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Minor project Report

on
A Study on
Public Private Partnership in Highway
Projects
Submitted by
Mayank Sarkar
Arnav Kr. Guha
Avinash Damera
Kamlesh Gupta
Sumit Bhadoriya
Saket Rusia
Prateek Dwivedi
Gaurav Singh Chauhan
Rajesh Kumar

081111020
081111064
081111067
081111068
081111070
081111072
081111081
081111085
081111098

Under the Guidance of


Prof. Siddhartha Rokade
Assistant Professor

Department Of Civil Engineering

Maulana Azad National Institute of


Technology

Bhopal (M.P.)-462051
May 2011

Department of Civil Engineering

Maulana Azad National Institute of


Technology
Bhopal (M.P.) - 462051
May 2011
CERTIFICATE

This is to certify that the project titled A Study on Public Private


Partnership in Highway Projects submitted by Kamlesh
Gupta(081111068) for the minor project of VI SEM B.Tech is a bonafide
work carried out by him under our supervision and guidance.

Dr. Vishnu Prasad Patidar


Dr. S. K. Dubey
Prof.
Siddhartha Rokade
Project Coordinator
Professor and Head
Assistant Professor

Acknowledgment
Any accomplishment requires the effort of many people and this
work is not different. We are highly grateful toProf. Siddhartha
Rokade,Assistant Professor, Department of Civil Engineering, Maulana
Azad National Institute of Technology, our mentorfor his judicious
guidance and encouragement. It was inconceivable that this work could
be completed without his skilful guidance, constructive and valuable
suggestions, and co-operation.
We are also grateful to Mr. Neeraj Vijay,DGM, Madhya Pradesh
Road Development Corporation, and Mr. Sudhakaran, MPRDC who were
extremely co-operative in sharing project data which was crucial in taking
our work to the right conclusion. We would like to express our gratitude to
all the people involved in making this endeavour a success.
We also thank our college authority especially Civil Engineering
Departments faculties for being kind to me and raising a helping hand in
all perspectives as and when needed.

Abstract
Public-Private-Partnership (PPP) provides an opportunity for private
sectorparticipation in financing, designing, construction and operation &
maintenance ofpublic sector programmes and projects.In this project,
study about the Public Private Partnerships (PPPs) programme in highways
has been done.

PPP is the mode of operation of a service which is

implemented by the partnership of government and the private sector for


public benefit.Researches are going on, on this concept and different
organisations are working in this regard.
PPP is an entirely new framework which exploits the available
resources. The financial involvement of the markets money is made
possible. Also PPP is involvement in a futuristic approach of the market
which cannot be adored in any way and in any line, therefor we can say
that we have to manage ourselves in the
Further, a Case-Study on the 4-laning of Dewas-Bhopal Corridor,
which is based on Built Operate and Transfer basis (BOT) method of
construction, was done. In this, the project was analysed and accordingly
the outcomes of PPP programme were noticed by carrying out the SWOT
(Strength, Weakness, Opportunity and Threat) analysis of the aforementioned project enabling us to understand PPP to its core.

Contents
Chapter
No.

Page
Acknowledgment

i
Certificate
ii
Abstract

iii

Contents
iv
1. Introduction
1.1.
General
1.1.1. Public Private Partnership The Concept
1.1.2. Various forms of Public Private Partnership:
1.2.
PPP in Highways: An Overview
4
1.2.1. Size of the Initiative
1.2.2. Target
1.2.3. Approach
1.2.4. Policy
1.2.5. Outlook
2. Literature Review
3. A Case study of Dewas-Bhopal Corridor
23
3.1.
Project Summary
3.1.1. The Site
3.1.2. Technical Aspects
3.2.
The Concession Agreement
3.3.
SWOT Analysis
4. Conclusions
5. References
Chapter 1: Introduction
1.1

General

36
38

PublicPrivate Partnership describes a government service or private


business venture which is funded and operated through a partnership of
government and one or more private sector companies. These schemes
are sometimes referred to as PPP, P3 or P3.
1.1.1 Public Private Partnership : The Concept:
The term private in PPP encompasses all non-government agencies
such as the corporate sector, voluntary organizations, self-help groups,
partnership firms, individuals and community based organization. It
involves triangular relationships between the State, Private Sector, and
those who receive the services. In one sense PPP is the arrangement
between the Government or State Sector and the Private Sector where
Private Sector can take over, on contractual basis the services and
functions, traditionally provided by the State. It refers to long-term,
contractual partnerships between the public and private sector agencies,
specifically targeted towards financing, designing, implementing, and
operating infrastructure facilities and services that were traditionally
provided by the public sector. These collaborative ventures are built
around the expertise and capacity of the project partners and are based
on a contractual agreement, which ensures appropriate and mutually
agreed allocation of resources, risks and returns.
The Department of Economic Affairs (DEA) defines PPPs as:
PPP means an arrangement between a government or statutory
entity or government owned entity on one side and a private sector entity
on the other, for the provision of public assets and/ or related services for
public benefit, through investments being made by and/or management
undertaken by the private sector entity for a specified time period, where
there is a substantial risk sharing with the private sector and the private
sector receives performance linked payments that conform (or are
benchmarked) to specified, pre-determined and measurable performance
standards.
Typically, a PPP project involves a public sector agency and a private
sector consortium which comprises contractors, maintenance companies,
private investors, and consulting firms. The consortium often forms a

special company or a special purpose vehicle (SPV). The SPV signs a


contract with the government and with the subcontractor to build the
facility and then maintain it.
In some types of PPP, the cost of using the service is borne
exclusively by the users of the service and not by the taxpayer. In other
types (notably the private finance initiative), capital investment is made
by the private sector on the strength of a contract with government to
provide agreed services and the cost of providing the service is borne
wholly or in part by the government. Government contributions to a PPP
may also be in kind (notably the transfer of existing assets). In projects
that are aimed at creating public goods like in the infrastructure sector,
the government may provide a capital subsidy in the form of a one-time
grant, so as to make it more attractive to the private investors. In some
other cases, the government may support the project by providing
revenue subsidies, including tax breaks or by providing guaranteed annual
revenues for a fixed period.
1.1.2 Various forms of Public Private Partnership:
To enable the flow of private funds and resources into public
infrastructure and services, the PPP is

operationalized through a

contractual relationship between a public body (the conceding authority)


and a private company (the concessionaire). This partnership could take
many contractual forms, which progressively vary with increasing risk,
responsibility and financing for the private sector. The most common
partnerships are:
I.

Service Contract: The Public authority (govt.) contracts out the


provision of specific services to a private provider (company) for a
specific time period (generally less than 5 years) in return for a
management fee. However, the government agency retains the
overall responsibility for the operation and maintenance of the
system except for the particular contracted services and it bears all
the commercial risks.

II.

Management Contract: This is somewhat similar to the service


contract, but differs in a way that it permits the private operator to
take day-to-day decisions and holds him responsible for operating
and maintaining the system, but it does not make private partner

III.

responsible for any capital risks.


Lease: Under this type of PPP, the government enters into a long
term lease agreement with a private company or builder to develop
and operate an expanded facility with its (private companys) own
fund. In this type of arrangement, the private entity pays a lease
rental to the government, and is entitled to keep the revenue to
recover its investment plus a reasonable return during the lease

IV.

period and assumes the operational risks.


Concession(BOOT, BOT): A private entity is awarded a concession or
franchise by government to finance, build, own and operate a
facility. In return, the franchisee gets the right to collect user fee for
a specified period, the ownership of the facility is transferred to

V.

government.
BOT (Toll) and BOT (Annuity) Models:
a. BOT (Toll) Model :
o In a BOT (Toll) Model, the concessionaire (private sector) is
required to meet the upfront/construction cost and the
expenditure on annual maintenance.
o The Concessionaire recovers the entire upfront/construction
cost along with the interest and a return on investment out of
the future toll collection.
o The viability of the project greatly depends on the traffic (i.e.,
toll). However, with a view to bridge the gap between the
investment required and the gains arising out of it, i.e., to
increase the viability of the projects, capital grant is also
provided.
b. BOT (Annuity) Model:
o In an BOT (Annuity) Model, the Concessionaire (private sector)
is required to meet the entire upfront/construction cost (no
grant is paid by the client) and the expenditure on annual
maintenance

o The Concessionaire recovers the entire investment and a predetermined cost of return out of the annuities payable by the
client every year.
o The selection is made based on the least annuity quoted by
the bidders (the concession period being fixed).
o The client (Government) retains the risk with respect to traffic
(toll), since the client collects the toll.
In India, Planning commission has recommended BOT (Toll) model as first
choice.
1.2 PPP in Highways: An Overview
1.2.1Size of the Initiatives:
With an extensive road network of 3.3 million kilometres, India is the
second largest in the world. Indian roads carry about 61% of the freight
and 85% of the passenger traffic. All the highways and expressways
together constitute about 66,000 kilometres (only 2% of all roads),
whereas they carry 40% of the road traffic. To further the existing
infrastructure, Indian Government annually spends about Rs.18000 crores
(USD 3.704 billion).
1.2.2. Target
o Developing 1000 km of expressways
o Developing 8,737 km of roads, including 3,846 km of national
highways, in the North East
o Four-laning 20, 000 km of national highways
o Four-laning 6,736 km on North-South and East-West corridors
o Six-laning 6,500 km of the Golden Quadrilateral and selected national
highways
o Widening 20,000 km of national highways to two lanes
1.2.3Approach
o National Highways Authority of India (NHAI) is the apex Government
body for implementing the NHDP. All contracts whether for construction
or BOT are awarded through competitive bidding
o Private sector participation is increasing, and is through construction
contracts and Build-Operate-Transfer (BOT) for some stretches based
on either the lowest annuity or the lowest lump sum payment from the
Government

o BOT contracts permit tolling on those stretches of the NHDP


o A large component of highways is to be developed through publicprivate partnerships and several high traffic stretches already awarded
to private companies on a BOT basis.
1.2.4Policy
o 100% FDI under the automatic route is permitted for all road
development projects
o 100% income tax exemption for a period of 10 years
o Grants / Viability gap Funding for marginal projects by NHAI.
o Formulation of Model Concession Agreement
1.2.5.Outlook
o Annual growth projected at 12-15% for passenger traffic, and 15-18%
for cargo traffic
o Over $50-60 billion investment is required over the next 5 years to
improve road infrastructure
An annual growth of 12-15% for passenger traffic has been projected

Chapter 2: Literature Review

Planning

Commission,

Government

of

India

(2004),

Public-Private-

Partnership (PPP) provides an opportunity for private sector participation


in financing, designing, construction and operation & maintenance of
public sector programmes and projects. The time has come to forge a
greater interface between the public and the private sector in a wide
range of activities in the country. The overwhelming response of voluntary
organizations in the aftermath of the earthquake in Gujarat was an
outstanding example of public-private-partnership (PPP). The subsequent
reconstruction involving expenditure of around US $ 2 billion was also
implemented through the PPP mode. The Government of Gujarat
succeeded in constructing community school buildings, private health
centres and private housing more cost-effectively through public-privatepartnership.
Association

of

voluntary

organizations

and

non-profit

service

agencies in implementation of government programmes in India is a


decade old practice. Various schemes in the social sector are implemented
by the State Governments in collaboration with VOs/NGOs and the local
community. The Government of India has been extending the requisite
grants-in-aid for its Centrally Sponsored Schemes, which are routed
through the State Governments. The public-private-partnership (PPP)
brings in greater professionalism to bear on this association through
introducing meaningful concepts. There is, nevertheless, scope of further
expanding its coverage and also involve the private corporate sector in
this endeavour. This may sometimes require legal and regulatory reforms
in select sectors. Any amendment/reform in legislation is, however,
possible when the essential features of PPP are well understood.
One of the persuasive arguments in favour of PPP is the promise of
better quality of service through clear customer focus. It is also argued
that introduction of PPP would reverse the years of chronic underinvestment through mobilizing public and private capital. Although
experience, in this regard, shows that it did not open the floodgates to

private sector participation. Perhaps, there is a need for greater public


participation in PPP projects through risk sharing to assure the private
sector of the necessary comfort they may look for.
Participation

of

the

private

sector

in

rural

development

is

encouraged. The private sector can choose the project. The projects when
implemented would help the rural poor to derive benefits of rural
development. Maintenance of rural roads in three districts of Maharashtra
is being done by the sugar co-operatives under PPP. The Department is
examining the possibility of expanding PPP, for maintenance of rural roads
and the computerization and maintenance of land records (sale and
purchase deeds).
A closer look at the poor performance of public utilities and social
services, in general, also shows that the disease lies in the monopoly
characteristic of such activities. Since there is no alternative to the
existing (in-house) service providers, the citizens are left with no option
other than that of take it or leave it. The executives/ bureaucracy (low &
high) may thus take the liberty to indulge in lethargy, corruption and high
handedness. It has, therefore, been commented that the important
distinction is not public versus private rather it is monopoly versus
competition. In this respect, PPP may be looked at as a measure towards
administrative reforms.
The realisation of the significance of PPP in the development of the
country is a big step of the Government of India. The report laid a lot of
emphasis on the application of the tool of PPP in the fields of education,
healthcare, family welfare, agriculture, rural & urban development etc. It
presses on significant goals and their implementation with the use of the
PPP mechanism and also highlights future goals.

India Infrastructure Report (2008) mentioned that Roads and Highways are
the biggest of Indias PPP infrastructure projects. Indeed, among all other
sectors, roads have elicited maximum interest and optimism among
private players for PPP. Even the government has outlined some policy

initiatives in order to attract private investments in road infrastructure


projects. As per NHAI, some of these incentives are as follows:
o Government will carry out all preparatory work (like land acquisition
and utility removal etc.)
o NHAI/Government of India will provide capital grant of up to 40 per
cent of project cost (on case to case basis)
o 100 per cent tax exemption for ten years
o Concession period allowed up to thirty years
o In BOT projects, the entrepreneur is allowed to collect and retain
tolls.
o Duty free import of specified modern high capacity equipment for
highway construction.
As per the NHAI, over the next ten years (up to 2018), about 32,000 km
of national and 25,000 km of state highways need to be widened, at a
cost of Rs 1700 billion; highway maintenance will require over Rs 950
billion. NHAI is also repairing the four-laning of 10,000 km of national
highways outside the NHDP. The current thinking suggests that most
sections would be toll-based BOT, with less viable routes awarded through
cash contracts or annuities. Public support will be capped at 40 per cent of
project cost (25 per cent during construction and 15 per cent over the
concession period). The future of companies in this business thus appears
bright. Project execution skills and scalability will, however, be very critical
in differentiating successful companies from the rest.
It is well established that private developers deliver greater value
for money at the construction stage. Under these circumstances, shadow
toll may prove to be a good model. This approach was initially adopted in
the UK, where government award concessions to build-operate and
maintain toll-free highways and then compensate the investors based on
roadway usage and/or availability of those facilities. Shadow toll roads are
currently operating in the UK, Finland, Spain, and Portugal.
In a country like India where railways functions as the artery for
goods and public transport system, It was initially difficult to allocate
whole sum funds for a rather unimportant sector of roadways, In the form
of PPP the government of India and the states were able to get

appropriate Initial capital for building such huge infrastructure and the
guarantee for the returns for the investments made in the same.
Problems in PPP arise from the improper implementation, in policy,
there is as such no guideline which leads to confusion and problems but
political hindrance and influence do lead to the loss of efficiency and poor
quality of the project and the time of completion of the entire project. In
case of BOT the user is required to pay toll to use the utility, it becomes
difficult to get returns for the idle and structure for community uses.

In NHAI Report, 2010, it was said that the National Highways Authority of
India

(NHAI)

is

mandated

to

implement

the

National

Highways

Development Project (NHDP). Most of the projects have been developed or


are under development on Public Private Partnership (PPP) basis through
Build Operate and Transfer (BOT)-Annuity and BOT-Toll mode (these have
been explained in detail in later section of the brochure). Typically, in an
annuity project, the project IRR is expected to be 12-14% and equity IRR
would be 14 -16%. For toll projects, where the concessionaire assumes the
traffic risk, the project IRR is expected to be around 14-16% and equity
IRR around 18-20% The NHDP is being implemented under several
phases:
Phase I mainly involves widening (to 4 lanes) and upgrading of 7,498 km
of the national highway network and has four component packages
(linking of metropolitan cities, NS and EW corridor, Port Connectivity,
Other important roads) .
Phase-II involves widening and improvement of the NS-EW corridors (not
covered under Phase-I) covering a distance of 6,647 km, besides providing
connectivity to major ports on the east and west coasts of India and some
other projects. This includes 6,161 km of NS-EW corridors and 486 km of
other highways. The total length of the NS-EW network under Phases I & II
is about 7,200 km.
Phase-III

involves upgradation of 12,109 km (mainly 4- laning) of high

density national highways, through the Build, Operate & Transfer (BOT)
mode at a cost of INR 80,626 Crore (USD billion).

Phase IV With a view to providing balanced and equitable distribution of


the improved/widened highways network throughout the country, NHDP-IV
envisages upgrading of 20,000 km of such highways into 2-lane highways,
at an indicative cost of INR 27,800 Crore (USD 5.6 billion).
Phase-V, under this 6-laning of the 4-lane highways comprising the GQ
and certain other high density stretches, will be implemented on BOT
basis at an estimated cost of INR 41,210 Crore (USD 8.2 billion). These
corridors have been 4-laned as part of the GQ in Phase-I of NHDP.
Implementation of initial set of projects has already commenced and the
entire package is expected to be completed by 2012. Of the 6,500 km
proposed under NHDP-V, about 5,700 km would be taken up in the GQ and
the balance 800 km would be selected on the basis of predefined
eligibility criteria.
Phase VI: With the growing importance of urban canters of India,
particularly those located within a few hundred kilometres of each other,
expressways would be both viable and beneficial. The Government has
approved 1,000 km of expressways to be developed on a BOT basis, at an
indicative cost of INR 16,680 Crore (USD 3.3 billion). These expressways
would be constructed on new alignments.
Phase VII:The development of ring roads, bypasses, grade separators and
service roads are considered necessary for full utilisation of highway
capacity as well as for enhanced safety and efficiency. For this, a
programme for development of such features at an indicative cost of INR
16,680 Crore has been approved by the Government.
Hence we see that the early success of Public-Private-Partnerships
(PPP) in the NHDP, arguably, set the tone for similar initiatives in other
infrastructure sectors and has provided the single largest opportunity for
private financing and management of infrastructure services. More than
60% of the estimated investment requirement is expected to be privately
financed.
NHAI projects, with higher traffic volumes, have also been bid out on
the basis of Negative Grant (upfront payment payable by successful
bidder to NHAI). However, under the revised MCA, projects under BOT/

DBFOT framework have also been awarded on a revenue share basis,


where the bidder offering the highest revenue share (subject to technical
qualification) is awarded the project.

Vijay raj Kumar Charles (2009) emphasizes the importance of good


infrastructure in boosting the economic status of a nation. The best way to
go about achieving the same is by enhanced private section participation.
Mobilizing funds through greater co-operation of privates sector will lead
to greater development and fewer risks on account of shared assets.
The author aims at seeking the reason behind varied presence of
PPPs in different states by delving into policy, regulation, availability of
resources, exposure to land and finances etc. Some of the conducive
factors are low political risk, hassle free implementation of policies, a
trimmed and efficient bureaucracy, and infrastructure, availability of
power, low corruption and proper legal framework.
In the last 10 years, Indian states have made considerable
innovation with different structures to attract private participation in
delivering infrastructure services. According to the value of projects, the
state of Karnataka tops the list with 92 projects at an estimated value of
`34795 Crore, followed by NHAI, Maharashtra, Ministry of Civil Aviation,
Sikkim, and Gujarat. Sector wise analysis indicates that, Road sector
dominates the list with maximum number of PPP Projects, 264 (67%),
followed by urban development, Ports, energy sector, Airport projects, and
tourism projects 6, and 3 projects in Railways.
The Indian state governments have tried to create an environment
that will be attractive to investors and fair to customers. The approaches
in structuring the framework is divided among: combining dedicated
institutions with cross-cutting legislation; establishing and using crosssectoral PPP advisory units to help line departments in the absence of
overarching legislation and relying on line departments and sectoral
agencies to build capacities.
Category-I, The states of Andhra Pradesh, Gujarat, Karnataka etc. have
developed enabling legislation and established dedicated cross sectoral

institutions. These states have constituted specialized agencies and


passed legislations to promote PPPs in infrastructure. (Example: Gujarat
infrastructure Development Board, The Andhra Pradesh Infrastructure
Authority).
Category-II, A second category of states, such as Rajasthan, Uttaranchal,
Kerala and West Bengal have developed cross-sectoral facilitation entities,
but have not passed comprehensive legislation.
Category-III, Finally, a third category of states, including MP, Maharashtra
and Tamil Nadu, have relied on sectoral and line agencies to develop and
implement PPPs.
Initially in M.P., the Public works Department (PMMWD) and then the
specially created MP Road Development Corporation (MPRDC) have acted
as the agency for development of road projects on BOT basis in the state.
In the process of developing projects, MPRDC has developed policy,
guidance materials and skills for facilitating PPPs in Road sector.
It can be said that there is no clear link between policies in a state
or frameworks with high number of PPPs. However, it can be safely
assumed that states need to be proactive in order to attract greater
interest from private sectors. Those states which have made their political
intent clear by introducing laws are reaping benefits. The cost of
corruption is a major deterrent to PPPs. A lumbering bureaucracy will not
be able to efficiently process forms and the corrupt officials will only
hinder true progress. Companies need assurance that they will not have to
spend countless, unproductive hours greasing greedy hands. States that
are already in possession of good infrastructure facilities and which can
guarantee continuous power supply are considered hot spots for
investors.

They

will

prefer

such

locations

for

project

over

comparatively backward place. Poor transportation facilities may also


prove to be a deal breaker. Availability and enforcement of Legal and
Institutional frameworks that are conducive for PPP investment are is no
doubt important factors, for the investors while deciding about investment
in PPP projects. Since the government is responsible for providing land, it

is not an important factor. The estimated net-cost benefit should be as


high as possible.
There is still a long way for Indian states to go to realize their full
potential when it comes to PPPs, but the several innovative procedures
already in use are making strong headways. However, it is imperative for
us to get our basics right and keep the nations development above our
own. There is lots of work still to be done.
S. Vasudevan (2003) emphasizes on the infrastructure policy of Karnataka
for

publicprivate

partnership.

IDeCK

(Infrastructure

Development

Corporation of Karnataka) created policies and measures that are


incentive compatible and have economic and market logic, and that drew
little administrative energies. The principal objective of the policy was to
encourage private sector participation in infrastructure development. The
policies

included

power(including

power

generation,

transmission,

distribution, and power trading services), integrated transport and


logistics(roads, bridges, railway systems, ports, airports etc.), urban and
municipal infrastructure(water supply and sewerage systems, solid waste
and garbage disposal facilities), industrial infrastructure(industrial parks,
Special Economic/Free Trade Zones, Export Promotion Zones, industrial
estates, and industrial townships) and infrastructure related to tourism
and agriculture.
The private sector was expected to play a key role in providing value
for money (VFM) by enhanced quality of services to users, reduction in
and gradual elimination of pricing constraints, enabling public funds to be
earmarked for socially justifiable projects, financial innovation and
development of cost-effective solutions and savings in costs by innovative
designs, timely project implementation, and higher efficiencies

in

operations.
The principle for the creation of an appropriate institutional and
regulatory framework was necessary. These included efficient use of
existing assets and optimal allocation of additional resources, equitable
contractual structures i.e. that the government would enter into suitable

contractual arrangements with private developers for development and


management of both existing (O&M contracts, leases, sale or divestment)
and new assets (BOT, BOOT, etc.). It also included the transparent process
of procurement which would ensure that private services are procured in a
fair and transparent manner.
A single or two-stage process could be used for awarding contracts
on the basis of an open competitive bidding process depending on the
complexity of the project. The selection criteria used would be among
quantifiable technical criteria, lowest present value of financial support
from GoK/subsidy, highest share (or present value) of revenue, lowest
present value of payments by GoK, highest upfront payment (or present
value of upfront payments), highest present value of future payments,
lowest concession period, lowest present value of user fees or highest
premium (or present value of) on equity shares offered.
The government has realized that fiscal incentives are perhaps
necessary but not a sufficient condition for successful private sector
participation. A key priority of government is the progressive elimination
of

subsidies

and

cross-subsidies

so

that

prices

for

services

are

commensurate with the real costs of provision. The draft infrastructure


policy developed by iDeCK for the Government of Karnataka provides an
umbrella framework for development/restructuring of various sectoral
policies to bring about purposeful reform in issues of governance that
would allow greater private participation in infrastructure projects.
Further, it also provides a basis on which the government would develop
medium and long term strategies and implementation plans for each of
the infrastructure sectors clearly setting out the role for the private sector,
in both the management of existing assets and creation of new assets.
Though the Karnataka government has a long way ahead but these
steps seem to play an important role for infrastructure development. In
order to meet the objective of growth and equity, the government should
build a strong PPP which is possible by the true will of the government
along with the participation of private sector in infrastructure. The
governments concern for making this possible can be seen by the various

policy incentives like providing an umbrella framework for making the


painful and laborious governmental procedure fast , setting up a
competitive and transparent platform for allocation of projects to the
private sectors, giving subsidies and tax relaxation to them etc. Also the
private sector is keen and excited to make such projects reach their
objectives, due to extent of profit involved in it.
Alfen Wilhelm (2006) considers economics in construction as a specific
management doctrine that intends to cover the interfaces between the
pure technical and economic as well as the various other aspects
influencing the constantly changing business environment of the real
estate and infrastructure markets.
Alfen in 2004 analysed the possibilities of procurement of Federal
highways as Public Private Partnerships. Useful advice had been given to
the public authorities on three different levels, short-term, mid-term and
long term. A short-term recommendation had been the later successful
establishment of the German A- and F-models and the founding of the
VIFG (Verkehrs Infrastruktur Finanzierungs Gesellschaft), in the mid-term
perspective the assignment of the duties planning, financing and
managing to the VIFG and in the long term the creation of sub-networks,
which can be applied by a concession model.
He, in 2005 studied the possibility of privatisation of the federal
highways. The formal, the functional and the material privatisation had
been analysed. One major conclusion was that the functional privatisation
has a high potential concerning federal highways. Among other things the
following results appeared:
o Producing

the

possibility

to

apply

route

and

sub-network

concessions.
o Complete change from tax financing to user financing.
o Creation of sub-networks and apply as sub-network concessions
In this specific field there has been a lot of research in the last
years, which can be separated into three fields: privatisation, alternative
procurement modes and user financed schemes of federal highways.

Estimated future and current market needs:


Devising new schemes of public-private partnership seems to be an
effective way to overcome public balance constraints. Deregulation and
privatisation were expected to improve managerial efficiency, reduce the
financial drain of public enterprises on the public purse, offer a better
solution to market failure problems (such as natural monopoly) and
introduce competition to sectors that are no longer understood to
constitute monopolies. Hence a continuing policy and promotion of PPP is
needed to form a stable PPP market. Otherwise economic up and downs
will create an instable and inefficient market. The public sector should
think of PPP from a more sustainable perspective, that if they want to
have PPP as an alternative procurement method during times of fiscal
constraints there is also a need to support PPP during times of economic
growth.
Current and Future Research Needs:
Concerning the field of alternative procurement modes for transport
infrastructure a lot of research has been done in the recent years. Current
research led us to the conclusion to divide procurement modes into sector
wise

regulation

and

provision,

sector

wise

financing

and

project

realisation. As a first step, the scope of our work is to gain an explicit


description and determination of different types of procurement. In
addition, we intend to use the framework to also be able to develop,
customize, manage and evaluate projects following different procurement
concepts.
The main emphasis he laid was to give advice in three different
levels: short term, midterm, long term. The structure of this above given
research project distinguishes an operationalisation model and an industry
framework. The operational model is focusing project specific questions
regarding planning, financing, implementation and operation. It was his
intention to break the understanding of infrastructure further down in this
structured research approach by introducing a four stages approach that
consists of the understanding of the cultural framework-, country-specific-,
sector-specific-

and

project-specific-characteristics.

Safety

incentives

linked to performance based indicators in PPP contracts have not been


implemented very often up to now. The functional privatisation has a high
potential concerning federal highways. He wanted to change the method
from tax financing to user financing. He thought of creating sub-networks
and wanted to apply sub network concessions so that it could ensure
future development of public private partnership. He wanted the research
to continue in three different fields which are namely privatisation,
alternative procurement, and user financed schemes. It introduces
competition to sectors that are no longer understood to constitute
monopolies.
Anant singh etal.(2009) emphasizes on some interesting queries arise in
the minds of the people, such as
o Why have some projects attracted private investment while others
have not?
o Why only a few states have attracted PPPs, while some others have
completely failed to do so?
o Is PPP a viable and desirable public policy for development of
infrastructure in poor states?
o What are the lessons emerging from the Indian experience with PPPs so
far?
It will be seemingly fair to mention the views of Mr. Anant, Delhi
school of economics, in this context as his views give us a good insight
into the matter.
The

success

of

the

on-going

eleventh

five-year

plan

for

infrastructure critically depends on private investment. The private sector


is expected to finance more than eighty percent of the ambitious National
Highways Development Project (NHDP), undertaken to develop highways
and expressways across the country. We examine the performance of the
Public Private Partnerships (PPPs) Programme of the Government of India,
for development of national highways and expressways. We study various
issues In India; the PPPs on national highways are sponsored by the

National Highways Authority of India (NHAI) on behalf of the Ministry of


Roads Transport and Highways, Government of India.
The state governments have a crucial role to play in the
implementation of the PPP contracts. Under a

PPP the public as well as

the private sectors can contribute towards the provisions of public goods
or services, such as roads, railways, ports, airports, etc. The government
can provide land for the project site, regulatory clearances, and a
concession right to the contractor/concessionaire. The private sector, on
the other hand, is expected to invest funds during the construction and
maintenance phases of infrastructure projects.
The first policy framework for PPPs was introduced in 1997 as
decision of the Cabinet of the Central Government.

The highway PPP

policy essentially provided for two kinds of contracts BOT toll contracts
and BOT annuity contracts. The national highways are owned by the
Government of India.

The national highway Act has been amended in

1995 with a view to attract private investment in road development,


maintenance and operation. With this amendment, private investment in
infrastructure via PPPs has become a possibility.
The contractual clause for the PPP has several desirable and
efficiency enhancing attributes. Provisions for suspension and termination
of the contract avoid moral hazard during the implementation phase. The
clauses encourage the concessionaire to complete the project sooner and
avoid time overrun by also encouraging the use of better technology.
Under NHDP, national highways are being upgraded. The program
has to be implemented in seven phases; Phase I-VII. While Phases I, II, III,
V, VI and VII are to be executed by the NHAI, the Phase IV will be executed
by the parent Ministry of Shipping, Roads Transport and Highways. Work
has started only on Phases I, II, III and V. As on July 31, 2009 a total of 405
road projects have been undertaken for up gradation. Some of these
projects have been undertaken on PPP basis. Since the first PPP project,
the number of PPPs has been ever increasing over the years.
National highways covered under Phases I, II, III and V span across
most states in the union of India. Though the NHAI has tried giving the up

gradation work on PPP scheme in all states, some states have attracted
more PPPs than others.
Tamil Nadu, Andhra Pradesh and Maharashtra are the favourite
states; together these states account for as much as 45% of all PPPs in
the country. States like Assam, Jharkhand, Bihar, Orissa and Kerala. On the
other hand ,However , to assess the relative success of states merely in
terms of the number of PPPs is not plausible Since, the number of PPPs in
a state does not necessarily reflect the financial stakes involved in PPP
projects in that state.
In this paper, the author States with higher per capita income have
attracted more PPPs than the poorer states. Road projects located in richer
states have shown higher probability of attracting private investment than
those located in the poorer ones. Other things remaining the same,
projects located on national highways connecting richer states and those
located closer to mega cities have exhibited higher probability of
becoming PPPs. Similarly, keeping all other things constant states with
better governance index and projects located in them have higher
probability of attracting private investment. The likelihood of private
investment increases in direct proportion to the per-capita SGDP. Private
sector is likely to invest only in projects if they are located very close to
some big city. For example, states like Rajasthan can hope to attract PPPs
on major national highways passing through the state that connect Delhi
and Haryana in the North with Gujarat and Maharashtra in the South.

L. Weidner et al. (2003) emphasized the formulation of the technical


assistance

(TA)

for

preparing

public-private

partnership

(PPP)

expressway project in Sri Lanka. As the current load on the roads is


already very high and with the development it is likely to rise at an
enormous rate, thus there is a greater need for this project.
The Asian Development Bank held discussions with responsible
Officials of the concerned agencies, including the Ministry of Policy
Development and Implementation; Ministry of Enterprise Development,
Industrial Policy, and Investment Promotion (MOED IP&IP); Ministry of

Finance; Ministry of Highways (MOH), Board of Investment (BOI); and


Bureau of Infrastructure Investment (BII) for the same. Subsequent to the
Fact-Finding Mission, the Government decided to single source from its
own funds consulting services from PricewaterhouseCoopers (Pvt.) Ltd,
India in association with PricewaterhouseCoopers Private Limited, Sri
Lanka (PWC), and Snowy Mountains Engineering Corporation International
PTY Limited (SMEC), to assist in the development of the ColomboKatunayake Expressway (CKE) on a PPP basis.
Roads account for about 92% of freight and passenger traffic in Sri
Lanka and play a critical role in the countrys development. The road
network spans 83,880 kilometres (km). The network is divided into three
categories: (i) the primary system of about 11,650 km of national
highways (classes A and B) serving interprovincial and long-distance
traffic; (ii) the secondary system, consisting of 13,880 km of provincial
roads (classes C, D, and E) serving intra-provincial traffic; and (iii) the
tertiary systems, comprising 58,350 km of local roads. Despite the
extensive road network, its quality and capacity is not sufficient to meet
the present and expected future demand for passenger and freight
transport services. Most roads were built more than 50 years ago and
current traffic levels exceed the design capacity of many roads. This has
resulted in high traffic accident rates and overall traffic congestion. Road
maintenance, rehabilitation, and new construction have not kept pace
with the rapid growth in demand for transport. Financial boost to the
project

has

been

provided

by

Asian

Development

Bank.

Asian

Development Bank has provided nine loans for the road sector, totalling
$400 million, and 18 Technical Assistance, totalling $8.55 million. Among
multilateral funding agencies, ADB is currently the largest multilateral
agency to the road sector in Sri Lanka and is coordinating its support with
other external agencies.
As per author the consultants will identify, review, and analyze the
existing policy, regulatory, and institutional frameworks for private sector
involvement in the financing, constructing, operating and maintaining
expressways. In addition to this, they will evaluate the constraints to the

existing frameworks' abilities to enhance public sector financing capacity,


and attract private sector participation according to policy objectives, this
is the action methodology.
The total cost of the Technical Assistance is estimated at $1.0
million

equivalent,

comprising

$736,000

in

foreign

exchange

and

$264,000 equivalent in local currency costs. ADB will provide $800,000


comprising $736,000 in foreign exchange costs and $64,000 equivalent of
local currency cost.
For proper implementation of the project a project steering
committee (PSC), subject to ADBs approval, will be established for the
Technical Assistance. The PSC will provide overall policy guidance to the
consultants and ensure the quality of the study. In particular, the PSC will
oversee the development of the model concession agreement and set up
a technical subcommittee for this purpose, with representatives from
relevant stakeholders, including lenders. The PSC will be co-chaired by the
Ministry of Finance, Ministry of Transport, Highways and Civil Aviation and
Ministry of Policy Development and Implementation.

Shunso Tsukada (2005) has stated comparison between Public sector and
Public sectors working methodology and discussed the pros and cons of
both construction techniques. Also author has presented procurement
analysis, finance details and credit enhancement measures, apart from
various bids cases.
Facing massive infrastructure needs, the private finance initiative
(PFI) has gained renewed attention from the development community. PFIs
are more prevalent in developing countries than in developed countries.
This is due in part to the more severe budgetary constraints developing
countries are facing, and also due to the fact that main cost elements
such as labour, materials and land are still low in price in developing
countries. Strong skepticism still exists about the applicability of the PFI
approach to developing countries, particularly in Asia. This is largely due
to the following intrinsic difficulties associated with highway development:
o Risks associated with land acquisition and construction.

o Lumpy initial capital investments and the resultant long gestation


period.
o Difficulties in traffic forecast and associated uncertainties in future
revenue flow.
The strongest benefit of the BOT scheme (if structured correctly as
indicated in a viability gap funding or VGF scheme) lies in closing a
hidden loophole in public sector procurement. A major problem with public
sector procurement derives from the fact that the contract will usually be
won by the lowest bidder. Tactics that experienced bidders often employ is
to bid low (often lower than cost price) and win the contract, and then
claim for the higher costs incurred later, by requesting compensation for
variations to contracts. As per past trend works which have been
accomplished by public sector the cost of projects have been cut down to
a marginal extent but there are drawbacks which add up to this marginal
cost saving. They do not render cost of Operation and Maintenance. It is
almost impossible to compare real world performance of these two
systems viz. Public and Private, on the basis of specific cases. In this
regard, an analysis was conducted in 2007 by PricewaterhouseCoopers of
India (PwC) following a request from the Highway Authority of India
(NHAI). The size of the sample in the survey by PricewaterhouseCooper
was 150, including 135 EPC contracts, 8 BOT contracts and 7 annuity
concessions. The average length of the highways covered by each EPC
contract was 31km. The major findings of this analysis are as below.
o The performance of BOT is far superior to other forms of contract in
terms of cost effectiveness and delivery time. At the time of the
completion, construction costs were 30% lower than EPC and 57%
lower than annuity schemes. BOT construction was completed one
month earlier than the original schedule, in sharp contrast to the
average 16-month delays in EPC contract and 3-month delays in
annuity contracts.
The above findings provide a clear justification for the GOI to move
to BOT-PPP schemes, away from the traditional item rate contracts using
public sector financing.

As per him PFIs cover a wide spectrum of private sector


participation, including: (i) service contracts; (ii) management contract;
(iii) leasing; (iv) concessions; and (v) privatization, the second generation
PPPs primarily focus on concessions, particularly BOT schemes. The author
also posited unsolicited bids, this occasionally happens in case where
private sector companies come up with a completely new project concept
which can bring major benefits to the communities through innovation.
On the financial status of the PPP associated projects author has
described both finance schemes viz, corporate finance scheme and
project finance. Corporate finance is a traditional way of financing
investment is under which sponsors will borrow the money from banks by
offering the creditworthiness of the sponsoring companies as a security
for the payment of the entire debt and under project finance project
company (which is generally formed by sponsors) mobilizes necessary
funds by pledging to lenders the future revenue flow to be generated by
the assets created by the project. The later finance scheme is adopted
generally when investment is more than $50 million (as per NHDP).
The BOT and annuity concession schemes mobilize funds through
borrowing from financial institutions, and through other financing methods
including issuance of bonds. This often requires a variety of credit
enhancement measures or risk mitigation measures so as to alleviate the
concerns of financiers. The author quoted following measures viz,
Minimum revenue guarantee, Foreign exchange risk guarantee, Partial
credit guarantee, Political risk guarantee.
There has been a discussion over monoline and multiline services.
For large infrastructure projects such as those over $500 million, bonds
are the most efficient way of mobilizing the necessary funds for
investment. However, if the project is BOT-based, the cost of the bond
would be very high because of the difficulties of recourse and resultant
low credit rating. However, if all the risks are covered by a reputable
guarantor, the credit rating will be upgraded and the cost of issuing the
bond will be immensely reduced. An innovative mechanism which has
recently emerged is a guarantee by financial insurance companies. Since

this insurance is applied only to the bond, this insurance service is often
called a monoline service as opposed to multiline insurance services
which cover a variety of business activities.
The revenue generation from the PPP projects, so called PPP
concessions is Tolls, Capital grants, annuities and financial viability gap
fund. Another important parameter in deciding the selection of contractor
is the length of concession period. To overcome the problem of fixed
length of concession period a system of least present value of revenue
(LPVR) was developed.
A key lesson of the program is that the government has to be aware
of the contractor driven nature of the BOT program. It should be noted
that the BOT concept was originally devised by the construction industry
at the time when excess capacity of the construction industry existed. The
government should design the BOT scheme in such a manner to ensure
that the assets created by BOT contractors are properly operated and
maintained. To enhance the creditworthiness of projects, the Government
should introduce a minimum revenue guarantee and also an exchange
rate guarantee. As the competition becomes intense, the tolls proposed
by bidders will become lower and lower but, at the same time
consideration should be taken to decide a floor level of tolls so that bids
do not go below cost of project. There is a need to estimate properly the
negative impact of the competing roads. Also there is a need to check the
renegotiation of the cost of project by the private sector.
In order to create an immediate and visible impact on the everworsening traffic congestion, the government should adopt a rather
unusual selection criterion, the shortest concession period instead of the
conventional lowest toll criterion. As far as finance is concerned, steps
should be taken to increase the foreign investments in PPP projects. Even
though there is a risk factor involved, the agencies must show faith in the
lenders as if the project is completed successfully it is worth investing in
the PPP projects. Lack of planning can result in major failure, costing the
nation an enormous amount. However, if they are planned well, PPP

schemes can bring benefits especially to the developing countries like


India.

Chapter3. Case Study of Dewas-Bhopal Corridor


A case study of Dewas-Bhopal Corridor, built on BOT (Toll) basis has been
done to analyse the Public Private Partnership in highways project. And
the SWOT analysis is done of the same .Brief overview of the Project is
summarised below:

Dewas-BhopalCorridor

3.1 Project Summary:


3.1.1TheSite:
The road project is situated between Bhopal and Dewas. The
Bhopal-Dewas section of NH-86/SH-18 starts from Lalghati chowk in
Bhopal city. The entire length of 142.60 km consists of following sections:
i.
ii.

Bhopal-Sehore existing four lane section (km 6/8 to 26/4) = 19.6 km


Existing Sehore Bypass two lane section (ch 0.0 to 16+100) = 16.1

iii.

km
Existing two lane road from end of Sehore bypass to Dewas Bypass
junction (ch. 16+100 to ch. 123+100) = 106.9 km
Under the proposal, Bhopal Sehore existing four lane section is

proposed to be strengthened and raised. The existing carriageway is


proposed to be widened from 2 lanes to 4 lane width with 2.5m wide hard
shoulder and 1.0m wide earthen shoulder alongside. The new 2 lane
carriageway is proposed alongside the existing carriageway separated by
a 4.5 to 10.5 m wide median. This section of state highway traverses
through a flat terrain of mostly agricultural belt except about 9.0 kms hilly
stretch at Dodi ghat.

An aerial view of the Dewas-BhopalCorridor (New)

3.1.2 Technical Aspects:


Right-of-Way:
The existing ROW of the project road varies widely between
20m to 30 m. land acquisition process to acquire additional land to have
50m ROW has been done.
Geometrics:
It is observed that the project highway predominantly has a
straight alignment and traverses through plain terrain. It is essential to
provide improvement proposals to the substandard geometric at various
locations on the project roads.
Road condition survey and Pavement Composition:
As per the pavement condition data gathered from test pit
investigations, the total thickness of existing pavement varies from
170mm to 720mm. The pavement mainly comprises of WBM base course
over subgrade, overlaid by mainly thin layers of bituminous macadam and
mix seal surfacing/semi dense bituminous carpet or bituminous concrete.
The bituminous course layers thickness varies between 70mm to 380mm,
while that of WBM between 100m to 350mm and GSB between 0 to
300mm.

Cross drainage works:


There are four major bridges on the project highway.
There are total 18 minor bridge and culverts on the project road.

3.2 The Concession Agreement:


The Concession Agreement for the four laning of Dewas-Bhopal
corridor on BOT-basis was signed on 30 th June, 2007, between Madhya
Pradesh

Road

Development

Corporation

Ltd.

(State

Government

Agency)and the private consortium which includes M/s Dewas Bhopal


Corridor Pvt. Ltd., M/s Chetak Enterprises Pvt. Ltd., and M/s BSBK Pvt. Ltd.
The agreement includes the detailed design, engineering, financing,
procurement, construction, operation and maintenance of the Project
Highway under BOT-basis.
The Total Project cost is the lowest of the following:
a. A sum of Rs. 426.64 Crores as on Toll Date.
b. Actual capital cost of the Project upon completion of the Project
Highway as certified by the Auditors; or
c. Total project cost as set forth in Financing Documents.
Grant of concession:
The Concessionaire is allotted certain privileges to enable
them to complete their obligations in a hindrance free manner. However,
they are granted only for the concession period and are subject to
fulfilment of certain conditions. Some of the ones the Concessionaire
entitled to are:
1.
2.
3.
4.

Access to the site


Investigation of site in detail as per scope of work
Managing toll after completion of construction work
Bear and pay all costs, expenses and charges in connection with the
performance of the obligations

Conditions Precedent:
The rights and obligations of the Parties are subject to the
satisfaction in full of certain conditions set in advance.

The MPRDC shall:


1. Procure Right of Way for the Concessionaire
2. Procure approval of Railway authorities to build bridges etc. over
existing tracks
3. Procure all applicable permits relating to environment

Security:
The Concessionaire will give the MPRDC a sum of Rs. 2133 lakhs for
due

and

faithful

performance

of

obligations.

Failure

to

provide

performance security will lead to appropriation of bid security. They are


given extra time to rectify faults.
Maintenance Security-The Concessionaire will give Rs. 4.27 Crore for
faithful performance of its obligations during the tolling period.
Obligations and Undertakings:
Concessionaire:
1.
2.
3.
4.
5.
6.
7.

Make necessary applications to govt. agencies


Notify MPRDC forthwith the occurrence of Financial Closure
Submit true copies of all agreements and drafts of all amendments
Not to permit any change in ownership
Take prior consent for making changes
Give prior notice to MPRDC for any alterations
Clear the working area of machinery, debris etc. when work is done

there
8. Procure required rights and licenses
9. Ensure smooth running of project including proper safety
The Concessionaire will exercise the rights and take care of the site at
their own cost. They have certain obligations before the construction.
They need to submit detailed plans which may be rectified by an
independent organization. Perform all deeds. Select a representative for
handling with the government agencies.
The Concessionaire shall prepare and submit drawings promptly. They
should have all necessary details.During construction, a review of the
Detailed Project Report should be carried out and detailed engineering
should be carried out. The existing lanes should also be maintained. They
should be freed from potholes.

The MPRDC is obliged to


1. Hand over physical possession of the project site
2. Permit its peaceful use
3. Provide reasonable support and assistance to Concessionaire
There need to be warranties undertaken by Concessionaire that it is fully
capable of and will do quality work meeting all specifications. All laws
should be adhered to as shall the agreements salient points. There is also
a disclaimer that the Concessionaire accepts all inherent risks.
If the concessionaire fails to achieve any project mile stone,
concessionaire will be charged at 10000/- per day until the same is
achieved
If the delay is in project completion and the concessionaire is not
able to convince MPRDC that the circumstances were beyond his control
then the concessionaire shall pay the damages to MPRDC
Monitoring and supervision during operation:
The concessionaire shall take periodic inspection (at least once in a
month but once in a week during monsoon) to determine the condition of
the Highway as performance maintenance manual and shall submit
Maintenance

Report

to

MPRDC

and

Independent

Consultant.

The

Independent Consultant also shall review the Maintenance Report and


inspect the Highway once in a Fortnight and make the O & M Inspection
Report and send it to MPRDC. The concessionaire should within 30 days
from receipt of O & M Inspection Report send a report to MPRDC
remedying all the deficiencies or defects as stated by the Independent
Consultant (if any). The Independent Consultant may ask Concessionaire
to undertake some tests as per Specifications and Standards. Under such
situations Concessionaire must submit test results to MPRDC and
Independent Consultant.
The Concessionaire shall ensure safe conditions for the users and in
the event of accidents, vehicle breakdowns, etc. setting up of traffic cones
and lights and removal of debris should be done with delay.

The Concessionaire shall furnish Monthly Fee Statement, within 7


days during Toll Period. The MPRDC shall recover 1% of the toll from the
ESCROW Account, for each accounting year.
Safety requirement:
The responsibility of the Concessionaire is limited to removal of the
debris or other vehicle which may endanger or interrupt smooth traffic
flow ion Highway. He should ensure that any interruption in the traffic is
remedied without delay. An Independent monitors the safety and if he
encounters any breach, he should report it within 24 hours to MPRDC. All
the cost and expenses arising out of safety requirements are borne by the
Concessionaire.
Breach may lead the Concessionaire to the award of penalty points
and a total of 5 penalties in any continuous period of 365 days shall
constitute a Material Breach of the Agreement.
Independent consultant:
MPRDC appoints the Independent Consultant by a transparent
bidding process. The appointed authority may be a Consulting Engineering
Firm of body of Corporate being consultants. The Independent Consultant
is initially appointed for a period of30 months which may later be
extended to 3 years after expiry of aforesaid appointment. The
Independent Consultant must report (at least once in a month) to MPRDC.
The remuneration, cost and expenses shall be borne by the
Concessionaire during Construction Period, up to 1.3% of the project
construction cost. This cost is to be paid in 4 instalments. Also during Toll
Period, the supervising cost is borne by Concessionaire equal to Rs. 15000
per crores of Total Project Cost per year. This cost is to be paid in 6
instalments.
Financing arrangements financial closure:
The concessionaire shall provide a copy of Financing Package to
MPRDC. If anything in this agreement contained is contrary, financial
closure must be attained within 180 days.

Grant/subsidy:
MPRDC agrees to pay to the Concessionaire Grant/Subsidy as cash
support equal to the Bid of Bidder and accepted by MPRDC namely Rs. 81
crores. Out of the grant for project up to 20% of Total Project Cost is
provided by Government of India, rest is disbursed by MPRDC.
First tranche of 20% id released when the Concessionaire has
contributed his equity as per proposed financing package. MPRDC is given
7 days to process disbursement request. If MPRDC fails to disburse any
tranche within 30 days of acceptance of request, it has to pay an interest
@ SBAR plus 2 percent.

Revenue shortfall loan:


If the Realizable fees in any Accounting Year during the Concession
Period shall fall below the Subsistence Revenue Level, MPRDC agrees to
allow the Concessionaire to avail accommodation for such shortfall, by the
way of loan from Bank. Any balance of maintenance fund of the
Concessionaire or any sums received or likely to be received by the
Concessionaire through claims or payments by MPRDC shall first be
deducted and only the balance amount should be availed as Revenue
Shortfall Loan.
In

order

to

get

the

loan

under

such

circumstances

the

Concessionaire should submit a detailed account of event and its impact


on total revenues, as soon as possible. Within 15 days of close of
accounting year in which the shortfall is observed, the Concessionaire
shall

provide

certificate

from

the

Statutory

Auditors

certifying

Subsistence Revenue Level, Realisable Fees and the Revenue Shortfall


requirement after deducting the reserves of the Concessionaire.

The Revenue Shortfall Loan and the interest shall be repaid by the
Concessionaire before termination of Concession Period, in sum equal to
50% of net cash flow.
Escrow account:
The Concessionaire should open an account within 30 days of this
agreement in which all the funds constituting the Financing Package for
meeting Total Cost shall be credited. MPRDC possess rights to make
deductions and appropriations from this account.
Escrow Account, during Concession period is funded by:
o Deposits by GOI, MPRDC as grants/subsidy.
o Instalments of the loans by lenders as performance disbursement
schedule approved by lenders.
o All fees, after incomes and receivables.
o All termination payments.
o All proceeds received from insurance claims.

Insurance:
Insurance during the construction period:
Insurance under construction period may sum up to a maximum in
accordance with financing documents, applicable laws. Such insurance
covers the entire cost of the [project as per MPRDC.
Insurance during Toll Period:
Not later than 4 months prior to the anticipated completion of the
project Highway, the Concessionaire should obtain and maintain no cost to
MPRDC during Toll Period in respect of the project highway and the usage
of the insurance lies in Financing Documents, Applicable Laws.
Accounts and audit:
The Concessionaire shall maintain full accounts of all fees including
Realisable fees and other revenues collected by it from and on account of
use of the Project Highway and of the O&M Expenses and other costs paid

out of the Escrow Account and shall provide copies of the said accounts
duly audited and certified by the Concessionaires Auditors within 180
days of the close of each Accounting Year to which they pertain during
subsistence of this agreement.
Force Majeure:
A Force Majeure event shall mean occurrence in India of any or all of
Non Political Event, Indirect Political Event as defined in the clauses
respectively in the report which prevent the Party claiming Force Majeure
(the

Affected

Party)

from

performing

its

obligations

under

this

agreement and which act or event is:


(i)

Beyond the reasonable control and not arising out of the fault of

(ii)

the affected party,


The Affected Party has been unable to overcome such act or
event by the exercise of due diligence and reasonable efforts,
skill and care, including through expenditure of reasonable sums

(iii)

of money, and
Has a Material Adverse Effect on the Project.

The clauses pertaining to Effect of Force Majeure Event after Financial


Closure, Allocation of Costs during subsistence of Force Majeure and
conditions for termination of the agreement .
It is also stated that upon termination of the agreement by MPRDC on
account of Force Majeure Event, shall if it deems fit, subject to the rights
of the lenders under the substitution agreement, substitute another
concessionaire to take over the debts and subordinate debts of the Project
and maintain the facilities for the balance concession period.
Suspension and Termination:
The clauses relating to the following categories are discussed under this
chapter:
a) Material Breach and Suspension - If the concessionaire shall be in
the material breach of this agreement, MPRDC shall be entitled to its
other rights and remedies under this agreement, including its right
of termination hereunder, to suspend all or any of the rights of the
concessionaire under this agreement including the concessionaires

right to collect and appropriate all Fees and other revenues from the
Project Highway and exercise the rights of the concessionaire under
this agreement itself or any other person to exercise the same
during such suspension.
b) Compensation for Breach of Agreement The clause lays down the
terms

of

compensation

both

for

MPRDC

as

well

as

the

Concessionaire in case of breach of agreement by any or both


parties.
c) Termination It is divided into the following sub-clauses:
Termination for the Concessionaire event of default
Termination for MPRDC event of default
Other rights and obligations of the MPRDC
Liability and indemnity:
The concessionaire shall be entirely responsible for and bear the
cost of and shall indemnify, hold MPRDC not liable and defend all
proceedings, actions, and third party claims for loss, damage and expense
arising out of the design, engineering, construction, procurement,
operation, and maintenance of the Project Highway.
The concessionaire shall fully indemnify, defend, hold MPRDC not
liable including its officers, servants agents and subsidiaries, from and
against any loss and damages arising out of or with respect to (a) failure
of the concessionaire to comply with applicable laws and applicable
permits, (b) payment of taxes or (c) non-payment of amounts due as a
result of materials or services furnished to the concessionaire.
In defence of their claim, the Indemnified Party shall have the right,
but not the obligation, to contest, defend and litigate any claim, action,
suit or proceeding by any third party alleged or asserted against such
party in respect of, resulting from, related to or arising out of any matter
for which it is entitled to be indemnified and their reasonable costs and
expenses shall be indemnified by the Indemnified Party.
Dispute Resolution:
In case of dispute, difference or controversy in relation to the
agreement between the parties, the dispute shall be resolved amicably in

accordance with the conciliation procedure. The parties may call upon an
independent consultant and arrive at a settlement and failing this either
party may refer to the Steering Group constituted by MPRDC and the
chairman of the Board or directors of the concessionaire and a
representative of GoMP. If the dispute is still not resolved then it shall be
finally decided by reference to Arbitration by a Board of Arbitrators. The
decision relating to any dispute shall be final and binding on the parties as
from the date they are made.
The concessionaire shall make available for inspection during
normal business hours on all working days copies of all records and
reports to MPRDC a and when required.
Redressal of public grievances:
The concessionaire shall maintain a public relations office adjacent
to each Toll Plaza and keep it open to public access. It should maintain a
register/suggestion box for complaints/suggestions. The complaint shall
also be numbered with date and complaint number so that it may be
referred

for

future

correspondence.

The

action

taken

by

the

concessionaire should be noted and a reply should be send to the


complainant. After each month, the concessionaire shall send to MPRDC a
photocopy of the Complaints Register.
Miscellaneous:
i.

Video recording
The concessionaire shall provide a video recording with date and

time to MPRDC every quarter, covering the construction of the Project


Highway in that quarter. During the toll period the concessionaire shall
prepare the video recording once in a calendar year.
ii.

Survival
Termination of the agreement shall not relieve the concessionaire or

MPRDC of any obligations which expressly or by implication survives


termination and it shall not relieve either party of any obligations or
liabilities for loss or damage to the other Party arising out of such
termination.

iii.

Notices
Any notice or other communication between parties shall be done

by a letter delivered by hand to the address of the person in charge in the


case of the concessionaire whereas in the case of MPDRC, the letter
delivered by hand shall be addressed to the chairman, MPRDC. The copies
of all notices should be sent by facsimile and shall also be sent to the
MPRDC representative.
iv.

Advertisement on site
The concessionaire shall not undertake or permit any form of

commercial advertising, display or hoarding at any place if such


advertising shall be visible to the users while driving on highway thus
distracting them. This restriction shall not apply to the toll plaza, rest
areas, bus shelters and telephone booths located on the project highway if
the advertisement does not distract the users.
v.

Severability
If for any reason, any provision of this agreement is or becomes

invalid, illegal or unenforceable or is declared by any court as same then


the validity, legality or enforceability of the remaining provisions shall not
be affected in any manner, and the parties will negotiate with a view to
agreeing one or more provisions which may be substituted for such
invalid, unenforceable or illegal provisions.
vi.

No partnership
Nothing contained in this agreement shall be construed or

interpreted as constituting a partnership between the parties. Neither


party shall have any authority to bind the other in any manner
whatsoever.
vii.

language
All notices required to be given by one party to the other party and

all other communications, documentation and proceedings which are in


any way relevant to this agreement shall be in writing and in English
language.

3.3

SWOT Analysis:

From the point of view of Public Private Partnership in Highway projects,


this project is one of the bricks in the building of mutual participation of
Government and Private Sectors to achieve developmental goals which
are beneficial for them as well as the general public. To analyse the pros
and cons of the project under PPP, SWOT Analysis of the Bhopal-Dewas
corridor (built on BOT-basis) as under.
Strength:
o Involvement of the Private sector leads to greater efficiency, this can
be seen from the fact that the concession agreement for the project is
signed on June 30, 2007, the construction started on January 1, 2008
and

it

was

completed

on

December

31,

2009.

That

means,

approximately 0.2 KM of road was constructed per day.


o Since the corridor is under the control of concessionaire for the next 30
years, hence the responsibility of its operation and maintenance is only
of the concessionaire and the government is exempted from the
burden of extra staff and machinery required for the same.
o The initial grant given by the government to the concessionaire
provided a boost to the morale of the concessionaire and also made
him more responsible for the project.
Weakness:
o The Concessionaire is a consortium of 4 companies and theres a huge
susceptibility to mutual contention.
o A sudden increment in traffic inflow rate will tremendously benefit the
private entity and adversely affect the public partner.
o Lack of proper legal framework and institutionalized

standard

approach.
Opportunities:
o The successful completion of the project shall ensure many more such
endeavours in the future.

o Highway development projects in India require a huge investment of 6


lakh crores INR. Successful projects like these are necessary to attract
the much needed investment.
o The gap between inception and implementation of public services is
finally bridged by the tool of PPP.
Threats:
o Lack of cohesive approach at government level owing to lot of redtapism etc. in the government machinery.
o Corruption in the form of extortion and other such illegitimate actions
may creep in the system in the long run.
o The possibility of the formation of any type of nexus between
contracting parties and political agents will lead to loss of faith in the
PPP and prove detrimental to its true character.

Chapter 4.Conclusions
The Methodology of Public Private Partnership in highways is based on
capitalizing the private sectors strength and minimising shortcomings of
public sector in the execution of work.
PPP enhances efficiency of work to a higher limit. Certain minimum
standards and norms have been setup by the agency which is being
updated from time to time to meliorate the level of work. Likewise coin,
PPP has its own pros and cons. One of the pros is the low risk involvement
on part of public sector but it is opposite in case of private sector. As work
is performed by private sector and the sole responsibility from the
beginning to completion of project is shared by one party or a group of
companies, the execution is better as compared to that performed by
public sector, because there is involvement of money of individuals in the
project.
In concise notes all the menaces are put in the sack of private
sector and all the credits are credited to public sector. But the success
from the principle of PPP is creditable as outcomes of result are far better.
As per records available not only to the quality of the pavements have
improved drastically, but the life-span or so called the service period of
highways has also increased considerably. Even though, the pros of PPP in
highways outweighs its cons but still the shortcomings should be notified
and the rectification of the same will surely further enhance the efficiency
of PPP projects.
The interest of private sector is certainly a vital component in
successful execution of PPP projects. This interest has been given a boost
in terms of perks awarded to agencies showing interest as well as
participation in the PPP projects.
Policies of PPP accounts for contents ranging from every minute
detail to completion of all the vital steps in execution in maintenance part
of project. All the inadequacies have been set aside in the formulation of
PPP policies. There has been conceptualisation of tender policy, operation,
maintenance and finally transfer of assets to the government. Various
authorities are appointed for inspection and audits to the work place for

testing the execution of work and justifying whether norms and standards
have been enforced or not.
Among the shortcomings, very few aspects have come into notice.
The entailment of such strict provisions may create a setback and
exasperation in the mind of private sector, in case better prospects are
available to them at other places. Also the exaltation to the developers
must be given a hike in terms of better facilities to them.
After scrutinising the details of PPP, it can be concluded that PPP is a
powerful tool in approaching future and can serve better among all the
available methodologies. But at the end, its ones wit which certainly
serves a final decision making about any and every available scheme.

4.

Chapter 5.References
1. The world bank, report on India : Building capacities for PublicPrivate Partnership, Energy and Infrastructure Unit and Finance
and Private Sector Development Unit, South Asia region, June 2006,
p. 13.
2. Savas E.S., Privatisation and Public - Private Partnerships,
Affiliated- east west press. Pvt. Ltd., New Delhi, 2001.
3. Noorjahan Bava. Public Interest and Public Policy, in R.B Jain, (Ed.),
public services in a democratic context, New Delhi, Indian Institute
of Public Administration, 1983, pp. 166-178.
4. India:

Addressing

Constraints

to

Infrastructure

Financing

(Washington DC), World Bank. 2005.


5. Dissertation on "Financing of National Highways in India by A. P.
Bahadur, Chief Engineer, Department of Road Transport and
Highways, Ministry of Shipping, Road Transport & Highways.
6. R. Thandvan and Kalaichdvi Sivaraman Public- Private Partnership
within Policy Framework, the Indian journal of public administration,
Vol. LIV, No. 1, January-March, 2008, p. 21.
7. Presentation on Public - Private Partnerships in Highway, Punjab,
India by Kulvinder Singh Rao, Deputy Project director, Punjab roads
& Bridges development Board.
8. Guidelines for Investment in Road Sector Government of India
Ministry of Road Transport and Highways.
9. Dissertation on Global Experiences of Public Private Partnership for
Highway Development by Shunso Tsukada.
10.

Report on "Technical Assistance To The Democratic Socialist

Republic Of Sri Lanka For Preparing A Public-Private Partnership


Expressway Project, September 2003 by L. Weidner, private sector
development specialist, South Asia Transport and Communications
Division (project team leader); S.W Handayani; and D. Utami.

11.
of

PPP Toolkit for "Public Private Partnership in India" by Ministry


Finance,

Government

of

India.

Source

website

http://www.pppinindia.com/

12.

Department of Road Transport and Highways, Ministry of

Shipping,

Road

Transport

and

Highways

(http://morth.nic.in),

National Highways Authority of India (http://www.nhai.org)


13.

CDDRL Working Papers on "Distribution of Highways Public

Private Partnerships in India: Key Legal and Economic Determinants"


September 2009, TCA Anant & Ram Singh, Delhi School of
Economics,

University

of

Delhi,

source

website:

http://cddrl.stanford.edu.
14.

Workshop Report, December 2006 on "Facilitating Public

Private Partnership for Accelerated Infrastructure Development in


India, Regional Workshops of Chief Secretaries on PublicPrivate
Partnership, Department of Economic Affairs (DEA) & Ministry of
Finance, Government of India.
15.

Journal on Partnerships for Urban Infrastructure Development

in Delhi, Ashok Kumar (2003), ITPI Journal, Vol. 20.4, No. 2645.