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POLAND MOTORWAYGroup No. Chinay SagrawatDanish AfrozDeo Prateek PramodGarvit GodawatGowtham 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 MitigationSpecial features of Poland Motorway A2Capital intensive natureThe total cost of the project was estimated at 934 million which is a considerable upfront initial investmentSmall 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 investmentPublic goodThe 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.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 returnsThe 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.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 30 year concession contract which was then extended to 40 years under certain conditions which is unlike case of product/service based companyThe phase 1 of the project was divided into three segments the last of which was scheduled to open 5 years laterSlow 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 SPV for execution AWSA was a consortium of Polish and Western European firmsHigh 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 debtNon-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 assetsGreenfield 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 motorwayLender 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 MitigationMain Issue Origin and Reasons 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 MitigationOptions AvailableProblems 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 MitigationFinal Approach for GebicikiConvince Bankers 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 MitigationRisks and Mitigation Type of RiskMitigation Measures in PlaceRisk Allocated ToConstruction RiskFixed-Price Turnkey ContractsDevelopment CompanyLiquidated damages for each day of delay beyond completion dayDevelopment CompanyGovernment compensation in case of delays in delivery of the lease and environmental regulationsGovernmentInsurance against Force MajeureInsurance CompanyRisks and Mitigation Type of RiskMitigation Measures in PlaceRisk Allocated ToOperation RiskScheduled resurfacing as part of heavy maintenanceAWSARegular Maintenance contract with operating companyOperating CompanyTraffic volume and revenue projections based on WSA StudyAWSACommitment by government to generate significant traffic volume by completing Poznan Bypass and not to impose tolls on feeder roadsGovernmentInsurance against Force Majeure /Business Interruption Insurance to cover revenue losses for up to 12 monthsInsurance CompanyRisks and Mitigation Type of RiskMitigation Measures in PlaceRisk Allocated ToFinancial RiskDebt Service sculpted to match cash flows availableAWSACash Sweep Mechanism to ensure extra cash flow to pay down senior debtAWSASinking Fund Account for repayment of zero coupon bondsAWSAGuarantee by Government for mezzanine debt for up to 800 MillionGovernmentProhibition of cash interest payment to shareholders prior to repayment/cash collateralization of bondsShareholdersCash waterfall mechanism for revenue allocation/ Detailed Intercreditor agreement among the lenders documenting their consent for the sameLendersRisks and Mitigation Type of RiskMitigation Measures in PlaceRisk Allocated ToPolitical RiskUse of UK Common Law enforceable through Polish courts to address lack of precedents to guide the lawyersBaker & McKenzieCompensating AWSA for NPV of future cash flows in case of termination without noticeGovernmentGovernment to take possession of more than 5000 properties needed for construction GovernmentAssignment of cash flows to government in terms of lease and profit sharingGovernment/ AWSACompensation for AWSA in case of delays in construction of Poznan BypassGovernmentCounter guarantees by government against building competing systemsGovernment