Arlanda Express is a public-private partnership purpose built rail link between Stockholm Central Station and Arlanda Airport in Sweden. It takes 20 minutes to travel the 39 kilometre line.
Plans for an airport rail link from the central business district of Stockholm and the airport was launched in the early 1980s and Arlanda Express was projected and built in the 1990s, opening for service in 1999.
The Arlanda airport rail link is a finance-build-transfer-operate contract between a private consortium and the government. This is one of first such examples, and it emerged after regulatory reforms of public monopoly industries (in this case, railway sector) were planned. A broad range of measures were planned, such as change of ownership and gradual opening for market entry, with a goal to end the monopoly through new legislation.
Sweden is known throughout the world as being a global leader of innovation with a highly skilled labour force, and a stable economy. The country’s competitiveness rests on distinct business environment indicators as well as more delicate indicators such as reliability, trust and quality of life. It is not surprising that the model to build an airport link as a finance-build-transfer-operate contract was pioneered in Sweden.
The Swedish Rail Administration had proposed that the line was to be built with the government agency as owner and with either the government owned railway company SJ or private railway companies as train operators. However, the Government wanted private sector involvement in the construction and operation of the line.
In order to connect the airport with the original infrastructure two additional tracks needed to be constructed. The core of the Arlanda project is the section linking the airport to the existing tracks from the south. The project also includes the ‘’northern bend’’ and underground stations.
The decision to start the project was originally made in 1994, and as the idea of a public private partnership emerged, contracts to regulate the duties of the private company and the state were made. One of the main questions was if creation of a facility-based competition within the otherwise vertically separated railroad industry was appropriate.
In 1993, the Government issued a public tender to build and operate the line and in 1994, the Arlanda Link Consortium was chosen, consisting of the Nordic Construction Company, SIAB, Vattenfall, GEC Alsthom and Mowlem. A-Banan Projekt AB was established as a limited company in 1994 to oversee the project.
The consortium established A-Train AB to be the project developer and then operate the Arlanda Express until 2040. The legal responsibility for the project was transferred from the consortium to A-Train in 1995. As a part of the agreement, A-Train received a grant from the Swedish Government of 850 million Swedish krona and SEK 1 billion in a loan to help finance the project. The company was also allowed to operate a shuttle service from Stockholm C to Arlanda and charge a non-discriminating fee for all other trains using the line.
The total investment cost for the project was SEK 6 billion, of which SEK 2 billion was financed through state grants to the Swedish Rail Administration who built the quadruple track along the East Coast Line. The public–private partnership part of the project involved two new tracks at Stockholm C and the Arlanda Line, costing SEK 4.1 billion. Of this, SEK 2.4 billion was financed by the state.
In addition, the state held a financial guarantee to Nordea Bank for the X3 trains, should A-Train fail to meets its financial obligations to the bank.
A-Train was also granted an interest-free deferral on the payment of the fees at Stockholm C and Arlanda, costing the state SEK 90 million.
Of A-Train’s capital loan for SEK 2.2 billion, SEK 1.8 billion was borrowed from three state-owned financial institutions: the Swedish National Debt Office, the Swedish Export Credit Corporation and the Nordic Investment Bank. In addition, 20% of the share capital was secured through Vattenfall’s equity in the company.
Even though the initial project was assessed only for the core of the project (southbound section A), the Parliament decided to have the four-track and the northern bend sections built and paid for over the government’s budget in 1993. In the first phase of the bid, 30 companies submitted their bids for the whole project or part of the core projects, and after initiative from the working group the final round was comprised from four bidding consortia.
The private consortium that signed the contract established itself as A-Train and it comprised of:
A-Banan Project AB was established to act as the government’s agent and most contracts were administered through this company. It is owned by Banverket and Luftfartsverket. The idea was to use this agency to develop the relationship with the consortium gradually as time and traffic develops.
Train services were opened in November 1999, which was one year ahead of the schedule.
One of the reasons which led to establishing a train link to Arlanda was the fact that the airport planned to have a third runway built, but their permission was conditioned by a limit in NOx and CO2 emissions. Increase in the airport traffic would lead to increase in car and bus shuttle usage and the airport had to find a more sustainable and environment friendly solution.
In the graphic displayed below, we have mapped the vision of the project, through four main factors that we identified were relevant in all the projects we analysed.
The other reason was the idea to encourage participation of the private sector in financing of what is otherwise considered the responsibility of the public sector. Off-budget funding mechanisms have raised interests in most political parties. The fact that a private contractor would enter in a partnership with the public sector was seen as one of the means to achieve the goal of simplifying the entry into a deregulated national railway market. It would also offer new ways to operate the services and stimulate innovative infrastructure design.
Even though in the early cost benefit analysis the ticket revenue was not expected to be sufficient to recover investment costs, in the economic rationale it was considered that the benefits would exceed the costs.
A-Train as the private partner built sections B and C and paid for parts of the investment costs but A-Banan was made owner of the infrastructure. A-Train is entitled to run trains for a 45-year period after which the control over infrastructure is to be returned to the government.
The structure of the funding is displayed in the graphic below.
The conclusion it that expected costs of the project should be carefully registered, especially when there is a nonconventional financial construction implemented. Otherwise, it is hard to assess the merits and the problems of the used financial construction later, and transparency of the process is at stake.
For long-distance domestic travelling there are more advantages in using the new line. For passengers who live in regional hubs at the distance of more than 200km from the airport, the trains now stop at Arlanda on their way to Stockholm, which diverts passengers to interregional trains.
In the end, even though the Arlanda Express was not a clear candidate for a public private partnership project (the costs were too high for private consortium to finance it all, making it necessary for the government to provide a loan), there are still some benefits of this kind of partnership. The taxpayers did not have to pay for the building of infrastructure which would have cost around SEK 1.7 billion, and commercial lenders were motivated to carry out the construction of the project properly and pay special attention to the way it is operated.
The Arlanda Line and the Arlanda Express started operations on 25 November 1999. After the construction was completed, the ownership of the infrastructure was transferred to A-Banan Projekt. However, A-Train is responsible for paying for all maintenance and operating costs of the line.
In 2004, A-Train was bought by Macquarie Group, who paid SEK 70 million for the company, in addition to taking over debt worth SEK 330 million. In 2014, Macquarie sold A-Train to STC Pooled Fund, Sunsuper (two Australian funds) and the State Administration of Foreign Exchange of the People´s Republic of China.
In conclusion, this type of infrastructure investment contract opens up standard issues of contract design and it is necessary to deal with them in a conscious way.
The ability of the initial owner consortium to overcome the crisis and the collapse of the market during the development and the first years of operation shows that it succeeded in overcoming this hard task.
The post Multimodal Transport and Railway Systems – Arlanda Express appeared first on Bearing Consulting.
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