Financing & Managing Infrastructure Development in India, Risk Mitigation in Model Concession Agreement & Financial Implications on different Shareholders
It provides with a brief of Delhi Metro with emphasis on profitability, history, operation mechanism, construction and expansion, funding and it's challenges.
Case study on airport express line of delhi metro. The case has been set as of 2006 when half the metro projects in Delhi were completed by DMRC & the possibility of a PPP was being explored for a 20km length of airport express line
Infrastructure whether financed through traditional methods or PPPs relies on funding sources to repay financing, whether debt, equity, or a combination. All infrastructure investments ultimately depend on either user fees, government tax revenues, or a combination of both. Transport has a great impact on economic growth and poverty alleviation.
Therefore, community and political support for greater investment of government tax revenues or the imposition of user fees is critical to expanding investment in public infrastructure. The challenge is for PPPs to demonstrate overall cost savings and efficiencies that outweigh the lower-cost financing advantage of traditional procurement.
Creation of Infrastructure has economics both of scale and scope (i.e., minimum size of facilities, inelastic adjustment of capacity to demand, long term project completion, etc..
What is BOT project what all are the criteria for the viability to get the project and case study of the project. and what all risk is been faced in this project
It provides with a brief of Delhi Metro with emphasis on profitability, history, operation mechanism, construction and expansion, funding and it's challenges.
Case study on airport express line of delhi metro. The case has been set as of 2006 when half the metro projects in Delhi were completed by DMRC & the possibility of a PPP was being explored for a 20km length of airport express line
Infrastructure whether financed through traditional methods or PPPs relies on funding sources to repay financing, whether debt, equity, or a combination. All infrastructure investments ultimately depend on either user fees, government tax revenues, or a combination of both. Transport has a great impact on economic growth and poverty alleviation.
Therefore, community and political support for greater investment of government tax revenues or the imposition of user fees is critical to expanding investment in public infrastructure. The challenge is for PPPs to demonstrate overall cost savings and efficiencies that outweigh the lower-cost financing advantage of traditional procurement.
Creation of Infrastructure has economics both of scale and scope (i.e., minimum size of facilities, inelastic adjustment of capacity to demand, long term project completion, etc..
What is BOT project what all are the criteria for the viability to get the project and case study of the project. and what all risk is been faced in this project
Transport sectors projects are very political entities and governments are still held responsible should there be revenue short fall or distressed situation. further modes of transport do compete with each other but in a limited manner, however, global threats nowadays require certain redundancy in transport network, this affects PPP structure!
Also experience suggests that negotiations between public authorities and prospective concessionaires are rather asymmetrical, and lead to asymmetric risk sharing. Concessionaires have extraordinary bargaining powers as they know no competition exists after the concession is signed.
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online
Mobilizing Private Sector Investment into GMS InfrastructurePratish Halady
My presentation to the GMS Economic Corridors Forum about the benefits of involving private sector in infrastructure, creating an environment for PPP and private investment, and ADB's approach to delivering PPP in the region.
Infrastructure is the back bone of economic development of any Nation. Road infrastructure plays key role for trade and commerce, connecting the production and consumption centers. Road and transportation infrastructure construction is highly capital intensive, wherein the government alone cannot meet its ends and initiated Public Private Partnership (PPP) for its execution right from planning and designing to its maintenance through various PPP models. Over the last few years many of the awarded roadprojects through PPP modelare stalled citing various reasons. This technical paper analyses the risk factors associated with PPP –toll operated road projects through case studies and suggested corrective measures like shadow tolling and hybrid models for restoration of PPP.
Annual Conference on Roads & Highways : Going ForwardInfraline Energy
Twelfth five year plan. The value of roadways and bridge infrastructure in India is expected to grow at a CAGR of 17.4% between 2012-17, to reach USD 10 Billion.
Indian road sector is looking forward to play a vital role in changing the connectivity landscape of the country by creating an extensive network of seamless, world class highways/roads highways which will provide linkages with minor ports, industrial towns and tourist centers.
The Road Development Plan Vision: 2021”prepared by the Ministry of Road Transport & Highways (MORTH) envisaged a modest target of development of 10,000 km length of Expressways in the Country by 2021, against a need of Expressway Network of 15,766 km by 2020. Indian Government is committed that now participation in the Indian road sector will allow Investors to do business in a stable economic environment bolstered by sound and consistent policies and processes as well as an improved governance that will reduce the time and cost of doing business. It has launched major initiatives along with the amendments in old policies to upgrade and strengthen the road sector. The current government aims that the investment in this sector should be cost-effective, responsive, safe and environmentally sustainable. However key issues faced by the sector which should be addressed are delay in project awards, flimsy financial funding, and rigidities in contractual arrangements, land acquisition,delay in dispute resolution and various departmental clearances issues. Challenges are many – overall economic downturn, lack of equity in the market, difficulty in arranging debt, highly-leveraged balance sheets for highway developers.Environmental concerns have been on the top concern for the road sector. The provision of efficient, flexible, safe and clean transport infrastructure can be regarded as a necessary precondition for economic development as it boosts productivity by facilitating the movement of people and goods.
There is an improvement in domestic macro factors which has put India on a relatively stronger footing, Further India needs to bulletproof itself from adverse effects of recent global volatility and also needs to seize the opportunities that have emerged, and are likely to emerge, due to the changing world economic order.This spells out the need to accelerate growth of the roads network in the near future, and thus address the specific challenges.
Infraline is organizing “Annual Conference on Roads & Highways: Going Forward” which aims to focus on the specific challenges which will accelerate growth of the roads network in the near future. Groupthink emerging out of a collective assembly of all stakeholders has frequently been a great way to find solutions to stiff challenges.
[Note: This is a partial preview. To download this presentation, visit:
https://www.oeconsulting.com.sg/training-presentations]
Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
Leading companies such as Nike, Toyota, and Siemens are prioritizing sustainable innovation in their business models, setting an example for others to follow. In this Sustainability training presentation, you will learn key concepts, principles, and practices of sustainability applicable across industries. This training aims to create awareness and educate employees, senior executives, consultants, and other key stakeholders, including investors, policymakers, and supply chain partners, on the importance and implementation of sustainability.
LEARNING OBJECTIVES
1. Develop a comprehensive understanding of the fundamental principles and concepts that form the foundation of sustainability within corporate environments.
2. Explore the sustainability implementation model, focusing on effective measures and reporting strategies to track and communicate sustainability efforts.
3. Identify and define best practices and critical success factors essential for achieving sustainability goals within organizations.
CONTENTS
1. Introduction and Key Concepts of Sustainability
2. Principles and Practices of Sustainability
3. Measures and Reporting in Sustainability
4. Sustainability Implementation & Best Practices
To download the complete presentation, visit: https://www.oeconsulting.com.sg/training-presentations
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1. Group 7
Soumyajit Sengupta 12P171
Aneesha Chandra 12P186
Akshay Balooni 12P004
Akshat Sardana 12P003
Financing & Managing Infrastructure Development
IS IT THE MODEL PROJECT FOR ALL STAKEHOLDERS?
PPP in Delhi Gurgaon Expressway
2. Background
Stakeholders
Public Institution: National Highway Authority of India (NHAI)
Private Institution: DS Constructions
Independent Consultants: RITES Corporation
Governments: Haryana State Government || Delhi State Government
Users: Patrons
Salient Features
Cost: INR 10 Billion
Length of Expressway: 27.7 kms
No of Flyovers & Overpasses: 11
Toll Lane: 32 Lane State of the Art Plaza (Asia’s Biggest, World’s 3rd Biggest)
CCTV Surveillance till IGI Airport & SOS Telephony every 1.5kms
Primary Issues
Traffic Congestion
Pedestrian Safety
3. Sector Profile: Roadways
Roads were declared as an industry, enabling greater
fund access
Provision of Capital Subsidy of up to 40%, to make
projects viable
100% Tax Exemption for 10 consecutive Years, in the first
20 Years
Government sponsored Land acquisition & Other Pre-
Con. Activities
FDI Limit of 100%
Easier ECB norms
High concession period of 30 Years
Private Party had the Right to Collect & Retain Toll
4. Why adopt a PPP Model?
Limitation of Government Resources & Capacity to meet Infrastructure requirements
Government Resources are not able to keep up with rising demand for social goods
Rapid Economic Growth, Growing Urban Population, Increased Rural-Urban Migration & All round Socio-
Economic Development are some causes
The above have led to increased the Infrastructural Pressures leading to a widened demand-supply gap in
Infrastructure
Need for new Financing & Institutional Mechanisms
Political Economy of Infrastructure Shortages
Constrained Public Resources
Rising Civilian Pressure
Greater Efficiency
Greater Value for Money for Public Procurement (by reducing Lifecycle Costs)
Better Project Design & Implementation
Better Access to Project Finance (in light of drying government funding sources)
Rigorous Risk Appraisal (as benefits are reaped by Private party only if project performs to its optimum
standard)
Optimal Allocation of Resources leading to Better Cost Estimation & Investment Decisions
5. Concession Agreement
Issues
No Model Concession Agreement for Reference or Benchmarking Purposes
Little or No Documentation Existed at the time of Contract for BOT basis (2002)
No inclusion of possible risks and complexities that could prop up in the project
Single Independent Consultant for both Design & Construction Phase and Operations & Maintenance
Phase
High Expertise Consultant for D&C Phase and Low Expertise Consultant for O&M Phase were generally selected. This
practice was not adhered to.
There was provision of only 1 IC: RITES Corporation
The bidding process for Consultants was also anti-competitive and probably Unfair
Highway Capacity Miscalculation & No Provisions for Capacity Augmentation in the next 20 Years
Service Quality to Users was abysmal
Parallel Competing Roads were provisioned to be developed but they were of inadequate size
Traffic levels in 2008 were above the estimated levels for 2012
Toll Charges fixed without basing it on Road Volume (Also included a Positive Inflationary Tool for Toll
Charges Increase insulated from the Traffic Volume)
No Provision for decrease in Toll Charges with Increased Traffic Volume
100% WPI adjusted increase was allowed in Toll Charges in times of High Inflation
6. Construction Phase
Issues
Land Acquisition
Responsibility of NHAI with stiff penalties, still to no avail
Precedent Conditions
Breach of Conditions Precedent related to Land handover, delays were made by NHAI
Further claims were made by DS Constructions. The initial cost to NHAI was INR 3 cr.
Additional claims also made. Excuse used to cover up 4 months delay in FC approval.
Relocation
No major residential relocation was envisaged as project was about highway up-gradation
Majority of time spent on dealing with illegal commercial operations along the highway
Utility Shifting (Considered as Encumbrances)
Delay in shifting of cables and power lines which were pre-construction activities
Insufficient DPR leading to Environmental & Cost Distress
Outdated DPR made in 1996 which had just the basic alignment drawings
Lack of a cohesive Community Impact Study
Multiple Changes of Scope, primarily due to a flawed concession agreement
7. Concession Agreement
New Model
Capacity Augmentation Issue addressed
Based on Phased Development instead of High Cost Roads for catering to Projected Growth in the Long Term
Concession Period determination was based on present and predicted future traffic
Toll Charges Exemption for Local Traffic
A monthly paid pass could be charged for local traffic leading to lower toll revenues
Increased VGF mechanism to make projects viable
Local Acceptance important to mitigate potential for protests for Project to become a Model Project
Claims in case of authority’s inability to provide resources were better dealt with
Safety Issues were clearly tackled
Tolling prohibited till Land used for Highway was made usable
Right of Way provision implemented, whereby 80% of the land acquired originally would be all the land needed to
obtain provisional certificate
DPR preparation given more importance
Cost of tree-felling and drawing up proper DPRs were made critical points with authorities assisting in the former too
Responsibility & Cost Bearers clearly outlined
Changes of Scope orders not mandatory for private party if the costs were more than 20% of the project
cost overall or 5% in any one year over a period of 3 Years
8. Financial Analysis
Toll Charges were received and not shared by the private party
If the total traffic count increased to more than 130,000, half the total revenue would be
shared with NHAI
Upfront Cost: INR 686.4 Cr (Concessionaire: INR 555 Cr)
Grant: INR (61) Cr.
NHAI Borne Cost: INR 131.4 Cr
Corporate Tax Rate: 33.66%, Minimum Alternate Tax: 11.2% ; Tax Holiday for the 1st 10
years {Section 80(1a)}
Huge Profit Potential for Private Party, as estimated traffic count was 76000 while the
actual was around 96000 passenger vehicles daily
An increase of 10,000 vehicles would lead to additional income of INR 7.3cr @ Rs 20/car
No toll charges revision or concession period revisions were envisaged creating huge
possibility of profiteering by the private party for a long time
9. Impact on Stakeholders
More than desired profits could be skimmed by DS Constructions due to incorrect traffic
projections
As toll prices could be changed with changes in WPI, DS Constructions could also benefit if
inflation rose, leading to perpetual growth in income while the costs were more one time and
upfront in nature
Greater Traffic counts could lead to huge gains being made by DS Constructions
Environmental NGOs protested the use of asbestos during the construction of the
highway and also the huge number of trees that were felled for Right of Way
implementation
Patrons were happy about the road but were not satisfied about its utility due to peak
hour traffic congestion and drivers inability to familiarize themselves to Tolling Process
10. Questions
Financial Implications of the Project on Various Stakeholders
Is the Model Concession Agreement viable enough to mitigate
project risks?
11. Financial Implications of the Project on
Various Stakeholders
DS Constructions
More than desired profits could be skimmed due to incorrect traffic projections
As toll prices could be changed with changes in WPI, DS Constructions could also benefit if
inflation rose, leading to perpetual growth in income while the costs were more one time and
upfront in nature
Greater Traffic counts could lead to huge gains being made by DS Constructions
NHAI
No financial reward directly from Toll Collection till traffic count is below 130,000 leading to
loss of potential income
RITES Corporation
No Financial implication on the performance of the highway
Patrons
With rise in inflation, toll prices would rise leading to greater outflow of disposable income
Multiple/Local users of the highway had to fork out a huge amount till the Model
Concession Agreement was put in place
12. Is the Model Concession Agreement
viable enough to mitigate project risks?
Risks Mitigated in the New Model
Concession Agreement
Capacity Augmentation Risks (Exposure:
NHAI)
Traffic based Toll Charges: Financial Risk
(Exposure: DS Constructions/Patrons)
Resource Handover Delays: Operational
Risk (Exposure: DS Construction)
Safety Issues: Safety & Usage Risks
(Exposure: DS
Constructions/NHAI/Patrons)
Inadequate DPRs: Environmental &
Operational Risks (Exposure: DS
Constructions)
Changes of Scope: Operational &
Financial Risk (Exposure: DS
Constructions)
Other Potential Risks
Political Risk: Force Majeure Events with respect to
change in Political scene
Going Concern Risk: If the operator is unable to
run the project successfully, then the lender’s
financial exposure is at risk (No Right of Substitution
stated)
Termination Risk: No stipulation stated with
respect to whether authority will buy out the
venture in case developer and lenders don’t get
adequate returns, as the latter cannot use the
highway for recovery of funds
Monitoring & Supervision Risks: No clear outline
regarding the extent of hands-on or hands-off
approach to be taken for monitoring of the
project
Traffic Risk: No stipulation outlined for the event
where the traffic count is not high enough to
justify the cost incurred, primarily after the Metro
route is developed in the region