Russian Highways needs time not money.
State company Russian Highways asks to extend road construction programme by 15-20 years.
Sergei Kostin, chairman of the board of the state company Russian Highways, has asked Prime Minister Vladimir Putin to extend the government-approved programme for the company’s development through 2015 by 15-20 years. The company expects to launch 1.5 trillion rouble worth of projects in the next five years. However, they are unlikely to do more than begin construction in such a short time, which scares off private investors.
Kostin complained to Prime Minister Vladimir Putin at yesterday’s meeting that the company is facing problems at the design phase. “We have a programme adopted for 2010 through 2015. But any continuous contract including right of way acquisition and preparation and construction will go beyond that period,” he said. The design phase “takes two years. Right of way preparation is another two or three years. The next phase is construction. We would like the time limits to be expanded to 15-20 years,” he added.
The government adopted the investment programme for Russian Highways for 2010 through 2015 in early February. The programme is worth 1.5 trillion roubles, with the federal government providing 65.4% of financing (972.3 billion roubles, including the amount allocated by the Investment Fund), while the remaining 34.6% will have to be raised.
The extension of the programme’s timeframe will add confidence to potential investors, Putin and Kostin agreed at their meeting. The company has created a lot of interest, Kostin said. “There are construction companies interested in operating contracts, including Chinese, Turkish and European firms. But the problem is we do not have a long-term programme,” he added.
Russian Highways also had good news for the prime minister.
Having thoroughly studied international experience, the company found out that taking a highway as a continuous project including design, construction and maintenance, an investor could save up to 25% on the costs. The best results are achieved if a single company is responsible for the whole project.
“What is most important is that a company which knows it will have to manage and service a facility it is building will naturally do a better job,” Putin agreed.
A source in the company explained that the need for the programme’s extension arose when Russian Highways decided to use a different format of contractor agreements.
“The arrangement stipulated by the old programme involved design, construction and maintenance of a highway done by different companies. Now we would like to switch to contracts including construction and maintenance of a facility during its entire service life,” the source said.
The company will hold a tender for the M1 Moscow-Minsk highway project in 2011, in which bidders will compete for a full service life contract.
“Investors do not find the rules of the game on the Russian market too clear at the moment. In this situation, they are not keen on investing in low-profitability road construction projects,” said Vladimir Bespalov, an analyst with VTB Capital.
He suggested that the company’s request to extend the programme is an attempt to squeeze more money from the government. However, company officials assured that the programme would not require more financing.
Milana Chelpanova