Understanding the debate around motorway concessions in France

25 February 2015 - Events - France

The debate around motorway concessions surfaces regularly, with motorway company profits and toll rates among the points at issue. A brief explanation about a poorly understood business model – motorway concessions.

Privatisation of the motorway companies was the result of a strategic and budget decision on the part of the French Government, initiated in 2002 and implemented for the most part in 2006. It did not involve sale of the motorway companies but of the State's holdings in the concession-operating companies. The State delegated responsibility for finance, design, construction, maintenance and operation of a motorway or motorway network over a long period to the concession companies. The operation also involved transfer of motorway debt to the private buyers while maintaining the programme of investment in terms of safety, quality of service and environmental performance. The State picked up €15 billion on top of the €2 billion already received from the initial opening up of the capital in 2002 and transferred a €4.4 billion investment programme, together with debt amounting to €19.5 billion. We should emphasize that the motorways themselves were not privatised: they remain the property of the State and revert back to State control – free of debt – at the end of the concession contracts.

Don't confuse annual profit margins and long-term profitability

Today, some motorway companies are generating high annual profit margins. But profitability should be looked at over the entire term of the concession cycle – at 7-8%, it is easily within the standard range.
Very high levels of investment are required in the initial phase of infrastructure concessions. The motorway companies are obliged to raise capital and take on high levels of debt. In the first years of the concession, they therefore generate low levels of profitability or even make a loss, given that they have to repay debt and generate a return on the capital raised at a time when motorway traffic is increasing at very gradual rates. In a second phase, the concession companies start to earn a profit and amortise the investments made, which must all be paid down by the end of the concession contract, since motorway concession companies are limited duration companies. Watch the quick animated video (French) :

How are toll increases calculated?

The toll system is based on the user-pays principle. The tolls paid are the sole compensation received by the concession companies in return for financing, building, operating and maintaining a motorway.

Toll rates are contractually set by the State and pegged to inflation: the annual increase generally represents 70% of the rise in the consumer price index excluding tobacco. Additional investment programmes approved by the State may lead to adjustments in tariffs. Every year, the State controls satisfactory operation of contracts and approves all toll rates. Furthermore, we might point out that tariffs rose more sharply from 2000 to 2006 (+ 2.06%) than after privatisation of the concession companies (+ 1.80%).