Variable Message System – The Applicability

May 24, 2010

Mr. Makkimane Ramu

Variable message system is actually “Advance Traveler’s Information System”

The concession agreement condition specifies, that the concessionaire should made available “Variable Message” as detailed below:

“Variable message signs shall be provided at minimum of six locations to guide and forewarn the users of the traffic and weather condition on highways. These messages can be varied from the control centers based on data received through surveillance system, highway patrolling censors etc. the locations shall be decided for their maximum utilities to the users”

Although in the concession agreement it is termed as “Variable message” it commonly known as “Advance traveler’s information Systems “in other parts of the world

In this connection I would like state that in any contract the concessionaire has about 65 km length of road in his control

Hence how he can give provide desired information which should include the following

Pre-trip travel information
En route driver information
Route guidance
Traffic control information
Smooth and uninterrupted traffic flow
Enhance road safety
Real time information and guidance to users
Emergency assistance round the clock
Alerts for abnormal road and weather conditions
Reduced journey time and inconvenience

Some of the typical messages to be displayed are indicated below:

Accident Ahead, Road Closed, Take Diversion;
Accident Ahead’ followed by some typical messages like Expect Delays’, Merge Right’, Merge Left’, ‘All Traffic Exit’ can be displayed.
Maximum Speed:—————kmph
Construction Work, Road Closed;
Signal Ahead;
Sharp Curve Ahead;
Congestion Ahead;
Bad weather conditions like ‘Heave Fog Ahead’, ‘Poor Visibility Ahead;
Trucks use Left Lane;
Watch for Stopped Traffic;
Watch your speed;
Watch for Falling Rocks: (In the case of landslide prone areas);
Two lane bi-directional carriageways);
No Mobile When Mobile; etc

Hence it is necessary the concessionaire should be able to share information with adjacent Projects to inform the user actual happenings which will help them to any immediate action.

At the present any Concessionaire has only about 65 KM of project. Any information generated within the project length is of little us to the user as thereafter there may be some hazards which the user will never know

In the event if the concessionaire shares “sensors” & related information with other concessionaires (adjacent) than the “variable Message” displayed will be of real use not only the road user but also the every Concessionaire as the “overloaded” trucks can easily be caught

M S V Ramu
Profession – Contracts Manager
E-mail : [email protected]

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Now that the Toll Industry has had a few years of maturity. What is the summary of expections from Toll Collection System from a concessionaire’s point of view.

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(This needs an in-depth analysis on broad parameters. However I have tried to analyze few problems associated with toll roads.)

M S V Ramu
Profession – Contract Manager
Date: May 4, 2010
E-mail: [email protected]

Introduction: with a need a build good infrastructure and lack funds available to finance these Highway project government has undertaken to built highway on Public Private Partnership either toll based or annuity based.
The private developers who bids and undertake constructions of Highway on toll basis needs to implement a through pertinent “risk” management system with the help of the government to mitigate all the risks that come with development.

To understand the various consequence of “tolled” roads there needs to through study to undertaken which is not my purview at the moment. Hence I dwell over some of these consequences based my exposer these projects.

Toll based Highways:
The idea of “Toll based” highways was imported into India from experiences of others countries like Europe, Malaysia or North America. The model “Concession Agreement” was drafted by the Government to suit India needs.

The toll categories of roads are those wherein there are sufficient traffic which can be tolled by the Concessionaire and recoup the investment made him and also make profit. In the event there are not enough tollable traffic to recoup the investment made, it will be offered on annuity basis or with VGP (Viability gap funding) by the government.

The tolled based roads wherein the Government grants private developer specific rights to design, finance, construct operate and maintain the roads. The developer called “Concessionaire” develops covers the investment costs and carry commercial risks since he relays on operation revenue from the tolls remunerated. At the end of the concessional period the road reverted back to government at no extra charges. However if the estimated revenue does not materialize during Concession period the Concessionaire may have to negotiate the concession period (as in other countries) which is yet to happen in India as we are just starting!

In south America there is method of bidding known as “Least Present Value” wherein the winning bidder is the one who asks for “smallest Net Present Value” and period of the concession period ends when the present value of revenue equal to winning bid. This model has not been tried in India.

Risk management in “Toll based” Concession

In the present circumstances the Concessionaire undertakes risks to constructs road which is generally divides normally into three parts:

Certainty – decision maker know exactly the outcome
Uncertainty – here the decision maker does not know the risks due to non availability of any data
Risks – are those which can be determined by statistical terms and can be analyzed but it differs from uncertainty

In risk management all the risks are quantified and analyzed and decision taken by the Concessionaire to mitigate the same by way of disciplined approach to critical situation

Developmental risk involves “Land Acquisitions” needed for the project. This is one of the biggest risk faced by the Indian developers as most of the times project gets delayed due non-availability of Land. NHAI does not meet the contractual requirements specified in the Concession agreement thereby causing unnecessary hardship to concessionaire. This risk falls under “uncertainty” which can not be quantified

Financial Risk: Soon after award of Project, the Concessionaire needs to raise the necessary capital required for execution project

There are two major risks involved:

Ability to raise the finance and make financial close as required by the Concession agreement.
High interest rate during the currency of concession period (due to floating interest charged by lenders) – mitigation of this risk in extremely important).

Construction risks

Whether the construction undertaken by the Concessionaire himself or by other contractor there are many risk involved

Poor performance of the contractor
Different site condition which normally experience contractor many not have thought off which is problematic and end up in high cost due additional items of work to be executed.
High price escalation of all the inputs of construction – Example: steel pricing going through roof last year.

All above risk has to be born by the Concessionaire which needs proper approach in the initial stages itself

Operational risks

Operation risk involves mainly the following

State support agreement – needs to signed by the concerned state and they shall support the collection of tolls which important to the concessionaire. NHAI who are promoters of the project should take full responsibility in getting the agreement signed with Concessionaire as Concessionaire can not exert any pressure on the states

Toll Level: the estimated toll level uncertainty during pre-bidding stages can lead to inaccuracies in revenue estimation which the Concessionaire has based his bid. Hence this risk needs to shared by the NHAI

The traffic volume projected in financial model may not materialize as it completely depends on economic growth projected during pre-bidding stage

Any fall in traffic volume will automatically bring down the IRR value projected. Expert estimate that 10% drop in volume of traffic will result in reduction of 1-7% – 1.9% percent reduction in IRR.

Toll collection
The Concession agreement does give any standard specification for the installation of tolling equipment. This has resulted in haphazard manner the tolling equipment being installed by the different Concessionaire. This needs to change. For example a RFID card issued at New Delhi should also hold good down south. By such an arrangement the road user can travel effortlessly any ware in India.

The technology used by the Concessionaire needs to be streamlined on all India basis for all Concessionaire.

Toll fee: The price escalation of “toll/Fee” charged by the Concessionaire is based on all India WPI index. This is incorrect as in some states it may be very high. In my opinion there should be “Toll Regulator” on all India basis to regulate toll based on each state WPI or any other base model

HTMS: Here there is no comprehensive approach. For example the “variable message system” is limited to one project length only! This also needs an all India approach.

Suggestion: at the moment there are so many “Toll” based road are in operation and also on the horizon. All the toll based roads owners are “Special purposed vehicle” promoted by the concessionaire.

So why not a “over the counter” stock listing be arranged of these SPV and listed in Stock exchanges which can also traded in F&O section. I am sure this arrangement will automatically will mitigate many risks and also give scope for improvement in roads as the Concessionaire would like increase the traffic by enhancing the many amenities for road users.

Thanks for taking time for reading this articles.

Written by ITW Editor · Filed Under Investment and Finance