Keeping Infrastructure Modern and Maintained: A Look at the French Concession Model
Throughout history, governments have relied on various forms of public-private partnerships (or PPPs) to provide citizens with public services and infrastructure. As François Bergere, Program Manager of the Public Private Infrastructure Advisory Facility (PPIAF) at the World Bank, observes, “Government does not function in isolation from the world of business; it needs companies to carry out its public-service missions.”
The French government has used varying forms of concession agreements, a type of PPPs, over the past few centuries to provide infrastructure. Other countries have since adopted the French concession model for their own public works. While people typically think of motorways and tolls when they hear ‘concessions,’ many other types of infrastructure have also benefited from this model.
PPPs in France Public-private partnerships are essentially contractual agreements in which a government authority calls on a private actor to design, finance, build and maintain infrastructure that fulfills a public service need. These types of agreements emerged in 17th century France for street paving, trash collection and building roads. And when the Suez Canal was built and operated using the French concession model in the 1860s, other countries recognized that such partnerships were the key to developing their own infrastructure networks.
In 2004 and 2018, reforms were made to French law regarding public procurement terminology and procedures and two main types of public-partnerships were outlined: partnership contracts and concessions. The key difference between the two is who repays private actors for their investments.
Under partnership contracts, similar to private finance initiatives, a private company fronts the initial costs of a project and the government then pays them annual fees to ‘lease’ the project to the public. The government must also compensate the company for maintenance and upkeep costs. Partnership contracts in France are highly regulated and there are substantial qualifications and evaluations required for a project to be validated.
In concession agreements, the public authority grants a private company (concessionaire) or consortium of companies the right to finance, build, operate and maintain a project (typically major infrastructure) used for a public service, for a set period of time. These are long-term agreements at the end of which the State recovers its assets. They can be made by a government official if the contract relates to a public service, the costs and operational risks are assumed by the concessionaire and the private actor is financially compensated by the end-users (citizens). The government may also pay the company subsidies so citizens pay less for services.
The concession agreement advantage
Public-sector motives for pursuing concession agreements are numerous. Financially speaking, providing high quality public service infrastructures requires hefty initial investments as well as ongoing costs for upkeep, maintenance and replacement – money the government would rather spend elsewhere. Companies also assume the risks of implementing and operating these services and are often better equipped than government agencies to identify and mitigate the effects of potential risks.
Private actors are profit-driven and therefore have a higher motivation and capacity for innovating, adhering to strict budgets and timetables and including sustainable development elements. This helps lower costs for the concessionaire and thus for citizens. Plus, concession agreements allow governments to select and work with companies that have the expertise and technical know-how needed for each project.
Finally, with France’s shift towards government decentralization over the past 25 years, local authorities have been burdened with newfound responsibilities they are often ill-equipped to handle. Many public works projects, such as roads, that were previously administered by the central government, now fall on the shoulders of local officials. Concessionaires offer a solution for dealing with these new duties.
Motorways: Smooth Driving One of the most concrete examples of how government officials and citizens in France have benefited from concession agreements is the extensive network of modern, well-kept motorways maintained and operated by private companies. A little over 9,000 km of France’s almost 12,000 km of motorways are operated by 19 different concessionaires. Leading this group is Vinci Autoroutes with 4,443 km operated by the company and its subsidiaries.
Investments made by concessionaires are paid back with money generated from tolls. However, full reimbursement can take a while because roughly 40% of the money paid for each toll goes to the government in the form of corporate and VAT taxes. Concessionaires are motivated to maintain and improve the roads they operate which leads to superior quality recognized worldwide: France’s road quality ranks 3rd in Europe and 7th in the world. Indeed, Bruno Le Maire, France’s Minister of the Economy, argues that private companies are “better able, better equipped” to provide this public good and that “the State is not intended to manage highways.” He also notes that because of these public-private partnerships, “We have one of the best motorway networks in the world.”
Building, maintenance and upkeep are needed to keep roads and drivers safe, but that comes with a cost. The European Association of Operators of Toll Road Infrastructures (ASECAP) notes, “The increasing need for investment to guarantee safety and security on our roads is jeopardized by the stranglehold of limitations on public budgets… and this makes private financing even more crucial. Once again, toll concessions are a proven efficient and sustainable mechanism that can afford such investments.” Keeping motorways well maintained and modernized is in the public’s best interest and the French concession model has proven to be an effective and efficient means for doing so.
Big Buildings, Big Costs The concession model has also been key for constructing and operating large buildings enjoyed by the public such as sporting facilities, event centers and airports. The Greater Paris Metropolis recently signed a 20-year concession contract with Bouygues Bâtiment Ile de France, Omnes and Récréa to design, build and run a sustainable aquatic center in Saint-Denis. The center will host the aquatic events of the Paris 2024 Olympic Games and will then be open for the public to enjoy. Similarly, the city of Reims signed a 25-year concession contract in 2018 with Eiffage Concessions for the Reims Events Centre.
Due to the major costs and complexities of constructing and running airports, regional government officials have selected the concession model to provide this public good. Airports in Lille, Toulon, Lyon and others have been financed, built and operated by a variety of companies. For large buildings used for public services that have significant costs and complex operations, French citizens and the government have benefited from the advantages that concession agreements offer.
Broadband Concessions: Connecting Rural Areas Many citizens of France may not realize that their ability to connect to the internet is also thanks to concessions. In 2013, the French government launched the France THD Plan (Très Haut Débit) to provide high-speed broadband internet access throughout the country by 2022. To this end, local authorities form public-private partnerships to create publicly-owned broadband network infrastructure (RIPs) in areas that are scarcely populated and have not attracted private investment.
Concessionaires bear the capacity demand risk and are responsible for the financing, construction, maintenance and operation of the RIP. The result has been an acceleration in deployment and increased connectivity. This is important for local authorities who wish to make their regions more competitive and attractive to businesses and individuals. While roads and buildings are more concrete examples of the concession model, internet connectivity is also a public service infrastructure that has benefited from the expertise and efficiency of concessionaires.
These applications of the French concession model demonstrate how such partnerships can be useful for providing public services. And while French citizens benefit from these public-private partnerships, their neighbors do too. With goods transported across France to neighboring countries every day, the rest of Europe also has concessionaires to thank for the quality and security of France’s roads.
This was posted in Bdaily's Members' News section by Jessica Mitchell .
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