TOLL ROAD PROJECTS IN INDIAThe 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

At the end of the concessional period the road reverted back to government at no extra charges

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

Concessionaire undertakes risks to constructs road which is generally divides normally into three parts:

Risk management in “Toll based” Concession

Developmental risk : Land Acquisitions- the biggest risk faced by the Indian

Financial Risk: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:Poor performance of the contractor Different site conditionHigh price escalation of all the inputs of

construction

Operational risks:

• State support agreement • Toll Level: the estimated toll level uncertainty during pre-bidding stages

can lead to inaccuracies in revenue estimation • 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 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

TOLL ROAD PROJECT ON 30 YEAR BOT

Salient features of the projectConstruction of a 30 km bypass on the Bangalore

section of the National Highway NH 7The concession agreement of 30 years is inclusive

of implementation period of 2 ½ years. The proposed bypass takes off from km abc of NH

7 near Bannigatta village and ends at km def near Davanhalli village.

The proposed project will attract large volume of interstate traffic between Tamilnadu, Andhra Pradesh and Kerala, as well as, all other northern States of India.

Concession agreement signed with GoK on 01.04.2010

MANAGEMENT AND ORGANISATION

A Special Purpose Vehicle (SPV), Priya Infrastructure Construction Limited (PICL) has been setup for construction and operation of the road project.

PCIL’s Board can have minimum of 3 and maximum of 12 Directors. The company’s present Board comprises of the four directors with Mr. Ashwin as Managing Director.

SHAREHOLDING PATTERN

The proposed equity share capital of Rs.36.21 Crs would be held by Priya Industries (51%) and Gunawardhan Inc (49%)

Project Cost Related Assumptions Rs Crs RemarksBase EPC Cost 80 Quote from EPC ContractorPrice Escalation 5.08 As per calculationsEstimated EPC Cost 85.08 Contingency 5% 4.25 As % of Estimated EPC CostTotal EPC Cost 89.34 Preliminary Expenses 1% 0.45 As % of Total EPC CostPre-operative Expenses 16.67 Total Pre-op Expenses as

detailed belowEstablishment Expenses 1% 0.89 As % of Total EPC CostIE/IA Cost 1% 0.89 As % of Total EPC CostR&R Cost 33.14 3.31 Based on EIA ReportLegal Charges 1% 0.54 As % of Total Project CostFinancing Charges 2% 1.45 As % of Debt MobilisedInterest During Construction 9.58 As per calculations

Debt Service Reserve- 3 months

2.17 As per calculations

Total Project Cost 108.63

Details of Capital Structure Rs CrsDebt 72.42Equity 36.21

Promoters 51% 18.47Strategic Investors 49% 17.74

Upfront Equity 50%Upfront Equity 18.11Balance Equity 18.11Interest 12%Tenor 12Moratorium 2Repayment 40 quarterly installments

Collection Of Fee

Toll Charges

Bangalore bypass : (Full rates) Toll (Rs)

Multi-axle vehicles / other heavy construction equipment

90

Trucks 60

Buses 60

LCVs 30

Car / Jeep / Van 20

Salient features of concession agreement

The toll revision based on a formula linked to WPI. No cost escalation admissibleQueue length should not exceed 5 vehicles during peak

hours.Vehicles with VIP symbols, police, fire-fighting vehicles,

ambulances and project vehicles of employers will be exempted from toll.

Right to put up hoarding /advertisements given to the project company .

If the construction is completed prior to the defined construction period, the company will have the right to collect toll for the balance period of construction as well as the initially decided operation period. Similarly, in case the construction is delayed the operation period gets reduced to that extent.

No other alternate facility to the bypass to be permitted during the concession period within a radius of 20 km.

No Government guarantee for repayment of loansNo advance or loans will be provided for the

project by the GovernmentThe company shall indemnify the Government of

India and GOK from third party claims during the concession period

Force Majeure Events: The Force Majeure events would cover Non-Political Acts and Events Indirect Indian Political Event and GOI Political Event.

Traffic Related Assumptions             Base Date 31st March 2010 for toll rates  2006 Unit PCU No. of Vehicles per day base growth ratesCar/Jeep 1 2250 6.50%  LCV/Van 1.5 750 5.75%  Trucks 3 2200 6.25%  Buses 3 1250 6.00%  MAV 4.5 450 5.00%  PCUs 15750  Traffic Growth Rates  From Year ending 31st March 2011 2016 2021 2026 2031 2036To Year ending 31st March 2015 2020 2025 2030 2035 2045Car/Jeep 6.50% 5.85% 5.27% 4.74% 4.26% 3.84%LCV/Van 5.75% 5.18% 4.66% 4.19% 3.77% 3.40%Trucks 6.25% 5.63% 5.06% 4.56% 4.10% 3.69%Buses 6.00% 5.40% 4.86% 4.37% 3.94% 3.54%MAV 5.00% 4.50% 4.05% 3.65% 3.28% 2.95%

Traffic Growth Rates 

From Year ending 31st March 2011 2016 2021 2026 2031 2036To Year ending 31st March 2015 2020 2025 2030 2035 2045

Car/Jeep 6.50% 5.85% 5.27% 4.74% 4.26% 3.84%

LCV/Van 5.75% 5.18% 4.66% 4.19% 3.77% 3.40%

Trucks 6.25% 5.63% 5.06% 4.56% 4.10% 3.69%

Buses 6.00% 5.40% 4.86% 4.37% 3.94% 3.54%

MAV 5.00% 4.50% 4.05% 3.65% 3.28% 2.95%

Key Dates & Time Schedules

Date of Concession Agreement 01-04-10

Date of EPC Contract 01-10-10

Date of O&M Contract 01-10-10

Commencement Date (CD) as per EPC Contract 01-12-10

Completion Date as per Concession Agreement (SCOD) 2.50

Completion Date as projected (SCOD) 2.50

Commercial Operations Date (SCOD) 01-06-13

Concession Period 30

End of Concession Period 30-11-40

Days of Operation for toll revenues in a full year 350