From Russia with Love – PPP in St Petersburg

Case Study: PPP in Transport

Nadzemny Express (NADEX) LRTRussian Federation – St Petersburg

Vickram Cuttaree, ECA ECSSDMay 20, 2008

The Russian Context

Economy

- Largest country in the world in total area and resource-rich country (reserves of mineral fuel);

- Middle income country with a 2007 GDP per capita of $8612.

- Expected GDP growth of over 7% in 2007

Country Risk

- Post-soviet union Russia still associated with high political risk.

- Stronghold of the Kremlin, perceived weak rule of law

Infrastructure and role of Public-Private Partnership

- Russia plans a US$ 1,000 bn investment program in infrastructure over the next 10 years (8% of GDP each year)

- PPP expected to play a significant role and several initiatives have contributed to increased in PPP projects being prepared over the past 2 years

The Winter PalaceSource: http://eng.gov.spb.ru/culture

The City of St Petersburg

• Russia’s second largest city: 1400 km²; pop. 4.5 million.

• A major center of business, production and trade.

• Economic performance: – GRP increased of 8.5%

in 2006 v/s 2005; – Projected growth of GRP

between 2006 and 2010 of 30-60%;

– S&P’s rating BBB. • Several pilot PPP

projects being currently prepared

Overview of the Nadex Project

• 29.9 km Light Rail transit line servicing 6 administrative and residential districts

• System will be segregated from general traffic (elevated and at grade) with 16 stops and 2 pedestrian bridges

• Overall capital investment around Euro 1 billion

• Project is considered a pilot line for potential light rail network

Nadex Alignment

• Contract type: Design, Build, Operate, Maintain Transfer (Single Contract)

• Contract Duration: 30 years• Status: ongoing.• Legal Status: First time use of the St.

Petersburg’s PPP law (December 25, 2006)

• Public Partner: City of St. Petersburg. • Private Partner: to be selected as a

result of open international bidding procedure.

Scope of Nadex Project

Policy Perspective

• NADEX fits into the City Master Plan:– (i) giving priority to mass transit system over private car– (ii) supporting provision of high-capacity rapid transit lines

to link major residential areas to each other, to downtown and major attraction points

• Objective of NADEX to improve access to existing metro system and an orbital rapid transit link between the southern planning zones areas

• NADEX is expected to be incorporated within an overall transport ticketing, tariff and interchange system for the whole greater St Petersburg

• Tariff policy remains with the City, which will make an Availability Payment to the private sector and will take revenue/traffic risk

• Revenue from fare-box ultimately collected by City

Legal/Regulatory/Institutional Perspective

• Nadex will be the first project under the new City of St Petersburg PPP law (2006)

• City law considered more flexible than Federal Law– No use of Federal Funds in the case of NADEX makes it

possible– Wider scope of City Law in definition of PPP and bidding

requirements– Wider range of City Law in criteria to evaluate bids (incl.

qualitative, experience, etc…)– Wider definition of City Law in definition of private partner

• PPP framework strengthened with creation of PPP unit and strong capacity building effort

• Regulation of the Project guided by the Contractual and Financial Agreement between the City of St Petersburg and the private partner

Technical Perspective

• System designed to operate 365, including difficult weather conditions (+/- 35 C), with full access to mobility impaired persons

• Reference design provided by the City and communicated to bidders– Reference designed reviewed by technical adviser– Bidders will bid against reference design– Option to submit an alternative bid

• Private partner will have to comply to performance standards (frequency, punctuality, safety, cleanliness, etc…) with penalty fees applied to Availability Payment

Financial Perspective

• City will finance a share of Capex and will make availability payments during operation of Nadex

• Fare-box revenue goes to the City, which keeps control over tariffs policy

• Private Partner is expected to raise debt and provide equity to finance infrastructure and rolling-stock

• Evaluation criteria to be communicated to pre-selected bidders and likely to include technical and financial criteria

City and Private Partner Financial (not actual)Nadex: Source and Use of Cash

-15000

-10000

-5000

0

5000

10000

15000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Uni

t

City Fund Equity Availability Payment Debt Capex Debt Servicing Opex Dividends TaxesOnly for illustrativepurposes City Revenue and Expenses

-10000

-5000

0

5000

10000

15000

20000

25000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Unit

Fare Collected Taxes Availability Payment City Fund

Risk Allocation between City and Private Sector

City of St Petersburg

Reference Engineering Design

Timely delivery of land

Removal of public utilities

Support in obtaining the permits and

licenses

Revenue and ridership risk

Pay the Availability Fee;Pay the Capital Grant.

Private PartnerAll risks associated with

the detailed design, construction and operation

(incl. construction price, operating cost, etc…)

Performance of Nadex during operation in line

with Agreement

Take all risks related to raising the private

financing necessary to complete the Project

EVENT TIMELINE

City Approval (Reg. 1657) Dec. 25, 2007

Bidding Procedure Launched Dec. 28, 2007

Roadshow (London)- Project introduced to potential bidders and participants

Feb. 7 & 8, 2008

Deadline- submission of PQ applications April 2008

Selection of Shortlist May 2008

Issue Bid Instructions Docs. May 2008

Access to Data Room May-Nov. 2008

Deadline for Submissions of Bids Nov. 2008

Selection of Preferred Bidder Dec. 2008

TIMETABLESchedule of Implementation

Status and challenges ahead

• Positive market response and six requests for pre-qualification received in April 2008

• Main challenge remains to maintain private sector interest through financial close– Several other pilot projects being developed at the

same time likely to interest same companies (financiers, construction, etc…)

– Limited companies with skills and experience and not the only LRT being procured

• How market will price country risk and high construction costs (on capex, debt, DSCR, etc…) for pilot projects in St Petersburg?

Bank role in this project

• World Bank (IBRD) acting as Financial adviser for Nadex Transaction

• Reimbursable Technical Assistance (RTA) undertaken by ECA ECSSD and FEU (policy, technical, legal, financial)

• Part of a package of RTA with the City, including strong capacity building effort (incl. safeguards)

• IFC and other IFIs (incl. EBRD) keen to participate in the bidding

Thank you

Vickram CuttareeECA ECSSD

vcuttaree@worldbank.org