The document discusses toll roads and provides information on various aspects of toll road projects. It defines toll roads as roads that can be used by vehicles upon payment of a toll fee. It notes the growth in vehicle numbers has led to increased use of toll roads to help fund road infrastructure projects. The document outlines key topics like the concept of toll roads, common project structures, activities involved in toll road projects, major risks, tolling aspects, and government support policies. It also briefly discusses newer developments in toll road projects.

1. Toll Roads
A perspective …

2. Topics for discussion:
 Concept of Toll Roads (TR)
 Features
 Basic Activities involved
 Project Structures
 Major Risks Involved
 Tolling Aspects
 Government Support
 What’s new

3. Concept of Toll Roads (TR)
 TR are roads which can be used by vehicles on payment of
some toll (i.e. rent for use of resources). E.g. DND toll bridge
 Exponential growth in vehicle count and paucity of
proportionate road infrastructure (in km and quality terms) has
led to widespread use of concept
 Numerous risks involved
 Aid in economic development of surrounding areas
 Governments encouraging private initiative in TR (for various
benefits that entrepreneurship yields)
 Provide funding of other projects
 In India, NHAI being the pioneer to adopt the concept and
putting it to use on a macro scale with GQ

4. Features
 TR usually developed in urban areas (witnessing traffic
congestion) and Highways
 May or may not have alternate toll-free road (affect
project viability)
 Percentage and form of public support varies
 Important determinants for success of project:
– Traffic (classified into LMV, HMV, others); and growth rate
– Costs : Construction and Operation; and escalation
– Revenue : Tolls, Public Support, Advertisement, Realty, etc
– Funding: Debt ; Equity
– Duration (of Concession)
 Social and rehabilitation aspects

5. Basic Activities involved
 Feasibility – does the idea makes sense?
– Congestion levels
– Existing road infrastructure
– Financial Analysis
 Construction
– Type of contractor
• Experienced
• Financially capable
– Timelines (penalties and bonus)
– Cost estimates : as realistic as possible with cushion for escalation
 O&M
– Stringent performance standards
– Revised toll rates compel for better O &M

6. Project Structures …1
 Management Contract
– Construction by State or Central government or such agency
– Private Operator is entrusted the responsibility of operating and / or managing the TR
 Annuity
– Private builds and operates the road; gets annual payment
– Toll (if any) taken over by government
 Build Operate Transfer (BOT)
– Private player develops TR, operates it and transfers back to government on expiry of
concession period (usually 25-30 years: sufficient to recover the investment)
– Construction, operation and market risk on private
– Most common form of PPP
– Best suited for projects which have:
• huge construction costs involved
• revenues accruing during entire duration of project
• to be developed with latest technology

7. Project Structures …2
– Requisites for successful BOT project are:
• Strong project in terms of viability
• Identification and allocation (between public and private) of
prominent risks
• Active Government support (mainly for approvals and
clearances
• Established Sponsor
• Capable construction contractor
• Robust project structure (determined by concession
agreement)
• Appropriate funding (Debt and Equity): Usually debt
comprises of 70-90% of total capital

8. Investors
Government
Authority
Equity Funding Debt
Concession
Agreement Rating
Project Agency
Company /
Concessionaire Insurer
EPC/Construction / SPV
Contract Fees/Toll
O&M Off-taker /
Construction Consumer
Agreement
Contractor
Operating
Agency
A Typical BOT Project Structure

9. Major Risks involved …1
 Completion Risk:
– Availability of land
– Topography of site (soil, etc)
– Availability of raw material, labor, equipment
– Timelines
– Within budgeted costs
 Market Risk
– Traffic forecast
– Government Policies (like taxes)
– Existence or development of alternative road or other mode of
transport
– Economic sensitivity of people towards toll

10. Major Risks involved …2
 Financial / Revenue Risk
– Revision of toll (at least to cover rise in operating cost)
– Interest Rates and Inflation
– Foreign Currency rates
 Operating Risks
– Poor maintenance (leading early wear-n-tear)
– Design/Construction faults
– Labor problems
 Clearances
– Environmental
– Rehabilitation

11. Tolling Aspects …1
 Charge : either “per km” or “for entire journey (one way)” or
“on basis of weight of vehicle” or combination of any of above
 Duration: depends on
– Costs : Construction; Operation and Rehabilitation
– Toll Revenue
– Other objectives
 Quantum: to make the project viable
 System:
– Manual
– Electronic
 Pilferage

12. Tolling Aspects …2
 Form:
– Shadow Tolls : No toll collected from vehicles but paid by govt to
operator on basis of traffic count
– Open / Closed tolls
• Open : Toll collected at points along the road; no entry/exit
gates
• Closed: Entry and Exit gates for toll collection; requires setting
up of infrastructure for gates
 Revision in rates
– Guaranteed in BOT projects
– Based on some index (CPI, WPI, etc)
– Yearly or in a few years

13. Government Support
 NHAI Act amended to allow for:
– Private sector participation
 Declaring road as an industry: this enhanced bankability of
road projects
 Declaring Highways as infrastructure sector: for floating
Highway bonds
 Tax benefits for infrastructure projects and for inputs
 Encouraging private sector participation
 Model Concession Agreements

14. What’s new
More and more TR projects
More forms like road/rail river bridges
Private Equity in TR projects

15. Questions???