Country: India |
Sector: Grain storage/ silos |
Name of Project: Punjab Silo Project |
Contracting agency: Punjab State Grain Procurement Corporation (PUNGRAIN) |
Agency type: Sub-national, state owned enterprise |
Contract term: 30 years |
Construction period: 12 months |
Bid Parameter: Technical evaluation and the lowest level of fixed tariff |
Total cost of project: $7 million |
Total Population served: NA |
Basic specifications: The silos are required to be fully equipped with weighing and testing facilities, automatic quality control devices, mechanized conveyor systems, and arrangements for the unloading and loading of wheat grain and for the scientific management and handling of the grain. |
Stage of project: The agreement was signed in 2010, and the project was commissioned in April 2012 and is operational. |
Time taken for processing project from concept to contract execution: 24 months |
Local or foreign investor: Local investor, LT Foods Limited, a company with 40 years of experience in processing, storing and marketing Basmati rice globally. |
Applicable legislation: Punjab Infrastructure Development Act, 2002 |
Approving authority: Empowered Committee chaired by the Chief Secretary |
Is the approval process the same as for other projects: Yes |
Brief Description of the project: The project consists of 4 silos of 12500 MT each for a total capacity of 50000 MT, which will store grain procured by the government for its food subsidy schemes as well as under its support price operations. |
Role of Private Party: The private party is responsible for the financing, design, construction, operation and maintenance of the silo. The private party is also responsible for procuring land for the project. |
Role of Public Authority: The Authority (PUNGRAIN) is required to procure and deliver the wheat grain in bags to the Concessionaire for storage in the Silos. The authority is responsible for making payments based on availability to the private party as agreed. It is also responsible for setting standards and specifications, monitoring and verification of performance, and contract management |
Financing: IFC's advisory services were funded by DevCo; Debt financing to LT Foods was by YES BANK, Rabobank |
Payment Mechanism: The payment mechanism consists of fixed and variable charges; the fixed charges for the agreed tonnage are paid irrespective of usage. |
Tariff: The Fixed Service Charge was at Rs. 1,400/MT and the Variable Acceptance and Dispatch Service Charges are at 7.5% of the Fixed Service Charge. However, subsequently, the Government of Punjab decided that the rates were too high and re-negotiated these to Rs. 1100/ MT. |
Comparison to existing rates: Higher than rates later fixed for MP silos, higher than the prevailing FCI/ government rates for storage. However, there's a basic difference in the two models; i.e., the MP model where land and VGF is provided by the government and the Punjab model where land is procured by the concessionaire and there is no VGF. |
Government Support: Availability payments irrespective of usage, but subject to availability of agreed storage |
Other advantages : Savings to government of $6 million |
Contingent liabilities created: Fiscal commitments based on fixed charges for guaranteed tonnage over 30 years, termination payments |
Risks: Payment risk |
Level of risk: Low |
Key risk mitigating features: - |
Factors affecting decisions on the size of project or population serviced by the project: The project needs to be of a size sufficient to ensure coverage of all costs and reasonable returns to the investor over a reasonable period of time without unreasonably increasing the tariff level |
Lessons learned: • Policy framework was not in place at the time, so documents had to be prepared from scratch • Quick scaling up was not possible due to the same reason • Large savings to government due to reduction in wastage and retention of grain quality • Need to replicate projects all over the country • Planning Commission working on finalizing standard contract document for silos given that if a project is to be scaled up, upstream work needs to be in place while creating the project structure to save time and money • The bid tariff was relatively high (as compared to the later MP model) due to the specific model adopted; i.e., no construction grant (VGF), land by private party; probably also newness of the project and no precedence for rates for this type of storage • The tariff was renegotiated and brought down after bidder selection, but it is not clear what the basis of modification was; essential that benchmark tariffs are created by government early on in order to be able to gauge bids against government's own well analyzed benchmark levels • Only 10 year financing is available to projects in India. Financing is difficult to come by even with availability payments. There is no true project finance as the credit rating of the firm and debt profile of the firm continues to remain an important consideration of financiers • There were major governance issues at the provincial government level that delayed contract signing |