Welcoming adress at The 4th Annual PPP Forum (Public private partnership)

By Minister of Transport and Communications Mrs Torild Skogsholm

Welcoming adress by the Minister of Transport and Communications Torild Skogsholm, at he 4th Annual PPP Forum. (22.10.03)

Minister of Transport and Communications Torild Skogsholm
The 4th Annual PPP Forum (Public private partnership)
20. October 2003
Oslo, Norway



Welcoming address

Ladies and gentlemen. Good morning.

First of all I would like to thank you for the invitation to attend this PPP Forum, and also for giving me the opportunity to make a welcoming address. I am delighted that you have chosen Oslo as the location for this year’s event.

The Norwegian road network is comprehensive – because of long distances and a widely distributed population. Norway has approximately 27.000 km state roads and 64.000 km regional and local roads.

The main issues and priorities in Norwegian transport policies are presented in the annual budget. However, the guidelines for the annual budgets are given through the National Transport plan. The Government’s proposals for the national transport policy is presented to the Parliament every fourth year in a 10-year plan including each transport sector, proposing aims, priorities and financial framework.

The Norwegian PPP-history in the transport sector started in February 2001, when the parliament in Norway discussed a white paper on transport. The parliament then decided to find out whether PPP is a suitable model for financing and building roads in Norway. Three road projects have been selected to test if the PPP-model will lead to greater efficiency in road projects and at the same time give the public sector the required control of the projects and political flexibility. The Government is also positive to test the PPP concept in the railway sector, but for the time being no projects have been proposed. I will therefore focus on the road sector this morning.

The Norwegian PPP-model

The PPP-company in the Norwegian PPP-model will receive an annual unitary payment, but with the actual level of payment being varied according to performance against a number of pre-defined criteria. These criteria are related to our political goals of good accessibility, high performance and a high level of traffic safety on the road network. The annual payment consists of both government funding and toll money.

The most important difference compared to today’s model for road construction in Norway is that in the PPP-model the private sector gets the entire responsibility to deliver a service, while traditionally the private sector is a supplier of single, specified tasks. In PPP-projects the authorities will place orders and make demands on what to be delivered, as opposed to demands on how to deliver it.

The PPP-contract gives the selected company full responsibility to ensure that the project road is perceived by the users and the surrounding population to have good aesthetic and environmental standards over the life of the contract.

The PPP-model assures a value for money allocation of risk between the public and private sectors. The risk allocation is clearly defined in the contract. The Norwegian PPP-model assures that risk is allocated to the party best able to manage the different risk elements. The traffic risk is – neither in form of toll collection nor shadow toll – allocated to the company.

The first PPP-project in Norway

In April this year The Norwegian Public Roads Administration signed the first PPP-contract ever created in Norway. The project (E39 Klett-Bårdshaug) serves as a pilot scheme for the whole country. It is situated in Sør-Trøndelag County in the middle of Norway. A private company is responsible for building, operating and keeping the road (E39 Klett-Bårdshaug) in repair for 25 years. In addition, the company is responsible for handing over the road to the Government in a predefined technical condition based on functional requirements at the end of the concession period.

As I mentioned earlier, the traffic risk will not be allocated to the company. The toll company for the first project is a state owned non-profit company which has entered into a separate agreement with The Directorate of Public Roads. The agreement regulates how the toll funding will be used to partly finance the road development. The PPP-company will be paid solely based on the PPP-contract and the payment mechanism and a payment profile specified in this contract.

The Ministry has started a primary evaluation of the first PPP project. Hopefully the results from this work will give us an indication whether the use of PPP is an efficient way of organising road projects in Norway. The preliminary experiences we have seen so far are as follows; Firstly, the construction period is reduced to 2 ^2 years in the PPP-scenario, compared to 4 years in the traditional way of building roads. This will lead to considerably advantages for the road users. Secondly, we are guaranteed a quality level on the road regulated by the contract. Thirdly, we know when the road is going to open, and the state will not pay the company until that date. Finally, another positive thing about the first project is that it is considered to be one of the quickest transactions yet seen in the European PPP Market. I believe that the way the parties approached and carried out the process shows how the European market can efficiently implement new PPP procurement structures in a timely fashion. At the same time I do not believe that PPP is the answer to all the challenges we experience in the Norwegian transport sector.

The two other road projects to be procured as PPP-projects in Norway are E39 Lyngdal-Flekkefjord in Vest-Agder County and the E18 Grimstad-Kristiansand in Aust-Agder County, both in the southern part of Norway. For the former project, the procurement process is in progress, and four bidders have been pre-qualified. The Directorate of Public Roads Administration will most likely sign the contract with the preferred bidder in the spring next year. Thereafter the company will begin the construction of the road. The latter project has not yet been defined, but it will be the most extensive of the three projects, and the pre-qualification for this project will most likely start in 2004.

The Norwegian government has plans for extensive investments in the transport network in the years to come. We regard the PPP-model as one of several measures to increase the efficiency of our investments, and thereby give people and industry and trade better public services.

The government has recently also got the parliament´s approval to another extensive reform – which involves setting out all the construction, operation and maintenance of public roads to open competition in the market. This means that from 1st og January 2003 all new projects earlier conducted by the Public Roads Administration are presented to the private market for road construction. In addition, the production department of the Public Roads Administration was at 1st January 2003 reorganised as a state owned limited company called Mesta, that are competing on equal terms with private companies.

Recent years experience abroad has revealed that realisation of transportation projects by the private sector has led to savings, access to new sources of funding and the moving ahead of high-priority projects. It is, however, important for me to point out that PPP is not a simple or easy solution to scarcity of public money in the Norwegian transport sector. The use of PPP does not change our main challenges - the need for increased investments in the transport sector, and political efforts in order to accomplish value for money on any type of project.

I consider PPP-projects as a supplement to the traditional way of financing and building roads in Norway. The PPP-pilot-projects will give us knowledge and an important basis of comparison.

Finally, I would like to wish you all a very interesting Forum.

Thank you for your attention

VEDLEGG