Public-Private Partnerships Project Presentation, analysis of the case study

1. VADODARA HALOL TOLL ROAD
SUBMITTED BY :
SOURABH MOREY AH19155
NEERAJ NAMDEV AH19158
DEEPAM PATIDAR AH19169
RAHUL VISHWAKARMA AH19188
RAJAT RAGUWANSHI AH19192

2. INTRODUCTION
• The Vadodara Halol Toll Road (VHTR) was one of the first State Highway widening projects developed on a Public Private
Partnership.
• Vadodara Halol Toll Road was operated and maintained by VHTRL, a special purpose vehicle, promoted by (Government of
Gujarat) GoG and (Infrastructure leasing and finiacial service) ILF&S.
• The VHTR project is developed under the Built, Own, Operate and Transfer (BOOT) basis.
• Consortium of Punj Lloyd Limited and IRCON International Limited as contractors.
• The actual revenues as a proportion of the projected revenues had fallen from 63% to 34% during the three years of operation.
• TRC (Toll revenue committee ) has options of increasing rates for MAV or increasing rates for all vehicles or increasing rates for
(Multi-axle vehicle ) MAV and restructuring finance.
• Each option has been evaluated in terms of impact on traffic and revenue and the cost incurred.
• On the basis of this evaluation, it is recommended that VHTRL should increase rates for MAV and restructure its financing.

3. SITUATIONALANALYSIS
• VHTRL was jointly promoted by GoG and IL&FS for developing and implementing Vadodara Halol Road Project.
• Vadodara-Halol Road had gained importance because of growing industrialization in Halol.
• The project attained completion on Sep 15, 2000 and the commercial operations began on Oct 24, 2000.
• VHTRL manages, operates and maintains the road for 30 years starting from 2000.
• The actual revenue has been less than the expected revenue and an appropriate action has to be taken.
• The actual revenue has been less than the expected revenue and an appropriate action has to be taken. According to the projected
cash flows, VHTRL may have to shut down their operations by mid 2003 owing to the losses they would suffer.
• The total debt carried is Rs 1058.3 million with the average cost of borrowing as 15.52%.
• The dilemma faced by Toll Review Committee is how to increase the revenue and reduce the cost so as to make the project
sustainable. During the two rounds of TRC meeting, the company collected additional information and these inputs were further
examined.
• VHTRL is currently undercharging the MAVs and hence revision of rates may be needed (Refering Exhibit – 4,5,6)
• Exhibit 7 and 8 explains how the financing structure of the project can be improved to reduce the borrowing cost of the project.

4. PROBLEM STATEMENT
• VHTRL needs to increase revenue and/or reduce cost to sustain the project.
Option
1. Increase rates for MAV
2.Increase rates for All Vehicles
3.Increase rates for MAV and Financial Restructuring
1. Increase rates for MAV:
 Impact on Traffic and Revenue
• It is suggested to increase average rates for MAV to Rs 4.8205 per km. Exhibit 4 shows the average rates for MAV at different toll
roads in the country. From Exhibit 5, the current average rate for MAV in Vadodara-Halol Toll Road is Rs 2.9/km, which is lesser
than the average toll rates charged in the country.
• To achieve the average rate of Rs 4.8205 per km, the revised toll rates for MAVs are mentioned in the Exhibit 6.
• So most of the MAVs are travelling long distance, there could be a possibility that the MAVs would use the alternative path NH8
after the price increase.
• Assuming Diesel Rate of Rs. 18/litre (2002 price) and the average fuel efficiency of MAVs at 15kms/litre, the average fuel savings
of an MAV for travelling 50 kilometres lesser is Rs 60.
• The effective savings would be more since travelling through Vadodara-Halol road and bypassing Ahmedabad would save time and
the vehicle doesn’t have to go through the crowded city.
• The total savings on offer are more than the increase in toll rates. It is thus, safe to assume that the total traffic of MAVs will not
reduce after the toll rates are increased.
• The total revenue would increase by 11.33%. Hence, the projected cash flow of 2003-04 would increase from Rs. 90 millions to Rs.
100.2 millions.

5.  Impact on Cost Incurred
• The rate increase would lead to an increased cash flow of around Rs 10 million per year.
• But the total inflow of Rs. 113.11 million is still substantially behind the 7.6 projected total outflow of Rs 250 million per year
(projected for 2003-04).
• Hence, this change alone will not help us in sustaining the business over time.
2. Increase rates for All Vehicles:
 Impact on Traffic and Revenue
• The smaller vehicles (2 wheelers, 3 wheelers, Car, etc) are much more price sensitive and increasing the rates for the smaller
vehicles would make them use the service road more often.
• On one hand, increasing the rates would increase the revenue, but on the other hand, the number of vehicles travelling would
reduce leading to reduction in total revenue.
• Hence, the total revenue from the smaller vehicles would nearly remain the same.
• Increasing the toll rates for the MAV would increase the revenue as discussed above. This option is not recommended because
of uncertainty of revenue involved in this case.
 Impact on Cost Incurred
• The cost incurred would still be considerably higher than the inflows, i.e., cost incurred as per the projected cash flows is Rs
255.45 million as compared to inflows of Rs 130.86 million.

6. 3. Increase rates for MAVs and Financial Restructuring:
 Impact on Traffic and Revenue
• As discussed in Option 1, there will be an increase in the total revenue when the toll rates for MAVs are increased. It is also
critical to reduce the cost of borrowing of the project as increasing the revenue alone isn’t enough for sustaining the project.
• Also, selling hoarding rights would add to the revenue.
 Impact on Cost Incurred
• The current financing structure of the project involves Debt/Equity Ratio of 1.924 and average cost of debt if 15.52% (Exhibit 3
- table 3,4)
• The total interest charges incurred by the project forms the majority part of the total outflows of the project.
• It is of great importance to restructure the financing aspect of the project to reduce the debt burden. It should attract private
equity to reduce the debt burden.
• Also, refinancing the debt would help in reducing the average cost of borrowing. A considerable amount of early debt has been
picked up at more than 15% rate of interest, e.g, ILF&S has 16% rate of interest. It is recommended to restructure Debt/Equity
ratio to 1:1 and refinance the debt which has high rate of interest.
• Exhibit 7 shows the current projected interest burden and Exhibit 8 shows the projected interest burden after the
financing is restructured.
• These changes will make the project profitable.
• RECOMMENDATION - VHRTC would be benefitted if they increase the toll rates for MAVs and
restructure financing. This would help them improve their financial situation and sustain the project.

7. Action Plan
• Issue appropriate notifications regarding revision of toll rates.
• Approach private equity investors to attract private investment to the project.
• Negotiate with lenders to refinance the existing debt.
• Float RFP (REQUEST FOR PROPASAL ) for hoarding rights.
EXHIBIT 1. Abbreviation
VHTRL – Vododara Halol Toll Road Company Limited
GoG- Government of Gujarat
IL&FS – Infrastructure leasing & Financial Services
TRC – Toll Review Committee
MAV – Multi Axle vechile
REP – Request for proposal

9. Exhibit 3: Current Financing of the project

10. Exhibit 4: Toll Rates for MAVs of other Projects

11. Exhibit 5: Determine the ratios of Three-Axle, Four-Axle and Five-Axle vehicles
Percentage of revenue which comes from these vehicles is as follows (Exhibit 3, table 5 – toll structure):
Three-Axle: 71.2%
Four-Axle: 21.5%
Five-Axle: 7.3%
Present Toll Rates (Rs): (table 7 )
Three-Axle: 85
Four-Axle: 105
Five-Axle: 125
If we solve using the above information, we get the average ratio of the MAVs as:
Three-Axle : Four-Axle : Three-Axle :: 24 : 6 : 1
E.g. For every Three-Axle MAV, we have 6 numbers of Four Axle MAV and 24 numbers of Three-Axle
Total – 24+6 +1 = 31