The Éco-Taxe Poids Lourds project, which reached financial close last month, can claim at least four firsts in the French, or indeed the global, PPP market. It is the first PPP project for satellite-based toll collection; the first major French PPP awarded to a non-French bidder; the first French PPP to generate revenues for the state; and the first in the country where the courts intervened before contract signing.

Background and Structuring

The project’s origins lie in the Grenelle Environnement, a series of open fora launched by French President Nicolas Sarkozy in the summer of 2007 to discuss and decide on actions to promote sustainable development in France. A list of 20 such measures was published in October that year. As well as a commitment to extending the high-speed rail network and building light rail projects, the major outcome for infrastructure was the endorsement of an écotaxe on heavy lorries, to complement a tax regime that favoured low-polluting vehicles.

As well as collecting money to be spent on new infrastructure deemed environmentally friendly, the tax was also intended to encourage a modal shift towards low-polluting options, specifically rail freight and waterways (the €6 billion Canal Seine Nord project, designed to exploit the low costs of water-borne container transport, was also in planning at the time).

Given its pathfinder status, the project moved remarkably quickly from being floated as an idea in late 2007 to being tendered at the end of March 2009. In the meantime it had to be structured as an availability-based contrat de partenariat and approved by MAPPP, the then Ministry of the Economy, Finance and Employment’s PPP unit. Nationwide electronic tolling systems had been implemented in Austria in 2004 and the Czech Republic in 2007, but a PPP model had not been used until now.

Approval was finally given in 2009, but in the meantime interested parties had already begun circling – both developers and investors. As well as France’s Sanef and Spain’s Abertis, Autostrade per l’Italia saw potential to build on its record in launching the Telepass on its Italian roads in 1990 and delivering the Austrian open tolling system.

Prequalification applications went in in June 2009 and in August five teams were prequalified for competitive dialogue for the contract, which had an indicative value of €1.9 billion. They were:

• Autostrade per l'Italia
• Billoo Development
• France Telecom, CS Systèmes d'Information, ETDE (Bouygues subsidiary), Kapsch TrafficCom, FIDEPPP, SEIEF, DIF Infrastructure II and BNP Paribas (financial adviser)
• Sanef, Caisse des Dépôts et Consignations (CDC), Egis Projects, Atos Worldline, Siemens Project Ventures and HSBC (financial adviser)
• Vinci, Deutsche Telekom, Soc 29

Initial offers went in on 7 January 2010, but the Vinci consortium had withdrawn by then. Of the four remaining consortia, all proposed a satellite-based tolling system. Following dialogue, revised tender  documents went out on 12 July 2010 with a deadline of 29 September.

The financial crisis of 2008 had provoked the French government to set in place various measures to protect their ambitious PPP pipeline at the time, which included the €7.8 billion Tours-Bordeaux high-speed rail concession, the €6 billion Canal Seine Nord and the €3.4 billion Bretagne-Pays de la Loire high-speed rail project.

State bank the Caisse des Dépôts et Consignations set up an €8 billion fund to lend to projects and the French state launched a €10 billion loan guarantee scheme, under which the government would underwrite up to 80 per cent of loans on each project if needed. Alongside the state’s financial transaction adviser KPMG, Compagnie Benjamin de Rothschild was appointed to act as financial adviser to MAPPP on the guarantee, and Linklaters as legal adviser.

On 14 January 2011, the Ministry of Ecology, Sustainable Development, Transport and Housing informed Autostrade that they had won the tender, thus becoming the first non-French company to win a major PPP project – an achievement never since equalled, and which some were determined to stop.

Shortly afterwards, the second-placed Alvia consortium led by Sanef lodged an appeal against the ministry’s decision with the administrative court of Cergy-Pontoise. Their complaint was twofold: one, that there was a conflict of interest over the fact that both the state and Autostrade had previously employed a Swiss consultancy firm, Rapp Trans, also contracted to the state for this project; and that the identity of the winning bidder had changed in the course of procurement.

For although the final bid was submitted by Autostrade alone, it was a well-known fact by October 2010 that it was being joined by several other French firms, a fact confirmed by parent company Atlantia in its press release of 18 January. The Ecomouv consortium was made up at the time of Autostrade (70 per cent), Thales (11 per cent), SNCF (10 per cent), mobile network provider SFR (6 per cent) and Steria (3 per cent). On 8 March, the court announced it had upheld Alvia’s complaint against the ministry, and struck down the contract award.

Secretary of State for Transport Thierry Mariani expressed his dismay at the decision, which would delay implementation of the project and the resulting revenue stream, and within a week, Atlantia said it would appeal to the council of State. Thus both the state and the winning bidder set out to contest the decision. On Ecomouv’s side, this job fell to the team at legal advisers Willkie, Farr and Gallagher, who had replaced Baker & McKenzie as their adviser in June 2010 and who were to draft financial documentation and sub-contracts.

It was uncharted territory. As Thierry Laloum, public law partner at Willkie, recalls: “This is the first time we had a pre-contractual challenge in France on this type of project. We didn’t have relevant case law or practice of administrative courts regarding certain grounds of this challenge; so honestly the consortium didn’t know where they were standing.”

However, the outcome was not long in doubt. On 24 June, the Council of State rejected all Alvia’s complaints. It considered that the relationship between Autostrade and Ecomouv was sufficiently ad hoc and the procurement process sufficiently rigorous to prevent any unfairness in the procedure.

It was now up to the consortium to deliver the project for an increasingly impatient authority. The operational date had previously been 2012; now it was earmarked for mid-2013. “Each month of delay in the signature of the PPP contract was equal to a potential loss of €90 million of tax revenues, so there was real pressure to close as soon as possible,” Laloum says.

Ecomouv comprised a heterogenous mix of French and Italian companies, which although it brought considerable expertise to the project, also presented interface risks in closing it. The same colud be said of the lending group: three Italian banks following Autostrade (Intesa’s IMI, Mediobanca and Unicredit) and a German financial adviser, Deutsche Bank, had been joined after BAFO by Crédit Agricole, who had been attached to the France Telecom team but were released after the preferred bidder announcement. The French, the Italians and the Germans were all used to doing things differently.

“It was quite a challenge to negotiate the term sheet with foreign banks,” Driss Bererhi of Willkie, Farr and Gallagher recalls. “Usually we negotiate with banks that are aware of the French PPP market. The banks themselves are involved in the negotiation process and here, when negotiating the subcontracts term sheets and the financial term sheet, we had to explain the specificity of why we wanted to do things”. Others agree.

This was overcome in a number of ways. CA CIB, who had used their good relationship with Autostrade via their Italian business to enter the project, were of use in understanding the structuring of French PPP units. The lenders’ legal team in Paris (led by White & Case partners Jacques Bouillon, Victoria Westcott and Paule Biensan) also offered help.

The project ha a heavy reliance on IT, including software still to be developed as part of the implementation phase, but reassurance was offered by the fact that both Crédit Agricole and Willkie had worked on the GSM-R PPP^[1],  the other significant IT-based project in the French PPP market.

Still, banks needed to be made to feel comfortable with other innovations in the project. Bererhi explains, “The uniqueness is more linked to the fact that the project will generate money [for the state] through the tax collection scheme. Usually in project finance, an SPV is an empty shell. Here, due to a legal constraint the tax collection obligation had to remain at the level of the state’s contractor. It must have employees and will bear risks that are usually not taken by an SPV in the context of a PPP contract.” Thus banks needed to be given some comfort, a fact reflected in teh project’s higher than usual gearing.

One issue that was not long in doubt was whether to use the state loan guarantee. On the Tours-Bordeaux HSR project, which closed by the time the winning bidders were confirmed, it had been used^[2]; but although it eased liquidity problems, it also heightened the project’s complexity and the inter-creditor issues, slowing down financial close.

In any case, Éco-Taxe was much smaller; the bid put together by Autostrade required rather less than the anticipated €1 billion of debt and equity. Amir Jahanguiri, partner at Willkie, says, “With the financial undertakings of commercial banks and the CDC the financing was closed. They had enough money. The need for the state guarantee was not much anticipated, even at BAFO.”

All parties were ready for signing by October 2011, and, after some delay on the state’s side while the Ministry of Economy, Finance and Industry approved the deal – leading to a number of cancelled appointments for signing – the concession contract, financial documentation and swap agreement were all signed on 20 October.

A week later, SNCF, Thales, SFR and Steria entered into the SPV with the stakes previously agreed. They were now both subcontractors and equity participants in the deal. “All the bid was designed to be led by Autostrade but it was clear the four French partners would come into the contract after signature. The reasoning was, I believe, on the state side, it would be better to have French companies they knew and also clearly for technical reasons,” Jahanguiri says.

Financing

About €550 million in roughly equal tickets is committed from the following commercial banks:

• Banca IMI (Intesa San Paolo)
• Crédit Agricole
• Deutsche Bank
• Mediobanca
• UniCredit

The debt is split into two tranches, one long term project risk tranche with a 12 year, nine month term and one larger tranche refinanced after completion of construction and installation, set at 21 months. This will be refinanced with €138 million from the CDC in a cession Dailly (state risk) tranche, leaving €83 million of long-term debt and €329 million of commercial debt in an unfunded-till-then Dailly tranche. Owing to the unusually short tenor allowed by the short construction time, financing costs were sufficiently low to allow the commercial banks to participate in the Dailly tranche in spite of rising liquidity costs. There is also a €30 million VAT facility.

Pricing is said to be attractive, such that a syndication looks unlikely. The sponsors are putting in €150 million of equity, for a 79:21 debt equity ratio, and availability payments total €2.8 billion over the concession period.

Project Description and Roles

The project comprises the deployment of an electronic system for the collection of eco-tax for heavy goods vehicles weighing over 3.5 tonnes over a 14-year concession period, across 10,000km of national roads and 5,000km of departmental roads in France. Satellites will track the vehicles’ movement using global positioning equipment on board the vehicles. A pilot scheme in Alsace on 180km of roads will precede the national rollout.

The construction phase will see about 800,000 on-board units equipped with SIM cards assembled and distributed for use on heavy goods vehicles, the development of software and backup systems and the construction of gantries to read the units. These will transmit information via relay posts to GSM satellites on which space has been leased by SFR, one of France’s biggest mobile network providers.

The consortium comprises Atlantia, SNCF, Thales, SFR and Steria. Deutsche Bank was financial adviser to the sponsor and Wilkie, Farr and Gallagher was legal adviser. For the commercial lenders, White & Case was legal adviser. De Pardieu Brocas Maffei was legal adviser to the CDC.

The tax will average 12 cents and is expected to generate revenue of €1.2 billion per year - €980 million of which will fund Aftif, the French transport infrastructure financing agency, and €200 million will be for the benefit of local communities.

Conclusion

The successful close of the Éco-Taxe project just four months after confirmation of the preferred bidder augurs well for future such projects – which is just as well, since the odds are that those countries that do not yet have a nationwide open road tolling system (Spain and the United Kingdom being obvious examples) will have to consider it before long.

The combination of cash-strapped Western economies, demands to curb climate change and the inevitable rising cost of financing more transport infrastructure would seem to make such projects ever more attractive. Belgium is planning a similar project (which Atlantia is following with interest^[3]), and Germany is currently considering options for what to do after the federal government’s current toll collection contract expires in 2015. This may have been the first PPP of its kind, but it is unlikely to be the last.

NOTES:

[1] GSM-R rail communications PPP – France, By Cécile Sourbes, Infrastructure Journal, 23 March, 2011. Available here.

[2] LGV Tours-Bordeaux PPP, By René Lavanchy, Infrastructure Journal, 23 August, 2011. Available here.

[3] Atlantia stalks Belgian eco tax and emerging road markets, By René Lavanchy, Infrastructure Journal, 22 February, 2011. Available here.