VTB wins tender for airport development

Financial News

Jason Corcoran in Moscow

26 June 2009

A consortium led by the investment bank VTB Capital has won a competitive tender to revamp St Petersburg’s Pulkovo airport in what is set to be Russia’ first large public-private partnership.

The consortium consisting of VTB Capital, the state-controlled investment bank, Fraport, the owner and operator of Frankfurt airport and the Greek investment and business group Copelouzos, won the €1.4bn ($1.9bn) open tender to redevelop Pulkovo, the fourth-largest airport in Russia. The PPP is to be run over 30 years, in conjunction with the government of St Petersburg.

In the final round, the VTB consortium beat off competition from the Basic Element investment holding of oligarch Oleg Deripaska and Vienna airport operator Flughafen Wien in partnership with Leader, the pension fund manger of energy giant Gazprom.

The municipal government had in a previous round whittled down the list of consortia to six. Those that didn't make it on to the shortlist included Macquarie Renaissance, a joint venture formed by the investment banks Macquarie and Renaissance Capital to invest in Russian and CIS infrastructure; Germany's Hochtief in partnership with oil and mining tycoon Viktor Vekselberg; India's GMR; and Turkish TAV Airports.

VTB said their tender bid submitted has been recognised “as the best based on a combination of technical, legal and financial criteria”.

The overall amount of investments required for the first stage of constructing the new terminal and upgrade of existing infrastructure will amount to €1.4 bn. The European Bank of Reconstruction and Development and the state development bank VEB have already expressed interest in providing credit support to the project.

In a statement, VTB capital global chief executive Yuri Soloviev said: “We are sure that the Pulkovo project will convincingly prove the possibility of successful implementation of large infrastructure projects in Russia in the current market conditions."

Many infrastructure projects have been postponed or moth-balled due to the lack of available finance from domestic and international capital markets. And the Kremlin's much touted public-private partnership (PPP) programme to stimulate investment has yet to take off, while bankers hired to capitalise on an anticipated deal-making boom have been twiddling their thumbs for the past nine months.

The government is now targeting selective projects in St Petersburg, Moscow and the Winter Olympic venue of Sochi as priorities for completion until the investment climate for foreign and private capital improves

The St Petersburg municipal government has said it will delay $13bn (€9.2bn) of infrastructure projects, which had attracted bids from international companies including Alstom, Siemens and Oleg Deripaska's Basic Element, due to the credit crisis deterring most private investors.

Projects facing prolonged delays include the $10bn highway, known as the Western High-Speed Diameter, and the Orlov tunnel under the Neva River. Banking sources said the Orlov tunnel and a fast-speed train link to the airport are likely to be postponed indefinitely.

The WHSD roadway encircling St Petersburg was meant to be the pioneering large PPP project in Russia, but the winning consortium formed by oligarch Oleg Deripaska and Strabag has not yet signed the concession contract governing the project.