Case Studies: Metro de Malaga, Spain

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Project Overview
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Figure 1: Current lines of Metro de Malaga, Spain
Metro de Malaga, Spain
Project Type: Greenfield
Type of Project Financing: PPP
Contract duration: 35 years
Budget: 762-795M EUR
Project Time Line
31 October 2003: Call for tender
13 October 2004: Contract Award
2 December 2004: Contract signed
2006: Initial Works plan approval (modified)
3 February 2006: Finance Close
2008: Start of works
2010: Concession agreement revision
2012: Works plan revision
27 September 2013: Institutional agreement to start operations
18 July 2014: New concession and financing agreement
30 July 2014: Start of Operations (1st phase)
2017: Expected completion of works


Introduction

“Metro de Malaga” is a light rail network serving the city of Malaga, Andalusia, Spain. The project concerns the construction of the first two lines of a new underground railway system in Malaga, one of Spain’s largest cities, with a population of some 550,000 inhabitants, with the metropolitan area having a population of more than one million. The light rail network is operated by Metro de Malaga, a concessioner formed by the Public Works Agency of the Andalusia regional government, several builders and operators, as well as the financial institution Cajamar (a regional commercial bank).

The first two lines (Line 1 and Line 2) of the light metro system, covering the areas to the west and south-west of the city and spanning 11.3km in total length, entered commercial service at the end of July 2014. The Line 1 runs for 6.7km from Andalucía Tech to El Perchel, in the Central district of Malaga, located on the right bank of Guadalmedina. The 4.5km-long underground section of the line comprises of 11 stations, including the El Perchel station that is shared with Line 2. The section provides easy access to the University campus, the City of Justice and Carlos Haya Hospital. The Line 2 runs 4.6km along the coastal belt from Palacio de los Deportes to El Perchel and is completely underground. It has seven stations, including the one shared with the Line 1 and provides easy access to districts of Carretera de Cádiz and the Martin Carpena Arena. The two lines cross at the El Perchel station, which offers access to Renfe's AVE high-speed commuter rail service, as well as the intercity bus hub.

Construction for the project was agreed to start in 2006 and the first two lines of the metro were completed by June 2014. However, the two lines comprise only 81% of the planned network under the first development phase of the broader metro network. The remaining 19% of the network includes: 1) the under-construction El Perchel-Guadalmedina section, scheduled for completion in 2017; 2) a 295m-long underground section from the Guadalmedina station to the Atarazanas station in the city centre and 3) a 1.8km over-ground track extension of Line 2, from Guadalmedina station towards the Hospital Civil station situated north of the city centre.

This previous solution was adopted after long institutional negotiations and contract revision. In effect, there were project improvements concerning design, intermodal transfer and safety, as well as a political controversy mainly due to a new proposal about the central section from underground to surface. Consequently, there were significant delays and cost overruns of the original project. As a result of the new agreement, the Ministry of Public Works and Housing of the Government of Andalusia launched at its cost a tender for the infrastructure works required for the Guadalmedina-Atarazanas section in July 2014. The remaining sections of the planned network are scheduled for completion by the end of 2017 (see Figure 1).

The original budget was 403 M EUR (including 41 M EUR for rolling stock). However, due to significant changes in the final design and as a consequence, delays in works completion, investment at commencement of operations in 2014 exceeded 600 M EUR, of which 570 M EUR concerned construction costs. According to the last institutional agreement, at project completion due at the end of 2017, the total investment after covering remaining sections, is expected to be between of 765 and 795 M EUR.

The rolling stock is mainly composed of 14 CAF Urbos 3 tram units, each capable of accommodating 221 passengers. The vehicles with a maximum speed of 70km/h are equipped with triple braking system, which includes an electric brake on the engine, as well as mechanical and electromagnetic brake axles on the rail track.

The signalling system used in the first two lines of the metro is based on Alstom's Urbalis 400 communications-based train control (CBTC) solution. The system uses wireless communication technology and automatic train protection (ATP) system to enhance operational efficiency by increasing the number of trains per hour, while enabling a swift response to any incident.

The two lines are expected to have an annual ridership of 17.1 million passengers, which is set to exceed 20 million by 2018 after the network is completed.

The project was proposed as part of the Intermodal Transport Plan for Malaga, a six-line light metro network, in 1999. The Government of Andalusia started planning for the development of two lines of the proposed network in 2002 and signed a collaboration agreement with the Malaga City Council in the following year. The two lines awarded were the first phase of a total of 6 lines to be in operation in the entire metropolitan city. These six future metro lines will also be a central part of the Railway Corridor project on the Costa del Sol (intercity plan) that will be launched between Estepona (West) and Nerja (east). It will be a cross route linking the two ends of the Malaga coastline and will mitigate the severe circulatory problems experienced in the N-340, the A-7 and AP-7 (see Figure 2).


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Figure 2: Future line development of Metro de Malaga, Spain

There is some level of exclusivity in the project. The project may compete with other transportation modes, mainly buses and taxis. However, this new way of transportation would be more efficient in terms of time and cost. There is also an alternative sustainable transport mode based on a cycling route running along the sea front.

The Contracting Authority (Public Party)

The Malaga Metro is a light railway network promoted by the regional government of the autonomous community, Junta de Andalucia, as part of an Infrastructure Regional Plan to be developed under a Public Private Partnership strategy.

In Spain, the central government keeps main competencies in railways, ground transport, airports, ports and other main infrastructures of general interest or those across several Autonomous Communities and national territory. While the autonomous governments may get transferred into its Statute, all related competences only affect its own autonomous territory. The regional governments have been very active in providing public infrastructures. Likewise, the main autonomous communities have utilized diverse PPP models based on mixed payment mechanisms, to provide other public facilities and services in the transport sector. At regional level, although each autonomous community may have a different organization, it most usually follows a similar state pattern, with a Public Works and Housing Department (Consejeria), which often has an Infrastructure office and Public Agencies to implement the Regional Governments policies.

In the autonomous community of Andalucia, the regional government, through the Consejería de ObrasPúblicas y Transportes, has developed a master Infrastructure Regional Plan. To accomplish this plan, the Consejería created in 1996 the public institution Gestion de Infraestructuras de Andalucía. S.A. (GIASA), responsible for road, hydraulic and transport infrastructure. Later in 2011, this institution merged with another public institution the Ferrocarriles de la Junta de Andalucía, creating the sole Agencia de ObraPública de la Junta de Andalucía, which is currently the contracting agency responsible for most public infrastructure. This agency carries out the planning, tendering, contracting and financing/funding tasks, and often participates in the project company. This is the case of Metro de Malaga, in which the regional government acts as concession grantor and shareholder of the concession with a share of approximately 24%.

The Concessioner (Private Party)

The project sponsors and other interested parties are the following:

  • Junta de Andalucia,
  • European Investment Bank (EIB)
  • Metro de Malaga, S.A
  • Private partners
  • Malaga Town council
  • Central Government

Original shareholders of the SPV were, Junta de Andalucia (25.00%), FCC (26.73%), Azvi (12.62%), Sando (12.62%) Comsa (11.14%), Vera (11.14%), and Cajamar (0.75%) (regional commercial bank).

However, currently Metro de Malaga is owned by the regional government Junta de Andalucía (23.69%) and a number of private investors with the following shares: Globalvía (15.35%), FCC (10.01%), Cajamar (18.86%), Azvi, through Cointer (11.96%), Comsa-Emte (10.56%), Sando (8.57%) and Vera (1.03%). Currently, equity sums € 136.5 million.

The key subcontractors (builders) are the following:

  • FCC (large national /international builder)
  • Azvi (large regional/ medium national builder)
  • Comsa (medium national builder)
  • Sando (small national / biggest local builder)
  • Vera (small national / second biggest local builder)

Recently, a process to change ownership started and some shareholding changes might take place.

Globalvia is the concessioner holding integrated by FCC and Bankia groups, who are currently (2015) in negotiations to sale Gobalvia to a Malaysian Fund.

Some shareholders, representing a total of 39.4% of shares (Sando -8.57%-, Azvi, through Cointer,-11.96%-, and Cajamar-18.86%-), have a selling position. This group recently failed to complete its stake sale to Blackstone Fund (USA), but is still looking for other alternatives.

Other main contractors involved are as follows:

  • Agencia de Obra Publica, as grantor and partner, co-lead the project.
  • Metro Bilbao provides technical assistance for the implementation of the project.
  • CAF was awarded a 41 M EUR contract to deliver 14 Urbos 3 tram units for the Malaga Metro. CAF Transport Engineering is responsible for technical assistance coordination for the commissioning of the metro.
  • A joint venture between Vimac and two other companies was awarded a contract for electrification and electromechanical installations that include the installation of six traction substations and corresponding distribution and interconnection centres (CDI's), 18,500 m.
  • Alstom delivered this signalling system for the two lines of the metro under a contract awarded in 2006.


Figure 3 illustrates main parties and roles in the project.

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Figure 3: Participants in Metro de Malaga project

Sources of Financing

The total investment for the light metro network planned in the first phase is estimated to be 765-795 M EUR. In addition to the shareholder’s equity contributions, the European Investment Bank granted in 2006 a 20-year loan of 325 M EUR for the project, while the remaining financing comes from the government of Andalusia and the Malaga city council.

EIB loan has two tranches, the first one signed on February 3, 1996 for 50 M EUR and the second one signed on March 26, 2010 for 275M EUR. The loan is covered with a guarantee line granted by the regional government of Junta de Andalucia, which also covers other projects such as the Metro de Sevilla.

In summary, the financing structure is the following:

  • Shareholder capital: 136.5 M EUR.
  • Public contributions: 212 M EUR (may be incremented at completion) (33% of total investment)
  • EIB loans: 325 M EUR. (Max. 50% of total investment)

Users

The main users are individual passengers, with current lines mainly serving commuters from several neighbourhoods to downtown and industrial parks, as well as university students.

The main stakeholders include the Regional government, Town council, Local districts council, and the Metropolitan consortium.

Key Purpose for PPP Model Selection

The main reason for selecting the delivery method/financing scheme is the identification of this project as part of the Regional Infrastructure Plan to procure urban mobility that includes the public private partnership as selected strategy for its implementation.

In the selection of this project, the reasons considered in choosing Private (co)financing, have been:

  • Large scale project
  • Long term project approach
  • Public funding restrictions and institutional financing availability
  • Adopting technology innovation

The business model may be considered as a rather finance-based approach and consists of a mix of public funding with operating subventions and usage payments in accordance with performance indicators, as well as private funding from user charges.

Project Timing

Metro de Malaga required more than a decade of project discussions and nearly eight years of works, and has significantly changed mobility in the area of Cadiz road and the new Teatinos neighbourhoods. Since the last tram operated in Malaga streets in 1961, several project ideas have been raised from different public authorities. But it was in 1995, when the Junta de Andalucia included a light metro for the Malaga Intermodal Transport Plan for the first time.

When the project was approved in 2006, the regional and national economy was booming after more than a decade of economic growth. The economic downturn impacted the local economy and regional GDP, while also the per capita income was lower than expectations at operations commencement in 2014. The unemployment level was higher than forecasted and mobility levels decreased. However, after the summer of 2014, the economy is clearly growing again, mainly pushed by the tourist sector which is showing historical records of activity.

Project Locality and Market Geography

For the time, Metro de Malaga is exclusively an urban project, which covers the west part of the city along the coast and the new developments for residential and industrial areas. The north and east part of the city, as well as the centre area are still out of the scope of the project and most likely will require a long time to be considered.

Areas covered by lines 1 and 2 needed to improve mobility out of the existing traffic congestion. The area covered by line 1, along the Cadiz road, is, by far, the highest population density area of the region and new developments along the coast makes the density level even higher, therefore, basic traffic assumptions were meaningful and correct. Similarly, line 2 runs by a growing area, which hosts new university buildings, a dynamic technological and industrialized zone, new commercial and business parks and new residential developments, which, in spite of the economic downturn, show considerable economic activity, even higher than planned a decade earlier.

Nevertheless, there is clear need for extending existing lines and building new, in order for the project to become a global city transportation mode and achieve outstanding use. In fact, the two lines awarded were the first phase of a total of 6 lines to be in operation in the entire metropolitan city.

Procurement & Contractual Structure

Tendering

Open call is the usual procurement method in Spain, though it is also common to include a negotiation process in the final stage to deal with changes in the project and open issues not included in the tendering process. Considering all arising issues in the Metro de Malaga project, after the open call and selection process, long negotiations (not part of the tender) were required.

Four Bidders were considered in the 1st Stage. The winner consortium was Metromar, led by the main building company FCC, and jointed with Comsa, Azvi and local Sando and Vera building companies, as well as the local financial institution Cajamar. The other three competing consortiums were led by national builders, SACYR, Ferrovial-Necxo, and Dragados-CAF, respectively.

Contract Structure

The light metro project follows a Design, Build, Finance, Operate and Maintain (DBFOM) contract. The concession comprises of two lines, depot and maintenance facilities, a fleet of vehicles and intermodal facilities. However, since the project faced design and construction changes, public provision also consisted of Design, Built and Finance, mainly for the amended part of the project.

In addition, financial guarantees were provided by the grantor. Moreover, financial guarantees were granted to the European Investment bank from Junta de Andalucia.

The contract also includes public contributions in operations to cover the operating costs (technical tariff).

The contract does not include renegotiation clauses in line with the usual Spanish procurement standards. There are clauses and penalties for timely and quality completion of Works. Also, some penalties are included in the contract for contract breach or non-compliance of general duties set in the contract. Early contract termination is included.

Performance guarantees were required to the winner consortium both for project construction and operation.

Repayment mechanism

The type of expected remuneration during the operating phase included:

  • User charges
  • Usage payment
  • Subventions

The concession grantor makes payments as operating subvention (fix) and user payments (variable) which are the main source of income/revenues. As a result, user charges become secondary revenues/income. User charges (fares) are proposed by the concessioner, but need approval by the public authorities (grantor).

Risk Allocation

The risk allocation scheme is presented in Figure 4.

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Figure 4: Risk allocation

In principle, design and construction risks are totally transferred to the private sector. However in practice, lack of proper detail and inadequate planning in project preparation by the grantor (which is the reference for the final project design), alter at a big extend, the risk transfer scheme originally included in the contract. Exploitation and commercial risks are at some extent mitigated by the operating public contribution scheme. Financing risk is also mainly mitigated by the financial guarantee provided by the grantor. In conclusion, overall, much of the risk level is kept by the public sector.

Performance

Operation started recently in 2014 and more time is required for an appropriate assessment.

There are some performance indicators which may incur penalties related to:

  • Network availability: service and rolling material fleet
  • Network reliability: rolling material fleet and fixed installations
  • Timekeeping service: Delays
  • Commercial reputation: cleaning, lighting, ticketing operations

The cost/budgeted of investments ratio is: 150%, and may be increased to 200% after the whole project finishes. The reasons behind this overrun were the modifications carried out during the main works, especially in terms of underground conversion and extensions, as well as improvements in stations. There are also significant innovations impacting investment and operation costs.

The concessioner and authorities claim that traffic and revenues are in line with forecast in the initial operation phase, and are expected to considerably increase once the project is completed (mainly when downtown stations from Gualdamedina to Atarazanas open), most likely to take place after 2017.

According to a press release issued by the concessioner at 2014 year closing, Metro de Malaga has achieved 2.05 million passengers in only five months of operation. This is much in the range of the forecast, just 1% above the 2.03 expected number of users. In 2014’s last quarter, the transport service achieved 436,000 users/month equivalent to over 17,000 passenger/day. For the first annual period of 2015, it is expected to reach 4.9 million users.

Re-negotiations

There have been several rounds of renegotiations after the project award (3 or more) sometime for a long period (more than a year). The main reason(s) of re-negotiation are:

  • Contract design (misallocation of risks including revenue guarantees, Investment requirements / Exclusive private financing)
  • Political and social environment (mainly institutional conflicts and disagreements)

The final outcome of the renegotiations was mainly an increase in the public contribution to offset the cost overrun and an extension of the concession period to similar time to the delays at works commencement.

The resulting delays were 2 years for the beginning of works and 4 years for the completion of works/opening of operation.

Project Outcomes

At present, the general level of the project's perceived success is low because of the cost of the works and delays in opening.

The Critical Success Factors (CSFs) that can be considered are the number of users and the additional lines and stations that provide transportation services throughout the city.

The Critical Failure Factors (CFFs) are the following:

  • Poor or lack of ex-ante evaluation
  • Inadequate works planning
  • Additional works requirements.

With regard to acceptability, apart from the initial opposition to large and long works from the affected commercial business, users are in general satisfied.

The main objectives were to provide sustainable urban mobility and reduce congestion. In effect, the expected benefits of the project are time gains for users, cost savings for car users shifted to the metro, cost savings from reduced bus service operations that could be invested in complementary lines and decongestion effects in the city centre.

Economic impact

  • Cost savings for daily commuters and private car users derived from less traffic congestion,
  • Improved access to downtown to many commuters

Social impact

  • Positive effect in reducing private car traffic running on the surface, in terms of pollution, noise and global warming.

Environmental impact

  • Contribution to reducing pollution.

References

  • AccountsChamber of Andalucia. (2013).Public Private activities analysis of Public Works Agency of Junta de Andalucia.
  • Andalusian Advisory Council.(2014): Changes in Metro de Malaga Public Work contract.
  • Concession de Ferrocarriles Metropolitanos. Los casos de Metro de Sevilla y Metro de Málaga
  • General presentationof Public Works Agency of Junta de Andalucia(2012)
  • http://www.latoga.es/detallearticulo.asp?id=1060683210&nro=156&nom=Noviembre/Diciembre%202005
  • Metro de Malaga concession agreements and tendering conditions document (Pliego de CláusulasAdministrativasParticulares)
  • Metro de Malaga web page: http://metromalaga.es/
  • Nores, J.L. y Fernandez, F.J. (2005) Contrato de Concesion e Obra Publica – Andalucia. Nº 156 | Noviembre/Diciembre 2005
  • Press articles (mainly local press, Diario Sur and Malaga Hoy)
  • www.aopandalucia.es/.../05_Concesion_Metro_Sevilla_y_Malaga.pdf