ECONOMIC & RISK ANALYSIS 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. ‘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

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

Our Projects MPRDC Category/Model Cost (Crores) BOT (Toll) 16094 BOT (Toll + Annuity) 3260 BOT (Annuity) 4578 ADB 4159 Regular Contract 1427 ROB/RUB 1645 Border Checkpost 1094 OMT 45 Building Works 165 Grand Total 32467 MPRDC 4

Our Projects: Cost Share in Crores of Rupees MPRDC 5

Standard terms for PPP MPRDC 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

Financial Models BOT (Toll) Model BOT (Toll + Annuity) Model 1. BOT (Toll) Model 2. BOT (Toll + Annuity) Model 3 BOT (Annuity) Model 4. Deemed Shadow Fee Model 5. OMT Model MPRDC 7

Principles of Economic Analysis 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. MPRDC 8

Case Study-I Economic Analysis of Mhow-Ghatabillod Road 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% MPRDC 9

Economic Analysis of Mhow-Ghatabillod Road Traffic Count Summary: Traffic Retention rate: 90% Traffic Growth: 5% CATEGORY NO. OF VEHICLES BASE TOLL RATE AS ON 2011 TOLL RATE Car 1880 0.44 11.83 Minibus/LCV 826 1.07 28.77 Bus 318 2.19 58.88 MAV-3 Axle 4711 5.29 142.23 2- Axle Truck 2704 2.65 71.25 MPRDC 10

Economic Analysis of Mhow-Ghatabillod Road Operation Parameter Price Inflation: 5% Routine maintenance(Rs ‘000/Km, start yr) 50.0 Operations/toll (Rs lac, start yr) +EMP 24.0 Periodic maintenance (Rs lac/km) 20.0 Periodic maintenance frequency (Yr) 5 Insurance (% project cost) 0.20 % Toll days per year 360 MPRDC 11

Economic Analysis of Mhow-Ghatabillod Road 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% MPRDC 12

Economic Analysis of Mhow-Ghatabillod Road 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. PROJECT IRR Post-tax IRR 28.18 % Equity IRR 32.14 % NPV @ 12% discounting Rs 470.07 MPRDC 13

Case Study-II Economic Analysis of Satna-Chitrakoot Road 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% MPRDC 14

Economic Analysis of Satna-Chitrakoot Road Traffic Count Summary: Traffic Retention rate: 90% Traffic Growth: 5% Section Toll Plaza CATEGORY NO. OF VEHICLES BASE TOLL RATE AS ON 2013 TOLL RATE 1 42.0 Car 995 0.37 15.54 Minibus/LCV 197 0.91 38.22 Bus 130 1.87 78.54 MAV-3 Axle 81 4.50 189.00 2- Axle Truck 135 2.26 94.92 2 31.8 673 11.77 88 28.94 82 59.47 75 143.10 101 71.87 MPRDC 15

Economic Analysis of Satna-Chitrakoot Road Operation Parameter Price Inflation: 5% Routine maintenance(Rs ‘000/Km, start yr) 50.0 Operations/toll (Rs lac, start yr) + EMP 17.0 Periodic maintenance (Rs lac/km) 10.0 Periodic maintenance frequency (Year) 5 Insurance (% project cost) 0.20 % Toll days per year 360 MPRDC 16

Economic Analysis of Satna-Chitrakoot Road 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% MPRDC 17

Economic Analysis of Satna- Chitrakoot Road 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. PROJECT IRR Post-tax IRR 15.88% Equity IRR 17.13 % NPV @ 12% discounting 98.09 MPRDC 18

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. MPRDC 19

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. MPRDC 20

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. MPRDC 21

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. MPRDC 22

ALLOCATION OF COST AFTER APPOINTED DATE Risk Apportionment TYPES OF FORCE MAJEURE ACTS ALLOCATION OF COST AFTER APPOINTED DATE TERMINATION PAYMENT Non-Political Event Act of God, epidemic, adverse weather conditions, earthquake, landslide, cyclone, flood, strikes, boycotts etc. Party shall bear their respective Force Majeure Cost & neither party shall require to pay to the other party any cost. 90% of debt due less insurance cover payable to the concessionaire Indirect Political Event Act of war, industry or state wide strike, civil commotion, political agitation Force Majeure cost not exceeding insurance cover shall be borne by the concessionaire & one-half be reimbursed to the concessionaire. Debt due less insurance cover. 110% of adjusted equity. Political Event Change in Law, unlawful revocation of any clearance, license, permit, authorization, NOC, consent, approval of exemption required by the concessionaire. Force Majeure cost not exceeding insurance cover shall be borne by the concessionaire & reimbursed to the concessionaire fully. Debt due 150% of adjusted equity. MPRDC 23

Risk Apportionment MPRDC Termination & Termination Payment Termination Termination for Concessionaire Default Prior to COD- No termination payment During Operation Period- 90% of debt due less insurance cover. Termination for Authority Default Debt due 150% adjusted equity. MPRDC 24

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

Our Strengths 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. MPRDC 26

Our Strengths MPRDC 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

Accident Response System 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. MPRDC 28

State Highway Fund MPRDC GoMP has enacted the Madhya Pradesh Rajmarg Nidhi Adhiniyam 2012 to provide for the establishment of a Fund for investments in the highways & infrastructure projects of the State. Corpus of the Fund is 125 Crores (approx). Executive Committee under the Chairmanship of Chief Secretary to administer the fund. Sources of Fund Application of Fund All payments of Premium For Maintenance and Repair of Highways Proceeds towards encashment of Performance Security or Bid Security For Meeting any Development Cost of Highway or Infrastructure Project All returns on investments made out of the Fund For Project Preparation, Pre Tender Activities, Cost towards Utility Shifting ,Land Acquisition MPRDC 29

Connecting People Through Quality Infrastructure 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