Case Studies

Government of India
Ministry of Finance
Department of Economic Affairs
Public Private Partnership

Projects in India
Compendium of Case Studies
Government of India
Ministry of Finance
Public Private Partnership

Projects in India
December 2010
Public Private Partnership projects in India


All rights reserved
Published by:
PPP Cell, Department of Economic Affairs
Ministry of Finance, Government of India
New Delhi-110 001, India
www.pppinindia.com
Disclaimer
This Compendium of Case Studies has been prepared as a part of a PPP capacity building
programme that is being developed by the Department of Economic Affairs, Ministry of Finance,
Government of India (DEA) with funding support from the World Bank, AusAID South Asia Region
Infrastructure for Growth Initiative and the Public Private Infrastructure Advisory Facility (PPIAF).
A consulting consortium, consisting of Economic Consulting Associates Limited (ECA) and CRISIL
Risk and Infrastructure Solutions Limited (CRIS), commissioned by the World Bank, has prepared
this compendium based on extensive external consultations.
ECA and CRIS have taken due care and caution in preparing the contents of this compendium. The
accuracy, adequacy or completeness of any information contained in this toolkit is not guaranteed
and DEA,World Bank, AusAID, PPIAF, ECA or CRIS are not responsible for any errors or omissions,
or for the results obtained from the use of such information. The contents of this compendium
should not be construed to be the opinion of the DEA, World Bank, AusAID or PPIAF. DEA is not
liable for any direct, indirect, incidental or consequential damages of any kind whatsoever to the
subscribers / users / transmitters / distributors of this toolkit.
The compendium shall not be reproduced in any form, other than those intended by DEA, without
prior written permission from DEA.
Contents
Overview
2. Snapshot Of Case Studies
3. Key Learnings
4. Case Study 1:
Alandur Sewerage Project
15
5. Case Study 2:
Karnataka Urban Water Supply Improvement Project
27
6. Case Study 3:
Latur Water Supply Project
38
7. Case Study 4:
Salt Lake Water Supply And Sewerage Network
50
8. Case Study 5:
Timarpur Okhla Integrated Municipal Solid Waste Management Project
58
9. Case Study 6:
Vadodara Halol Toll Road
68
10. Case Study 7:
Tuni Anakapalli Annuity Road Project
76
11. Case Study 8:
Delhi Gurgaon Expressway
82
12. Case Study 9:
Nhava Sheva International Container Terminal
90
13. Case Study 10: Kakinada Deep Water Port
98
14. Case Study 11: Gangavaram Port
105
15. Case Study 12: Mumbai Metro
112
16. Case Study 13: Hyderabad Metro
121
17. Case Study 14: Bhiwandi Electricity Distribution Franchisee
130
18. Case Study 15: Amritsar Intercity Bus Terminal Project
139
19. Abbreviations and Acronyms
148
iii

One
Overview
This compendium presents case studies of fifteen select Public-Private-Partnership (PPP) projects
in India. The case studies have been prepared to highlight the experience and lessons learnt so far
and thereby influence the design of future PPP processes and structures to improve the quality of
PPP projects.
The choice of case studies provides a representation across different sectors, covers different PPP
project structures, includes projects at different stages of the PPP life-cycle and has projects with
different levels of complexity.
These case studies include the following:
a. A description of the project with project features;
b. The project structure adopted with details of the roles and responsibilities of the private
and public partners;
c. The financing details of the project along with the current status
d. A description of the PPP process adopted including project identification, project feasibility,
structuring of the contract/concession and awarding projects to private partners. This
includes details like the timing of major events like tendering and details like the level of
response to the bid process;
e. A detailed matrix of initial allocation of key risks across the public and private sector
partners, along with details of subsequent changes, if any, and an assessment of the
implications of the risk allocation;
f.
A concise assessment of the achievement of objectives originally set out for the project,
viz., improvements in service delivery - e.g., capacity, quality, coverage affordability - with
indicative parameters, to the extent possible;
g. A Value For Money (VFM) assessment of the project to illustrate the benefits of following
a PPP approach vis--vis the alternative of public procurement; and
h. A summary of the key learning and observations from the project.
It is expected that the case studies will assist the public authorities in:

Understanding the needs, challenges and risks associated with alternate PPP arrangements
in specific sector.
Improving quality of project identification, preparation, award and monitoring of PPPs and
associated issues such as, for example, governance and fiscal implications.
Managing the transition to a large scale PPP program to improve infrastructure services.

Two
Snapshot of Case Studies
The following table provides a snapshot of the fifteen case studies.
Sector
Ppp project
structure
State and
year ppp
contract
signed
Government /
public sector
entity / entities
Private sector
promoter
/ sponsor /
consortium
members
Project
cost
Concession
period
` 34.6 crore
(Sewerage
Network)
O&M Contract
5 years
1. Alandur Underground Sewerage Project

Sewerage
Construction
Contract
(Underground
Sewage System)
Tamil Nadu
2000
O&M Contract
(Underground
Sewerage System)
Alandur
Municipality and the
Tamil Nadu Urban
Infrastructure
Financial Services
Limited (TNUIFSL)
IVRCL
Infrastructures and
Projects Ltd and
Va Tech Wabag
Technologies Ltd.
Build-OperateTransfer (BOT)
Annuity (Sewage
Treatment Plant)
` 6.68 crore
(Sewage
Treatment
Plant)
BOT Annuity
14 years
2. Karnataka Urban Water Supply Improvement

Urban Water
Supply
Operations &
Management
Contract
Veolia Water
` 32 crore
(formerly known as
Compagnie Generale
des Eaux, France)
Karnataka
2005
Karnataka Urban
Infrastructure
Development
and Finance
Corporation
(KUIDFC)
Maharashtra
2006
Maharashtra
Subhash Projects &
Jeevan Pradhikaran Marketing Limited,
UPL Environmental
Engineers Limited
and Hydro Comp
Enterprises India
Private Limited.
42 months
(Later
extended to 59
months)
3. Latur Water Supply Project

Water Supply
Operations &
Management
Contract
` 182 crore
(including
payment
to MJP for
right to use
assets)
10 years
4. Salt Lake Water Supply and Sewage Disposal System

Water &
Sewage
BOT
(includes Design
and Finance)
West Bengal
2007
Kolkata
Metropolitan
Development
Authority and
Naba Diganta
Industrial
Township
Authority
Jamshedpur Utilities
and Services
Company Limited
and Voltas Limited
`70.09 crore 30 years
5.Timarpur Okhla Integrated Municipal Solid Waste Management Project

Urban
Infrastructure
- Municipal
Solid Waste
BOOT (includes
Delhi
Design and Finance) 2008
New Delhi
Municipal
Corporation
(NDMC) and
Municipal
Corporation of
Delhi (MCD)
Jindal Urban
Infrastructure
Limited
` 200 crore
25 years
Sector
Ppp project
structure
State and
year ppp
contract
signed
Government /
public sector
entity / entities
Private sector
promoter
/ sponsor /
consortium
members
Project
cost
Concession
period
Government of
Gujarat
Government of
Gujarat and IL&FS
` 161 crore
30 years
6.Vadodara Halol Toll Road

Roads
BOOT) (includes
Gujarat
7.Tuni Anakapalli Annuity Road Project

Roads
BOT Annuity
(includes Design
and Finance)
Andhra
Pradesh
2001
National Highways GMR Group, United

Authority of India Engineers Malaysia
(UEM) Berhad
Group
` 315 crore
Delhi and
Haryana
2002
National Highways DS Constructions

Authority of India and Jaiprakash
Industries
` 1,175
crore
8. Delhi Gurgaon Expressway

Roads
Expressways
BOT
(includes Design
and Finance)
20 years
9. Nhava Sheva International Container Terminal

Ports (Major)
BOT (includes
Maharashtra
Jawaharlal Nehru
Port Trust
P&O Australia
` 733 crore
Ports Pty Limited,
Konsortium
Perkapalan Berhad
and Trans Impex
Private Limited (P&O
Ports subsequently
taken over by Dubai
Ports World Limited
(DP World))
Government of
Andhra Pradesh
Larsen & Toubro Ltd,

India, Stevedoring
Services of America,
USA, Precious
Shipping Company,
Thailand, Konsortium
Perkaplan Berhard,
Malaysia
30 years
10. Kakinada Deep Water Port

Ports (Minor)
BOT
(includes sharing of
revenue with Govt)
Andhra
Pradesh
1999
` 330 crore
(4th Berth
including
offshore
jetty)
20 years
(extendable by
l 2 periods of 5
years each)
Later extended
to 30 years
(extendable by
2 periods of 10
years each)
11. Gangavaram Port

Ports (Minor)
BOOT (includes
Andhra
Design and Finance) Pradesh
2004
Government of
Andhra Pradesh
Mr. D.V.S. Raju &

` 1,696
associates, Warburg
crore
Pincus and the
Andhra Pradesh
Infrastructure
Investment Company
(APIIC)
Mumbai
Metropolitan
Region
Development
Authority
(MMRDA)
Reliance Energy
Limited,Veolia
Transport (France)
and MMRDA
` 2,356
crore
35 years
Government of
Andhra Pradesh
Maytas
Infrastructure,
Government of
Andhra Pradesh,
Nav Bharat Ventures,
IL&FS and Ital-Thai
(Subsequently
cancelled in 2009)
` 11,814
crore
35 years
30 years
(extendable
by additional 2
periods of 10
years each)
12. Mumbai Metro

Urban
Infrastructure
Mass Rapid
Transport
BOOT (includes
Maharashtra
13. Hyderabad Metro

Urban
Infrastructure
Mass Rapid
Transport
BOT
(includes Design
and Finance)
Andhra
Pradesh
2008
(Subsequently
cancelled in
2009)

4
Sector
Ppp project
structure
State and
year ppp
contract
signed
Government /
public sector
entity / entities
Private sector
promoter
/ sponsor /
consortium
members
Project
cost
Concession
period
Maharashtra
State Electricity
Distribution
Company Limited
Torrent Power AEC

Limited (TPAL)
` 61 crore
(MSEDCL)
10 years
Department of
Transportation
(DoT),
Government of
Punjab
Rohan Builders
(India) Pvt Ltd.,
Rajdeep Buildcon
Pvt Ltd and Rajdeep
Road Developers
Pvt. Ltd.
14. Bhiwandi Electricity Distribution Franchisee

Electricity
Distribution
Operations &
Management
Contract
(Franchisee)
Maharashtra
2004
` 250 crore
(TPAL)
15. Amritsar Inter-city Bus Terminal

Urban
Transport
BOT
(includes Design
and Finance)
Punjab
2004
` 21.34
crore
11 years 5
months
Three
Key Learnings
This section highlights the key learnings from Indias experience in PPPs as witnessed in the detailed
case studies of select infrastructure PPPs in India. The objective of these learnings is to identify the
typical issues that PPPs in India experience, how they may be dealt with and what mistakes could
be avoided by PPP practitioners. They identify ways to mitigate various risks experienced by PPP
projects, thus improving the overall value for money for the government.
This section may be read in conjunction with the detailed case studies for readers who may want
to study the context of each issue in greater detail.
3.1 Summary of Learnings with referenced case examples

The following table provides a summary of the learnings identifies and the case examples referred
to.
No.
Learning
Key risks addressed
Ppp examples to be
emulated
Ppp examples where

problems were
encountered
1. Delhi Gurgaon
Expressway
Project Preparation
1
Robust Traffic / Market

Assessments
Operations Risk, Time &

Cost Overruns Risk
Comprehensive Due
Diligence Studies
Design Risk, Approvals

Risk, Time and Cost
Overrun Risks, Policy
Risk, Revenue Risk
1. Timarpur Integrated
Solid Waste
Management Project
1. Vadodara Halol Toll

Road
Clarity in Determination
of Tariffs
Revenue Risk,
Termination Risk
1. Latur Water Supply

Project
1. Nhava Sheva Integrated

Container Terminal
Robust & Simple Bid

Criteria
Default Risk, Termination

Risk
1. Gangavaram Port
Dealing with Speculative

Bids
Default Risk, Termination

Risk
1. Gangavaram Port
1. Hyderabad Metro
Importance of Lead
Consortium Member
/ Promoter of
Concessionaire
Financing risk, Time and

cost overruns risks
1. Hyderabad Metro
Land acquisition risk,

Time and Cost Overruns
Risks, Social Risk
1. Hyderabad Metro
1. Delhi Gurgaon
Expressway
Approvals risk, Time and

cost Overruns risks
1. Alandur Sewerage
Project
2. Gangavaram Port
Procurement
1
2. Nhava Sheva Integrated

Container Terminal
Development
1
Handling of Land
acquisition
2. Mumbai Metro
3. Gangavaram Port
Streamlining of Approvals
& Clearances
1. Delhi Gurgaon
Expressway
2. Karnataka Urban Water
Supply Improvement
Project
Well Defined Project

Scope
Scope Change risk, Time

and cost Overruns risks
1. Delhi Gurgaon
Expressway

No.
Learning
Key risks addressed
Ppp examples to be
emulated
Ppp examples where

problems were
encountered
Environmentally and
Socially responsive
development framework
Social Risk, Environment

Risk, Land acquisition
risk, Social Risk, Time and
cost Overruns risks

Road
Financing Innovations
Financing Risk, Default

Risk, Performance Risk
1. Tuni Anakapalli Road
2. Timarpur Solid waste

management project
1. Hyderabad Metro

Road
3. Alandur Sewerage
Project
Operations
1
Favourable Operating
Environment
Policy Risk, Revenue Risk
1. Amritsar Inter-city
bus terminal
1. Kakinada Deep Water

Port

project
2
Need for Public support
Strong political will
Time and Cost Overrun

Risks, Social Risk,
Revenue Risk , Political
Risk
1. Alandur Sewerage
Project
Political Risk, Time and

Cost Overruns Risk ,
Revenue Risk, SocialRisk
1. Alandur Sewerage
Project

Project
2. Kakinada Deep Water
Port
Project
2. Bhiwandi Electricity
Distribution Franchise
3. Salt Lake Water
Supply project
Resolution of Issues
through Mutual
Discussions
Termination risk
1. Kakinada Deep Water Port
3.2 Learnings across the PPP Process

3.2.1 Project Preparation
Robust Traffic / Market Assessments
a. Realistic and robust traffic / market assessment studies are an important step in the project
preparation stage for a PPP project. Such assessments ensure bids submitted by interested
private entities are well informed and realistic and the overall capacity proposed for a project
is optimum. They also ease the pressure during the operations phase since the operator is not
exposed to very divergent demand and corresponding revenue risks. Examples of PPPs
where problems were encountered

In the Delhi Gurgaon Expressway project, NHAI relied on an outdated traffic study. Thus,
the actual traffic volume grossly outnumbered the projections from the very beginning of
commercial operations. In fact as soon as the expressway was opened to traffic, the unexpected
high number of vehicles led to heavy queuing at the toll booths and delays in traversing the
stretch.
However, timely action and necessary measures by authorities and the Concessionaire
improved conditions.
Key Risks Triggered: Operation Risk

Similarly, in the Gangavaram Port project, realistic traffic projections were not prepared thus
leading to speculative bids. The government of Andhra Pradesh had to reject the bids and
the process was launched again. This could have been avoided if robust traffic projections
had been prepared and shared with the bidders. The launch of the bid process delayed the
commencement of the port development.
Key Risks Triggered:Time and Cost Overrun Risks
Comprehensive Due Diligence Studies

The environment in which a project will be developed and will have to operate has an important
bearing on the progress of PPPs. Due diligence studies technical and legal are essential to ensure
the smooth progress of a project through the project life-cycle.
a. Examples of PPPs to be emulated

The Timarpur Integrated solid waste management project showcases how efforts were made
on project preparation prior to the launch of the bid process. Important steps such as detailed
technical studies and reviews, financial evaluation, risk evaluation and obtaining regulatory as
well as statutory approvals was undertaken at the project preparation stage itself. In fact,
the SPV to implement the project was also incorporated prior to the launch of the bid. This
ensured that the actual project development phase experienced as few hurdles as possible.
Key Risks Managed Better: Design Risk, Approvals Risk,Time and Cost Overrun Risks
b. Examples of PPPs where problems were encountered

The Vadodara Halol Toll Road project highlights the fact that project due diligence needs to
be robust since it can impact the long term objectives of a project. In this case, the traffic
estimations for the project were based on the assumption that the industrial incentives
available for the project area would continue over the long-term. However, the incentives were
eventually withdrawn and the traffic was almost 50% lower than the projected traffic.This lapse
with respect to the understanding of the legal environment in which the project had to operate
and the resultant policy risk put undue pressure on the viability of the project operations.
Key Risks Triggered: Policy Risk, Revenue Risk
Clarity in Determination of Tariff

The tariff is a key determinant of returns for the private entity. It is important to have a clear
understanding of the tariff determination process and the same should be fair to enable the private
operator to earn a reasonable return. Lack of clarity can result in potential disputes between the
private and public entity.

In the Latur Water Supply project, tariff for the contract duration was finalised prior to the
bidding process, to allow the bidders to quantify the tangible benefits from undertaking the
project. The tariff structure was to see a staggered increase based on the contract terms. This
reduced the revenue risk to an extent.
Key Risks managed better: Revenue Risk

In the Nhava Sheva Integrated Container Terminal project, the lack of clarity in the concession
agreement on whether the royalty payment was to be considered as a part of cost or a
share in the profit in the SPVs accounts while determining the port tariff, became a serious
issue between the public and the private sector. Measures were adopted to address these
inconsistencies but with limited success.
Key Risks Triggered: Revenue Risk,Termination Risk
3.2.2 Procurement
Robust and Simple Bid Criteria
Bid evaluation criteria need to be simple and robust so that capable entities are identified for
the project and at the same time bids are not speculative. Speculative bids have the potential to
7

derail a project during the operations stage if the private entity is unable to sustain its overstated
commitments. Ambiguities in the bid criteria, on the other hand, can lead to disputes between the
private and public entity during the operations stage.
a. Examples of PPPs where problems were encountered

In the Gangavaram port project, the first round of tendering had several evaluation parameters
that were working at cross purposes and encouraged speculative bidding. The bid criteria
gave separate weights for the Minimum Guaranteed Amount, revenue share and investment
commitments. Thus larger commitments, even though unrealistic, could have lead to higher
scores. While the government eventually decided to terminate the process, this could have
resulted in an unsustainable project.
Key Risks Triggered: Default Risk, Termination Risk (However since the bid process was
terminated, these risks did not actually get triggered Refer Learning 2.2.2)
In the Nhave Sheva Integrated Container Terminal, the bid evaluation criterion of the highest
NPV of royalty payment was simple but insufficient. The lack of a methodology to assess the
royalty payout to the licensor and the problems arising from the interaction of the royalty with
the tariff level created a number of issues in the subsequent operations phase.
Key Risks Triggered: Default Risk,Termination Risk
Dealing with Speculative Bids

a. While speculative bids should ideally be avoided, if encountered, the public entity should deal
with them without jeopardising the long term prospects of the project. This could even mean
terminating and re-launching the bid process. Examples of PPPs to be emulated

In the Gangavaram port project, the evaluation in the first round of bids revealed concerns
regarding the validity and practicality of the market assumptions and the underlying viability
of the projections. Both the bids had elements of speculation and presented an untenable
proposition for the Government. This was due to the absence of a comprehensive feasibility
study with realistic traffic projections which should have been undertaken by the government.
(Refer learning 2.1.1) However, the Government did not get attracted by the speculative bids
and decided to terminate the bid process.
Key Risks Managed Better: Default Risk, Termination Risk
In the Hyderabad Metro project, the government provided commercial development rights
for almost 296 acres of land allocated for the depots and the stations. This aggregated to
a cumulative maximum of 18.5 million square feet and was a substantial percentage of the
project cost.
This opportunity of the utilization of land on a commercial basis coupled with the metro
project led to widely divergent bids from the bidders. While the Siemens Consortium bid
a negative viability gap of ` 250 crore, the Maytas Consortium bid a very high a negative
viability gap of ` 30,311 crore. On the other hand, the two other bidders--Reliance sought a
VGF grant of ` 2,811 crore from the government and Essar sought a grant of ` 3,100 crore.
While the award of this project to Maytas was eventually withdrawn, such speculative bids
exposed the project to the risk of the actual construction and quality of the metro being
compromised as the private operator would have had a greater incentive to complete the real
estate development at the cost of the metro.
Key Risks Triggered: Default Risk,Termination Risk
Importance of Lead Consortium Member / Promoter of Concessionaire

The concessionaires ability to undertake complex projects is typically a function of the experience
and expertise brought on board by their lead consortium member or promoter. Accordingly, it is
essential that there is adequate due diligence of the promoter backing the concessionaire and the
continued involvement of the lead member is contractually ensured, at least during the project
development stage.

The Hyderabad Metro project saw the winning consortium of Maytas Metro getting adversely
affected due to the issues besetting its promoter Satyam Computer Services. Although the
project was to be implemented by a separate Special Purpose Vehicle, there was a loss of
investor confidence in the promoters of the project and consequently, the project was not able
to achieve financial closure. The government finally had to withdraw its award and re-launch
the bid process.
Key Risks Triggered: Financing risk, Time and cost overruns risks
3.2.3 Development
Handling of Land Acquisition
a. The land acquisition process for PPP projects is no doubt the most challenging predevelopment activity in India. In most cases, the government commits provision of land free
from encumbrances for the project before actually completing the necessary formalities.
Examples of PPPs to be emulated

While many readers may associate the bankruptcy of its promoters (Satyam) with the Hyderabad
Metro project, a lesser known fact is the commendable manner in which the government dealt
with land acquisition in the concession agreement. It required the government to handover
land to the concessionaire by the financial closure date. Further, 90% of the land had to be
handed-over within 120 days from signing of the agreement. There were penalties built in
to the contract in case the government delayed the delivery of the land. Such contractual
treatment would have ensured greater planning and focussed efforts on land acquisition by the
government. Further to mitigate this risk, the project intended to use government lands for the
developments of depots and stations to the extent possible.
Key Risks managed better: Land acquisition Risk,Time and Cost Overruns Risks

In the Delhi Gurgaon expressway project, the government committed to the promoters for
providing a substantial area of land, prior to actually acquiring the land. Due to the thickly
populated surrounding areas of the expressway, there were certain pockets of land that were
difficult to acquire. This exposed the government to the risk of not providing the land within
reasonable time impacting the overall schedule of the project. It would have been better if
uncontrollable risks such as these were addressed before the project procurement stage itself
to ensure smooth functioning of the project. This could have been achieved by completing the
land acquisition process prior to the project procurement process itself.
Key Risks Triggered: Land acquisition risk,Time and Cost Overruns Risks
Similarly for the Mumbai Metro, the government committed that the land for the project would
be procured as per the land procurement schedule provided in the agreement. However, this
land was under private ownership and at times under dispute. This exposed the government
to the risk of land not being available thereby resulting in inordinate delays in commencement
of construction of the project. While this issue was eventually resolved, it would have been
a better option for the government to have dealt with it prior to signing of the concession
agreement.
9

Key Risks Triggered: Land acquisition risk,Time and Cost Overruns Risks
The Gangavaram port project was another case in point where the land acquisition process
was prolonged due to local protests in relation to rehabilitation and resettlement.
Key Risks Triggered: Land acquisition risk,Time and Cost Overruns Risks, Social Risk
Streamlining of Approvals & Clearances
Apart from land acquisition, obtaining numerous clearances and approvals has been the bane
of Indian PPP projects. Typically, the concessionaire needs to obtain clearances from multiple
government departments and apprise different departments about the progress of a project. These
delays add to the cost of developing the PPP and thereby reduce the value for money to the public
sector.
Ideally a single interface for interactions or coordination on all such approvals should be setup by
the government to prevent undue delays. This could be in the form of a lead entity taking up the
responsibility or a common project steering/ empowered committee that is appointed to take care
of all such formalities. With this, the concessionaire could focus on the core development issues
rather than being entangled in administrative processes.
a. Examples of PPPs to be emulate

The Alandur Sewerage Project had a streamlined process for obtaining approvals and clearances
related to the project. The Alandur Municipality took up the responsibility for key approvals,
including road cutting, shifting of services and environmental clearances. The developer was
responsible only of the works related approvals. This approach ensured there was minimum
delay in obtaining the necessary permits.
Key Risks Managed Better: Approvals risk,Time and cost Overruns risks

The Delhi Gurgaon expressway project is a case in point where the approvals process resulted
in significant delays for the concessionaire. Since the project was spread across the states of
Delhi and Haryana, there were more than fifteen government agencies/civic bodies affected
by the development of this highway that had to grant approvals for the project. This became a
complex and time consuming process during the construction period.
Key Risks Triggered: Approvals risk,Time and cost Overruns risks
On similar lines, the Karnataka Urban Water Supply Improvement project, experienced delays
in obtaining permits from several departments due to the lack of co-ordination across the
three Urban Local Bodies involved in the project.
Key Risks Triggered: Approvals risk,Time and cost Overruns risks
Well Defined Scope of Work

It is essential that the concessionaires scope of work is well defined, prior to the launch of the
bid process and the same is not modified except in the case of unavoidable and unforeseen
circumstances. Changes in scope of work, which typically result in time and cost overruns, have the
potential to derail PPP projects.

10
The Delhi Gurgaon expressway experienced significant time and cost overruns on account of
a change in the concessionaires scope of work. There were substantial changes in the original
design that were sought by NHAI and the government keeping in mind future requirements and
the convenience of commuters. While these should have been anticipated and incorporated
prior to the launch of the bid process, the order for provisional change of scope was finalised
and issued to the concessionaire just days before the original scheduled completion date of the
project.

Key Risks Triggered: Scope Change risk,Time and cost Overruns risks
Environmentally and Socially responsive development framework

Infrastructure projects typically have significant social and environmental impacts, arising from their
construction and operation. Social impacts are on the communities affected by the project and
environmental impacts are on account of the project location.
It is therefore necessary that PPPs have an environmentally and socially responsive development
framework. While social and environment impact assessments are mandatory, there are few
examples of how projects have proactively adopted best practices in this regard.
An environmentally and socially responsive framework would in fact help garner public support for
a PPP project more easily (Refer Learning 2.4.2) and have a positive impact on the land acquisition
process. (Refer Learning 2.3.1)

The Vadodara Halol Toll Road was the first project that introduced environmental and
social safeguards measures as part of the contractual obligation of the concessionaire. The
environmental and social assessment for the project noted that the project in its original
form would lead to resettlement and rehabilitation of about 300 project affected families.
Intense public consultations were carried out to develop various alternatives. Bypasses were
introduced at various critical locations such that the extent of resettlement was reduced to
only 10 project affected households.
This created a benchmark and had immense demonstration value since it highlighted that
infrastructure can be developed in an environmentally and socially responsible manner. The
project was in fact designated by the World Bank as a 'best practice' example for its environment
risk mitigation and social rehabilitation plan in India amongst World Bank assisted projects.
Key Risks Managed Better: Land acquisition risk, Social Risk,Time and cost Overruns risks
In another case, the Timarpur solid waste management project, that was located in the vicinity
of residential areas, organised public hearings to address concerns with respect to pollution.
Key Risks Managed Better: Social Risk, Environment risk
Financing Innovations
While the government of India has provided financial support initiatives such as the Viability Gap
funding (VGF) scheme or the Jawaharlal Nehru Nation Urban Renewal Mission, it is important for
PPP projects to be financially independent to the extent possible and minimise reliance on such
grants or schemes. This is possible through innovative financing structures that not only bring
down the cost of funds but also tap new sources of funding. However, a fine balance needs to be
maintained to ensure that such innovations in financing do not result in speculative bids during the
procurement stage.

The concessionaire for the Tuni Anakapalli Road project, during its operations stage, raised
debt at very low interest rates by securitizing the annuity payments receivable from NHAI.
This mode of funding enabled the concessionaire to repay the term loan taken for the project
development by accessing to relatively lower cost funding.
Key Risks Managed Better: Default Risk, Performance Risk

11

The Vadodara Halol Toll Road was another project that utilized several financing methods such
as deep discount bonds with an option of take-out financing, cumulative convertible preference
shares and long term loans as a part of its financing structure.
Key Risks Managed Better: Financing risk
The public deposits sought in the Alandur Sewerage Project, were also a landmark innovation
that were taken up despite the possibility of strong resistance from the people. Almost 29% of
the project cost was funded from public contributions.
Key Risks Managed Better: Financing risk

In the Hyderabad Metro project, the government provided commercial development rights for
almost 296 acres of land to the Concessionaire which aggregated to a cumulative maximum of
18.5 million square feet of built-up space.
project led to widely divergent bids from the bidders. While the Siemens Consortium bid a
negative viability gap of ` 250 crore, the Maytas Consortium bid a very high a negative viability
gap of ` 30,311 crore. On the other hand, the two other bidders--Reliance sought a VGF grant
of ` 2,811 crore from the government and Essar sought a grant of ` 3,100 crore.
The real estate market is very volatile and cyclical in nature. An adverse outlook for the sector
would have the risk of compromising the development and construction of the project. Thus,
ideally real estate development should be a smaller component of the project or alternatively
should be separated from the core infrastructure project.
Key Risks Triggered: Default risk, Performance Risk
3.2.4 Operations
Favourable Operating Environment
PPP projects require the private sector to operate in a space where traditionally the public sector
is dominant and in some cases solely responsible. In this context, it is important for an enabling
operating environment to be created for the private sector to function optimally.

In the Amritsar Inter-state Bus Terminal project, the government took the necessary steps to
create a favourable environment so that the concessionaires revenue streams are not at risk.
The government issued notifications to the effect that all intercity buses would be required to
pickup and drop off passengers at the new Inter City Bus Terminal.
Key Risks Managed Better: Revenue Risk
Similarly, in the Latur water supply project, a clearly defined tariff and metering policy was
established, prior to the bidding process, to allow the bidders to quantify the tangible benefits
from undertaking the project.
Key Risks Managed Better: Policy risk, Revenue Risk

12
The drawbacks of not clearly establishing an operations policy were experienced by the
Kakinada Deep Water Port project. In this case, during the tendering stage, the government
had indicated that the private developer would get complete rights while operating the port.
However, during the award of the project, there were restrictions on the type of cargo to be
handled, in favour of the Kakinada anchorage port that was operating in parallel. This ended up
becoming one of the key issues under dispute between the concessionaire and the Government
of Andhra Pradesh.

Key Risks Triggered: Revenue Risk
Need for Public Support

a. Effective communication of project benefits to various stakeholders and mobilising public
support is one of the key lessons to be drawn from Indias PPP experience to date. Absence of
a buy-in from the people at large can lead to significant hurdles in various stages of a project
such as during land acquisition because of the displacement of people, or during project
operations due resistance to collection of revenues in the form of toll, charges or tariffs. Public
support is thus critical for project siting decisions. Examples of PPPs to be emulated

The Alandur Sewerage project is a prime example where stakeholder support went a step
further and included public contributions towards the project cost. An aggressive public
outreach campaign was conducted by the municipality and Government of Tamil Nadu and the
engagement of stakeholders was essential to convince them about the benefits of the project.
Key Risks Managed Better:Time and Cost Overrun Risks, Social Risk, Revenue Risk

In the Latur water supply project, public consultations were taken-up by the Maharashtra Jeevan
Pradhikaran only after the signing of the agreements with the concessionaire. Accordingly the
project met with resistance in the form of agitation campaigns and public rallies resulting in
even the closing down of the concessionaires office in Latur. As a consequence of the lack
of public support, the transfer of project assets to the concessionaire has been delayed even
though the agreement was signed in June 2008.
Key Risks Triggered:Time and Cost Overruns Risks, Social Risk, Political Risk
Similarly in the Kakinada deep water port project, labourers of the adjoining anchorage port
went on strike in protest of the competition from the deep water port in handling agricultural
commodities such as wheat. Stakeholder consultations could have avoided this situation.
Key Risks Triggered: Revenue Risk, Social Risk, Political Risk
Strong political will

While public support is no doubt a must for PPP projects, strong political will to make a project
happen, is equally important. Large path-breaking projects require active hand--holding from the
government throughout the project planning and execution stages.

The Alandur Sewerage Project demonstrated the benefit of such sustained political will which
ensured that the project proceeded smoothly. The chairman and the council of the local
municipality played an important role in convincing the citizens to pay a share of the project
cost and accept the entry of the private concessionaire.
Key Risks Managed Better: Political Risk, Social Risk
The Bhiwandi electricity distribution franchisee project is another example where strong
political conviction enabled the implementation of a new PPP structure in amongst the most
challenging regions in Maharashtra.
Key Risks Managed Better: Political Risk
13

Similarly in the Salt Lake water supply and sewerage network project, the Kolkata Municipal
Development Authority and the Nabadiganta Industrial Township Authority played a critical
role in providing key concessions to the private developer to arrive at a rational water cum
sewerage charge.
Key Risks Managed Better: Revenue Risk

The Latur water supply project witnessed significant hurdles due to the lack of political
consensus on the project. Although the management contract between the Maharashtra
Jeevan Pradhikaran and the private operator was signed in June 2008, the transfer of assets
was delayed, preventing the private operator from commencing its project obligations as per
schedule.
Key Risks Triggered: Political Risk,Time and Cost Overruns risks
Resolution of Issues through Mutual Discussions

PPP Projects, being complex with long concession periods, there is a likelihood of issues cropping up
from time to time between the government and the public agency. While contracts typically specify
the formal mechanism to deal with such issues, it is at times through mutual discussions carried out
in good faith that solutions can be identified that are in the best interests of both parties.
14
The Kakinada Project is a case in point where key amendments with respect to revenue
sharing, the concession period and rights for undertaking additional developments were made
in the terms of the concession agreement through mutual discussions and negotiations. This
ensured the continuity of the project.
Key Risks managed better:Termination risk
Four
Case Study 1:
4.1 Project Description
The Alandur Sewerage Project (ASP) was initiated in the year 1996 by the Chairman of the Alandur
Municipality (AM). AM, located adjacent to Chennai, forms a part of the Chennai Metropolitan
Area. With a population of around 165,000, the municipality is a residential suburb of Chennai with
predominantly residential and commercial activities. Approximately one-fourth of its population
lives in slums.
Prior to 1996, the town did not have an underground sewerage system and all sewage was managed
with individual septic tanks. The largely unregulated disposal of sewage in storm water drains
was an environmental and health concern for the local residents and was frequently raised as a
political issue.Around 98% of 19,800 households used either septic tanks or holding tanks collected
periodically by tankers and disposed in the low-lying areas outside the municipal limits.
In 1996, AM announced an ambitious plan to construct an underground sewerage system and waste
water treatment facility with the participation of the private sector, contribution from the public,
and payment to be provided by the city. The proposal was transformational as it involved a service
never before made available by the municipality, with financial and management responsibilities
being shared by the municipality, the residents, the private sector, and state government bodies.
The ASP was designed with the following objectives:
To improve the standard of living of the residents of Alandur (on par with that of Chennai);
To provide the most essential basic facility to all the residents of the town;
To eradicate the mosquito menace;
To avoid the recurring expenditure on septic tank cleaning; and
To avoid ground water contamination.
The proposed sewerage system was to be designed for the estimated population of about 300,000
in 2027 and was planned to be completed within a five-year period from its inception date. The
project components included:
A sewerage network consisting of the main sewer line, branch sewer line and manholes;

Construction of a sewage pumping station;
A sewage treatment plant; and
Low cost sanitation
In the initial phase the plant was to treat 12 million litres per day (mld) of sewage supplied to it by
the municipality. The ultimate capacity was to be 24 mld.
To plan this complex and politically challenging project, the AM worked in partnership with the
Tamil Nadu Urban Infrastructure Financial Services Limited (TNUIFSL), the state asset management
company and with USAIDs Financial Institution Reform and Expansion (FIRE) Project.
15

4.2 PPP structure of the Project

The ASP was the first project in the municipal water sector to be taken through the Public Private
Partnership route in India. The construction of the underground sewerage system in Alandur town,
involving the laying of pipes, construction of pumping station, etc., was done on a BOQ (Bill of
Quantities) basis, and the sewerage treatment plant (STP) on a BOT (Build, Operate and Transfer)
basis. Besides the construction responsibility, the contractor was also required to undertake the
operation and maintenance of the sewerage system for a period of five years from the date of
completion of the construction, on a fixed fee basis. The collection of tariff and provision of new
connections during the O&M phase was to be undertaken by the municipality directly.
Accordingly, the PPP structure of this complex project was governed by three contracting
mechanisms awarded to one engineering, procurement, and construction (EPC) contractor selected
through a competitive bidding process:

A Works Contract for construction of the sewage network, using the World Banks
Contract for National Competitive Bidding (NCB-W2) as the template;
An Operations and Management Contract, also using NCB-W2. The selected

contractor would operate and maintain the underground sewerage system for a period of
five years on a fixed fee basis.
A Lease Contract (in the nature of a BOT Agreement) for the STP, using guidelines from
the International Federation of Consulting Engineers (FIDIC). Through this Agreement,
the contractor would finance, build and operate the STP for a period as proposed in the
contractors successful bid. The contractor would be required to recover the investment
on the STP on the basis of a per unit rate payment from the municipality for treatment
of sewage delivered. The municipality agreed to provide a minimum payment level per
annum regardless of the volume of sewage actually delivered. It was designed to cover
the company's minimum fixed operating cost and capital investment. Accordingly, the PPP
structure was technically in the nature of BOT-Annuity.
Following the bid process, the project was awarded to IVRCL Infrastructures and Projects Ltd in
technical collaboration with Va Tech Wabag Technologies Ltd. A Special Project vehicle (SPV) called
First Sewerage Treatment Plant Pvt Ltd (First STP) was incorporated and was the concessionaire
company with whom the BOT Agreement was signed. Once the project achieved financial closure,
First STP Pvt. Ltd signed contracts with IVRCL and Va Tech Wabag. IVRCL was to carry out the
civil works for the project. Va Tech Wabag, through the electro mechanical contract, was to design
the process, supply, install and commission the equipment. It was also to carry out a contract for
operating and maintaining the facility for 14 years. The land on which the plant was set up was
leased by the municipality to First STP.
4.3 Current Status

As per the Agreement the date of completion was 31st March 2003. By end 2001, the laying of the
sewer pipes and main sewers was completed, as also the construction of the Pumping Station,
Pumping Mains and the Sewerage Treatment Plant. The overall date of completion was October
2003.
Of the 23,000 households who paid for the services, 8,350 households were connected in the first
phase, i.e. by 2005. Nearly 500 slum households out of 7,000 had sewerage connections, and 43% of
slum dwellers had opted for and paid for individual sewerage connections. By 2010, of the 30,600
households who paid for the services, 29,300 households were connected; 14 community toilets
were constructed to serve poor clusters.
The management contract for the operations and management of the sewerage system expired in
2005, after the stipulated contract period of 5 years. Following this the operations and management
function has reverted to the municipality. The AM is currently in the process of sourcing an O&M
manager for the operations of the sewerage system.
16
The STP Agreement will terminate in the year 2019.
4.4 Financing Information

Initially, the cost of the project was estimated to be ` 45.31 crore, which was later revised to `
40.86 crore. To finance the municipalitys portion of the capital cost, a package of loans and grants
was structured as shown in the table 1. All loans were from domestic sources and denominated in
Indian rupees. A unique aspect of the project funding was the initiative of bringing in peoples money
to fund public infrastructure by generating public awareness and interest right from inception.
Financing Information
Source
Table: 1
Amount (` crores )
Grant from TNUIFSL
3.00
Loan from TNUIFSL
6.00
Loan from TUFIDCO
16.00
Grant from TUFIDCO
1.00
Deposits from public
12.40
Interest from deposits
2.46
Total
40.86
Source: Alandur Municipality
Loans
The majority of financing to the municipality (59%) was made through loans provided by the
Tamil Nadu Urban Infrastructure Development Corporation (TUFIDCO) and TNUIFSL. The loan
provided by TUFIDCO was payable over eight years (after a two-year moratorium) at an interest
rate of 5% per annum (as against prevailing market rates of 15% at that time). TNUIFSLs loan was
set at a rate of 16% per annum payable over a period of 15 years with a five year moratorium.
The term loan conditions resulted in the municipality assuming significant financial risks. One
condition of the TNUIFSLs loan was that the disbursements would be provided for three years,
after which they would be subject to the condition that the municipality meets its connection
targets. Should targets not be achieved, further disbursements would be terminated. Interestingly,
no funds were required to be disbursed under the TNUIFSL loan as the revenues generated from
the one-time connection fee exceeded the amount anticipated when the finance package was
structured.
Both the term lenders stipulated an escrow account, to the extent of the debt finance, where all
the revenue receipts of the municipality (including property tax, stamp duty, and the grant from
GoTN) as well as the sewer tariff was to be deposited in favour of TNUIFSL and TUFIDCO. The
municipality also accepted limits imposed on future indebtedness.
Grants
As no funds were available either with the municipality or with TNUIFSL to oversee and monitor the
progress of the project,TUFIDCO provided a special grant from the Tamil Nadu urban development
grant fund for this purpose, which worked out to nearly three per cent of the total project cost.
GoTN agreed in principle to bridge the gap in the sewer account during the life of the project, after
providing for operations and maintenance (O&M) expenses, debt servicing and contribution to the
sinking fund. In addition to the above, GoTN also agreed to fund the monthly operating costs of
the system above the ` 150 per household sewer charge to a maximum of ` 30 per connection
per month.
17

Public Contribution
On the basis of a financial analysis of the project, the AM decided to collect one-time deposits in
the form of connection charges from the citizens of Alandur. The connection charges for different
categories of users were fixed as follows:
Table: 2
Connection Charges
Category of Users
Amount (In `)
Domestic
5000 per house connection
Commercial
10000 per connection
Industrial
10000 per connection
The municipality targeted to provide about 22,000 connections both for domestic and non-domestic
categories of users by the end of 2004-2005. This would yield an estimated income of nearly ` 13
crore, which it proposed to put into a revolving fund for repayment of loans to the lenders.
As the above connection charges on sewer were considered to be very high especially for domestic
consumers, the GoTN, in consultation with TNIUFSL, suggested to the authorities of the AM to
collect the connection deposits in two instalments. The local branch of the Punjab National Bank
also offered financial support to the citizens of Alandur by creating a scheme for lending the
connection deposit amount to them. However as the rate of interest on the scheme was quite high
(14.1 %), it was reported that no one had availed this facility.
In addition to the above, it was also decided by the municipality to collect the sewer maintenance
charges at the rate of ` 150 per month per connection from the domestic users, ` 450 per month
per connection from commercial users and ` 750 per month from industrial users. The domestic
monthly charges were proposed to be increased to 6% annually till they reached a level of ` 180
per month. Similarly, the commercial and industrial maintenance charges were proposed to be
increased by 6% annually up to the level of ` 540 and ` 900 respectively. These limits were later
reduced on the basis of a willingness to pay (WTP) survey, and discussions with the citizens and
officials concerned.
4.5 Process Analysis

Inception: In 1996, the Chairman of the Alandur Municipality initiated the proposal of implementing
an underground sewerage system in the Municipality of Alandur. This was because the present
sewerage system and sanitation facilities presented major health threats to the citizens and created
serious underground contamination.
Soon after, in 1997, the Government of Tamil Nadu decided to provide a sewerage system in 12
selected major urban centres, including Alandur, under the aegis of the World Bank, which was the
leading financial institution facilitating state level reforms in urban infrastructure financing in Tamil
Nadu.
PPP Project Preparation:
18
As the first step, TNUIFSL, the state asset management company formed with the
objective for improving the urban infrastructure levels in the state, was nominated as the
agency to coordinate the investigation and detailed studies, and to structure the project.
TNUIFSL procured and managed a private engineering contractor to prepare the detailed
technical design and prepare engineering reports for the Alandur project. The scope of
work included project design, identification of the locations of pumping stations and the
treatment plant, and cost estimates.
While conducting the feasibility study on the project, a Willingness to Pay (WTP) survey
was also conducted by the consultants in order to assess the schemes acceptability by
the citizens of Alandur town, and their willingness to pay for the service. The WTP survey
covered more than 10 per cent of the population of the AM, spread over to 42 wards. It
indicated that the average household income of the majority of the people was in the range
of ` 1000-5000 per month.According to the survey, although the public strongly supported
the project and accepted that users should pay for sewage services, this willingness had its
limits. About 29% of the respondents were willing to pay a one-time connection fee lower
than ` 500 per household and 21% were open to paying a one-time connection fee more
than ` 2000 per household. Further, about 86% of the respondents were willing to pay
monthly sewer charges in the range of ` 21 to ` 50 per month, comparable to the existing
water charges structure.

GoTN accorded administrative sanctions to the project on 9 December 1998 and

technical sanction on 27 January 1999.
As part of the project preparation, land for the project was identified and proposed to be acquired
through the Alandur Municipality.
Public Participation: The ASP project is a unique case of public participation in financing of a
municipal infrastructure project. The collection of sewer charges and convincing the community
to pay for it was a difficult and challenging task. Since there had been no precedence of private
participation in municipal water and sanitation services in the state, or a BOT Agreement awarded
anywhere in India, public outreach was critical to overcome initial resistance as well as public
concerns about the need to pay for the new sewage services.
To gain acceptance and build consensus among the public, the municipality mounted a vigorous
public outreach/public participation campaign with extensive media coverage to explain the projects
benefits, costs, and tariff system. The municipality adopted the following procedures:

A detailed discussion was held among the officers and staff along with the Chairman about
the sewerage project.
All the holidays including Saturdays and Sundays were used for discussion with the
residents welfare associations. During the discussions, the scheme was explained in detail:
its advantages on the city environment and quality of life of the residents of Alandur.
Residents were motivated through corner meetings and advertisements on the public
transport system such as auto rickshaw, buses; cable network; local newspapers; distribution
of pamphlets, etc. In addition, all the staff including sanitary workers earnestly carried out
door-to-door canvassing of the benefits of the underground sewerage scheme.
Although, initially a sizeable population of the town was not ready to pay the high deposits
on account of sewerage connection charges and monthly tariff (as indicated through the
survey), later through active canvassing and educating the people on the benefits of the
project they agreed to pay the sewer charges as per the municipal tariff structure.
By the end of May 2000, more than 13,000 connection seekers (domestic and nondomestic) had deposited the one time connection fee to the municipality. In order to
assess the commitment of the citizens of Alandur to the proposed sewerage scheme, the
lending institutions, including TNUDF and TNUIFSL, had stipulated that the municipality
should collect deposits from at least 10,000 residents before the award of work to the
selected contractor.This would not only confirm effective public participation in the project
but would also provide positive signals to the lending institutions on the sustainability of
the project as also recovery of their investments. Accordingly, the municipality started
collecting one-time deposits from the residents, and completed the target before awarding
the contract for the project to the selected contractor.
In order to facilitate the collection procedure, the municipality opened collection centres
at different locations keeping in view the convenience of the residents. Arrangements
were made for collection of deposits even on the receipt of phone messages and at the
designated bank.
19

With a view to inform the public on the progress of the project at various stages, as also
to seek their opinion on different issues concerning the successful implementation of the
project, the authorities of the AM called for the meeting of representatives of welfare
associations on a monthly basis. This procedure created a system of effective participation
of the community in the project implementation process.
Procurement:
The project was structured such that an engineering, procurement and construction contractor,
selected through competitive bidding process, would design and implement the sewerage system,
on turnkey works contract, and would also finance, design, build, and operate the STP on BOT
(Annuity) basis.
The procurement of private contractor for the execution of the project was carried out as per
the standards prescribed by the World Bank. A two stage bid process was adopted - a technical
proposal followed by a financial proposal.
The technical capabilities of the contractors and their experience in similar works were given
importance. Of the 13 entities who submitted the bids, three were short-listed, and the financial
proposals were received from such technically qualified firms.As per the financial evaluation criteria,
the bidder quoting the lowest cost for the sewerage system and lowest lease period for the STP
was selected as the final, successful contractor.
Based on the evaluation of the proposals and on the recommendations of TNUIFSL, the project
was awarded to the IVRCL Infrastructures & Projects Limited, in joint venture with Va Tech Wabag
Technologies Limited in February 2000, and the site was handed over to them subsequently.
The contract document signed on 2 March 2000 was in three parts and included (i) a construction
contract, (ii) and operation and maintenance contract; and (iii) a Lease Contract for the sewage
treatment plant.
Implementation:
As per the Agreement, the expected date of completion was 31st March, 2005. In order to
ensure timely implementation of the project and adherence to quality specifications, Consulting
Engineering Services Limited (CESL) was appointed as Project Management Consultants for the
detailed supervision and quality control. Along with the consultants, the Chairman, Commissioner
and Engineer of the AM reviewed the progress of the project on a weekly basis.The Commissioner
of Municipal Administration, GoTN, the Secretary of the Municipal Administration & Water Supply
and the Chief Executive of TNUIFSL also reviewed the progress of the project every month, and
provided administrative support for acquiring the necessary clearances from agencies such as the
railways, highway authority, PWD, etc.
Delivery:
The project work was carried out in two phases. In the first phase (the first two and a half years),
50% of the branch sewers, main sewers, pump house including installation of machinery, pumping
main and one 12 MLD capacity sewage treatment plant, were completed and commissioned. The
remaining work relating to the project was to be carried out in the next phase.
By end 2001, the laying of the sewer pipes and main sewers was completed, as also the construction
of the Pumping Station, Pumping Mains and Sewerage Treatment Plant.The overall date of completion
was October 2003.
With respect to funding, by March 2001, approximately ` 9.16 crores was received from TUFIDCO
in the form of grants and a loan and more than ` 6.84 crores was generated as a one-time sewer
connection charge from about 13,434 households.
20
Exit:
The management contract for the operations and management of the sewerage system expired in
2005, after the stipulated contract period of 5 years. Following this the operations and management
function has reverted to the municipality. It is understood that the AM is currently in the process
of sourcing an O&M manager for the operations of the sewerage system.
The STP Agreement will terminate in the year 2019 at the end of the stipulated lease period of 14
years at which time the STP will be transferred to the AM free of cost. The defect liability period,
however, will extend for one year beyond the expiry of the STP lease period.
It is understood that the STP Agreement has worked well with no penalties being imposed during
the contract and no significant lapses in obligations, till date. There has been only one issue that
arose at the beginning of the Agreement and is currently in the process of being resolved, through
arbitration. The issue concerned the date of commencement of the Sewerage System and payment
due for the first six months from AM to the Private Developer. The reason for this was the
obtaining of the approval from the Pollution Control Board (PCB) - apparently the period for which
operations were performed and payment claimed from the AM did not have the PCB approval in
place. It is understood that AM has been cooperative in this matter and has no objection to making
the payment however, approval from the government for making the payment is under process.
Risk Allocation Framework
Table 3
Risk Type
Sensitivity
Risk Period
Primary Risk
Bearer
Comments
Land acquisition
High
Government
AM took the responsibility for directly

acquiring the land for the construction
of the STP.
Delay in obtaining
permits
High
0-3 months
AM, Private
developer
The AM took responsibility under the

Contract for key approvals, including
road cutting, shifting of services
and environmental clearances. The
developer was responsible only of the
works related approvals.
Design Risk
High
Private developer
Design for the Sewerage System as well

as the STP was developed by the AM
as part of the feasibility study. The same
was provided to the developer as part
of the RFP document. The Bidder had
the option to comment on the design
provided and suggest changes, if any.
However, after the submission of bids,
the Contractor was required to adhere
to the design provided by the AM.
Construction Risk
High
Private developer
The Construction Contract for

the underground Sewerage System
specified strict construction milestones
linked to the payment along with a
one year defect liability period to
address any construction related risk.
Liquidated damages were prescribed
in the contract for every day of delay
limited to 10% of contact price.
0-2 years
In respect of the STP, the construction

risk was borne by the Developer as
the investment was made by him. The
STP was constructed in two phases
under tight deadlines.The defect liability
period for the STP extend one year
beyond the lease period of 14 years,
during which the developer operated
and managed the facility.
21

Risk Type
Sensitivity
Risk Period
Primary Risk
Bearer
Comments
Construction cost
over runs
High
0-2 years
Private developer
The construction of the Sewerage

System was based on detailed bill of
quantities with rigorous clauses related
to cost over-runs. In respect of the
STP, though the developer bore the
construction cost, the design and cost
was based on detailed costing predetermined at the bid stage. Since the
construction cost was also the basis of
the annuity payment determined in the
bid, it was carefully controlled.
Since the construction did not
experience any time over-runs, cost
over-runs were also controlled. The
project was implemented as per the
original cost estimation.
Change in Scope
Risk
As the design and costing had been

drawn up at the bidding stage itself, this
risk was largely controlled. And did not
arise on the ground.
Payment Risk
(Capital Cost for
Sewerage System)
3 years
Government
The key risk in respect of payment of

capital cost for the sewerage system
was the component of the cost that had
to be met through public contribution.
While the AM assumed significant risk
in this regard, the risk was addressed
effectively through extensive public
consultation and interactions. In fact
that the collection exceeded initial plans
and the AM did not have to draw upon
the debt as planned from TNUIFSL.
Payment Risk (STP

Annuity Payment)
Through the
Lease Period
for the STP
Government
The question of periodic payment arose

only in respect of the Annuity Payment
for the STP for which the AM was
contractually bound over the period of
lease. Here the AM assumed significant
risk. However, based on the willingness
to pay survey, the Government had
agreed to extend subsidy support to
meet operational cost to the extent
of `30 per person per month. On the
ground, the AM has been able to collect
the monthly sewer fees effectively and
has not faced any issues in this regard.
Payment risk
(Debt Repayment)
Lenders
Lenders risk was addressed through

an escrow arrangement opened in
favour of the term lenders where all the
revenue receipts of the AM (including
property tax, stamp duty, and the grant
from GoTN) as well as sewer fee was
be deposited.The AM had also accepted
limits on future indebtedness. In
addition, a State Government guarantee
also backed the borrowing of the AM.
Government
There are no clear references to this

in the agreement. However, the design
was prepared at the bidding stage and
thereafter accepted by the Bidder
during submission of proposal. Also
since the project was implemented
without significant delays, the question
of technology up-gradation due to
passage of time did not arise.
Private developer
The performance parameter mainly

referred to the treatment of sewage as
fed into the STP during the lease period.
The Agreement prescribed a fine if the
treated effluents failed to meet the
required standards at the rate of `
10,000 per day of default.
Technology Risk
Operations Risk
22
High
Risk Type
Sensitivity
Risk Period
Primary Risk
Bearer
Comments
Financial Risk
High
0-4 years
Government and
Private developer
The AM bore the financial risk in respect

of the Sewerage System while the
Private developer bore the risk for the
STP. While the AMs capital investment
plan was carefully planned even before
the bidding process, the key risk arose
from the portion of the capital cost that
was to come from public contribution
towards connection charges.
In respect of the STP, the Private
Developer was able to raise the capital
funds effectively as re-payment was
protected by the annuity payments as
assured by the AM, including acceptance
of take or pay charges for the minimum
assured sewage to be fed into the STP.
Force Majeure
Government and
Private developer
Both the Construction Contract

and the Lease Contract had suitable
provisions for Force Majeure protecting
the ensuing risks for both the AM and
the private developer.
4.6 Post facto VfM Analysis

The ASP was not a commercial project but an initiative at the municipal government level to
improve the life style of its residents. Taking this into account, a qualitative VfM assessment has
been undertaken here with the purpose of highlighting the benefits drawn by way of private sector
participation in the implementation and continued operation of the project.

Suitability for PPP
One of the parameters used for the VfM assessment is the suitability of the project to
be undertaken on a PPP basis. The greatest challenge (as well as accomplishment) of the
ASP, was that both the municipality and the public recognized and accepted the value of
bringing in private participation. Indeed, this project truly demonstrates the benefits of
bringing in PPP in the municipal sector in terms of drawing private sector expertise while
addressing important risk related aspect that would make the project attractive for the
private sector.
The bid criteria for the project ensured that the municipality obtained the best offer in
terms of the lowest Evaluated Construction Price and the lowest Lease Period both of
which were the selection criteria with a weightage of 90:10.As the municipality had already
undertaken a feasibility study and also prepared the detailed design and costing for the
project, the private sector was able to bid for the project with considerable background
information. The ensuing offer, therefore, provided value for money.
The PPP structure evolved also facilitated an effective implementation of the project.
The ASP was one of the few projects with a complex PPP structure wherein the works
contract of the sewerage system and the BOT contract of the STP was jointly bid for and
awarded to the same developer. The bidding parameter was also combined and addressed
the best commercial aspect of both projects. Thus the bidder offering the lowest cost for
the sewerage system and lowest lease period for the STP was selected. By combining both
the projects under an effective structure the municipality ensured a competitive bid that
gave value for money.

Impact of PPP
A brief on the difference made by the ASP, as captured at Table 4, illustrates that the value
for money brought in by the project far exceeded any monetary consideration:
23

Table 4
Important Act of PPP

Sr. No
Parameter
Situation Before Ppp Intervention
1.
Urban service
No sewerage system for a population of 120 km of underground sewerage system,

165,000
pumping stations and an STP of 24 MLD
Situation After Ppp Intervention
2.
Urban service
Water borne sanitation facilities, septic/ Underground sewerage system with

holding tanks for disposal of night soil
direct connection to each household
3.
Urban service
Unregulated disposal of sewerage in storm Modern sewerage treatment plant

water drainage and low lying areas
designed to international standards.
4.
Environment and
Health
Open storm water drains stagnating in Underground sewerage system has

outer areas of town environmental and eliminated risk of mosquitoes and related
diseases for the citizens of Alandur and
health hazard
surrounding areas.
5.
Environment and
health
Contamination of underground water Almost 100% eradication of ground water

sources due to open drains
contamination through underground
sewerage system and waste water
treatment plant.
6.
Public participation
` 12 crores out of the capital cost was

through public contribution
7.
Public participation
Collection of sewerage fee from the public

(on a graded structure amounting to a
weighted average of ` 75 per connection)
amounts to ` 2 crores per month and
covers both debt repayment and O&M
costs of the AM
4.7 Key Learning and Observations

Beneficiary participatory approach: Peoples participation in the project, including
the fact that almost 29% of the project cost was garnered from public contributions,
was the most outstanding aspect and learning from the ASP. The project established that
mobilising peoples participation for infrastructure projects is possible through collective
efforts and transparent procedures.
The success of the project from the outset depended highly on effective collection of
connection charges and monthly sewer fees as also public acceptance of engaging a private
BOT participant. Community awareness, support and on-going cooperation was, therefore,
critical.The aggressive public outreach campaign conducted by the municipality and GoTN
and the engagement of stakeholders was essential to assure the lending agencies and city
officials that repayment provisions would be met.
Stakeholder involvement and interdepartmental coordination: Continued

involvement of stakeholders throughout the project ensured timely completion of the
project and addressing of issues even as they arise.
To maintain support for the project, a citizens committee was formed and it met frequently
to review the status of the project, monitor performance of the BOT contractor and
provide a forum in which citizens could air their concerns.
The ASP established that close involvement of all stakeholders/departments at the key
decision-making stages of the project, as also for review and monitoring, is critical to
ensuring that the project stays on-track.
Political will and strong decision making, especially at the grass-root level:
The ASP demonstrated that political will and quick decisions make projects happen. The
political leadership and strong advocacy for the project provided by the chairman and
council of the municipality proved to be critical element of the success. While strong
support for the sewerage system within Alandur existed, political will was essential to
convince the customers and citizens to pay a significant share of the cost and accept the
entry of the private sector. Throughout the project decision making stages, the members
24
of the municipality maintained full support for the project.

Acceptance of fiscal discipline:The term lenders,TNUIFSL and TUFIDCO, placed strict

lending conditions on the municipality, requiring the municipality to accept and implement
strong fiscal discipline measures.TNUIFSL required the municipality to establish a separate
sewer account distinct from the general budget of the municipality, forcing discipline and
transparency on the officials managing the system. The municipality was also required to
limit new debts to a certain percentage (typically 30%) of their revenue. GoTN, which
provide loan guarantee, stipulated that any payment made to these entities on account of
default by the municipality would be recovered from the annual transfer of payments from
the municipality to the state government.
Similarly the contractual obligations between the municipality and the BOT operator
forced the municipal government to ensure timely payment for management and waste
water treatment services.
Thus, the loan as well as contractual obligations ensured strong fiscal discipline by the
municipal body, by making it take difficult decisions on capital priorities, closely oversee
the sewer system management, and ensure budgeting of sufficient funds to meet payment
schedules

Implementing an effective fee system: Despite the willingness to pay survey that
indicated that public willingness was far below the tariff requirement to meet the capital
and operational cost of the project, the municipal council, through its rigorous public
outreach measures, managed to impose reasonable levels of connection charges and
sewer fee on the public. The municipality also managed to collect the connection charges
fairly well in time to pre-empt the need for the TNUIFSL loan.
A large part of the success of the municipality in this aspect sprung from the fact that they
provided sympathetic measures that addressed the concern of the public. For example,
the connection deposits were collected in two instalments as per the convenience of the
consumers; the local branch of the Punjab National Bank also offered financial support to
the citizens of Alandur by creating a scheme for lending the connection deposit amount to
them.
Assurances on payment to the Private Sector Participant: The municipality

agreed to provide the BOT operator a minimum level of income by accepting the take
or pay condition in the Agreement. Thus, the municipality assumed the risk of minimum
payment to the operator while the private partner assumed all other responsibilities and
risks of financing, constructing and operating the STP for a period of 14 years.
Access to finance for the municipality: An important aspect of the success of the
project stemmed from concession financing and subsidies from the Government and
public-private entities, established specifically to meet the credit needs of the municipalities
without access to private capital, due to a low or non-existent credit rating.Though almost
30% of the capital was generated by the municipality from connection fees, grants from
GoTN and loans from TUFIDCO were crucial. The loan agreement from TNUIFSL, while
proving to be unnecessary in the end, was imperative for participation in the finance
package by all the parties.
Technical and financial assistance: The expertise needed to plan and manage the
technical and financial aspects of the project far exceeded the capacity of the municipality.
Assistance from the other government bodies in the state, the Chennai Corporation,
and sources, such as the USAIDs FIRE project, was critical. TNUIFSL and FIRE played a
substantial role in structuring the project, managing the feasibility studies, and preparing
the bid and contract documents crucial to project success.The review and approval of the
engineering reports by the management committee, consisting of senior officials of the AM,
25

the Tamil Nadu Water supply and Sewerage Board, Chennai Metropolitan Water Supply
and Sewerage Board, and TNUIFSL, were essential for successful project management.

Transparency in bidding and contracting procedures: The transparent approach to

the project, right from inception to selection of contractor/operator and implementation,
was critical to providing the necessary assurance to the private sector bidders on the
professional approach of the municipality. This included strict application of World Bank
and FIDIC processes, oversight and approval of the process by the World Bank. Public
participation in the deliberations of the management committee overseeing the tendering
process execution was also important.
Documents Referred To:

RFP document
Contract for the Sewerage System
Agreement for the STP between AM and IVRCL
Alandur Sewerage Project, A success story of Public- private partnership arrangements,

by Dr. Mukesh P. Mathur

Private Sector Participation in the Water Sector Presentation on the Alandur Sewerage
project given by Dr. Mukesh P. Mathur
Peoples Participation in Underground Sewerage Project in Alandur Municipality India

best Practices Catalogue 2003.
Financing Water and Sanitation Presentation by Dr. Rajivan in the Expert Group
Meeting on Urban Sector Strategy Review
USAID Case Studies of Bankable Water and Sewerage Utilities, 2005
Internal papers and research material
Interactions with:
26
Ms. Gayatri, Project Officer, TNUDF
Dr. K. Rajivan, Urban Finance Specialist, TNUDF
Dr. Ravikumar, Project Officer during procurement, TNUDF
Five
Case Study 2:
Karnataka Urban Water Supply
Improvement Project
In 2005, the Government of Karnataka (GoK), with assistance from the World Bank, initiated a water
supply service delivery improvement programme with private sector participation at the local level.
This initiative was part of a larger project developed by GoK to improve the performance of the
urban water sector by providing high quality and sustainable services in all the Urban Local Bodies
(ULBs) of the state. The project termed as Karnataka Urban Water Sector Improvement Project
(KUWASIP) was designed and implemented with funding assistance from the World Bank through
the Karnataka Urban Infrastructure Development and Finance Corporation (KUIDFC), which
is the nodal agency for externally funding projects in Karnataka. Under the KUWASIP initiative,
water supply improvement projects were planned at the state and local body level. These projects
included both reform-based programmes aimed at strengthening of the water supply and sanitation
sector of Karnataka and also specific projects for increasing the water availability and service
delivery levels at the ULB level.
At the local body level, projects were identified for the select three ULBs of Belgaum, Gulbarga
and Hubli-Dharwad. These projects aimed towards augmentation of the bulk water supply and
improvements to the distribution system. This objective was undertaken through a project aimed
at providing a 24*7 water supply system on a Public Private Partnership basis for a defined project
area.
A pilot project in five demonstration zones of the select three Municipal Corporations of Karnataka
was taken up.The project involved refurbishment/rehabilitation of the existing distribution network
of the select five demonstration zones in these three Urban Local Bodies, followed by the operation
and management of water distribution systems in these zones on a PPP basis.
The project was structured such that a private developer was identified for undertaking the required
rehabilitation works and for undertaking the operation and maintenance (O&M) of the distribution
network for the period of the contract.The capital investment required for the rehabilitation works
was to be compensated for by the World Bank through KUIDFC and the private developer was to
be provided a fee for undertaking the O&M activity.The project was planned for a total time period
of 3 years and 6 months inclusive of both rehabilitation works for the distribution networks and
the operation and maintenance of the distribution system.

The PPP contract for the project was essentially a management contract involving the following
institutions: the three ULBs viz. Belgaum, Gulbarga and Hubli-Dharwad, the GoK through the
Karnataka Urban Infrastructure Development and Finance Corporation (KUIDFC) and the
Karnataka Urban Water Supply and Drainage Board (KUWSDB), and the private developer. Under
the PPP structure, the private developer was to undertake rehabilitation/construction activity as
specified by KUWSDB and KUIDFC for the distribution network across the zones of the three
cities. The rehabilitation/construction activity largely included replacement of the distribution
pipelines, installation of bulk water meters and consumer meters and setting up of a computerised
27

billing system. The rehabilitation activity, to be undertaken by the private developer, was to be
funded from KUIDFC funds as a grant to the project. A maximum of ` 42 crores was set aside as
the grant amount for the capital works, and the private developer was required to carry out the
rehabilitation works within this sum.
The detailed design of the capital works to be undertaken was to be provided by the private
developer and, subject to approval from KUWSDB and KUIDFC; the works were to be implemented
by the private developer. The performance targets to be achieved by the private developer on the
project were also listed by KUIDFC.
The private developer was responsible for identifying and tendering out the construction
activity. Post construction of the project, the private developer was required to demonstrate the
achievement of the performance targets in the demonstration zones. Subject to an audit of the
efficiency of the working of the system in the demonstration zones, the private developer would
take over the distribution system for the operation and maintenance phase of the project. The
activity of raw water supply, its treatment and supply till the treated bulk water distribution points
was to be fully managed by KUWSDB.The tariff to be levied and the structure of the same were to
be set by the ULBs in consultation with KUWSDB and KUIDFC.
During the O&M phase of the project, the private developer was required to ensure 100% individual
house service connections in the demonstration zones, supply treated water to the customers,
ensure reduction in distribution losses as per performance targets set, generate bills as per the
tariff set by the ULBs and distribute bills to the consumers. The collection against the bills was the
responsibility of the respective ULBs.
For the activities undertaken by the private developer, a fee was to be paid by ULBs and KUIDFC
for the period of the contract.The fee included a fixed component of 60% and a variable component
of 40%, the latter being based on the meeting of performance targets. In addition, further incentives
were to be provided to the private developer for achievement of the targets beyond a set level.
This incentive was over and above the operator fee remuneration. (The performance targets and
incentives have been listed in a later section of this case note)
During the contract period, the asset ownership for the existing and the rehabilitated assets inclusive
of pipelines, valves and meters, fully remained with the respective ULBs. Post the rehabilitation
phase, the private developer was only provided the right to operate and maintain the facilities. At
the end of the tenure of the contract, the distribution network would have to be handed back to
the respective ULBs for operations and maintenance.
5.3 Current Status

The contract was awarded in 2005 to Compagnie Generale des Eaux, Paris, France (now known
as Veolia Water). The chosen bidder was required to undertake both the rehabilitation and the
operation and maintenance activity of the distribution network for the identified zones in the
three ULBs. The distribution network rehabilitation activity was completed by April 2008, and the
operation and maintenance contract which became effective therein is ongoing and is expected
to conclude by March 2010. The contract awarded in 2005, had therefore been extended. All the
performance related activities such as reduction in loss levels, ensuring 100% coverage to the
existing and regularised connections, etc has to be achieved during the O&M phase.

The total cost for the construction/rehabilitation activity was capped at ` 42 crores. The actual
cost incurred against this ceiling has been approximately ` 32 crores. The ULBs did not bear the
debt burden for the capital costs. Upon incurring the expenditure on capital works for distribution
infrastructure and the costs of financing during construction, the private developer was reimbursed
the costs from KUWASIP funds via KUIDFC. It is to be noted here that Veolia did not arrange for
any upfront funding.
28
The operator fee of ` 22 crores was to be paid from the revenues accruing to the ULBs from the
user charges collected. However, during the course of the implementation of the project, there
were delays which arose, resulting in an escalation in the compensation to be paid to the operator
by KUIDFC. The operator fee finally increased to ` 28 crores.
Project Details
Table 5
Particulars
Project IRR
14%
Debt Equity Ratio
80:20
NPV
` 2.57 crores
Of the estimated project cost of approximately at ` 62 crores1 (USD 13.79 million), World Banks
loan based assistance to the project was approximately ` 45 crores (USD 11.61 million). Information
on the financial details relating to NPV, IRR, and DSCR etc on the project from the project feasibility
report is not available in the public domain. The figures in the above table are obtained from an
economic viability study undertaken by the World Bank.
The project was structured in such a way that there were built in financial incentives to the private
developer for efficient execution of the rehabilitation works and the operation and management
activity. The maximum permissible bonus was set as 25% of the remuneration (initially decided as `
22 crores and later revised to ` 28 crores) to be paid to the private developer.The incentives to be
provided under the construction phase and operation phase are as listed below:
Incentives to be provided under the construction phase
Table 6
No
Component
Target
Percentage share
of the bonus
1.
Savings in the total capital expenditure

incurred on rehabilitation works
Upto 25%
>25%
3.75%
10%
2.
Savings in the O&M expense
Upto 25%
>25%
15%
40%
3.
Reduction in real losses
Between 15-20%
< 15%
20%
30%
4.
Percentage increase in billed volume to the

base volume of bulk supplied water1
Upto 25% increase

> 25%
12%
30%
For instance, if the private developer made a saving of greater than 25% on the capital expenditure
amount, he is eligible to get an incentive of 10% from the corpus (25% of operator fee) set aside
for the same. During the rehabilitation and construction phase of the project, the private developer
was able to reduce the capital costs by over 25% and was eligible to avail the incentives as set.
The construction was undertaken at a cost of approximately ` 32 crores. During the course of
execution of the O&M phase of the project, the private developer was able to bring about savings
greater than 25% in the O&M expense, bring about reduction in the losses to less than 15% and
also increase the billed water supply to over 25%.

Inception:
The GoK with the assistance of the World Bank launched an urban water supply and sanitation
sector reform process through KUWASIP. One of the objectives under KUWASIP was to bring
initial improvements in water supply systems of the three ULBs of Belgaum, Gulbarga and Hubli1
Assumption of 1 USD = ` 45
29

Dharwad. For furthering the same, five demonstration zones were identified where specific
interventions were to be brought about under a 24x7 water supply system. These three ULBs
experienced poor water supply levels, inclusive of non reliable supply hours for water and a high
level of leakages.

As a first level of preparatory activity, an assessment of the project area was undertaken by Tata
Consultancy Engineering (TCE) to ascertain the status of the water supply service levels in the
project area. This assessment was supported by the World Bank. As per the assessment it was
identified that the water supply service delivery standards were extremely poor in the project area
of the three ULBs. For instance, the frequency of water supply ranged between once in 7 days for
Hubli-Dharwad, once in 2 days for Gulbarga and on alternate days in Belgaum. Also, it was assessed
that the Non-Revenue- Water levels in these cities was on an average higher than 50%. Capital
investment estimates were prepared for undertaking the works so identified. The financial status
of the three Municipal Corporations was reviewed to assess the capital investment sustainability of
the capacity to bear the investment burden. However, on account of low sustenance capacity of the
three Corporations, the capital investment required for the rehabilitation work was to be funded
from the KUWASIP funds. A project for rehabilitation, operation and maintenance of a 24x7 water
supply system in the demonstration zones on a public private partnership basis was prepared with
the following objectives:
To assess whether post rehabilitation/refurbishment works, a 24x7 water supply system
can be implemented in an identified area

To ascertain the cost involved in the refurbishment activity
To assess whether the project can be replicated in other areas
To identify the socio-economic benefits of the project
Procurement:
A two stage bidding process was thereby followed, i.e. the Request for Qualification (RFQ) stage
followed by the Request for Proposal (RFP) stage. At the RFQ stage interest was expressed by
approximately 30 bidders constituting both domestic and international firms. From the 30 bidders,
seven were selected for the RFP stage. The technical qualification criteria stated in the RFQ
document resulted in only international players in the water business being eligible for undertaking
the project. Most of the Indian firms could not qualify due to the lack of adequate experience.
Indian firms however bid together with the international players as part of consortia. The financial
bid evaluation criteria was determined as the lowest financial quote made by the bidder for
remuneration towards operation and maintenance activity. The lowest quote so received was
for an amount of ` 22 crores from the French company Compagnie Generale des Eaux, which
was selected as the preferred bidder. The financial bid had a fixed remuneration component and
another component dependant on the meeting of performance targets by the private developer. It
may be noted here that there was no request from the participating bidders for having a fixed and
a performance based component in the bid.
Development:
The project was planned in three phases. These phases are as explained below:
Preparatory period A: The period was envisaged as 6 months during which the private
developer was required to first undertake an assessment of the existing water supply
system of the zones in the three ULBs. On the basis of the assessment, the private
developer was required to prepare the draft investment requirement, and prepare detailed
designs. During this period, the private developer was also required to get the approval
from KUIDFC and KUWSDB on the designs submitted.
30
Preparatory period B: The second phase of the project was envisaged to be spread
over 9 months. During this phase, the private developer was required to first arrange
for finance for the investment amount as identified in the Draft Investment Report
approved by KUIDFC. As stated earlier, this investment amount was capped at ` 42
crores. Following the receipt of approvals, the developer was required to commence the
construction works for the rehabilitation/ refurbishment activity. The activity of floating
tenders, selection of contractors and supervision of the rehabilitation works was to be
managed by the private developer. During the construction activity, it was necessary for
the private developer to maintain the then existing level of water supply services to the
consumers. The private developer did not disconnect the existing consumers during the
rehabilitation phase and instead water was made available through the existing lines, and
/ or parallel lines to all the zones. Additionally, during this period, the private developer
was required to manage all installation works, provide house service connections to the
customers approved by the ULBs and demonstrate the efficient working of the system
where the performance targets were being met. The efficient working of the system
was subject to an audit by an independent engineer appointed by KUIDFC, and post
approval, the private developer was allowed to take over the system for the operation
and maintenance phase of the project. It is to be noted here that the private developer,
during this phase, also undertook a consumer survey in the project zone to ascertain
the number and type of connections which were to be provided. The private developer
identified the authorised consumers and those which required regularisation by the
ULBs.
Period C: During this phase of the project, the private developer was required to undertake
O&M of the entire distribution system for a period of 2 years. The tasks of the private
developer entailed provision of 25,000 direct house service connections, a 24*7 supply
of treated water at a set pressure level, reduction in leakages, redressal of consumer
complaints etc.
The total time allocated for these three activities as per the RFP was 42 months. However, during
the course of the implementation of the project for the rehabilitation works, there were delays
which arose during the construction phase of the project and during the demonstration phase.
The delays which arose were on account a combined set of factors such as delays in obtaining
permits from other utilities departments for digging and construction activities, limited or poor
co-operation from the three ULBs in information sharing, delays brought about due to the
unfavourable climatic conditions during the construction phase etc. Additional delays occurred at
the time of commencement of the demonstration works. This delay was largely caused due to the
non availability of the bulk water supply by KUWSDB as per schedule. Parallel to the 24*7 water
supply project, there was a parallel project which was being implemented for sourcing of raw bulk
water and supply of treated water to these Corporations. The bulk water supply project which
was also funded by the World Bank was expected to be completed by the time the rehabilitation
works in the three ULBs concluded. However, since the bulk water supply project did not complete
on time, there were delays on the part of KUWSDB in supply, resulting in delays for the private
developer to commence the demonstration works.
Also during the O&M phase, assistance was required by the private developer from the ULBs for
undertaking all the improvement works and for provision of all connections. However, the same
was not fully forthcoming resulting in delays.
On account of all these factors, the total time period was extended by 17 months as against what
was envisaged in the RFP (59 months as against the initial 42 months). As per the contract, the
private developer had to adhere to the performance targets set and any non compliance would
result in immediate termination. There were no separate set of penalties which were stated in
the contract. KUIDFC however noted that the delays were largely caused due to delays from the
clients side i.e. from the ULBs and the KUWSDB and therefore no penalties in this regard were
imposed on the private developer. Also, for the period of extension, KUDIFC fully compensated the
31

private developer for additional costs incurred due to time over runs. Therefore, the operator fee
increased from ` 22 crores to ` 28 crores for the extended time period.
Delivery:
Subsequent to completion of the rehabilitation works, the O&M activity was to be undertaken over
a time period of 104 weeks. The actual time taken by the private developer for the O&M activity
was the same as that mentioned in the RFP document.
The performance targets which were set for the private developer included the following:
Table 7
Continuous pressured water supply to every connected property and stand-post

connected to the public network
Emergency stoppages to reduce to maximum of four for less than 12 hours in a year and
redressal of customer complaints
100% metering of all property connections (individual and shared), public stand-posts and
feeds to street storage tanks and maintenance of computerised records of the readings.
100% of customer meters to be read every month and a bill for water used based on these
volumetric readings to be issued to 100% of connected properties each month with prior
approval of the respective ULB
Reduction in losses from the distribution network in the following manner:
Reduction in losses
Elapsed time from the final
takeover date (in months)
Losses (in litres/connection/day/meter

pressure)
12
25
18
23
24
20
System connection requests to be fulfilled within 7 days of directions being issued by the
Corporation subsequent to the payment of connection fee
Set up a customer service and support centre which is to situated at a location easily
accessible to residents of the given area and is to be operated on a 24-hour basis
All customer queries and complaints to be responded to within 24 hours and redressed
within 7 days of such complaint or query, except the complaints concerning low pressure
or poor quality of water, which must be responded to within 12 hours and redressed
within 24 hours of such complaint
In order to monitor the achievement of the above listed performance targets, KUIDFC appointed
a technical auditor. The technical auditor continuously monitored the performance of the private
developer against these parameters. It is to be noted that these performance targets which were set
for the O&M activity have been largely met by the private developer in these demonstration zones.
For each of the five zones, manpower numbering eight per zone were also provided from each ULB.
The manpower provided was for the purpose of assisting the private developer in their various
works. However, it is understood that the manpower so provided was of limited assistance to
the private developer. The private developer could not depend on them and therein had to bring
along their own manpower at the project site. It may be noted here that there was no instance
of resistance from the employees of the participating ULBs in the entire implementation process.
The private developer however did face a few issues during the O&M phase of the project. For
instance, the private developer was required to provide direct connections to those consumers
32
for whom regularisation authorization had been provided by the ULBs. These had to be provided
within seven days of receipt of such a request by the private developer. However, the ULBs did
not provide information on the authorised consumer list in a timely manner. Instead, at random
intervals, information was shared on the connections to be provided by the developer.This resulted
in the developer requiring to address too many requests within a short time period of seven days.
Instead, the ULBs were requested to share such information at regular intervals. Another issue
faced by the private developer related to demands for provision of the services beyond the project
area. Such demands would have had adverse financial implications for the private developer.
To ensure effective operations and provide the necessary assistance to the private developer,
KUIDFC played a very active role.A Project Improvement Units (PIU) was established to coordinate
the O&M activity. Additionally a technical auditor was appointed to oversee the O&M works being
undertaken on the site. Also, as per the site conditions, a few modifications were made to the
performance targets set for the private developer. For instance, the private developer for the first
six months of commencement of operations was to generate the water usage bill on a flat tariff
basis and eventually adopt a volumetric structure. However, it was mutually agreed by KUIDFC and
KUWSDB that since the right to set and determine the tariff is the prerogative of the ULBs, the
final say on the same rests with the ULBs. Since the ULBs did not adopt a volumetric tariff structure,
the private developer continued to generate bills as per the applicable flat rate.
The project saw initial resistance from the general public on account of apprehensions of private
sector involvement in provision of water supply services. However, effective provision of water
supply services in the demonstration zone of Belgaum resulted in greater acceptance of the project
in the remaining zones. Additionally, Non Governmental Organisations (NGOs) were involved in
awareness creation among the general public regarding the project, its benefits etc.
Exit:
The O&M activity to be managed by the private developer is expected to be completed by March
2010. Post termination of the contract, the entire distribution system including the assets created
by the private developer would be handed over to the respective ULBs for O&M activities.As a part
of the exit activity, the private developer has been providing training to the existing staff at the three
ULBs for handling of the system post termination of the contract. The private developer however
has raised concerns regarding the skills of the existing staff to be able to effectively manage the
system post its exit.
Risk Allocation Framework

Risk Type
Sensitivity
Table 8
Risk Period
Primary Risk
Bearer
Comments
0-3 months
Private developer
The private developer was responsible

for obtaining permits for rehabilitation
works. There were difficulties in the same
owing to the need to obtain permits from
several departments which were not
forthcoming. Lack of coordination among
various departments resulted in a delay
in permits being obtained. However, since
the three ULBs were stakeholders in the
project, the process of obtaining permits
was eventually managed.
Private developer
The three ULBs did not have an asset

inventory list and there were no detailed
drawings of the physical assets. The design
for the system was to be fully developed
by the private developer based on their
own assessment of the distribution system.
Post implementation of the project there
have been no design related issues which
have arisen.
A) Pre-Operative Risks
Delay in obtaining High
permits
Design Risk
High
33

Risk Type
Sensitivity
Risk Period
Primary Risk
Bearer
Comments
Construction Risk
High
0-2 years
Private developer
The private developer was allowed to sub

contract the construction activity, and fully
manage the process. The construction
period exceeded the timeline envisaged.
However, no penalty was imposed on the
private developer since, the delays were
largely attributed to lack of on ground
information sharing and assistance by the
respective ULBs
Construction cost High

over runs
0-2 years
Private developer
The construction cost ceiling was pre

determined and the upper ceiling set.
In the event of the costs exceeding the
limits set, KUIDFC had the authority to
terminate the contract. The project was
however implemented well within the
limits set.
Performance risk Low

during the transition
phase
between
construction
and
commencement of
O&M management
0-2 years
Private developer
The private developer was required to

maintain the service standards as were
available at the time of handover of the
system for rehabilitation work. The
private developer was able to manage the
same without any disruption of supply.
Change in Scope Risk
No specific provision for change in law was

made in the contract. On ground, however,
there was no change in scope of the
developer once the project commenced.
Market Risk
2 years
Government
The private developer was to be paid

a fixed remuneration of ` 22 crores as
operator fees. This fee increased to `
28 crores on account of delays from the
Government side. Additionally, financial
incentives had to be paid for achievement
of performance targets by the private
developer. Further, although the private
developer undertook the generation
of bills as per the tariff set, its levy and
collection was the responsibility of the
respective ULBs.
Technology Risk
Government
(No clear reference in the agreement)
Operations Risk
High
2 years
Private developer
The release of operator fee to the private

developer was based on achievement of
performance targets. However, though
the performance targets were met by the
private developer, there were substantial
time delays on the part of the ULBs in
release of the operator fee. These delays
ranged from 3 months to almost a year in
some instances.
Financial Risk
High
0-4 years
Private developer
The private developer was to prepare

a capital investment plan for the
rehabilitation works and undertake
the construction within the ceiling of
` 42 crores specified. Any incremental
expenditure above the same would have,
as per the agreement, resulted in the
private developer having to bear the same,
or in case of non compliance, would have
resulted in termination of the contract.
Government and
Private developer
In the event of the private developer being

unable to perform the duties on account
of Force Majeure event, the Government
would provide suitable extension, and
would continue reimbursements to the
private developer.
Force Majeure
5.6 Post facto VfM analysis

A qualitative VfM assessment has been undertaken here with the purpose of highlighting the benefits
drawn by way of private sector participation in the implementation and continued operation of the
34
project on account of limited availability of financial data.

One of the parameters used for the VfM assessment is the suitability of the project to
be undertaken on a PPP basis. The project has seen efficiency both at the construction
phase and during the O&M phase. In the construction phase for instance, the budget
allocation for the rehabilitation works was capped at ` 42 crores. Though majority of
the rehabilitation works have been executed, there are ongoing civil works as part of the
O&M activity. The final estimate of the capital expenditure so incurred on the project can
be correctly estimated only at the time of completion of the contract i.e. in March 2010.
However, it is understood that of the original budget of ` 42 crores for rehabilitation
works, approximately a total of ` 32 crores has been expended by the private developer
towards capital works. There has therefore been a substantial saving in the project costs
which the private developer has been able to bring about. During the O&M phase, the
operator has been able to bring down the O&M costs by effectively monitoring the power
consumption. Also, the private developer has managed to meet the performance targets
effectively which has resulted in financial incentives over and above the operator fee.
The risk allocation as worked out in the PPP arrangement has also facilitated in effective
implementation of the project. The key risks of the project were largely to be managed
by the private developer with assistance from the ULBs and KUIDFC in some cases.
For instance, the private developer was held responsible for obtaining all the requisite
permits. However, the ULBs were required to assist the private developer in securing
these permits. The construction risk, cost over runs during construction if any were to be
managed by the private developer. The market risk was however borne by KUIDFC since
the collection of the bills generated was by the respective ULBs. Such an arrangement has
benefited the private developer to the extent that variations in the collection levels do not
affect its remuneration receivable.
One of the objectives while developing the project was to verify if the PPP model is viable.
This was to be assessed especially in the context of the poor service conditions which
prevailed in the selected zones. With the rehabilitation activity undertaken effectively, the
private developer was able to demonstrate the effective working of the system as per
the performance parameters. Also, the O&M activity is being implemented efficiently with
reduced costs and achievement of performance targets. Also, with the project being able
to demonstrate the benefits of the system, the initial resistance which came up from
few of the customers was effectively addressed. With assured supply, the consumers
were themselves willing to make tariff payments. Increasingly, attempts are being made to
replicate the 24*7 model demonstrated by this project in other urban areas of the state of
Karnataka. A brief on the performance levels before the PPP based intervention and after
the implementation of the project are represented in the table 9:
Performance levels before and after PPP intervention

Sr. No Parameter
Situation Before Ppp Situation After Ppp Intervention

Intervention
1.
Hours of supply
Average of 3 hours in 3-7 24*7

days
2.
Average pressure in the distribution 0-5 m; highly un-equitable 17.70m

system (m)
distribution
3.
Population served
180,000
180,000 by 25,000 connections
4.
Number of public fountains
433
Nil; all customers have been provided with

individual metered connections
5.
Losses as a % of input
More than 50%
10%
6.
Metering
Negligible
100%
7.
Computerized records maintained/ Nil

bills based on monthly readings
issued
100%
8.
Customer complaints response time Nil
24 hrs
9.
Customer service
Table 9
No specified response 24*7 customer service

mechanism
35

The project has brought about strong socio economic benefits. These benefits have been
with respect to health issues, and also willingness on part of the consumers to make
payments for the water supplied. It has been reported that post implementation of the
project, the number of cases of water borne diseases in the project area has seen a
significant fall. As per a study by the Health inspector for the region, it has been reported
that the number of gastronomic diseases have reduced from 400 cases pre project phase
to approximately 80 cases post implementation phase.

Pre project assessment critical: Before tendering out the project, it is important
that the government undertakes a first level service assessment of the project area.
This assessment should be able to indicate the status of the physical infrastructure and
the service delivery gaps and on the basis of the assessment, ascertain the nature of
rehabilitation works required and the investment needed. Such an assessment would give
a realistic picture of the on ground situation to the government and also post award of
bids, to the private developer. It is therefore important on the part of the ULB to have
undertaken the following basic studies to assess the ground situation before performance
parameters are developed and a private developer is brought in. These studies include:

Water audit studies

Energy audit studies
Consumer survey
Pre feasibility studies
These studies will ascertain the actual loss levels in the system, will highlight the areas of
issues, would ascertain the actual consumer base etc. On the basis of this information, it
would be possible for the ULB to ascertain the various interventions which are required
in the system and a suitable contract can be drawn up. Similarly, the private developer can
also plan for the works required appropriately. A clear understanding of the on ground
situation would help minimize on future disputes.
Effective facilitation of project implementation by the government: There were
project awareness activities, which were initiated by KUIDFC, to familiarise the consumers
with the proposed project. Additionally several NGOs and PIUs were brought together
to facilitate effective implementation of the project. Such facilitation has worked towards
effective implementation of the project.
Government needs to provide full cooperation to the private developer at
various phases: The private developer needs to be provided with maximum cooperation
in implementation of the project. It has been observed that there were delays during the
demonstration phase of the project due to the non availability of bulk water for supply
by KUWSDB. Additionally, the ULBs did not provide sufficient information on time and
also did not release the payments due to the developer on time. It is important that such
payments are made on time to the private developer.There were also delays in permitting.
Project ownership by the implementing agency and the participating ULBs is
important: For the success of water supply projects it is important that there is project
ownership by both the implementing agency and the participating ULBs. It also requires
that correct and relevant information be collected during preparation to identify what
potential users want and what resources they are willing to apply to finance and manage
installed systems. Consultation and participation of the consumers and other stakeholders
are crucial for successful implementation.

36
Appropriate time allocation for different phases of the project: It is critical

that the private developer be provided reasonable time for achievement of the various
tasks enlisted under each phase of the project. For instance, the preparatory period A
of the project was 6 months during which the private developer was required to carry
out a detailed assessment of the project area and develop designs on the basis of the
same. In the context of a situation where the ULBs have a poor information base of the
existing infrastructure level and service delivery status, it is important that sufficient time
be provided to undertake a detailed assessment in order to arrive at an accurate situation
analysis.

Proper preparation for takeover by the ULBs and KUIDFC: The private developer
has been providing training to the existing staff of the three ULBs for managing the
system post hand over by the private developer. It is important that these skills are well
absorbed by the officials and the management of the system understood well for effective
implementation and continuance of smooth operations of the system by the ULBs.
It should be noted that an important characteristic of this pilot project was that capital financing
was provided by a development agency (the World Bank), and not from commercial sources.
Documents Referred to:

RFP document
Draft Concession Agreement

Project Appraisal Document on KUWASIP ,World Bank
Project Information Document on KUWASIP, World Bank
Interviews:

Mr. Janardhanan, Advisor, KUIDFC
Mr P.M. Kulkarni, former Advisor, KUIDFC
Mr K.A. Joseph, Regional Director,Veolia Water
37

Six
Case Study 3:
Latur Water Supply Project
Located in the Maratwada region, Latur city is a district headquarter covering an area of 32.56
sq kms and a population of 3.5 lakhs (2001 census). The city is anticipated to witness a significant
decadal growth in population of about 52%.
The Latur Municipal Council (LMC) is responsible for water supply to Latur City. Prior to May 2005,
the primary sources of water supply to the city were 2 weirs on Manjra river that supplied about 35
million litres per day (mlpd) of water. LMC operated two water treatment plants and a distribution
network covering 350 kms. In addition, the city was also drawing about 3 mlpd of ground water
through borewells and open wells.
Historically, Latur city has faced acute water scarcity. LMC was supplying water to the city through
individual connections as well as public standposts. Of the 26,000 regularised water connections,
majority were unmetered connections alongside a significant number of illegal connections. In
addition to limited availability of water, the demand coverage was also low with only 70% of the
population receiving water once a week. The situation was further aggravated during the summer
season.
For the state of Maharashtra, the Maharashtra Jeevan Pradhikaran (MJP) is the nodal agency
responsible for development and regulation of water supply and sanitation.To overcome the source
limitation of Latur city, in May 2005, MJP commissioned a source augmentation project for the
city through the Stage V water supply scheme a bulk water supply and distribution project. This
included bulk water transmission over 65 kms at a capital cost of approximately ` 130 crores.With
the commissioning of this scheme, MJP increased the total length of the water distribution system
of Latur city by an additional 126 kms.
LMC took over this scheme from MJP in 2005 but was unable to operate and maintain it optimally.
Despite ample availability of water, LMC was unable to manage its distribution network and Latur
city was receiving water only once a week. Consequently the percentage of Non Revenue Water
(NRW), which is the difference between the quantity of treated water in the distribution system and
the quantity of water that is actually billed to consumers, was also very high for LMC. In addition
to such operational issues, LMC was also plagued by low collection efficiencies and constraints on
revenue growth through revisions in water tariffs. Given LMCs existing liabilities and its inability to
raise additional resources of ` 17.17 crores for completing the existing water supply system, LMC
initially decided to transfer the Stage V Water Supply scheme to MJP.
Subsequently, LMC resolved to transfer the existing water supply scheme for the entire Latur city
to MJP. Based on the resolution passed by LMC, MJP was given the right to operate the water
supply scheme for Latur city for a period of 30 years. It was responsible for the operations and
maintenance of existing water supply schemes as well as raising finance for completing the water
supply scheme through a private operator. MJP was also given the right to charge water tariff as
necessary and collect the revenue from the water users.
38
MJP eventually floated a management contract tender in March 2006, which was the first source to
tap integrated management contract being executed through a Special Purpose Vehicle (SPV). For
the contract duration, the private entity is responsible for:

Taking over existing assets from source to tap and providing operations, maintenance and
repair of such resources
Deploying of operations and maintenance staff, including key employees, on deputation

from MJP and LMC. It would also provide adequate staff to meet network expansion
requirements
Providing a minimum average water supply to residents at adequate pressure and ensuring
24*7 pressurised water supply within 2 years of the contract period
Increasing piped water coverage through new connections and ensuring 100% metering of
existing connections
Recovering cost of water supply based on tariffs fixed in the management contract
Implementing a billing and collection system
Creating consumer awareness and implementing a consumer redressal mechanism
The project area consists of 3 water sources, 6 pumping stations, 6 electrical installation, 3 water
treatment plants, 2 master balancing reservoirs, 95 kms of transmission mains, 10 elevated service
reservoirs, 1 ground service reservoir and 476 kms of distribution lines.

The PPP structure for the project is a performance based management contract for integrated
source to tap water supply management for the Latur city. The project contracting structure
deployed is at Figure 1:
Project Structure
Creation of
New Assets
Tripartite
Agreement
Figure 1
Latur Municipal
Council (LMC)
Transfer of right of
use of Assets
Maharashtra
Jeevan Pradhikaran
1st Agreement
(30 years)
Fixed Monthly
Payment
Major Repairs &

Rehabilitation
10 yr Mgt.
Contract
Latur Water Mgt.

Company (LWMC)
Water Tariff
Operations and
Maintenance
Water
Distribution &
Supply
Consumers
39

40
The key components of the PPP structure are:

First Agreement between LMC and MJP: MJP entered into an agreement with LMC
in February 2006 under which MJP was awarded the right of use of the water transmission
and distribution assets of LMC. MJP is responsible for water supply to Latur city as well as
operation and maintenance of related assets. Under the agreement MJP has the authority
to charge water tariff and collect related revenue from consumers. This agreement was
entered into for a period of 30 years.
Management Contract between MJP and LWMC: Based on a competitive bidding

process, MJP awarded the management contract for operation, maintenance and repair
to the consortium consisting of three companies, Subhash Projects and Marketing Ltd.,
UPL-Environmental Engineers Limited and Hydro Comp Enterprises. As per the terms of
engagement, an SPV Latur Water Management Company Ltd. (LWMC) was created by
the private operator consortium with each partner having an equal stake of 33.3%. MJP
entered into a ten year Management Contract with LWMC in June 2008 for operation,
maintenance and repairs of all assets and resources under the Latur Water Supply Scheme.
It included metering, billing and collection along with all fixed and variable investments
relating to the water supply scheme. The underlying premise of the contract terms were
the reduction of NRW and provision of 24*7 water supply to Latur city within 2 years. Key
highlights of contract terms are given below:

Role allocation between parties to contract was undertaken such that LWMC would
be in charge of operations and maintenance of assets while MJP would take care of
major repairs and rehabilitation activities.
Facilitation of project execution through establishment of Steering Committee. The

Steering Committee would comprise the district collector, superintendent of police,
chairman of municipal council, president of municipal council, chairman of water
supply committee, chief officer of LMC, superintending engineer, executive engineer,
sub-division engineer of MJP along with project manager of the Contractor and two
of his field persons. The Steering Committee would meet at least once a month to
oversee the issues that may be raised by LWMC.
Specification of Performance standards for project execution in terms of minimum

compliance levels were detailed in the contract terms.
Provision for additional capital expenditure for efficiency improvements and infrastructure
upgrading to be made by LWMC as it considers necessary.
Collection of Water tariff from the consumer as agreed upon in the management
contract.
Payment of Fixed monthly fees by LWMC to MJP for the contract duration.
Provision of 70 qualified employees by MJP to LWMC who would work on this project
under the direction and control of LWMC during the contract period. MJP would
transfer 15 qualified employees while LMC would transfer 55 employees to LWMC.
Provision for stability in electricity tariff was provided for in the contract terms to ensure
input cost of electricity would remain within a specified price band. This price band
provided for an incremental electricity tariff increase over the contract term. In the
event of increase in electricity tariff beyond the price band, the terms of the contract
ensured that MJP would compensate the private operator for such an increase. In case
of reduction in electricity tariffs, the differential amount would be passed on to MJP/
LMC by LWMC.
Adoption of a pro-poor strategy wherein billing concessions were provided for slum
areas and the concept of group connections was introduced. To ensure a smoother
transition, concessions were provided to slum dwellers in terms of flat tariffs for the
first nine months. Group connections were introduced for upto 4 households and the
identified group leader would be responsible for collection and payment of all dues.
The management contract that was entered into for Latur water supply was not a typical water
supply management contract but a hybrid version of a management contract with elements of
affermage / concession built into it wherein the private operator was taking on more that the
standard levels of technical and commercial risks of a management contract.
The decision to enter into such a contract with a private party was driven by resource limitations
of LMC to finance and operate the water supply networks.
The rationale for such a structuring of the management contract involving revenue collection and
retention by the private operator rather than fixed payments for services, could also be on account
of the fact that the cash strapped entity LMC or MJP would not have been in a position to guarantee
any fixed payments to the private operator. Hence it decided to allow the private operator to retain
revenues but ensure efficient service delivery by defining the service level standards and parameters
and penalising the private operator in the event that he was unable to meet predefined standards.

Tripartite Agreement between MJP, LMC and LWMC: In addition to the above
agreements, a tripartite agreement was entered into between MJP, LMC and LWMC to
ensure efficient execution of the project. As per the terms of this tripartite agreement

Asset ownership relating to the project was retained by LMC. LMC would remain the
sole owner of the existing water supply and distribution assets as well as additional
assets that would be created by MJP and LWMC under the investment plan specified
in the agreement. MJP would act as a custodian of the assets.
Necessary provisions were made to ensure adequate availability of raw water to

LWMC for distribution. In case of scarcity of water in dams, MJP/LMC would provide
all necessary support, including diversion of any funds received from any Governmental
Agency to MJP, as decided by MJP and LMC. Additionally, in case there is any variation
in the price of raw water provided by the irrigation department, MJP/LMC would also
absorb the same.
MJP/LMC would also provide the necessary support to LWMC during the conditions
precedent period with respect to the repair of assets, water regularisation and 100%
metering implementation.
MJP and LMC would have an equal share in any profit/penalty payable by/to LWMC
and associated with the execution of this management contract.
While all three agreements were to be viewed in conjunction, in case of any inconsistencies, the
terms of the Tripartite Agreement would prevail.
6.3 Current Status

The management contract between MJP and the private operator was signed in June 2008 and
subsequently the tripartite agreement was also entered into between LMC, MJP and the private
operator in June 2008.
Subsequent to entering into the contract, MJP undertook a campaign to educate consumers on
the new initiative and to inform them of the new metering policy. This was however met with stiff
resistance and led to the formation of an Opposition Committee which started a severe agitation
campaign against what they termed privatisation of water supply. A number of protests ensued,
which included rallies against the project and call for a Bandh in Latur. MJP took a number of
steps to hold dialogues with various stakeholders to highlight the benefits of the contract. Keeping
41

in mind the law and order implications of this agitation, the District Collector of Latur, announced
the formation of a study committee and issued a temporary stay order on the field activities till
submission of the study committee report.
The study committee was expected to review the tripartite agreement and contract terms. The
committee found the contract in favour of the residents of Latur city and the Government of
Maharashtra approved the report in October 2008. In accordance with the government directive,
LWMC was expected to restart operations. However the opposition to the project continued with
agitators vandalizing and closing down the LWMC office in Latur. LWMC is now operating out of
the MJP premises. MJP and LWMC also initiated an information, education and communication
campaign to increase consumer awareness on metering policy.
As a consequence of the above, transfer of assets from LMC to MJP has not taken place and in turn
MJP has not been able to transfer the right of use of assets to LWMC. In the interim, in anticipation
of such transfer of assets, the private operator has undertaken preliminary studies relating to
water supply in city. Necessary site visits, customer survey and asset condition survey including
network survey on GIS platform have been undertaken. LWMC has also initiated procurement of
customer meters for undertaking 100% metering activities. Additionally, MJP has undertaken repairs
to the distribution system to improve operational efficiency of the system. The transfer of assets
from LMC to MJP is expected to happen in December 2009 and thereafter the contract term will
commence.

Under the terms of contract, the total amount to be paid by the private operator to MJP is ` 42.9
crores, of which the private operator would make a down payment of ` 33.4 crores to acquire right
of use of existing assets and additional payments amounting to ` 9.5 crores during the contract
period. There is no Viability Gap Funding (VGF) support provided to this project.
Over the contract term, the private operator is expected to make investments of ` 139 crores,
of which ` 18 crores is anticipated to be invested within the first year of commencement of the
contract.2 Based on estimates made by the private operator3, the management contract is expected
Project Life Cycle
Project Life Cycle
Figure2
Inception
PPP route for Latur Water

Supply conceived in Feb 2006
2 Stage Bidding Process

started in 2006 and successful
bidder identified in 2007
Contract signed in June 2008
Asset transfer from LMC to

MJP was opposed and is likely
in December 2009, contract to
commence thereafter
Feasibility
Procurement
Development
Delivery
Exit
2
3
42
Source: MJP
Source: Outlook Profit, 3 Oct 2008
to generate gross revenues of about ` 190 crores for LWMC during the contract period. The
project IRR based on statements given by private operator to the press was 19.6%.

Inception:
Given the inability of the Latur Municipal Council to optimally manage the Stage V water supply
project, LMC handed over the operations and maintenance of the project to MJP. MJP, inturn, decided
to take over this particular water supply system and operate and manage the same through a private
contractor. Subsequently, given LMCs inadequacies in managing the water supply and distribution
network of Latur city as a whole, LMC entered into an agreement with MJP on 22/2/2006 to take
over operation and maintenance of water supply of the entire Latur city for a period of 30 years.
Thereafter MJP invited tenders for the Latur Water Supply Management Contract on 14/03/2006.
This was to be Indias first integrated source to tap water management contract with a duration
of 10 years.
Procurement:
For procurement of operator services to provide source to tap water supply for Latur city, a
two stage bidding process was followed. A pre-bid conference was organised in January 2007 and
tenders were purchased by 7 potential bidders.
Request for Qualification (RFQ): At the RFQ stage, the objective was to identify
private operators having adequate financial capabilities as well as technical expertise.
Being the first source to tap management contract of the country, two technical criteria
were specified. The first technical criterion was that the private operator should have
experience, at a national/international level, of handling water distribution and supply
of 20 MLD or more, for at least one town. The private operator was also required to
have experience, not only in water supply delivery, but also in billing and collections. The
second technical criterion was spread across seven different technical parameters to allow
maximum participation in the bid process, both nationally as well as internationally. To
qualify at this stage, bidders needed to fulfil the financial criteria and any one of the
technical criteria. At the RFQ stage, three bids were received and all the three bidders
qualified and moved on to the Request for Proposal Stage.
Request for Proposal (RFP): The qualified bidders were required to submit a
techno business proposal as well as a financial proposal. The techno business proposals
were evaluated on their compliance with project scope and practicality of proposed
implementation. With respect to the financial proposal, the RFP specified the minimum
guaranteed payments that need to be made to MJP. The bidders were also required to
quote the payments that they would make over and above the minimum guaranteed
payments specified in the RFP for a period of 5 years. Of the three bidders shortlisted
for the RFP stage, the bidding consortium providing the highest total present value of
bid payment to MJP for the specified 5 year period, was declared as the winning bid. This
bid payment involved a fixed minimum payment as prescribed by MJP and an additional
amount that the bidder is willing to pay MJP for the management contract. The highest bid
was from the consortium of Subhash Projects & Marketing Ltd and UPL Environmental
Engineers Ltd. Subsequently, this successful bidding consortium invited and included
Hydro-Comp Enterprises, Cyprus, an internationally reputed company involved in water
management activities, to join as a technical partner in the consortium. The SPV, Latur
Water Management Company, was incorporated in October 2007. Given the unique
nature of arrangements, MJP entered into a Management Contract with the consortium
and additionally a tripartite agreement was also entered into between LMC, MJP and
LWMC in June 2008 to ensure smooth functioning of the water supply scheme by the
private operator.
43

Development and Delivery:

In line with the complex nature of the integrated management contract and criticality of service
delivery, the project development was segregated into two stages.

Conditions Precedent Period: This period was for six months starting from the time of
contract signing. MJP had the discretion of extending this conditions period by 3 months
on mutually agreed terms and conditions. During the conditions precedent period, MJP
was responsible for obtaining all the necessary permits and approvals to facilitate the
private operator to function as LWMC. Performance improvements were initiated by
LWMC through commercial data validation, network data validation and GIS & network
asset management. Subsequently, further measures for performance improvement were
initiated through implementation of consumer billing and information systems as well as
hydraulic modelling systems. During the said conditions precedent period, LWMC was
also responsible for organizing and employing requisite manpower for operating and
maintaining the water supply scheme. It took on the services of 70 employees of MJP
for the contract term. MJP along with LWMC was also responsible for implementation
of water metering and connection regularisation plans within 3 months of notification.
This was aimed at regularisation of illegal water connections and installing new meters to
achieve the target of 25,000 metered connections.The primary objective of the conditions
precedent term was to ensure 100% metering and undertaking the necessary groundwork
for transition of O&M activities of the water supply scheme to the private operator prior
to the commencement of the contract term. However, on account of the inability to
transfer water supply and distribution assets from LMC to MJP, only some of the conditions
precedent were achieved.
Contract Period: Based on the contract terms, on fulfilling the conditions precedent, LWMC
will take over the implementation of the management contract. During this contract
period, LWMC will be responsible for meeting the pre-defined performance standards set
in the management contract for providing adequately pressurised water supply to Latur
city along with undertaking the necessary O&M activities. Additionally, LWMC will also be
responsible for network rehabilitation and optimization. The terms of contract have set a
minimum service level for the contractor to operate the water supply scheme such that
consumer can draw an average of 100 LPCD with the minimum set at 80 LPCD during the
supply hours.The performance standards also cap the maximum water transmission losses
across various operational parameters. The contract specifies that distribution losses will
be reduced incrementally by 10% per year from the commencement date. Standards
specify the timeframe for repair and maintenance activities with penal charges to be levied
in case of default. LWMC will be allowed to collect water tariffs based on contract terms
which provide for a staggered increase in water tariff over the contract period. As a part
of the contract, LWMC will also operate a 24*7 customer redressal cell for the water
supply scheme wherein consumer grievances will be responded to within 24 hours and
resolved within 7 days. This is with the exception of low water pressure or poor water
quality complaints, which will have to be responded within 12 hours and resolved within
24 hours.
Exit:
The management contract that has been entered into by MJP and LWMC is for a period of 10 years.
At the time of expiration of the agreement term, all water supply and distribution assets of LWMC
would transfer back to MJP free of cost and without any encumbrances.
44
Risk allocation framework

Risk type
Sensitivity
Table 10
Risk period
Primary risk
bearer
Comments
Delay
in
obtaining High
Approvals/Permits
0-1 month
MJP
The contract clearly lays down the terms

of engagement wherein MJP has the
onus of obtaining all necessary approvals
and permits which included the transfer
of the right of use of assets, NOC from
Bankers of LMC for transfer of billing
rights to the private operator without
transfer of any liabilities and also the
necessary approvals from Maharashtra
State Electricity Distribution Company
and water resource departments. The
project has not commenced on
account of the delay in transfer of
assets from LMC to MJP.
Design Risk
High
0-6 months
Private
Operator
The private operator has to take over

operation and maintenance of assets
from MJP. Efficient O&M of project
could have potentially been impacted
on account of the lack of accurate
information on network drawings. A
detailed investigation of asset conditions
and asset life cycle was undertaken by
the private operator.
Political Risk
High
0-6 months
MJP and Private Being the first integrated source to tap

Operator
management contract to be handled by
a private operator in India, the political
risk associated with such a project is high.
Water supply being an essential service,
the number of stakeholders involved
with divergent and strong views is also
high. The project execution has been
delayed and has not commenced
as on date on account of political
resistance to the take over of water
supply and distribution assets by the
private operator.
B) Operations Phase Risk

Performance Risk
High
Throughout
contract term
Private
Operator
The terms of engagement clearly lay

down the minimum performance
standards to be maintained by the
operator in terms of service availability
and quality. Non adherence and/or
divergence will impose penal charges
on the private operator, having a direct
impact on cash flows of the project.
Policy Risk
High
Throughout
contract term
MJP and Private The contract terms provide for

Operator
partial risk sharing between MJP and
the private operator. Specific risks
arising on account of tariff revisions
by the Maharashtra State Electricity
Distribution
Company,
irrigation
department as well as water sourcing
issues are to be absorbed by MJP in the
contract.
Revenue Risk
Medium
0-6 Months
MJP and Private The revenue from water connections

Operator
is the primary source of cash flows for
the project. Part of this risk is mitigated
by MJP in the contract through setting
of the condition precedent of 100%
metering of 25,000 connections which
will ensure a basic minimum revenue
stream to the private operator.
Additionally, commercial data validation
through detailed consumer surveys was
undertaken by the private operator to
identify and estimate definitive number
of water connections.
45

Risk type
Sensitivity
Risk period
Primary risk
bearer
Comments
Medium
Throughout
contract term
MJP and Private Changes in the scope of the project

Operator
relating to an increase in the coverage
area are addressed in the contract.
MJP will have the right to undertake a
detailed study to increase the coverage
of the water supply scheme. In case MJP
identifies such a requirement, a bidding
process will be initiated in which the
private operator will also submit his
bid. In the event that the highest bidder
is not the existing private operator,
the first right of refusal will be given
to him to match the highest bid. If
the private operator is able to meet
the highest bid, MJP will enter into an
amended agreement with the existing
private operator for the enhancement
in service coverage area. The private
operator will also have to compensate
a fixed amount to the highest bidder as
the cost of bidding.
Handover risk
Medium
6-9 months
from
termination
date
Private
Operator
The private operator will be required

to maintain a minimum quality and
quantity of asset inventory during the
term of contract and the same will
be handed over to MJP at the time of
termination of the contract. The terms
of the contract specify the cessation
requirements to be met by the private
operator. A joint inspection of assets
by MJP and the private operator will
be undertaken 6-9 months before the
termination date which will identify
asset renewal work that may be needed.
In the event of default, the performance
guarantee along with the letter of credit
could be invoked by MJP to recover all
dues towards such renewal activities.
Force Majeure
Low
Throughout
contract term
Private
Operator
Such risks have been transferred to the

extent of insurance. Any extension to
the terms of contract will be mutually
agreed upon.
C) Other Risks

A qualitative VfM assessment of the project is undertaken. This is primarily on account of lack of
availability of details of the financial model prepared by the private operator. Additionally, since the
commencement of the project has been delayed, there are no metrics available for comparison of
performance and efficiency improvements. Hence the VfM analysis is based on anticipated benefits
to Latur city on account of implementation of the management contract based on the private
operator being able to successfully meet the terms of the contract.
Being a region that has historically seen significant water scarcity, the key long term objective of this
project is the provision of 24*7 water supply to the Latur city. To be able to achieve this objective,
a number of tertiary improvements have been proposed through this management contract. The
proposed improvements are:

46
Significant improvements in revenues through achievement of 100% metering:

At the time of issue of bid documents for the project, there were about 26,000 water
connections in Latur city. Based on information available with LMC, of these water
connections, only 199 were metered connections. Further, surveys estimated the actual
number of water connections to be as high as 114,000, which included group metered
connections in slums. Only about 50% of households had an individual household water
connection. Among the major problems with the water supply system were the lack of
availability of meters and illegal connections. As a part of the conditions precedent to the
contract, LWMC is expected to achieve 100% metering. With the support of LMC/MJP,
regularisation of illegal meters would also be achieved. Additionally, high quality Class B
meters would also be installed.

Efficient utilisation of water supply assets through network optimisation: A

Network Optimisation Study was undertaken by Hydro Comp, one of the consortium
partners.The study report identified the changes required to be made to the transmission
and distribution network of Latur city to achieve continuous water supply in the future.
The significant benefit of the network optimisation study will be a reduction in capital
expenditure through a more efficient utilisation of existing storage reservoirs. The
proposed changes based on this network optimization study will allow the existing system
to meet water demands of Latur City till 2031, assuming continuous water supply.
Significant and tangible benefits to consumers through establishment of 24*7

consumer redressal services with defined timelines for grievance redressal:
Improvement in the consumer interface are proposed under the contract wherein
significant reductions in response time and redressal time are required to be achieved.
In addition, a computerised billing and information system will be established by LWMC
during the conditions precedent period.
Ensures development of at least minimum water supply and distribution

infrastructure for Latur City: The contract terms also assure minimum infrastructure
investment to be undertaken by MJP with the support of LWMC. As per the agreed terms,
the distribution network would be expanded by one km every year for which pipes would
be provided by MJP to LWMC for installation.

1. Developing an effective communication strategy: Preliminary identification of
key stakeholders through a communication needs survey greatly helps in developing
a communication strategy to provide a conducive environment for project execution.
Creating the necessary awareness among the consumers to pay for water in exchange for
uninterrupted availability is a key variable to the success of such a delivery mechanism.
Since transfer of the right of use of public assets to a private operator is a politically
sensitive issue, necessary groundwork to facilitate such transition needs to be undertaken
by the Government agencies prior to involvement of private parties. Open and frank
discussions on issues relating to the existing water supply scheme/project and the positive
impact of the involvement of the private operator through improved service delivery
would also ensure a quicker buy-in from the stakeholders to such a management contract
arrangement. In case of the Latur Water Supply project, there was stiff resistance to the
project due to apprehensions of price increases. Hence creating the necessary consumer
awareness and having an inclusive approach to stakeholder interaction, participation and
management is the key to success.
2. Identifying a Nodal Agency to facilitate smooth project implementation
and execution: The involvement of an agency with necessary technical knowledge,
government backing and with experience in handling consumer relations in the specific
sector would greatly help in facilitating project execution. In case of Latur Water Supply
project, MJP played a critical role in conceiving the project as well as at implementation
stage which included mediating between private operator and stakeholders at the time
of public resistance. MJP also provided necessary support and protection to the private
operator which ensured his continuance in the project despite severe public opposition.
Such nodal agencies which have government backing could play an important role in
facilitating PPP infrastructure development.
47

3. Carrying out comprehensive and detailed project preparation activities:

Availability of data on key project parameters is critical to successful bidding of project.
In case of a contract wherein the private operator takes on a significant amount of the
commercial risk as in case of Latur Water Supply Project, the availability of accurate
information on the key and basic variables such as distribution networks and consumers
is important. In case of this project, the network drawings were incomplete and data was
inaccurate. The private operator had to conduct a detailed asset survey and conditions
assessment. Additionally a commercial validation of data through a detailed consumer
survey was also required and undertaken by the private operator.
4. Undertaking necessary capital expenditure to ensure efficient operability
of assets prior to bidding. A thorough assessment of asset conditions and expected
lifecycle of assets should be undertaken prior to the process of bidding. In addition,
sufficient capital expenditure needs to be incurred by the utility before handing over the
operations to a private contractor. It is pertinent to ensure that the water supply scheme
is not plagued by any major operational issues which would hamper the ability of the
private operator to discharge his obligations under the contract. Most Government
agencies may not be in a position to undertake such an assessment since the primary
drivers of such privatization initiatives are the financial constraints of such agencies as was
the case in Latur where LMC was not in a position to raise finances for future investments.
However, provision of funds for such studies and undertaking the same could potentially
improve the ability of such projects to be funded through the private sector.
5. Developing an efficient and effective risk management mechanism is critical
to success of complex management contracts: Risk identification and mitigation
are critical elements to the success of any contracting structure. In case of Latur, a detailed
risk identification process was undertaken by MJP. Various scenarios were identified and
discussions were undertaken with relevant state officials and industry experts. A risk
mitigation framework was developed for capping the identified risks and these were
incorporated into the integrated management contract. For instance, the contract was
structured in such a way that financial protection was provided to the private operator
by ensuring that the estimated income through water tariff collections is always more
than the estimated expenditure during the contract term. Undertaking such a detailed
risk analysis and identification of measures to cap such risks at the time of developing
the management contracts would help improve the confidence of private sector and in
turn may translate into better private participation in projects which would otherwise be
perceived as a high risk.
6. Creating a favourable policy environment by establishing a clearly defined
tariff and metering policy prior to the bidding process. The tariff for the contract
duration was finalised prior to the bidding process, to allow the bidders to quantify the
tangible benefits from undertaking the project. The tariff structure was to see a staggered
increase based on the contract terms. This reduced the revenue risk to an extent.
7. Undertaking flexible project structuring: The Latur Water Supply project is an
example of striking a balance between a pro poor strategy and developing a financially
viable project for the private operator based on operational efficiency improvements.
48
Pro poor strategy:The project structuring and contract terms were undertaken keeping
in mind the specific circumstances of Latur city. As mentioned previously, concessions
were provided to slum dwellers for the first nine months of the contract period in
terms of a flat monthly water supply rate. Additionally, public standposts were to be
done away with and affected parties were to be encouraged to take individual or
group connections for up to 4 households.
Financially viable project for private operator: In the case of Latur, an attempt was made
to develop a financially viable model based on operational efficiency improvements.
Minimum performance standards had been set in the contract while increases in
revenue could be achieved by the private operator through improved operational
efficiencies. The private operator was able to successfully bid on the basis of loss
reductions in the existing system along with revenues generated through metered
connections. The financial model was based on improvements in operating efficiency
and reduction in transmission losses through the contract period. As mentioned
previously, tariff rationalization was undertaken by MJP prior to bidding. This coupled
with the minimization of input risks in terms of electricity and water costs further
strengthened the financial viability of the project.

Possible changes to minimise opposition: The opposition to this project was both to
the concept of privatization as well as billing of water supply services. Prior to this
arrangement, the residents of Latur were not receiving regular water supply and were
also not used to being billed for water supply. To minimise the opposition to such a
system, a longer contract term could have been considered which would have allowed
for staggered tariff increases and would have given the private operator enough time
to recover his costs.

RFQ document
RFP document and Project Information Document
Draft Management Contract
Draft Tripartite Agreement
Urban - JNNURM presentation by Ashok Natarajan, Former MD, Latur Water Management
Company
Interviews:

Dr. Sanjay Dahasahasra, Member Secretary, Maharashtra Jeevan Pradhikaran
Mr. Ramesh SonKamble, Deputy Engineer, Maharashtra Jeevan Pradhikaran
49

Seven
Case Study 4:
Salt Lake Water Supply And
Sewerage Network
The Government of West Bengal (GoWB) had identified Sector V, Salt Lake City in Kolkata as the IT
& ITeS (Information Technology / Information Technology Enabled Services) hub of West Bengal and
intended to upgrade Sector V to international standards. This site was spread over an area of 300
acres in the eastern fringes of Kolkata. The consumer mix at Sector V included office spaces of the
IT companies, government institutions, and office spaces owned by other private firms. However,
Sector V was devoid of an organized water supply and sewerage system. Due to the lack of proper
water supply and sewerage systems, the industrial units of Sector V had to depend on ground water
for water supply and developed on-site sanitation facility at their own costs. This practice resulted
in indiscriminate extraction of underground water.
In the absence of a developed supportive civic infrastructure, the up-gradation of the IT sector in
Sector V was considered to be difficult. In 2005, the Urban Development Department of the GoWB
appointed the Kolkata Municipal Development Authority (KMDA) to lay out a comprehensive plan
for the development of basic infrastructure services in the industrial township of Nabadiganta.
Accordingly, the KMDA along with the Nabadiganta Industrial Township Authority (NDITA) planned
a combined water supply-cum-sewerage project.This project was planned to be implemented under
the Built-Operate-Transfer (BOT) PPP arrangement. The project was developed with financial
assistance under the central governments scheme of Jawaharlal Nehru National Urban Renewal
Mission (JNNURM).
The project involved the design, construction and commissioning of all the water supply and
sewerage facilities on a PPP basis. Specifically, for the water supply infrastructure, the project
required the construction of an Elevated Storage Reservoir (ESR), a rising main, an Underground
Reservoir (UGR), and the laying of pipelines along individual roads which would be connected to
the dedicated main. With respect to the sewerage sector, the project required the construction of
a sanitary network and a pumping station and the development of a waste treatment system.
KMDA and NDITA selected a private developer on a competitive basis. The private developer
formed a SPV the Nabadiganta Water Management Limited (NBWML). The SPV was required
to undertake part-financing; design the specified components of the water supply and sewerage
system; plan; undertake its construction; and operate and manage the system including the purchase
of water, generation of bills and collection for the concession period. The project infrastructure
was planned to be developed within a total time period of 18 months. Post completion of the
construction works, the SPV was to undertake the operation and maintenance of the water supply
system for a concession period of 30 years.

The PPP contract for the project is a Concession Agreement for the development of the project
on a BOT basis.The contract involves the following parties, viz., KMDA, NDITA and the consortium
of private developers. As per the Concession Agreement, the private developer is required to
undertake the development, design, engineering, financing, procurement, construction, completion,
50
commissioning, implementation, management, administration, operation and maintenance of the

Water Supply Network, Sewerage Network and the Sewage Treatment Plant (STP) at the site, viz.,
Sector V. Against the capital investment made, the private developer is permitted to charge the
consumers a water supply-cum-sewerage tariff. The Concession Agreement requires the private
developer to operate and manage the water supply and sewerage system for a time period of 30
years.
As part of the pre-implementation activities, the private developer was required to prepare a
Detailed Project Report for the project to be implemented. The detailed design of the capital
works to be undertaken was to be provided by the private developer and, subject to approval from
KMDA and NDITA; the works were to be implemented by the private developer. The grant under
the JNNURM scheme is subject to approval of the DPR by the Ministry of Urban Development
(MoUD). The tariff to be levied and the structure of the same will be determined by the private
developer in consultation with KMDA, NDITA and the concerned stakeholders which include the
representatives of the IT offices located in Sector V.
Post completion of the construction phase, the private developer is required to purchase the
treated water from NDITA and supply water to all the connected units and collect sewage; the
sewage then has to be disposed off following treatment. Further, the generation of bills and its
collection is to be managed by the private developer. The private developer will retain the user
charges so collected from the consumers. For undertaking the construction works, and for setting
up the STP, the private developer will be provided the required land area free of cost. Additionally,
the private developer is also not required to make any type of licensee fee payment or annuity
payment to the KMDA or NDITA during the period of the contract.
At the end of the tenure of the contract, the water supply and sewerage network has to be handed
back to NDITA for future operations and maintenance.
7.3 Current Status

The contract was awarded in December 2007 to a consortium of private developers, viz., Jamshedpur
Utilities and Services Company Limited (JUSCO) and Voltas Limited. The chosen bidder was
required to undertake the construction of the water supply and sewerage assets within a period of
18 months and post construction commence the operations of the system.The actual construction
activity commenced by May 2008 and is expected to be completed by March 2010. (The reasons for
the delay have been explained in detail in the following sections) The operations and maintenance
of the system is expected to commence once the construction works are completed.

The total project cost was estimated to be ` 62.2 crores by KMDA and NDITA at its inception,
of which the water supply component was estimated to cost ` 26.06 crores, and the sewerage
component estimated to be ` 36.15 crores. The scope of the water supply component was
increased to include the creation of a UGR and an additional pumping station resulting in an
increase of the cost by ` 7.87 crores.The revised capital cost was thus ` 70.09 crores. However, it
is to be noted here that prior to the expansion of scope, the funding arrangement was such that
of the total capital cost, 35% was to be funded under the JNNURM scheme and the remaining
65% by the private developer. With the increase in costs due to the scope expansion, the funding
pattern only for the increased cost was reworked as - 35% of the funding to cover the increased
cost of ` 7.87 crores, would come via the JNNURM scheme, 32.5% from NDITA and the remaining
32.5% from SPV-NBWML.
The water supply-cum-sewerage tariff has been estimated to be ` 25/KL. This tariff schedule is
subject to a 10% increase every five years. The private developer is also authorised to charge a
one-time connection fee of ` 10/- per sq. ft. of the built up area.
51

Table 11
Project Details
PARTICULARS
With JNNURM Support
Project IRR
Equity IRR
16.4%
Average DSCR
1.9
Minimum DSCR
0.9
Debt Equity Ratio
60:40
NPV
` 1.4 crore

Inception:
The GoWB had planned to develop the IT industries sector in the state. As part of this initiative,
the government had identified Sector V, Salt Lake city of Kolkata as suitable for facilitating such
a development. Prior to this initiative, Sector V had several cottage industry units. Infrastructure
services in terms of water supply, power, etc. were provided by a state government undertaking,
West Bengal Electronics Industry Development Corporation (WEBEL). However, services provided
by WEBEL were limited to only two blocks of Sector V. Existing industrial units in the remaining area
were largely dependant on captive ground water by way of extraction using individual tube wells.
With the GoWBs initiative to develop IT and ITeS units in Sector V, there was a need to develop
and upgrade civic infrastructure in order to serve the IT units better. The infrastructure created
by WEBEL to supply water was limited to two blocks and was in a dilapidated condition. The
dependence on ground water also resulted in several issues arising due to depleting ground water
level. Further, the absence of a sewerage system resulted in existing industrial units depending
on individual soak pits. There was overflow of sewage and untreated sewage was being directly
dumped into the river. Due to the lack of supportive infrastructure, the few IT units which were set
up in Sector V were also considering a shift base to other IT destinations in the country. In order
to avoid a shift of the IT units from the state, the GoWB decided to undertake a proper planned
development of the water supply and sewerage network. GoWB mandated the KMDA to develop
a plan to provide these services.
KMDA undertook a study and prepared a comprehensive development plan to facilitate the overall
development of Sector V. The study established the need to take up development of the water supply
and sewerage infrastructure of Sector V on a priority basis. The findings of KMDA were presented
before an advisory council comprising GoWBs urban development department. It was then decided
to explore various alternatives to develop the required infrastructure. KMDA also prepared a brief
project report for the same which listed the components of the infrastructure which needed
to be developed. In order to undertake the development of the requisite infrastructure, KMDA
decided to involve the private sector owing to the significant requirement for capital investment.
KMDA then developed a basic outline of the proposal for development of the infrastructure on a
PPP basis and invited interest from various developers in the country. The GoWB also constituted
the NDITA to facilitate the planned development of water supply and sewerage infrastructure in
Sector V.

As part of the preparatory activity, KMDA prepared a broad proposal in which the intention
to develop the water supply and sewerage network on a PPP basis was indicated. The proposal
was brief, indicating the components of the infrastructure which needed to be developed and
the technical and financial qualifications of the bidders. KMDA and NDITA however had not
undertaken any assessment study to ascertain the extent, scope or feasibility of the development
52
of the infrastructure on a PPP basis. Also, with minimal existing infrastructure on the site, no further
studies were undertaken by KMDA to verify the suitability of the site conditions for development
of the requisite infrastructure. The lack of basic infrastructure on the site resulted in the proposed
project being developed more as a greenfield project. KMDA had estimated on a broad level the
extent of capital investment which would be required for the project and the likely water supplycum-sewerage tariff which would have to be levied.
Procurement:
The procurement of a developer to undertake the construction works and operate and maintain the
water supply and sewerage works was carried out as a two-stage bidding process, i.e., the Request
for Qualification (RFQ) stage followed by the Request for Proposal (RFP) stage. At the RFQ stage,
interest was expressed by 17 bidders comprising both domestic and international firms. Of the 17
bidders, 4 were short-listed for the RFP stage. At the RFP stage, the evaluation of the technical and
the financial bids was carried out on a 60:40 weightage i.e. 60 for technical and 40 for financial. Only
the bidders who scored an aggregate score 60 were declared technically qualified and eligible for
opening of financial bids. Only one bidder was technically qualified having adequate amount of both
construction and operation and maintenance experience. At the end of the procurement process,
the consortium of JUSCO and Voltas Ltd was selected as the successful bidder.
Development:
The project has been developed in the following phases.

Phase I: Post-identification of the developer for the construction and operation and
maintenance works, and before the signing of the Concession Agreement, the tariff to be
levied had to be determined. The private developer was required to estimate the capital
investments required for the water supply and sewerage works planned in order to
determine an appropriate tariff. The consortium of JUSCO and Voltas estimated a tariff of
` 48/KL. In the absence of a detailed analysis or feasibility study, KMDA and NDITA could
not ascertain if the tariff of ` 48/KL was reasonable. In order to ascertain this, KMDA and
NDITA entered into several rounds of discussions with a committee of representatives of
the IT firms which had established their units at Sector V and the private developers. The
purpose of the discussions was to identify the tariff level acceptable to the IT units. KMDA
also collected information on the prevailing tariff levels in other parts of the country. On
the basis of several discussions, the acceptable tariff was identified to be in the range of
` 20-25/KL. KMDA further directed the consortium of developers to reduce the existing
estimate of ` 48/KL to ` 20-25/KL. KMDA directed the private developers to identify
alternatives to reduce the capital investment.
On the basis of the pruning of design, and further analysis, the developers provided KMDA
with three alternatives for reducing the original estimate of ` 48/KL:

Provision of free land for undertaking the construction works and for setting up the
STP
Provision of a capital subsidy to the private developer
Design optimisation to reduce the capital investment estimate
As per KMDAs original plan, 1.44 ha of land was to be provided at a predetermined lease
rate. However, post several rounds of negotiations, KMDA and NDITA agreed to provide
the required land free of cost to the private developer for the concession period. Further,
it was also decided that a capital subsidy would be provided to the project by way of a
grant under the central governments JNNURM scheme. For provision of a grant to the
project under the JNNURM scheme, preparation of a DPR was mandatory. The private
developer thus prepared a DPR for the proposed project on behalf of KMDA. KMDA
53

forwarded the DPR for sanction under JNNURM. Post receipt of sanction on the project,
it was determined that 35% of the project cost would be received as subsidy. On the
basis of a combination of the first two alternatives being exercised, the developers initial
estimate of tariff of ` 48/KL was reduced to ` 25/KL as the applicable water supply cum
sewerage tariff. Of the ` 25/KL tariff, ` 15/KL was towards the provision of the water
supply services and ` 10/KL for the sewerage services.

In addition to the tariff, the developer was also given the right to charge a one time
connection fee from the consumers at the rate of ` 10/- per sq. ft. as development charges.
This entire phase before signing of the concession agreement was spread over a total time
period of six months.

Phase II: The Concession Agreement between KMDA, NDITA and JUSCO and Voltas was
signed by December 2007. Post signing of the contract, the private developers undertook
detailed site studies which were necessary before commencement of the construction
work. Simultaneously, the necessary permits required to undertake the construction
works had also to be obtained by the private developer. It is to be noted here that as
per the Concession Agreement, NDITA was to facilitate the process of obtaining the
necessary permits by the private developer. The construction works commenced by May
2008. The main components of the construction works were:

Water Supply:
-
1 million gallons(mg) capacity elevated reservoir at an identified location within

Sector-V for which about a half-acre plot was made available
A dedicated main of 750 mm dia. from the source near the Central Park to the
elevated reservoir in Sector-V over a length of about 3 km
UGR for storage and stable supply through pumping
Branch lines along individual roads within Sector-V which were connected to the
dedicated main
Sewerage
-
Approximately 10,000 metres length of sanitary sewer line network
Construction of eight MLD capacity STPs
Other than the above mentioned components, there are several other civil works which
would also be undertaken as part of the project. The design period for the project was
decided to be till 2039, when the population was projected to be 2.67 lakhs. The current
population which is projected to be served is 1 lakh. The construction works are, as
mentioned earlier, expected to be finished by August 2010.
Delivery:
The construction works for the project commenced by May 2008.The construction activity was to
be completed within a time period of 18 months. However, the period of construction activity has
extended by another 6 months and is expected to complete by only August 2010. This extension
has been due to the delay in handover of the required land area to the JUSCO-Voltas consortium
for commencement of the construction works. KMDA and NDITA faced issues in acquisition of
land. The land deed between NDITA and JUSCO-Voltas consortium is yet to be signed and is
expected soon.
In order to create sufficient awareness among the intended consumers, both KMDA and NDITA
and the JUSCO-Voltas consortium organised several road shows. There has also been substantial
cooperation extended by the GoWB through the KMDA and NDITA.
Post conclusion of the construction works, the operation and maintenance works would commence
for a time period of 30 years as per the Concession Agreement. As indicated earlier, NDITA would
be responsible for purchase of water from the Kolkata Municipal Corporation (KMC). Typically,
54
KMC charges ` 15/KL for non-domestic bulk supply. However, under the new arrangement, NDITA
would make treated water available for the JUSCO network at the cost of ` 5/KL. The Concession
Agreement has authorized the JUSCO-Voltas consortium to collect user charges six months in
advance by way of revolving bank guarantees. The Agreement specifically requires NDITA to issue
notifications banning the use of ground water by all the existing consumers in Sector V. NDITA is
further required to seal the entire existing ground water take-off points and existing wells. During
the concession period, any repair and maintenance cost that would arise would have to be borne
by the private developer. The JUSCO-Voltas consortium would levy the tariff of ` 25/KL on its
consumers. The tariff, as mentioned earlier, is scheduled to escalate by 10% every five years for
the entire period of the Concession Agreement. The O&M phase of the project is expected to
commence by August 2010 and is envisaged to provide 500 connections.
Exit:
The O&M activity to be managed by the private developer is expected to be completed by the year
2039. Post-termination of the contract, the entire water supply and sewerage system, including the
assets created by the private developer, would be handed over to KMDA and NDITA for O&M
activities.

Risk type
Sensitivity
Table 12
Risk period
Primary risk Comments

bearer
Delay in obtaining
permits
High
0-6 months
Private
developer
The private developer was responsible for

obtaining permits for the rehabilitation
works. The process of obtaining permits was
however to be facilitated by NDITA. The
JUSCO-Voltas consortium did not face issues
in this area owing to the support extended by
GoWB through KMDA and NDITA.
Design Risk
High
Throughout
Both
The initial designs for the water supply and

sewerage system had been prepared by
KMDA and NDITA. Post selection of the
bidder, the detailed designs for the project
had to be completely developed by the
JUSCO-Voltas consortium for the ultimate
population for 2039. The designs were
detailed out in the DPR and were subject
to approval by the KMDA and NDITA
before implementation. The designs were
approved by KMDA and NDITA after a few
requirements for design optimisation. The
design risk was therefore shared by both the
parties.
Construction Risk
High
0-2 years
Private
developer
The JUSCO-Voltas consortium was to

undertake and manage the construction of
the components as per the DPR. The risk of
construction rests with the private developer.
Construction cost
over runs
High
0-2 years
Private
developer
The cost of the project has been agreed upon

as per the Agreement. Any construction cost
overruns would have to be borne by the
JUSCO-Voltas consortium.
Throughout
Joint
Any change in scope by the private developer

as per the Agreement is subject to approval
by the KMDA and NDITA. In the project,
there were additions to the works to be
undertaken by the JUSCO-Voltas consortium
at the behest of KMDA. The cost for the
increased civil works was jointly borne by
NDITA, the JUSCO-Voltas consortium and
by way of a central government grant under
JNNURM.
55

Risk type
Sensitivity
Market Risk
Operations Risk
High
Risk period
Primary risk Comments

bearer
Throughout
Private
developer
The recovery of the capital investments made

by the private developers would be through
the tariff that would be levied on the IT and
other units in Sector V. The consumer base
was projected for the design period of 2039.
The revenues for the developer are extremely
sensitive to changes in the population in the
project area and the subsequent variation in
the demand for the water supply services.
This risk is however to be borne completely
by the JUSCO-Voltas consortium.
Throughout
Government
and
The treated water to be supplied to the

consumer base is to be supplied in adequate
quantum at the agreed frequency by NDITA.
Any inability on the part of NDITA to provide
water would disrupt the operations of the
private developers.The overall working of the
supply of treated water to all the consumers,
collection and treatment of the sewage rests
with the private developer. Operations risk is
thus shared between both the parties.
Private
developer
Financial Risk
High
Throughout
Force Majeure
Private
developer
The private developer is required to

undertake the construction works within
the capital costs which were estimated
for the project, and any associated cost
overruns need to be fully borne by the
private developer. The recovery of the capital
investments made by the private developer
is dependent on the collection of the water
supply-cum-sewerage tariff and connection
charges levied on consumers. Any change in
the demand would have a direct bearing on
the revenues collected during the O&M phase.
The financial risk involved in the project is to
be borne by the private developer.
Government
and Private
developer
In the event of the private developer being

unable to perform its duties on account of a
Force Majeure event, the Government would
provide a suitable extension, and would
continue to make reimbursements to the
private developer.

A qualitative VfM assessment has been undertaken with the purpose of highlighting the benefits
drawn by way of private sector participation in the implementation and continued operation of the
project on account of limited availability of financial data.
56
One of the parameters used for the VfM assessment is the suitability of the project to be
undertaken on a PPP basis. Discussions with KMDA officials indicate that development of
the project on a PPP basis has been beneficial in raising significant private sector investment.
At the inception stage of the project, there were apprehensions on the implementation
of the project owing to the lack of adequate funds. The involvement of the private sector
has suitably addressed this concern. Though there have been delays in meeting the target
of execution of the construction works within the timeline of 18 months to almost 21
months, the discussions with the private developer do not indicate escalation in project
cost. From KMDA and NDITAs perspective, no additional capital costs other than that
agreed to in the contract need to be borne by them.
The tariff determined at ` 25/KL has been found to be acceptable by the consumers and no
issues relating to the same are envisaged during the O&M phase of the project.Additionally,
critical concessions have been provided and extended to the private developers by KMDA
and NDITA in terms of land being made available free of cost, reduction in the cost of
treated water supplied, permission to levy one-time connection fees, and capital grants
under JNNURM.
The involvement of the private sector has assured that the water supply and sewerage
services would be provided to the IT and the other industrial units in sector V during the
concession period. This is critical infrastructure to support the development of IT units as
in line with the GoWBs vision.

Pre-project assessment and feasibility studies critical: Before tendering out

the project, it is important that the government undertakes a first level assessment of
the project area. This assessment should be able to indicate the status of the physical
infrastructure and the service delivery gaps and on the basis of the assessment, it should
ascertain the nature of infrastructure required and the investment needed. Such an
assessment would give a realistic picture of the on ground situation to the government and
the private developer. Additionally, a detailed feasibility study should also be undertaken
especially in the case of a greenfield project to determine the commercial viability of the
proposed project.
Effective facilitation of project implementation by the government: KMDA and

NDITA played a critical role in providing key concessions to the private developer to
arrive at a rational water cum sewerage charge. KMDA had several rounds of discussions
with the stakeholders i.e. the IT firms to ascertain the acceptable tariff.
Government needs to provide full cooperation to the private developer at

various phases: The private developer needs to be provided with maximum cooperation
in implementation of the project. There were delays in handing over of land free of cost
to the private developer which resulted in delays in commencement of the construction
works. It is important for the government agencies to avoid such delays. However, in all
other areas, the private developer has received substantial assistance from KMDA and
NDITA to ensure smooth implementation of the project.

Compendium on Public Private Partnership in Urban infrastructure, Case Studies, CII
Interviews:

Mr. Kalyan Roy, Additional Director (Socio-economics) - KMDA
Mr. Conrad Fernandez, Head Business Development - JUSCO Ltd.
57

Eight
Case Study 5:
Timarpur Okhla Integrated
Municipal Solid Waste
Management Project
Delhi generates 7,000 metric tonnes (MT) of Municipal Solid Waste (MSW) daily, which is expected
to increase to 18,000 MT by 2021. The present landfill sites that are being utilized for disposing
the garbage are approaching their full capacity and even with the envisaged capacity addition, the
situation is unlikely to improve.
The Municipal Corporation of Delhi (MCD) has thus embarked on a project to reduce the amount
of MSW being disposed in the landfill sites and utilizing the waste for productive purposes such as
generation of power from waste. MCD has identified two locations, namely Timarpur and Okhla,
for implementing this project.
The following facilities are to be developed as a part of the integrated municipal waste handling
project:
1. Plants for converting MSW to Refuse Derived Fuel (RDF), capable of processing 1300 TPD
at Okhla and 650 TPD at Timarpur.
2. A bio-methanation plant capable of handling of 100 TPD of green waste at Okhla.
3. A water recovery plant capable of handling up to 6 MLD of treated sewage at the Okhla
site for recycling into process water and cooling water.
4. A Power plant with a generation capacity of 16 MW at Okhla.
5. Transportation of RDF from Timarpur to Okhla for combustion in the boiler of the power
plant mentioned above.
The project is registered with the United Nations Framework Convention on Climate Change
(UNFCCC) for the Clean Development Mechanism (CDM) to earn 2.6 million Certified Emission
Reductions (CERs) over a ten-year period.

The project has been undertaken on Built, Own, Operate and Transfer (BOOT) basis. IL&FS
Infrastructure Development Corporation Limited (IL&FS IDC) was mandated to structure
the project, evaluate various technologies, carry out project development activities and select
suitable developer through competitive bidding. IL&FS IDC and the Andhra Pradesh Technology
Development & Promotion Board established an SPV known as the Timarpur-Okhla Waste
Management Company Private Limited (TOWMCL) prior to the bid itself.
The successful bidder M/s Jindal Urban Infrastructure Limited (JUIL) acquired 100% equity in the
SPV - TOWMCL. The following were the agreements executed by the SPV for this project
1. The SPV signed the main concession agreement for the development, construction,
operation and maintenance of an integrated municipal waste processing plant with NDMC.
58
2. The SPV signed a lease agreement with the Delhi Power Company Limited (DPCL) for the
land at Timarpur. DPCL, the owner of the Timarpur site, is a holding company with shares
in Indraprastha Power Generation Company Limited (the electricity generation company),
Delhi Power Supply Company Limited (the electricity procurement, transmission and bulk
supply company) and in the three power distribution companies (Central & East Delhi
Electricity Distribution Co. Ltd., South and West Delhi Electricity Distribution Co. Ltd. and
North and North West Delhi Electricity Distribution Co. Ltd.)
3. The SPV signed a lease agreement with New Delhi Municipal Council (NDMC) for the land
at Okhla for 25 years. NDMC had taken this land on lease from the Delhi Development
Authority.
4. The SPV entered into agreements with the MCD and NDMC for the supply of municipal
waste.
5. It entered into an agreement with the Delhi Jal Board (DJB) for receiving sewage and
disposing treated effluent.
6. The SPV entered into a Power Purchase Agreement with BSES Rajdhani Power Limited.
Project Structure
Figure 3
Jindal
Jindal Urban
Urban Infrastructure
Infrastructure Limited
Limited(JUIL)
(JUIL)
100% equity stake
TOWMCL
TOWMCL
MSW
MS
MSW
SW
Timarpur-650
Timarpur-650
T
imarpur-650
TPD
T
PD
TPD
Okhla-1300
Okhla-1300
O
khla-1300
TPD
T
PD
TPD
Assets
Bio-methanation
Bi
nn
Bio-methanation
B
io-metthanatiion
plant
plant
pla
ant
Water
W
Water
recovery
Waterrecovery
recove
ery
plant
plant
pla
ant
Power
Power
plantt
Powe
erplant
Okhla-100
Okhla-100
O
khla-100
TPD
TPD
TPD
Okhla-6
Okhla-6
O
khla-6MLD
MLD
MLD
Okhla-16
Okhla-16
O
khla-16MW
MW
MW
The figure 3 explains the structure.

Asset Ownership: As per the bid document the ownership of all the land would always remain
with Delhi Power Company Limited and the Delhi Development Authority (DDA) as NDMC had
taken the land on lease from DDA. The ownership of plant and machinery will be with financer of
the project during the term of the loan. After the loan has been repaid, the ownership of the plant
and machinery will be with the SPV.
Asset Transfer on Termination: On the expiration of stipulated concession period of 25
years, all the structures, all equipments, machinery, ancillaries, etc would be handed over to
NDMC.
59

8.3 Current Status

M/s Jindal Urban Infrastructure limited (JUIL), was awarded the project in January 2008. JUIL was
among the six bidders which had submitted their bids from 30 potential bidders. JUIL was awarded
the contract on the basis of the lowest levelised power tariff of ` 2.83 per unit, which was the
financial bid parameter as per the bidding documents.
The project is currently under development and is expected to commence operations with a delay
of six months. Accordingly, the original start date of mid-2010 has now been postponed to the end
of calendar 2010.

JUIL had estimated the project cost to be ` 200 crores, ` 25 crores more than the stated DPR
cost of ` 175 crores. The increase in cost was principally due to the increase in the capacity of the
power plant from 16 MW to 20 MW.
JUIL arranged finance through a mixture of equity and debt, with the debt being raised from financial
institutions. Axis bank was the lead consortium bank for lending towards the project.
Particulars
Table 13
Without CDM
With CDM
Project IRR
9.6%
16.5%
Average DSCR
1.08
1.96
Minimum DSCR
1.06
1.21
Debt Equity Ratio
70:30
70:30
Project Details
Note: The financial indicators mentioned above have been taken from the application for carbon credits to
the UNFCCC.The financial indicators with CDM Support were calculated considering the sale of energy at
` 4.75 per kwh. However the final selected bidder quoted a levelised tariff of ` 2.83 per kwh.

Inception:
India has been experiencing the difficulty of finding and assessing methods of disposing municipal
solid waste (MSW) and sewerage in an efficient and non-polluting manner. The problem is more
acute in the case of urban metropolitan areas, where rapid population growth has resulted in over
utilization of the infrastructure.
In order to identify a solution to the MSW disposal problem in Delhi, NDMC and MCD desired to
implement an Integrated Municipal Waste Processing Facility at Timarpur & Okhla in Delhi.
Feasibility:
MCD mandated IL&FS IDC to identify a suitable waste management solution from various
technologies, to structure the project, carry out project development activities and select a suitable
developer through competitive bidding.
In order to meet the above objective of MCD and NDMC, IL&FS, in cooperation with Andhra
Pradesh Technology Development & Promotion Board (APTDPB), decided to implement the
technology developed by the Department of Science & Technology (DST). DST had developed
a technology for segregating MSW at source, converting it into Refuse Derived Fuel (RDF) and
using the RDF to generate fuel power. The technology has been successfully implemented at two
60
Process Analysis
Inception
Inception
Figure 4
Delhi
Delhi experienced
experienced difficulties
difficulties with
with respect
respect of
of disposal
disposal // treatment
treatment of
of
solid
solid waste
waste and
and inadequate
inadequate power
power supply.
supply.
MCD
MCD thus
thus embarked
embarked on
on aa project
project to
to reduce
reduce the
the amount
amount of
of MSW
MSW being
being
disposed
disposed in
in to
to the
the landfill
landfill sites
sites and
and utilising
utilising the
the waste
waste for
for alternative
alternative
purposes.
purposes.
Technical
Technical
Cost
Cost effective
effective technology
technology best
best suited
suited to
to Indian
Indian conditions
conditions
Environmentally
Environmentally friendly
friendly since
since ititreduces
reduces carbon
carbon emissions
emissions
Feasibility
Feasibility
Financial
Financial
Two
Two main
main revenue
revenue streams:
streams:Sale
Sale of
of Power
Power and
and Carbon
Carbon Credits
Credits
Raw
Raw material
materialis
is supplied
supplied at
at zero
zero cost.
cost.
ItIt is
is possible
possible to
to operate
operate the
the project
project profitability
profitability without
without any
anyconcession
concession
or
or grant
grant
Procurement
Procurement
Development
Development
Delivery
Delivery
Exit
Exit
Road
Road shows
shows organised
organised for
for attracting
attracting bidders
bidders
AA knowledge
knowledge sharing
sharing session
session was
was organised
organised with
with leading
leading EPC
EPC
contractors,
contractors, to
to highlight
highlight the
the potential
potential of
of such
such aa project.
project.
Clearances
Clearances obtained
obtained by
by the
the SPV
SPV from
from various
various government
government
departments
departments
Of
Of the
the 66 bids
bids received,
received, project
project was
was awarded
awarded to
to JUIL
JUIL on
on the
the basis
basisof
of
lowest
lowest tariff.
tariff.
The
The project
project is
is at
at the
the development
development stage
stage
ItIt is
is expected
expected to
to commence
commence operations
operations at
at the
the end
end of
of 2010,a
2010,a delay
delayof
of
six
six months.
months.
The
The SPV
SPV will
will produce
produce 20
20 MW
MW of
of power
power
Advance
Advance deal
deal closed
closed for
forsale
sale of
of carbon
carbon credits
credits ItIt is
is expected
expected to
to
earn
earn 2.6
2.6 million
million CERs
CERs over
over aa ten-year
ten-year period
period

The
The concession
concession period
period is
is 25
25 years.
years.
Post
expiration
of
the
concession
Post expiration of the concession agreement,
agreement,parties
parties may
may mutually
mutually
renew
renew the
the agreement
agreement
locations in the state of Andhra Pradesh. APTDPB was given the mandate by DST to commercialize
the said technology for MSW processing.
The project incorporated a unique concept which overcame the shortcomings of other technologies.
The previous applied technologies did not succeed due to the mixed & un-segregated nature of
Indian waste. The technology developed by DST involved integrating the solid waste with liquid
waste under an integrated municipal waste-processing complex, resulting in cost optimization and
a commercially viable project.
The salient features of the integration concept are:
1. Solid and liquid waste can be treated in the same complex.
61

2. The treatment process is well integrated in terms of inputs and output.

3. The complex generates compost and methane from the Bio-methanation process, fuel
from the RDF plant and power from the RDF fluff and methane.
The integration is desirable for the following reasons:

The integration improves the viability of the project, as it leads to cost optimization.
The integration is also environmentally desirable, as it uses wastewater. Secondly, it

substantially reduces the need for land for landfill and produces very high quality compost.
It produces green fuel and reduces methane emission one of Indias commitments
towards the Kyoto Protocol
It is technically desirable to use the produced methane (from green waste) in

of RDF. It reduces the
the bio-methanation
because separate fuel
are not required.
Figure 5
a boiler
cost of
process,
engines
The
Delhi
Government
identified two locations: one
in Timarpur and the other in
Okhla for implementing the
waster to power concept. The
sites have been demarcated in
the following map:
In terms of the financial feasibility
of the project, revenues from
the sale of carbon credits
under CDM have the potential
to substantially improve the
Internal Rate of Return (IRR) for
the project. The project IRR without sale of carbon credits under CDM is expected to be 9.6%,
whereas with sale of carbon credits the project IRR improves to 16.5%.
Procurement:
IL&FS undertook the bidding process for selecting a developer to develop the project on BOOT
basis in August 2007. The project received interest from as many as 35 parties from all over the
world including Europe, USA, and other parts of Asia. Finally the following 6 bids were received:

M/s Acciona Services Urbanos SRL
M/s Delhi International Airport Ltd. in consortium with M/s Selco International Limited
M/s Jindal Urban Infrastructure Ltd.
M/s Ramky Enviro Engineers Ltd.
M/s SMV Agencies in consortium with M/s Jaipuria Advance Technologies Pvt Ltd. and
M/s Veolia Environmental Services Asia Pvt. Ltd.
Out of the above six, four bidders qualified for opening of financial proposals. Based on the
specified criteria of the lowest power tariff quoted, JUIL was selected as the successful bidder for
implementing the project. JUIL quoted a first year tariff of ` 2.49 and a levelised tariff of ` 2.83 per
kwh. The Letter of Intent was issued to JUIL on 29 January 2008.
62

The project is currently under development and is expected to commence operations with a delay
of six months. Accordingly, the original start date of mid-2010 has now been postponed to the end
of calendar 2010. The operational structure of the project is depicted at Figure 6.
Operational Structure
Mixed Waste
(Residential)
Figure 6
RDF Plant
Timarpur
Power Plant
Electricity
Mixed Waste
(Residential)
RDF Plant
Okhla
Green Waste
(Hotels,
Restaurants etc)
Bio - methanation
Plant
Organic Manure
Treated
Sewerage
Water
Treatment
System
Treated
Effluent
Exit:
As per concession agreement the developer shall undertake the operation and maintenance of the
plant facilities for a period of 25 years.
Table 14
Risk type
Sensitivity
Risk period
Primary
risk bearer
Comments
Delays in land acquisition
High
First year
Government
In case NDMC failed to handover the land

after signing the concession agreement,
NDMC was liable to reimburse the
Development Costs incurred by the
developer.
Delays in linkages
High
Throughout
Government
As per the agreement signed with NDMC,

NDMC shall ensure the provision of a
sanitary landfill site for the disposal of
refuse and inert material. However, as on
date, MCD does not have an engineered
landfill site. The site at Narela is under
development and the other dumping
grounds of MCD have already reached
their full capacity. Therefore, the scientific
disposal of refuse and inert material is a
risk the NDMC shall have to manage.
Regulatory,
administrative delays
Low
Pre project
period
TOWMCL
0-2 years
TOWMCL
In the event the construction of the plant is

not completed within 24 months from the
date of financial closure,TOWMCL shall be
liable to pay NDMC Rupees 100 per ton of
MSW that is being disposed by NDMC at
the MCD landfill site, for each day of delay
in the construction of the Plant.
Throughout
TOWMCL
Solid Waste during the Term of this

Agreement would be accommodated at
the Plant either by an increase in working
hours or by putting in place additional
capacities at the sole cost and expense
of TOWMCL. NDMC shall not incur any
liability in this respect.
Construction Risk
Change in Scale Risk
Low
63

Risk type
Sensitivity
Risk period
Primary
risk bearer
Comments
Market Risk
Low
Throughout
TOWMCL
There are two saleable end products

from the plant Electricity and Organic
fertilizer. In terms of revenue potential, the
sale of power contributes a major share of
the expected revenue. A Power Purchase
agreement has been signed with DERC
for purchase of electricity generated from
Integrated Waste Management Plant.
Repairs of weigh bridge.
Moderate
Throughout
TOWMCL
In case TOWMCL is unable to get the

weighbridge repaired within 24 hours,
TOWMCL shall be liable to pay a penalty
to NDMC at the rate of `10,000/- per
day (Rupees Ten Thousand per day) and
NDMC shall have the right to get the
weighbridge repaired on its own, but at
the cost and risk of TOWMCL.
Determination of
rejected waste
Moderate
Throughout
TOWMCL
If determination of any Rejected Waste

is made after the relevant consignment
had been accepted and mixed with the
stored MSW at the Site, then TOWMCL
shall bear all costs associated with the
transportation of such Rejected Waste to
the Landfill.
Supply of minimum
quantity of Waste
Moderate
Throughout
NDMC
If NDMC is not able to deliver the

agreed MSW quantity for a period of six
consecutive days, it shall pay TOWMCL
for each day of such failure after the six
day period, as pre agreed compensation.
Provision of landfill
site for the disposal of
residual / rejected waste
High
Throughout
NDMC
The Residual Inert Matter shall be

accepted at the Landfill made available
by MCD at no cost to TOWMCL and/or
to NDMC. However, if such a Landfill is
not made available by MCD due to any
reasons whatsoever, or at a later date
MCD refuses to accept Residual Inert
Matter generated by the NDMC MSW
Quantity, then NDMC shall cause the
Landfill Site to be made available for the
purposes of this Agreement at its own
cost and expense (including payment of
all levies, charges and taxes whatever) and
as per the requirements and conditions as
prescribed under Applicable Law. In case if
any tipping fee is charged by MCD for the
disposal of waste on the landfill provided
by MCD, the expenses for the same shall
be borne by NDMC.
High
Throughout
TOWMCL
Major financial risk results from the

realisation of carbon credits, as the
project cash flows bank on the same.
there is no mention of any guarantee from
either NDMC or MCD to provide for the
funds in absence of realisation of revenue
from carbon credits.
Operations Risk
Financial Risk
Revenue Streams
The risk of non realisation of revenue

from carbon credits is thus borne by the
developer.
Another financial risk may result from the
upward movement of interest rates.
64
Risk type
Sensitivity
Risk period
Primary
risk bearer
Comments
Financing the project
High
0-5 years
Government
NDMC agreed to enter into agreement

with the lenders to enable the financing
of the project. Usually, the developer must
ensure the financing of the project.
Force Majeure
High
Throughout
TOWMCL
Upon termination of the Agreement due

to a Force Majeure Event, NDMC shall
not be liable to pay to any Termination
Payments to TOWMCL. All Termination
Payments shall be as made good by
Insurance only under the provisions of
Insurance obligations of TOWMCL.
In case of losses and damages, NDMC
will not be liable in respect of any losses,
damage cost, expense, claims, demands
and proceedings relating to or arising out
of occurrence or existing of any Force
Majeure Event.
Change in Law
High
Throughout
TOWMCL
If TOWMCL has to bear any additional

expenditure over and above their agreed
project expenditure on account of change
in law, NDMC shall reimburse 100%
of the amount, or make changes in the
agreement provided such additional cost
is not more than 5% of the project cost.
Transfer and Hand back

of project facilities
Medium
On
completion
or
termination
of contract
TOWMCL
If at the end of the term of the agreement

or in the event of the termination of
the agreement, NDMC decides not to
take over the operations of the plant
then in that case the developer shall be
required to provide the site free of all
encumbrances at its own cost.

The successful bid process of this project, laid the foundation for other PPP projects in MSW.
An increasing number of PPP projects in this sector reflect the benefits being derived by the
government and the citizens from the participation of the private sector.
A qualitative VfM assessment is as follows:
Viability:The Government of National Capital Territory of Delhi (GoNCTD) in 1980s had initiated
a similar project for converting waste to power, but was unsuccessful due to the low calorific value
of waste and the inability of MCD to segregate the waste at source. The participation of a private
entity in this project is expected to address the issues related to the conversion of waste to power
and reduction in the amount of garbage being dumped in the landfills.
MCD will be accountable through a bidding contract with the private party / SPV for supplying
waste, since there are penalties against the non-supply of the same. At the same time, the private
entity will try to increase the operational efficiencies in order to maximise its profits. By serving its
own motive, the private party will ensure that society benefits from the project in the most efficient
manner. The private party will deploy specialised staff trained or having experience of this sector
which will also add to the efficiency gains.
Desirability: The project in question is quite desirable, because it addresses the twin problems
of a growing city. The first is to reduce the amount of waste being dumped in the landfills and the
second is how to generate more electricity through its own resources. These problems will be
addressed by the project because it ensures that the plant is operational through the year, there is
off take of waste and a new technology is adopted which will convert most of the waste into RDF
with minimum pollution levels. The Agreement with MCD, NDMC and the power utilities ensures
that there will be a fixed supply of raw material and agreed minimum off take of electricity.
65

The project is expected to reduce carbon emissions substantially. Total estimated reductions in
carbon emissions are expected to be 2.66 million tonnes of CO2e over 10 years of operations.
Achievability:This project is envisaged to be economically viable and does not require any kind of
support. With the available grants like MNRE (Ministry of Natural Resource Environment) grants,
the cost of assets will reduce and thereby the electricity tariff could be revised. The revenue from
the sale of carbon credits is sufficient to increase the viability of the project, which the previous
project was unable to do. Clearances from various government departments have already been
obtained, due to which the private entity can focus primarily on developing the project.

When this particular project was awarded in the year 2008, it was one of its kinds in the sector.
Generally MSW was not regarded as a sector for attracting private participation. The development
of the project has outlined the following learning:

The extent of preparation prior to the launch of the bid process was considerable. This
phase entailed detailed technical studies and reviews, financial evaluation, contractual
clarity, risk evaluation and obtaining regulatory as well as statutory approvals. In fact the
SPV to implement the project was also incorporated prior to the launch of the bid.
Learning
Good project preparation is critical to ensure project attractiveness and faster financial
closure. Clarity on the contractual and regulatory framework reduces the extent of
uncertainty faced by the private investors.

Government Support:
Observation
IL&FS and APTDPB had the support and the backing of the Chief Minister of GoNCTD
and the Principle Secretary (Power and Urban Development of GoNCTD). Despite this
government support, it took three years to bid out the project. One of the reasons was
the time taken to convince stakeholders, along with procuring clearances and no-objection
certificates from various government departments.
Learning
It is quite essential the government establishes a single clearance window or an authority
to resolves such issues. This process will assist in reducing the time lag between expected
and the actual time for completing the project. It is also essential to have complete
government support which helps in obtaining a buy in from the general public.
Technology:
Observation
The consortium chose RDF over the other proven technologies owing to the nature
of Indian waste. The technology is able to efficiently convert majority of the waste into
pellets to be utilized in the power plant.The technology was experimented at two different
locations before being implemented in Delhi.
Learning
When there is a choice of technology or method to achieve the said output, the benefits
and losses by adopting that particular method or technology should be thoroughly
assessed by way of a comparative study.

66
Project Preparedness
Observation
Consumer Education:
Observations
The project is located in the vicinity of residential localities, resulting in protests about
its development and pollution from burning waste.
To address these concerns, five public hearings were organised; three in Timarpur, one
in Okhla and one in the Delhi Electricity Regulatory Commission. The public hearings
helped address substantial doubts regarding the project.
Learning
Implementation of a new technology requires consumer or end user education, so as
to appreciate the benefits. Projects which have multiple stakeholders should have public
hearings or stakeholder interactions to obtain a buy-in.
Convenience:
Observation
Involvement of multiple stakeholders increases the complexity of the project. In case
of this project, the SPV had to take clearances from multiple government departments,
appraise different departments about the progress and at the same time achieve financial
closure.
Learning
It is essential to have a single clearance window, which will facilitate smooth flow on
information and transactions. Even if this is not possible, a government entity could be
appointed to take care of such formalities. With this the private entity could focus more
on the core development issues rather than being entangled in administrative processes.

Draft Concession Agreement between NDMC and Jindal Urban Infrastructure Limited
Project Design Document UNFCCC
IL&FS IDC Interface - Newsletter on Integrated Approach to Municipal Solid Waste

Management, September 2008
Presentation on Facilitating an Integrated Approach for Sustainable Waste Management,

FICCI, April 2008
Delhi Electricity Regulatory Commission (DERC) Petitions
Interviews:

Mr. Deepak Gupta, Manager, IL&FS
67

Nine
Case Study 6:
The Vadodara Halol Toll Road (VHTR) was one of the first State Highway widening projects
developed on a Public Private Partnership basis in India and it has subsequently paved the way for
a large number of projects to be undertaken on a similar format in Gujarat and the rest of India.
VHTR was an initiative commissioned as a part of the Vision 2010 an infrastructure master
plan developed by the Government of Gujarat (GoG). The underlying principle of the vision
was to develop infrastructure projects in Gujarat by attracting private sector participation. The
project involved widening and strengthening of 32 kilometres (km) of the existing two-lane State
Highway (SH 87) connecting Vadodara to the industrial town of Halol into a four-lane tolled
expressway.
The GoG commissioned the Infrastructure Leasing and Financial Services (IL&FS) to jointly develop
two road projects in the State, i.e. Vadodara-Halol and Ahmedabad-Mahesana. The Roads and
Buildings Department (R&B), GoG and IL&FS signed a Memorandum of Agreement (MoA) to this
effect on 31st October 1995.
A special purpose vehicle (SPV) was constituted for this purpose named the Vadodara Halol Toll
Road Company Limited (VHTRL)4. VHTRL in turn appointed a contractor, through international
competitive bidding, for the construction, operation and maintenance of the project. The
construction of VHTR commenced on 1st March 1999 and completed on 15th September 2000. The
toll operations commenced on 24th October 2000. VHTRL manages, operates and maintains the
road for 30 years starting from 2000.

The VHTR project is developed under the Built, Own, Operate and Transfer (BOOT) basis. For the
purpose of effectively executing the project, an SPV VHTRL was created. VHTRL was promoted
by the GoG and IL&FS. It entered into a concession agreement with GoG to design, finance, build,
operate, maintain, and transfer the facility after recovery of a predetermined return.VHTRL in turn
appointed a consortium of Punj Lloyd Limited and IRCON International Limited as contractors to
construct, operate and maintain the project. The contractors also have an equity stake in VHTRL.
The scope of work for VHTRL included the following activities:
Construction
This included the design and completion of the road, including the pavement, cross drainage system,
bridges, toll facilities, medians, separators, road furniture, and horticultural aspects.
4
VHTRL has merged with the Ahmedabad Mehsana Toll Road Company Limited to form the Gujarat Road and Infrastructure
Company Limited (GRICL) in 2005. In effect the concessionaire is now GRICL. We have however referred to the
concessionaire as VHTRL throughout this case study.
68
Management, operation and maintenance

This includes toll collection, operating the toll plaza, traffic regulation and maintenance of the
facility. It also includes special maintenance activities such as eliminating potholes in the pavements,
replacing drainage structures, road markings and signage, cleaning lanes, shoulders, right-of-way
strips, structures, maintaining operational installations and drainage facilities. Rehabilitation works
include preliminary works, slurry seals, surface treatments, resurfacing and emergency works.
In consideration for performing its obligations, VHTRL has a right to charge toll directly to the
users of VHTR and is permitted to earn from advertisements, hoardings and other commercial
activities at the project site.
The concession period is for a period of 30 years. In case VHTRL is unable to recover the total cost
of the project, including a 20% return, within 30 years from the date of operation, the concession
period shall, at the request of VHTRL, without qualification be extended by GoG for a period of
two years at a time until the total project cost and returns have been recovered by VHTRL. Any
request for an extension needs to be supported by a certificate from an Independent Auditor
confirming the same.
Further, the GoG may also grant certain development rights to VHTRL. The terms and conditions
governing the utilization of development rights shall be specified in a separate agreement entered
into between the parties.All the development income generated by VHTRL shall be applied towards
the recovery of the total cost of project and the returns.
The land for the project is leased to VHTRL by GoG through a lease agreement between the
parties.
On the termination of the Concession Period, the Concessionaire has to transfer and assign
to the GoG all the Concessionaire's rights, title deeds, and interest in the facility for a nominal
consideration of Rupee 1. The Concessionaire also has to deliver to GoG operating manuals, plans,
design drawings and other information to enable it to continue operating the Facility.
9.3 Current Status

The project has been operational since 2000. The traffic on the road has however not been in line
with the expected traffic levels as had been established in the traffic study.The primary reason is that
the traffic estimates were based on the assumption that the incentives for industrial development
available in Halol area were to continue over the long term. These incentives were eventually
withdrawn and hence the traffic did not grow to the estimated levels.
Due to this, the financial condition of VHTRL started deteriorating and it was unable to service its
debt obligations. This resulted in the company resorting to corporate debt restructuring in 2004.

The cost of the project was ` 161 crores of which the construction cost accounted for approximately
` 119 crores.
IL&FS appraised and syndicated the project. Equity of ` 67.9 crores was raised from GoG, IL&FS,
American Insurance Group, and the consortium of contractors. IL&FS also raised debt of ` 93.2
crores through various Indian financial institutions including Industrial Development Bank of India,
Infrastructure Development and Finance Corporation (IDFC), State Bank of India, and other lenders.
IL&FS itself provided the subordinate debt. The figure 7 depicts the financing structure.
IL&FS (to the extent of ` 10 crore) and IDFC (to the extent of ` 20 crore) together provided credit
enhancement in the form of an irrevocable take-out option through purchase of Deep Discount
Bonds issued by VHTRL.
69

Figure 7
Govt. of
Gujarat
Debt
Equity
Concession
Agreement
World Bank &

IL&FS
Govt. of
Gujarat
Banks
Financial
Institutions
VHTRL
Loan
Agreement
Govt. of
Gujarat
IL&FS
Shareholding
Agreement
O&M
Agreement
O&M Operator
Financial
Institutions
O&M Operator
Table 15
Project Details
Particulars
Project IRR
20%
Equity IRR
32%
Debt Equity Ratio
58:42
The figures in the above table are obtained from other case studies on this project available in the
public domain.

Inception:
The Government of Gujarat wanted to upgrade the Vadodara to Halol section of State Highway 87.
Typically, the GoG had been executing road projects through EPC contracts. However, there was
a need felt for improving efficiencies and attracting private capital for infrastructure development
in order to free up government resources for alternative uses. IL&FS was working closely with
the GoG for creating a positive environment for private sector participation in infrastructure
development. In order to effectively execute the VHTR project, the GoG signed a Memorandum of
Agreement (MoA) with the IL & FS to develop the Vadodara Halol stretch on BOOT basis.
Feasibility:
After signing the MoA, a consulting firm was selected by GoG and IL&FS through a competitive
bidding process and commissioned to undertake a preliminary technical-economic feasibility study.
Based on the findings of this study, GoG approved widening and strengthening of the existing twolane road to four lanes with the provision of service roads. Investment recovery was recommended
in the form of toll collections.
Procurement:
VHTRL entered into a concession agreement dated October 17, 1998 with the GoG. Pursuant
to the Concession Agreement, the GoG granted VHTRL the exclusive right and authority to
70
implement the project during the concession period of 30 years from the commercial operations
date or till such time as VHTRL recovered the total cost of the project and returns.
GoG entitled VHTRL the exclusive right and authority, during the concession period:

to develop, design, engineer, finance, procure and construct the highway project
upon completion of construction, to manage, operate and maintain the highway project
and regulate the use by third parties
to demand, collect, retain and appropriate toll from the users of the facility and apply the
same to recover the total cost of the project
to enforce the collection of toll from all delinquent users of the facility and impound the
vehicles and goods
to enter into private contracts with the users for regular use of the facility or any special
use, and to sell, distribute or issue at various outlets coupons or tokens against the
payment of toll; and
to appoint subcontractors or agents to assist in fulfilling its obligations.
VHTRL appointed a contractor for design, construction, operation and maintenance of the project
facilities, in accordance with the concession agreement, through a transparent international
competitive bidding process. The financial criterion was the lowest price offered by the bidder.
The lowest price was the net present value (NPV) calculated on the bidders estimate of:

fixed price of construction;
interest during construction; and
costs during the concession period on routine maintenance, periodic maintenance

(renewal and overlay), toll systems, and toll augmentation
VHTRL entered into an Operations & Maintenance Contract dated January 22, 1999 (O&M
Agreement) with Punj Lloyd Limited and IRCON International Limited. Punj Lloyd Limited and
IRCON International Limited were appointed to provide services from the date of financial closure
until the termination date.
Development:
The development of the 31.7 km stretch was achieved in a single phase with all the required road
works and related facilities being developed. While the Concessionaire was to ensure completion
of all works within a period of 18 months, the construction of the entire stretch was completed 4
months ahead of schedule.
One of the key features of this project was its Environmental and Social Impact Assessment and
mitigation plan. The Environmental and Social Assessment noted that the project in its original
form would lead to resettlement and rehabilitation of about 300 project affected families,
having residential and/or commercial structures within the proposed right of way. Intense public
consultations were carried out from the site selection stage itself which facilitated the development
of various alternatives. A systematic analysis of various alternatives was undertaken and bypasses
were introduced at various critical locations. The extent of resettlement was thus reduced and
resulted in the resettlement of only 10 project affected households. VHTRL also undertook
voluntary relocation of temples, schools, and environmental infrastructure. It implemented its
environmental and social management plan by creating wetlands, complying with emission norms,
and hazard management for local communities as part of its rehabilitation measures. It also created
additional facilities such as pedestrian subways and compound walls and provided additional houses
for the relocation of communities. In order to minimise the negative impacts and to enhance the
community benefits 550 trees were planted along the road, a noise barrier at sensitive receptors
was provided and water bodies in two project villages were deepened.
71

The VHTR project was in fact was designated by the World Bank as a 'best practice' example for
its environment risk mitigation and social rehabilitation plan in India amongst World Bank assisted
projects.
Delivery:
The work on the Vadodara Halol Road commenced in March 1999 and was completed by September
2000.The toll operations commenced in October 2000.The contract made provision for five major
items of operation and maintenance during the life of the project. These were:

Routine Maintenance (continuous)
Periodic Overlay (every five years)
Periodic Renewal (every fifteen years)
Toll Operation and Management (once a year)
The toll has to be determined, levied, collected, retained and appropriated from all the users of the
facility. Toll rates are based on a fixed formula and are allowed to increase on an annual basis in line
with an escalation formula linked to the Consumer Price Index (CPI).
For increases beyond that, VHTRL is entitled to submit to the GoG, with the certificate of the
Independent Auditor, an upward revision of the toll rates. In the event that the GoG agrees with
the revision of the toll rates, then it shall pass appropriate notifications for effecting the revision of
the toll rates. In the event the GoG fails to issue the notifications within the stipulated time, it shall
compensate VHTRL to the extent of loss of revenue caused due to such delay.
Performance standards for major activities of operation and maintenance are specified in the
agreement. Due to lower than projected toll-collections and slippage in traffic, financial condition
of VHTRL started deteriorating and it was unable to service its debt obligations.This resulted in the
company resorting to corporate debt restructuring (CDR) in 2004.
As per the proposed scheme, both VHTRL and the Ahmedabad Mehsana Toll Road Company Limited
(AMTRL) were merged into a single entity - Gujarat Road and Infrastructure Company Limited
(GRICL) and all the outstanding debt obligations were restructured. GoG and IL&FS infused ` 30
crore each as fresh capital in Financial Year (FY) 05 and FY06 respectively and IL&FS also provided
an irrevocable Line of Credit facility for an amount of ` 100 crore to GRICL for meeting any
shortfall in funds for debt servicing as per terms of CDR scheme.
The IDFC component of the DDBs was also restructured and converted to term loans under the
new entity.The IL&FS component of the DDBs are to be redeemed in 2012-14. Interest on all term
loans and other outstanding debts was reduced from contracted rates to 10% p.a. payable monthly.
Subsequently, in FY 2007, IL&FS, as a part of its internal restructuring exercise, transferred its stake
in all toll road SPVs, including GRICL, to its subsidiary IL&FS Transportation Networks (India)
Limited (ITNL).
Exit:
The concession period is expected to end in 2030. However, in case the developer is unable to
recover project cost and earn a return, there is a possibility of extension of the concession period.
The typical extension allowed under the Concession Agreement is for two years. This is a rolling
period, which means that the Concession period will keep extending by 2 years till the time the
Concessionaire is able to gain a return of 20% on investment.
72

Risk type
Sensitivity
Delays in land
acquisition
High
Risk Period
Table: 16
Primary
risk bearer
Comments
Government
Land Acquisition and provision of vacant

possession to the concessionaire was a
condition precedent under the agreement.
Failure to do so implied an extension of the
period for fulfilment of Conditions Precedent.
In case of persisted non performance, the
concessionaire had a right to terminate the
agreement.
Delays in Obtaining
Permits
High
Private
Developer
While the Government had to facilitate

approvals and permits, it was the private
developers responsibility to obtain the same.
Design Risk
High
Private
Developer
(transferred
to
Contractor)
The Contractor needs to adhere to the

performance standards and technical
specifications. The contractor would need to
bear any additional costs due to rectification
of construction due to non compliance with
the technical specifications.
Inflation Risk
Medium
Private
Developer
(transferred
to
contractor)
Borne by the Concessionaire but this is

transferred to the contractor due to the fixed
price nature of the contract.
Revenue/ Demand
Risk
Low
Private
Developer /
Government
Revenue risk on account of a shortfall in traffic

projections is borne by the Private Developer.
However, additional revenue streams in the
form of development rights also possible at
the discretion of the GoG.
In case the developer is unable to recover

the total cost, including a return, there is a
provision to extend the Concession period
for 2 years (beyond the stipulated period
of 30 years.) i.e. the concession period is a
rolling period and is extendable in tranches
of 2 years until the concessionaire is able
to recover the investments made and a
20% return thereon. In case the traffic
demand picks up, the incremental revenue
generation thus achieved would accrue to the
concessionaire alone.
Construction Risk
High
Financial Risk
0-1 years and

6 months
Private
Developer
(transferred
to
contractor)
The complete construction was to be

accomplished within 18 months. The increase
in project cost due to any delay had to be
absorbed by the Concessionaire. This was
transferred to the contractor due to the fixed
cost nature of the contract.
High
Private
Developer
Any increase in the projected capital cost

was to be borne by the private developer.
However, the developer was protected, in
situations where the increase was beyond
its control, with the provision for extending
the concession period till a 20% return was
achieved.
Force Majeure
Low
Private
Developer
Comprehensive insurance coverage and a

temporary toll review provision to mitigate
loss of revenue for a short period of time due
to Force Majeure.
Political Risk
Low
Government
Comprehensive insurance package and GoG

to at least pay compensation to meet all
project costs including takeout of lenders and
other investors.
73


A Value for Money Analysis has been presented here which highlights the benefits of involving the
private sector in the development process. A qualitative approach has been adopted, given the lack
of data:

One of the objectives of undertaking the project was to change the traditional paradigm
of executing infrastructure projects only through contractual arrangements. This was one
of the first projects being executed through a public private partnership framework which
not only exposed the state government machinery to a new development paradigm but
also paved way for a large number of future projects being executed through the PPP
framework. The project resulted in capacity building of the state government machinery
and also created a platform for private developers to participate in infrastructure building
in the country.
One of the objectives of utilizing a PPP framework for infrastructure projects is to bring in
efficient execution of projects.VHTR is a case in point as the key advantage of developing
this road via private sector participation has been that the project was completed within
the stipulated time and budgeted amount. The project was completed well within the 18
months timeframe as was stipulated in the contracting arrangement with the Construction
Contractor. The original estimated cost of the project was approximately ` 175 crores.
The actual landed cost of the project was ` 160 crores. Thus the project has resulted in
both cost and time savings.
VHTR is one of the first projects in the road sector to have contractually binding terms
for development of an environmental and social management plan. As detailed earlier, the
development of required infrastructure factored in the social and environmental impact
that was likely and mitigated the same through an effective mechanism.

The case study provides several insights that need to be highlighted so that lessons can be drawn
and applied to other projects as well:
74
Pre-development market assessment is critical:The VHTR case makes it amply clear

that the pre-development preparations need to be more robust since such preparations
can impact the long term objectives of the project. For instance, the traffic estimations for
the project were based on the assumptions that the industrial incentives available for the
area would continue for long-term. Eventually, with time the incentives were withdrawn
and the traffic was almost 50% lower than the projected traffic. Such unaccounted risk
factors can jeopardize the project and lead to significant losses.
Competitive bidding can ensure a better deal: Competitive bidding for a longterm concession for critical infrastructure projects is extremely critical. This not only
brings in the best private sector capabilities, but also allows the government to get the
best possible financial terms by ensuring competition and a level playing field. This also, to
an extent, requires capabilities within the government machinery to structure projects in
fashion where the private sector capabilities are tapped in the best possible manner.VHTR
was developed through a MoA between the GoG and IL&FS and did not create adequate
competitive tension since there were no precedents that were available to develop such
a structure. The appointment of the contractor was, however, through a competitive bid
process.
Need to create a balanced risk return profile: The risk return profile of the project
was skewed in favour of the private developer. For instance, the concession agreement
ensured that the private developer earned toll revenues till he was able to achieve a
return of 20% on the overall investment. This was further protected with a provision
for additional revenues i.e. development rights on land parcels abutting the road, in case
the toll revenues did not result in the expected returns. There was also an annual toll
revision linked to WPI / CPI to the extent of 100% of the rates which resulted in the
developer having an assured revenue stream. Further, the lack of penal provision for non
compliance with performance standards during operation and maintenance meant that
the developer could save on costs if desired. Adverse effects of Change in Law, occurrence
of a Force Majeure event, unexpected increase (more than 25%) in the estimated costs of
any maintenance expenditure, interest rates fluctuations, inflation exceeding 50%, were all
made pass through to the consumers.
Moreover, in case the traffic and toll revenues exceeded the projections, the entire surplus would
accrue to the concessionaire and there was no obligation to share the same with the government.

Conflicts of interest should be identified early and avoided: Conflicts of interest

need to be identified early in the development process to ensure that transparency and
integrity of the transaction are not compromised. In the case of VHTR, IL&FS itself was the
developer/promoter, the consultant, financier in the project leading to serious conflicts of
interest. A conflict of interest also existed on the Government side as it was the Grantor
of Concessions and also held 11% of the Equity in the project.
Innovative financing mechanisms: VHTR was one of the first projects to utilize
several innovative financing methods. One of the instruments used was that of Deep
Discount Bonds with an option of take-out financing. The project further utilized several
other instruments like cumulative convertible preference shares and long term loans from
IL & FS. This project thus created several examples that were eventually followed in the
country for infrastructure development.
Environmentally and Socially responsive development framework: The VHTRL

was the first project that introduced Environmental and Social Safeguards measures as
part of the contractual obligation of the developer. This created a benchmark and had
immense demonstration value since it highlighted that infrastructure can be developed in
an environmentally and socially responsible manner.

Toolkit for Public Private Partnerships in Roads and Highways, World Bank
IL&FS Transportation Networks Limited, Draft Red Herring Prospectus
Case Study Vadodara-Halol Toll Road BOOT Project in Gujarat, India - Dr. Anand
Chiplunkar, ADB Staff Consultant on PPP
Quarterly newsletter of the Kazakhstan Resident Mission of the Asian Development Bank
IL&FS Transport Network Limited website
Website of the Roads and Buildings Department, GoG
Report on Review of Effectiveness of Environmental Assessments in World Bank-Assisted

Projected
Rating note on long term bank loans of the Gujarat Road and Infrastructure Company
Ltd.
Rating note on Deep Discount Bonds of the Vadodara Halol Toll Road Co. Ltd.
75

Ten
Case Study 7:
Tuni Anakapalli Annuity
Road Project
The Tuni Anakapalli project is a road expansion project undertaken by the National Highways
Authority of India (NHAI) as one of the several projects under the Golden Quadrilateral
programme. The projects scope was to strengthen the existing two lanes and widen it to a four
lane dual carriageway of an aggregate 59 kilometre stretch between Tuni and Anakapalli on National
Highway (NH) 5 (Chennai to Kolkata) in Andhra Pradesh on PPP basis. Keeping in mind the lack of
attractiveness in tolling the road, NHAI decided to take up the project on the Build Own Transfer
(BOT) Annuity model.
The GMR Group, in consortium with United Engineers Malaysia (UEM) Berhad Group, were
awarded the project contract. An SPV with the name GMR Tuni Anakapalli Expressways Private
Limited (GTAEPL) was formed to execute the project. The construction (expansion) of the road
started in May 2002 and ended in December 2004 after a months time overrun due to delays in
handing over of land by NHAI. The total project cost was ` 295 crores.
The NHAI pays the concessionaire a fixed annuity of ` 29.48 crores semi annually from May 9, 2005
to November 9, 2019.

The Project has been awarded by NHAI on a BOT (Annuity) basis. The annuity model involves the
payment of a fixed semi-annual sum by the NHAI to the concessionaire during the concession
period to compensate him for the capital cost and operational and maintenance expenses of the
project plus a certain percentage of returns thereon.
If due to the conessionaires failure, the actual availability of carriageway in any annuity payment
period is less than the assured availability then the annuity is proportionately reduced. NHAI
secures the annuity payment by providing a revolving letter of credit from a schedule bank in India
throughout the operations period.
The GMR Group (that included GMR Power Corporation Private Limited, GMR Infrastructure
Limited and GMR Technologies and Industries Limited), in consortium with UEM Group of Malaysia,
won the project contract to develop, operate and maintain the road for a 17.5 years concession
period including the construction period of 2.5 years. An SPV - GTAEPL was formed to execute the
project in which the GMR group had 74% stake and UEM had 26% stake.
GTAEPL has also entered into a State Support Agreement dated March 18, 2003 with the State of
Andhra Pradesh and NHAI, under which the Government has agreed to extend continued support
and to grant certain rights, authorities to facilitate the implementation and operation of the project,
including all infrastructural facilities, applicable permissions, dedicated team of police personnel,
highway patrols and to generally support the project implementation.
GTAEPL does not have any right to toll, levy charges or allow any kind of other developments
or advertising options on the road. The annuity is the only project revenue for the developer.
76
However, NHAI has the right to levy and collect a toll or fee or permit any advertisements.
GTAEPL has entered into an operations and maintenance agreement with UEM Limited (O&M
Contractor) to operate and maintain and to take full risk in the care of the project facilities against:
(i) An O&M fee of ` 0.125 crore per month; and
(ii) A periodic fee of ` 7.5 crore.
The O&M fee and the periodic fee are escalated by 1.5% per annum, 1 year from the date of
commencement of operations.
At the end of the concession period in November 2019, the concessionaire shall handover the
project assets free of cost to NHAI.
10.3 Current Status

The project commenced operations in December 2004 and is in its eighth year of operations. It has
been progressing well without any issues.

The estimated project cost of the project was ` 315 crore.The project achieved financial closure on
26 June 2002. The project was funded on a debt-equity ratio of 3:1. The term loan component was
` 154 crore, the non convertible debentures component was ` 82 crore and the equity component
was ` 78.69 crore.
ICICI Bank was the lead banker and the lending consortium included several public sector banks
such as State Bank of India, Union Bank of India, Indian Overseas Bank, Jammu & Kashmir Bank, Bank
of India, Punjab National Bank, Industrial Investment Bank of India and State Bank of Mysore. The
average spread of the loan ranged from 12.5% to 12.75%. The loan tenure was 13.5 years, including
a construction period of 2.5 years.
The equity funding for the project was primarily through the issue of preference shares.
In May 2005, GTAEPL raised further debt of about ` 372 crores from a consortium of lenders
through securitisation of future annuity receivables (68% of annuity receivables) to be received
from NHAI over a period of fifteen years. These funds were raised at a cost lower than the cost of
project debt by about 3% and were used for prepayment of the project debt.

Inception:
The road expansion project of Tuni-Anakapalli Expressway was undertaken as a part of the 42
individual road expansion projects that were taken up to improve NH-5, 6 and 60 (the KolkataChennai stretch) under the Golden Quadrilateral initiative of NHAI. The road was a two-lane
structure and the project was to extend it to a four-lane road. At the time, NHAI was actively
considering various PPP options such as direct tolling or shadow tolling for such projects.
Direct tolling was beginning to lose favour with the developers for many stretches of the National
Highways because of the lack of viability and effective access control. Shadow tolling was another
option for which the Tuni Anakapalli project was in fact initially to be the pilot project. However,
this option was eventually not adopted due to the absence of a model concession agreement within
the limited time available. NHAI thus decided to take up the project on the BOT (Annuity) model.
Procurement:
A two-stage bidding process was adopted. The first stage was to qualify bidders based on their
technical experience and financial capability, while the second stage was to select the final developer
77

based on the annuity amount quoted. The RFQ stage had sixteen bidders while the RFP stage had
six bidders, of which the GMR-UEM consortium was awarded the bid.
The RFQ sought:

Technical Capability: Experience of the bidder as a developer and / or Construction

contractor and
Financial capability: Net Worth at the end of the recent most financial year to be at least
equal to ` 240 crore and aggregate net cash accruals for the last three financial years to
be at least equal to ` 120 crore.
In the bidding stage, an annuity quote was sought from the bidders and GTAEPL with the least
annuity amount was awarded the bid. The concession agreement was signed in October 2001.
Development:
GTAEPL appointed a turnkey construction contractor for development of the project. The
contractor was an affiliate of UEM. The construction (expansion) of the road started in May 2002
and ended in December 2004 after a months time overrun due to delays in handing over of land
by NHAI. As per the Concession agreement, NHAI agreed to award an extension of 46 days to the
commencement date to compensate against the loss of time for delayed hand over of project land.
Hence, GTAEPL was not liable to pay any penalty to NHAI. The actual project cost was eventually
` 295 crores as against the envisaged project cost of ` 315 crores.
Delivery:
The project commenced commercial operations in December 2004. The project has been
progressing well without any issues (legal or operational) during the operations stage.
In case of any requirements for capacity augmentation during the concession period, the NHAI has
the option to invite bids from eligible developers including the concessionaire. After evaluation, the
concessionaire, if not the lowest bidder, will get the first right of refusal or alternatively receive a
termination payment from the winning bidder.
Exit:
At the end of the concession period in November 2019, the concessionaire shall handover the
project free of cost to NHAI. Prior to the handover, an independent engineer will inspect and
certify the quality of the road. If required, the independent engineer will furnish the concessionaire
a list of works to be carried out to ensure that the road conforms to the handover standards.
Table 17

Risk type
Sensitivity
Risk Period
Primary risk
bearer
Comments
Delays in land
acquisition
Low
0-1 years
NHAI
The obligation for land acquisition was with

NHAI.The land already had all environmental
and other clearances. However, there was a
slight delay in the land acquisition because
of which the construction was delayed by a
month.
Financing risks
Low
0-2 years
Concessionaire
While the concessionaire had to bear this risk,

it was relatively easier to get financing because
of fixed annuity payments from NHAI.
In addition, NHAI also gave an irrevocable
revolving letter of credit for ` 29.48 crores
throughout the concession period. This
provided comfort to the bankers.
78
Risk type
Sensitivity
Risk Period
Primary risk
bearer
Comments
Approvals
Low
0-2 years
Concessionaire
While this obligation rested with the

concessionaire, assistance from NHAI and
the state support agreement ensured easier
and faster approvals.
Social Risk
Low
0-2 years
Concessionaire
The risk was low since it was an existing road

expansion with minimal displacement.
B) Construction Phase Risks

Design Risk
Low
0-2 years
Concessionaire
The design had to be accepted by NHAI

and vetted by an independent engineer. In
addition the road designs were standardized
as per the Indian Roads Congress (IRC)
and Ministry of Surface Transport (MoST)
standards.
Construction Risk
Low
0-2 years
Concessionaire
The concession agreement had clear

standards and specifications for construction
with an independent engineer having to
ensure adherence.
The concessionaire had to provide a
Performance Security for ` 6.58 crores.
Also, the clause of retention of minimum
equity (26%) in the SPV by the original
concessionaire throughout the concession
period provided a sense of the security to
NHAI.
Construction Time
Overrun Risk
High
0-2 years
Concessionaire
An early or late completion attracted a

bonus or penalty. Moreover the concession
period included the construction period
which incentivised the concessionaire to
complete the construction at the earliest.
Approvals
Low
Throughout
Concessionaire
NHAI assistance and the state support

agreement ensured easier approvals
Throughout
NHAI
The Concession Agreement defines penalties

for non-adherence to standards regarding
O&M. These include a reduction or nonpayment of annuity in case of non-availability
of agreed carriageway, due to reasons
attributed to the concessionaire
C) Operations Phase Risks

Operations &
Maintenance Risk
Low
In addition, in cases where concessionaire

fails to maintain the roads as per the
specified conditions or fails to perform O&M
as identified and instructed by NHAI, NHAI
shall undertake the repairs and have the
concessionaire reimburse such costs. In cases
of material breach of O&M requirements,
the NHAI has the right to terminate the
agreement.
Market Risk
None
The annuity payment is not related to

the traffic or other market related forces.
Therefore this risk is non existent.
Payment Risk
Low
Throughout
Concessionaire
NHAI is compensating the concessionaire

by way of a fixed annuity backed by an
irrevocable revolving letter of credit for `
29.48 crores throughout the concession
period. This facility reduces the risk of
defaults in annuity payments.
79

Risk type
Sensitivity
Risk Period
Primary risk
bearer
Comments
D) Handover Risk Events

Handover risk
Low
17-18 years
Concessionaire
The concession agreement defines the

standards for handover of the project site
back to NHAI. An independent engineer
certifies the quality of the road. NHAI
ensures the requisite repairs are undertaken
by the Concessionaire before handover, by
retaining a sum of ` 7.4 crores from four
annuity payments immediately preceding the
expiry of the concession period.
Concessionaire
event of default
Low
Throughout
Concessionaire
NHAI has the right to terminate the

contract and pay the concessionaire 70%
of the book value of assets (if it is after the
commencement of operations).
Governments
event of default
Low
Throughout
NHAI
Concessionaire can terminate the contract

and NHAI is liable to pay the concessionaire
the discounted value of future net cash flows
(if it is after commencement of operations)
or Book Value of assets + interest (if
termination is before commencement of
operations)
Medium
Throughout
Concessionaire/
NHAI
The Concessionaire is exposed to risks in

case of any increase in the capital expenditure
and/or operating costs or taxes due to a
change in law.
E) Other Risks
Change in Law
This obligation of the Concessionaire

is limited to ` 6 crores, beyond which
NHAI has to bear the expense. In case of
operating expenditure the exposure of the
Concessionaire is restricted to ` 1 crore.

The VfM assessment of the project has been carried out on a qualitative basis primarily on account
of limited financial information available in the public domain. The VfM analysis is based on the
benefits from this project.The key benefits which have accrued as a consequence of this project are:
Speed and Scale of Development: The Golden Quadrilateral project was one of the earliest
initiatives of the Government of India to modernize and improve the quality of roads in India.
NHAI was assigned the responsibility of developing and improving these stretches with ambitious
timelines.
Undertaking the projects as PPPs was the most viable and workable option to meet the timelines
and provide improved facilities to the users of the roads. The private sector not only brought the
efficiencies of construction and modern technologies to reduce time in construction, but also had
skill sets and resources to operate and maintain the roads.
Private Sector Efficiencies: The concessionaire not only managed to complete the project
with only a months delay (attributed to delay in land acquisition by NHAI), but also completed the
construction at a lower project cost. It was able to bring in innovative financing techniques such as
securitisation to lower the overall cost of funds for the project.
Transfer of Risk: The Annuity model ensured that the government had to make no upfront
investment in the project and had a fixed pre-determined annual outflow towards the project. The
risk of time and cost overruns which are typical to public procurement were thus transferred to
the private sector on account of the annuity model.
Demonstration Effect: The Tuni-Anakapalli was amongst the first set of projects considered
for the BOT (Annuity) model. The project, till date, has been progressing well and has created a
demonstration effect for projects to be taken up on similar lines.
80

Innovative Funding through Securitisation
During the operations stage, GTAEPL raised debt at very low interest rates by securitizing the
annuity payments receivable from NHAI. This mode of funding enabled the concessionaire to repay
the term loan and provided access to relatively lower cost funding.
Transfer of Risk
The GMR consortium stabilized its risks by entering into a long term O&M contract with its own
consortium partner, thereby transferring substantial risk of the project.
Incentive to Developer to complete construction on schedule

The Developer had an incentive for early completion that attracted a bonus payment while a
delay led to a penalty. Moreover since the concession period included the construction period, the
developer was incentivised for an earlier completion to begin earning annuities.
Documents referred to:

Concession Agreement
Credit Rating Perspective on GMR Tuni-Anakapalli Expressways Pvt. Limited
Share Issue Prospectus of GMR Infrastructure Limited
Articles in periodicals and publications
Interviews:

Mr. M.P.S Rana, GM, National Highways Authority of India
81

Eleven
Case Study 8:
Delhi Gurgaon Expressway
The National Highways Authority of India (NHAI), under the Ministry of Road Transport & Highways
(MoRT&H), was entrusted the responsibility for implementation of the Golden Quadrilateral project
(Highway Project connecting the four metro cities of New Delhi, Mumbai, Chennai and Kolkata). As
a part of this project, it proposed the conversion of a very busy section of NH-8 connecting Delhi
to Gurgaon into a 6/8 lane access controlled divided carriageway.
The then existing 4 lane, 27.7 km section of NH-8 between Delhi and Gurgaon with as many as
20 intersections, experienced high vehicular density (145,000 Passenger Car Units (PCUs)/day in
2000) and non-segregation of traffic that led to increase in accidents, acute congestion, wastage of
fuel and excessive pollution.
The project was awarded to the consortium of Jaypee Industries and DS Construction Ltd to
design, finance, construct, operate and maintain the facility for a concession period of 20 years. As
in a typical BOT highway project, the Concessionaire is allowed to collect toll from the users of
the project facility during the operation period to recover his investment and the expressway is
required to be transferred back to the Government at the end of the concession period.
This was the first BOT project in India to have been awarded on negative grant basis where in
the concessionaire offered to pay an upfront fee to NHAI in return of the concession as against
a capital grant from the Government. In consideration of robust traffic projections, the selected
bidder offered to pay ` 61.06 crore to NHAI.
The expressway was commissioned in January 2008 after much delay primarily owing to issues in
land acquisition and changes in the scope of work. It carries more than 180,000 PCUs per day as
on date.

The project was awarded to the consortium of Jaiprakash Industries Ltd and DS Construction Ltd
on Built-Operate-Transfer (BOT) basis for a period of 20 years.The selected concessionaire offered
to pay ` 61.06 crore upfront as negative grant to the NHAI.
The Concessionaire was required to design, construct, operate and maintain the expressway in
accordance with the specifications as approved by NHAI. The concession period included the
construction period to encourage the concessionaire to complete the construction early.
A Special Purpose Vehicle called the Delhi Gurgaon Super Connectivity Ltd (formerly Jaypee DSC
Ventures Ltd.), was created for execution of the project. While at the time of bidding, Jaiprakash
Industries had a controlling stake of 51% and DS Constructions held 49%, during the course of
project implementation, Jaiprakash Industries reduced its stake in the SPV to about 1.2%.
The SPV entered into a fixed time-fixed price Engineering, Procurement & Construction (EPC)
contract with DS Constructions Limited for this project.
82
Key Obligations of NHAI

NHAI was responsible for undertaking land acquisition and providing the Right of Way
(RoW) to the Concessionaire free from all encumbrances. A notional concession fee of `
1/- was to be paid annually by the Concessionaire to NHAI.
During the development period, NHAI undertook the operation and maintenance of the
existing highway at its own cost.
The shifting of utilities and related expenses was the responsibility of NHAI.
NHAI was also required to have necessary environmental clearances, permits etc. granted
to the Concessionaire.
A loan facility, in case of the revenue falling short of subsistence revenue level, was made
available by NHAI at the State Bank of India Prime Lending Rate. Such a loan could also be
provided by NHAI to cover a shortfall in meeting debt service payments.
Key Obligations of the Concessionaire

The Concessionaire was required to comply with the all the requirements needed for
clearances, approvals, permits etc. from various government agencies.
The Concessionaire was obliged to enter into a state support agreement with NHAI,
the Government of National Capital Territory of Delhi (GoNCTD) and Government of
Haryana (GoH).
A performance security was to be paid by the Concessionaire on or before the date of the
Agreement for its due and faithful obligation during the Construction Period.
To allow recovery of investment and to earn a suitable return, the Concessionaire is

entitled to collect toll from the users of the expressway during the operation period.
The toll is notified by the MoRTH and there is an annual revision linked to the extent of
variation in the WPI. The toll has to be shared with NHAI if more than 130,000 PCUs are
tolled on the expressway.
At the end of the concession tenure, the expressway shall be transferred back to the
Government.
11.3 Current Status

The expressway has been operational for two years now after it was opened to traffic in January
2008. It carries more than 180,000 PCUs per day, which is much higher than the traffic estimates
for the project by 13,000 to 15,000 PCUs per day.The substantially higher number of vehicles using
the facility has often led to a queuing up of vehicles at the toll plazas.
The expressway consists of 9 flyovers, 4 underpasses and 2 foot-over bridges and 3 toll-plazas.
Smart tags have been introduced to enable cashless automatic payment.

The funding for the project at the time of financial closure (9 May 2003) is provided in table 18:
Financial Information
Particulars
Table 18
Amount
Debt
` 383.3 crore
Equity
` 164.2 crore*
TOTAL
` 547.5 crore
83

` 200 crore of the debt was provided by the Housing and Urban Development Corporation Limited
(HUDCO). The other lenders included State Bank of Mysore (` 30 crore), Punjab National Bank
(` 30 crore), Srei International Finance (` 25 crore) and Jammu & Kashmir Bank (` 15 crore). The
SPV also issued non convertible debentures amounting to ` 50 crore to LIC and ` 37.30 crore to
UTI Bank.
The actual cost of the project was eventually ` 1,175 crore. The project cost overrun was funded
by the promoters, by withholding payments to DSC Limited (EPC contractor) and from the amount
received from NHAI (` 155.25 crore) on account of changes in scope.
* Including a grant of ` 61 crore.
Note:The financing information is sourced from rating rationales for the SPV available in the public domain.

Inception:
The plan for an expressway connecting Gurgaon and Delhi was initiated in the late 1990s and a
detailed project report was prepared for the same. Subsequently, in 2000-01, the MoRT&H decided
to augment the capacity of the National Highways connecting the four metros under the prestigious
Golden Quadrilateral project, as traffic intensity on these corridors had increased manifold which
hampered safe and efficient movement of vehicles.
As per the capacity augmentation plan, the Western Transport Corridor comprising the National
Highway (NH) 8 (Delhi-Jaipur-Ahmedabad-Mumbai) was identified as one of the top priorities
to be undertaken for upgradation. NH-8 carries a sizeable amount of intra-state and inter-state
traffic as well as import-export traffic to and from the ports on the Arabian Sea. Accordingly,
NHAI decided to upgrade the section of NH-8 connecting Delhi and Gurgaon into 8/6 lane
access controlled expressway as it was the busiest part of the highway. It was estimated that the
expressway would reduce the travel time between the Delhi and Gurgaon from about 65 minutes
to around 20 minutes.
NHAI was finding itself constrained to fund the estimated ` 555 Crore for the expressway. The
risk of cost escalation during the period of construction was also a cause for concern. Malaysias
Construction Industry Development Board (CIDB) was initially proposed to take up this project
under the memorandum of understanding (MoU) route as a part of a government to government
initiative. However, this proposal sought a grant of ` 120 crore from NHAI and was thus rejected.
The Government of India, at the time, was keen to promote public private partnership (PPP) in
viable expressway projects to attract funding and capitalize on private sector efficiency. It was
therefore decided to undertake the project on BOT (Build-operate-Transfer) basis. NHAI used the
Detailed Project Report prepared in 1998 for the traffic projections for this project.
Procurement
The MoRT&H invited pre-qualification bids in 2001. The project was initially envisaged to require
a capital grant to be paid by NHAI to the successful bidder towards the cost of construction for
enhancing the viability of the highway project. However, considering the robust traffic projections,
bids were received with negative grants. In April 2002, the consortium of Jaiprakash Industries and
DS Constructions was declared the successful bidder. RBM Malaysia, which was the L2 bidder, had
quoted ` 55 crore as the negative grant. Other bidders were Gamuda Malaysia, IJM Malaysia and
Larsen & Toubro (L&T).
Development
The erstwhile Jaypee DSC Ventures Ltd. (now known as Delhi Gurgaon Super Connectivity Ltd.),
the SPV incorporated by the Concessionaire for the project, achieved financial closure in May 2003.
84
The construction of the expressway commenced in January 2003.

In June 2004, Jaiprakash Industries, despite being the lead promoter, sold its stake to DS Constructions
and retained only 1.2%.
The project development, however, soon ran into issues over approvals, land acquisition and
additions to the scope of work which was largely due to the physical setting of the project highway.
The highway was the first semi-access controlled highway in an urban environment traversing
two states besides having access to both the domestic and the international airport and sensitive
defence establishments along its route.There were more than 15 government agencies/civic bodies
such as the Delhi Jal Board, the Ministry of Defence, GAIL, BPCL, Delhi Development Authority
(DDA), Haryana Urban Development Authority (HUDA), GoH, GoNCTD, Haryana Tourism,
Airports Authority of India (AAI), etc., affected by the development of this highway that had to
grant various approvals for the project.This became a complex and time consuming process during
the construction period.
Being in a thickly populated environment, land acquisition became a problem impacting delivery.
This was in fact one of the core obligations of NHAI and the State Government under the tripartite
State Support Agreement entered into with the concessionaire. NHAI and other agencies involved
with this project put in a great deal of effort to hasten the process. However, there were certain
small parcels of land which were difficult to acquire. In addition, court cases, removal of trees,
shifting of religious structures and the massive number of utilities that had to be shifted contributed
to the delay.
Another major reason for delay in project completion was the change in the scope of work. There
were substantial changes in the original design that were sought by NHAI and the government
keeping in mind future requirements and the convenience of commuters. Out of a total of 11
structures, spread over the entire project length, 9 structures had significant design modifications.
Since the structures were closely spaced, the entire alignment of the project was affected which
necessitated the change of scope and the scheduled project completion date had to be revised.
Demands made by bodies like HUDA and DDA regarding other connected projects also played a
role in the delay.The provisional change of scope order was finalised and issued to the concessionaire
in July 2005 just days before the original scheduled completion date.
Moreover, with the high density of traffic on the route and the requirement of a minimum length
for acceleration and de-acceleration of traffic being approximately 300 meters (As per the Indian
Roads Congress Provisions), the partial opening of expressway had to be held back for safety
reasons even if completed at certain locations.
Delivery
The project was commissioned on 25 January, 2008. The expressway is fully operational and is
handling a significant traffic volume of more than 180,000 PCUs per day, growing at 9% year-on-year.
Exit
The concession period is for 20 years and the projected end date is 11 January 2023 when the
expressway will be handed over to the government.
85

Table 19

Risk Type
Sensitivity
Risk Period
Primary
Risk Bearer
Comments
0-5 years
NHAI
NHAI was liable to pay damages of if it failed to

provide RoW within the specified time.
Delays in land
acquisition
High
Delays in land acquisition resulted in an increase in

the acquisition cost for the government. They also
resulted in loss of potential revenue accruing to the
Concessionaire due to delays in commencement of
operations.
Financing risks
Medium
0-5 years
Private sector
The Concessionaire was required to achieve

financial closure within 180 days from the date
of the agreement beyond which an additional
period of 90 days was allowed subject to an
advance weekly payment of ` 1,00,000 per week
as damages by the Concessionaire for delay in
achieving financial closure.
Approvals
Low
0-5 years
Private sector
Though the Government was expected to provide

best effort support, the obligation was the
Concessionaires.
With multiple stake holders involved such as GoH,
GoNCTD, DDA, HUDA, Ministry of Defence, AAI,
etc., the process of approvals was slow.

Design Risk
High
0-5 years
Private sector
There were substantial changes in the design that

led to escalation in cost as well as time over-run.
This meant revenue loss to the Concessionaire as
the concession period was not altered.
Construction
Risk
High
0-5 years
Private sector
If Concessionaire failed to complete the project

construction by the scheduled completion date,
the agreement prescribed weekly damages at the
rate of 0.01% of the total project cost.
The construction of the expressway got delayed
due to inordinate delays in land acquisition and
changes in the scope of work.
The risk was primarily borne by the Concessionaire
and more specifically by DS Constructions Ltd. as
it was also the EPC contractor for the project.
For change in scope, NHAI was also asked to
contribute the increased investment requirement.

Operations &
Maintenance
Risk
Medium
Market Risk
Low
Throughout
Private sector
The risk is primarily with the concessionaire

NHAI as the concession authority has set stringent
performance standards and obligations to be met.
Throughout
Private sector
Market risk that primarily manifests in terms of

lack of tollable traffic in a typical BOT project is
with the private sector.
However, it has proven to be non-existent in the
particular case. The actual traffic has so far been
much higher than that projected and is only
expected to grow.
The only risk factor could be that of the possibility
of a competing road facility allowed to be
constructed by NHAI, GoNCTD or GoH either
on the PCU level reaching 170,000/day (continuous
for 180 days) or expiry of 20 years, whichever
is earlier. However, this risk is also sufficiently
mitigated through the allowance of an increase in
the concession period (equal to half the number of
years by which commissioning of such competing
road precedes expiry of Concession period) and
the provision of toll for the competing facility to
be kept higher (133% of per km fee) than that
applicable for the expressway.
86
Risk Type
Sensitivity
Risk Period
Primary
Risk Bearer
Comments
Financial Risks
Medium
Throughout
Private sector
These are a result of adverse movements in interest

rates, exchange rates, etc. and the private sector
is expected to manage them through appropriate
financial management techniques.
Last 2.5 to 3
years
Private sector
The risk of poor condition of assets on transfer is

with the private operator.
D) Handover risk events

Handover risk
Medium
As per the agreement, a joint inspection shall be

conducted, not less than 30 months or more than
36 months prior to the expiry of the concession
period. 2 years prior to the expiry, an amount
equivalent to the fees realised for a traffic volume
of 10,000 PCUs/day for the last 2 years or higher
based on certification from the Independent
Consultant shall be retained in an escrow account
for renewal works.
Concessionaire
event of default
Medium
Throughout
Private sector
For a Concessionaire event of default, NHAI will

pay a termination payment equal to 90% of the
debt due less any insurance claims.
NHAIs event of
default
Low
Throughout
NHAI
For an NHAI event of default during operations

period, NHAI will pay a termination payment
equal to the total debt due, 120% of subordinated
debt, 150% of the equity subscribed in cash and
the negative grant amount. Beyond 3 years from
appointed date, the equity amount will be adjusted
for changes in the Wholesale Price Index and this
adjusted amount will be reduced by 7.5% every
year.
Low
Throughout
Private sector
and NHAI
In case a change in law results in a financial burden

greater than ` 1 crore in any accounting year for
the concessionaire, the concessionaire may notify
NHAI and propose amendments to the concession
agreement so that the concessionaire is in the
same financial position.
E) Other Risks
Change in Law
Similarly, if a change in law results in a

financial benefit greater than ` 1 crore for the
concessionaire, NHAI may notify and propose
changes in the concession agreement.
Force Majeure
Low
Throughout
NHAI
In case of a Force Majeure event before financial

closure, the date for achieving financial closure
shall be extended by the period for which the force
majeure event shall subsist.
In case of a Force Majeure event after financial
closure, before commencement of operations, the
dates in the project completion schedule and the
concession period shall be extended.
In case of a Force Majeure event after
commencement of operations, the concessionaire
shall make efforts to collect toll, failing which the
concession period shall be extended.

One of the limitations to this analysis is the lack of access to the feasibility report for the project
with which to draw quantitative comparisons. Secondly, the expressway has been in operation
for only two years, thus limiting the possible analysis of efficiencies during the operations period.
Therefore, an assessment of potential benefits achieved by the Concessionaire based on publicly
available information has been attempted.
1. Remunerative for the Government: The project has been developed as a stateof-the-art facility which was procured on a negative grant basis. It has also generated
steady revenues due to the revenue sharing mechanism incorporated into the Agreement.
87

Moreover, the facility will revert back to the Government on expiry of the concession
period. Thus, the procurement of the project through this PPP model has been sufficiently
remunerative for the Government despite various challenges experienced during the
course of its development.
2. Efficiencies Achieved: The table 20 presents the brief analysis of some of the efficiencies
achieved:
Table 20
Efficiencies Achieved
Particulars
Earlier
Now
Average Travel Speed
25.65Km/Hr
66 Km/Hr
Average Travel Time from Delhi to Gurgaon 65 Minutes
25 minutes
Capacity (in terms of lanes)
6 Lane 5 km4 Lane - 22.7 Km
8 Lane - 22.3 Km
6 Lane - 5.4 km
Intersections
20 Intersections
10 Grade Separated
Intersections
3. Risk of Time and Cost Overruns largely borne by the Private Sector: The project
experienced a substantial increase in the project cost due to a scope change and time
overruns. While NHAI contributed to the increase in cost due to a scope change, the
promoters funded a large portion of the cost overrun by withholding payments to DSC
Limited the EPC contractor. Such overruns would have typically been retained by the
public sector under public procurement.

1. Land Acquisition process: The government had committed to the promoters for
providing substantial area of land, prior to actually acquiring the land. Due to the thickly
populated surrounding areas of the expressway, there were certain pockets of land that
were difficult to acquire. This exposed the government to the risk of not providing the
land within reasonable time impacting the overall schedule of the project. It would have
been better if uncontrollable concerns such as these were addressed before the project
procurement stage itself to ensure smooth functioning of the project.
2. Support from Stakeholders for the project: For a project of this magnitude, it
is important for the government agency to garner adequate public support to ensure
smooth implementation. Public support for land acquisition and road expansion activities
should be ensured through a continuous dialogue with the affected individuals. Such an
effort shall create a feeling of ownership through involvement among the public and
reduce resistance leading to delays and other complexities. Moreover with the project
spread across 2 states, various government agencies made demands for changes in the
project alignment and design that resulted in a substantial change in scope, project cost
and consequent delay in project execution. Ideally, such issues should be resolved during
the project preparation stage through consultation.
3. Approvals from multiple entities: More than 15 government agencies/civic bodies
etc., that were affected in one way or other by the development of this highway, had
to grant various approvals for the project. This became a complex and time consuming
process during the construction period. The government could have provided a single
window clearance for a project of this magnitude.
4. Traffic Risk is lower in case of brown-field projects: Though traffic risk is the
biggest risk to the viability of a typical toll road project, the risk is substantially lower
in case the project involves improvement and tolling of an existing highway since traffic
flow is more or less established. The Delhi Gurgaon section of NH-8 has been one of the
88
busiest sections in the country and to that extent had the advantage of bankable traffic
and therefore possible revenues.
5. Outdated Traffic forecasts: NHAI relied on the traffic study conducted in 1998 at the
time of the project procurement. Thus, the actual traffic volume grossly outnumbered
the projections from the very beginning of commercial operations. In fact as soon as
the expressway was opened to traffic, the unexpected high number of vehicles led to
heavy queuing at the toll booths and delays in traversing the stretch. This appeared to
have defeated the very purpose of the expressway to reduce travel time, fuel cost and
congestion making the project socially unviable. However, timely action and necessary
measures by authorities and the Concessionaire improved conditions.
6. Fee sharing requiring efficient contract management: The contract has a provision
for sharing of fee realised through toll beyond a threshold daily traffic level. However,
such an approach places greater onus on the government for contract supervision and
management, so as to track the projects performance and ensure that audited results
reflect the true performance of the expressway.

Concession Agreement between National Highways Authority of India and Jaypee DSC
Ventures Limited
Website of Delhi Gurgaon Super Connectivity Limited
Rating Rationales
Interviews:

Mr.V.K. Rajawat, General Manager, National Highways Authority of India
Mr. Kaushalveer Singh, Deputy General Manager, National Highways Authority of India
89

Twelve
Case Study 9:
Nhava Sheva International
Container Terminal
The Nhava Sheva International Container Terminal (NSICT) is Indias first private container terminal
and one of the most modern container terminals in India. It is promoted by P&O Ports, Australia.
The terminal is located within the Jawaharlal Nehru Port across from the island of Mumbai.
The 30 year license for the port was awarded in 1997 on the basis of highest Net Present Value
(NPV) of royalty offered, for:

the construction of a 600 metre long piled wharf with three approach bridges,
reclamation of 20 hectares for container yards and installation of requisite container

handling equipment
construction of office facilities and ancillary buildings and
construction of an electrical sub-station and associated electrical work
It was the first totally automated container terminal to be developed in India with all its operations,
right from receiving the vessel bay plans to invoicing, being computerized. The total design capacity
of the 2-berth container terminal was 7.2 million tonnes per annum in Phase I (i.e. 0.65 million
Twenty-Foot Equivalent Units (TEU)) and a cumulative 15.6 million tonnes per annum (i.e. 1.3
million TEU (0.6 million TEU + 0.7 million TEU = 1.3 million TEU)) in Phase II. The port was fully
operational, with both Phase I & II capacity, by July 2000. It is currently operating at more than 100%
capacity.

Nhava Sheva International Container Terminal Private Limited (NSICTPL) was incorporated
as a Special Purpose Vehicle in 1997, based on the joint venture agreement between M/s P&O
Australia Ports Pty Limited, M/s Konsortium Perkapalan Berhad and M/s D.B.C Group of companies
(represented by Trans Impex Private Limited). In March 2006, P&O Ports was taken over by Dubai
Ports World Limited (DP World), one of the worlds largest container terminal operators, following
which NSICTPL became the part of the DP World terminal network.
Obligations of the Parties: The concession agreement was for the development, operation,
maintenance and management of the container terminal on a Build, Operate and Transfer (BOT)
basis for a period of 30 years, expiring in 2027. JNPT was responsible for scheduling entry and
berthing of vessels, pilotage and towage, dredging, navigational safety, supply of electricity, water
supply to terminals and ships and monitoring air and water pollution. JNPT was to provide the
licensee with six hectares of additional developed container yard area and make available a fully
developed railway yard of two hectares for inland container depot operations of the licensee.
The licensee, in this case NSICTPL, was responsible for developing, managing, operating and
maintaining the facilities on common user basis. NSICTPL was required to pay royalty to JNPT for
5
90
Assuming 1 TEU = 12 tonnes
guaranteed traffic in the event of not achieving the minimum traffic indicated.The ownership of the
land, reclaimed sea and water in the licensed premises remained with JNPT.
Pricing: With regard to pricing, the licensee had to collect prescribed rates and charges not
exceeding the minimum rates published in the JNPT Port Tariff Schedule and Scale of Rates as
approved by the Government of India. The port anticipated 20-25 percent increase in tariff every
three years. The licensee had to bill the users of the container terminal for services, including
terminal charges, container handling and cargo related charges. As per the bid document the
successful bidder would guarantee handling at least 90 percent of the projected annual throughput
levels.
Termination: On the expiration of the stipulated license period, all the civil engineering structures,
equipments, machinery, ancillaries, etc would be handed over to JNPT free of cost. If JNPT were to
terminate the agreement prior to the thirty-year period, the license would receive the depreciated
cost of permanent construction and other assets as taken over. The document specified the life
span of the assets for estimating depreciation.
The Figure 8 depicts the PPP structure for this project.
PPP Structure
Figure 8
Board of Trustees of
Jawaharlal Nehru Port,
(Corporate body under Major
Port Trust Act 1963 - Licensor)
M/s Konsortium
Perkapalan Behrad,
Malaysia
Concession
Agreement
DP World
Acquired
P&O and
hence
NSICTPL
(Licensee)
M/s P&O Australia

Ports Pty Limited
SPV
NSICTPL
M/s D.B.C Group

(represented by Trans
Impex Private Limited)
12.3 Current Status

NSICT is fully operational and handles close to 20% of India's container traffic. The primary goods
exported are garments, sporting goods, carpets, machines, boneless meat, medicaments and other
textile articles like embroidery,. The main products imported are chemicals, machinery, plastics,
electrical machinery, vegetable oils, aluminium and other non-ferrous metals. The terminal has
convenient access to neighbouring Mumbai and to the hinterland of Maharashtra, Madhya Pradesh,
Gujarat, Karnataka and a large part of North India.

The terminal project was developed at a cost of ` 733 crores over a period of two years. No
VGF was provided to the project. The Debt Equity Ratio for the project was 1:1. ICICI led a
consortium of lenders and lent around ` 190 crores (26% of project cost) to the SPV under a
guarantee provided by P&O Ports, Australia. The remaining debt of ` 177 crores was raised from
other financial institutions. Of the total debt, 55% was US$ denominated debt while the balance
was Rupee denominated debt. The cost of debt mentioned by NSICTL in their cost statement
submissions to TAMP is 10.5%.
Project Details
Table 21
Particulars
Project IRR
18%
Debt Equity Ratio
1:1
NPV
` 224.59 crore
91

Note: The project IRR estimate is based on the return on capital employed normally permitted as
per JNPTs tariff. The NPV is based on the winning consortiums bid.

The figure 9 provides the timeline of NSICTs development:
Figure 9
Timeline of NSICTs development

Construction of
600m long quay
Commenced
Inception
of the
project
Global Bid
Invited on
BOT basis
1993
1993
1994
1994
Feasibility of
the project
Dec
Dec
19
1995
95
July
July
19
1997
97
Oct
Oct
19
1997
97
Concession
Agreement (CA)
signed between
P&O Ports
consortium and
JNPT
Fully Operational
with Phase I&II of
1.3 mn TEU
capacity completed
Mar
Mar
1999
1999
July
July
2000
2000
Phase I with
with 0.6 mn
TEU Capacity
completed
Inception:
Following reforms introduced in India since early nineties, the core sector industries including the
Indian port sector began to witness a new phase of revival and growth. In view of continuous growth
in container traffic and to meet the growing demand of for additional container handling facilities,
JNPT took the initiative to introduce private participation in ports for the first time in India.
In January 1994, it was initially decided to contract out the existing container terminal at JNPT
to private operators. The Government of India accordingly requested the World Bank (WB) to
conduct the necessary work for the tendering of operations of the JNPT container terminal.
However subsequently, the proposal was amended and it was decided to invite private participation
for creating a new container terminal while retaining the existing one under government ownership
and operation.
Procurement:
The JNPT Port Planning and Development Department prepared an extensive bid document in
consultation with the WB, Ministry of Surface Transport (MoST) and other ministries. Though the
WB played a critical role, both at the Inception and Procurement stage, JNPT took a long time to
finalise the bid document which delayed the start of the procurement process by about 2 years.
JNPT finally issued the global tender for a new container terminal on Build, Operate and Transfer
basis for thirty years in December 1995.
Thirty firms from India and abroad purchased the bid document, of which five consortia submitted
their proposals. The financial offer made by the four responsive bidders to the Government by way
of the highest NPV of Royalty Offered was assessed. The four consortia were:

92
A consortium led by Hutchinson International Port Holding Ltd., Hong Kong including
ABG Heavy Industries Ltd. and Bank of America International Investment Corporation.
A consortium led by Marubeni Corporation, Japan consisting including Evergreen

International and ILFS, Mumbai.
A consortium led by P&O Ports Australia Pvt. Ltd. including DBC Port Management and
Konsortium Perkapalan Berhad.
A consortium led by the Port of Singapore Authority including Samsung Corporation,

Seletar Investment, Neptune Orient Lines Ltd., and Samrat Shipping.
The final concession agreement between Jawaharlal Nehru Port Trust and the SPV led by P&O
Ports (now Dubai Ports) was signed in January 1997. Based on the documents available in public
domain, the royalty payable per TEU ranged from about 2% in the initial years to about 50% of the
Minimum Guaranteed Royalty payment in the terminal year.
Development:
Construction work commenced in October 1997. The first stage of the project was completed by
December 1998 and the second phase by December 2000.
Operations:
Issue of Royalty:The terminal started experiencing issues related to the royalty payout.There was
lack of clarity in the concession agreement on whether the royalty payment was to be considered
as a part of cost or a share in the profit in the SPVs accounts while determining the port tariff.
NSICTPL was of the view that, although royalty was in the form of a revenue share, since it was
paid to the Port Trust, it should have been considered an expense (The basic nature of Royalty
is an expense as per the Indian Companies Act and is not considered as a part of profit). The
Tariff Authority of Major Ports (TAMP) view on the other hand was that royalty should not be
considered as a part of cost as it was an appropriation of profit.
It may be recalled that in the procurement process, the royalty payment was the central bid parameter.
The treatment of royalty as an expense could led to a scenario where a firm, in order to win a bid,
would quote a higher revenue share as royalty by increasing the proposed port-user charges. Thus,
while on one hand the operator would share a higher amount of royalty with the government to
win the bid, on other hand, by assuming royalty as a cost, it would seek higher port-user charges
to recover the return on investment as specified by TAMP. This ultimately would result in an excess
burden on the port / terminal users and thus would reduce the demand for the port services.
In its revised guidelines in 2005,TAMP recognised the principle that royalty would be paid out of the
Operating Surplus (i.e. Profit) of the concessionaire. However, for bids received prior to July 29, 2003,
it allowed royalty to be considered as a cost in the tariff computation up to the maximum of the
next highest bid. This meant that if firm A won the bid by offering 30% of the revenue as royalty
and firm B bid 24% of the revenue as royalty, then the maximum royalty that could be allowed as
cost for tariff computation would be 24%.TAMPs guidelines were framed in such a manner with the
objective that the operator does not incur losses due to royalty payments. However, there was no
clarity on considering royalty as a cost in cases where the terminal operators were making profits.
Although this revision resulted in a reduction in NSICTs tariff by 12%, it still imposed an excess
burden on port users.
Port Performance: NSICT has achieved operational results comparable with global standards.
In recognition of its performance, the Confederation of Indian Industries (CII) bestowed the CII
Award for Excellence in Infrastructure to NSICT in February 2003. Throughput figures for the
terminal since its commissioning in March 1999 are stated in Table 22.
Operational Results
Table 22
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
Total NSICT Throughout 0.34
(m teu)
0.69
0.94
1.20
1.23
1.23
1.32
1.36
1.51
1.43
0.64
Note: FY10 figures are from April 2009 to August 2010
Source: NSICT
93

Exit:
The concession agreement has been entered into for a period of 30 years and will expire in 2027.
On the expiration of the stipulated license period, all the civil engineering structures, equipments,
machinery, ancillaries, etc would be handed over to JNPT free of cost.
Table 23

Risk Type
Sensitivity
Risk Period
Primary
Comments
Risk Bearer
Delays in land
acquisition
Low
1-2 years
Public Sector
Port Trust
The Port Trust already owned the land required

for the project. However, there was lack of clarity
in the concession agreement for additional land
for expansion and allied activities.
External linkages
High
Throughout
the contract
Private
Operator
The Port Trust provided the road connectivity

from the port boundary to the nearest national
highway as well as railway connectivity.
However over the last 10 years, this capacity has
become congested largely due to two reasons
Low initial traffic projections and
Growth in the urban developments in the vicinity
of port.
The expansion of these linkages (road and rail)
has thus become a major issue and is adversely
impacting the port operations.
Regulatory
High
Throughout
Private
Operator
In NSICTs the case regulatory risks were high

because the government had limited experience
with respect to PPP and the laws governing PPPs
were new and untested which led to contractual
gaps and subsequently caused several issues
during the operations phase.
Approvals
Low
0-5 years
Private
Operator
Being an extension of an existing port, NSICT did

not face many issues related to approvals. Most of
the approvals were within the purview of existing
regulations / guidelines and hence obtaining them
was not a bottleneck for the project.

Design Risk
Medium
1-3 years
Private
Operator
Construction Risk
Low
1-3 years
Private
Operator

Technology Risk
High
Throughout
Private
Operator
Operations &
Maintenance Risk
Medium
Throughout
Private
Operator
As the location of the port / terminal allows

limited expansion of Container Freight Stations
(CFS), warehouses or other allied facilities, this has
an impact on the efficiency of terminal operations.
Issues impacting operations such as transport
strikes, congestion on rail & road capacities were
beyond the private players control and have had
a detrimental impact on operations.
Market Risk
High
Throughout
Private
Operator
Market risks are high due to competition

but guaranteed minimum cargo in the form
of long term cargo commitments from users
have mitigated these risks. A thorough market
assessment could have also assisted in mitigating
this risk as capacity and capital investment would
have accordingly been planned.
Financial Risks
Medium
Throughout
Private
Operator
There has been uncertainty with respect to the

tariff, which is set by an independent authority.
Other financial risks, as a result of adverse
movements in interest rates, exchange rates,
etc., are expected to be managed by the private
sector through appropriate financial management
techniques.
94
Risk Type
Sensitivity
Risk Period
Primary
Comments
Risk Bearer

Handover risk
Medium
Last 3 years
Private
Operator
Terminal Value risk
Medium
Last year
Private
Operator
Concessionaire
event of default
Medium
Throughout
Lenders
In this case, lenders are the most vulnerable

because in case of default on account of the
concessionaire, the lenders would only be able to
realise their investment after the licensor clears
all his dues, which could take a year and a half.
During this period the lender would have to bear
the risk.
Governments
event of default
Low
Throughout
Government
The Government needs to pay higher of a fair

value of assets and the proposal value received
from a replacement developer (if applicable).
Change in Law
Low
Throughout
Private
Operator
No compensation from the government is

due, although there is an enabling provision
to mutually discuss in good faith and suitably
amend the terms of the concession agreement,
including an extension of concession period.
No compensation for changes in any tax
laws. Extreme government actions, including
change in law that frustrates operations of the
project have been included under political force
majeure events and suitable termination and
compensation procedures have been prescribed.
Force Majeure
Low
Throughout
Private
Operator
While, force majeure risks are partially transferred

to the extent of insurance, they are largely
borne by the private operator. In the event of
termination, there is compensation payable to the
concessionaire to the extent of debt outstanding
and varying levels of equity contribution,
depending upon the nature of the event.
E) Other Risks

In general, the time and cost over-runs in public works are well known. In this case, the entire
process of bidding of NSICT is a classic case of a successful PPP process implementation barring of
the issues related to tariff and royalty on account of contractual gaps in the concession agreement.
The VfM analysis lacks a quantitative assessment due to the non availability of financial data /
information of the private port operator in the public domain.The value from this project has been
assessed by way of the efficiencies the private sector was able to bring on board in the terminal
operations.
Operational Efficiencies:
The container traffic growth at the NSICT from FY01 onwards catapulted the positive traffic
growth at JNPT. The figure 10 highlights the impact of NSICT on the overall performance of JNPT.
Significant improvements were observed in key port efficiency parameters:

The average turnaround time dropped from 4.5 days in FY98 to about 2 days in FY09.
The pre-berthing delays dropped from close to 1.5 days to 0.5 days over same period.
The success of NSICT can be attributed to its superior productivity parameters as well as the
state-of-the-art equipment and latest technology.
95
Impact of NSICT on Performance of JNPT

1,600
5.0
4.0
1,200
3.5
1,000
3.0
800
2.5
600
2.0
1.5
400
1.0
200
JNPT (JNPCT+NSICT+GTIL)
Performance Parameters (Days)
4.5
1,400
Throughput in (Thousands TEUs)

Figure 10
0.5
0.0
FY98
JNPCT
FY99
NSICT
FY00
FY01
GTIL
FY02
FY03
FY04
FY05
Actual Turnaround Time (Days)
FY06
FY07
FY08
FY09
Pre-Berthing Delay (Days)
JNPCT = Jawaharlal Nehru Port Container Terminal

GTIL = Gateway Terminals India Limited
Positive Impact on Competition:

By offering better customer services and faster turnaround times, NSICT started diverting traffic
away from the JNPCT where traffic declined from FY00 to FY01. This diversion prompted the
JNPCT authorities to acknowledge the importance of efficient port operations and capacity
augmentation through better handling equipments to compete with NSICT. Thus the success of
NSICT through the PPP route, created a demonstration effect on JNPCT to modify their policy
measures and strategy so as to compete with NSICT. JNPCT adopted following measures

Capacity Augmentation and modernisation of facilities and equipments
Capacity Restructuring by allocating the existing liquid terminal to two Indian oil majors
to develop a liquid terminal on BOT basis. However later this liquid terminal was further
transformed into the third container terminal GTIL.
Financial Restructuring by reorganising its capital to clear its debt liabilities
Enhancing Labour Productivity by introducing various schemes like the official incentives
scheme which provided benefits to workers to clear cargo faster and the hot seat
exchange scheme which implied that there would not be any break between shifts,
thereby leading to an increase in the number of man-hours.

1. Bid evaluation criteria need to be simple but robust. The bid evaluation criterion
Highest NPV of Royalty payment - was simple but insufficient. The lack of a methodology
to assess the royalty payout to the licensor and the failure to foresee problems arising
from the interaction of the royalty with the tariff level created a number of issues in the
subsequent operations phase.
2. Quality of market assessment. The traffic forecast (market assessment) is the key input
in tariff setting and is directly linked to the revenues against which cost and returns are set
off. For the same level of investments, the unit cost of container handling varies with different
levels of traffic, largely because of the distribution of fixed costs and returns over the traffic
base. Hence the quality of traffic projections (market assessment) for a port is critical.
3. Clear definition of Roles and Responsibilities of licensor and licensee.The clarity
on the roles and responsibilities of both licensor and licensee, not only during the bidding
phase and termination phase, but also during the operations phase is critical. For instance,
the provision of sufficient transport linkages directly influences the efficient operations of
the port.
96
4. Addressing project performance & contractual issues in the agreement

explicitly. This issue is related to specific performance norms or delivery standards that
need to be specified to safeguard users interests. In the NSICT agreement, the only
performance related standard mentioned was crane productivity (i.e. moves per hour),
which was of limited interest to the users. Moreover, there was no mention of penalties in
case of shortfalls in performance.
5. Proactive approach towards tariff structuring and Efficient Project Management.
The operations of TAMP should be critically examined to ensure efficient and cost effective
management of port facilities by port service providers public and private.

Further along with tariff structuring, a capable Project Management Team, with the ability
to take decisions, should be empowered to monitor port operations and maintain the
performance standards as defined by the guidelines.
6. Commitment for providing additional land: Additional land may be required for
various purposes including for road / rail linkages, warehouses, storage yards, etc. At the
time of contract signing, it could not be reasonably ascertained as to what would be the
requirement of additional land during the concession period, whether there was such
extent of additional land available or whether the port trusts would be in a position to
provide additional land.

Hence, while drafting the agreement, appropriate provisions for such expansion could have
been considered to avoid an adverse impact on the terminal / port growth.
7. Termination commitments to cover debt due: It is a standard practice to protect

lenders interest and such a provision is quite common in concession agreements. However,
it places greater pressure on the government to monitor the borrowings and repayments
of the SPV.This is even more critical in areas where independent regulators have not been
instituted to monitor service and financial performance. For example in major ports, the
Tariff Authority of Major Ports (TAMP) scrutinises the capital expenditure of port terminals
and allows or disallows certain expenditure to be included under the heading of allowable
expenditure for the purpose of tariff setting. In summary, while the commitment to cover
debt due is essential, the government sponsors are also required to build capacity for
effective contract supervision and regulation to ensure lenders interests are protected.
8. Impetus to other Port Sector PPPs: The successful bid process of the NSICT project,
paved the way for other PPP projects in the ports sector, which is now the most sought
after infrastructure sector. Of-late, the increase in the number of port projects being
offered through the PPP route reflects the benefits being derived from the participation of
private entities by the government.

Background paper prepared for the World Development Report 2005 Managing Port
Reforms In India: Case Study of Jawaharlal Nehru Port Trust (JNPT) Mumbai By Amit S
Ray, Professor of Economics, School of International Studies, Jawaharlal Nehru University
New Delhi 110067 India (2004)
A Diagnostic Study of Jawaharlal Nehru Port Trust on behalf of Ministry of Commerce,

Government of India, G. Raghuram, IIM Ahmedabad (2005)
Planning Commission Case Study Concession for Nhava Sheva Container Terminal
Bharat Salhotra (Nov, 2007)
TAMP Order (2000, 2005, 2006) for NSICT, http://tariffauthority.gov.in/htmldocs/

JNPTorNSICT.htm
Interviews:

A senior official from NSICTPL.
97

Thirteen
Case Study 10:
Kakinada Deep Water Port
The Kakinada deep water port (KDWP) is a part of the Kakinada Port located on the southern part
of the east coast of India in the state of Andhra Pradesh. The Kakinada Port is the second largest
port in the state after Visakhapatnam. It comprises the Kakinada Anchorage Port, KDWP, Kakinada
Fishing Harbour and Ship-Breaking Unit.
While Kakinada Anchorage Port is operated by the Government of Andhra Pradesh (GoAP),
KDWP was commissioned in November 1997 by GoAP before being privatised under the PPP
route in 1999.The PPP model adopted for this project is OMST / BOMST (Operate Maintain Share
and Transfer / Build Operate Maintain Share and Transfer) with Kakinada Seaports Limited (KSPL)
as the private entity operating the port.

In order to attract private investments and to improve operational efficiency, KDWP was privatised
on the OMST / BOMST basis.
The concession agreement was signed on the 19th March 1999 with M/s International Seaports
Pte Ltd (ISPL), a joint venture company registered in Singapore, promoted by Larsen & Toubro
Ltd, India, Stevedoring Services of America (SSA), USA and Precious Shipping Company, Thailand.
ISPL subsequently inducted Konsortium Perkaplan Berhard (KPB), Malaysia and floated a Special
Purpose Company in the name of Cocanada Port Company Ltd (CPCL) for managing the port
operations. CPCL was renamed as Kakinada Sea Ports Ltd (KSPL)6.
KSPL commenced port operations from 1st April 1999 for an initial period of 20 years (expiring on
March 31, 2019) with an option of two extensions of five years each. Under the original concession
agreement, KSPL was to:

Operate and manage the existing three berths at the already existing deep water port on
OMST basis (Phase 1)
Construct, operate and manage a fourth berth at a later date, contiguous to the existing
three berths after 70% berth occupancy was reached on BOMST basis (Phase 2).
KSPL is permitted to levy, collect and retain appropriate charges from port users. Since KDWP is
a minor port, it has flexibility in tariff determination and is not governed by the Tariff Authority of
Major Ports regulations.
It has to pay GoAP a 20-22% revenue share annually subject to a minimum guaranteed amount
(MGA) specified on a year-wise basis. Lease to GoAP for use of the land for the port is also payable
by KSPL. Further, all movable assets at the port were sold to KSPL by GoAP.
In early 2009, concession agreement was amended by way of a supplementary agreement. The
amendments included:
6
98
The concessionaire has been referred to as KSPL throughout this case.
Extension of the concession period from the original tenure of 20 years to 30 years, with
a further option for extension by 20 years in two blocks of 10 years each
Elimination of the stipulation with respect to the MGA for revenue sharing with the GoAP
Allowing KSPL to undertake additional/ new developments at the port (such as construction
of fifth berth, at the same terms and conditions of the existing agreement)
At the end of the concession, KSPL shall transfer all the immovable project assets to GoAP free of
cost. The movable assets are to be transferred to GoAP subject to payment of the book value of
assets at the time.
13.3 Current Status

KDWP presently has four berths. It enjoys multi-modal connectivity by road, rail and pipelines (for
liquid cargo).
The total vessels handled by the KDWP have increased substantially to 3,755 vessels in Financial
Year (FY) 09 from around 555 vessels in FY 04, mainly attributable to the significant increase in
Offshore Supply Vessel (OSV) traffic to 2,400 vessel turnarounds from 171 vessel turnarounds in FY
04.The cargo vessel traffic at the port has also increased to 1,062 vessels in FY 09 from 304 vessels
in FY 04 in line with the increase in cargo throughput.
The total cargo handled at the Kakinada port increased to 14.5 million tonnes in FY 09 from 5.6
million tonnes in FY 04 at a CAGR of 21%. Of the various cargo items handled, there is a relatively
high dependence on some items like iron-ore (24%); fertilisers (19%); Fertiliser Raw Materials
(19%); edible oil (13%) and coal (10%) for the bulk of the volumes.
The Port has several quality certifications including the ISO 9001, the ISO 14001 & the Occupational
Health and Safety Management System (OHSAS) 18001. It is also an International Ship and Port
Facility Security (ISPS) certified port.
While there has been very strong growth in the traffic in the past few years, there is increased
competition from the new neighbouring ports of Gangavaram and Krishnapatnam.
Despite this competition, in order to cater to the growth in traffic, and also ease some of the
congestion at the port, KSPL has planned an expansion of its capacity by constructing an additional
berth with facilities for handling edible oil, other liquid and general cargo. This would increase the
port capacity by approximately 3 million tonnes.The proposed capex is expected to be in the range
of ` 150 200 crore and is likely to be funded in a Debt-equity ratio of 50:50.
The concessionaire is financially performing well with improving margins over the years. The PAT
margin has improved to 41% in 2009 from 27% in 2007. Similarly RoCE has improved to 35% from
23%.

Three berths at KDWP were constructed by GoAP at a cost of ` 293 crore, of which the Asian
Development Bank provided a loan of ` 242 crore.
KSPL was appointed the concessionaire for operation and maintenance of the three berth facility
and for developing the fourth berth. Phase 1 of the development, on the existing 3 berths, involved
an investment of ` 175 crore, which had an equity contribution of ` 60 crore and debt funding of
` 115 crore. IDFC was the lead lender providing ` 60 crores of the debt. The loan had a tenure of
11 years.
The fourth berth including an offshore jetty was developed at a cost of ` 330 crore. The post tax
project IRR for Phase 1 and Phase 2 developments as per the financial proposal submitted by the
concessionaire was 18.46%.
99


Inception:
Kakinada Port was developed by the GoAP and comprises of Kakinada Anchorage Port, Kakinada
Deep Water Port, Kakinada Fishing Harbour and Ship-Breaking Unit. KDWP was developed during
the period 1992 to 1996 by GoAP and the port commenced operations in November 1996. It
was initially developed with three berths and the master plan envisaged 15 additional berths to be
developed over a period of time requiring an investment of over ` 1,500 crores. Since GoAP did
not have the capacity to develop the full infrastructure and make the port operations efficient, it
decided to privatise the port operations under the Port Privatisation Policy.
Procurement:
The procurement process for KDWP was based on international competitive bidding for development
of the port on the OMST/BOMST format. It was a two stage process with a prequalification stage
and an RFP stage. At the end of the prequalification stage, 14 parties were shortlisted of which the
following four consortia submitted detailed proposals:

International Seaports Pte. Limited (ISPL)
KPB, Malaysia (KPB)
ABG Heavy Industries Limited
Kumars Marine Engineering Corporation (KMEC)
The technical evaluation of proposals was across the following parameters:

Methodology for traffic forecast
Master plan for development of facility offered
Capital cost estimates
Financial plan and tie ups
Tariff structure
Organisation set-up for project and operational stages
Competency of Project Chief
Productivity norms
KMEC eventually withdrew from the process and the proposal of ABG Heavy Industries Ltd. was
found to have errors and hence, not considered for further evaluation.
Thus, the financial evaluation was between the bids of ISPL and KPB, Malaysia across the following
parameters:
Table 24
Financial evaluation
Criteria
Weight
Minimum Guaranteed Share of Income (MGA)
50%
Percentage Share of Income to be paid to GoAP
30%
Investment Planned in Phase 1 development
20%
Based on the financial evaluation the consortium of ISPL was awarded the contract.

GoAP handed over the project facilities to KSPL in March 1999. All immovable assets were
transferred without any consideration. All movable assets like tugs, cranes and fork lifts were
transferred at a rate calculated as per the norms agreed in the concession agreement.
100
Soon after, it was realized that the project was not likely to be viable on the existing terms of the
concession.The primary reason was the non-realization of estimated traffic and the high component
of MGA that the developer had to pay to GoAP.
GoAP reportedly failed to allow KSPL to handle the cargo mix as mentioned in the tender forms.
This included agri-centric cargo like fertilisers, oil extractions, sugar, rice and wheat that constituted
70 per cent of the projected volumes at the time of the bid. In fact there was considerable social
unrest with respect to handling of commodities at the anchorage port and the deep water port.
There were instances of the anchorage port workers going on strike in protest of the deep water
port handling agri commodities such as wheat.
KSPL thus was unable to meet the obligation of the MGA. This also impacted the financial closure
for the Phase 1 development.Accordingly, there were several rounds of negotiations and discussions
where KSPL requested the government to withdraw the MGA clause and retain only the revenue
sharing clause. In 2003, the Government agreed that the payment of MGA can be rescheduled
ensuring that the net present value of the amount to be paid during the concession period
remained the same. KSPL was thus able to achieve financial closure for the Phase 1 development
in 2004 which envisaged back-up area development, railway line connectivity and procurement of
equipment.
In 2004, Salgaocar Mining Industries Pvt. Ltd. (SMIPL) was inducted as a shareholder in KSPL.
Subsequently, KSPL took up the development of the fourth berth and an OSV complex in 2007.The
same was completed in 2008.
Despite the changes in the concession agreement, KSPL continued to experience difficulty in
attracting traffic and paying the MGA to the Government. In addition, the development of the new
ports of Gangavaram and Krishnapatnam, in the vicinity of Kakinada, with modern facilities and a
deeper draft, added to the problems of the KSPL. Accordingly, KSPL once again appealed to the
government for flexibility and amendment in terms and conditions.
After a detailed evaluation and analysis, GoAP, in 2009, agreed to amend the concession agreement
by way of a supplementary agreement. The amendments included an extension in the concession
period from the original tenure of 20 years to 30 years, with a further option for extension by 20
years in two blocks of 10 years each, elimination of the stipulation with respect to the MGA for
revenue sharing with the GoAP and allowing KSPL to undertake additional/ new developments at
the port at the same terms and conditions of the existing agreement.
In 2009, the principal shareholder L&T sold its stake in KSPL to Kakinada Infrastructure Holdings
Pvt. Ltd. (KIHPL). KIHPL also purchased the 2% stake held by SMIPL and now holds the single
largest stake in KSPL. The revised shareholding pattern of the company is as follows: KIHPL 41%;
Everlink Asia Investments Ltd. (owned by the Salgaocar Group) - 30% and Konsortium Ports Pte
Ltd. (and its associate) - 29%.
KSPL plans to expand its capacity by 3 million tonnes by constructing an additional berth with
facilities for handling edible oil, other liquid and general cargo at an investment of ` 150 200 crore.
Exit
At the end of the concession (presently March 2029), KSPL shall transfer all the immovable project
assets to GoAP free of cost.The movable assets are to be transferred to GoAP subject to payment
of the book value of assets at the time. However, the concession period is extendable by 20 years
in two blocks of 10 years each.
101

Table 25 Risk allocation framework

Risk type
Sensitivity
Risk period
Primary risk bearer
Comments
0-5 years
Government
The port already existed and was

given out for private sector operation
and maintenance. Therefore, there
was only limited land acquisition that
was required for some supplementary
purposes such as rail connectivity. This
obligation rested with the government.
Delays in
acquisition
land Low
External linkages
Low
0-5 years
Government
The port already had external linkages

in terms of connecting roads, etc. There
was only a necessity for upgrading the
existing facilities which did not translate
into high risk.
Financing risks
Low
0-5 years
Private sector
The financing risks for the expansion

of existing facilities were relatively
lower since the traffic movement at the
existing port already provided some
base comfort. However the private
entity faced difficulties in achieving
financial closure due to the unfavourable
terms in the concession agreement.
Social Risk
High
0-4 years
Private sector
This risk was high since KDWP was

potentially competing with the Kakinada
Anchorage Port and there were cases of
social unrest and strikes by employees
of the anchorage port.

Design Risk
High
0-5 years
Private sector
The design of the fourth berth had to be

developed by the private operator and
was subject to approval from GoAP.
Latent Defect Risk
High
0-5 years
Private sector
Cavities detected in the diaphragm

wall translated into higher costs from
repair expenses with respect to existing
infrastructure. These costs were not
taken into consideration when the
contract was signed.
Construction Risk
High
0-5 years
Private sector
The private operator had to provide a

performance guarantee in the form of
two bank guarantees equal to 0.5% of
the estimated capital cost for Phase 1.
Approvals
Moderate
0-5 years
Private sector
In this case, the port was already

constructed with GoAP itself having
taken all approvals during construction.
However, the risks of getting approvals
for additional berths remained fully with
private developer with the agreement
only stating that the Government may
assist in obtaining clearances. The
clause did not even include the term
best efforts.
Throughout
Private sector
The private operator had to operate

and maintain the facility in accordance
with the minimum performance
standards specified in the concession
agreement. Failure to do so would result
in penalties followed by termination.

Operations
& High
Maintenance Risk
102
Risk type
Sensitivity
Risk period
Primary risk bearer
Comments
Market Risk
High
Throughout
Private sector
There were over-optimistic traffic

projections which impacted the
estimated revenues adversely and
resulted in a high risk to the developer
owing to the MGA clause, thus affecting
unfavourable the project viability.
Competition Risk
High
Throughout
Private sector
In addition to the possibility of the

new ports coming up in the vicinity,
the concession agreement also allows
GoAP to grant a facility for another
terminal (similar to the fourth berth)
to a private party on same terms as
the current developer. However, the
amendment in the agreement in 2009
resulted in KSPL having the right to
develop additional facilities on the same
terms and conditions of the existing
agreement.
Low
Last 1 year
Private sector
GoAP has the right to depute inspectors

to assess the condition of the assets at
least one year prior to the expiry of
the concession. KSPL has to rectify any
defects failing which a penalty may be
imposed.
Change in Law
High
Throughout
Private sector
The private operator is not entitled for

compensation from the government,
although there is an enabling provision
to mutually discuss and amend the
terms of the concession agreement,
including extension of the concession
period. No compensation for changes in
any tax laws.
Force Majeure
High
Throughout
Private sector
Any costs arising out of force majeure

because of non-political events have to
be borne by the Concessionaire. The
same are restricted to the extent of
insurance.

Handover risk
E) Other Risks

The VfM assessment of the KDWP has been carried out on a qualitative basis primarily on account
of limited financial information available in the public domain. The VfM analysis is based on the
benefits from this project.The key benefits which have accrued as a consequence of this project are:
Maximisation of the Port Potential:

KDWP was developed by GoAP with only three berths while the master plan envisaged 15
additional berths to be developed over a period of time requiring an investment of over ` 1,500
crores. However, GoAP did not have the capacity to develop the full infrastructure and maximise
the potential of the port. The private sector was able to step in and ensure adequate traffic to take
up the development of the fourth berth. It is now also looking to develop a fifth berth.
Revenue Stream to the Government:

Although the MGA was eventually withdrawn, the project continues to provide the government a
steady revenue stream by way of a revenue share and lease payments from the private operator.
Demonstration Effect:
KDWP was amongst the first minor ports to be privatised in India. Accordingly it paved the way for
other port projects to be taken up on the PPP route.
103

Improvement in Port Performance:

KSPL has achieved a substantial improvement in port performance. The total cargo handled at the
port has increased from 5.6 million tonnes in FY 04 to 14.5 million tonnes in FY 09 at a CAGR
of 21%. The total vessels handled have increased substantially from 555 vessels in FY 04 to 3,755
vessels in FY 09 of which the cargo vessel traffic has increased from 304 vessels in FY 04 to 1,062
vessels in FY 09.

Level Playing Field: During the bid process/ tendering stage, the Government had indicated that
the private developer would get complete rights for development of Port. However, during the
award of the project, there were restrictions in terms of the anchorage port that will be operating
in parallel. One of the key reasons for the disputes between KSPL and GoAP was the restrictions
on the cargo that KDWP could handle. In order to protect the volume of cargo at the existing
anchorage port, GoAP did not provide a level playing field to KSPL thus affecting the traffic to an
extent. While this issue was resolved subsequently, ideally it should have been dealt with at the
inception stage to prevent an adverse impact on the project.
MGA to the Government: The revenue maximization approach of the Government by insisting
on a minimum guaranteed amount put substantial pressure on the project and could have derailed
it. The government had to eventually agree to an elimination of this stipulation.
Technical Due Diligence: There were a number of issues with respect to the port assets
such as cavities in the diaphragm wall, additional dredging requirement and requirement for
removal of boulders. Since this was a brownfield asset being privatised, the government should
have undertaken a detailed technical due diligence of the project site to accurately estimate the
investment requirement.
Stakeholder Consultation: The project experienced social unrest with strikes by employees of
the anchorage port against the deep water ports operations. A stakeholder consultation prior to
the appointment of the private operator where various affected parties would have been taken into
confidence could have prevented such disruptions.
Resolution of Issues through Mutual Discussions: The noteworthy learning from this project
is the amendments that were made in the terms of the concession agreement through mutual
discussions without abandoning the project. Despite the nature of the issues such as MGA and the
term of the concession agreement, both GoAP and KSPL mutually agreed to modify the agreement
and ensured continuity of the project.
Competing Facilities and Better Packages: Newer ports such as the Gangavaram Port and
the Krishnapatnam Port have given tough competition to KDWP. Both these ports had competitive
advantages in terms of being greenfield ports, availability of huge land for future expansion, longer
concession period and better concession terms because of the evolution of concession agreements
and risk sharing mechanisms in the country. Thus while KDWP was at a disadvantage initially, its
concession terms were modified to bridge the gap.

Original Concession Agreement
Supplementary Concession Agreement
Credit Rating Rationale
Articles in newspapers, periodicals
Interviews:

104
Mr. KV Brahmananda Reddy, Government of Andhra Pradesh
Fourteen
Case Study 11:
Gangavaram Port
Located on the East Coast of India in the State of Andhra Pradesh (district of Visakhapatnam
around Latitude 17 37' N and Longitude 83 14' E, about 15 kms south of Visakhapatnam Port),
Gangavaram Port has been developed as all weather, multipurpose, deep water port with a depth
of up to 21 meters, capable of handling Super Cape size vessels of up to 200,000 DWT.
The master plan has a provision for 29 berths with a capacity of 200 MTPA to be developed in three
phases over 15-20 years. In Phase I, five berths have been constructed with an estimated handling
capacity of 35 MTPA. One berth is dedicated to iron ore, the second berth is for handling coal and
there are three multi-purpose berths to handle containers and other cargo. The port has a total
land area of 2800 acres for port facilities development.
The port also has good connectivity to the national railway system with its own independent
railway siding, while a four-lane road from the port connects to National Highway 5, the KolkataChennai arm of the Golden Quadrilateral.

After conducting a global bid process, the consortium led by Mr. D.V.S. Raju was selected to develop
the port on BOOT basis in 2002. Under the concession agreement, the Government of Andhra
Pradesh, through its Transport, Roads and Building Department (TR&B), provided the private
sector the right to the waterfront and concession to build-own-operate-transfer the port project.
The private sector is responsible for preparing a comprehensive long-term master plan for the
port, design the facility, arrange for the requisite finance, build the facility, own the assets that are
constructed and operate the assets till the end of the concession period. The initial concession
period is for 30 years (extendable by additional two periods of 10 year each).
The Government also provided land to the Project. A portion of the land was acquired by Andhra
Pradesh Industrial Infrastructure Corporation Limited, a government of AP enterprise, and provided
to the project in lieu of equity stake of 11% in the SPV. The remaining land was purchased by the
SPV on direct payment.
The SPV named Gangavaram Port Limited (GPL) was formed with Mr. Raju and associates owning a
51% stake with US-based private equity firm - Warburg Pincus holding 28% and the Andhra Pradesh
Infrastructure Investment Company (APIIC) holding 11% in the consortium.
14.3 Current Status

The port is operational since August, 2008 and has handled more than 8 MT of cargo as at August
2009, including cargo such as Coking Coal, Steam Coal, Iron Ore, Limestone, Bauxite, Urea, Slag,
Steel, Raw Sugar, Scrap and Project Cargo.
The port has handled the largest coal vessel to call at Indian Ports, Capesize vessel MV Ocean
Dragon (151,049 DWT) and has achieved high cargo discharge rates. (71,808 tonnes per day).
105


The total project cost is estimated at ` 1,696 crores. No VGF has been provided to the project. A
consortium of 13 Banks led by SBI Capital Markets arranged term senior & subordinate loans of
` 1,170 crores for the phase I development. The transaction won the award of being the largest
transaction in India of a merchant greenfield port financing on non-recourse basis at a leveraging
of 69:31.
The future receivables of port usage will be used by GPL to repay the loans which have been raised
at an attractive rate of under 9% p.a. for the 14 year facility.
Table 26
Project Details
Particulars
Project IRR (Post-tax)
22%
Equity IRR
30%
Average DSCR
2.2
Debt Equity Ratio
69:31
The financial model of the private operator is not available in the public domain. Hence, financial
ratios of the feasibility study that was prepared by an independent consultant prior to tendering
have been provided as an indication of the viability of the project.
Figure 11
Process Analysis
Project Life Cycle
Incepon
First Round
First conceptualized in
1994
Second Round
Project Preparaon
Procurement
Development
Delivery
Bids invited in 1996,

rejected by GoAP as
speculave
Exit
A reputed consultant appointed

for feasibility and procurement in
2001
Comprehensive feasibility study
prepared
Second round of internaonal
compeve bidding and
developer awarded concession
by GoAP in 2002
Several developmental issues
came up and were resolved
(2002-2004)
Financial closure in 2005. The
deal was awarded Asia-Pacific
region's Infrastructure Deal of
the Year' by Thomson's Project
Finance Internaonal
The construcon of the port
completed in April, 2008

Inception & Project Preparation:
Gangavaram Port was first conceptualised in 1994. The concession authority was the Transport,
Roads and Buildings (TR&B) Department of Govt of Andhra Pradesh. They delegated the task of
project preparation and procurement to APIIC.
Procurement:
The first round of bids was received in 1996 wherein the two pre-qualified consortia submitted
their bids. The proposals were assessed for commercial viability, for the financial offer made to
106
the Government by way of Minimum Guaranteed Amount (MGA) of revenue per annum and
percentage revenue share per annum, and quantum of Phase I port investment. The evaluation
revealed concerns regarding the validity and practicality of the market assumptions (traffic and
tariff) and the underlying viability of the projections. Both the bids had elements of speculation and
presented an untenable proposition for the Government. Therefore, after much deliberation, the
Government decided to terminate the bid process. The first round of tendering suffered due to
several shortcomings:
1. A comprehensive feasibility study, with realistic traffic projections was not prepared prior
to tendering
2. The bid evaluation criteria had several parameters for evaluation, some of which
encouraged bidders to put in speculative or unrealistic offers that were unsustainable.The
bid criteria gave separate weights for MGA, revenue share and investment commitments.
Thus larger commitments, even though unrealistic, could lead to higher scores.
The shortcomings of the first round were corrected by the Government during the second round
of bidding. An independent consultant was appointed to prepare a comprehensive feasibility study
and manage the tender process.The comprehensive feasibility study was prepared in 2001, pursuant
to which, through an international tender process, the concessionaire was selected in 2002. The
project development costs were initially borne by APIIC. APIIC was eventually paid ` 5 crore by the
developer on signing the concession agreement.
However, the contract finalisation was a long drawn process that started in late 2002 and culminated
with the signing of the concession agreement in 2004. As several of the contractual issues were not
adequately addressed during the project preparation and the pre-bid stage, over 80 issues were
required to be negotiated and finalised during the contract finalisation stage. The major issues
included differences of opinion about land valuation at termination, duration of the concession
period, equity investments of lead promoter, performance parameters and penalties and step-in
rights of lenders.
Development:
While the above issues were mutually resolved and the concession agreement was signed, the
project progress was further hampered due to delays in land acquisition. The government had
committed to providing land to the project that had not been acquired by the government till the
contract finalisation. There were also local protests in relation to rehabilitation and resettlement
that led to a prolonged process. However once these issues were resolved, the project was able
to successfully financially close in a short period of time and was awarded the Asia-Pacific region's
Infrastructure Deal of the Year' by Thomson's Project Finance International. The construction of
the first phase of the port commenced in December 2005.
Delivery:
The project was successfully commissioned in August 2008. The port is currently operational and
handling substantial vessels and cargo.

Risk type
Sensitivity
Table 27
Risk period
Primary
risk bearer
Comments
0-5 years
Government
Delays in land acquisition resulted in increase

in acquisition cost for the government. They
also resulted in loss of potential revenue
accruing to the government due to delays in
commencement of operations.
Delays in land
acquisition
High
107

Risk type
Sensitivity
Risk period
Primary
risk bearer
Comments
External linkages
High
0-5 years
Government
Government had committed to provide road

connectivity from the port boundary to the
nearest national highway, water supply and
electricity supply to the port boundary.
As railway connectivity was not in its jurisdiction,
the Government assured the developer that it
will make best efforts to pursue the same with
Indian Railways.
In reality, the risk of delays in external linkages
is often absorbed by the private sector till the
contract gets frustrated.
Financing risks
Medium
0-5 years
Private sector
Planning
Medium
0-5 years
Private sector
Approvals
High
0-5 years
Private sector
In minor ports, all the responsibilities of

obtaining approvals lie with the private sector,
with government providing best effort support.

Design Risk
Medium
0-5 years
Private sector
With the private sector and strict performance

penalties.
Construction Risk
Medium
0-5 years
Private sector
With the private sector and strict performance

penalties.
Approvals
Low
0-5 years
Private sector
In minor ports all the responsibilities of

obtaining approvals lie with the private sector,
with government providing best effort support.

Technology Risk
Low
Throughout
Private sector
Operations &
Maintenance Risk
Medium
Throughout
Private sector
Although with the concessionaire under

the concession agreement, operations were
outsourced (and partial risk passed on) to
Portia Management Services Ltd of UK, an
expert firm.
The Government as the concession authority
has set stringent performance standards to be
met with penalties for non compliance.
Market Risk
High
Throughout
Private sector
Market risks are high due to competition

but firm minimum cargo or long term cargo
commitments with the users reduces this risk.
In this agreement however, the government
allows a contractual waiver of the concession
fee (which is a gross revenue share) in the
years in which the concessionaire does not
earn any gross profit. On the other hand, the
concessionaire also provides a concession fee
payment guarantee to ensure that payments are
promptly made in profitable years.
Financial Risks
Medium
Throughout
Private sector
These result from adverse movements in interest

rates, exchange rates, etc. and the private sector
is expected to manage them through appropriate
financial management techniques.
108
Handover risk
Medium
Last 3 years
Private sector
The risk of poor condition of assets on transfer.

As a result the concessionaire will have to
undertake major repairs or the performance
guarantee shall be invoked. As per the
agreement, a joint condition survey shall be
conducted, two years prior to expiry
Terminal Value risk
Medium
Last year
Private sector
While the method of computing terminal value

has been well established in the concession, the
provision that in any event, all debt outstanding
shall be covered, places some degree of
uncertainty of valuation on the government.
However, it is essential to provide adequate
comfort to lenders who are typically taking the
largest financial exposure in the project.
Risk type
Sensitivity
Risk period
Primary
risk bearer
Comments
Concessionaire
event of default
Medium
Throughout
Private
sector
Only lenders are protected and so the equity

holders bear the major risk.
Governments
event of default
Low
Throughout
Government
Government needs to pay higher of a fair value

of assets and proposal value received from a
replacement developer (if applicable). In any
case the lenders are fully covered.
Change in Law
Low
Throughout
Private
sector
No compensation from the government,

although there are enabling provisions to
mutually discuss in good faith to suitably
amend the terms of the concession agreement,
including extension of concession period.
No compensation for changes in any tax
laws. Extreme government actions, including
change in law that frustrates operations of
the project have been included under political
force majeure events and suitable termination
and compensation procedures have been
prescribed.
Force Majeure
Low
Throughout
Private
sector
Such risks are transferred to the extent

of insurance, however are largely borne
by the private sector. In the event of
termination, there is compensation payable
to the concessionaire to the extent of debt
outstanding and there are varying levels of
equity compensation depending upon the
nature of events.
Sponsor risk
Medium
Throughout
Government
This risk falls on the government by virtue

of contracting the project to the private
sector. In this contract, the risk was managed
through performance guarantees during preoperative, construction and operations phase.
Secondly, lenders also have a high exposure to
the project and they closely monitor project
performance. To manage the lenders risk due
to the project promoters non performance,
a direct agreement with the lenders was also
executed that provided the necessary stepin and substitution rights to the lenders in
case of a default by the project promoters.
Nevertheless, there is a significant residual
risk due to the non-performance of project
promoters that does fall on the government.
It should be noted that this risk is high during
the construction phase and then reduces
significantly during the later years when the
project operations stabilise.
E. Other Risks

In general, the time and cost over-runs in public works are well known. Specifically, in the states
port sector there has been only one government funded deep draft port project which was funded
by a multilateral agency. Details about time and cost over-runs, if any, are not readily available for
closer examination.
The second limitation to this analysis is the lack of availability of the financial model of the private
port operator, as this is not in the public domain. And thirdly, the port has been in operations for
only one year thus limiting any possible analysis of efficiencies during the operations period.
Therefore, a comparison of what was planned in the feasibility study conducted by an independent
consultant prior to bidding and what has been achieved by the private operator based on publicly
available information has been attempted.
109

The most apparent efficiency gain is seen in the manner in which the capital expenditure has been
incurred by the private sector. Based on available data, it can be observed that two major factors
appear to contribute towards this efficiency gain:
1. The private operator created greater capacity compared to the feasibility study concept and
in doing so achieved efficiency in capital expenditure. A simplistic analysis of average capital
expenditure per berth highlights an 11% efficiency gain. It is appropriate to place a word of
caution here. The capital expenditure in a port consists of infrastructure, superstructures
and equipment. Therefore, if more superstructures or equipment investments are made
then some of the infrastructure investments can get spread over a larger base, thereby
achieving greater economies in infrastructure created.
2. Another contributing factor to the efficiency in capital expenditure was the ability of the
private operator to negotiate better financing terms with the lenders. This resulted in a
lower interest rate (9% as compared to 15.5% interest rate in Feasibility Study and a longer
tenor of debt. Readers may note that interest rates are a function of prevailing market
conditions and the interest rates were declining during the period of financial closure for
the project. Therefore, there would have been a fortuitous timing in the investment cycle
that could have contributed to this efficiency.
As more data on the actual performance of the port is not publicly available and the fact that the
port has just completed its first year of operations, a more comprehensive analysis of VfM is not
possible. The table 28 presents the brief analysis.
Table 28
Project analysis
Feasibility Study
Project Cost
Berths
Maximum vessel size
Cargo in Year 1
Interest Rate
Tenure
Efficiency in Project Cost
Actual Achieved
` 1528 Cr
` 1700 Cr
1,20,000 DWT
2,00,000 DWT
10 MTPA
8 MTPA
15.50%
9%
10 years
14 years
11%
[% Savings in Average Capex per Berth Achieved]

It may also be noted that if the optimism bias in the public sector expenditure was considered then
the efficiency gains achieved would be in excess of 11%. For example, if one was to assume that
there is a minimum 30% optimism bias in public capital expenditure programmes, then a capital
expenditure efficiency of 41% would be observed. As empirical data related to public expenditure
in ports for the state are not available, readers are advised to make their own judgments on the
quantum of optimism bias that they would expect and therefore compute the efficiency gains.

1. Robust project preparation by government sponsors prior to tender is critical.
As was experienced in the first round of tendering, realistic traffic projections were not
prepared thus leading to unfounded optimism from both the government and the bidders
side.
2. Bid evaluation criteria need to be simple but robust. The first round of tendering
had several evaluation parameters that were working at cross purposes and encouraged
speculative bidding.
3. Addressing fundamental project related and contractual issues, prior to the
tender, is important.The second round of tendering experienced a long drawn contract
110
finalisation period.This was largely due to the fact that some of the fundamental issues, such
as, contractual issues, land acquisition and rehabilitation issues had not been adequately
addressed prior to tender. It can be seen that once these issues were resolved, the project
was financially attractive and bankable. Today the project is a success story.
4. Government sponsors need to be fully cognisant of the commitments they
make and the obligations they may impose. While this issue has not arisen in this
project, the fact that the government made commitments for additional land for the project
as and when required, without ascertaining the extent of such a requirement or whether
the government would be in a position to provide additional land, is a cause of concern.
This exposes the government to the risk that specified land may not be made available
thus derailing the entire project, or secondly the land cost may not be completely passed
on to the project (as the government agreed on a reasonable land price per acre during
contract finalisation and the land cost was treated as governments equity contribution
into the project). The actual land cost details are not publicly available and it cannot be
ascertained whether indeed the entire land cost was passed on or not. It can be argued
that this is one of the obligations of the government and not providing additional land
may lead to a government event of default. While the requirement of additional land is
a reasonable need for the project to grow, the governments needs to be careful while
committing on the same. In this instance, a more appropriate option could have been to
introduce the concept of intent on best effort basis rather than a commitment.
5.
It is recommended that where firm commitments are made they should be definitive or
within a decision making framework that can be managed by both parties failing which the
government sponsors may find themselves in a serious predicament.
6. Land transfer back on normal termination of the project is a concern area.

The contract specifies that the government shall acquire the said land and transfer the
ownership to the port SPV and that on normal termination of the project due to efflux
of time, the land along with the essential assets will revert back to the government on a
formula-based valuation. It needs to be noted that a fully functional port not only requires
the use of the port waterfront (which being a sovereign asset was leased to the SPV) but
also the land for the back up area where cargo storage and other infrastructure facilities
are created. While the contract provides the right to the government to take back the
land on normal termination, precarious situations could emerge wherein the SPV could
stake continued claim on the land by virtue of its ownership rights or other developments.
Hence, return back of land for a fully functional port is a major risk that the government
has taken upon itself under the concession agreement.
7. Waiver of concession fee in years of no profits was a progressive policy stand.
An interesting feature of this contract is that the government is paid a gross revenue
share by the SPV only in the years of profits. This stance had a historical perspective.
Earlier port concessions had carried stiff minimum guaranteed amount clauses that
required the concessionaire to make revenue share payments to the government even
in years of losses. Several projects, including some within the state, suffered on this
count. Secondly, the government recognised that the policy of MGA was not suited for
Greenfield projects where huge investment was needed to create infrastructure and attain
a sizeable traffic build up. By imposing stiff MGA conditions such Greenfield projects were
not becoming bankable. Therefore the government had decided upon this more flexible
approach. However, such an approach also places greater onus on the government for
contract supervision and management, especially during the operational years, so as to
track the projects financial performance and ensure that audited results reflect the true
performance of the port rather than under-reporting of profits. While effective contract
management is vital it has been underplayed by government sponsors in the past and this
places more pressure on the government to undertake active contract management and
supervision.
111

Fifteen
Case Study 12:
Mumbai Metro
To address both present and future public transportation needs, the Government of Maharashtra
(GOM) through the Mumbai Metropolitan Region Development Authority (MMRDA) has planned
a 146 kilometre long rail based Mass Rapid Transit System (MRTS) for Mumbai.
This project is the first corridor of the proposed MRTS. The Versova Andheri Ghatkopar line shall
be an elevated line with a route length of 11 kms, with 12 stations and a car depot situated at D.N.
Nagar.The line will have a minimum curvature of 100 meters and minimum ground clearance of 5.5
meters. The length and width of the coaches that shall ply on the route will be 22 metres and 3.2
metres, respectively. Other technical features of the project include 25 KV AC overhead equipment,
cab signalling with automatic train protection, and a maximum speed of 80 kmph with an average
speed of 33 kmph.
Mumbai Metro One is going to run on a dedicated elevated corridor and shall have high levels
of comfort for the passengers viz. fully air-conditioned world class coaches, provision for lifts
and escalators at stations, modern automatic fare collection system and high levels of passenger
security systems.
The existing sub-urban trains connect the northern and southern parts of the city. This project will
provide East-West rail based connectivity to Central and Western suburbs. The total time taken
for the journey from Versova to Ghatkopar would be approximately 21 minutes, as against a typical
time taken of 90 minutes by other modes of transport.

A concession agreement on BOOT basis for a period of 35 years, including a construction period of
5 years, has been awarded by the MMRDA. Under the concession agreement, the operator has to
design, finance, construct, operate, own and maintain the first corridor and transfer the ownership
and assets at the end of the concession period.
A Special Purpose Vehicle (SPV) named Mumbai Metro One Private Limited (MMOPL) has been
formed with Reliance Energy Limited, Veolia Transport and MMRDA holding equity stakes of 69%,
5% and 26%, respectively.
This project was one of the first projects in mass transportation systems being implemented on
a PPP basis in Maharashtra. The government thus felt the need to closely monitor the project and
took a 26 percent stake in the SPV implementing the project. This allowed the government to
have 3 members on the board of the SPV and ensured that it would be able to effectively monitor
and influence decisions on financing, design and construction for the project. The MMRDA will
contribute equity to the tune of ` 134 crore for this 26 percent stake in the SPV during the
construction phase of the contract.
The assets of the project include the viaduct, stations, bridges, depot, rolling stock, signalling
system, traction and Supervisory Control and Data Acquisition (SCADA) system, communications
112
systems, track work, fare collection system, etc. All these are owned by the SPV. The assets shall be
constructed or procured through contractors and equipment suppliers. For example, the signalling
system shall be installed by Siemens while the communications system by Thales Inc. and the rolling
stock shall be procured from CSR Nanjing. The land for the depot has been taken on a long term
lease which is renewable from the owners of the land.The SPV holds the exclusive rights to develop
and use the land for the MRTS Project.
15.3 Current Status

The construction has commenced from February, 2008 and the project achieved financial closure in
October 2008. The completion date for the project construction is expected by mid 2011.
At present, the construction of the viaduct is underway with 773 piles being dug up.The construction
of the Depot, Substation and Stations has also commenced along the route of the project.Work has
also commenced on the construction of 2 overhead bridges at Andheri Station and the Western
Express Highway.

The total project cost is estimated at ` 2,356 crores. The project shall be financed on the basis of
a Viability Grant of ` 650 crores contributed by the Government of India (` 470 crores being 20%
of the project cost) and Government of Maharashtra (`180 crores being 7.5% of the project cost).
The remainder is to be financed by 70% debt, 30% equity. The private operator and MMRDA
shall provide equity contribution of ` 466 crores in proportion of their equity stake. The private
operator has also arranged debt of ` 1240 crores for the project. This has been tied up from a
consortium of banks led by IDBI, Corporation Bank, Karur Vysya bank, Canara Bank, Indian Bank
and Oriental Bank of Commerce. IIFCL (U.K.) is providing the foreign currency loan for the
project.
Component ` crore
Viability Gap Funding
Table 29
650
Debt
1240
Equity
466
Total
2356
The cost of borrowing for the rupee component, which constitutes about 75 per cent of the total
debt, will be 12.25 per cent, while the foreign currency loan will be at 3.5 per cent above LIBOR
(London Inter-Bank Offered Rate). The loan has been secured for a moratorium period of 2 years
and a total loan repayment period of 15 years.
The project has also taken into consideration a service debt facility of around ` 70-80 crore in the
project cost to ensure that cost overruns are taken care of during the tenure of the project. Senior
Lenders have also been notified of and have approved of these provisions.
Project details
Particulars
Table 30
With VGF Support
Project IRR
8%
Equity IRR
15%
Debt Equity Ratio
70:30
113

Figure 12
Process Analysis
Project Life Cycle
Incepon
First Round
First conceptualized in 1997
Feasibility Study during 19972000
Bids invited in August 2004 and

successful bidder chosen in May
2006
Development Commenced in
February 2008
Feasibility
Procurement
Development
Delivery
Exit

Conceptualisation and Feasibility
The Government had been exploring the viability of various mass transit systems that are efficient,
economically viable and environment friendly. In this context, a detailed feasibility study was carried
out under the Indo-German Technical Co-operation by entrusting the consultancy work to TEWET
in association with DE-Consult & TCS, during 1997-2000.
The study recommended a mass transit corridor from Andheri to Ghatkopar as potentially bankable
and economically viable, after examining a number of alternative corridors and alignments. It was
then decided to bid out the project on PPP basis.
To manage the transaction process, a consortium consisting of Louis Berger as technical consultants,
Price Waterhouse Coopers (PWC), Masons and Economic Law Practices was appointed in 2003-04
to assist MMRDA.
Procurement
The project was approved by the Government of Maharashtra in August 2004 and global bids were
invited in the same month for the project through an Expression of Interest (EoI). Almost 150
bidders responded to the EoI and a pre-bid meeting was held in November 2004.
The suggestions of prospective bidders were incorporated in the agreements being prepared for
the project. The bid process conducted was essentially a two stage bid-process, i.e. technical and
financial stage.
Only those consortia whose technical bids met the technical criteria were allowed to submit
financial bids. Technical bids were invited for the project in May 2005. The consortia that submitted
bids were:
114
Hindustan Construction Company and RITES
Reliance Energy Limited and Connex-France
Shaktikumar Sacheti Limited and Lingkaran Metro
Siemens, L&T, Gammon, BEML
IL&FS and ITD Thailand and Unity Infraprojects
The consortia which qualified to submit financial proposals were:

Reliance Energy Limited and Connex-France
Siemens, L&T, Gammon, BEML
IL&FS and ITD Thailand and Unity Infraprojects
Financial proposals were submitted in January 2006 only by the Reliance Energy and IL&FS consortia.
The Siemens consortium withdrew their bid.
After the bid process, negotiations commenced with the lowest financial bidder, i.e. Reliance
Energy and Connex France.Veolia Transport and Hong Kong MRT were the other members of the
consortium providing technical know-how. From February to May 2006 negotiations were carried
out with the lowest financial bidder.
The REL-led consortium expected an Equity IRR of 26% but the government was able to negotiate
for a lower return in line with international experience. The consortium finally agreed on an Equity
IRR of 15% on their investment. This brought down the VGF to ` 650 crores.
An application for VGF was submitted to the Government of Maharashtra in June 2006 after the
successful bidder was chosen. The project faced delays in obtaining approval for Viability Gap
Funding (VGF) as the project was conceptualized before the model concession agreement was
put in place. Its concession agreement was based on the model concession agreement of National
Highways Authority of India.
Moreover, the Public Private Partnership Appraisal Committee (PPPAC) at the central government
level had not been constituted till that time and only tentative guidelines were in place for the PPP
agreements.Therefore, at that time various options to obtain grant funding were explored including
obtaining grant funding through the JnNURM scheme. However, the JnNURM funds were capped
at 10% of the project cost. The issue was finally resolved by grant of VGF in the form of a special
one time grant given to the state. The GoI agreed to give a special grant of 20% of the project cost.
In addition, the GoM approved a grant of 7.5% of project cost. The documentation and approval
process took some time and the formal approval for VGF of ` 650 crores was obtained much later
by January 2009.
Development
The development phase of the project was initiated in parallel to the VGF approval process. Major
milestones achieved in the development phase are presented below:

The SPV was incorporated in December 2006.
The Engineering and Project Management Consultants, a consortium of Parsons Brinkerhoff

(USA) and Systra SA (France) joined the team on February 14, 2007
Signing of the Concession Agreement and Shareholders agreement took place on March
7, 2007
MMOPL and Government of Maharashtra entered the State Support Agreement on April
20, 2007
Construction commenced on February 8, 2008
Financial Closure for the project completed on October 3, 2008
All major contracts for the project have been awarded. At present, 90%of the Right of Way has been
handed over to MMOPL. Utilities, mapping, condition survey, and the work for utility shifting has
been completed. 70% of the foundation work has been completed. Girder launching has started
at certain stretches. The construction of the Depot, Substation and Stations has also commenced
along the route of the project. Work has also commenced on the construction of 2 overhead
bridges at Andheri Station and the Western Express Highway.
115

The construction completion date for the project is expected to be mid 2011.
Table 31 Risk allocation framework

Risk Type
Sensitivity
Risk Period
Primary
Risk Bearer
Comments
Pre-Operative Risks
Delays in land
acquisition
High
0-5 years
Government
The land will be handed over to the

concessionaire as per the schedule submitted
in the contract. If the MMRDA is not able to
provide access to any part or parts of the site
for reasons other than a Force Majeure then
the MMRDA is liable to extend the Project
Completion Date, Financial Closure Date as
well as the Concession Period as determined
by an Independent Engineer.
Financing Risks
Medium
0-5 years
Private Sector
The Private Operator has to achieve financial

closure 180 days after the signing of the
contract. MMRDA can extend the date for
financial closure for a further 180 days in case
the private operator cannot achieve financial
closure.
Planning
Medium
0-5 years
Private Sector
The risk for the planning and execution of the

project would vest with the private operator
and would need to be executed in conformance
with the Specification and Standards specified
in the Schedules of the Agreement. (i.e.
Performance
Requirements, Performance
Standards and Technologies, Proposal submitted
by private operator)
Regulatory,
administrative &
approval delays
Low
0-5 years
Private Sector
This risk is borne by the private operator

who has to obtain all applicable permits/
clearances from the GoI/GoM with regard
to the implementation of the project. This is
a Condition Precedent to the Concession
Contract. However, if the GoI/GoM inordinately
delay the project applicable permits so as to
cause a Material Adverse Effect then MMRDA
(i.e. Shareholder in MMOPL SPV) shall not
terminate the agreement
Construction Phase Risks
116
Design Risk
Medium
0-5 years
Private Sector
The private operator would submit all the

drawings and the schedule of the project to
MMRDA. These would be reviewed by MMRDA
and scrutinised by the Independent Engineer.
MMRDA would not be responsible for any
delays caused due to the drawings of the
project.
Construction Risk
Medium
0-5 years
Private Sector
The private operator, for the due and faithful

performance of its obligations, shall provide a
Performance Security of ` 14 crore (USD 2.8
million) for the due and faithful performance
of its obligations. This security would be
renewed from time to time and would need
to be replenished within 30 days. The private
operator would also be liable to pay damages at
the rate of ` 2 crores /day if it fails to achieve any
milestone. Furthermore the private operator
has to submit Monthly progress reports and
allow the Independent Engineer to inspect
the progress of construction. The Independent
Engineer also would subject the MRTS to test
and provide a provisional completion certificate
for the project.
Change in Scope
Risk
Low
0-5 years
Government
If the government requires additional works

and services which are beyond the scope of the
project, all such change in scope shall be made by
MMRDA by an order and giving consideration
to the operations and maintenance costs which
would be spent by the private operator and
then subsequently reimbursed by MMRDA
Risk Type
Sensitivity
Risk Period
Primary
Risk Bearer
Comments
Financing Risk
Medium
0-5years
Private Sector
Only 85% of the viability gap will be released

during the construction phase of the project.
These tranches would only be released after the
senior lenders release the funds for the project.
The remainder of the capital would be released
6 months after the project is operational.
Operational Phase Risk

Technology Risk
Low
0-35 years
Private
Sector/
Government
The technology risk would vest with the both

the private operator/governments as the
project would be executed in conformance with
the Specification and Standards specified in the
Schedules of the Agreement. (i.e. Performance
Requirements, Performance Standards and
Technologies, Proposal submitted by private
operator)
Operations &
Maintenance Risk
Medium
0-35 years
Private Sector
The operations risk lies with the private sector

with the private operator having to submit
an operations and maintenance manual to
MMRDA for approval. The private operator can
mitigate this risk as he is allowed to appoint
O&M contractors for the running of the system
Market Risk
High
0-30 years
Private Sector
The private operator would be allowed to

levy and collect the fares from the users of the
Metro and would not be entitled to revise these
fares. All revenues accruing from the system
would be deposited in an Escrow account
from which payments would be disbursed. The
private operator would have access to any
revenues in the account after all payments have
been made.
The fares would be revised at a rate of 11%
every fourth year. The private operator
can however approach the Government of
Maharashtra for any upward revision of fares
beyond those permitted in case of an increase
in costs.
There is no revenue guarantee from the
government and the market risk is completely
borne by the concessionaire.
Performance Risk
High
0-30 years
Private Sector
A lock-in condition exists where the private

operator has to hold at least 51% equity
during construction and in the 2 years after
completion of the project. The lead consortium
member will have to hold at least 26% equity
stake in the project for a minimum period of 15
years after completion of project.
Handover Risk
Low
35th year
Private Sector
A joint inspection would be conducted

by both the parties (private operator and
MMRDA) 60 months prior to expiry of the
concession period to gauge their compliance
with the serviceability requirements defined
in the agreement. This would be verified by an
Independent Engineer and the private operator
would have to pay the charges for compliance
with these serviceability requirements if found
deficient
Private Operator
Event of Default
Low
0-35 years
Private Sector
Only lenders are protected and so the equity

holders bear the major risk. MMRDA takes
over the assets and is liable to pay 90% of the
debt due less insurance claims.
MMRDA Event of
Default
Low
0-35 years
Government
MMRDA takes over the assets and is liable

to pay a higher value of the assets. (110% of
adjusted equity and 100% of debt due). Lenders
are covered.
Handover Risks
117

Risk Type
Sensitivity
Risk Period
Primary
Risk Bearer
Comments
Interface Risk
(with other metro
corridors)
Medium
Throughout
Private sector
The concession agreement only touches upon

the interface aspect. It states that as and when
the other corridors become operational,
integration would be necessary which will call
for co-operation and co-ordination amongst
various SPVs / Operators. The risk would
be with the private concessionaire with no
financial involvement of MMRDA.
Force Majeure
Low
Throughout
Shared
(Depending
on the type
of event)
In case of a Force Majeure event occurring

before the financial closure date, the project
completion date and concession period would
be extended.
Other Risks
In case of a Force Majeure event arising due to

an indirect and non-political event each party
would bear their respective costs.
In case of a Force Majeure arising out of a
direct political event the MMRDA would
reimburse the private operator to the tune of
the costs incurred due to the Force Majeure.
The compensation shall include O&M expenses,
debt and increases in cost of construction. In
the event of termination there is compensation
payable to the concessionaire till the extent of
debt outstanding and varying levels of equity
compensation depending upon the nature of
events.
Change in Law
Risk
Low
Throughout
Private sector
No compensation from the government,

although enabling provision to mutually discuss
in good faith to suitably amend the terms of the
concession agreement, including extension of
concession if the financial effect of the change
in law is greater than ` 1 crore. MMRDA is
required to pay the amount of cost increase in
case no settlement is reached.

A VfM analysis for the project has not been undertaken in the Feasibility Study. The only other
comparable is the Delhi Metro where the Delhi Metro Rail Corporation (DMRC), which is a public
sector organisation, has been very successful in managing project timelines and costs. On the other
hand, there is no precedent of similar institution in rail based public transport in Maharashtra.
Neither can data on other public works contract be adapted for the Mumbai Metro One project.
Therefore, a quantitative analysis to assess VfM will not be practical for this project.
Therefore, a qualitative assessment of what has been achieved by the private operator based
on publicly available information and discussions with officials working on the project has been
attempted. The following major factors listed below have contributed toward creating value for
money for the state government in relation to this project:
1. Reduction in financial burden on the state budget: The PPP project was structured to
ensure that it was viable by providing a viability gap funding for the project. The financial
bid parameter was the lowest viability gap quoted. The lowest financial bid quoted was
viability gap funding of ` 1250 crores which was reduced after negotiations to ` 650 crores.
The government is also committed to compensating the concessionaire for expenses
incurred towards shifting of public utilities on the right of way. This is estimated to be
around ` 50-60 crores. The total taxes estimated for the project are around ` 300 crores.
This represents an inward remittance to the government.Thus, effectively the government
would end up with a net spending of ` 400 crores and the city would get access to an
asset worth ` 2300 crores. The asset would also transfer back to the government at the
end of the concession period. In conclusion, the state government is able to cover through
118
the private sector participation the construction and operations of a critical infrastructure
facility for a period of 30 years with a reduced requirement of upfront money. The cost of
the project compares favourably with other international projects. For e.g. the 80 km, US
$ 3.7 billion Gautrain Project in South Africa is being implemented at a construction cost
of US $ 46 million/km. This compares favourably with the Mumbai Metro 1 which is being
built at a cost of US $ 44 million/per km.The Delhi Metro which cost US $ 3.22 billion for
Phase-I and Phase-II has a cost of construction of US $ 44.6 million per km is also in the
same range.
2. Substantial risk transfer: The private sector has undertaken substantial project risks, such
as financing, construction, operations and traffic/ revenue risks. Traffic risk, which is one of
the major risks of a user fee based model, is completely vested with the private operator
with no clauses that provide for any compensation by the state government if the rider
ship of the metro is low. The transfer of major risks during the operational phase has
ensured that the private operator will place its best efforts in the operating the system so
as to ensure sustainability of operations.
While the above factors do point to the fact that there was substantial merit in adopting the PPP
approach, we must acknowledge the implicit risks that the public sector would continue to retain.
There have been several international precedents where governments have taken back certain risks
or bailed out ailing public infrastructure projects on the grounds of protecting public interest. For
example, the Mexican toll road crisis where the government had to take on the financial liabilities
of ailing toll road operators or the bail out of the Thai BTS. Indeed such financial support or bailout packages were, perhaps, necessary for those economies. However, these are implicit risks for
the government due to the nature of public service or infrastructure facility being rendered and
the governments stated or implicit obligations to its citizens for the provision of the same should
be noted.

1. Expediting the bid process is critical to ensuring a good response to the proposal: The
entire bid process for choosing the successful bidder took more than 2 years. This led
to a lesser number of bidders to bid for the project. Similar hurdles were experienced
in the bid process for the Metro Line 2 as the concession agreement was based on
the model concession agreement. This agreement however had to be tailored for use
for implementation of a metro system. These delays resulted in only one bidder finally
submitting a bid for the project.
2. Delay in Obtaining VGF approval: There was substantial delay in obtaining approval for
VGF from the Government.While this was attributed to the model concession agreement
not being in place, the PPP Appraisal Committee not be constituted and only tentative
guidelines with respect to VGF approval being available at the time, this issue was a
deterring factor for developers and is also likely to have impacted the level of interest in
the Phase 2 bid.
3. Delay in approvals can potentially derail the project: There was a delay in obtaining
approvals for the over bridge that passed over the railway line from the railway authorities.
This had the potential of delaying the project schedule. This was due to the railways
exploring the feasibility of another project invading the path of the metro line. However a
quick resolution of this issue ensured that work was able to continue. It is recommended
that authorities be cognizant of all other upcoming infrastructure projects that have the
potential to affect operations of the planned project while bidding out such projects and
resolve the same prior to the appointment of a developer.
4. Land Acquisition process can lead to issues in the project:The government committed that
the land for the project which essentially consists of land allocated for the depot would be
119

procured as per the land procurement schedule provided in the agreement. However, this
land was under private ownership and under dispute.This exposed the government to the
risk of land not being available for the depot thereby bringing in a possibility of derailing
the project. The issue was finally resolved by the private owner of the land agreeing to
allocate 75% of the land for the development of the project on the condition of the
government granting him the right to the Floor Space Index (FSI) available over the entire
plot of land for 25% of the land. This land has been provided on a nominal lease rent to
the concessionaire for the concession period. It is recommended in the future concerns
such as these are addressed before the project procurement stage itself to ensure smooth
functioning of the project.
5. Clear Specifications on Asset Transfer on termination: On the termination of the project
through the efflux of time, 5 years before the expiry of the concession period a survey of
the assets would be carried out to determine whether they are in working condition as
given in the agreement. The survey is to be carried out by an independent engineer based
on a schedule of specifications on the condition of assets. However, the schedule in the
concession agreement does not have clear and robust specifications. There is thus a risk
of a difference of opinion between the concessionaire and the government and this can
potentially lead to a dispute. The government could manage this better by incorporating
clear and robust specifications on the condition it would want the assets to be handed
over to the government.
6. Public Support for the project: For a project of this magnitude, it is important for the
government agency to garner adequate public support to ensure smooth implementation.
MMRDA ensured adequate public support for land acquisition and road expansion
activities by a dialogue with the affected individuals. Despite these efforts, the project was
susceptible to delays and similar difficulties are also being experienced in phase 2 of the
project.
7. Role of Good Project Preparation:The viability gap funding used in the project (` 650 crore)
makes up a significant component (27.5 percent) of the project cost. This project cost has
been shared between the central and state governments. The initial quote submitted by
the successful bidder quoted an amount (` 1250 crore) which was subsequently revised to
the current figure through negotiations. Thus, there is an increased need for good project
preparation prior to the procurement process to ensure that the fair bids are received
for the projects. This would eliminate private operators colluding with each other and/or
speculative bids.

Concession Agreement between Reliance Energy, MMRDA and Veolia Transport
Shareholders Agreement
State Support Agreement
Website Mumbai Metro One Private Limited
General articles in periodicals and publications
Interviews:
120
Mr.V. Sivakumaran, Special Officer on Duty, MRTS Cell, MMRDA
Mr. R. K. Madan, Special Officer on Duty, MRTS Cell, MMRDA
Sixteen
Case Study 13:
Hyderabad Metro
Hyderabad is a growing city that covers 625 square kilometres of municipal corporation area
and 6,852 square kilometres of metropolitan area (Metropolitan area includes 16 mandals in
Hyderabad District, 22 mandals in Ranga Reddy District, 10 mandals in Medak District, 5 mandals in
Nalgonda District and 3 mandals in Mehboobnagar District). It is a hub for Information Technology
/ Information Technology Enabled Services (IT/ITES), Biotech and Pharmaceutical sectors along with
being a tourist attraction.
The burgeoning population has put Hyderabads transportation system under immense pressure.
The city requires a robust, dependable, comfortable, affordable and sustainable transportation
system. To address this need, the Government of Andhra Pradesh (GoAP) has planned a Mass
Rapid Transit system (MRTS) covering three high traffic density corridors of Hyderabad. The
project is planned to be developed on a PPP basis through the Build Operate Transfer (BOT)
mode.
This project will cover 3 dedicated elevated corridors i.e. Corridor 1: Miyapur L. B. Nagar (29.87
kms) having 27 stations, Corridor 2: Jubilee Bus Stations Falaknuma (14.78 kms) having 16 stations
and Corridor 3: Nagole Shilparammam (26.51 kms) having 23 stations.There will be three depots,
one for each Corridor, located at Miyapur, Falaknuma and Nagole. Corridors 1, 2 and 3 will be
designed for peak hour peak distribution traffic (PHPDT) of 50,000, 35,000 and 50,000 respectively.
The speed of the system would vary from 34 kmph to 80 kmph and the trains would have a
frequency of 3 to 5 minutes.

Hyderabad Metro Rail Ltd, a fully owned Public Sector Undertaking of GoAP is currently
implementing the Hyderabad Metro Rail Project.The project is to be developed under a concession
agreement on BOT basis for a period of 35 years, including a construction period of 5 years. Under
the concession agreement, the operator has to design, finance, construct, operate, and maintain the
3 corridors and transfer the assets at the end of the concession period.
The assets of the project include the viaduct, stations, bridges, depots, rolling stock, signalling system,
traction systems, communications systems, track work, fare collection system, etc.The assets would
be constructed or procured through contractors and equipment suppliers.
In addition, the operator would also have access to the commercial development of land available at
the depots (212 acres) and 10% of the carpet area of the station sites identified in the concession
agreement. This aggregates to a cumulative maximum of 12.5 million square feet in the case of
depots and a cumulative maximum of 6 million square feet in the case of stations. The SPV would
also be allowed to undertake real estate development over the parking and circulation areas at
stations. All the real estate development related assets created under the project would also be
considered the assets of the SPV which would be handed over to the Government at the end of
the concession period of 35 years.
121

A Special Purpose Vehicle (SPV) named Maytas Metro Limited (MML) was formed with Maytas
Infrastructure holding 26% equity, Government of Andhra Pradesh (GoAP) holding 11% Nav Bharat
Ventures holding 16% and IL&FS and Ital-Thai holding 5% each. MML owned the remaining 37%,
which it proposed to sell partially or completely, at a premium by roping in more partners.
16.3 Current Status

The Maytas consortium was awarded the contract for the Hyderabad Metro in July 2008 and
the concession agreement was signed on 18th September 2008 between MML and the GoAP. The
consortium had to achieve financial closure and deposit a performance guarantee of ` 240 crore
for the project before March 17, 2009.
The promoter of Maytas Limited was Teja Raju, the son of R. Ramalinga Raju, founder and chairman
of Satyam Computer Services (SCS). The Raju family held an over 36 percent stake in Maytas Infra
Limited. The SCS irregularities, perpetrated by R Ramalinga Raju, which surfaced in late December
2009, with an abortive bid by SCS of Maytas Infrastructure Limited, were the start of the problems
for the Hyderabad Metro. Lenders lacked confidence in the promoters of Maytas and the consortium
was unable to raise the performance guarantee and achieve financial closure despite a grace period
of around 4 months. Consequently, on July 7, 2009, GoAP cancelled the contract awarded to the
Maytas consortium and a decision to re-bid the project was taken.
GoAP launched the rebid with the issue of the RFQ on July 16, 2009. 8 bidders qualified for the RFP
process and were asked to submit financial bids for the project by June 07, 2010.

The total cost of the project was estimated at ` 11,814 crore. While the Government of India had
approved a viability gap of ` 3,500 crore for the project, MML had quoted a negative viability gap
funding and thus did not seek VGF support for this project.
The consortium quoted a negative viability gap (i.e. the consortium would pay the government)
with a present value of ` 1,240 crore (discounted at 13.5 percent). This amount was proposed to
be paid by the consortium over a period of 35 years as per the following schedule.
Table 32
Amount was proposed to be paid by the consortium

Concession Year
Payment
Upfront
` 11 crore
Appointment Date
` 50 crore
4th Year
` 200 crore
7th to 9th Year
` 100 crore
18th to 34th Year
` 1,750 crore
20th to 35th Year
1% of the net realisable fare in the 20th year, 2% of

the net realisable fare in 21st year and so on.
The cost of the project was to be financed with a debt to equity ratio of 2:1. Therefore the
consortium had to raise debt of ` 7,876 crore and contribute equity of ` 3,938 crore without any
VGF support.
122
Process Analysis
Figure 13
Project Life Cycle
Incepon
Feasibility
Procurement
Development
First Round
First conceptualized in 2005
Feasibility Study during 2005
Invitaon of Bids in November

2005
Selecon of Maytas Infra as the

preferred bidder on July 2008
Cancellaon of contract with

Maytas Infra due to non
payment of performance
guarantee and inability to
achieve financial closure. Fresh
bid launched.
Delivery
Exit
Conceptualisation and Feasibility
The Government had been exploring the viability of various mass transit systems that are efficient,
economically viable and environment friendly in Hyderabad.
In this context, a detailed feasibility study was carried out by the Delhi Metro Rail Corporation
(DMRC) in 2005. The study recommended a metro length of 61 kms over 3 corridors. However,
the government increased the length of line 3 by 5 kms. The study further recommended that
property development would be required to partly fund the cost of the project and that the
Hyderabad Metro be bid out on a BOT basis. It also recommended a VGF of around 40% of the
project cost to make the project potentially bankable and economically viable.
Procurement
The project was approved by the GoAP and global bids were invited through an Expression of
Interest-cum-Request for Qualification (EoI-cum-RFQ) in November 2005. The EOI-cum-RFQ had
stringent technical and financial criteria. The following seven consortia submitted their EOI along
with their bids for pre-qualification.

Essar Constructions (Mumbai), Srei (Kolkata), SembCorp, STE (Singapore) and Singapore
MRT;
Magna Allmore (Malaysia), Siemens AG (Germany), ETA (Dubai) and NCC (Hyderabad);
Reliance Energy (Mumbai) and Bombardier (Canada);
123

Metrail (Switzerland), Macquarie Bank (Australia) and MMC (Malaysia);
GVK (Hyderabad), Gammon India (Mumbai), Alstom (France) and IDFC;
Maytas (Hyderabad), Navabharat (Hyderabad), ItalThai (ITD-Thailand)
ITD cem (Delhi); and IVRCL (Hyderabad), Hitachi (Japan) and BHEL.
Five of these consortia were pre-qualified by the GoAP, with the Metrail and ITD Cem consortia
not qualifying. The Government of India considered the project for financial assistance under the
VGF scheme and then allowed the GoAP to proceed with the RFP Process.
The RFP document, including the model concession agreement, manual of specifications and
standards as well as the state support agreement, was issued to all the pre-qualified bidders in May
2007. The RFP process comprised technical and financial proposals. All the pre-qualified consortia
qualified technically and were asked to submit their financial bids in May 2008.
The Maytas-led consortium agreed to pay ` 30,311 crore to the government during the concession
period of 35 years, while the Magna Allmore led consortium agreed to pay ` 250 crore to the
government. The two other bidders--Reliance sought a VGF grant of ` 2,811 crore from the
government and Essar sought a grant of ` 3,100 crore respectively. The GVKled consortium did
not submit a financial bid. Based on these bids, the Maytas consortium was awarded project.
Development
The project was to achieve financial closure by March 17, 2009.
Major milestones achieved in the development phase are presented below:

The SPV was incorporated in September 2008.
Signing of the Concession Agreement and Shareholders agreement took place on

September 18, 2008.
Extension granted for financial closure and performance guarantee on March 17, 2009.
The Concession Agreement with Maytas Metro was eventually cancelled on July 7, 2009 due to the
failure of MML in arranging the Performance Security and achieving financial closure for the project
Due to the large differences between the bids submitted by each of the consortia the GoAP took
the decision to re-bid the project. The RFQ for the new process was released on July 16, 2009
and the date for the submission of the RFQ was January 16, 2010. 8 bidders qualified for the RFP
process and were asked to submit financial bids for the project i.e.
1. Larsen & Toubro Ltd;
2. Lanco Infratech-OHL Concesiones SL consortium;
3. Reliance Infrastructure-Reliance Infocomm consortium;
4. Essar-Leighton-Gayatri-VNR consortium;
5. GVK-Samsung C&T Corporation consortium;
6. GMR Infrastructure Ltd;
7. Transstroy-OJSC Transstroy-CR 18G-BEML consortium; and
8. Soma-Strabag AG (Austria) consortium.
The date for the submission of RFP bids was revised to June 07, 2010.
124

Risk Type
Sensitivity
Table 33
Risk Period
Primary
Risk Bearer
Comments
Pre-Operative Risks
Delays in land
acquisition
High
0-5 years
Government
The land has to be handed over to the concessionaire

on or prior to the Appointed Date (i.e. date on which
financial closure is achieved). Further, up to 90% of
the land has to be handed over to the concessionaire
within 120 days of signing of the agreement
(contingent on paying of Payment Security). This
is a Condition Precedent for the Agreement. The
government is liable to pay damages to the tune
of 0.1 percent of the Performance Security (` 240
crore) for each day of delay. If the GoAP is not able
to provide access to the remainder 10% of the land
for reasons other than a Force Majeure, it shall pay
the Concessionaire damages to the tune of ` 1000
per day for every 500 square meters, commencing
from the 91st day of the Appointed Date.
Financing
Risks
Medium
0-5 years
Private
Operator
The Concessionaire has to achieve financial closure

180 days after the signing of the contract. GoAP can
extend the date for financial closure for a further
120 days in case the private operator cannot achieve
financial closure. The Concessionaire would be
liable to pay damages to the tune of 0.1 percent
of Performance Security for every day of delay in
achieving financial closure. The GoAP has the right
to cancel the contract after a period of 6 months
from the signing of the contract.
Planning
Medium
0-5 years
Private
Operator
The risk for the planning and execution of the project

vests with the private operator. It needs to execute
the project in conformance with the detailed design
and construction methodology, quality assurance
procedures and the time schedule for completion
of the Project as submitted by the private operator
to the GoAP on or before the Appointed Date. The
project is also subject to a review by the Independent
Engineer appointed for the project.
Regulatory,
administrative
& approval
delays
Low
0-5 years
Private
Operator
This private operator has to obtain all applicable

permits/clearances from the GoI/GoAP with regard
to the implementation of the project. This is a
Condition Precedent. However, if the GoI/GoAP
inordinately delay the project applicable permits so
as to cause a Material Adverse Effect then GoAP
shall not terminate the agreement
Construction Phase Risks

Design Risk
Medium
0-5 years
Private
Operator
The private operator has to submit all the drawings

and the schedule of the project to the GoAP. These
have to be reviewed by GoAP and scrutinised by the
Independent Engineer.The GoAP is not liable for any
delays caused due to late submissions of drawings
of the project.
Construction
Risk
Medium
0-5 years
Private
Operator
The Concessionaire has to provide a Performance

Security of ` 240 crore for the performance of its
obligations. This security has to be renewed from
time to time and replenished within 30 days. The
Concessionaire is also liable to pay damages at the
rate of 0.1 percent of the Performance Security/day
if it fails to achieve any milestone. Further, the private
operator has to submit monthly progress reports
and allow the Independent Engineer to inspect the
progress of construction. The Independent Engineer
has to subject the metro system to test and provide
a provisional completion certificate.
125

Risk Type
Sensitivity
Risk Period
Primary
Risk Bearer
Comments
Change in
Scope Risk
Low
0-5 years
Government
If the government requires additional works and

services which are beyond the scope of the project,
such a change in scope shall be made by GoAP by
an order, giving consideration to the operations and
maintenance costs which would be spent by the
private operator and then subsequently reimbursed
by GoAP
Financing Risk
Medium
0-5years
Private
Operator
The private operator is solely responsible for

arranging financial closure for the project. The
private operator has to achieve financial closure
within 180 days. The government may provide an
additional period of 120 days after this period
subject to the payment of damages (0.1 percent of
Performance Security) per day of delay.
Operational Phase Risk
126
Technology
Risk
Low
0-35 years
Private
Operator /
Government
The technology risk vests with the both the private

operator and the government as the project would
be executed in conformance with the detailed design
and construction methodology, quality assurance
procedures and procurement of engineering and
construction time schedule for completion of the
Project as submitted by the operator to the GoAP
and approved by the Independent Engineer.
Operations &
Maintenance
Risk
Medium
0-35 years
Private
Operator
The private operator has to submit a maintenance

manual and maintenance program to GoAP for
approval and needs to comply with the requirements
in the same. In case of non-compliance with these
requirements the government has the right to
undertake and complete these requirements by
itself and recover 120% of the costs associated
with completing these requirements or even initiate
termination proceedings if necessary. The private
operator can mitigate this risk as he is allowed to
appoint O&M contractors for the running of the
system
Market Risk
High
0-30 years
Private
Operator /
Government
The private operator will levy and collect the fares

from the users of the Metro and is entitled to
revise these fares upto 60% of the Wholesale Price
Inflation in the previous year. The private operator
shares the traffic risk with the government. The
government would provide a revenue shortfall loan
to the tune of the revenue shortfall at at an interest
rate 2% above the standard bank rate specified by
the RBI. In the event of the actual traffic falling short
of the target traffic by more than 2.5 percent, on
a pre-determined target date (1 October 2011),
the concession period shall be increased by 1.5
percent of the concession period thereof for every
1% shortfall compared to actual traffic. In the event
the actual traffic is more than target traffic then the
concession period will be reduced by 1% for every
1% reduction in traffic.
Performance
Risk
High
0-30 years
Private
Operator
The private operator has to provide a Performance

Security of ` 240 crore for the performance of its
obligations. Further, the private operator is not
allowed a change in ownership that causes the
aggregate holding of the Consortium Members,
together with their Associates in the total equity to
decline below 52 percent during a period of 5 years
following the Commercial Operations Date of the
Metro System and 26 percent during the rest of the
concession period. Any change of equity greater than
15 percent would require prior written approval of
the government.
Risk Type
Sensitivity
Risk Period
Primary
Risk Bearer
Comments
Handover Risks
Handover
Risk
Low
35th year
Private
Operator
A joint inspection would be conducted by the

private operator and GoAP, 90 days before the
termination of the Agreement.This would be verified
by an Independent Engineer and the private operator
would have to pay the charges for compliance with
the serviceability requirements, if found deficient.
Private
Operator
Event of
Default
Low
0-35 years
Private
Operator
Only lenders are protected and the equity holders

bear the major risk. (GoAP is liable to pay 90%
of debt due less insurance claims) and 70% of
Additional Termination Payment comprising Real
Estate Development and any other assets (as valued
by an Approved Valuer) developed after the 5th
anniversary of the Commercial Operations Date.
GoAP Event
of Default
Low
0-35 years
Government
GoAP is liable to pay 150% of adjusted equity, 115%

of Concession Royalty Payments which have already
been paid to the GoAP, Debt due and 115% of
Additional Termination Payments comprising Real
Estate Developments and any other assets).
Force
Majeure
Low
Throughout
Private
Operator
Force Majeure risks are transferred to the extent

of insurance, but are largely borne by the private
sector. In case of a Force Majeure event before
the financial closure date, the project completion
date and concession period would be extended.
Compensation for Force Majeure arising out of a
direct political event would be paid to the extent of
a termination payment arising out of a government
event of default. The compensation shall include
O&M expenses, debt, additional termination
payments and increases in cost of construction.
Change in
Law Risk
Low
Throughout
Private
Operator
No compensation due from the government,

although an enabling provision to mutually discuss
in good faith to suitably amend the terms of the
concession agreement, including extension of
concession if the financial effect of the change in law
is greater than ` 1 crore and 0.5% of the Realisable
Fare in the Accounting Year. GoAP is required to
make amendments to the Agreement so as to enable
the private operator to be in the same financial
position as it would be had there been no Change
in Law.
Other Risks

A VfM qualitative assessment based on publicly available information and discussions with officials
working on the project has been attempted on account of the limited availability of financial data
on the project.The following major factors listed below have contributed toward creating value for
money for the state government in relation to this project:
1. Reduction in financial burden on the state budget: The PPP project was structured to
ensure that it was viable by providing a viability gap funding for the project. The lowest
financial bid quoted was in fact a negative viability gap funding of ` 1,204 crores (present
value terms). The government is only committed to compensating the concessionaire
for expenses incurred towards shifting of public utilities on the right of way. Thus the
government is able to achieve, through private sector participation, the construction and
operations of a critical infrastructure facility for a period of 30 years with a reduced
requirement of upfront money.
2. Substantial risk transfer: The private sector is to undertake substantial project risks, such
as financing, construction, operations and revenue risks. The transfer of major risks during
127

the operational phase along with imposition of a stiff performance security (` 240 crore)
ensures that the private operator places its best efforts in the operating the system so as
to ensure sustainability of operations.
While the above factors do point to the fact that there was substantial merit in adopting the PPP
approach, we must acknowledge the implicit risks that the public sector would continue to retain. In
this case the project itself was scrapped and a re-bid ordered.There have been several international
precedents where governments have had to either taken back certain risks or cancelled ailing
public infrastructure projects on the grounds of protecting public interest. Indeed, such financial
support or bail-out packages were perhaps, necessary for those economies. However, these are
implicit risks for the government due to the nature of public service or infrastructure facility being
rendered and the governments stated or implicit obligations to its citizens for the provision of the
same should be noted.

1. Real Estate Development: The government provided commercial development rights
for almost 296 acres of land to the Concessionaire which essentially consisted of land
allocated for the depots and land for the stations. The real estate development allowed
in the case of depots was a cumulative maximum of 12.5 million square feet and in the
case of stations was a cumulative maximum of 6 million square feet. The total value of real
estate development aggregated to a substantial percentage of the project cost.

project led to widely divergent bids from the bidders. The bids were on the basis of the
consortium recovering its capital investment from the real estate development. While the
Siemens Consortium bid a negative viability gap of ` 250 crore, the Maytas Consortium
bid a very high a negative viability gap of ` 30,311 crore. On the other hand, the two other
bidders--Reliance sought a VGF grant of ` 2,811 crore from the government and Essar
sought a grant of ` 3,100 crore.
The real estate market is very volatile and cyclical in nature. An adverse outlook for
the sector would have the risk of compromising the development and construction of
the project. Thus, ideally real estate development should be a smaller component of the
project which would allow the private operator to complete the project despite downturn
in the real estate sector. DMRC, which conducted the feasibility study for the project, in
fact recommended that the quantum of real estate development should ideally be not
more than 7-8 percent of the total project cost.
Moreover, real estate development typically provides faster returns on capital invested
than investment in the metro rail system. A large component of real estate development
would expose the project to the risk of the actual construction and quality of the metro
being compromised as the private operator would have a greater incentive to complete
the real estate development rather than constructing the metro.
An alternative available to the government was to undertake the real estate development
by itself and/or bringing in a private operator to develop this land through a separate
procurement process. This development revenue could have been used to cross-subsidize
the construction/operational phase of the project.
Another alternative would have been to break-up the project into smaller components
(e.g. The 3 corridors could have been bid out to different bidders to minimize the risk of
operator default.)
2. Traffic Risk: The concession agreement transferred the traffic risk to a large extent on
to the government. As per the agreement, if the target traffic was lesser than 275 lakh
passenger kms then the concession period would be increased. Similarly, if the traffic was
128
more than the target traffic, the concession period would be reduced. Ideally such traffic
estimates should not be a part of the Concession Agreement and this market risk should
totally vest with the Private operator. This would incentivise the operator to provide a
better level of service and thus increase the number of passengers travelling on the Metro
line.
3. Right of Way: The creation of the right of way for the viaduct of the Hyderabad Metro
also posed a major challenge as the proposed route passed through populated areas of
the city. This hurdle was overcome by using persuasive techniques like giving an additional
Floor Space Index (FSI) for development. The local municipal corporation i.e. Greater
Hyderabad Municipal Corporation (GHMC) was also closely involved in this negotiation
process. The project also attempted to mitigate the risk of the project being stalled due
to vested interests and/or affected private parties by using government lands for the
developments of depots, stations etc. as much as possible.
4. Promoter Backing: The winning consortium of Maytas Metro was adversely affected
due to the issues besetting the promoters of the Maytas Infrastructure Limited. The
perpetrator of the SCS irregularities i.e. R Ramalinga Raju owned a stake in Maytas
Infrastructure which was promoted by his son Teja Raju. Though the Maytas Metro
Project was to be implemented as a separate Special Purpose Vehicle there was a loss of
investor confidence in the promoters of the project. Consequently, the project was not
able to achieve financial closure. Thus, promoter profile and backing is critical to project
sustenance and success.

Concession Agreement between Maytas Metro Limited and Government of Andhra

Pradesh
Model Concession Agreement
Website of Hyderabad Metro Rail
Interviews:

Mr. N.V. S. Reddy, Managing Director, Hyderabad Metro Rail Limited
Mr. N. Shivakumaran, Officer on Special Duty, MRTS, MMRDA
129

Seventeen
Case Study 14:
Bhiwandi Electricity Distribution
Franchisee
The worsening power deficit scenario in Maharashtra warranted immediate action on the part of
the Maharashtra State Electricity Distribution Company Limited (MSEDCL). Since the gestation
period for addition of generation capacity is long, MSEDCL decided to focus on load-side energy
management and utilise the savings thereof to curtail the growing deficit to some extent. MSEDCL
also decided to bring in private sector expertise for increasing efficiencies in the distribution system
in certain selected circles (networks) through a distribution franchising arrangement.
The Electricity Act 2003 allows the holder of a distribution licence to contract out some or all
of the distribution activities to a franchisee. The distribution franchise arrangement applied to the
distribution circle in the town of Bhiwandi, about 48 km north-east of Mumbai is a pioneering project
and the first input distribution franchisee project following the introduction of the concept in the
Electricity Act. In an input model, the agency is responsible for supply of power at the input point
and the franchisee is responsible for all obligations of distribution license in the franchisee area i.e.

Supply of power
Consumer Service
Operation and maintenance of distribution network
Billing and Collection
Compliance with regulatory standards
Bhiwandi was chosen for the project since it had a reputation of being a chronic defaulter on its
power bills and had a poor distribution network with a very high level of Aggregate Technical and
Commercial (AT&C) losses. It had, at the time, 160,000 customers (total population of about one
million) over a geographical area of 721 sq kilometres. The power demand of the Bhiwandi circle,
with a significant number of textiles /garment manufacturing units (mainly power looms), at the
time, was about 800 MVA, translating into an annual energy input of about 2,500 gigawatt hours
(GWh).
Torrent Power AEC Limited (TPAL) was the private entity appointed by MSEDCL for this project.

The Distribution Franchisee Agreement (DFA) for the Bhiwandi circle is valid for an initial term of
10 years. The structure of the distribution franchisee model is as follows:
130
MSEDCL continues to be the distribution licensee and authorises the franchisee to

distribute electricity on its behalf in a specific area (Bhiwandi distribution circle).
The franchisee has the right to use the distribution assets of MSEDCL in the franchise area
for carrying out his responsibilities and obligations.
The franchisee is responsible for the following functions of the MSEDCL for the term of
the DFA:

Distribution and supply of power to the consumers of MSEDCL in the franchise area,
Operation and maintenance in the franchise area,
Metering, billing, collection and all such consumer related services,
Compliance with all the standards including the Electricity Supply code and the
Standards of Performance and other regulatory provisions.
MSEDCL is committed to provide a certain minimum quantum of electricity at identified

input points to the distribution franchisee.The franchisee makes payments to MSEDCL for
supply of power at a pre-determined tariff referred to as the input rate.The input rate was
the key bidding parameter, determined at the time of evaluation of bids. The franchisee is
allowed to procure additional power for supply in case of shortfall, from the sources other
than MSEDCL.
MSDECL has to incur a certain minimum capital expenditure towards the distribution
network as per its minimum investment plan for five years.
The franchisee is given full autonomy for planning and execution of its capital expenditure
(other than the capital expenditure planned and committed by MSEDCL) with the
objective of meeting an agreed minimum reduction in losses and improvement in collection
efficiency. The value of any assets added has to be certified by MSEDCL as acceptable.
The consumers are charged the same tariff as applicable to other consumers of MSEDCL,
and as determined by the independent regulatory agency Maharashtra Electricity
Regulatory Commission (MERC).
MSEDCL will make termination payments to the franchisee upon expiry or in the event of
default by MSEDCL / franchisee for the capital expenditure incurred by the franchisee at
the depreciated value of the distribution assets created.
17.3 Current Status

The project is operational. The process of handing over assets to the private sector entity, TPAL,
started in July 2006 after the issue of the Letter of Intent (LoI) to TPAL.TPAL took over operations
from MSEDCL with effect from 26th January 2007 after the DFA was executed in December 2006.
TPAL has completed close to three years of operations as the distribution franchisee for the
Bhiwandi circle.

As per the franchisee agreement, MSEDCL was required to invest a minimum capital expenditure of
` 61 crores, over a 5 year period, towards the upgradation of the distribution network, while TPAL
was required to additionally make capital investments in the franchisee area to improve efficiencies,
upgrade the network, etc. Since the takeover of operations, TPAL has invested over ` 250 crores
towards improving the network and services in the Bhiwandi circle.

Inception:
The Bhiwandi circle had one of the worst performances among distribution circles in Maharashtra.
In the five years between Financial Year (FY) 2002-07, revenues from the circle stagnated at about `
240 crores despite the sale of power in physical terms going up by over 42% to 1.225 billion units.
131

The situation in the Bhiwandi circle at the time of takeover was as follows:

Aggregate technical and commercial (AT&C) losses - 58%
Mandatory load shedding of 6 hours per day
Distress load shedding due to a deficit of 300 MVA in Extra High Voltage (EHV) network
Transformer failure rate of 40%
Unregistered customers
Poor reliability of supply and frequent incidents of appliance failure
This poor performance was on account of the following reasons:

There had been effectively no capital investment in Bhiwandis distribution network in

the last decade or so. This had resulted in a high level of network overloading and a high
transformer failure rate.
Getting official connections or an additional load sanctioned was very difficult and time
consuming, leading to an increasing tendency on the part of consumers to resort to illegal
connections.
In an effort to solve problems of high distribution losses, lower collection efficiency, and inefficient
distribution network, MSEDCL decided to utilize the provisions of Electricity Act 2003 and bring in
private expertise through distribution franchising in the Bhiwandi circle.

Conceptualisation: The concept development phase involved analysing various forms of
distribution models to enable selection of the most suitable project structure. This involved
identification of various technical and / or commercial services, forming the financial and commercial
structure of the model, development of performance benchmarks for monitoring, etc. An input
based distribution franchisee model was proposed for Bhiwandi.
In an input based distribution franchisee model, the franchisee is primarily responsible for supply
of electricity, network related capital investments, the operation and maintenance of the network
and consumer services including billing and collection. The purchase of power is primarily at a predetermined rate i.e. the input rate from the licensee, thus significantly removing the uncertainty
linked to high power procurement costs. Also, since there is no transfer of assets or shares, the
valuation of assets is not necessary, although a joint audit of key parameters and assets needs to
be conducted.
Discussion with stakeholders: The proposed structure was discussed with all concerned
stakeholders including prospective investors, prior to finalisation. Various issues relating to the
baseline data, human resources, arrears, regulatory risk were discussed and necessary amendments
were made. The issues and the solution for addressing the same have been discussed in Table 34.
Table 34
132
Issues and solution

Key Points of Discussion
in Stakeholder Meetings
Challenges / Issues Raised By

Stakeholders
Solution / Action
Opening level data
Investors had concerns on the reliability Sufficient opportunity was provided to

of opening level data on distribution losses bidders to carry out a due diligence of
and collection efficiency, since it was the existing performance.
basis for financial calculations for the bids,
and impacted business profitability.
Regulatory uncertainty
Since tariff was regulated, investors had

concerns whether tariff increases in
the future would be adequate to fully
compensate for an increase in power
purchase costs.
The franchisee was largely insulated against

power purchase costs changes as the bulk
supply tariff was indexed to the average
retail tariff.
Key Points of Discussion

in Stakeholder Meetings
Challenges / Issues Raised By

Stakeholders
Solution / Action
Commitment of
minimum input power
from MSEDCL
There was no commitment from MSEDCL

to supply power to Bhiwandi. Revenues
from sale of power were directly linked
to energy received by the Distribution
Franchisee. Thus, the investors wanted
MSEDCL to commit a minimum level of
energy input.
MSEDCL committed to provide minimum

input level of energy linked to the FY 2006
level of 2,426 GWh.
Capital expenditure
Since MSEDCL was better aware of the

condition of physical assets in Bhiwandi,
investors proposed that MSEDCL should
suggest and commit capital expenditure to
improve the system.
MSEDCL decided to commit ` 61 crores

towards capital expenditure over the first
5 years. The distribution franchisee was
free to invest over and above this.
Employee deputation
MSEDCL employees had concerns about

their terms of service and enforceability of
deputation.
MSEDCL employees were given the option

to work on deputation with the franchisee.
The franchisee was to offer equal or better
terms to such employees. Employees were
also given the right to return to MSEDCL.
At the same time, the DF was also given the
opportunity to select employees required
to run its operations. It had full rights to
cancel the deputation of any MSEDCL
employee, if found unsuitable.
Past period receivables
The investors pointed out that collection of

current bills would be their focus and they
should have separate financial incentives to
collect past arrears of MSEDCL.
The franchisee was offered an incentive

@10% of the total amount net of taxes
collected from consumers who had arrears
pending more than three months prior to
the effective date but were still connected.
For collections from disconnected
consumers, the incentive was @ 20%.
Existing contracts
Some investors wanted flexibility to

terminate existing operational contracts of
MSEDCL.
The same was incorporated in the final RfP

and DFA.
After due consultation with all the stakeholders, the input based franchisee structure was finalised
for implementation.
Procurement:
Expression of Interest (EoI): MSEDCL developed the principles of EoI and sought submissions
by 8th April 2005. An overwhelming 116 applications were received.
RfP Process: The transaction was a single stage bidding process, wherein the bidders were asked
to submit a technical and financial proposal.The RFP was issued on 10th February 2006.The following
five bidders purchased the bid documents:

M/s Tata Power Company Limited
M/s Torrent Power AEC Limited (TPAL)
M/s Crompton Greaves Limited
M/s Reliance Energy Limited
M/s Subhash Projects & Marketing Limited
Two bidders namely, TPAL and M/s Crompton Greaves Limited submitted their offers along with
the necessary documents on 20th April 2006.
The evaluation criteria for the technical bid were based on two parameters, namely, Experience and
Track Record and the Financial Capability of the bidder.
133

Table 35
Experience and Track Record

S. No.
Parameter
Indicator
1.
Experience in handling retail consumer

base or experience in employee handling
No. of consumers (at least 2 lakh consumers)

OR
No. of employees (at least 500 employees for 2 years)
2.
Table 36
Relevant Experience of key Personnel
Experience in power sector related activities At least 5

personnel with power sector experience of more than 10 years
Financial Capability
S. No.
Parameter
Indicator
1.
Size of operations
Net worth At least ` 50 crores for the last financial year
Annual Turnover At least ` 250 crores for the last two

financial years
2.
Support from internal accruals
Cash flow from operations - At least ` 25 crores for the last

two financial years
3.
Corporate Governance
Listing on a recognized stock exchange
The financial bid was based on the levelised (annualised) input rate to be quoted by the bidder for
the power inputted by MSEDCL. The bidder was required to quote the levelised input rate for the
franchisee period after factoring in the stipulated minimum loss reduction and collection efficiency
improvements. MSEDCL had also set internal input rate benchmarks for evaluating the financial
bids.
After the technical evaluation, both the bidders were declared technically qualified and eligible for
opening of price bids.The financial bids were opened on 10th May 2006 - Crompton Greaves quoted
a levelised tariff of ` 2.02 per unit while TPAL quoted ` 2.04 per unit as input rate. As TPAL quoted
the higher bid among the two, it was declared selected bidder.
The RfP contained only principles of franchisee agreement. The agreement was finalised after
negotiations between TPAL and MSEDCL. Subsequent to signing the DFA on 20th December 2006,
on 25th January 2007, a day before TPAL took over operations at Bhiwandi on 26th January 2007, a
supplementary agreement to DFA was signed between MSEDCL and TPAL. This agreement made
some improvements / corrections in the DFA.
Development:
The process of handing over of electricity distribution assets started in July 2006 after the issue of
the Letter of Intent (LoI) to TPAL.The following activities were completed as a part of the handover
process:

MSEDCL continued its own operations and in parallel helped TPAL in establishing its
presence in Bhiwandi.
A joint audit team comprising representatives of MSEDCL and TPAL was formed to
confirm opening level details.
A walk down survey for counting and verification of all the assets was conducted.
An infrastructure roll out plan as per the terms of the agreement was submitted.
Offices and IT infrastructure were established and staff was recruited.
This handover phase from MSEDCL to TPAL lasted till January 2007 by when all the conditions
precedent in the DFA were satisfied.
134
Delivery:
TPAL has completed over two years as the distribution franchisee for the Bhiwandi circle. TPAL,
on takeover of the area, did a consumer survey and started regularizing illegal connections. Post
creation of new assets, it concentrated on augmentation and overhaul of the existing distribution
lines. TPAL also invested in improving the metering system of consumers. All these actions resulted
in a reduction in distribution losses and an improvement in the collection efficiency in the Bhiwandi
circle. The results to date have been positive and are summarised below:

AT&C losses are estimated to have declined by 34% in the first two years of the franchise,
to 24% (12-month moving average) at the end of FY2008-09 (from 58% in December
2006, just before handover). Based on the pre-PPP project energy input of 2,500 GWh for
the Bhiwandi circle and using a per unit rate of 2 K/kwh, the annual value of the reduction
in AT&C losses can be pegged at about ` 170 crores, as against capital investment of about
` 250 crores by the DF over this period.
The consumption of electricity increased from ~2,200 GWh to ~ 3,000 GWh.
Approximately 55,000 new connections have been added including the regularised ones
The distribution transformer failure rate has reduced from 40% at the time of handover
to 7.5% at the end of FY 2009.
The duration of load shedding has reduced form 6 hours a day to 3.5 hours a day.
The metering coverage has increased from 23% at the time of handover to 95%
Consumers are satisfied due to the improvement in quality in power supply, faster
processing of applications for new connections, better complaint handling and easy bill
payments.
TPAL focussed on three important areas namely network upgradation, loss reduction and consumer
services to achieve the above results. The actions taken by TPAL are summarised below:

Immediately after the handover, TPAL initiated the process of regularisation of illegal
connections and metering. It replaced all existing meters with accurate and tamper proof
meters to ensure that all consumers are billed as per consumption.
TPAL conducted a survey jointly with Maharashtra State Transmission Company Limited
(MSETCL) for augmentation of the EHV capacity and prepared a 3 year EHV augmentation
plan which included reconfiguration of the EHV lines, addition of power transformers and
EHV substations and feeders. TPAL has added a total EHV capacity of 250 MVA in the
Bhiwandi area by the end of FY 2009.
TPAL replaced 1,700 distribution transformers and added a further 241 new distribution
transformers, thereby reducing the transformer failure rate.
TPAL also improved customer services by introduction of 24X7 call centre facility, online
collection centres, user-friendly bills, extending the operating time for customer care
centres and public awareness and community development activities.

Risk Type
Pre-Operative Phase Risk
Sensitivity
Table 37
Risk Period
Primary
Risk
Bearer
Comments
The distribution franchise was an

operating business at the time of
handover. Therefore, this risk category is
not applicable
135

Risk Type
Sensitivity
Risk Period
Primary
Risk
Bearer
CONSTRUCTION PHASE
RISK
Comments
The distribution franchise was an

operating business at the time of
handover. Therefore, this risk category is
not applicable.
Operations Risk
Procurement risk
High
10 years
Shared
MSEDCL is obligated to supply the agreed

quantum of power in absolute terms
and at the agreed input rate payable by
distribution franchisee. The distribution
franchisee may procure power from
other sources for any shortfall.
Tariff Risk
High
10 years
Shared
The tariff charged to the consumer is

regulated. At the same time, the input rate
i.e. the cost of power purchase is indexed
to the changes in the consumer tariff.
Thus in case of an increase /decrease in
tariff, the input cost for the franchisee will
also increase / decrease in line with the
formula prescribed in the DFA. However,
on a net basis, there will be some impact
on the cash flows of the franchisee.
Market Risk
High
10 years
Distribution
franchisee
The market risk in terms of power

consumption, consumption growth, and
consumer mix in the Franchise Area
is borne by the Franchisee. Since the
input rate bid by the franchisee is based
on projections with consumer mix and
consumption growth assumptions, nonachievement of the same can adversely
impact the franchisee cash flows.
However, the distribution franchisee is
the exclusive franchise in the franchisee
area and hence is not subject to any
competition.
Financial Risk / Receivables

risk
High
10 years
Distribution
franchisee
The onus of collection efficiency during

the applicability of the DFA is on the
distribution franchisee.
For arrears from current consumers, up
to 3 months prior to the effective date,
the distribution franchisee is responsible
for ensuring 65% collection efficiency.
For past arrears, pending more than 3
months prior to the effective date, the
franchisee is provided an incentive @ 10
% of collections. The same is @20% of
collections for disconnected consumers.
Other Risks
136
Risk arising from erroneous

baseline data
Medium
10 years
Distribution
Franchisee
The findings of the joint audit conducted

post-selection of franchisee may differ
from the baseline data provided by
MSEDCL. Distribution franchisee was
allowed to conduct a due diligence of its
own in the franchise area.
Socio-political risk
Medium
10 years
Distribution
franchisee
Since the distribution franchisee becomes

the point of contact for consumers, any
dissatisfaction on account of action /
inaction by the franchisee can lead to
instances of opposition or resistance
and political pressures. For example, load
shedding can lead to discontent among
the consumers. In such a scenario there
may pressure from the state to ensure
regular supply. As a result the franchisee
may have to purchase expensive traded
power from the market.
Risk Type
Sensitivity
Risk Period
Primary
Risk
Bearer
Comments
Force majeure
Medium
10 years
MSEDCL
In case of force majeure event, no party

is liable for performance of obligations
under the agreement. However, in case of
prolonged force majeure, the agreement
may be terminated by either party,
whereby assets would be transferred to
MSEDCL against an expiry payment from
MSEDCL.

In the absence of data to conduct a quantitative VfM analysis, an analysis of the actual performance
of the DF has been undertaken to establish the benefit of opting for a PPP model.

AT&C losses are estimated to have declined by 34% in the first two years of the franchise,
to 24% (12-month moving average) at the end of FY2008-09 (from 58% in December
2006, just before handover).
The distribution transformer failure rate reduced from 40% at the time of handover to
7.5% at the end of FY 2009.
The load shedding duration reduced from 6 hours a day to 3.5 hours a day.
The percentage of accurate metered sales increased from 23% at the time of handover to
95%
Benefits to TPAL, MSEDCL and consumers
The efficiency gains brought to the power distribution system through the franchisee model
benefited all the stakeholders, thus creating a win-win situation. TPAL has benefited in terms of
the increased revenue from reduction in losses and improvement in collection efficiency due to
refurbishment of the existing network, regularising illegal connections, metering, etc. MSEDCL
benefited due to savings in terms of reduction in O&M expenditure, capital investments and interest
on working capital.The consumer benefited through increased reliability of power supply, improved
customer service.

Extensive deliberations on the selection of the PPP model and its structure at
inception
One of the key reasons for the success of the Bhiwandi model was that the interests of
various stakeholders (i.e. MSEDCL, the franchisee, consumers and MSEDCL employees)
were considered in the process of evolving the structure of the business model. The
model was designed keeping in mind various sector-specific issues such as power deficit,
regulated tariffs, subsidy, nature of distribution assets, etc.
Joint audit of opening levels of key parameters
Since the power distribution business involves the sale of electricity to a large number of
customers spread over a large geographical area, typically the distribution assets (i.e. the
network) are also spread out spanning a vast area. As a result, the exercise of estimation of
distribution losses, collection efficiency and total assets, the average billing rate is extremely
complex and prone to errors. It is therefore necessary in a distribution franchisee model,
that a joint audit be conducted for determining the value of these parameters, since they
are extremely critical and can impact the profitability and return of the selected bidder.
Transparent bidding process
The bid process was conducted in a transparent manner with due consultation of the
prospective investors. This helped in creating trust and confidence among the investors.
137

Emergence of alternative distribution reform model to privatisation in the

Indian context
In the input distribution franchisee model, the risks related to power purchase costs and
regulated tariff are substantially mitigated for the private partner. Further, the franchisee
has an incentive to implement operational efficiencies in the distribution system (i.e.
reduction of distribution losses and improvement in collection efficiency) since this would
result in higher margins to the franchisee for the same power purchase cost. The ability
of this PPP model to harness these profit-motivated efficiency incentives was crucial to
the success of the Bhiwandi project, especially in the Indian context of power deficit and
a regulated tariff regime.

-
Request for Proposal, Distribution Franchisee Agreement, and the Report on Evaluation of
Financial Bids
Infrastructure Development Finance Corporation (IDFC) Policy Group Quarterly, No. 4

(June, 2009)
Presentation by TAPL
Presentation by Prayas (Energy Group) before The Planning Commission
Interviews:
-
138
Mr. Chatterjee, Principal Consultant, MSEDCL
Eighteen
Case Study 15:
Amritsar Intercity Bus Terminal
Project
Located along the Grand Trunk (G.T.) road, Amritsar city is not only the spiritual centre for the
Sikh community but has traditionally been a hub for trade related activities in this region. Given
the citys religious heritage, Amritsar attracts large number of tourists (as high as 50,000 per day)
who visit the Golden Temple. The proximity of Amritsar to the Wagah (India-Pakistan) border has
also provided an opportunity for it to develop as a trading centre for cross border commercial
activities. In addition, a significant section of the local population uses public transport such as buses
for movement across the state. These factors have had a growing impact on the existing urban
infrastructure, especially the transport infrastructure.
Spread on an area of 8.5 acres, the existing bus terminal of Amritsar city, which functioned as an
intercity terminus, was established in 1965 on the G.T. Road. This bus terminal complex included
all administrative areas, passenger waiting areas as well as amenities. As per the bus schedules
drawn up by the Department of Transportation (DoT), Government of Punjab (GoP), there were
as many as 1,800 to 2,000 bus arrivals per day at the Amritsar bus terminal. With the growing
demand pressures, traffic at the terminal far outstripping the available facilities and the existing
terminal building being in a state of disrepair, the DoT, GoP facilitated by the Punjab Infrastructure
Development Board (PIDB) decided on modernising and developing the existing Amritsar bus
terminal through the Build, Operate, Transfer (BOT) route. This project was among the first
bus terminal projects in India to be built and operated by the private sector through the BOT
route.
The Intercity Bus Terminal of Amritsar city was developed at the same location as the existing
bus terminal. The project involved demolishing the existing terminal building and complex and
development of a modern state of the art Intercity Bus Terminal to cater to the growing demands
of the city. The project is under operation by a private operator for a period of 11 years and 5
months, which includes the construction period. At the end of the concession period, the project
will transfer back to the concessioning authority free of all encumbrances.

Through a two stage bidding process, DoT, GoP awarded the contract to Rohan Rajdeep
Infrastructure (a partnership between Rohan Builders (India) Pvt Ltd., Rajdeep Buildcon Pvt Ltd
and Rajdeep Road Developers Pvt. Ltd.) to undertake the development and operation of a modern
bus terminal at Amritsar on a BOT basis.
Subsequent to signing of the concession agreement, the private operator established a Special
Purpose Vehicle (SPV) called the Rohan Rajdeep Infrastructure (India) Pvt Ltd. for executing the
project. Under the concession agreement, the private operator was responsible for finance, building,
operations and maintenance of the Amritsar Intercity Bus Terminal complex for a concession period
of 11 years and 5 months. The private operator was required to pay a project development fee of
` 35 lakhs for the project site lease and a lease rental of ` 50,000 per month for use of the project
site over the concession period.
139

Within the concession agreement, two potential revenue streams for the private operator were
identified. The first revenue stream was through the operations of the bus terminal. The private
operator had the right to collect from bus operators what was termed as adda fees which was
the charge payable by buses for use of the terminal facilities. The second source of revenue was
commercial rentals from shops located within the Intercity Bus Terminal complex. Other sources
of revenue included the sale of advertising rights as well as parking fees.
18.3 Current Status

Subsequent to the signing of the concession agreement in February 2004, Rohan Rajdeep
Infrastructure (India) Pvt. Ltd. was able to complete project development before the predetermined
time frame and the Amritsar Intercity Bus Terminal complex was commissioned in October 2005.
The project is operational. The bus terminal presently services, on an average, 1,100 normal buses
and 600 mini buses a day and about 80-100 buses are parked within the Terminal complex overnight.
While the Bus Terminal was expected to handle 2,000 to 3,000 buses per day, it presently handles
approximately 1,700 buses a day. One of the reasons for these lower bus numbers is the inability
of the private operator to ensure that all buses use the Intercity Bus Terminal facilities as per the
schedules.
18.4 Financing Information:

The project cost for the Amritsar Intercity Bus Terminal was expected to be approximately ` 19
crores at the time of project conception. But on account of an escalation in input costs during the
construction period and quality assurances maintained by the private operator, the project cost
finally worked out to ` 21.34 crores. Of this amount, the debt component was ` 12 crores of 11
years tenure while the equity component was ` 9.34 crores.
Figure 14
Process Analysis
Project Life Cycle
Incepon
Acvies
Project conceived by DoT, GoP and

PIDB and configured through
project advisor in 2002
2 Stage Bidding Process started in

November 2002
Concession Agreement signed in
February 2004
Feasibility
Procurement
Development
Delivery
Exit
140

Inception:
Given the growing pressure on the existing transport infrastructure at the bus terminals in Punjab
and the dismal state of the existing bus terminal buildings, the Government of Punjab decided to
modernise bus terminals in Amritsar and Jalandhar through a private operator.With the objective of
modernising the existing bus terminal in Amritsar city, the Department of Transport, GoP facilitated
by the PIDB appointed project advisors to configure and structure the project as well as assist in
the bid process.
Given the large volumes of traffic at the Amritsar Intercity Bus Terminal and extensive use of the
terminal by private bus operators who were currently paying adda fees, it was believed that
if the Government operated buses were also required to pay such adda fees then a secure
revenue stream could be provided to the private operator resulting in a financially viable model for
modernisation of the Amritsar Intercity Bus Terminal through the BOT route.
In a number of other bus terminal projects, commercial real estate development was coupled with
the development of the bus terminal facility. However in the case of Amritsar, a conscious decision
was made not to include commercial real estate development along with the development of the
Intercity Bus Terminal primarily on account of the existing congestion in and around the project
site. Hence the project concept was to develop a modern Intercity Bus Terminal at Amritsar which
would provide a comfortable and convenient environment for passengers to travel to and from
Amritsar. It was to be financed, built, operated and maintained by the private operator. In return the
Government was to receive a monthly lease rental from the private operator for use of the project
site as well as a one time project development fee.
Procurement:
Based on the scope of work and project configuration identified, a two stage bidding process was
adopted. The RFQ for the project was issued on 28th November 2002 and 16 bids were received
of which 14 prequalified to the RFP stage. The RFP for the project was issued in April 2003 and a
proposal security in the form of a bank guarantee for ` 10 lakhs was sought.
To avoid any ambiguities in bid evaluation with respect to different bus terminal designs, the Amritsar
Intercity Bus Terminal design was frozen at the time of issue of RFP and the bid variable was defined
as the concession period. The private operator demanding the lowest concession period while
meeting the project criteria was to be identified as the successful bidder.
At the RFP stage four bids were received. Subsequent to meeting the evaluation criteria specified in
the RFP document, Rohan Rajdeep Infrastructure Developers Pvt. Ltd was declared the successful
bidder and was issued a notice of award for the concession agreement in September 2003.
In February 2004 the concessioning authority - the Secretary, Department of Transport, Government
of Punjab - entered into a concession agreement with Rohan Rajdeep Infrastructure Developer Pvt.
Ltd. for a period of 11 years and 5 months which included the project construction period.
Development:
The project development was undertaken in two stages. The first was the Conditions Precedent
period of 90 days and thereafter the Construction period of 18 months.
Conditions Precedent: As per the concession agreement, the private operator and the
concessioning authority were required to fulfil the terms of the Conditions Precedent within 90
days of signing of the concession agreement which could be extended based on mutual consent.
The concessioning authority was required to undertake the following:

Support the project through issue of necessary notifications authorising the private
operator to collect adda fees from buses using the Intercity Bus Terminal.
141

Given the impact of the adda fees on the financial viability of the project, issue necessary
notifications to make it mandatory for all intercity buses to halt and provide for embarkation
and disembarkation of passengers within the Amritsar Intercity Bus Terminal complex.
Facilitate the transfer of land at the project site from the Amritsar Municipal Corporation
to GoP and thereafter possession under a lease to the private operator along with the
registration of the land lease.
Temporary shifting of the existing bus terminal to a different location.
The private operator on his part was required to:

Obtain all necessary clearances and approvals,
Furnish the performance security and bank guarantees as well as pay the project
development fee of ` 35 lakhs to the concessioning authority.
Ensure financial closure of the project and submit proof of the same to the concessioning
authority.
The concession terms specified that both the parties were required to issue compliance certificates
regarding attainment of Conditions Precedent. Based on the issue of such compliance certificates
by both parties, the concessioning authority was required thereupon to issue a notice to commence
to the private operator.
Construction: Keeping in mind the financial viability of the project, the concessioning authority
agreed that during the concession period, it would not undertake, on its own or permit any
other private operator, to develop a similar Intercity Bus Terminal within a 10 km radius of this
project. During the construction period, it was also responsible for construction, operations and
maintenance of a temporary bus terminal at a separate location.
Within 30 days of receiving the notice of commencement, the private operator was required to
mobilise resources to undertake construction activities. The project was to be developed based on
the standards specified in the concession agreement.The private operator was required to prepare,
maintain and get necessary approvals of the detailed drawing regarding the project design. As per
the concession terms, the private operator was required to institute a quality assurance system of
record keeping and timely inspection and was also required to submit monthly progress reports to
the concessioning authority.
The construction was required to be completed within 18 months of commencement. The private
operator was able to complete the work and commission the Intercity Bus Terminal within 17 months
itself. Necessary tests were carried out by the concessioning authority prior to issue of completion
certificate.Two months prior to the end of the construction stage, the private operator was given the
right to advertise license allotments for the passenger amenities in the Intercity Bus Terminal.
Delivery:
The Amritsar Intercity Bus Terminal construction was completed and commissioned in October
2005. The Intercity Bus Terminal includes 53 embarkation and 8 disembarkation bays covering long
distance and local bus routes. The Terminal has parking provision for 54 cars, 102 rickshaws/autos
and 1838 two-wheelers / cycles and 300 passenger seating berths. In addition to basic bus terminal
facilities, the Intercity Bus Terminal has other commuter requirements in terms of convenience
stores, refreshment stalls etc. For the convenience of passengers as well as drivers, provision for 10
dormitories has been made.
Subsequent to receiving the completion certificate from the concessioning authority, the O&M
period for the project commenced. During this period, the private operator was required to
operate and maintain the project based on the performance standards laid down in the concession
agreement. The private operator was also required to deploy necessary trained staff to undertake
operations of the Intercity Bus Terminal. The private operator had the right to levy, collect, retain
142
adda fees from all buses using the Intercity Bus Terminal as well as user charges for amenities
provided to passengers based on the rates specified in the concession agreement. Monthly traffic
reports covering the daily adda fees collections and bus traffic movements had to be submitted
to the concessioning authority. For the duration of the concession period, the private operator
had to pay a monthly lease rental of ` 50,000 to the concessioning authority for lease of Intercity
Bus Terminal site.
Exit: At the end of the concession period all immovable and movable property relating to the project
will transfer to the concessioning authority, free of all encumbrances. The concessioning authority will
be entitled to appoint a consulting engineer, six months prior to the termination date, for inspection
of the terminal facilities.The concessioning authority will issue a vesting certificate as proof of transfer
of all rights, titles and interests in the Amritsar Intercity Bus Terminal assets and facilities.

Risk Type
Sensitivity
Table 38
Risk Period
Primary Risk
Bearer
Comments
Delay in Land
Acquisition
Low
0-90 days
from signing
of concession
agreement
Concessioning
Authority
Project development was undertaken on the

existing bus terminal site and involved transfer of
land from the Municipal Corporation of Amritsar
to GoP who in turn leased the land to the private
operator. Hence delay in land acquisition was not
a major risk for this project.
Financing Risk
High
0-90 days
from signing
of concession
agreement
Private
Operator
The private operator was required to ensure

financial closure of the project within 90 days of
project acceptance unless a time extension was
provided by the concessioning authority. Inability
to ensure financial closure within the stipulated
time would have resulted in a default on the part
of the private operator and he would have lost
the performance security.
Delay in
obtaining
Approvals/
Permits
Medium
0- 90 days
from signing of
the concession
agreement
Private
Operator
The concessioning authority was to provide all

necessary support to the private operator in
obtaining the clearances and approvals. However
the responsibility of obtaining the same was with
B) Construction Phase Risk

Design Risk
High
0-18 months
from
compliance
date (Date
of fulfilment
of conditions
precedent)
Private
Operator
The private operator was required to submit

detailed construction design for review. The
private operator was also to provide design
warranties for the project.
Construction
Risk
Medium
0-18 months
from
compliance
date
Private
Operator
For the duration of the concession period,

the private operator was required to furnish a
performance security. During the construction
period, the private operator was required to
facilitate periodic inspection and was to submit
monthly progress reports.
Delays in
construction
Medium
0-18 months
from
compliance
date
Concessioning
Authority
and Private
Operator
In the event of suspension of work on account of

the concessioning authority which was greater
than 30 days, such a suspension would was
treated as a default by concessioning authority.
If the termination occurred within 3 years of
commencement, the private operator was
entitled to termination payment equal to the
value of the total debt outstanding, plus 100%
of outstanding subordinated debt, plus 125%
of equity subscribed in cash and spent on the
project subject to a deduction of 7.5% per
annum of the equity component after making
sufficient adjustments for inflation.
143

Risk Type
Sensitivity
Primary Risk
Bearer
Comments
For the concession period, the concessioning

authority agreed not to permit any future
development of a similar Intercity Bus Terminal
within a 10 km radius of this project. Additionally,
a notification was issued to the effect that all
intercity buses would be required to halt, drop
and pick up passengers from the Intercity Bus
Terminal. However, the private operator has
not been able to ensure that all buses use
the Intercity Bus Terminal facilities as per the
schedules, thus impacting his revenues.
In case of any changes/modification in laws,
interpretations of the same or impositions of
new statutory or regulatory approvals or taxes
or duties imposed subsequent to the proposal
acceptance date, the concessioning authority
would take necessary action to ensure that
there is no change to the private operators legal,
commercial and financial position as a result of
such change.
If any variations were initiated by the private
operator, a proposal for the same would be
sought from the private operator and if found
reasonable, necessary changes would be made to
the concession period.
C) Operations Phase Risk

Revenue Risk
Low
Throughout
Private
Operator
Policy Risk
Low
Throughout
contract term
Concessioning
Authority
Change in
Scope Risk
Medium
Throughout
contract term
Concessioning
Authority
and Private
Operator
In case variations were initiated by the

concessioning authority, the private operator
would be entitled to make a claim for additional
cost, if the adjustment in the concession period
required as a consequence of such variation was
more than 30 days.
The private operator was required to maintain
standards during the construction as well as
O&M period as per the detailed specifications
in the concession agreement. In case of non
compliance, the concessioning authority had
the power to invoke the performance security.
Additionally, no dilution of stake was permissible
under the concession agreement. The lead
consortium member needed to maintain a
minimum equity component of 26% of the
concessionaires equity contribution.
The private operator was required to create an
O&M manual, detailing the regular and preventive
maintenance which would be undertaken. Strict
adherence to the performance standards as per
the concession agreement and O&M manual was
required failing which the concessioning authority
had the right to invoke the performance security
and impose a penalty for non compliance.
Performance
Risk
High
Throughout
Concession
Period
Private
Operator
Operations &
Maintenance
Risk
Medium
Throughout
Concession
Period
Private
Operator
6 months from
termination
date
Private
Operator
The concessioning authority had the right to

appoint a consulting engineer to assess the
condition of the project facilities to ensure that
they met the standards specified in concession
agreement after taking into account reasonable
wear and tear. Any shortfalls needed to be
remedied by the private operator prior to
handover of assets.
Throughout
the concession
period
Private
Operator
In the event of a private operator default

leading to termination, the operator would be
reimbursed the cost of works undertaken up to
termination date minus the cost of completion
of the project by the concessioning authority
or a third party. In case the cost involved in
completion of works is greater than amount
to be reimbursed, the concessioning authority
would have the right to recover such costs by
invoking the performance security or from the
sale of unused plant, machinery or material of
D) Other Risks
Handover risk Medium
Default
by Private
Operator
144
Risk Period
Low
Risk Type
Sensitivity
Risk Period
Primary Risk
Bearer
Comments
Force Majeure
Medium
Throughout
Concession
Period
Concessioning
Authority
and Private
Operator
This risk was partially covered through insurance.

In case of force majeure prior to commencement
of the project, an extension to the concession
period for the time period of the force majeure
would be provided with each party bearing its
own respective costs.
In case of a force majeure subsequent to the
commencement date and before construction
completion, an extension of the concession
period for the duration of force majeure would
be provided.
In case of a force majeure subsequent to issue of
the completion certificate, the private operator
would be required to make reasonable efforts
to collect the user charges. In the event that
he is unable to collect the user charges, the
concession period would be extended by the
time period for which the private operator was
unable to collect the user charges.
In case of force majeure as a non political event
directly related to the project, the concessioning
authority would reimburse 50% of any loss due
to a shortfall in insurance reimbursement.
In case of force majeure as a political event
disrupting the project, the concessioning
authority would reimburse the entire loss
incurred by the private operator.
Default by
Concessioning
Authority
Low
Throughout
the concession
period
Concessioning
Authority
In the event of default by the concessioning

authority, the private operator would receive
termination payment equal to total debt due
plus 100% of outstanding subordinated debt, if
any and 125% of equity subscribed in cash and
actually spent of the project if the termination
takes place within 3 years of commencement
date and thereafter the reimbursement of
equity component amount would be reduced
by 7.5% per annum and reduced amount would
be further adjusted every year to reflect the
changes in the Wholesale Price Index.

The VfM assessment of the Amritsar Intercity Bus Terminal has been carried out on a qualitative
basis primarily on account of limited financial information available in the public domain. The VfM
analysis is based on the anticipated benefits from this project. The key benefits which have accrued
as a consequence of this project are:

Assured revenues to the concessioning authority through lease payments.

During the concession period, the concessioning authority receives a lease rental of
` 50,000 per month from the private operator for use of the project site. This is in
addition to the project development fee of ` 35 lakhs paid by the private operator to
the concessioning authority. Hence for the duration of the project, the concessioning
authority is assured a fixed payment in addition to a state of the art Intercity Bus Terminal
which it would get at the end of the concession period.
Development of a modern Intercity Bus Terminal with O&M being efficiently

handled by the private operator. The existing bus terminal at Amritsar was constructed
in 1965 and was unable to meet the growing demands and increasing passenger traffic of
Amritsar city. Additionally with the anticipated growth in the city expected in the years to
come, the concessioning of this terminal to a private operator enabled the development
of a modern Intercity Bus Terminal which was better equipped to handle the growing
145

volumes of passenger traffic. The terminal provides a comfortable, safe and convenient
environment for passengers embarking and disembarking at this terminal. It is a significant
upgrade to the existing Inter city bus terminal infrastructure in Amritsar. In addition to
upgrade on basic passenger services like provision of adequate seating, designated bus bays,
electronic displays and car and bike parking areas, this terminal also provided for eateries
and convenience shopping area for passengers. There was also provision for dormitory
facilities for passengers or drivers requiring overnight stay.

No cash outlay for the concessioning authority during the construction as well
as O&M period. As a consequence of undertaking development of the modern Intercity
Bus Terminal through the BOT route, the concessioning agency did not have any cash
exposure in the project either during the construction stage or the O&M period. At the
end of the concession period, the Intercity Bus Terminal complex would transfer back to
the concessioning authority without any capital expenditure being undertaken by it.
Demonstration effect: The Amritsar Bus Terminal was only the second such project
to be undertaken in India and has met with good response with the effect that a number
of other bus terminals in Punjab as well other cities in India are being bid out in a similar
fashion.

1. Facilitation provided by Government to ensure efficient execution. In case of the
development of the Amritsar Intercity Bus Terminal, necessary facilitation was provided
by the Government through ensuring efficient leasing of land to the private operator,
necessary approvals for project development and providing support to the private
operator during the construction stage as well as the O&M stage of the project. This was
a critical element in the timely execution of the project and the private operator was able
to complete the construction ahead of time and largely within the budgeted costs.
2. Favourable policy environment to ensure revenue stream. As a part of the terms
of the concession agreement, the Government issued notifications to the effect that all
intercity buses would be required to pickup and drop off passengers at the new Inter
City Bus Terminal. The concession terms also specified adda fees and the user charges
for specific passenger amenities with assured escalations during the concession period.
Additionally, uncertainties relating to the policy environment were also addressed in
the concession agreement wherein any policy level changes having a direct impact on
the project viability and which happened subsequent to the signing of the concession
agreement would be compensated by the concessioning authority.
3. Flexible project structuring was undertaken to facilitate funding of the project.
In case of the Amritsar Intercity Bus Terminal project, the Government made necessary
provisions within the concession agreement to facilitate funding of the project through
borrowing. Since collection of adda fees was similar to toll collections on road projects,
the lenders were provided enough security through access to the revenue streams of the
project and were provided substitution rights in case of a default by the private operator.
4. Need to develop a monitoring and implementation mechanism. As per the
preliminary estimates, the Amritsar Intercity Bus Terminal was expected to be handling
2000 to 3000 buses per day based on the predefined schedules of the Department of
Transportation, Government of Punjab. However presently the Intercity Bus Terminal only
handles approximately 1700 buses a day. While the recent slow down in the economy has
impacted the bus arrivals, part of these lower bus numbers is attributable to the inability
of the private operator to ensure that all buses use the Intercity Bus Terminal facilities
as per schedules. A number of buses pick and drop passengers outside the Intercity
Bus Terminal complex, thereby avoiding payment of adda fees. In addition to issuing
146
notifications, a monitoring mechanism should also be created to ensure that all buses
comply with notifications. The necessary implementation mechanism between the various
divisions of the government also should be identified and put in place to ensure effective
implementation of predetermined schedules as well as levy of penalty for non compliance
to such schedules. This would help in improving the financial viability of such projects and
mitigate risks relating to such occurrences.
5. Detailed and clear definition of project design and scope. Detailed definition of
project scope and providing comprehensive design specifications for the construction
stage as well as performance parameters for the O&M period are critical in such projects
which are being undertaken for the first time in the private sector. This is to ensure that
the project is developed in line with expectations of the concessioning authority and
necessary standards are maintained by the private operator for both project development
and delivery.

Interviews:

Mr. G.P.S. Mann, Chief General Manager, Punjab Infrastructure Development Board
Mr. Devendra Nagar, Director, Rohan Developers
Mr. Anil Gandhi, President, Transaction Advisory Services, Feedback Ventures
Mr. Abhijit Bhaumik, Formerly with Feedback Ventures
147

148
Nineteen
Abbreviations and Acronyms
AAI
Airports Authority of India
ADB
Asian Development Bank
AMTRL
Ahmedabad Mehsana Toll Road Company Limited
APIIC
Andhra Pradesh Infrastructure Investment Company
APTDPB
Andhra Pradesh Technology Development & Promotion Board
ASP
BHEL
Bharat Heavy Electricals Limited
BOMST
Build Own Maintain Share Transfer
BOO
Build Own Operate
BOOT
Build Own Operate Transfer
BOQ
Bill of Quantities
BOT
Build Own Transfer
BPCL
Bharat Petroleum Corporation Limited
CAGR
Compounded Annual Growth Rate
CDM
Clean Development Mechanism
CDR
Corporate Debt Restructuring
CESL
Consulting Engineering Services Limited
CFS
Container Freight Stations
CIDB
Construction Industry Development Board
CII
Confederation of Indian Industries
CMDA
Chennai Metropolitan Development Authority
CPCL
Cocanada Port Company Ltd
CPI
Consumer Price Index
CSR
Case Studies Report
DDA
Delhi Development Authority
DEA
DERC
Delhi Electricity Regulatory Commission
DFA
Distribution Franchisee Agreement
DJB
Delhi Jal Board
DMRC
Delhi Metro Rail Corporation
DOT
Department of Transport
DPR
Detailed Project Report
DSCR
Debt Service Coverage Ratio
DST
Department of Science & Technology
DWT
Dead Weight Tonne
ECA
Economic Consulting Associates
EHV
Extra High Voltage
EOI
Expression of Interest
EPC
Engineering, Procurement & Construction
ESR
Elevated Storage Reservoir
FICCI
Federation of Indian Chambers of Commerce and Industry
FIDIC
International Federation of Consulting Engineers
FIRE
Financial Institution Reform and Expansion
FSI
Floor Space Index
GAIL
Gas Authority of India Limited
GHMC
Greater Hyderabad Municipal Corporation
GIS
Geographic Information System
GoI
Government of India
GOM
Government of Maharashtra
GoNCTD
Government of National Capital Territory of Delhi
GoP
Government of Punjab
GoWB
Government of West Bengal
GPL
Gangavaram Port Limited
GRICL
Gujarat Road and Infrastructure Company Limited
GTAEPL
GMR Tuni Anakapalli Expressways Private Limited
GTIL
Gateway Terminals India Limited
HUDA
Haryana Urban Development Authority
HUDCO
Housing and Urban Development Corporation Limited
IDBI
Industrial Development Bank of India
IDFC
Infrastructure Development Finance Company
IIFCL
India Infrastructure Finance Company Limited
IIM
Indian Institute of Management
IIPDF
India Infrastructure Project Development Fund
IL&FS-IDC IL&FS Infrastructure Development Corporation Limited

ILFS
Infrastructure Leasing & Financial Services Limited
IRC
Indian Roads Congress
IRR
Internal Rate of Return
ISO
International Organization for Standardization
ISPL
International Seaports Pte Ltd
ISPS
International Ship and Port Facility Security
ITD
Italian Thai Development Corporation
ITES
Information Technology Enabled Services
JNNURM
Jawaharlal Nehru National Urban Renewal Mission
JNPCT
Jawaharlal Nehru Port Container Terminal
JNPT
Jawaharlal Nehru Port Trust
JUIL
Jindal Urban Infrastructure Limited
JUSCO
Jamshedpur Utilities and Services Company Limited
KDWP
Kakinada Deep Water Port
KIHPL
Kakinada Infrastructure Holdings Pvt. Ltd.
149

150
KMC
Kolkata Municipal Corporation
KMDA
Kolkata Municipal Development Authority
KMEC
Kumars Marine Engineering Corporation
KPB
Konsortium Perkaplan Berhard
KSPL
Kakinada Sea Ports Ltd
KUIDFC
Karnataka Urban Infrastructure Development and Finance Corporation
KUWASIP
Karnataka Urban Water Supply Improvement Programme
KUWSDB
Karnataka Urban Water Supply and Drainage Board
LIBOR
London Inter-bank Offer Rate
LIC
Life Insurance Corporation of India
LMC
Latur Municipal Council
LPCD
Litres per Capita per Day
LWMC
Latur Water Management Company Ltd
MCD
Municipal Corporation of Delhi
MERC
Maharashtra Electricity Regulatory Commission
MGA
Minimum Guaranteed Amount
MJP
Maharashtra Jeevan Pradhikaran
MLD
Million Litres Per Day
MML
Maytas Metro Limited
MMOPL
Mumbai Metro One Private Limited
MMRDA
Mumbai Metropolitan Region Development Authority
MNRE
Ministry of Natural Resource Environment
MoA
Memorandum of Agreement
MoU
Memorandum of Understanding
MRTS
Mass Rapid Transit System
MSDECL
Maharashtra State Electricity Distribution Company Limited
MSETCL
Maharashtra State Transmission Company Limited
MSW
Municipal Solid Waste
MTPA
Metric Tonnes Per Annum
MVA
Mega Volt Ampere
NBWML
Nabadiganta Water Management Limited
NCB
National Competitive Bidding
NDITA
Nabadiganta Industrial Township Authority
NDMC
New Delhi Municipal Corporation
NHAI
National Highways Authority of India
NOC
No Objection Certificate
NPV
Net Present Value
NRW
Non Revenue Water
NSICT
Nhava Sheva Integrated Container Terminal
NSICTPL
Nhava Sheva International Container Terminal Private Limited
OHSAS
Occupational Health and Safety Management System
OMST
Operate Maintain Share and Transfer
OSV
Offshore Supply Vessel
PCB
Pollution Control Board
PCU
Passenger Car Units
PHPDT
Peak Hour Peak Distribution Traffic
PIDB
Punjab Infrastructure Development Board
PPPAC
Public Private Partnership Appraisal Committee
PPP
Public Private Partnerships
PWD
Public Works Department
RDF
Refuse Derived Fuel
REL
Reliance Energy Limited
RFP
Request for Proposal
RFQ
Request for Qualification
SBI
State Bank of India
SCADA
Supervisory Control and Data Acquisition
SCS
Satyam Computer Services
SMIPL
Salgaocar Mining Industries Pvt. Ltd.
SPV
Special Purpose Vehicle
SSA
Stevedoring Services of America
STP
Sewage Treatment Plant
SWM
Solid Waste Management
TAMP
Tariff Authority of Major Ports
TCE
Tata Consultancy Engineering
TCS
Tata Consultancy Services
TEU
Twenty-Foot Equivalent Units
TNIUFSL
Tamil Nadu Urban Infrastructure Financial Services Limited
TNUDF
Tamil Nadu Urban Development Fund
TOWMCL Timarpur-Okhla Waste Management Company Private Limited

TPAL
Torrent Power AEC Limited
TPD
Tonnes Per Day
TUFIDCO
Tamil Nadu Urban Infrastructure Development Corporation
UEM
United Engineers Malaysia
UGR
Underground Reservoir
ULB
Urban Local Body
UNFCCC
United Nations Framework Convention on Climate Change
UPL
United Phosphorous Limited
USA
United States of America
USAID
United States Agency for International Development
USD
United States Dollars
UTI
Unit Trust of India
VFM
Value for Money
VGF
Viability Gap Funding
VHTR
VHTRL
Vadodara Halol Toll Road Limited
WEBEL
West Bengal Electronics Industry Development Corporation
WPI
Wholesale Price Index
WTP
Willingness To Pay
151
152

Notes:

Capacity Building Curriculum
Case Studies
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Toolkits
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What sectors are covered in the case studies?

What sectors are covered in the case studies?

What project structures are covered in the case studies?

What project structures are covered in the case studies?

Government of India

Public Private Partnership

Public Private Partnership

Public Private Partnership projects in India

Department of Economic Affairs

2. Snapshot Of Case Studies

Alandur Sewerage Project

Karnataka Urban Water Supply Improvement Project

Latur Water Supply Project

Salt Lake Water Supply And Sewerage Network

Timarpur Okhla Integrated Municipal Solid Waste Management Project

Vadodara Halol Toll Road

10. Case Study 7:

Tuni Anakapalli Annuity Road Project

11. Case Study 8:

Delhi Gurgaon Expressway

12. Case Study 9:

Nhava Sheva International Container Terminal

13. Case Study 10: Kakinada Deep Water Port

14. Case Study 11: Gangavaram Port

15. Case Study 12: Mumbai Metro

16. Case Study 13: Hyderabad Metro

17. Case Study 14: Bhiwandi Electricity Distribution Franchisee

18. Case Study 15: Amritsar Intercity Bus Terminal Project

19. Abbreviations and Acronyms

Public Private Partnership projects in India

Public Private Partnership projects in India

1. Alandur Underground Sewerage Project

2. Karnataka Urban Water Supply Improvement

3. Latur Water Supply Project

4. Salt Lake Water Supply and Sewage Disposal System

`70.09 crore 30 years

5.Timarpur Okhla Integrated Municipal Solid Waste Management Project

6.Vadodara Halol Toll Road

7.Tuni Anakapalli Annuity Road Project

National Highways GMR Group, United

National Highways DS Constructions

8. Delhi Gurgaon Expressway

9. Nhava Sheva International Container Terminal

Larsen & Toubro Ltd,

10. Kakinada Deep Water Port

11. Gangavaram Port

Mr. D.V.S. Raju &

12. Mumbai Metro

13. Hyderabad Metro

Public Private Partnership projects in India

Torrent Power AEC

14. Bhiwandi Electricity Distribution Franchisee

15. Amritsar Inter-city Bus Terminal

3.1 Summary of Learnings with referenced case examples

Key risks addressed

Ppp examples where

Robust Traffic / Market

Operations Risk, Time &

Design Risk, Approvals