France’s new entente

Things are not going too fast anymore in the land of TGV. France’s high-speed train is still the quickest ever made, having broken the world record in 2007 when reaching 574.8 kilometres per hour. Yet remaining a relevant infrastructure market requires more than reaching top speed once in a decade. Since 2012, local players say, France seems to have pulled into the sidings.

The deceleration has certainly been sudden. According to Infrastructure Investor Research & Analytics, French infrastructure deals totaled €5.4 billion last year – far less than the €9.9 billion recorded in 2012, that figure in itself a steep drop from 2011’s €16.4 billion. Public-private partnerships (PPPs) were particularly badly hit, having nearly halved in value in the space of two years (to €3.4 billion from €6.4 billion).

In part this is due to an unfavorable base effect. In the wake of the Financial Crisis, the administration of president Nicolas Sarkozy set about stimulating the economy via significant infrastructure spending, most notably via three multi-billion high-speed link rail concessions awarded as PPPs (including a €7.8 billion line linking Bordeaux to Paris). Transport deals accounted for €957 million in 2013, compared with €13.8 billion in 2011.

But the stalling also stems from a sharp change in political attitudes. In power since May 2012, the government of François Hollande has proved largely reluctant to use infrastructure spending as a GDP booster. It has also been a vocal critic of the PPP model, often described by the left-wing administration as too liberal and too costly to the tax-payer. Flagship initiatives such as the €4.3 billion Seine-Nord Canal were shelved; high-profile projects, such as the €671 million Paris Court of Justice, became ensnared in controversy.

Some of this agitation is still visible today: it was announced this week that the concession attached to the Centre Hospitalier Sud-Francilien – a Greater Paris hospital that’s been the focus of anti-PPP critics due to construction delays and mishaps – would end prematurely, with the facility transferring from French developer Eiffage back to the state. An appeal court also reminded everyone last Friday that the PPP contract linked to the Paris Court of Justice remains under the threat of cancellation.

Yet overall insiders agree that the government has adopted a more pragmatic attitude to PPPs, with President Hollande himself seeing them as part of the “toolkit” France should use to bolster its economic competitiveness. Words have recently been followed by actions, with the government tendering three new motorway projects – including a relaunch of the stalled A355 project – over the last few months.

But this may not be enough to revive France’s slack infrastructure pipeline. Bankers and fund managers agree that the new, proposed highways are far from being straightforward projects: some of them look technically challenging, while others rely on unproven economics. With the government so far reluctant to offer availability payments, investors may think hard about whether to stump up the cash.

Visibility on other projects remains limited. There are assumptions that what the industry calls the country’s ‘hydras’ – monster-like projects that keep resurfacing in the political debate, such as a €35 billion transport master plan for Greater Paris – will one day become more than grand plans. But no timetable has yet been given for when they will be tendered, and once launched it will likely take several years before they reach closing.

Meanwhile, smaller projects are too slow to come through. In part this is a hangover from the Financial Crisis, with many local authorities pressured to rein in spending. But the attractiveness of many projects would improve if procurement documentation and processes were streamlined. Yet France’s PPP association, its wings clipped by an administration tepid about private sector involvement in public services, lacks the resources to play its role in oiling the wheels.

Things may well accelerate locally after this spring’s municipal elections. A number of sectors, such as renewables, heating networks or high-speed broadband, could also provide fresh activity to follow on the recent transport boom. So France still has the potential to remain one of Europe’s top infrastructure markets – but its government now needs to provide clear proof it is steering in the right direction.