Restructuring of the German Motorway Administration 2021 - challenges or opportunities for German motorway PPP projects?

From 2021, a new state-owned infrastructure company will take over responsibility for the administration of the federal motorways in Germany aimed at making the planning, financing, operation, expansion and maintenance of the federal motorways faster and more efficient. This major reform is expected to create certain challenges but also presents new opportunities for market participants.

After the transition from a toll-based model for German motorway PPP pilot projects starting in 2005 (known as A-Models) to availability-based models (known as V-Models) for motorway PPPs from 2009 onwards, the German road PPP market is facing yet further reform.

This article provides an overview of the upcoming changes and their expected impacts on PPP projects as well as an outlook for the PPP pipeline in this sector.

The German federal trunk road network

With a total length of approximately 13,000 kilometres, the German network of motorways (Autobahnen) forms an important part of the road transport infrastructure in Germany and is the second largest motorway network in Europe. Due to Germany's geographic location within Europe, many motorway sections are also important for the trans-European road transport network.

German motorways, in addition to other federal roads (Bundesstraßen), belong to what are defined as federal trunk roads (Bundesfernstraßen) in the German Federal Highway Act (Bundesfernstraßengesetz). Federal trunk roads are public roads that form a coherent road transport network and serve or are intended to serve long-distance traffic.

The majority of the PPP projects realised or planned in the German federal trunk road sector to date are in relation to motorways.

Management of federal trunk roads and PPP projects

Responsibility pre-legislative reform

Until summer 2017, the German Basic Law (Grundgesetz), i.e. the federal constitution, provided that the individual German states (Bundesländer) — rather than the federal government — were responsible for the administration of motorways and other federal roads, and were therefore acting as agents on behalf of the federal government.

With regard to the practice of PPP projects in the German federal trunk road sector, this meant that, while the federal government was the contracting authority and party to individual projects, it was represented in the planning, tendering, awarding and implementation of the projects on a rather decentralised basis, according to the geographical location of the individual project, either by a German state or its competent public authority or, if the German state was a co-shareholder of "Deutsche Einheit Fernstraßenplanungs- und -bau GmbH" (DEGES), by DEGES. DEGES is a project management company whose shareholders are the federal government and 12 out of the 16 German states.

The decentralised organisation has an impact in a variety of ways, for example, in terms of the implementation of tender procedures for PPP projects and the drafting of the relevant project agreements and other tender documents. Since 2009, project agreements for German motorway PPPs typically follow the concept of the "availability model" (Verfügbarkeitsmodell or "V-Model"; please see below for further details of this PPP concept), which is based on a template contract. However, certain process- and content-related differences could be observed in practice with regard to the implementation of tender procedures, the project-specific contractual adjustments and the project risk allocations, depending on whether the lead role was taken by DEGES or directly by a German state and its competent authority.

Responsibility post-legislative reform

As a result of constitutional reform in summer 2017, in particular the administration of motorways will be separated and transferred to the federal government from 1 January 2021 onwards. The reorganisation aims, among other things, to bring together the obligation for administration and the obligation to bear costs thereby increasing efficiency (e.g. by uniform management instruments).

Due to its complexity, the transfer of administrative competence is seen as one of the largest infrastructure political reforms for decades. Whether the new organisational structure will in fact increase efficiency has yet to be seen. Initial frictional losses and start-up problems are expected.

With regard to PPP projects, it remains to be seen whether tender procedures will benefit from a more streamlined approach by the new centralised organisation, which can be seen as an evolution of DEGES.

However, it is important to note that the change in the administrative organisation from 1 January 2021 onwards does not entail a change in the ownership situation of the federal trunk roads. The federal government will remain, as prior to the reform, the owner of the motorways and other federal roads trunk roads.

Implementation of the administrative organisation at federal government level

The federal government is entitled to use a private law company to perform its new administrative duties in relation to German motorways, the newly founded "Die Autobahn GmbH des Bundes" (see below). The German constitution excludes the possibility of direct or indirect participation of third parties in this company and its subsidiaries.

This, however, should not be taken as an indication that future cooperation between the federal government and private economic operators in the form of PPPs is no longer desirable. The opposite is the case. Apart from the fact that PPPs in the German federal trunk road sector have so far not been aimed at privatising the legal ownership of federal trunk roads, a collaboration of the federal government with private economic operators for individual projects on the basis of PPP models remains permissible.

PPPs are only excluded for road networks that cover the entire motorway network or the entire network of other federal roads in a German state or significant parts thereof. Also, the involvement of private parties in the planning, construction, operation and maintenance of motorways or other federal trunk roads is permitted to the extent that individual projects cover road sections of a maximum length of 100 kilometres, whereby multiple projects must not be linked.

From today's point of view, however, this does not mean a conceptual change for PPPs, as such a comprehensive approach was not pursued with previous PPPs and does not form the basis for existing planned future projects of new generation PPP's in the German federal trunk road sector. Previous projects were also characterised by contract route lengths of less than 100 kilometres.

Die Autobahn GmbH des Bundes

The federal government made use of its right to operate an infrastructure company under private law in 2018 by incorporating the "Infrastrukturgesellschaft des Bundes für Autobahnen und andere Bundesfernstraßen mbH", whose name was changed shortly thereafter to "Die Autobahn GmbH des Bundes" (Autobahn GmbH). The establishment, objectives, tasks and financing of Autobahn GmbH are statutorily regulated.

Autobahn GmbH is based in Berlin and is a company under private law in the legal form of a limited liability company (Gesellschaft bürgerlichen Rechts - GmbH). The federal government is the sole shareholder of Autobahn GmbH. Since its incorporation, Autobahn GmbH has been in the "ramp-up" phase.

From 1 January 2021 onwards, it will take over responsibility for the planning, construction, operation, maintenance, financing, and asset and finance management of German motorways. Certain other statutory tasks associated with the administration of the German trunk road sector remain with the federal government and its federal authorities, e.g. the Federal Trunk Road Authority (Fernstraßen-Bundesamt) in relation to plan approval procedures for motorway projects.

The Autobahn GmbH will have ten branches (Niederlassungen) throughout Germany, 41 regional field offices (Außenstellen), 42 traffic control centres and more than 200 motorway maintenance depots (Autobahnmeistereien).

For the time being, beyond 2020, DEGES will continue to manage federal trunk road projects for which it was hitherto responsible on behalf of Autobahn GmbH and it is understood that DEGES will merge with Autobahn GmbH at some point in the future.

Funding of PPP projects and impacts of the reform

The remuneration scheme for the current V-Model, other than the instalments paid during the construction phase, includes remuneration paid at regular intervals by the public authority during the contract period consisting of (i) a remuneration component to be paid monthly for the long-term financing and (ii) a remuneration component to be paid monthly for operational, maintenance and other services.

The counterparty under the project agreement and consequently the debtor of the remuneration is currently the federal government, although the federal government is represented by DEGES or the German states, which in practice administer the planning, financing, operation, expansion and maintenance of the federal motorways. Consequently funders are currently calculating, with a cash flow that derives from the federal government with high creditworthiness (AAA).

The interesting question now is whether, for projects launched from January 2021 onwards, the Autobahn GmbH will merely technically replace DEGES or the German states in representing the federal government in PPP projects, or whether Autobahn GmbH will replace the federal government as contractual counterparty in the PPP projects.

The latter, i.e. a model where the counterparty is a state-owned private limited company, has already successfully been installed in other asset classes in the German infrastructure sector, such as in the regional public passenger rail transport sector (Schienenpersonennahverkehr - SPNV). The Bavarian public authority responsible for SPNV tenders has for instance founded the Bayerische Eisenbahngesellschaft mbH (BEG), a private company with limited liability owned by the federal state of Bavaria as sole shareholder, which acts as a counterparty for regional rolling stock projects. Funders have assessed the legal relationship between BEG and the federal state carefully, in particular taking into account the possibility (if any) of a liquidation or winding-up of BEG and have come to the conclusion that they are still able to rely on the creditworthiness of the federal state of Bavaria.

In a case where Autobahn GmbH becomes a counterparty in PPP projects, funders would also need to review the legal relationship between Autobahn GmbH and the German government.

German motorway PPP pipeline

But what do these changes in responsibility from 2021 onwards mean for the PPP pipeline in the German federal trunk road sector?

The federal government plans to launch further PPP road projects over the next few years. In the past, the financial and personnel situation and political support for PPP concepts differed from German state to German state, and the federal government's potential to influence the speed of progress at German state level was limited. This has led to road projects progressing at varying pace.

The centralisation of tasks from 1 January 2021 certainly promises efficiency gains in the future. However, whether the new centralised federal motorway administration with Autobahn GmbH at the forefront will lead to another boost in frequency of PPPs has yet to be seen.

After a first batch of four pilot projects and a second batch of nine projects, the federal government had already presented a third batch of projects, the "new generation" of PPPs, in 2015 with 11 further projects potentially suitable for realisation as PPPs. While six projects of the second batch have been launched and awarded so far, only three projects of the third batch have been awarded so far and the tender procedure for a fourth project is currently in process.

Against this background, the current PPP pipeline consists of a number of potential projects to meet the increasing demand of upgrading and renovating existing motorway infrastructure. It remains to be seen which of these further projects from the second and third batches will ultimately be launched as PPPs. Although they have been identified as potentially suitable for PPP, the question of whether and when these projects will be implemented as PPPs depends on various factors, such as necessary economic feasibility studies and the creation of the necessary building laws, as well as budgetary aspects and related discussions, meaning that no fixed timeline can be predicted for individual projects.

The federal government has given the prospect of a deal flow of two to three projects per year, but in practice usually only one or at most two projects are put out to tender simultaneously. Timelines for the individual tender procedures are significantly more than one year from the official launch to the contract award. Moreover, impacts of the current coronavirus SARS-CoV-2 pandemic have slowed down the sector to some extent this year, also on the part of governmental authorities. Apart from the ongoing tender for the B247 project, signs increasingly point to the prospect that the A1/A30 project could be launched in early 2021 and that the A61 project may happen in 2023.

A1/A30 project (expected early 2021)

The A1/A30 project forms part of the second batch of projects. It is scheduled to be implemented for a road section with a total length of approximately 91 km over a 30-year contract period on the basis of the V-Model (availability model) concept.

The V-Model is an established concept for PPP projects in the German federal trunk road sector with DBFMO elements, and was first introduced in 2009 when the A9 PPP project was launched. The V-Model is a quality-focused contract model with a contractual remuneration scheme which is independent from traffic volumes, which makes it distinctive from the concept applied to the pilot projects in the first batch of projects.

With an expected capex of approximately EUR 1.3 billion, the A1/A30 project will be one of the largest road PPPs in Germany to date. The project was initially expected to be launched at end of 2018, but had faced some delays because of permitting issues and has apparently been further postponed due to the current coronavirus SARS-CoV-2 pandemic.

A61 Project (expected 2023)

The A61 project has emerged as a second mid-term pipeline opportunity. This project is also expected to be designed on the basis of the V-Model concept with a 30-year period under contract and an expected capex of approximately EUR 800 million. 

On 23 July 2020 and on 23 September 2020, DEGES published two tender procedures in the Supplement to the Official Journal of the European Union for the procurement of engineering consultancy services for certain design and execution planning and further consulting services to be provided in preparation of the project. DEGES indicated 29-month and 22-month contract periods respectively for the service under these two contracts, making it possible that the launch of the tender procedure for the actual project will be in 2023.