«Kekava Bypass» Case Study

Transcription

1 «Kekava Bypass» Case Study 28 September, 2017

2 Contents Introduction 3 Project details 6 Legal aspects Procurement procedure 15 Legal aspects PPP Agreement 22 Finance aspects 26 Off balance sheet treatment Deloitte Latvia «Kekava Bypass» Case Study 2

3 Introduction

4 Project execution structure PPP project «Kekava Bypass» is procured by the Ministry of Transport and carried out by JSC «Latvian State Roads». SIA «Deloitte Latvia» is fulfilling the role of Financial and Legal advisers. The Ministry of Transport acts as a Procuring Authority. JSC «Latvian State roads» acts as Implementing Authority and Project Manager. SIA «Deloitte Latvia» acts as Financial and Legal advisers Deloitte Latvia «Kekava Bypass» Case Study 4

5 ACTIVITIES Project timeline 6 July Open Day I Qualification II Submission of first proposal III BAFO Selection of the winner 2017, I 2017, II 2017, IV 2018, I 2018, II 2018, III 2018, IV 2019, II 2019, III 2017, III 2019, I Essential aspects of balance sheet treatment discussion with Eurostat PPP project and procurement procedure is being verified with JSC «LSR» Development of project Technical Specifications Development of proposal for CEF Transport Blending Call Procurement announcement (after receiving confirmation from Eurostat) Coordination of Contract with CFCA*, the Ministry of Finance, Central Statistical Bureau for receiving balance sheet treatment recognition from Eurostat (2 6 mo.) Signing the contract and financial close (3 6 mo. After detection of the winner) Activities should be completed until November, 2017 Activities launched from November, 2017 * Central Finance and Contracting Agency of the Republic of Latvia (CFCA) 2017 Deloitte Latvia «Kekava Bypass» Case Study 5

6 Project details 2017 Deloitte Latvia 6

7 Why Kekava Bypass National Planning documents: o National Development Plan; o Transportation Development Guidelines Feasibility Study for Potential PPP Projects in the Road Sector Kekava Bypass project was defined as one of the most appropriate PPP projects in Latvia, reported to the Ministry of Transport by PricewaterhouseCoopers in Deloitte Latvia «Kekava Bypass» Case Study 7

8 Why Kekava Bypass Over the past 15 years the population in project area increased several times One of the highest traffic intensities in Latvia (AADT exceeding 10,000 to 20,000 per day) Current traffic intensity is three times higher than amount this road section was designed for A7 is the only 2 lane single carriageway road crossing Riga 2017 Deloitte Latvia «Kekava Bypass» Case Study 8

9 Part of TEN-T Corridor Part of the Trans-European Transport Network (TEN-T) Corridor I. «Kekava Bypass» project is included in the Final Report (Dec 2014) of the North Sea-Baltic Core Network Corridor Study of the European Commission with objectives to improve cross border connection, increase capacity and removing bottleneck Deloitte Latvia «Kekava Bypass» Case Study 9

10 Details of the Project Total length Construction of the new road 17,5 km 14,4 km Existing road reconstruction 4-lane road 2-lane road 3,1 km 11,1 km 6,4 km CAPE m. EUR 2017 Deloitte Latvia «Kekava Bypass» Case Study 10

11 Governmental support and PPP model Governmental support Declaration of the Government Initial decision of the Government from 12 Sept 2014 on preparation of the project Approval of the Government from 13 Oct 2015 for purchase of land properties for the needs of project March 2016 order of the Cabinet of Ministers was issued about launching procurement procedure for E67/A7 «Kekava Bypass» PPP project Feb 2017 service agreement with advisers 2017 Deloitte Latvia «Kekava Bypass» Case Study 11

12 Public-private partnership model PPP model Type of contract DBFM (design, build, finance and maintain) Length of contract 23 years (3 + 20) Type of payment Client Balance sheet treatment Availability payment The Ministry of Transport Off-balance from perspective of the Client 2017 Deloitte Latvia «Kekava Bypass» Case Study 12

13 Principles of implementation approach Capital expenditure Maintenance KEY ELEMENT DESIGN CONSTRUCTION PRINCIPLE In accordance with EU standards. Open to innovative solutions. COMPLETION & AVAILABILITY MAINTENANCE HAND-BACK In accordance with regulatory requirements (for completion certificate) and criteria of availability certificate. Daily maintenance subject to requirements of the Cabinet of Ministers Regulations for A1 road class. Periodic maintenance subject to depreciation/technical indicators. In accordance with technical parameters Deloitte Latvia «Kekava Bypass» Case Study 13

14 EIB funding EIB appraisal mission The appraisal mission in respect to technical, economic, environmental, procurement, implementation matters have been completed in April 2017 The first stage approval is being sought: The project has been approved by Management Committee The Board of Directors approval is received on 18 th July 2017 The project is a potential candidate for EFSI* and Investment Committee s approval in respect of EFSI received on 18 th July Final approval will be sought after the winning bidder is selected and the full due diligence has been made: before financial close *European Fund for Strategic Investments 2017 Deloitte Latvia «Kekava Bypass» Case Study 14

15 Legal aspects Procurement procedure 2017 Deloitte Latvia 15

16 Indicative Roadmap for procurement procedure Announcement of tender Financial Submission of qualification documents Professional certificates Selection No valuation Potential CAP Reference projects (construction, design) Technical drawings Submission of 1 st quote 100% Technical *% Financial *% Project management & other plans Financial quote PPP reference projects (management, financing) 1 st quote valuation + points for PPP reference projects Negotiations BAFO requirements Submission of BAFO quote BAFO* valuation Up to 3 Backup option Technical *% 100% Financial *% Technical drawings Project management & other plans Financial quote *best and final offer 2017 Deloitte Latvia «Kekava Bypass» Case Study 16

17 Key facts on procurement procedure Description Selection of candidates min 30 days Tender procedure with negotiations Minimum of invited candidates 3 If only one candidate corresponds Initial proposal submission timeframe Invitation is sent Content of negotiations procedure Decision on the winning bidder without negotiations Procedure must be discontinued min 30 days* To all corresponding candidates Goal: improvement of the proposal content (except final submissions) Minimum requirements, appraisal criteria are not negotiated Possible * Minimum timeframe can be 10 days, if the mentioned conditions of Cabinet Regulations No 107, have been accounted for Deloitte Latvia «Kekava Bypass» Case Study 17

18 Key facts on procurement procedure Description Tender procedure with negotiations Negotiation of the nonessential conditions of the PPP agreement after decision on the winner Harmonizing of procurement procedure documentation with CFCA* Draft PPP agreement must be added to Draft PPP agreement during negotiations Not possible Before initiating the procurement procedure Invitation to submit initial proposal (detailed, qualitative draft PPP agreement is elaborated prior to the tender announcement) PPP agreement is harmonized with CFCA prior to commencement of the procedure; Specifically marked and non-essential parts of the draft PPP agreement can be altered during negotiations * Central Finance and Contracting Agency of the Republic of Latvia (CFCA) 2017 Deloitte Latvia «Kekava Bypass» Case Study 18

19 Candidate selection Preparation and submission of initial offers Evaluation of Negotiations & development of final solution Final proposal Waiting period Procurement publication Submission of candidate applications Invitation to submit initial offer Initial submission of offers Invitation to submit the final offer PPP contract finalization Procurement timeline Tender procedure with negotiations Final solution Evaluation winner Waiting period PPP contract finalization Decision on the winner proposals Decision on the WEEK 12 Oct- 17 Nov -17 Dec -17 Jan- 18 Feb- 18 Mar -18 Apr- 18 May -18 Jun- 18 Jul- 18 Aug -18 Sep -18 Oct- 18 Nov -18 Dec Deloitte Latvia «Kekava Bypass» Case Study 19

20 Required qualifications to participate in procurement process RANGE ECONOMIC AND FINANCIAL TECHNICAL AND PROFESSIONAL REQUIREMENT Average turnover from construction works Requirement for equity capital level Ability to finance the project (support letter) General working capital, liquidity, profitability, solvency ratio Experience of construction in similar infrastructure (roads, other transport-related structure): Roads of the national significance (freeways, highways, regional) Annual average daily traffic volume Experience of designing road infrastructure (main state roads or regional roads or equivalent roads abroad) Long term road maintenance capacity: Road type Term of maintenance Annual average daily traffic volume Capacity of professional staff in the above stated projects 2017 Deloitte Latvia «Kekava Bypass» Case Study 20

21 Legal aspects PPP agreement 2017 Deloitte Latvia 21

22 Lifecycle of the agreement Conclusion of the Agreement (c. 6 months) Design / Construction phase (c. 2/3 years) Preferred bidder decision 01 Financial close / Contract date 02 Availability date 03 Preferred bidder decision Fulfillment of the conditions precedent for the entry into the force of the Agreement: - Due Diligence of banks and green light for the project - Signing of financing agreements - Submission of list of known subcontractors - Compliance with insurance obligations - Issuance of commencement guarantee Purchase of Land Necessary for Works / confirmation from landowners Signing of the information exchange agreement Compliance availability requirements Availability Certificate with date Start of availability payment 2017 Deloitte Latvia «Kekava Bypass» Case Study 22

23 Lifecycle of the agreement Availability phase (20 years) Guarantee period (to be specified) Availability date Completion date Hand back End date Compliance with completion date requirements Completion Certificate Availability payment in full amount Compliance with hand back requirements Hand back inspections Hand back guarantee Hand back Certificate Compliance with hand back requirements 2017 Deloitte Latvia «Kekava Bypass» Case Study 23

24 Overview of the draft contract Main provisions of the contract Subject of the Agreement: DBFM* Design of the Bypass Obtaining all permits for design Designing of the Bypass in line with the instructions of the Public Authority and Permits Construction of the Bypass Obtaining all permits for construction Construction of the Bypass in line with the Design and Permits Ensuring Availability of the Bypass Compliance with Availability Requirements Reinstatement obligation Ensuring Maintenance of the Bypass Compliance with Maintenance Requirements Hand Back of the Bypass Compliance with Hand Back Requirements Termination & Step-in rights Dispute resolution * Design, build, finance, maintain 2017 Deloitte Latvia «Kekava Bypass» Case Study 24

25 Finance aspects 2017 Deloitte Latvia 25

26 Indicative financing plan Envisaged financial structure: o Project finance type o D/E ratio: 90/10 o Hedged interest rate risk Possible financing sources: o Shareholder equity/sub-debt (10 %) o o o EIB* loan (up to 50 % senior debt) NIB** loan (up to 50% senior debt) And/or commercial banks (up to 90 %) o At BAFO: uncommitted financing 2017 Deloitte Latvia «Kekava Bypass» Case Study 26

27 Cooperation of EIB with other potential lenders EIB can finance the lesser of up to 50% of total project costs and 50% of the total senior debt. EIB needs to be at least pari-passu with other senior lenders, meaning that the tenor of other lenders may not be shorter than EIB s, etc. Except from being potential co-lenders for long term senior debt, commercial banks have other roles to play: account bank, security agent, intercreditor agent, equity bridge provider (if requested from bidders), etc. There are certain credit rating requirements for co-lenders, account banks, security agents, hedging banks, Letters of Credit providers: at the level of A-/BBB Deloitte Latvia «Kekava Bypass» Case Study 27

28 Payment mechanism General principles of Availability payment Spread from availability to contract end date Paid periodically and only during availability phase Fixed at the time final bid is submitted (certain exceptions exist) P n = P1 n + P2 n P1 Non indexed annual payment related to construction cost P2 Indexed annual payment related to maintenance cost Covers: construction costs debt financing costs equity/sub-debt cash flows Covers: maintenance costs major maintenance costs (periodic investments) 2017 Deloitte Latvia «Kekava Bypass» Case Study 28

29 Output specification Payment adjustment structure Output specification structure: Technical requirements Availability requirements Performance requirements Penalty regime is applicable: Unavailability deductions (proportional to availability) Under-performance deductions (deduction points) Deductions are not applicable in case of: Relief events Rectification periods (except failures to meet rectification periods) 2017 Deloitte Latvia «Kekava Bypass» Case Study 29

30 Compensation on early termination Compensation principles for different scenarios Termination due to Public Entity Fault (or authority voluntary termination) The amount of senior debt outstanding at the date of termination Sponsors equity and sub-debt (including loss of return) Termination due to Private Partner Default Compensation on the basis of an estimated market value of the contract Applicable if step-in/re-tendering options fail Termination without Fault of the Parties (Force majeure) The amount of senior debt outstanding at the date of termination Sponsors equity and sub-debt actually contributed (but not loss of future return) 2017 Deloitte Latvia «Kekava Bypass» Case Study 30

31 Off balance sheet treatment 2017 Deloitte Latvia 31

32 Indicative risk sharing (list is not exhaustive) Identified main risks and critical aspects Key risks Private sector Public sector Shared Obtaining site ownership Granting access rights Site conditions Obtaining permits Authority inaction Design Construction (incl. delays) Variations requested by Authority Availability of bypass Failure to meet quality standards Changes in traffic volumes (capped) Legislation changes: general 2017 Deloitte Latvia «Kekava Bypass» Case Study 32

33 Indicative risk sharing (list is not exhaustive) Identified main risks and critical aspects Key risks Private sector Public sector Shared Legislation changes: discriminatory Legislation changes: taxes Changes in VAT General price changes (excl. Indexation) Availability of financing (after financial close) Interest rate risk (after financial close) Environmental damages Damage by users (accidents) Liability to 3 rd parties Force Majeure 2017 Deloitte Latvia «Kekava Bypass» Case Study 33

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