Poland A2 Motorway: PSF Group Assignment Maulik Parekh Rahul Mohandas Shankar Mohanty

Poland A2 Motorway
PSF Group Assignment

Maulik Parekh
Rahul Mohandas
Shankar Mohanty
Political and Economic Situation at Hand
1989 Communist Party 1993 Toll Road
1. Shortage of Consumer Goods 1. 2600 KM Road
2. Labour Unrest 2. A2 – East to west
3. Hyper Inflation 3. A4 – North to South Government Outlook
4. Government Deficit 4. Untill 1993 only 264 KM was 1. EU Expansion 2004
developed 2. Germany and Russia Export
and Import
1989 Economic Liberal Government 3. Tourism
1. Big Bang initiatives 4. Employment
Motorways Act 1994
2. Shock Therapy
1. 10 Billion Investment
3. Political Stability
2. BOT
4. Free Economy
3. Government Retain Ownership
4. Concessionaries
AWSA – Autostrada Wielkopoiska SA
Brief Background
Shareholder
77 % Polish
AWSA
• 18 firm consortium For A2
• Seeking financing for the €934
million
• Bankers feel additional €60-90m
in equity is needed.
• Concession due to expire in 6
International
Shareholder
weeks
• Part of the Polish Government’s
23%
program of upgrading and
expanding the country’s
transportation infrastructure
AWSA won Lyonnais & Commerz bank as
consession to build Phase 2
joint lead arranger for Scheduled opening for
and operate a major financing Phase 1 # section 2
segment of A2 Oct’99
Jul’2002 Late 2005
Sep’97 Feb’2000 Mid 2003 Opening

2015
AWSA hired Gebicki to secure 242
Scheduled opening date of Scheduled opening for
MN commercial bank loan
phase 1 # Section 1 Phase 1 # section 3
 Turnkey Contract: Time monitoring is extremely
important.
 Design Cost : Fixed at Euro 16M. against Performance
bonds and defects bonds
 Construction Cost: Fixed at Euro 622M.
 15% Initial Payment of the Total.
Design and  Schedule Opening date July 2002
 Contractor to pay liquidated damages for delay/day to a
Construction maximum of 5% of Contract price.
 Insurance Policy/ Govt. as Insurer to Compensate for
delay due to government to a maximum of Euro 0.65M
 Project meets Polish Environmental Standards :
Independent Consulting Firm
 Government was responsible to construct feeder &
parallel/by-pass roads
 Operating company (OC) formed, by three shareholders of AWSA.
 OC to operate and maintain under a 10 yr. renewable contract for a
fixed fee.
 Toll as the primary source of revenue other than selling sub
concessions to Operate service areas.
 AWSA remained to cost Euro 43M approx. responsible for heavy
maintenance and resurfacing.
Operations  First Resurfacing scheduled between 2011 and 2015
And  GDP data estimated at +5% p.a., -4% p.a. and +3% p.a. for 2002, 2010
and later.
 Current traffic growth 6% annually for the past 5 years.
Management  Traffic is estimated to grow from 7500 vehicles for phase I in 2002 to
20000 vehicles per day on each of the three sections. (Wilbur-Smith
Estimates)
 Insurance Arrangements in place (Covering all possible risks) and full
design and construction cost.
Operations Forecast
Insurance Arrangements
After completion, business Insurance for lost profits due to delay

interruption insurance would cover in completion set at 30 days'
revenue losses for up to 12 months projected gross revenues
During construction, all risk coverage

for property damage up to the full
Third-party liability insurance was
design and construction cost US$ 667
US$ 50 million
million, declining to US$100 million
per event post completion
Delay in land acquisition would
cause delay in project.
Land
Acquisition & 5000 properties to be acquired
within 6 weeks of financial
Ownership closure.
Risk
Delivery of lease
Select reputed and financially sound developer
Fixed-Price design, construction turnkey contract and

provision for liquidated damages for each day of delay
Construction Performance bond and latent defect Bond
Risk
Government responsible for procedural delay and
support infrastructure
Insurance against Force Majeure, adequate surplus for

contingencies
10 Years contractual agreement between AWSA and
operating company for Operation and Maintenance in
exchange of fixed annual fee.
3 traffic studies by reputable entities for traffic volume

and revenue projections.
Operating Risk Commitment by Government to design in order 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.
Comprehensive insurance against Force Majeure.

Assignment of revenue waterfall to government: Taxes, lease and
profit sharing
Counter guarantees by government against building competing

systems, ending concession.
Political Risk Use of UK law, enforceable through Polish courts. Also

Lobby/promote change in laws based on UK structure
The Government responsible for fully covering debt obligations plus

NPV of cash flow
Insurance will compensate a maximum of 650K EUR per year for

operational loss based on archaeological or hazardous materials
Currency and Interest Rate Risk
• Weakening of the Zloty vs. the Euro • Fluctuation in spread between Polish
(2.22zloty/euro in 1993 to interbank rate and LIBOR. Spread has
4zloty/euro) increased for 185 bps to 235 bps
• Mismatch between zloty revenue • As the senior debt are based upon
and euro-denominated debt gives spread over 6 month LIBOR they are
exposure to currency risk exposed to interest rate risk
Response to Bankers Concerns
Convince Use Explore Emphasize on

Convince bankers for a Use early results from A4 Explore financing option Emphasize on cash water
too pessimistic analysis. Toll Motor way as from European fall mechanism in
evidence with capture Investment Bank - use for concessionaire
rate of 80% (>Wilber’s further negotiation with agreement.
Smith assumption for A2 banks to secure senior
50% capture rate) debt as planned

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Poland A2 Motorway

PSF Group Assignment

Sep’97 Feb’2000 Mid 2003 Opening

After completion, business Insurance for lost profits due to delay

During construction, all risk coverage

Fixed-Price design, construction turnkey contract and

Insurance against Force Majeure, adequate surplus for

3 traffic studies by reputable entities for traffic volume

Operating Risk Commitment by Government to design in order to

AWSA reset actual toll every 6 months and provision to

Comprehensive insurance against Force Majeure.

Counter guarantees by government against building competing

Political Risk Use of UK law, enforceable through Polish courts. Also

The Government responsible for fully covering debt obligations plus

Insurance will compensate a maximum of 650K EUR per year for

Convince Use Explore Emphasize on

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