Build–operate–transfer (BOT) is a form of project financing, wherein a
private entity receives a concession from the private or public sector to
finance, design, construct, and operate a facility stated in the concession
contract. This enables the project proponent to recover its investment ,
operating and maintenance expenses in the project.
Due to the long-term nature of the arrangement, the fees are usually
raised during the concession period. The rate of increase is oftentied to a
combination of internal and external variables, allowing the proponent to
reach a satisfactory internal rate of return for its investment.
BOT-BUILD OPERATE TRANSFER
• BOT offers attractive business benefits over the traditional offshore
subsidiary path, including:
• Rapid scaling of operations
• Wider service offerings, quickly filling business model gaps
• Lower infrastructure set-up costs
• Reduced time to operations through utilization of knowledgeable
• party management resources responsible for:
• Real Estate
• Government rules and regulations
• Cultural transition
• IT infrastructure procurement
• A BOT Project (build operate transfer project) is typically used to develop a
discrete asset rather than a whole network and is generally entirely new
or greenfield in nature (although refurbishment may be involved). In a BOT
Project the project company or operator generally obtains its revenues
through a fee charged to the utility/ government rather than tariffs
charged to consumers. A number of projects are called concessions, such
as toll road projects, which are new build and have a number of
similarities to BOTs.
In general, a project is financially viable for the private entity if the
revenues generated by the project cover its cost and provide sufficient
return on investment. On the other hand, the viability of the project for
the host government depends on its efficiency in comparison with the
economics of financing the project with public funds. Even if the host
government could borrow money on better conditions compared to that
of the public sector, other factors could offset this particular advantage.
For example, the expertise and efficiency that the private entity is
expected to bring as well as the risk transfer. Therefore the private entity
bears a substantial part of the risk
• POLITICAL RISK
especially in the developing countries because of the possibility of dramatic
overnight political change.
• TECHNICAL RISK
construction difficulties, for example unforeseen soil conditions, breakdown
• Financing risk
foreign exchange rate risk and interest rate fluctuation, market risk (change in
the price of raw materials), income risk (over-optimistic cash-flow
forecasts), cost overrun risk
• The National Highways Authority of India (NHAI), under the Ministry of Road Transport &
Highways, was entrusted the responsibility for implementation of the Golden Quadrilatera
project (Highway Project connecting the four metro cities of New Delhi, Mumbai, Chennai and
• As a part of this project, it proposed the conversion of a very busy section of NH-8 connecting
Delhi to Gurgaon into a 6/8 lane access controlled divided carriageway.
• The project was awarded to the consortium of Jaypee Industries and DS Construction Ltd to
design, finance, construct, operate and maintain the facility for a concession period of 20 years.
• The Concessionaire is allowed to collect toll from the users of the project facility during the
operation period to recover his investment and the expressway is required to be transferred back
to the Government at the end of the concession period.
• This was the first BOT project in India to have been awarded on negative grant basis where in
the concessionaire offered to pay an upfront fee to NHAI in return of the concession as agains
a capital grant from the Government.
• The expressway was commissioned in January 2008 after much delay primarily owing to issues
in Land acquisition and changes in the scope of work.
1.1 Project Description
1.2 PPP structure of the Project
• The project was awarded to the consortium of Jaiprakash Industries Ltd and DS Construction
Ltd on Built-Operate-Transfer (BOT) basis for a period of 20 years.
• The selected concessionaire offered to pay 61.06 crore upfront as negative grant to the NHAI.
• The Concessionaire was required to design, construct, operate and maintain the expressway in
accordance with the specifications as approved by NHAI.
• A Special Purpose Vehicle called the Delhi Gurgaon Super Connectivity Ltd (formerly Jaypee
DSC Ventures Ltd.), was created for execution of the project.
• The SPV entered into a fixed time-fixed price Engineering, Procurement & Construction (EPC)
contract with DS Constructions Limited for this project.
1.3 Current Status
• The expressway has been operational for 5 years now after it was opened to traffic in
• It carries more than 180,000 PCUs per day, which is much higher than the traffic
for the project by 13,000 to 15,000 PCUs per day.
• The substantially higher number of vehicles using the facility has often led to a
queuing up of vehicles at the toll plazas.
• The expressway consists of 9 flyovers, 4 underpasses and 2 foot-over bridges and 3
• Smart tags have been introduced to enable cashless automatic payment.
1.4 Financing Information
The funding for the project at the time of financial closure (9 May 2003) is provided
• Particulars Amount
1. Debt 383.3 crore
2. Equity 164.2 crore
3. TOTAL 547.5 crore
1.5 Process Analysis
• The plan for an expressway connecting Gurgaon and Delhi was initiated in the late 1990s and
a detailed project report was prepared for the same.
• Golden Quadrilateral project, as traffic intensity on these corridors had increased manifold
which hampered safe and efficient movement of vehicles.
• Accordingly, NHAI decided to upgrade the section of NH-8 connecting Delhi and Gurgaon
into 8/6 lane access controlled expressway as it was the busiest part of the highway.
• It was estimated that the expressway would reduce the travel time between the Delhi and
Gurgaon from about 65 minutes to around 20 minutes.
• NHAI was finding itself constrained to fund the estimated Rs 555 Crore for the expressway.
• Malaysia’s Construction Industry Development Board (CIDB) was initially proposed to take
up this project under the memorandum of understanding (MoU) route as a part of a
government to government initiative.
• However, this proposal sought a grant of Rs120 crore from NHAI and was thus rejected.
• The Government of India, at the time, was keen to promote public private partnership (PPP) in
viable expressway projects to attract funding and capitalize on private sector efficiency.
• It was therefore decided to undertake the project on BOT (Build-operate-Transfer) basis.
• NHAI used the Detailed Project Report prepared in 1998 for the traffic projections for this
• The MoRT&H invited pre-qualification bids in 2001.
• The project was initially envisaged to require a capital grant to be paid by NHAI to the
successful bidder towards the cost of construction for enhancing the viability of the highway
• However, considering the robust traffic projections,bids were received with negative grants.
• In April 2002, the consortium of Jaiprakash Industries and DS Constructions was declared
the successful bidder.
• RBM Malaysia, which was the L2 bidder, had quoted Rs 55 crore as the negative grant.
• Other bidders were Gamuda Malaysia, IJM Malaysia and Larsen & Toubro (L&T).
• The erstwhile Jaypee DSC Ventures Ltd. (now known as Delhi Gurgaon Super Connectivity
Ltd.),the SPV incorporated by the Concessionaire for the project, achieved financial closure
in May 2003.
• The construction of the expressway commenced in January 2003.
• In June 2004, Jaiprakash Industries, despite being the lead promoter, sold its stake to DS
Constructions and retained only 1.2%.
• The project development, however, soon ran into issues over approvals, land acquisition and
additions to the scope of work which was largely due to the physical setting of the project
The project was commissioned on 25 January, 2008. The expressway is fully operational and is
handling a significant traffic volume of more than 180,000 PCUs per day, growing at 9% year-on-
The concession period is for 20 years and the projected end date is 11 January 2023 when the
expressway will be handed over to the government.
1.6 Post facto VfM analysis
One of the limitations to this analysis is the lack of access to the feasibility report for the project
with which to draw quantitative comparisons. Secondly, the expressway has been in operation
for only two years, thus limiting the possible analysis of efficiencies during the operations period.
Therefore, an assessment of potential benefits achieved by the Concessionaire based on publicly
available information has been attempted.
Particulars Earlier Now
• Average Travel Speed 25.65Km/Hr 66 Km/Hr
• Average Travel Time
from Delhi to Gurgaon 65 Minutes 25 minutes
• (in terms of lanes) 6 Lane – 5 km- 8 Lane - 22.3 Km
4 lane -22.7km 6 Lane - 5.4 km
• Intersections 20 Intersections 10 Grade Separated
VHTR was an initiative commissioned as a part of the Vision 2010 –
an infrastructure master plan developed by the Government of Gujarat
The project involved widening and strengthening of 32 km of the
existing two-lane State Highway (SH 87) connecting Vadodara to the
industrial town of Halol into a four-lane tolled expressway.
The underlying principle of the vision was to develop infrastructure
projects in Gujarat by attracting private sector participation.
The Roads and Buildings Department (R&B), GoG and Infrastructure
Leasing and Financial Services (IL&FS) signed a Memorandum of
Agreement (MoA) to this effect on 31st October 1995.
A special purpose vehicle (SPV) was constituted for this purpose named
the Vadodara Halol Toll Road Company Limited (VHTRL)
The construction of VHTR commenced on 1st March 1999 and
completed on 15th September 2000.
The toll operations commenced on 24th October 2000. VHTRL
manages, operates and maintains the road for 30 years starting from 2000.
It entered into a concession agreement with GoG to design, finance,
build, operate, maintain, and transfer the facility after recovery of a
included the design and completion of the road, pavement, cross
drainage system, bridges, toll facilities, medians, separators, road furniture,
and horticultural aspects.
Management, operation and maintenance
toll collection, operating the toll plaza, traffic regulation and
maintenance of the facility , special maintenance activities such as
eliminating potholes in the pavements,
The concession is for a period of 30 years
In case VHTRL is unable to recover the total cost of the project, including a
20% return, within 30 years from the date of operation, the concession period
shall, at the request of VHTRL, without qualification be extended by GoG for a
period of two years at a time until the total project cost and returns have been
recovered by VHTRL
The land for the project is leased to VHTRL by GoG through a lease agreement
between the parties.
Project operational since 2000
But the traffic on road not I line with the expected traffic
the financial condition of VHTRL started deteriorating
was unable to service its debt obligations.
The cost of the project was 161 crores.
construction cost accounted 119 crores.
Equity of ` 67.9 crores was raised from GoG
IL&FS also raised debt of ` 93.2 crores through various Indian
financial institutions including Industrial Development Bank of India,
Post facto VfM analysis:
first projects being executed through a public private partnership
framework which not only exposed the state government machinery to a
new development paradigm but also paved way for a large number of
future projects being executed through the PPP framework.
created a platform for private developers to participate in infrastructure
building in the country.
It was completed within the 18months as was stipulated in the
The original estimated cost of the project was approximately 175
The actual landed cost of the project was 160 crores.
Hence both time and money effective and efficient
Key Learning and Observations
Pre-development market assessment is critical :
For instance, the traffic estimations for
the project were based on the assumptions that the industrial
incentives available for the area would continue for long-term.
Eventually, with time the incentives were withdrawn and the traffic
was almost 50% lower than the projected traffic. Such unaccounted
risk factors can jeopardize the project and lead to significant losses.
Competitive bidding can ensure a “better deal”
VHTR was developed through a MoA between the GoG and IL&FS and
did not create adequate competitive tension since there were no
precedents that were available to develop such a structure.
Need to create a balanced risk return profile:
The risk return profile of the project was skewed in favour of the
private developer. For instance, the concession agreement
ensured that the private developer earned toll revenues till he was able
to achieve a return of 20% on the overall investment.
Environmentally and Socially responsive development
was the first project that introduced Environmental and Social Safeguards
measures as part of the contractual obligation of the developer. This created a
benchmark and had immense demonstration value since it highlighted that
infrastructure can be developed in an environmentally and socially responsible