Minor project Reporton“ A Study on Public Private Partnership in Highway Projects”Submitted by Mayank Sarkar 081111020 Arnav Kr. Guha 081111064 Avinash Damera 081111067 Kamlesh Gupta 081111068 Sumit Bhadoriya 081111070 Saket Rusia 081111072 Prateek Dwivedi 081111081 Gaurav Singh Chauhan 081111085 Rajesh Kumar 081111098 Under the Guidance ofProf. Siddhartha Rokade Assistant Professor Department Of Civil Engineering Maulana Azad National Institute of Technology Bhopal (M.P.)-462051May 2011
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Any 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, ourmentor 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 Department’s
faculties for being kind to me and raising a helping hand in all perspectives as and when
needed.
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Public–Private Partnership describes a government service or private businessventure 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
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 orgovernment 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,
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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 theusers 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.
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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 company’s) own fund. In this type of
arrangement, the private entity pays a lease rental to the government, and isentitled 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 :
o In a BOT (Toll) Model, the concessionaire (private sector) is required to
meet the upfront/construction cost and the expenditure on annual
maintenance.
o The Concessionaire recovers the entire upfront/construction cost along
with the interest and a return on investment out of the future toll
collection.
o 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:
o 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
o The Concessionaire recovers the entire investment and a pre-determined
cost of return out of the annuities payable by the client every year.
o The selection is made based on the least annuity quoted by the bidders
(the concession period being fixed).
o 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.
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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 thepassenger 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
o Developing 1000 km of expressways
o Developing 8,737 km of roads, including 3,846 km of national highways, in the North
East
o Four-laning 20, 000 km of national highways
o Four-laning 6,736 km on North-South and East-West corridors
o Six-laning 6,500 km of the Golden Quadrilateral and selected national highways
o Widening 20,000 km of national highways to two lanes
1.2.3 Approach
o 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
o 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
o BOT contracts permit tolling on those stretches of the NHDP
o 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
o 100% FDI under the automatic route is permitted for all road development projects
o 100% income tax exemption for a period of 10 years
o Grants / Viability gap Funding for marginal projects by NHAI.
o Formulation of Model Concession Agreement
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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, privatehealth 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 routedthrough 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. Theprivate sector can choose the project. The projects when implemented would help the
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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 thinkingsuggests 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
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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 nationalhighway 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
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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 andhas 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
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 linedepartments 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
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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 responsiblefor 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
nation’s development above our own. There is lots of work still to be done.
S. Vasudevan (2003) emphasizes on the infrastructure policy of Karnataka for public–
private 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
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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 beexecuted 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.
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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 ADB’s 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
sector’s 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 finance 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 maincost 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
difficulties associated with highway development:
o Risks associated with land acquisition and construction.
o Lumpy initial capital investments and the resultant long gestation period.
o Difficulties in traffic forecast and associated uncertainties in future revenue flow.
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The strongest benefit 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 experiencedbidders 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 specific 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.
o 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 findings provide a clear justification for the GOI to move to BOT-PPP
schemes, away from the traditional item rate contracts using public sector financing.
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 benefits to the communities through innovation.
On the financial status of the PPP associated projects author has described both
finance schemes viz, corporate finance scheme and project finance. Corporate finance is
a traditional way of financing investment is under which sponsors will borrow the
money from banks by offering the creditworthiness of the sponsoring companies as a
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A 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 Corridor
3.1 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 entirelength of 142.60 km consists of following sections:
i. Bhopal-Sehore existing four lane section (km 6/8 to 26/4) = 19.6 km
ii. Existing Sehore Bypass two lane section (ch 0.0 to 16+100) = 16.1 km
iii. Existing two lane road from end of Sehore bypass to Dewas Bypass junction (ch.
16+100 to ch. 123+100) = 106.9 km
Under the proposal, Bhopal – Sehore existing four lane section is proposed to be
strengthened and raised. The existing carriageway is proposed to be widened from 2lanes 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.
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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 includesM/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; or
c. 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 site
2. Investigation of site in detail as per scope of work
3. Managing toll after completion of construction work
4. Bear and pay all costs, expenses and charges in connection with the performance
of the obligations
Conditions 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 Concessionaire
2. Procure approval of Railway authorities to build bridges etc. over existing tracks
3. Procure all applicable permits relating to environment
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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. agencies
2. Notify MPRDC forthwith the occurrence of Financial Closure
3. Submit true copies of all agreements and drafts of all amendments
4. Not to permit any change in ownership
5. Take prior consent for making changes
6. Give prior notice to MPRDC for any alterations
7. Clear the working area of machinery, debris etc. when work is done there
8. Procure required rights and licenses
9. Ensure smooth running of project including proper safety
The 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 site
2. Permit its peaceful use
3. Provide reasonable support and assistance to Concessionaire
There 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
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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:
o Deposits by GOI, MPRDC as grants/subsidy.
o Instalments of the loans by lenders as performance disbursement schedule
approved by lenders.
o All fees, after incomes and receivables.
o All termination payments.
o All proceeds received from insurance claims.
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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 theirreasonable 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 recording
The 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.
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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 PrivateSectors 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:
o 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.
o 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.
o 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:
o The Concessionaire is a consortium of 4 companies and there’s a huge susceptibility
to mutual contention.
o A sudden increment in traffic inflow rate will tremendously benefit the private
entity and adversely affect the public partner.
o Lack of proper legal framework and institutionalized standard approach.
Opportunities:
o The successful completion of the project shall ensure many more such endeavours in
the future.
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The Methodology of Public Private Partnership in highways is based on capitalizing the
private sector’s 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 isinvolvement 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 therectification 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 beenconceptualisation 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 theexaltation to the developers must be given a hike in terms of better facilities to them.
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