EBRD may provide €200m for Russia’s largest PPP

A consortium led by VTB Capital and Gazprombank is working to reach financial close on a contract to construct and operate the central section of the St. Petersburg Western High-Speed Diameter toll road. The EBRD will make a final decision on the loan in December.

The European Bank for Reconstruction and Development (EBRD) announced last Friday that it has preliminarily approved a €200 million loan to help fund the central part of St. Petersburg’s Western High-Speed Diameter (WHSD), a tolled motorway around the Russian city being procured as a public-private partnership (PPP).

The bank said it will make a final decision on the ruble-denominated loan on December 13. WHSD was awarded to the Northern Capital Highway consortium in August. The latter is led by Russian banks VTB Capital and Gazprombank and also includes Italian construction company Astaldi and Turkish construction company Ictas Insaat.

The consortium won the bid for the RUB120 billion (€2.8 billion; $3.9 billion) central section of the WHSD with a proposal stipulating a minimum toll revenue guarantee by the city of St. Petersburg of RUB9.67 billion per annum. Should the actual revenue exceed this amount, the winning team will pay 90 percent of the excess to the city.

According to an earlier statement from VTB Capital, WHSD will receive a federal grant worth approximately RUB51 billion, with the remaining RUB69 billion to be funded with a combination of debt and equity. Given that the project’s toll revenues are ruble-denominated, interested banks will need to have ruble resources, like the EBRD’s, to participate in the funding, or implement currency hedging mechanisms.

The EBRD said WHSD’s “significance goes beyond the project’s specific scope and lies in its ability to demonstrate the effectiveness of PPP structuring as a means of attracting private sector funding for the significant transport network upgrading and expansion programme in St. Petersburg”.

WHSD is the largest project in Russia to have been launched within the framework of the country’s PPP mechanism. It is designed to further St Petersburg’s development as a major international transport hub and will be the first toll road to be operated within city limits in Russia. The motorway is scheduled to be completed in 2015.

Its central section is the most technically complex part of the WHSD to build, including three bridges and a tunnel, VTB Capital had previously stated. The project is set to reach financial close before the year ends.