were excluded from the grid formed by the Metropolitan and District lines, a change to the regulatory environment allowed electric trams, some private, others municipal (e.g. London County Council), to operate within the ‘inner circuit’ or ‘circle’. London County Council electric cars were allowed to cross Westminster Bridge and run along the Victoria Embankment for the first time on 15 December 1906.
On both scores, the underground railway lines by the time they were built faced competition from two sources, neither of which had been anticipated in their business forecasts.6 While some of the companies provided steady returns, most of the investors in the public share issues probably breathed a sigh of relief when the underground rail companies were effectively national- ized with compensation when the London Passenger Transport Board, a public corporation, took over operations in July 1933.
From this brief account it would seem that private supply of infrastructure, or at least of transport facilities, has had a chequered history. The ventures made significant contributions to the improvement of transport infrastructure, but the companies themselves (or more correctly, the shareholders) faced seri- ous risks. Their financial viability was vulnerable to competition from new technological advances, and to changes in the rules of the regulatory game.
Thereafter, public provision and financing was dominant for most of the twen- tieth century, but in the last two decades, private financing has returned to the top of the agenda. France is a country that evidences this cycle most clearly.
financing of the Mediterranean–Atlantic Channel (Canal du Midi launched in 1666) and Canal de Briare (1638), but also for much other public infra- structure such as bridges and tunnels. Under a concession contract, entre- preneurs were effectively given a franchise to provide public services for a specified period of time. France’s long involvement with water concessions can be dated back to 1782 when the Perrier brothers were granted the first water supply concession to provide a water distribution system to parts of Paris (although it was subsequently revoked following the Revolution).
Another famous example of private sector involvement in infrastructure utiliz- ing the concession system was the 160 km long Suez Canal (Smith, 1999). The concession was granted by the Turkish Viceroy of Egypt in 1854 and the canal was completed in 1869 with a 99-year concession period, which began when the canal was opened (but was terminated when the Suez Canal Company was nationalized in 1956 by the Egyptian government).
In the second half of the nineteenth century, France employed concession schemes extensively to finance its infrastructure networks. Railways, water, electricity and tramway networks were designed, financed and operated by private operators and banks. Most of these projects were realized in the form of long-term concession contracts, under which the property of the infrastruc- ture was to return to the public entities at the end of the contract. Later, the system was generalized to numerous activities considered in France as
‘commercial public services’, such as water supply and sanitation, waste management or urban transportation. This model has influenced many civil law-based systems, in particular in continental southern Europe and the franco- phone African countries.
Infrastructure concessions in France experienced a period of relative decline as a consequence of the 1929 crisis and World War II when public services and public infrastructure sectors returned to the state. Numerous concessionaires were nationalized, in particular those operating on a nation- wide basis, such as the railways and the energy sector. This period saw the creation of state-owned monopolies such as EDF, SNCF, ADP or RATP, which remained closely linked to central and/or local government by concession contracts. Major infrastructure projects were launched on an exclusive public funding basis, usually in the form of public works contracts.
As a result of this heritage, public services and infrastructure in France came to be divided between two opposite systems: the PPP-based private concession system known in France as delegation de service public and the dirigiste system of gestion directe, where the infrastructure or service is built and/or operated directly by a public or state-owned body (Lignieres, 2002). A large amount of infrastructure has been managed and developed under the form of a concession contract granted to a public concessionaire, whereby a special purpose public corporation is created to construct and operate the
infrastructure. An example is the concession holding companies formed to develop the French motorway network during the 1950s, with equity provided by local authorities and a public credit institution, a device that enabled central government to circumvent its own budget restrictions. However, the tolls charged were regulated and rose at a rate lower than inflation, damaging the companies’ revenue and balance sheets, and most were taken over by the government when they got into financial difficulties (Smith, 1999; Levinson, 2002).
Purely private concessions, however, never completely disappeared, and survived under various contractual forms, especially in the municipal services sector. Water supply, sanitation, urban heating, waste management, urban transportation and contracted food services have generally been operated in France under PPP schemes. Since the end of the 1990s, the use of PPP schemes to finance and design infrastructure projects has made a strong come- back and French utilities such as Vivendi (Veolia), Suez Lyonnaise, Bouygues, Vinci, SAUR, Sodexho and Connex have taken advantage of this new climate.
The French government has opened to private concessionaires projects such as the Millau Viaduct, the High Speed link between Perpignan and Figueras, as well as several highways sections (A19, A86, A28). At the local level, almost all public services are open to concession arrangements. Sewage disposal, refuse collection and management, cable, urban transport, sporting facilities, school canteens, funeral services, and water provision can be organized under delegation de gestion contracts (Ribault, 2001).
This changing tapestry has left France with a legislative structure for PPPs very different from that in the Anglo-Saxon countries. There is no legislation as such, but there is a long-standing tradition of concessions in France, and the administrative courts have drawn the lines of a coherent legal framework, in particular concerning the division of responsibilities between the operator and the public bodies (Lignieres, 2002). This framework, elaborated by the Council of State (Conseil d’Etat) is based on the following principles:
• the contract remains subject to the principles governing public services activities, i.e. the supremacy of the general interest over private inter- ests;
• the public entities are therefore placed in a position of superiority towards the private partner;
• infrastructure and buildings necessary for the provision of the public service, even if financed, designed and operated by the private sector, are placed under the regime of public properties which means that they are the property of the public entity ab initio and are to be returned (biens de retour) to them at the end of the contract;
• as a counterpart to these powers given to the public entity, French courts
have awarded the private partner rights to be indemnified when its situ- ation is affected by unilateral decisions founded on the general interest and the right to be indemnified when unforeseeable circumstances (imprevision) affect the financial balance prevailing at the date of the signature of the contract;8
• contracts have to be submitted to the general principles of French public law and to the jurisdiction of the administrative courts.
The effect of the last principle is that as soon as a PPP contract involves the general interest or the management of an activity considered as a public service, it is generally subject to French public law. French public law has strict rules concerning the use of public funds and public properties, which have a strong impact on the nature of the legal and financial schemes available to design a PPP project. In particular, rules pertaining to public properties (domaine public) render difficult, if not impossible, the implementation in France of long-term leases and BOOT contracts, in which the property of the infrastructure is to be private, at least during the contract.
In general, however, the flexibility of case-law and the realism of the Council of State and the administrative courts, make possible the adoption of the new structure of PPP projects allowing a precise and adequate breakdown of risks, funds and responsibilities between the project’s main parties. For instance, most of the Anglo-Saxon rules concerning project finance schemes can be implemented under French law. Nevertheless, French administrative courts sometimes seem reluctant to admit innovative forms of PPP schemes outside the traditional concession contract. The Council of State has adopted a strict position concerning the possibility to admit private financing schemes for railways in order to protect the public properties.