€1.6bn Reunion tram derailed

Once considered one of the most appetising deals in the French project finance market, the French-governed tropical island of Reunion’s €1.6 billion tram line has been cancelled by the island’s new government.

Artist's rendition of the Reunion Tram

The new president of the regional council, Didier Robert, who actively campaigned against the tram project, made good on his promise once he won the elections and cancelled it. The 40-kilometre tram line had been awarded to Tram’Tiss – a consortium comprising AXA Private Equity, Bouygues, Bombardier, Colas and Veolia – last December.

 An angry Tram’Tiss shot back a letter to the Reunion authorities, leaked to the local newspapers, reminding the island’s government that the contract signed on December 2 is binding and that it will seek reparations if it is unilaterally cancelled. These, according to the local media, could reach €200 million, equivalent to between 10 percent and 15 percent of the €1.6 billion investment cost.

However, the new government is likely to try and exploit an ongoing complaint in the local courts by SAFPT, a local union association. SAFPT is claiming the concession contract signed last December is illegal, because the association only gave its approval to the deal – allegedly required under local law – on December 17, after the public-private partnership contract had already been signed. Regardless, Reunion will lose over €70 million in studies done to launch the project, the media say.

The Reunion Tram Train, as the project was known, was fully funded on the commercial bank side and had 80 percent of the debt covered by the French government’s debt guarantee. But even under the previous government, there had been problems with the regional authorities’ contribution to the project.

At one point, the island’s government demanded more money from the central government to help shoulder the project’s availability payments – public contributions paid to the concessionaire in exchange for making the line available in good condition. This led to a tense standoff before the government finally agreed to support the deal with more than the €435 million it had originally earmarked for it.

Robert told French Prime Minister François Fillon at a recent meeting that he now wants to use the €435 million to build a new road along the coast, which would be cheaper, albeit less environmentally-friendly, than the tram line.