Public Private Partnership in Highway Sector in Punjab, India Infrastructure Governance Roundtable March 24 th, 2006 Kulwinder Singh Rao Deputy Project Director Punjab Roads & Bridges Development Board
Structure of Presentation Basic Information about Punjab, India Advent of PPP in Punjab & India Policy Initiatives Overview of Existing Provisions Results Summary-Issues/lessons Time 45 Minutes
India, Punjab Likely Gateway for Trade Opportunities with Central and Western Asia
Roads Constitutional Provisions in India Legislative Powers under Article 246- Seventh Schedule Union List (I) Entry 23 National Highways Entry 96 Fees CENTRAL GOVERNMENT State List (II) Entry 13 Roads, Bridges etc. Entry 59 Tolls STATE GOVERNMENT
Punjab Geographical area : 50,362 sq. km 1.5% of India's total area. Population : 24.35 Millions Urban-Rural ratio : 34:66 Topography : Flat Alluvial Plain Literacy rate : 70% Number of Registered Vehicles : 3.52 Million
Punjab Road Network National Highways State Highways Village Roads : 1739 kms : 7374 kms : 42070 kms Urban Roads : 3000 kms Punjab National Average World (Highest) 1.1 0.7 4.7 0 2 4 6 Kms. / Sq.Km Area Dominance of Road Transport Share (70%)
9 Years back 60% of road network 3-5 IRI Fair to poor road surface 20% had IRI > 5, Roads unworthy of travel Receding funds from Budget
Strategy for Change Separate the planning and execution functions in road sector Create a dedicated source of funding Seek and secure alternate sources of funding
PRBDB Established as a statutory body in 1998 To improve the Quality of Roads & Bridges infrastructure in State of Punjab. To constitute a road fund. BOD Headed by Chief Minister, supported by Executive Committee
How it began? Debt based financing Private placed Bonds, Domestic Financial Institutions (HUDCO), Borrowings from NABARD Amounts raised US $ 125M Length Approx 1500 Km Barrowing backed by Govt Guarantees Project execution Item Rate Contracts Executing Agency PWD
PPP-Reasons for Change Inadequacy of Public resources Limit to debt financing Acceleration of infrastructure provisioning Efficiency improvements Faster Implementation Improved quality of service Around this time, PPP begins at National Level
NHDP NHDP I (Golden Quadrilateral Project) US $ 5.5 billion Total Length 5846 kms 88% Completed 5154 kms Total Contracts 49 NHDP II (NSEW Corridor) US $ 7.5 billion Total Length 7300 kms Completed 812 kms (target December, 2007) Total Contracts 123 NHDP III (US $ 12.2 billion) Total Length 10000 kms Total US $ 42 billion 5 more phases to follow (US $ 17 billion)
Policy Initiatives for PPP in Road Sector Road Sector declared an Industry 100 % FDI Allowed External Commercial Borrowing (ECB) 35% 100% tax exemption for 5 years 30% tax relief for another 5 years Duty free import of equipment
PPP in Punjab-Legal Framework 1998 The Punjab mechanical vehicles (B&R) Tolls Act 1999 Punjab Infrastructure Development Board set up 2002 Punjab Infrastructure Regulatory Act (PIRA) 2004 State Toll Policy 2004 Model Concession Agreement 2005 PRBDB Act amended
The Punjab Infrastructure (Development & Regulation) Act 2002 To create Apex body for overall planning of Infrastructure sector and Infrastructure projects To provide a regulatory framework to attract private sector into the Infrastructure sector Single window clearance
PIRA Regulatory Authority Independent Punjab Infrastructure Regulatory Authority 3-7 member body Formulate policy/guidelines relating to tariff To conduct public hearings Adjudicate upon appeals against award/approval of projects disputes relating to concessions
PIRA Project Selection Process Selection process in consultation with State Government Public Consultations introduced Finalizing of scope, funding & structuring of Project Preparation of Final Feasibility Reports
PIRA Selection Procedures Competitive Public Bidding Two Staged Evaluation process Technical Evaluation followed by Financial Evaluation Negotiations only if single final bidder Unsolicited bid Swiss Challenge technique adopted Special Purpose Vehicles allowed Advertise Advertise Prequalification Prequalification Bidding Bidding Process Process Bid Bid Evaluation Evaluation Contract Contract Award Award
Procurement Method Competitive bidding Method adopted Single bidding element kept- Grant Element Simplicity Transparency Lack of capacity in Government
Toll Policy- July 2004 (FIRST OF ITS KIND IN INDIA) Open system of tolling Basic Toll Rates/ Km specified. Automatic Annual revision of basic Toll Rates. Till 2011, 10% flat increase plus indexation to Inflation (WPI) Peak and Off Peak Toll Charge. Additional Charge for Evasion of Toll Charges. Additional Charges for overloading Local Users Frequent Traveler discounted
User Charges Sr. No. Category of vehicle Basic Toll Rate per vehicle (Cents per mile) Min. Toll charge (in Cents Per trip) Toll charged by NHAI (as on 01.04.04) (Cents per mile) 1 Car/ Three Wheeler 1.25 22.22 1.96 2 LCV/ Tractor with Trailer 3 Bus/ Truck/ Road Roller Initial toll 1.90 33.33 3.40 3.75 66.67 6.80 rates lower by 1/3 rd 4 Heavy Truck 5.72 88.89 14.50 5 Earth Moving & other self propelled equipment 7.15 $ 1.1 -
Model Concession Agreement Risk sharing allocation Bankable to avoid negotiations Involved all stakeholders upfront Prospective Concessionaires-2 Workshops Lenders-Single Workshop
MCA Construction Performance Security Typical 5% of Total Project Cost Reduced to 1% upon investment of 15% of Project cost Operation Performance Security Typical 1% of Total Project Cost Insurance covers
MCA Borrowing Guarantee by the State (Contingent Liability) Minimum 90% of the debt due Revenue Short fall Loan Indirect Political/ Political event/ Government event of default
MCA Change in scope Upto 5% of Total Project Cost Capacity Augmentation possible No competing facility in first 8 years Later Concession Period extended
MCA- Force Majeure Typically the Concession Period extended Cost during Force Majeure Events Non Political event- respective parties Indirect Political event- Half by Government Political Event- Fully by Government Deterrent Payouts to prevent Political Force Majeure Termination if Events persist for more than 120 days in a continuous period of 365 days
MCA- Other Capital Grant up to 40% of Total Project Cost (Estimated upfront by Govt) Entire Grant payable during construction phase only pro-rata release linked to releases of loan by lenders Conditional Equity Dilution permitted
Monitoring Performance Engineer appointed by State Independent Quality Control Consultant paid by State Role limited to Performance Monitoring Service Quality Criteria defined (e.g Roughness) Measurement mode- (Use Bump integrator) Frequency of measurement prescribed ( To be done half yearly) Time allowed for repair (30 days)
What has been done so far ROB at Dera Bassi 4 BOT Road Works 2 O&M Contracts 7 BOT works Concessioning 3 Road Projects in Bidding, Screening & pipeline Selection Started Preliminary Assessment on effectively Year Concessions 2004-5 15 works bid Project Definition & out Feasibility Assessment Project Identification Financial Closure Infrastructure Project Policy & Guidelines Pre Private Participation Started in Year 1998-99
ROB at Dera Bassi - The First Step Towards Privatisation Project specific Length - Bridge portion = 49.60 m Approaches Project Cost - $ 8.0 million Bid Process details Bidding Element was concession period Bid awarded to Jan 18, 1999 Project Implementation Schedule Construction period - 2 years = 1507.40 m Actual commissioning date 13 th April 2002 Concession period - 7 years 5 months and 25 days
ROB Project Interesting Facts Project delayed initially due to forest clearance Interest rate fell 16.5% to 9.25% Traffic realized 60% Service roads acting as competing facility Project survived on renegotiations of loans
Story so far Tranche No. of projects Length (kms) Project Cost Grant No. of concessiona ires I 2 154 US $ 38 M 40% 1 II 5 253 US $ 68 M Overall 25% 4 III 4 189 US $ 53 M (-)8% 3
BOT road Projects Total no. of roads 11 Total Length 600 kms Total Cost US $ 160 M
Private Sector Participation Under NHDP as on Sept 2005 Annuity mode deferred payments 8 contracts BOT roads Toll 35 projects Special purpose vehicles 12 projects Total length 2780 kms Total Cost US $ 3 billion Nearly 7.5% Negative Grant of US S 400 Million
Issues Procurement Issues: Aggressive timetables non-negotiated procurement process Based on traditional procurement principles Contingent liabilities of Government
Issues Payment of grant during Operation period Negative Grant Negative & positive grant in single offer Equivalent to top loading Refinancing benefits
To sum up Early days most of the projects under implementation phase Over emphasis on concessionaire taking revenue risk (high degree of risk transfer) Limited international developer / financier participation Primarily domestic contracting industry led very few developers Capital market maturity and capacity to handle increasing PPP projects across sectors likely to be important Availability of land, regulatory and institutional structure to become critical issues
Thank you Contact No.: +91 987 632 2333 3Email : kulwinder.rao@prbdb.gov.in