Top Rated Pune Call Girls Budhwar Peth ⟟ 6297143586 ⟟ Call Me For Genuine Se...
Toll Roads and Risk Assessment
1. TOLL ROADS & ITS RISK
ASSESSMENT
Aswathy V.V.
Devika Santhosh
Vijai Krishnan V.
(M. Tech Students, RIT Kottayam)
2. TOLL ROADS
A form of road pricing
Toll road is a public or private road for which a fee is assessed for
passage
Helps to recoup the cost of construction and maintenance
BOT (Toll) model is adopted for NHs with high/medium traffic
density
Toll amount depends on
Vehicle type
Weight
No. of axles
4. BUILD-OPERATE-TRANSFER (BOT)
Authority :- Road alignment, location of structures, environmental
clearance
Concessionaire :- Structural design, finance, construction, O & M
Tolling :- on the basis of GoI toll policy
Concession period :- Depend on road capacity, max 30 yrs
5. 1. BOT – Annuity Model
Traffic risk-neutral PPP Model
Granting authority pay a fixed semi-annual annuity
Concessionaire does not bear traffic risk
2. BOT – Toll Model
Commercial and technical risks relating to construction, operation,
and maintenance of the projects + traffic revenue risk are allocated
to the concessionaire
6. CRITICISM – TOLL ROADS
Require vehicles to stop or slow down
Manual toll collection wastes time and raises VOCs
Collection costs can absorb up to one-third of revenues
Increases congestion on parallel free road
A form of regressive taxation
Profit motive of private entities
7. RISK
A combination of probability of occurrence of an event and the
possible extent of its adverse effects and consequences in terms
of economic loss or human injury
RISK = PROBABILITY OF EVENT x SERIOUSNESS OF ITS CONSEQUENCES
11. DESIGN STAGE RISKS
Design risk
Project not designed adequately for the purpose
Responsibility – Private Partner – allocate to subcontractors
Environmental & social risk
Existing environmental conditions affecting project
Damage to the environmental or local communities
Private partner – manage environmental & social strategy –
environmental plans
Contracting authority – conduct study to ascertain environmental
fitness - disclose all environmental issues - review plans -
compensation for land & relocation of communities
12. Land purchase & site risk
Selection of site, geophysical conditions of site & acquiring title to
land
Contracting authority - responsible for providing ‘clean site’ –
bear unforeseeable ground risks
Private partner – risk relating to known adverse conditions
13. BUILD STAGE RISKS
Resource or input risk
Supply of inputs or resources for the operation of the project is
interrupted or the cost increases
Private partner – ensure uninterrupted supply of resources and
manage its cost
Contracting authority monitor for sufficient resource before
starting
Performance/price risk
Asset should be able to achieve the specified performance and
the cost of doing so
Responsibility – Private partner
14. Completion Risk
Commissioning the asset on time and within the budget (delay &
cost overrun)
Private partner – bear risk arising due to delay – loss of expected
revenue, ongoing cost of financing construction, holding cost of
subcontractors, extended site cost
Construction Risk
Labour/Subcontractor disputes, Cost overrun where no relief
applies, quality assurance and standards issues etc.
Private partner – agree on lump sum price to exclude risk of cost
overrun
15. OPERATION STAGE RISKS
Inflation risk
Cost of project increases more than expected
Private partner – bear the risk during construction
Contracting authority – during concession term
Payment – fixed component + variable component
Regulatory/Change-in-law risk
Risk of change in law or taxation affect the ability of project to
perform
Contracting Authority – responsible for change in law post-bid/
post-contract signature
16. Insurance Risk
The risk that insurance for particular risk is or becomes unavailable
Private partner – approach insurance market to get relevant
insurance
Contracting authority – bear uninsurable risks
Exchange & interest rate risk
Risk of currency & interest rate fluctuations over the life of project
Shared – passes the risk to the user by toll adjustments
17. Maintenance risk
Risk of maintaining the asset to appropriate standards and
specifications
Maintenance cost increases due to increased volume, incorrect
estimate etc.
Private partner – responsible to meet performance standards
specified – risk of periodic/preventive/emergency maintenance,
design or construction error, rehabilitation work
Toll road need to be maintained to sufficient level of quality &
reliability so as to continue to attract business
Payment – adjusted based on failing to meet performance
standards
18. Demand risk
Uncertainty of demand for the product of service of a project by
users
Due to lack of credible forecasting methodologies
Traffic volume – sensitive to income and economic growth
Private partner – retain demand & toll revenue risk
Contracting authority – provide a min. guarantee, if toll revenue is
insufficient to cover project cost and contingencies by taxation-
based support in payment
19. Force majeure risk
Unexpected events occurs that are beyond the control of the
parties and delay or prohibit performance
Natural force majeure events, which can be insured (fire/flood...)
Force majeure events which cannot be insured (strike/terror...)
Contracting Authority – bear the risk after certain period of time
or cost has been exceeded
Private partner – should be insured against natural events
20. Disruptive technology risk
Risk that a new emerging technology unexpectedly displaces an
established technology
Contracting authority – impose obligations on Private partner to
adopt/integrate new technology or foreseeable developments
Strategic risk
Risk of change in shareholding of Private Partner or conflict of
interest between them
Responsibility – Private partner
Contracting authority limit the ability of Private Partner to change
shareholding for a specific period
21. Political risks
Risk of Government intervention, discrimination, seizure or
termination of the project
Contracting authority – responsible to provide license and access
to toll road & surrounding land to fulfill obligations
Private partner can expect compensation relief and ability to exit
project
Early termination risks
Risk of project being terminated before the expiry of time & the
monetary consequences of such termination
Private partner will get necessary compensation
23. RISK MITIGATION
Developing tools and strategies to reduce risk exposure.
four different response strategies
Risk retention
Risk reduction
Risk transfer
Risk avoidance
The financial structure of a project does not change the return of
that project.
Two projects with the same asset market risk (or total risk) have
the same return
This asset market risk is measured by β
24. Risk allocation through the financial structure is the seniority of
debt to equity
Match equity and debt with two types of risks,
Upside risks
Downside risks.
Upside risks -if properly controlled, can increase the value of the
project
Downside risks - if properly controlled, prevent the value of the
project from being less than the intrinsic value
Do not increase the project value above its intrinsic value.
25. Financial Instruments -hedge for the market risks.
Forward Contracts -A forward contract allows its owner to buy a given asset
on a specified date at a price specified at the origination of the contract.
Futures contract - obligates its owner to purchase a specified asset at a
specified exercise price on the contract maturity date.
The presence of four provisions that lower the credit risk: daily settlement,
margin requirements, the clearinghouse and price limits.
Swap contract - obligates two parties to exchange or swap specified cash
flows at specified intervals.
Option Contracts -the owner of the contract does not have the obligation
but the right to perform
26. Incentives and Contractual Arrangements
The contractual agreements between parties constitute a very important risk
mitigation strategy
They rely on two concepts: incentives and legal accountability.
Principal-agent contract
Corporations are structured in such a way that ownership and
management are separated. This
Will allow share ownership to change without any interference with the
operation of the business.
It also allows the corporation to retain professional managers
27. Construction Contracts
Apportion the risks between the sponsor ,the designer, the
operator, the contractors, the subcontractors and the suppliers
using the liability (legal responsibility or accountability) as the main
driver for performance.
Government Support
Support tools provided by the government in toll road concessions
are:
Guarantees and insurances
Subordinated loans
Subsidies.
28. Support from Global Multilateral Institutions
The International Monetary Fund (IMP) and the World Bank are
two non profit, global multilateral institutions
To provide direct support for financing and insuring infrastructure
projects in developing countries.
Joint Ventures and Unbundling
Appropriate risk reduction strategies undertaken by sharing
ownership, management and expertise with host-country
nationals
31. RISK ANALYSIS
Risk analysis is an integral part in the risk management framework.
It allows us to evaluate a project, knowing the cash flow as well
as the return expected by the investors in exchange of assuming
project risk.
This is done through the Expected Net Present Value Approach.
32. Net Present Value Approach
The Net Present Value of a project is the sum of the cash flows
generated by the project and discounted at the opportunity cost
of capital.
opportunity cost of capital for a project is the sum of three
components: the risk free interest rate, the risk premium and the
inflation rate.
Expected Utility Approach
The Expected Value Theory states that the investment decision to
be taken should be the one with the maximum Expected Net
Present Value.
It ignores the sponsor's attitude to risk.
They make different decisions within the same risk environment.
33. Other Approaches Dealing With Uncertainty and Complexity
Sensitivity Analysis
Sensitivityanalysis is useful in identifying the crucial variables that could
contribute the most to the riskiness of the investment.
Decision Tree Analysis
Decision Trees are tools that can also be used by sponsors in analyzing
and accounting for the uncertainties in a project.
Decision trees structure the problem in such a way that the major
uncertainties and the decisions contingent on those uncertainties are
represented in a tree.