This record is a partial extract of the original cable. The full text of the original cable is not available.

211235Z Dec 05

UNCLAS SECTION 01 OF 02 PARIS 008573 
 
SIPDIS 
 
PASS FEDERAL RESERVE 
PASS CEA 
STATE FOR EB and EUR/WE 
TREASURY FOR DO/IM 
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER 
USDOC FOR 4212/MAC/EUR/OEURA 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV FR
SUBJECT:  FRENCH GOVERNMENT PRIVATIZES TOLL-ROAD COMPANIES 
 
 
NOT FOR INTERNET DISTRIBUTION 
 
¶1. SUMMARY.  The government announced winning-bidders for 
its stake in toll-ways companies, ASF, APRR and SANEF 
December 14.  The sell-off, which aroused widespread 
overseas bid interest, encountered political opposition in 
the National Assembly. Bidders were selected on their price 
offers, but also on a number of commitments.  The government 
will use privatization proceeds of 14.8 billion euros to 
reduce the public debt (10 billion euros) and to fund 
highway infrastructure investment (4.8 billion euros).  END 
SUMMARY. 
 
Selection of Bidders was a Long Process 
--------------------------------------- 
¶2.  Breaking through years of debate over toll-road 
privatization, one of the first major decisions of the new 
center-right government of Prime Minister Dominique de 
Villepin was to sell off the government's stake in the 
national toll-road system, which is held both directly and 
through its share of "Autoroutes de France" (ADF).  On July 
18, 2005, the government floated a call for bids for its 
holdings in three toll-way companies - a 50.4% stake in 
South-of-France motorways "Autoroutes du Sud de la France" 
(ASF), a 70.2% stake in motorways between Paris, and Rhine 
and Rhone rivers "Autoroutes Paris Rhin Rhone" (APRR) and a 
75.7% stake in Northern and Eastern highways "SANEF".  On 
August 22, at the end of the first tour of the bidding 
process, 18 French and Foreign investors made preliminary 
offers, including Spanish groups Albertis, ACS and Cintra, 
Autostrade of Italy, and Macquarie and Transurban of 
Australia. 
 
¶3.  On December 14, Finance Minister Thierry Breton and 
Transportation Minister Dominique Perben announced their 
choices: 
 
-ASF:  The French construction group Vinci, which already 
held a 23% stake in ASF and was the only bidder, for its 
offer price of 50 euros per ASF share.  The price will be 
raised to 51 euros once ASF is granted the concession for 
the Lyon-Balbigny section of the A89 highway.  ASF has 2,943 
km (1,828 miles) of toll-roads and revenues of 2.8 billion 
euros, and market capitalization of 11.5 billion euros. 
 
-APRR:  The French construction group Eiffage, which already 
owns one transport firm, Cofiroute, in South West France, 
and its Australian partner, the infrastructure group 
Macquarie for their offer price of 61 euros per APRR share. 
The Spanish Cintra was not selected although its offer was 
the highest (62 euros per share).  APRR has 2,205 km (1,370 
miles) of toll-roads, revenues of 1.84 billion, and market 
capitalization of 6.8 billion euros. 
 
-SANEF:  the consortium led by Albertis of Spain and 
composed of the French insurer Axa, state-owned financial 
Institution Caisse des Depots et Consignations, CNP 
Assurances, Financiere et Fonciere de Participations and 
Predica, the Credit Agricole's life insurance company, for 
its price of 58 euros per SANEF share.  SANEF has 1,684km 
(1,027 miles) of toll-roads, toll revenues of 1.25 billion 
euros, and a market capitalization of 5.2 billion euros. 
 
As Politicians Opposed the Privatization . . . 
--------------------------------------------- - 
¶4.  Opposition politicians, members of the ruling UMP party 
and head of the center-right UDF party Francois Bayrou 
denounced the privatization, saying it was "a strategic 
error" to sell "family's jewels" for short-term financial 
gain, and claimed it could hurt efforts to increase French 
use of public highways.  Breton responded in November that 
"aside from the proposed price, the government will consider 
the social and industrial projects bidders envisage in their 
offers, as well as their guarantees to maintain the quality 
of public service." 
 
. . . the Government was More Selective 
--------------------------------------- 
¶5.  Bidders were required to provide guarantees that they 
would respect existing concession contracts, maintain the 
quality of public service including safety and security, and 
contribute to the expansion of employment in the highway 
sector.  Selected bidders, which include construction 
groups, had to accept dispositions aimed at preserving 
competitive bidding on contracts for highway construction 
and services.  They will also have to follow the December 
11, 2005 Competition Council's opinion that privatized 
highways must maintain a separate legal identity from 
acquiring companies' other activities. Selected bidders also 
committed to respect existing agreements and to continue 
pending negotiations with employees regarding future lay- 
offs or job transfers due to automation of toll-collections. 
 
The Effective Sale will Take Place in early 2006 
--------------------------------------------- --- 
¶6.  Sale contracts will be signed after companies have 
informed and consulted employees' representatives, giving 
details on future plans and commitments.  In line with the 
stock market regulations, selected companies will also have 
to offer a guarantee on share price, allowing small 
shareholders who wish to sell their shares to get the same 
price as the government and ADF.  Decrees authorizing the 
privatization of ASF, APRR and SANEF will be published when 
all procedures are completed, and the Commission of 
Participations and Transfers gives the green light.  The 
effective sale of Government and ADF stakes in ASF, APRR and 
SANEF is expected to take place early 2006. 
 
Government Expects to Raise 14.8 billion euros in Proceeds 
--------------------------------------------- ------------ 
¶7.  The government estimated proceeds from the privatization 
of ASF, APRR and SANEF at 14.8 billion euros, twice the 2005 
total privatization proceeds and the bulk of proceeds 
planned for 2006. (Other 2006 proceeds will include 1 
billion euros from the sale of EDF shares to EDF employees, 
and less than 1 billion euros from the sale of shares of 
Paris Airports "Aeroports de Paris" (ADP) when it opens its 
capital.) 
 
¶8.  About 10 billion euros in proceeds from privatization of 
highways will be used to reduce the public debt (66% of GDP) 
and the rest to fund infrastructure investment handled by 
AFITF ("Agence de Financement des Infrastructures de 
Transports en France.")  Because of general protest against 
the government objective to earmark the bulk of proceeds to 
the reduction of the public debt, the government increased 
the portion of proceeds attributed to AFITF from 1 billion 
euros to 4.8 billion euros. 
 
ASF, APRR and SANEF will be 100% Investor-Owned 
--------------------------------------------- -- 
¶9. At the end of the privatization process, ASF, APRR and 
SANEF will be completely privatized.  They are already 
publicly traded companies subject to corporate regulation 
and accounting standards.  Until now, the government has 
retained a majority interest and controlled the appointment 
of the boards of directors. 
 
But Government maintains a role 
------------------------------- 
¶10.  The concession law lays down some rules for adjusting 
toll rates for inflation, but other aspects of toll setting 
and expenditures will be set in negotiations with the 
government every five years.  Breton confirmed that the 
government would remain in control over the toll-road rates 
after the highway companies are privatized. 
 
Comments 
-------- 
¶11.  The government has made the right choice in 
accelerating its privatization program, but largely for the 
wrong reasons.  It was primarily motivated by the short-term 
appeal of reducing the public debt, rather than the longer- 
term benefits that would come from modernizing the toll-road 
system.  By including contract provisions designed to 
maintain jobs and guarantees of "public service," the 
government has made clear that it still views toll-roads as 
something of a regulated monopoly, over which it will 
continue to maintain a measure of control. 
STAPLETON