Description
Infrastructure Sector.
KeyWords: National Highways Development Project (NHDP), Golden Quadrilateral, Model Concession Agreement, Built Operate Transfer (BOT), Hindustan Construction Company (HCC), IRB, IVRCL, Bandra Worli Sea Link, Mumbai Pune Express Highway
Presentation on Infrastructure Sector - Roads
Road Network in India
? Road Network of 3.314 million km – 2nd largest in
the world ? Carries about 65% of freight and 86.7% of passenger traffic ? Traffic growth on roads – 7 to 10% p.a. ? National Highways : Constitute 2% of road network but carry 40% of total road traffic
Contd…
? National Highways – Centre managed where as
the rest are taken care of by States/Union Territories ? National Highways further classified according to their carriageway width
National Highways Development Project (NHDP)
? Implementing Agency : NHAI (National Highways
Authority of India) ? Largest highway project ever undertaken by the country ? Aggregate Cost : Rs 2200 bn (US 55 bn$) ? Phases for implementation of projects
? Phase I and II : Golden Quadrilateral (5846km),
North-South and East-West Corridors (7142 km), Port Connectivity (382 km) and Other Projects (962 km) ? Phase III : Up-gradation of 12109 km of National Highways at estimated cost of Rs. 80626 crore on
Contd…
? Phase IV : Widening of 20000 km of highways to
two lanes with paved shoulders ? Phase V : Six laning of 6500 km of selected National Highways ? Phase VI : Development of 1000 km of Expressways at a cost of Rs. 16680 crore ? Phase VII : Construction of 700 km of ring road of major towns and bypasses and construction of flyovers, tunnels, elevated roads etc at a cost of Rs. 16680 crore.
Status of Completion of Phases
NHAI Organization Structure
? Headed by Chairman and 5 full time members –
Member (Admin), Member (Fin.) and 3 Members (Technical)
? 4 part time members ? NHAI entrusted with responsibility of
implementing the NHDP spread over seven phases with estimated expenditure of Rs. 235690 crores by 2015
Highway Financing
? Traditional
? Roads treated as public goods and financed from
general revenue
? Commercial
? Roads treated as capital assets and users charged
for road use.
Private Sector Participation
? Historically, investments made by government
due to large volume of resources required, long gestation period, uncertain returns. ? Bridges the funding gap
? Public sector has a high fiscal deficit ? Private finance supplements public funding
? Increased expenditure and revenue efficiency
? Efficient operations, minimum revenue leakages
? Unbundling and reallocating risk
? Allocating risks to those parties best able to control
them
Contd…
? Internationally also 5-10% of highway projects
financed by private sector.
? Several incentives given to encourage private
participation
? Tax exemptions and tax holidays
? Duty free imports of road building equipments and
machinery ? Reduced state sales tax on construction inputs
? Sub projects in Phase III to Phase VII taken up on
PPP basis by either BOT Toll mode or BOT
Model Concession Agreement
? Published by the Planning Commission for road
concessions under direct tolling
? Model agreement for projects worth more than Rs
100 crore
? Commercial, legal and procedural aspects
defined in details
? All new road projects of NHAI to follow MCA
? NHAI and concessionaires considered equal
Contd…
? Non fulfillment of any or all of conditions (eg:
procurement of permits, approvals etc) can lead to authority to pay damages @ 0.1 % of performance security for each day’s delay
? Issues with MCA
? NHAI not adequately equipped for project
monitoring ? Revision of concession period with variation of traffic growth .
Bidding Process
? 2 stage bidding used to select concessionaire
? Stage I : Uses an objective set of criteria to assess
the technical and financial capability of the bidder
? Stage II : Submission of a technical proposal
(evaluated for conformity with specifications) and a financial proposal containing an evaluation parameter
Project Financing
? BOT Structure (Toll)
? Private investor (concessionaire) is given right to
levy and appropriate toll (fees) from vehicles ? This is in return for obligation to develop, operate and maintain the respective road stretch ? Broad framework for tolling – Based on a base toll level (set in 1996) for different types of projects and same is uniformly applied to national highways projects ? Direct tolling projects eligible for capital grants, determined through bidding process, with level of grant quoted being the sole bidding parameter
Contd…
? BOT (Annuity)
? NHAI retains right to levy user fees ? Concessionaire receives a fixed payment during the
concession period, the annuity payment being the bidding parameter ? Payment begins after project is completed ? Contract has built in incentive for early completion (i.e., annuity payment obligation starts after project completion date)
? Both structures can be combined into a common
hybrid structure – where grant itself would be paid out as annuity
Other Modes of Funding
? Cess on Petrol and Diesel
? Fund collected to be put aside in a Central Road
Fund (CRF) for exclusive utilization for development of a modern road network. ? Amount to be used for:
? Construction and Maintenance of state highways by state
government ? Development of rural roads by state government ? Construction of rail over bridges by Indian Railways ? Construction and maintenance of National Highways by NHDP and Ministry of Road Transport and Highways
? This cess contributes between 5 to 6 thousand
crores per annum towards NHDP
Contd…
? Loan assistance from International funding
agencies like Asian Development Bank, World Bank or other agencies like the Japanese Bank of International Co-operation
? Market Borrowing
? Raising funds from domestic capital market through
bond issuance and borrowings from banks and financial institutions
? Setting up of SPVs (Special Purpose Vehicles)
? These SPVs borrow funds and then repay them
through toll revenues in future
Rural Roads
? Amount sanctioned under the PMGSY (Pradhan
Mantri Gram Sadak Yojana) ? Project began on 25th December 2000 ? Goal is to provide all weather road connectivity to all villages:
? With population of 500 persons and above by 2007 ? In Hill states, tribal and desert areas with a
population of 250 persons and above by 2007
? Monitored by the Union Ministry for Rural
Development
Contd…
? 100% Centrally sponsored. 50% of cess on high
speed diesel (Central Road Fund) earmarked for this programme
? It has a standard bidding document and has set a
maximum time limit for each road building activity
? Work subjected to 3-tier inspection
? In house quality control by contractor
? State level independent quality monitors ? National level quality monitors
Constraints/Issues
? Land Acquisition
? Procedural Formalities, Court Cases and lack of co-
operation from state government
? Environmental and Forest Clearances
? Delay at both central and state level
? Clearances of Railways for ROB Designs
? Coordination required with various departments
which takes considerable time for approvals
Contd…
? Shifting of utilities
? Eg: Shifting of electric lines, water pipelines, sewer
lines, telecommunication lines takes time
? Law and Order Problems
? Activities of anti-social elements ? Stoppage of work by local population
? Poor performance by Contractors
? Poor performance leading to termination of
contracts ? The resulting litigation further delays projects
Budget 2009 -10: Infrastructure Focus
? Investment of about Rs. 6,00,000 crores expected
in the next 5 years for development of ports, roads and airports
? Nearly 80% of the share of above total funds to be
allotted to road sector
? 23 % increased allocation for NHDP projects ? 59% increased allocation to Rs. 12000 crores for
Pradhan Mantri Gram Sadak Yojana.
Golden Quadrilateral Project
• Highway Network Connecting 4
Stretch Total Length Percentage Completion
metros of India.
• 4/6 lane express highways
Delhi - Kolkata 1453 98.5
• Total Length: 5846 kms • Total Project Cost: Rs. 60,000 crores • IL&FS is a major contributor of infrastructure development activity in GQ project.
Kolkata - Chennai
1290
98
Chennai - Mumbai Mumbai
1684
94
Mumbai - Delhi
1419
100
Companies Focused
? Hindustan Construction
Company ? IRB Ltd ? IVRCL Ltd
HCC Construction Business Verticals
Hydro Power Water Solutions Nuclear Power Transportation
Dams Barrages
Pipelines Canals
Nuclear Power Plants
Roads Bridges
Tunnels
Powerhouses
Treatment
Plants
Ports
MRTS
Composition of Projects
Major Transportation Projects
? Badarpur Elevated Highway – Delhi
? MP / Maharashtra Border – Dhule ? Bandra – Worli Sealink, India’s largest Sealink
project
Bandra – Worli Sea link Feasibility Study
? Construction of additional corridor for free flow of
• •
• •
traffic - First Phase: Bandra – Worli - Second Phase: Worli – Nariman Point Initial Project Cost – Rs. 350 Crores Capable of diverting traffic which is around 1,25,000 vehicles in either direction Construction Work undertaken by Hindustan Construction Company Project Duration: 10 years
Return On Investment
Particulars Bandra Worli Sealink Badarpur Elevated highway MP / Maharashtra Border - Dhule 752 18 years
Costs Concession Period
1634 30 years
340 20 years
Bandra – Worli Sealink Project Statistics Estimated Number of Vehicles / Day : 79000
Toll Charges for Vehicles : Rs. 75
Expected Yearly Revenues : Rs. 216 Crores Returns Over 30 years : Rs. 6480 Crores Time Required to Recover Cost: 7.5 years
Issues
? Traffic Congestion on the either ends of the
bridge
? Environmental Concerns with regards to
construction over sea
? Excessive electricity consumption
IRB Ltd
IRB Group
• Incorporated in the year 1998 • Leading Toll Road Operator in Country
Focus Verticals
• Construction and Development of Highway Infrastructure • Development and Operation of BOT Projects • Real Estate Development
Credentials
• Experts in BOT Projects • 7.5% market share on Golden Quadrilateral • Largest BOT Portfolio. Total Length of around 800 km as BOT operator
Mumbai – Pune Express Highway Feasibility Study
? Construction of dual three-lane expressway
? Initial Project Cost – Rs. 1146 Crores ? Diversion of Traffic would be 40 – 45% of the total
corridor traffic ? Work Entrusted to MSRDC due to failure of bidding process ? Selection of Contractors on the basis of technical and financial parameter evaluation. (Technical: 25% & Financial: 75%)
Project Financing
? Preliminary Estimate: Rs. 1630 Crores
? Government gave 1030 hectares of land as
subsidy to the project ? Money raised through issuance of non convertible debentures for Rs. 500 Crores at 14% interest ? Cost Recovery through toll levied on vehicles.
Issues
? No international infrastructure company showed
any interest. ? Only One Indian Company participated in the bid which was rejected. ? Reasons of failure to attract participation was due to uncertainty in toll based system. ? Uncertainty in traffic density.
Major BOT Infrastructure Projects
Mumbai – Pune Express Highway Total Length : 95 Kms Expected EIRR: 17.81% (During Feasibility Study) Concession Period: 15 Years Total Cost of Project: Rs. 1630 Crores Revenues: Rs. 288 Crores for 2008 -09
Returns over 15 years: Rs. 4320 Crores
Time Required to Recover Cost: 5.6 years
Major BOT Infrastructure Projects
Surat – Dahisar Section of NH8 Total Length : 240 Kms Concession Period: 12 Years Total Cost of Project: Rs. 2835 Crores Revenue Share of 38% to be given to NHAI in the first year and will be increased by 1% yoy Revenues: Rs. 34 Crores for 2008 -09 Time Required to Recover Cost: 9 years
IVRCL Ltd
? Currently Present in 4 Business Verticals
- Water and Environmental - Transportation - Buildings and Industrial Structures - Power
Composition of Order Book
Operating Margins of Various Segments
1. Water Segment: 10 -10.5%
2. Building and Industrial Segment: 11 -11.5%
3. Road Segment: 9 -9.5% 4. Power Segment: 11%
Major Road/BOT Projects
Particulars Madurai – Kanyakumari NHAI Cost 392
Alwar – Sikandra NHAI
110
Salem – Kumarpalyam NHAI (BOT Project)
470
Kumarpalyam – Chengapalli NHAI (BOT Project)
Jalandhar – Amritsar NHAI (BOT Project)
398
214
Equity IRR ~33% for BOT Projects Continuously reduced the order book in road segment. Company plans not to bid for BOT project but continue with the EPC order for road projects
Thank You
doc_400414354.ppt
Infrastructure Sector.
KeyWords: National Highways Development Project (NHDP), Golden Quadrilateral, Model Concession Agreement, Built Operate Transfer (BOT), Hindustan Construction Company (HCC), IRB, IVRCL, Bandra Worli Sea Link, Mumbai Pune Express Highway
Presentation on Infrastructure Sector - Roads
Road Network in India
? Road Network of 3.314 million km – 2nd largest in
the world ? Carries about 65% of freight and 86.7% of passenger traffic ? Traffic growth on roads – 7 to 10% p.a. ? National Highways : Constitute 2% of road network but carry 40% of total road traffic
Contd…
? National Highways – Centre managed where as
the rest are taken care of by States/Union Territories ? National Highways further classified according to their carriageway width
National Highways Development Project (NHDP)
? Implementing Agency : NHAI (National Highways
Authority of India) ? Largest highway project ever undertaken by the country ? Aggregate Cost : Rs 2200 bn (US 55 bn$) ? Phases for implementation of projects
? Phase I and II : Golden Quadrilateral (5846km),
North-South and East-West Corridors (7142 km), Port Connectivity (382 km) and Other Projects (962 km) ? Phase III : Up-gradation of 12109 km of National Highways at estimated cost of Rs. 80626 crore on
Contd…
? Phase IV : Widening of 20000 km of highways to
two lanes with paved shoulders ? Phase V : Six laning of 6500 km of selected National Highways ? Phase VI : Development of 1000 km of Expressways at a cost of Rs. 16680 crore ? Phase VII : Construction of 700 km of ring road of major towns and bypasses and construction of flyovers, tunnels, elevated roads etc at a cost of Rs. 16680 crore.
Status of Completion of Phases
NHAI Organization Structure
? Headed by Chairman and 5 full time members –
Member (Admin), Member (Fin.) and 3 Members (Technical)
? 4 part time members ? NHAI entrusted with responsibility of
implementing the NHDP spread over seven phases with estimated expenditure of Rs. 235690 crores by 2015
Highway Financing
? Traditional
? Roads treated as public goods and financed from
general revenue
? Commercial
? Roads treated as capital assets and users charged
for road use.
Private Sector Participation
? Historically, investments made by government
due to large volume of resources required, long gestation period, uncertain returns. ? Bridges the funding gap
? Public sector has a high fiscal deficit ? Private finance supplements public funding
? Increased expenditure and revenue efficiency
? Efficient operations, minimum revenue leakages
? Unbundling and reallocating risk
? Allocating risks to those parties best able to control
them
Contd…
? Internationally also 5-10% of highway projects
financed by private sector.
? Several incentives given to encourage private
participation
? Tax exemptions and tax holidays
? Duty free imports of road building equipments and
machinery ? Reduced state sales tax on construction inputs
? Sub projects in Phase III to Phase VII taken up on
PPP basis by either BOT Toll mode or BOT
Model Concession Agreement
? Published by the Planning Commission for road
concessions under direct tolling
? Model agreement for projects worth more than Rs
100 crore
? Commercial, legal and procedural aspects
defined in details
? All new road projects of NHAI to follow MCA
? NHAI and concessionaires considered equal
Contd…
? Non fulfillment of any or all of conditions (eg:
procurement of permits, approvals etc) can lead to authority to pay damages @ 0.1 % of performance security for each day’s delay
? Issues with MCA
? NHAI not adequately equipped for project
monitoring ? Revision of concession period with variation of traffic growth .
Bidding Process
? 2 stage bidding used to select concessionaire
? Stage I : Uses an objective set of criteria to assess
the technical and financial capability of the bidder
? Stage II : Submission of a technical proposal
(evaluated for conformity with specifications) and a financial proposal containing an evaluation parameter
Project Financing
? BOT Structure (Toll)
? Private investor (concessionaire) is given right to
levy and appropriate toll (fees) from vehicles ? This is in return for obligation to develop, operate and maintain the respective road stretch ? Broad framework for tolling – Based on a base toll level (set in 1996) for different types of projects and same is uniformly applied to national highways projects ? Direct tolling projects eligible for capital grants, determined through bidding process, with level of grant quoted being the sole bidding parameter
Contd…
? BOT (Annuity)
? NHAI retains right to levy user fees ? Concessionaire receives a fixed payment during the
concession period, the annuity payment being the bidding parameter ? Payment begins after project is completed ? Contract has built in incentive for early completion (i.e., annuity payment obligation starts after project completion date)
? Both structures can be combined into a common
hybrid structure – where grant itself would be paid out as annuity
Other Modes of Funding
? Cess on Petrol and Diesel
? Fund collected to be put aside in a Central Road
Fund (CRF) for exclusive utilization for development of a modern road network. ? Amount to be used for:
? Construction and Maintenance of state highways by state
government ? Development of rural roads by state government ? Construction of rail over bridges by Indian Railways ? Construction and maintenance of National Highways by NHDP and Ministry of Road Transport and Highways
? This cess contributes between 5 to 6 thousand
crores per annum towards NHDP
Contd…
? Loan assistance from International funding
agencies like Asian Development Bank, World Bank or other agencies like the Japanese Bank of International Co-operation
? Market Borrowing
? Raising funds from domestic capital market through
bond issuance and borrowings from banks and financial institutions
? Setting up of SPVs (Special Purpose Vehicles)
? These SPVs borrow funds and then repay them
through toll revenues in future
Rural Roads
? Amount sanctioned under the PMGSY (Pradhan
Mantri Gram Sadak Yojana) ? Project began on 25th December 2000 ? Goal is to provide all weather road connectivity to all villages:
? With population of 500 persons and above by 2007 ? In Hill states, tribal and desert areas with a
population of 250 persons and above by 2007
? Monitored by the Union Ministry for Rural
Development
Contd…
? 100% Centrally sponsored. 50% of cess on high
speed diesel (Central Road Fund) earmarked for this programme
? It has a standard bidding document and has set a
maximum time limit for each road building activity
? Work subjected to 3-tier inspection
? In house quality control by contractor
? State level independent quality monitors ? National level quality monitors
Constraints/Issues
? Land Acquisition
? Procedural Formalities, Court Cases and lack of co-
operation from state government
? Environmental and Forest Clearances
? Delay at both central and state level
? Clearances of Railways for ROB Designs
? Coordination required with various departments
which takes considerable time for approvals
Contd…
? Shifting of utilities
? Eg: Shifting of electric lines, water pipelines, sewer
lines, telecommunication lines takes time
? Law and Order Problems
? Activities of anti-social elements ? Stoppage of work by local population
? Poor performance by Contractors
? Poor performance leading to termination of
contracts ? The resulting litigation further delays projects
Budget 2009 -10: Infrastructure Focus
? Investment of about Rs. 6,00,000 crores expected
in the next 5 years for development of ports, roads and airports
? Nearly 80% of the share of above total funds to be
allotted to road sector
? 23 % increased allocation for NHDP projects ? 59% increased allocation to Rs. 12000 crores for
Pradhan Mantri Gram Sadak Yojana.
Golden Quadrilateral Project
• Highway Network Connecting 4
Stretch Total Length Percentage Completion
metros of India.
• 4/6 lane express highways
Delhi - Kolkata 1453 98.5
• Total Length: 5846 kms • Total Project Cost: Rs. 60,000 crores • IL&FS is a major contributor of infrastructure development activity in GQ project.
Kolkata - Chennai
1290
98
Chennai - Mumbai Mumbai
1684
94
Mumbai - Delhi
1419
100
Companies Focused
? Hindustan Construction
Company ? IRB Ltd ? IVRCL Ltd
HCC Construction Business Verticals
Hydro Power Water Solutions Nuclear Power Transportation
Dams Barrages
Pipelines Canals
Nuclear Power Plants
Roads Bridges
Tunnels
Powerhouses
Treatment
Plants
Ports
MRTS
Composition of Projects
Major Transportation Projects
? Badarpur Elevated Highway – Delhi
? MP / Maharashtra Border – Dhule ? Bandra – Worli Sealink, India’s largest Sealink
project
Bandra – Worli Sea link Feasibility Study
? Construction of additional corridor for free flow of
• •
• •
traffic - First Phase: Bandra – Worli - Second Phase: Worli – Nariman Point Initial Project Cost – Rs. 350 Crores Capable of diverting traffic which is around 1,25,000 vehicles in either direction Construction Work undertaken by Hindustan Construction Company Project Duration: 10 years
Return On Investment
Particulars Bandra Worli Sealink Badarpur Elevated highway MP / Maharashtra Border - Dhule 752 18 years
Costs Concession Period
1634 30 years
340 20 years
Bandra – Worli Sealink Project Statistics Estimated Number of Vehicles / Day : 79000
Toll Charges for Vehicles : Rs. 75
Expected Yearly Revenues : Rs. 216 Crores Returns Over 30 years : Rs. 6480 Crores Time Required to Recover Cost: 7.5 years
Issues
? Traffic Congestion on the either ends of the
bridge
? Environmental Concerns with regards to
construction over sea
? Excessive electricity consumption
IRB Ltd
IRB Group
• Incorporated in the year 1998 • Leading Toll Road Operator in Country
Focus Verticals
• Construction and Development of Highway Infrastructure • Development and Operation of BOT Projects • Real Estate Development
Credentials
• Experts in BOT Projects • 7.5% market share on Golden Quadrilateral • Largest BOT Portfolio. Total Length of around 800 km as BOT operator
Mumbai – Pune Express Highway Feasibility Study
? Construction of dual three-lane expressway
? Initial Project Cost – Rs. 1146 Crores ? Diversion of Traffic would be 40 – 45% of the total
corridor traffic ? Work Entrusted to MSRDC due to failure of bidding process ? Selection of Contractors on the basis of technical and financial parameter evaluation. (Technical: 25% & Financial: 75%)
Project Financing
? Preliminary Estimate: Rs. 1630 Crores
? Government gave 1030 hectares of land as
subsidy to the project ? Money raised through issuance of non convertible debentures for Rs. 500 Crores at 14% interest ? Cost Recovery through toll levied on vehicles.
Issues
? No international infrastructure company showed
any interest. ? Only One Indian Company participated in the bid which was rejected. ? Reasons of failure to attract participation was due to uncertainty in toll based system. ? Uncertainty in traffic density.
Major BOT Infrastructure Projects
Mumbai – Pune Express Highway Total Length : 95 Kms Expected EIRR: 17.81% (During Feasibility Study) Concession Period: 15 Years Total Cost of Project: Rs. 1630 Crores Revenues: Rs. 288 Crores for 2008 -09
Returns over 15 years: Rs. 4320 Crores
Time Required to Recover Cost: 5.6 years
Major BOT Infrastructure Projects
Surat – Dahisar Section of NH8 Total Length : 240 Kms Concession Period: 12 Years Total Cost of Project: Rs. 2835 Crores Revenue Share of 38% to be given to NHAI in the first year and will be increased by 1% yoy Revenues: Rs. 34 Crores for 2008 -09 Time Required to Recover Cost: 9 years
IVRCL Ltd
? Currently Present in 4 Business Verticals
- Water and Environmental - Transportation - Buildings and Industrial Structures - Power
Composition of Order Book
Operating Margins of Various Segments
1. Water Segment: 10 -10.5%
2. Building and Industrial Segment: 11 -11.5%
3. Road Segment: 9 -9.5% 4. Power Segment: 11%
Major Road/BOT Projects
Particulars Madurai – Kanyakumari NHAI Cost 392
Alwar – Sikandra NHAI
110
Salem – Kumarpalyam NHAI (BOT Project)
470
Kumarpalyam – Chengapalli NHAI (BOT Project)
Jalandhar – Amritsar NHAI (BOT Project)
398
214
Equity IRR ~33% for BOT Projects Continuously reduced the order book in road segment. Company plans not to bid for BOT project but continue with the EPC order for road projects
Thank You
doc_400414354.ppt