Case Studies: Orlovski Tunnel, Russian Federation

From BENEFIT Wiki
Jump to: navigation, search
Project Overview
Orlovski.png
Figure 1: Orlovski Tunnel
ORLOVSKI TUNNEL (under the River Neva in St, Petersburg), Russian Federation
Project Type: Greenfield
Type of Project Financing: PPP
Contract duration: 30 years (including 4 years of design and construction)
Budget: 54 600 million rubles
Project Time Line
September 14, 2007: Call for Tender
September 8-10, 2007: Road-show of the project in Frankfurt, at the office of the European Bank of Reconstruction and Development
December 6, 2007: Prequalification
February 18, 2010: Award
June, 2010: The concession agreement is signed between the Government of St. Petersburg and “Nevskaya Concession Company”
August, 2011: Start of construction
October 4, 2011: The authorities of St. Petersburg refused to participate in the project because of the significant increase of project costs (the cause is difficult terrain in the proposed site of construction)
November, 2012: Resolution of the Government of St. Petersburg on the cancellation of the agreement with the "Nevskaya Concession Company". The contract is cancelled.
December 11, 2012: The Government of St. Petersburg officially notified the "Nevskaya Concession Company" about the termination of the concession agreement for the design, construction and operation of the Orlovski Tunnel under the Neva River. The grounds for termination of the agreement is that the concessioner has not provided evidence to achieve financial closure, has not fulfilled the conditions of the start of construction and the cost of the project exceeded 55 billion rubles.
June, 2015: Paris Arbitration ordered the Government of St. Petersburg to pay “Nevskaya Concession Company” compensation amounting to EUR 15 million for breach of the concession agreement.

Introduction

The Orlovski Tunnel was designed as a road tunnel of about one kilometre length under the Neva River, linking Piskarevsky Avenue and Smolnaya Embankment in St. Petersburg (Figure 2). The tunnel was to be tolled. Its key features included the following:

  • 2 carriageways
  • 3 lanes per carriageway
  • Overall length 2350 m
  • Portal to portal length: 1100 m
  • River bank to bank length: 550 m
  • Depth of river: 15 m
  • Bored tunnel depth: 40 m

Orlovski1.png
Figure 2: Project Location, St Petersburg

The overall two-way capacity of the Orlovski Tunnel was to be 60 000 vehicles per day. The construction of the Orlovski Tunnel was considered as the solution to the traffic problems of St. Petersburg. Its implementation would have contributed to the development of the city as a major international transport hub.

The decision to develop the Orlovski Tunnel project was driven by the following factors:

  • congestion of the transport network in the city centre and the gravity zone of the Orlovski Tunnel,
  • absence of a permanent transport connection between the right- and left-bank districts of St. Petersburg in the city centre,
  • exhausted capacity of the existing Neva bridges,
  • expected traffic increase throughout the city.

Moreover, the construction of the Orlovski Tunnel would have helped to address an issue of federal significance – to increase the capacity of the Volgo-Baltic Waterway (VBW). The tunnel would allow the draw bridges over the Neva River to be open for one hour longer, thus increasing the total ship traffic.

In accordance with the Decree of the Russian Government, the Orlovski Tunnel project had to be implemented using a Private-Public Partnership model .The construction and operation of the Orlovski Tunnel could become one of the first Russian transport infrastructure concessions, implemented in accordance with the Federal Law of the Russian Federation “On Concession Agreements” d.d. July 21st, 2005 No. 115-FZ (hereinafter – Concession Law). The duration of the agreement was foreseen for 30 years from its signing.

The bidding procedure for the concession agreement for the design, construction, financing and operation of the Orlovski Tunnel in St. Petersburg (hereinafter – Tender procedure) was conducted in accordance with the Concession Law.

In November 2006, the Decree of the Government of the RF No. 1709-r was adopted which put the project on the list of schemes supported by the Investment Fund and approved the project.

On April 10th, 2007, the Government of St. Petersburg adopted the Decree No. 384 “On Implementation and Operation of a Toll Tunnel under the Neva River in Alignment of Piskarevski Pr. – Orlovskaya Ul.”

On May 31st, 2007, the Government of the Russian Federation passed the Decree No. 695-r “On Signing of Concession Agreement in relation to Orlovski Tunnel under the Neva River in St. Petersburg”.

The Tender Documentation was approved by Order of the Federal Highways Agency (No. 61 of September 4th, 2007) and Decree of the Government of St. Petersburg (No. 1090 of April 3rd, 2007).

The duration of the agreement was 30 years from the signing, including 4 years of design and construction (2008-2012). The Tunnel construction was scheduled to begin in 2011 and its inauguration in early 2016.

The Contracting Authority (Public Party)

The Public Partners under the Orlovski Tunnel project was the Russian Federation and the city of St. Petersburg via their respective dedicated authorities:

  • on behalf of the Russian Federation , the Federal Road Agency (Rosavtodor)
  • on behalf of the federal city of St. Petersburg , the Government of St. Petersburg

The Government was the project developer – Managing Company of the Orlovski Tunnel project.

Later, the Russian Federation withdrew from the structure of Grantors.

Advisory support was provided by:

  • The World Bank – financial and strategic advisor
  • Freshfields Bruckhaus Deringer – legal advisor
  • Mott Macdonald – technical advisor
  • Research and Design Institute of Regional Development and Transportation – technical and transport advisor

The Concessioner (Private Party)

The concessioner in this project was the consortium Ltd "Nevskaya concession company”, which represents the French group Vinci.

Users

The Orlovski Tunnel was constructed to be the major link between the right and left bank districts of St. Petersburg in the city centre and open to passenger traffic, public transport, emergency services and freight transport with a permissible maximum weight of up to 3.5 tons.

Key Purpose for PPP Model Selection

The PPP model was selected due to the following:

  • Project inscribed in master plans of the city since 1986
  • Feasibility studies and site evaluation were concluded
  • Government believes there is significant value in innovative design solutions and long term maintenance risk being transferred to the private sector: strong rationale for PPP
  • Project designed on the basis of a 30-year concession, design build finance operate & maintain scheme

Project Timing

The construction of the Orlovski Tunnel was considered as the solution for the traffic problems of St. Petersburg.

7. Project Locality and Market Geography St. Petersburg plays a major role in the transport system of the Russian Federation. The largest Baltic Port of Russia, located in St. Petersburg leading all Russian ports, and the Volgo-Baltic Waterway, make St. Petersburg a major transport hub in the Russian Federation. Owing to its unique geographic location – on the coast of the Baltic Sea and in immediate proximity to the EU and major European ports- St. Petersburg has become the gateway to the Russian Federation for a considerable share of the export/import freight volumes of the country. Sections of two Euro-Asian transport corridors – the North-South and the Transsiberian, as well as the Pan-European Transport Corridor IX pass through St. Petersburg.

The principal transport artery through St. Petersburg is the Neva River, whose 23 km length is included in the Single Deep-Water System of European Russia. The Neva River is one of the major links of the Volgo-Baltic Waterway (VBW) connecting the Volga River to the Baltic Sea, via the White Sea - Baltic Canal, to the White Sea. The Volgo-Baltic Waterway plays a major role in the Pan-European Transport Corridor IX and the North-West transport Corridor. The significance of the VBW increased substantially due to the construction of new ports in the Gulf of Finland and the extension of the Pan-European Transport Corridor IX to the Black and Caspian seas.

Orlovski2.png
Figure 3: Volgo-Baltic Basin


At present, the traffic via the Volgo-Baltic route is constrained due to limited periods when bridges are raised. Ship owners incur considerable losses because of delays of ships waiting to pass through the Neva.

The implementation of the Orlovski Tunnel would enable the Neva bridges to open for one hour longer every day. Based on estimates, this would increase the capacity of the St. Petersburg section of the Volgo-Baltic Waterway by 1.3 times its current capacity, and provide an essential impetus to the increase in international transportation.

Moreover, the accommodation of the growing traffic flows would be impossible without new crossings between the left- and right bank sections of the city. At present, north-eastern districts of the city are linked to the centre and south-western districts mostly over four bridges: the Troitski Bridge, Liteiny Bridge, Petra Velikogo (Bolsheokhtinski) and Alexander Nevski Bridge. The central street and road network rely on bridges already operated at capacity. For instance, during peak hours, the above bridges are at more than 100% capacity.

The implementation of the Orlovski Tunnel would enable the realignment of traffic on the approaches to the centre, and therefore, a significant relief of congestion on existing bridges linking the right- and left bank districts of St. Petersburg.

The Orlovski Tunnel forms an integral part of the construction and reconstruction transport works currently undertaken by St. Petersburg as part of its Master Plan.

Procurement & Contractual Structure

Tendering

The Bids received were evaluated on two criteria:

1) Technical criteria: weight – 0,2 2) Financial criteria: weigh– 0,8: a) The total discounted amount of public financing of the construction (capital grant). Maximum 22,15 billion rubles. b) The total discounted amount of compensation paid by the Grantor to the Concessioner during the stage of exploitation of the Tunnel (availability payment).

At the prequalification stage, applications for participation in the Tender procedure were received from four companies:

  • Ltd “Nevskaya concession company” (the French group Vinci)
  • Ltd "Neva Tunnel" (Austrian Strabag AG, the Cyprus Suri Holdings Limited, a German Zueblin AG and the French Egis Projects SA)
  • JSC "Buigproekt Operating" (the French group Bouygues)
  • Neva Traverse GmbH (German Hochtief Construction AG and Hochtief PPP Solution and the Dutch Royal Boskalis Westminster NV)

Only one of the four consortia, which had previously been screened for participation in the Tender procedure, continued to participate in the tender – "Nevskaya concession company" Ltd-, because no other company submitted proposals to this stage of the competition. In June 2010, the Government of St Petersburg and “Nevskaya Concession Company” Ltd signed the concession agreement.

Contract Structure

The obligations of the Concessioner included the following:

  • to design the Orlovski Tunnel and obtain all the relevant permits and approvals;
  • to build the Orlovski Tunnel using equity and debt funds, and finance provided by the Grantor;
  • to start the operation of the Orlovski Tunnel before the deadline specified in the bid;
  • to use (operate) the Orlovski Tunnel as a public road tunnel, in particular – to levy tolls from users of the Orlovski Tunnel once its construction is completed and the tunnel is put in operation, and not to terminate (not to interrupt) this activity without the Grantor’s consent, and collect tolls from the tunnel users. Toll rates will be set by the Grantor;
  • to provide public utility services with access to the land plots used in construction and operation of the Tunnel;
  • to provide maintenance and major repairs of the Orlovski Tunnel at its own expense;
  • to meet requirements for insurance against risks specified in the Concession Agreement; in particular, at its own expense, insure the risk of loss (destruction) or damage of the Tunnel, and the risk of third party liability for the damage caused during the construction and operation of the Tunnel;
  • on termination of the Concession Agreement (including expiry), to transfer the Tunnel to the Grantor;
  • the Concessioner may not build any property (other than the Orlovski Tunnel) on the land plots provided to it.

The obligations of the Grantor were as follows:

  • after the signature of the Concession Agreement within the time set by law, sign with the Concessioner a Land Lease Agreement in respect of land plots, where the Tunnel will be located and which are necessary for construction and operation of the Orlovski Tunnel by the Concessioner;
  • to provide necessary support to the Concessioner in obtaining subsoil and water use licenses;
  • hand over the design and construction input data available to the Concessioner;
  • provide a contribution toward the Orlovski Tunnel construction costs from the budget of the Russian Federation and the budget of St. Petersburg in the amount determined based on Bids;
  • make availability payments for the Tunnel;
  • to provide the Concessioner with reasonable support in its interaction with public authorities and other organizations controlled by the Grantor, and in getting access to the necessary communications and resources of the existing urban infrastructure;
  • on termination of the Concession Agreement (including expiry), accept the Tunnel from the Concessioner under the procedure specified in the Concession Agreement;
  • fulfil other obligations, arising from the Concession Agreement, other contracts between the parties, and provisions of Russian laws.

The estimated project cost was 54 600 million rubles.

The project was financed by equal shares – (33.3%) of the investor, the city budget and the investment fund of the Russian Federation.

The Concessioner was expected to mobilize finance in an amount sufficient to cover project design, construction, and operation costs.

The disbursement of government funding included government support to be provided both by the Russian Federation and government of St. Petersburg and a grant from the RF.

The Russian Federation had to contribute a part of capital costs of the project. The Orlovski Tunnel was one of the first toll road projects approved for the financing from the Investment Fund of the Russian Federation (grant + availability payment from St. Petersburg government).

St. Petersburg had to support the project with city budget funds. Pursuant to the investment project profile (approved by Decree of the Government of the RF No. 1708-r of 30.11.2006), the maximum amount of public support at the construction stage had to be 17,572 million rubles. In order to keep the public financing to a minimum, Bidders were requested to indicate the amount of the Grantor financing they need. This was one of the key bid evaluation criteria. Moreover, the concession agreement provided for availability payments (based on Lane availability and System performance) by the city of St. Petersburg, i.e. the concessioner did not bear traffic risk. Bidders indicated the amount of availability payment required, which was also an important part of the bid evaluation criteria.

Finally, there was direct contractual obligation of each government to mobilize funding and funding mechanisms to be transparent and reliable (funding mechanism to be based on clearly identified and measurable milestones).

Orlovski3.png
Figure 4: Orlovski Tunnel PPP Structure

Risk Allocation

Risks related to land preparation, utility relocation, development of the urban road network, and traffic risks are to be borne by the Grantor.

Risks related to design, construction, operation of the Tunnel were to be borne by the Concessioner.

The Grantor assumed the traffic risk and had more freedom related to the policy of toll collection.

The risk of certain changes in the law and the risks of public sector are borne by the Grantor, but the risks related to necessary approvals/permits belonged to the Concessioner.

Risks related to changes in macro-economic situation, construction financing, as well as subsurface and force majeure risk will be shared by both parties.

The above risk allocation is presented in Figure 5.

Orlovski4.png
Figure 5: Risk allocation

Performance

The tunnel was to provide for:

  • two-way traffic of up to 60,000 vehicles per day;
  • two-way traffic on ramps: Piskarevski Pr. ramp – up to 35,000 vehicles per day, Sverdlovskaya Embankment ramp – up to 15,000 vehicles per day;
  • a link to Shosse Revolutsii, Polustrovski Pr., and Sredneokhtinski Pr. with overall two-way traffic of up to 20,000 vehicles per day;

Traffic estimates for the tolled tunnel are presented in Table 1:

Table 1: Tunnel Traffic forecast

Parameter 2011 2015 20251 2035
Daily traffic for cars (‘000 vehicles) 52.5 63.2 60.3 66.3
Daily traffic of trucks (trucks up to 3.5 tons, in ‘000vehicles) 5.5 4.2 5.8 6.4
Total traffic 58.0 67.4 66.1 72.1

1: the traffic reduction in 2025 will be caused by the development of the urban road network within the gravity zone of the tunnel

The tunnel was to be equipped with a physical toll collection facility. The key requirement for toll stations is toll collection without queues in front of toll plazas exceeding a 2 minutes wait time or 12 vehicles.

Outcomes

The construction of the Orlovski Tunnel did not begin since the Government of St. Petersburg terminated the concession agreement with the "Nevskaya Concession Company" on the grounds that the concessionaire has not provided evidence to achieve financial closure, had not fulfilled the conditions of the start of construction and the cost of the project exceeded 55 billion rubles.

References

  • Decree of the Government of St. Petersburg No. 1215 of November 23, 2012 “On the Cancellation of the Concession Agreement for the Design, Construction and Operation of the Orlovski Tunnel under Neva River in St. Petersburg”
  • Decree of the Government of St. Petersburg No. 309 of March 24, 2010 “On Results of Open Competition for the Concession Agreement for the Design, Construction and Operation of the Orlovski Tunnel under the Neva River in Saint Petersburg”
  • Decree of the Government of St. Petersburg No. 310 of March 24, 2010 “On Measures for the Conclusion of the Concession Agreement with the Participant of Open Competition for the Concession Agreement for the Design, Construction and Operation of the Orlovski Tunnel under the Neva River in Saint Petersburg”
  • Decree of the Government of St. Petersburg No. 1090 of September 3, 2007 “On conclusion of the Concession Agreement in Relation to Orlovski Tunnel under the Neva River in Saint Petersburg”
  • Decree of the Government of the Russian federation No. 695-r of 31.05.2007 “On Signing of Concession Agreement in relation to Orlovski Tunnel under the Neva River in St. Petersburg”
  • JSC "WHSD".(2015) Orlovski Tunnel. URL:http://www.orlovtunnel.ru/index.php?lng=en&page=1
  • Project Brief. Construction of the Orlovski Tunnel under the Neva River in St. Petersburg./ “ORLOVSKI TUNNEL” JSC. – September, 2007.