Public-Private Partnership Practice Newsletter (Issue 1, 2014)

Federal legislation

Model concession agreement for housing and public utilities is amended

On 18 January 2014, a Decree of the Government of the Russian Federation amended the model concession agreement for utility infrastructure and other community facilities. Decree No. 37 "On measures to reduce the risks of private investment and public-private partnership in the housing sector" provides:

• Performance targets are now a concessionaire obligation.

• Concession agreements must set the limit of the expenditure of funds for reconstruction by the concessionaire throughout the term of the agreement.

• The agreement must establish a method of regulating tariffs on manufactured by concessionaire goods and, services rendered, as well as long-term parameters for controlling the concessionaire’s activity.  

• Agreements must stipulate a method of reimbursement for concessionaire expenses that are reimbursable under the applicable regulations, but that are not recovered by the time the agreement expires.

The amendments are intended to improve the mechanism for the transfer of rights under a concession agreement, and to reduce the risks in private investment in, and development of, public-private partnerships in the housing sector.

Russian Government sets the scope of the LCC

On 1 January 2014 Government Decree No. 1087 of 28 November 2013 came into force. It establishes a list of circumstances under which life cycle contracts (LCC) can be concluded. Thus, an LCC can be used in the design and construction of highways, infrastructure of sea and river ports, airports, subway, transport, off-street urban surface electric transport, rail transport, utility infrastructure facilities and services, and unique objects of capital construction.

Realized PPP projects 

Deadline for applications for the first section of the CRR extended to 10 April 2014

The deadline for submitting applications for the open tender for the construction and operation of the first section of the Central Ring Road (CRR) has been extended until 10 April 2014. Consequently the term for consideration of the applications has been changed to 30 April 2014. The total cost of the section is about RUB 65 billion. By March 2014 the state company Autodor should hold a competition for banking support and building control for the first section of the CRR.  

VTB Group may sell its stake in Pulkovo airport

The VTB Group is considering selling its share of Northern Capital Gateway, the operator of the Pulkovo International Airport.  VTB president Andrei Kostin has said that the shares can be offered on the market or sold to a strategic investor.  

Planned PPP projects 

Russian Defense Ministry ready to provide parts of airfields to private carriers

The Russian Defense Ministry is ready to provide co-location airfields to private business and private carriers under a public-private partnership mechanism. According to the Head of Property Relations, Minister Dmitry Kurakin, the Defense Ministry expects that the private partners will invest in retrofitting the airfields and will assist in providing security.  

Competition for the construction concession for Kutuzov Avenue scheduled for early 2014

Competition for the right to conclude a concession agreement for the construction of Kutuzov Avenue in Moscow is planned for the first quarter of 2014.  

Russian Direct Investment Fund to finance five major infrastructure projects in the Far East

Five major infrastructure projects in the Far East will receive RFPI funding of RUB 20 billion in 2014. Funds from FNB will be also directed for two of five projects. Financing in planned in 2014 for: a railway bridge across the Amur River (connecting China and the Jewish Autonomous Region); a road bridge over the River Lena (Yakutsk) , the Vladivostok-Nakhodka-Vostochny highway; and airport development in Vladivostok and Khabarovsk. Construction of bridges and roads will be carried out under PPPs. The Russian Direct Investment Fund also expects to raise about US$ 10 billion in foreign investment.  

Moscow Metro announces a tender for the supply of cars under a LCC

On 25 December 2013 the Moscow Metro State Unitary Enterprise announced a competition for the supply of subway cars with the obligation to ensure their maintenance during the life cycle. According to the tender documents the maximum contract price is almost RUB 144 billion. The deadline for participation in the tender is 7 February 2014.  

Paid overpasses to be introduced in the Moscow region

The General Directorate of Road Management of the Moscow region concluded a state contract with Petersburg Dorservice JSC to perform activities in the conception of a construction project for overpasses based on a public-private partnership. There are 490 crossings in Moscow today. Almost 50 overpasses are to be built in the next three years as part of the PPP . The average payback period on the construction of the overpasses is about 23 years, after which the investor will transfer them to the Moscow region.

Four business centers to be built in the Moscow region

Plans for four major business centers in the suburbs of Moscow are to be developed by spring 2014. Implementation of the projects will be determined by competitive selection for participation in public-private partnerships. Business centers will be built in Odintsovo, Krasnogorsk, Zheloznodorozhnyi and Kotel'niki.

State assets of Vnukovo airport to be consolidated and transferred to concession management

Under the Russian Government Decree No. 2599-r of 30 December 2013, "On the organization of the privatization of Vnukovo and International Airport Vnukovo JSC," state participation in the authorized capital of Vnukovo International Airport JSC and Vnukovo JSC will be terminated by 2016. State assets in the form of runways and other parts of the terminal are to be consolidated, and then transferred to concession management.  

Sakhalin airports transferred to regional ownership

By Decree of the President of the Russian Federation No. 881 dated 4 December 2013, shares of open joint-stock companies and airport properties located in the Sakhalin region and on federal property were transferred to the Sakhalin region. In particular, the region received ownership of 100% of the shares of Yuzhno-Sakhalinsk Airport , Sakhalin Okha airport, Airline Zone, Airport Shakhtersk, and Nogliki Airport.  The airports were transferred in order to attract investments, under public-private partnership, in the Sakhalin area in the amount of RUB7.78 billion from 2013 to 2017.

Construction of Moscow-Kazan HSR postponed

The Russian government has decided to postpone indefinitely the construction project for the high-speed Moscow-Kazan railway line. As a reason, Prime Minister Dmitry Medvedev indicated the huge costs, which might exceed $1 trillion rubles.