SIBM PUNE

Infrastructure Finance
Assignment I
Vezoto Theluo
Roll No : 32300
MBA II Finance
Q. What are “Dry Closure” and “Wet Closure”?

Ans :
Dry closing = no money exchanged at the table
Wet closing = monies collected and disbursed at the table

Unless other arrangements have been previously made, when the seller signs the deed, they expect
payment (settlement) right then and there. The settlement company (usually the title company) should
have everything all set with checks made out, dated and signed for disbursing the funds. The
buyer/borrower executes their note and the funds are held in an escrow account for the settlement
company to make the disbursements.

Typically, in refinances, collecting "funds due at closing" from the borrower doesn't constitute a wet
closing as payoffs are not disbursed.

Q 2. Above mentioned are the most popular nature of participation. Which are the other
modes of participation and what are their characteristics?

Ans :-

Methods of participation of private sector in infrastructure projects

1. Contracting

Contract with private party to design and build, financed and owned by public sector. Key is
transfer of design and construction risk.

Application
Suitable for capital projects for small operating environment and where the public sector wants
to retain operating responsibility.
2. DBFO – Design, Build, Finance & Operate

Contract with a private party to design, finance, build and operate for a defined period after
which it goes to the public sector. Key driver is transfer of design, construction and operating
risk plus utilization of private finance.
Application
Suitable for road, water and waste projects.

Q 3. Which are the Methods of Revenue / Tariff fixation? What are their characteristics,
advantages and disadvantages and how is the tariff fixed?

Ans :-

Tariffs on all infrastructure projects are regulated; private operators are not free to fix or adjust
tariffs at will. The tariff is typically fixed in advance and adjustable over time only in accordance with
predetermined contractual terms. Private investment can be attracted into a tariff-regulated sector
only if investors are convinced that tariffs will be set and periodically adjusted in a manner that
ensures an adequate rate of return to investors. Equally important, the public utility character of
infrastructure projects requires that the tariff be perceived as "fair" to consumers. This balance is not
always easy to strike.

Cost-based tariffs
Experience suggests that private investors in infrastructure projects in developing countries
typically expect rates of return on equity of 20-25 percent. This is much higher than the rates of
return normally used for determining public sector tariffs.
Cost-based formulas are generally vulnerable to the criticism that the approved capital costs are
excessively high or the efficiency norms excessively lax.

Tariffs and competitive bidding

Relevant technical and production characteristics of the project are specified in advance, and
qualified bidders are asked to bid in terms of the lowest tariff at which they would be willing to
undertake the project. As in the case of cost-based tariffs, these tariffs have to be adjusted over
time to reflect inflation, and the manner in which this adjustment will be made must be specified
in the invitation to bid
the approach establishes a level playing field for the private and public sectors and thus ensures
least-cost supply for individual plants
One limitation of the competitive bidding approach is that transparency in bidding requires full
specification of the minimum technical requirements of the projects, which calls for considerable
advance work before bids are solicited
A bidding process will yield the lowest cost option only if enough qualified bidders actively
compete. In practice the number of bidders for an infrastructure project may be limited, for several
reasons. Lack of information and clarity about various aspects of government policy relevant to the
project may deter many eligible bidders from bidding

Regulated tariffs with competitive bidding

In many situations tariffs are not determined by competitive bidding but are fixed by a regulatory or
other authority. In such cases competition can be used to select the private investor by soliciting
competitive bids in terms of the license fee offered during the concession period or in terms of a
revenue-sharing arrangement. This approach is particularly well suited to cases in which the
independent producer deals directly with the final consumer and demand forecasts ensure
profitable operation
In telecommunications, for example, there is often significant unsatisfied demand at prevailing
tariff levels, and new licensees can expect to be profitable within a relatively short time

Pradhan Mantri Gram Sadak Yojana under the ministry of rural development
Ministry of Road transport and highways
Roads Wing and Transport Wing
Roads Wing
Deals with development and maintenance of National Highway in the country.
Main responsibilities:
The Ministry is responsible for:
 Planning, development and maintenance of National Highways in the country.
 Extends technical and financial support to State Governments for the development of
state roads and the roads of inter-state connectivity and economic importance. 
 Evolves standard specifications for roads and bridges in the country. 
 Serves as a repository of technical knowledge on roads and bridges.

The National Highways Authority of India Act, 1998