Aveneu Park, Starling, Australia

t total passenger traffic is about 85%. The

t was a few weeks that Dr. Atal Bihari Vajpayee took oath into the office as the next Prime
Minister of India in October 1999. He was to address the FICCI annual general meeting and
wondered what to talk about which would showcase the present government’s commitment
to a better India. Together with his Finance Minister, Yashwant Singh, he decided to speak
about transforming India by connecting it with highways. Although an ambitious project by
the government, the allocation for NHAI (National Highway Authority of India) that year was
a modest Rs. 500 crores for the new projects and four laning of National Highways.

Soon after that general meeting, things started to speed up. The civil servant of the MSRDC
(Maharashtra State Road Development Company) was asked to make a presentation for the
PM’s office for review. By the end of that year, plan was firmed up and the ambitious project
was flagged by Dr. Vajpayee simultaneously at 20 other places. The dream project was
valuated at Rs. 54,000 crores. Funding was a challenge even after the additional cess of Re. 1
on petrol, the bulk was which went to the highway development program.

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The Indian Transportation

India has the second largest road network across the world at 5.4 million km. This road
transports about 60% of all the goods in the country while the total passenger traffic is about
85%. The Union Minister of State for Road, Transport and Shipping has stated that the
Government aims to boost corporate investment in roads and shipping sector, along with
introducing business-friendly strategies that will balance profitability with effective project
execution. The Indian government’s very ambitious road transport projects require heavy
private investments to make them a reality. Therefore, the government, through its various
initiatives want to attract investments in the road transportation sector.

The Delhi-Gurgaon highway is a part of this golden quadrilateral. Due to excessive growth in
vehicular density between Delhi and Gurgaon, increased number of accidents and congestion
due to non-segregation of traffic, NH-8 (Delhi to Gurgaon was prioritized under the Golden
Quadrilateral project. It was decided to convert the 4-lane highway on this stretch to an 8-
lane highway, stretching up to 27.7km long, to be handled by NHAI. For this project, the
government decoded to go the PPP way. However, they listed down the obligations of both
concessionaires and of NHAI.

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Key Obligations of the Concessionaire

Compliance with all the required permit, approval, clearances from various
government agencies

Obliged to enter into a state support agreement with NHAI, Government of National
capital territory of Delhi (GoNCTD) and Government of Haryana (GoH)

Payment of performance security by the Concessionaire on or before the date of the
Agreement for its due and faithful obligation during the Construction Period.

Recovery of investment and suitable return on investment through toll collection
during the operation phase. The toll to be shared by NHAI if Passenger Car Units
(PCU) exceed the limit of 130,000 on the expressway. Annual revision of the toll.

Expressway to be transferred to the government at the end of the period of
concessions

Key Obligations of NHAI

Responsibility of land acquisition and Right of Way (RoW) to the concessionaire was
to be undertaken by the NHAI. In return, the concessionaire was to pay a notional fee
of Re. 1 annually to NHAI.

During the development period, NHAI would take on the task of maintaining and
operating the existing highways at its own cost.

Shifting utilities and related expenses were to be provided by NHAI to the
concessionaire

In the circumstances, where the revenue would fall short of revenue subsistence
revenue level, a loan facility was made available by NHAI at the State Bank of India
Lending Rate. This loan could also be extended to cover shortfalls in the debt service
payments.

NH-8: Project Implementation

For the Delhi Gurgaon Highway project, PPP was offered to the consortium of Jaiprakash
Industries and D S Construction Limited. The 8-lane construction of this highway was
undertaken in three phases:
Phase 1: This stretched from Rao Tula Ram Marg with an elevated structure as the VIP
route. This route was expected to bring high traffic volume to NH-8.

Phase 2: The daily commuters’ traffic zone, this route catered to both local and urban
traffic with its long-elevated flyovers, providing a speed link to the daily commuters’ going
towards Gurgaon.

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Phase 3: This tourist paradise route cut through the Haryana industrial zone. The traffic
had a mix of local and commercial vehicles with 20 lanes and opened to a toll plaza at 42
km.

This project started operating on 25th January 2008. The complete route consisted of 11
flyovers and overpasses. This project’s complexity led to struggles in construction phase and
was time consuming, mainly due to the number of government agencies who got affected by
its construction. Some of the agencies that were directly involved and affected by this project
are, Delhi Development Authority (DDA), Haryana Urban development Authority (HUDA), and
many others. Some of the problems encountered during the construction phase are listed
below:

Land Acquisition. Due to the high population density around some of the areas
surrounding this route, the delays were inevitable. Even with the NHAI’s intervention,
crucial areas of the highways faced a lot of issues to get the land in time for the project
to move ahead smoothly.

Changes in the scope of the project. The project was approved by the
government and the NHAI keeping in mind the future needs and the changing
consumers’ needs. Due to the separate projects carried out by DDA and HUDA, the
scope of the project kept changing in order to accommodate the future needs in
tandem with DDA and HUDA, therefore, creating further delays in the project.

Poor Traffic Forecast. One of the mistakes by the NHAI was to rely on the traffic
data from 1998, the time of acquiring the project. The fast changing face of the Delhi
Gurgaon traffic resulted in the traffic volume getting grossly exceeded than the
projections. Such miscalculations led to long queues at the toll booth on the very first
day of the expressway’s operation, defeating the whole purpose of the construction
of this expressway. Conditions improved due to timely actions by the government and
the concessionaire.

Lower Traffic Risk. Due to the high volume of traffic, the risk of the low traffic at
the toll gates was eliminated. It is estimated that between 2008 and 2013, the
concessionaire earned a total of Rs. 900 crores from the toll collection.

PPP Structure of the Project

• The Ministry of Road Transportation and Highways (MoRTH) invited pre-qualification
bids in 2001. By April 2002, the project was offered to Jaiprakash Industries Limited
and D S Constructions Limited to design, built, operate and maintain the highway as
per the specifications from the NHAI for a concession period of 20 years. In order to

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| SAURAV ANAND | SOUMI DE BHOWMICK

encourage the concessionaire to complete the construction on time, the concession
period included the construction period as well. By May 2003, a Special Purpose

Vehicle (SPV) was created, Jaypee-DSC Ventures Limited. 51% of the stake was held
by Jaiprakash Industries Limited and the rest 49% was held by D S Constructions
Limited. During the project, Jaiprakash Industries kept reducing their stake by
transferring their share to DSC Limited to a point that it was left with just 1.2%,
consequently, DSC now held the major stakes of 98.8% in the project. Ultimately the
venture was renamed as Delhi Gurgaon Super Connectivity Limited (DGSCL). A suitable
PPP structure was to be employed for this project as it handles roughly 180,000 PCUs
daily, starting at Dhaula Kuan in Delhi and ending at the end of Gurgaon (Manesar).

Following were the choices in front of the government for PPP:

The most famous BOT model. In case of the BOT model, it was to be decided as to go
for which of the three:

o Financially free standing
o Non-financially free standing
o Toll free

DBFO model
Financial Information

?200 crores of the debt from Housing and Urban Development Corporation Limited
(HUDCO). The other lenders included State Bank of Mysore (?30 crore), Punjab
National Bank (?30 crores), Srei International Finance (?25 crore) and Jammu &
Kashmir Bank (?15 crores). The SPV also issued non-convertible debentures
amounting to ?50 crores to LIC and ?37.30 crores to UTI Bank.

The actual cost of the project was eventually ?1,175 crores. Promoters funded the
cost overrun by withholding payments made to DSC Limited which was the EPC
contractor and from amount received from NHAI (?155.25 crores) over the changes
in scope of the project.

Particulars

Amount

Debt

?383.3 crores

Equity

?164.2 crores

TOTAL

?547.5 crores

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| SAURAV ANAND | SOUMI DE BHOWMICK

Risk Allocation Framework

Any project has risks involved in it. Delhi-Gurgaon Express Highway is no stranger to it. For
this project, too there were many risks involved. Few of those risks are tabulated below.

Risk Type

Comments

Financing Risk

The Concessionaire was required to get the
financial closure in 180 days from the date
of the agreement. Then an additional period
of 90 days was allowed subjected to an
advance weekly payment of Rs One Lakh
per week as damages by the Concessionaire
for delay in getting the financial closure.

Construction Risk

If the project is not completed in specified
time and date, the agreement suggested
weekly damages at the rate of 0.01% of the
total project cost. The project got delayed
due to delays in land acquisition and
changes in the scope of work. The risk was
borne by the Concessionaire and more
specifically by DS Constructions Ltd. as it
was also the primary contractor for the
project. NHAI was asked to pay the
increased investment requirement.

Design Risk

There were critical changes in the design
that led to increase in cost as well as time.
This meant revenue loss to the
Concessionaire

Delays in land acquisition

NHAI was liable to pay for damages if it
failed to provide ROW within the speculated
time. Delay in land acquisition resulted in an
increase in the cost for the government. This
resulted in loss of potential revenue accruing

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QUESTIONS:

| SAURAV ANAND | SOUMI DE BHOWMICK

Which model should the government go with?

If a situation arises, where the company goes bankrupt in the middle of the project,
how do you propose to modify the PPP model in order for the project to get
completed? It is mentioned in the case that the traffic was grossly underestimated for
this route. Do you think the private company could have had their own research
before the start of the project and accordingly design the highway? How did the
unusual traffic on the opening day affect the private company? 

x

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