•Overview •P3 in the Region –Russia –Kazakhstan –Belarus •Potential for Regional P3 •Key Issues & Recommendations

1. Public Private Partnerships in the
Eurasian Economic Union
08 December 2014 | Washington, DC
1

2. Contents
• Overview
• P3 in the Region
– Russia
– Kazakhstan
– Belarus
• Potential for Regional P3
• Key Issues & Recommendations
2

3. 3
Real GDP Growth Rates
Total Investment %GDP
Economic Indicators
Source: IMF WEO

4. Introduction
• Public Private Partnerships (P3)
– Private provision of traditionally public infrastructure
– Harness private sector efficiency, innovation, financing
– Transfer risks better managed by the private sector
– Transition public sector role from direct provider to
manager/facilitator
– No magic involved, still need revenue sources and
bankable projects
4

5. P3 in EEU Region
• Legacy of infrastructure investment from USSR
• Concessions & JVs from 1990s
• Now adopting new models, new legal & regulatory
framework
• Issues
– Subsidies
– Taxes
– Tariffs/fees
– Profit sharing
– Ownership
– (same issues confronted globally)
5

6. Current Regional Initiative
• EBRD is advising the Inter-Parliamentary
Assembly of the CIS Member States with the
development of the Model Law on P3 for the
CIS Member States and related legislative
support documents
• Many public and private organizations have
contributed to this effort
6

7. Russia
7

8. Overview
• Tradition of infrastructure investment
• Highly developed compared to
developing country peers
• $10bn Russia Direct Investment Fund
launched in 2011 to co-invest with
SWFs & private investors
• Major infrastructure project pipeline,
with increased emphasis on P3s
8

9. RDIF Co-investing in P3
• Ankara, December 1, 2014 - The Russian Direct
Investment Fund (RDIF) & Renaissance Holding,
one of the leading construction, development &
investment companies, have agreed to jointly
invest into projects across Russia’s regions. The
two parties will invest in the healthcare &
infrastructure sectors, using public private
partnership (P3) models, & also the construction
of new shopping centers in the regions. The
agreement was signed during the state visit of
Russian President Vladimir Putin to Turkey.
9

10. Projects
• Currently over 400 P3 projects being
implemented in Russia in the following
sectors:
• Education
• Transportation
• Wastewater
• Alternative Energy
10

11. Legislation
• Most of these projects are being carried out
under regional rather than federal P3 legislation
• 2005 Federal Law on Concession Agreements
currently the only national P3 law in Russia
– Provides guidelines for concession agreements
specifically
– Amended in 2010 to simplify concession process,
especially regarding public utility infrastructure
– Limited to BTO model
11

12. Legal Obstacles
• Budget support for P3s – currently limited to 5
years
• Regulation of tariffs by P3 contract
• Standardized models for regions
• Law on P3 under consideration in parliament
• Amendments to Concessions law, others
12

13. Projects
• Notable P3 projects in Russia that have
reached financial close include the following:
– $750 million M-1 road project from Moscow to
Minsk
– 1.5 billion euro M-10 road project from Moscow
to St. Petersburg
• Includes construction of 650km of new highway to ease
congestion on the M-10 highway
13

14. Pulkovo Airport P3
• $1.5bn Pulkovo airport 30-year concession
• Reached financial close in 2010
• Managed by North Capital Gateway
• VTB, Fraport & Capelouzos
• Includes construction of new terminals as well as
overall re-construction & modernization of the airport
• Financing from NIB, EBRD, IFC, BSTDB, Eurasian
Development Bank, Vnesheconombank, international
commercial banks
• 1st airport P3 in Russia
• 1st green building in St. Petersburg
• Phase I opened December 2013
14

15. Western High Speed Diameter
• 46km toll road across St. Petersburg
• Largest P3 toll road in the world
• Central section includes 3 bridges & 1 tunnel
• Features advanced traffic management & tolling
technologies
• Commercial close Dec-2011
• Financial close Dec-2012
• Constructed by Turkish-Italian consortium Astaldi-
Ic Istas Insaat
• http://www.ica-whsd.com/
15

16. WHSD Funds: RUB212.7bn ($6.4bn)
50.00 ₽
Russian Govt
42%
25.00 ₽
Vnesheconomban
k
21%
10.00 ₽
Eurasian Dev Bank
8%
9.00 ₽
Equity
8%
8.50 ₽
VTB Capital
7%
8.50 ₽
Gazprombank
7%
8.20 ₽
EBRD
7%
16

17. Concession Bond Financing
Issuer:
JJSC
Glavnaya
doroga
JSC
Glavnaya
doroga
LTD North
West Con-
cession
Company
JSC
Western Hi
Speed
Diameter
CJSC Volga
Sport
LLC Waste
Mgt
Volgograd
CJSC Waste
Mgt NN
Issue number 4 3 4 1 1 1 1
Amount (mln
rubles) 300 8,000 5,000 5,000 1,400 1,200 1,000
Tenor (yrs) 1 18 20 20 11 10 10
Issue date 6/4/10 11/22/10 10/21/11 6/7/11 4/4/11 11/1/11 11/1/11
Discount (%) 100 90 100 100 100 100 100
Coupon 10.2 5+CPI 11.46 8.93 9.76 3+CPI 3+CPI
Rating B A1 A1 A1 A1 BB- BB-
Security MoF
Guarantee
MoF
Guarantee
Unsecured Unsecured Unsecured
17

18. Project Pipeline
• Transportation
– $1.7bn Lena Bridge project recently delayed to 2020
– Moscow-Kazan High Speed Rail (VSM)
– Moscow-Beijing VSM
– Trans-Siberian Railroad Upgrading
– Moscow Central Ring Road
– New Metro P3 projects enabling legislation expected
2014
• Health: 60 regions preparing P3 projects for
healthcare infrastructure
• Housing/Communal Services
18

19. Recent Developments & Next Steps
• Parallel Competitive Financing
• Special Project Financing Entities legal framework came
into force in 2014
• Improve the legal framework
– Unsolicited proposals
– Profit sharing
• Regional P3 Programs
– Develop models for regional P3 project implementation
– Incorporate P3 planning into regional economic
development strategies
– Institute best practice P3 planning & development
processes
19

20. 20
Kazakhstan

21. Background
• Kazakhstan Public Private Partnership Company (P3
Unit) established by 2006 Concession law
• Previous Concessions Awarded
– Railway Sharstation –Ust-Kamenogorsk, 2005
– Interregional Electric Power Line South Kazakhstan –
Aktobeoblast, 2005
– Passenger Terminal of International Airport in Aktau, 2007
– Railway Line Yeraliyevo-Kuryk, 2007
– Electrification of Railway Line Makat-Kandyagash, 2007
– Gas Turbine Plant in Kandyagash, 2008
– Railway Line Korgas-Zhetigen, 2008
• Road/Rail Concessions cancelled due to crisis in 2009
21

22. New P3 Law
• P3 law signed July 4, 2013
• Enables various P3 forms: BOT, BOO, DBFO
• Allows for availability payments
• Special tariff arrangements for concessions
• Minimum equity investment reduced from
20% to 10%
22

23. Project Pipeline
• 30 projects in pipeline, $3 billion total
• Transportation: roads, railways, light rail, bus
terminal, parking
• Health: hospitals, policlinics
• Recycling
• Prisons
23

24. Recent Initiatives
• $33 billion State Program of Accelerated
Industrial and Innovative Development envisions
85% private financing
• President Nazarbayev’s State of the Nation
Address 12 November 2014
– $500 million allocated for infrastructure of the special
Khorgos economic zone and the national industrial
petrochemical technology park objects in Atyrau and
Taraz
– $220 million for EXPO 2017 complex in Astana
– $160 million for Astana airport expansion
24

25. 25
Belarus

26. Belarus P3 Program
• Relatively new to the concept
• P3 Unit established in Ministry of Economy
• P3 law under consideration in parliament
• Pilot projects in social sector under
development
26

27. Potential for Regional P3
27

28. Infrastructure Foundation for Trade
• Transportation & travel
• Integrated power markets
• Trunk infrastructure lines (broadband,
transmission, etc)
28

29. Cross-border Infrastructure
• Transportation
• Telecommunications
• Border infrastructure
• Logistics hubs
29

30. Key Issues
30

31. P3s Require Revenue Sources
• P3s may attract private financing but like all
financing, this needs to be repaid
• Either the government pays through
availability payments or users pay through
tolls/tariffs or some combination
• The issue of “no money” is not resolved by
P3s
31

32. Do Not Wait for Perfection
• No project & no legal framework is perfect
• Each project incorporates lessons learned
from the last
• Legal frameworks are constantly improving &
developing
• Subsidies, tax issues, ownership issues,
financing affect all countries/jurisdictions
32

33. Launch P3 Programs, not Projects
• The amount of effort required for large-scale
P3 projects should not go wasted
• Incorporate procedures, documentation &
practices into programs that can be replicated
across several projects & jurisdictions
33

34. If It’s Not Broken, Don’t Fix It
• Theoretical advice from academics, donors,
international experts may be perfectly logical
• However, if there are practices in your country
that work & provide the needed investment &
services, then there may be no reason to
change them
34

35. Implement P3s as Part of
Infrastructure Programs
• P3 is a contracting mechanism, one type of
project delivery option
• Infrastructure is needed throughout the
region for growth, employment, quality of life
• Don’t delay your infrastructure programs by
waiting for the perfect P3
35

36. Develop P3 Programs Incrementally
RiskTransfer
Private Sector Involvement
36

37. Thank you!
Brien Desilets
Managing Director
bdesilets@claretconsult.com | www.claretconsult.com
37