Public Private Partnership Workshop On Development of Dry Port through Public Private Partnership
Background Economic Development Policy 2010 Private Participation in Infrastructure Policy 2010 Graduation from LDC and inclusion in triennial review Building economic resilience Changing development assistance priorities Increase in number of infrastructure projects Disparate initiatives- IT Park, Dry Port, Education City, Agro Park Promoting growth of private sector Moving beyond basic infrastructure requirements- health, education, road tunnels Opportunities created by hydropower development
Background Accelerating Bhutan’s Socio-Economic Development- McKinsey: Attracting investments and meeting the job gap by developing priority sectors identified accelerated growth - tourism, ICT, construction, cultural industries, agriculture, and cross-cutting factors which enable/inhibit growth Improving the efficiency and effectiveness of public sector services- health care, education, vocational training and government-to-citizen services
PPPs: Theory and Practice Theoretically appealing Practical implementation a challenge Promoting privatisation and providing subsidies to entrepreneurs is not PPP Promoting free market development not equivalent to PPPs- leading to overvaluation/undervaluation of private sector involvement Transformation of traditional roles
Transforming Public and Private Sector PPPs require shift in Public and Private sector roles and attitude Moving away from client-contractor approach Public sector- core functions of supervision & regulation Private sector- greater responsibilities & risks in execution, operation & mobilisation of resources Sustaining the transformation of roles over the long-term
PPP Readiness Development of Dry Port in Bhutan
Brief Background Landlocked country (between China & India) Economic growth – Annual average growth of 7.5% for last 35 years. Total Trade growth – About 16% for last 15 years Trade Openness Index : 60% (1998) to 80% (2015) Trade liberalization : Bilateral, Regional, and Multilateral Trade routes: Four major trade routes (Phuntsholing, Gelephu, Sandrup Jongkhar, and Samtse). Phuntsholing is the main commercial hub and gateway. In 2015, 74% of Bhutan’s Total Trade happened through Phuntsholing.
Challenges Underdeveloped trade infrastructure facilities, such as dry port, cold storage, etc. Logistic Performance Index (LPI) 128/155 in 2010 and 143/160 in 2014. High transaction costs ( Muliple CFA, Kolkota port, etc.) Transportation cost (LL, Narrow road, rugged terrain) Highly dependent on single export sector (hydro) Small domestic market (Export is key)
Challenges cont… Phuntsholing : Traffic congestion due to increasing volume of both cargo and passenger traffic hinders competitiveness, safety and convenience of cross border movement There is increasing containerized traffic requiring demand for container handling requirements. Customs inspection is conducted at multiple locations - mainly at four different locations - due to lack of parking space and cargo handling area.
Dry Ports Projects in Bhutan Mini Dry Port (MDP) in Phuntsholing with financial support of the ADB under the South Asia Sub-regional Economic Cooperation (SASEC). Dry Port at Pasakha with financial support of the World Bank under the Regional Connectivity Project.
Mini Dry Port Area is 5.4 acres • 3-Zones: • 1. Generalized cargo area (south). 2. Administrative area (center) 3. Container area (north) Cost estimate: USD 2.5m • ($1.65 for construction) Short to medium. • • Feasibility Study Conducted in 2013 and found feasible • 10,385 TEU p.a (5000 TEU initial demand and 20% growth p.a.).
Functions of MDP Customs clearance for import and export traffic Provide storage/warehousing facilities Loading/unloading facilities for containerised import/export Container stuffing/de-stuffing Conduct other exports/imports inspections (SPS)
Benefits from MDP One-stop point for all customs clearance and related services Aappropriate transhipment and parking areas for the cargo trucks Truck and cargo idle time savings resulting from reduced dwell time Reduction of losses of perishable goods resulting from the construction of a covered area. De-congest Phuntsholing city and bring in efficiency in the cross-border movement of goods
Traffic forecast for cargo trucks (2013-2036) Scenarios Period Low Medium High 2013-2020 1.65% 3.32% 4.99% 2021-2030 1.00% 1.68% 2.70% 2030-2036 1.00% 1.68% 2.70% Traffic is expected to grow at much higher rate with the Motor Vehicle Agreement among four countries Bangladesh, Bhutan, India and Nepal ( BBIN) is expected to increase the traffic flow.
Economic and Financial Benefits Scenarios EIRR With bypass Without bypass road road Low growth 18.4% 14.6% Med growth 21.5% 17.6% Threshold =12% High growth 24.7% 17.6%
Financial benefits In terms of operational costs, the Project will breakeven within the first five-year period at applying existing tariff structures. Profits in subsequent years is expected to rise significantly. The mini dry port project shows financial sustainability for operation and maintenance and thus potential for O&M contract under PPP. However, it would not generate sufficient excess cashflow for funding of initial investment under a PPP/concession scheme.
Proposed contact type and packaging Design and Build Contract under conventional procurement method for detail designing and construction of the MDP. National Competitive Bidding process has been recommended. O & M under PPP framework. Management contract for O&M on the basis of fixed fee and performance-related bonuses. This would benefit from private sector expertise in building facilities management and transport logistics.
Pasakha Dry Port • Cost estimate : USD 16m • Area: 15.6 Acres • Project life cycle : 20 Yrs (2+18) 3-Zones: • • Full fledged dry port 1. Export Zone • For med to long run 2. Administrative area • TEU 0.064m (2016) – 0.327m (2035) 3. Import Zone
Layout concept Cold Storage Container freight Station Import Import Processing zone Container freight Station Empty Export container yard Staff Reefer Residential Container yard Zone Container yard Canteen & Dry bulk & dusty clinic Cargo vehicle parking
Benefits Transporter Exporter/Im Authority forwarder Shipping Society Freight porter Agent Port Increased Trade Flow Faster customs clearance Reduced no. of C&F agents Improved Communication Reduced road congestion Creation of jobs Quicker turnaround time Reduced road accident Increase national security
Financial Viability and Sensitivity analysis Scenarios/Metrics Project Equity Minimu Average IRR IRR m DSCR DSCR Base Case 12.25% 13.90% 1.13 1.34 10% 12.78% 14.81% 1.24 1.40 20% 13.19% 15.55% 1.31 1.44 Traffic -10% 11.47% 12.61% 1.00 1.25 -20% 10.40% 10.94% 1.00 1.14 Capex 5% 11.55% 12.80% 1.07 1.28 10% 10.89% 11.75% 1.01 1.22 O&M 10% 11.54% 12.78% 1.06 1.28 20% 10.78% 11.58% 1.00 1.21 IFA - 2%,2% 12.15% 18.32% 1.62 1.85 Debt (unhedged)
Procurement contract Design & O & M Construction
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