Armenia Railway Concession

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In December 2007, the Russian Railway Company (RZhD) was awarded a 30 year concession contract to operate the Armenian Railways, which was a 100% state owned and whose assets included most of the railway infrastructure and moving stock of the country. The company was responsible for the 805 out of 1,125 kilometers of Armenia's railroad network and transported about three million tons of cargo in 2007, which represented an increase of about 10% over the 2006 level. The Armenian government invited railway companies in 40 countries to participate in this tender but only RZhD and Indian rail operator RITES (Rail India Technical and Economic Services) expressed interest. Those two companies were pre-qualified for the tender, but later on RITES declined to participate in the tender as it decided to take part in a tender in Africa. As a result, RZhD became the only bidder in the tender. In February 2008, the Armenian government signed the 30-year concession contract with a locally formed South Caucasus Railways, a wholly owned subsidiary of RZhD. Under the contract, the RZhD served as a guarantor for the investment obligations of its subsidiary. The concession contract is for 30 years with a right to extend for another 20 years after the first 20 years of concession. In addition, the South Caucasus Railways acquired the entire rolling stock of Armenian Railways and inherited nearly all of the Armenia Railways employees. Under the contract, the concessionaire agreed to pay to the Armenian government an up front concession fee of US$5.0 million (1.7 billion Drams) and an annual variable concession fee of 2% of its gross revenues from freight business. Under the preliminary investment plan in the concession contract proposed by the concessionaire, the RZhD agreed to invest US$400.0 million in the rehabilitation and expansion of Armenia’s rail infrastructure over the term of the concession. In addition, the concessionaire’s proposal included investment of about US$170.0 million in renovation of the entire rolling stock of Armenian Railways. Of the total investment commitments, RZhD agreed to invest US$230 million in the next five years. The Armenian government agreed to partially subsidies the losses from passenger operations. the investment include the upfront fee payid YR 0 of 5.6 million USD and PV of the estimated amount that will constitute the 2% on cargo traffic revenue to be payed to the Govt annually. At the present value that is 4.1. So the total investment commitment is 9.7 million USD. RZHD intends to invest $572mln in this program; $220mln during first 5 years.