From Russia with Love – PPP in St Petersburg Case Study: PPP in Transport Nadzemny Express (NADEX) LRT Russian Federation – St Petersburg Vickram Cuttaree, ECA ECSSD May 20, 2008

The Russian Context Economy - Largest country in the world in total area and resource-rich country (reserves of mineral fuel); - Middle income country with a 2007 GDP per capita of $ Expected GDP growth of over 7% in 2007 Country Risk - Post-soviet union Russia still associated with high political risk. - Stronghold of the Kremlin, perceived weak rule of law Infrastructure and role of Public-Private Partnership - Russia plans a US$ 1,000 bn investment program in infrastructure over the next 10 years (8% of GDP each year) - PPP expected to play a significant role and several initiatives have contributed to increased in PPP projects being prepared over the past 2 years

The Winter Palace Source: The City of St Petersburg Russia’s second largest city: 1400 km²; pop. 4.5 million. A major center of business, production and trade. Economic performance: –GRP increased of 8.5% in 2006 v/s 2005; –Projected growth of GRP between 2006 and 2010 of 30-60%; –S&P’s rating BBB. Several pilot PPP projects being currently prepared

Overview of the Nadex Project 29.9 km Light Rail transit line servicing 6 administrative and residential districts System will be segregated from general traffic (elevated and at grade) with 16 stops and 2 pedestrian bridges Overall capital investment around Euro 1 billion Project is considered a pilot line for potential light rail network

Nadex Alignment

Contract type: Design, Build, Operate, Maintain Transfer (Single Contract) Contract Duration: 30 years Status: ongoing. Legal Status: First time use of the St. Petersburg’s PPP law (December 25, 2006) Public Partner: City of St. Petersburg. Private Partner: to be selected as a result of open international bidding procedure. Scope of Nadex Project

Policy Perspective NADEX fits into the City Master Plan: –(i) giving priority to mass transit system over private car –(ii) supporting provision of high-capacity rapid transit lines to link major residential areas to each other, to downtown and major attraction points Objective of NADEX to improve access to existing metro system and an orbital rapid transit link between the southern planning zones areas NADEX is expected to be incorporated within an overall transport ticketing, tariff and interchange system for the whole greater St Petersburg Tariff policy remains with the City, which will make an Availability Payment to the private sector and will take revenue/traffic risk Revenue from fare-box ultimately collected by City

Legal/Regulatory/Institutional Perspective Nadex will be the first project under the new City of St Petersburg PPP law (2006) City law considered more flexible than Federal Law –No use of Federal Funds in the case of NADEX makes it possible –Wider scope of City Law in definition of PPP and bidding requirements –Wider range of City Law in criteria to evaluate bids (incl. qualitative, experience, etc…) –Wider definition of City Law in definition of private partner PPP framework strengthened with creation of PPP unit and strong capacity building effort Regulation of the Project guided by the Contractual and Financial Agreement between the City of St Petersburg and the private partner

Technical Perspective System designed to operate 365, including difficult weather conditions (+/- 35 C), with full access to mobility impaired persons Reference design provided by the City and communicated to bidders –Reference designed reviewed by technical adviser –Bidders will bid against reference design –Option to submit an alternative bid Private partner will have to comply to performance standards (frequency, punctuality, safety, cleanliness, etc…) with penalty fees applied to Availability Payment

Financial Perspective City will finance a share of Capex and will make availability payments during operation of Nadex Fare-box revenue goes to the City, which keeps control over tariffs policy Private Partner is expected to raise debt and provide equity to finance infrastructure and rolling-stock Evaluation criteria to be communicated to pre-selected bidders and likely to include technical and financial criteria

City and Private Partner Financial (not actual) Only for illustrative purposes

Risk Allocation between City and Private Sector City of St Petersburg Reference Engineering Design Timely delivery of land Removal of public utilities Support in obtaining the permits and licenses Revenue and ridership risk Pay the Availability Fee; Pay the Capital Grant. Private Partner All risks associated with the detailed design, construction and operation (incl. construction price, operating cost, etc…) Performance of Nadex during operation in line with Agreement Take all risks related to raising the private financing necessary to complete the Project

EVENTTIMELINE City Approval (Reg. 1657)Dec. 25, 2007 Bidding Procedure LaunchedDec. 28, 2007 Roadshow (London)- Project introduced to potential bidders and participants Feb. 7 & 8, 2008 Deadline- submission of PQ applicationsApril 2008 Selection of ShortlistMay 2008 Issue Bid Instructions Docs.May 2008 Access to Data RoomMay-Nov Deadline for Submissions of BidsNov Selection of Preferred BidderDec TIMETABLE Schedule of Implementation

Status and challenges ahead Positive market response and six requests for pre-qualification received in April 2008 Main challenge remains to maintain private sector interest through financial close –Several other pilot projects being developed at the same time likely to interest same companies (financiers, construction, etc…) –Limited companies with skills and experience and not the only LRT being procured How market will price country risk and high construction costs (on capex, debt, DSCR, etc…) for pilot projects in St Petersburg?

Bank role in this project World Bank (IBRD) acting as Financial adviser for Nadex Transaction Reimbursable Technical Assistance (RTA) undertaken by ECA ECSSD and FEU (policy, technical, legal, financial) Part of a package of RTA with the City, including strong capacity building effort (incl. safeguards) IFC and other IFIs (incl. EBRD) keen to participate in the bidding

Thank you Vickram Cuttaree ECA ECSSD