The authorities are considering a new option for financing the expansion of the BAM
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The government is considering an alternative option for financing the construction of three tunnels and a bridge at the Eastern training ground worth 520 billion rubles, which was initially proposed to be implemented under a concession. Instead, an EPCF contract is possible: Russian Railways JSC will enter into a general contract with Ruslan Baysarov’s BTS-Most, the contractor will attract loans, and then Russian Railways JSC will repay them, taking into account interest. Such a mechanism will reduce budget expenditures, but will shift the main financial burden to Russian Railways. It is not yet known how the loans are expected to be repaid, but Kommersant’s sources assure that there will be no increase in tariffs for Russian Railways, and the project will pay off due to increased freight traffic.
For the construction of four large facilities as part of the third stage of modernization of the Eastern site by 2032, along with the concession scheme, the use of an EPCF contract is being considered. First Vice President of Gazprombank Pavel Brusser spoke about this at the WEF session. “On concession initiatives, we are in the process of agreeing on terms with the executive authorities,” he said. “And the second movement on this project is the discussion of a general contract with the contractor’s obligation to raise financing for a long-term life cycle contract with Russian Railways, the so-called EPCF mechanism “
In 2024, the second stage of expansion of the Eastern range will be completed with an increase in carrying capacity to 180 million tons, and the third is being discussed. It has three substages: the first, with an expansion to 197 million tons, for cargo from Yakutia, primarily from the Elga coal deposit; the second, up to 210 million tons, for existing shippers, including from the central part of the Russian Federation and the Urals. The third stage, up to 255 million tons by 2032, was planned to be implemented on the basis of a concession initiative, which was launched in 2022 by Ruslan Baysarova’s S-Most and Gazprombank (see “Kommersant” dated June 1, 2022). As part of this stage, expensive structures must be built – the second Severomuysky, Kuznetsovsky and Kodarsky tunnels and a bridge across the Amur.
As Deputy Head of the Ministry of Transport Valentin Ivanov explained on the sidelines of the EEF, the cost of these four objects is about 520 billion rubles. with the cost of the entire third stage of the Eastern test site with expansion to 255 million tons at 2 trillion rubles.
According to Mr. Ivanov, the concession initiative is currently being worked out. The concessionaire’s proposals are coordinated with the authorities both in terms of attracting federal support, and with Russian Railways in synchronizing the work.
The version of the EPCF contract, Mr. Ivanov said, was proposed by Russian Railways. “This option has certain pros and cons; we must go through this fork in agreement with all interested parties,” he said. It requires less support from the federal budget, but “certain decisions are needed at the level of Russian Railways,” the deputy minister added.
The EPCF scheme has several features, Mr. Brousseur said. “The most important thing is that it does not require government funding at the design and construction stage,” he says. “This scheme can be launched right now, unlike a concession. In addition, the scheme is non-recourse in nature, that is, it is a project financing scheme with elements of debt deconsolidation. A special feature is that JSC Russian Railways is a direct participant in the construction and operational phases.” According to him, other banks are also showing interest in the EPCF scheme; in particular, it is being discussed with Sberbank and VEB.RF. Mr. Brousseur noted that the EPCF scheme is also applicable to projects of other natural monopolies, including those that are being developed in conjunction with the expansion of the Eastern Polygon.
However, if in a concession the budget bears expenses, including for a capital grant, then with EPCF they fall on JSC Russian Railways.
The monopoly periodically experiences difficulties in financing the development of the Eastern test site, although in recent years it has been avoiding at all costs the sequestration of the investment program for the Baikal-Amur Mainline and the Trans-Siberian Railway. Nevertheless, in 2022, it could have cut spending on the BAM from the planned 131 billion to 80 billion rubles, if not for assistance from the National Welfare Fund in the amount of 250 billion rubles. (see “Kommersant” dated May 30). For the third stage, Russian Railways planned to raise about 300 billion rubles. from the National Welfare Fund.
How exactly OJSC Russian Railways will return investments in the construction of tunnels and bridges is unclear. Russian Railways did not comment. At the same time, two Kommersant sources familiar with the course of the discussion assure that there are no plans to increase tariffs – the project will fully pay for itself due to increased cargo traffic.
The concession allows payments to be extended over a longer period and can provide greater protection for private investors from changes in the terms of agreements, explains Alexandra Galaktionova, CEO of the analytical company Sherpa Group. “In a classic EPCF contract, the contractor seeks financing and is engaged in construction, but does not participate in operation,” notes Ms. Galaktionova. “Therefore, formally, the cost of such a contract may be cheaper than that of a concession (since it ends after the commissioning of the facility). But it requires payment to the contractor upon completion of the construction phase.”
The disadvantage of a concession, she says, is that the company that built the facility is not always interested in subsequently operating it. In the case of sections of the BAM, OJSC Russian Railways should probably operate them. The disadvantage of the classic EPCF contract is that there is no way to extend payments over a long period comparable to the concession period. If we are talking about the fact that financing is attracted under a life cycle contract (LCC), then there are many risks in the scheme. “The EPCF contractor builds a facility with borrowed money, after commissioning its functionality ceases, but it receives payments under the LCC and, probably, repays loans, receiving a margin,” explains Ms. Galaktionova. “But then it is not clear how the loans will be secured if the object remains with the state or JSC Russian Railways as the customer. Under such conditions, without additional guarantees, the contractor is unlikely to receive a loan.” In the event of a budget sequestration, for example, if part of the costs will be subsidized by the state, the parties to such an agreement may also not be protected, she adds.
To organize financing for the construction of three tunnels and a bridge on the BAM by 2032, two models are being developed – a concession and an EPCF contract. Nikita Satyukov, First Deputy General Director for Finance and Economics of Bamtonnelstroy-Most JSC, told Kommersant about the difference between the models and construction timeframes.
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