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PROJECT TITLE

TUNI ANKAPALLI ANNUITY ROAD PROJECT

For the fourth trimester for PGDM course at

JAIPURIA INSTITUTE OF MANAGEMENT, LUCKNOW

A group project submitted by LT04 comprising of

NITANSHI SINGH-JL20PG080

SAKSHI GUPTA-JL20PG110

FARAZ FAROOQUI-JL20FS014

HARSH SHEKHAR-JL20PG188

Faculty Guide: Prof. Shyam Ji Mehrotra

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INDEX

SL. NO. NAME & ENROLLMENT CONTRIBUTION

NO.

 Overview of the project.

 Project parties &
Sponsors.
 Project Company-SPV

1. Sakshi Gupta- JL20PG110

 Technology provider
 EPC contractors and
others
 Project timelines.

2. Faraz Farooqui-JL20FS014

 Project return &

profitability.
 Other financial
information.
 Social cost benefit
analysis.
3. Nitanshi Singh- JL20PG080

 Risk Allocation &

analysis.
 Learnings.

4. Harsh Shekhar- JL20PG188

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TUNI ANAKAPALLI ANNUITY ROAD PROJECT

OVERVIEW

The Tuni Anakapali project is the project of the road expansion which is basically undertaken
by the National Highways Authority of India that is also known as NHAI. And along with
that is it also one of the several project under the Golden Quadrilateral Programme. Talking
about the project’s scope it can be said that it was to strengthen the existing two lanes and
basically widen it to a four-lane dual carriageway of an aggregate or total 59 kilometre stretch
between Tuni Anakapali on the National Highway that is NH 5 that is from Chennai to
Kolkata in Andhra Pradesh on the PPP basis that is Public Private Partnership.

Public Private Partnership can be termed as an arrangement between the two or more public
and the private sectors for a longer period, or in easy words it can be said that they come
together to complete a common objective or a common goal that is there in front of them.

It can be said that keeping in mind the lack of attractiveness in tolling the road, the National
Highway Authority of India NHAI decided to take up the project on the Build Own Transfer
that is BOT annuity model. It is a PPP Model for the infrastructure projects especially road
projects. And under this a developer builds the highway, an operates it for a specified period
of time or say duration and after that transfers it back to the government.

And along with this the construction that is expansion of the road started in the year May
2002, and basically ended in December 2004, that to after a month’s time overrun due to the
delays in the handling over a land by National Highway Authority of India or NHAI.

Tuni Anakapalli project is the extension of the NH5 (National Highway) as one of the several
projects under the Golden Quadrilateral Programme between Tuni and Anakapalli (“Chennai
to Kolkata”) in Andhra Pradesh, on PPP basis undertaken by the National Highway Authority
of India (NHAI) which is one of the first BOT (annuity) model project in India.

PROJECT PARTIES
Government/Government Institutions-

1. NHAI (National Highway Authority of India)

2. State Government of Andhra Pradesh.

Project Sponsor-
NHAI as a public partner and with private partner “The GMR Group that included GMR
Power Corporation Private Limited, GMR Infrastructure Limited and GMR Technologies and
Industries Limited), in consortium with” United Engineers Malaysia (UEM) Group in a ratio
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of 74% and 26% consecutively for “to develop, operate and maintain the road for a period of
17.5 years concession; including, the construction period of 2.5 years.”

Project Company- SPV

An SPV with the name of GMR Tuni Anakapalli Expressways Private Limited (GTAEPL)
was formed to complete the project.”

TECHNOLOGY PROVIDER

The GMR Group was conceded the errand contract as a team with United Engineers Malaysia
(UEM) Berhad Group. GMR Tuni Anakapalli Expressways Private Limited (GTAEPL) was
outlined as an exceptional explanation substance to do the errand (SPV). The road's
(extension) improvement began in May 2002 after a month's deferral because of NHAI land
issues and was done in December 2004. The assignment's outright cost was Rs. 295 crores.

The GMR Group is an Indian mix arranged in New Delhi. GMR Infrastructure, GMR
Energy, GMR Airports, and GMR Enterprises are by and large helpers of Mr. Grandhi
Mallikarjuna Rao (G M Rao), who set up the firm in 1978.

GMR Group claims, makes, works, and administers air terminals, huge energy utilities,
streets, and metropolitan system assets. With a net asset valuation of more than $6 billion,
GMR Group is one of the India's greatest structure improvement associations.

THE GMR GROUP'S BUSINESSES

• In 2003, GMR Group dispatched its underlying area into the air terminal
improvement industry.

• GMR Services Business is an air terminal turn of events and exercises firm that offers
organizations like flying consultancy, planning and upkeep, errands the load up, security
courses of action, and staff getting ready.

• The GMR Aviation Academy (GMRAA) was set up in 2009 at Hyderabad's Rajiv
Gandhi International Airport. The Academy is an ACI-approve 'Overall Training Hub' and an
ICAO-confirm 'Regional Training Centre of Excellence (RTCE).

• GMR Aviation was set up in 2006 to give business flying consultancy and plane
endorsing. Just as purchasing and working its task force, GMR Aviation regulates and stays
aware of the plane of various firms.
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• GMR Engineering and Management Services (GEMS): For over 15 years, GMR
Engineering and Management Services (GEMS) has given planning and the leaders
organizations. Air terminals and various associations can use our planning organizations.

• With 3200 MW of presented limit, the GMR Group is a prominent player in the
Indian power market. The firm has 15 power age projects, 11 of which are useful and four of
which are in the organizing stages, going from hydro to warm to reasonable force.

• In the metropolitan structure industry, GMR is by and by building an 850-hectare

tremendous plan 'Remarkable Investment Regions (SIR) in Krishnagar, near Hosur in Tamil
Nadu. The SIR was made by GMR to function as autonomous money related activity eco-
structures.

• GMR is an eminent road and turnpike originator with six dynamic assets amounting
to more than 2,400-way kilometres. In the rail course region, GMR has an outright
solicitation book of 4,000 crores, including projects from prominent customers.

EPC CONTRACTORS AND OTHERS

In a joint undertaking with Malaysia's UEM Group, the GMR Group (which contains GMR
Power Corporation Private Limited, GMR Infrastructure Limited, and GMR Technologies
and Industries Limited) got the assignment contract for a 17.5-year concession period,
including a 2.5-year building stage. The undertaking was finished by GTAEPL, a specific
explanation vehicle wherein GMR held 74% and UEM controlled 26%.

The State of Andhra Pradesh and the National Highways Authority of India (NHAI) agreed to
a State Support Arrangement on March 18, 2003, under which the Government assented to
offer constant assistance and grant explicit opportunities and experts to work with the
endeavour’s execution and action, including all infrastructural workplaces, fitting approvals,
and a serious gathering of police staff. GTAEPL has no impact over tolls, charges, or another
new development or publicizing along the course. The annuity is the architect's only
wellspring of assignment pay. The NHAI, on the other hand, can require and accumulate tolls
and obligations, similarly as support advancements.

GTAEPL and UEM Limited (O&M Contractor) have agreed to run and stay aware of the
endeavour’s workplaces and to be totally answerable for their upkeep.

(I) A month to month working and upkeep charge of Rs. 0.125 crore; and
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(ii) A yearly charge of Rs. 7.5 crore.

The O&M charge and the irregular cost are both extended by 1.5 percent consistently one
year after the start of exercises. Around the completion of the concession time period in
November 2019, the concessionaire will surrender the assignment assets for NHAI without
charge.

PROJECT TIMELINES

The endeavour started business errands in December 2004. The endeavour has worked
successfully during the errands stage, with no genuine or useful issues. There have been no
contemplations for endeavours or way increases beginning in 2015.

In the occasion that limit extension is essential during the concession time span, the NHAI
has the decision to request offers from qualified specialists, including the concessionaire. On
the off chance that the concessionaire's suggestion isn't the most decreased after appraisal, the
person being referred to will have the essential refusal or get an end portion from the viable
bidder.

Close to the completion of the concession time span in November 2019, the concessionaire
will give up the endeavour to NHAI to no end. Preceding the handover, an independent
designer will study and affirm the road's quality. At whatever point required, the free
fashioner will offer a once-over of changes that the concessionaire should endeavour
preceding surrendering the road to ensure that it fulfils the handover measures.

The Golden Quadrilateral plan featured various road advancement dares to further develop
NH-5, 6, and 60, including the Tuni-Anakapalli Expressway (the Kolkata-Chennai course).
As a component of the endeavour, the two-way road would relate to four ways. By then,
NHAI was pondering a couple of PPP decisions for similar undertakings, including direct
ringing and shadow ringing.

Direct ringing was beginning to lose reputation with engineers for certain spaces of the
National Highway System due to a shortfall of efficiency and capable access the board.
Another choice was shadow ringing, which the Tuni-Anakapalli project was planned to be a
testbed for. This decision, regardless, was finally excused due to the shortfall of a model
concession course of action. Appropriately, the NHAI decided to use the BOT (Annuity)
perspective to get done with the job.
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PROJECT RETURN & PROFITABILITY

The estimated cost of the project was Rs. 315 crores and the funded Debt-Equity ratio of
the project is 3:1. This included a term loan of 154 crores, the non-convertible debentures of
Rs. 82 crores whereas the total equity raised in this project was Rs. 78.69 crores.

ICICI Bank was the leading lender in the project and apart from this there were also other
banks namely State Bank of India, Indian Overseas Bank, Bank of India, Punjab National
Bank, Jammu & Kashmir Bank, Union Bank of India, State Bank of Mysore and Industrial
Investment Bank of India. The average loan was ranging from 12.5% to 12.75%. The loan
was proposed for a period of 13.5 years adding up the period of construction of 2.5 years. The
major source of equity funding was through the issue of preference shares.

GTAEPL issued a further debt with the help of group of lenders of around Rs. 372 crores by
keeping future annuity receivable as security with 68% of these annuities being receivable
from NHAI on the expiration of fifteen years. These funds allocations were done at a cost
lower than the cost of project debt by a percentage of around 3% and these were utilized for
the purpose of prepayment of the project debt.

One more thing to be highlighted here is while going through one of journals I came to know
that the Net worth of the project at the closure of the recent most financial year was
calculated to be Rs. 240 crores and aggregate net cash outstanding for the last three financial
years to be equal to Rs. 120 crores on minimal basis.

One very important thing which I would add upon here that the actual project cost incurred
was Rs. 295 crores which was less than the projected cost of Rs. 315 crores. NHAI has paid a
concessionaire a fixed annuity of Rs. 29.48 crores on semi-annually basis from May 9,2005
to November 9,2019.

In fact, GTAEPL entered into an agreement with UEM limited (O & M Contractor) for the
operations and maintenance purpose so that they can cover the risk and take the responsibility
of the project against:

 An O & M fee of Rs. 0.125 crore per month.

 A periodic fee of Rs. 7.5 crore.
 The O&M fee increased to Rs. 3.28 crore per annum and there was an in increase in
the periodic fee to Rs. 30 crores in the year 2014-2015.
 The O&M and the periodic fee was revaluated by an increase of 1.5% per annum,
after 1 year from the date of starting of operations in November 2019.
Apart from all this the VFM Analysis (Value For Money Analysis) was also done on
qualitive basis since not much of financial details was released in public domain. The VFM
analysis was drawn from the benefits derived from this project such as:

 Speed and Scale of Development.

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 Private Sector Efficiencies i.e., delay in work is denied.

 Demonstration effect.
 Transfer of risks from the government shoulders.

OTHER INFORMATIONS

The rating agency ICRA has also released some of the vital financial references in the public
domain. I am hereby attaching the same for further understanding about the project returns
and profitability factors.

The ICRA has granted the STABLE long-term rating. Few of the key headings for the rating
by ICRA are as follows:

 Credit Strengths
1. There is no market or credit risk involved in this project as the operations in this
project is on fixed amount of annuity received from NHAI.
2. The Interest rates on the given amount would be fixed for FIVE years and would
be changed after 5 years and that too with a cap of 110% and floor of 90% in
accordance with the undergoing interest for the last five years.
3. Periodic maintenance of the project has been undertaken on a regular basis.

 Credit Weakness
1. The GTAEL had investments in its other related business houses so the cash
available with them was very low hence, signifying a low liquidity position.
2. Availability of lane ensures the eligibility criteria to receive full annuities.
3. Due to the absence of reserve funds the company is fully dependent on timely
payment of annuities.

SOCIAL COST BENEFIT ANALYSIS

 This project is a part of government’s initiative called GOLDEN QUADRILATERAL

project. The government is aiming upon better and faster connectivity between smart
cities, industrial areas, agricultural and cultural hubs to ensure high rate of growth and
development in the country.
 Since there is a fixed sum of payment on semi-annually basis so it will remove all kinds
of market risk for the developer and even NHAI will get the project completed on time.
 The quality of road will also be enhanced for providing faster connectivity.
 Since this was a government-oriented project so all kinds of support such as police
personnel, highway scrutinization and other infrastructures related to the project was
provided by the government well in advance and this ensured smooth running of the
project.
 This road project aims to make roads broader to four lanes than the pre-existing roads
which were two lanes.
 Since the distance would reduce hence the operational cost of vehicles would also reduce.
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 Since a lot of manpower is required for the construction purposes of any road project
hence the employment would also be generated in large numbers.
 The value of local lands would also increase as the road would ensure connectivity to
smarter cities and industrial centers.
 The modern technologies used by company helped them in timely completion of the
project.
 The project cost involved in the project was also less due to the utilization of new
financing techniques such as securitization.

Risk Allocation
Risk Identification
A) “Pre- Operative Risk”
B) “Construction Phase” Risk
C) Operational Risk
D) Handover Risk
E) Other Risk

 Risk analysis and allocation to stake holders

A) Pre- Operative Risk

 Land acquisition related delays
Analysis: “Land purchase was NHAI's obligation. The land already has received
appropriate environmental and other permissions. However, there was a one-month
postponement in construction because of minor problem with the site acquisition."
NHAI is a stakeholder.
Time Period: 0-1 years

 Financing risks
Analysis: “Although the concessionaire was accountable for these risks, financing
was made much easier due to NHAI's regular annual payments. NHAI also issued an
irrevocable revolving line of credit for INR 29.48 crores for the period of the
concession. This allowed the banks some relaxation."
Concessionaire would be a stakeholder.
Time Period: 0-2 years
 Approvals
Analysis: “Although the concessionaire was responsible for this, NHAI's help, and the
state support agreement made approvals easier and faster."
Stakeholders: Concessionaire
Time Period: 0-2 years
 Social Risk
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Analysis: “As it was an existing road expansion with limited dislocation, the amount
of risk involved was low.”
Concessionaire would be a stakeholder.
Time Period: 0-2 years

 Phase Risk- Construction

 Design with Risk
Analysis: “The concept had to be authorized by the National Highways Authority of
India and evaluated by an independent engineer. The road designs also were defined
in accordance with the Indian Roads Congress (IRC) and Ministry of Surface
Transport (MoST) standards.
The road designs also were defined in accordance with the Indian Roads Congress
(IRC) and Ministry of Surface Transport (MoST) standards. Concessionaire would be
a stakeholder.
Time Period: 0-2 years

 Construction Risk
Analysis: The “concession agreement” had defined building standards and
specifications, with an expert engineer in charge of ensuring conformity. A
Performance Security of INR 6.58 crores was needed from the concessionaire. The
provision allowing the original concessionaire to retain a minimum equity (26%) in
the SPV during the concession period gave NHAI a sense of security."
Concessionaire is a stakeholder.
Duration: 0-2 years

 Construction Time Overrun Risk

Analysis: “An incentive or penalty was provided for finishing the job early or late.
Further, the concession period included a construction process, motivating the
concessionaire to finish the project as soon as possible."
Concessionaire is a stakeholder.
Time Period: 0-2 years

 Approvals
Analysis: “The NHAI's cooperation and the state's support agreement made permits
really go smoothly."
Concessionaire is a stakeholder
Time Period: Throughout

 Operational Risk

 Operations & Maintenance Risk

Analysis: “Non-compliance with O&M requirements is prohibited under the
Concession Agreement. This included a reduction or non-payment of annuity in the
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event of non-availability of the agreed route due to the concessionaire's defect.

Furthermore, if the concessionaire fails to ensure the roads in accordance with the
prescribed requirements or fails to execute O&M as specified and directed by NHAI,
NHAI will make the modifications and the concessionaire will be responsible for such
expenditures. The NHAI has the right to end the agreement if there is a substantial
violation of O&M standards.”
NHAI is a stakeholder.
Time Period: Throughout

 Market Risk
Analysis: “The pay-out of the annuity is not related to traffic or other market factors.
As a result, there is no such threat."

 Payment Risk
Analysis: “NHAI is giving the concessionaire with a fixed annuity of INR 29.48
crores backed by an irrevocable revolving letter of credit for the tenure of the
concession. This facility lowers the risk of annuity payment defaults.”
Concessionaire is a stakeholder.
Time Period: Throughout

 Handover Risk

 Handover risk
Analysis: “The agreement specifies the requirements for transferring the project site
to NHAI. The road's quality is verified by an expert engineer. The NHAI holds an
amount of INR 7.4 crores from four annuity payments shortly preceding the
concession period's expiration to guarantee that the Concessionaire makes the
necessary repairs before handover."
Concessionaire is a stakeholder.
Time Period: 17-18 years

 Default by concessionaire
Analysis: “If the contract is terminated after the start of operations, NHAI has the
right to pay the concessionaire 70% of the book value of the assets."
Concessionaire is a stakeholder
Time Period: Throughout

 Event in case default by government

Analysis: “The concessionaire has the right to revoke, and NHAI must pay the
concessionaire at the discounted value of future net cash flows (if termination occurs
after the start of operations) or the Book Value of assets plus interest (if termination
occurs before the start of operations).
NHAI is a stakeholder.
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Time Period: Throughout

 Other Risks
 Law related changes-
Analysis: “The rise in capital expenditure, operating costs, or taxes because of a
change in law exposed the concessionaire to risk. The concessionaire's liability is
limited to Rs. 6 crores, after which NHAI is responsible for the consequences. In the
case of operating expenses, the concessionaire's stake is limited to Rs. 1 crore."
Stakeholders include the NHAI and the concessionaire.
Time Period: Throughout

LEARNINGS

1. "Innovative Financing by Securitization: During operations phase, GTAEPL borrowed

loans at extremely low interest rates by securitizing NHAI annuity payments payable." The
type of financing enabled the concessionaire to return the term loan while also earning
advantage of lower financing."
2. "Risk Transfer: The GMR consortium minimized the risks by engaging into a long-term
O&M agreement with its own consortium partner, transferring critical project risk."
3. Incentive to Developer to complete construction on time: Developers would have an
incentive to complete work on time, which resulted in a remuneration, whereas a delay
resulted in a penalty. Moreover, because the concession term included the development time,
the developer was incentivized for completing the project earlier to start generating income."