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MPRDC

PPP in Road Sector ECONOMIC & RISK ANALYSIS Vivek Aggarwal MD, MPRDC. MPRDC. 1. Connecting People Through Quality Infrastructure. Madhya Pradesh Road Development Corporation. Incorporated as wholly owned State Govt. Company under Companies Act 1956, in July 2004.

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MPRDC

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  1. PPP in Road Sector ECONOMIC & RISK ANALYSIS Vivek Aggarwal MD, MPRDC MPRDC 1 Connecting People Through Quality Infrastructure

  2. Madhya Pradesh Road Development Corporation • Incorporated as wholly owned State Govt. Company under • Companies Act 1956, in July 2004. • ‘Highway Authority’ for State Highway. • Upgrades, Constructs and Strengthens the total length of State • Highways. • Develops projects in the State on Public Private Partnership • basis. • The Hon’ble Chief Minister of Madhya Pradesh is the • chairman, Hon’ble Minister of Public Works Department & the Chief Secretary are the Vice Chairmen, the Principal Secretaries of the Finance dept., Forest Dept., Urban Administration & development and Mining Dept. are the members of the Board. • MD, MPRDC is also one of the director. MPRDC

  3. Our Projects Invite private investment by providing grant / premium to / by the concessionaire on competitive bidding MPRDC 3

  4. Our Projects MPRDC 4

  5. Our Projects: Cost Share in Crores of Rupees MPRDC 5

  6. Standard terms for PPP • Viability Gap Funding. • Premium • Concession Fee. • Independent Engineer. • Financial Closure. • Appointed Day. • Concession Period. • User Fees. • Commercial Operation Date. • Schedule of standards and specifications. MPRDC 6

  7. Financial Models MPRDC 7

  8. Principles of Economic Analysis MPRDC Assessment of cost (Feasibility Study) Addition on account of Financing cost, Price contingencies etc. Demand assessment & user charge. Assessment of growth of demand. Prevailing rate of interest. NPV of future cash flows on the basis of industry standards on IRR. Assessment of Social Impact. Concession Period. Viability Gap Funding. Impact of Inflation. 8

  9. Case Study-IEconomic Analysis of Mhow-Ghatabillod Road MPRDC Key Assumptions: Total Project Cost: 177.26 Crores Length: 26.9 Km. VGF: Nil Equity: 30% Debt: 70% Concession Period: 23 Years Tenure of Debt: 12 Years Repayment starts: 3rd Year No. of yearly installments: 10 No. of Toll Plaza: 1 Construction Period: 24 Months Tolling starts: 3rd Year Annual Toll fee increase: 5% 9

  10. Economic Analysis of Mhow-Ghatabillod Road MPRDC • Traffic Count Summary: • Traffic Retention rate: 90% • Traffic Growth: 5% 10

  11. Economic Analysis of Mhow-Ghatabillod Road Operation Parameter Price Inflation: 5% MPRDC 11

  12. Economic Analysis of Mhow-Ghatabillod Road MPRDC • Other Macroeconomic Assumptions: • Corporate income tax rate: 35.88% • Depreciation: 10.0% • Interest rate (per annum): 12.0% • Tax holiday:10 Years • Construction Cost: • 1st Year: 40% • 2nd Year: 60% 12

  13. Economic Analysis of Mhow-Ghatabillod Road MPRDC • RESULTS: • Financial Analysis based on assumptions envisages project viability on nil VGF. • IRR suggests the possibility of premium. • OUTCOME: • On bidding, the project was awarded on Premium@ 14.58 Crores which is to be increased 5% per year. • Project is completed 14 months ahead of Schedule Completion Date. 13

  14. Case Study-II Economic Analysis of Satna-Chitrakoot Road MPRDC Key Assumptions: • Total Project Cost: 121.78 Crores • Length: 73.8 Km. • VGF: 40 % of TPC • Equity: 30% • Debt: 70% • Concession Period: 25 Years • Tenure of Debt: 12 Years • Repayment starts: 3rd Year • No. of yearly installments: 10 • No. of Toll Plaza: 2 • Construction Period: 24 Months • Tolling starts: 3rd Year • Annual Toll fee increase: 5% 14

  15. Economic Analysis of Satna-Chitrakoot Road MPRDC • Traffic Count Summary: • Traffic Retention rate: 90% • Traffic Growth: 5% 15

  16. Economic Analysis of Satna-Chitrakoot Road Operation Parameter Price Inflation: 5% MPRDC 16

  17. Economic Analysis of Satna-Chitrakoot Road MPRDC • Other Macroeconomic Assumptions: • Corporate income tax rate: 35.88% • Depreciation: 10.0% • Interest rate (per annum): 12.0% • Tax holiday:10 Years • Construction Cost: • 1st Year: 40% • 2nd Year: 60% 17

  18. Economic Analysis of Satna- Chitrakoot Road MPRDC • RESULTS: • Financial Analysis based on assumptions envisages project viability on 40% VGF. • OUTCOME: • On bidding, the project was awarded on 38.94% VGF. • Project is Under implementation. 18

  19. Risk Apportionment MPRDC • Conditions Precedent to be fulfilled by the Concessionaire • Submission of Performance Security within 180 days from the date of signing of contract. • Execution of the Escrow Agreement. • Execution of the Substitution Agreement. • Procurement of all Applicable Permits relating to environmental protection and conservation of the Site. • Execution of Financing Agreement. • Legal opinion of the Legal Counsel on the concession. • Upon failure to meet any of the Conditions Precedent, damages @ 0.2 % of the Performance Security, subject to a maximum of 20% of Performance Security. 19

  20. Risk Apportionment MPRDC • Conditions Precedent to be fulfilled by MPRDC • Procurement of Right of Way to the site. • Procurement of Environmental Clearance. • Procurement of GAD from Railway. • Upon failure to meet any of the Condition Precedent, damages @ 0.1 % of the Performance Security, subject to a maximum of 20% of Performance Security. 20

  21. Risk Apportionment MPRDC • Force Majeure Act or event which • is beyond the reasonable control of the affected party. • Affected Party is unable to prevent by exercising due diligence & Good Industry Practice. • has Material Adverse Effect on the Affected Party. • Types of Force Majeure: • Non-Political Event: • Indirect Political Event. • Political Event. 21

  22. Risk Apportionment MPRDC Effect of Force Majeure on Concession. • Prior to Appointed Date- period for achieving Financial Closure shall be extended by a period equal to the duration of Force Majeure event. • After Appointed Date- • Before COD- Concession Period & Project Completion Schedule shall be extended • After COD- Concession Period shall be extended in proportion to the loss of fee on a daily basis, if daily toll collection is less than 90% of average daily fee. 22

  23. Risk Apportionment MPRDC 23

  24. Risk Apportionment MPRDC Termination & Termination Payment 24

  25. Initiatives of MPRDC – BOT MODEL • Pioneer in road sector development through PPP in the country. • Adopted DBFOT Model of Tendering based on Model Concession Agreement of Planning Commission. • First agency in the country to get VGF from GOI. • Under VGF scheme of GOI • 40 % of project cost is sanctioned to make projects viable. • 20% is given by GOI. • 20% is given by the State Government. • In several Projects MPRDC receives Premium. • VGF/Premium is the bidding Criteria. • Distance based user fee (Toll). MPRDC 25

  26. Our Strengths MPRDC • Concessionaire’s faith in MPRDC due to transparency in bidding process. • Lender’s faith in MPRDC ensuring Financial Closure of BOT Projects. • Deployment of Supervision and Quality Control Consultants with international expertise. • Deployment of capable construction agencies with introduction of advance machineries and equipments. • Adequate Budget provision for Annuity &VGF payments by the State Government. • Annuity payment along with bonus on due date. 26

  27. Our Strengths • Outsourcing of Expertise. • Consultants are appointed for Feasibility Report/DPR and Supervision of Construction. • Experts like Legal Advisor, Chartered Accountant, Company Secretary, Environment expert, MIS expert, Road Data System Engineer are engaged in house. • In-house financial analysis. • Planning is done well in advance at the head office level. • Fast decision making. • Political commitment & support. • Concessionaires are treated as partner. • Bills are cleared in 2 to 4 working days. • All Stake holders are facilitated. MPRDC 27

  28. Accident Response System MPRDC Implementation of ARS system on PPP mode is probably a first in the world. State wide implementation of ARS will be first in country. ARS to address safety requirements in the larger perspective. Technical Assistance through ADB for capacity building in road safety. Accident Response System & Traffic Management Centre in Madhya Pradesh including operation & maintenance for 5 years with estimated cost of Rs.12.50 crores has been proposed. A Road Safety Cell is created in MPRDC. MPRDC has engaged an agency for ARS on Annuity basis. ARS includes centralized call centre, GIS based automatic vehicle tracking system (AVTS), Computer aided dispatch system, Traffic Management Centre. 28

  29. State Highway Fund MPRDC 29

  30. A country has to pay for its roads. Whether it has them or not, it pays more for those it does not have. So Lets Have them….. MPRDC Connecting People Through Quality Infrastructure 30

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