Public-Private Partnerships, politics, light rail

Transport Policy 49 (2016) 159–167
Contents lists available at ScienceDirect
Transport Policy
journal homepage: www.elsevier.com/locate/tranpol
The politics of delivering light rail transit projects through
public-private partnerships in Spain: A case study approach
Samuel Carpintero a,n, Matti Siemiatycki b
a
b
Department of Civil Engineering, Polytechnic University of Madrid, c/ Profesor Aranguren s/n, 28040 Ciudad Universitaria, Madrid, Spain
Department of Geography and Planning, University of Toronto, 100 St. George Street, Toronto, Ontario, Canada
art ic l e i nf o
a b s t r a c t
Article history:
Received 14 November 2014
Received in revised form
22 March 2016
Accepted 1 May 2016
This paper illustrates the influence of partisan politics on transit projects delivered through public-private partnerships (PPPs) by analyzing two case studies of light rail projects in Spain. The use of publicprivate partnership (PPP) arrangements to deliver urban transit projects is supposed to reduce the influence of politics on project-level decisions. However, the paper illustrates how relevant decisions about
these light rail projects were based primarily on political considerations, starting with the decision the
deliver the projects through PPPs. Our analysis shows how the influence of political considerations have
impacted on a range of factors that affect the performance of these projects, including the route selected
and the integration of the system into the wider transit network and urban landscape.
& 2016 Elsevier Ltd. All rights reserved.
Keywords:
Light rail transit
Public-private partnerships
Politics
Infrastructure
1. Introduction
Many studies have recognized that political factors strongly
influence investment decisions regarding urban transit projects
(Gomez-Ibanez, 1985; Kain, 1990; Pickrell, 1992). Partisan politics
can influence decisions about the selected route, the choice of
transportation technology, the type of grade separation, the project procurement model, and the integration of the new project
into the wider urban landscape (Siemiatycki, 2006). It is typical
that incumbent governments tailor the specifications of high
profile transportation projects to win approval from important
voting districts or key constituencies within a city (Joanis, 2011;
Tennant and Clayton, 2010; Hagen, 2007). As Cadot et al. (2006:
1151) write, “roads and railways are not built to reduce traffic
jams: they are built essentially to get politicians reelected.”
This paper illustrates the influence of partisan politics on
transit projects delivered through public-private partnerships
(PPPs) by examining two case studies of tramway projects in
Spain. Our analysis shows how, in spite of being procured as PPP
projects, relevant decisions about these light rail projects were
based primarily on political considerations, starting with the decision to deliver the projects through PPPs. Spain is an ideal jurisdiction to examine the impact of political considerations on PPP
projects. On the one hand, this country has emerged as global
n
Corresponding autor.
E-mail addresses: [email protected] (S. Carpintero),
[email protected] (M. Siemiatycki).
http://dx.doi.org/10.1016/j.tranpol.2016.05.001
0967-070X/& 2016 Elsevier Ltd. All rights reserved.
leader in using the build-operate-transfer (BOT) model of PPP to
deliver transport and social infrastructure, particularly motorways,
tramways, and hospitals. On the other hand, the BOT model of PPP
as applied in Spain is designed to transfer substantial construction,
availability and demand risk to the private sector, which in theory
should minimize political influence on project planning decisions.
The two light rail transit PPP projects analyzed in this paper
were built in Spanish cities (Zaragoza and Murcia), and were
awarded the same year in 2009 (see Table 1). Both were granted
by the municipality and both were inaugurated in 2011 and have
been in operation for four years. These two projects are particularly interesting as case studies for several reasons: (1) They have
been built in medium-size cities (∼700,000 inhab.), therefore the
outcomes may be of interest for many cities in other countries; (2)
The respective local governments belong to the two main political
parties in Spain (the conservative party in Murcia and the socialist
party in Zaragoza); (3) Both projects took place during the height
of the global financial crisis and the onset of severe austerity
measures in Spain; (4) The projects were procured within a national context of a rising number of bankruptcies of Spanish PPP
toll road projects that received government bailouts when traffic
volumes fell well below expectations; (5) They illustrate very
different realities regarding the outcome of the influence of political factors on a PPP project.
Overall, the paper shows that the PPP model as practiced in
Murcia and Zaragoza did little to mitigate the place of partisan
politics in transit decision-making. Yet the implications of such
politicization of decision making is not clear-cut. The case of
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S. Carpintero, M. Siemiatycki / Transport Policy 49 (2016) 159–167
Table 1
Characteristics of the two projects.
Source: Elaborated by the authors with data provided by the local governments of Murcia and Zaragoza
City
Inhab.
Year of award
Year entering in operation
Invest. (M€)
Length (km)
# stops
Concession period
Murcia
Zaragoza
680,000
700,000
April 2009
July 2009
May 2011
1ª: April 2011
211
355
16.7
12.8
25
25
40
35
Zaragoza shows that political considerations can lead to choosing a
route that is the optimal according to the viability studies and
undertaking transformative urban interventions to accompany the
project. In the case of Murcia the opposite happened. Our research
also shows that while a PPP project can be successful in terms of
ridership, the project can still face community criticism for all
sorts of reasons, some of which are connected to the concessionaire, and others that have to do with broader government
or service restructuring.
The remainder of the paper is organized as follows. In the next
section, we review the literature related to the influence of political factors on urban infrastructure projects (Section 2). Subsequently, we move on to present the methodological and empirical
work underlying the paper (Section 3). We then examine the two
case studies (Sections 4 and 5) with a focus on analyzing the influence of the political factors on various aspects of the projects.
Finally, the findings from the analysis of the two case studies are
presented in Section 6.
2. Literature background
More and more state functions have been handed over to the
private sector during the last two decades, driven by the search for
positive externalities, resource complementarities, cost savings,
and in many cases an ideological belief in the superior efficiency of
the private sector (Rangan et al., 2006). In this context, PPPs have
gained popularity as a way of providing urban infrastructure in
many countries, particularly in the transportation sector. Theoretically, the use of the PPP formula reduces the influence of political
factors on infrastructure investment decisions (Flyvbjerg et al.,
2003; Grimsey and Lewis, 2004). This represents a relevant aspect
of public sector procurement since many scholars have recognized
that political factors strongly influence investment decisions regarding urban infrastructure projects (Kain, 1990, Richmond,
2001).
There have been significant developments at the intersection of
public procurement and politics in the last years. Some studies
have enriched the theoretical background regarding the functioning of public organizations, such as Prendergast (2003) and
Bozeman (1993). The first one develops a model to address agency
issues within the public sector that affect bureaucratic decisionmaking, while the second one provides a theory of the origins of
red tape and analyzes why government organizations have more
red tape. Other studies have focused on the difference between
public and private organizations such as Boyne (2002), who argues
that the available evidence does not provide clear support for the
view that public and private management are fundamentally dissimilar in all important respects. This study provides some interesting insights about the differences between the public and private organizations.
Some scholars have focused on the relationships between the
public sector and the private sector. Kivleniece and Quelin (2012)
proposed a theoretical framework on the mechanisms of value
creation and capture based on a comparative analysis of two
conceptually distinct public-private structural alternatives. This
study provides interesting insights about public-private ties as a
distinct interorganizational phenomenon that we have used in
order to frame our research, as discussed in the next section. Other
studies have analyzed the organizational models in which the
relationships between the public sector and the private agents are
structured, such as Henisz (2006), Mahoney et al. (2009), and
Margolis and Walsh (2003).
Moszoro and Spiller (2012) have developed a model to rationalize the basic features of public contracting focusing on the
public agent’s perspective. They argue that public contracting is
more expensive and rigid than private contracting, but it does not
mean that transferring those activities to the private sector would
reduce political risks and hence make them more efficient. Other
studies in economics and public administration emphasize the
hazards of private actor opportunism and potentially suboptimal
social welfare outcomes from public-private arrangements (Bennet and Iossa, 2006; Chong et al., 2006; Hart, 2003).
Within the literature on PPP projects, some studies have focused on the influence of politics on this kind of projects. Grimsey
and Lewis (2004) and Flyvbjerg et al., (2003) argue that PPP projects are supposed to be less influenced by political factors, although it does not mean that they are excluded from the decisionmaking process (Gawel, 2011). Rather the use of the PPP arrangements is meant to make it more difficult to make decisions
that while politically advantageous to win votes, are clearly wrong
from the point of view of the cost-effectiveness or social benefit of
the project (Engel et al., 2011). The rationale is that in a PPP project
both the equity provided by the sponsors and the debt provided by
the lenders are at stake, since the private sector assumes relevant
risks such as construction, demand and operational performance
(Phang, 2007,Välilä 2005), which have some particularities in the
case of urban transport projects (Sánchez Soliño and Vassallo,
2009).
Some scholars, however, argue that PPPs do not always guard
against wasteful spending (De Jong et al., 2010). If the capital investment in the project is repaid by user fees, the presumption is
that private firms will not participate unless the project is profitable, which provides a defense against inefficient projects. Yet
many socially beneficial urban transit projects do not recover their
full capital and operating costs from the fare box. In such cases
where PPP transit projects receive an operating subsidy from
government or where the initial private capital investment is repaid through a government availability payment, there is no
market test for the project. PPPs have been criticized as being
politically motivated by an ideological belief in the efficiency of the
private sector and a desire to obscure the true costs of large public
investments by drawing on up-front private financing (Engel et al.,
2011, Loxley, 2010). Moreover, some studies highlight how local
politicians aim to deliver high profile infrastructure projects while
at the same time avoiding the appearance of burdening the local
taxpayers (Loxley, 2010, Altshuler and Luberhoff, 2003; Pickrell,
1992).
3. Methodology and framework
The empirical data for our research were collected through
interviews with representatives of the stakeholders involved in
S. Carpintero, M. Siemiatycki / Transport Policy 49 (2016) 159–167
Fig. 1. Value capture in public-private ties: a tripartite model of value tensions
(Kivleniece and Quelin, 2012: 278).
the projects, as well as written sources provided by public and
private project managers. The respondents directly involved in the
projects were selected because they were the key people in charge
of the projects, both in the public and in the private sector. The
other respondents were selected based on their availability. The
citizens interviewed were selected randomly. We hold 46 semistructured interviews (Barzelay et al., 2003) with the following
people:
1. 3 government officials of the regional governments of Murcia
and Zaragoza
2. 5 private managers of the concessionaires running the PPP
projects
3. 3 representatives of banks involved as financiers in the projects
4. 1 independent observer with special expertise in construction
and operation of light rails
5. 3 representatives of local government of relevant Spanish cities
that do not have light railways systems (Alicante, Bilbao and
Valladolid).
6. 1 representative of the consortium that did not win the tender
of Zaragoza tramway.
7. 1 representative of the consortium that did not win the tender
of Murcia tramway.
8. 1 representative of the political party in the opposition in
Zaragoza. It was not possible to reach any representative of the
political party in the opposition in Murcia.
9. A sample of 13 citizens of Murcia (of different ages, social position and ideology).
10. A sample of 15 citizens of Zaragoza (of different ages, social
position and ideology).
The interviews with the public officials, the managers of the
concessionaires and the representatives of the banks were carried
out in face-to-face sessions lasting 1–2 h in order to provide time
for in-depth questions and answers. The focus of the interviews
was on key issues relating to the planning stage, construction and
operation in the projects. Interviews with private sector respondents focused on the organisation, task distribution, financial
setup, risk allocation and payment mechanisms of the concessionaire, whereas public sector respondents were interviewed
with reference to urban transport planning in the cities, awarding
criteria, number of bidders, risk allocation and management related to the projects. The interviewees were promised anonymity
as a condition of their participation in the research; therefore the
interviews were not recorded and there is not any quotation
throughout the paper. The interviews with a sample of citizens of
both cities and with the representatives of local government of
cities that do not have light railways systems were held by telephone or e-mail.
161
In order to supplement the information with empirical data
from additional sources, written documents were also attained
from the managers of the public sector organizations involved in
the projects. Written material included publicly available documents and files but also key data not accessible to the public.
Sources attained which are not publicly available include information on demand studies, lists of bidders, investment costs,
number of passengers (demand forecast), list of shareholders of
the concessionaire, data on number of passengers (only in the case
of Zaragoza), and mechanisms of payment to the concessionaire. In
addition, we have consulted newspapers and political blogs.
Subsequent to the collection of sources, the empirical data were
analyzed with a focus on analyzing the influence of the political
factors on: (1) Route choice; (2) Public financial contributions; (3)
Competition for the project; (4) Financial performance of the
concessionaire; (5) Community response. In order to analyze the
information provided in the interviews and the data collected, we
have used the model developed by Kivleniece and Quelin (2012:
278) to explore the mechanisms of value capture in public-private
arrangements (see Fig. 1). According to these authors there is
tension among three different kinds of benefits provided by a
project: private value or benefits, common or social benefits, and
political benefits. This framework has inspired us to explore in the
following sections how the political factors have influenced the
decision-making process of the two projects analyzed in this paper
throughout the whole process, from the procurement process to
the operation stage.
4. Murcia tramway
4.1. Route choice
Murcia is a metropolitan area of 680,000 inhabitants in the
South East of Spain, of which 460,000 live in the main city or small
towns in the surroundings (all of them included in the same
municipality). The provision of public transportation in Murcia, as
in other Spanish cities, is shared by the regional government and
the municipality. This is a consequence of the complex jurisdictional and institutional architecture of this country. In particular,
public transportation within the city falls under the responsibility
of the local government while public transportation in the rest of
the metropolitan area is the responsibility of the regional government. In the case of Murcia, both governments have been in the
hands of the conservative party for more than two decades.
From the mid-1990s to the mid-2000s, the metropolitan area
experienced sharp population growth (Alcaide, 2007). Around
2005 both the regional government and the local government
decided to build a new mass transportation system to accommodate increasing demand. Both governments agreed on choosing
a tramway but they could not agree on the route. Finally, the local
government decided to proceed on its own. It was legally permissible because the whole route was within the central
municipality.
From the outset the project was identified for delivery through
a PPP. According to the interviews conducted for this research with
government officials and to various sources consulted (newspapers, blogs, etc.), there was not any debate about the decision to
deliver it through a PPP arrangement, neither within the local
government nor in the public discourse. The local government
decided to build the project through a PPP because they had no
public financial resources to build it otherwise. The alternative of
the public sector borrowing money directly to build the project
was not feasible because of limitations on public debt levels imposed by EU regulation.
The utilization of PPPs to avoid public debt limitations is a
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S. Carpintero, M. Siemiatycki / Transport Policy 49 (2016) 159–167
Fig. 2. Route of the Murcia tramway.
controversial issue in Spain. As long as some criteria related to risk
allocation are met, the investment does not affect the public deficit
and the debt of the project does not affect the public debt. However, in practice, the public sector remains as an implicit residual
claimant. The main reason is that the Spanish legislation established that, in case of default of the concessionaire, the public
sector has to pay for the investment made but not yet amortized.
This provision has given confidence to PPP investors and has made
it easier to obtain the financing necessary for concessions.
In May 2007, there were scheduled local and regional elections,
and in 2006 the local government decided to build a 2 km experimental section of the tramway. In May 2006 an open competition tender was launched and was awarded in September to
one of the three consortiums that had submitted a bid. This initial
experimental tramway line was inaugurated in April 2007 just
before the elections.
The mayor was reelected in May 2007 and the remainder of the
tramway project went forward. The tramway project was initially
planned with three branches going outbound from the city center
although only two of them were finally built (in Fig. 2 the city
center is located at the bottom right). One of the branches would
go towards the North, where new urban developments and a big
commercial area were under construction; another one would go
towards the North-West, where the public University is located;
and another one would go towards the South, through the old city
center, to the central rail station. According to representatives of
both the public and the private sectors interviewed for this research, the branches towards the North-West and the South were
the ones with the highest potential demand, particularly the
southern branch. Unfortunately, the initial viability study, which
included the branch towards the South, was not publicly available
for analysis. The only available viability study was a later one that
included only the two branches that were ultimately built.
Therefore it is not possible to provide evidence of this claim.
From June 2007 to June 2008 the local government elaborated
the viability study and the terms of reference of the tramway
project. The mayor was very hesitant about including the South
branch in the project to be tendered because it would run through
highly populated neighborhoods located in the old city center.
Building that branch was considered to be an aggressive urban
intervention that would have significant construction and traffic
impacts on the surrounding neighborhood, and therefore could
have a high political cost. In addition, building that branch would
likely delay the termination of the project because the construction was going to be complicated (since the streets in that part of
the city are narrow) and because of the social protest it was likely
to spark. It was very relevant that the tramway project was in
operation before the local and regional elections scheduled for
May 2011, because it was supposed to be the most relevant landmark of mayor’s term of office. Finally, the mayor decided to
launch the tender without the South branch to the city center, in
spite of it being the one with the highest potential demand and
essential for the viability of the project, according to the interviews conducted for this research. The tender was launched in
June 2008 and entered into operation in May 2011. The final outcome was, therefore, that only the North and North-West branches
were built.
4.2. Public contribution
In the case of Murcia, the chosen route entailed low ridership
as previously explained, which increased the required annual
public contribution to be paid by the regional government to the
concessionaire to make the project viable. In other words, if the
S. Carpintero, M. Siemiatycki / Transport Policy 49 (2016) 159–167
mayor had decided to build the South branch instead of the North
branch, the annual public contribution would have been lower
than it actually is. The reason is that the public contribution to the
project depends on the size of the estimated revenues generated
from user fares. The higher the demand is, the lower the government subsidy that is paid to the concessionaire.
4.3. Competition for the project
There was very little competition to win the concession for the
project. There were only two bids, although initially there were 5–
6 consortiums that showed interest in the project. The economic
criteria accounted for two thirds of the points and the technical
criteria accounted for one third. The consortium that had built and
operated the experimental section submitted one of the bids, and
apparently was the favorite as they already had experience with
the project. However, this consortium ended up losing to a second
consortium that ultimately won the competition. Each one of the
consortiums included two major Spanish construction groups with
extensive experience in the PPP market, both domestically and
internationally. The tender was awarded in April 2009 and entered
in operation in May 2011. The sponsors of the winning consortium
are FCC (50%) and COMSA (50%).
The fact that there were only two bidders shows how unattractive this PPP project was for the private sector. This is surprising taking into account that Spain has many big local contracting companies with a lot of experience in PPPs that are major
players in the domestic and international markets. It might be
influenced by the fact that the global financial crisis was already
starting (the tender was launched in June 2008 and the collapse of
Lehman Brothers happened in September of that same year). Some
interviewees argued that in the face of high bidding costs, it was
also influenced by the belief that the tender was apparently going
to be awarded to the consortium that was already operating the
experimental section–which did not happen.
An important question to consider is why these two companies
submitted bids for this tender in spite of the low demand estimations (because of the route chosen), which would adversely
impact on their future revenues and returns. According to the
interviews conducted for this research with private managers and
representatives of banks, there are a number of reasons. First, the
government had agreed to provide a substantial annual public
subsidy to make the project financially viable for the concessionaire. Second, construction companies in Spain have traditionally been interested in winning PPP concessions–among other
reasons–because they can profit from the construction (Carpintero,
2011). Moreover, Spanish construction companies are known for
bidding aggressively and renegotiating the contracts later on.
Third, the Spanish legal framework establishes that, if the contract
is terminated early, and bankruptcy is one of the causes of termination of the contract, the government will have to pay compensation to the concessionaire for the works that have been built
and have not yet depreciated (Vassallo et al., 2012). This provision
has traditionally given confidence to the investors and has made it
easier to obtain the financing necessary for the PPP projects
(Carpintero, 2011). As such it appears that bidders were attracted
to the project in part because there is an implicit guarantee that
the government will bail out a trouble concessionaire (Engel et al.,
2011).
4.4. Financial performance of the concessionaire
In this PPP project, the local government transferred the demand risk to the concessionaire. As shown in formulas 1 and 2, the
government subsidy is calculated by adding all expenses of the
concessionaire (both CAPEX and OPEX) and deducting the
163
concessionaire’s revenue, taking into account the demand estimated by the concessionaire. Therefore, if the real demand is
lower than estimated by the concessionaire in their bid proposal,
the concessionaire might experience financial difficulties.
Revenue ¼Subsidy provided by the municipality þReal
number of passengers average tariff þ Other commer
cial revenue (Vending machines, advertisements, etc.)
(*) According to the bid but
adjusted for inflation
(**) According to the bid
[2] Subsidy ¼ Operational expenses* þ Financial cost*
þ Amortization** – Number of passengers estimated in
the bid average tariff – Other commercial revenue (Vending
machines, advertisements, etc.)
[1]
The viability study of the project assumed the elimination of
the lines that run more or less along the same route as the
tramway in order to avoid duplication and competition with the
tramway. However these lines were under the responsibility of the
regional government. And the regional government has not
eliminated the bus lines that overlapped with the tramway line.
This is a controversial issue because the local government was not
entitled to assure that these bus lines would be eliminated. In fact,
the regional government never did provide a written assurance,
but it was assumed by the local government at the time the viability study was approved. Given this assumption, the banks that
provided the debt for the project included in the financial contract
the elimination of the bus lines as a requirement to consider that
the tramway project had successfully entered into operation. Given that this has not occurred, the concessionaire has sued the
local government, asking for the elimination of these bus lines. As
of mid-2015, the court had not ruled yet. Arguably, ridership has
also been affected because while there is fare integration between
the tramway and the municipal buses, there is no integration between both of them and the regional buses (some regional bus
lines run from the city center to the small towns surrounding the
city).
According to the interviews conducted for this research with
representatives of the public sector, the reason for not eliminating
these bus lines has been the political confrontation between the
municipality and the regional government. For a long time there
has been a political confrontation between the president of the
regional government and the mayor of the city, although both
belong to the conservative party. The tramway project has been
the flagship project of the municipality. Therefore, from the very
beginning the regional government did not want to get involved in
it–rather, they opposed it. Some interviewees argued that a relevant reason for this confrontation is that the mayor was a potential future candidate for the regional government.
As shown in Table 2, the demand is much lower than anticipated. The main reasons are: (1) The overlapping of some bus lines
with the tramway, as already explained; (2) Many urban developments that had been planned along the line towards the North
have not been built because of the bursting of the Spanish housing
bubble; (3) The global financial and economic crisis has reduced
the economic activity in Spain.
The project was financed with equity provided by the sponsors
(20%), subordinated debt (10%) and loans from banks (70%). It was
hard for the sponsors to reach financial close on the project. It took
two years, when usually it previously took around 6 months for
this kind of projects before the global financial crisis. The project
was financed by three private banks (Societe Generale, Popular,
and Santander) and a public financial institution (Instituto de
164
S. Carpintero, M. Siemiatycki / Transport Policy 49 (2016) 159–167
Table 2
Ridership in Murcia and Zaragoza tramways (in annual passengers).Source: Elaborated by the authors with data provided by the local governments of Murcia and
Zaragoza, and by the concessionaires of both tramways.
Murcia
- Estimated by the municipality in the viability
study
- Estimated by the concessionaire in the bid
- Real n
Zaragoza
- Estimated by the municipality in the viability
study
- Estimated by the concessionaire in the bid
- Real
n
2011 2012
2013
2014
8.49
8.99
9.52
10.01
5.47
1.58
6.24
3.58
7.06
4.14
7.84
4.51
6.30
11.46
22.07 33.10
n. a.
7.91
n. a.
n. a.
30.8
12.04 22.36 26.80
During the first year, the light rail was in operation only seven months.
Crédito Oficial, ICO). The cost of debt was established as Euribor þspread. The spread was 3.25% until the project entered in
operation, 3.50% during the first years of operation, and 3.75%
from then on. The reasons for this increasing interest rate are: (1)
During the construction there was recourse to the sponsors; (2)
The funding cost for the banks increases with the maturity; (3) to
provide an incentive for refinancing the debt. It was not possible to
get financial information about the performance of the concessionaire, but as of late 2014, according to some interviewees,
they were experiencing severe financial problems.
4.5. Response from community
There was not significant opposition or social protest against
the tramway, partially because it did not involve any major urban
intervention such as street lane closures in the historic city center.
The project did involve some reallocation of road space to the
tramway on main streets in the contemporary city center where
the tramway was built, but none of them was pedestrianized. The
political parties in the opposition were against the project, particularly the major one (Socialist party). And part of the population
considered it too expensive an investment given the onset of the
financial crisis. Despite pockets of opposition, the tramway project
was a political asset rather than a liability for the mayor who
championed it. While voter support is clearly influenced by many
factors other than the tramway project, in 2011 the mayor was
reelected and increased his number of votes by 7% compared with
the 2007 elections.
5. Zaragoza tramway
5.1. Route choice
Zaragoza is located in the center-North of Spain and has
700,000 inhabitants. The preliminary studies for building a tramway in this city date back to the 1980s, only a decade after the
original tramways in the city were removed. The feasibility studies
of the current project started in 2004 and were carried out together by the regional government of Aragon and the municipality.
At that time the Socialist party was in office at both levels of
government. From the beginning it was planned that the route
would go North-South and that the tramway would connect two
(at that time) recent urban developments (one in the North and
another one in the South) going through the old city center (in
Fig. 3 the old city center is located at the center, where the
tramway line crosses the river).
In 2005, the municipality developed a mobility plan for the city.
This plan included the tramway project, with a route that had been
established through preliminary studies carried out in 2004. This
Fig. 3. Route of the Zaragoza tramway.
S. Carpintero, M. Siemiatycki / Transport Policy 49 (2016) 159–167
mobility plan involved a major overhaul of the old city center,
including the pedestrianization of some streets, the elimination of
some bus lines in that part of the city, the reduction of the space
for cars on some streets, and the renewal of some streets and
squares. This urban intervention was very controversial and
caused an extensive social protest. In 2006, the municipality elaborated a viability study and a preliminary design for the first line
of the tramway.
In May 2007 there were regional and local elections and the
candidates of the socialist party were re-elected at both the municipal and regional governments (in both cases the socialist party
signed political pacts with other small parties to remain in power).
The re-elected mayor was an experienced politician who was very
well known at the national level, having served as a Minister of the
national government from 1993 to 1996. In 2007 the regional
government decided to limit their involvement in the project to
providing a public contribution towards the cost of construction.
In spite of belonging to the same political party, they did not want
to be involved in managing the project because they considered it
strictly a municipal undertaking. It may also be that the regional
government did not want to take on the political risks associated
with such a controversial project.
From the outset, the project was identified for delivery through a
PPP. According to the interviews conducted for this research and to
other various sources consulted (newspapers, political blogs, etc.),
there was not any meaningful debate about the decision to undertake the project through a PPP arrangement, either within the public
sector or within the community. In the case of Zaragoza, this is more
surprising than in the case of Murcia because the mayor of the former belongs to the Socialist party, which has traditionally been
against PPP–or at least, has not supported them–when they have
been in office at the national government level. The local government
decided to build the tramway through a PPP because it enabled them
to limit the initial public investment to a maximum amount of €130
million that was offered in the terms of reference. The alternative of
the public sector borrowing money directly to build the project was
not considered feasible because of the limitations on public debt
imposed by EU regulations. As in the case of Murcia, the project
planners did not carry out any specific study upon which to base
their decision, such as a Public Sector Comparator.
In 2007–2008, the municipality produced a construction design
for line 1 that was ready in the summer of 2008. The mayor
decided to go forward with the tramway project as it had been
planned, including the major urban intervention in the old city
center, in spite of the community opposition and protest it generated. Proceeding with the project as planned required strong
political will by the mayor to implement the aggressive urban
intervention in the old city center and eliminating some bus lines
going through that area.
5.2. Public contribution
In the case of Zaragoza, the selected route as well as the major
overhaul in the old city center had very positive consequences in
terms of ridership. Therefore, the fee paid by the users and the
public contributions are lower than they would have been if a less
165
suitable route had been chosen, or the urban intervention in the
old city center had not been implemented.
In this project, the revenue of the concessionaire has three
components (see Table 3). One comes from the fees paid by the
users. The two others are public contributions: one is an initial
contribution for the construction and the other is an annual contribution based on the availability of the infrastructure.
5.3. Competition for the project
During 2007 and 2008, the municipality studied which PPP
model would be used for this project: a private concessionaire or a
partially government-owned company acting as concessionaire
(20% owned by the local government and 80% by the private
sector). The municipality decided for the latter because it allowed
them to transfer most construction, availability and demand risks,
but at the same time be part of the concessionaire and thus being
in a better position to monitor the performance of the concessionaire. Since the private consortium to be chosen in the
public tender was going to have 80% of the concessionaire’s shares,
the role of the municipality in the functioning of the concessionaire was planned from the beginning as something representative, without real executive power.
In February 2009, the municipality launched an open competition tender to select the private partner. The economic criteria
accounted for 55% of the points and the technical criteria accounted for 45%. There were only two bids. In June 2009 the
concession was awarded to a consortium named TRAZA whose
shareholders are indicated in Fig. 3. All of the companies of that
consortium were private companies except Ibercaja (11.8%) which
was at that time a public savings bank (‘caja’) controlled to some
extent by the regional government of Aragon. It was one of the
shareholders of the concessionaire but it did not participate in
providing the debt for the project. The composition of the concessionaire is shown in Fig. 4.
As in the Murcia project, the fact that there were only two
bidders shows how unattractive this PPP project was for the private
sector. Arguably, in this case the influence of the global financial
situation was stronger than in the Murcia project because the tender was launched in February of 2009, following the collapse of
Lehman Brothers that had happened in September of 2008.
5.4. Financial performance of the concessionaire
The municipality transferred the demand risk to the concessionaire but this risk has been mitigated. If the demand is lower
than the 90% of that estimated by the municipality, then the
municipality pays to the concessionaire 50% of the difference in
the amount of ‘Payment by users (PPU)’ between the real revenue
and the revenue that the concessionaire had had in case the demand had been the one estimated by the municipality. On the
contrary, in case that the demand is 120% higher than initially
estimated by the municipality, then the concessionaire has to
share the extra-revenues with the municipality.
As shown in Table 2, during the first three years of operation
the demand has been higher than the forecast of the municipality,
Table 3
Revenue of the concessionaire in the Zaragoza tramway.Source: Elaborated by the authors with information provided by the local government of Zaragoza
Tariff x number of real users. The tariff had to be offered by the concessionaire in the bid. In 2013 it was €0.75. It is indexed to
inflation.
Payment for availability (PPD)
A fixed amount that tariff had to be offered by the concessionaire in the bid (the maximum value was capped to €5.5 million for
the first year). In 2013 it was €3.6 million. It is indexed to inflation. In 2013, the revenue in this concept was roughly 12% of the
total revenue of the concessionaire.
Public subsidy for the initial investment. It had to be offered by the concessionaire in the bid (the maximum value was capped to €130 million). It was €128.7 million.
Payment by users (PPU)
166
S. Carpintero, M. Siemiatycki / Transport Policy 49 (2016) 159–167
Fig. 4. Composition of the concessionaire of Zaragoza tramway.
although in 2014 it was lower than anticipated. It was not possible
to get data of the demand estimated by the concessionaire in the
bid, although in the interviews it was reported that it was higher
than the demand estimated by the municipality. Overall, during
the first years of operation the tramway can be considered successful in terms of ridership. Arguably, the tramway ridership
benefited from: (1) The chosen route; (2) The pedestrianization of
some streets and the restriction to traffic in other streets; (3) The
elimination of some bus lines; (4) The fare integration with the
municipal buses (there are not regional buses in Zaragoza).
The debt for the project was provided by the following financial
institutions: the European Investment Bank (EIB), a public financial
institution managed by the national government (Instituto de Crédito
Oficial, ICO), two commercial banks (BBVA and Caixa Bank), and five
small regional savings banks (‘cajas’). Reaching financial closure took
approximately a year and a half, considerably longer than had been
the norm in Spain for similar deals prior to the global financial crisis.
It was not possible to get information about the financial performance of the concessionaire. But as of late 2014, according to interviewees, they were experiencing some financial difficulties as ridership had not met the concessionaires internal demand forecasts and
thus revenues were lower than initially anticipated.
5.5. Response from community
The case of Zaragoza shows that, while a PPP project can be
successful in terms of ridership from the perspective of the municipality, the project can still face community criticism for all sorts of
reasons, some of which are connected to the concessionaire, and
others having to do with broader government or service restructuring. There was a lot of local opposition against the tramway
project, but the mayor decided to stay the course and proceed with
the light rail project. Based on the interviews conducted for this
research with citizens of Zaragoza and the analysis of the secondary
information we were able to find, we have identified the following
reasons for the social discontent regarding this project.
(1) From the outset the tramway project was an object of political confrontation between the two major political parties. The
Socialist party was the one in power that supported and built the
tramway, while it was opposed by their Conservative opposition.
Initially the Conservatives defended the idea of building a subway
during the initial planning process when the Spanish economy
was booming. A few years later, following the onset of the financial
crisis, they argued that the project was too expensive and it was
sufficient to serve the city with bus lines.
(2) The reorganization of the urban transit network to accommodate the inauguration of the tramway has caused many citizens
to have to change their transportation habits to move around the
city. Before the tramway was built, most people used to take a bus
very close to their houses and go directly to their destination. Now
many of them have to take a bus to get to a stop of the tramway,
then take the tramway, and then take another bus.
(3) The elimination of the bus lines has brought about layoffs in
the bus company.
(4) The tramway project involved changing the urban
landscape through road space reallocations and infrastructure installations in the most historical and iconic part of the city–measures opposed by some citizens.
(5) During construction the residents affected by the works did
not want the noise or the unpleasant experience of having public
works in front of their house.
(6) The stores on the streets along the route did not want to
close their businesses during the months of construction.
(7) Frequent users of motor vehicles in that part of the city did
not want to have their mobility restricted by the reallocation of
road space to transit and pedestrian activities.
Despite the range of constituencies that opposed the high
profile tramway project, it is relevant to point out that it had only a
minimal impact on the electoral success of the mayor, who
championed the project. In the 2011 municipal elections, he was
reelected to office.
6. Conclusions
In this paper we analyze the influence of political factors in the
decision-making process of two PPP light rail projects in Spain.
Our analysis draws partially on the model developed by Kivleniece
and Quelin (2012: 278) which explores the tension among different kinds of benefits provided by a project. Overall, our research
shows that political factors can strongly influence the decisionmaking process in transit projects in spite of the application of a
PPP model. First, in both projects analyzed in this paper, the final
decision about the route was taken based mostly on political factors. In Zaragoza the route runs through the city center and involved a major urban intervention in that part of the city that was
rather controversial. Yet undertaking a major urban intervention
had been the promise of the mayor who championed the tramway
project and he had the necessary political will to stay the course
and go forward with this route and all its implications. However, in
Murcia the mayor who championed that project preferred to avoid
building the section that was supposed to run through the old city
center to avoid strong public opposition, even though it was the
one with the highest estimated ridership.
Second, beyond the route choice, political considerations also
impacted on aspects related to the project that would influence
project performance, including the extent to which existing bus
routes were reorganized and the implementation of pedestrianized streets in conjunction with the tramway project. These
decisions had a great influence on the acceptance or criticism
raised by the projects. In the case of the Zaragoza tramway, the bus
service reorganizations and street redesign measures that made it
a successful project in terms of ridership also brought about strong
social contestation. By contrast the Murcia project remained largely uncontroversial amongst the local population despite failing
to attract considerable ridership, in large part because the route
and design did not significantly interfere with existing road space.
In sum, while a key motivation for delivering infrastructure
through PPPs is to transfer risks to the partner that is best able to
manage them, the influence of political considerations on decision-making is one risk that cannot be fully transferred to the
private sector (Grimsey and Lewis, 2004; Siemiatycki, 2006). The
PPP model as practiced in Murcia and Zaragoza did little to mitigate the place of partisan politics in transit project selection and
service design choices. Yet the implications of such politicization
of decision making is not clear-cut. Given the high profile and cost
of urban transit projects, it is perhaps not surprising that they
attract considerable political interest and influence. Our research
shows that when these projects are built through PPPs the political risk remains a key issue. In other words, the PPP model is not
an exception to the claim that political factors strongly influence
S. Carpintero, M. Siemiatycki / Transport Policy 49 (2016) 159–167
investment decisions regarding urban transit projects (GomezIbanez, 1985; Kain, 1990; Pickrell, 1992). Indeed, in democratic
countries, the political arena is the place where difficult decisions
about the allocation of scarce public resources are ideally made. In
this context, a key area for future research is to explore the conditions under which political interventions in transit infrastructure
decisions can be minimized when the projects are built and operated through the PPP formula.
Acknowledgements
The authors gratefully acknowledge the support of ‘Cátedra
Juan-Miguel Villar Mir in Business Administration’ of the Polytechnic University of Madrid, which provided funding for this research. They also wish to express their gratitude to the officials of
Zaragoza and Murcia local governments and the managers of the
projects, who were generous and patient enough to answer
questions and supply data for this project.
Appendix. List of interviews
1. Félix Corral, Manager, Concessions Division, FCC Construcción, October 30, 2013.
2. Carlos Rodríguez, Head of Asset Management Department,
Concessions Division, FCC Construcción, October 30, 2013.
3. Severiano Arias, General Manager, Sociedad Concesionaria
Tranvía de Murcia (concessionaire), January 16, 2014.
4. Santiago Molina, Technical Director, Sociedad Concesionaria
Tranvía de Murcia (concessionaire), January 16, 2014.
5. José Luis Giménez, Technical Advisor for Transport and
Traffic, Local Government of Murcia, January 17, 2014.
6. Joaquín Rocamora, Head of Transport Services, Regional
Government of Murcia, January 17, 2014.
7. Santiago Rubio, Head of Unit, Urban Mobility, Local government of Zaragoza, January 31, 2014.
8. Ana Moreno, General Manager, Tranvía de Zaragoza, January
31, 2014.
9. Alberto Barranco, Director, Project & Sectorial Finance, Corporate & Investment Banking, Societe Generale, February 25, 2014
(face to face), and June 18, 2015 (over the phone).
10. Marc Edouard, Vice-President, Project & Sectorial Finance,
Corporate & Investment Banking, Societe Generale, February 25,
2014.
11. Enrique González, Project Manager, CAF, July 22, 2014.
12. Pablo Amable González-Taberna, Head of Project Finance
Infrastructure Spain, Corporate & Investment Banking, BBVA, July
23, 2014.
13. Sebastián Contín, representative of Popular Party in the
town council of Zaragoza, June 19, 2015 (over the phone).
14. José Pascual Rubio, Manager of Light Rail System of Alicante
(Spain), June 19, 2015 (over the phone).
15. Fernando de la Cruz, General Manager, AUVASA (public
company in charge of bus transport in Valladolid), June 25, 2015
(over the phone).
16. Antonio Pérez de Arenaza, Director of Operations, ACCIONA
Concesiones, July 2, 2015 (over the phone).
17. Miguel Seisdedos, Technical Director, IRIDIUM, July 6, 2015
(over the phone).
18. Gorka Ugalde, Deputy General Manager, EUSKOTREN
(Tranvia de Vitoria and Tranvia de Bilbao), July 21, 2015 (over the
phone).
19. to 31. Citizens of Murcia (of different ages, social position
and ideology).
167
31. to 46. Citizens of Zaragoza (of different ages, social position
and ideology).
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