Express Way / Toll Road Feasibility Report

Submitted by: Pranjal Kapoor

2013003657

Overview of Indian Roads:

India’s road network of over 4.1 million km is second largest in the world consisting of expressways, national highways, state highways, major district roads and other roads. These roads carry about 65 per cent of freight and 80 per cent of passenger traffic. National highways constitute only 1.7 per cent of the road network, but carry about 40 per cent of the total road traffic. Road Transport has emerged as the dominant segment in India’s transportation sector with a share of 4.7% in India’s GDP in 2009-10. The number of vehicles on Indian roads has been growing at an average pace of 10.16% per annum over the last five years. Hence, development of road network assumes paramount importance in the context of a rapidly growing economy.

National Highways Authority of India (NHAI):

The National Highways Authority of India (NHAI) was established as a statutory entity under the National Highways Authority Act 1988 for development, maintenance and management of National Highways. Its initial mandate was restricted to a few projects undertaken with external assistance. From 1998 onwards, the Government has been implementing the National Highways Development Programme (NHDP) comprising: Phase I: Augmenting the Golden Quadrilateral connecting the four largest metropolis. Phase II: Augmenting the North-South and East-West corridors. Phase III: Four-laning of high-density national highways connecting state capitals and places of economic, commercial and tourist importance. Phase IV: Up gradation of single-lane roads to two-lane standards.Phase V: Six-laning of four-laned highways.Phase VI: Construction of 1,000 km of expressways.Phase VII: Construction of ring roads, by-passes, underpasses, flyovers, etc.

1.0 Salient Features

Project Name Four laning of Gandhidham (Kandla)- Mundra Port section of NH-8A (Extension) Length 100 Kms. in the state of Gujarat under NHPD Phase- III

Employer NATIONAL HIGHWAYS AUTHORITY of INDIA (Ministry of Road Transport & Highways ) GOVERNMENT of INDIA.

Concessionaire K.M. Toll Road Private Limited

Independent Engineer Deloitte India

2.0 Project Brief This project is aimed at four laning National Highway NH-8A between Gandhidham (KM 0/000) to Mundra (KM 71/400). Provision of land for future six lane is made in median.

Total length of the highway is 100 KM and it is being constructed with Flexible Pavement design.

The project is being executed through Public Private Partnership (PPP) on Design, Build, Finance, Operate and Transfer (DBFOT) basis. K.M. Toll Road Private Limited is Concessionaire having concession period of 25 years from Appointed Date. Appointed Date for this project is 10th January 2015. NHAI through procurement process, has appointed Independent Engineer Joint Venture of Dorsch Consult Verehr und infrastruktur Gmbh (Transport & Infrastructure) with Dorsch Consult India Private Ltd.

Concessionaire is supposed to build the highway while Independent Engineer

is supposed to monitor the Concessionaire.

NHAI has prepared feasibility cum Preliminary Design Report through Consultant i.e. RITES, for this highway and in addition to four laning of the highway to National Highway Standard NHAI has proposed following major improvements-

Project Cost: The total project cost is Rs 400 crores, with Rs 4 crores/Km of development cost and since it is a 100 Km toll stretch, the total project cost is around Rs 400 crores.

Operational Cost: The operational cost is assumed to be Rs 1crore/Km/year which brings to an expenditure of Rs 100 crores worth operational cost per year. The cost comprises of the labour cost, employee salaries, any fixed assets or machinery like road rollers for the renovation of the roads etc. Cost also includes services like 24 hours ambulance & highway patrolling, emergency/SOS facilities, vehicle break down/ tow away facilities.

Traffic Composition: There are three categories to vehicles :- - Car/Jeep/Van - LCV (Light Commercial Vehicle)

- Truck/Bus

- A car is considered to be 1 PCU (Passenger Car Unit). - A LCV as 2 PCU. - A truck/bus as 3 PCU.

The  traffic  projec-ons  in  the  ini-al  year  of  opera-ons.  

Traffic growth rate:-

- Car/Jeep/van ~ 4%- Truck/bus ~ 2%- LCV ~ 2%

Toll price per passenger car unit.

Project Funding:

The total estimated cost of the project is Rs 400 Cr.

Equity contribution by the promoters would be Rs 120 Cr.

A SPV (Special purpose vehicle) would be created for this purpose which would handle the project there after, and the debt of Rs 280 Cr would also be taken.

Major Maintenance Cost:

This is a major cost expected every 4-5 years to take place for the development or renovation of roads. The expected cost is about 40 Lakhs/ Km, which would cost Rs 40 Cr for the entire toll road.

Since, we are developing this toll road via PPP mode.

A brief on PPP:

Public Private Partnership (PPP)

A public private partnership is defined as “a cooperative venture between the public and private sectors, built on the expertise of each partner that best meets clearly defined public needs through the appropriate allocation of resources, risk and rewards.

Why PPP model?

There are usually two fundamental drivers for PPPs. Firstly, PPPs enable the public sector to harness the expertise and efficiencies that the private sector can bring to the delivery of certain facilities and services traditionally procured and delivered by the public sector.

Secondly, a PPP is structured so that the public sector body seeking to make a capital investment does not incur any borrowing. Rather, the PPP borrowing is incurred by the private sector vehicle implementing the project and therefore, from the public sector's perspective, a PPP is an "off-balance sheet" method of financing the delivery of new or refurbished public sector assets.

How PPP model works?

PPP models:

- Design Build - The government contracts with a private partner to design and build a facility. After completing the facility, the government assumes the responsibility of operating and maintaining.

- Design Build Maintain - This model is similar to Design-Build except that the private sector also maintains the facility.

- Design Build Operate - Private sector designs and builds a facility. Once the facility is completed, the title for the new facility is transferred to the public sector, while the private sector operates the facility for a specified period.

- Design Build Operate Maintain/ Build operate transfer (BOT) - It combines the responsibilities of design-build procurements with the operations and maintenance of a facility for a specified period by a private sector partner. At the end of that period, the operation of the facility is transferred back to the public sector.

- Build Own Operate Transfer - The government grants a franchise to a private partner to finance, design, build and operate a facility for a specified period of time. Ownership of the facility is transferred back to the private sector at the end of that period.

- Build Own Operate - The government grants the right to finance, design, build, operate and maintain a project to a private entity, which retains ownership of the project. The private entity is not required to transfer the facility back to the government.

Challenges of PPP in India:

- Regulatory environment: There is no independent PPP regulator as of now. In order to attract more domestic and international private funding of the infrastructure, a more robust regulatory environment, with an independent regulator is essential.

- Lack of information: The PPP program lacks a comprehensive database regarding the projects to be awarded under PPP. An online data base, consisting of all the project documents including feasibility reports, concession agreements and status of various clearances and land acquisition will be helpful to all the bidders.

- Financing availability: The private sector is dependent upon commercial banks to raise debt for the PPP projects. With commercial banks reaching the sectoral exposure limits, and large Indian Infrastructure companies being highly leveraged, funding the PPP projects is getting difficult.

- Project development: The project development activities such as detailed feasibility study, land acquisition; environmental/forest clearances etc. are not given adequate importance by the concessioning authorities. The absence of adequate project development by authorities leads to reduced interest by the private sector, misplacing and many times delays at the time of execution.

Risk Analysis

By and large design and construction risk can be passed

down to the design and construct contractor and operations and maintenance risk can, to a degree, be

assumed by the operations and maintenance contractors. Certain risks can be borne by the insurance market.

This is the general risk that the private sector is exposed to depending on which type of model is being used in the project.

All projects, whether undertaken using conventional procurement methods or using a P3 approach, have known risks, “known unknown” risks and unknown risks. Known risks are risks that have been identified. Identified risks need to be proactively managed throughout the project life cycle by identifying who owns the management of those risks and by what the risk entails, its triggers, and contingency plans that would prevent those risks from occurring or that would lessen the impact on the project should they occur. At

times, the risks may simply be accepted by a project if the cost to avoid or mitigate the risk is more than cost of the potential consequences. Risk identification is an important component in the development of a P3 framework. The focus of P3s is on known risks which can be mitigated by allocation to one of the involved parties as well as by other methods, such as insurance and quality control.

First, let us have a look at the various risk grouped by the project phase. Now, these are the types of risk to public and private partners.

Lets cover each one by one:

Design Risk:

Site Risk:

Construction Risk:

Force Majeure:

Revenue Risk:

O&M Risk:

Performance Risk:

Other Market Risk:

Political Risk:

Default Risk:

Strategic Risk: