Investment value and sources of financing

Investment value and sources of financing

Investment value

The total investment value of the Second Track project is EUR 928 million (excluding VAT) at constant prices (January 2021) or EUR 940 million at current prices. A more detailed overview is given in the table below.

Summary of investment costs excluding VAT (EUR million)

Investment costs excluding VAT	Current prices	Constant prices
A. Implementation works	932	916
A.1 Lot 1	404	404
A.2 Lot 2	228	228
A.3 Lot 3	256	240
A.4 Other	45	45
B. Procurement and other costs	15	15
C. Services	127	127
D. TOTAL(A+B+C)	1.075	1.058
E. Contingency reserve (% A+C, excluding contingency)	90	83
F. Costs of services and purchases already spent before 8	-55	-55
G. TOTAL INCLUDING RESERVES	1.109	1.085

Source: OIPZ, Eplan Ltd. The results of the NIP show that the project is economically viable. This is confirmed by an Economic Net Present Value (ENPV) of EUR 408 million, an Economic Internal Rate of Return (EISD) of 8.36% and a Benefit Cost Ratio (BCR) of 2.17.

Sources of funding

In addition to the initial investment costs of EUR 1.109 million at current prices, 2TDK will have to provide financing for other costs to be incurred during the construction period. These consist of EUR 30 million of 2TDK's operating costs and EUR 33 million of interest, compensation and other costs. The total amount of financing at current prices excluding VAT is therefore EUR 1 172 million.

The investment will be financed from various sources.

The largest part is expected to come from Slovenia's capital injection. The total amount of capital is estimated at EUR 503 million, of which EUR 103 million will be contributed by Slovenia from the toll surcharge collected for freight vehicles (a dedicated surcharge on vehicles weighing more than 3,500 kg on a specific motorway corridor) ("Toll Surcharge") and EUR 400 million from the State budget.

Additional funding is expected in the form of EU grants (EUR 289 million), loans from international financial institutions (IFIs, EIB) totalling EUR 250 million and loans from commercial banks (EUR 113 million). In addition, EUR 4 million will be raised through an increased user charge for users of the railway lines in the Slovenian core network ("Increased User Charge") collected during the construction period. In addition, a further EUR 14 million will be raised from the national budget as part of Slovenia's participation in the Cohesion Fund.

During the operational period, 2TDK will cover its activities through the Second Track user charge, the increased user charge and the availability charge. The latter represents the payment of the Republic of Slovenia to 2TDK during the entire operational phase for the service of ensuring the availability of the second track for the smooth operation of rail services, in accordance with the principle of 'no service, no payment' and in accordance with the concession contract. This payment is expected to amount to between EUR 31 and 41 million per year and will be financed by a fee on transhipment in the freight port of Koper ("Transhipment Fee") and a surcharge on the toll for heavy goods vehicles on certain parts of the Slovenian motorway network ("Toll Surcharge"). The project will thus be fully financed by the infrastructure users, i.e. freight carriers by road, rail and via the Port of Koper. The project is also eligible for EU support and is financially sustainable.

Cohesion Fund

The Cohesion Fund is a structural instrument that, since 1994, has helped Member States reduce economic and social disparities and stabilise their economies. The Cohesion Fund finances up to 85% of eligible expenditure for major projects in the fields of environment and transport infrastructure.

The Cohesion Fund benefits the least developed EU countries, whose GDP per capita is less than 90% of the EU average.

Environmental and transport infrastructure projects for the construction or development of transport infrastructure as defined in the guidelines for the development of the trans-European transport network are eligible for Cohesion Fund funding.

The implementation of the European Cohesion Policy covers a wide range of activities at different levels, carried out by different institutions in Slovenia. The division of responsibilities within the institutions is laid down in Regulation 41/2007.

On 8 September 2020, the Company received the European Commission's Support Decision No 2019SI16CFMP001 for a grant from the Cohesion Fund, which awarded a grant of EUR 80.0 million to 2TDK as the beneficiary. The co-financing rate is 85% of the eligible costs. By the conclusion of a contract on 7.5.2021 between 2TDK and the Ministry of Infrastructure, the company was also granted a corresponding Slovenian participation of 15% of the eligible costs, amounting to EUR 14.1 million. The period of eligibility of the expenditure is 1.1.2014 to 31.12.2023.

Title of the operation: Part of the Divača-Koper Second Track (Measure 3) ("Part" refers to the Divača-Koper Second Track project, namely the construction of the T8 tunnel and viaducts V1 and V2)

The current single-track line on the railway section Divača - Koper does not meet modern transport requirements and, due to limited capacity, constitutes a bottleneck in the Slovenian and pan-European TEN-T core rail network.

The key objective of the project is to remove the bottleneck on the Divača-Koper railway section in order to ensure the long-term capacity of the rail transport infrastructure in Slovenia and, consequently, to increase the competitiveness of the economy.

The main objectives of the Second Track project are:

Increase throughput capacity from the current 90 trains/day to 231 trains/day or increase transport capacity from the current 14 million tonnes/year to 43 million tonnes/year.
Reduction of the railway distance on the Divača - Koper section from 44.3 km (existing track) to 27.1 km (on the second track).
Reduction of travel time on the Divača - Koper section from 43-48 min (existing track) to 15-21 min (on the second track).
Increase of the maximum train speed on the section from 65-75 km/h (existing track) to 160 km/h (on the second track).

The subject of the Second Track 2 Divača - Koper (Measure 3) is the construction of 1 T8 tunnel and 2 viaducts V1 and V2

The total cost of the operation is estimated at EUR 133,835,040.13.

The project, which is subject to co-financing by the Cohesion Fund, thus comprises:

The construction of the T8 tunnel, comprising the excavation of the entire tunnel and the construction of the inner arch and portals.
Construction of Viaduct V1, comprising the foundations, supports and lintel structure
Construction of viaduct V2, comprising the foundations, supports and lintel structure

Figure: Location of the Measure 3 project: T8 tunnel and the two viaducts V1 and V2

Physical indicators for Action 3

Indicator reference	Type of indicator	Target value
Total length of newly built viaducts and tunnels without equipment	Impact indicator	4,90 km
V1 viadukt – Gabrovica:
Completion of foundations	Project indicator	1 set
Construction of abutments	Project indicator	1 set
Construction of lintel structure	Project indicator	452 m
V2 viadukt – Vinjan:
Construction of foundations	Project indicator	1 set
Construction of supports	Project indicator	1 set
Construction of the lintel structure	Project indicator	647 m
T8 Predor:
Excavation of the entire tunnel	Project indicator	3.808 m
Construction of inner arch and portals	Project indicator	3.808 m

Connecting Europe Facility (CEF)

Connecting Europe Facility (CEF) - "Second track Divača-Koper - Research, project implementation, construction of access roads, bridging facilities for the Glinščice valley", project number 2016-SI-TMC-0151-M

On the basis of the Agreement on the Allocation of EU Grant under the Connecting Europe Facility, No.INEA/CEF/TRAN/M2016/1365509 (CEF2016), for the project "Second track Divača-Koper - Research, project implementation, construction of access roads, facilities for bridging the Glinščice valley - 2016-SI-TMC-0151-M" (Agreement No. with MZI: 2430-18-900084), in 2017 EU grant funds in the amount of EUR 44.3 million were approved for:

- Additional geological and geomechanical surveys,

- archaeological excavations,

- the preparation of the project for implementation,

- for the construction of access roads,

- the construction of the Glinščice valley bridging structures,

- the relocation of utility lines, and

- the construction of the deviation of the existing line in Divača.

The agreement was signed by the European Commission/Inea Executive Agency and the Ministry of Infrastructure. 2TDK is the executing body under the Agreement.

The EU co-financing rate is 85% of the eligible costs and the period of eligibility has been extended by annexes to the Agreement until 31.12.2023.

Connecting Europe Facility (CEF) - Project "Second Track Divača-Koper - Construction of Tunnels T1-T7", Project Number 2016-SI-TMC-0151-M 2017-SI-TM-0016-W

In 2018, 2TDK was awarded a European grant of EUR 109.03 million for the project "Divača-Koper Second Track - Construction of T1-T7 Tunnels" for the following project:

- T1 tunnel construction,

- the construction of the T2 tunnel,

- the construction of the T3-T7 tunnels,

- project management and supervision.

On 31 May 2018, 2TDK signed an EU IPE Grant Agreement with the European Executive Agency for Climate Change, Infrastructure and Environment (CINEA), No INEA/CEF/TRAN/M2017/1483609 (CEF2017), Project No: 2017-SI-TM-0016-W, formally awarding the funds to 2TDK.

In June 2019, the Company received written confirmation from CINEA that it has submitted all relevant evidence that the project meets the conditions for the release of the EUR 109.0 million grant under the CEF2017 agreement.

The EU co-financing rate is 20% of the eligible costs and the eligibility period has been extended by annexes to the agreement until 31.12.2024.