ASSIGNMENT NO -4

ON
INFRASTRUCTURE DEVELOPMENT
(PGPM 14)

SUBMITTED TO:
NATIONAL INSTITUTE OF CONTRUCTION
MANAGEMENT
& RESEARCH (NICMAR) PUNE.
SCHOOL OF DISTANCE EDUCATION
(SODE)
By
Mr. abc
(PGDPM)
Reg.no.-abc
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INFRASTRUCTURE
DEVLOPMENT

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CONTENTS
SR.NO.
1
2
3
4
5

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DESCRIPTION
ASSIGNMENT.
PUBLIC PRIVET PARTNERSHI:
OPTION OF PPP:
WHAT IS BOT?
CASE STUDY: MUMBAI METRO

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PAGE NO.
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4
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ASSIGNMENT:
Public Private Partnerships refers to arrangements, typically medium to long
term, between the public and private sectors whereby some of the services
that fall under the responsibilities of the public sector are provided by the
private sector, with clear agreement on shared objectives for delivery of
public infrastructure and/ or public services. A PPP is generally a contract or
agreement to outline the responsibilities of each Party and clearly allocate
risk. In a BOT arrangement, the private sector designs and builds the
infrastructure, finances its construction and owns, operates and maintains it
over a period, often as long as 20 or 30 years. This period is referred to as
the "Concession" period. Such projects provide for the infrastructure to be
transferred to the Government at the end of the concession period. There are
a number of major parties to any BOT project, all of whom have particular
reasons to be involved in the project. The Contractual arrangements between
those parties, and the allocation of risks, can be Complex. Explain in detail
structuring of BOT projects.

PUBLIC PRIVET PARTNERSHI:

A business relationship between a private-sector company and a
government agency for the purpose of completing a project that will serve
the public. Public-private partnerships can be used to finance, build and
operate projects such as public transportation networks, parks and
convention centres. Financing a project through a public-private partnership
can allow a project to be completed sooner or make it a possibility in the first
place.
The private sector is playing an increasingly crucial role in the financing and
provision of services that were traditionally the domain of the public sector.
One of the key reasons is that governments are unable to cope with the everincreasing demands on their budgets. Most infrastructure expenditures in
developing countries have been funded directly from fiscal budgets but
several factors such as macroeconomic instability and growing investment
requirements have shown that public financing is volatile and, in many
countries, rarely meet crucial infrastructure expenditure requirements in a
timely and adequate manner.
Furthermore, there are efficiency gains arising from innovation, management
and marketing skills offered by the private sector and greater incentives for
the control of construction, operating and maintenance costs. More so, the
provision of additional finance for infrastructure projects enables projects to
be brought forward in time, thus generating earlier economic benefits.

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The diagram below illustrates the continuum of options for involving the
private sector in the provision of infrastructure delivery.

Diagram 1: Range of Private Sector Options

At the left are supply and service contracts, which tend to be of short
duration and requireless private commitment than the options higher in the
continuum. The private
contractor is not directly responsible for providing the service, but instead for
performing specified tasks, such as supplying inputs, constructing works,
maintaining facilities, or billing customers. At the left are the longer term
arrangements which require significant private sector commitment.

OPTION OF PPP:
There is a range of options for involving private sector participation that vary
with regards to ownership, operations and maintenance, financing, risk
allocation and duration. A summary of these options can be viewed in Table
1.
Table 1: Allocation of key responsibilities under the main private
sector participation options
Option

Asset
Operatio
Ownersh ns
and
ip
Maintena
nce
Service
Public
Public and
contract
Private
Managem Public
Private
ent
contract
Lease
Public
Private
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Capital
Invest
ment

Commer
cial Risk

Duration

Public

Public

1-2 years

Public

Public

3-5 years

Public

Shared

8-15
years

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Concessi
on
Build
Operate
Transfer
Divestitur
e

Public

Private

Private

Private

Private
and
public
Private or
private
and
public

Private

Private

Private

Private

Private

Private

25-30
years
20-30
years
Indefinite
(may be
limited
by
license)

Service contract
Under this option, the private sector performs a specific operational service
for a fee, for example meter reading, billing and collection.
Management contract
In this option, the private sector is paid a fee for operating and maintaining
a government-owned business and making management decisions.
Lease
Under the lease option, the private sector leases facilities and is responsible
for operation and maintenance.
Concession
Under concessions, the private sector finances the project and also has full
responsibility for operations and maintenance. The government owns the
asset and all full use rights must revert to the government after the specified
period of time.

WHAT IS BOT?
BOT is the terminology for a model or structure that uses private investment
to undertake the infrastructure development that has historically been
5
undertaken by the public sector. In a BOT project, a private company is
given a concession to build and operate a facility that would normally be
built and operated by the government. The private company is also
responsible for financing and designing the project. At the end of the
concession period, the private company returns ownership of the project to
the government (although this need not be the case). The concession period
is determined primarily by the length of time needed for the facilitys
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revenue stream to pay off the companys debt and provide a reasonable rate
of return for its effort and risk.
The table provided below reviews the BOT option and its variants, describes
some characteristics of these different procurement arrangements and
depicts the relationship between these different procurement methods and
the financing of the project.

BOT PROJECT PROCUREMENT STRUCTURES

BOT Project Type
Build Own Operate Transfer
(BOOT)

Characteristics
The service provider is
responsible for design and
construction, finance, operations,
maintenance and commercial
risks associated with the project.
The service provider owns the
project throughout the concession
period
The asset is transferred back to
the government at the end of the
term, often at no cost.

Build Own Operate (BOO)

Similar to BOOT projects, but
the service provider retains
ownership of the asset in
perpetuity.
The government only agrees to
purchase the services produced
for a fixed length of time

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Design Build Operate (DBO)

A design and construction
contract linked to an operation
and maintenance contract.
The service provider is usually
responsible for financing the
project during construction.
The government purchases the
asset from the developer for a
pre-agreed price prior to (or
immediately after) commissioning
and takes all ownership risks from
that time.
Lease Own Operate (LOO)
Similar to a BOO project but an
existing asset is leased from the
government for a specified time.
The asset may

BOT projects, when properly designed, offer significant potential for

technology transfer and local capacity building as well as helping develop
national capital markets.
Advantages and Challenges of the BOT Approach
The BOT approach has many potential advantages, some of which have
been alluded to above, and is a visible alternative in most countries to the
more traditional approach using sovereign borrowings or budgetary
resources. These are captured in the box provided below.
Some challenges that should be taken into consideration include the length
of time required to develop and negotiate BOT schemes, the need for a
suitable political and economic climate, and a defined regulatory
environment. In short, the BOT approach requires an environment that is
conducive to private sector investment.
The economic costs associated with BOT projects include the following:
Costs due to imbalance in experience. Governments with little
experience in BOT contracts are advised to initiate BOT projects on a
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manageable scale and seek professional advice to compensate the

often greater experience of the private sector.
User costs imposed for the first time or increased to match market
rates. The economic costs of public services, once covered by the
Government, then become financial costs for the user.
Overpriced supplies. Potential conflicts of interest on pricing among the
project sponsors must be monitored. Care must be taken to ensure that
sponsors who supply goods or services to the project do so on a fully
competitive basis.
High financing costs. Financing costs for BOT projects tend to be high, as
the legal fees associated with their contractual arrangements are much
higher than those of standard commercial contracts. The complexity of
the credit means that lenders need more time than usual to assess a
projects merits and will tend to charge higher fees.

Given the importance of infrastructure investment to national development it

is essential that the wider socio-economic costs and benefits associated with
a BOT scheme are taken into account when designing the legal framework to
promote private sector investment in such projects.

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CASE STUDY: MUMBAI METRO

15.1 Project Description
Toaddressbothpresentandfuturepublictransportationneeds,theGovernmentofMaharashtra
(GOM)throughtheMumbaiMetropolitanRegionDevelopmentAuthority(MMRDA)hasplanned a
146 kilometre long rail based Mass Rapid Transit System (MRTS) for Mumbai.
ThisprojectisthefirstcorridoroftheproposedMRTS.TheVersovaAndheriGhatkoparlineshall
beanelevatedlinewitharoutelengthof11kms,with12stationsandacardepotsituatedatD.N.
Nagar.Thelinewillhaveaminimumcurvatureof100metersandminimumgroundclearanceof5.5
meters.Thelengthandwidthofthecoachesthatshallplyontheroutewillbe22metresand3.2
metres,respectively.Othertechnicalfeaturesoftheprojectinclude25KVACoverheadequipment,
cabsignallingwithautomatictrainprotection,andamaximumspeedof80kmphwithanaverage
speed of 33 kmph.
MumbaiMetroOneisgoingtorunonadedicatedelevatedcorridorandshallhavehighlevels
ofcomfortforthepassengersviz.fullyair-conditionedworldclasscoaches,provisionforlifts
andescalatorsatstations,modernautomaticfarecollectionsystemandhighlevelsofpassenger
security systems.
Theexistingsub-urbantrainsconnectthenorthernandsouthernpartsofthecity.Thisprojectwill
provideEast-WestrailbasedconnectivitytoCentralandWesternsuburbs.Thetotaltimetaken
forthejourneyfromVersovatoGhatkopar wouldbeapproximately21minutes,asagainstatypical
time taken of 90 minutes by other modes of transport.
15.2 PPP structure of the Project
AconcessionagreementonBOOTbasisforaperiodof35years,includingaconstructionperiodof
5years,hasbeenawardedbytheMMRDA.Undertheconcessionagreement,theoperatorhasto
design,finance,construct,operate,ownandmaintainthefirstcorridorandtransfertheownership
and assets at the end of the concession period.
ASpecialPurposeVehicle(SPV)namedMumbaiMetroOnePrivateLimited(MMOPL)hasbeen
formedwithRelianceEnergyLimited,VeoliaTransportandMMRDAholdingequitystakesof69%,
5% and 26%,respectively.
Thisprojectwasoneofthefirstprojectsinmasstransportationsystemsbeingimplementedon
aPPPbasisinMaharashtra.Thegovernmentthusfelttheneedtocloselymonitortheprojectand
tooka26percentstakeintheSPVimplementingtheproject.Thisallowedthegovernmentto have 3
members on the board of the SPV and ensured that it would be able to effectively monitor
andinfluencedecisionsonfinancing,designandconstructionfortheproject.TheMMRDAwill
contributeequitytothetuneof` 134croreforthis26percentstakeintheSPVduringthe
construction phase of the contract.
Theassetsoftheprojectincludetheviaduct, stations, bridges, depot, rollingstock, signalling
system,tractionandSupervisoryControlandDataAcquisition(SCADA)system,communicationssy
stems,trackwork,farecollectionsystem,etc.AlltheseareownedbytheSPV.Theassetsshallbe
constructedorprocuredthroughcontractorsandequipmentsuppliers.Forexample,thesignalling
systemshallbeinstalledbySiemenswhilethecommunicationssystembyThalesInc.andtherolling

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stockshallbeprocuredfromCSRNanjing.Thelandforthedepothasbeentakenonalongterm
leasewhichisrenewablefromtheownersoftheland.TheSPVholdstheexclusiverightstodevelop
and use the land for the MRTS Project
15.3 Current Status
TheconstructionhascommencedfromFebruary,2008andtheprojectachievedfinancialclosurein
October 2008.The completion date for the project construction is expected by mid 2011.
Atpresent,theconstructionoftheviaductisunderwaywith773pilesbeingdugup.Theconstruction
oftheDepot,SubstationandStationshasalsocommencedalongtherouteoftheproject.Workhas
alsocommencedontheconstructionof2overheadbridgesatAndheriStationandtheWestern
Express Highway.
15.4 Financing Information
Thetotalprojectcostisestimatedat`2,356crores.Theprojectshallbefinancedonthebasisof
aViability Grant of`650 crores contributed by the Government of India (`470 crores being
20%
oftheprojectcost)andGovernmentofMaharashtra(`180croresbeing7.5%oftheprojectcost).
Theremainderistobefinancedby70%debt,30%equity.TheprivateoperatorandMMRDA shall
provide equity contribution of`466 crores in proportion of their equitystake.The private
operatorhasalsoarrangeddebtof`1240croresfortheproject.Thishasbeentiedupfroma
consortium of banks ledby IDBI,Corporation Bank,KarurVysya bank,Canara Bank,Indian
Bank andOrientalBankofCommerce. IIFCL(U.K.)isprovidingtheforeigncurrencyloanforthe
project.
15.5 ProcessAnalysis
Conceptualisation and Feasibility
TheGovernmenthadbeenexploringtheviabilityofvariousmasstransitsystemsthatareefficient,
economicallyviableandenvironmentfriendly.Inthiscontext,adetailedfeasibilitystudywascarried
outundertheIndo-GermanTechnicalCo-operationbyentrustingtheconsultancyworktoTEWET in
association with DE-Consult &TCS,during 1997-2000.
ThestudyrecommendedamasstransitcorridorfromAndheritoGhatkoparaspotentiallybankable
andeconomicallyviable,afterexamininganumberofalternativecorridorsandalignments.Itwas
then decided to bid out the project on PPP basis.
Tomanagethetransactionprocess,aconsortiumconsistingofLouisBergerastechnicalconsultants,
PriceWaterhouseCoopers(PWC),MasonsandEconomicLawPracticeswasappointedin2003-04 to
assist MMRDA.
Procurement
TheprojectwasapprovedbytheGovernmentofMaharashtrainAugust2004andglobalbidswere
invitedinthesamemonthfortheprojectthroughanExpressionofInterest(EoI).Almost150 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

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for theproject.Thebidprocessconductedwasessentiallyatwostagebid-process,i.e.technicaland
financialstage.
Only those consortia whose technical bids met the technical criteria were allowed to submit
financialbids.Technicalbidswereinvited fortheprojectinMay2005.Theconsortiathatsubmitted
bids were:

Hindustan Construction Company and RITES

Reliance Energy Limited and Connex-France

ShaktikumarSacheti Limited and Lingkaran Metro

Siemens, L&T, Gammon, BEML

IL&FS and ITDThailand and Unity Infraprojects

The consortia which qualified to submit financialproposals were:

Reliance Energy Limited and Connex-France

Siemens, L&T, Gammon, BEML

IL&FS and ITDThailand and Unity Infraprojects

FinancialproposalsweresubmittedinJanuary2006onlybytheRelianceEnergyandIL&FSconsortia.
The Siemens consortium withdrew their bid.
Afterthebidprocess, negotiationscommencedwiththelowestfinancialbidder, i.e. Reliance
EnergyandConnexFrance.VeoliaTransportandHongKongMRTweretheothermembersofthe
consortiumprovidingtechnicalknow-how.FromFebruarytoMay2006negotiationswerecarried
out with the lowest financialbidder.
TheREL-ledconsortiumexpectedanEquityIRRof26%butthegovernmentwasabletonegotiate
foralower returninlinewithinternationalexperience.Theconsortiumfinally agreedonanEquity
IRR of 15% on their investment.This brought down theVGF to `650 crores.
AnapplicationforVGFwassubmittedtotheGovernmentofMaharashtrainJune2006afterthe
successfulbidderwaschosen.TheprojectfaceddelaysinobtainingapprovalforViabilityGap
Funding(VGF)astheprojectwasconceptualizedbeforethemodelconcessionagreementwas
putinplace.ItsconcessionagreementwasbasedonthemodelconcessionagreementofNational
HighwaysAuthority of India.
Moreover,thePublicPrivatePartnershipAppraisalCommittee(PPPAC)atthecentralgovernment
levelhadnotbeenconstitutedtillthattimeandonlytentativeguidelineswereinplaceforthePPP
agreements.Therefore,atthattimevariousoptionstoobtaingrantfundingwereexploredincluding
obtaininggrantfundingthroughtheJnNURMscheme.However,theJnNURMfundswerecapped
at10%oftheprojectcost.TheissuewasfinallyresolvedbygrantofVGFintheformofaspecial
onetimegrantgiventothestate.TheGoIagreedtogiveaspecialgrantof20%oftheprojectcost.
Inaddition,theGoMapprovedagrantof7.5%ofprojectcost.Thedocumentationandapproval
processtooksometimeandthe formal approval forVGFof`650croreswasobtained muchlater by
January 2009.
Development

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ThedevelopmentphaseoftheprojectwasinitiatedinparalleltotheVGFapprovalprocess.Major
milestones achieved in the development phase are presented below:

The SPV was incorporated in December 2006.

TheEngineeringandProjectManagementConsultants,aconsortiumofParsonsBrinkerhoff
(USA) and Systra SA (France) joined the team on February 14,2007

SigningoftheConcessionAgreementandShareholdersagreementtookplaceonMarch
7,2007

MMOPLandGovernmentofMaharashtraenteredtheStateSupportAgreementonApril
20,2007

Construction commenced on February 8, 2008

Financial Closure for the project completed on October 3, 2008

Allmajorcontractsfortheprojecthavebeenawarded.Atpresent,90%oftheRightofWayhasbeen
handedovertoMMOPL.Utilities,mapping,conditionsurvey,andtheworkforutilityshiftinghas
beencompleted. 70%ofthefoundationworkhasbeencompleted.Girderlaunchinghasstarted
atcertainstretches.TheconstructionoftheDepot,SubstationandStationshasalsocommenced
alongtherouteoftheproject. Workhasalsocommencedontheconstructionof2overhead bridges
atAndheri Station and theWestern Express Highway.
15.7 Key Learning and Observations
1. Expeditingthebidprocessiscriticaltoensuringagoodresponsetotheproposal:The
entirebidprocessforchoosingthesuccessfulbiddertookmorethan2years.Thisled
toalessernumberofbidderstobidfortheproject.Similarhurdleswereexperienced
inthebidprocessfortheMetroLine2astheconcessionagreementwasbasedon
themodelconcessionagreement.Thisagreementhoweverhadtobetailoredforuse
forimplementationofametrosystem.Thesedelaysresultedinonlyonebidderfinally submitting a
bid for the project.
2. DelayinObtainingVGFapproval:Therewassubstantialdelayinobtainingapprovalfor
VGFfromtheGovernment.Whilethiswasattributedtothemodelconcessionagreement
notbeinginplace,thePPPAppraisalCommitteenotbeconstitutedandonlytentative
guidelineswithrespectto VGFapprovalbeingavailableatthetime,thisissuewasa deterring factor
for developers and is also likely to have impacted the level of interest in the Phase 2 bid.
3. Delayinapprovalscanpotentiallyderailtheproject:Therewasadelayinobtaining
approvalsfortheoverbridgethatpassedovertherailwaylinefromtherailwayauthorities.
Thishadthepotentialofdelayingtheprojectschedule.Thiswasduetotherailways exploringthe
feasibilityofanotherprojectinvadingthepathofthemetroline.Howevera 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.LandAcquisitionprocesscanleadtoissuesintheproject:Thegovernmentcommittedthat

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thelandfortheprojectwhichessentiallyconsistsoflandallocatedforthedepotwouldbeprocuredasp
erthelandprocurementscheduleprovidedintheagreement.However,this
landwasunderprivateownershipandunderdispute.Thisexposedthegovernmenttothe risk of
land not being available for the depot thereby bringing in a possibility of derailing
theproject.Theissuewasfinallyresolvedbytheprivateownerofthelandagreeingto allocate 75%
of the land for the development of the project on the condition of the
governmentgrantinghimtherighttotheFloorSpaceIndex(FSI)availableovertheentire
plotoflandfor25%oftheland.Thislandhasbeenprovidedonanominalleaserentto the
concessionaire for the concession period.It is recommended in the future concerns
suchastheseareaddressedbeforetheprojectprocurementstageitselftoensuresmooth
functioning of the project.
5. ClearSpecificationsonAssetTransferontermination:Ontheterminationoftheproject
throughtheeffluxoftime,5yearsbeforetheexpiryoftheconcessionperiodasurveyof the assets
would be carried out to determine whether they are in working condition as
givenintheagreement.Thesurveyistobecarriedoutbyanindependentengineerbased
onascheduleofspecificationsontheconditionofassets.However,thescheduleinthe
concessionagreementdoesnothaveclearandrobustspecifications.Thereisthusarisk of a
difference of opinion between the concessionaire and the government and this can
potentiallyleadtoadispute.Thegovernmentcouldmanagethisbetterbyincorporating clearand
robustspecifications ontheconditionit would wanttheassetsto behanded over to the
government.
6. PublicSupportfortheproject:Foraprojectofthismagnitude,itisimportantforthe
governmentagencytogarneradequatepublicsupporttoensuresmoothimplementation. MMRDA
ensuredadequatepublic support for land acquisitionandroadexpansion activities
byadialoguewiththeaffectedindividuals.Despitetheseefforts,theprojectwas susceptible to
delays and similar difficulties are also being experienced in phase 2 of the project.
7. RoleofGoodProjectPreparation:Theviabilitygapfundingusedintheproject(`650crore)
makesupasignificantcomponent(27.5percent)oftheprojectcost.Thisprojectcosthas
beensharedbetweenthecentralandstategovernments.Theinitialquotesubmittedby
thesuccessfulbidderquotedanamount(`1250crore)whichwassubsequentlyrevisedto
thecurrentfigure throughnegotiations.Thus,thereisanincreasedneedforgoodproject
preparation prior to the procurement process to ensure that the fair bids are received for the
projects.Thiswould eliminate private operators colluding with each other and/or speculative
bids.

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