Professional Documents
Culture Documents
I|P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
April 2012
II | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
This report has been prepared with support from the British High Commission,
through its Prosperity Fund India Programme
III | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
IV | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
April 2012
V|P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
VI | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
Contents
Abbreviations ................................................................................................. VII
List of Exhibits ............................................................................................ IX
List of Figures .............................................................................................. IX
Preface ............................................................................................................ XIII
Executive Summary ................................................................................
XV
Section I
Need for Private Sector Participation in Creation of
Public Assets and Provision of Public Services ............................................ 3
Section II
Public Private Partnerships as an Important Mechanism to
Facilitate Private Sector Investment ............................................................. 9
Section III
Seven Key Success Factors for Effective PPPs ......................................... 14
Section IV
Conclusion and Measures for the Future
................................................ 44
Appendix .......................................................................................................... 45
References ........................................................................................................ 59
VII | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
Abbreviations
AAI
ALM
AP
BHC
BOT
BOO
BOOT
BWSL
CA
CO2
CSR
DBFOT
DFC
DIPP
DPR
DEA
EAC
EIA
EIRR
EMP
EPC
EGoM
FAO
FIRR
GDP
GOI
ICICI
IDBI
ICT
IFC
IIFCL
JICA
MCA
MoEF
NGO
NO2
NH
NHAI
NOIDA
NSICT
O&M
PPP
PRIs
PURA
R&R
RFP
SO2
RFQ
SPV
SSA
TAMP
ToR
UK
ULB
VIII | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
UMPP
UNEP
USA
USD
VGF
WUA
WFSL
IX | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
List of Exhibits
Page
Exhibit 1.1:
Exhibit 2.1:
Exhibit 2.2:
11
Exhibit 2.3:
12
Exhibit.2.4:
13
Exhibit 3.1:
15
Exhibit 3.2:
23
Exhibit 3.3:
33
Exhibit 3.4:
37
Exhibit 3.5:
38
Exhibit 3.6:
40
Exhibit 3.7:
41
List of Figures
Fig. 1.1:
Fig. 1.2:
Fig. 1.3:
Fig. 1.4:
Fig. 1.5:
th
th
Fig. 1.6:
Fig. 2.1:
12
Fig. 3.1:
29
Fig. 3.2:
43
X|P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
List of Boxes
Page
Box 3.1
17
Box 3.2
21
Box 3.3
24
Box 3.4
26
Box 3.5
28
Box 3.6
39
Box 3.7
42
XI | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
XII | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
Foreword
The approach paper to the Twelfth Five Year plan clearly spells out the enlargement in the role
of Public Private Partnerships (PPP) in development. Until the end of the Eleventh Plan, these
initiatives had been focused on building infrastructure, on the argument that private sector
management, expertise and project development skills could be leveraged through Government
concessions to achieve a more rapid development of infrastructure. The results have been
mixed, yet the experience gained has given sufficient confidence to move the concept to the
social sectors as well. This is being attempted in the Twelfth Plan. There are two reasons for
this. First, there is genuine apprehension that public expenditure for capital works will be
constrained by the state of finances at the centre as well as the states. Second, in areas like water
supply, education and health, the private sector is already playing an important role, although
entirely for commercial benefits. It therefore appears relevant to merge the twin reasons of
need and availability into a national programme of using PPPs for enlarging the pace of
development in the social sectors.
However, the social sectors are not easily amenable to standardisation in terms of financing,
execution and revenue recovery. The current paper is part of a project to develop some
guidelines for implementing PPPs in three selected sectorswater, waste management and skill
development. This paper is an analysis of the experience in infrastructure sectors, to draw
lessons and to develop suggestions for the social sectors. The outputs would feed into further
work on development of feasible models for the selected sectors.
This is the output of painstaking and diligent research work, interviews and analysis, by the
team consisting of Arslan, Deepa, Ankit and Saloni of the Public Policy team at Athena.
XIII | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
XIV | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
Preface
This report is the outcome of a six-month-long research activity undertaken by the Public
Policy Team at Athena Infonomics, supported by the British High Commission. This
represents the first phase of a larger research plan with the objective of identifying bottlenecks
in the Public Private Partnerships (PPP) implemented across social sectors and arriving at
policy recommendations to catalyze activities that can create social impact.
India now stands at a major crossroad in its journey towards economic and social development.
The last two decades of economic liberalization has resulted in improved infrastructure,
standard of living and social indicators. However, these gains are heavily distorted. PPPs have
now become the preferred mode of investment especially in infrastructure, which is one of the
primary requirements of our economy. This report analyzes the public private partnerships
undertaken in four commercial infrastructure sectors, i.e., roads, airports, ports and power, to
draw out 7 key factors for a successful PPP project.
Methodology
We began with an extensive review of existing literature on issues and experiences of PPPs at
both national and international level. We also collected data on several national PPP projects in
the commercial infrastructure sectors. From this, our team identified 40 projects for further
analysis. In order to conduct an in-depth investigation, key features of the PPP were identified
Next, the different stakeholders and their respective roles and responsibilities, incentives, costs,
risks and returns were mapped out.
Brief case studies were created for eight PPP projects, two each in road, airport, ports and
power sectors. A Round Table discussion on issues and challenges faced by PPPs was
conducted on 10th November, 2011 at Chennai, Tamil Nadu which was attended by twenty-five
experienced stakeholders and experts. The meeting included financiers, developers, consultants,
bureaucrats and academicians. Issues that occur while executing PPP projects were discussed
and possible solutions were identified.
Our team handed out questionnaires to the Round Table participants and other experts and we
received 25 detailed responses. In order to get a detailed perspective on the issues involved in
PPP projects, several expert interviews were conducted. This report documents the outcome of
the above mentioned activities that we have used to create a framework for identifying the
formulae for a successful PPP project.
XV | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
Acknowledgements
This report would not have been possible without the cooperation of the experts and
practitioners of the various Public Private Partnerships in India. Their willingness to share their
experiences and opinions has helped us ground this report in practical insights.
In particular we would like to thank Mr. V. Ravichandar, Chairman, Feedback Consulting; Mr.
B.S. Sudhanvan, Vice President -Technical Services, GVK Power & Infrastructure Ltd.; Mr. R.
Raghuttama Rao, Managing Director, ICRA Management Consulting Services Ltd.; Mr.
Karthikeyan T.V., Vice President-Development Projects, Larsen & Toubro Ltd.; Dr. G.
Raghuram, Indian Railways Chair Professor, IIM Ahmedabad; Mr. B.S. Chakravarthy,
Executive Director, Capital Fortunes Private Ltd.; Mr. Prashant Gupta, Associate Vice
President Transaction Advisory Services, E&Y; Mr. Harsh Agarwal, Executive Director,
Morgan Stanley; Mr. Anumolu Rajasekhar, Executive Director, International Infrastructure
Consultants Ltd.; Mr. Madhu Krishnamoorthy, General Manager, Water Health India; Mr.,
Arvind Sagar, President- Corporate Initiatives and Planning, Marg Ltd.; Mr. R. Narayan,
Regional Head Investment Banking, HDFC Bank; Ms. Thangam S., Chairperson, NTADCL;
Mr. Selvaraj, Former Chairperson, Madras Port Trust; Mr. K. Rajivan, Former Chairperson
TNUDF; and Commodore R. S. Vasan, Head - Strategy & Security Studies, Centre for Asia
Studies.
We thank our Director, Dr. S. Narayan for his constant advice and support in our work. We
would also like to thank our advisors, Mr. S. Parthasarathy, former Director ICRISAT, Ms.
Revathy Ashok, CEO and Founder, Iris Consulting, and Dr. A. Mahalingam, Assistant
Professor, Department of Civil Engineering, IIT Madras for their guidance.
We would also like to thank the British High Commission for their financial support for
carrying out this study. In particular we thank Ms. Aarti Kapoor, Programme Manager, BHC,
New Delhi for her constant encouragement and guidance during the project.
XVI | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Executive Summary
Section I: Need for Private Sector
Participation in creation of public
assets and provision of public services.
Rapid economic growth
High and sustained pace of economic
growth is estimated for the foreseeable
future. Key drivers of economic growth
would be strong demand fuelled by a young
demography with rising incomes. Supply
side
constraints
like
inadequate
infrastructure, governance and slow pace of
economic reforms are critical bottlenecks.
Inclusion
Poverty alleviation and provision of basic
services to the poor remain high on the
governments agenda. India has a dismal
position in most human development and
quality of life indicators. Progress on social
indicators has been poor. Private sector
participation to address the issues of access,
efficiency and quality are essential.
To meet the dual objectives of fast and
inclusive growth, investments of USD 1
trillion in infrastructure are envisaged
in the 12th five year plan.
XVII | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
5. Risk sharing
The long gestation period of infrastructure
projects makes management of risks
especially
challenging.
Exhaustive
identification of risks throughout the
project lifecycle, allocation to appropriate
entity, pricing of risks and mitigation
mechanisms are necessary.
6. Social inclusion
Universal access to drinking water,
sanitation, primary education & public
health that is affordable to people of all
economic strata is necessary. While this is
less of a concern for commercial
infrastructure projects, past experiences
have emphasized the importance of
incorporating social inclusion in a projects
planning and implementation especially for
projects in the social sector.
7. Sustainability
While provision of adequate infrastructure
is essential, it is also important that this
provision is done in a sustainable manner,
without compromising the environment for
the current population or future
generations.
1|A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
2|A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
3|A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Section I
Need for Private Sector Participation in the Creation
of Public Assets and Provision of Public Services
India embarked upon major economic reforms in 1991 following the balance-of-payments
crisis that was the result of decades of Protectionism, License Raj, Import Substitution, State
intervention and Central Planning. The solution adopted for the balance-of-payment crisis was
to start a long-term process of fundamentally restructuring the economy, i.e. opening sectors
for international trade and investment, deregulation, initiating privatization, tax reforms and
inflation-controlling measures.
2000
2001
2002
2003
India
2004
Brazil
2005
2006
China
2007
2008
2009
2010
World
Source: GDP growth (annual %) from 2000 to 2010, World Bank national Accounts data, and OECD National Accounts data files,
World Development Indicators, World Bank Data, World Bank.
The targeted GDP growth for the Eleventh Plan (2007-08 to 2010-11) was 9 %, but in the first
four years of the Eleventh Plan, the GDP growth averaged 8.2 %. This drop in the expected
growth has been explained as the impact of the global recession in 2009. However, compared
to other countries, the impact of the recession was much lower in India. This suggests that
Indias GDP growth is fuelled by the domestic consumption of a large and growing workforce
and one of lowest dependency rates in the world.2
This growth is expected to continue for the next couple of decades if backed by strong
macroeconomic fundamentals. Continued economic reforms, development of a dynamic
private sector and development of skills for the young and growing population are other factors
2
The Government of India aims to reduce dependency ratio to 0.59 by 2011, from 0.73 in 2001. Please
refer
to
http://www.financialexpress.com/news/lower-dependency-ratio-more-jobs-for-one-andall/278352/ for further details.
4|A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
that would ensure this trend growth. According to studies conducted by experts, India is stated
to be the worlds 3rd largest economy by 2025.3
Fig. 1.2: Projected Trend Growth Rates in Key Economies
2049
2047
2045
2043
2041
2039
2037
2035
2033
2031
2029
2027
2025
2023
2021
2019
2017
2015
2013
2011
2009
2007
India
China
Brazil
Russia
US
UK
Japan
Source: Hawksworth, John &Gordon Cookson, Fig. 3- Projected Trend Growth Rates in Key Economies, P. 10, The World in
2050 Beyond the BRICs: a broader look at emerging market growth prospects
Bottlenecks
- Availability of energy
- Slow improvement of farm output
- Lack of sufficient infrastructure for industry and public
- Land acquisiton difficulties for infrastructure and industry
- Lack of governance, transparency and political will
Inclusive Growth
While performance in terms of the pace of growth has been satisfactory in the last decade, it
has been weak at best in terms of inclusiveness. The difficulty begins with defining
inclusiveness itself. Inclusiveness has many components and it is hard to have a single number
Please see, http://articles.economictimes.indiatimes.com/2011-08-22/news/29915163_1_gdp-largesteconomy-growth-target.
3
5|A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
that measures it. At the very least, it consists of the alleviation of poverty, access to adequate
healthcare and education, employment opportunities and access to basic amenities like
electricity, water, sanitation and housing. Other dimensions of inclusiveness would include
socio-economic integration of historically deprived castes and communities with the
mainstream, gender equality for women and respect for rights of children, senior citizens and
the differently-abled.
Comparing Indias performance on the Human Development Index4 (HDI) demonstrates two
features the size of the gap between Indias score and the world average, and the persistence
of this gap. India has made little progress in catching up with the rest of the world in terms of
human development.
Fig.1.3: Human Development Index (Trends from 1980 to Present)
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011
India
World
There are several factors responsible for the continued poor performance of India in the
human development indicators. One of the main reasons would be the inherent beliefs,
customs and cultural traditions of the people that have evolved and survived through centuries
and hence are usually resistant to modernity or else take a long time to change. It is sometimes
uncertain whether the amount of money spent by the government on creating social
programmes, schemes and initiatives for levelling the playing field for all citizens, irrespective of
caste, gender and socio-economic status really brings about the expected changes in the society.
Yet there are other aspects of inclusiveness that are more easily addressable and amenable to
change, such as creation of social infrastructure to provide access to electricity, water,
sanitation, healthcare and education. However, even these services have seen a great level of
disparity - with the economically well-off sections of the society having more access to such
amenities while people at the base of the economic pyramid struggle to survive without these
basic necessities. For example, while private schools and hospitals provide excellent services to
4
HDI is a composite index that measures average achievement by an individual in three basic dimensions
of human development a long and healthy life, knowledge, and a decent standard of living. See, HDI
Report 2011, UNDP, for further details.
6|A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
those who are able to pay for them, the government-run schools and hospitals, upon which a
very large section of the population depend, are characterized by rampant absenteeism and lack
of accountability.
7|A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
The aviation sector has seen a similar growth in reach and increase in affordability. Domestic
carriers have multiplied and witnessed competition for attracting customers by offering better
services and cheaper fares.
Fig. 1.5: Annual Air Passenger Traffic in India (in Thousands)5
60,000
50,000
40,000
30,000
20,000
10,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Air Transport (Passengers Carried) from 2000 to 2009, Civil Aviation Statistics of the world and ICAO staff
estimates, World Development Indicators, World Bank Data, The World Bank.
The cases of the telecom and aviation sector clearly illustrate that contrary to popular
perception, the private sector can deliver substantial improvement in reach, affordability and
quality of service if they are properly organized. Yet there are caveats to expecting such
performance in the delivery of public services. Both telecom and aviation are characterized by a
high degree of competition and low switching costs for the consumers. Also, the nature of
competition for providing public services is substantially different. Competition can occur
amongst various private developers for winning different projects by offering services at the
lowest cost, but once a project is won, the private developer has a monopoly over the public
asset for the duration of the concession period.
Need for Private Sector Investment
The government has recognized the importance of private sector investment in infrastructure
and social sectors. This is reflected in two significant changes in the 12th Five Year Plan from
the 11th Five Year Plan (i) the total outlay for infrastructure in the 12th Five Year Plan is twice
that of the outlay in the 11th Five Year Plan, and (ii) the percentage share of private sector
investment is expected to grow to 50 % in the 12th Plan compared to 30 % in the 11th Plan.
Air Passengers carried include both domestic and international aircraft passengers of air carriers
registered in the country.
5
8|A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Fig. 1.6: Infrastructure Spending during 11th and 12th Plan Period
11th plan
Sector-wise breakup
Gas
20.6
Telecommunications
7.7
6.7
Total
Central
State
6.2
Private
.
Power
Airport 956,510
Ports
666,525
Roads
Water,
Sanitation &
Irrigation
Railways
12th plan
INR Lakh Crore
Sector-wise breakup
Gas
42.7
12
9.7
21
Power
Telecommunication
2,265,307
Airport
Total
Central
State
Private
Ports
Water, Sanitation & Irrigation
1,289,946
Roads
Railways
Source: 11th Five Year Plan and Draft 12th Five Year Plan documents, Planning Commission, GOI.
There is, thus, a growing acceptance of the need for private sector participation in
infrastructure and social sectors. In the next section of the report, we will discuss the features
and advantages of PPP that makes them an attractive mode for private sector participation.
9|A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Section II
Public Private Partnerships : A Crucial
Mechanism to Aid Private Sector investment
Different models of PPP
Private sector participation in public services can take many forms. Each form differs in the
degree of responsibilities shared by the private and the public sector. They vary from service
contracts where the private operator is assured of a fixed payment on providing a service, to
full-fledged divestitures where erstwhile public sector companies have been privatized.
Some of the many parameters on which such modes of participation vary are design, build,
finance, own, operate and tenure. In Exhibit 2.1, we plot the different models of private sector
participation on two parameters ownership and operation between public and private sector.
10 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Risk Sharing
Transfer of risk to the private sector is another important feature of PPPs that makes it
attractive for public sector entities. Yet, the focus should be on risk sharing instead of
transferring risk, with risks being allocated to the entity best able to manage or mitigate that
risk. While policies and definitions emphasize the importance of efficient and effective risk
sharing, the gap between these policies and its implementation remains particularly large.
Effective risk sharing is one of the factors for the success of a PPP project. This aspect is
covered in detail in the next chapter.
Performance-Linked Returns
The difference between a service being contracted out to a private contractor and a PPP is the
aspect of performance-linked returns in PPPs. A fixed service contract prevents the private
contractor from exceeding the minimum performance benchmarks specified in the contract.
On the other hand, a contract that links returns to performance incentivizes the private
contractor to exceed minimum benchmarks and get rewarded for additional value generated.
11 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
services that are primarily for private use examples include captive power plants, IT parks and
tourism projects that are owned and operated by private companies.
Source: Compiled from Approach Paper on Defining Public Private Partnerships- Discussion Note,
MoF, DEA, GOI, (2010), Promoting Infrastructure Development through PPPs: A Compendium of
State Initiatives, MoF, DEA, GOI.
12 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Exhibit 2.3: Comparison of Costs, Risks, Returns and Incentives of Different Stakeholders
Public Sector
Lenders
Cost Incurred
Return/Benefit
Risk Borne
Cost Incurred
Return/Benefit
Cost of capital
Opportunity Cost
VGF
Risk
Debt Protection
Political Risk?
Regulatory Risk?
Residual Asset value
risk
Tax
Debt
Public/User
Tax
User charges
Displacement
Return/Benefit
Cost Incurred
Return/Benefit
Risk Borne
Repayments
Private developer
Cost Incurred
Return on investment
Environmental/ social
impact
Exclusion
Usage of quality
inf rastructure
Time and cost savings
Employment
opportunities
Improved living
standard
Access
User charges
Opportunity cost of
investment
Debt repayments
Technical & human
resources
Risk Borne
Return on investment
Increased technical
competence
Enhanced brand equity
Financial risk
Development risk
Operation risk
Technology risk
Non-political force majeure
risk
Source: Compiled from data available in Status of implementation of PPP projects in India as of July
2011.
13 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Geographically too, there has been a wide disparity between PPP investments. Mapping the
PPP Investment Per Capita (which measures the PPP intensity), shows that the southern and
western regions have greater investments in PPPs. North eastern states of India have low PPP
intensity, although Sikkim is an exception due to the existence of a large number of micro-hydel
power projects.
Low-income states have a PPP investment per capita of ` 3,907 which is almost half of the
average for the rest of India.
Exhibit 2.4: State-Wise PPP Intensity
Source: Compiled from data available in Status of implementation of PPP projects in India as of July
2011.
This disparity among PPP investments is due to several factors that are required for successful
development of projects in the PPP mode. In the next section, we have listed seven key success
factors of successful PPP projects.
14 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Section III
Seven Success Factors For Effective PPPs
Even though we have established that the private sector participation in commercial and social
infrastructure is necessary and that the PPPs are an important mechanism of structuring such
participation, it is essential to recognize that PPPs are not the only solution for Indias
infrastructure woes. The responsibility of providing infrastructure lies primarily with the
government and PPPs must not be viewed as a mechanism for transferring that responsibility
to the private sector.
PPPs, by their very nature, involve cooperation and coordination among several entities whose
interests and objectives often diverge. PPP projects themselves are highly challenging as they
include long gestation period and project life with numerous risks involved that keep changing
over the projects lifecycle. PPPs also involve multiple dependencies across stakeholders and
uncertainty in forecasting demand, which makes the management and execution of a successful
PPP project very demanding.
A committed government, an informed and active community and a competent private sector
with financial and managerial capability are the primary ingredients for a successful partnership
program. Availability of long-term funds, exhaustive identification and optimal allocation of
risks and appropriate pricing are essential for smooth coordination amongst stakeholders.
Finally, the social and environmental impact of the project must be carefully managed.
The key success factors identified and presented in this section are categorized into three types:
1. Stakeholders Roles responsibilities, competencies and commitment of the public
sector, private sector, financiers, consultants, end-users, community and civil society.
2. Interaction financing, revenue generation and risk-sharing among stakeholders.
3. Project Impact social inclusion and environmental sustainability.
15 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
16 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
17 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
socio-economic segments, it is essential that the government play a more prominent role in
financing these projects through budgetary support8. The current expenditure of these services
is expected to increase significantly in the forthcoming period of the 12th plan. As discussed
before, PPPs should be seen as a mechanism to increase the efficiency and effectiveness of this
expenditure by leveraging private sectors technical and managerial expertise.9
Box 3.1 Mumbai & Delhi International Airport
July - AAI
Amendment Bill for
modernisation of
Airports was
passed
Dec Appointment
of ABN Amro as a
Financial Consultant
2003
Sep .Approval by
GoI for a Joint
Venture to be
formed
June
Final Bids
to be
submitted
2004
Feb
Invitation to
register for
Expression of
Interest (EoI)
Jul yExtended
dates of
submission
Sept
Bid Date
extended
2005
April Request for
Proposal and
Transaction
Documents issued to
Pre-Qualified Bidders
Aug
Transaction
Documents
finalised
Feb Allegations
against AAI and
Union of India by
Reliance Airport
Developers Pvt
Ltd.
2006
Nov - Evaluation
Committee
reported the Planning Commission
Jan
Submission
of reports by
GETE
Privatisation and modernization of the Mumbai and Delhi International Airports was being
discussed by the government since 1996. In 2003, Airport Authority of India finally agreed
to modernize them, following which the bidding process was initiated. This project is one
of the initial steps undertaken by the government towards the privatisation of the airport
sector. Earlier the Cochin International Airport was developed in 1991. However, in the
case of Delhi and Mumbai, the lack of experience in this sector resulted in issues during the
bidding phase. A greater emphasis was laid on the financial parameters of the bidders
instead of the technical expertise.
Moreover, the RFP and other bid documents were not clear on several aspects. This
resulted in multiple pre-bid meetings, though carrying out several meetings with bidder is
helpful as it reduces occurrence of disputes in future like the different interpretation of
legal terms by contracting parties. Further, bias of the Evaluation Committee towards
some private sector companies was also reported in the media. However, some curative
measures were taken later, and a model RFP was provided and procedures for selection of
Evaluation Committee were undertaken.
The draft National PPP Policy, 2011 states that annuity models would be undertaken in social sectors.
Please see p.6 of the Draft National PPP Policy, 2011, DEA, Ministry of Finance, GoI.
9 Please see, http://www.thehindu.com/opinion/Readers-Editor/article2311139.ece
8
18 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Infrastructure should be built based on a robust and well-planned vision document. This will
help to adopt a coherent and comprehensive action plan for the integrated development of
infrastructure across all sectors. Gujarat has a vision documents titled Big 2020 which attempts
to put together a comprehensive view of programmes and projects which are aimed to raise the
state to a new level of development. The document goes beyond the five year planning process
and links individual projects of each department into an integrated program for the state. It also
schedules projects in line with the states priorities.10 If such vision documents could be
prepared for each state and for the centre, it could help in creating an infrastructure agenda for
the entire country that is to some extent predictable by the stakeholders.
Several state governments and the central government have been putting appropriate
institutional and regulatory framework towards this end. The draft National PPP Policy aims to
create a comprehensive framework for formalizing PPPs as the preferred form in sectors like
roads, airports, power, etc. where such partnerships have earlier been successful.
At the state level, varying degrees of commitment towards PPPs can be observed. The disparity
in the presence of PPP policy/guidelines, financial support to PPP projects by governments
and in the presence of operational PPP projects in different states show the different levels of
commitment that the different state governments have towards PPPs.
Some states, like Gujarat, Maharashtra and Andhra Pradesh have both PPP acts/policies and
several PPP projects that are either in the implementation or in the operational stage. A few
states like Uttar Pradesh do not have a PPP Act or Policy but still have PPP projects. Other
states like Mizoram have neither a PPP law nor a state PPP project.
Some of the delays faced while executing PPP projects include, land acquisition delays, delay in
obtaining environmental and other clearances and delays in the release of funds.11 These issues
can be solved if there is a consistent, sustained, political and bureaucratic commitment from the
government.
There has been a trend of increasing commitment from the central government towards PPPs.
This can be determined from the fact that the central government has set a progressively
increasing target of financing total infrastructure needs through private participation including
PPPs during each subsequent Five Year Plan. The 10th Plan had targeted 20 % of the
investment in infrastructure projects to be mobilized by the private sector which grew to 30 %
in the 11th Plan and 50 % in the 12th Plan.
(iii) Capability
It is necessary that the strong commitment of the government is supported by its strong
implementation capability. This should be duly reflected in its ability to identify the project, its
technical expertise to rightly structure the project, and put in place suitable governance and
monitoring mechanisms.
Please refer to Review of Blueprint for Infrastructure in Gujarat (BIG 2020) Final Report, GIDB,
(2009).
11 For example, Sasan Ultra Mega Power Project was delayed as the captive mines allotted to it were
under the MoEF No-Go zone. Similarly, progress on Navi Mumbai International Airport was delayed
as construction of an airport in Navi Mumbai was not a permissible activity under Coastal Regulation
Zone notification of 1991. Further, the construction of the airport would have resulted in a loss of 98
hectares of mangroves.
10
19 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
The projects identified should fit the countrys overall sectoral strategy and policy framework. It
is also important to identify the need for a particular project rather than identify the project itself,
especially when it involves the social sector. A large number of projects, mostly in the
commercial infrastructure sectors are identified through a top-down approach where the state
identifies projects and implements them with limited consideration of the needs and aspirations
of the people. In order to prevent this, a bottom-up approach could be adopted, where the
demand for projects comes from the people and government executes them with the
involvement of the people. For example, the people can decide if a metro rail or a fleet of highcapacity buses would be more helpful in addressing their transportation problem. A holistic
plan would be a combination of both the top-down and the bottom-up approach which could
be connected to the national/state level master plan.
In order to prevent and eliminate unplanned and impractical plans, the project identification
process should be properly structured. This could also prevent the haste in awarding projects
for political gains. A list of identified projects should be made public so that people themselves
can agree upon the kind of approach required to undertake the project. Moreover, it would also
enable the private sector to assess the potential market.
The PPP arena in the country has witnessed a mix of successful and failed projects which has
raised concerns about the usefulness of such projects. There are successful projects that could
be emulated like the Bhiwandi Electricity Distribution Franchise, Alandur Sewerage Project,
Amritsar Inter-City Bus Terminal etc. However, projects like Delhi-Noida Tollway, DelhiGurgaon Expressway, Vadodara-Halol Toll Road Yamuna Expressway, Nhava-Sheva
International Container Terminal, Gangavaram Port, Vizhinjam Port etc., encountered
problems during project preparation and development phases.12 This is primarily because the
government adopted a project-based approach towards PPPs. The lack of planning and
integration of the project plan with the regional plan and other plans have resulted in a mixture
of both successful and failed projects. It is always good to look at the big picture and formulate
projects using a programmatic approach. For instance, power generation projects often face
operational delays because of delays in supplying the required transmission and distribution
mechanisms or establishment of appropriate fuel linkages. Another example would be the
Bangalore International Airport where the road connecting Bangalore city to the airport was
not ready even though the airport was ready for operations.
Poor structuring of a project is one of the primary reasons for its failure. The current method
of structuring projects is based on the preparation of a Detailed Project Reports (DPRs) by
consultants selected and appointed by the government. It is therefore, crucial that the
government maintains objectivity and transparency in selecting consultants who have the
required sectoral expertise. While selecting consultants it is important to see if the consultants
have a track record of successfully structuring projects. The financial bid should be of
secondary importance. In India, the project development cost is much lower compared to
global standards. In India, only 2 % of the project cost is spent on the Detailed Project Report
whereas it is around 5 % and between 6-9 % in UK and USA respectively.13 This cost should be
increased to ensure that the project does not suffer due to cost-cutting in the project structuring
phase.
See, toolkit.pppinindia.com/highways/module3-roiewp-intro.php?links=roiewp1&links1=roiewp2.
Please refer to Building India: Accelerating Infrastructure Projects, McKinsey & Company, 2009, for
further details.
12
13
20 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Government should also be capable enough to evaluate the inputs provided by the appointed
consultants. It should have adequate technical expertise in appropriately structuring the legal
documents pertaining to the project. This would ensure that the government officials
successfully negotiate the terms of the concession agreement with their counterparts in the
private sector. Standardization of contracts at the national and state level based on international
standards would allow interpretations of the contracts in a consistent way thereby leading to
lesser occurrences of disputes. Rigorous training of government officials at all levels who are
associated with PPP projects is important.
Monitoring & Governance
For effective governance, the regulators should be empowered sufficiently. If the regulatory
authorities only have the power to determine tariff rates and no power to set and enforce
performance standards or other measures in order to protect the users interest, then their role
is limited and of little help to the society. Please refer to Box 3.2 for an illustration. Thus the
government also has the responsibility of establishing strong regulatory bodies. Though there
are regulators in the commercial infrastructure sectors, their independence is often questioned,
as the government is both the stakeholder and the regulator. There have been suggestions that
the government should not be part of the governance mechanism to prevent a conflict of
interests. In social sector projects, there is no regulatory body at the apex level. If PPPs are to
be adopted at an increasing rate in these sectors, there is a need to establish independent
regulatory bodies at the apex level to standardize the development of projects.
Proper monitoring mechanisms ensure accountability of both the private and public sector. At
present, the monitoring of projects, in many cases is entrusted to different agencies and it is not
clear what aspect of the monitoring is done by which agency. For example, in a state sponsored
project, where some component of the Viability Gap Funding (VGF) is also supported by the
central government, the monitoring is done by the PPP cell at both the central and state level.
However, the division of monitoring responsibility is not very clear to the stakeholders.
Normally, an Independent Engineer (a consultancy firm) is the monitoring authority entrusted
with the responsibility of a fair, amicable and quick settlement of disputes. The selection of an
independent engineer should also be based on a transparent and competitive process. The
responsiveness of the monitoring authority in the social sector projects is even more critical
than that in the commercial sectors. Also, wherever possible, community or civil society
representatives like the Resident Welfare Organizations or Aanchal Samities, should be
encouraged to be a part of the monitoring process.14
Aanchal Samiti also called as Intermediate Panchayat is the second tier of Panchayati Raj System in
India. Its members are elected members of the public. For further details see,
http://arunachalpradesh.nic.in/panchayat/html/pachayat.htm
14
21 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
The Nhava Sheva International Container Terminal, a major container handling facility on the
western coast of India is the first private container terminal of the country. The events that
unfolded during the development of the landmark project highlighted the need for a strong
regulator. The Tariff Authority for Major Ports (TAMP) the apex body for major ports failed
to review port tariff and was not able to monitor the private consortiums revenue flow that
resulted in accrual of monopoly rents to the latter.
The private player enjoyed benefits by passing the burden to the users. TAMP was seen to be a
weak regulator as its role was restricted to setting tariffs and revising them. It was not entrusted
with the task of assessing performance of the private player and securing interests of the users.
22 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
both central and state level and are evaluated by an apex body constituted for the purpose.
Currently, the government starts interaction with the public only at the onset of land acquisition
process by way of issuing notices to the landowners.
It would be more appropriate if the government first interact with the users about the projects,
and dispel the doubts of the people regarding the potential loss of land and livelihood. It is
important to share the plan with the public, seek suggestions and incorporate changes if
necessary. ICT has greatly enhanced the scope of interaction between the government and the
public. Apart from reducing the time and cost of interaction, it is also user friendly. Now the
government can make increasing use of this medium to seek suggestions, feedback and
grievances from different stakeholders and take the required decisions based on this
information. A very contemporary example is of the NHAI using Facebook as a platform to
address the concerns of users by giving an opportunity for developer-user interaction. The
Planning Commission has also initiated an online forum to invite suggestions and opinions
from common people on planning priorities.
23 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
a)
Private Developers
i.
Technical Competence:
The scale of investment is usually very large in infrastructure projects, with returns spread over
a long horizon. The private sector should have the ability to manage the financial risks arising
out of the long gestation period of projects. At present, the competence of the private
developers varies across sectors. In the roads sector, domestic competence has been established
to an extent, but airports and ports also involve participation of foreign companies for either
technical or financial reasons. Some such examples are the Hyderabad Airport, Ganagavaram
Port and Jegurupadu Phase I Power Project.
Exhibit 3.2: Foreign Participation in PPP Projects in India
S/N
Project
Foreign Partner
Primary Reason
1.
Delhi International
Airport (P) Ltd.
Technical
2.
NSICT
3.
Gangavaram Port
4.
DND Flyway
Technical
Financial
Financial
Source: Compiled from various reports, case studies, and newspaper articles.
ii.
Engineering Efficiency
An increasing number of complex projects are being undertaken in the PPP mode. Apart from
the enormous budget required to execute these projects, there is also a need for sophisticated
and state-of-the-art technology. Some of the complex projects undertaken by PPP include the
Metro Rail projects, International Airports, Ultra Mega Power Projects (UMPP), etc.
Compared to the international standards, Indian private developers have weak skill set in risk
management, engineering, procurement and construction. Also, the application of value
engineering and lean construction principles is very low in India.16
iii.
Social Commitment
Commitment of the private sector towards the project is vital for establishing a reliable longterm partnership. The commitment of the developer needs to be an all-inclusive one from
efficient delivery of the project within stipulated cost and time to adequate R&R measures for
both natural and human resources. In the case of Vizhinjam Port Development project, the
private developer backed out of the project at a very late stage which led to re-starting of the
entire bidding process resulting in loss of both time and money. See Box 3.3.
16
24 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
2006
April Pre bid
meeting with 40
Private sector
developers.
July- Strategic
Advisor and
Technical
Consultant
appointed.
2007
June Consortium
led by Lanco won
the bid.
2008
June / July Consortium
led by Zoom Developers
challenged Govts
decision
2009
2010
2011
Vizhinjam International Seaport was a major project initiated by the Government of Kerala.
The project was important because of its strategic location and its capacity to boost India's
trade and commercial activities. The government made several efforts since 2006 to select a
suitable private developer. Despite the potential of the project, it attracted interest from only a
few bidders although bidding was undertaken three times. It was finally in 2008, that Lanco
was selected to undertake this project. However, the company later backed out of the project
claiming that the project was facing legal issues although some sources state that the developer
backed out due to the lack of financial capability to implement the project. This further
delayed the project. Even the government had difficulty in arranging funds for the project,
which was an additional problem that caused further delay. The government later explored
various options to fund the project. It also considered various MoUs, but has been
unsuccessful till now.
iv.
Consensus Building
Private players have an important role to play in building a favorable opinion of the project
. among the users and the project affected people. Especially in social sector projects, the
support of the community is critical to the success of a project. It is therefore important for
the developers to engage in a comprehensive dialogue process with the various segments of
the public and inform them of the positive as well negative aspects of the project and about
the measures that would be undertaken to mitigate the negative aspects.
So far the project developers, especially in the port and power sector, have made very little
efforts to engage the public in their plans. On many occasions exhaustive mapping of the
people affected by the project or a detailed environment assessment was not undertaken. For
instance, in the Coastal Gujarat Power Ltd. UMPP, the fishing community was excluded
from the list of project-affected people. See Box 3.4 for an illustration. This was a violation
of the Performance Standard Social and Environmental Assessment and Management
System. Landowners are often informed about a particular project by way of notices or
advertisements only after the project has been decided. In the Krishnapatnam Port project,
the livelihood of the Yandis, (a local community in the Krishnapatnam area) was severely
impacted due to the project and they did not even receive any compensation or rehabilitation
for this.
(b) Consultants
Consultants are responsible in guiding the government in identifying the right project as well
as the right bidder. The objectivity of the consultants is essential during the entire life of a
project. The selection of a right consultant that has sound knowledge and experience in the
sector concerned paves the way for the selection of the right projects. Here adequate
emphasis should be placed on the technical expertise of the consultant in a particular sector.
Compromising on the quality of consultants can result in poor structuring of the project. For
25 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
example, in the Delhi-Gurgaon Expressway, the original scope of the project was changed
substantially and the final scope was issued to the concessionaire just days before the original
scheduled completion date of the project. In the case of the Vadodara-Halol Toll road, the
actual level of traffic did not match the expected traffic levels as per the traffic study because
the traffic estimates were based on the assumption that incentives for industrial development
in Halol area would continue over the long term. However, the incentives were withdrawn by
the government in later years. A high-level committee on National Highway Development
Program (NHDP), set up by government, stated that several road projects resulted in
disputes, as the DPRs were not carefully prepared.17 These examples show that engaging
consultants with sound knowledge and experience is essential in preparing DPRs.
Low investment in planning and engineering aspects often results in higher implementation
costs in the form of transaction costs and settlement of financial claims arising due to
disputes. Such disputes involve a lot of time and money jeopardizing the benefits of PPPs.
There are instances where commercially unviable projects were tendered initially and later
terminated. Significant differences in the total project costs estimates by National Highways
Authority of India (NHAI) and the private developers have also been reported.18
There is also a need to increase the number of Transaction Advisors (TA) empanelled by the
Central government for PPP projects. At present, there are only 11 TAs available for central
government projects. Now that an increasing number of projects are being planned, it is
important to expand the list of empanelled consultants.
3. Community Participation
The end-users of any public infrastructure are the common public, who also ultimately bear the
cost of developing that infrastructure, either directly, through user charges, or indirectly,
through taxes. There is hence a need for involving representatives of the local community. This
could be done either through Non-Governmental Organizations (NGOs), civil societies, or
through members of Gram Panchayat/Zilla Parishad etc.19 A forum should be created for the
community to communicate their needs to the government through channels like small group
meetings, Round Tables, Kisan Mahapanchayats, online public forums, etc.20 Such a forum
shall address the concerns, apprehensions and acceptability of the various categories of
stakeholders and the government on its part should endeavor to consider these issues while
preparing the project.
However, current efforts in this direction have been less than satisfactory. There have been
cases where projects have created an adverse impact on the local community. Apart from
environmental issues, there has been insufficient rehabilitation of people during the land
acquisition phase in many cases. The Sasan Ultra Mega Power Project in Madhya Pradesh has
displaced 6000 people in the region and has reduced them to extreme poverty. As a
consequence of such incidents, projects such as Girye Ultra Mega Power Project have
26 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
prompted mango farmers and others to conduct marches and hunger strikes to prevent the
Government from acquiring their agricultural lands and setting up a power plant.21
Box 3.4 Mundra Ultra Mega Power Project
Ministry of Power
proposes
UMPPs
Jan. 2006
Apr. 2008
Sep. 2011
June 2012
Mundra Ultra Mega Power Project is one of the 16 UMPPs envisaged by the Government
of India to address the growing need for power in the country. The project has
demonstrated some positive aspects of PPPs as it had been scheduled to commission ahead
of its time and the bidding process was completed within 10 months.
However, violation of Ministry of Environment & Forests (MoEF) regulations e.g., use of
potable water for construction activities was reported in the media. The developer did not
undertake a comprehensive assessment of all the project-affected people. The fishing
community, an important group that was severely affected by the power project, was
excluded from the list of directly affected people.
For projects in commercial infrastructure sectors, the government can initiate projects,
distribute information, and then seek public opinion especially on matters like alternative site
locations, R&R packages, etc. Here, the role of the community is limited to the project
identification phase as it may be difficult to involve them during the governance or monitoring
of the projects. Lately, some regulators like the Tariff Authority for Major Ports (TAMP) have
initiated involvement of users in determination of port tariff. This is a healthy development as it
would help protect the users interests.
In social sector projects, the involvement of the users/community is even more crucial. The
public must be a part of the entire project governance instead of just being involved during the
identification stage. For instance, municipal schools adopted by NGOs under the PPP mode
have representatives of the Parents-Teacher Association (PTA) as members of the School
Management Committee. Similarly, members of the Intermediate Panchayat represent the
community who are also members of the management committee of Primary Health Centres in
Arunachal Pradesh. Such an inclusive approach, centered on mobilizing communities as active
agents of their own development, is essential to the larger development process.
27 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
grants in the form of VGF, are important in ensuring commercial viability of the projects.
There have been instances where projects offered for bidding were not found economically
viable. For example, a bypass road proposed around Coimbatore through Build-OperateTransfer (BOT) arrangement did not attract any private sector developer to bid for the project.
Similarly, in Chennai a solid waste management project did not attract bidders during the initial
round of bidding as the waste generated from the associated zones was not enough to generate
profit from the project.22 Many projects, especially those in the transportation sector, have
dedicated traffic and a uniform fee structure regime, which leave little leeway for adjustments.
Further, the concession period cannot be extended indefinitely to allow recoupment of
investments made. Under such circumstances, awarding projects on a competitive basis reduces
the quantum of VGF sought by the developers. Instilling competition, in turn, compels the
private sector players to be efficient and innovative so that the project margins do not fall
below their desired level. The shift towards output specification of the projects instead of the
traditional input specification approach has been aimed at inducing the private developers to
use the best management practices e.g., applying lean construction principles, etc. to reduce
project cost and improve margin.
[Traffic * User Fee]* Concession Period VGF = Total Cost + Return
In recent times, a large number of projects in the road sector have been awarded on negative
grant basis, where the private developer offers to pay the sponsoring authority in return for the
right to develop and operate the project for the concession period.
Providing other assets for commercial exploitation to the concessionaire, in the form of
development rights for real estate near the project site, has been one approach to ensure the
commercial viability of projects that do not break-even based on traffic estimates. Appropriate
bundling of project features is therefore important to such projects. Integrating an upcoming
project with an existing project to increase traffic can be yet another way to improve
attractiveness of the project for the developer. For example, integrating Bandra-Worli Sea Link
(BWSL) with the Western Freeway Sea Link (WFSL) was recommended as one of the measures
to make the project commercially viable. In the Hyderabad Metro Rail project, a plan was set up
to have feeder buses along the metro route apart from integrating bus routes of state road
transport.
At present, the emphasis is typically on the FIRR (Financial Internal Rate of Return) rather than
on the Economic Internal Rate of Return (EIRR). Some international lending agencies like the
Japan International Cooperation Agency (JICA) require establishment of EIRR as a necessary
pre-condition for going ahead with projects. There is a need to make EIRR mandatory for large
scale projects if not for all projects.
Please refer to PPP Experience in Indian States: Bottlenecks, Enablers and Key Issues, by
Mahalingam, A., Indian Institute of Technology Madras, 2008.
22
28 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Memorandum of
Understanding
signed
1992
Company undergoes
debt-restructuring
1998
1997
2001
Concession
Agreement
Executed
Project Commissioned
(construction time: 25
months 4 months ahead)
2005
2006
2011
The Delhi NOIDA Toll Bridge was awarded through direct negotiation. Being one of the
early PPP projects, the Concession Agreement was poorly structured. The concession
agreement provided for extending the concession period on a recurrent basis till the project
cost and a pre-determined return on investment made by the concessionaire was recovered
completely. Further, revenue projects were not undertaken robustly as during the
operational phase, proportion of heavy commercial vehicles was very low. This affected the
commercial viability of the project. To compensate for the loss, the concession period is
now slated to be for around 70 years.
Such poor structuring of contracts, results in inadequate sharing of risks. With poor realized
demand and an indefinite concession period, the burden has been ultimately passed on to
the road users with the concessionaire bearing no risk at all.
The project is also affected due to disputes between the government and concessionaire
over determination of toll. The concession agreement provided the concessionaire with the
right to determine toll which can potentially jeopardize the interest of users.
In the Hyderabad Metro Rail project, the concessionaire was allowed to develop real estate around the
metro rail facilities at three depots and above the parking areas at about 33 stations.
23
29 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
along the highways to the developer etc.24 However, in social sectors, where establishing
commercial viability is difficult, bulk of the financial support would have to come from the
government. In the early years of the development of PPPs in these sectors, BOT annuity
would be preferred model as stated in the draft National PPP Policy.
Equity
The government has allowed 100 % Foreign Direct Investment (FDI) in several infrastructure
sectors like roads to attract foreign capital. Despite this, the level of FDI received has been low;
around 11 % of the total investments in 2008. Promoters equity is the main source of equity
for projects in the country. However, given the enormity of finance required to fund
infrastructure projects in the coming years, promoters equity is going to be limited. Hence,
there is a need to ensure availability of institutional equity or development capital for
infrastructure projects.
Debt
Commercial banks in India, especially those in the public sector have been the main source of
debt for PPP projects.25 The conversion of erstwhile long-term lending financial institutions
like Industrial Development Bank of India (IDBI), Industrial Credit and Investment
Corporation of India (ICICI), into commercial banks has led to the problem of availability of
long-tenure debt for the infrastructure projects. At present, two-third of the total debt
requirement of the PPP infrastructure projects is financed by the public sector banks. These
banks are faced with the problem of Asset-Liability Mismatch (ALM) and most of them are
already operating at their exposure ceilings for the infrastructure sector. The absence of a
developed corporate bond market in the country has made it difficult for the developers to raise
the required debt. We require a deep, liquid bond market with a wide array of sophisticated
investors and products to provide long-term finance and distribution of risks at a much wider
level. Further, pre-emption of funds by the infrastructure sector may limit the availability of
banking funds to other important sectors.
Fig. 3.1: Debt Requirement for the 11th Plan Period
Source: Projections for Investment in Infrastructure during the 11 th Plan, Planning Commission, 2008
IL&FS, the developer of the DND Flyway was conferred the advertisement rights along the toll road
as a part of the concession agreement.
25 Commercial Banks fund around 80 % of the debt requirement of the PPP projects in India. See,
Discussion Paper On Financing Requirements Of Infrastructure and Industry, DIPP, GOI, 2011.
24
30 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Fig. 3.2 points to the inadequate availability of debt requirement during the 11th plan period. A
total of ` 8,25,539 crore would be available as debt against the total requirement of ` 9,88,035
crore implying a gap of ` 1,62,496 crore (20 %). As can be observed, domestic bank credit is the
major source of debt followed by Non-Banking Financial Companies (NBFCs) and pension
funds. Further, debt constitutes around 50 % of the total investment required in infrastructure.
However, the normal capital structure of a project is 30 % equity and 70 % debt. This
aggravates the shortage of finance for infrastructure projects in the coming years.
5. Risk Management
(A) Risk Identification and Allocation
It is important that all risks associated with the projects are thoroughly identified. Several
projects have faced disruptions at later stages because the possible occurrences of many glitches
that were not taken into consideration while framing the concession agreements. In order to
minimize any uncertainty involved in the long gestation of PPP projects, a whole-life cycle
approach needs to be pursued. This will help to identify the entire gamut of financial and other
risks that may jeopardize the viability of the project. Further, strong measures for risk
alleviation should be inbuilt into concession agreements so that even disputes during the course
of the projects are resolved amicably. This will also reduce the number of litigations.
Risks are critical to PPP projects as they indicate the probable occurrence of events that may
cause changes in socio-economic, political and natural environment faced by the projects.26
Allocation of risks is important to increase efficiency, reduce project-related costs and achieve
improved value for money. The parties involved in a project can affect the amount of risk by:
The level of information they have about the present and future which will help them
avoid or tackle unforeseen events
The level of influence they have over events which will enable them to take actions and
determine outcomes
The MCAs (Model Concession Agreements) for different sectors, attempt to address the
unbundling and allocation of risks and propose associated risk mitigation measures based on
the above mentioned parameters. MCAs mention that as an underlying principle, risks have
been allocated to the parties best suited to manage them.27 Technical risks such as
construction, operation and maintenance are allocated to private sector developers as transfer
of such risks is likely to increase the scope of adoption of the best available technology and
spur innovative practices, which in turn would bring in cost efficiency and better service
delivery. Commercial risks such as the demand risks are also allocated to the concessionaire
under BOT Toll projects whereas direct and indirect political risks are allocated to the
government agency or the contracting authority implementing the project. A detailed table of
the different types of risks that have been identified in a PPP project development phase, as
provided in MCA is given in Exhibit 3.2. However, the following features of risk allocation are
observed in practice:
Please see, Risk A critical focus of PPP Design, PPP Toolkit for Improving PPP Decision Making
Processes, Public Private Partnerships in India, Ministry of Finance, Government of India as retrieved
from http://toolkit.pppinindia.com/
27 Model Concession Agreement for National Highways, Secretariat for Infrastructure, Indian Planning
Commission, Government of India as retrieved from
http://infrastructure.gov.in/pdf/OverviewMCA.pdf
26
31 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
(i) Risks are often allocated to stakeholders not best suited to manage them
In many cases, the social and environmental risks and those associated with land acquisition are
directly or indirectly borne by the concessionaire. Such responsibilities, if given to the private
sector either cause delays in the project implementation and / or create negative impact on the
biodiversity.
The Hyderabad Outer Ring Road Project had faced delays because the private
developer had difficulties in acquiring land due to objections by the surrounding
community, especially farmers.
In the Gangavaram Port project, the risk of social impact was allocated to the private
sector developer. The port authorities had promised the fishing community in the
village nearby that they would provide the fishermen with jobs since the construction
of the port would affect their livelihood. However, the fishing community alleged that
the port authorities gave them only 292 jobs out of the 600 jobs promised. Several
people were denied jobs. Allocating the responsibility of providing employment to the
private developer might leave the community vulnerable to risk.
The Dhamra Port Project is located to the north of Gahirmatha Marine Sanctuary,
where around 2 to 5 lakh female Olive Ridley turtles nest every year. Although the port
site is not a nesting area, environmentalists are worried that the regular dredging
activities and industrial pollution could ruin the habitat of these turtles. Greenpeace
activists are also demanding the private developer to stop construction of the port.
These examples prove that the risks involved in land acquisition and other social and
environmental risks should be assessed and solved by the government.
(ii) Stakeholders fail to handle risks that are appropriately allocated to them.
Although concession agreements outline the allocation of risks to a specific partner, there are
cases where the partner fails to handle the allocated risk.
In Vizhinjam Port, the private developer (a foreign company) was responsible to get
statutory clearance from the Central Government for developing the project. However,
when it failed to get approval, the State Government attempted to get the necessary
statutory clearance for the private developer but was not successful.
The Concession Agreement for the Yamuna Expressway was executed in February
2003, but there was a 5-year delay in land acquisition. There was also failure on the part
of the state government to provide the private developer with project land on time.
In several Greenfield ports, traffic growth is often over-estimated. Private developers
face a high-demand risk due to lack of hinterland port connectivity. In some instances,
demand shortfall had to be compensated by further undertaking last mile connectivity
through feeder links in form of road and rail connectivity projects.28
(iii) Lack of uniformity among state governments in allocation of risks.
Initiatives taken by the state governments to build capacities for PPP, in the form of an act,
policy or a set of guidelines should also include identification of various project risks. The
Please see, Background Paper on Port Connectivity in Gujarat, Deloitte Touche Tohmatsu India Pvt.
Ltd., (2009)
28
32 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
details of the risks undertaken by state governments or the local authorities of various states are
given in Appendix I. Some inferences are based on these are given below:
(a) Some of the major risks are identified and borne directly by the state governments. These
include:
Facilitating the developer to obtain the clearances (statutory and environmental) from
state and central government as per the requirement of the project.
Provisions for rehabilitation and resettlement of the affected families.
Facilitating water and power requirements at the project site.
Facilitating land acquisition (wherever required).
(b) Though there is lack of uniformity among state governments in the allocation of risks, the
Karnataka Infrastructure Policy 2007 is an exception. It provides a detailed identification of
risks involved during project life cycle (of a BOT model), its allocation to parties best able to
handle them and the respective mitigation measures. It specifically emphasizes that the
government would acquire the land required for the project in case the private investors could
not obtain it. There is a clear distinction in the role of the Karnataka Government, compared to
the other state governments where the risk of land acquisition is initially transferred to private
developers. It is only when a private developer is not able to acquire the required land that the
government steps in to undertake the responsibility of land acquisitions and hence bear the
associated risks.
(c) A provision has been made by the Andhra Pradesh and Bihar government to assist the
developer to securitize the project asset and project receipts/revenue in favor of lenders to
safeguard the completion of the projects. Such a provision to identify debt risk is not included
in the policies, act or guidelines formulated by the other state governments.
33 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
1.
2.
Risks
Project
Development
Risk
Construction
Period Risk
Examples
Selection of right
bidder
Statutory Clearance
Land Acquisition
Right of Way
(Associated delay)
Risk of Inadequacy
[Error in the Request
For
Quotation
(RFQ)]
Maintenance
Standards
3.
Operation
Risk
Injuries to Users
Environmental Risks
Termination Risks
4.
Financial Risk
5.
Government/
Concessionaire
Engineering Procurement
Construction (EPC)
Contractor/
Concessionaire
Debt
Interest Rate/
Currency Risk/
Inflation
Concessionaire
Concessionaire, Lead
Financial Institution,
Government
Direct Political
Force Majeure
Termination of
Concession by the
Government.
Concessionaire
Equity
VGF Disbursement
Regulatory
Risk
Risk Assigned/Risk
Bearer
Government/CA
Source: Compiled from Modal Contract Agreements, Manuals and Guidelines on different sectors,
DEA, Planning Commission, (GOI); various issues
Note: EPC: Engineering, Procurement & Construction; O&M: Operations & Management; CA:
Concession Agreement
34 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
35 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Please refer to Concession Agreement for Design, Engineering, Construction, Development, Finance,
Operation and Maintenance of 4 Laning of Existing 2 Lane Section from KM. 285 (Near Padalpur) to
KM 325 (Near Trichy) on NH-45 in the State of Tamil Nadu on Build Operate Transfer Basis, NHAI,
Government of India, (2006).
29
36 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
6. Social Inclusion
True development must be inclusive of all vulnerable groups. The state has to keep in mind the
principles of justice - social, economic and political that is enshrined in the Constitution, if it is
to deliver the peoples rights and entitlements. The Planning Commission, in the 11th Five Year
Plan stated that a persons individual endowment in the form of capital, labour and skill, along
with the access to public resources has a direct bearing on his/her current welfare in the short
run while determining his/her economic opportunities in the long run. In India, 25.7 % and
41.8 % of the population live below the poverty line in the urban and rural areas, respectively.31
The incidence of poverty is high among certain marginalized groups, e.g. scheduled castes and
tribes. With a significant proportion of people surviving at below subsistence level, there is an
urgent need to provide minimum needs to the poorest of the people.
Exhibit 3.4 describes the condition of the people, especially those who are socially and
economically marginalized in terms of access to basic amenities. There is an urgent need to
accelerate efforts to create an all-inclusive development strategy. As mentioned earlier, the
Planning Commission explicitly emphasized the need for inclusiveness in the countrys growth
strategy in its 11th Five Year Plan document. Inclusiveness was meant to mobilize the marginalized
and make them active agents of their own development. They could play a key role in the very
design of the development process and can assist in bringing people in the mainstream of
development strategy. Expenditure by the government in areas like public health, water supply
and sanitation, and education has been increasing over the years but it is still not sufficient
compared to actual requirements.32 Even in these sectors the governments current resources
may not be adequate to finance the overall requirement; hence additional resources may have to
be obtained from private participation through PPPs. Water and health within the social
sectors are sensitive issues as they are associated with an individuals survival and hence require
a differential approach. Water being essentially a public and social good; every human being has
a right to water. Treating water as a commodity and pricing it based on market principles can
potentially jeopardize the basic human right to life especially of the most vulnerable sections of
the society. In order to ensure full realization of these human rights and guarantee welfare of all
citizens, the state obligation in necessary in delivering services in water and other social sectors.
Dwindling water resources in the country also call for the efficient use of water that may
require effective management of water resources through private initiatives. Hence, there is a
need to balance the cost recovery principle and profit motives with human rights. PPPs when
undertaken based on holistic perspective can possibly play an important role in addressing
issues concerning access, equity and quality of services.
PPPs in social sectors can enhance access to basic public amenities. Such partnerships should
be aimed primarily at efficient delivery of services from the existing government infrastructure
facilities. In order to make a long-term impact on the lives of the people, PPPs should be
undertaken through models that are sustainable as well as scalable. At present a large number of
NGOs are working in social sectors to enhance access to basic services by the people.
However, most of them are charity/donor based models and hence have limited scope for mass
implementation.
Please refer to Report of the Expert Group to Review the Methodology for Estimation of Poverty,
Planning Commission, GOI, 2009, for further details.
32 Government Expenditure on Higher Education has been projected to increase from 1.12 % during the
11th Plan period to around 1.5 % of GDP during the 12 th Plan period. Similarly, govt. expenditure on
Public Health is expected to increase from around 1.2 % during 11th Plan period to around 2.5 % of
GDP during the 12th Plan period. Government expenditure on Water Supply & Sanitation has been
targeted to increase from ` 1,43,730 Crore to ` 1,73,730 Crore during the same period. Please see 11th &
12th Five Year Plan document, GoI.
31
37 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Status
Public Health
Education
Exhibit 3.5 attempts to classify provisioning of infrastructural services to the people on three
broad categories. The first category refers to the non-subsidized services that are priced to
cover the total cost of providing such services. Examples include telecom services, toll roads,
etc. End users are the source of revenue for such services. The second category includes
partially subsidized services with funds sourced from government, users and private sector.
Such cross-subsidized services are largely provided in sectors like health and education. Private
hospitals, where services to those who can afford it are provided at full-cost recovery pricing
whereas services to poor are provided at a subsidized rate with government compensating
private hospital for its loss of revenue. Lastly, completely subsidized services fall in the third
category wherein public health, primary education, waste collection services, etc. are provided
free of cost to people. Services in the third category are financed chiefly by government,
philanthropic and Corporate Social Responsibility (CSR) activities of private sector.
See, Results Framework Document, Department of Drinking water and Sanitation, Ministry of Rural
Development, 2011-12.
34 Please see, Draft 12th Five Year Plan Document, Planning Commission, GOI.
35 Please refer to State Environment Report, MoEF, GoI, 2009.
36 See, p.14, of High Level Expert Group Report on Universal Health Coverage for India, Planning
Commission, GOI, 2011.
37 See, High Level Expert Group Report on Universal Health Coverage for India, Planning
Commission, GOI, 2011.
38 Please refer to Draft 12th Five Year Plan Document, Planning Commission, GOI.
39 See, http://planningcommission.nic.in/data/datatable/0211/data%20112.pdf
40 See, 11th Five Year Plan Document, Planning Commission, GOI.
33
38 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
I
I, II
II, III
Type
Description
Nonsubsidized
II
Partially
subsidized
Other users
Government
Private sector
Health,
Education
Fully
subsidized
Government
Private sector
philanthropists,
donor
foundations,
CSR etc
Primary
Health,
Primary
Education,
Waste
collection
III
Source of funds
Paid by the end user
Sectors
Transport,
Utilities
With reference to Exhibit 3.5, the challenge is to identify existing as well as conceptual models
of PPP that can help the government to focus on the most deprived sections of society and
provide them basic services that are of good quality, within their reach and also affordable.
One model that can be potentially scalable is the Byrraju Foundations 4P (Panchayat PublicPrivate Partnership) model of drinking water supply. With the 73rd and 74th amendments,
drinking water and sanitation are included in the list of subjects to be devolved to Panchayats.
Box 3.6 makes an attempt to map the stakeholders, their responsibilities and participation and
the functioning of the model.
The 4P model is a step ahead of the normal PPP model as Gram Panchayats (local village selfgovernments) are involved in this partnership. The contribution from government is in the
form of provisions for free land, permission to draw raw water, subsidized power connection
and other regulatory approvals. The Byrraju Foundation bears around 50 % (sometimes 100 %)
of the cost for the equipments used for water treatment. It also trains the local people to
operate the plant. Technological aspects of the equipment are modified to allow the community
to operate the plant. Gram Vikas Samiti (Village Development Committee), comprising of 9
volunteers representing different sections of the society, monitors the activities of the project
on behalf of the community at the village level. (Purified water is provided to people at around
20-30 paise per liter.41 Hence, sustainability is ensured by collection of user charges for
operations and maintenance of the project.
41
39 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
With limited financial powers and with local bodies to raise resources through taxation or other
means, such models can be useful in addressing the basic needs of the public like drinking
water. There is a need to provide support and environment for PRIs or local communities to
manage their own drinking water sources and systems, and sanitation in their villages.
40 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
7. Sustainability
The Eleventh Plan followed a strategy to meet the infrastructure needs by supplementing the
public sector resources with that of the private sector in the form of PPPs. The Twelfth Plan
continues to implement the strategy and also emphasises the need to further explore the scope
of PPPs in the development of the social sectors. While infrastructure has its benefits of rapid
and inclusive growth, it also has another facet of creating pressures on environment. Exhibit 3.6
lists the Acts that govern the environmental impact of projects.
Exhibit 3.6: Environmental Acts by MoEF
The Air (Prevention and Control of Pollution) Act 1981,amended 1987
Forest (Conservation) Act 1980, amended 1988
The Environment (Protection) Act 1986, amended 1991
The Public Liability Insurance Act 1991, amended 1992
The National Environment Tribunal Act, 1995
The National Environment Appellate Authority Act, 1997
The Wild Life (Protection) Amendment Act, 2002
Biological Diversity Act, 2002
Environment Impact Assessment Notification, Ministry of Environment and Forest, the 27 th January
1994, New Delhi - http://moef.nic.in/divisions/iass/notif/notif.htm
42
41 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Sector
Air
Airports
Ports43
Roads44
Power
Water
Supply
SWM45
NA
Water
Land
NA
Deposition of
construction work
causes an increase
in the level of
suspended solids
and reduces the
sunlight penetration
for the organisms.
Use of potable
water for power
projects (Mundra
and Barmar)
Availability of water
in India
Use of water for
different purposes
Domestic,
Industrial, Irrigation
and Others.
Growing
population and
growing demands
for drinking water
supply.
Sand erosion
Discharges and
spills from Ships
such as oils,
lubricants, fuels,
sewage and garbage.
NA
Biodiversity
Dust dispersion on
land due to
construction may
change the terrestrial
habitat, affect the
health of the port
workers and the local
people engaged.
NA
NA
NA
NA
NA
NA
Different categories
of wastes dumped
on land.
Percent of total GHG
emissions by waste p.
24 of IPC CC Report
Waste water
generation.
Solid waste
generated in major
cities of India
associated with
growing population.
NA
42 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Even though, a comprehensive framework has been laid down by the state and central
government as per the outline provided by the MoEF to provide environmental clearances,
there have been some projects which cannot be considered to be environmentally sustainable.
For instance, the Tirupur Water Supply and Sewerage Project did not pay adequate attention
towards environmental concerns. The project did not integrate the effluent treatment of
industrial discharge that is fundamental to prevent further damage to water bodies and
environment. Used water from textile units with high salt content was discharged directly into
River Noyyal, which adversely impacted the agricultural lands in the surrounding areas.
Effluents were also discharged into River Nallar that stagnated in the riverbeds and percolated
into the groundwater. Moreover, Orthupalayam Dam that used to irrigate around 500 acres of
agricultural land has now been reduced to storing industrial waste from textile units.46
Box 3.7 Navi Mumbai Airport
CIDCO submitted
the report
Asked to carry out
the simulation study
to establish conflict
free operation of the
two airports
Technical Economic
Feasibility Study carried
out
MoCA examined the
locations
1997
2000
Committee
recommended for
international airport
with two runways
Sept. - CIDCO
revised its proposal
2001
2006
Simulation Study
carried out by
Technical Cooperation Bureau
(TCB)
2007
Fresh application of
ToR to carry out
EIA was done
2008
GoM approved
CIDCO as the
nodal agency
2009
2010
Nov. EAC and
CRZ clearance
granted
The Navi Mumbai Airport suffered primarily due to environmental issues and lack of clarity in
the scope of the project. The airport took more than three years to get environment clearance.
The project was stalled as potential environmental losses were substantial. Destruction of
mangroves, threat to the recourse of the Ulwe River and noise pollution affecting avian
population of the Karnala and Matheran Hills, were the prominent concerns.
Amendments were made in the Coastal Regulation Zones notifications to accommodate the
implementation of the airport accompanied by the mitigation of environmental risks faced by the
surrounding ecosystems. Amending existing environmental laws are certainly not the best way to
mitigate threats to environment. Several visits were made by the MoEF and the Expert Appraisal
Committee to get detailed insights into the impact of noise pollution on the aviation habitat of
the Karnala and Matheran hills, on the recourse of the Ulwe River, mangrove forests and the
revised quality of water and ecology.
However, attempts were made to incorporate the needs of the public addressed in a public
hearing conducted on the development of the port. Since their livelihood was going to be
affected, attempts were made to resettle them.
(ii) Water
There have been instances where potable water is used for construction purposes. This has
caused ground water to deplete by 4 cm/year between 2002 and 2008 in the Northern States of
India. There is lack of coordination between the competing uses of water and there is no
regulation on ground water use. Absence of rational pricing of water has increased its misuse.
Also, the Water Users Associations (WUA) members are not adequately involved in solving
matters relating to the use of water.
Please see, Tirupur Water Supply and Sanitation Project: An Impediment to Sustainable water
Management? R. Madhav, IELRC Working Paper 2008-01. One international acre is equal to
4046.85 square metres.
46
43 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
(iii) Air
The State of Environment Report, 2009 issued by the MoEF has emphasized the further rise of
Carbon Dioxide emissions in India which would continue over the next few decades. The
major cause of these emissions is the power sector and its large dependence on coal (about 78
% of countrys total production). Nearly 70 % of the electricity produced in India is via thermal
units and coal continues to be the main fuel source.
In 2006-07 India emitted 492.53 million tonnes of Carbon Dioxide compared to 382.32 million
tonnes in 2000-01. Although, Indias share in global CO2 emissions was 5 % in 2007, which is
minimal as per her population size, there is still a need to explore alternative sources of energy
generation.
Fig. 3.2: Regionwise CO2 Emissions by Power Sector in India (in million tonnes
180
160
140
120
100
80
60
40
20
0
2000-01
2001-02
North
2002-03
East
2003-04
South
2004-05
West
2005-06
2006-07
North-East
Source: Table 2.2.3: Total Absolute Emissions of Co2 (Million Tonnes/ Year) From the Power Sector by
Region for 200-01 to 2006-07, State of Environment Report - India, 2009, MoEF
(iv) Forest
According to The Food & Agricultural Organization (FAO), the annual rate of deforestation in
India in the past decade (2001-10) has fallen to 5.2 million hectares, compared to 8.3 million
hectares in 1991-2000. Some countries like China, Norway and India and have increased the
area under forest cover at an annual rate of 1.6 %, 0.8 % and 0.5 %, respectively.47
Mangroves are important for the countrys ecology as they form not only a habitat for diverse
marine and terrestrial flora and fauna, but also in a socio economic context that is by
provisioning timber wood, fodder, medicines and honey to people. However, the area under
mangroves cover reduced from 4737 sq. km in 1997 to 4581 sq. km in 2005.
Other Initiatives
The National Urban Transport Policy, 2006 emphasizes on the different modes of transport,
mainly public transport (and the use of electrical transport) developed through cleaner
technologies to reduce the vehicular pollution. The policy has also been stressed on in the State
of Environment Report 2009 by the MoEF. United Nations Environment Program (UNEP)
has named India as the second largest contributor of CO2 emissions from the transport system.
An initiative is being made by UNEP, keeping into account the countrys goals on Climate
Change to promote low carbon transport in India.
The Economist Online, The State of the Worlds Forests, February 11th 2011, GMT 11:01 http://www.economist.com/blogs/dailychart/2011/02/worlds_forests
47
44 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Section IV
Conclusion and Future Measures
India has come a long way from its earliest attempts at bringing in private participation in
infrastructure and public services. As discussed in this report, the first PPPs were instituted
primarily to bring in funds from the private sector to finance much needed infrastructure. This
experience has enabled a gradual maturing of the rationale of PPPs as a mode to leverage
private sector capacity to innovate and deliver higher quality of service, especially in social
sectors like health and education that desperately need an injection of quality in delivery.
Evidence of success of PPP projects is mixed at best both within India and at an international
level. Yet it is important to realize that PPPs still have the potential to play an important role in
delivering much needed public infrastructure and services. Results vary in potential due to the
structural and institutional inefficiencies that needs to be addressed. This report attempts to
capture the lessons that can be drawn from existing experiences in commercial infrastructure
sectors. This is the first phase of our larger research projects that attempts to build guidelines
for enhancing the quality and efficiency of the next wave of PPPs one that is likely to address
more complex sectors, involve greater stakeholder participation, more scrutiny and greater
impact.
The next phase of our research project by Athena Infonomics involves identifying the potential
for PPP in select social sectors skill development, water and solid waste management.
Through a mix of detailed case studies mapping different models, interviews, conferences,
workshops and secondary research, a set of issues and challenges faced by these sectors would
be identified. Next, we intend to use the principles and success factors developed in this report
and apply them to solve the challenges that have been identified for each sector. We are
cognizant that some of the problems facing these sectors pricing for water, for example are
entrenched in the sector specific context that is perhaps not amenable to a solution through
only a PPP approach. The key point is that PPPs are not a panacea for all ills facing a variety of
sectors, but instead, simply a tool, albeit a powerful one, to unlock critical bottlenecks that have
caused a chronic deficit in the quality of service delivery in these sectors.
45 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Appendix I
Issues and Challenges faced by Public Private Partnerships
Public Private Partnerships have increasingly emerged as a preferred and viable mode for
building much needed infrastructure in the country. As part of our study on understanding the
issues and challenges faced by Public Private Partnerships and identifying lessons that can be
drawn from existing experiences, we would appreciate if you could fill in the following brief
questionnaire
Respondents Profile
Name
Designation
Company/Organization
Email
Mobile
Section A: Common Questions
1) Please score the stages of a PPP Project based on the criticality of the issues faced.
(From 1 to 5, 1 being the most critical and 5 being the least critical)
1
Project
Identification
Bidding
Financial
Closure
Construction
Operations &
Management/
Maintenance
2) Please tick the top five critical issues faced by you during a PPP Project lifecycle
Obtaining clarification on bidding parameters
Output specification of the project
Coordinating with the Government
Poor coordination among the central and state agencies
Securing finance for the projects
Availability of foreign currency denomination funds
Determination of user free/ tariff
Poor project governance
Land acquisition and other obtaining mandatory clearances
Dispute settlement mechanism
Lack of independent regulatory authorities in some sectors
Slow progress of ancillary set ups
Others : __________
46 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Sector
Roads
Ports
Airports
Power
Railways
Telecom
Score
S/N
vii.
viii.
ix.
x.
xi.
Sector
Tourism
Water Supply & Sanitation
Waste Management
Education
Health Care
Score
4) Please assign a score to the following states based on their investment attractiveness for
PPPs (A score of 1 implying least attractive and 5 being most attractive)
States
Andhra Pradesh
Gujarat
Karnataka
Kerala
Madhya Pradesh
Score
States
Maharashtra
Rajasthan
Sikkim
Uttar Pradesh
Tamil Nadu
Score
5) Please identify the different roles/ initiatives of carried out by the government during a PPP
project that needs improvement to make the PPP environment more private-sector friendly:
Draft National Public Private Partnership Policy
Broader shelf of projects across sectors/ states
Provision of Model Concession Agreements for all sectors
Provision of Guidelines to select Consultants
Provision of Bid Documents Request for Qualification / Proposal
Enhanced Role of PPP Appraisal Committee
Access/ Timely Disbursement of VGF
Monitoring & Evaluation
6) How useful do you find the MCA in drafting the actual terms of contract?
Very Useful
Useful
Neutral
Not Useful
No Opinion
7) Is fast track approval accorded to projects that adhere to the MCA as promised by the
Government?
Yes
No
Dont Know
47 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
8) Should the Swiss Challenge Approach (SCA) restriction be relaxed by the Central
Government for certain sectors?
Yes
No
No Opinion
9) Have output based specifications enabled better delivery of service?
Yes
No
Dont Know
10) How satisfied are you with the handling of disputes by the government?
Very Satisfied
Satisfied
Neutral
Dissatisfied
Strongly Dissatisfied
11) In the Water Sector, which areas are most likely to attract private sector investments?
Bulk water supply in industrial and city areas
Water supply in rural areas
Water supply on user charge basis
Water supply on annuity basis
Others
12) In the Education sector, which areas are most likely to attract private sector investments?
Primary Education
Higher Education
Research and Development
Skill Development
Others
13) In the Health Sector, which areas are most likely to attract private sector investment?
Primary Health Centres
Managed Hospitals
Diagnostic Services
Others
14) Do you consider that the Draft National PPP Policy recognizes the different nature of PPP
Projects in the social sectors?
Yes
No
No Opinion
15) Is the VGF criterion of 40 % sufficient to attract private sector in Social Sectors?
Yes
No
No Opinion
48 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
49 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Not critical
Less Critical
Neutral
Critical
Most Critical
Project
Identification
Bidding
Financial
Closure
Managed Hospitals
Diagnostic Services
Others
0%
10%
20%
30%
40%
50%
60%
70%
80%
50 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Higher Education
Primary Education
Others
0%
51 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Gujarat
Tamil Nadu
Karnataka
Maharashtra
Rajasthan
Andhra Pradesh
Madhya Pradesh
Uttar Pradesh
Sikkim
Kerala
0
52 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
53 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
54 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
55 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
0.5
1.5
2.5
3.5
4.5
50%
100%
56 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Sustainability issues
Commercial Viability
0%
10%
20%
30%
40%
50%
60%
70%
80%
57 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Appendix II
Risk Sharing Mechanism A Review of Select States
State
Governments
Act/ Policy/
Guideline
Andhra Pradesh
Infrastructure
Development Enabling
Act, 2001
Karnataka Infrastructure
Policy, 2007
The role and responsibilities of each institution has been outlaid very specifically,
namely
Government of Karnataka (GoK)
Infrastructure Development Department, GoK
High Level Committee
Single Window Agency
PPP Cell & District PPP Cell
Infrastructure Development Corporation (Karnataka) Limited
(Clause 9)
Implementing Agency will meet the cost of the following items
Feasibility Study and preparation of Project Report
Land for Right of Way and enroute facilities
Clearance of the Right of Way: Relocation of utility services, R&R and affected
establishments
Environmental Clearances
(Clause 7.2)
State Government shall offer necessary administrative support
Facilitate obtaining state and central government clearances
Facilitate R&R
Provision of supply of power and water at projects
Facilitate acquiring land
58 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Appendix III
Generic Structure of the Environmental Impact Assessment Document
Category
Project Description
Analysis of
Alternatives
Description of
Environment
Impact Analysis
and Mitigation
Measures
Environmental
Monitoring
Program
Socio Economic
Project Benefits
Environmental
Management Plan
Features
Location of the project with various geographical aspects
(latitudes, district, natural resources, etc )
Activities to be undertaken for development of the project
Existing traffic and future predictions
Details of the SPV, project cost &PPP type
Status of land Acquisition
Facilities or services to be provided
Rehabilitation and resettlement of the existing community
and wildlife
Evaluation of the alternative use of natural resources,
technology and site
Existing quality of land, water and air
He used to have a beautiful biological environment (Eco
system and the respective habitat)
Socio-economic environment
Waste management
Prediction of the impact during construction and operational
phase and risk analysis
Avoid/ mitigate/ control adverse environmental impact
Provide remedies and disaster management plans
Technical aspects of monitoring the mitigation measuresParameters of monitoring
Frequency of measurement
Analysis of environmental impact
Submission of the environmental statement semi-annually
Provision for additional employment and revenue generation
Triggering growth in the region and improvement in the
quality of life
Development of ancillary industries and trade centers
Safety awareness
A separate environmental cell to oversee implementation of the
EMPMonitor the effectiveness of mitigation measures
Ensure efficient operation of mitigation measures
Establish systems and procedures for this purpose
Take any necessary action when unforeseen impact occurs
59 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
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61 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
62 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s