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Cablegate: Public-Private Partnerships in Transportation - July 16-18

VZCZCXRO3485
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFR #1391/01 2041733
ZNR UUUUU ZZH
R 221733Z JUL 08
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 3865
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUCPDOC/USDOC WASHDC
INFO RUCNMEM/EU MEMBER STATES

UNCLAS SECTION 01 OF 03 PARIS 001391

SENSITIVE
SIPDIS

STATE FOR EB/TRA AND EUR/WE
TRANSPORTATION FOR FTA LITTLE/DAGUILLARD/BORINSKI
DOC FOR ITA JLEVINE/PBUCHER

E.O. 12958: N/A
TAGS: ELTN ETRD EAIR EWWT FR
SUBJECT: Public-Private Partnerships in Transportation - July 16-18
Joint USG/GOF Conference in Lyon

Summary
-------

1. (U) On July 6-8, Federal Transit Deputy Administrator Sherry E.
Little led a delegation of Federal Transit Administration (FTA)
officials, Congressional Representatives, and private sector
participants to a conference in Lyon that FTA co-sponsored with the
GOF on public-private partnerships (PPP) in the development of
transportation networks. Representative John Mica (R-FL), Ranking
Minority Member of the House Transportation and Infrastructure
Committee, noted that he sponsored legislation providing for the
development and financing of a high speed rail link between New York
and Washington. He supported a five-year transportation plan that
would set priorities and designate projects for the nation's
transportation needs covering road, rail, the ports, and air.
According to various French presenters, the GOF set guidelines for
how PPPs should work and cataloged the needs for their municipal or
regional transportation systems. The private sector designed,
built, and operated concessions, based on government specifications
for a set length of time. FTA announced that it will cosponsor a
follow-up conference in San Diego in October with the GOF. FTA
Deputy Administrator Little is also organizing four PPP conferences
this autumn throughout the U.S. to discuss new ways of incorporating
private sector involvement. End summary.

Background
----------

2. (U) The Federal Transit Administration (FTA) is a 500-member
agency that administers and overseas the USD 9 billion federal
assistance program to the nation's public transportation operators.
This sum includes FTA's USD 1.4 billion New Starts program, which
aims to ensure the greatest return on investment in major capital
transit projects.

Public Transportation Usage Up; Federal Funding Down
--------------------------------------------- -------

3. (U) On July 6-8, FTA Deputy Administrator Sherry E. Little led a
delegation of FTA officials, Congressional Representatives, and
private sector participants to a conference in Lyon that FTA
co-sponsored with the GOF on public-private partnerships (PPP) in
the development of transportation networks. Little opened the
conference, noting that high gas prices have decreased demand for
petroleum as consumers have shifted to more gas efficient vehicles,
such as hybrid automobiles. High petroleum prices have pushed
public transport usage to an all time high, as many opted to stop
driving. At a time when FTA needed to fund the expansion of public
transport projects to cope with increased demand, federal funding
for municipal and regional transportation systems has come under
pressure. The FTA derived 80 percent of its funding from gas taxes.
As the demand for gas has gone down, so has FTA's resources.
Little estimated that the UFTA would need USD 22 billion/year to
maintain and improve transportation through 2040, a 40 percent
increase over 2004 spending levels. In addition, the cost of
multi-modal transportation systems would climb because of the rise
in commodities prices.

4. (U) Little noted that she drafted the PPP test law while she was
Senior Professional Staff Member on the Senate Committee on Banking,
Housing, and Urban Affairs. Since then, Texas, Colorado, and
California have shown that PPP projects were built faster, were more
efficient, and were more consumer-oriented than traditional public
sector built and managed projects. To increase awareness of and
interest in the PPP model, the FTA planned to hold four workshops
this autumn in Denver, San Francisco, Philadelphia, and Dallas. In
October, the FTA would also co-host with the GOF a follow-on PPP
workshop in San Diego.

Congressional Call for Transportation Plan
------------------------------------------

5. (U) Representative John Mica (R-FL), Ranking Minority Member of
the House Transportation and Infrastructure Committee noted that he
sponsored legislation (H.R. 6003, the Passenger Rail Investment and
Improvement Act of 2008 passed on June 11, 2008) that instructed the
DOT to solicit bids for the development and financing of a high
speed rail link between New York and Washington. He supported a
five-year transportation plan that would set priorities and
designate projects for the nation's transportation needs covering
road, rail, the ports, and air. The plan would define the role of
the federal government, the states, and business. A key issue was
finding innovative financial solutions to improve and maintain
transportation infrastructure, which would necessitate a
transitional and flexible tax system on fuel that would consider

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factors such as environmental issues. He expressed support for
innovative solutions such as leasing portions of the interstate
highway system to the private sector to ensure upkeep.

6. (U) Representative Loretta Sanchez (D-CA), Chairwoman of the
Subcommittee on Border, Maritime and Global Counterterrorism, noted
that, if the private sector played a larger role in the development
of transportation systems, it would need to protect against
terrorist attacks or it "would feel the weight of regulation."

Transportation in the Rhone-Alpes Region Improved
--------------------------------------------- ----

7. (U) Rhone Alpes Regional Council First Vice President for
Transportation Bernard Soulage said that private participation in
transportation projects guaranteed that market considerations would
reign. The Rhone-Alpes Region spent 25 percent of its budget on
transportation. It recently developed a smart card that could be
used on all of the province's regional transportation, including
bicycle rental. It made train schedules more consistent with
demand, which affected SNCF schedules throughout Western France,
since Rhone-Alpes was a main transportation hub. The Region was
also developing a regional transportation authority to coordinate
all transportation issues. The Region's big project is a tunnel
under the Alps linking Grenoble with Turin. The cost of this tunnel
will exceed that of the Chunnel and is a project appropriate for
private equity participation.

8. (U) Lyon Greater Lyon Transit Authority (SYSTRAL) President
Bernard Rivalta noted that SYSTRAL was a public sector company that
provided public transport for the 57 towns comprising Greater Lyon
and seven adjoining towns, covering 1.3 million inhabitants and 613
square kilometers. SYTRAL's Board comprised 10 members of the Rhone
Department General Council and 16 members of the Greater Lyon
Council. SYSTRAL's role was to define and implement urban
transportation policy, finance network operations, maintain, design,
finance, and build network extensions, delegate network operations
to the private sector, control the quality of service, decide on
routes, schedules, and fares, monitor traffic flow, and maintain
rolling stock, buildings, tracks, and tunnels. Systral selected
Keolis Lyon to operate its transportation network following
competitive bidding for the period 2005-2010. Lyon's transportation
system is intermodal, comprising underground metros, cable cars,
tramways, trolleybuses, and busses. Electricity powers 73 percent
of the network.

Transportation Project Planning, Development and Implementation
--------------------------------------------- -----

9. (U) University of California at Berkeley Urban and Regional
Development Institute Director David Dowall said that PPPs had an
advantage of obtaining new funding sources, utilizing global
expertise, and exposing projects to market discipline. Potential
funding sources included mutual funds, pension funds, strategic
equity investors, insurance companies, and vendor financing. Key
issues were estimating demand of projects correctly and taking care
of right of way and other legal issues.

10. (U) Veolia Transportation Business Development North America
Senior Vice President Ronald Hartmann said that annual expenditures
in the United States on public transportation totaled USD 15
billion, and 10 percent was under contract to private operators.

11. (U) Alstom Concession Director Didier Traube said that PPPs
benefited the public sector because they transferred risk to the
private sector, provided better budgetary control, and resulted in
on-time delivery. The government's role was to draft transportation
regulations, set guidelines for how PPPs should work, secure rights
of way, and catalogue the needs for their municipal or regional
transportation systems. The private sector could then play a
comprehensive role, designing, financing, building, and operating
concessions built to government specifications for a set length of
time.

12. (U) Acumen Ltd. Director Simon Murray noted that PPPs in the
United Kingdom have had mixed success. The UK has had difficulty
forecasting capital costs, and many PPP transportation projects have
required ongoing subsidies. Successful PPP transportation projects
have strong leadership and community support, interface with other
infrastructure, use proven engineering systems, and include a robust
business plan with accurate capital costs. The CEOs of the San
Francisco and Charlotte provided background on their PPP experience
involving their metro systems. Aside from the networks themselves,
these cities have used PPP models to finance the development of
shopping malls, museums and other developmental projects around the

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metro stations.

STAPLETON

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