Today the procurement results for the design, building and maintenance of Ķekava bypass were announced and the rights to sign the Public Private Partnership (PPP) contract were awarded to the association of persons Kekava ABT.

This decision allows the preferred tenderer to apply to the financial institutions and after due diligence process to agree with them on the final conditions for receiving funding. The PPP contract will be concluded only after the approval of financial institutions to finance the project in co-operation with the preferred tenderer.

The procurement procedure was implemented in selection and award stages. Five bids were received in the selection stage, out of which four met the requirements. All four eligible bidders were invited to participate in the award stage, i.e. to submit initial technical and financial tenders (submitted by two tenderers) for further negotiations on refinements, improvements and possible price reductions, as well as, preparation of the best and final offers.

Out of two tenderers who submitted their best and final offers, the offer of Kekava ABT was awarded as economically most advantageous offer, which also had the lowest price. This association of persons with the share of 80% of total investment is controlled by an investment fund Transport Infrastructure Investment Company 2 S.C.A., SICAR (TIIC 2 S.C.A., SICAR), registered in Luxembourg, which specializes in large-scale transport and public investment projects in Europe and around the world[1]. This fund has subsidiaries in Luxembourg, Portugal and France. Few examples of implemented projects are: motorway between the cities of Gerediaga and Elorrio in northern Spain (implemented according to the same principles as Ķekava bypass), section Ecalles-Alix-Barentina of the road A150 in northern France, etc. JSC A.C.B. and LTD Binders invest 10% of investment in the association of persons each.

The most important criterion in the evaluation of submitted tenders was the price. Its share in the evaluation was 80%, while the remaining 20% covered the compliance with various additional criteria, such as the duration of works, traffic organisation during the works, daily maintenance, quality and risk management and others.

The public partner in this project is the state of Latvia in the person of the Ministry of Transport. On behalf of the Ministry the project is implemented by State Joint Stock Company “Latvian State Roads”.

The second tenderer was Cointer Concesiones, S.L., a Spanish-based company within the Azvi group, with experience in providing infrastructure and public services in Europe and around the world. The offer of this tenderer was 11% more expensive.

This week the Cabinet of Ministers supported the construction of Ķekava bypass as the first major industrial PPP project in the Baltics implemented according to the design-build-finance-maintain model.

Procurement of the public-private partnership started in December 2018, and the procedure included a selection and award stages. The award stage had three parts: the submission of initial financial and technical tenders, negotiations and the preparation and submission of the best and final offers.

Partnership contract period

The total period of the partnership contract is up to 23 years. Of these, the construction period is no more than three years for design and construction. The availability period during which the private partner fully ensures the daily maintenance of the constructed road and the renewal of the road surface is not more than 20 years.

State payments to the private partner

During the design and construction stage the state will not pay anything. All investments will be made by the private partner. When the construction is fully completed, its quality is recognized as compliant with regulatory requirements and the infrastructure is available to the public, the state will start paying availability payments to the private partner, gradually reimbursing the private partner in full in the period of 20 years. This means that the Ķekava bypass will be available to drivers free of charge.

The availability payment is the amount agreed by the parties when concluding the partnership contract. The PPP contract provides that the maximum possible amount to cover availability payments will be 13.32 million EUR per year excluding VAT.

The availability payment covers the costs of the private partner for design, construction, daily maintenance and periodic maintenance in the period of 20 years after the completion of the construction works, as well as, the costs of borrowed funds, insurance, administration, etc. The total amount of the availability payment specified in the PPP contract is the maximum possible amount that the private partner will be able to receive during the period of the PPP contract. The availability payment may be reduced if the Kekava bypass or any its section is not available or is partially available to traffic, i.e. for every hour and for each kilometre of the lane not fully accessible, except when driving conditions are affected by third parties (e.g. a traffic accident).

Distribution of risks

Practically all risks that may arise during design, construction or maintenance (such as errors in the design and construction process that lead to additional costs) will be borne by the private partner throughout the whole period of the PPP contract. Any expenses that may incur during the contract period in addition to any errors or omissions in the design, construction, maintenance or financing process will be the expenses of the Private Partner and the state will not pay for them. Failure to address the consequences of any risk in a timely manner will reduce the amount of availability payment to the private partner.

Construction and maintenance

Kekava bypass will be the first project in the Baltics to be implemented according to design-build-finance-maintain model. The private partner will ensure design, construction, attraction of funding and road maintenance in the period of 23 years. In the case of Kekava bypass the private partner will be fully responsible for all maintenance works for the entire duration of the PPP contract, including cleaning and spreading of roadways, grass cutting, destruction of hogweed, lighting, electricity for lighting and other traffic management equipment, maintenance of public transport stops, renewal of horizontal road markings, etc. The private partner will guarantee that for another 5 years after the expiry of the PPP contract, Ķekava bypass will remain in such quality that it will require only daily maintenance works, but not any capital investments.

Construction costs

The construction cost of one lane kilometre of Kekava bypass, including engineering structures (bridges, overpasses, tunnels, noise reduction barriers, ramps, etc.), will be ~1.23 million EUR, excluding VAT.

For comparison, the construction costs of 1 lane kilometre of Saulkrasti bypass (A1) including engineering structures in 2007 were ~1.25 million EUR.

For the implementation of the project, the Ministry of Transport on behalf of the state purchased 218 land plots with the total area of 132 ha, including:

• Forest lands:           56 plots (26%);
• Agricultural lands:             56 plots (26%);
• Building lands:            48 plots (22%);
• Production territories: 19 plots (9 %);
• Land under roads:            39 plots (18%).

Total actual cost for appropriated lands is 4.6 million EUR.

Why Ķekava bypass?

The section of the Bauska Highway (A7) Rīga – Ķekava is one of the busiest roads in Latvia, with traffic intensity reaching ~ 17,000 vehicles per day, and in some road sections even 25,278 vehicles per day. In addition to that, it crosses the densely populated village of Ķekava. The intensity of heavy traffic in this section is already three times higher than the limit. Bauska Highway (A7) is the only road that has one lane in each direction for entering and leaving the Rīga city.

Why does the state not borrow money and implement the project itself?

Borrowing money in such amount would complicate the state’s fiscal space, namely its right to borrow money for other projects of national importance without violating the EU requirements on the limits of the state budget deficit in the long run. In addition to that, public-private partnerships make it possible to tackle the problems already now without placing excessive burdens on the state budget in medium term.

Why PPP?

The PPP model assumes that the state “buys” the road in several instalments, where the state does not pay anything for the first two years, but from the third year onwards, it pays both the principal amount and the interest in the period of 20 years.

Such a project allows the building of a road already now and the reimbursement for it at a later moment without any burden on the state budget and its fiscal space. This also allows the implementation of other important national level projects in parallel, which would not be possible if all project costs had to be covered from the state budget.

Ķekava bypass

The Kekava bypass will be the section of the main state highway Riga – Bauska – Lithuanian border (Grenctāle) (A7) 7.78 – 25.0 km. The total length of its lane kilometres will be ~100 km, including:

• 4 lane road (two lanes in each direction): 12.22 km;
• 2 lane road with one carriageway and one lane in each direction: 5.36 km;
• Parallel roads and interchanges: 20.7 km;
• Tunnels: 2;
• Bridges and interchanges: 6;
• Roundabouts: 10;
• Pedestrian bridges and tunnels: 2;
• Noise barriers: 6.5 km.