From Russia with Love

From Russia with Love – PPP in St Petersburg Case Study: PPP in Transport Nadzemny Express (NADEX) LRT Russian Federation – St Petersburg Vickram Cuttaree, ECA ECSSD May 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 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 The Winter Palace Source: http://eng.gov.spb.ru/culture

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

Scope of Nadex Project • 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.

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) Only for illustrative purposes

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 Partner • All 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

TIMETABLE Schedule 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 Cuttaree ECA ECSSD vcuttaree@worldbank.org

From Russia with Love – PPP in St Petersburg