M-10 Highway PPP pilot project in the Republic of Belarus

Transcription

1 March 2017 M-10 Highway PPP pilot project in the Republic of Belarus Preliminary Information Memorandum & Market consultation questions

2 Table of Contents Introduction 3 Purpose of this document 3 The consultation process 3 Preliminary Information Memorandum 4 Key highlights of the PPP project 4 Strategic context 5 M-10 as a PPP pilot project in the road sector 5 Investment highlights 5 Contracting Authority 6 Strategic objectives of the Project 6 Technical overview of the Project 7 Background 7 Description of route 7 Traffic forecast 14 Status of approvals 16 Technical due diligence documentation 16 Envisaged approach to Project structuring 16 Envisaged risk allocation 16 Payment mechanism 17 Financial structure 18 Legal structure 19 Procurement process 21 Preliminary timetable 23 General consultation questions 23 Annex 1 - Market consultation questions 24 Annex 2 Project stakeholders and Project governance structure 25 Page 2 of 28

3 Introduction Purpose of this document The purpose of this document is to provide preliminary information on the M-10 highway PPP project (the Project ) and consultation questions to various Project stakeholders who may be interested in the Project including developers, investors, lenders, etc. The outcome of this market consultation is expected to influence the shape of the Project when it is ultimately brought to the market. The Ministry of Transport and Communications of the Republic of Belarus (the MoTC or the Contracting Authority ) is particularly interested in your views and answers to questions raised in this document. For your convenience, the consolidated list of questions forms Annex 1 of this document. Feedback on any additional areas you consider important or critical would also be welcome. This document has been prepared by MoTC, and the consortium of advisers (PricewaterhouseCoopers, Ove Arup, CMS Cameron Mckenna LLP and Egorov Puginsky Afanasiev & Partners) appointed by EBRD to assist the MoTC in the development and procurement of the Project. The consultation process Your participation in this consultation process, as well as the scope of your answer, is at your full discretion. The information supplied in this consultation process or your non-participation shall be disregarded in, and shall have no impact on, the future procurement qualification criteria evaluation and/or tender evaluation. The questions raised in this document cover a wide range of issues and as such, respondents should feel free to answer any questions relevant to their organisation. MoTC expressly recognises and accepts that your potential answers are not binding. If you opt to participate in the consultation process, you are kindly asked to send your responses by 31 March 2017 to the following address: m10@mintrans.mtk.by For the avoidance of doubt, this document does not constitute any form of procurement, solicitation for offers, request for proposals or any form of commitment to such processes on the side of MoTC, or its advisers. The Preliminary Information Memorandum that constitutes part of this document is presented on behalf of MoTC in good faith and on the basis of information provided thereto that is believed to be reasonably accurate, complete and appropriate, however no representation or warranty, expressed or implied, is given by MoTC, its representatives, advisors or consultants with regard to the accuracy, completeness and appropriateness of the information contained in the Preliminary Information Memorandum. Neither MoTC, nor any of its representatives, advisors or consultants, shall be held liable or responsible to any participating party for any cost or expense incurred in responding to this communication. Page 3 of 28

4 Preliminary Information Memorandum Key highlights of the PPP project Contracting Authority Project Ministry of Transport and Communications of the Republic of Belarus The private partner will be responsible for the design, construction, finance, operation and maintenance (DBFO) of the 5 sections of the M-10 highway with a total length of 85 km Capital expenditures (estimate) Payment mechanism Key risks allocation Contract period Preliminary timetable Approx. USD 200 m (2016 prices) The payment mechanism will be structured to provide the private partner with availability payments during the operational period subject to meeting availability and performance criteria.. It is anticipated that availability payments will be structured in two components: (1) Capital component, which will provide for the amortisation of debt and the return on the invested capital. It will be paid in local currency (BYN) but will be fully or partially (subject to the share of foreign currencies exposure in the funding plan) indexed to take account of fluctuations of foreign currency to local currency to mitigate currency risk on this component on the side of the private partner during operational period; and (2) Operating component, which will provide for operating, management, overhead and maintenance expenses. It will be paid in local currency (BYN) and indexed to take account of local inflation. The private partner will have the responsibility for a significant part of the risk related to construction, operation and maintenance (availability) and financing of the Project, whereas the public sector will bear the demand (traffic) risk. 20 years including approx. 2 year construction period + and 18 year operation period Project Phase Prequalification (start) 3Q 2017 Tender process (start) 4Q 2017 Final Bids 2Q 2018 Financial close 3Q/4Q 2018 Construction period start 4Q 2018 Page 4 of 28

5 Strategic context Transport infrastructure is a strategically important sector in Belarus, especially given the geographical situation of the country between the European Union and Eurasia. Historically, transport infrastructure development has been funded from the State s budget and carried out only by the public sector. However, due to the high demand for infrastructure development, the positive impact of infrastructure on sustainable long-term economic growth and the budget constraints to implement the necessary projects, the role of private investors has become very important. To facilitate involvement of the private sector in the development of infrastructure, the Government of Belarus launched capacity building programme for public officials and other stakeholders in order to procure viable infrastructure projects using the PPP model and the national PPP unit was set up. In addition, on 25 May 2014, Resolution No.508 On Interministerial Infrastructure Coordinating Board ( IIB ) was passed, which established the coordination of the long-term development of infrastructure and the key principles on PPPs. IIB also formed the basis for the preparation of a National Infrastructure Plan for ( NIP ) 1, aimed at setting out a clear and detailed strategy for infrastructure development in Belarus. Overall, 14 road projects have been identified in the NIP, totalling USD 1.1 bn and comprising 37% of the NIP top 100 projects 2 by estimated value of investments. One of the high priority project identified in NIP - Reconstruction of M-10 road: the border of Russian Federation (Selische) Gomel Kobrin (the Project ) has been selected as a pilot PPP project. M-10 is a fundamental part of the Eastern Partnership strategic road network. The strategic importance of the M-10 is also underlined by the fact that, on the western side, it connects the North Sea Baltics core Trans European Network Transport corridor and, on the eastern side, it provides connectivity to the M3 highway connecting Moscow with Ukraine via Bryansk (near Russian - Belarus borders) being part of the Russian s Avtodor aim to implement the Silk road concept.. M-10 as a PPP pilot project in the road sector The private partner will be responsible for the design, construction, finance, operation and maintenance (DBFO) of 5 sections of the M-10 highway with a total length of 85 km and CAPEX estimated at USD 200 m 3. The Project provides for an increase in the number of lanes from two to four, an increase in the permissible axle load from 10 to 11.5 tons, and an increase in the speed limit for cars from 90 km/h to 120 km/h and for trucks from 70 to 100 km/h. Investment highlights Strong political support and well defined Government policy to promote the M-10 PPP project as well as other PPP projects. Presidential elections were held in October 2015 and Parliamentary elections were held in September 2016 Remuneration based on availability payments, traffic risk borne by the public sector Currency risk borne by the public sector Strong interest from multilateral lenders such as EBRD, IFC and EDB to finance the project Established institutional framework PPP law enacted and PPP centre set up Transaction structure based on international best practices Government assisted by reputable and experienced advisers. 1 Renamed as National Infrastructure Strategy (following resolution No. 508) 2 National Infrastructure Plan , p prices Page 5 of 28

6 Contracting Authority The Contracting Authority for the Project will be the Republic of Belarus acting through the Ministry of Transport and Communications. Refer to Annex 2 of this Preliminary Information Memorandum for the list of public sector stakeholders and for information on Project governance structure. The Republic of Belarus is an industrially developed economy located in Eastern Europe. The country is a member of various international organizations such as International Monetary Fund, World Bank and IBRD as well as local integration associations such as the Eurasian Economic Union. The membership in EEU provides the Republic of Belarus with direct access to the Russian, Kazakhstan, Armenian and Kyrgyzstan markets. In 2016, the Republic of Belarus ranked 37th out of 190 in the World Bank Doing business report, which is a significant improvement compared to 50th place in Key statistics Real GDP Growth (%) 4 Inflation 5 Population m GDP (2015) bn USD Gross External 8 40 Debt, Public bn USD 6 30 (10/2016) Credit rating 0 10 S&P 9 B- (stable) -2 0 Fitch 10 B- (stable) -4-6 Strategic objectives of the Project The following strategic objectives have been established by the MoTC for the Project: Improve traffic access, reduce travel time and environmental impact and thus improve the quality of life Successful pilot PPP project affordable and bringing best value for money, creating positive image of the PPP in the Republic of Belarus domestically and internationally. Demonstrate the possibility of funding by the private sector of infrastructure project in Belarus. Leveraging on the best PPP experience in the road sector from Europe and the CEE region Bankable structured project documentation attracting wider interest from experienced developers/ lenders and investors Well defined objectives for highway operation and maintenance, provide a defined level of service for road users through regulated operation and maintenance Foster value engineering and innovative approaches in design, construction and operation of Project road Getting optimum combination of construction and life-cycle from private partner maximizing value for money Through appropriate payment mechanism achieve opening of the project road as soon as possible and minimize closures during operation and maintenance Hand back of the Project road to a defined standard and quality to the MoTC at the end of the Project period. 4 Source: IMF 5 Source: World Bank, National Statistical Committee of the Republic of Belarus 6 Source: National Statistical Committee of the Republic of Belarus, as of October Source: World Bank 8 Source: National Bank Of The Republic of Belarus 9 Source: tradingeconomics.com, Oct Source: tradingeconomics.com, Jun Page 6 of 28

7 Technical overview of the Project Background The M-10 highway runs from the border of Russian Federation (Selische) through Gomel to Kobrin, it crosses the territory of Republic of Belarus from east to west and is the shortest and most convenient way for goods and passengers transfer from EU countries to Belarus and Russian Federation. The section of the M-10 covered by this Project runs from km (near Rechitsa) through to km (west of Kalinkovichy); a total length of km. The Project involves the improvement of the M-10 and part of the R-31 from an existing single 2-lane carriageway to a 4-lane dual carriageway (2+2) and includes both gradeseparated junctions with some of the local roads and grade separated crossings of the railway to improve both the flow on the mainline as well as its safety. Description of route The Project Road starts at a new grade-separated junction that replaces the existing at-grade roundabout with the republican road R-33. The Project at the start point ties in with the existing D2 (2+2) M-10 carriageway. The Project terminates at km at the Kalinkavichy bypass s junction with the existing M-10 which is a single 2- lane carriageway. The road passes through Korosten, Glinnaya Sloboda and Zastchebie settlements and bypasses the Malye Avtyuki and Kalinkavichy settlements. The Project is split into 5 Sections as follows: Table 1 Overview of Project road sections Section From (km) To (km) Length (km) Description Widening of the existing 2 lane M a Widening of the existing R-31 5b New D2 (2+2) carriageway Total Length Page 7 of 28

8 Section 1 Section 1 runs from km to It starts at a new grade separated junction that replaces the existing atgrade roundabout with the republican road R-33 (from Rechitsa to Khoiniki). It contains 15 junctions with 2 of these being grade separated (see Figure 1 and Figure 2). This section runs through the Rechitskoye oil field and parallel to the Gomeltransneft Druzhba trunk oil line. It passes through the Korostan, Kaporovka, Budka, Prudistche and Tishkovka settlements. Table 2 Overview of Section 1 Element Length 16.10km Number of grade separated junctions 2 Number of at-grade junctions westbound 6 Number of at-grade junctions eastbound 7 Number of underpasses 11 2 Number of overpasses 0 Rest Areas 0 Service Areas 0 11 An underpass is where the object, e.g. a river, passes under the mainline and hence the mainline is on a structure; an overpass is where the object passes over the mainline and hence the object, e.g. a side road, is on a structure. Page 8 of 28

9 Figure 1 Grade separated junction at km (to replace existing roundabout) Figure 2 Grade separated junction at km Section 2 Section 2 runs from km to ; it starts after the Tishkovka settlement. It contains 14 junctions which are all at-grade. This section passes the Korovatichi settlement and runs parallel to the Gomeltransneft Druzhba trunk oil line. Page 9 of 28

10 Table 3 - Overview of Section 2 Element Length 18.42km Number of grade separated junctions 0 Number of at-grade junctions westbound 6 Number of at-grade junctions eastbound 8 Number of underpasses 1 Number of overpasses 0 Rest Areas 0 Service Areas 0 Section 3 Section 3 runs from km to It contains 15 junctions. This section runs through Zastchebie settlement, overpasses the Vasilevichi to Khoiniki railway (see Figure 3). The alignment diverts from the existing line from km 151 to to increase the distance from the oil line Druzhba and to improve the horizontal alignment. The road passes through the Glinnaya Sloboda settlement where an at-grade junction is provided. Table 4 - Overview of Section 3 Element Length 13.99km Number of grade separated junctions 1 Number of at-grade junctions westbound 7 Number of at-grade junctions eastbound 7 Number of underpasses 3 Number of overpasses 0 Rest Areas 0 Service Areas 0 The underpasses include a bridge over the Vasilevichi to Khoiniki railway at km 146.7, a pedestrian underpass at km and a bridge over the River Vit at km Page 10 of 28

11 Figure 3 Bridge over the railway at km Section 4 Section 4 runs from km to It contains 32 junctions with 3 of these being grade separated (see Figure 4, Figure 5 and Figure 6). Table 5 Overview of Section 4 Element Length 24.39km Number of grade separated junctions 3 Number of at-grade junctions westbound 14 Number of at-grade junctions eastbound 15 Number of underpasses 2 Number of overpasses 3 Rest Areas 1 Service Areas 0 The underpasses include a bridge over the River Zakoldovanka at km and an underpass near the village of Malye Avtyuki km Overpasses include a structure at the Syrod settlement at km and an overpass with the republican road R- 31 from Bobruisk to Mozyr to the Ukrainian border. Page 11 of 28

12 Figure 4 Grade separated junction near Malye Avtyuki at km Figure 5 Grade separated junction at km Figure 6 Grade separated junction with R-31 at km Page 12 of 28

13 Section 5 Section 5 runs from km to It starts after the grade separated junction with the republican road R- 31 from Bobruisk to Mozyr to the Ukrainian border. The Section diverts northwards from the line of the existing M-10 to bypass the town of Kalinkavichy and ends at the bypass junction with the existing M-10 at km (see Figure 8). It contains 13 junctions with 2 of these being grade separated (see Figure 7 and Figure 8). The Project widens the existing R-31 from its junction with the M-10 to chainage (Section 5a), a new 4 lane dual carriageway (2+2) runs from km to the point where the diverted M-10 re-joins the existing M-10 at km (Section 5b). Table 6 Overview of Section 5 Element Length 12.35km Number of grade separated junctions 2 Number of at-grade junctions westbound 6 Number of at-grade junctions eastbound 5 Number of underpasses 3 Number of overpasses 2 Rest Areas 0 Service Areas 0 Underpasses include bridges over from Kalinkovichi to Gomel railway at km and from Kalinkovichi to Zhlobin railway at km 186.1, overpass at the Grade separated junction at km Overpasses include the grade separated junction from Kalinkovichi to Bobruisk at km 186.7, bridge over with the road from Kalinkovichi to Ozarichi at km Figure 7 Grade separated junction at km Page 13 of 28

14 Figure 8 Grade separated junction at km Market consultation question #1: What are your views on the scale of the Project? Traffic forecast Information provided in the Pre-Investment and GosExpertise Studies show that the Annual Average Daily Traffic (AADT) 12 on the M-10 increased by a factor of 2.73 between 2005 and 2015, equivalent to an average annual rate of increase of 10.6% per year. The information on traffic levels by vehicle type, in Table 8 to Table 10 shows that car traffic grew fastest, by an average annual rate of 11.4 % per year, whilst truck traffic grew at the lower average annual rate of 8.8% per year. Actual levels of AADT, the associated growth indices and annual average increases over different time periods are shown in Table 7 to Table 10. Table 7 M-10: Historic traffic levels AADT index Table 8 M-10: Historic Traffic by vehicle type AADT Cars Trucks Buses Total The AADT is the total traffic on the road, i.e. the traffic in both directions. Page 14 of 28

15 Table 9 M-10: Historic Traffic: Growth Index by vehicle type (AADT: 2005=100) Cars Trucks Buses Total Table 10 M-10: Historic Traffic growth % per annum Cars Trucks Total 13.7% 10.1% 12.7% 9.1% 7.4% 8.6% 11.4% 8.8% 10.6% An independent review was undertaken of the traffic growth analysis by Ove Arup & Partners International Ltd (Arup) as part of their role as technical advisor. The Arup forecast was based on: A forecast of the growth of existing car traffic on the M-10; A forecast of the growth of existing Heavy Goods Vehicle (HGV) and bus traffic on the M-10; and A forecast of diversion of from other routes to the M-10 when the new and improved M-10 is open in The traffic forecasts, from both the HDM methodology used in the Pre-Investment and State Expertise studies and the Arup Excel based review, are shown in Figure 9 and Table 11. As can be seen from Figure 9 and Table 11 the Arup forecast indicates a slightly higher growth than that in the Pre-Investment Study; it therefore corroborates the Pre-Investment Study values. Figure 9 - Graph indicating traffic forecast Figure 4.2: M-10: Traffic Forecasts AADT Historic AADT forecast - MoTC AADT forecast - Arup Note forecast - MoTC based on studies and conclusions from the Pre-Investment and GosExpertise data Page 15 of 28

16 Table 11 - Tabulated traffic forecasts (AADT) 2015 actual 2017 forecast 2020 forecast 2030 forecast 2040 forecast AADT Historic 5861 AADT MoTC forecast AADT Arup forecast Status of approvals All 5 sections of the project have been submitted for and obtained Pre-Investment approval. The approvals, and the data submitted to obtain these approvals, will be issued to the bidders for review. The approved design documentation, as amended by the bidder, will be used by the private partner s designer to complete the construction permit drawings. 13 Technical due diligence documentation With respect to the site and existing structures of all the Project sections, it is envisaged that the following documentation and surveys will be provided (only in Russian) to potential private partners during the due diligence phase of the Project: State Expertise approval reports. Reference design as contained in the documentation that was issued for State Expertise approval (or as amended following any recommendations made as part of the State Expertise approval (if any) plus all associated files that formed part of the approval procedure. Bridge surveys (for any existing bridges to be retained). Existing pavement survey (whilst the surfacing is to be replaced on the M-10 it is anticipated that elements of the lower layers of the existing road construction will be re-used where applicable). Utility (gas, oil, electricity, water, etc.) drawings and the correspondence with the utility companies. Market consultation question #2: Please provide your view on the extent of technical information to be provided in the data room. What other documentation and/ or surveys you would find necessary or useful for better managing related risks? Envisaged approach to Project structuring Envisaged risk allocation The private partner will have the responsibility for a significant part of the risk related to construction, operation and maintenance (availability) and financing of the Project, whereas the public sector will bear the demand (traffic) risk. 13 It is anticipated that the private partner will take full responsibility for the design including gaining all the required approvals for any changes proposed to the GosExpertise design. Page 16 of 28

17 The PPP Agreement will require that the Project Road sections be handed back after expiration of the PPP Term in a condition which will not require disproportionate spending on renewals or maintenance after the hand back. The provisions of the PPP Agreement will cover inspection regimes, renewal programmes, hand back inspections and associated commercial arrangements. The Project Road will be in the legal ownership of the Republic of Belarus. The envisaged risk allocation is presented in the following risk matrix. Risk category Land compensation Design Construction Contamination on the Site present at handover to private partner Demand (traffic) Operation / Maintenance Financing Changes in interest rates after financial close Changes in rate of inflation during operation Forex risk Legislation and tax changes general Legislation and tax changes specific Political changes Force majeure Risk allocation Private Public Shared X X X X X X X X X X X X X X Market consultation question #3: Please provide your views on the envisaged risk allocation between public and private sector. Payment mechanism The payment mechanism will be structured to provide the private partner with availability payments during the operational period subject to meeting availability and performance criteria. It is also envisaged that an O&M payment will be made during the construction period to cover operating expenses in relation to the operation and maintenance of any part of the Project road where it is a single (1+1) carriageway, i.e. either as the existing single carriageway or for the new carriageway whilst the existing carriageway is being reconstructed. It is anticipated that availability payments will be structured in two components: (1) Capital component, which will provide for the amortisation of and the return on the invested capital. It will be paid in local currency (BYN) but will be fully or partially (subject to the share of foreign currencies exposure in the funding plan) indexed to take account of fluctuations of foreign currency to local currency to mitigate currency risk on this component on the side of the private partner during operational period; and (2) Operating component, which will provide for operating, management, overhead and maintenance expenses. It will be paid in local currency (BYN) and indexed to take account of local inflation. In relation to foreign currencies there are certain restrictions levied by National Bank of Belarus on their purchase and use by enterprises. Key constraints include: Mandatory sales of part (currently 20 %) of the foreign currency received from trade of goods and services; Foreign currency can only be purchased for a purpose allowed by the relevant regulation; and Following the currency purchase, the buyer must use the purchased currency within seven days for a given purpose. National Bank of Belarus is currently in the process of implementation of a programme of reforms to liberalise the foreign currency trade aiming at elimination of restrictions. First package of liberalisation measures is planned to be implemented by August This will include further reduction of mandatory sales of foreign currency to 10 % and abolishing the rule regulating the purpose of the purchase of the foreign currency (although Page 17 of 28

18 purchases to pay interest and principal on debt and dividends are already unrestricted). The full liberalisation is planned to be reached before Relative to the size of the Project and its needs there are no limits on volumes of purchases of foreign currency to convert revenues received in local currency. The availability payments will be made subject to 1) deductions for unavailability and 2) deductions for failing to maintain performance standards. The level of deductions for unavailability will reflect the relative significance of the unavailability and will consider aspects such as: Duration of unavailability. The length of road affected. The number of lanes directly affected. The use of a contraflow. The traffic levels during the day. Unavailability during specifically defined days of the year (e.g. national holidays). Deductions for failing to maintain performance standards will take into account the qualitative parameters defined in the contractual documentation, including items such as: quality of maintenance, operating procedures, response times, accuracy of data recording, etc. For both types of deductions, the contractual documentation may include reduced and/or zero deductions for certain agreed relief and compensation events. In addition, for deductions that occur for reasons outside the private partner s control (e.g. accident), an agreed rectification period may be included during which the deductions are not applied. The payment mechanism will be developed in detail to ensure a clear and measurable link between Project outcomes and the way in which the eventual private partner is incentivised. A draft payment mechanism will be circulated as a part of the tender documentation. At this stage, comments are invited on the broad principles only. Market consultation question #4: What are your views on the general principles of the payment mechanism? What are your views on the Penalty incentive mechanism? Financial structure The MoTC envisages a typical project finance structure where a special purpose vehicle (private partner) secures finance by way of non-recourse debt. To date international finance institutions such as EBRD, IFC and Eurasian Development Bank expressed strong interest in considering financing the Project. The Project road will be part of heavy vehicle national toll system. The development, implementation and operation of the tolling technology, revenue collection and related risks will be outside the scope of the private partner. No demand risk will be borne by the private partner. Page 18 of 28

19 Market consultation question #5: What financial structure would you consider the most appropriate to deliver this Project? If you are a commercial financial institution what key prerequisite security package/guarantee need to be in place to allow you lending in Belarus/B- rated country If you are a financial institution, please provide also a preliminary estimate of the following parameters: Ticket size for this Project Length of commitment period. What is your estimate of the following parameters? Gearing Debt maturity Debt margins Key covenants (such as DSCR) Blended IRR (equity + shareholder loan). Please comment on the envisaged currency hedging mechanism. Legal structure Project Structure It is envisaged that the special purpose vehicle (private partner) shall be established under the laws of Belarus and that the Project structure shall follow international best practice model: Page 19 of 28

20 Contract structure The principal Project Documents will be as follows: Contract PPP Agreement Design and Construction Contract Envisaged parties to the contract (1) Contracting Authority (2) Private Partner (1) Private Partner (2) D&C Subcontractor Brief description The principal agreement between the awarding authority and the private entity governing the project. The contract between the Private Partner and the D&C Subcontractor in which the Private Partner subcontracts the design and build obligations. Operating and Maintenance Contract Interface Agreement Interface Agreement (1) Private Partner (2) O&M Subcontractor (1) Private Partner (2) Beldorsvyaz (3) [D&C Subcontractor] (4) [O&M Subcontractor] (1) Private Partner (2) Belavtostrada (3) Kapsch Telematic Systems (4) [D&C Subcontractor] (5) [O&M Subcontractor] The contract between the Private Partner and the O&M Subcontractor in which the Private Partner subcontracts the maintenance and operating obligations. Beldorsvyaz is the entity which will maintain and replace the roadside communication equipment (DIS stations, CCTV, traffic counters) following construction. This agreement will regulate the relationship between the Private Partner, its subcontractors and Beldorsvyaz, to address certain issues, for example, rights of access on the Project Road during the Project Term to maintain and replace the equipment. An agreement to regulate the relationship between the Private Partner, its subcontractors, and the owner and the operator of the Beltoll System respectively. Interface Agreement (1) Private Partner (2) Gomelavtodor (3) [D&C Subcontractor] (4) [O&M Subcontractor] An agreement to regulate the relationship between the Private Partner, its subcontractors and Gomelavtodor, to address certain issues, for example, the operation and maintenance interface arrangements between the Project Road and the adjacent Gomelavtodor maintained roads. Page 20 of 28

21 PPP Agreement The PPP Agreement will envisage a risk allocation that is based on international best practice, including: Design and Construction Obligations Operation and Maintenance Obligations (including performance monitoring) Compensation Events, Relief Events and Force Majeure Payment Mechanism Termination (Private Partner Default, Contracting Authority Default, Voluntary Termination and no fault termination) Compensation on Termination (levels to be determined by type of termination) Refinancing The parties to the PPP Agreement shall be MoTC and the Private Partner.. The Governing Law of the PPP Agreement will be the Law of the Republic of Belarus, and the language shall be Russian (although draft documentation will be prepared also in English). Once a preferred bidder is appointed and negotiations with it are held, the final PPP Agreement will be prepared. The final PPP Agreement is subject to approval by relevant authorities. Subcontracts As part of the tender process, bidders will be required to submit their proposed subcontracting arrangements. The Contracting Authority will require direct warranties from the private partner s subcontractors. Interfaces It is envisaged that interface agreements will have to be developed between the private partner, its subcontractors and the following parties: Belavtostrada and Kapsch Telematic Services (the owner and the operator of the Beltoll System respectively); Gomelavtodor, the state entity responsible for the design of the Project Road; and Beldorsvyaz, the entity which will maintain and replace the roadside communication equipment (DIS stations, CCTV, traffic counters) following construction. Direct Agreement Under the laws of the Republic of Belarus, the Contracting Authority is able to enter into a direct agreement if required by the private partner s lenders. Market consultation question #6: Please comment on the envisaged legal structure of the Project. Procurement process Procurement procedure Due to the pilot character and complexity of the Project, the MoTC contemplates using the competitive dialogue procedure to procure the Project. Page 21 of 28

22 There will be a two-stage tender process comprising: Pre-qualification of bidders A project memorandum will be published and interested bidders will be required to submit financial information, compliance information and relevant credentials. Through the pre-qualification process, the MoTC will emphasise selecting candidates with the appropriate competence, experience and capacity to be able to handle a project of this type, size and complexity. It is anticipated that the qualification criteria will be focused on the following aspects: - Technical and professional expertise and capacity to design and construct highway sections of similar size to the Project - Technical and professional experience, competence and capacity to be able to maintain and operate highway sections of similar size to the Project - Experience in realisation of road DBFO (or similar PPP structure) projects of similar size to the Project. It is envisaged that three or four bidders will be shortlisted and invited to participate in the second stage of the process. Tender submission Once the shortlisted bidders have been identified, the tender documents will be issued, including the draft PPP Agreement. Bidders will be given sufficient time to review the documents and to carry out their own due diligence on the technical aspects of the Project. Following the review period, bidders will be invited to participate in a bidders consultation conference to discuss various aspects of the draft PPP Agreement and technical solution with the MoTC. Once the bidders consultation has been concluded, MoTC s legal advisers shall update the PPP Agreement to correct and/or amend any issues that were raised by bidders and approved by MoTC. A revised PPP Agreement will be issued, and it is against this agreement which bidders submit their final bids. Once the final bids have been received, MoTC (along with its professional advisers) shall evaluate the bids and appoint a preferred bidder. Evaluation criteria It is anticipated that the MoTC will award the contract to the private partner who, based on an overall evaluation of the tender, has submitted the most economically advantageous tender. Net present value of availability payments will be the key evaluation criterion. The level of funding commitment and proposed construction programme are also likely to form part of the evaluation criteria. A more detailed specification of qualification and evaluation criteria will be available in the tender documents. Market consultation question #7: What are your views on the envisaged procurement procedure to procure for this Project? What are your views on the use of shortlisting? What are your views on the envisaged qualification and evaluation criteria? Page 22 of 28

23 Preliminary timetable Project Phase Procurement process Prequalification start 3Q 2017 Procurement process Tender process (start) 4Q 2017 Final Bid 2Q 2018 Financial close 3Q/4Q 2018 Construction period (start) 4Q 2018 Operation period 18 years of operation Market consultation question #8: Please provide your views of the envisaged timescale for the Project (both length of the procurement process and construction period and operation period). General consultation questions Market consultation question #9: Within the scope of your future plans, would you see this Project as a: High priority Medium priority Low priority Please indicate the reasons for your response. Market consultation question #10: What makes this Project attractive to you? Are there any other considerations that would influence the attractiveness of the Project to you? Please also comment on measures that could improve bankability of the project while maintaining value for money for the MoTC, based on your experience from projects in countries with similar investment grade and risk profile. What aspects / actions could the MoTC undertake to maintain your interest and commitment? Market consultation question #11: Having considered the information you have been given regarding this Project, would you be likely to tender for it? Page 23 of 28

24 Annex 1 - Market consultation questions The following is a consolidated list of questions for market consultation drawn from the Preliminary Information Memorandum. #1: What are your views on the scale of the Project? #2: Please provide your view on the extent of technical information to be provided in the data room. What other documentation and/ or surveys you would find necessary or useful for better managing related risks? #3: Please provide your views on the envisaged risk allocation between public and private sector. #4: What are your views on the general principles of the payment mechanism? What are your views on the Penalty incentive mechanism? #5: What financial structure would you consider the most appropriate to deliver this Project? If you are a commercial financial institution what key prerequisite security package/guarantee need to be in place to allow you lending in Belarus/B- rated country If you are a financial institution, please provide also a preliminary estimate of the following parameters: Ticket size for this Project Length of commitment period. What is your estimate of the following parameters? Gearing Debt maturity Debt margins Key covenants (such as DSCR) Blended IRR (equity + shareholder loan). Please comment on the envisaged currency hedging mechanism. #6: Please comment on the envisaged legal structure of the Project. #7: What are your views on the envisaged procurement procedure to procure for this Project? What are your views on the use of shortlisting? What are your views on the envisaged qualification and evaluation criteria? #8: Please provide your views of the envisaged timescale for the Project (both length of the procurement #9: Within the scope of your future plans, would you see this Project as a: High priority Medium priority Low priority Please indicate the reasons for your response. #10: What makes this Project attractive to you? Are there any other considerations that would influence the attractiveness of the Project to you? Please also comment on measures that could improve bankability of the project while maintaining value for money for the MoTC, based on your experience from projects in countries with similar investment grade and risk profile. What aspects / actions could the MoTC undertake to maintain your interest and commitment? #11: Having considered the information you have been given regarding this Project, would you be likely to tender for it? Page 24 of 28

25 Annex 2 Project stakeholders and Project governance structure Public sector Project stakeholders Key public sector stakeholders and their role in the Project development are presented in the table below. Stakeholder MoTC President of Republic of Belarus Council of Ministers Ministry of Finance (MoF) Ministry of Economy (MoE) Ministry of Natural Resources and Environment (MoNRE) National Agency of Investment and Privatization (NAIP) Interministerial Infrastructure Coordinating Board (IIB/MIKS) Gomel Region Executive Committee Role description Contracting Authority of the Project, fully responsible for the development and delivery of the Project, including Project concept, timeline for its development and those responsible for its development. Defines common state policy towards PPPs. Exercises general governance over public authorities and other government bodies regarding public-private partnership project implementation. Exercises other powers under the Constitution of the Republic of Belarus, pursuant to PPP law and other legislative acts of the Republic of Belarus. Determines procedures of preparation and evaluation of offers concerning public-private partnership project implementation, as well as procedures of tender arrangement and conduct. Key player in relation to availability payments as is to include PPP Agreement s liabilities into the Republican budget. During the procurement stage evaluates PPP offers, considers and aligns tender documents and participates in the tender committee through its representatives. Key player in setting the methodology for PPP preparation (feasibility study criteria, assessment criteria of bids and tendering). In relation to PPP coordinates activity of national governing bodies and other state organisations subordinate to and authorised by the Council of Ministers of the Republic of Belarus. During the procurement evaluates PPP offers, considers and aligns tender documents, participates in the tender committee through its representatives. In addition explains issues regarding application of law on public-private partnership, renders methodological assistance and provides advisory services and recommendations. If PPP project involves environmental issues and use of natural resources clearance is required form MoNRE NAIP is authorised to represent interests of the Republic of Belarus on the issues of attracting investment to the country and acts as a one-stop shop for a foreign investor. Closely cooperates and supports MoE in PPP implementation and reviews all key documents produced for implementation of individual PPP projects. Improvement of the privatization mechanism by testing and introducing new, advanced international approaches. Coordination of long-term development of infrastructure, and coordinates the preparation and monitors the implementation of the first pilot PPP projects and therefore would have an impact on the Project. Being responsible for implementation of NIP IIB selects new PPP projects in collaboration with the private business and international financial institutions in order to facilitate implementation of NIP. Improves the legal base to develop PPP and infrastructure planning. Implementation of common state policy within the administrative-territorial unit i.e. Gomel Region. During the procurement stage considers and evaluates PPP offers, considers and aligns tender documents and participates in the tender committee through its representatives. In relevant projects contracting authority in public-private partnership projects. Page 25 of 28

26 Stakeholder RUE Gomelavtodor State Property Committee RUE Belgiprodor PPP Unit RUE Belavtostrada Holding Belavtodor RUE Beldorcentr Role description Republican Unitary Enterprise "Gomelavtodor", the company registered by the decision of the Gomel Oblast Executive Committee is an enterprise in charge of the state road facilities. Enterprise property is owned by the Republic of Belarus but Gomelavtodor is empowered to use and utilise the property to meet its stated objectives. The company operates on the principle of full economic accountability, is a legal entity and has its own balance sheet. The main goal is to ensure adequate transportation and operational conditions of the republican highway network and its development including comfortable and safe movement of vehicles at specified speeds. It is supervised by MoTC. Currently Gomelavtodor together with Belgiprodor is in the process of completion of the design and cost estimate documentation for the Project. The main tasks of the State property Committee include: carrying out of a uniform State policy in the field of land relations, geodesic and cartographic activities, names of geographical objects, State registration of immovable property rights and transactions therewith, on property relations (including the management, disposal, privatization, evaluation and accounting of property owned by the Republic of Belarus) except for the privatization of dwellings public housing, as well as the maintenance of inventories, registers. During the procurement stage evaluates PPP offers, considers and aligns tender documents and participates in the tender committee through its representatives. Belarusian State Institute for the survey and design of roads. Currently Belgiprodor is responsible for the Project road design and together with Gomelavtodor are in the process of its completion. PPP unit, as a department of the National Agency, provides advice and methodological support to the government in the implementation of infrastructure projects based on the principles of public-private partnership. Promotes PPP in the Republic of Belarus and interacts with the Interagency Coordinating Council with respect to PPP development strategy in the Republic of Belarus and the formation of the National Infrastructure Plan. PPP Unit also interacts with other stakeholders in PPP development and delivery. Owner of the electronic tolling collection (ETC) system s equipment, deals with users of the toll road to carry out non-cash payments and personalizes electronic payment devices, cooperates with Kapsch Telematic Services in the collection of tolls on toll roads and deals with claims, complaints and appeals of the toll road users. Makes payments to Kapsch Telematic Services in accordance with the investment agreement and makes the transfer of funds received from the toll road users for the use of toll roads in the national budget. Main specialisation is construction of road infrastructure. Produces machinery and equipment and manufactures road construction materials for road sector of the Republic of Belarus, and conducts repair and maintenance of machinery of road organizations. From 2010 to 2013 Belavtodor s companies successfully built and put into operation 3 important roads in Belarus, therefore could be treated as a potential competitor to international bidders, but also the provider of services to the bidders. Leading Scientific and Production Organization of the Republic of Belarus in the field of construction, maintenance and operation of roads and bridges. RUE «Beldorcentr» also serves as a head office of the MoTC in the field of development and implementation of ICT technologies, economic parameters analysis and forecasting. It also provides engineering support for launch and usage of modern technical systems for road operation and management. Page 26 of 28

27 Project governance structure The following governance structure for implementation of the Project has been developed by the Government in cooperation with EBRD: Steering Committee The role of the Steering Committee ( SC ) is to supervise the Project and keep the Government updated on the status of its implementation. SC will provide decision making support to ensure efficient, effective and timely preparation and procurement of the Project. Steering Committee is composed of decision-making representatives of MoTC, other Ministries relevant to the Project preparation, procurement and implementation, regional authorities and RUE Gomelavtador, responsible for roads in Gomel region: The First Deputy Minister of Transport and Communications of the Republic of Belarus, (Chairman of SC) The First Deputy Minister of Economy of the Republic of Belarus The First Deputy Minister of Finance of the Republic of Belarus Chairman of the State Committee and the Property Deputy Chairman of the Gomel Region Executive Committee The First Deputy Minister of Architecture and Construction The First Deputy Minister of Natural Resources and Protection Head of the Main Investments cooperation Economic Department Director of State Agency "Belavtostrada" Director of RUE "Gomelavtodor". Project Implementation Unit ( PIU ) PIU includes representatives of MoTC, other Ministries relevant to the Project preparation, procurement and implementation, as well and regional authorities, and RUE Gomelavtador, responsible for roads in Gomel region. The following institutions are represented in PIU: Ministry of Transport and Communication (MoTC) o Highway Department o Legal Department Ministry of Natural Resources and Environment (MoNRE) o State Environmental Expertise Department Page 27 of 28

28 The Ministry of Finance (MoF) o Department of Utilities, Transport and Communication Ministry of Economy (MoE) o Department for examination of investment projects and public-private partnership o Legal Department o Strategic Development and International Cooperation Department PPP Unit - National Investment and Privatization Agency Gomel Region Executive Committee o Department for investment management and coordination of the building complex o Building complex coordination committee on architecture and construction RUE Gomelavtador State Property Committee o Legal Support of Legal Property Relations o Department of Land Management RUE Belgiprodor The Director of the Highway Department of Ministry of Transport and Communications is acting as a Head of PIU. Secretary of PIU is the representative of PPP Unit. The main responsibilities of the PIU, as stipulated in the draft statute are as follows: implementation of process to facilitate the activities involving international advisers for the technical, legal and financial expertise in the preparation of the Project; tracking the project implementation schedule of training and technical control of the documentation prepared by the consultants; consideration of the initial draft reports or documents submitted by international consultants, the development of comments and recommendations to be changed or improve; approval (within its competence) of preliminary draft reports or documents for consideration of the SC, the preparation of draft decisions to be taken by the SC. Project Management Consultant Project Management Consultant is responsible for the liaisons between all the parties involved in the Project delivery and for effective communication at all levels of the Project, especially for interactions between PIU, SC, EBRD and Project advisors. Page 28 of 28