PROJECT FINANCE

Polands A2
Motorway

MEP 5, Group 7
Arun Hari Kunal

Naren

Zaka

Major Project Risk

Risk Type

Description

Mitigation

Project
Selection Risk

None of the Principal parties

including the govt. had any
significant experience in
structuring project of this size.

Phased plan of Construction.

Ph 1 three equal sections with sequential
completion deadlines; 6.25 yrs
Ph 2 finalize financing until Dec07, else govt.
could reassign concession to another firm

Land
Acquisition &
ownership

Delay in land acquisition would

cause delay in project.
5000 properties to be acquired
within 6 weeks of financial
closure.
Delivery of lease.

Govt. shall be responsible for acquiring title to

the land and if necessary, by eminent domain.
Transferring to AWSA under long term lease.
Delivery of lease was precedent condition for
release of construction funds.

Approvals and AWSA responsibility via general

permits reqd. contractor

Govt. agreed to support efforts and compensate

in case of delays due to govt. authorities.

Major Project Risk

Risk Type

Description

Mitigation

Non Performance Failure to make required

payments to the Govt

Govt would assume ownership and operation of

the concessionaire . Financing would remain in
place and toll revenue would be dedicated to
debt service.

Termination
without cause

Govt. had right to terminate

without cause

Govt. to compensate AWSA for cost of fully

retiring AWSAs debt obligation.

Design &
Construction

Contractor was responsible

for ensuring AWSA could
begin commercial operation
on specified date.

Independent Engineer retained by AWSA would

monitor construction and certify completion.

Major Project Risk

Risk Type

Description

Mitigation

Operation Risk

Toll collection and

maintenance of the road.
Traffic predictions.

OC to operate and maintain motorway under 10

year renewable contract in exchange of fixed
annual fee.
3 traffic studies by 3 different consultants.
Commitment by Govt. design to generate
satisfactory traffic volume.
AWSA reset actual toll every 6 months and
provision to adjust max. tolls to account for
inflation and exchange rates.

Toll Fee/Structure

Financing Risk

External finance
Financing Structure

By staging construction, maximized early revenue

capture to reduce external finance needed.
Financing plan was based on model created by
Deutsche Bank.

Major Project Risk

Risk Type

Description

Mitigation

Financing Risk
(Contd..)

Debt Service Coverage Ratio

Maximize use of Senior Debt subject to

maintaining minimum DSCR 1.5

Interest Rate
Risk

Loan rate based on 6 month

LIBOR spread 180bp to
235bp

Bankers wanted AWSA to use Interest Rate SWAP

Currency Risk

Income in PLN & Debt Service Currency Hedging

in Euros

Who bears the Major Risk?

Government bears major risk in proposed model:
Political risk involved inexperienced new government may not be able to fulfill commitments made
towards project
AWSA bears risk of finalizing financing of the project.
Possibility of pessimistic consideration by banks which would create funding gap and bankers
request for additional equity. 18 Shareholders involved and earliest interest payment to shareholder
would not occur until 2018 so process of negotiating further commitment seemed insurmountable
challenge.
AWSA has transferred other risk through SPVs
- DC for Design and construction
- OC for Operating & Maintenance

Response to banks concerns in

June 2000?
1. To convince bankers that their analysis were too pessimistic
Use early results from A4 Toll Motor way as evidence with capture rate of 80% (>Wilbers Smith
assumption for A2 50% capture rate)
2. Emphasize on cash water fall mechanism in concessionaire agreement.
Fund would be disbursed to pay following obligations in the order of priority.
a) Operating Expenses and Land lease fee
b) Capital expenditure and maintenance reserve account
c) Current Interest and Principal payment on senior Debt
d) Senior Debt Service Reserve Account
e) Remaining cash to Zero Coupon Bond sinking fund
3. Explore financing option from European Investment Bank - use for further negotiation with banks
to secure senior debt as planned

Thank You