Model Concession Agreement

Model Concession Agreement for Highway Sector

1.1 General

Model Concession Agreement (MCA) is the contract documents that specify the rights and responsibilities of the Government and Private sector in PPP model.

It has been developed for private participation for the project. Model Concession Agreement clearly lays down the principal governing risk sharing between various share holders.

1.2 Need for Study

Infrastructure in India is witnessing a significant interest from both domestic as well as foreign investors following the policy initiatives taken by the Government of India to PPP.

However, the inflow of investment will depends on a comprehensive policy and regulatory framework necessary for addressing the complexities of PPP.

For sustaining private investment in up gradation and maintained of the Highway on PPP basis, a precise policy and regularity framework is being spelt out in a Model Concession Agreement (MCA).

1.3 Objectives

1.) To study the MCA for PPP project in highway sector.2.) To propose the ideal framework for PPP project in Highway Sector.

1.4 Scope of Study

Road sector in India had great potential for investors. The GOI planned to set target a building 7000 km of roads per year and would require an investment of about $70 billion in the 3-4 years.

PPP would play an important role in this programmed as about $ 40 billion was expected from the private sector.

M.Tech. (Construction & Project Management), Manish Patel (CP1209)

1. INTRODUCTION


2.1 Introduction

Model Concession Agreement (MCA) is the contract documents that specify the rights and responsibilities of the Government and Private sector in PPP model.

It has been developed for private participation for the project. Model Concession Agreement clearly lays down the principal governing risk sharing between various share holders.

The highways sector in India is witnessing a significant interest from both domestic as well as foreign investors following the policy initiatives taken by the Government of India to promote Public Private Partnership (PPP) on various models. However, the inflow of investment will depend on a comprehensive policy and regulatory framework necessary for addressing the complexities of PPP (Journal of the Indian Roads Congress, April-June 2009).

For sustaining private investment in up gradation and maintenance of the Infrastructure projects on PPP basis, a precise policy and regulatory framework is being spelt out in a Model Concession Agreement (MCA).

This framework addresses the issues which are typically important for limited recourse financing of infrastructure projects, such as mitigation and unbundling of risks; allocation of risks and rewards; symmetry of obligations between the principal parties; precision and predictability of costs and obligations; reduction of transaction costs; force majeure; and termination.

It also deals adequately with other important concerns such as user protection; transparent and fair procedures; and financial support from the Government.

The MCA also elaborates on the basis for commercializing highways in a planned and phased manner through optimal utilization of resources on the one hand and adoption of international best practices on the other. The objective is to secure value for public money and provide efficient and cost effective services to the users.


2. LITERATURE REVIEW


Fig. 1 Role, Skill Requirement, and Risks of Private sector

(Source: Risk Mitigation Strategies in PPP- Projects)

2.2 Projects undertaken through PPP

A brief detail of the projects under Public Private Partnership (PPP) are as under.

2.2.1 BOT (Toll) Projects

So far 48 numbers of projects valued about Rs.9329.21 crore haven been taken up on Built Operate and Transfer (BOT) basis (Toll based projects)

Out of this, 23 numbers of projects have been completed and 25 projects are under progress.

2.2.2 BOT (Annuity) Projects

8 number of projects valued about Rs. 2354 crore, has been taken up on Annuity basis of which all projects except only two, amounting to Rs. 664.30 crore are completed.

2.2.3 Special Purpose Vehicles (SPV)

12 number of projects valued about Rs. 2339 crore have been taken up under SPV funding

5 numbers of projects amounting to Rs. 890 crore have been completed so far.



7 numbers of projects amounting to Rs. 1449 crore are in progress on SPV basis

(Source: ministry of rod transportation and highway)

2.3 Issues in Model Concession Agreement:

2.3.1 Legal IssueConcession AgreementCondition PrecedencePerformance SecurityObligation of SecurityObligation of AuthorityForce MajeureSuspensionAdditional Toll way

2.3.2 Financial IssuesFinancial ClosureGrantsRevenue ShortfallEscrow AccountState Support Agreement

2.3.3 Technical IssuesScope and Facilities of the ProjectMonitoring and Supervision of Construction by Independent

ConsultantsOperation, Maintenance and Safety Requirement

(Source: Journal of the Indian Road Congress, April – June 2009)

2.4 Application of the Model

As per David Lavinson, et. all. Successful PPPs have well-defined roles that both improve the quality and quantity of transportation and provide at least a normal profit to private participants. They measured success across a number of criteria, including a general assessment of the support for the project by the various stakeholders: public, government (civil service), political, and private; looking at adherence to initial forecasts (on-time, on-budget, demand realized); considering whether the project was extended or the parties undertook additional projects (success breeds success); and considering more objective assessments of whether the project served the public good.



(Source: Edward Elgar Publishers, 2006)

2.5 Improving in Concessionaire Selection

Selection of the most suitable concessionaire is critical to the success of a PPP project. Successful selection of the most suitable concessionaire depends on a number of issues, which include the quality of (1) the general arrangement of the selection process, (2) of the definition of project objectives and core requirements, (3) identifying and defining project-specific criteria, (4) the prequalification and tender evaluation methodology, (5) the understanding of what these tenders can achieve, and (6) the negotiation skills.

An appropriate selection protocol should be followed that may incorporate public procurement principles, a best-value-selection approach, a competitive process, and a multicriteria prequalification and tender evaluation methodology. A number of methods have been in practice for prequalification and tender evaluation and can be modified and combined to suit a particular project.

Tender costs for BOT-type projects are extremely high. Interested parties should be shortlisted before asking them to submit tenders in order to minimize overall tendering costs in the industry. Critical successful factors and other important criteria can be coded and classified into relevant criterion packages to facilitate evaluation.

(Source: Journal of Construction Engineering and Management, September – October 2004)

Together with the Schedules, the proposed framework addresses the issues that are likely to arise in financing of highway projects on BOT basis. The proposed regulatory and policy framework contained in the MCA is critical for attracting private investment with improved efficiencies and reduced costs, aimed at accelerating growth.

(Source:Risk Mitigation Stratigies in PPP)

Currently the PPP model has not matured largely due to lack of clarity and assurances in terms of the stakeholders interests derived from the revenue models so far developed for roads, ports and airport projects. At a



conceptual level, clarity is clearly missing in understanding and structuring a PPP framework from a strategic, financial, tax, legal and business perspective

PPP structures are still skewed towards the largest monopoly- the government Ecosystem still ignores the Risk Matrix and their multiplier effect on projects and their viability. PPPs still run more than ordinary business risks like Political Risk, Regulatory Risk, Green-field Risk, Financial Closure Risk, Execution Risks, Feasibility Risks etc and the interplay of this could be in geometric proportions leading to disproportionate Risk-Reward and unfavorable investment ecosystem.

Risk capital is still averse. Large Private Equity prefer participating at grow stage when the cash flows are visible, and the very nature of the PPPs are that they are front-loaded with huge capital, long gestations, cash flow visibility typically after 4 to 7 years and steady cash flows during the concession. What India needs is venture capital at preoperative stage once the definitive agreements are signed with the government.

Many lenders have already shot over the headroom in the infrastructure space leading to many projects facing delays in financial closures. Clearly this requires a big push from the Ministry of Finance and RBI in terms of dedicated pipeline for funding PPPs 60 Despite all the challenges, Public Private Partnerships have become increasingly attractive as reflected in many global infrastructure initiatives. As PPPs can also achieve social and environmental objectives, PPPs can emerge as a major mechanism to raise the standard of living of the society.

(Source:Risk Mitigation Stratigies in PPP)

2.6 Research Gap

From the literature survey of last one decade, it is found that there are some pitfalls present in Legal, Financial & Technical issues of model concession agreement for Highway Sector.

Thus present research aims to suggest new features for improving model concession agreement for the Highway Sector.



3.1 An Overview

To fulfill the objective of the study and conclude with some effective

recommendation data collection has been done in stages. The first stage,

opinion survey, is conducted to find out the factors affecting the process of

privatization and risk associated with it. As a second stage, collecting the

data for road network in India and focusing it to the state of Gujarat. Lastly

conducting a case study with the emphasis of implication of Model

Concession Agreement on the project taken on BOT concept. The data

collection for the three stages mentioned above is done for the following

format.

Opinion Survey

Road network in India

Detailed Case Study

3.2 Opinion Survey

3.2.1 Objective

To find out different factors, impeding the smooth implementation

process in privatization in Infrastructure project. Survey also focuses on the

factors associated with the project risk.

3.2.2 Methodology

Meeting private sector entrepreneurs and sharing experienced based

information related to the objective of the study. The factor so surveyed

(on the basis of questionnaire) is analyzed, relating it with the implication

of the Model Concession Agreement in risk allocation and Mitigation.


3. DATA COLLECTION


3.2.3 List of factors affecting the process of privatization

The factors leading to the impending execution of the project due to

the risk associated with it, according to the private sector and on the basis

of questionnaire is listed Table 3.1. The factors are not mentioned as

component specific, rather taken as affecting the project as a whole. It is

the reflection of private sector from their past experience with the

government and other department of the government leading to lack of

confidence for encouraging privatization in the state of Gujarat.

Table 1 List of Factors impending to the process of Privatization

Sr No. Factors

1 Achieving FIRR on time

2 Corruption

3 Delays in land acquisition

4 Government imprudence

5 Ill chosen methods of subsidies

6 Inordinate delays

7 Interdepartmental conflicts

8 Lack of stability & clarity of policy

9 Lack of regulatory framework

10 Lack of Institutional framework

11 Lack of corporate governance

12 Lack of technical competence

13 Market distortion

14 MoA route for selection of t6he developer

15 Non economic goals

16 Non availability of domestics financial markets

17 Payment security

18 Poor interministerial coordination

19 Quality of project



20 Socio political considering

21 Underdeveloped capital markets

3.3 Detailed Case Study. (Vadodara – Halol Road Project)

The Vadodara – Halol road, which links Vadodara city to the industrial town of Halol, is one of the important State Highway in the State of Gujarat. The strategic option study of the state road network instituted by the Government of Gujarat in 1995, to indentify and priority to this road section. The road & Building department, government of Gujarat (GoG), desirous of implementing the concept of widening and strengthening of exiting State levy of toll on such improved section, have already entered onto a Memorandum of Agreement with infrastructure Leasing & Financial Service Limited (IL & FS) to develop advantage and implement the widening/strengthening of the Vadodara- Halol section of the State Highway (SH 87) on a commercial format.

3.3.1Project CharacteristicsIt is project road to be strengthened and widened to 4 lanes along

with the provision of through service road, abutting the carriageway serving to d=segregate slow moving traffic and local trips with a deferential toll rate for the main carriageway and service road.

The project road extends from the intersection of Vadodara by pass to the intersection of the Halol Bypass and is 32 km long.

3.3.2Project Road Description. Vadodara – Halol road begins at km 8/300 at the intersection of SH 87 with Vadodara bypasss (NH 8) and ends at km 40/0 at the start of Halol bypass..Following are the physical features along the project road:

Three major bridges:1) Nallah (km 14/050)2) Across Narmada Canal (km 32/600)3) Nallah (km 36/800)

Three minor bridges:1) Nallah (km 23/700)2) Zuria River (km 27/00)3) Nallah (km32/460)



8 intersections 17 pipe culverts and 12 slab culverts

3.3.3Project Cost.The project cost for service road abutting the main carriageway , the base construction cost comes to Rs. 935.43 millions. The abstract costing is given in Table 3.1 and the initial expenditure as per Table 3.2

Table 2 Summary of Construction Costs.

Sr. No.

Description Cost (Rs.Million)

1 Site Clearance 1.4

2 Earth Works 85.62

3 Pavement Works 440.28

4 Major and Minor Bridges 87.52

5 Junction Improvement and access 54.12

6 Road furniture 62.71

7 Toll Plaza 48.00

8 Crossing for Service Road. Including in sr. no. 6

9 CD works and drains 65.22

10 Environmental and Social Costs. 77.46

11 Cost of Shifting of Services and Other Items. 13.10

12 Base Construction Cost 935.43



Table 3 Details of Landed Project Cost

Sr No.

Description Cost (Rs. Millions)

1 Base construction cost 1.402 Site establishment charges @2% 85.623 Detailed engineering, quality control &

construction supervision charges @ 5%440.28

4 Establishment / Pre operative 87.525 Insurance Charges 54.126 Legal mortgage 62.717 Financing and administrative charges 488 Price contingency Including in

Sr no. 69 Physical contingency 65.2210 Interest during construction 77.4611 Total Project Cost 13.10




Model Concession Agreement for highway Sector

Table 3.2 Expenditure Schedule (previous data)

Item Description Des’ 97-Jan’98

Feb-Mar’98

Apr-May’98

Jun-Jul’98

Aug-Sep’98

Oct-Nov’98

Dec’98-Jan’99

Feb-Mar’99

Apr-May’99

Site Clearance 0.00 1.4 0.00 Rain 0.00 0.00 0.00 0.00 0.00

Earth Works 0.00 25.69 25.69 0.00 25.69 8.56 0.00 0.00 0.00

Widening & Strengthening of Exiting pavement

0.00 0.00 36.98 0.00 73.97 36.98 92.46 92.46 36.98

New Pavement Construction 0.00 0.00 1.19 0.00 2.11 1.98 3.43 3.83 0.66

Pavement works foe lane Changing Options

0.00 0.00 0.00 0.00 17.17 8.59 14.31 14.31 2.86

Landscaping 0.00 0.00 0.00 4.65 4.65 4.65 4.65 4.65 0.00

Construction of Cross Drainage Works

0.00 6.52 9.78 0.00 26.09 9.78 13.04 0.00 0.00

Minor Bridges 0.00 0.44 0.88 0.00 1.79 0.88 0.44 0.00 0.00

Major Bridges 0.00 8.31 12.47 0.00 20.79 12.47 15.8 6.65 6.65

Junction Improvement and Road furniture

0.00 0.00 0.00 0.00 0.00 17.52 40.89 35.03 23.37

Shifting of utilities and Other Items.

26.93 40.39 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Toll Plaza and Miscellaneous item

0.00 0.00 0.00 0.00 7.20 0.00 14.4 14.4 12.00

Total Expenditure 26.93 82.75 86.99 4.65 179.41 101.42 199.42 171.35 82.35


3.3.4Traffic StudyVadodara Halol road currently caters to about 18000 PCU per day very much near to capacity of the road. The stretch of road cater to car traffic destined principally to Halol & Godhra and truck traffic between Vadodara and Panchmahal as well as long distance traffic with destination as Delhi, Punjab, Rajasthan and Madhya Pradesh. The preliminarily study on BOT of three roads conducted in January 1996 gives upto date information on traffic characteristics and flows. The traffic forecast given in table 3.3 and Toll rates given in Table 3.4

Table 5 Traffic forecast

Years Bus Truck LCV Car Two Wheeler

Auto Rickshaw

1996 597 3292 785 1657 820 1131997 638 3600 858 1853 926 1271998 682 3937 938 2072 1047 1421999 729 4305 1026 2316 1183 1582000 780 4708 1122 2590 1336 1772001 828 5127 1222 2839 1478 1942002 879 5583 1331 3112 1635 2132003 934 6079 1449 3411 1808 2332004 992 6620 1578 3739 2000 2562005 1053 7208 1718 4098 2212 2802006 1110 7766 1851 4445 2420 3042007 1170 8367 1994 4882 2647 3302008 1233 9015 2149 5230 2896 3572009 1300 9712 2315 5673 3168 3882010 1370 10464 2494 6154 3466 4212011 1438 11164 2661 6584 3733 4502012 1510 11911 2839 7044 4020 4812013 1586 12708 3029 7537 4330 5152014 1665 13558 3232 8063 4663 5512015 1748 14524 3513 8789 5022 5902016 1831 15404 3769 9443 5894 8652017 1917 16335 4040 10138 6824 11572018 2007 17318 4326 10874 7815 14672019 2101 18358 4628 11655 8872 17952020 2200 19458 4948 12484 9998 21442021 2301 20440 5234 13276 11108 24772022 2407 21469 5533 14111 12286 28282023 2518 22547 5847 14992 13535 31992024 2633 23678 6176 15921 14860 35892025 2755 24863 6521 16901 16267 40025



2026 2755 24863 6521 17001 16267 40022027 2755 24863 6521 17001 16267 40022028 2755 24863 6521 17001 16267 40022029 2755 24863 6621 17001 16267 4002

Table 6 Toll RatesFigures in Rs.

Years Bus Truck LCV Car Two Wheeler

Auto Rickshaw

1996 40 40 30 20 2 51997 43 43 32 22 2 51998 47 47 35 23 2 61999 50 50 38 25 3 62000 54 54 41 27 3 72001 59 59 44 29 3 72002 63 63 48 32 3 82003 69 69 51 34 3 82004 69 69 48 32 3 82005 74 74 56 37 4 92006 86 86 65 43 4 102007 93 93 70 47 5 122008 101 101 76 50 5 122009 109 109 82 54 5 142010 117 117 88 59 6 152011 127 127 95 63 6 162012 137 137 103 69 7 172013 137 137 103 69 7 172014 160 160 120 80 8 202015 173 173 129 86 9 222016 186 186 140 93 9 232017 201 201 151 101 10 252018 217 217 163 109 11 272019 254 254 190 127 13 322020 254 254 190 127 13 322021 274 274 205 137 14 342022 296 296 222 148 15 372023 320 320 240 160 16 402024 345 345 259 173 17 432025 373 373 280 186 19 47



2026 403 403 302 201 20 502027 435 435 326 217 22 542028 469 469 352 235 23 592029 507 507 380 254 25 63

3.3.5Operating and Maintenance Costs. Annual maintenance cost is assumed at Rs. 0.25 million per kilometer

at 1996 prices. Periodic renewal is proposed at every 5 years with an asphaltic concrete layer of 40 mm thickness. A major renewal is proposed in 2014 when in addition to the asphaltic layer, a 50 mm dance bituminous layer is to be provided.

Annual insurance cost is assumed at 1% of net fixed assets. Operating and Maintenance costs have been escalated using an

annual factor of 8%. Toll Plaza needs to be expanded in the future to service the increased

traffic volume. Two toll booths are assumed to be added every five years conceding with the major maintenance work. Additional booths are assumed are assumed to costs Rs. 15 lakhs per booth on base year period.

3.3.6Environment Clearance – An IssueThe project road alignment passes from the reserved forest under the

acquisition of central government. This risk was not envisaged at the initial stage of agreement, hence it lead to uncertain delay as government asked the concession company to get approval from the central government. Any way project got started in April’99, but again held up for 20 days in June. Getting environment clearance is tough, as approving sensitivity areas has a direcrt impact on social life of the citizens, and again according to virtuous circle social impact has an impact on economy.



4.1 Opinion SurveyAs stated earlier Model Concession Agreement has an impact on

effective, efficient and timely implementation of a project. This is because it takes into account mitigation of wide array of factors leading to delays, cost overruns and ultimately termination of the project. Model Concession Agreement helps in encouraging and motivating, private sector and investors to join hands with the government for effective implementation of infrastructure facilities. This positive attitude and transparent approach of government has been reflects in the inference drawn from the analysis of the study.

4.1.1 AnalysisThere has been significant impact of different finical, government and

contractual factors on the smooth execution of the project. A study deals in starting the importance of perfect implementation of Model Concession Agreement in subsiding the risks associated with those factors and making the privatization process in the state and country as a whole, a success. In the analysis part, such factor has been taken into consideration and analyzed taking into account the risks associated with it. Effort has been made to cover most of the factors impeding to the privatization process and analyzing the implication of Model Concession Agreement on the same. Table 4.1 covers detailed relative analyzed followed by inferences from the same.

Table 7 Risk Factors vis-à-vis Legal Framework

Sr. No.

Impeding Factors Associated Risks Importance of Legal Framework

1 Achieving FIRR

on time

Time and Cost overrun Reduced beauracratic hassles

Reduced conflicts of interest2 Corruption Incompetent developer

Compromise on FIRRCompetitive and fair

bidding process

3 Delays in land

acquisition

Cost overrunSocial Impact

Building TransparencySocial impact of Model Concession Agreement


4. DATA ANALYSIS


4 Government

imprudence

Lack of InformationTechnical incompetence

Sharing InformationTechnical incompetence

5 Ill chosen

methods of

subsidies

Unwanted DelaysRaising Delays

Governments Commitment

6 Inordinate delays Cost overrunRaising different risks

Governments Commitment

Risk Identification and mitigation7 Interdepartment

al conflicts

Claims and Counter Claims

Building Transparency

8 Lack of stability

& clarity of policy

Demotivated InvestorsUnsecured investors

Building TransparencyBetter

Better & Secure financing9 Lack of

regulatory

framework

Distorted & unreliableFeedback of the project

Implementing regulatory framework

10 Lack of

Institutional

framework

Political interference motivated by hidden

interest

Transparent and goal oriented decision making

process11 Lack of corporate

governance

Lack of professionalismLack of strong and

growing capital market

Implanting corporate governance

12 Lack of technical

competence

Delay projectIncrease in cost

Technical competenceCompetitive bidding

13 Market distortion High cost to end userEconomically unviable

Implementing strategies

14 MoA route for

selection of t6he

developer

Incompetent developerRise in the governments

Competitive biddingBidding transparency

15 Non economic

goals

Social & political riskInterministral conflict

16 Non availability

of domestics

financial markets

Rise in governments’ equity stakes

Delay in financial closures

Economical impact

17 Payment security Demotivated investorsRise in the Equity share

Governments commitment

Better & Secured financing



18 Poor

interministerial

coordination

Lack of informationClaims & counter claims

Sharing informationBuilding transparency

19 Quality of project Effect on EIRR Competitive biddingEconomical impact

20 Socio political

considering

Delayed projectsCost overruns

Governments commitment

Building transparency21 Underdeveloped

capital markets

Delays projectCost overruns

Economical impactBetter & secured

financing

4.1.2 Inferences.From analysis of the risks associated with different factors taken into

account following interference can be drawn, stating the importance of Model Concession Agreement.

Absence of proper Model Concession Agreement leads to non transparent decision, backdoor entries & other shady deals. Under these circumstances a private investors feels very insecure & he always has a doubt on whether his interests will be safeguarded or not

Lack of coordination between different governments departments & governments agencies ensure that the project has to face a number of hurdles which lead to a significant delay in implementation jeopardizing the financial viability of the project. This aspect becomes more significant due to the fact that private investors have to pay a cost for his capital and his capital and he is aware of that unlike the governments departments.

As said earlier, a proper Model Concession n Agreement ensures that all Players / bides get equal opportunities to prove their worth and compete with each other on their merits not on their size or networks.

4.2 Environment & Social impact of Vadodara – Halol road project

4.2.1Analysis

Environmental & Social impacts of infrastructure projects are a very crucial issue in today’s context. Increasing awareness among people, ill founded concepts & aggressive postures of social organization have made the issue a burning one. A balance is required to be struck between



development and its environment & social impact. This is possible only when people are well informed government departments are well cleared in their goals & are to have a holistic view of the society as a whole.

In India we have number of examples of infrastructure projects being delayed because of improper handling of these sensitivity issues, sardar sarovar dam is one of the classic example. Vadodara- Halol road project is also one of the examples in the state of Gujarat. In this case, issue pertaining to the environment, delayed the project & affected the returns from the project.

Traffic Risk & Accident Risk

As stated earlier that the project is delayed by one and half year due to environmental risk, due to which the project also faces from some related risks. Traffic risk is one of them. As forecasted, the traffic of that road in the future years goes on increasing, creating a congestion problem on the road. This raises the noise level and this leads to social impact.

Also due to increasing the traffic on the road, it is followed by accident risks as required facilities are not provided on the road compared to traffic. Both of the above risks again has an impact on the overall scheduling of the project leading to further delay of the project.

4.2.2 Inferences.In order to maintain the EIRR (Economic Internal Rate of Return) &

FIRR (Financial Internal Rate of Return) of a project, all efforts should be aimed at removing the bottlenecks which lead to time & cost overruns. A proper Legal Framework & better coordination among governments department will be reasons enough for a private player to consider investments in this core sector of the economy.

If Model Concession Agreement had been in existence at time of the agreement, at least the risk would have been envisaged, as an impact of competitive bidding.

Also mitigation of the risk would have been possible after allocating the risk.

Talking about financial viability, a proper institutional & Model Concession Agreement will ensure that projects are not delays because of social & environmental issues and thus financial viability of the project is maintained.



Table 8 Expenditure Schedule (present status)

Item of Description Apr – May’99

Jun- jul’99

Aug-Sep’99

Oct-Nov’99

Dec’99-Jan’00

Feb-Mar’00

Apr-May’00

Jun-Jul’00

Aug-Sep’00

Oct-Nov’00

Total

Site clearance 0.00 0.00 1.4 0.000 0.00 0.00 0.00 0.00 0.00 0.00 1.4Earth Work 0.00 0.00 25.69 25.69 25.69 8.56 0.00 0.00 0.00 0.00 85.63Widening & Strengthening of Exiting pavement

0.00 0.00 0.00 36.98 73.97 36.98 92.46 0.00 92.46 36.98 369.83

No Pavement Construction 0.00 0.00 0.00 1.19 2.11 1.98 3.43 0.00 3.83 0.66 13.2Pavement work for lane changing portions

0.00 0.00 0.00 0.00 17.17 8.59 14.31 0.00 14.31 2.86 57.24

Landscaping 0.00 4.65 0.00 0.00 4.65 4.65 4.65 4.65 0.00 0.00 23.25Construction of cross drainage works

0.00 0.00 6.52 9.78 26.09 9.78 13.04 0.00 0.00 0.00 65.21

Minor Bridges 0.00 0.00 0.44 0.88 1.79 0.88 0.44 0.00 0.00 0.00 4.43Major Bridges 0.00 0.00 8.31 12.47 20.79 12.47 15.80 0.00 6.65 6.65 83.14Junction improvement & road furniture

0.00 0.00 0.00 0.00 0.00 17.52 40.89 0.00 35.03 23.37 116.81

Shifting of utilities & other items 26.93 0.00 40.39 0.00 0.00 0.00 0.00 0.00 0.00 0.00 40.39Toll plazas & miscellaneous items

0.00 0.00 0.00 0.00 7.2 0.00 14.4 0.00 14.4 12.00 48.00

Total Expenditure 26.93 4.65 82.75 86.99 179.41 101.42 199.42 4.65 171.35 82.52 935.43Percentage Total Expenditure 2.88 0.5 8.85 9.3 19.18 10.84 21.32 0.5 17.82 8.82 100



Table 9 Operation & Maintained cost (previous data)

Year Routine Maintenance Expenses

Insurances Expenses

Maintenance & Toll Booth Expansion

Toll Collection Expenses

Total

2000 14.5 13.4 7.6 35.52001 15.7 13 8.2 36.82002 16.9 12.6 8.8 38.32003 18.3 12.1 9.5 39.92004 0.0 11.7 154.2 103 176.22005 21.3 11.3 11.1 43.72006 23 10.9 12 45.92007 24.8 10.4 12.9 48.12008 26.8 10 14 50.82009 0.0 9.6 279.5 15.1 304.22010 31.3 9.2 16.3 56.82011 33.8 8.7 17.6 60.12012 36.5 8.3 19 63.82013 39.4 7.9 32.9 80.22014 0.0 7.5 651.2 35.5 694.22015 46 7 38.3 91.32016 49.6 6.6 41.4 97.62017 53.6 6.2 44.7 104.52018 57.9 5.8 48.3 112.02019 0.0 5.3 603.5 52.2 661.02020 67.5 4.9 56.3 128.72021 72.9 4.5 60.8 138.22022 78.8 4.1 65.7 148.62023 85.1 3.6 103.8 192.52024 0.0 3.2 886.7 112.1 1002.02025 99.2 2.8 112.1 1002.12026 107.2 2.4 130.8 240.42027 115.7 2.0 141.2 258.92028 125.0 1.5 152.5 279.02029 135.0 1.1 164.7 300.8

Table 10 Operation & Maintained cost (present data)

Year Routine Maintenance Expenses

Insurances Expenses

Maintenance & Toll Booth Expansion


Total

2002 16.9 15.65 8.8 41.42003 18.3 15.15 9.5 42.92004 19.7 14.67 10.3 44.7



2005 21.3 14.2 11.1 46.62006 0.0 13.75 179.9 12.0 205.62007 24.9 13.31 12.9 51.12008 26.8 12.88 14.0 53.72009 29.0 12.47 15.1 56.52010 31.3 12.07 16.3 59.72011 0.0 11.68 326.1 17.6 355.42012 36.5 11.31 19.0 66.82013 39.4 10.95 32.9 83.22014 42.6 10.6 35.5 88.72015 46.0 10.26 38.3 94.62016 0.0 9.93 759.7 41.4 811.12017 53.6 9.61 44.7 108.02018 57.9 9.3 48.3 115.52019 62.6 9.01 52.2 123.72020 67.6 8.72 56.3 132.62021 0.0 8.44 704.1 60.8 773.42022 78.8 8.17 65.7 152.72023 85.1 7.91 103.8 196.92024 91.9 7.65 112.1 211.72025 99.3 7.41 121.1 227.82026 0.0 7.17 1034.5 130.8 1172.42027 115.7 6.94 141.2 264.02028 125.0 6.72 152.5 284.32029 135.0 6.51 164.7 306.3



Table 11 Financial Analysis (previous status)

Year Project Cost

Revenue Maintenance Expenses

Insurances Expenses

Periodic Maintenance


Status

1997 0.001998 0.001999 1303.51 -1303.512000 0.00 118.62 14.5 13.4 0.0 7.56 83.152001 0.0 140.21 15.7 13 0.0 8.16 103.412002 0.0 165.62 16.9 12.6 0.0 8.82 127.332003 0.0 193.98 18.3 12.1 0.0 9.52 154.07

2004 0.0 228.8 0.0 11.7 154.2 10.28 52.62005 0.0 268.89 21.3 11.3 0.0 11.11 225.22006 0.0 315.59 23 10.9 0.0 12 269.742007 0.0 365.31 24.8 10.4 0.0 12.95 317.092008 0.0 426.83 26.8 10 0.0 14 376.012009 0.0 497.12 0.0 9.6 279.5 15.11 192.922010 0.0 577.05 31.3 9.2 0.0 26.11 510.492011 0.0 670.33 33.8 8.7 0.0 28.2 599.612012 0.0 772.32 36.5 8.3 0.0 30.45 697.072013 0.0 891.47 39.4 7.9 0.0 32.89 811.292014 0.00 1024.76 0.0 7.5 651.2 35.52 330.572015 0.0 1181.77 46 7 0.0 38.36 1090.422016 0.0 1370.13 49.6 6.6 0.0 41.43 1272.452017 0.0 1570 53.6 6.2 0.0 44.75 1465.462018 0.0 1808.33 57.9 5.8 0.0 48.32 1696.352019 0.0 2077.69 0.0 5.3 603.5 52.19 1416.992020 0.0 2388.78 67.5 4.9 0.0 82.14 2234.22021 0.0 2747.9 72.9 4.5 0.0 88.71 2581.782022 0.0 3126.9 78.8 4.1 0.0 95.81 2947.362023 0.0 3560.91 85.1 3.6 0.0 103.47 3368.742024 0.0 4057.46 0.0 3.2 886.7 111.75 3055.792025 0.0 4612.25 99.2 2.8 0.0 120.69 4389.562026 0.0 5252.87 107.2 2.4 0.0 130.35 5013.002027 0.0 5699.94 115.7 2.0 0.0 140.78 5441.492028 0.0 6155.54 125.0 1.5 0.0 152.04 5877.002029 0.0 6640.64 135.0 1.1 0.0 164.20 6340.36

Years NPV @21% IRR10.0 -391.00 6.0315.0 -245.00 14.9220.0 -118.00 18.8725 -18.00 20.74



Table 12 Financial Analysis (present status)

Year Project Cost

Revenue Maintenance Expenses

Insurances Expenses

Periodic Maintenance


Status

199719981999 292.6 0.0 0.0 0.0 0.0 0.0 -292.62000 0.00 0.0 0.0 0.0 0.0 0.0 0.02001 1248.04 0.0 0.0 0.0 0.0 0.0 -1248.042002 0.0 165.52 16.9 15.65 0.0 8.8 124.152003 0.0 193.98 18.3 15.15 0.0 9.5 151.062004 0.0 228.8 19.7 14.67 0.0 10.3 184.142005 0.0 268.89 21.3 14.2 0.0 11.1 1223.32006 0.0 315.59 0.0 13.75 179.9 12.0 109.972007 0.0 365.31 24.9 13.31 0.0 12.9 314.222008 0.0 426.83 26.8 12.88 0.0 14.0 373.152009 0.0 497.12 29.0 12.47 0.0 15.1 440.592010 0.0 577.07 31.3 12.07 0.0 16.3 517.412011 0.0 670.33 0.0 11.68 326.1 17.6 314.972012 0.0 772.32 36.5 11.31 0.0 19.0 705.502013 0.0 891.47 39.4 10.95 0.0 32.9 808.222014 0.00 1024.76 42.6 10.6 0.0 35.5 936.082015 0.0 1181.77 46.0 10.26 0.0 38.3 1087.182016 0.0 1370.13 0.0 9.93 759.7 41.4 559.062017 0.0 1570.42 53.6 9.61 0.0 44.7 1462.442018 0.0 1808.33 57.9 9.3 0.0 48.3 1692.792019 0.0 2077.69 62.6 9.01 0.0 52.2 1953.952020 0.0 2388.78 67.6 8.72 0.0 56.3 2256.152021 0.0 2747.9 0.0 8.44 704.1 60.8 1974.542022 0.0 3126.00 78.8 8.17 0.0 65.7 2973.32023 0.0 3560.91 85.1 7.91 0.0 103.8 3364.062024 0.0 4057.46 91.9 7.65 0.0 112.1 3845.742025 0.0 4612.25 99.3 7.41 0.0 121.1 4384.452026 0.0 5252.87 0.0 7.17 1034.5 130.8 4080.442027 0.0 5699.94 115.7 6.94 0.0 141.2 5435.942028 0.0 6155.54 125.0 6.72 0.0 152.5 5871.202029 0.0 6640.64 135.0 6.51 0.0 164.7 6334.3

Years NPV @21% IRR10.0 -577.02 -1.0015.0 -348.7 1320.0 -167.23 18.0025 -13.57 20.80



4.3 RecommendationModel Concession Agreement, a bunch of positive implication,

encouraging privatization sector participation in infrastructure projects. But what if – only on paper, and not accessible or explored to most of the entrepreneur, hence following recommendation are made not for legal frame work but implementing legal framework in best possible way.

A sector specific guideline, as a backbone to Model Concession Agreement. The guide lines must consist of minimum:

o Technical Requiremento Feasibility Requiremento Past Recordso Sectoral Contributiono Task Force

A special task force should be launched to make private sector understand the intension of government after legal framework. Also should encourage them by conducting meeting & knowing their opinion & implementing the same if found suitable.

A continues Upgradation to increase government contribution to the society, which is there in Model concession Agreement but should be focused.

Apart from Model Concession Agreement, institutional framework, regularatory framework and corporate governance should be launched and implemented to take up the most of the project on that basis.



From the analysis it is clear that the current traffic is much less than the projected one due to reasons such as:

1. No alternate route study: One major criterion, which is not taken into consideration during the feasibility study, is alternate route study. It is an important feature of the project in order to understand the pattern of traffic diversion on the other routes competing with the Project Road.

2. Another problem to the Project Road is the construction of road ahead. This can cause delay & more fuel consumption to the vehicle operators & they cannot get any benefits out of it. This can cause leakage of traffic to alternate route despite the poor service of the alternate route.

3. Industrial development: The Project was developed keeping in mind the industrial development of Halol&Panchmahals district. These districts are industrial districts. The Government offered good amount of tax discount for the development in this district. Last year. Government removed the facility & the industry had to pay tax, thus hindering industrial development & affecting the traffic on Project Road.

In the case of Vadodara-Halol toll road, people get diverted to the service road, as it is free of toll or prefer some other route although it is not in a good condition. In this case service road should be mandatory for local traffic. They must have different tolling system like:

1. Permanent pass approved by the regional Government for local public to pass on the service road or different colour pass for the local public.

2. Checking on the tollbooth for entry & exit of traffic other than local traffic. If the vehicle operator passes through the service road & is not a localite, then he must be charged heavily or charged the remaining amount of toll.

3. Joint pass system should be there for combined toll rate for service road & for main carriageway.

4. Or service road should be charged so that the project can perform well. But this is not feasible as majority of the local public passes through the service road.

5. Development of road / Bridge shall be carried out in segment as per the requirement / future growth of the traffic in the nearby area. Gradual increase in the width of the road / bridge shall be carried out.


5. RECOMMENDATION AND CONCLUSION


5.1 Intuitional FrameworkInstitutional Framework dictates responsibilities & relation

between different framework, policy matters and government ideology towards privatization process. It defines the requirement and role to be performed by thr governments, establishment strong framework. Chart 6.1 shows how different framework constitutes to maintain effective institutional framework.

Fig. 2 The Recommended Institutional framework


Regulatory Framework

Regulation that determine the Institutional

Framework and Financial market

structure

Cost of Finances Domestics &

Foreign Interests rates, Taxes

Project/country risk premium

Sources of Finance

Institutional, Retail, Capital,

Bond, Forex market

Participants Private sector, Public sector, joins Venture

Types of Instruments Debt, Equity,

Securities or with some guarantees.

Bond, Forex markets

Legal Framework

A framework for efficient,

effective and timely

completion of

Specific Project Framework

Sector specific laws, Rules & Regulations relevant for

setting up and financing

infrastructure


5.2 Regulatory Framework

Legal Framework all alone cannot work effectively throughout the project right initial from identification to the transfer. There should be something that can regulate the process, thus there arises a need to form a Model Concession Agreement guided by Legal Framework. The trend of increasing private participation in infrastructure issues to theFore. Chief among them is the role of regulatory agencies.

In the past, ministers and tap bureaucrats have generally resisted independent regulatory agencies. But now it's a time to provide effective Model Concession Agreement as they are beginning to see the benefits provided by these regulatory agencies.

5.3 Effective Regulatory Framework A regulatory agency must have independence, autonomy and

expertise to be truly effective. It must also be accountable. It must be independent from political pressures-from ministries and

from regulated enterprises, private or public. Appointing regulators on the basis of professional rather than political

criteria. Technical expertise can be a very good source of resistance to improper influence.

The regulator must have a distinct legal mandate, free from ministerial control.

The professional criteria for appointment must .be formally prescribed. They should be appointed for the fixed terms and protect them from arbitrary removal.

Regulatory agencies must be autonomous and 'must have their own funding sources. If they have to rely on budgetary allocations controlled by politicians, their independence may be compromised.


Legal Framework

A framework for efficient,

effective and timely

completion of

Specific Project Framework

Sector specific laws, Rules & Regulations relevant for

setting up and financing

infrastructure

Institutional Framework


They must have autonomy in staffing, so they can recruit people with high levels of expertise.

There should be complete transparency in the agency's decision making process, something that is counter-initiative for many bureaucrats.

Cheques and balances are required to ensure that the regulator does not stray from its mandate, engage in corrupt practices, or become grossly inefficient.

Conflicts of interests must be totally prohibited. The regulators selected must have the personal qualities needed to

exercise independent judgment and resist improper pressures or inducements.

Utility regulation requires personnel with a mix of skill in such fields as economics, finance, law and engineering. It is sometime suggested that some or all of the appointees should have industry-specific technical expertise or long experience in the regulated industry.

5.4 Role of Regulatory Framework. Rationalization of tariffs based on socio-economic factors. Tariffs adjustment formula and mechanism. Setting requirements for entry. Prescribing safety and operational standards. Contract arbitration. The power to impose sanctions for non-compliance. Must address safety, anti-trust and environmental concerns.

5.5 ConclusionAs seen in the study, importance of policies on investment and on the

whole on the infrastructure is rampant. Providing facilities is not enough but providing it on time is or more importance. Financial, economical and social appraisal of the project solely depends on the policies and vice versa. Policies should be formed with the spirit of "shared gain shared pain", as this would lead to transparent of government's intentions.

If India is to develop, its infrastructure needs to be develop first. This development asks for huge investments, which cannot be entirely borne by the government, and hence private participation in infrastructure projects becomes issue of vital importance for the development of this country.

Hence, in order to bring in private money into this sector and make India competent with the global scenario, the sector needs to be made attractive by taking sector specific policy decisions, establishing an institutional



framework to govern, developing a strong Legal Framework to safeguard the interest of entrepreneurs and by removing beaurocratic hurdles.

5.6 Limitation of the Study.On account of limitations of time and very little Indian experience on

privatization of infrastructure projects, it was no possible to go through many case studies and real life examples, which could have brought a significant practical relevance to the study.

5.7 Future Scope of Study

Making this study as a base, further research and study is possible in the following areas:

A study on economic aspects of commercialization of infrastructure projects.

A study on Environmental Issues in Infrastructure facility provision. A study on alternative of financing and a sourcing of new revenue for

infrastructure projects. Role of government’s guarantees in financing Infrastructural Projects. A study on developing institutional & regulatory framework for

development & management of infrastructure in India.



References

Books1. Prasanna Chandra (2007),”Projects”, Tata McGraw-Hill Publishing

Company Ltd.,New Delhi.2. Prasana Chandra (2009), “Financial Management”, Tata MacGraw Hill

Publishing Company Ltd., New Delhi. 3. Yogendra Sharma (2008), “Public Private Partnership in

Infrastructure”, Vitasta Publishing Pvt. Ltd., New Delhi.

Articles1. Das, R. (2008), “Organized Policies”, Times Journal of Construction

and Design of India, pp 32-56.2. Das S. (2009), “PPP works for India”, Infrastructure today Journal of

India, pp 41-44.3. David, L. and Reinaldo, C. and Carlson, G. and Carlson, K. (2006) “A

Framework for Assessing Public – Private Partnerships”, Edward Elgar Publishers.

4. “Enabling framework for PPP”, Indian Infrastructure Journal, November 2008, pp 34-38.

5. Iyer, R. (September 2007), “Private Sector Role Expands”, Indian Infrastructure, pp 66-70.

6. Mahalingam, A (2009) “PPP Experience in Indian Cities: Barriers, Enables, and the Way Forward” Journal of Construction Engineering and Management, Vol. 136, No. 4.

7. Patankar, V. (2009) “Model Concession Agreement” Journal of Indian Road Congress, April-June 2009.

8. Ramakrishnan, R. (February 2009), “Partnership Mode” Infrastructure Today Journal of India, pg 53



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Model Concession Agreement

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Transcript of Model Concession Agreement