Challenges of Urbanization: PPP in Road and Transport Infrastructure

1. National Seminar on “PPP in Road and Transport Infrastructure” An Examination of some Road Based B.O.T Projects inIndia with Special Reference to Traffic Forecasting Dr S. L Dhingra         Institute Chair Professor & Emeritus FellowTransportation Systems EnggCivil Engineering Department, IIT Bombay

2. Contents • Challenges of Urbanization • PPP • Private Sector Interest • Transportation Infrastructure Projects: From Conception to Implementation • Fund Sources • Risks and Uncertainty in Projects • Effects of Toll rates in traffic projections • B.O.T projects based on government support and guarantees. • Conclusion

3. Challenges of Urbanization

4. Urbanisation • Urban areas contribute 75% of GDP and more than 50% of our population to live in urban areas by 2050. • Rurbanisation of the countryside to pose newer challenges. • Cities would be the key drivers to our economy but… • …unless a focused approach coupled with heavy investment in urban infrastructure is put in… Urban areas would keep presenting 100000 problems which in essence are 100 problems multiplied 1000 times

5. Growing Demand for Urban Infrastructure

7. Multifarious Responsibilities : Limited Resources • Local Government Expenses vary between 20-29% in developed countries while they are only 7-8% in India • Limited revenue base and dependent fiscal Jurisdiction • Fairly Large Capital Investment decisions being thrust upon municipalities

8. Infrastructure Bottleneck • Infrastructure is the biggest bottleneck in ‘India Growth Story’ • Transport system has severe capacity constraints: highways, city roads, airports, seaports and railways • Urban and Utility infrastructure : Huge demand-supply gap in drinking water, sewerage system, drainage and power supply • India needs US$ 480 billion investment in the coming Five Year Plan to meet current Infrastructure needs, at least 20% of this would be for the Urban Sector

9. Most towns and cities are growing… Like this! Existing Scenario

10. Quality of life…

11. How we cope, presently Premji raps Karnataka Govt for bad roads, power situation in Sarjapur Our Bureau Bangalore , July 18

12. Private Sector Interest? • Urban Infrastructure, has not yet found investor interest in the absence of clear directions on various aspects - Risk, social/ political, Regulatory, cost recovery mechanisms, etc. • Various attempts are being made to convert Urban Service (water, waste-water, Solid waste, etc) into ‘Bankable projects’ • This is likely to open a new area for investments • And a new breed of ‘Operating’ companies to provide these services • But proper ‘PROJECT DEVELOPMENT’ is the key here…

13. Total Private Sector Investments in India’s Infrastructure Year of Investment Energy Telecom Transport Water and sewage Total 1990 0 0 2 0 2 1991 614 0 0 0 614 1992 13 0 0 0 13 1993 1,051 0 0 0 1,051 1994 311 97 125 0 533 1995 1,008 683 0 0 1,691 1996 1,553 1,229 108 0 2,890 1997 970 3,827 405 0 5,201 1998 1,066 673 296 0 2,035 1999 2,500 1,045 467 0 4,012 2000 2,357 682 100 0 3,139 2001 45 3,445 211 2 4,004 2002 380 4,615 558 0 5,553 2003 825 1,968 505 0 3,298 2004 4,144 3,731 1,117 0 8,992 2005 755 6,201 1,449 0 8,405 Total 17,891 28,195 5,343 2 51,432

14. Beginnings made… • May not be all “success stories”, but: • Tamil Nadu • Tirupur, Alandur, TNUDF Pooled Finance • Municipal Bond issues • Ahmedabad, Hyderabad, Nashik • Urban infrastructure funds – IFCG, Feedback U-Fund and MUIF • Not Successful • BATF in BangaloreBangalore Agenda Task Force The Bangalore Agenda Task Force is meant to be a partnership between the citizens, corporates and the administrative agencies – the BMP, BDA, BMTC, ... • Water O&M PSPs (attempts!) in Pune, Goa, Bangalore, Hyderabad

15. Pooled Finance • TNUDF sponsored issue, successful in Tamil Nadu • USAID (DCA) guarantee for 50% of principal • Karnataka (KUIDFC) pursued similar issue • Government of India’s proposed PFDF, also a pointer in this direction • Yet to take off • Issues of listing Trust-financed Bonds (SEBI), would have to be addressed to ensure a market for these instruments

16. Proportion of Pooled ULB(urban Local bodies)Finances Government Budgetary Support PFDF(Pooled Finance Development Fund)/Government Debt Service Ratio of 1.3 to 1.5 State Intercept Bond Service Fund USAID Guarantee United States Agency for International Development - India www.usaid.gov/in Rated Bond Instrument Pooled Finance… (2)

17. Viability Gap Funding • Proposed by Government of India • To “Prop-up” marginally viable projects • Established and clear guidelines for allocation • Problem may be in the lack of developed and structured projects, that are eligible to claim this assistance

18. Capital Market Access • Bond issues of Ahmedabad, Hyderabad, BMP, Nashik etc., have not led to large-scale replication • Issues of market appetite, end-use • Limited number of ULBs which can access financing on a standalone basis • Pooled Finance seems a more appropriate structure for small ULBs

19. Access to Domestic Financial Institutions For the Local Body • Reluctance of Local bodies to accept FI conditions typically stipulated to mitigate project risks • ULBs have option of (a) FIs assistance (cash flow basis; with conditions) Vs (b) MLA funding/ Govt. Institutions ( GoI/ State guaranteed; soft push, if any) • ULB prefers the latter to the former (obvious!) For the Domestic Institution • Guaranteed lending (state/ central) is no more risk-free, from regulatory considerations

20. PPP – Some reasons to be optimistic • Realization of need for improvement of Urban Services, and concurrently, the finance needed for doing so • Various precedents are being tried and tested, and experience is maturing • But yet a long way to go • Key Words: • Not Finance, but Developed Bankable Projects • Not Willingness to Pay, but Unwillingness to Charge

21. PPP Approach Goal • Attract private investments for infrastructure projects Need • Lack of Budgetary Resources • Need to improve efficiency in service delivery PPP approach • Private Sector contribution for: • - Financial investments • - Best Management practices • - Efficiency in service delivery • - Efficient use of capital resources • Public Sector contribution limited to: • - Providing institutional commitment to project • - Project Development & Selection of Developer • - Viability gap funding (VGF), if any

22. Background Issues • Ability to create a ‘shelf of projects’? • Project development requires funds and continuous support • Strengthening the capabilities of the mandated agency to create experiential learning • Standardized processes for Viability support for projects not viable on stand alone basis • No need to reinvent the wheel every time, learn from peers Debate has shifted from financing of infrastructure projects to creation of a shelf of projects.

23. Structure

24. A PPP is not a transfer of responsibility: • A PPP project DOES NOT Mean that the Government has little or no onus • It’s objective has to be synergy between the private & public sectors • Areas such as land acquisition, clearances, utilities, etc., can still be best done only by the Government

25. What are the advantages of private sector participation ? • If properly structured and incentivized, the private sector can provide a more efficient or cost-effective service. • The private sector often has better access to capital financing and so it is able to use more efficient equipment. • The private sector may have easier access to specialist skills. For example companies can form joint ventures with international specialist firms.

26. Putting the projects on ‘shelf’ Project Preparation Partnership Management Project Identification • Requires Project Preparation & Partnership Management • Inca is the nodal agency mandated to do the above Viability Structuring Do-ability Procurement Strategy Bid Process Management Pre-bid Bid Process Management Post-bid Identification/ Assessment State need to enhance the involvement of private sector – need a PPP! The challenge is the right model and right process for engagement of private sector!

27. Identification Stage • To convert wish list into a list of projects that are viable and amenable for PPP. Objective • Prelim assessment of the opportunity • Prelim assessment of possibility of a PPP • Presence of necessary ingredients – land, land use, basic approvals Activities

28. Preparation Stage • Assessing feasibility and structuring the PPP (Value for Money) (Risk Return Ratio) Objective • Assessment of Market opportunity • Technical & Financial Feasibility • Financial structuring • Sharing of risk and Structuring PPP Activities

29. Partner Selection Stage • To select Private Sector Partner in an open and transparent manner Objective • Technical and financial capability criteria • Equal information sharing and support to all bidders • Rigorous specifications & Contract • Efficient and time bound bidding process Activities

30. PROJECT DEVELOPMENT Techno-Economic & Market Assessment Legal Documentation Policy amendments and notification Contractual and Institutional Framework Project Development Process Track 2 DEVELOPER SEARCH • Expression of Interest • Request for Proposal (RFP) • Pre-Bid Conferences • Proposal Evaluation • Finalisation of Developer • Finalisation of Agreements MARKETING & COMMUNICATION • One-to-one meetings • Direct Mailers • Media release • Road Shows • Investor’s Conferences • Facilitating Consortia formation Government Approvals, Facilitation & Decision Making

31. Larger Number Of Marginally Profitable Projects Unprofitable, But Imperative Projects Small Number Of Profitable Projects Maintenance Works Govt. ‘Leveraged’ Privatisation Budgetary Allocation BOT Dedicated Funds (Road Fund) Different Structures

32. Transportation Infrastructure Projects:From Conception to Implementation

33. The Stages Conception: • Identification of project alternatives • Selection of the best alternative Implementation: • Construction of the project • Operation and Maintenance

35. Classic Four-Stage Sequential Travel Demand Model Trip Generation Trip Distribution Demand Modal Split Traffic Assignment Supply Considering Environmental Protection Economy

36. Travel Demand Modeling Planning Variables • Study area • Internal zones • External zones • Plan Periods • Demographic and Socio-economic data • Protection of planning variables • Transport network • Origin and Destination Survey

37. Tijmrsp Example of Travel Estimation Process Tijmrs (Income) 2 Edud. High 3 Work 6 Pi Other 1 Medium 5 Production Low 9 9 1 47 17 2 66 3 110 Tijmr Tijm F r o m Z o n e s To Zones 1 2 3 Route A 5 Mode I 25 1 10 18 19 47 Route B 17 Mode II 15 Aj 2 30 32 4 66 Route C 3 40 3 5 40 65 110 Attraction 45 90 88 223 1 45 2 90 3 88 Tijmrp Trip Purpose Education 3 Work 12 Other 2 17 Tij

38. Travel Demand ModelingOther Approaches • Equilibrium Demand Modeling • Traveler as consumer of transit trips • Micro Economics - Utility Maximization • Activity based analysis (Factors) • Individual Traveler Level • Type and Time of Activity • Community Level • Social Level • Destination by mode • Congestion

39. Transport Priority Indices (TPI) in a System’s Framework • The Need: - Huge investments involved and priority needs to be given to villages with higher population and potential market surplus. • The proposals discussed are those initiated by: • the State Government of Karnataka • the Indonesian rural roads study group • the ARD (Accelerated Rural Development) road network of Thailand

40. Organizational Setup for Planning and Prioritizing • Formation of Technical Advisory Committee (TAC) • Preparation of proposal/tender document • Guidelines for selection of tenders • Pre-bid selection • Selection of PMC • Selection of contractors • Proof consultants

41. UNDP - Government of India Project on Pro-poor Globalisation Aim: Informed and participatory pro-poor policy making, strategy and programme formulation Methodology: • Review of already conducted research on pro-poor and anti-poor impacts of globalisation • Additional research and analysis • Involvement of the poor in the policy dialogue • Making information accessible to lay- person

42. Methodology for Selection of Proposal • Organisations short-listed on the basis of initial proposals • Selection of 3 top-ranked proposals based on their presentations • Initial contract awarded to these 3 organisations to further refine and detail their proposal, work plan and project strategy. • Review of final proposals by a panel • Project awarded to the highest ranked proposal

43. Decision Making • Importance of decision making at every stage during the project • Two important steps in the decision making process • Course of action, which contains recognition, discovery and contraction of ideas • Finding alternative strategies • Decision making is complex due to multiplicity of attributes

44. Multiple Criteria Decision Making (MCDM) • Importance in design and planning • Some MCDM techniques: • Analytical Hierarchy Process (AHP) • Fuzzy Set Methodology • Metagame Theory

45. Analytical Hierarchy Process • Basic principles of AHP • Hierarchic representation and decomposition • Priority discrimination and synthesis • Logical consistency • Series of pair-wise comparisons carried out to obtain the preference order • Each decision alternative assigned a weight • Weights represent the alternatives’ desirability

46. Applications in fields like: • conflict analysis • operations research • portfolio selection • bid evaluation • capital budgeting

47. FUZZY SET ANALYSIS Transportation planning involves Qualitative and quantitative analysis including uncertain Attributes and Characteristics. Fuzzy Analysistakes care of this important aspect of transportation planning.

48. FUZZY LOGIC • Fuzziness in Transportation Analysis • In the study of transportation problems, fuzziness is • found in many aspects of analysis • Perception of data and information, • Knowledge base, • Statement of goals and objectives, and • Problem definition.

49. METHODOLOGY The following are the steps of the methodology: 1. Identifying the modes which will form attributes (i,e., factors) of those coordinated modes. 2. Categorizing different interest groups. 3. Forming termed rating matrix, with columns as modes and rows as factors. 4. Constructing of different rating matrices as per the views of respective interest groups 5. Aggregation of rating matrices 6. Forming ‘ dominance’ matrix from the dominance of one mode over the other mode 7. Calculating the % share of service by each mode in a coordinated system.

50. Case Study The city of Calcutta, with five different mass transit modes, is considered for the case study.