Polish A1 PPP cancelled

The Polish government and a Cintra-led consortium have rescinded the PPP contract for a €2.1bn section of the A1 motorway, after they failed to agree on the contract’s economic parameters ahead of a January 22 deadline for financial close. The road will now be built from the Polish government’s budget.

Autostrada Poludnie, a consortium led by Cintra, and the Polish government have failed to agree on the contractual conditions for a section of the A1 highway, leading to the cancelation of the public-private partnership contract they signed on January 22, 2009.

The original PPP agreement gave the Cintra-led team one year to reach financial close for the project. However, this was dependent on both parties reaching agreement on the road’s economic parameters in light of the financial crisis’ impact on the cost of capital, capex and traffic projections included in the original bid. The government will now refund costs incurred to date by the Cintra-led consortium.

Cintra’s owner, Ferrovial, said it “asked for modifications to the commercial conditions in order to make the project economically and financially viable for its sponsors and acceptable to the [Polish] administration”, but that the two parties ultimately failed to agree. In a statement, Polish roads agency GDDKiA lamented the concessionaire’s inability to secure financing in time for the January 22 deadline.

The consortium secured commitments from the European Investment Bank and the European Bank for Reconstruction and Development covering up to €1.25 billion of the road’s final cost. But throughout last year, there were signs that commercial banks had reservations about the project. Chief among them were falling traffic projections for the A1 highway, which led banks to perceive the demand-based contract as riskier.

This increase in risk raised the question of whether the Cintra-led team would be able to get a good internal rate of return for the project, as funding costs for the A1 would likely be high. Unicredit and Société Générale were the consortium’s financial advisers.

The 180-kilometre Strykow-Pyrzowice section of Poland’s A1 highway will now be funded from the public budget. GDDKiA will soon begin looking for a contractor to start building the road this year, so that it is ready in time for the Euro 2012 soccer championship, which Poland is hosting with neighbouring Ukraine.