Friday, January 18, 2019

"It's a commercial gesture of private companies, not a political gesture"








"Yellow vests" appear at the edge of a toll. - B. Edme / AP / SIPA
  • A large part of the French motorways is managed by private concessions.

  • The latter can raise prices each year on February 1, taking into account inflation.

  • To stem a new "sling" of yellow vests, the minister called on highway management companies to make a "gesture" to motorists.

  • Isabelle Jarjaille, freelance journalist and author of Public services delegated to the private sector, who benefits from the deal? (Ed Yves Michel), analyzes this announcement.





For the Minister of Transport, "very significant effort". Thursday, Elisabeth Borne announced the establishment by the motorway companies of a reduction of 30% for regular drivers on this road network, whose management was sold to private companies in 2005.



This decline - which results in the launch of a new subscription for drivers who perform at least ten round trips per month - was recorded in a tense political context. On February 1st, tolls are expected to increase by 1.8%. A dreaded rise by the government fearing a new sling of "yellow vests" on the subject. Isabelle Jarjaille, an independent journalist and author of Public services delegated to the private sector, who benefits from the deal? (Ed Yves Michel), this reduction is above all a "commercial gesture" granted by the motorway companies, more than a political gesture.



How are the toll rate increases determined and why will they go up 1.8% this year to February 1st?



When the state sold the majority of its shares to these companies, they became owners of the highway management. The network still belongs to the state, but it has granted road management to these companies. In the concession contracts signed between the State, Vinci and consort, there is a very simple rule:
the tariffs of the tolls must increase each year on February 1st to 70% of the rate of the inflation.



But is also taken into account the cost of work on the highways. These investments are paid by the tolls, never the companies pay the works with their own funds. The increase that must occur this year therefore includes inflation, the work of the highway investment plan voted in 2018 and especially the reimbursement of freezing highway rates decided by Ségolène Royal in 2015.



What is it about ?



In November 2014, a controversy over the price of tolls and rising rates bursts. Guest on RTL, Minister Ségolène Royal then announced the freezing of highway rates. Except that the state does not have the right to do it. This is specified in the contracts signed with these management companies. But the government was bound by the announcement effect of the minister and did not want to back down. So the freezing of tariffs has been validated. It was a knife in the contract, a fault.



A fault because at the exit, the reimbursement of this famous freezing of rates is reflected today (and until 2023) by an additional cost borne by users. The regulatory authority for road activities has estimated this extra cost at 500 million euros. Note that at the time, Elisabeth Borne, the current Minister of Transport, was director of Ségolène Royal's cabinet.



How do you analyze the announcement of the Minister of Transport a reduction of 30% for regular motorists?



It's a game of fools. It has been two months since the government tried, in the context of the mobilization of "yellow vests", to make it appear that it has the means to act in the face of rising highway rates. However, the state has no leverage. If the motorway management companies - Vinci, Eiffage or Abertis - have agreed to
to set up this reduction of tariffs by 30% is because they see it as an economic interest. This is a commercial offer, that is to say a new subscription intended for regular highway users. This decline obviously does not apply to all users.



Subscriptions have many advantages, which helps to keep drivers loyal and reduce costs. Regular motorists who will be eligible for this discounted rate pass will receive a badge for the electronic toll service. E-tolls are less technical constraints and less staffing. This decision is nothing more than a commercial gesture of private companies, and not a political gesture.



The Minister of Transport has ruled out any buy-back by the state of these companies, explaining that it would cost 50 billion euros to the state. Where does this figure come from?



This figure is taken from the report of a parliamentary committee set up in 2014 on the role of motorways in financing transport infrastructure. A study had been requested by the parliamentarians to estimate the cost of a purchase of these concessions by the State. As contracts with companies run until 2036, this means that the state should pay compensation if it decides to buy these companies before the end of the contracts. The study then quantified the cost of these benefits between 25 and 60 billion euros.



It's a cost but it's mostly a long-term political choice. The average margin achieved by the motorway companies was 34.7% in 2017. That's huge. In comparison, CAC 40 companies - which are doing relatively well - achieve an average margin of 6%. If we look at the amount of the costs and what that brings back, we are entitled to ask the question of a purchase by the State.



Admittedly, it would cost between 25 and 60 billion, but in view of the profitability of the activity, this amount could be repaid in just 10 years and the revenue could then fall back into the coffers of the state. This is a real political issue and it should be on the agenda.



















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