ROLE OF PPP IN REAL

ESTATE CONSTRUCTION

Prof. Sarbesh Mishra, PhD

Finance Area, NICMAR
Hyderabad – 500 084.
 About Myself
Name : SARBES H MI SHRA

Qualifications 1. B.Com (Hons)

2. Post-graduate In Commerce
3. M.Phil In Commerce
4. Ph.D. (Commerce)

Experience : Joined University of Delhi, as a

Lecturer in Commerce in 2001 and
continued till 2005 and then joined Army
Institute as Senior Faculty,
Finance prior to current appointment
at NICMAR.
 Mantras for success
 The most successful man in the life is the
man who has the best information.
Benjamin Disraeli, 19th. Century PM of England
 Quality is the most important factor in the
business.
Andrew Carnegie, Richest Man (1901 – 1935), USA
 He who controls the past controls future.
George Orwell, Certified Public Accountant
Contd….
 Even if you’re on right track, you’ll get
run over if you just sit there.
Will Rogers, Certified Cost Analyst

 If you don’t know where you’re going, it

doesn’t matter how you get there.
Prof. Sarbesh Mishra, NICMAR, Hyderabad
Background of Development
Notable PPPs of early 19th. Century
 Great Indian Peninsular Company
operating between Bombay (Bombay –
Thane) (1853)
 Bombay Tramway company (1874)
 Power Generation and distribution
companies in Bombay and Calcutta (Early
20th. Century)
Understanding PPP
Public Private Partnership (PPP) Project
means a project based on a contract or
concession agreement, between a
Government or statutory entity on the
one side and a private sector company
on the other side, for delivering any
construction service on payment of
user charges.
Govt. of India’s Definition
Categorization Schemes for
Private Participation
1. Build Own and Operate ('BOO')
2. Build Operate and Transfer ('BOT')
3. Build and Transfer ('BT’)
4. Build Lease and Transfer ('BLT')
5. Build Transfer and Operate ('BTO')
6. Contract Add and Operate ('CAO')
7. Develop Operate and Transfer ('DOT')
8. Rehabilitate Operate and Transfer ('ROT')
9. Rehabilitate Own and Operate ('ROO')
10. Lease Renovate Operate and Transfer
('LROT')
PPP strengths and
Effectiveness
 Robust and dynamic structure;
 Government in an enabler role;
 Government ownership is high;
 Governance structure ensures
consumer and public interests are
safeguarded;
 Commercial interest protected;
 Domicile risks to parties that are well
equipped to deal with them;
Contd….
 Transparent and well-conceived
contracts;
 Documentation recognizes rights and
responsibilities of all project-related
parties;
 Concerns of all stakeholders
addressed;
 Involves participation of a large
number of institutions: government,
politicians, banks, financial
institutions, investors, contractors,
Major Challenges for Both
Government & Private Sectors
 It involves shift to good governance
 Requires an upgrades of regulatory,
restructuring and monitoring roles.
 Problems relating to land acquisition by
government and landing over the site to the
builder.
 Without is significantly improved governance,
the shift to increased PPP could just mean
monopoly power being shifted to the well
connected in the private sector and eventually
become unsustainable.
 It may be realised that it is not the policies that
are failing so much as the machinery for
implementing them.
 Risk sharing and Management
 Construction Risk (Delays)
 Technology Risk (if not proven one)
 Sponsor Risk (ability of the sponsor to deliver the
project)
 Environmental Risk
 Commercial Risk (Demand is less for services
Produced)
 Operating Risk (Inefficiency in operation leading
to higher operating cost)
 Legal, Regulatory & Political Risk (Change in
provisions of Law)
 Force Majeure (Unpredictable natural and man-made
events)
Real Estate – At glance
 The real estate industry, broadly defined, consists
of a collection of industrial and services
sectors of the economy, such as
construction (housing, commercial offices,
retail and industrial buildings).
 It also includes brokerage services, real estate
finance services (mortgage banking, real estate
investment), real estate operations, property
management, architecture and design.
 Real estate cluster is critical for the health
of the nation as its impact becomes volatile
throughout the economy.
RBI Directives for Real Estate
In terms of the master circular of Reserve bank of
India dated 2nd July, 2007: the scope of
infrastructure lending (for the purpose of
financing by banks) has broadened to include
all commitments in real estate.

With assured easy finance, private borrower

companies can avail credit facilities engaged
in:
 Developing;

 Operating and Maintaining;

 Developing, operating and maintaining any

facility that is a project in any one of the
following sectors:
Contd….
 A road, including a toll road, a bridge or a rail
system
 A highway Project A port, airport, inland
waterways
 A water supply project, Irrigation project,
sanitation and sewerage system
 An industrial park or SEZ
 Construction relating to projects involving Agro-
Processing, construction for preservation and
storage of agro-products, perishable
commodities such as fruits, vegetables etc.
 Construction of Educational Institutions and
hospitals
 Any other infrastructure facility of similar nature.
Real Estate for IT and BPO
companies
 Real estate developers are forecasting
rise from IT and BPOs making a beeline
for space in SEZs as STPI (Software
Technology park of India) scheme
benefits are set to end March 2009.
 According to real estate advisor DTZ, by
2010 as much as 60-70 million sq.ft. of
IT and ITES- specific commercial office
space is expected to come up in India
through SEZs alone.
A CASE STUDY – RAIN TREE PARK,
PHASE - 1
Rain Tree Park is developed by
Swarnandhara – IJMII Township
Development Company Pvt. Ltd. (SITCO
Pvt. LTD.). A joint venture between Andhra
Pradesh Housing Board (APHB) and IJM
(India) Infrastructures Ltd. (IJMII), a
subsidiary of IJM Corporation Berhad,
Malaysia. The planned township is coming
up in Kukatpally Area. It hosts the largest
colony in Asia under the name of
Kukatpally Housing Board (KPHB).
Project Details
Rain Tree Park was conceptualized as
an integrated township incorporating
residential units and facilities. The
integrated township is spread over
29acres of clear titled land and will
be developed in two phases over a
period of 03 years.
Project Arrangement
The land is provided by APHB while
the investment is done by IJM. The
integrated township is first of its kind
Integrated Township Project involving
100% FDI. The client of the project
(Between APHB and IJM) SITCO Pvt.
Ltd. is a SPV for this EPC project. IJM
construction division is the main
contractor of this EPC project and
contract value of 2169 million rupees.
Win – Win Situation for Both
IJM approached APHB through Swiss
challenge approach i.e. the private
sector participant submitting a SUO –
MOTO proposal (Latin term meaning
on its own cognizance or on its own
initiative). IJM developed the plan and
made sufficient research and surveys.
IJM approached APHB for this project
and was appreciated by AP Govt.
Revenue Generation
Total Revenue generated = 537 Cr.

Share of IJM (51%) = 274 Cr.

Share of APHB (49%) = 263 Cr. + 555

LIG houses
Conclusion
Phase I is complete and the profit
made by IJM is nearly 25 – 30% which
is negligible as compared to 2-3years
of investment done in the project. But
with the phase II, the company
expects to earn 100% profit on the
total investment.
The Rain Tree Park, Hyderabad is a
good example of success of PPP in
Real Estate Construction.
Recommendations
The company has had previous
experience of working in Indian soil.
Owing to the success of this project,
IJM has ventured into many more
projects on similar lines in real
estates and infrastructure
developments. This case will act as an
inspiration for different state Govt.
and foreign equity investors to further
explore the PPP model.
THANK
YOU