Indian Roads Sector

Frequently used abbreviations

Abbr. MoRTH "H "H$I "H#% ' "S() SH , F %%% %%%*$%S% 12T #1F2 (%M-$ )%I Ministry of Road Transport & Highways, ovt! of India "ational Highways! #eveloped by the "ational Highways $uthority of India "ational Highways $uthority of India "ational Highways #evelop&ent %rogra& olden 'uadrilateral! $ sche&e under "ational Highways #evelop&ent %rogra& %hase I "orth*South (ast*)est corridors! $ sche&e under "ational Highways #evelop&ent %rogra& %hase II State Highways! #eveloped by the responsible depart&ent+develop&ent corporation of the State overn&ents ,iability ap Funding! $ grant, one*ti&e or deferred, provided by the -entral ovt! with the ob.ective of &a/ing a pro.ect co&&ercially viable %ublic %rivate %artnership! $ pro.ect based on a contract or concession agree&ent, between a ovt or statutory entity and a private sector co&pany, for delivering an infrastructure service on pay&ent of user charges %ublic %rivate %artnership 0 $ppraisal -o&&ittee! $ -o&&ittee set up by the %lanning -o&&ission of India for appraisal & approval of infrastructure pro.ects under the %%% &ode %rivate Sector %articipation 1uild*2perate*Transfer! $ for& of %%% &odel &ost co&&only used in the roads sector! 12T pro.ects can be either annuity or toll 3user charges4 based #esign*1uild*Finance*2perate! $ for& of %%% &odel! (ngineering*%rocure&ent*-onstruction! -onstruction contracts on lu&psu& turn/ey basis! Model -oncession $gree&ent! $ te&plate for concession agree&ent with standardi5ed clauses, to be used in %ublic %rivate %artnership pro.ects, provided by the %lanning -o&&ission of India )holesale %rice Inde6! $n econo&ic indicator used to &easure the &ove&ent of prices of co&&odities in all trade & transactions! Most widely used price inde6 in India! Description

7ey &essages
India has a vast but low quality road networ/! "eed for invest&ents in the sector is recogni5ed

Institutional fra&ewor/ in place in the "ational highways seg&ent, owing to the creation of "ational Highways $uthority of India, & a dedicated %%% appraisal co&&ittee at the -entre

$ large & assured pipeline of "ational highways in the upco&ing phases of "ational Highways #evelop&ent %rogra&, pri&arily on %%% basis

%otential for 12T e6ists in State highways as well, and given the ,iability ap Funding sche&e of the -entre, states will see &ore action going forward

India

has a vast road networ/ by international standards

'orl%(s top 1# co)ntries (Total roa% net&ork) *illion km ES$ India 1ra5il -hina Fapan Russia $ustralia -anada France Italy 8!?9 ?!?< >!:@ >!A; >!>B ;!:B ;!:> ;!:; ;!@: ;!89 Type

The $n%ian roa% net&ork Length (km) 88,9:; >,?>,@:: A,89,98? <8,B;,;;; 33,16, !" % of total <= A= >A= @;= 1##%

"ational highways & (6pressways State highways Ma.or district roads Rural & other roads Total

IndiaCs road networ/ of D?!?< &illion /&, is second only to that of the Enited States

Source: Ministry of Road Transport & Highways

Ma.or

issue is not the si5e, but the low quality of the road networ/

+tat)s of ,ational -igh&ays

Four or &ore lanes >;= #ouble* lane BB= Single* lane ?B=

Modal shift -o&position of road traffic is currently esti&ated to be 8B= of total freight & @;= of total passenger traffic 3as against ><= of total freight & ?>!8= of total passenger traffic in the >:B;s4 Traffic on the roads is growing at the rate of 9*>;= per annu& rowth of vehicles has been D><= per annu& for the last few years Issues Most of the road networ/ being single or double lane, provides low capacity and slow vehicle speeds "ational highways are <= of the networ/, but carry A;= of the total traffic

+tat)s of +tate -igh&ays

Two or &ore lanes <B= Single* lane 9B=

Road &aintenance throughout the networ/ is low, leading to poor quality of roads $bout A;= of the villages are not connected by all*weather roads
Source: "H$I, %lanning -o&&ission

The

ovt! has reali5ed the need for huge invest&ents in the sector to fuel econo&ic growth

The ovt! of IndiaCs ,ision <;<> identified transport infrastructure as a &a.or constraint to the growth of the econo&y, and assessed the capital funding need to be around G B8 bn on highway i&prove&ents in the period <;;> 0 <;>>! The investment figure has grown much more since these initial plans
Sche&e $! (6pressways 1! "ational highways A*laning+8*laning <*laning with hard shoulders Strengthening wea/ening pave&ents 1ypasses, bridges, safety &easures, etc (6pansion of "H syste& -! State highways A*laning+8*laning <*laning with hard shoulders Strengthening wea/ening pave&ents 1ypasses, bridges, safety &easures, etc (6pansion of SH syste& Total
Source: )orld 1an/

%eriod <;;> * <;>> Hength 3/&4 ?,;;; >8,;;; >B,;;; <;,;;; Hu&p su& >;,;;; ?,;;; ?B,;;; ?;,;;; Hu&p su& >;,;;; $&ount 3G bn4 9!B >8!; A!9 ?!@ >!@ ?!@ ;!; <!B 9!; B!B <!B >!? !6."!

%eriod <;>> * <;<> Hength 3/&4 9,;;; >:,;;; 9,;;; <A,;;; Hu&p su& ><,;;; $&ount 3G bn4 >9!B >:!; <!< A!B <!? A!B 8!? ><!B 9!B <!B <!B .1."!

7ey &essages
India has a vast but low quality road networ/! "eed for invest&ents in the sector recogni5ed

Institutional fra&ewor/ in place in the "ational highways seg&ent, owing to the creation of "ational Highways $uthority of India, & a dedicated %%% appraisal co&&ittee at the -entre

$ large & assured pipeline of "ational highways in the upco&ing phases of "ational Highways #evelop&ent %rogra&, pri&arily on %%% basis

%otential for 12T e6ists in State highways as well, and given the ,iability ap Funding sche&e of the -entre, states will see &ore action going forward

"H$IIs establish&ent provides strong institutional support for the

national highways seg&ent
The "ational Highways $uthority of India 3"H$I4 was constituted in >:@@ by an act of %arlia&entJ and operationali5ed in >::B! It is responsible for the develop&ent, &aintenance, and &anage&ent of the "ational highways in the country Ti&e and cost bound i&ple&entation of national highway pro.ects %roviding road connectivity to &a.or ports Involving the private sector in financing the construction, &aintenance, and operation of national highways and wayside a&enities I&prove&ent, &aintenance & aug&entation of the e6isting national highway networ/ I&ple&entation of road safety &easures and environ&ent &anage&ent

(le&ents (le&ents of of the the &andate &andate for for "H$I "H$I

JThe "ational Highways $uthority of India $ct, >:@@

"H$I

is entrusted with i&ple&enting the biggest integrated effort to upgrade IndiaCs national highway networ/

The "ational Highways #evelop&ent %rogra& 3"H#%4 was launched in >:::, initially with the ob.ective of four*laning >?,;;; /& of highwaysL but the scope of the progra& has increased al&ost A ti&es
"H#% %hase 2verall pro.ect 3/&4 B,@A8J ?@; ?<; 8,>B:JJ A@< >>,BA< <;,;;; 8,B;; >,;;; Ket to be finali5ed >A@ < ?; > -o&pleted Hength 3/&4 A,<B; >>> <@9 "o! of contracts :A 8 : Ender i&ple&entation Hength 3/&4 >,A8B <A@ ?< B,<89 A8< >,989 "o! of contracts ?> 9 ? >?8 : <9 @8> <; :,9A8 <;,;;; 8,?B< >,;;; "ot $vailable
Status as on ?> Mar <;;9 Source: "H$I

1alance for award Hength 3/&4 "o! of contracts

%ro.ect

olden 'uadrilateral I %ort connectivity 2thers II III I, , ,I ,II "orth South (ast )est -orridor 2thers III $ & 1 "ot started Haunched in Ful <;;8 "ot started "ot started

<>

>

<< > >;< "ot $vailable

J< stretches of >?> /& ter&inated JJ> stretch of ?> /& ter&inated

The

olden 'uadrilateral 3 '4 %ro.ect ai&ed at developing A*lane highways connecting the A i&portant Indian &etros

/orri%or #elhi*Mu&bai Mu&bai*-hennai 7ol/ata*-hennai #elhi*7ol/ata 0olkata *)mbai

,- ,o @, 98, 9: A, A8, 9 B, 8, 8; < Total

Length (km) >,A>: >,<:; >,8@A >,AB? !, .6

Delhi

/hennai

JRepresentative &apL not to scale

The ' pro.ect is 9B= co&plete, and rest of the stretches have already been awarded Most contracts under i&ple&entation lie on the #elhi*7ol/ata ar& Most of the stretches were developed by "H$I through the award of (%- contracts $l&ost ?B= of the pro.ect length was developed by e6ternal assistance 3funding by )orld 1an/, $#1 and F1I-4
Source: "H$I, %ro.ects today, Feedbac/ analysis

%hase II ai&ed at developing A*lane highways connecting the e6tre&ities

of the country
+rinagar

Delhi

Highway connectivity is being established betweenM %orbandar, u.arat in the )est to Silchar, $ssa& in the (ast +ilchar Srinagar, Fa&&u in the "orth to 7anya/u&ari, Ta&il "adu in the South The "S() pro.ect is actively under i&ple&entation @B= of the pro.ect length has been awarded 12T 3$nnuity4 & 12T 3toll4 have been adopted for recent contracts

1orban%ar

0anyak)mari
JRepresentative &apL not to scale Source: "H$I, %ro.ects today, Feedbac/ analysis

Though %hase I & II are co&plete+awarded, "H#% offers a large

opportunity in the seg&ent
"H#% %hase #escription Rehabilitation & upgradation of e6isting national highways into A*lane, dual carriageway configurations Targets i&portant stretches not covered in earlier two phases 0carrying high volu&es of traffic, connecting state capitals with the networ/ developed in earlier < phases, and providing connectivity to places of econo&ic, co&&ercial & touris& i&portance #evelop&ent of single*lane highways to <*lane with paved shoulders, and strengthening of e6isting <*lane highways )idening of high traffic density A*lane stretches developed under %hase I, to 8*lane #evelop&ent of e6pressways connecting &a.or co&&ercial and industrial townships The A;; /& Mu&bai*,adodara e6pressway has been identified as one of the potential stretches under this seg&ent "ationwide construction of bypasses, ring roads & flyovers on &a.or national highways Hength 3/&4 -ost 3G bn4 (6pected co&pletion Status

III

>;,;;;

>8!?

<;><

Sub*phases III $ & 1 have been launched

I, ,

<;,;;; 8,B;;

9!; >;!?

<;>B <;>;

Ket to begin, in planning stage Haunched in Ful <;;8

,I

>,;;;

A!<

<;>B

Ket to begin

,II

"ot /nown

A!<

<;>A

Ket to begin

7ey &essages
India has a vast but low quality road networ/! "eed for invest&ents in the sector recogni5ed

Institutional fra&ewor/ in place in the "ational highways seg&ent, owing to the creation of "ational Highways $uthority of India, & a dedicated %%% appraisal co&&ittee at the -entre

$ large & assured pipeline of "ational highways in the upco&ing phases of "ational Highways #evelop&ent %rogra&, pri&arily on %%% basis

%otential for 12T e6ists in State highways as well, and given the ,iability ap Funding sche&e of the -entre, states will see &ore action going forward

Traditional Financing of Roads

General Budgetary Support Lending from International Institutions World Bank Asian Development Bank (ADB) Overseas E onomi !ooperation "und (OE!")# no$ %apan Bank for International !ooperation (%BI!)

!entral &oad "und (!&")

%rivate sector participation is necessary

gap
8inancing mechanism Fuel cess

to bridge the funding

Description ovt! of India introduced a cess on both petrol & diesel, which currently contributes G >!<B to >!B bn annually! The funds collected are put aside in a ring*fenced -entral Road Fund 3-RF4 for e6clusive utili5ation in develop&ent of roads rants fro& International agencies such as )orld 1an/ and $#1 Hoans fro& international lending agencies such as the Fapanese 1an/ of International -o*operation "H$I taps the &ar/et by securities cess receipts

(6ternal assistance Hoans Mar/et borrowings

,-A$ 23pen%it)re 4s financing o4er the years (5s. crores)

7#76 66.! 1.7 37# 7.## .#!7

3#3. .61 1!" 1 #

"

The -o&&ittee on Infrastructure has esti&ated that out of the G BB bn required for "H#%, G AA!9B bn or ."= of funds are e6pected to co&e fro& the private sector

2000

2001

2002

2003

2004

2005

23pen%it)re

8inancing

Source: "H$I, oI

Funding pattern across phases shows very high e6pectations fro&

the private sector by the ovt
1hase $9 :ol%en ;)a%rilateral
<thers 6% *<5T6%

1hase $$9 ,+2'

1hase $$$A, $$$= @ ?

(23pectation by the :o4t.)

23ternal assistance 3!% =<T> =<T Ann)ity =<T>+1? 6% 6% "%

23ternal assistance 33% ,-A$ 36%

,-A$ 3!% =<T 1##%

=<T> Ann)ity 1 %

=<T 1.%

J-harts show brea/*up of funding for total length of pro.ects co&pleted and+or under i&ple&entation

The supre&acy of the 12T &odel over the traditional (%- contracts has been established in the "ational highways seg&ent! The -o&&ittee on Infrastructure, ovt! of India has ta/en a stand that NO for "H#% %hase*III onwards, all contracts for provision of road services would be awarded only on 12T basis either based on Toll or $nnuity or a suitable Toll + $nnuity hybrid4, with (%- awards being &ade in specified e6ceptional cases onlyP
Source: "H$I, %lanning -o&&ission, Feedbac/ analysis

7ey &essages
India has a vast but low quality road networ/! "eed for invest&ents in the sector recogni5ed

Institutional fra&ewor/ in place in the "ational highways seg&ent, owing to the creation of "ational Highways $uthority of India, & a dedicated %%% appraisal co&&ittee at the -entre

$ large & assured pipeline of "ational highways in the upco&ing phases of "ational Highways #evelop&ent %rogra&, pri&arily on %%% basis

%otential for 12T e6ists in State highways as well, and given the ,iability ap Funding sche&e of the -entre, states will see &ore action going forward

%otential for 12T pro.ects e6ists in states, and increased participation

by private sector foreseen
In a )orld 1an/ study of traffic across 8 states * constituting ?;= of total state highway networ/ >?,;;; /& could potentially be ta/en up for 12T Traffic on these stretches was Q B,;;; %-ES, considered as the &ini&u& for viability ?8= of total networ/ 3?9,;;; /&4 in these states

Traffic in 1/As on +tate -igh&ays

>@,;;; >8,;;;

QB,;;; %-Es RB,;;; %-Es

3/& of State Highways4 $ndhra %radesh 7arnata/a Madhya %radesh Maharashtra Ettar %radesh )est 1engal

R B,;;; %-Es ?;A A,;@: <,<;B >>,;9A A,A?: >,A>8 <?,B<9

Q B,;;; %-Es >,9A> ?,@:; 8; 8,;A9 >,>B: B@: >?,A@8

km of +tate -igh&ays

>A,;;; ><,;;; >;,;;; @,;;; 8,;;; A,;;; <,;;; ;

$ndhra %radesh

7arnata/a

Madhya %radesh

Maharashtra

Ettar %radesh

)est 1engal

Total

SourceM )orld 1an/

Harge invest&ents required in the state highways seg&ent

indicating healthy pipeline of pro.ects
Vision 2021 Capital Investment on State Highway p!i%es& Period 2001 - 2011 Length (km) Four laning / Six laning %&o-laning &ith hard 'houlder' Strengthening &eak (a)ement' +,(a''e' bridge' o)er bridge' 'a-et, and drainage mea'ure' .x(an'ion o- S/ ','tem 3 000 3" 000 30 000 Lum( 'um Amount ($ bn) 2!" # "!" 2!" etwo!" #at 1$$$ Period 2011 - 2021 Length (km) # 000 $0 000 *0 000 Lum( 'um Amount ($ bn) $!2" 12!" #!" 2!"

10 000 Total

1!2" 18.75

20 000

2!" 31.25

Source: )orld 1an/

%%% in state highways li&ited in the past, but -entreCs ,

will provide i&petus

F sche&e

$ few states 3$ndhra %radesh, u.arat, Maharashtra, Madhya %radesh, Ra.asthan, Ta&il "adu and %un.ab4 have &ade so&e progress in attracting %S% in state highways -reating Road #evelop&ent -orporations 3R#-s4 $&end&ent of the Indian Toll $ct 3>@B>4 to allow the private sector to levy tolls on state roads and bridges The overall role of the private sector has been li&ited in this seg&ent NRehabilitate, operate and &aintainP concessions, bypasses, and bridges have usually been the &ost viable pro.ects for %S% 3captive traffic for tolls4 The new NSche&e for financial support to %%%s in infrastructureP being i&ple&ented at the -entral level by the Ministry of Finance, will provide i&petus to the State highways seg&ent, across states Ender this sche&e, the ovt! will provide viability gap funding to infrastructure pro.ects 3including roads4, not e6ceeding <;= of the total pro.ect cost The ovt or statutory entity that owns the pro.ect, &ay provide additional grant out of its budget, not e6ceeding a further <;= of the total pro.ect cost The funding under this sche&e will nor&ally be in the for& of a capital grant at the stage of pro.ect construction

State highways are li/ely to see increased action in %%% pro.ects, owing to the new ,iability ap Funding sche&e being i&ple&ented by the -entre! The e&powered co&&ittee under the #epart&ent of econo&ic affairs, Ministry of Finance, has started receiving proposals for approval fro& various State ovts under this sche&e
SourceM #epart&ent of econo&ic affairs, Ministry of FinanceL , oI published data on %%% pro.ects, )orld 1an/

Indias Infrastructure Challenges

E'perimenting $it( t(e )u*li )rivate )artners(ip &oute

Scope Covered
Introdu e t(e on ept# need and *asi terms to in rease familiarity $it( t(e su*+e t ,ake t(e ase of a road pro+e t to dis uss t(e issues relating to ))) !onsider t(e issue from different stand points - government# private se tor# finan iers# pro+e t affe ted parties and iti.ens S(are ))) e'perien es from different ountries

Traditional Model -Budgetary Support

)u*li good / )u*li "un tion 0ig(ly apital intensive Long gestation period 1n ertain returns )lan e'penditure W(y (ange t(e mode 2

PPP Model
3ore funds $ill *e availa*le for onstru tion and maintenan e Greater effi ien y t(roug( ompetition S ope for Innovation International *est pra ti es and kno$ledge transfer Government an fo us on merit goods $(ere t(ere are no private takers

Funda ental concepts

W(at is a )))2 Is it t(e same as su*sidy2 W(at are t(e types of )))2 (3anagement ontra t4Lease) (BO,4BOO4BOO,4BOL,) (DB"O)

!hat is the role of "overn ent e#perts in PPP$

Determining $(i ( pro+e ts an *e taken up t(roug( )))/ are t(ey *anka*le2 "a ilitation at t(e design stage/ pro+e t preparation - detailed feasi*ility report "a ilitation in t(e pre/ onstru tion stage )roviding avenues for long term finan e 1nderstanding ontingent lia*ilities Ensuring 5ui k and effe tive dispute resolution me (anism Ensuring transparen y and fair play t(roug( ade5uate regulation and dis losure Building effe tive and sustaina*le partners(ips

%pti u
)ro+e t risks

&pportioning of 'is(

,e (nology4Design risk !onstru tion risk Operating risk 3arket risk "oreign e' (ange risk 3a ro/e onomi risks )oliti al or &egulatory &isk Environmental risk "or e 3a+eure risk

Building Capacity in Pu)lic *Private Sector "uardians of Pu)lic Money 6ia*ility Gap "unding ))) !ells / ))) Appraisal !ommittee ,ransa tion Advisors ,raining4Information kits Standard Bidding )ro edures 3odel !on ession Agreement

Changing Pu)lic %pinion

!(ange t(e ommand mindset Demonstrate e' ellent and trou*le free delivery Edu ate people on getting value for money in pu*li e'penditure &e/train )u*li se tor employees

+#ternal Control- 'egulatory Bodies

W(y is independent regulation ne essary2

,enture Capital for pre-operative e#penses

India Infrastru ture )ro+e t Development "und 0uge upfront transa tion ost 7 (ig( risk orpus &s89::: million# up to ;<= pro+e t dev ost - interest free loan to *e re overed from su essful *idders State Govts and lo al *odies eligi*le If no interest *y *idders - onverted to grant

Facilitating Finance
India Infrastru ture "inan e !ompany Ltd8 /raises resour es under Govt8 guarantees / up to >:= of pro+e t ost and t(en on/lends to via*le pro+e ts /Long term tenor (9: 7 years)

India Infrastructure Financing Initiative -IIFI.

E5uity and de*t funding for via*le state se tor pro+e ts )artners < *illion orpus II"!L !itigroup ID"! Bla kstone Group 0oldings

PPP in the 'oad Sector

E)! vs8 item/rate ontra t BO, (Annuity)4BO, (,oll) O?3 ontra ts ,oll )oli y 3a+or on erns

)oor 5uality of ontra tors Land a 5uisition and &?& !apa ity of @0AI and State )WDs Environment4"orest ,raffi vs onne tivity Apat(y to paying toll

Internal Controls
Define all terms !onditions pre edent (Es ro$ a ount# Appli a*le permits# performan e se urity# "inan ing Agreements) Detailed a ount of o*ligations of on essionaire O*ligations of Aut(ority &epresentations and Warranties 3andatory Dis losure

Internal Controls
International !ompetitive Bidding Bid se urity4performan e se urity Out ome spe ifi ation !ompletion !ertifi ate If t(ere is a (ange of s ope2 O?3 o*ligations Safety re5uirements Independent Engineer Dispute &esolution 3e (anism

&ccounts and &udits

!on essionaire to appoint a Statutory Auditor from a list of mutually agreed panel Arti les and s (edules provided in t(e 3!A

The

Interpretations Committee (IFRIC) of the International Accounting Standards Board is developing financial accounting standards for PPPs. The comple it! of PPPs and the dependence of national accountants on government financial accounting data ma"es it highl! desira#le to have a common treatment of PPPs in the S$A and in the accounting standards. %o& should PPPs #e accounted for'