PPP as a tool to use bridging

fiscal gap in countries

4th South Asia Region Public Procurement Conference

“Electronic Government Procurement (e-GP) in South Asia Achievments, Opportunities and Challanges”

20th – 23rd Feburary , 2017Mr Rajneesh Kapoor

Superintending Engineer

Ministry of Road Transport & Highways

Govt of India

Ministry of Road Transport & Highways (MORTH) is

an apex organization under the Central Government is

primarily responsible for development and maintenance

of National Highways.

India has about 5.472 million Kilometer of road network

out of which NHs are only 1,03,933 Km.

National Highway comprises only 2% of total road

network in India but carries about 40% of the road

traffic.

Road Transport is considered to be one of the most cost

effective and preferred mode of transport in India, both

for freight(60%) and passengers(87%).

INTRODUCTION

Road Network in India

The road network in India is second largest in World after

USA.

Details of road in India is as under:

Road Network of India Length (Km)

National Highway (NH) 1,03933

State Highway (SH) 1,61,487

Other Roads (MDR, ODR &

VR)

52,07,044

Total Length 54,72,464

Implementation modes for NH Projects in

India

• National Highways Authority of India (NHAI)

• State Works Dept (PWD)/ State Road Development Corporations

• Border Roads Organization (BRO)

• National Highways Infra Dev Corp Ltd. (NHIDCL)

Implementation agencies for NH projects

•Build Operate Transfer (BOT) Toll (PPP)

•BOT Annuity (PPP)•Hybrid Annuity (PPP)•EPC (Public funded)

Implementation modes for NH projects

NHDP (National Highways Development Project)- 48298 km

SARDP–NE(Special program for North East) -7611 km

LWE (Left Wing & Extremist affected areas) -1770 km

National Highway Interconnectivity Improvement

Programme (NHIIP) under World Bank

Loan Assistance - 1120 km

Total 58799 Km

Development of remaining NHs of length 45134 Km are

taken up under NH(O) scheme through Budgetary support

of Govt of India

Programme for road development in India

NHDP Phase-I: approved in Dec 2000 at the cost of Rs30300 cr.

NHDP Phase-II: approved in 2003 at the cost of Rs 34339cr.

NHDP Phase-III: approved in Dec 2006 at the cost Rs80626 cr

NHDP Phase-IV: approved in Dec 2006 at the cost of Rs41210 cr.

NHDP Phase-V: approved in October 2006 at the cost ofRs 41210 cr.

NHDP Phase-VI: approved in Nov 2006 at the cost Rs16,680 cr

NHDP Phase-VII: approved in Dec 2007 at the cost Rs16,680 cr

Phases of NHDP

Map of NHDP-I (GQ) & II (NS&EW)

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Status of NHDP

NHDP

Phase

Mode Length

(Km)

Awarded/

under implementation

(Km)

To be

awarded

(Km)

Approved

cost (Rs

in Cr)

Phase I EPC 7522 7521 1 30,300

Phase II EPC/

BOT

6647 6399 248 34339

Phase III EPC/

BOT

12109 10430 1679 80626

Phase IV EPC/

BOT

20000 15829 4171 27800

Phase V BOT 6500 3457 3043 41210

Phase VI BOT 1000 166 834 16680

Phase VII BOT 700 120 580 16680

Total 54478 43922 10556 247,635

To meet with the massive requirement of funds, innovativemeans of financing have been adopted by Govt of India.

Special financing strategies are needed, as raising adequateresources from budgetary resources alone is very difficult.

The details of fund raised from various sources is as under:

Cess on diesel and petrol: A cess of Rs 6 per liter is levied forroad development.

NHAI (Toll Remittance)-Toll to be collected from completedstretches

Market borrowings on the strength of future inflow incess/Toll: Funds are raised from Bonds issued by NHAI

Avail long term external loans from the World Bank, ADB& JICA.

Budgetary resources of Govt of India

public private partnership (PPP)

FINANCING OF VARIOUS PROGRAMMES

Public Private Partnership in India

• Build Operate Transfer (BOT) Toll (PPP)

• BOT Annuity (PPP)

• Hybrid Annuity (PPP)

• EPC (Public funded)

Implementation modes for NH projects

• BOT(Toll) is the Default Mode

• Earlier, the projects not viable on BOT(Toll) were taken up on BOT Annuity (PPP).

• Now Govt has adopted a new Model HAM in 2015.

• Projects not viable on BOT(Toll) are taken up on Hybrid Annuity Model(HAM)

• When no response is received on BOT(toll) and HAM then projects are taken up on EPC Mode.

Preference of Mode

Public Private Partnership in India-BOT (Toll) Concessionaire construct the road and recovers the cost

through collection of toll revenue during concession

period maximum upto 30 year.

Viability Gap Funding (VGF) maximum up to 40% of Total

Project cost (TPC) paid to concessionaire by Authority

during construction period in 5 installments linked to

project milestones.

Remaining project cost is recovered by concessionaire

through collection of toll revenue during operation period

Concessionaire maintains the road during operation

period.

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BOT(Toll) Project

VGF support upto

40% of TPC by Govt.

Balance Project Cost

to be arranged by

Concessionaire for

Financial Close

COD

1. Toll revenue to be retained by

concessionaire

2. Interest payments (on reducing

balance @ Bank Rate + 2.5%)

Construction Period

Operations Period

Toll collection

by

Concessionair

e

O&M by

Concessionaire

BOT(Toll)Model

Bid Parameter – VGF quoted

Concession Period

Public Private Partnership in India-BOT(Annuity) Concessionaire construct the road and recovers the cost

through Annuities paid semi annually after completion of

construction and during operation period (maximum upto

17.5 year).

Construction risk with concessionaire.

Authority collects toll.

O&M responsibility is with concessionaire.

Authority has to pay annuities during operation period

hence payment liability deferred during construction and

paid in installment during operation period.

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BOT(Annuity) Project

No Construction

Support by Govt.

100% of Project Cost

arranged by

Concessionaire for

Financial Close

COD

1. Annuity payments (biannually)

for 15 years

2. Interest payments (on reducing

balance @ Bank Rate + 2 %)

Construction Period

Operations Period

Toll collection

by Govt.

O&M by

Concessionaire

BOT(Annuity) Model

Bid Parameter–Semi Annuity quoted

Concession Period

The Model

▪ This is a new Model Adopted by Govt In 2015.

▪ 40% of Project Cost paid to Concessionaire by Authority during

construction period in five equal instalments linked to project

milestones.

▪ Balance 60% of Project Cost to be brought in by Concessionaire

▪ Investment recovered by Concessionaire through Annuity payments

over 15 years along with interest @ Bank Rate + 3 %.

▪ O&M responsibility is with Concessionaire, who receives O&M

payments bi-annually along with Annuity payments.

▪ Authority collects toll and Concessionaire remains insulated from Toll

Revenue Collection Risk.

▪ Project payments are inflation indexed.

Hybrid Annuity Model

This is a new innovative Model in which Annuities paid to

concessionaire are not equal but increases with time.

This helps to reduce the pressure on budgetary

resources initially since annuity amount increased

with time to match the budgetary resources (2.1% to

4.75% of balance cost).

Separate provisions exist for O&M payments to the

concessionaire from the Authority.

Toll collection shall be the responsibility of the Authority.

As of now 30 projects are awarded on HAM mode out of

which 9 has achieved financial close, which will be

started shortly .

Hybrid Annuity Model – salient features

Annuity payment schedule – Pre

determinedAnnuity following

the COD

Percentage of Balance

Completion Cost

1st Annuity 2.10%

2nd Annuity 2.17%

3rd Annuity 2.24%

4th Annuity 2.31%

5th Annuity 2.38%

6th Annuity 2.45%

7th Annuity 2.52%

8th Annuity 2.60%

9th Annuity 2.68%

10th Annuity 2.76%

11th Annuity 2.84%

12th Annuity 2.93%

13th Annuity 3.02%

14th Annuity 3.11%

15th Annuity 3.20%

Annuity following

the COD

Percentage of Balance

Completion Cost

16th Annuity 3.30%

17th Annuity 3.40%

18th Annuity 3.50%

19th Annuity 3.61%

20th Annuity 3.72%

21st Annuity 3.83%

22nd Annuity 3.94%

23rd Annuity 4.06%

24th Annuity 4.18%

25th Annuity 4.25%

26th Annuity 4.25%

27th Annuity 4.44%

28th Annuity 4.71%

29th Annuity 4.75%

30th Annuity 4.75%

100%

Hybrid Annuity Project

40% of Project Cost

(Construction

Support) by Govt.

60% of Project Cost

arranged by

Concessionaire for

Financial Close

COD

1. Annuity payments (biannually)

for 15 years

2. O&M payments

3. Interest payments (on reducing

balance @ Bank Rate + 3%)

Construction Period

Operations Period

Toll collection

by Govt.

O&M by

Concessionaire

Hybrid Annuity Model

Bid Parameter – NPV of the quoted

Bid Project Cost + NPV of the O&M

Cost for the entire Operations period

All the 3 modes of PPP is very useful in bridging the

fiscal gap in budget of country.

In BOT(Toll) Mode, government has to pay only 40% of

project cost and project will be constructed and

maintained by concessionaire for maximum period of 30

year.

In HAM mode, government has to pay only 40% of

project cost during construction period and remaining

as semi annual annuities during 15 year operation

period and project will be constructed and maintained

by concessionaire for period of 17.5 year.

In BOT(Annuity) mode, government has to pay semi

annual annuities during 15 year operation period and

project will be constructed and maintained by

concessionaire for period of 17.5 year.

PPP as a tool to use bridging

fiscal gaps in countries

Road Development on PPP in India Putting investment through PPP is enabling reduced

dependence on public expenditure for infrastructure projects.

In India, 30% (approx) funds for NHs are being raised through

PPP and 30% through (approx) Internal borrowing like NHAI

Bonds.

Highway sector in India has effectively used the PPP route and

presently, 39000 Km length of National Highways are being

developed on PPP basis in India.

259 projects with a length of 22225 Km is already awarded on

PPP basis.

The details are as under:Total projects awarded 259 No.

Total Length awarded 22225 Km

Length Completed 7566 Km

Length under Implementation 14659 Km

Total Project cost of awarded project US$ 28.84 Billion

Allocation/Expenditure for NHs

Financing Scheme Funds Raised

(2014-15)

Funds Raised

(2015-16)

Expenditure

upto Jan 17

(2016-17)

Cess on diesel and petrol Rs 15923 cr Rs 34257cr Rs 25001 cr

NHAI (Toll Remittance) Rs 5448 cr Rs 6500 cr Rs 7500 cr

Avail long tern external

loans from the World Bank,

ADB & JICA.

Rs 138 cr Rs 547 cr Rs 171cr

Budgetary resources of

Govt of India under NH(O)

Rs 5292 cr Rs 4216cr Rs 4010 cr

Market borrowings on the

strength of future inflow in

cess/Toll

Rs 3343cr

(7%)

Rs 23281cr

(23%)

Rs 27831cr

(36%)

public private partnership

(PPP)

Rs 19232 cr

(38%)

Rs 29770 cr

(30%)

Rs 11277 cr

(15%)

Total investment for NH in

India

Rs 49376 cr Rs 98571 cr Rs 75790 cr

Advantages of PPP

Timely Completion

Value for Money

Whole life asset performance

o Private entity takes responsibility & assumes

risk for the performance of the asset and

delivery of service over a long term

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Delhi Gurgaon- PPP Project

BOT (Toll)

Jammu-Udhampur PPP Project-

BOT(Annuity)

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