Harishankar Vidyarthi

PPP Definition PPPs, refers to long-term, contractual

partnerships between the public and private sector agencies, specifically targeted towards financing, designing, implementing, and operating infrastructure facilities and services that were traditionally provided by the public sector.

Assign roles to the various public and private partners in the most efficient manner: i.e. allocate a task to the party able to execute it at least cost (quality adjusted).

Some HistoryBritain pioneered “new wave” with Private

Finance Initiatives (PFIs) beginning in early 1990s

Now popular in many countries like US, UK,China, and Canada

Promoted by World Bank for developing countries

Sectors under PPPSectors in which PPPs have been

completed include

Power generation and distribution ( MUNDRA UMPP ) Water and sanitation (TIRUPUR WATER PROJECT) Port (Mundra port) Airport (Hyderabad, Delhi airport ) Railways (Delhi Metro) Roads (Pune-Mumbai Highways) Billing and other information technology systems, and

Typical use

Contracting with a private company to:RenovateConstructOperate &Maintain.

Why• Traditional funding sources are not keeping pace

with infrastructure investment needs and the growing public demand for services.

• PPP is a tool that can help governments to meet demands of the development of modern and efficient facilities, infrastructure and services while providing value for taxpayers.

BenefitsTo attract private capital

To increase efficiency and use available resources more effectively; and

To reform sectors through a reallocation of roles, incentives, and accountability.

Four Basic Dimensions of PPPAlthough each is unique, all PPP’s

include four basic characteristics:Shared goalsShared resources (time, money, expertise, people)

Shared risksShared benefits

Major steps in PPPCrafting the partnershipImplementing the partnership

Common models of PPPTypes of PPP

(i) Build-transfer –operate (BTO)(ii) Build-own-operate-transfer (BOOT)(iii) Design-build-finance-operate (DBFO)(iv) Build-operate-own (BOO)

PPP TYPECONTRACT TYPE

DBFO BTO BOO BOOT

Construction

private private private private

operation Private private Private during construction & then public

Private during construction & then public

ownership public private private private

Who pays Public sector/user

Public sector/user

Public sector/user

Public sector/user

Who is paid?

private private private private

Risk in PPP1. Technical risk (engineering or design failures)2. Construction risk (higher than expected costs)3. Operating risk (higher operating costs than

expected)4. Revenue risk (lower demand than anticipated)5. Financial risk (inappropriate debt

management)6. Regulatory/political risk (changes in laws)7. Environmental risk (environmental damage)8. Project default risk (failure through a

combination of these risks)

State wise PPP Project data (15-11-09)

SECTOR WISE DATA

SECTORAL ANALYSIS Road projects account for 60% of the total

number of projects and 45% by total value because of the small average size of projects.

Ports though account for 10% of the total number of projects have a larger average size of project and contribute 30% in terms of total value.

• It is noteworthy that if ports and central road projects are excluded from the total, there is in fact a relatively small value of deal flow, at only Rs 55757.02 Crores in basic infrastructure PPPs to date, suggesting a significant potential upside for PPP projects across sectors where states and municipalities have primary responsibility.

Domestic players in PPP

DOMESTIC PLAYERS IN PPP• The domestic players have dominated the PPP

projects both in terms of numbers and investment. Out of sample of 300 projects 278 projects with investment of Rs. 134145.57 crores.

• The road sector has dominated investment by domestic players with aggregate investment of Rs. 51,398 crore.

• The port sector with total domestic player investment of Rs. 23931 crore comes second and airports at Rs. 19,111 crore. The energy space including hydro power plants is dominated by domestic private players Rs. 17,802 crores.

Foreign investment in PPP INDIA

FDI in PPP• The Central Government is working with the State

Governments and all other stakeholders to expand the horizon of PPPs in infrastructure development in the country. It has created a favourable atmosphere, provided fiscal incentives and facilitated funding of PPP projects.

• The Government now allows FDI in most infrastructure sectors to the extent of 100 percent.

• The crucial initiatives to operational and institutionalize the flow of private capital for accelerated infrastructure development in the country through PPP’s, has led to an investment of Rs. 135871.42 crore as per the sample of 300 in the PPP database.

Challenges for PPP Projects• Land selection and acquisition—facilitating

involvement of all the stakeholders, anticipation of problems, and working towards acceptable solutions;

• Rehabilitation and resettlement of project-affected persons;

• Developing bankable project documents acceptable to government, bidders, and lenders;

 • Project structuring to ensure quality bidders;

Challenges for PPP Projects

• Managing the role of government without conflict of interests, as shareholder, regulator, licensor, and service provider;

 • Dealing with the many decision-making levels

in the government; • Obtaining timely statutory clearances related to

defense, airspace, and environmental agencies.

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