Essay About Developer Of The Project And Project Costs

Noida Bridge
[pic 1][pic 2][pic 3][pic 4]IntroductionPopularly known as the DND flyway, the Delhi Noida bridge is 552.5m long and includes the approach roads on the Delhi and Noida ends. Following the MoU signed between IL&FS, NOIDA and DA, IL&FS was recognised as the developer of the project. NTBCL was incorporated for the purpose of developing, establishing, designing, constructing, operating and maintaining the Delhi Noida Toll Bridge. The project showed that the private capital can be attracted to provide public infrastructure in India. The project was structured as a Rs 408.2 crore, 30 year BOOT concession, which was financed through equity of 30% and debt of 70%.Feature of concession agreementCost recovery – NTBCL to recover project costs, operational and maintenance cost through the levy of fees during the concession period. Assured returns – NTBCL to earn an assured return of 20%Risks Involved and Mitigation PlanRiskMitigationProject Management RiskPlanning, Liquidated damagesRevenue RiskDeficit added to total project cost, extension of concession period, alternate source of revenue – development rightsNatural calamity riskInsuranceEconomic RiskPolitical RiskNOIDA to pay lender’s due in case of project termination due to political risksCompeting RoutesNot to build any toll free road until the project achieves full capacityInflation Toll rates linked to CPIProject IssuesNo cap on project costThere is no cap on the total project cost and the returns are guaranteed on the total cost of project. The total cost is inclusive of project cost, maintenance cost and recovery deficit. There are no specifications on what costs are appropriate and reasonable to be included in the total cost. Since the returns are promised on the total cost and the cost is completely transferred to the consumers, there is no incentive for NTBCL to control cost. Often the costs were inflated by adding management fee, land cost etc.The inclusion of revenue deficit to the total project cost removes the traffic/revenue risk from the concessionaire. This will also result in the need to lengthen the concession period/increase the toll rate or grant development rights.High Return at Low RiskIt is not clear that a return of 20% is appropriate. There were no comparable projects during the time and the returns can be justified only if there was a competitive bidding for the project. However, the project was not awarded through competitive bidding. Also, high returns should have been associated with high risk. However a guaranteed return means that the concessionaire does not bear any significant risk