Concession Law: The First Concession Agreements for Toll Highway Construction

Alexey Kuzmishin
Associate Partner,
Head of M&A and Joint Ventures
Rödl & Partner

The first concession agreement was signed on July 17, 2009 to construct the backup connecting road between the Moscow Ring Road and the Moscow-Minsk M1 Highway to bypass Odintsovo, Moscow region. The concessionaire is OAO Glavnaya Doroga: a consortium of ZAO Leader, OAO Gasprombank and OOO Stroygasconsulting, all of which are close to Russian Gazprom as well as to ALPINE (Austria), FCC (Spain) and Brisa (Portugal). The 18.5 kilometer highway is worth 25.7 billion rubles ($869 million). 11 billion rubles of that is to be funded by the Russian State. The toll will be 4.99 rubles (about $0.17) per kilometer. The project is expected to be completed within two years from the start of construction, which is scheduled for the end of 2009. The concession is granted for 30 years.

The second concession agreement was signed on July 27, 2009 by OOO North-West Concession Company (a consortium led by French VINCI and its subsidiary EUROVIA) to construct a 43 kilometer section of the Moscow-St. Petersburg M10 Highway some way ahead of Zelenograd to bypass the town of Khimki. This section will be the first part of the new Moscow-St. Petersburg Highway, with a total length of 626 kilometers. The project’s estimated value is about 60 billion rubles ($2 billion). 23 billion rubles of that will be funded by the state. The average toll will be 3.6 rubles ($0.12) per kilometer. Construction is expected to start in 2010 and to be completed in 3 years. The concession agreement’s term is also 30 years with an extension option for another 5 years. However, the implementation of the above project is currently open to question — it faces strong opposition on the part of the protesting Khimki residents, as the highway to be constructed will go through a protected forest area, and the residents claim that a statutory environmental feasibility assessment has not been performed. The Khimki residents have recently appealed to the European Court of Human Rights because their claim has been dismissed by all possible Russian court instances, and thus their possibilities to seek court protection in Russia are exhausted.

Anna Skaldina
Junior Lawyer
Rödl & Partner

These two projects form the first Public-Private Partnership (PPP) projects in the Russian highway transportation industry. The Targeted Federal Program “Development of the Russian Transportation System for 2010-2015” (TFP) provides for the construction of about 2,000 kilometers of federally significant toll highways in Russia. The envisaged projects include the Western High-Speed Diameter and Orlov Tunnel in St. Petersburg, which are to be funded by the Russian State Investment Fund. Other major projects worth mentioning include the Central Ring Road in the Moscow region and the Olympic M4 Highway “Don.” Total investments in this industry are expected to total about 3,237 trillion rubles by 2015, including almost 5,266 trillion rubles to be funded by public sources. Although the Russian Ministry of Finance and the Ministry of Economic Development have recently proposed cutting down TFP funding during the next 3 years, the cuts are not expected to start before 2011, and certain projects of political significance, such as the Olympic M4 Highway “Don” will obviously not be subject to such cuts.

It is possible that the first toll highways will be transferred in trust to the Avtodor state corporation that was established recently under Federal Law No. 145-FZ of July 17, 2009 with the objective to develop the Russian road infrastructure. That corporation will be granted the authority to conclude concession agreements to construct and operate highways in Russia.

In addition, discussions are currently underway to expand the scope of concession agreements to other infrastructure projects and to improve investor protection while implementing such agreements.