Road Infrastructure Financing Models (PPP)

(BOT, BOOT, LOT, DBFO, Concession)

Jahar Ranjan Sarkar Bhargab Maitra

JRS and Associates Professor
Kolkata Civil Engg. Dept.
IIT Kharagpur
 Main Topics
• PPP Definition

• Introduction

• Why – PPP

• Pre – Requisites of Successful PPP

• Different Models of PPP

• Mostly Adopted in Indian Context – 3 models

• Differences – Adv - Disadvantage

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 Definition of PPP :
( Many)
Definition 1 :
PPP is any medium – to – long term relationship
between the public and private sectors, involving the
sharing of risks and rewards of multi sectors skills,
expertise and finance to deliver desired policy
outcomes. – Standard & Poor’s Credit Survey 2005

Definition 2 :
A PPP is a partnership between the public sector and
private sector for the purpose of delivering a project or
service traditionally provided by the public sector. It
recognises that both sides have certain advantages,
and by allowing each to do what it does best, public
services and infrastructure can be provided in the most
efficient manner – European Commission
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PPP Projects are Generally Applied to :

• Roads, Seaports, Airports, Railways, Bridges

• Power Plants
• Urban Transport, Sewerage, Water Supply,
Solid Waste Management.
• Infrastructure Projects in SEZ (Reliance in
Navi Mumbai)
• International Convention or Tourism Projects
• Operation of Existing Plants, Hospitals,
School

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 Introduction
 During the last one and half decade the PPP is in vogue
mainly for Infrastructure projects.
 NHAI projects, Airport Projects & Power projects are the main
thrust area.
 Govt / Govt undertaking provides encumbrance free land,
defined requirement on the basis of a preliminary engineering
by a consultant, and the private sector provides funding.
Sometime Govt. may have to provide Viability Gap Funding
(VGF) max upto 40%.
 The private sector is normally a consortium of companies e.g.
Developer, EPC Contractor & a Banker/lender.
 Thus a special purpose company is formed SPV (Special
Purpose Vehicle) with which the Govt signs a Concession
Agreement for a period (concession period normally 20 – 30
years). 5
Why – PPP :
• Sharing of Risks
• Sharing of cost
• Ensuring value added Design
• Ensuring improved construction
• Avoid Hassel of operation & Maintenance

Pre – Requisites of Successful PPP:

• Political commitment (Continuity of Policy) as they are long
time contract.
• Enabling legislation (Concession, Tax Laws etc)
• Project Prioritization (Focus on improving Success Rates)
• Contract Standardisation ( MCA – Model )
• Land Acquisition
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Different Models of PPP :
 Contracting (Life long) :-

• Design & Build by Private Sector

• Financed & owned by Public Sector
• Suited to :- Capital Projects with small operating
Requirements & Where Public sector wants to retain
operation.

 BOT :- Build Operate & Transfer

• Design Build operate & Maintain for a defined period

• Finance by public ownership remains throughout
• Suited to water & waste water projects with significant
operating content.
Private sector recovers from Rent (Toll) or Annuity
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Different Models of PPP
 BOOT:- Build Own Operate & Transfer
• Variation of BOT except
• Design & Build by Private Sector
• Financed & owned by Private Sector
• All Risks of Planning, Design, Construction,
Operation with Private Sector.
• Public Sector to purchase goods / services -
Tolling or Annuity

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Different Models of PPP

 LOT:- Lease Operate & Transfer

• Leased to Private Sector Partner for efficient
Operation of some existing facility, for long term
• Scools, Hospitals, Or Some Plants with all its
facility and staff etc.
• All Risks of Operation with Private Sector.
• Public Sector to get pre-determined amount Qtrly
/ Annually.

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Different Models of PPP :
 DBFO:-
• Design Build Finance & operate / Maintain for a defined
period – Handover
• Owned by private for a defined period – & recovers cost
by public subvention (financial backing / grant )
• Roads, water, waste water projects.
 Concession:-
• Same as DBFO – Cost recovered from user changes
(Toll)
 Annuity:-
• Same as Concession with no risk to private sector
recovered on a pre - determined installment from client
for defined period 10
PPP Model of Procurement for NHAI Project

 In BOT (Toll) the concessionaire recovers the entire

investment and the cost of maintenance and operation by
earning toll during the concession period. In this there is
provision of Viability Gap Funding (VGF) upto 40 % of the
project cost, by NHAI. The project is awarded based on the
demand of Grant (VGF). In few cases there could be
negative grant also, as was in Hyd. Metro.

 The BOT (Annuity) model is also required to meet the entire

upfront cost and cost of operation and maintenance for the
concession period but without any provision of VGF /grant or
collection of Toll. The concessionaire recovers the entire
investment and pre-determined cost of operation and
maintenance out of early/ half-yearly annuity from NHAI. The
tender is awarded on the least annuity quoted. 11
PPP Model of Procurement for NHAI Project

• Both BOT (Annuity) and BOT (Toll) may have been

awarded either based on a feasibility report with basic
requirement and specification, or could be on the basis of a
DPR.

• In both the models an Independent Consultant / Engineer is

engaged by the client (NHAI) to resolve/advice/ oversee the
engineering and construction.

• In Annuity model, no supervision consultant is appointed by

the concessionaire, which is mandatory for the other model.

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COMPARISON OF ‘TRADITIONAL’ & BOT MODELS
FOR HIGHWAY PROJECTS

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TRADITIONAL MODEL
• ‘Traditional Model’ means that the government agency
organizes (using the services of engineering consultants)
the survey, investigation, engineering, detailed design, bill of
quantities (BOQ) into a bid document.
• Tenders are called.
The tenderers are required to submit rates / prices for the
BOQ items.
Selection of the successful bidder (= Contractor) is
predominantly based on price.

• The Contractor is responsible for construction.

The work done is subject to regular measurement and
payment.
• Final price paid by the government is dependent on final
measured quantities.
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TRADITIONAL MODEL
• Usually there is a 1 year defects, liability period, and then
the Contractor ‘washes his hands’ of the project, has no
more involvement, and ‘walks away’.
• Poor quality work may not reveal itself during the 1 year
defects period.
Responsibility for repairs may become the subject of dispute
/ arbitration.

• The government agency either administers the contract

(including supervision of the work) itself, or engages a
consultant to provide this service, including carryout the
role & responsibilities of the Engineer.
• The government agency is responsible for maintenance.

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LAND AQUISTION & REMOVAL OF
ENCUMERANCES
• In all models, the Government agency is responsible for
land acquisition and removal of encumbrances.

• In the traditional model, contractors often make substantial

claims due to alleged delay and disruptions due to the
government agency’s failure to provide land/remove
encumbrances in a timely manner as envisaged in the
contract, and as per the scheduled work programme
construction activities requirements.

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LAND AQUISTION & REMOVAL OF
ENCUMERANCES

• In the BOT model there is more incentive for the

Concessionaire to become actively involved in land
acquisitions / removal of encumbrance.

• Regular meetings and follow up with other government

and non-government agencies, land and property owner,
much work done by Concessionaire to expedite matters.

• The Concessionaire has ready access to funds to

expedite matters, compared to traditional model.

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BOT MODEL 1

• ‘BOT Model 1’ is the construct, operate and maintain model.

• The government agency organizes (using the services of
engineering consultants) the survey, investigation,
engineering, detailed design.
• The Detailed Project Report (DPR) is prepared by the
government agency prior to issuing Request for Proposal
from prospective Concessionaires.
• There may or may not be quantities available in the Request
for Proposal (RFP) document.
• Virtually all of the “engineering” in the project has been
organized by the Government agency.

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BOT MODEL 1

• Tenders are called. The tenderers are required to bid how

much government grant they require and the duration of the
operations and maintenance period.
• This is the main criteria in selection of the successful bidder
(= Concessionaire).
• The Concessionaire, who is responsible for construction,
has a greater commitment to quality, as it has to maintain
the project for say 20 years.
• If the maintenance costs become large, due to poor quality
during construction then these costs are borne by the
Concessionaire and less money is left for paying back
interest on loans and for profit.

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BOT MODEL 1

• The Government is not involved in measurement of the

works.
• The final price paid by the government is the grant, which
was decided at award of the contract (Concession
Agreement).
• The Concessionaire may or may not require the services of
a Detail Engineering and Supervision Consultant.
• The Government agency engages a consultant to carryout
the role & responsibilities of the Independent Consultant.

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BOT MODEL 1

Among the objectives of having an IC are:

• Act independently and on behalf of the NHAI to review
all activities associated with Design, Construction and
O&M to ensure compliance of requirements of
Concession Agreement in order to have a sound
project.
• Report to NHAI on the financial and technical aspects
of the project, after visiting the site at least once a
month.

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BOT MODEL 1

• The Concessionaire is responsible for operations and

maintenance during the concession period, which can be
say 20 years.
• Operations includes the collection of tolls.
• It is to be noted that
The Independent Consultant is not involved in the day to
day supervision of construction on site. The IC is not the
Engineer in the MoRTH Specifications. The
Concessionaire is responsible for supervision of
construction.

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BOT MODEL 2

• ‘BOT Model 2’ is the design, construct, operate and

maintain model.
The DPR is not prepared prior to issuing Request for
Proposal from prospective Concessionaires.
• The Government agency has not done the engineering,
not done the design.
• The Government agency organizes some preliminary
investigations and an outline minimum scope of work and
some indicative designs (that would be subject to change
dependent on the outcome of engineering investigations
and design by the Concessionaire) in the ‘Request for
Proposal’ (RFP) document.

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BOT MODEL 2

• Apart from the above, this model is then similar to ‘BOT

Model 1’.
• There is no Detailed Project Report (DPR), nor any
quantities in the RFP.
• The Concessionaire has to produce the DPR.
• The ‘engineering’ is with the Concessionaire.

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ADVANTAGES OF BOT MODEL 2

• The project is completed in a fast time because the

design & engineering activities runs parallel to
procurement & construction activities.
• There is ample scope for value engineering by the
Concessionaire or its appointed consultant.
• The design and engineering being carried out by the
Concessionaire, the possibility of Change of Scope is
minimized, without sacrificing quality and safety.

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ADVANTAGES OF BOT MODEL 2

• The Concessionaire benefits by adopting design,

engineering and constructions which take less time, in
order to complete the project before time which reaps the
harvest of additional toll income.
• With a well documented Concession Agreement, the
selection of capable Concessionaire and the appointment
of an Independent Consultant that knows and enforces
the Concession Agreement, all the ingredients are in
place for a successful project.
• Minimal inputs, apart from monitoring, required by the
Government agency.

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SUMMARY
• All 3 models could be applicable depending on a
particular proposed project’s circumstances.
• Issues such as cost, economic viability resources etc
come into it.

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Thank you……