Evaluation of private sector participation models in highway infrastructure in India – a system dynamics approach

Abstract

A good and efficient road network forms the primary infrastructure that propels the development process in a country. There has been a rapid increase in the demand for highway infrastructure in India as freight traffic increased 180 times and passenger traffic increased 132 times between 1951 and 2000, whereas the total length of the road has just gone up by 8 times for the same period. Further to this, with the conventional way of depending on Government fiscal budgets for development of highway infrastructure having become impractical, Private Sector Participation (PSP) is the only effective solution to meet the rising infrastructure demands. Private sector participation in highway infrastructure projects in India has been observed presently under two major formats: BOT – Toll based and BOT – Annuity based models. BOT – Toll based model has been seen to be a failure in terms of expected returns to the concessionaire whereas the relatively newer Annuity model has been found to be attractive to the private sector. However, there exists an ambiguity whith respect to their suitability in a given case and in decision‐making. Using System Dynamics approach a framework is developed that would enable the decision maker to decide particular type of prievate sector participation (PSP) m odel for a given highway project. It is observed that the concessionaire’s desired rate of return and the traffic growth projections are the key parameters in selection of PSP model.