Gunther Beckstein, Bavarian Minister of the Interior, signed on Monday 30 April 2007 the first project of the long-awaited A-Model PPP programme

The A8 from Munich to Augsburg is an important stretch of motorway not only domestically but also as a major road in the trans-European network (TEN).  The upgrade to the highway, built 70-years ago,  is intended to prevent the predicted congestion and concomitant accidents on a motorway that will see car traffic increase by 20% and HGV by 64% by 2015 and already experiences a peak daily traffic count of 100,000 vehicles.

The winning consortium, Autobahnplus, is comprised of the following:

• Fluor
• Royal BAM
• Volker Wessels
• EGIS Projects
• BERGER BAU

The losing consortia included:

• Bilfinger Berger
• Hochtief and Vinci with Deutsche Bank as financial adviser
• KONFAM - a consortium of Strabag, Bickhardt Bau, Max Bogl, Kirchner with HSH Nordbank as financial adviser

Autobahnplus will be required to upgrade 37km of the 52km motorway by 31 December 2010 through expanding the current two lanes into three in both directions. It will be responsible for the operation, maintenance and tolling of the entire 52km. 

Autobahnplus will receive a federal subsidy as well as the typical tool of PPP road remuneration, toll revenues.  These are calculated and collected electronically by Toll Collect, a consortium led by Deutsche Telekom and DaimlerChrysler.

As with projects in the rest of the A-Model programme, the federal subsidy is negotiable up to 50 per cent of construction costs while the toll applies only to HGVs.  The federal subsidy also represents payment for the light vehicles and passenger cars that may not be charged but that will make use of the improved and expanded road.  The official concession period began on 1 May 2007 and construction is scheduled to begin this week.

The Autobahndirektion Sudbayern employees that previously worked on this section will be redeployed to other sections.

The mandated lead arrangers were Depfa Bank and Grupo Sandtander.  Lovells and KPMG provided legal and financial advice to the sponsors.  Norton Rose provided extensive legal advice to the government.

Long-awaited PPP Progress

The A8 project is just one of five A-Model (Autobahnausbau or motorway extension) road projects being pursued.  The other projects, the first three of which are already in tender, include:

• A4 in Thuringia (border between federal states of Hesse and Thuringia- AS Gotha - the Horselberge bypass)
• A5 in Baden-Wurttemberg (Malsch - Offenburg)
• A1 in Lower Saxony (AK Bremer Kreuz - AD Buchholz)
• A1/A4 in the State of North Rhine-Westphalia

Wolfgang Tiefensee, Federal Minister for Transport, Building and Urban Development, referred to the start of the project as a 'positive signal for the PPP market'. Gunther Beckstein, Bavarian Minister of the Interior, after referring to the signing as an 'important step towards the upgrading of motorways in public private partnerships in Germany', called for the government to approve the development of the second section of the A8.

Positive Signal?

The A-Model scheme, specifically for the widening and extension of existing roads, follows on from the F-Model scheme which was structured for motorway tunnels, bridges and passes. 

The F-Model was beset by a series of problems; not only did the Hochmosel and Strelasund toll crossings fail but the Warnow Tunnel in Rostock, while opening in late 2003, achieved only 40 per cent of projected traffic flow.  Many planned F-Model projects never came to fruition. 

Although the A-Model is now described as a five project scheme, it originally included 12 with a total value of up to €4 billion; that this was cut to five with no indication of the future of the disappeared seven may have indicated to some that the A-Model would go the way of its precursor.

Moreover, Toll Collect in implementing a national satellite tolling system for trucks using the Autobahn in Germany suffered such problems that the government deferred its collection of toll monies.  Government revenue losses were estimated at €156 million a month and almost cancelled the contract with the consortium until the project became fully operational years late in early 2005. 

This is a worrying history as A-Model projects are to use Toll Collect for the collection of toll revenues.  In fact, the A-Model scheme as a whole was postponed in the wake of the Toll Collect experience.

Serious about PPP

However, these problems were occurring at a time when the PPP market in Germany was still in its infancy.  Despite the 300 plus planned or realised PPP projects since 2000 (with an investment volume of more than €7 billion) boasted by the government in its defence (PPP Project Study, PPP Taskforce/DIfU 2005), PPP in Germany was hampered by federalism (initiative was required on both state and regional level), by the fact that infrastructure investment shortages were not severe enough and apparently by a lack of political will. 

It was at the start of Angela Merkel's government in Autumn 2005 that federal ministers began to pay lip service to PPP by declaring their enthusiasm for it as the remaining viable solution to under-financed German sectors.  These pronouncements were made most notably by the Minister of Finance, Peer Steinbrück, who explained that, 'the coalition government is in no doubt of the important role that public private partnerships will play in the future and is committed to seeing PPP evolve further as a standardised asset class'.  Yet, federal movements had been made since 2001 only in the form of dialogues, working groups, announcements, papers, reports, symposiums and conferences.

Only in late 2004 the government finally established a PPP Task Force and the PPP Centre of Excellence.  In June 2005 the PPP Beschleunigungsgesetz (Acceleration Law) come into force and, most recently, April 2006 saw the appointment of a working group to consider the simplification of PPP law (changes to aspects of the tax system applicable to PPP, for example).  These changes have demonstrated that, at least to some extent, there is substance behind the government's apparent determination.

What's more, the concerns over the scaling down of the number of A-Model projects and the Toll Collect problems may be exaggerated.  After all, it is entirely plausible that the government is simply focusing on roads that are used most heavily; indeed, increased HGV traffic due to EU enlargement was an impetus to begin with the A8 project. 

Equally, the previous problems with Toll Collect seem to have been overcome.  Michael Juergen Werner, a senior partner in Brussels of Norton Rose who has been heavily involved with the A8 project for some years, when asked about the problematic history of Toll Collect, claims that 'all of those problems have been solved'.

Autobahnplus hesitations

While problems with Toll Collect may have been resolved over the past several years, the concessionaire in any A-Model project faces an additional risk regarding the system.  Unlike the method in the F-Model, Autobahnplus will not collect the toll charges it relies on directly and will not, in fact, even calculate them; this is all done by Toll Collect. 

Even if Toll Collect's troubled history is ignored, the fact that the entity calculating and collecting the money that forms part of the remuneration of construction costs and all of the operation and maintenance of the project is a separate, private consortium is not one that would sit well with any concessionaire. 

Christian Knutel, who led the Lovells team in advising Autobahnplus, explains that: 'This was the one basic concern, there is no direct possibility to check these numbers, 

'You have to rely to a certain extent on what they do and you have to rely on the interest of the German government to make sure that the actual counts are correct and I think that was something that in the beginning was not easy to overcome [for Autobahnplus]', he adds.

Another less immediate concern was the risk associated with EU control over toll pricing scale.  The Eurovignette Directive 2006/38/EC, which comes into effect from 30 June 2008, creates a new harmonised toll system and toll pricing scale, including a system of discounts. 

Although the directive claims that 'discounts or reductions in tolls for frequent users may lead to actual savings in administrative costs for the infrastructure operator', the risk for Autobahnplus is the possibility that with mutable EU toll regulation there may be a scenario where the majority of vehicles qualify for the discounts and reductions. 

Conclusion

It is not difficult to see why so much lip service has been paid to PPP in the past few years in Germany; the 'financing gap' in the German motorway sector might not be as well known as the German budget deficit (Germany has breached the EU budget deficit limits every year since 2002) but the combination cries out for non-traditional financing to fill that gap. 

Now that that professed enthusiasm has been demonstrated through legal and regulatory changes, the PPP market in Germany does seem to have a much more auspicious future.

The prospects for the A8 project and for the A-Model scheme as a whole seem less obviously positive.  Although the problems around Toll Collect appear to have been resolved, it is difficult to see why any of the A-Model projects will necessarily escape the disappointment of the Warnow Tunnel. 

This is all the more worrying for the German government considering that the federal subsidy under the A-Model comes to 50 per cent compared to 20 per cent in the old F-Model.  If revenues from HGV charges are disappointing, either because of an overestimated traffic forecast or unfavourable EU toll pricing scales, one wonders whether the German public's fear of the toll charge creeping its way into their passenger cars is well-founded.

The project at a glance