By Dr. P. V.

Akalkotkar

 Traditionally,

the road projects were fully financed and controlled/supervised by the Government. The implementation of road projects was purely dependent on the availability/allocation of funds out of the budget of the Government.

 It

was assessed, at the time of the preparation of the Tenth Plan that for National Highways alone, Rs.1,65,000 crore is required for removal of the deficiencies. It is in the context that alternative innovative means of financing have gained importance for providing an adequate and sustained support for financing the road projects.

Scheme

Period 2001-2011 Length Amt Rs. Crore

Period 2011-2021 Length Amt. Rs. Crore

A. B.

Expressway National Highways (i) Four-Laning/Six Laning (ii) Two-Laning with hard shoulders
(iii) Strengthening Weak Pavements (iv) Bypasses, bridges, over bridges, safety and drainage measures (v) Expansion of NH system Total for National Highways Grand total

3000 km

30000

7000 km

70000

16000 km 15000 km
20000 km Lump sum

64000 18750
15000 7250

19000 km 7000 km
24000 km Lump sum

76000 8750
18000 9250

10000 km

15000 120000 150000

12000 km

18000 130000 200000

committee set-up under the Chairmanship of the Director General (Road Development) and Addl. Secretary, MORT&H has revised the norms recently and it has come up with several innovative concepts so as to provide high performance standards of service to users particularly on high and medium traffic density corridors. Table below gives a broad idea of the funds required and those made available in respect of National Highways in the past. IT will be seen that the shortfall has been of the order of 40 per cent.

Year

Funds Received (Rs.Crore)

Funds Available (Rs. Crore)

Shortfall (Rs.Crore)

Percentage Shortfall

1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91

55.55 60.00 71.90 108.30 116.82 176.78 177.24 198.00 194.50 257.91

47.00 51.00 61.00 75.00 90.00 94.25 99.03 142.36 143.55 153.12

8.55 9.00 10.90 33.30 26.82 82.53 78.21 55.64 50,95 105.79

15.39 15.00 15.16 30.75 22.96 46.96 44.13 28.10 26.20 40.63

1991-92
1992-93 1993-94 1994-95 1995-96 1996-97

291.29
330.00 415.00 475.00 535.00 570.00

166.76
168.67 214.50 246.90 288.43 372.00

124.53
161.33 200.50 228.10 246.57 198.00

42.75
48.89 48.31 48.00 46.09 34.74

1997-98
1998-99 1999-2000

600.00
1050.00 1250.00

497.50
549.80 703.00

102.50
500.20 547.00

17.08
47.63 43.76

Scheme

Period 2001-2011 Length Amt Rs. Crore

Period 2011-2021 Length Amt. Rs. Crore

A.

State Highways (i) (ii) Four-Lanning/six-laning Two-laning with hard shoulders 3000 35000 10000 28000 7000 60000 25000 50000

(iii)
(iv)

Strengthening weak pavement

Bypasses, bridges, over bridges, safety and drainage measures Expansion of SH system Total for State Highways

30000
Lump sum

22000
10000

40000
Lump sum

30000
10000

(v)

10000

5000 75000

20000

10000 125000

Scheme

Period 2001-2011 Length Amt Rs. Crore

Period 2011-2021 Length Amt. Rs. Crore

B.

Major District Roads (i) (ii) (iii) (iv) Two-laning Strengthening weak pavement Improving riding quality Bypasses, bridges, over bridges, safety and drainage measures Expansion of MDR system Total for Major District Road Grand Total 20000 30000 50000 Lump sum 12000 15000 5000 5000 40000 40000 50000 Lump sum 24000 20000 5000 5000

(v)

Lump sum

3000 40000 115000

Lump sum

6000 60000 185000

 Table

below gives the State-wise recommendations for maintenance of state roads by the Tenth Finance Commission. It is imperative that the state Governments allocate full funds to the state roads departments as per the recommendations of the Finance Commission.

Committee set-up under the Chairmanship of the Director General (Road Development) and Addl. Secretary, MORT&H has received the norms recently and it has come up with several innovative concepts so as to provide high performance standards of service to users particularly on high and medium traffic density corridors.

 General

experience has been that there is a shortfall of over 40 to 50 percent in respect of allocations for maintenance of SHs and MDRs.

State Andhra Pradesh Arunachal Pradesh Assam Bihar Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir

1995-96 22471 1242 9295 13586 914 25257 6998 3889 2749

1996-97 30069 1628 11711 16663 1246 29732 7544 4928 3470

1997-98 37667 2014 14128 19741 1579 34208 8099 5968 4191

1998-99 45265 2399 16544 22819 1912 38683 8658 7007 4912

1999-2000 52863 2785 18960 25896 2245 43159 9177 8047 5633

1995-2000 188335 10068 70638 98705 7896 171039 40476 29839 20955

Karnataka
Kerala Madhya Pradesh Maharashtra

14133
10957 28685 47356

17785
12772 30922 51050

21436
14588 33195 54802

25088
16403 35486 58583

28740
18219 37615 62098

107182
72939 165903 273889

State Manipur Meghalaya Mizoram Nagaland Orissa Punjab Rajasthan Sikkim Tamil Nadu

1995-96 400 2812 1303 1438 15280 8393 19238 851 25697

1996-97 667 3031 1404 1709 20807 10938 20738 917 27702

1997-98 933 3254 1508 1980 26334 13482 22263 984 29738

1998-99 1200 3479 1612 2251 31861 16027 23799 1052 31790

1999-2000 1466 3688 1708 2522 37388 18571 25227 1116 33697

1995-2000 4666 16264 7535 9900 131670 67411 111265 4920 148624

Tripura
Uttar Pradesh West Bengal Total

996
31753 12975 308668

1339
43086 17541 369399

1681
54420 22108 430301

2024
65753 26674 491281

2365
77087 31240 551513

8406
272099 110538 2151162

 With

a view to attract private investment in road development, maintenance and operation, National Highways Act (NH Act) 1956 was amended in June 1995. In terms of these amendments, the private persons can invest in the NH projects, levy, collect and retain fee from users and is empowered to regulate traffic on such highways in terms of provision of Moter Vehicle Act, 1988.

1.

2.

The policy of privatization will be implemented by the NHAI and in exceptional cases by the State Public Works Department. The basic principles in identification of NH projects of private investment would be that the project is an approved project of the Ministry of Road Transport & Highways and it is capable of yielding adequate financial return.

3.

The Government will provide support by carrying out all preparatory works, such as :

Feasibility study Land for right-of-way and roadside facilities\ Relocation of utility services Cutting of trees Removal of encroachments and resettlements and rehabilitation of persons affected from the project.

Depending upon financial viability, the cost for the above activities may be recouped from the project.

4.

5.

6.

Suitable traffic support/guarantee will be provided on case to case basis. Exemption will be given from import duty on identified high quality construction plant and equipment. Foreign Direct Investments upto 74 percent would be permitted automatically. Beyond that, proposals would need clearance of the Foreign Investment Promotion Board.

7.

8.

A five year tax holiday is available followed by a further five year period of 30 percent exemption and this concession can be availed of in any 10 consecutive years during the first 20 years of operation. (Section 80 IA (12) (ca) of the Income Tax Act, 1961). Upto 40 percent may be excluded from income Tax of the income derived by financial institutions from finance they provide for infrastructure projects.

9.

10.

11.

Exemption is available from Income Tax on the income from dividend and interest on long term capital gain derived from investments in the form of shares or long term finance to any enterprise set up to develop, maintain and operate an infrastructure facility. Subscription to equity shares and debentures are eligible for deductions under Section 99 of the Income Tax Act. Real estate development can be made integral part of BOT projects to enhance their financial viability.

12.

13.

14.

NHAI can provide capital grants to the developers of a road project for project cost on case to case basis. NHAI can participate upto 30 percent of total equity of a company floated to develop a road project. The ownership of the land for the highway construction and roadside facilities would continue to vest in Government. Mortgaging and subleasing of this land for raising finances is not allowed. However, land will be given on lease to entrepreneurs.

15.

16.

There will be provision of unified check barriers at the inter-state borders for the use of all government authorities. Such barriers would be located outside the right-of-way with proper entry/exit layout. Disputes resolution and arbitration would be under the Indian Arbitration and Conciliation Act, 1996. (It incorporates UNCITRAL provisions)

17.

18.

Entrepreneurs would be protected against force majeure situations including political, nonpolitical and legislative changes. There will be a standard concession agreement, which addresses the concerns of various stake holders in the project.

 While

there are a number of forms of Public Private Partnership, the common forms that are popular in India and have been used for development of National Highways are :
Build Operate and Transfer (BOT) Toll basis Build Operate and Transfer (BOT) Annuity basis Special Purpose Vehicle (SPV) basis

 In

a BOT (Toll) Model, the concessionaire (private sector) is required to meet the upfront/construction cost and the expenditure on annual maintenance. The Concessionaire recovers the entire upfront/construction cost along with the interest and a return on investment out of the future toll collection.

 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 (upto a maximum of 40% of the project cost has been provided under NHDP)

 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. The Concessionaire recovers the entire investment and a pre-determined cost of return out of the annuities payable by the client every year.

 The

selection is made based on the least annuity quoted by the bidders (the concession period being fixed). The client (Government/NHAI) retains the risk with respect to traffic (toll), since the client collects the toll.

 The

NHAI has also formed Special Purpose Vehicle (SPV) for funding road projects. SPVs are separate legal entities formed under the Companies Act, 1956. It involves very less cash support from the NHAI in the form of equity/debt; rest of the funds comes from Ports/Financial Institutions/Beneficiary organizations in the form of equities/debt.

 The

amount spent on developments of roads/highways is to be recovered in prescribed concession period by way of collection of toll fee by SPV.

 Involving

the private sector leads to greater

efficiency. The private sector has more flexible procurement and decision-making procedures and therefore, it can speed up implementation efforts. Implementation of projects under Public Private Partnership (PPP) has the following advantages : Better quality since the concessionaire (private sector)

is to maintain the road for the period of concession.

 Early

completion of the project, since the concessionaire could save interest and earn early toll (in the case of BOT project) / additional annuity installments (in the case of Annuity projects) No cost overrun (price escalation). The Client (Government/NHAI) does not have the burden of maintaining the highways.

brief details of the projects under Public Private Partnership (PPP) are as under. Detailed list of projects is given at Annexure I.

 So

far 48 numbers of projects valued about Rs.9329.21 crore have been taken up on Built Operate and Transfer (BOT) basis (Toll based projects) Out of this, 23 numbers of projects have been completed and 25 projects are under progress.

number of projects valued about Rs.2354 crore, has been taken up on Annuity basis of which all projects except only two, amounting to Rs. 664.30 crore are completed.

 12

number of projects valued about Rs.2339 crore have been taken up under SPV funding. 5 number of projects amounting to Rs.890 crore have been completed so far. 7 number of projects amounting to Rs.1449 crore are in progress on SPV basis.

Committee on Infrastructure headed by the Honorable Prime Minister has proposed a massive infrastructure development programme for the next 7 years.

 The

programme envisages an investment of Rs.1,72,000 crore on following developmental projects :

1) Completion of GQ and EW-NS corridors 2) 4-laning of 10,000km under NHDP Phase-III. 3) 2-laning with paved shoulders of 20,000 km of

National Highways under NHDP Phase-IV. 4) Augmenting highways in North East under Special Accelerated Programme. 5) 6-laning of selected stretches of National Highways under NHDP Phase-V.

6) Development of 1000 km of expressways under

NHDP Phase-VI, and 7) Construction of ring roads, flyovers and bypasses on selected stretches under NHDP Phase-VII.

Government has planned that all the future NHDP projects i.e. NHDP Phase-III to PhaseVII will be implemented through public private sector participation.

 Out

of the above proposal Government has approved 4-laning of 4000 km of National Highways under Phase-IIIA and preparation of detailed project reports for balance 6000 km under NHDP Phase-IIIB. Actions have been initiated for getting the approval of the Government for the remaining projects.

 Concession

Period

Project specific; normally 20 years

One/Two

Stage Capacity Augmentation

Notice before 8th year

Opt out option for both parties If no six-laning; then concession upto 12 years
Performance

Security (PS)

5% of TPC

 Financial

Close

Within 180 days from date of agreement Extra 180 days at damages @ 0.1% of PS/day Termination due to failure
Appointed

Date (AD)

Date of financial close or mutually agreed earlier date

Total Project Cost (TPC) Lowest of Capital cost (less equity) of financial package Actual capital cost on completion, less equity A sum of (based on estimation) less equity

 Grant

Equity support 20% of TPC in installments Balance if any during O&M in quarterly installments

Premium (negative grant) as additional concession fee

(~ 2% f total realisable fee per year)

 Right

of Way

80% of required land, prior to appointed Appendix for remaining 20% Damage for delay

Rs 50 (US$ 1.11)/day/1000 sqm after 91 days of AD

Additional land for change in scope to be taken by the

concessionaire

 Conditions

Precedent

For NHAI and Concessionaire Damage for delay be NHAI 0.1% of PS for each day delay maximum 20% of PS
Obligation

NHAI Maintenance during development period No competing road by NHAI or other Govt. Agency

 Concession

Fee

Rs. 1 ( US 2.22 c ) up to 10th year 1% of realisable fee for the 10th year Increase

by Arithmetic Progression in each subsequent year Premium (negative grant) @ 2% of fee with increase every year by additional percentage

 User

Fee

As per Fee Notifications presently (1997 price level)

Car/Van/ Jeep 40 p (~ US 1 c )/ km LCV (LGV) 70 p (~ US 1.5 c)/ km Truck/ Bus 140 p (~ US 3 c)/ km HCM/EME 300 p (~ US 6.6 c)/ km

Fee revision restricted to 40% of WPI variation Exemption for local traffic Discounts to frequent users Additional charge for fee evasion/ overloaded vehicles

 Revenue

Shortfall Loan

If realisable fee is less then subsistence revenue Due to indirect/ political event
Variation

in Traffic Growth

Upfront agreed target traffic on target date

For 1% shortfall - concession period increased by

1.5% For 1% increase - concession period reduced by 7.5%

 Additional

Toll Way

Not before 8th year Not longer than 25% of existing length Provision for varying concession period
Escrow

Account

Insurance

 Construction

of Project Highways

Project Specific Normally 650 days from the appointed date Construction as per prescribed schedule Damages due to delay @ 0.1% per day of PS
Construction

Monitoring

Inspection & monitoring by Independent Engineer Sample Testing Suspension of unsafe construction Documentation by video recording

 Change

of Scope

Cumulative cost not to exceed 20% of TPC Not to exceed 5% of TPC in continuous three years Advance payment up to 20% to the Concessionaire

 Operation

& Maintenance

Safe, smooth and uninterrupted flow of traffic Concessionaire to evolve Maintenance Manual Prompt removal of stalled vehicles/ debris

No lane closer without approval of Independent

Engineer Damages - higher of

0.5% of average daily fee per day 0.1% of the repair cost as assessed by Independent Engineer

No barrier and advertisement

 Safety

Safety audit by NHAI

Concessionaire to comply with safety audit Requirements Highway patrolling and emergency medical aid
Independent

Engineer

Review, inspection and monitoring of project

highway during construction and operation

Fair, impartial and efficient
Traffic

census and sampling

 Termination

Default by NHAI, Concessionaire

Termination

Payment

Concessionaire default
90% of debt due less insurance cover

NHAI default
Debt due and 150% of adjusted equity

 Dispute

Resolution three stage

Mediation by Independent Engineer Amicable settlement by Chairman of NHAI and Concessionaire

Arbitration

Jaipur to Kishangarh section of NH-8 BOT Project

Concesson Period : Construction Period : Commencement Date : Contractual Completion Date: Actual Completion Date : Project Cost Means of Finance 0.02b) : :

20years 30 months 17.3.2003 17.9.2005 9.4.2005 (5 months ahead of schedule) 614.50 Crore (US$ 0.13b) i) Equity capital 101.17 Cr. (US$ ii) Grant by NHAI iii) Debt 211.00 Cr. (US$ 0.04b) 302.33 Cr. (US$

0.06b)

Expected Revenue

Actual Revenue

Rs.102.19 Cr. [~US$ 0.022 b] (year ending 31st March 2006) Rs. 110.82 Cr. [~US$ 0.046 b] (year ending 31st March 2007) Rs. 117.28 Cr. [~US$ 0.026 b] (year ending 31st March 2008) Rs. 98.46 Cr. [~US$ 0.021 b] (year ending 31st March 2006)

NeelamangalaTumkur of NH -4 BOT Project

Cost of Project NHAI grant Concession Period

: : :

Start date of concession period : Construction period :

Commencement of toll collection: Schedule end date of concession Including approved extension of 29 days :

Rs.1550 million (US$ 34.44 m) Rs. 248.30 million (US$ 5.51 m) 19 years and 29 days (including 24 months of Construction period) 23.6.2002 Start date : 1.6.2002 Schedule completion date: 20.11.2003 Extended completion date: 29.12.2003 Actual completion date/COD: 9.2.2004 10.2.2004

22.7.2021

 Neelamangala-Tumkur

of NH-4 BOT Projects

(Contd.) Revenue Collected

Sl. No. 1 2 3 Year Expected revenue (Rs. In crore) NIL 29.63 32.77 Actual revenue Collected (Rs.in crore) (US$ b) 2,55,91,775/- [56.87] 19,88,37,326/- [44.18] 25,30,58.209/- [56.23]

2003-04 2004-05 2005-06

 Public

Private Partnership (PPP) Project means a project based on a contract or concession agreement, between a Government or statutory entity on the one side and a private sector company on the other side, for delivering an infrastructure service on payment of user charges. Private Sector Company means a company in which 51% or more of the subscribed and paid up equity is owned and controlled by a private entity.

 High

priority, government-planned project. The project must have emerged from a governmentled planning and prioritization process. The project must be such that, regardless of the source of public or private capital, the government would still want the project to be implemented quickly. Genuine risk allocation. Shared risk allocation is a principal feature of a PPP project. The private sector must genuinely assume some risk....

 Mutually

valuable. Value should be for both sides, which means government should also genuinely accept some risks and not transfer the entire risk to the private sector, and vice versa. VGF Scheme

 robust

and dynamic structure; government in an enabler role; government ownership is high; governance structure ensures consumer and public interests are safeguarded; commercial interest protected; domicile risks to parties that are well equipped to deal with them;

 transparent

and well-conceived contracts; documentation recognizes rights and responsibilities of all project-related parties; concerns of all stakeholders addressed; involves participation of a large number of institutions: government, politicians, banks, financial institutions, investors, contractors, consumers, NGOs, etc. Government of Tamil Nadu presentation

 PPPs

are best implemented through standardized arrangements that constitute a stable policy and regulatory regime where private capital derives greater comfort and seeks the least possible risk premium. Model Concession Agreements (MCAs) would be used for providing a stable regulatory and policy framework. Approach Paper to the Eleventh Plan

 No

involvement of any potential bidder in the design of bid criteria. Bid conditions not designed to favor any particular party. No artificial entry barriers that disqualify any qualified competitor. Transparent evaluation criteria stipulated upfront. No undue weightage to subjective criteria favoring any pre-selected party.

 No

joint venture structure between the state governments and potential developers, which could lead to project and sectoral capture. No leakage of insider knowledge to favor a particular bidder. No manipulation of post-award renegotiations or revisiting of project design. Workshop presentation, Feedback Ventures

offer a project without detailed project development; make commitments that cannot be kept; change goalposts after award of concession and revisit project design; not recognize that each project is a business and not a mere asset; regret that the business is profitable within the framework agreement; superimpose public processes on private initiatives; and not fully exploit the capacity of the business to grow in the state

 protect

officers who take the initiative on PPP; align the economic interest of all stakeholders; define PPP projects on a holistic basis; induct the private sector as partners; establish frameworks that permit failures; and encourage plurality of approaches. Presentation by ILFS

 Large

size: Foreign investors have comparative advantage and higher probability of winning. (Bids cost money!) Complex projects: Foreign investors have better technical, operational, and financial efficiencies that would compensate for higher return expectations. Market-driven fundamentals: Project revenues determined by market forces and projects that are more integrated with global flows.

 Program

visibility: PPP ventures that are projected as part of a program rather than isolated projects would be of interest to multinationals that are keen to leverage Indias emerging potential. Upside opportunities: A new breed of foreign investors, such as real estate funds, hedge funds, and private equity funds, have emerged, which could significantly augment available domestic capital and bring with them international operators. Price Waterhouse Coopers presentation

 Publicprivate

partnerships should not be seen as public partnerships and private projects. They should rather be viewed as private partnerships and public projects ...

Dr Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, Government of India

 detailed

policy for implementing PPP proper planning by government project development by government full support by government proactive public communication transparent bidding process clear policy on unsolicited proposals defined sources of revenue proper allocation of risk adequate protection for lenders ADB presentation

 power

demand and project competitiveness foreign exchange risk credit and regulatory risk hydrology risk project completion delay risk construction cost overrun risk environmental and social risks ADB presentation