Public-Private Partnership (PPP): Accelerating Infrastructure Growth in India

1. A “Public Private Partnership (PPP) : A tool for accelerating infrastructure growth in India” • Mtech Presentation at IIT Delhi • Vijay Kumar • SE(Civil) • CPWD, New Delhi • (Cell +919015913222) • vijaymonal@yahoo.com

2. PPP in developing countries Literature Review Private Investment to 2% of GDP from present 1% Study of failed projects Growth in infrastructure . thru PPP Procurement models Q- survey & Factor analysis Shortlisting of factors

3. Introduction… • PPP is defined as a cooperative venture between the public and private sectors build on the expertise of each partner that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards. Public Need

4. PPP requirement in India PPP in India was initiated in 1991 with the power sector and since then achieved some success in Telecom, Roads, Ports and Airport sectors. The experience of other countries suggests that it should be possible to increase private investment in infrastructure in India from its current level of 1% of Gross Domestic Product (GDP) to 2% of GDP.

5. PPP : India Vs China • In 1980 India actually had higher infrastructure stocks – in power, roads and telecommunications- but China invested massively in infrastructure, overtaking India by 1990 and the gap is widening . • The gaps accelerated from 1998 to 2003, as China invested around 7% of GDP in infrastructure, far higher than India’s rate.

6. PPP : India Vs China • The gap in infrastructure stocks is now so large, that for India to catch up with China’s present levels of stocks per capita by 2015, India would have to invest 12.5 % of GDP per year.

7. Objective & Scope i India China Philippines Thailand Malaysia HongkongMaxico Chile Bolivia Hungary Argentina

8. Methdology i

9. Characteristics of PPP

10. Approaches in PPP

11. Principles of PPP

12. Arrangements in PPP

13. PPP in the world • The private finance initiative (PFI) was launched in UK in 1992. Since then it has become an incredibly popular mechanism for procuring public infrastructure in various countries. The aim of PFI is to bring the private sectors finance management skills and expertise into the provision of public sector facilities and services.

14. PPP in the world • Design- Build- Finance- Operate (DBFO) model in UK- for a financially free standing project. This model is relevant • Joint Venture – This is useful for the projects whose costs can not be recovered entirely through charges on end-users. The govt provides subsidies for social benefits not reflected in the project cash flow.

15. PPP in the world • Build-Transfer-Operate ( BTO) is preferred over BOT in the state of California because the BTO would keep ownership and thus tort liabilities of the project with the state upon construction completion. This avoids higher tolls anchored by the prohibitive insurance costs borne by concessionaire to cover liabilities such as highway accidents and related property damages.

16. PPP in the world • CHINESE MODEL: • SINO- Foreign Joint Venture- BOT projects – Chinese parties contribute development costs, mining and land use rights, certain construction costs and labour costs. Foreign parties input cash, equipment, design of facilities and technical assistance. The project agreement usually includes umbrella guarantee from a Chinese financial institution and a take-and-pay contract where necessary.

17. PPP in the world • Chinese Model --- • TOT ( Transfer-Operate-Transfer) scheme for project acquisition – This allows foreign investors to buy existing projects facilities operate them over a specified period and transfer back at no costs to the government. • Wholly foreign funded BOT project – Some pilot BOT projects have been developed under a national experiment BOT program. These projects are of sole foreign ownership and are guaranteed for foreign exchange convertibility for debt service and equity by Chinese government authorities

18. PPP in the world • PPP projects in Hong Kong – A special ordinance is passed for each project as there is no general BOT legislation in Hong Kong. • The government provides no finance or subsidy, no guarantees on minimum traffic flows/ returns. And no guarantee against any further competitive rules. • The watch dog role of the Independent Commission against Corruption ( ICAC) means that the ICAC monitors the whole procurement process to ensure transparent, fair and non-corrupt competition.

19. Project Evaluation by PST method • Project Scoring Table (PST) is used for evaluation of PPP project on many factors from political risk to operational risk. • Using the PST helps both the public agency and its private partners evaluate potential projects in three ways. 1. Establish the overall viability of the project . 2. Define the parity between the owner and the developer . 3. PPP partners determine their interests where they are coincident and where they diverge.

21. Selection of Private partner A critical issue in PPP in infrastructure development is the selection of the right private sector partner. This necessitates a best valued source selection (BVSS) methodology. Various criteria are classified into four evaluation packages for PPP projects in general. • Financial • Technical • Safety, health and environmental and • Managerial

22. Selection Process in AAI • The privatization of Air Port expansion, operation & maintenance for 30 years involved selection of a competent agency who can invest and manage for such long tenure. The generation of revenue will be from number of passenger handled and No. of Airoplane handled plus revenue from leasing of commercial space available at the air port . • The selection of concessionaire involved four stage bidding process in Delhi and Mumbai Air Port privatization.

23. Selection Process in AAI… • Phase –1 required the consideration of certain mandatory requirements. • Phase - 2 involved the consideration of financial commitments. All remaining offers would then assessed in phase 3 for a minimum benchmark of 80% on the two technical pre-qualification criteria. These two were (a) Management Capability, Commitment and value addition and (b) Development Capability, • Phase 4 involved maximum % of revenue sharing for selection

24. Selection Process in NHAI • The National Highway Authority of India (NHAI) is executing national highways across the country. The system of contract execution is now shifting from the system of cash project (project funded by government) to funding through public private partnership. • The revenue generation is through the collection of toll tax from the vehicles. The entire concession period is 20 years for six lane roads and 12 years for a four lane road. The evaluation criteria for selection of concessionaire is mainly based on following two parameters :- • Experience as developer and/or construction experience. • Financial capability in terms of networth.

25. PPP in Ports PPP in construction and expansion of sea port in India • In India the development of new ports as well as expansion of existing ports are now being taken on the large scale. • The selection of private party is based on Development & Management capability and % of Royalty sharing

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