IIGF - PPP Experience and Cases in Select Sectors FINAL

Indonesia Infrastructure Guarantee Fund
Jakarta 11 September 2017
Workshop on
PPP experience in select sectors
2017 CRISIL Ltd. All rights reserved.

CRISIL Infrastructure Advisory is a leading advisor to regulators and governments, multilateral agencies, investors, and large public and private sector firms. It is a division of CRISIL Risk
and Infrastructure Solutions Limited, a wholly owned subsidiary of CRISIL Limited, an S&P Global Company.
Agenda
CRISIL Advisory: Overview and experience in PPP advisory

Session I Hospitals
Session II Airports
Session III Non-Toll Roads
Session IV Mass Rail Transit
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International Presence CRISIL/S&P Global

Presence across all continents spanning 29 countries with ~17000 employees spread around the globe
CRISIL Infrastructure Advisory
Credible partner to Government, Regulators, Developers and Investors
Policy & Sector Project / PPP Transaction Due diligence Program

Strategy | | | | | |
Regulation studies Advisory Advisory & Valuation management
Transport & Logistics Energy, Natural Resources Urban Development Infra & Public Finance

Manage
India | Africa | South & South-East Asia | Middle-East
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incl. in India, South & South East Asia, Africa, and Middle East
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Our Clients

Not an exhaustive representation
Our Expertise - Energy
Performance improvement of power sector utilities
Strategic and corporate planning for power sector
utilities

Drafting policy, regulations and institutional
framework
Public Private Partnerships
Tariff advisory
Training and capacity building
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Our Select Experience
Performance monitoring & evaluation and benchmarking of EDM, Mozambique
Benchmarking study and capacity building programme for MERA, Malawi
Power improvement & Power Sector Capacity Scan, Ghana
Utilities advisory Restructuring of rural electrification unit, Lesotho
Organizational strengthening of THDC, India
Regulatory impact assessment, India

Drafting policy, regulations Development of a policy and legal framework for power sector development, Bhutan
and institutional framework Electricity access scale up and subsidy policy study program, Tanzania

Batangas Manila Natural Gas Pipeline Project I, Philippines
Design, construction, finance, O&M of a 25-40MW wind park, Mauritius
Public Private Partnership Rehabilitation, operation and maintenance of the Angat hydro-electric power plant
(AHEPP) auxiliary Turbines, Philippines
Model tariff guidelines/regulations for State and Central Regulatory Commissions, India
Tariff Advisory ARR, tariffs and other issues for power utilities in States and Union territories, India
Regulatory strengthening of infrastructure regulators - members of the world bank

Capacity Building & sponsored EAPIRF, India
Training Improving effectiveness in implementation of regulations in the energy sector, Tanzania
Gas Pricing and Regulation Study, India

Oil & Gas Preparation of Hydrocarbon Vision Document, India
LNG sector improvement study, Bangladesh
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Our Expertise - Transport
Sectorial Coverage Services Offered:
Ports Policy, Regulatory advisory
Roads Techno-economic feasibilities
Airports Traffic assessment

Logistics Bid advisory
Bid process management

Industrial Parks & SEZ
Transaction advisory including PPPs
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Preparation of concession for Kasanga port in Rukwa Region, Tanzania

Ports Sector
Multiple Techno economic Feasibility and Transaction advisory Studies across the East
and west coast of India
Technical assistance for the elaboration of PPP models for the port of Bissau, India
Advise hybrid annuity project on DBFOT under NHDP phase V, India

Roads Sector Empanelled with NHAI as Financial and Transaction Advisor
Design challenge for in Gujarat on hybrid annuity mode package IV, India

Dau Giay-Phan Thiet Expressway project (DPEP) Pilot PPP project, Vietnam
Advisory assistance for development of new Hyderabad international airport, India

Airports Sector Feasibility study for international aviation hub & airport in the proposed SEZ at Greater
Noida, India
Namibian logistics master plan Phase 3, Namibia

Logistics Sector Advisor for preparing business plan of international cargo hub at Haldia West Bengal,
India
PPP Pilot Projects Initiative IDCA Food Storage Infrastructure, India
Feasibility study for making Zanzibar a Special Economic Zone (SEZ), Tanzania
Industrial Transaction advisor for Rwanda district industrial parks development and management, Rwanda
Parks/SEZ Development of a multi-product, industrial, commercial and residential township in Navi Mumbai
Sector SEZ, India
Our Expertise Urban Infrastructure
Water and Waste Water
Solid Waste Management
Municipal Finance

Infrastructure Development Plans
Social Infrastructure
Feasibility study for an urban water and sanitation program, Ethiopia

Cost of water production and tariff study, Kenya
Water & Waste Water
Identification of Non-Revenue Water, India
Strengthening urban water supply regulation, Laos PDR
Transaction advisor for municipal solid waste management project, India

Assessment of quantum of hazardous waste generated, India
Solid Waste Management
Selection of private developer for treatment of municipal solid waste, India

Selection of concessionaire landfill project, India
Market assessment, business plan operational guidelines and governance structure

for the RIDF, Indonesia
Municipal Finance Appraisal of reforms under country wide Urban Renewal Program, India
Establishment of a national urban infrastructure fund, India
Preparation and revision of city development plans, India

Infrastructure Rapid baseline assessment of urban management capacity, India
Development Plans Implementation support for Sholapur Smart City, India
PMU for AMRUT Ujjain city, India
Transaction advisory services for construction of institutions and commercial

complexes, Lesotho
Social Infrastructure
Transaction advisory Services for the urban and knowledge industry development,
Mauritius
Our Expertise Infrastructure Finance
Business Strategy and Operations and

New Ventures
Planning Transaction Support
Business plan for Product/scheme Business restructuring

existing business development

Re-orientation in line with
market developments and
Policies, systems and Market Assessment
competition
processes development and competitor
/ re-design assessment Independent valuation
of business
Foray in to
Infrastructure Finance Due diligence of assets
Our spread of offerings is backed by deep domain
knowledge and experience
Supporting the Development of the Corporate Bond Market in India

Pioneered innovative Foreign & Commonwealth Office, British High Commission
financing mechanisms
for infrastructure in
India
Corporate Strategy & Business Plan for Indonesian Infrastructure
Finance Facility (IIFF) World Bank

Options Study for Railways of India Development Fund World
Bank
Deep domain
knowledge, synergy
with sector-focused Vietnam City Infra Financing Facility Project World Bank
practices
Bond Guarantee Fund for India Asian Development Bank
Enabling Monetization of Infrastructure Assets in India Asian

Established Development Bank
relationships with key
stakeholders and
financial institutions Operational Manual Improvement for IIGF - Indonesia
through marquee
assignments Infrastructure Guarantee Fund
Experience and capabilities in PPP advisory
End-to-end services covering Enabling frameworks and Transaction advisory
PPP Enabling Environment
Policy Framework Viability Gap Fund

Institutional Framework PPP Enabling Annuity Fund
Environment
Regulatory Framework Debt Fund

Standard Operating Procedures Guarantee Fund
PPP Transaction Advisory
1 Project Identification 2 Project Development Pipeline 3 Prioritization of Pipeline Projects
5 Project Development of Pilot Projects 4 Selection of Pilot Projects
Feasibility Assessment and Project Structuring

Capacity
Bidding documentation and Bid Process support Building
Post Award monitoring and reviews

Select engagements
PPP Procurement / Development of a University Hostel through PPP, Kenya
Transaction Transaction advisory services for Kopanong Precinct Project, South Africa
Management Transaction & financial advisory for Central Kalimantan Coal Railway project, Indonesia
Design, Implement and Manage a Technical Assistance Facility in PPPs for SADC,

PPP Technical Botswana, Mauritius and Malawi
Assistance Potential PPP Initiatives for the Dar es Salaam Local Authorities in Tanzania
Sustainable micro-hydro and private-sector led micro-hydro expansion, Rwanda
Procurement legislations for Cape Verde and Angola

Drafting procurement
Support for the development of PPP manual for Nigeria
legislation & PPP
Developing PPP Policy Framework for Namibia
guidelines
Preparation of PPP framework - (package3) establishment of VGP programme, Vietnam
Rwanda PPP support program, Rwanda

PPP Project Pipeline & Public Private Partnership development project, Cambodia
Identification Realizing Public-Private Partnership (PPP) opportunities in Kenya - Consultancy services
for economic and sector work in PPP
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Coverage of each session
IIGF / Sector participants to provide short description of PPP plans

Hospitals, Airports, Non-Toll Roads, Mass Rail Transit

CRISIL to make presentation covering
Possible PPP project structuring models, risk allocation and roles of stakeholders
Case examples and lessons from experience
Q&A and Discussions
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Agenda

Session I Hospitals
Session II Airports
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Health care context in Indonesia..1
Source: PT SMI Insight 2016
Scope for improvement in Indonesias Health sector metrics

Health care expenditure ~ 3% of GDP and Hospital Beds @ 1.21 beds per 1000 people
Above ratios lower relative to many other ASEAN countries

Has a relatively developed private sector hospital sector
Private sector - 35 % share of number of hospitals;
Growth in Private hospitals and private share of Specialized hospitals
Potential to leverage private sector capabilities for Universal Healthcare
Introduced Universal Healthcare Coverage (BPJS) in 2014

Unifying Public insurance into two categories
BPJS is expected to cover 100% of Indonesian citizens by 2019
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Health care context in Indonesia..2
How it fares vis--vis ASEAN countries

Source: World Bank, PT SMI Insight 2016
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PPP in Hospitals: challenges and drivers
Demand drivers for PPP Challenges

Need to provide Universal Healthcare Capacity to pay and bankability.
Health Insurance Weak incentive for private sector to

service the poor

Strong Private sector ecosystem
Complex Governance structures
Increase in Government outlay
Human-resource intense with high
Models to involve private sector O&M costs relative to capital costs
Bringing efficiency, and technology Difficulty in measuring outcomes;
complex monitoring and evaluation
Conventional Public expansion
insufficient to meet demand Political sensitivity
Policy measures Ideological resistance
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Private provision Vs PPP not the same
Private provision is not the same as PPP

PPPs is about use of Private capabilities in achieving Universal Healthcare with Public Oversight,
and Regulation
PPP in Hospitals involves getting a private partner to deliver public healthcare services to all in a

non-discriminatory manner
Private provision happens only where market forces work

Segmentation and limitations with respect to implementing cross subsidy models
Private Provision as Coping mechanism hurts access, and quality;

Costs of private healthcare is an important reason for getting into/persistent poverty
In the absence of social security, universal insurance and public role, regulation and oversight
makes it unaffordable, exclusive or poor quality
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Areas of PPP in Healthcare
1. Build / Equip Facilities and Infrastructure

Focuses on improving hard infrastructure and facilities management of the hospital
Public Sector retains responsibility for staffing and service delivery

Aim: Address Infrastructure gaps
2. Develop/Improve Infrastructure, Facilities and Service delivery

Improving Primary Health care access for Rural areas / Urban Poor
Adopting existing infrastructure and introducing private sector efficiency
Aim: Address Infrastructure and Service delivery gaps in Hospital services and / or Medical Education
3. Expand access of Allied services like Diagnostic centers

Private sector role in installing, maintaining, and operating diagnostics centers
Potential for user charge based on political appetite and referral system with doctors / health centers.
Aim: Rapidly expand diagnostic capacity as an allied sector
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Models and Risk transfer
RISKS New hospital Existing Hospital Greenfield hospital

facilities and improvement with with service delivery
equipment only service delivery
Typical structures DBFOT Management DBFOT, Management

Contracts Contracts
Critical Risks and extent of transfer to Private sector
Investment / Financing Limited
Construction
Operations & Maintenance
Revenue risk Partial Partial Partial
Service delivery / Standards
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Case 1: UK Private Finance Initiative
PPP in Hospital Facilities and Infrastructure
NHS Trust
Project
Agreement
Design and Private SPV Facilities

Build management
contract contract
Construction Services
Company Company(ies)
Design, build, finance, and operate (DBFO) model,

NHS Trust pays private providers an annual unitary charge, over 2530 years,
Selection through Competitive Bidding
Scope construction, nonclinical services - building maintenance, cleaning, catering, and laundry.
Trust specifies services, leaving private providers to determine delivery
Over 50 new hospitals were built through PFI attracting investment of over 3.5 billion.
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Case 2: Patna Greenfield Hospital
PPP in Infrastructure, Facilities and Service delivery
Project scope, PPP model and risk transfer

Develop 500 bed super specialty hospital in Patna on 33 acre land provided by Government of Bihar
Build, equip, and operate the super-specialty hospital

Operationalize 100 beds in 2 years and another 200 beds in 1.5 years thereafter
Obtain and maintain accreditation from National Accreditation Board for Hospitals
25% of beds reserved for Government referred patients with charges capped at Government rates
Private operator retains flexibility to charge on remaining beds from patients paying on their own
33 year DBFOT Contract with transfer of construction, financing, O&M risks to private operator
Bid variable and bid process

Annual concession fee payable by Private operator to Government of Bihar,
Fee escalable by 6.5% annually
Five bids received through a open competitive bidding process
Agreement with winning bidder signed
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Case 3: Management of District Hospital Goa India..1
PPP in Management and Service delivery
Setting
New District Hospital at Mapusa constructed for replacing existing hospital
290 Bed hospital state-of-art constructed by Government; Difficulties in staffing

Challenge
Get the facility operational; Run it as per IPHS standards for district hospitals
Integrate service provision with Universal Health care scheme
Affordability and universal care to all citizens; Ensure service standards
Why PPP
Need to 8 Operation Theatres, Critical care units and facilities for dialysis, cardiac care, neonatal
care and vastly superior Trauma Centre.
Attracting specialists and doctors
Provision of affordable and better services
Efficient discovery of pricing and addressing viability gaps
PPP Structure
Private Operator DPH-GOG
Mapusa Assets on
Equity
nominal lease
Debt Revenue Model

1. Fees for services (by GoG initially and SJBY later)
2. Annuity Grant (For Viability Gap)

3. Reimbursement of Additional cost over SJBY insurance
Project SPV DPH-GoG
Obligations of Project SPV Obligations of Government of Goa.

1. Investment in New Assets, 1. Handover of Mapusa Hospital and equipment
Operationalization of Hospital and 2. Seconding of employees
maintenance and upkeep. 3. Procurement of Medicines
2. Induction of specialists and additional 4. Handover of Land adjacent to Mapusa Hospital
manpower 5. Oversight and Monitoring of Service Obligations
3. Provision of all services as per IPHS 6. Fixing of Tariffs for various services (based on CGHS
standards and periodic revision)
4. Setting up and providing Cath Lab Super 7. Oversight and implementation of SJBY including
specialty services and Dialysis unit (and harmonization of rates with this contract
other services) as per Terms of Contract) 8. Payment to Private Operator
5. NABH certification for service levels 9. Interventional Cardiology and Dialysis referrals on
preferred basis to Mapusa being a Government District
Hospital
10.Setting up Payment Service Reserve Account
Provision of Services
Citizens
Obligations of Government
1. Transfer Project Assets and Equipment to Project SPV.

2. Provide medicines and consumables to Mapusa Hospital
3. Handover land adjacent to the Mapusa Hospital to Private Operator

4. Monitoring adherence to terms and conditions, including roll-out and service delivery
5. Fixing of Tariffs for various services and making payments to the Private Operator
6. Responsible for implementation of Insurance scheme including harmonization of tariffs
7. Accord permission to Private Operator to provide Super-speciality services
8. Preferred Hospital status for super-speciality till Insurance scheme is implemented
Obligations of Private operator
1. Investment in New Assets to address the Equipment and facility gaps including setting
up a dedicated Cath Lab and Dialysis unit.
2. Responsible for provision of all services in line with IPHS norms

3. Responsible for absorbing, deploying and training doctors deputed
4. Responsible for induction, deployment and payment of salaries and other benefits to
specialists and additional manpower required to provide the services envisaged.
5. Capture of information and medical records of the hospital, maintain and report all
operating information to DPH-GoG
6. Ensure that the Hospital secures NABH certification within a period of two years of
take-over of facilities and retain the NABH certification throughout the period of the CA.
Revenue Model and Bid Variable
Services
a) OPD consultations, b) Procedures, c) IPD services (including Surgeries - Super-specialty, major and
minor) and d) Investigations
Baseline rates fixed as per prevailing CGHS rates and revised at 5% annually

Payments to Private Operator
Fees for services except Super-specialty surgeries reimbursed upon production of invoices monthly
Super-specialty surgeries reimbursed at CGHS if patient qualifies for support under Mediclaim scheme
Payments made by Government will be recovered through Insurance scheme when operational
Bid Variable and other contractual features

Annuity Grant payable semi-annually (with an in-built revision of 5%) every year.
Resolutions of Project Appraisal Committee and Government of Goa reiterating their commitment
Contract review every 5 years / Independent Engineer and Steering Committee to be set up.
Payment Reserve Account
Summing up
Lessons and Insights
1. Eco-system enablers needed for effective PPPs

- Health Insurance coverage for all sections of society
- An independent standards setting and accreditation body given diversity of functions / services

- A strong medical education and supply of skilled professionals
- A good private sector presence that participates in PPP contracts
2. Project structuring needs to factor contextual variables

- Important to identify viability gaps upfront and provide for
- Scale is critical to attract good bidders; in case of smaller projects, may be a good idea to bid a
cluster of projects / hospitals
- PPP design has to incorporate third party audits and monitoring
- If differential charges are modeled; critical to put in place monitoring mechanisms to ensure that
subsidized beneficiaries get equitable access and treatment
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Q & A and discussion

Agenda

Session I Hospitals
Session II Airports
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Returns in the Context of Infrastructure Sector

EIRR is Economic Internal Rate of Return Project Returns would be
far lower
Annual Infra investment needs for Indonesia USD 74 Bn/ year for next
15 years and Climate adjusted could be double
Not for the faint hearted and not so glamorous!
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Context in Indonesia
Aviation market
Annual Domestic passengers - 90 million in 2014 (13.4% CAGR during 2007-14)

Annual International passengers - 11 million in 2015 (19.3% CAGR during 2007-14)
Freight Traffic grew 7.1% duruing 2009-14
Press reports in 2017 on airports

First private airport to open up on Bintan Island in Riau Islands province in 2018
Government of Indonesia may revise its negative investment to attract more foreign investment
into Indonesia. The government is specifically seeking to allow bigger foreign stakes in the
management of airports
37
Global context for PPP in airports
Over 50% of terminal capacity in Europe is owned by private sector

`Britain led privatization in airports in the 1980s
Canada leased its major airports to private-sector entities in 1994,

In America most publicly owned airports are managed through Management Contracts
In Europe nearly half of terminal capacity is now owned by the private sector.
Non-aeronautical revenues contributes over 40% of revenue in airports like Heathrow,

although growth may be tapering
Airports in Asia, Africa and the Middle East largely handled through public authorities.
Globally, two-thirds of airports lose money; 97 out of 122 airports in India incurred losses in FY 16
38
Models for private participation in Airports
Full privatization
Transfer of ownership of airport assets from public corporation to private investors
Earliest privatization in UK when BAA plc (Now Heathrow airport holdings) took control of 7 airports

owned by Airports Authority, followed up Belfast East Midlands, Southampton and Bristol.
Australia, long term leases (50 years + 49 years) in 18 airports including three major international
gateway airports, at Brisbane, Melbourne and Perth
Partial privatization / PPP

Concessions : Phnomh Penh (Cambodia) , Manila, Bogota, Mumbai, Delhi.
Strategic partnerships :Thailand, South Africa
Management contracts : United States, Italy, Malaysia.
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Case 1: Mumbai and Delhi airports..1
Expansion and development of brown field airports
Prior to PPP, Mumbai and Delhi accounted for

47% of national traffic, 58% of cargo traffic, 38% of aircraft movement and 33% of revenues
Estimated investment need of INR. 138 bn (over USD 2 billion)

Ranked poorly on services: An IATA survey in 1999 ranked Delhi and Mumbai among three least
favored airports in Asia Pacific
Proposed structure key features

30 year Operations Management Development Agreement with an extension option of 30 years
Mandatory Capital Expenditure program with key projects to be completed by March 2010
Massive liquidated damages for non-compliance with objective and subjective standards.
Aeronautical charges as per AAI rates and eventually through independent regulator (AERA)
Limiting use of land for non-Aero purposes to 5% in Delhi and 10% in Mumbai
Minimum non aeronautical revenue 40%
Retention of all staff initially and then a significant number even after 3-years
ATC would still be under the control of AAI/DGCA
First right of refusal, if within 10% of best bid for a second airport within 150 km
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Transaction structure

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Bid variable and revenue model
Bid variable
% of Gross revenue (both aeronautical and non-aeronautical) that would be shared with the
government. The principle was that bidder with highest revenue share would be successful bidder.
Allowed revenue streams

Aeronautical Non-Aeronautical
Aero Related Commercial Commercial

(Terminal)
(Other)
Landing Cargo handling Advertising Real estate

charges fee development
Revenue from Hotel, business

Parking charges Aircraft refueling
concessionaires and industrial
parks
Passenger Rental from

Aircraft
service fee airlines,
maintenance Retail and
business, shops
entertainment,
residential
Car parking,
Catering services
public
admission fee
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Challenges and project impact
Challenges
Imposition of Airport Development Fee and its subsequent removal
Creation of the AERA as the airports regulator post signing of Concession Agreement

Leakage of Revenues to Airports Authority owing to revenues being earned through subsidiaries set
up by Private operator
Impact and benefits

Significant improvement in service delivery with world-class facilities
Both Mumbai and Delhi fare high on international airport rankings
Strong growth in Traffic
Mumbai airport become worlds busiest single-runway facilities by handling 837 flights a day or one
in 65 seconds on an average in fiscal 2017.
Traffic at Delhi and Mumbai went up to 58 million and 42 million annually in fiscal 2017
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Case 2: Bangalore airport..1
Greenfield airport
Bangalore International Airport Limited

Located 34km from Bangalore city and spread over 3900 Acres.
Phase I Annual passenger capacity of 12.0 million and cargo handling capacity of 35000 tonnes,

developed at a cost of $ 495 million became operational in 2009
Phase-II includes development of one more terminal and another runway at a outlay of $ 500 mn.
Bangalore achieved 22 million passengers in 2017
Development of Green field private airport

Built Own Operate Transfer (BOOT) with Concession period 30 + 30 years
Public Limited Company promoted by Siemens (Equity:40%), Mumbai Airport Developers Private
Limited (Equity: 29%), Flughafen Zurich (Equity: 5%) and two public agencie (Equity : 26%).
Public agencies include Karnataka State Industrial Investment & Development Corporation Limited
(13%) and Airports Authority of India (13%).
Private promoters hold 74% stake in BIAL while the state holds the remaining 26%
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Structure

45
Challenges
Significant delays between award and commencement of project

Project conceptualized in 1999 and awarded in 2001
Concession agreement signed in 2005

Phase I construction completed in 2008
73 months to get land lease deed signed
As one of the early PPP projects in sector, inadequate clarity on

Tariff fixation methodology and regulation
AERA has been set up as an airport regulatory subsequently
Agreement hadnt provided for compensation to private operator for delays on account of Authority
defaults
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Structure
Bangalore International Airport Limited

Located 34km from Bangalore city and spread over 3900 Acres.
Phase I Annual passenger capacity of 12.0 million and cargo handling capacity of 35000 tonnes,

developed at a cost of $ 495 million became operational in 2009
Phase-II includes development of one more terminal and another runway at a outlay of $ 500 mn.
Bangalore achieved 22 million passengers in 2017
Development of Green field private airport

Built Own Operate Transfer (BOOT) with Concession period 30 + 30 years
Public Limited Company promoted by Siemens (Equity:40%), Mumbai Airport Developers Private
Limited (Equity: 29%), Flughafen Zurich (Equity: 5%) and two public agencie (Equity : 26%).
Public agencies include Karnataka State Industrial Investment & Development Corporation Limited
(13%) and Airports Authority of India (13%).
Private promoters hold 74% stake in BIAL while the state holds the remaining 26%
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Summing up
1. Given the composition of revenues and the natural monopolistic nature of an Airport, an
independent regulatory mechanism is crucial
2. Time land availability and handover is crucial.

3. Upfront project development, master planning and diligent oversight in construction
crucial, especially in brown field airports where investment needs to be done along side
keeping airport operational.
4. Revenue share typically the bid variable; critical to define revenue base clearly
5. Availability of land for development can help augment revenues and hence the project
viability
6. Concessions seem a popular model especially for airports with visibility of traffic demand
7. In case of brownfield airport PPPs, Staffing details and handover obligations need to be
spelt out clearly.
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Agenda

Session I Hospitals
Session II Airports
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Road development context in Indonesia
Longest road network in ASEAN of over 440,000 km

National Roads less than 10% of total road length ; ~ 2% of National roads tolled.

National Medium Term Development Plan 2015-2019 in place
Multi-modal | National logistics focus | Regional orientation and Integration
Reducing travel time in the main corridors down to 2.2 hr/100 km
1000 KM Expressway, 2650 KM New Roads, 3072 KM Capacity Expansion envisaged
Expansion of Expressways on Toll / PPP
IIGF Risk allocation guidelines identified multiple models

Toll Road BOT, Toll Road O&M, SBOT, Availability payment approaches
This session will focus on Non-Toll models
Presentation at Japan Road Congress. DG Highways 2015

https://www.road.or.jp/international/pdf/31_1.pdf
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Generic PPP Models in road sector
Risk Transfer BOT Toll BOT Shadow Toll BOT - Annuity
Financing/Investment risk Full Full Full

Construction risk Full Full Full
O&M Risk Full Full Full
Traffic Demand Risk Full Full/partial No transfer
Toll collection Risk Full Full/partial No transfer
Reduction in level of risk transfer to Private Sector
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Variants of non-toll PPP models..1
Shadow-Tolling
Used when there is demand but there is resistance / difficulties in administering tolls
Public sector pays a fee to Private concessionaire for vehicles using the facility.
Typically no tolls collected from users

Demand risk is passed on; Operator paid on the basis of use.
Bands used to apply shadow toll payments to different levels of traffic;
Base Case: designed to service senior debt but not to provide return on equity
Higher bands: provide a return on equity
Top band: usually has a toll rate of zero to cap amount payable to concessionaire
Variants
Capping of shadow toll to certain number of vehicles
Payments indexed to basis of safety and speed performance thresholds achieved
Payment to private operator on the basis of shadow tolls, but Public sector retaining right to toll
52
Variants of non-toll PPP models..2
Availability based / Annuity models
Plain vanilla Annuity

Used when there is reluctance to toll and demand base / growth is uncertain

Public sector pays a availability fee to Private concessionaire for
Public Authority retains right to Toll; No demand risk is passed on
Hybrid Annuity model (HAM) recently introduced in India

Mix of BOT Annuity and EPC models; Public Authority retains tolling rights
Government to contribute 40% of Project cost in first five years through fixed annuity
Remaining will be variable annuity based on availability and performance till end of term
Rationale / underlying context
Stress in banking system and among developers
Reduce Risks passed on to private player, but attract financing partially
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Suitability of various approaches
BOT BOT BOT Hybrid

Type BOT Toll
shadow toll Annuity annuity

Traffic Base and Growth High High Uncertain High
Resistance to Toll Low High High High
Private sector risk appetite

High High Medium Low-Medium
willingness, and capacity
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Case 1: Tuni-Anakapalli Annuity project..1
One of the first BOT-Annuity projects awarded in India
About the project

59 km Road expansion project to strengthen existing two lanes and widen to a four lane dual

carriageway on a 17.5 year concession period
Construction started in May, 2002 and completed in Dec 2004
Project cost: INR. 2950 mn. (~ USD 46 mn.); Annuity (Semi-annual): INR 294 mn. (~ USD 4.6 mn.)
Structure
Awarded by NHAI on a BOT (Annuity) with 15 year annuity payment on semi-annual basis
Payments linked to availability; secured through a revolving letter of credit
State Support Agreement for facilitation, applicable permissions, dedicated team of police
personnel, highway patrols, and to generally support the project implementation.
No right to toll, levy charges or allow other developments or advertising. NHAI has the right to levy
and collect a toll or fee or permit any advertisements.
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Case 1: Tuni-Anakapalli Annuity project..2
Innovative securitization of annuity payments
Key benefits
Incentive for early completion with a bonus payment and penalty for delay built in.


Concession period included the construction period, so the developer was incentivised for an
earlier completion to begin earning annuities.
Project completed with just one month over-run (land acquisition delay attributable to Authority)
Reduced cost of project through innovatively securitizing the annuity receivables
Developer raised debt at very low interest rates by securitising the annuity payments receivable
This mode of funding enabled the concessionaire to repay the term loan and provided access to
relatively lower cost funding
56
Case 2: Hybrid Annuity Model INDIA..1
Context for considering HAM
Following a rush of PPP BOT projects between 2010-15, the sector in India
faced a number of challenges
Large number of stalled projects / Delays in approvals, clearances, land acquisition

Stressed balance sheets of both Developers / Banks; reluctance to finance risky projects
Fall in interest of private developers; competitive intensity on bids reduced
A CRISIL study found that average number of bids fell from 25 in 2011 to 6 in 2016.
Key features
Private partner takes construction and O&M risks,
Financing risk is partly borne with use of Public Funds; lowering Cost of Project financing
Lower Equity requirement from Private developer
57
Early concerns and current status
Concerns
Initial reluctance of Banks to lend owing to low skin in the game
Effective Equity participation of developers ~ 9% of the project cost.

Inadequate clarity on protection for lenders in event of termination
Aggressive bidding in the initial rounds; although there has been a moderation of
exuberance in subsequent bids
Status and recent developments

16 of the 27 projects awarded till December 2017 have achieved financial closure
HAM projects expected to account for 50% of the projects to be awarded during the
current financial year
Increase in average number of bids
58
Potential areas for clarity and improvement
Threshold level of completion of land acquisition to avoid delays

Providing for Provision Commercial Operations Date
Active involvement of Lenders

Provision for longer concession periods to derisk project
Minimizing possibility of irrational bids

Rigor in project development
Granular break up of information on costing and financial model from Private developers as part of bid
Diligence check to eliminate spurious, erroneous and irrational bids
Stringent criteria for selection
Blacklisting repeat offenders who fall short in delivery / financial capacity
59
Summing up
Availability payment Hybrid models a useful alternative when

Viability of projects difficult to determine and are uncertain

There is resistance to tolling
Private sector appetite to take risks is weak
Financial eco-system is either developing or is under stress
Need to build safeguards

Over aggressive bidding
Inadequate skin in the game for Private operator
Poor performance in later years
INcrease in share of public spending
60
Agenda

Session I Hospitals
Session II Airports
61
Global context..1
Rapid adoption and increase in urban mass rail transit since the 1980s
Sharp increase in number of cities with mass rail transit post 1980s
Europe: Over 65 cities added rail systems during 1980-2007; Over 160 cities have rail transit
Asia: China over 80 cities. India over 10 cities.

Middle East: Doha, Dubai, Riyadh, Kuwait
Rail account for a dominant share of incremental transit in many cities even in Australia and US
Key drivers for increased adoption

Rising incomes, and economic growth
Rising car ownership rates, Urban congestion and Pollution
62
Global context..2
Traditionally Public Funded; but need for financing driving early PPPs
Metro rail systems have traditionally been predominantly public funded

A study of 112 rail systems globally by Planning commission Government of India found that 88%

of these systems were public funded and less than 12% had some form of private participation
The study observed that outside India, no city had adopted PPP for a full-city metro rail system
PPP models have become more prevalent over the last few decades
Initial driver for PPP therefore has been to find the financing
Several cities in Latin America and South East Asia have experimented with PPPs
Bangkok, Kuala Lumpur and Manila adopted concessions while Hong Kong and
Singapore had their public entities access private finance through listing.
63
Several challenges to PPP in mass rail transit
Several early Concession / Investment-led PPPs faltered; had to be restructured
Metro rail transit systems are an expensive affair

Capital Investments needs are large
High costs of Land acquisition in congested Asian cities further increase costs

Sophisticated systems also call for a sustained and hefty O&M spending
Farebox revenues rarely sufficient to meet costs

Many metro systems struggle to even recover O&M costs in full.
Direct and/or indirect public subsidies such as land development rights are almost
inevitable
Institutional and contractual complexity

Cities are often governed by diffused Institutional arrangements
Complexities of forming and sustaining coalitions and partnerships.
Resultant complexity in contractual arrangements is high
64
PPP models in rail transit..1
Models are still evolving
INFRASTRUCTURE
Public Private
Public provision Infrastructure maintenance / upgrading
Public
USA London Infracos
Operating concessions DBFOs
Stockholm Hudson-Bergen LRT (US)

Buenos Aires Docklands LRT and Croydon Tramlink (UK)
Rio de Janeiro Toulouse, Grenoble, Strasbourg (France)
Singapores North-East Line Union Pearson Air Rail Link and the
Share Issue Privatisation Richmond Airport Vancouver Line (Canada)
OPERATIONS Singapores North-South Brisbane airport rail (Australia)
Private and East-West Lines KL Star, Putra LRTs, KL Monorail (Malaysia)
Bangkok Skytrain and Blue Line (Thailand)
Manila MRT3 (Philippines)
Beijing Subway Line4 (China)
Mumbai, Hyderabad metro rail (India).
Share Issue Privatisation
- Hong Kong
65
PPP models in rail transit..2
Many PPPs have required Government bailouts
DBFO model most commonly used for new systems.

Hudson-Bergen LRT in US, Docklands LRT and Croydon Tram link in London, Union
Pearson Air Rail Link in Toronto, the Richmond Airport Vancouver line

O&M concession where government has written off investments.
Buenos Aires - 20-year concessions for private entities to operate services with
investment funded by State; Rio de Janeiro - two urban rail 20/25 year concessions
Singapore: 20-km North-East Line, two LRT concessions to SBS Transit Ltd
Challenges in projects where demand risk was sought to be passed

Kuala Lumpurs Express Airport rail link, actual traffic for 2010 - 65% of actual,
Delhis airport express, actual traffic in year 1 - 53% of projections.
Public budgets had to bear cost of these failures,
66
PPP rail transit summary of select cases..1
Bangkok Sky Kuala Lumpur Kuala Lumpur
System/ Phase Manila MRT 3
train STAR PUTRA
Technical and Known financial aspects
Track (Km) 235 27 29 16.8
Number of Stations 23 25 24 13
Dec. 1996 (Phase

Dec. 1999(partial)
Opening date Dec. 1999 1) Sept. 1998
July 2000(full)
Dec. 1998
Approx. Cost
797 455 607 494
(2008 US$ mn.)/Km
Elevated At grade 60% elevated
Physical
Elevated with 4.4. km of with 9.4 km of and 40% at grade, 1
description
underground track elevated track underground stn.
Operational and
Insolvency Insolvency Operational,
in expansion
Known Outcomes and public and public but govt. is looking to
post
bailout bailout buy back
restructuring
67
PPP rail transit summary of select cases..2
Bangkok Sky Kuala Lumpur Kuala Lumpur

System/ Phase Manila MRT 3
train STAR PUTRA
PPP Model and Contractual Elements
Contract date / April 1992 for 30 Nov. 1991 for Feb. 1993 for 1991 - 1993
duration years 30+30 years 30+30 years for 25 years

Concession
Structure for PPP Full concession Full concession Full concession w/leaseback
to public operator
Mechanism for Soft loans, in-kind Soft loans,in-kind
In-kind grants Lease payments
Public Support grants grants
Treatment of
100% private 100% private 100% private Public
demand risk
Source of private Govt. Lease
Fare box Fare box Fare box
compensation payments
Private with Private with Private with
Fare setting a regulated a regulated a regulated Public
cap cap cap
68
Case 1: Delhi Airport Metro..1
PPP for a high-speed airport connectivity rail link
Project conceptualized for connectivity to Delhi airport

DMRC 100% public owned; Built and operates the Delhi Metro Rail System
Delhi was building a new International Airport; Was to host Commonwealth Games

Project involved a dedicated high speed metro line to the airport.
Reduce peak travel time from Airport to city to 18 minutes from over 1.5 hours by road
Estimated Project Cost: US$1.26 billion.
Projected daily ridership of 46000 in 2010 growing to 86,000 in 10 years.
Scope for private operator

Airport line on public-private partnership (PPP) on a 35 year concession.
Civil works viz., viaduct, tunnels, and stations to be built by DMRC with Public Funds.
Private concessionaire responsible for financing and managing Operating systems
including Track, Signalling, Power distribution and Rolling stock
69
Structuring and bid variable

Key Risks transferred - Construction risk, Operating risk and Demand / Traffic Risk.
The cost estimated at US $ 300 million was high relative to projected farebox revenue;

Bids were invited on the basis of Annual subsidy / fee payable by/to DMRC
Project awarded on a US $ 7.5 million fee payable annually with 5% escalation
Project milestones, early problems, and low traffic

Awarded in 2008 and Operations commenced in 2011
Objective of completing project before Commonwealth games not achieved and
penalties levied on Operator
Traffic was less than a third of the projected traffic at start (~ 13500 daily passengers)
Technical problems on the line and reduction in speed
70
Differences and Termination

Issues with the Civil Structure and reduction in Speeds
Low Traffic volumes averaging less than 10,000 per day

Concessionaire notice to terminate the contract seeking compensation from DMRC
Project going into arbitration
Current status
DMRC since then took over operations; reduced fares and increased frequency
Average daily ridership has since then increased to 45000
Arbitration went in favor of the concessionaire; DMRC asked to pay compensation to the Operator
71
Summing up
1. Holistic project preparation and building public capacity is critical

- Traffic projections
- Land acquisition challenges

- Potential to drive traffic through Transit oriented Land use planning
- Para-transit and last mile connectivity
- Clarity on Roles of various city, provincial and federal agencies
2. Structuring Key is to simplify revenue model and build certainty

- Clarity on revenue model; sizeable public financing will have to be found
- Co-development rights to land along the corridor is an option; but fraught with uncertainty
- Alternatives to transfer of demand risk need to be evaluated
- Operations & Management concessions are workable
72
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73
Thank you
Anand Madhavan

Director Infra and Public Finance
Telephone: +91 98404 62556
Email: Anand.Madhavan@crisil.com
Jagannarayan Padmanabhan
Director Transport
Telephone: +91 99303 35832
Email: Jagannarayan.Padmanabhan@crisil.com
CRISIL Infrastructure Advisory is a leading advisor to regulators and governments, multilateral agencies, investors, and large public and private sector firms. It is a division of CRISIL Risk
and Infrastructure Solutions Limited, a wholly owned subsidiary of CRISIL Limited, an S&P Global Company.
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