Who Owns France's Highways?

Key Concepts

• Concession Model: A system where private companies secure a license to operate highways for a fixed period, collecting tolls to recoup investment and generate profit.
• Toll Roads: Highways where users pay a fee to travel, typically managed by private concession companies in France.
• Routes Nationales: National roads in France that are free to use but often have more speed restrictions.
• Internal Rate of Return (IRR): A financial metric used to assess the profitability of long-term infrastructure investments, equating costs with revenue from the investor's perspective.
• Weighted Cost of Capital: The cost of a company's total equity and debt, used as a benchmark to compare against the IRR.
• Exceptional Rent: A term used by the French accounting office to describe the guaranteed income earned by concession companies with little risk.
• Vignette: A sticker placed on a car that gives access to highways, used in some countries as an alternative to tolls.

France's Highway System: An Overview

France is the most visited country in the world, with a significant portion of travelers using its extensive highway network. The A6:A7 route to Marseille is particularly busy and expensive, with toll fees reaching around €70 for the 770-kilometer drive from Paris. This contrasts with countries like Germany, where highways are free, raising the question of why France charges for its fastest roads.

Funding and Management Models

Different countries fund highway infrastructure in various ways, including bridge and tunnel tolls, road tolls, vignettes, or through local and national taxes. In France, most highways operate under a concession model, where private companies manage them for a fixed period. While 19 companies operate France's concessioned roads, 91% of the network is managed by Abertis, Eiffage, and Vinci.

Historical Development of French Highways

France's high-speed road network developed in three major steps:

1. Post-World War II Concessions: Faced with financial constraints, the French state adopted the concession model to build highways, transferring debt to private companies.
2. Rise in Public Debt (1970s onwards): As public debt increased eightfold between 1980 and 1997, the state opened national companies to more private equity, including concession companies.
3. Full Privatization: The state fully privatized highway management, with private companies responsible for funding, building, maintenance, and management of over 9,000 kilometers of roads.

Key Players in Highway Management

• Abertis: A Spanish firm (subsidiary of Benetton) controlling the northern highways and overseeing 60% of Spain's high-speed road network.
• Eiffage: A French construction and concession company maintaining over 2,000 kilometers of motorway, mainly in the eastern region.
• Vinci: Handling the largest share of the network, running over 4,000 kilometers of toll roads in France. In the first half of 2024, Vinci recorded revenues of over €33 billion, with €3 billion from French motorway concessions.

Financial Aspects and Profitability

In 2006, the state agreed to a price of €14.8 billion for the full privatization of the highways. However, in 2019, the French general accounting office estimated the "right price" should have been closer to €24 billion, a €9 billion shortfall. Toll prices are included in concession contracts and can rise up to 70% of inflation annually. According to the Association of French Motorway Companies, for every €10 spent at the toll gate, €6.30 are allocated to management operations, modernization investments, and debt repayment, while the rest is paid to the state through tax and duties.

Consumer Impact and Concerns

Consumers and companies have struggled with annual price rises, especially since the highways have been fully built. Nathalie Justice, a resident of Bordeaux, spends about €180 on French tolls for each trip to London. In 2014, the accounting office, alongside the French Senate and the competition authority, pointed out that concession companies had created an "exceptional rent," a guaranteed income for little cost. The competition authority found that the annual profit margin for these companies rose over the years, with some doubling their profits, reaching highs comparable to tech companies like Apple's 25% profit margin.

Profitability Measurement and Internal Rate of Return

The internal rate of return (IRR) is used to assess the profitability of long-term infrastructure investments. In 2022, the Transport Authority estimated the IRR for historic concession companies at 8%. However, calculating the IRR has limitations due to the availability of information and considerations for what happens at the end of the concession. The Transport Authority estimated the weighted cost of capital at 7% as of 2022 for historic companies, just below the IRR.

Contract Durations and Renegotiations

Concession contracts have lasted for up to 70 years due to additional clauses and renewals. In 2015, the government froze toll prices, leading concession companies to threaten legal action. Secret conversations followed, resulting in an extension of the contracts' duration in exchange for a €3.2 billion investment over 10 years and allowing toll prices to rise above usual levels between 2019 and 2023.

Future of Highway Concessions

90% of highway concessions are expiring between 2031 and 2036, requiring provisions for what happens next. Alternatives include state-run highways, like the Montblanc tunnel, or vignette systems, like in Switzerland.

Synthesis/Conclusion

France's highway system, largely managed by private concession companies, has evolved through historical financial pressures and privatization. While this model has facilitated the development and maintenance of an extensive highway network, it has also led to high toll prices and concerns about the profitability of concession companies. As contracts expire in the coming years, the future of France's highways will depend on decisions regarding contract renewals, alternative funding models, and the balance between user costs and company profits.