bidding of infrastructure projects market structure and regulation of infrastructure sector mba ii...

Bidding of Infrastructure Projects

Market Structure and Regulation of Infrastructure SectorMBA II Year Elective

Ist Term 2010-11

Dr. A. B. RastogiNMIMS

ABR class ppt-MSRIS-Bidding-19-20-2010-11

• Government budgetary constraints– Revenue account

• Example: UMTS

– Capital account• Example: Highways

• Vast variation in demand estimates due to information asymmetry between developer and concessionaire • Example: Trans- Harbour link in Mumbai

Motivation Behind Minimum Subsidy Bidding


• Pseudo privatisation (sale of assets)– Example : Long-term airport concession

• Information asymmetry among service providers

– 3G spectrum auction• Indian case

Motivation Behind Competitive Bidding


• Transparency• Frequent changing of goal post• Incomplete documentation

– Airport concession– Collection of tolls in Mumbai

• LPVR– Takes care of changing goal post– Financial modeling is simple– Financial risk is transferred to lenders

Challenges in Competitive Bidding


Bid Process


Process Range• Bid processes range from “Beauty Contests”

to “Single Financial Quotes”

• Single stage, two-stage, n-stage• Swiss and other challenges…• But key objective is to have

– clarity of bid conditions (for all concerned), transparency in process, and justifiability of award


Day 0

Day 60

Day 90

Bid Submission

Placement of Advertisement

Pre-bid Conference

Evaluation for Qualification and short-listing of Bidders

Financial Evaluation and recommendation

Technical Evaluation

Bid Process (Single-stage process)


Day 0

Day 45/60

Day 90/120

Day 120/150

Stage I Bid Submission

Placement of Advertisement

Pre-bid Conference

Evaluation for Qualification and short-listing of Bidders

Stage II pre-bid conference

Bid submission

Financial Evaluation and recommendation

Technical Evaluation

Bid Process (2-stage process)

QualificationProcess

Proposal Process


Bid Documentation• Request for Qualification Document (RFQ)

– Instructions to Applicants – Qualification parameters and methodology for Evaluation

• Technical/Experience criteria• Financial criteria

– Formats for submission of application

• Request for Proposal Document (RPF)– Instructions to Bidders– Formats for submission of proposals– Draft agreement

• Legal provisions• Technical specifications• Project schedules

• Project Information Memorandum (PIM)


Bid Documentation – NHAI Bid• Instructions to Bidders

– Qualification parameters and methodology for evaluation• Technical/Experience criteria• Financial criteria

– Formats for submission of proposals• Other Submissions• Qualification Proposals• Financial Proposals

• Draft agreement• Legal provisions• Technical specifications• Project schedules

• Project Information Memorandum


Qualification Criteria …1 NHAI Bid cont..

• Eligible Bidders – Who?– What type of entities?

• Companies

• Partnership firms

• Sole proprietors

– Should separate entities be allowed to join together?

– If so, • is there a cap of no. of entities joining together to form a

consortium?

• who will be the face for NHAI?


Qualification Criteria …2 NHAI Bid cont..

• Eligible Bidders– Single Entity or Consortium (4 members)

• Companies

• Registered partnership firms

• Sole Proprietorships

– Special conditions for Consortium

• Power of Attorney designating one member as Lead Member– Meet 50% of either technical or financial criteria

– Hold at least 51% equity shareholding of consortium

• Memorandum of Understanding between the members (In a given format: Annex 2D of bid document)– Intent to form a SPV for the project

– Roles and responsibilities of each member

– Supporting documents (MoA, AoA, registered Partnership Deed, PAN/TAN, copies of Board Resolution/undertakings for entering into the MoU)


Qualification Criteria – Technical …1 NHAI Bid cont..

• Aggregate Experience Score = 50% of the Total Project Cost of the subject project.

For which type of projects? Only roads?

If not, which other sectors?

In what role? Contractor

Developer

Financier

Design/project supervision consultant


Qualification Criteria – Technical … 2 NHAI Bid cont..

• Experience as – Category 1- Developer and/or Contractor in Road

Sector : roads, highways, expressways, bridges, airfields, tunnels for roads and railways.

– Category 2- Developer and/or Contractor in Core Infrastructure Sector – power, telecom, ports, railways, industrial parks, petroleum and natural gas, petrochemicals, steel, cement, fertilizer, mining, pipelines, irrigation, water supply and sewerage, township, real estate and other sectors.


Qualification Criteria – Technical …3 NHAI Bid cont..Which type of projects?

In what role?

How Many Projects Single project If multiple projects, then what is the minimum project size Any time-value adjustment

What time period 5 yrs, 10 yrs, 20 yrs Started and completed vs. started vs. completed

In case of Developer, how much shareholding in project

100% vs 51% vs 26% vs X%

when Commencement/commissioning/proposal due date


Qualification Criteria-Technical …4 NHAI Bid cont..

• Eligible Project– Should have been completed/substantially completed

in the 10 yr period prior to Application Due Date

– Threshold Size (escalation adjusted)

Project Category Threshold Size (as % of total project

cost)

Category 1 20% of the TPC

Category 2 30% of the TPC Developer to have had minimum 26% shareholding in Project on the

date of completion.

Only one member’s experience (with higher equity holding) to be considered for Consortium.


• Escalation Factors for calculation of Eligible Project

Year Factor

Current (T) 1

T-1 1.1

T-2 1.21

T-3 1.33

T-4 and earlier 1.46



Qualification Criteria – Technical …6 NHAI Bid cont..

Which type of projects?

In what role?

How Many Projects?

What time period?

How much shareholding in case of Developer?

How to treat consortia Can we add experience of members? What if it is from the

same project? How much experience or financial capability should Lead

Member bring? Or should he bring both?


• Special Conditions for Consortia

– Lead Member : may meet 50% of threshold Technical Experience Criteria• Else to meet 50% of threshold Financial Capability Criteria

– Developer : in case two or more members have participated as developers in the same project• Project experience shall be counted only once (for member holding higher

equity share in the eligible project)

– Contractor : in case two or more members have participated as contractors in the same project• Billing will be added only if the experiences are from different scope of work

and billing of one is not part of the other



• Average Aggregate Net Worth in last 3 FYs – at least 25% of the TPC

• Average Aggregate Net Cash Accruals in last 3 years – at least 10% of the TPC

– NCA to be positive for all 3 years

• Equity Financing Plan

Qualification Criteria-Financial …1 NHAI Bid cont..



Aggregate Value of TPC (Rs. Crores)

Minimum Equity Financing Plan

0-250 30% of aggregate value of individual TPCs of Projects applied for

Above 250-upto 650 25% of aggregate value of individual TPCs of projects applied for ORRs. 75 crores

Above 650- upto 1200 20% of aggregate value of individual TPCs of projects applied for ORRs. 162.5 crores

Above 1200 15% of aggregate value of individual TPCs of projects applied for ORRs.240 crores




Means Documents Required

Reserves & Surplus Statutory Auditor Certificate

Bank Facility Bank/FI certificate

Disposable and Unencumbered

Real Estate

1. Certificate from Registered Real Estate Valuer

2. Non-encumbrance certificate from lead lender

Advances from Parent Company

Board resolution of Parent/Group Company and chartered accountant certificate



• Special Conditions for Consortium– Lead Member

• May meet at least 50% of the threshold Financial Capability

– Else meet 50% of threshold Experience Criteria

• Commit to hold minimum equity stake equal to 51% of the aggregate shareholding of the Consortium in SPV at all times

– Other members• Commit to hold minimum equity stake equal to 10% of the aggregate

shareholding of the Consortium in SPV at all times



• Currency– Indian Rupees

– Foreign currency to be converted based on RBI Reference Rate 7 days prior to Proposal Due Date

– Conversion for experience calculation based on RBI Reference Rate as on date of completion of the Project

• Submit affidavit – Certifying accuracy of information/data

– No blacklisting by NHAI

– Empowering NHAI to seek information/data pertaining to bidder from 3rd parties

• Self certification for non-collusion

Qualification Evaluation – Other Conditions NHAI Bid cont..


• Two step (or stage) process– Technical Bid– Financial Bid

• Challenges lie in– Designing of a bid process– Evaluation of the bids– Transparency should not only be observed but

perceived as well

In Short….


Pricing Option (Recap)

Markets

Politics

Private Contracts

Concession Contracts

Discretionary Regulation

Public Enterprises

Competitively bid Concession

Negotiated Concessions

Price Cap Regulation

Cost of Service Regulation

Market determinedEx – Telecoms, Minor

ports

Concession specificEx –MIAL, BIAL, UMPPs,

Pre-announced methodEx – DSERC, Maj.Ports

Based on enterprise dataEx – MERC , Power trans.

Enterprise determinedEx - Railways

Structure Examples Pricing


Pricing, Bidding and Regulation

Markets

Politics

Private Contracts

Concession Contracts

Discretionary Regulation

Public Enterprises

Competitively bid Concession

Negotiated Concessions

Price Cap Regulation

Cost of Service Regulation

Market determinedEx – Telecoms, Minor

ports

Concession specificEx –MIAL, BIAL, UMPPs,

Pre-announced methodEx – DSERC, Maj.Ports

Based on enterprise dataEx – MERC , Power trans.

Enterprise determinedEx - Railways

Structure Bidding/Regulation Pricing


Thank you