HARJOT SINGHdocshare01.docshare.tips/files/8960/89609450.pdf · First of all I am very much thankful to Prof. Nagarjuna P. of NICMAR Pune for reviewing my project study and enabling

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bSTUDY OF CONTRACTS IN HIGHWAYS PROJECT BASED ON DESIGN-BUILD-

FINANCE-OPERATE & TRANSFER (DBFOT) CONCEPT

LONG PAPER

BY

HARJOT SINGH

PGPIDM STUDENT

REG. NO. 28-12-32-6510-2102

UNDER THE GUIDANCE OF

PROF. NAGARJUNA P.

SCHOOL OF DISTANCE LEARNING

NATIONAL INSTITUTE OF CONSTRUCTION

MANAGEMENT AND RESEARCH, PUNE

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DECLARATION

I declare that long project titled “Study of contracts of highway project based on

Design-Built-Finance-Operate and Transfer (DBFOT) concept” is the bonafide

research work carried out by me, under the guidance of Prof. Nagarjuna P.

Further I declare that this has not been previously formed the basis of award of

any degree, diploma, associate-ship or other similar degrees or diplomas, and has

not been submitted anywhere else.

Date: 04.03.2012 Harjot Singh

NICMAR, PUNE.

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CERTIFICATE

This is to Certify that the research thesis entitled “Study of contracts of highway

project based on Design-Built-Finance-Operate and Transfer (DBFOT) concept” is

the bonafide work of Mr. Harjot Singh, in fulfillment of the academic requirement

for the award of Post Graduate Programme in Infrastructure Development and

Management PGPIDM. This work is carried out by him, under guidance and

supervision.

Counter Signed - Guide

Dr. J. C. Edison Prof. Nagarjuna P

Dean NICMAR - PUNE.

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ACKNOWLEGEMENT

First of all I am very much thankful to Prof. Nagarjuna P. of NICMAR Pune for

reviewing my project study and enabling me to incorporate useful inputs in the

project study.

I would thank Dr. J. C. Edison Dean NICMAR SODE for giving lecture and guiding us

how write Long Paper.

Finally I would thank my colleagues at NTPC Joshimath for guiding me about the

DBFOT concept in Highway construction contracts.

Harjot Singh

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ABSTRACT

As INDIA reels under the impact of global economic meltdown it increasingly being

recognized that much of the country’s infrastructure agenda – the ambitious shelf of

‘MUST DO’ project will have to be delivered by PPP route. The need of this can be

understand by the fact that only in Highway sector the projects of worth 191 thousand

crores of rupees are going on in 20 states on PPP basis because the Government of India

(A developing nation) is not able to execute such a large project by its own resources.

BO“family of contracts is emerging trend in construction in country for

infrastructure projects & its variants of contracts to encourage private investments.

DBFOT (Design Build Finance Operate & Transfer) is one among all other contracts of

BO“family. With the Design-Build-Finance-Operate-Transfer (DBFOT) approach, the

responsibilities for designing, building, financing and operating are bundled together and

transferred to private sector partners. There is a great deal of variety in DBFOT

arrangements, and especially the degree to which financial responsibilities are actually

transferred to the private sector and have much flexibility and it can be dealt such as just

segments of this approach.

One commonality that cuts across all DBFOT projects is that they are either partly

or wholly financed by debt leveraging revenue streams dedicated to the project. Direct

user fees (tolls) are the most common revenue source. Future revenues are leveraged to

issue bonds or other debt that provide funds for capital and project development costs.

They are also often supplemented by public sector grants in the form of money or

contributions in kind, such as right-of-way. It can be used in highways, ports, airports &

gas pipelines projects etc. In certain cases, private partners may be required to make

equity investments as well. The typical example of DBFOT Project is a toll Express way

Project Designed, Built, Financed, and operated by a private developer and after a mutual

consulted period of time handled over to client i.e. Government of India.

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LIST OF TABLES

Table Description Page No

2.1 Length of Road 6

2.2 Progress NHDP Phase I 7

2.3 Progress NHDP Phase I 8

2.4 NHDP Programs 10

5.1 DBFOT Attractive Project Packages 43

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TABLE OF CONTENTS

Declaration ii

Certificate iii

Acknowledgement iv

Abstract v

List of Tables vi

Chapter Page No.

1.0 INTRODUCTION 1-5

1.1 Introduction 1

1.2 Need of Study 3

1.3 Objective of Study 3

1.4 Scope Of Study 3

1.5 Methodology 3

1.5.1 Problem Identification 3

1.5.2 Data Collection 4

1.5.2.1 Type 4

1.5.2.2 Sources 4

1.6 Conclusion and Recommendations 5

1.7 Chapterization Plan 5

2.0 LITERATURE REVIEW 6-13

2.1 Introduction 6

2.2 National Highway status 6

2.3 Salient Features 11

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3.0 TRADITIONAL CONTRACTING IN HIGHWAYS 14-18

3.1 Introduction 14

3.1.1 Project Requirements 14

3.1.2 Project Financing 14

3.1.3 Project Design 15

3.1.4 The Bid Process 16

3.1.5 The Build Process 16

3.1.6 Operation and Maintenance 16

3.1.7 Ownership 16

3.2 The Rise of Alternate Delivery Systems 16

4.0 DESIGN BUILD FINANCE OPERATE & TRANSFER 19-44

4.1 Introduction 19

4.2 History and Introduction 19

4.3 General DBFO Policy and DBFO Philosophy 23

4.3.1 Policy 23

4.3.2 Philosophy 24

4.3.2.1 The Transfer of Risk 24

4.3.2.2 Value of Money 24

4.3.2.3 Managerial Responsibility 24

4.3.2.4 Payment for Services 24

4.3.2.5 Partnership 25

4.4 Private Sector Innovation 25

4.5 The ProcurementProcess 25

4.5.1 Prequalification 25

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4.6 Tender 26

4.7 Negotiation 28

4.7.1 Award 28

4.8 Value For Money 28

4.9 Public Sector Comparator and Contingent Schemes 29

4.9.1 Public Sector Comparator 29

4.9.2 Contingent Schemes 29

4.9.3 Penalty Points and Monitoring 30

4.10 Handback 30

4.11 Change 31

4.11.1 Payment Mechanisms - Shadow Toll Payment Mechanism 33

4.11.2 Availability of Service 33

4.12 Performance 33

4.12.1 Safety Performance Payments 34

4.12.2 Land Closure Charges 34

4.13 Payment Mechanism – Active Management 34

4.13.1 Introduction 34

4.13.1.1 Congestion Management 34

4.13.1.2 Safety Performance Adjustment 34

4.13.2 What the Mechanism Covers? 35

4.13.3 Basis of congestion management payment 36

4.13.4 Datarooms 39

4.13.5 DBFO Contract Period 39

4.13.6 Flexibility of DBFOT Contract 40

4.14 Key Benefits of DBFOT Contracts 40

4.15 Typical Contractual Arrangements 42

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5.0 OVERVIEW OF FRAMEWORK OF DBFOT CONTRACTS 45-54

5.1 Introduction 45

5.2 Rationale For Phased Development 46

5.3 Technical Parameters 47

5.4 Concession Period 47

5.5 Selection of Concessionaire 48

5.6 Grant 48

5.7 Concession Fee 48

5.8 Risk Allocation 49

5.9 Financial close 50

5.10 User Fee 50

5.11 Construction 51

5.12 Operation And Maintenance 52

5.13 Right of Substitution 52

5.14 Force Majeure 52

5.15 Termination 52

5.16 Monitoring and Supervision 53

5.17 Support and Guarantees by Authorities 54

5.18 Miscellaneous 54

6.0 CASE STUDY 55-63

6.1 Introduction 55

6.1.1 Project 55

6.2 Project Description 56

6.2.1 Project History and Timeline 56

6.2.2 Project Scope 57

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6.3 Concession Agreement 58

6.4 Traffic and Tolling 60

6.5 Safety 62

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PANIPAT JALANDHAR NH-1 TOLL ROAD PROJECT