This report extensively does an in-depth analysis of the Delhi Noida Direct Flyway (hereafter referred to as DND Flyway) in India, which is a 9.2 kilometer long eight lane expressway connecting the Indian capital city Delhi to an industrial suburb area, Noida. The project included a flyover by the name Ashram Chowk and a Delhi Noida Bridge (DNTB), a 552.5 meters bridge over the Yamuna River connecting Delhi to Noida. The DND Flyway was built by The Noida Toll Bridge Company Ltd (NTBCL) and was completed in February, 2001 after which it became functional in January, 2008.
A MOU was signed among Infrastructure Leasing and Financial Services (IL&FS), Delhi Administration and Noida Administration for the construction of the Delhi Noida Toll Bridge, in April 1992. From the agreement NTBCL was incorporated for the purpose of constructing, designing, operating and maintaining the DNTB. There was a committee set up, Steering Committee which comprised representatives of Government of Uttar Pradesh, Delhi Government (DG), IL&FS, NOIDA, Delhi Development Authority (DDA) and Government of India.
The Board of NTBCL comprised 9 Directors, three of which were independent directors, one was nominated from IDBI (which is a lending institution), four were nominated from IL&FS and the last one was representative of Intertoll India and Intertoll Netherlands. The Senior Management had Mr. Pradeep Puri as the President and CEO, Mr Tarun K Banerjee as CFO and Ms Monisha Macedo, Senior VP and Company Secretary.
The objective of the project was to connect South Delhi and Noida so that there was time, fuel, distance and cost savings for the transportation between the two cities. It is often referred to as a break through project and provided as an example of a Public Private Partnerships (PPP) in which private capital was lured to provide public infrastructure projects despite the administrative hassles and the corrupted political environment.
By a concession agreement, signed in November, 1997 NTBCL was given the full rights to recover its costs and an assured return of 20% per annum on whole of the total project costs over and above the investment, by levying toll charges on the bridge. The concession period would be till the time when it recovers the costs post which the NTBCL’s interest would be transferred to NOIDA for a nominal sum of Rupee 1.
The Delhi Noida Toll Bridge was estimated to take nearly 29 months to be constructed, it was completed in 24 months. The project costed Rs. 408 crores which was financed partly by equity and partly by debt. The Debt financing was to the tune of Rs. 286 crores, raised at the interest cost of approximately 16% per annum while the equity component amounted to nearly Rs. 122 crores. The onus of preparing the valuation reports and traffic management estimates was in the hands of Halcrow Consulting India Limited.
Even though the toll bridge was constructed in 25 months, nearly four months before the scheduled date the project faced many problems related to project financing and implementation. Some of the problems were as follows:
a. During the initial years of the revenue collection of toll fees fell short than what was expected and hence it became difficult for The Noida Toll Bridge Company Ltd to even break even its costs and investment.
b. The shortfall in the revenues, magnified the effect of the provision of guaranteed 20% p.a. returns and increased the project cost from estimated Rs. 408 crores to Rs. 953 crores. This led to an increase in the concessionary period by 40 years, from 30 years initially to 70 years later on.
c. There were several conflicts of interest created because there was only one entity comprising a single member to advise on and resolve any issues or disputes that may arise in the project financing. This resulted in the perception that the entity can be biased and act in the favor of the private party.
d. The projections of the traffic using the bridge and later the whole of expressway was faulty because of which the revenue estimates were inflated. The result of which was seen in the initial years of operations in the form of huge losses.
The project had majorly faced issues because of the financing and valuation problems. The Noida Toll Bridge Company Ltd had to approach its lender i.e. The State Bank of India, asking for restructuring of the terms of repayment of debt. As a part of restructuring the State Bank of India reduced the interest rates on loans from 16% to 8.5 %, proposed infusion of further equity capital, allowed the issue of zero coupon bonds to financial institutions and rescheduled the payments. The NTBCL had the rights to the implement development projects which would provide support to the revenues of the company. So, it exercised this right to initiate construction of a new Mayur Vihar Link, which would increase the traffic and increase the revenues. The expectation behind the new link will provide more savings in cost, fuel and time and induce Mayur Vihar residents to use the DND link more often as their preferred route to South Delhi.
The concessionary agreement and the way it was prepared was the cause of many problems which this project witnessed. Some of them were vague and undefined clauses which led to subjectivity in their usage and resulted in certain actions which became arguable. The agreement seemed to be in the favor of the private party involved in the project. There were concerns regarding the way concessionaire was selected. According to some, the process of selection was not competitive and transparent enough.
So, from the above report we see that from the legal, administrative and financial perspectives the project was fraught with troubles and inefficiencies. Some of the lessons to be learnt from this case are as follows:
a. There should be proper risk sharing mechanism between the private and public parties involved in the Public Private Partnership Projects. Also, sufficient rewards should be provided for accepting the various risks involved.
b. Measures and mechanisms to identify and resolve any conflicts of interest that may arise at any point of time in the project. There should be a dedicated committee or body appointed whose unbiased role in resolving of disputes and issues would be elemental.
c. The roles of the public authority and the private sector should be clearly defined and separated so that there is no overlap of responsibilities resulting in disruptions in the project.
d. The valuations and projections should be made being prudent and should not be overestimated. Stringent conditions and assumptions must be adopted in order to come at a prudent estimates of revenue and costs. The costs should be continually monitored.
Despite all the issues, Delhi Noida Delhi Expressway and its components is a success in India. It is a project which has really shown the way for future public private partnerships in implementing projects.