PUBLIC-PRIVATE PARTNERSHIP:ISSUES AND CHALLENGES

Group Members:

Nikhil Meshram 81Ankeet Pandya 97Abhijeet Nagre 89Lerie Pereira 107

CHALLENGES OF PPP PROJECTS

PUBLIC PRIVATE PARTNERSHIPBRIEF OVERVIEW

SECTORWISE PPP PROJECTS

Source: E&Y

SECTORWISE PPP PROJECTS APPROVED BY PPAC AND THEIR

STATUSSECTOR PROJECTS

APPROVED BY PPAC

OF WHICH AWARDED

IMPLEMENTATION STATUS

COMPLETED UNDER IMPEMENTATION

No Cost No

Cost No Cost No Cost

ROADS 232 255 158 163 18 10 140 (>85%)

153

PORTS 32 38 22 21 6 3 16 16OTHERS 17 16 2 1 - - 2 1TOTAL 28

1309 182 185 24 13 158 170

*Source: Department of Economic Affairs/NITI Since January 2006, PPPAC has approved 281 PPP projects in Central

sector involving investment of Rs.3.09 lakh crore. Out of these, 182 projects with an investment of Rs.1.85 lakh crore have been awarded

(Cost in thousand crores)

STATE NO COST OF WHICH ROAD PROJECTS

OTHER PROJECTS

No Cost(Rs in Crs)

No Cost

ANDHRAPRADESH

4 14962 3 3148 1 11814

BIHAR 2 2420 2 2420 - -HARYANA 1 383 - - 1 382KARNATAKA 3 707 3 707 - -MADHYA PRADESH

29 4468 20 3945 9 523

MAHARASHTRA 9 2334 9 2334 - -ODISHA 1 1293 1 1293 - -RAJASTHAN 3 1066 3 1066 - -UTTARPRADESH 3 3285 3 3285 - -TOTAL 55 3091

744 18198 11 12719

*Other projects include 8 food grain silo projects, 2 Transmission projects and 1 Metro Rail project

PPP Eco-system in IndiaGoI has a progressive financial support system for PPP projects.

Some of the key initiatives include:A. Setting up of India Infrastructure Finance Company Ltd. (IIFCL) as quasi-equity.

B. VGF scheme (Viability Gap funding scheme)

The GoI is expected to undertake capacity building interventions to develop organizational and individual capacities for the purpose of identification, procurement and managing of PPPs.

The PPP Cell in the Department of Economic Affairs will have professionals who provide technical support to the ministries and other authorities developing PPPs

Why is urgent for India to get Infra PPPs right?

India’s infrastructure is a key factor in constraining rapid, competitive economic growth and job creation and thereby imposing huge costs on society

can India become rich before it becomes old? In other words, will India accumulate enough wealth to afford a decent quality of life for its young and its old in the decades ahead?

Over the period 2013-30, India is currently projected to have the world’s largest need for infrastructure investment, and the second largest infrastructure deficit based on its average spending during 1992-2011

*Source: WSJ Article

PPPs2.0-EMERGING CHALLENGES

PROJECT STRUCTURING

MULTIPLE CHALLENGESPROJECT

DEVELOPMENT STAGE

PROJECT AWARD AND EXECUTION

STAGE

PROJECT MANAGEMENT &

MONITORING STAGE

1 LAND ACQUISITION

LACK OF INFORMATION

3

2 GREEN CLEARANCES4

DISPUTE RESOLUTION7

FINANCIAL ISSUES5

CAPACITY OF PRIVATE PLAYERS6

MULTIPLE APPROVAL AGENCIES6

LACK OF INSTITUTIONAL CAPACITY6

FINANCING ISSUES

Bank appraisal of projects has in many cases suffered from lack of adequate diligence, sometimes due to inadequate appraisal skills. This has affected the quality of lending

There is a shortfall in equity capital with local sponsors.

Delays in execution of projects further leads to equity getting trapped in ongoing projects, thus not being available for newer projects.

Balance sheets of most prominent developers in the country are stressed and over leveraged.

Underdeveloped debt markets

Multiplicity of institutions and overlap in rolesGovernments at all levels(ULB, State agencies etc) by and

large unable to create steady pipeline of projects due to Institutional capacity constraints

Multiple agencies involved in Project implementation and overlap in functions cause inordinate delays

Inadequate capacity in authorities, consultants, financiers, developers, statutory audit and vigilance in the PPP context has given rise to misinformation

Lack of urban planning, and clear laws, regulations and procedures has resulted in a slowdown of urban infrastructure projects

INFRA SLOWDOWNINFRA POWE

RROAD

June 13 19.1 29.8 21.5June 14 11 14.4 14.6Jan 15 10.4 14.7 7.9Feb 15 10 13.9 7.5March 15

10.1 14.2 6.7

April 10.6 15.4 5May 15 8.6 13.6 4.6June 15 9.2 13.1 3.4July15 8.3 11.5 6.2Aug 15 8.2 10.6 6.3Sep 15 8.7 12.1 4.6Oct 15 8.3 10.6 7.2Nov15 8.7 10.4 7.5Dec 15 8.4 10 7.9

CREDIT GROWTH DATA All fig in %

Road Sector emerged as the only silver lining , Infra continues to be on downward spiral

Credit demand is growing for the road sector as a result of the awarding of new projects and feel

large portion of this decline in credit growth is also being linked to the high number of stalled projects in the infrastructure space and their contribution to the rising non-performing assets (NPAs) 

Infra accounts for 50% of the stalled projects and revival is the key Source: RBI Databank

Private sector problems Over-aggressive bidding with inadequate due diligence by bidders has sometimes

led to unviable offers

Myopic assessment of risk factors and a failure to build in mitigation measures (Due to mistaken belief that economy was growing at rapid pace at second half of 2000)

The quality of consultancy services in PPPs has not kept pace with the growing need for such services in the country. This is reflected in inconsistent quality of some advisory service

Private sector developers, who were mainly construction experts, found they had no appetite for long-term operations and maintenance (O&M) of infrastructure assets

The DCCO(Date of commencement of commercial operations) based asset classification norm may have resulted in many projects getting classified as NPAs

Public –Private-Partnership Within BRICS

Brazil Federal laws provide an enabling framework for PPPs, there is no need for state

specific legislation

Broad political consensus to maintain favourable frameworks and to be proactive on concession projects

Technical capacity has been the main bottleneck for PPPs, as the government has been working to build institutional knowledge and to ensure that projects are properly structured and launched

Successful execution of projects (Road, Urban mobility &Airports), but problems such as inordinate delays and fewer bidders than anticipated still persist

uncompetitive and opaque bidding process, courts have further confounded the process by issuing contradictory rulings in key areas

The government has been criticised for limiting internal rates of return; however, the private sector is still interested and willing to compete under these terms

RUSSIA Project selection regulations are solid, and transparency and fairness

requirements are in place

Broad Political support for PPPs

Country sovereign risk has been stable as public-sector external debt is low

Conducive Investment climate

Institutional actors involved in PPPs are not efficiently co-ordinated, which undermines the impact of their activity

Limited technical capacity

Risk-allocation practices have not been implemented so as to facilitate private participation

CHINA China has approved and implemented a new regulation for PPPs in June

2015 Regulation aims to consolidate and refresh the various existing rules and

regulations on concessions

It encourage private sector participation in the financing, construction and operation of infrastructure and utility project

Public sector is allowed to enter into concession contracts with foreign entities, but there might be difficulties for non-PRC concessionaire to acquire the land rights, import equipment and goods and handle taxation

procedures of dealing with various government entities to develop projects is complex in China

State dominance which sometimes impairs the powers of Private players

Uncertainties for private players as government sometimes does not fully respect the agreement

SOUTH AFRICA

SA has a strong business infrastructure, a sophisticated financial sector, and comparatively high standards in accounting, regulatory structures and law

Government, plays a lead role in identifying the need for a PPP, developing a business case, designing the project, procuring a private party, ensuring that procedures are complied with, and monitoring performance

Risk allocation is generally assigned to the party best able to bear it

Score card rating system for bidders

Investors claim that the procurement process disproportionately favours government

Biggest challenge is the broader macroeconomic and political volatility including labour unrest and currency volatility

‘PPP’ Resetting in Union Budget 2016-17

proposed Public Utilities Resolution of Disputes Bill

renegotiation of PPP projects

new credit-rating mechanism for private infrastructure projects 

 Dividends will no longer be taxed in the hands of the recipients (Key issue in operationalization of REIT)

Proposed far more practical structure for Asset Reconstruction Companies

IMPLEMENTATION OF KELKAR COMMMITTEE REPORT

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