Guidelines for Investment in Road Sector (as on 15 Feb 2012)

Guidelines for Investment in Road Sector

Government of India Ministry of Road Transport and Highways

Not just roads... building a NATION

Index

For

National Highways Authority of India

The information contained herein is of a general nature and is not intended to

address the circumstances of any particular individual or entity. Although we

have endeavored to provide accurate and timely information, there can be no

guarantee that such information is accurate as of the date it is received or that it

will continue to be accurate in the future. No one should act on such

information without appropriate professional advice after a thorough

examination of the particular situation.

Deloitte refers to Deloitte Touche Tohmatsu India Private Limited

Executive Summary 4

Current Scenario 5

Financing National Highway

Projects 7

Public Private Partnership in

Highway Development 11

Overview of Successful Projects 29

Policy Framework 31

Foreign Direct Investment Policy 33

Tax Environment 35

4

Administrative Framework 43

About NHAI 45

Annexure 47

Revenue Risks and Mitigation 26

Repatriation of Investments

and Profits Earned in India 1

Executive Summary

The National Highway network of the country spans

about 70,934 km. The National Highway Development

Project (NHDP), covering a length of about 54,000 km

of highways, is India's largest road development

programme in its history. In many ways, this ambitious

and path-breaking initiative of the Government of

India, which began in the late 1990s acknowledged

the importance of private sector in India's

infrastructure development.

The consistent policy and institutional framework,

which has been the backbone of the more than INR 13,00,000 Crore (USD 60 billion ) NHDP, also conveys

the intent and commitment of successive

governments to encourage increased private

sector participation in developing the arterial road

network of the country to world class standards. More

than 60 percent of the estimated investment

requirement is expected to be privately financed.

The early success of Public-Private-Partnerships (PPP)

in the NHDP, arguably, set the tone for similar

initiatives in other infrastructure sectors and has

provided the single largest opportunity for private

financing and management of infrastructure services.

Build Operate Transfer (BOT) concession contracts

with an estimated Total Project Cost of approximately 2USD 32 billion (including BOT/DBFOT -Toll and BOT-

Annuity contracts) have been awarded under

various packages till December 31, 2011 and these

projects are expected to be fully operational by 2015-

16.

With several key projects on the anvil (including

6- laning of 4-laned roads, expressways and

port connectivity projects) and the increasing

interest evinced by domestic and foreign players in the

sector, NHAI is happy to present to you, the Guidelines

for Investment in the Road Sector, with specific focus

on NHDP.

NHAI believes that this document would serve as a

useful guide for potential investors, developers and

stakeholders interested in participating in India's

ambitious highway development programme.

Guidelines for Investment in Road Sector4

1. INR 50 = 1 USD : figures approximated

2. Design Build Finance Operate & Transfer

(DBFOT)

Current Scenario

Guidelines for Investment in Road Sector 5

India has an extensive road network of 4.24 million

km– the second largest in the world. The

National Highways have a total length of 70,934 km

and serve as the arterial road network of the

country. It is estimated that more than 70 per cent of

freight and 85 per cent of passenger traffic in the

country is being handled by roads. While Highways/

Expressways constitute only about 2 per cent of the

length of all roads, they carry about 40 per cent of the

road traffic leading to a strain on their capacity. The

number of vehicles on roads has been growing at

compounded annual growth rate (CAGR) of

approximately 8%in the last five years

The development of National Highways is the

responsibility of the Government of India. The

Government of India has launched major initiatives to

upgrade and strengthen National Highways through

various phases of the National Highways

Development Project (NHDP). NHDP is one of the

largest road development programmes to be

undertaken by a single authority in the world and

involves widening, upgrading and rehabilitation of

about 54,000 km, entailing an estimated investment

of more than INR 3,00,000 Crore (USD 60 billion).

The National Highways Authority of India (NHAI) is

mandated to implement the NHDP. Most of the

projects have been developed or are under

development on Public Private Partnership (PPP) basis

through Build Operate and Transfer (BOT)-Annuity

and Build Operate and Transfer (BOT)-Toll mode

(these have been explained in detail in later

section of the brochure). Typically, in an annuity

project, the project IRR is expected to be 12-14% and

equity IRR would be 14 -16%. For toll projects, where

the concessionaire assumes the traffic risk, the

project IRR is expected to be around 14-16% and3equity IRR around 18-20% .

The NHDP is being implemented under several

phases:

Phase I mainly involves widening (to 4 lanes) and

upgrading of 7,498 km of the national highway

network and has four component packages:

Highway network linking the four metropolitan

cities in India i.e. Delhi-Mumbai-Chennai-

Kolkata, covering a length of 5,846 km, popularly

known as the Golden Quadrilateral (GQ) project.

Highways along the North-South (NS) and East-

West (EW) corridors, covering a length of 981 km

Port connectivity projects covering a length

of 356 km; and

Other highway projects, covering a length of 315

km

Phase-II involves widening and improvement of the

NS-EW corridors (not covered under Phase-I) covering

a distance of 6,647 km, besides providing connectivity

to major ports on the east and west coasts of India and

some other projects. This includes 6,161 km of NS-EW

corridors and 486 km of other highways.

4-laning of the GQ has almost been completed.

4-laning of the Golden Quadrilateral (GQ) and

North- South and East- West (NS-EW) Corridors-

(NHDP I & II)

1.

2.

3.

4.

3. Deloitte Research


4. Length in Km. as on December 31, 2011.

Phase III - Upgradation of 12,109 km

Phase IV - 2-laning of 20,000 km with paved

shoulders

Phase V - 6-laning of 6,500 km

NHDP-III involves upgradation of 12,109 km (mainly 4-

laning) of high density national highways, through the

Build, Operate & Transfer (BOT) mode at a cost of INR

80,626 Crore (USD billion). The project consists

of stretches of National Highways carrying high

volume of traffic, connecting state capitals with the

NHDP network under Phases I and II and providing

connectivity to places of economic, commercial

and tourist importance.

With a view to providing balanced and equitable

distribution of the improved/widened highways

network throughout the country, NHDP-IV envisages

upgrading of 20,000 km of such highways into 2-lane

highways, at an indicative cost of INR 27,800 Crore

(USD 5.6 billion). This will ensure that their capacity,

speed and safety match minimum benchmarks for

national highways. The government has already

approved strengthening of 5,000 km to 2-lane paved

shoulders on BOT (Toll/ Annuity) under NHDP-IV A at a

cost of INR 6,950 Crore (USD 1.4 billion).

Under NHDP-V, 6-laning of the 4-lane highways

comprising the GQ and certain other high density

stretches, will be implemented on BOT basis at an

estimated cost of INR 41,210 Crore (USD 8.2 billion).

These corridors have been 4-laned as part of the GQ in

16.1

Phase-I of NHDP. Of the 6,500 km proposed under

NHDP-V, about 5,700 km would be taken up in the GQ

and the balance 800 km would be selected on the basis

of predefined eligibility criteria.

With the growing importance of urban centres of India,

particularly those located within a few hundred

kilometers of each other, expressways would be both

viable and beneficial. The Government has approved

1,000 km of expressways to be developed on a BOT basis,

at an indicative cost of INR 16,680 Crore (USD 3.3 billion).

These expressways would be constructed on new

alignments.

The development of ring roads, bypasses, grade

separators and service roads are considered necessary

for full utilisation of highway capacity as well as for

enhanced safety and efficiency. For this, a programme

for development of such features at an indicative cost of

INR 16,680 Crore (USD 3.3 billion) has been approved by

the Government. Apart from the high density

corridors, a substantial part of the National Highways thnetwork would also require development during the 12

Plan period. These sections are characterised by low

density of traffic. Some of these stretches fall in

backward and inaccessible areas and others are of

strategic importance. The development of these

categories of National Highways would be carried out

primarily through budgetary resources.

Development of 1,000 km of expressways (NHDP-VI)

Other Highway Projects of 700 km (NHDP-VII)

4Current Status of Projects

Completed Work in Progress To be Awarded Total

16776

13264

24414

5445460000

55000

50000

45000

40000

35000

30000

25000

20000

15000

10000

5000

0

Financing National Highway Projects

Traditionally, financing for development of

National Highways in India was from the budgetary

resources of the Government of India. In order to

augment the available resources, loans have also been

raised from multilateral agencies like World Bank,

Asian Development Bank (ADB) and Japan Bank of

International Cooperation (JBIC).

NHAI has earlier received loans directly from

multilateral agencies (highway project). These loans

are expected to be repaid through the toll income

from the project. The interest rate for the project

is determined according to ADB's pool based variable

lending rate system for US dollar loans. Around 80 per

cent of the external assistance is provided to NHAI as a

grant by the Central government. The balance is

made available as long-term loans to NHAI, with the

Centre bearing the foreign exchange risk. Such loans

are usually provided for 15-25 years with a

moratorium of 5 years.


Summary of Externally Aided Projects

World Bank Funded Projects

NHDP Phase I

GQ

Others

NHDP Phase II EW Corridors

Sub-Total A

ADB Funded Projects

NHDP Phase I

GQ

Others

Sub-Total B

JBIC Funded Projects

NHDP Phase I

GQ

Others

Sub-Total C

Grand Total (A+B+C)

18

18

-

12

30

10

9

1

31

41

7

5

7

78

983

983

-

487

1,470

615

567

48

1,638

2,253

150

111

39

150

3,873

5,538

5,538

-

3,208

8,746

1,866

1,807

59

7,565

9,431

634

333

301

634

18,811

17

17

-

8

25

10

9

1

23

33

7

5

2

7

65

932

932

-

328

1,260

615

567

48

1,226

1,841

150

111

39

150

3,251

NHDP Phase II NS & EW Corridors

Category Awarded Awarded Cost

(INR Crore)

Completed

No. of Contracts Length in km No. of Contracts Length in km

2

ParticularsPhase Projected For (Kms) INR Crore

5. The developer has flexibility in project design so long as the build and service quality is in line with

prescribed standards set out in the Standards and Specification Manuals.

Cess and Market Borrowings

BOT/SPV

BOT/SPV

BOT/SPV


Budgetary Support

External Assistance


External Assistance

Total (At 1999 Prices)



BOT/SPV

BOT/SPV

BOT/SPV








Private Sector

Government Spending

7498

6647

12109

5000

6500

1000

700

18,846

3592

3310

23420

7609

7862

30300

34339

80626

35691

9000

10378

5519

7680

6302

6950

41210

16680

16680

4608

2342

50129

12809

17688

NHDP-I

NHDP-II

NHDP-III

NHDP-IV A

NHDP-V

NHDP-VI

NHDP-VII

Approved Project Cost of NHDP (Excluding Interest During Construction and Escalations)


Presently, the development and maintenance of

National Highways is financed by following modes:

Government's Gross Budgetary Support (GBS) and

Additional Budgetary Support (ABS)

Dedicated accruals under the Central Road Fund

(share in the levy of cess on fuel)

Lending by international institutions (World Bank,

ADB, JBIC)

Private financing under PPP frameworks

Build Operate and Transfer/Design Build 5Finance Operate and Transfer (DBFOT) -

Investment by private firm and return through

levy and retention of user fee

Build Operate and Transfer (Annuity) - BOT

(Annuity) - Investment by private firm and

return through semi-annual pre-determined

1.

2.

3.

4.

•

•

payments from NHAI as per bid.

Special Purpose Vehicle – SPV (with equity

participation by NHAI)

Market Borrowings (including funds raised

through Capital Gain Tax Exemption Bonds under

section 54 EC of Income Tax Act)

NHAI also has a provision for providing grant upto

40% of the project cost to make projects commercially

viable. However, the quantum of grant is decided on a

case to case basis and typically constitutes the bid

parameter in BOT projects. The disbursement of such

grant is subject to provisions of the project concession

agreements (A compact Disc (CD) containing an

overview of the

•

5.

Model Concession Agreement for

BOT - Toll projects is enclosed with the brochure).


Road Section Length (Km.)Estimated

Cost(INR Crore)

EstimatedCost

(USD Million)

Negative Grant(INR Crore)

Negative Grant(USD Million)

Delhi-Gurgaon

Rajkot Bypass-Jetpur

Panipat Elevated Highways

Salem- Karur

Krishnagiri - Thopurghat

Tindivanam-Ulundurpet

Thirssur-Angamali

Jalandhar- Amritsar

Ambala-Zirakpur

Dhule-Pimpalgaon

Vadodara Bharuch

Bharuch-Surat

28

36

10

42

62

71

40

49

36

118

83

65

710

388

270

253

372

480

312

263

298

556

660

492

142

78

54

51

74

96

62

53

60

111

132

98

61

59

96

46

140

152

84

7

106

59

471

504

12

12

19

9

28

30

17

1

21

12

94

101

NHAI projects, with higher traffic volumes, have also received Negative Grant (upfront payment payable by

successful bidder to NHAI) instead of grant / VGF as an outcome of the competitive bidding process. Further,

under the revised MCA, projects under BOT/ DBFOT framework have also been awarded on a revenue share /

premium basis, where the bidder offering the highest revenue share / premium is awarded the project. These

revenues are also ploughed back for the development and maintenance of National Highways.

Road Section

Surat-Dahisar

Gurgaon-Jaipur

Panipat-Jalandhar

Chennai-Tada

Vijayawada-Chilkaluripet

Krishnagiri-Walajhapet

Length (Km.)

239

225

291

42

85

148

EstimatedCost

(INR Crore)

EstimatedCost

(USD Million)Revenue Share (%)

2,600

1,900

2,200

317

1,173

1,250

520

380

440

63

235

250

38%

48%

20%

17%

2%

7%

Projects awarded on Revenue Share Basis

Projects awarded on Negative Grant


Projects awarded on Premium

Road Section Length (Km.)

Estimated

Cost (INR

Crore)

Estimated

Cost (USD

Million)

Premium (INR

Crore)

Premium

(USD Million)

Chengapalli to Coimbatore Bypass

and End of Coimbatore Bypass 55 853 171 36 7

Indore-Jhabua-Gujarat/MP 155 1,175 235 23 5

Hyderabad-Yadgiri 36 388 78 12 2

4 Laning of Godhara to Gujarat /MP

Border87 786 157 8 2

Panipat - Rohtak 81 807 161 45 9

Kandla - Mundra Port 71 954 191 42 8

Rohtak - Bawal 83 650 130 12 2

Deoli - Kota 83 593 119 49 10

Sambalpur-Baragarh-

Chattisgarh/Orrisa Border88 909 182 1 0

Belagaum-Khanpur (4-lane) 82 359 72 2 0

Jetpur-Somnath (4-lane) 123 828 166 23 5

Pune – Satara 140 1,725 345 91 18

Samaikhiali-Gandhidham 56 805 161 58 12

Indore-Dewas 45 325 65 24 5

Belgaum-Dharwad 80 480 96 31 6

Chitradurga -Tumkur Bypass 114 839 168 140 28

Six Laning of Hosur-Krishnagiri 60 535 107 67 13

Panvel - Indapur 84 943 189 34 7

Luchiyana - Talwandi 78 479 96 1 0

Six Laning of Dhankuni-Kharagpur 111 1,396 279 126 25

Kota-Jhalwar 88 530 106 4 1

Ahmedabad-Vadodara 102 2,125 425 310 62

Barwa Adda-Panagarh 123 1,665 333 106 21

Nagpur-Wainganga Bridge 45 484 97 27 5

Beawar-Pali-Pindwara 244 2,388 478 251 50

Orissa/Chhattisgarh Border-Aurang 150 1,232 246 30 6

Shivpuri-Dewas 330 2,815 563 181 36

Gwalior-Shivpuri 125 1,055 211 67 13

Kishangarh-Udaipur-Ahmedabad 556 5,387 1,077 636 127

Muzaffarpur-Barauni 108 354 71 5 1

Hospet-Bellary- KNT/AP Border 95 910 182 18 4

Lucknow-Sultanpur 126 1,044 209 10 2

Rohtak-Jind 49 283 57 0 0

Raipur-Bilaspur 127 1,216 243 45 9

Hospet-Chitradurga 120 1,034 207 63 13

Cuttack-Angul 112 1,124 225 61 12

Mah/KNT Border-Sangareddy 145 1,267 253 80 16

Rampur-Katgodam 93 790 158 34 7

Agra-Etawah 125 1,207 241 128 26

Etawah-Chakeri 160 1,573 315 92 18

Solapur-Maharashtra/Karnataka

Border 100 923 185 28 6

Public Private Partnership in Highway DevelopmentInitially, projects under NHDP were awarded as item

rate cash contracts. However, going forward, Public

Private Partnerships (PPP) are going to be the main

mode of delivery for future phases of NHDP.

While there are a number of forms of PPP, the

common forms that are popular in India and have

been used for development of National Highways are:

Build, Operate and Transfer (Toll) Model on

DBFOT basis

Build, Operate and Transfer (Annuity) Mode on

DBFOT basis

Special Purpose Vehicle (SPV) for Port

Connectivity Projects

Private developers/ operators, who invest in tollable

highway projects, are entitled to collect and retain toll

revenues for the tenure of the project concession

period. The tolls are prescribed by NHAI on a per

vehicle per km basis for different types of vehicles.The

Government in the year 1995 passed the necessary

legislation on collection of toll. (Refer the National

Highways Fee [Determination of Rates and Collection]

Rules 2008

A Model Concession Agreement (MCA) has been

developed to facilitate speedy award of contracts.This

framework has been successfully used for award of

BOT concessions.The MCA has been revised recently

and current projects are being awarded under the

revised MCA (refer enclosed CD for overview of MCA

framework).

The concessionaire bids for annuity payments from

NHAI that would cover his cost (construction,

•

•

•

BOT (Toll)

BOT (Annuity)

NHAI is also proposing to award projects under a long

term Operations, Maintenance and Transfer (OMT)

concession.

and its amendments dated December 3,

2010, January 12, 2011 and October 12, 2011).

operations and maintenance) and an expected return

on the investment. The bidder quoting the lowest

annuity is awarded the project. The annuities are paid

semi-annually by NHAI to the concessionaire and

linked to performance covenants. The concessionaire

does not bear the traffic/ tolling risk in these contracts.

NHAI has recently taken up award of select highway

projects to private sector players under an OMT

Concession. Till recently, the tasks of toll collection and

highway maintenance were entrusted with tolling

agents/ operators and subcontractors, respectively.

These tasks have been integrated under the OMT

concession. Under the concession private operators

would be eligible to collect tolls on these stretches for

maintaining highways and providing essential

services (such as emergency/ safety services).

NHAI has also taken up development of port

connectivity projects by setting up Special Purpose

Vehicles (SPVs) wherein NHAI contributes upto 30% of

the project cost as equity.The SPVs also have equity

participation by port trusts, State Governments or their

representative entities. The SPVs also raise loans for

financing the projects. SPVs are authorised to collect

user fee on the developed stretches to cover

repayment of debts and for meeting the costs of

operations and maintenance.

General procedure for selection of concessionaires

adopted by NHAI is a two-stage bidding process.

Projects are awarded as per the model documents-

Request for Qualification (RFQ), Request for Proposal

(RFP) and Concession Agreement - provided by the

Ministry of Finance. NHAI amends the model

documents based on project specific requirements.

(Please refer CD for these model documents). The

processes involved in both stages are set out as

Operate, Maintain and Transfer (OMT) Concession

Special Purpose Vehicle for Port Connectivity Projects

International Competitive Bidding Process


follows:

Pre-qualification on the basis of Technical and

Financial expertise of the firm and its track record in

similar projects which meets the threshold technical

and financial criteria set out in the RFQ Document.

Some of the recent significant amendments in the pre

qualification document are set out below:

1. Determination of technical and financial capacity of

consortium applicants in proportion to the

committed equity holding of each consortium

member in the project SPV. For illustration-

- If Company A has been assessed to have an

experience score (measured in terms of

payments made/received and/or revenues

received for eligible projects) of 5,000 and

Company B has been assessed to have an

experience score of 2,500, in a Consortium with

shareholding of A as 60% and B as 40%, then the

weighted experience score of the Consortium

shall be:

5,000*60%+2,500* 40%=4,000

- If Company A with a net worth of INR 1000 Crore

(USD 200 million) & Company B with a net

worth of INR 500 Crore (USD 100 million) are

bidding together as a Consortium with

shareholding of A as 60% and B as 40% then the

weighted financial score of the Consortium shall

be:

1,000*60%+500*40%= INR 800 Crore (USD 160

million)

2. In case of foreign companies, a certificate from a

qualified external auditor who audits the books of

accounts of the Applicant or the Consortium

Member in the formats provided in the country

where the project has been executed shall be

accepted, provided it contains all the information

as required in the prescribed format of the RFQ.

3. Applicants/Bidders would need to provide an

undertaking to NHAI that the EPC works of the

project would be executed only by such EPC

Stage 1:

Contractors who have completed atleast a single

highway project of more than 20% of the estimated

project cost of the project or INR 500 Crore (USD

100 million) which ever is less in the preceding 5

financial years from the application due date.

Notice inviting tenders is posted on the web site and

published in leading newspapers

Commercial bids from pre-qualified bidders

are invited through issue of RFP. For BOT-(Toll)

projects the bid parameter is the premium offered to

the NHAI or the grant sought from NHAI. In BOT-

(Annuity) projects the bid parameter is the semi annual

annuity sought from NHAI.

Generally, the duration between Stage 1 and 2 is

about 30-45 days. Wide publicity is given to NHAI

tenders so as to attract attention of leading

contractors/ developers/ consultants.

Stage 2:

Summary of recent policy changes in the project development and award process are set out below:

The Government has put in place appropriate policy,

institutional and regulatory mechanisms including

a set of fiscal and financial incentives to encourage

increased private sector participation in road sector.

Based on NHAI’s experience and the discussions with

various stakeholders, the RFQ, RFP and the MCA are

being updated continuously. Some of the important

changes made in these documents are as under:

1. All applicants meeting the threshold technical and

financial experience criteria set out in the RFQ shall

be eligible to participate in the RFP stage. Earlier

only the top 5-6 applicants shortlisted based on

qualification criteria were eligible to submit

financial bids for projects.

2. NHAI is empowered to accept single bids based on

assessment of reasonableness of the bids.

3. Overall cap on Viability Gap Funding (VGF)


increased from 5% to 10% for the entire six-laning

programme.

4. For individual projects with low traffic in the Golden

Quadrilateral (GQ) corridors, VGF cap has been

increased upto 20% of the project cost with an

overall cap of 500 km of roads in the project

network.

5. Equity Support under VGF has been increased to

40% of project cost. Earlier, 20% of project cost was

provided as equity support in construction phase

and 20% as Operations & Maintenance Support

6. Modifications in Standard RFQ, RFP and

Concession Agreement structures for National

Highway Projects

a. Termination provisions under capacity

augmentation situations modified to give more

comfort to investors and lenders. The

concession period can be extended upto 5

years to yield a post tax equity IRR of 16%, in the

event of capacity augmentation option

exercised by the concessionaire.

b. Exit option allowed for principal promoters of

road SPVs after two years from commercial

operations date (COD). Promoters were earlier

required to hold a minimum of 26% of the SPV’s

shareholding at all times during the tenure of

the Concession.

c. Threshold l imit for common control

(shareholding) of entities in competing

Applicants and/ or their Associates for the

purposes of determining Conflict of interest,

raised from 5% to 25%. Any such conflict of

interest arising at the pre-qualification stage

shall be deemed to subsist at the bidding stage

only if such applicants attracting the conflict of

interest provisions submit their bids.

d. Threshold technical capability for claiming

eligible project experience has been reduced to

a range between 5-10% of estimated project

cost of the subject project in lieu of 10-20% of

estimated project cost of the subject project

earlier.

e. The threshold technical experience score for the

purpose of pre-qualification will be equal to the

estimated project cost of the subject project.

This was, earlier equal to twice the estimated

project cost of the subject project.

f. Where the projects are bid out on a revenue

share basis, the base premium (fixed amount)

(revenue share proposed by the successful

bidder) will be increased at the rate of 5 per cent

year on year with respect to the immediately

preceding year for the entire tenure of the

concession.

6The aforesaid changes are expected to further

incentivise private investment in road/highway

projects.

Opportunities for Private Investors/ Developers

More than 60% of the projected investment

requirement for the NHDP (more than USD 60 billion)

is expected to be privately financed, primarily through

the BOT/DBFOT (Toll) route, offering enormous

opportunities. With a large number of new projects on

offer under PPP in the road sector, there exists several

investment opportunities for investors and companies

with diverse business lines such as engineering

companies, civil work contractors, O&M contractors,

toll operators, construction equipment manufacturers

etc. and other stakeholders such as advisors,

financiers and sector professionals. Only about 23 per

cent of the total highways in India are 4-laned / 6-

laned and the sheer potential for investments in this

sector is likely to create opportunities in the core

construction industry which may also be attractive

for foreign players.

The opportunity for private players in the road sector

can be broadly categorised in two segments:

a) Infrastructure Development

b) Logistics and Services.

6. As per recommendations of B K Chaturvedi Committee


stakeholders based on internationally accepted

principles and best practices. Throughout, it seeks to

achieve reasonable balance of risks and rewards for all

the participants.

As an underlying principle, risks have been allocated to

the parties that are best suited to manage them.

Project risks have, therefore, been assigned to the

private sector to the extent it is capable of managing

them. The transfer of such risks and responsibilities to

the private sector would increase the scope of

innovation leading to efficiencies in cost and services.

The commercial and technical risks relating to

construction, operation and maintenance are

allocated to the concessionaire, as it is best suited to

manage them. Other commercial risks, such as the rate

of growth of traffic, are also allocated to the

concessionaire.

The concessionaire is required

to commence construction works when the

financial close is achieved or earlier date that the

parties may determine by mutual consent. The

concessionaire shall not be entitled to seek

compensation for any prior commencement and

shall do it solely at his own risk.

Concessionaire to operate and

maintain the project facility (includes road and

road infrastructure as specified in the concession

agreement). Failure to repair and rectify any defect

or deficiency within specified period shall be

considered as breach of responsibility.

The concessionaire shall at its cost,

expenses and risk make such financing

arrangement as would be necessary to finance the

cost of the project and to meet project

requirements and other obligations under the

agreement, in a timely manner.

The MCA provides for increase or

decrease of the concession period in the event the

Key Concessionaire Risk/Obligations

• Construction Risk -

• O & M Risk -

• Financial Risk -

• Traffic Risk -

Development Projects Construction Tolling

BOT/DBFOT - Toll

Equipment Services

Material BOT -

Annuity

OMT

Equipment Containers

LuxuryBuses

Perishables Pvt Bus Service

UrbanTransportation

Trucking Tourism

Bulk

Roads

Logistics & Services

Infrastructure Development

SPV

Technology

Maintenance

Model Concession Agreement (MCA) for PPP Projects

Risk Framework of Model Concession Agreement

The highways sector in India has witnessed significant

investment in recent years. For sustaining the interest

of private participants, a clear risk-sharing and

regulatory framework has been spelt out in the Model

Concession Agreement (MCA). The MCA has been

developed to facilitate speedy award of contracts. This

framework has been successfully used for award of

BOT concessions. The MCA has been revised and

current projects are being awarded under the

revised MCA. This framework addresses the issues,

which are typically important for PPP, such as

unbundling of risks and rewards, symmetry of

obligations between the principal parties, equitable

sharing of costs and obligations, and risk mitigation

options under various scenarios including force

majeure and termination, under transparent and fair

procedures.

With the introduction of the MCA, the risks involved in

project and contractual issues, hitherto, have been

assuaged, and the entire process from invitation to bid

to implementation of the project is transparent.

MCA's risk framework is briefly discussed below:

The MCA has been developed in consultation with all


Key Common Risk

• Force Majeure Risk - Force Majeure shall mean

occurrence in India of any or all of Non-Political

Event(s), Indirect Political Event(s) and Political

Event(s), which include the following:

• act of God, epidemic, extremely adverse

weather conditions or radioactive contamination

or ionising radiation, fire or explosion;

• strikes or boycotts

• the discovery of geological conditions, toxic

contamination or archaeological remains on

the Site; or

• any event or circumstances of a nature

analogous to any of the foregoing.

Indirect Political Event

• an act of war, invasion, armed conflict or act of

foreign enemy, blockade, embargo, riot,

insurrection, terrorist or military action,

• civil commotion or politically motivated

sabotage which prevents collection of toll/ fees,

• industry-wide or state-wide or India-wide

strikes or industrial action which prevent

collection of toll/ fees,

• any public agitation which prevents collection

of toll/ fees

Non-Political Event:

actual traffic falls short or exceeds the target traffic.

NHAI stipulates the target traffic

th around the 10 year from the date

of signing of the agreement. The target traffic is

determined based on 5% Compounded Annual

Growth Rate (CAGR) over the base year traffic for

the project.

An overview of revenue risks and mitigation

under the MCA is

provided in the next section.

NHAI is responsible for

acquiring the requisite land for the project

highway

NHAI will provide all reasonable

support and assistance to the concessionaire in

procuring applicable permits required from any

Government Instrumentality.

during the year

specified in project specific concession agreement,

which is usually

MCA also provides for termination of

the agreement if the average daily traffic in any

accounting year exceeds the design capacity and

continues to exceed for three subsequent

accounting years. Termination payments under

this scenario will be commensurate to those

applicable under an Indirect Political Event (See

table in next section on page 27).

(including Termination Payment)

Key NHAI Risk/Obligations

• Land Acquisition Risk:

• Approvals:


Political Event

• Change in Law,

• compulsory acquisition by any governmental

agency of any project assets or rights of

concessionaire or of the Contractors; or

• unlawful or unauthorised or without

jurisdiction revocation of or refusal to renew or

grant without valid cause any consent or

approval required by developer

Substantial part of the project site free from

encumbrances would be handed over to the

concessionaire till the Appointed Date. Additional

land in case of change of scope

by concessionaire on behalf of the

Authority.

Additional tollway will not be commissioned

within a specified year, depending upon the

concession period. Minimum user fee for

additional tollway 25% higher than

the toll fee on project. Any alternate road,

exceeding 20% of the length of the project

highway, shall not be considered as an additional

tollway.

The concessionaire will be entitled to nullify any

change of scope order if it causes the cumulative

cost relating to all change of scope orders to

exceed 5% of the Total Project Cost (TPC) in any

continuous period of 3 years immediately

preceding the date of such Change of Scope

order, or if such cumulative cost exceeds 20% of

the TPC at any time during the concession period.

Financial close is to be achieved within 180 days

from date of agreement. NHAI may allow

additional period for financial close on a project

specific basis.

Grant (upto 40% of TPC) to the concessionaire by

way of equity support and operations &

maintenance support in quarterly installments.

(B.K.Chaturvedi Committee has recommended

that the entire grant [upto 40% of TPC] can be

provided as equity support).

Other Salient features of the MCA

•

•

•

•

•

will need to be

acquired

will be at least


Dispute Resolution Procedure for PPP projects

• Mediation by the Independent Engineer:

• Amicable Resolution:

• Arbitration:

If any

dispute arises between the parties, it is in the first

place resolved by the mediation of the

Independent Engineer. Any dispute, which is not

resolved by mediation of the Independent

Engineer, is resolved by amicable resolution.

Any dispute, difference or

controversy of whatever nature between the

parties, arising under, out of or in relation to the

Project Concession Agreement (PCA) is attempted

to be resolved amicably in accordance with the

procedure set forth in the dispute resolution

mechanism. Either party may require such dispute

to be referred to the Chairman, NHAI and the Chief

Executive Officer of the concessionaire in the

interim, for amicable settlement. Upon such

reference, the two shall meet at the earliest mutual

convenience and in any event not later than 15

days of such reference to discuss and attempt to

amicably resolve the dispute. If the dispute is not

amicably settled within 15 (fifteen) days of such

meeting between the two, either party may refer

the dispute to arbitration in accordance with the

provisions of the PCA.

Any dispute, which is not resolved

amicably, shall be finally settled by binding

arbitration under The Arbitration Act. The

arbitration shall be carried out by a panel of three

arbitrators, one to be appointed by each party and

the third to be appointed by the two arbitrators

appointed by the parties. The party requiring

arbitration shall appoint an arbitrator in writing,

inform the other party about such appointment

and call upon the other party to appoint its

arbitrator. If within 15 days of receipt of such

intimation the other party fails to appoint its

arbitrator, the party seeking appointment of

arbitrator may take further steps in accordance

with the Arbitration Act.

•

•

Dispute Resolution

Concessionaire to pay nominal fee of INR 1 (USD

0.02) per annum throughout the concession

period.

There is an optional provision for capacity

augmentation of existing 4-laning to 6-laning. If

capacity augmentation is not done within the

specified period, the concession period gets

reduced to the number of years specified in the

project specific agreement. The option to excuse

from 6-laning of the Project Highway is available

with both the concessionaire and the Authority

before the pre-specified 6-laning date in the

concession agreement.

Any dispute arising out of or in relation to the

concession agreement, between the parties is required

to be resolved as per the Dispute Resolution

Procedure (see below) prescribed in the Agreement. It

specifies that the parties should attempt to resolve the

dispute amicably and for this purpose, the mandate

has been given to an Independent Engineer to

mediate and assist the parties to arrive at a settlement.

The procedure has been laid out in sufficient detail

therein.

However, upon the failure of such conciliatory

measure, the parties shall resort to Arbitration, which

shall be held in accordance with Arbitration and

Conciliation Act, 1996 (based on United Nations

Commission on International Trade Laws - UNCITRAL

model). The seat of arbitration for all concession

agreements pertaining to National Highways shall

ordinarily be at Delhi, however, the place may be

changed by mutual consent of the parties. Each party is

free to nominate its arbitrator who in turn, will appoint

a presiding arbitrator. The Arbitration Tribunal so

constituted can adjudicate any dispute referred to it,

and any other question of law arising out of such

dispute, including its own jurisdiction. The award

passed by such Tribunal, has the sanctity of a 'Decree'

under Indian Law and can be challenged on very

limited counts.


Where complex financial issues are involved, the

Courts also seek advice of an expert committee and

consider various factors like price index, quality of

work, past performance of parties, market reputation,

etc. The decision in each case may however differ,

depending upon facts of each case.

BOT - (Annuity) projects are similar to BOT - (Toll)

projects with the exception that the traffic risk is borne

by NHAI and the concessionaire is paid fixed semi

annual annuities by NHAI.

Either party

fulfill the Conditions Precedent for commencement

of .

OMT Concessions

•

•

•

•

The OMT concession would be for a maximum

period of 9 years

The private sector will be selected on the basis of a

competitive bidding process. The successful bidder

would be the one offering the highest concession 7fee to NHAI

is allowed a period of 45 days from the

date of signing of the concession agreement to

commercial operations

The OMT concessionaire will pay a fixed concession

fee to NHAI every month

and undertake tasks

of toll collection and operation and maintenance of

highways

NHAI has signed Concession Agreements for six OMT

projects and further identified twenty six projects to be

awarded during the year 2011-12. This way NHAI

intends to cover the entire NSEW public funded

corridor under OMT in the next two years. More

sections, where project completion is anticipated in

the next six to twelve months, are being planned for

OMT concessions.

(equivalent to one-twelfth

of the annual quoted amount)

along with construction of additional

project facilities as per the scope of work.

7. The bidder offering the maximum amount of first year concession fee or minimum

amount of first year quarter O&M support (in case no bidder offers the concession fee).

The Dispute Resolution Procedure for EPC Projects

does not involve amicable settlement. The

disputes are referred to the Dispute Review Board.

The Board shall comprise of

three members, experienced with the type of

construction involved in road works, and with the

interpretation of contractual documents. If, during

the contract period, either of the parties is of the

opinion that the Dispute Review Board is not

performing its functions properly, they may

together disband the Board and reconstitute it.

In the

case of a dispute with a foreign contractor, the

dispute shall be settled in accordance with the

provisions of the UNCITRAL Arbitration Rules. The

arbitral tribunal shall consist of three arbitrators,

one each to be appointed by the employer and the

contractor and the third arbitrator chosen by the

two arbitrators so appointed by the parties, who

shall further act as the Presiding Arbitrator.

A “Foreign Contractor” means a contractor who is

not registered in India and is not a juridical person

under Indian Law.

The Courts in India have been very neutral in

construing the documents, in the cases arising out of

tender processes and rely upon terms and conditions

agreed between the parties under the tender

documents. The provisions of the Contract Act and

other legal provisions, covering the intricate

commercial aspects of the dispute are looked into very

minutely before passing any order. The Courts have,

however, been very cautious in passing any injunctive

relief in disputes arising out of tender process and pays

due regard to the fairness in the process of issuing

tender and selection of bidders, stage of infrastructure

development and stakes (public money) involved.

• Dispute Review Board:

• Dispute involving Foreign Contractor(s):

General Trends in Dispute Resolution


Opportunities for Investment Under NHDP Phase II *

Opportunities for Investment Under NHDP Phase III *


*As on December 31, 2011


The upcoming opportunities for investment in various Phases of NHDP are provided in the tables below:

**Targeted to be awarded in FY 2011-12


(INR Crore) (USD Million)

1 Ramban - Banihal 36 Jammu & Kashmir 1,444 289

2 Udhampur-Ramban 43 Jammu & Kashmir 1,725 345

3 Walayar-Vadekancherry** 54 Kerala 682 136

4 Agra Bypass 33 UP 457 91

5 Ghoshpukur-Salsalabari 163 West Bengal 1,549

310

S.No. Road Section Length (Km) State

Estimated Project Cost


1 Khagaria-Bakhtiyarpur** 120

Bihar 420

84

2 Ambala-Kaithal 86

Haryana 300

60

3

UP / Haryana Border

Yamunanagar-Panchkula** 104

Haryana 938

188

4 Rohtak-Hissar** 100

Haryana 950

190

5 Parwanoo-Solan 41

Himachal Pradesh 387

77

6 Shimla-Solan 60


114

7

Mulbagal-Karnataka/AP

Border** 22

Karnataka 231

46

8

Thiruvananthapuram-TN/Kerala

Border 43

Kerala 409

82

9 Kuttipuram-Edapally 116

Kerala 1,102

220

10 Cherthalai-Ochira 84

Kerala 798

160



Opportunities for Investment Under NHDP Phase III *





11

Bhopal-Bareily,Bareily-Rajmarg

Crossing,Rajmarg Crossing-

Jabalpur 290

Madhya Pradesh 2,755

551

12

Jowai-Meghalaya/Assam

Border** 102

Meghalaya 391

78

13 Chandikhole-Dubari-Talchar** 133

Orissa 1,287

257

14

Madurai-Parmakoti-

Ramanathapuram** 116

Tamil Nadu 1,102

220

15 Nagapattnam-Thanajavur 77

Tamil Nadu 268

54

16 Kerala/TN Border-Kanyakumari 65

Tamil Nadu 618

124

17 Coimbatore-Mettupalayam** 54

Tamil Nadu 567

113

18 Karaikkudi-Ramanathapuram 80

Tamil Nadu 280

56

19 Barasat-Petrapole 60

West Bengal 570

114





Opportunities for Investment Under NHDP Phase IV *



1 Yadagiri-Warangal 96 Andhra Pradesh 912 182

2

Chhapra - Rewaghat -

Muzzaffarpur 75 Bihar 225 45

3 Biharsharif - Barbigha -Mokama 52

Bihar 156

31

4 Ekangarsarai- Jehanabad - Arwal 54

Bihar 162

32

5 Maheshkhut - Saharsa - Purnea 171

Bihar 513

103

6 Raipur-Dhamtari 72

Chhattisgarh 684

137

7 Chilpi-Simga 128

Chhattisgarh 384

77

8 Ghamtari-Jagdalpur 222

Chhattisgarh 666

133

9 Ambikapur-Pathlgaon 85

Chhattisgarh 255

51

10 Bilaspur-Ambikapur 190

Chhattisgarh 570

114

11 Pathalgaon-Gumala 130

Chhattisgarh 390

78

12 Punjab/ Haryana Border - Jind** 70

Haryana 439

88

13 Hissar-Dabwali 160

Haryana 1,520

304

14

Kaithal-Haryana/Rajasthan

Border 160

Haryana 1,520

304

15 Bilaspur-Ner Chowk** 54


180

16 Ner Chowk-Manali 119

Himachal Pradesh 1,131

226

17 Kiratpur- Bilaspur 63


120

18 Chas- Ramgarh 85

Jharkhand 255

51

19

Junction with NH-2 at

Govindpur-Chas-Upto JHR/WB

Border 71

Jharkhand 213

43

20 Ranchi - Birmitrapur 210

Jharkhand 630

126

21 Ranchi- Nagar Untari 260

Jharkhand 780

156








22 Jamshedpur-Kharagpur 150 Jharkhand 1,425 285

23 Kundapur-KNT/Goa Border** 192

Karnataka 1,965

393

24 Shimoga-Mangalore 188

Karnataka 1,786

357

25 Hasan-BC Road 130

Karnataka 1,235

247

26 Gulbarga-Bijapur-Homnabad 200

Karnataka 1,900

380

27 Hospet-Hubli-Ankola 271

Karnataka 2,575

515

28 Gundlupet-TN/KNT Border 27

Karnataka 81

16

29 Hoskote-Dobespet** 89

Karnataka 844

169

30

Tamil Nadu/KNT Border-

Bangalore 204

Karnataka 612

122

31

Shahganj Junction -Budhni-

Betul 107

Madhya Pradesh 1,017

203

32 Obdullaganj-Shahganj 26

Madhya Pradesh 247

49

33 Biaora- MP/Rajasthan Border 66

Madhya Pradesh 198

40

34 Jabalpur-Mandla-Chilpi 189

Madhya Pradesh 567

113

35 Khed-Sinner 150

Maharashtra 1,425

285

36 Vedishi-Osmanabad-Solapur 85

Maharashtra 808

162

37

Kalyan-Andhra Pradesh Border

(km442 to km591) 149

Maharashtra 447

89

38


(km232 to km284) 51

Maharashtra 153

31

39 Dhule-Aurangabad 140

Maharashtra 1,330

266

40

Amravati-Dhule-Gujarat

Border** 480

Maharashtra 1,079

216

41


(km 0.0 to km232) 232

Maharashtra 696

139








42


(Km284 to km 337 Jn.with NH-

211) 53 Maharashtra 159 32

43


(Km 342 Jn. With NH-211 to km

442) 100

Maharashtra 300

60

44 Aurandabad-Vedishi 175

Maharashtra 1,663

333

45 Solapur-Mah/KNT Border** 126

Maharashtra 1,236

247

46 Bahargora-Sambalpur 370

Orissa 3,515

703

47 Birmitrapur-Barkote** 128

Orissa 778

156

48

Baleashwar-Baripada-

Jharpokhria (Jn. of NH-5 with

NH-6) 90

Orissa 855

171

49

Sriganganagar-

Rajasthan/Punjab Border 124

Rajasthan 1,178

236

50 Karauli-Dholpur 72

Rajasthan 216

43

51

Jhalawar-Rajasthan/Madhya

Pradesh Border 71

Rajasthan 213

43

52 Rajasthan Border-Fatehpur 135

Rajasthan 405

81

53 Padhi-Dahod 85

Rajasthan 255

51

54

Vikravandi-Kumbakonam-

Thanjavur** 165

Tamil Nadu 1,172

234

55

Thanjavur - Pudukkotai -

Sivaganga - Manamadurai 122

Tamil Nadu 366

73

56

Tiruchirapalli-Lalgudi-

Chidambaram & Meenusuriti-

Jayamkondam-Kootu Road 135

Tamil Nadu 405

81

57

Viluppuram-Pondicherry-

Nagapattinam 194

Tamil Nadu 1,843

369

58 Coimbatore-TN/KNT Border 103

Tamil Nadu 309

62

59 Dindigul-KNT/TN Border 266

Tamil Nadu 798

160

60 Ghaghra Bridge-Varanasi 177

Uttar Pradesh 1,682

336

61

Indo Nepal Border-Ghaghra

Bridge 122

Uttar Pradesh 1,159

232








62 Unnao - Lalganj 68 Uttar Pradesh 204 41

63 Varanasi-Sultanpur** 142 Uttar Pradesh 1,349 270

64 Meerut - Nazibabad 139 Uttar Pradesh 417 83

65 Raibareilly - Jounpur 169 Uttar Pradesh 507 101

66 Ambedkar Nagar - Banda 287

Uttar Pradesh 861

172

67 Varanasi-Hanumanha 125

Uttar Pradesh 375

75

68

Barabanki-Bahraich-Nanapara-

Rupaidiha 152

Uttar Pradesh 456

91

69

Gorakhpur-Ferenda-Nautanwa-

Sonauli 99

Uttar Pradesh 297

59

70 MP/UP Border-Allahabad 41

Uttar Pradesh 123

25

71 Varanasi-Gorakhpur 206

Uttar Pradesh 619

124

72 Bharatpur-Mathura-Hathras 90

Uttar Pradesh 270

54

73 Moradabad-Aligarh** 145

Uttar Pradesh 679

136

74 Bareilly-Sitarganj 87

Uttar Pradesh 261

52

75 Sitarganj-Kashipur 97

Uttarakhand 291

58

76 Kashipur-Haridwar 167

Uttarakhand 1,587

317

77 Dehradun-Chutmalpur-Roorkee 70

Uttarakhand 210

42

78 Sitarganj - Tanakpur 52

Uttarakhand 156

31

79

Chutmalpur-Saharanpur-

Yamunanadar-Haryana/UP

Border 50

Uttarakhand 475

95

80 Pundlbari - Baxirhat 46

West Bengal 138

28

81

JHR/WB Border-Purliya-

Balarampur-JHR/WB border-

upto junction with NH-33 83

West Bengal 248

50



Opportunities for Investment Under NHDP Phase V *




Opportunities for Investment Under Other Projects *




1 Eastern Peripheral Expressway** 135 UP/Haryana 2,699 540




1 Vijaywada-Elluru-Rajamundry** 103 Andhra Pradesh 1,743 349

2 Rajamundary-Gundugulanu 121 Andhra Pradesh 1,210 242

3 Ichhapuram-Srikakulam-Anandpuram 213 Andhra Pradesh 2,130 426

4 Anandpuram-Vishakhapatnam-Ankapalli** 59 Andhra Pradesh 590 118

5 Ankapalli-Tuni 59 Andhra Pradesh 590 118

6 Tuni-Dharmavaram 47 Andhra Pradesh 470 94

7 Dharmavaram-Rajahmundary 53 Andhra Pradesh 530 106

8 Nellore Bypass 17 Andhra Pradesh 170 34

9 Tada - Nellore 111 Andhra Pradesh 1,110 222

10 Aurangabad-Barwa Adda** 220 Bihar/Jharkhand 2,200 440

11 Khagal – Belgaum 77 Karnataka 770 154

12 Neelamangala-Tumkur 35 Karnataka 350 70

13 Dharwad-Haveri 95 Karnataka 950 190

14 Haveri-Chitradurga 135 Karnataka 1,350 270

15 Tumkur & Chitrdurga Bypass 31 Karnataka 310 62

16 Satara-Kagal 133 Maharashtra 1,330 266

17 Chandikhole-Paradeep** 77 Orissa 809 162

18 Bhubaneshwar-Icchapuram 135 Orissa 1,350 270

19 Balasore-Chandikhole 140 Orissa 1,400 280

20 Kharagpur-Baleshwar** 119 Orissa 487 97

21 Ludhiana-Chandigarh** 60 Punjab 600 120

22 Walahajapet -Poonamallee** 92 Tamil Nadu 930 186

23 Tambaram - Tindivanam 93 Tamil Nadu 930 186

24 Allahabad Bypass-Varanasi** 160 Uttar Pradesh 1,520 304

25 Chakeri-Allahabad** 150 Uttar Pradesh 1,425 285

26 Hapur-Moradabad 110 Uttar Pradesh 1,100 220

27 Agra-Gwalior 85 Uttar Pradesh 850 170

28 Delhi-Hapur 52 Uttar Pradesh 520 104

29 Panagarh – Palsit 64 West Bengal 640 128

30 Palsit-Dhankuni 65 West Bengal 650 130



Revenue realisation in BOT-Toll projects is subject to

some key risks including, but not limited to variation in

traffic, variation in toll rates,

premature termination

The concession agreement provides for

various risk mitigation mechanisms to the

concessionaire including change in concession period,

differential toll rates that are linked to cost of different

road structures under the new toll rules (linear

alignment, bridges, tunnels, bypasses etc.) to

providing for termination payments under force

majeure events.

additional tollway,

occurrence of on account of

certain events.

The concession agreement provides for extension or

reduction of the concession period in the event the 9actual traffic falls short or exceeds the target traffic , as

10estimated on the target date .

The notification of the New National Highways Fee

Rules (2008)

has

provided for a revision of toll rates and hence

realisable toll revenues for all vehicle categories. The

new toll rules are applicable for all new road projects.

MCA also provides for termination of the agreement if

the average daily traffic in any accounting year

exceeds the design capacity and continues to exceed

for three subsequent accounting years. Termination in

such scenario will be deemed to happen on account of

an Indirect Political Event.

Variation in Toll rates (Linked to WPI)

and its amendments dated December 3,

2010, January 12, 2011 and October 12, 2011

Type of Variation Change in

Concession PeriodCap on Concession

Period Variation

Variation in Traffic

Actual Traffic <

Target Traffic

For every 1%

shortfall,concession

period increase by 1.5%

20%

10%Actual Traffic >

Target Traffic

For every 1% excess,

concession period 8reduction by 0.75%

8. Waiver from concession period reduction can be obtained on payment of premium

9. The method for calculating Actual Traffic and Target Traffic is detailed in the MCA

10. Target Date is around 10 years from the date of the agreement in a 20 year concession period

Revenue Risks and Mitigation


Old Toll Rate Rs./ trip (USD)

11New Toll RatesRs./ trip (USD)

Scenario 1

88

(~1.76)

90

(~1.80)

491

(~9.82)

490

(~9.80)

Scenario 2

88

(~1.76)

95

(~1.90)

491

(~9.82)

540

(~10.80)

Event of Default

During construction(after financial

closure)During operations

Concessionaire

event of default

No payment Payment equal to 90% of debt

due less insurance claims if any.

NHAI event of

default

a. the total Debt Due 12b. 150% of the Adjusted Equity.

Force Majeure

Non-Political

Event

Payment equal 90%

of the Debt Due less Insurance Cover

Indirect Political 13Event

a. Debt Due Less Insurance Cover

b. 110% of the Adjusted Equity

Political Event a. the total Debt Due

b. 150% of the Adjusted Equity

11. As per new tolling rules, toll rate revision is determined by the formula - TR = TR (1+3%) + TR ((1+3%)*%Variation in WPI*40%)1 0 0

Adjusted equity is equity funded in Indian Rupees adjusted suitably to reflect change in value of equity on account of depreciation and variations in WPI

at different periods during the Concession Period

13.

12.

Including termination due to breach of capacity as set out under traffic risk

The salient features of the new toll rules and its

amendments are:

•

•

•

•

Increase in base toll rates by 3% every year

Increase in toll charges to the extent of 40% of the

increase in WPI.

Toll charges for new structures (bridges, tunnels)

determined based on construction cost.

Rounding off fee to the nearest five rupees (earlier

rounded off to nearest one Rupee).

While the earlier tolling rules prescribed a standard

base toll rate on a per passenger car unit (pcu)/km

basis for a highway project, the new rules prescribe

base toll rates also for high-cost structures (such as

bridges and tunnels) separately.

The

base toll rates for other high-cost structures

are indexed to the estimated

project cost (on INR/vehicle/trip basis).

Provided below is an illustration of toll revenues

earned from a Light Motor vehicle and Multi Axle

Vehicle (MAV of more than three and up to six axles) as

per the applicable toll rates under the old and new toll

For bypasses

constructed at a cost of INR ten crore or more, the base

toll rates are one and a half times the standard base toll

rate on a per passenger car unit (pcu)/km basis.

(such as

bridges and tunnels)

rules respectively.

The toll charge at the end of fifth year has been

calculated under two project development scenarios. In

Scenario 1, a linearly aligned highway stretch (without

bypasses and bridges) of 100 km has been considered. In

Scenario 2, the highway stretch includes a linear

alignment of 80 km and bypass length of 20 km.

The

increase in WPI is assumed to be 5% p.a.

The table above shows that for a given base toll rate, the

toll charges determined by the new toll rules are

significantly higher in Scenario 2, where the bypass is

reflected in the toll charges.

Complete details of the new National Highway Fee

(Determination of Rates and Collection) Rules, 2008

are provided in the enclosed

CD.

The concession may be terminated before project

completion in the event of the following:

The

base toll rate on a pcu/km basis has been assumed to be

0.69 for a Light Motor vehicle and 3.85 for a Multi Axle

Vehicle (MAV of more than three and up to six axles).

and

its amendments dated December 3, 2010, January 12,

2011 and October 12, 2011

Early Termination of Concession


Light Motor Vehicle

Light Motor Vehicle

Multi Axle Vehicle

Multi Axle Vehicle

• NHAI Event of Default: In the event of any of the

defaults specified in the concession agreement

which the Authority has failed to cure within 90

days or such longer period as has been specified in

the agreement, the Authority shall be deemed to

be in default and concessionaire shall have the

right to terminate the agreement

In the event of

any of the defaults specified in the concession

agreement which the concessionaire has failed to

cure within the specified cure period, and where no

such cure period has been specified, then within

the cure period of 60 days, the concessionaire shall

• Concessionaire Event of Default:

be deemed to be in default and NHAI shall have

the right to terminate the agreement

A force majeure event which

lasts for less than 180 days will lead to a

proportionate change in the concession period to

compensate the concessionaire for losses during

such period

The concession is eligible to be terminated (by

either party) if the force majeure event subsists for

at least 180 days within a continuous period of 365

days.

• Force Majeure Event:


Overview of Successful Projects

Source: NHAI

Number of Contracts Cost in

BOT Toll

Awarded 161

Completed 44

BOT Annuity

Awarded 50

Completed 17

INR Crore USD Billion

15,242

2,412

3,381

1,011

26.1

3.3

5.9

1.2

130,372

16,625

29,717

6,186

PPP is gradually proving to be a successful mechanism

for developing and maintaining the National

Highways, as is evident from the increased private

sector participation in projects till date.

Toll collection depends on two factors - traffic volume

and tolling rate. The toll rates are pre-specified by

NHAI. Estimates of traffic growth for projects are also

provided by NHAI based on detailed feasibility studies.

However, bidders are advised to carry out

independent due-diligence of the traffic and growth

estimates. The profitability of tolled National

Highways has made the sector extremely competitive

and attractive. In light of the forecasts for traffic

growth on important road corridors, the Government

has given first preference to Build-Operate Transfer

(BOT/ DBFOT) toll projects.

Jaipur-Kishangarh is one of the earliest projects

implemented on BOT framework. The project involved

4-laning a length of approximately 91 km from Jaipur

to Kishangarh (NH-8), in the state of Rajasthan at an

estimated cost of INR 644 Crore (USD 129 million-

NHAI estimate). NHAI provided a grant of INR 211

Crore (USD 42 million) to the project. The concession

period of the project is 20 years.

Jaipur- Kishangarh BOT Project –NH 8

The project was completed 5 months ahead of its

scheduled completion date (2005). The concessionaire

also earned a bonus of INR 42.25 Crore (USD 8.5

million) in the form of early tolling during the period

before scheduled completion date. Even today, the

concessionaire is earning more revenues than those

projected at the time of bidding. However, the excess

revenue is being shared between the concessionaire

and NHAI as per the revenue sharing clause in the

agreement.

The project involved widening of existing two lanes to

4-lane divided carriageway facility including the

rehabilitation of existing 2-lanes on annuity basis. The

estimated cost of this 78 km long road project is INR

332 Crore (USD 66.4 million; NHAI Estimate). The

section has two toll plazas.

The project was awarded to the consortium of

M/s ILFS, M/s Punj Lloyd Ltd. and M/s Consolidated

Toll Network India Ltd. The concession period is 17

years and 6 months. The concessionaire completed the

project in October 2004, two months earlier than the

stipulated project completion date, and was paid a

(performance) bonus of INR 42.16 Crore (USD 8.4

million) on account of early completion.

This bridge is one of the first BOT projects, undertaken

by NHAI in 1995. The concession agreement was

signed in September, 2002.The consortium members

are from USA, U.K, Mauritius and India. Though the

Belgaum – Maharashtra Border Section of NH-4 (Annuity Project)

Second Vivekananda Bridge (now Sister Nivedita Bridge)- BOT Project in Kolkota:


financial close was delayed by one year, the

construction thereafter was almost on time and the thbridge was commissioned on 4 July, 2007. This

bridge also won the award of excellence for the year

2007 under the Foreign Bridge Project Category from

the American Segmental Bridge Institute. NHAI had

provided a grant of INR 120 Crore (USD 24 million) out

of the total project cost of INR 640 Crore (USD 128

million). The concession period of the project is 30

years.

This project has been undertaken as part of a

programme for adequate road connectivity to major

ports through an SPV of NHAI (Jawaharlal Nehru Port

Road Company Limited). Phase-1 of the project, with a

length of 30 km for 4-laning of NH-4/4B, built at an

estimated cost of INR 177 Crore (USD 35.4 million) was

commenced in February 2002 and was completed in

July 2005. This project is a symbolic representation of a

successful venture of NHAI, Jawaharlal Nehru Port and

State Government

(CIDCO). Phase-II of the project for 4-laning of 14 km

and the 6-laning of Panvel Creek Bridge (length: 397m)

at a cost of INR 143 Crore (USD 29 million) has

been . Encouraged by the results, Phase –III

at a cost of INR 279 Crore (USD 56 million), is being

taken up. The concession given to the SPV of NHAI is

for 20 years from December 2000. The SPV is making

profits (after tax).

Foreign contractors started participating in NHDP

contracts (and to a limited extent in state highway

projects) from 2000-01. In 2000-01, there were about

20 contracts in the NHDP, where foreign contractors

participated either or in joint ventures;

the number grew to about 32 in 2003. The foreign

contractors taking part were from Malaysia, Korea,

China, Russia, Turkey, Indonesia, Iran and some niche

contractors from Europe for specialised jobs. It is

presently estimated that

Jawaharlal Nehru Port Connectivity Project in Maharashtra

Participation of Foreign Contractors

represented by City and Industrial

Development Corporation of Maharashtra Ltd.

also

completed

on their own

contractors from about 16

countries are operating in India.

Foreign companies are executing 24 contracts

exclusively and 83 contracts as joint venture partners

with Indian companies. Foreign investors are allowed

100 per cent foreign direct investment in road sector

(Please refer section on page 33). The total value of

contracts with foreign participation is estimated to be

more than INR 12,000 Crore (USD 2.4 billion)

Construction Firms

No. of Foreign Firms

No. of Projects

Length (in km)

BOT (Toll) 30 3,243

BOT (Annuity) 10 889

EPC Contracts 66 3,298

S. No. Country Contractors

JV Independent

China

Dubai

Malaysia

Iran

Saudi Arabia

UK

Indonesia

Korea

Spain

Taiwan

Thailand

Turkey

Philippines

USA

Russia

Italy

Total

1.

2.

3.

4.

5.

6.

7 .

8.

9.

10.

11.

12.

13.

14.

15.

16.

14

3

26

1

1

4

2

9

5

-

3

2

1

1

10

1

83

2

-

10

-

-

-

2

5

-

2

1

-

-

-

2

-

24

Country wise breakup of Foreign and JV Companies involved in development work of National Highway Projects

30

10

66


National Highways Policy Initiatives

•

•

•

•

•

•

•

•

•

•

•

The government has adopted a road development

policy setting out the guidelines for investment in

highways. In order to meet the huge investment

requirements in the sector, the government has taken

a number of measures to attract private sector

participation.

The government has permitted 100 per cent

foreign equity in construction and maintenance of

roads, highways, tunnels etc.

Grant upto 40% of project cost to make project

viable.

100% tax exemption in any 10 consecutive years

within a period of 20 years after completion of

construction provided the project involves

addition of new lanes.

Agreements to avoid double taxation with a large

number of countries

Concession period upto 30 years

Right to charge tolls on certain (toll) projects.

These tolls are indexed to a formula linked with the

wholesale price index.

The government permits duty free import of high

capacity equipment required for highway

construction.

Government support for land acquisition,

resettlement and rehabilitation.

Simplified procedure for Land Acquisition

MCA for BOT (Annuity) is being finalised.

New rules for collection of fee for use of sections of

national highway, permanent bridges, bypasses and

tunnels have been put into place. The illustration of

revenue collection for new projects under the new

policy is provided in the earlier section.

Policy Framework

Viability Gap Funding Scheme ( VGF)

The VGF scheme provides financial support in the form

of capital grant for PPP projects in various

infrastructure sectors. VGF Scheme is intended to

support projects which are commercially unviable but

have high economic benefit.

The Empowered Institution sanctions projects for VGF

upto INR100 crore (USD 20 million) for each eligible

project subject to the budgetary ceiling indicated by

the Finance Ministry. The Empowered Institution also

considers other proposals and places them before the

Empowered Committee. Funding upto 20% of the

project cost is provided. If required, an additional 20%

can be made available by the sponsoring

Ministry/agency.

Proposals up to INR 200 Crore (USD 40 million) will be

sanctioned by the Empowered Committee and

amounts exceeding INR 200 Crore will be sanctioned

by the Empowered Committee with the approval of

Finance Minister.

Capital grant for all infrastructure projects under the

VGF scheme is restricted to a maximum of 40% of the

project cost (for projects upwards of INR 200 Crore).

Grant provided by NHAI for highway projects under

the BOT route may be financed through the VGF route.

VGF funding will not be available over and above

NHAI's grant for projects.

The Government will carry out all preparatory works

for the projects identified for private investment and

meet the cost of following items:


Government Support for Major Clearances required for Road Projects

Cost Estimate

Techno economic Clearances

Pollution Clearance (water & air)

Forest Clearance

Environmental Clearance

Company Registration

Rehabilitation & Resettlement of Displaced

families

CLEARANCES

Ministry of Road Transport & Highways /Public Works Department

/National Highways Authority of India (NHAI)

Ministry of Road Transport & Highways/ Public Works Department/


Central Pollution Control Board

Ministry of Environment & Forests

Ministry of Environment & Forests

Registrar of Companies

Ministry of Road Transport & Highways, State Governments and NHAI

CLEARING AUTHORITY

•

•

•

•

Detailed Feasibility Study

Land for right-of-way and enroute facilities

Clearance of the right-of-way land: Relocation of

utility services, cutting of trees, resettlement and

rehabilitation of the affected establishments

Environment Clearances

•

•

Clearance from Indian Railways to allow

construction of Rail-Over-Bridges under their

supervision

Where design is left to the enterprise, giving

details of standards and bore holes logs at bridge

sites etc.


Foreign Direct Investment (FDI) Policy

* Apr 2010 - Dec 2010; Source: RBI

Routes For Foreign Direct Investment

Introduction

The FDI regime has been progressively liberalised

during the course of the 1990s (particularly after 1996)

with most restrictions on foreign investment being

removed and procedures simplified. With limited

exceptions, foreigners can invest directly in India,

either wholly by themselves or as a joint venture.

India welcomes FDI in virtually all sectors, except those

of strategic concern such as defence (opened to a

limited extent), atomic energy and activities/sectors

not opened to private sector investment.

The major source of FDI in India is through the equity

route, which accounted for approximately 67% of the

total FDI inflows in India during the period April 2000

to April 2011.

Investment Climate – FDI Current Situation

Automatic Route

No prior government approval required

FDI equity limit-Automatic Route (illustrative list)

• Roads -100%

• Insurance – 26%

• Domestic airlines – 49% (100% for NRI investment)

• Telecom services – Foreign Investment 74% (FDI upto 49%

under the automatic route)

• Private sector banks – 74% (upto 49% is under the

automatic route)

• Exploration and mining of coal, lignite, diamonds and

precious stones – 100%

• Development of new airports – 100%

• Development of existing airports – 100% (upto 74% is

under the automatic route)

Other areas (100% - Auto Route): Pharma, Non Banking Financial Services, SEZs, Food Processing

Prior Permission (Foreign Investment Promotion Board)

Decision generally within 4–6 weeks

FDI Requiring prior approval (illustrative list)

• Defence production -26%

• FM broadcasting – Foreign investment 20%

• Print media / news and current affairs - 26%

• Broadcasting – cable, DTH, setting up of hardware facilities-

Foreign equity 49% (Ceiling of 20% for FDI in DTH)

• E-commerce activities - items sourced from small scale

sector & test marketing – 100%

• Single brand retailing 51%

• Banking - Public Sector FDI and Portfolio Investment upto

20%

FDI

2006-07 2007-08 2008-09 2009-10 2010-11*

Net Foreign Investment (in billion $)

7.7

15.9

19.8 18.8

7.67.1

27.4

-14.0

32.430.1

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

Net Direct Foreign Investment

Net Portfolio Foreign Investment

•

•

Automatic Route - No prior Government approval

is required if the investment to be made falls within

the sectoral caps specified for the listed activities.

Only filings have to be made by the Indian

company with the concerned regional office of the

Reserve Bank of India (“RBI”) within 30 days of

receipt of remittance and within 30 days of

issuance of shares

FIPB Route - Investment proposals falling outside

the automatic route would require prior

Government approval. Foreign Investment

requiring Government approvals are considered

and approved by the Foreign Investment

Promotion Board (“FIPB”). Decision of the FIPB is

usually conveyed in 4-6 weeks. Thereafter, filings

have to be made by the Indian company with the

RBI

CCEA Route - Investment proposals falling

outside the Automatic Route and having total

foreign equity inflow of more than INR 12,000

million (USD 240 million) would require prior

approval of Cabinet Committee on Economic

Affairs (“CCEA”) after obtaining the FIPB approval. Decision of CCEA is usually conveyed in 8-10

weeks. Thereafter, filings have to be made by the

Indian company with the RBI. Investment

proposals falling within the automatic route and

having total foreign equity inflow of more than INR

12,000 million do not require to be approved by

CCEA.

•


• Taxed at worldwide income

• Taxed at 30%

• If taxable income > INR

1 0 , 0 0 0 , 0 0 0 ; S u r c h a r g e

applicable @ 5% of tax.

• Education cess of 3% of tax

(and surcharge if applicable)

• Dividend Distribution Tax

(DDT) is levied @ 16.22% on

the amount of dividend

declared.

• Taxed at income which is

earned from a business

connection in India or from a

source/asset located in India.

• Taxed at 40%

• If taxable income > INR

1 0 , 0 0 0 , 0 0 0 ; S u r c h a r g e

applicable @ 2% of tax.

• Education cess of 3% of tax

(and surcharge if applicable)

• No Dividend Distribution Tax

(DDT)

Foreign CompaniesDomestic Companies

Tax Environment

Service Tax

Taxation in India

State

Direct Taxes

Indirect Taxes

Personal Income Tax

Corporate Tax

Wealth Tax

Customs Duty

Excise Duty

Central Sales Tax

Other Taxes

Professional Tax

Central

Indirect Tax

Value Added Tax

Entry Tax

Octroi

Taxation System In India

India has a well-developed tax structure with the

authority to levy taxes divided between the central

and the state governments. Since 1991 tax system in

India has undergone a radical change in line with

liberal economic policy. Brief description of taxes

prevalent in India is given below:

Direct Taxation

Tax incentive for Roads

•

•

•

100% tax holiday is available for those who are

engaged in (i) development or (ii) operation and

maintenance or (iii) development, operation and

maintenance of a new infrastructure facility. Such tax

holiday can be availed for any consecutive period of 10

years within a block of 20 years starting from the year

when the undertaking develops and begins to operate

the infrastructure facility. Following conditions need to

be fulfilled by such an undertaking:

It should be a company registered in India;

Such company is awarded a contract by the

government or its agency to develop the

roads/highways;

A certificate from an accountant certifying the

deduction.

Both the companies may be liable to Minimum Alternate Tax (MAT) of 18.5% of

the book profits if the tax liability under normal provisions is less than MAT. The

above rates may be subject to more beneficial provisions contained in a tax

treaty entered into between India and the country in which the taxpayer is

resident.

The tax law requires companies to pay a minimum tax

known as MAT on the basis of profits disclosed in

the financial statements. MAT becomes payable when

tax liability under normal provision is less than MAT.

In such a case, companies are liable to pay 18.5% of

book profits as MAT plus applicable surcharge of 5%

for domestic companies and 2% for foreign

companies. Education cess of 3% thereon is levied in

case of both domestic and foreign companies. Book

profits for this purpose are computed by making

prescribed adjustments to the net profit disclosed by

the corporations in their financial statements.

Minimum Alternate Tax (MAT)

Rates of Taxation


MAT paid by companies can be carried forward for 10

years and offset against income tax payable under the

normal provisions of tax. The maximum amount that

can be set off against regular income tax is equal to the

difference between the tax payable on the total

income as computed under the Income Tax Act and

the tax that would have been payable under the MAT

provisions for that year.

Dividend distributed by an Indian company is exempt

from income-tax in the hands of all shareholders.

However, the Indian company is liable to pay a tax

called Dividend Distribution Tax (DDT) of 16.22% (i.e.

inclusive of surcharge and education cess) on such

dividends. This tax is in addition to the normal

corporate tax liability (income tax levied on the

Dividend Distribution Tax (DDT)

company). The amount of dividend declared by the

parent company (i.e. holding more than 50 percent of

capital) will be reduced by the amount of dividend

received from its subsidiary company for the

purposes of computing DDT payable by the parent

company if:

Such dividend is received from its subsidiary;

The subsidiary has paid DDT on such dividend; and

The parent company is not a subsidiary of any

other company.

Such tax paid is a non-deductible expense.

•

•

•


Profit / Loss as per

Accounts

Add: Expenses Disallowed as per Income Tax Act and

considered in accounts

Less: Expenses Allowed as per Income Tax Act but not considered in accounts

Apply applicable tax rates (including Surcharge & Education

Cess) to the taxable income to arrive at gross tax payable under

normal provisions.

Tax payable is equal to tax under normal provisions

Calculated tax payable under ‘Minimum alternate

Tax’ (MAT) provisions

Is Tax payable under normal

provisions higher than tax payable

under MAT?

Deduct taxes already paid to arrive at net taxes payable /

refundable

Is amount positive?

Net taxes refundable

Tax payable is equal to tax under MAT provisions

Y

N

Y

N

Net taxes payableProfit / Loss

as per Accounts

Add: Expenses Disallowed as per Income Tax Act and

considered in accounts

Less: Expenses Allowed as per Income Tax Act but not considered in accounts

Apply applicable tax rates (including Surcharge & Education

Cess) to the taxable income to arrive at gross tax payable under

normal provisions.

Tax payable is equal to tax under normal provisions

Calculated tax payable under ‘Minimum alternate

Tax’ (MAT) provisions

Is Tax payable under normal

provisions higher than tax payable

under MAT?

Deduct taxes already paid to arrive at net taxes payable /

refundable

Is amount positive?

Net taxes refundable

Tax payable is equal to tax under MAT provisions

Y

N

Y

N

Net taxes payable

Determination of Taxable Income

Withholding tax compliance

Tax withholding and deposit

• Tax on payment is required to be deducted at the time of

credit; or at the time of payment, whichever is earlier.

• Amount of tax withheld is required to be deposited with the

government within 7 days from the end of the month in

which tax was withheld.

• In case the tax is paid or credited in the month of March, the

same can be deposited by April 30.

Requisite Challan

• Tax withheld has to be deposited in Form ITNS-281. With

effect from April 1, 2008 all corporates will have to pay tax

electronically.

Withholding tax certificate

• Certificate in Form no. 16A to be issued to the payee within 15

days from the due date for furnishing the statement of tax

deducted at source.

• Certificate in Form 16 for tax withheld on salary to be issued

annually by May 31 of the financial year immediately following

the financial year in which income was paid and tax deducted.

Quarterly statement

• Payment to residents and non residents: Quarterly statements for

withholding tax are to be filed on or before July 15, October 15,

Jan 15 and May 15.

Withholding tax


List of countries with which India has a DTAA

Double Tax Relief and Tax Treaties

India has a comprehensive tax treaty network. Taxpayers have the option to choose between the provisions

of the tax treaty or the Income Tax Act, whichever is beneficial to them. List of countries with which India has

Double Taxation Avoidance Agreements (DTAA) is provided below.

Armenia

Australia

Austria

Bangladesh

Belarus

Belgium

Botswana

Brazil

Bulgaria

Canada

China

Cyprus

Czech Republic

Denmark

Finland

France

Germany

Greece

Hungary

Iceland

Indonesia

Ireland

Israel

Italy

Japan

Jordan

Kazakhstan

Kenya

Korea

Kuwait

Kyrgyz Republic

Libya

Luxembourg

Malaysia

Malta

Mauritius

Mongolia

Morocco

Myanmar

Namibia

Nepal

Netherlands

New Zealand

Norway

Oman

Phillippines

Poland

Portuguese Republic

Qatar

Romania

Russia

Saudi Arabia

Serbia

Singapore

Slovenia

South Africa

Spain

Sri Lanka

Sudan

Sweden

Swiss Confederation

Syria

Tanzania

Tazakhistan

Thailand

Trinidad and Tobago

Turkey

Turkmenistan

UAE

Uganda

UK

Ukraine

USA

Uzbekistan

Vietnam

Zambia


United Arab Republic(Egypt)

Incentives/Exemptions

• Exemption for specified projects: An importer of

specified goods is eligible to claim exemption 15from payment of Customs duty on fulfillment of

prescribed conditions, which inter alia include:

i The goods are imported by Ministry of Road

Transport or a person who has been awarded

contract for construction of roads in India by

NHAI, PWD, road construction corporation

under the control of State/ Union Territory

Government

ii A person who has been named as a sub-

contractor in the contract between NHAI and

the principal contractor for construction of

roads

• Project Import: As per the project import

regulations, the benefit under project import

would be available only to those goods which are

imported against the specific contracts registered

with the appropriate authority. Under Project

Import scheme, goods can be imported for

specified projects (including road development

project for NHAI) at a concessional BCD rate of 5%.

An importer of specified goods is eligible to claim

exemption from payment of Customs duty on

fulfillment of prescribed conditions.

• Projects funded by international organisations: In

terms of customs laws, goods imported from

outside India for execution of projects funded by

international organisations (like World Bank, Asian

Development Bank etc.) and approved by the

Government of India are exempt from levy of

Customs duty subject to prescribed conditions.

• Foreign Trade Policy ('FTP'): The FTP provides

certain exemptions/benefits to specified supplies

of such goods manufactured in India, where such

supplies qualify as 'Deemed Exports'. As per the

FTP, Deemed Exports refer to certain transactions

wherein the goods supplied do not leave the

country and payment for supplies is received in

Indian rupees or in free foreign exchange. Supplies

made to various specified projects/ purposes

qualify as deemed exports under the FTP including

supplies under the following categories:

I. Supply of goods to projects financed by

multilateral or bilateral agencies/funds

notified by Department of Economic Affairs

under International Competitive Bidding

('ICB').

ii. Supply of goods to any project or purpose in

respect of which import of goods is

permissible at zero-rate of Customs duty.

However, in order to be eligible for Deemed Export

benefits, supplies under the aforementioned

categories should be made under ICB. Further, a sub-

contractor making supplies directly to the main

contractor or directly to the designated projects/

agencies would also be eligible for Deemed Export

benefits subject to prescribed conditions in this

regard.

Excise duty is levied by the Central Government on the

manufacture of movable goods in India at the time of

Excise duty

Indirect Taxation

Customs Duty

Customs duty is payable on import of goods into India.

The rate of Customs duty is based on the Tariff

classification of the goods being imported as per the

Customs Tariff Act, 1975 ('Customs Tariff') [which is

aligned with the Harmonised System of Nomenclature

(HSN) followed internationally].

Various concessions/ exemptions are available on the

basis of nature of goods, usage, status of importer,

country of import etc.

14. Capital goods can be imported at the general rate of 7.5 % .

15. Notification No. 21/2002-Cus, dated March 1, 2002.

Education Cess (including the Secondary Higher

Education Cess of One percent)

1410%

10.3%

3%

4%

Name of Duty / Cess Rate

Basic Customs Duty ('BCD')

Additional Customs Duty in lieu of Execise duty ('CVD')

Additional duty of Customs in lieu of local taxes ('ADC')


removal of goods from the factory premise of the

manufacturer. The Central Excise Act, 1944 ('the Excise

Act') prescribes the rate of levy in the Excise Tariff Act,

1985 ('Excise Tariff'). The general rate of Excise duty in

India is 10.3% (Basic Excise Duty 10%, Education Cess

3%). Credit of Excise duty paid is available against the

output Excise duty liability/output service tax liability.

A supplier or a manufacturer of goods (that are

supplied to a contractor/ sub-contractor engaged in

construction activities) would be eligible for

exemption from payment of Excise duty on fulfillment

of prescribed conditions, which inter alia include:

Goods are supplied against ICB

Goods being supplied/ manufactured are exempt

from BCD, CVD and ADC when imported into India

Also, all goods supplied to projects financed by

international organisations (like World Bank, Asian

Development Bank etc.) and approved by the

Government of India are exempt from levy of Excise

duty.

Service tax is a federal levy on provision of specified

services in India. Service tax is currently leviable at the

rate of 10.3%. Relevant taxable services category for

construction activities inter alia include:

Commercial or industrial construction services

Site formation, clearance, excavation, earth

moving and demolition services

Works contract services

Management, maintenance or repair services

Construction / maintenance of roads has been

specifically exempted from levy of Service tax under

the following taxable categories:

Commercial or industrial construction services

Site formation and clearance, excavation, 16earthmoving and demolition services

Works contract services

Management, maintenance or repair services.



•

•

Service Tax

•

•

•

•

•

•

•

•

Value Added tax ('VAT')

Central Sales Tax ('CST')

Goods and Service tax - Proposed

VAT is a state specific levy on sale of goods within the

State. The rate of VAT generally varies from 174%/13.5% (depending upon the goods involved).

However, a higher or a lower rate of VAT may be

notified by the respective State Government for

specified goods. Multiple schemes for payment of VAT

are available under the State VAT laws.

A transaction qualifies as an inter-state sale, where the

sale entails movement of goods from one State to

another. Inter-state movement of goods is liable to

CST under the Central Sales Tax Act, 1956 ('the CST

Act') at the rate of 2 percent against statutory

declaration form ('Form C'), which can be issued by the

buyer for specified purposes, or at the VAT rate

applicable on local sale of goods in the dispatching

State (i.e. the State from which the movement of

goods commences pursuant to the sale). The EPC

contractor can issue Form 'C' for purchase of goods at

the concessional rate.

Further, it is pertinent to note that the CST borne on

account of inter-state procurements and paid in other

State will not be available as credit against any output

liability.

In the Union Budget 2008-09, the Government of India

had signaled its intention to introduce a nation wide

Goods and Service tax ('GST') with effect from April 1,

2010. Though GST has still not been introduced, the

Government introduced the Constitution Amendment

Bill in Parliament in March 2011 as a step towards the

roll-out of GST. GST would be in lieu of Excise duty,

VAT, Entry tax, CST and Service tax.

GST in India would be a dual GST with Center (CGST)

and State (SGST) levying GST at each transaction.

Inter-state transaction would attract Integrated GST

(IGST) which would be sum of CGST and SGST. Credit

of CGST, SGST and IGST would be available. No credit

of Central GST is likely to be available against State GST

and vice-versa.

16 Notification No. 17/2005-ST, dated 7 June 2005

17 Some states have increased the rate


Repatriation of Investments and Profits Earned in India

Dividends are not allowed as deduction. Royalty/ fee for technical services/ interest are allowed as

deduction subject to transfer pricing norms

Notes:

a. Tax free for all shareholders but Indian company declaring the dividend is subject to Dividend Distribution

Tax (DDT) at 16.22% of the dividend declared.* the above rates are exclusive of surcharge and education cess.

Ministry of Commerce and Industry vide Press Note dated December 16, 2009 has permitted payments for

royalty, lumpsum fee for transfer of technology, payments for use of trademark/brand name under automatic

route.

• Royalties and Technical Know-how Fees:

• Dividends:

Indian

companies that enter into Technology Transfer

Agreements with foreign companies are

permitted to remit payments towards know-how

and royalty under the terms of the foreign

col laborat ion agreement without any

restrictions.

Dividends are freely repatriable after

the payment of Dividend Distribution Tax by the

Indian company declaring the dividend. No

permission of RBI is necessary for effecting

remittance, subject to specified compliances.

Payment of interest borrowed from

overseas would be governed by the regulation

regarding external commercial borrowings.

A maximum of 25% of equity

share capital permitted to be repurchased in a

financial year. Buyback is possible only from free

• Interest:

• Buyback of shares:

Rates of

taxation

Type of Income streams

Interest Dividend Royalty Technical Fees

Domestic law (a)

NIL

Best treaty

rate 5%

Domestic law

20%*

Domestic law

10%*

Domestic law

10%*

Best treaty

rate 10%

Best treaty

rate 10%

Best treaty

rate Nil


reserves, share premium and proceeds from fresh

issue of shares. Post repurchase, debt owed by

company should not to exceed 2 times of (capital

+ free reserves). There will be no tax implication

in the hands of Indian company. However, since

buy back is considered as transfer of shares

(capital asset), therefore, shareholder will be

liable to capital gain tax. No DDT to be paid by

Indian company/ shareholders.

Foreign

capital invested in India is generally repatriable,

along with capital appreciation, if any, after the

payment of taxes due on them, provided the

investment was on repatriation basis. Preference

shares are similar to equity shares carrying

preferential right towards payment of dividend.

However, foreign investment in redeemable

preference shares is considered to be foreign

borrowings. Profits on redemption of preference

shares taxed are to be taxed as capital gains. This

may not be applicable for non-resident investors

as preference shares can be redeemed only at

par. DDT @ 16.22% would be payable on coupon

• Redemption of preference shares:

Repatriation of capital

Redemption of

preference shareLiquidation of companyBuy back of shares Capital Reduction

on preference shares.

The company law provision

provides for a detailed procedure wherein the

capital of company can be reduced and money

can be repa t r i a ted back . A spec ia l

permission/resolution is to be passed at general

meeting of shareholders authorising capital

reduction process. Thereafter, a capital reduction

process has to go through a court process which

would could involve obtaining creditors

approval, no objection certificate from all

creditors etc. Cash paid to the extent of

accumulated profits (including capitalised

profits) would be liable to DDT @16.22% in the

hands of Indian company.

Cash can be repatriated

by way of liquidation of Indian company. Both

the shareholders can exit out of the project

simultaneously and get entire funds back.

Liquidation is complicated and time consuming.

• Capital reduction:

• Liquidation of company:


Administrative Framework

The road sector in India is a concurrent subject. The

jurisdiction of Central Government is limited to

National Highways, while the jurisdiction of State

Governments is across State Highways, Major District

Roads, Village Roads and Other Roads. At the Central

Level, the overall policy, programme development and

planning is done by the Planning Commission in

consultation with the Ministry of Road Transport and

Highways (MoRTH) and Ministry of Rural

Development (MoRD).

At the State Level, the overall policy and programme

development and resource planning is done by the

State Planning Cell in consultation with Central

Planning Commission and State Ministry in charge of

Roads.

Administrative Framework by Category of Roads

Road Network Coordinating Agency Connectivity To

Expressways

National Highways

Ministry of Road Transport and

Highways (MoRTH), National Highway

Authority of India (NHAI) and State Road

Development Corporations

MoRTH, NHAI, BRO

(Border Roads Organisation)

State capitals and tier 1 cities

Union capital, state capitals, major ports,

strategic locations

State Highways

Major District Roads

State Public Works Departments ( PWDs)

State PWDs

State capitals, district centres, important

towns, national highways, other states

State Capitals, district centres,

important towns, national highways

Production centres, markets, highways,

railway stations etcRural and Other Roads Ministry of Rural Development (MoRD)

Projects like irrigation, power, mines, etc Project Roads State PWDs/Project Organisations

Intra city networkingUrban Roads Municipal Corporations

Villages, district roads, highways,

railway stations, riversides etc Village Roads Zilla Parishads/State Governments



Administrative Framework for Roads

MoRTH

(allocation of funds for the development and maintenance of highways)

MoRD (allocation of funds for the development

and maintenance of rural roads)

Road Development Corporations (Construction, Maintenance and

Operation of Roads)

NHAI (NHDP implementation,

operations and maintenance)

Department of Road Transport & Highways

Institutional Advisory Framework

Facilitated by

Committee on Infrastructure

Planning Commission

Finance Ministry/PPP Cell Central Level

Secretary Panchayat Raj

Rural Redevelopment

& Panchayat Raj

(Rural Roads)

State PWD

State Highways

MDRs,ODRs, Village

Roads

State PWD

(NH-Wing)

State Level

Planning, Policy and Budgeting

About NHAI

The National Highways Authority of India (

constituted by an act of Parliament, the National

Highways Authority of India Act, 1988. The Authority

was operationalised in February 1995.

NHAI is the nodal agency responsible for the

development, maintenance and management of

National Highways entrusted to it and for matters

connected or incidental thereto. The more than USD

60 billion National Highways Development Project

(NHDP) has been managed by the NHAI under the

mandate of the Ministry of Road Transport &

Highways (MoRTH), Government of India.

The charter of NHAI is set out in the National Highways

Act, 1956 and National Highways Authority of India

Act, 1988:

Delegation of power and functions of the highway

administration to NHAI

Enhanced powers for land acquisition

Right to collect tolls for road projects on its own or

through third parties in accordance with specified

government guidelines

Authorisation to borrow from capital market

through bonds, debentures and other instruments

NHAI) was

•

•

•

•

• Situation where Central Government will have

powers to override NHAI and its officials

Besides implementation of the NHDP, NHAI is also

concerned with implementation of road safety

measures and environmental management and IT

initiatives in construction, maintenance and operation

of National Highways.

For projects related information kindly contact :

Chief General Manager (FA)

Phone : + 91(11)-25074100 & 25074200, Extn : 1330



Organisation Structure of NHAI is set out below:

NHAI

Technical Finance Administration

Project Management

Corridor Management

NH

AI

CO

RP

OR

AT

E

OF

FIC

E

NH

AI

FIE

LD

OF

FIC

ES

The administrative framework at the Head Office is set out below

Chairman

Corridor Management Unit (CMU)

Project Implementation Unit (PIU)

CGMs (Technical)CGM (PQ) CGM (S R&D)

CGM (Safety)

CGM (HR &

Admn)

CGM (LA)

CGM (IT)

CGM (CM)

CGM (Legal)

CGM (Finance)

Member Administration

Member

Technical

Member

Projects Member Finance

Member

PPP

Central Vigilance Officer

List of CD Contents

1. Overview of the Model Concession Agreement (BOT-Toll)

2. Model document of Request for Qualification

3. Model document of Request for Proposal

4. Arbitration Act, 1996

5. Central Road Fund Act

6. Land Acquisition Act

7. The Indian Tolls Act

8. National Highways Fee (Determination of Rates and Collection) Rules, 2008

9. National Highways Fee (Determination of Rates and Collection) Amendment Rules, 2010

10. National Highways Fee (Determination of Rates and Collection) Amendment Rules, 2011

11. National Highways Fee (Determination of Rates and Collection) Second Amendment Rules, 2011

12. Motor Vehicles Act

13. NHAI Act, 1988

14. Environment Protection Act

15. Manual and Specification for 6-laning



18. Road Transport Policy

19. Reserve Bank of India Policy

Annexure


Useful Addresses

Registrar of Companies

Department of Company Affairs

Ministry of Finance

'B' Block, IInd Floor, Paryavaran Bhawan

C.G.O. Complex, New Delhi-110 003, India

www.dca.nic.in

Border Roads Organisation

Seema Sadak Bhawan

Ring Road Naraina

Delhi Cantt 110010

www.bro.nic.in

Central Institute of Road Transport

Bhosari, Pune - 411026, India

www.cirtindia.com

National Portal of India

www.india.gov.in/

Directory of Indian Government Websites

www.goidirectory.nic.in/

Press Information Bureau (PIB)

www.pib.nic.in/


G 5&6, Sector-10, Dwarka,

New Delhi - 110 075

Phone: 91-011-25074100 & 25074200

Fax : 91-011-25093507, 25093514

www.nhai.org

Ministry of Finance, Government of India /

Department of Economic Affairs

North Block, New Delhi

www.finmin.in

Ministry of Road Transport and Highways

Transport Bhavan

1, Parliament Street

New Delhi 110 001

www.morth.nic.in

Department of Industrial Policy and Promotion

Joint Secretary

Secretariat for Industrial Assistance (SIA)

Ministry of Commerce & Industry

Udyog Bhavan, New Delhi-110 011, India

www.dipp.nic.in

Reserve Bank of India (RBI)

Foreign Investment Division,

Shaheed Bhagat Singh Road,

Mumbai-400 001, India

www.rbi.org.in

Foreign Investment Promotion Board

Ministry of Finance

Government of India

North Block, Lok Nayak Bhavan,

New Delhi

Not just roads... building a NATION

http://www.nhai.org

Documents

Guidelines for Investment in Road Sector (as on 15 Feb 2012)