Yanino Waste Processing Plant City of St. Petersburg Project Briefing 26 October 2009 Page 1
Table of Contents Sections 1. Executive Summary. 3 2. Waste Processing Industry in St. Petersburg.....4 3. Project Overview..9 4. Financing Overview...16 5. Contact Details.....19 Page 2
Executive Summary Russia s first waste PPP project from the City of St. Petersburg (the City ) A minimum 350,000 tpa waste processing plant in the Yanino village (the Project ) 30 Year Design Build Finance Operate and Transfer ( DBFOT ) under the City of St. Petersburg PPP legislation Strong political support to modernise the waste processing sector via attracting best international and private sector expertise Full transparency and international standards Previous PPP experience in St. Petersburg A team of leading consultants (Arup, DLA Piper, VTB Capital) Fast track project timeline Key Project highlights: A first mover advantage Risk allocation consistent with international PPP practices Limited revenue risk Strong credit rating of the City (BBB) Flexibility in offering technical solution Commercial upside The project is supported by international financial institutions Page 3
Waste Processing Industry in St. Petersburg Page 4
Waste Management Concept In August 2005 the City has adopted a waste management concept for the period 2005-2014. The concept highlights the City s plans to: Upgrade existing waste processing plants Construct four new waste processing plants the Yanino Project Three new projects to be tendered in 2010 + Introduce new advanced waste management technology The City s objective is to optimize budgetary spending and increase efficiency of waste management system currently in place while improving the region s ecology Optimized and modernized waste management system is a key strategic goal of the government of St. Petersburg Page 5
Existing Waste Plants and Landfills - Loading stations - Landfills - Waste processing plants - City s right bank - City s left bank Location of the new Yanino plant Source: City Waste Management Concept Page 6
Waste Generation Trends Historic and Project Volumes of non-industrial waste in St. Petersburg 000 tons 3000 2548 2000 1960 1000 920 943.6 1102 1003.8 1060 1102 1560 1067.4 1060 1196 1300 1446 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Years Commercial waste Source: City Waste Management Concept, conversion from thds m3 to thds tons at 0.2 factor Household waste Page 7
Tariff Regulation Overview Waste processing tariffs are regulated by the Tariffs Committee of the St. Petersburg Government in accordance with the following rules: Tariff is calculated per 1 ton of waste (not specific / composition related) Tariff is approved every year, based on the proposed business plan (invest program) Limited possibility for tariff indexation (affordability criteria) The business plan is prepared by the operator of a waste processing plant and serves as the basis for recalculation of the tariff. The business plan should include substantiation of the anticipated level and quality of waste processing, plan to increase effectiveness of the plant s operations, working capital requirements and preliminary calculation of the tariff Construction expenditures, loan repayment, payments for state registration of the ownership title to the plant, income tax payments also may be considered by the Tariffs Committee in course of tariff establishment Actual performance of the plant versus the approved business plan is monitored by the Tariffs Committee. Page 8
Project Overview Page 9
Introduction to the Project The City s objective To obtain a technologically effective solid waste processing facility which would process and recycle household waste in the most effective, cost efficient and environmentally friendly manner Project highlights 30 year PPP agreement to DBFOT a waste processing facility in the Yanino village Location next to the site of the existing waste processing plant MPBO-2 The facility will be transferred to the City upon expiry of the PPP agreement Minimum capacity of 350,000 tones per annum. The City will guarantee minimum unit fee for volume of 350,000 tpa. Incremental capacity will not be covered by the guarantee. Investment Return Investments return is planned through the waste processing fee and income from selling recycled materials / energy Investor will receive a guaranteed fee per processed tonne (unit price) In addition, the City guarantees waste volume (but not its composition) Page 10
Waste Processing Chain Household waste $ Heat $ Recyclables $ 1 Electricity 3 Waste collection operators 2 Waste Waste Waste Processing Plant 4 Residual waste 1. Household waste is collected by private waste collection operators. These operators are hired by the City to collect and transport waste to a specified plant / landfill 2. Operators deliver waste to the Yanino plant. Each shipment is weighted to ensure that Project receives agreed volume 3. Depending on utilised technology the plant may generate additional revenue streams (electricity, heat, fuel, recycled products) 4. Subject to performance criteria the residual waste is disposed of to the landfill Landfill Page 11
Cash Flow Proposed cash flow scheme following the set up of the State Waste Administrator City of St. Petersburg Payment guarantee / [subsidy] City s subsidy to low income families Tariff State Waste Administrator Waste Processing Payment Waste Processing / Disposal payment Project Company Payment for disposal of Residual Waste / Transportation HOUSEHOLDS Payment for transportation services WASTE COLLECTORS EXISTING WASTE PLANTS / LANDFILLS Page 12
Key Parties and Contracts Lenders Direct Agreement Lenders State Waste Administrator Waste Processing Agreement Credit Agreement (s) Contractor (s) Direct Agreement City of St. Petersburg PPP Agreement Project Company ownership Sponsors Land lease Agreement (s) EPC Contract O&M Contract landfills Landfills Residual Waste Transportation and Disposal Agreements EPC Contractor O&M Contractor Interface/Handover Agreement (s) Page 13
Risk Allocation Key risks Grantor Project Company EPC Contractor * O&M Contractor Creditors** Access to land resources Guarantee of minimum waste volume / unit price Construction incl. design and permits Technology performance Maintenance and operations Inflation and utilities prices *** Insurance Force majeure Changes in regulation Environment pre-existing Environment subsequent Contract termination Grantor s fault Contract termination Project Company s fault Principal contractors default Subcontractors default (*) EPC Contractors will bear allocated risks only during their involvement in the project (i.e. construction period) (**) Creditors bear the residual project risk, to the extent not covered by contracts or mitigated by other means (insurance) (***) Inflation risk during construction will be covered by the City, but will be transferred to the O&M Contractor during operations Page 14
Bid Valuation Approach Financial Section Technical 40 points Legal 20 points Financial 40 points Financial section is only considered if technical and legal sections are found to be acceptable. Up to 10 points for financial deliverability - Bank Support Letter - Shareholding Funding - Commitment Letters - Shareholder Approvals - Financial Model Up to 30 points for the proposed level of the minimum unit fee. A bidder with the lowest proposed unit price gets maximum points and remaining bidders receive less points relatively to the lowest one. Page 15
Financing Overview Page 16
Debt Capacity Factors Project Economics Construction / Operation costs DSCR Min DSCR Debt / Equity Refinancing Debt Capital Markets Market capacity Tenors Sweet / sour ratio ECAs Competition from other projects Project Structure Payments priority Security package Procurement structure and contracts Revenue predictability Risk allocation Page 17
Potential Sources of Financing Multilateral Lending Agencies and Development Banks Construction Export Credit Agencies Commercial Banks Commercial Banks Roubles Operation Bonds Page 18
Disclaimer This presentation has been prepared for discussion purposes only. Information contained in this presentation is not intended to provide financial, legal, tax or any other form of advice. VTB Capital plc does not accept any responsibility and does not provide any warranty in relation to this presentation. Page 20