WESTERN HIGH SPEED DIAMETER PROJECT Preliminary Information Memorandum October 2006 г.

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2 WESTERN HIGH SPEED DIAMETER PROJECT Preliminary Information Memorandum Foreword This Preliminary Information Memorandum has been jointly prepared by the Government of Saint Petersburg, the Western High Speed Diameter Joint Stock Company (ZSD), the Research and Design Institute of Regional Development and Transportation (RDIRDT), an Advisory Team from the World Bank and the International law firm Freshfields Bruckhaus Deringer in connection with the implementation of a Public-Private Partnership to design, build, finance and operate the Western High Speed Diameter ( the project"). This Preliminary Information Memorandum is to provide potential bidders or any other party interested in the project with information related to the basic design and features of the project prior to the project tender being launched. Should any party be interested in providing feedback or remarks at this stage of the project preparation, or, after official invitation to apply, be interested in applying for the pre-qualification process, it may do so by contacting in writing the persons mentioned at the end of this document or on the website indicated below. Interested parties will be required to pay a fee for receiving bidding instruction documents and notify ZSD in writing of the identity of the formal applicant representative (whose communications will be binding on the applicant) before receiving the bidding documents or being entitled to make an application for pre-qualification. All parties will receive the same publicly available information, which is included in this document and can be found at: The information presented in this memorandum has been gathered from various documents and data prepared by the Government and other primary sources. None of the information contained in this Preliminary Information Memorandum has been independently verified by the Government of Saint Petersburg, the Government of the Russian Federation or Federal Road Authority (Rosavtodor). Prospective bidders are invited to conduct their own appraisals and analysis of technical, commercial and financial information related to the project to reach their own decisions and conclusions as to the merits of investing in it. No representation or warranty, express or implied, is made, or responsibility of any kind is or will be accepted, jointly or severally, by the Government of Saint Petersburg, the Government of the Russian Federation, or Rosavtodor (the Federal Road Authority) with respect to the accuracy and completeness of this Preliminary Information Memorandum, and any liability in connection with its use is hereby disclaimed. 2

3 The Grantor reserves the right to amend or replace any information contained in this document at any time, without prior warning or justification. The Grantor also reserves the right to suspend or terminate at any time any procedure related to the project without giving any prior warning or justification This Preliminary Information Memorandum does not constitute either a call for tender, or an offer for sale of any financial instruments or of any financing and/or loan to any of the participants in the bid or any other party whatsoever. 3

4 1. Project Summary Project purpose Design, Build, Finance and Operate the tolled motorway "Western High-Speed Diameter" in St. Petersburg Project objective Construction of a tolled motorway to improve efficiency of the St. Petersburg transport center and to link it -- including the Grand Port - - to the road network of the Russian Federation. Project implementation scheme The Western High-Speed Diameter (WHSD) is one of the first examples of developing transport infrastructure through public-private partnership (PPP) mechanisms in the Russian Federation under the Russian Federal Law On Concession Agreements d.d. 21 July 2005 No.115-FZ. Pursuant to the Order of the Government of the Russian Federation, the WHSD motorway will be implemented under a concession agreement. The Russian Federation via Rosavtodor (the Federal Road Authority) and the City of St. Petersburg Government will act together as the Grantor of the concession. Basic project parameters The project has been established based on feasibility studies to determine the optimum design corresponding to future traffic conditions for the project. The total length of the WHSD motorway is 46.6 km. It includes various elevated sections and five major bridges as well as 14 interchanges with existing and projected urban road network. The itinerary is composed of three sections: (i) the Southern section through the residential and industrial district in the Southern part of the City and the port area; (ii) the Central section along the western side of the Vasilyevsky and Krestovski islands; and (iii) the Northern section crossing Primorski, Vyborgski, and Kurortny districts of the city outside the urban development of the North West of the city. Number of traffic lanes: from 2x4 to 2x2 lanes Maximum longitudinal grade: 4% Design speed: 120 km/h 4

5 Cost of design and construction of the motorway The cost of design and construction of the WHSD motorway will be determined by potential bidders in relation to the design information and the requirement to operate and maintain the project over its duration. This cost (excluding Interest During Construction and Development Costs) has been preliminarily estimated at approximately billion Roubles (US$ billion equivalent). Project financing sources The concessionaire will be required to obtain sufficient financing for the design, construction and operation of the project. The Russian Federation, via its Investment Fund, and the Government of St Petersburg have agreed to provide funding for a portion of the capital expenditure related to the project. The WHSD motorway is onе of the first toll road projects to have been nominated for receiving funding from the Investment Fund. Together with the significant size of the Investment Fund grant, this represents a clear commitment from the Federal Government for the WHSD project. Precise mechanisms for the provision of Grantor funding will be disclosed during project tender. Construction term State management company Construction is to be completed by Zapadny Skorostnoi Diameter, Joint Stock Company ( ZSD ) has been established under the order of the Governor of St. Petersburg. ZSD is 100% owned by the City of St. Petersburg. It is tasked with assisting the Grantor with project development and tendering. Environmental and social assessment Relevant public consultations have been conducted based on the results of investment feasibility studies. The project was approved by 36 municipal bodies and departments, as well as by the natural resources department of North-West region, and successfully went through relevant environmental reviews, including that of the GlavGosExpertise of the Russian Federation. Favorable assessment reports have been received on construction designs for Phases I and II (Southern section) from environmental and interdepartmental expertise authorities. 5

6 Project alignment act The project alignment act was approved by the order of the Governor of St. Petersburg dated 1 February 2000 No 113-р On Choosing Route Location Act for the Western High-Speed Diameter, based on approvals obtained from 64 stakeholders, departments, committees, municipal authorities, and land-users. 2. Russian Federation at a glance 1. Russia s macroeconomic fundamentals have improved considerably since the 1998 financial crisis, with the economy growing robustly for seven years in a row. The performance of the Russian economy since the 1998 crisis has been impressive. Between 1998 and 2005, Russian GDP expanded by an estimated 48 percent, while real income grew by 46 percent Overall economic performance is strong, with the accumulation of US$ 250 billion in reserves (as of June 2006), and the growing Stabilization Fund having reached Rub. 2,067 billion (US$ 76 bn) by the end of June Russia has succeeded in reducing its public sector foreign currency denominated debt from 56.6 percent of GDP in 1998 to 48.5 percent of GDP in 2000 (following restructuring agreements), and to 20 percent of GDP by January 1, This debt declined further to about 9.3 percent of GDP by the end of 2005 and is expected to be 4.4 percent of GDP by end Russia has prepaid its debt to the IMF and plans to pay down its entire debt to the Paris Club in Russia s strong macroeconomic performance has induced the major international rating agencies to upgrade their assessment of sovereign credit risk to an investment grade rating. By the beginning of 2005 the ruble had appreciated in real terms to almost pre-crisis levels. 2. The major strengthening of commodity prices, particularly for oil and gas, and a sound macroeconomic policy of taxing and saving gas and oil revenues has supported an acceleration of GDP growth during to more than 6 percent annually. In general, GDP growth continues to be quite high, fiscal and current accounts have been recording surpluses, and poverty rates have declined further. The responsible macroeconomic stabilization policy has also improved the economic climate in Russia. Since 2004, the strong balance of payment inflows has been managed through a prudent monetary policy with the accumulation of surplus revenues in the Stabilization Fund. The above fiscal reforms have kept inflation and real appreciation at sustainable levels, and have supported a record federal budget surplus (estimated at 7.5 percent (cash basis) of GDP in 2005). Important reforms in areas such as taxation, budgetary institutions, and the removal of administrative barriers to business have facilitated the rapid development of market institutions. 6

7 Main Macroeconomic Indicators e GDP growth, % Industrial production growth, y-o-y, % Capital investment growth, y-o-y, % Trade balance, USD billion Real disposable income growth, % CPI inflation, y-o-y, % change PPI inflation, p-o-p, % change Federal Budget Surplus, % of GDP Source: Rosstat, CBR, Min Fin, WB estimates 3. As a direct result of growing uncertainties in Russia s investment climate, the Government has given indications, for instance, that it will support measures that would limit the discretionary authority of the tax administration, and decrease the period of contestability for privatization deals from 10 to 3 years. 3. The City of Saint Petersburg 4. St. Petersburg is second only to Moscow in terms of economic and political significance and in terms of total population. In 2005, the city had a population of 4.6 million representing 3 percent of the total population of the Russian Federation. Overall, the City of Saint Petersburg contributes about 4% of the Russian Federation's GDP and is one of the major cultural and historical attractions in Russia. In 2005 the volume of foreign investment in the economy of St. Petersburg totaled $1.4 bn, which is 44% higher than in 2004 (in 2004 the growth was about 42%). Direct foreign investment in 2005 was 2.2 times greater than a year earlier. A public-private partnership project for completion of the South-Western Water Treatment Facilities of GUP Vodokanal Sankt-Peterburga which was launched in 2002 has been successfully implemented. 5. Major international companies have located their plants in St. Petersburg, such as Coca-Cola, Gillette, Wrigley s, Henkel, British-American Tobacco, etc. There are Philip Morris Izhora factory and Ford assembly facility in the suburban zone of St. Petersburg. In addition to a number of major investment projects scheduled for , a number of motor-car companies, such as Toyota, Nissan, General Motors are also planning to build their production facilities in Saint Petersburg. 7

8 6. The current car ownership rate in St. Petersburg is 229 vehicles per 1,000 persons 1. By 2025 this rate is expected to reach vehicles per 1,000 persons 2. At present, the vehicle fleet in the city totals 1.2 million vehicles, nearly 90 percent of which are cars. By 2025 the fleet is projected to increase to up to 2 million vehicles. Freight transport is expected to grow from 95 million tons in 2005 to 320 million tons. Motor vehicle fleet in St. Petersburg: Forecast up to 2025, thousand vehicles Years Indices Cars Trucks Buses 19, Source: The Concept for Development Strategy to Transport and Logistics System of St. Petersburg, developed by RDIRDT from the Committee for Transport and Transit Policy of the Government of St. Petersburg 7. Already, the traffic conditions in St. Petersburg are unsatisfactory, with daytime traffic speeds on most arterials of the city on weekdays having been reduced to 15 km/h, decreasing even further during peak-hours on the busiest sections to 5-8 km/h, and the number of congested intersections in the city having doubled over the last 5 years. This situation will only get worse as the number of cars and trucks increases. The project has therefore been identified as a priority project in St. Petersburg s Master Plan for the development of the street and road network adopted on December 21 st, The demand for the WHSD is particularly critical for the development of commercial traffic. St. Petersburg plays a major role in the transport system of Russia, with three international transport corridors passing through the City, i.e. the North-South and the Tran Siberian and the Pan-European Transport Corridor IX which links Helsinki to Moscow. The Neva River is part of the Volgo-Baltic waterway network which links the Volga River to the Baltic Sea, and via the Belomorski-Baltiiski Canal to the White Sea. There is a welldeveloped air transit network in St. Petersburg as well as road and railroad links, along with pipelines serving both the domestic needs of St. Petersburg and oil exports. The Grand Port of Saint Petersburg is one of the major ports of the Russian Federation, leading the way in dry cargo. In 2005 the turnover of the Grand Port of St. Petersburg totaled 57.5 million tons, 22 percent of which was containerized cargo representing 2/3rd of all international containerized cargo to/from Russia transported by sea. The port has become the leader in container handling not only in Russia but also among other Baltic ports. 1 Based on data from GIBDD of St. Petersburg (Traffic Police) for St. Petersburg Master Plan up to

9 9. Compared to 2005, traffic at the Grand Port of St. Petersburg is expected to increase by 25% by 2010, and to double by Containerized traffic (of which 90 percent is transported by road) is expected to grow faster, doubling by 2010, and then doubling again by Goods transported to/from the port by road are forecast to increase from current 19.1 million tons (2005) to 64.5 million tons by The limited capacity of the port approach roads restrains the growth of container flows and causes their partial realignment to ports in Finland and Baltic States. The loss of profit resulting from the shift of Russian containers to the port of the neighboring countries in 2005 totaled an estimated $ billion. 10. The construction of a passenger terminal for cruise ships and ferry boats has started on a reclaimed area of Vasilyevsky Island. The environmental assessment of the project has been completed, and dredging works are underway. Construction of the first section of the terminal and the three piers for passenger boats and cruise liners is planned by Completion of the facilities is planned for This will generate additional traffic on the WHSD. 11. Construction of the WHSD will provide the shortest link between northern, central, and southern districts of the city which would enable a reliable transportation system and a significant reduction in travel time. Therefore, construction of the proposed Western High-Speed Diameter is one of the priority pilot investment projects of the St. Petersburg and Russian Federation Governments. 9

10 4. Technical description 12. Location of the project. The WHSD is an urban motorway that passes in a North- South direction from the southern suburbs of the city, i.e. from its intersection with the ring road towards the Grand Port of St. Petersburg, and further along the western tail of Vasilyevsky Island to the E-18 Scandinavia motorway (in the area of Beloostrov village). 13. The total length of the motorway will be 46.6 km including a 26.0 km section passing through densely built-up areas (see location map below). 14. The Southern Section [in blue on the map] of the motorway will pass through the residential and industrial districts in the southern part of the City and provide an outlet from the Grand Port of St. Petersburg to the Ring Road and the primary federal roads: M-11 Narva, M-10 Russia (Moscow - St. Petersburg), and M-20 St. Petersburg - Pskov - Pustoshka - Nevel to the Belarus frontier. These roads carry about 70 percent of the Grand Port s freight transported by road. The longest part of the Southern section is located within the city, and follows railroad lines, crossing existing streets and railroad approach lines at different levels. 15. The Central Section [in red on the map] of the WHSD will run along the western tail of Vasilyevsky Island and will allow transit traffic to pass by the overloaded street and road network of the historic center of St. Petersburg. 16. The Northern Section [in green on the map] will be constructed outside the urban development in the North-West (Severo-Primorskaya) part of the city and will pass mostly over recreational and agricultural lands. This section will provide a new point of access for the Scandinavia motorway into the city. 17. Interchanges. The project will include 14 transport interchanges with the street and road network of the city, including five interchanges in the Southern section, three in the Central section, and six in the Northern section. One of the interchanges in the Southern section (near the Kanonerski Island) and two in the Northern section (at intersection of 10

11 Shuvalovski Pr. and the road to Kamenka) are to be implemented after the main construction of the project (after 2010). 18. The WHSD is designed to accommodate between four to eight traffic lanes, depending on the foreseen traffic flow in various sections of the motorway. 19. The Southern Section will be mostly elevated to address the need to traverse residential and industrial areas, with km of elevated road and 0.88 km of roadbed. The intersection with the Morskoi Canal is to be implemented on high-bridges with the bridge clearance of the bridge over the Morskoi Canal equal to 55 m. 20. The Central Section will comprise: - an overpass running along the contour of the Bely and Krestovski Islands; - bridges over the B. Neva, M. Neva, and M. Nevka, S. Nevka and B. Nevka rivers, with a 35 m bridge clearance above the Korabelny fairway and a 25 m one over the Petrovski fairway; - a 1.25 km shallow tunnel (open cut) along the hinterland part of the Vasilyevski Island; - a tunnel under the Smolenka river; - overpass sections from the right bank of the Bolshaya Nevka river up to Primorski Ave. At the Neva delta section there will be beam, cable-stayed and extradosed bridges. 21. The length of the Northern Section is km, including 5.35 km of elevated sections with bridges over the Chernaya and Sestra rivers. 22. Engineering and design. For design/construction purposes, the WHSD has been further sub-divided into five phases as follows: Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Southern Section (from the Ring Road interchange to the Yekateringofka Embankment interchange) Northern Section (from the interchange with Bogatyrski Prl to Е-18 Scandinavia) Southern Section (from the Yekateringofka Embankment interchange to the Kanonerski Island) Central Section (from the Kanonerski Island up to the interchange with Shkiperski Protok St.) Central Section (from the interchange with Shkiperski Protok St. to the interchange with Primorski Pr.) Northern Section (from Primorski Pr. to the Interchange with Bogatyrski Pr.) Project design is proceeding according to schedule; it has been completed for Phases 1-3, and is expected to be completed by the end of 2006 for Phases 4-5. The current 11

12 construction cost estimates are based on the construction contract for Phase 1 (where the works are currently underway) and preliminary designs for Phases 4 and Geotechnical surveys and radiometric analyses: All geotechnical surveys and radiometric analyses required for the project have been conducted, i.e. boring holes every 100 m and examination of samples from the boreholes. Geotechnical surveys for Phase 1 were conducted for working designs, i.e. holes were bored under each pile. Geotechnical surveys for the other sections have been conducted within requirements for the technical design stage. Geotechnical and radiometric data in relation to the soil along the alignment of the Western High-Speed Diameter will be made available to bidders as part of the bidding process. 24. Access to land. The Grantor will provide access to land sufficient for undertaking the project. Approximately 360 ha will be required once the project is built (including leased land and rights of way) of which 359 ha currently belongs to or is held by the City. The project will require a larger area during construction (to include temporary rights of way) for a total of 720 ha of which approx. 680 ha belong to or is held by the City. The City has leased some of the land it owns and has freely enforceable legal rights to terminate these leases. The Grantor will have the responsibility to transfer the relevant land to the Concessionaire in accordance with the construction schedule. Basic technical parameters of the WHSD Parameters units Value 1. Total length of the project: km Southern section km Central section km Northern section km Note: Length of the additional links to be built between the Grand port and the WHSD km Number lanes in both directions, and length of the section lanes/ km 8 / / / Road section of WHSD: km South section km Northern section km

13 Parameters units Value 4. Length of structures (including bridges and overpasses): km Southern section km Central section km Northern section km Number of interchanges: 14 - Southern section 5 - Central section 3 - Northern section Technical Variants. ZSD is currently considering the option of allowing bidders to develop and propose technical variants, in order to benefit from the skill and experience of private contractors, in particular in modern value engineering techniques for project design. 5. Traffic, tolls and collection mechanisms 26. Current traffic observed in Saint Petersburg. At the critical road junctions, the current level of traffic within the city of Saint Petersburg is close to (and sometimes above) the 100% theoretical saturation level. Going from South to North, the following level of traffic (expressed in aadt 3 ) is observed along the future WHSD motorway: (i) about 85,000 on Pr.Stachek and Pr. Marshala Govorova (the influence zone of the southern WHSD); (ii) over 150,000 on the bridge linking Vasilyevski Island to the hinterland part of the city; (iii) over 130,000 on the bridges linking Vasilyevski Island with Petrogradskaya Storona; and (iv) over 50,000 in the Northern section. Taking into consideration the current high level of saturation observed within the city area, the WHSD motorway will respond to currently unmet traffic demand and will reduce significantly the current level of congestion observed daily in the city center. 27. Traffic simulation model. The Grantor s traffic forecasts are based on a sophisticated traffic simulation computer model developed by the Research and Design Institute of Regional Development and Transportation (RDIRDT). Since 1998, the model has been frequently used to perform tasks to improve and develop the St. Petersburg transport system and has been successfully used in other Russian cities. The accuracy of traffic estimates produced using the model is about 90%, which is confirmed by results of regular 3 Aadt stands for average annual daily traffic or average number of vehicle per day computed over one year 13

14 field traffic surveys. The following table shows the preliminary demand forecast for the WHSD (without considering the impact of tolls) through the year 2015, assuming that Phases 1-3 go into operation in , Phase 4 in 2010 and Phase 5 in in 1,000 vehicles Category Daily demand on the WHSD (passenger cars) Daily demand on the WHSD (trucks up to 3.5 tons) Daily demand on the WHSD (trucks 3.5 to 11 tons) Daily demand on the WHSD (trucks over 11 tons ,9 181,4 427,8 461,4 472,5 483, ,9 17,6 31,4 31,6 31,7 31, ,3 5,3 9,6 9,9 10,1 10, ,6 18,7 32,9 32,9 32,8 32,7 Total: ,7 223,0 501,7 535,7 547,1 558,5 28. Tolling Concept. Given the heavy traffic and the relatively short estimated average travel distance on the WHSD, a toll collection system based on four zones has been assumed, using mostly electronic toll collection processes. Electronic toll plazas will be installed along the major alignment of the WHSD to allow high-speed traffic. Apart from electronic toll collection systems intended for regular users, mixed tolling technologies are also recommended a combination of manual and automated toll collection systems -- to allow non-regulars WHSD users to choose a convenient mode of payment. 29. Willingness to pay. In order to assess public perception on a tolled WHSD, a survey of potential users was conducted in October 2004 the results of which were fed into the above mentioned traffic forecast model that projects traffic patterns against variations in toll rates. A new survey is being prepared at the moment and its results will be known by November

15 6. Financial and commercial design 30. The Western High-Speed Diameter will become one of the first Russian road infrastructure projects implemented under the Russian public-private partnership (PPP) framework. Under this framework, the WHSD project will be jointly financed by resources from the Concessionaire, the Budget of the City of St-Petersburg and of the Russian Federation. 31. The PPP scheme will follow a Design-Build-Finance-Operate scheme, where the concessionaire will be responsible mainly for (i) taking over existing works, (ii) constructing new works, (iii) mobilizing the financing required for such construction over and above any Government contribution and (iv) operating and maintaining the motorway according to the concession agreement over the life of the concession. In accordance with Russian legal requirements, the road infrastructure ownership will remain with the public sector at all times, and will be leased to the concessionaire. The concession is to last for 30 years including a 5 year construction period. After construction, the WHSD motorway will be operated as a tolled motorway and revenues will be collected by the operator. 32. Financing Scheme and Government Support. The financial characteristics of the project are such that the project warrants Government contribution for part of the funding. ZSD has secured Capital Grant funding from the Government, both at the Russian Federation level, and through funding from the Government of Saint Petersburg. The project has been nominated to receive Federal Government Funding from the Investment Fund. 33. The Government contribution to the project will include: Securing right of ways and land availability Contributing existing construction works: Works have started for a portion of the Southern section and approximately Rub. 2.2 bn of both Federal and City budgets has already been spent for the ongoing road construction. Providing traffic risk mitigation: in view of (i) the strategic importance of the project for the Government of St Petersburg (ii) the lack of precedence in toll road financing in Russia and (iii) the size of the project, the Government of St Petersburg is considering the introduction of a traffic volume risk mitigation mechanism which will be finalized by the time the bidding is launched. 34. The concessionaire will be responsible for procuring private sector financing for the project. But in view of the likely size of private sector financing required, and to facilitate bid preparation, support is being sought from multilateral financing organizations, IFC and EBRD have already provided their support via Letters of Interest and discussions with EIB, EBRD and IFC are ongoing. 15

16 7. Legal and Contractual Context 35. Federal Law On Concession Agreements. The WHSD project will comply with the Federal Law of No.115-FZ On Concession Agreements. In particular, the Law On Concession Agreements specifically regulates the procurement process. The Law was adopted by the State Duma on July 6, 2005, and has therefore not been tested in the courts nor been developed through precedence. Significant effort has been focused on the legal context of the project to overcome the associated challenges. 36. Concession Agreement. The Grantor of the WHSD Concession Agreement will be the Russian Federation jointly with the City of St. Petersburg. During the tender process, the Grantor intends to conduct open consultations with the prequalified bidders to obtain comments and proposals in relation to the draft concession agreement, to consider modifications as it deems appropriate. 37. Main Features. The concession agreement is being prepared with the assistance of international legal experts and includes features typical of international project financing, adapted as required to the Russian legal context. It has the following main features: (i) Toll and toll price. It is likely that the mechanism for identifying maximum toll rates will be set out in the concession agreement, with provision for its increase over time and that the Concessionaire be given the right to influence the level at which toll rates are to be set within the framework of the concession agreement and applicable law. (ii) Traffic risk. Acknowledging the innate challenges of traffic forecasts, and the additional complication of this being the first commercial toll road in Russia, the Grantor has agreed to provide some form of traffic risk mitigation mechanism. (iii) Grantor capital grant. As indicated, the Grantor has agreed to offset part of the cost of construction with a grant. The Grantor has agreed to make this capital grant a direct contractual obligation of the Grantor (the Russian Federation BBB+ and the City of Saint Petersburg BBB) to make the capital grant payments in the manner and time agreed. (iv) Access to land. For the purposes of construction and operation of the WHSD, the Concessionaire will benefit from a Land Lease Agreement for the acquired land, with rights-of-way for land shared with existing public infrastructure, such as the railway. These rights of way are governed by Russian law, and in most cases their terms are defined by standard practice. All the land plots necessary to implement the project will be provided in accordance with applicable laws, as and when needed for construction and as set out in a lease agreement to be signed between Grantor and Concessionaire in order to minimize the rent liability of the Concessionaire. 16

17 (v) Taking over of existing work. In anticipation of the concession, and given the importance of this project to the Grantor s strategic planning, the Grantor has commenced work on the Southern section (the unfinished construction ). Though the Concessionaire will be free, subject to the requirements of the concession agreement, to appoint the current construction contractor to complete the unfinished work, in order to achieve a clean separation between Grantor works and Concessionaire works the Grantor will terminate the construction contract for the unfinished works and provide to the Concessionaire a warranty from the contractor verifying that the work completed complies with the concession agreement specification. (vi) Security rights. Russian law places restrictions on the creation of lender security rights. A number of mechanisms have been used to provide lenders extending limited recourse financing with an acceptable level of security rights. Methods to provide security rights are to be specified in the Bid Document. 8. Bidding process 38. In compliance with the Law on Concession Agreements, the decision to undertake the project is to be made by a Decree of the Government of Russian Federation and an Act of Government of St. Petersburg to provide a legal foundation for launching the bidding process for the right to finance, construct, and operate the WHSD. 39. Bidding process. The bidding process will include: (i) a prequalification phase to select the bidders authorized to compete; and (ii) a bidding process which includes competitive dialogue with the pre-qualified bidders to finalize the bidding package (concession agreement and land lease agreement). The proposed award criteria will lead to a single numeric parameter - further to a mathematical formula attaching different weights to quantifiable parameters - which allows for a straightforward and transparent award of the concession contract. 40. Timing of the bidding process. The current agenda for the bidding process is as follows, subject of course to adjustment as appropriate to the process. In particular and by law, in the event that the Grantor changes the bidding documents during the bidding process, the period of submission of applications and/or bids must be extended by at least 30 working days. (It is likely that the Grantor will make at least one if not more changes to the bidding documents.) 17

18 Phase/event Bidding documents available to be acquired by prospective bidders Date Early November Mid December 2006 Period of clarifications November Early December 2006 Date for submission of applications for prequalification Selection of pre-qualified successful applicants Period for access to Data Room and comments on Concession Agreement and Lease Agreement Early November Mid December 2006 End December 2006 January March 2007 Date for submission of bids January - Early April 2007 Selection of successful bidder May Data Room. In order to allow pre-qualified bidders to obtain the maximum of information available in relation to the WHSD project, a data room will be organized to provide design, ground condition, and land acquisition data, amongst others. The Data Room will be managed by ZSD and subject to the rules that will be provided by the Grantor. Pre-qualified bidders will need to arrange with ZSD for Data Room access, which will be scheduled accordingly. 42. Road Show. ZSD plans to organize a series of Road Shows. Interested parties should contact ZSD on the coordinates below to obtain further information. 18

19 Contacts: Surname, first name Igor Alexandrovich LUKYANOV Yevgenia Vitalievna KHOROSHAVINA Position General Director Head of Department for Project Support and Development Address, phone, fax, 44, Nevsky Av., Saint-Petersburg, Russia, Phone: , fax: , 19