Public private partnership in development of road network

1. PUBLIC PRIVATE PARTNERSHIP IN DEVELOPMENT OF
ROAD NETWORK

2. PUBLIC
PRIVATE
PARTNERSHIP
ROAD NETWORK
Why
AGENDA
Business Prospects, Risks & Limitations, Opportunities, Road Ahead

3. WHAT
NEED BUDGET

4. WHAT
▪ PPP refers to arrangements, typically medium to long term, between the public and private sectors
whereby some of the services that fall under the responsibilities of the public sector are provided by the
private sector, with clear agreement on shared objectives for delivery of public infrastructure and/ or
public services.
---WORLD BANK
▪ PPP project means a project based on a contract or concession agreement, between Government or
statutory entity on the one side and a private sector company on the other side, for delivering
infrastructure service on payment of user charges.
---MINISTRY OF FINANCE
GOVERNMENT OF INDIA

5. WHICH

6. Table 1: Schemes and Modalities of PPP
Schemes Modalities
Build-own-operate (BOO)
Build-develop-operate (BDO)
Design-construct-manage-finance (DCMF)
The private sector designs, builds, owns, develops, operates and
manages an asset with no obligation to transfer ownership to the
government. These are variants of design-build-finance-operate
(DBFO) schemes.
Buy-build-operate (BBO)
Lease-develop-operate (LDO)
Wrap-around addition (WAA)
The private sector buys or leases an existing asset from the
Government, renovates, modernises, and/ or expands it, and then
operates the asset, again with no obligation to transfer ownership
back to the Government.
Build-operate-transfer (BOT)
Build-own-operate-transfer (BOOT) Build-
rent-own-transfer (BROT)
Build-lease-operate-transfer (BLOT) Build-
transfer-operate (BTO)
The private sector designs and builds an asset, operates it, and then
transfers it to the Government when the operating contract ends, or
at some other pre-specified time. The private partner may
subsequently rent or lease the asset from the Government.
Source: Public Private Partnership, Fiscal Affairs Department of the IMF.

7. WHY PPP IN ROAD NETWORKS

8. WHY PPP IN ROAD NETWORKS
India was growing at the faster rate with GDP growth rate of
9TH FIVE YEAR PLAN- 5.5%
10TH FIVE YEAR PLAN- 7.6%
11th FIVE YEAR PLAN- 9% (expectation)
Investment in infrastructure required- 5% of GDP by 1999
ACTUAL FIGURES- 3.5%
Private investors contribution – 0.9%
Rise of PRIVATE investments for Infrastructure development
Government expectations- investments to be 8 % of GDP
and in that 1.2% of GDP would be the share of private investors

9. ADVANTAGES OF PPP
THE ADVANTAGES OF PPP INCLUDE:
• Access to private sector finance
• Efficiency advantages from using private sector skills and from transferring risk to the private sector
• Potentially increased transparency
• Enlargement of focus from only creating an asset to delivery of a service, including maintenance of
the infrastructure asset during its operating lifetime
• This broadened focus creates incentives to reduce the full life-cycle costs (ie, construction costs and
operating costs)

10. GUIDELINES FOR PUBLIC PRIVATE PARTNERSHIP
The Cabinet Committee on Economic Affairs (CCEA) meeting - October 27, 2005
-Approved procedure for public private partnership.
Set up of PUBLIC PRIVATE PARTNERSHIP APPRAISAL COMMITTEE that involves
(a) Secretary, Department of Economic Affairs (in the Chair);
(b) Secretary, Planning Commission;
(c) Secretary, Department of Expenditure;
(d) Secretary, Department of Legal Affairs; and
(e) Secretary of the Department sponsoring a project.

11. GUIDELINES FOR APPROVAL (CAPITAL COST MORE
THAN 100 CRORE)
• Project identification
• Inter-ministerial consultations
• ‘In principle’ approval of PPPAC
• Expression of Interest
• Formulation of project documents
• Appraisal/Approval of PPPAC
• Invitation of bids

12. PROJECTS
UNDERTAKEN
THROUGH PPP :
1) BOT Toll based
2) BOT Annuity based
3) SPV (Special purpose vehicles)

13. 1) BOT (Build Operate & Transfer) Annuity form :
A road developer is awarded the projects and the cost of building the road is paid to him on a six-
month basis after the projects starts commercial operations. This derisks the business of the
operator to a large extent.
2) BOT (Build Operate & Transfer) Toll based:
A road developer builds the road and is allowed to recover his investment by collecting toll over a
concession period of 30 years in most of the cases.

14. 3) Special purpose vehicles :
Lend funds, especially debt funds of longer maturity, directly to eligible projects to supplement
loans from banks and financial institutions.
It is formed for a single, well-defined and narrow purpose. An SPV can be formed for any lawful
purpose
It involves very less cash support from the NHAI in the form of equity/debt; rest of the funds comes
from Ports/Financial Institutions/beneficiary organizations in the form of equities/debt.

15. FUTURE PROSPECTS:
Why to invest ?
▪ The transport sector constitutes 6% of the country’s GDP and 70%
of the share of the roads sector.
▪ More than 60% of freight and 90%of passenger traffic in the
country is handled by road.
▪ The government of India has launched major initiatives to upgrade
and strengthen highways and expressways in the country.
▪ 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.

16. FINANCIAL SUPPORT:
• INR 378.8 Billion has been allocated
towards the proposed investment in the
National Highways Authority of India
and state roads which includes INR 30
Billion for the North-east.
• INR 143.89 Billion has been allocated
towards the Pradhan Mantri Gram
Sadak Yojana.
• INR 5 Billion has been allocated to set
up an institution to provide support to
mainstreaming Public Private
Partnerships in India called 3P India.
• And various other incentives like
construction machinery imported duty
free, customs duty exemption etc

17. PROJECT
OVERVIEW OF SOME OF THE SUCCESSFUL PROJECTS
Where

18. LIVE PROJECTS..
▪ The Eastern Peripheral Expressway – a 135 km-long, 6 lane expressway with a total project cost of
USD 750 Million that will decongest Delhi.
▪ The Delhi – Meerut Expressway- a 150 km long project with a total project cost of USD 1 Billion).
▪ The Vadodra-Mumbai Expressway, a 473 km expressway with a total project cost of USD 4.3
Billion will provide faster access to the economic hubs of Mumbai, Vadodara and Ahmedabad.
▪ The Special Accelerated Road Development Programme for the North-eastern region (SARDP-NE)
is aimed at developing road connectivity between remote areas in the North-eastern region with
state capitals and district headquarters.

19. GOLDEN QUADRILATERAL HIGHWAY NETWORK, INDIA
▪ Project Type: National Highway
▪ Duration: 2001-2012
▪ Estimated Investment: ₹308.58 bn
▪ Operator: NHAI (National Highway
Authority of India)
▪ The overall length of the quadrilateral is
5,846km

20. GOLDEN QUADRILATERAL HIGHWAY NETWORK, INDIA
▪ These highways altogether
account for just two percent
of the country's total road
infrastructure but they carry
40% of the total national
traffic.

21. GOLDEN QUADRILATERAL HIGHWAY NETWORK, INDIA
▪ The financing for the project is obtained from the taxes on petrol and diesel, which
accounts to INR200bn.
▪ Public Private Partnership (PPP) between the NHAI and the corresponding contractors.
The contractors will collect the toll taxes for a specified concession period.
▪ Major contractors involved in the project are Larsen & Toubro, LG Engg. &
Construction, Nagarjuna Construction, Consortium of GVK International and BSCPL,
IRCON International, Punj Lloyd, Progressive Construction, ECSB-JSRC, B. Seenaiah &
Co., Madhucon Projects, Sadbhav Engg., KMC Construction, Gujarat Public Works
Department, SKEC - Dodsal, MSRDC, Mumbai, Skanska Cementation India, Hindustan
Construction Company, RBM - PATI, Unitech, CIDBI Malaysia and PATI - BEL.

22. CHENNAI OUTER RING ROAD (ORR), TAMIL NADU, INDIA
▪ Location: Chennai, Tamil Nadu, India
▪ Sponsors: State Government
▪ Contractors: Phase I: GMR Group and NAPC
Limited, Phase II: GVR Infra Projects and
Ashoka Buildcon
▪ Estimated Cost: ₹20 bn
▪ Duration:
Phase I- Aug 2009 to June 2013
Phase II- January 2013- Present

23. CHENNAI OUTER RING ROAD (ORR), TAMIL NADU, INDIA
▪ Chennai's Outer Ring Road (ORR) is
a 62.3km project being built in two
phases around the Chennai
Metropolitan Area (CMA) in Tamil
Nadu, India.
▪ Key Objective: To allow heavy
vehicles to travel outside of the
city, minimizing traffic congestion
within the city central areas.

24. CHENNAI OUTER RING ROAD (ORR), TAMIL NADU,
INDIA
Financing:
▪The first phase of the 29.65km transportation corridor
was taken up by GMR-NAPC. Being a public-private
partnership, the Tamil Nadu government provided an
INR3bn support fund to be included in the promoter's
contribution in the project. The remaining funds were
planned to be secured through debt and equity.
▪Phase I of the project was financed through INR6.65bn
of debt, in addition to equity and government financing.

25. RISKIN PUBLIC PRIVATE PARTNERSHIP IN
DEVELOPMENT OF ROAD NETWORK

26. PRE PROJECT RISK
Delays in land acquisition
External linkages
Financing Risks
Planning Risks

27. CONSTRUCTION RISK
Design Risk
Construction Risk
Approvals Risk

28. OPERATION RISK
Technology Risk
Operations and Maintenance Risk
Traffic Risk
Financial Risk

29. HANDOVER RISK
Risk that the concessionaire will default in the handover of the asset at the end of the project
life, or that it will fail to meet the minimum quality standard or realizable value of the asset
that needs to be handed back to the public entity.
OTHER RISKS
Change in Law

30. THANK YOU