Procurement & Contractual Structure Tendering
The procurement was divided into five stages: Pre-Qualification; Scheme of Action; Consultation; Dialogue; and Tender Submission. The three middle stages together form what amounts to the actual competitive dialogue (CD) stage according to the European Directive. The Dutch Minister of Transport decided to apply the CD procedure because of the technical and financial complexities of the project.
Five consortia met the qualifications criteria and were therefore invited to participate in the dialogue. Important elements covered in the dialogue were the Scheme of Action, Critical Aspects, Risks and Optional Requirements. At the end of the Scheme of Action stage, the five candidates each had to submit an initial dialogue product (an assignment): namely, their Action Schemes for carrying out the project. Based on evaluations by both project employees and external judging committees, the five candidates were reduced to a shortlist of three who were invited to move forward to the Consultation stage. Finally, one candidate was chosen.
The overall procedure took approximately 46 months.
Figure 3: The tender approach of the competitive dialogue
45
Contract Structure The Coen Tunnel is a DBFM-contract (Design, Build, Finance and Maintain) with a duration of 30 years and a total value of approximately € 500M. Coen Tunnel is responsible for design, building and maintaining the construction of the Second Coen Tunnel with access roads and facilities. The Dutch State (through Rijkswaterstaat) will continue to own and manage the asset.
The banks financing the project are repaid through availability fees and a one-off transfer fee when the project is completed.
Rijkswaterstaat is the guarantor for the banks. The contract contains re-negotiation terms resulting from the economic
crisis.
Risk Allocation The public sector kept most of the risks in this contractual agreement (see figure 4). Serious problems in exploitation are expected to lead to renegotiation. Regulatory and force majeure risks were also discussed before being allocated.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 4: Risk allocation Performance A matrix has been developed based on the impact of different measures and the level of road users’ satisfaction with these measures. Most attention is devoted to high impact, low satisfaction measures. These include:
Lane availability in relation to the number of maintenance days; Stability of the existing infrastructure (old tunnel tubes); Air quality inside the tunnels.
44
8 Procurement & Contractual Structure Tendering
The procurement was divided into five stages: Pre-Qualification; Scheme of Action; Consultation; Dialogue; and Tender Submission. The three middle stages together form what amounts to the actual competitive dialogue (CD) stage according to the European Directive. The Dutch Minister of Transport decided to apply the CD procedure because of the technical and financial complexities of the project.
Five consortia met the qualifications criteria and were therefore invited to participate in the dialogue. Important elements covered in the dialogue were the Scheme of Action, Critical Aspects, Risks and Optional Requirements. At the end of the Scheme of Action stage, the five candidates each had to submit an initial dialogue product (an assignment): namely, their Action Schemes for carrying out the project. Based on evaluations by both project employees and external judging committees, the five candidates were reduced to a shortlist of three who were invited to move forward to the Consultation stage. Finally, one candidate was chosen.
The overall procedure took approximately 46 months.
Figure 3: The tender approach of the competitive dialogue
45
Contract Structure The Coen Tunnel is a DBFM-contract (Design, Build, Finance and Maintain) with a duration of 30 years and a total value of approximately € 500M. Coen Tunnel is responsible for design, building and maintaining the construction of the Second Coen Tunnel with access roads and facilities. The Dutch State (through Rijkswaterstaat) will continue to own and manage the asset.
The banks financing the project are repaid through availability fees and a one-off transfer fee when the project is completed.
Rijkswaterstaat is the guarantor for the banks. The contract contains re-negotiation terms resulting from the economic
crisis.
Risk Allocation The public sector kept most of the risks in this contractual agreement (see figure 4). Serious problems in exploitation are expected to lead to renegotiation. Regulatory and force majeure risks were also discussed before being allocated.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 4: Risk allocation Performance A matrix has been developed based on the impact of different measures and the level of road users’ satisfaction with these measures. Most attention is devoted to high impact, low satisfaction measures. These include:
Lane availability in relation to the number of maintenance days; Stability of the existing infrastructure (old tunnel tubes); Air quality inside the tunnels.
46 Traffic forecasts are mostly in line with actual traffic. Penalties are
foreseen with respect to availability. Perceptions of road users on safety, quality of the pavement, the
quality of traffic information and daily maintenance are regularly measured by the Dutch Highway Agency.
References Hoezen, M., Voordijk, H., Dewulf, G. (2012) Contracting dynamics in the
Competitive Dialogue procedure. Built Environment Project and Asset Management 2 (1), 6-24.
Hoezen, M., Rutten van, J., Voordijk, H., Dewulf, G. (2010) Towards better customized service-led contracts through the competitive dialogue procedure. Construction Management and Economics 28(11), 1177-1186.
Hoezen, M., Voordijk, H., Dewulf, G.P.M.R., Procuring Complex Projects using the competitive dialogue, International Journal of Project Organization and Management (forthcoming).
47
Horgos-Pozega Toll Motorway Concession
Serbia Nevena Vajdic
University of Belgrade, Faculty of Civil Engineering
Goran Mladenovic University of Belgrade,
Faculty of Civil Engineering [email protected]
46 Traffic forecasts are mostly in line with actual traffic. Penalties are
foreseen with respect to availability. Perceptions of road users on safety, quality of the pavement, the
quality of traffic information and daily maintenance are regularly measured by the Dutch Highway Agency.
References Hoezen, M., Voordijk, H., Dewulf, G. (2012) Contracting dynamics in the
Competitive Dialogue procedure. Built Environment Project and Asset Management 2 (1), 6-24.
Hoezen, M., Rutten van, J., Voordijk, H., Dewulf, G. (2010) Towards better customized service-led contracts through the competitive dialogue procedure. Construction Management and Economics 28(11), 1177-1186.
Hoezen, M., Voordijk, H., Dewulf, G.P.M.R., Procuring Complex Projects using the competitive dialogue, International Journal of Project Organization and Management (forthcoming).
47
Horgos-Pozega Toll Motorway Concession
Serbia Nevena Vajdic
University of Belgrade, Faculty of Civil Engineering
Goran Mladenovic University of Belgrade,
Faculty of Civil Engineering [email protected]
48
Project Overview Horgos-Pozega Toll Motorway Concession Project, Serbia Project Type: Brownfield Greenfield Both Contract duration: 25 Years Budget: EUR 1200 M Estimated total project cost out of which
construction cost was EUR 800M Project Time Line Tender: Oct. 2005; Contract Award: March 2007; Planned start of construction: April 2009; Contract Cancelled: December 2008
Figure 1. Main and regional roads in Serbia Source: Public Enterprise Roads of
Serbia, 2013
49
1 Introduction
The Republic of Serbia has a road network of 40,845 km in total, of which 498 km are tolled motorways and 136 km are tolled semi-motorways.
The toll motorway project Horgos – Pozega is 323 km in total length. It included financing and construction of a new motorway section, financing and construction of the second carriageway on the existing semi-motorway section, and the take-over of an existing motorway section. The project was, hence, divided into three lots (Figure 1):
Lot 1 Belgrade (Ostruznica interchange) – Pozega: the E-763 motorway has a length of 148 km. This is the new section connecting Serbia to Montenegro and to Bosnia and Herzegovina. The package for this lot included financing, design, construction, operation and maintenance services.
Lot 2 Horgos – Novi Sad: the E-75 motorway is 107 km in length with one existing (right) carriageway. This lot included financing, design, construction, operation and maintenance of a new, left carriageway and operation and maintenance of the right carriageway.
Lot 3 Novi Sad – Belgrade (Batajnica brick factory): the E-75 motorway is 68 km in length. Lot 3 included operation and maintenance of the existing right carriageway and a newly built left carriageway.
In September 2006, prior to the tender opening, the Autonomous Province of Vojvodina officials raised the question of granting the right to the concessionaire to collect tolls on the highly profitable motorway section from Horgos to Belgrade (estimated AADT 19,000 vehicles per day), whose construction costs the citizens of Vojvodina already had paid. This section was originally financed from foreign loans between 1970 and 1988, and the province administration had paid those loans back. Thus, province officials stated that the concession was not in the interest of Vojvodina citizens.
As part of the construction financing was generated by toll collection on the brownfield section, this internal political debate weakened the project’s risk profile. In the end, Deutsche Bank suspended projects in Serbia due to the political risk increase in the country during 2008. This lead to the concessionaire’s failure to provide bank guarantees for the project. The contract was canceled at the end of 2008.
48
Project Overview Horgos-Pozega Toll Motorway Concession Project, Serbia Project Type: Brownfield Greenfield Both Contract duration: 25 Years Budget: EUR 1200 M Estimated total project cost out of which
construction cost was EUR 800M Project Time Line Tender: Oct. 2005; Contract Award: March 2007; Planned start of construction: April 2009; Contract Cancelled: December 2008
Figure 1. Main and regional roads in Serbia Source: Public Enterprise Roads of
Serbia, 2013
49
1 Introduction
The Republic of Serbia has a road network of 40,845 km in total, of which 498 km are tolled motorways and 136 km are tolled semi-motorways.
The toll motorway project Horgos – Pozega is 323 km in total length. It included financing and construction of a new motorway section, financing and construction of the second carriageway on the existing semi-motorway section, and the take-over of an existing motorway section. The project was, hence, divided into three lots (Figure 1):
Lot 1 Belgrade (Ostruznica interchange) – Pozega: the E-763 motorway has a length of 148 km. This is the new section connecting Serbia to Montenegro and to Bosnia and Herzegovina. The package for this lot included financing, design, construction, operation and maintenance services.
Lot 2 Horgos – Novi Sad: the E-75 motorway is 107 km in length with one existing (right) carriageway. This lot included financing, design, construction, operation and maintenance of a new, left carriageway and operation and maintenance of the right carriageway.
Lot 3 Novi Sad – Belgrade (Batajnica brick factory): the E-75 motorway is 68 km in length. Lot 3 included operation and maintenance of the existing right carriageway and a newly built left carriageway.
In September 2006, prior to the tender opening, the Autonomous Province of Vojvodina officials raised the question of granting the right to the concessionaire to collect tolls on the highly profitable motorway section from Horgos to Belgrade (estimated AADT 19,000 vehicles per day), whose construction costs the citizens of Vojvodina already had paid. This section was originally financed from foreign loans between 1970 and 1988, and the province administration had paid those loans back. Thus, province officials stated that the concession was not in the interest of Vojvodina citizens.
As part of the construction financing was generated by toll collection on the brownfield section, this internal political debate weakened the project’s risk profile. In the end, Deutsche Bank suspended projects in Serbia due to the political risk increase in the country during 2008. This lead to the concessionaire’s failure to provide bank guarantees for the project. The contract was canceled at the end of 2008.
50
2 The Contracting Authority (Public Party) The Government of Serbia announced the public tender for the award of the concession and was responsible for the tendering process. The Government appointed the Ministry of Infrastructure as the entity responsible for the procedure of concessioning. The advisor of the Public Partner was Louis Berger (France). The fact that central government held the procedure was a cause of friction with the provincial government (Vojvodina).
The tendering procedure was prepared and implanted in accordance with the 2003 Concession Law. The decision to award a concession for the construction, operation and maintenance of the Horgos-Pozega motorway was made in 2005.
3 The Concessionaire (Private Party) The Spanish-Austrian consortium of FCC Construction S.A. and Alpine Mayreder Bau GmbH won the tender. FCC Construction S.A. (Spain), as a member of the winning consortium, asked the Serbian government for additional clarification before signing the contract. After the deadline for contract verification expired, FCC stepped out allowing the second best bidder, PORR (Austria), to get involved in negotiations with the government about its participation in the project. This lead to a new consortium created by Alpine Mayreder (owned by FCC) and PORR, which signed the contract for the project concession.
FCC is one of Spain’s largest construction companies and operates projects worldwide. It offers a range of services for infrastructure projects and services in the concession management area. PORR is a large international construction company and provides services in the construction, engineering and development area. Alpine is part of the FCC group and is the second largest construction company in Austria. FCC is the owner of 79,27 percent of Alpine Mayreder Bau GmbH (Austria), which formally allowed FCC to stay involved in the project. The concession contract allowed parties in the consortium to change their share and to eventually transfer it to a third party.
The SPV, Sever-Jug Autoput d.o.o., Beograd, was under joint control of FCC Construcción SA and Allgemeine Baugesellschaft - A. PORR Aktiengesellschaft
51
4 Users Individual (national and international) users, local industry which extensively uses freight transport by road, and transport companies were the main potential users of the new motorway. The proposed motorway would have provided a fast connection for passengers and goods from western Serbia to Belgrade and northern Serbia and vice-versa. It would also have provided a better connection to Montenegro and the Adriatic coast.
5 Key Purpose for PPP Model Selection The primary objective of this project was to obtain finance for Lot 1 (the Belgrade – Pozega section) and for the second carriageway in Lot 2 (Horgos – Novi Sad). Lot 3 and the existing semi-motorway section in Lot 2 were “in-kind” contributions to support the financial feasibility of the project and increase the probability of international financial institution co-financing. This was important as the State has been saturated with credit obligations and limited by the IMF in obtaining new loans, so further road projects must be financed from other sources – one of them being public private partnerships.
6 Project Timing The existing two-lane road, especially in the motorway corridor of Lot 1, is extremely congested. Some sections have AADT above 15,000 vehicles per day. However, the timeline of the events leading to contract cancelation is as follows:
June 2005: The Serbian Government announced the public tender for the concession for Horgos-Pozega project.
Jan. 2007: The Spanish-Austrian consortium of FCC and Alpina was announced as the best bidder. The procedure for concessioning was delegated to the Minister of Infrastructure.
April 2007: The President of the AP Vojvodina Parliament publicly proclaimed that the Autonomous Province of Vojvodina was to revoke the Horgos-Pozega PPP contract.
March 2007: In the press, the government appeared to be delaying in delivering to the concessionaire the documentation regarding land expropriation.
Sept. 2007: The Minister of Economy suggested to the government that the PPP contract should be revoked because the concessionaire’s failure to provide bank guarantees for the entire project.
50
2 The Contracting Authority (Public Party) The Government of Serbia announced the public tender for the award of the concession and was responsible for the tendering process. The Government appointed the Ministry of Infrastructure as the entity responsible for the procedure of concessioning. The advisor of the Public Partner was Louis Berger (France). The fact that central government held the procedure was a cause of friction with the provincial government (Vojvodina).
The tendering procedure was prepared and implanted in accordance with the 2003 Concession Law. The decision to award a concession for the construction, operation and maintenance of the Horgos-Pozega motorway was made in 2005.
3 The Concessionaire (Private Party) The Spanish-Austrian consortium of FCC Construction S.A. and Alpine Mayreder Bau GmbH won the tender. FCC Construction S.A. (Spain), as a member of the winning consortium, asked the Serbian government for additional clarification before signing the contract. After the deadline for contract verification expired, FCC stepped out allowing the second best bidder, PORR (Austria), to get involved in negotiations with the government about its participation in the project. This lead to a new consortium created by Alpine Mayreder (owned by FCC) and PORR, which signed the contract for the project concession.
FCC is one of Spain’s largest construction companies and operates projects worldwide. It offers a range of services for infrastructure projects and services in the concession management area. PORR is a large international construction company and provides services in the construction, engineering and development area. Alpine is part of the FCC group and is the second largest construction company in Austria. FCC is the owner of 79,27 percent of Alpine Mayreder Bau GmbH (Austria), which formally allowed FCC to stay involved in the project. The concession contract allowed parties in the consortium to change their share and to eventually transfer it to a third party.
The SPV, Sever-Jug Autoput d.o.o., Beograd, was under joint control of FCC Construcción SA and Allgemeine Baugesellschaft - A. PORR Aktiengesellschaft
51
4 Users Individual (national and international) users, local industry which extensively uses freight transport by road, and transport companies were the main potential users of the new motorway. The proposed motorway would have provided a fast connection for passengers and goods from western Serbia to Belgrade and northern Serbia and vice-versa. It would also have provided a better connection to Montenegro and the Adriatic coast.
5 Key Purpose for PPP Model Selection The primary objective of this project was to obtain finance for Lot 1 (the Belgrade – Pozega section) and for the second carriageway in Lot 2 (Horgos – Novi Sad). Lot 3 and the existing semi-motorway section in Lot 2 were “in-kind” contributions to support the financial feasibility of the project and increase the probability of international financial institution co-financing. This was important as the State has been saturated with credit obligations and limited by the IMF in obtaining new loans, so further road projects must be financed from other sources – one of them being public private partnerships.
6 Project Timing The existing two-lane road, especially in the motorway corridor of Lot 1, is extremely congested. Some sections have AADT above 15,000 vehicles per day. However, the timeline of the events leading to contract cancelation is as follows:
June 2005: The Serbian Government announced the public tender for the concession for Horgos-Pozega project.
Jan. 2007: The Spanish-Austrian consortium of FCC and Alpina was announced as the best bidder. The procedure for concessioning was delegated to the Minister of Infrastructure.
April 2007: The President of the AP Vojvodina Parliament publicly proclaimed that the Autonomous Province of Vojvodina was to revoke the Horgos-Pozega PPP contract.
March 2007: In the press, the government appeared to be delaying in delivering to the concessionaire the documentation regarding land expropriation.
Sept. 2007: The Minister of Economy suggested to the government that the PPP contract should be revoked because the concessionaire’s failure to provide bank guarantees for the entire project.
52 Sept. 2007: The Government of Serbia rejected the request from the
concessionaire to agree to the cancelation of the contract. Dec. 2008: The Concessionaire canceled the contract and accused the
Government of Serbia of violation of the contractual provisions.
7 Project Locality and Market Geography Since Serbia is not a member of the EU, the project is not included in TEN-T priorities. However, Lots 2 and 3 of the project (Horgos - Novi Sad - Belgrade) are within the European Transport Corridor X connecting Serbia, Montenegro, Hungary, Croatia, FYR Macedonia, Bulgaria, Austria and Greece. The remaining part of the project (Belgrade – Pozega) is part of the connection to Montenegro and the Adriatic coast.
Significant industry (for local market conditions) is located in northern and western parts of Serbia. There is still significant local traffic that would continue to use a non-tolled road. The new motorway would also have been used by tourists going to the Adriatic coast.
8. Procurement & Contractual Structure
Tendering International competitive procurement was carried out in full compliance with international financial institutions’ requirements. A two stage tender procedure took place. The number of bidders in the first stage is unknown. The number of bidders in the second stage was four. The total procedure took 18 months.
Contract Structure The concessionaire was to design, finance, build, operate and maintain the motorway. More specifically, the obligations with respect to the Lots were as follows:
Lot 1 Belgrade (Ostruznica interchange) – Pozega: financing, design, construction, operation and maintenance.
Lot 2 Horgos – Novi Sad: financing, design, construction, operation and maintenance (operation and maintenance of the right, existing, carriageway).
Lot 3 Novi Sad – Beograd (Batajnica brick factory): operation and maintenance.
53 The public sector contributed with the financing and construction of Lot 3,
whose completion was financed by international financial institutions (the road was delivered by the end of 2008).
The foreseen repayment method was through user tolls. However, the private partner was obliged to pay a concession fee to the public partner during the concession period.
Risk Allocation Risks varied depending on the section (Lot) of the motorway. With respect to design and construction works:
Lot 1 (Belgrade – Pozega) was a Greenfield type of project (148 km) and therefore design and construction risks were applicable for the whole section.
Lot 2 (Horgos – Novi Sad) (107 km) considered only the left carriageway for new construction, and therefore, these risks are partially applicable for this Lot.
Lot 3 (Novi Sad – Belgrade) (68 km) included only operation and maintenance, thus these risks were not applicable for this section.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk allocation In addition, the concessionaire was obliged to give priority to domestic
companies for design and construction services. While maintenance risks were assigned to the concessionaire for all three
sections, Lot 2 and Lot 3 were existing sections with some historical data for maintenance activities, which reduced the magnitude of this risk for the whole project. Again, the concessionaire was obligated to give priority to domestic companies for maintenance services.
52 Sept. 2007: The Government of Serbia rejected the request from the
concessionaire to agree to the cancelation of the contract. Dec. 2008: The Concessionaire canceled the contract and accused the
Government of Serbia of violation of the contractual provisions.
7 Project Locality and Market Geography Since Serbia is not a member of the EU, the project is not included in TEN-T priorities. However, Lots 2 and 3 of the project (Horgos - Novi Sad - Belgrade) are within the European Transport Corridor X connecting Serbia, Montenegro, Hungary, Croatia, FYR Macedonia, Bulgaria, Austria and Greece. The remaining part of the project (Belgrade – Pozega) is part of the connection to Montenegro and the Adriatic coast.
Significant industry (for local market conditions) is located in northern and western parts of Serbia. There is still significant local traffic that would continue to use a non-tolled road. The new motorway would also have been used by tourists going to the Adriatic coast.
8. Procurement & Contractual Structure
Tendering International competitive procurement was carried out in full compliance with international financial institutions’ requirements. A two stage tender procedure took place. The number of bidders in the first stage is unknown. The number of bidders in the second stage was four. The total procedure took 18 months.
Contract Structure The concessionaire was to design, finance, build, operate and maintain the motorway. More specifically, the obligations with respect to the Lots were as follows:
Lot 1 Belgrade (Ostruznica interchange) – Pozega: financing, design, construction, operation and maintenance.
Lot 2 Horgos – Novi Sad: financing, design, construction, operation and maintenance (operation and maintenance of the right, existing, carriageway).
Lot 3 Novi Sad – Beograd (Batajnica brick factory): operation and maintenance.
53 The public sector contributed with the financing and construction of Lot 3,
whose completion was financed by international financial institutions (the road was delivered by the end of 2008).
The foreseen repayment method was through user tolls. However, the private partner was obliged to pay a concession fee to the public partner during the concession period.
Risk Allocation Risks varied depending on the section (Lot) of the motorway. With respect to design and construction works:
Lot 1 (Belgrade – Pozega) was a Greenfield type of project (148 km) and therefore design and construction risks were applicable for the whole section.
Lot 2 (Horgos – Novi Sad) (107 km) considered only the left carriageway for new construction, and therefore, these risks are partially applicable for this Lot.
Lot 3 (Novi Sad – Belgrade) (68 km) included only operation and maintenance, thus these risks were not applicable for this section.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk allocation In addition, the concessionaire was obliged to give priority to domestic
companies for design and construction services. While maintenance risks were assigned to the concessionaire for all three
sections, Lot 2 and Lot 3 were existing sections with some historical data for maintenance activities, which reduced the magnitude of this risk for the whole project. Again, the concessionaire was obligated to give priority to domestic companies for maintenance services.
54 The concessionaire was assigned the collection of tolls. Toll tariffs,
however, were to be set by the government. Commercial risk was, therefore, shared.
Finally, the Government was responsible for the land acquisition administration process, while the concessionaire was obliged to pay the fee.
Performance The contract was cancelled and, therefore, the project may be considered a failure. However, preparatory works included a cost-benefit analysis tested against the World Bank “Highway PPP toolkit” model software. It is considered that the traffic in the pre-feasibility study for Lot 1 (new section) seems to be significantly overestimated if compared to the current traffic on existing two lane roads within the motorway corridor for Lot 1.
References Cuttaree, V., Humphreys, M., Muzira, S. and Strand, J-P. (2009). Private
Participation in the Transport Sector: Lessons from Recent Experience in Europe and Central Asia, Transport Papers TP-24, The World Bank Group, Washington D.C.
Cocic, N. (2009). Failure of the Public-Private Partnership in Serbia, Horgos-Pozega PPP Case. Master Thesis, School of Management and Governance, University of Twente.
Ministry of Capital Investments, Republic of Serbia. (2005). The Invitation to tender for giving concession for the building, usage and maintaining of the Horgos-Pozega motorway, available at:
https://www.google.rs/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CDQQFjAA&url=http%3A%2F%2Fwww.media.srbija.gov.rs%2Fmedsrp%2Fdokumenti%2Foglas_koncesija_horgos_pozega.doc&ei=UPwbUdzYNuuL4gSznoG4AQ&usg=AFQjCNE4y4Xnn7QbuYfH6spyTnXPTZd9_g&sig2=kLjI-M7XbMM5XkLdfpVwWQ&bvm=bv.42261806,d.Yms
55
Ionia Odos Motorway Greece
Nikolaos Nikolaidis University of the Aegean
GEK Terna S.A. [email protected]
Athena Roumboutsos University of the Aegean
54 The concessionaire was assigned the collection of tolls. Toll tariffs,
however, were to be set by the government. Commercial risk was, therefore, shared.
Finally, the Government was responsible for the land acquisition administration process, while the concessionaire was obliged to pay the fee.
Performance The contract was cancelled and, therefore, the project may be considered a failure. However, preparatory works included a cost-benefit analysis tested against the World Bank “Highway PPP toolkit” model software. It is considered that the traffic in the pre-feasibility study for Lot 1 (new section) seems to be significantly overestimated if compared to the current traffic on existing two lane roads within the motorway corridor for Lot 1.
References Cuttaree, V., Humphreys, M., Muzira, S. and Strand, J-P. (2009). Private
Participation in the Transport Sector: Lessons from Recent Experience in Europe and Central Asia, Transport Papers TP-24, The World Bank Group, Washington D.C.
Cocic, N. (2009). Failure of the Public-Private Partnership in Serbia, Horgos-Pozega PPP Case. Master Thesis, School of Management and Governance, University of Twente.
Ministry of Capital Investments, Republic of Serbia. (2005). The Invitation to tender for giving concession for the building, usage and maintaining of the Horgos-Pozega motorway, available at:
https://www.google.rs/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CDQQFjAA&url=http%3A%2F%2Fwww.media.srbija.gov.rs%2Fmedsrp%2Fdokumenti%2Foglas_koncesija_horgos_pozega.doc&ei=UPwbUdzYNuuL4gSznoG4AQ&usg=AFQjCNE4y4Xnn7QbuYfH6spyTnXPTZd9_g&sig2=kLjI-M7XbMM5XkLdfpVwWQ&bvm=bv.42261806,d.Yms
55
Ionia Odos Motorway Greece
Nikolaos Nikolaidis University of the Aegean
GEK Terna S.A. [email protected]
Athena Roumboutsos University of the Aegean
56
Project Overview The Ionia Odos Motorway Concession, Greece Project Type: Brownfield Greenfield Both Contract duration: 30 Years (including Design & Construction) Budget: EUR1200 M
This budget (nominal prices) includes Design & Construction, Financing Costs and Construction period operating expenses.
Project Time Line Studies were initiated prior to 1998; Call for Tender: 2001; Contract Approved: 19 Dec 2006; Financial Close: 19 Dec 2007;Date of contract ratification: 16/4/2007 Law 3555/2007 Works halted/commencement of contract renegotiations: Spring 2010 Announcement of agreement on basic renegotiation terms: 12 April 2013
Figure 1: Overview of the Ionia Odos Motorway Concession Project
57
1 Introduction The “Ionia Odos” concession is a toll motorway concession project consisting of three sections: A new motorway of 160 km in length, located in Western Greece; an adjacent 30 km bypass of the city of Agrinio, where no toll collection is applied and a 175 km brownfield motorway section along the PATHE (Patra – Athens – THEsaloniki) motorway. The project’s construction is funded by debt and equity capital, state and EU funds, as well as tolls received during the construction period from the brownfield motorway section constructed by the Greek state under a traditional public works procurement scheme.
The new motorway is designed to allow a journey speed of 120 km/h and its typical cross section consists of a dual carriageway of two lanes, divided by a New Jersey barrier, and an emergency lane. The project includes over 42 interchanges and over 7 km of tunnels.
2 The Contracting Authority (Public Party) Ionia Odos is a project that was planned and approved by the Ministry of Environment, Physical Planning and Public Works, as part of a ‘bundle’ of five motorway concession projects – parts of the EU TEN-T network and partially funded by EU funds. These projects were titled ‘axes of development’, as they were expected to have a great impact on growth. The concession agreements for these projects became laws of Greece, after ratification by the Greek Parliament. As such, these contracts cannot be amended without approval from both the EU and the Greek Parliament.
3 The Concessionaire (Private Party) Project sponsors for Ionia Odos are Ferrovial (33.34%), ACS (33.33%) and GEK Terna (33.33%).
Ferrovial and ACS are major international players in the construction/concession market. GEK Terna is a major infrastructure group based in Greece. Both the Concession SPV (“Nea Odos S.A”) and the Construction SPV (“Euroionia”) are owned by the respective Sponsors. The Lenders group includes both international (mainly Spanish) and Greek banks.
The project cost totaling EUR1200 M is financed as follows: Shareholders’ Equity (EUR190M); Debt Capital (EUR110M); Greek State/EU (EUR360M) and Tolls received during construction (EUR560M).
56
Project Overview The Ionia Odos Motorway Concession, Greece Project Type: Brownfield Greenfield Both Contract duration: 30 Years (including Design & Construction) Budget: EUR1200 M
This budget (nominal prices) includes Design & Construction, Financing Costs and Construction period operating expenses.
Project Time Line Studies were initiated prior to 1998; Call for Tender: 2001; Contract Approved: 19 Dec 2006; Financial Close: 19 Dec 2007;Date of contract ratification: 16/4/2007 Law 3555/2007 Works halted/commencement of contract renegotiations: Spring 2010 Announcement of agreement on basic renegotiation terms: 12 April 2013
Figure 1: Overview of the Ionia Odos Motorway Concession Project
57
1 Introduction The “Ionia Odos” concession is a toll motorway concession project consisting of three sections: A new motorway of 160 km in length, located in Western Greece; an adjacent 30 km bypass of the city of Agrinio, where no toll collection is applied and a 175 km brownfield motorway section along the PATHE (Patra – Athens – THEsaloniki) motorway. The project’s construction is funded by debt and equity capital, state and EU funds, as well as tolls received during the construction period from the brownfield motorway section constructed by the Greek state under a traditional public works procurement scheme.
The new motorway is designed to allow a journey speed of 120 km/h and its typical cross section consists of a dual carriageway of two lanes, divided by a New Jersey barrier, and an emergency lane. The project includes over 42 interchanges and over 7 km of tunnels.
2 The Contracting Authority (Public Party) Ionia Odos is a project that was planned and approved by the Ministry of Environment, Physical Planning and Public Works, as part of a ‘bundle’ of five motorway concession projects – parts of the EU TEN-T network and partially funded by EU funds. These projects were titled ‘axes of development’, as they were expected to have a great impact on growth. The concession agreements for these projects became laws of Greece, after ratification by the Greek Parliament. As such, these contracts cannot be amended without approval from both the EU and the Greek Parliament.
3 The Concessionaire (Private Party) Project sponsors for Ionia Odos are Ferrovial (33.34%), ACS (33.33%) and GEK Terna (33.33%).
Ferrovial and ACS are major international players in the construction/concession market. GEK Terna is a major infrastructure group based in Greece. Both the Concession SPV (“Nea Odos S.A”) and the Construction SPV (“Euroionia”) are owned by the respective Sponsors. The Lenders group includes both international (mainly Spanish) and Greek banks.
The project cost totaling EUR1200 M is financed as follows: Shareholders’ Equity (EUR190M); Debt Capital (EUR110M); Greek State/EU (EUR360M) and Tolls received during construction (EUR560M).
58 Based on the terms of the project’s restructuring as announced on April 12th
2013, the amount of Greek State/EU funds will increase to cover part of the construction funding shortfall.
4 Users The motorway users include both freight traffic and passenger traffic. Through its connection of the Antirrion bridge to Ioannina, the project also serves international freight and passenger traffic. The brownfield section is one of the busiest motorways in Greece.
5 Key Purpose for PPP Model Selection The PPP model was selected mainly due to restrictions in increasing the country’s sovereign debt levels. Financing and traffic risks were transferred to the private sector via a DBFO scheme. Completing the project on time and achieving an increased construction/operational quality were also key factors for the selection of the PPP model.
6 Project Timing The need to complete the project was high at the time of initial tendering, mainly due to the lack of proper roadway infrastructure to connect Western Greece to the rest of the country. Macro figures at the time (e.g. debt ceiling and GDP forecasts) also justified the project’s implementation, as the highest bidder offered to return to the state an average of 85% of the toll revenues received over the operational period via annual payments.
Greece’s sovereign debt crisis has had a severe impact on the project, decreasing the traffic revenues that were necessary to fund its construction. As such, the Lenders imposed a draw stop and the project’s construction was ceased in early 2010. The SPV and Greek State entered renegotiation talks at the time and announced an agreement on key terms in April 2013. These include, inter alia, increased state participation in the construction financing in order to partially cover the funding gap. The annual payments are also expected to be recycled into the project in order to cover operational expenses, debt and shareholder repayment.
7 Project Locality and Market Geography The project connects two major import/export nodes: the Port of Patra (via the Antirrion bridge) and the Port of Igoumenitsa (via its connection to Ioannina
59 through the Egnatia Odos motorway). As such, it can be considered as an international and regional project.
8 Procurement & Contractual Structure
Tendering A two-phase process was applied for the project’s tendering: a prequalification (announced and tendered in 2001) and a final bid phase (tendered in 2005). Seven (7) groups expressed interest during the first phase and two (2) out of the four (4) which prequalified finally submitted bids for the second phase. The project’s concession agreement was signed in late 2006 between the highest bidder (a consortium composed by GEK Terna, ACS and FERROVIAL) and the Greek State.
Contract Structure The contract follows a typical concession structure via DBFO. The project is partially financed (€360M) by Greek State and EU Structural and Cohesion funds of the 2007-2013 programming period. Shareholders and Lenders also participate in the construction funding via €190Mof equity and €110M of debt, to be repaid during the operation period.
The project also includes a brownfield section to be upgraded and operated during the construction period. Tolls received during this time are to be used solely for the construction funding. Toll rates are specified in the contract (fixed), and gradually reach their limit (0.04 €/km in real 2003 prices) via the achievement of construction milestones. Due to high volumes of expected traffic, the contract included payments to the State at a rate of 85% (a critical part of the tender’s award formula) of toll revenues received over the operational period.
Risk Allocation Risk allocation also follows DBFO standards: traffic, financing, construction and operation/maintenance risks are transferred to the private party, while the State maintains the ownership of legal/regulatory risks. The severe impact of the Greek sovereign debt crisis on traffic volumes has affected the traffic risks as perceived by the private sector, and is expected to have a decisive role on the final renegotiated contract structure, mainly through the amendment of the toll revenue sharing mechanism during the operational period.
Initial forecasts made prior to the project’s implementation indicated an annual GDP growth rate of 3.8% and a motorization growth rate of 0.74% for
58 Based on the terms of the project’s restructuring as announced on April 12th
2013, the amount of Greek State/EU funds will increase to cover part of the construction funding shortfall.
4 Users The motorway users include both freight traffic and passenger traffic. Through its connection of the Antirrion bridge to Ioannina, the project also serves international freight and passenger traffic. The brownfield section is one of the busiest motorways in Greece.
5 Key Purpose for PPP Model Selection The PPP model was selected mainly due to restrictions in increasing the country’s sovereign debt levels. Financing and traffic risks were transferred to the private sector via a DBFO scheme. Completing the project on time and achieving an increased construction/operational quality were also key factors for the selection of the PPP model.
6 Project Timing The need to complete the project was high at the time of initial tendering, mainly due to the lack of proper roadway infrastructure to connect Western Greece to the rest of the country. Macro figures at the time (e.g. debt ceiling and GDP forecasts) also justified the project’s implementation, as the highest bidder offered to return to the state an average of 85% of the toll revenues received over the operational period via annual payments.
Greece’s sovereign debt crisis has had a severe impact on the project, decreasing the traffic revenues that were necessary to fund its construction. As such, the Lenders imposed a draw stop and the project’s construction was ceased in early 2010. The SPV and Greek State entered renegotiation talks at the time and announced an agreement on key terms in April 2013. These include, inter alia, increased state participation in the construction financing in order to partially cover the funding gap. The annual payments are also expected to be recycled into the project in order to cover operational expenses, debt and shareholder repayment.
7 Project Locality and Market Geography The project connects two major import/export nodes: the Port of Patra (via the Antirrion bridge) and the Port of Igoumenitsa (via its connection to Ioannina
59 through the Egnatia Odos motorway). As such, it can be considered as an international and regional project.
8 Procurement & Contractual Structure
Tendering A two-phase process was applied for the project’s tendering: a prequalification (announced and tendered in 2001) and a final bid phase (tendered in 2005). Seven (7) groups expressed interest during the first phase and two (2) out of the four (4) which prequalified finally submitted bids for the second phase. The project’s concession agreement was signed in late 2006 between the highest bidder (a consortium composed by GEK Terna, ACS and FERROVIAL) and the Greek State.
Contract Structure The contract follows a typical concession structure via DBFO. The project is partially financed (€360M) by Greek State and EU Structural and Cohesion funds of the 2007-2013 programming period. Shareholders and Lenders also participate in the construction funding via €190Mof equity and €110M of debt, to be repaid during the operation period.
The project also includes a brownfield section to be upgraded and operated during the construction period. Tolls received during this time are to be used solely for the construction funding. Toll rates are specified in the contract (fixed), and gradually reach their limit (0.04 €/km in real 2003 prices) via the achievement of construction milestones. Due to high volumes of expected traffic, the contract included payments to the State at a rate of 85% (a critical part of the tender’s award formula) of toll revenues received over the operational period.
Risk Allocation Risk allocation also follows DBFO standards: traffic, financing, construction and operation/maintenance risks are transferred to the private party, while the State maintains the ownership of legal/regulatory risks. The severe impact of the Greek sovereign debt crisis on traffic volumes has affected the traffic risks as perceived by the private sector, and is expected to have a decisive role on the final renegotiated contract structure, mainly through the amendment of the toll revenue sharing mechanism during the operational period.
Initial forecasts made prior to the project’s implementation indicated an annual GDP growth rate of 3.8% and a motorization growth rate of 0.74% for
60 Greece; these estimates assumed an annual traffic volume growth of 14.4% for Greece (Source: TEN-STAC Scenarios, Traffic Forecasts and Analysis of Corridors on the Trans-European Transport Network - 2003).
Land Acquisition risk is also a major point of argument during renegotiation, as land acquisition has caused major delays in the project’s progress. This is mainly attributed to unrealistic expectations by the State for the time needed to acquire the required land. Delays in land acquisition, as well as environmental claims, have been a main source of claims against the State in the project so far. It needs to be noted that environmental claims have also caused works to stop in key project areas.
Risk is allocated as depicted in figure 2. Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure Land Acquisition Environmental Risk
Tota
lly P
rivat
e
Totally Public
Figure 2 Risk allocation Performance As the Independent Engineer is mainly responsible for evaluating construction performance, in conjunction with the Awarding Authority, there are no Key Performance Indicators (KPIs) during either the construction or the operational period. Performance during the latter is monitored by the Awarding Authority, which is responsible for evaluating operational performance following the construction period.
However, the financing agreements, considered as annexes to the concession agreement, include several key metrics that are used to evaluate the viability of debt repayment, such as the debt service coverage ratio (DSCR) and the loan life coverage ratio (LLCR). It needs to be noted that decreased levels in these metrics can become grounds for project default.
61
References Roadway fatalities: TEN-STAC Scenarios (2003), Traffic Forecasts and
Analysis of Corridors on the Trans-European Transport Network The Ionia Odos Contract, Greek Law 3555/2007 of 19 Dec 2007 of the
Official Gazette. www.neaodos.gr
60 Greece; these estimates assumed an annual traffic volume growth of 14.4% for Greece (Source: TEN-STAC Scenarios, Traffic Forecasts and Analysis of Corridors on the Trans-European Transport Network - 2003).
Land Acquisition risk is also a major point of argument during renegotiation, as land acquisition has caused major delays in the project’s progress. This is mainly attributed to unrealistic expectations by the State for the time needed to acquire the required land. Delays in land acquisition, as well as environmental claims, have been a main source of claims against the State in the project so far. It needs to be noted that environmental claims have also caused works to stop in key project areas.
Risk is allocated as depicted in figure 2. Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure Land Acquisition Environmental Risk
Tota
lly P
rivat
e
Totally Public
Figure 2 Risk allocation Performance As the Independent Engineer is mainly responsible for evaluating construction performance, in conjunction with the Awarding Authority, there are no Key Performance Indicators (KPIs) during either the construction or the operational period. Performance during the latter is monitored by the Awarding Authority, which is responsible for evaluating operational performance following the construction period.
However, the financing agreements, considered as annexes to the concession agreement, include several key metrics that are used to evaluate the viability of debt repayment, such as the debt service coverage ratio (DSCR) and the loan life coverage ratio (LLCR). It needs to be noted that decreased levels in these metrics can become grounds for project default.
61
References Roadway fatalities: TEN-STAC Scenarios (2003), Traffic Forecasts and
Analysis of Corridors on the Trans-European Transport Network The Ionia Odos Contract, Greek Law 3555/2007 of 19 Dec 2007 of the
Official Gazette. www.neaodos.gr
62
M6 Toll (BNRR) United Kingdom
Christopher Boles University of Central Lancaster [email protected]
Champika L. Liyanage University of Central Lancaster
63
Project Overview The BNRR M6 Toll, UK Project Type: Brownfield Greenfield Both Contract duration: 53 years Budget: GBP 900 M Asset value as described by the main
equity holder. Construction costs were calculated as GBP 485M (M6 Toll, 2008)
Project Time Line Project conceived: 1980; Public Inquiry: 1988; Decision to use PPP financing: 1989; Tender: 1990; Contract award: 1992; Second Inquiry: 1994; Legal challenge: 1997; Financial close: 2000; Start of operations: 2003.
Figure 1: M6 Toll route (BBC.co.uk, 2003)
62
M6 Toll (BNRR) United Kingdom
Christopher Boles University of Central Lancaster [email protected]
Champika L. Liyanage University of Central Lancaster
63
Project Overview The BNRR M6 Toll, UK Project Type: Brownfield Greenfield Both Contract duration: 53 years Budget: GBP 900 M Asset value as described by the main
equity holder. Construction costs were calculated as GBP 485M (M6 Toll, 2008)
Project Time Line Project conceived: 1980; Public Inquiry: 1988; Decision to use PPP financing: 1989; Tender: 1990; Contract award: 1992; Second Inquiry: 1994; Legal challenge: 1997; Financial close: 2000; Start of operations: 2003.
Figure 1: M6 Toll route (BBC.co.uk, 2003)
64
1 Introduction The M6 Toll (also known as the Birmingham Northern Relief Road) opened in 2003 as the UK’s first tolled motorway. The premise of using a PPP was decided at a very early stage and the BNRR was an entirely private DBFO, although the government provided funding for network connections to the M42.
The motorway was conceived in 1980 to relieve congestion on the existing M6 motorway hub in Birmingham, and to service local residential areas and business development. The scheme also supported integration into the wider European network for commercial traffic. The existing M6 motorway was in need of investment and its position as the main arterial route between the south, midlands and north west of England meant that the volume of traffic would soon outstrip its capacity. Alternative routes were required to provide the additional capacity needed. The original M6 motorway remains in operation as a free parallel alternative route a few miles to the south of the M6 Toll motorway.
The scheme was originally conceived as a traditional publicly-procured road 43km in length. During an inquiry held in 1988, objections into the public road scheme were investigated. The outcome of this inquiry was not disclosed as in the following year the UK government decided to use the road as an initial trial for a private finance initiative (PFI) (University College London, 2011).
The government at the time encouraged the use of DBFO and the solution of tolling was seen as acceptable. However the proposed scheme was not received favourably from a user and society stakeholder perspective. This meant that the process of developing the road took approximately 23 years from the original proposal submitted in 1980 to the opening in 2003.
2 The Contracting Authority (Public Party) The government department with controlling responsibility for the project is the Department of Transport. The regulatory body responsible for contractual aspects on behalf of the government is the Highways Agency. This is responsible for the management of the main road infrastructure in England. The Highways Agency monitors and reports on performance, manages alternative routes (including the M6) and promotes competition.
The tolling agreement is covered by two laws: the Highways Act 1980 and the New Road and Street Works Act 1991 (Butcher, 2010). This has eliminated the need for specific legislation on a project-by-project basis. The Acts laid out
65 the framework for concession agreements between the government and private groups to design, construct and operate “special roads”.
3 The Concessionaire (Private Party) The private partner is called Midland Expressway Ltd. (MEL). The principal equity holder within the SPV is Macquarie Infrastructure Group. In 2008 the M6 Toll project represented 30% of the asset value of the equity holder’s portfolio (M6 Toll, 2008).
The historical investment structure of the project differs greatly from the present position. The original concession was held by a consortium of Trafalgar House (Kvaerner) and Italstat (Autostrade). The Kvaerner share passed to Macquarie when Kvaerner was restructured in 1999. Macquarie then bought out the Autostrade share when the project was refinanced in 2006.
The refinancing was a contentious issue for the public sector as it released a large amount of money for the equity provider. The short-term banks loans, which financed the original construction work were replaced with a debt instrument that schedules payments of principal and interest so that they correspond more closely to future toll revenues. The previous GBP 620m debt facility was replaced with loans of GBP 1.03bn and new rate swaps secured against MEL itself. The new loans are due to be paid off in 2015, but have already allowed funds of GBP 392m to be released to Macquarie as the owner of the project.
Construction was carried out under contract to the SPV by a group of companies known as CAMBBA. This relationship was not without issues, and led to disputes between the SPV and its construction sub-contractor.
The SPV has a high degree of autonomy in how it sets the levels of tolls. The frequency and percentage of toll changes are outlined in the agreement, but there is no mechanism for review by the public sector to reflect changed social and macro-economic conditions. This means that the SPV is allowed to increase tariffs even in a period of economic decline.
Monitoring of performance is carried out by the SPV and the data are then shared with the public sector agency. This means that value perception can be distorted, and that the public agency has to utilise other measures to obtain a good overall picture of usage of the road; these include measuring traffic flows on routes under the agency’s direct control (M6) and the feeder network.
Transparency is poor, as communications with other stakeholder groups must be agreed between the SPV and the public sector agency.
64
1 Introduction The M6 Toll (also known as the Birmingham Northern Relief Road) opened in 2003 as the UK’s first tolled motorway. The premise of using a PPP was decided at a very early stage and the BNRR was an entirely private DBFO, although the government provided funding for network connections to the M42.
The motorway was conceived in 1980 to relieve congestion on the existing M6 motorway hub in Birmingham, and to service local residential areas and business development. The scheme also supported integration into the wider European network for commercial traffic. The existing M6 motorway was in need of investment and its position as the main arterial route between the south, midlands and north west of England meant that the volume of traffic would soon outstrip its capacity. Alternative routes were required to provide the additional capacity needed. The original M6 motorway remains in operation as a free parallel alternative route a few miles to the south of the M6 Toll motorway.
The scheme was originally conceived as a traditional publicly-procured road 43km in length. During an inquiry held in 1988, objections into the public road scheme were investigated. The outcome of this inquiry was not disclosed as in the following year the UK government decided to use the road as an initial trial for a private finance initiative (PFI) (University College London, 2011).
The government at the time encouraged the use of DBFO and the solution of tolling was seen as acceptable. However the proposed scheme was not received favourably from a user and society stakeholder perspective. This meant that the process of developing the road took approximately 23 years from the original proposal submitted in 1980 to the opening in 2003.
2 The Contracting Authority (Public Party) The government department with controlling responsibility for the project is the Department of Transport. The regulatory body responsible for contractual aspects on behalf of the government is the Highways Agency. This is responsible for the management of the main road infrastructure in England. The Highways Agency monitors and reports on performance, manages alternative routes (including the M6) and promotes competition.
The tolling agreement is covered by two laws: the Highways Act 1980 and the New Road and Street Works Act 1991 (Butcher, 2010). This has eliminated the need for specific legislation on a project-by-project basis. The Acts laid out
65 the framework for concession agreements between the government and private groups to design, construct and operate “special roads”.
3 The Concessionaire (Private Party) The private partner is called Midland Expressway Ltd. (MEL). The principal equity holder within the SPV is Macquarie Infrastructure Group. In 2008 the M6 Toll project represented 30% of the asset value of the equity holder’s portfolio (M6 Toll, 2008).
The historical investment structure of the project differs greatly from the present position. The original concession was held by a consortium of Trafalgar House (Kvaerner) and Italstat (Autostrade). The Kvaerner share passed to Macquarie when Kvaerner was restructured in 1999. Macquarie then bought out the Autostrade share when the project was refinanced in 2006.
The refinancing was a contentious issue for the public sector as it released a large amount of money for the equity provider. The short-term banks loans, which financed the original construction work were replaced with a debt instrument that schedules payments of principal and interest so that they correspond more closely to future toll revenues. The previous GBP 620m debt facility was replaced with loans of GBP 1.03bn and new rate swaps secured against MEL itself. The new loans are due to be paid off in 2015, but have already allowed funds of GBP 392m to be released to Macquarie as the owner of the project.
Construction was carried out under contract to the SPV by a group of companies known as CAMBBA. This relationship was not without issues, and led to disputes between the SPV and its construction sub-contractor.
The SPV has a high degree of autonomy in how it sets the levels of tolls. The frequency and percentage of toll changes are outlined in the agreement, but there is no mechanism for review by the public sector to reflect changed social and macro-economic conditions. This means that the SPV is allowed to increase tariffs even in a period of economic decline.
Monitoring of performance is carried out by the SPV and the data are then shared with the public sector agency. This means that value perception can be distorted, and that the public agency has to utilise other measures to obtain a good overall picture of usage of the road; these include measuring traffic flows on routes under the agency’s direct control (M6) and the feeder network.
Transparency is poor, as communications with other stakeholder groups must be agreed between the SPV and the public sector agency.
66 The private partner is driven by long term considerations. It is developing
the market but also waiting for the government to create a more mature market to which it can provide services.
4 Users The road is for the use of private and commercial road traffic. The domestic market is made up of private car journeys predominantly from the north west of the country to the main corridor to the south. These journeys fall into two groups: leisure travel and journeys to work or on business. The commercial market is for the transport of goods between manufacturers, distributers and purchasers. The present economic climate in the UK has reduced traffic by 10% (Macquarie general report, 2011).
Other stake holders with an input into the performance of the project, and on whom the project has a bearing, include Midland Regeneration, a government regional organization tasked with improving the economic situation in the Midlands, and local authorities with a statutory responsibility to maintain the road infrastructure in their areas. Although MEL holds the concession and is responsible for maintenance, it is still the responsibility of the elected authorities to ensure that the road is fit for purpose.
5 Key Purpose for PPP Model Selection The reasons for introducing a PPP structure were largely political. The government at the time was carrying out a review of the assets in public ownership and privatizing large swathes of these assets such as utilities.
The M6 Toll was therefore a test-bed for reducing the direct cost to government of operating and maintaining infrastructure which could be better and more efficiently managed by the private sector. The main objective was reducing the cost to the Treasury budget. Utilizing private sector expertise can provide better service, but was not the prime motivator.
6 Project Timing The existing M6 was struggling with capacity constraints and was in need of development and maintenance. A case for the construction of the new road had been made prior to the government decision to build it as a PPP. During the 1980s there was a recession in the UK, and a further recessionary period took place in the late 1990s, both of which coincided with the project’s time line:
67 1984– Government opens to public scrutiny its first proposal for the
scheme (still a public sector project); 1988– Due to public objections to the scheme a first Public Inquiry takes
place; 1990– Project is tendered as a PPP; 1992- Contract is awarded to the winning bidder; 1994– Second Inquiry as the controversial concession agreement goes
ahead; 1997– Legal challenges are launched by the Alliance Against the
Birmingham Northern Relief Road; 1999- All legal challenges are cleared ( High Court case no:
CO/4553/98). The construction and start of operations for the scheme occurred during a
period when the economy was stable and there was confidence in economic growth.
7 Project Locality and Market Geography The project is of regional importance, and is part of the wider national motorway network focused on the Midlands region of England. It is in effect a by-pass, and so does not directly connect any conurbations of significant interest. Birmingham has always been seen as the intersection between road networks in the north and south of the country, with its famed “Spaghetti Junction”, and the M6 Toll provides an alternative route through this intersection.
8 Procurement & Contractual Structure Tendering Innovation was encouraged by the government and led to a variety of options from the bidding parties. The design of the road was left open to the bidders to decide, as well as the tolling system (toll levels, and variations by vehicle type and tolling period - weekdays/ weekends etc).
Although the process was not originally intended to be a competitive dialogue, the diversity of the tenders meant that a numerical analysis of the bids was impossible and a more subjective analysis had to be used to evaluate the proposed schemes.
There were three bidders:
66 The private partner is driven by long term considerations. It is developing
the market but also waiting for the government to create a more mature market to which it can provide services.
4 Users The road is for the use of private and commercial road traffic. The domestic market is made up of private car journeys predominantly from the north west of the country to the main corridor to the south. These journeys fall into two groups: leisure travel and journeys to work or on business. The commercial market is for the transport of goods between manufacturers, distributers and purchasers. The present economic climate in the UK has reduced traffic by 10% (Macquarie general report, 2011).
Other stake holders with an input into the performance of the project, and on whom the project has a bearing, include Midland Regeneration, a government regional organization tasked with improving the economic situation in the Midlands, and local authorities with a statutory responsibility to maintain the road infrastructure in their areas. Although MEL holds the concession and is responsible for maintenance, it is still the responsibility of the elected authorities to ensure that the road is fit for purpose.
5 Key Purpose for PPP Model Selection The reasons for introducing a PPP structure were largely political. The government at the time was carrying out a review of the assets in public ownership and privatizing large swathes of these assets such as utilities.
The M6 Toll was therefore a test-bed for reducing the direct cost to government of operating and maintaining infrastructure which could be better and more efficiently managed by the private sector. The main objective was reducing the cost to the Treasury budget. Utilizing private sector expertise can provide better service, but was not the prime motivator.
6 Project Timing The existing M6 was struggling with capacity constraints and was in need of development and maintenance. A case for the construction of the new road had been made prior to the government decision to build it as a PPP. During the 1980s there was a recession in the UK, and a further recessionary period took place in the late 1990s, both of which coincided with the project’s time line:
67 1984– Government opens to public scrutiny its first proposal for the
scheme (still a public sector project); 1988– Due to public objections to the scheme a first Public Inquiry takes
place; 1990– Project is tendered as a PPP; 1992- Contract is awarded to the winning bidder; 1994– Second Inquiry as the controversial concession agreement goes
ahead; 1997– Legal challenges are launched by the Alliance Against the
Birmingham Northern Relief Road; 1999- All legal challenges are cleared ( High Court case no:
CO/4553/98). The construction and start of operations for the scheme occurred during a
period when the economy was stable and there was confidence in economic growth.
7 Project Locality and Market Geography The project is of regional importance, and is part of the wider national motorway network focused on the Midlands region of England. It is in effect a by-pass, and so does not directly connect any conurbations of significant interest. Birmingham has always been seen as the intersection between road networks in the north and south of the country, with its famed “Spaghetti Junction”, and the M6 Toll provides an alternative route through this intersection.
8 Procurement & Contractual Structure Tendering Innovation was encouraged by the government and led to a variety of options from the bidding parties. The design of the road was left open to the bidders to decide, as well as the tolling system (toll levels, and variations by vehicle type and tolling period - weekdays/ weekends etc).
Although the process was not originally intended to be a competitive dialogue, the diversity of the tenders meant that a numerical analysis of the bids was impossible and a more subjective analysis had to be used to evaluate the proposed schemes.
There were three bidders:
68 BNRR Ltd : Tarmac Construction & Balfour Beatty; Midlands Parkway: Alfred McAlpine Construction, RM Douglas
Construction, Manufacturers Hanover Bank and the French toll road operator Cofiroute;
Midland Expressway (MEL): Trafalgar House Construction and the Italian toll road operator Italstat (later to become Macquarie Infrastructure Group and Autostrade).
From these, MEL emerged as the favored service provider.
Contract Structure The concessionaire has the right and obligation to carry out the design, construction and completion of the works, and financing, operation and maintenance of the project facilities, together with associated Motorway Service Areas, during the concession period. It is expected to do this at its own cost and risk, without recourse to Government funds or guarantees.
The concessionaire may, if it thinks fit, improve the project facilities subject to the provisions of the Concession Agreement. (Section 2.1, Concession Agreement v3)
Risk Allocation The schedules attached to the contract are very prescriptive, including the
levels of management to be employed and the monitoring procedures for compliance throughout the concession period (The Secretary of State for Transport, 2000). The Government retains the right to change the concession in the event that the operator cannot fulfill its obligations.
The repayment method is based on direct tolls. The government originally considered toll reviews every twelve months; however Section 2.2.2.2 of the concession agreement specifies that tolls are to be reviewed on a six- monthly cycle. The toll charges are to ensure that the project is self-financed. The recipient of the revenues is the SPV. The Government also pays an availability fee to the private partner as set out in Schedule 8 of the concession agreement.
Design and construction risks - Section 2.1 of the concession agreement states that design, construction and operation, including maintenance, is at the concessionaire’s own cost and risk, without the aid of government funds or guarantees. However Section 27.3 states that the Government will bear the risk of claims made by the concessionaire and its associates with regard to changes made by public bodies during the design and construction phase. Operating risk is borne largely by the SPV. The Government remains the regulatory
69 authority for the whole of the network, and all normal regulations relating to road construction and operation apply to this scheme. Finally, the concessionaire must indemnify the government against any third party claims by users of the road.
Risk is allocated as depicted in figure 2 below. Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk Allocation
Performance The performance criteria for the ex-ante evaluation of the project are laid out in the form of a Public Sector Comparator, which was heavily influenced by Government’s desire to adopt a Private Finance Initiative (PFI) solution. The ex-post evaluation took the form of a Post Opening Project Evaluation (POPE) report carried out by the regulatory authority after five years of operation.
The performance measures used were: Traffic volumes, which are measured over time and compared against
the alternative free route; Strategic screen lines – impacts on other roads in the network; Journey times; Vehicle usage – types and volumes of commercial and private users; Safety trends – accidents on the toll road and the reduction of accidents
on the M6 and nearby A-class roads; Environmental impacts – noise & air quality, landscape, biodiversity,
heritage and water quality. There is no evidence to suggest that these KPIs are measured as part of the
contract, and there are no penalties for non-compliance. There is, however, an availability payment linked to the road being accessible to users.
68 BNRR Ltd : Tarmac Construction & Balfour Beatty; Midlands Parkway: Alfred McAlpine Construction, RM Douglas
Construction, Manufacturers Hanover Bank and the French toll road operator Cofiroute;
Midland Expressway (MEL): Trafalgar House Construction and the Italian toll road operator Italstat (later to become Macquarie Infrastructure Group and Autostrade).
From these, MEL emerged as the favored service provider.
Contract Structure The concessionaire has the right and obligation to carry out the design, construction and completion of the works, and financing, operation and maintenance of the project facilities, together with associated Motorway Service Areas, during the concession period. It is expected to do this at its own cost and risk, without recourse to Government funds or guarantees.
The concessionaire may, if it thinks fit, improve the project facilities subject to the provisions of the Concession Agreement. (Section 2.1, Concession Agreement v3)
Risk Allocation The schedules attached to the contract are very prescriptive, including the
levels of management to be employed and the monitoring procedures for compliance throughout the concession period (The Secretary of State for Transport, 2000). The Government retains the right to change the concession in the event that the operator cannot fulfill its obligations.
The repayment method is based on direct tolls. The government originally considered toll reviews every twelve months; however Section 2.2.2.2 of the concession agreement specifies that tolls are to be reviewed on a six- monthly cycle. The toll charges are to ensure that the project is self-financed. The recipient of the revenues is the SPV. The Government also pays an availability fee to the private partner as set out in Schedule 8 of the concession agreement.
Design and construction risks - Section 2.1 of the concession agreement states that design, construction and operation, including maintenance, is at the concessionaire’s own cost and risk, without the aid of government funds or guarantees. However Section 27.3 states that the Government will bear the risk of claims made by the concessionaire and its associates with regard to changes made by public bodies during the design and construction phase. Operating risk is borne largely by the SPV. The Government remains the regulatory
69 authority for the whole of the network, and all normal regulations relating to road construction and operation apply to this scheme. Finally, the concessionaire must indemnify the government against any third party claims by users of the road.
Risk is allocated as depicted in figure 2 below. Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk Allocation
Performance The performance criteria for the ex-ante evaluation of the project are laid out in the form of a Public Sector Comparator, which was heavily influenced by Government’s desire to adopt a Private Finance Initiative (PFI) solution. The ex-post evaluation took the form of a Post Opening Project Evaluation (POPE) report carried out by the regulatory authority after five years of operation.
The performance measures used were: Traffic volumes, which are measured over time and compared against
the alternative free route; Strategic screen lines – impacts on other roads in the network; Journey times; Vehicle usage – types and volumes of commercial and private users; Safety trends – accidents on the toll road and the reduction of accidents
on the M6 and nearby A-class roads; Environmental impacts – noise & air quality, landscape, biodiversity,
heritage and water quality. There is no evidence to suggest that these KPIs are measured as part of the
contract, and there are no penalties for non-compliance. There is, however, an availability payment linked to the road being accessible to users.
70 The POPE report carried out in 2007 by the Highways Agency (Highways
Agency, 2009) indicates that the project is a success based on the following criteria:
Alternative to the existing M6 – it provides an alternative offering faster journey times and greater reliability;
Relief to the existing network- there has been a reduction in journey times on the M6;
Journey time reliability – there is greater consistency of journey times on the original network;
Reduction in traffic volumes on local routes- the “A” roads in the area have smaller traffic flows;
Local transport infrastructure improvements; Integration into the wider network. However figures released since then show that traffic on the original road
(M6) has now increased to near the level experienced before the opening of the M6 Toll. Only 50% of the M6 Toll’s capacity of 70,000 vehicles per day is being used, and revenues are 7% lower than expected. The PPP has not made a profit since commencement.
A number of issues have become apparent that suggest the M6 Toll is under performing. Usage in the first three months after opening was 45,000 vehicles per day (www.parliment.uk 2005). However vehicle numbers for 2011 were on average only 35,000 per day, bringing an income of GBP 56M for the operator and a loss of GBP 41M (www.ITV.com 2012).
The parallel M6 road was congested during much of the early life of the M6 Toll road, which made the toll route beneficial in respect of journey times, with a saving of up to 40 minutes per journey in peak periods. This advantage was further compounded by reconstruction works on the M6 to increase its capacity. Since these road works have been completed, the existing M6 offers a better alternative to potential users of the toll route.
A number of issues concerning revenue streams have become apparent, of which users’ aversion to paying tolls is perhaps the most important; many now plan their journeys to avoid peak times. Other factors affecting traffic and revenues have been lower disposable incomes of users; inflation; fuel cost increases; fewer employment opportunities, resulting in less need to travel.
The SPV is innovating to address these issues through the following actions: increases to toll fees to minimise the income deficit; introduction of new ways to pay (contactless cards); provision of faster traffic lanes.
71 Critical success factors identified in connection with this project are:
maintenance; reliability; micro economic improvements in the surrounding region; increased capacity of the network; private sector participation and continuing commitment from the private sector provider; technology: investment in alternative payment and construction methods; reduction in environmental impact through innovation in design and the use of materials.
References A One Integrated Highway Services. (2012). About area 14. Retrieved 09
12, 2012, from A One: http://www.aone.uk.com/File/ourprojects.asp Bain, R. (2008). PRIVATE FINANCE RATES OF RETURN:EVIDENCE
FROM THE UK’S PFI ROADS SECTOR. University of Leeds, Institute for Transport Studies. Leeds UK: RB Consult Ltd.
BBC.co.uk. (2003, 12 9). M6 Toll road opens. Retrieved 09 2012, from BBC News Online: http://news.bbc.co.uk/1/hi/england/staffordshire/3298789.stm
Butcher, L. (2010). Roads: tolls. London UK: House of Commons Library. HA knowledge Centre. (2012). A brief history of our roads. Retrieved 08
05, 2012, from Highways Agency Website: http://www.highways.gov.uk/knowledge/1813.aspx
Highways Agency. (2012). DBFO payment mechanisms. Retrieved 07 21, 2012, from Highways Agency Government website: http://www.highways.gov.uk/roads/33513.aspx
Highways Agency. (2012, 08 10). DBFO -Value in Roads. Retrieved 08 29, 2012, from The National Archives: http://webarchive.nationalarchives.gov.uk
/20120810121037/http://www.highways.gov.uk/roads/2987.aspx Highways Agency. (2009). Post Opening Project Evaluation M6 Toll.
birmingham UK: Highways Agency. Highways Agency. (2009). Post Opening Project Evaluation- M6 Toll.
London : Highways Agency. Highways Agency. (2012). Private Finance Initiatives - Design Build
Finance and Operate (DBFO). Retrieved 08 15, 2012, from HA. Gov: http://www.highways.gov.uk/our-road-network/managing-our-roads/private-finance-initiatives-design-build-finance-and-operate-dbfo/
HM Government. (1980). Highways Act . London UK: Parlimentary Press.
70 The POPE report carried out in 2007 by the Highways Agency (Highways
Agency, 2009) indicates that the project is a success based on the following criteria:
Alternative to the existing M6 – it provides an alternative offering faster journey times and greater reliability;
Relief to the existing network- there has been a reduction in journey times on the M6;
Journey time reliability – there is greater consistency of journey times on the original network;
Reduction in traffic volumes on local routes- the “A” roads in the area have smaller traffic flows;
Local transport infrastructure improvements; Integration into the wider network. However figures released since then show that traffic on the original road
(M6) has now increased to near the level experienced before the opening of the M6 Toll. Only 50% of the M6 Toll’s capacity of 70,000 vehicles per day is being used, and revenues are 7% lower than expected. The PPP has not made a profit since commencement.
A number of issues have become apparent that suggest the M6 Toll is under performing. Usage in the first three months after opening was 45,000 vehicles per day (www.parliment.uk 2005). However vehicle numbers for 2011 were on average only 35,000 per day, bringing an income of GBP 56M for the operator and a loss of GBP 41M (www.ITV.com 2012).
The parallel M6 road was congested during much of the early life of the M6 Toll road, which made the toll route beneficial in respect of journey times, with a saving of up to 40 minutes per journey in peak periods. This advantage was further compounded by reconstruction works on the M6 to increase its capacity. Since these road works have been completed, the existing M6 offers a better alternative to potential users of the toll route.
A number of issues concerning revenue streams have become apparent, of which users’ aversion to paying tolls is perhaps the most important; many now plan their journeys to avoid peak times. Other factors affecting traffic and revenues have been lower disposable incomes of users; inflation; fuel cost increases; fewer employment opportunities, resulting in less need to travel.
The SPV is innovating to address these issues through the following actions: increases to toll fees to minimise the income deficit; introduction of new ways to pay (contactless cards); provision of faster traffic lanes.
71 Critical success factors identified in connection with this project are:
maintenance; reliability; micro economic improvements in the surrounding region; increased capacity of the network; private sector participation and continuing commitment from the private sector provider; technology: investment in alternative payment and construction methods; reduction in environmental impact through innovation in design and the use of materials.
References A One Integrated Highway Services. (2012). About area 14. Retrieved 09
12, 2012, from A One: http://www.aone.uk.com/File/ourprojects.asp Bain, R. (2008). PRIVATE FINANCE RATES OF RETURN:EVIDENCE
FROM THE UK’S PFI ROADS SECTOR. University of Leeds, Institute for Transport Studies. Leeds UK: RB Consult Ltd.
BBC.co.uk. (2003, 12 9). M6 Toll road opens. Retrieved 09 2012, from BBC News Online: http://news.bbc.co.uk/1/hi/england/staffordshire/3298789.stm
Butcher, L. (2010). Roads: tolls. London UK: House of Commons Library. HA knowledge Centre. (2012). A brief history of our roads. Retrieved 08
05, 2012, from Highways Agency Website: http://www.highways.gov.uk/knowledge/1813.aspx
Highways Agency. (2012). DBFO payment mechanisms. Retrieved 07 21, 2012, from Highways Agency Government website: http://www.highways.gov.uk/roads/33513.aspx
Highways Agency. (2012, 08 10). DBFO -Value in Roads. Retrieved 08 29, 2012, from The National Archives: http://webarchive.nationalarchives.gov.uk
/20120810121037/http://www.highways.gov.uk/roads/2987.aspx Highways Agency. (2009). Post Opening Project Evaluation M6 Toll.
birmingham UK: Highways Agency. Highways Agency. (2009). Post Opening Project Evaluation- M6 Toll.
London : Highways Agency. Highways Agency. (2012). Private Finance Initiatives - Design Build
Finance and Operate (DBFO). Retrieved 08 15, 2012, from HA. Gov: http://www.highways.gov.uk/our-road-network/managing-our-roads/private-finance-initiatives-design-build-finance-and-operate-dbfo/
HM Government. (1980). Highways Act . London UK: Parlimentary Press.
72 HM government. (1991). New Roads and Street Works Act. London:
Parlimentary Press. Local government cronicle. (1993, May 28). Paying for better Motorways .
Retrieved 09 20, 2012, from LGC : http://www.lgcplus.com/lgc-news/paying-for-better-motorways/1653117.article
M6 Toll. (2008). M6 Toll Management Presentation. Retrieved 08 20, 2012, from M6 Toll web site.
Macquarie Atlas roads. (2012). Nature of Investment- M6 Toll. Retrieved 09 14, 2012, from Macquarie Atlas roads: http://www.macquarie.com/mgl/com/mqa/asset-portfolio/m6-toll
Omega Centre. (2011). Case Study -M6 Toll, West Midlands UK. University College London. London UK: Bartlett University College London.
Partnership UK . (2009). Advanced Search - roads . Retrieved 06 30, 2012, from PartnershipUK.org: http://www.partnershipsuk.org.uk/PUK-Projects-Database-advanced-search.aspx
PPP Journal. (2006, June 12). The PFI Journal - PPP Journal Issue 55,Risks and risk mitigants in refinancing. Retrieved 2012, from Public Service. co.uk: http://www.publicservice.co.uk/article.asp?publication=The%20PPP%20Journal&id=242&content_name=Finance&article=6811
Ritchie, J., & Spencer, L. (2002). Qualitative Data Analysis for Applied Policy Research. In A. Huberman, & M. Miles (Eds.), The Qualitative Researchers` Companion (pp. 305-310). Thousand Oaks, California, USA: Sage Publications Inc.
Secretary of State for Transport. (1999). ConcessionAgreement. London UK: Department of transport.
Secretary of State for Transport. (2000, September 26th). Concession Agreement for the Birmingham North relief Road. Secretary Of transport and Midland Expressway Ltd . London, UK, UK: Cameron McKenna,Mitre House, 160 Aldersgate Street.
University College London. (2011, 09 08). M6 Toll. Retrieved 08 2012, from UCL.ac.uk: http://www.omegacentre.bartlett.ucl.ac.uk/studies/cases/pdf/ UK_M6_2P_080911.pdf
Ziglar, J. (2010).Partnering for value. USA: Deloitte Corporate Finance LLC.
73
M80 Stepps to Haggs DBFO United Kingdom
Christopher Boles University of Central Lancaster [email protected]
Champika L. Liyanage University of Central Lancaster
72 HM government. (1991). New Roads and Street Works Act. London:
Parlimentary Press. Local government cronicle. (1993, May 28). Paying for better Motorways .
Retrieved 09 20, 2012, from LGC : http://www.lgcplus.com/lgc-news/paying-for-better-motorways/1653117.article
M6 Toll. (2008). M6 Toll Management Presentation. Retrieved 08 20, 2012, from M6 Toll web site.
Macquarie Atlas roads. (2012). Nature of Investment- M6 Toll. Retrieved 09 14, 2012, from Macquarie Atlas roads: http://www.macquarie.com/mgl/com/mqa/asset-portfolio/m6-toll
Omega Centre. (2011). Case Study -M6 Toll, West Midlands UK. University College London. London UK: Bartlett University College London.
Partnership UK . (2009). Advanced Search - roads . Retrieved 06 30, 2012, from PartnershipUK.org: http://www.partnershipsuk.org.uk/PUK-Projects-Database-advanced-search.aspx
PPP Journal. (2006, June 12). The PFI Journal - PPP Journal Issue 55,Risks and risk mitigants in refinancing. Retrieved 2012, from Public Service. co.uk: http://www.publicservice.co.uk/article.asp?publication=The%20PPP%20Journal&id=242&content_name=Finance&article=6811
Ritchie, J., & Spencer, L. (2002). Qualitative Data Analysis for Applied Policy Research. In A. Huberman, & M. Miles (Eds.), The Qualitative Researchers` Companion (pp. 305-310). Thousand Oaks, California, USA: Sage Publications Inc.
Secretary of State for Transport. (1999). ConcessionAgreement. London UK: Department of transport.
Secretary of State for Transport. (2000, September 26th). Concession Agreement for the Birmingham North relief Road. Secretary Of transport and Midland Expressway Ltd . London, UK, UK: Cameron McKenna,Mitre House, 160 Aldersgate Street.
University College London. (2011, 09 08). M6 Toll. Retrieved 08 2012, from UCL.ac.uk: http://www.omegacentre.bartlett.ucl.ac.uk/studies/cases/pdf/ UK_M6_2P_080911.pdf
Ziglar, J. (2010).Partnering for value. USA: Deloitte Corporate Finance LLC.
73
M80 Stepps to Haggs DBFO United Kingdom
Christopher Boles University of Central Lancaster [email protected]
Champika L. Liyanage University of Central Lancaster
74
Project Overview M80 Haggs to Stepps Project Profile, UK Project Type: Brownfield Greenfield Both Contract duration: 33 years Budget: GBP 320M
Cost to upgrade and construct new sections originally valued GBP 251,4M
Project Time Line First proposed: 1970s; Public Enquiry: 2004; Tender call: 14 March 2007; Financial close: January 2009; Contract signed 19 January 2009; Start of operations: 1 November 2011
Figure 1: Proposed routes of the M80 Haggs section (The Motorway Archive trust,
2009)
75
1 Introduction The A80 forms part of the strategic road network between Glasgow,
Stirling and North East Scotland. It is one of the most heavily used roads in Scotland, carrying both strategic and commuter traffic. The section of road between Stepps and Haggs was an all-purpose dual carriageway and was the only non-motorway section between Glasgow and the end of the M80 at Dunblane.
The upgrade to this section of the Scottish network was being formulated from the 1970`s. Two alternative routes were identified [see Figure 1] and through public consultation and inquiry it was decided that the development of the motorway was best done as an upgrade to the existing road. This was because of impact on a world heritage site; areas of scientific importance; cost of green field development compared with improvement of existing infrastructure.
The project is broken into three phases, as outlined in the Public Inquiry (Enterprise, Transport & Lifelong Learning Department, 2006):
Phase 1 Mollinsburn to Auchenkilns; Phase 2 Auchenkilns to Haggs; Phase 3 Moodiesburn Bypass. A section of the new road was “new build” to accommodate the expanding
urban areas served by the road. Construction works for the scheme include almost 5 miles (8 km) of new dual two-lane motorway and hard shoulders between Stepps and Mollinsburn; 1.6 miles (2.7 km) of the existing A80 road upgraded to dual three-lane motorway between Mollinsburn and Auchenkilns; and almost 4.5 miles (7.3km) of the existing A80 upgraded to dual two-lane motorway between Auchenkilns to Haggs, with hard shoulders and climbing lanes.
2 The Contracting Authority (Public Party) The UK Treasury provided oversight. The devolved state-level sponsor was the Scottish Government and Scottish Executive, which provided the structure and requirements for the agreed scope of the project, whilst the commissioning agency was Transport Scotland.
The contractual agreement is covered by UK law (Highways Act 1980 and New Road and Street Works Act 1991), which allow concessions for services linked to road infrastructure.
74
Project Overview M80 Haggs to Stepps Project Profile, UK Project Type: Brownfield Greenfield Both Contract duration: 33 years Budget: GBP 320M
Cost to upgrade and construct new sections originally valued GBP 251,4M
Project Time Line First proposed: 1970s; Public Enquiry: 2004; Tender call: 14 March 2007; Financial close: January 2009; Contract signed 19 January 2009; Start of operations: 1 November 2011
Figure 1: Proposed routes of the M80 Haggs section (The Motorway Archive trust,
2009)
75
1 Introduction The A80 forms part of the strategic road network between Glasgow,
Stirling and North East Scotland. It is one of the most heavily used roads in Scotland, carrying both strategic and commuter traffic. The section of road between Stepps and Haggs was an all-purpose dual carriageway and was the only non-motorway section between Glasgow and the end of the M80 at Dunblane.
The upgrade to this section of the Scottish network was being formulated from the 1970`s. Two alternative routes were identified [see Figure 1] and through public consultation and inquiry it was decided that the development of the motorway was best done as an upgrade to the existing road. This was because of impact on a world heritage site; areas of scientific importance; cost of green field development compared with improvement of existing infrastructure.
The project is broken into three phases, as outlined in the Public Inquiry (Enterprise, Transport & Lifelong Learning Department, 2006):
Phase 1 Mollinsburn to Auchenkilns; Phase 2 Auchenkilns to Haggs; Phase 3 Moodiesburn Bypass. A section of the new road was “new build” to accommodate the expanding
urban areas served by the road. Construction works for the scheme include almost 5 miles (8 km) of new dual two-lane motorway and hard shoulders between Stepps and Mollinsburn; 1.6 miles (2.7 km) of the existing A80 road upgraded to dual three-lane motorway between Mollinsburn and Auchenkilns; and almost 4.5 miles (7.3km) of the existing A80 upgraded to dual two-lane motorway between Auchenkilns to Haggs, with hard shoulders and climbing lanes.
2 The Contracting Authority (Public Party) The UK Treasury provided oversight. The devolved state-level sponsor was the Scottish Government and Scottish Executive, which provided the structure and requirements for the agreed scope of the project, whilst the commissioning agency was Transport Scotland.
The contractual agreement is covered by UK law (Highways Act 1980 and New Road and Street Works Act 1991), which allow concessions for services linked to road infrastructure.
76 The route was agreed by government bodies in consultation with the public
at large. Although the project was privately financed, the public agency retained the authority to act as spokesperson for the project with the public and media.
Other stakeholders included local authorities and councils, which these were focus of concerns from the public.
3 The Concessionaire (Private Party) The concessionaire is Highways Management (Scotland) Ltd. Currently Bilfinger Berger holds 100% of shares in the SPV. In the original shareholding structure 80% of the equity was held by Bilfinger Berger, with John Graham (Dromore) 10%, and Northstone (NI)10% being the other partners in the consortium (HM Treasury, 2012).
The change of ownership had been anticipated by the public sector agencies and presented no issues. This was because the minority stakeholders in the SPV were construction companies whose input diminished as the contract moved into the operational phase, leaving Bilfinger Berger – an international Infrastructure developer that is active within the PPP market - as the company best equipped with the resources and expertise to complete the contract.
The European Investment Bank was involved in the initial financing of the scheme, but this changed after the opening date when Bilfinger Berger purchased the shares of the other participants.
4 Users The road is used by domestic and commercial traffic.
Other stakeholders include local highway authorities with regulatory responsibilities, which have had key influence in terms of public interaction. These were Coatbridge, Chryston and Bellshill, Cumbernauld, Kilsyth and Kirkintilloch East, and Falkirk.
The publicwere influential at the project planning and early decision-making stages. Opposition to the scheme was dealt with via mitigation technologies for reducing noise in the existing conurbations, and public participation was encouraged by the public agency. Land purchase was managed in a sensible manner, and the environmental assessment was carried out in conjunction with the EIA (Scotland) Regulations 1999.
77
5 Key Purpose for PPP Model Selection The main objective for the public sector was ensuring value for money. This was achieved through a DBFO structure linked to performance-related payments, although initially it was anticipated that shadow tolls would be used.
The technical requirements driving the project were: The need to increase the capacity of the non-motorway section of the
road with minimum public expenditure; The removal of peak time congestion and delays; The need for major maintenance to the existing carriageway; The need for re-design of the junction layouts to improve performance
and safety.
6 Project Timing Tendering and contract negotiations coincided with the economically turbulent period, which started in 2008, yet the project was still able to go ahead. This suggests that the PPP road infrastructure market still offers opportunities for investment.
7 Project Locality and Market Geography The M80 is one of the most heavily used roads in Scotland, carrying both strategic and commuter traffic. The route carries significant amounts of commercial through traffic and is therefore an important economic artery.
8 Procurement & Contractual Issues Tendering There were originally three consortia bidding, which was restricted to one preferred bidder during the competitive dialogue phase. The total length of time from the initial call for Expressions of Interest to the signing of contract was approximately 25 months.
The M80 (Stepps-Haggs) was the first road project in Scotland to adopt the competitive dialogue approach. However this did not bring with it the innovative response expected from the private sector. The main reason is that the dialogue was restricted to the “wants” of the public sector, perhaps due to lack of familiarity with this form of tendering. The public sector was more accustomed to specifying projects in terms of inputs such as the levels of management to be provided and the wearing surface to be used, rather than
76 The route was agreed by government bodies in consultation with the public
at large. Although the project was privately financed, the public agency retained the authority to act as spokesperson for the project with the public and media.
Other stakeholders included local authorities and councils, which these were focus of concerns from the public.
3 The Concessionaire (Private Party) The concessionaire is Highways Management (Scotland) Ltd. Currently Bilfinger Berger holds 100% of shares in the SPV. In the original shareholding structure 80% of the equity was held by Bilfinger Berger, with John Graham (Dromore) 10%, and Northstone (NI)10% being the other partners in the consortium (HM Treasury, 2012).
The change of ownership had been anticipated by the public sector agencies and presented no issues. This was because the minority stakeholders in the SPV were construction companies whose input diminished as the contract moved into the operational phase, leaving Bilfinger Berger – an international Infrastructure developer that is active within the PPP market - as the company best equipped with the resources and expertise to complete the contract.
The European Investment Bank was involved in the initial financing of the scheme, but this changed after the opening date when Bilfinger Berger purchased the shares of the other participants.
4 Users The road is used by domestic and commercial traffic.
Other stakeholders include local highway authorities with regulatory responsibilities, which have had key influence in terms of public interaction. These were Coatbridge, Chryston and Bellshill, Cumbernauld, Kilsyth and Kirkintilloch East, and Falkirk.
The publicwere influential at the project planning and early decision-making stages. Opposition to the scheme was dealt with via mitigation technologies for reducing noise in the existing conurbations, and public participation was encouraged by the public agency. Land purchase was managed in a sensible manner, and the environmental assessment was carried out in conjunction with the EIA (Scotland) Regulations 1999.
77
5 Key Purpose for PPP Model Selection The main objective for the public sector was ensuring value for money. This was achieved through a DBFO structure linked to performance-related payments, although initially it was anticipated that shadow tolls would be used.
The technical requirements driving the project were: The need to increase the capacity of the non-motorway section of the
road with minimum public expenditure; The removal of peak time congestion and delays; The need for major maintenance to the existing carriageway; The need for re-design of the junction layouts to improve performance
and safety.
6 Project Timing Tendering and contract negotiations coincided with the economically turbulent period, which started in 2008, yet the project was still able to go ahead. This suggests that the PPP road infrastructure market still offers opportunities for investment.
7 Project Locality and Market Geography The M80 is one of the most heavily used roads in Scotland, carrying both strategic and commuter traffic. The route carries significant amounts of commercial through traffic and is therefore an important economic artery.
8 Procurement & Contractual Issues Tendering There were originally three consortia bidding, which was restricted to one preferred bidder during the competitive dialogue phase. The total length of time from the initial call for Expressions of Interest to the signing of contract was approximately 25 months.
The M80 (Stepps-Haggs) was the first road project in Scotland to adopt the competitive dialogue approach. However this did not bring with it the innovative response expected from the private sector. The main reason is that the dialogue was restricted to the “wants” of the public sector, perhaps due to lack of familiarity with this form of tendering. The public sector was more accustomed to specifying projects in terms of inputs such as the levels of management to be provided and the wearing surface to be used, rather than
78 specifying the required outputs and the Key Performance Indicators (KPIs) used to measure them.
The approach of stipulating inputs rather than performance outcomes negates the premise that one of the key objectives of PPPs is to encourage the private sector to use its skills and management expertise to increase the value of the project. If the private sector is not encouraged to innovate then the result is effectively a build and maintain contract.
However Transport Scotland`s view is that the dialogue ensured that their required outcomes became the central focus of the project, and helped to build a meaningful relationship with the private partner.
Contract Structure The type of PPP employed is a DBFO. The repayment methodology changed during the tendering process from shadow tolls to performance payments related to availability, carriage way performance and safety impacts, with deductions for under-performance.
Risk Allocation Risk is allocated as depicted in the table below.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk Allocation Commercial/ revenue risk – Revenues are performance driven, with
penalties. With the switch away from shadow tolls the traffic risk is borne by the public sector;
Financial risk – This was taken by Bilfinger Projects Investment; Regulatory risk – The risks of changes to the regulatory environment were
shared so as to ensure a good working relationship.
Performance The key measure of success is availability of lanes to road users.
79 Measurable and effective KPIs are mainly linked to payment-related
elements of the contract. The lack of incentives for improvement over and above the agreed
performance levels means that although the project can be categorised as successful, it is not fully exploiting the potential for future change.
Other indicators that could be used to measure the success of the project include:
Environment: reduction of the road’s impact on the built and natural environment through better design and more effective management;
Safety: accident rates, with the emphasis on reducing conflicts between vehicles and separation of vehicles from other potential road users;
Economy: support for sustainable economic activity and value for money;
Integration: completion of the Central Scotland motorway; Accessibility: provision of adequate access to other facilities, in
particular to jobs, and adequate accessibility for freight deliveries. The reality is that economic and environmental benefits are not actually
measured, so evidence of any changes will be anecdotal. In addition, most potential indicators are influenced by factors external to the road, making accurate measurement of its impact impossible.
References Roads and Bridge,s Special Roads, 500 (Scottish Statutory Instruments
October 6, 2006). Enterprise, Transport & Lifelong Learning Department . (2006, July).
Roads (Scotland) Act 1984: Report of Public Local Inquiry: M80 Upgrade - Stepps to Haggs. Retrieved 10 2012, from The Scottish Government: http://www.scotland.gov.uk/Publications/2006/07/04094404/1
HM government. (1991). New Roads and Street Works Act. London: Parlimentary Press.
Marshall, C., Pritchard, M., Meldrum, D., & Allan, R. (2011, November 3). M80 Stepps - Haggs. Retrieved 08 2012, from CBRD.co.uk: http://www.cbrd.co.uk/futures/m80-stepps-haggs/
PartnershipsUK. (2012). Case Study M80 Stepps to Haggs DBFO. Retrieved 05 13, 2012, from Partnerships UK :
78 specifying the required outputs and the Key Performance Indicators (KPIs) used to measure them.
The approach of stipulating inputs rather than performance outcomes negates the premise that one of the key objectives of PPPs is to encourage the private sector to use its skills and management expertise to increase the value of the project. If the private sector is not encouraged to innovate then the result is effectively a build and maintain contract.
However Transport Scotland`s view is that the dialogue ensured that their required outcomes became the central focus of the project, and helped to build a meaningful relationship with the private partner.
Contract Structure The type of PPP employed is a DBFO. The repayment methodology changed during the tendering process from shadow tolls to performance payments related to availability, carriage way performance and safety impacts, with deductions for under-performance.
Risk Allocation Risk is allocated as depicted in the table below.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk Allocation Commercial/ revenue risk – Revenues are performance driven, with
penalties. With the switch away from shadow tolls the traffic risk is borne by the public sector;
Financial risk – This was taken by Bilfinger Projects Investment; Regulatory risk – The risks of changes to the regulatory environment were
shared so as to ensure a good working relationship.
Performance The key measure of success is availability of lanes to road users.
79 Measurable and effective KPIs are mainly linked to payment-related
elements of the contract. The lack of incentives for improvement over and above the agreed
performance levels means that although the project can be categorised as successful, it is not fully exploiting the potential for future change.
Other indicators that could be used to measure the success of the project include:
Environment: reduction of the road’s impact on the built and natural environment through better design and more effective management;
Safety: accident rates, with the emphasis on reducing conflicts between vehicles and separation of vehicles from other potential road users;
Economy: support for sustainable economic activity and value for money;
Integration: completion of the Central Scotland motorway; Accessibility: provision of adequate access to other facilities, in
particular to jobs, and adequate accessibility for freight deliveries. The reality is that economic and environmental benefits are not actually
measured, so evidence of any changes will be anecdotal. In addition, most potential indicators are influenced by factors external to the road, making accurate measurement of its impact impossible.
References Roads and Bridge,s Special Roads, 500 (Scottish Statutory Instruments
October 6, 2006). Enterprise, Transport & Lifelong Learning Department . (2006, July).
Roads (Scotland) Act 1984: Report of Public Local Inquiry: M80 Upgrade - Stepps to Haggs. Retrieved 10 2012, from The Scottish Government: http://www.scotland.gov.uk/Publications/2006/07/04094404/1
HM government. (1991). New Roads and Street Works Act. London: Parlimentary Press.
Marshall, C., Pritchard, M., Meldrum, D., & Allan, R. (2011, November 3). M80 Stepps - Haggs. Retrieved 08 2012, from CBRD.co.uk: http://www.cbrd.co.uk/futures/m80-stepps-haggs/
PartnershipsUK. (2012). Case Study M80 Stepps to Haggs DBFO. Retrieved 05 13, 2012, from Partnerships UK :
80 http://www.partnershipsuk.org.uk/PUK-Case-Study.aspx?Region=&SubRegion=&Project=12183
The Motorway Archive trust. (2009). M80 Stepps to Haggs Completion project. Retrieved 11 2012, from Motorway Archive: http://motorwayarchive.ihtservices.co.uk/en/motorways/motorway-listing/m80-glasgow-to-stirling-2-sections/m80-completion-project/index.cfm
81
Olympia Odos Motorway Greece
Athena Roumboutsos University of the Aegean
Nikolaos Nikolaidis University of the Aegean
GEK Terna S.A. [email protected]
80 http://www.partnershipsuk.org.uk/PUK-Case-Study.aspx?Region=&SubRegion=&Project=12183
The Motorway Archive trust. (2009). M80 Stepps to Haggs Completion project. Retrieved 11 2012, from Motorway Archive: http://motorwayarchive.ihtservices.co.uk/en/motorways/motorway-listing/m80-glasgow-to-stirling-2-sections/m80-completion-project/index.cfm
81
Olympia Odos Motorway Greece
Athena Roumboutsos University of the Aegean
Nikolaos Nikolaidis University of the Aegean
GEK Terna S.A. [email protected]
82
Project Overview The Ionia Odos Motorway Concession, Greece Project Type: Brownfield Greenfield Both Contract duration: 30 Years (including Design & Construction) Budget: EUR2200 M
This budget (nominal prices) includes Design & Construction, Financing Costs and Construction period operating expenses.
Project Time Line Studies were initiated prior to 1998; Call for Tender: 2001; Contract Approved: 24 July 2007; Financial Close: 7 August 2008; Date of contract ratification: 20/12/2007 Law 3621/2007 Works halted/commencement of contract renegotiations: Spring 2010 Announcement of agreement on basic renegotiation terms: 12 April 2013
Map from http://www.olympiaodos.gr/index.php?ID=map_EL Figure 1: Overview of the Olympia Odos Motorway Concession Project
83
1 Introduction The “Olympia Odos” concession is a toll motorway of approximately 365 kilometers in length, located in Northern Peloponese, Greece. Several portions of the motorway are brown field sections already constructed by the Greek state under a traditional public works procurement scheme. These sections are tolled and the revenues are used to fund the construction of the new alignment.
The new motorway is designed to allow a journey speed of 110 km/h and its typical cross section consists of a dual carriageway of two lanes, divided by a New Jersey barrier, and an emergency lane. The project includes over 40 interchanges and over 4.5 km of tunnels.
The concession consist of four sections (Koklas et al, 2011): The Elefsina – Korinthos section of 63.6 km. This is an existing
motorway section, with 3 lanes and an emergency lane per direction, including the Kakia Skala complex of tunnels with 4.5 km total length and two toll plazas at Elefsina and Isthmos. The Average Annual Daily Traffic (AADT) is 30,000 vehicles per direction, which may exceed 70,000 during peak periods. This is to be upgraded / maintained by the SPV.
The Korinthos – Patra section of 120 km. The existing road, an interurban corridor, was of poor quality (one lane and shoulder per direction, with poor geometric characteristics, and high accident rates) and served in ADDT terms from 7,500 to 11,000 vehicles per direction depending on the section; traffic volumes could exceed 30,000 vehicles per direction during special peak periods. A new motorway section is to be built along the path of the old motorway.
The Patra Bypass section of 18,3 km. This is an existing motorway section with two lanes and an emergency lane per direction, including a complex of tunnels of 4.7 km total length. The AADT is approximately 8,000 vehicles per direction which could exceed 15,000 during peak periods. This is a motorway section that was built by the state. No tolls are to be received on this section throughout the concession period.
The Patra–Pyrgos– Tsakona section of 163.3 km. This is a new motorway alignment to be built by the Concessionaire.
Tolls collected on the first two sections are used to fund construction. The project also includes the exploitation of existing and new Motorway Service
82
Project Overview The Ionia Odos Motorway Concession, Greece Project Type: Brownfield Greenfield Both Contract duration: 30 Years (including Design & Construction) Budget: EUR2200 M
This budget (nominal prices) includes Design & Construction, Financing Costs and Construction period operating expenses.
Project Time Line Studies were initiated prior to 1998; Call for Tender: 2001; Contract Approved: 24 July 2007; Financial Close: 7 August 2008; Date of contract ratification: 20/12/2007 Law 3621/2007 Works halted/commencement of contract renegotiations: Spring 2010 Announcement of agreement on basic renegotiation terms: 12 April 2013
Map from http://www.olympiaodos.gr/index.php?ID=map_EL Figure 1: Overview of the Olympia Odos Motorway Concession Project
83
1 Introduction The “Olympia Odos” concession is a toll motorway of approximately 365 kilometers in length, located in Northern Peloponese, Greece. Several portions of the motorway are brown field sections already constructed by the Greek state under a traditional public works procurement scheme. These sections are tolled and the revenues are used to fund the construction of the new alignment.
The new motorway is designed to allow a journey speed of 110 km/h and its typical cross section consists of a dual carriageway of two lanes, divided by a New Jersey barrier, and an emergency lane. The project includes over 40 interchanges and over 4.5 km of tunnels.
The concession consist of four sections (Koklas et al, 2011): The Elefsina – Korinthos section of 63.6 km. This is an existing
motorway section, with 3 lanes and an emergency lane per direction, including the Kakia Skala complex of tunnels with 4.5 km total length and two toll plazas at Elefsina and Isthmos. The Average Annual Daily Traffic (AADT) is 30,000 vehicles per direction, which may exceed 70,000 during peak periods. This is to be upgraded / maintained by the SPV.
The Korinthos – Patra section of 120 km. The existing road, an interurban corridor, was of poor quality (one lane and shoulder per direction, with poor geometric characteristics, and high accident rates) and served in ADDT terms from 7,500 to 11,000 vehicles per direction depending on the section; traffic volumes could exceed 30,000 vehicles per direction during special peak periods. A new motorway section is to be built along the path of the old motorway.
The Patra Bypass section of 18,3 km. This is an existing motorway section with two lanes and an emergency lane per direction, including a complex of tunnels of 4.7 km total length. The AADT is approximately 8,000 vehicles per direction which could exceed 15,000 during peak periods. This is a motorway section that was built by the state. No tolls are to be received on this section throughout the concession period.
The Patra–Pyrgos– Tsakona section of 163.3 km. This is a new motorway alignment to be built by the Concessionaire.
Tolls collected on the first two sections are used to fund construction. The project also includes the exploitation of existing and new Motorway Service
84 Stations along the motorway, as well as the option to rent out ducting and fibre optical cables to telecom providers.
The concession, in all practical terms, provides great exclusivity to the concessionaires.
Due to the Greece and Eurozone financial crisis, the projects have seen a steep decrease in motorway traffic; as a result, the Lenders have imposed a draw stop and construction has ceased since 2011. Since spring of 2010, all stakeholders including the Greek State, the Shareholders and the Lenders have entered renegotiation discussions in order to restructure the project’s financing and restart construction works. As of April 12th 2013, the government and the SPV have reached an agreement on basic renegotiated terms. These terms include an increased government participation in the project’s funding, a significant reduction of the project’s size - the construction of certain sections of the project has been postponed- and the payment of approximately €130M in claims to the Construction Joint Venture.
2 The Contracting Authority (Public Party) This was a project that was planned and approved at central government level, by the Ministry of Environment, Physical Planning and Public Works.
The project was part of a ‘bundle’ of motorway concession projects titled ‘axes of development’. Each and every one of these projects’ concession agreements was ratified by the Greek Parliament and became a Greek law. Hence, any amendment or alteration of the concession agreement for this project would have to be ratified again by the Greek Parliament. It must also be noted that these motorways are part of the EU TEN-T network and were partially financed by EU funds.
3 The Concessionaire (Private Party) Project sponsors are Vinci (30%), Hochtief (17%), Ellaktor (17%), J&P AVAX (17%), GEK TERNA (17%) and Athena (2%). Both Vinci and Hochtief are major international players in the construction/concession market; the rest of the companies in the consortium are major infrastructure groups that are based in Greece. Athena is an affiliate of J&P AVAX.
Both the Concession and Construction SPV’s are owned by the respective Sponsors at approximately the same shares. In addition, responsibility of construction is, also, shared as shown in figure 2.
85 Financing was to have been achieved through Shareholders’ Equity
(EUR160M), Debt Capital (EUR1140M), Greek State/EU funds (EUR500M) and Tolls received during construction (EUR400M). The Lenders include a syndicate of international and Greek banks. Based on the terms announced on April 12th 2013, the above contribution is envisaged to change.
Figure 2: SPV Shareholders’ construction responsibility (source: (Koklas et al, 2011)
4 Users Olympia Odos serves private passenger and freight traffic. By providing the connection to the Port of Patras, Olympia Odos serves international traffic.
5 Key Purpose for PPP Model Selection Olympia Odos is part of the PATHE (Patra- Athens – THEssaloniki) motorway, a major road axis in SE Europe and is part of the TEN-T (priority project 7). One of the main reasons to choose a PPP/concession scheme was the willingness to transfer financing and traffic risk to the private sector and procure the project without increasing the country’s sovereign debt. Quality of service and time limitations were also decisive factors favoring the concession scheme as opposed to traditional procurement.
6 Project Timing The project is considered to be urgently needed, since Patra port is one of Greece’s main import/export nodes and there has been low logistics support between these two major ports (Patra and Piraeus) in Greece. It should also be
84 Stations along the motorway, as well as the option to rent out ducting and fibre optical cables to telecom providers.
The concession, in all practical terms, provides great exclusivity to the concessionaires.
Due to the Greece and Eurozone financial crisis, the projects have seen a steep decrease in motorway traffic; as a result, the Lenders have imposed a draw stop and construction has ceased since 2011. Since spring of 2010, all stakeholders including the Greek State, the Shareholders and the Lenders have entered renegotiation discussions in order to restructure the project’s financing and restart construction works. As of April 12th 2013, the government and the SPV have reached an agreement on basic renegotiated terms. These terms include an increased government participation in the project’s funding, a significant reduction of the project’s size - the construction of certain sections of the project has been postponed- and the payment of approximately €130M in claims to the Construction Joint Venture.
2 The Contracting Authority (Public Party) This was a project that was planned and approved at central government level, by the Ministry of Environment, Physical Planning and Public Works.
The project was part of a ‘bundle’ of motorway concession projects titled ‘axes of development’. Each and every one of these projects’ concession agreements was ratified by the Greek Parliament and became a Greek law. Hence, any amendment or alteration of the concession agreement for this project would have to be ratified again by the Greek Parliament. It must also be noted that these motorways are part of the EU TEN-T network and were partially financed by EU funds.
3 The Concessionaire (Private Party) Project sponsors are Vinci (30%), Hochtief (17%), Ellaktor (17%), J&P AVAX (17%), GEK TERNA (17%) and Athena (2%). Both Vinci and Hochtief are major international players in the construction/concession market; the rest of the companies in the consortium are major infrastructure groups that are based in Greece. Athena is an affiliate of J&P AVAX.
Both the Concession and Construction SPV’s are owned by the respective Sponsors at approximately the same shares. In addition, responsibility of construction is, also, shared as shown in figure 2.
85 Financing was to have been achieved through Shareholders’ Equity
(EUR160M), Debt Capital (EUR1140M), Greek State/EU funds (EUR500M) and Tolls received during construction (EUR400M). The Lenders include a syndicate of international and Greek banks. Based on the terms announced on April 12th 2013, the above contribution is envisaged to change.
Figure 2: SPV Shareholders’ construction responsibility (source: (Koklas et al, 2011)
4 Users Olympia Odos serves private passenger and freight traffic. By providing the connection to the Port of Patras, Olympia Odos serves international traffic.
5 Key Purpose for PPP Model Selection Olympia Odos is part of the PATHE (Patra- Athens – THEssaloniki) motorway, a major road axis in SE Europe and is part of the TEN-T (priority project 7). One of the main reasons to choose a PPP/concession scheme was the willingness to transfer financing and traffic risk to the private sector and procure the project without increasing the country’s sovereign debt. Quality of service and time limitations were also decisive factors favoring the concession scheme as opposed to traditional procurement.
6 Project Timing The project is considered to be urgently needed, since Patra port is one of Greece’s main import/export nodes and there has been low logistics support between these two major ports (Patra and Piraeus) in Greece. It should also be
86 mentioned that the number of traffic accidents on the Athens-Patra motorway section has been one of the highest in the country.
Macroeconomic figures also supported the development of the corridor. The Country’s sovereign debt was rated AA during tendering and until the initial stages of construction. However, the financial crisis has had a severe impact on the project, causing a steep decrease in traffic and a draw stop on behalf of the Lenders. Ever since 2010, the contract has been under re-negotiation, with a possibility of reducing the scope of work.
7 Project Locality and Market Geography Considering the nature of Patra’s port as an import/export node, this project should be considered as international as well as regional. In combination with Ionia Odos, the sealink to Italy and the EU is supported (see figure 3)
http://epirusgate.blogspot.gr/2013_01_23_archive.html Figure 3: Sealink to Italy
Procurement & Contractual Structure
Tendering The project was tendered in two phases (prequalification and final bid). The prequalification phase was announced in 2001. Seven (7) consortia expressed interest of which, four (4) where invited in 2006 to submit respective bids. This second phase of the tender procedure was conducted under a different
87 government (lead by the opposition to the first government). Of the four consortia that were prequalified in the final phase of the tender, only two submitted offers for the project.
The project was awarded and signed in mid 2007 to an international consortium composed of 5 construction companies: Vinci (France), Hochtief (Germany), Ellaktor, J&P and Athena (Greece). In 2008, GEK Terna, also, entered the consortium as a Sponsor.
The procurement process lasted almost 7 years.
Contract Structure This is a typical concession scheme, under the DBFO structure. The project is returned to the Greek State upon expiry of the concession period. The Greek State is also a financier of the project, as it is obliged to contribute circa EUR 250M during the construction period (at the time of signing, the €500M of EU/Greek State funds were considered to be paid on a 50/50 basis – this was recently (2012) reduced to a 95/5 as part of Greece’s economic bailout package). User toll fees paid throughout the concession period should also be considered as public funds.
Tariff increases are linked to construction milestone achievements, while the maximum real value of the tariff was set in the contract. Contract Termination clauses include full compensation of Lenders’ exposure regardless of whether termination default is attributed to the SPV or the State. Lastly, the contract includes payments to the State, calculated as a percentage of the total revenues of the SPV – this was a major part of the awarding formula for the project; this percentage is 60% on average throughout the concession period.
User fees are the primary source of revenue for the Concession company throughout the 30 year concession period. These funds are used to cover operating and maintenance costs, debt and equity repayment, and the State’s percentage share of revenues.. The payment structure and State percentage revenue share were parts of the award criteria during the tender process.
Risk Allocation Traffic risk remains one of the major issues driving the renegotiation process (2010 to present). The Greek financial crisis and associated recession have had an increased impact on the project’s revenues, as the current traffic trends are showing a decrease exceeding 50% of the initial traffic envisaged.
Notably, initial forecasts made prior to the project’s implementation indicated an annual GDP growth rate of 3.8% and a motorization growth rate of 0.74% for Greece; these estimates assumed an annual traffic volume growth
86 mentioned that the number of traffic accidents on the Athens-Patra motorway section has been one of the highest in the country.
Macroeconomic figures also supported the development of the corridor. The Country’s sovereign debt was rated AA during tendering and until the initial stages of construction. However, the financial crisis has had a severe impact on the project, causing a steep decrease in traffic and a draw stop on behalf of the Lenders. Ever since 2010, the contract has been under re-negotiation, with a possibility of reducing the scope of work.
7 Project Locality and Market Geography Considering the nature of Patra’s port as an import/export node, this project should be considered as international as well as regional. In combination with Ionia Odos, the sealink to Italy and the EU is supported (see figure 3)
http://epirusgate.blogspot.gr/2013_01_23_archive.html Figure 3: Sealink to Italy
Procurement & Contractual Structure
Tendering The project was tendered in two phases (prequalification and final bid). The prequalification phase was announced in 2001. Seven (7) consortia expressed interest of which, four (4) where invited in 2006 to submit respective bids. This second phase of the tender procedure was conducted under a different
87 government (lead by the opposition to the first government). Of the four consortia that were prequalified in the final phase of the tender, only two submitted offers for the project.
The project was awarded and signed in mid 2007 to an international consortium composed of 5 construction companies: Vinci (France), Hochtief (Germany), Ellaktor, J&P and Athena (Greece). In 2008, GEK Terna, also, entered the consortium as a Sponsor.
The procurement process lasted almost 7 years.
Contract Structure This is a typical concession scheme, under the DBFO structure. The project is returned to the Greek State upon expiry of the concession period. The Greek State is also a financier of the project, as it is obliged to contribute circa EUR 250M during the construction period (at the time of signing, the €500M of EU/Greek State funds were considered to be paid on a 50/50 basis – this was recently (2012) reduced to a 95/5 as part of Greece’s economic bailout package). User toll fees paid throughout the concession period should also be considered as public funds.
Tariff increases are linked to construction milestone achievements, while the maximum real value of the tariff was set in the contract. Contract Termination clauses include full compensation of Lenders’ exposure regardless of whether termination default is attributed to the SPV or the State. Lastly, the contract includes payments to the State, calculated as a percentage of the total revenues of the SPV – this was a major part of the awarding formula for the project; this percentage is 60% on average throughout the concession period.
User fees are the primary source of revenue for the Concession company throughout the 30 year concession period. These funds are used to cover operating and maintenance costs, debt and equity repayment, and the State’s percentage share of revenues.. The payment structure and State percentage revenue share were parts of the award criteria during the tender process.
Risk Allocation Traffic risk remains one of the major issues driving the renegotiation process (2010 to present). The Greek financial crisis and associated recession have had an increased impact on the project’s revenues, as the current traffic trends are showing a decrease exceeding 50% of the initial traffic envisaged.
Notably, initial forecasts made prior to the project’s implementation indicated an annual GDP growth rate of 3.8% and a motorization growth rate of 0.74% for Greece; these estimates assumed an annual traffic volume growth
88 of 14.4% for Greece (Source: TEN-STAC Scenarios, Traffic Forecasts and Analysis of Corridors on the Trans-European Transport Network - 2003). Land Acquisition caused significant problems to the project’s progress, as there were unrealistic expectations that the State would be able to acquire the required land for the project in a short time frame. In fact, delays due to land acquisition have been a main source of claims against the State in the project so far. Environmental claims have also caused significant problems to the project, causing work to stop in some sections.
Risk is allocated as depicted in figure 4. Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure Land Acquisition Environmental Risk
Tota
lly P
rivat
e
Totally Public
Figure 4: Risk allocation
Performance The Independent Engineer is responsible for evaluating construction performance, along with the Awarding Authority. The Awarding Authority is responsible for evaluating operation performance following the construction period. No Key Performance Indicators (KPIs) are included in the contract.
However, several key metrics are included in the financing agreements (annexes to the concession agreement). These metrics are used in the evaluation of the debt viability of the project and failure to meet them can form grounds for project default. These include the debt service coverage ratio (DSCR) and the loan life coverage ratio (LLCR).
References Kokklas, G., Papandreou, K., Handanos, Y. (2011) Access Management at
Peak Hours on an Interurban corridor under Construction. The Case of
89 “Korinthos-Patra secton of Olympia Odos. Proceedings, 1st International Conference on Access Management, June 15-17, 2011, Athens, Greece
Roadway fatalities: TEN-STAC Scenarios (2003), Traffic Forecasts and Analysis of Corridors on the Trans-European Transport Network
The Olympia Odos Contract, Greek Law 3621/2007 of 20 Dec 2007 of the Official Gazette.
www.olympiaodos.gr
88 of 14.4% for Greece (Source: TEN-STAC Scenarios, Traffic Forecasts and Analysis of Corridors on the Trans-European Transport Network - 2003). Land Acquisition caused significant problems to the project’s progress, as there were unrealistic expectations that the State would be able to acquire the required land for the project in a short time frame. In fact, delays due to land acquisition have been a main source of claims against the State in the project so far. Environmental claims have also caused significant problems to the project, causing work to stop in some sections.
Risk is allocated as depicted in figure 4. Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure Land Acquisition Environmental Risk
Tota
lly P
rivat
e
Totally Public
Figure 4: Risk allocation
Performance The Independent Engineer is responsible for evaluating construction performance, along with the Awarding Authority. The Awarding Authority is responsible for evaluating operation performance following the construction period. No Key Performance Indicators (KPIs) are included in the contract.
However, several key metrics are included in the financing agreements (annexes to the concession agreement). These metrics are used in the evaluation of the debt viability of the project and failure to meet them can form grounds for project default. These include the debt service coverage ratio (DSCR) and the loan life coverage ratio (LLCR).
References Kokklas, G., Papandreou, K., Handanos, Y. (2011) Access Management at
Peak Hours on an Interurban corridor under Construction. The Case of
89 “Korinthos-Patra secton of Olympia Odos. Proceedings, 1st International Conference on Access Management, June 15-17, 2011, Athens, Greece
Roadway fatalities: TEN-STAC Scenarios (2003), Traffic Forecasts and Analysis of Corridors on the Trans-European Transport Network
The Olympia Odos Contract, Greek Law 3621/2007 of 20 Dec 2007 of the Official Gazette.
www.olympiaodos.gr
90
Via-Invest Zaventem Belgium
Martijn van den Hurk University of Antwerp
Kit Van Gestel Flemish PPP Knowledge Centre [email protected]
91
Project Overview The Via-Invest Zaventem Project Profile Project Type: Brownfield Greenfield Both Contract duration: 30 Years Budget: EUR 219,85M
The amount includes EUR 51,85M for design and build and €5,6M/year in availability payments (Vlaamse Regering, 2011)
Project Time Line Conception: 2005; Tender: March 2006; Establishment of Via-Invest Vlaanderen nv, parent company of Via-Invest Zaventem nv: October 2006; Contract Approved: September/October 2007; Establishment of Via-Invest Zaventem nv (PPP project company): October 2007; Financial Close: September/October 2007; Beginning of Works: October 2007; Road in service: February 2012
Figure 1: Overview of the Via-Invest Zaventem Project
90
Via-Invest Zaventem Belgium
Martijn van den Hurk University of Antwerp
Kit Van Gestel Flemish PPP Knowledge Centre [email protected]
91
Project Overview The Via-Invest Zaventem Project Profile Project Type: Brownfield Greenfield Both Contract duration: 30 Years Budget: EUR 219,85M
The amount includes EUR 51,85M for design and build and €5,6M/year in availability payments (Vlaamse Regering, 2011)
Project Time Line Conception: 2005; Tender: March 2006; Establishment of Via-Invest Vlaanderen nv, parent company of Via-Invest Zaventem nv: October 2006; Contract Approved: September/October 2007; Establishment of Via-Invest Zaventem nv (PPP project company): October 2007; Financial Close: September/October 2007; Beginning of Works: October 2007; Road in service: February 2012
Figure 1: Overview of the Via-Invest Zaventem Project
92
1 Introduction The “Via-Invest Zaventem” Project (improved northern road access to Brussels Airport) was conceived to address the congestion witnessed since the early 2000s in the area between the junction complex of the E19 in Machelen and Brussels airport’s cargo site in Melsbroek. The daily volume of traffic could reach 2,500 vehicles an hour and was expected to increase following the expansion of the cargo-industrial zone. More specifically, the Brussels Airport Company, for 2011, forecasted traffic at approximately 3,500 private cars per hour and a demand for 6,000 parking spaces in its cargo zone. The project concerned:
Adaption and extension of junction complex no. 12 on the E19 in Machelen;
Conversion of Luchthavenlaan (N211) into a main road I by building a viaduct over the existing road;
A cycle bridge over the E19; A separate cycle path with a tunnel under Luchthavenlaan (N211); Overhauling the existing carpool car park and road bridge installation; Repairing the existing bridge over the E19 on Luchthavenlaan.
This project is unique in that its implementation is integrated into the Diabolo railway project, although both projects are being financed separately with private funds. Via-Invest Zaventem and the Diabolo project actually were two independent projects being implemented at the same time and in the same project area. The environmental impact report revealed that jointly implementing the two projects would significantly limit negative public and environmental impact. In addition, a joint implementation was more cost-effective as it allowed for a number of economies of scale. Therefore, the two projects were launched simultaneously as a single integrated contract.
The objective of the contracting authorities, the Flemish Region for Via-Invest Zaventem and Infrabel for the Diabolo project, was private project finance. However, while Infrabel was interested in transferring the demand risk, the Flemish Government placed the emphasis on availability. Therefore, the two projects presented a completely different risk allocation profile and a different financing structure was implemented (PMV, 2011; Vlaamse Regering, 2011).
The Via-Invest project, by improving accessibility for both passengers and cargo, has probably strengthened Brussels Airport’s competitiveness, especially in relation to other Belgian airports. In the same context, this has
93 increased the infrastructure’s exclusivity, even though the adjacent Diabolo rail project may be limiting its “monopoly” status. Nonetheless, the Diabolo project is estimated to have considerable added value, stemming, on the one hand, from further enhancing the competitive position of Brussels Airport and, on the other, from “bundling” (downstream) construction and achieving economies of scale, time and environmental impact.
2 The Contracting Authority (Public Party) The Flemish Region is the contracting authority, which signed the DBFM contract with the SPV and directly governed the project.
More specifically, the project was one of the 25 “missing links” and bottlenecks in the Region’s road infrastructure network announced officially by the Flemish Government in 1997 and 2001. In order to accelerate this programme, the Government decided to realize a few projects through public-private partnerships. The decision was made in November 2005 to deliver the upgrade of the northern road access to Zaventem Airport via a PPP arrangement (Van Gestel et al., 2011).
The tender was conducted by Via-Invest Vlaanderen nv, a fully government-owned company, established in October 2006, which created the opportunity the for Via-Invest Zaventem company to be founded.
3 The Concessionaire (Private Party) Project sponsors are Via-Invest Vlaanderen (€2,2M in equity) and Fortis Bank (EUR 2,3M in subordinated loans), while Fortis Bank provided an additional EUR 64,5M in debt.
Via-Invest Vlaanderen nv is the parent company of Via-Invest Zaventem nv and it was established in autumn 2006. Via-Invest Vlaanderen nv continues to promote solutions to several missing links in the Flemish road network. The company is owned by both the Flemish Region (49%) and Participatiemaatschappij Vlaanderen [PMV] (51%), which is an investment company of the Flemish Government. This cooperation was established for two reasons: (1) the Flemish Region could bring in its technical know how of public works and (2) PMV could bring in its financial know how.
The SPV is made up of Via-Invest Zaventem [Fortis Bank (51%) and Via-Invest Vlaanderen (49%)]. Construction work was subcontracted to THV Dialink, a consortium of the following companies:
92
1 Introduction The “Via-Invest Zaventem” Project (improved northern road access to Brussels Airport) was conceived to address the congestion witnessed since the early 2000s in the area between the junction complex of the E19 in Machelen and Brussels airport’s cargo site in Melsbroek. The daily volume of traffic could reach 2,500 vehicles an hour and was expected to increase following the expansion of the cargo-industrial zone. More specifically, the Brussels Airport Company, for 2011, forecasted traffic at approximately 3,500 private cars per hour and a demand for 6,000 parking spaces in its cargo zone. The project concerned:
Adaption and extension of junction complex no. 12 on the E19 in Machelen;
Conversion of Luchthavenlaan (N211) into a main road I by building a viaduct over the existing road;
A cycle bridge over the E19; A separate cycle path with a tunnel under Luchthavenlaan (N211); Overhauling the existing carpool car park and road bridge installation; Repairing the existing bridge over the E19 on Luchthavenlaan.
This project is unique in that its implementation is integrated into the Diabolo railway project, although both projects are being financed separately with private funds. Via-Invest Zaventem and the Diabolo project actually were two independent projects being implemented at the same time and in the same project area. The environmental impact report revealed that jointly implementing the two projects would significantly limit negative public and environmental impact. In addition, a joint implementation was more cost-effective as it allowed for a number of economies of scale. Therefore, the two projects were launched simultaneously as a single integrated contract.
The objective of the contracting authorities, the Flemish Region for Via-Invest Zaventem and Infrabel for the Diabolo project, was private project finance. However, while Infrabel was interested in transferring the demand risk, the Flemish Government placed the emphasis on availability. Therefore, the two projects presented a completely different risk allocation profile and a different financing structure was implemented (PMV, 2011; Vlaamse Regering, 2011).
The Via-Invest project, by improving accessibility for both passengers and cargo, has probably strengthened Brussels Airport’s competitiveness, especially in relation to other Belgian airports. In the same context, this has
93 increased the infrastructure’s exclusivity, even though the adjacent Diabolo rail project may be limiting its “monopoly” status. Nonetheless, the Diabolo project is estimated to have considerable added value, stemming, on the one hand, from further enhancing the competitive position of Brussels Airport and, on the other, from “bundling” (downstream) construction and achieving economies of scale, time and environmental impact.
2 The Contracting Authority (Public Party) The Flemish Region is the contracting authority, which signed the DBFM contract with the SPV and directly governed the project.
More specifically, the project was one of the 25 “missing links” and bottlenecks in the Region’s road infrastructure network announced officially by the Flemish Government in 1997 and 2001. In order to accelerate this programme, the Government decided to realize a few projects through public-private partnerships. The decision was made in November 2005 to deliver the upgrade of the northern road access to Zaventem Airport via a PPP arrangement (Van Gestel et al., 2011).
The tender was conducted by Via-Invest Vlaanderen nv, a fully government-owned company, established in October 2006, which created the opportunity the for Via-Invest Zaventem company to be founded.
3 The Concessionaire (Private Party) Project sponsors are Via-Invest Vlaanderen (€2,2M in equity) and Fortis Bank (EUR 2,3M in subordinated loans), while Fortis Bank provided an additional EUR 64,5M in debt.
Via-Invest Vlaanderen nv is the parent company of Via-Invest Zaventem nv and it was established in autumn 2006. Via-Invest Vlaanderen nv continues to promote solutions to several missing links in the Flemish road network. The company is owned by both the Flemish Region (49%) and Participatiemaatschappij Vlaanderen [PMV] (51%), which is an investment company of the Flemish Government. This cooperation was established for two reasons: (1) the Flemish Region could bring in its technical know how of public works and (2) PMV could bring in its financial know how.
The SPV is made up of Via-Invest Zaventem [Fortis Bank (51%) and Via-Invest Vlaanderen (49%)]. Construction work was subcontracted to THV Dialink, a consortium of the following companies:
94 CFE nv: a Belgian multidisciplinary group listed on Euronext Brussels,
with VINCI holding 47% of the capital (CFE, 2013). CEI-De Meyer nv: a subsidiary of Royal BAM Group nv (CEI-De
Meyer n.v., 2013) Wayss & Freytag Ingenieurbau A.G.: a subsidiary company of Royal
BAM Group nv (Wayss & Freytag Ingenieurbau A.G., 2013). VINCI Construction Grands Projets (VINCI Construction Grand
Projets, 2013). Smet-Tunnelling nv: a subsidiary of Smet-Boring nv (Smet-Boring
n.v., 2013).
4 Users The Via-Invest Zaventem Project is available to private passenger and freight traffic.
5 Key Purpose for PPP Model Selection As previously noted, the primary reason for selecting the PPP model for project delivery was the acceleration of the Region’s road infrastructure programme. In addition, this procurement model offered “off-balance sheet financing”, in accordance with ESA95 requirements with respect to public debt. Finally, risk transfer was also a motivation (Vlaamse Regering, 2011).
6 Project Timing The traffic situation north of Zaventem Airport was officially considered a serious bottleneck. An ex-post evaluation might enable a better assessment to be made of the severity of the project need.
7 Project Locality and Market Geography The road project is located exactly between Zaventem Airport and the suburbs of Brussels. The road supports the airport connection and its respective market.
8 Procurement & Contractual Structure
Tendering Two tenders were separately, but simultaneously called to start up the Via-Invest Zaventem project procedure: one call was for the Design-Build-Maintenance part of the project, and one call for the Financing part of the
95 project. Eventually, these components would be merged into one DBFM contract between the SPV and the contracting authority, i.e., Flemish Region (see figure 2).
This approach enabled the contracting authority to combine the best contractor offer with the best financier offer, without harming the lifecycle approach of a PPP. In addition, splitting the call for tenders allowed smaller contractors to bid, as securing financing was not a barrier to entry. Finally, although the public authority eventually transferred a number of activities, it remained a project co-financier.
Figure 2: Organizational Schema of the Via-Invest Zaventem PPP
The open call for the expression of interest was announced in March of
2006. Four (4) consortia were selected for negotiations for the DBM tender and four (4) for the Financing one. The preferred bidders were THV Dialink and Fortis Bank, respectively (Van Gestel, et al., 2011; PMV, 2006). The procurement process was concluded within 18 months. Contract Structure The contractual regime was based on a fairly standard form of the DBFM agreement based on English PFI standards and the Dutch standard DBFM
DBM
100%
51%
DBFM contract
F
49%
Financier SPV (Via-Invest Zaventem)
Via-Invest Vlaanderen nv
PMV Flemish Region
Contractor
94 CFE nv: a Belgian multidisciplinary group listed on Euronext Brussels,
with VINCI holding 47% of the capital (CFE, 2013). CEI-De Meyer nv: a subsidiary of Royal BAM Group nv (CEI-De
Meyer n.v., 2013) Wayss & Freytag Ingenieurbau A.G.: a subsidiary company of Royal
BAM Group nv (Wayss & Freytag Ingenieurbau A.G., 2013). VINCI Construction Grands Projets (VINCI Construction Grand
Projets, 2013). Smet-Tunnelling nv: a subsidiary of Smet-Boring nv (Smet-Boring
n.v., 2013).
4 Users The Via-Invest Zaventem Project is available to private passenger and freight traffic.
5 Key Purpose for PPP Model Selection As previously noted, the primary reason for selecting the PPP model for project delivery was the acceleration of the Region’s road infrastructure programme. In addition, this procurement model offered “off-balance sheet financing”, in accordance with ESA95 requirements with respect to public debt. Finally, risk transfer was also a motivation (Vlaamse Regering, 2011).
6 Project Timing The traffic situation north of Zaventem Airport was officially considered a serious bottleneck. An ex-post evaluation might enable a better assessment to be made of the severity of the project need.
7 Project Locality and Market Geography The road project is located exactly between Zaventem Airport and the suburbs of Brussels. The road supports the airport connection and its respective market.
8 Procurement & Contractual Structure
Tendering Two tenders were separately, but simultaneously called to start up the Via-Invest Zaventem project procedure: one call was for the Design-Build-Maintenance part of the project, and one call for the Financing part of the
95 project. Eventually, these components would be merged into one DBFM contract between the SPV and the contracting authority, i.e., Flemish Region (see figure 2).
This approach enabled the contracting authority to combine the best contractor offer with the best financier offer, without harming the lifecycle approach of a PPP. In addition, splitting the call for tenders allowed smaller contractors to bid, as securing financing was not a barrier to entry. Finally, although the public authority eventually transferred a number of activities, it remained a project co-financier.
Figure 2: Organizational Schema of the Via-Invest Zaventem PPP
The open call for the expression of interest was announced in March of
2006. Four (4) consortia were selected for negotiations for the DBM tender and four (4) for the Financing one. The preferred bidders were THV Dialink and Fortis Bank, respectively (Van Gestel, et al., 2011; PMV, 2006). The procurement process was concluded within 18 months. Contract Structure The contractual regime was based on a fairly standard form of the DBFM agreement based on English PFI standards and the Dutch standard DBFM
DBM
100%
51%
DBFM contract
F
49%
Financier SPV (Via-Invest Zaventem)
Via-Invest Vlaanderen nv
PMV Flemish Region
Contractor
96 contract of the Dutch Directorate-General for Public Works and Water Management (for an updated version of this contract, see Rijkswaterstaat (2012). The overall contractual agreement – the so-called “DBFM shadow agreement” – was signed between the Flemish Region and the SPV. Reflecting the tender structure, the SPV closed a:
DBM agreement with the private partner, THV Dialink. Financial agreement with the private financier, Fortis Bank.
Termination clauses concern force majeure; failure of the Flemish Region; failure of the SPV; and unilateral termination by Flemish Region.
Risk Allocation The private contractor is mainly responsible for the maintenance of the road infrastructure, including monitoring, damage repair, and safety. However, the Flemish Region remains responsible for crisis management, energy delivery etc., as well as snow and ice control. This reflects the exploitation risk, since the public sector takes responsibility for the road remaining open and accessible (Vlaamse Regering, 2011). Risks ⇐ ⇒ Design & construction
Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 3: Risk allocation
Finally, as the government is involved in the financing of the project through its government-owned company, the public sector also shares significant financial risk. Risk is allocated as depicted in figure 3. Performance The DBFM contract contains no specific operational performance requirements. These requirements are included in a specific document on specifications and conditions (“Bestek TR119301”), which appears to be
97 confidential. Penalties against availability fees are included for insufficient performance.
With respect to Construction Management performance, the project was delivered on time, almost to budget and with minimum disturbance to the local environment (RebelGroup Advisory Belgium, 2012).
More specifically, building costs proved to be only 0,5% higher than was initially budgeted (RebelGroup Advisory Belgium, 2012).
Finally, comparing forecast to actual traffic has been distorted by the impact of the economic crisis. The Brussels Airport Company, airport manager of Zaventem, has announced that both passenger and cargo traffic have dropped sharply as a consequence of the global financial crisis. For instance, the cargo volume handled in November 2012 was 34.608 tons, which was a 17% decrease compared to November 2011 (Peeters, 2012).
References CEI-De Meyer n.v. (2013). Royal BAM Group Retrieved January 28,
2013, from http://www.cei-demeyer.be/en/index.php?menu=211 CFE. (2013). About CFE Retrieved January 28, 2013, from
http://en.cfe.be/about-cfe.aspx Dutch Department of Waterways and Public Works. (2012). Rijksbrede
Modelovereenkomst DBFM Huisvesting. The Hague: Dutch Ministry of Infrastructure and the Environment.
Peeters, S. (2012). Passagiers- en vrachtverkeer Brussels Airport blijft dalen door crisis, HLN. Retrieved from http://www.hln.be/hln/nl/942/Economie/article/detail/1547185/2012/12/11/Passagiers--en-vrachtverkeer-Brussels-Airport-blijft-dalen-door-crisis.dhtml
PMV. (2006, March 15). Aankondiging van opdracht, Bulletin der Aanbestedingen.
PMV. (2011). Via-Invest Zaventem: improved northern road access to Zaventem Airport Retrieved January 28, 2013, from http://www.pmv.eu/download/en/1311261/file/via-invest_zaventem_en.pdf
RebelGroup Advisory Belgium. (2012). Samen Publiek-Privaat. Brussels: Steven Van Garsse.
Smet-Boring n.v. (2013). Company Retrieved January 28, 2013, from http://www.smetboring.be/en/bedrijf.aspx
96 contract of the Dutch Directorate-General for Public Works and Water Management (for an updated version of this contract, see Rijkswaterstaat (2012). The overall contractual agreement – the so-called “DBFM shadow agreement” – was signed between the Flemish Region and the SPV. Reflecting the tender structure, the SPV closed a:
DBM agreement with the private partner, THV Dialink. Financial agreement with the private financier, Fortis Bank.
Termination clauses concern force majeure; failure of the Flemish Region; failure of the SPV; and unilateral termination by Flemish Region.
Risk Allocation The private contractor is mainly responsible for the maintenance of the road infrastructure, including monitoring, damage repair, and safety. However, the Flemish Region remains responsible for crisis management, energy delivery etc., as well as snow and ice control. This reflects the exploitation risk, since the public sector takes responsibility for the road remaining open and accessible (Vlaamse Regering, 2011). Risks ⇐ ⇒ Design & construction
Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 3: Risk allocation
Finally, as the government is involved in the financing of the project through its government-owned company, the public sector also shares significant financial risk. Risk is allocated as depicted in figure 3. Performance The DBFM contract contains no specific operational performance requirements. These requirements are included in a specific document on specifications and conditions (“Bestek TR119301”), which appears to be
97 confidential. Penalties against availability fees are included for insufficient performance.
With respect to Construction Management performance, the project was delivered on time, almost to budget and with minimum disturbance to the local environment (RebelGroup Advisory Belgium, 2012).
More specifically, building costs proved to be only 0,5% higher than was initially budgeted (RebelGroup Advisory Belgium, 2012).
Finally, comparing forecast to actual traffic has been distorted by the impact of the economic crisis. The Brussels Airport Company, airport manager of Zaventem, has announced that both passenger and cargo traffic have dropped sharply as a consequence of the global financial crisis. For instance, the cargo volume handled in November 2012 was 34.608 tons, which was a 17% decrease compared to November 2011 (Peeters, 2012).
References CEI-De Meyer n.v. (2013). Royal BAM Group Retrieved January 28,
2013, from http://www.cei-demeyer.be/en/index.php?menu=211 CFE. (2013). About CFE Retrieved January 28, 2013, from
http://en.cfe.be/about-cfe.aspx Dutch Department of Waterways and Public Works. (2012). Rijksbrede
Modelovereenkomst DBFM Huisvesting. The Hague: Dutch Ministry of Infrastructure and the Environment.
Peeters, S. (2012). Passagiers- en vrachtverkeer Brussels Airport blijft dalen door crisis, HLN. Retrieved from http://www.hln.be/hln/nl/942/Economie/article/detail/1547185/2012/12/11/Passagiers--en-vrachtverkeer-Brussels-Airport-blijft-dalen-door-crisis.dhtml
PMV. (2006, March 15). Aankondiging van opdracht, Bulletin der Aanbestedingen.
PMV. (2011). Via-Invest Zaventem: improved northern road access to Zaventem Airport Retrieved January 28, 2013, from http://www.pmv.eu/download/en/1311261/file/via-invest_zaventem_en.pdf
RebelGroup Advisory Belgium. (2012). Samen Publiek-Privaat. Brussels: Steven Van Garsse.
Smet-Boring n.v. (2013). Company Retrieved January 28, 2013, from http://www.smetboring.be/en/bedrijf.aspx
98 Van Gestel, K., Voets, J., & Verhoest, K. (2011). Pijlers voor een
performante samenwerking. Handreikingen voor de PPS-praktijk op basis van vijf Vlaamse PPS-projecten. Leuven: SBOV.
VINCI Construction Grand Projets. (2013). Profile Retrieved January 28, 2013, from http://www.vinci-construction-projects.com/projets.nsf/en/profile.htm
Vlaamse Regering. (2011). Alternatieve financiering van Vlaamse overheidsinvesteringen. Brussels: Flemish Parliament.
Wayss & Freytag Ingenieurbau A.G. (2013). About us Retrieved January 28, 2013, from http://www.wf-ingbau.de/en/company/about-us.html
99
Rail
98 Van Gestel, K., Voets, J., & Verhoest, K. (2011). Pijlers voor een
performante samenwerking. Handreikingen voor de PPS-praktijk op basis van vijf Vlaamse PPS-projecten. Leuven: SBOV.
VINCI Construction Grand Projets. (2013). Profile Retrieved January 28, 2013, from http://www.vinci-construction-projects.com/projets.nsf/en/profile.htm
Vlaamse Regering. (2011). Alternatieve financiering van Vlaamse overheidsinvesteringen. Brussels: Flemish Parliament.
Wayss & Freytag Ingenieurbau A.G. (2013). About us Retrieved January 28, 2013, from http://www.wf-ingbau.de/en/company/about-us.html
99
Rail
100
Contents
ARN-STO Rail link (Arlandabanan), Sweden
Robert Ågren and Stefan Olander
FERTAGUS Train, Portugal Rosário Macário, Joana Ribeiro and Rui Couchinho
101
ARN-STO Rail link (Arlandabanan)
Sweden Robert Ågren
Lund University [email protected]
Stefan Olander Lund University
100
Contents
ARN-STO Rail link (Arlandabanan), Sweden
Robert Ågren and Stefan Olander
FERTAGUS Train, Portugal Rosário Macário, Joana Ribeiro and Rui Couchinho
101
ARN-STO Rail link (Arlandabanan)
Sweden Robert Ågren
Lund University [email protected]
Stefan Olander Lund University
102
Project Overview The ARN-STO Rail link (Arlandabanan) Concession, Sweden Project Type: Brownfield Greenfield Both Contract duration: 45 Years (including Design & Construction) There are also limited possibilities for a 10-year extension. Budget: SEK 6811M The actual construction cost was SEK 6811M, while the forecast was SEK 6025M. Project Time Line Project conception: January 1993; Call for Tender: June 1993; Contract Approved: September 1994; Financial Close: October/November 1995; Start of construction: November 1995; Start of Operation: 1999 Refinancing: 1999; Refinancing: 2004
Figure 1: The ARN-STO Rail Photo courtesy of Niklas Alm
103
1 Introduction The Arlanda – Stockholm link is a 19 km rail way and runs between Arlanda airport, and Stockholm, Sweden. During 2012 a total of 4.6 million passengers were carried on the link, out of which 3.3 million were carried by the concession holder.
The track included an expansion of the existing rail network leading out of Stockholm central station to a 4-track solution before the rail splits up to a 2-track link. This latter part is an exclusive part of the rail link.
The discussion of the need for a rail connection between Stockholm and Arlanda airport arose in the 1980s as Arlanda airport grew in size. The culmination came when Arlanda airport applied for approval for the construction of a third runway. In 1990 discussions started regarding whether the link should be built as a PPP or financed through the state budget. In 1993, the government opted for a PPP approach and a decision to start the procurement procedure was taken by the parliament.
The project is the only rail link connection to Arlanda – Stockholm airport. However, the airport can be reached by road. Competing firms are running bus and helicopter shuttles to the airport. Furthermore, as of 2012, the regional Stockholm public transport system has started to offer services on the rail link in competition with the concession holder. The concession holder is reimbursed for this traffic. Similarly traffic has been running on the link from the neighboring region of Uppland for some time; the concession holder is reimbursed for this traffic also.
2 The Contracting Authority (Public Party) The project was initiated by what was then the Swedish Rail Administration, which was a government agency. The feasibility studies were conducted through a government-appointed inquiry, and the final decision was affirmed by law in the parliament (This practice is no longer mandatory nor possible in Sweden at the current date – 2013).
Arlandabanan Infrastructure AB, set up as a government owned SPV for the project, was the contracting authority.
102
Project Overview The ARN-STO Rail link (Arlandabanan) Concession, Sweden Project Type: Brownfield Greenfield Both Contract duration: 45 Years (including Design & Construction) There are also limited possibilities for a 10-year extension. Budget: SEK 6811M The actual construction cost was SEK 6811M, while the forecast was SEK 6025M. Project Time Line Project conception: January 1993; Call for Tender: June 1993; Contract Approved: September 1994; Financial Close: October/November 1995; Start of construction: November 1995; Start of Operation: 1999 Refinancing: 1999; Refinancing: 2004
Figure 1: The ARN-STO Rail Photo courtesy of Niklas Alm
103
1 Introduction The Arlanda – Stockholm link is a 19 km rail way and runs between Arlanda airport, and Stockholm, Sweden. During 2012 a total of 4.6 million passengers were carried on the link, out of which 3.3 million were carried by the concession holder.
The track included an expansion of the existing rail network leading out of Stockholm central station to a 4-track solution before the rail splits up to a 2-track link. This latter part is an exclusive part of the rail link.
The discussion of the need for a rail connection between Stockholm and Arlanda airport arose in the 1980s as Arlanda airport grew in size. The culmination came when Arlanda airport applied for approval for the construction of a third runway. In 1990 discussions started regarding whether the link should be built as a PPP or financed through the state budget. In 1993, the government opted for a PPP approach and a decision to start the procurement procedure was taken by the parliament.
The project is the only rail link connection to Arlanda – Stockholm airport. However, the airport can be reached by road. Competing firms are running bus and helicopter shuttles to the airport. Furthermore, as of 2012, the regional Stockholm public transport system has started to offer services on the rail link in competition with the concession holder. The concession holder is reimbursed for this traffic. Similarly traffic has been running on the link from the neighboring region of Uppland for some time; the concession holder is reimbursed for this traffic also.
2 The Contracting Authority (Public Party) The project was initiated by what was then the Swedish Rail Administration, which was a government agency. The feasibility studies were conducted through a government-appointed inquiry, and the final decision was affirmed by law in the parliament (This practice is no longer mandatory nor possible in Sweden at the current date – 2013).
Arlandabanan Infrastructure AB, set up as a government owned SPV for the project, was the contracting authority.
104
3 The Concessionaire (Private Party) The concession was awarded to a consortium including NCC (construction company), SIAB (construction company) and Vattenfall (state-owned energy/utilities company). Respective shares in the consortium are unknown. The successful consortium formed A-Train AB which along with the government-owned Arlandabanan Infrastructure AB formed the SPV. In 2004 the consortium SPV was sold to Macquarie European Infrastructure Fund.
The financial structure regarding the link is complicated, and involves many (more than 40) different agreements. It is not obvious that all agreements have been publicly disclosed, at least not in a collective presentation, which may explain why different accounts of the project report different numbers and parts of the project.
Construction costs are estimated to be between SEK 6000-6800M. Approximately 40 % (SEK 2700M) of the costs were capital costs, paid by the consortium. Regarding the private capital costs, SEK 1000M were financed through a conditional loan from the government. SEK 1100M were financed through external bank funding, SEK 200M were financed through loans from the consortium participants, and the rest (SEK 400M) were funded through equity.
The remaining percentage of the total capital costs was financed through the government as direct payments. The nature of those direct payments remains somewhat unclear, and different labels have been attached to these payments; some payments are marked as reimbursements and some as state aid subsidies, but still connected to specific sections of the project. The conditional loan awarded by the government was an interest-free, amortization free loan. In this respect, the government is to receive a profit share (to the amount of SEK 1850M), provided the concession holder makes a profit. This loan is subordinated to other debts in the case of a bankruptcy.
Refinancing has occurred during the project. Notably refinancing occurred in 1999, when the level of external financing was increased (mostly from banks where the government was a dominant shareholder). In 2004 refinancing occurred when debts were transferred to new creditors (where the government did not have any owner interests).
Rolling stock was financed through a credit arrangement where the government guarantees repayment if the concession holder is unable to repay the loan. This loan had an initial investment cost of 730M SEK.
105
4 Users The ARN-STO rail link serves only passenger traffic. Ridership in 2012 was 4.6M passengers. Cargo can be shipped on the non-exclusive part of the link.
Apart from the users, stakeholders include: the National Transport Authority (the authority responsible for the national rail network), the Swedish Transport Agency (the regulatory authority); Swedavia (the airport operator), SL (a regional public transport company), SJ (the national public transport company), UL (a regional public transport company) and Arlanda Express.
5 Key Purpose for PPP Model Selection The reason for initiating the project was the need for the service. The reason for choosing a PPP solution was financial.
6 Project Timing The need for the project was based on increased traffic projections for Arlanda Airport, and a need to decrease the environmental impact of the airport. However, neither the airport nor the rail link has met the original projections.
7 Project Locality and Market Geography The rail link contributes a key part of the passenger traffic to and from Arlanda airport.
8 Procurement & Contractual Structure
Tendering The contract was assigned following an open call for expressions of interest and a negotiation phase.
Eighty (80) potential bidders responded to the open call for the expression of interest. Two (2) bidders (two consortia) took part in the final stage. The procurement process was concluded within 15 months.
Contract Structure A 45 year concession agreement was signed, establishing some levels of service and including some termination clauses relating to breaches of the contract’s intent. Within this contract, the private party is fully responsible for design, construction, and operation and maintains the link.
104
3 The Concessionaire (Private Party) The concession was awarded to a consortium including NCC (construction company), SIAB (construction company) and Vattenfall (state-owned energy/utilities company). Respective shares in the consortium are unknown. The successful consortium formed A-Train AB which along with the government-owned Arlandabanan Infrastructure AB formed the SPV. In 2004 the consortium SPV was sold to Macquarie European Infrastructure Fund.
The financial structure regarding the link is complicated, and involves many (more than 40) different agreements. It is not obvious that all agreements have been publicly disclosed, at least not in a collective presentation, which may explain why different accounts of the project report different numbers and parts of the project.
Construction costs are estimated to be between SEK 6000-6800M. Approximately 40 % (SEK 2700M) of the costs were capital costs, paid by the consortium. Regarding the private capital costs, SEK 1000M were financed through a conditional loan from the government. SEK 1100M were financed through external bank funding, SEK 200M were financed through loans from the consortium participants, and the rest (SEK 400M) were funded through equity.
The remaining percentage of the total capital costs was financed through the government as direct payments. The nature of those direct payments remains somewhat unclear, and different labels have been attached to these payments; some payments are marked as reimbursements and some as state aid subsidies, but still connected to specific sections of the project. The conditional loan awarded by the government was an interest-free, amortization free loan. In this respect, the government is to receive a profit share (to the amount of SEK 1850M), provided the concession holder makes a profit. This loan is subordinated to other debts in the case of a bankruptcy.
Refinancing has occurred during the project. Notably refinancing occurred in 1999, when the level of external financing was increased (mostly from banks where the government was a dominant shareholder). In 2004 refinancing occurred when debts were transferred to new creditors (where the government did not have any owner interests).
Rolling stock was financed through a credit arrangement where the government guarantees repayment if the concession holder is unable to repay the loan. This loan had an initial investment cost of 730M SEK.
105
4 Users The ARN-STO rail link serves only passenger traffic. Ridership in 2012 was 4.6M passengers. Cargo can be shipped on the non-exclusive part of the link.
Apart from the users, stakeholders include: the National Transport Authority (the authority responsible for the national rail network), the Swedish Transport Agency (the regulatory authority); Swedavia (the airport operator), SL (a regional public transport company), SJ (the national public transport company), UL (a regional public transport company) and Arlanda Express.
5 Key Purpose for PPP Model Selection The reason for initiating the project was the need for the service. The reason for choosing a PPP solution was financial.
6 Project Timing The need for the project was based on increased traffic projections for Arlanda Airport, and a need to decrease the environmental impact of the airport. However, neither the airport nor the rail link has met the original projections.
7 Project Locality and Market Geography The rail link contributes a key part of the passenger traffic to and from Arlanda airport.
8 Procurement & Contractual Structure
Tendering The contract was assigned following an open call for expressions of interest and a negotiation phase.
Eighty (80) potential bidders responded to the open call for the expression of interest. Two (2) bidders (two consortia) took part in the final stage. The procurement process was concluded within 15 months.
Contract Structure A 45 year concession agreement was signed, establishing some levels of service and including some termination clauses relating to breaches of the contract’s intent. Within this contract, the private party is fully responsible for design, construction, and operation and maintains the link.
106 At the end of construction, assets are to be sold to the government SPV at
a fixed price, then immediately leased back to the private SPV for a one-time-fixed-price, identical to the former transaction price.
Financial guarantees have been provided to creditors by the government, but not to the concession holder, whose revenues are based on user fees.
Risk Allocation Risk is allocated as depicted in figure 2.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure Political
Tota
lly P
rivat
e
Totally Public
Figure 2 Risk allocation There were political risks associated with the project. While parties in
parliament cannot affect the actual contract, they can influence the SPV’s overall conditions, which are not regulated in the contract but still related to the operation of the project.
Performance The contract contains vague statements about upholding good service standards. Actual traffic has been less than forecast: ridership 4.6M vs 5.1M forecast for 2005 (the forecast traffic for 2020 is 7.4M passengers).
While the forecasts have not been met, this risk is mainly held by the private party, and relates to business decisions on pricing vs. number of travellers carried. The availability/punctuality of the link has outperformed regional rail traffic: approximately 95% vs. 91% on time (+5 min).
References Centre for Mega Projects in Transport and Development. (nd). Project
profile: Sweden: Stockholm Air Link: Arlandabanan. from
107 http://www.omegacentre.bartlett.ucl.ac.uk/studies/cases/pdf/SWEDEN_ARLANDA_PROFILE_050511.pdf. Accessed 2013-04-22.
Enberg, Nils, Hultkrantz, Lars, & Nilsson, Jan-Eric. (2004). Arlandabanan: en uppföljning av samhällsekonomiska aspekter på en okonventionell projektfinansiering några år efter trafikstart VTI Notat 46-2004. (NP).
Regeringens proposition (1993) 1992/93:176 om investeringar i trafikens infrastruktur m.m. [The government’s bill on investment in transport infrastructure etc.]. Stockholm: Riksdagen.
Regeringens proposition (1994) 1993/94:213 Godkännande av grundläggande principer för Arlandabanan. [The government’s bill on approval of fundamental principles for Arlandabanan.] Stockholm: Riksdagen.
Riksrevisionsverket. (1995). Upphandlingen av Arlandabanan -regeringsuppdrag [The procurement of Arlandabanan - commissioned report] RRV 1995:43. Stockholm: Riksrevisionsverket.
Riksrevisionen (2004). Arlandabanan: Insyn i ett samfinansierat järnvägsprojekt. [Arlandabanan: Transparency in a co-financed railway project.] RiR 2004:22. Stockholm: Riksrevisionen.
Trafikutskottet betänkande (1992/93) 1992/93:TU35 Investeringar i trafikens infrastruktur m.m.. [The transport committee’s report on investment in transport infrastructure etc.]. Sto
106 At the end of construction, assets are to be sold to the government SPV at
a fixed price, then immediately leased back to the private SPV for a one-time-fixed-price, identical to the former transaction price.
Financial guarantees have been provided to creditors by the government, but not to the concession holder, whose revenues are based on user fees.
Risk Allocation Risk is allocated as depicted in figure 2.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure Political
Tota
lly P
rivat
e
Totally Public
Figure 2 Risk allocation There were political risks associated with the project. While parties in
parliament cannot affect the actual contract, they can influence the SPV’s overall conditions, which are not regulated in the contract but still related to the operation of the project.
Performance The contract contains vague statements about upholding good service standards. Actual traffic has been less than forecast: ridership 4.6M vs 5.1M forecast for 2005 (the forecast traffic for 2020 is 7.4M passengers).
While the forecasts have not been met, this risk is mainly held by the private party, and relates to business decisions on pricing vs. number of travellers carried. The availability/punctuality of the link has outperformed regional rail traffic: approximately 95% vs. 91% on time (+5 min).
References Centre for Mega Projects in Transport and Development. (nd). Project
profile: Sweden: Stockholm Air Link: Arlandabanan. from
107 http://www.omegacentre.bartlett.ucl.ac.uk/studies/cases/pdf/SWEDEN_ARLANDA_PROFILE_050511.pdf. Accessed 2013-04-22.
Enberg, Nils, Hultkrantz, Lars, & Nilsson, Jan-Eric. (2004). Arlandabanan: en uppföljning av samhällsekonomiska aspekter på en okonventionell projektfinansiering några år efter trafikstart VTI Notat 46-2004. (NP).
Regeringens proposition (1993) 1992/93:176 om investeringar i trafikens infrastruktur m.m. [The government’s bill on investment in transport infrastructure etc.]. Stockholm: Riksdagen.
Regeringens proposition (1994) 1993/94:213 Godkännande av grundläggande principer för Arlandabanan. [The government’s bill on approval of fundamental principles for Arlandabanan.] Stockholm: Riksdagen.
Riksrevisionsverket. (1995). Upphandlingen av Arlandabanan -regeringsuppdrag [The procurement of Arlandabanan - commissioned report] RRV 1995:43. Stockholm: Riksrevisionsverket.
Riksrevisionen (2004). Arlandabanan: Insyn i ett samfinansierat järnvägsprojekt. [Arlandabanan: Transparency in a co-financed railway project.] RiR 2004:22. Stockholm: Riksrevisionen.
Trafikutskottet betänkande (1992/93) 1992/93:TU35 Investeringar i trafikens infrastruktur m.m.. [The transport committee’s report on investment in transport infrastructure etc.]. Sto
108
FERTAGUS Train Portugal
Rosário Macário Instituto Superior Técnico [email protected]
Joana Ribeiro Instituto Superior Técnico [email protected]
Rui Couchinho Instituto Superior Técnico
109
Project Overview The FERTAGUS Train Project Profile Project Type: Brownfield Greenfield Both Contract duration: 1st Contract – 6 years (30 years initially) (1999 – 2005) 2nd Contract (renegotiation) – 5 years (2005 – 2010) 3rd Contract (renegotiation) - 8 years (2011 – 2019) Budget: EUR 161,7 M (Total Investment) Project Time Line Contract signature: 1999; Signature of the first contract: 23 June 2003; Signature of the agreement regarding the first renegotiation of the contract: 29h December 2010 – Modifying Agreement to the Concession Contract; Contract Re-negotiations: 1st re-negotiation (19/9/2003 – 23/2/2005); 2nd re-negotiation (2010), foreseen in previous contract) Figure 1: The FERTAGUS Train
108
FERTAGUS Train Portugal
Rosário Macário Instituto Superior Técnico [email protected]
Joana Ribeiro Instituto Superior Técnico [email protected]
Rui Couchinho Instituto Superior Técnico
109
Project Overview The FERTAGUS Train Project Profile Project Type: Brownfield Greenfield Both Contract duration: 1st Contract – 6 years (30 years initially) (1999 – 2005) 2nd Contract (renegotiation) – 5 years (2005 – 2010) 3rd Contract (renegotiation) - 8 years (2011 – 2019) Budget: EUR 161,7 M (Total Investment) Project Time Line Contract signature: 1999; Signature of the first contract: 23 June 2003; Signature of the agreement regarding the first renegotiation of the contract: 29h December 2010 – Modifying Agreement to the Concession Contract; Contract Re-negotiations: 1st re-negotiation (19/9/2003 – 23/2/2005); 2nd re-negotiation (2010), foreseen in previous contract) Figure 1: The FERTAGUS Train
110
1 Introduction This railway service is known as FERTAGUS Train - Railway Axis North / South (Lisbon) linking the North and South railways axis of the Lisbon Metropolitan Area. The contract also extends to the exploitation of complementary bus services largely feeding the railways services.
The FERTAGUS Train has the following railway stations (interurban and regional): Setúbal; Palmela; Venda do Alcaide; Pinhal Novo; Penalva; Coina; Fogueteiro; Foros de Amora; Corroios; Pragal; Campolide; Sete Rios; Entrecampos; Roma-Areeiro. The network has a total of 14 stops and a total length of 54 km (see figure 2).
The project also comprises three transport interfaces with buses and tramway (MST –Metro Sul do Tejo), several viaducts, renovation of the existing lines, construction of elevated crossings and development of new public spaces.
FERTAGUS is characterized as a suburban train service which makes the link between Lisbon and the municipalities on the south side of the Tagus River.
The project is intended to make available to local residents a new public transportation service, but also adds value at country level as it provides a new link between the North and the South of the country (Braga – Porto – Coimbra – Lisboa – Faro).
Fares are set out in the concession contract with a margin of variation for inflation.
2 The Contracting Authority (Public Party) The FERTAGUS Train – Railway Axis North/South (Lisbon) has been sponsored by the Ministry of Finance (Public Contracts division) and Ministry of Public Works (through IMTT, Land Transport Regulator) along with the local / regional municipalities .
Procurement was conducted following EU procurement directives, which have been included in the new Public Contracts Code (which also applies to PPP projects). This Code also introduces electronic tendering.
3 The Concessionaire (Private Party) The concession for the FERTAGUS Train – Railway Axis North/South (Lisbon) was awarded to FERTAGUS – Travessia do Tejo Transportes, S.A. This company is led by the Portuguese enterprise Grupo Barraqueiro.
111 Grupo Barraqueiro is a Portuguese enterprise providing transportation
services for passengers, with extensive experience at the national level. Grupo Barraqueiro has a partnership with ARRIVA, a British
multinational company in the transportation sector, with bus, coach, train, tram and waterbus operations in 12 countries across Europe.
Figure 2: The FERTAGUS train network
4 Users The FERTAGUS Train addresses transport and mobility for the local/regional municipalities on the south side of the Tagus River. National passengers are also considered as potential users of this new connection, as the rail link between the north and south of Portugal (Braga – Oporto – Coimbra – Lisbon – Faro) has been established.
5 Key Purpose for PPP Model Selection The concession model approved for this project included all of the foreseen investments in a single contract. Therefore contracting was simplified.
110
1 Introduction This railway service is known as FERTAGUS Train - Railway Axis North / South (Lisbon) linking the North and South railways axis of the Lisbon Metropolitan Area. The contract also extends to the exploitation of complementary bus services largely feeding the railways services.
The FERTAGUS Train has the following railway stations (interurban and regional): Setúbal; Palmela; Venda do Alcaide; Pinhal Novo; Penalva; Coina; Fogueteiro; Foros de Amora; Corroios; Pragal; Campolide; Sete Rios; Entrecampos; Roma-Areeiro. The network has a total of 14 stops and a total length of 54 km (see figure 2).
The project also comprises three transport interfaces with buses and tramway (MST –Metro Sul do Tejo), several viaducts, renovation of the existing lines, construction of elevated crossings and development of new public spaces.
FERTAGUS is characterized as a suburban train service which makes the link between Lisbon and the municipalities on the south side of the Tagus River.
The project is intended to make available to local residents a new public transportation service, but also adds value at country level as it provides a new link between the North and the South of the country (Braga – Porto – Coimbra – Lisboa – Faro).
Fares are set out in the concession contract with a margin of variation for inflation.
2 The Contracting Authority (Public Party) The FERTAGUS Train – Railway Axis North/South (Lisbon) has been sponsored by the Ministry of Finance (Public Contracts division) and Ministry of Public Works (through IMTT, Land Transport Regulator) along with the local / regional municipalities .
Procurement was conducted following EU procurement directives, which have been included in the new Public Contracts Code (which also applies to PPP projects). This Code also introduces electronic tendering.
3 The Concessionaire (Private Party) The concession for the FERTAGUS Train – Railway Axis North/South (Lisbon) was awarded to FERTAGUS – Travessia do Tejo Transportes, S.A. This company is led by the Portuguese enterprise Grupo Barraqueiro.
111 Grupo Barraqueiro is a Portuguese enterprise providing transportation
services for passengers, with extensive experience at the national level. Grupo Barraqueiro has a partnership with ARRIVA, a British
multinational company in the transportation sector, with bus, coach, train, tram and waterbus operations in 12 countries across Europe.
Figure 2: The FERTAGUS train network
4 Users The FERTAGUS Train addresses transport and mobility for the local/regional municipalities on the south side of the Tagus River. National passengers are also considered as potential users of this new connection, as the rail link between the north and south of Portugal (Braga – Oporto – Coimbra – Lisbon – Faro) has been established.
5 Key Purpose for PPP Model Selection The concession model approved for this project included all of the foreseen investments in a single contract. Therefore contracting was simplified.
112
6 Project Timing The FERTAGUS Train – Railway Axis North/South (Lisbon) is considered to be one of the key projects for the region. The contract was first signed in 1999, but has since been re-negotiated.
7 Project Locality and Market Geography The development of this project has changed the internal mobility of the region and the travel behavior of inhabitants going to the city of Lisbon. Previously they were dependent on a single public transport system, the TST (Transportes Sul do Tejo) bus service or had to use a private car.
With the completion of this project, accessibility to the main connection points on the Metro de Lisboa (Lisbon underground), Comboios de Portugal (suburban, regional and national train services) and Metro Sul do Tejo (tram) have been substantially improved.
8 Procurement & Contractual Structure
Tendering An international open call with a pre-evaluation stage was issued. Three consortia (FERTAGUS, TEJO EXPRESSO and STAGECOACH) expressed interest at the pre-evaluation stage. A preliminary assessment of the technical and financial capacity, experience and trustworthiness of the bidders resulted in a final evaluation report where two bidders were selected: FERTAGUS and STAGECOACH.
The final phase of the tender included parallel negotiations with these two bidders. The results were included in the Commission’s final report.
Contract Structure The concession concerned the supply of equipment and rolling stock, operation and maintenance. The public authority co-financed most of the project prior to commercial operations. In addition the public authority, in its capacity of regulator, determines transport policy and the level of service (conditions of organization and functioning of the public service, pricing policy etc.)
The Concessionaire is entitled to all revenues generated by the operation of the service (passenger fares) as well as revenues from advertising and exploitation of the commercial areas and car parks included in FERTAGUS Train stations. The public party guarantees a minimum revenue to the private
113 party through a subsidy when demand is below the minimum limit (this applied only until 2011).
The total financial burden supported by the State is divided in two items: compensation for financial balance (EUR 45.2M 1999-2004), and provision of public service (EUR 57.6M 2005-10). From 2011 onwards FERTAGUS represents no financial burden to the State in respect of fare box revenue compensation.
Other clauses have been included in the contract since the first contract re-negotiation in 2005. These have eliminated the risk associated with optimism bias in demand forecasting, and established a demand premium divided between the State and the Operator (75:25). Profits are expected in 2017-2019, and will be shared 50:50 between the State and the Operator.
Risk Allocation Risk is allocated as depicted in figure 3.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial
Tota
lly P
rivat
e
Totally Public
Figure 3: Risk allocation Performance There were no specific clauses in the contract relating to performance. However, performance can be reviewed in respect of the number of passengers, operational performance and activity indicators, and client satisfaction. Since 2004 shared ticketing revenue has exceeded target thresholds, and actual traffic has been above the forecasts made at the time of the second contract renegotiation. Table 1 presents forecasted passenger- kilimeters versus actual in millions. Over the peiord 2004 – 2010 (see Table 1) the grantor received EUR 11.81M. This is based on the arrangement for the sharing of ticketing income between 2005 and 2010, shown in table 2.
Since 2011, all excess income from ticketing above the values specified in the concession contract has been shared 75% for the grantor and 25% for the concessionaire.
112
6 Project Timing The FERTAGUS Train – Railway Axis North/South (Lisbon) is considered to be one of the key projects for the region. The contract was first signed in 1999, but has since been re-negotiated.
7 Project Locality and Market Geography The development of this project has changed the internal mobility of the region and the travel behavior of inhabitants going to the city of Lisbon. Previously they were dependent on a single public transport system, the TST (Transportes Sul do Tejo) bus service or had to use a private car.
With the completion of this project, accessibility to the main connection points on the Metro de Lisboa (Lisbon underground), Comboios de Portugal (suburban, regional and national train services) and Metro Sul do Tejo (tram) have been substantially improved.
8 Procurement & Contractual Structure
Tendering An international open call with a pre-evaluation stage was issued. Three consortia (FERTAGUS, TEJO EXPRESSO and STAGECOACH) expressed interest at the pre-evaluation stage. A preliminary assessment of the technical and financial capacity, experience and trustworthiness of the bidders resulted in a final evaluation report where two bidders were selected: FERTAGUS and STAGECOACH.
The final phase of the tender included parallel negotiations with these two bidders. The results were included in the Commission’s final report.
Contract Structure The concession concerned the supply of equipment and rolling stock, operation and maintenance. The public authority co-financed most of the project prior to commercial operations. In addition the public authority, in its capacity of regulator, determines transport policy and the level of service (conditions of organization and functioning of the public service, pricing policy etc.)
The Concessionaire is entitled to all revenues generated by the operation of the service (passenger fares) as well as revenues from advertising and exploitation of the commercial areas and car parks included in FERTAGUS Train stations. The public party guarantees a minimum revenue to the private
113 party through a subsidy when demand is below the minimum limit (this applied only until 2011).
The total financial burden supported by the State is divided in two items: compensation for financial balance (EUR 45.2M 1999-2004), and provision of public service (EUR 57.6M 2005-10). From 2011 onwards FERTAGUS represents no financial burden to the State in respect of fare box revenue compensation.
Other clauses have been included in the contract since the first contract re-negotiation in 2005. These have eliminated the risk associated with optimism bias in demand forecasting, and established a demand premium divided between the State and the Operator (75:25). Profits are expected in 2017-2019, and will be shared 50:50 between the State and the Operator.
Risk Allocation Risk is allocated as depicted in figure 3.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial
Tota
lly P
rivat
e
Totally Public
Figure 3: Risk allocation Performance There were no specific clauses in the contract relating to performance. However, performance can be reviewed in respect of the number of passengers, operational performance and activity indicators, and client satisfaction. Since 2004 shared ticketing revenue has exceeded target thresholds, and actual traffic has been above the forecasts made at the time of the second contract renegotiation. Table 1 presents forecasted passenger- kilimeters versus actual in millions. Over the peiord 2004 – 2010 (see Table 1) the grantor received EUR 11.81M. This is based on the arrangement for the sharing of ticketing income between 2005 and 2010, shown in table 2.
Since 2011, all excess income from ticketing above the values specified in the concession contract has been shared 75% for the grantor and 25% for the concessionaire.
114 There are penalties in the contract related to the KPIs, and fiscal and non-
fiscal penalties are reported in the Annual Report and Accounts. However the reasons for these penalties are not clear. In 2010, an amount of EUR 16,690 was related to penalties, whilst in 2011 the amount had fallen to EUR 1,439.
According to the Modifying Agreement to the Concession Contract, a penalty should be applied if there are violations of the obligations described in contract; to provide information to the grantor; for maintenance of the assets; passenger safety obligations.
Table 1: Forecasted vs cctual passenger-kilometers M passenger-km
Year Actual
Expected (1st contract)
Expected (2nd contract)
Grantor Revenue (EUR M)
0,04 1,62 1,82 2,41 2,99 1,92
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
51.3 162.4 205.2 242.9 246.4
- 340.4 361.5 377.5 398.6 385.8 392.6
159.6 369.0 374.0 380.0 386.0 392.0 397.0 403.0 409.0 415.0 420.0 424.0
246.4 269.7 316.8 327.4 334.2 338.3 343.7 350.5 1,01
Sources: FERTAGUS, S.A. , Tribunal de Contas – 2012
Table 2: Ticket revenue sharing between 2005 and 2010 Revenue surplus related to the annual limit Grantor Concessionaire
< 5% 25 % 75 % >5% 75 % 25 %
The FERTAGUS Train is now performing well. According to the latest audit by the Court of Auditors, it is a successful public-private partnership, which since January 2011 has no longer been receiving compensation from the State.
115 However, it was not always like this, as up to 2010 the State had paid to
the FERTAGUS concessionaire approximately EUR 102.8M as compensation for financial imbalances or compensation for the public service.
References www.fertagus.pt www.tcontas.pt/pt/actos/rel_auditoria/2002/24-2002.pdf www.tcontas.pt/pt/actos/rel_auditoria/2005/audit-dgtc-rel031-2005-2s.pdf www.tcontas.pt/pt/actos/rel_auditoria/2012/2s/audit-dgtc-rel011-2012-
2s.shtm FERTAGUS (2010), “Relatório de Sustentabilidade 2009 – 2010”
(Sustainability Report – 2009/2010) FERTAGUS (2011), “Relatório e Contas 2011” (Annual Report and
Accounts 2011)
114 There are penalties in the contract related to the KPIs, and fiscal and non-
fiscal penalties are reported in the Annual Report and Accounts. However the reasons for these penalties are not clear. In 2010, an amount of EUR 16,690 was related to penalties, whilst in 2011 the amount had fallen to EUR 1,439.
According to the Modifying Agreement to the Concession Contract, a penalty should be applied if there are violations of the obligations described in contract; to provide information to the grantor; for maintenance of the assets; passenger safety obligations.
Table 1: Forecasted vs cctual passenger-kilometers M passenger-km
Year Actual
Expected (1st contract)
Expected (2nd contract)
Grantor Revenue (EUR M)
0,04 1,62 1,82 2,41 2,99 1,92
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
51.3 162.4 205.2 242.9 246.4
- 340.4 361.5 377.5 398.6 385.8 392.6
159.6 369.0 374.0 380.0 386.0 392.0 397.0 403.0 409.0 415.0 420.0 424.0
246.4 269.7 316.8 327.4 334.2 338.3 343.7 350.5 1,01
Sources: FERTAGUS, S.A. , Tribunal de Contas – 2012
Table 2: Ticket revenue sharing between 2005 and 2010 Revenue surplus related to the annual limit Grantor Concessionaire
< 5% 25 % 75 % >5% 75 % 25 %
The FERTAGUS Train is now performing well. According to the latest audit by the Court of Auditors, it is a successful public-private partnership, which since January 2011 has no longer been receiving compensation from the State.
115 However, it was not always like this, as up to 2010 the State had paid to
the FERTAGUS concessionaire approximately EUR 102.8M as compensation for financial imbalances or compensation for the public service.
References www.fertagus.pt www.tcontas.pt/pt/actos/rel_auditoria/2002/24-2002.pdf www.tcontas.pt/pt/actos/rel_auditoria/2005/audit-dgtc-rel031-2005-2s.pdf www.tcontas.pt/pt/actos/rel_auditoria/2012/2s/audit-dgtc-rel011-2012-
2s.shtm FERTAGUS (2010), “Relatório de Sustentabilidade 2009 – 2010”
(Sustainability Report – 2009/2010) FERTAGUS (2011), “Relatório e Contas 2011” (Annual Report and
Accounts 2011)
116
Ports and Airports
117
Contents
Piraeus Container Terminal, Greece
Sheila Farrell
Sines Container Terminal, Portugal Sheila Farrell
Valencia Cruise Terminal, Spain
Maria del Carmen Juan Martinez and Eva Pérez García
Port of Antwerp Deurganckdock Lock, Belgium Céline van Nieuwenhuysen and Thierry Vanelslander
Larnaca and Paphos International Airports, Cyprus
Charalambos A. Christodoulou and Christos O. Efstathiades
Tirana International Airport, Albania Ali Dedej and Vera Shiko
116
Ports and Airports
117
Contents
Piraeus Container Terminal, Greece
Sheila Farrell
Sines Container Terminal, Portugal Sheila Farrell
Valencia Cruise Terminal, Spain
Maria del Carmen Juan Martinez and Eva Pérez García
Port of Antwerp Deurganckdock Lock, Belgium Céline van Nieuwenhuysen and Thierry Vanelslander
Larnaca and Paphos International Airports, Cyprus
Charalambos A. Christodoulou and Christos O. Efstathiades
Tirana International Airport, Albania Ali Dedej and Vera Shiko
118
Piraeus Container Terminal Greece
Sheila Farrell Imperial College London
119
Project Overview Piraeus Container Terminal, Greece Project Type: Brownfield Greenfield Both Contract duration: 30 years, with an automatic extension option of 5 years conditional on completion of the Pier III investment programme Budget: EUR 500 M Development Project Time Line Project conceived: 1998; Piraeus flotation: 2003; Revising PPP concept: 2004 Aborted tender: 2005; Tender: 2007; Contract Award: November 2008; Legal ratification: March 2009; Re-negotiations: 2009; End of strike action November 2009; End of co-management of terminal by port authority and concessionaire March 2010; Final date of construction/equipment delivery: 2015
Photo from http://www.pct.com.gr/ Figure 1. Piraeus Container Terminal
118
Piraeus Container Terminal Greece
Sheila Farrell Imperial College London
119
Project Overview Piraeus Container Terminal, Greece Project Type: Brownfield Greenfield Both Contract duration: 30 years, with an automatic extension option of 5 years conditional on completion of the Pier III investment programme Budget: EUR 500 M Development Project Time Line Project conceived: 1998; Piraeus flotation: 2003; Revising PPP concept: 2004 Aborted tender: 2005; Tender: 2007; Contract Award: November 2008; Legal ratification: March 2009; Re-negotiations: 2009; End of strike action November 2009; End of co-management of terminal by port authority and concessionaire March 2010; Final date of construction/equipment delivery: 2015
Photo from http://www.pct.com.gr/ Figure 1. Piraeus Container Terminal
120
1 Introduction Piraeus is the largest port in Greece, located only a few miles from the capital Athens. It handles around three quarters of the country’s container trade, and is the main hub for domestic shipping services to the Greek islands.
It is also the only port in Greece with large amounts of transshipment traffic, which in 2007 – the year in which the PPP was tendered - accounted for 37% of its throughput. At the beginning of the decade Piraeus had been one of the largest container transshipment hubs for the East Mediterranean, but by the time of the tender it was facing growing competition from newer ports such as Suez Canal East (Egypt) and Ambarli (Turkey).
Figure 2: Importance of Transshipment Traffic (‘000 TEU)
Source: Pallis & Psaraftis (2012) The project included the concession of Piraeus port Pier II to a private
operator on condition that part of the cash flow was used to fund investment in Pier III (not yet existing). The capacity of Pier II was also to be increased from 1.7m TEU to 2.7m TEU p.a., mainly through equipment upgrades and an increase in the container stacking density.
At the time the Piraeus concession was tendered, the port had two container terminals. Pier I, the original container terminal, was quite small with equipment coming up for renewal. Pier II was larger and more modern, and had greater scope for expansion, with the site of the proposed Pier III lying immediately adjacent. Pier I continues to be operated by the port authority, and actively competes with the concessioned terminal at Pier II.
121 Table 1: Piraeus Container Terminals at the Time of Tender
Pier 1 Pier II Pier III (proposed)
Quay length (m) 680a 2,307 600e
Water depth (m) 12a 12-18 14-18 Storage capacity
(TEU) 4,090 30,500 n.a
Estimated annual capacity
0.8m TEUc
1.7m TEUd
1.0m TEU
Notes: (a) subsequently increased to 820m (b) subsequently increased to 18m for 500m of quay (c) subsequently increased to 1.1m TEU p.a. (d) with scope for further expansion to 2.7m TEU (e) tender requirement
Source: Piraeus Port Authority The PPP for Piraeus container terminal was closely linked to a similar
project at Greece’s second largest port Thessaloniki, which handles less than one fifth of the container traffic of Piraeus. Most of this is for the local market in Northern Greece, but there is also a significant amount of transit traffic for Hungary and Romania. In contrast Piraeus handles very little transit traffic.
The other Greek ports with facilities for handling containers – Astakos, Heraklion and Patras – have fairly small container throughputs. Most of the container traffic for the Greek islands is discharged in Piraeus, and either stripped there or transferred to trucks for onward transport to the islands in ferries.
Shortly after the concessioning of Piers II & III, it was decided to expand Pier I (operated by the port authority), increasing its capacity from 0.8m TEU to 1.1m TEU. The extension, which was expected to cost EUR 160-170M, increased the maximum water depth as well as the quay length, making Pier I a serious competitor to the PPP concession at Pier II. In spite of concerns about the port authority’s ability to raise finance, the Pier I expansion was able to secure a EUR 80M loan from EIB.
Since the concession agreement was signed Piraeus Port Authority (OLP) has invested significant amounts of money in expanding its own terminal, and is marketing it quite aggressively. By 2011 OLP had increased its own share of Piraeus container traffic to 36%, largely by attracting back to Pier I MSC, the previous main user of Pier II.
120
1 Introduction Piraeus is the largest port in Greece, located only a few miles from the capital Athens. It handles around three quarters of the country’s container trade, and is the main hub for domestic shipping services to the Greek islands.
It is also the only port in Greece with large amounts of transshipment traffic, which in 2007 – the year in which the PPP was tendered - accounted for 37% of its throughput. At the beginning of the decade Piraeus had been one of the largest container transshipment hubs for the East Mediterranean, but by the time of the tender it was facing growing competition from newer ports such as Suez Canal East (Egypt) and Ambarli (Turkey).
Figure 2: Importance of Transshipment Traffic (‘000 TEU)
Source: Pallis & Psaraftis (2012) The project included the concession of Piraeus port Pier II to a private
operator on condition that part of the cash flow was used to fund investment in Pier III (not yet existing). The capacity of Pier II was also to be increased from 1.7m TEU to 2.7m TEU p.a., mainly through equipment upgrades and an increase in the container stacking density.
At the time the Piraeus concession was tendered, the port had two container terminals. Pier I, the original container terminal, was quite small with equipment coming up for renewal. Pier II was larger and more modern, and had greater scope for expansion, with the site of the proposed Pier III lying immediately adjacent. Pier I continues to be operated by the port authority, and actively competes with the concessioned terminal at Pier II.
121 Table 1: Piraeus Container Terminals at the Time of Tender
Pier 1 Pier II Pier III (proposed)
Quay length (m) 680a 2,307 600e
Water depth (m) 12a 12-18 14-18 Storage capacity
(TEU) 4,090 30,500 n.a
Estimated annual capacity
0.8m TEUc
1.7m TEUd
1.0m TEU
Notes: (a) subsequently increased to 820m (b) subsequently increased to 18m for 500m of quay (c) subsequently increased to 1.1m TEU p.a. (d) with scope for further expansion to 2.7m TEU (e) tender requirement
Source: Piraeus Port Authority The PPP for Piraeus container terminal was closely linked to a similar
project at Greece’s second largest port Thessaloniki, which handles less than one fifth of the container traffic of Piraeus. Most of this is for the local market in Northern Greece, but there is also a significant amount of transit traffic for Hungary and Romania. In contrast Piraeus handles very little transit traffic.
The other Greek ports with facilities for handling containers – Astakos, Heraklion and Patras – have fairly small container throughputs. Most of the container traffic for the Greek islands is discharged in Piraeus, and either stripped there or transferred to trucks for onward transport to the islands in ferries.
Shortly after the concessioning of Piers II & III, it was decided to expand Pier I (operated by the port authority), increasing its capacity from 0.8m TEU to 1.1m TEU. The extension, which was expected to cost EUR 160-170M, increased the maximum water depth as well as the quay length, making Pier I a serious competitor to the PPP concession at Pier II. In spite of concerns about the port authority’s ability to raise finance, the Pier I expansion was able to secure a EUR 80M loan from EIB.
Since the concession agreement was signed Piraeus Port Authority (OLP) has invested significant amounts of money in expanding its own terminal, and is marketing it quite aggressively. By 2011 OLP had increased its own share of Piraeus container traffic to 36%, largely by attracting back to Pier I MSC, the previous main user of Pier II.
122
2 The Contracting Authority (Public Party) Although the contracting authority is Piraeus Port Authority, the history of port reform in Greece has resulted in central Government playing a leading role in the procurement process.
Options for PPPs at Piraeus and Thessaloniki were studied intensively in 1998 by their respective port authorities, and various schemes were identified for sub-dividing them into terminals to create conventional landlord port structures. However fears about job losses led to these schemes being abandoned in favour of the corporatisation of each port authority in 1999. This was supposed to devolve responsibility for their management to autonomous local entities, but in practice produced few changes apart from separating their financial transactions from those of the State.
New laws in 2001 created ‘master concession contracts’ between the two port authorities and the Greek State. These gave each port authority more control over the way it used its facilities in exchange for a yearly concession fee of 1% of the port’s gross turnover for the first three years (excluding extraordinary income and earnings from interest), and 2% thereafter.
This was followed by the flotation of 25.5% of the shares in each port authority. The Thessaloniki flotation (August 2001) raised EUR 15M and the Piraeus flotation (July 2003) EUR 55M. The money raised went straight to the Greek Treasury, leaving both ports struggling to fund future investments directly from cash flow and borrowings.
Interest in PPPs was re-ignited by the 2004 Greek elections, which replaced the previous left-leaning Government with a more conservative one keen to embrace private finance. This time the lead was taken by central Government, specifically the Ministry of Merchant Marine. This was partly because the container terminal project was above the EUR 200M limit foreseen by 3389/2005 Greek Legislation on PPPs. So although Piraeus Port Authority is the public sector counter-party in the PPP, it played a relatively small role in the procurement process, which was driven largely by central Government.
Piraeus Port Authority acts as the landlord and regulator, and provides a range of common services. It is responsible for the dredging and maintenance of the access channel to the port, navigation aids and navigation safety, and the provision of marine services (pilotage and towage), whilst Cosco Pacific (the concessionaire) is responsible for the construction and maintenance of terminal infrastructure, the provision of mechanical equipment (some of it transferred across from Piraeus Port Authority) and the provision of cargo handling services.
123
3 The Concessionaire (Private Party) Piraeus Container Terminal S.A. (http://www.pct.com.gr/) is an SPV owned 100% by Cosco Pacific. This is a large State-owned Chinese terminal operator with an AAA credit rating. Cosco Pacific is a sister company of Cosco Container Lines (CCL), the world’s fourth largest container shipping line, and CCL is the largest single customer of Piraeus Container Terminal S.A, which is operated as a common user facility.
At the time of the tender Cosco Pacific was a stakeholder in container terminals in 18 other ports, mainly in China but also in Singapore, Antwerp and Port Said (Egypt), where the Suez Canal East container terminal was one of Piraeus’s main competitors for transshipment traffic.
4 Users Users of the terminal are container shipping lines, importers/exporters and freight forwarders generating container traffic.
5 Key Purpose for PPP Model Selection At Piraeus the main reasons for embarking on the container terminal PPP included securing additional funding for a new container terminal (Pier III), attracting additional transshipment traffic, and improving terminal productivity, which was low by European standards. Piraeus Port Authority (OLP), for example, estimated its operating costs in 2005 to be as much as 40% higher than those of efficient competing ports.
The desire to expand container capacity by building a new Pier III was supported by the unions, but port management was reluctant to commit public funds to the project because it felt that most of Pier III’s future throughput would be transshipment traffic, which could easily move to another port.
A PPP also seemed to offer a way around problems the port was having with the EU Competition Directorate about the preferential treatment given to its largest customer (MSC) in order to retain its existing transshipment traffic.
Several other reasons for the PPP were put forward in a speech by the Minister of Merchant Marine on 6 June 2007. This affirmed the need for a concession that would: Limit the financial risks; Pass the market risks to the terminal operator; Shorten the time for completing the Pier III investment programme; Lower administrative and operational costs; Provide the port authority with a net annual income of at least EUR 60M.; Create jobs by expanding the port and port-related activities; and Triple the port authority’s
122
2 The Contracting Authority (Public Party) Although the contracting authority is Piraeus Port Authority, the history of port reform in Greece has resulted in central Government playing a leading role in the procurement process.
Options for PPPs at Piraeus and Thessaloniki were studied intensively in 1998 by their respective port authorities, and various schemes were identified for sub-dividing them into terminals to create conventional landlord port structures. However fears about job losses led to these schemes being abandoned in favour of the corporatisation of each port authority in 1999. This was supposed to devolve responsibility for their management to autonomous local entities, but in practice produced few changes apart from separating their financial transactions from those of the State.
New laws in 2001 created ‘master concession contracts’ between the two port authorities and the Greek State. These gave each port authority more control over the way it used its facilities in exchange for a yearly concession fee of 1% of the port’s gross turnover for the first three years (excluding extraordinary income and earnings from interest), and 2% thereafter.
This was followed by the flotation of 25.5% of the shares in each port authority. The Thessaloniki flotation (August 2001) raised EUR 15M and the Piraeus flotation (July 2003) EUR 55M. The money raised went straight to the Greek Treasury, leaving both ports struggling to fund future investments directly from cash flow and borrowings.
Interest in PPPs was re-ignited by the 2004 Greek elections, which replaced the previous left-leaning Government with a more conservative one keen to embrace private finance. This time the lead was taken by central Government, specifically the Ministry of Merchant Marine. This was partly because the container terminal project was above the EUR 200M limit foreseen by 3389/2005 Greek Legislation on PPPs. So although Piraeus Port Authority is the public sector counter-party in the PPP, it played a relatively small role in the procurement process, which was driven largely by central Government.
Piraeus Port Authority acts as the landlord and regulator, and provides a range of common services. It is responsible for the dredging and maintenance of the access channel to the port, navigation aids and navigation safety, and the provision of marine services (pilotage and towage), whilst Cosco Pacific (the concessionaire) is responsible for the construction and maintenance of terminal infrastructure, the provision of mechanical equipment (some of it transferred across from Piraeus Port Authority) and the provision of cargo handling services.
123
3 The Concessionaire (Private Party) Piraeus Container Terminal S.A. (http://www.pct.com.gr/) is an SPV owned 100% by Cosco Pacific. This is a large State-owned Chinese terminal operator with an AAA credit rating. Cosco Pacific is a sister company of Cosco Container Lines (CCL), the world’s fourth largest container shipping line, and CCL is the largest single customer of Piraeus Container Terminal S.A, which is operated as a common user facility.
At the time of the tender Cosco Pacific was a stakeholder in container terminals in 18 other ports, mainly in China but also in Singapore, Antwerp and Port Said (Egypt), where the Suez Canal East container terminal was one of Piraeus’s main competitors for transshipment traffic.
4 Users Users of the terminal are container shipping lines, importers/exporters and freight forwarders generating container traffic.
5 Key Purpose for PPP Model Selection At Piraeus the main reasons for embarking on the container terminal PPP included securing additional funding for a new container terminal (Pier III), attracting additional transshipment traffic, and improving terminal productivity, which was low by European standards. Piraeus Port Authority (OLP), for example, estimated its operating costs in 2005 to be as much as 40% higher than those of efficient competing ports.
The desire to expand container capacity by building a new Pier III was supported by the unions, but port management was reluctant to commit public funds to the project because it felt that most of Pier III’s future throughput would be transshipment traffic, which could easily move to another port.
A PPP also seemed to offer a way around problems the port was having with the EU Competition Directorate about the preferential treatment given to its largest customer (MSC) in order to retain its existing transshipment traffic.
Several other reasons for the PPP were put forward in a speech by the Minister of Merchant Marine on 6 June 2007. This affirmed the need for a concession that would: Limit the financial risks; Pass the market risks to the terminal operator; Shorten the time for completing the Pier III investment programme; Lower administrative and operational costs; Provide the port authority with a net annual income of at least EUR 60M.; Create jobs by expanding the port and port-related activities; and Triple the port authority’s
124 capitalisation at the stock market, helping the Government to sell a further stake in the port authority via an IPO immediately after the announcement of the tender results.
6 Project Timing Serious discussions began in 2004 along with the second wave of infrastructure PPPs, leading to an aborted tender in 2005, before a new round of competitive bidding in 2007 resulted in the award of a container terminal concession to Cosco Pacific in 2009. Immediately after, the award was followed by re-negotiations and legal suits from the labour unions.
7 Project Locality and Market Geography The port is located in an urban environment, densely built with limited land development potential. Simultaneously, its operation as a transshipment port gives it an international character. Local traffic (around one third of the current total) has some impact on the urban road network. Plans for rail access to the terminal may slightly increase its future catchment area.
The Port of Piraeus is not a Priority Project of the TEN-T. However, it is important for the MoS [Priority Project (PP) 21] and is adjacent to PP7 [Motorway axis Igoumenitsa/ Patra- Athina –Sofia -Budapest] and PP22 [Railway axis Athina–Sofia–Budapest–Wien–Praha–Nürnberg/ Dresden].
8 Procurement & Contractual Structure
Tendering Before proceeding to the tender stage, the Ministry of Merchant Marine had already approached several terminal operating companies, including Cosco Pacific, HPH, DP World, APM Terminals, MSC, and Ζim, and held discussions with other governments (China, Korea) that had expressed interest in investing in port facilities at Piraeus and Thessaloniki. This gave the Government a reasonable feel for the level of private sector interest in the two container terminal concessions, but also delayed the process by opening up opportunities for a negotiated rather than a competitively tendered concession.
As the port’s domestic container traffic was relatively small and the PPP was exposed to competition from the container terminal operated by the port authority (Pier I), the throughput guarantees to be provided by the concessionaire effectively limited competition for the concession to shipping lines with access to “captive” transshipment traffic or large independent
125 operators with the ability to attract transshipment traffic from several different lines
Although Piraeus and Thessaloniki came under the same Ministry, and developed their PPPs at roughly the same time, the processes were largely independent of each other. Concerns were raised, however, when the two tenders attracted the same bidders - Cosco Pacific and HPH at both ports, plus DP World at Thessaloniki – leading to fears that both terminals could end up in the same hands, even though competition between them is fairly small and occurs mainly in Northern Greece.
Although the Government eventually committed itself to open competitive tendering, in line with best international practice, there were fears that the port might end up with the “wrong” partner – the Government had spent several years negotiating with Cosco Pacific on a non-competitive basis, whilst HPH – the clear winner at Thessaloniki and a close second at Piraeus – was already proving to be a tough negotiator; its willingness to walk away from the Thessaloniki concession put additional pressure on the Greek Government to conclude an early agreement with Cosco Pacific.
One of the main award criteria for the concession was the percentage of gross revenue offered: Cosco Pacific offered 21% for the first 8 years and 24.5% thereafter, with the second bidder offering 19.0%.
Contract Structure The contractual regime was based on a fairly standard form of concession agreement, but involved more investment in new facilities than would normally be found in a concession for the management of an existing terminal. It can therefore be regarded as lying midway between a brownfield operating concession and a greenfield BOT contract. As in many port PPPs, a hybrid form of contract was adopted which does not fit easily into any of the standard classifications used for other modes of transport.
Most of the envisaged investment – including the construction of Pier III - takes place in the first six years of the 30-year concession. After that, the remaining investment will be mainly for asset replacement and equipment upgrades, and will take place on an incremental basis as and when needed.
At the time of the tender, the estimated cost of upgrading Pier II and building the new terminal at Pier III was just under EUR 500M. Around half of the costs not covered by the terminal’s operating cash flow are expected to be covered by equity contributions, the other half by debt. Like most of the other large international terminal operators, Cosco Pacific is likely to use
124 capitalisation at the stock market, helping the Government to sell a further stake in the port authority via an IPO immediately after the announcement of the tender results.
6 Project Timing Serious discussions began in 2004 along with the second wave of infrastructure PPPs, leading to an aborted tender in 2005, before a new round of competitive bidding in 2007 resulted in the award of a container terminal concession to Cosco Pacific in 2009. Immediately after, the award was followed by re-negotiations and legal suits from the labour unions.
7 Project Locality and Market Geography The port is located in an urban environment, densely built with limited land development potential. Simultaneously, its operation as a transshipment port gives it an international character. Local traffic (around one third of the current total) has some impact on the urban road network. Plans for rail access to the terminal may slightly increase its future catchment area.
The Port of Piraeus is not a Priority Project of the TEN-T. However, it is important for the MoS [Priority Project (PP) 21] and is adjacent to PP7 [Motorway axis Igoumenitsa/ Patra- Athina –Sofia -Budapest] and PP22 [Railway axis Athina–Sofia–Budapest–Wien–Praha–Nürnberg/ Dresden].
8 Procurement & Contractual Structure
Tendering Before proceeding to the tender stage, the Ministry of Merchant Marine had already approached several terminal operating companies, including Cosco Pacific, HPH, DP World, APM Terminals, MSC, and Ζim, and held discussions with other governments (China, Korea) that had expressed interest in investing in port facilities at Piraeus and Thessaloniki. This gave the Government a reasonable feel for the level of private sector interest in the two container terminal concessions, but also delayed the process by opening up opportunities for a negotiated rather than a competitively tendered concession.
As the port’s domestic container traffic was relatively small and the PPP was exposed to competition from the container terminal operated by the port authority (Pier I), the throughput guarantees to be provided by the concessionaire effectively limited competition for the concession to shipping lines with access to “captive” transshipment traffic or large independent
125 operators with the ability to attract transshipment traffic from several different lines
Although Piraeus and Thessaloniki came under the same Ministry, and developed their PPPs at roughly the same time, the processes were largely independent of each other. Concerns were raised, however, when the two tenders attracted the same bidders - Cosco Pacific and HPH at both ports, plus DP World at Thessaloniki – leading to fears that both terminals could end up in the same hands, even though competition between them is fairly small and occurs mainly in Northern Greece.
Although the Government eventually committed itself to open competitive tendering, in line with best international practice, there were fears that the port might end up with the “wrong” partner – the Government had spent several years negotiating with Cosco Pacific on a non-competitive basis, whilst HPH – the clear winner at Thessaloniki and a close second at Piraeus – was already proving to be a tough negotiator; its willingness to walk away from the Thessaloniki concession put additional pressure on the Greek Government to conclude an early agreement with Cosco Pacific.
One of the main award criteria for the concession was the percentage of gross revenue offered: Cosco Pacific offered 21% for the first 8 years and 24.5% thereafter, with the second bidder offering 19.0%.
Contract Structure The contractual regime was based on a fairly standard form of concession agreement, but involved more investment in new facilities than would normally be found in a concession for the management of an existing terminal. It can therefore be regarded as lying midway between a brownfield operating concession and a greenfield BOT contract. As in many port PPPs, a hybrid form of contract was adopted which does not fit easily into any of the standard classifications used for other modes of transport.
Most of the envisaged investment – including the construction of Pier III - takes place in the first six years of the 30-year concession. After that, the remaining investment will be mainly for asset replacement and equipment upgrades, and will take place on an incremental basis as and when needed.
At the time of the tender, the estimated cost of upgrading Pier II and building the new terminal at Pier III was just under EUR 500M. Around half of the costs not covered by the terminal’s operating cash flow are expected to be covered by equity contributions, the other half by debt. Like most of the other large international terminal operators, Cosco Pacific is likely to use
126 corporate debt – bonds or senior loans secured by parent company assets – rather than project-specific non-recourse financing.
The concession fee structure comprises: A lump sum fee of EUR 50 M, of which EUR 2.9M was for the transfer of the terminal’s spares inventory; A percentage of gross revenue increasing from 21.0% in Years 1-8 to 24.5% from Year 9 onwards, to be paid in monthly instalments. This is subject to minimum payments based on throughput guarantees; An annual lease payment linked to the length of quay available (EUR 1,800 per metre); An annual lease payment linked to the container yard area (EUR 4.00 per m2). Both of the lease payments increase over time at an annual rate which is 2% higher than the Greek Consumer Price Index.
Prior to concessioning, Piraeus container terminal accounted for almost 75% of the port authority’s revenues and 50% of its earnings before interest, tax and amortisation (EBITDA). The OLP Accounts show that concession fees in 2011 accounted for approximately EUR 30M out of a total operating revenue of EUR 105M. The Annual Report for Piraeus Container Terminal SA for 2011 (which is probably more accurate), shows the concession fees as amounting to EUR 26.6M.
Risk Allocation The Piraeus container PPP faces a high level of market risk because of its dependence on transshipment traffic. However there is only limited competition for domestic traffic, mainly from Thessaloniki for the Northern Greece market; even during the severe industrial unrest in 2008 Thessaloniki was able to capture only around 100,000 TEU p.a. from Piraeus, equivalent to around 15% of its domestic traffic.
Market risks are shared to some extent through the “percentage of gross revenues” component of the concession fee. However the majority of the market risk is held by the terminal operator, due to the existence of challenging throughput guarantees and fixed annual lease payments.
Financial risks are also held largely by the operator, due to the existence of a fixed construction programme and limited scope for reductions in operating costs after the operator’s freedom to alter conditions of employment was curtailed in response to union demands.
Strong opposition by the port unions, industrial action and the recession are other key risks facing the PPP. The risk of loss of business due to industrial action is held largely by the operator, although there is provision for the concession agreement to be extended (to up to 42 years, when OLP’s own
127 master concession agreement expires) if terminal operations are disrupted by the actions of OLP.
Figure 3: Container Throughputs at Piraeus and Thessaloniki (‘000 TEU)
Source: CI Online
Risks ⇐ ⇒ Design & construction Maintenance Commercial/ revenue Financial Social Risk
Tota
lly P
rivat
e
Totally Public
Figure 4: Risk allocation
Performance The contract contains no operational performance requirements and there are no penalties for non-performance except (possibly) for failure to maintain the assets in good condition and complete the required investment programme in line with the agreed timetable.
The prolonged industrial action associated with the PPP process led to a sharp drop in traffic between 2007 and 2008 when MSC – which controlled 90% of the port’s transshipment traffic – transferred most of it to other ports. This was compounded by the early effects on the global financial crisis, and MSC’s acquisition of financial stakes in competing transshipment hubs at Marport (Turkey) and Gioia Tauro (Italy).
126 corporate debt – bonds or senior loans secured by parent company assets – rather than project-specific non-recourse financing.
The concession fee structure comprises: A lump sum fee of EUR 50 M, of which EUR 2.9M was for the transfer of the terminal’s spares inventory; A percentage of gross revenue increasing from 21.0% in Years 1-8 to 24.5% from Year 9 onwards, to be paid in monthly instalments. This is subject to minimum payments based on throughput guarantees; An annual lease payment linked to the length of quay available (EUR 1,800 per metre); An annual lease payment linked to the container yard area (EUR 4.00 per m2). Both of the lease payments increase over time at an annual rate which is 2% higher than the Greek Consumer Price Index.
Prior to concessioning, Piraeus container terminal accounted for almost 75% of the port authority’s revenues and 50% of its earnings before interest, tax and amortisation (EBITDA). The OLP Accounts show that concession fees in 2011 accounted for approximately EUR 30M out of a total operating revenue of EUR 105M. The Annual Report for Piraeus Container Terminal SA for 2011 (which is probably more accurate), shows the concession fees as amounting to EUR 26.6M.
Risk Allocation The Piraeus container PPP faces a high level of market risk because of its dependence on transshipment traffic. However there is only limited competition for domestic traffic, mainly from Thessaloniki for the Northern Greece market; even during the severe industrial unrest in 2008 Thessaloniki was able to capture only around 100,000 TEU p.a. from Piraeus, equivalent to around 15% of its domestic traffic.
Market risks are shared to some extent through the “percentage of gross revenues” component of the concession fee. However the majority of the market risk is held by the terminal operator, due to the existence of challenging throughput guarantees and fixed annual lease payments.
Financial risks are also held largely by the operator, due to the existence of a fixed construction programme and limited scope for reductions in operating costs after the operator’s freedom to alter conditions of employment was curtailed in response to union demands.
Strong opposition by the port unions, industrial action and the recession are other key risks facing the PPP. The risk of loss of business due to industrial action is held largely by the operator, although there is provision for the concession agreement to be extended (to up to 42 years, when OLP’s own
127 master concession agreement expires) if terminal operations are disrupted by the actions of OLP.
Figure 3: Container Throughputs at Piraeus and Thessaloniki (‘000 TEU)
Source: CI Online
Risks ⇐ ⇒ Design & construction Maintenance Commercial/ revenue Financial Social Risk
Tota
lly P
rivat
e
Totally Public
Figure 4: Risk allocation
Performance The contract contains no operational performance requirements and there are no penalties for non-performance except (possibly) for failure to maintain the assets in good condition and complete the required investment programme in line with the agreed timetable.
The prolonged industrial action associated with the PPP process led to a sharp drop in traffic between 2007 and 2008 when MSC – which controlled 90% of the port’s transshipment traffic – transferred most of it to other ports. This was compounded by the early effects on the global financial crisis, and MSC’s acquisition of financial stakes in competing transshipment hubs at Marport (Turkey) and Gioia Tauro (Italy).
128 Since then there has been some recovery in traffic volumes since, helped
by the decision of Cosco Pacific’s sister company Cosco Container Line to relocate some of its transshipment business to Piraeus, and the return of MSC to Pier 1.
References Psaraftis H.N & Pallis A.A Concession of the Piraeus container terminal:
turbulent times and the quest for competitiveness, Maritime Policy & Management, Vol 39, No.1, January 2012
Piraeus Port Authority Annual Financial Report 2011 Container Terminal Piraeus SA Annual Report 2011
129
Sines Container Terminal Portugal
Sheila Farrell Imperial College London
128 Since then there has been some recovery in traffic volumes since, helped
by the decision of Cosco Pacific’s sister company Cosco Container Line to relocate some of its transshipment business to Piraeus, and the return of MSC to Pier 1.
References Psaraftis H.N & Pallis A.A Concession of the Piraeus container terminal:
turbulent times and the quest for competitiveness, Maritime Policy & Management, Vol 39, No.1, January 2012
Piraeus Port Authority Annual Financial Report 2011 Container Terminal Piraeus SA Annual Report 2011
129
Sines Container Terminal Portugal
Sheila Farrell Imperial College London
130
Project Overview Sines Container Terminal, Portugal Project Type: Brownfield Greenfield Both Contract duration: 30 years, with the option to extend for a further 30 years after changes in the payments made to the port authority and the lifting of exclusivity agreements Budget: EUR 332.0 M
The actual budget for investments until 2009 was EUR137 M (public sector contribution EUR 62.3 M and private sector EUR 74.7 M). The expected budget of investment after December 2009 is EUR 195 M (public sector contribution EUR 40 M and private sector EUR 155 M).
Project Time Line Project conceived: 1997; Concession agreement:1999; Start of operations:2004; Completion of phase 1B: 2011 (after being postponed three times from 2005)
Photo from http://www.algarveresident.com/0-52035/algarve/arab-company-has-eye-
on-major-port-project Figure 1: Sines container terminal
131
1 Introduction The project is a greenfield container terminal BOT scheme at Sines, approximately 150km south of Lisbon, for which the concession agreement was signed in September 1999. Portuguese container traffic is fairly small, at just over 1.4m TEU in 2010, and is split between three ports of fairly equal size – Lisbon, Leixões (Porto), and Sines – and a much smaller port at Setubal. Sines’ main competitor for domestic traffic is Lisbon (see Table 1).
Table 1: Portuguese Container Throughput in 2010 Port ‘000 TEU %age Lisbon 512 36% Leixões 482 34% Sines 382 27% Setubal 30 3% Total 1,406 100%
The objective of the PPP was to build in four stages a container terminal with an eventual quay length of 940m, a back-up area of 36.4ha, and a capacity of 1.5m TEU p.a. The terminal became operational in 2004, and so far 730m of quay and 20.8ha of back-up area have been built, and 4 out of the 10 quay cranes have been installed. The current capacity of the terminal is 0.4m TEU.
The Sines container terminal was originally intended to handle mainly transhipment traffic, in which case it would also have been competing with two much larger transhipment hubs at Algeciras (Southern Spain) and Tanger Med (Morocco). At the time of the concession agreement (1999) the Algeciras hub was already well established. The first BOT concession for Tanger Med was tendered in 1998. Because of competition from these two much larger hubs, the Sines container terminal has been able to attract very little transhipment traffic, and as a result serves mainly the Portuguese market and Western Spain.
The project is facing a number of challenges. Although the public sector delivered its part of the initial (committed) investment package ahead of schedule, the private investor - PSA Europe Pte, a subsidiary of the operating arm of the port of Singapore - has not invested as much or as quickly as expected (see Table 2 for actual vs scheduled investment programme). Phase
130
Project Overview Sines Container Terminal, Portugal Project Type: Brownfield Greenfield Both Contract duration: 30 years, with the option to extend for a further 30 years after changes in the payments made to the port authority and the lifting of exclusivity agreements Budget: EUR 332.0 M
The actual budget for investments until 2009 was EUR137 M (public sector contribution EUR 62.3 M and private sector EUR 74.7 M). The expected budget of investment after December 2009 is EUR 195 M (public sector contribution EUR 40 M and private sector EUR 155 M).
Project Time Line Project conceived: 1997; Concession agreement:1999; Start of operations:2004; Completion of phase 1B: 2011 (after being postponed three times from 2005)
Photo from http://www.algarveresident.com/0-52035/algarve/arab-company-has-eye-
on-major-port-project Figure 1: Sines container terminal
131
1 Introduction The project is a greenfield container terminal BOT scheme at Sines, approximately 150km south of Lisbon, for which the concession agreement was signed in September 1999. Portuguese container traffic is fairly small, at just over 1.4m TEU in 2010, and is split between three ports of fairly equal size – Lisbon, Leixões (Porto), and Sines – and a much smaller port at Setubal. Sines’ main competitor for domestic traffic is Lisbon (see Table 1).
Table 1: Portuguese Container Throughput in 2010 Port ‘000 TEU %age Lisbon 512 36% Leixões 482 34% Sines 382 27% Setubal 30 3% Total 1,406 100%
The objective of the PPP was to build in four stages a container terminal with an eventual quay length of 940m, a back-up area of 36.4ha, and a capacity of 1.5m TEU p.a. The terminal became operational in 2004, and so far 730m of quay and 20.8ha of back-up area have been built, and 4 out of the 10 quay cranes have been installed. The current capacity of the terminal is 0.4m TEU.
The Sines container terminal was originally intended to handle mainly transhipment traffic, in which case it would also have been competing with two much larger transhipment hubs at Algeciras (Southern Spain) and Tanger Med (Morocco). At the time of the concession agreement (1999) the Algeciras hub was already well established. The first BOT concession for Tanger Med was tendered in 1998. Because of competition from these two much larger hubs, the Sines container terminal has been able to attract very little transhipment traffic, and as a result serves mainly the Portuguese market and Western Spain.
The project is facing a number of challenges. Although the public sector delivered its part of the initial (committed) investment package ahead of schedule, the private investor - PSA Europe Pte, a subsidiary of the operating arm of the port of Singapore - has not invested as much or as quickly as expected (see Table 2 for actual vs scheduled investment programme). Phase
132 1B of the project was postponed three times, putting back its completion date from 2005 to 2011.
Table 2:Completion Dates for Investment Programme Phase 1A Phase 1B Phase 2A Phase 2B Initial target March
2003 September 2005
September 2009
September 2014
Actual completion
May 2004
June 2011 No start date agreed yet
Source: Tribunal de Contas Relatório n.º 26/2010 "Auditorio à Concessão do Terminal XX1 – Porto de Sines, October 2010
Traffic volumes have been much lower than expected (see Table 3 below),
and the operator’s tariffs have also been lower because of strong competition from other ports. As a result, the concession fees paid to the port authority have been lower than expected. The traffic forecasts were supplied by the bidder (PSA) prior to the concession agreement and were not validated.
Table 3: Forecast and Actual Traffic Volumes (‘000 TEU) 2003 2004 2005 2006 2007 2008 2009 Actual Expected
- 200
19 231
51 250
122 500
150 550
233 595
253 805
Source: Tribunal de Contas Relatório n.º 26/2010 "Auditorio à Concessão do Terminal XX1 – Porto de Sines, October 2010
In 2010 traffic volumes rose from 253,000 TEU to 282,000 TEU due to
increased interest from MSC, but they have since fallen back to 203,000 TEU in 2011.
To protect Sines’ market position, restrictions were placed on further container terminal investment not only by Sines Port Authority, but also by the port authorities of Lisbon and Setubal, and any other organisation whose area of jurisdiction lay between the southern boundary of the port of Lisbon and the northern boundary of the port of Sines. These restrictions were to last for 30 years.
The restrictions, which were contained in a side letter to the concession agreement from the Secretary of State of the Ministry of Equipment, Planning and Territorial Administration (MEPAT), prevent other organisations from investing in new container terminal development within the designated area without the consent of PSA.
133
2 The Contracting Authority (Public Party) Portugal has nine ports: five major ones, each of which has its own Port Administration operating as a landlord port authority, and four smaller ones which were run by the Institute for Ports and Maritime Transport (IPMT) until 2008, when two of them were absorbed into the Port Administrations of Aveiro and Leixões respectively.
The individual Port Administrations and IPMT all answer to the Ministry of Public Works, Transport and Communications (MOPTC). A Government port policy statement in 2007 confirmed the position of IPMT as the overall regulatory body for the sector, with the power to issue binding opinions on the award of concessions, and responsibility for monitoring their effectiveness.
In 2009 the Government also created an advisory body on ports – the National Council for Ports and Maritime Transport (CNPTM) – involving all of the main stakeholders. This issues its own, non-enforceable opinions on policy decisions, port services and tariffs.
However the key public institution in the case of this project is Sines Port Administration (APS). Central Government and the EU were involved mainly as sources of finance, with central government funding 13.0% of the initial investment, and the EU Structural Funds 36.5%.
3 The Concessionaire (Private Party) The main private agent is PSA Sines Container Terminal, S. A.. Initially, the SPV was wholly owned by PSA Europe Pte , a subsidiary of PSA Corp, the operating arm of the port of Singapore. The arrangement of private financing was left entirely to PSA, and was done through conventional corporate finance mechanisms secured by the cash flow and asset base of the parent company.
Between 2006-8 some shares in PSA Sines Container Terminal S.A were sold in tranches to Porthub Ltd SA, a Panama-registered company of unknown ownership. In 2008 this owned 49% of PSA Sines Container Terminal, a figure which fell to 38% in 2009.
4 Users Container shipping lines and importers/exporters and freight forwarders are the target users of the port services.
Because the project was a relatively uncontroversial one at a greenfield site, there has been very little involvement of other private agents – trade unions, media, and opposition groups.
132 1B of the project was postponed three times, putting back its completion date from 2005 to 2011.
Table 2:Completion Dates for Investment Programme Phase 1A Phase 1B Phase 2A Phase 2B Initial target March
2003 September 2005
September 2009
September 2014
Actual completion
May 2004
June 2011 No start date agreed yet
Source: Tribunal de Contas Relatório n.º 26/2010 "Auditorio à Concessão do Terminal XX1 – Porto de Sines, October 2010
Traffic volumes have been much lower than expected (see Table 3 below),
and the operator’s tariffs have also been lower because of strong competition from other ports. As a result, the concession fees paid to the port authority have been lower than expected. The traffic forecasts were supplied by the bidder (PSA) prior to the concession agreement and were not validated.
Table 3: Forecast and Actual Traffic Volumes (‘000 TEU) 2003 2004 2005 2006 2007 2008 2009 Actual Expected
- 200
19 231
51 250
122 500
150 550
233 595
253 805
Source: Tribunal de Contas Relatório n.º 26/2010 "Auditorio à Concessão do Terminal XX1 – Porto de Sines, October 2010
In 2010 traffic volumes rose from 253,000 TEU to 282,000 TEU due to
increased interest from MSC, but they have since fallen back to 203,000 TEU in 2011.
To protect Sines’ market position, restrictions were placed on further container terminal investment not only by Sines Port Authority, but also by the port authorities of Lisbon and Setubal, and any other organisation whose area of jurisdiction lay between the southern boundary of the port of Lisbon and the northern boundary of the port of Sines. These restrictions were to last for 30 years.
The restrictions, which were contained in a side letter to the concession agreement from the Secretary of State of the Ministry of Equipment, Planning and Territorial Administration (MEPAT), prevent other organisations from investing in new container terminal development within the designated area without the consent of PSA.
133
2 The Contracting Authority (Public Party) Portugal has nine ports: five major ones, each of which has its own Port Administration operating as a landlord port authority, and four smaller ones which were run by the Institute for Ports and Maritime Transport (IPMT) until 2008, when two of them were absorbed into the Port Administrations of Aveiro and Leixões respectively.
The individual Port Administrations and IPMT all answer to the Ministry of Public Works, Transport and Communications (MOPTC). A Government port policy statement in 2007 confirmed the position of IPMT as the overall regulatory body for the sector, with the power to issue binding opinions on the award of concessions, and responsibility for monitoring their effectiveness.
In 2009 the Government also created an advisory body on ports – the National Council for Ports and Maritime Transport (CNPTM) – involving all of the main stakeholders. This issues its own, non-enforceable opinions on policy decisions, port services and tariffs.
However the key public institution in the case of this project is Sines Port Administration (APS). Central Government and the EU were involved mainly as sources of finance, with central government funding 13.0% of the initial investment, and the EU Structural Funds 36.5%.
3 The Concessionaire (Private Party) The main private agent is PSA Sines Container Terminal, S. A.. Initially, the SPV was wholly owned by PSA Europe Pte , a subsidiary of PSA Corp, the operating arm of the port of Singapore. The arrangement of private financing was left entirely to PSA, and was done through conventional corporate finance mechanisms secured by the cash flow and asset base of the parent company.
Between 2006-8 some shares in PSA Sines Container Terminal S.A were sold in tranches to Porthub Ltd SA, a Panama-registered company of unknown ownership. In 2008 this owned 49% of PSA Sines Container Terminal, a figure which fell to 38% in 2009.
4 Users Container shipping lines and importers/exporters and freight forwarders are the target users of the port services.
Because the project was a relatively uncontroversial one at a greenfield site, there has been very little involvement of other private agents – trade unions, media, and opposition groups.
134
5 Key Purpose for PPP Model Selection The main reason for the project was set out in the White Paper “Política Marítimo-Portuária Rumo ao Século XXI” published in March 1997. This identified the need for Portugal to develop a deepwater port capable of accommodating larger container ships than its existing ports could handle.
Since Sines had no existing container traffic, and was located in an area that was not likely to generate much local container traffic (at least initially), transhipment traffic was seen as critical for building up the traffic needed to support shipping services and improve the region’s connectivity to the outside world. In this context, support of EUR 25.5m was provided from European Structural Funds.
6 Project Timing Consultancy studies to verify whether a PPP arrangement would be viable were carried out for Sines Port Authority before it began to look for a partner. However, these studies were concerned with the technical aspects more than the financial aspects of the project.
After a period of market testing, two radically different proposals were submitted by PSA Corp, in August 1998 and March 1999 respectively; the first was for a joint venture with Sines Port Administration, whilst the second was for a more conventional concession agreement.
Agreement on Principles was reached in June 1999, and the concession agreement signed in September 1999. However PSA did not invest as much or as quickly as expected. Phase 1A of the quay was delivered a month and a half late in 2003 and the Phase 1A equipment a year late. However the main problem arose with which 1B of the project, which was to have been delivered in 2005. Because of lower-than-expected traffic volumes, this was repeatedly postponed. It has now been built, but the last two phases of the project are still to be completed.
7 Project Locality and Market Geography The project is located 150km south of Lisbon in a relatively rural area with limited amounts of local traffic. It has been able to attract some “gateway” traffic which might otherwise have used Lisbon, but is too far away to compete strongly for traffic destined for the Lisbon area and northern Portugal.
135
8 Procurement & Contractual Structure The first port PPP in Portugal – the Alcântara container terminal concession in Lisbon - had its own specific legislation (Decree-Law 287/1984). More general PPP legislation for ports was introduced in 1993 with Decree Law no. 298/1993 which established the general legal framework for private sector port operations. This requires concessions to be publicly tendered and of a duration commensurate with the required private investment, up to a maximum of 30 years.
In practice Portuguese terminal concessions have generally been for either 20 or 25 years, apart from the Tersado multi-purpose terminal at Setubal (20 years with a 10 year renewal option) and the Alcântara concession, which in its re-negotiated form now lasts from 1985-2042 (57 years).
In 1994 Decree Law 324/1994 defined the legal framework in more detail. Key points include:
A requirement for the concessionaire to use the best available technology (in concessions outside of Portugal operators have sometimes transferred second hand equipment from their established terminals on a “filter down” basis);
A set of rules for the operation of the concession, to be defined by the port authority awarding the contract;
Maximum tariffs chargeable to terminal users, to be determined by the port authority in the general interests of the port;
Return of all investments (including equipment) to the port authority free of charge at the end of the concession, except for equipment purchases made in the last 10 years for which the concessionaire is entitled to compensation;
An option for early termination after the mid-point of the concession period, with the concessionaire entitled to compensation based on the net book value of its investments in the terminal;
The requirement for the concessionaire to pay fees for the use of any public assets assigned to the concession.
Although there is general legislation in place for port PPPs, large and controversial projects still generate their own legislation (e.g. Decree Law no. 188/2008 which authorised the extension of the Alcântara container terminal concession in Lisbon.)
134
5 Key Purpose for PPP Model Selection The main reason for the project was set out in the White Paper “Política Marítimo-Portuária Rumo ao Século XXI” published in March 1997. This identified the need for Portugal to develop a deepwater port capable of accommodating larger container ships than its existing ports could handle.
Since Sines had no existing container traffic, and was located in an area that was not likely to generate much local container traffic (at least initially), transhipment traffic was seen as critical for building up the traffic needed to support shipping services and improve the region’s connectivity to the outside world. In this context, support of EUR 25.5m was provided from European Structural Funds.
6 Project Timing Consultancy studies to verify whether a PPP arrangement would be viable were carried out for Sines Port Authority before it began to look for a partner. However, these studies were concerned with the technical aspects more than the financial aspects of the project.
After a period of market testing, two radically different proposals were submitted by PSA Corp, in August 1998 and March 1999 respectively; the first was for a joint venture with Sines Port Administration, whilst the second was for a more conventional concession agreement.
Agreement on Principles was reached in June 1999, and the concession agreement signed in September 1999. However PSA did not invest as much or as quickly as expected. Phase 1A of the quay was delivered a month and a half late in 2003 and the Phase 1A equipment a year late. However the main problem arose with which 1B of the project, which was to have been delivered in 2005. Because of lower-than-expected traffic volumes, this was repeatedly postponed. It has now been built, but the last two phases of the project are still to be completed.
7 Project Locality and Market Geography The project is located 150km south of Lisbon in a relatively rural area with limited amounts of local traffic. It has been able to attract some “gateway” traffic which might otherwise have used Lisbon, but is too far away to compete strongly for traffic destined for the Lisbon area and northern Portugal.
135
8 Procurement & Contractual Structure The first port PPP in Portugal – the Alcântara container terminal concession in Lisbon - had its own specific legislation (Decree-Law 287/1984). More general PPP legislation for ports was introduced in 1993 with Decree Law no. 298/1993 which established the general legal framework for private sector port operations. This requires concessions to be publicly tendered and of a duration commensurate with the required private investment, up to a maximum of 30 years.
In practice Portuguese terminal concessions have generally been for either 20 or 25 years, apart from the Tersado multi-purpose terminal at Setubal (20 years with a 10 year renewal option) and the Alcântara concession, which in its re-negotiated form now lasts from 1985-2042 (57 years).
In 1994 Decree Law 324/1994 defined the legal framework in more detail. Key points include:
A requirement for the concessionaire to use the best available technology (in concessions outside of Portugal operators have sometimes transferred second hand equipment from their established terminals on a “filter down” basis);
A set of rules for the operation of the concession, to be defined by the port authority awarding the contract;
Maximum tariffs chargeable to terminal users, to be determined by the port authority in the general interests of the port;
Return of all investments (including equipment) to the port authority free of charge at the end of the concession, except for equipment purchases made in the last 10 years for which the concessionaire is entitled to compensation;
An option for early termination after the mid-point of the concession period, with the concessionaire entitled to compensation based on the net book value of its investments in the terminal;
The requirement for the concessionaire to pay fees for the use of any public assets assigned to the concession.
Although there is general legislation in place for port PPPs, large and controversial projects still generate their own legislation (e.g. Decree Law no. 188/2008 which authorised the extension of the Alcântara container terminal concession in Lisbon.)
136 Sines Port Authority’s non-competitive selection of a private partner was
authorised by Decreto Lei 384A/1999 in September 1999, three days before the concession agreement was signed.
Tendering A “blueprint” of studies describing the proposed PPP arrangement was sent to 32 possible concessionaires and published in seven international journals, to test the market in 1998.
An initial response was obtained from nine companies, four of which – Liscont, ECT, HMM and Kashi International - dropped out soon after. The five potential partners remaining included: PSA Corp and P&O Ports (large international terminal operators), Mitsui (an industrial conglomerate with shipping and engineering interests), Chemical Bank (an institutional investor) and Portsines (a multi-purpose terminal operator already established at Sines).
However no formal request for Expressions of Interest was ever issued. In August 1998 PSA Corp submitted a formal proposal for a JV between itself (67%) and the Sines Port Administration (33%), and in March 1999, after further studies, it submitted a revised proposal which was radically different from its first one, based on public sector provision of the breakwater, channel dredging, and road and rail access, and private sector provision of the quay wall, superstructure and equipment. The proposed concession period was reduced from 60 to 30 years, the investment plan was rescheduled, and a new system of royalty payments was introduced (see table 4).
The new proposal formed the basis for the Agreement on Principles signed in June 1999, and for the concession agreement itself, which was signed in September 1999. APS’s non-competitive approach to the selection of a partner was authorised by Decreto Lei 384A/1999 in September 1999, three days before the concession agreement was signed, although there is no evidence to suggest that the PSA’s offer was ever objectively evaluated.
The total cost of the project was estimated to be EUR 332M, of which 30.8% would be public sector expenditure and 69.2% private sector. However the public sector expenditure was heavily front-end loaded, whilst almost two thirds of the private sector investment is still to materialise.
Contract Structure The contract was a fairly typical BOT scheme for ports in which the port authority was responsible for selection of the private operator, provision of certain investments (mainly basic infrastructure such as dredging), supervision of public and private construction work, and monitoring of operations. The
137 private investor was given complete operational freedom, and also the freedom to set prices, paying the port authority royalties (US$ per TEU) which were directly linked to throughput.
Table 4: Royalty Payments Throughput band (‘000 TEU) Royalty (US$ per TEU)
Under 100 100-200 200-300 200-300 200-500 500-750
750-1,000 Over 1000
- 1.5 2.5 3.5 5.0 6.0 7.0 4.0
Source: Tribunal de Contas Relatório n.º 26/2010 "Auditorio à Concessão do Terminal XX1 – Porto de Sines, October 2010
The investment programme was divided into four phases. Both parties made very specific, obligatory financial commitments to their Phase 1A investments (which were later modified by mutual agreement at the detailed design stage) and indicative commitments to the last three phases, which were to be triggered by unspecified amounts of traffic growth.
The initial public sector investment in the terminal was funded mainly by EU Structural Funds (36.5%), central government (13.0%) and bank loans (41.8%). PSA Corp contributed EUR 3.2M (4.6%) to the public sector costs, whilst APS contributed only EUR 2.85M of its own capital (4.1% of the total public sector cost).
No contractual guarantees were made to PSA by APS or the Government, apart from the normal guarantees included in most port concession agreements (fulfillment of public sector obligations etc) and those set out in three Addenda and four Supporting Agreements. These covered road and rail access, power supplies, and the exclusivity agreement.
PSA provided guarantees in respect of four issues, with penalties for non-compliance as shown in Table 5.
Most of these contractual requirements were unenforceable because they were insufficiently well specified. PSA also had to provide a performance bond of US$ 2.0m, renewable every other year, but this was never called as the APS inspections always produced satisfactory results.
136 Sines Port Authority’s non-competitive selection of a private partner was
authorised by Decreto Lei 384A/1999 in September 1999, three days before the concession agreement was signed.
Tendering A “blueprint” of studies describing the proposed PPP arrangement was sent to 32 possible concessionaires and published in seven international journals, to test the market in 1998.
An initial response was obtained from nine companies, four of which – Liscont, ECT, HMM and Kashi International - dropped out soon after. The five potential partners remaining included: PSA Corp and P&O Ports (large international terminal operators), Mitsui (an industrial conglomerate with shipping and engineering interests), Chemical Bank (an institutional investor) and Portsines (a multi-purpose terminal operator already established at Sines).
However no formal request for Expressions of Interest was ever issued. In August 1998 PSA Corp submitted a formal proposal for a JV between itself (67%) and the Sines Port Administration (33%), and in March 1999, after further studies, it submitted a revised proposal which was radically different from its first one, based on public sector provision of the breakwater, channel dredging, and road and rail access, and private sector provision of the quay wall, superstructure and equipment. The proposed concession period was reduced from 60 to 30 years, the investment plan was rescheduled, and a new system of royalty payments was introduced (see table 4).
The new proposal formed the basis for the Agreement on Principles signed in June 1999, and for the concession agreement itself, which was signed in September 1999. APS’s non-competitive approach to the selection of a partner was authorised by Decreto Lei 384A/1999 in September 1999, three days before the concession agreement was signed, although there is no evidence to suggest that the PSA’s offer was ever objectively evaluated.
The total cost of the project was estimated to be EUR 332M, of which 30.8% would be public sector expenditure and 69.2% private sector. However the public sector expenditure was heavily front-end loaded, whilst almost two thirds of the private sector investment is still to materialise.
Contract Structure The contract was a fairly typical BOT scheme for ports in which the port authority was responsible for selection of the private operator, provision of certain investments (mainly basic infrastructure such as dredging), supervision of public and private construction work, and monitoring of operations. The
137 private investor was given complete operational freedom, and also the freedom to set prices, paying the port authority royalties (US$ per TEU) which were directly linked to throughput.
Table 4: Royalty Payments Throughput band (‘000 TEU) Royalty (US$ per TEU)
Under 100 100-200 200-300 200-300 200-500 500-750
750-1,000 Over 1000
- 1.5 2.5 3.5 5.0 6.0 7.0 4.0
Source: Tribunal de Contas Relatório n.º 26/2010 "Auditorio à Concessão do Terminal XX1 – Porto de Sines, October 2010
The investment programme was divided into four phases. Both parties made very specific, obligatory financial commitments to their Phase 1A investments (which were later modified by mutual agreement at the detailed design stage) and indicative commitments to the last three phases, which were to be triggered by unspecified amounts of traffic growth.
The initial public sector investment in the terminal was funded mainly by EU Structural Funds (36.5%), central government (13.0%) and bank loans (41.8%). PSA Corp contributed EUR 3.2M (4.6%) to the public sector costs, whilst APS contributed only EUR 2.85M of its own capital (4.1% of the total public sector cost).
No contractual guarantees were made to PSA by APS or the Government, apart from the normal guarantees included in most port concession agreements (fulfillment of public sector obligations etc) and those set out in three Addenda and four Supporting Agreements. These covered road and rail access, power supplies, and the exclusivity agreement.
PSA provided guarantees in respect of four issues, with penalties for non-compliance as shown in Table 5.
Most of these contractual requirements were unenforceable because they were insufficiently well specified. PSA also had to provide a performance bond of US$ 2.0m, renewable every other year, but this was never called as the APS inspections always produced satisfactory results.
138
Table 5: PSA Guarantees and Penalties for Non-Compliance Guarantee Penalty for non-compliance Completion of the agreed investment plan on schedule
Fine of US$ 5,000 per day up to a maximum of US$ 2.0m, and loss of exclusivity rights within the port of Sines
Maintenance of the terminal’s assets to an acceptable standard
Fine of US$ 5,000 per day, followed by eventual take-over of the terminal assets by APS
Provision of an acceptable quality of service
Fine of US$ 5,000 per day
Provision of specified information on schedule
Fine of US$ 3,000 per day late
Risk Allocation The Tribunal de Contas report which reviewed the Sines concession judged the construction and maintenance risks to be low-average for a project of this type, given that a reasonable amount of site investigation work had been carried out in advance of the contract.
The operation and technology risks were also regarded as low, given PSA’s size and reputation, and its ability to transfer new technology between its different overseas operations. The terminal layout was standard. The traffic risk was regarded as fairly low by the Tribunal de Contas because the timing of the later phases of the investment was directly related to the traffic levels already being achieved. PSA’s position was further protected by restrictions on competing investments in Portugal and low royalty payments at low throughputs.
The finance risk to the Port Authority and Government was also regarded as low as the project was not reliant on project cash flows or the government guarantee mechanisms.
The lack of involvement of banks at the concession negotiation stage gave the two parties more freedom to define their working relationship. It also avoided the need for the contract to include a financial rebalancing mechanism to protect the lenders should things not turn out as expected. This substantially increased the financial risks to the private investor.
139 The environmental risks were small because the Environmental Impact
Assessment had already been approved by Government before the signing of the contract. The remaining risks were therefore principally of accidents or changes to environmental legislation.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure Political
Tota
lly P
rivat
e
Totally Public
Figure 2 Risk Allocation Other legislative risks borne by APS included new planning policies for
the Sines area, changes to national ports policy, and the willingness of the Government to provide road and rail access to the port. In the short-term these were reduced by a strong level of Government support for the project, even though it was not formally a party to the contract and expressed its support in side letters which may have been legally unenforceable.
The attribution of delay risks to APS in the contract seems inappropriate, as the most likely cause of delay - failure of the market to develop as expected – could be more effectively managed by PSA.
Performance The contract did not include any mandatory operational performance requirements, in particular throughput targets, even though the attraction of additional cargo and shipping services was one of the primary objectives of building the terminal.
The KPIs used by APS for performance monitoring purposes are: User satisfaction with container terminal equipment (%age of users
surveyed who declare themselves satisfied); User satisfaction with operator performance (%age of users surveyed
who declare themselves satisfied); Average time ships stay in port (hours);
138
Table 5: PSA Guarantees and Penalties for Non-Compliance Guarantee Penalty for non-compliance Completion of the agreed investment plan on schedule
Fine of US$ 5,000 per day up to a maximum of US$ 2.0m, and loss of exclusivity rights within the port of Sines
Maintenance of the terminal’s assets to an acceptable standard
Fine of US$ 5,000 per day, followed by eventual take-over of the terminal assets by APS
Provision of an acceptable quality of service
Fine of US$ 5,000 per day
Provision of specified information on schedule
Fine of US$ 3,000 per day late
Risk Allocation The Tribunal de Contas report which reviewed the Sines concession judged the construction and maintenance risks to be low-average for a project of this type, given that a reasonable amount of site investigation work had been carried out in advance of the contract.
The operation and technology risks were also regarded as low, given PSA’s size and reputation, and its ability to transfer new technology between its different overseas operations. The terminal layout was standard. The traffic risk was regarded as fairly low by the Tribunal de Contas because the timing of the later phases of the investment was directly related to the traffic levels already being achieved. PSA’s position was further protected by restrictions on competing investments in Portugal and low royalty payments at low throughputs.
The finance risk to the Port Authority and Government was also regarded as low as the project was not reliant on project cash flows or the government guarantee mechanisms.
The lack of involvement of banks at the concession negotiation stage gave the two parties more freedom to define their working relationship. It also avoided the need for the contract to include a financial rebalancing mechanism to protect the lenders should things not turn out as expected. This substantially increased the financial risks to the private investor.
139 The environmental risks were small because the Environmental Impact
Assessment had already been approved by Government before the signing of the contract. The remaining risks were therefore principally of accidents or changes to environmental legislation.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure Political
Tota
lly P
rivat
e
Totally Public
Figure 2 Risk Allocation Other legislative risks borne by APS included new planning policies for
the Sines area, changes to national ports policy, and the willingness of the Government to provide road and rail access to the port. In the short-term these were reduced by a strong level of Government support for the project, even though it was not formally a party to the contract and expressed its support in side letters which may have been legally unenforceable.
The attribution of delay risks to APS in the contract seems inappropriate, as the most likely cause of delay - failure of the market to develop as expected – could be more effectively managed by PSA.
Performance The contract did not include any mandatory operational performance requirements, in particular throughput targets, even though the attraction of additional cargo and shipping services was one of the primary objectives of building the terminal.
The KPIs used by APS for performance monitoring purposes are: User satisfaction with container terminal equipment (%age of users
surveyed who declare themselves satisfied); User satisfaction with operator performance (%age of users surveyed
who declare themselves satisfied); Average time ships stay in port (hours);
140 Average time ships spend handling cargo (hours); Cargo handling productivity (containers per hour-worked per ship and
TEUs per hour-worked per ship) The terminal has also achieved ISO quality certification.
References Tribunal de Contas Relatório n.º 26/2009 "Concessão do Terminal de
Contentores de Alcântara (Adenda 2008) – Porto de Lisboa"
141
Valencia Cruise Terminal Spain
María del Carmen Juan Martínez University of Valencia
Eva Pérez García Fundación Valenciaport
140 Average time ships spend handling cargo (hours); Cargo handling productivity (containers per hour-worked per ship and
TEUs per hour-worked per ship) The terminal has also achieved ISO quality certification.
References Tribunal de Contas Relatório n.º 26/2009 "Concessão do Terminal de
Contentores de Alcântara (Adenda 2008) – Porto de Lisboa"
141
Valencia Cruise Terminal Spain
María del Carmen Juan Martínez University of Valencia
Eva Pérez García Fundación Valenciaport
142
Project Overview Valencia Cruise Terminal, Spain Project Type: Brownfield Greenfield Both Contract duration: 25 Years (estimated) Budget: EUR 59.6 M Public sector investment is EUR 33.2M, and private
sector investment EUR 26.4M. Project Time Line Project conceived: 2007; Start of construction: 2009; Tender for PPP: 2013
Figure 1: Impression of Valencia Cruise Terminal
143
1 Introduction
The port is one of Valencia’s most important institutions for both the city and the region. Historically, port activities have been responsible for the economic growth of the region through trade exchanges, passenger movements and maritime services from which the modern city of Valencia has developed. Through the years, the Port of Valencia has grown and changed. The port has grown towards the sea creating breakwaters and other protection works making possible the construction of new basins. At the same time, some already-existing inner basins have been reshaped for urban related activities such as yacht clubs or the premises hosting international competitions like the 32nd America’s Cup or the Formula 1 Valencia Street Circuit.
Over the last decade, and especially during the last five years, the Port of Valencia has succeeded in attracting a new market of international cruise passengers. The city of Valencia is becoming an attractive tourist destination by itself so the Port of Valencia has the opportunity to become an essential call for cruises liners operating in the Mediterranean. This fact would have a significant economic impact on both the city and the region with a feedback effect on the tourist sector.
Old docks currently used by passenger ferries are suitable only for relatively small ships. Therefore, operating with large cruise ships requires building new port facilities, which should be both suitable in engineering terms and attractive to the final users. This motivates investment in the project for the new Valencia Cruise Terminal.
North America continues to be the clear leader of the sector. However in the last five years the European market has experienced significant growth while Asia has kept its relatively low growth rates and small presence in the industry.
Although the European market will probably keep on growing at similar rates in the medium and long term, additional new challenges must be faced. According to the World Tourism Organisation, the number of tourists in Europe will grow by 3.1%, the forecast for 2020 being 717 million visitors to the continent. All destinations will need to take into consideration the total number of tourists when planning and making decisions concerning new cruise packages.
The main home ports are Barcelona, Genoa, Civitavecchia and Piraeus, where there are few opportunities to increase capacity as they suffer limitations
142
Project Overview Valencia Cruise Terminal, Spain Project Type: Brownfield Greenfield Both Contract duration: 25 Years (estimated) Budget: EUR 59.6 M Public sector investment is EUR 33.2M, and private
sector investment EUR 26.4M. Project Time Line Project conceived: 2007; Start of construction: 2009; Tender for PPP: 2013
Figure 1: Impression of Valencia Cruise Terminal
143
1 Introduction
The port is one of Valencia’s most important institutions for both the city and the region. Historically, port activities have been responsible for the economic growth of the region through trade exchanges, passenger movements and maritime services from which the modern city of Valencia has developed. Through the years, the Port of Valencia has grown and changed. The port has grown towards the sea creating breakwaters and other protection works making possible the construction of new basins. At the same time, some already-existing inner basins have been reshaped for urban related activities such as yacht clubs or the premises hosting international competitions like the 32nd America’s Cup or the Formula 1 Valencia Street Circuit.
Over the last decade, and especially during the last five years, the Port of Valencia has succeeded in attracting a new market of international cruise passengers. The city of Valencia is becoming an attractive tourist destination by itself so the Port of Valencia has the opportunity to become an essential call for cruises liners operating in the Mediterranean. This fact would have a significant economic impact on both the city and the region with a feedback effect on the tourist sector.
Old docks currently used by passenger ferries are suitable only for relatively small ships. Therefore, operating with large cruise ships requires building new port facilities, which should be both suitable in engineering terms and attractive to the final users. This motivates investment in the project for the new Valencia Cruise Terminal.
North America continues to be the clear leader of the sector. However in the last five years the European market has experienced significant growth while Asia has kept its relatively low growth rates and small presence in the industry.
Although the European market will probably keep on growing at similar rates in the medium and long term, additional new challenges must be faced. According to the World Tourism Organisation, the number of tourists in Europe will grow by 3.1%, the forecast for 2020 being 717 million visitors to the continent. All destinations will need to take into consideration the total number of tourists when planning and making decisions concerning new cruise packages.
The main home ports are Barcelona, Genoa, Civitavecchia and Piraeus, where there are few opportunities to increase capacity as they suffer limitations
144 in terms of port configuration, location and use of existing docks. Barcelona for instance, may have only one more chance to build one more terminal in the coming years.
New high value destinations may be able to sell new cruise itineraries that will help to alleviate congestion in certain key Mediterranean ports. In this context, Valencia needs to position itself with infrastructure capable of competing as a home port, providing additional capacity which complements that of Barcelona.
Figure 2 shows the cruise passenger traffic in Valencia from 2000 until 2011. The traffic has grown significantly over the last decade and reached 400,000 passengers in 2011. Before constrution of the new cruise terminal, the Port of Valencia had five berths where cruiseships could call, but two were located in freight terminals.
Given the traffic forecasts, the number of berthing points needed in 2027 would range from 4 in the low case scenario (organic growth) to 7 in the most optimistic scenario (Valencia as home port for the international market).
Figure 2. Evolution of the number of cruise passengers in Valencia Figure 3 displays the traffic forecast of the number of cruise passengers in
Valencia for two different scenarios. In the base case, Valencia serves as a home port only for the regional Spanish and European markets, whereas in the high case it attracts longer-distance international calls.
145
Figure 3. Forecast growth of cruise passengers at Valencia 2000-2040 After exhaustive analysis and definition of a master plan for the new cruise
terminal in Valencia, the final specifications of the project (see figure 4 and also figure 1) include a 1700 metre long berth line with a draught of 14 metres and a surface area of 5.3 hectares. Four additional berthing points will be dedicated to cruise ships calls and a new cruise terminal will be built.
Figure 4. Proposed cruise terminal layout The cruise terminal at Valencia will operate in a competitive environment.
There are several other main and secondary ports competing with Valencia in
144 in terms of port configuration, location and use of existing docks. Barcelona for instance, may have only one more chance to build one more terminal in the coming years.
New high value destinations may be able to sell new cruise itineraries that will help to alleviate congestion in certain key Mediterranean ports. In this context, Valencia needs to position itself with infrastructure capable of competing as a home port, providing additional capacity which complements that of Barcelona.
Figure 2 shows the cruise passenger traffic in Valencia from 2000 until 2011. The traffic has grown significantly over the last decade and reached 400,000 passengers in 2011. Before constrution of the new cruise terminal, the Port of Valencia had five berths where cruiseships could call, but two were located in freight terminals.
Given the traffic forecasts, the number of berthing points needed in 2027 would range from 4 in the low case scenario (organic growth) to 7 in the most optimistic scenario (Valencia as home port for the international market).
Figure 2. Evolution of the number of cruise passengers in Valencia Figure 3 displays the traffic forecast of the number of cruise passengers in
Valencia for two different scenarios. In the base case, Valencia serves as a home port only for the regional Spanish and European markets, whereas in the high case it attracts longer-distance international calls.
145
Figure 3. Forecast growth of cruise passengers at Valencia 2000-2040 After exhaustive analysis and definition of a master plan for the new cruise
terminal in Valencia, the final specifications of the project (see figure 4 and also figure 1) include a 1700 metre long berth line with a draught of 14 metres and a surface area of 5.3 hectares. Four additional berthing points will be dedicated to cruise ships calls and a new cruise terminal will be built.
Figure 4. Proposed cruise terminal layout The cruise terminal at Valencia will operate in a competitive environment.
There are several other main and secondary ports competing with Valencia in
146 Spain and this competition is influencing its opportunities both as a home port and as a port of call. The main competitor for home port operations is Barcelona, this port being complementary to Valencia as a port of call (given the distance between both ports and vessel speeds in Western Mediterranean itineraries). Other competing ports are Palma, Malaga and Ibiza for home port calls, and Alicante, Cartagena, Almería and Castellón as ports of call within the same itinerary. Each of the ports has specific characteristics that makes it an attractive destination for different cruise lines, depending on market segment, itinerary and cruise brand.
2 The Contracting Authority (Public Party) The regulatory framework for the Spanish Port System is defined by Law 27/1992, Ports of the State and the Merchant Marine, which established the current State-owned ports’ organisational model. It was this Law that created the Port Authorities which manage the ports. Furthermore, it created “Puertos del Estado”, a public body reporting to the Spanish Ministry of Public Works with overall responsibility for the coordination and operational efficiency of the entire port system.
The legal framework established by Law 27/1992 is as follows. Port Authorities have complete management autonomy for port development, investment, commercial policy, and organisational and human resource policies, although personnel issues are subject to private labour law. They develop activities based on goals and business management procedures, and promote global strategies to develop competitive advantage, with maritime and land activities managed as a whole. Port Authorities manage the port public domain, provide infrastructure and regulate basic port services, and are responsible for providing basic services in the absence of private initiatives.
The Port Authorities’ main functions are: planning land use and investments; investing, mainly in infrastructure; managing the port public domain; coordinating other public entities involved in the port, including the city council; controlling private entities operating in the port.
On 26 December 1997, Law 62/1997 was passed, amending Law 27/1992 on Ports of the State and the Merchant Marine. Law 62/1997 regulated the role of the autonomous regions in the structure and organisation of general-interest ports. According to this Law, autonomous regions are responsible only for designating the President and defining the composition of the Board of Directors of the Port Authority. Consequently, this Law reinforces the
147 autonomy of the Port Authorities and the control and coordination role of Puertos del Estado.
Six years later on 27 November 2003, Law 48/2003 (Economic Regime and Service Provision in General-Interest Ports) was passed. This Law provides a consistent legal framework for the Spanish port system in respect of its economic, financial and tax regimes. The Law changed the regulation of port services and the port public domain. Traditional port services were no longer to be offered by the Port Authorities and were to be entrusted to private companies in conditions of free competition.
At present Law 33/2010, amending Law 48/2003, is in force. This Law provides the Spanish ports system with a stable framework and greater legal certainty, since it has been agreed with the main opposition political group. The new regulatory framework for the Spanish ports system is defined by three basic principles: greater self-financing capacity, more management autonomy, and an economic and financial control system based on the criteria of rationality and equilibrium.
According to the President of Puertos del Estado in an interview published in Las Provincias newspaper (23 June 2010), the main goals of the new Law are as follows: - Greater freedom for setting tariffs: Port Authorities are allowed to set
vessel, passenger and goods’ port fees according to their economic situation;
- Strict economic and financial control, under which the Spanish ports system is committed to achieve an annual profitability of 2.5%;
- Attraction of private investment: Opportunities to attract private investment will be promoted in the transport and logistics sectors;
- Maintenance of free competition in the ports, ensuring free access for the provision of port services;
- Positioning of Spanish ports amongst the most competitive in the global economy: Port Authorities will have more freedom to apply discounts to port fees in order to achieve this objective;
- Promotion of schemes to increase port quality and efficiency in order to rationalise investments in infrastructure and maximise the use of existing equipment and facilities;
- Commitment to the development of ports’ socio-economic environment: Port Authorities are encouraged to strengthen their ties with local businesses and with the cities in which they are located;
- Increased significance of the role of the President of the Port Authority;
146 Spain and this competition is influencing its opportunities both as a home port and as a port of call. The main competitor for home port operations is Barcelona, this port being complementary to Valencia as a port of call (given the distance between both ports and vessel speeds in Western Mediterranean itineraries). Other competing ports are Palma, Malaga and Ibiza for home port calls, and Alicante, Cartagena, Almería and Castellón as ports of call within the same itinerary. Each of the ports has specific characteristics that makes it an attractive destination for different cruise lines, depending on market segment, itinerary and cruise brand.
2 The Contracting Authority (Public Party) The regulatory framework for the Spanish Port System is defined by Law 27/1992, Ports of the State and the Merchant Marine, which established the current State-owned ports’ organisational model. It was this Law that created the Port Authorities which manage the ports. Furthermore, it created “Puertos del Estado”, a public body reporting to the Spanish Ministry of Public Works with overall responsibility for the coordination and operational efficiency of the entire port system.
The legal framework established by Law 27/1992 is as follows. Port Authorities have complete management autonomy for port development, investment, commercial policy, and organisational and human resource policies, although personnel issues are subject to private labour law. They develop activities based on goals and business management procedures, and promote global strategies to develop competitive advantage, with maritime and land activities managed as a whole. Port Authorities manage the port public domain, provide infrastructure and regulate basic port services, and are responsible for providing basic services in the absence of private initiatives.
The Port Authorities’ main functions are: planning land use and investments; investing, mainly in infrastructure; managing the port public domain; coordinating other public entities involved in the port, including the city council; controlling private entities operating in the port.
On 26 December 1997, Law 62/1997 was passed, amending Law 27/1992 on Ports of the State and the Merchant Marine. Law 62/1997 regulated the role of the autonomous regions in the structure and organisation of general-interest ports. According to this Law, autonomous regions are responsible only for designating the President and defining the composition of the Board of Directors of the Port Authority. Consequently, this Law reinforces the
147 autonomy of the Port Authorities and the control and coordination role of Puertos del Estado.
Six years later on 27 November 2003, Law 48/2003 (Economic Regime and Service Provision in General-Interest Ports) was passed. This Law provides a consistent legal framework for the Spanish port system in respect of its economic, financial and tax regimes. The Law changed the regulation of port services and the port public domain. Traditional port services were no longer to be offered by the Port Authorities and were to be entrusted to private companies in conditions of free competition.
At present Law 33/2010, amending Law 48/2003, is in force. This Law provides the Spanish ports system with a stable framework and greater legal certainty, since it has been agreed with the main opposition political group. The new regulatory framework for the Spanish ports system is defined by three basic principles: greater self-financing capacity, more management autonomy, and an economic and financial control system based on the criteria of rationality and equilibrium.
According to the President of Puertos del Estado in an interview published in Las Provincias newspaper (23 June 2010), the main goals of the new Law are as follows: - Greater freedom for setting tariffs: Port Authorities are allowed to set
vessel, passenger and goods’ port fees according to their economic situation;
- Strict economic and financial control, under which the Spanish ports system is committed to achieve an annual profitability of 2.5%;
- Attraction of private investment: Opportunities to attract private investment will be promoted in the transport and logistics sectors;
- Maintenance of free competition in the ports, ensuring free access for the provision of port services;
- Positioning of Spanish ports amongst the most competitive in the global economy: Port Authorities will have more freedom to apply discounts to port fees in order to achieve this objective;
- Promotion of schemes to increase port quality and efficiency in order to rationalise investments in infrastructure and maximise the use of existing equipment and facilities;
- Commitment to the development of ports’ socio-economic environment: Port Authorities are encouraged to strengthen their ties with local businesses and with the cities in which they are located;
- Increased significance of the role of the President of the Port Authority;
148 - Integration of ports in the global transport system: The aim here is to
deepen inter-operability between road and rail routes that converge at ports in order to enhance intermodality;
- Increased environmental sustainability: The Port Authorities will be required to submit an annual sustainability report assessing environmental commitments.
The new legal, regulatory and institutional environment allows and encourages the Port Authority of Valencia to promote a project such as the construction and concession of a new cruise terminal. This is an initiative demanded by the Valencia Municipality and is strongly supported by local businesses and the Valencian port cluster, as it will attract private investment to the port and the city in general.
3 The Concessionaire (Private Party) Before proceeding to the tender stage, the Port Authority of Valencia approached most cruise terminal operating companies and cruise liners that could have an interest in the project and informed them about the characteristics of the infrastructure and the tendering procedures. It has held discussions with them to assess the level of private sector interest in the concession. These meetings have been only a first step in the process, and their main aim has been raising the interest of potential bidders in the project. A competitively tendered concession call will be launched in the second semester of 2013.
The selection of the private sector operator for Valencia cruise terminal will take place following the port’s normal procurement procedures.
The roles of the public and private sector in the cruise terminal concession are broadly similar to those found in other port concessions. The Port Authority of Valencia is responsible for building the breakwaters, dredging, building the docks, maintenance of the access to the port, navigation aids and navigation safety, and making sure that private companies will provide marine services (pilotage and towage), whilst the private operator is responsible for the construction and maintenance of terminal building, the provision of equipment, and operating the terminal during the concession period.
The new cruise terminal will face competition from the ferry terminal and another private cruise terminal operator. Minimum levels of traffic will be required from bidders, who will be expected to further develop the cruise market in Valencia.
149
4 Users The project is to be used by cruise lines and cruise passengers.
5 Key Purpose for PPP Model Selection The main reasons for embarking on the cruise terminal PPP have been securing funding for the construction of the new terminal building, attracting additional home port cruise calls, and offering international standards of service to cruise liners and passenger arriving at the city of Valencia. Given the economic crisis in Spain, drawing on private funds to finance the project is felt to be essential.
Additionally, in the event that the selected private operator is a cruise liner, further home port calls will be secured, passenger traffic will increase and the risk of losing traffic to a competing port will be lower.
In summary,the main reasons for choosing PPP as the project delivery solution were: - Limiting the financial risks of the operation; - Passing the market risks to the terminal operator; - Lowering operational costs; - Ensuring the cruise terminal operator will be able to offer high quality
services; - Providing the port authority with a net annual income that will enable it
to recover its investment in the project over a period of 7-13 years, depending on traffic and the terms to be agreed in the concession contract;
- Creating jobs by expanding cruise related activities; - Generating a net positive socio-economic impact for the city and
surrounding area due to the expected increase in the number of cruise passengers and the income produced by their expenditures on excursions, restaurants, shopping and entrance fees to city attractions.
6 Project Timing The project was conceived in 2007-2008, at the end of the longest continuous period of economic boom in Spain since the 1970s. Its construction started in 2009 and the tendering process is taking place in 2013.
Spain is the 13th-largest economy in the world, the fifth-largest in the European Union, and the fourth-largest in the Eurozone, based on nominal GDP comparisons. However between 2008 and 2013 the economic boom that
148 - Integration of ports in the global transport system: The aim here is to
deepen inter-operability between road and rail routes that converge at ports in order to enhance intermodality;
- Increased environmental sustainability: The Port Authorities will be required to submit an annual sustainability report assessing environmental commitments.
The new legal, regulatory and institutional environment allows and encourages the Port Authority of Valencia to promote a project such as the construction and concession of a new cruise terminal. This is an initiative demanded by the Valencia Municipality and is strongly supported by local businesses and the Valencian port cluster, as it will attract private investment to the port and the city in general.
3 The Concessionaire (Private Party) Before proceeding to the tender stage, the Port Authority of Valencia approached most cruise terminal operating companies and cruise liners that could have an interest in the project and informed them about the characteristics of the infrastructure and the tendering procedures. It has held discussions with them to assess the level of private sector interest in the concession. These meetings have been only a first step in the process, and their main aim has been raising the interest of potential bidders in the project. A competitively tendered concession call will be launched in the second semester of 2013.
The selection of the private sector operator for Valencia cruise terminal will take place following the port’s normal procurement procedures.
The roles of the public and private sector in the cruise terminal concession are broadly similar to those found in other port concessions. The Port Authority of Valencia is responsible for building the breakwaters, dredging, building the docks, maintenance of the access to the port, navigation aids and navigation safety, and making sure that private companies will provide marine services (pilotage and towage), whilst the private operator is responsible for the construction and maintenance of terminal building, the provision of equipment, and operating the terminal during the concession period.
The new cruise terminal will face competition from the ferry terminal and another private cruise terminal operator. Minimum levels of traffic will be required from bidders, who will be expected to further develop the cruise market in Valencia.
149
4 Users The project is to be used by cruise lines and cruise passengers.
5 Key Purpose for PPP Model Selection The main reasons for embarking on the cruise terminal PPP have been securing funding for the construction of the new terminal building, attracting additional home port cruise calls, and offering international standards of service to cruise liners and passenger arriving at the city of Valencia. Given the economic crisis in Spain, drawing on private funds to finance the project is felt to be essential.
Additionally, in the event that the selected private operator is a cruise liner, further home port calls will be secured, passenger traffic will increase and the risk of losing traffic to a competing port will be lower.
In summary,the main reasons for choosing PPP as the project delivery solution were: - Limiting the financial risks of the operation; - Passing the market risks to the terminal operator; - Lowering operational costs; - Ensuring the cruise terminal operator will be able to offer high quality
services; - Providing the port authority with a net annual income that will enable it
to recover its investment in the project over a period of 7-13 years, depending on traffic and the terms to be agreed in the concession contract;
- Creating jobs by expanding cruise related activities; - Generating a net positive socio-economic impact for the city and
surrounding area due to the expected increase in the number of cruise passengers and the income produced by their expenditures on excursions, restaurants, shopping and entrance fees to city attractions.
6 Project Timing The project was conceived in 2007-2008, at the end of the longest continuous period of economic boom in Spain since the 1970s. Its construction started in 2009 and the tendering process is taking place in 2013.
Spain is the 13th-largest economy in the world, the fifth-largest in the European Union, and the fourth-largest in the Eurozone, based on nominal GDP comparisons. However between 2008 and 2013 the economic boom that
150 had taken place between 1997 and the beginning of 2008 was seriously reversed.
Spain experienced a property boom that lasted for more than a decade; at its peak in 2007, the construction sector accounted for 16% of Spanish GDP and employed 12% of the active population. However, the real estate boom entailed corresponding increases in personal debt, and the average level of household debt tripled in less than a decade. In 2008 Spanish government debt relative to GDP was well below the European Union average, and the government budget was in surplus. Four years later, in 2012, public debt had increased to 90.7% of GDP. This figure remains lower than in other European countries, with Spain's financial problems stemming from private debt equivalent to well over 200% of GDP and from high unemployment rates reaching well over a quarter of the active population in 2013.
Many Spanish ports, including the Port of Valencia, seem to be making it through the crisis rather unscathed. Although import flows have decreased, the export sector has compensated for these reductions as it has recovered to pre-crisis levels with a growth of 17.4% in sales since 2008. With a contribution of 1.1% to Spanish GDP, the export sector is contributing to bringing stability to the Spanish economy. The OECD ranks Spain in fifth place in the world in terms of exports of goods and services. Capital goods have been amongst the types of merchandise whose export flows have increased the most, and the export sector is expected to prolong its good performance in the medium term.
Concerning the tourist sector, during the last four decades Spain's foreign tourist industry has grown into the second biggest in the world, accounting for approximately 11% of Spanish GDP and generating employment for about two million people. In August 2012 Spain hit its own record of monthly arrivals, registering 7.9 million visitors.
The World Tourism Organisation (UNWTO) places Spain second only to the United States in terms of international tourism receipts. The cruise industry has been one of the sub-sectors that has grown the most within the tourism sector in Spain. Growth in the number of cruise passengers since 2000 has been in the double-digit zone for many Spanish ports, motivating the development of several cruise terminal construction projects in different ports.
7 Project Locality and Market Geography Over the last decade, the city of Valencia has become an attractive tourist destination so the Port of Valencia has the opportunity to become an essential call for cruise liners operating in the Mediterranean.
151 Furthermore, once the Connecting Europe Facility 2014-2020 and new
revised TEN-T Guidelines are approved, the Port of Valencia will be a TEN-T core network port.
It is already an important port for Priority Project 21 (Motorways of the Sea) and it will be connected to core network Corridor 3 (Algeciras-Valencia-other nodes-Budapest-Ukraine border). However, the new cruise terminal is out of the scope of the TEN-T Programme and as a project it will not receive any European Union co-financing.
8 Procurement & Contractual Structure
Tendering Law 33/2010 amending Law 48/2003 (Economic Regime and Service Provision in General Interest Ports) governs the tendering process that will be followed in the case of the Valencia cruise terminal. An open call tendering process will be used.
Contract Structure Although a first design for the terminal building has been drafted by the Port Authority, the private operator will be able to adapt that design to its specific needs in collaboration with the authority. The private operator is expected to look for the best way to finance the cost of building the terminal. The cruise terminal operator will also be in charge of constructing the terminal building, operating and managing it, and maintaining it. At the end of the concession contract the ownership will be transferred to the port authority.
The private operator will have to pay the following port charges to the Port Authority of Valencia: - “Tasa de Actividad”, a charge for using the port domain to generate
private income. This will be 2% of turnover or 20% of the “tasa de ocupación”, whichever is highest, and is estimated as equivalent to EUR 0.13 per passenger in year 2;
- “Tasa de Ocupación”: a fixed annual lease payment equivalent to EUR 0.39 per passenger in year 2;
The following rebates will be applied according to Law: - 95% rebate of “tasa de ocupación” during the construction period; - 15% rebate of “tasa de actividad” for good environmental practices; - 15% rebate of “tasa de actividad” for quality control certification.
150 had taken place between 1997 and the beginning of 2008 was seriously reversed.
Spain experienced a property boom that lasted for more than a decade; at its peak in 2007, the construction sector accounted for 16% of Spanish GDP and employed 12% of the active population. However, the real estate boom entailed corresponding increases in personal debt, and the average level of household debt tripled in less than a decade. In 2008 Spanish government debt relative to GDP was well below the European Union average, and the government budget was in surplus. Four years later, in 2012, public debt had increased to 90.7% of GDP. This figure remains lower than in other European countries, with Spain's financial problems stemming from private debt equivalent to well over 200% of GDP and from high unemployment rates reaching well over a quarter of the active population in 2013.
Many Spanish ports, including the Port of Valencia, seem to be making it through the crisis rather unscathed. Although import flows have decreased, the export sector has compensated for these reductions as it has recovered to pre-crisis levels with a growth of 17.4% in sales since 2008. With a contribution of 1.1% to Spanish GDP, the export sector is contributing to bringing stability to the Spanish economy. The OECD ranks Spain in fifth place in the world in terms of exports of goods and services. Capital goods have been amongst the types of merchandise whose export flows have increased the most, and the export sector is expected to prolong its good performance in the medium term.
Concerning the tourist sector, during the last four decades Spain's foreign tourist industry has grown into the second biggest in the world, accounting for approximately 11% of Spanish GDP and generating employment for about two million people. In August 2012 Spain hit its own record of monthly arrivals, registering 7.9 million visitors.
The World Tourism Organisation (UNWTO) places Spain second only to the United States in terms of international tourism receipts. The cruise industry has been one of the sub-sectors that has grown the most within the tourism sector in Spain. Growth in the number of cruise passengers since 2000 has been in the double-digit zone for many Spanish ports, motivating the development of several cruise terminal construction projects in different ports.
7 Project Locality and Market Geography Over the last decade, the city of Valencia has become an attractive tourist destination so the Port of Valencia has the opportunity to become an essential call for cruise liners operating in the Mediterranean.
151 Furthermore, once the Connecting Europe Facility 2014-2020 and new
revised TEN-T Guidelines are approved, the Port of Valencia will be a TEN-T core network port.
It is already an important port for Priority Project 21 (Motorways of the Sea) and it will be connected to core network Corridor 3 (Algeciras-Valencia-other nodes-Budapest-Ukraine border). However, the new cruise terminal is out of the scope of the TEN-T Programme and as a project it will not receive any European Union co-financing.
8 Procurement & Contractual Structure
Tendering Law 33/2010 amending Law 48/2003 (Economic Regime and Service Provision in General Interest Ports) governs the tendering process that will be followed in the case of the Valencia cruise terminal. An open call tendering process will be used.
Contract Structure Although a first design for the terminal building has been drafted by the Port Authority, the private operator will be able to adapt that design to its specific needs in collaboration with the authority. The private operator is expected to look for the best way to finance the cost of building the terminal. The cruise terminal operator will also be in charge of constructing the terminal building, operating and managing it, and maintaining it. At the end of the concession contract the ownership will be transferred to the port authority.
The private operator will have to pay the following port charges to the Port Authority of Valencia: - “Tasa de Actividad”, a charge for using the port domain to generate
private income. This will be 2% of turnover or 20% of the “tasa de ocupación”, whichever is highest, and is estimated as equivalent to EUR 0.13 per passenger in year 2;
- “Tasa de Ocupación”: a fixed annual lease payment equivalent to EUR 0.39 per passenger in year 2;
The following rebates will be applied according to Law: - 95% rebate of “tasa de ocupación” during the construction period; - 15% rebate of “tasa de actividad” for good environmental practices; - 15% rebate of “tasa de actividad” for quality control certification.
152
Risk Allocation The most relevant risk for the private operator will be the commercial/revenue risk as the cruise terminal will operate in a competitive environment, a minimum level of traffic will be requested in the contract, and there will be a fixed annual lease payment (the “tasa de ocupación). The Port Authority of Valencia will share part of this market risk as one of the most important port charges, the “tasa de actividad”, is directly linked to the annual turnover of the private operator.
A large part of the design and construction risk is assumed by the public authority in charge of building the new breakwaters, docks, berths and access roads to the new terminal. The private operator assumes the construction risk of the terminal building. The operating risk will be mostly private. The only risk the public authority will take will be if the private operator goes bankrupt and the concession needs to be rescued by the port authority (see figure 5). Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory
Tota
lly P
rivat
e
Totally Public
Figure 5. Risk allocation A large part of the construction risk is assumed by the public authority,
which is in charge of building the new breakwaters, docks, berths and accesses to the new terminal. The private operator assumes the construction risk of the terminal building. Financial risk will be linked to the amounts invested by each party. Regulatory risk affects both the private operator and the port authority as the port authority is highly unlikely to change the concession contract after its signature, so the only risk would be a change in national port regulations that would affect both parties.
Performance Key performance indicators linked to operational performance, quality control and environmental practices are expected to be included in the concession contract.
153
References Bermello Ajamil & Partners, Inc. Plan Maestro de Instalaciones de
Cruceros. Puerto de Valencia. September 2012. Cruise Industry News. 2012 State of the Industry Report. Cruise Lines International Association (2013). 2012 Industry Update.
CLIA. European Cruise Council. 2011/2012 Report: Making a Real Social and
Economic Contribution to Europe’s Economy. Ashcroft & Associates Ltd., London, 2012.
Spanish Law 27/1992 on Ports of the State and the Merchant Marine Spanish Law 62/1997 of December 26, amending Law 27/1992 November
24 on Ports of the State and the Merchant Marine Spanish Law 48/2003, of November 27, on Economic System and
Services for General-Interest Ports Spanish Law 33/2010 amending Law 48/2003, on Economic Regime and
Service Provision in General Interest Ports
152
Risk Allocation The most relevant risk for the private operator will be the commercial/revenue risk as the cruise terminal will operate in a competitive environment, a minimum level of traffic will be requested in the contract, and there will be a fixed annual lease payment (the “tasa de ocupación). The Port Authority of Valencia will share part of this market risk as one of the most important port charges, the “tasa de actividad”, is directly linked to the annual turnover of the private operator.
A large part of the design and construction risk is assumed by the public authority in charge of building the new breakwaters, docks, berths and access roads to the new terminal. The private operator assumes the construction risk of the terminal building. The operating risk will be mostly private. The only risk the public authority will take will be if the private operator goes bankrupt and the concession needs to be rescued by the port authority (see figure 5). Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory
Tota
lly P
rivat
e
Totally Public
Figure 5. Risk allocation A large part of the construction risk is assumed by the public authority,
which is in charge of building the new breakwaters, docks, berths and accesses to the new terminal. The private operator assumes the construction risk of the terminal building. Financial risk will be linked to the amounts invested by each party. Regulatory risk affects both the private operator and the port authority as the port authority is highly unlikely to change the concession contract after its signature, so the only risk would be a change in national port regulations that would affect both parties.
Performance Key performance indicators linked to operational performance, quality control and environmental practices are expected to be included in the concession contract.
153
References Bermello Ajamil & Partners, Inc. Plan Maestro de Instalaciones de
Cruceros. Puerto de Valencia. September 2012. Cruise Industry News. 2012 State of the Industry Report. Cruise Lines International Association (2013). 2012 Industry Update.
CLIA. European Cruise Council. 2011/2012 Report: Making a Real Social and
Economic Contribution to Europe’s Economy. Ashcroft & Associates Ltd., London, 2012.
Spanish Law 27/1992 on Ports of the State and the Merchant Marine Spanish Law 62/1997 of December 26, amending Law 27/1992 November
24 on Ports of the State and the Merchant Marine Spanish Law 48/2003, of November 27, on Economic System and
Services for General-Interest Ports Spanish Law 33/2010 amending Law 48/2003, on Economic Regime and
Service Provision in General Interest Ports
154
Port of Antwerp Deurganckdock Lock
Belgium Céline Van Nieuwenhuysen
University of Antwerp [email protected]
Thierry Vanelslander University of Antwerp
155
Project Overview Deurganckdock Lock, Antwerp, Belgium Project Type: Brownfield Greenfield Both Contract duration: 20 Years (including Design & Construction) Budget: EUR 382.3M The budget (nominal prices) includes Design
& Construction, Financing Costs and Construction period operation expenses.
Project Time Line Approval of construction and environmental permits: 1Q 2010; Creation of NV Vlaamse Havens: 25 February 2011; Creation of NV Deurganckdoksluis: 4 July 2011; Start of construction: 24 November 2011
Figure 1: Graphical representation of the new Deurganckdock lock
154
Port of Antwerp Deurganckdock Lock
Belgium Céline Van Nieuwenhuysen
University of Antwerp [email protected]
Thierry Vanelslander University of Antwerp
155
Project Overview Deurganckdock Lock, Antwerp, Belgium Project Type: Brownfield Greenfield Both Contract duration: 20 Years (including Design & Construction) Budget: EUR 382.3M The budget (nominal prices) includes Design
& Construction, Financing Costs and Construction period operation expenses.
Project Time Line Approval of construction and environmental permits: 1Q 2010; Creation of NV Vlaamse Havens: 25 February 2011; Creation of NV Deurganckdoksluis: 4 July 2011; Start of construction: 24 November 2011
Figure 1: Graphical representation of the new Deurganckdock lock
156
1 Introduction The development of the Left Bank of the Port of Antwerp dates back to the 1970s and started from the Waasland channel with the construction of the north and south docks. In the original plans, development of Waasland Port towards the Scheldt on the sea side was scheduled via the Baalhoek channel and the related Baalhoek lock. The Kallo Lock would thereby function only as a transit lock. The sea side access was never achieved and the Kallo Lock, operational since 1983, provides the only access to Waasland port. In 1998-1999, when the choice was made to develop the Deurganckdok, it was decided to erase the reservation area for the Baalhoek Channel from the regional development plan.
The Kallo Lock is heavily occupied: 8,800 movements (123m tonnes) per year. Waiting times amount to 3.5 hours. The Kallo Lock is 50% busier than the Berendrecht Lock, one of the most important locks in the Port of Antwerp. This is due to increasing sea traffic and an increased use of the lock by inland navigation. Dimension-wise (360m x 50m x 12,58m), the lock was never meant to function as access lock from the sea side. Regular maintenance increases as the lock gets older, and structural maintenance is also needed. Moreover, there is always the chance of a collision at the lock blocking the entire Waasland Port. In addition, the city centre of Kallo is near the lock, whereas an alternative access would be further away from residential areas.
With the new Deurganckdock lock, the Flemish government and Antwerp Municipal Port Authority wants to ensure better access to the docks. A lock allows ships to sail from the Scheldt with the tide into the port docks, where the water level is always high. The new lock is the second one in Waasland port. The new lock will be bigger than the current Kallo Lock and hence will allow Waasland Port’s potential to be used to the maximum. The new lock will not only be longer than Kallo Lock, but also deeper.
Because of growth in the activities of Waasland Port – including frequently used RoRo terminals as well as a new tank terminal – Kallo Lock is hitting capacity constraints. Shipping companies and shipping agents have been warning for several years that current waiting times have reached the limits of what is acceptable. A second lock on the Scheldt Left Bank offers the Port of Antwerp operational reliability when Kallo Lock is not accessible for shipping. During maintenance or repair works, ships can sail in and out of Waasland Port using the second lock.
157
2 The Contracting Authority (Public Party)
The construction of the Deurganckdok lock is one of the key projects of the Flemish government and one of the goals of Pact 2020. On 5 June 2009 the “Royal Decree of 8 May 2009” was published in the Belgian Law Gazette. This approved the creation of the new private law independent agency NV Vlaamse Havens and modified the decree of 2 March 1999 concerning seaports policy and management. NV Vlaamse Havens is responsible for co-ordinating and implementing the extension of maritime access routes to the port areas of Antwerp, Bruges-Zeebrugge and Ghent. It has subsidiary companies in each port entrusted with the construction and financing of new sea locks, which are subsequently handed over to the port authorities.
NV Vlaamse Havens has as one of its subsidiary companies NV Deurganckdoksluis. Antwerp Municipal Port Authority holds the majority stake in NV Deurganckdoksluis (74%), and NV Vlaamse Havens the remaining 26%.
3 The Concessionaire (Private Party) NV Deurganckdoksluis will build and finance the second lock in the Waasland Port and grant it via a concession agreement for 20 years to the Antwerp Port Authority. The latter will be responsible for exploiting and maintaining the new sea lock. The contract for construction of the lock was awarded to the temporary commercial entity Waasland Lock, consisting of Jan De Nul nv, CEI De Meyer NV, Betonac NV, Herbosch-Kiere NV, Antwerpse Bouwwerken NV. On 14 September 2011, loans were agreed with EIB (EUR 160.5 M) and KBC (EUR 81.16 M). The remaining capital is to be provided by Antwerp Municipal Port Authority and the Flemish Government.
4 Users The direct lock users are shipping companies and goods handlers in the docks behind the lock.
Other stakeholders/indirect users are: consumers; employees; local residents; Antwerp Municipal Port Authority (supplementary port dues income); Port authorities of other Flemish seaports (losses); Flemish government; and Federal government (via the income taxes on employees).
156
1 Introduction The development of the Left Bank of the Port of Antwerp dates back to the 1970s and started from the Waasland channel with the construction of the north and south docks. In the original plans, development of Waasland Port towards the Scheldt on the sea side was scheduled via the Baalhoek channel and the related Baalhoek lock. The Kallo Lock would thereby function only as a transit lock. The sea side access was never achieved and the Kallo Lock, operational since 1983, provides the only access to Waasland port. In 1998-1999, when the choice was made to develop the Deurganckdok, it was decided to erase the reservation area for the Baalhoek Channel from the regional development plan.
The Kallo Lock is heavily occupied: 8,800 movements (123m tonnes) per year. Waiting times amount to 3.5 hours. The Kallo Lock is 50% busier than the Berendrecht Lock, one of the most important locks in the Port of Antwerp. This is due to increasing sea traffic and an increased use of the lock by inland navigation. Dimension-wise (360m x 50m x 12,58m), the lock was never meant to function as access lock from the sea side. Regular maintenance increases as the lock gets older, and structural maintenance is also needed. Moreover, there is always the chance of a collision at the lock blocking the entire Waasland Port. In addition, the city centre of Kallo is near the lock, whereas an alternative access would be further away from residential areas.
With the new Deurganckdock lock, the Flemish government and Antwerp Municipal Port Authority wants to ensure better access to the docks. A lock allows ships to sail from the Scheldt with the tide into the port docks, where the water level is always high. The new lock is the second one in Waasland port. The new lock will be bigger than the current Kallo Lock and hence will allow Waasland Port’s potential to be used to the maximum. The new lock will not only be longer than Kallo Lock, but also deeper.
Because of growth in the activities of Waasland Port – including frequently used RoRo terminals as well as a new tank terminal – Kallo Lock is hitting capacity constraints. Shipping companies and shipping agents have been warning for several years that current waiting times have reached the limits of what is acceptable. A second lock on the Scheldt Left Bank offers the Port of Antwerp operational reliability when Kallo Lock is not accessible for shipping. During maintenance or repair works, ships can sail in and out of Waasland Port using the second lock.
157
2 The Contracting Authority (Public Party)
The construction of the Deurganckdok lock is one of the key projects of the Flemish government and one of the goals of Pact 2020. On 5 June 2009 the “Royal Decree of 8 May 2009” was published in the Belgian Law Gazette. This approved the creation of the new private law independent agency NV Vlaamse Havens and modified the decree of 2 March 1999 concerning seaports policy and management. NV Vlaamse Havens is responsible for co-ordinating and implementing the extension of maritime access routes to the port areas of Antwerp, Bruges-Zeebrugge and Ghent. It has subsidiary companies in each port entrusted with the construction and financing of new sea locks, which are subsequently handed over to the port authorities.
NV Vlaamse Havens has as one of its subsidiary companies NV Deurganckdoksluis. Antwerp Municipal Port Authority holds the majority stake in NV Deurganckdoksluis (74%), and NV Vlaamse Havens the remaining 26%.
3 The Concessionaire (Private Party) NV Deurganckdoksluis will build and finance the second lock in the Waasland Port and grant it via a concession agreement for 20 years to the Antwerp Port Authority. The latter will be responsible for exploiting and maintaining the new sea lock. The contract for construction of the lock was awarded to the temporary commercial entity Waasland Lock, consisting of Jan De Nul nv, CEI De Meyer NV, Betonac NV, Herbosch-Kiere NV, Antwerpse Bouwwerken NV. On 14 September 2011, loans were agreed with EIB (EUR 160.5 M) and KBC (EUR 81.16 M). The remaining capital is to be provided by Antwerp Municipal Port Authority and the Flemish Government.
4 Users The direct lock users are shipping companies and goods handlers in the docks behind the lock.
Other stakeholders/indirect users are: consumers; employees; local residents; Antwerp Municipal Port Authority (supplementary port dues income); Port authorities of other Flemish seaports (losses); Flemish government; and Federal government (via the income taxes on employees).
158
5 Key Purpose for PPP Model Selection Construction and financing by NV Vlaamse Havens and its subsidiary NV Deurganckdoksluis has brought following advantages and opportunities in relation to traditional funding by the Flemish Government:
extended payments, untaxed on value added; avoidance of having to consolidate investment costs in the Flemish
Region accounts; limitation of risks (demand risk, construction risk, availability risk,
including supplementary expenses linked to lock construction). Moreover, through the creation of NV Deurganckdoksluis, all expenses
and revenues related to the lock construction are separated out. This legal entity is responsible in a transparent way for optimising the extension of maritime access to the port areas, which offers the best guarantees for the coordination of the project and its quick execution. At the request of Antwerp Municipal Port Authority, the scenario of lock construction and financing by the port authority itself was also investigated.
The current model and the alternative of delegated construction management were compared, and trade-offs identified between their advantages and disadvantages. In both scenarios the port company bears all the risks. However construction and financing via NV Vlaamse Havens and its subsidiary NV Deurganckdoksluis delivered following advantages compared with execution by the port authority:
alignment with the philosophy of the Port Decree by placing important aspects of the port policy such as building infrastructure at the level of the Flemish Region
better guarantees of equal operational conditions for Flemish ports more transparency in terms of the financing of port infrastructure.
6 Project Timing Notwithstanding the negative impact of the economic crisis, NV Vlaamse Havens was created by Royal Decree on 8 May 2009.
7 Project Locality and Market Geography The lock is located in Waasland port on the Left Bank of the Port of Antwerp, in the Municipality of Beveren. The closest housing is at Kieldrecht, about 2,000m distance from the building site. To the southwest is located the living
159 area of Verrebroek and to the southeast is located the living area of Kallo, at respective distances of 4,000 and 3,000m.
8 Procurement & Contractual Structure
Tendering Various tender calls for construction work appeared in the Belgian Procurement Bulletin between 6 September 2010 and 13 March 2012. Six applications for the main works were submitted on 2 February 2011,with the contract awarded to THV Waaslandsluis.
Financing was negotiated separately with EIB and KBC.
Contract Structure The annual concession fee to be paid to NV Deurganckdoksluis by Antwerp Municipal Port Authority will only be determined after construction has been completed, and will be based on the effective building and financing cost. The construction cost risk is therefore borne by the port authority.
A subsidy agreement has been drafted between Antwerp Municipal Port Authority and the Flemish Region, whereby the latter will allot an annual subsidy to the Port Authority during the 20 year concession period. Bank funding will be guaranteed for 51% by the Port Authority and 49% by the Flemish Region.
Investigation of the Antwerp Municipal Port Authority’s annual accounts for recent years shows that at least half of the cost will covered by revenues from sales (the so-called 50% criterion). As a consequence, the Port Authority is considered to be a market entity, and is classified in the sector of non-financial enterprises in the hands of the government.
Risk Allocation Risks linked to the construction, maintenance and exploitation of the lock are allocated as depicted in the figure 2 below. Funders (EIB and KBC) get a guarantee for the outstanding amount of their loans. The port authority will take care of the exploitation and maintenance of the new sea lock and bears the risks.
Performance The Flemish Region gives the Antwerp Municipal Port Authority a subsidy of EUR 18 M based on the use of the lock, linked to conditions related to the availability of the lock and the handling time.
158
5 Key Purpose for PPP Model Selection Construction and financing by NV Vlaamse Havens and its subsidiary NV Deurganckdoksluis has brought following advantages and opportunities in relation to traditional funding by the Flemish Government:
extended payments, untaxed on value added; avoidance of having to consolidate investment costs in the Flemish
Region accounts; limitation of risks (demand risk, construction risk, availability risk,
including supplementary expenses linked to lock construction). Moreover, through the creation of NV Deurganckdoksluis, all expenses
and revenues related to the lock construction are separated out. This legal entity is responsible in a transparent way for optimising the extension of maritime access to the port areas, which offers the best guarantees for the coordination of the project and its quick execution. At the request of Antwerp Municipal Port Authority, the scenario of lock construction and financing by the port authority itself was also investigated.
The current model and the alternative of delegated construction management were compared, and trade-offs identified between their advantages and disadvantages. In both scenarios the port company bears all the risks. However construction and financing via NV Vlaamse Havens and its subsidiary NV Deurganckdoksluis delivered following advantages compared with execution by the port authority:
alignment with the philosophy of the Port Decree by placing important aspects of the port policy such as building infrastructure at the level of the Flemish Region
better guarantees of equal operational conditions for Flemish ports more transparency in terms of the financing of port infrastructure.
6 Project Timing Notwithstanding the negative impact of the economic crisis, NV Vlaamse Havens was created by Royal Decree on 8 May 2009.
7 Project Locality and Market Geography The lock is located in Waasland port on the Left Bank of the Port of Antwerp, in the Municipality of Beveren. The closest housing is at Kieldrecht, about 2,000m distance from the building site. To the southwest is located the living
159 area of Verrebroek and to the southeast is located the living area of Kallo, at respective distances of 4,000 and 3,000m.
8 Procurement & Contractual Structure
Tendering Various tender calls for construction work appeared in the Belgian Procurement Bulletin between 6 September 2010 and 13 March 2012. Six applications for the main works were submitted on 2 February 2011,with the contract awarded to THV Waaslandsluis.
Financing was negotiated separately with EIB and KBC.
Contract Structure The annual concession fee to be paid to NV Deurganckdoksluis by Antwerp Municipal Port Authority will only be determined after construction has been completed, and will be based on the effective building and financing cost. The construction cost risk is therefore borne by the port authority.
A subsidy agreement has been drafted between Antwerp Municipal Port Authority and the Flemish Region, whereby the latter will allot an annual subsidy to the Port Authority during the 20 year concession period. Bank funding will be guaranteed for 51% by the Port Authority and 49% by the Flemish Region.
Investigation of the Antwerp Municipal Port Authority’s annual accounts for recent years shows that at least half of the cost will covered by revenues from sales (the so-called 50% criterion). As a consequence, the Port Authority is considered to be a market entity, and is classified in the sector of non-financial enterprises in the hands of the government.
Risk Allocation Risks linked to the construction, maintenance and exploitation of the lock are allocated as depicted in the figure 2 below. Funders (EIB and KBC) get a guarantee for the outstanding amount of their loans. The port authority will take care of the exploitation and maintenance of the new sea lock and bears the risks.
Performance The Flemish Region gives the Antwerp Municipal Port Authority a subsidy of EUR 18 M based on the use of the lock, linked to conditions related to the availability of the lock and the handling time.
160 The subsidy is conditional on two performance indicators: Availability of the lock for at least 95% of the time on an annual
basis and 96.5% on a five-‐year basis; A handling time of no more than 8 minutes longer than the
reference handling time Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk allocation
References Flemish Knowledge Centre PPP, interview with Prof. Steven Van Garsse Verslag van de Vlaamse Regering van Alternatieve financiering van
Vlaamse overheidsinvesteringen van 9 november 2012, Parl.St. Vl.Parl. 2012-13, nr. 1.
Procurement Bulletin nr. 172 6 September 2010, Publication nr. 16957 Procurement Bulletin nr. 227 26 November 2010, Publication nr. 24476 Procurement Bulletin nr 261 7 October 2011, Publication nr. 522340 Procurement Bulletin nr 298 15 November 2011, Publication nr. 526173 Procurement Bulletin nr 64 13 March 2012, Publication nr. 505213 www.bda-online.be www.delloyd.be www.deurganckdoksluis.be www.flanderslogistics.be www.lne.be www.maritiemetoegang.be www.ministerhildecrevits.be www.portofantwerp.com
161
Larnaca and Paphos International Airports
Cyprus Charalambos A. Christodoulou
Public Works Department, Ministry of Communications & Works, Government of Cyprus
Christos O. Efstathiades Limassol Municipality, Cyprus
Cyprus University of Technology [email protected]
160 The subsidy is conditional on two performance indicators: Availability of the lock for at least 95% of the time on an annual
basis and 96.5% on a five-‐year basis; A handling time of no more than 8 minutes longer than the
reference handling time Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk allocation
References Flemish Knowledge Centre PPP, interview with Prof. Steven Van Garsse Verslag van de Vlaamse Regering van Alternatieve financiering van
Vlaamse overheidsinvesteringen van 9 november 2012, Parl.St. Vl.Parl. 2012-13, nr. 1.
Procurement Bulletin nr. 172 6 September 2010, Publication nr. 16957 Procurement Bulletin nr. 227 26 November 2010, Publication nr. 24476 Procurement Bulletin nr 261 7 October 2011, Publication nr. 522340 Procurement Bulletin nr 298 15 November 2011, Publication nr. 526173 Procurement Bulletin nr 64 13 March 2012, Publication nr. 505213 www.bda-online.be www.delloyd.be www.deurganckdoksluis.be www.flanderslogistics.be www.lne.be www.maritiemetoegang.be www.ministerhildecrevits.be www.portofantwerp.com
161
Larnaca and Paphos International Airports
Cyprus Charalambos A. Christodoulou
Public Works Department, Ministry of Communications & Works, Government of Cyprus
Christos O. Efstathiades Limassol Municipality, Cyprus
Cyprus University of Technology [email protected]
162
Project Overview Larnaca and Paphos (Cyprus) International Airports Project Type: Brownfield Greenfield Both Contract duration: 25 Years Budget: EUR 640M Development of the new Larnaca and Paphos Airports Project Time Line Project conceived: 1988; Tender: 2001; Contract Award: May 8, 2005; Financial Close: May 12, 2006; Paphos Airport inauguration Ceremony: Nov. 8, 2008; Operation of the new Paphos Airport: Nov. 17, 2008; Larnaka Airport Inauguration Ceremony: 7 Nov. 2009; Operation of the new Larnaka Airport: Nov. 17, 2009.
Figure 1: Lanarca Airport
163
Figure 2: Paphos Airport
1 Introduction The ‘‘Best Transport Project in Europe’’ in the competition for ‘‘PPP Awards 2013’’ was awarded to the Concession Agreement for the development and operation of the international airports of Larnaca and Paphos by ‘‘World Finance’’ (visit http://www.worldfinance.com/awards/ppp-awards-2013). This reflects the success of the project on various levels assessed in the competition: using best practices, innovation, bringing socio-economic benefits to the end users, and becoming a template in various aspects. In fact, the new modern airports, through the PPP contract, offer significant changes and innovative solutions in respect of passenger handling (e.g. boarding bridges), especially when these solutions are compared with the old airports.
Larnaca Airport is the largest commercial airport of Cyprus and is located in the southern part of the island, 4 km southwest from the city of Larnaca. Paphos Airport is the second largest airport of Cyprus, located in the southwestern part of the island, 6.5 km southeast from the city of Paphos.
Hermes Airports Ltd (the Concessionaire) completed the construction of the new facilities at Larnaca and Paphos in accordance with the agreed timetable at a total cost of EUR 640 M. According to the specifications of the International Air Transport Association (IATA), the size of the Larnaca and
162
Project Overview Larnaca and Paphos (Cyprus) International Airports Project Type: Brownfield Greenfield Both Contract duration: 25 Years Budget: EUR 640M Development of the new Larnaca and Paphos Airports Project Time Line Project conceived: 1988; Tender: 2001; Contract Award: May 8, 2005; Financial Close: May 12, 2006; Paphos Airport inauguration Ceremony: Nov. 8, 2008; Operation of the new Paphos Airport: Nov. 17, 2008; Larnaka Airport Inauguration Ceremony: 7 Nov. 2009; Operation of the new Larnaka Airport: Nov. 17, 2009.
Figure 1: Lanarca Airport
163
Figure 2: Paphos Airport
1 Introduction The ‘‘Best Transport Project in Europe’’ in the competition for ‘‘PPP Awards 2013’’ was awarded to the Concession Agreement for the development and operation of the international airports of Larnaca and Paphos by ‘‘World Finance’’ (visit http://www.worldfinance.com/awards/ppp-awards-2013). This reflects the success of the project on various levels assessed in the competition: using best practices, innovation, bringing socio-economic benefits to the end users, and becoming a template in various aspects. In fact, the new modern airports, through the PPP contract, offer significant changes and innovative solutions in respect of passenger handling (e.g. boarding bridges), especially when these solutions are compared with the old airports.
Larnaca Airport is the largest commercial airport of Cyprus and is located in the southern part of the island, 4 km southwest from the city of Larnaca. Paphos Airport is the second largest airport of Cyprus, located in the southwestern part of the island, 6.5 km southeast from the city of Paphos.
Hermes Airports Ltd (the Concessionaire) completed the construction of the new facilities at Larnaca and Paphos in accordance with the agreed timetable at a total cost of EUR 640 M. According to the specifications of the International Air Transport Association (IATA), the size of the Larnaca and
164 Paphos terminals provides levels of service B and C respectively. Both airports can be reached by car, taxi and the public transport system.
Larnaca Airport opened in November 2009 and the first phase is capable of handling 7,5M passengers annually. The new 100.000 m2 terminal includes 16 boarding bridges, 67 check-in counters, 5 baggage carousels, VIP and business lounges, duty-free shops as well as comfortable and functional areas offering a wide range of shops and cafeterias. The new terminal was built some 500–700 m west of the old terminal, adjacent to the new control tower and it is supported by an extension in the runway, new facilities for aircraft and 2.450 car parking spaces. The runway has a total length of 3.000 m. The old terminal building is planned to be partially demolished and refurbished as a cargo centre, and is currently used as a private terminal for visiting heads of state, VIPs, and private aircraft operators. In 2012, Larnaca Airport served 5.166.224 passengers. There is the possibility of further expansion and construction of a second parallel runway when necessary and further development of the terminal in order to be able to accommodate 9M passengers per year.
The new Paphos Airport has been operational since November 2008 and the new 18.000 m2 terminal can serve 2,7M passengers annually. The new airport provides 28 check-in counters, 3 baggage carousels and 800 parking places, shops etc. The total investment for Paphos Airport reached EUR126M. The runway has a total length of 2.700 m. In 2012 Paphos Airport served 2.242.797 passengers.
The concessionaire investigated many options including the development of an entertainment, culture, tourist, leisure and commercial centre, coupled with an airport hotel, casino etc. In addition there were proposals for the development of a huge exhibition/ transshipment center serving the promotion of Chinese products in the region of south-eastern Europe, Middle East and North Africa. To date there has been no final decision on this.
2 The Contracting Authority (Public Party) Central government is responsible for all levels of the development, design, tendering, negotiation procedure and regulation of the contract. These procurement activities were conducted under the jurisdiction of the Ministry of Communications and Works (Public Works Department, Department of Civil Aviation) and the Ministry of Finance. However, the local authorities were, also supportive of the project.
The procurement process for this project was based on the UK Treasury Taskforce (TTF) (1999) A Step-by-Step Guide to the PFI Procurement
165 Process. London: HM Treasury, the EU regulations on the procurement process for such a project, and the Cyprus procurement law. The decision to use EU laws for the procurement process was due to the fact that, at the time, Cyprus was in the process of joining the EU and because it was considered that familiarity with the process would attract international companies (Solomou, 2003).
3 The Concessionaire (Private Party) Hermes Airports Ltd, a French and Cypriot-led consortium was established. The majority of companies that created the Hermes Airports consortium are business developers mainly in the construction field (Bouygues Batiment International, Egis Projects, Iacovou Brothers, Hellenic Mining, Charilaos Apostolides) with a total share control of 64,6%. In addition the foreign companies Bouygues Batiment International and Egis Projects have extensive experience in PPPs. The consortium of project sponsors included:
Bouygues Batiment International (French construction group- 22%); Egis Projects (French infrastructure group- 20%); Cyprus Trading Corporation (a local retail group, 11.34%); Hellenic Mining (11.33%, a local business developer), Vantage Airport Group (11%); Aer Rianta International (Irish airport operator, 11%); Iacovou Brothers (a local contractor- 5,665%); Charilaos Apostolides (a local contractor- 5,665%); Aéroport Nice Côte d' Azur Chambre de Commerce et d'Industrie
(French airport operator- 2%).
Key subcontractors for construction and maintenance included: Main contractor: Bouygues Batiment International and subcontractors:
Iacovou Brothers Ltd and Charilaos Apostolides Ltd; Ground handling subcontractors (aircraft servicing, luggage handling
etc): Swissport and LGS; Retail/ Food & beverage subcontractors: Cyprus Trading Corporation
(CTC) and Aer Rianta International; Cleaning subcontractor: Hellenic Mining. In order to raise funding Hermes Airports Ltd issued 10.000 shares (€1,71
per share) reflecting the share capital of the company. Hermes Airports Ltd.
164 Paphos terminals provides levels of service B and C respectively. Both airports can be reached by car, taxi and the public transport system.
Larnaca Airport opened in November 2009 and the first phase is capable of handling 7,5M passengers annually. The new 100.000 m2 terminal includes 16 boarding bridges, 67 check-in counters, 5 baggage carousels, VIP and business lounges, duty-free shops as well as comfortable and functional areas offering a wide range of shops and cafeterias. The new terminal was built some 500–700 m west of the old terminal, adjacent to the new control tower and it is supported by an extension in the runway, new facilities for aircraft and 2.450 car parking spaces. The runway has a total length of 3.000 m. The old terminal building is planned to be partially demolished and refurbished as a cargo centre, and is currently used as a private terminal for visiting heads of state, VIPs, and private aircraft operators. In 2012, Larnaca Airport served 5.166.224 passengers. There is the possibility of further expansion and construction of a second parallel runway when necessary and further development of the terminal in order to be able to accommodate 9M passengers per year.
The new Paphos Airport has been operational since November 2008 and the new 18.000 m2 terminal can serve 2,7M passengers annually. The new airport provides 28 check-in counters, 3 baggage carousels and 800 parking places, shops etc. The total investment for Paphos Airport reached EUR126M. The runway has a total length of 2.700 m. In 2012 Paphos Airport served 2.242.797 passengers.
The concessionaire investigated many options including the development of an entertainment, culture, tourist, leisure and commercial centre, coupled with an airport hotel, casino etc. In addition there were proposals for the development of a huge exhibition/ transshipment center serving the promotion of Chinese products in the region of south-eastern Europe, Middle East and North Africa. To date there has been no final decision on this.
2 The Contracting Authority (Public Party) Central government is responsible for all levels of the development, design, tendering, negotiation procedure and regulation of the contract. These procurement activities were conducted under the jurisdiction of the Ministry of Communications and Works (Public Works Department, Department of Civil Aviation) and the Ministry of Finance. However, the local authorities were, also supportive of the project.
The procurement process for this project was based on the UK Treasury Taskforce (TTF) (1999) A Step-by-Step Guide to the PFI Procurement
165 Process. London: HM Treasury, the EU regulations on the procurement process for such a project, and the Cyprus procurement law. The decision to use EU laws for the procurement process was due to the fact that, at the time, Cyprus was in the process of joining the EU and because it was considered that familiarity with the process would attract international companies (Solomou, 2003).
3 The Concessionaire (Private Party) Hermes Airports Ltd, a French and Cypriot-led consortium was established. The majority of companies that created the Hermes Airports consortium are business developers mainly in the construction field (Bouygues Batiment International, Egis Projects, Iacovou Brothers, Hellenic Mining, Charilaos Apostolides) with a total share control of 64,6%. In addition the foreign companies Bouygues Batiment International and Egis Projects have extensive experience in PPPs. The consortium of project sponsors included:
Bouygues Batiment International (French construction group- 22%); Egis Projects (French infrastructure group- 20%); Cyprus Trading Corporation (a local retail group, 11.34%); Hellenic Mining (11.33%, a local business developer), Vantage Airport Group (11%); Aer Rianta International (Irish airport operator, 11%); Iacovou Brothers (a local contractor- 5,665%); Charilaos Apostolides (a local contractor- 5,665%); Aéroport Nice Côte d' Azur Chambre de Commerce et d'Industrie
(French airport operator- 2%).
Key subcontractors for construction and maintenance included: Main contractor: Bouygues Batiment International and subcontractors:
Iacovou Brothers Ltd and Charilaos Apostolides Ltd; Ground handling subcontractors (aircraft servicing, luggage handling
etc): Swissport and LGS; Retail/ Food & beverage subcontractors: Cyprus Trading Corporation
(CTC) and Aer Rianta International; Cleaning subcontractor: Hellenic Mining. In order to raise funding Hermes Airports Ltd issued 10.000 shares (€1,71
per share) reflecting the share capital of the company. Hermes Airports Ltd.
166 then borrowed €569.7M as follows: Term Loan €449.2M; Mezzanine Loan, €60.25 M; Shareholders’ Loan Stock, €60.25M. The Term and Mezzanine Loans came from 16 international banks (Koutsoulis, 2013) .
4 Users Cyprus, being an island, is isolated from Continental Europe. Larnaca and Paphos International Airports are Cyprus’ main international passenger gateways. No year- round ferry/ sea port connections with neighboring countries exist.
Larnaca Airport handles on average over 5 million passengers per year, approximately 50.000 passenger flights and over 30.000 tons of cargo. Paphos Airport, principally used by tourists, handles approximately 2 million passengers per year, over 12.000 passenger flights and some 400 tons of cargo. It is noteworthy that in 2011, 77% of air traffic at Larnaca Airport came from the European Union, while this figure is 85% for Paphos Airport. The charter percentage is 25% and 49% for Larnaca and Paphos respectively (year 2011). The UK market share is 37,26% of total passenger traffic to Cyprus, followed by Greece with 15,71%, Russia with 9,45% and Germany with 5,34% (Government of Cyprus, Civil Aviation Department).
5 Key Purpose for PPP Model Selection The revised TEN-T Guidelines Regulation sets out a more binding planning framework in a dual layer format for the European transport network. It comprises the Comprehensive Network (to be completed by 2050) and the Core Network (to be completed by 2030). Base on the timetable set in a European level priority will be given to the Core Network (European financial support). The Larnaca Airport belongs to the Core TEN-T Network and the Paphos Airport belongs to the Comprehensive TEN-T Network.
Currently, the development of the transport infrastructure of Cyprus through PPP projects is considered to be unattractive, particularly for road infrastructure. Small peripheral EU Member States have difficulties in attracting private investors for TEN-T projects because the cost of the investment is usually equivalent to that of a similar project in a central, inter-connected Member State, while the rate of return for the investment is significantly reduced due to the lower usage of the infrastructure project. This is taken into consideration when authorities investigate the possibility of developing projects in Cyprus through a Public- Private Partnership (PPP).
167 Value for money, technical efficiency, postponing costs, acceleration of
works, short-term decrease of governmental debt and risk transfer are the main political motivations for PPPs as a contract choice, both officially/formally and unofficially/informally in Cyprus. The decrease of governmental debt is considered to be the main reason, and the secondary one the acceleration of works.
6. Project Timing After the Turkish invasion of 1974, Lefkosia (Nicosia) Airport, the only international airport in Cyprus those days, ceased its operation and the airport premises came under United Nations administration. Under these circumstances, the Republic of Cyprus decided in late 1974 to convert an abandoned RAF airport and landing strip into the new international airport of Cyprus, Larnaca Airport. Larnaca International Airport opened on 8 February 1975, with only limited infrastructure facilities and a prefabricated set of buildings comprising separate halls for departures and arrivals. Cyprus since the early 1980s was becoming a major tourism center. The Cyprus Government steadily improved the facilities of the Larnaca Airport, but the passenger terminal was unable to cope with demand. The growing tourism industry of the island led to the decision to develop a second airport in Cyprus. Paphos International Airport opened for operations in November 1983 to serve primarily the tourism industry of the region of Paphos.
The rise of tourism in Cyprus unfortunately was not matched by simultaneous development of airport infrastructure. The two airports of Cyprus were substandard and they could not match demand (especially at Larnaca Airport). Often problems arising during peak hours created a negative image for the passengers, mainly tourists. It was deemed necessary to further develop the airports. The development of the two airports was expected to assist significantly the tourist industry of Cyprus and support the viability of the economy.
The further development of Larnaca and Paphos International Airports was decided in the late 1980s. The new elected government (left wing, 1988-1993) was preparing the project having in mind the development and operation of the two airports through traditional methods. The right-central wing government (1993-2003) followed the steps of the former government. By the late 1990s, when the master plan and construction drawings were ready, the financial issue of developing the two airports arose. In those days desalination plants were being developed in Cyprus as PPP’s, introducing this as a sustainable method for project development. The right-central wing government decided to follow
166 then borrowed €569.7M as follows: Term Loan €449.2M; Mezzanine Loan, €60.25 M; Shareholders’ Loan Stock, €60.25M. The Term and Mezzanine Loans came from 16 international banks (Koutsoulis, 2013) .
4 Users Cyprus, being an island, is isolated from Continental Europe. Larnaca and Paphos International Airports are Cyprus’ main international passenger gateways. No year- round ferry/ sea port connections with neighboring countries exist.
Larnaca Airport handles on average over 5 million passengers per year, approximately 50.000 passenger flights and over 30.000 tons of cargo. Paphos Airport, principally used by tourists, handles approximately 2 million passengers per year, over 12.000 passenger flights and some 400 tons of cargo. It is noteworthy that in 2011, 77% of air traffic at Larnaca Airport came from the European Union, while this figure is 85% for Paphos Airport. The charter percentage is 25% and 49% for Larnaca and Paphos respectively (year 2011). The UK market share is 37,26% of total passenger traffic to Cyprus, followed by Greece with 15,71%, Russia with 9,45% and Germany with 5,34% (Government of Cyprus, Civil Aviation Department).
5 Key Purpose for PPP Model Selection The revised TEN-T Guidelines Regulation sets out a more binding planning framework in a dual layer format for the European transport network. It comprises the Comprehensive Network (to be completed by 2050) and the Core Network (to be completed by 2030). Base on the timetable set in a European level priority will be given to the Core Network (European financial support). The Larnaca Airport belongs to the Core TEN-T Network and the Paphos Airport belongs to the Comprehensive TEN-T Network.
Currently, the development of the transport infrastructure of Cyprus through PPP projects is considered to be unattractive, particularly for road infrastructure. Small peripheral EU Member States have difficulties in attracting private investors for TEN-T projects because the cost of the investment is usually equivalent to that of a similar project in a central, inter-connected Member State, while the rate of return for the investment is significantly reduced due to the lower usage of the infrastructure project. This is taken into consideration when authorities investigate the possibility of developing projects in Cyprus through a Public- Private Partnership (PPP).
167 Value for money, technical efficiency, postponing costs, acceleration of
works, short-term decrease of governmental debt and risk transfer are the main political motivations for PPPs as a contract choice, both officially/formally and unofficially/informally in Cyprus. The decrease of governmental debt is considered to be the main reason, and the secondary one the acceleration of works.
6. Project Timing After the Turkish invasion of 1974, Lefkosia (Nicosia) Airport, the only international airport in Cyprus those days, ceased its operation and the airport premises came under United Nations administration. Under these circumstances, the Republic of Cyprus decided in late 1974 to convert an abandoned RAF airport and landing strip into the new international airport of Cyprus, Larnaca Airport. Larnaca International Airport opened on 8 February 1975, with only limited infrastructure facilities and a prefabricated set of buildings comprising separate halls for departures and arrivals. Cyprus since the early 1980s was becoming a major tourism center. The Cyprus Government steadily improved the facilities of the Larnaca Airport, but the passenger terminal was unable to cope with demand. The growing tourism industry of the island led to the decision to develop a second airport in Cyprus. Paphos International Airport opened for operations in November 1983 to serve primarily the tourism industry of the region of Paphos.
The rise of tourism in Cyprus unfortunately was not matched by simultaneous development of airport infrastructure. The two airports of Cyprus were substandard and they could not match demand (especially at Larnaca Airport). Often problems arising during peak hours created a negative image for the passengers, mainly tourists. It was deemed necessary to further develop the airports. The development of the two airports was expected to assist significantly the tourist industry of Cyprus and support the viability of the economy.
The further development of Larnaca and Paphos International Airports was decided in the late 1980s. The new elected government (left wing, 1988-1993) was preparing the project having in mind the development and operation of the two airports through traditional methods. The right-central wing government (1993-2003) followed the steps of the former government. By the late 1990s, when the master plan and construction drawings were ready, the financial issue of developing the two airports arose. In those days desalination plants were being developed in Cyprus as PPP’s, introducing this as a sustainable method for project development. The right-central wing government decided to follow
168 the PPP path. Cyprus in the early 2000s was struggling to access the European Union and decrease governmental debt. The decrease of governmental debt and the acceleration of works were the main reasoning for the PPP choice. The new central-left government (2003-2008) followed the steps of the previous government and concluded the negotiations with the preferred bidder (2005). In 2004 Cyprus entered the European Union and the new government set as a new goal access to the eurozone.
7. Project Locality and Market Geography Currently air transport is the only mode of passenger transport to/from Cyprus because there are no ferry services (passenger ships) that connect Cyprus with the Continental Europe or other neighboring Countries. Cyprus as a tourist and insular country is highly dependent on air transport. There is a wide network of air-routes connecting Cyprus with Europe, Africa and Asia. Air transport policy objectives in Cyprus include the growing of air transport in a controlled way, the development of sufficient airport capacity, and the adoption appropriate air traffic management measures. The liberalisation of air transport, in combination with the development of the new airports, is expected to create the potential for Cyprus to become a regional transit hub between Europe and the Middle East.
The Larnaca and Paphos Airports support almost exclusively the passenger transport needs of Cyprus with the rest of the world. The two airports attract passengers from all over Cyprus. Transit movements are relatively low and the two airports cannot be considered as hubs for the area. The two airports are located in the outer urban areas of the cities of Larnaca and Paphos respectively
8. Procurement & Contractual Structure The further development of Larnaca and Paphos Airports was decided in 1988, under a single contract. A Master Plan was prepared for the construction of new terminals in the two airports, extension of the runaways and taxiways, and other airport facilities. In May 1991, after a tendering process, the French consulting firm SOFREAVIA prepared the master plan for the airports. In those days it was expected that the two airports would have been traditionally procured and constructed. In February 1993, the French consortium AEROPORTS DE PARIS/SOFREAVIA prepared detailed designs and tender documents for the new airports. The designs for Larnaca and Paphos Airports were completed in September 1999 (Solomou, 2003).
169 In the late 1990s, there was a discussion of what procurement method
should be used for the development of the airports. The government decided that the best method was the BOT (Build, Operate, Transfer) approach because it was believed that this would result in the easiest development of the airports without the “slow-moving” processes a State project has to face. In addition, burdening the national budget with a huge investment was not an option for the Government in those days since the primary goal was accession to the European Union.
After the selection of a team of consultants in October 2000 there was a check on the viability of the project, and discussions on project requirements and how to make the project more attractive to international companies.
Tendering In March 2001 there was an advertisement for Expressions of Interest. Sixteen consortia expressed their interest in the project and received the necessary documentation. From those sixteen only ten returned the completed documents. These bidders were evaluated and five of them were short-listed in July 2001, and invited to submit detailed proposals in October 2001. The short-list of tenderers was based on answers to the Pre-Qualification Questionnaire (PQQ) and on the criteria for the pre-qualification evaluation. From these five consortia only the following three accepted the Invitation to Tender (ITT) and submitted proposals for the project: Alterra Consortium; Hermes Airports and Cyprus Airports Group (Solomou, 2003).
The Master Plan was made available to all bidders in order to prepare their proposals. The bidders were expected to follow the basic idea of the Master Plan, but could propose small, ‘unimportant’ changes in order to make an efficient design for the airports which would help achieve the best operation of the airports and meet the standards of the output specification. The concession contract was for a period of 25 years.
Negotiations took place with the selected preferred bidder and according to the tender rules if the two parties did not reach an agreement, negotiations with the second selected bidder were to follow. In 2003 Alterra Consortium was announced as the preferred bidder. The negotiations failed and the Cyprus Government started negotiations with the second best bidder, Hermes Airports. This had legal implications since Cyprus Airports Group could legally challenge the decision, adding further delays to a much needed project.
The negotiations with Hermes Airports were successfully completed and on 12 May 2006 the private consortium signed the BOT contract for the management and development of Larnaca and Paphos Airports. Until
168 the PPP path. Cyprus in the early 2000s was struggling to access the European Union and decrease governmental debt. The decrease of governmental debt and the acceleration of works were the main reasoning for the PPP choice. The new central-left government (2003-2008) followed the steps of the previous government and concluded the negotiations with the preferred bidder (2005). In 2004 Cyprus entered the European Union and the new government set as a new goal access to the eurozone.
7. Project Locality and Market Geography Currently air transport is the only mode of passenger transport to/from Cyprus because there are no ferry services (passenger ships) that connect Cyprus with the Continental Europe or other neighboring Countries. Cyprus as a tourist and insular country is highly dependent on air transport. There is a wide network of air-routes connecting Cyprus with Europe, Africa and Asia. Air transport policy objectives in Cyprus include the growing of air transport in a controlled way, the development of sufficient airport capacity, and the adoption appropriate air traffic management measures. The liberalisation of air transport, in combination with the development of the new airports, is expected to create the potential for Cyprus to become a regional transit hub between Europe and the Middle East.
The Larnaca and Paphos Airports support almost exclusively the passenger transport needs of Cyprus with the rest of the world. The two airports attract passengers from all over Cyprus. Transit movements are relatively low and the two airports cannot be considered as hubs for the area. The two airports are located in the outer urban areas of the cities of Larnaca and Paphos respectively
8. Procurement & Contractual Structure The further development of Larnaca and Paphos Airports was decided in 1988, under a single contract. A Master Plan was prepared for the construction of new terminals in the two airports, extension of the runaways and taxiways, and other airport facilities. In May 1991, after a tendering process, the French consulting firm SOFREAVIA prepared the master plan for the airports. In those days it was expected that the two airports would have been traditionally procured and constructed. In February 1993, the French consortium AEROPORTS DE PARIS/SOFREAVIA prepared detailed designs and tender documents for the new airports. The designs for Larnaca and Paphos Airports were completed in September 1999 (Solomou, 2003).
169 In the late 1990s, there was a discussion of what procurement method
should be used for the development of the airports. The government decided that the best method was the BOT (Build, Operate, Transfer) approach because it was believed that this would result in the easiest development of the airports without the “slow-moving” processes a State project has to face. In addition, burdening the national budget with a huge investment was not an option for the Government in those days since the primary goal was accession to the European Union.
After the selection of a team of consultants in October 2000 there was a check on the viability of the project, and discussions on project requirements and how to make the project more attractive to international companies.
Tendering In March 2001 there was an advertisement for Expressions of Interest. Sixteen consortia expressed their interest in the project and received the necessary documentation. From those sixteen only ten returned the completed documents. These bidders were evaluated and five of them were short-listed in July 2001, and invited to submit detailed proposals in October 2001. The short-list of tenderers was based on answers to the Pre-Qualification Questionnaire (PQQ) and on the criteria for the pre-qualification evaluation. From these five consortia only the following three accepted the Invitation to Tender (ITT) and submitted proposals for the project: Alterra Consortium; Hermes Airports and Cyprus Airports Group (Solomou, 2003).
The Master Plan was made available to all bidders in order to prepare their proposals. The bidders were expected to follow the basic idea of the Master Plan, but could propose small, ‘unimportant’ changes in order to make an efficient design for the airports which would help achieve the best operation of the airports and meet the standards of the output specification. The concession contract was for a period of 25 years.
Negotiations took place with the selected preferred bidder and according to the tender rules if the two parties did not reach an agreement, negotiations with the second selected bidder were to follow. In 2003 Alterra Consortium was announced as the preferred bidder. The negotiations failed and the Cyprus Government started negotiations with the second best bidder, Hermes Airports. This had legal implications since Cyprus Airports Group could legally challenge the decision, adding further delays to a much needed project.
The negotiations with Hermes Airports were successfully completed and on 12 May 2006 the private consortium signed the BOT contract for the management and development of Larnaca and Paphos Airports. Until
170 completion of the new terminals, the consortium took over the management of the existing facilities where minor improvements were made prior to the construction of the new facilities.
Contract Structure An output specification was created that includes the way the airport is going to be operated. The Concessionaire is responsible for the Soft Facility Management (SFM) and Hard Facility Management (HFM). In the contract there is a specification of the requirements: how to manage and operate the terminals, the runway and taxiways, and car parking for staff, passengers and visitors. The Concessionaire is also responsible for the maintenance and upkeep of the airport in general, as well as for the delivery of some of the core services. It is responsible for the check-in facilities and the loading of the baggage as well as the services provided in the waiting area. The Government is responsible for the delivery of other core services (e.g. security, air traffic control, and fire brigade services).
Based on the contract clauses the aeronautical fees are regulated. Other fees and revenues (retail, car parking etc) are not regulated.
Termination clauses are included in the contract and are divided into three categories (concessionaire default, contracting authority default and force majeure). In each case there are guarantees that the Concessionaire is compensated as follows (Government of Cyprus, 2005):
Concessionaire default- compensation based on 95% of the Concession Agreement revised debt termination amount;
Force majeure- compensation based on the Concession Agreement base debt termination amount, redundancy costs, subcontractor break-of-contract costs and equity.
Contracting Authority default- compensation on the Concession Agreement base debt termination amount, redundancy costs, subcontractor break-of-contract costs, equity and equity return.
A Liaison Committee exists, formed by three representatives of the Contracting Authority and three representatives of the Concessionaire. This committee is responsible for the day-by-day review of the Contract. The Committee also provides a forum for strategic discussions on variations in market conditions as well as the efficient operation of the two airports. The Liaison Committee can be the forum for contract renegotiation.
The private sector collects all of the revenues. The Concessionaire pays the Cyprus Government an annual fee of €3,5M as well as 33% of the annual
171 gross revenues of the two airports. In addition the Cyprus Government participates in a profit-sharing arrangement if the actual equity IRR exceeds 12% in real terms.
Risk Allocation The risks are allocated in a balanced way between the concessionaire and the contracting authority (government). The allocation is based on the principal that the risk is allocated to whom can best deal with it (Solomou, 2003).
Design and construction risks are allocated to the private sector. If there is a problem the concessionaire will face certain penalties. The government has developed some tools to measure performance. These risks however are thought to be the most easily regulated and measured. Maintenance risks are allocated to the private sector. If problems arise the concessionaire will face certain penalties.
Operating risks are allocated mostly to the private sector (poor operating performance, increase of operating/ maintenance costs etc). Some risks are allocated to the public sector (failure of governmental operations, due to government approved suppliers).
The demand risk will be shared by both parties but the risk is greater for the private sector. The concessionaire has to pay the government a “rent” for the exploitation of the government’s assets. The “rent” is divided into two parts. The first is a fixed payment and the second a percentage (33%) of the operating revenues. This percentage shows the sharing of the demand risk between the private and the public sector. If there is a significant reduction in revenues the government receives less income.
The financial risks during construction and operation are allocated mostly to the private sector. Some risks are allocated to the public sector in the case of a decision to expand the infrastructure of the two airports.
The regulatory risks are shared between both parties. There are certain clauses that will protect the operator from negative regulatory changes enforced by the government. If, for example, tourism taxation is raised then fewer visitors will come to Cyprus, so the airports’ revenues will be reduced. In such a situation, the government should take this risk. On the other hand if the regulation affects all Cyprus citizens, for example inflation, the concessionaire will have to bear this risk.
The force majeure risk will be shared by both parties (war, disaster, hijacking etc) but the risk is greater for the public sector, as the concessionaire is compensated by the Contracting Authority.
170 completion of the new terminals, the consortium took over the management of the existing facilities where minor improvements were made prior to the construction of the new facilities.
Contract Structure An output specification was created that includes the way the airport is going to be operated. The Concessionaire is responsible for the Soft Facility Management (SFM) and Hard Facility Management (HFM). In the contract there is a specification of the requirements: how to manage and operate the terminals, the runway and taxiways, and car parking for staff, passengers and visitors. The Concessionaire is also responsible for the maintenance and upkeep of the airport in general, as well as for the delivery of some of the core services. It is responsible for the check-in facilities and the loading of the baggage as well as the services provided in the waiting area. The Government is responsible for the delivery of other core services (e.g. security, air traffic control, and fire brigade services).
Based on the contract clauses the aeronautical fees are regulated. Other fees and revenues (retail, car parking etc) are not regulated.
Termination clauses are included in the contract and are divided into three categories (concessionaire default, contracting authority default and force majeure). In each case there are guarantees that the Concessionaire is compensated as follows (Government of Cyprus, 2005):
Concessionaire default- compensation based on 95% of the Concession Agreement revised debt termination amount;
Force majeure- compensation based on the Concession Agreement base debt termination amount, redundancy costs, subcontractor break-of-contract costs and equity.
Contracting Authority default- compensation on the Concession Agreement base debt termination amount, redundancy costs, subcontractor break-of-contract costs, equity and equity return.
A Liaison Committee exists, formed by three representatives of the Contracting Authority and three representatives of the Concessionaire. This committee is responsible for the day-by-day review of the Contract. The Committee also provides a forum for strategic discussions on variations in market conditions as well as the efficient operation of the two airports. The Liaison Committee can be the forum for contract renegotiation.
The private sector collects all of the revenues. The Concessionaire pays the Cyprus Government an annual fee of €3,5M as well as 33% of the annual
171 gross revenues of the two airports. In addition the Cyprus Government participates in a profit-sharing arrangement if the actual equity IRR exceeds 12% in real terms.
Risk Allocation The risks are allocated in a balanced way between the concessionaire and the contracting authority (government). The allocation is based on the principal that the risk is allocated to whom can best deal with it (Solomou, 2003).
Design and construction risks are allocated to the private sector. If there is a problem the concessionaire will face certain penalties. The government has developed some tools to measure performance. These risks however are thought to be the most easily regulated and measured. Maintenance risks are allocated to the private sector. If problems arise the concessionaire will face certain penalties.
Operating risks are allocated mostly to the private sector (poor operating performance, increase of operating/ maintenance costs etc). Some risks are allocated to the public sector (failure of governmental operations, due to government approved suppliers).
The demand risk will be shared by both parties but the risk is greater for the private sector. The concessionaire has to pay the government a “rent” for the exploitation of the government’s assets. The “rent” is divided into two parts. The first is a fixed payment and the second a percentage (33%) of the operating revenues. This percentage shows the sharing of the demand risk between the private and the public sector. If there is a significant reduction in revenues the government receives less income.
The financial risks during construction and operation are allocated mostly to the private sector. Some risks are allocated to the public sector in the case of a decision to expand the infrastructure of the two airports.
The regulatory risks are shared between both parties. There are certain clauses that will protect the operator from negative regulatory changes enforced by the government. If, for example, tourism taxation is raised then fewer visitors will come to Cyprus, so the airports’ revenues will be reduced. In such a situation, the government should take this risk. On the other hand if the regulation affects all Cyprus citizens, for example inflation, the concessionaire will have to bear this risk.
The force majeure risk will be shared by both parties (war, disaster, hijacking etc) but the risk is greater for the public sector, as the concessionaire is compensated by the Contracting Authority.
172 Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force Majeure A new airport in Cyprus
Tota
lly P
rivat
e
Totally Public
Figure 3: Risk allocation Another possible risk that is allocated to the public sector is the possibility
of having a third airport in Cyprus, either by building a new one or in the case that a comprehensive settlement is reached in respect of the Cyprus issue, when the existing airport in the occupied area may recognized as an international airport again. The bidders prepared their proposals on the assumption that there are only two airports in Cyprus. If there is in the future a new airport in Cyprus, there will be a reduction in demand for Larnaca and Paphos Airports so the contract has certain clauses to protect the concessionaire from such risks.
Performance The contract defines a performance measurement system that incentivizes the Concessionaire to perform the designated airport services to the performance standards specified in the contract, and specifies the deductions to be made when performance does not attain the relevant standards. The concession contract establishes procedures for the measurement of performance of the designated airport services. If the Concessionaire fails to achieve the performance standards, then deficiency points apply. The deficiency points are aggregated for a certain performance review period and if they exceed a certain level (10 points) penalties apply (a percentage of the gross revenue less the concession fee). If the Concessionaire achieves or exceeds 95% performance in all the concessionaire- controlled standards, then an amount equal to 1% of the gross revenue less the concession fee for that performance review period shall be deducted from the next concession fee payment made to the Government (Government of Cyprus, 2005).
Nevertheless, the contract does not include deficiency points or penalties for non-concessionaire controlled performance standards (baggage handling
173 and airline counter check-in process). The Concessionaire shall employ independent third parties to carry out customer satisfaction surveys of passengers and customers. No deficiency points or penalties are linked to the survey results.
The Contracting Authority may audit any aspect of the Concessionaire’s performance. If the Concessionaire achieves less than 60% for all of the concessionaire-controlled standards, the Contracting Authority may issue a Warning Notice which may lead even to termination of the contract. The performance standards may be reviewed by the Liaison Committee in good faith.
Two categories of performance indicators exist as follows: Concessionaire-controlled performance indicators: Check-In
Counters; Security Check Equipment; Luggage Trolleys; Immigration/ Customs; Baggage Reclaim; Flight Information Display; Lifts/ Escalators/ Moving Walkways; Cleanliness;
Third party-controlled standards (non concessionaire-controlled performance indicators): Check-In for Scheduled Flights; Check-In for Charter Flights; Baggage Delivery of first bag to reach carousel; Baggage Delivery of last bag to reach carousel.
The contract includes deficiency points and penalties for the concessionaire- controlled performance standards/ indicators. Each indicator has five deficiency levels which lead to 1-5 deficiency points respectively. The deficiency points are aggregated for a certain performance review period and if they exceed a certain level, a penalty applys.
The Department of Civil Aviation expects that the passenger traffic in the coming years will increase annually by 2 -3%. The development depends on competition for tourism, the international economy and other external factors such as political stability in the region. The passenger forecasts for a 2-3% annual increase have not been confirmed (at least not for every year).
Three forecast scenarios exist in the contract (low case growth, base case growth and high case growth). None of these scenarios have been confirmed by the actual passenger traffic: Larnaca & Paphos Airports actual traffic in 2012 was 7,5M passengers versus 8,5M, 9,0M and 9,5M passengers in the 2012 Low, Base and High case scenarios respectively.
The Concession Agreement for the development and operation of International Airports of Larnaca and Paphos provided on time two strategic importance infrastructure projects in Cyprus. The Larnaca and Paphos Airports are deemed important for the sustainability of Cyprus economy. In this respect,
172 Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force Majeure A new airport in Cyprus
Tota
lly P
rivat
e
Totally Public
Figure 3: Risk allocation Another possible risk that is allocated to the public sector is the possibility
of having a third airport in Cyprus, either by building a new one or in the case that a comprehensive settlement is reached in respect of the Cyprus issue, when the existing airport in the occupied area may recognized as an international airport again. The bidders prepared their proposals on the assumption that there are only two airports in Cyprus. If there is in the future a new airport in Cyprus, there will be a reduction in demand for Larnaca and Paphos Airports so the contract has certain clauses to protect the concessionaire from such risks.
Performance The contract defines a performance measurement system that incentivizes the Concessionaire to perform the designated airport services to the performance standards specified in the contract, and specifies the deductions to be made when performance does not attain the relevant standards. The concession contract establishes procedures for the measurement of performance of the designated airport services. If the Concessionaire fails to achieve the performance standards, then deficiency points apply. The deficiency points are aggregated for a certain performance review period and if they exceed a certain level (10 points) penalties apply (a percentage of the gross revenue less the concession fee). If the Concessionaire achieves or exceeds 95% performance in all the concessionaire- controlled standards, then an amount equal to 1% of the gross revenue less the concession fee for that performance review period shall be deducted from the next concession fee payment made to the Government (Government of Cyprus, 2005).
Nevertheless, the contract does not include deficiency points or penalties for non-concessionaire controlled performance standards (baggage handling
173 and airline counter check-in process). The Concessionaire shall employ independent third parties to carry out customer satisfaction surveys of passengers and customers. No deficiency points or penalties are linked to the survey results.
The Contracting Authority may audit any aspect of the Concessionaire’s performance. If the Concessionaire achieves less than 60% for all of the concessionaire-controlled standards, the Contracting Authority may issue a Warning Notice which may lead even to termination of the contract. The performance standards may be reviewed by the Liaison Committee in good faith.
Two categories of performance indicators exist as follows: Concessionaire-controlled performance indicators: Check-In
Counters; Security Check Equipment; Luggage Trolleys; Immigration/ Customs; Baggage Reclaim; Flight Information Display; Lifts/ Escalators/ Moving Walkways; Cleanliness;
Third party-controlled standards (non concessionaire-controlled performance indicators): Check-In for Scheduled Flights; Check-In for Charter Flights; Baggage Delivery of first bag to reach carousel; Baggage Delivery of last bag to reach carousel.
The contract includes deficiency points and penalties for the concessionaire- controlled performance standards/ indicators. Each indicator has five deficiency levels which lead to 1-5 deficiency points respectively. The deficiency points are aggregated for a certain performance review period and if they exceed a certain level, a penalty applys.
The Department of Civil Aviation expects that the passenger traffic in the coming years will increase annually by 2 -3%. The development depends on competition for tourism, the international economy and other external factors such as political stability in the region. The passenger forecasts for a 2-3% annual increase have not been confirmed (at least not for every year).
Three forecast scenarios exist in the contract (low case growth, base case growth and high case growth). None of these scenarios have been confirmed by the actual passenger traffic: Larnaca & Paphos Airports actual traffic in 2012 was 7,5M passengers versus 8,5M, 9,0M and 9,5M passengers in the 2012 Low, Base and High case scenarios respectively.
The Concession Agreement for the development and operation of International Airports of Larnaca and Paphos provided on time two strategic importance infrastructure projects in Cyprus. The Larnaca and Paphos Airports are deemed important for the sustainability of Cyprus economy. In this respect,
174 the Government, the political parties, the local authorities and the Cypriot society considers the project successful. On the other hand there are concerns that the aeronautical fees of the two airports create problems in providing competitive tourist packages and hence attract more tourists and revenues for Cyprus economy. In addition, the fact that the actual passenger traffic so far did not match the forecast scenarios included in the contract, it may raise viability issues for the project leading to a vicious circle (reduction in the level of service provided, increase of the fees etc). Moreover, the status of Cyprus economy and the sustain recession are factors that could create increase uncertainty for the project.
References Solomou C. (2003). BOT and Economic Efficiency: The case of Larnaca
Airport. Thesis for the degree of Master of Science in Built Environment for the University of London. University College London, Bartlett School of Graduate Studies.
Government of Cyprus. 2005. Concession Agreement for the Development and Operation of International Airports at Larnaca and Pafos. Ministry of Communications and Works. Lefkosia: Government of Cyprus
Government of Cyprus. 2012. Transport Statistics 2011, Statistical Service. Lefkosia: Government of Cyprus
Government of Cyprus. 2009. Public Works Department: One Hundred thirty years of history and service, 1878-2008. Lefkosia: Government of Cyprus.
Antonis Koutsoulis, Head of the Unit for regulating the Larnaca and Paphos Airport BOT Contract. 2013. Personal Interview. Lefkosia
Government of Cyprus, Ministry of Communications and Works, Public Works Department Website: www.mcw.gov.cy/pwd
Government of Cyprus, Ministry of Communications and Works, Civil Aviation Department Website: www.mcw.gov.cy/dca
Hermes Airports, Larnaca and Paphos International Airports Official Website: www.hermesairports.com
World Finance Website: http://www.worldfinance.com/awards/ppp-awards-2013
175
Tirana International Airport Albania
Ali Dedej Albkonsult Ltd
Vera Shiko Institute of Transport
Ministry of Public Works and Transport [email protected]
174 the Government, the political parties, the local authorities and the Cypriot society considers the project successful. On the other hand there are concerns that the aeronautical fees of the two airports create problems in providing competitive tourist packages and hence attract more tourists and revenues for Cyprus economy. In addition, the fact that the actual passenger traffic so far did not match the forecast scenarios included in the contract, it may raise viability issues for the project leading to a vicious circle (reduction in the level of service provided, increase of the fees etc). Moreover, the status of Cyprus economy and the sustain recession are factors that could create increase uncertainty for the project.
References Solomou C. (2003). BOT and Economic Efficiency: The case of Larnaca
Airport. Thesis for the degree of Master of Science in Built Environment for the University of London. University College London, Bartlett School of Graduate Studies.
Government of Cyprus. 2005. Concession Agreement for the Development and Operation of International Airports at Larnaca and Pafos. Ministry of Communications and Works. Lefkosia: Government of Cyprus
Government of Cyprus. 2012. Transport Statistics 2011, Statistical Service. Lefkosia: Government of Cyprus
Government of Cyprus. 2009. Public Works Department: One Hundred thirty years of history and service, 1878-2008. Lefkosia: Government of Cyprus.
Antonis Koutsoulis, Head of the Unit for regulating the Larnaca and Paphos Airport BOT Contract. 2013. Personal Interview. Lefkosia
Government of Cyprus, Ministry of Communications and Works, Public Works Department Website: www.mcw.gov.cy/pwd
Government of Cyprus, Ministry of Communications and Works, Civil Aviation Department Website: www.mcw.gov.cy/dca
Hermes Airports, Larnaca and Paphos International Airports Official Website: www.hermesairports.com
World Finance Website: http://www.worldfinance.com/awards/ppp-awards-2013
175
Tirana International Airport Albania
Ali Dedej Albkonsult Ltd
Vera Shiko Institute of Transport
Ministry of Public Works and Transport [email protected]
176
Project Overview Tirana International Airport (TIA),Albania Project Type: Brownfield Greenfield Both Contract duration: 20 Years Budget: EUR 50 M Development Project Time Line Project conceived: 2003; Tender: 2004; Contract Award: October 2004; Financial Close: March 2005; Contract Ratification: Nov. 2004 (Law 9312/11.11.2004; Date of opening: 21 March 2007
Figure 1. Tirana International Airport
177
1 Introduction In the framework of EU integration of Albania, air transport is considered to be one of the most important transport modes to open and link Albania with Europe and Balkan region countries. In this context, the Albanian government gives priority to improving infrastructure and services of the Tirana International Airport (TIA).
Located on the old International Airport “Mother Tereza”, modernized and expanded, Tirana International Airport’s serves international flights from and to Tirana. The Airport offers a 24-hour operation, 7 days a week. TIA service teams are coordinated perfectly to maximize efficiency and flexibility. Short shuttle times, rapid dissemination of luggage, and well trained personnel are just some of the requirements for an airport service and TIA offers them. Customer satisfaction surveys are conducted regularly for both the passenger and cargo terminals, aiming to assess the level of service offered to passengers and customers. In 2011, the quality of services and facilities offered by TIA remained, in general, “satisfactory” to “very satisfactory” and the quality of services and facilities provided by TIA in the cargo terminal was “very satisfactory”.
The Concession Agreement for (Rinas) International Airport was signed in October 2004 by the Albania Government and Tirana Airport Partners (TAP). The object of this concession was the construction, operation and maintenance of the International Airport "Mother Teresa" of Tirana. The concessionaire’s assignment is to design, finance, install, build, maintain, operate, manage and develop the new terminal construction based on the old airport. The planning and construction of the airport was made to British standards. In addition, completed in 2007, were the construction of 7 km of access roads, which shorten the distance to the capital Tirana by 8 km; a new air cargo terminal; renovation and construction of the airport infrastructure; a new car parking area; and a waste-water treatment plant.
The concessionaire was given exclusivity rights since the Government of Albania guarantees that during the term of the concession no other airport will be licensed, authorized or operated any for international commercial flights (cargo and passenger) in the Republic of Albania, with the exception of emergency landings. The Law of the Concession for Tirana International Airport "Mother Teresa" states that “…When not otherwise provided for in this Agreement, this Agreement takes precedence over any applicable law that is in force at the date of entry into force of the Law on Airport Concession …”
176
Project Overview Tirana International Airport (TIA),Albania Project Type: Brownfield Greenfield Both Contract duration: 20 Years Budget: EUR 50 M Development Project Time Line Project conceived: 2003; Tender: 2004; Contract Award: October 2004; Financial Close: March 2005; Contract Ratification: Nov. 2004 (Law 9312/11.11.2004; Date of opening: 21 March 2007
Figure 1. Tirana International Airport
177
1 Introduction In the framework of EU integration of Albania, air transport is considered to be one of the most important transport modes to open and link Albania with Europe and Balkan region countries. In this context, the Albanian government gives priority to improving infrastructure and services of the Tirana International Airport (TIA).
Located on the old International Airport “Mother Tereza”, modernized and expanded, Tirana International Airport’s serves international flights from and to Tirana. The Airport offers a 24-hour operation, 7 days a week. TIA service teams are coordinated perfectly to maximize efficiency and flexibility. Short shuttle times, rapid dissemination of luggage, and well trained personnel are just some of the requirements for an airport service and TIA offers them. Customer satisfaction surveys are conducted regularly for both the passenger and cargo terminals, aiming to assess the level of service offered to passengers and customers. In 2011, the quality of services and facilities offered by TIA remained, in general, “satisfactory” to “very satisfactory” and the quality of services and facilities provided by TIA in the cargo terminal was “very satisfactory”.
The Concession Agreement for (Rinas) International Airport was signed in October 2004 by the Albania Government and Tirana Airport Partners (TAP). The object of this concession was the construction, operation and maintenance of the International Airport "Mother Teresa" of Tirana. The concessionaire’s assignment is to design, finance, install, build, maintain, operate, manage and develop the new terminal construction based on the old airport. The planning and construction of the airport was made to British standards. In addition, completed in 2007, were the construction of 7 km of access roads, which shorten the distance to the capital Tirana by 8 km; a new air cargo terminal; renovation and construction of the airport infrastructure; a new car parking area; and a waste-water treatment plant.
The concessionaire was given exclusivity rights since the Government of Albania guarantees that during the term of the concession no other airport will be licensed, authorized or operated any for international commercial flights (cargo and passenger) in the Republic of Albania, with the exception of emergency landings. The Law of the Concession for Tirana International Airport "Mother Teresa" states that “…When not otherwise provided for in this Agreement, this Agreement takes precedence over any applicable law that is in force at the date of entry into force of the Law on Airport Concession …”
178
2 The Contracting Authority (Public Party) The project has been driven by the Ministry of Transport, which is the responsible entity at national level, which governs all units and transportation public institutions operating in transport sector in Albania. The Minister of Transport created a committee and working groups for the whole procedure of review and assessment of bids submitted by corporate entities.
As of 2000, the Albanian government’s strategy for the development of transport gives priority to the transport sectors related to trans-European integration issues. In this context, the Albanian government has given priority to improving transport infrastructure and services in Tirana International Airport, located in Rinas. The main targets for air transport development were the operation of international airlines opening up the country and linking it with many European and Balkan countries.
For concessions Albania has a general law covering all activities and sectors of the economy. This is Law no 9663, dated 18.12.2006, the "Law on Concessions", with amendments by Laws no. 9995, dated 22.09.2008; no. 10 137, dated 11.5.2009; no.10 157, dated 15.10.2009 and Normative Act no. 1, dated 5.5.2010.
3 The Concessionaire (Private Party) The concessionaire companies are represented by a consortium owned by (i) HOCHTIEF AirPort GmbH (HTA), one of the leading private airport investors in the world, (ii) DEG Deutsche Investors - und Entwicklungsgese -llschaft, a member of the KfW banking group that is specialized in the financing of corporate and infrastructure investments in Europe as well as the financing of exports, large projects and investments by European companies abroad, and (iii) the Albanian-American Enterprise Fund (AAEF), an investment company founded by the US Government with the objective of supporting the development of the private sector in Albania. Their shares are as follows: HOCHTIEF AirPort GmbH: 47%; DEG Deutsche Investors - und Entwicklungsgese –llschaft: 31.7% and the Albanian-American Enterprise Fund (AAEF): 21.3%.
Financing was provided in combination by EBRD, Alpha Bank Albania and DEG.
179
4 Users The main users are the passengers from Albania and all connecting countries. The second group of users is the airline companies, both national and international. In addition some cargo services operate for fast and special condition deliveries. TIA is the only international airport in Albania.
The state has the right to control airport operations and implements its rights through institutions such as ANTA (Albanian National Air Traffic), DPAC (General Directory for Civil Aviation) and the Directory for Air Transport in the Ministry of Public Works and Transport.
5 Key Purpose for PPP Model Selection The main reason to choose a PPP project for Tirana International Airport was that Albania has only one airport to cover all user requirements. The objective of the Albanian state was to provide an international airport of European standard to connect Albania with other European countries though the safe and high level of service. The funds for such an airport could not been provided by the Albanian state, so a PPP scheme was seen as one of the main ways of securing private investments controlled by the state.
6 Project Timing During the negotiation for the concession of Tirana International Airport, macro-economic indicators were steadily deteriorating, including the budgetary situation of the country as well as the level of inflation, which was 3-4% p.a. The demand for air passenger transport was very strong, with high growth rates.
At the time of contracting the concession, Albania was in the first stages of visa liberalization and integration of the country into the EU, with some measures already under implementation. For that reason an International Airport was one of the priorities for the transport sector. The need for rapid development of the country and the negative effects of the crisis on the Albanian economy justified the decision of the state to use private companies for the procurement of TIA
7. Project Locality and Market Geography Tirana International Airport is 7 km from the main road to Tirana, and 3-4 km from the north-south road axis in Albania. It is a short distance from Durres
178
2 The Contracting Authority (Public Party) The project has been driven by the Ministry of Transport, which is the responsible entity at national level, which governs all units and transportation public institutions operating in transport sector in Albania. The Minister of Transport created a committee and working groups for the whole procedure of review and assessment of bids submitted by corporate entities.
As of 2000, the Albanian government’s strategy for the development of transport gives priority to the transport sectors related to trans-European integration issues. In this context, the Albanian government has given priority to improving transport infrastructure and services in Tirana International Airport, located in Rinas. The main targets for air transport development were the operation of international airlines opening up the country and linking it with many European and Balkan countries.
For concessions Albania has a general law covering all activities and sectors of the economy. This is Law no 9663, dated 18.12.2006, the "Law on Concessions", with amendments by Laws no. 9995, dated 22.09.2008; no. 10 137, dated 11.5.2009; no.10 157, dated 15.10.2009 and Normative Act no. 1, dated 5.5.2010.
3 The Concessionaire (Private Party) The concessionaire companies are represented by a consortium owned by (i) HOCHTIEF AirPort GmbH (HTA), one of the leading private airport investors in the world, (ii) DEG Deutsche Investors - und Entwicklungsgese -llschaft, a member of the KfW banking group that is specialized in the financing of corporate and infrastructure investments in Europe as well as the financing of exports, large projects and investments by European companies abroad, and (iii) the Albanian-American Enterprise Fund (AAEF), an investment company founded by the US Government with the objective of supporting the development of the private sector in Albania. Their shares are as follows: HOCHTIEF AirPort GmbH: 47%; DEG Deutsche Investors - und Entwicklungsgese –llschaft: 31.7% and the Albanian-American Enterprise Fund (AAEF): 21.3%.
Financing was provided in combination by EBRD, Alpha Bank Albania and DEG.
179
4 Users The main users are the passengers from Albania and all connecting countries. The second group of users is the airline companies, both national and international. In addition some cargo services operate for fast and special condition deliveries. TIA is the only international airport in Albania.
The state has the right to control airport operations and implements its rights through institutions such as ANTA (Albanian National Air Traffic), DPAC (General Directory for Civil Aviation) and the Directory for Air Transport in the Ministry of Public Works and Transport.
5 Key Purpose for PPP Model Selection The main reason to choose a PPP project for Tirana International Airport was that Albania has only one airport to cover all user requirements. The objective of the Albanian state was to provide an international airport of European standard to connect Albania with other European countries though the safe and high level of service. The funds for such an airport could not been provided by the Albanian state, so a PPP scheme was seen as one of the main ways of securing private investments controlled by the state.
6 Project Timing During the negotiation for the concession of Tirana International Airport, macro-economic indicators were steadily deteriorating, including the budgetary situation of the country as well as the level of inflation, which was 3-4% p.a. The demand for air passenger transport was very strong, with high growth rates.
At the time of contracting the concession, Albania was in the first stages of visa liberalization and integration of the country into the EU, with some measures already under implementation. For that reason an International Airport was one of the priorities for the transport sector. The need for rapid development of the country and the negative effects of the crisis on the Albanian economy justified the decision of the state to use private companies for the procurement of TIA
7. Project Locality and Market Geography Tirana International Airport is 7 km from the main road to Tirana, and 3-4 km from the north-south road axis in Albania. It is a short distance from Durres
180 railway station and the Port of Durres. Business activity in the vicinity of TIA has grown and expanded.
TIA is a node in the TEN Corridor VIII (Bari/Brindisi-Durres-Tirana-Scopje- Sofia- Burgas/Varna (Bulgaria). TIA is located in Rinas, part of the Corridor VIII branch in Albania.
8. Procurement & Contractual Structure Tendering In 2004, the Ministry of Public Works and Transport published an invitation for pre-qualification for the concession of Tirana International Airport in: two international newspapers; commercial and foreign businesses organizations; organizations in the district chambers of commerce and business in the country; and the Bulletin of Public Announcements.
All interested parties from Albania and abroad could participate in this competition on the basis of qualifications, airports activity experience, and company competence. The nature of the project and its technical requirements, Bid Procedure, Contract Terms and the Legal, Economic and Financial Requirements were specified in the Bid Procedure Documents. Selection of the winners was based on a competitive procedure, with eligibility criteria for the financial and technical assessment.
The contracting authority followed the competitive dialogue procedure. The call for Expressions of Interest attracted 18 companies, of which four were invited to take part in the negotiations.
The concession was approved by Law no.9312, dated 11.11.2004. As of April 23rd 2005, Tirana International Airport is operated by the concession company Tirana Airport Partners SHPK (TAP).
Contract Structure It is a typical concession scheme based on international procurement laws as approved by the Albanian Parliament. After 20 years the airport terminals and associated functions will return to the Ministry of Public Works and Transport.
The facilities are exempt from customs duties, import taxes, and value added tax on imports and materials supplied for construction and reconstruction work.
Tirana Airport Partners receive the airport revenues from the airport and bear the responsibilities of private entities (the Government gets revenues
181 every year from TAP fiscal system activity profit, VAT, etc.) specified in the legislation for private business activity registered in Albania.
TAP (Tirana Airport Partners) has to guarantee the full performance of the contract, offered in accordance with the requirements of the Agreement, with a prepayment in the amount of EUR 3M (paid at the start of contract as a guaranty for concession of the airport) as shown in the contract.
In the concession agreement for Tirana International Airport the Contracting Authority, is authorized to negotiate and achieve an agreement with the concessionaire to change the terms and conditions of the concession contract in all stages of implementation, if this is seen as efficient for the operation of the project.
Risk Allocation With respect to risks (see figure 2), the private partner is responsible for providing the financing, construction and modernization by certain deadlines, for the quality of maintenance and service activities, and for the efficient use of the assets transferred from the public authority. On the other hand, the contracting authority has to carry out the project for the development of modern air transport in Albania.
Design and construction risks, as well as maintenance risks, are completely assigned to TAP (Tirana Airport Partners). The same applies to the exploitation, commercial/ revenue risks and to a large extent the financial risks.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force Majeure Impact of Airport
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk allocation Regulatory risks are borne mostly by the Ministry of Public Works and
Transport which is the state representative, and the law for concessions is subject of Albanian Parliament approval. During the 20 years of the concession
180 railway station and the Port of Durres. Business activity in the vicinity of TIA has grown and expanded.
TIA is a node in the TEN Corridor VIII (Bari/Brindisi-Durres-Tirana-Scopje- Sofia- Burgas/Varna (Bulgaria). TIA is located in Rinas, part of the Corridor VIII branch in Albania.
8. Procurement & Contractual Structure Tendering In 2004, the Ministry of Public Works and Transport published an invitation for pre-qualification for the concession of Tirana International Airport in: two international newspapers; commercial and foreign businesses organizations; organizations in the district chambers of commerce and business in the country; and the Bulletin of Public Announcements.
All interested parties from Albania and abroad could participate in this competition on the basis of qualifications, airports activity experience, and company competence. The nature of the project and its technical requirements, Bid Procedure, Contract Terms and the Legal, Economic and Financial Requirements were specified in the Bid Procedure Documents. Selection of the winners was based on a competitive procedure, with eligibility criteria for the financial and technical assessment.
The contracting authority followed the competitive dialogue procedure. The call for Expressions of Interest attracted 18 companies, of which four were invited to take part in the negotiations.
The concession was approved by Law no.9312, dated 11.11.2004. As of April 23rd 2005, Tirana International Airport is operated by the concession company Tirana Airport Partners SHPK (TAP).
Contract Structure It is a typical concession scheme based on international procurement laws as approved by the Albanian Parliament. After 20 years the airport terminals and associated functions will return to the Ministry of Public Works and Transport.
The facilities are exempt from customs duties, import taxes, and value added tax on imports and materials supplied for construction and reconstruction work.
Tirana Airport Partners receive the airport revenues from the airport and bear the responsibilities of private entities (the Government gets revenues
181 every year from TAP fiscal system activity profit, VAT, etc.) specified in the legislation for private business activity registered in Albania.
TAP (Tirana Airport Partners) has to guarantee the full performance of the contract, offered in accordance with the requirements of the Agreement, with a prepayment in the amount of EUR 3M (paid at the start of contract as a guaranty for concession of the airport) as shown in the contract.
In the concession agreement for Tirana International Airport the Contracting Authority, is authorized to negotiate and achieve an agreement with the concessionaire to change the terms and conditions of the concession contract in all stages of implementation, if this is seen as efficient for the operation of the project.
Risk Allocation With respect to risks (see figure 2), the private partner is responsible for providing the financing, construction and modernization by certain deadlines, for the quality of maintenance and service activities, and for the efficient use of the assets transferred from the public authority. On the other hand, the contracting authority has to carry out the project for the development of modern air transport in Albania.
Design and construction risks, as well as maintenance risks, are completely assigned to TAP (Tirana Airport Partners). The same applies to the exploitation, commercial/ revenue risks and to a large extent the financial risks.
Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force Majeure Impact of Airport
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk allocation Regulatory risks are borne mostly by the Ministry of Public Works and
Transport which is the state representative, and the law for concessions is subject of Albanian Parliament approval. During the 20 years of the concession
182 the Law of Concession may be subject to essential changes with the approval of both parties.
The project is located in Albanian territory and so the Albanian government is responsible for land acquisition and proprietors’ indemnity. Finally, claims by the inhabitants of areas near the airport for environmental damage such as noise, pollution or other works such as airport enlargement and new road links are, in general, addressed by the public sector.
Performance Concessionaire is assessed with respect to construction performance and operational performance.
Investment plans in the Concession Agreement for the reconstruction and modernization of Tirana Airport were realized on time and according to British standards.
The quality of services and facilities offered by TIA remains, in general, “satisfactory” to “very satisfactory”. In matters of protection and improvement of the environment considerable progress has been made. Also TIA, in compliance with its environmental permits, procedures and environmental & health legislation, monitors noise levels, air quality, waste water parameters and potable water quality in the airport.
In 2011, one of the main challenges was TIA’s optimization of energy efficiency, aimed at sustainable use of resources and energy saving.
In the financial year 2011, due to increased traffic TIA reached a turnover of EUR 33.9M. The passenger and freight traffic at TIA, after the reconstruction of airport in 2007, has so far increased from year to year. The traffic flow has been accommodated in a secure and comfortable way with a very high quality of service. TIA has indicated a growth in passenger numbers of 18.2% in 2011, with Italy the main growth driver. This has been mainly due to visa liberalization. Air Traffic Movements (ATM) had a growth of 10.7% for the year 2011. Increased frequencies during the summer peak and the introduction of new routes contributed to the overall positive development. Cargo grew by 17.6% in 2011, with the increase mainly due to the introduction of dedicated cargo flights and increased mail charter services.
In recent years (2011-2012) TIA has achieved its objectives and targets related to quality, environment, health and safety and social responsibility. In this regard TIA has continued raising the awareness and understanding of its employees and business partners of managing environmental, health and safety effects.
183
References Albanian legislation on concessions and all regulatory acts for the
implementation of their laws. Official Journal of the Republic of Albania. www.qbz.gov.al/(1995, 2006, 2007, 2008, 2009, 2010).
Extra annual reports and brochures for TIA economic activity for the years 2006-2011/ Tirana International Airport/ www.tirana-airport.com
Concession Agreement for Tirana International Airport. Official Journal of the Republic of Albania(2004), Law No. 9312, dated 11.11.2004.
International Finance Corporation Bulletin for 2006-2011 for issues relating to the environmental and social impact of PPPs in the transport sector.
Macro-Economic Indicators of Albania 2004-2014. - INSTAT, Bank of Albania, Ministry of Finance and World Bank. http://www.minfin.gov.al; www.instat.gov.al; www.bankofalbania.org/;
MPWT - all materials of the documentation PPP for transport procedure usually to the implementation project and in the process of competition: http://mppt.gov.al/koncensionet/
182 the Law of Concession may be subject to essential changes with the approval of both parties.
The project is located in Albanian territory and so the Albanian government is responsible for land acquisition and proprietors’ indemnity. Finally, claims by the inhabitants of areas near the airport for environmental damage such as noise, pollution or other works such as airport enlargement and new road links are, in general, addressed by the public sector.
Performance Concessionaire is assessed with respect to construction performance and operational performance.
Investment plans in the Concession Agreement for the reconstruction and modernization of Tirana Airport were realized on time and according to British standards.
The quality of services and facilities offered by TIA remains, in general, “satisfactory” to “very satisfactory”. In matters of protection and improvement of the environment considerable progress has been made. Also TIA, in compliance with its environmental permits, procedures and environmental & health legislation, monitors noise levels, air quality, waste water parameters and potable water quality in the airport.
In 2011, one of the main challenges was TIA’s optimization of energy efficiency, aimed at sustainable use of resources and energy saving.
In the financial year 2011, due to increased traffic TIA reached a turnover of EUR 33.9M. The passenger and freight traffic at TIA, after the reconstruction of airport in 2007, has so far increased from year to year. The traffic flow has been accommodated in a secure and comfortable way with a very high quality of service. TIA has indicated a growth in passenger numbers of 18.2% in 2011, with Italy the main growth driver. This has been mainly due to visa liberalization. Air Traffic Movements (ATM) had a growth of 10.7% for the year 2011. Increased frequencies during the summer peak and the introduction of new routes contributed to the overall positive development. Cargo grew by 17.6% in 2011, with the increase mainly due to the introduction of dedicated cargo flights and increased mail charter services.
In recent years (2011-2012) TIA has achieved its objectives and targets related to quality, environment, health and safety and social responsibility. In this regard TIA has continued raising the awareness and understanding of its employees and business partners of managing environmental, health and safety effects.
183
References Albanian legislation on concessions and all regulatory acts for the
implementation of their laws. Official Journal of the Republic of Albania. www.qbz.gov.al/(1995, 2006, 2007, 2008, 2009, 2010).
Extra annual reports and brochures for TIA economic activity for the years 2006-2011/ Tirana International Airport/ www.tirana-airport.com
Concession Agreement for Tirana International Airport. Official Journal of the Republic of Albania(2004), Law No. 9312, dated 11.11.2004.
International Finance Corporation Bulletin for 2006-2011 for issues relating to the environmental and social impact of PPPs in the transport sector.
Macro-Economic Indicators of Albania 2004-2014. - INSTAT, Bank of Albania, Ministry of Finance and World Bank. http://www.minfin.gov.al; www.instat.gov.al; www.bankofalbania.org/;
MPWT - all materials of the documentation PPP for transport procedure usually to the implementation project and in the process of competition: http://mppt.gov.al/koncensionet/
184
Urban Public Transport
185
Contents
Brabo 1, Flanders, Belgium Martijn van den Hurk and Kit Van Gestel
The Caen' TVR, France
Géraldine Bonnet and Gilles Chomat
Metro Sul do Tejo, Portugal Rosário Macário, Joana Ribeiro and Rui Couchinho
The Reims' Tramway, France
Géraldine Bonnet and Gilles Chomat
SEVICI, Spain Sastre, Julián
184
Urban Public Transport
185
Contents
Brabo 1, Flanders, Belgium Martijn van den Hurk and Kit Van Gestel
The Caen' TVR, France
Géraldine Bonnet and Gilles Chomat
Metro Sul do Tejo, Portugal Rosário Macário, Joana Ribeiro and Rui Couchinho
The Reims' Tramway, France
Géraldine Bonnet and Gilles Chomat
SEVICI, Spain Sastre, Julián
186
Brabo 1 Belgium
Martijn van den Hurk University of Antwerp
Kit Van Gestel Flemish PPP Knowledge Centre [email protected]
187
Project Overview Brabo 1, Antwerp, Belgium Project Type: Brownfield Greenfield Both Contract duration: 35 Years Budget: EUR 461M The amount includes EUR 125M for design and build and
EUR 9,6M/year in availability payments Project Time Line Conception: 2000; Establishment of Project Brabo 1 nv (PPP project company): August 2009; Tender: July 2007; Contract Approved: August 2009; Financial Close: August 2009; Beginning of Works: October 2009; Tramways in service: February 2012 (Deurne-Wijnegem) and August 2012 (Mortsel-Boechout)(Beheersmaatschappij Antwerpen Mobiel, 2009a, 2009b)
Figure 1: Impression of the Bardo 1 Project
186
Brabo 1 Belgium
Martijn van den Hurk University of Antwerp
Kit Van Gestel Flemish PPP Knowledge Centre [email protected]
187
Project Overview Brabo 1, Antwerp, Belgium Project Type: Brownfield Greenfield Both Contract duration: 35 Years Budget: EUR 461M The amount includes EUR 125M for design and build and
EUR 9,6M/year in availability payments Project Time Line Conception: 2000; Establishment of Project Brabo 1 nv (PPP project company): August 2009; Tender: July 2007; Contract Approved: August 2009; Financial Close: August 2009; Beginning of Works: October 2009; Tramways in service: February 2012 (Deurne-Wijnegem) and August 2012 (Mortsel-Boechout)(Beheersmaatschappij Antwerpen Mobiel, 2009a, 2009b)
Figure 1: Impression of the Bardo 1 Project
188
1 Introduction Brabo 1 was the first PPP for public transport in Flanders. The Project involved the design, financing, construction and maintenance of the civil, mechanical and electrical infrastructure associated with two separate tramway extensions in the eastern part of the city of Antwerp:
- The Antwerp-Deurne section was extended to Wijnegem. - The Antwerp-Mortsel section was extended to Boechout. Additionally, the project provided for a comprehensive renewal of all
associated street infrastructure (including pavements and street furniture) for motor traffic, cyclists and pedestrians. A substantial tram stabling and maintenance depot, located on one of the lines (with office accommodation), was also included.
Both trajectories were extended in favor of inhabitants of the Antwerp suburbs. People living in this first “belt” of municipalities around Antwerp were looking for rapid, punctual tramway connections, since heavy traffic congestion affected their day-to-day commuting to and from the city (Beheersmaatschappij Antwerpen Mobiel, 2013).
Whilst the private partner takes up the responsibilities noted above, the operation, maintenance and ownership of trams and buses rests with the existing transport operator, De Lijn nv.
2 The Contracting Authority (Public Party) Two contracting authorities are present in this project. The first one is De Lijn nv: an autonomous public company affiliated to the Flemish Region, providing public transport services. The second one is the Antwerp Agency for Roads and Traffic [Agentschap voor Wegen en Verkeer, AWV]. This authority has responsibility for the renovation of roads, which was part of the Brabo 1 project as well. These authorities jointly signed a DBFM contract with the SPV.
More specifically, the project was part of the plans that were announced in a Master Plan for mobility in the city of Antwerp [Masterplan Mobliteit Antwerpen], back in 2000. This Plan consisted of 16 infrastructure projects that would be constructed as a means of increasing the accessibility of the city and its port, to allow for a safer transport network and improve the area’s overall quality of life. In this Plan, Project Brabo 1 was explicitly mentioned, and it became one of the first projects to be constructed (Vlaamse Regering, 2012).
189 Although the Master Plan indicated the desire to finance the public
transport projects with toll revenues from other projects included in the same Plan, the Flemish Government decided to separate the financing of public transport projects from the other projects. This decision was taken because it would allow for a faster implementation of the public transport plans (Van Gestel et al., 2011).
The tender was conducted by Lijninvest nv, which is a public investment vehicle 100 per cent owned by De Lijn nv except for one share. That very final share is owned by the Flemish Region. Lijninvest nv was established to provide a vehicle for the public sector to get a share in SPVs.
3 The Concessionaire (Private Party) Project sponsors are Lijninvest nv (equity) and DG Infra+ (equity). The latter is a Belgian investment fund, established by GIMV and Dexia. Four banks provided senior debt: KBC, Dexia Credit Local, Dexia Bank Belgium, and the Bank of Dutch Municipalities [Bank Nederlandse Gemeenten].
The SPV is Project Brabo 1 nv [Lijninvest nv (24%), Beheersmaatschappij Antwerpen Mobiel (24%) and THV Silvius (51%)]. THV Silvius was also the consortium of subcontractors:
DG Infra+ (investment fund) Heijmans Infra nv (construction company) Frateur-De Pourcq nv (construction company) Franki Construct nv (construction company)
4 Users The Brabo 1 Project is available to private (passenger) traffic.
5 Key Purpose for PPP Model Selection The primary reason for selecting a PPP model for project delivery was its promise to allow for quicker project realization. Antwerp’s accessibility problems were urgent and needed solutions immediately. In addition, a PPP procurement model offered “off-balance sheet financing”, in accordance with ESA95 requirements with respect to public debt. Risk transfer was also an important motivation (Vlaamse Regering, 2011).
188
1 Introduction Brabo 1 was the first PPP for public transport in Flanders. The Project involved the design, financing, construction and maintenance of the civil, mechanical and electrical infrastructure associated with two separate tramway extensions in the eastern part of the city of Antwerp:
- The Antwerp-Deurne section was extended to Wijnegem. - The Antwerp-Mortsel section was extended to Boechout. Additionally, the project provided for a comprehensive renewal of all
associated street infrastructure (including pavements and street furniture) for motor traffic, cyclists and pedestrians. A substantial tram stabling and maintenance depot, located on one of the lines (with office accommodation), was also included.
Both trajectories were extended in favor of inhabitants of the Antwerp suburbs. People living in this first “belt” of municipalities around Antwerp were looking for rapid, punctual tramway connections, since heavy traffic congestion affected their day-to-day commuting to and from the city (Beheersmaatschappij Antwerpen Mobiel, 2013).
Whilst the private partner takes up the responsibilities noted above, the operation, maintenance and ownership of trams and buses rests with the existing transport operator, De Lijn nv.
2 The Contracting Authority (Public Party) Two contracting authorities are present in this project. The first one is De Lijn nv: an autonomous public company affiliated to the Flemish Region, providing public transport services. The second one is the Antwerp Agency for Roads and Traffic [Agentschap voor Wegen en Verkeer, AWV]. This authority has responsibility for the renovation of roads, which was part of the Brabo 1 project as well. These authorities jointly signed a DBFM contract with the SPV.
More specifically, the project was part of the plans that were announced in a Master Plan for mobility in the city of Antwerp [Masterplan Mobliteit Antwerpen], back in 2000. This Plan consisted of 16 infrastructure projects that would be constructed as a means of increasing the accessibility of the city and its port, to allow for a safer transport network and improve the area’s overall quality of life. In this Plan, Project Brabo 1 was explicitly mentioned, and it became one of the first projects to be constructed (Vlaamse Regering, 2012).
189 Although the Master Plan indicated the desire to finance the public
transport projects with toll revenues from other projects included in the same Plan, the Flemish Government decided to separate the financing of public transport projects from the other projects. This decision was taken because it would allow for a faster implementation of the public transport plans (Van Gestel et al., 2011).
The tender was conducted by Lijninvest nv, which is a public investment vehicle 100 per cent owned by De Lijn nv except for one share. That very final share is owned by the Flemish Region. Lijninvest nv was established to provide a vehicle for the public sector to get a share in SPVs.
3 The Concessionaire (Private Party) Project sponsors are Lijninvest nv (equity) and DG Infra+ (equity). The latter is a Belgian investment fund, established by GIMV and Dexia. Four banks provided senior debt: KBC, Dexia Credit Local, Dexia Bank Belgium, and the Bank of Dutch Municipalities [Bank Nederlandse Gemeenten].
The SPV is Project Brabo 1 nv [Lijninvest nv (24%), Beheersmaatschappij Antwerpen Mobiel (24%) and THV Silvius (51%)]. THV Silvius was also the consortium of subcontractors:
DG Infra+ (investment fund) Heijmans Infra nv (construction company) Frateur-De Pourcq nv (construction company) Franki Construct nv (construction company)
4 Users The Brabo 1 Project is available to private (passenger) traffic.
5 Key Purpose for PPP Model Selection The primary reason for selecting a PPP model for project delivery was its promise to allow for quicker project realization. Antwerp’s accessibility problems were urgent and needed solutions immediately. In addition, a PPP procurement model offered “off-balance sheet financing”, in accordance with ESA95 requirements with respect to public debt. Risk transfer was also an important motivation (Vlaamse Regering, 2011).
190
6 Project Timing According to government documents, the traffic situation between the center of Antwerp and its suburbs was a serious bottleneck. That, and the expected future traffic increase in the area, encouraged the government to set the tramway upgrade high on the agenda.
An ex-post evaluation has not been conducted yet. It would enable a better assessment of the project need.
7 Project Locality and Market Geography The project is located in the Antwerp suburbs and is specifically aimed at potential users living in these suburbs.
8 Procurement & Contractual Structure
Tendering An open call for the expression of interest was announced in July of 2007. Three (3) consortia were selected for negotiations for the DBFM tender, and in April 2009 submitted their best and final offers: DANK, THV Silvius, and Travant. Subsequently, THV Silvius was chosen as the contractor for the Brabo 1 Project. The procurement process was concluded within 26 months.
The global financial-economic crisis between 2008 and 2012 delayed the procurement process. As bidders had failed to find the necessary external funding for their best and final offers, contractual close and financial close were postponed. A new round for best and final offers had to be arranged by the contracting authorities. The delay ultimately proved to be approximately six months as the tendering procedure stood still between November 2008 and Spring 2009.
Another postponement-inducing event has been a lawsuit that was filed by one of the bidders (TRAVANT), which found that it was unfairly excluded from the tendering procedure.
Contract Structure The contractual regime was based on a fairly standard form of the DBFM agreement based on English PFI standards and the Dutch standard DBFM contract of the Dutch Directorate-General for Public Works and Water Management (for an updated version of this contract, see Rijkswaterstaat (2012).
191 The contract for the Brabo 1 project was signed by De Lijn nv, AWV, and
the SPV. In this contract, a distinction has been made between tramway availability fees and non-tramway availability fees. The former fees are being paid by De Lijn nv, whereas the latter are paid by AWV. This construction can also be noticed in the organizational scheme under (see figure 2).
Figure 2: Organizational Schema of the Brabo 1 PPP
Risk Allocation Although the public authority has transferred quite a number of responsibilities, it has retained some of its financial activities; it has invested equity in the SPV, and therefore, the public sector shares significant financial risk. Risk is allocated as depicted in figure 3.
Performance Critical performance requirements have been included in the contract, but they remain confidential. However, there are financial penalties deducted from the availability fees for insufficient performance.
With respect to Construction Management performance, the project was delivered on time.
190
6 Project Timing According to government documents, the traffic situation between the center of Antwerp and its suburbs was a serious bottleneck. That, and the expected future traffic increase in the area, encouraged the government to set the tramway upgrade high on the agenda.
An ex-post evaluation has not been conducted yet. It would enable a better assessment of the project need.
7 Project Locality and Market Geography The project is located in the Antwerp suburbs and is specifically aimed at potential users living in these suburbs.
8 Procurement & Contractual Structure
Tendering An open call for the expression of interest was announced in July of 2007. Three (3) consortia were selected for negotiations for the DBFM tender, and in April 2009 submitted their best and final offers: DANK, THV Silvius, and Travant. Subsequently, THV Silvius was chosen as the contractor for the Brabo 1 Project. The procurement process was concluded within 26 months.
The global financial-economic crisis between 2008 and 2012 delayed the procurement process. As bidders had failed to find the necessary external funding for their best and final offers, contractual close and financial close were postponed. A new round for best and final offers had to be arranged by the contracting authorities. The delay ultimately proved to be approximately six months as the tendering procedure stood still between November 2008 and Spring 2009.
Another postponement-inducing event has been a lawsuit that was filed by one of the bidders (TRAVANT), which found that it was unfairly excluded from the tendering procedure.
Contract Structure The contractual regime was based on a fairly standard form of the DBFM agreement based on English PFI standards and the Dutch standard DBFM contract of the Dutch Directorate-General for Public Works and Water Management (for an updated version of this contract, see Rijkswaterstaat (2012).
191 The contract for the Brabo 1 project was signed by De Lijn nv, AWV, and
the SPV. In this contract, a distinction has been made between tramway availability fees and non-tramway availability fees. The former fees are being paid by De Lijn nv, whereas the latter are paid by AWV. This construction can also be noticed in the organizational scheme under (see figure 2).
Figure 2: Organizational Schema of the Brabo 1 PPP
Risk Allocation Although the public authority has transferred quite a number of responsibilities, it has retained some of its financial activities; it has invested equity in the SPV, and therefore, the public sector shares significant financial risk. Risk is allocated as depicted in figure 3.
Performance Critical performance requirements have been included in the contract, but they remain confidential. However, there are financial penalties deducted from the availability fees for insufficient performance.
With respect to Construction Management performance, the project was delivered on time.
192 Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 3: Risk allocation
References Beheersmaatschappij Antwerpen Mobiel. (2009a). Persbericht: Brabo 1 in
uitvoering na ondertekening contracten Retrieved January 28, 2013, from http://www2.vlaanderen.be/pps/documenten/contractsluiting_brabo_1.pdf
Beheersmaatschappij Antwerpen Mobiel. (2009b). Persbericht: drie offtertes voor Brabo 1 Retrieved January 28, 2013, from http://www2.vlaanderen.be/pps/documenten/offertes_brabo_1.pdf
Beheersmaatschappij Antwerpen Mobiel. (2013). Public transport: redevelopment of city boulevards and extension of tram lines (BRABO 1) Retrieved January 28, 2013, from http://www.bamnv.be/Public_transport/2624/bam
Dutch Department of Waterways and Public Works. (2012). Rijksbrede Modelovereenkomst DBFM Huisvesting. The Hague: Dutch Ministry of Infrastructure and the Environment.
Van Gestel, K., Voets, J., & Verhoest, K. (2011). Pijlers voor een performante samenwerking. Handreikingen voor de PPS-praktijk op basis van vijf Vlaamse PPS-projecten. Leuven: SBOV.
Vlaamse Regering. (2011). Alternatieve financiering van Vlaamse overheidsinvesteringen. Brussels: Flemish Parliament.
Vlaamse Regering. (2012). Plechtige opening tramlijn Deurne-Wijnegem en stelplaats: tram rijdt opnieuw naar Wijnegem Retrieved January 28, 2013, from http://www2.vlaanderen.be/pps/documenten/pb_br1.pdf
193
The Caen TVR France
Géraldine Bonnet CERTU
Gilles Chomat CERTU
192 Risks ⇐ ⇒ Design & construction Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 3: Risk allocation
References Beheersmaatschappij Antwerpen Mobiel. (2009a). Persbericht: Brabo 1 in
uitvoering na ondertekening contracten Retrieved January 28, 2013, from http://www2.vlaanderen.be/pps/documenten/contractsluiting_brabo_1.pdf
Beheersmaatschappij Antwerpen Mobiel. (2009b). Persbericht: drie offtertes voor Brabo 1 Retrieved January 28, 2013, from http://www2.vlaanderen.be/pps/documenten/offertes_brabo_1.pdf
Beheersmaatschappij Antwerpen Mobiel. (2013). Public transport: redevelopment of city boulevards and extension of tram lines (BRABO 1) Retrieved January 28, 2013, from http://www.bamnv.be/Public_transport/2624/bam
Dutch Department of Waterways and Public Works. (2012). Rijksbrede Modelovereenkomst DBFM Huisvesting. The Hague: Dutch Ministry of Infrastructure and the Environment.
Van Gestel, K., Voets, J., & Verhoest, K. (2011). Pijlers voor een performante samenwerking. Handreikingen voor de PPS-praktijk op basis van vijf Vlaamse PPS-projecten. Leuven: SBOV.
Vlaamse Regering. (2011). Alternatieve financiering van Vlaamse overheidsinvesteringen. Brussels: Flemish Parliament.
Vlaamse Regering. (2012). Plechtige opening tramlijn Deurne-Wijnegem en stelplaats: tram rijdt opnieuw naar Wijnegem Retrieved January 28, 2013, from http://www2.vlaanderen.be/pps/documenten/pb_br1.pdf
193
The Caen TVR France
Géraldine Bonnet CERTU
Gilles Chomat CERTU
194
Project Overview Caen TVR, France Project Type: Brownfield Greenfield Both Contract duration (as foreseen in the contract) : 34.5 Years (30 years from the beginning of commercial operation)
Budget: EUR 230 M Budget represents the TVR construction costs. Project Time Line (SYSTRA, 2000 and Chambre régionale des Comptes, 2004) Project conceived: 1988; Tender: 1993; Contract Award: 1994 (construction works) / 1997 (public service) ; Financial Close: April 2000; Beginning of construction: 2000 ; Beginning of Commercial Operations: November 2002
copyright : Alain Caraco (Guided trolleybuses in Caen (Calvados, France) – Bernières tram stop (lines A and B), 12th August 2004)
Figure 1. Caen's TVR
195
1 Introduction The project concerns the construction of a guided tyre tramway system and operation of the entire urban public transport network of Caen.
Caen is a medium size city (109,000 inhabitants and 215,000 including the suburbs) in the north-west of France.
TVR is a tyre-mounted guided vehicle. The line is 14,8 km long. The project includes the building, operating and maintenance of the TVR and also the operating of the whole urban transport network. Urban transport networks operated by a private company are very common in France. However, there are very few cases in which the investment is also delegated to the private partner. The agreement consists of two (2) concession agreements.
(a) The public works concessionaire is responsible (SYSTRA, 2000) for: financing the construction of the TVR; preparing the structure and installations ; testing and development of the rolling stock as well as its
approval (hence, the ownership of the technical, financial and schedule risks);
heavy maintenance of the TVR. (b) The public service concessionaire is also allocated the responsibility
of operating the bus network and the daily (light/service) maintenance of both the TVR and the bus network (SMTCAC, 1997).
The tyre-mounted tramway was put into service in November 2002.
2 The Contracting Authority (Public Party) Since the introduction of the Domestic Transport Orientation Law of December 30th 1982, urban public transport organizing authorities, that can be municipalities or intercommunal authorities, are in charge of the development and the operation of the urban public transport network. In this respect, the Syndicat Mixte des Transports en Commun de l'Agglomération Caennaise (SMTCAC, nowadays ViaCités) is the urban transport organizing authority. It is a syndicate composed 75 % by the intercommunal cooperation structure (communauté d'agglomération Caen la Mer) and 25 % by the departement (a larger local authority). It is a cooperation structure whose only responsibility is urban public transport.
194
Project Overview Caen TVR, France Project Type: Brownfield Greenfield Both Contract duration (as foreseen in the contract) : 34.5 Years (30 years from the beginning of commercial operation)
Budget: EUR 230 M Budget represents the TVR construction costs. Project Time Line (SYSTRA, 2000 and Chambre régionale des Comptes, 2004) Project conceived: 1988; Tender: 1993; Contract Award: 1994 (construction works) / 1997 (public service) ; Financial Close: April 2000; Beginning of construction: 2000 ; Beginning of Commercial Operations: November 2002
copyright : Alain Caraco (Guided trolleybuses in Caen (Calvados, France) – Bernières tram stop (lines A and B), 12th August 2004)
Figure 1. Caen's TVR
195
1 Introduction The project concerns the construction of a guided tyre tramway system and operation of the entire urban public transport network of Caen.
Caen is a medium size city (109,000 inhabitants and 215,000 including the suburbs) in the north-west of France.
TVR is a tyre-mounted guided vehicle. The line is 14,8 km long. The project includes the building, operating and maintenance of the TVR and also the operating of the whole urban transport network. Urban transport networks operated by a private company are very common in France. However, there are very few cases in which the investment is also delegated to the private partner. The agreement consists of two (2) concession agreements.
(a) The public works concessionaire is responsible (SYSTRA, 2000) for: financing the construction of the TVR; preparing the structure and installations ; testing and development of the rolling stock as well as its
approval (hence, the ownership of the technical, financial and schedule risks);
heavy maintenance of the TVR. (b) The public service concessionaire is also allocated the responsibility
of operating the bus network and the daily (light/service) maintenance of both the TVR and the bus network (SMTCAC, 1997).
The tyre-mounted tramway was put into service in November 2002.
2 The Contracting Authority (Public Party) Since the introduction of the Domestic Transport Orientation Law of December 30th 1982, urban public transport organizing authorities, that can be municipalities or intercommunal authorities, are in charge of the development and the operation of the urban public transport network. In this respect, the Syndicat Mixte des Transports en Commun de l'Agglomération Caennaise (SMTCAC, nowadays ViaCités) is the urban transport organizing authority. It is a syndicate composed 75 % by the intercommunal cooperation structure (communauté d'agglomération Caen la Mer) and 25 % by the departement (a larger local authority). It is a cooperation structure whose only responsibility is urban public transport.
196 In the 1980's and 1990's there was financial support from the central state
to create new a line of tramway and other urban transport system with specific lanes.
3 The Concessionaire (Private Party) For this project, two special companies have been created.
First of all, the public works concession is with the Société du TVR (STVR) owned:
68% by construction firm SPIE Batignole; 32% by tramway equipment firm Bombardier-ANF (SYSTRA, 2000). In charge of the public service concession is the Compagnie des
Transports de l'Agglomération Caennaise (CTAC, nowadays Keolis Caen), owned 100 % by Via-GTI (nowadays Keolis).
Moreover, there is an interface contract between the public works concessionaire, the public service concessionaire and the public organizing authority.
For overseeing the construction of the tram and its project management, the public body has also contracted for assistance with an engineering consultant, a consultant in financial engineering and a lawyer.
4 Users Caen is a medium size city (109 000 inhabitants in the city, 215 000 in the whole intercommunal structure) in the north-west of France.
About 28 % of the inhabitants of the agglomeration live less than 400 meters from a tram station. This area also accommodates about 29 % of the jobs of the agglomeration. A lot of university locations and secondary schools are situated near the infrastructure.
5 Key Purpose for PPP Model Selection Both technical and financial reasons justified the choice of the PPP model for this project (Chambre régionale des comptes, 2004). These include:
implementation of an new and innovative (and therefore complex) technology: the TVR;
technical know-how from the private operators; avoidance of pre-financing of the infrastructure by the public body.
197
6 Project Timing The ex-ante evaluation reported an significantly higher IRR (Internal Rate of Return) than the minimum requirement for a public project in France. In addition, traffic forecasts justified the choice of a tram-like system (SMTCAC, 1997).
7 Project Locality and Market Geography Caen's TVR is an urban public transport project. The project also involves the tram’s integration into the urban public transport system of Caen through network integration (connection with bus lines and to some extent with suburban buses and trains), operational integration (bus lines are expected to shift to achieve a better organisation of the entire network).
Finally, the private sector is expected to take initiatives that would increase ridership.
8 Procurement & Contractual Structure
Tendering There were two separate tendering procedures: Public works, initiated in February 1993, which ended with the signature
of the public works concession in July 1994; Public service, initiated in September 1994, which ended with the
signature of the public service concession in October 1997. It should be noted that this second tendering procedure had some delays
linked to political changes in the municipality of Caen. For some time there was some uncertainty about the realisation of the project, although in the end it went ahead (Chambre régionale des comptes, 2004).
Each tendering process was conducted as a classical two stage tendering process with negotiations.
For the public works tendering, at least two candidates submitted an offer. For the public service tendering, two expressions of interest were received
and both candidates were allowed to tender for the contract. But this time only one candidate submitted an offer (Chambre régionale des comptes, 2004).
Contract Structure There are two separate contracts:
196 In the 1980's and 1990's there was financial support from the central state
to create new a line of tramway and other urban transport system with specific lanes.
3 The Concessionaire (Private Party) For this project, two special companies have been created.
First of all, the public works concession is with the Société du TVR (STVR) owned:
68% by construction firm SPIE Batignole; 32% by tramway equipment firm Bombardier-ANF (SYSTRA, 2000). In charge of the public service concession is the Compagnie des
Transports de l'Agglomération Caennaise (CTAC, nowadays Keolis Caen), owned 100 % by Via-GTI (nowadays Keolis).
Moreover, there is an interface contract between the public works concessionaire, the public service concessionaire and the public organizing authority.
For overseeing the construction of the tram and its project management, the public body has also contracted for assistance with an engineering consultant, a consultant in financial engineering and a lawyer.
4 Users Caen is a medium size city (109 000 inhabitants in the city, 215 000 in the whole intercommunal structure) in the north-west of France.
About 28 % of the inhabitants of the agglomeration live less than 400 meters from a tram station. This area also accommodates about 29 % of the jobs of the agglomeration. A lot of university locations and secondary schools are situated near the infrastructure.
5 Key Purpose for PPP Model Selection Both technical and financial reasons justified the choice of the PPP model for this project (Chambre régionale des comptes, 2004). These include:
implementation of an new and innovative (and therefore complex) technology: the TVR;
technical know-how from the private operators; avoidance of pre-financing of the infrastructure by the public body.
197
6 Project Timing The ex-ante evaluation reported an significantly higher IRR (Internal Rate of Return) than the minimum requirement for a public project in France. In addition, traffic forecasts justified the choice of a tram-like system (SMTCAC, 1997).
7 Project Locality and Market Geography Caen's TVR is an urban public transport project. The project also involves the tram’s integration into the urban public transport system of Caen through network integration (connection with bus lines and to some extent with suburban buses and trains), operational integration (bus lines are expected to shift to achieve a better organisation of the entire network).
Finally, the private sector is expected to take initiatives that would increase ridership.
8 Procurement & Contractual Structure
Tendering There were two separate tendering procedures: Public works, initiated in February 1993, which ended with the signature
of the public works concession in July 1994; Public service, initiated in September 1994, which ended with the
signature of the public service concession in October 1997. It should be noted that this second tendering procedure had some delays
linked to political changes in the municipality of Caen. For some time there was some uncertainty about the realisation of the project, although in the end it went ahead (Chambre régionale des comptes, 2004).
Each tendering process was conducted as a classical two stage tendering process with negotiations.
For the public works tendering, at least two candidates submitted an offer. For the public service tendering, two expressions of interest were received
and both candidates were allowed to tender for the contract. But this time only one candidate submitted an offer (Chambre régionale des comptes, 2004).
Contract Structure There are two separate contracts:
198 One for the public works concession for financing the construction of
the TVR, preparing the structure and installations, testing and development of the rolling stock as well as its approval, and heavy maintenance of TVR; and
One public service concession for running the whole bus network, doing the daily maintenance of the TVR and the whole maintenance of the bus network. This concession is a delegation of public service and follows therefore the regulation defined by the Sapin Law of 29 January 1993.
With respect to contractual obligations, the private sector is responsible for the: Design, financing, building, operation and maintenance of the TVR
line; Operation of the overall urban transport network (TVR and bus); Maintenance and renewal of assets allocated to public service Finally, at the end of the concession period, the project is to be transferred
back to SMTCAC. The public works concessionaire (STVR) is funding the project as follows
(Chambre régionale des comptes, 2004) : 1,6 percent of equity; 55,9 percent of external funding, loan contracted with an Austrian-
German banking consortium (main bank : West LB); 42,4 percent of capital subsidy (22,3 percent from the organizing
authority, 17,4 percent from central state, and 2,7 percent from the municipality of Caen).
In addition, the public service concessionaire will collect revenues related to traffic (tickets). 90% are for its -own revenues and 10% are to be transferred to the public works concessionaire.
SMTCAC obligations are determining transport policy and public service objectives, defining the conditions of organization and functioning of the public service, and determining pricing policy (decisions on fares).
SMTCAC is also involved in financing through: A capital grant of 22,3 percent of the construction cost; An annual subsidy to the public works concessionaire (EUR15,9 M at
June 2002 prices); An annual subsidy to the public service concessionaire.
199 The public partner pays the subsidy to the banking consortium and the
banking consortium gives the difference between the subsidy and the monthly loan repayment back to the public service concessionaire.
With respect to project preparation, SMTCAC had made studies to define the tramway project. Hence, the project was described in the urban transport plan and defined for the tender.
Clauses in the contract indicate when it has to be renegotiated and the procedure for renegotiation.
Risk Allocation The contract defines the obligations of each party in terms of design/construction, maintenance, operation, financial aspects etc. as described below (SMTCAC, 1997 and Chambre régionale des comptes, 2004).
Risk concerning the technological system and construction problems are taken by the private partner. Only archaeological risk are capped. Maintenance risks are mostly taken by the private partners, and are shared between the public works concessionaire and the public service concessionaire. Operating risks are mostly taken by the public service concessionaire.
The public service concessionaire gets the money from ticket sales. Its remuneration by the public body doesn't compensate for any eventual shortfall in commercial revenues unless there is a renegotiation.
Risks ⇐ ⇒ Design & construction
Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk allocation The remuneration of the public works concessionaire is also linked to
commercial revenues, because 10% of this revenue has to be transferred from the public service concessionaire to the public works concessionaire.
As in the majority of similar projects in France, the financial risks are mostly taken by the private partner.
198 One for the public works concession for financing the construction of
the TVR, preparing the structure and installations, testing and development of the rolling stock as well as its approval, and heavy maintenance of TVR; and
One public service concession for running the whole bus network, doing the daily maintenance of the TVR and the whole maintenance of the bus network. This concession is a delegation of public service and follows therefore the regulation defined by the Sapin Law of 29 January 1993.
With respect to contractual obligations, the private sector is responsible for the: Design, financing, building, operation and maintenance of the TVR
line; Operation of the overall urban transport network (TVR and bus); Maintenance and renewal of assets allocated to public service Finally, at the end of the concession period, the project is to be transferred
back to SMTCAC. The public works concessionaire (STVR) is funding the project as follows
(Chambre régionale des comptes, 2004) : 1,6 percent of equity; 55,9 percent of external funding, loan contracted with an Austrian-
German banking consortium (main bank : West LB); 42,4 percent of capital subsidy (22,3 percent from the organizing
authority, 17,4 percent from central state, and 2,7 percent from the municipality of Caen).
In addition, the public service concessionaire will collect revenues related to traffic (tickets). 90% are for its -own revenues and 10% are to be transferred to the public works concessionaire.
SMTCAC obligations are determining transport policy and public service objectives, defining the conditions of organization and functioning of the public service, and determining pricing policy (decisions on fares).
SMTCAC is also involved in financing through: A capital grant of 22,3 percent of the construction cost; An annual subsidy to the public works concessionaire (EUR15,9 M at
June 2002 prices); An annual subsidy to the public service concessionaire.
199 The public partner pays the subsidy to the banking consortium and the
banking consortium gives the difference between the subsidy and the monthly loan repayment back to the public service concessionaire.
With respect to project preparation, SMTCAC had made studies to define the tramway project. Hence, the project was described in the urban transport plan and defined for the tender.
Clauses in the contract indicate when it has to be renegotiated and the procedure for renegotiation.
Risk Allocation The contract defines the obligations of each party in terms of design/construction, maintenance, operation, financial aspects etc. as described below (SMTCAC, 1997 and Chambre régionale des comptes, 2004).
Risk concerning the technological system and construction problems are taken by the private partner. Only archaeological risk are capped. Maintenance risks are mostly taken by the private partners, and are shared between the public works concessionaire and the public service concessionaire. Operating risks are mostly taken by the public service concessionaire.
The public service concessionaire gets the money from ticket sales. Its remuneration by the public body doesn't compensate for any eventual shortfall in commercial revenues unless there is a renegotiation.
Risks ⇐ ⇒ Design & construction
Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk allocation The remuneration of the public works concessionaire is also linked to
commercial revenues, because 10% of this revenue has to be transferred from the public service concessionaire to the public works concessionaire.
As in the majority of similar projects in France, the financial risks are mostly taken by the private partner.
200 Financial consequences of any delays in certification of the technical
system have to be taken by the public works concessionaire. Risks due to changes in the legislation have to be taken by the public sector.
Performance In the contracts, service quality and performance indicators are defined. The contracts establish also the content of the annual report that the concessionaires have to transmit to the public authority.
The contracts include non-compliance penalties for lack of performance. There are also penalties for delay in the studies, the construction, or the transmission of reports.
An ex-post evaluation is compulsory five years after the beginning of the TVR operation. This will be compared with the ex-ante evaluation used to define the public utility of the project. It has been done by SMTCAC based on a national methodology. Performance indicators are used in the ex-ante and ex-post evaluations. Classical indicators are used for transport supply, transport use, modal split , internal rate of return etc.
The objective was around 48 000 daily trips after three years of operations. After three years of operating the system (2006) there were more than 46 000 daily trips, not far from the target, representing 45 percent of trips on the whole network. Moreover, the construction and operation of the TVR had a positive impact on the whole network, whose use increased by 18 percent between 2002 and 2006 (DGITM-CERTU-GART-UTP).
However, problems with the technical system have had an impact on the availability of the public transport service and as a consequence on the satisfaction of users and the organising authority. According to a decision taken by the urban organising authority in 2011, the TVR will be replaced by a normal tramway in the future. The concessions will probably end in 2014 (public service contract) and 2017/2018 (public works contract). The responsibilities of the different parties and eventual financial indemnities are still to be determined (Mobilicités, 2011 and France 3, 2013).
References DGITM-CERTU-GART-UTP, Annual survey on exploitation of
urban public transport networks (excluding Paris area) Chambre Régional des Comptes de Basse-Normandie, Rapport
d'observations définitives relatif à la gestion de VIACITES, syndicats mixtes
201 des transports en commun de l'agglomération caennaise (SMTCAC), April 2004.
SMTCAC, Dossier d'enquête préalable à la déclaration d'utilité publique (DUP), July 1997.
SMTCAC, Contrat de concession de service public pour la première ligne du Transport sur Voie Réservée (TVR) et pour le réseau de bus, October 1997 (confidential document).
SYSTRA, Review of French Experience in Private Financing of Public Urban Transport, World Bank Urban Transport Strategy Review, December 2000
Online press articles : Caen : 2018, clap de fin pour le tramway sur pneu TVR, Mobilicités, 15th
December 2011: http://www.mobilicites.com/fr_reseaux_caen---2018--clap-de-fin-pour-
le-tram-sur-pneus-tvr_0_85_1594.html Tram de Caen : Viacités saisit le tribunal suite au déguidage d'un tram
mardi soir, France 3 Basse-Normandie, 21st March 2013: http://basse-normandie.france3.fr/2013/03/21/tram-de-caen-
viacites-saisit-le-tribunal-suite-au-deguidage-d-un-tram-mardi-
200 Financial consequences of any delays in certification of the technical
system have to be taken by the public works concessionaire. Risks due to changes in the legislation have to be taken by the public sector.
Performance In the contracts, service quality and performance indicators are defined. The contracts establish also the content of the annual report that the concessionaires have to transmit to the public authority.
The contracts include non-compliance penalties for lack of performance. There are also penalties for delay in the studies, the construction, or the transmission of reports.
An ex-post evaluation is compulsory five years after the beginning of the TVR operation. This will be compared with the ex-ante evaluation used to define the public utility of the project. It has been done by SMTCAC based on a national methodology. Performance indicators are used in the ex-ante and ex-post evaluations. Classical indicators are used for transport supply, transport use, modal split , internal rate of return etc.
The objective was around 48 000 daily trips after three years of operations. After three years of operating the system (2006) there were more than 46 000 daily trips, not far from the target, representing 45 percent of trips on the whole network. Moreover, the construction and operation of the TVR had a positive impact on the whole network, whose use increased by 18 percent between 2002 and 2006 (DGITM-CERTU-GART-UTP).
However, problems with the technical system have had an impact on the availability of the public transport service and as a consequence on the satisfaction of users and the organising authority. According to a decision taken by the urban organising authority in 2011, the TVR will be replaced by a normal tramway in the future. The concessions will probably end in 2014 (public service contract) and 2017/2018 (public works contract). The responsibilities of the different parties and eventual financial indemnities are still to be determined (Mobilicités, 2011 and France 3, 2013).
References DGITM-CERTU-GART-UTP, Annual survey on exploitation of
urban public transport networks (excluding Paris area) Chambre Régional des Comptes de Basse-Normandie, Rapport
d'observations définitives relatif à la gestion de VIACITES, syndicats mixtes
201 des transports en commun de l'agglomération caennaise (SMTCAC), April 2004.
SMTCAC, Dossier d'enquête préalable à la déclaration d'utilité publique (DUP), July 1997.
SMTCAC, Contrat de concession de service public pour la première ligne du Transport sur Voie Réservée (TVR) et pour le réseau de bus, October 1997 (confidential document).
SYSTRA, Review of French Experience in Private Financing of Public Urban Transport, World Bank Urban Transport Strategy Review, December 2000
Online press articles : Caen : 2018, clap de fin pour le tramway sur pneu TVR, Mobilicités, 15th
December 2011: http://www.mobilicites.com/fr_reseaux_caen---2018--clap-de-fin-pour-
le-tram-sur-pneus-tvr_0_85_1594.html Tram de Caen : Viacités saisit le tribunal suite au déguidage d'un tram
mardi soir, France 3 Basse-Normandie, 21st March 2013: http://basse-normandie.france3.fr/2013/03/21/tram-de-caen-
viacites-saisit-le-tribunal-suite-au-deguidage-d-un-tram-mardi-
202
Metro Sul do Tejo Portugal
Rosário Macário Instituto Superior Técnico [email protected]
Joana Ribeiro Instituto Superior Técnico [email protected]
Rui Couchinho Instituto Superior Técnico
203
Project Overview The MST Project, Portugal Project Type: Brownfield Greenfield Both Contract duration: 30 Years Budget: EUR 339M
Values refer to investment in the first phase of the project: Corroios – Cacilhas; Corroios – Pragal; Cacilhas – Universidade
Project Time Line Tender: September 1999; Contract Negotiations: May 2001 – February 2002; Financial Close: March 2002; Contract Signed: July 2002; Contract Start: Dec. 2002; Contract Re-negotiations: December 2011
Figure 1: The MST network
202
Metro Sul do Tejo Portugal
Rosário Macário Instituto Superior Técnico [email protected]
Joana Ribeiro Instituto Superior Técnico [email protected]
Rui Couchinho Instituto Superior Técnico
203
Project Overview The MST Project, Portugal Project Type: Brownfield Greenfield Both Contract duration: 30 Years Budget: EUR 339M
Values refer to investment in the first phase of the project: Corroios – Cacilhas; Corroios – Pragal; Cacilhas – Universidade
Project Time Line Tender: September 1999; Contract Negotiations: May 2001 – February 2002; Financial Close: March 2002; Contract Signed: July 2002; Contract Start: Dec. 2002; Contract Re-negotiations: December 2011
Figure 1: The MST network
204
1 Introduction This Light Rail Tram service is known as the “Metro Sul do Tejo” (MST). It is a public transportation system supplied by surface light rail, in the municipalities of Almada and Seixal in Portugal, with growth projected for the neighboring municipalities of Barreiro and Moita. Its mission is to provide an adequate transport service on the south side of the Tagus River.
The MST has three commercial links in a Y-shaped network extending south (Corroios), west (Caparica), and Northeast (Cacilhas). Each line uses fully or partially two of the three links of this topology. The network has a total of 19 stops and a length of 22 km (see figure 1).
The first sections were opened in 2007. The Corroios and Cova da Piedade section was inaugurated on 30 April 2007 and put in service on 1 May 2007, whilst the section between Cova da Piedade and University was inaugurated on 15 December 2007. The current network has been in operation since late 2008, with the section to Cacilhas opening to service on 26 November 2008.
There are plans to extend to all three sections of the network to reach Costa da Caparica / Trafaria, Setúbal, Barreiro, Moita, Montijo, and even Lisbon. The MST project also included the complete renovation of roads and public spaces (bus and private vehicle corridors, widening of pavements, sufficient parking lots and new drainage).
Fares are set out in the concession with a margin of variation for inflation.
2 The Contracting Authority (Public Party) The project was sponsored by the Minister of Finance and Public Procurement and Public Works (IMTT) along with the local municipalities of Almada, Seixal and Barreiro.
Procurement was conducted following EU procurement directives, which have been included in the new Public Contracts Code, which also applies to PPP projects. This Code also introduces electronic tendering.
3 The Concessionaire (Private Party) The concession for the MST was awarded to Metro Transportes do Sul S.A. (MTS). This company is composed of the following enterprises: Grupo Barraqueiro / Arriva; SIEMENS, A.G. (Germany); ENSULMECI, S.A.;
205 SOPOL, S.A.; Teixeira Duarte – Engenharia e Construções, S.A.; ASCENDI, S.A. (Mota-Engil, S.A.).
Grupo Barraqueiro is a Portuguese company providing transportation services for passengers, with extensive experience at the national level. Barraqueiro has a partnership with Arriva, which is a British multinational company, which operates bus, coach, train, tram and waterbus services in 12 countries across Europe. SIEMENS, A.G. is a German multinational engineering and electronics conglomerate. It is organized into five main divisions: Industry, Energy, Healthcare, Infrastructure & Cities, and Siemens Financial Services. ENSULMECI, S.A. is a Portuguese construction company. Its principal activities include civil engineering and the construction of infrastructure. SOPOL, S.A. is a Portuguese construction company. Its principal activities include civil engineering and the construction of infrastructure. Teixeira Duarte is one of the largest construction companies in Portugal. ASCENDI, S.A. (Mota-Engil, S.A.) is a Portuguese industrial conglomerate. Its principal activities include civil engineering and construction of infrastructure including bridges, dams, industrial buildings, schools, and roads; energy and steel works (including steel structures, energy equipment and electricity); transport concessions and environmental services (waste water treatment and multi services). It also deals with logistics, retail and warehousing. The company has operations in Europe, Africa and America.
4 Users The MST addresses transport and mobility needs for the municipalities of Almada, Barreiro and Seixal and supports travel to the University.
5 Key Purpose for PPP Model Selection The concession model approved for this project included, in a single contract, all the foreseen investments. Therefore, contracting was simplified.
6 Project Timing The contract was tendered in September 1999, and signed in July 2001. It was re-negotiated in December 2011.
7 Project Locality and Market Geography The development of this project has been very important for the region, as it has significantly changed passenger behavior. Prior to the MST, available
204
1 Introduction This Light Rail Tram service is known as the “Metro Sul do Tejo” (MST). It is a public transportation system supplied by surface light rail, in the municipalities of Almada and Seixal in Portugal, with growth projected for the neighboring municipalities of Barreiro and Moita. Its mission is to provide an adequate transport service on the south side of the Tagus River.
The MST has three commercial links in a Y-shaped network extending south (Corroios), west (Caparica), and Northeast (Cacilhas). Each line uses fully or partially two of the three links of this topology. The network has a total of 19 stops and a length of 22 km (see figure 1).
The first sections were opened in 2007. The Corroios and Cova da Piedade section was inaugurated on 30 April 2007 and put in service on 1 May 2007, whilst the section between Cova da Piedade and University was inaugurated on 15 December 2007. The current network has been in operation since late 2008, with the section to Cacilhas opening to service on 26 November 2008.
There are plans to extend to all three sections of the network to reach Costa da Caparica / Trafaria, Setúbal, Barreiro, Moita, Montijo, and even Lisbon. The MST project also included the complete renovation of roads and public spaces (bus and private vehicle corridors, widening of pavements, sufficient parking lots and new drainage).
Fares are set out in the concession with a margin of variation for inflation.
2 The Contracting Authority (Public Party) The project was sponsored by the Minister of Finance and Public Procurement and Public Works (IMTT) along with the local municipalities of Almada, Seixal and Barreiro.
Procurement was conducted following EU procurement directives, which have been included in the new Public Contracts Code, which also applies to PPP projects. This Code also introduces electronic tendering.
3 The Concessionaire (Private Party) The concession for the MST was awarded to Metro Transportes do Sul S.A. (MTS). This company is composed of the following enterprises: Grupo Barraqueiro / Arriva; SIEMENS, A.G. (Germany); ENSULMECI, S.A.;
205 SOPOL, S.A.; Teixeira Duarte – Engenharia e Construções, S.A.; ASCENDI, S.A. (Mota-Engil, S.A.).
Grupo Barraqueiro is a Portuguese company providing transportation services for passengers, with extensive experience at the national level. Barraqueiro has a partnership with Arriva, which is a British multinational company, which operates bus, coach, train, tram and waterbus services in 12 countries across Europe. SIEMENS, A.G. is a German multinational engineering and electronics conglomerate. It is organized into five main divisions: Industry, Energy, Healthcare, Infrastructure & Cities, and Siemens Financial Services. ENSULMECI, S.A. is a Portuguese construction company. Its principal activities include civil engineering and the construction of infrastructure. SOPOL, S.A. is a Portuguese construction company. Its principal activities include civil engineering and the construction of infrastructure. Teixeira Duarte is one of the largest construction companies in Portugal. ASCENDI, S.A. (Mota-Engil, S.A.) is a Portuguese industrial conglomerate. Its principal activities include civil engineering and construction of infrastructure including bridges, dams, industrial buildings, schools, and roads; energy and steel works (including steel structures, energy equipment and electricity); transport concessions and environmental services (waste water treatment and multi services). It also deals with logistics, retail and warehousing. The company has operations in Europe, Africa and America.
4 Users The MST addresses transport and mobility needs for the municipalities of Almada, Barreiro and Seixal and supports travel to the University.
5 Key Purpose for PPP Model Selection The concession model approved for this project included, in a single contract, all the foreseen investments. Therefore, contracting was simplified.
6 Project Timing The contract was tendered in September 1999, and signed in July 2001. It was re-negotiated in December 2011.
7 Project Locality and Market Geography The development of this project has been very important for the region, as it has significantly changed passenger behavior. Prior to the MST, available
206 mobility options were the bus service network of TST (Transportes Sul do Tejo) and the private car. In addition, MST is linked to the train station, FERTAGUS service, and the Almada / Cacilhas river boat station (with links to Lisbon).
8 Procurement & Contractual Structure Tendering An international open call with a pre-evaluation stage was issued. Two consortia (MTS – Metro Transportes do Sul and MAR – Metropolitano do Arco Ribeirinho) expressed interest in the pre-evaluation stage and both were invited to negotiations.
Contract Structure The concession was for the design, construction, equipment & rolling stock supply, financing, operation, maintenance and conservation of the MST.
The public authority co-financed the greater part of the project. In addition, the public authority, in its capacity as regulator, determines transport policy and the level of service (conditions of organization and functioning of public service, pricing policy etc.)
The Concessionaire is entitled to all revenues generated by the operation of service (passenger fares) as well as revenues from advertising and the exploitation of commercial areas and car parks included in the MST. The Public Party guarantees a minimum revenue to the private party through a subsidy.
Renegotiation clauses are included in the contract.
Risk Allocation Risk is allocated as depicted in figure 2.
Performance There were no specific clauses relating to performance in the contract. However, performance is considered with respect to number of passengers; traffic risk and operational performance.
Actual traffic has been well below forecasts (see table 1). In effect actual traffic in 2009 and 2010 represented 28.1% and 33.2% respectively of the minimum reference traffic.
207 In 2010 revenues from the sale of tickets amounted to EUR 3.28M,
representing 33% of operating revenues. Tickets for occasional transport (single tickets and pre-purchased tickets) represent 52% of sales.
Risks ⇐ ⇒ Design & construction
Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk allocation
Table 1: Forecast vs actual passenger kilometers Passenger-km (M) 2008 2009 2010 2011 Expected 16,14 88,06 88,23 88,68 Actual 1,89 24,73 29,33 32,26
Sources: MTS, S.A. , GMST – Gabinete do Metro Sul do Tejo (Office of Metro Sul do Tejo), Tribunal de Contas
In 2010 there were 9,16M passengers travelling an average distance of 3.2
km. With respect to operations, there were 209.462 services in 2010 corresponding to 1.37 million vehicle-km. This reflects an annual reliability of above 98%, when taking into account services unrealized or delayed for more than five minutes.
References www.MTS.pt www.tcontas.pt/pt/actos/rel_auditoria/2011/2s/audit-dgtc-rel022-2011-
2s_1.shtm www.fenix.ist.utl.pt/publico/showDegreeTheses.do?method=showThesisD
etails°reeID=null&thesisID=320444&contentContextPath_PATH=/cursos/mec/dissertacoes&_request_checksum_=32283f1c2f0e77610cbce75c7664441231bfabc7
206 mobility options were the bus service network of TST (Transportes Sul do Tejo) and the private car. In addition, MST is linked to the train station, FERTAGUS service, and the Almada / Cacilhas river boat station (with links to Lisbon).
8 Procurement & Contractual Structure Tendering An international open call with a pre-evaluation stage was issued. Two consortia (MTS – Metro Transportes do Sul and MAR – Metropolitano do Arco Ribeirinho) expressed interest in the pre-evaluation stage and both were invited to negotiations.
Contract Structure The concession was for the design, construction, equipment & rolling stock supply, financing, operation, maintenance and conservation of the MST.
The public authority co-financed the greater part of the project. In addition, the public authority, in its capacity as regulator, determines transport policy and the level of service (conditions of organization and functioning of public service, pricing policy etc.)
The Concessionaire is entitled to all revenues generated by the operation of service (passenger fares) as well as revenues from advertising and the exploitation of commercial areas and car parks included in the MST. The Public Party guarantees a minimum revenue to the private party through a subsidy.
Renegotiation clauses are included in the contract.
Risk Allocation Risk is allocated as depicted in figure 2.
Performance There were no specific clauses relating to performance in the contract. However, performance is considered with respect to number of passengers; traffic risk and operational performance.
Actual traffic has been well below forecasts (see table 1). In effect actual traffic in 2009 and 2010 represented 28.1% and 33.2% respectively of the minimum reference traffic.
207 In 2010 revenues from the sale of tickets amounted to EUR 3.28M,
representing 33% of operating revenues. Tickets for occasional transport (single tickets and pre-purchased tickets) represent 52% of sales.
Risks ⇐ ⇒ Design & construction
Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk allocation
Table 1: Forecast vs actual passenger kilometers Passenger-km (M) 2008 2009 2010 2011 Expected 16,14 88,06 88,23 88,68 Actual 1,89 24,73 29,33 32,26
Sources: MTS, S.A. , GMST – Gabinete do Metro Sul do Tejo (Office of Metro Sul do Tejo), Tribunal de Contas
In 2010 there were 9,16M passengers travelling an average distance of 3.2
km. With respect to operations, there were 209.462 services in 2010 corresponding to 1.37 million vehicle-km. This reflects an annual reliability of above 98%, when taking into account services unrealized or delayed for more than five minutes.
References www.MTS.pt www.tcontas.pt/pt/actos/rel_auditoria/2011/2s/audit-dgtc-rel022-2011-
2s_1.shtm www.fenix.ist.utl.pt/publico/showDegreeTheses.do?method=showThesisD
etails°reeID=null&thesisID=320444&contentContextPath_PATH=/cursos/mec/dissertacoes&_request_checksum_=32283f1c2f0e77610cbce75c7664441231bfabc7
208
The Reims' Tramway France
Géraldine Bonnet CERTU
Gilles Chomat CERTU
209
Project Overview The Reims' Tramway, France Project Type: Brownfield ¨ Greenfield ¨ Both þ Contract duration: 34.5 Years (30 years from the beginning of commercial operation) Budget: EUR 372.6M The budget covers total tramway construction
costs (including the rolling stock, the maintenance centre, and expenses paid directly by Reims Metropole)
Project Time Line Project conceived: September 2003 (initiation of preliminary studies); Tender: March 2005; Contract Award: 12 July 2006; Financial Close: July 2008; Beginning of construction: May 2008; Beginning of Commercial Operation: April 2011
Photograph: Dalima Figure 1. Reims' Tramway
208
The Reims' Tramway France
Géraldine Bonnet CERTU
Gilles Chomat CERTU
209
Project Overview The Reims' Tramway, France Project Type: Brownfield ¨ Greenfield ¨ Both þ Contract duration: 34.5 Years (30 years from the beginning of commercial operation) Budget: EUR 372.6M The budget covers total tramway construction
costs (including the rolling stock, the maintenance centre, and expenses paid directly by Reims Metropole)
Project Time Line Project conceived: September 2003 (initiation of preliminary studies); Tender: March 2005; Contract Award: 12 July 2006; Financial Close: July 2008; Beginning of construction: May 2008; Beginning of Commercial Operation: April 2011
Photograph: Dalima Figure 1. Reims' Tramway
210
1 Introduction The project concerns the construction of the tramway in Reims (11,2km, 23 stations and 3 “Park and Ride” areas) and the operation of the metropolitan urban transport system, which also consists of an existing bus line network. This latter has been re-organised to accommodate and achieve interoperability with the newly constructed tramway. The restructured bus network consists in particular of two core lines of buses, seven other major bus lines and four bypass lines of buses (Reims Métropole, 2007). In addition, there has been an increase in supply (in commercial km) of almost 6%.
Moreover, the entire network will be improved to provide access to disabled persons by December 31, 2015. This affects more than 550 bus stops. Development of an intermodal tariff with other public transport organizing authorities in the Reims Metropole area has also been considered.
The tram line crosses the city from north to south with two routes in the south. It serves residential areas in the north, the central station, the city centre, the hospital area and part of the university. The second route links the central station to a TGV station in the south (CERTU, 2012).
Along the tramway the urban space has been improved with the renovation of streets, the improvement of public spaces, and a new modal space split for the benefit of pedestrians and cyclists.
The tramway was put into service in April 2011.
2 The Contracting Authority (Public Party) Since the introduction of the Domestic Transport Orientation Law of 30 December 1982, urban public transport organizing authorities, that can be municipalities or intercommunal structures, are in charge of the development and operation of urban public transport networks. In this respect, Reims Metropole is an inter-communality, which also acts as the urban public transport regulating authority. This authority initiated the development of the tram infrastructure.
According to a French law adopted in 2009, the length of dedicated line transport systems outside of the Paris' area must increase from 329 km in 2005 to 1800 km in 2020. Hence, the state launched two calls for proposals in 2008 and 2010 in order to subsidize such projects supported by local authorities. The Reims' tram was funded through one of these calls for proposals.
211
3 The Concessionaire (Private Party) MARS (Mobility Agglomeration RémoiSe) is the private joint stock company that was awarded the concession contract. Its members are (CERTU, 2012): Caisse des Dépôts et consignations: 27%; Alstom Transport: 17%; Transdev: 17%; Caisse d'Epargne: 17% (8,5% for Caisse d'Epargne Champagne Ardenne and 8,5% for FIDEPP, a subsidiary company of NATIXIS); Bouygues Construction group: 8.5%; Colas: 8.5%; Pingat Ingénrierie SNC Lavalin 5%.
The shareholders are also amongst the subcontractors, who are: Construction: Alstom, Bouygues Travaux Publics, Quille SA, Pertuy
Construction et Colas Design & Operation: Pingat Ingénierie SNC Lavalin, Transdev, Finance: Caisse des Dépôts et Consignations, Caisse d'Epargne
Champagne Ardenne and Natixis There is an interface in the contract that defines the terms of association
between the companies involved in MARS. In the case of disagreement between the building and operating companies, the decision returns to MARS.
4 Users Reims is a medium size city of 190,000 inhabitants (218,000 inhabitants when considering the whole intercommunal structure). It is situated in the north-east of France. More than 65,000 inhabitants and 30,000 employees will be less than 400 meters from the tramway (Reims Métropole, 2007).
5 Key Purpose for PPP Model Selection Both technical and financial reasons justified the choice of the PPP model for this project(different press articles, especially : Ville & Transport, 2008). These include:
The need to address some difficulties of the public transport system with respect to low commercial speeds, stability of usage and increased operating costs; Avoidance of debt for the urban public transport organizing authority as funding would be supplied by the concessionaire;
Improved management of financial resources by the organizing authority with regard to public subsidies to urban transport and the spread of expenditure over time;
Transfer of project management responsibilities to the concessionaire, while the organising authority employs a small team for the function;
210
1 Introduction The project concerns the construction of the tramway in Reims (11,2km, 23 stations and 3 “Park and Ride” areas) and the operation of the metropolitan urban transport system, which also consists of an existing bus line network. This latter has been re-organised to accommodate and achieve interoperability with the newly constructed tramway. The restructured bus network consists in particular of two core lines of buses, seven other major bus lines and four bypass lines of buses (Reims Métropole, 2007). In addition, there has been an increase in supply (in commercial km) of almost 6%.
Moreover, the entire network will be improved to provide access to disabled persons by December 31, 2015. This affects more than 550 bus stops. Development of an intermodal tariff with other public transport organizing authorities in the Reims Metropole area has also been considered.
The tram line crosses the city from north to south with two routes in the south. It serves residential areas in the north, the central station, the city centre, the hospital area and part of the university. The second route links the central station to a TGV station in the south (CERTU, 2012).
Along the tramway the urban space has been improved with the renovation of streets, the improvement of public spaces, and a new modal space split for the benefit of pedestrians and cyclists.
The tramway was put into service in April 2011.
2 The Contracting Authority (Public Party) Since the introduction of the Domestic Transport Orientation Law of 30 December 1982, urban public transport organizing authorities, that can be municipalities or intercommunal structures, are in charge of the development and operation of urban public transport networks. In this respect, Reims Metropole is an inter-communality, which also acts as the urban public transport regulating authority. This authority initiated the development of the tram infrastructure.
According to a French law adopted in 2009, the length of dedicated line transport systems outside of the Paris' area must increase from 329 km in 2005 to 1800 km in 2020. Hence, the state launched two calls for proposals in 2008 and 2010 in order to subsidize such projects supported by local authorities. The Reims' tram was funded through one of these calls for proposals.
211
3 The Concessionaire (Private Party) MARS (Mobility Agglomeration RémoiSe) is the private joint stock company that was awarded the concession contract. Its members are (CERTU, 2012): Caisse des Dépôts et consignations: 27%; Alstom Transport: 17%; Transdev: 17%; Caisse d'Epargne: 17% (8,5% for Caisse d'Epargne Champagne Ardenne and 8,5% for FIDEPP, a subsidiary company of NATIXIS); Bouygues Construction group: 8.5%; Colas: 8.5%; Pingat Ingénrierie SNC Lavalin 5%.
The shareholders are also amongst the subcontractors, who are: Construction: Alstom, Bouygues Travaux Publics, Quille SA, Pertuy
Construction et Colas Design & Operation: Pingat Ingénierie SNC Lavalin, Transdev, Finance: Caisse des Dépôts et Consignations, Caisse d'Epargne
Champagne Ardenne and Natixis There is an interface in the contract that defines the terms of association
between the companies involved in MARS. In the case of disagreement between the building and operating companies, the decision returns to MARS.
4 Users Reims is a medium size city of 190,000 inhabitants (218,000 inhabitants when considering the whole intercommunal structure). It is situated in the north-east of France. More than 65,000 inhabitants and 30,000 employees will be less than 400 meters from the tramway (Reims Métropole, 2007).
5 Key Purpose for PPP Model Selection Both technical and financial reasons justified the choice of the PPP model for this project(different press articles, especially : Ville & Transport, 2008). These include:
The need to address some difficulties of the public transport system with respect to low commercial speeds, stability of usage and increased operating costs; Avoidance of debt for the urban public transport organizing authority as funding would be supplied by the concessionaire;
Improved management of financial resources by the organizing authority with regard to public subsidies to urban transport and the spread of expenditure over time;
Transfer of project management responsibilities to the concessionaire, while the organising authority employs a small team for the function;
212 Economic optimization of the project; Compliance with anticipated costs and timelines.
The ex-ante evaluation made by Reims Metropole to justify the project reported an IRR (Internal Rate of Return) higher than the minimum requirement for a public project in France. In addition, the traffic forecasts justified the choice of a tram (Reims Métropole, 2007).
6 Project Timing Preliminary studies were initiated in September 2003, and the project was tendered in March 2005. The contract was awarded in July 2006 and reached financial close in July 2008. Construction began in May 2008 and operations started in April 2011 (www.mars-reims.fr).
7 Project Locality and Market Geography The Reims' tramway is an urban public transport project. It also involves the tram’s integration into the urban public transport system of Reims through network integration (connection with bus lines and TGV), operational integration (bus lines are expected to shift to achieve better organisation of the entire network), and fare integration (introduction of a combined pricing system).
The tram connects urban and suburban areas, and the project has “park & ride” areas to improve public transport’s modal share. There are also provisions for the disabled and cyclists.
Finally, the private sector is expected to take initiatives that would increase ridership.
8 Procurement & Contractual Structure
Tendering The tendering process was conducted in accordance with the public service delegation law and regulations. The tendering process was conducted as follows:
Nomination of candidates admitted to the tender; Receipt of tenders; Negotiations with candidates; Delivery of a final best offer by each candidate; Negotiations with the preferred candidate
213 Three expressions of interest were received and all three candidates were
allowed to tender for the contract (Ville & Transports, 2008). Hearings and negotiations were conducted with all three candidates and all
three candidates submitted an offer. Negotiations were finally concluded with the potential concessionaire.
The entire process took almost 17 months to complete.
Contract Structure The contract is a delegation of public service through a concession for public works and public service (Act No. 93-122 of 29 January 1993: Sapin Act). The contract covers the construction of the tram line and related equipment, and operation of the overall urban transport network (tram and bus). It also involves operations related to urban integration of the tram, and the maintenance and renewal of assets allocated to public service. With respect to contractual obligations, the private sector is responsible for:
Design, financing, building, operation and maintenance of the tramway, including passenger stations and park & ride facilities;
Design, financing and development of links with the tramway, in particular those related to urban integration of the tram, according to the conditions and limitations specified in the contract;
Operation of the overall urban transport network (tram and bus) . Between 2008 and the implementation of the tramway, operations concerned the existing bus network only;
Maintenance and renewal of assets allocated to the public service. Finally, at the end of the concession period, the project is to be transferred
back to Reims Metropole. The investment supported by the concessionaire is EUR 345,4 M(CERTU,
2012). MARS is funding the project as follows: EUR 24M in equity; EUR 215 M of external funding; EUR 174 M of capital subsidy.
In addition, MARS will receive an annual subsidy from Reims Metropole (see below) and collect for its own account revenues related to traffic and auxiliary revenues estimated at EUR 15M per year from 2011. Reims Metropole’s obligations relate to the definition of public transport policy and public service objectives (organization and functioning of public services, pricing policy etc.). Furthermore, Reims Metropole is involved in financing through:
212 Economic optimization of the project; Compliance with anticipated costs and timelines.
The ex-ante evaluation made by Reims Metropole to justify the project reported an IRR (Internal Rate of Return) higher than the minimum requirement for a public project in France. In addition, the traffic forecasts justified the choice of a tram (Reims Métropole, 2007).
6 Project Timing Preliminary studies were initiated in September 2003, and the project was tendered in March 2005. The contract was awarded in July 2006 and reached financial close in July 2008. Construction began in May 2008 and operations started in April 2011 (www.mars-reims.fr).
7 Project Locality and Market Geography The Reims' tramway is an urban public transport project. It also involves the tram’s integration into the urban public transport system of Reims through network integration (connection with bus lines and TGV), operational integration (bus lines are expected to shift to achieve better organisation of the entire network), and fare integration (introduction of a combined pricing system).
The tram connects urban and suburban areas, and the project has “park & ride” areas to improve public transport’s modal share. There are also provisions for the disabled and cyclists.
Finally, the private sector is expected to take initiatives that would increase ridership.
8 Procurement & Contractual Structure
Tendering The tendering process was conducted in accordance with the public service delegation law and regulations. The tendering process was conducted as follows:
Nomination of candidates admitted to the tender; Receipt of tenders; Negotiations with candidates; Delivery of a final best offer by each candidate; Negotiations with the preferred candidate
213 Three expressions of interest were received and all three candidates were
allowed to tender for the contract (Ville & Transports, 2008). Hearings and negotiations were conducted with all three candidates and all
three candidates submitted an offer. Negotiations were finally concluded with the potential concessionaire.
The entire process took almost 17 months to complete.
Contract Structure The contract is a delegation of public service through a concession for public works and public service (Act No. 93-122 of 29 January 1993: Sapin Act). The contract covers the construction of the tram line and related equipment, and operation of the overall urban transport network (tram and bus). It also involves operations related to urban integration of the tram, and the maintenance and renewal of assets allocated to public service. With respect to contractual obligations, the private sector is responsible for:
Design, financing, building, operation and maintenance of the tramway, including passenger stations and park & ride facilities;
Design, financing and development of links with the tramway, in particular those related to urban integration of the tram, according to the conditions and limitations specified in the contract;
Operation of the overall urban transport network (tram and bus) . Between 2008 and the implementation of the tramway, operations concerned the existing bus network only;
Maintenance and renewal of assets allocated to the public service. Finally, at the end of the concession period, the project is to be transferred
back to Reims Metropole. The investment supported by the concessionaire is EUR 345,4 M(CERTU,
2012). MARS is funding the project as follows: EUR 24M in equity; EUR 215 M of external funding; EUR 174 M of capital subsidy.
In addition, MARS will receive an annual subsidy from Reims Metropole (see below) and collect for its own account revenues related to traffic and auxiliary revenues estimated at EUR 15M per year from 2011. Reims Metropole’s obligations relate to the definition of public transport policy and public service objectives (organization and functioning of public services, pricing policy etc.). Furthermore, Reims Metropole is involved in financing through:
214 Direct expenses linked to the project (acquisition of property, costs of
diverting the networks, residents' compensation, costs of the organizing authority etc.). This amounts to EUR 27,2M;
A capital grant of EUR 174 M in the construction phase provided by Reims Metropole, the city of Reims for renovation and planning work, and central government. This grant is spread over 3-4 instalments between 2008 and 2011;
An overall fare subsidy (based on the 2011 network mileage and thus including the tram) of EUR 43.6M per year as of 2014 (Champeco, 2006)
This latter subsidy is both a contribution to operating expenses (EUR 30.7 M) indexed to inflation, and a fixed amount to cover depreciation costs of the equipment (EUR 12.8 M).
The increase in Transport Tax in April 2005 partly covers the annual contribution (EUR 31M) (Champeco, 2005). Transport Tax is an employer contribution dedicated to the funding of urban transport and based on the company's total payroll costs. All companies (public and private) with more than 9 employees are subject to this tax in the Urban Transport Perimeter (PTU).
With respect to project preparation, Reims Metropole had made studies to define the tramway project. Hence the project was described in the urban transport plan and defined for the tender.
A part of the operating subsidy paid by Reims Metropole is transferred to financial institutions to secure the loans made to MARS
Finally, the contract includes conditions for the re-assessment of its financial status. The reassessment takes place three years after the beginning of the operation, then every five years, as well as in particular situations stipulated in the contract.
Risk Allocation The contract defines the obligations of each party in terms of design, construction, maintenance, operation, and financial aspects, as described below.
Design and construction risks are taken mostly by the concessionaire but the archaeological risk is capped by Reims Metropole. MARS is responsible for the maintenance of all property allocated to the public service. Operating risk is mostly taken by the concessionaire.
215 Commercial/revenue risk is mostly taken by the concessionaire as MARS
receives the traffic revenue. The annual contribution from Reims Metropole has been defined in the contract, based on operating expenses forecasts and the expected commercial revenue (with a defined ticket price). Risks for interest rates and other financial parameters are mostly carried by the concessionaire. In some cases, the contract requires renegotiations in favour of Reims Metropole (debt refinancing, traffic revenue much higher than expected etc.)
Risks ⇐ ⇒ Design & construction
Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk allocation The concessionaire takes the risk of regulations known before the signing
of the contract. Reims Metropole takes the risk on regulations that may enter into force after the signing of the contract and that were not known at that date.
Performance In the contract there are service quality indicators (punctuality and regularity, availability of equipment and services, cleanliness and comfort, etc.) and performance indicators, including targets for each indicator. With reference to these indicators monthly and annual reports are to be submitted by the concessionaire to Reims Metropole. They include performance indicators such as accounting data, analysis of quality of service, and technical and financial updates.
An ex-post evaluation is compulsory five years after the beginning of tram operations, and this will be compared to the ex-ante evaluation used to define the public utility. It will be prepared by Reims Metropole, and possibly based on a national methodology. Performance indicators are used in both the ex-ante and ex-post evaluations. Classical indicators that are used concern transport supply, transport use, modal split, and profitability.
In the charter of commitment signed between MARS and Reims Métropole a 40% increase in public transport ridership is targeted, bringing the
214 Direct expenses linked to the project (acquisition of property, costs of
diverting the networks, residents' compensation, costs of the organizing authority etc.). This amounts to EUR 27,2M;
A capital grant of EUR 174 M in the construction phase provided by Reims Metropole, the city of Reims for renovation and planning work, and central government. This grant is spread over 3-4 instalments between 2008 and 2011;
An overall fare subsidy (based on the 2011 network mileage and thus including the tram) of EUR 43.6M per year as of 2014 (Champeco, 2006)
This latter subsidy is both a contribution to operating expenses (EUR 30.7 M) indexed to inflation, and a fixed amount to cover depreciation costs of the equipment (EUR 12.8 M).
The increase in Transport Tax in April 2005 partly covers the annual contribution (EUR 31M) (Champeco, 2005). Transport Tax is an employer contribution dedicated to the funding of urban transport and based on the company's total payroll costs. All companies (public and private) with more than 9 employees are subject to this tax in the Urban Transport Perimeter (PTU).
With respect to project preparation, Reims Metropole had made studies to define the tramway project. Hence the project was described in the urban transport plan and defined for the tender.
A part of the operating subsidy paid by Reims Metropole is transferred to financial institutions to secure the loans made to MARS
Finally, the contract includes conditions for the re-assessment of its financial status. The reassessment takes place three years after the beginning of the operation, then every five years, as well as in particular situations stipulated in the contract.
Risk Allocation The contract defines the obligations of each party in terms of design, construction, maintenance, operation, and financial aspects, as described below.
Design and construction risks are taken mostly by the concessionaire but the archaeological risk is capped by Reims Metropole. MARS is responsible for the maintenance of all property allocated to the public service. Operating risk is mostly taken by the concessionaire.
215 Commercial/revenue risk is mostly taken by the concessionaire as MARS
receives the traffic revenue. The annual contribution from Reims Metropole has been defined in the contract, based on operating expenses forecasts and the expected commercial revenue (with a defined ticket price). Risks for interest rates and other financial parameters are mostly carried by the concessionaire. In some cases, the contract requires renegotiations in favour of Reims Metropole (debt refinancing, traffic revenue much higher than expected etc.)
Risks ⇐ ⇒ Design & construction
Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk allocation The concessionaire takes the risk of regulations known before the signing
of the contract. Reims Metropole takes the risk on regulations that may enter into force after the signing of the contract and that were not known at that date.
Performance In the contract there are service quality indicators (punctuality and regularity, availability of equipment and services, cleanliness and comfort, etc.) and performance indicators, including targets for each indicator. With reference to these indicators monthly and annual reports are to be submitted by the concessionaire to Reims Metropole. They include performance indicators such as accounting data, analysis of quality of service, and technical and financial updates.
An ex-post evaluation is compulsory five years after the beginning of tram operations, and this will be compared to the ex-ante evaluation used to define the public utility. It will be prepared by Reims Metropole, and possibly based on a national methodology. Performance indicators are used in both the ex-ante and ex-post evaluations. Classical indicators that are used concern transport supply, transport use, modal split, and profitability.
In the charter of commitment signed between MARS and Reims Métropole a 40% increase in public transport ridership is targeted, bringing the
216 number of trips from 30 to 42 million per year. In 2011, about 32 million of trips were registered (DGITM-CERTU-GART-UTP). This is consistent with the ex-ante forecast.
The agreement includes penalties for delays (commercial operations, project construction time, report transmission etc.); non-compliance with performance targets (availability of service and the service quality of the tram); and failure to meet maintenance obligations (maintenance frequency relative to the age of fleet).
References CERTU, (2012) Transports public urbains en France - Organisation
institutionnelle, December 2012, 60-67. DGITM-CERTU-GART-UTP, Annual survey on exploitation of urban
public transport networks (excluding Paris area) Reims Métropole (2007), Dossier d'enquête préalable à la déclaration
d'utilité publique (DUP), Janvier 2007. Press articles: Le tramway à Reims: transport en hausse, Champ'éco, April 2005 Tramway de Reims: “cette fois, c'est parti !”, Transports Public, April
2005. 34 ans de mariage et 1,4 milliard euros de dot, Champ' Eco, November
2006. Tram de Reims: la première concession française en chantier, Villes &
Transports Magazine, July 2nd 2008 A Reims, le sacre annoncé de la concession, Ville & Transports Magazine,
November 11th 2008. Internet-pages : MARS, online access <http://www.mars-reims.fr> , accessed on 22 nd
February 2011 Reims Metropole, online access <http://www.tramwaydereims.fr>,
accessed on 22nd February 2011
217
SEVICI Spain
Sastre, Julián S3Transportatione
216 number of trips from 30 to 42 million per year. In 2011, about 32 million of trips were registered (DGITM-CERTU-GART-UTP). This is consistent with the ex-ante forecast.
The agreement includes penalties for delays (commercial operations, project construction time, report transmission etc.); non-compliance with performance targets (availability of service and the service quality of the tram); and failure to meet maintenance obligations (maintenance frequency relative to the age of fleet).
References CERTU, (2012) Transports public urbains en France - Organisation
institutionnelle, December 2012, 60-67. DGITM-CERTU-GART-UTP, Annual survey on exploitation of urban
public transport networks (excluding Paris area) Reims Métropole (2007), Dossier d'enquête préalable à la déclaration
d'utilité publique (DUP), Janvier 2007. Press articles: Le tramway à Reims: transport en hausse, Champ'éco, April 2005 Tramway de Reims: “cette fois, c'est parti !”, Transports Public, April
2005. 34 ans de mariage et 1,4 milliard euros de dot, Champ' Eco, November
2006. Tram de Reims: la première concession française en chantier, Villes &
Transports Magazine, July 2nd 2008 A Reims, le sacre annoncé de la concession, Ville & Transports Magazine,
November 11th 2008. Internet-pages : MARS, online access <http://www.mars-reims.fr> , accessed on 22 nd
February 2011 Reims Metropole, online access <http://www.tramwaydereims.fr>,
accessed on 22nd February 2011
217
SEVICI Spain
Sastre, Julián S3Transportatione
218
Project Overview
SEVICI Project Type: Brownfield Greenfield Both Contract duration: 20 Years Budget: EUR 92,2 M For the implementation, operation and
maintenance over the entire period Project Time Line Conception: 2004; Contract Approved: July 2007
Figure 1: The SEVICI Project
219
1 Introduction SEVICI concerns the development of a public bicycle rental scheme based on a public-private sector participation model. The project was implemented in the City of Seville in 2007. It included 2500 rental bicycles, 250 parking areas and 411 parking docks. The operation is performed at the docking station itself. Each docking station has an interactive information platform.
Cyclists can use a cycle-path track length of 120 km (not included in the tender). The service is considered to be part of the Seville pubic transport system. The concessionaire receives rental tariffs and also the right to use elements of the service and local area as advertising space.
The project is an innovative concept using PPP as a side business to support the core business, which is advertising.
2 The Contracting Authority (Public Party) The Municipality of Seville awarded the contract under the auspices of articles 5.2b and 8 of the Revised Text of the Law on Public Sector Administrative Contracts, as passed through Royal Legislative Decree 2/2000, on 16th of June.
3 The Concessionaire (Private Party) JCDecaux is the first advertising company to offer automatic bicycle rental schemes as part of their advertising contract for urban advertising spaces. JCDecaux developed the bicycle rental scheme. This is, however, a bundling with its core business, which is advertising. The concessionaire provided equity and loans.
4 Users SEVICI forms part of the Seville urban transport system and is available to all public users. In 2011, almost 5 million trips were registered.
5 Key Purpose for PPP Model Selection The City Council could not cover the cost of developing and operating a viable bicycle rental service. However, the advertising company by “bundling” advertisement and rental user tariffs could achieve feasibility. More
218
Project Overview
SEVICI Project Type: Brownfield Greenfield Both Contract duration: 20 Years Budget: EUR 92,2 M For the implementation, operation and
maintenance over the entire period Project Time Line Conception: 2004; Contract Approved: July 2007
Figure 1: The SEVICI Project
219
1 Introduction SEVICI concerns the development of a public bicycle rental scheme based on a public-private sector participation model. The project was implemented in the City of Seville in 2007. It included 2500 rental bicycles, 250 parking areas and 411 parking docks. The operation is performed at the docking station itself. Each docking station has an interactive information platform.
Cyclists can use a cycle-path track length of 120 km (not included in the tender). The service is considered to be part of the Seville pubic transport system. The concessionaire receives rental tariffs and also the right to use elements of the service and local area as advertising space.
The project is an innovative concept using PPP as a side business to support the core business, which is advertising.
2 The Contracting Authority (Public Party) The Municipality of Seville awarded the contract under the auspices of articles 5.2b and 8 of the Revised Text of the Law on Public Sector Administrative Contracts, as passed through Royal Legislative Decree 2/2000, on 16th of June.
3 The Concessionaire (Private Party) JCDecaux is the first advertising company to offer automatic bicycle rental schemes as part of their advertising contract for urban advertising spaces. JCDecaux developed the bicycle rental scheme. This is, however, a bundling with its core business, which is advertising. The concessionaire provided equity and loans.
4 Users SEVICI forms part of the Seville urban transport system and is available to all public users. In 2011, almost 5 million trips were registered.
5 Key Purpose for PPP Model Selection The City Council could not cover the cost of developing and operating a viable bicycle rental service. However, the advertising company by “bundling” advertisement and rental user tariffs could achieve feasibility. More
220 specifically, while user tariffs correspond to approximately 50% of the project cost, revenue for the rest is generated by the advertising service.
6 Project Timing Public bicycle rental schemes (SBP) have spread rapidly over Spain since 2004, following the success of the Vitoria-Gasteiz scheme, which allowed for a truly intermodal scheme to be established in the public transport system. Moreover, Seville is a prominent city in Andalusia, with significant tourism, which greatly benefits from adopting the SBP.
7 Project Locality and Market Geography The bicycle rental scheme is part of the Seville public transport system. It is estimated that more than 5% of daily trips in the city are conducted by SEVICI.
8 Procurement & Contractual Structure
Tendering Two bidders responded to the Expression of Interest issued by the Municipality of Seville. The final bid was submitted by JCDecaux. The legal basis of the contract is under the auspices of articles 5.2b and 8 of the Revised Text of the Law on Public Sector Administrative Contracts, as passed through Royal Legislative Decree 2/2000, on the 16th of June.
Contract Structure The contract involves the installation, management and maintenance of the individual public transport system through the availability of public bicycles for short-term rental, as well as the development of docking stations where these can be parked.
Table 1: SERVICI tariffs Card used Fee 30 minutes 1st Hour 2nd Hour
Short term 11 € Free 1 € 2 €
Long term 27.5 € Free 0.5 € 1 €
The contract was assigned for a period of 20 years to the French company JCDecaux. Revenues are generated through bicycle rentals (see fees below) and the use of elements of the service and local area as advertising space. More specifically, the concessionaire is given 500 advertisement spaces.
221 Users can pay an annual fee, which gives them the right to free journeys of
up to half an hour between SEVICI points or through a weekly, short duration fee. Costs are deducted from the credit cards provided by the subscriber.
User tariffs are currently (2013) being re-negotiated due to the economic crisis, which also affects advertisement demand.
Risk Allocation Evolution of demand, revenue from advertisement and cost of maintenance may be considered the key risks of SEVICI. In the contract risks are allocated as shown in figure 2.
Risks ⇐ ⇒ Design & construction
Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk allocation Performance The ex-post overall assessment of the contract is very positive. Some problems exist with respect to: Shortage of maintenance and lack of qualified staff to deal with unlawful
actions and vandalism to cycles as well as docking stations; Poor customer service (poor complaints line, expensive call number, no
physical contract with the users possible); No simple method to report a mechanical failure on a bike.
Performance indicators were foreseen in the contract, in accordance with the system’s basic RAM criteria (Reliability, Availability and Maintainability), and were as follows:
220 specifically, while user tariffs correspond to approximately 50% of the project cost, revenue for the rest is generated by the advertising service.
6 Project Timing Public bicycle rental schemes (SBP) have spread rapidly over Spain since 2004, following the success of the Vitoria-Gasteiz scheme, which allowed for a truly intermodal scheme to be established in the public transport system. Moreover, Seville is a prominent city in Andalusia, with significant tourism, which greatly benefits from adopting the SBP.
7 Project Locality and Market Geography The bicycle rental scheme is part of the Seville public transport system. It is estimated that more than 5% of daily trips in the city are conducted by SEVICI.
8 Procurement & Contractual Structure
Tendering Two bidders responded to the Expression of Interest issued by the Municipality of Seville. The final bid was submitted by JCDecaux. The legal basis of the contract is under the auspices of articles 5.2b and 8 of the Revised Text of the Law on Public Sector Administrative Contracts, as passed through Royal Legislative Decree 2/2000, on the 16th of June.
Contract Structure The contract involves the installation, management and maintenance of the individual public transport system through the availability of public bicycles for short-term rental, as well as the development of docking stations where these can be parked.
Table 1: SERVICI tariffs Card used Fee 30 minutes 1st Hour 2nd Hour
Short term 11 € Free 1 € 2 €
Long term 27.5 € Free 0.5 € 1 €
The contract was assigned for a period of 20 years to the French company JCDecaux. Revenues are generated through bicycle rentals (see fees below) and the use of elements of the service and local area as advertising space. More specifically, the concessionaire is given 500 advertisement spaces.
221 Users can pay an annual fee, which gives them the right to free journeys of
up to half an hour between SEVICI points or through a weekly, short duration fee. Costs are deducted from the credit cards provided by the subscriber.
User tariffs are currently (2013) being re-negotiated due to the economic crisis, which also affects advertisement demand.
Risk Allocation Evolution of demand, revenue from advertisement and cost of maintenance may be considered the key risks of SEVICI. In the contract risks are allocated as shown in figure 2.
Risks ⇐ ⇒ Design & construction
Maintenance Exploitation Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
Figure 2: Risk allocation Performance The ex-post overall assessment of the contract is very positive. Some problems exist with respect to: Shortage of maintenance and lack of qualified staff to deal with unlawful
actions and vandalism to cycles as well as docking stations; Poor customer service (poor complaints line, expensive call number, no
physical contract with the users possible); No simple method to report a mechanical failure on a bike.
Performance indicators were foreseen in the contract, in accordance with the system’s basic RAM criteria (Reliability, Availability and Maintainability), and were as follows:
222
Table 2: Performance indicators
Figures Initial number of bicycles 2.500 Temporary out of service (105) Permanent out of service (690) Number of bicycles in use (average) 1.705
However, no penalties were foreseen. The SERVICI has approximately 5 million trips per year. Users are
relatively satisfied with the system.
Figure 3: Scoring of SEVICI by users (2011) Source: Barómetro Socioeconómico de Sevilla
References Sastre, J. and Romero, A. (2012) Development of the Public Bicycle
Rental Scheme based on a Public Private Sector Participation Model: The Seville case study (SEVICI), Latin Infrastructure Quarterly
Sastre, J. and Romero, A. (2012) Impact of bicycle sharing system in Spain. ALOMON, Consulting. Research Department
7.19 7.03 6.04
6.53 7.55 7.3
Jan-‐13
Mar-‐13
May-‐13
Jul-‐13
Sep-‐13
Nov-‐13
Jan-‐14
Mar-‐14
May-‐14
Jul-‐14
Sep-‐14
Nov-‐14
Jan-‐15
Mar-‐15
May-‐15
Jul-‐15
Sep-‐15
Nov-‐15
Jan-‐16
Mar-‐16
May-‐16
223
Terminals and Depots
222
Table 2: Performance indicators
Figures Initial number of bicycles 2.500 Temporary out of service (105) Permanent out of service (690) Number of bicycles in use (average) 1.705
However, no penalties were foreseen. The SERVICI has approximately 5 million trips per year. Users are
relatively satisfied with the system.
Figure 3: Scoring of SEVICI by users (2011) Source: Barómetro Socioeconómico de Sevilla
References Sastre, J. and Romero, A. (2012) Development of the Public Bicycle
Rental Scheme based on a Public Private Sector Participation Model: The Seville case study (SEVICI), Latin Infrastructure Quarterly
Sastre, J. and Romero, A. (2012) Impact of bicycle sharing system in Spain. ALOMON, Consulting. Research Department
7.19 7.03 6.04
6.53 7.55 7.3
Jan-‐13
Mar-‐13
May-‐13
Jul-‐13
Sep-‐13
Nov-‐13
Jan-‐14
Mar-‐14
May-‐14
Jul-‐14
Sep-‐14
Nov-‐14
Jan-‐15
Mar-‐15
May-‐15
Jul-‐15
Sep-‐15
Nov-‐15
Jan-‐16
Mar-‐16
May-‐16
223
Terminals and Depots
224
Contents
Cargo Center Graz-Werndorf, Austria Walter Scherrer
Central Public Transport depot of the city of Pilsen,
Czech Republic Petr Witz
225
Cargo Center Graz-Werndorf
Austria Walter Scherrer
University of Salzburg [email protected]
224
Contents
Cargo Center Graz-Werndorf, Austria Walter Scherrer
Central Public Transport depot of the city of Pilsen,
Czech Republic Petr Witz
225
Cargo Center Graz-Werndorf
Austria Walter Scherrer
University of Salzburg [email protected]
226
Project Overview Graz-Werndorf Cargo Center, Graz, Austria Project Type: Brownfield Greenfield Both Contract duration: 30 years Budget: EUR 65M
A further EUR 55m was spent on related private investments
Project Time Line Conceived in 1997; tendered December 1998; approved July 2000; PPP contract signed September 2000; financial close at end of 2000; operations started March 2001.
Photograph taken from: http://www.cargo-center-graz.at/cms/cms.php?pageName=2
Figure 1: Project Overview
227
1 Introduction The project is for the construction and operation of a cargo terminal at the interface between road and rail transport. The project cost was EUR 65M, and the total initial investment including investment by private firms was EUR 120M. This project involves design, construction, financing and operation, and its contractual structure is based on a mixed model that leans towards a co-operation agreement with limited risk transfer.
The assets of the cargo center comprise two portal cranes for operating containers, initially 60.000 square meters of storage space, and facilities for combined transport (“Rollende Landstraße”).
photograph taken from: http://www.cargo-center-graz.at/cms/cms.php?pageName=2
Figure 2: The role of the Cargo Center Graz (CCG) in regional and international transport
The cargo center is located south of Graz, Austria’s second largest city (approx. 265.000 inhabitants). The region is one of Austria’s major industrial areas and a focal point of the Styrian automotive cluster, a network of manufacturing and research firms integrated into the supply chains of the European car industry.
Total project expenses were EUR 65M, of which expenditure for land comprised EUR 17.1M and construction of railroad infrastructure comprised
226
Project Overview Graz-Werndorf Cargo Center, Graz, Austria Project Type: Brownfield Greenfield Both Contract duration: 30 years Budget: EUR 65M
A further EUR 55m was spent on related private investments
Project Time Line Conceived in 1997; tendered December 1998; approved July 2000; PPP contract signed September 2000; financial close at end of 2000; operations started March 2001.
Photograph taken from: http://www.cargo-center-graz.at/cms/cms.php?pageName=2
Figure 1: Project Overview
227
1 Introduction The project is for the construction and operation of a cargo terminal at the interface between road and rail transport. The project cost was EUR 65M, and the total initial investment including investment by private firms was EUR 120M. This project involves design, construction, financing and operation, and its contractual structure is based on a mixed model that leans towards a co-operation agreement with limited risk transfer.
The assets of the cargo center comprise two portal cranes for operating containers, initially 60.000 square meters of storage space, and facilities for combined transport (“Rollende Landstraße”).
photograph taken from: http://www.cargo-center-graz.at/cms/cms.php?pageName=2
Figure 2: The role of the Cargo Center Graz (CCG) in regional and international transport
The cargo center is located south of Graz, Austria’s second largest city (approx. 265.000 inhabitants). The region is one of Austria’s major industrial areas and a focal point of the Styrian automotive cluster, a network of manufacturing and research firms integrated into the supply chains of the European car industry.
Total project expenses were EUR 65M, of which expenditure for land comprised EUR 17.1M and construction of railroad infrastructure comprised
228 EUR 47.9M. In addition there were major investments in the infrastructure, which was leased by the operator of the cargo center to logistics companies.
The cargo terminal connects Greater Graz, the region of Maribor/Slovenia and southeast Europe with all important terminals in Europe. It is located at the intersection of major Austrian railway lines (north-south and east-west), it is directly connected to the Austrian highway system, and it serves as a hub for transportation by road and rail. It is integrated into a network of daily freight trains.
2 The Contracting Authority (Public Party) The authority responsible on behalf of the public sector is the Schieneninfra-strukturfinanzierungsgesellschaft (SCHIG), a company owned by the Austrian Federal Government, which was in charge of financial management of investment in Austrian railway infrastructure at that time.
For tax saving purposes, SCHIG founded “Güterterminal Werndorf PPP Realisierungs GmbH” (GWP), the company in which the activities of SCHIG related to the Werndorf Cargo Terminal project are bundled.
3 The Concessionaire (Private Party) The concession for the cargo terminal was awarded to a special purpose vehicle “Cargo Center Graz” (CCG) company. Federal government ownership amounts to 47% via SCHIG/GWP, the state government of Styria holds 6% via a loan to CCG, and the private partners’ ownership share amounts to 47%.
The private partners are transport companies based in the Graz area which had been the major logistics players in the region and operated primarily in road and rail transport (59,6% of the private stake); interconnectedness of road and rail was of major concern for them. Banks and other financial service companies comprise 40,4% of the private stake and are also based in the region.
4 Users Private logistics companies and the cargo division of the Austrian railway company are the major users of the cargo terminal. 20 logistics firms have a base on the premises of the cargo center, although the infrastructure (in particular the rail terminal) can be used by other firms too.
The governments of the State of Styria and the City of Graz are other major stakeholders as the terminal upgrades the region’s quality as a business
229 location. Regional economic agents, which are integrated in international supply chains and therefore rely on reliable and fast cargo transport (e.g. the members of the Styrian automotive cluster) are major benefactors of the cargo terminal.
5 Key Purpose for PPP Model Selection The formal reason to choose PPP as a mode of project delivery is the transfer of railway infrastructure from direct government ownership to the SCHIG. The Werndorf Cargo Center was considered a pilot case for trying out this mode of delivery at the interface between rail infrastructure and private logistics companies.
The goals which are typically attributed to PPPs were envisaged in the project: spreading risks, using private management know-how, fast delivery, and relieving the public budget. “While the Werndorf contractual structure has less significance as a PPP model, it is of consequence in that it introduces the private sector into an area that hitherto was the main preserve of government and its agencies.” (Bastin 2003, 12). Budgetary motives – which have been important for selecting PPP as a mode of public goods delivery in Austria (McQuaid and Scherrer, 2010) – seem to have played only a minor role.
6 Project Timing The existing transport infrastructure had proven to be inadequate to cope with the increasing transport demand. The increase was particularly due to the development of a major automotive cluster in Styria during the 1980s and 1990s, and the increasing market potential in South-East Europe after the settling of the Yugoslav secession wars.
The decision to finalize this project as a PPP was taken when the Austrian government wanted to collect experience with PPPs as a mode of providing infrastructure and services at the interface of road and rail transport.
The project was conceived in 1997, the tender call was in December 1998, the decision under railway law for the cargo terminal Graz Werndorf was taken in July 2000. The PPP contract was signed in September 2000, and financial close took place at the end of 2000. The terminal started its operations in March 2001.
228 EUR 47.9M. In addition there were major investments in the infrastructure, which was leased by the operator of the cargo center to logistics companies.
The cargo terminal connects Greater Graz, the region of Maribor/Slovenia and southeast Europe with all important terminals in Europe. It is located at the intersection of major Austrian railway lines (north-south and east-west), it is directly connected to the Austrian highway system, and it serves as a hub for transportation by road and rail. It is integrated into a network of daily freight trains.
2 The Contracting Authority (Public Party) The authority responsible on behalf of the public sector is the Schieneninfra-strukturfinanzierungsgesellschaft (SCHIG), a company owned by the Austrian Federal Government, which was in charge of financial management of investment in Austrian railway infrastructure at that time.
For tax saving purposes, SCHIG founded “Güterterminal Werndorf PPP Realisierungs GmbH” (GWP), the company in which the activities of SCHIG related to the Werndorf Cargo Terminal project are bundled.
3 The Concessionaire (Private Party) The concession for the cargo terminal was awarded to a special purpose vehicle “Cargo Center Graz” (CCG) company. Federal government ownership amounts to 47% via SCHIG/GWP, the state government of Styria holds 6% via a loan to CCG, and the private partners’ ownership share amounts to 47%.
The private partners are transport companies based in the Graz area which had been the major logistics players in the region and operated primarily in road and rail transport (59,6% of the private stake); interconnectedness of road and rail was of major concern for them. Banks and other financial service companies comprise 40,4% of the private stake and are also based in the region.
4 Users Private logistics companies and the cargo division of the Austrian railway company are the major users of the cargo terminal. 20 logistics firms have a base on the premises of the cargo center, although the infrastructure (in particular the rail terminal) can be used by other firms too.
The governments of the State of Styria and the City of Graz are other major stakeholders as the terminal upgrades the region’s quality as a business
229 location. Regional economic agents, which are integrated in international supply chains and therefore rely on reliable and fast cargo transport (e.g. the members of the Styrian automotive cluster) are major benefactors of the cargo terminal.
5 Key Purpose for PPP Model Selection The formal reason to choose PPP as a mode of project delivery is the transfer of railway infrastructure from direct government ownership to the SCHIG. The Werndorf Cargo Center was considered a pilot case for trying out this mode of delivery at the interface between rail infrastructure and private logistics companies.
The goals which are typically attributed to PPPs were envisaged in the project: spreading risks, using private management know-how, fast delivery, and relieving the public budget. “While the Werndorf contractual structure has less significance as a PPP model, it is of consequence in that it introduces the private sector into an area that hitherto was the main preserve of government and its agencies.” (Bastin 2003, 12). Budgetary motives – which have been important for selecting PPP as a mode of public goods delivery in Austria (McQuaid and Scherrer, 2010) – seem to have played only a minor role.
6 Project Timing The existing transport infrastructure had proven to be inadequate to cope with the increasing transport demand. The increase was particularly due to the development of a major automotive cluster in Styria during the 1980s and 1990s, and the increasing market potential in South-East Europe after the settling of the Yugoslav secession wars.
The decision to finalize this project as a PPP was taken when the Austrian government wanted to collect experience with PPPs as a mode of providing infrastructure and services at the interface of road and rail transport.
The project was conceived in 1997, the tender call was in December 1998, the decision under railway law for the cargo terminal Graz Werndorf was taken in July 2000. The PPP contract was signed in September 2000, and financial close took place at the end of 2000. The terminal started its operations in March 2001.
230
7 Project Locality and Market Geography The location of the cargo center is approximately 10 kilometers south of Graz close to the Slovenian border. The cargo center serves inter-urban and international transport demands.
Several transport infrastructures dominate the structure of the economy and the structure of land use in the locality where the cargo terminal was built. The major highway and the railway connecting Slovenia and Croatia to the south and Vienna, Western Austria and Germany to the north cross the area, and the cargo terminal stretches over a space of more than 50 hectares.
8 Procurement & Contractual Structure
Tendering An EU-wide search process for a partner to be in charge of operating the cargo terminal was started. The project was awarded to a local consortium consisting of major local logistics companies and regional banks, which subsequently founded CCG. The number of bidders in the 1st stage was less than ten, and the contract was awarded 18 months after the initial call for an expression of interest.
Contract Structure The payments of CCG to SCHIG/GWP comprise two components: First, there is a fixed minimum payment of EUR 2.8M per year (2003, indexed to price level changes). Second, there is a variable payment depending on the turnover of CCG which is due if the estimated minimum turnover is surpassed; incentives are included in the contract which should ensure that this is achieved. It is agreed that the maximum of payments is 60% of the total cost of the infrastructure (which means that in the best case the public sector’s share of the cost will be 40%).
The contract between SCHIG/GWP and the private operator CCG terminates after 30 years; there is an option to continue the contract and an option for CCG to buy the cargo center at a fixed price, which is equivalent to the estimated residual value in 2031.
Risk Allocation The public partner financed the whole infrastructure of the cargo center; the private partner operating the center pays a rent over a period of 30 years. While federal and regional governments did not provide formal guarantees, SCHIG/GWP (and thus the public sector) nevertheless bears the ultimate
231 financial risk if CCG is not able to earn enough revenues to cover the repayment to SCHIG/GWP. Maintenance and operation are the sole responsibility of the private partners. While the private partners were not in charge of building the cargo center they were closely involved in the center’s design and construction from the very beginning.
Although the cargo center has a regional monopoly concerning the interface between rail and road it basically operates under market conditions. User fees are the source of revenue.
Figure 3: Risk allocation Performance The ex-ante estimation of cost was EUR 79.6M. The actual cost of procurement of land fell short of estimates by EUR 2.8M, construction cost fell short by EUR 12.2M.
SCHIG has attributed the cost savings to the close involvement of the private operator of the cargo terminal in all phases of design and construction. A major cause of the difference between the estimates and the realized cost is the difference in timing between the estimates (which were made in a period of favorable business cycle conditions and thus yielded high prices) and the time of procurement (which was in a period of weak demand in the construction industry and thus entailed lower prices).
The project was completed on time. For this achievement close contact with the private operator of the cargo terminal in all phases of design and construction seems to having been beneficial too.
The whole of the storage space was leased to private business within a few months by year-end 2003. Already in 2004 CCG had initiated an extension which was to add another 80.000 square meters of storage space, thus more than doubling the initial capacity. This was financed by a leasing company, which was also involved in the initial PPP.
Risks ⇐ ⇒ Design & construction Maintenance Commercial/ revenue
Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
230
7 Project Locality and Market Geography The location of the cargo center is approximately 10 kilometers south of Graz close to the Slovenian border. The cargo center serves inter-urban and international transport demands.
Several transport infrastructures dominate the structure of the economy and the structure of land use in the locality where the cargo terminal was built. The major highway and the railway connecting Slovenia and Croatia to the south and Vienna, Western Austria and Germany to the north cross the area, and the cargo terminal stretches over a space of more than 50 hectares.
8 Procurement & Contractual Structure
Tendering An EU-wide search process for a partner to be in charge of operating the cargo terminal was started. The project was awarded to a local consortium consisting of major local logistics companies and regional banks, which subsequently founded CCG. The number of bidders in the 1st stage was less than ten, and the contract was awarded 18 months after the initial call for an expression of interest.
Contract Structure The payments of CCG to SCHIG/GWP comprise two components: First, there is a fixed minimum payment of EUR 2.8M per year (2003, indexed to price level changes). Second, there is a variable payment depending on the turnover of CCG which is due if the estimated minimum turnover is surpassed; incentives are included in the contract which should ensure that this is achieved. It is agreed that the maximum of payments is 60% of the total cost of the infrastructure (which means that in the best case the public sector’s share of the cost will be 40%).
The contract between SCHIG/GWP and the private operator CCG terminates after 30 years; there is an option to continue the contract and an option for CCG to buy the cargo center at a fixed price, which is equivalent to the estimated residual value in 2031.
Risk Allocation The public partner financed the whole infrastructure of the cargo center; the private partner operating the center pays a rent over a period of 30 years. While federal and regional governments did not provide formal guarantees, SCHIG/GWP (and thus the public sector) nevertheless bears the ultimate
231 financial risk if CCG is not able to earn enough revenues to cover the repayment to SCHIG/GWP. Maintenance and operation are the sole responsibility of the private partners. While the private partners were not in charge of building the cargo center they were closely involved in the center’s design and construction from the very beginning.
Although the cargo center has a regional monopoly concerning the interface between rail and road it basically operates under market conditions. User fees are the source of revenue.
Figure 3: Risk allocation Performance The ex-ante estimation of cost was EUR 79.6M. The actual cost of procurement of land fell short of estimates by EUR 2.8M, construction cost fell short by EUR 12.2M.
SCHIG has attributed the cost savings to the close involvement of the private operator of the cargo terminal in all phases of design and construction. A major cause of the difference between the estimates and the realized cost is the difference in timing between the estimates (which were made in a period of favorable business cycle conditions and thus yielded high prices) and the time of procurement (which was in a period of weak demand in the construction industry and thus entailed lower prices).
The project was completed on time. For this achievement close contact with the private operator of the cargo terminal in all phases of design and construction seems to having been beneficial too.
The whole of the storage space was leased to private business within a few months by year-end 2003. Already in 2004 CCG had initiated an extension which was to add another 80.000 square meters of storage space, thus more than doubling the initial capacity. This was financed by a leasing company, which was also involved in the initial PPP.
Risks ⇐ ⇒ Design & construction Maintenance Commercial/ revenue
Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
232
Key Success Factors Several key success factors for this project can be identified:
a. Strong political support was important for speeding up legal procedures in the initial stages;
b. As nearly all important logistics companies operating in the region have become partners in CCG a near-monopoly situation was created. This reduced traffic and competition risk and warranted good economic performance of the project;
c. Financing through central government (SCHIG/GWP) allowed use of cheap financing conditions because of the AAA credit rating of federal government;
d. The number of neighborhood conflicts was small due to the compact size of the project;
e. Construction cost was low due to favorable (although unintended) timing of the project, with works starting at the trough of the business cycle;
f. Construction risk was low because the project contained neither tunnels nor complicated bridges.
References Bastin, J., (2003) Public-Private Partnerships: A Review of International
and Austrian Experience, in: Studiengesellschaft für Wirtschaft und Recht, "Public Private Partnership", Wirtschaftsuniversität Wien, Vienna .
Brenner, W., (2009) PPP und Schiene, in: Privatisierung der Verkehrsinfrastruktur. Erfahrungen mit Public Private Partnership (PPP) in Österreich und Europa. Tagungsband, Kammer für Arbeiter und Angestellte für Wien, Wien.
Bundesministerium für Verkehr, Innovation und Technologie, (2008), Ergebnisbericht über die PPP-Projekte der Bundesministerien sowie der ausgegliederten Bundesgesellschaften, Wien
McQuaid, Ronald W., and Scherrer, Walter, (2010) Changing reasons for public private partnerships, in: Public Money and Management, 30(1), 27-39
Puwein, W. et al., (2004) Modelle der “Public Private Partnership” im Lichte der theoretischen Diskussion und der empirischen Erfahrungen, Österreichisches Institut für Wirtschaftsforschung, Wien, Dezember 2004.
233 Puwein, W., M. Weingärtler, (2010) Public Private Partnerships in
Österreich. Aktuelle Bestandsanalyse und Trends, in: Monatsberichte des Österreichischen Insituts für Wirtschaftsforschung, 11/2010, 899ff.
Schaffhauser-Linzatti, M., (2003) Risk management in an Austrian standardized public-private partnership model, in: Akintoye, A. (ed), Public private partnerships, Blackwell: Oxford, 245ff.
Schieneninfrastruktur-Dienstleistungsgesellschaft mbH, website, download 10 February 2013, http://www.schig.com/ueber-die-schig-mbh/aufgaben-und-rechtliche-grundlagen-chronologie/
Schuster, G., (2006) PPP – Erfahrungen im Schienenbereich, September 2006, www2.iv-eventnet.at/upload/doc/726/Panel_A_Schuster
232
Key Success Factors Several key success factors for this project can be identified:
a. Strong political support was important for speeding up legal procedures in the initial stages;
b. As nearly all important logistics companies operating in the region have become partners in CCG a near-monopoly situation was created. This reduced traffic and competition risk and warranted good economic performance of the project;
c. Financing through central government (SCHIG/GWP) allowed use of cheap financing conditions because of the AAA credit rating of federal government;
d. The number of neighborhood conflicts was small due to the compact size of the project;
e. Construction cost was low due to favorable (although unintended) timing of the project, with works starting at the trough of the business cycle;
f. Construction risk was low because the project contained neither tunnels nor complicated bridges.
References Bastin, J., (2003) Public-Private Partnerships: A Review of International
and Austrian Experience, in: Studiengesellschaft für Wirtschaft und Recht, "Public Private Partnership", Wirtschaftsuniversität Wien, Vienna .
Brenner, W., (2009) PPP und Schiene, in: Privatisierung der Verkehrsinfrastruktur. Erfahrungen mit Public Private Partnership (PPP) in Österreich und Europa. Tagungsband, Kammer für Arbeiter und Angestellte für Wien, Wien.
Bundesministerium für Verkehr, Innovation und Technologie, (2008), Ergebnisbericht über die PPP-Projekte der Bundesministerien sowie der ausgegliederten Bundesgesellschaften, Wien
McQuaid, Ronald W., and Scherrer, Walter, (2010) Changing reasons for public private partnerships, in: Public Money and Management, 30(1), 27-39
Puwein, W. et al., (2004) Modelle der “Public Private Partnership” im Lichte der theoretischen Diskussion und der empirischen Erfahrungen, Österreichisches Institut für Wirtschaftsforschung, Wien, Dezember 2004.
233 Puwein, W., M. Weingärtler, (2010) Public Private Partnerships in
Österreich. Aktuelle Bestandsanalyse und Trends, in: Monatsberichte des Österreichischen Insituts für Wirtschaftsforschung, 11/2010, 899ff.
Schaffhauser-Linzatti, M., (2003) Risk management in an Austrian standardized public-private partnership model, in: Akintoye, A. (ed), Public private partnerships, Blackwell: Oxford, 245ff.
Schieneninfrastruktur-Dienstleistungsgesellschaft mbH, website, download 10 February 2013, http://www.schig.com/ueber-die-schig-mbh/aufgaben-und-rechtliche-grundlagen-chronologie/
Schuster, G., (2006) PPP – Erfahrungen im Schienenbereich, September 2006, www2.iv-eventnet.at/upload/doc/726/Panel_A_Schuster
234
Central Public Transport depot of the city of Pilsen
Czech Republic Petr Witz
Charles University in Prague Faculty of Social Sciences
235
Project Overview The Central Public Transport Depot of the City of Pilsen Project Profile, Czech Republic Project Type: Brownfield Greenfield Both Contract duration: 29 Years Budget: EUR 472M (12bn Czech Crowns)
The amount includes the cost of building the new depot (about 1,6 bn crowns/ EUR 63M) and service costs (the rest).
Project Time Line Conception: 2011; Tender: 2011; Financial Close: 2012
Figure 1: Design of the Central Public Transport Depot of the City of Pilsen
234
Central Public Transport depot of the city of Pilsen
Czech Republic Petr Witz
Charles University in Prague Faculty of Social Sciences
235
Project Overview The Central Public Transport Depot of the City of Pilsen Project Profile, Czech Republic Project Type: Brownfield Greenfield Both Contract duration: 29 Years Budget: EUR 472M (12bn Czech Crowns)
The amount includes the cost of building the new depot (about 1,6 bn crowns/ EUR 63M) and service costs (the rest).
Project Time Line Conception: 2011; Tender: 2011; Financial Close: 2012
Figure 1: Design of the Central Public Transport Depot of the City of Pilsen
236
1 Introduction The Pilsen public transport depot is the largest PPP project in the Czech Republic to date and together with multi-storey-car parks in three Czech cities it is one of only a few examples of PPP in the country. It involves construction of a new facility, its maintenance and the provision of services (maintenance and repair of public transport vehicles) for 29 years.
The old facilities spread around the city were found to be obsolete back in 1985. (Hospodářské noviny, 2012) Since then there has been a clear demand for some kind of solution for the aging public transport service infrastructure, but the city of Pilsen did not launch the procurement process until 2011.
As a result of the contract a former part of the Pilsen City Transport Company was purchased by the contractor and about 240 of staff transferred to the private provider. (Kincl, 2012)
Skoda Transportation – the main constituent of the SPV - provided the site for the new depot, which was considered one of the main advantages of the successful bidder. Nevertheless, the project has had to face major opposition from various actors including the Ministry of Finance, trade unions and the leading opposition party in Pilsen City Council. The Ministry scrutinized the project and identified several potentially serious risks for the city resulting from the deal. The Ministry warned the City Council in its report. The minister himself described the deal as a ‘robbery’ that puts the future solvency of the city in serious risk (Miroslav, 2012). Nevertheless, the unusual coalition of the two main rivals on the Czech political scene (ODS civic democrats and CSSD social democrats) saw the project through the council vote that lead to the signing of the contract in May 2012.
As of 1 January 2013 the maintenance and repair services for trams, trolley buses and buses in Pilsen were handed over to the winning consortium. Until the new depot, now under construction, is finished, the SPV will use the current facilities, which it leases from the city.
Efficiency and effectiveness of the PPP solution remains contested as Transparency International asked the Office for the Protection of Competition to launch a full investigation of the whole procurement process and contract (Transparency International, 2012).
The project creates a natural monopoly as it will be the only depot for the city of Pilsen. It is not bundled with other activities and the old facilities are still to be considered for redevelopment. With respect to innovation, this is
237 rather limited, as the objective of the project is to deliver better services due to economies of scale.
2 The Contracting Authority (Public Party) Pilsen City Transport Company (backed by the City of Pilsen – the exclusive owner) is the contracting authority. Central government was involved only through the Ministry of Finance to assess the contract.
The project was procured in a so called “above the limit” regime according to the public procurement law 137/2006. As demanded by §156 of the aforementioned law (this article is no longer in force) the project documentation was submitted to the Ministry of Finance for assessment. Nevertheless, the results of this assessment were not binding for the city of Pilsen and its transport company – the contracting authority. In the absence of a central PPP unit, which was effectively dissolved in the previous period, the contracting authority had to rely heavily on private consultants (GrantThornton). (Interview I, 2013)
3 The Concessionaire (Private Party) The concession for the “Central Public Transport Depot” was awarded to MHD Servis Plzeň. This consortium is composed of the following members: Skoda City Service Ltd., the service provider for buses and trolley buses at the depot; CIAS Holding, the depot constructor; Bammer Trade, provider of cleaning services for all vehicles as well as light and heavy weight maintenance and repairs of buses and trolley buses; Skoda Transportation, provider of light and heavy weight maintenance and repairs of trams; Skoda Electric, provider of spare parts for trolley buses (Contract, 2012).
4 Users The concession for the “Central Public Transport Depot” has a unique industrial public user: Pilsen City Transport Company, which is owned by the City Council of Pilsen. The depot is to serve the Pilsen City Transport Company in the first place. However, spare capacity will be available for other transport providers in the region if they decide to use it.
5 Key Purpose for PPP Model Selection Value for money and substantial savings claimed to be almost 2 bn Czech Crowns (about EUR 790M) in total over the contract duration were the main
236
1 Introduction The Pilsen public transport depot is the largest PPP project in the Czech Republic to date and together with multi-storey-car parks in three Czech cities it is one of only a few examples of PPP in the country. It involves construction of a new facility, its maintenance and the provision of services (maintenance and repair of public transport vehicles) for 29 years.
The old facilities spread around the city were found to be obsolete back in 1985. (Hospodářské noviny, 2012) Since then there has been a clear demand for some kind of solution for the aging public transport service infrastructure, but the city of Pilsen did not launch the procurement process until 2011.
As a result of the contract a former part of the Pilsen City Transport Company was purchased by the contractor and about 240 of staff transferred to the private provider. (Kincl, 2012)
Skoda Transportation – the main constituent of the SPV - provided the site for the new depot, which was considered one of the main advantages of the successful bidder. Nevertheless, the project has had to face major opposition from various actors including the Ministry of Finance, trade unions and the leading opposition party in Pilsen City Council. The Ministry scrutinized the project and identified several potentially serious risks for the city resulting from the deal. The Ministry warned the City Council in its report. The minister himself described the deal as a ‘robbery’ that puts the future solvency of the city in serious risk (Miroslav, 2012). Nevertheless, the unusual coalition of the two main rivals on the Czech political scene (ODS civic democrats and CSSD social democrats) saw the project through the council vote that lead to the signing of the contract in May 2012.
As of 1 January 2013 the maintenance and repair services for trams, trolley buses and buses in Pilsen were handed over to the winning consortium. Until the new depot, now under construction, is finished, the SPV will use the current facilities, which it leases from the city.
Efficiency and effectiveness of the PPP solution remains contested as Transparency International asked the Office for the Protection of Competition to launch a full investigation of the whole procurement process and contract (Transparency International, 2012).
The project creates a natural monopoly as it will be the only depot for the city of Pilsen. It is not bundled with other activities and the old facilities are still to be considered for redevelopment. With respect to innovation, this is
237 rather limited, as the objective of the project is to deliver better services due to economies of scale.
2 The Contracting Authority (Public Party) Pilsen City Transport Company (backed by the City of Pilsen – the exclusive owner) is the contracting authority. Central government was involved only through the Ministry of Finance to assess the contract.
The project was procured in a so called “above the limit” regime according to the public procurement law 137/2006. As demanded by §156 of the aforementioned law (this article is no longer in force) the project documentation was submitted to the Ministry of Finance for assessment. Nevertheless, the results of this assessment were not binding for the city of Pilsen and its transport company – the contracting authority. In the absence of a central PPP unit, which was effectively dissolved in the previous period, the contracting authority had to rely heavily on private consultants (GrantThornton). (Interview I, 2013)
3 The Concessionaire (Private Party) The concession for the “Central Public Transport Depot” was awarded to MHD Servis Plzeň. This consortium is composed of the following members: Skoda City Service Ltd., the service provider for buses and trolley buses at the depot; CIAS Holding, the depot constructor; Bammer Trade, provider of cleaning services for all vehicles as well as light and heavy weight maintenance and repairs of buses and trolley buses; Skoda Transportation, provider of light and heavy weight maintenance and repairs of trams; Skoda Electric, provider of spare parts for trolley buses (Contract, 2012).
4 Users The concession for the “Central Public Transport Depot” has a unique industrial public user: Pilsen City Transport Company, which is owned by the City Council of Pilsen. The depot is to serve the Pilsen City Transport Company in the first place. However, spare capacity will be available for other transport providers in the region if they decide to use it.
5 Key Purpose for PPP Model Selection Value for money and substantial savings claimed to be almost 2 bn Czech Crowns (about EUR 790M) in total over the contract duration were the main
238 reasons according to proponents of the PPP solution. The contractor promised to provide the services 10 per cent more cheaply than the public sector alternative. (Bernard, 2012) However, critics object saying the full range of options was not considered, and that previous costs under public sector provision had never been properly established. (Zikl, 2012) (Interview I, 2013). At the same time, the calculation on which the expected savings are based has been contested with respect to the discounting index used and the fact that no adequate benchmark was provided. (Zikl, 2012)
6 Project Timing The existing facilities have been in need of repair and re-construction since the 1980s. The situation was an obstacle to the viable and efficient maintenance and stabling of the Pilsen City Transport Company vehicles.
7 Project Locality and Market Geography The new Depot is located in the City of Pilsen. Pilsen has a reputation and long tradition in manufacturing and industrial machinery with a special focus on transport machinery (locomotives, trams etc.). All Skoda subsidiaries are located in the city together with other associated manufacturers.
8 Procurement & Contractual Structure
Tendering The contract was assigned following a “restricted call for tender”. This procedure was chosen in accordance with the public procurement law (137/2006). Four (4) consortia responded to the Restricted Call, of which two (2) were dismissed as not complying with the basic qualification requirements. Of the two remaining, one (Metrostav) pulled out later, unable to compete with the consortium lead by Skoda City Services.
The contract was awarded 10 months after the initial Call for an Expression of Interest.
Contract Structure The concession concerns the design, finance, construction, operation and maintenance and, finally, the transfer of ownership of the “Central Public Transport Depot” for the Pilsen Transport Company on behalf of the City Council of Pilsen.
239 The concessionaire is immediately assigned the depot operations
(maintenance and repair of transport vehicles – buses, trolley buses and trams), which are carried out in the old depots rented from Pilsen Transport Company.
The Concessionaire is reimbursed through a structure of availability fees. More specifically, the total monthly payment consists of an infrastructure purchase advance, an availability fee (fixed part), an availability fee (variable part) and a fee to cover additional expenses (such as repairs after accidents and other costs associated with incidents or emergencies).
According to the contract and the original offer, the infrastructure purchase advance fee amounts to 8,196,079 Crowns (approx. EUR 323,000) pre-tax to be paid every month between the 37th and 49th month. The fixed part of the monthly availability payment is 11,765,000 Crowns (approx. EUR 463,000) pre-tax. The variable part depends on the actual amount and quality of work and is calculated on the basis of the so-called “statistical kilometers” of the individual vehicles. In case of repairs after accidents, a flat rate of 1000 Crowns (approx. EUR 36 ) per hour per employee is charged. (Contract, 2012)
On the whole, the city of Pilsen is expected to pay about 240 M Czech Crowns (approx. EUR 9,27 M ) a year to the contractor. (Miroslav, 2012) At the end of the contract, the new depot will be transferred to the Pilsen Transport Company.
Both parties have the right to terminate the contract. The termination clauses to be activated by the contracting authority involve: voluntary decision to terminate the contract without giving reasons, private contractor’s failure to fulfill responsibilities under the contract, repeated failure to fulfill responsibilities under the contract, corruption and dishonesty. The termination clauses activated by the private contractor involve: contracting authority’s failure to fulfill responsibilities under the contract. There are also clauses for termination caused by force majeure events. In all of the cases mentioned above (with the exception of private partner default, corruption and dishonesty before the transfer of ownership) the private contractor is entitled to compensation, which is calculated using a complex formula to reflect the market value of the contract (Contract, 2012).
Risk Allocation Risk is allocated as depicted in figure 2.
Performance
The problem with judging the project’s overall success or failure is that it is difficult to compare the PPP with any alternative. PPP in this case has been
238 reasons according to proponents of the PPP solution. The contractor promised to provide the services 10 per cent more cheaply than the public sector alternative. (Bernard, 2012) However, critics object saying the full range of options was not considered, and that previous costs under public sector provision had never been properly established. (Zikl, 2012) (Interview I, 2013). At the same time, the calculation on which the expected savings are based has been contested with respect to the discounting index used and the fact that no adequate benchmark was provided. (Zikl, 2012)
6 Project Timing The existing facilities have been in need of repair and re-construction since the 1980s. The situation was an obstacle to the viable and efficient maintenance and stabling of the Pilsen City Transport Company vehicles.
7 Project Locality and Market Geography The new Depot is located in the City of Pilsen. Pilsen has a reputation and long tradition in manufacturing and industrial machinery with a special focus on transport machinery (locomotives, trams etc.). All Skoda subsidiaries are located in the city together with other associated manufacturers.
8 Procurement & Contractual Structure
Tendering The contract was assigned following a “restricted call for tender”. This procedure was chosen in accordance with the public procurement law (137/2006). Four (4) consortia responded to the Restricted Call, of which two (2) were dismissed as not complying with the basic qualification requirements. Of the two remaining, one (Metrostav) pulled out later, unable to compete with the consortium lead by Skoda City Services.
The contract was awarded 10 months after the initial Call for an Expression of Interest.
Contract Structure The concession concerns the design, finance, construction, operation and maintenance and, finally, the transfer of ownership of the “Central Public Transport Depot” for the Pilsen Transport Company on behalf of the City Council of Pilsen.
239 The concessionaire is immediately assigned the depot operations
(maintenance and repair of transport vehicles – buses, trolley buses and trams), which are carried out in the old depots rented from Pilsen Transport Company.
The Concessionaire is reimbursed through a structure of availability fees. More specifically, the total monthly payment consists of an infrastructure purchase advance, an availability fee (fixed part), an availability fee (variable part) and a fee to cover additional expenses (such as repairs after accidents and other costs associated with incidents or emergencies).
According to the contract and the original offer, the infrastructure purchase advance fee amounts to 8,196,079 Crowns (approx. EUR 323,000) pre-tax to be paid every month between the 37th and 49th month. The fixed part of the monthly availability payment is 11,765,000 Crowns (approx. EUR 463,000) pre-tax. The variable part depends on the actual amount and quality of work and is calculated on the basis of the so-called “statistical kilometers” of the individual vehicles. In case of repairs after accidents, a flat rate of 1000 Crowns (approx. EUR 36 ) per hour per employee is charged. (Contract, 2012)
On the whole, the city of Pilsen is expected to pay about 240 M Czech Crowns (approx. EUR 9,27 M ) a year to the contractor. (Miroslav, 2012) At the end of the contract, the new depot will be transferred to the Pilsen Transport Company.
Both parties have the right to terminate the contract. The termination clauses to be activated by the contracting authority involve: voluntary decision to terminate the contract without giving reasons, private contractor’s failure to fulfill responsibilities under the contract, repeated failure to fulfill responsibilities under the contract, corruption and dishonesty. The termination clauses activated by the private contractor involve: contracting authority’s failure to fulfill responsibilities under the contract. There are also clauses for termination caused by force majeure events. In all of the cases mentioned above (with the exception of private partner default, corruption and dishonesty before the transfer of ownership) the private contractor is entitled to compensation, which is calculated using a complex formula to reflect the market value of the contract (Contract, 2012).
Risk Allocation Risk is allocated as depicted in figure 2.
Performance
The problem with judging the project’s overall success or failure is that it is difficult to compare the PPP with any alternative. PPP in this case has been
240 presented as the only possible solution by the contracting authority. We do not have much data on the previous performance during the period of direct public provision of the services. Nor do we know how much would the depot building would have cost if procured in the traditional way as the structure is quite unique.
Figure 3: Risk allocation There are clear indicators set out in the contract to monitor the quality of
service (especially in article No.18). Given this fact, the contract (Annex No. 10) specifies the penalties associated with all kinds of failures by the private contractor in meeting the demands of the contract.
The basic responsibility for the contractor is to keep the vehicles serviceable as defined by the law and respective clauses of the contract. The contractor has to comply with the requirements set by the quality and environmental management system certificates ISO 9001 and ISO 140001. There is also a requirement for a minimum percentage of available operational vehicles Serviceability of various types of vehicles is defined in the contract. There are penalty payments in the contract in case of the contractor’s failure to meet these limits.
Daily reports on the serviceability of vehicles have to be filled in using a template provided in the annex of the contract. Apart from that, the contractor is obliged to keep a so called record of contract fulfillment for each vehicle which should be accessible to the representatives of the city of Pilsen and the public transport company every day.
Contractor’s remuneration (the variable part) depends on the number of kilometers driven by the vehicles in a month. Each kilometer driven by a particular vehicle is priced. Number of kilometers driven is one of the main indicators to be recorded by the contractor and sent to the contracting authority on a daily basis according to article 18.1.8 of the contract (Contract, 2012).
Risks ⇐ ⇒ Design & construction Maintenance Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
241 There are several types of penalties associated with contractor’s failure to
meet the criteria set by the contract. Perhaps the most important part deals with penalties for not meeting the limits for the percentage of vehicles available for service. Then there are penalties for breaching general contractual arrangements and commitments, for negligence or delays connected with maintenance and cleaning services as well as with submission of records to the public authority, penalties for failure to honour contractor’s responsibilities and commitments related to buildings, facilities and equipment, and many others.
Thus, the main success the project can achieve is if it does not cause serious budgetary problems to the city of Pilsen, as envisaged by the Ministry of Finance.
Acknowledgments This paper was enabled by and written in the framework of the Specific
university research project SVV 2013 267 501.
References Bernard, Josef, CEO of Škoda Transportation in an interview published by
Asociace PPP as ‘Na depu ve Škodovce Plzeň neprodělá’ on the 25 April 2012. Available on: http://www.asociaceppp.cz/?action=ventire&n_id=1372&page=0&nonotify=0 (retrieved 5 March 2013).
Contract for the construction of the new public transport depot in the city of Pilsen and provision of associated maintenance repair and stabling services for the Pilsen public transport vehicles, 23 May 2012, Pilsen. Available on: https://www.softender.cz/pmdp/em4?service=orgProfile/PMDP/577120/2011/VZ/24 (retrieved on 5 January 2013).
Hospodářské noviny, Plzeň přiklepla zakázku století. O vozy MHD se bude 30 let starat Škoda Transportation, 26 April 2012, Available on: http://byznys.ihned.cz/c1-55619780-plzen-priklepla-zakazku-stoleti-o-vozy-mhd-se-bude-30-let-starat-skoda-transportation (retrieved 4 March 2013.).
Interview I with a representative of the PPP Team of the Czech Ministry of Finance, 14 January 2013.
Kincl, Jan, consultant at Grant Thornton in a presentation on the Pilsen PPP project at the conference Veřejné zakázky a PPP projekty, June 2012.
Petr, Miroslav 2012. Plzeň a Škodovka chystají PPP projekt za 12 miliard. Zlodějina, říká ministr Kalousek, Available on:
240 presented as the only possible solution by the contracting authority. We do not have much data on the previous performance during the period of direct public provision of the services. Nor do we know how much would the depot building would have cost if procured in the traditional way as the structure is quite unique.
Figure 3: Risk allocation There are clear indicators set out in the contract to monitor the quality of
service (especially in article No.18). Given this fact, the contract (Annex No. 10) specifies the penalties associated with all kinds of failures by the private contractor in meeting the demands of the contract.
The basic responsibility for the contractor is to keep the vehicles serviceable as defined by the law and respective clauses of the contract. The contractor has to comply with the requirements set by the quality and environmental management system certificates ISO 9001 and ISO 140001. There is also a requirement for a minimum percentage of available operational vehicles Serviceability of various types of vehicles is defined in the contract. There are penalty payments in the contract in case of the contractor’s failure to meet these limits.
Daily reports on the serviceability of vehicles have to be filled in using a template provided in the annex of the contract. Apart from that, the contractor is obliged to keep a so called record of contract fulfillment for each vehicle which should be accessible to the representatives of the city of Pilsen and the public transport company every day.
Contractor’s remuneration (the variable part) depends on the number of kilometers driven by the vehicles in a month. Each kilometer driven by a particular vehicle is priced. Number of kilometers driven is one of the main indicators to be recorded by the contractor and sent to the contracting authority on a daily basis according to article 18.1.8 of the contract (Contract, 2012).
Risks ⇐ ⇒ Design & construction Maintenance Commercial/ revenue Financial Regulatory Force majeure
Tota
lly P
rivat
e
Totally Public
241 There are several types of penalties associated with contractor’s failure to
meet the criteria set by the contract. Perhaps the most important part deals with penalties for not meeting the limits for the percentage of vehicles available for service. Then there are penalties for breaching general contractual arrangements and commitments, for negligence or delays connected with maintenance and cleaning services as well as with submission of records to the public authority, penalties for failure to honour contractor’s responsibilities and commitments related to buildings, facilities and equipment, and many others.
Thus, the main success the project can achieve is if it does not cause serious budgetary problems to the city of Pilsen, as envisaged by the Ministry of Finance.
Acknowledgments This paper was enabled by and written in the framework of the Specific
university research project SVV 2013 267 501.
References Bernard, Josef, CEO of Škoda Transportation in an interview published by
Asociace PPP as ‘Na depu ve Škodovce Plzeň neprodělá’ on the 25 April 2012. Available on: http://www.asociaceppp.cz/?action=ventire&n_id=1372&page=0&nonotify=0 (retrieved 5 March 2013).
Contract for the construction of the new public transport depot in the city of Pilsen and provision of associated maintenance repair and stabling services for the Pilsen public transport vehicles, 23 May 2012, Pilsen. Available on: https://www.softender.cz/pmdp/em4?service=orgProfile/PMDP/577120/2011/VZ/24 (retrieved on 5 January 2013).
Hospodářské noviny, Plzeň přiklepla zakázku století. O vozy MHD se bude 30 let starat Škoda Transportation, 26 April 2012, Available on: http://byznys.ihned.cz/c1-55619780-plzen-priklepla-zakazku-stoleti-o-vozy-mhd-se-bude-30-let-starat-skoda-transportation (retrieved 4 March 2013.).
Interview I with a representative of the PPP Team of the Czech Ministry of Finance, 14 January 2013.
Kincl, Jan, consultant at Grant Thornton in a presentation on the Pilsen PPP project at the conference Veřejné zakázky a PPP projekty, June 2012.
Petr, Miroslav 2012. Plzeň a Škodovka chystají PPP projekt za 12 miliard. Zlodějina, říká ministr Kalousek, Available on:
242 http://byznys.ihned.cz/zpravodajstvi-cesko/c1-55344530-plzen-a-skodovka-chystaji-ppp-projekt-za-12-miliard-zlodejina-rika-ministr-kalousek (retrieved 4 March 2013.).
Public procurement law Act No. 137/2006, Legislation of the Czech Republic, Available on: http://www.czechlegislation.com/en/137-2006-sb (retrieved 5 January 2013).
Transparency International, a complaint for investigation of the Pilsen depot PPP project to the Office for the Protection of Competition of the 13 July 2013. Available on: http://www.transparency.cz/doc/aktuality/2012-07-13-Podnet_UOHS_Depo_Plzen.pdf (retrieved 6 January 2013).
Zikl, Jan, expert of the Ministry of Finance in the article by idnes.cz published on the 14 March 2012. Available on: http://plzen.idnes.cz/expert-projekt-depa-je-nevyhodny-mesto-nema-moznost-menit-podminky-11m-/plzen-zpravy.aspx?c=A120313_175545_plzen-zpravy_pp.
243
COST Action TU1001 Public Private Partnerships in Transport: Trends & Theory P3T3
Management Committee Members
Athena Roumboutsos, Akintola Akintoye, Wilhelm Alfen, Sten Bonke, Guido Capaldo, Nicola Costantino, Geert Dewulf, Christos Efstathiades, Thierry Gouin, Louis Gunnigan, Claude Jeanrenaud, Maria del Carmen Juan Martinez, Veiko Lember, Pekka Leviäkangas, Andreas Lienhard, Champika Lasanthi Liyanage, Agnieszka Lukasiewicz, Rosario Macário, Goran Mladenovic, James Odeck, Lauri Ojala, Stefan Olander, Athanasios Pallis, Eva Perez Garcia, Ole Helby Petersen, Martin Pípa, Andrej Rus, Stéphane Saussier, Walter Scherrer, Vikenti Spassov, Kristian Szekeres, Alenka Temeljotov Salaj, Olav Torp, Raymond Turner, Thierry Vanelslander, Koen Verhoest, Hans Voordijk, Petr Witz, Björn Wündsch, Robert Ågren, Ali Dedej, Colin Duffield, Michael Garvin, Andreas Kopp, Mohan Maheswaran Kumaraswamy, Vera Shiko, Konstantinos Anagnostopoulos, Demos Angelides, Andrej Baricic, Nunzia Carbonara, Sheila Farrell, Brendan Finn, Marten Oeser, Fernando Olmos Maldonado, Jernej Pintar, Joana Ribeiro and José Manuel Vassallo Magro.
Working Group Members Geraldine Bonnet, Christopher Boles, Julieta Matos Castono, Gilles Chomat, Charalampos Christodoulou, Segio Domingues, Maria Kamargianni, Nikolaos Nikolaidis, Aristeidis Pantelias, Roberta Pellegrino, Marco Ponti, Francesco Ramella, Peter Raisbeck, Fabio Sciancalepore, Matija Simoncic, Nevena Vajdic, Emmanouil Sfakianakis, Martijn van den Hurk, ShouQing Wang.
242 http://byznys.ihned.cz/zpravodajstvi-cesko/c1-55344530-plzen-a-skodovka-chystaji-ppp-projekt-za-12-miliard-zlodejina-rika-ministr-kalousek (retrieved 4 March 2013.).
Public procurement law Act No. 137/2006, Legislation of the Czech Republic, Available on: http://www.czechlegislation.com/en/137-2006-sb (retrieved 5 January 2013).
Transparency International, a complaint for investigation of the Pilsen depot PPP project to the Office for the Protection of Competition of the 13 July 2013. Available on: http://www.transparency.cz/doc/aktuality/2012-07-13-Podnet_UOHS_Depo_Plzen.pdf (retrieved 6 January 2013).
Zikl, Jan, expert of the Ministry of Finance in the article by idnes.cz published on the 14 March 2012. Available on: http://plzen.idnes.cz/expert-projekt-depa-je-nevyhodny-mesto-nema-moznost-menit-podminky-11m-/plzen-zpravy.aspx?c=A120313_175545_plzen-zpravy_pp.
243
COST Action TU1001 Public Private Partnerships in Transport: Trends & Theory P3T3
Management Committee Members
Athena Roumboutsos, Akintola Akintoye, Wilhelm Alfen, Sten Bonke, Guido Capaldo, Nicola Costantino, Geert Dewulf, Christos Efstathiades, Thierry Gouin, Louis Gunnigan, Claude Jeanrenaud, Maria del Carmen Juan Martinez, Veiko Lember, Pekka Leviäkangas, Andreas Lienhard, Champika Lasanthi Liyanage, Agnieszka Lukasiewicz, Rosario Macário, Goran Mladenovic, James Odeck, Lauri Ojala, Stefan Olander, Athanasios Pallis, Eva Perez Garcia, Ole Helby Petersen, Martin Pípa, Andrej Rus, Stéphane Saussier, Walter Scherrer, Vikenti Spassov, Kristian Szekeres, Alenka Temeljotov Salaj, Olav Torp, Raymond Turner, Thierry Vanelslander, Koen Verhoest, Hans Voordijk, Petr Witz, Björn Wündsch, Robert Ågren, Ali Dedej, Colin Duffield, Michael Garvin, Andreas Kopp, Mohan Maheswaran Kumaraswamy, Vera Shiko, Konstantinos Anagnostopoulos, Demos Angelides, Andrej Baricic, Nunzia Carbonara, Sheila Farrell, Brendan Finn, Marten Oeser, Fernando Olmos Maldonado, Jernej Pintar, Joana Ribeiro and José Manuel Vassallo Magro.
Working Group Members Geraldine Bonnet, Christopher Boles, Julieta Matos Castono, Gilles Chomat, Charalampos Christodoulou, Segio Domingues, Maria Kamargianni, Nikolaos Nikolaidis, Aristeidis Pantelias, Roberta Pellegrino, Marco Ponti, Francesco Ramella, Peter Raisbeck, Fabio Sciancalepore, Matija Simoncic, Nevena Vajdic, Emmanouil Sfakianakis, Martijn van den Hurk, ShouQing Wang.
244
COST Action TU1001 Public Private Partnerships in Transport: Trends & Theory P3T3 2013 Discussion Papers Part II Case Studies Edited by A. Roumboutsos, S. Farrell, C. L. Liyanage and Rosário Macário This publication is supported by COST. Cover by Maria Stafida Original Cover Rail Photos courtesy of Niklas Alm Year of publication: 2013 ISBN 978-88-97781-61-5 © 2013, for the papers by Authors © 2013, for the editing by A.Roumboutsos, S. Farrell, C. L.Liyanage and R. Macário © COST Office, 2013 No permission to reproduce or utilise the contents of this book by any means is necessary, other than in the case of images, diagrams or other material from other copyright holders. In such cases, permission of the copyright holders is required. This book may be cited as: COST Action number- title of the publication. Legal Notice by COST Office Neither the COST Office nor any person acting on its behalf is responsible for the use, which might be made of the information contained in this publication. The COST Office is not responsible for the external websites referred to in this publication.