executive summary for logistic hub in pithampur industrial area_dmic

EXECUTIVE SUMMARY Multi-Modal Logistics Hub

Consultancy Services for Preparation of Development Plan for Pithampur-Dhar-Mhow Investment Region of Madhya Pradesh sub-region of DMIC (Category-2 Assignment)

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CONTENTS

1. MULTI-MODAL LOGISTIC HUB .......................................................................................... 1 1.1. INTRODUCTION ............................................................................................................................................ 1 1.2. DEMAND FOR LOGISTIC HUB ..................................................................................................................... 1

1.2.1. DEMAND INDICATORS AND ATTRIBUTES ...................................................................................................................... 1 1.2.2. ROAD TRANSPORT AND TRAFFIC CHARACTERISTICS ............................................................................................... 1 1.2.3. CONTAINER TRAFFIC AT EXISTING ICDS OR SIMILAR FACILITIES ............................................................................ 2 1.2.4. INDUSTRIAL PRODUCTION .............................................................................................................................................. 2 1.2.5. RELATIONSHIP ................................................................................................................................................................... 2

1.3. DEMAND ASSESSMENT .............................................................................................................................. 2 1.3.1. DEMAND FORECASTING .................................................................................................................................................. 4

1.4. CONCEPT PLAN ........................................................................................................................................... 6 1.4.1. FACILITIES AND FUNCTIONS ........................................................................................................................................... 6 1.4.2. SITE DELINEATION ............................................................................................................................................................ 7 1.4.3. SITE AND BUILT UP AREA PROGRAM FOR MMLH ........................................................................................................ 7 1.4.4. INFRASTRUCTURE DEVELOPMENT STRATEGY ........................................................................................................... 8

1.5. PROJECT COST AND FINANCIAL VIABILITY............................................................................................ 10 1.5.1. PRELIMINARY COST ESTIMATES .................................................................................................................................. 10 1.5.2. FINANCIAL ANALYSIS ...................................................................................................................................................... 10

1.6. PPP MODEL FOR MMLH ............................................................................................................................ 13 1.7. WAY FORWARD ......................................................................................................................................... 13

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1.1. INTRODUCTION 1. The multimodal logistics hub (MMLH) has been conceived as an early bird project in the development of the Pithampur-Dhar-Mhow investment region of the Madhya Pradesh (MP) sub-region of the Delhi-Mumbai Industrial Corridor (DMIC). The MMLH is envisaged as a facility that will improve the logistics integration of the region and thereby driving the industrial growth with improvement in cost competitiveness of the industry.

2. The MMLH will provide facilities and services for collection, distribution, storage and transportation of goods meant for exports and imports at competitive cost and fast turnaround times. The significant presence of large, medium and small industries in the region and increasing use of containers, in international and domestic trade, make evident significant potential demand for such facilities and services. The logistics hub will be positioned to improve efficiency of operations of existing industry in the region as well as improve the strategic attractiveness of the region as an investment destination for various categories of industries, warehousing and logistics operators.

1.2. DEMAND FOR LOGISTIC HUB

1.2.1. Demand Indicators and Attributes

3. Demand assessment is an important step in planning for any infrastructure facility, more so, when it has to be planned as a PPP project and commercial viability is important. The demand for a facility such as a logistics hub is dependent on a number of parameters and may not be directly manifested through a simple set of parameters. For ascertaining the actual demand and its attributes number of parameters have been studies and analyzed. The main demand indicators include the following:

Road Transport and Traffic Characteristics. Container Traffic at existing ICDs or similar facilities. Industrial Production

1.2.2. Road Transport and Traffic Characteristics

4. To capture the Inter-Regional and Intra-Regional traffic, traffic surveys have been conducted at 26 survey points, from which locations were identified for Origin-Destination (OD) Surveys and Traffic Volume Count (TVC). 72 hours TVC and 24 hours OD Surveys were conducted. 25 types of commodities have been covered in the Origin and Destination surveys conducted for the project.

5. Based on the TVC the general road transport and traffic characteristics have been studied in detail. From the analysis and tables generated from the OD Surveys, a detailed movement of goods to and from the region have been studied. Both containerized movement and bulk movement was taken into account while arriving at demand for MMLH, as certain amount of goods which could be containerized are still moving as bulk goods due to lack of state-of-the-art facilities. These goods could be captured by the MMLH in future. The movement of goods is categorized into two major sub-heads; domestic traffic and EXIM traffic. Domestic traffic is the goods destined to elsewhere in the country and coming in the study area from elsewhere in the country. EXIM traffic is goods coming from port or destined to port. For the base year demand and demand forecast, only EXIM goods were considered as MMLH would be focusing mainly on the EXIM movement.

Domestic Traffic: From the OD analysis it is estimated that a total of 1,35,006 tones/day are domestic outgoings from the study area of Immediate Influence Area1 (IIA) . Level of containerization shows 11.88% for total Domestic exports; 47.07% of domestic outgoing goods are moving as packed goods and 27.51% of domestic outgoing goods are moving in loose. A total of 1,12,793 tonnes/day are domestic incoming to the study area of IIA of which 11.68% is containerized. Further, about 51.60% of domestic incoming goods are moving as packed goods and 26.05 % of domestic incoming goods are moving in loose.

1 Comprising of 5 districts of Ujjain, Shahjapur, Dewas, Indore and Dhar.

DELHI MUMBAI INDUSTRIAL CORRIDOR DEVELOPMENT CORPORATION LIMITED Consultancy Services for Preparation of Development Plan for Pithampur-Dhar-Mhow Investment Region of Madhya Pradesh sub-region of DMIC (Category-2 Assignment)

EXECUTIVE SUMMARY OF MULTI-

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EXIM Traffic: From the OD analysis it is estimated that everyday a total of 22,480 tonnes of commodities are getting exported through the Ports from the study area of IIA. Level of containerization is 18.95% for total exports; 37.46% of exports are moving as packed goods and 27.78% of export goods are moving in loose. In case of imports, a total of 27,096 tonnes of commodities are being imported via the Ports to the study area of IIA every day. About 14.32% of total imports are containerized, while about 37.12% of imports are moving as packed goods and 31.43% of export goods are moving in loose.

1.2.3. Container Traffic at existing ICDs or similar facilities

6. There are several Inland Container Depots (ICDs) and warehousing facilities available in the vicinity of the hinterland , catering to the needs of the foreign and domestic trade. A preliminary study of facilities revealed that expectations of foreign trade are not met and demand for such facilities is growing at significant pace. Three Inland Container Depots (ICDs) within the Investment Region; CONCOR-ICD at Pithampur, Allcargo Global Logistics Limited at Pithampur and ICD Dhannad, combined are handling about 35000 TEUs per annum. CONCOR is handling the maximum containerized traffic (about 85-90%) as the other two are comparatively new ventures.

7. The containerized traffic movement from CONCOR is studied in detail. The EXIM traffic generated from ICD CONCOR in the last 6 years shows an annual growth of 11% in EXIM traffic.

1.2.4. Industrial Production

8. Considering that the Multi Modal Logistic Hub will serve the Industrial areas in the districts of Indore, Dhar, Dewas, Ujjain and Shahjapur; and some amount of through traffic, the potential demand in the five districts are calculated. The catchment area for the potential demand primarily includes industrial areas of Pithampur, Dewas and Indore. Large, Medium and Small Industries have been considered. Even the existing competing facilities as explained above have been considered to understand the scale of potential demand for Multi Modal Logistic Hub. The total production from the Immediate Influence Area has been converted in volume terms in equivalent TEUs to indicate the scale of total potential and is found to be in the range of 6.6 lakh TEUs as on March 2007. Out of this more than 50% production can be attributed to industries that are known to be exporting products to foreign countries. Assuming that only 60% volume produced by such export oriented units is actually exported, the total exports volume will be equivalent to over 200,000 TEUs per annum. While it is understood that not all the exports can be containerized, even a fraction of the total volume will be able to justify a multi-modal logistics facility oriented towards handling container cargo. Looking into the past trends of production and projecting the production for a short term of basis of 15 years, considering exponential growth, it is observed that an annual growth of 11% in production would be experienced.

1.2.5. Relationship

9. The EXIM traffic generated from ICD CONCOR is compared to the production of goods within the region (IIA). The log linear relationship between annual EXIM traffic and annual Production for years between 2003 and 2008 is plotted and a relation between them is been evolved. It is seen that an 11% growth in production results in 15% growth in EXIM traffic.

1.3. DEMAND ASSESSMENT 10. The methodology adopted for demand assessment is explained with the help of diagram in



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11.

Route Choice

Traffic andCommodity

Flows

TransportationSystem / Network

CharacteristicsAnalysis

Diversion CurveModel Calibration

Base Year DemandModelling

DemandForecasting

EconometricAnalysis (Growth ofTraffic in Relation to

EconomicParameters

Estimation ofEconomic &EconometricParameters

Network Planningand Future

Characteristics

Sensitivity Analysisand Scenario

Evaluation

Selected DemandScenario

Figure 1: Methodology for Demand Assessment

12. .

Figure 1: Methodology for Demand Assessment

13. The potential demand for the MMLH services will come from both EXIM and domestic commodity movement. However, given the present movement pattern and trends a definitive analysis could only be undertaken for the EXIM traffic.

14. For assessing the demand for Multi Modal Logistic Hub, three options for existing scenario and four options for future scenario have been considered. The base case option (existing scenario) is used for arriving at a model for calculating the modal shift due to saving in time and cost. This modal is applied to the project scenarios to arrive at the base year traffic for the proposed Multi Modal Logistic Hub. Base Case Scenarios are - Factory-ICD-Ratlam by Road and Ratlam-Port by Rail; Factory-ICD-Port by Road; and Factory direct to Port by Road through the shortest



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route. Project Scenarios considered are- Factory-MMLH by Road and to Port by Rau-Dahod rail link; Factory-MMLH by Road and to Port by Rau-Nagda rail link; Factory-MMLH by Road, to JNP by Rau-Khandwa rail link and to Kandla Port by Rau-Dahod rail link; and Factory-MMLH by Road, to JNP by Rau-Khandwa rail link and to Kandla Port by Rau-Nagda rail link.

15. In these options various OD pairs and movement of goods is being considered, originating from factories of Pithampur, Indore, Dewas, Dhar and Ujjain destined to Jawahar Lal Nehru Port Trust (JNPT) and Kandla Port. Cost and time is calculated for all OD pairs through the possible and adequate routes. Rau Khandwa rail link is not appropriate option for goods destined to Kandla Port therefore Project Scenario 3 and 4 are taken as a combination of Scenario 1 and 2 with the Rau-Khandwa link. Indore-Ratlam link have not been considered because Rau-Dahod link appears to be the most economical link as it is a shorter link to the Dedicated Freight Corridor (DFC).

16. For arriving at the model for calculating the modal shift due to saving in time and cost, the various parameters considered are :

The transportation costs for rail and road have been estimated based on prices quoted by local transporters and logistics services providers including the cost matrix used by CONCOR for various weight slabs for different OD pairs. In case of rail, the OD pairs used for calculating costs are Dadri-JNPT, Tuglakabad-JNPT and Ratlam-JNPT. OD pairs used for calculating the transportation costs through road are Ratlam-ICD, ICD-Pithampur/Ghata Bilod, ICD-Indore, ICD-Dewas, ICD-Nagda and ICD-Bhopal/Mandideep.

The cost per km per MT considered for rail is Rs0.86 and for road is Rs3.05. For calculating the time taken in movement of goods through rail an average speed of 25 kmph is adopted.

In case of road, average speed of 50 kmph is assumed. It is assumed that a truck is going to take a stop for an hour after every 200 kms and an 8 hours stop after every 16 hours of journey time which includes 3 hours of intermediate stoppages.

Handling Cost for factory stuffing and de-stuffing: Rs. 2500 per TEU Handling cost for stuffing and de-stuffing at ICD: Rs. 1400 per TEU Lift On/Lift Off charges for road-road interchange: Rs. 800 per TEU Lift On/Lift Off charges for road-rail interchange: Rs. 1700 per TEU For road-road interchange at the ICD Pithampur, the interchange time as stated by ICD CONCOR is 24

hours. At the road-rail interchange, the goods are moved in so that the interchange time is less. These goods are normally stuffed and custom clearance is already been done. Only handling time (lift-off and lift-on) and delay in administrative process are considered. Thus a delay of 12 hours is considered in this case.

17. Since other factors except cost and time factors are difficult to quantify, relative cost and time factors are considered as a base for the entire route choices. Using this information, a probability model is built for the probability of the shippers choice to transport directly to a port or through any of the existing ICDs. This probability will be obtained from the existing patterns. It is tentatively hypothesized that the shipper is making his choice on the basis of time saved as well cost saved as per his perception.

18. The base year (2009) demand for the MMLH is estimated using the diversion curve model developed and used to arrive at forecasted traffic under different scenarios.

1.3.1. Demand Forecasting

19. Two approaches have been used for demand forecasting based on regional and national parameters. First the elasticity of growth in container traffic in the region is estimated with respect to the regional NSDP growth. As part of the second approach the elasticity of growth in volume of EXIM traffic is established with respect to the GDP growth of the country. It has been found that the elasticity of regional EXIM traffic with respect to regional economy is significantly lower at about 1.25 compared to that of national EXIM traffic with respect to the national economy being 1.5. Assumed elasticity of EXIM traffic in relation to Economic Growth is shown in Table 1.

Table 1: Assumed Elasticity of EXIM Traffic in Relation to Economic Growth Year 2009 2014 2019 2024 2029 2034 2039 2041

Pessimistic 1.25 1.25 1.25 1.25 1.25 1.20 1.10 1.10



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Year 2009 2014 2019 2024 2029 2034 2039 2041

Likely 1.25 1.25 1.40 1.40 1.30 1.20 1.10 1.10

20. Based on these elasticity factors, base year traffic and rise in level of containerization; demand forecast for various level of growth elasticities and diversions have been worked out. There have been five scenarios selected and summary description is as given in Table 2.

Table 2: Summary Description of Selected Scenarios

ElasticityScenario Pessimistic Likely

IncrementalContainerization No Low Moderate No Low Moderate

NetworkScenario

PS1Rau Dahod Link

PS2Nagda RatlamLink

Scenario1

PS2followedbyPS1 Scenario2 Scenario4

PS2followedbyPS3 Scenario3 Scenario5

Scenario 1: Assumes that the Rau-Dahod link does not come up during the project period and only the Nagda-Ratlam link is used for rail transportation. The elasticity value remains constant at 1.25 before it starts declining beyond year 2031. The level of containerization remains constant at present levels. The empty containers contribute 30% of the total traffic for the entire project period. This is a very conservative scenario taking a very pessimistic view on diversions and quite conservative view on growth.

Scenario 2: Assumes that the Rau-Dahod link does not come up till year 2021 during which period only the Nagda-Ratlam link is used for rail transportation. However, beyond 2021 the Rau-Dahod link is assumed to be operational thereby changing the diversion dynamics. The elasticity value remains constant at 1.25 till 2016, increases to 1.4 for the period 2017-2026, declines to 1.3 for the period 2027-2031 before it starts declining in a pattern similar to the previous scenario. The level of containerization, however, is assumed to increase slowly from the present levels. Initially it is assumed that 1.5% of presently non-containerized traffic will get containerized and the conversion rate will slowly increase to about 2.9% by year 2041. Of this containerized traffic the converted MMLH demand is estimated based on the diversion curves. The base traffic used is port cities bound traffic and the information on exact quantum of EXIM traffic is not available. Such low rate of containerization was assumed to stay on a conservative side. The empty containers contribute 30% of the total traffic for the entire project period. This is also a moderate scenario though more realistic on diversion and growth estimates. This can be considered a likely scenario. Scenario 3: Assumes that the Rau-Dahod and Rau-Khandwa links do not come up till year 2021 during which period only the Nagda-Ratlam link is used for rail transportation. However, beyond 2021 both Rau-Dahod and Rau- Khandwa links are assumed to be operational thereby changing the diversion dynamics. The elasticity scenario is same as in Scenario 2. The level of containerization is also assumed to increase slowly from the present levels following a pattern same as in described in Scenario 2. The empty containers contribute 30% of the total traffic for the entire project period. This is also a moderate scenario though more realistic on diversion and growth estimates. This can be considered a likely scenario. Scenario 4: This scenario is identical to scenario 2 except for the conversion rate of non-containerized traffic to containerized traffic. Initially it is assumed that 2.0% of presently non-containerized traffic will get containerized and the conversion rate will slowly increase to about 5.6% by year 2041. This is a slightly optimistic scenario in terms of growth but can be considered fairly realistic.



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Scenario 5: This scenario is identical to scenario 3 except for the conversion rate of non-containerized traffic to containerized traffic. Initially it is assumed that 2.0% of presently non-containerized traffic will get containerized and the conversion rate will slowly increase to about 5.6% by year 2041. This is a slightly optimistic scenario in terms of growth but can be considered fairly realistic.

21. The projected container traffic at the MMLH in the above Scenarios is given in Table 3. Table 3: Projected Container Traffic at the MMLH in Various Scenarios

Scenario 2009 2014 2019 2024 2029 2034 2039 2041

1 57,574 70,852 86,859 108,857 137,637 172,815 213,632 231,865

2 65,424 81,294 102,268 254,988 332,605 427,004 540,436 593,124

3 65,424 81,294 102,268 272,172 355,019 455,780 576,856 633,095

4 65,424 81,584 103,152 259,471 338,979 435,998 553,070 607,628

5 65,424 81,584 103,152 276,957 361,823 465,380 590,342 648,576

22. Projected Container Traffic at the MMLH and Projected Empty Container Movement under Various Scenarios has been worked out. Out of the five scenarios Scenario 3 has been considered as the likely scenario for further physical and financial planning for MMLH.

1.4. CONCEPT PLAN

1.4.1. Facilities and Functions

23. A multimodal complex is more than just a handling terminal: it is a large distribution center. Its infrastructure may include warehousing and office functions, customs related services, refrigerated storerooms, freezing chambers, hazardous freight storage facilities, service and repair areas, public catering outlets, recreational facilities, etc. Infrastructural amenities at such distribution hubs may vary depending on location, business specificity and main objectives.

24. At the core of the MMLH will be the transportation and handling functions, primarily served by ICD infrastructure. The ICD will be supported by the CFS for administrative, legal and other logistical support in form of bonded customs facility, offices and storage space for logistics operators and agents and other support services.

25. Apart from these core functions a number of support and value adding services or functions will form a part of the logistics hub. To complete overall logistics integration a processing zone has been planned to provide value addition through provision of services like process outsourcing, inventory management, packaging and customization etc. The major support functions at the MMLH will include the following: Truck Terminal and Workshops Warehousing Processing Packaging Trade and Commercial Functions Basic amenities, utilities and services 26. The activities performed at the facility are directly dependent of the envisaged functions. The major core activities performed at the MMLH will include the following: Receipt and dispatch / delivery of cargo. Transit operations by rail/road to and from serving ports. Temporary storage of cargo and containers. Customs clearance. Consolidation and desegregation of LCL cargo.



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Container handling and stacking. Stuffing / De-stuffing of containers. Maintenance and repair of container units. 27. After finalizing the functions and activities; based on the main mode of transport that will access the hub, the handling system selected, the varying stacking densities and circulating area; area requirements for each components have been worked out. The area requirements for various major functional components are Container Yard, CFS, Packaging/Stripping, Cargo Warehouse, Container Repair Facility, Railway Siding and Truck Access. Additional covered areas to be provided are offices, maintenance workshop, canteen, guesthouses, etc. Additional paved area to be provided are internal roads, boundaries, parking, maintenance yard etc.

28. In addition to the operational areas inside the MMLH, substantial additional land acquisition and civil works costs are typically incurred for access to the MMLH and for supporting infrastructure. Areas required for rail spur to the MMLH, access and perimeter roads, and areas for supporting infrastructures (i.e., water filtration, sewage treatment) are some possible extra needs.

29. The parameters taken for the recommendation of the space norms are Total surface area including Expansion Area, Container Terminal area, Container Slots, Warehouse Area, Office Space, Loading/Unloading Track Capacity, Rail Yard area and Parking Stalls. These recommendations for space norms are worked out based on selected national and international space averages. A detailed component-wise area requirement has been worked out based on traffic to be handled by MMLH (demand), average dwell time, average turnaround time, share of cargo (EXIM, reefer, hazardous, etc) and other space norms as derived from national and international averages.

30. Based on the above calculations, the total area for the core ICD functions adds up to about 76Ha for year 2029. Further, considering the additional area for geometric considerations of rail sidings, value addition services, facilities, incidental spaces, roads and area for future expansion a total area of 150-200 Ha is considered.

1.4.2. Site Delineation

31. After interaction with Government of Madhya Pradesh, site located along the NH-3 Bypass near Pithampur has been delineated for the purpose of MMLH. Considering the long term demand, an area of 175 hectares have been considered so that infrastructure investments are not duplicated and land acquisition problems are not faced at the time of future expansion. The selected site is delineated by three important aspects as follows: Indore SEZ: Western side of the proposed site for MMLH is delineated by Indore SEZ. Although there is no boundary wall

on site as of now for the SEZ. NH-3 Bypass: Southern edge of the proposed site is delineated Bypass for NH-3 which is under construction at the

present. It is expected that the Bypass will be inaugurated by end of 2009 and ready to use. Propose Indore-Dahod Rail Link: The northern edge of the proposed site for the MMLH is delineated by the proposed

railway line between Indore and Dahod. It is recommended that a broad gauze rail link from Indore to location of MMLH be pursued with Indian Railways on an urgent basis to make the logistic hub a success story.

32. Refer Figure 2 for delineation of the Site for MMLH.



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Figure 2: Location of MMLH Site

1.4.3. Site and Built Up Area Program for MMLH

33. The proposed site areas and built up area for the MMLH is structured under following main components/product mix.

Bonded Area Gate Complex Total Movement Area Stacking Area including Movement Areas Area under CFS facilities Area of Truck Terminal Other Parking Areas Warehousing Area Processing and Packages Area Service Areas Open and landscaped spaces

34. The details of the area program for the MMLH are given in the Table 4. Table 4: Area Program for MMLH

S. No. Activity/Project Component Land Development (in Ha) Built up area (in sq.m.)

1 Railway Siding 17.1 2 Stacking Area 29.3 3 CFS 23.0 37000 4 Hazardous Container 3.8 6000 5 Workshop/Repair 8.3 5000 6 Processing/Packaging 6.2 15000 7 Warehouses 10.5 45000 8 Terminal Facilities(for 1000 trucks) 9.9 5500 9 Gate Complex and Administrative Facilities 5.1 10600

10 Commercial Complex 4.4 18000



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S. No. Activity/Project Component Land Development (in Ha) Built up area (in sq.m.) 11 Expomart 4.7 10800 12 Roads 28.2 11 Parking 1.3 12 Green Buffer/Drain 21.2 13 Utilities 2.0

Total 175.0 152900

1.4.4. Infrastructure Development Strategy

35. Following are some of the key initiatives required for improving the overall connectivity of the MMLH site with rest of the region and country.

Prioritization of Rail Projects Conversion of Indore-Rau meter gauge to broad gauge. Extension of broad gauge to Pithampur. (Both a and b will evaluate broad gauge route availability to the industrial area) Conversion of Ratlam-Indore meter gauge including Rau-Mhow meter gauge section to broad gauge. This will enable broad

gauge link to Mumbai-Gujarat. Construction of new Chhota Udepur-Pithampur broad gauge line. This will further shorten distance to Gujarat and Mumbai

and will also enable junction facilities to the DFC. Conversion of Mhow-Khandwa meter gauge with re-gradation of the alignment. This will provide shortest route to Mumbai

and South India.

Entry from NH-3 to Proposed Site of MMLH 36. A single signal free entry is recommended from NH-3 to the proposed site of MMLH. The signal free entry to the site can be promoted by taking an advantage of the level difference between the site and the highway. Hence, it is recommended to develop a signal free traffic junction by promoting an under pass to facilitate the entry to the hub.

Promotion of Railway Sidings 37. Development of railway sidings is important aspect of the MMLH. It is important to state here that site for MMLH is located on southern side of the proposed railway station at Pithampur. To develop railway sidings for the MMLH it is only possible to take an access from the proposed rail station as it is a signalized zone for regulating rail movement. The proposed railway sidings for the logistic hub are developed based on likely design for the station. However, the final design of the railway sidings can be finalized with mandate of Indian Railways. The important aspects for design of railway siding are as follows. A loop is proposed from the proposed railway station at Pithampur to develop the railway sidings. The railway sidings will be

developed within the proposed site of the MMLH. The layout of the railway sidings will be parallel to the proposed railway station at Pithampur to minimize loss of site area of MMLH.

The CSR (Clear Standing Room) for trains is taken as 720m with 1:12 angle to plan the arterial sidings for use of MMLH. Total of seven rail rakes are proposed for the sidings in the MMLH to handle rail based traffic for container movement,

which can be developed in a phased manner. The design of railway sidings is based on the guidelines for promoting a loop, along with space for reversing the engine by providing an overrun on both sides of the loops. It is likely that maximum number of trains per day required to handle the container traffic at MMLH will not exceed forty in number as per the projected traffic for year 2041. The total projected traffic for horizon year is in the range of 450-500 thousand TEUs. With the use of latest technology available for gentry cranes and stackers a full train can be unloaded and loaded within three hours at modern and state-of-the-art logistic hubs.

Connecting MMLH with Mhow-Ghatabillod Road 38. Since MMLH is meant to handle container and other traffic largely connected with Pithampur Industrial Area and the proposed Investment Region, it becomes important to connect MMLH site to Mhow Road, which is the major access road to existing industries in Pithampur. It is thus proposed to develop a road link between NH-3 Bypass and Mhow Road with RoW 45m and this road will also act as an entry road to the MMLH while being connecting to the regional and national road network. On a long term basis this road would required elevated grade separator over the railway line between Indore and Dahod. Refer Figure 3 for connectivity plan for the MMLH.



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Figure 3: Existing and Proposed Connectivity of MMLH Site



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1.5. PROJECT COST AND FINANCIAL VIABILITY

1.5.1. Preliminary Cost Estimates

39. Project costing for the MMLH is done in five parts: Land acquisition cost2 Common physical infrastructure cost (railway infrastructure, road infrastructure, power, water and sewerage

infrastructure and green buffers) Development cost of buildings (CFS, administrative buildings, warehouses, terminal facilities, expo-mart

etc.) Cost of equipment like reach stackers, gantry, and weigh-bridges etc necessary for operations of logistics

hub Manpower Cost

40. The overall project cost for the MMLH was estimated as Rs 5,890 millions3. Infrastructure cost for the Logistics Hub as a whole is approximately Rs. 2503 millions. Out of the total infrastructure cost roads is about 1,245 millions and railway about 763 million. The building components and related cost for the site is Rs. 1,970 millions. Cost of the equipment is approximately Rs. 904 Millions. The phase-wise costing is as shown in Table 5.

Table 5: Phase-wise Costing of MMLH Development

Components Cost(In Million INR)

Total (in Million INR) 2012-2016 2017-2021 2022-2031 2032-2041

Site Development Cost 443 39 20 11 513

Infrastructure Costs 1469 494 384 156 2503

Building Development Cost 417.3 1313.2 150.0 90.0 1970

Equipment Cost 257 195 225 227 904

Equipment Replacement 299 510 809

TOTAL CAPITAL COSTS 2587 2041 1078 993 6699

1.5.2. Financial Analysis

Revenue Model

41. The revenue generating activities/services are as follows: Stuffing/de-stuffing of the containers both for export and import Storage of the containers- both empty and filled Truck Parking Commercial development of activities to support MMLH

42. The tariff rates for each of the above stated activities/services have been fixed after review of the existing tariff rates in the similar/ close to similar logistic hubs/ICDs (ICD-Dadri, ICD-Tuglakabad, ICD-Dhannad, AllCargo Global Logistics Limited and ICD-Pithampur).

43. The finally derived demand for the MMLH is in form of containers, both filled and empty, heading towards/from exports/imports. These containers have been categorised into containers which are likely to carry:

General commodities, Hazardous goods, and

2 The land values estimates are based on latest recorded land values of three villages falling within the site. The government owned land costing has also been including in the preliminary project costing. 3 Excludes manpower costs, which has been considered as an O&M cost for the financial analysis.



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Commodities which require refrigeration. 44. The projected traffic demand at MMLH is shown Table 6.

Table 6: Projected Traffic Demand at MMLH Traffic Unit 2014 2016 2021 2026 2031 2036 2041

Export loaded containers TEU/annum 29591 32076 41131 110628 143427 182977 230447 Import loaded containers TEU/annum 27315 29608 37968 102118 132394 168902 212720 Export Empty Containers TEU/annum 11056 11984 15368 41334 53588 68365 86101 Import Empty Containers TEU/annum 13332 14452 18532 49843 64621 82440 103828 Total Container Traffic TEU/annum 81294 88120 112999 303924 394031 502685 633095 Truck Traffic (vehicle per day) Vehicles/day 140 153 196 523 679 865 1089

45. Of the total containers stated in the table the breakup of the general, hazardous and reefer containers are as follows:

General containers 85% Containers carrying Hazardous goods 5% Reefer Containers 10%

Result of Financial Analysis

46. Based on the inputs and various assumptions, the financial analysis has been undertaken. Financial results are derived on the parameters such as Project IRR, Equity IRR, NPV, Payback and Profitability ratio. These are given in Table 7.

Table 7: Financial Results Base Case

Indicators PH I PH II PH III PH IV

2011-16 2017-21 2022-31 2032-41 Project Returns FIRR upto phase NR! 9.87% 14.87% NPV ( disc. Rate of .. ) upto phase 13.80% -2684 -960 459 Project Payback years Yrs 16 Profitability Ratio 0.49 0.85 1.06 Equity Returns FIRR upto phase NR 9.98% 15.88% Equity Payback years 17

NR = No (Positive ) Results

47. The results indicate that the overall Hub Level financial feasibility is marginally attractive.

48. The extent of sensitivity of the project viability to cost of project, revenue from traffic & commercial property and O&M costs is studied. Project FIRR is considered as an appropriate parameter for sensitivity analysis because project is not likely to be developed by the private sector investor solely. The results of sensitivity analysis are shown in Table 8.

Table 8: Result of Sensitivity Analysis on Project FIRR PH I PH II PH III PH IV 2011-16 2017-21 2022-31 2032-41

Sensitivity Analysis Normal NPR 9.87% 14.87% Cost of Project Most Pessimistic 15% NR 7.93% 13.50% Most Optimistic -5% NR 10.61% 15.39% Traffic Revenue Most Pessimistic -15% NR 7.51% 13.12% Most Optimistic 5% NR 10.63% 15.44% Revenue Comm. Property Most Pessimistic -15% NR 9.41% 14.58%



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PH I PH II PH III PH IV 2011-16 2017-21 2022-31 2032-41

Most Optimistic 5% NR 10.03% 14.97% O&M Costs Most Pessimistic 20% NR 9.25% 14.46% Most Optimistic -5% NR 10.06% 14.99% Scenario Analysis Most Pessimistic Cost 15% Traffic Rev -10% Project FIRR NR 6.43% 12.40% Most Optimistic Cost -5% Traffic Rev. 5% Project FIRR NR 11.38% 15.97% ( only Cost of Project & Traffic Revenue are considered for scenario analysis as these are the most sensitive factors)

NR = No (Positive) Results

Options for Financial Structure

49. The project is of significant importance as it is going to be a very useful support system for Industry led economic activity in the region. The financial results are not attractive. Hence a participation in the form of financial stake from State level is inevitable. The following aspect/s will have a bearing on the implementation strategies and PPP structuring.

The Development of Hub requires an outlay of Rs. 1248 mill (at 2009-10 prices) during the first three years (i.e. before the operations begin). This outlay is required for development of land acquisition and development, basic infrastructure and commercial building development. Though the amount involved is not very significant as compared to the total project cost, it requires some mechanism to generate the funds upfront. Some of the following ways can be explored.

i) Raise funds from State Govt. exchequer.

ii) Raise funds from Development Financial Institutions operating at the State or Central level

iii) Inviting Private sector developer to carry out the city Infrastructure in first 3 years on Build- Finance-Transfer basis. Such developer can be paid off in 4th and subsequent years.

The project needs Govt. support to enhance the equity IRR so as to be attractive for the Equity Investors. 50. Two possible structures as mentioned below are examined:

Structure 1: State Govt. incurs entire cost of land, extension of railway line from Indore to MMLH and HT line realignment in the first phase ( total cost Rs. 945 mill ).

Structure 2: State Govt. incurs entire cost of land, land development and 55% of basic infrastructure cost proposed in first phase (which covers cost of railway line from Indore to MMLH, HT line and 33KV line as well). The total contribution is Rs. 1337 mill.

51. Impact of the above two structures as compared to base case is shown in Table 9. Table 9: Impact of Different levels of Govt. Support Cases Base Case Structure 1 Structure 2

% age of entire land cost and Land Development Cost incurred by Government . 0% 100% 100% %age of Basic Infrastructure Cost incurred by Govt. 0% 31% 55% Resultant Total contribution at 2009-10 prices (Rs. Mn) 0 949 1337 %age Government Contribution of Total project cost 0% 12.9% 18.3% Project IRR 14.9% 15.5% 15.8% Equity IRR 15.9% 20.0% 22.4%

52. Hence if the project has to be financially attractive from equity point of view also it needs a Govt. subsidy of Rs. 1337 million (2009-10 prices).



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1.6. PPP MODEL FOR MMLH 53. Globally, following PPP models are being used in Logistics Projects:

Facility Management Model: Under this model, the facilities are created by Public finances (Government funding) and the project facilities are managed by a Private Operator on Fees basis. Under this structure, Government is required to take more risks and incur larger investments.

Development and Management Model: It is more or less similar to the above model except that Private Operator is required to invest in limited commercial activities and hence responsibility of private developer is more. Like the facility management model, in this case also Governments involvement remains large in the project.

Licensing Model: Private developer acquires a Government license for the construction of Infrastructure. After completing the License to Use, the facility is transferred back to the Government and residual payment is received. Limited use license is available for operating the facility under this model. License model allows limited financing from the private investor and may be suitable for smaller logistic hubs.

Co-operation Model or PPP Model: Government invites private Sector to implement the planned project on PPP basis. Developer is required to design, plan, finance, construct, operate, manage and transfer the facility for the given Concession period. After the designated period of Concession, the project is returned back to the Government. Some of the commercial establishments may remain with Private Development under long term lease structures.

54. With the project characteristics such as demand built up over the period of 30 years, marginal financial viability and back ended project returns it is suggested that Co-operation PPP Model be adopted for the proposed project. Under this approach, private sector developer will be invested with the responsibility of entire project development, planning, design, finance, management and operation of the facility. Government would be responsible for acquiring the land and providing to the developer on lease basis at nominal rentals. The developer will be entitled to recover the investment thro various revenue streams identified in the financial analysis chapter. The Concession period for the project will be about 30 - 32 years inclusive of Construction period.

55. As discussed above, the project is financially not very viable on stand alone basis and financial support from the Government is required to enhance the returns. Financial support for the project can come in the various forms such as provision of off-site infrastructure costs & land acquisition costs (10-12% of project cost), direct financial support (another 5 - 7% of the project cost) either in the form of Grant or in the form of Sub-ordinate debt.

The amount of this support can be decided thro a bidding route where Developer will bid for the expected Grant from the Government or expected debt support which can be made available in the form of Sub-ordinate debt.

1.7. WAY FORWARD

Land Acquisition 56. Land is a critical resource for development of the MMLH. It will be highly advisable to reserve the identified land for the purpose. The identified site is at a well connected location and therefore competing developmental claims may arise unless the government makes its intentions of developing it as a MMLH formal. It is therefore suggested to initiate the land acquisition process at the earliest to make sure that the identified land is not diverted for other developmental purposes.

Railway Connectivity 57. Railway connectivity is likely to be one of the most important aspects for success of the MMLH and one of the key assumptions in demand estimation for the MMLH. The Rau-Dhar-Dahod / Dhar-Chhota Udepur links are committed railway projects but the progress on them has been painfully slow. The state government is recommended



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to take up the matter with the Ministry of Railways and concerned departments at the highest level to expedite these projects in the interest of the development of industry in this region of the state.

58. Further, Rau-Khandwa rail link which is presently a meter gauge line is also likely to be converted to broad gauge and will provide broad gauge connectivity to the MMLH site to Indore via Rau. As a short term measure it is suggested that the Indore-Rau-Pithampur link be advocated for immediate development. This will provide direct, albeit a lengthier, railway connectivity between the MMLH site and the ports by development of a very short stretch of broad gauge rail link. The merit in this proposal is that it can be quickly implemented with very limited resource and yet be able to provide critical direct rail connectivity.

Inter Agency Coordination 59. Multiple agencies will be involved in different aspects of the development of the project making their coordination an important issue. The state government will have to take up the project related issues with a number of national and regional agencies some of which are listed below.

Rail Access: Drawing access for the railway sidings from the trunk line will require coordination with the appropriate railway authorities about design, implementation and operational issues.

Road Access: The state government will also need to coordinate with the NHAI for taking a road access from the NH-3 (Mhow Bypass) for the MMLH.

Trunk Infrastructure: Further, coordination with various local and state level agencies may be required for provision of trunk water supply, sewerage and power lines for the site in accordance with the anticipated requirements.

Project Structuring for development 60. The project is not viable on a stand-alone basis, hence, the project is recommended for implementation through PPP Model where State Government can share off-site infrastructure development costs and land acquisition to make it viable for promotion through private sector involvement.

executive summary for logistic hub in pithampur industrial area_dmic

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