Public private partnership
Minor project ReportonA Study onPublic Private Partnership in
Highway ProjectsSubmitted byMayank Sarkar081111020Arnav Kr.
Guha081111064Avinash Damera081111067Kamlesh Gupta081111068Sumit
Bhadoriya081111070Saket Rusia081111072Prateek
Dwivedi081111081Gaurav Singh Chauhan081111085Rajesh
Kumar081111098
Under the Guidance of Prof. Siddhartha Rokade Assistant
ProfessorDepartment Of Civil Engineering Maulana Azad National
Institute of TechnologyBhopal (M.P.)-462051May 2011
Department of Civil EngineeringMaulana Azad National Institute
of TechnologyBhopal (M.P.) - 462051May 2011CERTIFICATE
This is to certify that the project titled A Study on Public
Private Partnership in Highway Projects submitted by Kamlesh Gupta
(081111068) for the minor project of VI SEM B.Tech is a bonafide
work carried out by him under our supervision and guidance.
Dr. Vishnu Prasad Patidar Dr. S. K. Dubey Prof. Siddhartha
Rokade Project Coordinator Professor and HeadAssistant
Professor
AcknowledgmentAny accomplishment requires the effort of many
people and this work is not different. We are highly grateful to
Prof. Siddhartha Rokade, Assistant Professor, Department of Civil
Engineering, Maulana Azad National Institute of Technology, our
mentor for his judicious guidance and encouragement. It was
inconceivable that this work could be completed without his skilful
guidance, constructive and valuable suggestions, and co-operation.
We are also grateful to Mr. Neeraj Vijay, DGM, Madhya Pradesh Road
Development Corporation, and Mr. Sudhakaran, MPRDC who were
extremely co-operative in sharing project data which was crucial in
taking our work to the right conclusion. We would like to express
our gratitude to all the people involved in making this endeavour a
success.We also thank our college authority especially Civil
Engineering Departments faculties for being kind to me and raising
a helping hand in all perspectives as and when needed.
AbstractPublic-Private-Partnership (PPP) provides an opportunity
for private sector participation in financing, designing,
construction and operation & maintenance of public sector
programmes and projects. In this project, study about the Public
Private Partnerships (PPPs) programme in highways has been done.
PPP is the mode of operation of a service which is implemented by
the partnership of government and the private sector for public
benefit. Researches are going on, on this concept and different
organisations are working in this regard.PPP is an entirely new
framework which exploits the available resources. The financial
involvement of the markets money is made possible. Also PPP is
involvement in a futuristic approach of the market which cannot be
adored in any way and in any line, therefor we can say that we have
to manage ourselves in the Further, a Case-Study on the 4-laning of
Dewas-Bhopal Corridor, which is based on Built Operate and Transfer
basis (BOT) method of construction, was done. In this, the project
was analysed and accordingly the outcomes of PPP programme were
noticed by carrying out the SWOT (Strength, Weakness, Opportunity
and Threat) analysis of the afore-mentioned project enabling us to
understand PPP to its core.
Contents
ChapterPage
No.AcknowledgmentiCertificateiiAbstractiiiContentsiv1.
Introduction11.1. General1.1.1. Public Private Partnership The
Concept1.1.2. Various forms of Public Private Partnership:1.2. PPP
in Highways: An Overview41.2.1. Size of the Initiative1.2.2.
Target1.2.3. Approach1.2.4. Policy1.2.5. Outlook2. Literature
Review63. A Case study of Dewas-Bhopal Corridor233.1. Project
Summary3.1.1. The Site3.1.2. Technical Aspects3.2. The Concession
Agreement3.3. SWOT Analysis4. Conclusions365. References38Chapter
1: Introduction1.1 GeneralPublicPrivate Partnership describes a
government service or private business venture which is funded and
operated through a partnership of government and one or more
private sector companies. These schemes are sometimes referred to
as PPP, P3 or P3.
1.1.1 Public Private Partnership : The Concept:The term private
in PPP encompasses all non-government agencies such as the
corporate sector, voluntary organizations, self-help groups,
partnership firms, individuals and community based organization. It
involves triangular relationships between the State, Private
Sector, and those who receive the services. In one sense PPP is the
arrangement between the Government or State Sector and the Private
Sector where Private Sector can take over, on contractual basis the
services and functions, traditionally provided by the State. It
refers to long-term, contractual partnerships between the public
and private sector agencies, specifically targeted towards
financing, designing, implementing, and operating infrastructure
facilities and services that were traditionally provided by the
public sector. These collaborative ventures are built around the
expertise and capacity of the project partners and are based on a
contractual agreement, which ensures appropriate and mutually
agreed allocation of resources, risks and returns.The Department of
Economic Affairs (DEA) defines PPPs as:
PPP means an arrangement between a government or statutory
entity or government owned entity on one side and a private sector
entity on the other, for the provision of public assets and/ or
related services for public benefit, through investments being made
by and/or management undertaken by the private sector entity for a
specified time period, where there is a substantial risk sharing
with the private sector and the private sector receives performance
linked payments that conform (or are benchmarked) to specified,
pre-determined and measurable performance standards.Typically, a
PPP project involves a public sector agency and a private sector
consortium which comprises contractors, maintenance companies,
private investors, and consulting firms. The consortium often forms
a special company or a special purpose vehicle (SPV). The SPV signs
a contract with the government and with the subcontractor to build
the facility and then maintain it.In some types of PPP, the cost of
using the service is borne exclusively by the users of the service
and not by the taxpayer. In other types (notably the private
finance initiative), capital investment is made by the private
sector on the strength of a contract with government to provide
agreed services and the cost of providing the service is borne
wholly or in part by the government. Government contributions to a
PPP may also be in kind (notably the transfer of existing assets).
In projects that are aimed at creating public goods like in the
infrastructure sector, the government may provide a capital subsidy
in the form of a one-time grant, so as to make it more attractive
to the private investors. In some other cases, the government may
support the project by providing revenue subsidies, including tax
breaks or by providing guaranteed annual revenues for a fixed
period.1.1.2 Various forms of Public Private Partnership:To enable
the flow of private funds and resources into public infrastructure
and services, the PPP is operationalized through a contractual
relationship between a public body (the conceding authority) and a
private company (the concessionaire). This partnership could take
many contractual forms, which progressively vary with increasing
risk, responsibility and financing for the private sector. The most
common partnerships are:I. Service Contract: The Public authority
(govt.) contracts out the provision of specific services to a
private provider (company) for a specific time period (generally
less than 5 years) in return for a management fee. However, the
government agency retains the overall responsibility for the
operation and maintenance of the system except for the particular
contracted services and it bears all the commercial risks.II.
Management Contract: This is somewhat similar to the service
contract, but differs in a way that it permits the private operator
to take day-to-day decisions and holds him responsible for
operating and maintaining the system, but it does not make private
partner responsible for any capital risks.III. Lease: Under this
type of PPP, the government enters into a long term lease agreement
with a private company or builder to develop and operate an
expanded facility with its (private companys) own fund. In this
type of arrangement, the private entity pays a lease rental to the
government, and is entitled to keep the revenue to recover its
investment plus a reasonable return during the lease period and
assumes the operational risks.IV. Concession (BOOT, BOT): A private
entity is awarded a concession or franchise by government to
finance, build, own and operate a facility. In return, the
franchisee gets the right to collect user fee for a specified
period, the ownership of the facility is transferred to
government.V. BOT (Toll) and BOT (Annuity) Models:a. BOT (Toll)
Model : In a BOT (Toll) Model, the concessionaire (private sector)
is required to meet the upfront/construction cost and the
expenditure on annual maintenance. The Concessionaire recovers the
entire upfront/construction cost along with the interest and a
return on investment out of the future toll collection. The
viability of the project greatly depends on the traffic (i.e.,
toll). However, with a view to bridge the gap between the
investment required and the gains arising out of it, i.e., to
increase the viability of the projects, capital grant is also
provided.b. BOT (Annuity) Model: In an BOT (Annuity) Model, the
Concessionaire (private sector) is required to meet the entire
upfront/construction cost (no grant is paid by the client) and the
expenditure on annual maintenance The Concessionaire recovers the
entire investment and a pre-determined cost of return out of the
annuities payable by the client every year. The selection is made
based on the least annuity quoted by the bidders (the concession
period being fixed). The client (Government) retains the risk with
respect to traffic (toll), since the client collects the toll.In
India, Planning commission has recommended BOT (Toll) model as
first choice.1.2 PPP in Highways: An Overview
1.2.1 Size of the Initiatives:With an extensive road network of
3.3 million kilometres, India is the second largest in the world.
Indian roads carry about 61% of the freight and 85% of the
passenger traffic. All the highways and expressways together
constitute about 66,000 kilometres (only 2% of all roads), whereas
they carry 40% of the road traffic. To further the existing
infrastructure, Indian Government annually spends about Rs.18000
crores (USD 3.704 billion). 1.2.2. Target Developing 1000 km of
expressways Developing 8,737 km of roads, including 3,846 km of
national highways, in the North East Four-laning 20, 000 km of
national highways Four-laning 6,736 km on North-South and East-West
corridors Six-laning 6,500 km of the Golden Quadrilateral and
selected national highways Widening 20,000 km of national highways
to two lanes 1.2.3 Approach National Highways Authority of India
(NHAI) is the apex Government body for implementing the NHDP. All
contracts whether for construction or BOT are awarded through
competitive bidding Private sector participation is increasing, and
is through construction contracts and Build-Operate-Transfer (BOT)
for some stretches based on either the lowest annuity or the lowest
lump sum payment from the Government BOT contracts permit tolling
on those stretches of the NHDP A large component of highways is to
be developed through public-private partnerships and several high
traffic stretches already awarded to private companies on a BOT
basis. 1.2.4 Policy 100% FDI under the automatic route is permitted
for all road development projects 100% income tax exemption for a
period of 10 years Grants / Viability gap Funding for marginal
projects by NHAI. Formulation of Model Concession Agreement
1.2.5. Outlook Annual growth projected at 12-15% for passenger
traffic, and 15-18% for cargo traffic Over $50-60 billion
investment is required over the next 5 years to improve road
infrastructureAn annual growth of 12-15% for passenger traffic has
been projected
Chapter 2: Literature Review
Planning Commission, Government of India (2004),
Public-Private-Partnership (PPP) provides an opportunity for
private sector participation in financing, designing, construction
and operation & maintenance of public sector programmes and
projects. The time has come to forge a greater interface between
the public and the private sector in a wide range of activities in
the country. The overwhelming response of voluntary organizations
in the aftermath of the earthquake in Gujarat was an outstanding
example of public-private-partnership (PPP). The subsequent
reconstruction involving expenditure of around US $ 2 billion was
also implemented through the PPP mode. The Government of Gujarat
succeeded in constructing community school buildings, private
health centres and private housing more cost-effectively through
public-private-partnership.Association of voluntary organizations
and non-profit service agencies in implementation of government
programmes in India is a decade old practice. Various schemes in
the social sector are implemented by the State Governments in
collaboration with VOs/NGOs and the local community. The Government
of India has been extending the requisite grants-in-aid for its
Centrally Sponsored Schemes, which are routed through the State
Governments. The public-private-partnership (PPP) brings in greater
professionalism to bear on this association through introducing
meaningful concepts. There is, nevertheless, scope of further
expanding its coverage and also involve the private corporate
sector in this endeavour. This may sometimes require legal and
regulatory reforms in select sectors. Any amendment/reform in
legislation is, however, possible when the essential features of
PPP are well understood.One of the persuasive arguments in favour
of PPP is the promise of better quality of service through clear
customer focus. It is also argued that introduction of PPP would
reverse the years of chronic under-investment through mobilizing
public and private capital. Although experience, in this regard,
shows that it did not open the floodgates to private sector
participation. Perhaps, there is a need for greater public
participation in PPP projects through risk sharing to assure the
private sector of the necessary comfort they may look
for.Participation of the private sector in rural development is
encouraged. The private sector can choose the project. The projects
when implemented would help the rural poor to derive benefits of
rural development. Maintenance of rural roads in three districts of
Maharashtra is being done by the sugar co-operatives under PPP. The
Department is examining the possibility of expanding PPP, for
maintenance of rural roads and the computerization and maintenance
of land records (sale and purchase deeds). A closer look at the
poor performance of public utilities and social services, in
general, also shows that the disease lies in the monopoly
characteristic of such activities. Since there is no alternative to
the existing (in-house) service providers, the citizens are left
with no option other than that of take it or leave it. The
executives/ bureaucracy (low & high) may thus take the liberty
to indulge in lethargy, corruption and high handedness. It has,
therefore, been commented that the important distinction is not
public versus private rather it is monopoly versus competition. In
this respect, PPP may be looked at as a measure towards
administrative reforms.The realisation of the significance of PPP
in the development of the country is a big step of the Government
of India. The report laid a lot of emphasis on the application of
the tool of PPP in the fields of education, healthcare, family
welfare, agriculture, rural & urban development etc. It presses
on significant goals and their implementation with the use of the
PPP mechanism and also highlights future goals.
India Infrastructure Report (2008) mentioned that Roads and
Highways are the biggest of Indias PPP infrastructure projects.
Indeed, among all other sectors, roads have elicited maximum
interest and optimism among private players for PPP. Even the
government has outlined some policy initiatives in order to attract
private investments in road infrastructure projects. As per NHAI,
some of these incentives are as follows: Government will carry out
all preparatory work (like land acquisition and utility removal
etc.) NHAI/Government of India will provide capital grant of up to
40 per cent of project cost (on case to case basis) 100 per cent
tax exemption for ten years Concession period allowed up to thirty
years In BOT projects, the entrepreneur is allowed to collect and
retain tolls. Duty free import of specified modern high capacity
equipment for highway construction.As per the NHAI, over the next
ten years (up to 2018), about 32,000 km of national and 25,000 km
of state highways need to be widened, at a cost of Rs 1700 billion;
highway maintenance will require over Rs 950 billion. NHAI is also
repairing the four-laning of 10,000 km of national highways outside
the NHDP. The current thinking suggests that most sections would be
toll-based BOT, with less viable routes awarded through cash
contracts or annuities. Public support will be capped at 40 per
cent of project cost (25 per cent during construction and 15 per
cent over the concession period). The future of companies in this
business thus appears bright. Project execution skills and
scalability will, however, be very critical in differentiating
successful companies from the rest. It is well established that
private developers deliver greater value for money at the
construction stage. Under these circumstances, shadow toll may
prove to be a good model. This approach was initially adopted in
the UK, where government award concessions to build-operate and
maintain toll-free highways and then compensate the investors based
on roadway usage and/or availability of those facilities. Shadow
toll roads are currently operating in the UK, Finland, Spain, and
Portugal.In a country like India where railways functions as the
artery for goods and public transport system, It was initially
difficult to allocate whole sum funds for a rather unimportant
sector of roadways, In the form of PPP the government of India and
the states were able to get appropriate Initial capital for
building such huge infrastructure and the guarantee for the returns
for the investments made in the same. Problems in PPP arise from
the improper implementation, in policy, there is as such no
guideline which leads to confusion and problems but political
hindrance and influence do lead to the loss of efficiency and poor
quality of the project and the time of completion of the entire
project. In case of BOT the user is required to pay toll to use the
utility, it becomes difficult to get returns for the idle and
structure for community uses.
In NHAI Report, 2010, it was said that the National Highways
Authority of India (NHAI) is mandated to implement the National
Highways Development Project (NHDP). Most of the projects have been
developed or are under development on Public Private Partnership
(PPP) basis through Build Operate and Transfer (BOT)-Annuity and
BOT-Toll mode (these have been explained in detail in later section
of the brochure). Typically, in an annuity project, the project IRR
is expected to be 12-14% and equity IRR would be 14 -16%. For toll
projects, where the concessionaire assumes the traffic risk, the
project IRR is expected to be around 14-16% and equity IRR around
18-20% The NHDP is being implemented under several phases:Phase I
mainly involves widening (to 4 lanes) and upgrading of 7,498 km of
the national highway network and has four component packages
(linking of metropolitan cities, NS and EW corridor, Port
Connectivity, Other important roads) .Phase-II involves widening
and improvement of the NS-EW corridors (not covered under Phase-I)
covering a distance of 6,647 km, besides providing connectivity to
major ports on the east and west coasts of India and some other
projects. This includes 6,161 km of NS-EW corridors and 486 km of
other highways. The total length of the NS-EW network under Phases
I & II is about 7,200 km. Phase-III involves upgradation of
12,109 km (mainly 4- laning) of high density national highways,
through the Build, Operate & Transfer (BOT) mode at a cost of
INR 80,626 Crore (USD billion).Phase IV With a view to providing
balanced and equitable distribution of the improved/widened
highways network throughout the country, NHDP-IV envisages
upgrading of 20,000 km of such highways into 2-lane highways, at an
indicative cost of INR 27,800 Crore (USD 5.6 billion). Phase-V,
under this 6-laning of the 4-lane highways comprising the GQ and
certain other high density stretches, will be implemented on BOT
basis at an estimated cost of INR 41,210 Crore (USD 8.2 billion).
These corridors have been 4-laned as part of the GQ in Phase-I of
NHDP. Implementation of initial set of projects has already
commenced and the entire package is expected to be completed by
2012. Of the 6,500 km proposed under NHDP-V, about 5,700 km would
be taken up in the GQ and the balance 800 km would be selected on
the basis of predefined eligibility criteria.Phase VI: With the
growing importance of urban canters of India, particularly those
located within a few hundred kilometres of each other, expressways
would be both viable and beneficial. The Government has approved
1,000 km of expressways to be developed on a BOT basis, at an
indicative cost of INR 16,680 Crore (USD 3.3 billion). These
expressways would be constructed on new alignments.Phase VII: The
development of ring roads, bypasses, grade separators and service
roads are considered necessary for full utilisation of highway
capacity as well as for enhanced safety and efficiency. For this, a
programme for development of such features at an indicative cost of
INR 16,680 Crore has been approved by the Government.Hence we see
that the early success of Public-Private-Partnerships (PPP) in the
NHDP, arguably, set the tone for similar initiatives in other
infrastructure sectors and has provided the single largest
opportunity for private financing and management of infrastructure
services. More than 60% of the estimated investment requirement is
expected to be privately financed.NHAI projects, with higher
traffic volumes, have also been bid out on the basis of Negative
Grant (upfront payment payable by successful bidder to NHAI).
However, under the revised MCA, projects under BOT/ DBFOT framework
have also been awarded on a revenue share basis, where the bidder
offering the highest revenue share (subject to technical
qualification) is awarded the project.
Vijay raj Kumar Charles (2009) emphasizes the importance of good
infrastructure in boosting the economic status of a nation. The
best way to go about achieving the same is by enhanced private
section participation. Mobilizing funds through greater
co-operation of privates sector will lead to greater development
and fewer risks on account of shared assets. The author aims at
seeking the reason behind varied presence of PPPs in different
states by delving into policy, regulation, availability of
resources, exposure to land and finances etc. Some of the conducive
factors are low political risk, hassle free implementation of
policies, a trimmed and efficient bureaucracy, and infrastructure,
availability of power, low corruption and proper legal framework.In
the last 10 years, Indian states have made considerable innovation
with different structures to attract private participation in
delivering infrastructure services. According to the value of
projects, the state of Karnataka tops the list with 92 projects at
an estimated value of `34795 Crore, followed by NHAI, Maharashtra,
Ministry of Civil Aviation, Sikkim, and Gujarat. Sector wise
analysis indicates that, Road sector dominates the list with
maximum number of PPP Projects, 264 (67%), followed by urban
development, Ports, energy sector, Airport projects, and tourism
projects 6, and 3 projects in Railways. The Indian state
governments have tried to create an environment that will be
attractive to investors and fair to customers. The approaches in
structuring the framework is divided among: combining dedicated
institutions with cross-cutting legislation; establishing and using
cross-sectoral PPP advisory units to help line departments in the
absence of overarching legislation and relying on line departments
and sectoral agencies to build capacities.Category-I, The states of
Andhra Pradesh, Gujarat, Karnataka etc. have developed enabling
legislation and established dedicated cross sectoral institutions.
These states have constituted specialized agencies and passed
legislations to promote PPPs in infrastructure. (Example: Gujarat
infrastructure Development Board, The Andhra Pradesh Infrastructure
Authority). Category-II, A second category of states, such as
Rajasthan, Uttaranchal, Kerala and West Bengal have developed
cross-sectoral facilitation entities, but have not passed
comprehensive legislation.Category-III, Finally, a third category
of states, including MP, Maharashtra and Tamil Nadu, have relied on
sectoral and line agencies to develop and implement PPPs.Initially
in M.P., the Public works Department (PMMWD) and then the specially
created MP Road Development Corporation (MPRDC) have acted as the
agency for development of road projects on BOT basis in the state.
In the process of developing projects, MPRDC has developed policy,
guidance materials and skills for facilitating PPPs in Road
sector.It can be said that there is no clear link between policies
in a state or frameworks with high number of PPPs. However, it can
be safely assumed that states need to be proactive in order to
attract greater interest from private sectors. Those states which
have made their political intent clear by introducing laws are
reaping benefits. The cost of corruption is a major deterrent to
PPPs. A lumbering bureaucracy will not be able to efficiently
process forms and the corrupt officials will only hinder true
progress. Companies need assurance that they will not have to spend
countless, unproductive hours greasing greedy hands. States that
are already in possession of good infrastructure facilities and
which can guarantee continuous power supply are considered hot
spots for investors. They will prefer such locations for a project
over a comparatively backward place. Poor transportation facilities
may also prove to be a deal breaker. Availability and enforcement
of Legal and Institutional frameworks that are conducive for PPP
investment are is no doubt important factors, for the investors
while deciding about investment in PPP projects. Since the
government is responsible for providing land, it is not an
important factor. The estimated net-cost benefit should be as high
as possible.There is still a long way for Indian states to go to
realize their full potential when it comes to PPPs, but the several
innovative procedures already in use are making strong headways.
However, it is imperative for us to get our basics right and keep
the nations development above our own. There is lots of work still
to be done.
S. Vasudevan (2003) emphasizes on the infrastructure policy of
Karnataka for publicprivate partnership. IDeCK (Infrastructure
Development Corporation of Karnataka) created policies and measures
that are incentive compatible and have economic and market logic,
and that drew little administrative energies. The principal
objective of the policy was to encourage private sector
participation in infrastructure development. The policies included
power(including power generation, transmission, distribution, and
power trading services), integrated transport and logistics(roads,
bridges, railway systems, ports, airports etc.), urban and
municipal infrastructure(water supply and sewerage systems, solid
waste and garbage disposal facilities), industrial
infrastructure(industrial parks, Special Economic/Free Trade Zones,
Export Promotion Zones, industrial estates, and industrial
townships) and infrastructure related to tourism and agriculture.
The private sector was expected to play a key role in providing
value for money (VFM) by enhanced quality of services to users,
reduction in and gradual elimination of pricing constraints,
enabling public funds to be earmarked for socially justifiable
projects, financial innovation and development of cost-effective
solutions and savings in costs by innovative designs, timely
project implementation, and higher efficiencies in operations.The
principle for the creation of an appropriate institutional and
regulatory framework was necessary. These included efficient use of
existing assets and optimal allocation of additional resources,
equitable contractual structures i.e. that the government would
enter into suitable contractual arrangements with private
developers for development and management of both existing (O&M
contracts, leases, sale or divestment) and new assets (BOT, BOOT,
etc.). It also included the transparent process of procurement
which would ensure that private services are procured in a fair and
transparent manner.A single or two-stage process could be used for
awarding contracts on the basis of an open competitive bidding
process depending on the complexity of the project. The selection
criteria used would be among quantifiable technical criteria,
lowest present value of financial support from GoK/subsidy, highest
share (or present value) of revenue, lowest present value of
payments by GoK, highest upfront payment (or present value of
upfront payments), highest present value of future payments, lowest
concession period, lowest present value of user fees or highest
premium (or present value of) on equity shares offered.The
government has realized that fiscal incentives are perhaps
necessary but not a sufficient condition for successful private
sector participation. A key priority of government is the
progressive elimination of subsidies and cross-subsidies so that
prices for services are commensurate with the real costs of
provision. The draft infrastructure policy developed by iDeCK for
the Government of Karnataka provides an umbrella framework for
development/restructuring of various sectoral policies to bring
about purposeful reform in issues of governance that would allow
greater private participation in infrastructure projects. Further,
it also provides a basis on which the government would develop
medium and long term strategies and implementation plans for each
of the infrastructure sectors clearly setting out the role for the
private sector, in both the management of existing assets and
creation of new assets.Though the Karnataka government has a long
way ahead but these steps seem to play an important role for
infrastructure development. In order to meet the objective of
growth and equity, the government should build a strong PPP which
is possible by the true will of the government along with the
participation of private sector in infrastructure. The governments
concern for making this possible can be seen by the various policy
incentives like providing an umbrella framework for making the
painful and laborious governmental procedure fast , setting up a
competitive and transparent platform for allocation of projects to
the private sectors, giving subsidies and tax relaxation to them
etc. Also the private sector is keen and excited to make such
projects reach their objectives, due to extent of profit involved
in it.
Alfen Wilhelm (2006) considers economics in construction as a
specific management doctrine that intends to cover the interfaces
between the pure technical and economic as well as the various
other aspects influencing the constantly changing business
environment of the real estate and infrastructure markets.Alfen in
2004 analysed the possibilities of procurement of Federal highways
as Public Private Partnerships. Useful advice had been given to the
public authorities on three different levels, short-term, mid-term
and long term. A short-term recommendation had been the later
successful establishment of the German A- and F-models and the
founding of the VIFG (Verkehrs Infrastruktur Finanzierungs
Gesellschaft), in the mid-term perspective the assignment of the
duties planning, financing and managing to the VIFG and in the long
term the creation of sub-networks, which can be applied by a
concession model. He, in 2005 studied the possibility of
privatisation of the federal highways. The formal, the functional
and the material privatisation had been analysed. One major
conclusion was that the functional privatisation has a high
potential concerning federal highways. Among other things the
following results appeared: Producing the possibility to apply
route and sub-network concessions. Complete change from tax
financing to user financing. Creation of sub-networks and apply as
sub-network concessionsIn this specific field there has been a lot
of research in the last years, which can be separated into three
fields: privatisation, alternative procurement modes and user
financed schemes of federal highways.Estimated future and current
market needs:Devising new schemes of public-private partnership
seems to be an effective way to overcome public balance
constraints. Deregulation and privatisation were expected to
improve managerial efficiency, reduce the financial drain of public
enterprises on the public purse, offer a better solution to market
failure problems (such as natural monopoly) and introduce
competition to sectors that are no longer understood to constitute
monopolies. Hence a continuing policy and promotion of PPP is
needed to form a stable PPP market. Otherwise economic up and downs
will create an instable and inefficient market. The public sector
should think of PPP from a more sustainable perspective, that if
they want to have PPP as an alternative procurement method during
times of fiscal constraints there is also a need to support PPP
during times of economic growth.Current and Future Research
Needs:Concerning the field of alternative procurement modes for
transport infrastructure a lot of research has been done in the
recent years. Current research led us to the conclusion to divide
procurement modes into sector wise regulation and provision, sector
wise financing and project realisation. As a first step, the scope
of our work is to gain an explicit description and determination of
different types of procurement. In addition, we intend to use the
framework to also be able to develop, customize, manage and
evaluate projects following different procurement concepts.The main
emphasis he laid was to give advice in three different levels:
short term, midterm, long term. The structure of this above given
research project distinguishes an operationalisation model and an
industry framework. The operational model is focusing project
specific questions regarding planning, financing, implementation
and operation. It was his intention to break the understanding of
infrastructure further down in this structured research approach by
introducing a four stages approach that consists of the
understanding of the cultural framework-, country-specific-,
sector-specific- and project-specific-characteristics. Safety
incentives linked to performance based indicators in PPP contracts
have not been implemented very often up to now. The functional
privatisation has a high potential concerning federal highways. He
wanted to change the method from tax financing to user financing.
He thought of creating sub-networks and wanted to apply sub network
concessions so that it could ensure future development of public
private partnership. He wanted the research to continue in three
different fields which are namely privatisation, alternative
procurement, and user financed schemes. It introduces competition
to sectors that are no longer understood to constitute
monopolies.
Anant singh et al. (2009) emphasizes on some interesting queries
arise in the minds of the people, such as Why have some projects
attracted private investment while others have not? Why only a few
states have attracted PPPs, while some others have completely
failed to do so? Is PPP a viable and desirable public policy for
development of infrastructure in poor states? What are the lessons
emerging from the Indian experience with PPPs so far? It will be
seemingly fair to mention the views of Mr. Anant, Delhi school of
economics, in this context as his views give us a good insight into
the matter.The success of the on-going eleventh five-year plan for
infrastructure critically depends on private investment. The
private sector is expected to finance more than eighty percent of
the ambitious National Highways Development Project (NHDP),
undertaken to develop highways and expressways across the country.
We examine the performance of the Public Private Partnerships
(PPPs) Programme of the Government of India, for development of
national highways and expressways. We study various issues In
India; the PPPs on national highways are sponsored by the National
Highways Authority of India (NHAI) on behalf of the Ministry of
Roads Transport and Highways, Government of India. The state
governments have a crucial role to play in the implementation of
the PPP contracts. Under a PPP the public as well as the private
sectors can contribute towards the provisions of public goods or
services, such as roads, railways, ports, airports, etc. The
government can provide land for the project site, regulatory
clearances, and a concession right to the
contractor/concessionaire. The private sector, on the other hand,
is expected to invest funds during the construction and maintenance
phases of infrastructure projects. The first policy framework for
PPPs was introduced in 1997 as decision of the Cabinet of the
Central Government. The highway PPP policy essentially provided for
two kinds of contracts BOT toll contracts and BOT annuity
contracts. The national highways are owned by the Government of
India. The national highway Act has been amended in 1995 with a
view to attract private investment in road development, maintenance
and operation. With this amendment, private investment in
infrastructure via PPPs has become a possibility.The contractual
clause for the PPP has several desirable and efficiency enhancing
attributes. Provisions for suspension and termination of the
contract avoid moral hazard during the implementation phase. The
clauses encourage the concessionaire to complete the project sooner
and avoid time overrun by also encouraging the use of better
technology.Under NHDP, national highways are being upgraded. The
program has to be implemented in seven phases; Phase I-VII. While
Phases I, II, III, V, VI and VII are to be executed by the NHAI,
the Phase IV will be executed by the parent Ministry of Shipping,
Roads Transport and Highways. Work has started only on Phases I,
II, III and V. As on July 31, 2009 a total of 405 road projects
have been undertaken for up gradation. Some of these projects have
been undertaken on PPP basis. Since the first PPP project, the
number of PPPs has been ever increasing over the years. National
highways covered under Phases I, II, III and V span across most
states in the union of India. Though the NHAI has tried giving the
up gradation work on PPP scheme in all states, some states have
attracted more PPPs than others.Tamil Nadu, Andhra Pradesh and
Maharashtra are the favourite states; together these states account
for as much as 45% of all PPPs in the country. States like Assam,
Jharkhand, Bihar, Orissa and Kerala. On the other hand ,However ,
to assess the relative success of states merely in terms of the
number of PPPs is not plausible Since, the number of PPPs in a
state does not necessarily reflect the financial stakes involved in
PPP projects in that state.In this paper, the author States with
higher per capita income have attracted more PPPs than the poorer
states. Road projects located in richer states have shown higher
probability of attracting private investment than those located in
the poorer ones. Other things remaining the same, projects located
on national highways connecting richer states and those located
closer to mega cities have exhibited higher probability of becoming
PPPs. Similarly, keeping all other things constant states with
better governance index and projects located in them have higher
probability of attracting private investment. The likelihood of
private investment increases in direct proportion to the per-capita
SGDP. Private sector is likely to invest only in projects if they
are located very close to some big city. For example, states like
Rajasthan can hope to attract PPPs on major national highways
passing through the state that connect Delhi and Haryana in the
North with Gujarat and Maharashtra in the South.
L. Weidner et al. (2003) emphasized the formulation of the
technical assistance (TA) for preparing a public-private
partnership (PPP) expressway project in Sri Lanka. As the current
load on the roads is already very high and with the development it
is likely to rise at an enormous rate, thus there is a greater need
for this project.The Asian Development Bank held discussions with
responsible Officials of the concerned agencies, including the
Ministry of Policy Development and Implementation; Ministry of
Enterprise Development, Industrial Policy, and Investment Promotion
(MOED IP&IP); Ministry of Finance; Ministry of Highways (MOH),
Board of Investment (BOI); and Bureau of Infrastructure Investment
(BII) for the same. Subsequent to the Fact-Finding Mission, the
Government decided to single source from its own funds consulting
services from PricewaterhouseCoopers (Pvt.) Ltd, India in
association with PricewaterhouseCoopers Private Limited, Sri Lanka
(PWC), and Snowy Mountains Engineering Corporation International
PTY Limited (SMEC), to assist in the development of the
Colombo-Katunayake Expressway (CKE) on a PPP basis.Roads account
for about 92% of freight and passenger traffic in Sri Lanka and
play a critical role in the countrys development. The road network
spans 83,880 kilometres (km). The network is divided into three
categories: (i) the primary system of about 11,650 km of national
highways (classes A and B) serving interprovincial and
long-distance traffic; (ii) the secondary system, consisting of
13,880 km of provincial roads (classes C, D, and E) serving
intra-provincial traffic; and (iii) the tertiary systems,
comprising 58,350 km of local roads. Despite the extensive road
network, its quality and capacity is not sufficient to meet the
present and expected future demand for passenger and freight
transport services. Most roads were built more than 50 years ago
and current traffic levels exceed the design capacity of many
roads. This has resulted in high traffic accident rates and overall
traffic congestion. Road maintenance, rehabilitation, and new
construction have not kept pace with the rapid growth in demand for
transport. Financial boost to the project has been provided by
Asian Development Bank. Asian Development Bank has provided nine
loans for the road sector, totalling $400 million, and 18 Technical
Assistance, totalling $8.55 million. Among multilateral funding
agencies, ADB is currently the largest multilateral agency to the
road sector in Sri Lanka and is coordinating its support with other
external agencies.As per author the consultants will identify,
review, and analyze the existing policy, regulatory, and
institutional frameworks for private sector involvement in the
financing, constructing, operating and maintaining expressways. In
addition to this, they will evaluate the constraints to the
existing frameworks' abilities to enhance public sector financing
capacity, and attract private sector participation according to
policy objectives, this is the action methodology.The total cost of
the Technical Assistance is estimated at $1.0 million equivalent,
comprising $736,000 in foreign exchange and $264,000 equivalent in
local currency costs. ADB will provide $800,000 comprising $736,000
in foreign exchange costs and $64,000 equivalent of local currency
cost. For proper implementation of the project a project steering
committee (PSC), subject to ADBs approval, will be established for
the Technical Assistance. The PSC will provide overall policy
guidance to the consultants and ensure the quality of the study. In
particular, the PSC will oversee the development of the model
concession agreement and set up a technical subcommittee for this
purpose, with representatives from relevant stakeholders, including
lenders. The PSC will be co-chaired by the Ministry of Finance,
Ministry of Transport, Highways and Civil Aviation and Ministry of
Policy Development and Implementation.
Shunso Tsukada (2005) has stated comparison between Public
sector and Public sectors working methodology and discussed the
pros and cons of both construction techniques. Also author has
presented procurement analysis, finance details and credit
enhancement measures, apart from various bids cases. Facing massive
infrastructure needs, the private nance initiative (PFI) has gained
renewed attention from the development community. PFIs are more
prevalent in developing countries than in developed countries. This
is due in part to the more severe budgetary constraints developing
countries are facing, and also due to the fact that main cost
elements such as labour, materials and land are still low in price
in developing countries. Strong skepticism still exists about the
applicability of the PFI approach to developing countries,
particularly in Asia. This is largely due to the following
intrinsic difculties associated with highway development: Risks
associated with land acquisition and construction. Lumpy initial
capital investments and the resultant long gestation period.
Difculties in trafc forecast and associated uncertainties in future
revenue ow.The strongest benet of the BOT scheme (if structured
correctly as indicated in a viability gap funding or VGF scheme)
lies in closing a hidden loophole in public sector procurement. A
major problem with public sector procurement derives from the fact
that the contract will usually be won by the lowest bidder. Tactics
that experienced bidders often employ is to bid low (often lower
than cost price) and win the contract, and then claim for the
higher costs incurred later, by requesting compensation for
variations to contracts. As per past trend works which have been
accomplished by public sector the cost of projects have been cut
down to a marginal extent but there are drawbacks which add up to
this marginal cost saving. They do not render cost of Operation and
Maintenance. It is almost impossible to compare real world
performance of these two systems viz. Public and Private, on the
basis of specic cases. In this regard, an analysis was conducted in
2007 by PricewaterhouseCoopers of India (PwC) following a request
from the Highway Authority of India (NHAI). The size of the sample
in the survey by PricewaterhouseCooper was 150, including 135 EPC
contracts, 8 BOT contracts and 7 annuity concessions. The average
length of the highways covered by each EPC contract was 31km. The
major findings of this analysis are as below. The performance of
BOT is far superior to other forms of contract in terms of cost
effectiveness and delivery time. At the time of the completion,
construction costs were 30% lower than EPC and 57% lower than
annuity schemes. BOT construction was completed one month earlier
than the original schedule, in sharp contrast to the average
16-month delays in EPC contract and 3-month delays in annuity
contracts. The above ndings provide a clear justication for the GOI
to move to BOT-PPP schemes, away from the traditional item rate
contracts using public sector nancing.As per him PFIs cover a wide
spectrum of private sector participation, including: (i) service
contracts; (ii) management contract; (iii) leasing; (iv)
concessions; and (v) privatization, the second generation PPPs
primarily focus on concessions, particularly BOT schemes. The
author also posited unsolicited bids, this occasionally happens in
case where private sector companies come up with a completely new
project concept which can bring major benets to the communities
through innovation.On the financial status of the PPP associated
projects author has described both finance schemes viz, corporate
nance scheme and project nance. Corporate finance is a traditional
way of nancing investment is under which sponsors will borrow the
money from banks by offering the creditworthiness of the sponsoring
companies as a security for the payment of the entire debt and
under project finance project company (which is generally formed by
sponsors) mobilizes necessary funds by pledging to lenders the
future revenue ow to be generated by the assets created by the
project. The later finance scheme is adopted generally when
investment is more than $50 million (as per NHDP).The BOT and
annuity concession schemes mobilize funds through borrowing from
nancial institutions, and through other nancing methods including
issuance of bonds. This often requires a variety of credit
enhancement measures or risk mitigation measures so as to alleviate
the concerns of nanciers. The author quoted following measures viz,
Minimum revenue guarantee, Foreign exchange risk guarantee, Partial
credit guarantee, Political risk guarantee. There has been a
discussion over monoline and multiline services. For large
infrastructure projects such as those over $500 million, bonds are
the most efcient way of mobilizing the necessary funds for
investment. However, if the project is BOT-based, the cost of the
bond would be very high because of the difculties of recourse and
resultant low credit rating. However, if all the risks are covered
by a reputable guarantor, the credit rating will be upgraded and
the cost of issuing the bond will be immensely reduced. An
innovative mechanism which has recently emerged is a guarantee by
nancial insurance companies. Since this insurance is applied only
to the bond, this insurance service is often called a monoline
service as opposed to multiline insurance services which cover a
variety of business activities.The revenue generation from the PPP
projects, so called PPP concessions is Tolls, Capital grants,
annuities and financial viability gap fund. Another important
parameter in deciding the selection of contractor is the length of
concession period. To overcome the problem of fixed length of
concession period a system of least present value of revenue (LPVR)
was developed.A key lesson of the program is that the government
has to be aware of the contractor driven nature of the BOT program.
It should be noted that the BOT concept was originally devised by
the construction industry at the time when excess capacity of the
construction industry existed. The government should design the BOT
scheme in such a manner to ensure that the assets created by BOT
contractors are properly operated and maintained. To enhance the
creditworthiness of projects, the Government should introduce a
minimum revenue guarantee and also an exchange rate guarantee. As
the competition becomes intense, the tolls proposed by bidders will
become lower and lower but, at the same time consideration should
be taken to decide a floor level of tolls so that bids do not go
below cost of project. There is a need to estimate properly the
negative impact of the competing roads. Also there is a need to
check the renegotiation of the cost of project by the private
sector.In order to create an immediate and visible impact on the
ever-worsening traffic congestion, the government should adopt a
rather unusual selection criterion, the shortest concession period
instead of the conventional lowest toll criterion. As far as
finance is concerned, steps should be taken to increase the foreign
investments in PPP projects. Even though there is a risk factor
involved, the agencies must show faith in the lenders as if the
project is completed successfully it is worth investing in the PPP
projects. Lack of planning can result in major failure, costing the
nation an enormous amount. However, if they are planned well, PPP
schemes can bring benets especially to the developing countries
like India.
Chapter 3. Case Study of Dewas-Bhopal CorridorA case study of
Dewas-Bhopal Corridor, built on BOT (Toll) basis has been done to
analyse the Public Private Partnership in highways project. And the
SWOT analysis is done of the same .Brief overview of the Project is
summarised below:
Dewas-Bhopal Corridor3.1 Project Summary:3.1.1 The Site: The
road project is situated between Bhopal and Dewas. The Bhopal-Dewas
section of NH-86/SH-18 starts from Lalghati chowk in Bhopal city.
The entire length of 142.60 km consists of following sections:i.
Bhopal-Sehore existing four lane section (km 6/8 to 26/4) = 19.6
kmii. Existing Sehore Bypass two lane section (ch 0.0 to 16+100) =
16.1 kmiii. Existing two lane road from end of Sehore bypass to
Dewas Bypass junction (ch. 16+100 to ch. 123+100) = 106.9 kmUnder
the proposal, Bhopal Sehore existing four lane section is proposed
to be strengthened and raised. The existing carriageway is proposed
to be widened from 2 lanes to 4 lane width with 2.5m wide hard
shoulder and 1.0m wide earthen shoulder alongside. The new 2 lane
carriageway is proposed alongside the existing carriageway
separated by a 4.5 to 10.5 m wide median. This section of state
highway traverses through a flat terrain of mostly agricultural
belt except about 9.0 kms hilly stretch at Dodi ghat.
An aerial view of the Dewas-Bhopal Corridor (New)
3.1.2 Technical Aspects:Right-of-Way:The existing ROW of the
project road varies widely between 20m to 30 m. land acquisition
process to acquire additional land to have 50m ROW has been
done.Geometrics:It is observed that the project highway
predominantly has a straight alignment and traverses through plain
terrain. It is essential to provide improvement proposals to the
substandard geometric at various locations on the project
roads.Road condition survey and Pavement Composition:As per the
pavement condition data gathered from test pit investigations, the
total thickness of existing pavement varies from 170mm to 720mm.
The pavement mainly comprises of WBM base course over subgrade,
overlaid by mainly thin layers of bituminous macadam and mix seal
surfacing/semi dense bituminous carpet or bituminous concrete. The
bituminous course layers thickness varies between 70mm to 380mm,
while that of WBM between 100m to 350mm and GSB between 0 to
300mm.Cross drainage works:There are four major bridges on the
project highway. There are total 18 minor bridge and culverts on
the project road.
3.2 The Concession Agreement:The Concession Agreement for the
four laning of Dewas-Bhopal corridor on BOT-basis was signed on
30th June, 2007, between Madhya Pradesh Road Development
Corporation Ltd. (State Government Agency) and the private
consortium which includes M/s Dewas Bhopal Corridor Pvt. Ltd., M/s
Chetak Enterprises Pvt. Ltd., and M/s BSBK Pvt. Ltd. The agreement
includes the detailed design, engineering, financing, procurement,
construction, operation and maintenance of the Project Highway
under BOT-basis.The Total Project cost is the lowest of the
following:a. A sum of Rs. 426.64 Crores as on Toll Date.b. Actual
capital cost of the Project upon completion of the Project Highway
as certified by the Auditors; orc. Total project cost as set forth
in Financing Documents.Grant of concession:The Concessionaire is
allotted certain privileges to enable them to complete their
obligations in a hindrance free manner. However, they are granted
only for the concession period and are subject to fulfilment of
certain conditions. Some of the ones the Concessionaire entitled to
are:1. Access to the site2. Investigation of site in detail as per
scope of work3. Managing toll after completion of construction
work4. Bear and pay all costs, expenses and charges in connection
with the performance of the obligationsConditions Precedent:The
rights and obligations of the Parties are subject to the
satisfaction in full of certain conditions set in advance.The MPRDC
shall:1. Procure Right of Way for the Concessionaire2. Procure
approval of Railway authorities to build bridges etc. over existing
tracks3. Procure all applicable permits relating to environment
Security:The Concessionaire will give the MPRDC a sum of Rs.
2133 lakhs for due and faithful performance of obligations. Failure
to provide performance security will lead to appropriation of bid
security. They are given extra time to rectify faults.Maintenance
Security-The Concessionaire will give Rs. 4.27 Crore for faithful
performance of its obligations during the tolling
period.Obligations and Undertakings:Concessionaire:1. Make
necessary applications to govt. agencies2. Notify MPRDC forthwith
the occurrence of Financial Closure3. Submit true copies of all
agreements and drafts of all amendments4. Not to permit any change
in ownership5. Take prior consent for making changes6. Give prior
notice to MPRDC for any alterations7. Clear the working area of
machinery, debris etc. when work is done there8. Procure required
rights and licenses9. Ensure smooth running of project including
proper safetyThe Concessionaire will exercise the rights and take
care of the site at their own cost. They have certain obligations
before the construction. They need to submit detailed plans which
may be rectified by an independent organization. Perform all deeds.
Select a representative for handling with the government
agencies.The Concessionaire shall prepare and submit drawings
promptly. They should have all necessary details. During
construction, a review of the Detailed Project Report should be
carried out and detailed engineering should be carried out. The
existing lanes should also be maintained. They should be freed from
potholes.The MPRDC is obliged to 1. Hand over physical possession
of the project site2. Permit its peaceful use3. Provide reasonable
support and assistance to ConcessionaireThere need to be warranties
undertaken by Concessionaire that it is fully capable of and will
do quality work meeting all specifications. All laws should be
adhered to as shall the agreements salient points. There is also a
disclaimer that the Concessionaire accepts all inherent risks.If
the concessionaire fails to achieve any project mile stone,
concessionaire will be charged at 10000/- per day until the same is
achieved If the delay is in project completion and the
concessionaire is not able to convince MPRDC that the circumstances
were beyond his control then the concessionaire shall pay the
damages to MPRDCMonitoring and supervision during operation:The
concessionaire shall take periodic inspection (at least once in a
month but once in a week during monsoon) to determine the condition
of the Highway as performance maintenance manual and shall submit
Maintenance Report to MPRDC and Independent Consultant. The
Independent Consultant also shall review the Maintenance Report and
inspect the Highway once in a Fortnight and make the O & M
Inspection Report and send it to MPRDC. The concessionaire should
within 30 days from receipt of O & M Inspection Report send a
report to MPRDC remedying all the deficiencies or defects as stated
by the Independent Consultant (if any). The Independent Consultant
may ask Concessionaire to undertake some tests as per
Specifications and Standards. Under such situations Concessionaire
must submit test results to MPRDC and Independent Consultant.The
Concessionaire shall ensure safe conditions for the users and in
the event of accidents, vehicle breakdowns, etc. setting up of
traffic cones and lights and removal of debris should be done with
delay. The Concessionaire shall furnish Monthly Fee Statement,
within 7 days during Toll Period. The MPRDC shall recover 1% of the
toll from the ESCROW Account, for each accounting year.Safety
requirement:The responsibility of the Concessionaire is limited to
removal of the debris or other vehicle which may endanger or
interrupt smooth traffic flow ion Highway. He should ensure that
any interruption in the traffic is remedied without delay. An
Independent monitors the safety and if he encounters any breach, he
should report it within 24 hours to MPRDC. All the cost and
expenses arising out of safety requirements are borne by the
Concessionaire.Breach may lead the Concessionaire to the award of
penalty points and a total of 5 penalties in any continuous period
of 365 days shall constitute a Material Breach of the
Agreement.Independent consultant:MPRDC appoints the Independent
Consultant by a transparent bidding process. The appointed
authority may be a Consulting Engineering Firm of body of Corporate
being consultants. The Independent Consultant is initially
appointed for a period of30 months which may later be extended to 3
years after expiry of aforesaid appointment. The Independent
Consultant must report (at least once in a month) to MPRDC.The
remuneration, cost and expenses shall be borne by the
Concessionaire during Construction Period, up to 1.3% of the
project construction cost. This cost is to be paid in 4
instalments. Also during Toll Period, the supervising cost is borne
by Concessionaire equal to Rs. 15000 per crores of Total Project
Cost per year. This cost is to be paid in 6 instalments.Financing
arrangements financial closure:The concessionaire shall provide a
copy of Financing Package to MPRDC. If anything in this agreement
contained is contrary, financial closure must be attained within
180 days.Grant/subsidy:MPRDC agrees to pay to the Concessionaire
Grant/Subsidy as cash support equal to the Bid of Bidder and
accepted by MPRDC namely Rs. 81 crores. Out of the grant for
project up to 20% of Total Project Cost is provided by Government
of India, rest is disbursed by MPRDC.First tranche of 20% id
released when the Concessionaire has contributed his equity as per
proposed financing package. MPRDC is given 7 days to process
disbursement request. If MPRDC fails to disburse any tranche within
30 days of acceptance of request, it has to pay an interest @ SBAR
plus 2 percent.
Revenue shortfall loan:If the Realizable fees in any Accounting
Year during the Concession Period shall fall below the Subsistence
Revenue Level, MPRDC agrees to allow the Concessionaire to avail
accommodation for such shortfall, by the way of loan from Bank. Any
balance of maintenance fund of the Concessionaire or any sums
received or likely to be received by the Concessionaire through
claims or payments by MPRDC shall first be deducted and only the
balance amount should be availed as Revenue Shortfall Loan.In order
to get the loan under such circumstances the Concessionaire should
submit a detailed account of event and its impact on total
revenues, as soon as possible. Within 15 days of close of
accounting year in which the shortfall is observed, the
Concessionaire shall provide a certificate from the Statutory
Auditors certifying Subsistence Revenue Level, Realisable Fees and
the Revenue Shortfall requirement after deducting the reserves of
the Concessionaire.The Revenue Shortfall Loan and the interest
shall be repaid by the Concessionaire before termination of
Concession Period, in sum equal to 50% of net cash flow.Escrow
account:The Concessionaire should open an account within 30 days of
this agreement in which all the funds constituting the Financing
Package for meeting Total Cost shall be credited. MPRDC possess
rights to make deductions and appropriations from this
account.Escrow Account, during Concession period is funded by:
Deposits by GOI, MPRDC as grants/subsidy. Instalments of the loans
by lenders as performance disbursement schedule approved by
lenders. All fees, after incomes and receivables. All termination
payments. All proceeds received from insurance claims.
Insurance:Insurance during the construction period:Insurance
under construction period may sum up to a maximum in accordance
with financing documents, applicable laws. Such insurance covers
the entire cost of the [project as per MPRDC.Insurance during Toll
Period:Not later than 4 months prior to the anticipated completion
of the project Highway, the Concessionaire should obtain and
maintain no cost to MPRDC during Toll Period in respect of the
project highway and the usage of the insurance lies in Financing
Documents, Applicable Laws.Accounts and audit:The Concessionaire
shall maintain full accounts of all fees including Realisable fees
and other revenues collected by it from and on account of use of
the Project Highway and of the O&M Expenses and other costs
paid out of the Escrow Account and shall provide copies of the said
accounts duly audited and certified by the Concessionaires Auditors
within 180 days of the close of each Accounting Year to which they
pertain during subsistence of this agreement.Force Majeure:A Force
Majeure event shall mean occurrence in India of any or all of Non
Political Event, Indirect Political Event as defined in the clauses
respectively in the report which prevent the Party claiming Force
Majeure (the Affected Party) from performing its obligations under
this agreement and which act or event is:(i) Beyond the reasonable
control and not arising out of the fault of the affected party,(ii)
The Affected Party has been unable to overcome such act or event by
the exercise of due diligence and reasonable efforts, skill and
care, including through expenditure of reasonable sums of money,
and(iii) Has a Material Adverse Effect on the Project.The clauses
pertaining to Effect of Force Majeure Event after Financial
Closure, Allocation of Costs during subsistence of Force Majeure
and conditions for termination of the agreement .It is also stated
that upon termination of the agreement by MPRDC on account of Force
Majeure Event, shall if it deems fit, subject to the rights of the
lenders under the substitution agreement, substitute another
concessionaire to take over the debts and subordinate debts of the
Project and maintain the facilities for the balance concession
period.Suspension and Termination:The clauses relating to the
following categories are discussed under this chapter:a) Material
Breach and Suspension - If the concessionaire shall be in the
material breach of this agreement, MPRDC shall be entitled to its
other rights and remedies under this agreement, including its right
of termination hereunder, to suspend all or any of the rights of
the concessionaire under this agreement including the
concessionaires right to collect and appropriate all Fees and other
revenues from the Project Highway and exercise the rights of the
concessionaire under this agreement itself or any other person to
exercise the same during such suspension.b) Compensation for Breach
of Agreement The clause lays down the terms of compensation both
for MPRDC as well as the Concessionaire in case of breach of
agreement by any or both parties.c) Termination It is divided into
the following sub-clauses: Termination for the Concessionaire event
of default Termination for MPRDC event of default Other rights and
obligations of the MPRDC
Liability and indemnity:The concessionaire shall be entirely
responsible for and bear the cost of and shall indemnify, hold
MPRDC not liable and defend all proceedings, actions, and third
party claims for loss, damage and expense arising out of the
design, engineering, construction, procurement, operation, and
maintenance of the Project Highway.The concessionaire shall fully
indemnify, defend, hold MPRDC not liable including its officers,
servants agents and subsidiaries, from and against any loss and
damages arising out of or with respect to (a) failure of the
concessionaire to comply with applicable laws and applicable
permits, (b) payment of taxes or (c) non-payment of amounts due as
a result of materials or services furnished to the
concessionaire.In defence of their claim, the Indemnified Party
shall have the right, but not the obligation, to contest, defend
and litigate any claim, action, suit or proceeding by any third
party alleged or asserted against such party in respect of,
resulting from, related to or arising out of any matter for which
it is entitled to be indemnified and their reasonable costs and
expenses shall be indemnified by the Indemnified Party.Dispute
Resolution:In case of dispute, difference or controversy in
relation to the agreement between the parties, the dispute shall be
resolved amicably in accordance with the conciliation procedure.
The parties may call upon an independent consultant and arrive at a
settlement and failing this either party may refer to the Steering
Group constituted by MPRDC and the chairman of the Board or
directors of the concessionaire and a representative of GoMP. If
the dispute is still not resolved then it shall be finally decided
by reference to Arbitration by a Board of Arbitrators. The decision
relating to any dispute shall be final and binding on the parties
as from the date they are made.The concessionaire shall make
available for inspection during normal business hours on all
working days copies of all records and reports to MPRDC a and when
required.Redressal of public grievances:The concessionaire shall
maintain a public relations office adjacent to each Toll Plaza and
keep it open to public access. It should maintain a
register/suggestion box for complaints/suggestions. The complaint
shall also be numbered with date and complaint number so that it
may be referred for future correspondence. The action taken by the
concessionaire should be noted and a reply should be send to the
complainant. After each month, the concessionaire shall send to
MPRDC a photocopy of the Complaints Register.Miscellaneous:i. Video
recordingThe concessionaire shall provide a video recording with
date and time to MPRDC every quarter, covering the construction of
the Project Highway in that quarter. During the toll period the
concessionaire shall prepare the video recording once in a calendar
year.ii. SurvivalTermination of the agreement shall not relieve the
concessionaire or MPRDC of any obligations which expressly or by
implication survives termination and it shall not relieve either
party of any obligations or liabilities for loss or damage to the
other Party arising out of such termination.iii. NoticesAny notice
or other communication between parties shall be done by a letter
delivered by hand to the address of the person in charge in the
case of the concessionaire whereas in the case of MPDRC, the letter
delivered by hand shall be addressed to the chairman, MPRDC. The
copies of all notices should be sent by facsimile and shall also be
sent to the MPRDC representative.iv. Advertisement on siteThe
concessionaire shall not undertake or permit any form of commercial
advertising, display or hoarding at any place if such advertising
shall be visible to the users while driving on highway thus
distracting them. This restriction shall not apply to the toll
plaza, rest areas, bus shelters and telephone booths located on the
project highway if the advertisement does not distract the users.v.
SeverabilityIf for any reason, any provision of this agreement is
or becomes invalid, illegal or unenforceable or is declared by any
court as same then the validity, legality or enforceability of the
remaining provisions shall not be affected in any manner, and the
parties will negotiate with a view to agreeing one or more
provisions which may be substituted for such invalid, unenforceable
or illegal provisions.vi. No partnershipNothing contained in this
agreement shall be construed or interpreted as constituting a
partnership between the parties. Neither party shall have any
authority to bind the other in any manner whatsoever.vii.
languageAll notices required to be given by one party to the other
party and all other communications, documentation and proceedings
which are in any way relevant to this agreement shall be in writing
and in English language.
3.3SWOT Analysis:From the point of view of Public Private
Partnership in Highway projects, this project is one of the bricks
in the building of mutual participation of Government and Private
Sectors to achieve developmental goals which are beneficial for
them as well as the general public. To analyse the pros and cons of
the project under PPP, SWOT Analysis of the Bhopal-Dewas corridor
(built on BOT-basis) as under.
Strength: Involvement of the Private sector leads to greater
efficiency, this can be seen from the fact that the concession
agreement for the project is signed on June 30, 2007, the
construction started on January 1, 2008 and it was completed on
December 31, 2009. That means, approximately 0.2 KM of road was
constructed per day. Since the corridor is under the control of
concessionaire for the next 30 years, hence the responsibility of
its operation and maintenance is only of the concessionaire and the
government is exempted from the burden of extra staff and machinery
required for the same. The initial grant given by the government to
the concessionaire provided a boost to the morale of the
concessionaire and also made him more responsible for the
project.
Weakness: The Concessionaire is a consortium of 4 companies and
theres a huge susceptibility to mutual contention. A sudden
increment in traffic inflow rate will tremendously benefit the
private entity and adversely affect the public partner. Lack of
proper legal framework and institutionalized standard approach.
Opportunities: The successful completion of the project shall
ensure many more such endeavours in the future. Highway development
projects in India require a huge investment of 6 lakh crores INR.
Successful projects like these are necessary to attract the much
needed investment. The gap between inception and implementation of
public services is finally bridged by the tool of PPP.
Threats: Lack of cohesive approach at government level owing to
lot of red-tapism etc. in the government machinery. Corruption in
the form of extortion and other such illegitimate actions may creep
in the system in the long run. The possibility of the formation of
any type of nexus between contracting parties and political agents
will lead to loss of faith in the PPP and prove detrimental to its
true character.
Chapter 4. ConclusionsThe Methodology of Public Private
Partnership in highways is based on capitalizing the private
sectors strength and minimising shortcomings of public sector in
the execution of work.PPP enhances efficiency of work to a higher
limit. Certain minimum standards and norms have been setup by the
agency which is being updated from time to time to meliorate the
level of work. Likewise coin, PPP has its own pros and cons. One of
the pros is the low risk involvement on part of public sector but
it is opposite in case of private sector. As work is performed by
private sector and the sole responsibility from the beginning to
completion of project is shared by one party or a group of
companies, the execution is better as compared to that performed by
public sector, because there is involvement of money of individuals
in the project.In concise notes all the menaces are put in the sack
of private sector and all the credits are credited to public
sector. But the success from the principle of PPP is creditable as
outcomes of result are far better. As per records available not
only to the quality of the pavements have improved drastically, but
the life-span or so called the service period of highways has also
increased considerably. Even though, the pros of PPP in highways
outweighs its cons but still the shortcomings should be notified
and the rectification of the same will surely further enhance the
efficiency of PPP projects. The interest of private sector is
certainly a vital component in successful execution of PPP
projects. This interest has been given a boost in terms of perks
awarded to agencies showing interest as well as participation in
the PPP projects. Policies of PPP accounts for contents ranging
from every minute detail to completion of all the vital steps in
execution in maintenance part of project. All the inadequacies have
been set aside in the formulation of PPP policies. There has been
conceptualisation of tender policy, operation, maintenance and
finally transfer of assets to the government. Various authorities
are appointed for inspection and audits to the work place for
testing the execution of work and justifying whether norms and
standards have been enforced or not.Among the shortcomings, very
few aspects have come into notice. The entailment of such strict
provisions may create a setback and exasperation in the mind of
private sector, in case better prospects are available to them at
other places. Also the exaltation to the developers must be given a
hike in terms of better facilities to them.After scrutinising the
details of PPP, it can be concluded that PPP is a powerful tool in
approaching future and can serve better among all the available
methodologies. But at the end, its ones wit which certainly serves
a final decision making about any and every available scheme.4.
Chapter 5. References1. The world bank, report on India :
Building capacities for Public- Private Partnership, Energy and
Infrastructure Unit and Finance and Private Sector Development
Unit, South Asia region, June 2006, p. 13.
2. Savas E.S., Privatisation and Public - Private Partnerships,
Affiliated- east west press. Pvt. Ltd., New Delhi, 2001.
3. Noorjahan Bava. Public Interest and Public Policy, in R.B
Jain, (Ed.), public services in a democratic context, New Delhi,
Indian Institute of Public Administration, 1983, pp. 166-178.
4. India: Addressing Constraints to Infrastructure Financing
(Washington DC), World Bank. 2005.
5. Dissertation on "Financing of National Highways in India by
A. P. Bahadur, Chief Engineer, Department of Road Transport and
Highways, Ministry of Shipping, Road Transport & Highways.
6. R. Thandvan and Kalaichdvi Sivaraman Public- Private
Partnership within Policy Framework, the Indian journal of public
administration, Vol. LIV, No. 1, January-March, 2008, p. 21.
7. Presentation on Public - Private Partnerships in Highway,
Punjab, India by Kulvinder Singh Rao, Deputy Project director,
Punjab roads & Bridges development Board.
8. Guidelines for Investment in Road Sector Government of India
Ministry of Road Transport and Highways.
9. Dissertation on Global Experiences of Public Private
Partnership for Highway Development by Shunso Tsukada.
10. Report on "Technical Assistance To The Democratic Socialist
Republic Of Sri Lanka For Preparing A Public-Private Partnership
Expressway Project, September 2003 by L. Weidner, private sector
development specialist, South Asia Transport and Communications
Division (project team leader); S.W Handayani; and D. Utami.
11. PPP Toolkit for "Public Private Partnership in India" by
Ministry of Finance, Government of India. Source website :
http://www.pppinindia.com/
12. Department of Road Transport and Highways, Ministry of
Shipping, Road Transport and Highways (http://morth.nic.in),
National Highways Authority of India (http://www.nhai.org)
13. CDDRL Working Papers on "Distribution of Highways Public
Private Partnerships in India: Key Legal and Economic Determinants"
September 2009, TCA Anant & Ram Singh, Delhi School of
Economics, University of Delhi, source website:
http://cddrl.stanford.edu.
14. Workshop Report, December 2006 on "Facilitating
PublicPrivate Partnership for Accelerated Infrastructure
Development in India, Regional Workshops of Chief Secretaries on
PublicPrivate Partnership, Department of Economic Affairs (DEA)
& Ministry of Finance, Government of India.
15. Journal on Partnerships for Urban Infrastructure Development
in Delhi, Ashok Kumar (2003), ITPI Journal, Vol. 20.4, No.
2645.