Mountain rivers flow through the former Kazakh capital Amaty
Kazak and EBRD officials visited London to highlight the possibility of a public-private partnership under the country’s revised PPP legal framework. David Arminas reports
To build a road, you go on the road, and that is what Kazakhstan did in London in mid-December.
Representatives of more than 100 organisations, a mix of construction companies and financial institutions, attended the roadshow-style presentation to attract foreign capital for BAKAD, the Almaty Ring Road Concession. The message was that Kazakhstan has revamped the legal and contractual framework for public private partnerships and the country is now open for business.
Kazakh government ministers, flanked by advisors from the1166 European Bank for Reconstruction and Development (EBRD) and the 2332 World Bank's arms-length agency International Finance Corporation, laid out the conditions and timeline for BAKAD.
The road show was, by most attendees' acknowledgement, a slick presentation led by the Minister of Economy and Budget Planning Yerbolat Dosayev. It also was surprisingly detailed regarding finances, which is what the attendees told World Highways they wanted to hear, considering the winning bidder or consortium will have to put up front 10% of the estimated US$700 million construction cost.
What is needed is a 66km toll ring road around the former Kazakh capital – that national honour was bestowed upon the northeastern city of Astana in 1997. Almaty remains the financial centre of the world's largest landlocked country and also Kazakhstan's largest city, with a population of 1.5 million.
What the government is offering is the first PPP contract under the country's new legal and financial regulations designed to attract foreign investment. PPP had been attempted in the roads sector, in 2008, "but not very successfully", acknowledged Mereke Pshembaev, chairman of the Ministry of Investment and Development’s automobile road committee that is leading on the project.
What the winner gets is a build-operate-transfer deal for 20 years, with construction cost payback skewed more towards the front -- the first 14 years of operation.
In actual fact, the road will not encircle Almaty, but be a bypass around the city's northern rim. The road is important for commuters to relieve Almaty's heavy traffic congestion when, during rush hour, police regulate the number of vehicles entering the inner city.
For the country, the new road will be significant as a section of the trans-Kazakhstan section of the main China-Western Europe highway. The Kazakh government is attempting to sell the country as a main road transit hub within the “new silk route”.
Payment to the concessionaire will not, as previously planned, be based on traffic volume. Lower toll collections will be the government's risk under the new PPP regulations. Instead, payments to the concessionaire will be based on the number of lanes available, a much more predictable variable.
The government will issue a tender "soon" for the category 1-A road that will have sections of four and six lanes on a roadbed width between 28.5m to 36m. Traffic lane width will be 3.75m, as will the road shoulder. Width of the median will be 6m with a 1m-wide safety strip near the median.
Construction is expected to take 50 months and the contractor will have to design in the option for future service areas, but would not build them, nor run them, under the PPP deal as it stands. The winning bidder also will have to conduct an environmental and social assessment and set up an environmental management system for the entire project.
The government has expropriated 96% of the land, most of it undulating and between 645m and 900m above sea level. Many mountain streams flow down to the city so 21 bridges and 19 viaducts will be needed.
However, an increasing number of heavy goods trucks are expected on the road once the western section of the China-Western Europe transnational highway is completed. The government estimates that this could rise from 12% of traffic when the highway is opened to around 22% within 30 years.
More trucks mean higher road maintenance, especially if, as one attendee noted, an increasing number of the heavier vehicles are Chinese, sometimes over 44tonnes as against 38tonnes in Kazakhstan. Also, temperature extremes will have to be considered for their effects on the concrete and asphalt surface.
These factors, as well as extreme cold and hot temperatures and the risk of earthquakes, will be taken into consideration during design and technical discussions with the bid winner, Petyo Nikolov, senior operations officer for Europe and Central Asia at the IFC, told World Highways.
The new PP regulations also allow for safeguards against attempted nationalisation as well as access to international arbitration in the case of a dispute. There will also be visa-free entry and exit for foreign workers with no limit on their numbers.
An attendee, from the Swiss-based AIL Structured Finance, agreed that contractors appeared to be taking less risk than before. But success will also have a lot to do with the expertise within the Kazakh government on managing the PPP relationship. To that end, the EBRD spent $1.87 million advising the government on setting up the BAKAD project.
“It’s a step forward,” said another attendee who works for Salini Impregilo, a company that previously had talks with the Kazakh government about a PPP road deal but backed away over too much risk for the contractors. The government appears ready now to take more of the risk, he told World Highways.
In his presentation, Moazzam Mekan, IFC’s manager for central Asia, said the government has, unlike before, taken on some of the foreign exchange risk that a contractor would have. Mekan said there will be subsidies in the event of a 5% or more currency devaluation, something which happened in February 2014 when the Kazakh tenge was devalued 19%.
So how is the economy doing? Kazakhstan had slower growth and higher inflation in 2014. Real GDP growth slowed from 6% in 2013 to 3.9% in the first half of 2014, mainly due to extraction and market issues within the oil industry. Whatever happens, the country of 17 million people will remain reliant on natural resource extraction, especially oil.
On corruption, the country continues to battle facility payments and bribes, especially at border crossings, according to GAN Integrity Solutions, a Danish IT services and consultancy that produces the Business Anti-Corruption Portal on behalf of six European governments and the European Union Commission.
But many moves have been taken to stamp it out. Last November, the government announced a 2015-2025 Program for Fighting Corruption specifically to improve conditions for foreign investment. President Nazarbayev also announced the creation of the Commission on the Fight against Corruption.
The government’s goal is to be one of the world’s 30 most developed nations by 2050 and it sees a good infrastructure network integral to that. If BAKAD is successful, similar PPP deals, especially for rail and light rapid transit projects, can be expected.
To build a road, you go on the road, and that is what Kazakhstan did in London in mid-December.
Representatives of more than 100 organisations, a mix of construction companies and financial institutions, attended the roadshow-style presentation to attract foreign capital for BAKAD, the Almaty Ring Road Concession. The message was that Kazakhstan has revamped the legal and contractual framework for public private partnerships and the country is now open for business.
Kazakh government ministers, flanked by advisors from the
The road show was, by most attendees' acknowledgement, a slick presentation led by the Minister of Economy and Budget Planning Yerbolat Dosayev. It also was surprisingly detailed regarding finances, which is what the attendees told World Highways they wanted to hear, considering the winning bidder or consortium will have to put up front 10% of the estimated US$700 million construction cost.
What is needed is a 66km toll ring road around the former Kazakh capital – that national honour was bestowed upon the northeastern city of Astana in 1997. Almaty remains the financial centre of the world's largest landlocked country and also Kazakhstan's largest city, with a population of 1.5 million.
What the government is offering is the first PPP contract under the country's new legal and financial regulations designed to attract foreign investment. PPP had been attempted in the roads sector, in 2008, "but not very successfully", acknowledged Mereke Pshembaev, chairman of the Ministry of Investment and Development’s automobile road committee that is leading on the project.
What the winner gets is a build-operate-transfer deal for 20 years, with construction cost payback skewed more towards the front -- the first 14 years of operation.
In actual fact, the road will not encircle Almaty, but be a bypass around the city's northern rim. The road is important for commuters to relieve Almaty's heavy traffic congestion when, during rush hour, police regulate the number of vehicles entering the inner city.
For the country, the new road will be significant as a section of the trans-Kazakhstan section of the main China-Western Europe highway. The Kazakh government is attempting to sell the country as a main road transit hub within the “new silk route”.
Payment to the concessionaire will not, as previously planned, be based on traffic volume. Lower toll collections will be the government's risk under the new PPP regulations. Instead, payments to the concessionaire will be based on the number of lanes available, a much more predictable variable.
The government will issue a tender "soon" for the category 1-A road that will have sections of four and six lanes on a roadbed width between 28.5m to 36m. Traffic lane width will be 3.75m, as will the road shoulder. Width of the median will be 6m with a 1m-wide safety strip near the median.
Construction is expected to take 50 months and the contractor will have to design in the option for future service areas, but would not build them, nor run them, under the PPP deal as it stands. The winning bidder also will have to conduct an environmental and social assessment and set up an environmental management system for the entire project.
The government has expropriated 96% of the land, most of it undulating and between 645m and 900m above sea level. Many mountain streams flow down to the city so 21 bridges and 19 viaducts will be needed.
However, an increasing number of heavy goods trucks are expected on the road once the western section of the China-Western Europe transnational highway is completed. The government estimates that this could rise from 12% of traffic when the highway is opened to around 22% within 30 years.
More trucks mean higher road maintenance, especially if, as one attendee noted, an increasing number of the heavier vehicles are Chinese, sometimes over 44tonnes as against 38tonnes in Kazakhstan. Also, temperature extremes will have to be considered for their effects on the concrete and asphalt surface.
These factors, as well as extreme cold and hot temperatures and the risk of earthquakes, will be taken into consideration during design and technical discussions with the bid winner, Petyo Nikolov, senior operations officer for Europe and Central Asia at the IFC, told World Highways.
The new PP regulations also allow for safeguards against attempted nationalisation as well as access to international arbitration in the case of a dispute. There will also be visa-free entry and exit for foreign workers with no limit on their numbers.
An attendee, from the Swiss-based AIL Structured Finance, agreed that contractors appeared to be taking less risk than before. But success will also have a lot to do with the expertise within the Kazakh government on managing the PPP relationship. To that end, the EBRD spent $1.87 million advising the government on setting up the BAKAD project.
“It’s a step forward,” said another attendee who works for Salini Impregilo, a company that previously had talks with the Kazakh government about a PPP road deal but backed away over too much risk for the contractors. The government appears ready now to take more of the risk, he told World Highways.
In his presentation, Moazzam Mekan, IFC’s manager for central Asia, said the government has, unlike before, taken on some of the foreign exchange risk that a contractor would have. Mekan said there will be subsidies in the event of a 5% or more currency devaluation, something which happened in February 2014 when the Kazakh tenge was devalued 19%.
So how is the economy doing? Kazakhstan had slower growth and higher inflation in 2014. Real GDP growth slowed from 6% in 2013 to 3.9% in the first half of 2014, mainly due to extraction and market issues within the oil industry. Whatever happens, the country of 17 million people will remain reliant on natural resource extraction, especially oil.
On corruption, the country continues to battle facility payments and bribes, especially at border crossings, according to GAN Integrity Solutions, a Danish IT services and consultancy that produces the Business Anti-Corruption Portal on behalf of six European governments and the European Union Commission.
But many moves have been taken to stamp it out. Last November, the government announced a 2015-2025 Program for Fighting Corruption specifically to improve conditions for foreign investment. President Nazarbayev also announced the creation of the Commission on the Fight against Corruption.
The government’s goal is to be one of the world’s 30 most developed nations by 2050 and it sees a good infrastructure network integral to that. If BAKAD is successful, similar PPP deals, especially for rail and light rapid transit projects, can be expected.
