Projects financed by the EDB
Financing the reconstruction of Pulkovo Airport
Approximately one third of EDB’s current investments are in transport industries
Investment in airport development is crucially important for Russia’s transport infrastructure. If passenger numbers continue to grow, lack of funding for upgrading and modernising air transport hubs could make many busy air routes unsustainable.
Pulkovo Airport’s infrastructure includes an aerodrome with two runways, two terminals, a cargo terminal, a refuelling station, a parking area and other facilities.
At the beginning of the 2000s, because of outdated infrastructure, Pulkovo had almost exhausted its throughput capacity and its ability to function properly was under threat. As well as the inconvenience passengers and carriers had to face, the inevitable operating failures were threatening the security of air transportation.
Nevertheless it was clear that Pulkovo Airport, as the only air hub in Russia’s northern capital and northwest Russia’s only airport with significant potential to increase transit traffic, represented a considerable investment opportunity.
The region’s authorities decided to upgrade the airport using the public-private partnership (PPP) model – a solution unprecedented in Russia at the time. This meant that the airport was placed into concession. The municipal authorities retain control over how the concessioner operates this property and carries out its obligations under relevant agreements.
An international consortium – Northern Capital Gateway – was set up to implement the project, comprising VTB Capital (an investment company), Fraport AG (a global airport operator), and Copelouzos (a Greek investment group).Given the scale of this infrastructure project, it was crucially important to ensure that there was mutual understanding between the infrastructure companies, investors and the government, and that their activities were coordinated.
In April 2010, Northern Capital Gateway signed a 30-year PPP agreement with the municipal authorities of St Petersburg. The agreement governed the construction, renovation and operation of Pulkovo Airport in St Petersburg and transferred operational control to the consortium. Its priorities were to build a new international passenger terminal, upgrade Pulkovo-1 passenger terminal, renovate and build technical facilities at the airport and develop its commercial infrastructure.
Project financing agreements were also signed in 2010 between the parties to the PPP agreement and a group of banks including EDB, the European Bank for Reconstruction and Development, the International Finance Corporation, the Nordic Investment Bank, the Black Sea Trade and Development Bank, Vnesheconombank, and a number of commercial banks. The total financing package was approximately EUR 692 million. EDB’s share was US $90 million.
The project involved a comprehensive overhaul of the airport in order to increase its throughput and make it a leading regional and international transport hub. Its services were to be raised to IATA Level C and it was intended to become the largest airport in the Baltic region. The new terminal with an area of 176,000 sq m will handle up to 25 million passengers per year by 2025.
Today Pulkovo Airport is one the largest and most rapidly developing air transport hubs in Russia. It is Russia’s third largest airport in terms of passenger traffic, with only Moscow airports – Domodedovo and Sheremetyevo – ranking ahead of it. A total of 74 foreign airlines, 26 CIS companies, and 120 Russian carriers operate flights to Pulkovo.
Taking into account the project’s structure, its scale and the number of participants, a transparent investment mechanism was developed after the PPP agreement had been signed. This makes it possible for partnering banks to coordinate their operations and for the agent bank to factor in the individual requirements of each of the lenders when finalising transactions.Experts have assessed the reconstruction of Pulkovo as Russia’s most successful transport PPP project. It stands out partly because all the financing has been provided by the private partner, who has also taken on 100% of the risk associated with demand. The credit margin and banking fees were established on purely competitive terms on the international financial markets. This was EDB’s first PPP project in Russia.