France’s ‘big three’ bid for €10bn high-speed rail projects

Consortia led by France’s three largest construction companies – Bouygues, Eiffage and Vinci – have submitted offers for the Tours-Bordeaux and Bretagne Pays de la Loire high-speed rail lines. Both projects will benefit from a debt guarantee from the French government.

France’s high-speed rail programme gained significant momentum this week after consortia led by Bouygues, Eiffage and Vinci, the country’s biggest construction companies, submitted offers for two high-speed rail PPPs worth over €10 billion.

The three consortia submitted final offers for the 330-kilometre, €7.2 billion LGV Sud Atlantique – linking Tours, in central France, to Bordeaux, near the Atlantic coast in the south – and initial offers for the €3 billion Bretagne Pays de la Loire (BPL) line connecting Connerre, in the east, to Rennes, in central France, over 182 kilometres.

Rail agency RFF, the procuring authority, is due to announce a winner for Tours-Bordeaux in the first half of 2010, with final offers for BPL earmarked for the summer. A third line, connecting Nimes to Montpellier, is currently in procurement, but several others are being planned by RFF.

Procurement on both projects stalled in the wake of the financial crisis. They were unblocked when the French government implemented its €10 billion debt guarantee, part of President Nicolas Sarkozy’s stimulus plan, which can cover up to 80 percent of the debt on a project.

The guarantee comes at a price, though, and can add between 75 basis points and 150 basis points to the debt portions it covers. This is determined by five risk categories, each with a 15 basis points interval. Since it is supposed to encourage refinancing as soon as possible, the guarantee only covers the first few years of a concession up to the first refinancing risk. For BPL, for example, it will add between 120 basis points and 150 basis points to the final price and will cover the construction phase.

Direct contributions from central government and regional bodies will also play an important part in funding these projects, with the authorities financing over half of the Tours-Bordeaux project and a third of BPL. Most of these contributions will be paid up front, to help finance capital expenditure and reduce the cost of bank debt. This leaves the private partner to come up with more than €3 billion for Tours-Bordeaux and €1 billion for BPL.

Commercial banks will not foot the entirety of these bills, with both projects eligible for funding from the European Investment Bank. In addition, state-backed Caisse des Depots et Consignations can fund up to 25 percent of both projects using the Fonds d’Epargne, its managed savings, once construction is completed.