Académique Documents
Professionnel Documents
Culture Documents
on
A Study on
Public Private Partnership in Highway
Projects
Submitted by
Mayank Sarkar
Arnav Kr. Guha
Avinash Damera
Kamlesh Gupta
Sumit Bhadoriya
Saket Rusia
Prateek Dwivedi
Gaurav Singh Chauhan
Rajesh Kumar
081111020
081111064
081111067
081111068
081111070
081111072
081111081
081111085
081111098
Bhopal (M.P.)-462051
May 2011
Acknowledgment
Any accomplishment requires the effort of many people and this
work is not different. We are highly grateful toProf. Siddhartha
Rokade,Assistant Professor, Department of Civil Engineering, Maulana
Azad National Institute of Technology, our mentorfor his judicious
guidance and encouragement. It was inconceivable that this work could
be completed without his skilful guidance, constructive and valuable
suggestions, and co-operation.
We are also grateful to Mr. Neeraj Vijay,DGM, Madhya Pradesh
Road Development Corporation, and Mr. Sudhakaran, MPRDC who were
extremely co-operative in sharing project data which was crucial in taking
our work to the right conclusion. We would like to express our gratitude to
all the people involved in making this endeavour a success.
We also thank our college authority especially Civil Engineering
Departments faculties for being kind to me and raising a helping hand in
all perspectives as and when needed.
Abstract
Public-Private-Partnership (PPP) provides an opportunity for private
sectorparticipation in financing, designing, construction and operation &
maintenance ofpublic sector programmes and projects.In this project,
study about the Public Private Partnerships (PPPs) programme in highways
has been done.
Contents
Chapter
No.
Page
Acknowledgment
i
Certificate
ii
Abstract
iii
Contents
iv
1. Introduction
1.1.
General
1.1.1. Public Private Partnership The Concept
1.1.2. Various forms of Public Private Partnership:
1.2.
PPP in Highways: An Overview
4
1.2.1. Size of the Initiative
1.2.2. Target
1.2.3. Approach
1.2.4. Policy
1.2.5. Outlook
2. Literature Review
3. A Case study of Dewas-Bhopal Corridor
23
3.1.
Project Summary
3.1.1. The Site
3.1.2. Technical Aspects
3.2.
The Concession Agreement
3.3.
SWOT Analysis
4. Conclusions
5. References
Chapter 1: Introduction
1.1
General
36
38
operationalized through a
II.
III.
IV.
V.
government.
BOT (Toll) and BOT (Annuity) Models:
a. BOT (Toll) Model :
o In a BOT (Toll) Model, the concessionaire (private sector) is
required to meet the upfront/construction cost and the
expenditure on annual maintenance.
o The Concessionaire recovers the entire upfront/construction
cost along with the interest and a return on investment out of
the future toll collection.
o The viability of the project greatly depends on the traffic (i.e.,
toll). However, with a view to bridge the gap between the
investment required and the gains arising out of it, i.e., to
increase the viability of the projects, capital grant is also
provided.
b. BOT (Annuity) Model:
o In an BOT (Annuity) Model, the Concessionaire (private sector)
is required to meet the entire upfront/construction cost (no
grant is paid by the client) and the expenditure on annual
maintenance
o The Concessionaire recovers the entire investment and a predetermined cost of return out of the annuities payable by the
client every year.
o The selection is made based on the least annuity quoted by
the bidders (the concession period being fixed).
o The client (Government) retains the risk with respect to traffic
(toll), since the client collects the toll.
In India, Planning commission has recommended BOT (Toll) model as first
choice.
1.2 PPP in Highways: An Overview
1.2.1Size of the Initiatives:
With an extensive road network of 3.3 million kilometres, India is the
second largest in the world. Indian roads carry about 61% of the freight
and 85% of the passenger traffic. All the highways and expressways
together constitute about 66,000 kilometres (only 2% of all roads),
whereas they carry 40% of the road traffic. To further the existing
infrastructure, Indian Government annually spends about Rs.18000 crores
(USD 3.704 billion).
1.2.2. Target
o Developing 1000 km of expressways
o Developing 8,737 km of roads, including 3,846 km of national
highways, in the North East
o Four-laning 20, 000 km of national highways
o Four-laning 6,736 km on North-South and East-West corridors
o Six-laning 6,500 km of the Golden Quadrilateral and selected national
highways
o Widening 20,000 km of national highways to two lanes
1.2.3Approach
o National Highways Authority of India (NHAI) is the apex Government
body for implementing the NHDP. All contracts whether for construction
or BOT are awarded through competitive bidding
o Private sector participation is increasing, and is through construction
contracts and Build-Operate-Transfer (BOT) for some stretches based
on either the lowest annuity or the lowest lump sum payment from the
Government
Planning
Commission,
Government
of
India
(2004),
Public-Private-
of
voluntary
organizations
and
non-profit
service
of
the
private
sector
in
rural
development
is
encouraged. The private sector can choose the project. The projects when
implemented would help the rural poor to derive benefits of rural
development. Maintenance of rural roads in three districts of Maharashtra
is being done by the sugar co-operatives under PPP. The Department is
examining the possibility of expanding PPP, for maintenance of rural roads
and the computerization and maintenance of land records (sale and
purchase deeds).
A closer look at the poor performance of public utilities and social
services, in general, also shows that the disease lies in the monopoly
characteristic of such activities. Since there is no alternative to the
existing (in-house) service providers, the citizens are left with no option
other than that of take it or leave it. The executives/ bureaucracy (low &
high) may thus take the liberty to indulge in lethargy, corruption and high
handedness. It has, therefore, been commented that the important
distinction is not public versus private rather it is monopoly versus
competition. In this respect, PPP may be looked at as a measure towards
administrative reforms.
The realisation of the significance of PPP in the development of the
country is a big step of the Government of India. The report laid a lot of
emphasis on the application of the tool of PPP in the fields of education,
healthcare, family welfare, agriculture, rural & urban development etc. It
presses on significant goals and their implementation with the use of the
PPP mechanism and also highlights future goals.
India Infrastructure Report (2008) mentioned that Roads and Highways are
the biggest of Indias PPP infrastructure projects. Indeed, among all other
sectors, roads have elicited maximum interest and optimism among
private players for PPP. Even the government has outlined some policy
appropriate Initial capital for building such huge infrastructure and the
guarantee for the returns for the investments made in the same.
Problems in PPP arise from the improper implementation, in policy,
there is as such no guideline which leads to confusion and problems but
political hindrance and influence do lead to the loss of efficiency and poor
quality of the project and the time of completion of the entire project. In
case of BOT the user is required to pay toll to use the utility, it becomes
difficult to get returns for the idle and structure for community uses.
In NHAI Report, 2010, it was said that the National Highways Authority of
India
(NHAI)
is
mandated
to
implement
the
National
Highways
density national highways, through the Build, Operate & Transfer (BOT)
mode at a cost of INR 80,626 Crore (USD billion).
They
will
prefer
such
locations
for
project
over
publicprivate
partnership.
IDeCK
(Infrastructure
Development
included
power(including
power
generation,
transmission,
in
operations.
The principle for the creation of an appropriate institutional and
regulatory framework was necessary. These included efficient use of
existing assets and optimal allocation of additional resources, equitable
contractual structures i.e. that the government would enter into suitable
subsidies
and
cross-subsidies
so
that
prices
for
services
are
the
possibility
to
apply
route
and
sub-network
concessions.
o Complete change from tax financing to user financing.
o Creation of sub-networks and apply as sub-network concessions
In this specific field there has been a lot of research in the last
years, which can be separated into three fields: privatisation, alternative
procurement modes and user financed schemes of federal highways.
regulation
and
provision,
sector
wise
financing
and
project
and
project-specific-characteristics.
Safety
incentives
success
of
the
on-going
eleventh
five-year
plan
for
the private sectors can contribute towards the provisions of public goods
or services, such as roads, railways, ports, airports, etc. The government
can provide land for the project site, regulatory clearances, and a
concession right to the contractor/concessionaire. The private sector, on
the other hand, is expected to invest funds during the construction and
maintenance phases of infrastructure projects.
The first policy framework for PPPs was introduced in 1997 as
decision of the Cabinet of the Central Government.
policy essentially provided for two kinds of contracts BOT toll contracts
and BOT annuity contracts. The national highways are owned by the
Government of India.
gradation work on PPP scheme in all states, some states have attracted
more PPPs than others.
Tamil Nadu, Andhra Pradesh and Maharashtra are the favourite
states; together these states account for as much as 45% of all PPPs in
the country. States like Assam, Jharkhand, Bihar, Orissa and Kerala. On the
other hand ,However , to assess the relative success of states merely in
terms of the number of PPPs is not plausible Since, the number of PPPs in
a state does not necessarily reflect the financial stakes involved in PPP
projects in that state.
In this paper, the author States with higher per capita income have
attracted more PPPs than the poorer states. Road projects located in richer
states have shown higher probability of attracting private investment than
those located in the poorer ones. Other things remaining the same,
projects located on national highways connecting richer states and those
located closer to mega cities have exhibited higher probability of
becoming PPPs. Similarly, keeping all other things constant states with
better governance index and projects located in them have higher
probability of attracting private investment. The likelihood of private
investment increases in direct proportion to the per-capita SGDP. Private
sector is likely to invest only in projects if they are located very close to
some big city. For example, states like Rajasthan can hope to attract PPPs
on major national highways passing through the state that connect Delhi
and Haryana in the North with Gujarat and Maharashtra in the South.
(TA)
for
preparing
public-private
partnership
(PPP)
has
been
provided
by
Asian
Development
Bank.
Asian
Development Bank has provided nine loans for the road sector, totalling
$400 million, and 18 Technical Assistance, totalling $8.55 million. Among
multilateral funding agencies, ADB is currently the largest multilateral
agency to the road sector in Sri Lanka and is coordinating its support with
other external agencies.
As per author the consultants will identify, review, and analyze the
existing policy, regulatory, and institutional frameworks for private sector
involvement in the financing, constructing, operating and maintaining
expressways. In addition to this, they will evaluate the constraints to the
equivalent,
comprising
$736,000
in
foreign
exchange
and
Shunso Tsukada (2005) has stated comparison between Public sector and
Public sectors working methodology and discussed the pros and cons of
both construction techniques. Also author has presented procurement
analysis, finance details and credit enhancement measures, apart from
various bids cases.
Facing massive infrastructure needs, the private finance initiative
(PFI) has gained renewed attention from the development community. PFIs
are more prevalent in developing countries than in developed countries.
This is due in part to the more severe budgetary constraints developing
countries are facing, and also due to the fact that main cost elements
such as labour, materials and land are still low in price in developing
countries. Strong skepticism still exists about the applicability of the PFI
approach to developing countries, particularly in Asia. This is largely due
to the following intrinsic difficulties associated with highway development:
o Risks associated with land acquisition and construction.
this insurance is applied only to the bond, this insurance service is often
called a monoline service as opposed to multiline insurance services
which cover a variety of business activities.
The revenue generation from the PPP projects, so called PPP
concessions is Tolls, Capital grants, annuities and financial viability gap
fund. Another important parameter in deciding the selection of contractor
is the length of concession period. To overcome the problem of fixed
length of concession period a system of least present value of revenue
(LPVR) was developed.
A key lesson of the program is that the government has to be aware
of the contractor driven nature of the BOT program. It should be noted
that the BOT concept was originally devised by the construction industry
at the time when excess capacity of the construction industry existed. The
government should design the BOT scheme in such a manner to ensure
that the assets created by BOT contractors are properly operated and
maintained. To enhance the creditworthiness of projects, the Government
should introduce a minimum revenue guarantee and also an exchange
rate guarantee. As the competition becomes intense, the tolls proposed
by bidders will become lower and lower but, at the same time
consideration should be taken to decide a floor level of tolls so that bids
do not go below cost of project. There is a need to estimate properly the
negative impact of the competing roads. Also there is a need to check the
renegotiation of the cost of project by the private sector.
In order to create an immediate and visible impact on the everworsening traffic congestion, the government should adopt a rather
unusual selection criterion, the shortest concession period instead of the
conventional lowest toll criterion. As far as finance is concerned, steps
should be taken to increase the foreign investments in PPP projects. Even
though there is a risk factor involved, the agencies must show faith in the
lenders as if the project is completed successfully it is worth investing in
the PPP projects. Lack of planning can result in major failure, costing the
nation an enormous amount. However, if they are planned well, PPP
Dewas-BhopalCorridor
iii.
km
Existing two lane road from end of Sehore bypass to Dewas Bypass
junction (ch. 16+100 to ch. 123+100) = 106.9 km
Under the proposal, Bhopal Sehore existing four lane section is
Road
Development
Corporation
Ltd.
(State
Government
Conditions Precedent:
The rights and obligations of the Parties are subject to the
satisfaction in full of certain conditions set in advance.
Security:
The Concessionaire will give the MPRDC a sum of Rs. 2133 lakhs for
due
and
faithful
performance
of
obligations.
Failure
to
provide
there
8. Procure required rights and licenses
9. Ensure smooth running of project including proper safety
The Concessionaire will exercise the rights and take care of the site at
their own cost. They have certain obligations before the construction.
They need to submit detailed plans which may be rectified by an
independent organization. Perform all deeds. Select a representative for
handling with the government agencies.
The Concessionaire shall prepare and submit drawings promptly. They
should have all necessary details.During construction, a review of the
Detailed Project Report should be carried out and detailed engineering
should be carried out. The existing lanes should also be maintained. They
should be freed from potholes.
Report
to
MPRDC
and
Independent
Consultant.
The
Grant/subsidy:
MPRDC agrees to pay to the Concessionaire Grant/Subsidy as cash
support equal to the Bid of Bidder and accepted by MPRDC namely Rs. 81
crores. Out of the grant for project up to 20% of Total Project Cost is
provided by Government of India, rest is disbursed by MPRDC.
First tranche of 20% id released when the Concessionaire has
contributed his equity as per proposed financing package. MPRDC is given
7 days to process disbursement request. If MPRDC fails to disburse any
tranche within 30 days of acceptance of request, it has to pay an interest
@ SBAR plus 2 percent.
order
to
get
the
loan
under
such
circumstances
the
provide
certificate
from
the
Statutory
Auditors
certifying
The Revenue Shortfall Loan and the interest shall be repaid by the
Concessionaire before termination of Concession Period, in sum equal to
50% of net cash flow.
Escrow account:
The Concessionaire should open an account within 30 days of this
agreement in which all the funds constituting the Financing Package for
meeting Total Cost shall be credited. MPRDC possess rights to make
deductions and appropriations from this account.
Escrow Account, during Concession period is funded by:
o Deposits by GOI, MPRDC as grants/subsidy.
o Instalments of the loans by lenders as performance disbursement
schedule approved by lenders.
o All fees, after incomes and receivables.
o All termination payments.
o All proceeds received from insurance claims.
Insurance:
Insurance during the construction period:
Insurance under construction period may sum up to a maximum in
accordance with financing documents, applicable laws. Such insurance
covers the entire cost of the [project as per MPRDC.
Insurance during Toll Period:
Not later than 4 months prior to the anticipated completion of the
project Highway, the Concessionaire should obtain and maintain no cost to
MPRDC during Toll Period in respect of the project highway and the usage
of the insurance lies in Financing Documents, Applicable Laws.
Accounts and audit:
The Concessionaire shall maintain full accounts of all fees including
Realisable fees and other revenues collected by it from and on account of
use of the Project Highway and of the O&M Expenses and other costs paid
out of the Escrow Account and shall provide copies of the said accounts
duly audited and certified by the Concessionaires Auditors within 180
days of the close of each Accounting Year to which they pertain during
subsistence of this agreement.
Force Majeure:
A Force Majeure event shall mean occurrence in India of any or all of
Non Political Event, Indirect Political Event as defined in the clauses
respectively in the report which prevent the Party claiming Force Majeure
(the
Affected
Party)
from
performing
its
obligations
under
this
Beyond the reasonable control and not arising out of the fault of
(ii)
(iii)
of money, and
Has a Material Adverse Effect on the Project.
right to collect and appropriate all Fees and other revenues from the
Project Highway and exercise the rights of the concessionaire under
this agreement itself or any other person to exercise the same
during such suspension.
b) Compensation for Breach of Agreement The clause lays down the
terms
of
compensation
both
for
MPRDC
as
well
as
the
accordance with the conciliation procedure. The parties may call upon an
independent consultant and arrive at a settlement and failing this either
party may refer to the Steering Group constituted by MPRDC and the
chairman of the Board or directors of the concessionaire and a
representative of GoMP. If the dispute is still not resolved then it shall be
finally decided by reference to Arbitration by a Board of Arbitrators. The
decision relating to any dispute shall be final and binding on the parties as
from the date they are made.
The concessionaire shall make available for inspection during
normal business hours on all working days copies of all records and
reports to MPRDC a and when required.
Redressal of public grievances:
The concessionaire shall maintain a public relations office adjacent
to each Toll Plaza and keep it open to public access. It should maintain a
register/suggestion box for complaints/suggestions. The complaint shall
also be numbered with date and complaint number so that it may be
referred
for
future
correspondence.
The
action
taken
by
the
Video recording
The concessionaire shall provide a video recording with date and
Survival
Termination of the agreement shall not relieve the concessionaire or
iii.
Notices
Any notice or other communication between parties shall be done
Advertisement on site
The concessionaire shall not undertake or permit any form of
Severability
If for any reason, any provision of this agreement is or becomes
No partnership
Nothing contained in this agreement shall be construed or
language
All notices required to be given by one party to the other party and
3.3
SWOT Analysis:
it
was
completed
on
December
31,
2009.
That
means,
standard
approach.
Opportunities:
o The successful completion of the project shall ensure many more such
endeavours in the future.
Chapter 4.Conclusions
The Methodology of Public Private Partnership in highways is based on
capitalizing the private sectors strength and minimising shortcomings of
public sector in the execution of work.
PPP enhances efficiency of work to a higher limit. Certain minimum
standards and norms have been setup by the agency which is being
updated from time to time to meliorate the level of work. Likewise coin,
PPP has its own pros and cons. One of the pros is the low risk involvement
on part of public sector but it is opposite in case of private sector. As work
is performed by private sector and the sole responsibility from the
beginning to completion of project is shared by one party or a group of
companies, the execution is better as compared to that performed by
public sector, because there is involvement of money of individuals in the
project.
In concise notes all the menaces are put in the sack of private
sector and all the credits are credited to public sector. But the success
from the principle of PPP is creditable as outcomes of result are far better.
As per records available not only to the quality of the pavements have
improved drastically, but the life-span or so called the service period of
highways has also increased considerably. Even though, the pros of PPP in
highways outweighs its cons but still the shortcomings should be notified
and the rectification of the same will surely further enhance the efficiency
of PPP projects.
The interest of private sector is certainly a vital component in
successful execution of PPP projects. This interest has been given a boost
in terms of perks awarded to agencies showing interest as well as
participation in the PPP projects.
Policies of PPP accounts for contents ranging from every minute
detail to completion of all the vital steps in execution in maintenance part
of project. All the inadequacies have been set aside in the formulation of
PPP policies. There has been conceptualisation of tender policy, operation,
maintenance and finally transfer of assets to the government. Various
authorities are appointed for inspection and audits to the work place for
testing the execution of work and justifying whether norms and standards
have been enforced or not.
Among the shortcomings, very few aspects have come into notice.
The entailment of such strict provisions may create a setback and
exasperation in the mind of private sector, in case better prospects are
available to them at other places. Also the exaltation to the developers
must be given a hike in terms of better facilities to them.
After scrutinising the details of PPP, it can be concluded that PPP is a
powerful tool in approaching future and can serve better among all the
available methodologies. But at the end, its ones wit which certainly
serves a final decision making about any and every available scheme.
4.
Chapter 5.References
1. The world bank, report on India : Building capacities for PublicPrivate Partnership, Energy and Infrastructure Unit and Finance
and Private Sector Development Unit, South Asia region, June 2006,
p. 13.
2. Savas E.S., Privatisation and Public - Private Partnerships,
Affiliated- east west press. Pvt. Ltd., New Delhi, 2001.
3. Noorjahan Bava. Public Interest and Public Policy, in R.B Jain, (Ed.),
public services in a democratic context, New Delhi, Indian Institute
of Public Administration, 1983, pp. 166-178.
4. India:
Addressing
Constraints
to
Infrastructure
Financing
11.
of
Government
of
India.
Source
website
http://www.pppinindia.com/
12.
Shipping,
Road
Transport
and
Highways
(http://morth.nic.in),
University
of
Delhi,
source
website:
http://cddrl.stanford.edu.
14.
in Delhi, Ashok Kumar (2003), ITPI Journal, Vol. 20.4, No. 2645.