List of Abbreviations

AASHTO American Association of State Highway and Transportation Officials ADT Average Daily Traffic ATCC Automatic Traffic Counters-cum-Classifier AVE Ahmedabad Vadodara Expressway BCE Bangalore Chennai Expressway BDA Bangalore Development Authority BOT Build Operate Transfer CCTV Closed-circuit Television CRF Central Road Fund CSO Central Statistic Office DBFO Design, Build, Finance and Operate DSCR Debt Service Coverage Ratio DSRC Dedicated Short Range Communication ECB Emergency Call Box EIA Environmental Impact Assessment ETC Electric Toll Collection FS Feasibility Study GDP Gross Domestic Product GE Guidelines for Expressways(Published by Indian Roads Congress in April 2010) GQ Golden Quadrilateral IC Interchange INR India Rupee IRR Internal Rate of Return IT Information Technology ITS Intelligent Transport Systems JBIC Japan Bank for International Cooperation JCIF Japan Center for International Finance JETRO Japan External Trade Organization JICA Japan International Cooperation Agency LOS Level of Service MCA Model Concession Agreement MET Meteorological data system MoRTH Ministry of Road Transport and Highways NH National Highway NHAI National Highway Authority India NHDP National Highway Development Project NSDP Net State Domestic Product ODA Official Development Assistance

OMHMCA PPP in Operation &Maintenance of Highways Model Concession Agreement PA Parking Area PCU Passenger Car Unit PFI Private Finance Initiative PPP Public Private Partnership PQ Pre-Qualification PRIDe Peninsular Region Industrial Development Corridor ROW Right-of-way SEZ Special Economic Zone SH State Highway SPCB State Pollution Control Board SPICOT State Industries Promotion Corporation of Tamil Nadu STEP Special Terms for Economic Partnership TIDCO Tamil Nadu Industrial Development Corporation Limited TNRDC Tamil Nadu Road Development Company Limited VMS Variable Message Sign

Chapter-1

INTRODUCTION

COMPANY PROFILE RITES LIMITED: The Organization

RITES is a PSU, which is an arm of the Indian railways. Originally incorporated on April 26, 1974, under the Companies Act, 1956 as a private limited company with the name „Rail India Technical and Economic Service Private Limited‟. Subsequently, the word „private‟ was deleted from the name of the company on February 17, 1976. Thereafter, the name of the company was changed to its present name „RITES Limited‟ on March 28, 2000. The company was converted into a public limited company on February 5, 2008. RITES Ltd. is one of the leading companies in transport infrastructure consultancy, engineering and project management services, with operations in India and abroad. It has the benefit of being associated with the Indian Railways, which is among the largest railway systems in the world under a single management. The company soon transformed itself from a mere railway consultancy firm to the activities connected with other modes of transport, with multidimensional activities. Today RITES Ltd. is a multi-disciplinary organization engaged in various areas related to consultancy at home and abroad ranging from concept to commissioning as well as project management. It gets preference as a consultant for the infrastructure projects of Indian Railways, government agencies and PSUs.

Some interesting facts about the company:

 RITES Limited is the first Indian company to operate railways systems abroad on concession basis.

 Its services have been instrumental in getting the first ever ISO 9001:2000 certificate in Afghanistan for ARDS.

 600 ongoing projects in India and over 30 ongoing projects overseas.

 One of the consortiums for the Delhi, Mumbai and Kolkata Metro.

 Its clients include various Central and State government ministries, other government bodies, public sector undertakings including IRCON, NALCO, Konkan Railway Corporation Limited, DMRC, IOCL, NTPC Limited, SAIL and NHAI as well as various private companies including Jindal Steel Limited.

 As a public sector undertaking, the company has been accorded the „Mini Ratna Grade- I‟ status by the GoI by virtue of operational efficiency and financial status.

 RITES Limited was upgraded from Schedule „B‟ to Schedule „A‟ on July 11, 2007.

Snapshot of evolution of RITES Ltd.

Consulting Operations/ value added services/ equity participation

Railway Total PMC, Exports P & C Related Transportation O&M

1974 1984 1989 1994 1999 onwards onwards onwards onwards onwards

Major revenue generation areas for the company are: Sectorwise Business (%) for year 2012-13

Export & Lease Railways PMC-Building/Power Urban Infrastructure Inspection(Non-Railways) Highways/Ports/Airports 6% 5% 6% 39% 17%

27%

INDUSTRY PROFILE

Infrastructure is the key to a nation‟s social and economic development. It includes everything from buildings to bridges, roads to railways and irrigation to telecommunications. Infrastructure inadequacies in rural and urban India are a real threat to continued growth. Until now, lack of political will, constrained financial resources and years of underinvestment have been the biggest impediments for infrastructure development.

More recently, the government has recognized that physical capacity must be created to ensure 9% GDP growth as envisaged in the XIth Plan period. Some key measures initiated by the government include, greater and focused expenditure on infrastructure and setting up of nodal agencies such as the National Highways Authority of India (NHAI), to provide a regulatory framework and to ensure efficient and timely implementation of projects. The Planning Commission suggests, “Investments will need to increase from 4.6% of GDP to between 7% and 8% in the XIth Plan period”. This would entail an outlay of USD 500bn across the XIth Plan period (2007-2012), of which about 30% is expected to be in transportation, including both roads and railways.

Project Site Map and Pictures

Summary

Primary Objective  Evaluate and estimate the project and perform feasibility study Secondary Objectives  Developing implementation strategies  Performing socio-economic evaluation of the project  Assessing traffic demand  Developing cost effective alternatives  Performing financial cost benefit analysis Primary Data:  Qualitative Data (experts view)

Secondary Data:  DPR (similar projects) and budgets  Industry data relating to project for designing layout of project  Economic data for risk analysis of inflation and cost overruns

Research Methodology  Preparing project layout, WBS & Gantt Chart and demand analysis report  Preparing reports of alternatives for the project  Preparing forecasted statements of project to be undertaken and estimating working capital requirements of project  Risk Analysis of Project (qualitative techniques & quantitative techniques)  Use of PERT & CPM  Scenario analysis to check impact of economic effects

Probable Outcome (s)  Solution to viability of project  Decision criteria on accepting or rejecting a project  Impact of inflation and cost overruns  Performance of project in respect of industry  Duration of operating and toll collection

Justification, Objectives and Necessity of the Project

India has approximately 340 million km total road length, making it one of the largest road networks in the world. However, most of its regional roads are still unpaved. About 75% of traffic occupies either the national highways or state highways, which is 2% and 5% of the total road length, respectively. The modal shares of freight and passenger by road transportation have been greatly increasing after the year 2000. Therefore, strengthening of road networks is a very important issue for the economic growth of India. The Government of India has prioritized the road sector in their 10th Five Year Plan (2002–2007), 11th Five Year Plan (2007–2012) and 12th Five Year Plan (2012-2017). The expressway networks development are desired to ensure high-speed and safe travel between major cities in India. The expansion of Chennai – Bangalore highway and connecting it to Poonamalle and Walajapet is one of the high priority project.

National Roads No. 4, No. 7 and No, 46 serve as links between Bangalore and Chennai. National Road No.4 runs through the north region while the route of National Road No. 4 – No. 7 – No. 46 runs through the southern region between both cities. Based on results of traffic counting survey on four locations conducted in 2013, the road capacity at three locations is forecasted to reach its saturation capacity in the near feature. Hence, the existing road networks do not satisfactorily serve the road users at present.

As of August 2013, more than 400 foreign companies have established their business around Bangalore and Chennai area, respectively. This means that 30% of the total number of MNCs are concentrated near the vicinity of Chennai–Bangalore corridor. Hence, the Bangalore–Chennai Expressway is expected to bring great benefits to the foreign companies as well as to Chennai–Bangalore economic corridor.

Basic Principle to Formulate the Project

To forecast traffic demand along Bangalore–Chennai Expressway, the past traffic data from the Ministry of Road Transport & Highway (MoRTH) and the latest socio-economic data from the Central Static Center were collected. The results of such traffic demand forecast in the previous study by the Government of India was then reviewed to carry out the traffic count survey in the Study.

For the expressway facilities, interval, size and type of facilities are designed to basically follow the Guideline of Expressway 2010 by MoRTH. Furthermore, the design standard and the technical know-how of RITES Ltd. were utilized in the said design.

An expressway or a highway to be constructed through BOT scheme in India is operated by a private sector who collects the toll charges from the operated road. However, the organization framework of toll collection and traffic management were proposed based on experiences and practices adopted in Japanese expressway operations.

Outline of the Project

Abstract of the Project

The project road is the Bangalore–Chennai Expressway with a length of approximately 270 km long, connecting both cities of Karnataka and Tamil Nadu. The cities Poonamalle and Walajapet are cities of Tamil Nadu now forming part of this highway. These cities are now connected to NH4 and the highway is widened from 4 lane to six lane. Outline of Bangalore – Chennai Expressway PPP Project

Project Name Bangalore – Chennai Expressway BOT scheme PPP Project

Implement Agency Government of India, Japanese Expressway Company and Trading Firm and RITES Ltd..

Content of Project ・ Construction of road, road crossing structure and bridge structure, interchange, service-area and parking facility

・ Establishing traffic control system and toll collection system

・ Road maintenance and road operation & management

Project Cost

（Initial Cost）・ Road construction: INR 65,179 million

・ Toll collection system: INR 831 million

・ Traffic control system : INR 1,523 million

・ Vehicle: INR 79 million

・ Consultant fee: INR 2,028 million

・ Land acquisition: INR 5,459 million

・ Project administration: INR 376 million

・ SPC Administration during Construction : INR 1,352 million

Total : INR 76,826 million (2013 price)

Procurement and Financing PPP Section : JICA Project Finance (70%) and Private Investment (30%)

Preliminary Financial Analysis Case of PPP Section: 50% + ODA Section: 50%

Pooled Internal Rate of Return (PIRR) : 14.35%, Eq.IRR : 17.98%

Debt-Service Coverage Ratio (DSCR) (lowest) : 1.01, DSCR (average):6.13

Financial Analysis EIRR : 24.5%

92km

Environmental Considerations

Regarding natural environmental aspect, the planned expressway alignment mainly runs through an agricultural, and partially through forest portion on hilly area. Especially, since the alignment runs near Koundlinya Wildlife Sanctuary, and across Rayala Elephant Reserve established under the Project Elephant in 2003 at Chittor District, Andra Pradesh, appropriate environmental measures shall be required to preserve diversity of flora and fauna species. In terms of social environmental aspect, 115 houses were found within the right-of-way (ROW) of the entire project alignment according to satellite images. With the assumption of five persons living in one house, 575 persons will be subject to involuntary resettlement; therefore, proper resettlement process shall be implemented as per relevant legal procedure. The Bangalore–Chennai Expressway expansion and connecting it to Walajapet and Poonamalle Project is considered to be implemented through hybrid Public-Private Partnership (PPP) scheme with Japan‟s Official Development Assistance (ODA) and RITES Ltd. Is responsible for its feasibility study. The whole section was equally shared by PPP and ODA scheme about 135km for highway and 45 km state highway for each. The supposed implementation schedule of PPP section and ODA section. Operation of the ODA section of the expressway is supposed to commence six months later than the PPP section.

GANTT CHART

Table 1-Implementation Schedule of PPP Section

Implementation Schedule of ODA Section

Feasibility of Implementation

From the financial analysis by formulating several scenarios of PPP scheme, the Bangalore–Chennai Expressway Project, which requires huge initial investment, will not be feasible without Viability Gap Fund (VGF). VGF provides funding of up to 40% of project cost according to the government regulation of India. However, the financial feasibility of IRR is not satisfied to achieve proper investment level even with using the maximum 40% from the VGF. On the other hand, the hybrid PPP scheme, which uses ODA loan to finance 50% of the initial investment becomes feasible in the financial aspect.

It may be assumed that the risks from toll collection or operational schedule will impact the expressway operation as a private investment due to actual traffic volume or land acquisition schedule. Therefore, detailed traffic survey and demand forecast, study of toll system of expressway, and study of social environment are recommended to be carried out in further stages.

Schedule up to Realization of the Project and Risks in Implementation The following risks to prevent project implementation may be pointed out:

・ The delay of environmental clearance due to EIA and RAP procedures in India will have impact on the schedule of land acquisition and commencement of construction. ・ According to PPP regulation in India, the bidding process may not commence until 80% progress of the land acquisition is achieved, in order to avoid its impact to the project implementation. Also, it should be noted that the schedule of land acquisition completion and hand-over directly impacts the financial management by a private operator. ・ Application process for ODA and tender evaluation process as per JICA Guideline also impacts the implementation schedule of ODA section.

Economic and Financial Situation of INDIA

India is a large country. Its population, which exceeds 1.2 billion, is second only to China, and its land area of 3,290,000 km2 (roughly 8.8 times that of Japan) makes it the seventh largest county by area in the world. In the 1990s, the country carried out drastic reforms of its economic structure and opened up to international trade and investment. As a result, its labor productivity improved and the country‟s economic growth rate rose. The central source of its economic growth is the service sector. While the agricultural sector‟s share of GDP has fallen and that of the manufacturing industries rose only slightly, that of the service sector has grown significantly.

In recent years, the economic growth rate of India in terms of actual GDP reached high levels, attaining some 9% between 2005 and 2007. However, the effects of the global economic and financial crisis brought this down to 6.8% in 2008. Under the 11th Five-Year Plan (2007-2011), the average annual growth rate for the period is set at 9%, but with the Five-Year Plan now in its final year, the Government of India is estimating that the growth rate under the Plan will be within the region of 8.2%.

The rate of increase in consumer price index rose steadily from 2004 through 2009, roughly tripling from 4.2% in 2004 to 12.4% in 2009, but fell slightly in 2010 to 10.4%.

On 21st April 2013, the Government of India prepared its draft of the 12th Five-Year Plan (2012-2016), and announced that it was setting the target growth rate of GDP at an annual average of 9.0-9.5%. With regard to growth in the next five years, expansion is mainly expected in the manufacturing and agricultural sectors. In the former, the goal is to achieve 11% or more growth, which is higher than the 8% of the 11th Five-Year Plan. In the latter meanwhile, the goal, which was 2~3% in the 11th Fifth-Year Plan, is to achieve 4% or higher.

India‟s economic balance has been in deficit since the 1980s, the main cause being a chronic trade deficit. The country is dependent on imports for roughly 70% of the crude oil it uses. Consequently, the rising price of crude oil in recent years, which has raised the cost of imports, together with the increased imports of capital goods and intermediate goods due to economic growth, has led to a chronic trade deficit. The largest export items are precious stones and jewelries (mainly diamonds and gold). Diamonds in particular have an overwhelming share of the global market, due to the high level of competition in diamond polishing techniques. Meanwhile, the largest import item is petroleum and its products, since 70% of the oil consumed in India is procured mainly from the Middle East.

Overview of Sector Subject to the Project

State of the Roads

Roads have been built to link all the major cities of India. The total length of the road network covering the country is 3,320,796 km, making it the world‟s second largest road network in terms of length, after America. Roads are classified according to their function and importance into five categories, namely, expressway, national highways, state highways, major district roads, and rural and other roads. Roads other than Expressways, national highways and state highways are generally unpaved, and have single lane widths. The recent rapid economic development has led to a huge jump in the number of automobile sales and vehicle registrations. Hence, traffic congestion especially in large cities, is turning into a problem of serious proportions. It is said that roughly 85% of passenger traffic and 65% of freight traffic is carried by roads. The national highways in particular, which accounts only for not more than 2% of the total national road network, carry roughly 40% of all road traffic. Moreover, the construction of expressways has suffered delays and thus, no more than 200 km of expressways are open to traffic.

Indian Road Network Type of road Length (km) Expressway 200 National Highway 70,934 State Highway 131,899 Major District Road 467,763 Rural and Other Roads 2,650,000 Total 3,320,796

Road Administration Structure

The Ministry of Road Transport and Highways of India (MoRTH) has control over the road sector as a whole. It is in charge of policy making with regard to the national highways, in terms of planning for their development, and their maintenance and management. MoRTH also determines standard specifications for road structure and provides financial and technical support for the state governments.

The national highways are under the jurisdiction of MoRTH and the NHAI. The state highways are the concern of the State Public Works Departments, the Road Construction Departments and the Road Development Corporations. The major district roads are under the jurisdiction of the Ministry of Rural Development and the State Development Departments. Figure 1.2.1 shows the overall structure of organizations related to national highway development.

When a state highway is to be built with the injection of funding from the central government, jurisdiction lies with the Ministry of Urban Development. In particular, in the case of a road project involving overseas aid, application to the Ministry of Finance must be made through the Ministry of Urban Development.

Road-related Legislation

The principal legislation relating to roads includes the NHAI Act 1998, the National Highways Act, the Road Act 2007, the Road Rules 2013, the National Highway Rules 1957, 1964, 1997, the Dispute Settlement Act 1940, the Indian Toll Act 1851, the Central Road Fund (CRF) Act 2000, the Land Acquisition Act 1984 and the Control of National Highways (Land & Traffic) Act 2005. The Model Concession Agreement (MCA) was formulated in order to tender and award contract for Build-Operate-Transfer (BOT) schemes on toll roads, based on the National Highways Development Project (NHDP). At present, MCAs are also being drawn up for state highways, and are being used as the standard for road projects.

In December 2007, the federal government drew up a standard tender form BOT projects, shortening the period of the tender, and increasing transparency. Road Funding Sources

There are a number of types of funding sources for roads. Firstly are road budget from the federal and state governments, funding from multinational institutions and the Central Road Fund, as well as private-sector funding through Public Private Partnership (PPP). Private-sector funding via PPP has been increasingly applied particularly for road projects for toll roads.

In India‟s 11th Five-Year Plan (2007-2011), it was surmised that $500 billion would be invested in the development of infrastructure, of which 30% would be private sector investment. As a result, 36% of the total investment was from the private sector. In the 12th Five-Year Plan (2012-2016), the amount of infrastructure investment is expected to be $1 trillion. In this instance, it is expected that private sector funds will be used for 50% of the investment. The national highways account for only 2% (approximately 70,000 km) of India‟s entire national road network (approximately 3.3 million km), but carry 40% of all road traffic. The policy of the current NHDP is for 60% of the planned infrastructure development (approximately 50,000 km) to be implemented through PPP (BOT/Toll), and the construction and improvement of the most important roads linking the four major cities (Delhi, Mumbai, Chennai and Kolkata), have almost been completed.

In November 2009, MoRTH drew up the Expressways Development Project, whose policy is to build 18,637 km new expressways by 2022 through PPP scheme.

NHDP and Other NHAI Projects (Status: 31st October 2013)

Conditions in the Project Area

The project area extends over the three states of Karnataka, Andhra Pradesh and Tamil Nadu. An overview of the three states is given below.

Overview of Karnataka State

State capital Bangalore Land area 190,000 km2 Population 61.13 million Literacy rate 75.6% (March (March 2013） 2013） Official language Kannada Number of 155（October foreign 2013） companies Geography, climate Located in the Southwest part of the Deccan Plateau, where there is little precipitation. Bangalore is a highland city, located at an elevation of 920 m above sea level and enjoys a very comfortable, moderate climate that is neither too hot nor too humid. olitics After independence for some time the All-India National Congress Party was in power, but in the 1980s the Janata Dal(JD) Party became prominent and took power from the Congress Party.In the 1990s the JD Party split into the United Front Party and the Secular Party and lost influence. Currently the Indian People's Party (Bharatiya Janata Party) has established its first administration in the southern part of India and is enthusiastic about the economic development of the State as a whole and about the development of urban infrastructure in Bangalore. Economy The Gross State Domestic Product for 2009 was 2,512,680,000,000 rupees, an increase of 5.2% over the

previous year. The amount of direct foreign investment is the third largest in India. Income from software exports is the highest in India. Industry The development of the state capital Bangalore has so far centered on the national defence and hi-tech industries, in such fields as aviation, space development, construction and civil engineering, machine tools and electronic equipment. The introduction of economic liberalization from 1991 onwards has sped up the gathering of IT-related enterprises in the State. Other industries that have gathered here include automobiles/auto parts, construction and civil engineering, machine tools, biotechnology and clothing. The State Government is promoting industrialization in line with the Five-Year Plan that started in 2006.

Overview of Andhra Pradesh State

State capital Hyderabad Land area 280,000 km2 Population 84.66 million Literacy rate 67.7% (March (March 2013) 2013) Official language Telugu, Urdu Number of foreign 53 (October companies 2013) Geography, climate Located in the Southeast part of the Deccan Plateau, with very hot summers from March to May and a wet season lasting from June to December. The State has the largest land area and largest population of the four southern states, and is blessed with abundant natural resources. Politics In 1994 the Telugu Desam Party (TDP) came to power in the State elections. In 1995 Chandrababu Naidu, the brother-in-law of Rao, became chief minister of the State. In 2004 the TDP was defeated by the Congress Party. In addition to the development of the IT industry that was encouraged by the previous administration, the present administration is also promoting the development of rural areas. Economy The Gross State Domestic Product for 2009 was 3,407,120,000,000 rupees, an increase of 5.8% over the previous year. Industry In recent years knowledge-intensive industries, such as IT, biotechnology, medical product manufacture, etc., have been growing, centered on Hyderabad. With regard to the IT industry, income from software exports is the fourth highest in the country; in 2006 the amount of exports rose markedly by a huge 48% over the previous year.

Overview of Tamil Nadu State

State capital Chennai Land area 130,000 km2 Population 72.13 million Literacy rate 80.3% (March (March 2013) 2013) Official language Tamil Number of 240 (October Japanese 2013) companies Geography, climate Located in the southeast part of the Indian subcontinent, facing the Bay of Bengal. The climate is hot and humid all year round. The period of greatest heat is from April to June. History In 1522 the Portuguese established a stronghold in the Santhome district of what is present-day Chennai and were the first European settlers to engage in trade. In 1639 the area prospered as a base of the British East India Company. Politics From Independence to 1967 the Congress Party were in complete control of the State administration. Since 1967 the Dravida Munnetra Kazhagam Party and the All India Anna Dravida Munnetra Kazhagam Party that were formed after Independence have held power by turns. Economy In 2008 the Gross State Domestic Product reached 2,284,790,000,000 rupees, an increase of 4.6% over the previous year. Tamil Nadu State is one of the most industrially advanced states in India, and the average income in the State is the second- highest in the country. Industry The main industries include automobiles/auto parts, IT, electronics, textiles, cement, chemical products and leather products. The automobile-related

industries in particular include 11 automobile-assembly enterprises. Automobile production in Tamil Nadu accounts for 25% of national production, and auto parts production for 35%. The State is the second- largest center for the software industry in the country, after Bangalore. The ports of Chennai and Ennore are being extended and improved.

Chapter-2

Study Methodology

Purpose

The Government of India is considering the implementation of Bangalore–Chennai Expressway expansion plan via Walajahpet Project through PPP by BOT contract. In this study, the possibility for a Japanese company to implement the project using financial assistance of JBIC or JICA is studied.

Study Outline

In this study, my team collected information from the previous study currently being implemented in India. From these, the expressway expansion construction project connecting Bangalore and Chennai will commence by applying the plan of NHAI. The basic design, rough cost estimate related to construction and operation of expressway, economic and financial analysis, and effects to roadside and social environment have been implemented, Moreover, validity of project implementation was assessed. During related project inspection, the existing expressway plan, implementation schedule, project cost and so on, are being evaluated considering the applicability of high technological know-how on expressway operation in Japan. The present and future traffic volume along the existing national highways (NH4 via Walajahpet (335km), NH7, NH46, NH4 via Vellore (349km)) are being examined considering their possible function as alternate route in the expressway network plan throughout India. Reviewed also are the existing plan of this project (road plan, implementation schedule, project cost and so on), based on Guidelines for Expressways of India considering other

36 restrictions. The implementation method for the project is also being examined by confirming economic rationality based on fundraising plan including economic analysis and international financial market. It is also suggested that that deregulation policy about effects of this project be realized by checking site and existing data and through interview of related organization regarding the effects to roadside and social environment during construction and operation stage. The main examination tasks are as follows:

 Collecting and reviewing existing data related to maintenance and construction of expressway  Collecting and reviewing existing traffic data and social economic guideline data  Collecting and analyzing information and data related to BOT/PPP project system  Examination about present state of O&M in similar project  Examination and investigation about prevention materials and construction cost, and construction and O&M cost  Examination and assessment of effects to social environment  Collecting information about participation of Japanese company as private operator of infrastructure and examination of prospective fundraising project  Collecting information about dealing with related agency and executing organization in the partner country  Road plan and expressway structure plan  Examination of traffic demand forecast  Review and examination of alignment and road width  Review and examination of structure type and construction method for bridges  Review and examination of expressway structure (service area, interchange and traffic control)  Examination of O&M plan

 Economic and financial analysis  Examination of fundraising method  Examination of project implement plan

Study Methodology and Structure

Study Methodology

This work consists of site investigation and desk study which is done by the engineering department of RITES Ltd. During site investigation, the Study Team visited site, collected information about progress and contents of the previous study, collected other existing data, discussed matters with stakeholders, and inspected the project location. For the desk study, the Study Team classified and analyzed the collected data, carried out basic design, decided the implementation policy, and prepared reports based on the mentioned works.

Preparatory Work of Japan

The Study Team realizes the need to obtain information about related investigation that Japan previously implemented in India. Moreover, existing reports were collected and classified. Such data obtained were reviewed in Japan prior to deciding on the implementation plan for the site investigation. Proposed items were classified in relation to the following problem items and project implementation policy. Related organizations were also identified and hearing interviewed about said items during the site investigation.

Item of problem

 Alignment/road form: connection with existing roads from starting point to ending point; interchange location; cross section of expressway including road shoulders  Maintenance/operation: demand level of road maintenance; demand level of traffic operation; toll charging system  Supply system: PPP scheme; risk allocation; fundraising methods  Development around expressway: industrial park development plan; company attraction plan  Consideration of social environment: EIA system; land acquisition system

First Study of India

The Study Team visited India road traffic agency, NHAI, Ministry of Road Transport and Highways (MoRTH), industrial development bureau of State government, Japanese Embassy, JICA and JETRO site office, and so on. This was intended to understand how things are done in relation to the implementation of the project, and the present policy of the government with regards to most efficient PPP- BOT scheme for roads. Consequently, related data and information were collected. Moreover, the Study Team visited the project site, its surrounding roads, and existing expressways in India, which are similar to this project, in order to understand issues concerning road conditions and environmental and social considerations in the

39 country. The following four investigation tasks were implemented by local consultants.

Traffic Survey

 Recording of 24-hour traffic volume at three points along National Highway 4, and one point along National Highway 46.

Collection of economic data in three states namely, Tamil Nadu, Andhra Pradesh, and Karnataka

 Collection of the latest society and economical guideline data about said states, which are traversed by the Bangalore– Chennai Expressway.  Collection of existing investigation data related to forecast of economic growth and so on.  Collection of information related to industrial development and industrial park development plan.

Collection and investigation of existing data related to PPP/BOT scheme

 Collection of data related to PPP in road sector.  Collection of existing data related to the supporting system and guarantee system by the Government of India about PPP road projects.  Collection of existing data related to taxation system of the Government of India related to PPP road projects.  Collection of existing data related to fundraising for PPP projects in India.

Collection and investigation of existing data related to environmental and social considerations

 Collection of existing related EIA data and land acquisition system in road projects in India.  Collection of information and data related to social situation around the project location.  Collection of existing data related to the supporting system and guarantee system by the Government of India with regards to PPP projects.  Implementation of site investigation for environmental screening.

Structure and Member of Study Team

Structure of Study Team

Justification, Objectives and Technical Feasibilities of the Project

Background and Necessity for the Project

Scope of the Project

The major objective of the Bangalore – Chennai Expressway Expansion Construction Project is to connect people and goods between both cities with shortest time. The starting and ending points of the expressway, which define the project area.

Proposed location of starting point (Bangalore side)

Decision on the starting point in Bangalore side shall consider smooth traffic operation to Mangalore port, Karnataka state, Goa state, Maharashtra state and efficient distribution from industrial park around Bangalore. It is proposed that the intersection between National Highway No.4 (NH4) and NH217 shall be improved as the starting point of Bangalore – Chennai Expressway due to the following reasons;

 Karnataka state urban development agency is planning a new ring road construction of 116 km length at the outskirts of Bangalore called the Peripheral Road.  National Highway Authority of India (NHAI) is studying an improvement project with widening of NH217 to 4 lanes that connects NH7 in south-east part to NH4 in north-west part in the Bangalore metropolitan area. NHAI is considering on PPP scheme for this improvement.  NH4 between Peripheral Road and NH217 was widened to 6 lanes to cater high traffic volume.

Proposed location of ending point (Chennai side)

It is very important for the ending point in Chennai side to consider smooth connection to Chennai port located at the center of the city and Ennore port located at the north part. It is proposed that the end point of the Project shall be at the Chennai Bypass Road from the connectivity to port access. Following port access improvement projects are under implementation;

 Tamil Nadu state is implementing the construction of the Chennai Ring Road that connects NH45 and NH205 through a PPP scheme in the first phase. The ring road is planned to connect with Ennore port in the second phase of construction.  NHAI is constructing a flyover road in the city that connects the point of intersection of Chennai Bypass Road and NH4 to Chennai port.

Present Condition and Development Plan of Road Network Related to the Project

Present Status of Existing Road Network and Future Plans

The existing road network connecting Bangalore and Chennai includes two routes: the route on NH4 that passes from the north of the Project road, and the route through NH7 via NH46 and then to NH4 that passes from the south side of this Project. Also, in the Chennai urban area, the Chennai Bypass is in operation with the objective of supplementing the inner ring road. In the Bangalore urban area, an outer ring road is in operation.

Bangalore Outer Ring Road

Bangalore Outer Ring Road is located about 10km from the center of the city, which has a total length of 62km, and there are four lanes along the whole route. Construction of grade separated intersections are in progress at the intersections with radial roads in order to improve access to the airport (on the section from Bommanahalli at the intersection with NH4 to Venkatala which intersects with NH7 in the north direction). At present, construction works at 9 out of 17 locations have been completed. In a meeting with the Bangalore Development Authority (BDA), which is the main organization for this construction work, it was stated that after the construction is completed at all locations, toll collection will be started. For the route to the south, land acquisition is difficult due to rapid development of the area.

Road Network in Bangalore Urban Area (including future plans)

Source: Document supplied by Bangalore Development Authority (obtained 26th September 2013)

Chennai Bypass

Chennai Bypass is a road located outside the inner ring road to prevent the concentration of traffic in Chennai City, and is connected to NH45 and NH5. The only interchange on the bypass is the intersection with NH4 (a clover leaf type), and six lanes are provided throughout the whole length. There are toll gates installed on the south side of the intersection with NH4. Toll gate is also planned before the intersection with NH5 in future.

Road network in Chennai urban area (including future plans)

Source: Document supplied by Tamil Nadu Industrial Development Corporation (obtained 15th September 2013)

Future Plans for the Associated Road Network

Chennai Outer Ring Road

Chennai Outer Ring Road is being implemented by the Tamil Nadu Road Development Company Limited TNRDC). The road has a total length of 62km and width of 122m, and is located 25 to 30km from the center of Chennai city. As shown in Figure 3.1.2, the cross-section consists of a 6-lane road with 2- lane service roads, with 3-7 land provided in the center for public transport such as railway, etc in future. A 50m width strip of roadside land has also been provided for commercial development. In the phase 1 section from Vandalur on NH45 to Nemilichery

46 on NH205 (29.2km), land acquisition has been completed, and construction is in progress. In the phase 2 section from Nemilichery on NH205 north to Minjur, land is currently being acquired.

Elevated Expressway from Chennai Port to Maduravoyal

This is planned as a 4-lane elevated expressway from Chennai Port in Chennai City along the Cooum River to Maduravoyal on NH4 (17.54km), and at present the bridge substructures and so on are under construction.

Peripheral Ring Road

Peripheral Ring Road is planned by the Bangalore Development Authority (BDA). The total length is 117km and the width is 100m. It is planned with a 4- lane main road shifted to one sideand 9m service roads provided on both sides. Also, an approximately 30m space is provided to enable a railway to be built in the future. The plan of Peripheral Ring Road is divided into phase 1 (65km) and a phase 2 (52km). Phase 1 is a section that starts at Madanayakanahalli at the intersection with NH4, and proceeds north to Huskur Gate at the intersection with NH7. In a meeting with BDA it was stated that the pre-qualification has already been completed six months ago, and when the Government approves the budget, land acquisition and construction will start.

Present Traffic Condition on Existing Road Network

Methodology and Location of Traffic Survey

Traffic Volume Count Survey was conducted for 24 hours at 4 locations on the northern and southern existing routes between Bangalore and Chennai to understand the present traffic condition. The enumerators sitting roadside recorded the number of vehicles passing through the road by direction. The classification of vehicle type

Classification of Vehicle Type for Traffic Survey

Class Vehicle Type Categories for Summary 1 Two Wheelers Two/Three Wheeler 2 Three Wheelers 3 Car / Jeep / Car Van / Tempo 4 Mini Bus Bus 5 School / Company Bus 6 Bus 7 Light LCV Commercial Vehicle (LCV) 8 Two Axle Truck Two Axle Truck 9 Three Axle MAV Truck 10 Multi Axle Vehicle 11 MAV > 6A 12 HCM / EME Slow & Others

13 Agricultural Tractor 14 Agricultural Tractor & Trailer 15 Animal & Hand Drawn 16 Cycle 17 Cycle Rickshaw 18 Others 19 Police Car 20 Ambulance 21 Fire Fighting Car

List of Traffic Survey Stations Station Location Location State Date ST-1 Kolar NH-4, Karnatak Sep. 15, 2013 (Sun) Km295.0 a

ST-2 Mogili NH-4, Andhra Sep. 14, 2013 (Sat) Km183.9 Pradesh ST-3 Senthama NH-4, Tamil Sep. 13, 2013 (Fri) ngalam Km71.5 Nadu ST-4 Krishnagiri NH-7, Tamil Sep. 20, 2013 (Fri) Km87.8 Nadu

Traffic Survey Result

Result of the traffic survey is presented in Table. Larger traffic volumes are observed at ST-3 and ST-4 and less at ST-1 and ST-2, which indicates that the main inter-urban traffic between Bangalore and Chennai may go through the southern route.

Traffic Survey Result: Daily Traffic Volume (Vehicles/d)

Statio 2/3 Car Bus LCV 2 Axle MAV Slow Total n Wheel Truck & ers Others ST-1 West 1,340 1,872 745 632 1,315 843 73 6,820 to East East 1,554 2,037 737 685 1,525 936 91 7,565 to East Both 2,894 3,909 1,482 1,317 2,840 1,779 164 14,385 Directi on ST-2 West 753 1,054 510 396 536 665 85 3,999 to East East 850 1,051 572 422 533 652 84 4,164 to East Both 1,603 2,105 1,082 818 1,069 1,317 169 8,163 Directi on ST-3 West 1,575 3,541 1,943 1,264 1,941 1,933 162 12,35 to 9

East East 1,454 3,420 1,695 520 2,716 2,281 119 12,205 to East Both 3,029 6,961 3,638 1,784 4,657 4,214 281 24,564 Directi on ST-4 West 5,238 3,028 1,375 1,268 1,327 2,351 187 14,77 to 4 East East 5,153 4,014 1,394 616 1,098 2,264 182 14,721 to East Both 10,391 7,042 2,769 1,884 2,425 4,615 369 29,495 Directi on

Vehicle composition is shown in Figure 3.1.9. The combined proportion of Light Commercial Vehicle, 2 Axle Truck and Multi Axle Vehicle is more than 30% at every location, which explains the industrial importance of these roads. 2/3 Wheeler shows relatively large proportions at present, which may shift to Car, Bus or other traffic modes along with future economic improvement.

Traffic Survey Result: Vehicle Composition

Hourly fluctuation of traffic volume is shown. Total traffic volume during night is smaller at every station, but volume of freight vehicle does not significantly decrease during night.

Basic Conditions to Formulate the Project

Traffic Demand Forecast

The purpose of this study is to confirm the validity and applicability of the existing previous study on the Bangalore – Chennai Expressway by NHAI based on its review and past traffic data by MoRTH and using the latest economic data of the Central Statistic Office (CSO), together with the results of traffic survey by the Study Team. However, it should be noted that the verification of the validity of results of traffic assignment simulations is difficult due to the constraint of availability of data and limited timeframe given for the study. As a result, the review of the previous study is mainly focused on the forecasts of future socioeconomic frame and traffic growth rates presented in the previous study. (The present and future OD matrices and network data necessary for the traffic assignment were not officially given.)

Future Socio-Economic Frame

The previous study forecasted future economic growth rates for the 3 states in the study area up to 2030 applying the NSDP (Net State Domestic Product: 1999/2000 prices) by CSO as shown below:

Forecasted Economic Growth Rates for 3 States in Study Area by Previous Study

Year Range of Economic Growth Rate Average Growth Rate Up to 2010 5.5 – 7.5% 6.5% 2013 – 15 6.3 – 8.3% 7.3% 2016 – 20 6.7 – 8.7% 7.7% 2021 – 25 6.2 – 8.2% 7.2% After 2025 5.7 – 7.7% 6.7%

In order to examine the said average growth rate 6.5% up to 2010, the revised latest data of NSDP at 2004/05 prices were collected with additional data of FY 2009/10 in this study and analyses of the past growth trend were carried out.

An average economic growth rate of NSDP of the 3 states for 5 years from FY 2004/05 to FY 2009/10 was at 9.0% per annum. An annual economic growth steadily went down from high rates at 11.4% in FY 2005/06 and 12.3% in FY 2008/07 to 5.1% in 2008/09. However, the growth trend has turned into upward direction with a rate of 6.6% in 2008/09. This rate falls in the range of growth rates (5.5% - 7.5%) which were forecasted by the previous study and is almost equal to the average rate of 6.5%, and hence, the said rate 6.5% is judged to be appropriate.

Revised NSDP and Annual Growth Rate (2004/05 – 2009/10)

FY NSDP at States Yearly Growth in the study area Rate Andhra Karnat Tamil Total All 3 stats Pradesh aka Nadu India India NDP 2004- 201,30 147,97 193,92 543,20 2,651,5 - - 05 3 3 7 3 73 2005- 220,90 163,86 220,56 605,32 2,903,3 11.4% 9.5% 06 1 0 6 7 30 2006- 244,58 180,80 254,22 679,60 3,180,4 12.3% 9.5% 07 7 0 1 8 19 2007- 272,72 203,87 270,06 746,67 3,471,4 9.9% 9.2% 08 6 9 6 1 43 2008- 287,65 209,73 287,24 784,63 3,695,2 5.1% 6.4% 09 3 8 2 3 74 2009- 304,01 219,35 312,94 836,32 3,975,4 6.6% 7.6% 10 8 8 8 4 29 AAGR (%) 8.6% 8.2% 10.0% 9.0% 8.4%

The validity of forecasted growth rates after 2009/10 was investigated comparing with the GDP growth rates of the whole country of India. The economic growth rate of the study area (3 states) in 2008/09 was lower by 1.7% than that of India. It was 1.4% lower in 2009/10, which means that the forecasted growth rates of NSDP for the 3 states is lower than that of whole India. The Asian Development Bank (ADB) has forecasted economic growth rates of India at 7.9% in 2013/12 and 8.3% in 2012/13 (Asian Development Outlook 2013). Based on these forecasts, the economic growth rates of the 3

53 states up to 2015/16 are considered to remain around 7% per annum. Therefore, the growth rates of 7.3% for 2013 – 2015 and 7.7% for 2016 – 2020 estimated by the previous study for the 3 states are judged to be appropriate.

Verification from Actual Traffic Growth Rate at Road Sections

In this study, 24-hour traffic count surveys were carried out in September 2013 (one weekday survey) at the four (4) road sections coincided with the survey points conducted in the previous study in 2013. The validity of the traffic growth rates by the previous study was checked by comparing the traffic volume at those four (4) survey points in 2013 with actual traffic in 2013 in the previous study together with the past traffic data by the MoRTH (only the survey points data are available). However, as shown below, the traffic volume at road sections is affected by the conditions of survey points and survey days, and traffic fluctuation at each point is very large. In addition, as the forecasted traffic growth rates by the previous study are for the traffic of the whole study area (total of OD matrices), it is difficult to judge the validity of forecasted traffic growth rates from the actual growth rates at road sections. Furthermore, only two years interval from 2013 to 2016 is too short to obtain enough information.

Past Traffic Volume by Survey Station (ST1, NH-4, Kolar: 2013-2016)

Year Location Two Three Car Bus Truck (Km) Wheeler Wheeler 2013 NH-4 1,700 300 3,700 1,200 3,500 (Previou (Km285. s Study) 0) 2013 NH-4 2,375 519 3,909 1,482 5,936 (The (Km295. Study) 0) Average 2013- 18.3% 25.6% 2.4% 13.5% 30.9% Growth 2016 Rate

Confirmation of Lane Requirement

The previous study assumed that the opening year of the Bangalore – Chennai Expressway would be 2014 with 6 lanes. The forecasted traffic volumes on the expressway are presented in Table 3.2.11. Based on the forecasted traffic demand, analysis was done in order to clarify whether the opening with 6 lanes in 2014 is justified or not; in other words, 4 lane opening is enough or not.

Future Traffic Volume on Expressway by Previous Study (Vehicles/d)

Following are the new requirements of the expressway:

Traffic Management System

To ensure the safety and comfort to the users of expressways, the necessary facilities must be installed. It is necessary to provide information collection facilities, information provision facilities, operation facilities, a Traffic Control Center that deals with events which is the main task of operation, Maintenance Offices that carry out maintenance management of the road facilities, and toll plaza at each IC for collecting tolls.

Toll collection and operation system

In order to provide a system with staff working at toll plazas 24 hours a day, it is necessary to create an efficient staff shift system. In this Project, the results of the discussions between East Nippon Expressway Company Limited and representatives of the Government of India in connection with the contract for the India Hyderabad ORR project are applied.

Number of Staff Required

Y-type (Double) Trumpet Trumpet Central BCE Position IC trumpet type IC type IC Office * total /1 type IC/1 (Bangalo (Chenn location location re) /1 ai location bypass) /1 location Head 1 1 1 1 cashier 12 banker Clerk 4 4 4 4 48 Shift in 4 4 4 4 charge 48 Supervis 8 8 12 8 or 100 Collector 15 23 45 23

258 Cleaning 1 1 1 1 1 13 Helper Peon 1 1 1 1 1 13 Security 4 4 4 4 Shift In 48 charge Security 4 8 12 8 8 88 Guard Gunman 4 4 8 8 4 60 Total 46 58 92 62 14 688

A computer system at a toll plaza shall not only monitor the operation of all equipment on the lanes continuously, but is also used to collect, inspect, prepare and print out statistic data, display them on monitoring screens in the Control Room in a toll plaza and transmit them to the Central Office in the Traffic Control Center. A computer system which enables centralized control of all data and monitoring of all toll booths shall be constructed at the Central Office.

EIA and Environmental Clearance Application Process for Category A Projects

Flow for Land Acquisition as per National Highway Act 1956

Chapter-3

Financial and Economic Evaluation

Project Cost

Road Construction Cost

Road construction cost is estimated for following cases for financial analysis. 6-Lanes expressway without service road 6-Lanes expressway with service road discontinued at stream, river crossings and forest areas -Lanes expressway with service road continuous along stream, river crossing but discontinued along forest areas

In “Summary of Preliminary Financial and Economic Analysis” of this report, the road construction cost is applied with the following designed conditions; Number of Lane on Main Carriageway : 6-lane

along forest areas (both-side, total 235.5 km)

Cost Estimates for 6-Lanes Expressway with Service Road, with Bridges

ITEMS Unit AMOUNT (thousand Rs) Section1 Section2 Section3 Section4 Section5 TOT AL I SITE CLEARANCE 1 Clearing and ha 13,991 19,369 17,368 32,856 8,55 92,143 Grubbing 9 2 Dismantling etc ha 3,498 4,842 4,342 8,214 2,14 23,036 0 II EARTHWORK 3 Excavation in cu. 9,193 12,019 10,087 9,877 0 41,176 common soil m 4 Excavation in cu. 0 52,449 115,955 32,133 0 200,53 ordinary rock m 7 5 Excavation in cu. 0 0 608,315 270,525 0 878,84 hard rock with m 0 blasting 6 Construction of cu. 973,782 1,568,7 1,392,77 2,886,0 892, 7,714, embankment m 20 0 32 711 015 7 Construction of cu. 169,449 218,657 191,919 365,300 92,2 1,037,

subgrade m 92 617 III SUBBASE AND BASE COURSES 8 Granular cu. 388,680 514,185 478,839 850,170 209, 2,441, subbase m 359 233 9 Wet Mix cu. 538,265 712,334 674,357 1,177,5 289, 3,392, Macadam m 63 779 298 (WMM) base course IV BITUMINOUS AND PAVEMENT WORKS 10 Prime coat sq. 50,936 67,350 61,310 111,388 27,4 318,43 m 56 9 11 Tack coat sq. 39,551 53,312 51,211 88,334 22,0 254,42 m 13 2 12 Dense cu. 1,540,43 2,081,6 2,064,25 3,448,5 859, 9,994, Bituminous m 6 09 1 71 314 180 Macadam (DBM) 13 Bituminous cu. 669,072 899,580 836,174 1,490,7 371, 4,267, Concrete (BC) m 80 554 159 V DRAINAGE AND PROTECTION WORKS 14 Turfing on sq. 38,778 47,858 40,633 82,404 18,2 227,88 embankment m 15 7 slopes 15 Stone pitching sq. 91,442 285,347 258,707 520,433 200, 1,356, on embankent m 202 130 slopes 16 Reinforced earth sq. 18,900 17,820 17,820 50,760 30,7 136,08 wall m 80 0 17 Longitudinal Lm 43,671 76,881 58,093 87,644 33,1 299,41 drain including 28 8 vertical drain VI TRAFFIC SAFETY 18 Concrete curb Lm 61,636 81,730 84,166 134,966 33,088 395, including fill, 585 shrub etc 19 Guard rail Lm 463,795 615,002 633,327 1,015,5 248,97 2,97 83 6 6,68 3 20 RCC crash Lm 6,527 23,948 20,864 38,697 17,113 107, barrier in 148

structures 21 Pavement kml 18,678 25,172 23,592 41,762 10,377 119, markings ane 580 22 Traffic signs kml 17,510 23,598 22,117 39,151 9,728 112, ane 103 23 200m stones no 80 109 112 180 45 526 24 Kilometer no 61 83 86 138 34 403 stones 25 Fifth kilometer no 24 32 32 51 14 154 stones 26 Noise barrier Lm 13,809 18,760 19,299 31,120 7,723 90,7 10 VII CROSSING STRUCTURES 27 River bridges sq. 372,313 2,233,8 1,914,75 3,616,7 1,170, 9,30 m 75 0 50 125 7,81 3 28 Flyovers sq. 197,950 229,400 229,400 157,250 530,95 1,34 m 0 4,95 0 29 ROB sq. 125,800 0 0 377,400 0 503, m 200 30 Vehicle Lm 319,200 452,200 372,400 771,400 186,20 2,10 underpass 0 1,40 0 31 Pedestrian Lm 90,000 230,000 160,000 260,000 10,000 750, underpass 000 32 Box culverts 5m Lm 275,975 354,825 236,550 197,125 98,563 1,16 3,03 8 33 Double cells box Lm 282,874 323,285 323,285 808,213 161,64 1,89 culverts 5m 3 9,29 9 34 Box culverts 2m Lm 139,440 234,060 84,660 134,460 34,860 627, 480 35 Pipe culverts Lm 28,635 47,310 17,430 27,390 7,470 128, 235 VIII LIGHTING 36 Lightin km 369,000 501,300 515,700 831,600 206,37 2,42 g poles 0 3,97 and 0 equipm ent

IX INTERSECTIONS & INTERCHANGES 37 4-legs LS 0 0 0 0 654,80 654, intercha 6 806 nge with double trumpet 38 4-legs LS 0 218,269 436,537 0 0 654, intercha 806 nge with single trumpet 39 3-legs LS 196,050 0 0 0 196,05 392, intercha 0 099 nge with single trumpet 40 4-legs LS 351,842 175,921 0 351,842 0 879, intercha 605 nge with diamon d type DIRECT COST 7,920,842 12,421,209 11,976,457 20,348,060 6,641,635 59,3 OF CIVIL 08,2 WORKS 02 (thousand Rs) Cost/Km 193,191 223,002 209,013 220,217 289,648 220, (thousand Rs) 206 X GENERAL ITEM 41 Mobili % 79,208 124,212 119,765 203,481 66,416 59 zation/ 3,0 Demob 82 ilizatio n of Contra ctor 42 Faciliti % 79,208 124,212 119,765 203,481 66,416 59 es for 3,0 the 82 Contra

ctor & supervi sion 43 Provisi % 277,229 434,742 419,176 712,182 232,457 2,0 on of 75, Insuran 78 ces 7 44 Quality % 79,208 124,212 119,765 203,481 66,416 59 Control 3,0 & 82 Laborat ories 45 Maint/ % 15,842 24,842 23,953 40,696 13,283 11 protecti 8,6 on of 16 traffic during const. 46 Survey/ % 15,842 24,842 23,953 40,696 13,283 11 Design 8,6 of 16 Constr uction Drawin gs 47 Reserv % 237,625 372,636 359,294 610,442 199,249 1,7 e 79, Funds 24 6 TOTAL COST 8,705,005 13,650,908 13,162,127 22,362,518 7,299,156 65, OF CIVIL 17 WORKS 9,7 (thousand Rs) 14 Cost/Km 212,317 245,079 229,706 242,019 318,323 24 (thousand Rs) 2,0 07

Facility Construction Cost and Vehicle Cost

The Traffic Management System, the toll collection system, and the vehicle costs are described below for the initial cost, and the renewal cost.

(1) Traffic Management System cost

The cost of the system of traffic control installed on this Expressway is calculated using the quoted unit costs surveyed in the Indian Hyderabad ORR project. The initial cost and the cost over 22 years including renewal (inflation is not included) for the Traffic Management System. For expenditure on renewal, it is assumed that 1/3 is spent each year over 3 years.

1) Road Facilities

This includes the equipment and installation cost for CCTVs, ATCC, MET, and VMSs. According to a VMS manufacturer in India, the signs may last 15 years. The other equipment apart from VMSs are also exposed to the same wind and rain, so based on the experience of India, the renewal period is assumed to be 14 to 16 years.

2) ECB, Optical Fiber Cables

This includes the equipment and installation cost for ECBs and optical fiber cables. ECBs are not installed on some existing expressways, and considering the spread of mobile phones in India now and in the future, it is deemed that ECBs will not be necessary on expressways in the future. Thus it is assumed that they will not be renewed. Also, since the optical fiber cable is installed in an underground pipe, it is assumed that it will not be necessary to renew it.

3) Traffic Control Center and Information Transmission, etc. This includes the cost necessary for the Traffic Control Center, information transmission, and power supply for equipment, etc.

In order that the operators can easily grasp the situation on the road, it is assumed that two 50-inch displays are connected and used in the Traffic Control Center.

The renewal period is assumed to be nine to 11 years, based on the experience in Japan and the expected local conditions of use.

4) Other Associated Costs

This includes the cost for facility equipment design, operation confirmation testing, preparation of manuals, maintenance service in 2 years by the manufacturers, and the Traffic Management System equipment. Renewal shall be conducted according to the renewal period of each facility to which Traffic Management System cost is concerned.

5) Traffic Control Center Office

This includes the cost concerning the building of the Traffic Control Center. It is assumed that this building will not be renewed.

Traffic Management System Costs (Thousand Rs, 2013 price)

Item Cost Renewal and expenditure period (1) Traffic Management System cost Road facilities 524.0 Renewed once, 14 to 16 years after opening, 1/3 of expenditure / y ECBs, optical fiber 450.0 Not renewed cables Traffic Control Center 173.0 Renewed once, nine to 11 and information years after opening, 1/3 of transmission, etc. expenditure / y Other associated costs 351.0 Carried out in accordance with the renewal period of each facility (2) Traffic Control Center 25.0 Not renewed office Total (1)+(2) 1,523.0

(2) Toll Collection System Costs

The cost of the system for operating the toll collection that is installed on the BCE is calculated using the quoted unit costs obtained in the Indian Hyderabad ORR project. The initial cost and the cost over 22 years including renewal (inflation ratio is not included) for the toll collection system. For expenditure on renewal, it is assumed that 1/3 is spent each year over 3 years.

1) Toll Facilities, etc.

This includes the equipment and installation costs for equipment installed inside the booths, in the toll plaza offices, ETC equipment, and the equipment installed in the Central Office. The renewal period is assumed to be nine to 11 years, based on experience of Japan and the expected local conditions of use.

2) Other Associated Costs

This includes the cost for facility equipment design, operation confirmation testing, preparation of manuals, maintenance service in 2 years by the manufacturers, and the Toll Collection System equipment. Renewal will be carried out according to the renewal period of each facility concerning the toll collection and operation system costs.

3) Offices of Toll Plaza, etc.

This includes the cost of the offices at toll plazas and the booth buildings for collecting tolls. It is assumed that it is not necessary to renew these buildings.

Traffic Management System Costs (Thousand Rs, 2013 price)

Item Cost Renewal and expenditure period (1) Toll collection system costs Toll facilities, etc. 499.0 Renewed once, nine to 11

years after opening, 1/3 of expenditure / y Other associated costs 97.0 Carried out in accordance with the renewal period of each facility (2) Offices of Toll Plaza, 235.0 Not renewed etc. Total (1)+(2) 831.0

(3) Vehicle Costs

These costs are calculated based on the actual values of L&T which manages other National Highways. The initial cost and the costs over 22 years including renewal for the required number of vehicles on the BCE (inflation not taken into account). The vehicle renewal period was assumed to be nine to 11 years, taking into consideration the case of Japan, the differences in frequency of use between patrol cars which are always running and other communication vehicles, and local condition, etc. For expenditure on renewal, it is assumed that 1/3 is spent each year over 3 years.

Vehicle Costs (Thousand Rs, 2013 price)

Item Cost Renewal and expenditure period Vehicle costs Communication 13.0 Renewed once, nine to 11 vehicles years after opening, 1/3 of expenditure / y Vehicles for 66.0 Renewed once, nine to 11 maintenance years after opening, 1/3 of management and expenditure / y patrol cars Total 79.0

Road Maintenance and Operation (O&M)

Road maintenance and operation cost are estimated from the actual cost by Indian Road Operator.

Cost Estimate for O&M Unit : Million INR (2013price) Item Yearly Cost Note (1) Road Maintenance Routine Maintenance 523.6 Questioner survey to Ahmedabad-Vadodara Expressway Prevent Maintenance (Over-lay) Questioner survey to Ahmedabad-Vadodara Expressway - First and Second Lane 399.4 - Overlay will be carried out on 10– 22 yea(spend 1/13 cost per year in 13 years）

- Third Lane 162.3 - Overlay will be carried out on 15– 22 yea(spend 1/8cost per year in 8 years）

(2) Operation and Management Toll Collection 132.3 As per staff arrangement proposed by the Study Team Equipment Maintenance 17.2 - Maintenance cost will be occurred from 3rd year - Base on Japanese Expressway

Toll Collection 11.6 ditto Equipment Maintenance Electric Charge 54.0 Questioner survey to Ahmedabad-Vadodara Expressway Office Management 3.6 Questioner survey to L＆T Coporation

Independent Consultnat 14.5 Questioner survey to Ahmedabad-Vadodara Expressway SPC Administration 52.3 10% of Routine Maintenance

Project Cost

The estimated initial cost for Bangalore-Chennai Expressway Construction is summarized in Table. Road maintenance and operation cost may be calculated to consider the price inflation to each cost.

Initial Cost for Bangalore-Chennai Expressway Construction Unit : Million INR (2013price)

Item Cost Note (1) Road 65,178.7 6-lane with service road Construction (Civil Work) (2) Toll Collection 830.6 System (3) Traffic 1,523.0 Management System (4) Vehicle Cost 79.0 (5) Consultant Fee 2,028.0 3.0 % of above (6) Land Acquisition 5,458.9 Wide of ROW : 90 m and Compensation (7) Administration 375.5 0.5 % of above Cost (8) SPC 1,352.6 2 % of (1)+(2)+(3)+(4) Administration Total : 76,826.3

Summary of Preliminary Financial and Economic Analysis

PPP law and regulation

(1) Policy for PPP infrastructure in India

In the Budget speech for the year 2013-16, the Union Finance Minister has announced that GoI would come up with a comprehensive policy for further development Public-Private Partnerships that can be used by the Centre and the State Governments. Pursuant to this announcement, Department of Economic Affairs, Ministry of Finance has prepared the draft National PPP Policy and solicits views /suggestions from all stakeholders by 15th October, 2013. The views of the stakeholders would be incorporated in the final draft. The draft policy seeks to provide broad principles for projects on PPP basis. Besides, it will also provide a framework for identifying, structuring, awarding and managing PPP projects. It also seeks to address the issues concerning definition of various terms and also processes so that a clear and consistent position can be adopted by stake holders, including centre, states and private investors. The policy will also ensure that a value-for-money rationale is adopted with optimal risk allocation in project structuring with life cycle approach. At the same time, it will develop governance structures to facilitate competitiveness, fairness and transparency in procurement and attaining appropriate public oversight and monitoring of PPP projects.

(2) Legal Framework at Central level

The legal framework for PPP projects in India flows out of the Contracts Act. The Indian Contract Act 1872 is the main source of law regulating contracts in Indian law, as subsequently amended. It determines the circumstances in which promise made by the parties to a contract shall be legally binding on them. There is no special law at the Central Government level for PPP. Hence all PPP contracts would be governed by Contracts under this Act. By implication of Contracts Act, all bids under the bidding process for PPP contracts become proposals which are offers. The need to award projects only through bidding results through the observation on the spirit of Schedule 14, Constitution of India. There are number of other guidelines for formulation, appraisal and approval.

(3) Legal Framework at State Level

A number of Indian States namely Gujarat, Andhra Pradesh, Karnataka and Madhya Pradesh have specific laws/guidelines with respect to PPP projects (e.g. Gujarat Infrastructure Development Act, Andhra Pradesh Infrastructure Development Enabling Act AP-IDEA). These legislations accept the PPP contracts under the Contracts Act, but further add enabling mechanisms to them. Both GID Act and AP-IDEA, for instance, provide for Swiss Challenge Mechanisms (SCM - unsolicited method) for procurement of PPP projects. State levels acts also provide for the Governments to offer concessions, while approving the Concession Agreements. They also stipulate the approvals at a higher level, thus attracting attention of the Government at the key decision making level, both to ensure equitable risk allocation and return distribution. These legislations also serve to set up PPP organizations/ institutions such as PPP Cell, Infrastructure Development Department in Karnataka and Gujarat Infrastructure Development Board in Gujarat. States have also developed autonomous organizations that variously identify study and design projects in the PPP sector. They, as the public sector partner, invite bids for PPP projects. Independent organizations such as Tamil Nadu Road Development Company Ltd. and Gujarat Infrastructure Development Committee are examples of such implementation systems.

(4) Legislation for procurement and implementation for PPP road sector

The Indian Contract Act stipulates an open and transparent bidding for all projects which rights are to be granted on exclusive basis. Realizing the importance of adopting the best procurement practices, the Government of India has been pursuing improvement and standardization of processes. Towards this, the Planning Commission has provided model Request for Qualification (RFQ), Request for Proposal (RFP) and Model Concession Agreement (MCA)1, documents for Bid Process for Central Sector projects. The NHAI, the nodal agency for Highways has been the largest user of these standard documents. 1 Documents are recommended to use, though it is not obligation. The new MCA has envisaged the transformation from BOT to DBFOT, whereby the design is also included in the responsibility of the concessionaire. Another change is the Concession period has become linked to projected traffic. Almost all projects under the PPP format in the Highway sector by

NHAI are now being implemented using the new MCA and any risk analysis should be conducted in respect of this document.

1) Implementation form of Toll Road PPP projects

Common form of Toll Road PPP projects are BOT Toll Model and Annuity Mode. In case of BOT Toll Model, concessionaire should bear traffic (revenue) risk. On the other hand, in case of BOT Annuity Model, the concessionaire does not bear the traffic/ tolling risk in these contracts. The annuities are paid semi-annually by NHAI to the concessionaire and linked to performance covenants.

2) Procurement

General procedure for selection of concessionaires adopted by NHAI is a two- stage bidding process through international competitive bidding. Projects are awarded as per the model documents-Request for Qualification (RFQ), Request for Proposal (RFP) and Concession Agreement - provided by the Ministry of Finance. NHAI amends the model documents based on project specific requirements.

[Stage 1]

Evaluation in Pre-qualification is conducted on the basis of Technical and Financial expertise of the firm and its track record in similar projects which meets the threshold technical and financial criteria set out in the RFQ Document. In the process of prequalification, it is evaluated whether the applicant should have acquired sufficient experience and capacity in building infrastructure projects. This can be measured either from the construction work undertaken/ commissioned by it, or from revenues of BOT/BOLT/BOO projects, or from both, during the 5 years preceding the application date. Eligibility conditions, as necessary, may also be stipulated in respect of O&M experience. As for construction, applicants/Bidders would need to provide an undertaking to NHAI that the EPC works of the project would be executed only by such EPC Contractors who have completed at least a single highway project of more than 20% of the estimated project cost of the project or INR 500 Crore (USD 100 million) which is less in the preceding 5 financial years from the application due date.

[Stage 2]

Commercial bids from pre-qualified bidders are invited through issue of RFP. Generally, the duration between Stage 1 and 2 is about 30-45 days. All applicants meeting the threshold technical and financial experience criteria set out in the RFQ shall be eligible to participate in the RFP stage. Generally, selection of concessionaire is conducted through the following process. competitive bidding. rough lowest annuity quoted or lowest lump sum payment required for VGF.

the sponsoring authority and 20% from the Government of India. PPP project with VGF projects should be pre –approved by Government of India

3) Risk framework

As an underlying principle, risks have been allocated to the parties that are best suited to manage them. The MCA set the framework for major risk sharing. a) Risks taken by concessionaire

Project risks are assigned to the private sector to the extent it is capable of managing them. i) Construction risks

The concessionaire is required to commence construction works when the financial close is achieved or earlier date that the parties may determine by mutual consent. The concessionaire shall not be entitled to seek compensation for any prior commencement and shall do it solely at his own risk. The concessionaire should bear expenses which occur from delay of construction and excess from their budgets. ii) Operation risks Concessionaire is responsible for operation and maintenance for the project facility (includes road and road infrastructure as specified in the concession

76 agreement). Failure to repair and rectify any defect or deficiency within specified period shall be considered as breach of responsibility. iii) Financing risks The concessionaire shall at its cost, expenses and risk make such financing arrangement as would be necessary to finance the cost of the project and to meet project requirements and other obligations under the agreement, in a timely manner. iv) Traffic risks The MCA provides for increase or decrease of the concession period in the event the actual traffic falls short or exceeds the target traffic. NHAI stipulates the target traffic during the year specified in project specific concession agreement, which is usually around the 10 year from the date of signing of the agreement. The target traffic is determined based on 5% Compounded Annual Growth Rate (CAGR) over the base year traffic for the project. MCA also provides for termination of the agreement if the average daily traffic in any accounting year exceeds the design capacity and continues to exceed for three subsequent accounting years. Termination payments under this scenario will be commensurate to those applicable under an Indirect Political Event. b) Risks/Obligations taken by NHAI i) Land acquisition risks NHAI is responsible for acquiring the requisite land for the project highway. ii) Approvals NHAI will provide all reasonable support and assistance to the concessionaire in procuring applicable permits required from any Government Instrumentality. c) Common Risks taken by both NHAI and concessionaire i) Force Majeure Risk Risks for non-political event, indirect political event, political event are common risks at NHAI and concessionaire

4) Viability Gap Funding （VGF）

The VGF scheme provides financial support in the form of capital grant for PPP projects in various infrastructure sectors in India. VGF Scheme is

77 intended to support the infrastructure projects which are commercially unviable but have high economic benefit. The financial support (VGF) to be provided under this scheme shall be in the form of a capital grant at the stage of project construction. The amount of VGF shall be equivalent to the lowest bid for capital subsidy, but subject to a maximum of 20% of the total project cost. In case the sponsoring Ministry/ State Government/ statutory entities propose to provide any assistance over and above the said VGF, it shall be restricted to a further 20% of the total project cost. Thus up to 40% of the VGF could be availed under this scheme. It is to be noted that project cost does not include the Interest during construction. This scheme is applicable to the infrastructure projects to be developed under the PPP route. Support under this scheme would be available only for infrastructure projects where private sector sponsors are selected through a process of open competitive bidding only. Thus projects to be developed under Swiss challenge could not be eligible under this scheme.

5) Solicited and Unsolicited methodology

As stated above, unsolicited bids for procurement of PPP projects (Swiss Challenge Mechanisms) has not been applied at the central levels. The document “Guideline for Procurement of PPP Projects through Swiss challenge route” is published by the PPP cell of Government of Karnataka through technical assistance of ADB. Under the Infrastructure Policy, 2007, Government of Karnataka (GoK) encourages the private participation through “Innovative proposal” or “Suo-moto proposal” in infrastructure development in Karnataka. The relevancies of this guideline to BCE project are presented below. n under Swiss route for the sector that falls under the jurisdiction of respective GOK department. development under this route. ed financial assistance by way of VGF.

Government, the same would be acquired by the State Government at the cost of the concessionaire at market price. cess results in a superior proposal, the Proposal Initiator would be given an opportunity to match the competing counter proposal only if the Proposal Initiator‟s bid value is within 15% of the superior bid value. This provision encourages competitiveness and

78 transparency while imposing risk of losing to Proposal Initiator. This is owing to highly competitive prevailing road markets in India.

Chapter-4

Purpose and Method of Financial Analysis

A financial analysis will be conducted to determine whether the project is financially feasible as a PPP project. As this project is formed as a PPP project, it is essential to meet the financial requirements of the stakeholders such as the Government, private investors, and financial institution, and therefore the financial feasibility will be analyzed from the following key points.

the project IRR. An analysis will be conducted in order to determine whether the project cash flow itself provides sufficient return as a PPP project, or whether gap fund from public institutions (such as India Government VGF or Japanese Government ODA) are necessary. zed to determine whether the return is sufficient for the private investor. The fluctuations of the return to investors due to the magnitude of gap funding from public institutions (India Government VGF and Japanese Government ODA) and financing methods of private invests will be analyzed. cash flow will withstand the repayment of loans provided by the financial institutions to the SPV. In each year of the loan term, the cash flow will be checked whether it is sufficient for the repayment of principle and interest of the loan.

In the MoSRTH “Guideline for Investment in Road Sector,” it states that for the case of the BOT Toll Model, which is exposed to traffic demand risk, in order to determine the financial feasibility, the expected Project IRR should meet 14- 16%, and Equity IRR should meet 18-20%. In the BOT Annuity model, the expected Project IRR is 12-14%, and the expected Equity IRR is 14-16%. In terms of the DSCR threshold, in general, 1.0 or higher indicates that the project has a sufficient cash flow to repay the debt services (in contrast, a DSCR less than 1.0 indicates that the project can not replay the full amount of the debt service). However, loan amortization periods are assumed to change in order mitigate the various risks, financial institutions require that the cash flow suffice a DSCR threshold higher than 1.2-1.5 in order to withstand these changes.

Prerequisite for Financial Analysis

(1) General (Common Prerequisites)

1) PPP Business Structure

There are two types of toll road PPP Projects in India, the BOT Toll model and the BOT Annuity model.3 The model assumed in the project is the BOT Toll model. Within the BOT Toll model, during the project period, the fees collected by the concessionaire will be the income used to recover their own investments (construction costs, O&M costs, and investment returns). The concessionaire will bear the traffic volume risks. 3 In the case of BOT Annuity mode, the construction costs, O&M costs, and the investment return will be recovered by the Annuity payment paid by the NHAI. The Annuity payment will be paid according to the provisions on performance indicated in the contract.

2) Concession Period

The concession period will be 25 years (3 years of construction period, and 22 years of operation).

3) Project Schedule

The construction period will be from 2014 to 2016. Operation will commence in 2017 until 2038.

4) Funding for SPV

institutions, which 30% is assumed to be investments from private investors.

A) JICA Private Sector Investment Finance (3% Interest)

In the case of borrowing from the JICA Private Sector Investment Finance, in order to hedge currency risks, a foreign exchange swap will be utilized. 4% will be added to the interest rate as the cost of the currency swap (however, the

82 period of the currency swap depends on the market in terms of a Yen - Rupiah currency swap, the limit is considered to be 7 years).

B) Rupees Loan from JICA Private Sector Investment Finance (3% Interest)

Direct lending to the private sector from JICA Private Sector Investment Finance in the form of local currency, is not institutionally developed currently, however, the loan will be made in Rupiah, and the currency risk is hedged by possible manner at Public.

C) Rupees loan from a local financial institution (14% Interest)

principal only, and the interest repayment during the construction4 will be paid by additional capital). private side are financed by a loan, hence the fluctuation of the gap fund has a direct effect on the fluctuation of funding costs (interest payment), thereby having an impact on the project cash flow.

5) Inflation Rate

the WPI（Wholesale Price Index）announced by the Indian Government.

WPI in past five years

2009 2008 2007 2006 2005 2010 Average Rate WPI 140.0 127.8 124.9 114.9 109.5 103.37 WPI 8 6 2 4 9 6.30% Growth 9.6% 2.4% 8.7% 4.9% 6.0% Rate

(2) Prerequisites Related to the Cash inflow

1) Traffic Volume

volume (base number of vehicles, growth rate). below are assumed for the discount rate of traffic volume (discount rate for regional traffic, high-frequency users, and users excluded from the consideration of fees).

Toll efficiency (Discount rate for traffic)

Types of Vehicles Exempted Trip % Car 25% Bus 15% LCV 15% Truck 15% MAV 15%

2) Fees

The base fee are assumed as the below two types. i) A base rate and growth rate (3%) is assumed according to the New National Highway Fee Law (The Gazette of India, No.33004/99 dated December 5, 2008). However, this method is intended for highways, and expressway fees may be set without necessarily applying such rates.

25% up of Base Rate (Rs/km)

Types of Vehicles 2008 2016 25% up Car, Jeep etc. 0.65 0.82 1.03 LCV / Mini bus 1.05 1.33 1.66 Bus / Truck 2.2 1.79 3.48 MAV (3-6 Axles) 3.45 4.37 5.46 Oversized (>6 Axles) 4.2 5.32 6.65

3) Revision of Fees

Highway Fee Law, fees will be revised every year based on the WPI. The formula of revision is indicated below.

TR(toll rate)=TR×(1+3%)+TR((1+3%)×WPI growth rate×40％)

(instead of the NHAI), and the application must be submitted 3-4 months before the revision.

(3) Prerequisites Related to the Cash Outflow

1) Initial Investment

design construction management costs, fee collection system and control systems, vehicles and expenses of SPC. Also such costs are converted from 2013 cost to2014 cost. Land acquisition cost and administration cost are not included in financial analysis because those are costs in the public. assumed.

2) Allocation of Construction Works

Proportion (progress rate) of construction

Constructi 2014 2015 2016 Total on Years % 30% 40% 30% 100%

3) Depreciation

This project will be conducted in the BOT scheme, and assets will be amortized within the project period.

3) Large Scale Renovation Costs and Operation and Maintenance Costs

during the concession period will have a significant impact of inflation.

(4) Taxes

1) Corporate Tax

For a voluntary consecutive 10 years out of the 20 years, an exemption of corporate tax will be applied. The tax rate is 30% (30% basic rates + 7.5% surcharge + 2% Education + 1% HES = total of 33.22% will be collected).

2) Dividend Tax

Based on the tax treaty between the two countries of India and Japan, a withholding tax of 15% will be applied to the SPV paying dividends to investors in Japan.

Scenario

Several scenarios will be compared to validate the financial feasibility of this project. The following 8 Scenarios based on variations of gap funding (India Government VGF or Japanese Government ODA), financing mechanism, and base fee setting, will be analyzed.

Scenario

Financial Analysis (Comparison of Scenarios)

The financial analysis is the centerpiece of the project structure selection decision by the Indian Government (or the Japanese Government) and private investors. Based on the assumptions mentioned above, financial analyses of 8 different scenarios were performed in this section. The results are as follows.

(1) Scenario I a

In the case that all sections of the project is built with private financing only as a PPP project without the India Government VGF, the Project IRR is 6.10%, and the Equity IRR is 4.56%, which are both very low and not financially feasible as a PPP project.

(2) Scenario I b

In the case that all sections of the project is built with private financing only without the India Government VGF, and the base user fee increased by 25%, the Project IRR is 8.32%, and the Equity IRR is 8.13%, which are both still very low and not financially feasible as a PPP project.

(3) Scenario II a

In the case that all sections of the project are considered as a PPP project, with 40% of the initial investment costs financed by the India Government VGF, and with the SPV‟s debt portion financed by a yen loan from the JICA Private Sector Investment Finance at 3% interest and a loan currency swap (interest rate plus 4%), the Project IRR is 9.95%, and the Equity IRR is 10.94%. Both are still very low and the establishment as a PPP Project is very difficult.

(4) Scenario II b

In the case that all sections of the project are considered as a PPP project, with 40% of the initial investment costs financed by the India Government VGF, and with the SPV‟s debt portion financed by a Rupiah loan from the JICA Private Sector Investment Finance at 3% interest, the Project IRR is still very low at 9.95%. Since the SPV does not bear the currency risk, the Equity IRR increases to 14.23, however, it still does not meet the necessary Equity IRR of 18-20% indicated in the MoSRTH “Guideline for Investment in Road Sector.” Furthermore, the minimum value of DSCR is 0.87, and the cash flow will

89 suffice the necessary debt service repayment for a period of time. Therefore, the establishment as a PPP Project is very difficult.

(5) Scenario II c

In the case that all sections of the project are considered as a PPP project, with 40% of the initial investment costs financed by the India Government VGF, and with the SPV‟s debt portion financed by a Rupiah loan from a local financial institution at interest 14%, the Project IRR is 9.96%, which is a very close level to Scenario II a, however, the interest rate difference between the high interest rate of the local financial institution and the low interest rate of the JICA Private Sector Investment Finance results in an Equity IRR of 6.79%. Therefore, the establishment as a PPP Project is very difficult.

(6) Scenario II d

In the case that all sections of the project are considered as a PPP project, with 40% of the initial investment costs financed by the India Government VGF, and the base user fee increased by 25%, the Project IRR is 12.35% and the Equity IRR is14.73%. However, it still does not meet the necessary Project IRR of 14-16%, and Equity IRR of 18-20% indicated in the MoSRTH “Guideline for Investment in Road Sector.” Furthermore, the minimum value of DSCR is 0.80, and the cash flow will suffice the necessary debt service repayment for a period of time. Therefore, the establishment as a PPP Project is very difficult.

(7) Scenario III a

This scenario assumes that sections in the Bangalore and Chennai area are constructed by PPP, and other middle section corresponding to the equivalent of 50% of initial investment costs are constructed with the Japanese ODA, and that all sections of the project are operated by PPP (the SPV receives fees from all sections). As the India Government VGF regulation permits only up to 40% of the initial investment amount, in order to increase the financial feasibility, the Japanese ODA is utilized as a gap fund. Increase of base user fee will not be applied. In this scenario, the Project IRR is 11.47% and the Equity IRR is13.38%, which do not meet the necessary Project IRR of 14-16%, and Equity IRR of 18-20% indicated in the MoSRTH “Guideline for Investment in Road Sector.” The minimum DSCR is 0.70, and does not generate the cash flow necessary for debt service repayment.

(8) Scenario III b

Similar to Scenario III a, this scenario assumes that intermediate sections corresponding to the equivalent of 50% of initial investment costs are constructed with the Japanese ODA with sections in the two cities built by PPP, and that all sections of the project are operated by PPP. Furthermore, the base user fee is increased by 25%. In this scenario, the Project IRR is 13.88% and the Equity IRR is17.27%, thereby meeting the necessary Project IRR of 14-16%, and almost reaches Equity IRR of 18-20% indicated in the MoSRTH “Guideline for Investment in Road Sector.” Furthermore, the minimum DSCR is 0.97, and within the loan term, there is not sufficient cash flow generated for the repayment of debt service. Further study would be necessary to judge whether it is financially feasible as a PPP Project.

(9) Scenario III c

Similar to Scenario III a, this scenario assumes that intermediate sections corresponding to the equivalent of 50% of initial investment costs are constructed with the Japanese ODA with sections in the two cities built by PPP, and that all sections of the project are operated by PPP. Furthermore, the base user fee is increased by 25%. It is assumed that SPV‟s debt portion financed by a Rupiah loan from JICA Private Sector Investment Finance at interest 3% In this scenario, the Project IRR is 13.50% and the Equity IRR is 20.47%, thereby meeting the necessary Project IRR of 14-16% and Equity IRR of 18- 20% indicated in the MoSRTH “Guideline for Investment in Road Sector.” Furthermore, the minimum DSCR is 1.44, and within the loan term, there is sufficient cash flow generated for the repayment of debt service, which is financially feasible as a PPP Project.

Financial Analysis Conclusions (Summary)

Based on the comparative analysis of the 8 scenarios, the following items must be organized for realization of the project.

(1) Gap Fund

As proven in the above analysis, as this project requires a large amount of initial investment, it is not financially feasible to establish this project without a gap fund. Even with the utilization of the maximum possible funding from the India Government VGF Scheme which has a ceiling of 40% of initial investment amount (total project amount), the project can not meet the IRR necessary for project execution. On the other hand, with the utilization of the Japanese Government ODA, which has no ceiling constraints, road sections equivalent to 50% of the initial investment amount (total project cost) can be constructed by the India Government (as a normal public works), thereby making the project financially feasible as a PPP Project. However, the project structure where the India Government will receive an ODA from a foreign country for a PPP project is irregular in India, and its feasibility related to the policy regulations on PPP Projects and external debt of the India Government must be fully consulted within the India Government for consensus.

(2) Policy-Based Finance for the Establishments of PPP Projects

As the utilization of loans with high concessional incentive (i.e. soft loan) for the private sector is essential in this project, the case study has been formulated primarily with a focus on the utilization of the JICA Private Sector Investment Finance. From the viewpoint of factors including but not limited to, low interest yean loan, ultra-long term, loan grace period, and large lots of loan amounts, this scheme has a high advantage compared to loans from commercial banks. The utilization of Overseas Investments is mandatory in this project. However, due to the nature of yen loan, the private borrower must bear the currency risk, and the costs for currency risk hedging must be added to the interest rate, thereby increasing the funding costs and decreasing the advantages. Furthermore, depending on the availability of the Japanese Yen and India Rupiah currency swap5, the swap contract period will be limited, and in reality, there is not currency risk hedge product which can cover the whole

92 loan repayment period. The fact that currency risk hedging methods and systems in policy-based finance require streamlining must be noted to the Japanese Government. 5 Based on an interview with the Delhi Branch of a Domestic Bank, the period is 7 years.

(3) Review of Project Risk

Traffic volume (revenue) risk, construction completion risk, and operation risks can be categorized as commercial risks to be borne by the concessionaire, while inflation risks and currency fluctuation risks can be considered as macro economic risks to be borne by the concessionaire. In contrast, land acquisition is considered to be a risk/responsibility of the India Government (NHAI). Depending on the occurrence of the risks pertaining to revenue and construction completion, there is a high possibility of jeopardized continuation of the project. In the next stage, it is necessary to conduct a highly accurate traffic demand forecast; determine the applicable user fee structure; study the difficulty of construction; and study the extent of land acquisition and impact of land acquisition delays, which will be all incorporated in the financial analysis used to base the investment decision.

Results of Economic Analysis

(1) Methodology

Economic analysis aims to examine the effects of this project from the viewpoint of national economy and evaluate the economic relevance of the project. Economic indicators such as the Economic Internal Rate of Return (EIRR), Net Present Value (NPV) are calculated in this analysis. Economic analysis in this study adopts one of the standard methods of cost benefit analysis, the discounted cash flow method. Cost benefit analysis is carried out by comparing economic benefit and economic cost.

(2) Basic conditions

Two cases are compared in this study: i.e. the “With Project” case and the “Without Project” case. Therefore, the economic benefit to be achieved by this project is defined as the gap of vehicle travel costs (e.g. VOC: vehicle operation costs and VOTT: value of travel time) between “With Project” and “Without Project” cases.

Calculation in the economic analysis in this study is carried out by a method of discounting economic benefit and project cost at a present value. The economic benefit in this study is determined by multiplying balance between traffic demands in both “With Project” and “Without Project” cases by unit vehicle operation cost and travel time cost.

(3) Project cost

1) Initial investment cost

In this economic analysis, the annual amount of investment is calculated based on the total amount of initial investment calculated in the previous section, according to the proportionate distribution by year.

2) Renewal cost / Maintenance cost

For calculation purposes, it is assumed that renewal cost and maintenance cost in each year in the previous section are expended in the whole operational period respectively.

(4) Benefit calculation

Benefit to be expected under this project is as follows: － Reduction in vehicle operation cost － Reduction in travel time cost － Reduction in traffic accident In this economic analysis, among the above mentioned benefits, (i) benefit to reduce Vehicle Operation Cost (VOC) and (ii) benefit to reduce value of travel time (VOTT) are treated as quantitative benefit.

Cost-Benefit Analysis

Based on the economic benefit and project cost mentioned above, cost-benefit analysis was conducted as its result shown in Project life was assumed to be for 20 years.

Results of cost-benefit analysis

EIRR is greater than 24%, which exceeds the evaluation standards on the infrastructure project in India. NPV are also over 1.0 and Rs 136,217 million, respectively, which indicates that implementation of the project is relevant from the viewpoints of national economy as well as from regional economy.

Planned Project Schedule

Proposal of Project Schedule

Examined Cases for Project Schedule Consideration Two cases were considered for the project schedule and implementation scheme.

Case A: PPP Lump Sum Scheme ・ Lump sum contract with special purpose vehicle (SPV) until completion of the PPP project which includes construction, operation and maintenance of the 272 km long expressway.

Case B: PPP-ODA Hybrid Scheme ・ Contract with SPV for construction of the first 70 km length in Bangalore and the final 70 km length in Chennai. The remaining road construction will be covered by JICA yen loan (ODA). ・ SPV for operation and maintenance (O&M) shall be contracted during construction period.

Examined Cases for Project Schedule Consideration

As concluded earlier from Section 5.2, the PPP-ODA hybrid scheme is feasible in the construction of the project. The project implementation schedule of the said scheme is discussed as follows.

Planned Schedule of PPP Section

Assumptions in planning the schedule are as follows:

・ Pre feasibility study and preliminary design by NHAI are to be completed by March 2012. ・ The Bangalore–Chennai Expressway Construction Project is to be approved by the State Planning Commission of the federal government in May 2012. ・ Land acquisition and compensation procedure is to commence by September 2012, after the completion of environmental certification process for land acquisition. The BOT bid will not commence until the land acquisition reaches 80%. ・ The tender documents are prepared by NHAI by the end of 2012, and the prequalification for the tender will commence by January 2013. ・ The concession period is 25 years, design and construction period would last three years by DBOT scheme. ・ The concession period will commence in April 2014 after the BOT operator determined by bidding completes the procedures of financing within 180 days after the contract. ・ From the above assumptions, the highway service is commenced in April 2017.

Planned PPP Project Schedule

Chapter-5

Issues and Countermeasures on the Planned Schedule

Risk of Delay for Environmental Clearance

The project shall be approved by the Planning Commission of the Central Government before project implementation. For this approval, the environmental process of: i) preparation for commencement of EIA or environmental clearance, ii) preparation for application of crossing forest protection area, iii) budget estimation of land acquisition and compensation, shall be submitted for the approval of the Planning Commission as well as technical results from feasibility study. Moreover, the environmental clearance shall be completed before the commencement of land acquisition. Delay due to this environmental process would impact on the project implementation.

Risk of Schedule Delay of PPP Project

Expediting of land acquisition is a main issue. Bangalore-Chennai Expressway has 90 m width ROW and 270 km road length. NHAI has never undertaken such large scale of land acquisition before. In addition, the project is located in Tamil Nadu State, Andhra Pradesh State, and Karnataka State. Coordination among three state governments is required. Similar projects include the construction of a six lane expressway which extends 90 km between Ahmedabad to Vadodara. The project which Gujarat State constructed and opened in 2004 took more than four years for the land acquisition to finish. To prevent such delay, countermeasures for the success of the proposed planned schedule are as follows; ・ The costs for the land acquisition, compensation of houses and crops, and resettlement are budgeted based on the market price in the object scope. ・ It is required to have close stakeholder meetings for planning the land acquisition and resettlement and also make effort to understand landowners and residents. ・ Special land acquisition office will be set up in NHAI for promoting the state level land acquisition. It will also support district governments that implement the land acquisition, and will be required to give implementation rights including the budget for land acquisition to the state government.

Risk of Schedule Delay of ODA Loan Project

Construction of ODA loan projects basically starts after land acquisition is completed. In this project, risk due to land acquisition delay is lower than PPP project because there are about 2-1/2 years before construction starts. Risks of schedule delay are caused by the delay of procedure in the finalization of

ODA loan by the Government of India, delay in the evaluation of consultants and contractors by the implementation agency, delay of the report to JICA, and internal procedure for contract. The countermeasures for the delay are as follows: ・ It is required to expedite the procurement of consultants by using JICA ODA loan project implementation supporting scheme. ・ Normally in India, the consultants for design including procurement support and consultants for construction supervision are separately procured. In this project, it is required to procure the consultant for design and construction supervision as lump sum service for smoother implementation. ・ It is required to use JICA ODA loan project implementation supporting scheme for the procurement of contractors and operators with bidding support by consultants.

Implementing Organization

Project Implementation Capacity of the Concerned Ministries and Economic and Financial Situation in India

Organization of National Highway Authority of India (NHAI) is the originator of the project.

Feasibility Study of Bangalore-Chennai Expressway (BCE) has been conducted by RITES LTD. The company is into Project Consultancy work and headed by the Ministry of Railways.

ORGANISATION STRUCTURE

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Chapter-6

Financial Outlook and Recommendations

101

Financial Source and Financial Plan

As a result of the comparative analysis of different scenarios in Chapter 5, only the case of integrated official development assistance (ODA) and public- private partnership (PPP) (i.e., PPP in the section in Bangalore and Chennai suburban areas; ODA in the middle section) would be financially feasible. This section focuses particularly on the financial source and financial plan for the PPP portion. Thereafter, perspective and issues in the financing of the PPP section are examined.

Loans

Regarding financial resource for the PPP portion, 70% of the initial cost is expected to be financed by loans. In the financial analysis, it is assumed that loans are provided by JICA‟s private sector investment finance taking into account the comparison with commercial banks and JBIC‟s investment loan, because loan terms/conditions are much concessional/softer than those of the others. This section explains JICA‟s private sector investment finance as well as JBIC‟s investment loan to compare loan terms/conditions and the possibilities of financing the project.

(1) JICA‟s Private Sector Investment Finance

JICA‟s private sector investment finance scheme is economic cooperation using private sector investment finance as a form of support for private sector activities. JICA‟s private sector investment finance supports private sector corporations attempting to conduct business in developing countries which face difficulties to get loans because of high risks and low profitability. This scheme supports these corporations through the two financial perspectives of “investing” and “financing”.

1) Eligible Projects/Areas

-effective development projects that cannot be financed by existing financial institutions, while business itself is expected to accomplish country risk mitigation, pump-priming effect for private funds) of JICA loan

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2) Loan Terms

exceptional case) -3% (Upon considering the borrower's credit rating and the loan period)

od: Up to 5 years (Basically construction period)

repaid by concessionaires fund/equity e (lending flow): The following two schemes will be available: i) JICA-(yen) → SPC

* Foreign exchange risk is borne by borrower ii) JICA-(yen) → local financial institutions → (local currency) → SPC

*Exchange risk costs and margin are charged by local banks. (Though SPC doesn‟t bear the exchange risk, the total financial cost is higher.)

3) Issues in JICA‟s Private Sector Investment Finance

possibilities/ flexibility to apply the scheme to the project. competitiveness in terms of financing costs in private corporations would decrease (see Chapter 5 in detail). ‟s private sector investment finance and JBIC‟s investment loan. However, it is understood that JBIC loan is targeted for profitable projects while JICA‟s is targeted for low-profitability projects. nt finance is characterized by much higher concessional loan (i.e., soft loan) than JBIC‟s investment loan.

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(2) JBIC‟s Investment Loan

JBIC provides overseas investment loans to meet long-term financing needs of Japanese firms for their international business development. One of the forms of JBIC‟s investment loan is project finance. Project finance means a financial structure in which repayments for a loan provided for a project are made exclusively from the cash flows generated by the project while security for the loan is limited to the project assets, rights, and interests.

1) Eligible Projects/Areas

Direct and indirect financing are provided for projects undertaken by firms incorporated in developing countries and regions in which Japanese firms have equity shares. Eligible sectors are railway, water projects, renewable energy projects, transmission and so on.

2) Co-financing

JBIC provides loans in co-financing with other financial institutions (usually the loan applicant's bank(s)) to meet the client's financial needs. Up to 60% of the total project cost can be lent. Arranger should be private banks. 9-3

3) Loan Terms

Loan terms will be set respectively through the process of appraisal. overseas investment. It is applied to meet financial needs for undertaking a specific overseas investment project or long-term needs for investment to develop overseas business operations. Loans are disbursed when actual financing needs arise.

Japanese yen (US dollar or euro is also available). Loans denominated in yen carry fixed interest rates, while loans in other currencies carry, in principle, floating interest rates. by the extent of risks. Interest rates may not differ from private banks. of the period required for recouping investment. Repayment schedule including the grace period can be set flexibly, depending on the expected rate of return on individual projects. In general, repayment periods range between one and ten years.

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4) Issues in JBIC Lending

particular, hedging/mitigating revenue risk and low-risk revenue scheme (e.g. annuity, PFI method, shadow toll, etc.) could be essential to provide loans. Otherwise, financing for toll project would be difficult. and small range of fluctuation cannot be secured, lending would be difficult. Especially, the accuracy of traffic forecast, which has been questioned from the past experiences, is strictly examined during loan appraisal. a brown field project only and there is no experience in a green field project in toll road sector. -à-vis repayment in yen or dollar, euro), exchange risk hedge would be questioned.

Equity for Concessionaire

As shown in the financial analysis, 30% of the initial cost is expected to be funded by equity. It assumes that the equity internal rate of return (IRR) is 18% ~ 20%. After several relevant studies, it will be examined whether companies participate into the concessionaire as equity investors. 9-4

Possibilities to Finance the Project

JICA‟s Private Sector Investment Finance (Loan to Concessionaire)

As stated above, JICA‟ private sector investment finance is considered as the first option for financing to the concessionaire, because loan terms are highly concessional. However, this scheme has just resumed. Ministerial Meeting of the Government of Japan has decided that JICA‟s private sector finance scheme should resume in fiscal year 2013. Following this, appraisal for lending to pilot projects has been started. However, since application for this new scheme is limited only to the pilot project, it is necessary to follow how this scheme is applied to future possible projects.

Yen Loan

As described in Chapter 5, the Japanese government ODA (yen loan), as the gap fund, is essential to make the project financially feasible, because

105 maximum use of only the viability gap fund (VGF) (i.e., 40%) itself cannot enhance the project feasibility to reach the expected IRR. For the Government of India, low-interest yen loans will be superior, if compared to the finance cost of VGF in the Government of India1. 1 Indian 10-year government bond yields from an average 7.5 to 7.75 in the last year. In order for the Government of India to understand the necessity of ODA, it is necessary that key stakeholders of the Government of Japan (Ministry of Land, Infrastructure, Transport and Tourism, Ministry of Economy, Trade and Industry and JICA) explain superiority/meaning of utilizing Japanese ODA. This PPP project has a very low likelihood to be financially feasible by private finance alone, even if utilizing the VGF from the Government of India. As a framework for PPP projects in the Government of India, it is envisaged that a PPP project should be formed by the minimum amount of VGF through competitive bidding. However, it is necessary to suggest that incorporating ODA into a PPP project will have superiority/advantage though it is the irregular structure.

Cash flow Analysis

Financial Analysis (Sensitivity Analysis)

Taking Scenario III c, which has the possibility of financially feasibility, a sensitivity analysis is conducted for items such as revenue risk and completion risk. In the case of a SPV revenues decrease, or construction cost overrun, the fluctuation of Project IRR, Equity IRR, and DSCR are analyzed.

(1) Decrease of Fee Collection

The financial indicators of each case where the revenue to the concessionaire is annually decreased by 10%, 20%, and 30% are summarized in the following chart. In the case that the revenue is decreased by 10%, the Project IRR is decreased to12.40% and the Equity IRR to18.56%, proving that the decrease in revenues from fee collection has a large negative impact on the project profitability.

(2) Construction Cost Overrun

The financial indicators for the cases where construction cost overrun of 10% and 20% increase are summarized in the following chart. In the case that the construction cost is increased by 10%, the Project IRR is decreased to12.78%

106 and Equity IRR to19.22%, proving that construction cost overrun has a large negative impact on the project profitability.

(3) The Occurrence of Multiple Risks

In the case that both the decrease in fee collection and cost overrun occurs, the negative impact on the project profitability is extremely large. If the construction cost overrun increases to 20%, and the concessionaire revenue is decreased 30%/year, as the below char shows, the Project IRR will be decreased to 8.68% and the Equity IRR to 12.19%, and business continuity will be extremely difficult.

(4) Summary of Sensitivity Analysis

cenario III b is financially feasible, the cash flow will not be able to withstand a decrease of revenues from fee collection of over 10% or cost overrun of over 10%. concessionaire, direct risk hedging limited2, and thus the development of the project structure must incorporate anticipations of traffic decreases.

In order to hedge the traffic volume fluctuation risk, it should be indicated in the concession agreement that in the case that the traffic volume is lower than the target, the concession period will be extended (in the case that the traffic volume is higher, the concession period will be shortened). will occur due to various reasons including delays in land acquisition. Therefore, in the future, adequate risk analysis related to construction is necessary.

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In case of delay caused by land acquisition or other reason, repayment will start while revenue is not available. Delay risk hedge would be questioned.

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