Anouj MehtaSenior Infrastructure Finance Specialist

(Public Private Partnerships)

ADB’s Assistance for PPP’s in India

On-Going & Proposed Initiatives

26-27 February 2009, Bhopal,

Rapid economic growth Rapid economic growth

Rapid UrbanisationRapid Urbanisation

Population, Income & Consumption Population, Income & Consumption Levels GrowthLevels Growth

PO

WE

R W

AT

ER T

RA

NS

PO

RT

Severe

Capacity

Pressures

On

All

Sectors

SO

CIA

L

SE

CT

OR

S

Years of Investment LagsYears of Investment Lags

BACKGROUND: Growth Fuelled Infrastructure Pressures

BACKGROUND: Huge Investment Needs Estimated at US$ 500 billion over next 5 years

SectorsSectors US $ billionUS $ billion Sectoral Shares Sectoral Shares (%)(%)

Sector-wise Sector-wise Public (%)Public (%)

Sector-wise Sector-wise Private (%)Private (%)

ELECTRICITYELECTRICITY 150.37 30.2 73.6 26.4

ROADSROADS 81.24 16.3 66.2 33.8

TELECOMSTELECOMS 65.12 13.1 73.6 26.4

RAILWAYSRAILWAYS 62.20 12.5 83 17

PORTSPORTS 18.03 3.6 26.3 73.7

AIRPORTSAIRPORTS 8.46 1.7 25.8 74.2

WATER SUPPLY & WATER SUPPLY & SANITATIONSANITATION

48.57 9.8 97.3 2.7

IRRIGATIONIRRIGATION 52.98 10.7 100 --

OTHER – Storage / GasOTHER – Storage / Gas 10.46 2.1 50/82.4 50/17.6

TOTALTOTAL 497.55497.55 100.0100.0 70.870.8 29.229.2

• 70,000 MW Capacity / Coverage expansion70,000 MW Capacity / Coverage expansion

• 6,500 km Golden Quadrilateral / North-South 6,500 km Golden Quadrilateral / North-South and East-West corridors / 11,113 km Nat. and East-West corridors / 11,113 km Nat. Highways / 1,000 km Expressways / 7,616 km Highways / 1,000 km Expressways / 7,616 km National Highways in North EastNational Highways in North East

• Dedicated freight corridors Dedicated freight corridors • 10,300 kms of new railway lines10,300 kms of new railway lines• 21 stations’ modernisation21 stations’ modernisation

• 485 MT in major ports485 MT in major ports

A huge ask of private sector

Not Just Funds…….but also EFFICIENCIES

SUSTAINABLE INFRASTRUCTURE

DIVERSEFUNDINGSOURCES

EFFICIENT USAGE OF

ASSETS

EFFICIENT DEMAND

MANAGEMENTOF

RESOURCES

Majority Public

IDEALIDEAL

REALITYREALITYLarge T&D / NRW

LossesLarge Wastages

Interlinked – Efficient, predictable, financially sustainable enterprises will attract diverse funding options

• Increasing impact on natural resources which are fast depletingIncreasing impact on natural resources which are fast depleting

Poor Institutional Poor Institutional StructuresStructures

Weak IncentivesWeak Incentives

Poor Tariffs, Poor Tariffs, Cost Recoveries & Cost Recoveries &

Financial Financial SustainabilitySustainability

Outdated MIS and Outdated MIS and FM FM

SystemsSystems

Typical Situation

Bulk water sourced 187 m litres p.d.Technical Losses Upstream 5% 9 m litres p.d.Water post treatment avail for distr 178 m litres p.d.Commercial Losses - Theft 16% 28 m litres p.d.Billed Quantity 149 m litres p.d.Collection Efficiency 67% 49 m litres p.d.Collected Bills - related Quantity 100 m litres p.d. 87 m litres p.d.Population 2009 1,000,000 31,762 m litres p.a.End Amount Supplied 100 lpcd

Lost WaterOperations Today

• ImplicationsImplications•Less than 135 lpcd supplied – even the above 100 lpcd hugely un-evenLess than 135 lpcd supplied – even the above 100 lpcd hugely un-even•Coverage poorCoverage poor•Sewerage situation even worseSewerage situation even worse•WILL GET WORSE as population increasesWILL GET WORSE as population increases•Bulk water sources under severe pressure – looking for sources 50 kms Bulk water sources under severe pressure – looking for sources 50 kms away from city nowaway from city now•Investments of Rs 500 + crores required in BWS, Distribution etcInvestments of Rs 500 + crores required in BWS, Distribution etc

Even the 4 buckets a day will fall to 2 if nothing is done!!Even the 4 buckets a day will fall to 2 if nothing is done!!

Funding??

•Normal Normal focus will befocus will be•To enhance bulk waterTo enhance bulk water•Find investments from government for capexFind investments from government for capex•JNNURM – limited supplyJNNURM – limited supply•Commercial finance – limitedCommercial finance – limited•SUSTAINABILITY is the key – both JNNURM and banks want that for SUSTAINABILITY is the key – both JNNURM and banks want that for lendinglending

Rs Tariff 21 Rs per kilo litreRevenuesBilled 3,133,746 Collected 2,099,610 Operating Costs (extrapolated) 4,031,251 Operating Ratio 1.92Net Bleed Every Day (1,931,641) PER DAY

Certainly not sustainable!!Certainly not sustainable!!

Phase in a PPP Solutiono Focus is not just funds but IBM:

• Institutional ring fencing and efficient delivery• Benchmarking and measuring performance improvements• Managing for MAINTENANCE not just CAPEX

• PPP Phase in• Short term for technical baseline development, institutions development and

revenue enhancements - for improving financials and confidence• Medium term for expansion and larger capex investments

Simple Things: Improvement Increase in Collection by(Rs per day)

a) Improve collection efficiency 90% 720,761 b) Reduce commercial losses (cum) 5% 1,090,096 c) Improve tariffs - 15% increase 24 1,545,768 d) Improve cost management - power 10% reductions in cost 1,971,677

Available funds per day now 40,036

ADB Assistance for PPPs

PPP is seen as one key solution

• Attract FRESH FUNDS into sector

• Develop Utility Institution’s EFFICIENCIES

• Faster response to CONSUMERSNeed for an Enabling Environment

P S S T

PPPolicy Strengthening Policy Strengthening

• Policy for private – Policy for private – domestic & foreign domestic & foreign investmentinvestment

• Regulation & MonitoringRegulation & Monitoring

• Incentives for PPP’sIncentives for PPP’s

• User charges policiesUser charges policies

• Viability support Viability support

SSSupply of long term Supply of long term

fundsfunds

SSStrong Stakeholder Strong Stakeholder

CapacitiesCapacities

TTTrust Amongst ALL Trust Amongst ALL

StakeholdersStakeholders

• Local and central Local and central government capacities to government capacities to contract with and monitor contract with and monitor PPPsPPPs

• Good transaction Good transaction advisory supportadvisory support

• Good domestic Good domestic contractors / operatorscontractors / operators

• Long term to match long Long term to match long gestation infrastructure gestation infrastructure

• Competitive and risk Competitive and risk basedbased

• Strong domestic funding Strong domestic funding institutions with risk institutions with risk analysis abilityanalysis ability

• Awareness for all – Awareness for all – ee’s, consumers, private ee’s, consumers, private playersplayers

• Transparency in Transparency in processprocess

• Participatory processesParticipatory processes

ADB’s Support to Government of India for Mainstreaming PPPs Follows the Value Chain

Awareness & Awareness & Capacity BuildingCapacity Building

PPP Project PPP Project Structuring – Structuring –

Demonstration Demonstration ProjectsProjects

Sector Specific Sector Specific PPP Policy PPP Policy

DevelopmentDevelopment

Technical Assistance (TA)Technical Assistance (TA) - Funds- Funds

- Expertise- Expertise

Catalytic Lending ProductsCatalytic Lending Products- - With & Without RecourseWith & Without Recourse

- Co-financingCo-financing- Credit enhancement productsCredit enhancement products

Lending Window for Lending Window for PPP Projects PPP Projects

-Non / Sub Sovereign Non / Sub Sovereign FacilityFacility

• For all stakeholdersFor all stakeholders •Frameworks for PPPFrameworks for PPP •Good early precedentsGood early precedents •Catalytic risk sharing fundsCatalytic risk sharing funds

TA 4890: Mainstreaming PPP at State Level (on-going)

SCOPE• $ 3 million Technical Assistance program• Further $2 million in final stage of Board

approval – approved already by President• Focused on 15 states

ADB Initiatives: Capacity Building - State Level ADB Initiatives: Capacity Building - State Level

FOCUS: Strengthening PPP Cells and Capacities by a) providing PPP and MIS in-house consultants for an extended period and b) access to legal advisory services

• PREPARATORY: PPP constraints identification, PPP Frameworks and policies development

• CAPACITY DEVELOPMENT: Training, manuals, good practices, improving systems for bid document and project appraisals, risk management systems

• INSTITUTIONALISATION: MIS development, consultations with stakeholders, quality checks and improvements on PPP/bid documents, project pipeline conceptualisation and supervision of projects

TA 4890: Mainstreaming PPP at State Level (contd.)

• STATUS 13 PPP Specialists – 12 states and DEA 14 MIS specialists appointed – 14 states and DEA A Legal Advisory Panel A large number of activities are taking place within the PPP Cells:

Workshops and training activities – including on risk, capacity development, sector focus (urban, health, education), etc

Exposure Visits and consultations with private sector and international governments

Value added assistance being provided by cells to projects from across sectoral departments and ministries in project risk structuring, improving bid documents

Assistance being provided for financial closure including VGF applications Development of action plans for project pipeline development – urban,

health, education Several project concepts for PPP projects are being developed within the

states for further DEA / ADB assistance

Tremendous Response from States

ADB Initiatives: Capacity Building - State Level ADB Initiatives: Capacity Building - State Level

TA 4993: Mainstreaming PPP at Central Line Ministries (on-going)

SCOPE $ 2 million Technical Assistance program Focused on 6 line ministries Strengthening PPP Cells and Capacities

FOCUS Strengthening PPP Cells and Capacities by a) providing PPP and MIS in-house consultants for an extended period and b) access to legal advisory services

PREPARATORY: PPP constraints identification, PPP Frameworks and policies development

CAPACITY DEVELOPMENT: Training needs assessments, training, good practices inculcation, improvement in systems for project appraisals and bid processes

INSTITUTIONALISATION: MIS development, consultations, quality checks and improvements on PPP/bid documents, project pipeline conceptualisation and supervision of projects

ADB Initiatives: Capacity Building - Central LevelADB Initiatives: Capacity Building - Central Level

Health & Education PPP Frameworks (TA 4890 Related)

SCOPE Assistance provided for

developing a PPP Framework for Health and Education

KPMG Consultants recruited

Cross sector-division ADB team worked with DEA (SAGF, SAUD, SANS)

ACTIVITIES Consultation Visits with 5 states - T.N., Orissa,

Uttarakhand, Rajasthan, A.P.

ADB-KPMG Consultants Report Produced

6 PPP Models Identified

Framework for PPP development outlined

Consultation Workshops on Draft Report held - Ahmedabad & Panjim (February and April) 2008

Workshop to evolve project concepts held - Panjim, April 08 – leading to a proposed concept pipeline of 20 projects

Assisted by PPP Cells in co-ordination and workshops – now assisting on project proposal development

Meetings being held with DEA and ADB for structuring projects and taking to market

Tremendous interest from states in developing projects further in a challenging area

ADB Initiatives: Sector Specific PPP Policy AssistanceADB Initiatives: Sector Specific PPP Policy Assistance

Urban PPP workshops for all states held in Jaipur and Hyderabad in October 2007 (cross ADB divisions)

States developed action plans for PPP projects

Follow up activities co--ordinated by PPP Cells leading to pipeline of over 20 PPP project proposals from states

TA PPP Pilot Projects Initiative

CONCEPT Projects being evolved in the PPP Cells and across states and sectors

Need for assisting in structuring good pilot PPP projects • Create “demonstration” models• Allows for replication across country• ADB presence will improve risk perception • Catalyse private sector involvement

List of potential projects for TA already identified by DEA with assistance from PPP Cells – further can be added on

TA will leverage ADB TA funds with GOI development funds (IIPDF) to quickly provide transaction advisory and project preparation assistance to PPP proposals

Flexible, value added, quick response modality – first such TA from ADB

ADB Initiatives: PPP Project Structuring Assistance ADB Initiatives: PPP Project Structuring Assistance

THANK YOUTHANK YOU

For inquiries:For inquiries:

Anouj MehtaAnouj MehtaTel No.: +Tel No.: +632 632-5930/5968Fax No.: +632 636-2337Email: anoujmehta@adb.org