Public-Private Partnership Stories Kazakhstan: Almaty Ring Road PPP Photo: Anna Fed/Flickr Creative Commons With around 2 million residents and 1 million vehicles on the streets every day, road congestion has This series provides an overview of frustrated commuters and threatened economic growth in Kazakhstan’s largest city of Almaty. public-private partnership stories in various infrastructure sectors, Experts says that the traffic is also responsible for approximately 80 percent of the city’s air where IFC was the lead advisor. pollution—an unsustainable situation for a country trying to meet national environmental targets. To address this issue, the Government of Kazakhstan (GoK) engaged IFC to structure a public- private partnership (PPP) to develop new road infrastructure and improve public services for local IFC motorists. The Almaty Ring Road (also known as “BAKAD”) will reduce traffic congestion, Public-Private Partnerships 2121 Pennsylvania Ave. NW improve the ecological situation, and leverage new project finance methods to attract international Washington D.C. 20433 investors. ifc.org/ppp Following an international competitive tender—which attracted interest from companies in Spain, France, Italy, Hungary, Turkey, Kazakhstan, China, and South Korea —the Turkish-South Korean consortium Alsim Alarko/Makyol/SK Engineering & Construction/Korea Expressway Corporation was selected as the winner. In February 2018, the consortium signed a 20-year concession agreement with the GoK and committed to invest about US$ 740 million in construction and equipment for the new toll road. The project was implemented with the financial support of Switzerland’s State Secretariat for Economic Affairs SECO and Austria’s Federal Ministry of Finance . BACKGROUND The consortium will invest about US$ 740 million for construction in the first 4.5 years, after which it will maintain the Urban transit in Kazakhstan is increasingly dominated by road and collect tolls from road users on behalf of the automobiles. In 2015, the motorization rate in Almaty reached government. GoK will compensate the private-sector partner 428 cars per 1000 inhabitants. With about 1 million vehicles on with annual availability payments, set against strict performance the streets every day, it is difficult, time consuming, and criteria. As a result of legislative amendments, standard project dangerous to get around the city. Moreover, the air pollution finance features, including payments in case of early termination resulting from traffic congestion poses a severe health risk to of the contract, international arbitration, lender step-in Almaty’s 2 million residents. provisions, are present in the contract. With plans for a China-Europe transit link (the “New Silk Road”) through the Almaty metropolitan area under development, GoK This is the first infrastructure PPP of its type and magnitude in realized that a bypass motorway was needed. In addition to Kazakhstan and Central Asia. reducing congestion and environmental pollution, it will test new project finance mechanisms. The Almaty Ring Road PPP will BIDDING serve as a benchmark for new projects developed in infrastructure and public services in Kazakhstan, if successful. A two-stage bid process was adopted to identify the concessionaire. On January 14, 2015, GoK launched a IFC’S ROLE competitive international tender process by issuing the request for prequalification. There was a strong showing of interest from IFC served as the lead advisor to the Ministry for Investments private players, and nine groups of companies submitted and Development in structuring and tendering the project. IFC’s applications. After careful consideration, the special role covered technical, legal, and analytical support, which Commission for Concessions invited five qualifying consortia to included: participate in the second stage. • conducting detailed engineering and traffic studies to confirm project’s technical parameters; On November 25, 2015, after several rounds of meetings with • updating the feasibility study and getting it passed through each qualifying consortium, GoK received three bids for the appropriate regulatory approvals; project. On February 26, 2016, based on the technical and • analysis of the scope of environmental and social impact financial proposals, the Turkish-South Korean consortium assessment work to be completed by the future (which included Turkish Alsim Alarko Sanayi Tesisleri Ve concessionaire to secure funding from international lenders; Ticaret and Makyol Insaat Sanayi Turizm Ve Ticaret and South • review of existing legislation to ensure a viable PPP Korea’s SK Engineering & Construction and Korea Expressway transaction structure; Corporation) was announced as the winning bidder and invited • financial structuring of the transaction, including balancing to post-award negotiations with GoK. After a lengthy negotiation affordability of tolls and fiscal impact against reasonable period, the concession was signed in February 2018 between the return for investors; government and the consortium. • promoting the project and running a transparent and competitive international tender to select the concessionaire; • conducting negotiations with the winning bidder until EXPECTED POST-TENDER RESULTS signing of the agreement with GoK. • Approximately US$ 740 million in private sector IFC partnered with other international financial institutions, investment. including the International Bank for Reconstruction and • Improved services to about 1.8 million people Development, European Bank for Reconstruction and every year. Development, and Asian Development Bank, to improve ‘bankability’ of the transaction and help GoK amend legislation • Construction of a key link in the New Silk Road and the regulatory environment to make BAKAD and future (Western China – Western Europe) transnational PPPs possible. highway. • Significant reduction in traffic congestion and air pollution in the Almaty city area. TRANSACTION STRUCTURE A 20-year concession to design, finance, build, transfer, operate, • Capital-intensive, privately financed infrastructure and maintain the road, which will be a 66km long, 6/4-lane project outside of the oil & gas sector. “Category I-A” bypass motorway. It will handle traffic from three districts that border Almaty and will be equipped with • Opening of Kazakhstan’s market to more PPP deals modern traffic management and toll collection technology. in the future.