Case Studies: E18 Grimstad-Kristiansand, Norway

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Project Overview
E18a.png
Figure 1: Location of E18 PPP Project
E18 Grimstad - Kristiansand, Norway
Project Type: Both
Contract Duration: 25 years operational period - potential extension to 30 years
Budget: EUR 350 M approx. (NOK 2,800 M in 2005 prices excl. VAT)
Project Time Line
Project Conceived: 1990
Call for Tender: 2005
Contract Approved (signed): 2006
Financial close: 2006
Other important dates for the project:
Approval by local government: 2002/03
Approval by Parliament: 2005
Official opening of the road: 2009


Introduction

E18 Grimstad –Kristiansand is one of the three pilot projects that have been implemented based on the Public Private Private Partnership (PPP) model in Norway. The project is part of the E18 Highway linking Oslo to Kristiansand. It passes through 6 counties with a total population of 1.7 million inhabitants. This road system is one of the main connections in the Nordic link, and is of strategic importance as a competitive transport corridor between the south of Norway and the European continent and is included in the TEN-T. Fourteen (14) cities are linked to this section of the E18. The project is, also, a key road segment in the “Agder Urban Area” which is the area between the towns of Arendal and Mandal.

The E18 Grimstad –Kristiansand road PPP project is a four lane dual carriageway of 38.8km linking Grimstad in the East, at the E18/rv 404 Øysgardsdalen intersection and Timnes in the West, at the E18/ rv 41 intersection. The existing road was built in the 1950s with two lanes in each direction. The cost of the DBFO (Design, Build, Finance and Operate) awarded to the consortium Agder OPS Vegselskap, in 2005 prices, is NOK 2,800M (approx. EUR 350M). The concession period is 25 years of operation, which may be extended to 30 years.

The road is built in a hilly landscape with poor agricultural soil quality. In planning the road, special emphasis was placed on protecting the landscape and therefore, construction includes a number of tunnels and bridges.The speed limit is 100km/h (trunk road class H). In addition, the road is classified as Highway Class A, with a central reservation, and a total width of 20 meters on both sides. It was opened to traffic in 2009 after a 38 month construction period.

The E18 Grimstad –Kristiansand shortened the distance by approximately 3 km and reduced travelling time by 10 minutes (from 40 to 30 minutes). Other project objectives were:

  • High standards that contributes to improving accessibility and reducing transport costs
  • High safety standard that will contribute to reducing the number of and the cost of accidents
  • High aesthetic and environmental standard
  • Safeguarding the residential environment and biological diversity along the road

The Contracting Authority (Public Party)

The Norwegian Public Roads Administration (Statens Vegvesen) is responsible for the planning, construction and operation of the national and county road networks, vehicle inspection and requirements, driver training and licensing. On matters pertaining to the national roads, such as the E-18 highway, the Public Road Administration is under the direction of the Ministry of Transport and Communications. The objective of the Norwegian Public Roads Administration is to develop and maintain a safe, eco-friendly and efficient transport system.

The Concessionaire (Private Party)

Agder OPS Vegselskap AS is the concessionaire jointly formed between Bilfinger Berger Project Investment (50 %), Sundt AS (35 %) and E. Pihl & Søn AS (15 %).

At the time of tender the cost of the project was estimated at NOK 2,300 to 2,800M. Agder OPS Vegselskap AS was expected to use corporate debt - bonds or senior loans secured by parent company assets. The project is tolled and the concessionaire collects tolls on behalf of the State. Remuneration is based on the road's availability and quality.

Users

The E18 Grimstad –Kristiansand has an average annual daily traffic (AADT) that varies from 10,000 to 30,000 vehicles per day depending on the different road segments. The share of heavy good vehicles (HGV) is 14-17%. This is a typical high volume road project in the case of Norway. The road is an important supply chain link for shippers to/from the continent through the port of Kristiansand.

Key Purpose for PPP Model Selection

More specifically, the National Transport Plan for the period 2002-2011 submitted and approved by parliament in February 2001 suggested that three road projects be implemented as pilot projects based on a PPP model tailored for Norway. E18 Grimstad – Kristiansand was later proposed as one of the three projects. The parliament approved its financing and passed a proposition concerning it as a PPP project in 2004. The aim was to gauge how PPP would work in terms of efficient delivery of services to the public. Hence, the approach was mostly service based although financing also played some role.

Project Timing

The project was needed to solve the accessibility needs in the area. The road that existed was built in 1950 and was of very low standards. The project already had a high priority in the National Transport Plan.

Project Locality and Market Geography

The project is part of the prioritized European highway E18 and serves/connects the whole of southern Norway to the rest of the country and the European continent through the port of Kristiansand. It, also, links the two largest towns in the southern part of Norway and functions as hub for the local road networks.

Procurement and Contractual Structure

Tendering

The PPP contract was awarded after a tender competition with negotiations in accordance with the Act of July 16, 1999, no 69 relating to public procurement and regulation of June 15, 2001 no. 616 - Rules for public procurement. The tender competition consisted of the following phases:

  • Pre-qualification and selection of invited tenders
  • Submission of tenders
  • Negotiations
  • Financial close

Three consortia responded to this call:

  • Agder OPS Vegselskap SA representing Bilfinger Berger BOT, E.Pihl & Søn AS and Sundt AS
  • Agdervegen S.A. representing Skanska BOT AB and Laing Roads Ltd
  • Nye Sørlandske representing Strabag AG and AF Spesialprosjekt AS.

The entire process was concluded in 16 months (February 2005 to June 2006).

Contract Structure

The contract is between the Norwegian Public Roads Administration and Agder OPS Vegselskap AS owned by Bilfinger Berger BOT, E.Pihl & Søn AS and Sundt AS.

The Norwegian PPP model is based on the principal that the PPP company delivers a road to the road users on behalf of the state for a limited period of time. The road is not transferred to the private.

Remuneration is effected through availability payments. Two more additional payments are foreseen based on:

  • Increased traffic safety benchmarked against similar roads
  • Extraordinary traffic loads. This is a compensation for extra road wear should the traffic level exceed a certain level compared with those forecasted by the government.

Risk Allocation

The PPP model presupposes a cost effective allocation of risk between the public and the private sector. The PPP company has the responsibility for significant risk with regards to design, construction, progress, operation, maintenance, financing of the project.

However, the PPP company has little or no influence on certain types of risk e.g., changes to plans caused by public authorities due to circumstances beyond the PPP company, delayed acquisition of land and property, discovery of cultural objects on the construction site etc.

Risk allocation is illustrated in the detailed risk matrix below.

E18b.png
Figure 2: Risk allocation

Performance

Performance standards are foreseen in the contract and Penalty point system for substandard performance in relation to the requirement for operations and maintenance is in place.

The level of availability is measured between different segments of the road. If the state of the road does not comply with the agreed requirement, the road is deemed non-available. Based on actual availability, an index for road availability has been developed for each payment period. The index determines how much of the maximum availability payment will be paid to the PPP company. Availability, also, concerrns emergency plans, visibility and air quality in tunnels.

Level of maintenance and operational is assessed against the Norwegian hand book for maintenance standards. It includes cleaning and technical installations, timely replacement of destroyed parts and winter maintenance and others.

Safety is also monitored and compared to the accident rate benchmark.

Actual traffic is within the confidence interval of the forecasts.

Finally, an ex-post study conducted by the Norwegian Institute revealed that project has performed fairly well in terms of delivering the road project to users.

References

  • PPP Project E18 Grimstad –Kristiansand, Information Memorandum Pre-Qualification, February 2005. Norwegian Public Roads Administration.
  • J. Odeck , 2014, E18 Grimstad – Kristiansand, in A. Roumboutsos, S. Farrell and K. Verhoest, COST Action TU1001 – Public Private Partnerships in Transport: Trends & Theory: 2014 Discussion Series: Country Profiles & Case Studies, ISBN 978-88-6922-009-8