Case Studies: The Reims' Tramway

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Project Overview
Reims1.jpg
Photograph: Dalima
Figure 1. Reims' Tramway
The Reims' Tramway, France
Project Type: Both
Contract duration: 34.5 Years (30 years from the beginning of commercial operation)
Budget: EUR 372.6M (The budget covers total tramway construction costs (including the rolling stock, the maintenance centre, and expenses paid directly by Reims Metropole))
Project Time Line
Project conceived: September 2003 (initiation of preliminary studies);
Tender: March 2005;
Contract Award: 12 July 2006;
Financial Close: July 2008;
Beginning of construction: May 2008;
Beginning of Commercial Operation: April 2011

Introduction

The project concerns the construction of the tramway in Reims (11,2km, 23 stations and 3 “Park and Ride” areas) and the operation of the metropolitan urban transport system, which also consists of an existing bus line network. This latter has been re-organised to accommodate and achieve interoperability with the newly constructed tramway. The restructured bus network consists in particular of two core lines of buses, seven other major bus lines and four bypass lines of buses (Reims Métropole, 2007). In addition, there has been an increase in supply (in commercial km) of almost 6%.

Moreover, the entire network will be improved to provide access to disabled persons by December 31, 2015. This affects more than 550 bus stops. Development of an intermodal tariff with other public transport organizing authorities in the Reims Metropole area has also been considered.

The tram line crosses the city from north to south with two routes in the south. It serves residential areas in the north, the central station, the city centre, the hospital area and part of the university. The second route links the central station to a TGV station in the south (CERTU, 2012).

Along the tramway the urban space has been improved with the renovation of streets, the improvement of public spaces, and a new modal space split for the benefit of pedestrians and cyclists. The tramway was put into service in April 2011.

The Contracting Authority (Public Party)

Since the introduction of the Domestic Transport Orientation Law of 30 December 1982, urban public transport organizing authorities, that can be municipalities or intercommunal structures, are in charge of the development and operation of urban public transport networks. In this respect, Reims Metropole is an inter-communality, which also acts as the urban public transport regulating authority. This authority initiated the development of the tram infrastructure.

According to a French law adopted in 2009, the length of dedicated line transport systems outside of the Paris' area must increase from 329 km in 2005 to 1800 km in 2020. Hence, the state launched two calls for proposals in 2008 and 2010 in order to subsidize such projects supported by local authorities. The Reims' tram was funded through one of these calls for proposals.

The Concessionaire (Private Party)

MARS (Mobility Agglomeration RémoiSe) is the private joint stock company that was awarded the concession contract. Its members are (CERTU, 2012): Caisse des Dépôts et consignations: 27%; Alstom Transport: 17%; Transdev: 17%; Caisse d'Epargne: 17% (8,5% for Caisse d'Epargne Champagne Ardenne and 8,5% for FIDEPP, a subsidiary company of NATIXIS); Bouygues Construction group: 8.5%; Colas: 8.5%; Pingat Ingénrierie SNC Lavalin 5%.

The shareholders are also amongst the subcontractors, who are:

  • Construction: Alstom, Bouygues Travaux Publics, Quille SA, Pertuy Construction et Colas
  • Design & Operation: Pingat Ingénierie SNC Lavalin, Transdev,
  • Finance: Caisse des Dépôts et Consignations, Caisse d'Epargne Champagne Ardenne and Natixis

There is an interface in the contract that defines the terms of association between the companies involved in MARS. In the case of disagreement between the building and operating companies, the decision returns to MARS.

Users

Reims is a medium size city of 190,000 inhabitants (218,000 inhabitants when considering the whole intercommunal structure). It is situated in the north-east of France. More than 65,000 inhabitants and 30,000 employees will be less than 400 meters from the tramway (Reims Métropole, 2007).

Key Purpose for PPP Model Selection

Both technical and financial reasons justified the choice of the PPP model for this project(different press articles, especially : Ville & Transport, 2008). These include:

  • The need to address some difficulties of the public transport system with respect to low commercial speeds, stability of usage and increased operating costs; Avoidance of debt for the urban public transport organizing authority as funding would be supplied by the concessionaire;
  • Improved management of financial resources by the organizing authority with regard to public subsidies to urban transport and the spread of expenditure over time;
  • Transfer of project management responsibilities to the concessionaire, while the organising authority employs a small team for the function; Economic optimization of the project; Compliance with anticipated costs and timelines.

The ex-ante evaluation made by Reims Metropole to justify the project reported an IRR (Internal Rate of Return) higher than the minimum requirement for a public project in France. In addition, the traffic forecasts justified the choice of a tram (Reims Métropole, 2007).

Project Timing

Preliminary studies were initiated in September 2003, and the project was tendered in March 2005. The contract was awarded in July 2006 and reached financial close in July 2008. Construction began in May 2008 and operations started in April 2011 (www.mars-reims.fr).

Project Locality and Market Geography

The Reims' tramway is an urban public transport project. It also involves the tram’s integration into the urban public transport system of Reims through network integration (connection with bus lines and TGV), operational integration (bus lines are expected to shift to achieve better organisation of the entire network), and fare integration (introduction of a combined pricing system). The tram connects urban and suburban areas, and the project has “park & ride” areas to improve public transport’s modal share. There are also provisions for the disabled and cyclists.

Finally, the private sector is expected to take initiatives that would increase ridership.

Procurement & Contractual Structure

Tendering

The tendering process was conducted in accordance with the public service delegation law and regulations. The tendering process was conducted as follows:

  • Nomination of candidates admitted to the tender;
  • Receipt of tenders;
  • Negotiations with candidates;
  • Delivery of a final best offer by each candidate;
  • Negotiations with the preferred candidate

Three expressions of interest were received and all three candidates were allowed to tender for the contract (Ville & Transports, 2008).

Hearings and negotiations were conducted with all three candidates and all three candidates submitted an offer. Negotiations were finally concluded with the potential concessionaire.

The entire process took almost 17 months to complete.

Contract Structure

The contract is a delegation of public service through a concession for public works and public service (Act No. 93-122 of 29 January 1993: Sapin Act). The contract covers the construction of the tram line and related equipment, and operation of the overall urban transport network (tram and bus). It also involves operations related to urban integration of the tram, and the maintenance and renewal of assets allocated to public service. With respect to contractual obligations, the private sector is responsible for:

  • Design, financing, building, operation and maintenance of the tramway, including passenger stations and park & ride facilities;
  • Design, financing and development of links with the tramway, in particular those related to urban integration of the tram, according to the conditions and limitations specified in the contract;
  • Operation of the overall urban transport network (tram and bus) . Between 2008 and the implementation of the tramway, operations concerned the existing bus network only;
  • Maintenance and renewal of assets allocated to the public service.

Finally, at the end of the concession period, the project is to be transferred back to Reims Metropole.

The investment supported by the concessionaire is EUR 345,4 M(CERTU, 2012). MARS is funding the project as follows: EUR 24M in equity; EUR 215 M of external funding; EUR 174 M of capital subsidy.

In addition, MARS will receive an annual subsidy from Reims Metropole (see below) and collect for its own account revenues related to traffic and auxiliary revenues estimated at EUR 15M per year from 2011. Reims Metropole’s obligations relate to the definition of public transport policy and public service objectives (organization and functioning of public services, pricing policy etc.). Furthermore, Reims Metropole is involved in financing through:

  • Direct expenses linked to the project (acquisition of property, costs of diverting the networks, residents' compensation, costs of the organizing authority etc.). This amounts to EUR 27,2M;
  • A capital grant of EUR 174 M in the construction phase provided by Reims Metropole, the city of Reims for renovation and planning work, and central government. This grant is spread over 3-4 instalments between 2008 and 2011;
  • An overall fare subsidy (based on the 2011 network mileage and thus including the tram) of EUR 43.6M per year as of 2014 (Champeco, 2006)

This latter subsidy is both a contribution to operating expenses (EUR 30.7 M) indexed to inflation, and a fixed amount to cover depreciation costs of the equipment (EUR 12.8 M).

The increase in Transport Tax in April 2005 partly covers the annual contribution (EUR 31M) (Champeco, 2005). Transport Tax is an employer contribution dedicated to the funding of urban transport and based on the company's total payroll costs. All companies (public and private) with more than 9 employees are subject to this tax in the Urban Transport Perimeter (PTU).

With respect to project preparation, Reims Metropole had made studies to define the tramway project. Hence the project was described in the urban transport plan and defined for the tender.

A part of the operating subsidy paid by Reims Metropole is transferred to financial institutions to secure the loans made to MARS Finally, the contract includes conditions for the re-assessment of its financial status. The reassessment takes place three years after the beginning of the operation, then every five years, as well as in particular situations stipulated in the contract.

Risk Allocation

The contract defines the obligations of each party in terms of design, construction, maintenance, operation, and financial aspects, as described below.

Design and construction risks are taken mostly by the concessionaire but the archaeological risk is capped by Reims Metropole. MARS is responsible for the maintenance of all property allocated to the public service. Operating risk is mostly taken by the concessionaire.

Commercial/revenue risk is mostly taken by the concessionaire as MARS receives the traffic revenue. The annual contribution from Reims Metropole has been defined in the contract, based on operating expenses forecasts and the expected commercial revenue (with a defined ticket price). Risks for interest rates and other financial parameters are mostly carried by the concessionaire. In some cases, the contract requires renegotiations in favour of Reims Metropole (debt refinancing, traffic revenue much higher than expected etc.)

Reims2.png

Figure 2: Risk allocation

The concessionaire takes the risk of regulations known before the signing of the contract. Reims Metropole takes the risk on regulations that may enter into force after the signing of the contract and that were not known at that date.

Performance

In the contract there are service quality indicators (punctuality and regularity, availability of equipment and services, cleanliness and comfort, etc.) and performance indicators, including targets for each indicator. With reference to these indicators monthly and annual reports are to be submitted by the concessionaire to Reims Metropole. They include performance indicators such as accounting data, analysis of quality of service, and technical and financial updates.

An ex-post evaluation is compulsory five years after the beginning of tram operations, and this will be compared to the ex-ante evaluation used to define the public utility. It will be prepared by Reims Metropole, and possibly based on a national methodology. Performance indicators are used in both the ex-ante and ex-post evaluations. Classical indicators that are used concern transport supply, transport use, modal split, and profitability.

In the charter of commitment signed between MARS and Reims Métropole a 40% increase in public transport ridership is targeted, bringing the number of trips from 30 to 42 million per year. In 2011, about 32 million of trips were registered (DGITM-CERTU-GART-UTP). This is consistent with the ex-ante forecast.

The agreement includes penalties for delays (commercial operations, project construction time, report transmission etc.); non-compliance with performance targets (availability of service and the service quality of the tram); and failure to meet maintenance obligations (maintenance frequency relative to the age of fleet).

References

  • G. Bonnet, G. Chomat, 2013, The Reims' Tramway In Roumboutsos, A., Farrell, S., Liyanage, C. L. and Macário, R, COST Action TU1001 Public Private Partnerships in Transport: Trends & Theory P3T3, 2013 Discussion Papers Part II Case Studies, ΙSBN 978-88-97781-61-5, COST Office, Brussels available at http://www.ppptransport.eu
  • CERTU, (2012) Transports public urbains en France - Organisation institutionnelle, December 2012, 60-67.
  • DGITM-CERTU-GART-UTP, Annual survey on exploitation of urban public transport networks (excluding Paris area)
  • Reims Métropole (2007), Dossier d'enquête préalable à la déclaration d'utilité publique (DUP), Janvier 2007.

Press articles:

  • Le tramway à Reims: transport en hausse, Champ'éco, April 2005
  • Tramway de Reims: “cette fois, c'est parti !”, Transports Public, April 2005.
  • 34 ans de mariage et 1,4 milliard euros de dot, Champ' Eco, November 2006.
  • Tram de Reims: la première concession française en chantier, Villes & Transports Magazine, July 2nd 2008
  • A Reims, le sacre annoncé de la concession, Ville & Transports Magazine, November 11th 2008.

Internet-pages :