COMMUNICATION FROM THE COMMISSION - Developing the trans-European transport network: Innovative funding solutions - Interoperability of electronic toll collection systems

TABLE OF CONTENTS

PART I: MORE EFFECTIVE FINANCIAL AND MANAGEMENT INSTRUMENTS FOR DEVELOPING THE TRANS-EUROPEAN TRANSPORT NETWORK

1. Financing the trans-European transport network: Diagnosis of the current situation

1.1. An under-funded network

1.2. Public funds in need of better coordination

1.3. Highly selective private investment

1.4. Exclusively private funding

1.5. Joint public/private funding

1.6. The funding requires a more appropriate framework

2. Resolving the issue

3. Towards better coordination and synergy based on new structures

3.1. Funds

3.2. Structures

3.3. Setting up transnational legal entities to coordinate individual projects

3.4. The development of new Community funding instruments

3.5. EU guarantees for the political risks of the trans-European transport network

PART II - TOWARDS A EUROPEAN ELECTRONIC TOLL SERVICE

1. Introduction

2. Update on standardisation work

3. Access to toll systems in new Member States, and the situation for heavy goods vehicles

4. Aim of the Directive

5. Achieving that aim

6. Combining satellite positioning and mobile communications with microwave technologies in the short and medium term, but opting exclusively for the more modern technology in the long term

7. The long-term technical solution for deploying the European service: imposition of the satellite solution from 2008 for new systems and from 2012 generally

8. Timetable for implementing the European service

9. Implementation of the European service: a Regulatory Committee

COMMUNICATION FROM THE COMMISSION - Developing the trans-European transport network: Innovative funding solutions - Interoperability of electronic toll collection systems

Without high-performance transport networks, economies cannot be competitive. The creation and smooth operation of the trans-European transport network, which became official Community policy 10 years ago, is a key condition for the success of the internal market and to ensure sustainable mobility in an enlarged EU. However, traffic on the network is continuing to grow apace but unevenly, while at the same time there is growing insistence on sustainable development and an imminent need to incorporate the networks of the future Member States. Moreover, transport infrastructure is still under-financed, for lack of adequate funds and the absence of a framework conducive to investment.

Accordingly, in its White Paper European transport policy for 2010: time to decide [1] the Commission already drew attention to the clear mismatch between the advertised objectives and the financial means available from the Union. The fact is that the budget the Member States put aside for developing such transport infrastructure and the funds made available by the EU are insufficient. It is no small paradox to note that the Treaty makes the Community responsible for producing guidelines for the development of the trans-European transport network without granting it the financial resources to execute that task.

[1] COM(2001) 370, 12.9.2001.

There seems to be little possibility at present of seeing a significant short-term increase in the public funding allocated to these infrastructure projects, in view of the combined effects of the current economic slowdown and budgetary constraints. The Member States are setting themselves other priorities for using this public funding, even though people and businesses in the EU suffer every day the tangible consequences of increasingly pronounced modal imbalance and the failure to adapt the network to growing mobility. Use of public-private partnerships (PPPs) to supplement public financing may be envisaged for some types of project. However, there are still too many unknowns regarding the projects to be carried out - particularly railway and cross-border projects - and regarding transport policy choices. The private sector has insufficient confidence to commit to financing them. Moreover, PPPs almost always require major public financial support in the form of subsidies or guarantees.

There is no denying, however, that one of the keys to a successful enlargement will be the creation of a proper transport infrastructure network which supplies the links still missing between the Fifteen and with the new member countries and enables full benefit to be derived from the European single area. This will involve infrastructure being modernised or newly built not just in the future member countries, but also in the existing EU Member States, given that some projects have not yet been carried out, that new traffic flows will develop and that connections between the two zones are few and far between.

The question of how to fund this new infrastructure clearly appears to be one of the main issues in the context of enlargement.

In the meantime, we need to make sure that the collection of fees through the introduction of infrastructure charging does not compromise traffic fluidity. This means making sure that toll systems are interoperable.

This Communication examines the situation of infrastructure in the trans-European network and its financing and shows the need to implement, without delay, a set of complementary measures centring on a more effective use of the funding earmarked for trans-European infrastructure. These measures rest on two major pillars:

* better coordination of public and private financing of the trans-European transport network,

* together with an effective European electronic toll service.

These measures should help make the policy framework more stable in the long run and create stable conditions for financing major trans-European network projects. The presentation of a legislative instrument, through an amendment of Directive 1999/62/EC on the charging of heavy goods vehicles for the use of certain infrastructures (the "Eurovignette") by June 2003, following the Brussels European Council of 20 and 21 March 2003, will enable a Community approach to be taken to the question of infrastructure charging and will define the conditions for implementing the cross-financing evoked in the Transport White Paper. The "European electronic toll service" will offer travellers on the trans-European road networks a single subscription contract as a basis for providing new services.

PART I: MORE EFFECTIVE FINANCIAL AND MANAGEMENT INSTRUMENTS FOR DEVELOPING THE TRANS-EUROPEAN TRANSPORT NETWORK

Introduction

The Maastricht Treaty, which entered into force in 1993, made the Community responsible for a policy promoting the interconnection and interoperability of networks to enable Europe to derive full benefit from an area without frontiers. In this context, the Community was given the task of establishing a series of guidelines covering the objectives, priorities and broad lines of action envisaged in the sphere of trans-European networks. [2] This led inter alia to the adoption in 1996 of Decision 1692/96 on guidelines for the transport network. [3] The main objective of this policy was - and still is - to fill in the gaps in the major infrastructure networks, gaps which hamper the free movement of goods and persons (transport), electricity and gas (energy) and ideas (telecommunications). This Communication covers only the trans-European transport network (TEN-T), however, given the significant differences with the energy and telecommunications sectors.

[2] Article 155.

[3] European Parliament and Council Decision of 23 July 1996, OJ L 228, 9 September 1996.

The gaps in the networks are due primarily to the fact that, until recently, networks were planned on a national basis. They did not always take due account of the trans-European dimension. Today, this lack of a trans-European perspective has left its mark in the form of the persisting barriers to smooth operation of the internal market [4]. In this context, the White Paper [5] pointed to the delays in completing the projects planned for the trans-European transport network as one of the chief sources of inefficiency and congestion on the main corridors which comprise it. The fast-approaching enlargement, which will inevitably generate significant growth in traffic volume [6] on the road and rail infrastructure - some of which is obsolete or offers far less capacity than required - only adds to the need to fill in the missing links in this network. Ten years after the entry into force of the Maastricht Treaty and almost as long after the Essen Summit, the development of the trans-European transport network is stagnating. There are many reasons for this, mainly as a result of:

[4] The closure of the Mont Blanc tunnel following the accident on 24 March 1999 combined with the lack of suitable alternatives, particularly rail services, is symptomatic of this situation, which had an adverse impact on the economy of the Valle d'Aoste region, and of Italy as a whole, in terms of gross domestic product. The amount of the impact between 1999 and the beginning of 2002 is estimated in a range between 3000 and 3200 million EUR, due one third, to an increase in transport costs and for the remaining to a deficit of exports towards other countries of the Union (Source: Dipartimento per lo Sviluppo delle Economie Territoriali della Presidenza del Consiglio, 2003).

[5] COM(2001) 370.

[6] The White Paper forecasts growth of 24% in passenger traffic and 38% in freight traffic over the period 1998-2010 in the fifteen current European Union countries. If nothing is done to spread the demand more evenly, heavy goods traffic is expected to increase by around 50%. The increase in traffic could easily be twice as high in the new Member States and between them and the current Union countries, bearing in mind, in particular, the relocation of highly labour-intensive industries to these countries.

- the lack of political will on the part of the decision-makers in the Member States who have taken insufficient account of the trans-European dimension of the projects;

- the inadequacy of the financial resources dedicated to the trans-European network from public (national and Community) and private sector sources, since full use has not been made of public-private partnership option;

- the fragmentation of the entities responsible for the projects, leading to serious difficulties with the coordination of resources and the management of the projects;

This document sets out to take stock of the situation regarding transport infrastructure financing, explore ways of making that financing more effective, and relaunch the debate, among the parties concerned, about the means to be deployed in future to ensure the efficiency of the transport network on which the competitiveness of the enlarged EU will depend to a large extent over the next few decades.

1. FINANCING THE TRANS-EUROPEAN TRANSPORT NETWORK: DIAGNOSIS OF THE CURRENT SITUATION

Though the Community was given new powers over the planning of trans-European networks, these were not accompanied by a large enough financial package to build such networks. At the same time, beyond intentions, the Member States are running into problems as a result of budgetary constraints in financing the infrastructure identified in the European Parliament and Council Decision on guidelines for the development of the trans-European transport network, particularly the cross-border sections. A framework better adapted to these financing problems is needed to meet the challenges of building this infrastructure. The funds available - especially public funds (including Community funds) - are often poorly coordinated, making them less effective, while private investment remains highly selective and is far from sufficient to meet the funding requirements for building the network.

1.1. An under-funded network

The difficulty facing trans-European network projects is funding. The estimated cost of the trans-European transport network alone is around EUR350 billion for all the projects to be completed by 2010, plus over EUR100 billion more for projects involving the future Member States. Although the objectives set by the EU for development of the networks are, rightly, ambitious, the results are failing to live up to expectations, with spending on the priority transport projects by the end of 2001 still no more than 25% of the total estimated cost. Only three of the 14 priority projects endorsed by the Heads of State and Government in Essen in December 1994 have been completed [7] and some of the other 11 are still at the preliminary studies stage. The longest delays are on the cross-border sections of these projects, which are less profitable and have lower priority than the national sections. This is particularly true of the projects in the Alps and the Pyrenees. [8]

[7] The Øresund fixed link between Sweden and Denmark, Milan-Malpensa airport and the upgrading of the Cork-Dublin railway line.

[8] See report by the European Parliament's Committee on Budgets on the Commission proposal to amend the Regulation on the granting of financial aid in the field of TENs (rapporteur: Mr Turchi).

The Member States, which used to invest, on average, 1.5% of their GDP on building transport infrastructure in the 1980s, now invest less than 1%. [9] Consequently, the Member States put EUR15 to EUR20 billion a year into the various trans-European transport network projects. This funding is clearly inadequate to complete all the planned projects by 2010 and, strictly speaking, takes no account of the new needs which will emerge with enlargement. This lack of commitment to funding transport infrastructure could be regarded as surprising, considering the very sharp parallel increase observed in demand for mobility and the importance of transport to the functioning of the economy.

[9] All transport infrastructure combined.

As well as funding from the Member States, the trans-European transport network also receives Community financing, as in addition to the part it plays in identifying the individual components of the trans-European network, the Community's mandate also covers the financial aspects. Accordingly, a budget has been earmarked for the trans-European networks, backed up by Council Regulation (EC) No 2236/95 laying down general rules for the granting of Community financial aid in the field of trans-European networks, as amended by Regulation No 1655/99 of the European Parliament and of the Council (the "TEN Financial Regulation"), to support projects of common interest, studies and works. This co-financing mainly takes the form of direct grants, though the TEN Financial Regulation also allows guarantees for loans or subsidies of the interest on loans. Alongside this, the Community also helps finance these networks via the Structural Funds (Cohesion Fund and ERDF). In the case of links inside the future Member States, the Pre-Accession Structural Instrument is helping to develop the networks in these countries. The total Community contribution in the European Union (all instruments combined excluding European Investment Bank loans) for the entire period from 2000 to 2006 adds up to around EUR20 billion. [10] Clearly, the Community support therefore covers only a (very) small fraction of the funding requirements and is far from sufficient to make a contribution to developing the networks.

[10] The trans-European transport network budget for 2000-2006 totals no more than EUR4.17 billion, which is nowhere near the real needs.

It is clear from these figures that the budget the Member States are allocating to investment in the trans-European network and the funds made available by the EU itself are insufficient. To put it plainly, at the current rate of investment it would take almost 20 years to implement the schemes scheduled for completion by 2010. The new priorities which have emerged since the trans-European networks policy was introduced include those relating to enlargement - which will entail the (re)construction or upgrading of networks not only in the new Member States but also in the current members of the European Union, plus interconnections between these two zones. Another new factor which must be highlighted is the need to contribute towards an effective shift to the most environmentally friendly modes of transport, as called for by the Göteborg European Council, by targeting investment on such modes. Added to this, there is the need to contribute towards building a knowledge-based society by adapting the transport networks to use new technologies, following the example set by the Galileo project.

The fact is that while demand for mobility is growing, the construction of new and, in particular, cross-border transport infrastructure seems to be at a standstill. This transport policy, with its ambitious objectives for building new infrastructure, still lacks adequate financial resources to turn them into reality. As clearly stated in the White Paper on transport policy, if this state of affairs were to persist, it could have far-reaching consequences for safety, the environment and the quality of life of local communities and for the competitiveness of the entire production system in the enlarged Europe of the future.

1.2. Public funds in need of better coordination

Apart from looking for new sources of funding, one of the most striking aspects raised by implementation of these major projects is, without doubt, the lack of coordination between the different sources of public funds. This coordination is a problem since it is necessary to establish a delicate balance between different priorities, which do not necessarily coincide, at regional, national and Community and level.

Taking the Community funding first, the Structural Funds (ERDF), the Cohesion Fund and PASI can make a significant contribution - often over 50% of the total cost - to projects, which gives the Community authorities considerable weight in the programme for implementing them , while complying with the subsidiarity principle. This situation is conducive to the development of the TENs but this possibility is limited principally to the "cohesion countries" and less-developed regions. Assistance from the trans-European transport network budget, on the other hand, is, in theory, intended to act as a catalyst for starting up such projects, by demonstrating their feasibility and economic and financial viability. It can also serve as a lever to mobilise other sources of funding, both public and private, and to provide easier access to loans. However, this option is rarely used. Given the complexity of the projects and their ever-increasing cost, the current rules on financial aid, limiting support to 10% of the total cost, do not provide sufficient incentives to start up some of these projects. Under these circumstances, it is becoming harder and harder for the trans-European transport network budget to perform these catalyst and leverage functions.

Secondly, experience also shows that, when applying for financial support, States prefer to spread Community resources among a host of projects instead of concentrating on a more limited number to enable the Community funding to act as a catalyst. This failure to choose targeted priorities is highly damaging to the general effectiveness of these funds.

This is why, in terms of managing the trans-European network budget, the Commission cannot accept a scattering of funds among many small-scale projects but wishes instead to focus on financing the priorities identified in the White Paper (bottlenecks, short sea shipping, improving links with the outlying regions).

In addition, unlike the Community support from the trans-European network budget or the Cohesion Fund, which takes the form of direct grants (donations in a way), the contribution from the European Investment Bank consists of loans at advantageous rates, [11] often guaranteed by the Member States. As a result, the European Investment Bank is one of the leading providers of funds for major trans-European infrastructure projects and its lending policy is guided by the Bank's own assessment criteria and operates under an independent management system. For example, the proportion of European Investment Bank loans allocated to rail (24% of all loans granted to transport between 1997 and 2001 [12]) is far lower than the percentage of direct grants from the trans-European transport network budget allocated to railway infrastructure (approximately two-thirds in 2000). Consequently, road continues to take the lion's share (35% between 1997 and 2001) of the European Investment Bank loans.

[11] The European Investment Bank can grant 20-year or longer term loans at advantageous rates based on its AAA rating.

[12] Part of this 24% is earmarked for purchases of transport equipment but also covers infrastructure not forming part of the TENs. This means that the share taken by TEN railway infrastructure is even smaller. In compensation, the European Investment Bank has a separate line for loans granted to major infrastructure (6% of the total) for all modes together, but of which rail takes a substantial share.

Finally, at national level, planning of trans-European transport infrastructure often involves a proliferation of uncoordinated projects [13] rather than a selection of consistent priorities responding to the growth in traffic flows within the EU and between the EU and its leading partners (and future members) outside.

[13] For which funding is not always provided.

The degree of commitment of the Member States to the development of the trans-European transport network also depends on certain factors, such as their geographical location, and in particular their degree of isolation from the centre of the EU. It also depends on their attachment to a traditional approach to infrastructure planning which tends to discourage innovative solutions, and relies almost exclusively on public funding.

1.3. Highly selective public investment

In view of the severe budgetary constraints on the Member States and of the no less severe need for new infrastructure - particularly with enlargement on the horizon - fully public funding of such infrastructure in the medium term appears increasingly Utopian. To rely solely on funding of this type would pose a risk of delays in completing these networks - with unacceptable consequences - as already pointed out in the White Paper.

1.4. Exclusively private funding

Experience shows that exclusively private funding of transport infrastructure is not the best option for bringing large-scale projects to fruition. One of the rare recent examples of any significance is the Channel tunnel which - leaving aside its undeniable technical success - is in financial terms no model for investors wishing to venture into building infrastructure of this type. Because of the nature of the constraints involved, investment in major transport infrastructure does not lend itself to funding by the private sector alone. Apart from the substantial sums involved, the operating risks plus those inherent in the construction phase, the payback period on the infrastructure, the uncertainty surrounding both the returns [14] and the long term all militate against fully private funding of such infrastructure. Consequently, the public authorities tend not to look for mixed (public-private) financing solutions. This traditional view therefore discourages private investors.

[14] Especially taking account of the running costs which are added to the construction costs.

1.5. Joint public/private funding

Though budgetary constraints thus weigh very heavily on the capacity for public funding, there are nevertheless means of strengthening the leverage exerted by public money to attract private capital, such as the concession system, [15] which has proved its worth and is continuing to do so. Throughout the 19th century the granting of concessions fuelled the boom in the railways, a sure sign that, at the time, funding of railway infrastructure predominantly by private investors appeared sufficiently attractive and profitable. Nevertheless, in the vast majority of cases, infrastructure funding remained the prerogative of the authorities, with private investors responsible only for track-laying and infrastructure management. In more recent times, motorway or airport concessions have become common practice in many countries, where they have proved their worth. [16] Starting in the 1950s, the motorway networks of France, Italy and Spain were built largely with the aid of concessions, allowing rapid development of this infrastructure without massive State debts.

[15] Or other forms of public-private partnership based on the principle of the public and private sectors sharing both risks and profits.

[16] Whether through the introduction of real or shadow tolls.

Today public private partnerships (PPPs) are still a viable option for financing transport infrastructure in Europe, but they face major economic, legal and, in some cases, political obstacles. The Commission believes that good practice needs to be spread and that, in the medium term, the existing regulatory framework needs to be updated to make PPP schemes even more attractive, particularly for private investors. In a number of Member States, a start has already been made on such revision of the classic administrative law on concessions.

It is in this context that the Commission is going to produce a Green Paper on public-private partnerships and European public contracts law. The purpose of the Green Paper will be to launch a major public consultation regarding the rapid development of various forms of PPP and the legal regulation of public contracts through Community law. To produce an informed debate, the Green Paper will examine the current situation, identify points of legal uncertainty and suggest possible options for the future. This consultation will enable the Commission to assess whether the legal framework needs to be improved and/or supplemented in order to give economic operators better access to the various PPP operations undertaken in the European Union. In the context of trans-European transport networks, PPPs need to meet a series of basic conditions:

(1) the definition of the project in question must be clear;

(2) there needs to be a clear long-term political will, so as to avoid calling into question the initial decisions;

(3) the players involved must work to ensure a high-quality partnership;

(4) perfect transparency must exist concerning the costs, the terms of the concession and the operating conditions, and the project in general. In particular, guarantees must be given that the private sector will not be forced to bear a series of additional costs beyond the forecasts which it took into consideration when it was selected;

(5) financial guarantees must be clearly specified and there must be an established, stable legal environment;

(6) the project must be on an appropriate scale, from the economic point of view;

(7) the project must be capable of generating revenue within a reasonable timescale, including from ancillary activities;

(8) the project must provide for revenue-sharing beyond a jointly agreed minimum revenue guaranteed by the State (though without such revenue being comparable to disguised aid);

(9) the project must also provide for clear, detailed risk-sharing so that each partner remains in control of the risk it is best placed to bear.

In practice, however, these conditions are not always met. What these projects offer is a (low) financial return in the long term plus a sometimes high construction and operating (traffic) risk. The complexity of PPPs also produces the situation that the abovementioned criteria for achieving success are rarely met properly for the whole of a major trans-European transport network project. Nevertheless, it is feasible for the cross-border parts of a specific project and clearly defined sections of a trans-European transport network to meet these conditions and, no doubt, interest private capital.

Alongside this, other restrictions emerging in this process must not be underestimated:

(1) reticence on the part of some Member States to encourage PPPs;

(2) the increasingly protracted negotiations, another disincentive;

(3) the amount needed in order to take part in a tendering procedure, related to the size and complexity of the project;

(4) the desire for returns in the short term, whereas most of the projects are long-term to very long-term;

(5) the political context, which is often fluctuating, generates uncertainty which has an impact on the economics of the projects and made discourage private investors.

PPPs are an attractive instrument, and are proving very popular in many sectors, but their success depends on certain factors or conditions being present: small-scale projects, projects with easily calculable returns and risks, motorways, bridges or airports. They can also be useful whenever the input from the private sector provides a means of maximising the results and keeping closer control over costs than could be achieved by a similar project managed by the public sector. By contrast, this solution is rarely neutral in terms of costs, which in many cases end up to be higher than in the case of fully public financing, because of private investors' higher transaction costs [17] and capital costs. Clearly, then, use of PPPs cannot be held up as a "miracle" solution for a public sector facing budgetary constraints. On the contrary, experience shows that a poorly prepared PPP can generate fairly high costs for the public sector.

[17] Relating particularly to the identification, sharing and cover of risk.

The technical characteristics, structural complexities and political uncertainties surrounding the conditions for operating trans-European railway network schemes make this type of project a difficult case which goes far beyond the examples of PPPs to date. However, a close watch will have to be kept on the attempt by the French and Spanish governments to award a concession for operation and construction by a private consortium of the Perpignan-Figueras international stretch of priority project No 3 (TGV Sud). Generally, the process of opening up the railway market to competition - already underway within the EU - will bring improvements in railway companies' commercial services and make it even more attractive to invest in projects of this type.

1.6. The funding requires a more appropriate framework

Specifically, experience of funding projects through PPPs has been confined mainly to infrastructure costing far less than what is forecast for the major trans-European infrastructure projects on the drawing board today. [18] The greater the private-sector participation in these projects, the greater the need to put in place guarantee mechanisms; in particular, recent PPPs have included arrangements to provide financial compensation to the operator should actual traffic levels fall short of the forecasts, a solution which, in some cases, could prove particularly costly to the State. In this context, the diversity of the projects suggests it would be difficult to come up with a single model for PPPs and that a case-by-case approach is more appropriate. However, it is worth doing more to promote PPPs at trans-European level, targeted on specific projects or parts of projects [19] of a kind which could fit in with these constraints (roads, airports, [20] terminals and ports). New ideas, innovative clauses and something going beyond a traditionally "public" approach are necessary to encourage this trend at Community level.

[18] For example, the international section of the Lyon-Turin project alone will cost over EUR6.5 billion and the Brenner section almost EUR5 billion.

[19] HSL Zuid is a prime example. The private sector is financing 20% of the project, corresponding to the superstructure, while the public funds are intended for construction of the infrastructure and cover all the associated risks.

[20] In Greece the new Athens Spata airport was built and co-financed by a consortium of private undertakings and banks and by the Structural Funds. To guarantee sufficient revenue, the concession contract stipulated that the existing airport was to be closed when the new one opened.

Coordination between the various (public or private sector) parties involved in a project is one of the most influential aspects involved in the success of a project, in particular in the case of trans-frontier infrastructure. Establishing a structure to manage the project and with responsibility for its funding is a particularly complex problem.

The transport network is characterised by the wide range of projects which need to be implemented, their service life (sometimes spanning several centuries), the major risks entailed (financial, technical, environmental and political) and the resultant highly uncertain rate of return. Consequently, there is no single answer to the question of infrastructure funding. Solutions must be sought through a variety of instruments which it must be possible to use in combination and which need to be adapted to each category of project. In this context, the creation of - single - structures for the management of projects, capable of dealing with both the financial and administrative constraints, is a priority.

In a context marked by a shortage of resources, the objective is to create a more appropriate framework for funding major transport infrastructure, drawing principally on instruments which already exist but which need to be reinforced.

In the case of the PPP framework, for example, the Commission largely responded to this demand over four years ago when it published a communication on public-private partnerships for financing trans-European transport network projects [21] which clearly defined the conditions for forming PPPs for infrastructure projects. Regulation No 1655/99 provides for contributions to venture capital (maximum 1% of the trans-European transport network budget) under the aegis of the European Investment Bank to help set up public-private partnerships on trans-European network projects.

[21] COM (97) 453: Communication from the Commission on public-private partnerships in trans-European transport network projects.

In practice, the Community has at its disposal four budget instruments actively funding major trans-European transport infrastructure: the ERDF, the Cohesion Fund, the Pre-Accession Structural Instrument (PASI) [22] and the budget line for trans-European networks, which provide funding in the form of grants. The Cohesion Fund Regulation already stipulates that "the Commission shall support beneficiary Member States' efforts to maximise the leverage of Fund resources by encouraging greater use of private sources of funding". In fact, Community co-financing from the ERDF and the Cohesion Fund can be used to support projects following a PPP format. [23] This is made possible by the high rate of support available from these Funds. In this way, after fruitful discussions with the Commission, Greece took the decision to form PPPs for some of its road projects so that the money "saved" could be put towards rail projects.

[22] Commission staff are studying forms of PPP which could qualify for funds from the PASI. DG REGIO "Guidelines for successful public-private partnerships" (March 2003).

[23] This should also be the case with the PASI.

Another important point to note is the considerable progress made, in recent years, with the economic and regulatory framework and financial instruments, making it easier, in theory, to put PPPs in place. Reference ought to be made here to the initiatives already taken by the Commission:

- In an interpretative Communication of 29 April 2000, the Commission clarified the position of Community law regarding concessions. Concessions are not currently covered by the Directives on public contracts (except for works concessions, the award of which is subject to certain provisions of Directive 93/37). In its interpretative Communication, the Commission clarified the principles deriving from the provisions of the EC Treaty regarding fundamental freedoms, and in particular the obligations of opening to competition and equal treatment. The Court of Justice has confirmed this interpretation, notably in its judgment in the Telaustria Case. [24]

[24] Case 324/98, judgment of 7 December 2000.

- The Commission took the opportunity of the recasting of the Directives on public contracts [25] to introduce a new procedure for awarding contracts, known as "competitive dialogue". This procedure applies to complex contracts, especially where the awarding body is unable to determine which technical means might meet its requirements, or the legal and/or financial package of a project. The competitive dialogue procedure allows dialogues to be pursued with different candidates in parallel in the initial stage. Once the awarding body is able to identify the solution or solutions liable to meet its requirements, the dialogue ends. It is then followed by a phase of submission and evaluation of tenders.

[25] COM(2000) 275 final.

- In July 2000, the Commission also adopted a proposal for a regulation amending the existing Regulation on State aid (Regulation No 1107/70) authorising certain State aid to help set up PPPs.

- The introduction of the single currency offers considerable advantages for funding cross-border projects, particularly by removing the exchange risk.

2. RESOLVING THE ISSUE

A fresh approach is needed to promote a new culture of transport infrastructure funding in Europe which complies with Article 155 of the Treaty establishing the European Community ("the Community may support the financial efforts of the Member States and ... the Commission may, in close cooperation with the Member States, take any useful initiative to promote such (financial) coordination") and to facilitate synergy between the public and private sectors.

Transport infrastructure plays an essential part in the proper functioning of the economy since it enables economic growth potential to be increased through economies of scale and network economies. [26] Certain avenues need to be explored to make the management of these limited resources more efficient and to locate possible new sources of funding. This presupposes, among other things, that single management instruments will be put in place for each project. The new approach proposed is therefore based on the following range of options:

[26] What a network gains through the addition of a new node in terms of traffic generated and the scope for new links. Missing links create special network effects (e.g. the high-speed line which bypasses Paris to the south). A network must attain a critical mass to survive in competition with rivals. It therefore needs strong and coordinated funding.

1. Greater synergy in public investment: whatever the principal method of funding, whether it is public or private, the size, complexity and cross-border nature of the main trans-European transport network projects mean there is a need for better definition of priorities and coordination of funding.

2. The introduction of legal and financial management structures modelled on a European company: The introduction of structures specially created for each major project and benefiting from European company rules could provide the legal and financial transparency and coordination that are lacking in many financial packages for infrastructure projects.

3. Active promotion of the involvement of private capital requires innovative clauses and politically courageous action to overcome the conditions and restrictions set out in 1.5. The options tried out in practice include:

(a) Concession schemes under which most of the risks are borne by the private investor on the basis of active demand management.

(b) Various systems enabling private partners to be involved as early as the project design phase, e.g. the private initiative system or the organisation of opening to competition on the basis of general functional requirements (output specifications).

(c) The introduction of quality indicators and "progress clauses" enabling the private investor to realise profit on the initial investment throughout the lifetime of a project.

(d) The possibility of extending these methods to cover several interconnected projects (possibly beyond national frontiers).

It will need to be ensured that these solutions are compatible with the requirements of transparency and equal treatment. For example, experience shows that Member States often have difficulty reconciling private initiative with the obligations of transparency and equal treatment of all potential candidates. Some Member States even contend that where the initiative comes from the private sector there is no longer any need for an opening to competition, though this is of course contrary to the Treaty.

4. The definition of a stable and predictable Community framework for charging for infrastructure use. Such an approach would increase the efficiency of infrastructure use, thereby making infrastructure more profitable and attractive to investors. It would help to improve service quality by financing maintenance costs. Reflecting the generated costs of transport more accurately could in some well-defined cases enable investments to be recouped. The presentation of a legislative instrument, through an amendment of Directive 1999/62/EC on the charging of heavy goods vehicles for the use of certain infrastructures (the "Eurovignette") by June 2003, following the Brussels European Council of 20 and 21 March 2003, will enable a Community approach to be taken to the question of infrastructure charging and will define the conditions for implementing the cross-financing evoked in the Transport White Paper.

5. Lastly, consideration could also be given to increasing specific funds and introducing Community loans or guarantees for other loans which are specifically dedicated to targeted trans-European transport network projects.

3. TOWARDS BETTER COORDINATION AND SYNERGY BASED ON NEW STRUCTURES

3.1. Funds

In its resolution on the White Paper on the common transport policy [27], the European Parliament favours a coordinated approach by setting up "within the Financial Perspective a new European transport fund as a financial instrument with a substantial budget allocation, which would be applied across all Member States and deal with all modes of transport". Apart from this proposal, the scope and precise content of which still have to be determined, the need for coordinated management of all public and private sector funds dedicated to the trans-European transport network remains a priority, since public funds - whether national or Community - do not appear to be used optimally. In the context of the trans-European transport network they are often scattered among a large number of projects with no real order of priority being observed. This scattering of resources sometimes has a negative effect on the development of the trans-European transport network, as witnessed by the delays in completing these projects.

[27] Resolution of 12 February 2003. Rapporteur Mr Juan de Dios Izquierdo Collado. Point 82.

The Commission's proposal to increase its maximum share of funding in trans-European transport network projects from 10% to 20% reflects its desire to focus on a limited number of priority projects with high trans-European added value. The emphasis thus placed on certain infrastructure, and its translation in a financial sense into Community public funding, would also send the markets a strong signal of public commitment to these projects and should thus make it possible to attract other resources to them.

3.2. Structures

Where the promotion and active coordination of trans-frontier trans-European network projects is concerned, the idea of creating a European structure to promote and act as a catalyst deserves consideration.

3.3. Setting up transnational legal entities to coordinate individual projects

While European Economic Interest Groups (EEIG) seem to be suitable for handling the initial project phases (studies), they often prove far less flexible during the actual works, on account of the fact that the EEIG partners are responsible without limitation, and not solely as regards their participation.

In view of the number of players involved in setting up a European project, and the financial resources and technical expertise needed, the funds allocated to the project need to be managed in a coordinated manner during the development phase and not just the initial phase. It is therefore essential to find a legal instrument which allows more effective coordination at transnational level.

The approval by the Council, on 8 October 2001, of the Statute for European companies already goes some way to providing part of the answer. When it becomes effective in 2004, the approval of such companies should make it much simpler to set up companies to manage cross-border projects and should produce substantial economies of scale. It is within this European company framework, and in accordance with Community law on public contracts, that consideration could be given to setting up project companies for every major cross-border trans-European transport network project, in line with the spirit, though not the structure, of the Galileo joint undertaking.

The introduction of a coherent legal structure is a key step towards increasing the prospects of success of cross-border projects, in particular to secure the necessary funding. A European company would have a key advantage in this respect since it will have a single legal personality enabling it to operate in several EU Member States. Eurotunnel has already indicated that this would be a benefit which would enable it, over time, to avoid the need to comply with both English and French law. In this respect, a European company will also have a psychological advantage: if, for instance, a French company is taken over by an Italian company, the resulting company will not be Italian but European.

European companies will be governed by Community legislation directly applicable in all Member States or, failing this, by the law of the place where the company is registered. It will be governed by Community legislation directly applicable in all Member States.

- In this context, the setting up of European companies to manage each major trans-European transport network project could prove a considerable advantage. The creation of a company to manage a trans-European transport network project would in particular enable companies with registered offices in more than one Member State to merge and operate throughout the European Union and especially in the two countries concerned by the project;

- From the financial point of view, the setting up of a company would enable the various players to have a clear picture of the economic and financial situation regarding the project, which is not easy if there are several companies operating under different laws;

- Having a single company would also reduce administrative and legal costs. Such savings are generally quite considerable in the case of a multinational group;

- With regard to the choice of tax regime, which is probably one of the most important aspects and which has not been satisfactorily dealt with up to now, in particular because it requires unanimity within the Council, European companies should be free to choose which law will apply once they have a subsidiary in a given country. In this way, European companies could make it more attractive for the private sector to participate in such projects [28]; in particular, if a European company is set up by merger, any value added that is still latent will not be immediately taxed, which will be an advantage compared with ordinary law;

[28] Except as regards very specific adjustments to existing tax legislation, the tax regime issue for European companies is still unresolved, as it is for any company with places of business in several different countries. Initially it is planned to allow companies to choose their tax base as soon as they have at least one subsidiary in the country in which they wish to be taxed. The longer-term objective is to achieve a single consolidated tax base at EU level for company taxation.

- Better coordination should allow economies of scale and probably make it possible to lean more heavily on the financial markets to borrow capital. The existence of a single company is likely, for example, to make it easier to sign a global funding agreement for the project through competitive tendering;

- The existence of a single entity will make it easier to identify the roles and responsibilities of the various players and the risks to be shared between them, in particular those of the public sector and those of the private sector. First of all, it is essential to ensure that the tasks of this type of company are clearly defined. The main task of the company should be to complete the development of the cross-border project by bringing in public [29] and possibly private funds. To guarantee the transparent operation of such companies, it will be necessary to put a supervisory body in place to ensure that their decisions properly reflect the thinking of the public, national or Community authorities. This means that European companies, with their flexible arrangements, will be able to employ both a single-tier system (Chairman and Board of Directors) and a two-tier system (Executive Board and Supervisory Board).

[29] See, for instance, the Øresund consortium.

It should also be remembered that European companies provide for the broad involvement of their staff in operation and control functions, whether through social negotiations or the minimum requirements already laid down in the Regulation. These aspects are particularly important in the framework of railway infrastructure, an area in which employers and employees in most Member States remain attached to the public dimension of the undertaking.

3.4. The development of new Community funding instruments

Nearly ten years after the publication of the Commission's White Paper on Growth, Competitiveness and Employment, which proposed that Community loans be issued to fund trans-European networks, existing financial and budgetary instruments have been shown to be inadequate, as witnessed by the growing delay in the completion of the trans-European transport network programme, especially the priority projects. It will be recalled that the European Council (meeting in Brussels in December 1993) agreed that "Additional funding will be provided, as far as is necessary, to ensure that priority projects do not run into financial obstacles which would jeopardise their implementation. With this in mind, the European Council called upon the ECOFIN Council to study, together with the Commission and the EIB, procedures which would enable the Community to mobilise up to an additional ECU 8 billion per annum in loans for operators involved in setting up networks. The possibility thus provided should not run counter to the efforts undertaken by the Member States to reduce public debt, nor to the stability of financial markets".

The redirection and reprogramming of financial resources decided on by the Berlin European Council, the second review of the trans-European transport network master plans now under way (for all modes) and the definition of a trans-European network for rail freight open to competition are providing fresh momentum for trans-European transport network policy in an enlarged Europe. This will need to be at the heart of the next review of the Financial Perspective.

In this context, it is hard to see how the EU will be able to avoid a debate about a substantial increase in the Community funds given over to building the trans-European transport network. This in no way prejudges the work in progress on the new Financial Perspective, but illustrates the specific nature of the trans-European network, the completion schedule for which goes well beyond the traditional financial planning framework. A future increase in funds for completing the trans-European networks would make it possible to create major arteries linking the countries of the enlarged EU.

3.5. EU guarantees for the political risks of the trans-European transport network

Guarantees provide an essential service for loan activity since they cover the associated risk, even if they are as not as publicly visible as loans. It should be emphasised that the rules for monitoring public debt do not refer to guarantees given by States and regions. Sovereign guarantees may therefore ensure the flexibility need to cope with the current budgetary constraints.

Title XV of the Treaty [30] refers to the possibility of Community action in the form of a guarantee for trans-European transport network projects. This possibility, which is formulated very clearly, has been used only rarely up to now in the trans-European network Financial Regulation to provide, as a form of support, assistance with the cost of premiums on loan guarantees granted by financial institutions where:

[30] There are also other references to guarantees in the Treaty. Article 103(1) stipulates that "A Member State shall not be liable for or assume the commitments ... of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project". The European Investment Bank may also provide guarantees, under Article 267, though it very rarely makes use of this option.

- the project is considered cost-effective;

- the project is already benefiting from the mobilisation of public and private funding;

- the project is receiving Community funding;

- the project is partly funded from revenue derived from charging.

With these four conditions, it would be possible to consider using Community guarantees or a Community loan. [31]

[31] The same concern led to the creation of the European Investment Fund (EIF) in 1994. In 2000, responsibility and expertise in this area were taken over by the European Investment Bank.

For external actions, there is a Guarantee Fund [32] which receives payments from the Community budget to cover such operations. The Guarantee Fund under the Community budget also provides guarantees for European Investment Bank loans to third countries. At the moment, these guarantees cover only political risks, namely the risks associated with the non-transfer of foreign currencies, expropriation, armed conflict and civil unrest, and commercial risks. However, the European Investment Bank has been asked by the Council to cover commercial risk through non-sovereign guarantees for 30% of its loans.

[32] Article 3 of Regulation 2728/94: "The Fund shall rise to an appropriate level, hereinafter referred to as 'the target amount'. The target amount shall be 10% of the Community's total outstanding capital liabilities". Article 4(1): "The payments provided for under the first indent of Article 2 shall be equivalent to 14% of the capital value of the operations until the Fund reaches the target amount".

Given the options which exist at EU level, the political decision not to carry out a project could be interpreted as being a political risk due to environmental, budgetary, etc. causes. This interpretation could be extended to the non-completion of related network projects which are economically crucial for a project (network risk) but not for meeting the EU's formal commitments (to open up markets). The EU could provide guarantees for projects jointly with the Member States involved and the European Investment Bank. The main function of these guarantees is demonstrate the EU's interest and confidence in a particular project. They would be joint guarantees and the biggest backers would be the Member States benefiting from the project. The EIB's involvement would lend technical credibility to these guarantees since it would be responsible for assessing the project's vulnerability to the risks covered. In particular if a member State does not fullfil its commitments in terms of transport infrastructure implementation, or if it changes its priorities, without previously consulting other member States or interested parties. For instance, this consists in assessing what would be the economic damage to the Lyon-Turin project of a new road development in the Alps (doubling the Fréjus road tunnel, Mercantour tunnel). To cover these guarantees, a fund to mutualise risk between the various trans-European transport network projects could be set up. As with all insurance systems, it would be a question of mutualising the risks of a maximum number of projects.

A reserve fund, adopting a form to be agreed with the EIB could be set up, based on premiums paid by participating enterprises and the public authorities concerned, including the EU.

The allocation of the reserve would be commensurate with the probability of materialisation of the limited risks run. The contributions from the Community budget to the reserve would come from the TEN budget line with the need for an amendment to the current Regulation, or possibly from contributions from the Structural Funds and the Cohesion Fund. The practical implications of such an approach should be examined in the context of the work on the new Financial Perspective.

CONCLUSIONS

Financing of the trans-European transport network in an enlarged European Union will in future make it necessary to:

- use innovative means to promote the involvement of private capital so as to overcome the conditions currently preventing the general use of public-private partnerships;

- ensure coherence and complementarity between the management structures for these types of project, in particular by setting up new transnational entities such as "European companies";

- review the level of Community resources in the context of the ongoing debate about the future Financial Perspective.

PART II - TOWARDS A EUROPEAN ELECTRONIC TOLL SERVICE