PPP in Delhi-Gurgaon

Expressway
Is
It the
model project for all
Submitted
By:Shailesh Aggarwal, Sumit Aggarwal ,Rahul Tiwari, Mukesh
Sharma,
Vivek Parmar
stakeholders

INTRODUCTION
Stakeholders

Public Institution: National Highway Authority of India (NHAI)

Private Institution: DS Constructions
Independent Consultants: RITES Corporation
Governments: Haryana State Government || Delhi State Government
Users: Patrons

Salient Features

Cost: INR 10 Billion

Length of Expressway: 27.7 kms
No of Flyovers & Overpasses: 11
Toll Lane: 32 Lane State of the Art Plaza (Asias Biggest, Worlds 3 rd
Biggest)
CCTV Surveillance till IGI Airport & SOS Telephony every 1.5kms

Primary Issues
Traffic Congestion
Pedestrian Safety

WHY PPP??

Limitation of Government Resources & Capacity to meet Infrastructure requirements

Need for new Financing & Institutional Mechanisms

Government Resources are not able to keep up with rising demand for social goods
Rapid Economic Growth, Growing Urban Population, Increased Rural-Urban Migration & All
round Socio-Economic Development are some causes
The above have led to increased the Infrastructural Pressures leading to a widened
demand-supply gap in Infrastructure
Political Economy of Infrastructure Shortages
Constrained Public Resources
Rising Civilian Pressure

Greater Efficiency
Greater Value for Money for Public Procurement (by reducing Lifecycle Costs)
Better Project Design & Implementation
Better Access to Project Finance (in light of drying government funding sources)
Rigorous Risk Appraisal (as benefits are reaped by Private party only if project
performs to its optimum standard)
Optimal Allocation of Resources leading to Better Cost Estimation & Investment
Decisions

Concession
Agreement
Issues

No Model Concession Agreement for Reference or Benchmarking Purposes

Single Independent Consultant for both Design & Construction Phase and Operations
& Maintenance Phase

High Expertise Consultant for D&C Phase and Low Expertise Consultant for O&M Phase were
generally selected. This practice was not adhered to.
There was provision of only 1 IC: RITES Corporation
The bidding process for Consultants was also anti-competitive and probably Unfair

Highway Capacity Miscalculation & No Provisions for Capacity Augmentation in the

next 20 Years

Little or No Documentation Existed at the time of Contract for BOT basis (2002)
No inclusion of possible risks and complexities that could prop up in the project

Service Quality to Users was abysmal

Parallel Competing Roads were provisioned to be developed but they were of inadequate size
Traffic levels in 2008 were above the estimated levels for 2012

Toll Charges fixed without basing it on Road Volume (Also included a Positive
Inflationary Tool for Toll Charges Increase insulated from the Traffic Volume)

No Provision for decrease in Toll Charges with Increased Traffic Volume

100% WPI adjusted increase was allowed in Toll Charges in times of High Inflation

Construction
Phase Issues

Land Acquisition

Precedent Conditions

Delay in shifting of cables and power lines which were pre-construction activities

Insufficient DPR leading to Environmental & Cost Distress

No major residential relocation was envisaged as project was about highway upgradation
Majority of time spent on dealing with illegal commercial operations along the highway

Utility Shifting (Considered as Encumbrances)

Breach of Conditions Precedent related to Land handover, delays were made by NHAI
Further claims were made by DS Constructions. The initial cost to NHAI was INR 3 cr.
Additional claims also made. Excuse used to cover up 4 months delay in FC approval.

Relocation

Responsibility of NHAI with stiff penalties, still to no avail

Outdated DPR made in 1996 which had just the basic alignment drawings

Lack of a cohesive Community Impact Study

Multiple Changes of Scope, primarily due to a flawed concession agreement

Concession
Agreement
New Model

Capacity Augmentation Issue addressed

Toll Charges Exemption for Local Traffic

Tolling prohibited till Land used for Highway was made usable
Right of Way provision implemented, whereby 80% of the land acquired originally would be all
the land needed to obtain provisional certificate

DPR preparation given more importance

A monthly paid pass could be charged for local traffic leading to lower toll revenues
Increased VGF mechanism to make projects viable
Local Acceptance important to mitigate potential for protests for Project to become a Model
Project

Claims in case of authoritys inability to provide resources were better dealt with
Safety Issues were clearly tackled

Based on Phased Development instead of High Cost Roads for catering to Projected Growth in
the Long Term
Concession Period determination was based on present and predicted future traffic

Cost of tree-felling and drawing up proper DPRs were made critical points with authorities
assisting in the former too

Responsibility & Cost Bearers clearly outlined

Changes of Scope orders not mandatory for private party if the costs were more than
20% of the project cost overall or 5% in any one year over a period of 3 Years

Financial Analysis

Toll Charges were received and not shared by the private party
If the total traffic count increased to more than 130,000, half the
total revenue would be shared with NHAI
Upfront Cost: INR 686.4 Cr (Concessionaire: INR 555 Cr)
Grant: INR (61) Cr.
NHAI Borne Cost: INR 131.4 Cr
Corporate Tax Rate: 33.66%, Minimum Alternate Tax: 11.2% ; Tax
Holiday for the 1st 10 years {Section 80(1a)}
Huge Profit Potential for Private Party, as estimated traffic count was
76000 while the actual was around 96000 passenger vehicles daily
An increase of 10,000 vehicles would lead to additional income of
INR 7.3cr @ Rs 20/car
No toll charges revision or concession period revisions were
envisaged creating huge possibility of profiteering by the private
party for a long time

Impact on
stakeholders
More than desired profits could be skimmed by DS Constructions
due to incorrect traffic projections
As toll prices could be changed with changes in WPI, DS Constructions
could also benefit if inflation rose, leading to perpetual growth in income
while the costs were more one time and upfront in nature
Greater Traffic counts could lead to huge gains being made by DS
Constructions

Environmental NGOs protested the use of asbestos during the

construction of the highway and also the huge number of trees
that were felled for Right of Way implementation
Patrons were happy about the road but were not satisfied about
its utility due to peak hour traffic congestion and drivers inability
to familiarize themselves to Tolling Process

Financial Implications of the

Project on Various Stakeholders
DS Constructions
More than desired profits could be skimmed due to incorrect traffic
projections
As toll prices could be changed with changes in WPI, DS Constructions could
also benefit if inflation rose, leading to perpetual growth in income while the
costs were more one time and upfront in nature
Greater Traffic counts could lead to huge gains being made by DS
Constructions

NHAI
No financial reward directly from Toll Collection till traffic count is below
130,000 leading to loss of potential income

RITES Corporation
No Financial implication on the performance of the highway

Patrons
With rise in inflation, toll prices would rise leading to greater outflow of
disposable income
Multiple/Local users of the highway had to fork out a huge amount till
the Model Concession Agreement was put in place

Is the Model Concession

Agreement viable enough to
mitigate project risks?

Risks Mitigated in the New Model

Concession Agreement

Capacity Augmentation Risks

(Exposure: NHAI)
Traffic based Toll Charges:
Financial Risk (Exposure: DS
Constructions/Patrons)
Resource Handover Delays:
Operational Risk (Exposure: DS
Construction)
Safety Issues: Safety & Usage
Risks (Exposure: DS
Constructions/NHAI/Patrons)
Inadequate DPRs:
Environmental & Operational
Risks (Exposure: DS Constructions)
Changes of Scope: Operational
& Financial Risk (Exposure: DS
Constructions)

Other Potential Risks

Political Risk: Force Majeure Events
with respect to change in Political scene
Going Concern Risk: If the operator is
unable to run the project successfully,
then the lenders financial exposure is
at risk (No Right of Substitution stated)
Termination Risk: No stipulation
stated with respect to whether authority
will buy out the venture in case
developer and lenders dont get
adequate returns, as the latter cannot
use the highway for recovery of funds
Monitoring & Supervision Risks: No
clear outline regarding the extent of
hands-on or hands-off approach to be
taken for monitoring of the project
Traffic Risk: No stipulation outlined for
the event where the traffic count is not
high enough to justify the cost incurred,
primarily after the Metro route is
developed in the region

THANKS