A staggering 34,000 people die on Russia's treacherous roads every year – ten times more than in the UK. This is particularly shocking when both countries have approximately the same number of vehicles on the road. Now, with the help of British firms, the Kremlin's long-term ambitions may finally be realised with plans set for a £250 billion road building programme.
British companies are set to make hundreds of millions of pounds in revenue as they invest money into roads which, in their present state, currently cost the Russian economy an estimated 10 per cent of GDP, according to VTB Europe, the investment bank. The Kremlin hope to hit targets of over £80 million in private financing using the kind of public-private partnership (PPP) deals pioneered in Britain.
Historically, the Soviet Union have spent the majority of their infrastructure funds on the nation's rail network, resulting in dire and dangerous conditions on the roads. Amazingly the country still lacks motorways between big cities such as Moscow and St Petersburg or motorways to nearby European capitals, such as Minsk. Many villages still have to cope with disastrous dirt tracks.
Now several British consultancy and law firms have won contracts advising the Russian government. Ernst & Young have advised on the £5 billion Moscow ring road project, for which bids are in tender, while Freshfields helped St Petersburg to put together a PPP deal for the region. Other British businesses hoping to capitalise on the infrastructure boom include Arup, Mace, KPMG, Mott MacDonald, Steer Davies Gleave and EC Harris.
Many more multibillion-pound deals will be tendered over the next 18 months. The construction of a tunnel under the Neva River in St Petersburg, a motorway from Russia to Belarus and another to the southern regions are just some of the plans we will be hearing more about in the near future.
Trevor Sturmy, director of infrastructure finance at HSBC in London, said: “There's a large, clear pipeline of deals and a clear need for substantial infrastructure development over a long period. It's more than one deal, or even five or six deals. It's a market. That makes it very interesting for many different kinds of companies”.
There are, however, some analysts and investors who feel the Kremlin could be undertaking too much too soon. The plan to build 50,000km of roads in the next six years, at a cost of £2 million per kilometre has been deemed excessive. A source at the European Bank for Reconstruction and Development said: “The Government is trying to do several very big projects at once. It might be better to phase it, then build on experience”. It is also believed that deals would need 30 year financing in roubles, but maturities in the rouble bond and loan market go up to ten years only and liquidity is not high.
To add to problems, approximately 40,000 people in St Petersburg have signed a petition against a £4 billion toll road, currently being bid for by HSBC with Gazprombank and Basic Element, which would circle St Petersburg. The public have stressed that the toll road is unnecessary and would destroy the local environment. The cost of construction materials such as cement are also slowly increasing each month due to supply shortages and inflation. Unfortunately this could result in some projects taking many more years to complete than first expected.
Despite the negatives, Russian banks and investors are considering this a huge turning point for the country. Oleg Pankratov, managing director of infrastructure at VTB Europe in London, said: “This is the most exciting PPP programme in the world”.
