India’s Infrastructure India’s Infrastructure ChallengesChallenges

Experimenting with the Experimenting with the Public Private Public Private

Partnership RoutePartnership Route

Scope of this interactionScope of this interaction Introduce the concept, need and Introduce the concept, need and

basic terms to increase familiarity basic terms to increase familiarity with the subjectwith the subject

Take the case of a road project to Take the case of a road project to discuss the issues relating to PPPdiscuss the issues relating to PPP

Consider the issue from different Consider the issue from different stand points – government, private stand points – government, private sector, financiers, project affected sector, financiers, project affected parties and citizensparties and citizens

Share PPP experiences from your Share PPP experiences from your countriescountries

Clarify any doubts if they arise after Clarify any doubts if they arise after this session or on the email later onthis session or on the email later on

Traditional Model -Budgetary Traditional Model -Budgetary SupportSupport

Public good - Public Public good - Public FunctionFunction

Highly capital intensiveHighly capital intensive Long gestation periodLong gestation period Uncertain returnsUncertain returns Plan expenditurePlan expenditure Why change the mode ?Why change the mode ?

PPP ModelPPP Model More fundsMore funds will be available for will be available for

construction and maintenanceconstruction and maintenance Greater Greater efficiency efficiency through through

competitioncompetition Scope for Scope for InnovationInnovation International best practices and International best practices and

knowledge transferknowledge transfer Government can focus on Government can focus on merit merit

goodsgoods where there are no where there are no private takersprivate takers

Fundamental conceptsFundamental concepts

What is a PPP? Is it the same What is a PPP? Is it the same as subsidy?as subsidy?

What are the types of PPP?What are the types of PPP?(Management contract/Lease)(Management contract/Lease)(BOT/BOO/BOOT/BOLT)(BOT/BOO/BOOT/BOLT)(DBFO)(DBFO)

What is the role of Government What is the role of Government experts in PPP?experts in PPP?

Determining which projects can be Determining which projects can be taken up through PPP- are they taken up through PPP- are they bankable?bankable?

Facilitation at the design stage- project Facilitation at the design stage- project preparation – detailed feasibility reportpreparation – detailed feasibility report

Facilitation in the pre-construction stageFacilitation in the pre-construction stage Providing avenues for long term financeProviding avenues for long term finance Understanding contingent liabilitiesUnderstanding contingent liabilities Ensuring quick and effective dispute Ensuring quick and effective dispute

resolution mechanismresolution mechanism Ensuring transparency and fair play Ensuring transparency and fair play

through adequate regulation and through adequate regulation and disclosuredisclosure

Building effective and sustainable Building effective and sustainable partnershipspartnerships

Optimum Apportioning of Optimum Apportioning of RiskRisk

Project risksProject risks Technology/Design riskTechnology/Design risk Construction riskConstruction risk Operating riskOperating risk Market riskMarket risk Foreign exchange riskForeign exchange riskMacro-economic risksMacro-economic risks Political or Regulatory RiskPolitical or Regulatory Risk Environmental riskEnvironmental risk Force Majeure riskForce Majeure risk

Building Capacity in Public /Private Sector –Building Capacity in Public /Private Sector –Guardians of Public MoneyGuardians of Public Money

Viability Gap FundingViability Gap Funding PPP Cells - PPP Appraisal PPP Cells - PPP Appraisal

CommitteeCommittee Transaction AdvisorsTransaction Advisors Training/Information kitsTraining/Information kits Standard Bidding ProceduresStandard Bidding Procedures Model Concession AgreementModel Concession Agreement

Viability Gap FundingViability Gap Funding PPP Cells - PPP Appraisal PPP Cells - PPP Appraisal

CommitteeCommittee Transaction AdvisorsTransaction Advisors Training/Information kitsTraining/Information kits Standard Bidding ProceduresStandard Bidding Procedures Model Concession AgreementModel Concession Agreement

Changing Public OpinionChanging Public Opinion Change the command Change the command

mindsetmindset Demonstrate excellent and Demonstrate excellent and

trouble free deliverytrouble free delivery Educate people on getting Educate people on getting

value for money in public value for money in public expenditureexpenditure

Re-train Public sector Re-train Public sector employeesemployees

External Control- Regulatory External Control- Regulatory BodiesBodies

Why is independent Why is independent regulation necessary?regulation necessary?

Venture Capital for pre-Venture Capital for pre-operative expensesoperative expenses

India Infrastructure Project India Infrastructure Project Development FundDevelopment Fund

Huge upfront transaction cost + high Huge upfront transaction cost + high riskrisk

corpus Rs.1000 million, up to 75% corpus Rs.1000 million, up to 75% project dev cost – interest free loan project dev cost – interest free loan to be recovered from successful to be recovered from successful biddersbidders

State Govts and local bodies eligibleState Govts and local bodies eligible If no interest by bidders – converted If no interest by bidders – converted

to grantto grant

Facilitating FinanceFacilitating Finance India Infrastructure Finance India Infrastructure Finance

Company Ltd.Company Ltd.-raises resources under Govt. -raises resources under Govt. guarantees guarantees

- up to 20% of project cost - up to 20% of project cost and then on-lends to viable and then on-lends to viable projectsprojects-Long term tenor (10 + years) -Long term tenor (10 + years)

India Infrastructure Financing India Infrastructure Financing Initiative (IIFI)Initiative (IIFI)

Equity and debt funding for Equity and debt funding for viable state sector projectsviable state sector projects

Partners 5 billion corpusPartners 5 billion corpus IIFCLIIFCL CitigroupCitigroup IDFCIDFC Blackstone Group HoldingsBlackstone Group Holdings

PPP in the Road SectorPPP in the Road Sector EPC vs item-rate contractEPC vs item-rate contract BOT (Annuity)/BOT (Toll)BOT (Annuity)/BOT (Toll) O&M contractsO&M contracts Toll PolicyToll Policy Major concernsMajor concernsPoor quality of contractorsPoor quality of contractorsLand acquisition and R&RLand acquisition and R&RCapacity of NHAI and State PWDsCapacity of NHAI and State PWDsEnvironment/ForestEnvironment/ForestTraffic vs connectivityTraffic vs connectivityApathy to paying tollApathy to paying toll

Internal Controls Define all terms Conditions precedent (Escrow

account, Applicable permits,performance security, Financing Agreements)

Detailed account of obligations of concessionnaire

Obligations of Authority Representations and Warranties Mandatory Disclosure

Internal Controls International Competitive

Bidding Bid security/performance

security Outcome specification Completion Certificate If there is a change of scope? O&M obligations Safety requirements Independent Engineer Dispute Resolution Mechanism

Accounts and Audits

Concessionnaire to appoint a Statutory Auditor from a list of mutually agreed panel

Articles and schedules provided in the MCA

The Interpretations Committee (IFRIC)The Interpretations Committee (IFRIC) of the of the

International Accounting Standards Board is International Accounting Standards Board is

developing financial accounting standards for developing financial accounting standards for

PPPs.PPPs.The complexity of PPPs and the dependence The complexity of PPPs and the dependence

of national accountants on government financialof national accountants on government financial

accounting data makes it highly desirable to haveaccounting data makes it highly desirable to have

a common treatment of PPPs in the SNA anda common treatment of PPPs in the SNA and

in the accounting standards.in the accounting standards.

How should PPPs be accounted for?How should PPPs be accounted for?