Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

104
LITERATURE REVIEW LITERATURE REVIEW Working Capital Management of Infrastructure Projects Working Capital Management of Infrastructure Projects PPP PPP – BOT Highway Projects BOT Highway Projects Guided by: Guided by: Dr. D.R. Patel Dr. D.R. Patel Prepared By: Prepared By: Prepared By: Prepared By: Soni Viral S. Soni Viral S. CP (1507) CP (1507) M.Tech Construction & Project Management, Faculty of Technology, CEPT University, Ahmedabad. Soni Viral S, Soni Viral S, M.Tech M.Tech CPM, CEPT CPM, CEPT University, Ahmedabad University, Ahmedabad

description

Working capital management of PPP BOT highway project with case study,in case of any difficulty feel free to write to me.

Transcript of Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Page 1: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

LITERATURE REVIEWLITERATURE REVIEW

Working Capital Management of Infrastructure ProjectsWorking Capital Management of Infrastructure ProjectsPPP PPP –– BOT Highway ProjectsBOT Highway Projects

Guided by:Guided by:Dr. D.R. PatelDr. D.R. Patel

Prepared By:Prepared By:Prepared By:Prepared By:Soni Viral S.Soni Viral S.

CP (1507)CP (1507)

M.Tech Construction & Project Management, Faculty of Technology,CEPT University, Ahmedabad. Soni Viral S, Soni Viral S, M.TechM.Tech CPM, CEPT CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 2: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Sr. No.Sr. No. ContentContent

2.12.1 IntroductionIntroduction

2.2 2.2 DefinitionsDefinitions

2.32.3 Concepts of Working Capital ManagementConcepts of Working Capital Management2.32.3 Concepts of Working Capital ManagementConcepts of Working Capital Management

2.4 2.4 Concepts of PPPConcepts of PPP--BOT ProjectsBOT Projects

2 52 5 Road blocks in PPP ProjectsRoad blocks in PPP Projects2.5 2.5 Road blocks in PPP ProjectsRoad blocks in PPP Projects

2.62.6 Issues in Financing BOT ProjectsIssues in Financing BOT Projects

2.72.7 Balancing Net Working Capital Balancing Net Working Capital

2.82.8 Means of financing Working CapitalMeans of financing Working Capital

2.92.9 Receivables ManagementReceivables Management-- Tolling trendsTolling trends

2.102.10 Research GapResearch Gap

2.112.11 ReferencesReferences

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 3: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.1 INTRODUCTION2.1 INTRODUCTION

Need of PPPNeed of PPP--BOT schemes.BOT schemes.

In the year 1996, the world bank had estimated that an expenditure of US$200 In the year 1996, the world bank had estimated that an expenditure of US$200 billion a year must be made on infrastructure by developing countries, and Asian billion a year must be made on infrastructure by developing countries, and Asian would account for 80% of this expenditure. The bottle necks in mobilization of would account for 80% of this expenditure. The bottle necks in mobilization of public funds and foreign debts have enhanced the interests of developing countriespublic funds and foreign debts have enhanced the interests of developing countriespublic funds and foreign debts have enhanced the interests of developing countries public funds and foreign debts have enhanced the interests of developing countries in provision of infrastructure projects through Builtin provision of infrastructure projects through Built--OperateOperate--Transfer (BOT) type Transfer (BOT) type scheme. scheme.

A study of funding requirements for development and maintenance of roads in IndiaA study of funding requirements for development and maintenance of roads in IndiaA study of funding requirements for development and maintenance of roads in India A study of funding requirements for development and maintenance of roads in India reveals a large likely funding gap. Compared to an annual funding requirement of reveals a large likely funding gap. Compared to an annual funding requirement of Rs. 32,700 cr projected for the years 2001Rs. 32,700 cr projected for the years 2001--2006 for development and maintenance 2006 for development and maintenance of State highways and NHs, quantum of funds available annually for this purpose of State highways and NHs, quantum of funds available annually for this purpose was Rs.10,100 cr. It will clearly not feasible for the state to meet the funding gap was Rs.10,100 cr. It will clearly not feasible for the state to meet the funding gap

j t d ith t ff ti it bilit t t th i t f th i itij t d ith t ff ti it bilit t t th i t f th i itiprojected without affecting its ability to meet the requirements of other priorities.projected without affecting its ability to meet the requirements of other priorities.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 4: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.2 Definitions2.2 Definitions2.2 Definitions2.2 DefinitionsWorking Capital Working Capital –– (Gross Working Capital) it means the current assets which (Gross Working Capital) it means the current assets which represent the proportion of investment that circulates from one to another in represent the proportion of investment that circulates from one to another in ordinary conduct of business.ordinary conduct of business.yy

Net Working Capital Net Working Capital –– It can be defined as the difference between current assets It can be defined as the difference between current assets and current liabilities or alternatively the portion of current assets financed with and current liabilities or alternatively the portion of current assets financed with longlong--term funds.term funds.longlong term funds.term funds.

Current Assets Current Assets –– Assets which normally get converted into cash during normal Assets which normally get converted into cash during normal operating cycle of the firm.operating cycle of the firm.

Current liabilities Current liabilities –– Liabilities that are normally payable within a year.Liabilities that are normally payable within a year.

Profitability Profitability –– Implies the relationship between revenue and costs generated by Implies the relationship between revenue and costs generated by i b th fi d d t t i d ti ti itii b th fi d d t t i d ti ti itiusing both fixed and current assets in productive activities.using both fixed and current assets in productive activities.

Risk of technical insolvency Risk of technical insolvency –– it is probability that a firm will be unable to meet its it is probability that a firm will be unable to meet its obligations as they become due.obligations as they become due.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 5: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2 2 Definitions2 2 Definitions2.2 Definitions2.2 DefinitionsPPP Projects PPP Projects –– Public Private Partnership Projects Public Private Partnership Projects --describes a government describes a government service/project or private business venture which is funded and operated service/project or private business venture which is funded and operated /p j p p/p j p pthrough a partnership of government and one or more private sector through a partnership of government and one or more private sector companies.companies.

BOT ProjectsBOT Projects --BOT is build operate and transferBOT is build operate and transfer -- a company builds aa company builds aBOT Projects BOT Projects --BOT is build, operate and transfer BOT is build, operate and transfer -- a company builds a a company builds a facility, an infrastructure project, gets to operate it for a while and is paid facility, an infrastructure project, gets to operate it for a while and is paid for that, and finally transfers it back to the public sector at the end of some for that, and finally transfers it back to the public sector at the end of some time time -- determined by when the construction company is believed to have determined by when the construction company is believed to have been paid a satisfactory amountbeen paid a satisfactory amountbeen paid a satisfactory amount.been paid a satisfactory amount.

BOOT projects BOOT projects –– BOOT: build, own, operate and transfer BOOT: build, own, operate and transfer -- the constructor the constructor builds the project, they then get to own and operate it for some period of builds the project, they then get to own and operate it for some period of p j , y g p pp j , y g p ptime (like 20 or 25 years) during which they collect revenues. At the end of time (like 20 or 25 years) during which they collect revenues. At the end of the certain duration , the project is handed back to the government.the certain duration , the project is handed back to the government.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 6: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.3 Concepts of Working Capital 2.3 Concepts of Working Capital ManagementManagement

According to Khan & Jain, The goal of working capital management is to According to Khan & Jain, The goal of working capital management is to manage the firm’s current assets and liabilities in such a way that amanage the firm’s current assets and liabilities in such a way that amanage the firm s current assets and liabilities in such a way that a manage the firm s current assets and liabilities in such a way that a satisfactory level of working capital is maintained. If firm cannot maintain satisfactory level of working capital is maintained. If firm cannot maintain a satisfactory level of working capital it is likely to become insolvent and a satisfactory level of working capital it is likely to become insolvent and may be forced to bankruptcy, in case of infrastructure project it becomes may be forced to bankruptcy, in case of infrastructure project it becomes y p y p jy p y p jcrucial due to level of risk and longer gestation period.crucial due to level of risk and longer gestation period.

According to P Chandra, Under a flexible policy the investment in current According to P Chandra, Under a flexible policy the investment in current h h h h b l f h d k blh h h h b l f h d k blasset is high. This means a huge balance of cash and marketable securities, asset is high. This means a huge balance of cash and marketable securities,

carries large amount of inventories, and grants generous terms of credits to carries large amount of inventories, and grants generous terms of credits to customers. Under a restrictive policy (aggressive policy), the investment in customers. Under a restrictive policy (aggressive policy), the investment in current asset is low This means that the firms keeps a small balance ofcurrent asset is low This means that the firms keeps a small balance ofcurrent asset is low. This means that the firms keeps a small balance of current asset is low. This means that the firms keeps a small balance of cash and marketable securities, manage with small amount of inventories cash and marketable securities, manage with small amount of inventories and offer stiff terms of credit. and offer stiff terms of credit.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 7: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.4 Concepts of PPP2.4 Concepts of PPP--BOT Projects :BOT Projects :pp jj

According to Cesar Queiroz (Lead Highway Engineer World Bank, Russia) A According to Cesar Queiroz (Lead Highway Engineer World Bank, Russia) A P bliP bli P i P hi (PPP) i i d ll b i ffP i P hi (PPP) i i d ll b i ffPublicPublic--Private Partnership (PPP) constitutes a sustained collaborative effort Private Partnership (PPP) constitutes a sustained collaborative effort between the public sector (government agencies) and private enterprises to between the public sector (government agencies) and private enterprises to achieve a common objective (e.g., the road project) while they pursue their achieve a common objective (e.g., the road project) while they pursue their own individual interests.own individual interests.own individual interests.own individual interests.

BOT Projects BOT Projects –– According to R Kansal and M C Gupta, ( The ICFAI Journal According to R Kansal and M C Gupta, ( The ICFAI Journal of Infrastructure ) BOT is a device that helps the government to develop of Infrastructure ) BOT is a device that helps the government to develop ) p g p) p g pinfrastructure projects by transferring all the risk and responsibility to infrastructure projects by transferring all the risk and responsibility to private sector, it requires appropriate allocation of risk and assigning risk to private sector, it requires appropriate allocation of risk and assigning risk to those best placed to control them.those best placed to control them.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 8: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.4 Concepts of PPP2.4 Concepts of PPP--BOT Projects :BOT Projects :BOT Projects in Indian ScenarioBOT Projects in Indian ScenarioAccording to Kansal & Gupta, In India budgetary allocation is not sufficient, the According to Kansal & Gupta, In India budgetary allocation is not sufficient, the National Highway Act has been amended to enable levy of fee on the selected National Highway Act has been amended to enable levy of fee on the selected sectors of national highway This way the private sector can participate in thesectors of national highway This way the private sector can participate in the

pp jj

sectors of national highway. This way the private sector can participate in the sectors of national highway. This way the private sector can participate in the construction, maintenance and operation of roads on BOT basis. The National construction, maintenance and operation of roads on BOT basis. The National Highway Authority of India (NHAI) on behalf of the Government of India (GOI) has Highway Authority of India (NHAI) on behalf of the Government of India (GOI) has invited global tenders from the parties for proposed Super National highways or invited global tenders from the parties for proposed Super National highways or Expressways, which connect major metropolitan cities and manufacturing town withExpressways, which connect major metropolitan cities and manufacturing town withExpressways, which connect major metropolitan cities and manufacturing town with Expressways, which connect major metropolitan cities and manufacturing town with the major ports in India. These are proposed to be built with the help of the private the major ports in India. These are proposed to be built with the help of the private sector on the BOT basis.sector on the BOT basis.

National Highways Development Projects (NHDP) Under BOT schemeNational Highways Development Projects (NHDP) Under BOT schemeNational Highways Development Projects (NHDP) Under BOT schemeNational Highways Development Projects (NHDP) Under BOT scheme

The proposed 13,416 Km four/six lane roads at cost of Rs. 54,000 cr under BOT The proposed 13,416 Km four/six lane roads at cost of Rs. 54,000 cr under BOT scheme, which include the following three corridors.scheme, which include the following three corridors.Golden Quadrilateral (GQ):Golden Quadrilateral (GQ): it connect four metrosit connect four metros Delhi Kolkata Chennai andDelhi Kolkata Chennai andGolden Quadrilateral (GQ):Golden Quadrilateral (GQ): it connect four metrosit connect four metros-- Delhi, Kolkata, Chennai and Delhi, Kolkata, Chennai and MumbaiMumbai-- covering a distance of 5846 km length.covering a distance of 5846 km length.NorthNorth--South Corridor: South Corridor: it runs from Jammu to Kanyakumari covering a length of it runs from Jammu to Kanyakumari covering a length of 4000 kms and was scheduled to be completed by 2007.4000 kms and was scheduled to be completed by 2007.EastEast west Corridor:west Corridor: it runs from Porbandar to Silchar covering a length of 3 300it runs from Porbandar to Silchar covering a length of 3 300EastEast--west Corridor: west Corridor: it runs from Porbandar to Silchar covering a length of 3,300 it runs from Porbandar to Silchar covering a length of 3,300 Kms and was scheduled to be operational by 2007.Kms and was scheduled to be operational by 2007.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 9: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.4 Concepts of PPP2.4 Concepts of PPP--BOT Projects :BOT Projects :pp jjConcessions announced by NHAIConcessions announced by NHAI

The NHAI has also announced a number of concessions to private sector. They areThe NHAI has also announced a number of concessions to private sector. They areThe NHAI has also announced a number of concessions to private sector. They are The NHAI has also announced a number of concessions to private sector. They are

The private sector allowed to retain the toll money on the highway it develops on the BOT basis.The private sector allowed to retain the toll money on the highway it develops on the BOT basis.

A 100% tax exemption granted for five years, and 30% relief for the next five years.A 100% tax exemption granted for five years, and 30% relief for the next five years.

The exemption may be availed by the contractor over a period of 20 years.The exemption may be availed by the contractor over a period of 20 years.

The concession period may be extended up to 30 years.The concession period may be extended up to 30 years.

An exemption on import duty for import of high capacity modern equipments.An exemption on import duty for import of high capacity modern equipments.

Foreign direct investment has been permitted up to 100%.Foreign direct investment has been permitted up to 100%.

The Government would provide the land free of cost and also free from all encumbrancesThe Government would provide the land free of cost and also free from all encumbrancesThe Government would provide the land free of cost and also free from all encumbrances.The Government would provide the land free of cost and also free from all encumbrances.

The NHAI permitted to take a 30% stake in BOT projects.The NHAI permitted to take a 30% stake in BOT projects.

The GOI and NHAI will Provide capital grant up to 40% of their Project costThe GOI and NHAI will Provide capital grant up to 40% of their Project cost

Any arbitration would be settled as per the United Nations Commission on International Trade law Any arbitration would be settled as per the United Nations Commission on International Trade law (UNICTRAL) provisions.(UNICTRAL) provisions. Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 10: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.5 Road Blocks in PPP projects:2.5 Road Blocks in PPP projects:--

According to Kansal & Gupta, Despite of GOI’s and the NHAI’s According to Kansal & Gupta, Despite of GOI’s and the NHAI’s concessions to the private sector to make them involve in theconcessions to the private sector to make them involve in theconcessions to the private sector to make them involve in the concessions to the private sector to make them involve in the BOT projects, the private sector is hesitant to take part in the BOT projects, the private sector is hesitant to take part in the BOT projects due to the following reasons:BOT projects due to the following reasons:

More time is required in land acquisition, shifting of utilities, removing More time is required in land acquisition, shifting of utilities, removing of structures etc. Procedures are so cumbersome that it takes a of structures etc. Procedures are so cumbersome that it takes a minimum of a year to acquire the land; andminimum of a year to acquire the land; andy q ;y q ;The project has gestation period of 20 years which is too long for The project has gestation period of 20 years which is too long for blocking the investment. Normally, the capital expenditure plans of blocking the investment. Normally, the capital expenditure plans of companies, including building a new manufacturing facility, do not have companies, including building a new manufacturing facility, do not have

t ti i d f th i t Th till h i dt ti i d f th i t Th till h i dgestation period of more than six to seven years. Thus till such period, gestation period of more than six to seven years. Thus till such period, the companies have to pay interest on its borrowing from the financial the companies have to pay interest on its borrowing from the financial institutions.institutions.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 11: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.5 Road Blocks in PPP projects:2.5 Road Blocks in PPP projects:--According to Rajiv Lall ( Indian Infrastructure, June 2007), At state level According to Rajiv Lall ( Indian Infrastructure, June 2007), At state level transition is not as smooth as it is in National level projects, Financier transition is not as smooth as it is in National level projects, Financier apprehension while funding projects stems from the lack of homogeneity inapprehension while funding projects stems from the lack of homogeneity inapprehension while funding projects stems from the lack of homogeneity in apprehension while funding projects stems from the lack of homogeneity in procedure adopted by states. Bankers demand standardization and but at procedure adopted by states. Bankers demand standardization and but at the state government level, the the state government level, the Model Concession AgreementModel Concession Agreement is variable. is variable. States having standardized MCAs like Maharashtra, Madhyapradesh, States having standardized MCAs like Maharashtra, Madhyapradesh, Gujarat, Punjab, Haryana, Rajasthan, Kerala and Karnataka have more PPP Gujarat, Punjab, Haryana, Rajasthan, Kerala and Karnataka have more PPP projects.projects.

A i t Bh ti G t ( I di I f t t J 2007) RA i t Bh ti G t ( I di I f t t J 2007) RAccoring to Bharti Gupta, ( Indian Infrastructure, June 2007), Reason Accoring to Bharti Gupta, ( Indian Infrastructure, June 2007), Reason behind the financiers reluctance is the lower creditworthiness of state behind the financiers reluctance is the lower creditworthiness of state authorities compared to National Authorities. The authorities compared to National Authorities. The financial capacity of the financial capacity of the statestate to back the project is sometime a question. Inappropriate riskto back the project is sometime a question. Inappropriate riskstatestate to back the project is sometime a question. Inappropriate risk to back the project is sometime a question. Inappropriate risk allocation due to issues like land acquisition problems delayed allocation due to issues like land acquisition problems delayed environmental clearances, among others are also causes of worry to environmental clearances, among others are also causes of worry to financiers.financiers.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 12: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.7 Issues in Financing BOT projects2.7 Issues in Financing BOT projectsAccording to Nayan C Parikh and Rajesh Samson (Vikalpa VolAccording to Nayan C Parikh and Rajesh Samson (Vikalpa Vol--24.No.1 January24.No.1 January--March 1999) Practical experienced has shown March 1999) Practical experienced has shown that the following hurdles are encountered arranging financesthat the following hurdles are encountered arranging financesthat the following hurdles are encountered arranging finances that the following hurdles are encountered arranging finances for BOT projects.for BOT projects.

Lack of Prime SecurityLack of Prime Security

The Escrow AccountThe Escrow AccountThe Escrow Account The Escrow Account

Placement of EquityPlacement of Equity

BackBack--ended Cash flowsended Cash flows

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 13: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.7 Balancing Net Working capital2.7 Balancing Net Working capital

There are number of problems faced by companies in trying to There are number of problems faced by companies in trying to b l th N t ki it l M j f th li t db l th N t ki it l M j f th li t dbalance the Net working capital. Major of these are listed balance the Net working capital. Major of these are listed below:below:

Shortage of working capital Shortage of working capital

Slow and non moving stocksSlow and non moving stocksS o a d o o g s oc sS o a d o o g s oc s

Funds locked in work in progress Funds locked in work in progress

Requirement of high growth company Requirement of high growth company

Reduction in interest ratesReduction in interest ratesReduction in interest rates Reduction in interest rates

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 14: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.8 Means of Financing working Capital2.8 Means of Financing working CapitalSource of finances that are used to support current Source of finances that are used to support current assets :assets :--

Accruals Accruals –– amount owed but not paid, ( taxes, wages etc. )amount owed but not paid, ( taxes, wages etc. )Trade credit Trade credit –– credits extended by suppliers of goods and credits extended by suppliers of goods and y pp gy pp gservices. ( 25 to 50 % of short term financing in some services. ( 25 to 50 % of short term financing in some cases )cases )Working capital advance by commercial banksWorking capital advance by commercial banksBank financeBank financeInterInter--corporate depositscorporate depositsShort term loans from financial institutionsShort term loans from financial institutionsShort term loans from financial institutionsShort term loans from financial institutionsCommercial paperCommercial paperValidity Gap fundingValidity Gap funding

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 15: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.8 Means of Financing working Capital2.8 Means of Financing working Capital

As listed in Indian infrastructure, Major players Financing Infrastructure Projects in As listed in Indian infrastructure, Major players Financing Infrastructure Projects in India:India:

World BankWorld Bank –– Largest multilateral funding agency which provides low cost and Largest multilateral funding agency which provides low cost and long tenor financing to infrastructure projects.long tenor financing to infrastructure projects.

Asian Development Bank (ADB)Asian Development Bank (ADB) –– an active player in infrastructure financing an active player in infrastructure financing providing support to India in the form of loans, technical assistance,grants, providing support to India in the form of loans, technical assistance,grants, guarantees and equity investments. At the end of the year 2006 ADB had extended guarantees and equity investments. At the end of the year 2006 ADB had extended loans worth $ 10,606 million for infrastructure projects.loans worth $ 10,606 million for infrastructure projects.

Infrastructure Development Finance Company (IDFC)Infrastructure Development Finance Company (IDFC) –– IDFC was IDFC was incorporated on January 30, 1997 as a specialized institution to facilitate flow of incorporated on January 30, 1997 as a specialized institution to facilitate flow of private finance to commercially viable infrastructure projects.private finance to commercially viable infrastructure projects.

ICICI BankICICI Bank –– largest Indian private sector bank. As on march 31, 2007 Loan worth largest Indian private sector bank. As on march 31, 2007 Loan worth Rs 141.58 billion was provided to various infrastructure projects.Rs 141.58 billion was provided to various infrastructure projects.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 16: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Major players Financing Infrastructure Projects in India:Major players Financing Infrastructure Projects in India:Major players Financing Infrastructure Projects in India:Major players Financing Infrastructure Projects in India:

Industrial Development Bank of India (IDBI)Industrial Development Bank of India (IDBI) –– IDBI is among largest IDBI is among largest commercial banks in India. commercial banks in India.

Industrial Finance Corporation of India (IFCI)Industrial Finance Corporation of India (IFCI) financial institutionfinancial institutionIndustrial Finance Corporation of India (IFCI)Industrial Finance Corporation of India (IFCI) –– financial institution financial institution set up to promote development in India. As on March 31, 2007 IFCI’s net set up to promote development in India. As on March 31, 2007 IFCI’s net outstanding in infrastructure was amounted to Rs 14.02 billion.outstanding in infrastructure was amounted to Rs 14.02 billion.

India Infrastructure finance company limited (IIFCL)India Infrastructure finance company limited (IIFCL) –– IIFCL was IIFCL was formed in January 2006 as 100 percent government owned Infrastructure formed in January 2006 as 100 percent government owned Infrastructure financing SPV. The SPV funds infrastructure projects up to 20 percent of financing SPV. The SPV funds infrastructure projects up to 20 percent of the total project cost.the total project cost.the total project cost.the total project cost.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 17: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.9 Tolling trends2.9 Tolling trendsAs per data given in Indian Infrastructure (November 2007), Toll revenues As per data given in Indian Infrastructure (November 2007), Toll revenues from National highways have increased consistently, Currently 66 stretches from National highways have increased consistently, Currently 66 stretches covering over 4000 km under NHDP are tolled. covering over 4000 km under NHDP are tolled.

Toll collection in 2006Toll collection in 2006--2007 were estimated Rs. 10.3 billion, an increased 2007 were estimated Rs. 10.3 billion, an increased about 30 percent over 2005about 30 percent over 2005--2006. Of this 80 percent of the collection is 2006. Of this 80 percent of the collection is from public funded projects and 20 percent from private projects. Prior to from public funded projects and 20 percent from private projects. Prior to p p j p p p jp p j p p p jthis toll collection witnessed 76 percent in 2005this toll collection witnessed 76 percent in 2005--2006 and 25 percent in 2006 and 25 percent in 20042004--2005. The decline in 20062005. The decline in 2006--2007 has been attributed to the delay in 2007 has been attributed to the delay in bringing eight new stretches under the toll net.bringing eight new stretches under the toll net.

Estimated toll collection from the Golden quadrilateral and NorthEstimated toll collection from the Golden quadrilateral and North--SouthSouth--EastEast--West Corridor are Rs 5 million per km and Rs 1.8 million per km West Corridor are Rs 5 million per km and Rs 1.8 million per km respectively. This constitutes 3respectively. This constitutes 3--5 percent per annum of the cost of four 5 percent per annum of the cost of four laning this networks After completion GQ and NSEW will have 95 and 112laning this networks After completion GQ and NSEW will have 95 and 112laning this networks. After completion GQ and NSEW will have 95 and 112 laning this networks. After completion GQ and NSEW will have 95 and 112 toll plazas respectively. The Value of each toll plaza is estimated at $4.5 toll plazas respectively. The Value of each toll plaza is estimated at $4.5 million. million.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 18: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.9 Tolling trends2.9 Tolling trends

The Gujarat Government was one of the first state governments to collect The Gujarat Government was one of the first state governments to collect tolls on PPP projects. The Government began toll collection on Vadodaratolls on PPP projects. The Government began toll collection on Vadodara--Halol Toll road and subsequently on AhmedabadHalol Toll road and subsequently on Ahmedabad--Mehsana Toll Road. Mehsana Toll Road. Average number of vehicles using AhmedabadAverage number of vehicles using Ahmedabad--Mehsana toll road is 620 perMehsana toll road is 620 perAverage number of vehicles using AhmedabadAverage number of vehicles using Ahmedabad Mehsana toll road is 620 per Mehsana toll road is 620 per hour, and average number of vehicles using Vadodarahour, and average number of vehicles using Vadodara--Halol is 377 per Halol is 377 per hour. Toll collection on both stretches have mostly increased, except for a hour. Toll collection on both stretches have mostly increased, except for a minor decline in 2004minor decline in 2004--2005.2005.

Over all toll levied in India are amongst the lowest in the world. An average Over all toll levied in India are amongst the lowest in the world. An average toll of US 1.08 cents per km is charged from cars in India as compared to toll of US 1.08 cents per km is charged from cars in India as compared to 33--4 cents charged in china and 70 cent in Hong Kong.4 cents charged in china and 70 cent in Hong Kong.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 19: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.10 Research Gap2.10 Research Gap

Integrated study of Working capital management specially For PPPIntegrated study of Working capital management specially For PPP--BOT BOT project is needed as it represent unique structure of project and involves project is needed as it represent unique structure of project and involves comple cash flo scomple cash flo scomplex cash flows.complex cash flows.

A detailed study of nature of current assets involved in such projects are A detailed study of nature of current assets involved in such projects are needed to evaluate financing policy for the working capital management.needed to evaluate financing policy for the working capital management.needed to evaluate financing policy for the working capital management.needed to evaluate financing policy for the working capital management.

Adequacy of Matching principle of financing policy with respects to the PPPAdequacy of Matching principle of financing policy with respects to the PPP--BOT kind of project has to be evaluated and to be compared with current BOT kind of project has to be evaluated and to be compared with current policies of financing such projectspolicies of financing such projectspolicies of financing such projects.policies of financing such projects.

Rules & Specifications to be followed by SPV in execution of project to Rules & Specifications to be followed by SPV in execution of project to entitle under concession from GOI in terms of tax and grants is to beentitle under concession from GOI in terms of tax and grants is to beentitle under concession from GOI in terms of tax and grants is to be entitle under concession from GOI in terms of tax and grants is to be studied and project specifications has to be aligned with the same.studied and project specifications has to be aligned with the same.

Need of Uniform MCA in all the states to ease of the operations of Need of Uniform MCA in all the states to ease of the operations of financiers and hence to promote more inflows in the fieldfinanciers and hence to promote more inflows in the fieldfinanciers and hence to promote more inflows in the field.financiers and hence to promote more inflows in the field.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 20: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.10 Research Gap2.10 Research GapProvision of security to the lenders by providing a solution from combining Provision of security to the lenders by providing a solution from combining ‘step‘step--inin--right’ and Escrow account.right’ and Escrow account.

Forming a new policy for funding high growth company involved in PPPForming a new policy for funding high growth company involved in PPP--BOT projects to meet the higher current assets requirements which is BOT projects to meet the higher current assets requirements which is higher than their growth of sales.higher than their growth of sales.

Use of options like VGF scheme In case of viability gap of project and to Use of options like VGF scheme In case of viability gap of project and to form a standard procedure to avail such scheme.form a standard procedure to avail such scheme.

Evaluation of different methodologies and their accuracy to forecast traffic Evaluation of different methodologies and their accuracy to forecast traffic on PPPon PPP--BOT projects.BOT projects.

I t f b k d d h fl ( it i d ) P fit bilitI t f b k d d h fl ( it i d ) P fit bilitImpact of back ended cash flows ( its increase or decrease ) on Profitability Impact of back ended cash flows ( its increase or decrease ) on Profitability of project needs to be evaluated in concept stage of such project to of project needs to be evaluated in concept stage of such project to evaluate contingencies required in financing the project.evaluate contingencies required in financing the project.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 21: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

2.10 References2.10 References1)1) Anand, M. (2001), “Working Capital Performance of Corporate India: an Empirical Survey” Anand, M. (2001), “Working Capital Performance of Corporate India: an Empirical Survey”

Management and Accounting research Management and Accounting research (April(April--June 2001) pp 35June 2001) pp 35--43.43.

2)2) Bangia, N. (2007), “ Viability Gap Funding” Bangia, N. (2007), “ Viability Gap Funding” Indian infrastructure,Indian infrastructure, (February 2007) pp 66(February 2007) pp 66--69.69.

3)3) Bangia, N. (2007), “PPP Roadblock” Bangia, N. (2007), “PPP Roadblock” Indian Infrastructure, Indian Infrastructure, (June 2007) pp 62(June 2007) pp 62--63.63.

4)4) Chandra, P. (2007), “Chandra, P. (2007), “Financial ManagementFinancial Management” , 6th edition, Tata McGraw” , 6th edition, Tata McGraw--hill Publishing hill Publishing Company Limited, New Delhi. Company Limited, New Delhi.

5)5) Debasish S and Mallik A (1998) “Working Capital and Profitability”Debasish S and Mallik A (1998) “Working Capital and Profitability” The managementThe management5)5) Debasish. S. and Mallik, A. (1998) Working Capital and Profitability Debasish. S. and Mallik, A. (1998) Working Capital and Profitability The management The management accountant accountant (Novemeber 1998) pp 805(Novemeber 1998) pp 805--806.806.

6)6) Kansal, R. and Gupta M. C. (2007), “Government Role in BOT Projects”Kansal, R. and Gupta M. C. (2007), “Government Role in BOT Projects” The ICFAI journal of The ICFAI journal of infrastructure, infrastructure, (Volume 5,No. 2), pp 79(Volume 5,No. 2), pp 79--88.88.

7)7) Khan, P. K. and Jain, P. K.(2004) “Khan, P. K. and Jain, P. K.(2004) “Financial Management”,Financial Management”,4th edition, Tata McGraw4th edition, Tata McGraw--hill hill Publishing Company Limited, New Delhi.Publishing Company Limited, New Delhi.

lk S ( 99 ) “ l k C l”lk S ( 99 ) “ l k C l” dd (O b(O b bb8)8) Kulkarni, M. S. (1997), “ Balancing Net Working Capital” Kulkarni, M. S. (1997), “ Balancing Net Working Capital” Udyog Pragati Udyog Pragati (October(October--December December 1997) pp 281997) pp 28--32.32.

9)9) Parikh, N. C. and Samson, R. (1999), “BOT Road Infrastructure Projects: Process, Problems Parikh, N. C. and Samson, R. (1999), “BOT Road Infrastructure Projects: Process, Problems and Suggestions”and Suggestions” VikalpaVikalpa ( Volume 24 No 1) pp 3( Volume 24 No 1) pp 3--1212and Suggestions and Suggestions Vikalpa Vikalpa ( Volume 24, No. 1), pp 3( Volume 24, No. 1), pp 3 12.12.

10)10) Srivastava, R. M. (1992), “Comercial paperSrivastava, R. M. (1992), “Comercial paper-- A vibrant instrument of Working Capital in A vibrant instrument of Working Capital in India” India” Prabandh Prabandh (October 92(October 92--March 93) pp 35March 93) pp 35--36.36.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 22: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

OBJECTIVESOBJECTIVESOBJECTIVESOBJECTIVES

To study the various Working Capital policies, To study the various Working Capital policies, liquidity management, credit management and liquidity management, credit management and q y g , gq y g , gcash Collectioncash Collection--Disbursement. Disbursement. To study and suggest various means ofTo study and suggest various means ofTo study and suggest various means of To study and suggest various means of Working Capital Financing for construction Working Capital Financing for construction firms involved in Infrastructure fieldfirms involved in Infrastructure fieldfirms involved in Infrastructure field. firms involved in Infrastructure field. To study various effects of back ended cash To study various effects of back ended cash flows in BOT project and its implication onflows in BOT project and its implication onflows in BOT project and its implication on flows in BOT project and its implication on other parameters.other parameters.Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 23: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

DATA COLLECTION & DATADATA COLLECTION & DATADATA COLLECTION & DATA DATA COLLECTION & DATA ANALYSISANALYSISANALYSISANALYSIS

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 24: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

3 1 D t C ll ti3 1 D t C ll ti P j t D t ilP j t D t il3.1 Data Collection 3.1 Data Collection -- Project DetailsProject Details

Project :Project :-- 4 Lanning of RAJAHMUNDRY 4 Lanning of RAJAHMUNDRY –– DHARMAVARAM SECTION OF NHDHARMAVARAM SECTION OF NH--55

PROJECT INTRODUCTIONPROJECT INTRODUCTIONThe project road section from Km 200 (near Rajahmundry) to Km 253 (near The project road section from Km 200 (near Rajahmundry) to Km 253 (near DharmavaramDharmavaram) is a part of Vijayawada ) is a part of Vijayawada -- Visakhapatnam segment of NHVisakhapatnam segment of NH--5 in Andhra 5 in Andhra PradeshPradesh

The average formation width of the project road corridor is 12 mThe average formation width of the project road corridor is 12 m

Section I Section I -- DiwanDiwan CheruvuCheruvu (Km 200/0) to (Km 200/0) to RajaanagaramRajaanagaram Road Junction (Km 207/3)Road Junction (Km 207/3)Section II Section II -- RajaanagaramRajaanagaram Road Junction (Km 207/3) to Road Junction (Km 207/3) to ErravaramErravaram (Km 238/8)(Km 238/8)Section III Section III -- ErravaramErravaram (Km 238/8) to Km 253/0(Km 238/8) to Km 253/0

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 25: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 26: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Section ISection I -- DiwanDiwan CheruvuCheruvu (Km 200/0) to(Km 200/0) to RajaanagaramRajaanagaram Road Junction (Km 207/3)Road Junction (Km 207/3)Section I Section I -- DiwanDiwan CheruvuCheruvu (Km 200/0) to (Km 200/0) to RajaanagaramRajaanagaram Road Junction (Km 207/3)Road Junction (Km 207/3)

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 27: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Section II Section II -- RajaanagaramRajaanagaram Road Junction (Km 207/3) to Road Junction (Km 207/3) to ErravaramErravaram (Km 238/8)(Km 238/8)

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 28: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Section III Section III -- ErravaramErravaram (Km 238/8) to Km 253/0(Km 238/8) to Km 253/0

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 29: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Ann al A e age Dail T afficAnn al A e age Dail T afficAnnual Average Daily TrafficAnnual Average Daily Traffic

sections

Two wheelers

Auto Rickshaw

Car / Jeep

Van / Tempo Bus Truck Tractor

Tractor & Trail

Animal / Hand Drawn Cycle

Cycle rickshaw

Total Pcusp p y

Mini Standard LCV 2-Axle 3-Axle MAV

I 1656 170 1138 42 29 296 288 2921 551 164 55 62 9 856 26 15573I 1656 170 1138 42 29 296 288 2921 551 164 55 62 9 856 26 15573

II 750 124 546 10 21 222 207 2461 482 160 47 46 4 741 24 12325

III 457 97 309 9 3 143 134 1387 284 95 37 59 7 1048 46 7685

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 30: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

0%

Chart TitleTwo wheelers

Auto Rickshaw

20%

2%

1%1%

0%10%

Auto Rickshaw

Car / Jeep

Van / Tempo

2%

7%

Bus

Standard Truck

LCV Truck

2-Axle Truck

3-Axle Truck

14% MAV Truck

Tractor

Tractor & Trail

1%

0%4%

3%

35%Animal / Hand Drawn

Cycle

C l i k hCycle rickshaw

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 31: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

TollableTollable T afficT affic P ojectionsP ojectionsTollableTollable Traffic Traffic -- ProjectionsProjections

Mode/year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Cars 942 1015 1095 1180 1272 1371 1470 1576 1689 1811 1941 2058 2181 2312 2451

Bus 296 318 341 365 391 420 450 482 517 554 594 630 667 707 750

LCV 289 303 318 334 350 367 384 402 420 440 460 478 498 517 538

HCV 3777 4094 4438 4811 5215 5653 6094 6570 7082 7635 8230 8773 9352 9969 10627HCV 3777 4094 4438 4811 5215 5653 6094 6570 7082 7635 8230 8773 9352 9969 10627

MAV 274 296 321 348 378 409 441 476 513 553 596 635 677 722 770

Total 5578 6027 6513 7038 7607 8221 8840 9505 10221 10992 11821 12574 13376 14228 15136

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 32: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

TollableTollable T afficT affic P ojectionsP ojectionsTollableTollable Traffic Traffic -- ProjectionsProjections

Mode/year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Cars 2598 2741 2891 3050 3218 3359 3582 3779 3987 4206 4437 4681 4939 5210 5497

Bus 795 839 885 933 985 1039 1096 1156 1220 1287 1358 1432 1511 1594 1682

LCV 560 581 602 625 649 673 698 724 751 780 809 839 871 903 937

HCV 11329 12020 12753 13531 14356 15232 16161 17147 18193 19303 20480 21730 23055 24462 25954

MAV 820 870 924 980 1040 1103 1170 1242 1317 1398 1438 1574 1670 1771 1879

Total 16102 17051 18055 19119 20248 21406 22707 24048 25468 26974 28522 30256 32046 33940 35949

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 33: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Toll Rates ( Rs per VehicleToll Rates ( Rs per Vehicle Trip)Trip)Toll Rates ( Rs per Vehicle Toll Rates ( Rs per Vehicle -- Trip)Trip)

Mode/year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Cars 34 34 34 41 41 41 49 49 49 59 59 59 71 71 71

Bus 120 120 120 144 144 144 173 173 173 208 208 208 250 250 250

LCV 60 60 60 73 73 73 88 88 88 106 106 106 127 127 127

HCV 120 120 120 144 144 144 173 173 173 208 208 208 250 250 250

MAV 120 120 120 144 144 144 173 173 173 208 208 208 250 250 250MAV 120 120 120 144 144 144 173 173 173 208 208 208 250 250 250

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 34: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Toll Rates ( Rs per VehicleToll Rates ( Rs per Vehicle Trip)Trip)Toll Rates ( Rs per Vehicle Toll Rates ( Rs per Vehicle -- Trip)Trip)

Mode/year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Cars 85 85 85 102 102 102 123 123 123 147 147 147 177 177 177

Bus 300 300 300 360 360 360 432 432 432 518 518 518 622 622 622

LCV 152 152 152 183 183 183 219 219 219 263 263 263 316 316 316

HCV 300 300 300 360 360 360 432 432 432 518 518 518 622 622 622

MAV 300 300 300 360 360 360 432 432 432 518 518 518 622 622 622

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 35: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Ann al Toll Re en eAnn al Toll Re en e P ojectionP ojectionAnnual Toll Revenue Annual Toll Revenue –– ProjectionProjection

Mode/year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019ode/yea 005 006 00 008 009 0 0 0 0 0 3 0 0 5 0 6 0 0 8 0 9

Cars 12 13 14 18 19 21 26 28 30 39 42 44 57 60 64

Bus 13 14 15 19 21 22 28 30 33 42 45 48 61 65 68

LCV 6 7 7 9 9 10 12 13 13 17 18 18 23 24 25

HCV 165 179 194 253 274 297 385 415 447 580 625 666 853 910 970

MAV 12 13 14 18 20 21 28 30 32 42 45 48 62 66 70

Total 208 225 244 317 343 371 480 516 556 720 775 825 1056 1124 1197Total 208 225 244 317 343 371 480 516 556 720 775 825 1056 1124 1197

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 36: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Annual Toll RevenueAnnual Toll Revenue –– ProjectionProjectionAnnual Toll Revenue Annual Toll Revenue ProjectionProjection

Mode/year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Cars 81 85 90 114 120 125 161 170 179 226 238 251 319 337 355

Bus 87 92 97 123 129 137 173 182 192 243 257 271 343 362 382

LCV 31 32 33 42 43 45 56 58 60 75 78 81 100 104 108

HCV 1241 1316 1396 1778 1886 2001 2548 2704 2869 3650 3872 4108 5234 5554 5892

MAV 90 95 101 129 137 145 184 196 208 264 272 298 379 402 427MAV 90 95 101 129 137 145 184 196 208 264 272 298 379 402 427

Total 1530 1620 1717 2186 2315 2453 3122 3310 3508 4458 4717 5009 6375 6759 7164

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 37: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

40000 Tollable Traffic - Projections

30000

35000

25000

hic

les

15000

20000

No

of

Veh

Total Vehicles

10000

0

5000

YearsSoni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 38: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

8000 Total Revenue - Projections

6000

7000

5000

illio

n

3000

4000

Rs

in m

i

Total Revenue

2000

0

1000

YearsSoni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 39: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Project Cost DetailsProject Cost Details

Item No. Description Cost (in Rs.)

1 Site Clearance 2,519,5471 Site Clearance 2,519,547

2 Earth Work 465,555,841

3 Sub-base and Base Course 412,773,459

4 Bituminous Course 1,149,379,488tu ous Cou se , 9,3 9, 88

5 Bridges and Culverts 178,200,000

6 Road Junction 1,744,631

7 Drainage and Protection Works 90,727,452g , ,

8 Toll Plaza 95,249,162

9 PIU complex 50,000,000p , ,

10 Miscellaneous Items 160,779,506

11 Provisional Items 29,884,579

Base Cost 2,681,813,665

Contingencies 3% 80,454,410

Grand Total 2,762,268,075Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 40: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Project Cost Summary

1%

0%

18%

7%

0%3% 4%

2%6%

Site Clearance

Earth Work

Sub-base and Base Course

16%

7%

Bituminous Course

Bridges and Culverts

Road Junction

43%

Road Junction

Drainage and Protection Works

Toll Plaza

PIU complex

Miscellaneous Items

Provisional Items

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 41: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Data AnalysisData AnalysisData AnalysisData Analysis

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 42: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Project cost ParametersProject cost ParametersE l ti Y (Y Of t ti t ) 2001Evaluation Year (Yr. Of cost estimates) 2001Year construction begins (proj. Yr.'1') 2002Construction period (year) 2.5Opening Year (proj. Yr ''4'') 2005L th f P j t d (i K ) 53Length of Project road (in Km) 53Length of existing pavement (in Km) 53Project cost (Rs million)

Total project cost 2001 values 2762.27t f dditi l 2 l f t ll l 2001 l 15 39- cost of additional 2 lanses for toll plaza 2001 values 15.39

Annual Inflation Rate (%) 7.50%Government contribution in % 40.00%Operation & Maintainance CostsT ll l O & M C i h 1 (R illi ) 2001 l 0 48Toll plaza O & M Cost p.a in phase 1 (Rs million) 2001 values 0.48

Environmental Monitoring Cost p.a. (Rs million) 2001 values 0.12Routine Maintenance p.a. for rigid and flexible

d i d (R illi ) 2001 l 23pavements and service road (Rs million) 2001 values 23Major Maintenance - Flexible pavement and service road (Rs million)- 5th Yr 2001 2009 162

0 h 20 62- 10th Yr 2014 162- 15th Yr 2019 162-20th Yr 2024 162

25th and 30th Yr 2029 2034 162

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 43: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Financial ParametersFinancial ParametersToll Rate 1997 1998 1999 2001 2005Toll Rate 1997 1998 1999 2001 2005

(Rs/Km) (Rs/Km) (Rs/Km) (Rs/Km) (Rs/Km)Car 0.4 0.42 0.44 0.49 0.65LCV 0.7 0.74 0.77 0.85 1.14LCV 0.7 0.74 0.77 0.85 1.14HCV,MAV, Bus 1.4 1.47 1.54 1.7 2.27Oversized 3 3.16 3.31 3.64 4.86Toll indexing - every 3 year @ 20.00%Advertisement Revenue (% of toll Rev.) 2.00%Advertisement Revenue (% of toll Rev.) 2.00%Project concession period (After Construction) 30Loan Replayment Period (Years) 15Loan payback Grace period (Years) 0Rate of Calculation of interest During ConstructionRate of Calculation of interest During Construction (IDC) (%) 16.00%Interest rate on Long Term Debt (%) 16.00%Debt : Equity Ratio 2:01Equity Contribution (%) 33.33%Equity Contribution (%) 33.33%Loan (%) 66.67%Tax rate 35.07%Tax benefit limited to (Years) 20Tax Holiday (Years) 5Tax Holiday (Years) 5Tax Rebate period (Years) 5Tax Rebate (in %) 30.00%Loss Carry Forward Period (Years) 8Annual Depreciation - straight line @ 1.63%

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 44: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

P oject Cost Phasing (Rs in million)P oject Cost Phasing (Rs in million)Project Cost Phasing (Rs in million)Project Cost Phasing (Rs in million)

Year 2002 2003 2004 Total

Project Cost Phasing (%) 20.00% 45.00% 35.00% 100.00%

Phased Project Cost (2000 prices) 552.45 1243.02 966.79 2762.27

Actual Costs in Year of Expediture (current prices) 593.89 1436.47 1201.05 3231.4

Interest during Construction 28.51 207.67 291.01 527.19

Total Landed Cost including IDC 622.4 1644.14 1492.05 3758.59Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 45: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

So ces of Finance (Rs in million)So ces of Finance (Rs in million)Sources of Finance (Rs in million)Sources of Finance (Rs in million)

Total Landing Cost Including IDC 3758.59

Govt. Contribution 1503.436

Cost ecluding Govt. Contribution 2255.154

Equity Contribution 751.6428

Loan Requirement 1503 511Loan Requirement 1503.511

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 46: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

DepreciationDepreciationSchedule of Depreciation by WDV method

Particulars / Years 2005 2006 2007 2008 2009 2010Particulars / Years 2005 2006 2007 2008 2009 2010

Beginning Balance 2255.2 2255.2 2029.6 1826.7 1644 1479.6 1332

Annual DepreciationAnnual Depreciation -WDV @ 10.00% 225.52 202.96 182.67 164.4 147.96 133.2

Ending Balance 2029.6 1826.7 1644 1479.6 1331.6 1198

Particulars / Years 2011 2012 2013 2014 2015 2016 2017 2018 2019

Beginning Balance 1198.5 1078.6 970.772 873.695 786.326 707.693 636.924 573.231 515.908

Annual Depreciation - WDV @ 119 85 107 86 97 0772 87 3695 78 6326 70 7693 63 6924 57 3231 51 5908@ 119.85 107.86 97.0772 87.3695 78.6326 70.7693 63.6924 57.3231 51.5908

Ending Balance 1078.6 970.77 873.695 786.326 707.693 636.924 573.231 515.908 464.317Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 47: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

DepreciationDepreciationSchedule of Depreciation by WDV methodp y

Particulars / Years 2020 2021 2022 2023 2024 2025 2026 2027

Beginning Balance 464.32 417.89 376.1 338.49 304.64 274.2 246.76 222.08

Annual Depreciation WDV @ 46 432 41 789 37 61 33 849 30 464 27 42 24 676 22 208- WDV @ 46.432 41.789 37.61 33.849 30.464 27.42 24.676 22.208

Ending Balance 417.89 376.1 338.49 304.64 274.17 246.8 222.08 199.87

Particulars / Years 2028 2029 2030 2031 2032 2033 2034

Beginning Balance 199.873 179.886 161.897 145.708 131.137 118.023 106.221

Annual Depreciation -WDV @ 19.9873 17.9886 16.1897 14.5708 13.1137 11.8023 10.6221

Ending Balance 179.886 161.897 145.708 131.137 118.023 106.221 95.5988Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 48: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Schedule of Repayment of Long term Loan (Rs in million)Schedule of Repayment of Long term Loan (Rs in million)

Particulars / Years 2005 2006 2007 2008 2009 2010 2011

Beginning Balance 1503.5 1503.5 1403.3 1303 1202.8 1102.6 1002 902.11

Principle Repayment 100.23 100.23 100.23 100.23 100.23 100.2 100.23

Ending Balance 1403.3 1303 1202.8 1102.6 1002.3 902.1 801.87

Interest Payment @ 16.00% 240.56 224.52 208.49 192.45 176.41 160.4 144.34

Perticulars / Years 2012 2013 2014 2015 2016 2017 2018 2019

Beginning Balance 801.87 701.639 601.404 501.17 400.936 300.702 200.468 100.234

Principle Repayment 100.23 100.234 100.234 100.234 100.234 100.234 100.234 100.234

Ending Balance 701.64 601.404 501.17 400.936 300.702 200.468 100.234 -4.00E-13

Interest Payment @ 128.3 112.262 96.2247 80.1873 64.1498 48.1124 32.0749 16.0375Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 49: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Project Income Statement (Rs in million)Project Income Statement (Rs in million)Particulars / Years 2005 2006 2007 2008 2009

A. Operating Income

Toll Revenue 208.42 225.44 243.93 316.9 342.88

Ad i R 4 17 4 51 4 88 6 34 6 86Advertisement Revenue 4.17 4.51 4.88 6.34 6.86

Total Revenue 212.59 229.95 248.81 323.24 349.74

B. Operating Exppense

T ll l O &M 0 64 0 69 0 74 0 8 0 86Toll plaza O &M 0.64 0.69 0.74 0.8 0.86

Environmental Monitoring 0.16 0.17 0.19 0.2 0.21

Annual Road Maintenance 23 24.73 26.58 28.57 30.72

Majo Maintenance 0 0 0 0 213 5Major Maintenance 0 0 0 0 213.5

Total 23.8 25.59 27.51 29.57 245.29

C. Net Operating Income 188.78 204.36 221.31 293.67 104.45

D Less: Interest Expense 240 56 224 52 208 49 192 45 176 41D. Less: Interest Expense 240.56 224.52 208.49 192.45 176.41

E. Net Profit (or Loss) before Tax & Dep. -51.78 -20.16 12.82 101.22 -71.96

F. Taxes (-) 0 0 0 0 0

G Net profit (or Loss) after Taxes 51 78 20 16 12 82 101 22 71 96G. Net profit (or Loss) after Taxes -51.78 -20.16 12.82 101.22 -71.96

H. Less : Depreciation by SLM @ 1.63% 36.76 36.76 36.76 36.76 36.76

I. Net Profit (or Loss) After Taxes & Dep. -88.54 -56.92 -23.94 64.46 -108.72Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 50: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Tax Calculation (Rs in million)Tax Calculation (Rs in million)Tax Calculation (Rs in million)Tax Calculation (Rs in million)

Particulars / Years 2005 2006 2007 2008 2009

A. Net profit (or Loss ) before Tax & Dep. -51.78 -20.16 12.82 101.22 -71.96

B. Less Dep. By WDV 225.52 202.96 182.67 164.4 147.96

C. Net profit (or Loss) After Dep. -277.29 -223.12 -169.85 -63.18 -219.92

D. Taxable Income 0 0 0 0 0

E. Taxes 0 0 0 0 0

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 51: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Project Income Statement (Rs in million)Project Income Statement (Rs in million)

Particulars / Years 2010 2011 2012 2013 2014

A. Operating Income

Toll Revenue 370.99 479.69 516.45 555.93 719.72

Advertisement Revenue 7.42 9.59 10.33 11.12 14.39

Total Revenue 378.41 489.29 526.78 567.05 734.11

B Operating ExppenseB. Operating Exppense

Toll plaza O &M 0.92 0.99 1.06 1.14 1.23

Environmental Monitoring 0.23 0.25 0.27 0.29 0.31

Annual Road Maintenance 33.02 35.5 38.16 41.02 44.1Annual Road Maintenance 33.02 35.5 38.16 41.02 44.1

Major Maintenance 0 0 0 0 440.03

Total 34.17 36.73 39.49 42.45 485.66

C. Net Operating Income 344.24 452.55 487.3 524.6 248.45

D. Less: Interest Expense 160.37 144.34 128.3 112.26 96.22

E. Net Profit (or Loss) before Tax & Dep. 183.87 308.22 359 412.34 152.22

F. Taxes (-) 0 0 0 0 16.207

G N t fit ( L ) ft T 183 87 308 22 359 412 34 136 02G. Net profit (or Loss) after Taxes 183.87 308.22 359 412.34 136.02

H. Less : Depreciation by SLM @ 1.63% 36.76 36.76 36.76 36.76 36.76

I. Net Profit (or Loss) After Taxes & Dep. 147.11 271.46 322.24 375.58 99.26Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 52: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Tax Calculation (Rs in million)Tax Calculation (Rs in million)Tax Calculation (Rs in million)Tax Calculation (Rs in million)

Particulars / Years 2010 2011 2012 2013 2014

A. Net profit (or Loss ) before Tax & Dep. 183.87 308.22 359 412.34 152.22

B. Less Dep. By WDV 133.16 119.85 107.86 97.077 87.37

C. Net profit (or Loss) After Dep. 50.7 188.37 251.13 315.26 64.85

D. Taxable Income 0 0 0 0 45.397

E. Taxes 0 0 0 0 16.207

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 53: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Project Income Statement (Rs in million)

Particulars / Years 2015 2016 2017 2018 2019

A. Operating Income

Toll Revenue 774.76 824.9 1055.62 1123.95 1196.87

Advertisement Revenue 15.5 16.5 21.11 22.48 23.94

Total Revenue 790.26 841.4 1076.73 1146.43 1220.81

B. Operating Exppense

Toll pla a O &M 1 32 1 42 1 53 1 64 1 76Toll plaza O &M 1.32 1.42 1.53 1.64 1.76

Environmental Monitoring 0.33 0.36 0.38 0.41 0.44

Annual Road Maintenance 47.4 50.96 54.78 58.89 63.31

Major Maintenance 0 0 0 0 440 03Major Maintenance 0 0 0 0 440.03

Total 49.06 52.73 56.69 60.94 505.54

C. Net Operating Income 741.2 788.66 1020.04 1085.49 715.27

D. Less: Interest Expense 80.19 64.15 48.11 32.07 16.04p

E. Net Profit (or Loss) before Tax & Dep. 661.02 724.51 971.93 1053.41 699.23

F. Taxes (-) 145.54 163.37 226.97 248.92 161.84

G. Net profit (or Loss) after Taxes 515.48 561.14 744.96 804.49 537.38

H. Less : Depreciation by SLM @ 1.63% 36.76 36.76 36.76 36.76 36.76

I. Net Profit (or Loss) After Taxes & Dep. 478.72 524.38 708.2 767.73 500.62Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 54: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Tax Calculation (Rs in million)Tax Calculation (Rs in million)Tax Calculation (Rs in million)Tax Calculation (Rs in million)

Particulars / Years 2015 2016 2017 2018 2019

A. Net profit (or Loss ) before Tax & Dep. 661.02 724.51 971.93 1053.41 699.23

B L D B WDV 78 633 70 769 63 692 57 323 51 591B. Less Dep. By WDV 78.633 70.769 63.692 57.323 51.591

C. Net profit (or Loss) After Dep. 582.38 653.74 908.23 996.09 647.64

D. Taxable Income 407.67 457.62 635.76 697.26 453.35

E T 145 54 163 37 226 97 248 92 161 84E. Taxes 145.54 163.37 226.97 248.92 161.84

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 55: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Project Income Statement (Rs in million)Particulars / Years 2020 2021 2022 2023 2024

A. Operating Income

Toll Revenue 1530 1620 1717 2186 2315

Ad i R 30 6 32 4 34 34 43 72 46 3Advertisement Revenue 30.6 32.4 34.34 43.72 46.3

Total Revenue 1560.6 1652.4 1751.34 2229.72 2361.3

B. Operating Exppense

T ll l O &M 1 9 2 04 2 19 2 36 2 53Toll plaza O &M 1.9 2.04 2.19 2.36 2.53

Environmental Monitoring 0.47 0.51 0.55 0.59 0.63

Annual Road Maintenance 68.05 73.16 78.65 84.54 90.88

Majo Maintenance 0 0 0 0 631 72Major Maintenance 0 0 0 0 631.72

Total 70.43 75.71 81.38 87.49 725.77

C. Net Operating Income 1490.17 1576.69 1669.96 2142.23 1635.53

D Less: Interest Expense 0 0 0 0 0D. Less: Interest Expense 0 0 0 0 0

E. Net Profit (or Loss) before Tax & Dep. 1490.17 1576.69 1669.96 2142.23 1635.53

F. Taxes (-) 515.42 547.96 582.75 752.69 573.01

G Net profit (or Loss) after Taxes 974 76 1028 73 1087 21 1389 54 1062 52G. Net profit (or Loss) after Taxes 974.76 1028.73 1087.21 1389.54 1062.52

H. Less : Depreciation by SLM @ 1.63% 36.76 36.76 36.76 36.76 36.76

I. Net Profit (or Loss) After Taxes & Dep. 938 991.97 1050.45 1352.78 1025.76Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 56: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Tax Calculation (Rs in million)Tax Calculation (Rs in million)Tax Calculation (Rs in million)Tax Calculation (Rs in million)

Particulars / Years 2020 2021 2022 2023 2024

A. Net profit (or Loss ) before Tax & Dep. 1490.175 1576.693 1669.955 2142.231 1635.529

B. Less Dep. By WDV 46.43174 41.78857 37.60971 33.84874 30.46387

C. Net profit (or Loss) After Dep. 1443.743 1534.904 1632.345 2108.382 1605.066

D. Taxable Income 1443.743 1534.904 1632.345 2108.382 1605.066

E. Taxes 515.4163 547.9609 582.7473 752.6925 573.0084Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 57: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Project Income Statement (Rs in million)

Particulars / Years 2025 2026 2027 2028 2029

A. Operating Income

Toll Revenue 2453 3122 3310 3508 4458

Advertisement Revenue 49.06 62.44 66.2 70.16 89.16

Total Revenue 2502.06 3184.44 3376.2 3578.16 4547.16

B. Operating Exppense

Toll plaza O &M 2.72 2.93 3.15 3.38 3.64

Environmental Monitoring 0.68 0.73 0.79 0.85 0.91

Annual Road Maintenance 97.7 105.03 112.91 121.37 130.48

Major Maintenance 0 0 0 0 906 92Major Maintenance 0 0 0 0 906.92

Total 101.1 108.69 116.84 125.6 1041.94

C. Net Operating Income 2400.96 3075.75 3259.36 3452.56 3505.22

D. Less: Interest Expense 0 0 0 0 0D. Less: Interest Expense 0 0 0 0 0

E. Net Profit (or Loss) before Tax & Dep. 2400.96 3075.75 3259.36 3452.56 3505.22

F. Taxes (-) 847.35 1089.23 1155.66 1225.43 1244.94

G. Net profit (or Loss) after Taxes 1553.6 1986.52 2103.7 2227.13 2260.28

H. Less : Depreciation by SLM @ 1.63% 36.76 36.76 36.76 36.76 36.76

I. Net Profit (or Loss) After Taxes & Dep. 1516.84 1949.76 2066.94 2190.37 2223.52Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 58: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Tax Calculation (Rs in million)Tax Calculation (Rs in million)Tax Calculation (Rs in million)Tax Calculation (Rs in million)

Particulars / Years 2025 2026 2027 2028 2029

A. Net profit (or Loss ) before Tax & Dep. 2400.956 3075.753 3259.361 3452.558 3505.218

B. Less Dep. By WDV 27.41748 24.67573 22.20816 19.98734 17.98861

C. Net profit (or Loss) After Dep. 2373.538 3051.077 3237.153 3432.571 3487.23

D. Taxable Income 2373.538 3051.077 3237.153 3432.571 3487.23

E. Taxes 847.3531 1089.235 1155.664 1225.428 1244.941Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 59: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Project Income Statement (Rs in million)

Particulars / Years 2030 2031 2032 2033 2034

A. Operating Income

Toll Revenue 4717 5009 6375 6759 7164

Advertisement Revenue 94.34 100.18 127.5 135.18 143.28

Total Revenue 4811.34 5109.18 6502.5 6894.18 7307.28

B. Operating Exppense

Toll plaza O &M 3 91 4 2 4 52 4 86 5 22Toll plaza O &M 3.91 4.2 4.52 4.86 5.22

Environmental Monitoring 0.98 1.05 1.13 1.21 1.31

Annual Road Maintenance 140.26 150.78 162.09 174.25 187.32

Major Maintenance 0 0 0 0 1302j

Total 145.15 156.03 167.74 180.32 1495.84

C. Net Operating Income 4666.19 4953.15 6334.76 6713.86 5811.44

D. Less: Interest Expense 0 0 0 0 0

E. Net Profit (or Loss) before Tax & Dep. 4666.19 4953.15 6334.76 6713.86 5811.44

F. Taxes (-) 1660.05 1763.07 2256.83 2392.64 2070.89

G. Net profit (or Loss) after Taxes 3006.14 3190.07 4077.93 4321.23 3740.55

H L D i ti b SLM @ 1 63% 36 76 36 76 36 76 36 76 36 76H. Less : Depreciation by SLM @ 1.63% 36.76 36.76 36.76 36.76 36.76

I. Net Profit (or Loss) After Taxes & Dep. 2969.38 3153.31 4041.17 4284.47 3703.79Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 60: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Tax Calculation (Rs in million)Tax Calculation (Rs in million)Tax Calculation (Rs in million)Tax Calculation (Rs in million)

Particulars / Years 2030 2031 2032 2033 2034

A. Net profit (or Loss ) before Tax & Dep. 4666.192 4953.146 6334.763 6713.863 7113.439

B Less Dep By WDV 16 18975 14 57077 13 1137 11 80233 10 62209B. Less Dep. By WDV 16.18975 14.57077 13.1137 11.80233 10.62209

C. Net profit (or Loss) After Dep. 4650.002 4938.575 6321.649 6702.06 7102.817

D. Taxable Income 4650.002 4938.575 6321.649 6702.06 7102.817

E T 1660 051 1763 071 2256 829 2392 636 2535 706E. Taxes 1660.051 1763.071 2256.829 2392.636 2535.706

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 61: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

End of

Projected Funds Flow Statement (Rs in million)

Particulars / Years 2004 2005 2006 2007 2008 2009 2010 2011Sources of fundsGovt Contribution 1503.436 0 0 0 0 0 0 0Long Term debt 1503.511 0 0 0 0 0 0 0Equity Fuding 751.6428 0 0 0 0 0 0 0Net Profit after Tax & Dep. -88.54 -56.92 -23.94 64.46 -108.72 147.11 271.46Depreciation 36.76 36.76 36.76 36.76 36.76 36.76 36.76

l 3 8 9 8 20 6 2 82 0 22 96 83 8 308 22Total sources 3758.59 -51.78 -20.16 12.82 101.22 -71.96 183.87 308.22

Uses of FundsGovt Contribution 1503.436 0 0 0 0 0 0 0C it l E ditCapital Expenditure Private 2255.154 0 0 0 0 0 0 0Capitalised Interest 0 0 0 0 0 0 0Repayment of long term debt 100 23 100 23 100 23 100 23 100 23 100 23 100 23debt 100.23 100.23 100.23 100.23 100.23 100.23 100.23

Total Uses 100.23 100.23 100.23 100.23 100.23 100.23 100.23Net Cash Flow -152.01 -120.39 -87.41 0.99 -172.19 83.63 207.98

Net Cash Flow for FIRR on Equity -751.643 -152.01 -120.39 -87.41 0.99 -172.19 83.63 207.98Cummulative Cash flow -152.01 -272.4 -359.82 -358.83 -531.03 -447.4 -239.41

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 62: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Particulars / Years 2012 2013 2014 2015 2016 2017 2018 2019

Projected Funds Flow Statement (Rs in million)

/Sources of fundsGovt Contribution 0 0 0 0 0 0 0 0Long Term debt 0 0 0 0 0 0 0 0Equity Fuding 0 0 0 0 0 0 0 0Equity Fuding 0 0 0 0 0 0 0 0Net Profit after Tax & Dep. 322.24 375.58 99.26 478.72 524.38 708.2 767.73 500.62Depreciation 36.76 36.76 36.76 36.76 36.76 36.76 36.76 36.76Total sources 359 412.34 136.02 515.48 561.14 744.96 804.49 537.38

Uses of FundsGovt Contribution 0 0 0 0 0 0 0 0Capital ExpenditureCapital Expenditure Private 0 0 0 0 0 0 0 0Capitalised Interest 0 0 0 0 0 0 0 0Repayment of long term debt 100.23 100.23 100.23 100.23 100.23 100.23 100.23 100.23

Total Uses 100.23 100.23 100.23 100.23 100.23 100.23 100.23 100.23Net Cash Flow 258.76 312.1 35.78 415.24 460.91 644.72 704.25 437.15

Net Cash Flow for FIRR on Equity 258.76 312.1 35.78 415.24 460.91 644.72 704.25 437.15Cummulative Cash flow 19.35 331.45 367.23 782.48 1243.39 1888.11 2592.37 3029.52Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 63: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

P ti l / Y 2020 2021 2022 2023 2024 2025 2026 2027

Projected Funds Flow Statement (Rs in million)

Particulars / Years 2020 2021 2022 2023 2024 2025 2026 2027Sources of fundsGovt Contribution 0 0 0 0 0 0 0 0Long Term debt 0 0 0 0 0 0 0 0Equity Fuding 0 0 0 0 0 0 0 0Equity Fuding 0 0 0 0 0 0 0 0

Net Profit after Tax & Dep. 938 991.97 1050.45 1352.78 1025.76 1516.84 1949.76 2066.94Depreciation 36.76 36.76 36.76 36.76 36.76 36.76 36.76 36.76Total sources 974.76 1028.73 1087.21 1389.54 1062.52 1553.6 1986.52 2103.7Total sources 974.76 1028.73 1087.21 1389.54 1062.52 1553.6 1986.52 2103.7

Uses of FundsGovt Contribution 0 0 0 0 0 0 0 0

Capital ExpenditureCapital Expenditure Private 0 0 0 0 0 0 0 0Capitalised Interest 0 0 0 0 0 0 0 0

Repayment of long term debt 0 0 0 0 0 0 0 0debt 0 0 0 0 0 0 0 0

Total Uses 0 0 0 0 0 0 0 0Net Cash Flow 974.76 1028.73 1087.21 1389.54 1062.52 1553.6 1986.52 2103.7

Net Cash Flow for FIRR on Equity 974.76 1028.73 1087.21 1389.54 1062.52 1553.6 1986.52 2103.7Cummulative Cash flow 4004.27 5033.01 6120.21 7509.75 8572.27 10125.88 12112.39 14216.09

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 64: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Particulars / Years 2028 2029 2030 2031 2032 2033 2034

Projected Funds Flow Statement (Rs in million)

Particulars / Years 2028 2029 2030 2031 2032 2033 2034Sources of fundsGovt Contribution 0 0 0 0 0 0 0Long Term debt 0 0 0 0 0 0 0E it F di 0 0 0 0 0 0 0Equity Fuding 0 0 0 0 0 0 0

Net Profit after Tax & Dep. 2190.37 2223.52 2969.38 3153.31 4041.17 4284.47 3703.79Depreciation 36.76 36.76 36.76 36.76 36.76 36.76 36.76Total sources 2227 13 2260 28 3006 14 3190 07 4077 93 4321 23 3740 55Total sources 2227.13 2260.28 3006.14 3190.07 4077.93 4321.23 3740.55

Uses of FundsGovt Contribution 0 0 0 0 0 0 0

Capital Expenditure Private 0 0 0 0 0 0 0Capitalised Interest 0 0 0 0 0 0 0Repayment of long term debt 0 0 0 0 0 0 0

Total Uses 0 0 0 0 0 0 0Net Cash Flow 2227.13 2260.28 3006.14 3190.07 4077.93 4321.23 3740.55

Net Cash Flow for FIRR on Equity 2227.13 2260.28 3006.14 3190.07 4077.93 4321.23 3740.55Cummulative Cash flow 16443.22 18703.5 21709.64 24899.72 28977.65 33298.88 37039.42

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 65: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Cashflows for IRR (Rs in million)

Particulars / YearsEnd of 2004 2005 2006 2007 2008 2009 2010 2011

( )

Cash flow for FIRR on Project Investment (pre-tax) -2255.1 188.78 204.36 221.31 293.67 104.45 344.24 452.55

Cash flow for FIRR on Equity Investment -751.6 -152.01 -120.39 -87.41 0.99 -172.19 83.63 207.98

Particulars / Years 2012 2013 2014 2015 2016 2017 2018 2019

Cash flow for FIRR onCash flow for FIRR on Project Investment (pre-tax) 487.3 524.6 248.45 741.2 788.66 1020.04 1085.49 715.27

Cash flow for FIRR on Equity Investment 258.76 312.1 35.78 415.24 460.91 644.72 704.25 437.15Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 66: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Cashflows for IRR (Rs in million)

Particulars / Years 2020 2021 2022 2023 2024 2025 2026

Cashflow for FIRR on Project Inv. (pre-tax) 1490.17 1576.69 1669.96 2142.23 1635.53 2400.96 3075.75

Cash flow for FIRR on Equity Investment 974.76 1028.73 1087.21 1389.54 1062.52 1553.6 1986.52

Particulars / Years 2027 2028 2029 2030 2031 2032 2033 2034

Cashflow for FIRR on Project Inv. (pre-tax) 3259.36 3452.56 3505.22 4666.19 4953.15 6334.76 6713.86 5811.44

Cash flow for FIRR on Equity Investment 2103.7 2227.13 2260.28 3006.14 3190.07 4077.93 4321.23 3740.55Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 67: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Calculation of FIRR

Particulars / Years 2005 2006 2007 2008 2009 2010 2011

Concession year 1 2 3 4 5 6 7

FIRR on Project Investment (pre-tax) - - - -27% -23% -12% -5%

FIRR on Equity Investment - - - - - - -

Particulars / Years 2012 2013 2014 2015 2016 2017 2018 2019

Concession year 8 9 10 11 12 13 14 15

FIRR on Project Investment (pre-tax) 0% 4% 5% 8% 10% 12% 13% 14%

FIRR on Equity Investment - -6% -5% 0% 4% 7% 9% 10%Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 68: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Calculation of FIRR

Particulars / Years 2020 2021 2022 2023 2024 2025 2026

Concession year 16 17 18 19 20 21 22Concession year 16 17 18 19 20 21 22

FIRR on Project Investment (pre-tax) 15% 16% 16% 17% 17% 18% 18%Investment (pre-tax) 15% 16% 16% 17% 17% 18% 18%

FIRR on Equity Investment 12% 13% 14% 15% 15% 16% 17%

Particulars / Years 2027 2028 2029 2030 2031 2032 2033 2034

Concession year 23 24 25 26 27 28 29 30

FIRR on Project Investment (pre-tax) 19% 19% 19% 19% 20% 20% 20% 20%

FIRR on Equity Investment 17% 17% 18% 18% 18% 19% 19% 19%

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 69: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

FIRR SummaryFIRR SummaryFIRR SummaryFIRR Summary

FIRR on Project Investment (pre-tax) 20%

FIRR on Equity Investment 19%FIRR on Equity Investment 19%

Minimum Concession Period (years) 30(y )

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 70: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

12000

Cum. Cash Requirement

10000

8000

ion

4000

6000

Rs

in m

illi

Cum. Cash flow

2000

4000

0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Year

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 71: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Inflow Vs Outflow

60000

70000

40000

50000

ion

30000

40000

Rs

in m

illi

10000

20000

0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

YearCum. Cash Outflow

Cum. Cash Inflow

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 72: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Impact of change in Financing policyImpact of change in Financing policy

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 73: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Impact of change in Financing policyImpact of change in Financing policyImpact of change in Financing policyImpact of change in Financing policy

To analyze effect of change in financing policy of project, Term of Loan is assumed to be To analyze effect of change in financing policy of project, Term of Loan is assumed to be shortened to 10 years. There are many financial institutes which provides funding at rate of shortened to 10 years. There are many financial institutes which provides funding at rate of interest of 14% for specified period.interest of 14% for specified period.

Impact which is Impact which is analysedanalysed by mathematical model of project cash outflow shows that though by mathematical model of project cash outflow shows that though principal payment part is increased due to shorter payback period of loan, as interest rate is principal payment part is increased due to shorter payback period of loan, as interest rate is substantially low compared with long term loan interest payment part comes down, hence EMI substantially low compared with long term loan interest payment part comes down, hence EMI f t f l i l l Thi ff t b b d i h tfl j tif t f l i l l Thi ff t b b d i h tfl j tifor repayment of loan is also lower. This effect can be observed in cash outflow projectionfor repayment of loan is also lower. This effect can be observed in cash outflow projection

In this particular case it is found that short term loan demands more liquidity in initial phase In this particular case it is found that short term loan demands more liquidity in initial phase but projects more profitability when analyzed for long concession period of 30 years.but projects more profitability when analyzed for long concession period of 30 years.p j p y y g p yp j p y y g p y

Back ended cash out flow has severe effect on IRR which can be partially taken care by Back ended cash out flow has severe effect on IRR which can be partially taken care by choosing right trade off between Liquidity requirement and IRR.choosing right trade off between Liquidity requirement and IRR.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 74: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Schedule of Repayment of LoanSchedule of Repayment of Loan

Perticulars / Years 2005 2006 2007 2008 2009 2010 2011

Beginning Balance 1503.5 1503.5 1353.2 1202.8 1052.5 902.1 751.8 601.4

Principle Repayment 150.4 150.4 150.4 150.4 150.4 150.4 150.4

Ending Balance 1353.2 1202.8 1052.5 902.1 751.8 601.4 451.1

Interest Payment @ 0.14 210.5 189.4 168.4 147.3 126.3 105.2 84.2

Perticulars / Years 2012 2013 2014 2015 2016 2017 2018 2019

Beginning Balance 451 1 300 7 150 4 0 0 0 0 0Beginning Balance 451.1 300.7 150.4 0 0 0 0 0

Principle Repayment 150.4 150.4 150.4 0 0 0 0 0

E di B l 300 7 150 4 0 0 0 0 0 0Ending Balance 300.7 150.4 0 0 0 0 0 0

Interest Payment @ 63.1 42.1 21 0 0 0 0 0Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 75: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Year Cum Cash Out flow-2 Cum Cash Out flow-1

Comparison of Cash Flows with different Financing policy

Year Cum. Cash Out flow-2 Cum. Cash Out flow-1

i= 14%,n=10 y i=16%,n=15 y

2001 0 0

2002 248.96 248.9600 8 96 8 96

2003 906.62 906.62

2004 1503.44 1503.44

2005 1888.08 1868.03

2006 2253.46 2218.38

2007 2599.71 2554.6

2008 2926.97 2876.86

2009 3448.9 3398.79

2010 3738.67 3693.57

2011 4009.95 3974.87

2012 4262.94 4242.89

2013 4497.84 4497.84

2014 5154.9 5179.96

2015 5203 95 5409 432015 5203.95 5409.43

2016 5256.69 5626.55

2017 5313.38 5831.59Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 76: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Year Cum Cash Out flow-2 Cum Cash Out flow-1

Comparison of Cash Flows with different Financing policy

Year Cum. Cash Out flow 2 Cum. Cash Out flow 1

i= 14%,n=10 y i=16%,n=15 y

2018 5374.32 6024.84

2019 5879.86 6646.65

2020 5950.29 6717.08

2021 6025.99 6792.78

2022 6107.38 6874.17

2023 6194.87 6961.66

2024 6920.64 7687.43

2025 7021.74 7788.53

2026 7130 43 7897 222026 7130.43 7897.22

2027 7247.27 8014.06

2028 7372.87 8139.66

2029 8414 81 9181 62029 8414.81 9181.6

2030 8559.96 9326.75

2031 8715.99 9482.78

2032 8883.73 9650.52

2033 9064.05 9830.84

2034 10559.89 11326.68Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 77: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Comparison of Cash Outflows

10000

12000

8000

on

6000

Rs

in m

illio

2000

4000

0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

Years

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 78: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

70000

Inflow Vs Outflow

60000

40000

50000

30000

40000

Rs

in m

illio

n

Cum. Cash Out flow

Cum. Cash Inflow

20000

0

10000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

YearSoni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 79: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Analysis of StepAnalysis of Step--in Right action and in Right action and its viabilityits viabilityits viabilityits viability

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 80: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Analysis of StepAnalysis of Step in Right action and its viabilityin Right action and its viabilityAnalysis of StepAnalysis of Step--in Right action and its viabilityin Right action and its viability

to analyze the effectiveness of Stepto analyze the effectiveness of Step--in right of financial institute, situation in right of financial institute, situation is assumed where due to the unforeseen calamity project had suffered is assumed where due to the unforeseen calamity project had suffered heavy damage in year 2009 and additional maintenance was incurred (Rs heavy damage in year 2009 and additional maintenance was incurred (Rs y g y (y g y (250 million). Due to this situation SPV files bankruptcy and becomes 250 million). Due to this situation SPV files bankruptcy and becomes defaulter for payment of loan.defaulter for payment of loan.

Financial institute use step in right and takes over project for remaining Financial institute use step in right and takes over project for remaining recovery of fund. Hence remaining fund with additional loss in year 2009 recovery of fund. Hence remaining fund with additional loss in year 2009 will be considered as an investment to generate further analysis.will be considered as an investment to generate further analysis.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 81: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Particulars / Years 2005 2006 2007 2008 2009 2010 2011

Base Data Sheet

A. Operating Income

Toll Revenue 208.42 225.44 243.93 316.9 342.88 370.99 479.69

Advertisement Revenue 4.17 4.51 4.88 6.34 6.86 7.42 9.59

Total Revenue 212.59 229.95 248.81 323.24 349.74 378.41 489.29

B. Operating Exppense

Toll plaza O &M 0.64 0.69 0.74 0.8 0.86 0.92 0.99

Environmental Monitoring 0.16 0.17 0.19 0.2 0.21 0.23 0.25

Annual Road Maintenance 23 24.73 26.58 28.57 30.72 33.02 35.5

Major Maintenance 0 0 0 0 463.4 0 0

Total 23 8 25 59 27 51 29 57 495 19 34 17 36 73Total 23.8 25.59 27.51 29.57 495.19 34.17 36.73

C. Net Operating Income 188.78 204.36 221.31 293.67 -145.45 344.24 452.55

D. Less: Interest Expense 240.56 224.52 208.49 192.45 176.41 0 0E. Net Profit (or Loss) before Tax & ( )Dep. -51.78 -20.16 12.82 101.22 -321.86 344.24 452.55

F. Taxes (-) 0 0 0 0 0 0 0

G. Net profit (or Loss) after Taxes -51.78 -20.16 12.82 101.22 -321.86 344.24 452.55H Less : Depreciation by SLM @H. Less : Depreciation by SLM @ 1.63% 36.76 36.76 36.76 36.76 36.76 36.76 36.76I. Net Profit (or Loss) After Taxes & Dep. -88.54 -56.92 -23.94 64.46 -358.62 307.48 415.79

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 82: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Particulars / Years 2012 2013 2014 2015 2016 2017 2018 2019

Base Data Sheet

/

A. Operating Income

Toll Revenue 516.45 555.93 719.72 774.76 824.9 1055.62 1123.95 1196.87

Advertisement Revenue 10.33 11.12 14.39 15.5 16.5 21.11 22.48 23.94

Total Revenue 526.78 567.05 734.11 790.26 841.4 1076.73 1146.43 1220.81

B. Operating Exppense

Toll plaza O &M 1.06 1.14 1.23 1.32 1.42 1.53 1.64 1.76

Environmental Monitoring 0.27 0.29 0.31 0.33 0.36 0.38 0.41 0.44

Annual Road Maintenance 38.16 41.02 44.1 47.4 50.96 54.78 58.89 63.31

Major Maintenance 0 0 440.03 0 0 0 0 440.03

Total 39.49 42.45 485.66 49.06 52.73 56.69 60.94 505.54

C. Net Operating Income 487.3 524.6 248.45 741.2 788.66 1020.04 1085.49 715.27

D. Less: Interest Expense 0 0 0 0 0 0 0 0

E N t P fit ( L ) b f T &E. Net Profit (or Loss) before Tax & Dep. 487.3 524.6 248.45 741.2 788.66 1020.04 1085.49 715.27

F. Taxes (-) 0 0 40.253 165.58 179.4 238.991 256.938 165.852

G. Net profit (or Loss) after Taxes 487.3 524.6 208.19 575.63 609.26 781.05 828.55 549.41H. Less : Depreciation by SLM @ 1.63% 36.76 36.76 36.76 36.76 36.76 36.76 36.76 36.76

I. Net Profit (or Loss) After Taxes & Dep. 450.54 487.84 171.43 538.87 572.5 744.29 791.79 512.65

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 83: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Comparison of Comparison of CashflowsCashflows

year 2009 2010 2011 2012 2013 2014 2015

Cum Cashflow in case ofCum.Cashflow in case of Default -1461.19 -1153.71 -737.92 -287.38 200.46 371.89 910.76

Cum. Cashflow in case ofCum. Cashflow in case of Successful payment -1102.5 -841.89 -597.32 -368.79 -156.29 40.17 220.59

year 2016 2017 2018 2019 NPV IRRyear 2016 2017 2018 2019 NPV IRR

Cum.Cashflow in case of Default 1483.26 2227.55 3019.34 3531.99 ($84.80) 27%

Cum. Cashflow in case of Successful payment 384.97 533.32 665.63 781.9 ($63.90) 13%

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 84: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

4000 00

Default Case Vs Regular Payment Cashflows

3000.00

4000.00

2000.00

n

1000.00

Rs

in m

illio

n

0.00

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

R

2000 00

-1000.00

-2000.00Years

Cum.Cashflow in case of Default Cum. Cashflow in case of Successful paymentSoni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 85: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Annuity ApproachAnnuity Approach

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 86: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Annuity Approach Annuity Approach

Annuity approach is different from conventional BOT approach as far as Annuity approach is different from conventional BOT approach as far as uncertainty of cash inflows are concerned. Cash inflows are much more uncertainty of cash inflows are concerned. Cash inflows are much more uncertain in conventional BOT projects as traffic data and financial data uncertain in conventional BOT projects as traffic data and financial data projected are highly susceptible to alteration due to many factors like projected are highly susceptible to alteration due to many factors like political, environmental, economical etc.political, environmental, economical etc.

Annuity approach eliminates the risk arising from uncertainty of cash Annuity approach eliminates the risk arising from uncertainty of cash inflows by providing constant annual amount to SPV and thus providing inflows by providing constant annual amount to SPV and thus providing assured IRR and reducing SPV’s financial risk. This makes project more assured IRR and reducing SPV’s financial risk. This makes project more feasible for loan assessments, hence it reduces the burden of interest rate feasible for loan assessments, hence it reduces the burden of interest rate on SPV. It gives advantage of surplus profit to the government with sharing on SPV. It gives advantage of surplus profit to the government with sharing f fi i l i kf fi i l i kof financial risk. of financial risk.

Analysis by Mathematical model is same except cash inflow projection as Analysis by Mathematical model is same except cash inflow projection as compared with conventional BOT approachcompared with conventional BOT approach

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 87: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Base Data sheet (Rs in million)Base Data sheet (Rs in million)

Project CostsEvaluation Year (Yr. Of cost estimates) 2001Year construction begins (proj. Yr.'1') 2002Construction period (year) 2.5Opening Year (proj. Yr ''4'') 2005Length of Project road (in Km) 53Length of existing pavement (in Km) 53Project cost (Rs million)

Total project cost 2001 Values 2762.27- cost of additional 2 lanses for toll plaza 2001 Values 0

Annual Inflation Rate (%) 7.50%Government contribution in % 0.00%Operation & Maintainance CostsToll plaza O & M Cost p.a in phase 1 (Rs million) 2001 Values 0

Environmental Monitoring Cost p.a. (Rs million) 2001 Values 0.12Routine Maintenance p.a. for rigid and flexiblepavements and service road (Rs million) 2001 Values 23Major Maintenance - Flexible pavement and service road (Rs million)- 5th Yr 2001 2009 310- 10th Yr 2014 310- 15th Yr 2019 310-20th Yr 2024 310-25th and 30th Yr 2029, 2034 310Annuity Payable to private Operator by NHAI (Rs million) per annum 884.31

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 88: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Toll Rate 1997 1998 1999 2001 2005

Financial data (Rs in million)Financial data (Rs in million)

(Rs/Km) (Rs/Km) (Rs/Km) (Rs/Km) (Rs/Km)

Car 0 0 0 0 0

LCV 0 0 0 0 0

HCV MAV Bus 0 0 0 0 0HCV,MAV, Bus 0 0 0 0 0

Oversized 0 0 0 0 0

Toll indexing - every 3 year @ 0.00%

Advertisement Revenue (% of toll Rev.) 0.00%

Project concession period (After Construction) 15Project concession period (After Construction) 15

Loan Replayment Period (Years) 9

Loan payback Grace period (Years) 0

Rate of Calculation of interest During Construction (IDC) (%) 16.00%

Interest rate on Long Term Debt (%) 16.00%Interest rate on Long Term Debt (%) 16.00%

Debt : Equity Ratio 2:01

Equity Contribution (%) 33.33%

Loan (%) 66.67%

Tax rate 35.70%

Tax benefit limited to (Years) 20

Tax Holiday (Years) 5

Tax Rebate period (Years) 5

Tax Rebate (in %) 30.00%( )

Loss Carry Forward Period (Years) 8

Annual Depreciation - straight line @ 1.63%

Annual Depreciation - WDV @ 10.00%Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 89: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Project Cost PhasingProject Cost PhasingProject Cost PhasingProject Cost Phasing

2001 2002 2003 Total

Project Cost Phasing (%) 20.00% 45.00% 35.00% 100.00%

Phased Project Cost (2000 prices) 552.45 1243.02 966.79 2762.27

Actual Costs in Year of Expediture (current prices) 593 89 1436 47 1201 05 3231 4Actual Costs in Year of Expediture (current prices) 593.89 1436.47 1201.05 3231.4

Interest during Construction 28.51 207.67 291.01 527.19

Total Landed Cost including IDC 622.4 1644.14 1492.05 3758.59Total Landed Cost including IDC 622.4 1644.14 1492.05 3758.59

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 90: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Sources of FinancingSources of FinancingSources of FinancingSources of Financing

Total Landing Cost Including IDC 3758.59

Govt. Contribution 0

Cost ecluding Govt Contribution 3758 59Cost ecluding Govt. Contribution 3758.59

Equity Contribution 1252.74

Loan Requirement 2505.85

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 91: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Calculation of FIRRCalculation of FIRR

Particulars / Years 2005 2006 2007 2008 2009 2010 2011

C i 1 2 3 4 5 6 7Concession year 1 2 3 4 5 6 7

FIRR on Project Investment (pre-tax) - - -16.70% -3.50% 2.80% 8.50% 12.20%

FIRR on Equity Investment - - -24.40% -8.40% -3.60% 3.30% 8.00%

Particulars / Years 2012 2013 2014 2015 2016 2017 2018 2019

Concession year 8 9 10 11 12 13 14 15

FIRR on Project Investment (pre-tax) 14.80% 16.60% 17.30% 18.30% 19.10% 19.70% 20.10% 20.30%Investment (pre tax) 14.80% 16.60% 17.30% 18.30% 19.10% 19.70% 20.10% 20.30%

FIRR on Equity Investment 11.40% 13.90% 15.60% 17.80% 19.30% 20.30% 21.10% 21.40%

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 92: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

FIRR SummaryFIRR SummaryFIRR SummaryFIRR Summary

FIRR on Project Investment (pre-tax) 20%

FIRR on Equity Investment 21%

Minimum Concession Period (years) 15

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 93: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Net Cash Flow Statement of NHAINet Cash Flow Statement of NHAI

Particulars / Years 2005 2006 2007 2008 2009 2010 2011 2012

A. Operating Income

Toll Revenue 208 225 244 317 343 371 480 516

Advertisement Revenue 4.17 4.51 4.88 6.34 6.86 7.42 9.59 10.33

B. Operating Expenses

Toll Plaza O&M 0.64 0.69 0.74 0.80 0.86 0.92 0.99 1.06

C. Net Operating Income 188.78 204.36 221.31 293.67 317.95 344.24 452.55 487.30

Less Annuity Payments 884.31 884.31 884.31 884.31 884.31 884.31 884.31 884.31Less Annuity Payments 884.31 884.31 884.31 884.31 884.31 884.31 884.31 884.31

D. Surplus / Deficit -695.53 -679.95 -663.00 -590.64 -566.36 -540.07 -431.76 -397.01

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 94: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Net Cash Flow Statement of NHAINet Cash Flow Statement of NHAI

Particulars / Years 2013 2014 2015 2016 2017 2018 2019Particulars / Years 2013 2014 2015 2016 2017 2018 2019

A. Operating Income

Toll Revenue 556 720 775 825 1056 1124 1197

Advertisement Revenue 11.12 14.39 15.50 16.50 21.11 22.48 23.94

B. Operating Expenses

Toll Plaza O&M 1 14 1 23 1 32 1 42 1 53 1 64 1 76Toll Plaza O&M 1.14 1.23 1.32 1.42 1.53 1.64 1.76

C. Net Operating Income 524.60 688.48 741.20 788.66 1020.04 1085.49 1155.30

Less Annuity Payments 884.31 884.31 884.31 884.31 884.31 884.31 884.31

D. Surplus / Deficit -359.71 -195.83 -143.11 -95.65 135.73 201.18 270.99

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 95: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

CONCLUSION & FUTURE SCOPE OFCONCLUSION & FUTURE SCOPE OFCONCLUSION & FUTURE SCOPE OF CONCLUSION & FUTURE SCOPE OF WORKWORKWORKWORK

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 96: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION

PPPPPP--BOT Project as compared with industrial projects posses longer BOT Project as compared with industrial projects posses longer gestation period and extended breakgestation period and extended break--even point. Due to back ended cash even point. Due to back ended cash flows working capital requirement of projects of PPPflows working capital requirement of projects of PPP--BOT structure is highly BOT structure is highly g p q p jg p q p j g yg ydepended on cost of capital and payback period of loan. Risk evaluated for depended on cost of capital and payback period of loan. Risk evaluated for such projects has direct impact on cost of capital.such projects has direct impact on cost of capital.

Expected return from PPPExpected return from PPP--BOT project is about 20 % in concession period BOT project is about 20 % in concession period of 30 years.of 30 years.

If internal rate of return is not achieved as per targeted IRR concession If internal rate of return is not achieved as per targeted IRR concession period can be extended up to 3 years.period can be extended up to 3 years.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 97: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION

CaseCase--study :study :-- Project :Project :-- 4 Lanning of RAJAHMUNDRY 4 Lanning of RAJAHMUNDRY ––DHARMAVARAM SECTION OF NHDHARMAVARAM SECTION OF NH--55

Calculated FIRR for analyzed project for project investment and FIRR for Calculated FIRR for analyzed project for project investment and FIRR for Equity investment is summarized as below.Equity investment is summarized as below.

FIRR on Project Investment (pre-tax) 20%

Final Summary of IRR for the project :-

FIRR on Project Investment (pre tax) 20%

FIRR on Equity Investment 19%

Minimum Concession Period (years) 30Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT

University, AhmedabadUniversity, Ahmedabad

Page 98: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION

As Projected data meets the return requirements project will be considered As Projected data meets the return requirements project will be considered feasible without viability gap funding. And debt can be raised easily.feasible without viability gap funding. And debt can be raised easily.

As per data projected Table As per data projected Table -- 3.2.7.3 expected IRR is achieved at the end 3.2.7.3 expected IRR is achieved at the end of 28of 28thth year, its shows additional absolute profit margin for next two years.year, its shows additional absolute profit margin for next two years.

Analyzed Income statement of this project shows that net cash inflow is in Analyzed Income statement of this project shows that net cash inflow is in negative (loss) for initial years and most of the positive portion is back negative (loss) for initial years and most of the positive portion is back ended and hence impact on NPV of the project is discountedended and hence impact on NPV of the project is discountedended and hence impact on NPV of the project is discounted.ended and hence impact on NPV of the project is discounted.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 99: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION

Financing policy for the PPPFinancing policy for the PPP--BOT project plays a major role in terms of BOT project plays a major role in terms of Liquidity Vs Profitability decision. Most of the projects are financed by long Liquidity Vs Profitability decision. Most of the projects are financed by long term sources and hence cost of debt paid is also high, which reduces the term sources and hence cost of debt paid is also high, which reduces the p gp gprofitability. It is necessary as far as liquidity and company’s financial profitability. It is necessary as far as liquidity and company’s financial capability is concerned. Financing project with comparatively short term capability is concerned. Financing project with comparatively short term debts cause widening of gap negatively between cash outflows and inflows debts cause widening of gap negatively between cash outflows and inflows

l d b d h h h f b l d d d ll d b d h h h f b l d d d lin initial period but ends up with higher profitability due to reduced total in initial period but ends up with higher profitability due to reduced total cost of debt paid.cost of debt paid.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 100: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION

Analysis results for financing policy shows comparison of cash flows with Analysis results for financing policy shows comparison of cash flows with different financing policy, comparable summary of the same is :different financing policy, comparable summary of the same is :--

IRR for the Project with short term loan :-

FIRR on Project Investment (pre-tax) 21%

FIRR on Equity Investment 20%

Minimum Concession Period (years) 30Minimum Concession Period (years) 30

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 101: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION

As huge amount of finances are required to fund the PPPAs huge amount of finances are required to fund the PPP--BOT project and BOT project and unavailability of required amount of fixed asset which can be mortgaged, unavailability of required amount of fixed asset which can be mortgaged, Financial institutes are given step in right, in this analysis in particular Financial institutes are given step in right, in this analysis in particular g p g y pg p g y pproject which is financially viable (Hence not funded under Viability Gap project which is financially viable (Hence not funded under Viability Gap Funding) step in right can be effectively used for loan recovery purpose. Funding) step in right can be effectively used for loan recovery purpose.

Annuity approach can also be used in PPPAnnuity approach can also be used in PPP--BOT projects in such cases cash BOT projects in such cases cash inflows are fixed and it distributes financial risk and hence concession inflows are fixed and it distributes financial risk and hence concession period can be reduce according to the annuity payment.period can be reduce according to the annuity payment.

Annuity in such project structure is awarded keeping IRR at 20 %. Annuity in such project structure is awarded keeping IRR at 20 %.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 102: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION

Thought Annuity approach can be proved less risk prone but demands Thought Annuity approach can be proved less risk prone but demands higher amount of working capital in initial years as Government higher amount of working capital in initial years as Government contribution is not available.contribution is not available.

PPPPPP--BOT projects have long gestation period and hence prone to number of BOT projects have long gestation period and hence prone to number of risks, back ended cash flows have major impact on returns of the project.risks, back ended cash flows have major impact on returns of the project.risks, back ended cash flows have major impact on returns of the project. risks, back ended cash flows have major impact on returns of the project. Any delay caused in such project will lead to reduction of returns by Any delay caused in such project will lead to reduction of returns by reducing reducing tollabletollable (Inflow) period and it shifts the cash inflow which already (Inflow) period and it shifts the cash inflow which already is in back ended position. is in back ended position.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 103: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Future Scope of workFuture Scope of workFuture Scope of workFuture Scope of work

There is a wide future scope for this topic, Some of the key points are as There is a wide future scope for this topic, Some of the key points are as follows:follows:--

Design of integrated system which projects need of cash flow in detail Design of integrated system which projects need of cash flow in detail during construction period.during construction period.Modified loan Repayment model which can be parallel with cash inflowsModified loan Repayment model which can be parallel with cash inflowsModified loan Repayment model which can be parallel with cash inflows Modified loan Repayment model which can be parallel with cash inflows projected.projected.Working out alternative ways of increasing cash inflows to reduce Working out alternative ways of increasing cash inflows to reduce capital requirement for PPPcapital requirement for PPP--BOT projectsBOT projectscapital requirement for PPPcapital requirement for PPP BOT projects.BOT projects.Impact of economic parameters on cash inflowsImpact of economic parameters on cash inflows--outflows and finally on outflows and finally on return of the project.return of the project.Calculation & Impact of Economic Rate of Return on PPPCalculation & Impact of Economic Rate of Return on PPP BOT project’sBOT project’sCalculation & Impact of Economic Rate of Return on PPPCalculation & Impact of Economic Rate of Return on PPP--BOT project s BOT project s performance.performance.

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad

Page 104: Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project

Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad