Introduction to Derivatives
L&T Vadodara

Presented By,
Nayan Parikh
CEO, Nayan Parikh & Consultants
Ahmedabad.
21st April...
Derivatives

npcinfra@vsnl.net
Origin of Derivatives

Over 2000 years ago, contracts for delivery in the

future was commonly used with Greek olive farm...
What are derivatives?
Derivatives really on a fundamental level are:

– Merely pieces of paper or
– In modern days, elect...
Characteristics of OTC
OTC Derivatives Derivatives market:

– The management of counter-party (credit)
risk is located wi...
Derivative is a product whose value is derived from

the value of the underlying asset.

Underlying asset can be equity,...
Government Rule
Security Contract (Regulation) Act,1956

[SC(R)A] defines derivative to include

A security derived from...
Types of Derivatives
Future
Option
npcinfra@vsnl.net
Future
Forwards A forward contract is a customized contract
between two entities, where settlement takes place on a
specif...
Forward Contracts
 An agreement to buy/ sell an asset on a specified





date for a specified price
A bilateral cont...
Meaning of Futures
Example:- Forwards
 Farmer growing any commodity
 Uncertainty about price- Supply and demand
function...
Definition of Futures
 It is an agreement between the parties to buy/

sell an asset at a certain price in future
 A fut...
Difference Between Forwards and Futures
Futures Market
Futures Exchange
Standard
Standard

Forwards Market
OTC/ Not Fixed
...
Margins
 Buyers/ sellers are required to deposit a margin on the





contract
Typically 5-10% of the contract value,...
S&P CNXType : FUTIDX
Nifty Futures
 Instrument

 Underlying : NIFTY
 Trading cycle: 3-month trading cycle - the near mo...
Permitted Lot Sizes of Contracts
Underlying

Symbol

Market Lot

S&P CNX Nifty

NIFTY

50

CNX IT

CNXIT

100

BANK Nifty
...
Clearing House
 Each contract between buyer-seller is substituted by

2 contracts such that the clearing house become
buy...
Importance of Clearing House
 Entirely different but, works closely with exchange

for its smooth functioning and as ‘de ...
Important Functions of Clearing House
 Ensuring adherence to system and procedures





for smooth trading
Minimizing...
NSE Clearing House
 National Securities Clearing Corporation Ltd.

(NSCCL)

 Clearing Members
 Clearing Banks
 Clearin...
Arbitraging
 It is simultaneous purchase and sale of similar assets

in different markets to take advantage of price
disc...
Continue……
 Arbitrage
Arbitragers work at making profits by taking
advantage of discrepancy between prices of the same
pr...
Types of Futures
 An index
 Foreign Currency
 An Interest-earning asset
 A physical commodity
 Futures on individual ...
Hedging with Currency Futures
 An US exporter is exporting to Germany
 On 01 May exported. Got confirmation that he

wou...
Illustration
01 July: spot rate $/DM is 0.4407
1 July spot cash flow is $275,437.5
Sell 1 July DM 6,25,000 @ $/DM 0.4407
0...
Commodity Futures
 Types of Commodity Futures:

- Agricultural Commodities
- Metallurgical Commodities

npcinfra@vsnl.net
Types of Derivatives

OPTION

npcinfra@vsnl.net
Option

 Options are of two types:

– Calls & Puts

Calls give the buyer the right but not the

obligation to buy a give...
Buyer of Call
Premium – Rs. 40
Ex. Price/St. Price – Rs. 400

Spot Price Exercise
option

Pay-Off

Premium

P/(L)

Up to...
Seller of Call
Spot
Price

Exercise
Option

Pay-Off

Premium P/(L)

Up to Rs. No
399

-

40

40

Rs. 400

Yes/No

-

40

4...
Buyer of Put
Premium – Rs. 24
Ex. Price – Rs. 240
Spot
Price

Exercise
Option

Pay-Off

Premium P/(L)

240 & UP No

-

(24...
Seller of Put
Spot
Price

Exercise
Price

Pay-Off

Premium P/(L)

240 &
Upward

No

-

24

24

Rs. 216

Yes

(24)

24

-

...
npcinfra@vsnl.net
Hedging a long position in Stock
Buy stock in the spot mkt
Risk: price decline
Hedge the above risk by buying put

An i...
Types of Derivatives
Swaps
– Interest Rate Swaps – Currency Swaps
Swaptions are options to buy or sell a swap

that wil...
Types of Derivatives

 Warrants. Longer -dated options are called warrants

and are generally traded over-the-counter (OT...
Exchange Traded Derivatives Market
Individuals trade standardized contracts that

have been defined by the exchange. (Fir...
Derivatives Market-NSE
Three Contracts are available for trading with

1,2,3 month expiry. A new contract is
introduced o...
Economic Functions of Derivative Market
Derivatives help in discovery of future as well

as current prices.
The derivati...
Uses of Derivatives
 Hedging
Done by parties who seek to offset their existing risks
by entering into a derivatives trans...
Growth Driving Factors

Increased volatility in asset prices in Financial Markets
Increased integration between Internat...
Growth in Derivative Trading: NSE
Average Daily Turnover (Rs. cr.)
40000
35000
30000
25000
20000
15000
10000
5000
20
00
-0...
Are Derivatives Dangerous?
-

"We view them as time bombs both for the parties that deal
in them and the economic system ....
Continue………

Derivatives contribute to the 'completeness' of

the global markets, and without them, loopholes
within the ...
STRUCTURED
PRODUCTS

npcinfra@vsnl.net
Structured investments arose from the needs of

companies which want to issue debt more
cheaply.

Combinations of deriva...
Benefits of Structured Products
Principal Protection
Tax-efficient access to fully taxable investments
Enhanced returns...
npcinfra@vsnl.net
State Highways of MP :
From the Government’s perspective
Projects with government subsidy

npcinfra@vsnl.net
• Conditions of roads in MP has substantially
deteriorated over last few years.
• The bad conditions of roads led to lower...
Bad roads

Projects not viable
on BOT basis

Reduced Traffic

npcinfra@vsnl.net
• To make an impact, 14 roads of 2000 kms of
length were taken up for reconstruction /
widening
• These were the highest t...
• The GoMP decided to raise Rs. 500 crores
through Government guaranteed bonds for
road reconstruction projects. The repay...
• The initial idea was to reconstruct all these
roads by the MPPWD only. However this
approach had following limitations:
...
- As the road condition had deteriorated
substantially, the capital expenditure could
not be reduced without compromising ...
• In the above scenario the following options
were considered:
- To reconstruct only seven roads of 1000
kms that can be c...
• As all the above options were not found very
suitable the following option was developed
- To take up all roads on BOT b...
• After a lot of deliberation the option of BOT
with MPPWD subsidy was chosen. It was
estimated that though subsidy would ...
• Project cost on an average of Rs. 50 lacs per km.
• Total road length 1700 kms
• Concession Period : 15 years
• Roughnes...
• GoMP adopted uniform toll rates for the
state.The rates are:
Category
Car / Jeep
LCV/ Mini Bus
Bus
Truck
Multi axle

Rat...
• Toll booths at locations to cover homogeneous
sections
• For part/full travel on homogeneous sections,
the toll for that...
• Seven roads of 983 kms of length already awarded
on BOT basis
• Total Project Cost Rs. 522 crores
• Total subsidy asked ...
• This is for the first time in India that a state
has awarded around 1000 kms of important
state highways on BOT basis. T...
THANK YOU
Nayan Parikh
Nayan Parikh & Consultants,
303-B, Shapath- III, Nr. GNFC Info. Tower
Ahmedabad.
Ph- +91-79-2684 00...
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Presentation on Derivatives by Mr. Nayan Parikh to L&t baroda

  1. 1. Introduction to Derivatives L&T Vadodara Presented By, Nayan Parikh CEO, Nayan Parikh & Consultants Ahmedabad. 21st April, 2010 E mail: npcinfra@vsnl.net Website: nayanparikh.com
  2. 2. Derivatives npcinfra@vsnl.net
  3. 3. Origin of Derivatives Over 2000 years ago, contracts for delivery in the future was commonly used with Greek olive farmers In the 1600s, Tulip derivatives were used by the Dutch and it was more or less only as Louis Bachelier in 1900 formally introduced futures pricing when people began to take derivatives at more than just face value. More systematic derivative products initially emerged as hedging devices against fluctuations in commodity prices. Commodity linked derivatives remained the sole form of such product for almost 3 centuries. Emergence of Financial Derivatives in the post-1970 period. These products are extremely popular and account for 2/3 of the total derivatives transactions.
  4. 4. What are derivatives? Derivatives really on a fundamental level are: – Merely pieces of paper or – In modern days, electronic contracts To give you a right or an obligation, or a combination of the two to receive or give something in the future npcinfra@vsnl.net
  5. 5. Characteristics of OTC OTC Derivatives Derivatives market: – The management of counter-party (credit) risk is located within individual institutions. No formal limit on individual positions, leverage, or margining. – No formal rules of risk and burden sharing – No formal rules for ensuring market stability and integrity – Lack of regulator, although they are affected indirectly by national legal systems, banking supervision and market surveillance. npcinfra@vsnl.net
  6. 6. Derivative is a product whose value is derived from the value of the underlying asset. Underlying asset can be equity, forex, commodity, or any other asset say an agreement with your neighbour for 2 bags of sugar next week. npcinfra@vsnl.net
  7. 7. Government Rule Security Contract (Regulation) Act,1956 [SC(R)A] defines derivative to include A security derived from a debt instrument, share, loan (secured/unsecured), risk instrument or contract for differences or any other form of security A contract which derives its value from prices, or index of prices, of underlying securities Derivatives thus are securities under the SC(R)A and hence the trading of derivatives is governed by the regulatory framework under SC(R)A
  8. 8. Types of Derivatives Future Option npcinfra@vsnl.net
  9. 9. Future Forwards A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at today’s pre-agreed price Futures A future contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures are special types of forward contracts in the sense that futures are standardized exchange-traded contracts. npcinfra@vsnl.net
  10. 10. Forward Contracts  An agreement to buy/ sell an asset on a specified     date for a specified price A bilateral contract with counter-party risk exposure Each contract is custom designed Contract price is generally not available publicly Reversing the contract needs mutual agreement npcinfra@vsnl.net
  11. 11. Meaning of Futures Example:- Forwards  Farmer growing any commodity  Uncertainty about price- Supply and demand function  Merchant requires commodity  Oversupply- he/she is having negotiation power  Years/time of scarcity- exposed to price risk Example:- Futures  Trade on MCX/ NCDEX/ NMCE npcinfra@vsnl.net
  12. 12. Definition of Futures  It is an agreement between the parties to buy/ sell an asset at a certain price in future  A futures contract is a forwards contract which is traded on an exchange  Unlike forwards, they are standardized as in terms of: quantity, quality, and liquidity  Generally contracts are offset by an equal and opposite transaction npcinfra@vsnl.net
  13. 13. Difference Between Forwards and Futures Futures Market Futures Exchange Standard Standard Forwards Market OTC/ Not Fixed Depends Depends Counterparty Market Place Clearing House Central Exchange with wide network Bank or client Over the Phone with worldwide network Valuation Variation Margins Regulations Credit Risk Settlement Liquidation Transaction Cost Marked-to-Market Daily Regulated by Exchange None Through Clearing house Offsetting the positions Commission, charges, etc. No unique method None Self-regulated Counterparty Depends Actual delivery Direct costs are low Location Size of Contract Maturity/Expiry/ Payment Date
  14. 14. Margins  Buyers/ sellers are required to deposit a margin on the     contract Typically 5-10% of the contract value, determined by the exchange & the clearing house based on expected volatility Gains/ losses are netted against the initial margin: marking-to-market In case the margin becomes too low, investors is required to replenish with maintenance margin (75% of initial margin) If balance falls below the maintenance margin, investor receives a margin call and is required to deposit additional funds called variation margin npcinfra@vsnl.net
  15. 15. S&P CNXType : FUTIDX Nifty Futures  Instrument  Underlying : NIFTY  Trading cycle: 3-month trading cycle - the near month (one), the next month (two)& far month (three).  A new contract is introduced on the trading day following the expiry of the near month contract. The new contract will be introduced for a three month duration  Expiry day: on the last Thursday of the expiry month  Contract size: may not be less than Rs. 2 lakhs at the time of introduction. The permitted lot size for futures contracts & options contracts shall be the same for a given underlying or such lot size as may be stipulated by the Exchange from time to time. npcinfra@vsnl.net
  16. 16. Permitted Lot Sizes of Contracts Underlying Symbol Market Lot S&P CNX Nifty NIFTY 50 CNX IT CNXIT 100 BANK Nifty BANKNIFTY 50 Derivatives on Individual Securities ABB Ltd. ABB 250 Associated Cement Co. Ltd. ACC 250 Allahabad Bank ALBK 2000 Alok Industries Ltd. ALOKTEXT 3350 Andhra Bank ANDHRABANK 2000 npcinfra@vsnl.net
  17. 17. Clearing House  Each contract between buyer-seller is substituted by 2 contracts such that the clearing house become buyer to every seller and seller to every buyer  BUYER – Clearing House – SELLER  This removes counterparty risk npcinfra@vsnl.net
  18. 18. Importance of Clearing House  Entirely different but, works closely with exchange for its smooth functioning and as ‘de facto’ guarantor for all transactions  Increases confidence of the traders, volume and liquidity  Maintenance of delivery schedules, delivery of underlying assets, delivery points, etc. npcinfra@vsnl.net
  19. 19. Important Functions of Clearing House  Ensuring adherence to system and procedures     for smooth trading Minimizing credit risk by being a counterparty to all traders. Accounting for all the gains/losses on daily basis. Monitoring the speculation margins. Ensuring delivery of payment for the assets on the maturity date for all outstanding contracts. npcinfra@vsnl.net
  20. 20. NSE Clearing House  National Securities Clearing Corporation Ltd. (NSCCL)  Clearing Members  Clearing Banks  Clearing & settlement process has three main activities  Clearing  Settlement  Risk management npcinfra@vsnl.net
  21. 21. Arbitraging  It is simultaneous purchase and sale of similar assets in different markets to take advantage of price discrepancy.  Transaction cost reduces the profit of the arbitrageur to the minimum. npcinfra@vsnl.net
  22. 22. Continue……  Arbitrage Arbitragers work at making profits by taking advantage of discrepancy between prices of the same product across different markets.  Practitioners working within risk finance or quantitative finance often develop models to price various assets being traded across the markets  Upon finding price discrepancies, one can make use of a specific combination of derivatives in order to make a risk less profit.  npcinfra@vsnl.net
  23. 23. Types of Futures  An index  Foreign Currency  An Interest-earning asset  A physical commodity  Futures on individual stock npcinfra@vsnl.net
  24. 24. Hedging with Currency Futures  An US exporter is exporting to Germany  On 01 May exported. Got confirmation that he would get DM 625,000 on 01 July  Risk: If DM depreciates there will be a loss  Hedge with selling DM futures npcinfra@vsnl.net
  25. 25. Illustration 01 July: spot rate $/DM is 0.4407 1 July spot cash flow is $275,437.5 Sell 1 July DM 6,25,000 @ $/DM 0.4407 01, July: Dollar depreciates and spot exchange rate is 0.4508  $ value of DM is (625,000*0.4508) = 281,750  Gain on the spot mkt is $281,750 – $275,437.5 = $6312.5     npcinfra@vsnl.net
  26. 26. Commodity Futures  Types of Commodity Futures: - Agricultural Commodities - Metallurgical Commodities npcinfra@vsnl.net
  27. 27. Types of Derivatives OPTION npcinfra@vsnl.net
  28. 28. Option  Options are of two types: – Calls & Puts Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right but not the obligation to sell a given quantity of the underlying asset, at a given price on or before a given future date. npcinfra@vsnl.net
  29. 29. Buyer of Call Premium – Rs. 40 Ex. Price/St. Price – Rs. 400 Spot Price Exercise option Pay-Off Premium P/(L) Up to Rs. 399 No - (40) (40) Rs. 400 Yes/No - (40) (40) Rs. 440 Yes 40 (40) - Rs. 500 Yes 100 (40) 60
  30. 30. Seller of Call Spot Price Exercise Option Pay-Off Premium P/(L) Up to Rs. No 399 - 40 40 Rs. 400 Yes/No - 40 40 Rs. 440 Yes (40) 40 - Rs. 500 Yes (100) 40 (60) npcinfra@vsnl.net
  31. 31. Buyer of Put Premium – Rs. 24 Ex. Price – Rs. 240 Spot Price Exercise Option Pay-Off Premium P/(L) 240 & UP No - (24) (24) Rs. 216 Yes 24 (24) - Rs. 0 Yes 240 (24) 216
  32. 32. Seller of Put Spot Price Exercise Price Pay-Off Premium P/(L) 240 & Upward No - 24 24 Rs. 216 Yes (24) 24 - Rs. 0 Yes (240) 24 (216) npcinfra@vsnl.net
  33. 33. npcinfra@vsnl.net
  34. 34. Hedging a long position in Stock Buy stock in the spot mkt Risk: price decline Hedge the above risk by buying put An investor buys a share for Rs. 100. Buys a put for Rs. 16 with an exercise price of Rs. 110. Profit/ Loss… npcinfra@vsnl.net
  35. 35. Types of Derivatives Swaps – Interest Rate Swaps – Currency Swaps Swaptions are options to buy or sell a swap that will become operative at the expiry of the options. Swaption is nothing but an option on a forward swap. Receiver Swaption is an option to receive fixed and pay floating. Payer Swaption is an option to pay fixed and receive floating. npcinfra@vsnl.net
  36. 36. Types of Derivatives  Warrants. Longer -dated options are called warrants and are generally traded over-the-counter (OTC)  LEAPS Long-Term Equity Anticipation Securities. These are options having a maturity of up to three years.  Baskets Basket options are options on portfolios of underlying assets. The underlying asset is usually a moving average of a basket of assets. Equity index options are a form of basket options. Swaps are private agreements between two parties to exchange cash flows in the future – Agreement on formula to be used for exchange of cash-flows is determined in advance npcinfra@vsnl.net
  37. 37. Exchange Traded Derivatives Market Individuals trade standardized contracts that have been defined by the exchange. (First Futures contract were traded in 1865 in CBOT) NSE’s derivatives market Commencement of derivative trading with S & P CNX Nifty Index futures on 12/06/2000. Trading in index options commenced on 04/06/2001. Single Stock trading in options started on 02/07/2001 Single Stock trading in futures started on 09/11/2001 npcinfra@vsnl.net
  38. 38. Derivatives Market-NSE Three Contracts are available for trading with 1,2,3 month expiry. A new contract is introduced on the next trading day following the expiry of the near month contract. Participants and Functions  Self Clearing Member (SCM) Trading Member Clearing Member (TM-CM) Professional clearing Member (PCM) Trading Mechanism Turnover npcinfra@vsnl.net
  39. 39. Economic Functions of Derivative Market Derivatives help in discovery of future as well as current prices. The derivatives market helps to transfer risks from those who have them but may not like them in comparison to those who have an appetite for them. Speculative trades shift to a more controlled environment of derivatives market. Act as a catalyst for new entrepreneurial activity. npcinfra@vsnl.net
  40. 40. Uses of Derivatives  Hedging Done by parties who seek to offset their existing risks by entering into a derivatives transaction.  Existing risks could be an investment portfolio, price changes in oil for a petroleum mining company or perhaps investments in a foreign country.   Speculating  Speculation is more commonly used by hedge funds or traders who aim to generate profits with only a marginal investment npcinfra@vsnl.net
  41. 41. Growth Driving Factors Increased volatility in asset prices in Financial Markets Increased integration between International Markets Exponential improvement in communication at exceptionally reduced costs Development of more sophisticated Risk Management tools, providing economic agents a wider choice of Risk Management strategies Innovations in the derivatives markets, which optimally combine the risks and returns over a large number of financial assets leading to higher returns, reduced risk as well as transactions cost as compared to individual financial assets
  42. 42. Growth in Derivative Trading: NSE Average Daily Turnover (Rs. cr.) 40000 35000 30000 25000 20000 15000 10000 5000 20 00 -0 20 1 01 -0 20 2 02 -0 20 3 03 -0 20 4 04 -0 5 Ap r.0 5 M ay .0 5 Ju n. 05 Ju l.0 Au 5 g. 05 Se p. 05 O ct .0 5 N ov .0 D 5 ec .0 5 Ja n. 06 Fe b. 06 M ar .0 6 0 npcinfra@vsnl.net
  43. 43. Are Derivatives Dangerous? - "We view them as time bombs both for the parties that deal in them and the economic system .. In our view ... derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.“ - Warren Buffett, the Chairman of Berkshire Hathaway and his critique of the derivatives market. -Are derivatives dangerous? -That's almost like asking if water is dangerous. -Derivatives can be dangerous if used incorrectly - as several large companies and individuals have found out in recent history. npcinfra@vsnl.net
  44. 44. Continue……… Derivatives contribute to the 'completeness' of the global markets, and without them, loopholes within the financial industry would exist. Even through numerous financial disasters ala Barings, LTCM, Enron and others related to the mismanagement of derivatives It is key to consider that it has not been the use of derivatives as a tool which has led to the downfall of these companies - but rather, the misuse and compromise of such instruments. npcinfra@vsnl.net
  45. 45. STRUCTURED PRODUCTS npcinfra@vsnl.net
  46. 46. Structured investments arose from the needs of companies which want to issue debt more cheaply. Combinations of derivatives and financial instruments create structures targeted investments tied to their specific risk profiles, returns requirements and market expectations. In India, equity related structured products seem to be in violation of the Securities Contract Regulation Act (SCRA). SCRA prohibits the issue and trade of equity derivative except those which trade on nationally recognized stock and derivatives exchange. npcinfra@vsnl.net
  47. 47. Benefits of Structured Products Principal Protection Tax-efficient access to fully taxable investments Enhanced returns within an investment Reduced volatility (or risk) within an investment npcinfra@vsnl.net
  48. 48. npcinfra@vsnl.net
  49. 49. State Highways of MP : From the Government’s perspective Projects with government subsidy npcinfra@vsnl.net
  50. 50. • Conditions of roads in MP has substantially deteriorated over last few years. • The bad conditions of roads led to lower traffic npcinfra@vsnl.net
  51. 51. Bad roads Projects not viable on BOT basis Reduced Traffic npcinfra@vsnl.net
  52. 52. • To make an impact, 14 roads of 2000 kms of length were taken up for reconstruction / widening • These were the highest traffic density state highways of MP • The DPRs of these roads were prepared and the total capital expenditure for the projects was around Rs. 1000 crores npcinfra@vsnl.net
  53. 53. • The GoMP decided to raise Rs. 500 crores through Government guaranteed bonds for road reconstruction projects. The repayment of the bonds would happen through the deduction from budgetary allocation to MPPWD in five years. npcinfra@vsnl.net
  54. 54. • The initial idea was to reconstruct all these roads by the MPPWD only. However this approach had following limitations: - Only 1000 kms of seven roads could be reconstructed - It was not possible to raise more than Rs. 500 crores as MPPWD budgetary allocation did not have more debt servicing capacity npcinfra@vsnl.net
  55. 55. - As the road condition had deteriorated substantially, the capital expenditure could not be reduced without compromising on the quality of reconstructed roads - After reconstruction the regular maintenance of the roads would again be with MPPWD and had the risk of poor maintenance in years to come npcinfra@vsnl.net
  56. 56. • In the above scenario the following options were considered: - To reconstruct only seven roads of 1000 kms that can be completed in Rs. 500 crores - To reconstruct some roads completely and on the remaining roads only very bad patches to be repaired - To maintain these roads from the toll to be collected by MPPWD on completed roads npcinfra@vsnl.net
  57. 57. • As all the above options were not found very suitable the following option was developed - To take up all roads on BOT basis with maintenance on BOT developer for the concession period with a provision of capital subsidy from MPPWD to make the projects viable - Rs.500 crores were to be utilized by MPPWD to provide capital subsidy to BOT developers npcinfra@vsnl.net
  58. 58. • After a lot of deliberation the option of BOT with MPPWD subsidy was chosen. It was estimated that though subsidy would differ from road to road, in aggregate for all roads 50-60% of project costs will come from MPPWD as subsidy and the remaining would come from BOT developers. The BOT developers would then maintain the roads for the concession period as per the decided standards npcinfra@vsnl.net
  59. 59. • Project cost on an average of Rs. 50 lacs per km. • Total road length 1700 kms • Concession Period : 15 years • Roughness index during concession Period : 3500mm/km • Subsidy : ______ bid criterion • IRR : 20 % • Bad patches to be repaired in four months of signing concession agreement to create positive atmosphere among road users
  60. 60. • GoMP adopted uniform toll rates for the state.The rates are: Category Car / Jeep LCV/ Mini Bus Bus Truck Multi axle Rates/km/trip Rs. 0.25 Rs. 0.60 Rs. 1.25 Rs. 1.50 Rs. 3.00 Toll rates to increase @ 7 % per year
  61. 61. • Toll booths at locations to cover homogeneous sections • For part/full travel on homogeneous sections, the toll for that section would be charged. • Local traffic/traffic during important social religious event exempt • Toll can start on a completed homogeneous section npcinfra@vsnl.net
  62. 62. • Seven roads of 983 kms of length already awarded on BOT basis • Total Project Cost Rs. 522 crores • Total subsidy asked Rs. 245 crores • Concession Agreements signed • Work on sites commenced • Financial closure expected in coming two months. • Roads likely to be completed in 15-18 months by the last quarter of year 2002
  63. 63. • This is for the first time in India that a state has awarded around 1000 kms of important state highways on BOT basis. This was possible by structuring the commercially unviable projects on viable format with the help of government subsidy • Looking to this success many Governments are likely to follow the public-private partnership for reconstruction and maintenance of important state highways
  64. 64. THANK YOU Nayan Parikh Nayan Parikh & Consultants, 303-B, Shapath- III, Nr. GNFC Info. Tower Ahmedabad. Ph- +91-79-2684 0022 Fax- +91-79-2685 1183 Email – npcinfra@vsnl.net Website-www.nayanparikh.com npcinfra@vsnl.net

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