Poland's A2 Motorway Case: Abhinav - Bala - Harsh - Sandeep

Poland’s A2
Motorway Case
Abhinav | Bala | Harsh | Sandeep
AWSA and A2 Motorway
• AWSA – Special purpose consortium incorporated to bid on A2
consession
• 254 KM of A2(33%) motorway on the west, BOT Model
• Part of the Polish Government’s program of upgrading and
expanding the country’s transportation infrastructure.
• The challenge of this project was its size, traffic forecast,
financial projection & significant experience in structuring
Hotels and Tourism project of this size.
Finance
Power Transmission
Western European
Insurance Firms involved in
heavy construction
Private Equity Firms
77% 23%
Overview of the case
• Autostrada Wielkopolska, S.A.(AWSA) won an exclusive concession to build

and operate a major segment of the proposed A2 Motorway, the first private
toll road in Poland
• Project’s total cost was €934 Million
• Wojdech Gebicki has been hired in October 1999, to secure a €242 Million
commercial bank loan
• February 2000, AWSA chose Credit Lyonnais and Commerz bank as joint lead
arrangers for the bank financing
• If financing were not closed by July 29, 2000 the concession would expire
• Timeline of the project:
Poland and the Toll Motorways Act 1994
• A natural land bridge between Eastern and Western Europe
• Government approved construction of toll motorways(2,600km)
• Authorized the government to grant concessions on a competitive tender basis
• Also authorized the government to guarantee financing
The concession agreement

• In 1997, AWSA awarded 30 years BOT concession agreement.
• AWSA was owned by 10 Polish firms with diversified commercial interests
• AWSA was obligated to finish Phase 1 within 6.25 years after financial close
• Land leased by Government
• Local permit by AWSA
• Compensation to AWSA if permit gets delay due to government authorities.
• The government had the right to terminate the concession (on deadline & payment)
Design, Construction and Financing
• Fixed-price design and construction contract. (€16 million and €622
million respectively)
• 15% advance payment, remaining on monthly basis)
• Government was responsible to construct feeder & parallel/by-pass
roads
• Liquidated damages for each day of delay by contractors
Operation
• 10-year renewable contract to operate and maintain.
• Routine maintenance - Operating Company
• Heavy maintenance – AWSA
• Revenue from tolls, petrol stations, roadside restaurants, and
eventually hotels
• Concession agreement contained commitments by the government
to generate satisfactory traffic volume.
Insurance
• During construction, all risk coverage for property damage up to the full design and construction cost
US$ 667 million, declining to US$100 million per event post completion
• Insurance for lost profits due to delay in completion set at 30 days' projected gross revenues
• After completion, business interruption insurance would cover revenue losses for up to 12 months
• Third-party liability insurance was US$ 50 million
Financing
• €934 million - Total estimated cost, financing plan was based on a model created by Deutsche
Bank
• 1.5 DSCR to be maintain; Loan rate = spread over 6-month LIBOR (180 bp to 235 bp)
Cash "waterfall" mechanism
1. Current operating expenses
2. Capital expenditure and maintenance reserve accounts
3. Current interest and principal payments on senior debt
4. Senior debt service reserve account
5. All remaining cash to the zero-coupon bond sinking fund
Senior debt contracts would be governed by U.K. common law, rest by Poland's civil law system
Facts about Phase 1
• Opening dates of July 2002

Konn • Reconstruction of old National Route No. 1
Bypass • Government Responsibility

to • Toll free road
Poznan • Opening by Mid 2003
Nowy • Opening by late 2005

• Running parallel to Old National Route No. 1
Benefits for Government
• Employment during construction

• Easy movement of trade and commerce within the
neighboring countries
• VAT applicable tolls
• Share in cashflows
• Optimum case – 20% of the distributable cashflows
(When cumulative real rate is 10% or more)
• Optimum case – 50% of the distributable cash flows
(When cumulative real rate is 15% or more)
Poland A2 Motorway: What
are the major risks? (1/4)
Political Risk
Poland A2 Motorway: What are
the major risks? (2/4)
Poland A2 Motorway: What are the
major risks? (3/4)
Poland A2 Motorway: What are the
major risks? (4/4)
FUTURE
Project Risk Management Strategies
How should Gebicki respond to the banker’s concerns in June
2000
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Poland’s A2

• Autostrada Wielkopolska, S.A.(AWSA) won an exclusive concession to build

The concession agreement

• Opening dates of July 2002

Bypass • Government Responsibility

Nowy • Opening by late 2005

• Employment during construction

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