The Project That Almost Didn’t Happen
The A2 Toll Motorway project has the distinction of being a unique infrastructure project, successfully carried out in spite of overwhelming odds as a transaction ahead of its time in terms of structure, location and participants. Its background and implementation is a fascinating tale of progress by trial and error into the unknown, at some times riding the wave of political and economic enthusiasm and, on others, deftly avoiding the obstacles and pitfalls that the vagaries of domestic politics and global financial markets had been placing in its path.
In mid-1990s, in the face of risk that the Polish economic miracle was at risk of running out of road capacity just before the final sprint to join western Europe, a bold political decision was therefore taken to allow private investors to put their forces together with experienced building contractors and operators in order to design, build, finance and operate several key motorway segments based on a long-term Concession Agreement concluded with the State. The greatest novelty for the Polish market, and therefore the risk, was the direct tolling of road users by the Concessionaire for his own account. The terminology used at the time was BOT (or more precisely DBFOT) although today the overall concept falls under the broad designation of Public-Private Partnership. A dedicated division of the Ministry of Transportation, the Agency for Construction and Operation of Motorways, was created under the leadership of Dr. Andrzej Patalas for the exclusive purpose of negotiating large-scale concession terms with private investors. That concept was seen as a preferred alternative to direct procurement of construction services and exercise of operational obligations by state-owned road maintenance departments.
On the other side of the negotiating table sat one of the largest companies in Poland by equity, the newly created Autostrada Wielkopolska S.A., a consortium put and held together by Dr. Jan Kulczyk, comprising leading European construction companies and operators. Additional impetus was provided by supranational financial institutions (the EIB, the EBRD and various bilateral agencies) as well as commercial banks were indicating their willingness to venture into the yet untested waters of limited recourse project finance for Polish infrastructure, increasingly seen as alternative to financing of state obligations while preserving exposure to excellent GDP growth prospects.
The discussions taking place from initial tender launch in 1995, through award of Concession in March 1997 and multiple re-negotiations of the Concession Agreement (originally signed in September 1997), up to Financial Closing in October 2000 were both exhausting and exhilarating, because economic history was being made in front of our eyes. Everyone involved, whether on the side of the government, the sponsors or the banks, had to demonstrate perseverance and flexibility to the highest degree. Several Financial Plans were being proposed and quickly discarded, traffic projections scenarios dissected and critically assessed, major funding concepts often revisited, necessitating rapid redrafting of complex agreements. Even the original duration, size and segmentation of the Concessions were eventually amended to fit changing revenue projections, evolution of prices of construction materials, as well as the parameters of available funding. Some members of the original sponsor groups couldn’t keep the pace and left the consortium, while unusual credit risks and procedural challenges (as well as the Russian debt crisis of 1998) made more than one financial institution withdraw from the project. But the core group of motivated shareholders kept on believing in the project, and finding an equally perseverant partner in the Agency, made it possible for the AWSA team to keep working with their advisors to find new structuring ideas and acceptable risk mitigations. The European Investment Bank played a particularly instrumental role in the final dash to make the signing deadline. The day of formal Financial Closing brought to all of us both a relief and the realization that the work is not over as the A2 Toll Motorway Project required on-the-run adjustments and modifications, which keep continuing until the present day.