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bSTUDY OF CONTRACTS IN HIGHWAYS PROJECT BASED ON DESIGN-BUILDFINANCE-OPERATE & TRANSFER (DBFOT) CONCEPT

LONG PAPER

BY

HARJOT SINGH
PGPIDM STUDENT REG. NO. 28-12-32-6510-2102

UNDER THE GUIDANCE OF

PROF. NAGARJUNA P.

SCHOOL OF DISTANCE LEARNING NATIONAL INSTITUTE OF CONSTRUCTION MANAGEMENT AND RESEARCH, PUNE
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DECLARATION

I declare that long project titled Study of contracts of highway project based on Design-Built-Finance-Operate and Transfer (DBFOT) concept is the bonafide research work carried out by me, under the guidance of Prof. Nagarjuna P. Further I declare that this has not been previously formed the basis of award of any degree, diploma, associate-ship or other similar degrees or diplomas, and has not been submitted anywhere else.

Date: 04.03.2012

Harjot Singh NICMAR, PUNE.

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CERTIFICATE

This is to Certify that the research thesis entitled Study of contracts of highway project based on Design-Built-Finance-Operate and Transfer (DBFOT) concept is the bonafide work of Mr. Harjot Singh, in fulfillment of the academic requirement for the award of Post Graduate Programme in Infrastructure Development and Management PGPIDM. This work is carried out by him, under guidance and supervision.

Counter Signed -

Guide

Dr. J. C. Edison Dean

Prof. Nagarjuna P NICMAR - PUNE.

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ACKNOWLEGEMENT

First of all I am very much thankful to Prof. Nagarjuna P. of NICMAR Pune for reviewing my project study and enabling me to incorporate useful inputs in the project study.

I would thank Dr. J. C. Edison Dean NICMAR SODE for giving lecture and guiding us how write Long Paper. Finally I would thank my colleagues at NTPC Joshimath for guiding me about the DBFOT concept in Highway construction contracts.

Harjot Singh

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ABSTRACT
As INDIA reels under the impact of global economic meltdown it increasingly being recognized that much of the countrys infrastructure agenda the ambitious shelf of MUST DO project will have to be delivered by PPP route. The need of this can be understand by the fact that only in Highway sector the projects of worth 191 thousand crores of rupees are going on in 20 states on PPP basis because the Government of India (A developing nation) is not able to execute such a large project by its own resources. BOfamily of contracts is emerging trend in construction in country for infrastructure projects & its variants of contracts to encourage private investments. DBFOT (Design Build Finance Operate & Transfer) is one among all other contracts of BOfamily. With the Design-Build-Finance-Operate-Transfer (DBFOT) approach, the responsibilities for designing, building, financing and operating are bundled together and transferred to private sector partners. There is a great deal of variety in DBFOT arrangements, and especially the degree to which financial responsibilities are actually transferred to the private sector and have much flexibility and it can be dealt such as just segments of this approach.

One commonality that cuts across all DBFOT projects is that they are either partly or wholly financed by debt leveraging revenue streams dedicated to the project. Direct user fees (tolls) are the most common revenue source. Future revenues are leveraged to issue bonds or other debt that provide funds for capital and project development costs. They are also often supplemented by public sector grants in the form of money or contributions in kind, such as right-of-way. It can be used in highways, ports, airports & gas pipelines projects etc. In certain cases, private partners may be required to make equity investments as well. The typical example of DBFOT Project is a toll Express way Project Designed, Built, Financed, and operated by a private developer and after a mutual consulted period of time handled over to client i.e. Government of India.

LIST OF TABLES

Table 2.1 2.2 2.3 2.4 5.1 Length of Road Progress NHDP Phase I Progress NHDP Phase I NHDP Programs

Description

Page No 6 7 8 10 43

DBFOT Attractive Project Packages

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TABLE OF CONTENTS
Declaration Certificate Acknowledgement Abstract List of Tables ii iii iv v vi

Chapter 1.0 INTRODUCTION 1.1 1.2 1.3 1.4 1.5 Introduction Need of Study Objective of Study Scope Of Study Methodology 1.5.1 1.5.2 Problem Identification Data Collection 1.5.2.1 Type 1.5.2.2 Sources 1.6 1.7 Conclusion and Recommendations Chapterization Plan

Page No. 1-5 1 3 3 3 3 3 4 4 4 5 5

2.0

LITERATURE REVIEW 2.1 2.2 2.3 Introduction National Highway status Salient Features
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6-13 6 6 11

3.0

TRADITIONAL CONTRACTING IN HIGHWAYS

14-18 14 14 14 15 16 16 16 16 16

3.1

Introduction 3.1.1 3.1.2 3.1.3 3.1.4 3.1.5 3.1.6 3.1.7 Project Requirements Project Financing Project Design The Bid Process The Build Process Operation and Maintenance Ownership

3.2

The Rise of Alternate Delivery Systems

4.0

DESIGN BUILD FINANCE OPERATE & TRANSFER

19-44

4.1 4.2 4.3

Introduction History and Introduction General DBFO Policy and DBFO Philosophy 4.3.1 4.3.2 Policy Philosophy 4.3.2.1 The Transfer of Risk 4.3.2.2 Value of Money 4.3.2.3 Managerial Responsibility 4.3.2.4 Payment for Services 4.3.2.5 Partnership

19 19 23 23 24 24 24 24 24 25 25 25 25

4.4 4.5

Private Sector Innovation The ProcurementProcess 4.5.1 Prequalification

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4.6 4.7

Tender Negotiation 4.7.1 Award

26 28 28 28

4.8 4.9

Value For Money

Public Sector Comparator and Contingent Schemes 29 4.9.1 4.9.2 4.9.3 Public Sector Comparator Contingent Schemes Penalty Points and Monitoring 29 29 30 30 31

4.10 4.11

Handback Change

4.11.1 Payment Mechanisms - Shadow Toll Payment Mechanism 33 4.11.2 Availability of Service 4.12 Performance 4.12.1 Safety Performance Payments 4.12.2 Land Closure Charges 4.13 Payment Mechanism Active Management 4.13.1 Introduction 4.13.1.1 4.13.1.2 Congestion Management 33 33 34 34 34 34 34 34

Safety Performance Adjustment 35 36 39 39 40 40 42

4.13.2 What the Mechanism Covers? 4.13.3 Basis of congestion management payment 4.13.4 Datarooms 4.13.5 DBFO Contract Period 4.13.6 Flexibility of DBFOT Contract 4.14 4.15 Key Benefits of DBFOT Contracts Typical Contractual Arrangements

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5.0

OVERVIEW OF FRAMEWORK OF DBFOT CONTRACTS 45-54 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 5.13 5.14 5.15 5.16 5.17 5.18 Introduction Rationale For Phased Development Technical Parameters Concession Period Selection of Concessionaire Grant Concession Fee Risk Allocation Financial close User Fee Construction Operation And Maintenance Right of Substitution Force Majeure Termination Monitoring and Supervision Support and Guarantees by Authorities Miscellaneous 45 46 47 47 48 48 48 49 50 50 51 52 52 52 52 53 54 54

6.0

CASE STUDY
6.1 Introduction 6.1.1 6.2 Project

55-63
55 55 56 56 57

Project Description 6.2.1 6.2.2 Project History and Timeline Project Scope

6.3 6.4 6.5

Concession Agreement Traffic and Tolling Safety

58 60 62

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PANIPAT JALANDHAR NH-1 TOLL ROAD PROJECT

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