UPDATE to APPRAISAL REPORT - Stage 1

European Luxembourg, 12 November 2008 Investment PJrrREN/R&R/2008-1307/(...) Bank III Projects Directorate Transport & Energy Department

Contact Person: (... ) Operation nr.: 20080070

Team Members: (... ) Supervisor: (... ) ENVAG: (... ) Sector Code: 63214100 Eligibility Code: 010004010000 030400010200

UPDATE TO APPRAISAL REPORT - stage 1

SLOVAK MOTORWAYS (PPP) D1 PHASE I Construction of 75 km of the D1 motorway

- SFF option -

SLOV AKIA

(...) TABLE OF CONTENTS

Page nr.

Fly-sheet 3 SUMMARY FOR THE REPORT TO THE BOARD OF DIRECTORS 3 1. PURPOSE, LOCATION 4 2. CONTEXT/BACKGROUND 4 3. VALUEADDEDIDENTIFICATION 5 4. DESCRIPTION,CAPACITY 5 5. PARTICULARTECHNICALOR TECHNOLOGICALASPECTS 6 6. IMPLEMENTATION 6 7. PROCUREMENT 7 8. OPERATION 7 9. ENVIRONMENTALIMPACT 8 9.1 Key Issues 8 10. MARKET,DEMAND 11 11. INVESTMENTCOST 11 12. PROJECT RELATEDCONDITIONSTO BE FULFILLED 11 13. FINANCIALANDECONOMICPROFITABILITY 12 APPENDICES 13 A.1. TECHNICALDESCRIPTION 13 A.2. PROJECT INFORMATIONTO BE SENT TO THE BANKANDMETHODOF TRANSMISSION 14 D. ENVIRONMENTALSUMMARYSHEET 16 F. PROFITABILITYANALYSIS 17 H. VALUEADDEDSHEET 20 I. CONTACTS,REFERENCES, MISSIONS,CONSULTANTS 4

AB BREVIA TIONS

SSK State Road Administration,manages the non-motorway road network NDS National Motorway Company, in 2005 with the objective to prepare, implement, operate and maintain the motorways (D roads) and expressways (R roads) defined in the "Plan of Development of Motorways'and Roads" endorsed 2005 Pcu passenger car unit AADT annual average daily traffic SEA Strategic Environmental Assessment MoTPT: "Ministry of Transport, Post and Telecommunications" MoE: "Ministry of Environment" EIA: "Environmental Impact Assessment" EIS: "Environmental Impact Statement": in the Slovak system, summary EIA document issued by the Promoter, prepared by a qualified consultancy company. FEIS: "Final Environmental Impact Statement": in the Slovak system refers to a statement issued by the MoE and the MoTPT, validating the mentioned EIS. EMP: Environmental Monitoring Plan OJEU Official Journal of the European Union ERIAM Economic Road Investment Appraisal Model ERR Economic Rate of Return PPP Public-Private Partnership VAT Value-Added Tax Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 3 Operation nO:20080070

Fly-sheet PJ OPINION

SLOVAK MOTORWAYS (PPP) D1 PHASE I (Operation nr. 20080070) SLOVAKIA

(no)

(... ) Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 4 Operation nO;20080070

SUMMARY FOR THE REPORT TO THE BOARD OF DIRECTORS

1. PURPOSE, LOCATION

The project concerns the partial completion of Slovakia's D1 motorway, which is part of the TEN-T. The D1 will eventually connect the country's principal cities Bratislava and Kosice and lead to the Ukrainian border. There are 5 motorway sections included in the Project with a total length of 75 km (about 15% of the total length of D1). The contract will be a 30 year DBFO concession. The project road crosses a mountainous region and a large number of structures and tunnels are to be expected. 2. CONTEXT/BACKGROUND 2.1 Monitoring experience

The Borrower and Final Beneficiary of the EIB loan will be a Special Purpose Vehicle which is not yet incorporated.

The Ministry/ the Public Promoter: Several other sections of D1 motorway have been financed in the past, which up to now have been constructed by the state and financed via the state budget.

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2.2 Project background

The Slovak Republic has been involved in the preparation of the current motorway programme since the mid-1990s1. The project concerns the partial completion of Slovakia's D1 motorway, which will eventually connect the country's principal cities Bratislava and Kosice and lead to the Ukrainian border. The corridor is part of the TINA road network in Slovakia, and became part of the TEN-T after Slovakia's entry into the EU in 2004. The EIB has in the past financed several other sections of this motorway (D1 Svinia-Presov and D1 Mengusovce - Janovce as part of the MOTORWAY AND EXPRESSWAY PROGRAMME (2001-0588) CA/359/02/322 of 23.07.2002; D1 Sverepec - Vrtizer under SLOVAK NATIONAL MOTORWAY COMPANY (2004-0430), CA/394/06 of 07.03.2006 - EUR 180m authorized (...) ) which so far have been constructed on behalf of the state and financed via the state budget, with additional EU CF support for the Mengusovce - Janovce section.

13km 16 km 8km 45 km 60 km 26 km

18.5 km 8.5 km 14 km 11 km 7km

Presov 7km Presov 19km

The motorway sections included in this project will be constructed and operated under a 30-year concession from operation startup, by a consortium of private companies which will assume

1 Early 1996 the Government of the Slovak Republic adopted the resolution 269/1995 "Development of motorways and international roads on the territory of the Slovak Republic", proposing the completion of a motorway network by 2005. Some of the EIAs for the project date back to 1997. Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 5 Operation nO:20080070

construction and availability risk. At the end of the maximum legal concession period the motorway will be transferred to the state. The tender procedure for the awarding of the concession is ongoing using a Competitive Dialogue procedure and the selection of the preferred bidder is foreseen for the first week of September 2008.

3. VALUEADDED IDENTIFICATION 3.1 Consistency with EU priority objectives (Pillar 1)

The Project encompasses five new motorway sections of the already initiated D1 motorway high capacity road link between the Zilina and Presov regions, connecting the country's principal cities Bratislava and Kosice. The D1 corridor is part of the TEN-T.

The project is the first of the four packages that are included in the PPP Motorway Programme officially approved by the Slovak Government in September 2007. All the sections encompassed in the project are fully within the limits of Stredne and Vychodne regions, both included by DG Regio in the Convergence Objective for the period 2007-2013. The motorway forms part of the Trans European Network for Transport. The project is therefore eligible under point (a) "regional development" and (c) .common interest" of Article 267 of the EC Treaty.

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3.2 Quality and soundness of the investment (Pillar 2)

The project will improve accessibility, thereby fostering economic development and territorial cohesion in Slovakia. It will become the main link between the lesser developed regions of eastern Slovakia and the thriving Bratislava region. Direct project benefits will consist of savings in travel time, vehicle operating costs and accident costs. The project will improve passenger and freight flows nationwide as the D1 corridor is considered to be the backbone of the Slovak road transport infrastructure.

The economic benefits of the Project, relative to the do-minimum alternative will come from user time savings, the reduction of vehicle operating costs, improved safety and reduced environmental effects. (...)

The project management and procurement strategy may leave the project exposed to some key risks potentially affecting the quality and soundness of the investment: . Full compliance with EU environmental Directives will have to be demonstrated before disbursement. . Promoter capacity: Risks arising from the large investment volume of this PPP project combined with the lack of PPP experience of the promoter. The initial proposed timetable until financial close was unrealistically short. Delays in the process have already been experienced. However, not least with a view to the extremely difficult market conditions for long-term funding, further delays cannot be excluded. (...) Bidders may have had to integrate significant technical and price contingencies and mark-ups can be expected as they will have to price all risks left with them.

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4. DESCRIPTION,CAPACITY

There are five project sections, of which the first three sections are adjoining: Dubna Skala - Turany (total section length 16.45 km), Turany - Kralovany - Hubova (total section length 13.60 km), Hubova - Ivachnova (total section length 15.30 km), Janovce - Jablonov (total section length 18.54 km) and Fricovce - Svinia (total sectio'nlength 11.20 km). All are located on the West - East corridor of the country between Zilina and Presov. They all cross hilly to mountainous terrain and some subsections will have to be inserted in narrow valleys with steep slopes. These constraints require the construction of a number of bridges and tunnels totaling to some 1/3 of the total length of the project road. The motorway is a dual carriageway, two lane motorway.

Currently available information on the characteristics of the project refers to the outline design produced by or on behalf of the National Motorway Company NDS, and available to the bidders. Design changes by a winning bidder are theoretically possible, although the procurement calendar for this project and also the permitting process {by which substantial changes in the promoter's Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 6 Operation nO:20080070

design would require the reapplication for building permits, at the Concessionaire's risk) leaves little opportunity for bidders to propose design improvements.

The following table summarises the main characteristics of each of the project sections:

Dubna Hubova- Janovce- Fricovce- Total Skala- Turany- Hobova Ivachnova Jablonov Svinia Turanv Lenath 75.09 16.45 13.60 15.30 18.54 11.20 Lenath (Road) 67.89 16.45 9.00 13.30 17.94 11.20 Length (Tunnel) 7.2 0 4.6 2 0.6 0 Length (structures) 100 27 14 21 22 16 Interchanges 8 3 3 0 2 0 Rest Areas 4 2 0 0 2 0 Maintenance DepOt 1 0 1 0 0 0 Note: length figures in km

The motorway is designed in category D26.5/100, which refers to the platform width (26.5 m, dual carriageway, two lane motorway) and the design speed (100 km/h). Speeds are further reduced to 80 km/h in tunnels.

5. PARTICULARTECHNICALORTECHNOLOGICALASPECTS

The road will cross a mountainous area in Slovakia and consequently, a high number of tunnels and structures have been envisaged in the outline design. The technical difficulties that these could impose shall be further analysed during stage 11of the appraisal, although adverse geotechnical conditions in some of the tunnels are already known.

The Project requirements include motorway related technology (traffic management systems, emergency systems and signaling systems) both for the road and the tunnels. These shall be integrated and linked to the Public Authority's premises and the Concessionaire's control room, operating on a real time basis. The fulfillment of this requirement will encompass a rather complex design, due to technical challenges of system integration. 6. IMPLEMENTATION 6.1 Management

The Promoter (Slovak Ministry of Transport) has created a "PPP Task Force" that is managing a team of Slovak and international consultants to develop and implement the PPP Programme, of which the Project has been the first to be launched.

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During Design and Construction, the Concessionaire will appoint an "Independent Engineer" (an engineering consultancy) that will be approved by the Authority and whose duties will be to deal with permits, quality of the works, construction progress and environmental issues. It will be the interface between the Concessionaire and the Public Authority. This is the usual approach to this type of contracts. However, the permitting processes in Slovakia (zoning, building permits and environmental authorizations) have formed some difficulties in previous Bank projects. At present, all the zoning permits have been granted and the Promoter has promised to obtain the Building Permits by the end of 2008 (before the contract award); whether the permitting process could lead to a residual risk to the Bank shall be further investigated during stage 11appraisal. 6.2 Timetable

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Currently the signature of the concession agreement and financial close are scheduled as soon as legally possible after the announcement of the preferred bidder. Design and construction is due to Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 7 Operation nO:20080070

start then and shall be finished between March and December 2011 according to the tender requirements.

Opening to traffic is foreseen for October 2010 apart from Kralovany - Hubova - Ivachnova, where opening to traffic is proposed for July 2011. Overall Project completion is planned for December 2011.

Overall, the duration of the design and construction phase seems tight, especially that this is the first road PPP project in Slovakia, and shall be further appraised at stage 11of the appraisal, once a Concessionaire's work programme is submitted. The experienced delays on the tender process are likely to be at least partially translated in the construction timetable and overall project completion and opening to traffic can be delayed. 6.3 Employment

Temporary employment (direct and indirect) during construction cannot be estimated, as the final construction cost of the project is not known at this stage. This will be analysed during second stage of the appraisal, once the arrangements of a future Concessionaire becomes known, so also the permanent employment for Operation and Maintenance of the highway is defined. 7. PROCUREMENT

7.1 Key Issues

The contracting authority is a public promoter obliged to comply with the relevant applicable EU project legislation (EU directive 2004/18) and National Public Procurement legislation. The Bank will require the Promoter to ensure that contracts for the implementation of the project have been tendered and awarded in accordance with this legal framework and will review the awarded tender with regard to this at Stage 11of the appraisal.

The promoter has complied with the requirement of publication of tender notices in the EU official Journal for the contract notice -tender- (reference 2007/S 223-271152) dated 17.11.2007 and the Official Journal of the Slovak Procurement Office n° 223 dated 20.11.2007 under n° 05243-KOP.

The Project is being procured under a Competitive Dialogue process, for the first time in Slovakia.

7.2 Supporting information

For confidentiality reasons, the promoter has given limited information on the ongoing bidding process. According to the trade press, prequalification documents were submitted by 6 consortia:

The Slovak Ministry of Transport shortlisted 2 consortia on 29 January 2008, namely: (a) the Swedish-French consortium comprising Vinci Concessions and Skanska Infrastructure Development; (b) the six-member consortium including French firms Bouyges Travaux Publics and Colas, the Hungarian company Intertoll-Europe, the Portuguese firm Mota Engil, and the Slovak companies Doprastav and Vahostav-SK. A third consortium (named "ZPKM" Consortium, encompassing Hochtief PPP Solutions, Alpine and Western Carpatians Motorway Investors Company) appealed the decision of not having been shortlisted and was reinstated by the Slovak Procurrement office (OVO) on March 2008. However, the MoPTP appealed this decision and the consortium is finally out of the tender. Interim submissions have already been submitted and final bids are due on 30 January 2009. No official information has been made available on the contents and quality of the submissions received. 8. OPERATION 8.1 Management

The road will be operated by the Concessionaire, which may enter into an Operation and Maintenance subcontract for this, subject to the Authority's approval. The O&M requirements are only outlined in the tender documentation and drafts concession contract and will be specified through the Competitive Dialogue phase. Efficiently operating and maintaining the relatively short, non-continuous motorWay sections being part of the Concession project might create some difficulties. Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 8 Operation nO:20080070

(...) The current portfolio of Slovak motorways is fully managed and operated by NDS. Operational matters shall be further analysed at stage 11of the appraisal.

8.2 Use, production Notused.

8.3 Tariffs I operating costs

The availability payments by the State to the future Concessionaire will form the revenue base of the project. A nationwide motorway vignette system is in place for light vehicles, an electronic tolling system is proposed for heavy vehicles. This would however not affect the revenues of the Concessionaire.

The annual costs of the Concession company including administration, operation, regular and heavy maintenance will be analysed during second stage of the appraisal. (...)

8.4 Employment This will be analysed during second stage of the appraisal, once the arrangements of a future Concessionaire become known.

9. ENVIRONMENTALIMPACT 9.1 Key Issues

The project is subject to the requirements of EU Directive 97/11 Annex I, Le. full environmental impact assessment with public consultation. The environmental approvals fall under the responsibility of the Ministry of Environment (for the EIA process) and the Slovak Authority for Nature Conservation in Banska Bystrica (for Nature conservation and protected sites, including Natura 2000).

The environmental legislation is reflected in the Slovakian EIA Law No. 127/1994 Coli. amended by Law No. 391/2000 Coli. and by Law No. 24/2006 Coil. (transposing both Directive 85/337/EEC as amended by 97/11/EC and the 2001/42/EC SEA Directive).

The EIAs for all the project's sections were concluded and the EIS2were issued between 1996 and 1997. The FEIS3were issued between 1997 and 2002, before accession of the Slovak Republic to the EU in 2004. They were undertaken in compliance with the applicable regulations at that time and consequently, not fully in compliance with current EU environmental acquis. The promoter's approach to tackle this has .been to identify the potential environmental gaps and to complete or develop any required study, assessment, report or procedure to close them and align these initial EIAs to environmental regulations currently in force. Initially, the Bank identified the following main environmental issues to be clarified:

Scope and legal validity of EIAs Compliance with Birds and Habitats Directives (particularly regarding Natura 2000) Compliance with EIA Directive (particularly regarding variant studies, public consultation and Environmental Monitoring Plans) Assessment of cumulative effects of the project

The environmental impacts of the project are the ones expected in a motorway greenfield project crossing a mountainous area of high environmental value: (being the main ones in this case: impact on protected areas, visual intrusion, territory severance, impact in fauna and flora and in surface and underground water resources). It is noteworthy the direct impact of the project in one Natura 2000 site (Mala Fatra) and in the buffer zone of another one (Velka Fatra), apart from several protected sites at national level. Mitigating and corrective measures have been proposed in each case.

2 EIS: "Environmental Impact Statement": in the Slovak system, summary EIA document issued by the Promoter, prepared by a qualified consultancy company

3 FEIS: "Final Environmental Impact Statement": in the Slovak system refers to a statement issued by the Ministry of Environment and the Ministry of Transport, Post and Telecommunications, validating the EIS. Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 9 Operation nO:20080070

An environmental due diligence was carried out by the Bank with the support of two environmental consultancy firms4. The outcome of the due diligence was shared with the EC in the context of Article 21 procedure. The Bank's position is that all the previously listed environmental issues can be validated if certain documents are provided (Zoning Permits and Building Permits), if the project's final design and the final monitoring plan are approved by the environmental authority and if the EIA process (including Natura 2000 assessment) for the adjacent section of the project Visnove-Dubna Skala is compliant with the applicable EU acquis. All these conditions will be fully worked out during stage 11of the appraisal and additional conditions may also appear.

A Strategic Environmental Assessment (SEA) was not undertaken for this project as the planning and programmes of the D1 corridor began before the EU Directives came into force in July 20045.

9.2 Supporting information

The project is subject to the requirements of EU Directive 97/11 Annex I, i.e. full environmental impact assessment with public consultation. The planning, implementation, operation and maintenance of motorways and expressways in the Slovak Republic fall under the responsibility of the Ministry of Transport, Posts and Telecommunications, through the state owned "National Motorway Company. (NDS) incorporated in 2005. For the PPP Motorways (including the project), the implementation role was delegated to a "PPP Task force" in 2007. The environmental approvals fall under the responsibility of the Ministry of Environment (for the EIA process) and the Slovak Authority for Nature Conservation in Banska Bystrica (for Nature conservation and protected sites, including Natura 2000).

The environmental legislation is reflected in the Slovakian EIA Law No. 127/1994 Coli. amended by Law No. 391/2000 Coil. and by Law No. 24/2006 Coil. (transposing Directive 85/337/EEC as amended by 97/11/EC and the 2001/42/EC SEA Directive).

The Environmental Impact Assessments (EIAs) for all the project's sections were finished and the Environmental Impact Statements (EIS, in the Slovak system, it is a summary EIA document issued by the Promoter, prepared by a qualified consultancy company) were issued between 1996 and 1997. The Final Environmental Impact Statements (FEIS- in the Slovak system FEIS refers to a statement issued by the Ministy of Environment (MoE) and the Ministry of Transport, Ports and Telecommunications (MoTPT), validating the EIS.) were issued between 1997 and 2002, before accession of the Slovak Republic to the EU in 2004. They were undertaken in compliance with the applicable regulations at that time and consequently, not fully in compliance with current EU environmental acquis. The promoter's approach to tackle this has been to identify the potential environmental gaps and to complete or develop any required study, assessment, report or procedure to close them and align these initial EIAs to environmental regulations currently in force. During the stage I of the project appraisal, the Bank identified the following main environmental issues to be clarified:

The environmental impacts of the project are the ones expected in a motorway greenfield project: (being the main ones in this case: impact on protected areas, visual intrusion, territory severance, impact in fauna and flora and in surface and underground water resources). It is noteworthy the direct impact of the project in one Natura 2000 site (Mala Fatra) and in the buffer zone of another one (Velka Fatra), apart from several protected sites at national level. Mitigating and corrective measures have been proposed in each case.

( ENVlROS s.r.o, a qualified firm providing assistance in environmental consultancy and due diligence in the Czech Republic, Central and Eastem Europe, for a wide range of clients including intemational and multi-lateral institutions (such as UN, EC, OECD, EBRD and the WB), supported by DEKONTA, a Czech environmental consultancy firm managing local consultants in Slovakia, for bringing local experience to the audit team.

S See the New Programme for Motorways and Expressways Construction, approved by the Govemment Resolution of SR No.16212001, 10 Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 Operation nO:20080070

The findings of the environmental due diligence to date are as follows:

. Scope and legal validity of EIAs: o Available EIAs cover the whole project o Zoning permits have been issued for all the project sections within the term of validity of the FEIS statements, following the Slovak legislation, validity of FEIS is automatically extended accordingly. All zoning permits are currently in force, except in Section 3, Hubova-Ivachnova section, for which an extension is to be expected shortly. Consequently and according to Slovak legislation, all FEIS will be in the same situation, once the extension is obtained. In all cases, applications for Building Permits were submitted on 02.09.2008. These applications are still pending approval and some additional documents have been requested by MoTPT to complete all customary requirements. According to MoTPT, building permits can be expected by the end of 2008. As per the Slovak legal system, the granting of building permits automatically validates all the previous permitting stages of the project (zoning permitting and environmental approvals among them). o A condition will be incorporated by which Zoning and Building permits will be sent to the Bank, fully in force and in acceptable terms before first disbursement.

. Compliance with Birds/Habitats Directives (Natura 2000): o The promoter executed Habitats and birds assessments between 2007 and 2008. Compliance with Birds and Habitats Directive has been certified by the competent authority in Slovakia. An environmentally sensitive area was identified in section 2 of the project, Turany-Hubova, in which the proposed technical solutions suffered a number of variations during the EIA process. o The Promoter shall, before first disbursement, provide the Bank with documentary evidence that the requirements of the Habitat Directive have been fulfilled (Forms AlB or equivalent).

. Compliance with EIA Directive: the EIA procedure is in accordance with the national legislation, which transposes the Council Directive 92/43/EEC. The EIA documentation has been elaborated with an adequate level of detail and refers to all requirements stipulated by the valid legislation. In particular: o Variant studies: variants were adequately defined and studied as part of the EIA. It was verified that the variant selection took into consideration the outcome of the public consultation and environmental studies. o Public Consultation: The public consultation process is considered to be acceptable for the following reasons: i. It was carried out and documented in conformity with the Slovakian Act NO.127/1994, transposing in this respect the European Directive 85/337/EC amended by 97/11/EC. ii. Consultations took place during project preparation stage, back in the late nineties (first round) and at zoning permit stage between 2005 and 2008 (second round). iii. After spot checking, the affected population seem to be very well informed and generally in favour of the project. iv. There have not been significant changes in the environment and in the relevant stakeholders in the surroundings of the project area since the public consultation took place. o Environmental Monitoring Plans (EMPs): According to the current practice of MoTPT, EMPs are defined at three stages: first is Zoning Permit, second is Building Permit and third is Project Implementation. The Bank will require the final EMPs to be be approved by the environmental authority as a condition before disbursement. . Cumulative Effects of the Project: It can be concluded that: o Cumulative effects derived from the traffic increase induced by the complete D1 motorway entering into operation have been adequately addressed. o Cumulative effects related to direct impacts caused by the future development of the adjacent sections of the motorway could be an issue in the future continuation of the project towards the west from the current starting point of Dubna-Skala, which will cross the Natura 2000 site named Mala-Fatra. Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 11 Operation nO:20080070

o The Bank will verify acceptability of the EIA process and compliance with applicable Environmental legislation in this adjacent section ("Visnove-Dubna Skala" section, included in the second package of de D1 Motorway PPP Scheme) before first disbursement.

A Strategic Environmental Assessment (SEA) was not undertaken for this project as the planning and programmes of the D1 corridor began before the EU Directives came into force in July 20046.

Environmental due diligence was carried out by the Bank with the support of two environmental consultancy firms7.The outcome of the due diligence was shared with the EC in the context of Article 21 procedure and it was concluded that the project can broadly be accepted from the environmental standpoint and all the previous issues can be validated if certain conditions are met: (see section 12 of the report).

10. MARKET, DEMAND

The project sections of the D1 will primarily serve long-distance traffic between the western and eastern parts of Slovakia. On the parts closer to the industrial hub and automotive cluster of Zilina, this will be overlaid with some commuting traffic. Alongside with the positive economic development of Slovakia, traffic in the project corridor has grown at an average rate of 6.5% p.a. since 2000 and now reaches 21,000 vehicles per day (vpd) on the western end of the project, falling to below 10,000 vpd towards the eastern end. Heavy vehicle share reaches 15-20%. International traffic is very limited. Traffic levels towards the western end now exceed the nominal capacity of a 1x2 lane road at good levels of service. The quality of the existing 118trunk road is generally good. For much of the corridor, the 118 road follows a narrow river valley and passes through local cities and villages. Although some crawler lanes exist, overtaking possibilities are limited.

A nationwide motorway vignette system is in place for light vehicles. An electronic tolling system is proposed for heavy vehicles, which is expected to cover both. motorways and trunk roads. Therefore, the system will not give an incentive for heavy vehicles to avoid motorways.

(... ) 11. INVESTMENTCOST

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12. PROJECT RELATED CONDITIONS TO BE FULFILLED

12.1 Disbursement conditions

Conditions will be fully worked out during stage 11of the appraisal, but are likely to include:

Zoning and Building permits for all the project sections, fully in force and in acceptable terms, will be sent to the Bank before first disbursement The Promoter shall, before first disbursement, provide the Bank with documentary evidence that the requirements of the Habitat Directive have been fulfilled (Forms AlB or equivalent). The final Environmental Monitoring Plans shall be approved by the environmental authority before disbursement. The Bank will verify acceptability of the EIA process and compliance with applicable Environmental legislation in an adjacent section ("Visnove-Dubna Skala", included in the second package of de D1 Motorway PPP Scheme) before first disbursement. Further conditions may be defined during stage 11appraisal.

12.2 Undertakings

6 See the New Programme for Motorways and Expressways Construction, approved by the Government Resolution of SR No.162/2001

7 ENVIROS s.r.o, a qualified firm providing assistance in environmental consultancy and due diligence in the Czech Republic, Central and Eastern Europe, for a wide range of clients including international and multi-lateral institutions (such as UN, EC, OECD, EBRD and the WB), supported by DEKONTA, a Czech environmental consultancy firm managing local consultants in Slovakia. for bringing local experience to the audit team. Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 12 Operation nO:20080070

Undertakings may be defined during stage 11appraisal.

13. FINANCIAL AND ECONOMIC PROFITABILITY

Economic Profitability The economic benefits of the Project, relative to the do-minimum alternative, will come from user time savings, the reduction of vehicle operating costs, improved safety and reduced environmental effects. (...)

(...)

Financial Profitability The proposed project will come under the existing motorway vignette system for cars and light vehicles, and the electronic toll system proposed for heavy vehicles. The Concession is however decoupled from the related financial flows, and is based on availability payments. It is expected that an adequate FIRR will be ensured by the State's availability payments to the future Concessionaire. Economic and financial profitability will be analysed during stage 11appraisal.

I Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 Operation nO:20080070

APPENDICES

A.1. TECHNICAL DESCRIPTION

Purpose, Location The project concerns the partial completion of Slovakia's D1 motorway, which will eventually connect the country's principal cities Bratislava and Kosice and lead to the Ukrainian border. There are 5 motorway sections included in the Project with a total length of 75 km (about 15% of the total length of D1). The project road crosses a mountainous region and a large number of structures and tunnels are to be expected. Description There are five project sections, of which the first three sections are adjoining: Dubna Skala - Turany (total section length 16.45 km), Turany - Kralovany - Hubova (total section length 13.60 km), Hubova - Ivachnova (total section length 15.30 km), Janovce - Jablonov (total section length 18.54km)andFricovce- Svinia(totalsectionlength11.20 km). All are located on the West - East corridor of the country between Zilina and Pre~ov. They all cross hilly to mountainous terrain and some subsections will have to be inserted in narrow valleys with steep slopes. These constraints require the construction of a number of bridges and tunnels totaling to some 1/3 of the total length of the project road. The motorway is a dual carriageway, two lane motorway.

Currently available information on the characteristics of the project refer to the outline design produced by or on behalf of the National Motorway Company NDS, and available to the bidders. Design changes by a winning bidder are theoretically possible, although the procurement calendar for this project and the permitting risk (linked to the building permits) shifting over the Concessionaire in case significant changes in the promoter's design are proposed, leaves little opportunity for bidders to propose design improvements.

The following table summarises the main characteristics of each of the project sections:

Dubna Hubova- Janovce- Fricovce- Total Skala- Turany- Hobova Ivachnova Jablonov Svinia Turanv LenQth 75.09 16.45 13.60 15.30 18.54 11.20 Length (Road) 67.89 16.45 9.00 13.30 17.94 11.20 Length (Tunnel) 7.2 0 4.6 2 0.6 0 Length (structures) 100 27 14 21 22 16 Interchanges 8 3 3 0 2 0 Rest Areas 4 2 0 0 2 0 Maintenance Depot 1 0 1 0 0 0 Note: length figures in km

Calendar

(... ) Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 Operation nO:20080070

A.2. PROJECT INFORMATION TO BE SENT TO THE BANK AND METHOD OF TRANSMISSION

1. Dispatch of information: desianation of the person responsible The information below has'to be sent to the Bank under the responsibility of:

Company - Concessionaire to be known only at/after stage 11appraisal - Contact person Title Function I Department Address Phone Fax Email

The above-mentioned contact person(s) is (are) the responsible contact(s) for the time being. The Borrower shall inform the EIB immediately in case of any change.

2. Information on specific subiects The Borrower shall deliver to the Bank the following information at the latest by the deadline indicated below.

Document I information Deadline Form A, Form B First disbursement Any monitoring or assessment reports required by Within 60 days of presentation to the Competent Authority for Environment andlor Competent Authority Nature Conservation

3. Information on the proiect's implementation The Borrower shall deliver to the Bank the following information on project progress during implementation at the latest by the deadline indicated below.

Document I information Deadline Frequency of reporting ProjectProgressReport Every six months - A brief update on the technical description, (30.11,31.05.) explaining the reasons for significant changes vs. initial scope; - Updateon the date of completionof eachof the main project's components,explainingreasons for anypossibledelay; - Update on the cost of the project, explaining reasons for any possible cost increases vs. initial budgeted cost; - A descriptionof any majorissuewith impacton the environment; - Update on procurement procedures (outside EU); - Updateon the project's demandor usageand comments; - Any significantissue thathas occurredand any significant risk that may affect the project's operation; - Any legal action concerning the project that may be onqoinq. Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 Operation nO:20080070

4. Information on the end of works and first year of operation The Borrower shall deliver to the Bank the following information on project completion and initial operation at the latest by the deadline indicated below.

Document I information Date of delivery to the Bank Project Completion Report, including: 15 month after opening of - A brief description of the technical characteristics of the last section to traffic project as completed, explaining the reasons for any (delivery date according to significant change; CUffent project timetable: - The date of completion of each of the main project's 31.03.2013) components, explaining reasons for any possible delay; - The final cost of the project, explaining reasons for any possible cost increases vs. initial budgeted cost; - The number of new jobs created by the project: both jobs during implementation and permanent new jobs created; - A description of any major issue with impact on the environment; - Update on procurement procedures (outside EU); - Update on the project's demand or usage and comments; - Any significant issue that has occuffed and any significant risk that may affect the project's operation; - Any legal action concerning the project that may be onqoinq.

Enqlish Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 Operation nO:20080070

D. ENVIRONMENTAL SUMMARY SHEET Oyerall Envlronmantal Assessm~nt Project Slovak Motoways (PPP) )1 Phase I Operation nO 20)8(070 1____ Type ofEID financing Invesh>en: Project 9 ~ ~

SICY"kMinistry 01 'renporl Post "nd Telecoms (contreclJng euIhor[y). The project wm be Inp!elnelT.ed and Promoter DIed b'f eIDl'lvate Concess oneire

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Project Des;crlptlon The project concens rons:ruc:lon 01 75km 01 new mobI'WelY. :Jell'!01 the C1 corrldJr If"northern SI)veltltl. between ZIin"endPresovendon:he -eN-T.There ere 5 P'ojecI sections. 01 whlc~the r..stth-ee ~ ere eldjJlnlng: CtJbr6 Sl:e118- TLrllO'f(16.45 km). TU'M) -KrelkMln,' -Hubcv6113.60kID),Hubov6-lvechrDv6 (15 30 km), Jenovce -Jel::loncv (19.54 km) erd Frcoyce- SvI1Ie !11.20 kID). . They CfOSShlll\'tO onount,,1nous tenaln wtlch .viii reqt.lre tie construction of eInunbet of bridges and tunrets :oIellng 10 some 113 )f tte taelllengh of ItheS projed rood. The onoIcrwoy Is" dual cerrlogeov"Y. two 1_ rrotorw"'f.

SEA carried out Ccmment IPlannlng01the DI ccrrldorbeg"n be'ore EU)lrecllves come Intolorce Ir ~ 2004(New Frogfeunnefor MJlorNelYSMd ExpresswelYs.2001)

EIA Screening r A - Fill Ell', Anno~ I --- EJ Ervirc. E igibilit~ Code EIA Stages MAM& "'BMProjects

Pf~nni:JQ c~ns#nt or :I1Jtho:i~rion Ql'IlK~ (~r"~, <10.) Put>fic inform«i of d 3rd Party C01cern

Ccmmen: (..)

MCMPrejeds

Environmental N~tional INellIonIIILellIW1'olo.12'/1934.3911200). 2.i2006 COl rirrcrlngNmond end EUleglskllbn Leg!!1 Framework EU IDirective 85.037. em.nded by 97111 end 20(3135

Inemattonal Social Ccmmen: The :wojecthyol,les eInun\ber01~eory res!ttlen\erts end there a nJmber cl celUrlcases A$ses:sment pen

Sivnifcanl efect [~ ForEUIAccedingl..e..cces$iorICandidat~coun:rie$: NlIture Conservation If no £iQnficant 31fe:I, =omA r;;~8 (sianiflCant efec', Form B L~~ Sites Type Jf site ~Natura-----2000 E.,.

Carton Funds Climate Change CCFF CB CCTAF [:.:8 Aspects

Visa by car on 22 May 2008. The algnnlenl cro~8$ ag-iculural and SlJ(Jurban I9nd and nallal sae.. The terrain Is roIIln3tOrnoLnt"heous. wllhs"",,, sections h """row velleys wt.h sleepslopes,(Veh Rl.-er ~_y). t wI cress several "VIIIer courS3S h 1IIaclIcI. and OY3t'passes. S9Y9"aI tll19l3 al'3 aI!o envis;lged. The road 'NiIIclip Ithe boundery cl "loIsIu'" 2JOOsae (M FoIr,,) end the bu'ler zone 01 encther (Vek" fetro) Md of so othef Site Visit Md any areas of envIrcnmental Interest. Resettlement cl _81 f~ wI be reQJlrej. M31nI'np(ds end mllgatlrv other ObselVlltlons me.sures heve been lcentWIed The project wII resJlt Inunovoi:lebl. signlllcent res duoI impocts.

T1e ~rojCJCl 'I"iIICIOS~ eIMlum 2000 sile m the :MJflerelrM)f eI"IoIter aiel. StMdtlfj Major Proj~ct Ri\ks R!~.~._r.~.t.If1.~m [~ EJ I inpecls end oniIigolingmeasure. ere expected. Irrpecis dling co,str..lciion con be rdevonl 'Prcposed mIIigGIin\;end compeullting lDeelsures""'. reduceenvlr~ntellrlsks elter projecl cJmPelicn. . Overall Assessment Irnt::ortentlmpecls willtoke pIeIc. cluing corslrLctlon. end the ",-arkssh" b. cIos~ rncnllo'ed. Environmental conditions helve be~ Included n the bLlIdirOpcrml elPPiCedion.unevoi\1tlble mejor reslcUell mpecls c be ~E expec!.d. Perfomance Indlcatcr(s; Enviro. Monitoring REQuired ~ Conditions The Promoler ., bel:>!'e 'lrsl disbursomenl, .ubnIiIlothe Bank: (I) Za>in!: end Bulding P...mls (M)document...y elli:ience that the requirements01he hlbiliIIs Directivehave Men fulflled :lii)docLmenlarvellijence that ftnal EM' he. been approve:! by the conpel.nt outroray (Iv; The BonI

01 06.11.:;ooB, Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 OperationnO:20080070

Residual Impact Assessment

Projoct Operation n.

AREAS OF MAIN IMPACTS I MITIGATION ACCEPTABILIlY COMMENTS I IMPACT EMISSIONS MEASURES (of residualImpacts) PROJECT RISKS I 11 III IV Location "ShWI0.. I Air Positiv. L.ss oongHtion on .lIisting rCMds.net p,arlioutul, in urb. . 0 0 0 ...... OnrnMtS wIIlmpr.,.,... qualil,. TMpr...,.""",_ R,.Ho ,.-mov'" from some>olt.s'. ou"...." using .listlng 18Rood I.. MMiIn Ruzomborok Waler s.v.r. wM., OOWMSsh.aIlbe- Construotion 01Yioduots and --.., Cfo.sodbt_..... owrpus.s. Corr.-ctiveomt>..SUf.S 00. 0 motOfW"" Ar.... with signifJc h..... bMn dtflned MM!.. undI>rgroundWM" f"OWO.. wt. ooo....ob.. .so orOSSK Lend Amount of mM.,JaI d.sdnMH to TMlInoIIooollon 01_ dlspos'" 1¥'KIilwil Mp.net on tM final borrow ...... willhw. to b. 00. 0 de-sign.Dispos..and borrow oppr bt'M ...... onm_...... s wll hw. to M ldentifWd. _k,.

Humans FWs.u...... nt wll tw r-..o.ss., In c.t..U.d m...sur.s wMlbfo.fiMd som. oosos.1n _ Voh V....,. _ InIInaId.sIgn 00. 0 motOfW., wiIrun '''MM> 010..., to urban ...... giwn constr.aints (oo)

Flora, FaLna end NMur.. 2000 ...... FAtra" will MitigMIngrIM'''SUff'ShrH bHn Other Natural Assets be-banSYfiSN bt th. proit'ot. _Iod and Introduood os 0 o 0 . 0 -V...... Fatr."Is ..Iso too.rH In oondl.1on In_ buiIdIng....mIt tM vieiniti.. of the-Prt. r8'qUe'st.lnwntorg 01reftovant so.cieos has beoendon. Noise end Vlbretion NasI_lmpoct.o soma..ban Mitig.ating .s...es wlDM ¥e.s .ands.m.mt'nts (t.e dollnod_...., In_ fin" o . 0 0 Sutovo). Posit""'lmpt inurb.n eNsign.whioh Is to .pproved b, are.. ourr1J cross.-d b, 1-18 _ _onrnont" oompot_ rood /Mart.. Ruzombofook ouIhofk.. Visual Impact TM e.essrw.., wll oross L.r outs haw bHn woidt'd. p_tic...... s withhigh Dei_d m..sur.s to bf.defiMd 00. 0 JoIIndsc.ao.v.1ue Severance Int..oop

Construction Air Dus'_"1on In...Ihworks Mltig..ing ....os...s.o bo dof.....d -.et truelc.opt'f.lltion .at".iltfd dt>Signst.ge o . 0 0

Weter Allriver orossWlgs are vt.llducts. fw1kigMIng .s....s to M cNfirwd with pot.nliollmpooc during .lito.t-llhd ct.sign st 00. 0 construction or opeor.ation.

Lend tmp.ct.... some enW.n, Standard mltigotlng m.os.... seonsitive.1'f.S (otcs. to proposed 00. 0 protltCted sit.. -habitats or cultur"h.rk_. Humans Dist...b.ano. to Inhabitants In Un.auoid¥)l. Impact in som. oen_ ar..s during oonstruction. o.s.s o . 0 0

Flora, FaLna end St.ancbrs:imp.aots in ro.d HMMt.atsInventor"s hw. Men Other Natural Assets construction. Some high v...... performed.llnd rf'MyM'K '" o 0 . 0 sp.o"s (big mamm",) ... h.W' Men deoted .and pr...nt Insome .e... _Of_ Construction m.., "'.et th.. habit.ats and rniftration COfridors Culh Herlage No significant Impoc. St.-nd_d pr8'W'ntNe me.sur.s DfODOsod .00 0 (oo) Operation Air C02 emissions Less OongeStlon on existing rGads .andpartioul.rl'.... urban . 000 environments willimprove .. quali<,. W"'er Posslb.. 011spills and sod_nO Oiltnt.rcors willM provided In intrusion rN" crossings. AI cuts winh.awo o .00 longitudinal cuIv...s

Land s.v.t.ano. of the territor, S.....fits.... dHolMd to M gr.at.r than .xt...nalities. o . 0 0 Humans Positive> Not requited .00 0

Flora, Fauna and F.un. fMalitM-Sinroad crossmgs. Mitigating fM'as....s to bfock>finf.d Other NOlI Assets Noise .'foetion to birds Inn.sting .atdetailed design st o .00 riods. CUltural Herlage NoM Not r.quirf'd !:J . !:I D Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 OperationnO:20080070

Social Assessment

L_ Project SlovakMotorways(PPP) D1PhaseI L- Operationn° 20080070

Commen1son Areaofimpact Acceptabili1y WithConditions INr. projectrisks

PopulationMovements - including Ea 1 resettlementand migration. (seeSAGN1)

VulnerableGroups- includingwomen, Ea 2 minoritiesand indigenouspeoples. (seeSAGN2)

CompliancewithILO core labour standards Ea 3 and impacts on (oo) employment. (seeSAGN3)

Attentionto occupationaland Ea 4 communityHealth& Safety. (seeSAGN4)

Outreach- consultation & Ea 5 participation with shareholders and stakeholders. (see SAGN 5) Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 Operation nO:20080070

F. PROFITABILITY ANALVSIS

(..) Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 Operation nO:20080070

H. VALUE ADDED SHEET

12.11.2008 VALUE ADDED SHEET - INVESTMENT LOAN

Medium PILLAR 1: Contribution to EUObjectives COP Priority Obiective(s) Convergence(EU27) Medium TENs(TransportandEnergy) I Medium I Other Obiective(s) - none- - nla - Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 Operation nO:20080070

I. CONTACTS,REFERENCES, MISSIONS, CONSULTANTS

1. Mission dates and participants

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2. Key Personnelconsulted

MoT PPP unit National Motorway Company (NOS) Minister of Transport

3. Main documents consulted

Tender documentation (in English) Data Room documents (in Slovak, limited translations) Technical/economic feasibility study (in Slovak, ad-hoc translation) Project: Slovak Motorways (PPP) D1 Phase 1 - Update to stage 1 Operation nO:20080070

PILLAR2: Quality and Soundness of the (... ) Investment

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The Bank has been able to broadly verify compliance with the EU environmental aquis. However some aspects of environmental due diligence will have to be completed during stage 11of the appraisal, particularly with regard to the acceptability of the EIA process and compliance with applicable Environmental legislation in the adjacent section ("Visnove-Dubna Skala" section, included in the second package of the D1 Motorway PPP Scheme).

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2. Environmental Sustainabilitv

Environmental rating Acceptable with major negative residual impacts (B2) 3. Other Qualitv Elements

Promoter capability: design and implementation phase Not documented Promoter capability: operation phase Not documented Promoter: monitoring track record (if applicable) Not applicable

The project management and procurement strategy may leave the project exposed to some key risks potentially affecting the quality and soundness of the investment: - Full compliance with EU environmental Directives will have to be demonstrated before disbursement. - Promoter capacity: Risks arising from the large investment volume of this PPP project combined with the lack of PPP experience of the promoter.

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PILLAR3: EIS Contribution (..)

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