A ppt explaining intricacies of toll road projects

1. Toll Roads
A perspective …

2. Topics for discussion:
 Concept of Toll Roads (TR)
 Features
 Basic Activities involved
 Project Structures
 Major Risks Involved
 Tolling Aspects
 Government Support
 What’s new

3. Concept of Toll Roads (TR)
 TR are roads which can be used by vehicles on payment of
some toll (i.e. rent for use of resources). E.g. DND toll bridge
 Exponential growth in vehicle count and paucity of
proportionate road infrastructure (in km and quality terms) has
led to widespread use of concept
 Numerous risks involved
 Aid in economic development of surrounding areas
 Governments encouraging private initiative in TR (for various
benefits that entrepreneurship yields)
 Provide funding of other projects
 In India, NHAI being the pioneer to adopt the concept and
putting it to use on a macro scale with GQ

4. Features
 TR usually developed in urban areas (witnessing traffic
congestion) and Highways
 May or may not have alternate toll-free road (affect
project viability)
 Percentage and form of public support varies
 Important determinants for success of project:
– Traffic (classified into LMV, HMV, others); and growth rate
– Costs : Construction and Operation; and escalation
– Revenue : Tolls, Public Support, Advertisement, Realty, etc
– Funding: Debt ; Equity
– Duration (of Concession)
 Social and rehabilitation aspects

5. Basic Activities involved
 Feasibility – does the idea makes sense?
– Congestion levels
– Existing road infrastructure
– Financial Analysis
 Construction
– Type of contractor
• Experienced
• Financially capable
– Timelines (penalties and bonus)
– Cost estimates : as realistic as possible with cushion for escalation
 O&M
– Stringent performance standards
– Revised toll rates compel for better O &M

6. Project Structures …1
 Management Contract
– Construction by State or Central government or such agency
– Private Operator is entrusted the responsibility of operating and / or managing the TR
 Annuity
– Private builds and operates the road; gets annual payment
– Toll (if any) taken over by government
 Build Operate Transfer (BOT)
– Private player develops TR, operates it and transfers back to government on expiry of
concession period (usually 25-30 years: sufficient to recover the investment)
– Construction, operation and market risk on private
– Most common form of PPP
– Best suited for projects which have:
• huge construction costs involved
• revenues accruing during entire duration of project
• to be developed with latest technology

7. Project Structures …2
– Requisites for successful BOT project are:
• Strong project in terms of viability
• Identification and allocation (between public and private) of
prominent risks
• Active Government support (mainly for approvals and
clearances
• Established Sponsor
• Capable construction contractor
• Robust project structure (determined by concession
agreement)
• Appropriate funding (Debt and Equity): Usually debt
comprises of 70-90% of total capital

8. Investors
Government
Authority
Equity Funding Debt
Concession
Agreement Rating
Project Agency
Company /
Concessionaire Insurer
EPC/Construction / SPV
Contract Fees/Toll
O&M Off-taker /
Construction Consumer
Agreement
Contractor
Operating
Agency
A Typical BOT Project Structure

9. Major Risks involved …1
 Completion Risk:
– Availability of land
– Topography of site (soil, etc)
– Availability of raw material, labor, equipment
– Timelines
– Within budgeted costs
 Market Risk
– Traffic forecast
– Government Policies (like taxes)
– Existence or development of alternative road or other mode of
transport
– Economic sensitivity of people towards toll

10. Major Risks involved …2
 Financial / Revenue Risk
– Revision of toll (at least to cover rise in operating cost)
– Interest Rates and Inflation
– Foreign Currency rates
 Operating Risks
– Poor maintenance (leading early wear-n-tear)
– Design/Construction faults
– Labor problems
 Clearances
– Environmental
– Rehabilitation

11. Tolling Aspects …1
 Charge : either “per km” or “for entire journey (one way)” or
“on basis of weight of vehicle” or combination of any of above
 Duration: depends on
– Costs : Construction; Operation and Rehabilitation
– Toll Revenue
– Other objectives
 Quantum: to make the project viable
 System:
– Manual
– Electronic
 Pilferage

12. Tolling Aspects …2
 Form:
– Shadow Tolls : No toll collected from vehicles but paid by govt to
operator on basis of traffic count
– Open / Closed tolls
• Open : Toll collected at points along the road; no entry/exit
gates
• Closed: Entry and Exit gates for toll collection; requires setting
up of infrastructure for gates
 Revision in rates
– Guaranteed in BOT projects
– Based on some index (CPI, WPI, etc)
– Yearly or in a few years

13. Government Support
 NHAI Act amended to allow for:
– Private sector participation
 Declaring road as an industry: this enhanced bankability of
road projects
 Declaring Highways as infrastructure sector: for floating
Highway bonds
 Tax benefits for infrastructure projects and for inputs
 Encouraging private sector participation
 Model Concession Agreements

14. What’s new
More and more TR projects
More forms like road/rail river bridges
Private Equity in TR projects

15. Questions???