National H y Authority - downloads.nha.gov.pkdownloads.nha.gov.pk/nhadocs/m-9-commercial-feasibility-report... · 599 com com ject . Commercial Feasibility Report Page 1 Contents

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Commercial Feasibility Report

Page 1

Contents EEXXEECCUUTTIIVVEE SSUUMMMMAARRYY ................................................................................................................................................. 4

CONCLUSION ............................................................................................................................................................... 6

CCHHAAPPTTEERR -- 11:: IINNTTRROODDUUCCTTIIOONN ..................................................................................................................................... 7

1.0 GENERAL ........................................................................................................................................................... 7

1.1 PROJECT BACKGROUND AND DESCRIPTION .................................................................................................. 7 1.1.1 General ................................................................................................................................................................ 7

1.2 PROJECT ALIGNMENT AND TOPOGRAPHY ..................................................................................................... 8

1.3 PROJECT CLIMATE ............................................................................................................................................ 8

1.4 PROJECT SALIENT FEATURES ........................................................................................................................... 9

1.5 SCOPE OF WORK ............................................................................................................................................ 13

CCHHAAPPTTEERR -- 22:: PPPPPP PPOOLLIICCYY AANNDD RREEGGUULLAATTOORRYY FFRRAAMMEEWWOORRKK .................................................................................. 18

2.0 POLICY OBJECTIVES AND STRATEGY ............................................................................................................. 18

2.1 INTRODUCTION ............................................................................................................................................. 18

2.2 PRIVATE SECTOR PARTICIPATION THROUGH PUBLIC PRIVATE PARTNERSHIP (PPP) .................................. 19 2.2.1 Introduction ......................................................................................................................................................... 19 2.2.2 Existing Federal Framework for PPP in Infrastructure ................................................................................ 19 2.2.3 PPP in National Highways ............................................................................................................................... 19

CCHHAAPPTTEERR -- 33:: TTRRAAFFFFIICC DDAATTAA && AANNAALLYYSSIISS ................................................................................................................ 22

3.0 TRAFFIC DATA ................................................................................................................................................ 22

3.1 WILLINGNESS TO PAY SURVEY ....................................................................................................................... 25

3.1 TRAFFIC GROWTH AND FORECAST ............................................................................................................... 28 3.1.1 Traffic Growth ................................................................................................................................................... 28

3.2 DIVERTED TRAFFIC ......................................................................................................................................... 29

3.3 GENERATED TRAFFIC ...................................................................................................................................... 29

3.4 TRAFFIC FORECAST ........................................................................................................................................ 29

4.0 TRAVEL DEMAND ........................................................................................................................................... 33

4.1 RAMP-UP PERIOD ........................................................................................................................................... 33

4.2 REVENUE FORECASTING ............................................................................................................................... 33 4.2.1 Traffic Demand Forecasting ............................................................................................................................ 33 4.2.2 Tolling Systems and Efficiency ........................................................................................................................ 33 4.2.3 Base Toll Rates .................................................................................................................................................. 33 4.2.4 Toll Escalation .................................................................................................................................................... 34


Page 2

4.3 TOLL REVENUE FORECASTING ....................................................................................................................... 34 4.3.1 Tolling Systems and Efficiency ........................................................................................................................ 39

4.4 OTHER REVENUE ............................................................................................................................................. 39

CCHHAAPPTTEERR -- 55:: CCAAPPIITTAALL CCOOSSTTIINNGG ............................................................................................................................... 40

5.0 CAPITAL COST ................................................................................................................................................ 40

5.1 CONSTRUCTION COST .................................................................................................................................... 40

5.2 CONSTRUCTION, MAINTENANCE & OPERATION STANDARDS – PERFORMANCE ` INDICATORS ............... 41

5.3 ROUTINE MAINTENANCE COSTS AND PROJECTIONS ................................................................................... 42

5.4 PERIODIC MAINTENANCE .............................................................................................................................. 42

5.5 OPERATIONS .................................................................................................................................................. 43

CCHHAAPPTTEERR -- 66:: FFIINNAANNCCIIAALL AANNAALLYYSSIISS ......................................................................................................................... 44

6.0 INTRODUCTION - FINANCIAL EVALUATION MODELING .............................................................................. 44 6.0.1 Modeling Factors .............................................................................................................................................. 44

6.1 GENERAL RISK CONSIDERATIONS ................................................................................................................. 45 6.1.1 Project Risks ........................................................................................................................................................ 45 6.1.2 Risk Mitigation Measures ................................................................................................................................. 48

6.2 FINANCING AND MODEL ASSUMPTIONS ...................................................................................................... 49 6.2.1 Capital, Maintenance & Operation Costs .................................................................................................... 49 6.2.2 Debt/ Loan ......................................................................................................................................................... 49 6.2.3 International Finance Corporation (IFC) FINANCING ................................................................................ 50 6.2.4 Kibor Rates ......................................................................................................................................................... 51 6.2.5 Equity................................................................................................................................................................... 52 6.2.6 Toll Rates and Revenue Analysis .................................................................................................................... 53 6.2.7 Project Implementation Time Lines ................................................................................................................. 54 6.2.8 Other Factors ..................................................................................................................................................... 55

6.3 FINANCIAL ANALYSIS AND SENSITIVITY RESULTS ........................................................................................ 55 6.3.1 Financial Analysis Scenarios: ........................................................................................................................... 55 6.3.2 Financial Analysis and Sensitivity ................................................................................................................... 55

6.4 CONCLUSION .................................................................................................................................................. 58

Annexure – A: Details of Cross-Sections, Layouts and Plans as following:

• Main Carriageway (With Median) • Pavement Structure • Service Road • Bridges • Interchanges • Service Area • Toll Plaza • Weigh Station • Main Carriageway (With New Jersey Barrier)


Page 3

• Cost of M-9 Project with New Jersey Barrier

Annexure – B: Financial Analysis Results


Page 4

EEXXEECCUUTTIIVVEE SSUUMMMMAARRYY The Government of Pakistan (GOP) is motivated upon the need to develop infrastructure at a fast pace in order to achieve higher GDP growth rate. The GOP is encouraging the development projects for infrastructure through direct investments. National Highway Authority (NHA) continues the active pursuit of transforming roads to expressways and consolidation of existing assets as well as providing linkages to remote and far-flung areas from the main developed stream of the country. Realizing the financial constraints of the Government of Pakistan and in furtherance of the policy announced by the Government, NHA is currently pursuing to materialize private sector participation to augment the state resources by implementing road projects through the mechanism of Build Operate Transfer (BOT) concept. Roads Infrastructure projects have long gestation periods and, in many cases, are not financially viable on their own. It may not be possible to fund the very large investment requirements of these projects fully from the budgetary resources of the Government of Pakistan alone. In order to remove this shortcoming and to bring in private sector resources and techno-managerial efficiencies, the Government is promoting Public Private Partnerships (PPP) in infrastructure. The National Highway Authority (NHA) has planned the up-gradation of the existing Karachi – Hyderabad 4-lane Super Highway (M-9) to a 6-lane controlled access motorway on BOT basis to facilitate intercity and traffic thru-and fro from up country to the ports in the south and back. NHA will award a Concession for designing, financing, construction, maintenance, operation, tolling and fine collection over a defined period. The Concessionaire will also undertake Ancillary Development relevant to the Motorway Project. Such development encompasses approach roads, interchanges/flyovers, lighting, administrative and operation buildings/centers, controlling systems and environment-friendly development of areas located in the project jurisdiction and where the Motorway links with the city or other connecting points. M-9 project is one of the NHA’s identified projects and is to be offered to the private sector for development on BOT basis. The report has explored the Commercial Feasibility of developing the project through a privatized toll road structure. Different scenarios were evaluated to determine the parameters under which this could be accomplished. The viability of the project was tested at various combinations. The financial modeling is subject to multiple assumptions which can cause major impacts on the model output. The key factors are: 1) Construction Cost 2) Traffic Volume 3) Toll Rates 4) Financing Terms Changes in any one of these primary input factors will cause varied effects in the model outcome and results. The table summarizes the results of the financial analysis:


Page 5

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Page 6

It is clear from the results that the project remains viable under all conditions of the sensitivity analysis. The payback period varies between 6-7 years after effective date, which means almost 4 years after construction is a clear positive sign of project viability. The upfront support of the toll revenues during construction period if provided by NHA will further enhance the bankability of the project. It is also worth mentioning here that the traffic survey was conducted in Dec 2008 precisely in time of unconventional economic crunch resulting in relatively less trade and hence less freight movement (The situation is easing out). In addition, fuel price hike simultaneously suppressed private leisure trips. It is expected that the traffic would normalize by the time the project initiates. The detailed cash flows of the individual scenarios are attached in Annexure “A” (Financial Evaluation Results) CONCLUSION M-9 project is a highly viable project for structuring on BOT basis. The project has the potential for the sponsors to recoup their investment along with reasonable profit. Beside this NHA can also entail a reasonable share of revenue after the debt retirement without affecting the project profitability bankability. The report is laid out in the following format with the highlighted information elaborated in the chapters accordingly: The Project, Layout, Location - Chapter 1 Traffic, Willingness-to-Pay - Chapter 3 Revenue Analysis - Chapter 4 Capital Cost and Maintenance - Chapter 5 Financial Analysis and Conclusions - Chapter 6


Page 7

CCHHAAPPTTEERR -- 11:: IINNTTRROODDUUCCTTIIOONN 1.0 GENERAL Roads and Highways play an important role in the transportation of goods and passengers in Pakistan. This sector mainly takes major share with respect to other modes of transportation. The Government of Pakistan (GOP) has given top priority for construction, improvement and up-gradation of road transport links of the country. The Government has been extending all efforts for construction of Expressways, Motorways and Highways in order to provide fast, efficient and safer mean of transportation to the road users. This development is targeted to accelerate economic growth of the country. The previous Governments have planned and initiated mega projects in this regard. The present Government has also supported and endorsed it. Since the objective of such development is unique therefore these approved policies about the highway infrastructure would be followed till modernization of infrastructure. It is also evident from the present scenario that a number of high priority highway sector projects have been completed before time and the government is allocating a large portion of PSDP for such works. It is therefore most likely that all such projects would continue in future and there will not be any political hurdles or risks involved in highway sector projects. Due to Government budgetary constraints and in order to bring efficiency GOP has adopted the policy of Private Sector Participation in the Highway Infrastructure Projects and is promoting private sector investment in the country. The target is to combine all possible potential from both Public and Private sectors to expedite development of highway infrastructure. This strategy is the best alternative investment mechanism for rapid development and accelerated growth. It will further strengthen the confidence of investors and bring down the investment risk in future. 1.1 PROJECT BACKGROUND AND DESCRIPTION 1.1.1 General The Karachi-Hyderabad section of N-5 (popularly known as super highway) connects the port city of Karachi to the North of Pakistan. This section of the highway is amongst the most densely trafficked in the entire country, the existing highway is serving a traffic volume of over 20,000 VPD (Average annual daily traffic) with over 60% of truck traffic. The average traffic growth rate of this section is about 5% annually. The route is also the shortest possible distance between the two cities i.e Karachi and Hyderabad and feeds into the main North – South Links i.e National Highway N-55 (Indus Highway) and the National Highway N-5 (Grand Trunk Road).

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Page 9

relative humidity various from 65% in winter to 87% in summer and average the average wind velocity varies from 4 Knots in winter to 15 Knots in summer. 1.4 PROJECT SALIENT FEATURES The salient features of the existing four-lane main carriageway are:

• Carriageway (North Bound): 136 Km of 2 lanes, 7.3 m carriageway in the Karachi-Hyderabad direction (North Bound) with camber with 3.0 m outer shoulder and approx. 1.5 m inner shoulder which varies.

• Carriageway (South Bound): 136 Km of 2 lanes, 7.3 m carriageway in the Hyderabad-Karachi direction (South Bound) with a cross-fall with 3.0m outer shoulder and approx. 1.5 m inner shoulder which varies.

• Median: The median is approx. 3.0-4.0 m from 0+000 to 6+000 and varies from 5.5 to 8.0 m throughout the rest of the carriageway.

• Split Levels: North Bound carriageway and South Bound are on split levels as follows:

o 25% of length is at the same level o 55% has a minor split (0.1 to 0.25 m) o 20% has a relatively major split (0.25 to 1.0 m)

• Formation: The formation is divided into the following:

o 70% is in fill (0.1 to 5.0 m) o 15% is in cut (0.1 to 15.0 m) o 15% is flushed with the adjacent NGL

• Main Structures: There are twenty (20) canal/river bridges along the alignment

on both the North and South Bound separately lying parallel to each other at ten (10) locations. Two (2) Flyover bridges (NB and SB) parallel to each other lie along the main carriageway near the Vegetable market (Sabzi Mandi) at Km 4+700 of the project reference. The structures are I-girder bridges with piling generally, though at some places there are open abutments.

• Box Culverts: There are forty six (46) box culverts and three hundred and thirty

five (335) pipe culverts

• Interchanges: There are two (2) interchanges existing on the superhighway i.e Northern Bypass Interchange and Kathore Interchange.

• Service Road: The is an existing service road along the urbanized North Bound carriageway taking off after the New Interchange Ramp at Sorab Goth (0+000 of project) till the Toll Plaza at Karachi End (15+000 of project)


Page 10

• Toll Plazas: There are two major Toll Plazas i.e one at Karachi end and the other at Hyderabad end along with a minor Toll Plaza at Kathore Interchange

• There is one weigh station presently non-operational on the highway

• There are a number of road side facilities i.e Fuel pumps, Road side truck restaurants etc.

• The Right of Way (ROW) is 67.0 m on the left and 137.0 m on the right of the centre line of the North Bound carriageway in the Karachi - Hyderabad direction

The basic features of the existing superhighway (M-9) are diagrammatically represented in Figure 1.1. & Figure 12 below:


Page 11

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Page 12

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Page 13

1.5 SCOPE OF WORK The National Highway Authority (NHA) has planned the up-gradation of the existing 4-lane Super Highway to a 6-lane controlled access motorway on BOT basis to facilitate intercity and freight traffic thru-and fro from up country to the ports in the south and back. NHA will award a Concession for designing, financing, construction, insurance, management, operation, and maintenance, tolling and fine collection over a defined period. In doing so, NHA has conducted a detailed design of the motorway facility, which is part of the the North – South motorway link and the National Trade Corridor (NTC). The salient features of the design are (Typical Cross-Sections of Main carriageway, Bridges, Service roads and Layouts of Interchanges, Services areas, Toll Plazas, Weigh Stations are placed at Annexure - A:

• Rehabilitation of the existing 134.35 Km (Length reduced by 1.65 Km at Hyderabad end, terminating before Hyderabad Interchange) of 2 lane carriageway in the Karachi-Hyderabad direction (North Bound) corrected from camber to cross-fall, and construction of an additional new lane on the outer side with 3.0 m outer shoulder and 1.5 m inner shoulder. Lane width is to be taken as 3.50 m.

• Rehabilitation of the existing 134.35 Km (Length reduced by 1.65 Km at Hyderabad end, terminating before Hyderabad Interchange) of 2 lane carriageway in the Karachi-Hyderabad direction (South Bound) in cross-fall, and construction of an additional new lane on the outer side with 3.0 m outer shoulder and 1.5 m inner shoulder. Lane width is to be taken as 3.50 m.

• The median is retained in its original variable format (as per instructions of NHA Design Cell)

• All Structures Cross Drainage Culverts and Bridges, Bridge extensions are to be taken out on the inside/outside incase of the existing structures. Four (4) bridges have an additional extension on either side accommodating service roads to allow local traffic to negotiate land locked areas between canals.

The bridges along with locations are:

• Bridge 1 (NB & SB) CH 04+700 2 Span 23.5m each 0 Skew • Bridge 2 (NB & SB) CH 20+050 5 Span 25.0m each 0 Skew • Bridge 3 (NB & SB) CH 26+250 6 Span 23.5m each 0 Skew • Bridge 4 (NB & SB) & Service Road CH 32+775 5 Span 23.5m each 28.6 Skew • Bridge 5 (NB & SB) CH 36+400 13 Span 23.5m each 0 Skew • Bridge 6 (NB & SB) & Service Road CH 46+785 2 Span 25.0m each 0 Skew • Bridge 7 (NB & SB) & Service Road CH 75+800 5 Span 23.5m each 0 Skew • Bridge 8 (NB & SB) & Service Road CH 78+950 3 Span 23.5m each 0 Skew • Bridge 9 (NB & SB) CH 90+125 3 Span 25.0m each 30 Skew • Bridge 10 (NB & SB) CH 97+665 3 Span 22.0m each 0 Skew • Bridge 11 (NB & SB) CH 120+750 3 Span 25.0m each 0 Skew


Page 14

• Seven (7) New Interchanges have been placed to support populations, towns, industrial zones and other isolated pockets enabling them to commute on the motorway after fencing of the ROW. Although at some locations, volume of traffic does not justify an interchange, the isolation of road side developments and populations warrants connectivity as there is no other route available for transport. The Interchanges including (except for Interchange between Km. 0+000 to Km. 16+000) have entry and exit 2-lane Toll Plazas with electronic tolling system (ETTM) on the Ramps. The locations for the new interchanges are as follows:

Location Name of Place Type 1. CH 14+925 Malir Diamond 2. CH 23+112 Dumba Goth Half Clover 3. CH 45+596 Lucky Cement Half Clover 4. CH 55+760 Nooriabad Half Clover 5. CH 66+936 Nooriabad Half Clover 6. CH 80+952 Tharno Bula Khan Half Clover 7. CH 113+440 Bholari Half Clover

• Two kinds of service road formations have been incorporated as follows:

• Urban (Shoulder – 1.5m (DST), Carriageway – 7.0m (Asphalt), Shoulder – 1.5m (DST))

o CH 0+000 to CH 15+000 Both Sides of Motorway

• Semi-Urban, rural (Shoulder – 1.0m(Earthen), Carriageway -6.1m(TST), Shoulder – 1.0m(Earthen))

o CH 15+000 to CH 19+800 Both Sides of Motorway o CH 22+000 to CH 34+000 Both Sides of Motorway o CH 36+875 to CH 46+875 Both Sides of Motorway o CH 51+600 to CH 58+600 Both Sides of Motorway o CH 61+350 to CH 83+600 Both Sides of Motorway

• Two main Service Areas have been proposed along with trucking stops at:

o CH 60+790 (North Bound & South Bound) Nooriabad

• Two New 16 lane Toll Plazas with electronic tolling systems (ETTM) are provided on the

main carriageway at the Karachi End and at the Hyderabad End on the following Chainages respectively:

o CH 16+000 o CH 131+900

• Seven (7) weigh stations have been provided strategically to cover movement of heavy

traffic and minimize overloading on the following locations:

1. CH 15+500 (North Bound) 2. CH 30+750 (South Bound)


Page 15

3. CH 40+850 (South Bound) 4. CH 40+850 (North Bound) 5. CH 71+850 (South Bound) 6. CH 71+850 (North Bound) 7. CH 132+900 (South Bound)

The Concessionaire will also undertake Ancillary Development relevant to the Motorway Project. Such development encompasses approach roads, interchanges/flyovers, lighting, administrative and operation buildings/centers, controlling systems and environment-friendly development of areas located in the project jurisdiction and where the Motorway links with the city or other connecting points. The GOP will provide the Concessionaire Company (The Concessionaire) comfort to use a specified percentage of tolls collected for the necessary maintenance of Motorway, while the remaining percentage will be used for debt servicing on the first charge basis. At the end of debt clearance an agreed sharing formula will be adopted for disbursement of revenues between The Concessionaire and NHA. Financial close of project is a mandatory requirement for approval of Concession. Note: The Concessionaire is allowed to modify and change cross-section i.e. extend the additional lane towards the inner side eliminating the median and inserting a New jersey Barrier if he desires so. The said cross-section and cost is also attached. The number of interchanges and other salient features can be modified accordingly at the discretion of the bidder as per his approach to the project. The said cross-section is placed at Annexure – A. However, for the sake of this commercial feasibility, the NHA design 6 lane with median is being taken up for Analysis. The basic features of the designed motorway (M-9) are diagrammatically represented in Figure 1.3 and Figure 1.4 below:


Page 16

Figu

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Page 17

Figu

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Page 18

CCHHAAPPTTEERR -- 22:: PPPPPP PPOOLLIICCYY AANNDD RREEGGUULLAATTOORRYY FFRRAAMMEEWWOORRKK 2.0 POLICY OBJECTIVES AND STRATEGY 2.1 INTRODUCTION

The Government of the Islamic Republic of Pakistan (GoP) through its National Highway Authority intends to accelerate National highway, motorway, tunnel and bridge development through increased private sector participation thereby promoting economic growth and reducing poverty. This Policy and Regulatory Framework (hereinafter referred to as the “Policy”) sets forth the reasons for, and the manner in which, private sector participation shall be encouraged and the public sector interest protected.

With sound macroeconomic fundamentals achieved and key sectors strengthened by reforms implemented over the past few years, Pakistan’s economy is continuing to expand and the economy is well positioned to sustain six percent or more annual growth in the medium term.

Transportation is an important sector of Pakistan’s economy, making up 10% of the GDP and over 17% of Gross Capital Formation. The sector consumes 35% of the total energy annually and is the recipient of substantial portion of the annual federal public sector development program.

An efficient transport system is a pre-requisite for Pakistan to become globally competitive, and the growth in capacity must be achieved while increasing service levels and decreasing costs.

The transport sector covers roads, road transport, railways, ports and shipping, and aviation. The sector has direct and indirect linkages with all important sectors of the economy which influence economic and social development.

The National Highway Authority (NHA), under the National Highway Act 1991, and amendment 2001, is responsible for managing the design, development and operation of national highways, motorways, tunnels and bridge infrastructure in Pakistan. The NHA has the task of ensuring that the standards of design, construction and maintenance of the network in the country, including the supporting infrastructure, is continually improved to standards internationally recognized as compliant with the objectives of ensuring public safety and convenience.

Currently, Pakistan’s road network is approximately 258,000 kilometers. NHA maintains the national highways, those defined by Article 2 (g) of the NHA Act of 1991, as amended in 2001; motorways; limited access, minimum of four lanes, and such other roads as may be entrusted to it, while the provincial Communications and Works (C & W) Departments are responsible for the provincial road network.

NHA considers that the technical, managerial and financial resources of the private sector can make a useful addition to its own efforts. After carefully evaluating a wide range of alternatives, NHA has decided to encourage the private sector to participate in a significant number of national highways and motorways, as well as a limited number of tunnel and bridge, projects needed to facilitate public safety and convenience, as well as to support and sustain Pakistan's rapid rate of economic growth.


Page 19

2.2 PRIVATE SECTOR PARTICIPATION THROUGH PUBLIC PRIVATE PARTNERSHIP (PPP) 2.2.1 Introduction The concept of Public Private Partnership (PPP) covers a wide range of situations and is subject to various interpretations. A now well-known definition is: “a PPP is a risk-sharing relationship between the public and private sectors based upon a shared aspiration to bring about a desired public policy outcome,” typically, the provision of new or improved infrastructure to provide a new public service. 2.2.2 Exist ing Federal Framework for PPP in Infrastructure In order to ensure the private sector is attracted to assisting with the country’s infrastructure needs, the Government at all levels has to put in place a combination of policy reforms, institutional support, incentives and financing modalities. These are essential to ensure private sector participation in financing, constructing and managing future infrastructure development projects. The Government has set up the Infrastructure Project Development Facility (IPDF) under the auspices of the Ministry of Finance (MOF), to promote, help generate and generally assist PPP projects in cooperation with public sector Institutions (line ministries, provincial Government, local bodies, state owned enterprises etc.) that are or want to undertake PPP. The NHA policy contained herein fills the need for PPP in Highways and related facilities under NHA responsibility and is consistent with the ECC approved PPP policy. 2.2.3 PPP in National Highways Basically PPP is an extension of public procurement rules, putting the emphasis on output service rather than on input specifications. The Policy shall refer to the PPP acronym for any contractual arrangement, which differs from the traditional contracts awarded under public procurement rules (design & build, outsourcing), including concessions. For NHA national highways and motorways, PPP generally refer to concessions or Build-Operate-Transfer (BOT) contracts, or any variant of them, i.e. contracts where risks and responsibilities transferred to the private sector are much wider than in traditional public works or service contracts. They usually entail a mix of construction, operation, commercial and financial issues, with a variable degree of risk sharing between public and private partners. For NHA, and the government, the main attraction is that the private sector can bear part of the financial burden of investing in national highways and Motorways. Since the private sector is expected to be more efficient than the state in running certain concerns and is also likely to charge actual costs of services from customers, the burden of subsidies can be diminished if not eliminated. The other attraction for the NHA is that resources can be freed to provide funds in areas and sectors needed for the socioeconomic uplift and stabilization of the less advantaged citizens. The state can thus return to its core business of providing good governance, enhancing knowledge and skills, providing their basic health needs, economy, and increasing opportunities and security for its citizens.


Page 20

PPP involves the investment of private capital to design, finance, construct, operate, and maintain a project for public use for specific term during which a private investment consortium is able to collect revenue from the users of the facility. When the consortium’s limited term of ownership expires, title to the project reverts to the NHA at a cost of one rupee, or, as provided in the tender documents, the NHA may decide to extend the concession or re-tender. By then, the consortium should have collected enough revenue to recover its investment and earn a profit; i.e., made a reasonable return on the investment. To protect the public interest, the NHA has decided the primary mechanism for the award of concessions to the private sector will involve competitive tendering, where technical and financial bidding conditions shall be made public in advance. However in cases where multilateral financing agencies or bilateral financiers or other external agencies/or governments are involved, requiring a different procurement process, then the NHA may agree to their proposal or otherwise, as deemed appropriate. The process of procurement shall still remain transparent, open, and fair in all cases.

• Transparency means that (a) the "rules of the game" are made available to all participants and (b) the "game" will be followed in accordance with those rules. Transparency means that clear and acceptable guidelines for bidding are made available to all participants and that those guidelines are consistently followed.

• Openness means free and open competition. The first step to maximize free and

open competition is through widely-circulated public advertising, which opens-up and instils greater confidence in the process, encourages more bidders to compete for PPP projects, and results in overall lower prices for the benefit of the public.

• Fairness means all participants are treated fairly and consistently over time and as

between each other, which will further encourage capable, responsible potential bidders to compete for PPP projects.

• Fundamentals of PPP Projects

1. Developing a PPP Highway Program 2. Need for, and Content of the Pre-Feasibility Study 3. Institutional Arrangements

• Toll Policy 1. Toll Levels

2. Toll Structure 3. Toll Escalation 4. Toll Exemptions 5. Toll Competition

• Operational and Road Management Policy

1. Vehicle Type Prohibition 2. Vehicle Weight Limits 3. Speed Limits 4. Provision of Emergency Services


Page 21

5. Tax Collection

• Financial and Contractual Arrangements • Incentives for Investment • Security Package • One Window Operation • PPP Tendering Procedures

1. PPP Projects to be Tendered 2. Prequalification Applications 3. Content of Prequalification Applications 4. Review of Prequalification Applications 5. Shortlist of Prequalified Bidders 6. Issuance of the Request for Proposal to all Prequalified Bidders

Note: Detailed version of the approved policy is placed in Annexure in the RFP.


Page 22

CCHHAAPPTTEERR -- 33:: TTRRAAFFFFIICC DDAATTAA && AANNAALLYYSSIISS 3.0 TRAFFIC DATA The primary goal of the traffic data collected is to produce forecasts of future traffic and conduct toll revenue analysis accordingly. This task has been accomplished by establishing current traffic levels by conducting a 3 day, 24 hrs traffic count survey at 3 locations on the existing alignment. The range of the 3 distinct zones reflects consistency over the zone and variation from zone to zone.

Future travel demand was estimated based on the traffic growth trend for the past years plus the anticipated growth in future and thus the traffic volume forecast was made for the next 25 years.

The data collected for the following three locations is given in tables below:

• 3 day 24 Hrs Traffic Count at Karachi Toll Plaza (Both Directions)

• 3 day 24 Hrs Traffic Count Between Kathore Interchange and Nooriabad Industrial Area

(Both Directions)

• 3 day 24 Hrs Traffic Count at Hyderabad Toll Plaza (Both Directions)

The Summary of 3 Days count is represented in tables below:

Direction: Karachi-Kathor (Both Directions) Location Karachi - Toll PlazaDate: DayTime:

2-Axles 3-Axles 4-Axles 5-Axles 6-Axles0600-0700 79 58 18 38 67 98 78 11 38 4850700-0800 155 82 31 56 121 164 95 19 36 7590800-0900 200 113 15 56 102 134 100 31 39 7900900-1000 234 124 24 63 98 139 101 28 33 8431000-1100 277 120 31 63 112 110 92 18 33 8571100-1200 346 83 35 59 99 111 92 16 27 8681200-1300 344 71 25 53 87 87 58 12 42 7781300-1400 341 102 28 62 104 113 80 21 29 8801400-1500 322 102 26 59 144 129 91 14 16 9031500-1600 357 140 23 82 147 130 57 15 17 9681600-1700 384 123 54 78 173 155 81 28 29 11061700-1800 469 121 39 79 133 149 114 25 20 11491800-1900 467 113 41 74 127 74 80 13 25 10141900-2000 384 81 33 58 165 201 94 24 31 10702000-2100 341 109 31 48 170 226 131 19 52 11272100-2200 311 66 35 35 176 259 79 10 25 9962200-2300 257 71 65 43 189 264 136 22 30 10772300-2400 196 40 44 44 182 283 153 25 37 10030000-0100 161 44 47 31 223 263 206 27 43 10450100-0200 127 40 30 12 171 216 173 23 48 8410200-0300 76 31 47 6 151 271 150 27 45 8040300-0400 55 71 4 5 137 211 140 16 48 6860400-0500 47 51 11 17 129 182 114 9 18 5790500-0600 68 54 13 42 126 144 120 12 27 606

Total 6001 2010 750 1162 3331 4110 2615 465 791 21235%age 28.26 9.47 3.53 10018.2340.51

Buses Trucks (Rigid) Articulated TotalWagons/ Pick ups

Coasters/ Mini TrucksTime Cars/Jeeps

National Highway AuthorityTraffic Data Summary Form (24 Hours)

SUMMARY (3 Days Daily Average)

26-01-2009 to 29-01-2009 Monday/ThursdayFrom: 0600 hrs To 0600 hrs


Page 23

Direction: Kathor - Noriabad (Both Directions) Location KathorDate: DayTime: From: 0600 hrs To 0600 hrs


Total 5965 1199 735 1159 3272 4054 2611 452 785 20232%age 29.48 5.93 3.63 10041.94 19.02

26-01-2009 to 29-01-2009 Monday/Thursday

Buses Trucks (Rigid) Articulated TotalWagons/ Pick ups

Coasters/ Mini TrucksTime Cars/Jeeps

National Highway AuthorityTraffic Data Summary Form (24 Hours)

SUMMARY (3 Days Daily Average)

Direction: Location Hyderabad Toll PlazaDate: DayTime:


Total 5856 1169 737 1140 3329 3964 2527 467 791 19980%age 29.31 5.85 3.69 10042.21 18.94

26-01-2009 to 29-01-2009 Monday/ThursdayFrom: 0600 hrs To 0600 hrs

Hyderabad - Noriabad (Both Directions)

Traffic Data Summary Form (24 Hours)SUMMARY (3 Days Daily Average)

Time Cars/Jeeps Buses Trucks (Rigid) Articulated TotalWagons/ Pick ups

Coasters/ Mini Trucks

National Highway Authority


Page 24

The representative traffic is graphically displayed below:


Page 25

3.1 WILLINGNESS TO PAY SURVEY Present and expected future travel patterns and driver behavior towards utilization of proposed toll rates have been derived from Willingness to pay survey data collected during this assignment. Willingness to pay survey was specially designed for this study and conducted at Hyderabad and Karachi toll stations. Survey was carried out randomly with the assistance of the local police. It has been very important to establish the willingness of various road user groups about the additional toll levying in case of road improvement. The table below summarizes the results of the Willingness to pay surveys for different vehicle types. The three questions which make up the Willingness to pay survey are as follows: Question No. 1: Would you be willing to pay for the Expressway which saves Rs. 30 on your journey?

a. Yes b. No c. I Don,t Know

Question No. 2: How much more money can you pay for the Expressway facility?

a. None b. Upto Rs. 30 c. Rs. 30 to 50 d. Rs. 50 to 75 e. More than Rs. 75

Question No. 3: Will you prefer to use Expressway facility? If Yes:

a. For Regular Use b. For Occasional Trips

A Total of 21,305 interviews were conducted in 3 days. The results depict that 65% of the road users would be willing to pay for the said journey. 30% of the users (willing to pay) would pay an extra amount of upto Rs. 30 while 23% would be willing to pay more than Rs. 30 over the existing Toll Rates. The results of each question are graphically displayed in Figure 3.1.


Page 26

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Page 27


Page 28

3.1 TRAFFIC GROWTH AND FORECAST 3.1.1 Traffic Growth Traffic growth in the area of interest is an important factor for estimation of future traffic demand generated due to economic, social and political activities. Trends in the past and the estimates drawn by similar kind of studies in the area or vicinity provide guidance and basis of suggesting appropriate traffic growth rate. The best estimate would be to quantify the future transportation requirements in the area of study based on the historical trends and economic activities. The traffic growth rates for the study in hand are chosen on the bases of following considerations:

1. Economic Over View of Pakistan and Study area 2. Population Growth rate 3. Land Use Pattern 4. Labor force and Employment 5. Transportation Facility 6. Increase in the production (Agricultural and Industrial), and 7. Analysis of historical traffic count data

Based on the discussion above and with the help of data collected from the field during the classified traffic count survey and analysis of historical traffic data appropriate growth rate were selected. The growth in the traffic decreases with time for the areas where a full-scale development has already been achieved. While in the developing or under-develop areas, in the beginning the growth is not significant but with the improvements in basic infrastructure the demand for transportation increases rapidly to a point where the demand and supply are equal or equilibrium is achieved. This growth rate keeps constant until some demographic change in land use pattern or basic infrastructure occurs. A careful analysis of historical data suggests that the traffic had been growing with variable growth rates in the past. This may be due to political, economic and administrative changes taking place in the country. Therefore, a wider period was analyzed to arrive at a relatively comfortable level of confidence about the traffic growth rate in the region (discussed above). Reference is also made to the JICA study-PNTP (Pakistan National Transport Plan) 2005, which suggested the future growth rate of 5% based on the prevailing trend of traffic increase in the past years.

For the current study it is assumed that the average traffic growth rates cover all kind of effects and changes (mentioned earlier) over long period of time. Furthermore, it is assumed that even if the same situation will continue then the average traffic growth rate will remain valid for a longer period of time. Whereas, it is a recognized fact that roadway improvement will support positive traffic growth. It is a conservative approach to use average growth rate for estimation of future traffic. Therefore, overall average traffic growth rate of 4.0% for the heavy traffic and 5.0% for the lighter traffic is assumed to be valid for traffic projection.


Page 29

The following growth rates have been used for analysis:

Sr. No Traffic Class Assumed

Growth rate 1 Cars 5.0 2 Wagons 5.0 3 Coasters 5.0 4 Buses 5.0 5 Trucks 4.0 6 Troller (5x) 4.0 7 Troller (6x) 4.0

3.2 DIVERTED TRAFFIC Diverted traffic is the portion of traffic that diverts to or from a roadway due to changes in user costs, associated with traveling, along that particular roadway and its competing roadway(s). Since the user cost decreases with the improvement in the pavement conditions and also there is no major roadway to cater the need of Karachi to Hyderabad traffic except the existing Super Highway; it can be safely assumed that all traffic will use the existing Super Highway route being upgraded to the Motorway level of service. 3.3 GENERATED TRAFFIC Generated traffic pertains to the journeys, which were not worthwhile before improvement of a facility but are worthwhile after the improvement of facility. For the study it is assumed that the improvement of the Karachi Northern By-Pass road to a divided 2 lane both ways facility from the existing 2 lane highway will add up to the existing traffic. This traffic is difficult to predict at this stage since the improvement of the Karachi Northern By-Pass road has not been formally started but by any means will add up to the proposed Motorway M-9 traffic. The shifting of bus terminals from Karachi city onto the Karachi Northern Bypass (KNB) will also increase the overall traffic on M-9. It also has to be kept in mind that since up-gradation of this Super Highway to M-9 is part of the bigger strategy to develop the National Trade Corridor in order to connect Afghanistan and Central Asian States to the coastal waters of Pakistan. This will definitely generate a lot of commercial and freight traffic in the form of ‘Induced Traffic’ to meet the trade and business needs of these countries. Again that traffic is not estimated yet because of many unknown variables and the road network of motorways is not complete either. Urban development along the motorway is anticipated in future. These however again cannot be assessed and will depend on economic growth of the country during the concession period. 5% of traffic is assumed to be generated in the opening year of the project i.e. on completion of construction. 3.4 TRAFFIC FORECAST It is assumed that the project shall be completed in 2013. The base year traffic in 2009 is being forecasted for each distinct traffic zone for eventual revenue analysis. The tables are given below accordingly:


Page 30

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Page 31

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Page 32

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Page 33

CCHHAAPPTTEERR -- 44:: RREEVVEENNUUEE AANNAALLYYSSIISS

4.0 TRAVEL DEMAND Traffic and forecasts are addressed in Chapter 3 of this report.

4.1 RAMP-UP PERIOD For most new toll roads, an adjustment occurs in some socio-economic patterns, and full acceptance of the toll road takes several years to develop. This "ramp-up" phenomenon has been witnessed in other toll road projects but it is reasonable to assume that this will not be experienced on this project since this project had a track history of traffic and toll. The difficulty in gaining public acceptance is not expected since the users are already paying the toll for a low level facility.

4.2 REVENUE FORECASTING The traffic model takes into consideration all vehicle categories in the number of forecasted trips, cars, lightweight trucks, heavy trucks, motorcycles, and other vehicles The Traffic Analysis combined with alternate toll levels lead to a traffic diversion percentage and an income curve for the road section. In course of developing the Revenue Model the following factors are considered as key factors:

4.2.1 Traffic Demand Forecasting The Traffic Demand is expressed in terms of Annual Average Daily Traffic (AADT), and the traffic is projected for the future years using the formula

AADT projected = AADT present × (1+Growth Rate) ^ no. of years For the current study the traffic growth rates are addressed in Chapter 4 of this report. 4.2.2 Tol l ing Systems and Efficiency

The tolling systems affect the Efficiency of the Toll revenue collected. The electronic tolling system (ETTM) for the project is categorized as closed toll system with entry exit points at either end i.e Karachi Toll Plaza or Hyderabad Toll Plaza and at intermediate interchanges. The Toll Efficiency factor is assumed to be 99% efficient.

4.2.3 Base Toll Rates Schedule of present/approved NHA’s toll rates for open system is given below:

NHA’s APPROVED TOLL RATES FOR M-9 MOTORWAY (Rs.)

Cars/Jeeps/ Taxis/Pickup

Wagons/ Coasters/Mini Buses

Buses Trucks (2 & 3 Axles)

Articulated Trucks

20 30 50 60 120


Page 34

The same toll rates are used for evaluating the toll revenue potential of the project during the construction period. It may be noted here that presently toll is being collected at Karachi, Hyderabad and Kathore Toll Plazas based on the Open System of collection.

On Substantial Completion of Construction, the Concessionaire is authorized to employ the closed system of toll collection. NHA rates presently approved for the Motorway Systems is as under:

NHA’s APPROVED TOLL RATES FOR CLOSED SYSTEM (Rs./Km) Cars/Jeeps/

Taxis Wagons

Coasters/ Mini Buses

Buses Trucks (2 & 3 Axles)

Articulated Trucks

0.55 0.76 1.21 1.73 2.12 2.73 The base toll rates are used for evaluating the toll revenue potential of the project after the construction period (they are escalated at the rate of 5% to the year 2013). However the revenue model is kept flexible to incorporate any increase/decrease of toll rate to check sensitivity of the toll rate. In the Revenue analysis this escalation factor is kept flexible to compare the cash flows with the bank ability of the project. 4.2.4 Tol l Escalation Tariffs are usually escalated, on the basis of an agreed formula. These formulae have a huge impact upon the projected return of concessionaire, and may typically take many months and iterations before agreement is reached.

The yearly toll escalation is usually linked with the domestic consumer price index to escalate it for the future years. The option proposed for the escalating the Base Tolls for the future year’s rates is:

• Through Constant Escalation Per Year @ 5%

The revenue model was built with a flexibility to vary toll rate escalation to do sensitivity or to match consumer price index or other condition negotiated with the concessionaire.

4.3 TOLL REVENUE FORECASTING The traffic numbers combined with the toll rates are used to forecast the toll revenues: The three distinct traffic bands (these bands are converted to weighted average lengths as per 134.35 Km against the Toll to Toll distance of 115 Km for revenue calculation) have been considered and are described as follows:

• (Traffic 1) Karachi Toll Plaza to Kathore Interchange i.e 16+000 to 30+100 – (14.100 Km) weighted average (16.34 Km)

• (Traffic 2) Kathore Interchange to Nooriabad Int. i.e 30+100 to 66+953 – (36.853 Km) weighted average (42.72 Km)

• (Traffic 3) Nooriabad Int. to Hyderabad Toll Plaza


Page 35

i.e 66+953 to 131+000 – (64.947 Km) weighted average (75.89 Km)

Traffic 1: Karachi Toll Plaza to Kathore Interchange - Length - 16.34 Km

Trucks

2&3 Axles

1 2009 19.68 9.11 5.41 11.99 94.08 63.03 203.31 2 2010 21.70 10.04 5.97 13.09 102.74 68.83 222.37 3 2011 23.93 11.07 6.58 14.30 112.19 75.16 243.23 4 2012 26.38 12.21 7.25 15.61 122.51 82.07 266.04 5 2013 30.47 14.10 8.00 18.46 140.22 93.93 305.18 6 2014 33.59 15.55 8.82 20.16 153.12 102.57 333.81 7 2015 37.03 17.14 9.72 22.02 167.20 112.01 365.13 8 2016 40.83 18.90 10.72 24.04 182.58 122.32 399.39 9 2017 45.02 20.83 11.81 26.25 199.38 133.57 436.87 10 2018 49.63 22.97 13.03 28.67 217.73 145.86 477.88 11 2019 54.72 25.32 14.36 31.31 237.76 159.28 522.74 12 2020 60.33 27.92 15.83 34.19 259.63 173.93 571.83 13 2021 66.51 30.78 17.46 37.33 283.52 189.93 625.53 14 2022 73.33 33.94 19.24 40.77 309.60 207.40 684.28 15 2023 80.84 37.42 21.22 44.52 338.08 226.49 748.56 16 2024 89.13 41.25 23.39 48.62 369.19 247.32 818.89 17 2025 98.26 45.48 25.79 53.09 403.15 270.08 895.85 18 2026 108.34 50.14 28.43 57.97 440.24 294.92 980.05 19 2027 119.44 55.28 31.35 63.31 480.74 322.06 1,072.17 20 2028 131.68 60.95 34.56 69.13 524.97 351.69 1,172.98 21 2029 145.18 67.19 38.10 75.49 573.27 384.04 1,283.27 22 2030 160.06 74.08 42.01 82.43 626.01 419.37 1,403.97 23 2031 176.47 81.67 46.31 90.02 683.60 457.95 1,536.03 24 2032 194.55 90.05 51.06 98.30 746.49 500.09 1,680.54 25 2033 214.50 99.28 56.30 107.34 815.17 546.09 1,838.68 26 2034 236.48 109.45 62.07 117.22 890.17 596.33 2,011.72 27 2035 260.72 120.67 68.43 128.00 972.06 651.20 2,201.08 28 2036 287.45 133.04 75.44 139.78 1061.49 711.11 2,408.31 29 2037 316.91 146.68 83.17 152.64 1159.15 776.53 2,635.08 30 2038 349.39 161.71 91.70 166.68 1265.79 847.97 2,883.24

Total Rs. Mil

Articulated Trucks

REVENUE ANALYSIS

Year Cars/Jeeps Wagons/ Pick ups

Coasters/ Mini Buses BusesSR. NO.

(Millions- PKR)


Page 36

Traffic 2: Kathore Interchange to Nooriabad Int. - Length - 42.72 Km

Trucks

2&3 Axles

1 2009 51.16 14.21 13.98 31.26 242.17 163.80 516.59 2 2010 56.40 15.67 15.42 34.14 264.45 178.87 564.95 3 2011 62.18 17.27 17.00 37.28 288.78 195.33 617.84 4 2012 68.55 19.04 18.74 40.71 315.35 213.30 675.70 5 2013 79.18 21.99 21.64 46.59 360.92 244.12 774.45 6 2014 87.30 24.25 23.86 50.88 394.12 266.58 846.99 7 2015 96.24 26.73 26.31 55.56 430.38 291.11 926.33 8 2016 106.11 29.47 29.00 60.67 469.98 317.89 1,013.12 9 2017 116.98 32.49 31.97 66.26 513.22 347.13 1,108.06 10 2018 128.98 35.82 35.25 72.35 560.43 379.07 1,211.91 11 2019 142.20 39.50 38.87 79.01 611.99 413.94 1,325.50 12 2020 156.77 43.54 42.85 86.28 668.30 452.03 1,449.76 13 2021 172.84 48.01 47.24 94.21 729.78 493.61 1,585.69 14 2022 190.56 52.93 52.08 102.88 796.92 539.03 1,734.39 15 2023 210.09 58.35 57.42 112.35 870.24 588.62 1,897.06 16 2024 231.62 64.33 63.31 122.68 950.30 642.77 2,075.01 17 2025 255.36 70.93 69.80 133.97 1037.72 701.90 2,269.69 18 2026 281.54 78.20 76.95 146.30 1133.20 766.48 2,482.66 19 2027 310.40 86.21 84.84 159.75 1237.45 836.99 2,715.65 20 2028 342.21 95.05 93.53 174.45 1351.30 914.00 2,970.54 21 2029 377.29 104.79 103.12 190.50 1475.61 998.09 3,249.40 22 2030 415.96 115.53 113.69 208.03 1611.37 1089.91 3,554.49 23 2031 458.60 127.38 125.34 227.17 1759.62 1190.18 3,888.28 24 2032 505.60 140.43 138.19 248.07 1921.50 1299.68 4,253.47 25 2033 557.43 154.83 152.36 270.89 2098.28 1419.25 4,653.03 26 2034 614.56 170.70 167.97 295.81 2291.32 1549.82 5,090.18 27 2035 677.55 188.19 185.19 323.02 2502.12 1692.40 5,568.49 28 2036 747.00 207.48 204.17 352.74 2732.32 1848.10 6,091.82 29 2037 823.57 228.75 225.10 385.20 2983.69 2018.13 6,664.44 30 2038 907.99 252.20 248.17 420.63 3258.19 2203.80 7,290.98

REVENUE ANALYSIS


Coasters/ Mini Buses Buses Articulated

Trucks Total

(Millions- PKR)

SR. NO.


Page 37

Traffic 3: Nooriabad Int. To Hyderabd Toll Plaza - Length - 75.89 Km

Trucks

2&3 Axles

1 2009 89.22 24.61 24.91 54.63 428.27 286.22 907.86 2 2010 99.30 27.39 27.72 60.22 469.01 312.56 996.20 3 2011 109.47 30.20 30.56 65.76 512.16 341.31 1,089.47 4 2012 120.70 33.29 33.69 71.81 559.28 372.71 1,191.49 5 2013 139.40 38.45 38.92 82.19 640.09 426.57 1,365.63 6 2014 153.69 42.40 42.91 89.75 698.98 465.81 1,493.54 7 2015 169.45 47.19 47.30 98.01 763.29 508.67 1,633.90 8 2016 186.81 52.02 52.15 107.03 833.51 555.47 1,786.99 9 2017 205.96 57.35 57.50 116.87 910.19 606.57 1,954.45 10 2018 227.07 63.23 63.39 127.63 993.93 662.37 2,137.63 11 2019 250.35 69.72 69.89 139.37 1085.37 723.31 2,338.01 12 2020 276.01 76.86 77.05 152.19 1185.22 789.86 2,557.20 13 2021 304.30 84.74 84.95 166.19 1294.27 862.52 2,796.97 14 2022 335.49 93.43 93.66 181.48 1413.34 941.88 3,059.27 15 2023 369.88 103.00 103.26 198.18 1543.37 1028.53 3,346.21 16 2024 407.79 113.56 113.84 216.41 1685.35 1123.15 3,660.11 17 2025 449.59 125.20 125.51 236.32 1840.41 1226.48 4,003.51 18 2026 495.68 138.03 138.38 258.06 2009.72 1339.32 4,379.19 19 2027 546.48 152.18 152.56 281.80 2194.62 1462.54 4,790.18 20 2028 602.50 167.78 168.20 307.73 2396.52 1597.09 5,239.81 21 2029 664.25 184.98 185.44 336.04 2617.00 1744.02 5,731.73 22 2030 732.34 203.94 204.44 366.96 2857.77 1904.47 6,269.91 23 2031 807.40 224.84 225.40 400.72 3120.68 2079.68 6,858.72 24 2032 890.16 247.88 248.50 437.58 3407.79 2271.01 7,502.93 25 2033 981.40 273.29 273.98 477.84 3721.30 2479.95 8,207.76 26 2034 1082.00 301.31 302.06 521.80 4063.66 2708.10 8,978.93 27 2035 1192.90 332.19 333.02 569.81 4437.52 2957.25 9,822.68 28 2036 1315.17 366.24 367.15 622.23 4845.77 3229.31 10,745.88 29 2037 1449.98 403.78 404.79 679.47 5291.58 3526.41 11,756.01 30 2038 1598.60 445.17 446.28 741.98 5778.41 3850.84 12,861.28

REVENUE ANALYSIS


Coasters/ Mini Buses Buses Articulated

Trucks Total

(Millions - PKR)

SR. NO.


Page 38

The revenue analysis depicts that Rs. 2,445 Million is anticipated in the opening year i.e. 2013 and Rs. 23,035 Million is forecasted as toll receipt in the 25th year of the Concession.

Sr. No Year Traffic 1 Traffic 2 Traffic 3 Total Traffic1 2009 203.31 516.59 907.86 1,627.75 2 2010 222.37 564.95 996.20 1,783.52 3 2011 243.23 617.84 1,089.47 1,950.54 4 2012 266.04 675.70 1,191.49 2,133.22 5 2013 305.18 774.45 1,365.63 2,445.26 6 2014 333.81 846.99 1,493.54 2,674.34 7 2015 365.13 926.33 1,633.90 2,925.36 8 2016 399.39 1,013.12 1,786.99 3,199.50 9 2017 436.87 1,108.06 1,954.45 3,499.38

10 2018 477.88 1,211.91 2,137.63 3,827.41 11 2019 522.74 1,325.50 2,338.01 4,186.25 12 2020 571.83 1,449.76 2,557.20 4,578.79 13 2021 625.53 1,585.69 2,796.97 5,008.19 14 2022 684.28 1,734.39 3,059.27 5,477.94 15 2023 748.56 1,897.06 3,346.21 5,991.83 16 2024 818.89 2,075.01 3,660.11 6,554.02 17 2025 895.85 2,269.69 4,003.51 7,169.04 18 2026 980.05 2,482.66 4,379.19 7,841.89 19 2027 1,072.17 2,715.65 4,790.18 8,578.00 20 2028 1,172.98 2,970.54 5,239.81 9,383.33 21 2029 1,283.27 3,249.40 5,731.73 10,264.41 22 2030 1,403.97 3,554.49 6,269.91 11,228.37 23 2031 1,536.03 3,888.28 6,858.72 12,283.04 24 2032 1,680.54 4,253.47 7,502.93 13,436.95 25 2033 1,838.68 4,653.03 8,207.76 14,699.46 26 2034 2,011.72 5,090.18 8,978.93 16,080.83 27 2035 2,201.08 5,568.49 9,822.68 17,592.25 28 2036 2,408.31 6,091.82 10,745.88 19,246.01 29 2037 2,635.08 6,664.44 11,756.01 21,055.52 30 2038 2,883.24 7,290.98 12,861.28 23,035.50

REVENUE ANALYSIS(Millions - PKR)


Page 39

4.3.1 Tol l ing Systems and Efficiency Closed system of tolling is to be used on the project. The project will be fenced and access will be provided only on interchanges. The tolling efficiency is assumed at 99%. 4.4 OTHER REVENUE Other revenue can be collected on an expressway from a number of sources like hoarding boards, renting of land for service stations etc. An additional 10 % of toll revenue is assumed to be collected through other sources. Further an Interest Income shall also be generated and is assumed to be @ 5% of the cash balance after dividend payment. Additional Rs. 400 million are generated annually from two major service areas provided in the opening year. The revenue generated is based on Analysis with the following revenue base Structure.

Total Traffic on the Motorway Section (100%)

Percentage of Sectional Traffic using Service Area 75% of Above

Percentage Traffic Stopping for Fueling

80% of above

Percentage Traffic using Service Areas Facilities

50% of above

Revenue for Super / Diesel

Revenue from CNG

Revenue from Restaurant/Dhaba

Revenue from Aam Sari

Revenue from C. Mart/Franchises

Revenue from Parks

Revenue from Work/Tire Shops

Revenue from Advertisement


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CCHHAAPPTTEERR -- 55:: CCAAPPIITTAALL CCOOSSTTIINNGG 5.0 CAPITAL COST The Capital Cost (CAPEX) of the project is constituted of two major components i.e:

• Construction Cost of the Project • Preliminary Costs

5.1 CONSTRUCTION COST The construction cost of the project is based on the design conducted by NHA and rates used for the estimate are the NHA Composite Schedule of Rates (CSR) 2009 issued in March 2009. The following is the summary of the cost (details of cross-sections, layouts and plans are placed at Annexure - A).

Sr.No AMOUNT Rs.

1 7,633,735,234

2 892,302,502

3 641,855,526

4 400,421,120

5 224,000,000

6 140,000,000

9,932,314,382

297,969,431

10,230,283,813

306,908,514

398,981,069

199,490,534

11,135,663,931

MAIN CARRIAGE WAY (North & South Bound )

SERVICE AREAS ( NORTH & SOUTH )

Contingences 3%

GRAND SUMMARY ( CIVIL WORKS )

DECRIPTION

SERVICE ROAD

Main Toll Plaza

Construction Cost ( A )

INTERCHANGES ( 07 Nos.)

Grand Total

Consultancy, Design & Project Management 3 % 0f A

Escalation @ 6.5 % p.a ( IInd Year ) for 60 % of the Project Cost

Escalation @ 6.5 % p.a ( 3rd Year ) for 30 % of the Project Cost

SubTotal

Weigh Bridges & Allied Works


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The construction time is fixed as 30 months. It is assumed that 30% of the project cost shall be expended in the first year, 40% in the second year and 30% in the third year. 5.2 CONSTRUCTION, MAINTENANCE & OPERATION STANDARDS – PERFORMANCE ` INDICATORS It is anticipated that upon commissioning, the roughness of the expressway shall be International Roughness Index (IRI) = 2.0. Once constructed, road pavements deteriorate as a consequence of several factors, most notably:

• Traffic loading • Environmental weathering • Effect of inadequate drainage systems

Figure 1 is a conceptual diagram that illustrates the fact that the roughness of road increases with the passage of time until it reaches a threshold when the overlay is applied. This threshold may vary and depends upon the priorities of the department and the available funding. By application of overlay, the roughness instantaneously reduces to the desired level. Subsequently, the deterioration again starts with time and this cycle continues.

Figure 1 The strategy shall be to preserve the highway by employing timely routine maintenance so that the expressway does not enter the rehabilitation mode. Preservation would involve minimizing the destructive effects of climate and traffic by the regular or intermittent timely application of remedial treatments to the pavement or other components of the highway infrastructure. Highway pavement preservation is a long term strategy that enhances functional pavement performance by using an integrated, cost-effective set of practices that extend pavement life, improve safety, and meet motorist expectation. The performance Indicators would be the International Roughness Index (IRI) having a trigger value for overlay as indicated IRI=4.0 m/ km and IRI=1.5 to 2.0 after construction

Poor

GoodPavement Performance curve

Overlay

Rou

ghne

ss

Time (years)


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5.3 ROUTINE MAINTENANCE COSTS AND PROJECTIONS Routine maintenance works need to be undertaken each year and constitute cyclic as well as reactive works. The need of these works is dependant on environmental as well as traffic effects. These will generally involve:

• Repair of cracks/potholes • Edge Repair • Road furniture maintenance • Vegetation control • Clearing drains and culverts • Toll plaza and Operations Office maintenance • Utility infrastructure/ communications maintenance

The cost of Routine Maintenance varies from Rs. 150,000 to Rs. 250,000 per Km for 2 lane carriageways on National highways as per CSR 2009 prices. For our analysis, the assumed cost is taken as Rs. 450,000 per 3- lane Km (including service areas, operation offices, service and main carriageway). It is quite evident from Figure 1 that road condition deteriorates over time which implies that routine maintenance cost shall also keep on rising each year. It is assumed that the RM cost increases by 5% each year. 5.4 PERIODIC MAINTENANCE Periodic maintenance is planned to be undertaken at intervals of several years. These works can take the form of preventive, resurfacing or overlay works. These will generally involve:

• Overlays on Roads/ Bridge Decks • Replacement of Road furniture where required • Replacement of expansion joints/ bearing pads where required • Up gradation of Toll plaza i.e. canopy/ generators etc. where required • Utility infrastructure/ communications up gradation where required

For the purpose of this analysis, Condition responsive treatment rule is assumed whereby work is triggered when condition reaches a critical threshold, known as an “intervention level”. For our case, the assumed threshold are as under:

• For main carriageway the Ride quality (IRI) shall not exceed 4.0 m/Km. Incase IRI exceeds the limit then Overlay/Rehabilitation shall be undertaken to bring back IRI below 2.0 m/Km.

• For bridges on the project, the deflection shall not exceed span length divided by 300 i.e.

(Span/300) or the structure shall not reflect any structural cracking. Incase the bridges/ culverts exceed the limits or reflect structural cracking, periodic rehabilitation or replacement would be undertaken accordingly.

It is assumed that structural overlay 120 mm thick shall be employed when required. HDM analysis was carried out which revealed that the structural overlay will be required two times during the analysis period of 25 years (assumed concession period). The cost of Periodic maintenance is worked out as Rs. 8.50 Million per 3- lane Km according to CSR 2009 prices.


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5.5 OPERATIONS The Operations Cost encompasses all such costs that are required to keep the expressway operational. These include cost of tolling equipment, tolling personnel, electricity, water, cleanliness etc. It is assumed that the Operations cost shall be 10% of the toll revenues collected each year.


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CCHHAAPPTTEERR -- 66:: FFIINNAANNCCIIAALL AANNAALLYYSSIISS 6.0 INTRODUCTION - FINANCIAL EVALUATION MODELING Developing a privately financed project is a complex task because of the many parties involved. The mix of financial and contractual arrangements needs careful structuring and expert negotiation. For successful private financing, a key step is the development of an appropriate financial package and the raising of the necessary funds. Several criteria can be used to help judge the suitability of projects for private financing and some of them are the project financial viability, availability of finances and government support. The governments must be aware that the private investors expect to make profit, and will not take risk unless the financial returns are high with the ability to meet debt service and construction schedule. The financing plan of the PSP projects needs to be structured in terms of equity, debt and government support to achieve the financial viability of the project. The objective of the financial feasibility study is to determine the parameters under which the M-9 Project can be structured as a viable commercial enterprise. The financial analysis makes use of a financial model based on operating conditions under which the Project is assumed to be structured as a tolled motorway. These conditions are reflected in the commercial and economic assumptions underlying the financial model. The assumptions must be included in the Concession Agreement and other documents that define the legal, commercial, and operating conditions under which the company will conduct its business. The financial model was constructed to provide information that is expected to be of interest to the consortia considering a capital investment in the Project. The model therefore focuses on cash being produced by Project operations, and the subsequent distribution of this cash to the different agencies and investor classes. This distribution takes the form of interest and principal repayments in the case of debt capital, and dividends distributed to shareholders in the case of equity capital. For the purposes of the financial evaluation, The broad indicator for the project viability is:

• Pay Back Period & • Project Financial Internal Rate of Return

However for the detail evaluation from client, sponsors and lenders perspective, the three main indicators of financial feasibility that need to be considered are:

• Positive annual net cash flows; • Maintenance of adequate debt service coverage; and • Achievement of the required rate of return to equity holders.

6.0.1 Modeling Factors The Financial Model developed for the project study has been devised to test the feasibility for potential financing. Following this Pre-feasibility process, detailed and finely tuned actual transaction structuring modeling, including precise loan and equity packages will need to be developed during the next step in the M-9 by each concessionaire bidder during the bidding process.


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This financial feasibility model has been designed to assess multiple and variable input factor sensitivity to help determine the probability of a concession financing arrangement. There are many variable components in the model that can be changed or adjusted in multiple sensitivity run scenarios. These include:

• Multiple Debt and Equity/Subsidy Combinations • Variable Interest Rates; Loan Draw Down, Capitalization of Interest • Multiple financing fees with variable amounts • Variable inflation adjustment • Variable tax rate • Variable routine and periodic maintenance costing • Variable Capital Costing and Scheduling • Multiple IRR Analysis

6.1 GENERAL RISK CONSIDERATIONS Toll Roads, like other infrastructure projects, are complex and entail a number of risks that may adversely affect cash flows and profitability. Some of the risks identified are project specific; other risks are more general and affect the economy as a whole. Investors will have specific concerns regarding the project and the ability to develop, maintain, and operate the toll road in a successful venture. This situation is further exacerbated by the fact that the new Concession Company will not have an established record of profitability, performance, and most importantly timely and predictable returns to investors. The combination of these factors makes it difficult to predict the extent of the success of this venture. Project Finance is essentially a transferring of risks. Equity investors will seek to allocate to others those risks that can not be considered under the control or influence of the operating company. The residual risks accepted by the concessionaire will be factored into the financial evaluation and will greatly affect the required rate of return to the investor. Past experience on similar projects indicate that the Government and the Concession Company typically share these risks. Those points must all be considered of concern to both debt and equity investors and each investor class will seek ways to mitigate these risks, or preferably shift them to others. Overcoming the transfer of risks is the single biggest hurdle in completing the financing. Any risks that can be allocated to agencies other than the concessionaire (for example: insurance agencies), will reduce the overall project risk and consequently reduce the required rate of return on equity capital. 6.1.1 Project Risks Privately financed infrastructure projects create opportunities for reducing the commitment of public funds and other resources for infrastructure development and operation. They also make it possible to transfer to the private sector a number of risks that would otherwise be borne by the Government. The precise allocation of risks among the various parties involved is typically defined after consideration of a number of factors, including the public interest in the development of the infrastructure in question and the level of risk faced by the project company, other investors and lenders (and the extent of their ability and readiness to absorb those risks at an acceptable


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cost). Adequate risk allocation is essential to reducing project costs and to ensuring the successful implementation of the project. Conversely, an inappropriate allocation of project risks may compromise the project’s financial viability or hinder its efficient management, thus increasing the cost at which the service is provided. The financial methodology of project financing requires a precise projection of the capital costs, revenues and projected costs, expenses, taxes and liabilities of the project. In order to predict these numbers precisely and with certainty and to create a financial model for the project, it is typically necessary to project the “base case” amounts of revenues, costs and expenses of the project company over a long period—often 20 years or more—in order to determine the amounts of debt and equity the project can support. Central to this analysis is the identification and quantification of risks. For this reason, the identification, assessment, allocation and mitigation of risks is at the heart of project financing from a financial point of view. The following paragraphs provide an overview of the main categories of project risks. (a) Project disruption caused by events outside the control of the parties

The parties face the risk that the project may be disrupted by unforeseen or extraordinary events outside their control, which may be of a physical nature, such as natural disasters—floods, storms or earthquakes—or the result of human action, such as war or riots. Such unforeseen or extraordinary events may cause a temporary interruption of the project execution or the operation of the facility, resulting in construction delay, loss of revenue and other losses. (b) Project disruption caused by adverse acts of Government (“Political Risk“) The project company and the lenders face the risk that the project execution may be negatively affected by acts of the contracting authority, another agency of the Government or the host country’s legislature. Such risks are often referred to as “political risks” and may be divided into three broad categories: “traditional” political risks (for example, nationalization of the project company’s assets or imposition of new taxes that jeopardize the project company’s prospects of debt repayment and investment recovery); “regulatory” risks (for example, introduction of more stringent standards for service delivery or opening of a sector to competition) and “quasi-commercial” risks (for example, breaches by the contracting authority or project interruptions due to changes in the contracting authority’s priorities and plans). In addition to political risks originating from the host country, some political risks may result from acts of a foreign Government, such as blockades, embargoes or boycotts imposed by the Governments of the investors’ home countries.

(c) Political Risk Allocations

Changes in Law Permit Application and Approvals Government Inaction Provision of Utilities Increase in Taxes Force Majeure - Political Termination for GOP Convenience Market Risk Traffic Lower than Expectation Overestimate of "Willingness to Pay"


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Competing Facilities Economic / Legal / Institutional Risk Currency Risk Inflation Risk Expropriation Risk Environmental Risk Risk During Construction Cost Overruns Technical Risk Schedule Risk Contractor Performance Risk Environmental Damage Force Majeure Risk During Operation Technical Risk Labor Risk

(d) Construction and operation risks The main risks that the parties may face during the construction phase are the risks that the facility cannot be completed at all or cannot be delivered according to the agreed schedule (completion risk); that the construction cost exceeds the original estimates (construction cost overrun risk); or that the facility fails to meet performance criteria at completion (performance risk). Similarly, during the operational phase the parties may face the risk that the completed facility cannot be effectively operated or maintained to produce the expected capacity, output or efficiency (performance risk); or that the operating costs exceed the original estimates (operation cost overrun). It should be noted that construction and operation risks do not affect only the private sector. The contracting authority and the users in the host country may be severely affected by an interruption in the provision of needed services. The Government, as representative of the public interest, will be generally concerned about safety risks or environmental damage caused by improper operation of the facility. (e) Commercial risks “Commercial risks” relate to the possibility that the project cannot generate the expected revenue because of changes in market prices or demand for the goods or services it generates. Both of these forms of commercial risk may seriously impair the project company’s capacity to service its debt and may compromise the financial viability of the project. Commercial risks vary greatly according to the sector and type of project. The risk may be regarded as minimal or moderate where the project company has a monopoly over the service concerned or when it supplies a single client through a standing off-take agreement. However, commercial risks may be considerable in projects that depend on market-based revenues, in particular where the existence of alternative facilities or supply sources makes it difficult to establish a reliable forecast of usage or demand. This may be a serious concern, for instance, in toll road projects, since toll roads face competition from toll-free roads. Depending on the ease with which drivers may have access to toll-free roads, the toll revenues may be difficult to forecast, especially in urban areas where there may be many alternative routes and roads may be built or improved continuously. Furthermore, traffic usage has been found to be even more difficult to forecast in the case of new toll roads, especially those which are not an addition to an existing toll facility system, be-cause there is no existing traffic to use as an actuarial basis. (f) Exchange rate and other financial risks Exchange rate risk relates to the possibility that changes in foreign exchange rates alter the exchange value of cash flows from the project. Prices and user fees charged to local users or


Page 48

customers will most likely be paid in local currency, while the loan facilities and sometimes also equipment or fuel costs may be denominated in foreign currency. This risk may be considerable, since exchange rates are particularly unstable in many developing countries or countries whose economies are in transition. In addition to exchange rate fluctuations, the project company may face the risk that foreign exchange control or lowering reserves of foreign exchange may limit the availability in the local market of foreign currency needed by the project company to service its debt or repay the original investment.

Another risk faced by the project company concerns the possibility that interest rates may rise, forcing the project to bear additional financing costs. This risk may be significant in infrastructure projects given the usually large sums borrowed and the long duration of projects, with some loans extending over a period of several years. Loans are often given at a fixed rate of interest (for example, fixed-rate bonds) to reduce the interest rate risk. In addition, the finance package may include hedging facilities against interest rate risks, for example, by way of interest rate swaps or interest rate caps. 6.1.2 Risk Mit igation Measures The economics of BOT projects dictate that the individual categories of risk be allocated to those parties best able to evaluate the adverse effects of their occurrence. This risk allocation must be clearly outlined in the terms and conditions of the Concession Agreement. This will permit all interested parties to identify, mitigate, and price the risks, which they accept. Many of the risks can be mitigated as follows: During the construction period:

• Proper screening of potential contractors. • Proper technical definition of contract scope. • Establishment of fixed priced, turnkey construction contracts. • Adequate insurance program.

During the operation period:

• Design a tolling strategy that can reduce currency risk. • Guarantees provided by equipment suppliers and contractors to minimize technical

and performance risk. • Adequate insurance program that would include coverage against business

interruption. • GOP guarantees against wrongful taking. • GOP guarantees on minimum traffic levels


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6.2 FINANCING AND MODEL ASSUMPTIONS 6.2.1 Capital , Maintenance & Operation Costs The Capital construction cost of the project is Rs. 11.136 Million along with a preliminary cost of Rs. 300.00 Million. The Routine Maintenance Cost for year 2009 prices per 3 lane km Rs 0.45 Million and the Periodic Maintenance Cost per 3 lane km Rs. 8.50 Million. These maintenance cost includes the cost of maintaining allied structures and service roads. The Operation and Management expenditures of the Tolling are assumed as the 10% of the annual Toll Revenues collected. An inflation rate of 5% is assumed to forecast the projected OPEX costs. The details of CAPEX and OPEX are as covered in Chapter 5. 6.2.2 Debt/ Loan Foreign and Local Commercial/Development Banks that are persuaded to support road BOT projects are driven by different requirements. Discerning banks will expect a soundly based project where the risks have been realistically identified and allocated to establish general creditworthiness. The bank will then consider the security package offered in support of the transaction in the event that the project cash flows do not materialize as planned. Finally, they will consider whether the loan fits with their strategy and portfolio, whether it can be funded, and the adequacy of the fees and pricing, e.g., the margin they will receive over the funding costs. Banks also seek additional security, they will frequently seek a higher margin and they look for well-structured lending opportunities where they believe the borrower will service the loan as planned, by paying the interest costs and repaying the principal at the times agreed. In most cases, the limiting factor in financing an expressway is the amount and term of senior debt that a project is able to attract. This is usually determined by the ratio of the project cash flow to the debt service requirements. Banks often seek 1.5 times the debt service requirement. This can be reduced to a lower margin through changing the repayment schedule or providing additional security or support. Bank senior debt might typically provide 60-70 percent of total project costs. Banks will lay down the terms and conditions on which the loans would be advanced and these would typically include the requirement that all equity should be paid into the project company before any debits available. Frequently subordinate capital or refinancing of loan is also needed as a second call where there is a requirement for further finance where neither senior debt nor equity can support. This gap finance is increasingly offered by the development finance organizations in support of their efforts to support PSP. In several Asian countries, investment funds are established to provide the subordinated debt. Terms typically stipulate a minimum equity contribution, a commercial margin occasionally with a carried interest in the equity, and a counter guarantee from the host government The exchange rate and convertibility risks imposed on a project resulting from dependence in infrastructure projects on domestic revenues to repay foreign borrowings. These risks affect the project’s ability to meet all its financial obligations and dependence on foreign financing significantly reduces the number and scope of projects that might be financed compared to the situation which would exist were domestic sources of funding to be available.


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High and volatile inflation rates also shorten the investment horizon and distort economic activity. It is not surprising that the price volatility and swings in economic activity, frequently experienced in developing countries, even those growing at high rates of growth, have limited the depth and breadth in their capital and credit markets. Availability of domestic finance is therefore one of the most serious obstacles for the expansion of PSP in infrastructure throughout the developing world. General pre-conditions for the availability of appropriate infrastructure finance are:

• A sound macro economic environment. • Stable prices. • Stable exchange rates.

Those countries with developed financial regulatory frameworks monitoring the capital markets (stock exchange), and credit markets, (banks) are best favored to supply appropriate infrastructure financing instruments. In the financial model a Local Commercial Bank Loan was set as a 10-year term, 21/2 year grace period and 7-year repayment. The interest rate is placed at 15%. However sensitivity of interest rate was also carried out for 11% and 13 %.This is adjustable. Interest is compounded during the grace period according to the initial costs and drawdown periods. Drawdown periods are adjustable. 6.2.3 International Finance Corporation (IFC) FINANCING International Finance Corporation a private arm of the World Bank has also shown interest for financing the construction of the Karachi-Hyderabad Motorway (M-9) on BOT basis. They confirmed this by submitting an expression of interest to NHA so that NHA should communicate their interest to the short-listed/prequalified bidding parties. IFC’s financing is subject to IFC’s regular comprehensive appraisal process, and approval by IFC’s Senior Management Board of Directors and by relevant Government of Pakistan authorities. Confirmation of viability of the project will require, among other things, satisfactory evidence that:

• The project is competitive with international benchmarks. • The project is technically, economically and financially feasible. • The project is developed consistent with an acceptable legal and regulatory framework in

Pakistan. • The necessary security and contractual arrangements are in place. • The project adheres to the relevant World Bank environment policies and guidelines.

Specific terms of the IFC’s loan will be discussed/ reviewed with Credit, based on a review of the sponsor and the capitalization of the project company, as well as an assessment of project-specific risks. However IFC’s internal guidelines are that the maximum exposure limit to a project is 25% of capitalization (debt plus equity). On Equity IFC cannot own more than approximately 15% (on average) of an entity. IFC typically provide long term funding in hard currency on either fixed or floating rate, but can also provide local currency financing by providing a local bank a Partial Credit Guarantee (PGC). That way the local bank takes exposure on IFC and IFC bears the credit risk on the project company. General terms of the loan provided by IFC are of tenor to 12 years with 2 years grace. The interest can be capitalized during construction phase.


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6.2.4 Kibor Rates

Karachi Inter-Bank Offer Rate (Kibor) represents the consensus rate at which banks are willing to lend funds to each other. This benchmark rate is an important reference point as most lending transactions are linked to this rate. In addition to bank lending to customers, many debt instruments and commercial contracts also use Kibor as a benchmark rate. All parties to these transactions are directly exposed to changes in the Kibor rate. The value of all future cash flows is affected by the changing levels of interest rates, every business either profits or loses from rising or falling interest rates, depending on whether it is receiving or paying cash in the future. Everyone has a need to protect themselves against adverse moves in rates and it is logical to expect that most entities, given the opportunity, will make use of available hedging instruments. Since banks are the primary participants in borrowing and lending, it is natural to expect them to be the leading providers of liquidity in the futures markets as well. However, National Commodity Exchange Limited NCEL is a national exchange providing equal access to all, companies and individuals also have an opportunity to come straight to the market to hedge their positions. Until October 2008 due to several reasons of which global recession is pivotal created an economic crisis in the country. This led to a rapid deterioration in the country’s external position and forced the government to seek financial assistance from the IMF to stabilize the economy. Since then, the economy has shown signs of greater stability. Large fiscal and external deficits have been brought down to sustainable levels, helping to reduce inflation and build up FX reserves. The policy focus will now shift to reviving growth. We expect policy measures including monetary easing and fiscal stimulus to move the economy onto a higher growth trajectory. The downside risks to the economy stem from the deteriorating security environment and headwinds from the turmoil in the global economy. The cost of the conflict in the border regions with Afghanistan - an estimated $35 billion over the past six years - is weighing on the economy, and the government has sought financial assistance from the international community. The US President Obama’s pledge to support Pakistan’s economy through a $7.5 billion aid package over the next five years will provide a much-needed boost. The government will seek an additional $6 billion at the ‘Friends of Pakistan’ forum to support the economy.

The build-up of FX reserves has also revived confidence in the economy. The improvement in Pakistan’s public debt profile has opened the doors for the World Bank and the ADB to start lending to Pakistan again; these agencies had withheld committed loans since January 2008 due to the deterioration in the public debt position. The World Bank has committed to releasing $2 billion by June 2009, while the ADB has announced a $4.4b country assistance program for 2009-13. These will provide a large direct boost to the economy - unlike the IMF standby loan; ADB and World Bank financing can be used to increase government spending on key infrastructure projects (power, roads, and irrigation). Over the past five months inflation had been controlled and reduced significantly whereas the KIBOR rate had also declined by 3.5 per cent. The vision of the government is to take inflation rate down to as low as 3-4 per cent by June 2010. It is essential for the GOP to bring down the inflation and interest rates systematically and not immediately as otherwise the economy would suffer further as a renewed hyperinflation may occur following the sudden dip in interest rates.


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Pakistani banks and rupee are also more stable now compared to some months back which was a positive sign of the local economy’s revival. The start of 2009 has brought in a quiet revolution in interest rate trading in Pakistan. Six months Kibor rate among the banks from January till today diminished by 217 basis points. The 6 months Kibor, which was seen at 15.68 percent on January 1, 2009, was seen dropped down to 12.44 by March 17. The 6 months Kibor stood at 13.35 percent and the details as of April 23, 2009 are below: 6.2.5 Equity Sponsors or promoters of road schemes are frequently the principal equity providers. Sponsors are frequently contracting companies, which themselves are not well capitalized. Their ambition is frequently to make a sufficient profit in construction, after investing their equity in project construction and getting the returns from operating the facility over 20 to 25 years. Institutional investors, however, require a risk-adjusted return on their investment.


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To obtain the required return to equity, there is a tendency to risk as little as possible. When the equity is lower the higher is the eventual return for the same cash flows available to the investors. Notwithstanding this, equity amounting to 20 percent of the capital costs is not an uncommon requirement. More equity will reduce the overall rate of return. Less equity will not convince the banking community that there is enough at risk to ensure the full cooperation of the investors. The government also sometime makes a significant equity contribution then they may require a profit-sharing arrangement to be developed. This permits it to recover some return on the original public stake, or to ensure the equitable division of returns once the project has attained profitability. Two equity streams are built into the model allowing for public and private contributions. Since the project initial analysis reveals that it is financially feasible, therefore no subsidy/equity or cross subsidy support was considered. The ratio of Equity: Loan was assumed as 30: 70. 6.2.6 Tol l Rates and Revenue Analysis Three Sources of Revenue sources are considered a. Toll Revenues: The Revenue collected from tolling the traffic using the motorway. The base

toll rates of M-2 are assumed to be the base toll rates for M-9 for year 2009. The annual increase on toll rates is assumed to be 5% annually. The assumed toll rates are as follows:

Close Toll System Vehicle Category Car Wagon Coaster Bus Truck Articulated Toll Rate Rs/Km. 0.55 0.76 1.21 1.73 2.12 2.73 The present toll rate on the M-9 is as follows: Open Toll System Vehicle Category Car Wagon Bus Truck Articulated Toll Rate Rs/Crossing 20 30 50 60 120 The toll collected during the construction period is not included in the cash flows of the financial analysis. However there is potential of about Rs. 1.25 Billion (Excluding ROW/Other Revenues) resource during the construction period. NHA can give the right of toll collection to the concessionaire after the concessionaire has made the financial close and has started the construction activity. There are number of ways this amount can be utilized in the project, depending upon the concessionaire’s financial strength and Bank’s requirements. The major utilization could be a direct subsidy support from NHA into the project or can be used for interest repayments or creating a Reserve account depending upon the bank’s requirements The Toll Efficiency is assumed to be 99%.


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The Toll Escalation on National highways and motorways are linked with the % Change in the Consumer price Index. The % change of the CPI varies and the details of the CPI over the last decade are as under:

For the purpose of this feasibility the Toll escalation is assumed to be 5% throughout the concession period. For the BOT type arrangement it is always better to negotiate a toll escalation formula with the concessionaire. In this way the sponsor can predict more realistically the expected cash inflows especially in a brown field project like M-9. The other two sources of Revenues are: b. Service Areas c. Other Revenue

The details of Traffic and above revenue sources details are covered in Chapter 3 and 4. 6.2.7 Project Implementation Time Lines PROJECT PROCUREMENT

• Expression of Interest : Already Advertised • Prequalification : May 2009 • RFP Issuance : June 2009 • Bids Preparation & Submission : June-July-August 2009

PROJECT AWARD

• Negotiation : Sep – Dec 2009 • Award : Jan 01, 2010


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CONCESSION PERIOD

• Project Effective Date : Jan 01, 2010 • Financial Close & Detail Design 6m : Jan 01, 2010 - Jun 31, 2010 • Construction 2yrs and 6 months : Jul 01, 2010 - Dec 31, 2012

OPERATION PHASE

• Operation Phase 22 years : Jan 01, 2013 - Dec 31, 2034

TRANSFER

• Project Transfer Date : Dec 31, 2034

6.2.8 Other Factors

• Corporate Tax 35% • Concession Period 25 Years • Construction Completion 30 Months • Provision made of Maintenance Reserve Account (MRA) @ 100% of O&M

Expenditures • Provision made of Debt Servicing Reserve Account (DSRA) @ 50% of Loan

Repayment • All values were taken in Rs. in Million

6.3 FINANCIAL ANALYSIS AND SENSITIVITY RESULTS 6.3.1 Financial Analysis Scenarios: The above (Section 7.2) parameters were considered as the:

1. BASE CASE And sensitivity was performed on the following possible variables from the base case:

2. NHA SHARE 30% OF TOLL REVENUES (Aft Debt Srv) 3. NHA SHARE 50% OF TOLL REVENUES (Aft Debt Srv) 4. NHA SHARE 70% OF TOLL REVENUES (Aft Debt Srv) 5. COMM. BANK INTEREST RATE 11% 6. COMM. BANK INTEREST RATE 13% 7. REVENUES 20% (minus) 8. COST 20%(plus) 9. REVENUES 30% (plus) 10. REVENUES 20% (minus) & COST 20% (plus)

6.3.2 Financial Analysis and Sensit iv i ty M-9 project is one of the NHA’s identified project and is to be offered to the private sector for development on BOT basis. The report has explored the feasibility of developing the project


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through a privatized toll road structure. Different scenarios were evaluated to determine the parameters under which this could be accomplished. The bank ability of the projects was tested at various combinations. The financial modeling is subject to multiple assumptions which can cause major impacts on the model output. The key factors are: 1) Construction Cost; 2) Traffic Volume; 3) Toll Rates; 4) Financing Terms. Changes in any one of these primary input factors will cause varied effects in the model outcome and results. The following table summarizes the results of the financial analysis:


Page 57

FINA

NCIA

L AN

ALYS

IS S

UMM

ARY

Tota

lNP

V

@12

%To

tal

ROI (

%)

NPV

@

12%

1BA

SE C

ASE

11,4

36

3,43

1

8,

005

15,4

17

2,44

5

196,

048

7

32

,094

51,1

84

-

-

97

,354

26.2

%12

,627

2NH

A SH

ARE

30%

OF

TOLL

REV

ENUE

S (A

ft De

bt S

rv)

11,4

36

3,43

1

8,

005

15,4

17

2,44

5

196,

048

7

32

,094

36,4

99

41,9

56

5,

086

70,0

82

23

.4%

9,32

1

3NH

A SH

ARE

50%

OF

TOLL

REV

ENUE

S (A

ft De

bt S

rv)

11,4

36

3,43

1

8,

005

15,4

17

2,44

5

196,

048

7

32

,094

26,7

09

69,9

27

8,

477

51,9

02

21

.0%

7,11

7

4NH

A SH

ARE

70%

OF

TOLL

REV

ENUE

S (A

ft De

bt S

rv)

11,4

36

3,43

1

8,

005

15,4

17

2,44

5

196,

048

7

32

,094

16,9

19

97,8

97

11

,868

33

,721

17.7

%4,

913

5CO

MM

. BAN

K IN

TERE

ST R

ATE

11%

11,4

36

3,43

1

8,

005

13,3

15

2,44

5

196,

072

7

32

,094

51,9

28

-

-

98

,736

28.4

%13

,367

6CO

MM

. BAN

K IN

TERE

ST R

ATE

13%

11,4

36

3,43

1

8,

005

14,3

53

2,44

5

196,

066

7

32

,094

51,5

62

-

-

98

,057

27.3

%13

,004

7RE

VENU

ES 1

0% (m

inus

)11

,436

3,

431

8,00

5

15

,417

2,

200

17

6,57

5

7

30,4

67

44

,937

-

-

85,7

54

23

.5%

10,6

78

8CO

ST 1

0%(p

lus)

12,5

80

3,77

4

8,

806

16,9

58

2,44

5

196,

027

7

32

,094

50,9

17

-

-

96

,058

23.8

%12

,014

9RE

VENU

ES 3

0% (p

lus)

11,4

36

3,43

1

8,

005

15,4

17

3,17

8

254,

383

6

36

,973

69,8

93

-

-

13

2,10

0

34.0

%18

,448

10RE

VENU

ES 1

0% (m

inus

) & C

OST

10%

(plu

s)12

,580

3,

774

8,80

6

16

,958

2,

200

17

6,43

0

7

30,4

67

44

,627

-

-

84,3

77

21

.3%

10,0

30

Case

Des

crip

tion

Tax

Equi

tyLo

anDe

bt

Serv

ivin

g

ALL

VALU

ES A

RE IN

RS.

MIL

LION

S.

No

.

NHA

Shar

eCo

nces

sion

aire

Sha

re

Capi

tal

Cost

Pay

Back

Pe

riod

(Y

ears

from

Ef

fect

ive

Date

)

Firs

t Yr

Toll

Reve

nues

To

tal

Reve

nues

To

tal

O

&M

BASE CASE WITH


Page 58

It is clear from the results that the project remains viable under all conditions of the sensitivity analysis. The payback period varies between 6-7 years after effective date, which means almost 4 years after construction is a clear positive sign of project viability. The upfront support of the toll revenues during construction period if provided by NHA will further enhance the bankability of the project. It may be mentioned here that the traffic survey was conducted in Dec 2008 precisely in times of unconventional economic crunch resulting in relatively less trade and hence less freight movement (The situation is easing out). Accordingly fuel price hike simultaneously suppressed private leisure trips. It is expected that the traffic would normalize by the time the project initiates. The detailed cash flows of the individual scenarios are attached in Annexure “A” Financial Evaluation Results. 6.4 CONCLUSION M-9 project is a highly viable project for structuring on BOT basis. The project has the potential for the sponsors to recoup their investment along with reasonable profit in a short time. Beside this NHA can also entail a reasonable share of revenue after the debt retirement without affecting the project profitability.

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National H y Authority - downloads.nha.gov.pkdownloads.nha.gov.pk/nhadocs/m-9-commercial-feasibility-report... · 599 com com ject . Commercial Feasibility Report Page 1 Contents