Shar-Ust-Kamenogorsk Railway Concession

active

In July 2005, the Ministry of Transport and Communication of Kazakhstan and Doszhan Temir Zholy JSC signed a 23 year (BOT) concession contract for building and operating a new railway in the East Kazakhstan. Construction of a new railway was envisioned by the Kazakhstan Development Strategy until 2010. The project implementation and the creation of a special purpose vehicle for its implementation were initiated by the state-owned Kazakhstan Investment Fund. The project was structured in the absence of the law on concession which was adopted only in 2006. The project was the first PPI experience in Kazakhstan. Before the new rail line was opened in December 2007, the only railway connection the East Kazakhstan Oblast had with other Kazakhstan regions was via route Ust-Kamenogorsk (Kazakhstan) – Lokot (Russia) – Semipalatinsk (Kazakhstan). The new direct rail line of about 153 kilometers would go via route Shar (Ust-Kamenogorsk city) - Shalobai - Ekasha - Zavidnoe - Novo-Ust Kamenogorsk over the territory of Kazakhstan. The construction and operation of a new direct rail line would result in cargo shipping time reduction by 12-14 hours and for passenger in reduction of the transportation costs to destinations in the center of Kazakhstan by 20%. The project company - Doszhan Temir Zholy JSC - was set up jointly by the Kazakhstan Investment Fund (49% stake), and three local private companies - Zangar Invest Group (22%), ABE Corporation (22%) and JSC Express (7%). The Kazakhstan Investment Fund was 100% state-owned development institution established in 2003. The Fund provided financial support to the private sector initiatives to promote competition in non-extractive industries in Kazakhstan. The Ministry of Transport and Communication of Kazakhstan and Doszhan Temir Zholy JSC signed the concession agreement in July 2005. The construction of the new rail was financed by the equity (US$4.4 million or KZT1.17) billion provided by the project sponsors and proceeds from the issue of the infrastructure bonds for US$231 million or KZT 30 billion. The registration for the first bond placement was announced by the Kazakhstan Investment Fund in July 2005 and the first tranch of about US$ 11.5 million or KZT 1.5 billion was placed in September 2005. The bondholders were represented by the local Kazakh bank - ATF Bank. The coupon payments on the bonds were tied to a formula "inflation + fixed margin" and the bond maturity was 23 years. In addition, the Government provided a bond repayment guarantee. The bonds were sold through a series of tranches which were placed through an auction to allow Kazakhstan institutional investors such as pension funds to participate in the deal.