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)

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.

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%

Economic and Financial Benefits

Threshold =12%

Scenarios EIRR

With bypass road

Without bypass road

Low growth 18.4% 14.6%

Med growth 21.5% 17.6%

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

• Area: 15.6 Acres • 3-Zones:

1. Export Zone 2. Administrative area 3. Import Zone

• Cost estimate : USD 16m • Project life cycle : 20 Yrs (2+18) • Full fledged dry port • For med to long run • TEU 0.064m (2016) – 0.327m (2035)

Layout concept

Container freight Station Export

Container freight Station Import

Cold Storage Import

Empty container yard

Reefer Container yard

Dry bulk & dusty Cargo vehicle

parking

Container yard

Processing zone

Staff Residential

Zone

Canteen & clinic

Benefits

Exp

orte

r/Im

port

er

Frei

ght

forw

arde

r

Ship

ping

A

gent

Port

A

utho

rity

Soci

ety

Tran

spor

ter

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 IRR

Equity IRR

Minimum DSCR

Average DSCR

Base Case 12.25% 13.90% 1.13 1.34

Traffic

10% 12.78% 14.81% 1.24 1.40 20% 13.19% 15.55% 1.31 1.44 -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

Debt IFA - 2%,2% (unhedged)

12.15% 18.32% 1.62 1.85

Procurement contract

Design & Construction O & M

Thank You