TOLL ROAD PROJECTS IN INDIA The idea of “Toll based” highways was imported into India from experiences of others countries like Europe, Malaysia or North America. The model “Concession Agreement” was drafted by the Government to suit India needs. The toll categories of roads are those wherein there are sufficient traffic which can be tolled by the Concessionaire and recoup the investment made him and also make profit. In the event there are not enough tollable traffic to recoup the investment made, it will be offered on annuity basis or with VGP (Viability gap funding) by the government. The tolled based roads wherein the Government grants private developer specific rights to design, finance, construct operate and maintain the roads.
The developer called “Concessionaire” develops covers the investment costs and carry commercial risks At the end of the concessional period the road reverted back to government at no extra charges If the estimated revenue does not materialize during Concession period the Concessionaire may have to negotiate the concession period (as in other countries) which is yet to happen in India as we are just starting Concessionaire undertakes risks to constructs road which is generally divides normally into three parts:
Risk management in “Toll based” Concession Developmental risk : Land Acquisitions- the biggest risk faced by the Indian Financial Risk: Ability to raise the finance and make financial close as required by the Concession agreement. High interest rate during the currency of concession period (due to floating interest charged by lenders) – mitigation of this risk in extremely important). Construction risks: Poor performance of the contractor Different site condition High price escalation of all the inputs of construction
Operational risks: State support agreement Toll Level: the estimated toll level uncertainty during pre-bidding stages can lead to inaccuracies in revenue estimation The traffic volume projected in financial model may not materialize as it completely depends on economic growth projected during pre-bidding stage Any fall in traffic volume will automatically bring down the IRR value projected. Expert estimate that 10% drop in volume of traffic will result in reduction of 1-7% – 1.9% percent reduction in IRR. Toll fee: The price escalation of “toll/Fee” charged by the Concessionaire is based on all India WPI index. This is incorrect as in some states it may be very high. In my opinion there should be “Toll Regulator” on all India basis to regulate toll based on each state WPI or any other base model
TOLL ROAD PROJECT ON 30 YEAR BOT Salient features of the project Construction of a 30 km bypass on the Bangalore section of the National Highway NH 7 The concession agreement of 30 years is inclusive of implementation period of 2 ½ years. The proposed bypass takes off from km abc of NH 7 near Bannigatta village and ends at km def near Davanhalli village. The proposed project will attract large volume of interstate traffic between Tamilnadu, Andhra Pradesh and Kerala, as well as, all other northern States of India. Concession agreement signed with GoK on 01.04.2010
MANAGEMENT AND ORGANISATION A Special Purpose Vehicle (SPV), Priya Infrastructure Construction Limited (PICL) has been setup for construction and operation of the road project. PCIL’s Board can have minimum of 3 and maximum of 12 Directors. The company’s present Board comprises of the four directors with Mr. Ashwin as Managing Director. SHAREHOLDING PATTERN The proposed equity share capital of Rs.36.21 Crs would be held by Priya Industries (51%) and Gunawardhan Inc (49%)
Project Cost Related Assumptions Rs Crs Remarks Base EPC Cost 80 Quote from EPC Contractor Price Escalation 5.08 As per calculations Estimated EPC Cost 85.08 Contingency 5% 4.25 As % of Estimated EPC Cost Total EPC Cost 89.34 Preliminary Expenses 1% 0.45 As % of Total EPC Cost Pre-operative Expenses 16.67 Total Pre-op Expenses as detailed below Establishment Expenses 1% 0.89 As % of Total EPC Cost IE/IA Cost 1% 0.89 As % of Total EPC Cost R&R Cost 33.14 3.31 Based on EIA Report Legal Charges 1% 0.54 As % of Total Project Cost Financing Charges 2% 1.45 As % of Debt Mobilised Interest During Construction 9.58 As per calculations Debt Service Reserve- 3 months 2.17 As per calculations Total Project Cost 108.63
Collection Of Fee Toll Charges Bangalore bypass : (Full rates) Toll (Rs) Multi-axle vehicles / other heavy construction equipment 90 Trucks 60 Buses 60 LCVs 30 Car / Jeep / Van 20
Salient features of concession agreement The toll revision based on a formula linked to WPI. No cost escalation admissible Queue length should not exceed 5 vehicles during peak hours. Vehicles with VIP symbols, police, fire-fighting vehicles, ambulances and project vehicles of employers will be exempted from toll. Right to put up hoarding /advertisements given to the project company . If the construction is completed prior to the defined construction period, the company will have the right to collect toll for the balance period of construction as well as the initially decided operation period. Similarly, in case the construction is delayed the operation period gets reduced to that extent.
No other alternate facility to the bypass to be permitted during the concession period within a radius of 20 km. No Government guarantee for repayment of loans No advance or loans will be provided for the project by the Government The company shall indemnify the Government of India and GOK from third party claims during the concession period Force Majeure Events: The Force Majeure events would cover Non-Political Acts and Events Indirect Indian Political Event and GOI Political Event.
Traffic Related Assumptions Base Date 31st March 2010 for toll rates 2006 Unit PCU No. of Vehicles per day base growth rates Car/Jeep 1 2250 6.50% LCV/Van 1.5 750 5.75% Trucks 3 2200 6.25% Buses 3 1250 6.00% MAV 4.5 450 5.00% PCUs 15750 Traffic Growth Rates From Year ending 31st March 2011 2016 2021 2026 2031 2036 To Year ending 31st March 2015 2020 2025 2030 2035 2045 Car/Jeep 6.50% 5.85% 5.27% 4.74% 4.26% 3.84% LCV/Van 5.75% 5.18% 4.66% 4.19% 3.77% 3.40% Trucks 6.25% 5.63% 5.06% 4.56% 4.10% 3.69% Buses 6.00% 5.40% 4.86% 4.37% 3.94% 3.54% MAV 5.00% 4.50% 4.05% 3.65% 3.28% 2.95%
Key Dates & Time Schedules Date of Concession Agreement 01-04-10 Date of EPC Contract 01-10-10 Date of O&M Contract 01-10-10 Commencement Date (CD) as per EPC Contract 01-12-10 Completion Date as per Concession Agreement (SCOD) 2.50 Completion Date as projected (SCOD) 2.50 Commercial Operations Date (SCOD) 01-06-13 Concession Period 30 End of Concession Period 30-11-40 Days of Operation for toll revenues in a full year 350