Finnfund

The long-pending construction of St. Petersburg’s southwest wastewater treatment plant is now up to speed. The project has major environmental effects. When it is complete in summer 2005, the plant will be able to treat wastewater from about 715 000 city residents. This is equivalent to about half of the effluent load that St. Petersburg currently discharges untreated into the sea.

“Building the plant will have more impact on water quality in the Baltic Sea than any other individual project under preparation,” says managing director Matti Rantala of Nordvod, the company managing the project.

Unique financing model

Apart from its influence on the environment, another exceptional aspect of the project is the financing model it uses. This Public Private Partnership (PPP) consists of public organisations as well as private financiers.

The project company Nordvod, responsible for plant design and contract management, was set up with share capital and subordinated loans from the St. Petersburg water utility Vodokanal, the Nordic construction companies YIT, Skanska and NCC, and the Nordic Environment Finance Corporation, NEFCO.

Worth about 128 million euros, the construction is being financed with shareholders’ equity, loans, grants and local finance. The Nordic Investment Bank NIB is the lead manager of the group of banks responsible for finance. The group comprises the European Bank for Reconstruction and Development EBRD, the European Investment Bank EIB, Finnfund and Swedfund.

A nice addition to Finnfund’s Russia portfolio

Finnfund’s participation in the water treatment plant project is a loan of EUR 4 million.

The project is receiving support from the governments of Finland and Sweden, and from the Northern Dimension Environmental Partnership programme NDEP. The EU’s Tacis programme is financing the plant’s sludge incineration facility as a parallel project. Vodokanal and the city of St. Petersburg are also providing project finance.

For Finnfund the plant’s positive environmental and health effects on the whole Baltic Sea area were an important reason for participation. Finnfund’s investment manager Paula Sundberg points out that the project will also foster cooperation between Finnfund and the construction sector, as well as with other financiers.

“Moreover, the project is a good addition to our Russia portfolio. It represents an interesting new financing model for us,” she adds.

“Finnfund’s share of total financing is a small one, but the participation of every financier is important because a project like this can’t find finance as easily as a private project,” she adds

Work interrupted for 10 years

Construction of the Southwest wastewater treatment plant began back in the late 1980s but the Soviet Union’s collapse and financial problem halted work for more than 10 years. The legacy of this prior construction work is a site littered with unfinished concrete structures.

The project was finally restarted in 2000, when the Nordic Investment Bank took over at the helm. The Finnish and Swedish governments financed a consultants’ report on the technical and economic viability of building a treatment plant, and the decision was taken to pursue the project mainly with Nordic resources.

At the start of 2001 the NIB asked Nordic building contractors to signify their interest in implementing the project on a PPP basis. Three contractors – YIT, Skanska and NCC – made a joint proposal that formed the basis for continuing the project.

The contract agreement was signed in May 2002 and building work was started by the end of the year. It was not, however, until October 2003 that the complex financing package was sufficiently finalised for loans from Finnfund, Swedfund, NIB and the EBRD to be drawn down.

New construction plus repair work

The project is largely being managed by employees of the three construction companies. Other participants are Finnish and Russian sub-contractors, and equipment suppliers from various countries. The total number of on-site workers will rise to 400-500, of whom about 30 will be Finns and Swedes.

The contract consists both of new building work and of repairing or demolishing old structures. Much of the wastewater intake tunnel, the pumping station and the tank structures were half-completed in the late 1980s. Skeletal structures for housing machinery and offices were also built on the site at that time.

Some of the old structures will be usable after damaged parts are repaired and their construction is completed. Others are redundant and have to be demolished.

“This imposes special demands on planning co-ordination, because old structures are being repaired or demolished at the same time as new ones are being built,” Rantala points out.

The Southwest wastewater treatment plant is due to be completed in summer 2005. After that the plant will be operated by a separate company, Ekovod, which has the same shareholders as the project company Nordvod.

“The contract package consists of a 12-year operating agreement for use and maintenance of the treatment plant. Vodokanal will pay the operator a fixed sum for use of the plan, plus a fee based on the amount of water treated. The charge will also vary according to the quality of the service, including the level of purification achieved,” Rantala says.

 

For more information please contact Ms Paula Sundberg, tel. +358 9 3484 3331, emailfirstname.lastname@finnfund.fi