Case Study : Delhi Gurgaon Expressway

11.1 Project Description The National Highways Authority of India (NHAI), under the
Ministry of Road Transport & Highways (MoRT&H), was entrusted the responsibility for
implementation of the Golden Quadrilateral project (Highway Project connecting the four
metro cities of New Delhi, Mumbai, Chennai and Kolkata). As a part of this project, it
proposed the conversion of a very busy section of NH-8 connecting Delhi to Gurgaon into a
6/8 lane access controlled divided carriageway. The then existing 4 lane, 27.7 km section of
NH-8 between Delhi and Gurgaon with as many as 20 intersections, experienced high
vehicular density (145,000 Passenger Car Units (PCUs)/day in 2000) and non-segregation of
traffic that led to increase in accidents, acute congestion, wastage of fuel and excessive
pollution. The project was awarded to the consortium of Jaypee Industries and DS
Construction Ltd to design, finance, construct, operate and maintain the facility for a
concession period of 20 years. As in a typical BOT highway project, the Concessionaire is
allowed to collect toll from the users of the project facility during the operation period to
recover his investment and the expressway is required to be transferred back to the
Government at the end of the concession period. This was the first BOT project in India to
have been awarded on negative grant basis where in the concessionaire offered to pay an
upfront fee to NHAI in return of the concession as against a capital grant from the
Government. In consideration of robust traffic projections, the selected bidder offered to pay
` 61.06 crore to NHAI. The expressway was commissioned in January 2008 after much delay
primarily owing to issues in land acquisition and changes in the scope of work. It carries
more than 180,000 PCUs per day as on date. 11.2 PPP structure of the Project The project
was awarded to the consortium of Jaiprakash Industries Ltd and DS Construction Ltd on
Built-Operate-Transfer (BOT) basis for a period of 20 years. The selected concessionaire
offered to pay ` 61.06 crore upfront as negative grant to the NHAI. The Concessionaire was
required to design, construct, operate and maintain the expressway in accordance with the
specifications as approved by NHAI. The concession period included the construction period
to encourage the concessionaire to complete the construction early. A Special Purpose
Vehicle called the Delhi Gurgaon Super Connectivity Ltd (formerly Jaypee DSC Ventures
Ltd.), was created for execution of the project. While at the time of bidding, Jaiprakash
Industries had a controlling stake of 51% and DS Constructions held 49%, during the course
of project implementation, Jaiprakash Industries reduced its stake in the SPV to about 1.2%.
The SPV entered into a fixed time-fixed price Engineering, Procurement & Construction
(EPC) contract with DS Constructions Limited for this project.

Key Obligations of NHAI NHAI was responsible for undertaking land acquisition and
providing the Right of Way (RoW) to the Concessionaire free from all encumbrances. A
notional concession fee of ` 1/- was to be paid annually by the Concessionaire to NHAI.
During the development period, NHAI undertook the operation and maintenance of the
existing highway at its own cost. The shifting of utilities and related expenses was the
responsibility of NHAI. NHAI was also required to have necessary environmental clearances,
permits etc. granted to the Concessionaire. A loan facility, in case of the revenue falling short
of subsistence revenue level, was made available by NHAI at the State Bank of India Prime
Lending Rate. Such a loan could also be provided by NHAI to cover a shortfall in meeting
debt service payments. Key Obligations of the Concessionaire The Concessionaire was
required to comply with the all the requirements needed for clearances, approvals, permits
etc. from various government agencies. The Concessionaire was obliged to enter into a state
support agreement with NHAI, the Government of National Capital Territory of Delhi
(GoNCTD) and Government of Haryana (GoH). A performance security was to be paid by the
Concessionaire on or before the date of the Agreement for its due and faithful obligation
during the Construction Period. To allow recovery of investment and to earn a suitable
return, the Concessionaire is entitled to collect toll from the users of the expressway during
the operation period. The toll is notified by the MoRTH and there is an annual revision
linked to the extent of variation in the WPI. The toll has to be shared with NHAI if more than
130,000 PCUs are tolled on the expressway. At the end of the concession tenure, the
expressway shall be transferred back to the Government. 11.3 Current Status The expressway
has been operational for two years now after it was opened to traffic in January 2008. It
carries more than 180,000 PCUs per day, which is much higher than the traffic estimates for
the project by 13,000 to 15,000 PCUs per day. The substantially higher number of vehicles
using the facility has often led to a queuing up of vehicles at the toll plazas. The expressway
consists of 9 flyovers, 4 underpasses and 2 foot-over bridges and 3 toll-plazas. Smart tags
have been introduced to enable cashless automatic payment. 11.4 Financing Information The
funding for the project at the time of financial closure (9 May 2003) is provided in table 18:

` 200 crore of the debt was provided by the Housing and Urban Development Corporation
Limited (HUDCO). The other lenders included State Bank of Mysore (` 30 crore), Punjab
National Bank (` 30 crore), Srei International Finance (` 25 crore) and Jammu & Kashmir
Bank (` 15 crore).The SPV also issued non convertible debentures amounting to ` 50 crore to
LIC and ` 37.30 crore to UTI Bank.

The actual cost of the project was eventually ` 1,175 crore.The project cost overrun was
funded by the promoters, by withholding payments to DSC Limited (EPC contractor) and
from the amount received from NHAI (` 155.25 crore) on account of changes in scope.

* Including a grant of ` 61 crore.

Note:The financing information is sourced from rating rationales for the SPV available in
the public domain.

11.5 Process Analysis

Inception:

The plan for an expressway connecting Gurgaon and Delhi was initiated in the late 1990s and
a detailed project report was prepared for the same. Subsequently, in 2000-01, the MoRT&H
decided to augment the capacity of the National Highways connecting the four metros under
the prestigious Golden Quadrilateral project, as traffic intensity on these corridors had
increased manifold which hampered safe and efficient movement of vehicles.

As per the capacity augmentation plan, the Western Transport Corridor comprising the
National Highway (NH) – 8 (Delhi-Jaipur-Ahmedabad-Mumbai) was identified as one of the
top priorities to be undertaken for upgradation. NH-8 carries a sizeable amount of intra-
state and inter-state traffic as well as import-export traffic to and from the ports on the
Arabian Sea. Accordingly, NHAI decided to upgrade the section of NH-8 connecting Delhi
and Gurgaon into 8/6 lane access controlled expressway as it was the busiest part of the
highway. It was estimated that the expressway would reduce the travel time between the
Delhi and Gurgaon from about 65 minutes to around 20 minutes.
NHAI was finding itself constrained to fund the estimated ` 555 Crore for the expressway.
The risk of cost escalation during the period of construction was also a cause for concern.
Malaysia’s Construction Industry Development Board (CIDB) was initially proposed to take
up this project under the memorandum of understanding (MoU) route as a part of a
government to government initiative. However, this proposal sought a grant of ` 120 crore
from NHAI and was thus rejected.

The Government of India, at the time, was keen to promote public private partnership (PPP)
in viable expressway projects to attract funding and capitalize on private sector efficiency. It
was therefore decided to undertake the project on BOT (Build-operate-Transfer) basis. NHAI
used the Detailed Project Report prepared in 1998 for the traffic projections for this project.

Procurement

The MoRT&H invited pre-qualification bids in 2001.The project was initially envisaged to
require a capital grant to be paid by NHAI to the successful bidder towards the cost of
construction for enhancing the viability of the highway project. However, considering the
robust traffic projections, bids were received with negative grants. In April 2002, the
consortium of Jaiprakash Industries and DS Constructions was declared the successful
bidder. RBM Malaysia, which was the L2 bidder, had quoted ` 55 crore as the negative grant.
Other bidders were Gamuda Malaysia, IJM Malaysia and Larsen & Toubro (L&T).

Development

The erstwhile Jaypee DSC Ventures Ltd. (now known as Delhi Gurgaon Super Connectivity
Ltd.), the SPV incorporated by the Concessionaire for the project, achieved financial closure
in May 2003.

The construction of the expressway commenced in January 2003.

In June 2004,Jaiprakash Industries, despite being the lead promoter, sold its stake to DS
Constructions and retained only 1.2%.

The project development, however, soon ran into issues over approvals, land acquisition and
additions to the scope of work which was largely due to the physical setting of the project
highway.

The highway was the first semi-access controlled highway in an urban environment
traversing two states besides having access to both the domestic and the international airport
and sensitive defence establishments along its route. There were more than 15 government
agencies/civic bodies such as the Delhi Jal Board, the Ministry of Defence, GAIL, BPCL,
Delhi Development Authority (DDA), Haryana Urban Development Authority (HUDA),
GoH, GoNCTD, Haryana Tourism, Airports Authority of India (AAI), etc., affected by the
development of this highway that had to grant various approvals for the project. This became
a complex and time consuming process during the construction period.

Being in a thickly populated environment, land acquisition became a problem impacting

delivery. This was in fact one of the core obligations of NHAI and the State Government
under the tripartite State Support Agreement entered into with the concessionaire. NHAI
and other agencies involved with this project put in a great deal of effort to hasten the
process. However, there were certain small parcels of land which were difficult to acquire. In
addition, court cases, removal of trees, shifting of religious structures and the massive
number of utilities that had to be shifted contributed to the delay.
Another major reason for delay in project completion was the change in the scope of work.
There were substantial changes in the original design that were sought by NHAI and the
government keeping in mind future requirements and the convenience of commuters. Out of
a total of 11 structures, spread over the entire project length, 9 structures had significant
design modifications. Since the structures were closely spaced, the entire alignment of the
project was affected which necessitated the change of scope and the scheduled project
completion date had to be revised. Demands made by bodies like HUDA and DDA regarding
other connected projects also played a role in the delay. The provisional change of scope
order was finalised and issued to the concessionaire in July 2005 just days before the
original scheduled completion date.

Moreover, with the high density of traffic on the route and the requirement of a minimum
length for acceleration and de-acceleration of traffic being approximately 300 meters (As per
the Indian Roads Congress Provisions), the partial opening of expressway had to be held
back for safety reasons even if completed at certain locations.

Delivery

The project was commissioned on 25 January, 2008. The expressway is fully operational and
is handling a significant traffic volume of more than 180,000 PCUs per day, growing at 9%
year-on-year.

Exit

The concession period is for 20 years and the projected end date is 11 January 2023 when the
expressway will be handed over to the government.
11.6 Post facto VfM analysis

One of the limitations to this analysis is the lack of access to the feasibility report for the
project with which to draw quantitative comparisons. Secondly, the expressway has been in
operation for only two years, thus limiting the possible analysis of efficiencies during the
operations period. Therefore, an assessment of potential benefits achieved by the
Concessionaire based on publicly available information has been attempted.

1. Remunerative for the Government: The project has been developed as a state-
of-the-art facility which was procured on a negative grant basis. It has also generated
steady revenues due to the revenue sharing mechanism incorporated into the
Agreement.

Moreover, the facility will revert back to the Government on expiry of the concession
period.Thus, the procurement of the project through this PPP model has been
sufficiently remunerative for the Government despite various challenges experienced
during the course of its development.

2. Efficiencies Achieved: The table 20 presents the brief analysis of some of the
efficiencies achieved:

3. Risk of Time and Cost Overruns largely borne by the Private Sector: The
project experienced a substantial increase in the project cost due to a scope change
and time overruns. While NHAI contributed to the increase in cost due to a scope
change, the promoters funded a large portion of the cost overrun by withholding
payments to DSC Limited –the EPC contractor. Such overruns would have typically
been retained by the public sector under public procurement.

11.7 Key Learning and Observations

1. Land Acquisition process: The government had committed to the promoters for
providing substantial area of land, prior to actually acquiring the land. Due to the
thickly populated surrounding areas of the expressway, there were certain pockets of
land that were difficult to acquire.This exposed the government to the risk of not
providing the land within reasonable time impacting the overall schedule of the
project. It would have been better if uncontrollable concerns such as these were
addressed before the project procurement stage itself to ensure smooth functioning of
the project.
2. Support from Stakeholders for the project: For a project of this magnitude, it
is important for the government agency to garner adequate public support to ensure
smooth implementation. Public support for land acquisition and road expansion
activities should be ensured through a continuous dialogue with the affected
individuals. Such an effort shall create a feeling of ownership through involvement
among the public and reduce resistance leading to delays and other complexities.
Moreover with the project spread across 2 states, various government agencies made
demands for changes in the project alignment and design that resulted in a
substantial change in scope, project cost and consequent delay in project execution.
 Ideally, such issues should be resolved during the project preparation stage through
consultation.
3. Approvals from multiple entities: More than 15 government agencies/civic
bodies etc., that were affected in one way or other by the development of this
highway, had to grant various approvals for the project. This became a complex and
time consuming process during the construction period. The government could have
provided a single window clearance for a project of this magnitude.

4. Traffic Risk is lower in case of brown-field projects: Though traffic risk is the
biggest risk to the viability of a typical toll road project, the risk is substantially lower
in case the project involves improvement and tolling of an existing highway since
traffic flow is more or less established. The Delhi Gurgaon section of NH-8 has been
one of the busiest sections in the country and to that extent had the advantage of
bankable traffic and therefore possible revenues.
5. Outdated Traffic forecasts: NHAI relied on the traffic study conducted in 1998 at
the time of the project procurement. Thus, the actual traffic volume grossly
outnumbered the projections from the very beginning of commercial operations. In
fact as soon as the expressway was opened to traffic, the unexpected high number of
vehicles led to heavy queuing at the toll booths and delays in traversing the stretch.
This appeared to have defeated the very purpose of the expressway to reduce travel
time, fuel cost and congestion making the project socially unviable. However, timely
action and necessary measures by authorities and the Concessionaire improved
conditions.
6. Fee sharing requiring efficient contract management: The contract has a
provision for sharing of fee realised through toll beyond a threshold daily traffic level.
However, such an approach places greater onus on the government for contract
supervision and management, so as to track the project’s performance and ensure
that audited results reflect the true performance of the expressway.