First European PPP financing in the Baltics: improving transport facilities

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The European Investment Bank, EIB decided to finance the design, construction and maintenance of a bypass of the 17.5 km to the stretch of the E67/A7 motorway that currently passes through the municipality of Kekava. The project also includes four major grade-separated interchanges and sections with lanes for local traffic; all the works are within the complex investments made on the Via Baltica route and improving transport and driving conditions in Latvia and the Baltic States.

The EIB will lend €61.1 million to the project, which will divert transit traffic away from densely populated areas of Kekava to a new bypassing route. A first of its kind, the EIB’s financing through a public-private-partnership, the PPP*) will improve road safety and reduce health risks for local residents. The EIB financing, which is backed by a guarantee from the Investment Plan for Europe, will support the improvement of the A7 motorway section (part of the Via Baltica) south of Riga, which connects the Latvian capital to the Lithuanian border; the project is part of the core Trans-European Transport Network (so-called TEN-T).


The project involves a 17.5 km section of the E67/A7 road (Riga-Bauska-Lithuanian border), and includes the construction of a new bypass of approximately 14 km around Kekava. About 11.5 km of this new stretch of road will be a dual carriageway (2×2 lanes), with the rest being a two-lane road.

*) Note: public-private partnership, “PPP” is an arrangement between a public authority and a private partner designed to deliver a public infrastructure project and service under a long-term contract. Under this contract, the private partner bears significant risks and management responsibilities. The public authority makes performance-based payments to the private partner for the provision of the service (e.g. for the availability of a road) or grants the private partner a right to generate revenues from the provision of the service (e.g. tolls from users of a bridge). Private finance is usually involved in a PPP. When properly prepared, PPP projects can provide significant benefits to the public sector as well as to the project users.


Latvian PPP’s cooperating partners

= The European Investment Bank (EIB) is the EU long-term lending institution owned by its member states. It makes available long-term financing for sound and perspective investment in order to contribute towards the EU political commitments. During July 2017- December 2020, the EIB has provided nearly €490 million in financing to 20 Latvian projects. EIB supports Kekava bypass public-private partnership with €61.1 million in financing for Kekava ABT AS.


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= Latvian Ministry for Transport and Communication is a leading state administration for transport and communication spheres in preparing legal acts and policy planning documents regulating the sector. It ensures the implementation of the national transport and communication policies, while seeking to attract financial resources to implement state transport and communication spheres.  


= The European Fund for Strategic Investments (EFSI) is the main pillar of the Investment Plan for Europe. It provides first loss guarantees enabling the EIB Group to invest in riskier projects. The projects and agreements approved for financing under EFSI have so far mobilized €546.5 billion in the member states’ investment projects, of which €1.4 billion in Latvia. Over 1.4 million SMEs in the EU-27 already benefited through the EFSI’s support.

The Latvian PPP’s transaction is supported by the European Fund for Strategic Investments, the main pillar of the European Commission’s Investment Plan for Europe.


= Kekava ABT AS is a joint-stock company, specifically established as a “purposeful vehicle” for the project’s implementation; it has been set up under the Latvian law by the following main shareholders: TIIC 2 S.C.A., SICAR (80%), A.C.B. AS (10%) and Binders CBF SIA (10%).


The project marks the first public-private partnership financing in Latvia for the EIB, and is in itself the first large-scale PPP in the Baltics. The EIB will lend to the Kekava ABT AS special purpose vehicle on a 50/50 basis together with the Nordic Investment Bank (NIB) to support the project mandated by the Latvian Ministry of Transport.

The EIB’s European PPP Expertise Centre, EPEC**) supported Latvian State Roads Administration in the early stages of preparation for the public-private partnership to ensure alignment with European best practice.

**) Note: The European PPP Expertise Centre’s mission is to support the public sector across Europe in delivering better public-private partnerships (PPPs).

EPEC was created in 2008 to support Member States of the EU, EU Candidate States and others in their work on PPPs.

Presently, the EPEC’s team of experienced PPP professionals, based in the Advisory Services Department of the European Investment Bank (EIB), serves 42 EPEC member organisations. These organisations are typically national or regional PPP units, and other public entities in charge of PPPs, as well as the European Commission.


Official comments to the PPP

Commenting the Baltic PPP, the European Commission Executive Vice-President responsible for the EU economy, V. Dombrovskis said that the construction of the Kekava bypass had become the first large-scale PPP in the Baltics with the EIB’s financial guarantee which would ensure the most efficient road transport connection between the Latvian capital Riga and the Lithuanian border. He added that this investment will strengthen the Trans-European Transport Network, while contributing to the EU social, economic and territorial cohesion in general.


Latvian Minister for Transport, T. Linkaits stated that the construction of the Kekava bypass would be the first significant PPP project in Latvia with the EU’s support. This project is especially important considering the need to develop a modern high-speed state motorway network in Latvia envisaged in the state’s long-term state road development strategy until 2040. He added that the new bypass would improve connectivity between the Baltic capitals, reduce travel times to neighbouring municipalities and also divert traffic around densely populated areas while increasing the transport safety.


EIB Vice-President, Th. Östros added that the PPP project had been very important not only for Latvian economy, but also for residents in the adjacent areas. As soon as the road safety and economic progress go always hand in hand, that was one of the reasons why the Bank supported the project; besides being the first PPP of that scale in the Baltics, it has opened the way for similar projects in the future.


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