Government of India Ministry of Road Transport and Highways
Guidelines for Investment in Road Sector
Not just roads... building a NATION
Index Executive Summary
4
Current Scenario
5
Financing National Highway Projects
7
Public Private Partnership in Highway Development
10
Revenue Risks and Mitigation
25
Overview of Successful Projects
28
Work Plan-II (2010-11)
30
Policy Framework
34
Foreign Direct Investment Policy
36
Tax Environment
38
Repatriation of Investments and Profits Earned in India
44
Administrative Framework
46
About NHAI
48
Annexure
50
KPMG in India for National Highways Authority of India The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provided accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
4
Guidelines for Investment in Road Sector
Executive Summary The National Highway network of the country spans about 66,590 km.The National Highway Development Project (NHDP), covering a length of about 55,000 km of highways, is India's largest road development programme in its history. In many ways, this ambitious and path-breaking initiative of the Government of India, which began in the last decade acknowledged the importance of private sector in India's infrastructure development.
provided the single largest opportunity for private financing and management of infrastructure services. Build Operate Transfer (BOT) concession contracts with an estimated value of USD 9.2 billion (including BOT/DBFOT2-Toll and BOT-Annuity contracts) have been awarded under various packages till date and these projects are expected to be fully operational by 2015-16.
The consistent policy and institutional framework, which has been the backbone of the INR 3,00,000 Crore (USD 60 billion1) NHDP, also conveys the intent and commitment of successive governments to encourage increased private sector participation in developing the arterial road network of the country to world class standards. More than 60 percent of the estimated investment requirement is expected to be privately financed.
With several key projects on the anvil (including 6laning of 4-laned roads, expressways and port connectivity projects) and the increasing interest evinced by domestic and foreign players in the sector, NHAI is happy to present to you, the Guidelines for Investment in the Road Sector, with specific focus on NHDP.
The early success of Public-Private-Partnerships (PPP) in the NHDP, arguably, set the tone for similar initiatives in other infrastructure sectors and has
NHAI believes that this document would serve as a useful guide for potential investors, developers and stakeholders interested in participating in India's ambitious highway development programme.
1. INR 50 = 1 USD : figures approximated 2. Design Build Finance Operate & Transfer (DBFOT)
Guidelines for Investment in Road Sector
5
Current Scenario India has an extensive road network of 3.3 million km – the second largest in the world. The National Highways have a total length of 70,548 km and serve as the arterial road network of the country. It is estimated that more than 70 per cent of freight and 85 per cent of passenger traffic in the country is being handled by roads. While Highways/ Expressways constitute only about 2 per cent of the length of all roads, they carry about 40 per cent of the road traffic leading to a strain on their capacity. The number of vehicles on roads has been growing at compounded annual growth rate (CAGR) of over 8% in the last 5 years (2003-04 to 2008-09).
project IRR is expected to be around 14-16% and equity IRR around 18-20%3. The NHDP is being implemented under several phases: 4-laning of the Golden Quadrilateral (GQ) and NorthSouth and East- West (NS-EW) Corridors-(NHDP I & II) Phase I mainly involves widening (to 4 lanes) and upgrading of 7,498 km of the national highway network and has four component packages: 1.
The development of National Highways is the responsibility of the Government of India. The Government of India has launched major initiatives to upgrade and strengthen National Highways through various phases of the NHDP. NHDP is one of the largest road development programmes to be undertaken by a single authority in the world and involves widening, upgrading and rehabilitation of about 55,000 km, entailing an estimated investment of INR 3,00,000 Crore (USD 60 billion). The National Highways Authority of India (NHAI) is mandated to implement the National Highways Development Project (NHDP). Most of the projects have been developed or are under development on Public Private Partnership (PPP) basis through Build Operate and Transfer (BOT)-Annuity and BOT-Toll mode (these have been explained in detail in later section of the brochure). Typically, in an annuity project, the project IRR is expected to be 12-14% and equity IRR would be 14 -16%. For toll projects, where the concessionaire assumes the traffic risk, the
3. CRISIL Research
2. 3. 4.
Highway network linking the four metropolitan cities in India i.e. Delhi-Mumbai-Chennai-Kolkata, covering a length of 5,846 km, popularly known as the Golden Quadrilateral (GQ) project. Highways along the North-South (NS) and EastWest (EW) corridors, covering a length of 981 km Port connectivity projects covering a length of 356 km; and Other highway projects, covering a length of 315 km
Phase-II involves widening and improvement of the NS-EW corridors (not covered under Phase-I) covering a distance of 6,647 km, besides providing connectivity to major ports on the east and west coasts of India and some other projects. This includes 6,161 km of NS-EW corridors and 486 km of other highways. The total length of the NS-EW network under Phases I & II is about 7,200 km. 4-laning of the GQ has almost been completed. Phase II is expected to be largely completed by December 2010.
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Guidelines for Investment in Road Sector
Upgradation of 12,109 km (NHDP-III) NHDP-III involves upgradation of 12,109 km (mainly 4laning) of high density national highways, through the Build, Operate & Transfer (BOT) mode at a cost of INR 80,626 Crore (USD 16.1 billion).
package is expected to be completed by 2012. Of the 6,500 km proposed under NHDP-V, about 5,700 km would be taken up in the GQ and the balance 800 km would be selected on the basis of predefined eligibility criteria.
The project consists of stretches of National Highways carrying high volume of traffic, connecting state capitals with the NHDP network under Phases I and II and providing connectivity to places of economic, commercial and tourist importance.
Development of 1,000 km of expressways (NHDP-VI)
2-laning of 20,000 km with paved shoulders (NHDP-IV) With a view to providing balanced and equitable distribution of the improved/widened highways network throughout the country, NHDP-IV envisages upgrading of 20,000 km of such highways into 2-lane highways, at an indicative cost of INR 27,800 Crore (USD 5.6 billion). This will ensure that their capacity, speed and safety match minimum benchmarks for national highways. The government has already approved strengthening of 5,000 km to 2-lane paved shoulders on BOT (Toll/ Annuity) under NHDP-IV A at a cost of INR 6,950 Crore (USD 1.4 billion). 6-laning of 6,500 km (NHDP-V) Under NHDP-V, 6-laning of the 4-lane highways comprising the GQ and certain other high density stretches, will be implemented on BOT basis at an estimated cost of INR 41,210 Crore (USD 8.2 billion). These corridors have been 4-laned as part of the GQ in Phase-I of NHDP. Implementation of initial set of projects has already commenced and the entire
40000
With the growing importance of urban centres of India, particularly those located within a few hundred kilometers of each other, expressways would be both viable and beneficial. The Government has approved 1,000 km of expressways to be developed on a BOT basis, at an indicative cost of INR 16,680 Crore (USD 3.3 billion). These expressways would be constructed on new alignments. Other Highway Projects of 700 km (NHDP-VII) The development of ring roads, bypasses, grade separators and service roads are considered necessary for full utilisation of highway capacity as well as for enhanced safety and efficiency. For this, a programme for development of such features at an indicative cost of INR 16,680 Crore has been approved by the Government. Apart from the high density corridors, a substantial part of the National Highways network would also require development during the 11th Plan period. These sections are characterised by low density of traffic. Some of these stretches fall in backward and inaccessible areas and others are of strategic importance. The development of these categories of National Highways would be carried out primarily through budgetary resources.
Current Status of NHDP4 33642
35000 30000 25000 20000
13055
15000 13731 10000 6862 5000 0 Completed
4. As on 31st March, 2009.
Work in Progress
To be Awarded
Total
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Guidelines for Investment in Road Sector
Financing National Highway Projects
Traditionally, financing for development of National Highways in India was from the budgetary resources of the Government of India. In order to augment the available resources, loans have also been raised from multilateral agencies like World Bank, Asian Development Bank (ADB) and Japan Bank of International Cooperation (JBIC). NHAI has earlier received loans directly from multilateral agencies (highway project). These loans
are expected to be repaid through the toll income from the project. The interest rate for the project is determined according to ADB's pool based variable lending rate system for US dollar loans. Around 80 per cent of the external assistance is provided to NHAI as a grant by the Central government. The balance is made available as long-term loans to NHAI, with the Centre bearing the foreign exchange risk. Such loans are usually provided for 15-25 years with a moratorium of 5 years.
Summary of Externally Aided Projects Category
Awarded
Completed
Awarded
No. of Contracts Length in km Cost (INR Crore) No. of Contracts
Length in km
World Bank Funded Projects NHDP Phase I
18
983
5538
12
616
GQ
18
983
5538
12
616
-
-
-
-
-
NHDP Phase II EW Corridors
12
482
3208
-
-
Sub-Total A
30
1465
8746
12
616
NHDP Phase I
13
766
2436
10
616
GQ
12
718
2377
9
568
1
48
59
1
48
NHDP Phase II NS & EW Corridors
31
1636
7565
5
365
Sub-Total B
44
2402
10001
15
981
NHDP Phase I
7
150
634
7
150
GQ
5
111
333
5
111
Others
2
39
301
2
39
Sub-Total C
7
150
634
7
150
81
4017
19381
34
1747
Others
ADB Funded Projects
Others
JBIC Funded Projects
Grand Total (A+B+C)
8
Guidelines for Investment in Road Sector
Presently, the development and maintenance of National Highways is financed by following modes: 1.
Government's general budgetary sources
2. Dedicated accruals under the Central Road Fund (by levy of cess on fuel) 3. Lending by international institutions: • World Bank • ADB • JBIC 4. Private financing under PPP frameworks • Build Operate and Transfer/Design Build Finance Operate and Transfer5 (DBFOT) Investment by private firm and return through levy and retention of user fee • Build Operate and Transfer (Annuity) - BOT
• •
(Annuity ) - Investment by private firm and return through semi-annual payments from NHAI as per bid. Special Purpose Vehicle – SPV (with equity participation by NHAI) Market Borrowings
NHAI also has a provision for providing grant upto 40% of the project cost to make projects commercially viable. However, the quantum of grant is decided on a case to case basis and typically constitutes the bid parameter in BOT projects generally not viable based on toll revenues alone. The disbursement of such grant is subject to provisions of the project concession agreements (please refer CD for provisions in the Model Concession Agreement).
Approved Financing Plan of NHDP (as on 31st March, 2009) Phase
Particulars
Projected For (Kms)
18,846
Cess and Market Borrowings NHDP-I
External Assistance
7862
BOT/SPV
3592
Total (At 1999 Prices)
7498
7609
External Assistance
3310
BOT/SPV Total (At 2002 Prices) NHDP-III
6647
12809
Cess and Market Borrowings
17688
Total (At 2004 Prices)
NHDP-VII
50129 80626 4608
Government Spending
2342 5000
35691
BOT/SPV 6500
1000
10378
BOT/SPV
5. The developer has flexibility in project design so long as the build and service quality is in line with prescribed standards set out in the Standards and Specification Manuals .
9000 16680 6302
Cess and Market Borrowings Total (At 2007 Prices)
41210 7680
Cess and Market Borrowings BOT/SPV Total (At 2006 Prices)
6950 5519
Cess and Market Borrowings Total (At 2006 Prices)
NHDP-VI
12109
Private Sector Total (At 2006 Prices)
NHDP-V
34339
Budgetary Support BOT/SPV
NHDP-IV A
30300 23420
Cess and Market Borrowings NHDP-II
INR Crore
700
16680
9
Guidelines for Investment in Road Sector
NHAI projects, with higher traffic volumes, have also been bid out on the basis of Negative Grant (upfront payment payable by successful bidder to NHAI). However, under the revised MCA, projects under BOT/ DBFOT framework have also been awarded on a revenue share basis, where the bidder offering the highest revenue share (subject to technical qualification) is awarded the project. Projects awarded on Negative Grant Road Section
Length (Km.)
Estimated Cost (INR Crore)
Estimated Cost (USD Million)
Grant (INR Crore)
Grant (USD Million)
Delhi-Gurgaon
28
710
169
61
12
Rajkot Bypass-Jetpur
36
388
92
59
12
Panipat elevated Highways
10
270
64
96
19
Salem- Karur
42
253
60
46
9
Krishnagiri - Thopurghat
62
372
89
140
28
Tindivanam-Ulundurpet
71
480
114
152
30
Thirssur-Angamali
40
312
74
84
17
Jalandhar- Amritsar
49
263
63
7
1
Ambala-Zirakpur
36
298
71
106
21
Dhule-Pimpalgaon
118
556
132
59
12
Vadodara Bharuch
83
660
157
471
94
Bharuch-Surat
65
492
117
504
101
Projects awarded on Revenue Share Basis Road Section
Length (Km.)
Estimated Cost (INR Crore)
Estimated Cost (USD Million)
Revenue Share (%)
Surat-Dahisar
239
2600
619
38%
Gurgaon-Jaipur
225
1900
452
48%
Panipat-Jalandhar
291
2200
523
20%
Chennai-Tada
42
317
76
17%
Vijayawada-Chilkaluripet
85
1173
280
2%
10
Guidelines for Investment in Road Sector
Public Private Partnership in Highway Development Public Private Partnerships (PPP) are going to be the main mode of delivery for future phases of NHDP. While there are a number of forms of PPP, the common forms that are popular in India and have been used for development of National Highways are: • • •
Build, Operate and Transfer (Toll) Model Build, Operate and Transfer (Annuity) Model Special Purpose Vehicle (SPV) for Port Connectivity Projects
NHAI is also proposing to award projects under long term Operations, Maintenance and Transfer (OMT) concessions. BOT (Toll) Private developers/ operators, who invest in tollable highway projects, are entitled to collect and retain toll revenues for the tenure of the project concession period. The tolls are prescribed by NHAI on a per vehicle per km basis for different types of vehicles. The Government in the year 1995 passed the necessary legislation on collection of toll. (Refer the National Highways Fee [Determination of Rates and Collection] Rules 2008). A Model Concession Agreement (MCA) has been developed to facilitate speedy award of contracts. This framework has been successfully used for award of BOT concessions. The MCA has been revised recently and current projects are being awarded under the revised MCA (refer enclosed CD for overview of MCA framework). BOT (Annuity) The concessionaire bids for annuity payments from NHAI that would cover his cost (construction, operations and maintenance) and an expected return on the investment. The bidder quoting the lowest annuity is awarded the project. The annuities are paid semi-annually by NHAI to the concessionaire and
linked to performance covenants. The concessionaire does not bear the traffic/ tolling risk in these contracts. Operate, Maintain and Transfer (OMT) Concession NHAI has recently taken up award of select highway projects to private sector players under an OMT Concession. Till recently, the tasks of toll collection and highway maintenance were entrusted with tolling agents/ operators and subcontractors, respectively. These tasks have been integrated under the OMT concession. Under the concession private operators would be eligible to collect tolls on these stretches for maintaining highways and providing essential services (such as emergency/ safety services). Special Purpose Vehicle for Port Connectivity Projects NHAI has also taken up development of port connectivity projects by setting up Special Purpose Vehicles (SPVs) wherein NHAI contributes upto 30% of the project cost as equity. The SPVs also have equity participation by port trusts, State Governments or their representative entities. The SPVs also raise loans for financing the projects. SPVs are authorised to collect user fee on the developed stretches to cover repayment of debts and for meeting the costs of operations and maintenance. International Competitive Bidding Process General procedure for selection of concessionaires adopted by NHAI is a two-stage bidding process. Projects are awarded as per the model documentsRequest 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. (Please refer CD for these model documents). The processes involved in both stages are set out as follows: Stage 1: Pre-qualification on the basis of Technical and Financial expertise of the firm and its track record in
Guidelines for Investment in Road Sector
similar projects which meets the threshold technical and financial criteria set out in the RFQ Document. Notice inviting tenders is posted on the web site and published in leading newspapers. 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. Wide publicity is given to NHAI tenders so as to attract attention of leading contractors/ developers/ consultants.
b.
c.
The Government has put in place appropriate policy, institutional and regulatory mechanisms including a set of fiscal and financial incentives to encourage increased private sector participation in road sector. d. Summary of recent policy changes in the project development and award process are set out below: 1. All applicants meeting the threshold technical and financial experience criteria set out in the RFQ shall be eligible to participate in the RFP stage. Earlier only the top 5-6 applicants shortlisted based on qualification criteria were eligible to submit financial bids for projects. 2. NHAI is empowered to accept single bids based on assessment of reasonableness of the bids. 3. Overall cap on Viability Gap Funding (VGF) increased from 5% to 10% for the entire six-laning programme (5080 km). 4. For individual projects with low traffic in the Golden Quadrilateral (GQ) corridors, VGF cap has been increased upto 20% of the project cost with an overall cap of 500 km of roads in the project network. 5. Equity Support under VGF has been increased to 40% of project cost. Earlier, 20% of project cost was provided as equity support in construction phase and 20% as Operations &Maintenance Support 6. Modifications in Standard RFQ, RFP and Concession Agreement structures for National Highway Projects a. Te r m i n a t i o n p r ov i s i o n s u n d e r c a p a c i t y augmentation situations modified to give more comfort to investors and lenders. The concession period can be extended upto 5 years to yield a post 6. As per recommendations of B. K. Chaturvedi Committee.
e.
f.
11
tax equity IRR of 16%, in the event of capacity a u g m e n t a t i o n o p t i o n exe r c i s e d by t h e concessionaire. Exit option allowed for principal promoters of road SPVs after two years from commercial operations date (COD). Promoters were earlier required to hold a minimum of 26% of the SPV’s shareholding at all times during the tenure of the Concession. Threshold limit for common control (shareholding) of entities in competing Applicants and/ or their Associates for the purposes of determining Conflict of interest, raised from 5% to 25%. Any such conflict of interest arising at the prequalification stage shall be deemed to subsist at the bidding stage only if such applicants attracting the conflict of interest provisions submit their bids. Threshold technical capability for claiming eligible project experience has been reduced to a range between 5-10% of estimated project cost of the subject project in lieu of 10-20% of estimated project cost of the subject project earlier. The threshold technical experience score for the purpose of prequalification will be equal to the estimated project cost of the earlier subject project. This was, earlier equal to twice the estimated project cost of the subject project. Where the projects are bid out on a revenue share basis, the base premium (revenue share proposed by the successful bidder) will be increased at the rate of 5 per cent year on year with respect to the immediately preceeding year for the entire tenure of the concession.
The aforesaid changes6 are expected to further incentivise private investment in road/highway projects. Opportunities for Private Investors/ Developers More than 60% of the projected investment requirement for the NHDP (USD 60 billion) is expected to be privately financed, primarily through the BOT/DBFOT (Toll) route, offering enormous opportunities. With a large number of new projects on offer under PPP in the road sector, there exists several investment opportunities for investors and companies with diverse business lines such as engineering companies, civil work contractors, O&M contractors, toll operators, construction equipment manufacturers
12
Guidelines for Investment in Road Sector
etc. and other stakeholders such as advisors, financiers and sector professionals. Only about 15 per cent of the total highways in India are 4-laned and the sheer potential for investments in this sector is likely to create opportunities in the core construction industry which may also be attractive for foreign players. The opportunity for private players in the road sector can be broadly categorised in two segments: a) Infrastructure Development b) Logistics and Services. Roads
Development Projects
Construction
Tolling
Urban Transportation
Trucking
Tourism
BOT/ DBFOT - Toll
Equipment
Services
Pvt Bus Service
Perishables
Luxury Buses
Material
Equipment
BOT Annuity OMT
Technology
With the introduction of the MCA, the risks involved in project and contractual issues, hitherto, have been assuaged, and the entire process from invitation to bid to implementation of the project is transparent. MCA's risk framework is briefly discussed below: Risk Framework of Model Concession Agreement The MCA has been developed in consultation with all stakeholders based on internationally accepted principles and best practices. Throughout, it seeks to achieve reasonable balance of risks and rewards for all the participants. As an underlying principle, risks have been allocated to the parties that are best suited to manage them. Project risks have, therefore, been assigned to the private sector to the extent it is capable of managing them. The transfer of such risks and responsibilities to the private sector would increase the scope of innovation leading to efficiencies in cost and services.
Containers
Bulk
SPV Maintenance
Logistics & Services
The commercial and technical risks relating to construction, operation and maintenance are allocated to the concessionaire, as it is best suited to manage them. Other commercial risks, such as the rate of growth of traffic, are also allocated to the concessionaire.
Infrastructure Development
Key Concessionaire Risk/Obligations Model Concession Agreement (MCA) for PPP Projects The highways sector in India has witnessed significant investment in recent years. For sustaining the interest of private participants, a clear risk-sharing and regulatory framework has been spelt out in the Model Concession Agreement (MCA). The MCA has been developed to facilitate speedy award of contracts. This framework has been successfully used for award of BOT concessions. The MCA has been revised recently and current projects are being awarded under the revised MCA. This framework addresses the issues, which are typically important for PPP, such as unbundling of risks and rewards, symmetry of obligations between the principal parties, equitable sharing of costs and obligations, and risk mitigation options under various scenarios including force majeure and termination, under transparent and fair procedures.
•
Construction Risk - 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.
•
O & M Risk - Concessionaire to operate and maintain the project facility (includes road and road infrastructure as specified in the concession agreement). Failure to repair and rectify any defect or deficiency within specified period shall be considered as breach of responsibility.
•
Financial Risk - 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.
Guidelines for Investment in Road Sector
•
Traffic Risk - 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 10th 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 (See table in next section on page 26). An overview of revenue risks and mitigation (including Termination Payment) under the MCA is provided in the next section.
Key NHAI Risk/Obligations •
Land Acquisition Risk: NHAI is responsible for acquiring the requisite land for the project highway
•
Approvals: NHAI will provide all reasonable support and assistance to the concessionaire in procuring applicable permits required from any Government Instrumentality.
Key Common Risk •
Force Majeure Risk - Force Majeure shall mean occurrence in India of any or all of Non-Political Event(s), Indirect Political Event(s) and Political Event(s), which include the following:
Non-Political Event: • act of God, epidemic, extremely adverse weather conditions or radioactive contamination or ionising radiation, fire or explosion; • strikes or boycotts
•
•
13
the discovery of geological conditions, toxic contamination or archaeological remains on the Site; or any event or circumstances of a nature analogous to any of the foregoing.
Indirect Political Event • an act of war, invasion, armed conflict or act of foreign enemy, blockade, embargo, riot, insurrection, terrorist or military action, • civil commotion or politically motivated sabotage which prevents collection of toll/ fees, • industry-wide or state-wide or India-wide strikes or industrial action which prevent collection of toll/ fees, • any public agitation which prevents collection of toll/ fees Political Event • Change in Law, • compulsory acquisition by any governmental agency of any project assets or rights of concessionaire or of the Contractors; or • unlawful or unauthorised or without jurisdiction revocation of or refusal to renew or grant without valid cause any consent or approval required by developer Salient features of the MCA • Substantial part of the project site free from encumbrances would be handed over to the concessionaire till the Appointed Date. Additional land in case of change of scope will need to be acquired by concessionaire on behalf of the Authority. • Additional tollway will not be commissioned within a specified year, depending upon the concession period. Minimum user fee for additional tollway will be at least 25% higher than
14
Guidelines for Investment in Road Sector
•
•
•
•
•
the toll fee on project. Any alternate road, exceeding 20% of the length of the project highway, shall not be considered as an additional tollway. The concessionaire will be entitled to nullify any change of scope order if it causes the cumulative cost relating to all change of scope orders to exceed 5% of the Total Project Cost (TPC) in any continuous period of 3 years immediately preceding the date of such Change of Scope order, or if such cumulative cost exceeds 20% of the TPC at any time during the concession period. Financial close is to be achieved within 180 days from date of agreement. NHAI may allow additional period for financial close on a project specific basis. Grant (upto 40% of TPC) to the concessionaire by way of equity support and operations & maintenance support in quarterly installments. (B. K. Chaturvedi Committee has recommended that the entire grant [up to 40% of TPC] can be provided as equity support) Concessionaire to pay nominal fee of INR 1 (USD 0.02) per annum throughout the concession period. There is an optional provision for capacity augmentation of existing 4-laning to 6-laning. If capacity augmentation is not done within the specified period, the concession period gets reduced to the number of years specified in the project specific agreement. The option to excuse from 6-laning of the Project Highway is available with both the concessionaire and the Authority before the pre-specified 6-laning date in the concession agreement.
Implementation steps of Project • Completion of preparatory works for the identified projects • Finalisation of Bidding Documents • Invitation of Bids • Pre bid Conference • Evaluation of Bids • Award of Concession • Signing of the Agreement Dispute Resolution Any dispute arising out of or in relation to the concession agreement, between the parties is
Guidelines for Investment in Road Sector
required to be resolved as per the Dispute Resolution Procedure (see below) prescribed in the Agreement. It specifies that the parties should attempt to resolve the dispute amicably and for this purpose, the mandate has been given to an Independent Engineer to mediate and assist the parties to arrive at a settlement. The procedure has been laid out in sufficient detail therein. However, upon the failure of such conciliatory measure, the parties shall resort to Arbitration, which shall be held in accordance with Arbitration and Conciliation Act, 1996 (based on United Nations Commission on International Trade Laws -UNCITRAL model). The seat of arbitration for all concession agreements pertaining to National Highways shall ordinarily be at Delhi, however, the place may be changed by mutual consent of the parties. Each party is free to nominate its arbitrator who in turn, will appoint a presiding arbitrator. The Arbitration Tribunal so constituted can adjudicate any dispute referred to it, and any other question of law arising out of such dispute, including its own jurisdiction. The award passed by such Tribunal, has the sanctity of a 'Decree' under Indian Law and can be challenged on very limited counts. Dispute Resolution Procedure for projects under BOT and Consultancy •
Mediation by the Independent Engineer: If any dispute arises between the parties, it is in the first place resolved by the mediation of the Independent Engineer. Any dispute, which is not resolved by mediation of the Independent Engineer, is resolved by amicable resolution.
•
Amicable Resolution: Any dispute, difference or controversy of whatever nature between the parties, arising under, out of or in relation to the project concession agreement (PCA) is attempted to be resolved amicably in accordance with the procedure set forth in the dispute resolution mechanism. Either party may require such dispute to be referred to the Chairman, NHAI and the Chief Executive Officer of the concessionaire in the interim, for amicable settlement. Upon such reference, the two shall meet at the earliest mutual convenience and in any event not later than 15 days of such reference to discuss and attempt
15
to amicably resolve the dispute. If the dispute is not amicably settled within 15 (fifteen) days of such meeting between the two, either party may refer the dispute to arbitration in accordance with the provisions of the PCA. •
Arbitration: Any dispute, which is not resolved amicably, shall be finally settled by binding arbitration under The Arbitration Act. The arbitration shall be carried out by a panel of three arbitrators, one to be appointed by each party and the third to be appointed by the two arbitrators appointed by the parties. The party requiring arbitration shall appoint an arbitrator in writing, inform the other party about such appointment and call upon the other party to appoint its arbitrator. If within 15 days of receipt of such intimation the other party fails to appoint its arbitrator, the party seeking appointment of arbitrator may take further steps in accordance with the Arbitration Act. The Dispute Resolution Procedure for EPC Projects does not involve amicable settlement. The disputes are referred to the Dispute Review Board.
•
Dispute Review Board: The Board shall comprise of three members, experienced with the type of construction involved in road works, and with the interpretation of contractual documents. If, during the contract period, either of the parties is of the opinion that the Dispute Review Board is not performing its functions properly, they may together disband the Board and reconstitute it.
•
Dispute involving Foreign Contractor(s): In the case of a dispute with a foreign contractor, the dispute shall be settled in accordance with the provisions of the UNCITRAL Arbitration Rules. The arbitral tribunal shall consist of three arbitrators, one each to be appointed by the employer and the contractor and the third arbitrator chosen by the two arbitrators so appointed by the parties, who shall further act as the Presiding Arbitrator. A “Foreign Contractor” means a contractor who is not registered in India and is not a juridical person under Indian Law.
16
Guidelines for Investment in Road Sector
General Trends in Dispute Resolution The Courts in India have been very neutral in construing the documents, in the cases arising out of tender processes and rely upon terms and conditions agreed between the parties under the tender documents. The provisions of the Contract Act and other legal provisions, covering the intricate commercial aspects of the dispute are looked into very minutely before passing any order. The Courts have, however, been very cautious in passing any injunctive relief in disputes arising out of tender process and pays due regard to the fairness in the process of issuing tender and selection of bidders, stage of infrastructure development and stakes (public money) involved. Where complex financial issues are involved, the Courts also seek advice of an expert committee and consider various factors like price index, quality of work, past performance of parties, market reputation, etc. The decision in each case may however differ, depending upon facts of each case. OMT Concessions • The OMT concession would be for a maximum period of 9 years • The private sector will be selected on the basis of a competitive bidding process. The successful bidder would be the one offering the highest concession fee to NHAI7. • The concessionaire is allowed a period of 45 days from the date of signing of the concession agreement to commence commercial operations. • The OMT concessionaire will pay a fixed concession fee to NHAI every month and undertake tasks of toll collection and mobilisation of funds for improvement, operation and maintenance of highways NHAI has identified eight highway sections which are to be awarded on OMT contracts. The concession agreements for two highway sections have been signed and the pre-qualification of bidders for the remaining six sections is under process. More sections, where project completion is anticipated in the next 6-12 months, are being planned for OMT concessions.
7. The bidder offering the maximum amount of first year concession fee or minimum amount of first year quarter O&M support (in case no bidder offers the concession fee).
17
Guidelines for Investment in Road Sector
Opportunities for Investment-State-Wise Projects Under NHDP Phase II
S. No.
Stretch
NH
Length (Km)
Estimated Project Cost (INR Crore)
(USD Million)
STATE: Assam 1
Udarband to Harangajo
54
31
202
40
1
Banihal-Batole-Udhampur
1A
122
1035
207
2
Srinagar-Khanbal-Banihal
1A
32
129
26
3
Two Tunnels on Udhampur-BanihalSrinagar Section
1A
19
5000
1000
4
Udhampur Jammu (0-66)
1A
86
1011
202
Walayar-Vadakkancherry
47
55
600
120
1
20
190
36
Salem-Coimbatore Kerala Border Section
47
82
540
108
Agra Bypass Km176-800 of NH-2 to Km 13.03.0 of NH-3
23
33
345
69
STATE: Jammu & Kashmir
STATE: Kerala 1 STATE: Punjab 1
Jallandhar-Amritsar
STATE: Tamil Nadu 1
STATE: Uttar Pardesh 1
18
Guidelines for Investment in Road Sector
Opportunities for Investment-State-Wise Projects Under NHDP Phase III-A
S. No.
Stretch
NH
Length (Km)
Estimated Project Cost (INR Crore)
(USD Million)
STATE: Andhra Pradesh 1
Vijaywada-Machhlipatnam
9
65
424
85
2
Tirupati-Tiruthani-Chennai
205
138
900
180
Patna-Bakhtiarpur
30
53
346
69
Rohtak-Hissar
10
80
522
104
1
Mulbagal-Kamataka/AP Border
4
11
72
14
2
Balgaum-Goa/KNT Border
4A
84
548
110
3
Mangalore-KNT/Kerala Border
17
18
117
23
1
Ottira-Thiruvananthapuram
47
123
805
161
2
Trivendrum-Kerala/Tamil Nadu Border
47
43
280
56
3
Kerala/Tamil Nadu Border Kanyakumari
47
70
456
91
STATE: Bihar 1 STATE: Haryana 1 STATE: Karnataka
STATE: Kerala
Guidelines for Investment in Road Sector
S. No.
Stretch
NH
Length (Km)
19
Estimated Project Cost (INR Crore)
(USD Million)
STATE: Maharashtra 1
Nagpur-Wainganga Br
6
60
391
78
STATE: Orissa 1
Chandikhole-Duburi
200
39
254
51
2
Panikoili-Roxy
215
249
1623
325
3
Duburi-Talcher
200
98
639
128
4
Roxy-Rajamunda
215
20
130
26
1
Chandigarh-Kurali
21
30
195
39
2
Parwanoo-Shimla (Punjab, Haryana and HP)
22
110
717
143
1
Reengus-Sikar
11
41
267
53
2
Tonk-Kota-Deoli
12
64
417
83
3
Deoli-Jhalawar
12
178
1161
232
1
Nagapatnam-Thanjavur
67
74
482
96
2
Krishnagiri-Tindivaram
66
170
1108
222
3
Trichy-Puddukotai-Ramanathapuram
210
200
1304
261
Barasat-Bangaon
35
60
391
78
STATE: Punjab
STATE: Rajasthan
STATE: Tamil Nadu
STATE: West Bengal 1
20
Guidelines for Investment in Road Sector
Opportunities for Investment-State-Wise Projects Under NHDP Phase III-B
S. No.
Stretch
NH
Length (Km)
Estimated Project Cost (INR Crore)
(USD Million)
STATE: Arunachal Pradesh 1
Itanagar-Arunachal Pradesh/ Assam Border
52A
22
143
29
STATE: Assam 1
Doboka-Assam/Nagaland Border-Dimapur
36
124
808
162
2
Baihata Chariali-Banderdewa
52
314
2047
409
3
Badardewa-Assam/ Arunachal Pradesh Border
9
59
12
4
Assam/Meghalaya Border to Assam/ Tripura Boder
44
116
756
151
5
Silchar-Assam/Mizoram Border
54
50
326
65
1
Muzaffarpur-Sonbasra
77
89
580
116
2
Motihari-Raxaul
28A
67
437
87
3
Bakhtiarpur-Begusarai-Khagarai-Purnea
31
255
1663
333
4
Gopalganj-Chapra-Hajipur
19 & 85
153
998
200
5
Forbesganj-Jogwani
57A
13
85
17
6
Mokama-Munger
80
70
456
91
7
Patna-Buxar
84
130
848
170
1
Kumud-Dhamtari
43
23
150
30
2
Raipur-Simga
200
28
183
37
1
Panaji-Goa/KNT Border
4A
69
450
90
2
Maharashtra/Goa Border-Panaji Goa/ KNT Border
17
139
906
181
52A
STATE: Bihar
STATE: Chhatisgarh
STATE: Goa
Guidelines for Investment in Road Sector
S. No.
Stretch
NH
Length (Km)
21
Estimated Project Cost (INR Crore)
(USD Million)
STATE: Gujarat 1
Jetpur-Somnath
2 3
8D
127
828
166
Gujarat/Maharashtra Border-Surat
6
84
548
110
Gujarat/MP Border-Ahmedabad
59
210
1369
274
Srinagar-Baramula-Uri
1A
101
659
132
KNT/Kerala Border-Khozikode-Eddapally
17
451
2941
588
1
Kalamboli-Mumbra (6 Laning)
4
20
130
26
2
Panvel-Indapur
17
84
548
110
1
Bhopal-Rajmarg Crossing-Jabalpur
12
297
1936
387
2
Bhopal-Sanchi
86(Ext.)
40
261
52
3
Obaiduliaganj-Bheembetka
69
13
85
17
4
Jhansi-Khajuraho
75
100
652
130
Nagaland/Manipur Border-Imphal
39
140
913
183
Assam/Mizoram Border-Aizawi
54
113
737
147
STATE: Jammu & Kashmir 1 STATE: Kerala 1 STATE: Maharashtra
STATE: Madhya Pradesh
STATE: Manipur 1 STATE: Mizoram 1
22
Guidelines for Investment in Road Sector
S. No.
Stretch
NH
Length (Km)
Estimated Project Cost (INR Crore)
(USD Million)
STATE: Meghalya 1
Shillong (excluding Shillong Bypass)Assam / Meghalaya Border
44
136
887
177
Kohima-Nagaland-Manipur Border
39
28
183
37
1
Sambalpur-Baragarh-Chattisgarh/ Orissa Border
6
84
548
110
2
Bhubaneshwar-Puri
203
59
385
77
Amritsar
15
101
659
132
Beawar-Pali-Pindwara
14
246
1604
321
Bareilly-Sitapur
24
153
998
200
Tripura/Assam Border to Agartala
44
195
1271
254
STATE: Nagaland 1 STATE: Orissa
STATE: Punjab 1 STATE: Rajasthan 1 STATE: Uttar Pradesh 1 STATE: Tirpura 1 STATE: Tamil Nadu 1
Dindigul-Perigulam-Theni
45(Ext.)
73
476
95
2
Madurai-Ramnathpuram-
49
186
1213
243
67(Ext.)
45
293
59
220
57
372
74
Rameshwaram-Dhanushodi 3
Coimbatore-Mettupalayam
4
Theni-Kumili
Guidelines for Investment in Road Sector
23
Opportunities for Investment-State-Wise Projects Under NHDP Phase V
S. No.
Stretch
NH
Length (Km)
Estimated Project Cost (INR Crore)
(USD Million)
STATE: Andhra Pradesh 1
Chilkaluripet-Vijayawada-ElluruRajamundri
5
270
1712
342
2
Tada-Neliore Bypass
5
130
824
165
3
Vishakapatnam-Ankapalli-Rajamundri
5
200
1268
254
4
Srikakulam-Vishakhapattanm Ankapalli
5
100
634
127
5
Neliore-Chilkaluripet
5
184
1167
233
6
Icchapuram-Srikakulam
5
140
888
178
1
Aurangabad-Barwa Adda
2
70
444
89
2
Vanarasi-Aurangabad
2
140
888
178
NE-1
95
602
120
STATE: Bihar
STATE: Gujarat 1
Ahmedabad-Vadodara Expressway
2
Udaipur-Ahmedabad
8
140
888
178
1
Barwa Adda-Panagarh
2
100
634
127
2
Aurangabad-Barwa Adda
2
150
951
190
Gurgaon-Kotputli-Jaipur
8
126
799
160
1
140
888
178
STATE: Jharkhand
STATE: Haryana 1
(Haryana portion) 2
Delhi-Ahmebad
24
Guidelines for Investment in Road Sector
S. No.
Stretch
NH
Length (Km)
Estimated Project Cost (INR Crore)
(USD Million)
STATE: Karnataka 1
Bangalore-Tumkur
4
65
412
82
2
Hubli-Chitradurga
4
200
1268
254
3
Chitradurga Bypass-Tumkur Bypass
4
145
919
184
4
Bangalore-Krishnagiri
7
55
349
70
5
Belgaum-Hubli
4
110
697
139
6
Kagal-Belgaum
4
77
488
98
Satara-Kagal-Belgaum
4
133
843
169
STATE: Maharashtra 1
Guidelines for Investment in Road Sector
25
Revenue Risks and Mitigation Revenue realisation in BOT-Toll projects is subject to some key risks including, but not limited to variation in traffic, variation in toll rates, additional tollway, occurrence of premature termination on account of certain events. The concession agreement provides for various risk mitigation mechanisms to the concessionaire including change in concession period, differential toll rates that are linked to cost of different road structures under the new toll rules (linear alignment, bridges, tunnels, bypasses etc.) to providing for termination payments under force majeure events. Variation in Traffic Type of Variation
Change in Concession Period
Cap on Concession Period Variation
Actual Traffic < Target Traffic
For every 1% shortfall,concession period increase by 1.5%
20%
Actual Traffic > Target Traffic
For every 1% excess, concession period reduction by 0.75%8
10%
The concession agreement provides for extension or reduction of the concession period in the event the actual traffic falls short or exceeds the target traffic9, as estimated on the target date10. 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 in such scenario will be deemed to happen on account of an Indirect Political Event. Variation inToll rates (Linked to WPI) The notification of the New National Highways Fee Rules (2008) has provided for a revision of toll rates and hence realisable toll revenues for all vehicle categories. The new toll rules are applicable for all new road projects.
8. Waiver from concession period reduction can be obtained on payment of premium 9. The method for calculating Actual Traffic and Target Traffic is detailed in the MCA 10. Target Date is around 10 years from the date of the agreement in a 20 year concession period
26
Guidelines for Investment in Road Sector
The salient features of the new toll rules are: • Increase in base toll rates by 3% every year • Increase in toll charges to the extent of 40% of the increase in WPI. • Toll charges for new structures (bridges, tunnels)/alignments (bypass, alternate section) determined based on construction cost. • Rounding off fee to the nearest five rupees (earlier rounded off to nearest 1 Rupee). While the earlier tolling rules prescribed a standard base toll rate on a per passenger car unit (pcu)/km basis for a highway project, the new rules prescribe base toll rates also for high-cost structures (such as bridges, bypass or tunnels) separately. The base toll rates for such high-cost structures are indexed to the estimated project cost (on INR/vehicle/trip basis). Provided below is an illustration of toll revenues earned from a Light Motor vehicle and Multi Axle Vehicle (MAV of three to six axles) as per the applicable toll rates under the old and new toll rules respectively. The toll charge at the end of fifth year has been calculated under two project development scenarios. In Scenario 1, a linearly aligned highway stretch Old Toll Rate Rs./ trip (USD)
New Toll Rates11 Rs./ trip (USD)
Scenario 1 Light Motor Vehicle Light Commercial Vehicle
79 (~1.57)
80 (~1.6)
128 (~2.5)
130 (~2.6)
Scenario 2 Light Motor Vehicle Light Commercial Vehicle
79 (~1.57)
120 (~2.4)
128 (~2.5)
185 (~3.7)
(without bypasses and bridges) of 100 km has been considered. In Scenario 2, the highway stretch includes a linear alignment of 80 km and bypass length of 20 km. The increase in WPI is assumed to be 5% p.a. The table above shows that for a given base toll rate, the toll charges determined by the new toll rules are higher. The toll charges are significantly higher in Scenario 2, where higher construction cost of the bypass is reflected in the toll charges. Complete details of the new National Highway Fee (Determination of Rates and Collection) Rules, 2008 are provided in the enclosed CD EarlyTermination of Concession The concession may be terminated before project completion in the event of the following: •
NHAI Event of Default: In the event of any of the defaults specified in the concession agreement which the Authority has failed to cure within 90 days or such longer period as has been specified in the agreement, the Authority shall be deemed to be in default and concessionaire shall have the right to terminate the agreement
Event of Default
During construction (after financial closure)
During operations
Concessionaire event of default
No payment
Payment equal to 90% of debt due less insurance claims if any.
NHAI event of default
a. the total Debt Due b. 150% of the Adjusted Equity.12
Force Majeure Non-Political Event
Payment equal 90% of the Debt Due less Insurance Cover
Indirect Political Event13
a. Debt Due Less Insurance Cover b. 110% of the Adjusted Equity
Political Event
a. the total Debt Due b. 150% of the Adjusted Equity
11. As per new tolling rules, toll rate revision is determined by the formula - TR1 = TR0(1+3%) + TR0((1+3%)*%Variation in WPI*40%) 12. Adjusted equity is equity funded in Indian Rupees adjusted suitably to reflect change in value of equity on account of depreciation and variations in WPI at different periods during the Concession Period 13. including termination due to breach of capacity as set out under traffic risk
Guidelines for Investment in Road Sector
•
•
Concessionaire Event of Default: In the event of any of the defaults specified in the concession agreement which the concessionaire has failed to cure within the specified cure period, and where no such cure period has been specified, then within the cure period of 60 days, the concessionaire shall be deemed to be in default and NHAI shall have the right to terminate the agreement Force Majeure Event: A force majeure event which lasts for less than 180 days will lead to a
27
proportionate change in the concession period to compensate the concessionaire for losses during such period. The concession is eligible to be terminated (by either party) if the force majeure event subsists for at least 180 days within a continuous period of 365 days Termination payments are made by NHAI to the concessionaire in the event of termination due to above mentioned reasons
28
Guidelines for Investment in Road Sector
Overview of Successful Projects PPP is gradually proving to be a successful mechanism for developing and maintaining the National Highways, as is evident from the increased private sector participation in projects till date. Number of Contracts
Cost in INR Crore USD Billion
BOT Toll Awarded Completed Awarded Completed Awarded Completed
104 8058 32 1742 BOT DBFO 8 1034 BOT Annuity 28 1158 13 804
68587 11689
13.7 2.3
7785
2
11186 4608
2.2
0.9
Source: NHAI
Toll collection depends on two factors - traffic volume and tolling rate. The toll rates are pre-specified by NHAI. Estimates of traffic growth for projects are also provided by NHAI based on detailed feasibility studies. However, bidders are advised to carry out independent due-diligence of the traffic and growth estimates. The profitability of tolled National Highways has made the sector extremely competitive and attractive. In light of the forecasts for traffic growth on important road corridors, the Government has given first preference to Build-Operate Transfer (BOT/DBFOT) toll projects. Jaipur- Kishangarh BOT Project –NH 8 Jaipur-Kishangarh is one of the earliest projects implemented on BOT framework. The project involved 4-laning a length of approximately 91 km from Jaipur to Kishangarh (NH-8), in the state of Rajasthan at an estimated cost of INR 644 Crore (USD 129 millionNHAI estimate). NHAI provided a grant of INR 211 Crore (USD 42 million) to the project. The concession period of the project is 20 years.
The project was completed 5 months ahead of its s ch e d u l e d c o m p l e t i o n d a t e ( 2 0 0 5 ) . T h e concessionaire also earned a bonus of INR 42.25 Crore (USD 8.5 million) in the form of early tolling during the period before scheduled completion date. Even today, the concessionaire is earning more revenues than those projected at the time of bidding. However, the excess revenue is being shared between the concessionaire and NHAI as per the revenue sharing clause in the agreement. Belgaum – Maharashtra Border Section of NH-4 (Annuity Project) The project involved widening of existing two lanes to 4-lane divided carriageway facility including the rehabilitation of existing 2-lanes on annuity basis. The estimated cost of this 78 km long road project is INR 332 Crore (USD 66.4 million; NHAI Estimate). The section has two toll plazas. The project was awarded to the consortium of M/s ILFS, M/s Punj Lloyd Ltd. and M/s Consolidated Toll Network India Ltd. The concession period is 17 years and 6 months. The concessionaire completed the project in October 2004, two months earlier than the stipulated project completion date, and was paid a (performance) bonus of INR 42.16 Crore (USD 8.4 million) on account of early completion. Second Vivekananda Bridge (now Sister Nivedita Bridge)- BOT Project in Kolkota: This bridge is one of the first BOT projects, undertaken by NHAI in 1995. The concession agreement was signed in September, 2002.The consortium members are from USA, U.K, Mauritius and India. Though the financial close was delayed by one year, the
29
Guidelines for Investment in Road Sector
construction thereafter was almost on time and the bridge was commissioned on 4th July, 2007. This bridge also won the award of excellence for the year 2007 under the Foreign Bridge Project Category from the American Segmental Bridge Institute. NHAI had provided a grant of INR 120 Crore (USD 24 million) out of the total project cost of INR 640 Crore (USD 128 million). The concession period of the project is 30 years. Jawaharlal Nehru Port Connectivity Project in Maharashtra This project has been undertaken as part of a programme for adequate road connectivity to major ports through an SPV of NHAI (Jawaharlal Nehru Port Road Company Limited). Phase-1 of the project, with a length of 30 km for 4-laning of NH-4/4B, built at an estimated cost of INR 177 Crore (USD 35.4 million) was commenced in February 2002 and was completed in July 2005. This project is a symbolic representation of a successful venture of NHAI, Jawaharlal Nehru Port and State Government represented by City and Industrial Development Corporation of Maharashtra Ltd. (CIDCO). Phase-II of the project for 4-laning of 14 km and the 6-laning of Panvel Creek Bridge (length: 397m) at a cost of INR 143 Crore (USD 29 million) has been taken up and likely to be completed soon. Encouraged by the results, Phase –III at a cost of INR 279 Crore (USD 56 million), is also being taken up. The concession given to the SPV of NHAI is for 20 years from December 2000. The SPV made profits (after tax) of INR 16.4 Crore (USD 3.3 million), INR 20.3 Crore (USD 4 million) & INR 21.7 Crore (USD 4.3 million) in 2005-06, 2006 07 & 2007-08 respectively. Participation of Foreign Contractors Foreign contractors started participating in NHDP contracts (and to a limited extent in state highway projects) from 2000-01. In 2000-01, there were about 20 contracts in the NHDP, where foreign contractors participated either on their own or in joint ventures; the number grew to about 32 in 2003. The foreign contractors taking part were from Malaysia, Korea, China, Russia, Turkey, Indonesia, Iran and some niche contractors from Europe for specialised jobs. It is presently estimated that about a dozen foreign road contractors are operating in India.
Foreign companies are executing 27 contracts exclusively and 71 contracts as joint venture partners with Indian companies. Foreign investors are allowed 100 per cent foreign direct investment in road sector (Please refer section on page 36). The total value of contracts with foreign participation is estimated to be more than INR 12,000 Crore (USD 2.4 billion)
Construction Firms
No. of Foreign Firms
Length (in km)
No. of Projects
BOT (Toll)
22
22
2352
BOT (Annuity)
6
6
4150
EPC Contracts
67
67
3300
Country wise breakup of Foreign and JV Companies involved in development work of National Highway Projects S. No. 1.
Country
Contractors JV
Independent
China
11
2
2.
Dubai
1
0
3.
Malaysia
25
10
4.
Iran
1
0
5.
Singapore
1
0
6.
Saudi Arabia
1
0
7.
UK
4
0
8.
Indonesia
2
2
9.
Korea
9
5
10.
Spain
5
0
11.
Taiwan
1
4
12.
Thailand
2
1
13.
Turkey
2
0
14.
Philippines
1
0
15.
USA
1
1
16.
Russia
2
2
17.
Italy
2
0
Total
71
27
30
Guidelines for Investment in Road Sector
Work Plan-II (2010-11) Sl. No. State
Section
NH No. Length km
NHDP Phase-III 1
Meghalaya
Jowai-Meghalaya/Assam Border
44
Sub-Total 2
Punjab
Ludhiana - Talwandi
104 95
Sub-Total 3
Rajasthan
Kota-Jhalawar
Uttarakhand
Rampur-Kathgodam
12
West Bengal
Barasat-Petrapole
55 55
87
Sub-Total 5
78 78
Sub-Total 4
104
88 88
35
Sub-Total
60 60
Total NHDP III
307
NHDP Phase-V 6
Andhra Pradesh
Vijayawada-Elluru-Rajamundry
5
7
Andhra Pradesh
Ichapuram-Srikakulam-Vishakapatnam - Rajahmundri
5
Sub Total Karnataka
Dharwad-Haveri
4
9
Karnataka
Khagal-Belgaum
4
Sub Total Orissa
Chandikhole-Paradeep
Punjab
Ludhiana-Chandigarh
95 77 172
5A
Sub Total 11
436 634
8
10
198
80 80
95 & 21
Sub Total
85 85
12
Uttar Pradesh
Agra-Etawah Bypass
3
125
13
Uttar Pradesh
Allahabad Bypass-Varanasi
2
160
14
Uttar Pradesh
Aurangabad-Barwa Adda
2
220
15
Uttar Pradesh
Etawah-Chakeri
2
157
16
Uttar Pradesh
Chakeri-Allahabad
2
153
Sub Total
815
Total Phase V
1786
NHDP Phase-IV 17
Bihar
Muzaffarpur-Barauni
18
Bihar
Chhapra - Rewaghat - Muzzaffarpur
28
107
102
75
Sub Total 19
Chattisgarh
Arang-Saraipalli-Orissa Border
182 6
150
31
Guidelines for Investment in Road Sector
Sl. No. State
Section
20
Chattisgarh
Chilpi-Simga
21
Chattisgarh
22
NH No. Length km 12A
128
Raipur to Dhamtari
43
72
Chattisgarh
Dhamtari-Jagdalpur
43
222
23
Chattisgarh/Jharkhand
Pathalgaon to Gumala
78
130
24
Chattisgarh
Ambikapur to Pathlgaon
78
85
25
Chattisgarh
Bilaspur-Ambikapur
111
190
26
Chattisgarh
Raipur-Bilaspur
200
Sub Total 27
Himachal Pradesh
Bilaspur to Ner Chowk
21
28
Himachal Pradesh
Ner Chowk to Manali
21
Sub Total 29
Jharkhand
Jharkhand
119 173
32 & 33
130
32
71
6 & 33
150
Junction with NH-2 at Govindpur-Chas-Upto JHR/WB Border
31
54
Junction with Govindpur at NH-2-Dhanbad-Bokaro-Ramgarh
30
112 1089
Jharkhand/ West Bengal Jamshedpur-Kharagpur Sub Total
351
32
Karnataka
Hospet-Chitradurga
13
119
33
Karnataka
Bellary-Gooty
63
77
34
Karnataka
Hospet-Hubli-Ankola
63
271
35
Karnataka
Hoskote to Dobespet
207
89
36
Karnataka
Kozhikode (Kerala Border)-Gundlupet-Coimbatore
212
(Kerala Border) 37
Karnataka
Gulbarga-Bijapur-Homnabad
& 67
63
218
200
Sub Total
819
38
Madhya Pradesh
Gwalior-Dewas
3
450
39
Madhya Pradesh
Jabalpur- Lakhnadon
7
74
40
Madhya Pradesh
Biaora- MP/Rajasthan Border
12 Ext.
66
41
Madhya Pradesh
Jabalpur-Mandla-Chilpi
12A
189
42
Madhya Pradesh
Obadullaganj - Betul
69
143
43
Madhya Pradesh/
Betul- Nagpur
69
176
7
210
Maharashtra 44
Madhya Pradesh
Jabalpur-Katani-Rewa Sub Total
1308
32
Guidelines for Investment in Road Sector
Sl. No. State
Section
45
Maharashtra
Amravati-Dhule-Gujrat Border
46
Maharashtra
Khed-Nasik
47
Maharashtra
48 49
50
NH No. Length km 6
450
50
180
Vedishi-Osmanabad-Solapur
211
85
Maharashtra
Dhule-Aurangabad
211
140
Maharashtra/
Solapur-Sangareddy
9
234
Andhra Pradesh
Sub Total
Orissa
Baleashwar-Baripada-Jharpokhria (Jn. of NH-5 with NH-6)
51
Orissa
Jn. with NH-6 at Sambalpur with NH-5 in Cuttack
52
Orissa
Bahargora-Sambalpur
53
Orissa
Birmitrapur-Palhara
1089
5
90
42
261
6
370
23
128
Sub Total
849
54
Punjab
Sri Ganganagar-Amritsar
15
55
Punjab/ Haryana
Jullundhar-Jind
71
Sub Total 56
Rajsthan/Gujarat
57
Rajsthan/
Jhalawar-Biaora
Madhya Pradesh
Sub Total
Tamil Nadu
Thanjavur - Pudukkotai - Sivaganga -
58
Padhi-Dahod
Manamadurai 59
Tamil Nadu
172 350 522
113 12
123 121 244
226
122
Tiruchirapalli-Lalgudi-Chidambaram & Meenusuriti-Jayamkondam-Kootu Road [km 90.20 to km 93.00 (common stretch with km 96.80 to km 99.60 of NH 227)]
60
Tamil Nadu
Vikravandi-Kumbakonam-Thanjavur
45C & 227
135
45C
165
Sub Total 61
Uttar Pradesh
Nepal Border - Varanasi
62
Uttar Pradesh
Varanasi-Lucknow
63
Uttar Pradesh
Varanasi-Hanumanha
64
Uttar Pradesh
Lucknow - Rai Bareilly
65
Uttar Pradesh
Unnao - Lalganj
66
Uttar Pradesh
67
422 233
292
56
300
7
70
24 B
82
232 A
68
Moradabad - Aligarh
93
71
Uttar Pradesh
Meerut - Nazibabad
119
139
68
Uttar Pradesh
Meerut - Bulandshahar
235
66
69
Uttar Pradesh/Rajasthan Bharatpur-Mathura-Hathras
SH
90
33
Guidelines for Investment in Road Sector
Sl. No. State
Section
NH No. Length km
70
Uttar Pradesh
Rai Bareilly - Jaunpur
231
169
71
Uttar Pradesh
Ambedkar Nagar - Banda
231
287
72
Uttar Pradesh
Barabanki-Bahraich-Nanapara-Rupaidiha
28 C
152
73
Uttar Pradesh
Gorakhpur-Ferenda-Nautanwa-Sonauli
29 E
99
Sub Total 74
Uttarakhand/
Chutmalpur-Saharanpur-Yamunanagar-Haryana/
Uttar Pradesh
UP Border
75
Uttarakhand
Dehradun-Chutmalpur-Roorkee
76
Uttarakhand
77
1885
73
50
72 A
70
Sitarganj-Tanakpur
125
52
Uttarakhand/
Haridwar-Kashipur
74
167
Uttar Pradesh
Sub Total
78
West Bengal
Pundlbari-Baxirhat
79
West Bengal
JHR/WB Border-Purliya-Balarampur-JHR/WB
339 31
46
32
82.5
border-upto junction with NH-33 at Chandil (Jharkhand) Sub Total
128.5
Total Phase IV
9400.5
SARDP-NE 80
Assam
Demow-Dibrugarh
37
64
81
Assam
Numaligarh-Jorhat
37
56
82
Assam
Jorhat-Demow
37
81
Sub Total 83
Nagaland
Dimapur-Kohima Sub Total Total SARDP-NE Grand Total
201 39
81 81 282 11775.5
34
Guidelines for Investment in Road Sector
Policy Framework National Highways Policy Initiatives The government has adopted a road development policy setting out the guidelines for investment in highways. In order to meet the huge investment requirements in the sector, the government has taken a number of measures to attract private sector participation. •
• •
• • •
•
• • • •
The government has permitted 100 per cent foreign equity in construction and maintenance of roads, highways, tunnels etc. Grant upto 40% of project cost to make project viable. 100% tax exemption in any 10 consecutive years within a period of 20 years after completion of the project. Agreements to avoid double taxation with a large number of countries Concession period upto 30 years Right to charge tolls on certain (toll) projects. These tolls are indexed to a formula linked with the wholesale price index. The government permits duty free import of high capacity equipment required for highway construction. Government support for land acquisition, resettlement and rehabilitation. Simplified procedure for Land Acquisition MCA for BOT (Annuity) and OMT are being finalised. New rules for collection of fee for use of sections of national highway, permanent bridges, bypasses and tunnels have been put into place. The illustration of revenue collection for new projects under the new policy is provided in the earlier section.
Viability Gap Funding Scheme ( VGF) The VGF scheme provides financial support in the form of capital grant for PPP projects in various infrastructure sectors. VGF Scheme is intended to support projects which are commercially unviable but have high economic benefit. The Empowered Institution sanctions projects for VGF upto INR100 crore (USD 20 million) for each eligible project subject to the budgetary ceiling indicated by the Finance Ministry. The Empowered Institution also considers other proposals and places them before the Empowered Committee. Funding upto 20% of the project cost is provided. If required, an additional 20% can be made available by the sponsoring Ministry/agency. Proposals up to INR 200 Crore (USD 40 million) will be sanctioned by the Empowered Committee and amounts exceeding INR 200 Crore will be sanctioned by the Empowered Committee with the approval of Finance Minister. Capital grant for all infrastructure projects under the VGF scheme is restricted to a maximum of 40% of the project cost (for projects upwards of INR 200 Crore). Grant provided by NHAI for highway projects under the BOT route may be financed through the VGF route. VGF funding will not be available over and above NHAI's grant for projects. The Government will carry out all preparatory works for the projects identified for private investment and meet the cost of following items: • Detailed Feasibility Study
Guidelines for Investment in Road Sector
• •
• •
Land for right-of-way and enroute facilities Clearance of the right-of-way land: Relocation of utility services, cutting of trees, resettlement and rehabilitation of the affected establishments Environment Clearances Clearance from Indian Railways to allow construction of Rail-Over-Bridges under their supervision.
•
35
Where design is left to the enterprise, giving details of standards and bore holes logs at bridge sites etc.
Government Support for Major Clearances required for Road Projects CLEARANCES
CLEARING AUTHORITY
Cost Estimate
Ministry of Road Transport & Highways /Public Works Department /National Highways Authority of India (NHAI)
Techno economic Clearances
Ministry of Road Transport & Highways/ Public Works Department/ National Highways Authority of India
Pollution Clearance (water & air)
Central Pollution Control Board
Forest Clearance
Ministry of Environment & Forests
Environmental Clearance
Ministry of Environment & Forests
Company Registration
Registrar of Companies
Rehabilitation & Resettlement of Displaced families
Ministry of Road Transport & Highways, State Governments and NHAI
36
Guidelines for Investment in Road Sector
Foreign Direct Investment (FDI) Policy Introduction The FDI regime has been progressively liberalised during the course of the 1990s (particularly after 1996) with most restrictions on foreign investment being removed and procedures simplified. With limited exceptions, foreigners can invest directly in India, either wholly by themselves or as a joint venture.
Foreign Investment (in billion $)
Direct Foreign Investm ent Portfolio Foreign Investment 29.3
India welcomes FDI in virtually all sectors, except those of strategic concern such as defence (opened to a limited extent), atomic energy and activities/ sectors not opened to private sector investment.
15.5 12.5
11.4 9.3 7.7
The major source of FDI in India is through the equity route, which accounted for 81% of the total FDI inflows in India. Reinvested earnings of FDI companies accounted for 18% of the total Direct Investment. Acquisitions accounted for 17% of total FDI.
5
6
4.3
8.5
7.1
1 2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
Source: RBI
Routes For Foreign Direct Investment Investment Climate – FDI Current Situation
FDI in Automatic Route No prior government approval required
FDI equity limit-Automatic Route (illustrative list) • Roads -100% • Insurance – 26% • Domestic airlines – 49% (100% for NRI investment) • Telecom services – Foreign equity 49% • Private sector banks – 74% • Exploration and mining of coal, lignite, diamonds and precious stones – 100% • Development of new airports – 100% • Development of existing airports – 74% • Trading -whole sale cash & carry & for exports – 100%
Prior Permission (Foreign Investment Promotion Board) Decision generally within 4–6 weeks FDI requiring prior approval (illustrative list) • Defence production – 26% • FM broadcasting – Foreign equity 20% • News and current affairs – 26% • Broadcasting – cable, DTH, setting up of hardware facilities – Foreign equity 49% • Test marketing – 100% • Single Brand Retailing – 51%
Other areas (100% - Auto Route): Pharma, Non Banking Financial Services, SEZs, Food Processing
•
Automatic Route - No prior Government approval is required if the investment to be made falls within the sectoral caps specified for the listed activities. Only filings have to be made by the Indian company with the concerned regional office of the Reserve Bank of India (“RBI”) within 30 days of receipt of remittance and within 30 days of issuance of shares
•
FIPB Route - Investment proposals falling outside the automatic route would require prior Government approval. Foreign Investment requiring Government approvals are considered and approved by the Foreign Investment Promotion Board (“FIPB”). Decision of the FIPB is usually conveyed in 4-6 weeks. Thereafter, filings have to be made by the Indian company with the RBI
•
CCFI Route - Investment proposals falling outside the Automatic Route and having a project cost of INR 6,000 million (USD 120 million) or more would require prior approval of Cabinet Committee of Foreign Investment (“CCFI”) after obtaining the FIPB approval. Decision of CCFI is usually conveyed in 8-10 weeks. Thereafter, filings have to be made by the Indian company with the RBI. Investment proposals falling within the automatic route and having a project cost of INR 6,000 million or more do not require to be approved by CCFI
38
Guidelines for Investment in Road Sector
Tax Environment Taxation System In India India has a well-developed tax structure with the authority to levy taxes divided between the central and the state governments. Since 1991 tax system in India has undergone a radical change in line with liberal economic policy. Brief description of taxes prevalent in India is given below: Taxation in India Central Direct Taxes
Other Taxes
Indirect Tax
Personal Income Tax
Customs Duty
Wealth Tax
Excise Duty
Entry Tax
Corporate Tax
Central Sales Tax
Octroi
Professional Tax
Domestic Companies •
Taxed at worldwide income
• Taxed at 30% • If taxable income >INR 10,000,000; Surcharge applicable @ 10% of tax (surcharge @ 7.5% proposed by budget 2010 from AY 2011-2012). • Education cess of 3% of tax (and surcharge if applicable)
State Indirect Taxes
Rates of Taxation
Value Added Tax
• Dividend Distribution Tax (DDT) is levied @ 16.995% (16.609% proposed by Budget 2010 from AY 201112) on the amount of dividend declared.
Foreign Companies • Taxed at income which is earned from a business connection in India or from a source/asset located in India. • Taxed at 40% • If taxable income > INR 10,000,000; Surcharge applicable @ 2.5% of tax. • Education cess of 3% of tax (and surcharge if applicable) • No Dividend Distribution Tax (DDT)
Service Tax
Direct Taxation Tax incentive for Roads 100% tax holiday is available for those who are engaged in development of roads and highways. Such tax holiday can be availed for any consecutive period of 10 years within a block of 20 years starting from the year when the person starts developing the roads/highways. Following conditions needs to be fulfilled by such person: • There should be a company registered in India; • Such company is awarded a contract by the government or its agency to develop the roads/highways; • A certificate from an accountant certifying the deduction.
Both the companies may be liable to Minimum Alternate Tax (MAT) of 15% (18% proposed by Budget 2010 from AY 2011-12) of the book profits if the tax liability under normal provisions is less than MAT. The above rates may be subject to more beneficial provisions contained in a tax treaty entered into between India and the country in which the taxpayer is resident.
Minimum AlternateTax (MAT) The tax law requires companies to pay a minimum tax known as MAT on the basis of profits disclosed in the financial statements. MAT becomes payable when tax liability under normal provisions is less than MAT. In such a case, companies are liable to pay 15% of book profits as MAT plus applicable surcharge of 10% for domestic companies (surcharge of 7.5% proposed by Budget 2010 for domestic companies from AY 20112012) and 2.5% for foreign companies. Education cess of 3% thereon is levied in case of both domestic and foreign companies. Book profits for this purpose
Guidelines for Investment in Road Sector
are computed by making prescribed adjustments to the net profit disclosed by the corporations in their financial statements. Budget 2010 has proposed a MAT rate of 18% from AY 2011-2012. MAT paid by companies can be carried forward for 10 years and offset against income tax payable under the normal provisions of tax. The maximum amount that can be set off against regular income tax is equal to the difference between the tax payable on the total income as computed under the Income Tax Act and the tax that would have been payable under the MAT provisions for that year. Dividend DistributionTax (DDT) Dividend distributed by an Indian company is exempt from income-tax in the hands of all shareholders.
39
However, the Indian company is liable to pay a tax called Dividend Distribution Tax (DDT) of 16.995% (16.609% proposed by Budget 2010 from AY 2011-12) (i.e. inclusive of surcharge and education cess) on such dividends. This tax is in addition to the normal corporate tax liability (income tax levied on the company). The amount of dividend declared by the parent company (i.e. holding more than 50 percent of capital) will be reduced by the amount of dividend received from its subsidiary company for the purposes of computing DDT payable by the parent company if: • Such dividend is received from its subsidiary; • The subsidiary has paid DDT on such dividend; and • The parent company is not a subsidiary of any other company. Such tax paid is a non-deductible expense.
40
Guidelines for Investment in Road Sector
Withholding tax Withholding tax compliance Requisite Challan
Tax withholding and deposit • Tax on payment is required to be deducted at the time of credit; or at the time of payment, whichever is earlier. • Amount of tax withheld is required to be deposited with the government within 7 days from the end of the month in which tax was withheld.
• Tax withheld has to be deposited in Form ITNS-281. With effect from 1 April 2008, all corporate will have to pay tax electronically.
• In case the tax is deducted on 31 March, the same can be deposited by 31 May. Quarterly statement
Withholding tax certificate
• Payment to residents: Quarterly statements for withholding tax are to be filed on or before July 15, October 15, Jan 15 and June 15.
• Certificate in Form no. 16A to be issued to the payee within 1 month of from the end of the month in which the tax was withheld (certain exceptions)
• Payment to non-residents: Quarterly statements for withholding tax is to be filed on or before July 14, October 14, Jan 14 and June 14*
• Certificate in Form 16 for tax withheld on salary to be issued within 1 month from the end of the financial year
* Introduced by Income Tax (First Amendment) Rules 2010 released on 18 February 2010 w.e.f 1st April 2009
Determination of Taxable Income
Profit / Loss as per Accounts
Add: Expenses Disallowed as per Income Tax Act and considered in accounts
Deduct taxes already paid to arrive at net taxes payable / refundable
Is amount positive?
Tax payable is equal to tax under normal provisions
N Net taxes refundable
Y
Less: Expenses Allowed as per Income Tax Act but not considered in accounts
Apply applicable tax rates (including Surcharge & Education Cess) to the taxable income to arrive at gross tax payable under normal provisions.
Is Tax payable under normal provisions higher than tax payable under MAT?
Calculated tax payable under ‘Minimum alternate Tax’ (MAT) provisions
Net taxes payable Y
N
Tax payable is equal to tax under MAT provisions
Guidelines for Investment in Road Sector
41
Double Tax Relief and Tax Treaties India has a comprehensive tax treaty network. Taxpayers have the option to choose between the provisions of the tax treaty or the Income Tax Act, whichever is beneficial to them. List of countries with which India has a Double Taxation Avoidance Agreements (DTAA)
List of countries with which India has a DTAA Armenia
Denmark
Jordan
Namibia
Serbia
Turkmenistan
Australia
Egypt
Kazakhstan
Nepal
Singapore
Tazakhistan
Austria
Finland
Kenya
Netherlands
Slovenia
Trinidad & Tobago
Bangladesh
France
Korea
New Zealand
South Africa
UAE
Belarus
Germany
Kuwait
Norway
Spain
Uganda
Belgium
Greece
Kyrgyz Republic Oman
Sri Lanka
UK
Botswana
Hungary
Libya
Philippines
Sudan
Ukraine
Brazil
Iceland
Malaysia
Poland
Sweden
USA
Bulgaria
Indonesia
Malta
Portuguese Republic
Swiss Confederation
Uzbekistan
Canada
Ireland
Mauritius
Qatar
Syria
Vietnam
China
Israel
Myanmar
Romania
Tanzania
Zambia
Cyprus
Italy
Mongolia
Russia
Thailand
Morocco
Saudi Arabia
Turkey
Czech Republic Japan
42
Guidelines for Investment in Road Sector
Indirect Taxation Customs Duty Customs duty is payable on import of goods into India. The rate of Customs duty is based on the Tariff classification of the goods being imported as per the Customs Tariff Act, 1975 ('Customs Tariff') [which is aligned with the Harmonised System of Nomenclature (HSN) followed internationally]. Various concessions/ exemptions are available on the basis of nature of goods, usage, status of importer, country of import etc. Name of Duty / Cess
Rate
Basic Customs Duty ('BCD')
10%15
Additional Customs Duty in lieu of Excise duty ('CVD')
8.24%*
Education Cess (including the Secondary Higher Education Cess of One percent)
3%
Additional duty of Customs in lieu of local taxes ('ADC')
4%
*10.3% proposed by Budget 2010 applicable from 26 February 2010
Incentives/Exemptions •
Exemption for specified projects: An importer of specified goods is eligible to claim exemption from payment of Customs duty16 on fulfillment of prescribed conditions including: i
ii
•
The goods are imported by Ministry of Surface Transport or a person who has been awarded contract for construction of roads in India by NHAI, PWD, road construction corporation under the control of State/ Union Territory Government A person who has been named as a subcontractor in the contract between NHAI and the principal contractor for construction of roads
Project Import: As per the project import regulations, the benefit under project import would be available only to those goods which are imported against the specific contracts registered with the appropriate authority. Under Project Import scheme, goods can be imported for specified projects (including road development
15. Capital goods can be imported at the general rate of 7.5 % 16. Notification No. 21/2002-Cus, dated 1 March 2002
project for NHAI) at a concessional BCD rate of 5%. An importer of specified goods is eligible to claim exemption from payment of Customs duty on fulfillment of prescribed conditions. •
Projects funded by international organisations: In terms of customs laws, goods imported from outside India for execution of projects funded by international organisations (like World Bank, Asian Development Bank etc.) and approved by the Government of India are exempt from levy of Customs duty subject to prescribed conditions.
•
Foreign Trade Policy ('FTP'): The FTP provides certain exemptions/benefits to specified supplies of such goods manufactured in India, where such supplies qualify as 'Deemed Exports'. As per the FTP, Deemed Exports refer to certain transactions wherein the goods supplied do not leave the country and payment for supplies is received in Indian rupees or in free foreign exchange. Supplies made to various specified projects/ purposes qualify as deemed exports under the FTP including supplies under the following categories: i.
Supply of goods to projects financed by multilateral or bilateral agencies/funds notified by Department of Economic Affairs under International Competitive Bidding ('ICB').
ii.
Supply of goods to any project or purpose in respect of which import of goods is permissible at zero-rate of Customs duty.
However, in order to be eligible for Deemed Export benefits, supplies under the aforementioned categories should be made under ICB. Further, a subcontractor making supplies directly to the main contractor or directly to the designated projects/ agencies would also be eligible for Deemed Export benefits subject to prescribed conditions in this regard. Excise duty Excise duty is levied by the Central Government on the manufacture of movable goods in India at the time of
Guidelines for Investment in Road Sector
removal of goods from the factory premise of the manufacturer. The Central Excise Act, 1944 ('the Excise Act') prescribes the rate of levy in the Excise Tariff Act, 1985 ('Excise Tariff'). The general rate of Excise duty in India is 8.24% (10.3% proposed by Budget 2010 applicable from 26 February 2010 [Basic Excise Duty 10%, Education Cess 3%]). Credit of Excise duty paid is available against the output Excise duty liability/output service tax liability. Incentives/Exemptions A supplier or a manufacturer of goods (that are supplied to a contractor/ sub-contractor engaged in construction activities) would be eligible for exemption from payment of Excise duty if following conditions are fulfilled: • Goods are supplied against ICB • Goods being supplied/ manufactured are exempt from BCD, CVD and ADC when imported into India Also, all goods supplied to projects financed by international organisations (like World Bank, Asian Development Bank etc.) and approved by the Government of India are exempt from levy of Excise duty. ServiceTax Service tax is a federal levy on provision of specified services in India. Service tax is currently leviable at the rate of 10.3%. Relevant taxable services category for construction activities include: • Commercial or industrial construction services • S i t e fo r m a t i o n , c l e a r a n c e , exc ava t i o n , earthmoving and demolition services • Works contract services • Management, maintenance or repair services Incentives/Exemptions Construction/maintenance of roads have been specifically exempted from levy of Service tax under the following taxable categories: • Commercial or industrial construction services • Site formation and clearance, excavation, earthmoving and demolition services17 • Works contract services • Management, maintenance or repair services
17. Notification No. 17/2005-ST, dated 7 June 2005
43
Value Added tax ('VAT') VAT is a state specific levy on sale of goods within the State. The rate of VAT varies from 4%/ 12.5% (depending upon the goods involved). However, a higher or a lower rate of VAT may be notified by the respective State Government for specified goods. Multiple schemes for payment of VAT are available under the State VAT laws. Central SalesTax ('CST') A transaction qualifies as an inter-state sale, where the sale entails movement of goods from one State to another. Inter-state movement of goods is liable to CST under the Central Sales Tax Act, 1956 ('the CST Act') at the rate of 2 percent against statutory declaration form ('Form C'), which can be issued by the buyer for specified purposes, or at the VAT rate applicable on local sale of goods in the dispatching State (i.e. the State from which the movement of goods commences pursuant to the sale). The EPC contractor can issue Form 'C' for purchase of goods at the concessional rate. Further, it is pertinent to note that the CST borne on account of inter-state procurements and paid in other State will not be available as credit against any output liability. Goods and Service tax - Proposed In the Union Budget 2008-09, the Government of India has signaled its intention to introduce a nation wide Goods and Service tax ('GST') with effect from 1 April 2010. GST is now slated to be introduced with effect from 1 April 2011. GST would be in lieu of Excise duty, VAT, Entry tax, CST and Service tax. GST in India would be a dual GST with Center (CGST) and State (SGST) levying GST at each transaction. Inter-state transactions would attract integrated GST (IGST) which would be the sum of CGST and SGST. Credit of CGST, SGST and IGST would be available. No credit of Central GST is likely to be available against State GST and vice-versa.
44
Guidelines for Investment in Road Sector
Repatriation of Investments and Profits Earned in India Type of Income streams
Dividend
Rates of taxation
Domestic law NIL(a)
Best treaty rate 5%
Royalty
Interest
Domestic law 21.115%
Best treaty rate 10%
Domestic law 10.56%
Best treaty rate 10%
Technical Fees Domestic law 10.56%
Best treaty rate Nil
Notes: a. Tax free for all shareholders but Indian company declaring the dividend is subject to Dividend Distribution Tax (DDT) at 16.995% of the dividend declared
Ministry of Commerce and Industry vide Press Release dated 5 November 2009 has permitted payments for Royalty, lumpsum fee for transfer of technology, payments for use of Trade mark/ brand name under automatic route.
•
•
Royalties and Technical Know-how Fees: Indian companies that enter into Technology Transfer Agreements with foreign companies are permitted to remit payments towards know-how and royalty under the terms of the foreign collaboration agreement, subject to limits. Dividends: Dividends are freely repatriable after the payment of Dividend Distribution Tax by the Indian company declaring the dividend. No
permission of RBI is necessary for effecting remittance, subject to specified compliances. •
Interest: Payment of interest borrowed from overseas would be governed by the regulation regarding external commercial borrowings.
•
Buyback of shares: A maximum of 25% of equity share capital permitted to be repurchased in a financial year. Buyback is possible only from free reserves, share premium and proceeds
Dividends are not allowed as deduction. Royalty/ fee for technical services/ interest are allowed as deduction subject to transfer pricing norms
Guidelines for Investment in Road Sector
45
Repatriation of capital
Buy back of shares
Redemption of preference share
from fresh issue of shares. Post repurchase, debt owed by company should not to exceed 2 times of (capital + free reserves). There will be no tax implication in the hands of Indian company. However, since buy back is considered as transfer of shares (capital asset), therefore, shareholder will be liable to capital gain tax. No DDT to be paid by Indian company/ shareholders. •
Redemption of preference shares: Foreign capital invested in India is generally repatriable, along with capital appreciation, if any, after the payment of taxes due on them, provided the investment was on repatriation basis. Preference shares are similar to equity shares carrying preferential right towards payment of dividend. Profits on redemption of preference shares taxed are to be taxed as capital gains. This may not be applicable for non-resident investors as preference shares can be redeemed only at par. DDT @ 16.995% (16.609% proposed by Budget 2010 from AY 2011-12) would be payable on coupon on preference shares.
Capital Reduction
Liquidation of company
•
Capital reduction: The company law provision provides for a detailed procedure wherein the capital of company can be reduced and money c a n b e r e p a t r i a t e d b a ck . A s p e c i a l permission/resolution is to be passed at general meeting of shareholders authorising capital reduction process. Thereafter, a capital reduction process has to go through a court process which would could involve obtaining creditors approval, no objection certificate from all creditors etc. Cash paid to the extent of accumulated profits (including capitalised profits) would be liable to DDT @16.995% (16.609% proposed by Budget 2010 from AY 2011-12) in the hands of Indian company.
•
Liquidation of company: Cash can be repatriated by way of liquidation of Indian company. Both the shareholders can exit out of the project simultaneously and get entire funds back. Liquidation is complicated and time consuming.
46
Guidelines for Investment in Road Sector
Administrative Framework The road sector in India is a concurrent subject. The jurisdiction of Central Government is limited to National Highways, while the jurisdiction of State Governments is across State Highways, Major District Roads, Village Roads and Other Roads. At the Central Level, the overall policy, programme development and planning is done by the Planning Commission in consultation with the Ministry of Road Transport and
Highways (MoRTH) and Ministr y of Rural Development (MoRD). At the State Level, the overall policy and programme development and resource planning is done by the State Planning Cell in consultation with Central Planning Commission and State Ministry in charge of Roads.
Administrative Framework by Category of Roads
Road Network
Coordinating Agency
Connectivity To
Expressways
Ministry of Road Transport and Highways (MoRTH), National Highway Authority of India (NHAI) and State Road Development Corporations
State capitals and tier 1 cities
National Highways
MoRTH, NHAI, BRO (Border Roads Organisation)
Union capital, state capitals, major ports, strategic locations
State Highways
State Public Works Departments ( PWDs)
State capitals, district centres, important towns, national highways, other states
Major District Roads
State PWDs
State Capitals, district centres, important towns, national highways
Rural and Other Roads
Ministry of Rural Development (MoRD)
Production centres, markets, highways, railway stations etc
Project Roads
State PWDs/Project Organisations
Projects like irrigation, power, mines, etc
Urban Roads
Municipal Corporations
Intra city networking
Village Roads
Zilla Parishads/State Governments
Villages, district roads, highways, railway stations, riversides etc
Guidelines for Investment in Road Sector
Administrative Framework for Roads
Institutional Advisory Framework Facilitated by Committee on Infrastructure Planning Commission Finance Ministry/PPP Cell
Central Level
MoRD
MoRTH (allocation
of funds for the development and maintenance of rural roads )
(allocation of funds for the development and maintenance of highways)
Department of Road Transport & Highways
NHAI (NHDP implementation, operations and maintenance)
Planning, Policy and Budgeting
Secretary Panchayat Raj
State Level
State PWD (NH-Wing)
State PWD State Highways MDRs,ODRs, Village Roads
Road Development Corporations (Construction, Maintenance and Operation of Roads)
Rural Redevelopment & Panchayat Raj (Rural Roads)
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Guidelines for Investment in Road Sector
About NHAI The National Highways Authority of India (NHAI) was constituted by an Act of Parliament, the National Highways Authority of India Act, 1988. The Authority was operationalised in Feb, 1995. NHAI is the nodal agency responsible for the development, maintenance and management of National Highways entrusted to it and for matters connected or incidental thereto. The USD 60 billion National Highways Development Project (NHDP) has been entirely managed by the NHAI under the mandate of the Ministry of Road Transport & Highways (MoRTH), Government of India. The charter of NHAI is set out in the National Highways Act, 1956 and National Highways Authority of India Act, 1988: • Delegation of powers and functions of the highway administration to NHAI • Enhanced powers for land acquisition • Right to collect tolls for road projects on its own or through third parties in accordance with specified government guidelines • Authorisation to borrow from capital market through bonds, debentures and other instruments • Situation where Central Government will have powers to override NHAI and its officials
Besides implementation of the NHDP, NHAI is also concerned with implementation of road safety measures and environmental management and IT initiatives in construction, maintenance and operation of National Highways. For projects related information kindly contact : General Manager (Finance) Phone : + 91(011)-25074100 & 25074200, Extn : 1418
Guidelines for Investment in Road Sector
NHAI OFFICE
NHAI CORPORATE
Organisation Structure of NHAI is set out below:
Finance
Technical
Corridor Management
OFFICES
NHAI FIELD
Project Management
Project Implementation Unit (PIU)
Administration
Corridor Management Unit (CMU)
The administrative framework at the Head Office is set out below
Chairman
Member Finance
CGM (Finance)
Central Vigilance Officer
Member Administration
Member Technical (1)
Member Technical (2) &(3)
Member PPP
CGM (HR & Admn) CGM (LA) CGM (IT) CGM (CM) CGM (Legal)
CGM (S R&D) CGM (Safety)
CGM (Technical)(2) & (3)
CGM (PQ)
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Guidelines for Investment in Road Sector
Annexure List of CD Contents 1.
Overview of the Model Concession Agreement (BOT-Toll)
2.
Model document of Request for Qualification
3.
Model document of Request for Proposal
4.
Arbitration Act, 1996
5.
Central Road Fund Act
6.
Land Acquisition Act
7.
The Indian Tolls Act
8.
New National Highways Fee Rules
9.
Motor Vehicles Act
10.
NHAI Act, 1988
11.
Environment Protection Act
12.
Manual and Specification for 6-laning
13.
Manual and Specification for 4-laning
14.
Manual and Specification for 2-laning
15.
Road Transport Policy
16.
Reserve Bank of India Policy
17.
Soft copy of the Brochure
Useful Addresses National Highways Authority of India G 5&6, Sector-10, Dwarka, New Delhi - 110 075 Phone: 91-011-25074100 & 25074200 Fax : 91-011-25093507, 25093514 www.nhai.org
Registrar of Companies Department of Company Affairs Ministry of Finance 'B' Block, IInd Floor, Paryavaran Bhawan C.G.O. Complex, New Delhi-110 003, India www.dca.nic.in
Ministry of Finance, Government of India / Department of Economic Affairs
Border Roads Organisation Seema Sadak Bhawan Ring Road Naraina Delhi Cantt 110010 www.bro.nic.in
North Block, New Delhi www.finmin.in Department of Road Transport and Highways Transport Bhavan 1, Parliament Street New Delhi 110 001 www.morth.nic.in Department of Industrial Policy and Promotion Joint Secretary Secretariat for Industrial Assistance (SIA) Ministry of Commerce & Industry Udyog Bhavan, New Delhi-110 011, India www.dipp.nic.in
Central Institute of Road Transport Bhosari, Pune - 411026, India www.cirtindia.com National Portal of India www.india.gov.in/ Directory of Indian Government Websites www.goidirectory.nic.in/ Press Information Bureau (PIB) www.pib.nic.in/
Reserve Bank of India (RBI) Foreign Investment Division, Shaheed Bhagat Singh Road, Mumbai-400 001, India www.rbi.org.in Foreign Investment Promotion Board Ministry of Finance Government of India North Block, Lok Nayak Bhavan, New Delhi
Not just roads... building a NATION http://www.nhai.org
