Acronyms

AADT ADT BOT CC COD CRRI Cr DBOT DPR EPC FIDIC GoI GQ Corridor IL&FS IRC IRR IRR JNPT Km Lacs LCV MAV MCA MIS NH NHAI NHAI NHDP NPV NSEW Corridor O&M PCU PPP ROW Rs. SEZ SPV VGF SH MDR ODR VR : Annual Average Daily Traffic : Average Daily Traffic : Build, Operate & Transfer : Civil Contracts : Commercial Operation Date : Central Road Research Institute : 1, 00, 00,000 Units : Design Build Operate & Transfer : Detailed Project Report : Engineering, Procurement and Construction : Fdration Internationale Des Ingnieurs-Conseils, French or International Federation of Consulting Engineers, English : Government of India : Golden Quadrilateral Corridor : Infrastructure Lease & Financing Services : Indian Road Congress : Internal Rate of Return : Internal Rate of Return : Jawaharlal Nehru Port Trust : Kilometers : 1,00,000 Units : Light Commercial Vehicle : Multi Axle Vehicle : Model Concession Agreement : Management Information System : National Highways : National Highway Authority of India : National Highway Authority of India : National Highway Development Programme : Net Present Value : North South East West Corridor : Operation & Maintenance : Passenger Car Unit : Public Privet Partnership : Right of Way : Rupees : Special Economic Zone : Special Purpose Vehicle : Viability Gap Funding : State Highways : Major District Roads : Other District Roads : Village Roads

India has one of the 2nd largest road networks in the world (approx 3.3 million km). National highways constitute less than 2% of the total road network, but carry nearly 40% of the total road traffic. Even though India is 2nd largest in the road network and more dance then the largest road network of United State of America (1.03km of road for 1 sq km of land against 0.77km of USA)1 average speed was 33km/ hr on national highways compared to over 90km/hr of USA. Government of India form NHAI through NHAI act in 1988 to develop the highways to the international standards. NHAI had developed National Highway Development Policy (NHDP) as phase-1 & phase-II to join major economic centers of the country. Taking lessons and encouragement from the previous experiences NHAI developed further phases of NHDP up to phase-IV requiring total investment of about 2,19,000 cr2. NHDP phase-I and phase-II was based on money raised from NHAI through long term debt and central road fund. While in the third phase and succeeding phases all the roads are on PPP model. Basically there are three approaches for PPP BOT toll basis, BOT annuity basis and SPV. BOT toll based project is used where traffic volumes are high, BOT annuity based model is used where traffic is low and SPV is used where other beneficiary is also included like port trust. From the third phase onwards length of toll based approach is 23,737 km and annuity basis length of road is 15,937 from which 15,000 km is strengthening of 2 lane road under NHDP IV. Estimated cost of NHDP -III to NHDP VII is around Rs 1,67,279 cr. So it is necessary to review BOT toll based model and BOT annuity based model3. Need of the study The report of the working group on roads for 11th five year plan by ministry of shipping, road transport and highways states that the corridors having medium /low traffic density may not be viable on BOT toll basis and therefore for such corridors, BOT (Annuity) mode would be more appropriate for PPP. If after due diligence any project seems to be unviable for BOT toll, then it should be offered on BOT annuity basis in the first instance itself4 so from above argument it is clear from the above argument that till date annuity based projects are given only if they are not sustainable on stand alone basis. During the life cycle of the project there are certain types of risk like delay in land acquisition, delay in project development, delay in construction, cost overrun, technology risk, commercial risk, operation and maintenance risk, financial risk, force majeure, political risk. Among the above risks some affects client and some effects contractor.8

Figure 1: Project risk in PPP model during its life cycle

National road transport policy, National Highway Authenticity of India National Highway Development Plan (NHDP)
National Highway Development Plan (NHDP)

The report of the working group on roads for 11th five year plan, Ministry of Shipping, Road Transport and Highways, 2007

The most important concern for the contractor is time overrun, cost over run and shortfall in projected traffic. Among the three time and cost overrun can be controlled through project management technique and it is observed that if base work for the project is ready i.e. design and detailed engineering and land acquisition time and cost overrun is less. Demand of the traffic is such a factor which controls the success or failure of the project. And because of this factor viability gap funding or minimum traffic guarantee is given on project to project basis.8 So it is clear that till date BOT annuity based model is offered by NHAI where traffic volume is low. As it is mentioned above in any BOT project major risk is involved as the success of project depends on traffic volume on the project. In order to overcome this risk bidders bid only for those projects where internal rate of return is between 20 to 25%. And if this risk is removed then bidders may quote for lower internal rate of return. So there is a possibility of a model which removes the risk of traffic which will save substantial amount of money. This can be done by giving annuity toll based model in PPP where traffic volumes are high. If such a model is worked out NHAI will be able to save substantial amount as bidders will quote for lower internal rate of return. BOT toll based projects normally have concession period from 15 years to 30 years. There are chances of increase in traffic due to change in consumer behavior pattern, rapid industrial growth, or development of activities which generates large amount of trips like SEZ or ports (Reference 2.6.3). According to Manual on economic evaluation of highway projects in India analysis period should not extend beyond the period of reliable forces. There is considerable uncertainty of forecasts beyond certain reasonable period. Human behavior may change, travel pattern may undergo a shift and technology may experience transformation. Thus it is worthwhile to limit the analysis period to one of reliable forecasts. 20 It is clear from above arguments that there is a need of BOT annuity based project even on high traffic generating projects. It has the potential to save money for NHAI along with other advantages. Advantages of Annuity based model over BOT toll based model are listed below: At the time of termination of contract it is easy to workout remaining amount in annuity based model while it is difficult in toll based model because toll is collected by the commissioner and actual traffic can not be determined to calculate revenue of concessionaire. Development rights of real estate and Right Of Way (ROW) remains with NHAI. 9 Concession period of BOT toll based project is typically 22 years if during that period some development takes place in the area and traffic increases, benefits can not be transferred to NHAI. If road is proposed parallel to existing toll road rates of toll on the new road has to 133% more. 9 It is observed that regular maintenance is not carried out properly on some projects. This problem can be removed as annuity is paid on semiannual basis and before each payment road quality is checked if quality of road is not as per desired specifications penalty can be forced on concessionaire.

--------------------------------------------------------------------------------------------------------------------------------------4 International Conference on meeting Indias Infrastructure needs with public private partnerships- The international experience and perspective: Government of India, ministry of finance, department of economic affairs, 2007. 6 National Highway Development Plan (NHDP) 7 The report of the working group on roads for 11th five year plan, Ministry of Shipping, Road Transport and Highways, 2007 8 Risk management in PPP, Vaijayanti Padiyar, Tarun Shankar & Abhishek Varma, IL&FS Infrastructure Development Corporation Ltd