Difference between revisions of "Case Studies: Ionia Odos Motorway"
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Revision as of 10:52, 28 May 2013
Contents
Introduction
The “Ionia Odos” concession is a toll motorway concession project consisting of three sections: A new motorway of 160 km in length, located in Western Greece; an adjacent 30 km bypass of the city of Agrinio, where no toll collection is applied and a 175 km brownfield motorway section along the PATHE (Patra – Athens – THEsaloniki) motorway. The project’s construction is funded by debt and equity capital, state and EU funds, as well as tolls received during the construction period from the brownfield motorway section constructed by the Greek state under a traditional public works procurement scheme.
The new motorway is designed to allow a journey speed of 120 km/h and its typical cross section consists of a dual carriageway of two lanes, divided by a New Jersey barrier, and an emergency lane. The project includes over 42 interchanges and over 7 km of tunnels.
The Contracting Authority (Public Party)
Ionia Odos is a project that was planned and approved by the Ministry of Environment, Physical Planning and Public Works, as part of a ‘bundle’ of five motorway concession projects – parts of the EU TEN-T network and partially funded by EU funds. These projects were titled ‘axes of development’, as they were expected to have a great impact on growth. The concession agreements for these projects became laws of Greece, after ratification by the Greek Parliament. As such, these contracts cannot be amended without approval from both the EU and the Greek Parliament.
The Concessionaire (Private Party)
Project sponsors for Ionia Odos are Ferrovial (33.34%), ACS (33.33%) and GEK Terna (33.33%).
Ferrovial and ACS are major international players in the construction/concession market. GEK Terna is a major infrastructure group based in Greece. Both the Concession SPV (“Nea Odos S.A”) and the Construction SPV (“Euroionia”) are owned by the respective Sponsors. The Lenders group includes both international (mainly Spanish) and Greek banks.
The project cost totaling EUR1200 M is financed as follows: Shareholders’ Equity (EUR190M); Debt Capital (EUR110M); Greek State/EU (EUR360M) and Tolls received during construction (EUR560M).
Based on the terms of the project’s restructuring as announced on April 12th 2013, the amount of Greek State/EU funds will increase to cover part of the construction funding shortfall.
Users
The motorway users include both freight traffic and passenger traffic. Through its connection of the Antirrion bridge to Ioannina, the project also serves international freight and passenger traffic. The brownfield section is one of the busiest motorways in Greece.
Key Purpose for PPP Model Selection
The PPP model was selected mainly due to restrictions in increasing the country’s sovereign debt levels. Financing and traffic risks were transferred to the private sector via a DBFO scheme. Completing the project on time and achieving an increased construction/operational quality were also key factors for the selection of the PPP model.
Project Timing
The need to complete the project was high at the time of initial tendering, mainly due to the lack of proper roadway infrastructure to connect Western Greece to the rest of the country. Macro figures at the time (e.g. debt ceiling and GDP forecasts) also justified the project’s implementation, as the highest bidder offered to return to the state an average of 85% of the toll revenues received over the operational period via annual payments.
Greece’s sovereign debt crisis has had a severe impact on the project, decreasing the traffic revenues that were necessary to fund its construction. As such, the Lenders imposed a draw stop and the project’s construction was ceased in early 2010. The SPV and Greek State entered renegotiation talks at the time and announced an agreement on key terms in April 2013. These include, inter alia, increased state participation in the construction financing in order to partially cover the funding gap. The annual payments are also expected to be recycled into the project in order to cover operational expenses, debt and shareholder repayment.
Project Locality and Market Geography
The project connects two major import/export nodes: the Port of Patra (via the Antirrion bridge) and the Port of Igoumenitsa (via its connection to Ioannina through the Egnatia Odos motorway). As such, it can be considered as an international and regional project.
Procurement & Contractual Structure
Tendering
A two-phase process was applied for the project’s tendering: a prequalification (announced and tendered in 2001) and a final bid phase (tendered in 2005). Seven (7) groups expressed interest during the first phase and two (2) out of the four (4) which prequalified finally submitted bids for the second phase. The project’s concession agreement was signed in late 2006 between the highest bidder (a consortium composed by GEK Terna, ACS and FERROVIAL) and the Greek State.
Contract Structure
The contract follows a typical concession structure via DBFO. The project is partially financed (€360M) by Greek State and EU Structural and Cohesion funds of the 2007-2013 programming period. Shareholders and Lenders also participate in the construction funding via €190Mof equity and €110M of debt, to be repaid during the operation period.
The project also includes a brownfield section to be upgraded and operated during the construction period. Tolls received during this time are to be used solely for the construction funding. Toll rates are specified in the contract (fixed), and gradually reach their limit (0.04 €/km in real 2003 prices) via the achievement of construction milestones. Due to high volumes of expected traffic, the contract included payments to the State at a rate of 85% (a critical part of the tender’s award formula) of toll revenues received over the operational period.
Risk Allocation
Risk allocation also follows DBFO standards: traffic, financing, construction and operation/maintenance risks are transferred to the private party, while the State maintains the ownership of legal/regulatory risks. The severe impact of the Greek sovereign debt crisis on traffic volumes has affected the traffic risks as perceived by the private sector, and is expected to have a decisive role on the final renegotiated contract structure, mainly through the amendment of the toll revenue sharing mechanism during the operational period.
Initial forecasts made prior to the project’s implementation indicated an annual GDP growth rate of 3.8% and a motorization growth rate of 0.74% for Greece; these estimates assumed an annual traffic volume growth of 14.4% for Greece (Source: TEN-STAC Scenarios, Traffic Forecasts and Analysis of Corridors on the Trans-European Transport Network - 2003).
Land Acquisition risk is also a major point of argument during renegotiation, as land acquisition has caused major delays in the project’s progress. This is mainly attributed to unrealistic expectations by the State for the time needed to acquire the required land. Delays in land acquisition, as well as environmental claims, have been a main source of claims against the State in the project so far. It needs to be noted that environmental claims have also caused works to stop in key project areas. Risk is allocated as depicted in figure 2.
Figure 2 Risk allocation
Performance
As the Independent Engineer is mainly responsible for evaluating construction performance, in conjunction with the Awarding Authority, there are no Key Performance Indicators (KPIs) during either the construction or the operational period. Performance during the latter is monitored by the Awarding Authority, which is responsible for evaluating operational performance following the construction period.
However, the financing agreements, considered as annexes to the concession agreement, include several key metrics that are used to evaluate the viability of debt repayment, such as the debt service coverage ratio (DSCR) and the loan life coverage ratio (LLCR). It needs to be noted that decreased levels in these metrics can become grounds for project default.
References
- Roadway fatalities: TEN-STAC Scenarios (2003), Traffic Forecasts and Analysis of Corridors on the Trans-European Transport Network
- The Ionia Odos Contract, Greek Law 3555/2007 of 19 Dec 2007 of the Official Gazette.
- www.neaodos.gr
