Advance Capital is pleased to announce the completion of a transaction involving the execution of the first concession agreement in the history of the Moscow Region implemented under the private initiative mechanism. The 25-year concession agreement was entered into between the City of Elektrostal (Moscow Region) and Globus, a company within Victoria Estate Group.
The subject of the agreement covers heat supply and hot water supply facilities of the City of Elektrostal, with an obligation on Globus to invest in the city’s municipal infrastructure. Over the term of the concession, new heat networks will be constructed, boiler houses modernized, and the heat supply system comprehensively upgraded.
Karen Dashyan, Partner and Managing Director at Advance Capital:
“Private initiative, or initiative-based concession, is a new mechanism for entering into concession agreements without a competitive tender, which came into force on May 1, 2015. Its essence lies in granting businesses the right to initiate public-private partnership projects, preliminarily agree their parameters with public authorities, and conclude a concession agreement without a tender if no competing applications are submitted or if such applications do not meet statutory requirements. An initiative-based concession enables a higher-quality project preparation process, as the investor gains early access to key project parameters, including long-term regulatory conditions and heat and water supply schemes. At the same time, this mechanism imposes additional obligations: the initiating concessionaire must prepare the draft concession agreement, develop a financial model and investment program, and agree on the list of assets to be transferred under the concession as an annex to the agreement.
In this project, given that it is the first of its kind in the Moscow Region, extensive work was carried out to develop the concession agreement and the full set of related documentation jointly with our partners, the law firm Arkhitektura Prava, which provided comprehensive legal support. As a result of lengthy negotiations with the public authority, legal approaches were developed that we expect will significantly reduce approval timelines for future projects.
The concession mechanism is convenient for both public authorities and businesses. Under concession agreements, ownership of municipal infrastructure assets remains with the state or municipality, while the investor obtains the right to possess and use them for the duration of the agreement. The state guarantees the receipt of agreed revenues from the concessionaire’s activities. Thus, the investor acquires not only the right to use the concession assets but also the obligation to operate them and provide services — in this case, heat supply — while the authorities guarantee the inflow of revenues from such services.”
Advance Capital acted as an advisor to the concessionaire.
The deal value exceeded RUB1 billion.