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Paris $39 Billion Metro Lures Bouygues to Rare Project

March 26, 2013

Paris $39 Billion Metro Lures Bouygues to Rare Public Project

Work on the East-West link is set to start in 2015 and be completed in 2020 at an estimated cost of 3.7 billion euros, allowing 700,000 passengers to trim their daily commute by as much as 30 percent, said SNCF’s Petreco. Photographer: EyesWideOpen/Getty Images

Deep inside a dark and damp tunnel under the Saint-Lazare train station in Central Paris, David Petreco points to the wall of a cul-de-sac.

“We’re going to break that wall and drill a tunnel of 8 kilometers to connect the east of Paris to its west,” Petreco, the head of the project at the French railway SNCF, said in an interview. The link is part of a 30-billion-euro ($39 billion) government plan to build 200 kilometers (124 miles) of new metro lines and 72 stations in and around Paris by 2030.

The project is rare in Europe, whose governments are slashing infrastructure spending to comply with deficit limits. Builders such as Bouygues SA (EN), Eiffage SA (FGR) and Vinci SA (DG) and also makers of metros, trams and signaling systems such as Alstom SA (ALO) and Siemens AG (SIE) are set to be among the biggest beneficiaries.

The transport part of the project dubbed “Le Grand Paris” was initiated by former President Nicolas Sarkozy to develop the region around the French capital. His successor Francois Hollande revived and extended it this month to ease the congestion of the mass-transit system, which carries 8.5 million passengers a day, 21 percent more than 10 years ago.

The project may bolster economic activity as France struggles to rekindle a stalled economy with unemployment at a 13-year high and construction companies being in need of orders.

Triggering Investments

“The project is significant both directly and indirectly because of the amount of works that will be awarded, and it will also trigger other investments,” Jean-Christophe Perraud, deputy director for the Paris region at Bouygues’s construction unit, said in an interview. Bouygues is among companies planning to bid for parts of the project.

Vinci has declined 9.7 percent in Paris in the last 12 months, while Bouygues dropped 6.5 percent. The benchmark CAC 40 index gained 7.2 percent in the period. Today, Vinci rose as much as 2 percent while Bouygues gained as much as 1.3 percent.

Work on the East-West link is set to start in 2015 and be completed in 2020 at an estimated cost of 3.7 billion euros, allowing 700,000 passengers to trim their daily commute by as much as 30 percent, said SNCF’s Petreco.

A burgeoning population and the relocation of 320,000 jobs out of the French capital to its outskirts over the past 20 years have heightened the need to create direct inter-suburb connections that skirt Paris, according to Jerome Dubus, the director of the employers’ federation Medef for the region.

“Each morning, employees get in late because there are issues with the transport system, which is completely saturated,” Dubus said in an interview. “The loss of productivity of employees in companies is totally clear.”

The project may provide a shot in the arm for an area that has underperformed growth around other European capitals.

Housing Shortage

“It will boost the region’s economic growth in some areas, enabling some investments such as housing, offices and other non-residential buildings,” said Bouygues’s Perraud. “It’s crucial because the shortage of housing in the region is huge.”

Economic growth of the greater Paris area has averaged 1.5 percent to 2 percent in the past decade, half the gain of the London and Madrid regions, which invested in new infrastructure developments, Dubus said.

In London, authorities are working on the Crossrail project to build an east-west line through the capital. The railway, scheduled to be completed in 2018, will featue 26 miles of new tunnels.

New Taxes

In an effort to catch up, French Prime Minister Jean-Marc Ayrault said on March 6 the new rail network will include an underground metro loop linking suburbs around Paris. There will also be a series of automatic links and trams for ill-connected fringe areas and extensions of existing metro lines, including one going to the Orly airport south of the French capital.

To help fund the Paris project, companies in the region have been slapped with about 500 million euros in new annual taxes since 2011, on top of more than 3.5 billion euros in various annual levies that subsidize the existing transport system, Medef’s Dubus said. Businesses are concerned they’ll be called on to bear a part of the operating costs of the new network, which may be 1.6 billion euros annually once it’s in place, he said.

Local governments may have to raise funds through business taxes and parking tickets to pay part of the bill, Ayrault said March 6. Some 2.5 billion euros in extra resources need to be found from 2020 to complete the project, he said.

Airport Link

“The planning is ambitious, which is good, even if it may be hard to meet,” said Max Roche, Eiffage’s director of concessions. “The financial estimate is in the appropriate ballpark, baring technical issues or accidents, because there are a lot of underground works, which are always difficult to keep on-budget. But we have very good knowledge of the geology of the Paris region.”

Still, the plan has two main shortfalls, according to Dubus. It fails to provide a rapid link between Paris and Saclay, hampering the smaller city’s ambition to become a global research cluster. The project also includes a new indirect link between the Charles-de-Gaulle airport and central Paris by 2027, which is “too little too late,” he said.

Paris air travelers currently get to the Charles-de-Gaulle airport by car, bus, or on a suburban railway, which makes several stops and can be hard to board at rush hour due to overcrowding. That contrasts with direct connections between international airports and capitals such as London, Oslo, Stockholm, or Tokyo.

Political Will

A group led by Vinci, Europe’s biggest builder, which was named preferred bidder in 2008 to build and operate such a link for an estimated 760 million euros, never signed the contract amid concerns about traffic and governance issues.

The government, which insists a non-stop link between the airport and Paris must be funded by the private sector, will work on new solutions with Aeroports de Paris SA, Ayrault said.

That’s necessary for the the project to succeed, according to Rachida Dati, a former Interior Minister under Sarkozy who’s now mayor of the seventh arrondissement of Paris.

“If there’s no political will, including a contribution, that won’t work,” Dati said. “The current link, with serious security, access and health issues, isn’t worthy of Paris and its airport.”

To contact the reporters on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net; Caroline Connan in London at cconnan@bloomberg.net

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net Simon Thiel at sthiel1@bloomberg.net


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