TYPES OF INFRASTRUCTURE PROJECTS & THEIR FINANCING NEEDS (REFERENCE PUNJ LLOYD LIMITED).

BY

SANJEEV KUMAR SINGH

A DISSERTION/ THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR

MASTER OF BUSINESS ADMINISTRATION OF

SMU MANIPAL 2008

THE DISSERTION / THESIS OF

SANJEEV KUMAR SINGH

TITLED

TYPES OF INFRASTRUCTURE PROJECTS & THEIR FINANCING NEEDS (REFERENCE PUNJ LLOYD LIMITED).

CERTIFICATE THIS IS TO CERTIFY THAT THE PROJECT REPORT ENTITLED

TYPES OF INFRASTRUCTURE PROJECTS & THEIR FINANCING NEEDS (REFERENCE PUNJ LLOYD LIMITED).
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION OF

SMU

SANJEEV KUMAR SINGH

UNDER MY SUPERVISION AND GUIDANCE AND THAT NO PART OF THIS REPORT HAS BEEN SUBMITTED FOR THE AWARD OF ANY OTHER DEGREE, DIPLOMA, FELLOWSHIP OR OTHER SIMILAR TITLES OR PRIZES AND THAT THE WORK HAS NOT BEEN PUBLISHED IN ANY JOURNAL OR MAGAZINE. REGISTRATION NUMBER. : 520623424

STUDENT DECLARATION
I HEREBY DECLARE THAT THE PROJECT ENTITLED

TYPES OF INFRASTRUCTURE PROJECTS & THEIR FINANCING NEEDS (REFERENCE PUNJ LLOYD LIMITED).
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

TO S M U IS MY ORIGINAL WORK AND NOT SUBMITTED FOR THE AWARD OF ANY OTHER DEGREE, DIPLOMA, FELLOWSHIP OR OTHER SIMILAR TITLE OR PRIZES.

PLACE: NEW DELHI DATE:

SANJEEV KUMAR SINGH

REGN NO. :

520623424

ACKNOWLEDGMENT
I

AM MOST THANKFUL TO THE STUDY

CENTER

VAG

INFOTECH SOUTH EXTN. NEW DELHI

FOR GIVING ME

SUCH A TOPIC. INFRASTRUCTURE FINANCE AS AN AREA OF PROFESSION WAS NOT AS WIDELY PRACTICED A DECADE AGO. SO, THIS AREA OF STUDY OFFERS AN OPPORTUNITY ESPECIALLY IN THE POST LIBERALIZATION ERA, TO EXPLORE THIS ENVIRONMENT. IAM GREATFULL TO THE PERSONNEL AT PUNJ LLOYD LIMITED IN THE FINANCE & ACCOUNTS, AND PROJECT PLANNING AND INDUSTRIAL CIVIL STRATEGIC BUSINESS UNIT, FOR THE

ALL ROUND SUPPORT AND MOTIVATION. I TO SPECIALLY THANK,

WOULD

LIKE

FOR

THEIR

VALUABLE INSTRUCTIONS,

GUIDANCE

&

CONTINUOUS SUPPORT, MR PRAMOD MITTAL AGM (F&A), Mr. AJAY GUATAM DGM (F&A), OF M/S PUNJ LLOYD LIMITED, WITHOUT WHOM I WOULD HAVE DEVIATED FROM THE MAIN SUBJECT.

NATURE OF STUDY
THE TERM NATURE AS APPLIED TO PROJECT FINANCE REFERS TO ITS RELATIONSHIP WITH THE CLOSELY RELATED FIELDS OF ECONOMICS AND ACCOUNTING, ITS FUNCTIONS, SCOPE AND OBJECTIVES. PROJECT FINANCE, AS AN ACADEMIC DISCIPLINE, HAS UNDERGONE FUNDAMENTAL CHANGES AS REGARDS ITS SCOPE AND COVERAGE. IN THE EARLY YEARS OF ITS EVOLUTION IT WAS TREATED SYNONYMOUSLY WITH THE RAISING OF FUNDS. IN THE CURRENT LITERATURE PERTAINING TO THIS GROWING ACADEMIC DISCIPLINE, A BROADER SCOPE SO AS TO INCLUDE, IN ADDITION TO PROCUREMENT OF FUNDS, EFFICIENT USE OF RESOURCES IS UNIVERSALLY RECOGNISED. SIMILARLY, THE ACADEMIC THINKING AS REGARDS THE OBJECTIVE OF PROJECT FINANCE IS ALSO CHARACTERISED BY A CHANGE OVER THE YEARS.

SCOPE OF PROJECT FINANCE

WHAT IS PROJECT FINANCE? WHAT ARE THE FIRMS OTHER FINANCIAL ACTIVITIES? HOW ARE THEY RELATED TO THE FIRMS OTHER ACTIVITIES / FUNCTIONS?

THE APPROACH TO THE SCOPE AND FUNCTIONS OF PROJECT FINANCE IS DIVIDED, FOR PURPOSES OF EXPOSITON, INTO TWO BROAD CATEGORIES. (1)TRADITIONAL APPROACH (2)MODERN APPROACH TRADITIONAL APPROACH THE TRADITIONAL APPROACH TO THE ASPECTS OF PROJECT FINANCE REFERS TO ITS SUBJECT MATTER IN THE ACADEMIC LITERATURE IN THE INITIAL STAGES OF ITS EVOLUTION AS A SEPARATE BRANCH OF ACADEMIC STUDY. THE TERM

CORPORATION FINANCE WAS USED TO DESCRIBE WHAT IS NOW KNOWN IN THE ACADEMIC WORLD AS FINANCIAL

MANAGEMENT. AS THE NAME SUGGESTS, THE CONCERN OF CORPORATION FINANCE WAS WITH THE FINANCING OF

CORPORATE ENTERPRISES. IN OTHER WORDS, THE SCOPE OF FINANCE FUNCTION WAS TREATED BY THE TRADITIONAL

APPROACH IN THE NARROW SENSE OF PROCUREMENT OF FUNDS BY CORPORATE ENTERPRISES TO MEET THEIR FINANCING NEEDS. THE TERM PROCUREMENT WAS USED IN A BROAD SENSE SO AS TO INCLUDE THE WHOLE GAMUT OF RAISING FUNDS EXTERNALLY. THUS DEFINED, THE FIELD OF STUDY

DEALING WITH FINANCE WAS TREATED AS ENCOMPASSING THREE INTER-RELATED ASPECTS OF RAISING AND

ADMINISTERING RESOURCES FROM OUTSIDE: I. THE INSTITUTIONAL ARRANGEMENT IN THE FORM OF FINANCIAL INSTITUTIONS WHICH COMPRISE THE

ORGANISATION OF THE CAPITAL MARKETS ALSO; II. FINANCIAL INSTRUMENTS THROUGH WHICH FUNDS ARE RAISED FROM THE CAPITAL MARKETS AND THE RELATED ASPECTS OF PRACTICES AND THE PROCEDURAL ASPECTS OF CAPITAL MARKETS; AND III. THE LEGAL AND ACCOUNTING RELATIONSHIPS BETWEEN A FIRM AND ITS SOURCES OF FUNDS. THE COVERAGE OF CORPORATION FINANCE WAS, THEREFORE, CONCEIVED TO DESCRIBE THE RAPIDLY EVOLVING COMPLEX OF CAPITAL MARKET INSTITUTIONS, INSTRUMENTS AND PRACTICES. A RELATED ASPECT WAS THAT FIRMS REQUIRE FUNDS AT CERTAIN EPISODIC EVENTS SUCH AS MERGER,

LIQUIDATION, RE-ORGANISATION AND SO ON. A DETAILED DESCRIPTION OF THESE MAJOR EVENTS CONSTITUTED THE SECOND ELEMENT OF THE SCOPE OF THIS FIELD OF ACADEMIC STUDY. THAT THESE WERE THE BROAD

FEATURES OF THE SUBJECT MATTER OF CORPORATION FINANCE IS ELOQUENTLY REFLECTED IN THE ACADEMIC WRITINGS AROUND THE PERIOD DURING WHICH THE TRADITIONAL APPROACH DOMINATED THE ACADEMIC

THINKING. THUS, THE ISSUES TO WHICH THE LITERATURE ON FINANCE ADDRESSED ITSELF WAS HOW RESOURCES COULD BEST BE RAISED FROM THE COMBINATION OF THE AVAILABLE SOURCES. THE TRADITIONAL APPROACH TO THE SCOPE OF THE FINANCE FUNCTION EVOLVED DURING THE 1920S AND 1930S DOMINATED THE ACADEMIC THINKING DURING THE FORTIES AND THROUGH THE EARLY FIFTIES. IT HAS NOW BEEN DISCARDED AS IT SUFFERS FROM SERIOUS LIMITATIONS. THE WEAKNESSES OF THE TRADITIONAL APPROACH FALL INTO TWO BROAD

CATEGORIES: 1. THOSE RELATING TO THE TREATMENT OF VARIOUS TOPICS AND THE EMPHASIS ATTACHED TO THEM; 2. THOSE RELATING TO THE BASIC CONCEPTUAL AND

ANALYTICAL FRAMEWORK OF THE DEFINITIONS AND SCOPE OF THE FINANCE FUNCTION.

AS REGARDS THE FIRST TYPE OF CRITICISM OF THE TRADITIONAL APPROACH, THE EMPHASIS OF THE ACADEMIC LITERATURE ON ISSUES RELATING TO THE PROCUREMENT OF FUNDS BY CORPORATE ENTERPRISES WAS CHALLENGED DURING THE PERIOD THE APPROACH DOMINATED THE SCENE ITSELF. THE TRADITIONAL TREATMENT OF FINANCE WAS CRITICISED FOR THE FOLLOWING REASONS. SINCE THE FINANCE FUNCTION WAS EQUATED WITH THE ISSUES INVOLVED IN RAISING AND ADMINISTERING FUNDS, THE THEME WAS WOVEN AROUND THE VIEWPOINT OF THE SUPPLIERS OF FUNDS SUCH AS INVESTORS, INVESTMENT BANKERS AND SO ON, I.E. THE OUTSIDERS. IT IMPLIES THAT NO CONSIDERATION WAS GIVEN TO THE VIEWPOINT OF THOSE WHO HAD TO TAKE INTERNAL FINANCIAL DECISIONS. THE TRADITIONAL TREATMENT WAS, IN OTHER WORDS, THE OUTSIDER-LOOKING-IN APPROACH. THE LIMITATION WAS THAT INTERNAL DECISION-MAKING (I.E. INSIDER-LOOKING-OUT) WAS COMPLETELY IGNORED. THE SECOND GROUND OF CRITICISM OF THE TRADITIONAL TREATMENT WAS THAT THE FOCUS WAS ON FINANCING

PROBLEMS OF CORPORATE ENTERPRISES. TO THAT EXTENT THE SCOPE OF FINANCIAL MANAGEMENT WAS CONFINED ONLY TO A

SEGMENT

OF

THE

INDUSTRIAL

ENTERPIESES,

AS

NON-

CORPORATE ORGANISATIONS LAY OUTSIDE ITS SCOPE. YET ANOTHER BASIS ON WHICH THE TRADITIONAL APPROACH WAS CHALLENGED WAS THAT THE TREATMENT WAS BUILT TOO CLOSELY AROUND EPISODIC EVENTS, SUCH AS PROMOTION, INCORPORATION, MERGER, CONSOLIDATION, REORGANISTATION AND SO ON. FINANCIAL MANAGEMENT WAS CONFINED TO A DESCRIPTION OF THESE INFREQUENT HAPPENINGS IN THE LIFE OF AN ENTERPRISE. AS A LOGICAL COROLLARY, THE DAY-TO-DAY FINANCIAL PROBLEMS OF A NORMAL COMPANY DID NOT RECEIVE ANY ATTENTION. FINALLY, THE TRADITIONAL TREATMENT WAS FOUND TO HAVE A LACUNA TO THE EXTENT THE FOCUS WAS ON LONG-TERM FINANCING. ITS NATURAL IMPLICATION WAS THAT THE ISSUES INVOLVED IN WORKING CAPITAL MANAGEMENT WERE NOT IN THE PURVIEW OF FINANCE FUNCTION. THE LIMITATION OF THE TRADITIONAL APPROACH WAS,

HOWEVER, NOT ENTIRELY BASED ON TREATMENT OR EMPHASIS OF DIFFERENT ASPECTS. IN OTHER WORDS, ITS WEAKNESSES WERE MORE FUNDAMENTAL. THE CONCEPTUAL AND ANALYTICAL SHORTCOMING OF THIS APPROACH AROSE FROM THE FACT THAT

TO THE EXTENT IT CONFINED FINANCIAL MANAGEMENT TO ISSUES INVOLVED IN PROCUREMENT OF EXTERNAL FUNDS, IT DID NOT CONSIDER THE IMPORTANT DIMENSION OF ALLOCATION OF CAPITAL. THE CONCEPTUAL FRAMEWORK OF THE TRADITIONAL TREATMENT IGNORED WHAT SOLOMON APTLY DESCRIBES AS THE CENTRAL ISSUES OF FINANCIAL MANAGEMENT. THESE ARE: SHOULD AN ENTERPRISE COMMIT CAPITAL FUNDS TO CERTAIN PURPOSES? DO THE EXPECTED RETURNS MEET FINANCIAL STANDARDS OF PERFORMANCE? HOW SHOULD THESE STANDARDS BE SET AND WHAT IS THE COST OF CAPITAL FUNDS TO THE ENTERPRISE? HOW DOES THE COST VARY WITH THE MIXTURE OF FINANCING METHODS USED? IN THE ABSENCE OF THE COVERAGE OF THESE CRUCIAL ASPECTS, THE TRADITIONAL APPROACH IMPLIED A VERY NARROW SCOPE FOR FINANCIAL MANAGEMENT. THE MODERN APPROACH PROVIDES A SOLUTION TO THESE

SHORTCOMINGS.

MODERN APPROACH THE MODERN APPROACH IN A VIEWS THE TERM AND FINANCIAL A

MANAGEMENT

BROAD

SENSE

PROVIDES

CONCEPTUAL AND ANALYTICAL FRAMEWORK FOR FINANCIAL DECISION-MAKING. ACCORDING TO IT, THE FINANCE FUNCTION COVERS BOTH ACQUISITION OF FUNDS AS WELL AS THEIR ALLOCATION. THUS, APART FROM THE ISSUES INVOLVED IN ACQUIRING FINANCIAL EXTERNAL FUNDS, IS THE THE MAIN CONCERN AND OF WISE

MANAGEMENT

EFFICIENT

ALLOCATION OF FUNDS TO VARIOUS USES. DEFINED IN A BROAD SENSE, IT IS VIEWED AS AN INTEGRAL PART OF OVER-ALL MANAGEMENT. THE NEW APPROACH IS AN ANALYTICAL WAY OF VIEWING THE FINANCIAL PROBLEMS OF A FIRM. THE MAIN CONTENTS OF THIS APPROACH ARE: WHAT IS THE TOTAL VOLUME OF FUNDS AN ENTERPRISE SHOULD COMMIT? WHAT SPECIFIC ASSETS SHOULD AN ENTERPRISE ACQUIRE? HOW SHOULD THE FUNDS REQUIRED, BE FINANCED? ALTERNATIVELY, THE PRINCIPAL CONTENTS OF THE MODERN APPROACH TO FINANCIAL MANAGEMENT CAN BE SAID TO BE:

1. HOW LARGE SHOULD AN ENTERPRISE BE AND HOW FAST SHOULD IT GROW? 2. IN WHAT FORM SHOULD IT HOLD ASSETS? 3. WHAT SHOULD BE THE COMPOSITION OF ITS LIABILITIES? THE THREE QUESTIONS POSED ABOVE COVER BETWEEN THEM THE MAJOR FINANCIAL PROBLEMS OF A FIRM. IN OTHER WORDS, FINANCIAL MANAGEMENT, ACCORDING TO THE NEW APPROACH, IS CONCERNED WITH THE SOLUTION OF THREE MAJOR

PROBLEMS RELATING TO THE FINANCIAL OPERATIONS OF A FIRM, CORRESPONDING INVESTMENT, TO THE THREE QUESTIONS, NAMELY, THUS,

FINANCING

AND DIVIDEND

DECISIONS.

FINANCIAL MANGEMENT, IN THE MODERN SENSE OF THE TERM, CAN BE BROKEN DOWN INTO THREE MAJOR DECISIONS AS FUNCTIONS OF FINANCE. THEY ARE: 1. THE INVESTMENT DECISION, 2. THE FINANCING DECISION, AND 3. THE DIVIDEND POLICY DECISION. WE BRIEFLY OUTLINE THE MAIN COMPONENTS OF THESE IN THE FOLLOWING DISCUSSION.

FUNCTIONS OF FINANCE INVESTMENT DECISION

THE INVESTMENT DECISION RELATES TO THE SELECTION OF ASSETS IN WHICH FUNDS WILL BE INVESTED BY A FIRM. THE ASSETS WHICH CAN BE ACQUIRED FALL INTO TWO BROAD GROUPS :1. LONG TERM ASSETS WHICH WILL YIELD A RETURN OVER A PERIOD OF TIME IN FUTURE 2. SHORT TERM OR CURRENT ASSETS DEFINED AS THOSE ASSETS WHICH IN THE NORMAL COURSE OF BUSINESS ARE CONVERTIBLE INTO CASH USUALLY WITHIN A YEAR. ACCORDINGLY, THE ASSET SELECTION DECISION OF A FIRM IS OF TWO TYPES. THE FIRST OF THESE INVOLVING THE FIRST CATEGORY OF ASSETS IS POPULARLY KNOWN IN THE FINANCIAL LITERATURE AS CAPITAL BUDGETING. THE ASPECT OF FINANCIAL DECISION-MAKING WITH REFERENCE TO CURRENT ASSETS OR SHORT TERM ASSETS IS POPULARLY DESIGNATED AS WORKING CAPITAL MANAGEMENT. CAPITAL BUDGETING

CAPITAL BUDGETING-THE LONG TERM INVESTMENT DECISION IS PROBABLY THE MOST CRUCIAL FINANCIAL DECISION OF A FIRM. IT RELATES TO THE SELECTION OF AN ASSET OR INVESTMENT PROPOSAL OR COURSE OF ACTION WHOSE BENEFITS ARE LIKELY TO BE AVAILABLE IN FUTURE OVER THE LIFE TIME OF THE PROJECT. THE LONG TERM ASSETS CAN BE EITHER NEW OR OLD / EXISTING ONES. THE FIRST ASPECT OF THE CAPITAL BUDGETING DECISION RELATES TO THE CHOICE OF THE NEW ASSET OUT OF THE ALTERNATIVES AVAILABLE OR THE REALLOCATION OF CAPITAL WHEN AN EXISTING ASSET FAILS TO JUSTIFY THE FUNDS COMMITTED. WHETHER AN ASSET WILL BE ACCEPTED OR NOT WILL DEPEND UPON THE RELATIVE BENEFITS AND RETURNS ASSOCIATED WITH IT. THE MEASUREMENT OF THE WORTH OF THE INVESTMENT PROPOSALS IS, THEREFORE, A

MAJOR ELEMENT IN THE CAPITAL BUDGETING EXERCISE. THIS IMPLIES A DISCUSSION OF THE METHODS OF APPRAISING INVESTMENT PROPOSALS. THE SECOND ELEMENT OF THE CAPITAL BUDGETING DECISION IS THE ANALYSIS OF RISK AND UNCERTAINTY. SINCE THE BENEFITS FROM THE INVESTMENT PROPOSALS EXTEND INTO THE FUTURE, THEIR ACCRUAL IS UNCERTAIN. THEY HAVE TO BE ESTIMATED

UNDER VARIOUS ASSUMPTIONS OF THE PHYSICAL VOLUME OF SALE AND THE LEVEL OF PRICES. AN ELEMENT OF RISK IN THE SENSE OF UNCERTINITY OF FUTURE BENEFITS IS, THUS, INVOLVED IN THE EXERCISE. THE RETURN FROM THE CAPITAL BUDGETING DECISION SHOULD, THEREFORE, BE EVALUATED IN RELATION TO THE RISK ASSOCIATED WITH IT. FINALLY, THE EVALUATION OF THE WORTH OF A LONG-TERM PROJECT IMPLIES A CERTAIN NORM OR STANDARD AGAINST WHICH THE BENEFITS ARE TO BE JUDGED. THE REQUISITE NORM IS KNOWN BY DIFFERENT NAMES SUCH AS CUT-OFF RATE, HURDLE RATE, REQUIRED RATE, AND MINIMUM RATE OF RETURN AND SO ON. THIS STANDARD IS BROADLY EXPRESSED IN TERMS OF THE COST OF CAPITAL. THE CONCEPT AND MEASUREMENT OF THE COST OF CAPITAL IS, THUS, ANOTHER MAJOR ASPECT OF THE CAPITAL BUDGETING DECISION. IN BRIEF, THE MAIN

ELEMENTS OF THE CAPITAL BUDGETING DECISIONS ARE: 1. THE TOTAL ASSETS AND THEIR COMPOSITION 2. THE BUSINESS RISK COMPLEXION OF THE FIRM, AND 3. CONCEPT AND MEASUREMENT OF THE COST OF CAPITAL CAPITAL BUDGETING IS A COMPLEX PROCESS WHICH MAY BE DIVIDED INTO FIVE BROAD PHASES:

i.

PLANNING: THE PLANNING PHASE IS CONCERNED WITH THE ARTICULATION OF ITS BROAD INVESTMENT STRATEGY AND THE GENERATION AND PRELIMINARY SCREENING OF PROJECT PROPOSALS. THE INVESTMENT STRATEGY OF THE FIRM DELINEATES THE BROAD AREAS OR TYPES OF INVESTMENTS THE FIRM PLANS TO UNDERTAKE.

ii.

ANALYSIS: THE FOCUS IS ON GATHERING, PREPARING, AND SUMMARISING RELEVANT INFORMATION ABOUT VARIOUS

PROPOSALS WHICH ARE BEING CONSIDERED. BASED ON THE INFORMATION DEVELOPED IN THIS ANALYSIS, THE STREAM OF COST & BENEFITS ASSOCIATED WITH THE PROJECT CAN BE DEFINED. iii. SELECTION: THE PROJECTS ARE SELECTED ON SOME SUITABLE BASIS FOR THEIR WORTHINES LIKE PAYBACK

PERIOD, ARR, NPV, IRR, BCR ETC. IN ORDER TO APPLY THE APPRISAL CRITERIA CUT OFF VALUES ARE TO BE SPECIFIED, LIKE (HURDLE RATE, TARGET RATE AND COST OF CAPITAL). iv. IMPLEMENTATION: IT PASSES THROUGH SEVERAL STAGES, NAMELY- PROJECT & ENGINEERING & DESIGNS, NEGOTIATION & CONTRACTING, CONSTRUCTION, TRAINING, AND

COMMISSIONING.

v.

REWIEW: THIS PHASE SETS INTO MOTION AFTER THE COMMISSIONING IS OVER. IT IS USEFUL IN THE FOLLOWING WAYS,

IT THROWS LIGHT ON HOW REALISTIC WERE THE

ASSUMPTIONS UNDERLYING THE PROJECT,

IT PROVIDES A DOCUMENTED LOG OF EXPERIENCE

THAT IS HIGHLY VALUABLE IN FUTURE DECISION MAKING,

IT SUGGESTS CORRECTIVE ACTION TO BE TAKEN IN

THE LIGHT OF ACTUAL PERFORMANCE,

IT HELPS IN UNCOVERING JUDGEMENTAL BIASES,

IT INDUCES A DESIRED CAUTION AMONG PROJECT SPONSORS. WORKING CAPTIAL MANAGEMENT WORKING CAPITAL MANAGEMENT IS CONCERNED WITH THE MANAGEMENT OF THE CURRENT ASSETS. IT IS AN IMPORTANT AND INTEGRAL PART OF FINANCIAL MANAGEMENT AS SHORT TERM SURVIVAL IS A PRE-REQUISITE TO LONG TERM SUCCESS. ONE ASPECT OF THE WORKING CAPITAL MANAGEMENT IS THE TRADE OFF BETWEEN PROFITABILITY AND RISK (LIQUIDITY) . THERE IS A CONFLICT BETWEEN PROFITABILITY AND LIQUIDITY. IF A FIRM DOES NOT HAVE ADEQUATE WORKING CAPITAL I.E. IT

DOES NOT INVEST SUFFICIENT FUNDS IN CURRENT ASSETS, IT

MAY BECOME ILLIQUID AND CONSEQUENTLY MAY NOT HAVE THE ABILITY TO MEET ITS CURRENT OBLIGATIONS AND THUS INVITE THE RISK OF BANKRUPTCY. THE CURRENT ASSETS ARE TOO LARGE, THE PROFITABILITY IS ADVERSELY AFFECTED. THE KEY STRATEGIES AND CONSIDERATIONS IN ENSURING A TRADE-OFF BETWEEN PROFITABILITY AND LIQUIDITY IS ONE MAJOR

DIMENSION OF WORKING CAPITAL MANAGEMENT. IN ADDITION, THE INDIVIDUAL CURRENT ASSETS SHOULD BE EFFICIENTLY MANAGED SO THAT NEITHER INADEQUATE NOR UNNECESSARY FUNDS ARE LOCKED UP. TO SUMMARISE, THE MANAGEMENT OF WORKING CAPITAL HAS TWO BASIC INGREDIENTS, NAMELY, 1. AN OVERVIEW OF WORKING CAPITAL MANAGEMENT AS A WHOLE, AND 2. EFFICIENT MANAGEMENT OF THE INDIVIDUAL CURRENT

ASSETS SUCH AS CASH, RECEIVABLES AND INVENTORY. FINANCING DECISION THE SECOND MAJOR DECISION INVOLVED IN FINANCIAL

MANAGEMENT IS THE FINANCING DECISION. THE INVESTMENT DECISION IS BROADLY CONCERNED WITH THE ASSET MIX OR THE COMPOSITION OF THE ASSETS OF THE FIRM. THE CONCERN OF THE FINANCING DECISION IS WITH THE FINANCING MIX OR

CAPITAL STRUCTURE OR CAPITAL STRUCTURE

OR LEVERAGE.

THE TERM CAPITAL STRUCTURE REFERS TO THE PROPORTION OF DEBT AND EQUITY CAPITAL. THE FINANCING DECISION OF A FIRM RELATES TO THE CHOICE OF THE PROPORTION OF THESE SOURSES OF FINANCE THE INVESTMENT REQUIREMENTS. THESE ARE TWO ASPECTS OF THE FINANCING DECISION.FIRST, THE THEORY OF CAPITAL STRUCTURE WHICH SHOWS THE

THEORITICAL RELATIONSHIP BETWEEN THE EMPLOYMENT OF DEBT AND THE RETURN TO THE SHAREHOLDERS AS ALSO THE FINANCIAL RISK. A PROPER BALANCE BETWEEN DEBT AND EQUITY TO ENSURE A TRADE-OFF BETWEEN RISK AND RETURN TO THE SHAREHOLDERS IS NECESSARY. A CAPITAL STRUCTURE WITH A REASONABLE PROPORTION OF DEBT AND EQUITY CAPITAL IS CALLED THE OPTIMUM CAPITAL STRUCTURE. THUS, ONE DEMENSION OF THE FINANCING DECISION IS: IS

THERE AN OPTIMUM CAPITAL STRUCUTE? IN WHAT PROPORTION SHOULD FUNDS BE RAISED TO MAXIMISE THE RETURN TO THE SHAREHOLDERS? THE SECOND ASPECT OF THE FINANCING DECISION IS THE DETERMINATION OF AN APPROPRIATE CAPITAL STRUCTURE, GIVEN THE FACTS OF A PARTICULAR CASE. THUS,

THE

FINANCING

DECISION

COVERS

TWO

INTER-RELATED

ASPECTS : a) CAPITAL STRUCTURE THEORY, AND b) CAPITAL STRUCTUE DECISION DIVIDEND POLICY DECISION

THE THIRD MAJOR DECISION OF FINANCIAL MANAGEMENT IS THE DECISION RELATING TO THE DIVIDEND POLICY. THE DIVIDEND DECISION SHOULD BE ANALYSED IN THE RELATION TO THE FINANCING DECISION OF A FIRM. TWO ALTERNATIVES ARE AVAILABLE IN DEALING WITH THE PROFITS OF THE FIRM:THEY CAN BE DISTRIBUTED TO THE SHAREHOLDERS IN THE FORM OF DIVIDENDS OR THEY CAN BE RETAINED IN THE BUSINESS. ONE SIGNIFICANT THEREFORE, ELEMENT THE IN THE PAY DIVIDEND OUT DECISION I.E IS,

DIVIDEND

RATIO,

WHAT

PROPORTION OF NET PROFITS SHOULD BE PAID OUT TO THE SHAREHOLDERS. PREFERENCE OF THE THE DECISION WILL DEPEND AND UPON THE

SHAREHOLDERS

INVESTMENT

OPPORTUNITIES AVAILABLE WITH IN THE FIRM. THE SECOND MAJOR ASPECT OF THE DIVIDEND DECISION IS THE FACTORS DETERMINING DIVIDEND POLICYOF A FIRM IN PRACTICE.

TO SUMMARISE THE DISCUSSION OF THE SCOPE, FUNCTIONS AND COVERAGE OF FINANCIAL MANAGEMENT, THE TRADITIONAL APPROACH HAD A VERY NARROW PERCEPTION AND WAS DEVOID OF AN INTEGRATED IT HAS CONCEPTUAL RIGHTLY BEEN AND ANALYTICAL IN THE

FRAMEWORK.

DISCARDED

CURRENT ACADEMIC LITERATURE. THE MODERN APPROACH HAS BROADENED THE SCOPE OF FINANCIAL MANAGEMENT WHICH INVOLVES THE SOLUTION OF THREE MAJOR DECISIONS, NAMELY, INVESTMENT, FINANCING AND DIVIDEND. THESE ARE INTERRELATED AND SHOULD BE JOINTLY TAKEN SO THAT FINANCIAL DECISION MAKING IS OPTIMAL. THE CONCEPTUAL FRAMEWORK FOR OPTIMUM FINANCIAL DECISIONS IS THE OBJECTIVE OF FINANCIAL MANAGEMENT. IN OTHER WORDS, TO ENSURE

OPTIMUM DECISION IN RESPECT OF THESE THREE AREAS THEY SHOULD BE RELATED TO THE OBJECTIVES OF FINANCIAL MANAGEMENT WHICH ARE ELABORATED IN THE SUBSEQUENT DISCUSSION. OBJECTIVES OF FINANCIAL MANAGEMENT THE PRECEDING DISCUSSIONS HAVE SHOWN THAT FINANCIAL MANAGEMENT, AS AN ACADEMIC DISCIPLINE, IS CONCERNED WITH DECISION-MAKING IN REGARD TO THE SIZE AND

COMPOSITION OF ASSETS AND THE LEVEL AND STRUCTURE OF FINANCI NG. TO MAKE WISE DECISIONS A CLEAR

UNDERSTANDING OF THE OBJECTIVES WHICH ARE SOUGHT TO BE ACHIEVED IS NECESSARY. THE OBJECTIVE PROVIDES A FRAMEWORK FOR OPTIMUM FINANCIAL DECISION-MAKING. IN OTHER WORDS, THEY ARE CONCERNED WITH DESIGNING A METHOD OF OPERATING THE INTERNAL INVESTMENT AND FINANCING OF A FIRM. WE DISCUSS IN THIS SECTION THE

ALTERNATIVE APPROACHES IN THE FINANCIAL LITERATURE. THERE ARE TWO WIDELY-DISCUSSED APPROACHES :1. PROFIT MAXIMISATION APPROACH, AND 2. WEALTH MAXIMISATION APPROACH. IT SHOULD BE AT THE OUTSET NOTED THAT THE TERM OBJECTIVE IS USED IN THE SENSE OF A GOAL OR DECISION CRITERION FOR THE THREE DECISIONS INVOLVED IN FINANCIAL MANAGEMENT. IT IMPLIES THAT WHAT IS RELEVANT IS NOT THE OVER-ALL OBJECTIVE OR GOAL OF A BUSINESS BUT AN OPERATIONALLY USEFUL CRITERION BY WHICH TO JUDGE A SPECIFIC SET OF MUTUALLY INTER-RELATED BUSINESS

DECISIONS, NAMELY, INVESTMENT, FINANCING AND DIVIDEND POLICY. THE SECOND POINT THAT SHOULD BE CLEARLY

UNDERSTOOD IS THAT THE TERM OBJECTIVE PROVIDES A NORMATIVE FRAMEWORK. THAT IS, THE FOCUS IN THE FINANCIAL LITERATURE IS ON WHAT A FIRM SHOULD TRY TO ACHIEVE AND ON POLICIES THAT SHOULD BE FOLLOWED IF CERTAIN GOALS ARE TO BE ACHIEVED. THE IMPLICATION IS THAT THESE ARE NOT NECESSARILY FOLLOWED BY FIRMS IN ACTUAL PRACTICE. RATHER THEY ARE INTENDED TO SERVE AS A BASIS FOR THEORETICAL ANALYSIS AND DO NOT REFLECT COMTEMPORARY EMPIRICAL INDUSTRY PRACTICES. THUS, THE TERM IS USED IN A RATHER NARROW SENSE OF WHAT A FIRM SHOULD ATTEMPT TO ACHIEVE WITH ITS INVESTMENT, FINANCING AND DIVIDEND POLICY DECISION.

BACKGROUND & ASPECT OF THE PROBLEMS FINANCING OF INFRASTRUCTURE INFRASTRUCTURE IN A COUNTRY MEANS THE EDIFICE ON WHICH THE FOUNDATION OF THE CIVILIZATION OF THE COUNTRY MOSTLY DEPENDS, IT GENERALLY INCLUDES THE FOLLOWING:(a)PUBLIC WORKS LIKE ROADS, DAMS, IRRIGATION AND

DRAINAGE SYSTEMS; (b)TRANSPORT SYSTEMS LIKE RAILWAYS, AIRPORTS, URBAN TRANSPORTS, PORTS ETC.; (c) OTHER PUBLIC UTILITIES WATER WHICH SUPPLY, INCLUDE POWER, AND

TELECOMMUNICATION,

SANITATION

SEWERAGE, OIL & GAS FACILITIES. FROM THE FIRST FIVE YEAR PLAN ITSELF GOVERNMENT TOOK OVER THE RESPONSIBILITY OF FOUNDING THE ABOVE FACILITIES VIA DIFFERENT ANNUAL BUDGETS. IT IS ONLY AFTER THE

PROCESS OF LIBERALISATION STARTED IN 1991 THAT THE DISCUSSION ON FUNDING ABILITY/ADEQUACY / FEASIBILITY ON THE PART OF THE GOVERNMENT HAVE STARTED. THOUGH LATE, GOVERNMENT HAS UNDERSTOOD CLEARLY THAT FIRSTLY, IT MAY NOT BE POSSIBLE ON ITS PART TO SHOULDER THE WHOLE RESPONSIBILITY OF FINANCING THE

INFRASTRUCTURE ANY MORE AND SECONDLY, THE PACE WITH WHICH SUCH DIFFERENT PROJECTS AND INFRASTRUCTURAL DEVELOPMENTS ARE GOING ON, THE RAPID INDUSTRIAL

DEVELOPMENT PROCESS IS BOUND TO SUFFER. ACCORDINGLY, THE GOVERNMENT HAS OPENED THESE INFRASTRUCTURAL AREAS FOR INVESTMENT BY PRIVATE SECTOR BY DRASTICALLY CHANGING THE INDUSTRIAL POLICIES FROM TIME TO TIME WHICH WERE SO LONG KEPT STRICTLY UNDER ITS OWN DOMAIN.

THE QUANTUM OF FUNDS REQUIRED IN DEVELOPMENT OF INFRASTRUCTURE FOR RAPID INDUSTRIALISATION KNOWN, IT WILL BE APPARENT AS TO WHY GOVERNMENT IS SO KEEN IN OFF LOADING ITS RESPONSIBILITY TO THE PRIVATE INDUSTRIALISTS. IN POWER GENERATION ALONE, THE COUNTRY NEEDS RS.30,000 CRORES EVERY YEARS AND IF WE ADD TRANSMISSION AND DISTRIBUTION SYSTEMS TO IT THAT WILL NEED ANOTHER RS.60,000 CRORES. ADDED TO IT, THE REQUIREMENTS OF ROADS, TELECOM SECTOR, DAMS, IRRIGATION, PORTS,

RAILWAYS, AIRPORTS, URBAN TRANSPORT, WATER SUPPLY ETC. THE QUANTUM OF INVESTMENT REQUIRED WILL BE

PHENOMENAL. THUS, BETTER LATE THAN NEVER APPROACH BY

GOVERNMENT HAS BEEN WELCOMED BY ALL CONCERNED. OBVIOUSLY, IT WILL NOT ONLY SHIFT FROM GOVERNMENT THE CAUSE FOR CONCERN OF AVAILABILITY OF FUNDS BUT IT WILL ALSO ENSURE COMPLETION OF NUMBER OF INFRASTRUCTURAL PROJECTS EITHER WITHOUT ANY COST OF TIME OVERRUN OR WITH MINIMUM OF BOTH IF AT ALL. THE PRIVATE INVESTOR IN INFRASTRUCTURE GENERALLY TAKE INTO ACCOUNT THE FOLLOWING RISKS AND IS AWARE THAT THE ALLOCATION OF RISK IS VITAL FOR THE SUCCESS OF SUCH PROJECTS. THE RISKS CAN BE GROUPED AS:(a) POLITICAL RISKS LEADING TO THE NEGATIVE DEVELOPMENT IN GOVT. POLICIES AND CHANGE OF OUTLOOK OF THE NEW GOVT. TOWARDS THE PROJECT. THE CASE OF RECENT

DEVELOPMENT OF THE CHANGE OF ATTITUDE OF THE GOVT. IN MAHARASHTRA TOWARDS DABHOL PROJECT CAN BE CITED AS AN EXAMPLE AND IS KNOWN TO ALL AND SUNDRY. THUS, THE PRIVATE INVESTOR WILL TRY TO GUARD AGAINST SUCH RISKS BY ALLOCATING THE RISKS TO INSURANCE COMPANY WHO GENERALLY COVER SUCH INTERNATIONAL POLITICAL RISKS.

(b) THERE ARE ALSO RISKS RELATING TO OPERATIONS. THESE RELATE TO RISKS OF OVERRUN OF COST OF PRODUCTION ON COMPLETION OF THE PROJECT. (c) SIMILARLY, THERE MAY BE RISKS WHILE COMPLETING THE PROJECT. SUCH RISKS RELATE TO TIME AND COST OVERRUN DURING PROJECT EXECUTION. SUCH RISKS ARE VERY

COMMON AND MAY BE DUE TO EXTERNAL AND INTERNAL PARAMETERS ARISING DURING THE CONTINUATION OF THE PROJECT. (d) THERE MAY BE RISKS RELATING TO FLUCTUATIONS IN THE INTEREST RATES. SUCH CASES MAY HAPPEN WHERE THERE IS AN OPEN ECONOMY WHERE INTEREST RATES ARE

ALLOWED TO PLAY THEIR ROLE AND EXPECTED TO GET STABILISED DURING THE COURTS OF TIME BY INTERACTION OF MARKET FORCES. (e) THERE MAY ALSO BE RISKS ARISING OUT OF CHANGE IN DEMAND OF THE SERVICES/COMMODITY DURING THE YEARS TO COME. THE BASIS OF DEMAND ON WHICH THE EDIFICE OF THE PROJECT DEPENDS MAY COMPLETELY ALTER BECAUSE OF THE UNCERTAINTY IN THE PROJECTED DEMAND FOR THE CONCERNED SERVICE.

IT IS FOR THE AFORESAID RISKS THAT DIFFERENT MECHANISMS HAVE BEEN DEVISED BY PRIVATE SECTOR WHILE PARTICIPATING IN INFRASTRUCTURE PROJECT. FOLLOWING PARAGRAPHS:1. BOLT (BUILD, OPERATE, LEASE, TRANSFER) IN THIS CASE, THE PRIVATE PARTICIPANTS BUILD AND RUN THE FACILITY AND THE SAME IS SUBSEQUENTLY HANDED OVER TO GOVERNMENT ON THE BASIS OF LEASE AGREEMENT. THIS IS DONE AT THE END OF THE CONCESSIONAL PERIOD WHICH IS MORE OR LESS PREFIXED DEPENDING ON THE NATURE OF THE INFRASTRUCTURAL PROJECT. ON THEY ARE OUTLINED IN THE

COMPLETION OF SUCH PERIOD, THE CONCERNED ASSET CREATED OUT OF COMPLETION OF THE PROJECT IS HANDED OVER TO THE GOVERNMENT. HERE THE CONCERNED PRIVATE COMPANY/INVESTOR SUBSEQUENTLY GETS THE LEASE

RENTAL FROM THE GOVERNMENT WHICH HELPS IT TO GET A STEADY CASH FLOW. BUT THE PROBLEM IN SUCH CASES IS THAT AS THINGS STAND TODAY THE LEASE RENTAL PAYMENT ON THE PART OF THE GOVERNMENT ARE VERY UNSTEADY AND THIS INTERRUPTS THE CASH FLOW OF THE CONCERNED INVESTOR.

2. BOT (BUILD, OPERATE, TRANSFER) THE PRIVATE INVESTOR IN THIS CASE EXECUTES THE PROJECT, RUNS IT AND THEN TRANSFER THE FACILITY AT THE END OF THE CONCESSIONAL PERIOD TO THE GOVERNMENT. IN SUCH CASE, THE RISKS ARE SHARED BY ALL THE CONCERNED PARTICIPANTS INCLUDING THE GOVERNMENT. WHILE THE RISK IS RESTRICTED TO ALL PARTIES

PROPORTIONATELY, THE GREY ASPECT OF THIS METHOD IS THE ENERGY AND COST INVOLVED IN NEGOTIATING THE ARRANGEMENT MUTUALLY BETWEEN THE PARTIES, THE

SEQUENCE OF THE CLAIMS ON THE CONCERNED ASSETS AND COMPLEXITIES OF THE TOTAL DEAL ULTIMATELY MAY

FRUSTRATE THE PARTICIPANT IN CERTAIN CASES. HOWEVER, THIS METHOD GUARDS AGAINST THE LIKELY RISK IN SUCH MAJOR PROJECTS. 3. BOOT (BUILD, OWN, OPERATE, TRANSFER)

THE CONCERNED PARTICIPANT OF THE PRIVATE SECTOR ON COMPLETION OF THE PROJECT OWNS AND OPERATES THE ASSETS FOR A DEFINED PERIOD WHEN IT IS HANDED OVER TO THE GOVERNMENT. BUT THE PERIODS UPTO WHICH IT

OPERATES ARE GENERALLY VERY HIGH AND MAY EXTEND SOMETIME AS HIGH AS 40 YEARS ONWARDS. OBVIOUSLY, THIS DEPENDS ON THE RELATIVE PAY BACK TIME AND THE RATE OF RETURN THAT MAY ARISE OUT OF THE INVESTMENT. 4. BOO (BUILD, OWN, OPERATE) IN SUCH CASE, THE CONCERNED PRIVATE

COMPANIES/INVESTORS EXECUTE THE PROJECT, OWN IT AND OPERATE THE INFRASTRUCTURAL ASSETS FOR THE WHOLE LIFE. SINCE IN SUCH CASES THE INVESTORS ARE THE SOLE HOLDERS AND OPERATORS OF THE ASSETS, NO HASSLES OF NEGOTIATIONS OBVIOUSLY, AND AGREEMENTS CAN COME IN THE WAY. BY

THE

INVESTOR THE

ARRANGE TO THE

LOAN

HYPOTHECATING

ASSETS

FINANCIAL

INSTITUTIONS/BANKERS.

THE PROBLEM IN THIS METHOD IS

THAT ALL THE RISKS ARISING OUT OF THE PROJECTS ARE BEING SHOULDERED BY THE INVESTOR HIMSELF AND

POLITICALLY IT IS MOST RISK ORIENTED. AMONG THE INFRASTRUCTURE PROJECTS, PROBABLY POWER SECTOR GOT THE GOVERNMENTAL NOD OF PRIVATE

INVESTMENT EARLIER THAN OTHER SECTORS. ACTUALLY, A LOT OF HEADWAY HAS BEEN MADE BY DIFFERENT PRIVATE

COMPANIES IN POWER SECTOR THAN OTHER SECTORS. IN A UMBER OF SECTORS LIKE HIGH-WAYS, DAM, BRIDGE ETC. STILL POLICY FORMULATION ON PRIVATE SECTOR

INVESTMENT IS ON THE WAY. ACCORDINGLY, THE REST OF THE DISCUSSION MOSTLY ON POWER SECTOR EXPERIENCE IN THE NEXT FEW PARAS. INVESTMENT IN POWER PROJECTS:THOUGH A NUMBER OF MOUS HAVE BEEN SIGNED, TILL DATE IN INDIA FOLLOWING FAST TRACK POWER PROJECTS HAVE BEEN CONTEMPLATED AND IN SOME CASES CERTAIN PROGRESS IN THE PROJECTS HAVE ALSO BEEN MADE. HOWEVER, BECAUSE OF ENRON CONTROVERSY MOST POWER PROJECTS ARE GOING THROUGH FURTHER NEGOTIATIONS IN CAPITAL COST AND RATE OF PURCHASE OF POWER PER UNIT. THE GOVERNMENT OF INDIA HAS DEVISED AND IMPLEMENTED POWER POLICIES WHICH ARE CONDUCIVE TO PRIVATE SECTOR INVESTMENT IN THE POWER PROJECTS. BELOW:1. COMPANIES WHICH WILL COME FOR POWER GENERATION AND DISTRIBUTION FOR THE FIRST TIME WILL BE ENTITLED TO FIVEYEAR TAX HOLIDAY. THEY ARE OUTLINED

2. CUSTOM DUTY ON EQUIPMENTS OF POWER WHICH ARE BEING IMPORTED HAS BEEN REDUCED TO 20 PER CENT. 3. THE ORIGINAL COST OF THE POWER PROJECT WILL BE ALLOWED CHARGES TO INCLUDE THE CAPITALISATION GESTATION OF INTEREST (MOSTLY

DURING

PERIOD

BETWEEN THE PERIOD OF GRANTING OR LICENCE AND COMMISSIONING OF THE PROJECT). THIS PRINCIPLE IS

APPLICABLE BOTH FOR NEW GENERATION PROJECT AND ALSO FOR PROJECT OF EXPANSION. 4. THE RATES OF DEPRECIATION OF PLANT AND MACHINERY HAVE BEEN LIBERALISED TO INCLUDE HIGHER RATES. 5. FOREIGN INVESTORS WILL BE ALLOWED TO REMIT TO HOMELAND DIVIDENDS AND INTEREST ON THEIR EQUITY AND LOAN COMPONENTS IN POWER PROJECTS. 6. A MINIMUM RATE OF RETURN OF 16 PER CENT ON EQUITY (POST TAX) IS GUARANTEED BASED ON A OPERATING PLAN LOAD FACTOR (PLF) OF 68.5 PER CENT. BEYOND THIS PLF,

INCREMENTAL RETURN ON EQUITY WILL BE ALLOWED TO PRIVATE INVESTOR.

7. WITH

THE

PERMISSION

OF

THE

CONCERNED

STATE

GOVERNMENT, THE PRIVATE DEVELOPER OF POWER CAN DISPOSE OF POWER TO OTHERS. 8. FOREIGN PRIVATE DEVELOPERS WILL BE ALLOWED TO

PARTICIPATE IN EQUITY OF POWER GENERATING COMPANIES.

THE

PRIVATE

INVESTORS

PREFER

BOT(BUILD,

OWN

AND

TRANSFER) PROJECT.

THE MAIN PARTIES INVOLVED IN SUCH

PROJECT ARE THE SPONSOR OF THE PROJECT, THE CONCERNED BANK/FI/FII, THE CONSTRUCTION/OPERATION/MAINTENANCE

CONTRACTOR AND THE CONCERNED GOVERNMENT (STATE OR CENTRE) AND THE TASK FORCE, IF ANY, SET UP FOR THE PROJECT. THE STRUCTURING OF DEBT AND EQUITY IS A CRUCIAL ASPECT IN FUNDING OF ANY INFRASTRUCTURE PROJECT. GENERALLY,

SUCH STRUCTURING ROTATES ROUND AS LOW EQUITY AS POSSIBLE SINCE THE SPONSOR TO THE PROJECT MAY NOT LIKE OTHER LENDERS TO HAVE RECOURSE TO THE ASSETS OF THE PROJECT. BESIDES, PUBLIC ISSUE OF SHARES IN AN

INFRASTRUCTURE PROJECT HAVING A GESTATION PERIOD OF 5 YEARS OR MORE MAY NOT EVOKE WARM RESPONSE LIKE THE

ONE HAVING SHORT GESTATION PERIOD.

UNLESS THE TOTAL

ATTITUDE OF THE GENERAL INVESTORS CHANGE OR THERE EVOLVES SPECIAL TAX CONCESSION FOR INVESTMENT IN PUBLIC ISSUE IN RESPECT OF PROJECTS WITH LONG GESTATION PERIOD, THE SITUATION IS LIKELY TO CONTINUE. BESIDES,

GOING BY A DEBT RATIO OF 4:1, IF THE TOTAL REQUIREMENT OF FUND IN INFRASTRUCTURE PROJECT AS PLANNED INCLUDING REQUIREMENT OF TELECOMMUNICATION IS RS.5650 BILLION (CMIF REPORT OF MAY 1995), THE REQUIREMENT OF EQUITY WILL BE AROUND RS.1400 BILLION WHICH IS LIKELY TO BE ONE-THIRD OF MARKET CAPITALISATION IN THE MAJOR STOCK MARKETS OF THE COUNTRY. ACCORDINGLY, ARRANGING SO MUCH FUND

FORM EQUITY WILL BE DIFFICULT. ON THE DEBT FINANCING SIDE, THE SOURCING OF LEFT OVER AMOUNT OF RS.4250 BILLION WILL BE MORE DIFFICULT. ON CASE TO CASE BASIS, SOURCING OF FUND FROM WITHIN THE COUNTRY MAY BE POSSIBLE IN CERTAIN CASES. BUT LOOKING AT OVERALL SITUATION, IT MAY SOUND

IMPOSSIBLE. THUS, A MIX OF SOURCES BOTH IN AND OUTSIDE THE COUNTRY IS INEVITABLE. TAPPING DEBIT FROM OVERSEAS EXPORT CREDIT AGENCIES MAY RESULT IN LOWER RATE OF

INTEREST IF PUT TO AGAINST A REASONABLY STABLE RATE OF EXCHANGE OF FOREIGN CURRENCIES. LOOKING FROM A DIFFERENT ANGLE, THERE ARE TWO POTS OF HUGE FUND WAITING IN THE WINGS WHICH CANNOT BE RAPPED FOR LEGISLATIVE RESTRICTIONS. THEY ARE FUNDS FROM LIC & PFS. IF RESTRICTIONS ARE UNTIED, THEY WILL GO A LONG WAY IN FILLING UP A MAJOR GAP BETWEEN DEMAND AND SUPPLY OF FUNDS FROM INFRASTRUCTURE PROJECTS. RECENTLY, FOR SOLVING THE FUNDING PROBLEM IN SUCH PROJECT, FOUR TO FIVE INSTITUTIONS BOTH FROM PRIVATE AND PUBLIC SECTORS HAVE JOINED HANDS. THESE HAVE BEEN SO IN RECENT POWER PROJECTS, OIL REFINERY PROJECTS AND OIL PIPELINE PROJECTS AND ROAD PROJECTS. THE REQUIREMENTS FOR FUND IN INFRASTRUCTURE PROJECTS IS ON THE RISE AT A STEEP RATE. WITH THE OPENING UP OF MORE AND MORE AREAS FOR PRIVATE SECTOR INVESTMENT THE GOVERNMENT IS BOUND TO MAKE A LOT OF LEGISLATIVE AMENDMENTS IN TERMS OF TAX CONCESSIONS, RELAXATION OF NORMS OF BANK AND FINANCIAL INSTITUTIONS REGARDING THE QUANTUM OF INVESTMENT IN ANY SECTOR AND OTHER RELEVANT CHANGES. OTHERWISE IT WILL BE LIKE PUTTING THE HORSE BEFORE THE CART

SITUATION AND THE VERY PURPOSE OF LIBERALISATION WILL BE DEFEATED IN ABSENCE OF FUND.

PROJECT FINANCING PROJECT FINANCING REFERS TO THE MEANS OF FINANCE

EMPLOYED FOR MEETING THE COST OF PROJECT. IN THIS CHAPTER, WE WILL LOOK AT THE MEANS OF FINANCE AVAILABLE IN INDIA AND THE KEY CONSIDERATIONS RELEVANT IN PLANNING THE CAPITAL STRUCTURE FOR A NEW PROJECT . THIS APPENDIX EXAMINES THIS ISSUE IN GREATER DETAIL. IT IS ORGANISED AS FOLLOWS : MEANS OF FINANCE THE LONG-TERM SOURCES OF FINANCE USED FOR MEETING THE COST OF PROJECT ARE REFERRED TO AS THE MEANS OF FINANCE . TO MEET THE COST OF PROJECT, THE FOLLOWING SOURCES OF FINANCE MAY BE AVAILABLE: 1. EQUITY CAPITAL 2. PREFERENCE CAPITAL 3. NON CONVERTIBLE DEBENTURES 4. CONVERTIBLE DEBENTURES 5. RUPEE TERM LOANS 6. FOREIGN CURRENCY TERM LOANS 7. EUROISSUES

8. DEFERRED CREDIT 9. BILL REDISCOUNTING SCHEME 10. 11. 12. 13. 14. 15. SUPPLIERS LINE OF CREDIT SEED CAPITAL ASSISTANCE GOVERNMENT SUBSIDIES SALES TAX DEFERMENT AND EXEMPTION UNSECURED LOANS AND DEPOSITS LEASE AND HIRE PURCHASE FINANCE

EQUITY CAPITAL THIS IS THE CONTRIBUTION MADE BY THE OWNERS OF

BUSINESS , THE EQUITY SHAREHOLDERS, WHO ENJOY THE REWARDS AND BEAR THE RISKS OF OWNERSHIP. HOWEVER, THEIR LIABILITY IS LIMITED TO THEIR CAPITAL CONTRIBUTION. FROM THE POINT OF VIEW OF THE ISSUING FIRM, EQUITY CAPITAL OFFERS TWO IMPORTANT CAPITAL. ADVANTAGES HENCE THERE (I) IT

REPRESENTS

PERMANENT

IS NO

LIABILITY FOR REPAYMENT (II) IT DOES NOT INVOLVE ANY FIXED OBLIGATION FOR PAYMENT OF DIVIDENDS. THE DISADVANTAGES OF RAISING FUNDS BY WAY OF EQUITY CAPITAL ARE (I) THE COST OF EQUITY CAPITAL IS HIGH BECAUSE EQUITY DIVIDENDS ARE

NOT TAX-DEDUCTIBLE EXPENSES. (II) THE COST OF ISSUING EQUITY CAPITAL IS HIGH. PREFERENCE CAPITAL A HYBRID FORM OF FINANCING , PREFERENCE CAPITAL

PARTAKES SOME CHARACTERISTICS OF EQUITY CAPITAL AND SOME ATTRIBUTES OF DEBT CAPITAL. IT IS SIMILAR TO EQUITY CAPITAL BECAUSE PREFERENCE DIVIDEND, LIKE EQUITY

DIVIDEND, IS NOT A TAX-DEDUCTIBLE PAYMENT. IT RESEMBLES BEBT CAPITAL BECAUSE THE RATE OF PREFERENCE FIVIDEND IS FIXED. TYPICALLY , WHEN PREFERENCE DIVIDENED IS SKIPPED IT IS PAYABLE IN FUTURE BECAUSE OF THE CUMULATIVE FEATURE ASSOCIATED WITH IT THE NEAR FIXITY OF PREFERENCE FIVIDEND PAYMENT RENDERS PREFERENCE CAPITAL SOMEWHAT UNATTRACTIVE IN GENERAL AS A SOURCE OF FINANCE. IT IS , HOWEVER , ATTRACTIVE WHEN THE PROMOTERS DO NOT WANT A REDUCTION IN THEIR SHARE OF EQUITY AND YET THERE IS NEED FOR WIDENING THE NET WORTH BASE (NET WORTH CONSISTS OF EQUITY AND PREFERENCE CAPITAL) TO SATISFY THE REQUIREMENTS OF FINANCIAL INSTITUTIONS. IN ADDITION TO THE CONVENTIONAL PREFERENCE SHARES, A COMPANY MAY ISSUE CUMULATIVE CONVERTIBLE PREFERENCE SHARES

(CCPS).THESE SHARES CARRY A DIVIDEND RATE OF 10 PER CENT (WHICH , IF UNPAID, CUMULATES) AND ARE COMPULSORILY CONVERTIBLE INTO EQUITY SHARES BETWEEN THREE AND FIVE YEARS FROM THE DATE OF ISSUE. DEBENTURE CAPITAL IN THE LAST FEW YEARS, DEBENTURE CAPITAL HAS EMERGED AS AN IMPORTANT SOURCE FOR PROJECT FINANCING . THERE ARE THREE TYPES OF DEBENTURES THAT ARE COMMONLY USED IN INDIA: NON CONVERTIBLE DEBENTURES (NCDS), PARTIALLY CONVERTIBLE DEBENTURES(PCDS), AND FULLY CONVETIBLE DEBENTURES (FCDS).AKIN TO PROMISSORY, NCDS ARE USED BY COMPANIES FOR RAISING DEBT THAT IS GENERALLY RETIRED OVER A PERIOD OF 5 TO 10 YEARS. THEY ARE SECURED BY A CHARGE ON THE ASSETS OF THE ISSUING COMPANY. PCDS ARE PARTLY CONVERTIBLE INTO EQUITY SHARES AS PER PRE DETERMINED TERMS OF CONVERSION . THE UNCONVERTED PORTION OF PCDS REMAINS LIKE NCD. FCDS, AS THE NAME

IMPLIES , ARE CONVERTED WHOLLY INTO EQUITY SHARES AS PER PRE DETERMINED TERMS OF CONVERSION. HENCE FCDS MAY BE REGARDED AS DELAYED EQUITY INSTRUMENTS. RUPEE TERM LOAN

PROVIDED

BY

FINANCIAL

INSTITUTIONS

ASN

COMMERCIAL

BANKS, RUPEE TERM LOANS WHICH REPRESENT SECURED BORROWINGS ARE A VERY IMPORTANT SOURCE FOR FINANCING NEW PROJECTS AS WELL AS EXPANSION, MODERNISATION , AND RENOVATION SCHEMES OF EXISTING UNITS. THESE LOANS ARE GENERALLY REPAYABLE OVER A PERIOD OF 8-10 YEARS WHICH INCLUDES A MORATORIUM PERIOD OF 1-3 YEARS. FOREIGN CURRENCY TERMS LOANS FINANCIAL INSTITUTIONS PROVIDE FOREIGN CURRENCY TERM LOANS FOR MEETING THE FOREIGN CURRENCY EXPENDITURES TOWARDS IMPORT OF PLANT , MACHINERY, AND EQUIPMENT AND ALSO TOWARDS PAYMENT OF FOREIGN TECHNICAL KNOW HOW FEES. UNDER THE GENERAL SCHEME, THE PERIODICAL LIABILITY TOWARDS INTEREST AND PRINCIPAL REMAINS IN THE CURRENCY / CURRENCIES OF THE LOAN/S AND IS TRANSLATED INTO RUPEES AT THE THEN PREVAILING RATE OF EXCHANGE FOR MAKING PAYMENTS TO THE APPROACHING FINANCIAL INSTITUTION . APART FROM INSTITUTIONS (WHICH TYPICALLY

FINANCIAL

SERVE AS INTERMEDIARIES BETWEEN FOREIGN AGENCIES AND INDIAN BORROWERS), COMPANIES CAN DIRECTLY OBTAIN

FOREIGN CURRENCY LOANS FROM INTERNATIONAL LENDERS.

MORE AND MORE COMPANIES APPEAR TO BE DOING SO PRESENTLY. EUROISSUES BEGINNING WITH RELIANCE INDUSTRIESGLOBAL DEPOSITORY RECEIPTS ISSUE OF APPROXIMATELY $150ML IN MAY 1992, A NUMBER OF COMPANIES HAVE BEEN MAKING EUROISSUES. THEY HAVE EMPLOYED TWO TYPES OF SECURITIES : GLOBAL

DEPOSITORY RECEIPTS (GDRS) AND EUROCONVERTIBLE BONDS (ECBS). DENOMINATED IN US DOLLORS, A GDR IS A NEGOTIBALE CERTIFICATE THAT REPRESENTS THE PUBLICLY TRADED LOCAL CURRENCY (INDIAN RUPEE) EQUITY SHARES OF A NON US (INDIAN) COMPANY. (OFCOURSE, IN THEORY, A GDR MAY REPRESENT A DEBT SECURITY ; IN PRACTICE IT RARELY DOES SO.) GDRS ARE ISSUED BY THE DEPOSITORY BANK (SUCH AS THE BANK OF NEW YORK) AGAINST THE LOCAL CURRENCY SHARES ( SUCH AS RUPEE SHARES) WHICH ARE DELIVERED TO THE DEPOSITORY S LOCAL CUSTODIAN BANKS.GDRS TRADE FREELY IN THE OVERSEAS MARKETS. A EUROCONVERTIBLE BOND (ECB) IS AN EQUITY LINKED DEBT SECURITY . THE HOLDER OF AN ECB HAS THE OPTION TO

CONVERT IT INTO EQUITY SHARES AT A PRE DETERMINED CONVERSION RATIO DURING A SPECIFIED PERIOD . ECBS ARE REGARDED AS ADVANTAGEOUS BY THE ISSUING COMPANY BECAUSE (I) THEY CARRY A LOWER RATE OF INTEREST COMPARED TO A STRAIGHT DEBT SECURITY (II) THEY DO NOT LEAD TO DILUTION OF EARNINGS PER SHARE IN THE NEAR FUTURE AND (III) THEY CARRY VERY FEW RESTRICTIVE

COVENANTS. DEFERRED CREDIT MANY A TIME THE SUPPLIERS OF MACHINERY PROVIDE

DEFERRED CREDIT FACILITY UNDER WHICH PAYMENT FOR THE PURCHASE OF MACHINERY IS MADE OVER A PERIOD OF TIME. THE INTEREST RATE ON DEFERRED CREDIT AND THE PERIOD OF PAYMENT VARY RATHER WIDELY. NORMALLY, THE SUPPLIER OF MACHINERY WHEN HE OFFERS DEFERRED CREDIT FACILITY INSISTS THAT THE BANK GUARANTEE SHOULD BE FURNISHED BY THE BUYER. BILLS RE DISCOUNTING SCHEME OPERATED BY THE IDBI, THE BILLS REDISCOUNTING SCHEME IS MEANT TO PROMOTE THE SALE OF INDIGENOUS MACHINERY ON DEFERRED PAYMENT BASIS. UNDER THIS SCHEME, THE SELLER

REALISES THE SALE PROCEEDS BY DISCOUNTING THE BILLS OF PROMISSORY NOTES ACCEPTED BY THE BUYER WITH A

COMMERCIAL BANK WHICH IN TURN REDISCOUNTS THEM WITH THE IDBI. THIS SCHEME IS MEANT PRIMARILY FOR BALANCING EQUIPMENTS AND EQUIPMENTS AND MACHINERY REQUIRED FOR EXPANSION,MODERNISATION , AND REPLACEMENT SCHEMES. SUPPLIERS LINE OF CREDIT ADMINISTERED BY THE ICICI , THE SUPPLIERS LINE OF CREDIT IS SOMEWHAT SIMILAR TO THE IDBIS BILL REDISCOUNTING SCHEME . UNDER THIS ARRANGEMENT , ICICI DIRECTLY PAYS TO THE MACHINERY MANUFACTURER AGAINST USANCE BILLS DULY ACCEPTED OF GUARANTEED BY THE BANK OF THE PURCHASER. SEED CAPITAL ASSISTANCE FINANCIAL INSTITUTIONS, THOUGH WHAT MAY BE LABELLED BROADLY AS TH SEED CAPITAL ASSISTANCE SCHEME, SEEK TO SUPPLEMENT THE RESOURCES OF THE PROMOTERS OF THE SMALL AND MEDIUM SCALE INDUSTRIAL UNITS WHICH ARE ELIGIBLE FOR ASSISTANCE FROM ALL INDIA FINANCIAL INSTITUTIONS AND / OR STATE LEVEL FINANCIAL INSTITUTIONS. BROADLY THREE SCHEMES HAVE BEEN FORMULATED:

(i)

SPECIAL SEED CAPITAL ASSISTANCE SCHEME-THE QUANTUM OF ASSISTANCE UNDER THIS SCHEME IF RS.0.2 MILLION OR 20 PER CENT OF THE PROJECT COST,WHICHEVER ADMINISTERED CORPORATIONS. IS BY LOWER. THE THIS STATE SCHEME IS

FINANCIAL

(ii)

SEED CAPITAL ASSISTANCE SCHEME-THE ASSISTANCE UNDER THIS SCHEME IS APPLICABLE TO PROJECTS COSTING NOT MORE THAN RS20 MILLION. THE

ASSISTANCE PER PROJECT IS RESTRICTED TO RS 1.5 MILLION. THE ASSISTANCE IS PROVIDED BY IDBI THROUGH STATE LEVEL FINANCIAL INSTITUTIONS. IN SPECIAL CASES, THE IDBI MAY PROVIDE THE

ASSISTANCE DIRECTLY. (iii) RISK CAPITAL THE FOUNDATION RISK SCHEME-UNDER FOUNDATION, THIS AN

SCHEME,

CAPITAL

AUTONOMOUS FOUNDATION SET UP AND FOUNDED BY THE IFCL, OFFERS ASSISTANCE TO PROMOTERS OF PROJECTS COSTING BETWEEN RS 20 MILLION AND RS 150 MILLION. THE CEILING ON THE ASSISTANCE

PROVIDED BETWEEN RS 1.5 MILLION AND RS 4 MILLION

DEPENDING PROMOTERS.

ON

THE

NUMBER

OF

APPLICANT

GOVERNMENT SUBSIDIES PREVIOUSLY THE CENTRAL GOVERNMENT AS WELL AS THE STATE GOVERNMENTS PROVIDED SUBSIDIES TO INDUSTRIAL UNITS LOCATED IN BACKWARD AREAS. THE CENTRAL SUBSIDY HAS BEEN DISCONTINUED BUT THE STATE SUBSIDIES CONTINUE. THE STATE SUBSIDIES VARY BETWEEN 5 PER CENT TO 25 PER CENT OF THE FIXED CAPITAL INVESTMENT IN THE PROJECT , SUBJECT TO A CEILING VARYING BETWEEN RS 0.5 MILLION AND RS 2.5 MILLION DEPENDING ON THE LOCATION. SALES TAX DEFERMENTS AND EXEMPTIONS TO ATTRACT INDUSTRIES, THE STATES PROVIDE INCENTIVES, INTER ALIA , IN THE FORM OF SALES TAX DEFERMENTS AND SALES TAX EXEMPTIONS. UNDER THE SALES TAX DEFERMENT SCHEME, THE PAYMENT OF SALES TAX ON THE SALE OF FINISHED GOODS MAY BE DEFERRED FOR A PERIOD RANGING BETWEEN FIVE TO TWELVE YEARS. ESSENTIALLY IT IMPLIES THAT THE PROJECT GETS AN INTEREST FREE LOAN, REPRESENTED BY THE QUANTUM OF SALES TAX DEFERRED , DURING THE DEFERMENT PERIOD.

UNDER THE SALES TAX EXEMPTION SCHEME, SOME STATES EXEMPT THE PAYMENT OF SALES TAX APPLICABLE ON

PURCHASES OF RAW MATERIALS, CONSUMABLES, PACKING AND PROCESSING MATERIALS FROM WITHIN THE STATE WHICH ARE USED FOR MANUFACTURING PURPOSES . THE PERIOD OF EXEMPTION RANGES FROM THREE TO NINE YEARS DEPENDING UPON THE STATE AND THE SPECIFIC LOCATION OF THE PROJECT WITHIN THE STATE. UNSECURED LOANS AND DEPOSITS UNSECURED PROMOTERS LOANS TO ARE FILL TYPICALLY THE GAP PROVIDED BY THE THE

BETWEEN BY

PROMOTERSCONTRIBUTION

REQUIRED

FINANCIAL

INSTITUTIONS AND THE EQUITY CAPITAL SUBSCRIBED TO BY THE PROMOTERS. THESE LOANS ARE SUBSIDIARY TO THE

INSTITUTIONAL LOANS. THE RATE OF INTEREST CHARGEABLE ON THESE LOANS IS LESS THAN THE RATE OF INTEREST ON THE INSTITUTIONAL LOANS. FINALLY, THESE LOANS CANNOT BE TAKEN BACK WITHOUT THE PRIOR APPROVAL OF FINANCIAL INSTITUTIONS. DEPOSITS FROM PUBLIC,REFERRED TO AS PUBLIC

DEPOSITS,REPRESENT UNSECURED BORROWING TWO TO THREE

YEARS DURATION . MANY EXISTING COMPANIES PREFER TO RAISE PUBLIC DEPOSITS INSTEAD OF TERM LOANS FROM FINANCIAL INSTITUTIONS BECAUSE RESTRICTIVE COVENANTS DO NOT ACCOMPANY PUBLIC DEPOSITS. HOWEVER, IT MAY NOT BE POSSIBLE FOR A NEW COMPANY TO RAISE PUBLIC DEPOSITS . FURTHER, IT MAY BE DIFFICULT FOR IT TO REPAY PUBLIC DEPOSITS WITHIN THREE YEARS. LEASING AND HIRE PURCHASE FINANCE WITH THE EMERGENCE OF SCORES OF FINANCE COMPANIES ENGAGED IN THE BUSINESS OF LEASING AND HIRE PURCHASE FINANCE, IT MAY BE POSSIBLE TO GET A PORTION , ALBEIT A SMALL PORTION, OF THE ASSETS FINANCED UNDER A LEASE OR A HIRE PURCHASE ARRANGEMENT. TYPICALLY, A PROJECT IS FINANCED PARTLY BY FINANCIAL INSTITUTIONS AND PARTLY THROUGH THE RESOURCES RAISED FROM THE CAPITAL MARKET . HENCE , IN FINALISING THE FINANCING SCHEME FOR A PROJECT, YOU SHOULD BEAR IN MIND THE NORMS AND POLICIES OF FINANCIAL INSTITUTIONS AND THE GUIDELINES OF SECURITIES EXCHANGE BOARD OF INDIA AND THE REQUIREMENTS OF THE SECURITIES CONTRACTS

REGULATION ACT (SCRA).

PROJECT LAYOUT COST AN INDIAN SCENARIO PROJECT FINANCING IN INDIA PROJECT FINANCING REFERS TO THE MEANS OF FINANCE EMPLOYED FOR MEETING THE COST OF PROJECT. COST OF PROJECT REPRESENTS THE TOTAL OF ALL ITEMS OF OUTLAY ASSOCIATED WITH A PROJECT WHICH ARE SUPPORTED BY LONG TERM FUNDS. IT IS THE SUM OF THE OUTLAYS ON THE FOLLOWING: 1. LAND AND SITE DEVELOPMENT: THE COST OF LAND AND SITE DEVELOPMENT IS THE SUM OF THE FOLLOWING:

BASIC COST OF LAND INCLUDING CONVEYANCE AND

OTHER ALLIED CHARGES,

PREMIUM PAYABLE ON LEASEHOLD AND CONVEYANCE, COST OF LEVELLING & DEVELOPMENT, COST OF LAYING APPROACH ROADS AND INTERNAL

ROADS,

COST OF GATES, COST OF TUBE WELLS.

THE COST OF LAND VARIES CONSIDERABLY FROM ONE LOCATION TO ANOTHER. WHILE IT IS VERY HIGH IN URBAN AND

EVEN SEMI-URBAN LOCATIONS, IT IS RELATIVELY LOW IN RURAL LOCATIONS. THE EXPENDITURE ON SITE

DEVELOPMENT, TOO, VARIES WIDELY DEPENDING ON THE LOCATION AND TOPOGRAPHY OF THE LAND. 2. BUILDING AND CIVIL WORKS: BUILDING AND CIVIL WORKS COVER THE FOLLOWING :

BUILDING FOR THE MAIN PLANT & EQUIPMENTS BUILDING FOR AUXILLARY SERVICES LIKE STEAM

SUPPLY, WORKSHOPS, LABORATORY, WATER SUPPLY, ETC.

GODOWNS,

WAREHOUSES,

AND

OPEN

YARD

FACILITIES,

NON-FACTORY

BUILDINGS

LIKE

CANTEEN,

GUEST

HOUSES, TIME OFFICE, EXCISE HOUSE, ETC.

QUARTERS FOR ESSENTIAL STAFF SILOS, TANKS, WELLS, CHESTS, BASINS, CISTERNS,

HOOPERS, BINS, AND OTHER STRUCTURES NECESSARY FOR INSTALLATION OF PLANT & EQUIPMENT

GARAGES SEWERS, DRAINAGE, ETC. OTHER CIVIL ENGINEERING WORKS

THE COST OF BUILDINGS & CIVIL WORKS DEPENDS ON THE KIND OF STRUCTURES REQUIRED WHICH, IN TURN, ARE DICTATED LARGELY BY THE REQUIREMENTS OF THE PROJECT. ONCE THE KINDS OF STRUCTURES REQUIRED ARE SPECIFIED, COST ESTIMATES ARE BASED ON PLINTH AREAS AND RATES FOR VARIOUS TYPES OF STRUCTURES. THESE RATES, OF COURSE VARY WITH THE LOCATION TO SOME EXTENT. 3. PLANT AND MACHINARY: THE COST OF PLANT AND

MACHINARY, TYPICALLY THE MOST SIGNIFICANT COMPONENT OF PROJECT COST, CONSISTING OF THE FOLLOWING:

COST OF IMPORTED MACHINARY: THIS IS THE SUM OF

(A) FOB VALUE, (B) SHIPPING, FREIGHT, AND INSURANCE COST, (C) IMPORT DUTY, (D) CLEARING, LOADING,

UNLOADING, AND TRANSPORTATION CHARGES.

COST OF INDIGENOUS MACHINARY: THIS CONSISTS OF

(A) FOR COST, (B) SALES TAX, OCTROI, OTHER TAXES, (C) RAILWAY FREIGHT AND TRANSPORT CHARGES TO SITE.

COST OF STORES & SPARES FOUNDATION AND INSTALLATION CHARGES

THE COST OF PLANT & MACHINARY IS BASED ON THE LATEST AVAILABLE QUOTATION ADJUSTED FOR POSSIBLE

ESCALATION.

GENERALLY,

THE

PROVISION

FOR

ESCALATION IS EQUAL TO THE FOLLOWING PRODUCT: (LATEST RATE OF ANNUAL INFLATION APPLICABLE TO THE PLANT AND MACHINARY) X (LENGTH OF THE DELIVERY PERIOD). 4. TECHNICAL KNOW-HOW AND ENGINEERING FEES: OFTEN IT IS NECESSARY TO ENGAFE TECHNICAL CONSULTANTS OR

COLLABORATORS FROM INDIA AND / OR ABROAD FOR ADVICE AND HELP IN VARIOUS OF TECHNICAL REPORT, PLANT AND MATTERS CHOICE LIKE OF

PREPARATION TECHNOLOGY,

PROJECT OF

SELECTION

MACHINARY,

DETAILED ENGINEERING, ETC. WHILE THE AMOUNT PAYABLE FOR OBTAINING TECHNICAL KNOW-HOW AND ENGINEERING SERVICES FOR SETTING UP THE PROJECT IS A COMPONENT OF PROJECT COST, THE ROYALTY PAYABLE ANNUALLY, WHICH IS TYPICALLY A PERCENTAGE OF SALES, IS AN OPERATING EXPENSE TAKEN INTO ACCOUNT IN THE PREPARATION OF THE PROJECTED PROFITABILITY STATEMENTS. 5. EXPENSES OF FOREIGN TECHNICIANS MAY BE REQUIRED IN INDIA FOR SETTING UP THE PROJECT AND SUPERVISING THE TRIAL RUNS. EXPENSES ON THEIR TRAVEL, BOARDING, AND

LODGING ALONG WITH THEIR SALARIES AND ALLOWANCES MUST BE TAKEN INTO ACCOUNT IN THE PREPARATION OF THE PROJECTED PROFITABILITY STATEMENTS. 6. MISCELLANEOUS MACHINARY FIXED ARE ASSETS: NOT MAY FIXED OF ASSETS THE AND

WHICH

PART BE

DIRECT TO AS

MANUFACTURING

PROCESS

REFFERED

MISCELLANEOUS FIXED ASSETS. THEY INCLUDE ITEMS LIKE FURNITURE, OFFICE MACHINARY AND EQUIPMENT, TOOLS, VEHICLES, RAILWAY SIDINGS, DIESEL GENERATING SETS, TRANSFORMERS, BOILERS, PIPING SYSTEMS, LABORATORY EQUIPMENTS, TREATMENT EXPENSES WORKSHOP PLANTS, INCURRED FIRE FOR EQUIPMENTS, FIGHTING EFFLUENT ETC. OF

EQUIPMENTS, OR USE

PROCUREMENT

PATENTS, LICENSES, TRADE MARKS COPYRIGHTS, ETC. AND DEPOSITS MADE WITH THE ELECTRICITY BOARD MAY ALSO BE INCLUDED IN THE PROJECTED PROFITABILITY STATEMENTS. 7. PRILIMINARY AND CAPITAL ISSUE EXPENSES: EXPENSES INCURRED FOR IDENTIFYING THE PROJECT, CONDUCTING THE MARKET SURVEY, PREPARING THE FEASIBILITY REPORT, DRAFTING THE MEMORANDUM AND ARTICLES OF

ASSOCIATION, AND INCORPORATING THE COMPANY ARE REFFERED TO AS PRELIMINARY EXPENSES. EXPENSES BORNE IN CONNECTION WITH THE RISING OF CAPITAL FROM THE PUBLIC ARE REFERRED AS CAPITAL ISSUE EXPENSES. THE MAJOR COMPONENT OF THESE EXPENSES ARE- UNDERWRITING COMMISSION, MANAGERS AND REGISTRARS, BROKERAGE, FEES TO AND POSTAGE

PRINTING

EXPENSES, ADVERTISING AND PUBLICITY EXPENSES, LISTING FESES, AND STAMP DUTY. 8. PRE-OPERATIVE EXPENSES: THESE EXPENSES ARE DIRECTLY RELATED TO THE PROJECT IMPLEMENTATION SCHEDULE. O, DELAYS IN PROJECT IMPLEMENTATION, WHICH ARE FIRLY COMMON, TEND TO PUSH UP THESE EXPENSES. APPRECIATIVE OF THIS, FINANCIAL INSTITUTIONS ALLOW FOR SOME DELAY (20 TO 25 PER CENT) IN THE PROJECT IMPLEMENTATION SCHEDULE AND ACCORDINGLY PERMIT A CUSHION IN THE ESTIMATE FOR PRE-OPERATIVE EXPENSES. EXPENSES OF THE FOLLOWING TYPES INCURRED TILL THE COMMENCEMENT REFERRED TO OF AS COMMERCIAL PRE-OPERATIVE PRODUCTION EXPENSESARE (A)

ESTABLISHMENT EXPENSES, (B) RENT, RATES & TAXES, (C)

TRAVELLING EXPENSES, (D) INTEREST ON BORROWINGS, (E) INSURANCE CHARGES, (F) MORTGAGE EXPENSES, (G)

INTEREST ON DEFERRED PAYMENTS, (H) START-UP EXPENSES, AND (I) MISCELLANEOUS EXPENSES. THESE TYPES OF EXPENSES CAN BE CAPITALISED BY

APPORTIONING THEM TO FIXED ASSETS. UP TO A POINT OF TIME. AFTER THAT THESE EXPENSES ARE TREATED AS REVENUE EXPENSES. 9. PROVISION FOR CONTENGENCIES: IS MADE TO A PROVISION FOR FOR

CONTINGENCIES

PROVIDE

CERTAIN

UNFORSEEN EXPENSES AND PRICE INCREASES OVER AND ABOVE THE NORMAL INFLATION RATE WHICH IS ALREADY INCORPORATED IN COST ESTIMATES. 10. MARGIN MONEY FOR WORKING CAPITAL: THE PRINCIPAL FOR WORKING CAPITAL IS PROVIDED BY

SUPPORT

COMMERCIAL BANKS AND TRADE CREDITORS. HOWEVER, A CERTAIN PART OF WORKING CAPITAL REQUIREMENTS HAS TO COME FROM LONG TERM SOURCES OF FINANCE. THIS IS AN IMPORTANT ELEMENT OF THE PROJECT COST. THE MARGIN MONEY FOR WORKING CAPITAL IS SOMETIMES UTILISED FOR MEETING OVER-RUNS IN CAPITAL COST. THIS LEADS TO A

WORKING

CAPITAL PROBLEM (AND SOMETIMES A CRISIS)

WHEN THE PROJECT IS COMMISSIONED. TO MITIGATE THIS PROBLEM, FINANCIAL INSTITUTIONS STIPULATE THAT A

PORTION OF THE LOAN AMOUNT, EQUAL TO THE MARFIN MONEY FOR WORKING CAPITAL, BE BLOCKED INITIALLY SO THAT IT CAN BE RELEASED WHEN THE PROJECT IS

COMPLETED. 11. INITIAL CASH LOSSES: MOST OF THE PROJECTS INCUR

CASH LOSSES IN THE INITIAL YEARS. YET, PROMOTORS TYPICALLY DO NOT DISCLOSE THE INITIAL CASH LOSSES BECAUSE THEY WANT THE PROJECT TO APPEAR ATTRACTIVE TO THE FINANCIAL INSTITUTIONS AND THE INVESTING PUBLIC. FALIURE TO MAKE PROVISION FOR SUCH CASH LOSSES IN THE PROJECT COST GENERALLY AFFECTS THE LIQUIDITY

POSITION AND IMPAIRS THE OPERATIONS. HENCE PRUDENCE CALLS FOR MAKING A PROVISION, OVERT OR COVERT, FOR THE ESTIMATED INITIAL CASH LOSSES. EVERY PROJECT HAVE THE FOLLOWING ATTRIBUTES: IT INVOLVES CAPITAL EXPENDITURE, (a)CAPITAL BUDGETING, (b)PROJECT ANALYSIS,

(c) FEASIBILITY STUDY CAPITAL EXPENDITURE DECISIONS OFTEN REPRESENT THE MOST IMPORTANT DECISIONS TAKEN BY FIRM. THEIR

IMPORTANCE STEMS FROM THREE INTER-RELATED REASONS: i. ii. iii. LONG TERM EFFECT, IRREVERSIBILITY, SUBSTANTIAL OUTLAY.

CAPITAL BUDGETING IS A COMPLEX PROCESS WHICH MAY BE DIVIDED INTO FIVE BROAD PHASES: 1. PLANNING: THE PLANNING PHASE IS CONCERNED WITH THE ARTICULATION OF ITS BROAD INVESTMENT STRATEGY AND THE GENERATION AND PRELIMINARY SCREENING OF PROJECT PROPOSALS. THE INVESTMENT STRATEGY OF THE FIRM DELINEATES THE BROAD AREAS OR TYPES OF INVESTMENTS THE FIRM PLANS TO UNDERTAKE. 2. ANALYSIS: THE FOCUS IS ON GATHERING, PREPARING, AND SUMMARISING RELEVANT INFORMATION ABOUT VARIOUS

PROPOSALS, WHICH ARE BEING CONSIDERED. BASED ON THE INFORMATION DEVELOPED IN THIS ANALYSIS, THE STREAM OF COST & BENEFITS ASSOCIATED WITH THE PROJECT CAN BE DEFINED.

3. SELECTION:

THE

PROJECTS

ARE

SELECTED

ON

SOME

SUITABLE BASIS FOR THEIR WORTHINES LIKE PAYBACK PERIOD, ARR, NPV, IRR, AND BCR ETC. IN ORDER TO APPLY THE APPRISAL CRITERIA CUT OFF VALUES ARE TO BE SPECIFIED, LIKE (HURDLE RATE, TARGET RATE AND COST OF CAPITAL). 4. IMPLEMENTATION: IT PASSES THROUGH SEVERAL STAGES,

NAMELY- PROJECT & ENGINEERING & DESIGNS, NEGOTIATION & CONTRACTING, CONSTRUCTION, TRAINING, AND

COMMISSIONING. 5. REWIEW: THIS PHASE SETS INTO MOTION AFTER THE

COMMISSIONING IS OVER. IT IS USEFUL IN THE FOLLOWING WAYS,

IT THROWS LIGHT ON HOW REALISTIC WERE THE

ASSUMPTIONS UNDERLYING THE PROJECT,

IT PROVIDES A DOCUMENTED LOG OF EXPERIENCE

THAT IS HIGHLY VALUABLE IN FUTURE DECISION MAKING,

IT SUGGESTS CORRECTIVE ACTION TO BE TAKEN IN

THE LIGHT OF ACTUAL PERFORMANCE,

IT HELPS IN UNCOVERING JUDGEMENTAL BIASES,

IT INDUCES A DESIRED CAUTION AMONG PROJECT

SPONSORS. PROJECT ANALYSIS FACETS OF PROJECT ANALYSIS THE IMPORTANT FACETS OF PROJECT ANALYSIS ARE: - MARKET ANALYSIS - TECHNICAL ANALYSIS - FINANCIAL ANALYSIS - ECONOMIC ANALYSIS - ECOLOGICAL ANALYSIS MARKET ANALYSIS MARKET ANALYSIS IS CONCERNED PRIMARILY WITH TWO

QUESTIONS: - WHAT WOULD BE THE AGGREGATE DEMAND OF THE

PROPOSED PRODUCT / SERVICE IN FUTURE? - WHAT WOULD BE THE MARKET SHARE OF THE PROJECT UNDER APPRAISAL? TO ANSWER THE ABOVE QUESTIONS, THE MARKET ANALYST REQUIRES A WIDE VARIETY TO INFORMATION AND APPROPRIATE FORECASTING REQUIRED ARE: METHODS. THE KINDS OF INFORMATION

- CONSUMPTION TRENDS IN THE PAST AND THE PRESENT CONSUMPTION LEVEL - PAST AND PRESENT SUPPLY POSITION - PRODUCTION POSSIBILITIES AND CONSTRAINTS - IMPORTS AND EXPORTS. - STRUCTURE OF COMPETITION - COST STRUCTURE - ELASTICITY OF DEMAND - CONSUMER BEHAVIOUR, INTENTIONS, MOTIVATIONS,

ATTITUDES, PREFERENCE, AND REQUIREMENTS - DISTRIBUTION CHANNELS AND MARKETING POLICIES IN USE - ADMINISTRATIVE, TECHNICAL, AND LEGAL CONSTRAINTS

TECHNICAL ANALYSIS ANALYSIS OF THE TECHNICAL AND ENGINEERING ASPECTS OF A PROJECT NEEDS TO BE DONE CONTINUALLY WHEN A PROJECT IS FORMULATED. WHETHER THE TECHNICAL ANALYSIS SEEKS TO DETERMINE PREREQUISITES FOR THE SUCCESSFUL

COMMISSIONING OF THE PROJECT HAVE BEEN CONSIDERED AND REASONABLY GOOD CHOICES HAVE BEEN MADE WITH RESPECT

TO

LOCATION,

SIZE,

PROCESS,

ETC.

THE

IMPORTANT

QUESTIONS RAISED IN TECHNICAL ANALYSIS ARE: - WHETHER PRELIMINARY TESTS AND STUDIES HAVE BEEN DONE OR PROVIDED FOR? - WHETHER THE AVAILABILITY OF RAW MATERIALS, POWER, AND OTHER INPUTS HAS BEEN ESTABLISHED? - WHETHER THE SELECTED SCALE OF OPERATION IS OPTIMAL? - WHETHER THE PRODUCTION PROCESS CHOSEN IS SUITABLE? - WHETHER THE EQUIPMENT AND MACHINES CHOSEN ARE APPROPRIATE? - WHETHER THE AUXILIARY EQUIPMENTS AND SUPPLEMENTARY ENGINEERING WORKS HAVE BEEN PROVIDED FOR? - WHETHER PROVISION HAS BEEN MADE FOR THE TREATMENT OF EFFLUENTS? - WHETHER THE PROPOSED LAYOUT OF THE SITE, BUILDINGS, AND PLANT IS SOUND? - WHETHER WORK SCHEDULES HAVE BEEN REALISTICALLY DRAWN UP? - WHETHER THE TECHNOLOGY PROPOSED TO BE EMPLOYED IS APPROPRIATE FROM THE SOCIAL POINT OF VIEW?

FINANCIAL ANALYSIS FINANCIAL ANALYSIS SEEKS TO ASCERTAIN WHETHER THE PROPOSED PROJECT WILL BE FINANCIALLY VIABLE IN THE SENSE OF BEING ABLE TO MEET THE BURDEN OF SERVICING DEBT AND WHETHER THE PROPOSED PROJECT WILL SATISFY THE RETURN EXPECTATIONS OF THOSE WHO PROVIDE THE CAPITAL. THE

ASPECTS WHICH HAVE TO BE LOOKED INTO WHILE CONDUCTING FINANCIAL APPRAISAL ARE: - INVESTMENT OUTLAY AND COST OF PROJECT - MEANS OF FINANCING. - COST OF CAPITAL - PROJECTED PROFITABILITY - BREAK-EVEN POINT - CASH FLOWS OF THE PROJECT - INVESTMENT WORTHWHILENESS JUDGED IN TERMS OF

VARIOUS CRITERIA OF MERIT - PROJECTED FINANCIAL POSITION - LEVEL OF RISK ECONOMIC ANALYSIS ECONOMIC ANALYSIS, ALSO REFERRED TO AS SOCIAL COST BENEFIT ANALYSIS, IS CONCERNED WITH JUDGING A PROJECT

FROM THE LARGER SOCIAL POINT OF VIEW.

IN SUCH AN

EVALUATION THE FOCUS IS ON THE SOCIAL COSTS AND BENEFITS OF A PROJECT WHICH MAY OFTEN BE DIFFERENT FROM ITS MONETARY COSTS AND BENEFITS. THE QUESTIONS

SOUGHT TO BE ANSWERED IN SOCIAL COST BENEFIT ANALYSIS ARE:- WHAT ARE THE DIRECT ECONOMIC BENEFITS AND COSTS OF THE PROJECT MEASURED IN TERMS OF SHADOW (EFFICIENCY) PRICES AND NOT IN TERMS OF MARKET PRICES? - WHAT WOULD BE THE IMPACT OF THE PROJECT ON THE DISTRIBUTION OF INCOME IN THE SOCIETY? - WHAT WOULD BE THE IMPACT OF THE PROJECT ON THE LEVEL OF SAVINGS AND INVESTMENT IN THE SOCIETY? - WHAT WOULD BE THE CONTRIBUTION OF THE PROJECT TOWARDS THE FULFILLMENT OF CERTAIN MERIT WANTS LIKE SELF-SUFFICIENCY, EMPLOYMENT, AND SOCIAL ORDER? ECOLOGICAL ANALYSIS IN RECENT YEARS, ENVIRONMENTAL CONCERNS HAVE ASSUMED A GREAT DEAL OF SIGNIFICANCE-AND RIGHTLY SO. ECOLOGICAL ANALYSIS SHOULD BE DONE PARTICULARLY FOR MAJOR

PROJECTS WHICH HAVE SIGNIFICANT ECOLOGICAL IMPLICATIONS

LIKE

POWER

PLANTS

AND

IRRIGATION

SCHEMES,

AND

ENVIRONMENTAL POLLUTING INDUSTRIES (LIKE BULK DRUGS, CHEMICALS, AND LEATHER PROCESSING). THE KEY QUESTIONS RAISED IN ECOLOGICAL ANALYSIS ARE: - WHAT IS THE LIKELY DAMAGE CAUSED BY THE PROJECT TO THE ENVIRONMENT? - WHAT IS THE COST OF RESTORATION MEASURES REQUIRED TO ENSURE THAT THE DAMAGE TO THE ENVIRONMENT IS CONTAINED WITHIN ACCEPTABLE LIMITS? WE HAVE LOOKED AT THE FIVE BROAD PHASES OF CAPITAL BUDGETING AND EXAMINED THE KEY FACETS OF PROJECT ANALYSIS. THE FEASIBILITY STUDY IS CONCERNED WITH THE

FIRST THREE PHASES OF CAPITAL BUDGETING, VIZ., PLANNING, ANALYSIS, AND SELECTION (EVALUATION) AND INVOLVES

MARKET, TECHNICAL, FINANCIAL, ECONOMIC, AND ECOLOGICAL ANALYSIS. OBJECTIVES OF CAPITAL BUDGETING FINANCIAL THEORY, IN GENERAL, RESTS ON THE PREMISE THAT THE GOAL OF FINANCIAL MANAGEMENT (WHICH SUBSUMES INVESTMENT DECISION MAKING) SHOULD BE TO THE MAXIMISE THE PRESENT WEALTH OF THE FIRMS EQUITY SHAREHOLDERS.

FOR A FIRM WHOSE EQUITY SHARES ARE ACTIVELY TRADED ON THE STOCK MARKET, THE WEALTH OF THE EQUITY

SHAREHOLDERS IS REFLECTED IN THE MARKET VALUE OF THE EQUITY SHARES. HENCE, THE GOAL OF FINANCIAL MANAGEMENT FOR SUCH FIRMS SHOULD BE TO MAXIMISE THE MARKET VALUE OF EQUITY SHARES. THE PURSUIT OF THE WELFARE OF EQUITY SHAREHOLDERS IS JUSTIFIED ON THE GROUNDS THAT IT CONTRIBUTES TO AN EFFICIENT ALLOCATION OF CAPITAL IN THE ECONOMY. THE

BASES FOR ALLOCATION OF SAVINGS IN THE ECONOMY ARE EXPECTED RETURN AND RISK. SINCE EQUITY SHARE PRICES

ARE BASED ON EXPECTED RETURN AND RISK, EFFORTS TO MAXIMISE EFFICIENT EQUITY SHARE PRICES OF WOULD RESULT IN AN

ALLOCATION MAY BE

RESOURCES. FOR THE

ANOTHER GOAL OF

JUSTIFICATION

PROVIDED

SHAREHOLDER WEALTH MAXIMISATION. EQUITY SHAREHOLDERS PROVIDE THE VENTURE (RISK) CAPITAL REQUIRED TO START A BUSINESS FIRM AND APPOINT THE MANAGEMENT OF THE FIRM INDIRECTLY THROUGH THE BOARD OF DIRECTORS. HENCE, IT

BEHOOVES ON CORPORATE MANAGEMENTS TO PROMOTE THE WELFARE OF EQUITY SHAREHOLDERS.

WHAT ABOUT A PUBLIC SECTOR FIRM THE EQUITY STOCK OF WHICH, BEING FULLY OWNED BY THE GOVERNMENT, IS NOT TRADED ON THE STOCK MARKET? IN SUCH A CASE, THE GOAL OF FINANCIAL MANAGEMENT SHOULD BE TO MAXIMISE THE

PRESENT VALUE OF THE STREAM OF EQUITY RETURNS. OF COURSE, IN DETERMINING THE PRESENT VALUE OF THE STREAM OF EQUITY RETURNS, AN APPROPRIATE DISCOUNT RATE HAS TO BE APPLIED. A SIMILAR OBSERVATION MAY BE MADE WITH

RESPECT TO OTHER COMPANIES WHOSE EQUITY SHARES ARE EITHER NOT TRADED OR VERY POORLY TRADED. ALTERNATIVES ARE THERE OTHER GOALS, BESIDES THE GOAL OF MAXIMUM SHAREHOLDER WEALTH, EXPRESSING THE SHAREHOLDERS VIEWPOINT? SEVERAL ALTERNATIVES HAVE BEEN SUGGESTED: MAXIMISATION OF PROFIT, MAXIMISATION OF EARNINGS PER SHARE, MAXIMISATION OF RETURN ON EQUITY (DEFINED AS EQUITY EARNINGS / NET WORTH).

MAXIMISATION OF PROFIT IS NOT AS INCLUSIVE A GOAL AS MAXIMISATION OF SHAREHOLDERS WEALTH. IT SUFFERS FROM SEVERAL LIMITATIONS:

- PROFIT IN ABSOLUTE TERMS IS NOT A PROPER GUIDE TO DECISION MAKING. IT SHOULD BE EXPRESSED ON A PER SHARE BASIS OR RELATED TO INVESTMENT. - IT LEAVES CONSIDERATIONS OF TIMING AND DURATION UNDEFINED. THERE IS NOT GUIDE FOR COMPARING PROFIT NOW WITH PROFIT IN FUTURE OR FOR COMPARING PROFIT STREAMS OF DIFFERENT DURATIONS. - IT GLOSSES OVER THE FACTOR OF RISK. IT CANNOT, FOR

EXAMPLE, DISCRIMINATE BETWEEN AN INVESTMENT PROJECT WHICH GENERATES A CERTAIN PROFIT OF RS.50,000/- AND AN INVESTMENT PROJECT WHICH HAS A VARIABLE PROFIT OUTCOME WITH AN EXPECTED VALUE OF RS.50,000/-. THE GOALS OF MAXIMISATION OF EARNINGS PER SHARE AND MAXIMISATION OF RETURN ON EQUITY DO NOT SUFFER FROM THE FIRST LIMITATION MENTIONED ABOVE. THEY, HOWEVER,

SUFFER FROM THE OTHER LIMITATIONS AND HENCE ARE NOT SUITABLE. IN VIEW OF THE SHORTCOMINGS OF THE ALTERNATIVES DISCUSSED ABOVE, MAXIMISATION OF THE WEALTH OF EQUITY SHAREHOLDERS (AS REFLECTED IN THE MARKET PRICE OF EQUITY) APPEARS TO BE THE MOST APPROPRIATE GOAL FOR

FINANCIAL DECISION MAKING. THOUGH THE STRICT VALIDITY OF THIS GOAL RESTS ON CERTAIN RIGID ASSUMPTIONS ABOUT CAPITAL MARKETS, IT CAN BE REASONABLY DEFINED AS A GUIDE FOR FINANCIAL DECISION MAKING UNDER FAIRLY PLAUSIBLE ASSUMPTIONS. OTHER CONCERNS OF THE BUSINESS DO FIRMS REALLY ACT OR SHOULD SOLELY ACT TO FURTHER SHAREHOLDERS WELFARE? THIS DOES NOT SEEM TO BE THE ISSUE HERE. FIRMS MAY PURSUE OR OUGHT TO PURSUE

SEVERAL OTHER GOALS. BUSINESS FIRMS SEEK TO ACHIEVE A HIGH RATE OF GROWTH, ENJOY A SUBSTANTIAL MARKET SHARE, ATTAIN PRODUCT AND TECHNOLOGICAL LEADERSHIP, PROMOTE EMPLOYEE WELFARE, FURTHER CUSTOMER SATISFACTION,

SUPPORT EDUCATION AND RESEARCH IMPROVE COMMUNITY LIFE, AND SOLVE OTHER SOCIETAL PROBLEMS. SOME OF THESE GOALS, MAY, OF COURSE, BE IN CONSONANCE WITH THE GOAL OF SHAREHOLDER WEALTH MAXIMISATION. FOR A RAPID

GROWTH RATE, A DOMINANT MARKET POSITION, AND A HIGHER CUSTOMER SATISFACTION MAY LEAD TO INCREASING RETURNS FOR EQUITY SHAREHOLDERS. EVEN EFFORTS TOWARD SOLVING SOCIETAL PROBLEMS MAY FURTHER THE INTEREST OF

SHAREHOLDERS IN THE LONG RUN BY IMPROVING THE IMAGE OF THE FIRM AND STRENGTHENING ITS RELATIONSHIP WITH THE ENVIRONMENT. WHEN THESE OTHER GOALS SEEM TO CONFLICT WITH THE GOAL OF MAXIMISING THE WEALTH OF EQUITY SHAREHOLDERS, IT IS HELPFUL TO KNOW THE COST OF PURSUING THESE IT GOALS. SHOULD THE BE TRADE-OFF APPRECIATED HAS TO BE THE

UNDERSTOOD.

THAT

MAXIMISATION OF THE WEALTH OF EQUITY SHAREHOLDERS CONSTITUTES THE PRINCIPAL GUARANTEE FOR EFFICIENT

ALLOCATION OF RESOURCES IN THE ECONOMY AND HENCE IS TO BE REGARDED AS THE NORMATIVE GOAL FROM THE FINANCIAL POINT OF VIEW. BASIC CONSIDERATIONS: RISK AND RETURN SUPPOSE A FIRM IS EVALUATING AN INVESTMENT PROPOSAL. WHAT ASPECTS ARE RELEVANT FROM THE FINANCIAL ANGLE? FROM THE FINANCIAL POINT OF VIEW THE RELEVANT

DIMENSIONS ARE RETURN AND RISK. TAKE ANOTHER DECISION SITUATION IN WHICH THE FIRM IS CONSIDERING A FINANCING PROPOSAL. THE ASPECTS ALONG WHICH SUCH A PROPOSAL IS EXAMINED ARE COST AND RISK. SINCE COST IS THE INVERSE OF RETURN, HERE TOO THE BASIC

DIMENSIONS ARE RETURN AND RISK. IN GENERAL, WE FIND THAT THESE ARE THE TWO BASIC DIMENSIONS OF FINANCIAL

ANALYSIS. WHAT IS THE RELATIONSHIP BETWEEN RETURN, RISK, AND MARKET VALUE OF EQUITY? HIGHER THE RETURN, CETERIS

PARIBUS, HIGHER THE MARKET VALUE; HIGHER THE RISK, CETERIS PARIBUS, LOWER THE MARKET VALUE. IT MAY BE EMPHASISED THAT TYPICALLY, RISK AND RETURN GO HAND IN HAND. THIS MEANS THAT IN A DECISION SITUATION, AN ALTERNATIVE WHICH HAS A HIGHER RETURN TENDS TO HAVE HIGHER RISK TOO. LIKEWISE, AN ALTERNATIVE WHICH HAS A

LOWER RETURN TENDS TO HAVE A LOWER RISK. IN FINANCIAL ANALYSIS, THE TRADE-OFF BETWEEN RISK AND RETURN NEEDS TO BE CAREFULLY ANALYSED.

LEGAL, REGULATORY & PROCEDURAL ENVIRONMENT IN INDIA IMPORTS AS AN ACTIVITY IS GOVERNED BY DEFINITE LAWS AND HAVE WELL & COMPREHENSIVELY DEFINED PROCEDURES ALONG WITH THE POLICIES FRAMED BY THE GOVERNMENT TIME TO TIME, KEEPING ABREAST WITH THE CHANGING TIMES &

SITUATIONS. THE LAWS/ RULES/ REGULATIONS WHICH GOVERN THE IMPORTS ARE AS FOLLOWS : FOREIGN TRADE (DEVELOPMENT & REGULATION) ACT, 1992 SEBI GUIDELINES COMPANIES ACT 1956 INCOME TAX ACT GUIDELINES ISSUED BY FINANCIAL INSTITUTIONS EXPORT IMPORT POLICY (BY GOVERNMENT OF INDIA) CUSTOMS ACT (1962) EXCHANGE CONTROL MANUAL OF RBI CUSTOMS VALUATION (DETERMINATION OF PRICE OF

IMPORTED GOODS) RULES, 1988, CUSTOMS TARIFF ACT, 1975, PROJECT IMPORTS REGULATIONS, 1944,

CUSTOMS

(PROVISIONAL

ASSESSMENT)

REGULATIONS,1963, BILL OF ENTRY (FORMS) REGULATIONS 1976, CENTRAL EXCISE ACT FERA 1973 , IDRA, MRTP, ESSENTIAL COMMODITIES ACT

SOME OF THEM ARE BRIEFLY DISCUSSED BELOW : FOREIGN TRADE (DEVELOPMENT & REGULATION) ACT, 1992. THE BASIC LAW THAT GOVERNS THE IMPORTS INTO INDIA IS THE FOREIGN TRADE (DEVELOPMENT & REGULATION) ACT, 1992. UNDER THIS ACT, IMPORTS OF ALL GOODS IS FREE EXCEPT FOR THE ITEMS REGULATED BY THE POLICY OR ANY LAW FOR THE TIME BEING IN FORCE. USING THE POWERS CONFERRED BY THE SAID ACT, THE GOVERNMENT HAS ISSUED THE FOLLOWING RULES & ORDERS : ALIA, FOREIGN TRADE (REGULATION) RULES, 1993, WHICH INTER PROVIDE FOR GRANT OF SPECIAL LICENCE,

APPLICATION FOR GRANT OF

LICENCES, FEES, CONDITIONS FOR LICENCES, REFUSAL OF LICENCE, AMENDMENT TO LICENCE, SUSPENSION OF LICENCE, CANCELLATION OF LICENCE, DECLARATION AS TO THE VALUE AND QUANTITY OF IMPORTED GOODS, DECLARATION AS TO THE IEC NUMBER, UTILIZATION OF IMPORTED GOODS, PROVISIONS REGARDING MAKING, SIGNING OF ANY DECLARATION /

STATEMENT OR DOCUMENTS, POWER TO ENTER THE PREMISES AND INSPECT, SEARCH AND SEIZURE OF GOODS, DOCUMENTS, THINGS AND CONVEYANCE, SETTLEMENT, CONFISCATION AND REDEMPTION AND CONFISCATION OF CONVEYANCE. FOREIGN TRADE (EXEMPTION FROM APPLICATION OF

RULES IN CERTAIN CASES) ORDER 1993 ; NOTIFICATIONS UNDER FOREIGN TRADE (DEVELOPMENT & REGULATION) ACT 1992 ; SEBI GUIDELINES THE GUIDELINES APPLY TO THE SPECIAL PURPOSE VEHICLE FOR THE PURPOSE OF ISSUANCE OF THE NEW INSTRUMENTS THIS INCLUDES LAWS LIKE SEBI ACT, 1992. THE LAW LAYS STRESS ON ADEQUATE DISCLOSURE, SEEK TO SAFEGUARD THE INTEREST OF THE INVESTORS, AND EMPHASIS PRUDENTIAL CONTROLS, BY REGULATING :

1. PRICING OF PUBLIC ISSUES OF EQUITY CAPITAL 2. ISSUE OF FCD / PCD / NCD (TYPES OF DEBENTURES) 3. PROMOTERS CONTRIBUTION COMPANIES ACT, 1956 THE CREATION OF THE SPECIAL PURPOSE VEHICLE IS

GOVERNED BY THE SAID LAW. THIS PROVIDES THE FRAMEWORK FOR VARIOUS ASPECTS OF BRINGING THE SPV INTO EXISTANCE, NAMELY: 1. NAME OF THE COMPANY 2. ARTICLE AND MAMORANDUM OF ASSOCIATION 3. CERTIFICATE OF INCORPORATION 4. SHAREHOLDING PATTERN 5. ACCOUNTING METHODS AND STANDARDS 6. DISCLOSURE POLICY 7. OTHER PENAL AND REGULATORY PROVISIONS AS APPLICABLE

INCOME TAX ACT FOR PREPARING THE ESTIMATES OF WORKING RESULTS, THE EXPECTED TAX BURDEN FOR THE FORECAST PERIOD, WHICH IS USUALLY EIGHT TO TEN YEARS, HAS TO BE FIGURED OUT. THIS CALLS FOR FAMILIARITY WITH THE PROVISION OF INCOME TAX

ACT THAT ARE RELEVANT FOR DETERMINING THE MAGNITUDE AND TIMING OF THE TAX BURDEN FOR A NEW PROJECT. CUSTOMS ACT, 1962 BUT, ONE OF THE MOST IMPORTANT LAW PERTAINING TO THE IMPORTS IS THE CUSTOMS ACT 1962. THE PATTERN AND SCHEME OF THE CUSTOMS ACT, 1962 ARE TO CONSOLIDATE AND AMEND THE LAW RELATING TO CUSTOMS. IT REPEALED :> > > > THE SEA CUSTOMS ACT, 1878, THE INLAND BONDED WAREHOUSES ACT, 1896, THE LAND CUSTOMS ACT, 1924, AND THE AIRCRAFT ACT 1934. THE CUSTOMS ACT, 1962, AS AN ADJECTIVE LAW, LAYS DOWN THE PROCEDURE AND FORMALITIES CONNECTED WITH COLLECTION OF CUSTOMS REVENUE, BOTH ON IMPORT AND EXPORT OF GOODS. AT THE SAME TIME, IT IS CONCERNED WITH PROHIBITIONS AND RESTRICTIONS ON IMPORTATION ON ITS OWN. THE CUSTOMS ACT TELLS US :> WHEN IMPORT OR EXPORT TAKES PLACE AND WHEREFROM SUCH OPERATION COMMENCE, > > WHAT ARE ILLEGALLY IMPORTED OR CONTRABAND GOODS, HOW ILLEGAL EXPORT IS PREVENTED OR DETECTED,

>

HOW

ARE

CUSTOMS

DUTIES

LEVIED

OR

EXEMPTED

PARTIALLY OR FULLY, > HOW GOODS ARE ALLOWED TO BE IN TRANSIT AND THE RESPONSIBILITY OF CARRIERS, > WHEN AND HOW WAREHOUSING OF IMPORTED GOODS IS ALLOWED, >HOW IS REFUND OR DRAWBACK OF DUTY ALLOWED, WHAT CONTROL IS EXERCISED OVER COASTAL GOODS, > HOW THE POSTAL ARTICLES AND BAGGAGE DEALT WITH AND ALLOWANCES THEREFOR ARE GIVEN, > > WHEN SEARCHES, SEIZURES AND ARRESTS ARE LEGAL, HOW ADJUDICATION IS MADE AND WHEN GOODS ARE RELEASED OR CONFISCATED AND FINE IN LIEU OF CONFISCATION AND PENALTIES ARE IMPOSED, > > WHEN CONVEYANCES ARE ALSO CONFISCATED, PROSECUTION FOR INFRINGEMENT OF CUSTOMS LAW IS LAUNCHED, >HOW CLEARING AGENTS ARE APPOINTED TO FACILITATE CLEARANCE OF GOODS AND HOW CONTROL IS EXERCISED OVER THEM etc. THE EXPORT IMPORT POLICY ALSO KNOWN AS THE TRADE POLICY, IS A NECESSARY INSTRUMENT OF A GOVERNMENT TO

REGULATE THE EXPORTS AND IMPORTS OF THE COUNTRY TO ENSURE THE BALANCE OF TRADE. THE FOREIGN EXCHANGE

IS AVAILABLE TO THE GOVERNMENT ONLY THROUGH TWO MEANS :> THE EXPORT PROCEEDS AND THE FOREIGN EXCHANGE LOANS ; AND > GRANTS FROM OTHER GOVERNMENTS AND INTERNATIONAL AGENCIES ; THE EXIM POLICY 1992-97 AS A RESULT OF THESE CHANGES, THE 1990-91 TO 1992-93 POLICY ALSO BECAME OUTDATED. HENCE, A NEW EXPORT IMPORT POLICY WAS ANNOUNCED ON 31st MARCH 1992. IN CONTRAST TO THE EARLIER THREE-YEAR POLICIES, THIS WAS A FIVE YEAR POLICY EFFECTIVE FROM 1992-93 TO 1996-97. THIS TIME FRAME COINCIDED WITH THE TIME FRAME FOR THE EIGHTH FIVE YEAR PLAN. THIS NEW POLICY SUBSTANTIALLY ELIMINATED LICENSING AND QUANTITATIVE CONTROLS, BARRING TWO LISTS OF

PROHIBITED AND RESTRICTED ITEMS FOR BOTH EXPORTS AND IMPORTS.

OBJECTIVES OF THE EXIM POLICY 1992-97: - THE PRINCIPAL OBJECTIVES OF THE EXIM POLICY 1992-97 ARE AS FOLLOWS :# TO ACCELERATE THE COUNTRYs TRANSITION TO AN

INTERNATIONALLY ORIENTED ECONOMY WITH A VIEW TO DERIVE MAXIMUM BENEFIT FROM EXPANDING GLOBAL MARKET

OPPORTUNITIES; # TO AUGMENT THE PRODUCTIVITY, MODERNIZATION AND OF INDIAN TO AGRICULTURE, ENHANCE INDUSTRY &

COMPETITIVENESS SERVICES AND

THEREBY

THEIR

EXPORT

POTENTIAL AND CAPABILITIES; # TO ENCOURAGE THE ATTAINMENT OF INTERNATIONALLY

ACCEPTED STANDARDS OF QUALITY AND THEREBY IMPROVE THE IMAGE OF INDIAs PRODUCTS ABROAD; # TO STIMULATE INDIAs EXPORTS BY FACILITATING ACCESS

TO REQUIRED RAW MATERIALS, INTER-MEDIATES, COMPONENTS, CONSUMABLE AND CAPITAL GOODS FROM THE INTERNATIONAL MARKET; # TO ENCOURAGE EFFICIENT AND INTERNATIONALLY

COMPETITIVE IMPORT SUBSTITUTION WITHIN THE LIBERALIZED FRAMEWORK OF FOREIGN TRADE;

TO IMPART GREATER TRANSPARENCY IMPORT POLICIES AND

IN THE

EXPORT-

AND MINIMIZE QUANTITATIVE OTHER DISCRETIONARY

RESTRICTIONS, CONTROLS; # TO

LICENSING

STRENGTHEN

AND

STIMULATE

THE

COUNTRYs

RESEARCH AND DEVELOPMENT (R&D) CAPABILITIES; # TO CONSERVE THE FORESTS A-ND WILDLIFE OF INDIA AND EFFORTS AT PRESERVATION, PROTECTION AND

ASSIST

PROMOTION OF A HEALTHY ECO SYSTEM FOR ENSURING BALANCED AND SUSTAINABLE DEVELOPMENT; AND # TO SIMPLIFY AND STREAMLINE THE PROCEDURES

GOVERNING EXPORTS AND IMPORTS. EXIM POLICY 1997-2002 THE EXPORT IMPORT POLICY 1997-2002 CLEARLY REFLECTS THE WILL OF THE GOVERNMENT TO LIBERALIZE THE ECONOMY AT A GIVEN PACE. THE POLICY DEFINES AND EXHAUSTIVELY EXPLAINS THE CATEGORIES OF IMPORTERS, SPECIFIC PROVISIONS FOR IMPORT OF GOODS, SPECIAL

SCHEMES FOR IMPORTS HOW AND WHEN TO OBTAIN IMPORT LICENSE FOR IMPORT OF THE ITEMS INCLUDED IN THE NEGATIVE LIST, TERRITORIAL JURISDICTION OF LICENSING AUTHORITIES,

CONDITIONS FOR ISSUE OF THE LICENSE VALIDITY OF IMPORT LICENSES / CCPs, REVALIDATION OF LICENSE, THE BACKGROUND OF THE POLICY CLEARLY SUGGESTS THAT INDIA WOULD ACHIEVE THE LEVELS OF TARIFFS PREVAILING IN THE ASEAN COUNTRIES. THE EFFORTS MADE IN THIS DIRECTION IS THROUGH THE REDUCTION IN THE CUSTOMS DUTY ON CAPITAL GOODS FROM 25 % TO 20 %. THE SAID RATES ARE APPLICABLE TO THE PROJECT IMPORTS. THIS OPTIMIZES THE INITIAL STEPS FOR FURTHER REDUCTION OF THE DUTIES IN THE FORTHCOMING YEARS. THE DUTY ON SEVERAL STEEL INDUSTRY INPUTS, LIKE COKING COAL, FROM 5 % TO 3 %, THE DUTY ON COLD ROLLED COILS REDUCED FROM 30 % TO 25 %, REDUCTION ON THE NON-COKING COAL FROM 20 % TO 10 % TO HELP THE POWER SECTOR, BESIDES, THE IMPORT PROCEDURES ARE FURTHER SIMPLIFIED , AGAINST SEVEN APPLICATION FORMS REQUIRED FOR IMPORT OF VARIOUS ITEMS IN THE NEGATIVE LIST ONLY ONE FORM WILL BE REQUIRED. NOW MOST OF THE ITEMS ARE FREE FROM LICENSE. ALSO, THE VALIDITY OF THE IMPORT LICENSES AND CUSTOM CLEARANCE PERMITS IS UPTO 12 MONTHS, IN CASE OF NON-CAPITAL ITEMS, AND FOR CAPITAL ITEMS THE VALIDITY OF THE LICENSES IS UPTO 24 MONTHS,

FURTHER, REVALIDATION MAY BE GRANTED ON THE MERIT OF THE INDIVIDUAL CASE. DECENTRALIZATION OF THE LICENSING AUTHORITIES ON REGIONAL BASIS, FREE TRANSFERABILITY OF GOODS SO IMPORTED EXCEPT FEATURE UNDER CERTAIN CASES, IS THE

ANOTHER

SIGNIFICANT

OF THE POLICY

ALLOWANCE OF THE IMPORTS OF THE SECOND HAND ITEMS EXCEPT IMPORT OF THE USED RUBBER TYRES, THE POLICY HAS FURTHER MODIFIED THE PROCEDURE FOR OBTAINING

IMPORTERS-EXPORTERS CODE NUMBER, THE SPECIAL IMPORT LICENSE (SIL) ENTITLEMENT OF EXPORTERS HOLDING ISO 9000 OR IS/ISO 9000 CERTIFICATION HAS BEEN INCREASED FROM 2 % TO 5 %, (SIL) ON EXPORT OF PRODUCTS OF SMALL SCALE INDUSTRIES (SSIs) HAS BEEN INCREASED FROM 1 % TO 2 %, 542 RESTRICTED ITEMS HAVE BEEN LIBERALIZED FOR IMPORTS, SPECIAL DEPRECIATION NORMS HAVE BEEN PROVIDED FOR ELECTRONIC GOODS UPTO 70 % IN THREE YEARS AND ALSO PERMISSION GRANTED FOR DISPOSAL, ON PAYMENT OF

APPLICABLE DUTY. THE IMPORT OF ANY TYPE OF GOODS INTO INDIA IS REGULATED BY GOVERNMENT OF INDIA AND ITS POLICIES IN THIS REGARD IS ANNOUNCED BY DIRECTOR GENERAL OF FOREIGN

TRADE FROM TIME TO TIME AS STATED EARLIER. THE OTHER ASPECT OF IMPORTS i.e. PAYMENT THEREOF IS A MATTER GOVERNED FOREIGN EXCHANGE REGULATION ACT, 1973

COUPLED WITH EXCHANGE CONTROL REGULATIONS FRAMED BY RESERVE BANK. THE VARIOUS SECTIONS OF FOREIGN

EXCHANGE REGULATION ACT, 1973 AS AMENDED BY FOREIGN EXCHANGE (AMENDMENT) ACT, 1993 WHICH DIRECTLY RELATE TO IMPORT OF GOODS INTO INDIA ARE REPRODUCED BELOW :TEXT OF SECTION 8(3) & (4) OF FERA 1973 SECTION 8(3) - WHERE ANY FOREIGN EXCHANGE IS ACQUIRED BY ANY PERSON, OTHER THAN AN AUTHORIZED DEALER OR A MONEY-CHANGER, FOR ANY PARTICULAR PURPOSE, OR WHERE ANY PERSON HAS BEEN PERMITTED CONDITIONALLY TO ACQUIRE FOREIGN EXCHANGE, THE SAID PERSON SHALL NOT USE THE FOREIGN EXCHANGE SO ACQUIRED OTHERWISE THAN FOR THE PURPOSE OR, AS THE CASE MAY BE, FAIL TO COMPLY WITH ANY CONDITION TO WHICH THE PERMISSION GRANTED TO HIM IS SUBJECT, AND WHERE ANY FOREIGN EXCHANGE SO ACQUIRED CANNOT BE SO USED OR THE CONDITIONS CANNOT BE COMPLIED WITH, THE SAID PERSON SHALL, WITHIN A PERIOD OF THIRTY DAYS FROM THE DATE ON

WHICH HE COMES TO KNOW THAT SUCH FOREIGN EXCHANGE CANNOT BE SO USED OR THE CONDITIONS CANNOT BE COMPLIED WITH, SELL THE FOREIGN EXCHANGE T0 AN AUTHORIZED DEALER OR TO A MONEY-CHANGER. SECTION 8(4) - FOR THE AVOIDANCE OF DOUBT, IT IS HEREBY DECLARED THAT WHERE A PERSON ACQUIRES FOREIGN

EXCHANGE FOR SENDING OR BRINGING INTO INDIA ANY GOODS BUT SENDS OR BRINGS NO SUCH GOODS OR DOES NOT SEND OR BRING GOODS OF A VALUE REPRESENTING THE FOREIGN EXCHANGE ACQUIRED, WITHIN A REASONABLE TIME OR SENDS OR BRINGS ANY GOODS OF A KIND, QUALITY OR QUANTITY DIFFERENT FROM THAT SPECIFIED BY HIM AT THE TIME OF ACQUISITION OF THE FOREIGN EXCHANGE, SUCH PERSON SHALL, UNLESS THE CONTRARY IS PROVED, BE PRESUMED NOT TO HAVE BEEN ABLE TO USE THE FOREIGN EXCHANGE FOR THE PURPOSE FOR WHICH HE ACQUIRED IT OR, AS THE CASE MAY BE, TO HAVE USED THE FOREIGN EXCHANGE SO ACQUIRED OTHERWISE THAN FOR THE PURPOSE FOR WHICH IT WAS ACQUIRED THE RBI EXCHANGE CONTROL MANUAL HAS BEEN DIVIDED INTO FOLLOWING FOUR PARTS :

IMPORT OF GOODS IMPORTS UNDER FOREIGN CURRENCY LOANS/CREDITS MERCHANTING TRADE IMPORT OF GOLD, SILVER, SECURITIES, CURRENCY etc

INTRODUCTION TO PUNJ LLOYD LTD PUNJ LLOYD LIMITED WAS INCORPORATED AS PUNJ LLOYD PRIVATE LIMITED IN SEPTEMBER 1988, AND TOOK OVER ALL THE ACTIVITIES OF ENGINEERING, TURNKEY AND GENERAL

CONSTRUCTION AND OTHER SPECIALIZED TECHNICAL SERVICES OF PUNJ SONS PRIVATE LIMITED, WHO IN TURN HAD BEEN IN THIS BUSINESS SINCE 1954. WITH THE TAKEOVER, THE SENIOR & THE MIDDLE MANAGEMENT PERSONNEL IN THE TECHNICAL, MARKETING AND FINANCIAL DISCIPLINES BECAME PART OF PUNJ LLOYD PRIVATE LIMITED. PUNJ LLOYD PRIVATE LIMITED WAS CONVERTED INTO PUBLIC LIMITED COMPANY IN JULY 1992. THE CORE INDUSTRIAL SECTOR SUCH AS OIL, GAS, POWER, ( INCLUDING NUCLEAR POWER ), FERTILIZERS,

CHEMICALS AND PETROCHEMICALS. PUNJ LLOYD LIMITED HAS

ESTABLISHED

ITS

POSITION

AS

ONE

OF

THE

LEADING

MULTIDISCIPLINARY

ENGINEERING

AND

CONSTRUCTION

COMPANIES WITH PROJECTS IN INDIA AND ABROAD. OVER THE LAST FOUR DECADE, PUNJ LLOYD LIMITED

(HEREINAFTER REFEREED TO AS PLL) HAVE EXECUTED OVER 400 INDUSTRIAL PROJECTS IN SUCH DIVERSE SECTORS AS OIL & GAS, CHEMICALS, PETROCHEMICALS, NUCLEAR POWER,

AVIATION, FERTILIZERS AND CEMENT. PLL HAS ALSO BECOME THE FIRST ENGINEERING COMPANY IN INDIA TO BE AWARDED THE ISO-9002 QUALITY SYSTEM CERTIFICATE FOR ITS ENTIRE RANGE OF CONSTRUCTION ACTIVITIES SUCH AS INSTALLATION OF CROSS COUNTRY PIPELINES, LIQUID STORAGE FACILITIES/ TANKAGES, TURNKEY PROJECTS, GENERAL CONSTRUCTION, HEAVY CIVIL & ENGINEERING AND TELECOMMUNICATIONS. DISTINGUISHED CORPORATION, LIST OIL OF INDIA CLIENTS LIMITED, INCLUDES OIL INDIAN OIL GAS

& NATURAL

CORPORATION, GAS AUTHORITY OF INDIA LIMITED, NUCLEAR POWER CORPORATION, HINDUSTAN PETROLEUM CORPORATION LIMITED, BHARAT PETROLEUM CORPORATION LIMITED,

RELIANCE INDUSTRIES, CHAMBAL FERTILIZERS AND ESSAR OIL AT HOME AND PERTAMINA, TBT, TOTAL AND OFFSHORE ON

INDONESIA, COMMAND PETROLEUM OF AUSTRALIA, NATIONAL OIL COMPANY KUWAIT AND PETRONAS OF MALAYSIA. PUNJ LLOYD LIMITED HAS A DEDICATED TEAM OF ENGINEERS 140, 260 FIELD SUPERVISORS AND 546 TECHNICIANS ON ITS REGULAR ROLLS, IN ADDITION, THE COMPANY HAS A LARGE NUMBER OF SKILLED PERSONNEL AVAILABLE TO IT THROUGH ITS ASSOCIATES AND ITS OWN RESERVE POOL. THE COMPANY OWNS A VAST RANGE OF SOPHISTICATED EQUIPMENT WHICH GIVES IT A DECISIVE ADVANTAGE IN BAGGING AND COMPLETING DIVERSE JOBS ON TIME. WITH FIVE JUMBO SPREADS, WE HAVE ONE OF THE LARGEST FLEETS OF PIPELINE CONSTRUCTION EQUIPMENT. THE MARKETING TEAM COMPRISES OF PERSONNEL HAVING OUTSTANDING EXPERIENCE WITH LEADERS OF THE INDUSTRY. THE EXECUTIVES HAVE EXCELLENT WORKING RELATIONSHIPS WITH DIFFERENT LEVELS OF DECISION MAKERS WITHIN THE CLIENT/ CONSULTANT ORGANIZATION. FOR THE OPERATIONAL EFFICIENCY THE COMPANY HAS RECENTLY THROUGH RECAST ITS

ORGANIZATIONAL

STRUCTURE

REMODELING

RELATIONSHIPS AND WORK PATTERNS. THE EXISTING BUSINESS HAS BEEN RESTRUCTURED INTO FOLLOWING INDEPENDENT STRATEGIC BUSINESS UNITS (SBUS) :-

PIPELINE SBU, TANKAGES SBU, TELECOMMUNICATION SBU, INDUSTRIAL CIVIL CONSTRUCTION (ICC) SBU, ENGINEERING (EPC) SBU, PROCUREMENT AND COMMISSIONING

PLANT & EQUIPMENT SBU.

PUNJ LLOYD LIMITED IS, THEREFORE, GEARED TO UNDERTAKE MULTIPLE PROJECTS ACROSS DIFFERENT LOCATIONS IN THE COUNTRY AND ABROAD. FINANCE, HRD, INTERNAL AUDIT,

PURCHASE OF EQUIPMENT, POLICIES AND PRICING DECISIONS ARE CENTRALIZED AT THE CENTRAL OFFICES. A NUMBER OF SENIOR LEVEL PROFESSIONALS FROM DIVERSE INDUSTRIES HAVE BEEN INDUCTED TO ACT AS CHANGE AGENTS AND PUSH FORWARD THE GROWTH RATES IN EACH OF THE EXISTING AND NEW BUSINESS AREAS. THE RESTRUCTURING IS EXPECTED TO BRING ABOUT PROFIT CENTER RESPONSIBILITIES AND EFFORTS TO ACHIEVE MARKET LEADERSHIP POSITION IN EACH OF THE FOCUS AREAS. WITH THE NEW ORGANIZATIONAL SET UP, GREATER FOCUS IS BEING GIVEN

TO COMMUNICATION CHANNEL AND THE COMPANY IS IN THE PROCESS OF IMPLEMENTING A NEW TECHNOLOGICAL SET UP. PUNJ LLOYD LIMITED IS IN THE PROCESS OF DEVELOPING A NEW WORK STATION WHICH WOULD ENABLE THE PEOPLE AT THE HEAD OFFICE TO RECEIVE ON LINE INFORMATION FROM ALL SITES. THE PROJECT IS BEING IMPLEMENTED WITH THE HELP OF ORACLE INDIA & ANDERSON CONSULTING. THE COMPANY HAS INSTALLED V SAT SYSTEM WHERE ALL COMMUNICATIONS IS DONE THROUGH DEDICATED LINES. IN KEEPING WITH THE INTERNATIONAL STANDARDS, PUNJ LLOYD LIMITED ALSO HAS THE DEDICATED INFORMATION SYSTEMS DIRECTLY FROM

REUTERS SINCE IT HAS SUBSTANTIAL FOREIGN EXCHANGE EXPOSURE, BOTH EXPORT & IMPORT. IN HOUSE FABRICATION FACILITY STRATEGICALLY LOCATED AT BANMORE, GWALIOR HELPS COMPANY TO QUOTE COMPETITIVE PRICES FOR TURNKEY PROJECTS IN CENTRAL, WESTERN AND NORTHERN REGIONS. OPPORTUNITIES FOR PUNJ LLOYD LTD THE COMPANY SEES MAJOR OPPORTUNITIES IN FAR EAST AND MIDDLE EAST AREAS AND IS AGGRESSIVELY PURSUING PIPELINE AND GENERAL CONSTRUCTION BUSINESS IN THESE AREAS.

BUSINESS IN FAR EAST IS BEING DIRECTLY PURSUED BY THE INDONESIAN OFFICE AND IN THE MIDDLE EAST BY THE KUWAIT & ABU DHABI OFFICES. AFTER THE START OF THE LIBERALIZATION ERA THE

GOVERNMENT OPENED THE INFRASTRUCTURE DEVELOPMENT AREA TO PRIVATE ENTREPRENEURS TO PROVIDE PRIVATE INVESTMENT. MAJOR INDUSTRIAL HOUSES ARE INVESTING

HEAVILY IN THE DEVELOPMENT OF THE REFINERIES AT AN APPROXIMATE VALUE OF RUPEES 15,000.00 CRORES. THE SCHEMES OFFERED BY THE GOVERNMENT INCLUDE THE BOOT & BOT PROJECTS.

MARKET SCENARIO INDUSTRIAL CIVIL ROAD SCENARIO IN INDIA THE RECENT ANNOUNCEMENT BY THE CENTRAL GOVERNMENT OF SEVERAL INITIATIVES IN ROAD PROJECTS COVERING BOTH THE CONVENTIONAL OR THE INVESTMENT ROUTES AND

INCLUDING HIGHWAYS AND EXPRESSWAYS MARKS A MAJOR MILESTONE IN THE HISTORY OF INDIAN ROAD DEVELOPMENT PLANS. THE CONCERNED AGENCIES ARE ALSO WORKING TOWARDS ADOPTING A FAIRLY PROACTIVE APPROACH TOWARDS

STRUCTURING OF THE POLICY SO AS TO RESOLVE SOME LONGSTANDING ISSUES REGARDING VIABILITY AND FEASIBILITY OF PRIVATE SECTOR INVESTMENT IN THIS SECTOR. HOWEVER, ALL SUCH SCHEMES / INITIATIVES CANNOT AND DO NOT TAKE OFF IN THE MANNER THEY ARE ANNOUNCED IN THE SENSE THAT THE TIME REQUIRED FROM FEASIBILITY STUDIES TO FINALIZATION OF FUNDING AND FINALLY REACHING THE LEVEL OF TENDERING TAKES ABOUT THREE YEARS EVEN AFTER ALL THE POLICY INITIATIVES ARE IN PLACE. CASH/CONVENTIONAL CONTRACTS:

PLL WILL TAKE ABOUT 11/2 YEARS TO QUALIFY AS A SECOND PARTY FOR CONVENTIONAL TENDERS WITH FOREIGN PARTNERS AS THE LEAD PARTNERS. PLL WILL QUALIFY AS A MAIN PARTNER OR LEAD PARTNER AFTER 2 2 1/2 YEARS FROM TODAY. BOT/BOOT PROJECTS : PLL CAN PREQUALIFY FOR ANY BOT ROAD PROJECT BY TYING-UP WITH PARTNERS. THUS, THIS IS THE SEGMENT WE INTEND

TAPPING FOR NEXT 2 YEARS TO COME.

IT IS EXPECTED THAT THE FOLLOWING PROJECTS WILL TAKE SHAPE: a) b) c) STATE HIGHWAYS (EXISTING) NATIONAL HIGHWAYS (EXISTING) NEW ALIGNMENTS 1. 2. 3. WE INTEND BYPASS ROADS EXPRESSWAYS ONLY FOR EXISTING ROADS IE

BIDDING

STRENGHTENING SINGLE LANE, WIDENING TO DOUBLE LANE OR

DOUBLE LANE STREGTHENED TO FOUR LANES OR FOUR LANES STRENGTHNED TO SIX LANES. FOR NEW ALIGNMENTS, WE WILL TRY TO ENCASH ONLY ON PROJECTS OF BYPASSES IE FOR SOMETIME WE WILL NOT ATTEMPT TO NEW ALIGNMENT ROADS OR EXPRESSWAYS.

FOR EXPRESSWAYS, IT IS PROPOSED THAT WE SHOULD TAKE THE ROUTE OF A SEPARATE INFRASTRUCTURE CORRIDOR COMPANY AS FLOATED BY MR FOR ASHOK KENY IE NANDI

INFRASTRUCTURE EXPRESSWAY.

CORRIDOR SUBJECT

BANGALORE

MYSORE TO BE

THIS

OBVIOUSLY

NEEDS

DISCUSSED IN DETAIL. AS PER OUR PROJECTIONS FOR ICC FOR THE NEXT FINANCIAL YEAR, WE ARE CONTEMPLATING ONLY SOME VERY SELECTED FEW PROJECTS WHICH WILL BE FINALIZED VERY SOON. THESE PROJECTS MAY NOT BE OF THE QUANTUM OF 1000CR OR 500CR BUT FALL WITHIN A BROAD SPECTRUM RANGING BETWEEN 20 150CR. IN A NUTSHELL, WHILE WE ARE AWARE OF THE ENTIRE CANVAS OF THE GENERAL ROAD AND HIGHWAYS IN INDIA, WE WANT TO PROCEED ACCORDING TO OUR TARGETS.

BRIDGE/FLYOVER SEGMENT BRIDGES/FLYOVERS AS STAND-ALONE PROJECTS : IN THIS SEGMENT WE WILL STILL TAKE 11/2 YEARS TO QUALIFY, BUT FOR NEW PROJECTS WHEREEVER JOINT VENTURE IS ALLOWED WE WILL GET INVOLVED. BRIDGES/FLYOVERS AS PART OF THE ROAD : THIS SEGMENT IS AVAILABLE TO US AND WE WILL PREQUALIFY AND ALSO GET HAND ON EXPERIENCE.THUS, AFTER COMPLETING THREE-FOUR BRIDGES/FLYOVERS WE WILL GET OUR

QUALIFICATION FOR STAND-ALONE PROJECTS ALSO.

BRIDGE/FLYOVER SCENARIO IN INDIA

BRIDGES/FLYOVERS

STAND ALONE PROJECTS

PART OF THE ROAD

CASH CONTRACTS

BOT/BOOT PROJECTS

EQUIPMENTS DETAILS THE MAIN EQUIPMENT AND MATERIALS ARE IMPORTED, ITEMS LIKE EXCAVATORS, HOLIDAY DETECTOR, PNEUMATIC CLAMPS, BENDING MACHINES, RIGS, PIPE LAYING MACHINE, PIPE FACING MACHINE, SAND BLASTERS, MOTORGRADERS,

INDUCTION HEATING MATERIAL, JOINT COATING ,MATERIAL, ROCK BREAKERS , WELDING MACHINES, STEEL PIPES, SPARES FOR HELICOPTER AND OTHER EQUIPMENT.

PUNJ LLOYD LIMITED, GENERALLY DO NOT FACE ANY MAJOR DIFFICULTY IN SOURCING OF THE EQUIPMENT AND MATERIALS. HOWEVER, DUE TO EXTERNAL CIRCUMSTANCES LIKE NON AVAILABILITY OF MATERIALS, DELAY IN DESPATCH, POLITICAL DISTURBANCE, EXIM POLICY, CURRENCY VARIATION ETC., POSSIBILITY OF DELAY IN EXECUTION CANNOT BE RULED OUT.

PUNJ LLOYDS INDUSTRIAL CIVIL TOLL ROAD PROJECT

VADODARA HALOL ROAD PROJECT (SH-87)

BACKGROUND

THE VADODARA HALOL ROAD IS A STRATEGIC STATE HIGHWAY (SH87) LINK ROAD CONNECTING VADODARA, THE SECOND LARGEST INDUSTRIALISED CITY IN THE STATE OF GUJARAT, WITH HALOL, THE INDUSTRIAL HUB, TO VADODARA. ROAD IS INADEQUATE TO MEET THE THE PRESENT OF LOCAL

NEEDS

RESIDENTS, INDUSTRIES, AND THROUGH TRAFFIC AND REQUIRED WIDENING AND STRENGTHENING. THE ROAD EXTENDS FROM KM 8/300 AT THE INTERSECTIONS OF SH87 WITH VADODARA BYPASS (NATIONAL HIGHWAY 8 BYPASS TO VADODARA CITY) AND ENDS AT KM 40 AT THE START OF HALOL BYPASS, A TOTAL LENGTH OF 32 KMS (THE EXISTING ROAD). THE ROAD PRIMARILY CATERS TO INDUSTRIAL AND GOODS TRAFFIC, AS WELL AS PASSENGER WORK TRIPS TO AND FROM VADODARA TO HALOL. IT ALSO

PROVIDES THE SHORTEST LINK FOR LONG DISTANCE INDUSTRIAL AND GOODS TRAFFIC MOVING FROM MUMBAI (BOMBAY) AND

OTHER

PARTS

OF

WESTERN

INDIA

TO

THE

STATES

OF

RAJASHTHAN

AND MADHYA PRADESH, AND ELSEWHERE IN

NORTHERN AND CENTRAL INDIA. THE EXISTING TWO-LANE ROAD IS TO BE STRENGTHENED AND WIDENED TO FOUR LANES, WITH THE PROVISION OF ONE LANE OF SERVICE ROAD ON EACH SIDE (COLLECTIVELY, THE

FACILITY). ADDITIONAL

THIS WILL ENTAIL, INTER ALIA, EARTHWORKS FOR ALIGNMENT, ROAD CONSTRUCTION, DRAINAGE THE

REPAIR AND CONSTRUCTION, AND BRIDGE WORKS.

DETAILED TECHNICAL EXAMINATION AND SURVEYS OF THE PROJECT ARE CONTAINED WITHIN THE FEASIBILITY REPORT PREPARED BY KIRLOSKAR CONSULTANTS. THE FEASIBILITY REPORT HAS ALSO EXAMINED THE

ENVIRONMENTAL AND SOCIAL ISSUED RELATED TO PROJECT IMPLEMENTATION AND CONTAINS A RISK MANAGEMENT PLAN. THE REQUIREMENT OF LAND FOR THE PROJECT HAS BEEN ASSESSED AND THE GOG IS IN THE PROCESS OF ACQUIRING THE NECESSARY LAND. THE SELECTED COMPANY WOULD BE

EXPECTED TO BEGIN WORK ON THE PROJECT ONLY WHEN THE LAND ACQUISITION IS VIRTUALLY COMPLETE.

PROJECT IL&FS HAVE ASSESSED THE COMMERCIAL VIABILITY AND RISK FRAMEWORK FOR THE PROJECT. AS REGARDS, PROJECT

REVENUES, KIRLOSKAR CONSULTANTS HAVE DETERMINED THAT THE TRAFFIC PROFILE COMPRISES FAST MOVING VEHICLES,. INCLUDING TRUCKS, LCVS, CARS, AND TWO-WHEELERS ON WHICH TOLLS WOULD BE LEVIED. A FORECAST OF MODE WISE TRAFFIC HAS BEEN PREPARED BY LINKING GROWTH IN TRAFFIC TO SOCIO-ECONOMIC FACTORS IN THE PROJECT INFLUENCE AREA. THE ESTIMATED GROWTH RATES AND ASSOCIATED PROJECTIONS ARE CONTAINED IN THE FINAL

REVENUE

FEASIBILITY REPORT. IN RESPONSE TO GUJARAT TOLL ROAD LIMITEDS REQUEST FOR PROPOSAL FOR IMPLEMENTATION OF THE VADODARA-HALOL ROAD PROJECT, A JOINT BID WAS SUBMITTED IN JULY98 BY PUNJ LLOYD LIMITED IRCON CONSORTIUM. IT MAY BE MENTIONED HERE THAT THE JOINT BID IS FOR CONSTRUCTION PERIOD ONLY AND THE OPERATION AND MAINTENANCE SHALL BE EXECUTED BY PUNJ LLOYD ONLY.

FINANCIAL FEASIBILITY

FINANCIAL ANALYSIS: (1)ASSUMPTIONS: (a)THE FINANCING STRUCTURE FOR ANY BOOT PROJECT IS LINKED TO THE ESTIMATED REVENUE GENERATION OVER A PERIOD OF TIME. TO COMPUTE THE LIKELY REVENUE STREAMS OVER A PERIOD OF TIME, ASSUMPTIONS NEED TO BE MADE, TO PREDICT THE BEHAVIOUR OF THE KEY VARIABLES IMPACTING THE PERFORMANCE OF THE PROJECT. THESE ASSUME A SIGNIFICANT IMPORTANCE IN A PROJECT RECOURSE FINANCING FORMAT THAT IS ENVISAGED FOR THE PROJECT. HENCE ANALYSIS OF KEY ASSUMPTIONS AND THE LIKELY IMPACT OF A CHANGE IN ANY OF THESE ON THE PROJECT CASH FLOWS IS ESSENTIAL TO UNDERSTAND THE ROBUSTNESS OF UNDERLYING PROJECT CASH FLOWS TO SERVICE DEBT AND TO PROVIDE AN ACCEPTABLE LEVEL OF RETURNS TO THE SPONSOR(S). THE ASSUMPTIONS RELATING TO THE KEY VARIABLES, ON THE BASIS OF WHICH THE PROJECT REVENUES, PROJECT PROFITABILITY AND CASH FLOWS HAVE BEEN ESTIMATED, ARE DETAILED IN THIS SECTION.

(b)

CAPITAL COST: THE LANDED COST OF THE PROJECT IS ESTIMATED AT RS.1394 MN.

(C) PROJECT OPERATION PERIOD (i) REVENUE ASSUMPTIONS THE TRAFFIC FORECAST FOR THE TOOL ROAD AS WELL FOR THE SERVICE ROAD FOR EACH OF THE CASES HAS BEEN TAKEN AS PROVIDED BY THE CONSULTANTS TO THE PROJECT.

TOLL RATES FOR THE FIRST YEAR HAS BEEN TAKEN AT LEVELS RECOMMENDED BY THE

CONSULTANTS.

FOR OBTAINING THE TOLL IN

SUBSEQUENT YEARS, THE TOLL CHARGES HAVE BEEN LINKED TO DOMESTIC INFLATION INDEX. A CONSERVATIVE ESTIMATED OF 12%

ANNUALISED RETURN HAS BEEN ASSUMED ON ANY CASH SURPLUS TRAPPED IN THE SPV IN ANY YEAR, POST DEBT SERVICING AND PAYOUT OF DIVIDENDS. THE RETURN OF 12% HAS BEEN BASED ON THE CURRENTLY AVAILABLE YIELDS ON GOVERNMENT PAPER AND IS SIGNIFICANTLY LOWER THAN THE

YIELDS AVAILABLE ON AAA RATED CORPORATE PAPER. ANNUAL AVAILABILITY OF THE ROAD HAS BEEN CONSERVATIVELY TAKEN AT 330 DAYS TO PROVIDE FOR A MARGIN OR FOR ANY ANNUAL OTHER MAINTENANCE, UNFORESEEN

HOLIDAYS

CIRCUMSTANCES. (II) OPERATIONS & MAINTENANCE COSTS ANNUAL MAINTENANCE COSTS FOR THE ROAD PROJECT FOR OPTION 3 AT CURRENT COST

ESTIMATES IS RS.0.36 MILLION PER KM, AS PROVIDE BY THE CONSULTANTS. THE BASE YEAR ESTIMATES HAVE BEEN LINKED TO DOMESTIC INFLATION INDEX FOR OBTAINING THE COSTS FOR SUBSEQUENT YEARS. PERIODIC RENEWAL IS UNDERTAKEN EVERY FIVE YEARS POST COMMISSIONING AND IS ESTIMATED AT 2.56 MN/KM AT CURRENT. THE ESTIMATES FOR THE BASE YEAR HAVE BEEN LINKED TO DOMESTIC INFLATION INDEX FOR

OBTAINING THE COSTS FOR SUBSEQUENT YEARS.

 MAJOR

RENEWAL AFTER 15

PROPOSED YEARS OF

TO

BE

UNDERTAKEN

PROJECT

COMMISSIONING IS ESTIMATED AT RS.4.62 MN/KM AT CURRENT COST. THE BASE YEAR ESTIMATE HAS BEEN LINKED TO THE DOMESTIC INFLATION INDEX TO ARRIVE AT THE ESTIMATES FOR THE YEAR OF RENEWAL. ANNUAL INSURANCE COSTS HAVE BEEN

ASSUMED AT 1% OF THE VALUE OF THE NET FIXED ASSETS. (III) OTHER ASSUMPTIONS

DOMESTIC INFLATION HAS BEEN ASSUMED AT 8% INTEREST RATES: THE INTEREST RATE ASSUMED FOR THE PROJECT LOANS ARE BASED ON

CURRENTLY AVAILABLE SOURCES OF FUNDS, THE CURRENT PLRS AND THE MARGIN EXPECTED BY RESPECTIVE PROJECTS LENDERS ON A TO FINANCE RECOURSE SIMILAR BASIS.

PROJECT

HOWEVER, THE ACTUAL CONTRACTED INTEREST RATES WOULD BE DEPENDENT IN THE UPON THE

PREVAILING

CONDITIONS

FINANCING

MARKETS AT THE TIME OF FINANCIAL CLOSE FOR THE PROJECT.

DEPRECIATION

ON

THE

ASSETS

HAS

BEEN

ASSUMED AT 10% ON WRITTEN DOWN VALUE FOR TAX CALCULATIONS. FOR THE PURPOSES OF BOOK DEPRECIATION, THE PROJECT ASSETS ARE

ASSUMED TO DEPRECIATE BY 95% OVER THE PROPOSED CONCESSION PERIOD OF 30 YEARS. TAX RATES: APPLICABLE TAX RATES FOR THE SPV WILL BE 35% (INCLUSIVE OF SURCHARGE) OF CASH FLOWS NET OF O&M EXPENSES, DEPRECIATION, SERVICING AND REPAYMENT REQUIREMENTS. IT HAS BEEN ASSUMED THAT THE PROJECT WOULD QUALIFY FOR THE TAX HOLIDAY U/S 80 1A OF THE INCOME TAX ACT, 1961 EXTENDED HENCE A TO TAX

INFRASTRUCTURE

PROJECTS.

HOLIDAY OF FIVE YEARS AND A 30% REDUCED TAX

PAYOUT FOR THE NET FIVE YEARS HAS BEEN ASSUMED IN THE FIRST TWELVE YEAR PERIOD. THE TAX RATES ASSUMED ABOVE ARE AS PER EXISTING LAWS. HOWEVER, ANY ADVERSE CHANGE IN THE TAX POLICIES WOULD ADVERSELY AFFECT THE PROJECT CASH FLOWS AND MAY REQUIRE A REVISION OF TOLLS IN EXCESS OF THE ENVISAGED INCREASE. DIVIDEND PAYOUT IS 90% OF THE POST DEBT SERVICING, WHICHEVER IS LOWER. (2) FINANCIAL STRUCTURE: THE PROJECT HAS BEEN STRUCTURED ON THE BASIS OF A DEBT EQUITY RATIO OF 2:1.

1.0

FINANCIAL PROJECTIONS: (1)INCOME STATEMENTS

A SUMMARY OF THE KEY FINANCIAL PROJECTIONS FOR OPTION 3 BASED ON THE FINANCIAL PLAN PROPOSED IN THE EARLIER SECTION IS PROVIDED BELOW:-

YR 1

YR 5

YR

YR

YR

YR

YR

TOTAL INCOME PBT PAT

117 (81) (81)

225 (109) (109)

10 488 25 25

15 1006 741 490

20 2049 1546 1001

25 401 5 338 3 218 8

30 655 0 660 4 427 5

(2)PROJECT PROFITABILITY:
(a)

PERIOD: THE ANALYSIS HAS BEEN DONE FOR A PERIOD OF 30 YEARS.

(b)THE PROJECT RETURNS OVER 20,25 AND 30 YEAR PERIOD ARE AS UNDER: 30 YEARS 25 YEARS 20 YEARS PROJECT IRR 21.14 20.16 18.24 CASH IRR 19.39 18.36 16.49

NOTE : THE DEFINITIONS OF THE VARIOUS IRRS ARE AS UNDER: (i) PROJECT IRR HAS BEEN DEFINED AS THE IRR ON CASH FLOWS POST MEETING O&M EXPENSES, BUT PRIOR TO MEETING ANY FIXED EXPENSES.

(ii)

CASH IRR IS THE POST TAX PROJECT IRR USED TO INDICATE THE RETURN AVAILABLE FOR DEBT SERVICING WITH THE BALANCE AVAILABLE FOR EQUITY INVESTORS AND IS DEFINED AS THE IRR ON POST TAX CASH FLOWS WITH TAX ADJUSTED INTEREST ADDED BACK.

(3) NON DISTRIBUTED SHAREHOLDERS RETURNS THERE IS A LIMITATION ON THE DIVIDEND PAYOUT EVERY YEAR WHICH RESULTS IN ACCUMULATION RETURNS. OF NONTHE

DISTRIBUTED

SHAREHOLDERS

METHODOLOGY OF DISTRIBUTION OF THESE ACCUMULATED SHAREHOLDERS RETURNS WOULD NEED TO BE

ADDRESSED AT A LATER STAGE.

(4) DEBT STRUCTURING TO MINIMISE CASH LOSES ACHIEVEMENT OF MODERATE/ACCEPTABLE SHAREHOLDER RETURNS HAS BEEN ACHIEVED BY BACKEDING THE DEBT PROFILE AND REDUCING THE EXTENT OF CASH LOSSES IN THE INITIAL YEARS, WHICH IS TYPICALLY CHARACTERISTIC OF INFRASTRUCTURE PROJECTS, STRUCTURED ON

PROJECT RECOURSE FINANCING.

ACCORDINGLY CASH

LOSSES HAVE BEEN ELIMINATED THROUGH THE USE OF LONG TERM DEBT INSTRUMENTS LIKE DDBS AND THE IL&FS/WORLD BANK LINE WHERE THE REPAYMENTS ARE SUBSTANTIALLY BACKENDED, THEREBY REDUCING THE DEBT SERVICING BURDEN ON THE PROJECT IN THE INITIAL YEARS. (5) FOREIGN EXCHANGE RISK (a)RECOURSE HAS BEEN TAKEN TO FOREIGN EXCHANGE DENOMINATED RECOURSES I.E. THE IL&FS WORLD BANK LINE OF CREDIT AND THE ECA CREDIT TO REDUCE CASH OUTFLOW IN THE INITIAL YEARS. HOWEVER, FOREX DEVALUATION HAS BEEN ASSUMED TO BE AT 9% TO PROVIDE A CONSERVATIVE ESTIMATE. (b)REASONABLE FLUCTUATIONS IN THE RUPEE-DOLLAR PARITY WILL NOT ADVERSELY IMPACT THE PROFITABILITY OF THE PROJECT AS A CONSERVATIVE DEVALUATION HAS BEEN ASSUMED FOR FINANCING MODELLING. (c) IN CASE OF A SIGNIFICANT DEVALUATION IN A

PARTICULAR YEAR, THE PROJECT CASH FLOWS WOULD BE ADVERSELY IMPACTED FOR THAT YEAR. HOWEVER, AS HAS BEEN THE EXPERIENCE IN THE PAST,

DEVALUATION CAN BE EXPECTED TO BE MARGINAL IN SUBSEQUENT YEARS AND HENCE THE IMPACT IS

EXPECTED TO BE AVERAGED OUT OVER THE MEDIUM TERM. (D) RISK MITIGATION STRATEGY: FOREIGN EXCHANGE RESOURCE HAVE BEEN UTILISED DUE TO THE SUBSTANTIALLY BACKENDED NATURE OF PROJECT CASH FLOWS. HOWEVER, THE CASH FLOWS

ARE FAIRLY COMFORTABLE BEYOND THE INITIAL 6-7 YEARS. HENCE TO MITIGATE THE DEVALUATION RISK,

THE SPV COULD ENTER INTO A SWAP ARRANGEMENT FOR THE FOREX LINE AFTER THE PROJECT CASH FLOWS ARE COMFORTABLE. (d)GENERATION OF LARGE SURPLUSES, CAN BE

EFFECTIVELY UTILISED TO RETIRE FOREX LOANS AT OPPORTUNE TIME DURING THE LIFE OF THE PROJECT, I.E. EXERCISE PRE-MATURE REPAYMENT IF DEEMED FIT (6)INTEREST RATE RISK DETERMINATION OF PROJECT VIABILITY IS PREDICATED ON THE EXISTING INTEREST RATE SCENARIO PREVAILING. A

DRASTIC CHANGE IN THE INTEREST RATE SCENARIO COULD

ADVERSELY IMPACT THE PROFITABILITY. HOWEVER, GIVEN THE HIGH INTEREST RATE REGIME PREVAILING TODAY, IT IS ANTICIPATED THAT INTEREST RATE WOULD REDUCE IN THE FUTURE YEARS. (7)DEBT SERVICING: (a)DEBT SERVICE COVERAGE RATIO (DSCR)

(i)

INFRASTRUCTURE PROJECTS ARE MORE AMENABLE TO A FINANCIAL ANALYSIS BASED ON CASH FLOWS RATHER THAN ON THE BASIS OF CONVENTIONAL PROFITABILITY. THE DEBT INSTRUMENTS HAVE

BEEN STRUCTURED ACCORDINGLY, TO TAKE IN ACCOUNT THE BUILD UP OF THE PROJECT

REVENUES OVER A SPAN OF TIME.

(ii)

CASH FLOWS FROM INFRASTRUCTURE PROJECTS TENDS TO BE TYPICALLY SKEWED BACKWARDS IN TIME. FOR SUCH PROJECTS, IT WOULD BE

APPROPRIATE TO COMPUTE THE DSCR ON THE BASIS OF CUMULATIVE CASH FLOWS. FOR THE

PURPOSES OF COMPUTING THE DSCR BASED ON

THE CUMULATIVE CASH FLOWS, THE BALANCE CASH FLOWS OF THE PREVIOUS YEARS NET OF ALL EXPENSES AND DEBT OBLIGATIONS ARE ALSO TAKEN INTO ACCOUNT FOR THE PURPOSES OF CASH AVAILABILITY.

(iii)

HENCE, THE DSCR HAS BEEN COMPUTED ON THE BASIS OF THE TWO APPROACHES I.E. BASED ON THE CURRENT YEARS CASH FLOWS AND ON THE BASIS OF THE CUMULATIVE FLOWS.

(iv)

A SUMMARY OF DSCR FOR THE PROJECT IS PROVIDED BELOW:-

YEA R 1 3 5 10 15 20

DSCR 0.83 0.94 0.63 2.20 4.75 -

CUMULATIVE DSCR 0.83 0.92 0.87 1.4 2.25 4.12

NOTE: THE DSCR IS DEFINED AS THE RATIO OF THE CASH FLOW FROM OPERATIONS TO THE DEBT SERVICING FOR THE YEAR. DEBT SERVICING INCLUDES INTEREST PAYMENTS, REDEMPTION, PREMIUM, PRINCIPAL REPAYMENT AND ANY OTHER PAYMENTS TO THE LENDERS.

AS CAN BE SEED FROM THE ABOVE TABLE THE SERVICING CAPACITY IS RESTRICTED IN THE FIRST FIVE YEARS. SHARP UNEXPECTED CHANGES OF THE HENCE

UNDERLYING

ASSUMPTIONS IN THE INITIAL YEARS COULD HAVE AN ADVERSE IMPACT ON THE DEBT SERVICING AND WOULD NEED REQUISITE MITIGATORY MEASURE.

(V) EQUITY INVESTORS

THE

RETURNS

TO

EQUITY

INVESTORS

ARE

ESSENTIALLY IN THE FORM OF DIVIDEND PAYOUTS. DUE TO THE BACKENDED NATURE OF PROJECT CASH FLOWS, THE EQUITY INVESTORS WOULD NOT BE ABLE TO GET ANY SIGNIFICANT RETURN ON THEIR

INVESTMENTS TILL A SIGNIFICANT PORTION OF DEBT HAS BEEN REDEEMED.

(VI) RETURN ON NET WORTH

THE FIXED COSTS IN THE INITIAL YEARS RELATIVE TO THE PROJECT REVENUES ARE SIGNIFICANTLY LARGE DUE TO THE ACCRUED INTEREST ON PROJECT LOANS RESULTING IN A NEGATIVE PROFITABILITY IN THE INITIAL YEARS. WORTH IS AS A RESULT, THE RETURN ON NET IN THE INITIAL YEARS.

NEGATIVE

EVENTUALLY THE NET WORTH STARTS IMPROVING AS IT REACHES 20% IN THE 10TH YEAR AND 72% IN THE 15TH YEARS.

2.0

CONCLUSION:

(1)THE

VADODARA-HALOL

ROAD

PROJECT

PROVIDED

GOVERNMENT OF GUJARAT WITH A UNIQUE OPPORTUNITY TO IMPLEMENT THE CONCEPT OF STRENGTHENING AND WIDENING OF EXISTING ROAD SECTIONS ON A COMMERCIAL

FORMAT. THE LEGAL STRUCTURE ENVISAGED FOR THE PROJECT WHEREIN THE PROJECT IS PROPOSED TO BE DOMICILED IN A SPECIAL PURPOSE VEHICLE WOULD

PROVIDE THE APPROPRIATE STRUCTURE TO INDUCT OTHER STRATEGIC INTEREST INTO THE PROJECT, BOTH FROM A FINANCING AND TECHNO-COMMERCIAL PERSPECTIVE.

SUCH A STRUCTURE WOULD ALSO ALLOW GOVERNMENT OF GUJARAT TO LEVERAGE ITS CONTRIBUTION TO THE

PROJECT MANIFOLD TIMES.

(2)GIVEN THE CONCERNS OF THE GOVERNMENT, THAT THE PROJECT ADEQUATELY ADDRESSED ISSUES CONCERNING THE LOCAL POPULATION, THE PROJECT HAS BEEN

CONCEIVED WITH THE PROVISION OF SERVICE ROADS, INTEGRATED INTO THE PROJECT CONCEPT. PROVISION OF SERVICE ROADS WOULD EFFECTIVELY SEGREGATE SLOWMOVING TRAFFIC FROM THE FAST MOVING VEHICLES, HENCE CONTRIBUTING TO OVERALL SAFETY OF THE

SYSTEM, AND ALSO SERVE TO BENEFIT THE LOCAL TRIPS. SUCH A PROVISION, AS CONCEIVED UNDER OPTION 3, POSITIONS THE PROJECT CONCEPT WITH A HIGHER LEVEL

OF SERVICE, ECONOMICALLY AND COMMERCIALLY VIABLE, AND WITH MINIMAL GOVERNMENT SUPPORT ON A NON SUBSIDISED BASIS.

FINANCIAL PLAN

INTRODUCTION:

(i)

THE FINANCING STRUCTURE FOR ANY BOOT PROJECT IS INEXTRICABLY LINKED TO THE ESTIMATED REVENUE

GENERATION OVER A PERIOD OF TIME. IN ACCORDANCE WITH THE ACCEPTED GOVERNMENT POSITION ON

COMMERCIALISATION OF INFRASTRUCTURE PROJECTS, THE CONCESSIONAIRE COMMERCIAL RATE IS OF PERMITTED RETURN ON A DESIGNATED THE PROJECT.

PURSUANT TO ACHIEVING THIS BENCHMARK RATE OF RETURN THE PROJECT WOULD REVERT TO THE ROADS

AND BUILDINGS DEPARTMENT, GOVERNMENT OF GUJARAT. (ii) THE FINANCING PLAN FOR THE VADODARA HALOL PROJECT HAS THEREFORE BEEN STRUCTURED BASED ON A NUMBER

OF FACTORS INCLUDING INTERALIA , THE PROJECT CASH FLOWS, THE ACCEPTABLE GEARING IN OF THE INDIAN

FINANCIAL

MARKETS,AVAILABILITY

REQUISITE

RESOURCES FROM VARIOUS SOURCES, TERMS OF SUCH FUNDS FOR INFRASTRUCTURE PROJECTS AND DIFFERENT RISK PROFILES OF THE INVESTORS / LENDERS.

FRAMEWORK

(i)

RATIONALE :

THE KEY FACTORS IN ENSURING THE SECCESS OF THE PROJECT, ESSENTIALLY RELATE TO THE AVAILABILITY AND SUSTAINABILITY OF PROJECTED CASH FLOWS OVER THE TENURE OF THE CONCESSION PERIOD. THE CASH FLOWS, IN TURN, DEPEND ON THE ACTUALISATION OF TRAFFIC

PROJECTIONS INTO REALITY , AS WELL AS THE ABILITY OF THE CONCESSIONAIRE TO LEVY TOLLS AND COLLECT THE PROJECTED TOLL REVENUES. IN OUR VIEW, THESE TWO FACTORS ARE EXTREMELY CRITICAL AND HAVE SERVED TO

PROVIDE THE FRAMEWORK FOR THE PROPOSED FINANCING STRUCTURE.

(ii)

BUSINESS RISK :

(a)

INFRASTRUCTURE PROJECTS ARE KEY FACILITIES WHERE THE NEED FOR THE FACILITY IS ESSENTIAL AND THE DEMAND IS DEPENDANT UPON

MACROECONOMIC FACTORS. E.G IN CASE OF ROAD PROJECTS, THE EXTENT OF USAGE OF THE ROAD WOULD BE DETERMINED DEVELOPMENT BY IN THE THE LOCATION AND

INDUSTRIAL

REGION

VARIOUS OTHER FACTORS. (b) THE PROPOSED VADODARA HALOL ROAD IS THE KEY LINK BETWEEN VADODARA AND THE INDUSTRIAL TOWN HALOL . THE REGION HAS BEEN FAIRLY PROGRESSIVE IN INDUSTRIAL DEVELOPMENT OF RESULTING IN A

SIGNIFICANT

VOLUME

COMMERCIAL

TRAFFIC

BETWEEN THE TWO TOWNS. THE PROPOSED TOLL ROAD WOULD OF SUBSTANTIALLY THE EXISTING UPGRADE FACILITY AND THE IS

CAPACITY

EXPECTED TO FURTHER PROMOTE THE DEVELOPMENT OF THE REGION . CONSEQUENTLY , THE BUSINESS RISK FOR THE PROJECT REGARDING ACTUALISATION OF TRAFFIC IS LOW. (c) TRADITIONALLY, INFRASTRUCTURE PROJECTS HAVE BEEN DEVELOPED WITH GOVERNMENT SUPPORT,

HENCE THE CONCEPT OF PAY AND USE DOES NOT EXIST. THE KEY BUSINESS RISK IS SUCH PROJECTS WOULD BE ACCEPTABILITY OF THE PAY AND USE CONCEPT

(iii)

PROJECT CASH FLOW PROFILE :

(a)

UNLIKE INDUSTRIAL FACILITIES WHERE THE DEMAND TENDS TO EXHIBIT BUSINESS CYCLES OVER MEDIUM TO LONG TERM, THE DEMAND FOR INFRASTRUCTURE FACILITIES IS DETERMINED BY MACROECONOMIC

FACTORS, WHEREIN , LONG-TERM TRENDS EXHIBIT STEADY GROWTH RATES RATHER THAN ANY CYCLICAL TRENDS

(b)

THE VADODARA HALOL PROJECT HAS BEEN DESIGNED TO PROVIDE SUFFICIENT ROAD CAPACITY FOR THE ANTICIPATED TRAFFIC GROWTH THROUGHOUT THE CONCESSION PERIOD. HENCE , IN THE INITIAL YEARS, THE TRAFFIC WOULD BE SUBSTANTIALLY LOWER THAN CAPACITY . THE RESULTANT IMPACT IS AVAILABILITY OF RELATIVELY LOW CASH FLOW IN THE INITIAL YEARS OF PROJECT OPERATION TOWARDS , WHICH END INCREASES OF THE

SIGNIFICANTLY

THE

CONCESSION PERIOD (c) THE BACKENDED NATURE OF CASH FLOWS RESULTS IN LONG PAYBACK PERIOD FOR THE PROJECT

(iv)

LEVERAGE :

(a)

INTERNATIONALLY, IT IS AN ACCEPTED PRACTICE TO LEVERAGE INFRASTRUCTURE PROJECTS WITH A

LARGE DEBT COMPONENT, WHICH OFTEN EXCEEDS WHAT IS OTHERWISE CONSIDERED AS PRUDENTIAL FOR INDUSTRIAL PROJECTS. THIS IS PRIMARILY DUE TO THE CONSIDERABLY LOWER POST CONSTRUCTION

RISK PROFILE OF AN INFRASTRUCTURE PROJECT. INTERNATIONAL INVESTORS HAVE TENDED TO VIEW RETURNS FROM INFRASTRUCTURE PROJECTS AS

STEADY AND RELATIVELY RISK FREE. A GEARING IN EXCESS OF 5:1 IS QUITE ACCEPTABLE IN

INTERNATIONAL MARKETS. THERE ARE A NUMBER OF INSTANCES WHERE PROJECTS WITH HIGH DEBT

FUNDING OF 90% HAVE ALSO BEEN IMPLEMENTED.

(b)

OTHERS / BENEFICIARY GROUPS

IT WOULD BE BENEFICIAL FOR THE PROJECT , AS CONCEIVED TO ENCOURAGE LOCAL OWNERSHIP . THERE IS A FAIR AMOUNT OF INDUSTRIAL ACTIVITY IN THE VADODARA HALOL REGION. THE INDUSTRIES LOCATED IN THE REGION WOULD BENEFIT

SIGNIFICANTLY FROM THE PROPOSED FACILITY DUE TO VARIOUS FACTORS INCLUDING LOWER

TRANSPORTATION COSTS. HENCE IT IS PROPOSED THAT THESE BENEFICIARY GROUPS PARTICIPATE IN THE PROJECT AS EQUITY INVESTORS, THOUGH THE

TOTAL PERCENTAGE TO BE SUBSCRIBED BY THEM IS NOT ANTICIPATED TO BE SUBSTANTIAL

OTHER INVESTORS COULD ALSO INCLUDE MUTUAL FUNDS AND INVESTMENT INSTITUTIONS. IT IS OUR ASSESSMENT THAT SUCH SUPPORT WOULD BE A SMALL PERCENTAGE OF EQUITY AT BEST 5-10% AS THE PROJECT HAS A LONG TENOR PERIOD WHICH DOES NOT IDEALLY FIT IN WITH THE INVESTMENT STRATEGY OF THESE INSTITUTIONS

(c)

RETAIL INVESTORS :

GIVEN THE LIMITED RETAIL PERCEPTION OF ROAD PROJECTS, IT IS OUR ASSESSMENT THAT IT WILL BE DIFFICULT TO ATTRACT PUBLIC INVESTORS TO

CONTRIBUTE TO THE EQUITY OF THE PROJECT IN THE INITIAL STAGE. HOWEVER, CONTRIBUTION BY THE PUBLIC COULD EVENTUALLY BE SOUGHT BY WAT OF DOWN LOADING EQUITY OF SOME OF THE PROJECT

SPONSORS AND INVESTMENT INSTITUTIONS AT AN APPROPRIATE JUNCTURE

(2)

AN INDICATIVE BREAK UP OF PROJECT SHAREHOLDING IS PROVIDED AS UNDER :

SHAREHOLDERS GOVERNMENT OF GUJARAT/NOMINEES 15 %

%SHARE 10-

IL & FS/INSTITUTIONAL INVESTORS/SPECIALITY FUNDS 35-40 % OPERATOR/SPONSOR CONSORTIUM 25 % OTHERS/BENEFICIARY AGENCY 25 % TOTAL 100

(3)

RETURN

(a)

THE EQUITY HOLDERS WOULD OBTAIN A RETURN ON THEIR INVESTMENT IN THE FORM OF DIVIDEND

PAYOUTS BY THE SPV. IT IS ESTIMATED THAT THE EQUITY HOLDERS WOULD EARN A RETURN OF ABOUT 20% ON THEIR INVESTMENT OVER THE CONCESSION PERIOD . HOWEVER, SINCE THE PAYMENTS TO THE EQUITY HOLDERS WOULD BE FROM RESIDUAL CASH FLOWS AFTER MEETING ALL OTHER OBLIGATIONS OF THE SPV THE UNMITIGATED RESIDUAL PROJECT RISK WOULD ESSENTIALLY BE BORNE BY THE EQUITY

INVESTORS. THE POSSIBILITY OF SUCH RISK ADVERSELY ERODING THE RETURN TO

SHAREHOLDERS IS TYPICALLY REMOTE (b) DIVIDENDS : DIVIDEND WOULD BE PAID OUT AS PER THE POLICY LAID DOWN BY THE BOARD OF DIRECTORS OF THE SPV . THE EXACT AMOUNT WOULD BE DECIDED IN CONSULTATION WITH THE TRUSTEES OF THE SPV.

(4)

DEBT RESOURCES :

(1)

RATIONALE

(a)

THE DEBT STRATEGY IS PREDICATED ON THE DEBT SERVICING CAPABILITY REPRESENTED BY THE PROJECT CASH FLOW PROFILE. IT IS BE

ENVISAGED

THAT THE PROJECT

WOULD

FINANCED ON A PROJECT RECOURSE BASIS WITH MINIMAL CREDIT ENHANCEMENTS, IF REQUIRED . THE DEBT WOULD BE SERVICED ENTIRELY OUT OF THE TOLL REVENUES AFTER MEETING THE OPERATION, MAINTENANCE AND OTHER

ADMINISTRATIVE EXPENSES OF THE SPV (b) SINCE THE RECOURSE OF THE DEBT HOLDERS WOULD BE LIMITED TO THE PROJECT CASH FLOWS, WITH MINIMAL CREDIT ENHANCEMENTS, IF ANY, THE RISK UNDERTAKEN BY THE LENDERS WOULD BE HIGH IN COMPARISON WITH THE TRADITIONAL LENDING PROFILE TYPICALLY

ADOPTED DOMESTICALLY. IN VIEW OF THIS, THE INSTRUMENTS HAVE BEEN STRUCTURED WITH VARYING RISK PROFILES, TO MEET THE

REQUIREMENTS OF DIFFERENT LENDERS

(c)

TO

THIS

EXTENT,

INCREMENTALITY

OF

RESOURCES COULD BE ACHIEVED THROUGH OBTAINING FOREIGN EXCHANGE DENOMINATED RESOURCES. FOREIGN EXCHANGE LOANS ARE AVAILABLE FOR RELATIVELY LONGER TERMS AND ARE TODAY SIGNIFICANTLY CHEAPER OF THAN SUCH WOULD

RUPEE FUNDS

RESOURCES. AT LIBOR

AVAILABILITY RELATED

RATES

PROVIDE SIGNIFICANT BENEFIT TO THE PROJECT CASH FLOW PROFILE IN THE INITIAL YEARS. IN THE ABSENCE OF EFFECTIVE FOREX RISK HEDGE MECHANISMS FOREX DENOMINATED DEBT COULD EXPOSE THE PROJECT TO RUPEE DEVALUATION RISK. ACCORDINGLY, A JUDICIOUS MIX OF RUPEE AND FOREX DEBT HAS BEEN STRUCTURED AFTER CONSIDERING THE RELATED RISKS AND BENEFITS (d) THE BALANCE FUNDS REQUIREMENT ARE

PROPOSED TO BE RAISED FROM TRADITIONAL SOURCES LIKE TERM LOANS FROM BANKS AND INTITITUTIONS. HOWEVER THE NON AVAILABILITY OF LONG TERM RESOURCES TO MATCH THE

PROJECT

CASH THE

FLOW NEED

PROFILE FOR

WOULD OF

NECESSITATE

SUPPORT

GOVERNMENT OF GUJARAT IN THE FORM OF STRUCTURED LONG TERM PROJECT LOANS RISK. THE PROJECT FOREX RISK COULD BE REDUCED LATER DURING THE OPERATION PERIOD WHEN THE CASH FLOW POSITION IS COMFORTABLE THROUGH A SWAP MECHANISM

(5)

ECA

CREDIT

THE A

CURRENT

PROJECT OF

IS NOT FUNDING

AMENABLE

TO

LARGE

VOLUME

THROUGH EXPORT CREDIT AGENCIES AS IMPORT OF EQUIPMENT FOR THE PROJECT IS LIMITED. THUS THE ECA CREDIT HAS BEEN ASSUMED AT A RELATIVELY LOWER LEVEL

(6)

DEEP DISCOUNT BONDS

(a)

THE

DEEP

DISCOUNT WITH A

BONDS BACK

HAVE

BEEN ENDED

STRUCTURED

REDEMPTION PROFILE , GIVEN THE NATURE OF

PROJECT CASH FLOWS. THE

DEEP DISCOUNT

BOND WOULD PROVIDE A YIELD TO MATURITY OF APPROXIMATELY 16.75% TO THE INVESTORS (b) IN CASE THE CASH FLOWS OF THE PROJECT ARE HIGHER THAN THE PRESENT ESTIMATES, THE DDBS COULD BE REDEEMED EARLIER THAN THE TARGETED DATES, HENCE INCREASING THE

EFFECTIVE YIELD ON THE INVESTMENT (c) THE DDBS ARE STRUCTERED SUCH THAT THE ENTIRE REPAYMENTS WOULD BE COMPLETE BY THE END OF THE FOURTEENTH YEAR FROM THE DATE OF ISSUE . THE INSTRUMENT WOULD BE TARGETED AT INVESTMENT COMPANIES BANKS, TRUSTS AND MUTUAL FUNDS WHO LOOK TO INCLUDE SUCH INVESTMENT AS A PART OF THEIR PORTFOLIO IN LONG TERM INSTRUMENTS

(7)

DOMESTIC FINANCIAL INSTITUTIONAL :

IT IS ENVISAGED THAT THE DOMESTIC INSTITUTIONS WOULD PROVIDE RUPEE RESOURCES TO THE EXTENT

OF 14% DEBT FUNDS.AS PER THE EXISTING NORMS IT IS EXPECTED THAT LOANS FROM DOMESTIC

INSTITUTIONS WOULD BE AVAILABLE FOR A MAXIMUM PERIOD OF 10 YEARS.

(8)

GOVERNMENT OF GUJARAT :

(a)

FOR PURPOSES OF DETERMINING THE FINANCIAL FEASIBILITY VARIOUS OF THE PROJECT TERM UNDER LOAN THE FROM

OPTIONS

GOVERNMENT OF GUJARAT IS ENVISAGED AT RS 100 MN. THE TERM OF LOAN FROM HAS THE BEEN

GOVERNMENT

GUJARAT

STRUCTURED TO LEVERAGE ON OTHER SENIOR DEBT SUPPORT TO THE PROJECT. THE LOAN HOWEVER IS STRUCTURED TO PROVIDE FOR STEPPED UP INTEREST RATES IN LINE WITH THE CASH FLOW PROFILE OF THE PROJECT AND HENCE BE SERVICED AT RATES WHICH ARE HIGHER THAN TREASURY PROFILE. THE LOAN

WOULD RANK PARI- PASU WITH OTHER PROJECT LOANS THE INDICATIVE TERMS AND CONDITIONS EXPECTED FOR THE VARIOUS LOAN COMPONENTS ARE SUMMARISED AS UNDER :

INSTRUMEN TS

TOTAL TENOR

MORATORI CURRENC UM Y OF

COST

INCLUDIN INCLUDING DENOMINA G MORATO RIUM (YEARS II&FSWORLD BANK LINE ECA DEEP DISCOUNT BOND FINANCIAL INSTITUTION S GOVT.OF 20 11 INR 16.00 % 10 3 INR 18.25 % 8 13 0 9 USD INR 1,4350BP 16.75 % ) 19 4 CONSTRU CTION (YEARS) USD (%) 1,1350BP TION

GUJARAT

(9)

INDICATIVE FINANCIAL PLAN :

(1)

THE DETAILED FEASIBILITY STUDY HAS INDICATED OPTION 3 AS THE MOST VIABLE OPTION. KEEPING IN VIEW THE ABOVE FACTORS, AN OPTIMAL FINANCIAL PLAN FOR FINANCING THE PROJECT FOR OPTION 3 HAS BEEN DRAWN UP. THE FINANCIAL PLAN FORMULATED ATTEMPTS TO ACHIEVE AN OPTIMAL BALANCE BETWEEN

VARIOUS SOURCES OF DEBT AND EQUITY FUNDS, GIVEN THE FRAMEWORK OF RESOURCE

MOBILISATION AND THE PROJECT CASH FLOW PROFILE (2) KEEPING IN VIEW THE ABOVE FACTORS, IT IS ENVISAGED THAT THE PROJECT WOULD BE

FINANCED AT A DEBT EQUITY RATIO OF 2:1. WITH THE LANDED PROJECT COST BEING RS.1394 MN, THE PROPOSED GEARING RESULTS IN A BROAD FINANCIAL STRUCTURE AS UNDER :

AMT (RS MN) DEBT 919 EQUITY 475 SUBSIDY / GRANT FROM GOG TOTAL 1394

PERE. TO TOTAL 66 % 34 % 100 %

THE INDICATIVE DEBT MOBILISATION PLAN IS PROPOSED TO BE:

(RS. MN) DEBT SOURCES AMOUNT % OF % OF

TOTAL LOANS FX DENOMINATED IL&FS WORLD BANK 325 35

LANDED COST 23

LINE ECA

CREDIT

(THRU 100 425

11 46 22 21 11 54 100

7 30 15 14 7 36 66

CONTRACTOR) TOTAL FOREIGN

RUPEE DENOMINATED DEEP DISCOUNT BONDS 200 DOMESTIC FINANCIAL 194 INSTITUTION GOVT. OF GUJARAT TOTAL DOMESTIC TOTAL DEBT 100 494 919

EQUITY CONTRIBUTION

SHAREHOLDERS GOVERNMENT

AMT. MN) OF 48

(RS. % SHARE 10% 40% 25% 25% 100%

GUJARAT/NOMINEES IL&FS / INSTITUTIONAL 190 INVESTORS / SPECIALLY FUNDS OPERATOR / SPONSOR 118 CONSORTIUM OTHERS / BENEFICIARY AGENCY TOTAL 119 475

ROLE OF GOVERNMENT OF GUJARAT

(1)THE INVOLVEMENT OF GOVERNMENT OF GUJARAT IN THE PROJECT ASSUMES SPECIAL SIGNIFICANCE GIVEN THE

NATURE OF THE PROJECT. HOWEVER, UNLIKE TRADITIONAL PROJECTS, IT IS PROPOSED THAT THE INVOLVEMENT OF THE GOVERNMENT WOULD BE ON A COMMERCIAL FORMAT

WITHOUT ANY SUBSIDY SUPPORT. (2)THE ECONOMIC BENEFITS OF INTEGRATING SERVICE ROADS IN THE PROJECT CONCEPT, WITH A VIEW TO EFFECTIVELY SEGREGATE TRAFFIC AND ADDRESS THE CONCERNS OF THE LOCAL POPULATION, HAVE BEEN DISCUSSED IN DETAIL IN THE DETAILED FEASIBILITY STUDY FOR THE PROJECT. FURTHER, GIVEN THE GROWING LEVEL OF INDUSTRIALISATION IN THE PROJECT INFLUENCE AREA AND MORE SO IN THE INDUSTRIAL ESTATE AT HALOL, SUCH DEVELOPMENT WOULD GET THE REQUISITE FILLIP THROUGH THE PROVISION OF BETTER INFRASTRUCTURE FACILITIES. HENCE, THE PROJECT IS

EXPECTED TO CONTRIBUTE SIGNIFICANTLY TO THE PROCESS OF ONGOING INDUSTRIALISATION.

INDICATIVE TERM SHEET SUPPLIERS CREDIT

(A BORROWER ) (B DENOMINATION )

THE SPV

THE

LOAN

WOULD IN USD

BE OR

DENOMINATED OTHER DEPENDING ON

CURRENCY THE HOST

COUNTRY OF THE SUPPLIER INTEREST RATE : L= 350 BPS, DENOMINATED IN USD ON OUTSTANDING AMOUNT AND IF SIX

PRINCIPAL

OUTSTANDING ANY,

INTEREST, WITH

PAYABLE

MONTHLY RESTS, IN ARREARS. (D TENURE ) : TEN YEARS FROM THE DATE OF DRAWDOWN, INCLUDING

CONSTRUCTION PERIOD (E REPAYMENT ) : EQUAL HALF YEARLY

INSTALMENTS

DENOMINATED

IN USD FOR A PERIOD OF 8 YEARS POST COMMISSIONING (F ) PURPOSE : TO FINANCE THE

CONSTRUCTION OF A 31.6 KM TOLL ROAD AND BETWEEN HALOL IN

VADODARA

GUJARAT STATE (G PRINCIPAL ) SECURITY : THE TL WOULD BE SECURED BY A PARI ON PASSU THE FIRST

CHARGE

PROJECT

ASSETS. IN THE EVENT OF A SHORTFALL REVENUES, IN THE PROJECT LENDER

WOULD HAVE A RECOURSE TO THE PROJECT REVENUES.

TERM SHEET - DEEP DISCOUNT BONDS (DDB)

(A ISSUER ) (B ISSUE PRICE ) REDEMPTION PRICE

: THE SPV

: RS.10,000/-

: RS.50,000/: IN 4 EQUAL INSTALMENTS OF RS.12,500/- AT THE END OF THE 10TH, 11TH, 12TH, & 13TH YEAR FROM THE DATE OF ISSU.

(D REDEMPTION ) SCHEDULE

(E TARGET YIELD ) (F ) PURPOSE

: 16.73%

ON

YIELD

TO

MATURITY BASIS : TO FINANCE THE

CONSTRUCTION OF A 31.6 KM TOLL ROD AND BETWEEN HALOL IN

VADODARA

GUJARAT STATE (G TARGET ) REDEMPTION : THE REDEMPTION OF THE DDB WOULD BE ENTIRELY

DEPENDENT ON THE PROJECT CASH FLOWS. THE TABLE

BELOW

SUMMARISES

THE

TARGET PAYMENT SCHEDULE YEAR FOR THE DDB PAYMENT AS %AGE OF ISSUE PRICE 1 TO 9 10-13 (H LISTING OF DDB ) 0 125 EACH YR : THE DDBS ARE PROPOSED TO BE LISTED ON THE NATIONAL STOCK EXCHANGE OF INDIA (NSE) (I) PRINCIPAL SECURITY : THE DDBS WOULD BE

SECURED BY A PARI PASSU FIRST CHARGE ON THE

PROJECT ASSETS.

IN THE

EVENT OF A SHORTFALL IN PROJECT RECOURSE TO THE PROJECT REVENUES

INDICATIVE TERM SHEET TERM LOAN FROM INSTITUTIONS

(A) BORROWER (B) COUPON RATE

: :

THE SPV INTEREST @ 18.25% PA ON THE PRINCIPAL THE OUTSTANDING AMOUNT AND

OUTSTANDING

INTEREST, IF ANY, PAYABLE WITH SIX MONTHLY RESTS IN ARREARS TENURE : 10 YEARS, FROM DATE OF

DRAWDOWN, INCLUDING (I) CONSTRUCTION PERIOD (II ) MORATORIUM YEARS COMMISSIONING (D) REPAYMENT : 14 EQUAL YEARLY OVER 7 FOR TWO POST

INSTALMENTS YEARS (E) PURPOSE : TO

FINANCE

THE

CONSTRUCTION OF A 31.6 KM TOLL ROAD BETWEEN VADODARA AND HALOL IN

GUJARAT STATE (F) PRINCIPAL SECURITY : THE TL WOULD BE SECURED BY A PARI PASSU FIRST CHARGE ON THE PROJECT ASSETS. IN THE EVENT OF A SHORTFALL REVENUES, IN THE PROJECT LENDER

WOULD HAVE A RECOURSE TO THE PROJECT

REVENUES.

INDICATIVE TERM SHEET TERM LOAN FROM GOVT. OF GUJARAT

(A) BORROWER (B) COUPON RATE

: :

THE SPV INTEREST ON THE AMOUNT OUTSTANDING WILL BE

PAYABLE AT A STEPPED UP RATE OF INTEREST, WITH

SIX

MONTHLY

RESTS THE

IN

ARREARS.

TABLE

BELOW SUMMARISES THE TARGET INTEREST

PAYMENT SCHEDULE FOR THE LOAN YE AR 1-6 711 1220 INTEREST WOULD BE PAID ON THE OUTSTANDING AMOUNT AND INTEREST RATE (%) 1 10 110

PRINCIPAL THE

OUTSTANDING

INTEREST, IF ANY. YIELD GOVERNMENT (D) TENURE : 20 YEARS, FROM DATE OF DRAWDOWN INCLUDING TO : 16%

MORATORIUM FOR FIRST 11 YEARS INCLUDING THE

CONSTRUCTION PERIOD (E) REPAYMENT : 18 EQUAL HALF YEARLY

INSTALMENTS OVER THE 9 YEARS AFTER THE

MORATORIUM PERIOD (F) PURPOSE : TO FINANCE THE

CONSTRUCTION OF A 31.6 KM TOLL ROAD BETWEEN VADODARA AND HALOL IN GUJARAT STATE (G) PRINCIPAL SECURITY : THE TL WOULD BE

SECURED BY A PARI PASSU FIRST CHARGE ON THE

PROJECT ASSETS.

IN THE

EVENT OF A SHORTFALL IN PROJECT REVENUES, THE LENDER WOULD TO HAVE A

RECOURSE

THE

PROJECT REVENUES.

07

THE MAIN PURPOSE OF THE STUDY, BESIDES ACADEMIC INTEREST, IS TO EXPLORE THE SCOPE OF PROJECT FINANCING IN THE INFRASTRUCTURE PROJECTS IN INDIA AND TO GET A BETTER INSIGHT OF THE TOTAL VOLUME AND VALUE OF INFRASTRUCTURE PROJECTS AND ITS DIRECTION. ALONG WITH THE NEW TRADE PRACTICES BEING INTRODUCED BY THE INDIAN GOVERNMENT AND THE STUDY OF PERFORMANCE OF PRIVATE SECTOR AND ITS STAND IN THE PROJECT MARKETS AND AN ANALYSIS OF THE POLICY AND PROCEDURE OF THE PROJECT FINANCING. SPECIAL EMPHASIS IS ON THE FINANCING OPTIONS AND

POLICIES & PERFORMANCE OF THE PUNJ LLOYD LIMITED IN THE

PRESENT ENVIRONMENT OF LIBERALISATION AND ECONOMIC REFORMS.

08

STATEMENT OF HYPOTHESIS AFTER COLLECTION, PRESENTATION AND TABULATION OF DATA AND DELIBERATE NARRATIONS, THE STUDY WOULD

REFLECT THE STAND OF PUNJ LLOYD LIMITEDS PROJECT EXECUTION FUNCTION AND THE COMPARATIVE ADVANTAGES DERIVED FROM THE SAID REFORMS AND LIBERALISATION. AND MAKE AN ATTEMPT TO OFFER SUGGESTIONS WHERE

IMPROVEMENTS CAN BE DONE TO OPTIMISE THE FINANCE ACTIVITY, PROFITS AND THE EFFICIENCY AND REDUCTION IN THE IMPACT OF THE COMMITTED COST OF FINANCE ON THE PROJECTS UNDER EXECUTION.

09

RATIONALE IN THIS ERA OF LIBERALIZATION AND ECONOMIC REFORMS WHERE THE CATCH WORDS ARE THE PRICES, QUALITY,

QUANTITY, AND AVAILABILITY. THE

HANDICAP IS THE GLOBAL

COMPETITION THE READY AVAILABILITY OF THE FINANCE, EQUIPMENT AND RAW MATERIALS AT THE RIGHT PLACE, AT THE RIGHT TIME & AT THE RIGHT COST GIVES THE COMPANY A COMPETITIVE EDGE OVER THE COMPETITORS. THE COMPETITION AT THE MARKET END IS WITH THE COMPANIES LIKE LARSEN & TOUBRO AND OTHER FOREIGN CONCERNS, THEREFORE THE WEIGHT OF THE SUCCESS LIES ON THE SHOULDERS OF THE FINANCE DEPARTMENT TO PROVIDE FOR THE BEST ADEQUATE FUNDS AT THE RIGHT TIME IN ORDER TO AVOID THE COST AND TIME OVERRUNS. BESIDES, REDUCING THE RISK, AND OPTIMISING THE FINANCIAL LEVERAGE.

10 DEFINITIONS OF TECHNICALTERMS & ACRONYMS

ACCOUNT RECIEVABLE PERSON FROM WHOM AMOUNTS ARE DUE FOR GOODS SOLD OR SERVICES RENDERED OR IN RESPECT OF CONTRACTUAL

OBLIGATION. ALSO TERMED AS SUNDRY DEBTOR, DEBTOR, TRADE DEBTOR.

ACCUMULATED DEPRICIATION THE TOTAL OF DATE OF PERIODIC DEPRICIATION CHARGES ON DEPRICIABLE ASSETS.

ADDED VALUE THE INCREASE IN VALUE OF PRODUCT OR SERVICES RESULTING FROM AN ALTERATION IN, LOCATION OR AVAILABILITY

EXCLUDING THE COST OF BOUGHT MATERIAL OR SERVICES.

AMORTISATION THE GRADUAL AND SYSTEMATIC WRITING OFF OF AN ASSET OR AN ACCOUNT OVER AN APPROPRIATE PERIOD. THE AMOUNT ON

WHICH AMORTISATION IS PROVIDED IS REFERRED TO AS AMORTISATION AMOUNT.

ANNUAL REPORT THE INFORMATION PROVIDED ANNUALLY BY THE MANAGEMENT OF ENTERPRISE TO THE OWNERS AND OTHER INTERESTED PERSONSCONCERNING POSITION. IT ITS OPERATIONS AND FINANCIAL

INCLUDES

THE

INFORMATION

STATUTORILY

REQUIRED, E.G, IN THE CASE OF COMPANY THE BALANCE SHEET P&L STATEMENT AND NOTES ON ACCOUNTS, AUDITORS REPORT THEREON, AND THE REPORT OF BOARD OF DIRECTORS. IT ALSO INCLUDES OTHER INFORMATION VOLUNTARILY PROVIDED, E.G., VALUE ADDED STATEMENT, GRAPHS, CHARTS, ETC

APPROPRIATION ACCOUNTS AN ACCOUNT SOMETIMES INCLUDED AS A SEPARATE SECTION OF THE P&L STATEMENT SHOWING APPLICATION OF PROJECT TOWARDS DIVIDENDS, RESERVES ETC.

ASSETS

TANGIBLE OBJECTS OR INTANGIBLE RIGHTS OWNED BY AN ENTERPRISE AND CARRYING PROBABLE FUTURE BENEFITS.

AUTHERISED SHARE CAPITAL THE NUMBER AND PAR VALUE, OF EACH CLASS OF SHARESTHAT AN ENTERPRISE MAY ISSUE IN ACCORDANCE WITH ITS

INSTRUMENT OF INCORPORATION.THIS IS SOMETIMES REFERRED AUTHERISED SHARE CAPITAL TO AS NOMINEL SHARE CAPITAL.

BAD DEBT DEBTS OWED TO AN ENTERPRISE WHICH ARE CONSIDERED TO BE IRRECOVERABLE.

BALANCE SHEET A STATEMENT OF FINANCIAL POSITION OF AN ENTERPRISE AS AT AGIVEN DATE, WHICH EXHIBITS ITS ASSETS, LIABILITIES, CAPITAL,

RESERVES

AND

OTHER

ACCOUNT

BALANCES

AT

THEIR

RESPECTIVE BOOK VALUE.

BONUS SHARE SHARES ALLOTED BY CAPITALISATION OF THE RESERVES OR SURPLUSES OF A CORPORATE ENTERPRISE.

CALLED UP SHARE CAPITAL THE PART OF SUBSCRIBED SHARE CAPITAL WHICH

SHAREHOLDER HAVE BEEN REQUIRED TO PAY.

CAPITAL GENERALLY REFER TO THE AMOUNT INVESTED IN AN

ENTERPRISE BY ITS OWNERS E.G. PAID UP SHARE CAPITAL IN A CORPORATE ENTERPRISE.IT IS ALSO USED TO REFER TO THE INTEREST OF OWNERS IN THE ASSET OF AN ENTERPRISE.

CAPITAL ASSETS

ASSETS

INCLUDING

INVESTMENTS

NOT

HELD

FOR

SALE,

CONVERSION OR CONSUMPTION IN THE ORDINARY COURSE OF BUSINESS.

CAPITAL EMPLOYED THE FINANCES DEPLOYED BY AN ENTERPRISE IN ITS NET FIXED ASSETS, INVESTMENTS IN AN AND WORKING MAY, CAPITAL. CAPITAL EXCLUDE

EMPLOYED

OPERATION

HOWEVER,

INVESTMENTS MADE OUTSIDE THAT OPERATION.

CAPITAL PROFIT EXCESS OF PROCEEDS REALISED FROM THE SALE, TRANSFER, OR EXCHANGE OF THE WHOLE OR A PART OF A CAPITAL ASSET OVER ITS COST. WHEN THE RESULT OF THE COMPUTATION IS NEGATIVE, IT IS REFFERED TO AS CAPITAL LOSS.

CHANGES IN FINANCIAL POSITION ,STATEMT A FINANCIAL STATEMENT WHICH SUMMARISES, FOR THE PERIOD COVERED BY IT, THE CHANGES IN THE FINANCIAL POSITION INCLUDING THE SOURCES FROM WHICHFUNDS WERE OBTAINED

BY THE ENTERPRISE AND SPECIFIC USES TO WHICH SUCH FUNDS WERE APPLIED. THIS IS ALSO CALLED AS FUND FLOW

STATEMENT.

COST THE AMOUNT OF EXPENDITURE INCURRED ON OR

ATTRIBUTABLETO A SPECIFIED ARTICLE, PRODUCT OR ACTIVITY.

COST OF GOODS SOLD COST OF GOODS SOLD DURING AN ACCOUNTING PERIOD. IN MANUFACTURING MATERIALS; (2) OPERATION, IT INCLUDES (1) COST OF

LABOUR AND FACTORY OVERHEADS; SELLING

AND ADMINISTRATIVE EXPENSES ARE NORMALLY EXCLDED.

COST OF SALES COST OF GOODS SOLD PLUS SELLING AND ADMINISTRATIVE EXPENSES.

CURRENT ASSETS

CASH AND OTHER ASSETS THAT ARE EXPECTED TO BE CONVERTED INTO CASH OR CONSUMED IN THE PRODUCTION OF GOODS OR RENDERING OF SERVICES IN THE NORMAL COURSE OF BUSINESS.

CURRENT LIABILITY LIABILITY INCLUDING LOANS, DEPOSITS AND BANK OVERDRAFT WHICH FALLS DUE FOR PAYMENT IN A RELATIVELY SHORT PERIOD, NORMALLY NOT MORE THAN TWELVE MONTHS

DEBENTURE A FORMAL DOCCUMENT CONSTITUTING ACKNOWLEDGEMENT OF A DEBT BY AN ENTERPRISE, USUALLY GIVEN UNDER ITS COMMON SEAL AND CONTAINGING PROVISIONS REGARDING PAYMENT OF INTEREST, REPAYMENT OF PRINCIPAL AND SECURITY, IF ANY. IT IS TRANSFERABLE IN THE APPROPIATE MANNER.

DEPRICIATION

A MEASURE OF THE WEARING OUT, CONSUMPTION OF OTHER LOSS OF VALUE OF A DEPRITIABLE ASSET ARISING FROM USE, EFFLUXION OF TIME OR OBSOLESCENCE THROUGH

TECHNOLOGY AND MARKET CHANGES. IT IS ALLOCATED SO AS TO CHARGE A FAIR PROPORTION IN EACH ACCOUNTING PERIOD DURING THE USEFUL OF LIFE ASSETS OF THE ASSET. WHOSE IT INCLUDES LIFE IS

AMORTISATION

USEFUL

PREDETERMINED AND DEPLITION IF WAISTING ASSETS.

DIVIDEND A DISTRIBUTION TO SHAREHOLDERS OUT OF PROFITS OR RESERVE AVAILABLE FOR THIS PURPOSE.

EARNING PER SHARE THE EARNING IN MONETARY TERMS ATTRIBUTABLE TO EACH EQUITY SHARE, BASED ON NET PROFIT FOR THE PERIOD, BEFORE TAKING INTO ACCOUNT PRIOR PERIOD ITEMS,

EXTRAORDINARY ITEMS AND ADJESTMENT RESULTING FROM CHANGES IN ACCOUNTING POLICIES BUT AFTER DEDUCTING TAX APPROPRIATE THERTO AND PREFERENCE DIVIDENDS, DIVIDED

BY NUMBER OF EQUITY SHARES ISSUED AND RANKING FOR DIVIDEND IN RESPECT OF THAT PERIOD.

EQUITY SHARE A SHARE, WHICH IS NOT, A PREFERENCE SHARE. ALSO

SOMETIMES CALLED ORDINARY SHARE.

EXPENDITURE INCURRING A LIABILITY, DISBURSEMENT OF CASH OR TRANSFER OF PROPERTY FOR THE PURPOSE OF OBTAINING ASSETS, GOODS AND SERVICES.

EXPENSE A COST RELATING TO THE OPERATIONS OF AN ACCOUNTING PERIOD OR TO THE REVENUE EARNED DURING THE PERIOD OR THE BENEFITS OF WHICH DO NOT EXTEND BEYOND THAT PERIOD.

FIXED ASSET

ASSET HELD FOR THE PURPOSE OF PROVIDING OR PRODUCING GOODS OR SERVICES AND NOT HELD FOR RESALE IN THE NORMAL COURSE OF BUSINESS.

GOODWILL AN INTANGIBLE ASSET ARISING FROM BUSINESS CONNECTIONS OR TRADE NAME OR REPUTATION OF AN ENTERPRISE.

INCOME AND EXPENDITURE STATEMENT A FINANCIAL STATEMENT OFTEN PREPARED BY NON PROFIT MAKING ENTERPRISES LIKR CLUBS, ASSOCIATIONS ETC., TO PRESENT THEIR REVENUES AND EXPENSES FOR AN

ACCOUNTING PERIOD AND TO SHOW THE EXCESS OF REVENUES OVER EXPENSES (OR VICE VERSA) FOR THAT PERIOD. IT IS SIMILAR TO PROFIT AND LOSS STATEMENT AND IS ALSO CALLD REVENUE AND EXPENSE STATEMENT.

INTANGIBLE ASSET

ASSET WHICH DOES NOT HAVE A PHYSICAL IDENTITY, E.G., GOODWILL, PATENTS, COPYRIGHTS, ETC.

ISSUED SHARE CAPITAL THAT PORTION OF AUTHERISED SHARE CAPITAL, WHICH HAS ACTUALLY BEEN OFFERED FOR SUBSCRIPTION. THIS INCLUDES ANY BONUS SHARE ALLOTED BY THE CORPORATE ENTERPRISE.

LONG TERM LIABILITY LIABILITY WHICH DOES NOT FALL DUE FOR PAYMENT IN A RELATIVELY SHOT PERIOD, I.E., NORMALLY A PERIOD NOT MORE THAN TWELVE MONTHS.

NET ASSETS THE EXCESS OF BOOK VALUE OF ASSETS (OTHER THAN FICTIOUS ASSETS) OF AN ENTERPRISE OVER ITS LIABILITY\IES. THIS IS ALSO REFERRED TO AS NET WORTH OR SHAREHOLDERS FUNDS.

NET FIXED ASSETS

FIXED ASSETS LESS ACCUMULATED DEPRICIATION THEREON UPTO-DATE.

PAID UP SHARE CAPITAL THAT PART OF THE SUBSCRIBED SHARE CAPITAL FOR WHICH CONSIDERATION IN CASH OR OTHERWISE HAS BEEN RECEIVED. THIS INCLUDES BONUS SHARES ALLOTED BY THE CORPORATE ENTERPRISE.

PREFERENSE SHARE CAPITAL THE PART OF SHARE CAPITAL OF A CORPORATE ENTERPRISE WHICH ENJOYS PREFERENTIAL RIGHTS IN RESPECT IN RESPECT OF PAYMENTS OF FIXED DIVIDEND AND REPAYMENT OF CAPITAL. PREFERENSE SHARES MAY ALSO HAVE FULL OR PARTIAL PARTICIPATING RIGHTS IN SURPLUS PROFITS OR SURPLUS CAPITAL.

SALES TURNOVER THE AGGREGATE AMOUNT FOR WHICH SALES ARE EFFECTED OR DERVICES RENDERED BY AN ENTERPRISE. THE TERM GROSS

TURNOVER & NET TURNOVER(OR GROSS SALES OR NET SALES) ARE SOMETIMES USED TO DISTINGUISH THE SALES AGGREGATE BEFORE AND AFTER DEDUCTION OF RETURN AND TRASE DICOUNT.

SHARE CAPITAL AGGREGATE AMOUNT OF MONEY PAID OR CREDITED AS PAID ON THE SHARES & OR STOCK OF CORPORATE ENTERPRISE.

SUBSCRIBED SHARE CAPITAL THAT PORTION OF THE ISSED SHARE CAPITAL WHICH HAS ACTUALLY BEEN SUBSCRIBED & ALLOTED

WORKING CAPITAL THE FUNDS AVAILABLE FOR CONDUCTING DAY TODAY

OPERATIONS OF AN ENTERPRISE. ALSO REPRESENTED BY THE EXCESS OF CURRENT ASSETS OVER CURRENT LIABILITY

INCLUDING SHORT TERM LOANS.

11

1.6 SCOPE OF THE STUDY

OUR

STUDY

ENCOMPASS

THE

INDIAN

ASPECT

OF

INFRASTRUCTURE, THE INDIAN SCENARIO ALLOWS US TO PRECIPITATE THE PUNJ LLOYDS PERFORMANCE IN THE POST LIBERALISATION ERA ON A NATIONAL LEVEL. THE INDIAS PERFORMANCE AND ECONOMIC AND

COMMERCIAL REVIEW PROVIDES A BETTER CHANCE TO STUDY THE PERFORMANCE, POLICY AND PROCEDURES OF PUNJ LLOYD LTD. OUR AIM IS TO STUDY, WHATS HAPPENING IN INDIA AND IN PUNJ LLOYD LTD, THATS WHY THE TITLE PROJECT FINANCING A CASE STUDY FOR INFRASTRUCTURE PROJECTS WITH

SPECIAL REFERENCE TO PUNJ LLOYD LIMITED. LTD HAS BEEN SELECTED.

STATING THE FACTS ABOUT PUNJ LLOYD LTD, IN ISOLATION WOULD TOTALLY WITHOUT ANY BASE THATS WHY SUCH A COMPARISION IS MADE.

12 01.7 OUT LINE OF THE REMAINING CHAPTERS THE REMAINING CHAPTERS CRITICALLY STUDY THE

RELATED AND STATED SUBJECT MATTER WITH AN EYE ON PLL FUNCTIONS. IT INCLUDES REVIEWING OF THE RELATED

LITERATURE BASIS AND STYLE OF RESEARCH PRESENTATION AND RESULTS OF THE STUDY.

13 02. REVIEW OF RELATED LITRATURE

02.1.

CHAPTER SUMMARY THE CHAPTER OF THE NATURE OF STUDY HAS DEPICTED

THE NATURE OF THE FINANCE IN INDIA WITH RELATION TO THE PROJECT FINANCING IN THE INFRASTRUCTURE SECTOR AND THE PUNJ LLOYD LTDS STAND IN INDIAN ECONOMY ALONG WITH ITS

PROCEDURES AND POLICIES WHICH COMMENSURATE WITH THE EXISTING TRADE PRACTICES AROUND.

15 3.0. RESEARCH DEIGN AND METHODOLOGY # CHAPTER OVERVIEW OUR RESEARCH WAS A DETAILED AND SYSTEMATIC EFFORT WHICH CONSISTS OF DEFINING THE PROBLEM IN ITS ENTIRETY, COLLECTION PRESENTATION AND ANALYSIS OF THE DATA AND REACHING A CONCLUSION BASED ON THEM. OUR RESEARCH WAS FOCUSED ON THE PROBLEM STATED. FOR THE PURPOSE, THE TRADE (ESPECIALLY FINANCE) WAS DEFINED AS A GLOBAL CONCEPT. THE MAIN REASON OF SUCH ELABORATE PRESENTATION IS TO GIVE AN INSIGHT AND A FEEL OF THE SUBJECT INSTANTLY. THE READER WILL NOTE THAT HOW IT IS ATTEMPTED TO CONNECT THE EVOLUTION PARTICIPATION IN THE

INFRASTRUCTURE PROJECTS AT PUNJ LLOYD LTD LEVEL. THE IDEA IS TO SHOW A PATTERN OF POLICY MOVEMENT AT ALL LEVELS OF OPERATION.

03.2

RESTATEMENT OF THE PROBLEM AND HYPOTHESIS THE PROBLEM IS A DESCRIPTIVE ONE AND IT REQUIRES AN

ANALYSIS OF ALL THE ASPECTS OF THE TRADE TO GIVE A LUCID AND CLEAR PICTURE IN THE ENTIRETY. THE PROBLEM IS TO STUDY THE PROCEDURES AND POLICIES OF THE TRADE AND THE PUNJ LLOYD LTD. THE HYPOTHESIS REMAINS THAT THE COMPANY IS

OPERATING IN THE DYNAMIC ENVIRONMENT AND ANY CHANGE IN THE TRADE PRACTICE, PROCEDURES, POLICIES AND

PHILOSOPHIES GLOBALLY WILL HAVE A DIRECT EFFECT ON THE GROWTH OF THE COMPANY.

03.3 DESCRIPTION OF RESEARCH DESIGN THE RESEARCH DESIGN IS FORMULATED IN THE FORM OF TOP DOWN APPROACH, WHICH MEANS THAT THE PROBLEM AND THE FACTS RELATED LEVEL, TO THE IT ARE IS INITIATED FROM TO THE THE

THEORITICAL

SAME

CONNECTED

NARROWER ASPECTS OF THE TRADE WITHIN INDIA AND FURTHER BOILING DOWN TO PUNJ LLOYD LTD.

03.4 METHODOLOGICAL ASSUMPTIONS AND LIMITATIONS IT HAS BEEN PRESUMED THAT THE ENTIRE

INFRASTRUCTURE EXECUTION ACTIVITY IS A GLOBAL FUNCTION OF WHICH PUNJ LLOYD LIMITED IS A SMALL PLAYER, SO THE PROBLEM IS DEFINED AT THAT STAGE INITIALLY., THE SAID STUDY IS BEING DONE WITH LIMITATION OF TIME AND AREA OF OPERATION AND FOR THAT MATTER THE ELABORATION OF OTHER ASPECTS OF THE TRADE HAVE BEEN IGNORED. THE PRESENTATION OF THE FACTS AND FIGURES RELATE TO THE MAIN TEXT FULLY AND THE NON UNIFORMITY OF DATA (IN PERIOD AND STYLE) IS DUE TO THE REASON OF THE WIDE SOURCES OF DATA COLLECTION. FURTHER DATA PERTAINING TO THE FINANCE ACTIVITY IS NOT AVAILABLE AS THERE IS A TRANSITION IN THE INFORMATION

SYSTEMS AND DUE TO NON STRUCTURING OF THE MODULE DETAILS AS DESIRED WERE NOT AVAILABLE. ALSO THE COPY OF THE POLICY MANUAL IS STRICTLY

CONTROLLED AND FOR INTERNAL REFERENCE ONLY, ANY REFERENCE OR QUOTATION FROM THEREIN WERE NOT ADVISED.

HOWEVER SUPERFICIAL SUGGESTIONS OF THE POLICIES WERE ALLOWED WITH STRICT ADHERENCE TO THE NON DISCLOSURE.

CHAPTER SUMMARY THE CHAPTER SUGGESTS THE RESEARCH DESIGN

ADOPTED FOR THE PURPOSE OF ANALYSIS, THE HYPOTHESIS CREATED, THE ASSUMPTIONS MADE, AND THE LIMITATIONS FACED IN THE PROCESS OF MAKING THIS REPORT.

04.

SOURCES OF DATA

04.1 PRIMARY DATA THE PRIMARY DATA WAS COLLECTED FROM WITHIN THE COMPANY. THROUGH THE BALANCE SHEETS, SIGNED

CONTRACTS AND OTHER DATA IN THE DATA BASE OF THE COMPANY. THE OPINIONS AND SUGGESTIONS AND STATEMENTS OF THE PERSONNEL OF PLL HAS ALSO BEEN INCORPORATED. THE COLLECTION OF THE PRIMARY DATA WAS DIFFICULT TO OBTAIN AS THERE WAS A TIME CONSTRAINT AT BOTH THE ENDS.

04.2.

SECONDARY DATA

SECONDARY DATA WAS COLLECTED FROM VARIOUS BOOKS MAGAZINES JOURNALS PERIODICALS LAW BOOKS REFERENCERS BARE ACTS AND GOVERNMENT PUBLICATIONS AND OTHER RELATED LITERATURE

04.3.

SAMPLING PROCEDURE NOT APPLICABLE AS THERE IS NO CONSENSUS

PRESENTATION OF TABULATED DATA

06

ANALYSIS AND INTERPRETATION OF THE DATA

THE INFRASTRUCTURE PROJECTS IN THE ROADS SECTOR OFFER HIGH OPPORTUNITIES TO THE PRIVATE SECTOR AS THE

GOVERNMENT POLICY ENVISAGES THE CONVERSION OF ALL THE NATIONAL & STATE HIGHWAYS INTO EXPRESS ROADS. FOR THE VADODRA HALOL TOLL ROAD PROJECT THE ANALYSIS AND INTERPRETATION OF DATA IS AS FOLLOWS

HIGHLIGHTS OF THE PROJECT

NAME OF PROJECT VADODARA-HALOL ROAD PROJECT (SH-87) IN THE STATE OF GUJARAT.

CONTRACT VALUE

RS.119 CRORES

PRESENT STATUS

TWO LANE CARRIAGE WAY

SCOPE OF WORK JANUARY, 1999 TO

CONSTRUCTION

PHASE:

18

MONTHS

JUNE, 2000

STRENGTHENING CARRIAGE ADDITIONAL WAY TWO

OF AND

EXISTING

TWO

LANE OF +

CONSTRUCTION CARRIAGE WAY

LANE

CONSTRUCTION

OF

ADDITIONAL

TWO

LANE

SERVICE ROAD INCLUDING CONSTRUCTION OF NEW CULVERTS, BRIDGES AND TOLL PLAZAS ON BOTH ENDS.

MAINTENANCE JULY, 2000 ONWARDS ROUTINE MAINTENANCE OF THE PROJECT ROAD DURING THE CONCESSION PERIOD. ASPHLAT OVERLAY : AFTER 5 YEARS 4 TIMES OVERLAY ASPHALT RENEWAL : AFTER 15 YEARS 1 TIME RENEWAL

TOLL OPERATION JULY, 2000 ONWARDS TOLL COLLECTION DURING THE CONCESSION PERIOD.

SALIENT FEATURES

ROAD LENGTH 32 K.M. BRIDGES 3 NOS. MAJOR AND 3 NOS. MINOR 332 MTS. LENGTH CULVERTS 29 NOS.

EQUITY PARTICIPATION GOVT. OF GUJARAT BIDDER IL&FS & OTHER IFS 5.00 CRORES 11.45 CRORES BALANCE

IRR PROPOSED20%

CONCESSION PERIOD 30 YEARS (VARIABLE TO MEET THE PROPOSED IRR)

PRICE BASIS

FIXED LUMP SUM PRICE (NO QUANTITY

VARIATION OR PRICE ESCALATION PERMISSIBLE)

PAYMENT TERMS MOBILISATION ADVANCE MAX. 30% OF

CONTRACT VALUE.

RUNNING ACCOUNT PAYMENT AS CONTRACT VALUE

OF

PRORATE

ON

THE

PROGRESS OF WORK.

RETENTION MONEY 10% OF CONTRACT VALUE REFUNDABLE COMPLETION PROJECT. OF ON THE

DEFECTS LIABILITY AFTER THE

PERIOD

18

MONTHS

COMPLETION PROJECT.

OF

THE

5%

OF

CONTRACT

VALUE ON

REFUNDABLE COMPLETION OF

THE

DEFECTS LIABILITY PERIOD.

LIQUIDATED DAMAGES

10% OF THE CONTRACT VALUE

OPERATION & MAINTENANCE MAINTENANCE COST TO BE QUOTED ON THE BASIS OF YEAR 2000 AND PAYMENT TO BE LINKED TO CONSUMERS PRICE INDICES AT THE TIME OF MAINTENANCE. SHALL DEPEND THE TIME OF MAINTENANCE ON KEY PERFORMANCE

INDICATORS I.E., ROUGHNESS FACTOR, VEHICLE DAMAGE FACTOR AND MILLION AXLE LOADING.

TOLL OPERATION

PRESENT EQUIPMENT CONSIDERATION TO

BE MADE FOR 5 YEARS SUFFICIENCY.

TOLL BOOTH AND LANES SUFFICIENCY TO BE CATERED FOR 7 YEARS.

AFTER

THE

ABOVE

PERIOD

THE

REDEPLOYMENT

OF

EQUIPMENT AND TOLL EXPANSION REQUIREMENT SHALL BE REVIEWED ON RECOMMENDATIONS OF TOLL OPERATOR AT ADDITIONAL COST.

MANNING FOR THE TOLLS TO BE QUOTED FOR THE YEAR 2000 AND SHALL BE PAID ON THE BASIS OF CONSUMER PRICE INDICES DURING THE

CONCESSION PERIOD.

EXECUTION PHILOSOPHY:

THE SHARE IN CONTRACT PRICE OF UNDER:

RS.119 CRORES

IS AS

PUNJ LLOYD IRCON

RS.65,72,52,143/- CRORES****

RS.53,27,47,857/- CRORES

PLL WILL BE THE LEAD PARTNER FOR THE PURPOSES OF EXECUTION OF THE PROJECT, LOOKING AFTER:

- OBTAINING

NECESSARY

PERMISSION,

CLEARANCE

FROM

STATUTORY BODIES. - APPOINTING AGENTS IN CONNECTION TO THE PROJECT. - APPOINTING ENGINEERING CONSULTANTS AND OBTAINING EXPERT OPINIONS.

- APPOINTING AGENCY TO ENSURE QUALITY ASSURANCE.

THE MANAGEMENT OF THE PROJECT WILL BE A 3-TIER LEVEL COMPRISING OF PROJECT MANAGER, PLANNING ENGINEER AND APEX MONITORING CELL. BOTH PLL AND IRCON SHALL APPOINT ONE PROJECT MANAGER EACH FOR THEIR RESPECTIVE SCOPES. THE PLANNING ENGINEER SHALL BE APPOINTED BY PLL AND WILL REPORT TO THE APEX MONITORING CELL. THIS CELL WILL

CONSIST OF TWO MEMBERS, ONE EACH APPOINTED BY THE TWO PARTIES.

AS THE LEAD PARTNER, PLL SHALL BE RAISING THE BILL AND RECEIVING ALL PAYMENTS AND THEREAFTER REMITTING TO IRCON ITS SHARE.

ALL EXPENSES FOR DOCUMENTATION, CONSULTATION AND EXPERT OPINIONS RELATING TO THE PROJECT AND ALL PRE-BID EXPENSES ARE TO BE JOINTLY SHARED BY THE TWO PARTIES

RESULTS OF THE STUDY

THE STUDY HAS RESULTED IN THE FACTS GIVEN BELOW :1. THE INFRASTRUCTURE OPENINGS ARE ON THE RISE IN INDIA IN EVERY SECTOR, SPECIALLY IN THE ROAD SEGMENTS. 2. PUNJ LLOYD LIMITED HAS A GREATER SCOPE IN NEAR FUTURE 3. THE ECONOMIC POLICIES AND PROCEDURES OF INDIA ARE LIBERALIZED TO A GREAT EXTENT; 4. THE PRIVATE SECTOR INVOLVEMENT IS ALLOWED IN THE DEVELOPMENT OF THE INFRASTRUCTURE OF THE COUNTRY; 5. ASSISTANCE EQUIPMENT; 6. PLL IS AT A COMFORTABLE POSITION AS REGARDS THE CURRENT POLICY OF THE GOVERNMENT FOR IS GIVEN TO IMPORTERS OF PLANT AND

INFRASTRUCTURE DEVELOPMENT; 7. PLL IS USING THE LIBERALIZATION SCHEMES OFFERED BY THE GOVERNMENT TO THE FULLEST EXTENT; 8. THE INTERNAL POLICIES AND THE PROCEDURES OF PLL ARE DESIGNED IN ACCORDANCE WITH THE CHANGING SCENARIO AND TRENDS; 9. THE PLL IS CAPABLE TO ADOPT ITSELF TO THE ENVIRONMENT EXISTING AT ANY TIME, BE IT POLITICAL, SOCIAL, FINANCIAL, OR OPERATIONAL;

10.

THE GROWTH OF PUNJ LLOYD LTD HAS BEEN IN DIRECT

RELATION OF THE REFORMS AS SUGGESTED IN THE ANALYSIS OF THE QUANTITATIVE DATA OF THE COMPANY.

SUMMARY

THE ENTIRE STUDY CAN BE PRECIPATED ON A SINGLE PLATFORM THAT THE INFRASTRUCTURE PROJECTS ARE THROWN OPEN TO THE PRIVATE SECTOR, AND, PUNJ LLOYD HAS, TO REAP THE MAXIMUM FINANCING BENEFITS AND TO OPTIMISE THE AVAILABLE

OPTIONS RESTORTED

TO THE FORMATION OF

SPECIAL PURPOSE VEHICLE FOR THE EXECUTION OF THE VADODRA HALOL PROJECT. THIS SPECIAL CONSORTIUM IS THE RESULT OF THE WILLINGNESS OF BOTH PRIVATE AND THE PUBLIC SECTOR TO JOIN HANDS, POOL RESOURCES AND SPLIT RESPONSIBILITIES ON THE BASIS OF THEIR CORE

COMPETENCIES. THE SPECIAL PURPOSE VEHICLE IS FREE TO RAISE CAPITAL AND DEBT. THE REVENUE TO BE SPREAD OVER A PERIOD OF 30 YEARS IN THE FORM OF TOLLS, AS THE PROJECT IS

ON BOOT BASIS. ON THE EXPIRY OF THE LEASE PERIOD THE SAID ROAD IS TO BE HANDED OVER TO THE GOVERNMENT OF GUJARAT.

CONCLUSION

THE PLL IS GROWING IN HARMONY AND IN TOTALITY IN THE PRESENT TIMES. THE GROWTH, AS STATED, WAS ACCELERATED DURING THE PERIOD OF INTRODUCTION OF THE LIBERALIZATION POLICIES BY THE GOVERNMENT. IT IS EXPECTED FROM THE ABOVE FACTS THAT THE FUTURE WILL WITNESS MORE OF THIS TYPE OF ARRANGEMENTS, WHERE PRIVATE / PUBLIC SECTOR UNITE. THE MAIN UNIQUE ASPECT OF THIS PROJECT IS THE OPTIONS OF THE WIDE VARIETY OF FUNDS AVAILABLE TO THE CONSORTIUM. IT RANGE FROM SIMPLE EQUITY TO DEEP DISCOUNT BONDS TERM LOANS FROM

FINANCIAL INSTITUTIONS TO INVOLVEMENT OF THE ASIAN DEVELOPMENT BANK. WE CAN RIGHTFULLY SAY THAT PUNJ LLOYD LTD HAS, THROUGH ITS CLEAR AND EXHAUSTIVE POLICIES AND PROCEDURES,

BECOME A TRUE MULTINATIONAL EARNING A MUCH NEEDED REPUTE AND GLORY FOR THE NATION AND OFFERING A NECK BREAKING COMPETITION TO THE OTHER MAJOR PLAYERS ACROSS INDIA. THE TRUE TEST OF THE SUCCESSFUL POLICIES AND

PROCEDURES ARE REFLECTED IN THE REPEAT ORDERS FROM THE SAME CLIENTS FOR THE DEVELOPMENT OF THEIR

INFRASTRUCTURE PROJECTS.

RECOMMENDATIONS

THE

FOLLOWING

ARE

THE

RECOMMENDATIONS

TO

THE

COMPANY: 1. IN ORDER TO OPTIMIZE THE FINANCE FUNCTION IT IS DESIRED TO FOLLOW THE ENVIRONMENT CHANGES AND THE

INSTRUMENTS OF DEBT ON THE OFFER, THEIR RATES, RISK FACTOR, AND REPAYMENT SCHEDULES. 2. THE COMPANY SHOULD TRY TO BID FOR THE SIMILAR PROJECTS OUTSIDE INDIA AS WELL, AS THE EXPERTISE FOR EXECUTION OF SIMILAR PROJECTS EXISTS.

3. THE CONSORTIUM SETUP SHOULD ALSO BE USED FOR OTHER TYPE OF PROJECTS LIKE CROSS COUNTRY PIPELINES FOR OIL / GAS, STORAGE TANKAGES FOR CRUDE OIL / FINISHED PRODUCTS, PROJECTS etc. 4. THE COMPANY SHOULD REVISE THE PROCEDURES AND POLICIES IN THE LIGHT OF CHANGES IN THE LEGAL, POLITICAL, AND OTHER ENVIRONMENTAL CHANGES- LIKE CHANGE IN THE TAX STRUCTURE, etc. TELECOMMUNICATION PROJECTS, E.P.C