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Contract for the implementation signed

Contract for the implementation of the Ķekava Bypass project signed: construction works to be commenced already this year

The contract for the construction of the Kekava Bypass was signed in Riga today, and this project is the first large-scale Public-Private Partnership (PPP) project in road construction in the Baltic States, which will be implemented according to Design-Build-Finance-Maintain (DBFM) model. This is also the first project in the Baltic States for which the Statistical Office of the European Union (Eurostat) has provided its statement that the project assets are recorded in the private partner’s balance sheet without having any adverse effects on the balance and debt of the consolidated state budget.

In accordance with tender results of procurement procedure of Ķekava Bypass PPP project the total gross availability fee amounted up to EUR 265 729 046.65 excluding VAT. However, at the moment of signing the PPP contract the total amount of gross availability fee was recalculated in accordance with the procedure foreseen in tender dossier, including the Euribor and interest rate swap at the time of signing the PPP contract. As a result, the gross availability fee decreased by 15 million EUR to EUR 250 132 500, excluding VAT. This amount will be divided into quarterly payments and paid to the private partner in the period of 20 years after the Ķekava Bypass becomes available. The annual amount of gross availability fee will be EUR EUR 12 528 513 (12.53 million), excluding VAT.

Latvian Minister of Transport Tālis Linkaits stated: “The construction of the Kekava bypass will be the first significant Public-Private Partnership project in Latvia. This project is especially important considering the need to develop a modern high-speed state motorway network in Latvia as envisaged in our long-term state road development strategy until 2040. The new bypass will not only improve connectivity between the Baltic capitals and reduce travel times to neighbouring municipalities, but it will also divert traffic from densely populated areas and increase road safety.”

The contract was signed by Ligita Austrupe, Acting State Secretary of the Ministry of Transport and Deputy State Secretary of the Ministry of Transport, Mārtiņš Lazdovskis, Chairman of the Board, and Gundars Kains, Member of the Board of State Limited Liability Company Latvian State Roads, and Armands Sviķis and Juris Frīdmanis, Members of the Board of SJC Ķekava ABT. The signing ceremony was attended also by Hugo Espinheira Silveira, Chairman of the Board of JSC Ķekava ABT and TIIC partner, André Küüsvek, President and CEO of Nordic Investment Bank (NIB) and Marina Ismaila, representative of the European Investment Bank. The public partner in this project is the state of Latvia in the person of the Ministry of Transport. On behalf of the Ministry the project is implemented by State Limited Liability Company Latvian State Roads.

Signing of the contract commenced today at 9.30 and lasted until 15.30. During this procedure the partnership contact including 14 appendices was signed. Today the rates in international financial markets were recorded, as well, in accordance to which the project costs were amended and approved in the contract.

“The PPP contract signed today is the result of five years of intensive work by the team of Latvian State Roads. The first PPP project in the Baltics in road construction according to DBFM model will be implemented in Latvia, attracting financing from the European Investment Bank and the Nordic Investment Bank. I am grateful for the tremendous work of the whole team that worked on the project, this is a unique experience and it will help us to implement other projects in the future using the PPP model. Today a new stage of the project – design and construction of the Ķekava Bypass – begins. Designing is already underway and construction will begin already at the end of this year. This is good news for almost 30 thousand drivers passing this section of the road daily, and the bypass will improve connectivity in the direction of Bauska, relieving Ķekava town from transit traffic”,Mārtiņš Lazdovskis, Chairman of the Board of Latvian State Roads, stated.

March 10, 2016, may be regarded as the date when the project was commenced as the Cabinet of Ministers issued its Order no. 172 “On the commencement of Public-Private Partnership procurement procedure for the state main road project “E67 / A7 Ķekava Bypass””. However, preparations for the project began several years ago, for example by preparing financial and economic calculations for the project already in 2015. On August 11, 2020, the Cabinet of Ministers made decision to undertake long-term commitments for the implementation of the project, thus allocating the necessary funding.

On July 8, 2021, a repeated statement from EUROSTAT statement was received certifying that this PPP contract corresponds to the off-balance sheet accounting from the point of view of the total liabilities of the Republic of Latvia and is in line with the European System of Accounts (ESA 2010) [1].

“Public-Private Partnerships are used throughout Europe to implement large infrastructure projects. Now Latvia is also joining the ranks of these countries, proving that it is able to carry out complex projects by attracting private capital. We are a reliable partner for investors. Ķekava Bypass will contribute to the national economy, as it will make freight transport smoother, reduce the travelling time for people, improve mobility and accessibility of the Rīga city,” Jānis Reirs, Minister of Finance, said.

Valdis Dombrovskis, European Commission Executive Vice-President responsible for an Economy that Works for People, said: “I am glad that the Investment Plan for Europe will provide a financial guarantee to the EIB for the construction of the Kekava bypass, which will be the first large-scale public-private partnership in the Baltics. It will ensure the most efficient road transport connection between the Latvian capital Riga and the Lithuanian border. This investment will strengthen the Trans-European Transport Network, contributing to social, economic and territorial cohesion in the European Union.”

The procurement for Public-Private Partnership was commenced in December 2018, and the procedure included qualification and selection stages. Five tenders were received in the qualification stage, out of which four met the defined requirements. All four tenderers were invited to participate in the selection state, i.e. to submit their initial technical and financial tender. The initial tender was submitted by two tenderers, who were also invited to participate in negotiations with the contracting authority in order to improve their tenders, while maintaining their compliance with the requirements of tender dossier. After negotiations the tenderers prepared their best and final offers.

The most important criterion in the evaluation of submitted bids was the price. Its share in the evaluation was 80%, while the remaining 20% covered the compliance with various additional criteria, such as the duration of works, traffic organisation during the works, organisation of routine maintenance, quality and risk management and others.

Out of two tenderers who submitted their best and final offers, the offer of Kekava ABT was selected as economically most advantageous offer, which also had the lowest price. Kekava ABT association of persons is controlled by the Luxembourg-registered investment fund TIIC 2 (SCA) SICAR, which is managed by TIIC, with 80 percent of the total investment. TIIC is an independent infrastructure firm with offices in Luxembourg, Portugal and France and specializes in large-scale transport and public infrastructure projects in Europe, for instance, the Gerediaga-Elorrio Highway in northern Spain (built according to the same model as Ķekava Bypass project), a section of A150 Ecalles-Alix-Barentina highway in northern France, and others. 10% of the investments in Kekava ABT association were made by JSC A.C.B. and Binders Ltd. each.

Manuel Cary, CEO of TIIC, added: “As a pan-European investor in infrastructure and social projects, we have built a significant portfolio of experience, that includes several road projects in Ireland, France, Poland, Spain and Portugal, as well as an innovation hub near Paris, city rail service in Spain and parking solutions in Spain and Italy. We are very pleased to add Latvia to the growing list of Public-Private Partnership initiatives, that allow governments to enjoy the benefits of private contribution to projects of true public importance. We see Latvia and the other Baltic states as a region of fast growth and we aim to bring to Latvia not just our operational and financing knowledge, but also our approach and commitment to the best environmental sustainability, social and governance practices.”

Armands Sviķis, Chief Operating Officer of ACB Group and Member of the Board of Kekava ABT emphasized: “The development of this PPP project will provide unique first-time experience for the Latvian construction sector as it will unite top-level competencies in design, construction, maintenance, financial administration and project management. It also has to be noted that this PPP project will create a significant number of new jobs, both directly during construction and road maintenance period and indirectly, given the importance of infrastructure projects in the national economy.”

Juris Frīdmanis, Member of the Board of SIA Binders and Member of the Board of Kekava ABT, noted: “It is safe to say that this will be a project that will lead to the development of the Latvian transport infrastructure industry to the new quality standard. The consortium formed by us will be responsible for the successful operation of this project for the next 23 years, therefore the design, construction and maintenance of the project has to be approached with utmost responsibility. For the first time in the history of Latvia, we will use the most modern road quality monitoring system, which will control both weather conditions, quality of road surface, traffic flow and other important factors online, taking care of the comfort of road users. I believe that this project will be a good example of Private-Public Partnership for other future projects, in which all parties will prove their professionalism and ability to work together for the common good.”

The procedure of signing the contract required two days. On July 15, the financing contract was signed between the project financiers – the European Investment Bank (EIB), the Nordic Investment Bank (NIB) and the private partner Kekava ABT. On July 16, the PPP contract with 14 annexes, as well as information exchange contract was signed. On both days more than 20 specialists were involved in signing the contracts.

EIB Vice-President Thomas Östros commented: “This project is very important not only for Latvia’s economy, but also for residents of the area. Road safety and economic progress should always go hand in hand, which is one of the reasons why the Bank supports this development. The fact that this is the first public-private partnership of this scale in the Baltics opens the way for similar projects in the future.”

“The road in question, E67, is a vital international corridor and a strategically important road, especially for our Baltic member countries. The Kekava Bypass project is the first major PPP project in Latvia, and thus, the project can give an incentive for other larger infrastructure projects in the region,” André Küüsvek, President and CEO of NIB, stated.

In the result of an open tender SIA Deloitte Latvia was involved as a legal and financial consultant for the implementation of the Private and Public Partnership project “E67 / A7 Ķekava Bypass”. In addition to that, the consultants from Deloitte Financial Advisory (Denmark), Deloitte CVBA (Belgium) and Sworn Law Office LarkLaw were attracted (https://lvceli.lv/aktualitates/kekavas-apvedcela-ppp-projekta-konsultants-bus-sia-deloitte-latvia/).

Andris Liepiņš, Director of Deloitte Latvia and head of the international consulting team for the PPP Project Ķekava Bypass, noted: “Deloitte, as the leading consultant to the implementer of this project is indeed satisfied with mutual accomplishments. I am convinced that this invaluable experience gained by all parties and institutions involved in the project will serve as a basis for other infrastructure projects in Latvia. In turn, the ability and courage to implement a project of this scale, as well as its result will be a starting point for the implementation of infrastructure projects in the region.”

“We have created something unique in close teamwork – the first road infrastructure PPP project in Latvia. It complies with one of the biggest challenges of this project – off-balance sheet accounting requirements. Side by side with Latvian State Roads and Deloitte we have been able to structure the PPP project according to almost hundred requirements for risk transfer. In addition to that, we have implemented the foreseen financial and technical solutions in such a PPP contract that has never been developed in Latvia before. During these years, we have learned ourselves and shared our experience both in Latvia and more widely in the Baltics. We have fulfilled our essential value – to make a contribution and create a fertile place for further growth of the country,” Dace Cīrule, partner of Sworn Law Office LarkLaw, added.

Information prepared by Communications Department of State Limited Liability Company Latvian State Roads.