POLAND

MOTORWAY
Group No.
Chinay Sagrawat
Danish Afroz
Deo Prateek Pramod
Garvit Godawat
Gowtham Shekar Ganta

 Specific Features of Infrastructure project Poland

Motorway
Main issue and Reasons for the same
Approaches to address the issue
Final Approach chosen by Gebiciki
Risks and Mitigation

Special features of Poland Motorway A2

Capital intensive nature

o The total cost of the project was estimated at 934 million which is a considerable upfront initial
investment
o Small amount of operating expenses which were estimated to be PLN12 million (approx. 3
million) for the first year of operation which is a meager amount as compared to the initial
investment

Public good

o The government held the power to rescind the concession in public interest without cause though
it would then compensate the shareholders of AWSA for the loss of profits.
o The land for the project was being provided by the government on a lease basis with the annual
lease rental of PLN 5.5 million.

 Priority of social returns

o The concession agreement granted the government the right over distributable cash flows.
They were entitled to receive 20% of distributable cash flows once the shareholders have
earned a cumulative return of 10% or more, and 50% once they had received a real return of
15% or more.
o Most important benefits described as employment during construction, higher levels of
commerce both within Poland and with its neighbors, value added taxes applicable to
commercial tolls etc.

Long term in nature

o 30 year concession contract which was then extended to 40 years under certain conditions
which is unlike case of product/service based company
o The phase 1 of the project was divided into three segments the last of which was scheduled to
open 5 years later
o Slow revenue build up the financial projections indicate revenue generation only in 2002 and
that is a meager amount of PLN 21 million which grows at a moderate pace till 2005 post
which there is a sudden threefold increase in revenues for that year.

 Long term financing The basic foundation of an

infrastructure project comes from the long term financing that
it is able to attract. Usually therefore for such projects, project
financing method is used which has certain special features

o SPV for execution AWSA was a consortium of Polish and Western European firms
o High gearing A glance at the financing pattern of the company indicates that about 70% (in
essence 85% considering loans by shareholders) of the funding was gathered by way of debt
o Non-recourse nature of debt The debt assumed by the company was not subject to lien on
any of companys assets and neither was any recourse on sponsor companys assets
o Greenfield project The project of construction of highway was a new project for 254 kms
which was to be newly built except for a small section of 47 kms which was rehabilitation of
the existing motorway
o Lender security The security of lenders is limited to the concession and the cash flows
arising out of the same.

 Specific Features of Infrastructure project Poland Motorway

Main Issue and Reasons for the same
Approaches to address the issue
Final Approach chosen by Gebiciki
Risks and Mitigation

Main Issue Origin and Reasons

Main Issue
Additional funding of 60-90 million may arise 6 weeks prior to deadline for closing the
financing aspect for Phase-I of A2 Motorway Project
No issuing of additional zero coupon bonds as the limit of government guarantee has
already been reached

Parties Concerned
AWSA had chosen Credit Lyonnais and Commerzbank as joint lead arrangers for bank
financing, who gave a firm underwriting which was subject to due diligence

Reasons
Banks had engaged their own transportation consultant possibility that they might
adopt a very pessimistic downside financial case for projecting traffic volumes and
subsequently toll revenues
In such a scenario, the sanctioned senior debt would be lesser than original proposal
leading to a funding gap of nearly 60-90 million

 Specific Features of Infrastructure project Poland Motorway

Main Issue and Reasons for the same
Approaches to address the issue
Final Approach chosen by Gebiciki
Risks and Mitigation

Options Available
Problems

Additional
Equity

Difficult to negotiate with 18 shareholders in limited time

Zero Coupon
Bonds

Limit on size of Government Guarantee(800 million)

EIB Funding

Convince
Bankers

Base case cash flows insufficient for both Senior debt & EIB loan
EIB allowed interest to accrue only during construction & not operations
EIB required pari passu treatment with other senior leaders

Early results from A4 Toll Motorway

A4 only being 60km long & connected two large cities

 Specific Features of Infrastructure project Poland Motorway

Main Issue and Reasons for the same
Approaches to address the issue
Final Approach chosen by Gebiciki
Risks and Mitigation

Final Approach for Gebiciki

Refer to early results from A4 Toll Motorway
Captured 80% of available traffic

Convince
Bankers

Wilbur Smith study too conservative

Assumer lower value of Driver time, lower perceived vehicle
Operating costs and higher speeds on Alternate routes

Government commitment to generate satisfactory traffic volumes

Government agreement on not building/improving alternate roads
Flexibility to reset actual tolls every six months

 Specific Features of Infrastructure project Poland Motorway

Main Issue and Reasons for the same
Approaches to address the issue
Final Approach chosen by Gebiciki
Risks and Mitigation

Risks and Mitigation

Type of Risk

Construction Risk

Mitigation Measures in Place

Risk Allocated To

Fixed-Price Turnkey Contracts

Development Company

Liquidated damages for each day of delay beyond

completion day

Development Company

Government compensation in case of delays in

Government
delivery of the lease and environmental regulations
Insurance against Force Majeure

Insurance Company

Risks and Mitigation

Type of Risk

Operation Risk

Mitigation Measures in Place

Risk Allocated To

Scheduled resurfacing as part of heavy

maintenance

AWSA

Regular Maintenance contract with operating

company

Operating Company

Traffic volume and revenue projections based on

WSA Study

AWSA

Commitment by government to generate significant Government

traffic volume by completing Poznan Bypass and
not to impose tolls on feeder roads
Insurance against Force Majeure /
Business Interruption Insurance to cover revenue
losses for up to 12 months

Insurance Company

Risks and Mitigation

Type of Risk

Financial Risk

Mitigation Measures in Place

Risk Allocated To

Debt Service sculpted to match cash flows available

AWSA

Cash Sweep Mechanism to ensure extra cash

flow to pay down senior debt

AWSA

Sinking Fund Account for repayment of zero

coupon bonds

AWSA

Guarantee by Government for mezzanine debt for

up to 800 Million

Government

Prohibition of cash interest payment to

shareholders prior to repayment/cash
collateralization of bonds

Shareholders

Cash waterfall mechanism for revenue

allocation/ Detailed Intercreditor agreement
among the lenders documenting their consent for

Lenders

Risks and Mitigation

Type of Risk

Political Risk

Mitigation Measures in Place

Risk Allocated To

Use of UK Common Law enforceable through

Polish courts to address lack of precedents to guide
the lawyers

Baker & McKenzie

Compensating AWSA for NPV of future cash flows

in case of termination without notice

Government

Government to take possession of more than 5000

properties needed for construction

Government

Assignment of cash flows to government in terms

of lease and profit sharing

Government/ AWSA

Compensation for AWSA in case of delays in

construction of Poznan Bypass

Government

Counter guarantees by government against

building competing systems

Government