The total project cost is estimated at approximately Rs. 1,32,455 crores, of which the Dyke Project is likely to cost Rs. 54,117 crore, Flood Regulator Rs. 20,678 crore, Transportation Projects Rs. 16,472 crore, and Renewable Energy Rs. 14,500 crores, respectively. Other Costs include costs of Decantation, Instrumentation, Desalination, Flood Protection and include contingency charges, cost of quality control, and other statutory costs (including GST). The project Cost Estimate is as per the Detailed Project Report prepared by NCCR, updated as of 11th August 2023. Capex is phased over eight years (1-8), 2.62%, 7.38%, 11.91%, 18.49%, 16.10%, 16.21%, 20.70%, and 6.50%, respectively (as provided by the Kalpasar department).
The financial benefits include generating revenue for the project include Reduction in transport distance and freight haulage cost, Generation of Sustainable Energy, Land Reclamation and Development and Water availability for industry, agriculture (irrigation), and domestic/municipal applications. Revenue would be in the form of Fares, Toll Receipts, electricity charges from grid power supply, water charges from the various sources mentioned. On the economic front, various economic benefits would accrue in the form of increase in Agri Gross Regional Product, Reduction in siltation along the coastal shipping route, Reduction in air pollution and Consequent Carbon Credit, Additional Employment Generation, Tax collection, Benefits accruing from tourism projects, Improved navigation for coastal shipping, Impact on Fauna, Improvement in Groundwater, Reduction in siltation along coastal shipping route, Impact on Water Bodies, Impact on Social & Cultural Practices. Some of the economic benefits as mentioned above are qualitative benefits which have been identified and cannot be converted into financial/economic numbers; hence are considered as non-Quantifiable externalities.
Financial analyses of the project show a comfortable debt servicing profile over the period of study with average DSCRs and ICR of more than 1.75 and 2.38, respectively, for all the years. Project and Equity IRRs remain above 13% and 38% for 30-, 40-, and 50-year periods of analysis respectively. The inflated equity IRRs reflect the VGF float during the initial years. The project NPV remains comfortable for 6%, 8%, 10% and 12% cost of capital in the range of Rs. 13,721.20 crore (cost of 12%) to Rs. 431,646.05 crore (cost of 6%). It reflects the fact that dyke and auxiliary infra on its own is purely an investment with very limited cash inflow streams that can be ascribed to this project (land monetisation, water supply, and fisheries).
Economic returns calculated as per the standard procedures used for conducting economic analysis (as per ADB norms, World Bank norms etc.) remains above 26% for 30-, 40-, and 50-year periods of analysis. The economic NPV remains comfortable in the range of Rs. 157078.68 crore (cost of 12%) to Rs. 971827.18 crore (cost of 6%). The higher levels of EIRR and ENPV reflect the long-term economic benefits associated with the project that are not captured by the FIRR measure, which only considers the direct benefits/cash inflows, as discussed previously. These economic profitability metrics also justify the investment in dyke project, which fares low on strictly FIRR and other financial parameters.
Four different Transaction Structures (TS) have been analysed. These include structures ranging from a purely PPP structure with VGF support from the Government on the one end to a SPV structure with the Government of Gujarat, NHAI, Indian Railways etc. as equity stakeholders executing various projects under different modes on the other end.
In the first structure, the project is considered as a bundle of four sub-projects (a) Dyke, (b) Road, (c) Railways, (d) Wind and Solar (RE Project). All these projects are stipulated to be offered on a PPP basis (Design, Build, Finance, Operate Transfer: DBFOT; VGF+ Revenue Share). The approach stipulates all the projects as a consolidated offering for implementation on the Design, Build, Finance, Operate, and Transfer (DBFOT) model of PPP.
For the considered structure, over the 30 – 50-year period, the project IRR for the Concessionaire at VGF of 20% and royalty of 20%, is between 13% to 15% and the equity IRR is more than 38%. In this scenario, the Government earns a total value of more than Rs. 61000 Crore calculated at discount rate of 10%.
In the next structure, the project is considered as a combo of two sub-bundle projects (a) Dyke (and auxiliary water reservoir, and irrigation network), (b) Transport and Renewable energy bundle. Part (a), that is, Dyke (and auxiliary water reservoir, and irrigation network) is to be given on EPC basis with complete government ownership.
In such a case, over the 30 – 50-year period, the project IRR for the Concessionaire considering royalty of 20%, is between 17% to almost 19% and the equity IRR is more than 20%.
For the third structure, the project is considered as a combo of three sub-bundle projects (a) Dyke (and auxiliary water reservoir, and irrigation network) to be given on EPC basis with complete government ownership (b) Road project as Hybrid Annuity Model (HAM) to a private developer, and (c) Rail and Renewable energy bundle to be offered on DBFOT-PPP basis.
In this case, for the Concessionaire of the HAM project, the return on equity is more than 24% against a return on the project calculated at 13%. The Concessionaire for the DBFOT projects earn more than 31% return on equity whereas the overall value that accrues to the Government over a 50-year period is close to Rs. 133,000 Crore.
The fourth structure is similar to TS3, in terms of the mode of project execution, i.e. a combination of EPC and PPP modes. However, unlike in the third transaction structure, in this case the projects are proposed to be executed under an SPV entity to be incorporated under relevant provisions of the Companies Act 2013 with the specific purpose of implementing and overseeing operations of projects to be executed under various PPP models. For efficient functioning, the SPV needs to be conferred with the relevant set of rights and obligations from GoG.
Compared to TS 3, the value that accrues to the Concessionaires is almost the same when considering similar revenue shares (20%). However, higher royalty (as compared to the earlier structures) at 20% is required from the DBFOT projects in order for the SPV to be financially stable to compensate for the tax liability of the SPV. The DBFOT projects continue to remain profitable, though the equity IRR dips to ~16% over a 30-year period. However, over a 50-year period, equity IRR for the Concessionaire is lower than TS3 but continues to remain more than 17%.