Almaty Ring Road PPP (BAKAD)
London, December 9, 2014
Ministry of Investments and Development
of Republic of Kazakhstan
Ministry of Investments and Development
of Republic of Kazakhstan
Subject Slide
Introduction 3
Technical parameters 7
Financial structure 13
Contractual aspects 22
Tender process 30
Contents
2
Ministry of Investments and Development
of Republic of Kazakhstan
Project Snapshot
• Part of the “Western China – Western Europe”
transnational highway
• Population served1 – c. 2,000,000
• Greenfield bypass toll road
• Length – 66 km (4/6 lanes)
• CAPEX – est. $680m
• Remuneration based on availability payments
• Currency risk mitigation mechanism
• Other standard project finance features (incl.
termination, arbitration, step-in provisions, etc.)
3
[1] Includes Almaty and three neighbouring districts, 2014.
Ministry of Investments and Development
of Republic of Kazakhstan
Importance of BAKAD
Infrastructure
Construction of a key link in the “Western China – Western Europe”
transnational highway
Reduction of commuting time to Almaty
Signalling effect
First large PPP in Kazakhstan
First large infrastructure project outside of the Oil&Gas sector financed
with private capital
Pipeline of road projects
4
Ministry of Investments and Development
of Republic of Kazakhstan
Project Team
5
IFC Lead Transaction Advisor
PPP TA Unit (Kazakhstan)
Archaeology
Expedition (Kazakhstan)
Sweco International (Sweden)
Design Institute
“TRTI” (Sweco) (Russia)
Design Institute
“Dortrans” (Kazakhstan)
Engineering Center
Astana (Kazakhstan)
Kocks
Consult (Germany)
Gide Loyrette Nouel (France/Russia)
Colibri
Law Firm (Kazakhstan)
Ernst & Young (Russia/
Kazakhstan)
EBRD Mobilized grant to co-finance project preparation
Ministry of Investments and Development (Automobile Roads Committee)
Other stakeholders:
• JSC “Kazakhstan Center for Public-Private Partnership” (PPP Center): Regulator under Ministry of National Economy
• RSE “Gosexpertiza” (Independent State Expert Review): Regulator under Ministry of National Economy
• Local municipal and regional authorities (akimats): Public-sector beneficiaries of the project
Ministry of Investments and Development
of Republic of Kazakhstan
Subject Slide
Introduction 3
Technical parameters 7
Financial structure 13
Contractual aspects 22
Tender process 30
Contents
6
Ministry of Investments and Development
of Republic of Kazakhstan
Technical Parameters: Overview
7
27 k vehicles
Operations period c. 15.5 years
19 viaducts
April-October construction season
Cost of Construction (US$ m)
Year 2 Year 3 Year 4 Year 5 Year 1 Total: US$
680m 163 33 86 114 285
66 км long
4/6 lanes
Construction period 50 months
23 toll plazas
21 bridges 12 intersections
23 entrances
Ministry of Investments and Development
of Republic of Kazakhstan
Technical Parameters: Construction
Parameter Unit Total
Construction length (length) km 66
Road category -- Ι-а
Design speed km/h 150
Number of traffic lanes
А) on sections Stake 0-55 and Stake 570-660
B) on sections Stake 55-570
-
-
4
6
Traffic lane width m 3.75
Road shoulder width m 3.75
Width of the hard part of the road shoulder m 2.5
Width of median m 6.0
Width of safety strip near the median m 1.0
Carriageway width
A) with 4 lanes
B) with 6 lanes
m
m
4х3.75
6х3.75
Width of pavement
A) with 4 lanes
B) with 6 lanes
m
m
22
29.5
Width of roadbed
A) with 4 lanes
B) with 6 lanes
m
m
28.5
36
8
Ministry of Investments and Development
of Republic of Kazakhstan
Technical Parameters: CAPEX
9
• Estimated cost of construction:
US$680 m
• CAPEX estimated by GoK’s advisors
based on:
Detailed designs
Local methodology for cost
estimation
• Approved by Gosexpertiza
• Bidders allowed to review CAPEX
estimates during bidding process
86
114
285
163
33
0
50
100
150
200
250
300
Year 1 Year 2 Year 3 Year 4 Year 5
Cost of Construction (US$ mln)
Ministry of Investments and Development
of Republic of Kazakhstan
Technical Parameters: Traffic
10
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
P1-P2 P2-P3 P3-P4 P4-P5 P5-P6 P6-P7 P7-P8 P8-P9 P9-P10 P10-P11P11-P12
Nu
mb
er o
f V
eh
icle
s
Road Segment
Average Annual Traffic Volumes, 2018
Heavy trucks/buses Medium trucks/buses Light trucks/buses Cars
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
P1-P2 P2-P3 P3-P4 P4-P5 P5-P6 P6-P7 P7-P8 P8-P9 P9-P10 P10-P11P11-P12
Nu
mb
er o
f V
ehic
les
Road Segment
Average Annual Traffic Volumes, 2038
Heavy trucks/buses Medium trucks/buses Light trucks/buses Cars
TRAFFIC STUDY
• Transport model based on economic development
forecasts, 2 traffic counts and a WTP/O-D survey
• Unique vehicles entering motorway begin at 78,495 vpd
and rise to 112,650 vpd by 2038
• Average Daily Traffic:
2018: 27,308 vpd
2038: 44,344 vpd
• Substantially, all traffic is local (commuters)
Proportion of trucks increases over time (western
China-Western Europe Corridor)
• Traffic expected to be remarkably stable given variable
weather conditions throughout the year
Cross-section traffic figures
Weighted average Cars Trucks
(% total) (% total) (real vpd) (equiv. vpd) (real vpd) (equiv. vpd)
2018 forecast 88 12 27,308 32,838 1,327 1,543
2038 forecast 78 22 44,344 56,970 2,211 2,858
Total AADT Peak hour
Ministry of Investments and Development
of Republic of Kazakhstan
Technical Parameters: Tolling
11
TOLLING STRATEGY
• Toll rates set by GoK
• Concessionaire to collect tolls on behalf of GoK and
transfer toll revenue to the state budget
• Concessionaire to supply tolling equipment
• “Open” toll system
Flat fee upon entry
No ‘main carriageway’ toll plazas
“Congestion charge” approach
• 23 toll plazas (15 + 8)
• GOK interested in creating conditions for seamless
transition between toll roads to be developed in
Kazakhstan
To be discussed with short-listed bidders
Comparison of proposed tolls against benchmarks
Toll rate
(KZT) Min Max
Class 1 - light vehicles 343 489 240
Class 2 - minivans 399 570 240
Class 3 - light trucks 456 651 325
Class 4 - heavy trucks 536 765 385
International benchmark Suggested gross
toll rates
Toll Plaza
Intersection
Ministry of Investments and Development
of Republic of Kazakhstan
Subject Slide
Introduction 3
Technical parameters 7
Financial structure 13
Contractual aspects 22
Tender process 30
Contents
12
Ministry of Investments and Development
of Republic of Kazakhstan
Transaction Structure
13
• 20-years BTO
• Traffic revenues collected by concessionaire and transferred to GoK
• Concessionaire remunerated through front-loaded availability payments
• Paid in local currency but government to compensate for currency fluctuations
Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Year 11Year 12Year 13Year 14Year 15Year 16Year 17Year 18Year 19Year 20
Availability Payments (illustrative)
Compensation other expenses Investment Cost compensation
Ministry of Investments and Development
of Republic of Kazakhstan
Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Year 11Year 12Year 13Year 14Year 15Year 16Year 17Year 18Year 19Year 20
Availability Payments (illustrative)
Compensation other expenses Investment Cost compensation
Investment Cost Compensation
14
Investment cost compensation – Fixed
Cost of construction including interest during construction (LIBOR + 3%) and other elements
Paid during first years of operation (to mimic debt repayment schedule)
Ministry of Investments and Development
of Republic of Kazakhstan
Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Year 11Year 12Year 13Year 14Year 15Year 16Year 17Year 18Year 19Year 20
Availability Payments (illustrative)
Compensation other expenses Investment Cost compensation
Compensation of Other Costs
15
Compensation of other costs– Fixed
OPEX, REPEX, tax, cost of capital and other costs
Paid during operations period
Ministry of Investments and Development
of Republic of Kazakhstan
Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Year 11Year 12Year 13Year 14Year 15Year 16Year 17Year 18Year 19Year 20
Availability Payments (illustrative)
Compensation other expenses Investment Cost compensation FX compensation
Currency Risk Compensation
16
Currency risk compensation – Variable
Additional public subsidy to compensate for any devaluation-depreciation of KZT Vs US$ above 5%
(cumulative)
Ministry of Investments and Development
of Republic of Kazakhstan
Availability Payments
17
AVAILABILITY PAYMENTS, A SUM OF
• Investment cost compensation
Cost of construction and other
Paid during first [10] years of operation (to mimic debt repayment schedule)
• Other cost compensation
OPEX, REPEX, tax, cost of capital and other costs
Paid during operations period
• Currency risk compensation
Additional public subsidy to compensate for any devaluation-depreciation of KZT Vs US$
• Other
Performance penalties, other
• Credit rating Kazakhstan: BBB+ (S&P), Baaa2 (Moody’s)
• Strong interest from lenders: IFC, EBRD and ADB
Ministry of Investments and Development
of Republic of Kazakhstan
Risk Matrix
18
Type of risk Grantor Concessionaire
Land expropriation
Financing risk
Inflation and cost overruns
Commissioning of road; meeting hand-back standards
Availability of road; meeting operating standards
Traffic risk
Currency fluctuations
Termination payment; discriminatory change in law
Ministry of Investments and Development
of Republic of Kazakhstan
Transaction Structure: Modifications
MODIFICATIONS SINCE PREVIOUS INVESTORS CONFERENCE
• Traffic risk: Transferred to GoK
Availability payments applicable to “projects of exceptional significance”
• FX risk: Transferred almost fully to GoK
Government to compensate for currency fluctuations above 5%
• Bankability: Step-in rights for lenders allowed
Government to sign a Direct Agreement with lenders
• Dispute resolution mechanism: International arbitration outside of Kazakhstan applicable to PPPs
International arbitration allowed even if SPV is registered in Kazakhstan
• Limited incentives for private sector efficiency
Availability payment not adjusted for efficiency gains
• Tender process:
Two-stage tender process allowed
• Mandatory use of local templates for the preparation of bidding documents
International templates approved and adapted to local legislation
19
Ministry of Investments and Development
of Republic of Kazakhstan
Land Expropriation
20
STATUS OF THE LAND ACQUISITION PROCESS
• Land expropriation process near completion
96% of landplots have been acquired
Completion of land expropriation and delivery of the site is a condition precedent to the Concession
Agreement
Grantor will provide the land free of any encumbrances, with no adverse claims pending in court
Ministry of Investments and Development
of Republic of Kazakhstan
Subject Slide
Introduction 3
Technical parameters 7
Financial structure 13
Contractual aspects 22
Tender process 30
Contents
21
Ministry of Investments and Development
of Republic of Kazakhstan
Legal & Institutional Framework (1)
• Strong political will and clear government policy to promote BAKAD project
• Stable institutional framework dedicated to concessions, including a PPP Center set up to implement
the policy framework and to assist in the selection of PPP projects
• Established legal and regulatory framework, including the Law of the RK on Concessions No. 167-III
dated 7 July 2006 (as amended) and tender rules that allow a fair and transparent selection of
concessionaires
• BAKAD project awarded in the form of a concession by Order of the Government of the RK No. 1518
dated 31/12/2013. Recognized as a project of special importance (Order of the Government of the RK
No. 1060 dated 7/10/2014)
• Established investment protection (against illegal acts of state bodies, against nationalization and
requisition, right to use and dispose of revenues)
22
Ministry of Investments and Development
of Republic of Kazakhstan
Legal & Institutional Framework (2)
• Enhanced attractivity of the Kazakh legal and regulatory framework, thanks to recent legal amendements
allowing:
Signing of the concession agreement by the SPV itself
Conclusion of a direct agreement
International arbitration in case of a dispute between resident entities
Mitigation of FX risk through adjustment of availability payments
Provision of termination payments in line with best practices
23
Ministry of Investments and Development
of Republic of Kazakhstan
Contractual Aspects of the Concession (1)
24
• Concession Agreement based on international best practices and Kazakhstani law
CONTRACTING PARTIES
• Government of Kazakhstan acting through the Ministry of Investments and Development (Grantor)
• A resident SPV created by Successful Bidder (Concessionaire)
CONDITIONS PRECEDENT (CP)
• Delivery of Site to the Concessionaire
• Execution of financing agreements, fulfilment (waiver) of all conditions precedent thereto
• Provision of construction works programme and submission of design to Grantor
• Delivery of construction bond
• Obtaining all necessary consents by Concessionaire; delivery of certificates of insurance
DURATION OF THE CONCESSION
• CPs to be fulfilled <6 months from signature of Concession Agreement
• Construction period starts when all CPs are fulfilled ("Commencement Date") and last <50 months from
Commencement Date
• Operation period starts when certificate of acceptance of the construction works is issued and ends 20
years after Commencement Date
Ministry of Investments and Development
of Republic of Kazakhstan
Contractual Aspects of the Concession (2)
25
FINANCIAL ISSUES
• Concessionaire responsible for arranging financing
• Direct agreement between Grantor, lenders and Concessionaire
• Availability payments to be paid semi-annualy during period of operation as exclusive source of
compensation
• Availability payments to be adjusted if certain risks materialize (MAGA, FX, etc)
INTERFACE ISSUES
• Grantor can exercise control over compliance with contractual terms/conditions via Grantor
Representative, approving Concessionaire’s annual programme, monitoring of records (in particular in
respect of toll collection), disclosure obligations and Grantor step-in (conduct of required actions)
• Sections of “WC – WE” corridor will also be tolled (incl. Almaty-Khorgos): interoperability implications
Ministry of Investments and Development
of Republic of Kazakhstan
Contractual Aspects of the Concession (3)
26
LABOR
• Concessionaire to comply with Equator Principles and Law.
• No specific local content requirements for project.
ENVIRONMENTAL
• Concessionaire to conduct environment and social assessment, and establish an Environmental
Social Management System.
• Concessionaire responsible for strictly complying with Law and Equator Principles relating to protection
of environment, health and safety.
OPERATIONAL PERFORMANCE REQUIREMENTS
• Deductions to availability payments, in case of:
defect(s) (immaterial, material or dangerous): i.e. deviation from GOST/SNiP requirements;
non-performance: i.e. failure to comply with detailed technical, reporting or other requirements;
unavailability: i.e. closure of any lane or lanes / entries to user traffic.
Ministry of Investments and Development
of Republic of Kazakhstan
Contractual Aspects of the Concession (4)
27
VARIATION PROCEDURE
• Concession Agreement provides for a variation procedure in line with PFI standards, subject to
Kazakhstani budgetary procedures when compensation is to be paid by Grantor.
STABILIZATION PROVISIONS
• Subject to strict conditions, Concessionaire entitled to compensation through adjustment of
availability payments and/or extension of time and/or relief in event of:
Adverse Government Action;
Force Majeure;
Qualifying Change in Law.
Ministry of Investments and Development
of Republic of Kazakhstan
Contractual Aspects of the Concession (5)
28
TERMINATION PAYMENTS
• Concessionaire Default: (1) – (5)
• Grantor Default or Prolonged AGA: (1) + (2) + (3) – (5)
• Prolonged Force Majeure: (1) + (4) – (5)
With:
(1): lowest of: (i) Capital Expenditure already incurred, or (ii) “Cost of the Concession Object”, multiplied by:
(percentage of ICC remaining due at Termination Date) × 0.9
(2): termination costs
(3): an amount, which when taken together with dividends (or other distributions) paid by the
Concessionaire and equity invested or other forms of investment on or before Termination Date taking into
account the actual timing of all such payments, gives a real internal rate of return of 13%.
(4): mitigation costs.
(5): insurance proceeds received by the Concessionaire.
Ministry of Investments and Development
of Republic of Kazakhstan
Subject Slide
Introduction 3
Technical parameters 7
Financial structure 13
Contractual aspects 22
Tender process 30
Contents
29
Ministry of Investments and Development
of Republic of Kazakhstan
Tender Requirements
• Form of the bidders: single entity or consortium
• Access of the bidders to a virtual data room
• Bid applications shall comprise:
First stage bid application, to be submitted at Step I (qualification stage)
Second stage bid application, to be submitted at Step II, including:
• Feasibility study (“TEO”, including technical and financial offers)
• Bid security, in the form of a bank guarantee or in the form of a deposit (equal to 0.1% of value of
concession object)
• Contents of the applications: 1 printed original, 1 printed copy, 1 electronic copy
• Language of the applications: Kazakh or Russian. Additional electronic copy in English is recommended
• Bid application validity period: 12 months from date of expiry of the second stage bid application
submission deadline
30
Ministry of Investments and Development
of Republic of Kazakhstan
Qualification Criteria
31
STEP I – BIDDERS QUALIFICATION
Main qualification criteria:
• Financial and material resources for the project: Participated over last 10 years in at least 2 projects
satisfying any of the 3 following categories:
category 1: investment in a project of construction or reconstruction of motor roads >US$40 mln; or
category 2: >=2 contracts as general contractor in a project of construction and (or) reconstruction
of motor roads with >=4 traffic lanes in similar climatic conditions >US$190 mln; or
category 3: assets (book value) of a project operated (managed) >US$190 mln.
• Bidders must have a net worth of not less than 10% from the value of the concession object
Ministry of Investments and Development
of Republic of Kazakhstan
Slide 31: Qualification Criteria
32
STEP II – SUBMISSION OF SECOND STAGE BID APPLICATIONS
• Technical criteria: pass / fail review of compliance with technical specifications of the project + sign
undertaking to contribute no less than 10% of cost of concession object in the form of equity
• Financial criterion: minimum amount of government support discounted at 8%
• Technical evaluation carried out by MID, Expertiza and PPP center.
• Financial offers of only those bidders who passed the previous stage will be opened
• Bid approved by expert reviews, meeting technical criteria and providing for lowest discounted
availability payments is designated as first-ranked bid
Ministry of Investments and Development
of Republic of Kazakhstan
Tentative Tender Schedule
33
Event Tentative Timelines
Deadline for requests for clarification at Step I January 3, 2015
Deadline for submission of Bids for Step I February 3, 2015
Invitation to submit documents for Step II End of February 2015
Deadline for requests for clarification at Step II June 29, 2015
Deadline for submission of documents for Step II July 29, 2015
End of evaluation phase at Step II Not later than end of November 2015
Negotiations with the first-ranked bidder Within 6 months from designation of the best bid
Bid approval and announcement of the successful
bidder Within 1,5 month from end of negotiations
Signing of the concession agreement Within 90 days from announcement of the successful bidder