unescap policy dialogue on ppps in infrastructure ... 1...ppp cell, department of economic affairs,...

UNESCAP Policy Dialogue on PPPs in Infrastructure

Kathmandu, 22 September 2015

Abhilasha Mahapatra

Director ( PPP)

PPP Cell, Ministry of Finance

Government of India

Sharing India’s PPP Experience

PPP Cell, Department of Economic Affairs, Ministry of Finance 2

Infrastructure needs – Bridging the Gap

“Investment gap”

• Gap between existing and required infrastructure

• Improving the availability of infrastructure by increased investment in the infrastructure assets;

• The 12th FYP projects an investment of Rs. 55.75 lakhs crores during the 2012-17 period, of which, the share of private investment is expected to rise substantially from 37 percent in 11th FYP to 48 percent in 12th FYP.

“Efficiency gap”

• Need to enhance quality of service to minimum acceptable standards of service

Options to bridge the gap

Public Private Partnership is a mode for creation of assets

as well as improve service delivery

Traditional Procurement Model

Public Private Partnership

Privatization


PPPs in India

3

Rapid urbanization and industrial growth led to demands for

basic infrastructure, such as, water supply & sanitation,

transportation and energy.

Rapid growth in purchasing power in the rural areas

simultaneously - need for improving connectivity and services

Budgetary Constraints and public sector capacity

considerations

Critical relationship between infrastructure and economic

growth, need for policy and enabling measures to support the

creation of quality infrastructure and efficient delivery of

services –

Emphasis on the Public Private Partnership mode of delivery.


Advantages of PPPs

• PPPs not only provide finance for public infrastructure but

also leverage private sector managerial efficiency,

competency for operation and maintenance of the created

assets commercial and creative skills.

• Experience & track record

o Commercial and financial innovation for:

- efficient capital structures

- competitive funding terms

o Strong demand from capital markets for structured project risk

• Sources non-conventional financing of public infrastructure.

• Contractual accountability on the private party to ensure

timely and quality infrastructure service to the end users

• Globally found that 75 % of PPP projects have been delivered

on time or before time.


The measures taken by Government of India resulted in a robust pipeline of

projects at different stages of implementation i.e. under bidding,

construction and operational stages ( >1000 PPP projects with project cost

of >Rs 5 crores each with an estimated total investment of INR 8.8 lakh

crores.) .

Sectoral spread of PPPs diverse though transport projects (roads, airports

and ports), considered as more successful.( The new airports at Delhi,

Mumbai, Bangalore & Hyderabad , and the large volume of highway

projects taken up on BOT showcase the programmatic success of PPPs in

the country. )

As per the 2015 report of The Economist Intelligence Unit, “Evaluating the

environment for PPPs in Asia-Pacific 2014”-India ranks first in the world in

“Operational Maturity” for PPP projects, third for sub-national PPP activity

and fifth overall in terms of having an ideal environment for PPP projects. Growth was supported by favorable policy reforms and financial support

for PPPs.

Evolution of PPPs in India

5


Infrastructure investment during the XI th Plan - Rs.23,74,307 crore

(at current prices), i.e 2 .8 times the investment of Rs.8,37,159 crore

realized in the X th Plan (2002-2007)-around 7% GDP.

Largely contributed by private investment (share of private investment increasing

from 22 %in the Xth Plan to 37 %in the XI th Plan .

XII th Plan (2012-2017) projection of Rs.55.75 lakh crore (at current

prices) in infrastructure -more than double the investment achieved in

XI th Plan.

Strategy of encouraging higher private investment in infrastructure, directly and

through PPPs - share of private investment (incl PPPS) about 48 %.

Experience in the first two years of XII Plan suggests slow down in

infrastructure investment and likely shortfall of about 30 per cent, with the

shortfall in public investment and private investment at 20 per cent and 43

per cent respectively .

Evolution of PPPs in India

6


Enabling Environment :

Key to Success Story

7


Enabling PPP Framework:

Institutional Mechanisms Streamlining of procedures for systematic and speedy

appraisal and approval of projects ( SFC & PPPAC)

http://pppinindia.com/PPPAC_Guidelines_and_Forms.php

Public Private Partnership (PPP) Cell set up in MoF in 2006

for mainstreaming and facilitating PPPs and capacity

building for PPPs

Progressively more sectors have been opened to private and

foreign investment,

Levy of user charges promoted

Standardized Contractual Documents such as sector specific

Model Concession Agreements and Standardized bidding

documents such as Model Request for Qualifications and

Model Request for Proposals

http://pppinindia.com/VGF_Guidelines_and_Forms.php










Financial Support to PPP Projects

Scheme for Financial Support to PPPs in Infrastructure to

provide Viability Gap Funding (VGF) to PPP projects.


India Infrastructure Finance Company Limited (IIFCL) to

provide long tenor debt to infrastructure projects.

Scheme and Guidelines for India Infrastructure Project

Development Fund (IIPDF) for providing financial support

for quality project development activities to the States and

the Central Ministries

http://pppinindia.com/IIPDF_Home.php




National PPP Capacity Building Programme – Dedicated training

for Group A and B category officials of the government in various

central and state government departments, para-statal agencies and

urban local bodies.

Information dissemination through a dedicated website

www.pppinindia.com to provide comprehensive information on the

status and extent of PPP initiatives in India Contains :

• Government Guidelines and Knowledge Products for use of PPP

practitioners in various sectors .

• Online PPP Toolkits for 5 sectors to help improve decision-making for

infrastructure PPPs and structure better PPP projects

Mainstreaming PPPs by providing support to State and Centre PPP

Cells ( ADB TA programmes to provide PPP Experts , MIS Experts )

Knowledge Exchange to share best practices , exposure visits and

knowledge exchange programmes with other countries.( MoU with

AfDB )


Capacity-Building Initiatives

10

http://www.pppinindia.com/






PPP Pilot Projects Program -structuring of PPP Projects in challenging

sectors to develop demonstrable PPP Projects, successfully bid and establish

their replication potential

Knowledge Products :

• Post-award Management Guidelines and Manuals -Contain checklists, templates

and relevant financial tools for various aspects of post award contract

management/concession management for Highways, Ports and Education sector.

Provide step by step approach for day-to-day monitoring and proactive management

of key.(Available on www.pppinindia.com. Online Toolkits are also ready for

launch.

• Report for framework for Renegotiation of PPP Contracts -focuses on changes

that may need to be made in the contractual and institutional arrangement post award

of the projects.

• Green book for the Health Sector: Green book for the Health Sector incorporating

contract provisions and guidelines as a reference for healthcare PPP contracts in

India for 7 asset classes.


Capacity-building initiatives ,contd

11


‘3P India’ proposed to be set up to provide support to

mainstreaming PPPs for a more directed effort to scale up

private investments in infrastructure and developing a broad

and diversified portfolio of PPP projects not only at the Central

and the State Governments’ level but also at the level of Local

Self Governments.

3P India is envisaged to support the public sector in

programmatic level activities, viz., policy implementation and

regulatory support, as also provide advice and handholding

services for delivery support at the project level.

( Partnerships Victoria, Partnerships UK )


3PI

12


Evolution of PPPs in India :

Challenges & Lessons

13

• Global economic slowdown has affected infrastructure projects;

• Judicial and statutory orders have delayed the implementation of projects;

External Factors

• Delays in land acquisition, clearances, right of way issues

• Overlapping functions of regulatory authorities;

• Some sectors (Urban) do not have any regulatory frameworks;

• Slow dispute resolution process often derailing projects.

Legal and Regulatory

• Delays in projects leading to equity of local sponsors getting trapped;

• Balance Sheets are stressed and over leveraged;

• Under developed debt markets has been a cause for concern.

Financing Issues

• Institutional capacity constraints;

• Network of multiple agencies and overlapping functions leading inordinate delays;

• Inadequate capacities in authorities, consultants, financers, etc. in PPP context.

Multiple Institutions

• Inadequate provisions to address legal and contractual issues;

• Adoption of model documents in straight jacketed way with little customization;

• Difficulties in dealing with unanticipated events.

Contractual frameworks

• Fundamental design flaws, such as, allocation of risks, prudent utilization of grants;Lack of urban planning and well defined laws and procedures for land acquisition; Rigidity in concession documents have triggered renegotiation.

Other issues


Emerging Understanding …

PPPs can bring in the required efficiency and investments in infrastructure projects.

Undertaking PPP projects successfully require consideration of following factors :

need for the project, appropriate project development and adequate project

preparation on revenue model, uncertainties and financial structures

Appropriately structured govt. financial support to PPPs – e.g., viability gap

support, low cost loans, initial capital support etc. (Likely revenues from user fees

should be explicitly accounted for in PPP decisions)

appropriate risk allocation, transparent competitive procurement

Greater role of project proponents-Govt. agency is ultimately responsible for

service delivery- effective monitor ng of the concession/concessionaire for service

delivery.

Need to develop models for new sectors including social infrastructure

Streamlining dispute resolution mechanism

Streamlining land acquisition and approval process(Project Bid Out only after

minimum Land Acquisition

14


Due Diligence by Lenders

New Financing Instruments –IDFs,( Debt Take Out ), INVITS (Equity Take

Out )

Exit option –allowing divestment of equity to free capital for new projects

Opening up the domestic pension/ insurance sector for raising resources to

finance PPP projects.

Need to develop a new breed of O&M operators to take on projects that

have been completed.

Flexible Contracts to accommodate changes and uncertainties but consider

the moral hazards and risks in allowing post-award changes(-triggers pre-

identified )

Importance of stakeholder consultations for buy-in of especially with regard

to access, willingness to pay and dispute resolution.

Identify liabilities, direct and contingent, that would devolve on parties to a

PPP concession along with risk-allocation.

Emerging Understanding & New Initiatives

15


PPP Cell and Enabling Framework

Development

PPP Cell

DEA

Implementation Procurement

VGF

IIFCL

Training, Toolkits & Handbook

PPPAC

Information dissemination IIPDF

Institutional Mechanisms

Standardised documents


Institutional Arrangement for Appraisal and

Approval of PPP Projects

A major difficulty in building infrastructure through PPP is the

absence of expertise to create and evaluate project proposals.

Appraisal mechanism for the PPP projects has been streamlined to ensure

speedy appraisal of projects, eliminate delays, adopt international best

practices and have uniformity in appraisal mechanism and guidelines.

Guidelines for Formulation, Appraisal and Approval of Public Private

Partnership Projects for Central Sector were notified by Ministry of Finance,

Department of Economic Affairs, vide OM No. 1/5/2005 - PPP, dated January

12, 2006

PPPAC Guideline :




Sectoral Spread of PPPAC Proposals

PPPAC approved 287

Proposals in the Central

Sector (2006-07 to 2015-16)

valued at

INR 327196.96 crore

Civil

Aviation, 2

Housing, 8

Ports, 34 Railways, 1

Roads, 236

Sports, 5 Tourism,

1

No of Projects

Sector No of Projects Total Project Cost

(In Rs. Crore)

Civil Aviation 2

Housing 8 7299.17

Ports 34 44775.76

Railways 1 8500

Roads 236 266473.5

Sports 5

Tourism 1 148.87

Total 287 327196.96


Financial support to PPP Projects in

Infrastructure

19


Scheme for Financial Support to PPPs in Infrastructure implemented by

Dept of Economic Affairs, Ministry of Finance

(http://pppinindia.com/VGF_Guidelines_and_Forms.php)

financial support in the form of grants, one time or deferred, to

eligible infrastructure PPP projects undertaken to make them

commercially viable.

capital grant upto 20 % opf Total Project Cost at the stage of project

construction. Budgetary provision made in Annual Plan on year to

year basis.

The Government or statutory entity that owns the project may

provide additional grants upto further twenty percent of the Total

Project Cost.

Viability Gap Funding is up to forty percent of the Total Project

Cost.

Viability Gap Funding (VGF) Scheme

20



VGF Scheme - Eligibility Criterion

Government or a statutory entity should make the proposal.

Prescribed pro-forma (VGF Memorandum Application : VGF Memo)

Project implemented by private sector co. ( Co. with 50% or more subscribed equity owned and controlled by a private entity) selected through open competitive bidding.

Service against payment of pre-determined tariff or user charge.

Certification that that the tariff/user charge cannot be increased to eliminate or reduce the viability gap of the PPP.

Project term cannot be increased to reduce VGF

Memo VGF.doc

Memo VGF.doc

Memo VGF.doc


S.

No. Sector

In-principle Final

No. of

Projects

Total Project

Cost (in Rs.

crore)

Total VGF

Approved (in

Rs. crore)

No. of

Projects

Total Project Cost

(in Rs. crore)

Total VGF

Approved (in Rs.

crore)

1 Airport 1 354.65 70.93 - - -

2 Capacity

Building 1 216.23 0 - - -

3 Education 25 470.13 50.78 - - -

4 Health 2 653.8 130.76 - - -

5 Metro 2 19,474.00 3,894.08 1 11814.00 1458.00

6 Port 1 3,930.00 0 - - -

7 Power 4 2,624.70 472.94 2 664.70 132.94

8 Road 151 67,139.06 12,011.61 46 18953.48 3639.91

9 Silos 10 304.63 62.91 6 176.73 15.16

10 Water Supply &

Sanitation 1 187.71 37.54 1 187.71 37.54

Total 197 95,138.68 16,731.55 56 31796.62 5283.55

Sectoral Spread of VGF Proposals

In-principle : Total Projects : 197, TPC :Rs. 95138.68 cr., VGF Approved : Rs. 16731.55 cr.

Final : Total Projects : 56, TPC :Rs. 31792.62 cr., VGF Approved : Rs. 5283.55 cr.


India Infrastructure Project Development Fund

(IIPDF)

Scheme and Guidelines for India Infrastructure Project Development Fund (IIPDF) for providing financial support for quality project development activities to the States and the Central Ministries http://pppinindia.com/IIPDF_Home.php

Support for development of credible and bankable PPP projects

Available for meeting project development costs for feasibility studies, environment impact studies, financial structuring, legal reviews and development of project documentation, including concession agreement, commercial assessment studies grading of projects etc.

Administered by the Empowered Institution headed by the Additional Secretary, DEA.

75% of PDE supported by DEA ( refunded by the private developer on bidding out of the project). 25% to be funded by the line ministry/state government.

Sectors eligible for VGF are also eligible for IIPDF.









IIFCL

India Infrastructure Finance Company Ltd (IIFCL) established in January

2006 as a wholly owned Government of India company and commenced its

operations from April 2006.

Plays a catalytic role in the infrastructure sector. IIFCL may fund viable

infrastructure projects through the following modes:

(a) Long Term Debt;

(b) Refinance to Banks & Public Financial Institutions for loans granted by

them.

(c) Take out Financing

(d) Subordinate Debt

(e) Credit enhancement (on pilot basis)

(f) Any other mode approved by the Ministry of Finance from time to time.

IIFCL raises funds both from the domestic as well as external markets on the

strength of government guarantees.


Dedicated Training of public functionaries at the State and municipal level

rolled out in 2010 with funding support from KfW Development Bank of

the Federal Republic of Germany

Across 15 states and 2 central institutions viz. Indian Maritime University

and LalBahadurShastri National Academy of Administration. 175 Training

programmes conducted to train 5458 public functionaries who deal with

PPPs in their domain, till March 2014.

The training material organized into five distinct courses.- structured in an

easy-to-use modular format, with extensive guidance along with

explanatory notes and tips, cross-referencing and additional reading

material.

The courses aimed at five different categories of audience distinguished in

terms of their role in a PPP context as well as their specific need/purpose in

a PPP context, i.e., increasing awareness, obtaining better understanding and

acquiring proficiency in application of PPP skills.

National Capacity Building Programme

25


Basic Course:A 3-4 day programme for officials with no prior PPP

experience for a better understanding of the PPP concepts and key elements

and value drivers in structuring a basic level PPP transaction.

Advanced Course:An 6-9 day programme for officials having prior

experience of working on PPP projects and, preferably, completed the basic

course.

Awareness Course: A 1-day programme aimed at elected representatives,

civil society and media, with focus on providing an overview and broad

exposure to key PPP concepts.

Sensitization Course:A 2-day programme aimed at officials with no prior

PPP experience focusing on providing a quick overview of PPP concepts

and trends from a practitioners’ perspective..

Course for Senior Policy Makers:A 2-day programme aimed at senior

level government officials to address broader policy and programme level

issues

National Capacity Building Programme

26

PPP Cell, Department of Economic Affairs, Ministry of Finance

Information Dissemination

www.pppinindia.com

exclusively devoted to PPP policies/ programmes/ initiatives in the States and Central

Ministries. The website contains the following information:

Guidelines for PPPAC, VGF, IIPDF etc. (http://pppinindia.com/reports-policy-

documents.php)

Record of Discussions of EC, EI, PPPAC Meetings,

Knowledge Products, Toolkits (http://toolkit.pppinindia.com/)

Guidance Material for Health, Contract Management and Renegotiation of Contract

http://pppinindia.com/reports-policy-documents.php

http://pppinindia.com/NPBCP_images/PDFs/PostAwardContractManagementMa

nualforHighwayPPPConcessions.pdf

http://pppinindia.com/NPBCP_images/PDFs/DEVELOPING%20A%20FRAMEW

ORK%20FOR%20RENEGOTIATION%20OF%20PPP%20CONTRACTS.pdf

www.infrastructureindia.gov.in

An online database which provides information on infrastructure projects being

implemented in India including PPPs.













http://toolkit.pppinindia.com/







http://pppinindia.com/NPBCP_images/PDFs/PostAwardContractManagementManualforHighwayPPPConcessions.pdf




















http://pppinindia.com/NPBCP_images/PDFs/DEVELOPING A FRAMEWORK FOR RENEGOTIATION OF PPP CONTRACTS.pdf





























http://www.infrastructureindia.gov.in/


Standardized Documents

Model Request for Qualification (RfQ) for PPP Projects (http://pppinindia.com/pdf/model_rfq_may2009.pdf)

Model Request for Proposal (RfP) for PPP Projects (http://pppinindia.com/pdf/modelRfp_pppProjects_30nov2007.pdf)

Model Request for Proposal (RfQ) for Selection of Financial Consultants and Transaction Advisers (http://pppinindia.com/NPBCP_images/PDFs/RFPbyDOEforTAandFC.pdf)

Model Concession Agreements (MCA) for PPP projects

MCA for National Highways (A sample CA is available at http://morth.nic.in/writereaddata/linkimages/SSL_3.pdf )

MCA for National Highways (Six Laning)

MCA for Ports

MCA for Transmission of Electricity

http://pppinindia.com/pdf/model_rfq_may2009.pdf

http://pppinindia.com/pdf/modelRfp_pppProjects_30nov2007.pdf

http://pppinindia.com/NPBCP_images/PDFs/RFPbyDOEforTAandFC.pdf

http://www.infrastructure.gov.in/pdf/OverviewMCA.pdf

http://morth.nic.in/writereaddata/linkimages/SSL_3.pdf

http://www.infrastructure.gov.in/pdf/NH-SixLaning.pdf

http://www.infrastructure.gov.in/pdf/MCA_Port_Overview Final.pdf

http://www.infrastructure.gov.in/pdf/MTA-overview.pdf


1 Family Indicator Tool:

Which Type of PPP? 2 Mode Validation Tool:

Risk-based check

3 Suitability Filter:

How likely is success?

4 Financial Viability Analysis Model

Stage-wise Readiness Filters

www.pppinindia.com

Online Toolkits for PPPs


Thank You

Abhilasha Mahapatra

Director (PPP)

Department of Economic Affairs

Ministry of Finance, Govt. of India

[email protected]

Visit us at:

www.pppinindia.com

www.InfrastructureIndia.gov.in


http://www.infrastructureindia.gov.in/