Paris’s connection problem

President Nicolas Sarkozy has a vision to create a Grand Paris region to bring economic prosperity to the capital city’s surrounding regions, but French political realities and investor indifference in a tough economic climate could derail his plan to link inner and outer Paris with miles of new metro lines.

The €22 billion scheme is scheduled to start construction in 2013. A spokesman for the Grand Paris project said €4 billion had already been raised from central government. It also expects to bring in €400 million to €500 million a year through new taxes.

These capital gains taxes will be levied on properties near new metro stations. There has been a suggestion that a public-private partnership (PPP) element may be included in the project, but at this stage the government has made no firm commitment.

Helping hand

Daniel Zerbib, a partner at law firm Clifford Chance, says banks or other sponsors would be keen to make sure that the state would be able to provide a guaranteed source of income before committing.

“To me, with any massive project like that, it is absolutely not certain that this would be fully financed by the private sector on a project risk basis,” he says.

“Whether there’s an appetite, certainly yes – but knowing French banks, for example, for a project of this kind they will be very keen to have their exposure backed by stable revenue streams from the state directly.”

“I can’t imagine any sponsor or bank willing to fund this on a traffic-risk basis. Maybe a PPP type of transaction would work, but I’m not even sure about this. Maybe it’s going to be a very classic type of public procurement in which case it’s fully backed by a revenue stream from the state directly.”

Sarkozy’s broad aim is to make the enlarged area a hub for inward investment. Several business ‘clusters’, including a science park he wants to rival Silicon Valley in the US, would be linked via improved transport hubs. A report from consultancy Deloitte said the Paris periphery suffered from “inadequate transport infrastructure” which was leading universities to think twice about establishing research centres.

Central to the French President’s plan are three new fully automated metro lines that would create a “double loop” of 160 kilometres through the region and run 24 hours a day.

However, there is opposition to such a plan, not least from left-wing-controlled local councils, which feel central government is over-extending its remit. The Île-de-France region has eight departments or counties, of which six are under the control of socialists and communists, including Paris.

The region already has seven tramways, three metro extensions, two reserved bus ways, and a tram-train project under construction to link the suburbs. With Sarkozy up for re-election in 2012, the departments stand ready with their own rival plan: the 37-mile, €20 billion Arc Express programme, which would circle the city within a much tighter radius.

‘Posture’

Ernst & Young partner Daniel Benquis says Paris needs a new transport system that links the suburbs as the workforce moves out of the central city area, but he is not optimistic that work will start on time and describes Sarkozy’s start date as “political posture”.

“The two projects have different political pros and cons, but in the end it’s a problem of who has got the money. The projects are not so different. The problem is the same for everybody. I cannot see how the money will be found. When you have a deficit of 80 percent of your GDP, to invest €15 billion in one project from a political point of view…. you will also have all the French people asking ‘why are you investing this huge amount of money in Paris’?”

Benquis continues: “My opinion is that for the moment investors will wait and see what will happen. There is no urgency. Maybe things will happen this year, but I think it will take 30 to 40 years to finalise that project.”