tollway presentation combined final

8/8/2019 Tollway Presentation Combined Final

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THE HUNGARIAN TOLLWAY PROJECTTHE HUNGARIAN TOLLWAY PROJECT

LASMAROHA SIMBOLONLASMAROHA SIMBOLON

TAKU ICHIHASHITAKU ICHIHASHI

WARATHORN WONGSAWANGSIRIWARATHORN WONGSAWANGSIRI

YOUNGIN YOON YOUNGIN YOON


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GENERAL BACKGROUNDGENERAL BACKGROUND

LOCATION: Central EuropeCentral Europe

CAPITAL:

Budapest.

Budapest.

BOUNDARIES: Slovakia, Ukraine, Romania, SerbiaSlovakia, Ukraine, Romania, Serbia,

Croatia, Slovenia and Austria.Croatia, Slovenia and Austria.

TOTAL AREA: approximately 93,030 square kilometers.approximately 93,030 square kilometers.


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MAP OF HUNGARYMAP OF HUNGARY


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GENERAL BACKGROUND (cont.)GENERAL BACKGROUND (cont.)

LANDSCAPE: TheThe landscapelandscape ofof HungaryHungary isis mostlymostly flatflat

toto rollingrolling plainsplains of of thethe CarpathianCarpathian

BasinBasin andand mostmost of of thethe countrycountry hashas ananelevationelevation ofof fewerfewer thanthan 200200 metersmeters

POPULATION: AsAs of of JulyJuly 20092009,, 1010,,020020,,000000 withwith thethe

growthgrowth raterate ofof --00..22%%

OFFICIAL LANGUAGE: HungarianHungarian


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ECONOMIC BACKGROUNDECONOMIC BACKGROUND

EUROPEAN UNION:EUROPEAN UNION: Hungary joined EU in 2004Hungary joined EU in 2004

MAJOR FINANCIAL PROBLEM:MAJOR FINANCIAL PROBLEM:

High deficit rate compared with otherHigh deficit rate compared with other countries in EUcountries in EU

SOLUTION TO THE FINANCIAL PROBLEMS:SOLUTION TO THE FINANCIAL PROBLEMS:

Heavy borrowings from the IMF andHeavy borrowings from the IMF and other financialother financial

institutions at the end of 2008 have helped to balance ainstitutions at the end of 2008 have helped to balance a

large current account and budget deficitlarge current account and budget deficit


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ECONOMIC BACKGROUND (cont.)ECONOMIC BACKGROUND (cont.)

CURRENCY:CURRENCY: The currency used in Hungary isThe currency used in Hungary is

Hungarian ForintHungarian Forint(HUF). Hungary is(HUF). Hungary is

not able to adopt the EURO currencynot able to adopt the EURO currency

due to the high deficit ratedue to the high deficit rate

EXCHANGE RATE:EXCHANGE RATE: 11 US Dollar =US Dollar = 180180..420420 HungarianHungarian

ForintForint , 11 Euro =Euro = 270270..364364 HungarianHungarian

ForintForint

MONETARY POLICY:MONETARY POLICY: The Magyar Nemzeti Bank controlsThe Magyar Nemzeti Bank controls

the monetary policy of Hungary jointlythe monetary policy of Hungary jointly

with the governmentwith the government


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CREDIT RATINGCREDIT RATING

Standard & Poors Ratings Services (S&P)Standard & Poors Ratings Services (S&P)

Foreign Currency LT Debt :Foreign Currency LT Debt : BBBBBB--

Moodys Corporation (Moodys)Moodys Corporation (Moodys)

Foreign Currency LT Debt :Foreign Currency LT Debt : Baa1Baa1

Fitchs Rating (Fitchs)Fitchs Rating (Fitchs)

Foreign Currency LT Debt :Foreign Currency LT Debt : BBBBBB

Japan Credit Rating AgencyJapan Credit Rating Agency

Foreign Currency LT Debt :Foreign Currency LT Debt : BBB+BBB+


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POLITICAL BACKGROUNDPOLITICAL BACKGROUND

STATE:STATE: An independent, democratic andAn independent, democratic and

constitutional stateconstitutional state

PRESIDENT:PRESIDENT: Mr. Lszl Slyom is the PresidentMr. Lszl Slyom is the President

since Junesince June 20052005

PRIME MINISTER:PRIME MINISTER: Mr. GyrgyMr. Gyrgy GordonGordon Bajnai is theBajnai is the

Prime Minister sincePrime Minister since 20092009

NATIONAL ASSEMBLY:NATIONAL ASSEMBLY: consists ofconsists of 386386 members, whomembers, who

have a tenure ofhave a tenure of 44 yearyear


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President and Prime MinisterPresident and Prime Minister

Mr. LszlSlyom Mr. GyrgyGordon Bajnai


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LEGAL BACKGROUNDLEGAL BACKGROUND

HungarysHungarys lawslaws andand regulationsregulations areare inin lineline withwith thethe EUsEUs

standardstandard sincesince itit becamebecame aa membermember ofof EUEU onon MayMay 11,, 20042004

PriorPrior toto EUEU accession,accession, thethe GovernmentGovernment enactedenacted manymany

lawslaws toto createcreate aa businessbusiness--friendlyfriendly environmentenvironment

TheThe InvestmentInvestment ActAct:: GrantingGranting incentivesincentives toto foreignforeign

investorsinvestors

TheThe CompanyCompany ActAct:: LimitedLimited LiabilityLiability CompanyCompany (Kft(Kft..)) andand

CompanyCompany LimitedLimited byby SharesShares (Rt(Rt..))


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LEGAL BACKGROUND (cont.)LEGAL BACKGROUND (cont.)

EnvironmentalEnvironmental LawLaw:: areare inin compliancecompliance withwith thethe

environmentalenvironmental regulationsregulations ofof thethe EU,EU, asas suchsuch compliancecompliance

waswas oneone of of thethe requirementsrequirements forfor HungarysHungarys EUEUmembershipmembership

BankruptcyBankruptcy LawLaw:: establishesestablishes thethe followingfollowing prioritiespriorities ofof

claimsclaims toto bebe paidpaid:: 11)) liquidationliquidation costscosts;; 22)) securedsecured debtsdebts;; 33))

claimsclaims ofof individualsindividuals;; 44)) socialsocial securitysecurity andand taxtax obligationsobligations;;55)) allall otherother debtsdebts.


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LEGAL BACKGROUND (cont.)LEGAL BACKGROUND (cont.)

HungaryHungary hashas acceptedaccepted bindingbinding internationalinternational arbitrationarbitration inin

casescases wherewhere thethe resolutionresolution ofof disputesdisputes betweenbetween foreignforeign

investorsinvestors andand thethe statestate isis unsuccessfulunsuccessful

HungaryHungary isis alsoalso aa signatorysignatory toto thethe 19581958 NewNew YorkYork

ConventionConvention onon thethe RecognitionRecognition andand EnforcementEnforcement ofof

ForeignForeign ArbitralArbitral AwardsAwards


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SKSK

AA

SLSLOO

HRHRYUYU

RORO

UAUA

RbafzesRbafzes

ParassapusztaParassapuszta

VcVc

TornyosnmeTornyosnme

titi

RszkeRszke

IlocskaIlocska

LetenyeLetenye

DunajvrosDunajvros

EgerEger

VeszprmVeszprm

GyGyrr

TatabnyaTatabnya

KaposvrKaposvr

PcsPcs

BoglrlelleBoglrlelle

SzekszrdSzekszrd

SopronSopron

MohcsMohcs

KecskemtKecskemt

BkscsabBkscsab

aa

NyregyhzaNyregyhza

MiskolcMiskolc

DebrecenDebrecen

FzesabonyFzesabony

BajaBaja

PolgrPolgr

SzolnokSzolnok

Existing motorway,MarchExisting motorway,March 20062006Motorway (Motorway (20032003--20062006))

Motorway (Motorway (200872015200872015))Expressway (Expressway (20032003--20072007))

Expressway (Expressway (20082008--20152015))Expressway under construction (Expressway under construction (20082008--20152015))

NagylakNagylak

Duna

Duna

TiszaTiszaM3M3

00

M3M3

M3M3

M33

55

M4M4

MM88

MM44

M0M0

M2M2

M8M8

M1M1

55

M1M1

M9M9

M77

00

MM77 M6M6

M9M9

M6M6

M4M4

33

M4M4

44

ZalaegerszeZalaegersze

ggBkeresztrBkeresztr

NagykanizsaNagykanizsa

M25M25

M8M8

66SzombathelySzombathely

BUDAPESTBUDAPEST

EmEmdd

SzegedSzeged

KiskunflegyhzaKiskunflegyhza

M5M5

SzkesfehrvSzkesfehrv

rr

Motorway development plan of Hungary


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Our BidOur Bid

283 million283 million

54% Debt54% Debt ;; 46% Equity46% Equity


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FinancingFinancing

Project Ownership StructureProject Ownership Structure

BNP (10%)BNP (10%)

The Government (10%)The Government (10%)

Institutional Investors (80%)Institutional Investors (80%)

Debt CompositionDebt Composition

IFC Loan (IFC Loan (71 million = 25%)71 million = 25%)

Bond Issue (Bond Issue (81 million = 75%)81 million = 75%)

6.5%6.5%Interest RateInterest Rate


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TimingTiming

Financing period:Financing period: 1 year1 year

Construction time:Construction time: 1 year1 year

First revenues in early 2012First revenues in early 2012


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283 million283 million includes:includes:

Construction CostsConstruction Costs

Engineering and Constructor FeesEngineering and Constructor Fees

Legal FeesLegal Fees

Loan FrontLoan Front--End FeesEnd Fees

PrePre--Operation Interest ExpensesOperation Interest Expenses

but does not include:but does not include:

Resurfacing costsResurfacing costs


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LOWLOW Currency RiskCurrency Risk

HUF SemiHUF Semi--pegged to the EUROpegged to the EURO

Hungary may adopt the EURO soonHungary may adopt the EURO soon

Mitigation OptionMitigation Option: interest rate swaps: interest rate swaps


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LOWLOW Inflation RiskInflation Risk

ShortShort--term inflation projections are favorableterm inflation projections are favorable

Hungary will likely adopt the EURO in the long termHungary will likely adopt the EURO in the long term

Mitigation OptionMitigation Option: the Project is denominated entirely: the Project is denominated entirely

in EUROin EURO


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Relevant LawsRelevant Laws

Act of 1991. XVI (Act of 1991. XVI (CConcessiononcession)) and its amendment (Actand its amendment (Act

of 2000. XXXIV)of 2000. XXXIV)

Act of 1991. XLIX (Act of 1991. XLIX (Liquidation and DissolutionLiquidation and Dissolution ) and its) and its

amendment (Act of 2006. VI)amendment (Act of 2006. VI)

Act of 2003. CXXAct of 2003. CXXXXIII (III (PPublicublic IInterest andnterest and DDevelopmentevelopment

ofof EExpresswayxpressway NNetworketwork)) and its supplement (and its supplement (Act ofAct of2005. LXV2005. LXV))


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Legal Risks and MitigationLegal Risks and Mitigation

What is the choice of law?What is the choice of law?

Do the project contracts work?Do the project contracts work?

Are the project lenders able to enforce theirAre the project lenders able to enforce their

collateral?collateral?


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Legal Risks and Mitigation (cont.)Legal Risks and Mitigation (cont.)

Property LawProperty Law

TheThe GovernmentGovernment willwill ownown thethe landland..

RiskRisk:: ValidValid titletitle

RiskRisk mitigationmitigation:: providingproviding rightright ofof way,way, permissionpermission toto

exerciseexercise rightsrights over over thethe land,land, providingproviding thethe projectproject

companycompany aa guarantyguaranty ofof validvalid title,title, payingpaying thethe

compensationcompensation toto privateprivate ownerowner whowho makesmakes anyany claimclaim

onon thethe titletitle


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Legal Risks and Mitigation (cont.)Legal Risks and Mitigation (cont.)

Concession LawConcession Law

Risk:Risk: the rights to stepthe rights to step--inin

RiskRisk mitigationmitigation:: specifyingspecifying aa provisionprovision inin thethe

concessionconcession agreementagreement regardingregarding thethe assignmentassignment ofof

concessionconcession rightsrights andand dutiesduties toto aa thirdthird partyparty inin casecase ofof

defaultdefault underunder thethe financialfinancial agreementsagreements


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Legal Risks and Mitigation (cont.)

Bankruptcy LawBankruptcy Law

Risk: Any creditor can initiate aAny creditor can initiate a

bankruptcy lawsuitbankruptcy lawsuit

The recovery of debt repaymentThe recovery of debt repayment

Risk mitigation:

Interest rateInterest rate

Financial covenant provisions, andFinancial covenant provisions, and

opening of an offshore escrow accountopening of an offshore escrow account


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Contract LawContract Law

Environmental LawEnvironmental Law

JurisdictionJurisdiction

International Dispute ResolutionInternational Dispute Resolution -- ArbitrationArbitration

Foreign Exchange ControlForeign Exchange Control


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PoliticalRiskPoliticalRisk :: Moderate to HighModerate to High

FactorsFactors

CommunismCommunism Background

EconomicCrisisEconomicCrisis

Mitigation:Mitigation:

Purchase Insurance from OPICPurchase Insurance from OPIC

Purchaseinsurance fromcompanies withPurchaseinsurance fromcompanies with

expertise/knowledgeincentralEuropeexpertise/knowledgeincentralEurope

IFC,ispartofthe WordBankGroup,to lendthe ProjectIFC,ispartofthe WordBankGroup,to lendthe Project

anamountequaltoapproximately 25% ofitstotal valueanamountequaltoapproximately 25% ofitstotal value


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PREPRE--COMPLETION RISKSCOMPLETION RISKS

Main construction risksMain construction risks

Completion on scheduleCompletion on schedule

Completion in the quality standardCompletion in the quality standard

Completion on budgetCompletion on budget


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PREPRE--COMPLETION RISKS (cont.)COMPLETION RISKS (cont.)

Construction RisksConstruction Risks(On Schedule)(On Schedule) AllocationAllocation Strabag will be paid upfront (Strabag will be paid upfront (4040%) and installments%) and installments

((2020%) at the time of completion of each phase%) at the time of completion of each phase

Rationale:Rationale: To fulfill the completion on time, StrabagTo fulfill the completion on time, Strabag

shouldbecontrolledinallconstructiondurationshouldbecontrolledinallconstructionduration

The last installment will be divided into two portions (i)The last installment will be divided into two portions (i)

1010% in cash and (ii)% in cash and (ii) 1010% in equity% in equity

Rationale: Strabag is also an owner of suchRationale: Strabag is also an owner of such

constructionconstruction


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Construction Risks (On Schedule) AllocationConstruction Risks (On Schedule) Allocation

If delayIf delay penalty feespenalty fees

Rationale:Rationale: Tomitigatetimingrisksby warning StrabagTomitigatetimingrisksby warning Strabag

nottodelayanyconstructionnottodelayanyconstruction

Strabag shall provideStrabag shall provide a Performance Bonda Performance Bond (100% of(100% of

the total value of the contract) releasing date upon thethe total value of the contract) releasing date upon the

completion of the projectcompletion of the project

Rationale:Rationale: ToguaranteethecompletionToguaranteethecompletion


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Construction Risks (On Schedule) AllocationConstruction Risks (On Schedule) Allocation

Prohibition of extending the deadline except for ForceProhibition of extending the deadline except for Force

MajeureMajeure

RationaleRationale: Forthisproject,the Ownerdoesnotallow: Forthisproject,the Ownerdoesnotallow

extendingthedeadline.extendingthedeadline.


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Construction Risks (Quality) AllocationConstruction Risks (Quality) Allocation

Warranty of constructionWarranty of construction

RationaleRationale:: ToTo motivatemotivate StrabagStrabag toto carefullycarefully constructconstruct

thethe motorwaysmotorways.. StrabagStrabag shallshall provideprovide thethe OwnerOwner

aa GuaranteeGuarantee BondBond ((3030%%)) whichwhich willwill bebe returnedreturned toto

StrabagStrabag afterafter thethe warrantywarrantyperiodperiod expiredexpired


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Construction Risks (Quality) Allocation (cont.)Construction Risks (Quality) Allocation (cont.)

RightRight ofof firstfirst refusalrefusal StrabagStrabag hashas aa rightright ofof firstfirst refusalrefusal toto

conductconduct aa futurefuture majormajor resurfacingresurfacing ofof thethe highwayshighways withwith thethe

conditioncondition ofof thethe satisfactorysatisfactory performanceperformance underunder thethe contractcontract..

RationaleRationale:: TheThe OwnerOwner givesgives anan incentiveincentive forfor StrabagStrabag toto

complycomply withwith thethe agreementagreement


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Construction Risks (On Budget) AllocationConstruction Risks (On Budget) Allocation

CostCost overrunsoverruns -- thethe riskrisk ofof costcost overrunsoverruns will,will, then,then, bebe

allocatedallocated toto StrabagStrabag

RationaleRationale:: ToTo ensureensure thatthat shortageshortage ofof capitalcapital willwill notnot

preventprevent thethe projectproject fromfrom beingbeing completed,completed, thethe sponsorssponsors

ofof thethe projectproject willwill provideprovide aa standbystandby letterletter ofof cr editcredit

((3030%%))


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Environmental RisksEnvironmental Risks

Environmental risk is moderateEnvironmental risk is moderate

Air pollutionAir pollution

Noise pollutionNoise pollution

Mitigation of Environmental riskMitigation of Environmental risk

Provision regarding the observation of environmentalProvision regarding the observation of environmental

regulationsregulations


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POSTPOST--COMPLETION ANALYSISCOMPLETION ANALYSIS

Operation Risks AllocationOperation Risks Allocation

TrafficandRevenueRiskTrafficandRevenueRisk: LowtoModerate: LowtoModerate

FactorsFactors AccurateEstimationof TrafficFlowAccurateEstimationof TrafficFlow

GovernmentTransportation PolicyRiskGovernmentTransportation PolicyRisk

GovernmentSupportRiskGovernmentSupportRisk-- NonNon--InterferenceInterference

PublicSupportRiskPublicSupportRisk

Mitigation:Mitigation: Hiringexperiencedindependent forecastcompanyHiringexperiencedindependent forecastcompany

OthersourcesofincomeOthersourcesofincome

ConcessionAgreementtogainsupport fromgovernmentConcessionAgreementtogainsupport fromgovernment

Advertisement,education,employmenttogainpublicAdvertisement,education,employmenttogainpublic

supportsupport


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MitigationMitigation : AccurateEstimationof TrafficFlow: AccurateEstimationof TrafficFlow

Hiring experienced independent forecastHiring experienced independent forecast

companycompany

Other sources of incomes such as rental fromOther sources of incomes such as rental fromadvertisement board and rental from the Oasisadvertisement board and rental from the Oasis

including parking lots, gas station, fast food,including parking lots, gas station, fast food,

minimart and restrooms.minimart and restrooms.

Negotiate wit

hthe government to support ourNegotiate wit

hthe government to support ourproject in term of tax benefits if the traffic flow isproject in term of tax benefits if the traffic flow is

below the estimation.below the estimation.


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MitigationMitigation:: ConcessionAgreementtogainConcessionAgreementtogainsupport fromgovernmentsupport fromgovernment

((11)) GovernmentGovernment shallshallnotnot permitpermit oror supportsupport otherother locallocalserviceservicetoto competecompete thethe ourour tolltoll wayway project, project, includingincluding butbut notnotlimitedlimited toto futurefuture expansionexpansion ofof competingcompeting roads,roads, bridgesbridges

andand tunnels,tunnels, ferryferry service,service, railwayrailway roadsroads andand anyany otherotherpublicpublic transittransit projects projects thatthat willwill provideprovide alternativealternative transittransitoptionsoptions wouldwould bebe builtbuilt alongalong thethe proposedproposed tolltollroadroad..

((22)) GovernmentGovernment willwill compensatecompensate thethe investorsinvestors ifif damagedamage isisdonedone byby locallocalcompetitioncompetition oror otherotherformsforms ofofoppositionopposition..

((33)) GovernmentGovernment shallshall completecomplete thethe feederfeeder roadsroads andandcompensatecompensate thethe projectprojectforfor thethe completioncompletion delaydelayandand shallshallnotnot impostimpost tollstolls onon thethe feederfeeder roadsroads andand toto maintainmaintain thethefeederfeeder roadsroads..


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Operation Risk: cont.Operation Risk: cont.

ManagementRiskManagementRisk: Low: Low

FactorsFactors

Maintenance,repair,tollcollectionMaintenance,repair,tollcollection


ExperiencedoperationcompanyExperiencedoperationcompany

OperationagreementOperationagreement


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TechnologyRiskTechnologyRisk : Low: Low

FactorsFactors

TechnologymanagementTechnologymanagement


Technologyservice licenseTechnologyservice license


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ThirdThird--PartyLiabilityPartyLiability : Low: Low

FactorsFactors

LiabilitytothirdLiabilitytothird--party fromusingthetoll wayparty fromusingthetoll way


ThirdThird--party liabilityinsurancecoverageparty liabilityinsurancecoverage

throughouttheconcessionthroughouttheconcession


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tollway presentation combined final

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