How politics derailed a PPP

If anyone needs reminding that political risk can torpedo a public-private partnership, a debacle on a French-governed island makes for an instructive case study.

Towards the end of last year, Infrastructure Investor spent time in Paris talking to leading infrastructure professionals about the country’s bottleneck of large-scale PPPs. With financial help from the French government forthcoming in the wake of the financial and economic crisis, it was hoped that this bottleneck would be eased.

Those canvassed by us expected the €1.6 billion tram-train project on the French island of Reunion in the Indian Ocean to be the first PPP to reach the finish line on the back of government largesse. The project was awarded towards the end of last year to the Tram-‘Tiss consortium comprising AXA Private Equity, Bouygues, Bombardier, Colas and Veolia.

In French government ranks, the 40km-long tram/train hybrid was seen as neatly fitting the government’s green agenda – Reunion is currently a “car only” island where the last trains ran in 1963. According to research undertaken by Laurent Gautret of the Reunion Regional Energy Agency, the island’s roads are on target to see “the equivalent of a 3,000km bumper-to-bumper traffic jam” by 2025.

With the prospect of creating 2,000 new jobs at the build phase and another 300 at the operational stage, small wonder that the tram/train PPP was embraced by the French government as one of national importance. Consequently, it agreed to cover 80 percent of the construction risk as well as providing availability payments under the country’s Dailly Law.   

The project was supported by Paul Verges, chairman of the island’s ruling Communist party since 1959 and head of the Reunion regional council. A newspaper run by Verges had been calling for the reintroduction of rail transport ever since the 1970s. However, faced with an upcoming election and some vocal opposition regarding the cost of the project, Verges demanded a bigger financial contribution from the French government than initially agreed – forcing a tense stand-off that saw the government eventually back down and agree to stump up.

Then came the election itself (on March 21), and the triumph of the centre-right UMP party, headed in Reunion by Didier Robert, who became the new president of the regional council. The UMP had deployed the slogan “Ruine pas nou!” (“Don’t ruin us!”) as part of a campaign against the PPP. It objected to it on grounds of cost and erosion of freedom to use cars – as well as there being an element of opportunism in exploiting the issue to help remove the highly divisive Verges.

Robert promptly announced the cancellation of the project – something of an irony, since French President Nicholas Sarkozy was the leader of the UMP party before claiming the Presidency in 2007 (and had thus seen a pet project scuppered by ‘one of his own’).

In the latest twist to the tale, a letter from the Tram-‘Tiss consortium to the Reunion authorities was leaked to local newspapers – in it, the consortium reminded the authorities of what it claimed was an obligation to pay €200 million in reparations for the cancellation of the contract.

For its part, 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 PPP contract had already been signed. 

And so the saga rumbles on – a pertinent testimony to the difficulties PPP projects can face in overcoming the vagaries of political will.