Developer’s Perspective in PPP: An Indian Experience

1. Developer’s Perspective in PPP: An Indian Experience A presentation by Anand Srivastava, SARPS, NDO Fiduciary Forum 2008 NCC, Lees Berg Mar 26-27, 2008

2. Structure • Infrastructure: Key to growth • Public Private partnership (PPP) • Issues Galore: Developer’s Perspective

3. Infrastructure: Key to Growth

4. Growing Indian Economy • The GDP growth ranges between 8 % to 9% • GDP expected to touch double digit growth during XI Five Year Plan (2007-12) • Goldman Sach’s BRIC report projects India as one of the fastest growing economy in first half of 21st century

5. Infrastructure Bottleneck • Infrastructure is the biggest bottleneck in ‘India Growth Story’: Dampening growth by 1.5% to 2% • Transport system has severe capacity constraints: highways, city roads/MRTS, airports, seaports and railways • Urban and Utility infrastructure has collapsed: huge demand-supply-quality gap in drinking water, sewerage system, drainage and power supply • India needs US$ 494 billion investment in the XI FYP • Government alone can not bring the desired investment : need for Public Private partnership (PPP) to augment resources and efficiency • Upto 25% of investment planned with PPP: Investment of US$ 124 bn by private sector in just 5 years

6. Public Private Partnership

7. PPP Approach Goal • Attract private investments for infrastructure projects Need • Lack of Budgetary Resources • Need to improve efficiency in service delivery PPP approach • Private Sector contribution for: • - Financial investments • - Best Management practices • - Efficiency in service delivery • - Efficient use of capital resources • Public Sector contribution limited to: • - Providing institutional commitment to project • - Project Development • - Transparent & Unbiased Selection of Developer • - Viability gap funding (VGF), if any

8. Projects Amenable to PPP Private Investment: Commercially Viable projects FIRR Govt. to provide Viability Gap Fund for non-viable projects EIRR FIRR: Financial IRR (commercially viable) EIRR: Economic IRR

9. Issues Galore: Developer’s Perspective

10. 1. Mindset CURRENT SITUATION • Owner-EPC contractor relationship • Contracts made with several issues left at Govt. discretion • Short term contracts • Delays in approvals and clearance to Private sector (Pvt.) partner DEVELOPERS’ EXPECTATION • PPP intent is of Developing partnership for efficient project/service delivery • Comprehensive Concession Agreement covering all rights and obligations of both partners with clear termination clauses and Force Majeure • Long term partnership with alignment of objectives to meet the project goals • Develop amicable relationship between the partners

11. 2. Shelf of Projects CURRENT SITUATION • Inadequate Project Development (PD) • Low/no budget for Project Development • PD efforts run by staff having low exposure to PPP DEVELOPERS’ EXPECTATION • Bankable Project Development • Create Adequate & Dedicated PD fund to enable diligent PD efforts • Train the Government Officials and for the initial period engage competent & experienced professional bodies for developing • Adequate Techno-commercial details • Risk analysis, allocation and management • Project Structuring & Bid Structuring • Concession and other agreements

12. 3. Environmental & Other Statutory Clearances CURRENT SITUATION • Obligation of Private Developers (even for large projects e.g. Port & Hydro/Thermal power) DEVELOPERS’ EXPECTATION • Obligation of the Government Entity (proponent/anchor of the project) • To be obtained before start of bidding process (else can be kept as a Condition Precedent for Concession Agreement)

13. 4. Land acquisition CURRENT SITUATION • Act provisions ambiguous, practice varies from state to state • Definition of public purposes weak • Private developer left to the mercy of the political and social forces resulting in time & cost over-runs & adversely affecting viability DEVELOPERS’ EXPECTATION • Uniform and transparent National level policies and act (to be fully adapted by all the states) • Infrastructure Projects under PPP to be included as public purpose • The land acquisition to be completed by the Govt. project proponent/anchor in advance. Land to be handed over to pvt. developers free from encroachment and encumbrances

14. 5. Standardisation CURRENT SITUATION • Some amount of standard process & documentation is followed by very few organizations like NHAI • Time Constrained Procurement Process, Inadequate understanding of project development cycle • Sometimes bids invited with inadequate project development DEVELOPERS’ EXPECTATION • Std Docs & Process to be developed & followed by all Govt. agencies • Model RFQ & RFP docs • Model Concession agreement • Model Performance Specifications • Use Two stage competitive bidding to ensure competent & serious bidders • RFQ (Request for Qualification) • RFP (Request for Proposal) • Speedy & adequate project development & providing enough time for bid preparation

15. 6. Streamlining CURRENT SITUATION • No national body to devise & monitor process & standard documentation • Non-uniformity at state levels • Disclaimer clause in Project Information Memorandum (PIM) dilutes reliability of data DEVELOPERS’ EXPECTATION • National Secretariat for Public-private Partnership • State PPP Secretariat under admin control of the national PPP secretariat • No disclaimer clause – Government/ Project Anchor should consider to own responsibility for data & results in PIM

16. 7. Confidence Building CURRENT SITUATION • No third party opinion taken on Infrastructure projects • The Prequalification process does not define a clear qualification criteria • The Judicial process fraught with delays and favors the Government on frivolous grounds DEVELOPERS’ EXPECTATION • Government to fund Independent rating to for realistic risk assessment • An upfront and clearly defined objective qualification criteria will improve competition • Set-up pre-award and post-award PPP arbitration tribunals with subject matter experts

17. 8. Viability Gap Funding CURRENT SITUATION • Only a few projects can wait for cumbersome process plagued with several rounds of to-and-fro movements of files DEVELOPERS’ EXPECTATION • Process to be simplified & streamlined • Professional body to be empowered to take fast decision to make the scheme meaningful

18. 9. Continuation of Government Policies, decisions & agreement concluded CURRENT SITUATION • Policies modified with change in leadership and political formations • Lack of Regulators exposes Developers to the lack of focus and conflicting socio-political interests of the Government • Existing Concession Agreements (CA) some times overlooked while announcing new projects DEVELOPERS’ EXPECTATION • Consistency in policies. Protection against “change in leadership” akin to “change in Law” • Bring in Regulator, ensure end users rationally pay for the services availed • Long-term tariff notifications & part of CA • Exclusivity rights to be maintained as per CA • Government to Champion the cause of PPP: Project to be awarded in Time, delay in award should attract penal provisions • issues related to strike, unions lock out best handled by the Govt.

19. 10. Shifting of utilities CURRENT SITUATION • Left to private developer with little/no coordination by state • Results in Time & Cost over-runs affecting viability DEVELOPERS’ EXPECTATION • To be Government’s obligation – including the interdepartmental coordination • To be time bound with provision of penalty for delay in completion

20. 11. Shortage of Trained Human Capital CURRENT SITUATION • Quality, competent, multi-skilled & experienced PPP professionals in shortage • Construction Engineers’ Shortage • Skilled Construction workers (Carpenter, Barbender, Masons and Plumbers etc) DEVELOPERS’ EXPECTATION • Start High level training programmes/ Institutes. Allow private sectors to set-up education cities akin to SEZ • Set-up Engineering colleges and provide VGF & land to private sector • Set-up ITIs and provide Viability Gap Funding (VGF) & land to pvt. Sector to set-up vocational institutes

21. 12. Other issues CURRENT SITUATION • Artificial shortage of qualified developers with relevant experience • Model RFQ allows short listing of just 5 (or 6) bidders based on a variable qualifying criteria • Legal framework not standardised • Risk Pricing not fully appreciated by project proponents/anchors DEVELOPERS’ EXPECTATION • Qualification criteria should be looked differently than in EPC Contracts • The pass-fail criteria should be declared upfront • Developers filed a suit in court of law, protesting this will lead to cartelization • To be standardised • To be thoroughly understood to minimise the risk and thus maximise the benefits to Government

22. To do the same old thing the same old way And to expect some new outcome….. That is madness -Einstein

23. Thank you

24. BACK-UP

25. Project Development

26. PROJECT DEVELOPMENT Techno-Economic & Market Assessment Legal Documentation Policy amendments and notification Contractual and Institutional Framework Project Development Process Track 2 DEVELOPER SEARCH • Expression of Interest • Request for Proposal (RFP) • Pre-Bid Conferences • Proposal Evaluation • Finalisation of Developer • Finalisation of Agreements MARKETING & COMMUNICATION • One-to-one meetings • Direct Mailers • Media release • Road Shows • Investor’s Conferences • Facilitating Consortia formation Government Approvals, Facilitation & Decision Making

27. Factors of Success of PPP • Cont..2 Demand for the services/goods where PPP is invited Political commitment to the project and PPP Regulatory framework Judicial and a well defined arbitration framework Administrative framework and readiness to meet requirements Partnership of Public (Government) with Private Sector rather than owner-contractor relationship

28. Factors of Success of PPP • Adequate project development – resulting in Bankable Projects • provide information required to take informed decision, reduce risks and uncertainty • level of project development depends on the intrinsic strength and viability of the project • technical, environmental, social, financial, legal aspects, risk identification and mitigation • risk identification and mitigation • bankability of project and project documents