Toll Roads

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A ppt explaining intricacies of toll road projects

A ppt explaining intricacies of toll road projects

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  • 1. Toll Roads A perspective …
  • 2. Topics for discussion:  Concept of Toll Roads (TR)  Features  Basic Activities involved  Project Structures  Major Risks Involved  Tolling Aspects  Government Support  What’s new
  • 3. Concept of Toll Roads (TR)  TR are roads which can be used by vehicles on payment of some toll (i.e. rent for use of resources). E.g. DND toll bridge  Exponential growth in vehicle count and paucity of proportionate road infrastructure (in km and quality terms) has led to widespread use of concept  Numerous risks involved  Aid in economic development of surrounding areas  Governments encouraging private initiative in TR (for various benefits that entrepreneurship yields)  Provide funding of other projects  In India, NHAI being the pioneer to adopt the concept and putting it to use on a macro scale with GQ
  • 4. Features  TR usually developed in urban areas (witnessing traffic congestion) and Highways  May or may not have alternate toll-free road (affect project viability)  Percentage and form of public support varies  Important determinants for success of project: – Traffic (classified into LMV, HMV, others); and growth rate – Costs : Construction and Operation; and escalation – Revenue : Tolls, Public Support, Advertisement, Realty, etc – Funding: Debt ; Equity – Duration (of Concession)  Social and rehabilitation aspects
  • 5. Basic Activities involved  Feasibility – does the idea makes sense? – Congestion levels – Existing road infrastructure – Financial Analysis  Construction – Type of contractor • Experienced • Financially capable – Timelines (penalties and bonus) – Cost estimates : as realistic as possible with cushion for escalation  O&M – Stringent performance standards – Revised toll rates compel for better O &M
  • 6. Project Structures …1  Management Contract – Construction by State or Central government or such agency – Private Operator is entrusted the responsibility of operating and / or managing the TR  Annuity – Private builds and operates the road; gets annual payment – Toll (if any) taken over by government  Build Operate Transfer (BOT) – Private player develops TR, operates it and transfers back to government on expiry of concession period (usually 25-30 years: sufficient to recover the investment) – Construction, operation and market risk on private – Most common form of PPP – Best suited for projects which have: • huge construction costs involved • revenues accruing during entire duration of project • to be developed with latest technology
  • 7. Project Structures …2 – Requisites for successful BOT project are: • Strong project in terms of viability • Identification and allocation (between public and private) of prominent risks • Active Government support (mainly for approvals and clearances • Established Sponsor • Capable construction contractor • Robust project structure (determined by concession agreement) • Appropriate funding (Debt and Equity): Usually debt comprises of 70-90% of total capital
  • 8. Investors Government Authority Equity Funding Debt Concession Agreement Rating Project Agency Company / Concessionaire Insurer EPC/Construction / SPV Contract Fees/Toll O&M Off-taker / Construction Consumer Agreement Contractor Operating Agency A Typical BOT Project Structure
  • 9. Major Risks involved …1  Completion Risk: – Availability of land – Topography of site (soil, etc) – Availability of raw material, labor, equipment – Timelines – Within budgeted costs  Market Risk – Traffic forecast – Government Policies (like taxes) – Existence or development of alternative road or other mode of transport – Economic sensitivity of people towards toll
  • 10. Major Risks involved …2  Financial / Revenue Risk – Revision of toll (at least to cover rise in operating cost) – Interest Rates and Inflation – Foreign Currency rates  Operating Risks – Poor maintenance (leading early wear-n-tear) – Design/Construction faults – Labor problems  Clearances – Environmental – Rehabilitation
  • 11. Tolling Aspects …1  Charge : either “per km” or “for entire journey (one way)” or “on basis of weight of vehicle” or combination of any of above  Duration: depends on – Costs : Construction; Operation and Rehabilitation – Toll Revenue – Other objectives  Quantum: to make the project viable  System: – Manual – Electronic  Pilferage
  • 12. Tolling Aspects …2  Form: – Shadow Tolls : No toll collected from vehicles but paid by govt to operator on basis of traffic count – Open / Closed tolls • Open : Toll collected at points along the road; no entry/exit gates • Closed: Entry and Exit gates for toll collection; requires setting up of infrastructure for gates  Revision in rates – Guaranteed in BOT projects – Based on some index (CPI, WPI, etc) – Yearly or in a few years
  • 13. Government Support  NHAI Act amended to allow for: – Private sector participation  Declaring road as an industry: this enhanced bankability of road projects  Declaring Highways as infrastructure sector: for floating Highway bonds  Tax benefits for infrastructure projects and for inputs  Encouraging private sector participation  Model Concession Agreements
  • 14. What’s new More and more TR projects More forms like road/rail river bridges Private Equity in TR projects
  • 15. Questions???