PUBLIC PRIVATE PARTNERSHIP IN DEVELOPMENT OF ROAD NETWORK

PUBLIC

PRIVATE

PARTNERSHIP

ROAD NETWORKWhy

AGENDA

Business Prospects, Risks & Limitations, Opportunities, Road Ahead

WHAT

NEED BUDGET

WHAT▪ PPP refers to arrangements, typically medium to long term, between the public and private sectors

whereby some of the services that fall under the responsibilities of the public sector are provided by the private sector, with clear agreement on shared objectives for delivery of public infrastructure and/ or public services.

---WORLD BANK

▪ PPP project means a project based on a contract or concession agreement, between Government or statutory entity on the one side and a private sector company on the other side, for delivering infrastructure service on payment of user charges.

---MINISTRY OF FINANCE

GOVERNMENT OF INDIA

WHICH

Table 1: Schemes and Modalities of PPP

Schemes Modalities

Build-own-operate (BOO)

Build-develop-operate (BDO)

Design-construct-manage-finance (DCMF)

The private sector designs, builds, owns, develops, operates and

manages an asset with no obligation to transfer ownership to the

government. These are variants of design-build-finance-operate

(DBFO) schemes.

Buy-build-operate (BBO)

Lease-develop-operate (LDO)

Wrap-around addition (WAA)

The private sector buys or leases an existing asset from the

Government, renovates, modernises, and/ or expands it, and then

operates the asset, again with no obligation to transfer ownership

back to the Government.

Build-operate-transfer (BOT)

Build-own-operate-transfer (BOOT) Build-

rent-own-transfer (BROT)

Build-lease-operate-transfer (BLOT) Build-

transfer-operate (BTO)

The private sector designs and builds an asset, operates it, and then

transfers it to the Government when the operating contract ends, or

at some other pre-specified time. The private partner may

subsequently rent or lease the asset from the Government.

Source: Public Private Partnership, Fiscal Affairs Department of the IMF.

WHY PPP IN ROAD NETWORKS

WHY PPP IN ROAD NETWORKS

India was growing at the faster rate with GDP growth rate of9TH FIVE YEAR PLAN- 5.5%

10TH FIVE YEAR PLAN- 7.6%11th FIVE YEAR PLAN- 9% (expectation)

Investment in infrastructure required- 5% of GDP by 1999ACTUAL FIGURES- 3.5% Private investors contribution – 0.9%

Rise of PRIVATE investments for Infrastructure development

Government expectations- investments to be 8 % of GDPand in that 1.2% of GDP would be the share of private investors

ADVANTAGES OF PPPTHE ADVANTAGES OF PPP INCLUDE:

• Access to private sector finance

• Efficiency advantages from using private sector skills and from transferring risk to the private sector

• Potentially increased transparency

• Enlargement of focus from only creating an asset to delivery of a service, including maintenance of

the infrastructure asset during its operating lifetime

• This broadened focus creates incentives to reduce the full life-cycle costs (ie, construction costs and

operating costs)

GUIDELINES FOR PUBLIC PRIVATE PARTNERSHIP

The Cabinet Committee on Economic Affairs (CCEA) meeting - October 27, 2005-Approved procedure for public private partnership.

Set up of PUBLIC PRIVATE PARTNERSHIP APPRAISAL COMMITTEE that involves

(a) Secretary, Department of Economic Affairs (in the Chair); (b) Secretary, Planning Commission; (c) Secretary, Department of Expenditure; (d) Secretary, Department of Legal Affairs; and (e) Secretary of the Department sponsoring a project.

GUIDELINES FOR APPROVAL (CAPITAL COST MORE THAN 100 CRORE)

• Project identification

• Inter-ministerial consultations

• ‘In principle’ approval of PPPAC

• Expression of Interest

• Formulation of project documents

• Appraisal/Approval of PPPAC

• Invitation of bids

PROJECTS UNDERTAKEN THROUGH PPP :

1) BOT Toll based

2) BOT Annuity based

3) SPV (Special purpose vehicles)

1) BOT (Build Operate & Transfer) Annuity form :

A road developer is awarded the projects and the cost of building the road is paid to him on a six-month basis after the projects starts commercial operations. This derisks the business of the operator to a large extent.

2) BOT (Build Operate & Transfer) Toll based:

A road developer builds the road and is allowed to recover his investment by collecting toll over a concession period of 30 years in most of the cases.

3) Special purpose vehicles :

Lend funds, especially debt funds of longer maturity, directly to eligible projects to supplement loans from banks and financial institutions.

It is formed for a single, well-defined and narrow purpose. An SPV can be formed for any lawful purpose

It involves very less cash support from the NHAI in the form of equity/debt; rest of the funds comes from Ports/Financial Institutions/beneficiary organizations in the form of equities/debt.

FUTURE PROSPECTS:Why to invest ?

▪ The transport sector constitutes 6% of the country’s GDP and 70%of the share of the roads sector.

▪ More than 60% of freight and 90% of passenger traffic in the country is handled by road.

▪ The government of India has launched major initiatives to upgrade and strengthen highways and expressways in the country.

▪ The value of roadways and bridge infrastructure in India is expected to grow at a CAGR of 17.4% between 2012-17, to reach USD 10 Billion.

FINANCIAL SUPPORT:• INR 378.8 Billion has been allocated

towards the proposed investment in the National Highways Authority of India and state roads which includes INR 30 Billion for the North-east.

• INR 143.89 Billion has been allocated towards the Pradhan Mantri Gram Sadak Yojana.

• INR 5 Billion has been allocated to set up an institution to provide support to mainstreaming Public Private Partnerships in India called 3P India.

• And various other incentives like construction machinery imported duty free, customs duty exemption etc

PROJECTOVERVIEW OF SOME OF THE SUCCESSFUL PROJECTS

Where

LIVE PROJECTS..▪ The Eastern Peripheral Expressway – a 135 km-long, 6 lane expressway with a total project cost of

USD 750 Million that will decongest Delhi.

▪ The Delhi – Meerut Expressway- a 150 km long project with a total project cost of USD 1 Billion).

▪ The Vadodra-Mumbai Expressway, a 473 km expressway with a total project cost of USD 4.3 Billion will provide faster access to the economic hubs of Mumbai, Vadodara and Ahmedabad.

▪ The Special Accelerated Road Development Programme for the North-eastern region (SARDP-NE) is aimed at developing road connectivity between remote areas in the North-eastern region with state capitals and district headquarters.

GOLDEN QUADRILATERAL HIGHWAY NETWORK, INDIA

▪ Project Type: National Highway

▪ Duration: 2001-2012

▪ Estimated Investment: ₹308.58 bn

▪ Operator: NHAI (National Highway Authority of India)

▪ The overall length of the quadrilateral is 5,846km

GOLDEN QUADRILATERAL HIGHWAY NETWORK, INDIA

▪ These highways altogether account for just two percent of the country's total road infrastructure but they carry 40% of the total national traffic.

GOLDEN QUADRILATERAL HIGHWAY NETWORK, INDIA

▪ The financing for the project is obtained from the taxes on petrol and diesel, which accounts to INR200bn.

▪ Public Private Partnership (PPP) between the NHAI and the corresponding contractors. The contractors will collect the toll taxes for a specified concession period.

▪ Major contractors involved in the project are Larsen & Toubro, LG Engg. & Construction, Nagarjuna Construction, Consortium of GVK International and BSCPL, IRCON International, Punj Lloyd, Progressive Construction, ECSB-JSRC, B. Seenaiah & Co., Madhucon Projects, Sadbhav Engg., KMC Construction, Gujarat Public Works Department, SKEC - Dodsal, MSRDC, Mumbai, Skanska Cementation India, Hindustan Construction Company, RBM - PATI, Unitech, CIDBI Malaysia and PATI - BEL.

CHENNAI OUTER RING ROAD (ORR), TAMIL NADU, INDIA

▪ Location: Chennai, Tamil Nadu, India

▪ Sponsors: State Government

▪ Contractors: Phase I: GMR Group and NAPC Limited, Phase II: GVR Infra Projects and Ashoka Buildcon

▪ Estimated Cost: ₹20 bn

▪ Duration:

Phase I- Aug 2009 to June 2013

Phase II- January 2013- Present

CHENNAI OUTER RING ROAD (ORR), TAMIL NADU, INDIA

▪ Chennai's Outer Ring Road (ORR) is a 62.3km project being built in two phases around the Chennai Metropolitan Area (CMA) in Tamil Nadu, India.

▪ Key Objective: To allow heavy vehicles to travel outside of the city, minimizing traffic congestion within the city central areas.

CHENNAI OUTER RING ROAD (ORR), TAMIL NADU, INDIA

Financing:

▪The first phase of the 29.65km transportation corridor was taken up by GMR-NAPC. Being a public-private partnership, the Tamil Nadu government provided an INR3bn support fund to be included in the promoter's contribution in the project. The remaining funds were planned to be secured through debt and equity.

▪Phase I of the project was financed through INR6.65bn of debt, in addition to equity and government financing.

RISK IN PUBLIC PRIVATE PARTNERSHIP IN

DEVELOPMENT OF ROAD NETWORK

PRE PROJECT RISK

Delays in land acquisition

External linkages

Financing Risks

Planning Risks

CONSTRUCTION RISK

Design Risk

Construction Risk

Approvals Risk

OPERATION RISK

Technology Risk

Operations and Maintenance Risk

Traffic Risk

Financial Risk

HANDOVER RISKRisk that the concessionaire will default in the handover of the asset at the end of the project life, or that it will fail to meet the minimum quality standard or realizable value of the asset that needs to be handed back to the public entity.

OTHER RISKS

Change in Law

THANK YOU