STUDY ON PRIVATE-INITIATIVE INFRASTRUCTURE PROJECTS IN DEVELOPING COUNTRIES IN FY2011

STUDY ON THE BANGALORE – CHENNAI EXPRESSWAY CONSTRUCTION PROJECT IN THE REPUBLIC OF INDIA

SUMMARY

February 2012

Prepared for: The Ministry of Economy, Trade and Industry Prepared by: Nippon Koei CO., LTD. East Nippon Expressway CO., LTD. Padeco CO., LTD.

(1) Justification, Objectives and Necessity of the Project India has approximately 340 million km total road length, making it one of the largest road networks in the world. However, most of its regional roads are still unpaved. About 75% of traffic occupies either the national highways or state highways, which is 2% and 5% of the total road length, respectively. The modal shares of freight and passenger by road transportation have been greatly increasing after the year 2000. Therefore, strengthening of road networks is a very important issue for the economic growth of India. The Government of India has prioritized the road sector in their 10th Five Year Plan (2002–2007) and 11th Five Year Plan (2007–2012). The expressway networks development are desired to ensure high-speed and safe travel between major cities in India. Since the Bangalore–Chennai Expressway is the highest priority expressway network in India, the National Highways Authority of India (NHAI) previously conducted a study with target completion until end of March, 2012. National Roads No. 4, No. 7 and No, 46 serve as links between Bangalore and Chennai. National Road No.4 runs through the north region while the route of National Road No. 4 – No. 7 – No. 46 runs through the southern region between both cities. Based on results of traffic counting survey on four locations conducted as part of the Study in September 2011, the road capacity at three locations is forecasted to reach its saturation capacity in the near feature. Hence, the existing road networks do not satisfactorily serve the road users at present. As of August 2011, 182 and 286 Japanese companies have established their business around Bangalore and Chennai area, respectively. This means that 30% of the total number of Japanese firms is concentrated near the vicinity of Chennai–Bangalore corridor. Hence, the Bangalore–Chennai Expressway is expected to bring great benefits to the Japanese companies as well as to Chennai–Bangalore economic corridor. The Japan Chamber of Commerce and Industry in India has submitted their proposition to implement the Bangalore–Chennai Expressway project as early as February 2011.

(2) Basic Principle to Formulate the Project To forecast traffic demand along Bangalore–Chennai Expressway, the past traffic data from the Ministry of Road Transport & Highway (MoRTH) and the latest socio-economic data from the Central Static Center were collected. The results of such traffic demand forecast in the previous study by the Government of India was then reviewed to carry out the traffic count survey in the Study. For the expressway facilities, interval, size and type of facilities are designed to basically follow the Guideline of Expressway 2010 by MoRTH. Furthermore, the design standard and the technical know-how of East Nippon Expressway Company Ltd. were utilized in the said design. An expressway or a highway to be constructed through BOT scheme in India is operated by a private sector who collects the toll charges from the operated road. However, since there is no experience of 300 km long expressway,

Summary-1

the organization framework of toll collection and traffic management were proposed based on experiences and practices adopted in Japanese expressway operations.

(3) Outline of the Project 1) Abstract of the Project The project road is the Bangalore–Chennai Expressway with a length of approximately 270 km long, connecting both cities of Tarnataka and Tamil Nadu. Table-1 shows the project outline, while the typical cross section and location map of the expressway are shown in Figure-1 and Figure-2, respectively. Table-1 Outline of Bangalore – Chennai Expressway PPP Project Project Name

Bangalore – Chennai Expressway BOT scheme PPP Project

Implement Agency

Government of India, Japanese Expressway Company and Trading Firm and so on.

Content of Project

・ Construction of road, road crossing structure and bridge structure, interchange, service-area and parking facility ・ Establishing traffic control system and toll collection system ・ Road maintenance and road operation & management

Project Cost

・ ・ ・ ・ ・ ・ ・ ・

（ Initial Cost）

Road construction: INR 65,179 million Toll collection system: INR 831 million Traffic control system : INR 1,523 million Vehicle: INR 79 million Consultant fee: INR 2,028 million Land acquisition: INR 5,459 million Project administration: INR 376 million SPC Administration during Construction : INR 1,352 million Total : INR 76,826 million (2011 price) JPY 113,488 million (INR 1.0 = JPY 1.4772 yen on 2011/12/19)

Procurement

and

Financing Preliminary Analysis

Financial

PPP Section : JICA Project Finance (70%) and Private Investment (30%) ODA Section : JICA Yen Loan Case of PPP Section: 50% + ODA Section: 50% Pooled Internal Rate of Return (PIRR) : 14.35%, Eq.IRR : 17.98% Debt-Service Coverage Ratio (DSCR) (lowest) : 1.01, DSCR (average):6.13 Financial Analysis EIRR : 24.5% Source: the Study Team

Summary-2

Figure-1 Typical Cross Section of Bangalore – Chennai Expressway

Source: the Study Team Figure-2 Location Map of Bangalore–Chennai Expressway App. 270 km 約260km

バンガロール

Bangalore チェンナイ Chennai

０km

20km

100km

Source: National Highway Authority of India

2) Environmental Considerations Regarding natural environmental aspect, the planned expressway alignment mainly runs through an agricultural, and partially through forest portion on hilly area. Especially, since the alignment runs near Koundlinya Wildlife Sanctuary, and across Rayala Elephant Reserve established under the Project Elephant in 2003 at Chittor District, Andra Pradesh, appropriate environmental measures shall be required to preserve diversity of flora and fauna species. In terms of social environmental aspect, 115 houses were found within the right-of-way (ROW) of the entire project

Summary-3

alignment according to satellite images. With the assumption of five persons living in one house, 575 persons will be subject to involuntary resettlement; therefore, proper resettlement process shall be implemented as per relevant legal procedure.

(4) Planned Project Schedule The Bangalore–Chennai Expressway Project is considered to be implemented through hybrid Public-Private Partnership (PPP) scheme with Japan’s Official Development Assistance (ODA). The whole section was equally shared by PPP and ODA scheme about 135km for each. The supposed implementation schedule of PPP section and ODA section is shown in Table-2 and Table-3, respectively. Operation of the ODA section of the expressway is supposed to commence six months later than the PPP section.

Summary-4

Table-2 Implementation Schedule of PPP Section 1 2 3 4 5

6 7

Description 2011 2012 F/S Preparation by NHAI EIA and RAP Approval Previous Study by Planning Commission Land Acquisition & Compensation - Achieving 80 % of Land Acquisition Tendering of Concessionaire 1) Tender Document Preparation 2) Pre-qualification 3) Bidding Contract of Concession DBOT by Concession 1) Financial Closing 2) Detailed Design 3) Construction (30 months) 4) Operation

2013

2014

2015

2016

2017

2016

2017

Source: the Study Team Table-3 Implementation Schedule of ODA Section 2011

2012

2013

2014

1 2 3 4 5

F/S Preparation by NHAI EIA and RAP Approval Previous Study by Planning Commission Land Acquisition & Compensation Loan Agreement Process 1) Loan Appreciation by Government India 2) Yen Loan Preparation Survey by JICA 3) Loan Appraisal Mission 4) Loan Agreement 6 Consultant Procurement & Consultancy Service 1) Pre-qualification 2) Bidding 3) Contract Agreement 4) Detail Design & Tender Document Preparation (9 months) 5) Tender Assistance for Construction Works 6) Construction Supervision 7) Tender Assistance for O&M Concessionaire 7 Cotractor Procurement & Construction 1) Pre-qualification 2) Bidding 3) Contract 4) Construction (30 months) 5) Operation

Source: the Study Team

Summary-5

2015

(5) Feasibility of Implementation From the financial analysis by formulating several scenarios of PPP scheme, the Bangalore–Chennai Expressway Project, which requires huge initial investment, will not be feasible without Viability Gap Fund (VGF). VGF provides funding of up to 40% of project cost according to the government regulation of India. However, the financial feasibility of IRR is not satisfied to achieve proper investment level even with using the maximum 40% from the VGF. On the other hand, the hybrid PPP scheme, which uses ODA loan to finance 50% of the initial investment becomes feasible in the financial aspect. It may be assumed that the risks from toll collection or operational schedule will impact the expressway operation as a private investment due to actual traffic volume or land acquisition schedule. Therefore, detailed traffic survey and demand forecast, study of toll system of expressway, and study of social environment are recommended to be carried out in further stages.

(6) Technical Advantage of Japanese Company Japan has over 50 years experience in toll road management and administration since the operation of its first expressway. It is noted that the total length of expressway network in Japan has already reached more than 7,000 km. Japan expressway companies have managed Japan’s expressway network considering safety, comfort and efficient traffic conditions through their long term experience in expressway operation. Thus, participation of these companies in a PPP expressway project in India may succeed in achieving high level of road maintenance and satisfaction to road users in terms of expressway traffic. In addition, higher technical level, and flexible traffic management skills using information system and ETC toll collection system may also be provided to India.

Summary-6

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

(8) The map that shows the project point of India Figure-2 shows the Location Map of Bangalore-Chennai Expressway

Summary-7