Toll roads in Ukraine: Where will they appear and how much will they cost?

Author : Olena Holubeva

Source :

Toll roads construction in Ukraine can start already in 2018, they will be offered investors to build on concession terms
21:05, 25 September 2017

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Last week, Transport and Infrastructure Minister of Ukraine Volodymyr Omelyan said that if the Verkhovna Rada adopts the draft law ‘On concessions’, the construction of toll roads in Ukraine could begin as early as 2018. We are talking about comfortable for cars toll roads, which will be offered investors to build on concession terms. Deputy Minister Viktor Dovgan in an interview with said that the construction of toll roads in the country is likely to begin after the election of the parliament and the president.

What is a toll road and why they were not built before?

It should be noted that the issue of toll roads and concessions is not new and the authorities have already tried to implement such projects on several occasions.

The concession of highways has been discussed for about fifteen years in Ukraine, but so far no concession project has been implemented. The government of Arseniy Yatsenyuk even tried to organize a concession tender, but not a single investor was interested in it, said Alexander Kava, adviser to the head of the State Agency for Highways of Ukraine.

The main reason why investors are not interested in investing in road concession projects is the gaps in the legislation. "We have a problem with legislation. In Europe, compensation is provided for the concessionaire's investor. If the cargo flow decreases, then the state compensates it, because, as a matter of fact, the state receives a road or bridge that could be built for its own funds as a result of the concession. But they were built by the investor hoping  of making money, and this article should be provided for by compensation bill, "Viktor Dovgan explained.

The problem of lack of compensation guarantees for lost income in case of traffic loss can be resolved in case Verkhovna Rada adopts bill No. 6766 "On Amending Certain Legislative Acts of Ukraine in the Field of Construction and Operation of Highways," which was registered in the parliament in mid-July. Among the authors of the bill are people's deputies Olexander Urbansky, Pavel Unguryan, Boris Kozyr, Dmytro Andrievsky, Gennady Chekita, Yuri Solovey and Igor Kononenko.

"The bill also details the notion of an" alternative road ": it states that when signing a concession agreement, the government must determine an alternative route.The length of alternative roads (their sections) for free transportation of vehicles should not exceed more than twice the pay-per-vehicle roads, except for cases where bridges and tunnels make up more than half of the toll road, "Olexander Kava explained the essence of the bill.

Alternative highways - it's free for the use roads, which will necessarily be provided with toll highways. "It's just that they will not be so comfortable, they will pass through the settlements (in which the speed limit is present," Ed.)," explained Omelyan.

According to Kava, now within the settlements in Ukraine the speed limit is 60 km / h, but in the near future Cabinet can reduce this figure to 50 km / h, as it is in Europe. Between the settlements, the maximum permitted speed at most sites is now 110 km / h (if there are no special road signs, - Ed.).

On toll roads, this figure can be much higher than 110 km / h or even 130 km / h if the road is classified as A1 (while in Ukraine there is only one such area: from Kyiv to Boryspil airport).

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Legislative barriers hampering investors from participating in concession projects can be removed by the draft law "On Concessions” developed by the Ministry of Transport and Infrastructure, and now is being finalized by the Ministry of Economic Development and Trade. It has not yet been registered in Verkhovna Rada.

According to Omelyan, the document will create a legislative field in which the funds of the investor will be protected. Also, the new bill contains a clear mechanism that regulates the return of investments made by the investor in structural projects designed for 10-15 years. It also contains a rule on the possibility of considering legal disputes in international arbitration.

Officials do not hide fears that the process of passing the bill "On concessions" may drag on for years. But if at least the deputy bill "On Amending Certain Legislative Acts of Ukraine in the Field of Construction and Operation of Highways" is adopted, toll roads can become a reality.

Experts note that the development of concession projects in Ukraine, among other things, is hindered by the lack of reserved land. Yes, and there is no clearly regulated legislation on the forced withdrawal of land for the development of the country's infrastructure in Ukraine.

How much can you earn on a toll road?

The text of bill on the settlement of legal issues in the field of road concession (No. 6766) states that the Cabinet of Ministers will determine the maximum amount of payment for driving on a road constructed on a concession basis. According to Olexander Kava, the cost of travel in Ukraine will be exactly not less than in Europe - about 9 euro cents / kilometer. "For driving on 20 km site, each passing motorist will accordingly pay 1,5-2 euros", calculated Kava. At the same time, the construction of a kilometer of high-quality road in Ukrainian realities can cost about $ 5 million (in Europe - $ 10 million).

It won’t be easy to recoup investment, taking into account the cost of maintaining the road, said the adviser to the head of State Agency on Highways of Ukraine. "In Istanbul, for example, last year the Eurasia Tunnel project was launched - it is a two-level automobile tunnel between the banks of the Bosphorus, it is estimated that about 100 thousand cars will pass through it during the day, with a fare of $ 4 (and it is planned that the amount will be indexed in accordance with the size of dollar inflation). It is already estimated that this project will compensate funds not earlier than in 24.5 years," says Kava.

For this reason, Ukrainian investors, who are accustomed to working in projects with higher yields than a concession can bring, are unlikely to be interested, he believes.

"In Europe, profitability of business on concession roads is also low - 3-4%. (For comparison, the profitability in agriculture in Ukraine is above 20% - for example.) For this reason, European companies that have already implemented such projects in other countries, most likely will participate in the implementation of concession projects on Ukrainian roads, "Kava said. He clarified that some companies already addressed to the authorities and were interested in the opportunities to work in the field of highway concession.

Kava added that sections of toll roads do not exceed 20-30 km in length, up to a maximum of 60 km: "If someone claims that concessionaires are ready to build roads with a length of 300-500 km, this is a complete fallacy, as the experience of Eastern and Western European countries indicates that, as a rule, one concession project is 20-30, a maximum of 60 km. The reason is the high cost of projects and the need for a large amount of investment. "

Where in Ukraine toll roads can be built?

There is a small number of places where the toll roads may be built in Ukraine. The main criterion for the construction of a toll road is its potential congestion and traffic intensity. Average daily traffic for a road that is suitable for investment on a concession basis must be at least 18,000 cars. "At the same time, the density of the population in our country is one of the lowest in Europe, for which reason there are few directions with suitable traffic intensity. Today, no more than five roads can become concessionary in Ukraine, "said Olexandr Kava.

He noted that in Europe, in particular, the concession of roads is also not a mass phenomenon; amount of concessionary roads is not more than 1% of all European highways.

According to Omelyan, the first concession project in Ukraine is likely to be a road section from the border with Poland to Lviv. "The site will be part of a new highway that will connect Gdansk with Odesa," the minister said. According to him, the implementation of the concession project at this site will become a test and will show how effectively it is possible to implement concession projects in Ukraine: in case of success, other sections of the Ukrainian part of GO Highway will be constructed later.

"The section of the road that we want to build from Lviv to the Ukrainian-Polish border is a very relevant project. The sections of the international roads M-09, M-10 and M-11 in the same directions are quite busy, and after the entry into force of the visa-free regime number of drivers on these routes increased significantly. The new road, which will be the first class road with four lanes and a divider, will also have a good load, "- said Olexandr Kava. The speed limit on the site, according to his information, is planned to be set at 110 km / h.

According to Kava, the advantage of the project is that the land is already allocated for it. Investments in the project are estimated at about 160-180 million dollars.

The expert said that earlier in the concession project it was also planned to include the road bypassing Lviv from the north side, but they decided not to do it - this section of the highway will be made for another costs. "The effect of its commissioning will be important, those who go to Poland on the M-06 route will be able to cut the way in half and save at least an hour of time," Kava said.

Let's note, that for today the site for concession Lviv - the state border with Poland has the greatest certainty. There is no such clarity with the other potential concession roads.

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Deputy Minister of Transport and Infrastructure Viktor Dovgan said that the second most suitable project for the concession after Lviv is the construction of a road section that will connect the village of Kalynivka in the Kyiv region near Makariv and Kalynivka near Vasylkiv.

According to the deputy minister, $ 50 million will be needed to implement the project. "But this will have an enormous effect - these 50 million investments can grow into 500 million effect for the Kyiv region. Petrol stations, cafes and logistic terminals will appear along the road, "Dovgan said. The project is supported by the heads of the two regions - Makarivsky and Vasylkivsky.

"From the concession point of view, this is an ideal project, in my opinion, I am ready to defend it, and I will defend it. In case Ukravtodor does not support this project, we will directly address investors and sign a memorandum with them, maybe until the end of this year, " Viktor Dovgan assured.
Volodimir Omelyan commented on the probability of implementing the "double-Kalynivka" project with restraint. He said that it would be possible to talk about it when the feasibility study is ready. While in the Ministry only a teaser of the project is developed.

An alternative to the " Kalynivka " is the concession project Kyiv-Bila Tserkva. According to Omelyan, concession projects can be implemented on sites with a length of 50-60 km on the directions Kyiv-Bila Tserkva or Kyiv - Uman. And the most likely project is Kyiv-Bila Tserkva. According to Viktor Dovgan, an average daily load of up to 20,000 cars is possible in this direction.

The existing road in this direction is being repaired, but it has no opportunities for further development, as it is "clamped by populated areas," Kava said. According to him, a new concession route from Kyiv to Bila Tserkva, passing along the route where it is planned to be laid, will be 20 km shorter than the existing one. But the main thing is that it will pass around settlements. And since, as planned, the new highway can be assigned the category 1A, the maximum speed allowed on it will reach 130 km / h (as on the Kyiv-Boryspil airport section).

The weak point of this project is land allocation. Only two thirds of the required land is reserved for the project. "Regarding the part of the land on the way to Kyiv, it will be necessary to conduct a very serious work," Kava said.

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