Expr Maharashtra

Public Private Partnership
Initial Outcome of PPP process flow study in India
By P. L. Bongirwar
Advisor, L&T
Why PPP ?
Rapid infrastructure development for economic development Inadequate budgetory resources to meet the demands Supplementing grants through PPP route by charging to beneficiaries Fruitful use of efficiency of private sector of execution and financial management
PPP - Public Private Partnership
Page 2
Why PPP ?
Major shift from general public thinking
Highway sector to be developed by Govt. resources and is Governments responsibility
User charges / fees paid is only part of actual cost

e.g. fees for higher education as a part of actual cost to Govt.
Cess on irrigated land equal to part of the actual additional income
Toll or user charges has to be part of direct benefit Situation in other sectors
Education Health Services Water Supply Area Development
Power production Urban transportation Distribution, production and management of power
Page 3
Advantage of PPP route

Best use of high financial, execution and management skills of private sector Creating more durable assets by delivering quality products Faster mode of execution making the early benefits of assets available to society Development of new technology due to inbuilt incentive mechanism Efficient use of resources as men, machines, construction material and money
Page 4
PPP Projects - Favorable features

Returns not dependable on subsequent efficiency Alternate routes not developed - hence virtually Monopolistic situations In built incentive mechanism to prove efficiency and create durable assets Returns not highly sensitive to rate of traffic growth. Initial traffic is important
Page 5
Illustration 1 - Returns not too sensitive to traffic growth

Toll income and project cost First year toll income * All amounts are in INR Lakhs Expected Traffic Growth Year 1 2 3 4 5 6 7 8 9 10
100.0
Discount rate Toll index 6% 7% NPV Exptd Toll 112.4 198.1 296.3 393.8 490.7 587.0 682.7 777.8 872.3 966.3 126.2 141.8 159.3 179.0 201.1 225.9 253.9 285.2 320.4 200.9 301.9 403.1 504.7 606.6 708.8 811.3 914.2 1,017.3 NPV 8% Exptd Toll 113.4 128.6 145.8 165.4 187.5 212.7 241.2 273.5 310.1 351.7
12% 5%
5% Exptd Toll 110.3 121.6 134.0 147.7 162.9 179.6 198.0 218.3 240.7 265.3 195.3 290.7 384.6 477.0 568.0 657.6 745.8 832.5 918.0 NPV
Exptd Toll 111.3 123.9 137.9 153.5 170.8 190.1 211.6 235.5 262.1 291.7
NPV
203.8 307.6 412.7 519.1 626.8 735.9 846.3 958.2 1,071.4

Page 6
Illustration 2 - Returns not too sensitive to traffic growth

Toll income and project cost First year toll income * All amounts are in INR Lakhs Expected Traffic Growth Year 1 2 3 4 5 6 7 8 9 10
100.0
Discount rate Toll index 6% 7% NPV Exptd Toll 112.4 193.0 286.0 376.9 465.6 552.2 636.7 719.3 799.9 878.6 126.2 141.8 159.3 179.0 201.1 225.9 253.9 285.2 320.4 195.7 291.4 385.7 478.7 570.3 660.6 749.6 837.3 923.8 NPV 8% Exptd Toll 113.4 128.6 145.8 165.4 187.5 212.7 241.2 273.5 310.1 351.7
14% 5%
5% Exptd Toll 110.3 121.6 134.0 147.7 162.9 179.6 198.0 218.3 240.7 265.3 190.2 280.7 368.2 452.8 534.6 613.7 690.2 764.2 835.8 NPV
Exptd Toll 111.3 123.9 137.9 153.5 170.8 190.1 211.6 235.5 262.1 291.7
NPV
198.4 296.9 394.8 492.2 589.0 685.4 781.3 876.6 971.5

Page 7
Some fundamental Issues

Is it necessary to have alternate toll free road ? Should the toll rates be fraction of benefit ? How to define benefit ? Is it perceived benefit or scientifically worked out benefit considering saving in time specially for developing country ? Should there be limit to profit to the concessionaire ? Should part of the financial risk covered by Govt. ? What freedom for specifications, standards, and scope be given ? Should the damage to either party for non fulfillment of obligation be related to fraction of loss or multiple of loss ? How to determine loss ? What should be compensation to entrepreneur for his failure to execute ? Should we have better roads with no toll or very good quality toll roads ? What should be mechanism for protection of interest to user ?
Page 8
Indian road network
Total Length National Highways (including Expressways) State Highways Major District Roads Rural Roads * Length in Km
3,319,000
Roads carry 85 % of passenger & 70 % of freight traffic National Highways

Constitute only 2% of length, but carry 40% of the traffic Along with State Highways carry 65 % traffic with length of 6 %
69,000 132,000 468,000 2,650,000
Page 9
Public funded projects under NHAI

Fee Collection Figures FY 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Toll Road Km 1,133 1,146 1,815 3,066 3,461 4,262 Revenue INR Cr. 303 362 453 798 1,080 1,415
PPP projects for NHDP Status Awarded Completed

No. of Awarded Concessions length (Km) 86 19 5,607 980
Cost INR Cr. 37,582 6,386

Page 10
Achievements in Maharashtra by
MSRDC
Page 11
Works by Public Works Department (PWD)
Category Two Lane Four Lane Total
Completed (Km) 434 120 554
Completed Cost (INR Cr.) 222 278 500
Progress (Km) 299 730 1,029
Progress Cost (INR Cr.) 230 1,997 2,227
Proposed (Km) 95 1,220 1,315
Proposed Cost (INR Cr.) 67 4,600 4,667
Grand Total Total Length (Km) Total Cost (INR Cr.) 2,898 7,394
Misc. Funnicular Trolley For Pilgrimages 46
Page 12
Achievements by MSRDC
Revenue Total toll collection since beginning Toll securitization Total yearly toll collections Annual income from advertisement, parking, petrol pumps etc. Amount in INR Cr. 2,800 1,500 325 25
Cost On EPC contract completed, progress or planning Cost of completed state highway improvement, National Highway Improvement, bridges, ROBs, Flyovers Planning stage Work in progress
Amount in INR Cr. 12,000 4,800 2,500 1,800

Page 13
Integrated Road Development Projects

Nagpur Pune Aurangabad Solapur Amravati Nandurbar Latur Baramati Nanded Kolhapur
Page 14
Bandra - Worli Sea Link Project
Page 15
Projects executed by MMRDA in Metro town

Tenements for project affected City Park Conventional complex Versova - Andheri - Ghatkopar MRTS project Elevated path way for pedestrians Charkop - Mankhurd elevated MRTS project Bus stops Commercial Complex at Nariman Point The cost of these projects is 20,000 Cr Different mode of user charges as:
Land value Advertisement rights Food park Sale of passenger tickets Car parking charges Income from entertainment area
Page 16
Special features - Role of Govt.

Govt. has to play major role
Strong legal framework for smooth implementation Encouraging policy framework to attract investor Creating special Govt. organization to boost the PPP process
Page 17
PPP - Incentives
Viability Gap Funding up to 40% of project cost to make project viable Duty free import of high capacity and modern construction equipments 100% tax exemption in any 10 consecutive years within a period of twenty years after completion of the project Agreements to avoid double taxation with a large number of countries Provision of encumbrance-free land for construction of roads
Page 18
PPP - Procurement procedure

Well defined and transparent with standard tender documents Investor friendly Concession Agreement International Competitive Bidding Foreign Direct Investment up to 100% in road sector Concession period up to 30 years Concessionaire to have the right to collect and retain user fee (toll) Award of PPP projects based on new Model Concession Agreement (MCA) Simplified procedure for Land Acquisition 50% land on or prior to the Appointed Date and balance 50% at mutually agreed date Execution through Special Purpose vehicle and shielding the main company
Page 19
Mode of USER charges

What is USER charges
Form of charges or means to recover cost of investor
Toll Cess on petrol and diesel Surcharge on tickets Advertisements Parking charges Land as value Higher usable area Contributions by direct beneficiaries
Page 20
Toll policies - Main issues

Inability to pass on additional burden in goods transportation sector due to stiff competition Toll cost not proportionate to beneficiary group Additional surcharge to recover toll expenses leads to stiff rise in ticket price and stiff resistance specially city bus and school bus Stiff resistance by organized group and specially making frequent use Use of fraction of facility and still required to pay full toll Relation between toll rates and facilities provided - state toll rates much higher compared to NH Exemption / subsidy to get populist support
Page 21
Toll policies - Main issues

Toll rates not consistent with mode of transportation and economic level of people using facility Local residents feel as additional burden Should the rates for trucks and buses same Rates for trailer trucks / multy axle proportion to pay load and mutiple of truck rates - how de we encourage multiaxle traffic Should there be differential rates in a day Toll policy consistent with limitation of electronic system design (Let bullet come on by one to overemphasise issues)
Page 22
50 Flyovers - Mumbai Traffic Improvement Mega-Project

Planned with a corridor development approach Accordingly, flyovers proposed on north-south & east-west corridors of Mumbai
Page 23
Toll policy
Toll Policy Toll Policy
Station Station location location
Projects Projects
Principles & Principles & indexing indexing
<= 20 Cr <= 20 Cr Bridges Bridges (nos.) (nos.) 20 75 Cr 20 75 Cr Cost Cost Physical Physical parameters parameters Roads (Km) Roads (Km) > 75 Cr > 75 Cr
Vehicle Vehicle category category
Exemptions Exemptions
Concessions Concessions for frequent for frequent travelers travelers
Local Local residents residents
Page 24
Projects for Toll

All projects completed through budget having cost of more than 1 Crore Following projects would qualify for toll
Four lane roads National Highway Standard Road of 25 KM 5.5 m wide roads of 40 km length Bridges located within 10km having cost more than one Crore
By-pass road
Links connecting two major highways Repair, strengthening or widening of bridges
ROB and tunnel works

Pedestrian subway or footbridges Integrated road development project
Page 25
Toll policy
Distance between two toll stations should be minimum 35 to 40 km Toll station location should be decided by Chie engineer Toll indexing shall be 6 % per annum Toll rates are generally kept between 4 to 8 % of prevailing market rate of transportation
Page 26
Toll rates related to cost / physical parameters

Cost
Cost of the project upto 20 Crores Cost of project from 20 to 75 Crores Cost above 75 Crores
Physical parameters
Length of major bridge Number and cost of minor bridges Rob and flyovers Road length of two lane and four lane
Page 27
Toll rates - Category of vehicles

Scooter, Auto, Motor Cycle, Moped, Tractor with empty trailer, Govt. vehicles Car, Jeep, Tata Sumo or similar vehicles, six seater auto Tempo and Mini bus with less than 20 capacity Trucks and buses Heavy vehicles, Trailer trucks, Multi axle vehicles
Page 28
Exemptions
Central and State Govt. vehicles Police vehicles Army vehicles Post and Telegraph department vehicles Ambulance Hearse Vehicles used by MLC, MLA, Rajya Sabha and Parliament Members
Page 29
Concessions for frequent travelers

For 50 journeys coupon book concession of 10 % For 100 journey coupon book concession of 20 % For single day return journey the charges will be 1.5 times of single journey For multiple journey in a day the charges will be 2.5 times of single journey Monthly pass shall be 50 times of single journey
Page 30
Local Resident
Page 31
BOT policy development

Policy to develop infrastructure such as power project, commercial complex, water transport, ferry boat service minor port and roads on BOT principles adopted in 1989 Detailed policy for development of Roads on BOT adopted in 1996 This policy allowed Source of main income
Investment to be recovered through toll Allowing stage wise development and levy of toll after first stage completion Contribution by state Govt to make project fincial feasible
Additional subsidiary income

Road side advertisement Income through tree plantation Commercial development and generating surplus out of road adjoining land
Clarifications in the Policy

Procedure for approval of project (Hyper link) Mode and notice period for publicity Methodology of supervision and power for appointment of consultant etc Power to purchase specialized survey and mathematical instrument
Other additional decisions

All required land and quarry land to be acquired by Govt
Cooperation from all Govt Department
Page 32
Standard Concession agreement

Proper Standard Concession agreement covers
Role and responsibilities of each party In built incentive mechanism Equitable risk sharing Properly protecting the interest of all stake holders ie Govt., Concessionary, Lender and User Strong dispute resolution mechanism Protect the interest of user Proper effective monitoring, supervision, termination or suspension on default Change in scope and variation
Page 33
New concession agreement

Major Changes 20 Years Concession period with obligation to do widening to six lane if traffic demand or curtailment of concession period to 12 years Concession fee which is part of toll collection to be shared with Govt. and could be criterion for preferred bidder Concept of damage payable to either party for non fulfillment of obligation is introduced and quantum defined Passing of excess toll revenue if traffic exceeds 1.2times the designed capacity Adjustment of Concession period due to variation in traffic Limit to variation items in construction and operation period Role of consumer court for non fulfillment of performance standards Ambulance and police role defined and charges defined Major quantity of land to be given before award of work Cost of services shifting and balanced land acquisition cost by Govt. Facilities to Govt. / User defined
Page 34
Risk Allocation
There is growing tendency of Govt to transfer its responsibility of timely completion of balanced land acquisition, services shifting, tree cutting, forest, wildlife clearance to concessionaire
Risk Perception Timely Handing over Design Risk Initial Design Detailed Design Risk Price Escalation Risk Quantity Variation Risk Time over Run Risk Owner Concessionaire Concessionaire Concessionaire Concessionaire Grant-Owner Project Financing Risk Balance - Concessionaire Also Funding institute Quality of Work User Safety Risk Assessment of Traffic Risk Toll revenue Risk Timely Shifting of Utility Services
Agency Owner / Concessionaire
Concessionaire Concessionaire Concessionaire Concessionaire Concessionaire

Page 35
Protection of Interest of Stake Holders
Stake Holders Stake Holders
State State
Concessionaire Concessionaire
Lenders Lenders
User User
Page 36
Cabinet Sub Committee
Chief Minister Chief Minister
Dy Chief Dy Chief Minister Minister
Finance Finance Minister Minister
Minister Minister Industry Industry
Minister Minister PWD PWD
Minister Trade Minister Trade and Commerce and Commerce
Chief Chief Secretary Secretary
Permanent Permanent invitee invitee
Approve Project Approve Project ,Guidelines approval, ,Guidelines approval, Giving advise Giving advise
Sec Sec Planning Planning
Sec Sec Finance Finance
Sec Sec Law Law
Page 37
Project preparation based on Govt. guidelines

Financial Financial cash flow cash flow Loss of toll Loss of toll revenue revenue Traffic Traffic growth growth Chief engg Chief engg Project cost Project cost To Govt for To Govt for approval approval <= 25 Cr <= 25 Cr By committee headed By committee headed by secretary by secretary Finance Finance Planning Planning Revenue & Revenue & Forest Forest Environment Environment Approves Approves
Govt Govt guidelines to guidelines to ensure ensure uniformity uniformity
Exec engg Exec engg
External External consultant consultant
Department Department staff staff
Super Engg Super Engg
Finance Finance department department
> 25 Cr > 25 Cr By cabinet secretary By cabinet secretary
Reject Reject
Page 38
Procedure for approval

Project prepared by Executive Engineer through department staff or consultant Submits proposal to Supt Engineer, Chief Engineer and then PWD Project up to 25 Crores approved by Committee headed by Secretary Members - Chief Engineer concerned, Chief Engineer and Joint Secretary, Supt Engineer, Dy Secretary BOT as member secretary For more than 25 Crores Brief note submitted to Revenue and Forest Department Finance Department Planning Environment and submitted to Cabinet sub-committee for infrastructure
Page 39
Important Policy direction - Procedure for feasibility study

Guidelines for interest rates, escalation, time for completion depending on project cost to be adopted for feasibility study defined Factors to be considered for working out project cost such as sales tax, preoperative expenses, supervision, measurement, contingency, escalation, actual expenses on land acquisition, services shifting etc. Rate of growth of traffic, maintenance cost etc. also defined Cost of maintenance renewal cost, toll expenses, loss of toll revenue defined
Page 40
Exec engg Exec engg
External External consultant consultant
Department Department staff staff
Super Engg Super Engg
Chief engg Chief engg
To Govt for To Govt for approval approval
Finance Finance
Finance Finance department department
<= 50 Cr <= 50 Cr By PWD By PWD
> 50 Cr > 50 Cr By cabinet secretary By cabinet secretary
Approves Approves
Reject Reject
Page 41
Special features - Role of Govt.

Framing policies for projects Scheme of implementation Strategies for implementation - sections, subsections, time limit, qualification criterion Availability of resources contractor boosting confidence level Taking lead in developing infrastructure and efforts to solve difficulties of contractors
Page 42
Criterion of acceptance
Minimum concession period or Minimum grant from Govt. Criterion at NHAI Minimum concession period Minimum annuity amount for concession period Minimum grant or maximum contribution for fixed concession period Toll securitizing - right to collect toll and do operation and maintenance for fixed period - highest upfront money Toll rights on completed project for fixed period and additional continuation work with O and M responsibility - highest minimum subscription to Govt. or minimum grant from Govt.
Page 43
Forms of Govt. Undertaking

Creation of Govt. owned company with an objective of developing infrastructure-concessionarie,developer or executing agency Group / expert in project development, raising finance etc joins hands with Govt. having equal equity partner and execute as concessionaire the project assigned by Govt. Concessionaire decided by open competition with condition that Govt. will have equity to the extent of 26 % or even less than the same NHAI / state undertakings or private firms / groups join to execute on BOT projects of mutual benefit
Page 44
Creation of MSRDC
As a part of BOT policy and encourage private investment Maharashtra State Road Development Corporation Limited (MSRDC) created in 1996 Fully Govt. owned company having major numbers in board of director as professionals Equity of 5 Crores MPE and 50 flyovers in Mumbai first major projects assigned Acted as Concessionarie,developer for developing new projects, executive agency
Page 45
Projects with MSRDC
Sr. No. 1 2 Andheri flyover 3 4 5 6 7 8 ROBs in State MPE 50 flyover project
Completed projects
Project Cost 2,135.0 1,617.0
Completed 2,084.5 1,015.1 74.1
Work in progress 19.3 95.1
Total cost as on July 2005 2,103.8 1,110.1 74.1
195.0 4.0 81.0 7.7 40.0 20.0 4,093.0
183.0 4.4 64.7 7.7 76.0 32.5 3,542.0
11.8
194.8 4.4
Kalyan Durgadi Bridge Thane Ghodbunder Rd Wardha Nakoda PWD projects IRDP Latur Total
9.2
73.9 7.7 76.0 32.5
135.4
3,677.4
Page 46
Projects with MSRDC
Sr. No. 1 2 3 4 5 6 7 8
Ongoing projects Bandra Worli Sea Link Nagpur Aurangabad Sinner Ghoti Rd Four laning of Satara Kolhapur Kagal National Highway IRDP for Nagpur, Pune, Aurangabad, Solapur etc PWD roads in Nagpur circle Satara Chalkewadi Misc projects Corporate assets Total Grand Total
Project Cost 1,306.0 700.0 725.0 1334.0 16.0 15.0
Completed 221.6 30.4
Work in progress 203.0 354.2 728.3
Total cost as on July 2005 424.6 384.6 728.3 472.3 14.3
173.3 14.3
299.5
26.7 21.8 172.1
26.7 21.8 172.1
4,096.0 8,189.0
611.7 4,153.0
1,633.5 1,768.9
2,244.7 5,922.0
Page 47
Financing of projects
Budgetary works for which toll is levied and right to collect toll transferred BY Govt. project maintained by MSRDC Surplus from the development of land transferred to MSRDC Project specific Govt. grant towards viability gap funding Toll income from projects Other project related income as tree plantation advertisement, lease rent through cable ducts Surplus generated out of the completed projects Govt. assistance and guarantee allocation for approved projects.
Page 48
Mode of raising finance
Bonds with Govt. guarantee Loans with Govt. guarantee Bonds without Govt. guarantee Loans without Govt. guarantee Unsecured loans
Short term funds to limited extent Bonds through private placement Bonds with or without listing Bonds with or without rating
Total borrowing raised - Rs. 8,100 Crores Above made possible due to timely completion of projects with reasonable cost and timely payment of interest and repayment of principal
Page 49
Details of Loans raised
Sr. No. 1 2 3 4 5 6
Scheme Bonds with GOM guarantee Loans with GOM guarantee Bonds Not guaranteed and unrated Loan without Government Guarantee Unsecured loan Short term loan Gross total
Sanctioned amount 4,000.2 1,500.5 337.3 !99.70 784.9 100.0 6,926.6
Availed amount 4,004.2 869.7 337.3 199.7 301.7 100.0 5,812.5
Repayment Outstanding amount amount 1,759.3 87.7 2,244.9 782.0 337.3 107.3 77.9 50.0 2,082.2 92.4 223.8 50.0 3,730.3
Page 50
Details of Borrowing-January 2009

Sr. No. Scheme Sanctioned amount Availed amount Repayment amount Outstanding amount
Bonds with GOM guarantee
4,000.2
4,004.2
2,161.92 316.50
1,842.26
Loans with GOM guarantee
1,173.29
1,143.35 337.3
826.85
Bonds Not guaranteed and unrated
337.3
13.82
323.45
Loan without Government Guarantee
699.70
549.70
179.70
370.00
Unsecured loan
1752.44 100.0
1096.61 100.0
119.89
976.72
Short term loan
100.00
0.00
Gross total
8,066.90
7,231.11
2,891.83
4,339.28
Page 51
Status of Govt. Guarantee

Govt. provided sizable guarantee support so far Government is now discouraging giving guarantee MSRDC was able to able to mobilize funds on strength of Good track record of execution, good track history of repayment of loan, introduction of new financing models.
Page 52
Advantages of Govt. Undertaking

Relatively easier to raise finance Backed by Govt. guarantee resulting in competitive rates and quick availability. No income tax if activity undertaken as an agent of Govt. Freedom to decide tender conditions to ensure successful implementation, revised sanction, sanction for additional liability, claims of contractor can be quickened due to corporate management structure. Modification by Govt. in scope, toll rates, concession period etc is possible without much controversy. Urgent work can be initiated and administrative issues simultaneously addressed Majority of projects are marginally viable due to comparatively low traffic in state - can be implemented due to inherent advantages In developed countries as Japan and France route of Govt. undertaking to implement major projects due to capacity to raise large finance was adopted Surplus generated can be used for other project with minimum administrative process
Page 53
Advantages of Govt. Undertaking

Contribution from beneficiary can be accepted to implement project Incomplete budgetary works can be financed Selected officers can be taken on deputation Minimum administrative expenses by resorting to outsourcing, staff on contract, engaging temporarily services of experts, officers on deputation Finalizing and correction to BOT policy Constitution of steering committee Under VC & MD help in solving administrative issues Projects in area showing economical potential can be executed on criterion of future receivables - increases Govt. revenue
Page 54
Managing cash - flow

Problem of cash flow management for large period Mega highway project require large period for repayment Initial income much less compared to loan repayment liabilities Absence of long term debt instruments Simultaneous execution of several projects and reliance on their revenue streams to honor debt repayment liability Toll securitizing model to ensure cash in early stage for better cash flow managements
Mix of bonds with different tenure and other conditions Bonds with bullet payment Introduction of zero coupon bonds Govt. help to tide over temporary cash flow management issues 2004 - 2005 user charges 320 Crores collected 2005 - 2006 user charges of 360 Crores expected
Page 55
MSRDC as Catalyst
New model for project implementation All construction risk, toll risk and other BOT risks in initial phases which are sizable in initial phase of project are undertaken In 1995 - 97 period privatization of roads was not attracting investors for large projects and above role enabled additional resources in road sector through Govt. undertaking Now scale may change but role will continue
Page 56
Conclusion
Govt. undertaking act as catalyst Successful in implementing marginally viable project Steps to ensure financial success by adjusting scope, toll rates, concession period possible with concurrence of Govt. without much controversies Help Govt. in amendment to BOT policy to encourage more projects Effective in introducing administrative mechanism which overcomes hurdles in project implementation In 1995 - 97 period privatization of roads was not attracting investors for large projects and above role enabled additional resources in road sector through Govt. undertaking Now scale may change but role will continue
Page 57
Objective of Modern High Speed Drive

Safe and high speed drive
Divided carriageway having adequate width and lanes consistent with traffic intensity Scientifically designed horizontal and vertical profile to ensure safe sight distance and jerk free drive Flat side slopes to embankment, crash barriers, road marking, warning and sign boards Liberal provision for service roads, under pass, overpass, pedestrian subway, vehicular subway grade separators, etc. Lightings at junctions, scientifically designed junctions, merging and demerging lanes
Adequate care for user needs

Ambulance, accident relief vehicles, cranes, police patrolling, proper traffic management, emergency telephones, road signs Truck lay bye, bus stops / bus bays Petrol pumps, repairs shops, public toilets, etc.
Page 58
Geometric Standard for Six lane NHS

Service roads for entire length Major town with Bypass Liberal provisions for proper junction design Liberal provisions for pedestrian subways, vehicular subways, grade separators, flyovers etc Junctions from service roads quite apart Fencing at important locations Street lights in urban area, flyovers etc Policy for mediancuts, petro pumps etc defined Crash barriers, road furnitures, road signs liberally provided Modern toll collection system
Page 59
BOT / Annuity projects - Objective

Early completion Confidence on completion date Control over cost and cost escalation Predictable escalation Minimum resources Minimum technical man power, skilled and unskilled worker Technology which will reduce the scope of errors Highly mechanized job - Labor component less then 7% Heavy investments in equipments - up to 25%
Page 60
Economics of BOT project

Cost per annum
Escalation Borrowing cost : 4.5 % : 10.5 %
Toll revenue
: 10.0 %
Final cost sensitive to time of completion
Page 61
Illustration - Cost variation for Time of Completion

Project cost Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Escalation 8% 8% 10% 10% 8% 8% 10% 10% 8% 8% 10% 10% 8% 8% 10% 10% 100 Interest 12% 15% 12% 15% 12% 15% 12% 15% 12% 15% 12% 15% 12% 15% 12% 15% Time of Completion Toll 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% Completion 18 18 18 18 21 21 21 21 24 24 24 24 27 27 27 27 27 Project cost 114.9 120.0 116.0 121.0 117.3 122.4 118.5 123.6 119.2 124.0 120.4 125.2 120.6 125.0 125.0 126.4
* Time: in months | Amount: in INR Lakhs

Page 62
Funding problems
Size of packages being large and hence hesitation of funding institutes Hesitation on account of non recourse financing Absence of long term debt instruments For relatively smaller projects few funding agencies and hence cost of borrowing high Returns mostly in cash - leads to mistrust - automatic systems
Page 63
Implementation difficulties
Implementation Implementation difficulties difficulties
Administrative Administrative
Social Social
Legal Legal
Material related Material related
Scope related Scope related
Page 64
Implementation difficulties - Administrative

Such difficulties of implementation which can be reduced by administrative reforms Land acquisition Utility shifting - agency charges and freedom to implement Forest clearance and environmental clearance Lack of coordination amongst different Govt. department Administrative departments not set up to handle large size projects - staff, rules, manual provisions etc. Acquisition of Govt. land No control on demands / conditions of other department Differential sales tax rate in adjoining states
Page 65
Implementation difficulties - Administrative

No control on speed of decisions and implementation by other department Long drawn process for royalty payment Different environment rules Tree cutting by Govt. department Delay due to inadequate staff to handle large quantum of work Auction of sand extraction rights creating monopolistic situation Approval of ROB proposal by railways
Page 66
Tree Cutting Procedure

General Policy
Inventory to be got done through authorized Department
For non notified trees

Transplantation At least 2 to 10 trees to be planted
Trees are classified as schedule trees listed in notification (differ from state to state) Mitigation policy For notified trees, compensation equal to
NPV of trees Cost of afforestation equal to 2 to 10 trees Cost of cutting depositing in Govt. Depot and retention of auction price by Govt.
Acquisition of private land Valuation by Forest Department Fruit bearing tree valuation by Horticulture Department
Page 67
Royalty Permission And Procedure

General Procedure and Practice Use of construction material such as
Earth, murum, boulder, aggregate etc. require permission from revenue Department and charges as per royalty rates has to be given to Govt.
Source i.e. details of quarry, legal agreement with owner and details of quantity proposed to be extracted from each source to be furnished Proper account of use has to be furnished Truck must carry challan giving details of permission, etc. Cost of Royalty may not exceed 2 % of project cost
Page 68
Procedure for Royalty Permission
Application To Collector Application To Collector
Quantity of Material Quantity of Material
Collector forwards to Mining Officer Collector forwards to Mining Officer
Agreement copy with land details Agreement copy with land details
Mining Officer visits site with Talahti /SDO Mining Officer visits site with Talahti /SDO and submits report and submits report SDO submits report to Collector and SDO submits report to Collector and Collector then issue order for extraction of Collector then issue order for extraction of material and payment of royalty material and payment of royalty Mining officer directs to make payment and Mining officer directs to make payment and on making payment issue necessary on making payment issue necessary permission permission The bidder gets the numbered challan book The bidder gets the numbered challan book printed and issue challan with each truck printed and issue challan with each truck
Permission to blasting from competent Permission to blasting from competent authority authority
Report contains a Comment on Availability Report contains a Comment on Availability and other site constraints and other site constraints
Bidder maintains account at quarry and Bidder maintains account at quarry and submit regular return about utilization submit regular return about utilization
Page 69
Tree Cutting Procedure
Urban Area Urban Area
Inventory by Competent Authority Inventory by Competent Authority
Non Urban Area Non Urban Area
Tree Authority Tree Authority Govt Land Govt Land
Private Land Private Land Under Acquisition Under Acquisition
Objection Hearing Objection Hearing Non Schedule trees at Non Schedule trees at least 10 new trees to least 10 new trees to be planted as per Govt be planted as per Govt policy policy 2 to 10 trees plantation & 2 to 10 trees plantation & maintaining for 3 years maintaining for 3 years Schedule trees as Schedule trees as per mitigation plan per mitigation plan Schedule and non Schedule and non scheduled valuation scheduled valuation by by forest department forest department
Permission for cutting Permission for cutting
Fruit bearing trees Fruit bearing trees valuation by valuation by Horticulture Dept Horticulture Dept
Transplantation Transplantation
Land by Govt allowed to be done Land by Govt allowed to be done by bidder or at his cost by authority by bidder or at his cost by authority
Page 70
Implementation difficulties - Social

Such difficulties for which common solution cannot be evolved Local agitation forcing change in scope Rehabilitation policy Agitation against shifting
Religious structures Wells
Active well is major source of drinking water High yielding irrigation wells Alternate source and scheme - cost of project
Agitation against toll policy Resistance for payment of toll by organized sector Agitation for employment and more social benefits
Page 71
Implementation difficulties - Social

Discontinuation of easement rights Toll concession demands by public representatives Toll charges not proportionate to benefit, hence agitation Different toll policy within state by different agencies High toll rates compared to value of ticket Demand for more public facilities Road user needs and comforts and safety responsibility of BOT operators Demand for
Service roads Repairs to local roads Benefits to villages
Page 72
Policy for Rehabilitation - In Mumbai

There is a good agreement amongst social groups political parties, NGO and others about the rehabilitation policy Of course demand for review of eligibility criterion and size of alternate accommodation is now being made
Page 73
Some important terminology

DC rules - Development control rules which are framed by local Municipal Authorities / Corporation to control the development of city It covers type of construction allowed in a area, reservation of land for different purpose as roads, public facilities, residential, commercial, etc. It covers guidelines about front or back margin, footprint of building, distance between buildings, number of floors etc Floor space index - It is the ratio of constructed area of building and plot area. For commercial and residential area the same could be different. For different area of city the FSI may be different TDR - Transfer of development rights - It is tradable commodity. It allows user, the authority to construct area over and above the permissible FSI. A developer / agency who carries out construction for slum rehabilitation persons or for slum redevelopment scheme owns TDR and is allowed to sale
Page 74
Resettlement and Rehabilitation
Page 75
Rehabilitation Strategy
Commercial Commercial Rehabilitation Rehabilitation Policy Policy Residential Residential
Authorized Authorized
Unauthorized Unauthorized
Industrial Industrial
Authorized Authorized
Unauthorized Unauthorized
Classification Classification on basis of on basis of area area Up to Up to 10 Sq m 10 Sq m 10 Sq m 10 Sq m 20 Sq m 20 Sq m More than More than 20 Sq m 20 Sq m
Free house up to 20 Free house up to 20 Sq m area Sq m area
For Residential most of the houses are less than 20 sq m

Free up to 20 Sq m Free up to 20 Sq m area. Excess as per area. Excess as per market price market price
Page 76
Rehabilitation Strategy - Slum Rehabilitation Authority

Redevelopment Redevelopment Slum Slum Rehabilitation Rehabilitation Authority Authority Rehabilitation for authorized & unauthorized Rehabilitation for authorized & unauthorized (prior to 95) (prior to 95)
Enhancing Enhancing infrastructure infrastructure
Insitu Insitu reconstruction reconstruction
Up to Up to 10 Sq m 10 Sq m
10 Sq m 10 Sq m 20 Sq m 20 Sq m
More than More than 20 Sq m 20 Sq m
Developer Developer
Part area for Part area for accommodating accommodating
Free Up to Free Up to 20 Sq m 20 Sq m
FSI equal to FSI equal to 2.5 2.5
Part area for Part area for commercial commercial building building
Free up to 20 Free up to 20 Sq m area. Sq m area. Excess as per Excess as per market price market price
TDR equal to TDR equal to plot + plot + Constriction Constriction
Developer Developer
Obligation Obligation
Main funds Main funds
Infrastructur Infrastructur e funds e funds
Common Common facilities facilities
Page 77
Slums affected by Vital Infrastructure Projects

Implementation of MUTP and MUIP requires shifting of 55,000 slum dwelling families comprising of about 3,50,000 population in the right of way of roads and safety margins on the rail corridors About 20,000 PAHs are affected by MUTP About 35,000 PAHs are affected by MUIP About 20,000 PAHs to be resettled under Mithi River Project More than 80,000 PAHs surrounding the Airport require immediate rehabilitation
Page 78
Resettlement Townships
Picture1
MMRDA has constructed about 53,000 tenements with all the physical and social infrastructure for resettlement of 3,50,000 slum dwellers at different locations in Mumbai
Page 79
Tenements constructed at different locations

Project Project Locations Locations No. of No. of tenements tenements
Option A: Majas, Ajgaonkar Plot, Nirlon & NSE, Kanjurmarg, Option A: Majas, Ajgaonkar Plot, Nirlon & NSE, Kanjurmarg, Ghatkopar, Powai Ghatkopar, Powai Option B: Mahul -- Videocon, Anik -- Runwal, Anik -- Rockline, Option B: Mahul Videocon, Anik Runwal, Anik Rockline, Mankhurd -- S.V.Patel Mankhurd S.V.Patel
5, 107 5, 107
MUTP MUTP
12, 316 12, 316
Option C: Kokari Agar, Dharavi, Antop Hill, Mankhurd Option C: Kokari Agar, Dharavi, Antop Hill, Mankhurd Goregoan, ODC. Majas, Poonamnagar, Kanjurmarg (W), Goregoan, ODC. Majas, Poonamnagar, Kanjurmarg (W), Kanjurmarg (E), Bhandup (W). Anik (Chembur), Anik (Bhakti Kanjurmarg (E), Bhandup (W). Anik (Chembur), Anik (Bhakti park), Anik(Mahul), Mankhurd, Borla, Shivaji Nagar, Chembur park), Anik(Mahul), Mankhurd, Borla, Shivaji Nagar, Chembur Anik (Chembur ), Dahisar, Tunga Village Anik (Chembur ), Dahisar, Tunga Village
4, 257 4, 257
MUIP MUIP
27, 524 27, 524
SRA SRA
5, 234 5, 234
52, 728 52, 728

Page 80
Site Views
Mankhurd
Mahul - B
Majas Oshiwara
Ghatkopar
Page 81
Resettlement through Public - Private Participation An Overview
Items Total townships developed No. of tenements built Total Land acquired Total built up area constructed Land Cost at Rs. 700/- per sq. ft. Construction Cost at Rs. 700/- per sq. ft. Total Cost of the 50,000 tenements Infrastructure Charges collected Maintenance corpus fund to societies
Details 31 Nos 50,000 nos. 170 Acres 14,00,000 sq. m. Rs. 550 Crores Rs. 1150 Crores Rs. 1650 Crores Rs. 135 Crores Rs. 100 Crores
Page 82
Implementation difficulties - Legal

Consumer courts and forum Grant of stay against acquisition Restraint for toll collection Interpretation of tender conditions, award of work Cases for violations of environmental and forest matters Consumer complaints Need for having good techno financial feasibility report defining the advantages of project, need of project and justifying various provision, to establish that details are consistent with Govt. policy, codes etc. Provisions of agreement clause could be cancelled by court if it feels that undue advantage is given to bidder, not consistent with other policies of state Toll location and numbers are challenged saying it leads to undue benefit, cause more unjustifiable burden on citizen, rights not justifiable considering the agreement conditions CA can be challenged saying that interest of common man is not protected
Page 83
Implementation difficulties - Material

Unpredictable escalation of price of steel, cement, bitumen and diesel Shortage of essential construction materials Material not available to specification Delay in amendment in codes, specifications and tender documenrnt Production capacity not matching with sudden rise in demand PPC, FE 500 steel, use of fly ash Shortage of water in working seasons
Page 84
Price Variation - Unpredictable
Bitumen Price in Apr-05 Sep-05 Jan-06 May-06 Mar-08 Sep-08
Rs. per Ton

14,319 14,931 16,050 16,650 28,000 34,000
Deisel Price in May-05 Aug-05 Apr-06 Jun-06
Rs. per litre

32.38 34.65 37.03 39.50
Taxes @ rate of 24 %
Page 85
Implementation difficulties - Scope related

Number of small structure Number of major large structure Traffic management in urban semi urban area Detailing to suit future widening Large road side drains Large number of panels
Page 86
Implementation - Role of planning

Good finical control - daily expenditure, proper classification Coordinating with Govt. agencies special retire officials Preparatory work - land for quarries, site staff, quarries, establishment Quarries identification, survey approvals of design from competent authorities - shortage of technical manpower due to large quantum of work Financial closure Continuous review, up gradation and modification in planning Fast decision making process
Page 87
Financial Risk Management By Govt
Agitation by Public Agitation by Public leading to cancellation leading to cancellation
Monitory Compensation through Monitory Compensation through budget budget
Court canceling Court canceling contract terms contract terms
Govt Corporation paying Govt Corporation paying compensation on direction of govt compensation on direction of govt to be separately compensated to be separately compensated
Variation considering Variation considering public demand public demand
Variation by Govt Variation by Govt
Adjustment of Adjustment of Concession Period Concession Period
Toll station position location Toll station position location changed due to demand changed due to demand or court direction or court direction
Page 88
Contract Cancellation - Loss of Bidder
Canceled as failed to achieve Canceled as failed to achieve financial closer FI insisted for financial closer FI insisted for modification of conditions modification of conditions
Contract cancelled and Contract cancelled and Performance Security Forfeited Performance Security Forfeited
Cancelled as bidder failed to Cancelled as bidder failed to achieve progress achieve progress
Contract Cancelled and Ps Contract Cancelled and Ps Forfeited Forfeited
Cancelled as bidder failed to Cancelled as bidder failed to achieve progress and complete achieve progress and complete project project
Contract cancelled,PS forfeited, Contract cancelled,PS forfeited, FI revoked clause of stepping in FI revoked clause of stepping in could not get agency lost the could not get agency lost the debt given debt given
Page 89
Financial institutes - Changing attitude

Well defined process of appraisal Depending on project parameters and strength of bidder, conditions of loan are modified Equity participation in the project MOU at the time of bidding and even contribution to equity Loan during construction phase to meet the equity requirement For good project and strong bidder condition of 30% equity diluted Floating rate for debt Long term loan and take of loan facility available Equity at premium during operation phase Toll securitizing liberally followed making additional funds available to bidder for other projects
Page 90
Conclusion and Recommendations

Govt. has to play a major role in creating a strong legal framework, concession agreement to address and protect interest of all stake holders i.e. bidder, user, financial institute and owner, create incentive mechanism to attract investment Create separate specially adequately empowered Govt. organization to act as catalyst to boost infrastructure development, expedite process of approval, generate surplus to cross subsidize partial feasible projects, socially important projects and projects important for economical development of State Create permanent high power committee to authorize review and approve the concession agreement, toll policy, new forms of use charges and incentive mechanism Create permanent high power group to consider representation of Govt. department and suitable compensation for Central Govt. land or State Govt. land and make it available for PPP projects
Page 91
Conclusion and Recommendations

Create high power group to finalize conditions specially cent age charges, specifications and compensations for utility services Take steps for administrative reforms for permissions for royalty, tree cutting wild life, environment issues, etc. Procedure for environment clearance to be elaborated including objects raised during public hearing. Intervention by court to be barred Change in law to cover items totally controlled by Govt. such as bitumen, diesel price, Royalty charges, Land acquisition, services shifting Decision of Arbitrator to be challenged in exceptional circumstances and to be decided by a high power committee. Such decisions not under review by vigilance. Exemptions for payment of toll for any category of vehicle should not be given Policy and restriction for facilities by Govt.
Page 92
Public Private Partnership for Infrastructure Projects Workshop at Dhaka on 27 - 29th Jan 2009
Main topics discussed Topics mainly pertaining to PPP in Bangladesh Overview of Public Private Partnership in Infrastructure Administration and Management of PPP projects in Bangladesh Fundamentals of infrastructure regulations process in Bangladesh Project development concept Case studies of Projects in Bangladesh UNESCAP experts delivered on PPP project structures and models Case studies and model preparation UNESCAP activities in PPP Following additional topics were also discussed PPP project development in Maharashtra Implementation of PPP projects Case studies
Page 93
Bangladesh Private Sector Infrastructure Guidelines

Administration and Management of Public Private Partnerships (PPP) Programs in Bangladesh are carried out through the Bangladesh Private Sector Infrastructure Guidelines (PSIG) The PSIG is the first official policy document adopted by GOB providing a framework for private sector investments in infrastructure Appreciating the need for infrastructure, GOB has undertaken necessary steps for opening the infrastructure development to the private sector - both local and foreign
The Bangladesh Private Sector Infrastructure Guidelines is the cornerstone The Bangladesh Private Sector Infrastructure Guidelines is the cornerstone in the administration and management of PPPs in Bangladesh in the administration and management of PPPs in Bangladesh
Page 94
The Roles of Committees

Cabinet Committee to designate project as private sector Gives final approval to Concessionaires tender Committee to expedite Private Infrastructure Projects Lobby for regulatory changes, carry out capacity building etc. Committee to prepare the major commercial and technical terms and conditions in the Contract Documents Committee to evaluate the pre-qualification statements and the Tenderers proposals
CCEA CCEA PICOM PICOM MTCC MTCC PTEC PTEC
CCEA CCEA
PICOM PICOM
MTCC MTCC
PTEC PTEC
= Cabinet Committee on Economic Affairs = Cabinet Committee on Economic Affairs = Private Infrastructure Committee = Private Infrastructure Committee = Major Terms & Conditions Committee = Major Terms & Conditions Committee = Pre -- qualification and Tender Evaluation Committee = Pre qualification and Tender Evaluation Committee
Page 95
Bangladesh - PPP Policy suggestions

PP projects to be incorporated in National Plans PPP need to be recognized in Government and Planning and Budgeting Books Create a centralized TA funds for PPPs to executing agencies / line Ministries for PPPs Should be funded by GOB, Donor and Success Fees Funds should be placed under planning Commission Each Infrastructure should have target for PPP in relation to overall budget
Executing agencies of PPP to seek TA funds from Planning Commission to carry out PPP projects Interaction with PICOM to ensure PPP processing Chain Use the experience of Bangladesh Private sector Infrastructure Guidelines to create a PPP law Embed the centralized TA fund within the PPP law More interaction between Planning Commission and PICOM PICOM secretariat to have separate office and staff
Page 96
Thank You
By P. L. Bongirwar
Advisor, L&T +91 98 672 88464

Expr Maharashtra

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Public Private Partnership

Initial Outcome of PPP process flow study in India

PPP - Public Private Partnership

User charges / fees paid is only part of actual cost

Cess on irrigated land equal to part of the actual additional income

Power production Urban transportation Distribution, production and management of power

Advantage of PPP route

PPP - Public Private Partnership

PPP Projects - Favorable features

PPP - Public Private Partnership

Illustration 1 - Returns not too sensitive to traffic growth

203.8 307.6 412.7 519.1 626.8 735.9 846.3 958.2 1,071.4

Illustration 2 - Returns not too sensitive to traffic growth

198.4 296.9 394.8 492.2 589.0 685.4 781.3 876.6 971.5

Some fundamental Issues

Indian road network

Roads carry 85 % of passenger & 70 % of freight traffic National Highways

69,000 132,000 468,000 2,650,000

PPP - Public Private Partnership

Public funded projects under NHAI

PPP projects for NHDP Status Awarded Completed

No. of Awarded Concessions length (Km) 86 19 5,607 980

Cost INR Cr. 37,582 6,386

Works by Public Works Department (PWD)

Category Two Lane Four Lane Total

Completed (Km) 434 120 554

Completed Cost (INR Cr.) 222 278 500

Progress (Km) 299 730 1,029

Progress Cost (INR Cr.) 230 1,997 2,227

Proposed (Km) 95 1,220 1,315

Proposed Cost (INR Cr.) 67 4,600 4,667

Misc. Funnicular Trolley For Pilgrimages 46

PPP - Public Private Partnership

Amount in INR Cr. 12,000 4,800 2,500 1,800

PPP - Public Private Partnership

Integrated Road Development Projects

PPP - Public Private Partnership

Bandra - Worli Sea Link Project

PPP - Public Private Partnership

Projects executed by MMRDA in Metro town

PPP - Public Private Partnership

Special features - Role of Govt.

PPP - Public Private Partnership

PPP - Public Private Partnership

PPP - Procurement procedure

Mode of USER charges

PPP - Public Private Partnership

Toll policies - Main issues

PPP - Public Private Partnership

Toll policies - Main issues

PPP - Public Private Partnership

50 Flyovers - Mumbai Traffic Improvement Mega-Project

PPP - Public Private Partnership

Station Station location location

Principles & Principles & indexing indexing

Vehicle Vehicle category category

Concessions Concessions for frequent for frequent travelers travelers

Local Local residents residents

PPP - Public Private Partnership

Projects for Toll

ROB and tunnel works

PPP - Public Private Partnership