INFRASTRUCTURE DEVELOPMENT & FINANCING

Coimbatore bypass experience : PPP project

Group # 3
Members: Ashim Sarkar Aravind G Maruthi Raj M Nikunj Chhaochharia Priyanshu Dubey Rizurekh Saha

Agenda

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Background Issues raised Lessons learnt PPP today

Case: Coimbatore Bypass

BACKGROUND

First road privatization scheme to be implemented in South India, on BOT basis

GENERAL INFORMATION

BIDDING INFORMATION

PROJECT BENEFITS & COSTS

Athupalam bridge Project name: Coimbatore bypass road Scope: 1. A bridge (Athupalam bridge) over Noyyal river on NH 47 2. Road over bridge (ROB) on NH 209 to the Coimbatore bypass road Type of PPP Contract authority Contract period Project Developer : BOT-toll : MoST, Tamil Nadu State Government : 30 years on Coimbatore bypass 20 years on Athupalam Bridge : Larsen & Turbo Transportation Infrastructure Limited (LTTIL)
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LEGAL INSTRUMENTS

FINANCIAL INFORMATION

LTTIL was the only bidder

GENERAL INFORMATION

BIDDING INFORMATION

PROJECT BENEFITS & COSTS

LEGAL INSTRUMENTS

FINANCIAL INFORMATION

Type of bid No. of bidders Project Developer

Total length Contract sign date Bid Amount

: Domestic competitive bid :1 : Larsen & Turbo Transportation Infrastructure Limited (LTTIL) : 27.67 Kms : 13 Oct 1997 : Rs. 90 Crore
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Rs 87 crore for Coimbatore bypass and Rs 3 crore for Athupalam Bridge

Investments
GENERAL INFORMATION

Estimated Cost of Project: Rs 90 crore (Rs 87 crore for Coimbatore bypass and Rs 3 crore for Athupalam Bridge). Actual Cost of Project: Rs 110 crore

BIDDING INFORMATION

Project Benefits The bypass has eased the traffic congestion in and Outcomes : Coimbatore city, Tamil Nadu and the Salem-Cochin

PROJECT BENEFITS & COSTS

highway running between Tamil Nadu and Kerala.

Shippers, mostly from export oriented Units relying on the

Cochin Port for shipments, are other major beneficiaries

LEGAL INSTRUMENTS

as transportation time is saved using the new road. users included less pollution, pleasant drive, good wayside amenities and lastly, safety. L&T gave special emphasis

FINANCIAL INFORMATION

to safety aspect of the road. Crash barriers were provided

on the high embankment of the road, along with thermo plastic road markings
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Risk due to non-payment of tolls lies with the State Government

Legal Instrument GENERAL INFORMATION RISK Construction Operational Commercial

BOT - Toll
DESCRIPTION To be borne by LTTIL To be borne by LTTIL To be borne by LTTIL. Risk due to non-payment of tolls lies with the State Government. (The project ran into problems when users refused to pay toll. L&T agreed to the subsidized toll rates on the condition that the State Government should compensate the revenue losses sustained by the company) To be borne by LTTIL Government of Tamil Nadu Government of Tamil Nadu Government of Tamil Nadu

BIDDING INFORMATION

PROJECT BENEFITS & COSTS

Financial Political Regulatory Force Majeure

LEGAL INSTRUMENTS

FINANCIAL INFORMATION

Around 62% of project cost funded by institutional financiers as debt

Cost of project Funded by LTTIL (Equity) Funded by financiers (Debt) Revenue projected Estimated cumulative loss
PROJECT BENEFITS & COSTS

GENERAL INFORMATION

: Rs. 110 Cr. : Rs. 42 Cr. : Rs. 68 Cr. : 60% from Athupalam bridge 40% from bypass road : Rs. 12.6 Cr. (LTTIL Annual report 02)

BIDDING INFORMATION

About 230 buses made a minimum of 2180 trips a day Bus owners association (BOA) refused to pay the toll Cost of deployment of police was also borne by LTTIL & the outcome

LEGAL INSTRUMENTS

was futile
It paid security charges of Rs. 53 Lacs. in 2001-02 Insitutional financiers were putting pressure on LTTIL for additional securities The interest payment worked out to be Rs.9 Crore per year
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FINANCIAL INFORMATION

Timeline of events
MoST floated global tender 09/1995 Contract signed 13/10/1997 Work commenced 12/1997 Athupalam bridge opened 12/12/1998

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Sep, 1995

1995

1996

1997

1998

1999

2000

2001

2002

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Tendering Process Dec , 1997

Oct , 1997 Project Work Dec , 1998 Dec 12, 1998 Toll collection issue July, 2002

SITUATION IN JULY, 2002

Financially not viable for the company LTTIL contemplated requesting state government to take over the project by invoking the force majeure class

Case: Coimbatore Bypass

ISSUES RAISED

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Issues raised
Project Structuring Lack of proper structuring of the project lead to a single bidder Deficiencies both in scope and financial terms Public Consultation

(1/2)

Public opinion on the perceived utility of the project was not considered Willingness to pay was not assessed before levying toll on the bridge Biased Revenue Analysis Toll from the bridge was used to cross subsidize the bypass Projected revenue in ratio of 40:60 from the bypass and bridge, while investment was in the ration 87:13 Queuing Delays Toll collection led to delays because of Queuing causing hindrance to public
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Issues raised
Local Traffic Volume of local traffic on the Athupalam bridge was high These users were unwilling to pay the new toll Multiple Trips Toll was collected during every trip across the bridge It particularly hampered people who made multiple trips per day Toll on Existing bridge

(2/2)

Toll was collected even on the earlier two-lane bridge, which was now used uni-directionally Public was opposed to paying toll for the bridge which had already existed Enforcement Local players such as Taxi, Bus and Commercial fleet operators did not pay toll and had formed associations to protest against the toll In general there was low compliance with the existing tolling structure
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Case: Coimbatore Bypass

LESSONS LEARNT

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Lessons learnt
Lack of unanimity between the government and the developer for resolving unexpected problems It discourages private players from investing in road development project

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Fundamental Deterrents

Risks involved in estimating traffic demand and willingness to pay must be addressed for BOT Toll based projects to succeed
Demand sensitivity Projects based on Tolls are dependent on the willingness to pay of the consumers WTP is very less in case of Urban roads, and hence identifying user segments and developing proper tolling structure is paramount

Project Structuring

Instances of inappropriate bundling to make projects attractive must be avoided

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Case: Coimbatore Bypass

PPP TODAY

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Public Private Partnership (PPP)

PPPs refer to a collaboration between the public and the private sector for delivering a service or infrastructure. These include a wide variety of arrangements ranging from Management contracts on one extreme to full privatization or divestiture on the other extreme of the spectrum These projects can be classified based on the extent to which risks and responsibilities are transferred from the public to the private sector In case of PPP models like BOT (Build Operate Transfer), Critical risks like Market risks are borne by the private sector

Build Operate Transfer (BOT) models

BOT based on Tolls: Private partner bears the commercial and technical risks related to construction, operation, and maintenance of the project. Critical risks like Traffic revenue risk is also allocated to the Private developer Projects are awarded by a two-stage bidding process First stage (Qualification stage) Second stage (Bidding stage): Bids are evaluated on basis of Lowest financial grant requirement and Revenue sharing

Build Operate Transfer (BOT) models

BOT based on Annuities:
Traffic risk-neutral PPP model Private developer bears risks relating to construction, technical, operation, and maintenance of the project Critical risks such as land acquisition, permit/approval, traffic risk, and toll collection risk are borne by the Public sector Two stage Bidding process First stage (Qualification) Technical and Financial strength evaluation Second stage (Financial Bid) - Quoting the annuity payment required based on the costs of the project Lowest annuity quote is awarded the project. The granting authority pays the annuities to the developer according to the agreed payment schedule, after adjusting for project delays and other factors

Challenges in PPP models

Bidding process Land Acquisition Methodology Technical Capability of Private developer

Methodology for dealing with changes in Project scope

Other Issues

Maintenance of Existing Roads

Road Safety Measures

References
"Coimbatore Bypass Road". New Delhi: Department of Economic Affairs, Ministry of Finance, Government of India. "Project Financing: A Case study on Coimbatore Bypass

Road Project" (PDF). Larsen and Toubro. p. 1

"Coimbatore By-pass (Tamil Nadu)". L&T IDPL. http://www.pppindiadatabase.com
"Financing Road Projects in India Using PPP Scheme" by Satyanaryana N. Kalidindi and L. Boeing Singh (IIT M)

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Thank You!