Investments

The demand is increasing for upgrading the road infrastructure with simultaneously exhausting traditional sources of financing in the Russian regions, and along with it the interest of regional and local administrations to attract private investment for construction of new roads and structures also increases. Regional and municipal authorities are increasingly adopting the federal experience in development of the road sector based on the PPP principles.

Road concessions are a guarantee of profitability and return on investment.
  • Distribution of investment by industry
  • Distribution of private investment by level of government
Distribution of investment by industry
Distribution of private investment by level of government

Длина региональных дорог и количество автомобилей

Social
680.0
Transport
168.0
Utilities and energy
3028.0
Other sectors
222.0
Federal level
1075.0
Regional level
2259.0
Municipal level
952.0

The most common forms of PPP by source of income are as follows

Direct toll collection

40-50%
is the share of private financing in the projects with high traffic volume

Direct toll collection assumes that all revenues from automobile traffic go in favor of the investor. The main risk that the investor bears in this case is the risk of traffic itself, which may turn out to be lower than the predicted one. This type of concession is used in the projects (or road sections) with high traffic volumes. In such projects, the share of private financing is 40-50%, and the potential internal rate of return may reach 15-20%.

Life cycle contract

25-30%
is the share of private financing in the projects with high traffic volume
100%
of revenues from automobile traffic is collected by a grantor, and it also bears the risk of traffic

The private investor receives a fixed payment, which includes the return on investment (equity or borrowed funds), road maintenance fee (maintenance charge) and fixed interest on invested capital, which, as a rule, is the inflation rate plus 4-8%, i.e. the total yield may be on average 11.0-14.0% per annum, which is quite an attractive level on the horizon of 25-30 years. This type of concession is used on the road sections with less heavy traffic and a longer payback period.