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L'américanisation en Europe au xxe siècle : économie, culture, politique. Volume 1

Isabelle Lescent-Giles
Dominique Barjot
Marc de Ferrière

Troisième partie. Une diffusion progressive

Infrastructure finance since the Second World War: an American model or a dead-end?

Laurent Bonnaud


À partir des années 1960, le capital et l'ingénierie financière privés sont mis à contribution pour le financement d'infrastructures. Les expériences de financement de projets initiées dans le secteur pétrolier sont alors transposées dans le domaine hautement capitalistique des infrastructures de transports. Dans un premier temps, l'antériorité nord-américaine dans ce domaine amènent à transposer les montages et les compétences venus d'Outre-Atlantique à des projets européens, comme celui du tunnel sous la Manche.
À partir des années 1970, l'expérience britannique en matière pétrolière off-shore, l'évolution du modèle français de concession autoroutière et les transferts de savoir-faire réalisés vers les banques et les bureaux d'étude européens font partie des facteurs qui suscitent le développement de modèles locaux de financement de projet. La reconnaissance du financement de projet par la Commission Européenne et le lancement au Royaume-Uni de l'Initiative de Financement Privé institutionnalisent des savoir-faire qui recouvrent des formes très variées à la fin des années 1990. Le modèle américain a été adapté, et les établissements financiers européens ont pris une part de marché significative dans le financement des infrastructures de transport. Toutefois, cette constatation ne résout pas les questions fondamentales de rentabilité des infrastructures de transport et d'allocation optimale des ressources.

Texte intégral

1Infrastructure finance has become a major issue for transport economics. Traffic in OECD countries has grown over the long-term at average annual rates of more than 5% since the 1970s, leading to severe infrastructure bottlenecks. Citizens of the wealthiest regions of the world have long been accustomed to high-profile traffic jams and missing links in infrastructure networks. But concern is now mounting over the economic and environmental consequences of air congestion and modal unbalance. As a resuit, transport infrastructures have become a key issue for decision-makers at both national and supra-national level. Since the post-war reconstruction, the money invested in infrastructure projects has risen considerably. Individual projects became more capital-intensive, more sophisticated, and more international. They increasingly turned to private capital markets. Altogether, the last four decades have witnessed remarkable change not only in the size of capital invested, but also in the way it is raised and invested.

2Historians have thoroughly researched the role of infrastructures in economic growth, the economics of the European reconstruction and the financing of the energy industry. Conversely, publications on the finance of transport infrastructure in a long-term perspective are scarce. Discussions have been limited to professional circles and to the short-term perspective. Access to recent corporate sources has no doubt restricted the scope of the investigations. Still, it is only appropriate that historians should offer a multidisciplinary approach and identify turning points in this narrow but essential field of corporate finance. Infrastructure projects do not only reflect technology, human skills and financial resources, but also national laws and regulations with their macro-economic, political and even diplomatie implications.

  • 1 Clifford C., Project Finance, UK, Jevons Browns, 1994, p. 1.

3Transport infrastructure is defined as the fixed assets of a System designed to carry people or goods, as opposed to the vehicles using it. Infrastructure finance covers the whole range of capital resources, whether public or private, that are used to research, build and operate such equipment. Project finance brings together all the structures that lend money for specific projects. It is an essential tool for private infrastructure finance. In return, these projects are expected to deliver enough cash flow to pay the lenders back. What typifies project finance, though, is that the lender has only limited recourse or even no recourse at all in case of default. This arises from the fact that project finance does not depend from the value of the asset that is being financed and does not carry the backing of the sponsors. Instead, it involves various parties with different levels of risk and return. That includes sponsors, lenders, equity investors, suppliers, contractors, operators, insurers and official authorities...1 In its most classical form, project finance involves a public authority awarding to a private sponsor a concession right to deliver a specific service. An early example can be found in the financing of French canal building in the 16th century.

4Immediately after the Second World War, the rebuilding of Europe’s transport infrastructures was financed by governments and multilateral aid. But from the 1950s, alternative sources of finance appeared both in America and in Europe. To what extent did American models influence the financing of European transport projects? Did these models eventually displace European alternatives? In turn, did European models of transport finance influence America? This paper will seek to answer these questions by looking at the pioneering role of the offshore oil industry in project finance, and by reviewing two case studies in the financing of inter-urban transport Systems from 1957 onwards: the Channel Tunnel and French toll motorways. The Channel Tunnel challenged all financiers and lawyers involved by its sheer size and its bi-national character. It marked a watershed in the history of project finance. France’s toll motorways illustrate how the private and public sector worked together within the System of the concession.

  • 2 The first toll motorway was inaugurated in Mussolini’s Italy in 1924. But Germany and the USA also (...)

5From 1957 onwards, and during the four decades that followed, private infrastructure finance spread to new sectors of the economy and to new continents. It was pioneered in the 1960s by the oil and gas industry, as offshore exploration required funds on an unprecedented scale. At about the same rime, France, Spain and Italy2 inaugurated toll motorways as a means to fund ambitious network programs. In the 1970s, the resulting know-how was applied to other infrastructure projects such as mines and pipelines, thanks to changes in the legal framework. But it is in the 1980s that project finance came to prominence. Ever-bigger transport infrastructure projects were assessed and implemented in the form of bridges, tunnels, and airports. Project finance spread to new sectors, such as leisure parks, telecommunications, and utilities (energy, water, and waste disposai). This led to the emergence of “Public Private Partnerships” (PPPs). The United Kingdom was one of the first to recognise the potential of attracting private money to fund projects of public interest. This resulted in the launch of the “Private Finance Initiative” in the 1990s.


6In the late 1950s, public investment in the European economics shrank as Europe completed its reconstruction. In France, it decreased from 50% in 1952 to 27% in 1956. This paved the way for innovations in infrastructure finance.

The Channel Tunnel and the US (1957-1969)

  • 3 European Union, Selected instruments taken from the Treaties, Book I, Vol. I, Luxemburg, 1993, p. 1 (...)
  • 4 Passages dealing with the Channei Tunnel rely on L. Bonnaud, Le Tunnel sous la Manche. Deux siècles (...)

7Signed in 1957, the Treaty of Rome advocated the pursuit of European integration “within the framework of a common transport policy”.3 A year later, the European Investment Bank (EIB) was created to act as the Community’s financial arm. One of its missions was to fund the development of European infrastructures. In this context, the Suez Canal Company, whose Egyptian assets were nationalised in 1956, announced its intention of investing in a Channel Tunnel.4 Jacques Georges-Picot, its chairman, was a dedicated pro-European.

8He was convinced that such a venture required a new legal structure in the guise of a European Company law. He was also acutely aware that the funding required to build the Channel Tunnel far exceeded the scope of public finance, even if France and Britain had agreed to share the burden, which was far from assured. His answer was to open the project to private investment, just like the Suez Canal a century before.

9This paved the way for the first American intervention in a project that up to then had remained a pure Anglo-French venture. Arnaud de Vitry, a French engineer trained at the Ecole Polytechnique, but with strong New York connections, introduced Jacques Georges-Picot to several high-profile New York lawyers and bankers. Among them are his brother-in-law, the lawyer Franck P. Davidson, two Vice-Presidents of merchant banks Dillon Read and J.P. Morgan, and the arbitration director of the New York Stock Exchange. All had acquired expertise in sophisticated finance packages by working for the oil industry. They formed a company, Technical Studies (T.S. Inc.), to act as their representative in the European venture.

10Initial contacts soon materialised with the creation of The Channel Tunnel Study Group (CTSG) in july 1957. The founding partners were Technical Studies, Suez, and the two subsidiaries of the French and British railway companies that had been granted the original concessions. They brought 25% of the capital each. CTSG’s mission was to investigate the technical and economic implications of the project and find new investors. The consultants Brian Colquhoun & Partners of London were instructed to assess the project’s feasibility.

11Suez had liquidities and valuable know-how in infrastructure management. The Société Française du Tunnel sous la Manche S.A. and the Channel Tunnel Company Ltd held the key intangible asset: concessions under French and British law to build an undersea tunnel from the coast of each country to the Channel’s midline. The role of Technical Studies, according to Jacques Georges-Picot, was to win Americans over to the idea of a Channel Tunnel and import capital and financial expertise from the US. A new connection was formed with Bechtel, a US engineering company, whose founder, Warren, had put together the Six Companies’consortium that built the Hoover Dam. His son Steve later pioneered the concept of the turnkey project, in which its firm agreed to set up a fully operational project for a contractor — and hand over the key after completion! One of Bechtel’s current directors joined CTSG’s executive committee.

  • 5 Interview with the author.

12This led to the launch, in 1959, of a program to sound the English Channel. Three economic consultants were selected: France’s SETEC, the London-based Economist Intelligence Unit and the Chicago-based De Leuw, Cather & Co. The latter was a transport specialist and had been recommended by France’s Société de construction des Batignolles. This was no mere coïncidence: De Leuw was familiar with innovative financing methods and was connected to the American economist, W.P. Hedden, who co-ordinated the studies. W.P. Hedden had a background in traffic forecasting for bus terminais, tunnels, and bridges. He had worked for the Port of New York authority, on La Guardia and Newark airports. He was a staunch advocate of “the ability of large new projects to support themselves from earnings”, thus giving one of the first definitions of project finance. The lawyer Alfred Davidson, brother of Franck, gave an inside view of the then Channel Tunnel finance team. He stressed its pragmatic approach: “you can imagine that the financial plans were just as complicated as the geology. We got whole books on the telex: if you do this, this will happen, if you do that [...]”.5

13One problem was that the three consultants used totally different methods. But the split was not so much between the Old and the New World than between America and France, on the one side, and Britain, on the other side. The French and American consultants both relied on econometric models, whereas their British counterparts worked on a more traditional survey basis. Such was the gap that de Leuw & Co and SETEC hesitated before putting their name to the final report. But Jacques Georges-Picot put pressure on them, arguing that the support of British public opinion on the one side, of American and French bankers on the other, was at stake. Respecting the balance between French and English partners, he said, was absolutely essential. The de facto alliance of one European party with American partners put the project at risk.

  • 6 Staatsarchiv Hamburg, 326-2 I IA/19.02/9.

14CTSG’s proposais had little chance of being backed by public money, due to their timing, their political implications, and the high risk that the project carried. In 1956, the modernisation of German canals ended after a fierce discussion with a 66 to 33 per cent split between the Federation (Bund) on the one hand and the local and regional authorities (Länder) on the other.6 The cost of the Mont-Blanc tunnel venture was highly subsidised by the French and Italian governments, who put up nearly 30% of the total cost. A holding company then borrowed the remaining 70%. But in 1960, the Channel Tunnel received a clear “no” from both governments.

15As a resuit, CTSG contemplated raising 130 millions francs on the financial markets. This was the estimated cost of the project, including terminais. 20% would be sold as equity, with shareholders bearing the full risk of the venture. Bondholders, on the other hand, would receive a guarantee from the governments involved. With operating costs estimated at 5.7 million francs, including 5% to service debt, the project would not become profitable until 1980, 13 years after the intended beginning of operations. Investors would need to be patient.

16Still, the French and British governments did not give the go-ahead for a Channel fixed link before 1966. They decided to delegate the construction work to a private consortium, chosen after an open bid. A Franco-British public authority would operate the finished tunnel. But both governments procrastinated for three years and eventually asked the three bidders to merge. This was a severe blow for the CTSG, which has been involved in the studies for nearly ten years and expected to be in a pole position in the bidding process. The merger resulted in the dilution of the American interests, which shrank from 25% to just 2,76%. The direct involvement of American capital in the Channel tunnel project came to an end. Nevertheless, during these twelve years of co-operation with American financiers, the European partners had acquired a substantial expertise in feasibility studies, project finance, and management.

Oil & gas innovations (1959-1970)

  • 7 C. Fleming, «Private Practice. European Bankers Chase Boom Market for Project Finance», Wall Street (...)

17While these discussions about the Channel Tunnel went on, major new gas resources were discovered in 1959 off Groningen, under the North Sea bed. This led to the development of offshore oil and gas research. The cost vastly outstripped that of land exploration. Sophisticated equipment was required and Financial return, like that of the Channel Tunnel, was a long way away. The discovery of the West Sole gas field in 1965 by teams from BP (British Petroleum) was in fact the resuit of research that had started at the beginning of the decade. This oil field was opened for exploitation two years later. The campaign of Alaska, which started in 1959, is another example of the time that could elapse between research and field exploitation. After over ten years of research, major oil reserves were discovered at Prudhoe Bay, in Northern Alaska, but it took another eight years before oil production could be started. It peaked in the late 1980s. The Alaskan oil field is a good case study of Anglo-American cooperation. As it became clear that the field was one of the biggest in the United States, BP struck a deal with the Standard Oil Company of Ohio. Active on both sides of the Atlantic, BP was ideally suited to project finance. When its research teams discovered the Forties field off Scotland in 1970, development was funded by a bank loan of 370 million pounds sterling. This was the largest advance ever granted by a private bank. At its peak in the 1980s, Forties produced 25% of the UK's daily oil needs.7

18The development of these major offshore fields fuelled new ideas to finance capital intensive projects. Merchant bankers gained experience in financing projects where operating cash flow would not corne in for many years. They got better at forecasting. As a resuit, banks from Britain, the Netherlands, and the US took the lead in project finance from the late 1960s onward. Crossfertilisation between American and European teams went smoothly in the wellconnected world of oil majors. Engineers from the oil and gas industry moved to the transport sector and paved the way for cross-sectoral transfers. Men on the Channel Tunnel project frequently bumped into oil engineers and financiers whilst buying or leasing equipment. During the 1960s, the demand for diving equipment, research boats and trained crews became so high that the Channel Tunnel promoters had difficulty in finding two boats to hire for their geological explorations. Each sector was aware of the other’s work.

French toll roads (1955-1969)

  • 8 Ch. D. Jacobson, J.A. Tarr, 1993, Ownership and Financing of Infrastructure: Historical Perspective (...)

19In the US, the State played a major part in infrastructure finance up to the late 1970s. Although private railway companies were behind the conquest of the Northern American territories, the government played its part in granting land along the rail corridors. Later in the 20th century, the transport industry (railways, airlines, and pipelines) was regulated at federal, State, and local level. As Ch. D. Jacobson and J.A. Tarr put it, “Private firms and property owners’associations of various sorts have owned outright both toll roads and residential streets in the United States”.8 But apart from limited experiments with concessions and toll roads in the late 1920s, which came to an end with the Great Depression, interstate highways were free, because they were viewed as a public service. This American principle of “free circulation for free citizens” guided the reconstruction of road infrastructures in Italy and Germany.

20But these two countries were the most advanced in Europe with regards to motorways. In most other European countries, including France, the motorway network was still embryonic in the 1950s. France’s first motorway was built in the 1930s and ran from Saint-Cloud to Orgeval, on the outskirts of Paris. A handful of motorways were then built around three other major French cities, Marseilles, Lyons, and Lille. But they only added up to 77 km altogether, in spite of the record growth of road traffic. In 1955, the French Government decided to grant concessions to build new motorways. These would form the skeleton for a national network and tap into available alternative financial resources to the budget or the existing Special Road Investment Fund (SFIR).

  • 9 An official definition for motorway is first proposed at the European Conference of Transport Minis (...)

21The law adopted on 18th April 1955 provided the framework for motorway concessions and the repayment of construction costs through users’toll.9 Five concessionaire companies were created in the shape of “Mixed Economy Companies” (Sociétés d’Économie mixte, SEM). They brought together local authorities and private sponsors. The Northern and Eastern France Motorway Co, the Paris-Lyons Motorway Co, the Rhône Valley Motorway Co, the Paris-Normandy Motorway Co and the Esterel-Côte d’Azur Motorway Co exhibited striking parallels with railway concessionaires of the 19th century.

  • 10 J.-F. Poupinel, « Les autoroutes françaises » in C. Martinand (ed.), L’expérience française du fina (...)

22But the new legislation did not alter the fact that the French State remained firmly in charge. It had control over both the construction and the running of the motorways, from project assessment to toll fees and maintenance. The SEMs had a weak Financial structure and delegated procurement and administration to a common organization, the SCET. 40% of construction costs were funded by repayable subventions, voted within the National budget, and 60% by state-guaranteed bonds. Those were issued by a dedicated public entity, the Caisse Nationale des Autoroutes (CNA), created in 1963 and directly chaired by the Roads Director, a leading civil servant at the ministry of Transport and Public Works. In fact, the role of the SEMs was restricted to the running of tollbooths and to accountancy. During this period, an average of 150 km a year was built.10 By 1965, France had built a total of 653 km of motorways. By 1970, this had risen to 1.599 km. But France still lagged behind Italy, which boasted 4.000 km of motorways, and Germany, who had 6.000 km. Worse, supply was outstripped by demand, as France struggled to keep up with growing inter-city traffic. The concession System had shown its limits.


23The 1970s paved the way for new financial tools pioneered in North Sea oil and gas research. A spate of big investment programs, such as the Airbus venture after 1974, the financing of giant tankers and the building of cogeneration plants in the energy sector gave a new impetus to structured finance, elaborating combined financing packages which may include debt, equity, lease and tax-advantaged products. Most European banks acquired the relevant expertise through their American branches. It was then transferred to head office. This transfer of financial know-how was made easier by the development of telephone communications and of commercial jets. But computerisation also played a major role, with breakthroughs in forecasting and modelling. Last but not least, a new regulatory framework was put in place with the aim of clarifying the roles and responsibilities of the many parties involved in project finance.

The Channel Tunnel Treaties: breaking through the constraints of regulation (1971-1975)

24The Channel Tunnel Group that resulted from the merger of the three bidding consortia was officially granted the right to build and operate a crossChannel fixed link in 1971. By then, the main problem was as much organisational as financial. On the British side, the merchant bank Morgan Grenfell and the mining corporation Rio Tinto Zinc now expected to play a leading role. On the French side, Suez, led by Jacques Georges-Picot, had opposed the merger and decided to back down. The attempt to replace it with the Compagnie Générale d'Electricité (CGE) failed. CGE had no tunnel expertise in any case. The resuit was an unbalance between France and Britain in the consortium, which later proved a severe handicap.

25International law did not provide an adequate framework for the Anglo-French venture. The tunnel promoters turned to national governments for help. This was the first time since the Mont-Blanc tunnel that a legal framework was built from scratch for a cross-border transport infrastructure. Between 1972 and 1973, legal experts from both countries drafted the new rules for the concession and several treaties between the French and British governments. This was extremely difficult, due to the irreconcilable nature of the French and British legal Systems. Britain relied on jurisprudence and the common law, France’s on a Civil Code hardly touched since Napoleon I promulgated it. This represented a major challenge for the Tunnel’s promoters. The definition of the “service public”, of governments and Etats were hotly debated. The British side tried to determine whether “force majeure” was the French equivalent to the British notion of “exceptional risk” or “save for an act of God”. “Oh, you mean force majeure”, uttered the head of the British delegation after a long debate. The US experience proved of no assistance at this point. For lack of a better solution, it was decided that Swiss law would apply. This was common practice in international law.

26The tunnel received the green light in 1973, but was abandoned unilaterally by the British government two years later. The reason given was that the cost of the rail link between the tunnel and London had been grossly underestimated, and that neither the Government nor British Rail could finance it in the wake of the oil crisis. Private capital was not available either. On the French side, the SNCF, France’s national railway company, intended to build its first high-speed train to connect the Tunnel with Paris and Brussels. The British could not match this, in spite of the ambitious targets set by the Southeast network of British Rail. The French had their own worries: there was no budget earmarked for a road linking Calais to the Paris-Brussels motorway.

27America influence played no part in these developments. The role of Technical Studies in the 1960s was all but forgotten, and the Tunnel had become a Franco-British affair again. Increasingly, it was a matter for Europe too. Satisfactory legal solutions were provided, building on the Swiss model. The required technology was there. The project collapsed due to a mix of national and European politics, deficient management structure and above all lack of funds.

28“The first lesson is the importance of finance”, wrote Sir Alec Cairncross, economic adviser to the British Government. At this stage, the know-how in project finance and profit forecasting has not reached the “critical mass” such a project required.

French motorways get into top gear (1969-1970)

29France’s government drew the lessons of the limited success of its existing motorway concessions and passed a new law on 24th December 1969 to speed up motorway construction. It was built around three key points:

  • The State would cease to control the whole process from construction to operations. Instead, it would pilot the project up to the Public Utility Agreement (Déclaration d'Utilité Publique). From then onward, the Concessionaire Company (SEM) would be in charge of building, managing and maintaining the motorway. It was up to them to make it pay. It would choose its own Board, would carry out the preliminary studies and traffic forecasting, and would beat the financial responsibility for the program. The State would no longer set toll levels.

  • The new concessions were disconnected from the annual State budget and the financing programs could stretch over several years, a decisive step for the development of private finance. Concessions were granted for 35 years from the date when half the network under concession has been built. This was a necessary condition to attract private capital, even with limited visibility on profits.

  • Private capital was admitted in the SEMs (officially up to 49% of the capital) and the bonds were no longer guaranteed by the State. In exchange, concessionaire companies were given more flexibility in accounting standards: they could carry forward charges that would normally have been considered as losses. Interestingly, the SNCF had lobbied unsuccessfully for such privileges, another example of discrepancies between transport modes.

30The reform laws of 1969-1970 created four private concessionaire companies. The Financial and Industrial Motorways Company (COFIROUTE) was granted responsibility for the Paris-Poitiers, Paris-Le Mans and Angers-Nantes motorways. The Rhône-Alpes Motorways Company (AREA) built Alpine motorways serving ski resorts. The Paris-Est Lorraine Motorway Company (APPEL) had jurisdiction over the Paris-Metz. Finally, the Basque Coast Motorway Company (ACOBA) was granted the stretch from St Geours to the Spanish border. The Mont-Blanc Tunnel Society, which operated a motorway stretch in addition to the road tunnel, remained a state-controlled Company. The 1969-1970 reform marks a turning point in infrastructure finance. The State relinquished a number of its prerogatives and established new risk-sharing patterns between public and private actors.

31In view of private investors’reactions, it may be safely argued that the law went a step too far in a market that remained immature. Private investors offered to put up 10% in full-risk equity finance, but refused to take up the remaining 90% in the shape of bonds, under the motive that the accumulated experience in the field was insufficient. The French State offered a compromise under which it guaranteed 60% on issued bonds, in exchange for setting toll levels. Since the 10% equity stake and 40% of bonds carried no State guarantee, it considered the chance of its responsibility being engaged as very low.

  • 11 Poupinel 1996:141.

32Unfortunately, this is exactly what happened. Within ten years of incorporation, all private concessionaires with the exception of Cofiroute were forced to call up the State guarantee. The government exercised its right to terminate the concessions, bought back the companies that had defaulted and restructured them. The nationalised bank Caisse des Dépôts et Consignations played a leading role in these operations. The only survivor, Cofiroute, remains “in a very sound financial situation” today11 and exports its know-how in toll motorways the world over, providing a successfully example of European model.

33Several managerial and market failures were responsible for this setback. The most important one was the high level of investments made in the context of successive oil crisis. Exceptional capital expenditure produced a threefold increase in the length of French motorways within the decade. 5.251 km were completed by 1980, well ahead of the target of 4.000 km set in the early 1970s. Looking further ahead though, motorway concessions can be deemed to have been a success, in spite of the fact that the French State had to intervene in order to safeguard the companies’ future.

34In the case of both the Channel Tunnel and French motorways, the input of private finance alone was insufficient to push the projects ahead. Of course, each case was specific. The Tunnel project was an extremely complex one, for both technical and political reasons: the challenge was not only to build a new transportation System dug into sub-aquatic ground, but also to pilot a high-profile highly controversial bi-national project. But both projects shared some common features. Both were transport infrastructures with a cyclical return on investment; neither could succeed in the low-growth and recession-prone context of the 1970s; finally, capital markets and project managers proved unable to rise to the challenge. They lacked the necessary managerial expertise in the Channel Tunnel case and were reluctant to take on the risk of motorway construction. In both cases, governments meddled in key aspects of the programs and investors faced constraints in the pursuit of their objectives. Project finance was forced into uncharted waters under extreme weather conditions.


35At the very moment European infrastructure projects were either ditched or rescued by state intervention, the USA moved towards a reduction of the government’s influence on the economy. The airline deregulation law of 1978 bears witness to this trend. This was not revolutionary as such. Nearly all the newly elected American presidents since the beginning of the century had promised a reduction of State intervention and were forced by circumstances to do otherwise. But in the late 1970s, the Presidency actually implemented the policy and Consolidated it during the 1980s. It then moved across the Atlantic thanks to Ronald Reagan's re-election (he ruled from 1980 to 1988) and the exceptional political longevity of Britain’s Margaret Thatcher (1979-90).

36In the 1990s, private infrastructure finance gained momentum in the rest of Europe and spread to Eastern Europe, as well as to the Asia-Pacific and Latin American regions. It affected more economic sectors, from energy and telecommunications through to mining, water and waste management, which were gradually deregulated. Once the preserve of the oil industry and transport, project finance grew spectacularly. Between 1990 and 1996, the global amount of Project Finance Infrastructure increased 7-fold to reach an astronomical 43 billion US dollars. Of those, 10% were dedicated to transport infrastructure, in 3rd position after electricity (36%) and telecommunications (31%). With 113 projects listed, the United States still led overall in the mid-1990s, largely because of their active independent power industry.

  • 12 Jacobson, Tarr 1993: 31.

37The far greater role played by private firms in the provision of electric utilities in the United States than in Great Britain during the early years of these industries, for example, can be attributed in substantial part to broad differences in beliefs concerning appropriate roles for governments to play in furnishing and overseeing essential services. The much larger role of the State in furnishing telecommunications services in continental Europe than in the United States can also be understood, at least in part, in these terms”.12

  • 13 P. Maystadt, «Foreword» in M. Crisell, ed., Project Finance Yearbook 2001/2002, Brighton, Euromoney (...)
  • 14 Jane’s Asian Infrastructure, 5th December 2001.

38The traditional view of public finance for infrastructures was undermined by the declining standards of existing public services, especially in infrastructures and networks. It was furthered by a widening feeling that the private sector was better able to design, finance and operate projects. The use of public deficits to finance investment was challenged by a return to fiscal rectitude, enshrined in the Maastricht Treaty as a key principle. On the other hand, monetary instability, with the ensuing currency crisis and high interest rates and inadequate legal Systems remained major obstacles for the development of Private Public Partnerships. Regional monetary crisis in Europe, Mexico and Asia in the 1990s led to the collapse of several projects13, leading some legislators to the suggestion that governments should buy back concessions, scrap the existing toll Systems and restore motorways to a free status.14

Public Private Partnership (PPP) and its variants

  • 15 With its variant, the BOOT (Build-Own-Operate-Transfer).
  • 16 British Telecom was privatised in November 1984.
  • 17 M. Thatcher, The Downing Street years, London, Harper & Collins, 1993, p. 676-685.

39The growing acceptance of the Anglo-Saxon version of concessions, the “Build-Operate-Transfer” (BOT) contracts15, has marked the last two decades. The BOT structure is the most widely used for transport infrastructures. The wider label of Public Private Partnership (PPP) has been used for Mixed Economy projects. BOTs and PPPs are closely linked to the wave of privatisation that started in the United States and spread to the United Kingdom16, then to Continental Europe and Latin America in the late 1980s and 1990s. Privatisation boosted flexibility and innovation in the capital markets, and caused a radical redesign of labour relations and management methods. The British model for public utility privatisation, which fixed prices below the level of inflation for a number of years, was adopted both in Continental Europe and in the USA.17

40On the contrary, the French model of the “Mixed Economy Company” (SEM) suffered from the political control traditionally associated with it. This was clear in the case of France’s motorways. Its accounting and management Systems, derived from public companies, proved inadequate for complex financial deals and did not meet the requirements of corporate governance. The situation was made worse by the increasingly complex legal framework in the 1990s. The slow decline of the concession is another illustration of the crucial part played in infrastructure finance by the legal and regulatory environment.

PFIs inter se: the British Private Finance Initiative and elsewhere in the world

  • 18 Thatcher 1993: 682.

41France traditionally relied on its widespread SEM System for motorway infrastructure and public services, such as water management. On the contrary, British local authorities financed public utilities directly — with a few exceptions in the English and Welsh water industry, which had long been in the private sector.18 But public funding became scarce in the early 1980s, just as it had been in the late 1950s. The OECD economics had to weather two major oil shocks. Recession was particularly marked in the United Kingdom. At the end of the decade, a dedicated team of British civil servants enlarged the scope of project finance, extending it beyond transportation to hospitals, waste management and commercial property development. In 1992, Prime Minister John Major officially launched the Private Finance Initiative (PFI). The Treasury taskforce formed in 1997 to redefine the rules was incorporated as Partnerships UK plc in 2000.

  • 19 T. Stone, «Private practice makes perfect» in The Banker, February 2001.
  • 20 Stone 2001.

42For its promoters, the PFI must provide an alternative source of funding to government borrowing for drastically needed infrastructure investments. The 1995 National Road Maintenance Survey estimated that an eighth of the main road network had no useful life remaining and more than a fifth had less than four years.19 Politically, the PFI promoted the role of the private sector in numerous spheres of public life. It delegated both the construction and the running of these projects to private sponsors, in exchange for users’toll or set fees paid by the Authorities on behalf of its residents (shadow toll). Acknowledging not only the cash cost of a project, but the whole life riskadjusted cost of delivery of the services and the public funds spared by delegating them, represented a real breakthrough. “There have been many organisations around the world which have claimed to have been involved in delivering PPP deals for decades. In doing so, virtually all tacitly admit they do not understand the basic premise of these deals”.20

  • 21 J. Neal, M. Pitts, “Refinancing Concession Projects” in M. Crisell. (ed.), Project Finance Yearbook(...)
  • 22 Limits sets by the lenders for the utilisation of credit line.
  • 23 P. Leatherdale, “Infrastructure financing opportunities in the CEE” in M. Crisell (ed.), Project Fi (...)

43The PFI is not an isolated phenomenon. It came into being in the UK as a consequence of the massive transfer of State ownership to the private sector. The financial innovations within the PFI framework were essential. When the first PFI deals were signed in the mid-1990s, there was considerable uncertainty surrounding the political long-term commitment to the Initiative. The sustainability of 30-years cost and revenue forecasting was also in doubt.21 As a resuit, financing costs were high, debt tenors limited to 20 years instead of 30 and covenants22 less favourable. It is suspected that PFI deals bear a higher cost for the local authorities than traditional and direct loan financing. Nevertheless, the acceptance of long-term forecasting is growing, and the PFI clearly gained momentum after 1997.350 projects were completed by July 2000, totalling more than 17,3 billion pounds (equivalent to 1.7 times the Channel Tunnel cost), an average of 50 deals being closed every year.23 More significantly, just like privatisation, Britain set a world-wide trend in passing public services to private investors.

What does it look like elsewhere?

  • 24 One of which, the Warnow-Tunnel in Rostock built by French construction group Bouygues, is the firs (...)
  • 25 Leatherdale 2001: 42.
  • 26 Stone 2001.

44PPPs are gradually becoming world standards and have gained official EU recognition. Germany has closed seven deals as of 200024, Ireland ten, Portugal fourteen. The most heavily investigated areas are those of traditional big capital expenditure: transport (primarily toll road) and defence. But this is in no way the duplication of an existing model. An obvious step would be to copy the UK approach and establish a PPP “task-force” for each new project, staffed by people with sufficient skills and knowledge to roll-out the programme. Actually, numerous adaptations are necessary, especially to integrate local decision networks. “We know from experience that to be effective, this unit must have sufficient power to cut across inter-party and inter-ministry rivalries” says an investment banker, underlining “the need to make potential bidders aware of the specific opportunities in the country”.25 The crucial role of “an experienced and reputable consultant” for economic feasibility studies is also widely recognised. “The limiting factor in the growth of PFI in other countries is the fact that it is fundamentally a culture change that takes time to learn [...]. The critical factor is the availability in both the public and the private sector of skilled individuals with real experience that can be gained only by working on and closing transactions”.26

45As always when dealing with recent history, one should remain cautious when drawing conclusions. But with regard to project finance, the 1980s and 1990s appear to have been a phase of institutionalisation, under the broader concept of PPPs. The British Private Finance Initiative is the first governmental acknowledgement that public services can be systematically delegated to nonpublic entities. The acceptance of this concept by the European Commission is a clear signal for the rest of the Continent, as well as for other OECD and emerging countries. This goes a step further than providing a general frame for deregulation or privatisation. In that sense, the American model has been superseded.


46Privately financed infrastructures grew steadily during the last 40 years, and both American economic theories and economic policy played a part. But the dynamics behind this momentum are much more complex than the simple transfer of an American concept to the rest of the world. Turning points for private infrastructure financing are, logically enough, the scarcity of public resources at the end of the 1950s and in the second half of the 1970s, after two major oil shocks.

47If the influence of American business and finance was crucial in the 1960s, the leading role played by Great Britain from the 1980s onwards must be underlined. The British economy suffered most in Europe and found itself close to bankruptcy in 1976. When Margaret Thatcher came into power in 1979, she launched into a series of fundamental changes. The major American influence in this context can be found in macroeconomic policies. Being trend-setters, the British experiments are also likely to be the first to reveal their weaknesses, as was the case for the French motorways in the 1970s.

  • 27 R. Boyer, P.-F. Souyri (ed.), Mondialisation et régulations: Europe et japon face à la singularité (...)

48At the microeconomic level, the involvement of private finance in infrastructure development is a slow and complex process, where many factors interact. These conclusions coincide with those published in a recent book27, arguing that the idea of a best way for countries as well as companies could be an illusion. Regulations remain in spite of increasing global integration of economics, actors adapt to this integration, are inspired from other organisational patterns, take their environment into account. Like the US managerial model, the myth of a Japanese managerial model itself does not resist a thorough investigation: inside a single industry, the automobile for instance, different models coexist. This fact supports our view that economics are strongly shaped by cultural factors.

49On the financial side, transport infrastructure is characterised by the need to grasp capital beyond the capacities of its natural market. This has been true from the French Paris-Rouen railway in the 1840s up to the Ôresund bridge in Scandinavia, opened to the traffic in 2000. This is one of the reasons why know-how spreads over industrialised and emerging countries within a period of 40 years. In 1957, only a limited number of American banks were able to offer structured finance solutions for transport infrastructure. In 2000, European banks have arranged 27% of Project Finance loans (thereof British Banks 5%), well ahead of North American banks (20%). As providers of Project Finance loans, European banks today serve a quarter of the market (thereof British banks 6%), Northern American banks 10%.

50Case studies show that project finance is in no way restricted to technological and financial issues, but also has a political and regulatory meaning. The know-how matures with the project in most of the cases, which explains why they take many years to realise. Tailored solutions, not standard ones, are a prerequisite. Each industry has its patterns. Each project raises separate issues. As such, there are little cases of models imported and applied without any local adaptation. The nature of the project financed and local regulatory environment are the most important factors shaping the structure of a deal.

  • 28 European Investment Bank, 2001: 24.

51The concepts keeps on evolving with larger recourse to bond financing, securitisation of assets and on the risk side, dedicated notes by rating agencies. Overlooking the last four decades and its stop and go developments, it is nevertheless doubtful that project finance will assume alone the huge infrastructure needs of the coming decades. As Ewald Nowotny, vice-president of the BEI puts it: “Neither private-sector investment nor recourse to innovative forms of financing can replace the participation of the public sector in Trans European Networks development. Nevertheless, the involvement of the private sector will be decisive in helping the Union to achieve its priorities in this field”.28



Bonnaud L. 2001. “The Channel Tunnel (1955-1975): when the Sleeping Beauty woke again”, Journal of Transport History, mars, 3rd series, vol. 22, no 1, p. 6-22.

Bonnaud L. 1994, Le Tunnel sous la Manche. Deux siècles de passion, Paris, Hachette, 389 p.

Bonnaud L. 1992, Lien fixe trans-Manche et relations franco-britanniques. Perspectives historiques (1856-1987), Volume 1: Le témoin de l’Entente (1856-1956), 346 p. Volume 2: Le prétexte européen (1957-1987), 391 p., Université de Paris IV-Sorbonne, Thèse de Doctorat.

Bossuat G. 2001, Les aides américaines économiques et militaires à la France, 1938-1960. Une nouvelle image des rapports de puissance, Paris, CHEFF, 406 p.

Bossuat G. 1997, La France, l'aide américaine et la construction européenne, 1944-1954, Paris, CHEFF, 1042 p. en 2 vol.

Bossuat G. 1986. “L’aide américaine à la France après la seconde guerre mondiale”, XVe siècle, janvier-mars.

Bossuat G., Vaicbourdt N. (dir.) 2001. États-Unis, Europe et Union Européenne. Histoire et avenir d’un partenariat difficile, 1945-1999, Peter Lang, Euroclio, 283 p.

Boyer R., Souyri P.-F. (ed.) 2001. Mondialisation et régulations: Europe et japon face à la singularité américaine, Paris, La Découverte, 182 p.

Clifford Chance 1991. Project Finance, UK, Jevons Browns, 48 p.

European Investment Bank 1991. Annual Report 2000.

European Union 1993. Selected instruments taken from the Treaties, Book I, Vol. I, Luxembourg, p 881.

Fleming Ch. 1997. “Private Practice. European Bankers Chase Boom Market for Project Finance”, Wall Street journal, 4 December.

Georges-Picot J. 1993. Souvenirs d’une longue carrière. De la rue de Rivoli à la Conpagnie de Suez 1920-1971, Paris, CHEFF, 427 p.

Leatherdale P. 2001. “Infrastructure financing opportunities in the CEE” in Crisell M. (ed.), Project Finance Yearbook 2001/2002, Brighton, Euromoney, p. 41-45.

Maystadt Ph. 2001. “Foreword” in Crisell, Michaela, ed., Project Finance Yearbook 2001/ 2002, Brighton, Euromoney, p. 1.

Neal J., Pitts M. 2001. “Refinancing Concession Projects” in Crisell M. (ed.), Project Finance Yearbook 2001/2002, Brighton, Euromoney, p. 11-16.

Poupinel J.-F. 1996. “Les autoroutes françaises” in Martinand C., E’expérience française du financement privé des équipements publics, Paris, Economica, p. 137-144.

Stone T. 2001. “Private practice makes perfect” in The Tanker, February.

Thatcher M. 1993. The Downing Street years, London, Harper & Collins, 913 p.


1 Clifford C., Project Finance, UK, Jevons Browns, 1994, p. 1.

2 The first toll motorway was inaugurated in Mussolini’s Italy in 1924. But Germany and the USA also grant concessions for toll motorways in the 1920s.

3 European Union, Selected instruments taken from the Treaties, Book I, Vol. I, Luxemburg, 1993, p. 185.

4 Passages dealing with the Channei Tunnel rely on L. Bonnaud, Le Tunnel sous la Manche. Deux siècles de passion, Paris, Hachette, 1994; see also L. Bonnaud, Lien fixe trans-Manche et relations franco-britanniques. Perspectives historiques (1856-1987), Vol. 1: Le témoin de l’Entente (1856-1956), Vol. 2: Le prétexte européen (1957-1987), Université de Paris IV-Sorbonne, Thèse, 1992.

5 Interview with the author.

6 Staatsarchiv Hamburg, 326-2 I IA/19.02/9.

7 C. Fleming, «Private Practice. European Bankers Chase Boom Market for Project Finance», Wall Street Journal, 4 December 1997.

8 Ch. D. Jacobson, J.A. Tarr, 1993, Ownership and Financing of Infrastructure: Historical Perspectives, Carnegie Mellon University, background paper for the World Bank, 1994 World Development Report, p. 30.

9 An official definition for motorway is first proposed at the European Conference of Transport Ministries, held in Geneva in 1957.

10 J.-F. Poupinel, « Les autoroutes françaises » in C. Martinand (ed.), L’expérience française du financement privé des équipements publics, Paris, Economica, 1996, p. 137-144.

11 Poupinel 1996:141.

12 Jacobson, Tarr 1993: 31.

13 P. Maystadt, «Foreword» in M. Crisell, ed., Project Finance Yearbook 2001/2002, Brighton, Euromoney, 2001, p. 1.

14 Jane’s Asian Infrastructure, 5th December 2001.

15 With its variant, the BOOT (Build-Own-Operate-Transfer).

16 British Telecom was privatised in November 1984.

17 M. Thatcher, The Downing Street years, London, Harper & Collins, 1993, p. 676-685.

18 Thatcher 1993: 682.

19 T. Stone, «Private practice makes perfect» in The Banker, February 2001.

20 Stone 2001.

21 J. Neal, M. Pitts, “Refinancing Concession Projects” in M. Crisell. (ed.), Project Finance Yearbook 2001/2002, Brighton, Euromoney, 2001, p. 11.

22 Limits sets by the lenders for the utilisation of credit line.

23 P. Leatherdale, “Infrastructure financing opportunities in the CEE” in M. Crisell (ed.), Project Finance Yearbook 2001/2002, Brighton, Euromoney, 2001, p. 41.

24 One of which, the Warnow-Tunnel in Rostock built by French construction group Bouygues, is the first toll-infrastructure of the country since WW2. The way is free for further applications, like the funding of motorway enlargements by a lorry-tax from 2003 onwards.

25 Leatherdale 2001: 42.

26 Stone 2001.

27 R. Boyer, P.-F. Souyri (ed.), Mondialisation et régulations: Europe et japon face à la singularité américaine, Paris, La Découverte, 2001.

28 European Investment Bank, 2001: 24.


Centre Roland Mousnier, Université de Paris-Sorbonne

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