ACultureofHighSpeedsandAccumulatingDebt
ACASESTUDYOFFRENCHHIGHSPEEDRAILFINANCINGPRACTICES
AdelineCollot
GEORGIAINSTITUTEOFTECHNOLOGY|CITYANDREGIONALPLANNING
2454THSTREETNW,SUITE204
ATLANTA,GA30332-0155
TableofContents
TableofFigures
3
Abstract
4
Introduction
4
LiteratureReview
5
WhatisHighSpeedRail?
5
CostsandFinancing
5
WhyFranceBuiltHSR
6
TalkofHSRintheUS
8
California’sHSRProject
History
10
11
ThePlayers
11
RailReforms
12
Debt
14
Discussionofdebtpre-reform
18
FrenchHSRFinancingModels
21
Publicdebtfinancing
21
Debt&subsidycombination
21
Public-privatepartnership(P3):design-finance-build-run-maintain
22
Discussion
23
FrenchHSRasaModel?
24
Conclusion
25
References
27
2
TableofFigures
FIGURE2:"TRAINTRIANGLE"MONETARYEXCHANGES 15
FIGURE3:2011INFRASTRUCTUREANDSERVICECOSTDISTRIBUTION 16
FIGURE4:ANNUALRFFDEFICITEXCLUDINGEXPANSIONCOSTS2004-2013
17
FIGURE5:INDEXOFTRAVELPRICESFROM1998-2013INFRANCE
17
FIGURE6:2008-2013CHANGEINKILOMETERSTRAVELEDBYMODE
19
FIGURE7:HISTORICTRENDOF10YEARBORROWINGRATEFORFRANCE&USA 20
FIGURE8:FINANCINGHSRPROJECTSUNTIL1997
21
FIGURE1:SNCFANDRFFDEBT1990-2013(INBILLIONSOFEUROS)
3
13
Abstract
ThispapersetouttostudythemethodsusedtofinanceHighSpeedRail(HSR)inFrance.It
beganbyintroducingtheconceptofhighspeedrailandthehistoryofraildevelopmentin
FrancetoprovidecontextforthestateofrailinFrancetoday.Raildevelopmenthistory
revealedalongstandingtraditionofdebtwhichhasprevailedinmoderntimes.AsFrance
continuedtodevelopitsrailnetworkitshifteditsfinancingmethodsfrompublicdebtfinancing
topublic-privatepartnerships.ThiscasestudyofFrenchHSRfinancingrevealedthetruecostof
anextensivenetworkwhichisoftenoverlookedwhenthecountryiscitedasamodel.The
paperconcludeswithlessonstobelearnedaboutFrance’swillingnesstosubsidizeHSR,an
ideologywhichmaynotbesuccessfullytransposedtoothercountries.
Introduction
NorthAmericanproponentsofhighspeedrailoftencitethesuccessofFrance’srailsystemby
thelengthoftracktheyhavelaid,thepositiveenvironmentalimpact,orthehighridershipit
hasgarnered.However,thiscasestudyofFrance’shighspeedrailnetworkindicatesthatnone
oftheseindicatorsaretelltaleofsustainablesuccess.
HighspeedrailfirstappearedinJapanin1964;thelineoperatedbetweenTokyoandOsaka
(Hennetal.,2013).Hennetal.(2013)statethatthesuccessoftheJapaneseShinkansenHSR
railpromptedtheEuropeanUnion,andforemostFrance,toinvestinsimilartechnologybythe
late1970s.Today,thereare24countrieswithHSRsystemsandseveralothercountrieswith
systemsunderconstruction(WorldwatchInstitute,2015).
In2011,FrenchPresidentNicholasSarkozysaid,“TheTGV,it’sFrance”buttraintravelhas
beenanimportantpartofFrenchculturesincelongbeforethehighspeedtrainsstarted
running.Asearlyas1914thetrainwasrecognizedforitspotentialtomobilizetroopstothe
Germanborderrapidly.Sincethen,thetechnologyhasrapidlyevolvedtoallowforspeedsupto
380kilometersperhour.Highspeedpassengerrailhasofferedshortertraveltimes,the
convenienceofcity-centerstations,andcompetitivefaressince1981whenthefirstFrenchline
4
connectingParisandLyonlinewasinaugurated.However,conveniencehascomeatapricefor
thepubliclyownedoperator.Theagencyiscrippledbydebtandundergoingrestructuring
whichmayputgrowingtheFrenchhighspeedrailnetworkonhold.
ThisreportwillprovideabriefhistoryofrailinFrancefollowedbyadiscussionofthekey
decisionmakersoverthelast80years.Itwillexplainthestructuralchangesbroughtaboutby
twomajorrailreformsandassessif,andhow,thesechangeshavecontributedtothegrowing
raildebt.Theevaluationofdebtleadsintoamoredetaileddiscussionofvarioushighspeedrail
financingmethodsusedinFranceandconcludesonthesuccessesandfailuresofthesemodels
aslessonslearned.
LiteratureReview
WhatisHighSpeedRail?
AHSRsystemiscomprisedofbothinfrastructureandrollingstock(EuropeanUnion,2004).
Infrastructureisthephysicaltrackandstationswhilerollingstockarethecarsandtrainswhich
utilizethetrack(EuropeanUnion,2004).TheEuropeanUnion(2004)definitionstatesthatboth
theinfrastructureandtherollingstockmustbeabletoguaranteesafetravelatspeeds
exceeding200kilometers(km)perhouronupgradedexistingtrackandspeedsexceeding250
kmperhouronnewtrack(WorldwatchInstitute,2015).TrueHSRsystemsrunonnew
“exclusiveandindependenttracks”,however,conventionaltrackhasbeenupgradedtosupport
speedsupto200kmperhour(Rodrigue,2013).
CostsandFinancing
Hennetal.(2013)establishHSRconstructionas“megapublicinfrastructureprojects”withhigh
upfrontcapitalconstructioncostsincomparisontooperatingcosts.Theystatethatchoosing
theoptimalfundingmechanismrequiresanunderstandingofoverallcosts,costsharing
betweenpartners,andriskallocation.Theyoutlinethethreephasesofinfrastructurefinancing
asapre-projectstage,secondlyconstruction,andlastlyoperationsandmaintenance.Campos
anddeRus(2009)furtherdisaggregateconstructioncoststo:landacquisition,planning,
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studies,followedbybuildingcostswhichincorporatesterrainpreparationandplatform
construction,andfinally“allrail-specificelements”.
ThesevariousfacetsofHSRcostsimpactthefinancingmethodsforHSRdevelopment.
Developinganetworkiscostlyandeconomicreturnsonallthelinesmaynotsufficeinjustifying
theoverallcosts.Countriesneedtoweighthefinancialcostsandbenefitsinadditiontothe
socialandsocietalbenefitswhichmayensuewhendecidingonproperfinancingmethods.
WhyFranceBuiltHSR
France’sfirsthighspeedraillineknownastheTGV,connectingParisandLyon,wasinaugurated
in1981byPresidentFrancoisMitterand(Hennetal.,2011).Freemark(2011)arguesthatsince
theTGV’sopening,HSRhassuccessfullyluredpassengersawayfromcommercialairlines.
Around83percentofFrenchresidentshaveriddentheTGV,apercentagenotfarfromthe
amountofAmericanswhichhaveflown(Freemark,2011).
TheTGValternativewaspursuedinFrancebecauseitprovideda“low-carbontravel
alternative”giventhatthemajorityofthecountry’selectricitycomesfromnuclearplants
(Freemark,2011).TheHSRsystemimprovedpassengertraveltimesbyremovingpassenger
trainsfromfreightrails,decreasingcongestion,inturnincreasingfreightlinecapacity(Ashiabor
&Wei,2013;Ross,2011).Lane(2012)corroboratesthatthisdecongestionalsoappliesto
airportsandbetterflighton-timeperformance.Cityresidentshaveshownaclearpreference
forreliabletransportation(Ross,2011).TheTGVcarriesabout100millionpassengersperyear
whichamountsto1.5timesthetotalpopulation(Freemark,2011).In2016thesystemspanned
justover2,000kmwithanadditional670kmunderconstruction,seeFigure1.
6
Figure1:Mapof2016HSRNetwork(SNCF,2016)
Priorto2014,theReseauFerroviairedeFrance(RFF),thenationalpublicrailinfrastructure
ownerwasresponsibleforbuildingtheTGVlineswithacombinationoffundingfrom“local,
regional,andnationalgovernments”aswellastrackuseagefees(Freemark,2011).Thetrack
useagefeeswerepasseddowntotheSNCF,SociétéNationaledesCheminsdeFerFrançais,
whichtranslatesto"nationalsocietyofFrenchrailways",thatoperatesboththeTGVand
intercitytrains(Hennetal.,2013;Freemark,2011).However,thehighconstructioncostsofthe
HSRlinesinFranceplacedtheRFFinsubstantialdebt,circa33.7billioneurosin2013(dela
Brosse,2014).
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In2012anewlegislationwaspassedwhichonJanuary1st,2015mergedtheRFFandtheSNCF
intothenew,state-ownedSNCFReseau,thesolemanagerandproprietoroftheFrenchrail
system(SNCFReseau,2015).ThemergerwastheresultofamajorrailreforminFranceandthe
attempttoconsolidaterailmanagementintooneorganization(SNCFReseau,2015).This
consolidationalsoresultedinthetransferofaportionofRFF’sdebttotheSNCF(delaBrosse,
2014).Today,theSNCF’sdebtissteadyat7.4billioneuros(SNCF,2015).
AccordingtoGarmendiaetal.(2012)Frenchhighspeedrailcorridorsprovedtohaveeconomic
impactswhichreinforcedthedominanceoftheregionalcapitalratherthantheregions
surroundingitbecauseitfacilitated“connectiontothenationalcapitalorbigmetropolitan
areas”.Itparticularlyunderminedthegrowthof“formerindustrialsub-regions”.Theirresearch
unearthstheneedforpoliciesthatpromoteequitablecorridordevelopment.TheEuropean
UnioncreatedtheEuropeanTerritorialStrategyasameanstopromote“territorialcohesion”
butaccordingtoGarmendiaetal.(2012)“thesestrategieshavenotbeenclearlymaterialized”.
TalkofHSRintheUS
In2008theObamaadministrationsetaside$8billionintheAmericanRecoveryand
ReinvestmentAct(ARRA)tospurhigh-speedraildevelopmentintheUnitedStates(Reutter,
2010;Ashiabor&Wei,2013).In2009,theFederalRailroadAdministration(FRA)createdthe
HighSpeedIntercityPassengerRail(HSIPR)tooverseethecreationofhighspeedpassengerrail
corridors(Ross,2011).TheARRAfundsweredistributedbytheFRAtosixmajorcorridorsto
conductfeasibilitystudies,ofwhichthree,Florida,Ohio,andWisconsinreturnedthemoney
anddescribingitas“wastefulfederalgovernmentspending”(Ashiabor&Wei,2013).
OppositiontothecreationofhighspeedrailintheUSstemsfromthecostsofcreatingsucha
systeminacountrywhichspansover2,500milesfromeasttowestcoast(Lane,2012).Air
travelhasbecomeconvenientandwidelyusedintheUS,henceaneffectiveHSRsysteminthe
USwouldnotruntheentirelengthofthecountrybutratherconnectpairsofcities100to600
milesapart(Lane,2012).Lane(2012)arguesthatthereisnotenoughpopulationcentrally
distributedintheUStowarrant“intra-continentalrailtrips”thereforethesystemnetwork
8
proposedbytheFRAfocusesonconnectingregionalhubsinsteadtocreateregionalrail
corridors.
Opponentsquestionthelikelihoodofthisformofrailbeingabletorivallow-costairlinesand
personalautomobilesforintercitytrips(Lane,2012).A1987studybyBonnafousestimatedthat
over30percentofFrenchHSRpatronsswitchedmodesfromairtransportandalittleunder20
percentcamefromautomobiles.Spainsawashiftinrailsharefrom14to41percentinthe
MadridtoSevillecorridoraftertheopeningoftheHSRroute(Gonzalez-Savignat,2004).Lane
(2012)arguesthatthewillingnesstopayforintercityairfaresdemonstratesthatconsumers
arewillingtopayapremiumforshortertraveltimes.Tobestrivalairtravel,HSRstations
shouldbebuiltin“centralized,dense,andhighly-accessible”locationstoprovideriderswith
accesstoothermodesoftransportation(Lane,2012;Ashiabor&Wei,2013;Gonzalez-Savignat,
2004).
ThesuccessofrailexperiencedinEuropemaybechallengedbytheenduringperceptionofthe
automobileisasymbolofsocialclass.A2006surveyofAmericansindicatedthat“69percentof
Americansstilldescribeddrivingassomethingtheylikedtodo”(Becker&George,2011).
However,anadvantagethattraintravelpresentsoverautomobileistheabilitytocomplete
othertasksduringthetrip,andtheabilitytoreachspeedsofupto200milesperhour,three
timestheUSlegalhighwayspeedlimit(Gonzalez-Savignat,2004).
ProponentsofHSRarguethatthetechnologyhasfewernegativeexternalitiesthan“short-haul
airtravel”giventhatthetechnologyispoweredbyelectricity(Lane,2012).Opponentsargue
thatthatverylittleelectricityintheUScomesfrom‘cleansources’suchashydroandnuclear
(O’Toole,2009).TheUSEnergyInformationAdministrationconcludedthatin2014,67percent
ofelectricityintheUScamefromfossilfuels.BradleyLanealsoarguesthattrainsprovidea
morecomfortabletraveloptionasairplaneseats,andlegroomspace,havebeendeclining
steadilyinsizesincethe1970s(Elliott,2015).Garmendiaetal.’s(2012)researchfoundthatfor
tripsbetween2and3hoursthereisdirectcompetitionbetweenHSRandairtravel.However,
fortripsunder2hourstheirresearchshowedthatHSRtravelwasthepreferredmode.
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Economicbenefitscouldbederivedfromthemonetizationoftimesavingsfromreducedcar
congestionwhichtheEconomistestimatedin2005costtheUS$63.1billiondollarsyearly
(Becker&George,2011).Onestudyfoundthata$10-million-dollarinvestmentintransitcapital
generated$30millioninrevenuefromsurroundingbusinesses;anequalinvestmentintransit
operationswasfoundtogenerate$32millioninbusinessrevenue(FXMAssociates,2008).
California’sHSRProject
Novemberof2008,thevotersofCaliforniaapprovedProposition1A,ahighspeedpassenger
trainbondwhichallocated$950milliontothedevelopmentofHSRintheirstate(California
TransportationCommission,2014).ThedecisiontogobuildHSRinCaliforniahasbeenhighly
contestedby“theCaliforniaLegislativeAnalyst’sOffice,StateTreasurer,CaliforniaHigh-Speed
RailPeerReviewGroup,StateAuditor,aStateSenateCommittee,andotherindependent
reviewers”duetothelackoflong-termfundingplans(ReasonFoundation,2013).
TheCaliforniaHighSpeedRailAuthority(CHSRA)overseestheconstructionofthebullettrain
whosefirstphasespansfromSanFranciscotoAnaheimviatwelvestationsover500miles.
Phase2addsalegconnectingSacramentotoMercedandSanDiegotoLosAngeles(CHSRA,
2015).Phase1isprojectedtoopenin2029.
Only$12.5billionweresecuredin2013throughtheProposition1Abondsandfederalgrants
(ReasonFoundation,2013).In2014,anadditionalrevenuestreamwasaddedbytheCalifornia
legislature;25percentofthecap-and-tradefees,orrevenuefromtheprivatecompanies
purchasingcarbonallowanceswouldbeallocatedtohighspeedrail(Vartabedian,2015;Young,
2015).Whilecap-and-tradefeescouldresultinone-quarterofabilliontoonebilliondollars
annually,thiswouldamounttoamaximumof14billionincap-and-tradefees.Cumulatively,
thesefundingsourcesamounttoalittleover26billionwhichislessthanhalfoftheproject’s
estimatedcostof68billiondollars(Vartabedian,2015).
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History
ThefirstraillineinFranceopenedin1827andwasusedtotransportcoal.Tenyearslaterthe
firstFrenchpassengerraillineopened,financedentirelybyprivatecitizens.Itwasthelawof
1842whichenactedFrenchState-financedpassengerrailexpansion(Loidu11juin1842).Rail
wasquicklyperceivedasalucrativeenterpriseandbusinessesofferedtofinancetheir
construction;by1883therewere26,000kilometersoftrackandover25millioneuros(1918
francsadjustedto2016euros)spentofwhichcloseto19millionwereprivatemonies(Picard,
1918;France-Inflation,2016).ThiscanberegardedasthetimeperiodinwhichFrancebegan
usingpublic-privatepartnershipstofinancerail.However,theStatetookonbuildingcostsbut
wasnottheoperator.By1920,afterWorldWarOneandsixyearsofinflation,railoperators
werelosingmoney(“ThestoryofFrenchrail”,2015).
ThePlayers
TheSNCF–SociéténationaldescheminsdeferfrançaisorNationalsocietyofFrenchrailways–
wascreatedin1937asaresponsetothecumulativerailoperatordebtwhichreached37billion
francsin1936.Forthenext45yearsFrance’sfivelargestrailcompaniesmergedtoforma
singleFrenchnetworkoperatedbytheState(“ThestoryofFrenchrail”,2015).
On31December1982,the1937agreementexpiredandSNCFbecameanÉPIC,definedasa
state-ownedenterpriseresponsibleformanagingapublicserviceofanindustrialand
commercialnature.Assoleshareholder,theFrenchStatehasfulloperationalautonomy(“The
storyofFrenchrail”,2015).
DespitepublicmanagementandStateoversight,theSNCF’sdebtballoonedtoover100million
francsin1990(“ComptestransportsdelaNation”,2013).TheSAAD–Serviceannexe
d’amortissementdeladette–adebtservicingagencywasdevisedin1991asameansof
structuringSNCFdebtandmanagingannualStateallocationsdesignatedtopayoffthisdebt.
Sectioningoffaportionofthedebt,5.7billion,wasthoughttomaketheremainderofthe
SNCF’sdebtmoremanageable(CoursdesComptes,2002;“LadettedelaSNCF”,2007).In
2006,Eurostat,inaletteraddressedtotheFrenchNationalInstituteofStatisticsandEconomic
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StudiesrequestedthatSAAD’sdebtbereclassifiedaspublicdebt(“LadettedelaSNCF”,2007).
TheFrenchStatetookonSAAD’sdebtin2007andtheagencywasterminated(Eymeryetal.,
2015).
ThefirstmajorFrenchrailreformin1997createdtheRFF–RéseauFerrédeFrance–who
becametherailinfrastructuremanager(Eymeryetal.,2015).TheRFFwasconceivedtobuild
newsystemswithcapitalborrowedfromprivatefinancialmarkets.
OnJanuary1,2015asecondrailreformwentintoeffectinwhichtheRFFwasreplacedbySNCF
RéseauinanattempttouniteallrailresponsibilitiesunderthepurviewoftheSNCF.SNCF
Réseauhandlesnetworkaccess,railtraffic,maintenance,andengineeringandconsultancy
work(“PressRelease”,2015).
RailReforms
ThefirstFrenchrailreformenactedin1997hadthreeoverarchingobjectives:separatethe
managementofinfrastructureandoperations,balancetheSNCF’sbooks,andbetterfinancing
methodsforinfrastructureprojects(CoursdesComptes,2002;“Laréformeferroviaire”,2013).
Theresultoftheseparationwasapartiallyintegratedandsimultaneouslydisjointeddivisionof
laborwheretheinfrastructuremanager,nowtheRFF,wasnolongertheoperatorbut
continuedtodelegatesystemsoperationssuchastimetablingandmaintenancetothe
operator,theSNCF(delaBrosse,2012).
Toaddressthesolvency,two-thirdsoftheSNCF’squicklyaccruingdebt(20.5billioneuros)was
shiftedtotheRFF,seeFigure2(CoursdesComptes,2002;delaBrosse,2012).Themajorityof
thisdebtoriginatedfrommassinvestmentinfivelignesagrandesvitesses(LGV),orhighspeed
raillines:LGVSud-Est(openedin1981),LGVAtlantique(1990),LGVRhone-Alpes(phase1-
1992,phase2-1994),LGVNord(1993),andLGVInterconnexionEst(1994)(Eymeryetal.,
2015).WhilethesechangesimprovedtheSNCF’sdebtitgavetheRFFadifficultstart.
TheSNCFwasrequiredtopaytollstotheRFFinordertomakeuseofthetracks.Thetollswere
fixedin1997and1998butby1999theRFFincreasedthetollsby61percentfrom915.9million
eurosto1,824million.Despitetheincreaseinrevenuefromthetolls,theRFF’soperating
12
incomeremainednegativeevenbeforeitbegandebtpayments(CoursdesComptes,2002).
Althoughthisinefficiencywasnotedin2002,itwasneverproperlyaddressed.Instead,theRFF
continuedtoincreaseitstolls:6.4percentin2009,11percentin2010,and11.7percentin
2011slashingSNCFprofits,causingariseindebtoverthatperiodshowninFigure2(Rousseau,
2011).
CombinedtheSNCFandRFFhad41billioneurosdebtin2013upfrom36.1billionwhenthe
reformwasinstituted,seeFigure2;thatnumberwasprojectedtoreach60billionby2022if
nothingwasdone(Eymeryetal.,2015;delaBrosse,2012).Theongoingdebtcrisissetthe
stageforanotherreform.
Figure2:SNCFandRFFDebt1990-2013(inbillionsofEuros)(Eymeryetal.,2015)
ThesecondrailreformwasadoptedaslawonAugust4,2014andenactedin2015asameans
ofreversingthestructuralchangesbroughtaboutbythe1997reform(“Lareformeferroviaire”,
2013).ThisreformwashighlycontestedbythelargestSNCFemployeeunion,theCGT.The
unionpublishedastudyontheconsequencesofthereformwhichestimatedthat9,000to
10,000full-timeemployeeswouldbelaidoffby2020(Jacqué,2015b).
Inanassessmentofthe1997reforms,theCoursdesComptes,“thesupremebodyforauditing
theuseofpublicfundsinFrance”referredtotherelationshipbetweentheFrenchState,the
13
SNCF,andtheRFFas“complex”and“somewhatopaque”(“Ourorganization”,2015;Coursdes
Comptes,2002).ThecreationoftheRFFdilutedtheresponsibilitiesofbothorganizations,
disempoweringthemfromfullycarryingouttheirduties(“Lareformeferroviaire”,2013).
Collaborationwouldhavebeenneededtosucceed.However,collaborationwasunlikelywhen
theSNCFandRFFbothhadbudgetdeficitsandwerefundedfromthesamesources:theFrench
Stateandeachother(CoursdesComptes,2002).
Thereformseekstoreducecostsbycuttingredundancieswhichthe1997reformcreatedby
dividingtheSNCFwithoutcompromisingrailwayindustryworkingconditions.Itsetsoutto
restructuretheSNCF’smanagementtostreamlinedecisionmakingandprovidegreater
transparencytothepublic(“Lareformeferroviaire”,2013).
Debt
Therehasbeenmuchcontroversyaroundthegrowingamountofdebtincurredforrail,butthe
questionofwhetherthisdebtis“good”or“bad”hasnotbeenaddressed.A2005reporton
FrenchdebtcommissionedbytheFrenchMinisterofFinancestatedthatpublicdebtcanbe
reasonablyincurred,andpaidforbyfuturegenerations,ifthedebtcontributestowardspublic
goodsfromwhichfuturegenerationswillbenefit(Pebereau,2005).Accordingtothisdefinition
ofdebt,furtherinvestmentinrailisjustifiedevenwhencurrentrevenueisinsufficientbecause
itisasocialgood.Insuch,thequestionthatposesitselfishowmuchgooddebtleadstoabad
debt?Thefollowingsectionofthereportwillseektoassesswherethedebtisbeinggenerated
inordertodeterminewhattypeofdebtisbeingincurred.
14
Priorto2015,therewerethreeprimaryfinancersoftherailnetwork:theRFF,theSNCF,and
thegovernment,theyformedthe“traintriangle”,seeFigure3(Eymeryetal.,2015).Frenchrail
operatordebt(RFF,SNCF,andSAAD)morethandoubledbetween1990and2013despitethe
FrenchgovernmenttakingontheSAAD’s8.5billioneurodebtin2007,refertoFigure2(Eymery
etal.,2015).
Figure3:"TrainTriangle"MonetaryExchanges(Eymeryetal.,2015)
ThegrowingdebtistheresultoftheRFF’sannualbudgetarydeficits,whichgrewatan
increasingpaceinthepastdecade(Eymeryetal.,2015).Thefinancialimbalancewassaidtobe
duetoaninflationinproductioncosts,catchinguponabackloginrailwaymaintenance,
spendingonlargeinfrastructureprojectsandontheinterestdueonmoneyborrowedforsaid
projects(“Réformedusystemferroviaire”,2014).Figure4showsthatthemajorityofthecosts
notpaidforareontheinfrastructureside,theresponsibilityoftheRFFupuntil2015.
15
Figure4:2011Infrastructureand
ServiceCostDistribution(“Réforme
dusystemferroviaire”,2014)
TheRFF’sfundingcameinlargepart,abouttwo-thirds,fromthetackusagefeesthattheSNCF
paidandtheremainingthirdsfromsubsidiescomingfromthepublicauthorities.However,in
2008publicauthoritysubsidieswerereducedfromanaverageof2.6billioneurostoonly2.2
billion.ThisconstrictionofpublicfundingdidnotgounnoticedbytheRFFwhoseannualdeficit
beganmarkedlyincreasingasshowninFigure5(Eymeryetal.,2015).
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Figure5:AnnualRFFDeficitExcludingExpansionCosts2004-2013(Eymeryetal.,2015).
Asameansofoff-settingthisreductioninpublicsubsidiestheRFFincreaseditstollstothe
SNCF,aswasnotedinanearliersection.TheSNCFcompensatedforthisincreaseintollsby
raisingticketprices,passingonthecostincreasetotheconsumer.Between2008and2013,
Francesawa20percentincreaseinthecostoftraintravel,refertotheblacklineinFigure6,an
increasefarsurpassinginflation(blueline)andairtravel(greenline).ThisincreaseinRFF’stolls
launchesavisciouscycleinwhichincreasinglyexpensivetrainticketsshiftriderstoother
modes,reducingridership,leadingtofewertrains,resultinginevenlesstoll-revenueforthe
RFF(Eymeryetal.,2015).
Figure6:IndexofTravelPricesfrom1998-2013inFrance(Eymeryetal.,2015)
17
In2013,theRFF’sexpenses(excludingrailexpansionprojects)wereasfollows:45percent
operatingcosts,38percentinfrastructuremaintenance,and17percentdebtservicing.In
addition,theRFFhadanaggressiverailexpansionbudgetwhichfarexceededtheamountof
resourcesavailable.Theagency’s2013deficitwas3billioneuros,ofwhichhalfwerelinkedto
expandingthesystemandtheotherhalfoperatingexpenses(Eymeryetal.,2015).
Discussionofdebtpre-reform
Thissectionofthereportsoughttounderstandwhydebtwasbeingincurredinordertojudge
whetherornotthisdebtwastakenonintheinterestofthepublic.Budgetaryanalysisshowed
thatoverone-thirdofoperatingexpenseswereforsystemmaintenanceandthathalfofthe
budgetarydeficitwasduetoinvestmentinrailexpansion(Eymeryetal.,2015).Thesecost
overrunsindeedcontributedtothemaintenanceandexpansionofanational,publicgoodfor
past,current,andfuturegenerations.
However,itmustbenotedthatthesespendingdecisionsdidnothappensolelyinresponseto
organizationalrestructuringin1997withtheseparationoftheSNCF.Whiletherelationships
andagreementsinthe“traintriangle”lacktransparency,itisclearthatpoliticalpressuresfor
theexpansionofhighspeedrailcoupledwithreducedStatesubsidiesinFrancehaveledto
budgetarydeficits;nottheconstantcreationandliquidationofpublicagencies.Railreforms
haveallowedinconspicuousdebtrestructuringasameanstoundertakeadditionalcostlyrail
expansionprojects.
Figure7showsthatdespiteanadditional485kilometersofHSRopeningbetween2008and
2013(a33percentincreaseinthesupplyoftrack)trainkilometerstraveledincreasedbyonly2
percentcomparedtoacombinedincreaseof25percentbycarandplane(Eymeryetal.,2015).
Eymeryetal.(2015)attributethisnarrowgrowthtothestarkincreaseinthecostoftraintravel
relativetotheseothermodeswhichoriginatedfromareductionofStatesubsidiesby0.4billion
euros(referbacktoFigure6).Itmustbenotedthatdespitethissmallgainrelativetothatofair
travel,HSRpassengertraffic“exceedsdomesticairtransportbyafactorofmorethan10”
(Crozet,2014).
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Figure7:2008-2013ChangeinKilometersTraveledbyMode(Eymeryetal.,2015)
SinceJanuary1,2015,whentheRFFwasabsorbedbackintotheSNCFasSNCFRéseau,there
hasbeennodisclosureofwherethat33.6billioneurodebt(in2013)hasgone.Athirdparty
analysisofthe2017reformhasidentifiedthreepossiblealternativesfordealingwiththedebt
(Eymeryetal.,2015):
1. Statetakesonaportionofthedebt
TheFrenchgovernmentdidnotinternalizethe20.5billioneuroswhichweretransferredtothe
RFFin1997whichweighedheavilyontheRFFuntil2014.Thefirstoptionisforthegovernment
totakeonthisdebtanditscumulativecosts,asumestimatedtobecloseto25billiontoday.
Eymeryetal.(2015)arguethattheStatemadeapoordecisionin1997andshouldbeheld
liable.Furthermore,theyascertainthatinterestratesareata“historiclow”andtheStateis
abletotakeonthisdebtwithsuchafavorablerate.
2. Debtpaymentrescheduling
Reschedulingthedebtpaymentswouldallowtospreadouttheinstallements.Highspeedrailis
consideredalongterminvestmentwhosebenefitsandfinancialreturnaredeferredto
subsequentgenerations.
3. Reductionininterestrate
A2013reportontheRFF’sdebtstatedthattheorganization’sinterestratewas4.13percent
(Eymeryetal.,2015).TheFrenchtreasury’sborrowingratesfor10yearshavefallenfarbelow
19
thatamount,hoveringaround1percentin2015,seeFigure8(France-Inflation,2015).A
decreaseintheinterestratewouldsignificantlyreducetheinterestowedonthedebt.
Figure8:HistoricTrendof10YearBorrowingRateforFrance&USA(France-Inflation,2015)
IfthetotalityofthedebtwastransferredtoSNCFRéseau,withoutanyoftheaforementioned
debtmanagementoptionsimplemented,ornewfundingsources,debtwillcontinuetorise
until2025atadecreasingpace,astheprincipalofSNCFReseau’saccrueddebtispaidoff
(Eymeryetal.,2015).
Asameansforcontrollingexpansionrelateddebt,theAugust4,2014lawstipulatesthatthe
SNCFcannottakeonanyexpansionprojectswhichexceedadebttoincomeratiodetermined
yearlybyparlement(Art.L.211-10).OnlywhenprojectsarefinancedbytheState,territoriesor
otherentitiescanthisratiobeexceeded(Art.L.211-10).Thisstipulationisameansof
deflectingfinancialriskfromtheSNCFontoanotherentity.Whileitisasoundconcept,itisnot
retroactiveandeffectivelydoesnothingtorelievecurrentlevelsofdebtforthefourHSR
projectsunderway.
20
FrenchHSRFinancingModels
Publicdebtfinancing
ThehighlevelsofdebtincurredbytheSNCFpriortothe1997reform,discussedearlier,were
theresultofpublicdebtfinancing.TheSNCF’sinitialstrategywastoconstructthelineswiththe
greatestjointfinancialandsocialreturnsfirst.Thisselectionmethodledtotheconstructionof
Paris-LyonrouteontheTGVSudEstwhichhadanexpectedrateofreturnof12percent(Henn
etal.,2013).TheTGVSudEstwasfinancedentirelywithSNCFdebtwithprojectcostsat1.28
billioneuros(in2016euros)(Domergueetal.,1997).Itprovedtobealargesuccesswhen
returnsexceeded15percentandthedebtwasfullyamortizedjust12yearsafteropening
(Hennetal.,2013).
However,thesuccesswiththisfinancingmethodquicklytaperedoutaslessprofitableroutes
werebuiltandtheSNCFnolongerhadtheabilityto“self-finance”(Domergueetal.,1997).
Theselessprofitablerouteswerepartiallypaidforbypublicauthoritiestoguaranteethatthe
SNCF’sminimumreturncriteriaof8percentcouldbemet(seeFigure9)(Hennetal.,2013).
Figure9:FinancingHSRProjectsUntil1997(Hennetal.,2013)
Debt&subsidycombination
The1997railreformshiftedthefinancingresponsibilityawayfromtheSNCFontotheRFF
whereprojectswere“guaranteedbyStateappropriationsorbyborrowing”(Domergueetal.,
21
1997).Afterthereform,theRFFbecamethesoleprojectundertaker,assumingtheriskfor
constructionandmaintenance.ProjectswerefinancedwithablendofRFFdebtand“aportion
offullinvestmentcost”supplementedbyarangeofsubsidiesfromtheState,localauthorities,
theEuropeanUnion(EU)andfortransnationallines,neighboringstatesaswell(Hennetal.,
2013).
Twohighspeedraillineswereconstructedwiththisfinancestructure,theLGVEst(phases1
and2)andtheLGVRhin-Rhone;neitherofwhichmettheRFF’srequired8percentreturn
threshold.Tocompensatefortheprojectedlowfinancialreturns,theRFFfinancedlessthan30
percentofeachandtheremainderwasablendofState,EUandregionalfunds(Hennetal.,
2013).
Public-privatepartnership(P3):design-finance-build-run-maintain
Thefirstpublicprivatepartnershipofitskind,theTours-BordeauxTGVextensionisbeing
designed,financed,built,andwill,in2017,berunandmaintainedbyasingleentity–COSEA.
COSEAisa“special-purposeentitycreatedtobuildtheraillinebyVinci,abigFrench
constructionandconcessioncompany”.Vincihascreatedadditionalspecialpurposeunitsto
financeandruntheline.Thefinancingentity,LISEA,raised3.8billioneurosinequityandloan
capitalandreceived3billioninpublicgovernmentsubsidiesand1billionfromtheRFF(“Where
there’sawill”,2014).
Thetotalprojectcostscameinat8billioneuros,asumtoogreatforthepublicly-ownedSNCF
(“Wherethere’sawill”,2014).InexchangeforVincibuildingtheSudEuropeAtlantiqueTGV
linefromTourstoBordeaux,theSNCFagreedtopaytollstoruntheirtrainsontheline.LISEA
hassetthetollsat48eurospertrainperkilometerasumwhichwillplungethelineinto
insolvencyaccordingtotheSNCF.TheSNCFannouncedthattheywouldlosebetween150and
200millioneurosayearinpartduetothetollsandbecauseridershipprojectionshavedropped
substantiallysince2009(Jacqué,2015).
In2009,theSNCF’sTours-Bordeaux’s2017ridershipestimateswere17millionyearlyriders.
However,withtheongoingFrenchfinancialcrisis,the2017estimatewasrevisedto13million
22
ridersduetoincreasingcar-sharingandflyingmodeshares.LISEAdisagreeswiththeestimates
andbelievesthattheone-hourtimesavingsbroughtbythenewlinewillincreasethe
attractivenessofthelineby20percent;theirridershipprojectionis18millionyearly
passengers(Jacqué,2015).
LISEAannouncedthattheyarenotopposedtoreducingthetollaslongastheSNCFreturnsthe
trainfrequencytowhatithadbeenin2009,priortothelowerridershipestimates.Thecontract
betweenLISEAandtheSNCFdoesincludeaclausewhichwillallowrenegotiationayearanda
halfafterthelineopensbasedontheeconomicreturnsoftheline(Jacqué,2015).
Discussion
Frenchpolicymakersandpresidentshavesharedconsiderableenthusiasmforhighspeedtrain
sinceitslaunchin1981(Baroneetal.,2011).Thishasenthusiasmhastranslatedtonational
policy.In2010,the“NationalSchemeforTransportInfrastructures”calledforthedevelopment
ofanadditional2,000kilometersofrailby2020;asof2015,Francehas2,037kilometersoftack
(Crozet,2014).Astudyofhighspeedraildevelopmentcotsin2013estimatedthateach
kilometerofnewinfrastructurecostsaround15millioneurostolay(Hennetal.).Giventhese
numbers,anadditional2,000kilometerswouldcostabout30billioneuros,adoublingofthe
RFF’s2013debt.
Clearly,thereisadisconnectbetweenthewantsofpolicymakersandthefundingavailablefor
loftyexpansionprojects.ItisthistypeofpolicytobudgetmismatchwhichledtheRFFandthe
SNCFbeforeittoaccruelargeamountsofdebt.Thesolutionhasseeminglybeentoengagein
public-privatepartnerships.FrancehasfourP3financedHSRprojectsinthepipeline:theSud
EuropeAtlantique(previouslydiscussed),theFranco-Spanishcrossborder,theBretagnePays
delaLoire,andtheCountournementNimes(Hennetal.,2013).However,studiesofmature
P3sawardedintherailsectorhaveshownlittlepromise(Crozet,2014).
AnanalysisoftheTours-BordeauxlineexposesthefinancialobligationoftheSNCFasaclear
limitationofthedesign,finance,build,runandmaintainconcessionaireagreement.France’s
23
financialcrisishasresultedinunanticipatedreductionsinridership,aspredictedbytheSNCF.
Theconcessionairehastheupperhandgiventhattheysetthetollsforthenext50yearsanddo
nothavetorenegotiatethetermsuntil18monthsafteropening(Gradt,2015).Areviewof27
P3sinrailshowedthatconcessionaires“makeover-optimisticridershipforecasts”(Crozet,
2014).ClearlytheSudEuropeAtlantiqueagreementisnoexception.Abenefitofthispublicprivatepartnershipisthattheriskofbuildingandfinancingisassumedbytheprivateentity.
Giventheyshoulderthisliability,theyareincentivizedtostayonscheduleandwithinbudget.
TheTours-Bordeauxlinespanning340kilometers,wasengineeredin‘recordtime’aheadof
schedule,only38months(Gradt,2015).Thesoonertheyfinishconstruction,thesoonerthey
areabletocollectrevenuethroughconcessions.Whetherornotthiswasasounddeal
financiallyfortheSNCFremainsuncertainuntilthelineopensin2017andtheconcession
matures.
FrenchHSRasaModel?
AreviewoftheliteraturepublishedonthebenefitsandlimitationsofimplementingHighSpeed
RailintheUnitedStatesrevealsthattheFrenchsystemisoftencitedasamodelofsuccessful
HSRdevelopmenttobereproduced.ThisliteraturebasesFrenchsuccessontheTGV’sabilityto
providereliableserviceand“freeupcapacityforfreighttrains”(Ashiaboretal.,2013);itsability
toincreaseeconomictiesbetweenregionsandcapitals(Garmendiaetal.,2012);resultina
highrateofsocialreturn(Hennetal.,2013);“competitivenessoverothermodes”withhigh
speedsleadingtoshorttraveltimes(Eidlin,2015);catalyzecitydevelopmentthroughHSR
access(Eidlin,2015).
However,whatthesearticlesfailtoconsiderwhenusingFranceasamodelforHSR
developmentisthedebtwhichhasensued.WhenthefirsthighspeedraillineopenedinFrance
thecountrywasgovernedbyFrancoisMitterrand,asocialist(EncyclopediaBritannica).
Socialismprovidedthepoliticalcontextforbreakinggroundonsubsequenthighspeedraillines
withlowernetreturn(lessprofitable)buthighratesofsocialreturn(Hennetal.,2013).
24
ThepoliticaleconomyoftheUnitedStatesiscapitalism,whereprojectsareseldombuiltwhen
theyarenotestimatedtohaveareturnoninvestmentaboveagiventhreshold.Understanding
thepoliticaleconomyinwhichlargeinfrastructureprojectsarebeingundertakeniscriticalto
theirsuccess;withoutcreativefundingstrategiesandrealisticrevenueprojections,manyHSR
projectscannotsustainthemselves.Plannersshouldaskthemselveswhoispayingupfront,if
thereisenoughfundingsecured,andwhotheburdenwouldfalluponifthelinedoesnot
generateforecastedrevenue.
Conclusion
Franceisoftenreferredtoasasuccessfulexampleofhighspeedraildevelopment.Indeed,the
countrywasthefirstinEuropetohaveHSRanditnowboastsover100millionpassengersa
yearbuttheSNCFisinmanywaysstillmaturing(Freemark,2011).Theagencyhasexperienced
twomajorrailreformsinthelast20yearsandexperimentedwiththreeuniquefinancing
methods.
ThispapersoughttoexaminethehistoryoftheSNCFinordertobetterunderstandtheroot
causeofthedebtandwhetheritwasincurredforasocialgoodorduetoamisuseoffunds.
Seemingly,thedebthasundertakenbeentocreateapracticalnetworkofrapidtransportation
whichconnectsacountry,its’citiesanditspeople.However,itistoosoontobeableto
concludeiftheSNCFhasfoundasustainablefinancingmethodthroughpublic-private
partnerships.
PerhapsCamposandDeRus(2009)saiditbest,“[HSR]isaveryexpensiveandrisky
transportationsystemthatrequirescarefulcase-by-casesocioeconomicappraisal”.Further
researchneedstobecarriedoutwhenthefourP3scurrentlyunderconstructionhavebeenin
operationforafewyearsbeforeothercountrieslooktotheFrenchHSRdevelopmentasa
modelfortheirown.
Lessonslearnedfromthisresearch:
25
-
Separationofrailoperationsandmanagementleadstofailure;evenwhenboth
agenciesarepublictheyarecompetingforthesamefunds
-
Ifpossible,negotiatelong-termsubsidies,forasetamount,fromtheState;healthy
financialplanningcannotoccurwithoutit
-
Borrowandbuildwheninterestratesarelow
-
Socialreturnsarenotmonetaryreturns;theycannotbetheonlyreasonforconstruction
unlessthestateorothergovernmentagencieswillfootapartofthebill
-
Reshufflingdebtbetweenagenciesdoesnotmakeitdisappear,itjustpushesitaround
-
P3contractshavetoincludestipulationsinwhichpublicagenciesarenotheldliablefor
privatesector’sover-projectedridership,throughfeesortolls
-
‘Buildandtheywillcome’isnotalwaysthecase;whatalternativesaretheretorail,how
muchdotheycost,willtheyjeopardizeHSR’sridership?
26
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