Working Capital Management of Infrastructure Projects

LITERATURE REVIEW
Working Capital Management of Infrastructure Projects

PPP – BOT Highway Projects
Guided by:
Dr. D.R. Patel
Prepared By:
Soni Viral S.
CP (1507)
M.Tech Construction & Project Management, Faculty of Technology,

CEPT University, Ahmedabad. Soni Viral S, M.Tech CPM, CEPT
University, Ahmedabad
Sr. No. Content
2.1 Introduction
2.2 Definitions
2.3 Concepts of Working Capital Management
2.4 Concepts of PPP-

PPP-BOT Projects
25
2.5 Road blocks in PPP Projects
2.6 Issues in Financing BOT Projects
2.7 Balancing Net Working Capital
2.8 Means of financing Working Capital
2.9 Receivables Management

Management-- Tolling trends
2.10 Research Gap
2.11 References
Soni Viral S, M.Tech CPM, CEPT

2.1 INTRODUCTION
Need of PPP
PPP--BOT schemes.
In the year 1996, the world bank had estimated that an expenditure of US$200
billion a year must be made on infrastructure by developing countries, and Asian
would account for 80% of this expenditure. The bottle necks in mobilization of
public funds and foreign debts have enhanced the interests of developing countries
in provision of infrastructure projects through Built-
Built-Operate
Operate--Transfer (BOT) type
scheme.
A study of funding requirements for development and maintenance of roads in India

reveals a large likely funding gap. Compared to an annual funding requirement of
Rs. 32,700 cr projected for the years 2001-
2001-2006 for development and maintenance
of State highways and NHs, quantum of funds available annually for this purpose
was Rs.10,100 cr. It will clearly not feasible for the state to meet the funding gap
projected
j t d without
ith t affecting
ff ti its
it ability
bilit tto meett th
the requirements
i t off other
th priorities.
i iti

2.2 Definitions
Working Capital – (Gross Working Capital) it means the current assets which
represent the proportion of investment that circulates from one to another in
ordinaryy conduct of business.
Net Working Capital – It can be defined as the difference between current assets
and current liabilities or alternatively the portion of current assets financed with
long--term funds.
long
Current Assets – Assets which normally get converted into cash during normal
operating cycle of the firm.
Current liabilities – Liabilities that are normally payable within a year.
Profitability – Implies the relationship between revenue and costs generated by

using
i both
b th fixed
fi d andd currentt assets
t iin productive
d ti activities.
ti iti
Risk of technical insolvency – it is probability that a firm will be unable to meet its
obligations as they become due.

2.2
2 2 Definitions
PPP Projects – Public Private Partnership Projects -describes a government
service/project
/p j or private
p business venture which is funded and operated
p
through a partnership of government and one or more private sector
companies.
BOT Projects -BOT is build,

build operate and transfer - a company builds a
facility, an infrastructure project, gets to operate it for a while and is paid
for that, and finally transfers it back to the public sector at the end of some
time - determined by when the construction company is believed to have
been paid a satisfactory amount.
amount
BOOT projects – BOOT: build, own, operate and transfer - the constructor
builds the p
project,
j , theyy then get
g to own and operate
p it for some period
p of
time (like 20 or 25 years) during which they collect revenues. At the end of
the certain duration , the project is handed back to the government.

2.3 Concepts of Working Capital
Management
According to Khan & Jain, The goal of working capital management is to
manage the firm’s
firm s current assets and liabilities in such a way that a
satisfactory level of working capital is maintained. If firm cannot maintain
a satisfactory level of working capital it is likely to become insolvent and
mayy be forced to bankruptcy,
p y in case of infrastructure project
p j it becomes
crucial due to level of risk and longer gestation period.
According to P Chandra, Under a flexible policy the investment in current

asset is high.
h h Thish means a huge
h balance
b l off cash
h and
d marketable
k bl securities,
carries large amount of inventories, and grants generous terms of credits to
customers. Under a restrictive policy (aggressive policy), the investment in
current asset is low
low. This means that the firms keeps a small balance of
cash and marketable securities, manage with small amount of inventories
and offer stiff terms of credit.

2.4 Concepts
p of PPP-
PPP-BOT Projects
j :
According to Cesar Queiroz (Lead Highway Engineer World Bank, Russia) A

P bli -Private
Public-
Public Pi Partnership
P hi (PPP) constitutes
i a sustained
i d collaborative
ll b i effort
ff
between the public sector (government agencies) and private enterprises to
achieve a common objective (e.g., the road project) while they pursue their
own individual interests.
BOT Projects – According to R Kansal and M C Gupta, ( The ICFAI Journal

of Infrastructure ) BOT is a device that helps
p the government
g to develop p
infrastructure projects by transferring all the risk and responsibility to
private sector, it requires appropriate allocation of risk and assigning risk to
those best placed to control them.

2.4 Concepts
p of PPP-
PPP-BOT Projects
j :
BOT Projects in Indian Scenario
According to Kansal & Gupta, In India budgetary allocation is not sufficient, the
National Highway Act has been amended to enable levy of fee on the selected
sectors of national highway
highway. This way the private sector can participate in the
construction, maintenance and operation of roads on BOT basis. The National
Highway Authority of India (NHAI) on behalf of the Government of India (GOI) has
invited global tenders from the parties for proposed Super National highways or
Expressways, which connect major metropolitan cities and manufacturing town with
the major ports in India. These are proposed to be built with the help of the private
sector on the BOT basis.
National Highways Development Projects (NHDP) Under BOT scheme
The proposed 13,416 Km four/six lane roads at cost of Rs. 54,000 cr under BOT
scheme, which include the following three corridors.
Golden Quadrilateral (GQ): it connect four metros
metros-- Delhi,
Delhi Kolkata
Kolkata, Chennai and
Mumbai-- covering a distance of 5846 km length.
Mumbai
North--South Corridor: it runs from Jammu to Kanyakumari covering a length of
North
4000 kms and was scheduled to be completed by 2007.
East--west Corridor: it runs from Porbandar to Silchar covering a length of 3,300
East 3 300
Kms and was scheduled to be operational by 2007.
2.4 Concepts
p of PPP-
PPP-BOT Projects
j :
Concessions announced by NHAI
The NHAI has also announced a number of concessions to private sector. They are
¾ The private sector allowed to retain the toll money on the highway it develops on the BOT basis.
¾ A 100% tax exemption granted for five years, and 30% relief for the next five years.
¾ The exemption may be availed by the contractor over a period of 20 years.
¾ The concession period may be extended up to 30 years.
¾ An exemption on import duty for import of high capacity modern equipments.
¾ Foreign direct investment has been permitted up to 100%.
¾ The Government would provide the land free of cost and also free from all encumbrances.
encumbrances
¾ The NHAI permitted to take a 30% stake in BOT projects.
¾ The GOI and NHAI will Provide capital grant up to 40% of their Project cost
¾ Any arbitration would be settled as per the United Nations Commission on International Trade law
(UNICTRAL) provisions. Soni Viral S, M.Tech CPM, CEPT
2.5 Road Blocks in PPP projects:-
projects:-
According to Kansal & Gupta, Despite of GOI’s and the NHAI’s

concessions to the private sector to make them involve in the
BOT projects, the private sector is hesitant to take part in the
BOT projects due to the following reasons:
Ö More time is required in land acquisition, shifting of utilities, removing

of structures etc. Procedures are so cumbersome that it takes a
minimum of a yyear to acquire
q the land;; and
Ö The project has gestation period of 20 years which is too long for
blocking the investment. Normally, the capital expenditure plans of
companies, including building a new manufacturing facility, do not have
gestation
t ti period
i d off more than
th sixi to
t seven years. Thus
Th till such h period,
i d
the companies have to pay interest on its borrowing from the financial
institutions.

2.5 Road Blocks in PPP projects:-
projects:-
According to Rajiv Lall ( Indian Infrastructure, June 2007), At state level
transition is not as smooth as it is in National level projects, Financier
apprehension while funding projects stems from the lack of homogeneity in
procedure adopted by states. Bankers demand standardization and but at
the state government level, the Model Concession Agreement is variable.
States having standardized MCAs like Maharashtra, Madhyapradesh,
Gujarat, Punjab, Haryana, Rajasthan, Kerala and Karnataka have more PPP
projects.
A
Accoring
i tot Bharti
Bh ti Gupta,
G t ( IIndian
di Infrastructure,
I f t t JJune 2007)
2007), R
Reason
behind the financiers reluctance is the lower creditworthiness of state
authorities compared to National Authorities. The financial capacity of the
state to back the project is sometime a question. Inappropriate risk
allocation due to issues like land acquisition problems delayed
environmental clearances, among others are also causes of worry to
financiers.

2.7 Issues in Financing BOT projects
According to Nayan C Parikh and Rajesh Samson (Vikalpa Vol-
Vol-
24.No.1 January-
January-March 1999) Practical experienced has shown
that the following hurdles are encountered arranging finances
for BOT projects.
¾ Lack of Prime Security
¾ The Escrow Account
¾ Placement of Equity
¾ Back--ended Cash flows

Back

2.7 Balancing Net Working capital
There are number of problems faced by companies in trying to

b l
balance the
th NNett working
ki capital.
it l Major
M j off these
th are listed
li t d
below:
Shortage of working capital
Slow
S o aand
d non
o moving
o g stocks
s oc s
Funds locked in work in progress
Requirement of high growth company
Reduction in interest rates

2.8 Means of Financing working Capital
Source of finances that are used to support current
assets :-
:-
¾ Accruals – amount owed but not paid, ( taxes, wages etc. )

¾ Trade credit – credits extended byy suppliers
pp of goods
g and
services. ( 25 to 50 % of short term financing in some
cases )
¾ Working capital advance by commercial banks
¾ Bank finance
¾ Inter--corporate deposits
Inter
¾ Short term loans from financial institutions
¾ Commercial paper
¾ Validity Gap funding

2.8 Means of Financing working Capital
As listed in Indian infrastructure, Major players Financing Infrastructure Projects in

India:
World Bank – Largest multilateral funding agency which provides low cost and
long tenor financing to infrastructure projects.
Asian Development Bank (ADB) – an active player in infrastructure financing

providing support to India in the form of loans, technical assistance,grants,
guarantees and equity investments. At the end of the year 2006 ADB had extended
loans worth $ 10,606 million for infrastructure projects.
Infrastructure Development Finance Company (IDFC) – IDFC was

incorporated on January 30, 1997 as a specialized institution to facilitate flow of
private finance to commercially viable infrastructure projects.
ICICI Bank – largest Indian private sector bank. As on march 31, 2007 Loan worth
Rs 141.58 billion was provided to various infrastructure projects.

Major players Financing Infrastructure Projects in India:
Industrial Development Bank of India (IDBI) – IDBI is among largest

commercial banks in India.
Industrial Finance Corporation of India (IFCI) – financial institution

set up to promote development in India. As on March 31, 2007 IFCI’s net
outstanding in infrastructure was amounted to Rs 14.02 billion.
India Infrastructure finance company limited (IIFCL) – IIFCL was

formed in January 2006 as 100 percent government owned Infrastructure
financing SPV. The SPV funds infrastructure projects up to 20 percent of
the total project cost.

2.9 Tolling trends
As per data given in Indian Infrastructure (November 2007), Toll revenues
from National highways have increased consistently, Currently 66 stretches
covering over 4000 km under NHDP are tolled.
Toll collection in 2006-

2006-2007 were estimated Rs. 10.3 billion, an increased
about 30 percent over 2005-
2005-2006. Of this 80 percent of the collection is
from ppublic funded projects
p j and 20 percent
p from private
p projects.
p j Prior to
this toll collection witnessed 76 percent in 2005-
2005-2006 and 25 percent in
2004--2005. The decline in 2006
2004 2006--2007 has been attributed to the delay in
bringing eight new stretches under the toll net.
Estimated toll collection from the Golden quadrilateral and North-

North-South
South--
East--West Corridor are Rs 5 million per km and Rs 1.8 million per km
East
respectively. This constitutes 3-
3-5 percent per annum of the cost of four
laning this networks.
networks After completion GQ and NSEW will have 95 and 112
toll plazas respectively. The Value of each toll plaza is estimated at $4.5
million.

2.9 Tolling trends
The Gujarat Government was one of the first state governments to collect
tolls on PPP projects. The Government began toll collection on Vadodara-
Vadodara-
Halol Toll road and subsequently on Ahmedabad-
Ahmedabad-Mehsana Toll Road.
Average number of vehicles using Ahmedabad
Ahmedabad--Mehsana toll road is 620 per
hour, and average number of vehicles using Vadodara-
Vadodara-Halol is 377 per
hour. Toll collection on both stretches have mostly increased, except for a
minor decline in 2004-
2004-2005.
Over all toll levied in India are amongst the lowest in the world. An average
toll of US 1.08 cents per km is charged from cars in India as compared to
3-4 cents charged in china and 70 cent in Hong Kong.

2.10 Research Gap
Integrated study of Working capital management specially For PPPPPP--BOT
project is needed as it represent unique structure of project and involves
comple cash flo
complex flows.
s
A detailed study of nature of current assets involved in such projects are

needed to evaluate financing policy for the working capital management.
Adequacy of Matching principle of financing policy with respects to the PPP

PPP--
BOT kind of project has to be evaluated and to be compared with current
policies of financing such projects.
projects
Rules & Specifications to be followed by SPV in execution of project to

entitle under concession from GOI in terms of tax and grants is to be
studied and project specifications has to be aligned with the same.
Need of Uniform MCA in all the states to ease of the operations of

financiers and hence to promote more inflows in the field
field.
2.10 Research Gap
Provision of security to the lenders by providing a solution from combining
‘step--in
‘step in--right’ and Escrow account.
Forming a new policy for funding high growth company involved in PPP
PPP--
BOT projects to meet the higher current assets requirements which is
higher than their growth of sales.
Use of options like VGF scheme In case of viability gap of project and to
form a standard procedure to avail such scheme.
Evaluation of different methodologies and their accuracy to forecast traffic

on PPP
PPP--BOT projects.
I
Impactt off b
backk ended
d d cash
h flows
fl ( its
it increase
i or decrease
d ) on Profitability
P fit bilit
of project needs to be evaluated in concept stage of such project to
evaluate contingencies required in financing the project.

2.10 References
1) Anand, M. (2001), “Working Capital Performance of Corporate India: an Empirical Survey”
Management and Accounting research (April
(April--June 2001) pp 35
35--43.
2) Bangia, N. (2007), “ Viability Gap Funding” Indian infrastructure, (February 2007) pp 66-
66-69.
3) Bangia, N. (2007), “PPP Roadblock” Indian Infrastructure, (June 2007) pp 62

62--63.
4) Chandra, P. (2007), “Financial Management” , 6th edition, Tata McGraw-

McGraw-hill Publishing
Company Limited, New Delhi.
5) Debasish S.
Debasish. S and Mallik,
Mallik A.
A (1998) “Working Profitability” The management
Working Capital and Profitability
accountant (Novemeber 1998) pp 805-
805-806.
6) Kansal, R. and Gupta M. C. (2007), “Government Role in BOT Projects” The ICFAI journal of
infrastructure, (Volume 5,No. 2), pp 79-
79-88.
7) Khan, P. K. and Jain, P. K.(2004) “Financial Management”,4th edition, Tata McGraw

McGraw--hill
Publishing Company Limited, New Delhi.
8) Kulkarni,
lk M. S.
S (1997),
( 99 ) “ Balancing
l Net Working
k l” Udyog
Capital”
C d Pragati (October
(O b -December
(October- b
1997) pp 28-
28-32.
9) Parikh, N. C. and Samson, R. (1999), “BOT Road Infrastructure Projects: Process, Problems
Suggestions” Vikalpa ( Volume 24,
and Suggestions 24 No.
No 1),
1) pp 3
3--12.
12
10) Srivastava, R. M. (1992), “Comercial

Soni Viral paper-
paper - A vibrant
S, M.Tech instrument of Working Capital in
CPM, CEPT
India” Prabandh (October 92-
92-March 93) ppAhmedabad
University, 35-
35-36.
OBJECTIVES
To study the various Working Capital policies,

q y management,
liquidity g , credit management g and
cash Collection-
Collection-Disbursement.
To study and suggest various means of
Working Capital Financing for construction
firms involved in Infrastructure field. field
To study various effects of back ended cash
flows in BOT project and its implication on
other parameters.Soni Viral S, M.Tech CPM, CEPT
DATA COLLECTION & DATA
ANALYSIS

3 1 Data
3.1 D t CCollection
ll ti - Project
P j tD Details
t il
¾ Project :-
:- 4 Lanning of RAJAHMUNDRY – DHARMAVARAM SECTION OF NH-
NH-5
PROJECT INTRODUCTION
The project road section from Km 200 (near Rajahmundry) to Km 253 (near
Dharmavaram)) is a part of Vijayawada - Visakhapatnam segment of NH-
Dharmavaram NH-5 in Andhra
Pradesh
The average formation width of the project road corridor is 12 m
Section I - Diwan Cheruvu (Km 200/0) to Rajaanagaram Road Junction (Km 207/3)
Section II - Rajaanagaram Road Junction (Km 207/3) to Erravaram (Km 238/8)
Section III - Erravaram (Km 238/8) to Km 253/0

Section I - Diwan Cheruvu (Km 200/0) to Rajaanagaram Road Junction (Km 207/3)

Section II - Rajaanagaram Road Junction (Km 207/3) to Erravaram (Km 238/8)

Section III - Erravaram (Km 238/8) to Km 253/0

Ann al Average
Annual A e age Daily
Dail Traffic
T affic
Animal /
secti Two Auto Car / Van / Tractor Hand Cycle Total
ons wheelers Rickshaw Jeep
p Tempo
p Bus Truck Tractor & Trail Drawn Cycle
y rickshaw Pcus
Mini Standard LCV 2-Axle 3-Axle MAV
I 1656 170 1138 42 29 296 288 2921 551 164 55 62 9 856 26 15573
II 750 124 546 10 21 222 207 2461 482 160 47 46 4 741 24 12325
III 457 97 309 9 3 143 134 1387 284 95 37 59 7 1048 46 7685

Chart Title
Two wheelers
0%
Auto Rickshaw
1% 10%
1% 0% Car / Jeep
20%
Van / Tempo
2%
Bus
7%
Standard Truck
2% LCV Truck
2-Axle Truck
3-Axle Truck
14% MAV Truck
Tractor
Tractor & Trail
Animal / Hand Drawn

35% 1%
4%
0% Cycle
3%
C l rickshaw
Cycle i k h

T affic - Projections
Tollable Traffic P ojections
Mode/year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Cars 942 1015 1095 1180 1272 1371 1470 1576 1689 1811 1941 2058 2181 2312 2451
Bus 296 318 341 365 391 420 450 482 517 554 594 630 667 707 750
LCV 289 303 318 334 350 367 384 402 420 440 460 478 498 517 538
HCV 3777 4094 4438 4811 5215 5653 6094 6570 7082 7635 8230 8773 9352 9969 10627
MAV 274 296 321 348 378 409 441 476 513 553 596 635 677 722 770
Total 5578 6027 6513 7038 7607 8221 8840 9505 10221 10992 11821 12574 13376 14228 15136
Tollable Traffic
T affic - Projections
P ojections
Mode/year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Cars 2598 2741 2891 3050 3218 3359 3582 3779 3987 4206 4437 4681 4939 5210 5497
Bus 795 839 885 933 985 1039 1096 1156 1220 1287 1358 1432 1511 1594 1682
LCV 560 581 602 625 649 673 698 724 751 780 809 839 871 903 937
HCV 11329 12020 12753 13531 14356 15232 16161 17147 18193 19303 20480 21730 23055 24462 25954
MAV 820 870 924 980 1040 1103 1170 1242 1317 1398 1438 1574 1670 1771 1879
Total 16102 17051 18055 19119 20248 21406 22707 24048 25468 26974 28522 30256 32046 33940 35949

Toll Rates ( Rs per Vehicle - Trip)
Mode/year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Cars 34 34 34 41 41 41 49 49 49 59 59 59 71 71 71
Bus 120 120 120 144 144 144 173 173 173 208 208 208 250 250 250
LCV 60 60 60 73 73 73 88 88 88 106 106 106 127 127 127
HCV 120 120 120 144 144 144 173 173 173 208 208 208 250 250 250
MAV 120 120 120 144 144 144 173 173 173 208 208 208 250 250 250

Toll Rates ( Rs per Vehicle - Trip)
Mode/year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Cars 85 85 85 102 102 102 123 123 123 147 147 147 177 177 177
Bus 300 300 300 360 360 360 432 432 432 518 518 518 622 622 622
LCV 152 152 152 183 183 183 219 219 219 263 263 263 316 316 316
HCV 300 300 300 360 360 360 432 432 432 518 518 518 622 622 622
MAV 300 300 300 360 360 360 432 432 432 518 518 518 622 622 622

Ann al Toll Revenue
Annual Re en e – Projection
P ojection
Mode/year
ode/yea 2005
005 2006
006 2007
00 2008
008 2009
009 2010
0 0 2011
0 2012
0 2013
0 3 2014
0 2015
0 5 2016
0 6 2017
0 2018
0 8 2019
0 9
Cars 12 13 14 18 19 21 26 28 30 39 42 44 57 60 64
Bus 13 14 15 19 21 22 28 30 33 42 45 48 61 65 68
LCV 6 7 7 9 9 10 12 13 13 17 18 18 23 24 25
HCV 165 179 194 253 274 297 385 415 447 580 625 666 853 910 970
MAV 12 13 14 18 20 21 28 30 32 42 45 48 62 66 70
Total 208 225 244 317 343 371 480 516 556 720 775 825 1056 1124 1197

Annual Toll Revenue – Projection
Mode/year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Cars 81 85 90 114 120 125 161 170 179 226 238 251 319 337 355
Bus 87 92 97 123 129 137 173 182 192 243 257 271 343 362 382
LCV 31 32 33 42 43 45 56 58 60 75 78 81 100 104 108
HCV 1241 1316 1396 1778 1886 2001 2548 2704 2869 3650 3872 4108 5234 5554 5892
MAV 90 95 101 129 137 145 184 196 208 264 272 298 379 402 427
Total 1530 1620 1717 2186 2315 2453 3122 3310 3508 4458 4717 5009 6375 6759 7164

40000
Tollable Traffic - Projections
35000
30000
25000
hicles
No of Veh
20000
Total Vehicles
15000
10000
5000
Soni Viral S,Years

M.Tech CPM, CEPT
8000
Total Revenue - Projections
7000
6000
5000
Rs in miillion
4000
Total Revenue
3000
2000
1000
Soni Viral S,Years

M.Tech CPM, CEPT
Project Cost Details
Item No. Description Cost (in Rs.)
1 Site Clearance 2,519,547

2 Earth Work 465,555,841
3 Sub-base and Base Course 412,773,459
4 Bituminous
tu ous Course
Cou se 1,149,379,488
, 9,3 9, 88
5 Bridges and Culverts 178,200,000
6 Road Junction 1,744,631
7 Drainage
g and Protection Works 90,727,452
, ,
8 Toll Plaza 95,249,162

9 PIU complex
p 50,000,000
, ,
10 Miscellaneous Items 160,779,506
11 Provisional Items 29,884,579
Base Cost 2,681,813,665
Contingencies 3% 80,454,410
Grand Total Soni Viral S, M.Tech CPM, CEPT 2,762,268,075
Project Cost Summary
1%
0% Site Clearance
2%
6%
3% 18% Earth Work
4%
0%
Sub-base and Base Course
7%
Bituminous Course
16%
Bridges and Culverts
Road Junction
Drainage and Protection Works

43%
Toll Plaza
PIU complex
Miscellaneous Items
Provisional Items

Data Analysis

Project cost Parameters
Evaluation
E l ti YearY (Yr.
(Y Of costt estimates)
ti t ) 2001
Year construction begins (proj. Yr.'1') 2002
Construction period (year) 2.5
Opening Year (proj. Yr ''4'') 2005
L
Lengthth off P
Project
j t road d (i
(in Km)
K ) 53
Length of existing pavement (in Km) 53
Project cost (Rs million)
Total project cost 2001 values 2762.27
- costt off additional
dditi l 2 lanses
l for
f toll
t ll plaza
l 2001 values
l 15 39
15.39
Annual Inflation Rate (%) 7.50%
Government contribution in % 40.00%
Operation & Maintainance Costs
T ll plaza
Toll l O & M Cost
C p.a in
i phase
h 1 (Rs
(R million)
illi ) 2001 values
l 0 48
0.48
Environmental Monitoring Cost p.a. (Rs million) 2001 values 0.12

Routine Maintenance p.a. for rigid and flexible
pavements andd service
i road d (Rs
(R million)
illi ) 2001 values
l 23
Major Maintenance - Flexible pavement and service road (Rs
million)
- 5th Yr 2001 2009 162
- 10th
0 h Yr 20
2014 162
62
- 15th Yr 2019 162
-20th Yr Soni Viral S, M.Tech CPM, CEPT 2024 162
25th and 30th Yr 2029 2034 162
Financial Parameters
Toll Rate 1997 1998 1999 2001 2005
(Rs/Km) (Rs/Km) (Rs/Km) (Rs/Km) (Rs/Km)

Car 0.4 0.42 0.44 0.49 0.65
LCV 0.7 0.74 0.77 0.85 1.14
HCV,MAV, Bus 1.4 1.47 1.54 1.7 2.27
Oversized 3 3.16 3.31 3.64 4.86
Toll indexing - every 3 year @ 20.00%
Advertisement Revenue (% of toll Rev.) 2.00%
Project concession period (After Construction) 30
Loan Replayment Period (Years) 15
Loan payback Grace period (Years) 0
Rate of Calculation of interest During Construction
(IDC) (%) 16.00%
Interest rate on Long Term Debt (%) 16.00%
Debt : Equity Ratio 2:01
Equity Contribution (%) 33.33%
Loan (%) 66.67%
Tax rate 35.07%
Tax benefit limited to (Years) 20
Tax Holiday (Years) 5
Tax Rebate period (Years) 5
Tax Rebate (in %) Soni Viral S, M.Tech CPM, CEPT 30.00%
Loss Carry Forward Period (Years) University, Ahmedabad 8
Annual Depreciation - straight line @ 1.63%
P oject Cost Phasing (Rs in million)
Project
Year 2002 2003 2004 Total
Project Cost Phasing (%) 20.00% 45.00% 35.00% 100.00%
Phased Project Cost (2000 prices) 552.45 1243.02 966.79 2762.27
Actual Costs in Year of Expediture (current prices) 593.89 1436.47 1201.05 3231.4
Interest during Construction 28.51 207.67 291.01 527.19
Total Landed Cost including IDC 622.4 1644.14 1492.05 3758.59

So ces of Finance (Rs in million)
Sources
Total Landing Cost Including IDC 3758.59
Govt. Contribution 1503.436
Cost ecluding Govt. Contribution 2255.154
Equity Contribution 751.6428
Loan Requirement 1503 511

1503.511

Depreciation
Schedule of Depreciation by WDV method
Particulars / Years 2005 2006 2007 2008 2009 2010
Beginning Balance 2255.2 2255.2 2029.6 1826.7 1644 1479.6 1332
Annual Depreciation -
WDV @ 10.00% 225.52 202.96 182.67 164.4 147.96 133.2
Ending Balance 2029.6 1826.7 1644 1479.6 1331.6 1198
Particulars / Years 2011 2012 2013 2014 2015 2016 2017 2018 2019
Beginning Balance 1198.5 1078.6 970.772 873.695 786.326 707.693 636.924 573.231 515.908
Annual
Depreciation - WDV
@ 119 85
119.85 107 86 97.0772
107.86 97 0772 87.3695
87 3695 78.6326
78 6326 70.7693
70 7693 63.6924
63 6924 57.3231
57 3231 51.5908
51 5908
Ending Balance 1078.6 970.77 Soni Viral S, 786.326

873.695 M.Tech CPM, CEPT 636.924 573.231 515.908 464.317
707.693
Depreciation
Schedule of Depreciation
p byy WDV method
Particulars / Years 2020 2021 2022 2023 2024 2025 2026 2027
Beginning Balance 464.32 417.89 376.1 338.49 304.64 274.2 246.76 222.08
Annual Depreciation
- WDV @ 46 432
46.432 41 789
41.789 37 61
37.61 33 849
33.849 30 464
30.464 27 42
27.42 24 676
24.676 22 208
22.208
Ending Balance 417.89 376.1 338.49 304.64 274.17 246.8 222.08 199.87
Particulars / Years 2028 2029 2030 2031 2032 2033 2034
Beginning Balance 199.873 179.886 161.897 145.708 131.137 118.023 106.221
Annual Depreciation -
WDV @ 19.9873 17.9886 16.1897 14.5708 13.1137 11.8023 10.6221
Ending Balance 179.886 161.897 145.708
University, Ahmedabad131.137 118.023 106.221 95.5988
Schedule of Repayment of Long term Loan (Rs in million)
Beginning Balance 1503.5 1503.5 1403.3 1303 1202.8 1102.6 1002 902.11
Principle Repayment 100.23 100.23 100.23 100.23 100.23 100.2 100.23
Ending Balance 1403.3 1303 1202.8 1102.6 1002.3 902.1 801.87
Interest Payment @ 16.00% 240.56 224.52 208.49 192.45 176.41 160.4 144.34
Perticulars / Years 2012 2013 2014 2015 2016 2017 2018 2019
Principle Repayment 100.23 100.234 100.234 100.234 100.234 100.234 100.234 100.234
Ending Balance 701.64 601.404 501.17 400.936 300.702 200.468 100.234 -4.00E-13
Interest Payment @ 128.3 112.262 96.2247

Soni Viral S, M.Tech80.1873 64.1498
CPM, CEPT 48.1124 32.0749 16.0375
Project Income Statement (Rs in million)
Particulars / Years 2005 2006 2007 2008 2009
A. Operating Income
Toll Revenue 208.42 225.44 243.93 316.9 342.88
Ad
Advertisement
i Revenue
R 4 17
4.17 4 51
4.51 4 88
4.88 6 34
6.34 6 86
6.86
Total Revenue 212.59 229.95 248.81 323.24 349.74
B. Operating Exppense
T ll plaza
Toll l O &M 0 64
0.64 0 69
0.69 0 74
0.74 08
0.8 0 86
0.86
Environmental Monitoring 0.16 0.17 0.19 0.2 0.21
Annual Road Maintenance 23 24.73 26.58 28.57 30.72
Majo Maintenance
Major 0 0 0 0 213 5
213.5
Total 23.8 25.59 27.51 29.57 245.29
C. Net Operating Income 188.78 204.36 221.31 293.67 104.45
D Less: Interest Expense
D. 240 56
240.56 224 52
224.52 208 49
208.49 192 45
192.45 176 41
176.41
E. Net Profit (or Loss) before Tax & Dep. -51.78 -20.16 12.82 101.22 -71.96
F. Taxes (-) 0 0 0 0 0
G Net profit (or Loss) after Taxes
G. -51.78
51 78 -20.16
20 16 12 82
12.82 101 22
101.22 -71.96
71 96
H. Less : Depreciation by SLM @ 1.63% 36.76 36.76 36.76 36.76 36.76
I. Net Profit (or Loss) After Taxes & Dep. -88.54
University, -56.92
Ahmedabad -23.94 64.46 -108.72
Tax Calculation (Rs in million)
A. Net profit (or Loss ) before Tax & Dep. -51.78 -20.16 12.82 101.22 -71.96
B. Less Dep. By WDV 225.52 202.96 182.67 164.4 147.96
C. Net profit (or Loss) After Dep. -277.29 -223.12 -169.85 -63.18 -219.92
D. Taxable Income 0 0 0 0 0
E. Taxes 0 0 0 0 0
A. Operating Income
Toll Revenue 370.99 479.69 516.45 555.93 719.72
Advertisement Revenue 7.42 9.59 10.33 11.12 14.39
Total Revenue 378.41 489.29 526.78 567.05 734.11
B Operating Exppense
B.
Toll plaza O &M 0.92 0.99 1.06 1.14 1.23
Annual Road Maintenance 33.02 35.5 38.16 41.02 44.1
Major Maintenance 0 0 0 0 440.03
Total 34.17 36.73 39.49 42.45 485.66
D. Less: Interest Expense 160.37 144.34 128.3 112.26 96.22
E. Net Profit (or Loss) before Tax & Dep. 183.87 308.22 359 412.34 152.22
F. Taxes (-) 0 0 0 0 16.207
G N
G. Nett profit
fit ((or LLoss)) after
ft T Taxes 183 87
183.87 308 22
308.22 359 412 34
412.34 136 02
136.02
I. Net Profit (or Loss) After Taxes & Dep. 147.11
University, 271.46
Ahmedabad 322.24 375.58 99.26
A. Net profit (or Loss ) before Tax & Dep. 183.87 308.22 359 412.34 152.22
B. Less Dep. By WDV 133.16 119.85 107.86 97.077 87.37
C. Net profit (or Loss) After Dep. 50.7 188.37 251.13 315.26 64.85
D. Taxable Income 0 0 0 0 45.397
E. Taxes 0 0 0 0 16.207

A. Operating Income
Toll Revenue 774.76 824.9 1055.62 1123.95 1196.87
Total Revenue 790.26 841.4 1076.73 1146.43 1220.81
Toll plaza
pla a O &M 1 32
1.32 1 42
1.42 1 53
1.53 1 64
1.64 1 76
1.76
Major Maintenance 0 0 0 0 440 03
440.03
Total 49.06 52.73 56.69 60.94 505.54
p
D. Less: Interest Expense 80.19 64.15 48.11 32.07 16.04
E. Net Profit (or Loss) before Tax & Dep. 661.02 724.51 971.93 1053.41 699.23
F. Taxes (-) 145.54 163.37 226.97 248.92 161.84
G. Net profit (or Loss) after Taxes 515.48 561.14 744.96 804.49 537.38
I. Net Profit (or Loss) After Taxes & Dep. 478.72
Soni Viral S, 524.38
M.Tech CPM, CEPT 708.2 767.73 500.62
A. Net profit (or Loss ) before Tax & Dep. 661.02 724.51 971.93 1053.41 699.23
B LLess Dep.
B. D B
By WDV 78 633
78.633 70 769
70.769 63 692
63.692 57 323
57.323 51 591
51.591
D. Taxable Income 407.67 457.62 635.76 697.26 453.35
E T
E. Taxes 145 54
145.54 163 37
163.37 226 97
226.97 248 92
248.92 161 84
161.84

A. Operating Income
Toll Revenue 1530 1620 1717 2186 2315
Ad
Advertisement
i Revenue
R 30 6
30.6 32 4
32.4 34 34
34.34 43 72
43.72 46 3
46.3
Total Revenue 1560.6 1652.4 1751.34 2229.72 2361.3
T ll plaza
Toll l O &M 19
1.9 2 04
2.04 2 19
2.19 2 36
2.36 2 53
2.53
Majo Maintenance
Major 0 0 0 0 631 72
631.72
Total 70.43 75.71 81.38 87.49 725.77
D Less: Interest Expense
D. 0 0 0 0 0
F. Taxes (-) 515.42 547.96 582.75 752.69 573.01
G Net profit (or Loss) after Taxes
G. 974 76
974.76 1028 73
1028.73 1087 21
1087.21 1389 54
1389.54 1062 52
1062.52
I. Net Profit (or Loss) After Taxes & Dep. 938
University, Ahmedabad991.97 1050.45 1352.78 1025.76
B. Less Dep. By WDV 46.43174 41.78857 37.60971 33.84874 30.46387
D. Taxable Income 1443.743 1534.904 1632.345 2108.382 1605.066

E. Taxes 515.4163 547.9609 582.7473 752.6925 573.0084
A. Operating Income
Toll Revenue 2453 3122 3310 3508 4458
Total Revenue 2502.06 3184.44 3376.2 3578.16 4547.16
Toll plaza O &M 2.72 2.93 3.15 3.38 3.64
Major Maintenance 0 0 0 0 906 92
906.92
Total 101.1 108.69 116.84 125.6 1041.94
D. Less: Interest Expense 0 0 0 0 0
F. Taxes (-) 847.35 1089.23 1155.66 1225.43 1244.94
I. Net Profit (or Loss) After Taxes & Dep. Soni Viral S,1516.84
M.Tech CPM,1949.76
CEPT 2066.94 2190.37 2223.52
B. Less Dep. By WDV 27.41748 24.67573 22.20816 19.98734 17.98861
D. Taxable Income 2373.538 3051.077 3237.153 3432.571 3487.23
E. Taxes 847.3531 1089.235 1155.664 1225.428 1244.941

A. Operating Income
Toll Revenue 4717 5009 6375 6759 7164
Total Revenue 4811.34 5109.18 6502.5 6894.18 7307.28
Toll plaza O &M 3 91
3.91 42
4.2 4 52
4.52 4 86
4.86 5 22
5.22
Major
j Maintenance 0 0 0 0 1302
Total 145.15 156.03 167.74 180.32 1495.84
D. Less: Interest Expense 0 0 0 0 0
F. Taxes (-) 1660.05 1763.07 2256.83 2392.64 2070.89
H LLess : Depreciation
H. D i ti b by SLM @ 1.63%
1 63% 36 76
36.76 36 76
36.76 36 76
36.76 36 76
36.76 36 76
36.76
I. Net Profit (or Loss) After Taxes & Dep. 2969.38 3153.31 4041.17 4284.47 3703.79
B Less Dep
B. Dep. By WDV 16 18975
16.18975 14 57077
14.57077 13 1137
13.1137 11 80233
11.80233 10 62209
10.62209
D. Taxable Income 4650.002 4938.575 6321.649 6702.06 7102.817
E T
E. Taxes 1660 051
1660.051 1763 071
1763.071 2256 829
2256.829 2392 636
2392.636 2535 706
2535.706

Projected Funds Flow Statement (Rs in million)
End of
Sources of funds
Govt Contribution 1503.436 0 0 0 0 0 0 0
Long Term debt 1503.511 0 0 0 0 0 0 0
Equity Fuding 751.6428 0 0 0 0 0 0 0
Net Profit after Tax &
Dep. -88.54 -56.92 -23.94 64.46 -108.72 147.11 271.46
Depreciation 36.76 36.76 36.76 36.76 36.76 36.76 36.76
Totall sources 3 8 9
3758.59 -51.78
8 -20.16
20 6 12.82
2 82 101.22
0 22 -71.96
96 183.87
83 8 308 22
308.22
Uses of Funds
Govt Contribution 1503.436 0 0 0 0 0 0 0
C it l Expenditure
Capital E dit
Private 2255.154 0 0 0 0 0 0 0
Capitalised Interest 0 0 0 0 0 0 0
Repayment of long term
debt 100 23
100.23 100 23
100.23 100 23
100.23 100 23
100.23 100 23
100.23 100 23
100.23 100 23
100.23
Total Uses 100.23 100.23 100.23 100.23 100.23 100.23 100.23

Net Cash Flow -152.01 -120.39 -87.41 0.99 -172.19 83.63 207.98
Net Cash Flow for FIRR

on Equity -751.643 -152.01 -120.39
Soni Viral S, -87.41
M.Tech CPM, CEPT 0.99 -172.19 83.63 207.98
Cummulative Cash flow -152.01University,
-272.4 -359.82
Ahmedabad -358.83 -531.03 -447.4 -239.41
Sources of funds
Govt Contribution 0 0 0 0 0 0 0 0
Long Term debt 0 0 0 0 0 0 0 0
Equity Fuding 0 0 0 0 0 0 0 0
Dep. 322.24 375.58 99.26 478.72 524.38 708.2 767.73 500.62
Depreciation 36.76 36.76 36.76 36.76 36.76 36.76 36.76 36.76
Total sources 359 412.34 136.02 515.48 561.14 744.96 804.49 537.38
Uses of Funds
Capital Expenditure
Private 0 0 0 0 0 0 0 0
Capitalised Interest 0 0 0 0 0 0 0 0
debt 100.23 100.23 100.23 100.23 100.23 100.23 100.23 100.23
Total Uses 100.23 100.23 100.23 100.23 100.23 100.23 100.23 100.23
Net Cash Flow 258.76 312.1 35.78 415.24 460.91 644.72 704.25 437.15

on Equity 258.76 312.1 35.78 415.24 460.91 644.72 704.25 437.15
Cummulative Cash flow 19.35 331.45 367.23 782.48 1243.39 1888.11 2592.37 3029.52
Particulars
P ti l /Y
Years 2020 2021 2022 2023 2024 2025 2026 2027
Sources of funds
Long Term debt 0 0 0 0 0 0 0 0
Equity Fuding 0 0 0 0 0 0 0 0
Dep. 938 991.97 1050.45 1352.78 1025.76 1516.84 1949.76 2066.94
Depreciation 36.76 36.76 36.76 36.76 36.76 36.76 36.76 36.76
Total sources 974.76 1028.73 1087.21 1389.54 1062.52 1553.6 1986.52 2103.7
Uses of Funds
Capital Expenditure
Private 0 0 0 0 0 0 0 0
Capitalised Interest 0 0 0 0 0 0 0 0
debt 0 0 0 0 0 0 0 0
Total Uses 0 0 0 0 0 0 0 0
Net Cash Flow 974.76 1028.73 1087.21 1389.54 1062.52 1553.6 1986.52 2103.7

on Equity 974.76 Soni Viral1087.21
1028.73 S, M.Tech1389.54
CPM, CEPT
1062.52 1553.6 1986.52 2103.7
Cummulative Cash flow 4004.27 5033.01 6120.21 7509.75 8572.27 10125.88 12112.39 14216.09

Sources of funds
Govt Contribution 0 0 0 0 0 0 0
Long Term debt 0 0 0 0 0 0 0
E it Fuding
Equity F di 0 0 0 0 0 0 0
Net Profit after Tax & Dep. 2190.37 2223.52 2969.38 3153.31 4041.17 4284.47 3703.79
Depreciation 36.76 36.76 36.76 36.76 36.76 36.76 36.76
Total sources 2227 13
2227.13 2260 28
2260.28 3006 14
3006.14 3190 07
3190.07 4077 93
4077.93 4321 23
4321.23 3740 55
3740.55
Uses of Funds
Govt Contribution 0 0 0 0 0 0 0
Capital Expenditure Private 0 0 0 0 0 0 0

Capitalised Interest 0 0 0 0 0 0 0
debt 0 0 0 0 0 0 0
Total Uses 0 0 0 0 0 0 0
Net Cash Flow 2227.13 2260.28 3006.14 3190.07 4077.93 4321.23 3740.55
Net Cash Flow for FIRR on

Equity 2227.13 2260.28
Soni 3006.14
Viral S, M.Tech 3190.07
CPM, CEPT 4077.93 4321.23 3740.55
Cummulative Cash flow 16443.22 18703.5
University,21709.64
Ahmedabad24899.72 28977.65 33298.88 37039.42
Cashflows for IRR ((Rs in million))
End of
Cash flow for FIRR on

Project Investment
(pre-tax) -2255.1 188.78 204.36 221.31 293.67 104.45 344.24 452.55

Equity Investment -751.6 -152.01 -120.39 -87.41 0.99 -172.19 83.63 207.98

Project Investment
(pre-tax) 487.3 524.6 248.45 741.2 788.66 1020.04 1085.49 715.27

Equity Investment 258.76 312.1
Soni Viral35.78
S, M.Tech 415.24
CPM, CEPT460.91 644.72 704.25 437.15
Cashflows for IRR (Rs in million)
Cashflow for FIRR on

Project Inv. (pre-tax) 1490.17 1576.69 1669.96 2142.23 1635.53 2400.96 3075.75
Cash flow for FIRR

on Equity Investment 974.76 1028.73 1087.21 1389.54 1062.52 1553.6 1986.52
Cashflow for FIRR on

Project Inv. (pre-tax) 3259.36 3452.56 3505.22 4666.19 4953.15 6334.76 6713.86 5811.44
Cash flow for FIRR

on Equity Investment 2103.7 2227.13Soni2260.28 3006.14
Viral S, M.Tech 3190.07
CPM, CEPT 4077.93 4321.23 3740.55
Calculation of FIRR
Concession year 1 2 3 4 5 6 7
FIRR on Project
Investment (pre-tax) - - - -27% -23% -12% -5%
FIRR on Equity
Investment - - - - - - -
Concession year 8 9 10 11 12 13 14 15
FIRR on Project
Investment (pre-tax) 0% 4% 5% 8% 10% 12% 13% 14%
FIRR on Equity
Investment - -6%
Soni Viral S,-5% 0%CEPT
M.Tech CPM, 4% 7% 9% 10%
Calculation of FIRR
Concession year 16 17 18 19 20 21 22
FIRR on Project
Investment (pre-tax) 15% 16% 16% 17% 17% 18% 18%
FIRR on Equity
Investment 12% 13% 14% 15% 15% 16% 17%
Concession year 23 24 25 26 27 28 29 30
FIRR on Project
Investment (pre-tax) 19% 19% 19% 19% 20% 20% 20% 20%
FIRR on Equity
Investment 17% 17% 18% 18% 18% 19% 19% 19%
FIRR Summary
FIRR on Project Investment (pre-tax) 20%
FIRR on Equity Investment 19%
Minimum Concession Period (y

(years)) 30

Rs in milliion
0
10000
12000
2000
4000
6000
8000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Year
2018
2019
2020
2021
2022
2023
2024
2025
Cum. Cash Requirement

2026
2027
2028
2029
2030
2031
2032
2033
2034
Cum. Cash flow
Rs in milliion
0
10000
20000
30000
40000
50000
60000
70000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Year
2018
2019
2020
Inflow Vs Outflow
2021
2022

2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Cum. Cash Inflow
Cum. Cash Outflow
Impact of change in Financing policy

Impact of change in Financing policy
To analyze effect of change in financing policy of project, Term of Loan is assumed to be

shortened to 10 years. There are many financial institutes which provides funding at rate of
interest of 14% for specified period.
Impact which is analysed by mathematical model of project cash outflow shows that though
principal payment part is increased due to shorter payback period of loan, as interest rate is
substantially low compared with long term loan interest payment part comes down, hence EMI
f repaymentt off lloan iis also
for l lower.
l This
Thi effect
ff t can bbe observed
b d in
i cash h outflow
tfl projection
j ti
In this particular case it is found that short term loan demands more liquidity in initial phase
but p
projects
j more profitability
p y when analyzed
y for long
g concession period
p of 30 years.
y
Back ended cash out flow has severe effect on IRR which can be partially taken care by
choosing right trade off between Liquidity requirement and IRR.

Schedule of Repayment of Loan
Perticulars / Years 2005 2006 2007 2008 2009 2010 2011
Principle Repayment 150.4 150.4 150.4 150.4 150.4 150.4 150.4
Ending Balance 1353.2 1202.8 1052.5 902.1 751.8 601.4 451.1
Interest Payment @ 0.14 210.5 189.4 168.4 147.3 126.3 105.2 84.2
Perticulars / Years 2012 2013 2014 2015 2016 2017 2018 2019
Beginning Balance 451 1

451.1 300 7
300.7 150 4
150.4 0 0 0 0 0
Principle Repayment 150.4 150.4 150.4 0 0 0 0 0
E di Balance
Ending B l 300 7
300.7 150 4
150.4 0 0 0 0 0 0

Interest Payment @ 63.1 42.1 21 0 0 0 0 0
Comparison of Cash Flows with different Financing policy
Year Cum Cash Out flow-2

Cum. Cum Cash Out flow-1
Cum.
i= 14%,n=10 y i=16%,n=15 y
2001 0 0
00
2002 248.96
8 96 248.96
8 96
2003 906.62 906.62
2004 1503.44 1503.44
2005 1888.08 1868.03
2006 2253.46 2218.38
2007 2599.71 2554.6
2008 2926.97 2876.86
2009 3448.9 3398.79
2010 3738.67 3693.57
2011 4009.95 3974.87
2012 4262.94 4242.89
2013 4497.84 4497.84
2014 5154.9 5179.96
2015 5203 95
5203.95 5409 43
5409.43
2016 5256.69 5626.55
2017 5313.38
University, Ahmedabad 5831.59
Comparison of Cash Flows with different Financing policy
Year Cum Cash Out flow

Cum. flow-2
2 Cum Cash Out flow
Cum. flow-1
1
i= 14%,n=10 y i=16%,n=15 y
2018 5374.32 6024.84
2019 5879.86 6646.65
2020 5950.29 6717.08
2021 6025.99 6792.78
2022 6107.38 6874.17
2023 6194.87 6961.66
2024 6920.64 7687.43
2025 7021.74 7788.53
2026 7130 43
7130.43 7897 22
7897.22
2027 7247.27 8014.06
2028 7372.87 8139.66
2029 8414 81
8414.81 9181 6
9181.6
2030 8559.96 9326.75
2031 8715.99 9482.78
2032 8883.73 9650.52
2033 9064.05 9830.84
2034 10559.89
Soni Viral S, M.Tech CPM, CEPT 11326.68
Comparison of Cash Outflows
12000
10000
8000
on
Rs in millio
6000
4000
2000
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34
Years
Rs in million
0
10000
20000
30000
40000
50000
60000
2001 70000
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Soni Viral
Year
2018
2019
2020
2021
2022
2023
2024
2025
Inflow Vs Outflow
2026
S, M.Tech CPM, CEPT

2027
2028
2029
2030
2031
2032
2033
2034
Cum. Cash Inflow
Cum. Cash Out flow
Analysis of Step
Step--in Right action and
its viability

Step-in Right action and its viability
Analysis of Step-
to analyze the effectiveness of Step-

Step-in right of financial institute, situation
is assumed where due to the unforeseen calamity project had suffered
heavyy damageg in year
y 2009 and additional maintenance was incurred (Rs (
250 million). Due to this situation SPV files bankruptcy and becomes
defaulter for payment of loan.
Financial institute use step in right and takes over project for remaining
recovery of fund. Hence remaining fund with additional loss in year 2009
will be considered as an investment to generate further analysis.

Base Data Sheet
A. Operating Income
Toll Revenue 208.42 225.44 243.93 316.9 342.88 370.99 479.69
Advertisement Revenue 4.17 4.51 4.88 6.34 6.86 7.42 9.59
Total Revenue 212.59 229.95 248.81 323.24 349.74 378.41 489.29
Toll plaza O &M 0.64 0.69 0.74 0.8 0.86 0.92 0.99
Environmental Monitoring 0.16 0.17 0.19 0.2 0.21 0.23 0.25
Annual Road Maintenance 23 24.73 26.58 28.57 30.72 33.02 35.5
Major Maintenance 0 0 0 0 463.4 0 0
Total 23 8
23.8 25 59
25.59 27 51
27.51 29 57
29.57 495 19
495.19 34 17
34.17 36 73
36.73
C. Net Operating Income 188.78 204.36 221.31 293.67 -145.45 344.24 452.55
D. Less: Interest Expense 240.56 224.52 208.49 192.45 176.41 0 0
E. Net Profit ((or Loss)) before Tax &
Dep. -51.78 -20.16 12.82 101.22 -321.86 344.24 452.55
F. Taxes (-) 0 0 0 0 0 0 0
G. Net profit (or Loss) after Taxes -51.78 -20.16 12.82 101.22 -321.86 344.24 452.55
H Less : Depreciation by SLM @
H.
1.63% 36.76 36.76 36.76 36.76 36.76 36.76 36.76
I. Net Profit (or Loss) After Taxes & Soni Viral S, M.Tech CPM, CEPT
Dep. -88.54 -56.92
University, -23.94
Ahmedabad 64.46 -358.62 307.48 415.79
Base Data Sheet
A. Operating Income
Toll Revenue 516.45 555.93 719.72 774.76 824.9 1055.62 1123.95 1196.87
Advertisement Revenue 10.33 11.12 14.39 15.5 16.5 21.11 22.48 23.94
Total Revenue 526.78 567.05 734.11 790.26 841.4 1076.73 1146.43 1220.81
Toll plaza O &M 1.06 1.14 1.23 1.32 1.42 1.53 1.64 1.76
Environmental Monitoring 0.27 0.29 0.31 0.33 0.36 0.38 0.41 0.44
Annual Road Maintenance 38.16 41.02 44.1 47.4 50.96 54.78 58.89 63.31
Major Maintenance 0 0 440.03 0 0 0 0 440.03
Total 39.49 42.45 485.66 49.06 52.73 56.69 60.94 505.54
C. Net Operating Income 487.3 524.6 248.45 741.2 788.66 1020.04 1085.49 715.27
D. Less: Interest Expense 0 0 0 0 0 0 0 0
E. N
E Nett P
Profit
fit ((or LLoss)) b
before
f T
Tax &
Dep. 487.3 524.6 248.45 741.2 788.66 1020.04 1085.49 715.27
F. Taxes (-) 0 0 40.253 165.58 179.4 238.991 256.938 165.852
G. Net profit (or Loss) after Taxes 487.3 524.6 208.19 575.63 609.26 781.05 828.55 549.41
H. Less : Depreciation by SLM @
1.63% 36.76 36.76 36.76 36.76 36.76 36.76 36.76 36.76
I. Net Profit (or Loss) After Taxes & University, Ahmedabad
Dep. 450.54 487.84 171.43 538.87 572.5 744.29 791.79 512.65
Comparison of Cashflows
year 2009 2010 2011 2012 2013 2014 2015
Cum.Cashflow
Cum Cashflow in case of
Default -1461.19 -1153.71 -737.92 -287.38 200.46 371.89 910.76
Cum. Cashflow in case of

Successful payment -1102.5 -841.89 -597.32 -368.79 -156.29 40.17 220.59
year 2016 2017 2018 2019 NPV IRR
Cum.Cashflow in case of
Default 1483.26 2227.55 3019.34 3531.99 ($84.80) 27%
Cum. Cashflow in case of

Successful payment 384.97 533.32 665.63 781.9 ($63.90) 13%

Default Case Vs Regular Payment Cashflows
4000 00
4000.00
3000.00
2000.00
Rs in million
n
1000.00
R
0.00
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
-1000.00
-2000.00
2000 00
Years
Cum.Cashflow in caseSoni Viral S, M.Tech

of Default CPM,
Cum. CEPT
Cashflow in case of Successful payment
Annuity Approach

Annuity Approach
Annuity approach is different from conventional BOT approach as far as

uncertainty of cash inflows are concerned. Cash inflows are much more
uncertain in conventional BOT projects as traffic data and financial data
projected are highly susceptible to alteration due to many factors like
political, environmental, economical etc.
Annuity approach eliminates the risk arising from uncertainty of cash

inflows by providing constant annual amount to SPV and thus providing
assured IRR and reducing SPV’s financial risk. This makes project more
feasible for loan assessments, hence it reduces the burden of interest rate
on SPV. It gives advantage of surplus profit to the government with sharing
off fi
financial
i l risk.
i k
Analysis by Mathematical model is same except cash inflow projection as

compared with conventional BOT approach
Base Data sheet (Rs in million)
Project Costs
Evaluation Year (Yr. Of cost estimates) 2001
Year construction begins (proj. Yr.'1') 2002
Construction period (year) 2.5
Opening Year (proj. Yr ''4'') 2005
Length of Project road (in Km) 53
Length of existing pavement (in Km) 53
Project cost (Rs million)
Total project cost 2001 Values 2762.27
- cost of additional 2 lanses for toll plaza 2001 Values 0
Annual Inflation Rate (%) 7.50%
Government contribution in % 0.00%
Operation & Maintainance Costs
Toll plaza O & M Cost p.a in phase 1 (Rs million) 2001 Values 0
Environmental Monitoring Cost p.a. (Rs million) 2001 Values 0.12

Routine Maintenance p.a. for rigid and flexible
pavements and service road (Rs million) 2001 Values 23
Major Maintenance - Flexible pavement and service road (Rs million)
- 5th Yr 2001 2009 310
- 10th Yr 2014 310
- 15th Yr 2019 310
-20th Yr 2024 310
-25th and 30th Yr 2029, 2034 310
Annuity Payable to private Operator by NHAI (Rs million) per annum 884.31
Financial data (Rs in million)
Toll Rate 1997 1998 1999 2001 2005
(Rs/Km) (Rs/Km) (Rs/Km) (Rs/Km) (Rs/Km)

Car 0 0 0 0 0
LCV 0 0 0 0 0
HCV MAV Bus
HCV,MAV, 0 0 0 0 0
Oversized 0 0 0 0 0
Toll indexing - every 3 year @ 0.00%
Advertisement Revenue (% of toll Rev.) 0.00%
Project concession period (After Construction) 15
Loan Replayment Period (Years) 9
Loan payback Grace period (Years) 0
Rate of Calculation of interest During Construction (IDC) (%) 16.00%
Interest rate on Long Term Debt (%) 16.00%
Debt : Equity Ratio 2:01
Equity Contribution (%) 33.33%
Loan (%) 66.67%
Tax rate 35.70%
Tax benefit limited to (Years) 20
Tax Holiday (Years) 5
Tax Rebate period (Years) 5
Tax Rebate ((in %)) 30.00%
Loss Carry Forward Period (Years) 8
Annual Depreciation - straight line @ 1.63%
Annual Depreciation - WDV @ University, Ahmedabad 10.00%
Project Cost Phasing
2001 2002 2003 Total
Project Cost Phasing (%) 20.00% 45.00% 35.00% 100.00%
Phased Project Cost (2000 prices) 552.45 1243.02 966.79 2762.27
Actual Costs in Year of Expediture (current prices) 593 89

593.89 1436 47
1436.47 1201 05
1201.05 3231 4
3231.4
Interest during Construction 28.51 207.67 291.01 527.19
Total Landed Cost including IDC 622.4 1644.14 1492.05 3758.59

Sources of Financing
Total Landing Cost Including IDC 3758.59
Govt. Contribution 0
Cost ecluding Govt.

Govt Contribution 3758 59
3758.59
Equity Contribution 1252.74
Loan Requirement 2505.85

Calculation of FIRR
Concession
C i year 1 2 3 4 5 6 7
FIRR on Project
Investment (pre-tax) - - -16.70% -3.50% 2.80% 8.50% 12.20%
FIRR on Equity
Investment - - -24.40% -8.40% -3.60% 3.30% 8.00%
Concession year 8 9 10 11 12 13 14 15
FIRR on Project
Investment (pre
(pre-tax)
tax) 14.80% 16.60% 17.30% 18.30% 19.10% 19.70% 20.10% 20.30%
FIRR on Equity Soni Viral S, M.Tech CPM, CEPT

Investment 11.40% 13.90% University,
15.60% Ahmedabad
17.80% 19.30% 20.30% 21.10% 21.40%
FIRR Summary
Minimum Concession Period (years) 15

Net Cash Flow Statement of NHAI
A. Operating Income
Toll Revenue 208 225 244 317 343 371 480 516
Advertisement Revenue 4.17 4.51 4.88 6.34 6.86 7.42 9.59 10.33
B. Operating Expenses
Toll Plaza O&M 0.64 0.69 0.74 0.80 0.86 0.92 0.99 1.06
C. Net Operating Income 188.78 204.36 221.31 293.67 317.95 344.24 452.55 487.30
Less Annuity Payments 884.31 884.31 884.31 884.31 884.31 884.31 884.31 884.31
D. Surplus / Deficit -695.53 -679.95 -663.00 -590.64 -566.36 -540.07 -431.76 -397.01

Net Cash Flow Statement of NHAI
A. Operating Income
Toll Revenue 556 720 775 825 1056 1124 1197
Advertisement Revenue 11.12 14.39 15.50 16.50 21.11 22.48 23.94
B. Operating Expenses
Toll Plaza O&M 1 14

1.14 1 23
1.23 1 32
1.32 1 42
1.42 1 53
1.53 1 64
1.64 1 76
1.76
C. Net Operating Income 524.60 688.48 741.20 788.66 1020.04 1085.49 1155.30
Less Annuity Payments 884.31 884.31 884.31 884.31 884.31 884.31 884.31
D. Surplus / Deficit -359.71 -195.83 -143.11 -95.65 135.73 201.18 270.99

CONCLUSION & FUTURE SCOPE OF
WORK

CONCLUSION
PPP-BOT Project as compared with industrial projects posses longer

PPP-
gestation period and extended break
break--even point. Due to back ended cash
flows working
g capital
p requirement
q of projects
p j of PPP
PPP--BOT structure is highly
g y
depended on cost of capital and payback period of loan. Risk evaluated for
such projects has direct impact on cost of capital.
Expected return from PPP

PPP--BOT project is about 20 % in concession period
of 30 years.
If internal rate of return is not achieved as per targeted IRR concession

period can be extended up to 3 years.

CONCLUSION
Case-study ::-- Project :-

Case- :- 4 Lanning of RAJAHMUNDRY –
DHARMAVARAM SECTION OF NH- NH-5
Calculated FIRR for analyzed project for project investment and FIRR for
Equity investment is summarized as below.
Final Summary of IRR for the project :-
FIRR on Project Investment (pre-tax)

(pre tax) 20%

CONCLUSION
As Projected data meets the return requirements project will be considered

feasible without viability gap funding. And debt can be raised easily.
As per data projected Table - 3.2.7.3 expected IRR is achieved at the end
of 28th year, its shows additional absolute profit margin for next two years.
Analyzed Income statement of this project shows that net cash inflow is in
negative (loss) for initial years and most of the positive portion is back
ended and hence impact on NPV of the project is discounted
discounted.

CONCLUSION
Financing policy for the PPP-

PPP-BOT project plays a major role in terms of
Liquidity Vs Profitability decision. Most of the projects are financed by long
term sources and hence cost of debt p paid is also high,
g which reduces the
profitability. It is necessary as far as liquidity and company’s financial
capability is concerned. Financing project with comparatively short term
debts cause widening of gap negatively between cash outflows and inflows
in initiall period
d but
b endsd up with h higher
h h profitability
f b l dued to reduced
d d totall
cost of debt paid.

CONCLUSION
Analysis results for financing policy shows comparison of cash flows with
different financing policy, comparable summary of the same is :-:-
IRR for the Project with short term loan :-

CONCLUSION
As huge amount of finances are required to fund the PPP- PPP-BOT project and
unavailability of required amount of fixed asset which can be mortgaged,
Financial institutes are g
given step
p in right,
g in this analysis
y in particular
p
project which is financially viable (Hence not funded under Viability Gap
Funding) step in right can be effectively used for loan recovery purpose.
Annuity approach can also be used in PPP-PPP-BOT projects in such cases cash
inflows are fixed and it distributes financial risk and hence concession
period can be reduce according to the annuity payment.
Annuity in such project structure is awarded keeping IRR at 20 %.

CONCLUSION
Thought Annuity approach can be proved less risk prone but demands
higher amount of working capital in initial years as Government
contribution is not available.
PPP-BOT projects have long gestation period and hence prone to number of
PPP-
risks, back ended cash flows have major impact on returns of the project.
Any delay caused in such project will lead to reduction of returns by
reducing tollable (Inflow) period and it shifts the cash inflow which already
is in back ended position.

Future Scope of work
There is a wide future scope for this topic, Some of the key points are as
follows:--
follows:
¾ Design of integrated system which projects need of cash flow in detail

during construction period.
¾ Modified loan Repayment model which can be parallel with cash inflows
projected.
¾ Working out alternative ways of increasing cash inflows to reduce
capital requirement for PPP
PPP--BOT projects
projects.
¾ Impact of economic parameters on cash inflows- inflows-outflows and finally on
return of the project.
¾ Calculation & Impact of Economic Rate of Return on PPP- PPP-BOT project
project’ss
performance. Soni Viral S, M.Tech CPM, CEPT

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LITERATURE REVIEW

M.Tech Construction & Project Management, Faculty of Technology,

2.3 Concepts of Working Capital Management

2.4 Concepts of PPP-

2.6 Issues in Financing BOT Projects

2.7 Balancing Net Working Capital

2.8 Means of financing Working Capital

2.9 Receivables Management

2.10 Research Gap

Soni Viral S, M.Tech CPM, CEPT

 A study of funding requirements for development and maintenance of roads in India

Soni Viral S, M.Tech CPM, CEPT

 Current liabilities – Liabilities that are normally payable within a year.

 Profitability – Implies the relationship between revenue and costs generated by

Soni Viral S, M.Tech CPM, CEPT

 BOT Projects -BOT is build,

Soni Viral S, M.Tech CPM, CEPT

 According to P Chandra, Under a flexible policy the investment in current

Soni Viral S, M.Tech CPM, CEPT

 According to Cesar Queiroz (Lead Highway Engineer World Bank, Russia) A

 BOT Projects – According to R Kansal and M C Gupta, ( The ICFAI Journal

Soni Viral S, M.Tech CPM, CEPT

 National Highways Development Projects (NHDP) Under BOT scheme

¾ The exemption may be availed by the contractor over a period of 20 years.

¾ The concession period may be extended up to 30 years.

¾ An exemption on import duty for import of high capacity modern equipments.

¾ Foreign direct investment has been permitted up to 100%.

¾ The NHAI permitted to take a 30% stake in BOT projects.

 According to Kansal & Gupta, Despite of GOI’s and the NHAI’s

Ö More time is required in land acquisition, shifting of utilities, removing

Soni Viral S, M.Tech CPM, CEPT

Soni Viral S, M.Tech CPM, CEPT

¾ Lack of Prime Security

¾ The Escrow Account

¾ Back--ended Cash flows

Soni Viral S, M.Tech CPM, CEPT

 There are number of problems faced by companies in trying to

 Shortage of working capital

 Funds locked in work in progress

 Requirement of high growth company

 Reduction in interest rates

¾ Accruals – amount owed but not paid, ( taxes, wages etc. )

Soni Viral S, M.Tech CPM, CEPT

As listed in Indian infrastructure, Major players Financing Infrastructure Projects in

 Asian Development Bank (ADB) – an active player in infrastructure financing

 Infrastructure Development Finance Company (IDFC) – IDFC was

Soni Viral S, M.Tech CPM, CEPT

 Industrial Development Bank of India (IDBI) – IDBI is among largest

 Industrial Finance Corporation of India (IFCI) – financial institution

 India Infrastructure finance company limited (IIFCL) – IIFCL was

Soni Viral S, M.Tech CPM, CEPT

 Toll collection in 2006-

 Estimated toll collection from the Golden quadrilateral and North-

Soni Viral S, M.Tech CPM, CEPT

Soni Viral S, M.Tech CPM, CEPT

 A detailed study of nature of current assets involved in such projects are

 Adequacy of Matching principle of financing policy with respects to the PPP

 Rules & Specifications to be followed by SPV in execution of project to

 Need of Uniform MCA in all the states to ease of the operations of

 Evaluation of different methodologies and their accuracy to forecast traffic

Soni Viral S, M.Tech CPM, CEPT

3) Bangia, N. (2007), “PPP Roadblock” Indian Infrastructure, (June 2007) pp 62

4) Chandra, P. (2007), “Financial Management” , 6th edition, Tata McGraw-

A study of funding requirements for development and maintenance of roads in India

Current liabilities – Liabilities that are normally payable within a year.

Profitability – Implies the relationship between revenue and costs generated by

BOT Projects -BOT is build,

According to P Chandra, Under a flexible policy the investment in current

According to Cesar Queiroz (Lead Highway Engineer World Bank, Russia) A

BOT Projects – According to R Kansal and M C Gupta, ( The ICFAI Journal

National Highways Development Projects (NHDP) Under BOT scheme

According to Kansal & Gupta, Despite of GOI’s and the NHAI’s

There are number of problems faced by companies in trying to

Shortage of working capital

Funds locked in work in progress

Requirement of high growth company

Reduction in interest rates

Asian Development Bank (ADB) – an active player in infrastructure financing

Infrastructure Development Finance Company (IDFC) – IDFC was

Industrial Development Bank of India (IDBI) – IDBI is among largest

Industrial Finance Corporation of India (IFCI) – financial institution

India Infrastructure finance company limited (IIFCL) – IIFCL was

Toll collection in 2006-

Estimated toll collection from the Golden quadrilateral and North-

A detailed study of nature of current assets involved in such projects are

Adequacy of Matching principle of financing policy with respects to the PPP

Rules & Specifications to be followed by SPV in execution of project to

Need of Uniform MCA in all the states to ease of the operations of

Evaluation of different methodologies and their accuracy to forecast traffic

To study the various Working Capital policies,

The average formation width of the project road corridor is 12 m