Article by Political Adviser Mr. Alfred Bjoerlo, Ministry of Transport and Communications
Published in Public Service Review: Nordic States
Summer 2003

Public private partnership in Norway

Political Adviser Mr. Alfred Bjoerlo from the Ministry of Transport and Communications, reports on PPPs in the Norwegian transport sector...

In February 2001, the Parliament in Norway discussed a white paper on transport. The Parliament then decided to find out whether PPP is a suitable model for financing and building roads in Norway. Three road projects have been selected to test if the PPP-model will lead to greater efficiency in road projects, and at the same time give the public sector the required control of the projects and political flexibility. The Government is also positive to test the PPP concept in the railway sector, but for the time being no project has been proposed. I will therefore focus on the road sector.

The Norwegian road network is comprehensive – because of long distances and a scattered distributed population. Norway has approximately 27.000 km state roads and 64.000 km regional and local roads. The total investments in the state road network in the 2003-budget is 6,7 billions Norwegian kroner (about 850 mill Euro). Road toll financing makes up about 25 % of the total investments.

The Ministry of Transport and Communications is at present preparing a revised white paper on transport, the National Transport Plan, that is scheduled for presentation to the Parliament in January 2004. Here, the total investments and the distribution among projects will be set for the next 10 years, both for the road and the railway sector.

The Norwegian PPP-model

The PPP-company in the Norwegian PPP-model will receive an annual unitary payment, but with the actual level of payment being varied according to performance against a number of pre-defined criteria. These criteria are related to our political goals of good accesibility, high performance and a high level of traffic safety on the road network. The annual payment consists of both government funding and toll money.

The payment mechanism will be based on four separate elements:

1. Availability payment for the road being accessible to certain standards
2. Performance payments based on the operation and maintenance of the road being of a specified standard
3. Safety payments based on the safety record of the road in comparison to other comparable roads in Norway
4. Traffic payments relating to traffic that is significantly higher than the estimated forecasts

The most important difference from the traditional model for road construction in Norway is that in the PPP-model the private sector will have the entire responsibility to deliver a service, while today the private sector is a supplier of single, specified tasks. In PPP-projects the authorities will place orders and make demands on what to be delivered, as opposed to demands on how to deliver it.

The PPP-contract will give the PPP-company full responsibility to ensure that the project road is perceived by the users and the surrounding population to have good aesthetic and environmental standards over the life of the contract.

The PPP-model assures a value for money allocation of risk between the public and private sectors. The risk allocation will be clearly defined in the PPP-contract. The Norwegian PPP-model assures that risk is allocated to the party best able to manage the different risk elements. Risk factors over which the PPP-company has little or no influence will be allocated to the public sector. The traffic risk will – neither in form of toll collection nor shadow toll – be allocated to the PPP-company.

The first PPP-project in Norway

The Norwegian Public Roads Administration has just finished the process of awarding the PPP-contract for the first of the three state highways which are to be developed as PPP-projects in Norway. This contract is the first PPP-contract ever in Norway, and the project serves as a pilot scheme for the whole country. The PPP-contract has been awarded to Orkdalsvegen AS after the candidates have gone through a tender period and after negotiations according to public procurement regulations have been carried out between the state and the selected PPP-company. The candidates have been competing on the annual payments and the economically most advantageous tender from the state’s point of view has be awarded the project.

This first project (E39 Klett-Baardshaug) is situated in Soer-Troendelag County in the middle of Norway. The distanse between Klett and Baardshaug is 27 kilomter. The estimated value of the construction element of the contract is 1-1,2 billion Norwegian kroner. Orkdalsvegen AS will be responsible for building, operating and keeping the road in repair for a defined period of time (20-25 years). In addition, the company will be responsible for handing over the road to the Government in a predefined technical condition at the end of the concession period. The road shall at the end of the concession period comply with pre-defined functional requirements.

As I mentioned earlier, the traffic risk will not be allocated to the company. The toll company for the first project is a state owned non-profit company which has entered into a separate agreement with The Directorate of Public Roads. The agreement regulates how the toll funding will be used to partly finance the road development. The PPP-company will be paid solely based on the PPP-contract and the payment mechanism and a payment profile specified in this contract. The Norwegian Parliament agreed to this project in June last year. The contract was with Orkdalsvegen AS was signed in March 2003. Orkdalsvegen AS is owned by the Swedish Skanska BOT and the British Laing Investments.

The two other road projects to be procured as PPP-projects in Norway are E39 Lyngdal-Flekkefjord in Vest-Agder County and the E18 Grimstad-Kristiansand in Aust-Agder County, both in the southern part of Norway. The pre-qualification for the former started earlier this year. The latter project has not yet been defined, but it will be the most extensive of the three projects, and the pre-qualification for this project will most likely start in 2003.

The Norwegian government has plans for extensive investments in the transport network in the years to come. We regard the PPP-model as one of several measures to increase the efficiency of our investments, and thereby give people and industry and trade better public services. The government has recently also got the Parliament´s approval to another extensive reform – which involves setting out all the construction, operation and maintenance of public roads to open competition in the market. This means that from 1 January 2003 all new projects previously conducted by the Public Roads Administration are to be presented to the private market. In addition, the production department of the Public Roads Administration is from 1 January 2003 organised as a state owned limited company, that will have to compete on equal terms with private companies.

Recent years experience abroad has revealed that realisation of transportation projects by the private sector has led to savings, access to new sources of funding and the moving ahead of high-priority projects. Hopefully we will experience these benefits from using PPP in Norway too.