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Bidding of Infrastructure Projects
Market Structure and Regulation of Infrastructure SectorMBA II Year Elective
Ist Term 2010-11
Dr. A. B. RastogiNMIMS
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
• Government budgetary constraints– Revenue account
• Example: UMTS
– Capital account• Example: Highways
• Vast variation in demand estimates due to information asymmetry between developer and concessionaire • Example: Trans- Harbour link in Mumbai
Motivation Behind Minimum Subsidy Bidding
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
• Pseudo privatisation (sale of assets)– Example : Long-term airport concession
• Information asymmetry among service providers
– 3G spectrum auction• Indian case
Motivation Behind Competitive Bidding
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
• Transparency• Frequent changing of goal post• Incomplete documentation
– Airport concession– Collection of tolls in Mumbai
• LPVR– Takes care of changing goal post– Financial modeling is simple– Financial risk is transferred to lenders
Challenges in Competitive Bidding
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
Bid Process
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
Process Range• Bid processes range from “Beauty Contests”
to “Single Financial Quotes”
• Single stage, two-stage, n-stage• Swiss and other challenges…• But key objective is to have
– clarity of bid conditions (for all concerned), transparency in process, and justifiability of award
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
Day 0
Day 60
Day 90
Bid Submission
Placement of Advertisement
Pre-bid Conference
Evaluation for Qualification and short-listing of Bidders
Financial Evaluation and recommendation
Technical Evaluation
Bid Process (Single-stage process)
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
Day 0
Day 45/60
Day 90/120
Day 120/150
Stage I Bid Submission
Placement of Advertisement
Pre-bid Conference
Evaluation for Qualification and short-listing of Bidders
Stage II pre-bid conference
Bid submission
Financial Evaluation and recommendation
Technical Evaluation
Bid Process (2-stage process)
QualificationProcess
Proposal Process
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
Bid Documentation• Request for Qualification Document (RFQ)
– Instructions to Applicants – Qualification parameters and methodology for Evaluation
• Technical/Experience criteria• Financial criteria
– Formats for submission of application
• Request for Proposal Document (RPF)– Instructions to Bidders– Formats for submission of proposals– Draft agreement
• Legal provisions• Technical specifications• Project schedules
• Project Information Memorandum (PIM)
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
Bid Documentation – NHAI Bid• Instructions to Bidders
– Qualification parameters and methodology for evaluation• Technical/Experience criteria• Financial criteria
– Formats for submission of proposals• Other Submissions• Qualification Proposals• Financial Proposals
• Draft agreement• Legal provisions• Technical specifications• Project schedules
• Project Information Memorandum
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
Qualification Criteria …1 NHAI Bid cont..
• Eligible Bidders – Who?– What type of entities?
• Companies
• Partnership firms
• Sole proprietors
– Should separate entities be allowed to join together?
– If so, • is there a cap of no. of entities joining together to form a
consortium?
• who will be the face for NHAI?
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Qualification Criteria …2 NHAI Bid cont..
• Eligible Bidders– Single Entity or Consortium (4 members)
• Companies
• Registered partnership firms
• Sole Proprietorships
– Special conditions for Consortium
• Power of Attorney designating one member as Lead Member– Meet 50% of either technical or financial criteria
– Hold at least 51% equity shareholding of consortium
• Memorandum of Understanding between the members (In a given format: Annex 2D of bid document)– Intent to form a SPV for the project
– Roles and responsibilities of each member
– Supporting documents (MoA, AoA, registered Partnership Deed, PAN/TAN, copies of Board Resolution/undertakings for entering into the MoU)
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
Qualification Criteria – Technical …1 NHAI Bid cont..
• Aggregate Experience Score = 50% of the Total Project Cost of the subject project.
For which type of projects? Only roads?
If not, which other sectors?
In what role? Contractor
Developer
Financier
Design/project supervision consultant
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
Qualification Criteria – Technical … 2 NHAI Bid cont..
• Experience as – Category 1- Developer and/or Contractor in Road
Sector : roads, highways, expressways, bridges, airfields, tunnels for roads and railways.
– Category 2- Developer and/or Contractor in Core Infrastructure Sector – power, telecom, ports, railways, industrial parks, petroleum and natural gas, petrochemicals, steel, cement, fertilizer, mining, pipelines, irrigation, water supply and sewerage, township, real estate and other sectors.
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Qualification Criteria – Technical …3 NHAI Bid cont..Which type of projects?
In what role?
How Many Projects Single project If multiple projects, then what is the minimum project size Any time-value adjustment
What time period 5 yrs, 10 yrs, 20 yrs Started and completed vs. started vs. completed
In case of Developer, how much shareholding in project
100% vs 51% vs 26% vs X%
when Commencement/commissioning/proposal due date
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Qualification Criteria-Technical …4 NHAI Bid cont..
• Eligible Project– Should have been completed/substantially completed
in the 10 yr period prior to Application Due Date
– Threshold Size (escalation adjusted)
Project Category Threshold Size (as % of total project
cost)
Category 1 20% of the TPC
Category 2 30% of the TPC Developer to have had minimum 26% shareholding in Project on the
date of completion.
Only one member’s experience (with higher equity holding) to be considered for Consortium.
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
• Escalation Factors for calculation of Eligible Project
Year Factor
Current (T) 1
T-1 1.1
T-2 1.21
T-3 1.33
T-4 and earlier 1.46
Qualification Criteria-Technical …5 NHAI Bid cont..
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Qualification Criteria – Technical …6 NHAI Bid cont..
Which type of projects?
In what role?
How Many Projects?
What time period?
How much shareholding in case of Developer?
How to treat consortia Can we add experience of members? What if it is from the
same project? How much experience or financial capability should Lead
Member bring? Or should he bring both?
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
• Special Conditions for Consortia
– Lead Member : may meet 50% of threshold Technical Experience Criteria• Else to meet 50% of threshold Financial Capability Criteria
– Developer : in case two or more members have participated as developers in the same project• Project experience shall be counted only once (for member holding higher
equity share in the eligible project)
– Contractor : in case two or more members have participated as contractors in the same project• Billing will be added only if the experiences are from different scope of work
and billing of one is not part of the other
Qualification Criteria-Technical …7 NHAI Bid cont..
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• Average Aggregate Net Worth in last 3 FYs – at least 25% of the TPC
• Average Aggregate Net Cash Accruals in last 3 years – at least 10% of the TPC
– NCA to be positive for all 3 years
• Equity Financing Plan
Qualification Criteria-Financial …1 NHAI Bid cont..
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• Equity Financing Plan
Aggregate Value of TPC (Rs. Crores)
Minimum Equity Financing Plan
0-250 30% of aggregate value of individual TPCs of Projects applied for
Above 250-upto 650 25% of aggregate value of individual TPCs of projects applied for ORRs. 75 crores
Above 650- upto 1200 20% of aggregate value of individual TPCs of projects applied for ORRs. 162.5 crores
Above 1200 15% of aggregate value of individual TPCs of projects applied for ORRs.240 crores
Qualification Criteria-Financial …2 NHAI Bid cont..
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
• Equity Financing Plan
Means Documents Required
Reserves & Surplus Statutory Auditor Certificate
Bank Facility Bank/FI certificate
Disposable and Unencumbered
Real Estate
1. Certificate from Registered Real Estate Valuer
2. Non-encumbrance certificate from lead lender
Advances from Parent Company
Board resolution of Parent/Group Company and chartered accountant certificate
Qualification Criteria-Financial …3 NHAI Bid cont..
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• Special Conditions for Consortium– Lead Member
• May meet at least 50% of the threshold Financial Capability
– Else meet 50% of threshold Experience Criteria
• Commit to hold minimum equity stake equal to 51% of the aggregate shareholding of the Consortium in SPV at all times
– Other members• Commit to hold minimum equity stake equal to 10% of the aggregate
shareholding of the Consortium in SPV at all times
Qualification Criteria-Financial …4 NHAI Bid cont..
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• Currency– Indian Rupees
– Foreign currency to be converted based on RBI Reference Rate 7 days prior to Proposal Due Date
– Conversion for experience calculation based on RBI Reference Rate as on date of completion of the Project
• Submit affidavit – Certifying accuracy of information/data
– No blacklisting by NHAI
– Empowering NHAI to seek information/data pertaining to bidder from 3rd parties
• Self certification for non-collusion
Qualification Evaluation – Other Conditions NHAI Bid cont..
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
• Two step (or stage) process– Technical Bid– Financial Bid
• Challenges lie in– Designing of a bid process– Evaluation of the bids– Transparency should not only be observed but
perceived as well
In Short….
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Pricing Option (Recap)
Markets
Politics
Private Contracts
Concession Contracts
Discretionary Regulation
Public Enterprises
Competitively bid Concession
Negotiated Concessions
Price Cap Regulation
Cost of Service Regulation
Market determinedEx – Telecoms, Minor
ports
Concession specificEx –MIAL, BIAL, UMPPs,
Pre-announced methodEx – DSERC, Maj.Ports
Based on enterprise dataEx – MERC , Power trans.
Enterprise determinedEx - Railways
Structure Examples Pricing
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
Pricing, Bidding and Regulation
Markets
Politics
Private Contracts
Concession Contracts
Discretionary Regulation
Public Enterprises
Competitively bid Concession
Negotiated Concessions
Price Cap Regulation
Cost of Service Regulation
Market determinedEx – Telecoms, Minor
ports
Concession specificEx –MIAL, BIAL, UMPPs,
Pre-announced methodEx – DSERC, Maj.Ports
Based on enterprise dataEx – MERC , Power trans.
Enterprise determinedEx - Railways
Structure Bidding/Regulation Pricing
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ABR class ppt-MSRIS-Bidding-19-20-2010-11
Thank you