Project Finance



The challenges of 2022 led to an increase in the number and volume of public-private partnership (PPP) deals, while the Russian project finance market demonstrated resilience to external shocks related to geopolitical instability. The volume of investments in projects that passed the commercial closure stage amounted to RUB 765 bln, which was a record for the past three years.

In the Agency’s opinion, this growth is driven by increase in government investments in infrastructure. According to expert estimates, federal expenditures on infrastructure projects have grown by almost 35% year-on-year, while the volume of construction work carried out in 2022 in Russia’s regions increased by 5.2% compared to 2021 (according to Rosstat). ACRA adheres to the same assessments and considers the extension of existing support programs a necessary condition for the further development of the market.

At the same time, the Agency believes that the main problem for the project finance market now is the high risk of the cost of launched projects increasing. ACRA is concerned that for at least half of the facilities scheduled to be put into operation by the end of 2025, the risk of exceeding capital costs may materialize, when the actual construction costs exceed planned ones by 20–40%.

In ACRA’s opinion, this problem could be solved by diversifying the sources of project financing namely, the use of ‘long’ money to refinance high-quality projects with strong credit ratings. To achieve this goal, the following measures are required.

Further development of the legislative and regulatory environment in order to stimulate the project finance securitization market.

Development of practices for the use of digital financial assets for project finance transactions.

Maintaining support for the PPP market through the prolongation of existing programs and a number of regulatory easing measures.

Strengthening monitoring and control of financing organizations and other investors for concluded transactions in order to promptly identify increased or previously unaccounted for credit risks, which would help minimize potential financial losses and prevent project defaults. The expertise that rating agencies possess in terms of approaches to assessing the credit risk of a project may help counterparties who do not have their own resources for such an assessment, but are ready to invest in projects with high credit ratings.

In ACRA’s opinion, these steps would help attract private investment to cover additional infrastructure costs, develop the financial market, and generate ‘long’ money for infrastructure projects. In 2021, the President of the Russian Federation emphasized the importance of diversifying sources of financing for large infrastructure projects by issuing a Directive to amend legislation by July 15, 2022 to ensure the creation of long-term investment instruments. In his Address to the Federal Assembly in February 2023, the President specified the task and ordered to stimulate new sources of investment financing through the long-term savings of citizens through additional guarantees for such investments. ACRA believes that issues of project finance bonds placed by special types of SPVs (bankruptcy-remote issuers) — specialized financial institutions (SFIs) and special project finance companies (SPFs) with high credit ratings — would be the best tool for investing citizens’ funds. This would help solve the problem of low liquidity of project finance bonds in the future.

Ideal storm: key threats to long-term investments that appeared in 2022

Not having had time to fully recover from the pandemic, the consequences of which were a sharp increase in prices for building materials and services, disruption to the supply of construction equipment and materials, the destruction of supply chains and the corresponding aggravation of accumulated problems, the construction industry faced new challenges. The events of 2022 were serious triggers for launching processes in Russia, which in most economies occur very rarely on a significant scale. Meanwhile, any sharp fluctuations of macroeconomic parameters and the instability of the external environment significantly affect investment activity, while project financing transactions, including those based on PPP principles, are especially sensitive to this turbulence. Retrospective analysis shows that the factors described below have the strongest impact on the industry.

1.    Exchange rate fluctuations. Contracts for the purchase of equipment may be denominated in foreign currency, and for large projects implemented using foreign technologies, so the exchange rate is one of the key conditions included in project budgets when building financial models.

Figure 1. Average annual exchange rates

* Forecasts
Source: ACRA

2.   Changes to the key rate. Funds borrowed to finance projects are usually obtained at a floating rate tied to the Bank of Russia’s key rate. If loan interest rates increase then this is accompanied by growth of expenses to service debt. During periods of volatility, this leads to the costs of projects that have already been launched growing and worse financing conditions for new deals that are at the financial closure stage.

3.   Lower availability of short-term financing sources. The loan market is designed in such a way that when additional risks arise, which are triggered by external shocks, most lenders and investors take a conservative wait-and-see approach. As a result, projects that are already experiencing problems with attracting loans and funding become the most vulnerable. Against the backdrop of deteriorating overall credit quality, such projects have previously been exposed to liquidity gaps caused by the higher cost of work due to unaccounted for risks and errors in structuring the initial terms of transactions. In the realities of 2022, opportunities to attract financing and select creditors for these projects shrank considerably, which led to growth of the cost of borrowing, and, as a result, higher debt loads of construction companies. This problem can be partially solved by state support measures.

4.   Inflation. The financial models of projects are usually built over horizons of 20–30 years, and when planning budgets, the cost of all stages of work includes inflation based on prerequisites that are relevant at the time of the decision. Unstable inflation has a negative impact on the predictability of the cash flows of a project and makes it impossible to sufficiently accurately calculate the financial ratios of its effectiveness, something that is of fundamental importance to investors.

5.   Risk of outflow of skilled labor. Some projects required specialized personnel and equipment that can only be operated by personnel with specific qualifications (at the operational stage of the project, this may be the maintenance of medical equipment or the organization of patient transportation, IT services, etc.) Materialization of the risk of outflow skilled labor may result in higher actual expenses on the operational servicing of a project compared to its target indicators at the implementation stage, while at the investment (construction) stage this can result in a higher project budget. According to ACRA’s assessments, in 2022, more than 50% of construction companies may have faced a shortage of personnel.

6.   Breakdown of logistic chains for supplying materials and components. The sudden refusal of key counterparties to carry out contractual obligations seriously complicated the work of market participants. A large number of companies that provided consultancy and equipment servicing — from global corporations to technical consultants, evaluators and verifiers — left the Russian market. In addition, on the back of restrictions, the availability of domestic materials whose production depends on imported equipment declined, and this resulted in higher prices for construction materials.

Development of the Russian PPP market amid conditions of external pressure

Despite the challenges that arose in 2022, the volume of investments in projects that underwent commercial closure hit a three-year high and amounted to RUB 765 bln for the year. Although the record figures of 2018 were only exceeded for one of the analyzed indicators (total volume of investments), the market maintains growth trends for all the other indicators too (Fig. 2).

Figure 2. Development of the PPP market in Russia from 2018 to 2022 in terms of the volume and number of transactions

Source: ACRA’s calculations based on data from the National PPP Center

Last year, the number of signed contracts was 22% higher than in 2021, the total volume of investments in PPP projects grew by almost 50%, yet private investments only grew by 13% year-on-year and stood at 73% of the figure for 2018. This result shows the relevance of tasks to expand ways to attract private investment in infrastructure projects. In ACRA’s opinion, this would result in development of both Russia’s infrastructure and financial market (Table 1).

Table 1. Volume and number of PPP transactions in 2018–2022







Number of contracts






- incl. CAs*






- incl. PPPAs**






- incl. PPPAs (regional laws)






Total volume of investments (RUB bln)






- incl. private investments (RUB bln)






* CA — concession agreement
** PPPA (MPPA) — public-private partnership agreement (municipal-private partnership agreement)
Source: ACRA’s calculations based on data from the ROSINFRA platform

The positive development dynamics of the infrastructure finance market are confirmed by various experts. According to Infraone’s1 estimates, almost all infrastructure and related areas showed growth in the first four months of 2022 vs. the same period of 2021. Signs of crisis declines appeared as late as in April, with the exception of the air transportation sector where the situation was already unstable. In ACRA’s opinion, the situation is gradually stabilizing now.

ACRA believes that urgent legislative measures taken to reduce risks for project participants played an important role in stabilizing the market. These measures include amendments to laws regulating the PPP market; their purpose was to provide private partners with adequate reliefs in the period of instability. Another important step taken by the government was financial support measures as part of federal and regional programs, most of which were launched several years ago, and are now producing positive results. Below are the most important steps that contributed to the stabilization of the PPP market.


Changes in PPP market regulations viewed positively by ACRA:

The option to amend the material terms of CAs and PPPAs (MPPAs) in view of growing prices for construction materials used in transportation and social infrastructure projects (approval from the antimonopoly authority is required);

Valid until January 1, 2023, an option to amend the material terms of CAs signed before March 1, 2022, if agreed by the parties (approval from the antimonopoly authority is not required)

The option to enter into CAs until the end of 2022 without tenders, if a region of the Russian Federation acts as a public partner in such an agreement, and the title to a land plot has been transferred to a potential concessionaire before July 1, 2022; a law has been passed that extends the option to amend the material terms of these agreements until January 1, 2024 (approval from the antimonopoly authority is not required2).

2 The government has taken a range of measures that helped the industry survive the peaks of the crisis (for example, Resolution No. 1315 on the revision of prices for government contracts, Resolution No. 505 on increasing down payments, etc.).

Financial support measures that have had a material impact on the PPP market:

Financial support for infrastructure as part of national projects only, according to Sherga Group’s estimates, amounted to RUB 3.31 tln, and the level of budget execution reached 99%; the volume of federal investments turned out to be almost 29% higher than in 2021, and growth was facilitated by projects for the construction of highways of the Europe — Western China international transportation corridor (from RUB 132.9 bln at the beginning of 2022 to RUB 299.5 bln at the end of 2022) and for the development of regional airports (from RUB 29.1 bln to RUB 55.1 bln)3;

The Russian Government has put together a range of measures for the advanced development of the infrastructure in the country’s regions, allowing them to perform actions aimed at achieving national development goals and creating a comfortable living environment and infrastructure; the total volume of the program is about RUB 2.4 tln, of which RUB 465.3 bln was allocated from the federal budget in 2022, which is almost a quarter (24.6%) higher than in 2021 (this is a record; for comparison, at the beginning of the year, the government planned to allocate only RUB 296.2 bln for the implementation of the plan, that is, one-and-a-half times less).


ACRA is of the opinion that in 2023, the situation in the industry will remain challenging due to a shortage of personnel, equipment and spare parts, interruptions in supplies, and inflation. This will require the extension of anti-crisis measures, and the government and government-owned companies will continue to play a leading role in the PPP market, which is an adequate response to today’s challenges.

Tacit risks of PPP transactions: is it possible to diversify PPP project finance instruments in the new reality?

Despite the market stabilization in terms of new projects, in ACRA’s opinion, the most relevant problem now is high tacit threats of extra capital expenditures in current projects, where actual construction costs may exceed planned costs by 20–40%. Additional borrowing is likely to be required to cover these costs.

The Agency believes that this issue can be solved by diversifying the sources of project finance, namely, using ‘long’ money to refinance high-quality projects with high credit ratings. ACRA’s research Bonds as a tool to attract investment in infrastructure projects from June 15, 2022 describes the advantages and specifics of various forms and types of bonds, including complex structured securitization issues of PPP instruments, which are especially relevant in the new realities. An independent rating assessment of these instruments and subsequent monitoring of their credit quality allows non-qualified counterparties to enter into PPP transactions. The total volume of private investments in projects where the public partner has at least an A(RU) credit rating from ACRA and the amount of private investment in the project exceeds RUB 5 bln is still estimated by the Agency at about RUB 330 bln, so at least 15% of the value of all PPP projects at the operational stage may be securitized.

The popularity of project finance bonds is low due to the relative complexity of their structure and the imperfection of the regulatory framework. This leads to insufficient demand for these instruments from institutional investors. Generally, the procedure of bond structuring and placing the first issue takes about six months, that is, it requires more time and higher costs compared to classical bonds (other issues that belong to the developed structure are usually comparable to classical bonds in terms of time and resources). In this regard, such technology is still available mainly only to large players.

The development of the practice of using digital financial assets for project finance transactions, in ACRA’s opinion, could reduce the costs and simplify the process by making the technology available to smaller counterparties. In project finance, the control over and transparency of cash flow use are important, and digital assets provide this control and transparency. At the same time, according to experts, the placement of these instruments will be less expensive for market participants, given that a number of counterparties, without which it is impossible to place complex structured bonds, will become obsolete. There are currently no precedents for such transactions in Russia, but on the horizon of five years, this instrument, according to ACRA’s estimates, may become one of the drivers of the project finance market.

Current situation in the project finance bond market

According to the Moscow Exchange, as of March 1, 2023, 69 project finance bonds from 13 issuers were placed on MOEX to a total of RUB 188 bln, which is almost 40% higher than in 2019. In the research Investments in infrastructure and PPP: how will credit ratings help attract new players? from September 28, 2020, the Agency noted that concession bonds are losing relevance due to the unreliability of their structure; therefore, investor demand for this instrument is low. The only major issuance of such bonds over the past few years was placed by New Concession Company JSC. These instruments are gradually being substituted by complex structured bonds issued by SPVs: today their share in the total volume of project finance bonds is 35%. Note that in recent years, the increase in bond placements has been driven by SOPF bonds with full recourse of the credit risk on the government.

Figure 3. Major issuers of project finance bonds in Russia4

4 The sample does not include 12 bond issues (worth over RUB 19 bln) of heat and water supply companies, regardless that these securities are called concessionary. These bonds are not project finance bonds in view of the specifics of underlying asset risks and imperfection of bond structure. These financial instruments are essentially corporate bonds. Ten issues of these bonds (worth RUB 16 bln) defaulted, as no credit enhancement mechanisms (specific for project finance instruments) were applied to include specific risks of utility infrastructure concessions.

Source: ACRA’s calculations based on data from the Moscow Exchange
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Alfia Vasilieva
Associate Director - Head of Project Finance Ratings, Project and Structured Finance Ratings Group
+7 (495) 139 04 80, ext. 178
Svetlana Panicheva
Head of External Communications
+7 (495) 139 04 80, ext. 169
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