1. ECONOMIC & RISK ANALYSIS
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 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

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

6. 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

7. Financial Models BOT (Toll) Model BOT (Toll + Annuity) Model1.
BOT (Toll) Model 2.
BOT (Toll + Annuity) Model 3
BOT (Annuity) Model 4.
Deemed Shadow Fee Model 5.
OMT Model
MPRDC 7

8. 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

9. Case Study-I Economic Analysis of Mhow-Ghatabillod Road
Key Assumptions:
Total Project Cost: 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

10. 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

11. 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

12. 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

13. 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
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 %
12% discounting Rs
MPRDC 13

14. Case Study-II Economic Analysis of Satna-Chitrakoot Road
Key Assumptions:
Total Project Cost: 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

15. 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

16. 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

17. 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

18. 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 %
12% discounting
98.09
MPRDC 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, 0.2 % of the Performance Security, subject to a maximum of 20% of Performance Security.
MPRDC 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, 0.1 % of the Performance Security, subject to a maximum of 20% of Performance Security.
MPRDC 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.
MPRDC 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.
MPRDC 22

23. 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

24. 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

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
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

27. 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

28. 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 years with estimated cost of Rs 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

29. 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

30. 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