When private sector's enthusiasm andexecution speed is married with pow-er and will of the state, it lays down

a red carpet for socio-economic development.Public Private Partnership (PPP), a relativelynew funding model for creating public infra-structure, is being adopted rapidly in the coun-try. The Union Government is framing a na-tional policy and has just published the DraftNational Public Private Partnership Policy,which is now open for citizens and private en-tities to provide their suggestions.

With India forecast to see leapfrogging eco-nomic development, PPP will come up as a primefunding model. While many state and centraldepartments have started rolling out projectson the PPP model, the society, corporates, andmany government officials are yet unclear aboutit, and in some places even confused.

To clear the air, The Economic Times hadorganised a conference on Public Private Part-nership at Nagpur getting all stakeholders inMaharashtra's second capital. Nagpur Im-provement Trust, Maharashtra Airport De-velopment Corporation and Nagpur MunicipalCorporation were knowledge partners repre-senting the government, while private entitiesa'XYKno, a transaction advisor and VishvarajInfrastructure Ltd, an infrastructure develop-ment company, supported the event.

Nagpur Improvement Trust (NIT) has a man-date of developing around half part of Nagpurcity, after being appointed as the Special Plan-ning Authority for Nagpur Metropolitan Area.Pravin Darade (IAS), Chairman, NIT stated thatNIT had executed 15 infrastructure projectsworth Rs 135 crore on the PPP model. "We havelined up 31 projects worth Rs 645 crore, whichare now in various stages of planning or bidpreparations. We will invite offers for most ofthem shortly. I expect that these projects will beup and ready in the next two and a half years."

Saurabh Rao, commissioner of Nagpur Mu-nicipal Corporation (NMC), in his presentationsaid the corporation had planned capital in-vestments worth Rs 16,670 crore, across watersupply, waste management, traffic, road, trans-port, sewage management, among others. Thecorporation is aiming to have Rs 3000 crore worthof work done through the PPP model, while ithas not yet identified the source of funding formore than Rs 10,000 crore. A large chunk of itis available for private partners to participate.

Nagpur is the geographical centre of India;the zero milestone of India is in this city. All ma-jor highways NH-7 (Varanasi - Kanyakumari) &NH-6 (Mumbai - Sambalpur - Calcutta) and ma-jor railway routes (Mumbai, Chennai, Howrah,Delhi) pass through the city. It is the second cap-ital of Maharashtra and the winter sessions ofthe state assembly are conducted here. Manycentral and State Government departments andinstitutions have zonal offices in Nagpur. Fringeareas like Kamptee, Hingna, Wadi, Khapri, Buti-bori and Kalmeshwar are places of industrialdevelopment in the recent times.

MIHAN or Multi-modal International HubAirport at Nagpur is a new integrated develop-ment underway in the city over 4454 hectares,including special economic zone over 2086hectares. Expansion of the existing airport isunderway, which includes a new 4-km runwayand new terminal building over 3 million squarefeet. Maharashtra Airport Development Com-

pany or the MADC is developing MIHAN. Theproject was a bit delayed mainly on land acqui-sition issues. However Mr Darade, also the jointmanaging director of MADC said that acquisi-tion of the last 143 hectares of the requirement

is underway and will be completed soon. Theproject will start functioning seamlessly afterthat. Soon 14 companies will be operating in MI-HAN, which includes Boeing, HCL Technolo-gies, Bharat Petroleum, DLF, TCS, Wipro, among

others. The project is open for companies will-ing to set up operations here, with land in SEZavailable at Rs 60 lakh per acre with a 1.5FSI/FAR, to be allotted on first come first servebasis. Open and international bidding processwill decide the land price in the non-SEZ zone.Mr Darade stated that the MADC is open for pri-vate participation in the development of MI-HAN, where MADC will pitch in with equity par-ticipation 26% to a maximum of 49% inclusiveof land, and ensure approvals and clearances.

The Maharashtra government is also in theprocess of setting up a guideline frameworkfor PPP projects in the state. The Asian Devel-opment Bank, of which India is a foundingmember and its fifth largest shareholder, hasgiven a grant to Indian government to supportPPP and also sent its officials to work with thestate governments. Ajay Saxena, an ADB offi-cial, works with the Maharashtra government,to provide guidance support to various statedepartments. Mr Saxena, who was present atconference organised by The Economic Times,guided the participants on the implementationof PPP projects and most importantly dispelledconfusion and myths.

He stated that in PPP projects, the privatecompanies are not contractors, but co-owners,sharing equal authority and responsibility. Itis also not privatisation in any sense, he said.He however cautioned that the for effective im-plementation, the public sector has to retain theresponsibility of planning, management andregulation of public service provision, whilethe public service supply has to be handed overto the private sector. "The public sector shouldbe very diligent in preparing the contracts andsetting the legal and regulatory framework. Thecontracts should also specify well defined exitroutes and effect of termination. The monitor-ing should also rest in the hands of the publicsector with right to penalise or reward the pri-vate entity for underperformance or over per-formance. The private partner should get duerecognition and the contract should have pro-vision for re-negotiation after certain period.However, it is paramount that no projects shouldbe undertaken unless there is a clearly identi-fied public need," Mr Saxena said.

Echoing his perspective, Arun Lakhani,chairman and managing director, Vishvaraj In-frastructure Ltd said, "Time has come to ex-tend PPP to PPPP by adding the fourth P for'People' in order to evolve partnership in truesense." He stated that developers should changetheir mindset from 'small contracts executedas contractors' to 'long term PPP contracts ex-ecuted as co-owners'.

While the government and private devel-opers are the executors in a public privatepartnership, their seamless integration isbrought about by transaction advisors, whonot only advice the government agencies onthe implementation, but also contribute withthe feasibility analysis of the project. Thea'XYkno Group, empanelled with some stategovernments, is advising certain projects inNagpur, along with other areas. R VishwanathIyer, Co Founder, a'XYkno Group, said, "Suc-cess of any project on Public Private Part-nership (PPP) basis rests on three legs of atripod - Technical, Financial & Legal. Essenceof any PPP project is to offer a win-win situ-ation to all the stakeholders.

The State Govt. of Maharashtra ismaking all out efforts to acceler-ate the pace of development and

invite investments in the State bothfrom the country as well as Foreign Di-rect Investments (F.D.I.).

Nagpur is the second capital of Ma-harashtra and has strategic central loca-tion in India as well as the internationalaviation routes. It has connectivity to allparts of India, both by National High-ways as well as main trunk rail routesand also air connectivity. It has excellentroads, water, power and telecommuni-cation infrastructure.

In order to tap this potential, Govt. of

Maharashtra has decided to develop acomposite project called 'Multi-ModelInternational Passenger and Cargo HubAirport at Nagpur' (MIHAN).The projectcomprises of developing the existingdomestic airport of Nagpur as an inter-national passenger and cargo hub air-port, along with a Multi Product SpecialEconomic Zone (SEZ), which is abuttingto the boundary of the airport.

Maharashtra Airport DevelopmentCompany Ltd. (MADC) is Special Pur-pose Company constituted by the Govt.of Maharashtra for implementing theMulti- Modal International Hub Airportat Nagpur (MIHAN) as per recommen-

dation of Techno-economic feasibilitystudy (TEFS) report prepared by consor-tium of International Consultant lead byL&T Ramboll and also to develop thevarious other airports, (not belonging toAirports Authority of India (AAI) and In-dian Air Force (IAF) in the state of Maha-rashtra to provide air connectivity be-tween the various important Urbancenters Head Quarters and also the cap-ital of the State.

MIHAN, SEZ (Free Trade Zone) is oneof the largest Multi-product SEZ in thecountry. This SEZ has got the 'FormalApproval' for about 2086 Hectares ofland from the Ministry of Commerce,

Govt. of India.The proposed Special Economic

Zone adjacent to the International HubAirport will be supported with worldclass infrastructure facilities. Out of the2086 Hectares of land about 1472Hectares land is set aside for Processingactivities and 614 Hectare of land is forNon - Processing activities. As a devel-oper of this SEZ, MADC is providingstate of the art infrastructure which in-cludes a network of 6,4,3 lane roads,Rail& Road Terminal, captive power plant of246 megawatt capacity including 25megawatt DG genset as a backup, opti-cal fibre cable network for voice anddata connectivity,bacteria free drinkingwater with a provision of supply of wa-ter for both domestic and non-domesticpurposes, and supporting services likethe International School, Health City,

residential area, etc.In the Special Economic Zone land is

being allotted to organisations for set-ting up their manufacturing / serviceunits for manufacturing goods, render-ing services, processing, assembling,packing, repacking, etc. for exports.

Opportunities available to the investors:

l Land is available inside the SEZ at themost competitive rates for commer-cial purpose.

l Plug and Play offices are immediatelyavailable in the Central Facility Build-ing within the SEZ area.

l Investments in the MIHAN project areaother than processing zone of SEZ isbased on competitive internationalbidding.

Arun Lakhani, chairman andmanaging director of Vish-varaj Infrastructure Ltd. (VIL)

says for successful PPPs - a win-winmodel is a must for all stakeholders.

"Time has come to extend PPP toPPPP by adding the fourth P for 'Peo-ple' in order to evolve partnership intrue sense" stated Lakhani in hisopening remarks. He deliberated histhoughts on 'Successful PPPs' - A win-win model must for all stakeholders'at the ET event. "I see a great role forPPPs in India's economic develop-ment. To sustain 8% growth rate forIndian economy and looking at highurbanisation rate of Indian cities,PPP is a big market place, he said.

In a PPP project structure all stake-holders are ready to take some risksprovided they are assured of rewards.Government offers its assets to theprivate sector and expects private fi-nance and efficiency as reward. Pri-vate sector invests in public assetsand expects reasonable returns on in-vestment along with sound contractu-al provisions. People bear hassles dur-ing project implementation phase andexpect better customer experiencethrough improved service levels. Talk-ing about challenges faced by develop-ers, Lakhani referred to poor finan-

cial bankability and weak contractualframework for some PPP projects.

He also said that PPPs have given anopportunity to appreciate changedperspective. Elaborating on the topic,he described the transformation thathappens in the mindset of developersfrom 'small contracts executed as con-tractors' to 'long term PPP contractsexecuted as co-owners'. In a long termperformance based PPP contract,there is an inherent mechanism thatmakes developer accountable and alsomotivates him to provide a quality in-frastructure. He bluntly stated thatthe contractual conditions must bevery clearly spelled out and thereshould not be any scope for maneu-vering by private operator. It bringsbad name to the developer fraternityof which he is a part.

Sharing his experiences with PPPprojects, Lakhani cited some innova-tive PPP contracts. He talked aboutMAHAGENCO STP contract at Kora-di thermal power station whichthrough innovative structuring notonly resulted in reuse of water butalso saving of water for the citizens ofNagpur. Referring to Nagpur 24x7 wa-ter supply contract as an example ofanother innovative contract, he ex-plained the goals of this contract. One

of the important goals is to convertcurrent intermittent water supply tocontinuous water supply in a phasedmanner over a period of 5 years; otherobjectives being offering better cus-tomer service, keeping pipes pres-surised to ensure healthy water sup-ply and checking leakages. He also cit-ed a classic example of Yeola town de-velopment as a part of BOT Road con-tract and how it helped winning overthe people of town bringing down nat-ural resistance for toll road project.

Lakhani talked about some possiblePPP contracts in municipal sectorthat can provide solutions to some ofthe long waiting problems. He sug-gested offering city roads to develop-ers for longer terms of 20 to 25 years.

To summarise his speech, he reit-erated mindset change that automat-ically happens from 'short term con-tractor' to 'long term co-owner' ofthe developers in case of PPP con-tracts. In his concluding remarks heemphasized a need to execute re-strain by introducing one more 'P' forpatience. Quality implementationtakes time and it is anxious time forall the stakeholders till the time thefacility is built. However, there is aneed to be patient, as any change forgood has to wait.

PUBLIC PRIVATE PARTNERSHIP CHALLENGES & OPPORTUNITIES

THE ECONOMIC TIMES | MUMBAI | WEDNESDAY | 5 OCTOBER 2011 A RESPONSE CONSUMER CONNECT INITIATIVE

Time to add a fourth P to PublicPrivate Partnerships : Arun Lakhani

PRAVIN DARADE(IAS), Chairman,

NIT & Jt. MD MADC

The project isopen for compa-nies willing to setup operations

here, with land in SEZavailable at Rs 60 lakh peracre with a 1.5 FSI/FAR, tobe allotted on first comefirst serve basis.

D e v e l o p e r sshould changetheir mindset from'small contracts ex-

ecuted as contractors' to'long term PPP contractsexecuted as co-owners.'

PRITIRAMAKRISHNAN

a'XYkno Group

Success of anyproject on PublicPrivate Partnership(PPP) basis rests onthree legs of a tri-

pod - Technical, Financial& Legal.

AJAY SAXENAPPP Expert, GoM

In PPP projects,the private com-panies are not con-tractors, but co-

owners,sharing equal au-thority and responsibili-ty. It is also not privatisa-tion in any sense.

All types of projectscan be done on the

PPP model

All types of projects, from hospitals, roads,parks, airports, to schools etc can be doneon the PPP model. It is important for every-

one to understand that in PPP projects, it is the gov-ernment money that will be spent, so it has to beused responsibly. The public sector's responsibilityis to ensure political commitment to the project. Itshould provide all information required to take in-formed decision, reduce risks and uncertainty inthe projects. The state should provide support re-lated to land acquisition, grant, regulatory approvalsand also set up the legal and regulator framework.The government, in all cases, must ensure the com-mercial viability of the project and structure theproject to include all possible revenue streams. Itcan also explore annuity based options in social in-frastructure projects. The private entities must keepin mind the welfare mandate of the government inall PPP projects they participate in. There are like-ly to be disputes during the implementation of theprojects, but both sides should ensure that they work-ing despite the dispute - just like family.

The common reasons of failure are poor legalframework and enforcement, weak institutional ca-pacity and PPP strategy, unrealistic revenue andcost estimations, lack of thorough financial andeconomic analysis and inappropriate sharing ofrisks. Public resistance, because willingness to payis not properly assessed, is also a major reason forfailure. Both public and private parties should mit-igate these risks with adequate planning.

Ajay Saxena,Asian Development Bank and

PPP Expert, GoM

PPP projects need a trans-action support, which isthe financial structuring

of any PPP project. It starts fromconceptualisation of a project,which can either be done by thegovernment or a private partnercan identify a project and ap-proach the government. If thegovernment feels the need of theproject, it appoints a transactionadvisor to conduct feasibilitystudy, on whether the project iseconomically and socially viable.Success of any PPP project is de-cided by its technical, financial,and legal aspects, which has tobe backed by an excellent secto-rial knowledge & expertise. Fi-nally, all this has to be balancedon a robust financial model and contractual agreement betweenthe public & private agencies.

Transaction advisors need to have the domain knowledge. Attimes the project is strategically viable, at times it is economical-ly viable, so the government takes a call on it. Now the governmentdoes not have enough funds, so private finance is arranged and thetransaction advisor does the financial structuring on how the fundswill flow, and against the investment, three roles, technical, com-mercial and legal study financial and

compliance. Role starts immediately after the conceptualisa-tion, feasibility, financial structuring, bid process management af-ter which the government enters into an agreement with the pri-vate party. The role of transaction advisors ends at this point.

Spearheading Nagpur development

KNOWLEDGE PARTNERS SUPPORTED BY

R VISHWANATH IYERCo Founder, a'XYkno Group

A young delegate clears her doubts from the experts.

Delegates networking during lunch.

Transaction advisorsmust for PPP

Nagpur lines up PPPdeals worth crores

Pravin Darade (IAS), Chairman, Nagpur Improvement Trust (NIT) andjoint MD, MADC outlines plans at The Economic Times conference on

Public Private Partnership at Nagpur. Omkar Sapre reports

Iam glad to know that The Economic Times has organised a conferenceon 'Public Private Partnership' on 29/09/2011at Nagpur.

India's strong export performance backed by low cost of production andhigh quality will continue to support the growth momentum in the coun-try, thereby underlining the importance of increased participation of PPPmodal in infrastructure projects. Maharashtra Airport Development Co. Ltd.(MADC) is developing a multipurpose Special Economic Zone (SEZ) in 2086Hectares at Nagpur along with an International Hub Airport.This mega in-frastructure project presents opportunities to private investors to be part-ners in the project.We have already executed a PPP Project in the PowerSector of the MIHAN Project.

However many new challenges lie ahead owing to far reaching effects thatare taking place around the world in terms of quality and technology. I amconfident that MADC is fully geared to meet these challenges and present opportunities to all the stakeholders. In pursuant of the objective, we are inviting you to participate in this Mega Project which wouldearn sizable financial returns. I hope that, with continue policy support from the Government, the mediaand enterprising companies will not only sustain the growth momentum but also surpass the target set.

I convey my thanks to the participants and look forward to successful business in MIHAN.U.P.S. Madan

Vice Chairman & Managing Director,Maharashtra Airport Development Co. Ltd. Mumbai

U.P.S. Madan

From left: SV Chahande Chief Engineer, MADC, Arun Lakhani, CMD, Vishvaraj Infrastructure Ltd., Ajay Saxena, ADBofficial, Pravin Darade, Chairman, NIT & Jt. MD MADC, Priti Ramakrishnan Driector aXYkno & Sunil Warrier, ResidentEditor The Times of India.

MADC FULLY GEARED TO MEET NEW CHALLENGES

ARUN LAKHANIChairman and MD, Vishvaraj

Infrastructure Ltd.

TM

N...N..N.

aXYKnoN

MaharashtraAirportDevelopmentCo. Ltd.

LWSHVARAJINFRASTRUCTL/RELTD.

Nagpur Improvement TrustSINCE 193

MADC