1. Bidding of Infrastructure Projects Market Structure and Regulation of Infrastructure Sector MBA II Year Elective Ist Term 2010-11 Dr. A. B. Rastogi NMIMS

2. Slide 2 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Government budgetary constraints –Revenue account Example: UMTS –Capital account Example: Highways Vast variation in demand estimates due to information asymmetry between developer and concessionaire Example: Trans- Harbour link in Mumbai Motivation Behind Minimum Subsidy Bidding

3. Slide 3 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Pseudo privatisation (sale of assets) –Example : Long-term airport concession Information asymmetry among service providers –3G spectrum auction Indian case Motivation Behind Competitive Bidding

4. Slide 4 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Transparency Frequent changing of goal post Incomplete documentation –Airport concession –Collection of tolls in Mumbai LPVR –Takes care of changing goal post –Financial modeling is simple –Financial risk is transferred to lenders Challenges in Competitive Bidding

5. Slide 5 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Bid Process

6. Slide 6 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Process Range Bid processes range from “Beauty Contests” to “Single Financial Quotes” Single stage, two-stage, n-stage Swiss and other challenges… But key objective is to have –clarity of bid conditions (for all concerned), transparency in process, and justifiability of award

7. Slide 7 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Day 0 Day 60 Day 90 Bid Submission Placement of Advertisement Pre-bid Conference Evaluation for Qualification and short-listing of Bidders Financial Evaluation and recommendation Technical Evaluation Bid Process (Single-stage process)

8. Slide 8 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Day 0 Day 45/60 Day 90/120 Day 120/150 Stage I Bid Submission Placement of Advertisement Pre-bid Conference Evaluation for Qualification and short-listing of Bidders Stage II pre-bid conference Bid submission Financial Evaluation and recommendation Technical Evaluation Bid Process (2-stage process) Qualification Process Proposal Process

9. Slide 9 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Bid Documentation Request for Qualification Document (RFQ) –Instructions to Applicants –Qualification parameters and methodology for Evaluation Technical/Experience criteria Financial criteria –Formats for submission of application Request for Proposal Document (RPF) –Instructions to Bidders –Formats for submission of proposals –Draft agreement Legal provisions Technical specifications Project schedules Project Information Memorandum (PIM)

10. Slide 10 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Bid Documentation – NHAI Bid Instructions to Bidders –Qualification parameters and methodology for evaluation Technical/Experience criteria Financial criteria –Formats for submission of proposals Other Submissions Qualification Proposals Financial Proposals Draft agreement Legal provisions Technical specifications Project schedules Project Information Memorandum

11. Slide 11 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Qualification Criteria …1 NHAI Bid cont.. Eligible Bidders – Who? –What type of entities? Companies Partnership firms Sole proprietors –Should separate entities be allowed to join together? –If so, is there a cap of no. of entities joining together to form a consortium? who will be the face for NHAI?

12. Slide 12 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Qualification Criteria …2 NHAI Bid cont.. Eligible Bidders –Single Entity or Consortium (4 members) Companies Registered partnership firms Sole Proprietorships –Special conditions for Consortium Power of Attorney designating one member as Lead Member –Meet 50% of either technical or financial criteria –Hold at least 51% equity shareholding of consortium Memorandum of Understanding between the members (In a given format: Annex 2D of bid document) –Intent to form a SPV for the project –Roles and responsibilities of each member –Supporting documents (MoA, AoA, registered Partnership Deed, PAN/TAN, copies of Board Resolution/undertakings for entering into the MoU)

13. Slide 13 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Qualification Criteria – Technical …1 NHAI Bid cont.. Aggregate Experience Score = 50% of the Total Project Cost of the subject project. For which type of projects?  Only roads?  If not, which other sectors? In what role?  Contractor  Developer  Financier  Design/project supervision consultant

14. Slide 14 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Qualification Criteria – Technical … 2 NHAI Bid cont.. Experience as –Category 1- Developer and/or Contractor in Road Sector : roads, highways, expressways, bridges, airfields, tunnels for roads and railways. –Category 2- Developer and/or Contractor in Core Infrastructure Sector – power, telecom, ports, railways, industrial parks, petroleum and natural gas, petrochemicals, steel, cement, fertilizer, mining, pipelines, irrigation, water supply and sewerage, township, real estate and other sectors.

15. Slide 15 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Qualification Criteria – Technical …3 NHAI Bid cont.. Which type of projects? In what role? How Many Projects  Single project  If multiple projects, then what is the minimum project size  Any time-value adjustment What time period  5 yrs, 10 yrs, 20 yrs  Started and completed vs. started vs. completed In case of Developer,  how much shareholding in project  100% vs 51% vs 26% vs X%  when  Commencement/commissioning/proposal due date

16. Slide 16 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Qualification Criteria-Technical …4 NHAI Bid cont.. Eligible Project –Should have been completed/substantially completed in the 10 yr period prior to Application Due Date –Threshold Size (escalation adjusted) Project CategoryThreshold Size (as % of total project cost) Category 120% of the TPC Category 230% of the TPC Developer to have had minimum 26% shareholding in Project on the date of completion. Only one member’s experience (with higher equity holding) to be considered for Consortium.

17. Slide 17 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Escalation Factors for calculation of Eligible Project YearFactor Current (T)1 T-11.1 T-21.21 T-31.33 T-4 and earlier1.46 Qualification Criteria-Technical …5 NHAI Bid cont..

18. Slide 18 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Qualification Criteria – Technical …6 NHAI Bid cont.. Which type of projects? In what role? How Many Projects? What time period? How much shareholding in case of Developer? How to treat consortia  Can we add experience of members? What if it is from the same project?  How much experience or financial capability should Lead Member bring?  Or should he bring both?

19. Slide 19 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Special Conditions for Consortia –Lead Member : may meet 50% of threshold Technical Experience Criteria Else to meet 50% of threshold Financial Capability Criteria –Developer : in case two or more members have participated as developers in the same project Project experience shall be counted only once (for member holding higher equity share in the eligible project) –Contractor : in case two or more members have participated as contractors in the same project Billing will be added only if the experiences are from different scope of work and billing of one is not part of the other Qualification Criteria-Technical …7 NHAI Bid cont..

20. Slide 20 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Average Aggregate Net Worth in last 3 FYs –at least 25% of the TPC Average Aggregate Net Cash Accruals in last 3 years –at least 10% of the TPC –NCA to be positive for all 3 years Equity Financing Plan Qualification Criteria-Financial …1 NHAI Bid cont..

21. Slide 21 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Equity Financing Plan Aggregate Value of TPC (Rs. Crores)Minimum Equity Financing Plan 0-25030% of aggregate value of individual TPCs of Projects applied for Above 250-upto 65025% of aggregate value of individual TPCs of projects applied for OR Rs. 75 crores Above 650- upto 120020% of aggregate value of individual TPCs of projects applied for OR Rs. 162.5 crores Above 120015% of aggregate value of individual TPCs of projects applied for OR Rs.240 crores Qualification Criteria-Financial …2 NHAI Bid cont..

22. Slide 22 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Equity Financing Plan MeansDocuments Required Reserves & SurplusStatutory Auditor Certificate Bank FacilityBank/FI certificate Disposable and Unencumbered Real Estate 1.Certificate from Registered Real Estate Valuer 2.Non-encumbrance certificate from lead lender Advances from Parent Company Board resolution of Parent/Group Company and chartered accountant certificate Qualification Criteria-Financial …3 NHAI Bid cont..

23. Slide 23 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Special Conditions for Consortium –Lead Member May meet at least 50% of the threshold Financial Capability –Else meet 50% of threshold Experience Criteria Commit to hold minimum equity stake equal to 51% of the aggregate shareholding of the Consortium in SPV at all times –Other members Commit to hold minimum equity stake equal to 10% of the aggregate shareholding of the Consortium in SPV at all times Qualification Criteria-Financial …4 NHAI Bid cont..

24. Slide 24 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Currency –Indian Rupees –Foreign currency to be converted based on RBI Reference Rate 7 days prior to Proposal Due Date –Conversion for experience calculation based on RBI Reference Rate as on date of completion of the Project Submit affidavit –Certifying accuracy of information/data –No blacklisting by NHAI –Empowering NHAI to seek information/data pertaining to bidder from 3 rd parties Self certification for non-collusion Qualification Evaluation – Other Conditions NHAI Bid cont..

25. Slide 25 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Two step (or stage) process –Technical Bid –Financial Bid Challenges lie in –Designing of a bid process –Evaluation of the bids –Transparency should not only be observed but perceived as well In Short….

26. Slide 26 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Pricing Option (Recap) Markets Politics Private Contracts Concession Contracts Discretionary Regulation Public Enterprises Competitively bid Concession Negotiated Concessions Price Cap Regulation Cost of Service Regulation Market determined Ex – Telecoms, Minor ports Concession specific Ex –MIAL, BIAL, UMPPs, Pre-announced method Ex – DSERC, Maj.Ports Based on enterprise data Ex – MERC, Power trans. Enterprise determined Ex - Railways Structure Examples Pricing

27. Slide 27 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Pricing, Bidding and Regulation Markets Politics Private Contracts Concession Contracts Discretionary Regulation Public Enterprises Competitively bid Concession Negotiated Concessions Price Cap Regulation Cost of Service Regulation Market determined Ex – Telecoms, Minor ports Concession specific Ex –MIAL, BIAL, UMPPs, Pre-announced method Ex – DSERC, Maj.Ports Based on enterprise data Ex – MERC, Power trans. Enterprise determined Ex - Railways Structure Bidding/Regulation Pricing

28. Slide 28 ABR class ppt-MSRIS-Bidding-19-20-2010-11 Thank you