guidelines for investment in road sector jan 2011

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Guidelines for Investment inRoad Sector

Government of India

Ministry of Road Transport and Highways

Not just roads... building a NATION



Index

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 weendeavor 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.

Deloitte refers to Deloitte Touche Tohmatsu India Private Limited

Executive Summary 4

Current Scenario 5

Financing National Highway

Projects 7

Public Private Partnership in

Highway Development 11

Overview of Successful Projects 29

Policy Framework 31

Foreign Direct Investment Policy 33

Tax Environment 35

4

Administrative Framework 43

About NHAI 45

Annexure 47

Revenue Risks and Mitigation 26

Repatriation of Investments

and Profits Earned in India 1



Executive Summary

The National Highway network of the country spans

about 70,548 km. The National Highway Development

Project (NHDP), covering a length of about 54,000 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 late 1990s acknowledged

the importance of private sector in India's

infrastructure development.

The consistent policy and institutional framework,

which has been the backbone of the more than INR13,00,000 Crore (USD 60 billion ) 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.

The early success of Public-Private-Partnerships (PPP)

in the NHDP, arguably, set the tone for similar

initiatives in other infrastructure sectors and has

provided the single largest opportunity for private

financing and management of infrastructure services.

Build Operate Transfer (BOT) concession contracts

with an estimated Total Project Cost of approximately2USD 23 billion (including BOT/DBFOT -Toll and BOT-

Annuity contracts) have been awarded under

various packages till December 31, 2010 and these

projects are expected to be fully operational by 2015-

16.

With several key projects on the anvil (including

6- laning 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.

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.

Guidelines for Investment in Road Sector4

1. INR 50 = 1 USD : figures approximated

2. Design Build Finance Operate & Transfer

(DBFOT)



Current Scenario

Guidelines for Investment in Road Sector 5

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 approximately 8%in the

last five years

The development of National Highways is the

responsibility of the Government of India. TheGovernment of India has launched major initiatives to

upgrade and strengthen National Highways through

various phases of the National Highways

Development Project (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 54,000 km, entailing an estimated investment

of more than INR 3,00,000 Crore (USD 60 billion).

The National Highways Authority of India (NHAI) is

mandated to implement the 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 Build Operate and Transfer (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

project IRR is expected to be around 14-16% and3

equity IRR around 18-20% .

The NHDP is being implemented under several

phases:

Phase I mainly involves widening (to 4 lanes) and

upgrading of 7,498 km of the national highway

network and has four component packages:

Highway network linking the four metropolitancities 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 East-

West (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.

4-laning of the GQ has almost been completed. Phase

II is expected to be largely completed by March 2011.

4-laning of the Golden Quadrilateral (GQ) and North-

South and East- West (NS-EW) Corridors-(NHDP I & II)

1.

2.

3.

4.

3. Deloitte Research




4. Length in Km. as on December 31, 2010.

Phase III - Upgradation of 12,109 km

Phase IV - 2-laning of 20,000 km with paved shoulders

Phase V - 6-laning of 6,500 km

NHDP-III involves upgradation of 12,109 km (mainly 4-

laning) of high density national highways, through the

Build, Operate & Transfer (BOT) mode at a cost of INR80,626 Crore (USD billion). 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.

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).

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

16.1

Phase-I of NHDP. 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.

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.

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 (USD 3.3 billion) has been approved by

the Government. Apart from the high densitycorridors, a substantial part of the National Highways

thnetwork would also require development during the 12

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.

Development of 1,000 km of expressways (NHDP-VI)

Other Highway Projects of 700 km (NHDP-VII)

4Current Status of NHDP

Completed Work in Progress To be Awarded Total

14889

9454

30111

5445460000

55000

50000

45000

40000

35000

30000

25000

20000

15000

10000

5000

0



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 theCentre 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

World Bank Funded Projects

NHDP Phase I

GQ

Others

NHDP Phase II EW Corridors

Sub-Total A

ADB Funded Projects

NHDP Phase I

GQ

Others

Sub-Total BJBIC Funded Projects

NHDP Phase I

GQ

Others

Sub-Total C

Grand Total (A+B+C)

18

18-

12

30

10

9

1

31

41

7

5

7

78

983

983-

482

1,465

615

567

48

1,636

2,251

150

111

39

150

3,866

5,538

5,538-

3,208

8,746

1,866

1,807

59

7,565

9,431

634

333

301

634

18,811

17

17-

-

17

10

9

1

18

28

7

5

2

7

52

932

932-

-

932

615

567

48

1,018

1,633

150

111

39

150

2,715

NHDP Phase II NS & EW Corridors

Category Awarded Awarded Cost

(INR Crore)

Completed

No. of Contracts Length in km No. of Contracts Length in km

2



ParticularsPhase Projected For (Kms) INR Crore

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.

Cess and Market Borrowings

BOT/SPV

BOT/SPV

BOT/SPV


Budgetary Support

External Assistance


External Assistance

Total (At 1999 Prices)



BOT/SPV

BOT/SPV

BOT/SPV








Private Sector

Government Spending

7498

6647

12109

5000

6500

1000

700

18,846

3592

3310

23420

7609

7862

30300

34339

80626

35691

9000

10378

5519

7680

6302

6950

41210

16680

16680

4608

2342

50129

12809

17688

NHDP-I

NHDP-II

NHDP-III

NHDP-IV A

NHDP-V

NHDP-VI

NHDP-VII

Approved Financing Plan of NHDP


Presently, the development and maintenance of

National Highways is financed by following modes:

Government's general budgetary sources

Dedicated accruals under the Central Road Fund

(by levy of cess on fuel)

Lending by international institutions:

World Bank

ADB

JBIC

Private financing under PPP frameworks

Build Operate and Transfer/Design Build5Finance Operate and Transfer (DBFOT) -

Investment by private firm and return throughlevy and retention of user fee

Build Operate and Transfer (Annuity) - BOT

1.

2.

3.

•

•

•

4.

•

•

(Annuity) - Investment by private firm and

return through semi-annual payments from

NHAI as per bid.

Special Purpose Vehicle – SPV (with equityparticipation 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. The disbursement of such

grant is subject to provisions of the project concession

agreements (A compact Disc (CD)containingoverviewof the

•

•

Model Concession Agreement for BOT - Toll

projects is enclosed wit the brochure).




Road Section Length (Km.)Estimated

Cost(INR Crore)

EstimatedCost

(USD Million)

Negative Grant(INR Crore)

Negative Grant(USD Million)

Delhi-Gurgaon

Rajkot Bypass-Jetpur

Panipat Elevated Highways

Salem- Karur

Krishnagiri - Thopurghat

Tindivanam-Ulundurpet

Thirssur-Angamali

Jalandhar- Amritsar

Ambala-Zirakpur

Dhule-Pimpalgaon

Vadodara Bharuch

Bharuch-Surat

28

36

10

42

62

71

40

49

36

118

83

65

710

388

270

253

372

480

312

263

298

556

660

492

142

78

54

51

74

96

62

53

60

111

132

98

61

59

96

46

140

152

84

7

106

59

471

12

12

19

9

28

30

17

1

21

12

94

101

NHAI projects, with higher traffic volumes, have also received Negative Grant (upfront payment payable by

successful bidder to NHAI) instead of grant / VGF as an outcome of the competitive bidding process. Further,

under the revised MCA, projects under BOT/ DBFOT framework have also been awarded on a revenue share /

premium basis, where the bidder offering the highest revenue share / premium is awarded the project.

Road Section

Surat-Dahisar

Gurgaon-Jaipur

Panipat-Jalandhar

Chennai-Tada

Vijayawada-Chilkaluripet

Krishnagiri-Walajhapet

Length (Km.)

239

225

291

42

85

148

Estimated

Cost(INR Crore)

Estimated

Cost(USD Million) Revenue Share (%)

2,600

1,900

2,200

317

1,173

1,250

520

380

440

63

235

250

38%

48%

20%

17%

2%

7%

Projects awarded on Revenue Share Basis

Projects awarded on Negative Grant




Road Section

Indore-Jhabua-Gujarat/MP

Hyderabad-Yadgiri

4 Laning of Godhara to

Gujarat /MP Border

Panipat - Rohtak

Kandla - Mundra Port

Rohtak - Bawal

Deoli - Kota

Sambalpur-Baragarh-Chattisgarh

/Orrisa Border

Belagaum-Khanpur (4-lane)

Jetpur-Somnath (4-lane)

Pune – Satara

Samaikhiali-Gandhidham

Indore-Dewas

Belgaum-Dharwad

Chitradurga -Tumkur Bypass

Six Laning of Hosur-Krishnagiri

Panvel - Indapur

Luchiyana - Talwandi

Length (Km.)

Estimated

Cost(INR Crore)

Estimated

Cost(USD Million)

Premium(INR Crore)

Projects awarded on Premium

Premium(USD Million)

Chengapalli to Coimbatore Bypass

and End of Coimbatore Bypass55

155

36

87

81

71

83

83

88

82

123

140

56

45

80

114

60

84

78

853

1,175

388

786

807

954

650

593

909

359

828

1,725

805

325

480

839

535

943

479

171

235

78

157

161

191

130

119

182

72

166

345

161

65

96

168

107

189

96

36

23

12

8

45

42

12

49

1

2

23

91

58

24

31

140

67

34

1

7

5

2

2

9

8

2

10

0

0

5

18

12

5

6

28

13

7

0



Public Private Partnership in

Highway DevelopmentInitially, projects under NHDP were awarded as item

rate cash contracts. However, going forward, 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 on

DBFOT basis

Build, Operate and Transfer (Annuity) Mode on

DBFOT basisl

Special Purpose Vehicle (SPV) for Port

Connectivity Projects

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).

The concessionaire bids for annuity payments from

•

•

•

BOT (Toll)

BOT (Annuity)

NHAI is also proposing to award projects under a long

term Operations, Maintenance and Transfer (OMT)

concession.

and its amendments dated December 3,2010 and January 12, 2011).

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.

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).

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 coverrepayment of debts and for meeting the costs of

operations and maintenance.

General procedure for selection of concessionaires

adopted by NHAI is a two-stage bidding process.

Projects are awarded as per the model documents-

Request 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

Operate, Maintain and Transfer (OMT) Concession

Special Purpose Vehicle for Port Connectivity Projects

International Competitive Bidding Process




processes involved in both stages are set out as

follows:

Pre-qualification on the basis of Technical and

Financial expertise of the firm and its track record in

similar projects which meets the threshold technical

and financial criteria set out in the RFQ Document.

Some of the recent significant amendments in the pre

qualification document are set out below:

1. Determination of technical and financial capacity of

consortium applicants in proportion to the

committed equity holding of each consortium

member in the project SPV. For illustration-

- If Company A has been assessed to have an

experience score (measured in terms of

payments made/received and/or revenues

received for eligible projects) of 5,000 and

Company B has been assessed to have an

experience score of 2,500, in a Consortium with

shareholding of A as 60% and B as 40%, then the

weighted experience score of the Consortium

shall be:5,000*60%+2,500* 40%=4,000

- If Company A with a net worth of INR 1000 Crore

(USD 200 million) & Company B with a net

worth of INR 500 Crore (USD 100 million) are

bidding together as a Consortium with

shareholding of A as 60% and B as 40% then the

weighted financial score of the Consortium shall

be:

1,000*60%+500*40%= INR 800 Crore (USD 160

million)

2. In case of foreign companies, a certificate from a

qualified external auditor who audits the books of

accounts of the Applicant or the Consortium

Member in the formats provided in the country

where the project has been executed shall be

accepted, provided it contains all the information

as required in the prescribed format of the RFQ.

3. Applicants/Bidders would need to provide an

undertaking to NHAI that the EPC works of the

Stage 1:

project would be executed only by such EPC

Contractors who have completed atleast a single

highway project of more than 20% of the estimated

project cost of the project or INR 500 Crore (USD

100 million) which ever is less in the preceding 5

financial years from the application due date.

Notice inviting tenders is posted on the web site and

published in leading newspapers

Commercial bids from pre-qualified bidders

are invited through issue of RFP. For BOT-(Toll)

projects the bid parameter is the premium offered to

the NHAI or the grant sought from NHAI. In BOT-

(Annuity) projects the bid parameter is the semi annual

annuity sought from NHAI.

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.

Stage 2:

Summary of recent policy changes in the projectdevelopment and award process are set out below:

The Government has put in place appropriate policy,

institutional and regulatory mechanisms includinga set of fiscal and financial incentives to encourage

increased private sector participation in road sector.

Based on its experience and the discussions with

various stakeholders, the RFQ, RFP and the MCA are

being updated continuously. Some of the important

changes made in these documents are as under:

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.

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. Termination provisions under capacity

augmentation situations modified to give more

comfort to investors and lenders. The

concession period can be extended upto 5

years to yield a post tax equity IRR of 16%, in the

event of capacity augmentation optionexercised by the concessionaire.

b. 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.

c. Threshold l imi t for common cont rol(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 pre-qualification stage

shall be deemed to subsist at the bidding stage

only if such applicants attracting the conflict of

interest provisions submit their bids.

d. Threshold technical capability for claimingeligible 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.

e. The threshold technical experience score for the

purpose of pre-qualification will be equal to the

estimated project cost of the subject project.

This was, earlier equal to twice the estimated

project cost of the subject project.

f. Where the projects are bid out on a revenue

share basis, the base premium (fixed amount)

(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

preceding year for the entire tenure of the

concession.

6The aforesaid changes are expected to further

incentivise private investment in road/highway

projects.

Opportunities for Private Investors/ Developers

More than 60% of the projected investmentrequirement for the NHDP (more than 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

etc. and other stakeholders such as advisors,financiers and sector professionals. Only about 21 per

cent of the total highways in India are 4-laned / 6-

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.

6. As per recommendations of B K Chaturvedi Committee




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.

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.

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.

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.

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.

The MCA provides for increase or

decrease of the concession period in the event the

Key Concessionaire Risk/Obligations

• Construction Risk -

• O & M Risk -

• Financial Risk -

• Traffic Risk -

DevelopmentProjects Construction Tolling

BOT/DBFOT - Toll

Equipment Services

MaterialBOT -

Annuity

OMT

EquipmentContainers

LuxuryBuses

PerishablesPvt BusService

UrbanTransportation

Trucking Tourism

Bulk

Roads

Logistics & Services

Infrastructure Development

SPV

Technology

Maintenance

Model Concession Agreement (MCA) for PPPProjects

Risk Framework of Model Concession Agreement

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. Thisframework has been successfully used for award of

BOT concessions. The MCA has been revised 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 fairprocedures.

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:

The MCA has been developed in consultation with all




Key Common Risk

• Force Majeure Risk - Force Majeure shall mean

occurrence in India of any or all of Non-PoliticalEvent(s), Indirect Political Event(s) and Political

Event(s), which include the following:

• act of God, epidemic, extremely adverse

weather conditions or radioactive contamination

or ionising radiation, fire or explosion;

• strikes or boycotts

• 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-widestrikes or industrial action which prevent

collection of toll/ fees,

• any public agitation which prevents collection

of toll/ fees

Non-Political Event:

actual traffic falls short or exceeds the target traffic.

NHAI stipulates the target traffic

tharound the 10 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.

An overview of revenue risks and mitigation

under the MCA is

provided in the next section.

NHAI is responsible for

acquiring the requisite land for the project

highway

NHAI will provide all reasonable

support and assistance to the concessionaire in

procuring applicable permits required from any

Government Instrumentality.

during the year

specified in project specific concession agreement,

which is usually

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 27).

(including Termination Payment)

Key NHAI Risk/Obligations

• Land Acquisition Risk:

• Approvals:




Political Event

• Change in Law,

• compulsory acquisition by any governmental

agency of any project assets or rights of

concessionaire or of the Contractors; or

• unlawfu l or unauthor ised or wi thout

jurisdiction revocation of or refusal to renew or

grant without valid cause any consent or

approval required by developer

Substantial part of the project site free from

encumbrances would be handed over to the

concessionaire till the Appointed Date. Additionalland in case of change of scope

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 25% higher than

the toll fee on project. Any alternate road,

exceeding 20% of the length of the project

highway, shall not be considered as an additionaltollway.

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 [upto 40% of TPC] can be

provided as equity support).

Other Salient features of the MCA

•

•

•

•

•

will need to be

acquired

will be at least




Dispute Resolution Procedure for PPP projects

• Mediation by the Independent Engineer:

• Amicable Resolution:

• Arbitration:

If any

dispute arises between the parties, it is in the firstplace 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.

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 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.

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.

•

•

Dispute Resolution

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.

Any dispute arising out of or in relation to the

concession agreement, between the parties is 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 detailtherein.

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 bechanged 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.




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.

BOT - (Annuity) projects are similar to Bot - (Toll)

projects with the exception that the traffic risk is borne

by NHAI and the concessionaire is paid fixed semi

annual annuities by NHAI.

Either party

fulfill the Conditions Precedent for commencement

of .

OMT Concessions

•

•

•

•

The OMT concession would be for a maximumperiod 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 concession7

fee to NHAI

is allowed a period of 45 days from the

date of signing of the concession agreement to

commercial operations

The OMT concessionaire will pay a fixed concessionfee to NHAI every month

and undertake tasks

of toll collection and operation and maintenance of

highways

NHAI has identified twelve highway sections which are

expected to be awarded on OMT basis in the next 6

months. The concession agreements for three

highway sections have been signed and the

. More

sections, where project completion is anticipated in

the next 6-12 months, are being planned for OMT

concessions.

(equivalent to one-twelfth

of the annual quoted amount)

along with construction of additional

project facilities as per the scope of work.

Letters of Award have been issued for three projects. Two

projects are being subjected to rebidding and the

remaining four projects are at conception stage

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).

The Dispute Resolution Procedure for EPC Projects

does not involve amicable settlement. The

disputes are referred to the 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.

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 isnot registered in India and is not a juridical person

under Indian Law.

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 intricatecommercial 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.

• Dispute Review Board:

• Dispute involving Foreign Contractor(s):

General Trends in Dispute Resolution




Opportunities for Investment Under NHDP Phase II *

S. No. Road SectionLength(Km)

Estimated Project Cost

(INR Crore) (USD Million)

1

2

3

4

5

Ghoshpukur-Salsalabari

Walayar-Vadekancherry

Ramban - Banihal

Udhampur-Ramban

Agra Bypass

163

54

36

43

33

1,549

513

1,444

1,725

457

310

103

289

345

91

Opportunities for Investment Under NHDP Phase III *




1

2

3

4

5

6

7

8

9

10

11

12

13

14

Bhopal-Bareily,Bareily-Rajmarg

Crossing,Rajmarg Crossing-Jabalpur290

45

244

125

116

44

49

92

140

178

84

86

41

69

2,755

432

2,319

1,192

1,100

417

462

876

1,334

624

798

300

387

243

551

86

464

238

220

83

92

175

267

125

160

60

77

49

Nagpur-Wainganga Bridge

Beawar-Pali &Pali-Pindwara

Patna-Buxar

Madurai-Parmakoti-Ramanathapuram

Reegus-Sikar

Rohtak-Jind

Gopalganj-Chhapra

Khagaria-Purnea

Tindivnam-Krishnagiri

Barasat-Krishnagar

Ambala-Kaithal

Parwanoo-Solan

Piprakothi-Motihari-Raxaul


*As on December 31, 2010


The upcoming opportunities for investment in various Phases of NHDP are provided in the tables below:



Opportunities for Investment Under NHDP Phase III *




78

164

65

108

741

1,553

618

1,026

148

311

124

205


15

16

17

18

Krishnagar-Bahrampore

Ranchi-Jamshedpur

Vijayawada - Machalipatnam

UP / Haryana Border

Yamunanagar-Panchkula

166

120

97

60

22

43

116

100

1,577

420

922

570

209

409

1,102

950

315

84

184

114

42

82

220

190

19

20

21

22

23

24

25

26

Panikholi-Ramoli

Khagaria-Bakhtiyarpur

Rohtak-Hissar

Shimla-Solan

Mulbagal-Karnataka/AP Border

Thiruvananthapuram-TN/Kerala Border

Kuttipuram-Edapally

Solapur - Maharashtra /

Karnataka Border-Bijapur

133

77

65

54

80

88

104

88

60

84

1,264

268

618

513

280

836

364

836

570

798

253

54

124

103

56

167

73

167

114

160

27

28

29

30

31

32

33

34

35

36

Chandikhole-Dubari-Talchar

Nagapattnam-Thanajavur

Kerala/TN Border-Kanyakumari

Coimbatore-Mettupalayam

Karaikkudi-Ramanathapuram

Kota-Jhalawar

Jowai-Meghalaya/Assam Border

Rampur-Kathgodam

Barasat-Petrapole

Cherthalai-Ochira








1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

Yadagiri-Warangal

Muzaffarpur-Barauni

Chhapra - Rewaghat - Muzzaffarpur

Biharsharif - Barbigha -Mokama

Ekangarsarai- Jehanabad - Arwal

Maheshkhut - Saharsa - Purnea

Raipur-Dhamtari

Raipur-Bilaspur

Arang-Saraipalli-Orissa Border

Chilpi-Simga

Ghamtari-Jagdalpur

Ambikapur-Pathlgaon

Bilaspur-Ambikapur

Pathalgaon-Gumala

Punjab/ Haryana Border - Jind

Hissar-Dabwali

Kaithal-Haryana/Rajasthan Border

Bilaspur-Ner Chowk

Ner Chowk-Manali

Kiratpur- Bilaspur

Chas- Ramgarh

Junction with NH-2 at Govindpur-Chas-Upto JHR/WB Border

Ranchi - Birmitrapur

Ranchi- Nagar Untari

96

107

75

52

54

171

72

112

150

128

222

85

190

130

70

160

160

54

119

63

85

71

210

260

288

321

225

156

162

513

216

336

450

384

666

255

570

390

210

1,520

480

162

357

189

255

213

630

780

58

64

45

31

32

103

43

67

90

77

133

51

114

78

42

304

96

32

71

38

51

43

126

156


Opportunities for Investment Under NHDP Phase IV *






25

26

27

28

29

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48


Jamshedpur-Kharagpur

Hospet-Bellary-KNT/AP Border

Shimoga-Mangalore

Hasan-BC Road

Gulbarga-Bijapur-Homnabad

Hospet-Chitradurga

Hospet-Hubli-Ankola

Gundlupet-TN/KNT Border

Hoskote-Dobespet

Tamil Nadu/KNT Border-Bangalore

Mah/KNT Border-Sangareddy

Jabalpur- Lakhnadon

Shahganj Junction -Budhni-Betul

Obdullaganj-Shahganj

Biaora- MP/Rajasthan Border

Jabalpur-Katani-Rewa

Gwalior-Shivpuri

Shivpuri-Dewas

Jabalpur-Mandla-Chilpi

Khed-Sinner

Vedishi-Osmanabad-Solapur

Kalyan-Andhra Pradesh Border (km442 to km591)

Kalyan-Andhra Pradesh Border (km232 to km284)

Dhule-Aurangabad

150

93

188

130

200

119

271

27

89

204

145

74

107

26

66

210

125

330

189

150

85

149

51

140

450

279

564

390

600

357

813

81

267

612

435

222

321

78

198

630

375

990

567

450

255

447

153

420

90

56

113

78

120

71

163

16

53

122

87

44

64

16

40

126

75

198

113

90

51

89

31

84









49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72


Amravati-Dhule-Gujrat Border

Kalyan-Andhra Pradesh Border (km 0.0 to km232)

Kalyan-Andhra Pradesh Border

(Km284 to km 337 Jn.with NH-211)Kalyan-Andhra Pradesh Border

(Km 342 Jn. With NH-211 to km 442)

Aurandabad-Vedishi

Solapur-Mah/KNT Border

Bahargora-Sambalpur

Cuttak-Angul

Angul-Sambalpur

Birmitrapur-Barkote

Baleashwar-Baripada-Jharpokhria (Jn. of NH-5 with NH-6)

Sriganganagar-Rajasthan/Punjab Border

Karauli-Dholpur

Jhalawar-Rajasthan/Madhya Pradesh Border

Rajasthan Border-Fatehpur

Padhi-Dahod

Vikravandi-Kumbakonam-Thanjavur

Thanjavur - Pudukkotai - Sivaganga - Manamadurai

Tiruchirapalli-Lalgudi-Chidambaram &

Meenusuriti-Jayamkondam-Kootu RoadViluppuram-Pondicherry-Nagapattinam

Coimbatore-TN/KNT Border

Dindigul-KNT/TN Border

Ghaghra Bridge-Varanasi

Indo Nepal Border-Ghaghra Bridge

480

232

53

100

175

126

370

112

153

128

90

124

72

71

135

85

165

122

135

194

103

266

177

122

1,440

696

159

300

525

379

1,110

336

459

384

270

372

216

213

405

255

495

366

405

582

309

798

1,682

1,159

288

139

32

60

105

76

222

67

92

77

54

74

43

43

81

51

99

73

81

116

62

160

336

232









73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

Meerut - Bulandshahar

Unnao - Lalganj

Varanasi-Sultanpur

Sultanpur-Lucknow

Meerut - Nazibabad

Raibareilly - Jounpur

Lucknow - Raibareilly

Ambedkar Nagar - Banda

Varanasi-Hanumanha

Barabanki-Bahraich-Nanapara-Rupaidiha

Gorakhpur-Ferenda-Nautanwa-Sonauli

MP/UP Border-Allahabad

Varanasi-Gorakhpur

Bharatpur-Mathura-Hathras

Moradabad-Aligarh

Bareilly-Sitarganj

Sitarganj-Kashipur

Kashipur-Haridwar

Dehradun-Chutmalpur-Roorkee

Sitarganj - Tanakpur

Chutmalpur-Saharanpur-Yamunanadar-Haryana/UP Border

Pundlbari - Baxirhat

JHR/WB Border-Purliya-Balarampur-JHR/WB border-upto

junction with NH-33

66

68

142

124

139

169

82

287

125

152

99

41

206

90

144

87

97

167

70

52

50

46

83

627

204

1,349

1,178

417

507

779

861

375

456

297

123

619

270

432

261

291

1,587

210

156

475

138

248

125

41

270

236

83

101

156

172

75

91

59

25

124

54

86

52

58

317

42

31

95

28

50




Opportunities for Investment Under NHDP Phase V *





1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

Ahemadabad-Vadodara

Walahajapet -Poonamallee

Barwa Adda-Panagarh

Dhankuni-Kharagpur

Kishangarh-Udaipur-Ahmedabad

Vijaywada-Elluru-Rajamundry

Ichhapuram-Srikakulam-Anandpuram

Chandikhole-Paradeep

Ludhiana-Chandigarh

Agra-Etawa Bypass

Allahabad Bypass-Varanasi

Aurangabad-Barwa Adda

Etawah-Chakeri

Chakeri-Allahabad

Satara-Kagal

Tambaram - Tindivanam

Panagarh – Palsit

Palsit-Dhankuni

Vishakhapatnam-Ankapalli

Ankapalli-Tuni

Tuni-Dharmavaram

Dharmavaram-Rajahmundary

Nellore Bypass

Khagal – Belgaum

Neelamangala-Tumkur

Tada - Nellore

Dharwad-Haveri

Bhubaneshwar-Icchapuram

Hapur-Moradabad

Balasore-Chandikhole

Haveri-Chitradurga

Agra-Gwalior

Tumkur & Chitrdurga Bypass

Delhi-Hapur

Kharagpur-Baleshwar

102

93

123

111

557

198

213

80

85

125

160

220

157

153

133

93

64

65

50

59

47

53

17

77

35

111

95

135

110

140

135

85

31

52

116

1,023

930

1,229

1,114

5,570

1,980

2,130

800

850

1,250

1,600

2,200

1,570

1,530

1,330

930

640

650

500

590

470

530

170

770

350

1,110

950

1,350

1,100

1,400

1,350

850

310

520

1,160

205

186

246

223

1114

396

426

160

170

250

320

440

314

306

266

186

128

130

100

118

94

106

34

154

70

222

190

270

220

280

270

170

62

104

232*As on December 31, 2010



Revenue realisation in BOT-Toll projects is subject to

some key risks including, but not limited to variation in

traffic, variation in toll rates,

premature termination

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.

additional tollway,

occurrence of on account of

certain events.

The concession agreement provides for extension or

reduction of the concession period in the event the9

actual traffic falls short or exceeds the target traffic , as10

estimated on the target date .

The notification of the New National Highways Fee

Rules (2008)

has provided for a revisionof toll rates and hence realisable toll revenues for all

vehicle categories. The new toll rules are applicable for

all new road projects.

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 in Toll rates (Linked to WPI)

and its amendments dated December 3,

2010 and January 12, 2011

Type of VariationChange in

Concession PeriodCap on Concession

Period Variation

Variation in Traffic

Actual Traffic <

Target Traffic

For every 1%

shortfall,concession

period increase by 1.5%

20%

10%Actual Traffic >

Target Traffic

For every 1% excess,

concession period8

reduction by 0.75%

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

Revenue Risks and Mitigation




Old Toll RateRs./ trip (USD)

11New Toll RatesRs./ trip (USD)

Scenario 1

88

(~1.76)

90

(~1.8)

490

(~9.8)

495

(~9.9)

Scenario 2

88

(~1.76)

95

(~1.9)

490

(~9.8)

540

(~10.8)

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 Due12b. 150% of the Adjusted Equity.

Force Majeure

Non-Political

Event

Payment equal 90%

of the Debt Due less Insurance Cover

Indirect Political13Event

a. Debt Due Less Insurance Cover

b. 110% of the Adjusted Equity

Political Eventa. the total Debt Due

b. 150% of the Adjusted Equity

11. As per new tolling rules, toll rate revision is determined by the formula - TR = TR (1+3%) + TR ((1+3%)*%Variation in WPI*40%)1 0 0

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.

12.

Including termination due to breach of capacity as set out under traffic risk

The salient features of the new toll rules and its

amendments 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)

determined based on construction cost.

Rounding off fee to the nearest five rupees (earlier

rounded off to nearest one 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 and tunnels) separately.

The

base toll rates for other 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 AxleVehicle (MAV of more than three to six axles) as per the

applicable toll rates under the old and new toll rules

For bypasses

constructed at a cost of INR ten crore or more, the base

toll rates are one and a half times the standard base toll

rate on a per passenger car unit (pcu)/km basis.

(such as

bridges and tunnels)

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 (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 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.

The concession may be terminated before project

completion in the event of the following:

The

base toll rate on a pcu/km basis has been assumed to be

0.69 for a Light Motor vehicle and 3.85 for a Multi Axle

Vehicle (MAV of more than three to six axles).

and

its amendments dated December 3, 2010 and January

12, 2011

Early Termination of Concession


Light Motor Vehicle

Light Motor Vehicle

Multi Axle Vehicle

Multi Axle Vehicle



• 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

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

• Concessionaire Event of Default:

be deemed to be in default and NHAI shall have

the right to terminate the agreement

A force majeure event which

lasts for less than 180 days will lead to a

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 365days.

• Force Majeure Event:




Overview of Successful Projects

Source: NHAI

Number of Contracts Cost in

BOT Toll

Awarded 130

Completed 38

BOT DBFO

Awarded 8

Completed

BOT Annuity

Awarded 42

Completed 16

INR Crore USD Billion

10,933

1,987

1,034

2,534

948

18.1

2.8

1.6

4.8

1.1

90,706

13,951

7,785

24,087

5,721

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.

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 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 million-

NHAI estimate). NHAI provided a grant of INR 211

Crore (USD 42 million) to the project. The concession

period of the project is 20 years.

Jaipur- Kishangarh BOT Project –NH 8

The project was completed 5 months ahead of its

scheduled completion date (2005). The 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.

The project involved widening of existing two lanes to

4-lane divided carriageway facility including the

rehabilitation of existing 2-lanes on annuity basis. Theestimated 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.

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

Belgaum – Maharashtra Border Section of NH-4(Annuity Project)

Second Vivekananda Bridge (now Sister NiveditaBridge)- BOT Project in Kolkota:




financial close was delayed by one year, the

construction thereafter was almost on time and theth

bridge was commissioned on 4 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.

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

(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 . Encouraged by the results, Phase –III

at a cost of INR 279 Crore (USD 56 million), is 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 (USD4.3 million) in 2005-06, 2006 -07 & 2007-08

respectively.

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 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

Jawaharlal Nehru Port Connectivity Project in

Maharashtra

Participation of Foreign Contractors

represented by City and IndustrialDevelopment Corporation of Maharashtra Ltd.

also

completed

on their own

contractors from Europe for specialised jobs. It is

presently estimated that

are operating in India.

Foreign companies are executing 26 contracts

exclusively and 80 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 33). The total value of

contracts with foreign participation is estimated to be

more than INR 12,000 Crore (USD 2.4 billion)

contractors from about 17

countries

ConstructionFirms

No. of Foreign Firms

No. of Projects

Length(in km)

BOT (Toll) 28 3,081

BOT (Annuity) 9 713

EPC Contracts 67 3,286

S. No. CountryContractors

JV Independent

China

Dubai

Malaysia

Iran

Singapore

Saudi Arabia

UK

Indonesia

Korea

Spain

Taiwan

Thailand

Turkey

Philippines

USA

Russia

Italy

Total

1.

2.

3.

4.

5.

6.

7 .

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

12

3

26

1

1

1

4

2

9

5

-

3

2

1

1

8

1

80

2

-

10

-

-

-

-

2

5

-

4

1

-

-

-

2

-

26

Country wise breakup of Foreign and JV Companiesinvolved in development work of National Highway

Projects

28

9

67




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 sectorparticipation.

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

construction provided the project involvesaddition of new lanes.

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.

Policy Framework

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:




Government Support for Major Clearances required for Road Projects

Cost Estimate

Techno economic Clearances

Pollution Clearance (water & air)

Forest Clearance

Environmental Clearance

Company Registration

Rehabilitation & Resettlement of Displaced

families

CLEARANCES

Ministry of Road Transport & Highways /Public Works Department /National Highways Authority of India (NHAI)

Ministry of Road Transport & Highways/ Public Works Department/


Central Pollution Control Board

Ministry of Environment & Forests

Ministry of Environment & Forests

Registrar of Companies

Ministry of Road Transport & Highways, State Governments and NHAI

CLEARING AUTHORITY

•

•

•

•

Detailed Feasibility Study

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

Where design is left to the enterprise, giving

details of standards and bore holes logs at bridge

sites etc.




Foreign Direct Investment(FDI) Policy

Source: RBI

Routes For Foreign Direct Investment

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.

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.

The major source of FDI in India is through the equity

route, which accounted for approximately 65% of the

total FDI inflows in India during the period April 2000to November 2010.

Investment Climate – FDI Current Situation

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 Investment 74% (FDI upto 49%

under the automatic route)

• Private sector banks – 74% (upto 49% is under the

automatic route)

• Exploration and mining of coal, lignite, diamonds and

precious stones – 100%

• Development of new airports – 100%

• Development of existing airports – 100% (upto 74% is

under the automatic route)

Other areas (100% - Auto Route): Pharma, Non Banking Financial Services, SEZs, Food Processing

Prior Permission (Foreign InvestmentPromotion Board)

Decision generally within 4–6 weeks

FDI Requiring prior approval (illustrative list)

• Defence production -26%

• FM broadcasting – Foreign investment 20%

• Print media / news and current affairs - 26%

• Broadcasting – cable, DTH, setting up of hardware facilities-

Foreign equity 49% (Ceiling of 20% for FDI in DTH)

• E-commerce activities - items sourced from small scale

sector & test marketing – 100%

• Single brand retailing 51%

• Banking - Public Sector FDI and Portfolio Investment upto

20%

FDI

40

30

20

10

0

-10

-20

Net Direct Foreign Investment

Net Portfolio Foreign Investment

2005-06 2006-07 2007-08 2008-09 2009-10

3.0

12.5

7.7 7.0

15.4

29.5

17.519.7

32.2

-14.0

Net Foreign Investment (in billion $)



•

•

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.

•




• Taxed at worldwide income

• Taxed at 30%

• If taxable income > INR

10,000,000; Surcharge

applicable @ 7.5% of tax.

• Education cess of 3% of tax

(and surcharge if applicable)

• Dividend Distribution Tax

(DDT) is levied @ 16.609%

on the amount of dividend

declared.

• 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)

Foreign CompaniesDomestic Companies

Tax Environment

Service Tax

Taxation in India

State

Direct Taxes

Indirect Taxes

Personal Income Tax

Corporate Tax

Wealth Tax

Customs Duty

Excise Duty

Central Sales Tax

Other Taxes

Professional Tax

Central

Indirect Tax

Value Added Tax

Entry Tax

Octroi

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

Direct Taxation

Tax incentive for Roads

•

•

•

100% tax holiday is available for those who are

engaged in development or / and operation and

maintenance 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 18% 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.

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 provision is less than MAT.

In such a case, companies are liable to pay 18% of bookprofits as MAT plus applicable surcharge of 7.5% for

domestic companies 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 are computed by making prescribed

adjustments to the net profit disclosed by the

corporations in their financial statements.

Minimum Alternate Tax (MAT)

Rates of Taxation




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 distributed by an Indian company is exempt

from income-tax in the hands of all shareholders.

However, the Indian company is liable to pay a taxcalled Dividend Distribution Tax (DDT) of 16.609%

(i.e. inclusive of surcharge and education cess) on

Dividend Distribution Tax (DDT)

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.

•

•

•




Profit / Lossas per

Accounts

Add: Expenses Disallowedas per Income Tax Act and

considered in accounts

Less: Expenses Allowedas per Income Tax Act butnot considered in accounts

Apply applicable tax rates(including Surcharge & Education

Cess) to the taxable income toarrive at gross tax payable under

normal provisions.

Tax payable is equal to taxunder normal provisions

Calculated tax payableunder ‘Minimum alternate

Tax’ (MAT) provisions

Is Tax payable

under normalprovisions higherthan tax payable

under MAT?

Deduct taxes already paid toarrive at net taxes payable /

refundable

Is amountpositive?

Net taxes refundable

Tax payable isequal to taxunder MATprovisions

Y

N

Y

N

Net taxes payableProfit / Loss

as perAccounts

Add: Expenses Disallowedas per Income Tax Act and

considered in accounts

Less: Expenses Allowedas per Income Tax Act butnot considered in accounts

Apply applicable tax rates(including Surcharge & Education

Cess) to the taxable income toarrive at gross tax payable under

normal provisions.

Tax payable is equal to taxunder normal provisions

Calculated tax payableunder ‘Minimum alternate

Tax’ (MAT) provisions

Is Tax payable

under normalprovisions higherthan tax payable

under MAT?

Deduct taxes already paid toarrive at net taxes payable /

refundable

Is amountpositive?

Net taxes refundable

Tax payable isequal to taxunder MATprovisions

Y

N

Y

N

Net taxes payable

Determination of Taxable Income

Withholding tax compliance

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.

• In case the tax is paid or credited in the month of March, the

same can be deposited by April 30.

Requisite Challan

• Tax withheld has to be deposited in Form ITNS-281. With

effect from April 1, 2008 all corporates will have to pay tax

electronically.

Withholding tax certificate

• Certificate in Form no. 16A to be issued to the payee within 15days from the due date for furnishing the statement of tax

deducted at source.

• Certificate in Form 16 for tax withheld on salary to be issued

annually by May 31 of the financial year immediately following

the financial year in which income was paid and tax deducted.

Quarterly statement

• Payment to residents and non residents: Quarterly statements forwithholding tax are to be filed on or before July 15, October 15,

Jan 15 and May 15.

Withholding tax




List of countries with which India has a DTAA

Double Tax Relief and Tax Treaties

India has a comprehensive tax treaty network. Taxpayers have the option to choose between the provisionsof the tax treaty or the Income Tax Act, whichever is beneficial to them. List of countries with which India has

Double Taxation Avoidance Agreements (DTAA) is provided below.

Armenia

Australia

Austria

Bangladesh

Belarus

Belgium

Botswana

Brazil

Bulgaria

Canada

China

Cyprus

Czech Republic

Denmark

Egypt

Finland

France

Germany

Greece

Hungary

Iceland

Indonesia

Ireland

Israel

Italy

Japan

Jordan

Kazakhstan

Kenya

Korea

Kuwait

Kyrgyz Republic

Libya

Malaysia

Malta

Maruitius

Mongolia

Morocco

Myanmar

Namibia

Nepal

Netherlands

New Zealand

Norway

Oman

Phillippines

Poland

Portuguese Republic

Qatar

Romania

Russia

Saudi Arabia

Serbia

Singapore

Slovenia

South Africa

Spain

Sri Lanka

Sudan

Sweden

Swiss Confederation

Syria

Tanzania

Tazakhistan

Thailand

Trinidad and Tobago

Turkey

Turkmenistan

UAE

Uganda

UK

Ukraine

USA

Uzbekistan

Vietnam

Zambia




Incentives/Exemptions

• Exemption for specified projects: An importer of

specified goods is eligible to claim exemption15from payment of Customs duty on fulfillment of

prescribed conditions including:

i The goods are imported by Ministry of Road

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

ii A person who has been named as a sub-

contractor 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

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 suchsupplies 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 sub-

contractor 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 is levied by the Central Government on the

manufacture of movable goods in India at the time of

Excise duty

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.

14. Capital goods can be imported at the general rate of 7.5 % .

15. Notification No. 21/2002-Cus, dated March 1, 2002.

Education Cess (including the Secondary Higher

Education Cess of One percent)

1410%

10.3%

3%

4%

Name of Duty / Cess Rate

Basic Customs Duty ('BCD')

Additional Customs Duty in lieu of Execise duty ('CVD')

Additional duty of Customs in lieu of local taxes ('ADC')




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 10.3% (Basic Excise Duty 10%, Education Cess

3%). Credit of Excise duty paid is available against the

output Excise duty liability/output service tax liability.

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.

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

Site formation, clearance, excavation, earth

moving and demolition services

Works contract services

Management, maintenance or repair services

Construction / maintenance of roads has been

specifically exempted from levy of Service tax under

the following taxable categories:

Commercial or industrial construction services

Site formation and clearance, excavation,16

earthmoving and demolition services

Works contract services

Management, maintenance or repair services.



•

•

Service Tax

•

•

•

•

•

•

•

•

Value Added tax ('VAT')

Central Sales Tax ('CST')

Goods and Service tax - Proposed

VAT is a state specific levy on sale of goods within the17State. 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.

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 CSTAct') 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 onaccount of inter-state procurements and paid in other

State will not be available as credit against any output

liability.

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 April 1,

2010. GST is now slated to be introduced with effect

from April 1, 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 transaction would attract Integrated GST

(IGST) which would be 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.

16 Notification No. 17/2005-ST, dated 7 June 2005

17 Some states have increased the rate




Repatriation of Investments andProfits Earned in India

Dividends are not allowed as deduction. Royalty/ fee for technical services/ interest are allowed as

deduction subject to transfer pricing norms

Notes:

a. Tax free for all shareholders but Indian company declaring the dividend is subject to Dividend Distribution

Tax (DDT) at 16.609% of the dividend declared.* the above rates are exclusive of surcharge and education cess.

Ministry of Commerce and Industry vide Press Release dated November 5, 2009 has permitted payments for

royalty, lumpsum fee for transfer of technology, payments for use of trademark/brand name under automatic

route.

• Royalties and Technical Know-how Fees:

• Dividends:

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 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.

Payment of interest borrowed from

overseas would be governed by the regulation

regarding external commercial borrowings.

A maximum of 25% of equity

share capital permitted to be repurchased in afinancial year. Buyback is possible only from free

reserves, share premium and proceeds from fresh

• Interest:

• Buyback of shares:

Rates of

taxation

Type of Income streams

InterestDividend RoyaltyTechnical

Fees

Domestic law(a)

NIL

Best treaty

rate 5%*

Domestic law

20%*

Domestic law

10%*

Domestic law

10%*

Best treaty

rate 10%*

Best treaty

rate 10%*

Best treaty

rate Nil




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.

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. % would be payable on coupon on

preference shares.

• Redemption of preference shares:

609

Repatriation of capital

Redemption of

preference shareLiquidation of companyBuy back of shares Capital Reduction

• Capital reduction:

• Liquidation of company:

The company law provision

provides for a detailed procedure wherein the

capital of company can be reduced and money

ca n be repa t r i a t ed ba ck . A spec ia 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 @16.609% in the

hands of Indian 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.




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 Ministry 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

National Highways

Ministry of Road Transport and

Highways (MoRTH), National Highway

Authority of India (NHAI) and State Road

Development Corporations

MoRTH, NHAI, BRO

(Border Roads Organisation)

State capitals and tier 1 cities

Union capital, state capitals, major ports,

strategic locations

State Highways

Major District Roads

State Public Works Departments ( PWDs)

State PWDs

State capitals, district centres, important

towns, national highways, other states

State Capitals, district centres,

important towns, national highways

Production centres, markets, highways,railway stations etc

Rural and Other Roads Ministry of Rural Development (MoRD)

Projects like irrigation, power, mines, etcProject Roads State PWDs/Project Organisations

Intra city networkingUrban Roads Municipal Corporations

Villages, district roads, highways,

railway stations, riversides etcVillage Roads Zilla Parishads/State Governments





Administrative Framework for Roads

MoRTH(allocation of funds for the development and

maintenance of highways)

MoRD(allocation of funds for the development

and maintenance of rural roads)

Road Development Corporations(Construction, Maintenance and

Operation of Roads)

NHAI(NHDP implementation,

operations andmaintenance)

Department of RoadTransport & Highways

Institutional Advisory Framework

Facilitated by

Committee on Infrastructure

Planning Commission

Finance Ministry/PPP Cell Central Level

SecretaryPanchayat Raj

Rural Redevelopment

& Panchayat Raj

(Rural Roads)

State PWD

State Highways

MDRs,ODRs, Village

Roads

State PWD

(NH-Wing)

State Level

Planning, Policyand Budgeting



About NHAI

The National Highways Authority of India (

constituted by an act of Parliament, the National

Highways Authority of India Act, 1988. The Authority

was operationalised in February 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 more than USD

60 billion National Highways Development Project

(NHDP) has been 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 power 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

NHAI) was

•

•

•

•

• 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 :

Chief General Manager (Finance)

Phone : + 91(011)-25074100 & 25074200, Extn : 1330




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. National Highways Fee (Determination of Rates and Collection) Rules, 2008

9. National Highways Fee (Determination of Rates and Collection) Amendment Rules, 2010

10. National Highways Fee (Determination of Rates and Collection) Amendment Rules, 2011

11. Motor Vehicles Act

12. NHAI Act, 1988

13. Environment Protection Act

14. Manual and Specification for 6-laning



17. Road Transport Policy

18. Reserve Bank of India Policy

Annexure




Useful Addresses

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

Border Roads Organisation

Seema Sadak Bhawan

Ring Road Naraina

Delhi Cantt 110010

www.bro.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/


G 5&6, Sector-10, Dwarka,

New Delhi - 110 075

Phone: 91-011-25074100 & 25074200

Fax : 91-011-25093507, 25093514

www.nhai.org

Ministry of Finance, Government of India /

Department of Economic Affairs

North Block, New Delhi

www.finmin.in

Ministry 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 SecretarySecretariat for Industrial Assistance (SIA)

Ministry of Commerce & Industry

Udyog Bhavan, New Delhi-110 011, India

www.dipp.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

guidelines for investment in road sector jan 2011

Documents