On December 15, 2020, the second Addendum to the PPP Contract for Routes 2 and 7 project in Paraguay was signed between the PPP Contractor Rutas del Este and the Contracting Administration represented by the Ministry of Public Works and Communications. The first addendum was signed on November 28, 2018 and contained mainly modifications requested by the financiers in order to facilitate the financial closing of the project (changes that turned the same into a bankable project, which is why it is often called a bankability addendum).
The following changes are incorporated through this second addendum:
- Certain start and completion dates for sections of works are modified and consequently the construction phase of the project is extended.
- Work adjustments are made in some sections that generate additional costs which will be handled through a compensation account, while deferred investment payments (fixed and irrevocable and payable in USD) and availability payments that remunerate O&M of each section remain unchanged.
- Additionally, one of the sub-sections of the work is eliminated from the contract, and the possibility for introducing additional work may be agreed and implemented in the future to replace it. Said additional work is valued at up to USD 12 million (at present value) and must be compensated through the clearing account if built.
In response to the aforementioned changes to the project, Rutas del Este is entitled to additional compensation consisting of (i) further sectioning that generates earlier accrued deferred investment payments, thereby improving the risk profile of the project; and (ii) creation of an account where additional investments by Rutas del Este are offset through payments (quarterly) from the State until the net present value of these additional investments reaches zero by applying the Equity IRR (internal rate of return of sponsors).
The clearing account is fed by a portion of the increase in tolls to be determined by the Contracting Administration (in line with the toll values of another contiguous road concession: Tape Pora). And there will also be a minimum contingent annual payment (top up payment) from the State in case a certain annual threshold is not reached at toll collections. This minimum annual payment will be such that the clearing account is maintained, as a compensation mechanism to the concessionaire, for no more than 8 years.
In view of the current financial contracts, the corresponding consents were obtained from the project’s financiers for the signing of the addendum.
BKM|Berkemeyer, through its partner Martín Carlevaro and associate Vivian Maldonado, were the legal advisor of Rutas del Este S.A., and sponsors: Sacyr Concesiones SL and Ocho A S.A.
The sponsors also acted through their inhouse lawyers: Laura Cabrera for Sacyr Concesiones and Juan Guiñazu for Ocho A