Public Private Partnership and Competitiveness

PPP and Comppetitiveness

Public Private Partnership and

Competitiveness

Dr. D.N.S.Kumar Professor in Finance & Associate

DirectorCentre for Research-Projects

Christ University, Bangalore, and Management Consultant,

Rajat Financial ServicesBangalore


To build upon the resource by exploring a resource through integration of sectors across economic and non-economic activities

To encourage ….,participants or

stakeholders in the idea to achieve a win-win results in long run

Project Idea


i. Roads and bridges, railways, seaports, airports, inland waterways;

ii. Power;iii.Urban transport, water supply, sewerage, solid

waste management and other physical infrastructure in urban areas;

iv. Infrastructure projects in Special Economic Zones; and

v. International convention centres and other tourism infrastructure projects;

Current focus…,


Backbone Sector

???


Irrigation Scheme across Bangalore-Bombay Golden Quadrilateral Road

Idea


Farmers Private Sector Government

Society

Stakeholders


“Contractual three party arrangement between government, private party and farmers for the provision of assets, clearances, the delivery of services and purchase that have been traditionally not provided by anybody”

“…. a cooperative venture between the public, private and farmers sectors, built on the expertise of each partner, that best meets clearly defined public needs through the appropriate allocation of resources, risk and rewards”

… a P3 involves a sharing of risk, responsibility and reward, and is undertaken in those circumstances when there is value for money benefit to the taxpayers

Essentials of PPP


Design-Finance-Build-Own-Operate-Maintain(DFBOOM)

Model


Length of Road - 1000km

No. of villages/cities and cities across the road – 200

Population of above villages/cities – 1000000

No of acres of land each village/city – 2500

No. of acres of land non-irrigatted(50%) in such villages/cities – 1250*200 =250000

Current Income from agriculture- per acre Rs. 15000 – Rs. 20000 p.a. (average Rs. 17500/-)

Variables of PPP


200 irrigation projects-units across the roadside connecting all villages/cities

Cost of each project Rs.15 crores

Total cost of the entire project Rs. 3000 crores

PPP-Intervention


Multiple departmental approach- Commerce, Industry, Finance(DEA), Agriculture, and Social Welfare

Multi-Governmental Agro-Irrigation Park Special package(s), Benefits and Incentives

Incentives for establishment of agro-oriented SEZs, Export promotion schemes

Monitoring by the apex committee of Ministries, NABARD etc.,

International Participation

Foreign Direct Investments

Financial Institutions, such as, IDBI,ADB, SBI etc.,

Allied Interventions


Private Company- for investment and professional management

Central and State Governments – for

subsidization and clearances

Farmers associations – cooperation Political parties – to understand the

significance of well being of people and respective states/constituencies

Operational Modalities


Central Government(VG-grant) - 10%

State Governments(grant) - 15%

Private investors investment - 60% Capital to be raised from farmers -

7.5% Capital from other organizations(Debt) -

7.5%

Single window clearances be given by the respective state/central government

Financing of Project


Total cost of Project - Rs. 3000 crores

Grants from Govts - Rs. 750 crores

Net cost of project - Rs. 2250 crores

Expected Cost of Finance to investor – 12% Cost of debt - 18.5% Expected return by the investor - 18%

Net cost of project and cost of finance


Irrigation of 250000 acres of land

Enhancement of Purchasing power of minimum 1000000 population

Even if crop such as Maize is grown: per acre income per year would be: 50 quintals(100KG)* two crops a year*

average price Rs.10 per KG= Rs. 100000/-

Other products such as vegetables, fruits, tobacco, sugarcane, groundnut, cotton etc., would give 2 - 2.5 times more income

Outcomes


Current Income from 1250 acres:250000*17500= 437.5 crores

Expected Income 250000*100000= Rs. 2500 crores

Impact


Resource


Status


Development


Professionalization of Development


Life of project 20 years

Royalty per acre Rs. 15000/- p.a.

Cost of maintenance 5% of cost of project p.a

Costs related to project: ◦ Cost of funds p.a - Rs.270 crores ◦ Cost of maintenance - Rs.150 crores◦ Royalty 250000*Rs.15000 - Rs.375 crores

Financial feasibility to investor


Income from provision of water

◦ to corporates 20000 corporates *Rs.100000 p.a. = Rs.200 crores ◦ Local bodies 1000000 population * Rs.500 p.a.

=Rs.50 crores

Other income


Income:◦ Royalty - Rs. 375 crores ◦ Provision of water - Rs. 250 crores◦ Total - Rs. 625 crores

Expenses:◦ Cost of funds - Rs. 270 crores ◦ Cost of maintenance - Rs. 150 crores ◦ Total - Rs. 420 crores◦ Net benefit - Rs. 205 crores

Cost-Benefit Analysis


Cash Inflows: (Net savings – Tax) + Depreciation = (Rs.205crores – 0) + Rs.75crores =Rs.280crores

*50% of cost of project is assumed as fixed investment

Original net investment / net savings Rs.2250crores/Rs.280crores

That is, 8 years

Payback period


Fixed cost of project: =Depreciation + Interest on debt =Rs.75 crores +((2250*7.5%/100)*12% =Rs. 90.25crores

Therefore, BEB = Fixed cost/ Royalty per unit = Rs.90.25crores/(1250 a unit* Rs. 12000

p/a)

= 60 units

Break Even Business


High powered due to profit motive

Benefits of coordinated decision-making- in Design, Construction, Operation, financing etc.

Complementarities with other parts of the given project

Capacity to raise capital at low cost

Brings efficiency improvement through inventions

Ability to control costs

On-going relationships, not spot market

Sharing of authority for decision-making

PPP- Competitiveness


Increased revenue to government in the form of sales tax

Reduced pressure for subsidy

Economic wellbeing of people

Purchasing power improvement

Economic development

Reeducation in social tension

Added business and enhanced competitiveness among all economic activities/enterprises

Spillover benefits


[email protected]@christuniversity.in

0934226607208040129018(O)

08040988972( R )

Thank ‘U’

mailto:[email protected]

mailto:[email protected]

Public Private Partnership and Competitiveness

Technology

Transcript of Public Private Partnership and Competitiveness