In the latest issue of the Danish trade journal Ingeniøren, Scandlines questions the economics of the Fehmarnbelt project under a caption that translates as “Fehmarnbelt tunnel economics are a pipe dream”.
Claus F. Baunkjær, CEO, Femern A/S offered this comment:
“While we appreciate Scandlines' pertinacious interest in our project for the fixed link between Rødby and Puttgarden, the assertion that the Fehmarnbelt project's economics are a “pipe dream” is simply a misapprehension.
The Fehmarnbelt Fixed Link is due to open in late 2021, and the project has a financial repayment time of almost 40 years. Accordingly, we necessarily have to look at the economics of the link in relation to traffic patterns in the long term, rather than in terms of fluctuating economic trends from one year to the next, regardless of how extreme they might be. It is a well-known fact that economic trends influence the volume of road traffic from one year to the next. This is why the financial estimates are based on a long-range and cautious forecast for traffic trends and the other factors that are determinative for the overall economics of the project.
- Femern A/S is expecting traffic growth of 1.7 per cent per annum for the first 25 years of the life of the link. After the first 25 years, Femern A/S is anticipating, on grounds of caution, zero growth in traffic for the ensuing period. For comparison, the actual growth in traffic on the Rødby–Puttgarden ferry crossing in the period from 1970 to 2012 has averaged 3.4 per cent per annum, even allowing for the negative trend in recent years during the financial crisis. In other words, over a period of some 40 years, traffic has increased at almost twice the rate assumed by Femern A/S in the financial estimates for the future. However, clearly, since 1970, there have been both good and bad years in line with general economic trends. The same will be the case in the future.
- “Traffic jump” in the context of transportation denotes the new traffic ensuing from the options that a fixed link provides. For the Great Belt and Øresund links, the traffic jump proved to be 127 per cent and 61 per cent respectively in the first year of opening. For Fehmarnbelt, cautious forecasts have put the traffic jump at around 40 per cent. In addition, the financial analyses assume that the traffic jump will only be realised gradually over four years. Thus, the financial estimates are based on the traffic jump not being immediately emergent.
- The economics of the Fehmarnbelt project are not only dependent on traffic volume; they are also highly dependent on the prevailing interest rate, since the project is loan-financed. The estimates for a fixed link across the Fehmarnbelt assume a real interest rate of 3.5 per cent per annum. The very low real interest rate seen during the recent years' recession is significantly below that assumed by the financial analyses for the project. For the present, the Fehmarnbelt project is profiting from that, so that in that sense the project economics are better than projected. But on that score too, the company has to operate with a long-term perspective. Femern A/S is not about to modify its long-range interest rate assumptions here and now because we know that interest rates, like traffic figures, may rise again once the economy goes into recovery.
- The European Commission has granted quite substantial funding to the Fehmarnbelt project because it is a priority project for the pan-European transport network, including for railway traffic in Europe. The Fehmarnbelt project will provide a significant boost to railway traffic, including rail freight transport in Europe. This is why the project qualifies for funding under the current rules of up to 30 per cent of the construction costs, while Femern A/S, has cautiously assumed funding of 10 per cent of the construction costs in its financial estimates. The more funding we receive from the EU, the better the overall economics of the project.
We will not be adjusting our traffic forecasts and other assumptions from one day to the next. But the Danish Government and Parliament – and all other stakeholders – naturally have a right to expect that we are able to deliver on a robust basis before final decisions are made. Accordingly, ahead of the bill for the Construction Act for the project at the end of 2014, we will be presenting a comprehensive up-to-date assessment of the project's economics, based on the most recent detailed traffic forecasts, interest rate assumptions, construction estimates, and expectations regarding EU funding. And we will naturally be incorporating and assessing the information and data we receive from Scandlines and any other parties with insight into and interests in the matter," says Claus F. Baunkjær.
Karsten Holmegaard, tel: + 45 40 10 42 50, email@example.com
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