PRESENTATION ON PUBLIC PRIVATE PARTNERSHIP (PPP) IN NATIONAL HIGHWAYS BySECRETARY, DEPARTMENT OF ROAD TRANSPORT & HIGHWAYS GOVT. OF INDIA Conference of.

PRESENTATION ON PUBLIC PRIVATE PRESENTATION ON PUBLIC PRIVATE PARTNERSHIP (PPP) IN NATIONAL HIGHWAYSPARTNERSHIP (PPP) IN NATIONAL HIGHWAYS

By By

SECRETARY, SECRETARY,

DEPARTMENT OF ROAD TRANSPORT & HIGHWAYSDEPARTMENT OF ROAD TRANSPORT & HIGHWAYS

GOVT. OF INDIAGOVT. OF INDIA

Conference of Chief Secretaries on PPP in Infrastructure Conference of Chief Secretaries on PPP in Infrastructure

2020thth May, 2006 May, 2006

EXISTING ROAD NETWORK IN INDIAEXISTING ROAD NETWORK IN INDIA

Road CategoryRoad Category Length Length PercentagePercentage

(km)(km) (%) (%)

ExpresswaysExpressways 200200 - -

National Highways (NHs) National Highways (NHs) 65,600 65,600 2% 2%

State Highways (SHs)State Highways (SHs) 1,37,700 1,37,700 4% 4%

Major& other District Roads Major& other District Roads 7,25,4257,25,425 21% 21%

(MDRs/ODRs)(MDRs/ODRs)

Rural & other RoadsRural & other Roads 24,62,100 24,62,100 73% 73%

TOTAL 33,91,025 100%

Roads carry 85% of passengers & 61% of freight traffic Less than 2 % length of NHs but carry 40% of traffic

Major Initiatives for Highways Major Initiatives for Highways DevelopmentDevelopment

CRF revamped to create dedicated CRF revamped to create dedicated fund fund

National Highways Authority of India National Highways Authority of India (NHAI) created and made functional(NHAI) created and made functional

National Highways Development National Highways Development Project (NHDP) launched Project (NHDP) launched

Requisite legislative and legal Requisite legislative and legal provisions made for facilitating PPP in provisions made for facilitating PPP in road sectorroad sector

NHDP Phases I,II,IIINHDP Phases I,II,III PhasePhase Approved CostApproved Cost

NHDP – INHDP – I Cess and Market borrowings : 18,846 (US$ 4.18 b)Cess and Market borrowings : 18,846 (US$ 4.18 b)External Assistance : 7,862 (US$ 1.74 b)External Assistance : 7,862 (US$ 1.74 b)BOT/ SPV : 3,592 (US$ 0.79 b)BOT/ SPV : 3,592 (US$ 0.79 b)

30,30030,300[1999 Prices][1999 Prices](US$ 6.73 b)(US$ 6.73 b)

NHDP – IINHDP – II Cess and Market borrowings : 23,420 (US$ 5.20 b)Cess and Market borrowings : 23,420 (US$ 5.20 b)External Assistance : 7,609 US$ 1.69 b)External Assistance : 7,609 US$ 1.69 b)BOT/ SPV : 3,310 (US$ 0.73 b)BOT/ SPV : 3,310 (US$ 0.73 b)

34,33934,339[2002 Prices][2002 Prices](US$ 7.63 b)(US$ 7.63 b)

NHDP – IIINHDP – III BOT : 22,000 (US$ 4.88 b)BOT : 22,000 (US$ 4.88 b) 22,00022,000 [2004 Prices][2004 Prices]

(US$ 4.88 b)(US$ 4.88 b)

TotalTotal Cess and Market borrowings : 42,266 (US$ 9.39 Cess and Market borrowings : 42,266 (US$ 9.39 b)b)

External Assistance : 15,471 (US$ 3.43 External Assistance : 15,471 (US$ 3.43 b)b)

BOT/ SPV : 28,902 (US$ 6.42 BOT/ SPV : 28,902 (US$ 6.42 b)b)

86,639 86,639 (US$ 19.25 b)(US$ 19.25 b)

Future Phases for NHDPFuture Phases for NHDP

Programme Programme Estimate Estimate

(Rs. crore)(Rs. crore)

Balance work of GQ and NS-EW corridors (NHDP Phase-I & II) – 8774 km Balance work of GQ and NS-EW corridors (NHDP Phase-I & II) – 8774 km 52,44352,443

Upgradation of 10,000 km of NHs (NHDP Phase-III) on BOT (Toll)Upgradation of 10,000 km of NHs (NHDP Phase-III) on BOT (Toll) 65,19765,197

Upgradation of 20,000 km of NHs to 2-lane with paved shoulders (NHDP Upgradation of 20,000 km of NHs to 2-lane with paved shoulders (NHDP Phase-IV) on BOT (Annuity)Phase-IV) on BOT (Annuity)

27,80027,800

6-laning of selected stretches [6500 km] (NHDP Phase-V) on BOT (Toll)6-laning of selected stretches [6500 km] (NHDP Phase-V) on BOT (Toll) 41,20041,200

Development of 1,000 km Expressways (NHDP Phase-VI) on BOT (Toll)Development of 1,000 km Expressways (NHDP Phase-VI) on BOT (Toll) 16,68016,680

Construction of Ring Roads, Bypasses, Grade Separators, Service Roads Construction of Ring Roads, Bypasses, Grade Separators, Service Roads etc. (NHDP Phase-VII) on BOTetc. (NHDP Phase-VII) on BOT

16,68016,680

TotalTotal 2,20,0002,20,000

Mostly through Public Private PartnershipMostly through Public Private Partnership

ROAD PROJECT FINANCINGROAD PROJECT FINANCING

• BudgetBudget• NormalNormal• Dedicated Fund (Cess on Petrol/Diesel)Dedicated Fund (Cess on Petrol/Diesel)

• Lending from International InstitutionsLending from International Institutions• World BankWorld Bank• ADBADB• JBICJBIC

• Public Private PartnershipPublic Private Partnership• BOT (Toll) BOT (Toll) • BOT (Annuity)BOT (Annuity)

SPV with equity from NHAISPV with equity from NHAI

Market BorrowingsMarket Borrowings

INCENTIVES FOR PRIVATE SECTOR INCENTIVES FOR PRIVATE SECTOR PARTICIPATIONPARTICIPATION

• Road Sector has been declared as an Industry.Road Sector has been declared as an Industry.

• 100% tax exemption in any consecutive 10 years out of 20 years.100% tax exemption in any consecutive 10 years out of 20 years.

• Foreign Direct Investment (FDI) up to 100%.Foreign Direct Investment (FDI) up to 100%.

• Provision of Capital Subsidy up to 40% of the project cost to make projects Provision of Capital Subsidy up to 40% of the project cost to make projects

viable.viable.

• Provision of encumbrance free site for work, i.e. Government bears expenses Provision of encumbrance free site for work, i.e. Government bears expenses

for land and pre-construction activities.for land and pre-construction activities.

• Easier external commercial borrowing normsEasier external commercial borrowing norms

• Exemption of Capital gains tax for the bonds issued by NHAI. Exemption of Capital gains tax for the bonds issued by NHAI.

• Duty free import of high capacity and modern construction equipments.Duty free import of high capacity and modern construction equipments.

• NHAI Equity upto 30%.NHAI Equity upto 30%.

Potential Advantages to the Government Potential Advantages to the Government in PPPin PPP

• Encourage private investment in the infrastructure sector. Encourage private investment in the infrastructure sector. • Reducing public direct spending.Reducing public direct spending.

• Public budget could be used in other priority areas and projects, such as Public budget could be used in other priority areas and projects, such as education and social programmes.education and social programmes.

• Risks are allocated to the party, which is best suited to handle it.Risks are allocated to the party, which is best suited to handle it.

• Introduce innovation and increased efficiency from the private sector.Introduce innovation and increased efficiency from the private sector.

• Involvement of experienced and creditworthy sponsors and commercial lenders, Involvement of experienced and creditworthy sponsors and commercial lenders, guaranteeing project viability. guaranteeing project viability.

• Tapping of advanced technologies and expertise with possible capacity building Tapping of advanced technologies and expertise with possible capacity building of contractors and consultancy firms. of contractors and consultancy firms.

• Development of local capital market.Development of local capital market.

• Right sizing of public institutions. Right sizing of public institutions.

• Better road services to users and early delivery. Better road services to users and early delivery.

BOT (Toll) ProjectsBOT (Toll) Projects

• Concessionaire’s Responsibilities: Concessionaire’s Responsibilities:

•DBFO (Design, Engineering, Financing, Procurement, Construction, DBFO (Design, Engineering, Financing, Procurement, Construction,

Operation & Maintenance) Operation & Maintenance)

Concessionaires rights Concessionaires rights

Demand, collect and appropriate the users fees (toll) Demand, collect and appropriate the users fees (toll)

Concessionaire’s Risk: Concessionaire’s Risk:

Financing, Construction, Partial Traffic Risk, Operation & Maintenance. Financing, Construction, Partial Traffic Risk, Operation & Maintenance.

BOT (Annuity) Project

Concessionaire’s Responsibilities :Design, Engineering, Financing Procurement, construction and Maintenance

Concessionaire’s Risk : Financing, Construction and Maintenance (No Traffic risk)

Award Criteria:Minimum Annuity Payment over Fixed Period.

SummarySummary of BOT Toll based of BOT Toll based ProjectsProjects

CategoryCategory Under Under ImplementationImplementation

Total Total ProjecProjec

t t Cost Cost (Rs. (Rs. crore)crore)

[US$ b][US$ b]

GrantGrant (Rs. (Rs. crore)crore)

[US$ b][US$ b]

CompletedCompleted

No of No of ContractContract

ss

Length Length (in km)(in km)

No of No of ContractsContracts

LengthLength( in km)( in km)

NHDP Phase NHDP Phase II

99 464464 34433443[0.76][0.76]

718.99718.99[0.15][0.15]

(20.88%)(20.88%)

66 287287

NHDP Phase NHDP Phase IIII

1616 812.86812.86 5371.065371.06[1.19][1.19]

-103.38-103.38[-0.02][-0.02]

(-1.92%)(-1.92%)

-- --

NHDP Phase NHDP Phase IIIIII

1717 10901090 57525752[1.27][1.27]

491.91491.91[0.10][0.10]

(8.55%)(8.55%)

11 3030

TotalTotal 4242 2356.862356.86 14566.0614566.06[3.23][3.23]

1107.611107.61[0.24][0.24](7.6%)(7.6%)

77 317317Though allowed upto 40% the overall grant was 7.6%

Summary of BOT (Annuity) based Summary of BOT (Annuity) based ProjectsProjects

CategoryCategory AwardedAwarded Total Total ProjeProje

ct ct Cost Cost (Rs. (Rs. crore)crore)

[US$ b][US$ b]

AnnuityAnnuity(Rs. (Rs. crore)crore)

[US$ b][US$ b]

CompletedCompleted

No of No of ContractsContracts

LengtLength h

(in (in kmkm))

No. of No. of ContractsContracts

LengthLength( in km)( in km)

NHDP Phase INHDP Phase I 88 476476 23542354[0.54][0.54]

28882888[0.64][0.64]

(12.23%)(12.23%)

88 476476

NHDP Phase IINHDP Phase II 44 299299 21212121[0.47][0.47]

199199[0.04][0.04]

(9.38%)(9.38%)

-- --

TotalTotal 1212 775775 44754475[0.99][0.99]

487487[0.97][0.97]

(10.88%)(10.88%)

88 476476

HIGHLIGHTS OF NEW MCA

Partial guarantee of traffic risk to the Concessionaire. Concessionaire’s interest protected in competing roads. Performance standards of the highways clearly spelt out. Provision for change in scope, if any, required during

construction and operation period included. Utilities to be relocated by the Concessionaire but it will be

excused from failure in case of delay by owning agencies. Focus on road User’s safety Users fee charges, revision thereof and concession to local

traffic clearly spelt out. NHAI has to provide land free from all encumbrances. NHAI to

bear cost of all pre-construction activities. Risks are allocated to the party, which is best suited to

handle it.

Contd…

HIGHLIGHTS OF NEW MCA (contd.)

Lowest subsidy/grant quoted by the bidders towards viability gap funding or earliest premium quoted by the bidder is the basis for award.

Force Majeure conditions and relief to the party under such conditions clearly spelt out.

Strong dispute resolution mechanisms. BOT bids are invited for 6 lane with 20 years

concession period. However, exist option exists for Concessionaire and the NHAI after 8 years if not interested for 6 laning. In such case, concession shall be terminated after four laning with 12 years concession period.

State Support AgreementState Support Agreement

Provide applicable permits to the ConcessionaireProvide applicable permits to the Concessionaire Assist access to infrastructure facilities and Assist access to infrastructure facilities and

utilitiesutilities Erect no barriers to interrupt free flow of trafficErect no barriers to interrupt free flow of traffic Assist in regulation of trafficAssist in regulation of traffic Police assistance in the form of Highways Petrol Police assistance in the form of Highways Petrol

PartiesParties Not to undertake any act which violatesNot to undertake any act which violates State to pay claims on any breachState to pay claims on any breach No competing facility within 8 yearsNo competing facility within 8 years

Institutional Strengthening COI headed by PM. COS to resolve inter-ministerial issues and problems. Restructuring of NHAI to be a multidisciplinary body.

Planning, standardization and quality assurance

(PSC) cell Project appraisal Group/cell headed by Financial

Analyst, and supported by Transport Economist, Transport Planner.

Human Resource (HR) cell Monitoring cell Sensitization to PPP

Role of State Govt. in National

Highways BOT Project State Support Agreement - - Pre-requisite for success of

PPP

Land Acquisition Utility Shifting – Speedy action Forest Clearance NOC from State Pollution Control Board Development of 2-lane Highways and levy of user

fee

Infrastructure Improvement

Infrastructure Improvement

Jaipur- Kishangarh – Service RoadJaipur- Kishangarh – Service Road

Thank You Thank You