The Ministry of Infrastructure of Ukraine and the State Road Agency of Ukraine (Ukravtodor), together with the IFC, the Global Infrastructure Facility and the World Bank, has recently announced the first Road PPP Road Programme, which aims to raise much-needed private investment in the rehabilitation, operation and maintenance of public roads, and to increase the efficiency of the road sector in Ukraine.
This Programme involves long-term (20+ years) OPRC (output- and performance-based road contracts) with availability payments to be made from the State Road Fund (the "Fund".) The availability payments became possible in Ukraine following the enactment of the new law "On Concession" at the end of 2019. Notably, a private investor will not bear the traffic risk, while this risk will be managed by the public partner.
It is anticipated that the availability payments will be referenced to hard currency, and so the forex risk would be limited. Moreover, there are plans to amend the Budget Code of Ukraine to ring-fence and prioritise the state budget allocations designated as the source of financing for the availability payments by the Fund.
The Road PPP Programme will be structured as a phased process, with Phase I – of six projects – to be announced in 2021-2022, and Phases II and III – including 15+ projects – to be announced over the following years. The Fund currently appears well-capitalised for implementing Phase I of the Programme.
The six pilot projects included in Phase I are the following:
- Current (143 km) and capital (107 km) repairs of the "M-29/M-04/M-18 Kharkiv—Dnipro—Zaporizhzhia" road: initial CAPEX capacity of around USD370 million;
- Current repairs (137 km) of the "M-03 Boryspil—Poltava" road: initial CAPEX capacity of around USD180 million;
- Reconstruction (31 km), bypass construction (5 km), current (4 km) and capital (25 km) repairs of the "M-14 Kherson—Mykolaiv" road: initial CAPEX capacity of around USD310 million;
- Current (247 km) and capital (39 km) repairs of the "M-06 Kyiv—Zhytomyr—Rivne" road: initial CAPEX capacity of around USD370 million;
- Reconstruction (33 km), current (2 km) and capital (26 km) repairs of the "M-07/M-19 Yagodyn—Kovel—Lutsk" road: initial CAPEX capacity of around USD240 million; and
- Reconstruction (42 km), bypass construction (9 km), and capital repairs (12 km) of the "M-04/H-11 Dnipro—Kryvyi Rih—Mykolaiv" road: initial CAPEX capacity of around USD290 million.
All projects shortlisted for Phase 1 are primarily brownfield projects which represent the appropriate initial capex capacity and have comparatively high traffic; they cover contiguous road sections connecting large cities throughout different regions of Ukraine, and should not carry land risks for private investors. Implementation of Phase 1 is expected to bring in USD2 billion of initial private investment over the next three years. The projects included in the Programme are expected to be bankable by international standards and as such will enable investors to raise the debt finance as required.
Pre-feasibility studies for the pilot Phase I projects have been prepared with technical assistance of the IFC and other international partners. Feasibility studies are expected to follow in Q1 2021, following which the tender documents will be developed, with the first tenders expected to be announced in autumn 2021.
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