LITERATURE REVIEW LITERATURE REVIEW Working Capital Management of Infrastructure Projects Working Capital Management of Infrastructure Projects PPP PPP – BOT Highway Projects BOT Highway Projects Guided by: Guided by: Dr. D.R. Patel Dr. D.R. Patel Prepared By: Prepared By: Prepared By: Prepared By: Soni Viral S. Soni Viral S. CP (1507) CP (1507) M.Tech Construction & Project Management, Faculty of Technology, CEPT University, Ahmedabad. Soni Viral S, Soni Viral S, M.Tech M.Tech CPM, CEPT CPM, CEPT University, Ahmedabad University, Ahmedabad
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Working Capital Management of Infrastructure Projects - PPP-BOT Highway Project
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LITERATURE REVIEWLITERATURE REVIEW
Working Capital Management of Infrastructure ProjectsWorking Capital Management of Infrastructure ProjectsPPP PPP –– BOT Highway ProjectsBOT Highway Projects
Guided by:Guided by:Dr. D.R. PatelDr. D.R. Patel
Prepared By:Prepared By:Prepared By:Prepared By:Soni Viral S.Soni Viral S.
CP (1507)CP (1507)
M.Tech Construction & Project Management, Faculty of Technology,CEPT University, Ahmedabad. Soni Viral S, Soni Viral S, M.TechM.Tech CPM, CEPT CPM, CEPT
University, AhmedabadUniversity, Ahmedabad
Sr. No.Sr. No. ContentContent
2.12.1 IntroductionIntroduction
2.2 2.2 DefinitionsDefinitions
2.32.3 Concepts of Working Capital ManagementConcepts of Working Capital Management2.32.3 Concepts of Working Capital ManagementConcepts of Working Capital Management
2.4 2.4 Concepts of PPPConcepts of PPP--BOT ProjectsBOT Projects
2 52 5 Road blocks in PPP ProjectsRoad blocks in PPP Projects2.5 2.5 Road blocks in PPP ProjectsRoad blocks in PPP Projects
2.62.6 Issues in Financing BOT ProjectsIssues in Financing BOT Projects
2.72.7 Balancing Net Working Capital Balancing Net Working Capital
2.82.8 Means of financing Working CapitalMeans of financing Working Capital
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.1 INTRODUCTION2.1 INTRODUCTION
Need of PPPNeed of PPP--BOT schemes.BOT schemes.
In the year 1996, the world bank had estimated that an expenditure of US$200 In the year 1996, the world bank had estimated that an expenditure of US$200 billion a year must be made on infrastructure by developing countries, and Asian billion a year must be made on infrastructure by developing countries, and Asian would account for 80% of this expenditure. The bottle necks in mobilization of would account for 80% of this expenditure. The bottle necks in mobilization of public funds and foreign debts have enhanced the interests of developing countriespublic funds and foreign debts have enhanced the interests of developing countriespublic funds and foreign debts have enhanced the interests of developing countries public funds and foreign debts have enhanced the interests of developing countries in provision of infrastructure projects through Builtin provision of infrastructure projects through Built--OperateOperate--Transfer (BOT) type Transfer (BOT) type scheme. scheme.
A study of funding requirements for development and maintenance of roads in IndiaA study of funding requirements for development and maintenance of roads in IndiaA study of funding requirements for development and maintenance of roads in India A study of funding requirements for development and maintenance of roads in India reveals a large likely funding gap. Compared to an annual funding requirement of reveals a large likely funding gap. Compared to an annual funding requirement of Rs. 32,700 cr projected for the years 2001Rs. 32,700 cr projected for the years 2001--2006 for development and maintenance 2006 for development and maintenance of State highways and NHs, quantum of funds available annually for this purpose of State highways and NHs, quantum of funds available annually for this purpose was Rs.10,100 cr. It will clearly not feasible for the state to meet the funding gap was Rs.10,100 cr. It will clearly not feasible for the state to meet the funding gap
j t d ith t ff ti it bilit t t th i t f th i itij t d ith t ff ti it bilit t t th i t f th i itiprojected without affecting its ability to meet the requirements of other priorities.projected without affecting its ability to meet the requirements of other priorities.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.2 Definitions2.2 Definitions2.2 Definitions2.2 DefinitionsWorking Capital Working Capital –– (Gross Working Capital) it means the current assets which (Gross Working Capital) it means the current assets which represent the proportion of investment that circulates from one to another in represent the proportion of investment that circulates from one to another in ordinary conduct of business.ordinary conduct of business.yy
Net Working Capital Net Working Capital –– It can be defined as the difference between current assets It can be defined as the difference between current assets and current liabilities or alternatively the portion of current assets financed with and current liabilities or alternatively the portion of current assets financed with longlong--term funds.term funds.longlong term funds.term funds.
Current Assets Current Assets –– Assets which normally get converted into cash during normal Assets which normally get converted into cash during normal operating cycle of the firm.operating cycle of the firm.
Current liabilities Current liabilities –– Liabilities that are normally payable within a year.Liabilities that are normally payable within a year.
Profitability Profitability –– Implies the relationship between revenue and costs generated by Implies the relationship between revenue and costs generated by i b th fi d d t t i d ti ti itii b th fi d d t t i d ti ti itiusing both fixed and current assets in productive activities.using both fixed and current assets in productive activities.
Risk of technical insolvency Risk of technical insolvency –– it is probability that a firm will be unable to meet its it is probability that a firm will be unable to meet its obligations as they become due.obligations as they become due.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2 2 Definitions2 2 Definitions2.2 Definitions2.2 DefinitionsPPP Projects PPP Projects –– Public Private Partnership Projects Public Private Partnership Projects --describes a government describes a government service/project or private business venture which is funded and operated service/project or private business venture which is funded and operated /p j p p/p j p pthrough a partnership of government and one or more private sector through a partnership of government and one or more private sector companies.companies.
BOT ProjectsBOT Projects --BOT is build operate and transferBOT is build operate and transfer -- a company builds aa company builds aBOT Projects BOT Projects --BOT is build, operate and transfer BOT is build, operate and transfer -- a company builds a a company builds a facility, an infrastructure project, gets to operate it for a while and is paid facility, an infrastructure project, gets to operate it for a while and is paid for that, and finally transfers it back to the public sector at the end of some for that, and finally transfers it back to the public sector at the end of some time time -- determined by when the construction company is believed to have determined by when the construction company is believed to have been paid a satisfactory amountbeen paid a satisfactory amountbeen paid a satisfactory amount.been paid a satisfactory amount.
BOOT projects BOOT projects –– BOOT: build, own, operate and transfer BOOT: build, own, operate and transfer -- the constructor the constructor builds the project, they then get to own and operate it for some period of builds the project, they then get to own and operate it for some period of p j , y g p pp j , y g p ptime (like 20 or 25 years) during which they collect revenues. At the end of time (like 20 or 25 years) during which they collect revenues. At the end of the certain duration , the project is handed back to the government.the certain duration , the project is handed back to the government.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.3 Concepts of Working Capital 2.3 Concepts of Working Capital ManagementManagement
According to Khan & Jain, The goal of working capital management is to According to Khan & Jain, The goal of working capital management is to manage the firm’s current assets and liabilities in such a way that amanage the firm’s current assets and liabilities in such a way that amanage the firm s current assets and liabilities in such a way that a manage the firm s current assets and liabilities in such a way that a satisfactory level of working capital is maintained. If firm cannot maintain satisfactory level of working capital is maintained. If firm cannot maintain a satisfactory level of working capital it is likely to become insolvent and a satisfactory level of working capital it is likely to become insolvent and may be forced to bankruptcy, in case of infrastructure project it becomes may be forced to bankruptcy, in case of infrastructure project it becomes y p y p jy p y p jcrucial due to level of risk and longer gestation period.crucial due to level of risk and longer gestation period.
According to P Chandra, Under a flexible policy the investment in current According to P Chandra, Under a flexible policy the investment in current h h h h b l f h d k blh h h h b l f h d k blasset is high. This means a huge balance of cash and marketable securities, asset is high. This means a huge balance of cash and marketable securities,
carries large amount of inventories, and grants generous terms of credits to carries large amount of inventories, and grants generous terms of credits to customers. Under a restrictive policy (aggressive policy), the investment in customers. Under a restrictive policy (aggressive policy), the investment in current asset is low This means that the firms keeps a small balance ofcurrent asset is low This means that the firms keeps a small balance ofcurrent asset is low. This means that the firms keeps a small balance of current asset is low. This means that the firms keeps a small balance of cash and marketable securities, manage with small amount of inventories cash and marketable securities, manage with small amount of inventories and offer stiff terms of credit. and offer stiff terms of credit.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.4 Concepts of PPP2.4 Concepts of PPP--BOT Projects :BOT Projects :pp jj
According to Cesar Queiroz (Lead Highway Engineer World Bank, Russia) A According to Cesar Queiroz (Lead Highway Engineer World Bank, Russia) A P bliP bli P i P hi (PPP) i i d ll b i ffP i P hi (PPP) i i d ll b i ffPublicPublic--Private Partnership (PPP) constitutes a sustained collaborative effort Private Partnership (PPP) constitutes a sustained collaborative effort between the public sector (government agencies) and private enterprises to between the public sector (government agencies) and private enterprises to achieve a common objective (e.g., the road project) while they pursue their achieve a common objective (e.g., the road project) while they pursue their own individual interests.own individual interests.own individual interests.own individual interests.
BOT Projects BOT Projects –– According to R Kansal and M C Gupta, ( The ICFAI Journal According to R Kansal and M C Gupta, ( The ICFAI Journal of Infrastructure ) BOT is a device that helps the government to develop of Infrastructure ) BOT is a device that helps the government to develop ) p g p) p g pinfrastructure projects by transferring all the risk and responsibility to infrastructure projects by transferring all the risk and responsibility to private sector, it requires appropriate allocation of risk and assigning risk to private sector, it requires appropriate allocation of risk and assigning risk to those best placed to control them.those best placed to control them.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.4 Concepts of PPP2.4 Concepts of PPP--BOT Projects :BOT Projects :BOT Projects in Indian ScenarioBOT Projects in Indian ScenarioAccording to Kansal & Gupta, In India budgetary allocation is not sufficient, the According to Kansal & Gupta, In India budgetary allocation is not sufficient, the National Highway Act has been amended to enable levy of fee on the selected National Highway Act has been amended to enable levy of fee on the selected sectors of national highway This way the private sector can participate in thesectors of national highway This way the private sector can participate in the
pp jj
sectors of national highway. This way the private sector can participate in the sectors of national highway. This way the private sector can participate in the construction, maintenance and operation of roads on BOT basis. The National construction, maintenance and operation of roads on BOT basis. The National Highway Authority of India (NHAI) on behalf of the Government of India (GOI) has Highway Authority of India (NHAI) on behalf of the Government of India (GOI) has invited global tenders from the parties for proposed Super National highways or invited global tenders from the parties for proposed Super National highways or Expressways, which connect major metropolitan cities and manufacturing town withExpressways, which connect major metropolitan cities and manufacturing town withExpressways, which connect major metropolitan cities and manufacturing town with Expressways, which connect major metropolitan cities and manufacturing town with the major ports in India. These are proposed to be built with the help of the private the major ports in India. These are proposed to be built with the help of the private sector on the BOT basis.sector on the BOT basis.
National Highways Development Projects (NHDP) Under BOT schemeNational Highways Development Projects (NHDP) Under BOT schemeNational Highways Development Projects (NHDP) Under BOT schemeNational Highways Development Projects (NHDP) Under BOT scheme
The proposed 13,416 Km four/six lane roads at cost of Rs. 54,000 cr under BOT The proposed 13,416 Km four/six lane roads at cost of Rs. 54,000 cr under BOT scheme, which include the following three corridors.scheme, which include the following three corridors.Golden Quadrilateral (GQ):Golden Quadrilateral (GQ): it connect four metrosit connect four metros Delhi Kolkata Chennai andDelhi Kolkata Chennai andGolden Quadrilateral (GQ):Golden Quadrilateral (GQ): it connect four metrosit connect four metros-- Delhi, Kolkata, Chennai and Delhi, Kolkata, Chennai and MumbaiMumbai-- covering a distance of 5846 km length.covering a distance of 5846 km length.NorthNorth--South Corridor: South Corridor: it runs from Jammu to Kanyakumari covering a length of it runs from Jammu to Kanyakumari covering a length of 4000 kms and was scheduled to be completed by 2007.4000 kms and was scheduled to be completed by 2007.EastEast west Corridor:west Corridor: it runs from Porbandar to Silchar covering a length of 3 300it runs from Porbandar to Silchar covering a length of 3 300EastEast--west Corridor: west Corridor: it runs from Porbandar to Silchar covering a length of 3,300 it runs from Porbandar to Silchar covering a length of 3,300 Kms and was scheduled to be operational by 2007.Kms and was scheduled to be operational by 2007.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.4 Concepts of PPP2.4 Concepts of PPP--BOT Projects :BOT Projects :pp jjConcessions announced by NHAIConcessions announced by NHAI
The NHAI has also announced a number of concessions to private sector. They areThe NHAI has also announced a number of concessions to private sector. They areThe NHAI has also announced a number of concessions to private sector. They are The NHAI has also announced a number of concessions to private sector. They are
The private sector allowed to retain the toll money on the highway it develops on the BOT basis.The private sector allowed to retain the toll money on the highway it develops on the BOT basis.
A 100% tax exemption granted for five years, and 30% relief for the next five years.A 100% tax exemption granted for five years, and 30% relief for the next five years.
The exemption may be availed by the contractor over a period of 20 years.The exemption may be availed by the contractor over a period of 20 years.
The concession period may be extended up to 30 years.The concession period may be extended up to 30 years.
An exemption on import duty for import of high capacity modern equipments.An exemption on import duty for import of high capacity modern equipments.
Foreign direct investment has been permitted up to 100%.Foreign direct investment has been permitted up to 100%.
The Government would provide the land free of cost and also free from all encumbrancesThe Government would provide the land free of cost and also free from all encumbrancesThe Government would provide the land free of cost and also free from all encumbrances.The Government would provide the land free of cost and also free from all encumbrances.
The NHAI permitted to take a 30% stake in BOT projects.The NHAI permitted to take a 30% stake in BOT projects.
The GOI and NHAI will Provide capital grant up to 40% of their Project costThe GOI and NHAI will Provide capital grant up to 40% of their Project cost
Any arbitration would be settled as per the United Nations Commission on International Trade law Any arbitration would be settled as per the United Nations Commission on International Trade law (UNICTRAL) provisions.(UNICTRAL) provisions. Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT
University, AhmedabadUniversity, Ahmedabad
2.5 Road Blocks in PPP projects:2.5 Road Blocks in PPP projects:--
According to Kansal & Gupta, Despite of GOI’s and the NHAI’s According to Kansal & Gupta, Despite of GOI’s and the NHAI’s concessions to the private sector to make them involve in theconcessions to the private sector to make them involve in theconcessions to the private sector to make them involve in the concessions to the private sector to make them involve in the BOT projects, the private sector is hesitant to take part in the BOT projects, the private sector is hesitant to take part in the BOT projects due to the following reasons:BOT projects due to the following reasons:
More time is required in land acquisition, shifting of utilities, removing More time is required in land acquisition, shifting of utilities, removing of structures etc. Procedures are so cumbersome that it takes a of structures etc. Procedures are so cumbersome that it takes a minimum of a year to acquire the land; andminimum of a year to acquire the land; andy q ;y q ;The project has gestation period of 20 years which is too long for The project has gestation period of 20 years which is too long for blocking the investment. Normally, the capital expenditure plans of blocking the investment. Normally, the capital expenditure plans of companies, including building a new manufacturing facility, do not have companies, including building a new manufacturing facility, do not have
t ti i d f th i t Th till h i dt ti i d f th i t Th till h i dgestation period of more than six to seven years. Thus till such period, gestation period of more than six to seven years. Thus till such period, the companies have to pay interest on its borrowing from the financial the companies have to pay interest on its borrowing from the financial institutions.institutions.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.5 Road Blocks in PPP projects:2.5 Road Blocks in PPP projects:--According to Rajiv Lall ( Indian Infrastructure, June 2007), At state level According to Rajiv Lall ( Indian Infrastructure, June 2007), At state level transition is not as smooth as it is in National level projects, Financier transition is not as smooth as it is in National level projects, Financier apprehension while funding projects stems from the lack of homogeneity inapprehension while funding projects stems from the lack of homogeneity inapprehension while funding projects stems from the lack of homogeneity in apprehension while funding projects stems from the lack of homogeneity in procedure adopted by states. Bankers demand standardization and but at procedure adopted by states. Bankers demand standardization and but at the state government level, the the state government level, the Model Concession AgreementModel Concession Agreement is variable. is variable. States having standardized MCAs like Maharashtra, Madhyapradesh, States having standardized MCAs like Maharashtra, Madhyapradesh, Gujarat, Punjab, Haryana, Rajasthan, Kerala and Karnataka have more PPP Gujarat, Punjab, Haryana, Rajasthan, Kerala and Karnataka have more PPP projects.projects.
A i t Bh ti G t ( I di I f t t J 2007) RA i t Bh ti G t ( I di I f t t J 2007) RAccoring to Bharti Gupta, ( Indian Infrastructure, June 2007), Reason Accoring to Bharti Gupta, ( Indian Infrastructure, June 2007), Reason behind the financiers reluctance is the lower creditworthiness of state behind the financiers reluctance is the lower creditworthiness of state authorities compared to National Authorities. The authorities compared to National Authorities. The financial capacity of the financial capacity of the statestate to back the project is sometime a question. Inappropriate riskto back the project is sometime a question. Inappropriate riskstatestate to back the project is sometime a question. Inappropriate risk to back the project is sometime a question. Inappropriate risk allocation due to issues like land acquisition problems delayed allocation due to issues like land acquisition problems delayed environmental clearances, among others are also causes of worry to environmental clearances, among others are also causes of worry to financiers.financiers.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.7 Issues in Financing BOT projects2.7 Issues in Financing BOT projectsAccording to Nayan C Parikh and Rajesh Samson (Vikalpa VolAccording to Nayan C Parikh and Rajesh Samson (Vikalpa Vol--24.No.1 January24.No.1 January--March 1999) Practical experienced has shown March 1999) Practical experienced has shown that the following hurdles are encountered arranging financesthat the following hurdles are encountered arranging financesthat the following hurdles are encountered arranging finances that the following hurdles are encountered arranging finances for BOT projects.for BOT projects.
Lack of Prime SecurityLack of Prime Security
The Escrow AccountThe Escrow AccountThe Escrow Account The Escrow Account
Placement of EquityPlacement of Equity
BackBack--ended Cash flowsended Cash flows
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.7 Balancing Net Working capital2.7 Balancing Net Working capital
There are number of problems faced by companies in trying to There are number of problems faced by companies in trying to b l th N t ki it l M j f th li t db l th N t ki it l M j f th li t dbalance the Net working capital. Major of these are listed balance the Net working capital. Major of these are listed below:below:
Shortage of working capital Shortage of working capital
Slow and non moving stocksSlow and non moving stocksS o a d o o g s oc sS o a d o o g s oc s
Funds locked in work in progress Funds locked in work in progress
Requirement of high growth company Requirement of high growth company
Reduction in interest ratesReduction in interest ratesReduction in interest rates Reduction in interest rates
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.8 Means of Financing working Capital2.8 Means of Financing working CapitalSource of finances that are used to support current Source of finances that are used to support current assets :assets :--
Accruals Accruals –– amount owed but not paid, ( taxes, wages etc. )amount owed but not paid, ( taxes, wages etc. )Trade credit Trade credit –– credits extended by suppliers of goods and credits extended by suppliers of goods and y pp gy pp gservices. ( 25 to 50 % of short term financing in some services. ( 25 to 50 % of short term financing in some cases )cases )Working capital advance by commercial banksWorking capital advance by commercial banksBank financeBank financeInterInter--corporate depositscorporate depositsShort term loans from financial institutionsShort term loans from financial institutionsShort term loans from financial institutionsShort term loans from financial institutionsCommercial paperCommercial paperValidity Gap fundingValidity Gap funding
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.8 Means of Financing working Capital2.8 Means of Financing working Capital
As listed in Indian infrastructure, Major players Financing Infrastructure Projects in As listed in Indian infrastructure, Major players Financing Infrastructure Projects in India:India:
World BankWorld Bank –– Largest multilateral funding agency which provides low cost and Largest multilateral funding agency which provides low cost and long tenor financing to infrastructure projects.long tenor financing to infrastructure projects.
Asian Development Bank (ADB)Asian Development Bank (ADB) –– an active player in infrastructure financing an active player in infrastructure financing providing support to India in the form of loans, technical assistance,grants, providing support to India in the form of loans, technical assistance,grants, guarantees and equity investments. At the end of the year 2006 ADB had extended guarantees and equity investments. At the end of the year 2006 ADB had extended loans worth $ 10,606 million for infrastructure projects.loans worth $ 10,606 million for infrastructure projects.
Infrastructure Development Finance Company (IDFC)Infrastructure Development Finance Company (IDFC) –– IDFC was IDFC was incorporated on January 30, 1997 as a specialized institution to facilitate flow of incorporated on January 30, 1997 as a specialized institution to facilitate flow of private finance to commercially viable infrastructure projects.private finance to commercially viable infrastructure projects.
ICICI BankICICI Bank –– largest Indian private sector bank. As on march 31, 2007 Loan worth largest Indian private sector bank. As on march 31, 2007 Loan worth Rs 141.58 billion was provided to various infrastructure projects.Rs 141.58 billion was provided to various infrastructure projects.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Major players Financing Infrastructure Projects in India:Major players Financing Infrastructure Projects in India:Major players Financing Infrastructure Projects in India:Major players Financing Infrastructure Projects in India:
Industrial Development Bank of India (IDBI)Industrial Development Bank of India (IDBI) –– IDBI is among largest IDBI is among largest commercial banks in India. commercial banks in India.
Industrial Finance Corporation of India (IFCI)Industrial Finance Corporation of India (IFCI) financial institutionfinancial institutionIndustrial Finance Corporation of India (IFCI)Industrial Finance Corporation of India (IFCI) –– financial institution financial institution set up to promote development in India. As on March 31, 2007 IFCI’s net set up to promote development in India. As on March 31, 2007 IFCI’s net outstanding in infrastructure was amounted to Rs 14.02 billion.outstanding in infrastructure was amounted to Rs 14.02 billion.
India Infrastructure finance company limited (IIFCL)India Infrastructure finance company limited (IIFCL) –– IIFCL was IIFCL was formed in January 2006 as 100 percent government owned Infrastructure formed in January 2006 as 100 percent government owned Infrastructure financing SPV. The SPV funds infrastructure projects up to 20 percent of financing SPV. The SPV funds infrastructure projects up to 20 percent of the total project cost.the total project cost.the total project cost.the total project cost.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.9 Tolling trends2.9 Tolling trendsAs per data given in Indian Infrastructure (November 2007), Toll revenues As per data given in Indian Infrastructure (November 2007), Toll revenues from National highways have increased consistently, Currently 66 stretches from National highways have increased consistently, Currently 66 stretches covering over 4000 km under NHDP are tolled. covering over 4000 km under NHDP are tolled.
Toll collection in 2006Toll collection in 2006--2007 were estimated Rs. 10.3 billion, an increased 2007 were estimated Rs. 10.3 billion, an increased about 30 percent over 2005about 30 percent over 2005--2006. Of this 80 percent of the collection is 2006. Of this 80 percent of the collection is from public funded projects and 20 percent from private projects. Prior to from public funded projects and 20 percent from private projects. Prior to p p j p p p jp p j p p p jthis toll collection witnessed 76 percent in 2005this toll collection witnessed 76 percent in 2005--2006 and 25 percent in 2006 and 25 percent in 20042004--2005. The decline in 20062005. The decline in 2006--2007 has been attributed to the delay in 2007 has been attributed to the delay in bringing eight new stretches under the toll net.bringing eight new stretches under the toll net.
Estimated toll collection from the Golden quadrilateral and NorthEstimated toll collection from the Golden quadrilateral and North--SouthSouth--EastEast--West Corridor are Rs 5 million per km and Rs 1.8 million per km West Corridor are Rs 5 million per km and Rs 1.8 million per km respectively. This constitutes 3respectively. This constitutes 3--5 percent per annum of the cost of four 5 percent per annum of the cost of four laning this networks After completion GQ and NSEW will have 95 and 112laning this networks After completion GQ and NSEW will have 95 and 112laning this networks. After completion GQ and NSEW will have 95 and 112 laning this networks. After completion GQ and NSEW will have 95 and 112 toll plazas respectively. The Value of each toll plaza is estimated at $4.5 toll plazas respectively. The Value of each toll plaza is estimated at $4.5 million. million.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.9 Tolling trends2.9 Tolling trends
The Gujarat Government was one of the first state governments to collect The Gujarat Government was one of the first state governments to collect tolls on PPP projects. The Government began toll collection on Vadodaratolls on PPP projects. The Government began toll collection on Vadodara--Halol Toll road and subsequently on AhmedabadHalol Toll road and subsequently on Ahmedabad--Mehsana Toll Road. Mehsana Toll Road. Average number of vehicles using AhmedabadAverage number of vehicles using Ahmedabad--Mehsana toll road is 620 perMehsana toll road is 620 perAverage number of vehicles using AhmedabadAverage number of vehicles using Ahmedabad Mehsana toll road is 620 per Mehsana toll road is 620 per hour, and average number of vehicles using Vadodarahour, and average number of vehicles using Vadodara--Halol is 377 per Halol is 377 per hour. Toll collection on both stretches have mostly increased, except for a hour. Toll collection on both stretches have mostly increased, except for a minor decline in 2004minor decline in 2004--2005.2005.
Over all toll levied in India are amongst the lowest in the world. An average Over all toll levied in India are amongst the lowest in the world. An average toll of US 1.08 cents per km is charged from cars in India as compared to toll of US 1.08 cents per km is charged from cars in India as compared to 33--4 cents charged in china and 70 cent in Hong Kong.4 cents charged in china and 70 cent in Hong Kong.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.10 Research Gap2.10 Research Gap
Integrated study of Working capital management specially For PPPIntegrated study of Working capital management specially For PPP--BOT BOT project is needed as it represent unique structure of project and involves project is needed as it represent unique structure of project and involves comple cash flo scomple cash flo scomplex cash flows.complex cash flows.
A detailed study of nature of current assets involved in such projects are A detailed study of nature of current assets involved in such projects are needed to evaluate financing policy for the working capital management.needed to evaluate financing policy for the working capital management.needed to evaluate financing policy for the working capital management.needed to evaluate financing policy for the working capital management.
Adequacy of Matching principle of financing policy with respects to the PPPAdequacy of Matching principle of financing policy with respects to the PPP--BOT kind of project has to be evaluated and to be compared with current BOT kind of project has to be evaluated and to be compared with current policies of financing such projectspolicies of financing such projectspolicies of financing such projects.policies of financing such projects.
Rules & Specifications to be followed by SPV in execution of project to Rules & Specifications to be followed by SPV in execution of project to entitle under concession from GOI in terms of tax and grants is to beentitle under concession from GOI in terms of tax and grants is to beentitle under concession from GOI in terms of tax and grants is to be entitle under concession from GOI in terms of tax and grants is to be studied and project specifications has to be aligned with the same.studied and project specifications has to be aligned with the same.
Need of Uniform MCA in all the states to ease of the operations of Need of Uniform MCA in all the states to ease of the operations of financiers and hence to promote more inflows in the fieldfinanciers and hence to promote more inflows in the fieldfinanciers and hence to promote more inflows in the field.financiers and hence to promote more inflows in the field.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.10 Research Gap2.10 Research GapProvision of security to the lenders by providing a solution from combining Provision of security to the lenders by providing a solution from combining ‘step‘step--inin--right’ and Escrow account.right’ and Escrow account.
Forming a new policy for funding high growth company involved in PPPForming a new policy for funding high growth company involved in PPP--BOT projects to meet the higher current assets requirements which is BOT projects to meet the higher current assets requirements which is higher than their growth of sales.higher than their growth of sales.
Use of options like VGF scheme In case of viability gap of project and to Use of options like VGF scheme In case of viability gap of project and to form a standard procedure to avail such scheme.form a standard procedure to avail such scheme.
Evaluation of different methodologies and their accuracy to forecast traffic Evaluation of different methodologies and their accuracy to forecast traffic on PPPon PPP--BOT projects.BOT projects.
I t f b k d d h fl ( it i d ) P fit bilitI t f b k d d h fl ( it i d ) P fit bilitImpact of back ended cash flows ( its increase or decrease ) on Profitability Impact of back ended cash flows ( its increase or decrease ) on Profitability of project needs to be evaluated in concept stage of such project to of project needs to be evaluated in concept stage of such project to evaluate contingencies required in financing the project.evaluate contingencies required in financing the project.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
2.10 References2.10 References1)1) Anand, M. (2001), “Working Capital Performance of Corporate India: an Empirical Survey” Anand, M. (2001), “Working Capital Performance of Corporate India: an Empirical Survey”
Management and Accounting research Management and Accounting research (April(April--June 2001) pp 35June 2001) pp 35--43.43.
2)2) Bangia, N. (2007), “ Viability Gap Funding” Bangia, N. (2007), “ Viability Gap Funding” Indian infrastructure,Indian infrastructure, (February 2007) pp 66(February 2007) pp 66--69.69.
3)3) Bangia, N. (2007), “PPP Roadblock” Bangia, N. (2007), “PPP Roadblock” Indian Infrastructure, Indian Infrastructure, (June 2007) pp 62(June 2007) pp 62--63.63.
4)4) Chandra, P. (2007), “Chandra, P. (2007), “Financial ManagementFinancial Management” , 6th edition, Tata McGraw” , 6th edition, Tata McGraw--hill Publishing hill Publishing Company Limited, New Delhi. Company Limited, New Delhi.
5)5) Debasish S and Mallik A (1998) “Working Capital and Profitability”Debasish S and Mallik A (1998) “Working Capital and Profitability” The managementThe management5)5) Debasish. S. and Mallik, A. (1998) Working Capital and Profitability Debasish. S. and Mallik, A. (1998) Working Capital and Profitability The management The management accountant accountant (Novemeber 1998) pp 805(Novemeber 1998) pp 805--806.806.
6)6) Kansal, R. and Gupta M. C. (2007), “Government Role in BOT Projects”Kansal, R. and Gupta M. C. (2007), “Government Role in BOT Projects” The ICFAI journal of The ICFAI journal of infrastructure, infrastructure, (Volume 5,No. 2), pp 79(Volume 5,No. 2), pp 79--88.88.
7)7) Khan, P. K. and Jain, P. K.(2004) “Khan, P. K. and Jain, P. K.(2004) “Financial Management”,Financial Management”,4th edition, Tata McGraw4th edition, Tata McGraw--hill hill Publishing Company Limited, New Delhi.Publishing Company Limited, New Delhi.
lk S ( 99 ) “ l k C l”lk S ( 99 ) “ l k C l” dd (O b(O b bb8)8) Kulkarni, M. S. (1997), “ Balancing Net Working Capital” Kulkarni, M. S. (1997), “ Balancing Net Working Capital” Udyog Pragati Udyog Pragati (October(October--December December 1997) pp 281997) pp 28--32.32.
9)9) Parikh, N. C. and Samson, R. (1999), “BOT Road Infrastructure Projects: Process, Problems Parikh, N. C. and Samson, R. (1999), “BOT Road Infrastructure Projects: Process, Problems and Suggestions”and Suggestions” VikalpaVikalpa ( Volume 24 No 1) pp 3( Volume 24 No 1) pp 3--1212and Suggestions and Suggestions Vikalpa Vikalpa ( Volume 24, No. 1), pp 3( Volume 24, No. 1), pp 3 12.12.
10)10) Srivastava, R. M. (1992), “Comercial paperSrivastava, R. M. (1992), “Comercial paper-- A vibrant instrument of Working Capital in A vibrant instrument of Working Capital in India” India” Prabandh Prabandh (October 92(October 92--March 93) pp 35March 93) pp 35--36.36.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
OBJECTIVESOBJECTIVESOBJECTIVESOBJECTIVES
To study the various Working Capital policies, To study the various Working Capital policies, liquidity management, credit management and liquidity management, credit management and q y g , gq y g , gcash Collectioncash Collection--Disbursement. Disbursement. To study and suggest various means ofTo study and suggest various means ofTo study and suggest various means of To study and suggest various means of Working Capital Financing for construction Working Capital Financing for construction firms involved in Infrastructure fieldfirms involved in Infrastructure fieldfirms involved in Infrastructure field. firms involved in Infrastructure field. To study various effects of back ended cash To study various effects of back ended cash flows in BOT project and its implication onflows in BOT project and its implication onflows in BOT project and its implication on flows in BOT project and its implication on other parameters.other parameters.Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT
University, AhmedabadUniversity, Ahmedabad
DATA COLLECTION & DATADATA COLLECTION & DATADATA COLLECTION & DATA DATA COLLECTION & DATA ANALYSISANALYSISANALYSISANALYSIS
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
3 1 D t C ll ti3 1 D t C ll ti P j t D t ilP j t D t il3.1 Data Collection 3.1 Data Collection -- Project DetailsProject Details
Project :Project :-- 4 Lanning of RAJAHMUNDRY 4 Lanning of RAJAHMUNDRY –– DHARMAVARAM SECTION OF NHDHARMAVARAM SECTION OF NH--55
PROJECT INTRODUCTIONPROJECT INTRODUCTIONThe project road section from Km 200 (near Rajahmundry) to Km 253 (near The project road section from Km 200 (near Rajahmundry) to Km 253 (near DharmavaramDharmavaram) is a part of Vijayawada ) is a part of Vijayawada -- Visakhapatnam segment of NHVisakhapatnam segment of NH--5 in Andhra 5 in Andhra PradeshPradesh
The average formation width of the project road corridor is 12 mThe average formation width of the project road corridor is 12 m
Section I Section I -- DiwanDiwan CheruvuCheruvu (Km 200/0) to (Km 200/0) to RajaanagaramRajaanagaram Road Junction (Km 207/3)Road Junction (Km 207/3)Section II Section II -- RajaanagaramRajaanagaram Road Junction (Km 207/3) to Road Junction (Km 207/3) to ErravaramErravaram (Km 238/8)(Km 238/8)Section III Section III -- ErravaramErravaram (Km 238/8) to Km 253/0(Km 238/8) to Km 253/0
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Section ISection I -- DiwanDiwan CheruvuCheruvu (Km 200/0) to(Km 200/0) to RajaanagaramRajaanagaram Road Junction (Km 207/3)Road Junction (Km 207/3)Section I Section I -- DiwanDiwan CheruvuCheruvu (Km 200/0) to (Km 200/0) to RajaanagaramRajaanagaram Road Junction (Km 207/3)Road Junction (Km 207/3)
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Section II Section II -- RajaanagaramRajaanagaram Road Junction (Km 207/3) to Road Junction (Km 207/3) to ErravaramErravaram (Km 238/8)(Km 238/8)
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Section III Section III -- ErravaramErravaram (Km 238/8) to Km 253/0(Km 238/8) to Km 253/0
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Ann al A e age Dail T afficAnn al A e age Dail T afficAnnual Average Daily TrafficAnnual Average Daily Traffic
Grand Total 2,762,268,075Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Project Cost Summary
1%
0%
18%
7%
0%3% 4%
2%6%
Site Clearance
Earth Work
Sub-base and Base Course
16%
7%
Bituminous Course
Bridges and Culverts
Road Junction
43%
Road Junction
Drainage and Protection Works
Toll Plaza
PIU complex
Miscellaneous Items
Provisional Items
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Data AnalysisData AnalysisData AnalysisData Analysis
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Project cost ParametersProject cost ParametersE l ti Y (Y Of t ti t ) 2001Evaluation Year (Yr. Of cost estimates) 2001Year construction begins (proj. Yr.'1') 2002Construction period (year) 2.5Opening Year (proj. Yr ''4'') 2005L th f P j t d (i K ) 53Length of Project road (in Km) 53Length of existing pavement (in Km) 53Project cost (Rs million)
Total project cost 2001 values 2762.27t f dditi l 2 l f t ll l 2001 l 15 39- cost of additional 2 lanses for toll plaza 2001 values 15.39
Annual Inflation Rate (%) 7.50%Government contribution in % 40.00%Operation & Maintainance CostsT ll l O & M C i h 1 (R illi ) 2001 l 0 48Toll plaza O & M Cost p.a in phase 1 (Rs million) 2001 values 0.48
Environmental Monitoring Cost p.a. (Rs million) 2001 values 0.12Routine Maintenance p.a. for rigid and flexible
d i d (R illi ) 2001 l 23pavements and service road (Rs million) 2001 values 23Major Maintenance - Flexible pavement and service road (Rs million)- 5th Yr 2001 2009 162
0 h 20 62- 10th Yr 2014 162- 15th Yr 2019 162-20th Yr 2024 162
25th and 30th Yr 2029 2034 162
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
FIRR SummaryFIRR SummaryFIRR SummaryFIRR Summary
FIRR on Project Investment (pre-tax) 20%
FIRR on Equity Investment 19%FIRR on Equity Investment 19%
Minimum Concession Period (years) 30(y )
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
12000
Cum. Cash Requirement
10000
8000
ion
4000
6000
Rs
in m
illi
Cum. Cash flow
2000
4000
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Year
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Inflow Vs Outflow
60000
70000
40000
50000
ion
30000
40000
Rs
in m
illi
10000
20000
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
YearCum. Cash Outflow
Cum. Cash Inflow
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Impact of change in Financing policyImpact of change in Financing policy
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Impact of change in Financing policyImpact of change in Financing policyImpact of change in Financing policyImpact of change in Financing policy
To analyze effect of change in financing policy of project, Term of Loan is assumed to be To analyze effect of change in financing policy of project, Term of Loan is assumed to be shortened to 10 years. There are many financial institutes which provides funding at rate of shortened to 10 years. There are many financial institutes which provides funding at rate of interest of 14% for specified period.interest of 14% for specified period.
Impact which is Impact which is analysedanalysed by mathematical model of project cash outflow shows that though by mathematical model of project cash outflow shows that though principal payment part is increased due to shorter payback period of loan, as interest rate is principal payment part is increased due to shorter payback period of loan, as interest rate is substantially low compared with long term loan interest payment part comes down, hence EMI substantially low compared with long term loan interest payment part comes down, hence EMI f t f l i l l Thi ff t b b d i h tfl j tif t f l i l l Thi ff t b b d i h tfl j tifor repayment of loan is also lower. This effect can be observed in cash outflow projectionfor repayment of loan is also lower. This effect can be observed in cash outflow projection
In this particular case it is found that short term loan demands more liquidity in initial phase In this particular case it is found that short term loan demands more liquidity in initial phase but projects more profitability when analyzed for long concession period of 30 years.but projects more profitability when analyzed for long concession period of 30 years.p j p y y g p yp j p y y g p y
Back ended cash out flow has severe effect on IRR which can be partially taken care by Back ended cash out flow has severe effect on IRR which can be partially taken care by choosing right trade off between Liquidity requirement and IRR.choosing right trade off between Liquidity requirement and IRR.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Schedule of Repayment of LoanSchedule of Repayment of Loan
Perticulars / Years 2005 2006 2007 2008 2009 2010 2011
Analysis of StepAnalysis of Step--in Right action and in Right action and its viabilityits viabilityits viabilityits viability
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Analysis of StepAnalysis of Step in Right action and its viabilityin Right action and its viabilityAnalysis of StepAnalysis of Step--in Right action and its viabilityin Right action and its viability
to analyze the effectiveness of Stepto analyze the effectiveness of Step--in right of financial institute, situation in right of financial institute, situation is assumed where due to the unforeseen calamity project had suffered is assumed where due to the unforeseen calamity project had suffered heavy damage in year 2009 and additional maintenance was incurred (Rs heavy damage in year 2009 and additional maintenance was incurred (Rs y g y (y g y (250 million). Due to this situation SPV files bankruptcy and becomes 250 million). Due to this situation SPV files bankruptcy and becomes defaulter for payment of loan.defaulter for payment of loan.
Financial institute use step in right and takes over project for remaining Financial institute use step in right and takes over project for remaining recovery of fund. Hence remaining fund with additional loss in year 2009 recovery of fund. Hence remaining fund with additional loss in year 2009 will be considered as an investment to generate further analysis.will be considered as an investment to generate further analysis.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Particulars / Years 2005 2006 2007 2008 2009 2010 2011
Cum.Cashflow in case of Default Cum. Cashflow in case of Successful paymentSoni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Annuity ApproachAnnuity Approach
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Annuity Approach Annuity Approach
Annuity approach is different from conventional BOT approach as far as Annuity approach is different from conventional BOT approach as far as uncertainty of cash inflows are concerned. Cash inflows are much more uncertainty of cash inflows are concerned. Cash inflows are much more uncertain in conventional BOT projects as traffic data and financial data uncertain in conventional BOT projects as traffic data and financial data projected are highly susceptible to alteration due to many factors like projected are highly susceptible to alteration due to many factors like political, environmental, economical etc.political, environmental, economical etc.
Annuity approach eliminates the risk arising from uncertainty of cash Annuity approach eliminates the risk arising from uncertainty of cash inflows by providing constant annual amount to SPV and thus providing inflows by providing constant annual amount to SPV and thus providing assured IRR and reducing SPV’s financial risk. This makes project more assured IRR and reducing SPV’s financial risk. This makes project more feasible for loan assessments, hence it reduces the burden of interest rate feasible for loan assessments, hence it reduces the burden of interest rate on SPV. It gives advantage of surplus profit to the government with sharing on SPV. It gives advantage of surplus profit to the government with sharing f fi i l i kf fi i l i kof financial risk. of financial risk.
Analysis by Mathematical model is same except cash inflow projection as Analysis by Mathematical model is same except cash inflow projection as compared with conventional BOT approachcompared with conventional BOT approach
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Base Data sheet (Rs in million)Base Data sheet (Rs in million)
Project CostsEvaluation Year (Yr. Of cost estimates) 2001Year construction begins (proj. Yr.'1') 2002Construction period (year) 2.5Opening Year (proj. Yr ''4'') 2005Length of Project road (in Km) 53Length of existing pavement (in Km) 53Project cost (Rs million)
Total project cost 2001 Values 2762.27- cost of additional 2 lanses for toll plaza 2001 Values 0
Annual Inflation Rate (%) 7.50%Government contribution in % 0.00%Operation & Maintainance CostsToll plaza O & M Cost p.a in phase 1 (Rs million) 2001 Values 0
Environmental Monitoring Cost p.a. (Rs million) 2001 Values 0.12Routine Maintenance p.a. for rigid and flexiblepavements and service road (Rs million) 2001 Values 23Major Maintenance - Flexible pavement and service road (Rs million)- 5th Yr 2001 2009 310- 10th Yr 2014 310- 15th Yr 2019 310-20th Yr 2024 310-25th and 30th Yr 2029, 2034 310Annuity Payable to private Operator by NHAI (Rs million) per annum 884.31
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Toll Rate 1997 1998 1999 2001 2005
Financial data (Rs in million)Financial data (Rs in million)
(Rs/Km) (Rs/Km) (Rs/Km) (Rs/Km) (Rs/Km)
Car 0 0 0 0 0
LCV 0 0 0 0 0
HCV MAV Bus 0 0 0 0 0HCV,MAV, Bus 0 0 0 0 0
Oversized 0 0 0 0 0
Toll indexing - every 3 year @ 0.00%
Advertisement Revenue (% of toll Rev.) 0.00%
Project concession period (After Construction) 15Project concession period (After Construction) 15
Loan Replayment Period (Years) 9
Loan payback Grace period (Years) 0
Rate of Calculation of interest During Construction (IDC) (%) 16.00%
Interest rate on Long Term Debt (%) 16.00%Interest rate on Long Term Debt (%) 16.00%
Actual Costs in Year of Expediture (current prices) 593 89 1436 47 1201 05 3231 4Actual Costs in Year of Expediture (current prices) 593.89 1436.47 1201.05 3231.4
Interest during Construction 28.51 207.67 291.01 527.19
Total Landed Cost including IDC 622.4 1644.14 1492.05 3758.59Total Landed Cost including IDC 622.4 1644.14 1492.05 3758.59
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Sources of FinancingSources of FinancingSources of FinancingSources of Financing
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
CONCLUSION & FUTURE SCOPE OFCONCLUSION & FUTURE SCOPE OFCONCLUSION & FUTURE SCOPE OF CONCLUSION & FUTURE SCOPE OF WORKWORKWORKWORK
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION
PPPPPP--BOT Project as compared with industrial projects posses longer BOT Project as compared with industrial projects posses longer gestation period and extended breakgestation period and extended break--even point. Due to back ended cash even point. Due to back ended cash flows working capital requirement of projects of PPPflows working capital requirement of projects of PPP--BOT structure is highly BOT structure is highly g p q p jg p q p j g yg ydepended on cost of capital and payback period of loan. Risk evaluated for depended on cost of capital and payback period of loan. Risk evaluated for such projects has direct impact on cost of capital.such projects has direct impact on cost of capital.
Expected return from PPPExpected return from PPP--BOT project is about 20 % in concession period BOT project is about 20 % in concession period of 30 years.of 30 years.
If internal rate of return is not achieved as per targeted IRR concession If internal rate of return is not achieved as per targeted IRR concession period can be extended up to 3 years.period can be extended up to 3 years.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION
CaseCase--study :study :-- Project :Project :-- 4 Lanning of RAJAHMUNDRY 4 Lanning of RAJAHMUNDRY ––DHARMAVARAM SECTION OF NHDHARMAVARAM SECTION OF NH--55
Calculated FIRR for analyzed project for project investment and FIRR for Calculated FIRR for analyzed project for project investment and FIRR for Equity investment is summarized as below.Equity investment is summarized as below.
FIRR on Project Investment (pre-tax) 20%
Final Summary of IRR for the project :-
FIRR on Project Investment (pre tax) 20%
FIRR on Equity Investment 19%
Minimum Concession Period (years) 30Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT
University, AhmedabadUniversity, Ahmedabad
CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION
As Projected data meets the return requirements project will be considered As Projected data meets the return requirements project will be considered feasible without viability gap funding. And debt can be raised easily.feasible without viability gap funding. And debt can be raised easily.
As per data projected Table As per data projected Table -- 3.2.7.3 expected IRR is achieved at the end 3.2.7.3 expected IRR is achieved at the end of 28of 28thth year, its shows additional absolute profit margin for next two years.year, its shows additional absolute profit margin for next two years.
Analyzed Income statement of this project shows that net cash inflow is in Analyzed Income statement of this project shows that net cash inflow is in negative (loss) for initial years and most of the positive portion is back negative (loss) for initial years and most of the positive portion is back ended and hence impact on NPV of the project is discountedended and hence impact on NPV of the project is discountedended and hence impact on NPV of the project is discounted.ended and hence impact on NPV of the project is discounted.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION
Financing policy for the PPPFinancing policy for the PPP--BOT project plays a major role in terms of BOT project plays a major role in terms of Liquidity Vs Profitability decision. Most of the projects are financed by long Liquidity Vs Profitability decision. Most of the projects are financed by long term sources and hence cost of debt paid is also high, which reduces the term sources and hence cost of debt paid is also high, which reduces the p gp gprofitability. It is necessary as far as liquidity and company’s financial profitability. It is necessary as far as liquidity and company’s financial capability is concerned. Financing project with comparatively short term capability is concerned. Financing project with comparatively short term debts cause widening of gap negatively between cash outflows and inflows debts cause widening of gap negatively between cash outflows and inflows
l d b d h h h f b l d d d ll d b d h h h f b l d d d lin initial period but ends up with higher profitability due to reduced total in initial period but ends up with higher profitability due to reduced total cost of debt paid.cost of debt paid.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION
Analysis results for financing policy shows comparison of cash flows with Analysis results for financing policy shows comparison of cash flows with different financing policy, comparable summary of the same is :different financing policy, comparable summary of the same is :--
IRR for the Project with short term loan :-
FIRR on Project Investment (pre-tax) 21%
FIRR on Equity Investment 20%
Minimum Concession Period (years) 30Minimum Concession Period (years) 30
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION
As huge amount of finances are required to fund the PPPAs huge amount of finances are required to fund the PPP--BOT project and BOT project and unavailability of required amount of fixed asset which can be mortgaged, unavailability of required amount of fixed asset which can be mortgaged, Financial institutes are given step in right, in this analysis in particular Financial institutes are given step in right, in this analysis in particular g p g y pg p g y pproject which is financially viable (Hence not funded under Viability Gap project which is financially viable (Hence not funded under Viability Gap Funding) step in right can be effectively used for loan recovery purpose. Funding) step in right can be effectively used for loan recovery purpose.
Annuity approach can also be used in PPPAnnuity approach can also be used in PPP--BOT projects in such cases cash BOT projects in such cases cash inflows are fixed and it distributes financial risk and hence concession inflows are fixed and it distributes financial risk and hence concession period can be reduce according to the annuity payment.period can be reduce according to the annuity payment.
Annuity in such project structure is awarded keeping IRR at 20 %. Annuity in such project structure is awarded keeping IRR at 20 %.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION
Thought Annuity approach can be proved less risk prone but demands Thought Annuity approach can be proved less risk prone but demands higher amount of working capital in initial years as Government higher amount of working capital in initial years as Government contribution is not available.contribution is not available.
PPPPPP--BOT projects have long gestation period and hence prone to number of BOT projects have long gestation period and hence prone to number of risks, back ended cash flows have major impact on returns of the project.risks, back ended cash flows have major impact on returns of the project.risks, back ended cash flows have major impact on returns of the project. risks, back ended cash flows have major impact on returns of the project. Any delay caused in such project will lead to reduction of returns by Any delay caused in such project will lead to reduction of returns by reducing reducing tollabletollable (Inflow) period and it shifts the cash inflow which already (Inflow) period and it shifts the cash inflow which already is in back ended position. is in back ended position.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Future Scope of workFuture Scope of workFuture Scope of workFuture Scope of work
There is a wide future scope for this topic, Some of the key points are as There is a wide future scope for this topic, Some of the key points are as follows:follows:--
Design of integrated system which projects need of cash flow in detail Design of integrated system which projects need of cash flow in detail during construction period.during construction period.Modified loan Repayment model which can be parallel with cash inflowsModified loan Repayment model which can be parallel with cash inflowsModified loan Repayment model which can be parallel with cash inflows Modified loan Repayment model which can be parallel with cash inflows projected.projected.Working out alternative ways of increasing cash inflows to reduce Working out alternative ways of increasing cash inflows to reduce capital requirement for PPPcapital requirement for PPP--BOT projectsBOT projectscapital requirement for PPPcapital requirement for PPP BOT projects.BOT projects.Impact of economic parameters on cash inflowsImpact of economic parameters on cash inflows--outflows and finally on outflows and finally on return of the project.return of the project.Calculation & Impact of Economic Rate of Return on PPPCalculation & Impact of Economic Rate of Return on PPP BOT project’sBOT project’sCalculation & Impact of Economic Rate of Return on PPPCalculation & Impact of Economic Rate of Return on PPP--BOT project s BOT project s performance.performance.
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad
Soni Viral S, M.Tech CPM, CEPT Soni Viral S, M.Tech CPM, CEPT University, AhmedabadUniversity, Ahmedabad