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Public Private

Partnerships in
Indian Roads
Overview & Critique

Oct 14, 2016 Phani Prasad Mandalaparthy,


Assistant Manager, S&O-MPA, IG&H,
KPMG.com/in KPMG, Mumbai
Table of content
1 Public Private Partnerships – A Primer

2 Public Private Partnerships – Framework in Indian Road Sector

3 Indian PPPs’ Timeline & Sector-wise Distribution

4 PPP Sub-Sectors Breakup

5 Kilometerstones on the Indian Road Story

6 Indian Road Network – Facts & Figures

7 State-wise Road Density in India

8 Primary Road Implementation Agencies & Flagship Programmes

9 Indian Road PPPs Experiences

10 Outlook

11 Our Presence – As the Lenders’ PMC

12 Our Presence - Positioning & Exclusivity

13 Our Presence - Value Additions

14 Sector Opportunities

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Public Private Partnerships
A Primer

 PPP …
“a public service or facility that was conventionally
being provided by the Government of a country by
virtue of being a socialist political or economic
organization or the Government and/or the public
authority entrusted with providing the public service or
facility having financial or technical capacities that
render it in a better position as a natural monopoly to
provide that service/facility.”
 Aims:
 Better price discovery,
 Better utilization of resources and
 Superior deliverable-based provision of services

 Prime benefit - reduction in borrowings or savings.


 Popular PPP models for Roads & Bridges in India are:
 Why “Concession”?
 Engineering Procurement & Construction (EPC)
 Warrants:
 Build Operate Transfer (BOT)
 Massive infrastructure need  Toll
 Annuity
 Government is admittedly unable to finance  Hybrid Annuity (HAM)
infrastructure as a whole  Build Own Operate (BOO)
 Design,Build,Finance,Operate,Transfer (DBFOT)
 … and Highways in particular  Toll Operate Transfer (TOT)

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Public Private Partnerships
Framework in Indian Road Sector

 SPV (Special Purpose Vehicle) Creation after an


open competitive bidding process.
 SPV = Concessionaire
 The other agencies involved are:
 SPV/Concessionaire
 Sponsors/Promoters
 Designers
 Execution Contractors
 Suppliers and Petty Vendors
 Insurers
 Project Management Consultant
 Operation & Maintenance Contractor

 Independent Engineer/ Independent Consultant/


General Engineering Consultant

 Project Lenders/Financiers
 Legal Counsel (LLC)
 Independent Engineer (LIE)
 Insurance Advisor (LIA)

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Indian PPPs’ Timeline & Sector-wise Distribution
 250,000
Communication
Energy 12% 1%
Social and Commercial Infrastructure

 200,000 Transport
Water Sanitation 46%

39%
 150,000
2%

 100,000

 50,000

 ‐

The graph shows the value of Projects implemented on PPP since 1992 till the current FY 16-17.
Source: http://infrastructureindia.gov.in
All figures in Rs. Crore

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PPP Sub-Sectors Breakup
₹ 926,567 Electricity generation (grid)
₹ 686,388 Roads and bridges
₹ 378,820 Renewable energy (grid)
₹ 311,153 Railway track, tunnel, viaducts, bridges
₹ 304,764 Irrigation (dams, channels, embankments, etc.)
₹ 206,517 Urban public transport (except rolling stock)
₹ 197,651 Electricity transmission
₹ 147,758 Ports (excluding captive)
₹ 72,986 Water supply pipeline
₹ 64,464 Common infrastructure for industrial parks, SEZ
₹ 58,770 Gas pipelines
₹ 49,264 Airports
₹ 37,505 Oil/ Gas/ LNG Storage
₹ 26,182 Telecommunication towers
₹ 22,215 Sewage collection, treatment and disposal system
₹ 18,191 Oil pipelines
₹ 7,611 Solid waste management
₹ 7,494 Storm water drainage system
₹ 5,104 Tourism
₹ 4,128 Cold Chain
₹ 3,924 Water treatment plants
₹ 965 Health Care
₹ 432 City gas distribution
₹ 274 Education
₹- Inland waterways

The chart depicts the project costs of all PPP investments made or proposed in the country since 1991.
Source: http://infrastructureindia.gov.in
All figures in Crore

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Kilometerstones on the Indian Road Story
Jaykar Committee Recommendations
1929 1984 Lucknow Plan
Central Road Fund (CRF)

1988 National Highway Authority of India (NHAI)


1934 Indian Road Congress (IRC)

1939 Motor Vehicle Act 1997 First Union level PPP in Road/Bridge

1943 1999 National Highway Development


Nagpur Plan Programme (NHDP)

Central Road Research Institute 2005 SARDP-NE


1952
(CRRI)

B. K. Chaturvedi Committee
2009 Recommendations
National Highway Act 1956
C. Rangarajan Committee Recommendations
Exit Liberalization
2013-14
Hybrid Annuity Model (HAM)
Border Roads Organization (BRO) 1960 National Highway Infrastructure Dev Co Ltd. (NHIDCL)

Bharat Mala
One Time Fund Infusion
2015
Bombay Plan 1961 Toll Operate Transfer (TOT) Model
Arbitration & Conciliation Act Amendments
Vijay Kelkar Committee Recommendations

2016 National Highway Grid Connectivity


1973 Highway Research Board NITI Aayog Policy Changes

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Indian Road Network – Facts & Figures
 Magnitude: With nearly 5.1 Lakh km as
on date, India has the 2nd longest road
1,533,927 ,
network in the world after USA 33.7%

 Imbalance: District Roads & Rural Roads 25,887 , 0.6%


which together form nearly 94% of the
total length, National Highways that
cater to 70% of passenger traffic and
60% of total Freight transported, in the 99,565 , 2.2% 50,778 , 1.1%
country despite measuring 2.2%. 165,339 , 3.6%

 Capacity Insufficiency: These NHs are


mainly Two laned comprising 51% of 22,900 , 0.5%

the NH length followed by Uni-laned


2,757,814 ,
roads that make for 26%. Four or more 60.5%
laned roads form the remaining 23%.

 Under spread: Road Density per sq. km


State Highways MDRs & ODRs
in India is nearly 0.15 (2015) whereas
Rural Roads Single/Intermediate Lane
the National Highways density per sq. Double Lane Four/Six/Eight Lane
km is 0.03 roughly extrapolated for National Highways
2015.

All figures in INR

Source: Wikipedia

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State-wise Road Density in India
 Among the States, Uttarakhand
has the longest cumulative NH
length while Sikkim has the
shortest cumulative NH length.

 Again, in terms of road density


per sq.km, Uttarakhand has the
highest while J&K has the
lowest.

 In terms of road density


measured as the road length
per 1,00,000 people, the
adjacent colour map depicts
the variation across India.

Source: M Tracy Hunter, Wikipedia

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Primary Road Implementation Agencies & Flagship Programmes

National Ministry of Road Central Public Ministry of


National Highway Border Roads
Highways & Transport & Works Rural
Authority of India Organization
Infrastructure Dev Highway Department Development
(NHAI) Co. Ltd. (NHIDCL) (BRO)
(MoRT&H) (CPWD) (MoRD)
The nodal agency The implementation Non NHDP stretches are CPWD develops roads Development of Rural Development of Border
mandated to develop agency for North East developed by MoRT&H and bridges under the roads are carried out roads of strategic
the NHDP - all seven road development, Hilly directly through its PWD Ministry of Urban by this Ministry importance in India and
phases under the roads and Border Areas NH Divisions in various Development (MoUD) friendly countries under
MoRT&H under MoRT&H States the Ministry of Defence
(MoD)

Golden Quadrilateral Z-Morh Tunnel Bharat Mala Urban Roads in Union Pradhan Mantri Gram HIMANK (Ladakh)
North-South-East-West Char Dham Road Setu Bharatam Territories Sadak Yojana (PMGSY) Rohtang Tunnel
Connectivity Border connectivity State Highway Transfer Delaram-Zaranj
Port Connectivity Highway
Expressways
NH Grid Connectivity

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Indian Roads PPP Experience
The GOOD The BAD The UGLY

1. Cheap Mode of Project 1. Related Party Transactions 1. Stressed Assets


Implementation for the
Government 2. Transfers/Siphoning of 2. Interest Rate Victims
Funds
2. New crop of Developers 3. Inflated Project Costs
who enjoyed large order 3. Delivered quality of asset
books not matching expectations 4. Inept Due Diligence by
Project Lenders
3. Interest evinced by foreign 4. Loose Supervision
investors/developers
5. Curious Role of the
5. Failures in Land Acquisition Independent Engineer
4. Deliverable-based & Forest Clearance by the
Concessions in theory lead Project Authority 6. Disputes between Project
to accountability for quality
Authority and
of the Private parties
6. “Thekedaar” mentality of Concessionaire
the Project Authority
5. Innovative Models – HAM, 7. Withholding compensation
TOT to the Concessionaire
7. Lack of State Participation

8. Metric of calculating Road 8. User Fee Resistance


construction per day
9. Government Policy Whims

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Indian Roads PPP Experience
The GOOD The BAD The UGLY

6. Arbitration & Conciliation 9. Lack of Independent Road 10. Repackaging of earlier or


Act amendments Regulator existing initiatives (80% LA,
Extension of Concession
7. Exemption of National Period, etc.)
10. Making shifting of existing
Highways from the new arbitrations to new
Land Acquisition Act Arbitration & Conciliation 11. Dependent Independent
Act (Amended) non- Engineer
8. Relaxation of the Exit Policy mandatory

9. INAMPRO, ePACE, 11. Lack of active support by


INFRACON States

10. Adoption of Premium


Deferment

11. Delinking of Environmental


Clearance from Forest
Clearance

12. CDR, SDR, 5/25, S4A

13. One Time Fund Infusion

14. NITI Aayog Policy decisions

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Outlook
• The success of PPPs in Indian Roads will
depend largely on Consistency in policy
and Swiftness and amicableness in
resolution of disputes Emphasis on
Commissioning

• Risk of Skewed Capacity

• Bailout package for banks

• Tapping the Bond market

• Better Risk Provisioning & Innovating for


Financing and Execution • IEs should Shun Needless Reviews
concerns of the Developer should be
• Focus of Project Quality and Safety viewed in a disinterested manner.

• States should be pursued to financially


support the National Highway projects.

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Our Presence
As The Lenders’ Project Management Consultant (LPMC)
• 84 km stretch on NH 17 on the Mumbai-Goa route originally scheduled for completion by June 2014
• SPV called Supreme Panvel Indapur Tollway Ltd. (SPITPL) promoted by M/s Supreme Infrastructure India Ltd.
Panvel‐ • Total Project Cost of Rs. 1,206 tied at a Debt-Equity Ratio 2.94:1 with State Bank of India as Lead Lender
Indapur,  • Awarded in 2011 and currently scheduled for commissioning by June 2017
Maharashtra

• 157 km stretch on NH 24 on the Delhi-Lucknow route originally scheduled for completion by Sep 2013
• SPV called Bareilly Highway Projects Ltd. (BHPL) promoted by M/s Era Infrastructure India Limited
• Total Project Cost of Rs. 1,951 Cr tied at a Debt-Equity Ratio 2.54:1 with State Bank of India as Lead Lender
Bareilly‐ • Awarded in 2010 and currently scheduled for commissioning by March 2017
Sitapur, 
U.P

• 30 km stretch on SH 16 on the Malout-Shadul Shahar route originally scheduled for completion by Nov 2015
• SPV called Kotkapura Muktsar Tollway Pvt Ltd (KMTPL) promoted by M/s Supreme Infrastructure BOT Pvt Ltd
• Total Project Cost of Rs. 105 Cr tied at a Debt-Equity Ratio 2.53:1 with Union Bank of India as Lead Lender
Kotkapura‐ • Awarded in 2014 and currently scheduled for commissioning by October 2016
Muktsar,
Punjab

• 78 km stretch on NH 34 on the Kolkata-Bahrampore route originally scheduled for completion by July 2014
• SPV called SEW Krishnagar Bahrampore Highway Ltd. (SKBHL) promoted by M/s SEW Infrastructure Pvt. Ltd.
Krishnagar‐ • Total Project Cost of Rs. 640 Cr was tied at a Debt-Equity Ratio 4:1 with State Bank of India as Lead Lender
Bahrampore,  • Awarded in 2012 and currently scheduled for commissioning by July 2014
West Bengal

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Positioning & Exclusivity
Stalled Projects Mounted since late last decade. To revive these projects, and avoid further deterioration
of their assets, lenders sanctioned additional loans and
The lenders couldn't keep a close watch on these
projects because of their admittedly flawed extant A new project implementation setup was created
project setup:

Blue dotted line denotes flow of funds/remittances

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Value Additions
Enhanced Visibility Improved Project Performance
In order to assure themselves of the flow of funds Through key interventions and our escalations
directly to the third parties, the presence of a mechanism we were able to effect better billing
Lender’s representative gave rise to an assurance and documentation systems of the Principal
to the Lenders of those parties’ presence and Contractor. This in turn lead to accurate
services and deliveries. measurements, avoidance of overlaps during
invoicing and precise material reconciliation.

Better Risk Communication Confidence in End Use

Our presence resulted in flagging of risks that were By proper quantification of the volume of works
hitherto not communicated to the Lenders. being executed and verifications of items being
Drawing from our experiences and visible delivered, the Lenders evinced confidence in the
impediments to the work progress we could transmission of funds from the Escrow to the
escalate and advise timely mitigations to avoid or parties whose payments were recommended by us.
reduce the occurrence of risks to the project.

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Opportunities
1. Empanelment to be eligibility for competitive bids

a. Commercial Banks
b. Ministries - Road Transport & Highways, Shipping, Urban, Rural, Defence, etc.
c. Implementation Agencies – NHAI, NHIDCL

2. Approaching Multilateral Development Finance Institutions financing projects


in India:

a. IFC
b. IBRD
c. ADB

3. Proposing Services to Indian Development Finance Institutions

a. IIFCL
b. NIIF
c. PFC

4. Registration on INFRACON – a recently launched portal for Consultants that


brings together buyers and sellers
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Thank You
The information contained herein is of a general nature and is not
intended to address the circumstances of any particular individual or
entity. Although we endeavour to provide accurate and timely
information, there can be no guarantee that such information is accurate
as of the date it is received or that it will continue to be accurate in the
future. No one should act on such information without appropriate
professional advice after a thorough examination of the particular
situation.
© [2016] KPMG, an Indian Registered Partnership and a member firm of
the KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity. All
rights reserved.
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