On the 18th of September 2014, following a request from the French National Assembly's Finance Committee pursuant to Article L. 462-1 of the French Code of Commerce, the French Competition Authority (FCA) published its Opinion on the motorway sector.
France has over 11,882 km of motorways; 9,048 km of which are operated under a concession system by 19 operators (SCAs : Sociétés concessionnaires d'autoroutes i.e. the concession-holders). According to the FCA, France's seven largest highway concession companies make up 92% of the revenue generated from France's nearly 12,000 kilometres of highways.
Since 2004, French motorway operators have seen a rise in revenue fed by continuous growth in traffic and toll rates, which appeared to the FCA to be largely disconnected to their actual costs.
The seven largest concessionaires’ net profit from toll-road divisions represented 20 percent to 24 percent of revenue in 2013, helped by cost controls and toll increases that are partly automatically pegged to inflation.
According to the FCA the exceptional profitability of the “historic” toll road concession-holders, who benefit from a monopoly position, is comparable to a guaranteed income which needs to be better regulated in favour of the State and the users. In other words, the FCA clearly opined that the motorway operators' high profitability rates could not be justified by the costs they have to bear or the risks they face.
The FCA’s Opinion follows a report submitted last year to the French National Assembly’s Finance Committee by France’s General Accounting Office (Cour des Comptes) which concluded that highway operators have been in a stronger position than the government when negotiating toll increases in exchange for investments to maintain and improve their road networks. According to the Cour des Comptes, these negotiations have failed to protect the interests of both the State and the users. Pointing out the inadequacy of the existing regulatory and contractual framework, the Cour des Comptes considered that changes to the legal framework and negotiating modalities should be made, particularly since the French motorway network is largely developed and motorway tolls are production costs to the economy which weigh on the competitiveness of French business.
Moreover, in a previous Opinion 05-A-22 of 2 December 2005, the FCA had identified competition risks related to the awarding of motorway works contracts (maintenance and construction). It pointed out that concession-holders would mostly award those contracts to their associated companies. It therefore recommended that, even though the concession-holders had been privatised, these companies should continue to be subjected to the same obligations as when they were public. The government followed the FCA’s Opinion and imposed on the six newly privatised toll road concession-holders the obligation to comply with the disclosure requirements and tendering obligations inspired from the Public Contracts Code when awarding road works contracts valued at more than two million euros.
However, the FCA stressed this month that a significant proportion of works contracts with motorway concession-holders are still awarded to companies belonging to their respective groups.
In order to restore a proper equilibrium among the interests of the concession-holders, the State and the users, the FCA issued 13 innovative recommendations on September 18, 2014.
To reinforce the regulation of the motorways sector in favour of the users, the FCA recommended, in particular, changing the indexing mechanism of toll rates so as to integrate a formula to take into account traffic growth, in addition to inflation and other factors.
The FCA also recommended that the highway operators be forced to reinvest more of their earnings or share them with the government if profitability rises above current levels.
Concerning the concession-holders’ works contracts, the FCA proposed to improve competition for tenders by notably reducing the threshold for putting a contract out to tender, currently set at two million euros, to 500,000 euros, and to promote the recourse to the tendering procedure for technically simple works. Furthermore, in derogation of the default rules on standing to sue, the FCA proposed to allow the National Committee on Public Contracts (Commission nationale des marchés), to file suits with the administrative judge, if it considers tenders to be legally doubtful.
The FCA also proposed the creation of an independent regulatory authority which could, in particular, issue opinions concerning government planning contracts with concession-holders. This authority would also be able to sanction concession-holders in case of violation of their contractual obligations.
Finally, the FCA analysed the French Motorway Plan (Plan de relance autoroutier), agreed in the fall of 2013 and notified to the European Commission on the 16th of May 2014. Under this plan, Vinci SA, Eiffage SA and Abertis SA, the public works groups which hold the seven largest concession- holders, agreed with the French Government, after a year of negotiations, to invest an extra 3.6 billion euros ($4.63 billion) in their French toll roads in exchange for an up to 6-year extension of their concessions. This plan still needs to be approved by the European Commission which is expected to give its decision by October 21 of this year. The EU review aims to ensure that the agreement does not amount to a form of State aid or unfair competition.
The FCA noted that while the Motorway Plan can be a positive factor for employment and investment, the extension of the concessions could also create the opportunity for their renegotiation, in which the State should regain the upper hand.
The publication of the FCA’s recommendations, although they appear only in a non-binding Opinion, is badly timed for concession-holders, merely a month before the expected decision of the European Commission. Should the European Commission not approve the Motorway Plan, the French State may then decide to heed the FCA’s Opinion and reopen the negotiations with the concession- holders.
The report is also a blow for the government as it has been banking on the planned investment package to support jobs in an effort to spark economic growth. According to the Department of Transportation’s estimations, the Motorway Plan is particularly important in light of the presently low level of construction activity in France, since it should result in the creation of 7,000 direct jobs, and create 7,000 indirect jobs per billion euros invested.