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IIM | INDORE

PROJECT APPRAISAL AND FINANCING GROUP 4 | SECTION B ARUP MANDAL | ISHAN KANSAL | PALAK MAHANOT | PRAKHAR KATIYAR | SWATI BHARGAVA

DND FLYWAY: NOIDA TOLL BRIDGE COMPANY LTD. (C)


After going through many changes over the years, DND Flyway Project and NTBCL currently stand at a point where the path ahead looks a bit murky. The reason to cater which the debt restructuring, the change in organization structure has been done, seems coming back to bite. Latest reports and news coming out are negative for the project. On comparing to the capacity of the road i.e. 2,20,000 vehicles per day and the traffic projections been done earlier to the current facts of utilization of 1,08,000 vehicles per day tells that the future of the project is in grave danger.

FLAWS IDENTIFIED The most important flaw is that the project provides guaranteed returns of 20% per annum on total project cost (TPC), and shortfalls in the recovery of returns are added to TPC on which guaranteed returns would be payable in future years. Inclusion of shortfall in returns in TPC substantially removes revenue risk from the concessionaire, and becomes very expensive for the government to service, which can be seen in the news clipping attached. Simulations based on optimistic assumptions show that the project will earn a reasonable internal rate of return (IRR) of 10.8% in real terms, but still lower than the required IRR. The revenue shortfall in 2011-12 was 440 crore, taking the TPC to 2,869 crore in end-March 2012. Projections suggest that the TPC would increase to 83,237 crore (200 times the original TPC) by the end of the concession period due to shortfall in guaranteed returns. Thus, the project suffers from a vicious circle of low actual returns, leading to shortfall in guaranteed returns and raising This document has been Prepared for Partial fulfillment of Project Appraisal and Finance course conducted by Prof. Keyur Thaker at PGP-IIM Indore.

Page |2 TPC, entailing a higher servicing liability in the future. The options for breaking this vicious circle are raising tolls, extending the concession period and granting NTBCL the development rights over the land surrounding the toll bridge. As per the concession agreement, toll increase has been linked to CPI for urban nonmanual employees (UNME). However, against the CPI-UNME increase of 6.6% per annum between 2001 and 2010, the toll increase has been only 4% over this period, emphasizing the regulatory risk surrounding the project. Since there is an annual shortfall in guaranteed returns, extending the concession period would also not help. This leaves development rights over surrounding real estate as the only realistic option and, in fact, NTBCL has already received 'in-principle' approval for development rights over 30.5 acres of prime urban land in Noida on this account. Since this could be a concession in perpetuity, NTBCL can potentially claim the entire land around the toll bridge for development in lieu of the return shortfalls.

THINGS IN SYNC WITH INITIAL AGREEMENTS: A POSITIVE OUTLOOK The Noida Toll Bridge Company Limited (NTBCL) increased toll rates for the 22-km Delhi-Noida Direct (DND) flyway from 1st April. Two wheelers toll rates have been increased from Rs 11 to Rs 12, for cars from Rs 22 to Rs 25, LCVs from Rs 45 to Rs 55, bus and truck will now shell out Rs 70 from earlier Rs 55. Large vehicles will pay Rs 100 from existing Rs 75 and extra-large vehicles from Rs 95 to Rs 135. This is not the first time toll rates have been increased. DND flyover is a classic case of how Public Private Partnerships (PPP) can be used by the corporate-bureaucratic-politician nexus to loot the nation.

This document has been Prepared for Partial fulfillment of Project Appraisal and Finance course conducted by Prof. Keyur Thaker at PGP-IIM Indore.

Page |3 IMMEDIATE CONCERNS The Government of Delhi has been considering extending the Barapullah Elevated Road across the Yamuna. The Company has written to the Government informing them of clauses in the Support Agreement executed with the Delhi and the UP Governments, which prevent them from building another un-tolled bridge in the area between Okhla Barrage and Nizamuddin Bridge until the DND achieves a certain level of capacity utilization. The Company has also approached the Government of Delhi with a proposal for integration of the Barapullah Elevated Road with the DND, which is still under consideration. In the meanwhile, in Phase II of the Barapullah Elevated Road project, additional entry and exit ramps are proposed to be built on the Ring Road, which will facilitate direct access of the Barapullah Road by DND users. The congestion at Ashram Chowk, at the Delhi end of the facility, continues to be an area of concern for commuters, especially during peak hours. The slow down at Ashram during peak hours is a daily hindrance to smooth flow of traffic on the DND. Traffic management by DND traffic marshals located at Ashram as well as advance warning to users to avoid extreme congestion are methods used to retain peak-hour user confidence. The opening of the slip road connecting the Barapullah Elevated Road with Lala Lajpat Rai Marg next to Jangpura is expected to reduce pressure on the Maharani Bagh and Ashram stretch of the Ring Road. The Concession Agreement provides for traffic risk mitigation measures by allowing New Okhla Industrial Development Authority (NOIDA) to grant land development rights. The Company has in its possession, land around the DND Flyway both in Noida and Delhi, which may be developed, subject to grant of Development Rights by NOIDA/Government of UP/Government of Delhi and other relevant statutory bodies. Discussions are on with NOIDA/Government of UP, for grant of development rights. The denial of Development Rights or conditional grant of the same may pose a financial threat to the Company. With hindrances caused by construction around the DND during the Commonwealth Games as well as while building the Rajnigandha underpass having been removed, the average daily traffic on the DND has grown from 102,394 vehicles per day in FY 2010-11 to 107,870 vehicles per day in FY 2011-12, a 5.35% growth. There

This document has been Prepared for Partial fulfillment of Project Appraisal and Finance course conducted by Prof. Keyur Thaker at PGP-IIM Indore.

Page |4 has also been a 10% revenue growth attributable to both the increase in traffic as well as a 10% increase in tolls in November 2011. The Yamuna Expressway, which is likely to be opened shortly, is a 6 lane (extendable to 8 lanes) access-controlled Expressway and will connect Delhi with Agra via Mathura. Once opened, a substantial part of the traffic from South Delhi is expected to access the Expressway via the DND. In the long run, the traffic levels on the Delhi Noida Toll Bridge are expected to increase due to implementation of planned development in Noida and Greater Noida. In addition, construction of additional exit/entry ramps onto the Barapulla elevated road from the Ring Road as well as Lala Lajpat Rai Market will have a positive impact on traffic. Commuters from the DND will then be able to travel, signal free from Noida/Mayur Vihar to Moolchand, Defence Colony, Lajpat Nagar, and Jawahar Lal Nehru Stadium/INA Market.

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This document has been Prepared for Partial fulfillment of Project Appraisal and Finance course conducted by Prof. Keyur Thaker at PGP-IIM Indore.