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Australia: Privatised road tunnel creates havoc in Sydney

By Rick Kelly 21 October 2005 One would struggle to conceive of a more compelling demonstration of the incompatibility of the profit system with the most elementary requirements of contemporary mass society than the debacle of Sydney’s Cross City Tunnel project. In the face of a motorists’ boycott of the privately run tunnel, the state Labor government has been thrown into crisis, as public attention has revealed what amounts to nothing less than the plunder of public funds for the benefit of private road and other infrastructure companies. The Cross City Tunnel, running under the centre of Sydney, opened last month under the control of an international syndicate headed by Li Ka-Shing, Asia’s wealthiest individual. The group won the bid to operate the tunnel and collect the toll revenue for the next 30 years after paying the New South Wales (NSW) government $105 million. This payment was based on the forecast that 90,000 vehicles would make daily use of the two-kilometre tunnel. Only the boycott of the tunnel by Sydney motorists disrupted this lucrative arrangement. Less than 25,000 cars presently use the tunnel each day, with other drivers taking alternative routes to avoid the exorbitant $3.56 minimum toll for each trip on the private road. The Cross City Tunnel owners declared a three-week period, beginning October 24, of free travel in order to boost traffic. In an extraordinary measure...

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Risks, projects choice and contractual options

More than ever budget pressure is strong in OECD countries and decision makers are focusing on short term financial resources. More than ever those countries need to invest to maintain their level of knowledge and consequently, their standard of living. Thanks to the long PPP financing contracts, decision makers can develop long term investments. However, the counterpart is that the public budgets are committed for a very long time. This game being potentially dangerous, projects analysis should take into account not only their economic viability but also the uncertainties inherent to them. And since there will always be great uncertainties about the future, shouldn’t the systems of reducing the economic impact of a forecast error be sought in the types of contract and in their wording? The extensive review of many PPP contracts, in parallel with the economic approach, provides some elements of answer. Economy is not finance Today, the main issues that we observe concern the worldwide systemic financing problem. However, the true economy is not so much discussed, probably because it is more difficult and more uncertain than ever in OECD countries. Nevertheless, long term contracts (PFI, concessions and the like) are also dealing with economy, not only with finance. The recent examples of Greece, Ireland and Portugal are showing that sooner or later the true economy catches up with the financial processes and create problems, once...

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By Vincent Piron Business Development Director (Vinci Concessions) and Jean Delons Director of the Economics and Traffic Department (Cofiroute) PIRANDELLO®, A NEW TOOL FOR URBAN PLANNING By Vincent Piron Business Development Director (Vinci Concessions) and Jean Delons Director of the Economics and Traffic Department (Cofiroute) Extracted from the trade revue Transport n° 449, Mai-June 2008 3 Soufflot Street – 75008 Paris 2 PIRANDELLO®, A NEW TOOL FOR URBAN PLANNING By Vincent Piron Business Development Director (Vinci Concessions) and Jean Delons Director of the Economics and Traffic Department (Cofiroute) 1 “It’s not by perfecting the candle that we invented electricity ” In urban transport, traffic and economic studies generally are based on the principle that job and population densities are known and stable during the studied period. The development of urban concession projects of a duration of 70 years has brought about the need to integrate the urban evolution that results from the very existence of the new infrastructure: it’s then necessary to integrate the matrix of travel demand as part of the model, and therefore to create an urban model. After ten years of effort, VINCI Group has created a global urban model, called Pirandello. This model looks for the balance point between the forces tending to concentrate people towards the city center (the attractiveness of the services offered) and those tending to spread them out (the search for...

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The Economic Dimension of Public Private Partnerships in the Transport Sector

Vincent Piron Strategy Vice President for VINCI Concessions “The primary advantage of economics is its educational role. Building and discussing a model, however imperfect, are not fruitless tasks. They are for the business man what Kriegspiel is for the military man.” Pierre Massé Former French national planning commissioner All too often, discussions, lectures, seminars and the various congresses devoted to public- private partnerships focus on points of judicial or legal procedure, or conversely, on doctrinal positions on public service that confuse responsibility for the organisation of a service with the actual provision of that same service. The economic aspect has been very much ignored, with attention being concentrated on the financial and budgetary dimension of the topic. Nevertheless, the fact that a project is viable in economic terms does not mean it can be funded, and conversely, the fact that a legal procedure exists for funding a project does not mean that it is economically worthwhile and that it should therefore be implemented. In the present article, with the valuable assistance of Professor Rémy Prud’homme, Claude Abraham, the Forecasting Directorate at the French Ministry of Finance (J. J. Becker and C. Audenis), the Conseil Général des Ponts et Chaussées (French General Council for Road and Bridge Engineering) (Alain Bernard) and Olivier Piron (former permanent secretary to the national planning body for urban development, construction and architecture), we have built...

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By VINCENT PIRON Engineer at the Ponts et Chaussées-Group VINCI-Director of concessions strategy The recent redevelopment of transportation infrastructure project finance, and of public/private partnership co-operation has provided a substantial amount of information, on a scale that major economists such as J. Dupuis and M.Allais hardly dared dream of! This information, under scrutiny, highlights a notion symmetrical to that of surplus, which is known as bitterness and is described in Transports No. 402. In the light of a detailed analysis of five recent infrastructure projects, the present article shows that the notion of bitterness should make a practical contribution to the foundation of a logical approach to charging decisions, and so reduce lack of precision in revenue forecasting. J. Dupuis’s concept of economic surplus, when supplemented by the political analysis of bitterness and combined with a realistic estimate of real discount rates, gives a rational key to the decision-making process implemented by the authorities in the transport infrastructure field, and to the decisions on risk-taking made by private enterprise. I. TO TOLL OR NOT TO TOLL ? THAT IS THE QUESTION. The present article supplements the thinking of Claude Abraham, who raised issue in a rigorous manner, in terms of a comparison between various behavioural laws. He developed the notion of “bitterness” within an economic framework, and set it out in a seminar organised by the urban community of...

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