The 66 km Big Almaty Ring Motor Road concession project (a toll road around the city of Almaty), also known as BAKAD, fi nally reached a fi nancial close on the 7th August 2020, making it the largest public–private partnership (PPP) project in Central Asia. The project is supported by the European Bank for Reconstruction and Development, the Bank of China, PGGM, Eurasian Development Bank and the IsDB.
BAKAD is a groundbreaking PPP project for Kazakhstan because it is the fi rst large-scale PPP project in the Central Asian region structured with the involvement of international advisors through an open, international competitive process and in accordance with international best practices.
BAKAD, therefore, is expected to pave the way for more PPPs in Kazakhstan with the involvement of foreign investors.
The Ministry of Industry and Infrastructure Development of Kazakhstan, with the assistance of the International Finance Corporation as its advisor, put the BAKAD project out to tender under the Concession Law framework at the beginning of 2015, although this long-delayed project was fi rst conceived as early as 2008.
After several failed att empts, BAKAD's 20-year, build-transferoperate concession agreement was fi nally signed in February 2018 by a consortium (comprising South Korea's SK E&C, Korea Expressway Corp and Turkey's Alarko and Makyol) acting through a setup project company as a concessionaire
The project off ers an enticing risk/reward combination. While the construction cost amounts to US$540 million, the total project cost is estimated at US$750 million. According to publicly available information, Kazakhstan's government agreed to assume all traffi c risk, whereas toll revenue will be collected by the concessionaire and transferred to the government straight away.
In turn, the government will be making a front-loaded availability payment to cover investors' capital expenditure, in addition to paying interest during the fi rst 10 years of operation to mimic the debt repayment schedule.
At the same time, investors' operating expenses, replacement capital expenditure, taxes, cost of capital and other costs will be covered throughout the whole operation period to the end of the project. The government will also mitigate currency fl uctuation risk and compensate for any depreciation of the tenge (Kazakhstan's national currency) against the US dollar above, apparently, 5%.
Even though the BAKAD concession agreement was signed back in February 2018, it took another two years for the fi nancing documentation to be signed on the 12th February 2020 and to reach fi nancial close on the 7th August 2020.
Therefore, for more than 12 years now, there have been high expectations for the success of this project, because if BAKAD is not implemented for any reason, foreign investors, lenders and international fi nancial institutions that so far have supported the PPP initiatives of Kazakhstan's government may lose trust in its commitment to engage foreign partners in any PPPs.
As the coronavirus outbreak spreads across the globe, the need to att ract private investment into Kazakhstan's public infrastructure becomes even more acute. The time has come, therefore, to revisit the existing PPP state policy.
Kazakhstan should focus on the deployment of a larger number of adequately designed infrastructure PPPs at the national level with the involvement of foreign investors, while the number of local-level small-scale service-type PPPs should decrease.
This article was first published in Islamic Finance news Volume 17 Issue 36 dated the 9th September 2020.
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