Government Approves Rs 6,429 Cr Road Projects in 4 states including J&K

July 23, 2012

The government has approved eight highways projects worth Rs 6,429 crore in four states including the strategic Z-Morh tunnel in Jammu & Kashmir connecting Leh to Srinagar.

“Public Private Partnership Appraisal Committee in its meeting last night has approved eight highways projects in four states – Jammu & Kashmir, Rajasthan, Karnataka and Uttar Pradesh, mostly to be built under build, operate and transfer (BOT) toll mode,” a Highways Ministry official told PTI.

These eight projects include 6.5 km long Z- Morh tunnel on Srinagar–Leh highway, the fourth strategic tunnel in Jammu & Kashmir to be built at a cost of Rs 773 crore, he said.

The tunnel would provide all-weather connectivity to the people of the Ladakh region, he added.

The other approved projects include three highway schemes in Rajasthan including Rs 668-crore Rajsamand-Bhilwara, Rs 530-crore Rajasthan border-Salasar project and Rs 332-crore Jodhpur-Pali highways scheme.

The official said of the remaining four projects, three schemes — Rs 1,282-crore Chakari-Allahabad, Rs 909-crore Hadia-Varanasi and Rs 605-crore Kashipur-Sitarganj – for widening of roads are in Uttar Pradesh.

Besides, the PPEAC also approved four-laning of Hubri-Hospet 77 km stretch in Karnataka to be built at a cost of Rs 1,330 crore.

SOURCE: http://www.business-standard.com

Written by ITW Editor · Filed Under News

Government Set to Award 3,000 km Road Projects under EPC this fiscal

July 23, 2012

To accelerate highway building process, Road Transport Ministry is all set to bid out at least 3,000 km of projects this fiscal and 20,000 km by 2017 under EPC mode that minimises risk to developers.

Finding that 20,000 km of National Highways of the total about 74,000 km are single, low density traffic lanes, not viable on PPP (public private partnership) basis, the government is ready with the final draft of EPC (engineering, procurement and construction) that would be sent to the Cabinet by the month-end.

“We are ready to award over 3,000 km on EPC mode this fiscal to accelerate the road building process. The Ministry has decided for upgradation of 20,000 km highways to two-lane standards on EPC basis during the XIIth Five-Year Plan (2012-17), a Road Transport and Highways Ministry official said.

EPC mode would not only minimise time and cost overruns but would also result in increased bidding by developers, the official added.

In EPC projects, the government pays the developer for constructing the highway while the toll revenues accrue to the government.

The other two modes through which the highways projects are bid are build operate transfer (BOT-toll) and BOT-annuity. and EPC. In the BOT mode, the developer has to operate the highway for several years.

The model draft for EPC said, “Experience also suggests that annuity based projects are comparatively expensive, while conventional contracts (BOT) are prone to time and cost overruns. It has, therefore, been decided to adopt the EPC mode of construction.”

The draft quoted a sample analysis of 20 NH projects executed on item-rate contracts that took, on an average, 61 months to complete as against 29 months taken by projects executed through PPP which generally adopted the EPC mode for project execution.

“Further, these projects had cost overruns of an average 48% (ranging from 25 to 183%) besides large volumes of foregone toll revenues on account of delayed completion,” the draft said.

With a view to enabling a transparent, fair and competitive roll out of highway projects, the model draft incorporates international best practices and provides a sound contractual framework that specifies the allocation of risks and rewards, equity of obligations between Government and the Contractor, precision and predictability of costs etc, the draft added.

On selection of contractor, the draft said it will be based on open competitive bidding and “the bidder who seeks the lowest payment should win the contract.”

On defect liability period, it said that same has been made two years from the earlier specified one year to “in order to provide additional comfort to the Government.”

The draft has been finalised by an inter-ministerial panel against the backdrop of differences between the Road Transport Ministry and the Planning Commission over some issues including the defect liability period.

Road Transport Secretary A K Upadhyay last week said that the Ministry after obtaining stakeholders comments on draft EPC would send it for Cabinet nod by July 30.

The EPC mode is expected to accelerate the pace of awards as the National Highways Authority of India (NHAI), which has not awarded a single project in the last quarter.

Last month, Prime Minister Manmohan Singh had set a target of award of 9,500 km of road projects in FY13 for the Ministry.

SOURCE: http://business-standard.com

Written by ITW Editor · Filed Under News

Gammon, IL&FS in race for Rae Bareli-Jaunpur road project

July 23, 2012

Nine firms, including Gammon, IL&FS, Sadbhav Engineering, are in the race to develop the highway connecting Rae Bareli with Jaunpur.

Rae Bareli, in UP, is the constituency of the UPA chief, Ms Sonia Gandhi.

The Rs 570-crore project requires a National Highways Authority of India Board approval as bidders have sought more annuity than what was internally estimated by the Government.

This significance in the backdrop of recent concerns when there was a bleak response for projects. The length of the project is 166.40 km and the concession period is 17 years including the construction time of 24 months.

The project will be implemented on a build-operate-transfer (BOT)-annuity mode.

The project covers the districts of Rae Bareilly, Pratapgarh and Jaunpur.

PROJECTS UP FOR GRABS

Developers can look forward to bid for some large projects.

The Public Private Partnership Appraisal Committee (PPPAC) has approved the Z-Morh Tunnel in Jammu and Kashmir (Rs 2,773 crore), as also the following road projects: Chakeri-Allahbad (Rs 1,283 crore), Hubli-Hopet (Rs 1,330 crore), Rajsamand-Bhilwara (Rs 668 crore), Handia-Varanasi (Rs 909 crore), Kasgipur-Sitarganj (Rs 606 crore) and Jodhpur-Pali (Rs 333 crore). All the projects will be undertaken on a build-operate-transfer (toll) mode except the J&K project, which will be bid out on BOT (annuity) model. Under the latter, mode, the Government pays a certain amount twice a year to the bid winner to develop and operate the project.

The developers compete on the level of annuity they want during the concession period; and developers do not get to keep the toll revenues.

In BOT-toll mode, the developers get to keep the toll revenues for the concession period.

SOURCE: http://www.thehindubusinessline.com

Written by ITW Editor · Filed Under News

Guest Editor – Mr.Richard Di Bona

July 18, 2012

Richard Di Bona has been a transport planning consultant for approximately 20 years, gaining experience on projects in over 20 countries. This includes tollway experience in Europe, Australia and across Asia. Originally from the UK, he has been based in Hong Kong for over 17 years and has been extensively involved in tollways in Mainland China in particular. He has advised on traffic and toll revenue projections and demand-side risks variously to advise bidders for BOT concessions, potential lenders, government & development agencies, as well as on Bond Issues, Private Placement and Stock Market listings for tollway operators.

His guest editorial is entitled “Expressway Development in China, Malaysia and Mexico; and Potential Lessons for India”.

Expressway Development in China, Malaysia and Mexico; and Potential Lessons for India

Having been privileged to be invited to write something for IndiaTollways.com I was asked to come up with my own topic for my guest editorial, pulling on my interests and experience with tollways internationally. After some thought, I decided to step back and reflect on the question of why expressway development is important and moreover, whilst learning from overseas experience is important, why it is equally important to consider local conditions; this with reference to the experiences of China, Malaysia and Mexico.

Without a doubt, one of the keys to China’s development has been the development of tollways, specifically inter-urban tolled expressways. These have often reduced round-trip journey times from days to a day-trip for trucks. Moreover, they added capacity to enable factories to develop and expand in the knowledge that they could receive raw materials from and send manufactured goods to ports (which themselves also expanded). The impact on development in much of China has been evident, since my first visit in 1993.

Meanwhile, across the Pacific at the end of 1992, Canada, Mexico and the USA signed the North American Free Trade Agreement (NAFTA). In the run-up to this, maverick US politician Ross Perot talked of the “sucking sound” of jobs shifting to Mexico as a consequence of NAFTA. And it could be argued that a number of low-end manufacturing jobs did indeed shift to Mexico.

However, this raises a question: why did higher end manufacturing not develop in Mexico to the same extent as China, or even Malaysia? After all, both Mexico and Malaysia were early adopters of private finance into the development of tolled expressways, beginning back in the 1980s. And China only really got in on the act in the mid- to late-1990s.

To a great extent, the answer lies in the development of expressways on a sustainable basis. Where private finance is involved, this requires sustainable returns to investors.Decisions and management of expressway development were decentralised, with the aim of increasing responsiveness. However, local authorities in Mexico by-and-large did not have the necessary skills and capabilities at the time to properly manage expressway development. As a consequence, Mexico’s US$13.3bn 1989-94 toll road programme amassed US$5.5bn in non-performing non-recourse loans. Given this background, it is hardly surprising that infrastructure development in Mexico was less attractive to investors; and it could be argued that this was one reason why Mexico failed to fully reap the opportunities presented by NAFTA.

Malaysia and China in contrast have both developed markedly, both in terms of tollways and of wider industrial and technological advance.

Like Mexico, Malaysia has also been cited as an early adoptor of encouraging private involvement in the provision of highways, most notably with the tolled North-South Highway (or “PLUS”), in the 1980s. This was seen as a highly successful project and became the catalyst for a boom in tollway construction in the country from the 1990s.

However, Malaysia’s experience was not without its problems: whilst the tollway network grew quickly, by the late 1990s questions were being asked regarding the financial prospects of a number of concessions. It was argued that Malaysia built-out its inter-urban expressway network too quickly, resulting in insufficient demand for the capacity offered. In a number of cases concessions were granted which ran parallel to existing tollway concessions. Those identifying schemes could often proceed (subject to financing) without due diligence of impacts on existing Build-Operate-Transfer concessions. This might have helped national development, but it did not necessarily help the fortunes of tollway operators and investors!

China’s embracing of private involvement in tollways began with the Guangzhou-Shenzhen Superhighway, the first section of which opened in 1994. This was a Build-Operate-Transfer concession. However, by the time this opened, China was already developing tollways with its own government financing. But quite often local (initially primarily Provincial-level) government would construct and open the first phase of a tollway and then seek private investment as a Joint Venture, both to take on the management of the completed section and to obtain finance for the completion of subsequent sections. In a number of cases, Provincial governments would set up a company holding the expressway concession rights and then list a proportion of the equity on stock exchanges.

Given the pace of development in China, a number of different approaches were used. And each had its advantages and on occasion, its drawbacks also. Jiangsu Expressway Co. Ltd. held not only the rights to the Jiangsu section of the Shanghai-Nanjing expressway, but also a number of connecting tollways. Moreover, the company also operated toll collection systems on the pre-existing parallel National Highway, enabling tolls to be coordinated and helping to ensure that the Malaysian problem, of competing expressways opening before there was sufficient demand for both the old and new expressways, did not arise. Of course, the pace of economic growth in general in China also helped the success of many projects: and expressways meant that for truck drivers on certain inter-provincial routes, what had been up to a one-week round trip previously, could become a two-day or even same-day trip.

There were however problems with some projects. When debt-financing was selected by concessionaires, there were a few instances of too many Bonds being issued, with too large a share of debt repayments being scheduled too early on, leading to the bankruptcy of a small number of private investor-operators.

Other issues arose when city-level government granted rights for a scheme connecting to an adjacent city. (City-level government in China is one tier beneath Provincial government.) For example, when the tolled Humen Bridge in Guangdong was planned and built, it was assumed that the pre-existing ferry service would cease operation. However, being operated by the city government on the other side of the river, not only continued to operate but ensured that ferry tolls for trucks undercut road tolls on the bridge. This issue of “competitive responses” is not new to transport planning: the Channel Tunnel linking Britain to France faced the same challenge from incumbent cross-channel ferry operators. And also in the UK, when the Sheffield Supertram first opened, deregulated bus operators ran parallel to the Supertram and undercut fares.

Particularly in the early days of expressway concessions, in order to attract investors, local governments often offered revenue guarantees to investor-operators. However, such arrangements were outlawed under a 2002 State Council directive. This led New World Development to divest from 13 toll roads and bridges in China.

Contractual guarantees, covering areas such as restricting competition from other roads and even revenue guarantees, though often useful where a project is perceived as potentially high-risk, can prove controversial. The original arrangements for Sydney’s Cross-City Tunnel being a case-in-point (but one which would require at least an entire article to properly elucidate).

Another change in conditions which occurred in China in the mid-to-late 1990s was the maximum tollway length which Provincial governments could be responsible for. The aim was to enable local governments to develop local tollways, but strategic long-distance tollways should be approved by central government, which had previously prepared a National Trunk Highway System masterplan for tolled expressways to link-up the country. However, at least when first introduced, this directive was sometimes bypassed by Provincial governments splitting a tollway concession into a number of contracts, each covering a distance beneath the threshold requiring central government approval. Nevertheless, Beijing’s approval was required for any projects seeking stock market listings.

Despite the success of many tollways in China, it must also be mentioned that not all have been successful. Indeed, it would appear that following the success of many projects, some local governments decided to get in on the act, including promoting schemes which did not have the same demand/ economic/ financial rationale of the earlier success stories. A possible incentive to do this might well have been a common occurrence in China of local governments fixating upon GDP growth figures and using Gross Fixed Capital Formation to boost such statistics.

As stated at the start of my piece, effective highway networks do appear to play a part in assisting economic development; without such transport networks, economic development could well be curtailed. And private involvement can increase the pool of capital available to finance such networks, enabling them to be developed more quickly. However, there is no single best method. And in particular China’s experience might suggest that approaches, in terms of financing forms and what is allowable under contract, might actually need to evolve over timeframes of just a few years. Early concessions may be seen as riskier, so requiring more favourable terms and guarantees. Thereafter, as more potential investor-operators come forward, terms and conditions might be tightened up. Let me summarise as follows:

Accelerating tollway development to link-up key centres would appear to be good for national economic and industrial development (and also can help farmers’ produce reach cities more quickly and thus cheaply, also affording urban consumers fresher produce)
However, additional tollways running parallel and effectively duplicating connectivity should only be implemented when they can be justified financially without undermining preceding concessions; such practice also reduces risk for concession-bidders (so ceteris paribus, government should be able to secure more favourable terms)
Wherever possible, tollway development should also be coordinated with the broader transport system within the corridors concerned
Decentralisation of decision making can help speed-up and arguably, democratise the tollway development process; however, an absolutely necessary pre-requisite is that the necessary skills and knowledge exist within the relevant tier(s) of government to which such authorities and responsibilities are to be devolved.
Although not discussed explicitly above, I would also add that given the size of contracts which are associated with these kinds of projects, a good, strong governance system should also be maintained, so as to minimise both the incidence and scale of corruption. (I appreciate that perhaps I should say “eliminate” corruption, but no country in the world has yet managed this, so it would be disingenuous to talk of eliminating corruption outright)
Finally and most importantly, learn from overseas but tailor your own approaches to India, and indeed perhaps to each part of India, and then re-tailor your approaches as the sector and the country as a whole, develop.

Richard Di Bona

Written by ITW Editor · Filed Under Guest Editorial, Guest Editorial

3i completes Rs 200 cr deal in Supreme’s BOT road projects

July 10, 2012

Supreme Infrastructure today said it has completed the Rs 200-croe deal with 3i India Infrastructure Fund for a minority stake in its portfolio of road BOT companies.

“3i India Infrastructure Fund has completed its Rs 200 crore investment for a minority stake in a portfolio of our road BOT companies,” Supreme Infrastructure said in a statement. The transaction was signed and announced on January 30 and Ernst & Young was appointed as the financial advisor to the deal for this fund raise, it said.
Supreme Infra is focused on roads, bridges, power, water, railways and civil construction and infrastructure.

The company’s current order book stands at Rs 5,800 crore of which unexecuted order book is Rs 3,900 crore.

SOURCE: http://ibnlive.in.com

Written by ITW Editor · Filed Under News, Supreme Infrastructure India Ltd.

Supreme Infra – Commencement of Tolling operations for Patiala Nabha Malerkotla (PNM) Road Project

July 4, 2012

Supreme Infrastructure India Ltd has informed BSE that the Company”s subsidiary Supreme Infra Projects Private Limited (SIPPL) has completed the construction of the Patiala Nabha Malerkotla(PNM) Road project on a DBFOT basis. The Company has commenced tolling operations on June 24, 2012. The Project was awarded by Punjab Industrial Development Board (PIDB) and in August 2011 was taken over by SIPPL from the original concessionaire. The sixe or this project was Rs. 94 cr. The concession period is 13.5 years. The total length of the road is approximately 56 kms. The EPC work was executed by Supreme Infrastructure India Ltd.

With this, the Company has achieved operational status of its 2nd Road BOT Project in India and its 1st Road BOT project in Punjab outside Maharashtra.

SOURCE:http://www.moneycontrol.com

Written by ITW Editor · Filed Under News, Supreme Infrastructure India Ltd.

RInfra’s Haryana road project becomes operational

July 4, 2012

Reliance Infrastructure (RInfra) today said its Rs 800 crore road project in Haryana for widening of Gurgaon-Faridabad-Ballabhgarh-Sohna road has become operational.

The project was executed by the company through its special purpose vehicle GF Toll Road Private Ltd, the company said in a statement.

The project is RInfra SPV’s first state road project, executed on BOT and has a concession period of 17 years, during which time the road will be operated and maintained by RInfra’s SPV, it added.

The project involved four laning of Gurgaon-Faridabad stretch and two laning of Ballabhgarh-Sohna road, it said.

Commenting on the development, the Reliance Infrastructure CEO, Mr Lalit Jalan, said: “This will increase commuting convenience and connect centers of tourism, International airport, industrial zones and places of economic importance.”

The project includes 14 lanes toll plaza at Gurgaon Faridabad road and six lanes toll plaza at crusher zone. Also, two toll plazas of six lanes each are located on Ballabhgarh Sohna stretch, the company said.

“With current order book of eleven road projects, we will generate from next financial year revenues of Rs 1,200 crore a year with 15 per cent y-o-y growth rate,” Mr Jalan said.

SOURCE: http://www.thehindubusinessline.com

Written by ITW Editor · Filed Under News