Idf(b) Ppp Case Group3

7/31/2019 Idf(b) Ppp Case Group3

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INFRASTRUCTURE DEVELOPMENT & FINANCING

Coimbatore bypassexperience : PPP projectGroup # 3

Members:

Ashim Sarkar

Aravind G

Maruthi Raj M

Nikunj Chhaochharia

Priyanshu Dubey

Rizurekh Saha


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Agenda

Background

Issues raised

Lessons learnt

PPP today

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BACKGROUND

Case: Coimbatore Bypass

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First road privatization scheme to beimplemented in South India, on BOT basis

GENERAL INFORMATION

BIDDING INFORMATION

PROJECT BENEFITS &COSTS

LEGAL INSTRUMENTS

FINANCIAL INFORMATION

BIDDING INFORMATION


LEGAL INSTRUMENTS


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Project name: Coimbatore bypass roadScope:1. A bridge (Athupalam bridge) over Noyyal river on NH 47

2. Road over bridge (ROB) on NH 209 to the Coimbatore bypass road

Type of PPP : BOT-tollContract authority : MoST, Tamil Nadu State GovernmentContract period : 30 years on Coimbatore bypass

20 years on Athupalam Bridge

Project Developer : Larsen & Turbo Transportation Infrastructure

Limited (LTTIL)

Athupalam bridge


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LTTIL was the only bidder

GENERAL INFORMATION

BIDDING INFORMATION


LEGAL INSTRUMENTS



LEGAL INSTRUMENTS


GENERAL INFORMATION

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Type of bid : Domestic competitive bidNo. of bidders : 1Project Developer : Larsen & Turbo Transportation Infrastructure

Limited (LTTIL)

Total length : 27.67 KmsContract sign date : 13 Oct 1997Bid Amount : Rs. 90 Crore


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Investments Estimated Cost of Project: Rs 90 crore (Rs 87 crore for

Coimbatore bypass and Rs 3 crore for Athupalam

Bridge).

Actual Cost of Project: Rs 110 crore

Project Benefitsand Outcomes :

The bypass has eased the traffic congestion inCoimbatore city, Tamil Nadu and the Salem-Cochin

highway running between Tamil Nadu and Kerala.

Shippers, mostly from export oriented Units relying on the

Cochin Port for shipments, are other major beneficiaries

as transportation time is saved using the new road. usersincluded less pollution, pleasant drive, good wayside

amenities and lastly, safety. L&T gave special emphasis

to safety aspect of the road. Crash barriers were provided

on the high embankment of the road, along with thermo

plastic road markings

Rs 87 crore for Coimbatore bypass and Rs 3crore for Athupalam Bridge

GENERAL INFORMATION

BIDDING INFORMATION


LEGAL INSTRUMENTS


BIDDING INFORMATION

LEGAL INSTRUMENTS


GENERAL INFORMATION

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Risk due to non-payment of tolls lies with theState Government

GENERAL INFORMATION

BIDDING INFORMATION


LEGAL INSTRUMENTS


BIDDING INFORMATION



GENERAL INFORMATION

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Legal Instrument BOT - Toll

RISK DESCRIPTION

Construction To be borne by LTTIL

Operational To be borne by LTTIL

Commercial To be borne by LTTIL. Risk due to non-payment of tolls lies with

the State Government.

(The project ran into problems when users refused to pay toll. L&T

agreed to the subsidized toll rates on the condition that the StateGovernment should compensate the revenue losses sustained by

the company)

Financial To be borne by LTTIL

Political Government of Tamil Nadu

Regulatory Government of Tamil Nadu

Force Majeure Government of Tamil Nadu


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Around 62% of project cost funded byinstitutional financiers as debt

GENERAL INFORMATION

BIDDING INFORMATION


LEGAL INSTRUMENTS


BIDDING INFORMATION


LEGAL INSTRUMENTS

GENERAL INFORMATION

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Cost of project : Rs. 110 Cr.Funded by LTTIL : Rs. 42 Cr.(Equity)

Funded by financiers : Rs. 68 Cr.(Debt)

Revenue projected : 60% from Athupalam bridge

40% from bypass roadEstimated cumulative loss : Rs. 12.6 Cr. (LTTIL Annual report 02)

About 230 buses made a minimum of 2180 trips a day

Bus owners association (BOA) refused to pay the toll

Cost of deployment of police was also borne by LTTIL & the outcome

was futile

It paid security charges of Rs. 53 Lacs. in 2001-02

Insitutional financiers were putting pressure on LTTIL for additional

securities

The interest payment worked out to be Rs.9 Crore per year


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Timeline of events

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' 95 1995 1996 1997 1998 1999 2000 2002 ' 02

Athupalam bridge opened

12/12/1998

Work commenced12/1997

Contract signed

13/10/1997

MoST floated global tender09/1995

Tendering ProcessSep, 1995 Oct , 1997

Project WorkDec , 1997 Dec 12, 1998

Toll collection issueDec , 1998 July, 2002

2001

Financially not viable for the company

LTTIL contemplated requesting state government to take over the project by invoking the force

majeure class

SITUATION IN JULY, 2002


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ISSUES RAISED


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Issues raised (1/2)

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Project Structuring

Lack of proper structuring of the project lead to a single bidder

Deficiencies both in scope and financial terms

Public Consultation

Public opinion on the perceived utility of the project was not considered

Willingness to pay was not assessed before levying toll on the bridge

Biased Revenue Analysis

Toll from the bridge was used to cross subsidize the bypass

Projected revenue in ratio of 40:60 from the bypass and bridge, while

investment was in the ration 87:13

Queuing Delays

Toll collection led to delays because of Queuing causing hindrance to public


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Issues raised (2/2)

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Local Traffic

Volume of local traffic on the Athupalam bridge was high

These users were unwilling to pay the new toll

Multiple Trips

Toll was collected during every trip across the bridge

It particularly hampered people who made multiple trips per day

Toll on Existing bridge

Toll was collected even on the earlier two-lane bridge, which was now used

uni-directionally

Public was opposed to paying toll for the bridge which had already existed

Enforcement

Local players such as Taxi, Bus and Commercial fleet operators did not pay

toll and had formed associations to protest against the toll

In general there was low compliance with the existing tolling structure


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LESSONS LEARNT


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Lessons learnt

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Lack of unanimity between the government and the developer for resolvingunexpected problems

It discourages private players from investing in road development project

Fundamental Deterrents

Risks involved in estimating traffic demand and willingness to pay must beaddressed for BOT Toll based projects to succeed

Demand sensitivity

Projects based on Tolls are dependent on the willingness to pay of the

consumers

WTP is very less in case of Urban roads, and hence identifying user segmentsand developing proper tolling structure is paramount

Project Structuring

Instances of inappropriate bundling to make projects attractive must be

avoided

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PPP TODAY


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Public Private Partnership (PPP)

PPPs refer to a collaboration between the public and the private sector for delivering a service orinfrastructure.

These include a wide variety of arrangements ranging from Management contracts on one

extreme to full privatization or divestiture on the other extreme of the spectrum

These projects can be classified based on the extent to which risks and responsibilities are

transferred from the public to the private sector

In case of PPP models like BOT (Build Operate Transfer), Critical risks like Market risks are borne

by the private sector


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Build Operate Transfer (BOT) models

BOT based on Tolls: Private partner bears the commercial and

technical risks related to construction, operation,and maintenance of the project.

Critical risks like Traffic revenue risk is alsoallocated to the Private developer

Projects are awarded by a two-stage biddingprocess

First stage (Qualification stage)

Second stage (Bidding stage): Bids are evaluatedon basis of Lowest financial grant requirementand Revenue sharing


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Build Operate Transfer (BOT) models

BOT based on Annuities: Traffic risk-neutral PPP model

Private developer bears risks relating to construction,technical, operation, and maintenance of the project

Critical risks such as land acquisition, permit/approval,

traffic risk, and toll collection risk are borne by the Publicsector

Two stage Bidding process

First stage (Qualification) Technical and Financialstrength evaluation

Second stage (Financial Bid) - Quoting the annuitypayment required based on the costs of the project

Lowest annuity quote is awarded the project.

The granting authority pays the annuities to the developeraccording to the agreed payment schedule, after adjustingfor project delays and other factors


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Challenges in PPP models

Bidding process

Land Acquisition Methodology

Technical Capability of Private developer

Methodology for dealing with changes in Project scope

Other Issues

Maintenance of Existing Roads

Road Safety Measures


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References

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"Coimbatore Bypass Road". New Delhi: Department of

Economic Affairs, Ministry of Finance, Government of India.

"Project Financing: A Case study on Coimbatore Bypass

Road Project" (PDF). Larsen and Toubro. p. 1

"Coimbatore By-pass (Tamil Nadu)". L&T IDPL.

http://www.pppindiadatabase.com

"Financing Road Projects in India Using PPP Scheme" by

Satyanaryana N. Kalidindi and L. Boeing Singh (IIT M)
http://www.pppindiadatabase.com/http://www.pppindiadatabase.com/http://www.pppindiadatabase.com/


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Thank You!

Documents

Idf(b) Ppp Case Group3