Road

Infrastructure
Coimbatore Bypass
PMF Sec A Group 2
Akshay Kumar
Allamraju Sundeep
Surbhi Verma
Utkarsh Rastogi
Bahniman Rynjah

About the Transport Infrastructure Sector (1/3)

Government Policy Initiatives

Amendment in NHAI Act, 1956: Private agencies to build, manage, operate the national
highways for specified duration, levy fees to recover costs and generate returns

Committee on Infrastructure, headed by PMO

Formulation of policies for time bound development of infrastructure

Maximize scope of Public Private Partnership

Monitoring progress of key projects

Provision of viability gap funding of upto40% of project cost for four laning of highways

Duty free import of construction equipment

100% tax exemption in 10 consecutive years out of 20 of operations

Government to meet all expenses and formalities for acquisition of land

FDI upto 100% in road sector

Easy external commercial borrowing norms

Longer concession period of 30 years

Right to collect and retain toll fee by operator

About the Transport Infrastructure Sector (2/3)

Current breadth of work in Road Infrastructure sector (NHDP 2)
Five phased expansion of National Highway Development Projects (NHDP)

Phase 3: Upgradation and 4 laning of 10,000 km of national highways on BOT (USD 14.17bn)

Phase 4: Strengthening of 20,000 km of national highways with paved shoulders (USD 6.04 bn)

Phase 5: Widening of 6500 km of national highways on DBFO basis (USD 8.96bn)

Phase 6: Construction of 1000km expressway on DBFO basis (USD 3.62 bn)

Phase 7: Construction of ring roads, bye passes, grade separators, flyovers, etc. (USD 3.62bn)

Components of NHDP I and NHDP II program

Total length of roads:

Golden Quadrilateral (Delhi-Mumbai-Chennai-Kolkata-Delhi): 5846 km

North-South corridor (Srinagar), East-West corridor (Silchar-Porbander): 7300 km

Port connectivity: 1325 km

Financing NHDP I/II

Central Road Fund Act, 2000 created non-lapsable dedicated fund

By levying cess on high-speed diesel and petrol @ INR 2/litre

50% of collection: Rural roads, of remaining 50% is split as:

57.5% national highways

12.5% road over bridges

30% connecting roads

About the Transport Infrastructure Sector (3/3)

Sample project

Bandra Worli Sea Link

Sources of Finance

Dedicated Central Road Fund

Project Cost: INR 1306 crore

Securitization of cess

Traffic (2007-08): 75000

Private sector, Public-Private Sector partnership

Expected annual toll revenue: INR 82 crore

Long term external loans from WB, ADB

Project IRR: 11;09%

Road Tolls

Concesion period: 30 years

Special Features

Existent forms:

DBFO

BOT (Toll)

BOT (Annuity)

Project Details (1/2)

Project Chosen
Need for a Bypass

Coimbatore Bypass Road Project

NH-47 passes (Salem to Kanyakumari) through

Coimbatore city and the congestion within city was
causing traffic delays

Initial plans in 1970s but dropped due to lack of funds

Project Model
Players Involved

Project Scope

First road project in South India with a BOT(Build,

Operate, Transfer) model

Public: Government of Tamil Nadu(GoTN), Ministry of

Surface Transport(MoST)

Private: L&T Transport Infrastructure Ltd.(LTTIL)

Construction of a 27.7 km two lane bypass road with a

width of 40-45m

A 32.2 m new Athupalam bridge across the river

Noyal

A Rail over Bridge(ROB) on NH 209

Maintenance of old Athupalam bridge

Project Details (2/2)

Project Costs

Estimated cost: Rs. 90 Crores (87 for the Bypass and 3

for the bridge)
Actual total cost: Rs. 104 Crores

Project Duration

Revenue Model

Project Construction &

Supervision

Bypass: 22 Months (Jan 1998 to Dec 1999), became

operational in Jan 2000
Athupalam Bridge: operational in Dec 1998
Concession period of 21 years for the bridge and 32
years for the bypass to collect toll
Agreement signed on October 3, 1997 between the
MoST, GoTN and L&T

L&T set up a special purpose vehicle (SPV) - L&T

Transportation Infrastructure Ltd. (LTTIL), to
implement the project

L&T held 100% equity in LTTIL

Constructed by L&T-ECC (Engineering Construction

Corporation) group, the largest construction
organization in India

L&T-Ramboll Consulting Engineers was employed

for quality control supervision and review of the
critical pavement design

Financial Details
Capital Structure

The project was financed by share capital of Rs 416 mn

and term loan of Rs 620 mn
Debt to equity ratio of 1.5:1
As per the agreement with the Tamilnadu government,
L&T had to hold a minimum equity of 26% at the end
of 30 years

Debt Financing
S. No.

Debt Financing Member

Details

Industrial Development Bank of India (IDBI)

IDBI had sanctioned Rs.300 mn for the project in the form of

infrastructure bonds. The loan was given in two tranches of
Rs.150 mn each at 15% interest each. Principal repayment
was to begin from the eighth year onwards.

State Bank of India (SBI)

SBI loaned Rs.300 mn to the project

Infrastructure Development Finance

Corporation (IDFC)

Had structured a liquidity support arrangement to help

SBI in emergency situation

L&T Finance

Housing and Urban Development

Corporation (HUDCO)

Housing Development Finance Corporation

(HDFC)

Remaining Amount

Revenue projections and

Valuation

Determination
of cash flows
Cost of project,
WACC
Social Benefits
External rate of
Return
Revenue
projections were
expected in the
ratio of 40:60 from
the bypass and the
bridge
Auto rickshaws, slow moving vehicles and two wheelers are exempted from paying tolls

The Risk Matrix

Risks in the
Coimbatore
Bypass Project

Physical
Risk

Natural
Disaster

Manmade
Disaster

Economic
Risk

Decrease
in no. of
users

Political
Risk

Financial
Risk

Legal
Risk

Environmental
Risk

Social
Risk

Technical
Risk

Managerial
Risk

Difficulty
in land
acquisition

Higher
inflation
rate

Permits or
license

Ecology
Damage

Strikes

Unsuitable
construction
method

Incapability
to supply
inputs

War or
revolution

Interest
rate
variation

Law or
regulation

Pollution

Ethical or
religious
strife

Different
site
conditions

Inadequate
communication
skill

Embargo or
restriction

Tax rate
variation

Dispute
or hearing

Nuisance

Dishonesty,
bribe or
fraud

Discrimination

Traffic risk was with LTTIL while the risk due to non-payment of tolls would be with the state
government according to the agreement

Challenges

Project Structuring

Public Consultation

Revenue projections were expected to be in the ratio of 40:60 from the bypass and the bridge
whereas the investment towards the construction was in the ratio of 87:13

Local traffic

No prior public consultation or discussion with opinion makers before deciding to levy toll
on the bridge

Biased Revenue Analysis

Only one private party bid for this project, mainly due to the deficiency in project
structuring financially and scope wise

There was an unwillingness to pay the toll since earlier they did not have to pay the toll prior
to the construction of the new two lane bridge. The people viewed the time delay at the toll
booth as a hindrance. Also no provision was made for people making multiple trips across
the bridge which was proving expensive for them.

Toll on existing bridge

The new and the existing bridges were both made one-way and LTTIL used to exact a toll on
both. This led to objections from the local people.

Alternatives to toll roads (1/2)

Criteria for selection:

Peoples willingness to pay

Private participation

The financing scheme should include the demand potential and peoples willingness to pay,
especially in a country like India. Instances of clashes between the service provider and the
customer have occurred (Delhi-Gurgaon toll) due to higher tolls charged by the provider

An overhaul is needed in the participation of private players in the road sector development
in India, as there are many loopholes related recovery of funds invested by the private player
as well as in the sharing of risks

Political, social and economic scenario

Any project should take into account the current political, social and economic scenario of
the particular geography within India. As an example, it would be foolhardy to expect a
private player to invest wholly in a project in the North-East or in Kashmir

Alternatives to toll roads (2/2)

Shadow tolling:

Refers to the policy of paying the private investor a variable revenue stream
(depending on the type of vehicle distance travelled) and over time depending upon
the usage of the road

Advantages of shadow tolling are

Transfer of traffic risk to private participant

Multiple sources of revenue can be drawn to contribute to toll fund

Problem of traffic congestions are eliminated as traffic is not impaired by increase in toll fare

Annuity based scheme:

Considered to be the best alternative for attracting private investors as most of them are
risk averse

Fixed income to every private participant every year during the concession period

Private investor is de-linked from the variability of traffic density and toll charges

Disadvantages are

Need to have enough central road fund to finance all annuity based projects

Problem of leakage, management and distribution of funds

Unwillingness of private inverstor to invest in politically sensitive regions

THANK YOU!