The road continues

With the financial close for Phase 2 of the A1 Motorway in Poland the long gestation period for this PPP project comes to another major milestone. By Zoltán Pap

“An aggressive policy of expanding motorway infrastructure is badly needed for Poland to realise its true economic potential”
-Zoltan Pap

Phase 2 of Poland’s A1 Motorway has just achieved Financial Close. This is a significant achievement for Poland, the concessionaire (the Gdansk Transport Company, or GTC), its shareholders, the respective Ministries (Infrastructure and Finance) and for PPP schemes in Central and Eastern Europe, especially considering the state of the international capital markets, the world economic crisis and difficulties experienced in the past in bringing PPP projects to a close in Central and Eastern Europe.

The A1 Motorway connects the cities of Gdańsk and Toruń in central Poland and is an integral part of the north-south Pan European Transport Corridor VI route from the Baltic ports to Slovakia and hence the Adriatic.

The 90 km long Phase 1 from Gdańsk to Nowe Marzy was opened to traffic in October 2008, some three months ahead of the contractual completion date. Actual traffic is slightly higher than the model’s forecast although the mix is different and in favour of light vehicles. This is particularly of interest considering that Poland still has a vignette system in use for heavy goods vehicles and only light vehicles and those without vignettes are tolled on the A1.
The 62 km long Phase 2 from Nowe Marzy to Toruń crosses the Vistula River twice and includes two large bridges, one of which is 2 km long, crossing very sensitive environmental areas in the Vistula’s flood basin.

The Phase 1 lenders, the European Investment Bank and the Nordic Investment Bank, were joined for Phase 2 by the AB Svensk Exportkredit bank to provide the €1070 million loans. The payment mechanism is based on availability payments subject to performance and availability deductions and has an element of shadow toll.

A Long and Winding Road
During many of this project’s development phases it seemed as if it would never come to market. It took more than a decade to reach its first financial close as progress was thwarted by various groupings in a country where support for delivery of PPPs was at times difficult.
Like many of the EU Accession countries, Poland set out a large-scale investment programme to upgrade a significant proportion of the country’s ageing road network, much of which will be aided by EU funding. The A1 upgrade was first mooted in the early 1990s and was tendered in the latter stages of 1995 as a single-phase project. After a three-stage tendering process GTC was selected as the preferred bidder by the Polish transport ministry in 1997.

Shortly afterwards, the scheme ran into major financial difficulties which were primarily due to a flaw in the country’s toll road policy. Only by 2004, almost 10 years since the project first came to market, amendments to the toll road act had been made and finalised – enabling the Financial Close of Phase 1.

Negotiations on Phase 2 of the A1 Motorway Project started soon after Financial Close of Phase 1 in September 2005 but were suspended following the change in government in Poland later that year. The current government is pursuing an aggressive policy of expanding motorway infrastructure that is badly needed for Poland to realise its true economic potential.

Lessons learnt?
The A1’s delivery was impeded by a lack of a consistent and transparent public sector approach to infrastructure development. This has recently changed as a central public sector decision taking authority for all facets of a PPP project’s delivery, a clear regulatory and environmental frameworks and strong financial support mechanisms has been introduced to assist in the future of PPP developments.

Completing the project ahead of schedule and exceeding the public sector’s delivery, operations and maintenance expectations together with capitalizing on experiences gained on Phase 1 significantly contributed to a smoother and more focused closure for Phase 2.

Zoltán Pap is Project Development Director of Intertoll Europe, an independent toll and motorway infrastructure developer and operator –a wholly owned subsidiary of Group Five, a major construction group in South Africa. Zoltan has been involved in developing motorway concession projects since the mid nineties. After working for Intertoll overseas he joined the Intertoll Europe in 2001.