ACKNOWLEDGEMENT VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR Prithviraj Gohil (2405) B.Tech (Civil Construction), CEPT University ACKNOWLEDGEMENT First and foremost I offer my sincerest gratitude to my supervisor, Mr. Sagar Deshmukh, who has supported me throughout my thesis with his patience and knowledge whilst allowing me the room to work in my own way. Without him this thesis would not have been completed or written. One simply could not wish for a better or friendlier supervisor. Then I offer my gratitude to Prof. C. B. Shah, Chairman of the Thesis Committee, School of Building Science and Technology, CEPT University, for taking periodical reviews that helped me in finish my work at scheduled intervals. He has always enlightened my ways with his thoughtful and constructive comments in the reviews that helped me in focusing my vision and moving in the right direction. I would also like to thank Mr. S H. Vora (General Manager, L&T- ECC Division), Mr. M. Ramesh (Chief Project Officer, RJVRP) Mr. A Prajapati (Managing Director, GSRDC), other Engineers and Managers of L&T-ECC Division at Rajkot-Jamnagar-Vadinar Road Project for devoting special time to help develop this thesis. I would also like to take this opportunity to express my gratitude towards the School of Building Science and Technology which helped me over the years to develop myself as a person and made me capable enough of completing this thesis. Last but not the least, I am greatly thankful to my family for their faith in me, their support and many sacrifices made over the entire period of this thesis to help me complete my work without distraction. Prithviraj Gohil (2405) School of Building Science and Technology, CEPT University
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ACKNOWLEDGEMENT
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
Prithviraj Gohil (2405) B.Tech (Civil Construction), CEPT University
ACKNOWLEDGEMENT
First and foremost I offer my sincerest gratitude to my supervisor, Mr. Sagar Deshmukh, who has
supported me throughout my thesis with his patience and knowledge whilst allowing me the room to work in
my own way. Without him this thesis would not have been completed or written. One simply could not wish
for a better or friendlier supervisor.
Then I offer my gratitude to Prof. C. B. Shah, Chairman of the Thesis Committee, School of Building
Science and Technology, CEPT University, for taking periodical reviews that helped me in finish my work at
scheduled intervals. He has always enlightened my ways with his thoughtful and constructive comments in the
reviews that helped me in focusing my vision and moving in the right direction.
I would also like to thank Mr. S H. Vora (General Manager, L&T- ECC Division), Mr. M. Ramesh (Chief
Project Officer, RJVRP) Mr. A Prajapati (Managing Director, GSRDC), other Engineers and Managers of L&T-ECC
Division at Rajkot-Jamnagar-Vadinar Road Project for devoting special time to help develop this thesis.
I would also like to take this opportunity to express my gratitude towards the School of Building
Science and Technology which helped me over the years to develop myself as a person and made me capable
enough of completing this thesis.
Last but not the least, I am greatly thankful to my family for their faith in me, their support and many
sacrifices made over the entire period of this thesis to help me complete my work without distraction.
Prithviraj Gohil (2405)
School of Building Science and Technology,
CEPT University
ABSTRACT
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
Prithviraj Gohil (2405) B.Tech (Civil Construction), CEPT University
INDEX
CHAPTER - 1 INTRODUCTION PAGE NO.
1.1 INTRODUCTION 1
1.2 NEED FOR STUDY 3
1.3 OBJECTIVES 4
1.4 RESEARCH METHODOLOGY 4
1.3 SCOPE OF WORK 6
CHAPTER - 2 LITERATURE STUDY PAGE NO.
2.1 INTRODUCTION 7
2.2 PUBLIC PRIVATE PARTNERSHIP 8
2.3 BUILD OPERATE TRANSFER 12
2.4 VIABILITY GAP FUNDING 13
CHAPTER – 3 DATA COLLECTION PAGE NO.
3.1 INTRODUCTION 18
3.2 DATA COLLECTION METHODOLOGY 19
3.3 PROJECT DETAILS 20
3.4 LOCATION MAP 21
3.5 TRAFFIC DATA 22
3.6 PROJECT COSTS 29
CHAPTER – 4 DATA ANALYSIS PAGE NO.
4.1 INTRODUCTION 34
4.2 COST OF PROJECT 34
4.3 TRAFFIC FORCAST 42
4.4 REVENUE GENERATION (TOLL) 44
4.5 FINANCIAL ANALYSIS 46
CHAPTER – 5 CONCLUSION PAGE NO.
5.1 CONCLUSION OF STUDY 48
ABSTRACT
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
Prithviraj Gohil (2405) B.Tech (Civil Construction), CEPT University
CHAPTER – 6 FUTURE SCOPE PAGE NO.
6.1 FUTURE SCOPE OF STUDY 50
BIBLIOGRAPHY PAGE NO.
REFERENCES 51
ANNEXURES PAGE NO.
ANNEXURE – 1 52
ANNEXURE – 2 52
ANNEXURE – 3 52
ANNEXURE – 4 53
ANNEXURE – 5 53
ANNEXURE – 6 54
LIST OF TABLES PAGE NO.
1.1 ROAD LENGTH DATA 1
1.2 CHANGE IN TREND OF ROAD TRAFFIC 2
3.1 TRAFFIC SURVEY DETAIL 22
3.2 AVERAGE DAILY TRAFFIC VOLUME (ADT IN VEHICLES) 23
3.3 ANNUAL AVERAGE DAILY TRAFFIC VOLUME (AADT IN VEHICLES) 23
3.4 TRAFFIC CONSUMPTION 24
3.5 PEAK HOUR SHARE OF TRAFFIC 24
3.6 TRAFFIC VOLUME - SALIENT FEATURES 25
3.7 BREAKUP OF TRIPS – INTERNAL AND EXTERNAL TO GUJARAT 26
3.8 TREND BASED GROWTH RATES 29
3.9 UNIT RATE OF STRUCTURES 30
3.10 STRUCTURE DETAILS ON THE CORRIDOR 31
3.11 TOTAL CONSTRUCTION COST 32
3.12 TOTAL PROJECT COST 32
4.1 TOTAL CONSTRUCTION COST – SCENARIO 1 35
4.2 TOTAL PROJECT COST – SCENARIO 1 36
4.3 TOTAL CONSTRUCTION COST – SCENARIO 2 37
4.4 TOTAL PROJECT COST – SCENARIO 2 37
4.5 TOTAL CONSTRUCTION COST – SCENARIO 3 38
4.6 TOTAL PROJECT COST – SCENARIO 3 39
4.7 TOTAL CONSTRUCTION COST – SCENARIO 4 40
4.8 TOTAL PROJECT COST – SCENARIO 4 40
4.9 ANNUAL TRAFFIC FORCAST (RAJKOT TO JAMNAGAR BYPASS) 43
4.10 ANNUAL TRAFFIC FORCAST (JAMNAGAR BYPASS TO VADINAR) 43
ABSTRACT
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
Prithviraj Gohil (2405) B.Tech (Civil Construction), CEPT University
4.11 TOLL RATES 44
4.12 TOLL RATES/TRIP (RAJKOT TO JAMNAGAR BYPASS) 45
4.13 TOLL RATES/TRIP (JAMNAGAR BYPASS TO VADINAR) 45
4.14 FINANCIAL ANALYSIS 46
LIST OF FIGURES PAGE NO.
1.1 RESEARCH METHODOLOGY 5
2.1 EXISTING SCENARIO OF PPP IN VARIOUS SECTOR IN INDIA 11
3.1 DATA COLLECTION METHODOLOGY 19
3.2 LOCATION MAP OF CASE STUDY 21
3.3 R-J-V PASSENGER DESIRE LINE 27
3.4 R-J-V FREIGHT TRAFFIC DESIRE LINE 28
3.5 LOGISTIC MAP OF CORRIDOR 31
4.1 TRAFFIC COMPOSITION SURVEY 42
INTRODUCTION
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
Prithviraj Gohil (2405) Page 1 B.Tech (Civil Construction), CEPT University
1.1 INTRODUCTION
India has a road network of over 3.314 million kilometers (2.059 million miles) of roadway, making it
the third largest road network in the world behind Monaco and Macau only. At 0.66 km of highway per square
kilometer of land the density of India’s highway network is higher than that of the United States (0.65) and far
higher than that of China's (0.16). Historically, the funds set aside for the maintenance and expansion of the
road network have been insufficient, but major efforts are currently underway to modernize the country's
road infrastructure.
The road infrastructure breakup of India is as follows:
S.No. Catagory Length (in km)
1 National Highways/Expressways 66,754
2 State Highways 128,000
3 Major district roads 470,000
4 Rural & other roads 2,650,000
Total (approx) 3,314,754
Table 1.1: ROAD LENGTH DATA
About 65 per cent of freight and 86.7 per cent passenger traffic is carried by the roads. Although
National Highways constitute only about 2 per cent of the road network, it carries 40 per cent of the total road
traffic. The number of vehicles has been growing at an average pace of 13.10 percent per annum over the
years 1999-2000 to 2007-08, whereas the share of road in total traffic has grown from 13.8 per cent of freight
INTRODUCTION
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
Prithviraj Gohil (2405) Page 2 B.Tech (Civil Construction), CEPT University
traffic and 15.4 per cent of passenger traffic in 1950-51 to an estimated 65 per cent of freight traffic and 86.7
per cent of passenger traffic by the end of 2007-08.
Change in trend of traffic over the years is as follows:
Years Freight Traffic Passenger Traffic
1950-51 13.8 15.4
2007-08 65 86.7
Table 1.2 CHANGE IN TREND OF ROAD TRAFFIC
Today, advanced technology & mechanization has touched all the field of construction & has made
the construction process more complex & uncertain.
Therefore, Governments worldwide have shown increasing initiatives in private finance of public
infrastructure and services across a wide range of industries and sectors, including Power, Transportation,
Water supply and disposal, Telecommunications, Oil and Gas. Historically, investments in the infrastructure,
particularly in the highways, were being made by the government mainly due to the need of huge volume of
resources required, long gestation period, uncertain returns and various associated externalities. The galloping
resource requirements and the concern for managerial efficiency and consumer responsiveness have led in
recent times to an active involvement by the private sector also.
Roads and Highways are amongst one of the priority sectors. Governmental budgets are to deal with
number essentials along with infrastructure. Beyond this if one has to have accelerated growth of road
infrastructure Government funding alone is constrained. Private sector pitching in and providing momentum is
need of the time.
Since 1990s Government worldwide have resorted to such initiatives such as privatization of the
public assets, contracting out of services which were traditionally being provided by the public sector, or the
use of the private capital to build social infrastructure. Historically, road infrastructure has been provided by
the State. The enormous investment requirement, long gestation period and uncertainty of returns were
mainly responsible for the lack of interest by the private sector. The presence of significant externalities also
warranted the dominant role of the State in providing basic road infrastructure. In the allocation of budgetary
resources, therefore, the development of road infrastructure is still given priority. However, the resource
requirements for maintenance and expansion have far exceeded the capacity of the budget, making a strong
case for private sector participation. Resource constraints, however, are not the only reason for encouraging
private sector participation in the development of road infrastructure. A number of benefits accrue as a result
of private sector participation in the development of road infrastructure. The most palpable benefit is the
expansion of road network. In addition, private sector participation is expected to help upgrade the
technology, improve the quality and lower the costs.
As per the Database compiled by the Department of Economic Affairs, Ministry of Finance,
Government of India, there are 262 road projects in PPP mode - 82 road projects entailing collective project
INTRODUCTION
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
Prithviraj Gohil (2405) Page 3 B.Tech (Civil Construction), CEPT University
cost of Rs. 31,335 crore mostly contracted by NHAI (Centre) and 180 road projects entailing collective project
cost of Rs. 49,457 crore contracted by various State Governments as of July 2009.
PPP initiative in the Roads Sector has been largely on the BOT basis. The policy framework for toll-
based BOT projects was approved in 1997. Contracts based on BOT model are inherently considered superior
to the traditional Engineering Procurement and Construction (EPC) contracts as BOT projects ensure higher
quality of construction and maintenance of roads and completion of projects without cost and time overrun.
And after the concession period, which can range up to 30 years, road is to be transferred back to the
Government/public sector by the concessionaire.
Also, to attract the private sector to projects that are not commercially viable but considered
essential, the government has established a Viability Gap Funding (VGF) mechanism to provide a grant of up to
40% of the project cost.
Viability Gap Funding (VGF) Scheme addresses the following concerns:
• Address the issue of ‘affordability’ of user fee
• Leverage government grant to improve commercial viability of projects
• Promote user pay principle
• Ensure market based selection of promoter
• Promote concept of developer (in place of contractor) and address project life cycle costs
1.2 NEED FOR STUDY
This Scheme aims to ensure wide spread access to infrastructure provided through the PPP framework by
subsidizing the capital cost of their access. Meeting the funding gap to make economically essential projects
commercially viable would obviate the need for Government funding for such projects and allow private sector
participation in the projects, thus facilitating private sector efficiencies in infrastructure development.
This is a relatively new concept in PPP Projects and it addresses the following concerns connected to them:
• It addresses the issue of ‘affordability’ of user fee
• It leverages government grant to improve commercial viability of projects
• It ensures market based selection of promoter
• It promotes the concept of developer (in place of contractor) and addresses project life cycle costs.
INTRODUCTION
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
Prithviraj Gohil (2405) Page 4 B.Tech (Civil Construction), CEPT University
1.3 OBJECTIVES
• To find out the requirement of Viability Gap Funding Scheme in BOT Projects in Highway Sector.
• To establish the needs and/or advantages of VGF Scheme in PPP projects in highway sector in Gujarat.
• To prepare a hypothetical model using the Viability Gap Funding Scheme, over an existing, already
completed BOT Highway sector project, to justify the scheme.
1.4 RESEARCH METHODOLOGY
The research methodology includes the analytical research over primary as well as secondary data, where
Research mainly comprises of Literature Reviews from various national & international journals on highway
sector, presentations prepared by experts, various reports prepared by individuals, groups, committees and
organisations as well as certain reviews related to BOT highways projects. The data collection is done basically
from primary sources and few from secondary sources as well. The data obtained by case studies is also
analyzed to arrive at the quantitative values for justifying the above analysis.
As per the data collected, analysis is carried out on the probabilistic approach as well as by manual evaluation
of facts.
INTRODUCTION
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
Prithviraj Gohil (2405) Page 5 B.Tech (Civil Construction), CEPT University
Figure 1.1 RESEARCH METHODOLOGY
• MANUAL EVALUATION BY FACTS
• PROBABILISTIC APPROACH
DATA COLLECTION
DATA ANALYSIS
COMMENTS, SUGGESTIONS AND
CONCLUSION
• ORGANISATIONS CONNECTED WITH
THE ABOVE PROJECTS, CONSULTANTS,
AGENCIES, ETC.
• LARSON & TOUBRO – ECC DIVISION
• GUJARAT STATE ROAD DEVELOPMENT
CORPORATION (GSRDC)
• GUJARAT INFRASTRUCTURE
DEVELOPMENT BOARD (GIDB)
• END USERS
LITERATURE STUDIES
• NATIONAL AND INTERNATIONAL JOURNALS
• WEB SITES
• NEWSPAPERS
• PRESENTATIONS PREPARED BY EXPERTS
AND ORGANISATIONS
• REPORTS, THESIS’ ON SIMILAR TOPICS.
INTRODUCTION
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
Prithviraj Gohil (2405) Page 6 B.Tech (Civil Construction), CEPT University
1.5 SCOPE OF WORK
• Work Hypothesis
o I have defined the feasibility of VGF Scheme for State highway in Gujarat region.
o Case Study: ‘Rajkot-Jamnagar-Vadinar Road Project on SH-25 from Rajkot to Jamnagar’. And
‘Ahmedabad-Viramgam-Maliya Road Project on SH-7 and SH-17 from Ahmedabad to Maliya’.
The project details in conceiving, development and implementation stages, contract
conditions, relevant clauses, etc.
• Geographical
o Case Study of above mentioned projects.
LITERATURE REVIEW
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
Prithviraj Gohil (2405) Page 7 B. Tech (Civil Construction), CEPT University
2.1 INTRODUCTION
Government of India recognizes that there is significant deficit in the availability of physical
infrastructure across different sectors and that this is hindering economic development. The development of
infrastructure requires large investments that cannot be undertaken out of public financing alone, and that in
order to attract private capital as well as the techno-managerial efficiencies associated with it, the
Government is committed to promoting Public Private Partnerships (PPPs) in infrastructure development. The
Government of India recognizes that infrastructure projects may not always be financially viable because of
long gestation periods and limited financial returns, and that financial viability of such projects can be
improved through Government support. Therefore, the Government of India has decided to put into effect the
following scheme for providing financial support to bridge the viability gap of infrastructure projects
undertaken through Public Private Partnerships.
This scheme aims at supporting infrastructure projects that are economically justified but fall short of
financial viability. The lack of financial viability usually arises from long gestation periods and the inability to
increase user charges to commercial levels. Infrastructure projects also involve externalities that are not
adequately captured in direct financial returns to the project sponsor. Through the provision of a catalytic
grant assistance of up to 20% of the capital costs, several projects may become bankable and help mobilise the
much needed private capital and efficiencies. This scheme will be called the Scheme for Financial Support to
Public Private Partnerships (PPPs) in Infrastructure. It will be a Plan Scheme to be administered by the Ministry
of Finance. Suitable budgetary provisions will be made in the Annual Plans on a year-to-year basis.
LITERATURE REVIEW
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
Prithviraj Gohil (2405) Page 8 B. Tech (Civil Construction), CEPT University
2.2 PUBLIC PRIVATE PARTNERSHIP
o Understanding Public Private Partnership (PPP) Projects
It 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. PPP involves a contract between a public-sector authority and a private
party, in which the private party provides a public service or project and assumes substantial financial,
technical and operational risk in the project.
Definition by Department of Economic Affairs, Ministry of Finance, Government of India
“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.”
o Why we need to define PPPs?
• There is varying understanding amongst stakeholders as to what constitutes a Public Private
Partnership. There are views that a PPP is only when there is private investment, while others
contend that PPPs include all forms of interactions between the public sector and the private
sector, from consultations or policy dialogue and collaboration, to private provision of assets and
services.
• Definitions are also required to identify eligible projects or arrangements that could be
recipients of desired benefits or applicable procedures or treatment. For example, a project
when designated as a PPP, can access various modes of government support like viability gap
funding, project development funding etc. Further, some of the PPPs might involve contingent
liabilities for the sponsoring government, in various forms, such as, liabilities towards lenders in
case of contract termination or minimum revenue guarantees. The contingent liabilities require
the government to make requisite provisions in its budgets. The potential fiscal implication of
PPPs makes the parameters for its designation important.
LITERATURE REVIEW
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
Prithviraj Gohil (2405) Page 9 B. Tech (Civil Construction), CEPT University
• Furthermore, protection of user interests in PPPs and the need to secure value for public money,
demand a more rigorous treatment of such projects. The provision of the government support
also requires a higher public scrutiny of projects designated as PPPs.
• The specific requirements of the aspects mentioned above might require a different set of
projects to be designated as PPPs. For provision of government support to PPPs, the government
might give importance to requirements of private investment and user charges. On the other
hand, for approval of projects, the government would like to scrutinise even those projects
where private sector is engaged in providing a critical service to general public irrespective of
whether there is private investment or not.
• To cater to such different objectives and context, each competent government authority that
uses the PPP definition to designate projects as PPP would need to specify its own set of
essential conditions. Such conditions should be in addition to the common definition and should
be exclusively for a specific purpose like grant of VGF support, public scrutiny or provisioning of
contingent liabilities, etc.
o Why we need PPPs?
Development of infrastructure and provision of basis civic services has always been considered a very
important public sector activity for the following reasons:
• Governments have recognised the crucial role of infrastructure in fostering economic growth
and reducing poverty.
• Because of its ‘public good’ and ‘essential’ nature, Governments have attempted to ensure
availability of basic civic services irrespective of market conditions.
• For a number of economic, social and political reasons, private sector involvement in these
important areas was slow to develop and thus uneven.
• Provision of public services and infrastructure has traditionally been the exclusive domain of the
government. However, with increasing population pressures, urbanisation and other
developmental trends, government’s ability to adequately address the public needs through
traditional means has been severally constrained.
• This has led the Government’s across the world to increasingly look at the private sector to
supplement public investments and provide public services through Public Private Partnerships.
LITERATURE REVIEW
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Prithviraj Gohil (2405) Page 10 B. Tech (Civil Construction), CEPT University
o Salient features of PPP
• Arrangement with Private Sector Entity: The asset and/or service under an arrangement will be
provided by the Private Sector Entity1 to the public.
• Public asset or service for public benefit: Has the element of facilities/ services being provided
by the Government as a sovereign to its people. To better reflect this intent, two key concepts
are elaborated below:
� ‘Public Services’ are those services that the State is obligated to provide to its citizens
(towards meeting the socio-economic objectives) or where the State has traditionally
provided the services to its citizens. For example, provision of security, law and order,
electricity, water, etc. to the citizens.
� ‘Public Asset’ is that asset the use of which is inextricably linked to the delivery of a Public
Service. For example, public road which is linked to public transportation or those assets
that utilize or integrate sovereign assets to deliver Public Services. For example, right of
way on highways, shore-land of about 0.5 km abutting the ocean, or use of river / water
bodies, etc. Ownership by Government need not necessarily imply that it is a PPP. For
example, a captive jetty is not a PPP even though it uses a sovereign asset, while a common
user port is a PPP as in the latter case the service is provided for use by public.
• Investments being made by and/or management undertaken by the private sector entity: It
provides for both investment and non-investment PPPs, which is also the international practice.
By broad basing the definition, India will gain access to a plethora of PPPs that focus on
efficiency to deliver quality services to the public.
• Operations or management for a specified period: Provides an element of time period after
which the arrangement with the private sector entity comes to a closure. Hence, the
arrangement is not in perpetuity.
• Substantial risk sharing with the private sector: It is typically specified to differentiate PPPs
from mere outsourcing contracts. For example, a facility service contract is also an outcome
based reward contract but not a PPP.
• Performance linked payments: It is to provide central focus on performance and not merely
provision of facility or service. A mere deferred payment contract should not get qualified as a
PPP.
• Conformance to performance standards: It is to provide a strong element of service delivery
aspect and the concepts of quality and compliance to pre-determined and measurable standards
to be specified by the sponsoring authority.
LITERATURE REVIEW
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
Prithviraj Gohil (2405)
o Exclusions from PPP
• Any Engineering Procurement Construction (EPC) contract, whether payments are deferred or
on percentage completion of work or other terms, and where the management or operations
and maintenance of the asset is not retained by the private sector after three
completion of construction
• Any arrangement for supply of goods or services for a period of up to three years
• Any arrangement or contract that only provides for a hire or rent or lease of an asset without
any performance obligations and other es
Fig 2.1 EXISTING SCENARIO OF PPP PROJECTS IN VARIOUS SECTORS IN INDIA
o Eligibility of PPP Projects
In order to be eligible for funding under this Scheme, a PPP project shall meet the following criteria:
• The project shall be
operated for the Project Term by a Private Sector Company to be selected by the Government or
a statutory entity through a process of open competitive bidding, provided that in case of
railway projects that are not amenable to operation by a Private Sector Company, the
Empowered Committee may relax this eligibility criterion.
• The PPP Project should be from one of the following sectors:
� Roads and bridges, railways, seaports, airports, inland w
Airports
1%
Tourism
7%
Urban
Development
16%
Public Private Partnership Projects in various
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Page 11 B. Tech (Civil Construction), CEPT University
from PPP
Any Engineering Procurement Construction (EPC) contract, whether payments are deferred or
on percentage completion of work or other terms, and where the management or operations
and maintenance of the asset is not retained by the private sector after three
completion of construction
Any arrangement for supply of goods or services for a period of up to three years
Any arrangement or contract that only provides for a hire or rent or lease of an asset without
any performance obligations and other essential features of a PPP.
EXISTING SCENARIO OF PPP PROJECTS IN VARIOUS SECTORS IN INDIA
Eligibility of PPP Projects
In order to be eligible for funding under this Scheme, a PPP project shall meet the following criteria:
The project shall be implemented i.e. developed, financed, constructed, maintained and
operated for the Project Term by a Private Sector Company to be selected by the Government or
a statutory entity through a process of open competitive bidding, provided that in case of
ay projects that are not amenable to operation by a Private Sector Company, the
Empowered Committee may relax this eligibility criterion.
The PPP Project should be from one of the following sectors:
Roads and bridges, railways, seaports, airports, inland waterways
Airports Education
0% Energy
5%
Ports
10%
Railways
1%
Roads
60%
Urban
Development
16%
Public Private Partnership Projects in various
Sectors
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
B. Tech (Civil Construction), CEPT University
Any Engineering Procurement Construction (EPC) contract, whether payments are deferred or
on percentage completion of work or other terms, and where the management or operations
and maintenance of the asset is not retained by the private sector after three years from
Any arrangement for supply of goods or services for a period of up to three years
Any arrangement or contract that only provides for a hire or rent or lease of an asset without
EXISTING SCENARIO OF PPP PROJECTS IN VARIOUS SECTORS IN INDIA
In order to be eligible for funding under this Scheme, a PPP project shall meet the following criteria:
implemented i.e. developed, financed, constructed, maintained and
operated for the Project Term by a Private Sector Company to be selected by the Government or
a statutory entity through a process of open competitive bidding, provided that in case of
ay projects that are not amenable to operation by a Private Sector Company, the
aterways
Public Private Partnership Projects in various
Airports
Education
Energy
Ports
Railways
Roads
Tourism
Urban Development
LITERATURE REVIEW
VIABILITY GAP FUNDING FOR PUBLIC PRIVATE PARTNERSHIP PROJECTS IN BOT HIGHWAY SECTOR
Prithviraj Gohil (2405) Page 12 B. Tech (Civil Construction), CEPT University
� Power
� Urban transport, water supply, sewerage, solid waste management and other physical
infrastructure in urban areas
� Infrastructure projects in Special Economic Zones
� International convention centres and other tourism infrastructure projects
2.3 BUILD OPERATE TRANSFER
o Understanding the Build Operate Transfer (BOT) Projects
It is a form of project financing, wherein a private entity receives a concession from the private
or public sector to finance, design, construct, and operate a facility stated in the concession contract.
This enables the project proponent to recover its investment, operating and maintenance expenses in
the project. Due to the long-term nature of the arrangement, the fees are usually raised during the
concession period. The rate of increase is often tied to a combination of internal and external
variables, allowing the proponent to reach a satisfactory internal rate of return for its investment.
Traditionally, such projects provide for the infrastructure to be transferred to the government at the
end of the concession period.
Build-Operate-Transfer is the best option for organizations that want to have their own captive
center, but do not possess local expertise or extensive resources necessary to set up near shore
operations using do-it-yourself approach. This type of arrangement is used typically in complicated
long-term projects as seen in power plants and water treatment facilities. In some arrangements, the
government does not assume ownership of the project. In those cases, the company continues
running the facility and the government acts as both the consumer and regulator.
o The 3 Stages of BOT Model
• Build: Set-up the facility and infrastructure, staff the development center, and establish
knowledge transfer
• Operate: Manage the offshore organization: Program Management, Development, QA,
maintenance, enhancements, and product support
• Transfer: Register a new offshore subsidiary for the customer, transfer assets, and handover
operations
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o Benefits of BOT Model
• Cost savings compared to 3rd party vendor partnerships
• Direct control on hiring and retention
• Ability to retain Intellectual Property Rights
• Rapid , Seamless scaling of operations
• Wider service offerings, quickly filling business model gaps
• Lower infrastructure set-up costs
2.4 VIABILITY GAP FUNDING
o Understanding the Viability Gap Funding Scheme
The Viability Gap Funding Scheme provides financial support in the form of grants, one time or
deferred, to infrastructure projects undertaken through public private partnerships with a view to
make them commercially viable. Government of India has established a Viability Gap Fund to aid the
PPP infrastructure projects which face the viability gap due to inherent nature of the project. The
Scheme is administered by the Ministry of Finance.
The financial support (VGF) to be provided under this scheme shall be in the form of a capital grant at
the stage of project construction. The amount of VGF shall be equivalent to the lowest bid for capital
subsidy, but subject to a maximum of 20% of the total project cost. In case the sponsoring Ministry/
State Government/ statutory entity proposes to provide any assistance over and above the said VGF,
it shall be restricted to a further 20% of the total project cost.
o History
This scheme was formulated by the Ministry of Finance in consultation with the Planning Commission
and other stakeholders. The scheme was considered and approved by the Committee on
Infrastructure, chaired by the Prime Minister, and was subsequently endorsed by the Union Cabinet.
Following a notification by the Finance Ministry in January 2006, the scheme has been put in
operation and assistance to several projects is already under consideration.
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This intervention enabled the Government to enhance private sector participation in critical
infrastructure sectors. By offering grant assistance of up to 20% of the project costs, the Government
was able to use its scarce budgetary resources to leverage a much larger pool of private capital.
o Why do we need VGF Scheme?
This scheme aims at supporting infrastructure projects that are economically justified but fall short of
financial viability.
• Investment decisions in the infrastructure sector through private sector engagement remains a
challenge, especially where there is lack of excludability.
• Infrastructure projects often have high social but an unacceptable commercial rate of return.
These are generally characterised by substantial investments, long gestation periods, fixed
returns, the inability to increase user charges to commercial levels, etc. that make it essential
that Government supports infrastructure financing, through appropriate financial instruments
and incentives.
• Capital grant, as an instrument of government support, to make socially viable projects
commercially viable through an efficient and transparent allocation basis, is an accepted
economic proposition. Infrastructure projects also involve externalities that are not adequately
captured in direct financial returns to the project sponsor.
• Through the provision of a catalytic grant assistance of up to 20% of the capital costs, several
projects may become bankable and help mobilise the much needed private capital and
efficiencies.
• Apart from the financial support to be made available under this scheme, an additional grant of
up to 20% can be provided by the sponsoring Ministry or State Government. The lead financial
institution for the project shall be responsible for regular monitoring and periodic evaluation of
project compliance with agreed milestones and performance levels, particularly for the purpose
of grant disbursement.
o Applicability of the VGF Scheme
• This Scheme will apply to PPP projects posed by the Central Ministries, State Governments and
statutory authorities, as the case may be, which owns the underlying assets.
• Proposals to be made under this scheme shall be considered for providing Viability Gap Funding
(VGF), one time or deferred, with the objective of making a PPP project commercially viable.
• The proposal shall relate to a Public Private Partnership (PPP) project which is based on a
contract or concession agreement between a Government or statutory entity on the one side
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and a private sector company on the other side, for delivering an infrastructure service on
payment of user charges.
• The project should provide a service against payment of a pre-determined tariff or user charge.
• The quantum of financial support (VGF) to be provided under this Scheme shall be in the form of
a capital grant at the stage of project construction. The amount of VGF shall be equivalent to the
lowest bid for capital subsidy, but subject to a maximum of 20 percent of the total project cost.
In case the sponsoring Ministry/State Government/statutory entity proposes to provide any
assistance over and above the said VGF, it shall be restricted to a further 20 percent of the total
project cost.
o The Appraisal and Approval by Empowered Committee
• The proposal for seeking clearance of the Empowered Institution shall be sent (in six copies, both
in hard and soft form) to the PPP Cell of the Department of Economic Affairs. The proposal
should include copies of all project agreements (such as concession agreement, state support
agreement, substitution agreement, escrow agreement, O&M agreement and shareholders’
agreement, as applicable) and the project report.
• The proposal will be circulated by the PPP Cell to all members of the Empowered Institution for
their comments. All comments received within four weeks shall be forwarded by the PPP Cell to
the concerned Administrative Ministry, State Government or statutory authority, as the case
may be, for submitting a written response to each of the comments. In case the project is based
on a model concession agreement, the comments will be furnished within two weeks.
• The proposal, along with the project report, concession agreement and supporting
agreements/documents, together with the comments of the respective Ministries and the
response thereto, will be submitted by the PPP Cell to the Empowered Institution for
consideration and ‘in principle’ approval.
• While submitting the proposal to the Empowered Institution, the PPP Cell will indicate whether
the proposal conforms to the mandatory requirements of the Scheme. Deficiencies, if any, will
be indicated in the note of PPP Cell. In particular, the Department of Economic Affairs and the
Department of Expenditure will examine the proposals with a view to ensuring that they
conform to the conditions specified in the Scheme. Planning Commission will examine the
project report and the concession agreement with a view to ensuring that the proposal is
broadly in order.
• The Empowered Institution will either approve the proposal in principle (with or without
modifications) or advise the concerned Ministry, State Government or statutory authority, as the
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case may be, to provide additional clarifications/information or to make necessary changes for
further consideration of the Empowered Institution.
• Approval under this Scheme will be for the purposes of this Scheme only. All other statutory,
financial or administrative approvals shall be obtained as applicable. For projects owned by the
Central Government or its statutory entities, approval of PPPAC shall also be obtained in
accordance with the guidelines issued by the Ministry of Finance. However, these approvals may
be obtained simultaneously in order to save on time.
• In cases where financial support is available from any other Ministry of the Central Government
under an on-going Scheme for assistance to PPPs, the proposal would be sent to such Ministry
for consideration. In case the Ministry recommends that the proposal be considered for
additional assistance under this Scheme, the same shall be submitted to the Empowered
Committee for consideration.
• Once cleared by the Empowered Institution, the project would be eligible for financial support
under this Scheme.
o Invitation to Bid
• Financial bids shall be invited by the concerned Ministry, State Government or statutory entity,
as the case may be, for award of the project within four months of the approval of the
Empowered Institution. This period may be extended by the Department of Economic Affairs, as
necessary.
• The private sector company shall be selected through a transparent and open competitive
bidding process. The criterion for bidding shall be the amount of VGF required by a private sector
company where all other parameters are comparable.
o Disbursement of VGF
• Within three months from the date of award, or such extended period as may be permitted, the
Lead Financial Institution shall present its appraisal of the project (in six copies, both in hard and
soft form) for consideration and approval of the Empowered Institution. The appraisal shall be
accompanied by an updated application along with the project report and project agreements.
The Lead Financial Institution shall verify the contents of the application and convey its
recommendation to the Empowered Institution.
• Prior to final approval by the Empowered Institution, the Ministry, State Government or
statutory authority, as the case may be, proposing the project, shall certify that the bidding
process conforms to the provisions of this Scheme and that all the conditions specified in the
Scheme have been complied with.
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• Prior to disbursement, the Empowered Institution, the Lead Financial Institution and the private
sector company shall enter into a Tripartite Agreement in such format as may be prescribed by
the Empowered Committee from time to time.
• For the purposes of this Scheme, a Lead Financial Institution shall be the Financial Institution (FI)
that is funding the project, and in case of a consortium of FIs, the FI designated as such by the
consortium shall be the Lead Financial Institution.
• VGF shall be disbursed only after the private sector company has subscribed and expended the
equity contribution required for the project and will be released in proportion to debt
disbursements remaining to be disbursed thereafter.
• Viability Gap Funding up to Rs. 100 crore for each project will be sanctioned by the Empowered
Institution
• Proposals up to Rs. 200 crore will be sanctioned by the Empowered Committee.
• Amounts exceeding Rs. 200 crore will be sanctioned by the Empowered Committee with the
approval of Finance Minister.
• The Lead Financial Institution shall be responsible for regular monitoring and periodic evaluation
of project compliance with agreed milestones and performance levels, particularly for the
purposes of disbursing the VGF. It shall also send a quarterly progress report to the Empowered
Institution.
DATA COLLECTION
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3.1 INTRODUCTION
Roads and Buildings Department (R&BD), Government of Gujarat has been implementing several road
projects over the years with the state, centre and multi-lateral funding. In addition, the state has implemented
road projects through private sector participation. Recognising the need to attract increased investments in
road development the R&BD, Gujarat Govt have set up the Gujarat State Road Development Corporation
Limited (GSRDC).
R&BD has identified important roads as core road network extending over 9,000 km. It also defined
the corridors of movement which are designated to act as catalyst for achieving the targeted economic
development of the state. The state also formulated a private sector policy in the road development and
identified corridors for posing under the PPP/PSP. In this context the GSRDC has identified three high density