report on ppp

8/8/2019 Report on PPP

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SCMS Journal of Indian Management, January - March, 2010. 44

A Quarterly Journal

Public Private Partnership:Indian EconomyOmdeep Gupta and Nibedita Biswas

I n f r a s t r u c t u r e i s t h e b a c k b o n e o f a n e c o n o m y . Fo r t h i s r e a s o n t h e

e c o n o m i e s o f t h e w o r l d o v e r h a v e b e e n f o c u s i n g o n d e v e l o p m e n t

o f t he in f ras t ruc t u re . Pub l ic Pr iva te Par tne rsh ip ( PPP) has emerge d

a s o n e o f t h e i m p o r t a n t w a y s o f i n f r a st r u c t u r a l an d e c o n o m i c g r o w t h . PPP h e l p s

g o v e r n m e n t s i n b u i l d i n g c a p a c i t y , an d a c q u i r i n g a n d m a i n t ai n i n g as se t s . H e r e t h e

g o v e r n m e n t r o l e g e t s r e d e f i n e d , w h i l e t h e p r i v a t e p a r t n e r p l a y s t h e r o l e o f f i n an c i e r,

b u i l d e r , a n d o p e r a t o r o f s e r v i c e o r f a c i l i t y . T h e p a p e r p r e s e n t s a s u m m a r i s e d i n d u s t r y -

w i s e an d r e g io n - w i s e an a l y si s o f PPP p r o je c t s i n In d ia .

O

Abstract

Twinning

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

M r. O m d e e p G u p t a , Se n i o r Le c t u r e r - M a r k e t i n g ,

I n st i t u t e o f M a n ag e m e n t St u d i e s , M a kk aw a l a

G r e e n s , M u s so o r i e - D i v e r s i o n Ro a d , D e h r ad u n248 009 , U t t a rakhand , E m ai l : o m d eep g@ gm a i l . c o m

M s . N i b e d i t a Bi s w a s , Le c t u r e r - M a r k e t i n g ,I n st i t u t e o f M a n ag e m e n t St u d i e s , M a kk aw a l aG r e e n s , M u s so o r i e - D i v e r s i o n Ro a d , D e h r ad u n

248 009 , U t t ar akhand , Em a i l : n . b i s w as 3@ gm a i l . c om

ne o f the key responsibilities o f any governmentis to develop and maintain the physical as w ell as

social infrastructure l ike energy, t ransport ,

communicat ion, educat ion,

sanitation, and health, without

w hich most eco nomic activity

would be impossible. In fact,

infrastructure spending used

to be one of government s

main activities. Of late, ho w -

ever , pub l i c spend ing on

infrastructure, as a share ofGDP, has been o n the d ec line

wor ldwide. This dec l ine in

publ ic investment in infra-

structure has created bottle-

necks for economic growth.

The status of physical

infrastructure clearly affects a

countrys productivity, com-

petitiveness in global markets, and ability to attract foreigninvestment.

Many companies have in-

creased the investments in

developing countries so that

the benefits of lower labour

co st, raw material, new markets

and competing technologies

can be availed as a part of

competitive business strategy.

The rise in FDI in developingcountries reflects the growing

trend tow ard s glob alization o f

business, and sends a clear

signal that government leaders

and business executives have

a common ground on which

to bui ld new and important

relationships.


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A Quarterly Journal

Public-Private Partnerships can help governments build

capacity, and acquire and maintain assets in environments of

shrinking or diminished budgets that make public sector

investments d ifficult, if not imp ossib le. They also allow p rivatecompanies to gain new business opportunities, share risks

with their public partners, and enhance the social and

economic environment in which they operate. Through

public-private partnerships, all parties contribute to the

creation of a more stable and improved environment that

o ffers benefits to p articipants and soc iety at large.

So the q uestion arises w hether the c ountries should increase

p ub lic investment, mainly develop ing nations infrastructure,

how it is benefic ial fo r do mestic ind ustries and PPP w ill give a

sustainable growth to the economy? These are some of the

issues explo red in this pape r.

Understanding PPP

Concept and Evolution

PPPs refers to long-ter m, co ntractual p artnerships b etw een

the pub lic and private sector agencies, targeted to w ards

f inanc ing, des igning, implement ing, and operat ing

infrastructure facilities and services in the country. These

collaborative ventures are built around the expertise and

capacity of the project partners usually government and a

private player and are based on a contractual agreement,

w hich ensures app rop riate and mutually agreed allocation o f

resources, risks, and returns. This approach of developing

and o p erating pub lic utilities and infrastructure b y the p rivate

sector under terms and conditions agreeable to both the

government and the p rivate secto r is called PPP or P3 o r Private

Sec to r Partic ipation (PSP).

According to Indian Government, Public Private Partnership

(PPP) is defined as a project based on a contract or

concession agreement, between a Government or statutory

entity on the one side and a private sector company on the

other side, for delivering an infrastructure service on payment

of user charges. Where, Private Sector Company means a

co mpany in w hich 51 percent o r more of the subscribed and

p aid up eq uity is ow ned and c ontrolled b y a p rivate entity.

PPP has no t new ly emerged , in sixteenth-and seventeenth-

century France, road s and b ridges we re co ncession fo r tolls

in return fo r maintaining the ro utes. Canals w ere b uilt and

water was collected and distributed under concessions. By

the 1820s, there w ere six private w ater comp anies op erating

in Lond on. At the b eginning of the nineteenth c entury, nearly

all of the waterworks in the USA were private. Electricity utilities

in the n inete enth century in Brazil, Chile, Costa Rica, andMexico w ere p rivate entities. In Argent ina, Brazil, and Uruguay,

p rivate d evelo pers from Britain, France, and the United States

built and o perated many of the early railw ays in the nineteenth

and twentieth centuries.

Under the PPP format, the government role gets redefined as

one of facilitato r and enabler, w hile the private partner p lays

the role of financier, builder, and operator of the service or

facilities, e.g. Feedback Ventures Private Limited, India

Consor tium p artners, Delhi Metro Rail Corporation ( DMRC),

India and Bankw orld Inc., USA and Hemant Sahai Assoc iates,

India.

The government is accountable for the quality of service to

be provided, price and the value for money, price of the

partnership. PPPs goal is to combine the skills, expertise,

and experience of both the public and private sectors to

deliver quality standards of services to customers. The public

sector co ntributes assurance in terms of stable go vernance,

citizens concerns, financing, and also assumes social,

environmental, and political risks. The private sector brings

with it operational efficiencies, innovative technologies,

managerial effectiveness, access to additional finances,

construction and commercial risk sharing.

Salient Features of PPP

All projects with private sector participation are not PPP

p ro jects. PPPs are tho se ventures in w hich the resources

required by the projects in whole, along with the risks and

rew ards/returns, are shared on the b asis o f a pred etermined,

agreed contract. PPPs are different from privatization. While

PPPs invo lve p rivate management o f p ub lic service thro ugh a

long-term contract between an operator and a publ ic

authority, privatization invo lves outright sale o f a p ublic service

o r facility to the p rivate sector. A typ ical PPP examp le w ould

b e a toll expressw ay pro ject financed and co nstructed by a

private developer. A PPP project is essentially based on a

significant opportunity for the private sector to innovate in

d esign, co nstruct ion, service d elivery, or use of an asset. To

be viable, PPPs need to have c learly de fined outp uts, avenues

for generating nongovernmental revenue, and sufficient


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A Quarterly Journal

capacity in the private sector to successfully deliver project

objectives.

PPPs involve Infrastructure projects such as roads andb ridges, water supp ly, sewerage and d rainage involving

la rge inves tment , l ong ges ta t ion per iod , poor cos t

recovery, and construct ion, social , and environmental

risks. When infrastructure is developed as PPPs, the

p roc ess is o f ten characterized b y d etailed r isk and co st

app r a i s a l , c om p l ex and l ong b i dd i ng p r oc edu r es ,

d i f f i cu l t s takeho lder management , and long-drawn

nego t iat ions to f inancial c losure. To d eal with the se

procedural complexit ies and potential pitfalls of PPPs,

g o v e r n m e n t s n e e d t o b e c l e a r , c o m m i t t e d , a n d

technically capab le to hand le the legal, regulato ry p olicy,

and governance issues.

Forms and Formats of PPP

PPP p roject have a p ublic sector agency and a private sector

co nsor tium which enco mpasses of co ntracto rs, maintenance

companies, private investors, a consortium, a nongovern-

mental organizat ion (NGO) and consult ing f i rms. The

consortium often forms a special company or a special

p urpose vehicle ( SPV). The SPV signs a contract w ith the

government and with the subcontractors to build the facility

and then maintain it.

The PPP is opera t iona l i zed th rough a con t rac tua l

re la t ionsh ip be tween a pub l i c body ( t he conced ing

authority) and a private company (the concessionaire).

This p artnership co uld t ake many contractual for ms, w hichp rogre ssively vary w ith increasing risk, resp o nsibility, and

f inanc i ng f o r t he p r i v at e s ec t o r. H ow ev e r, t he m o s t

c o m m o n p a r t n e r sh i p o p t i o n s ar e ( i ) Se r v i c e

Cont ract ; ( i i ) Management Cont ract /Lease; ( i i i ) Bui ld

Opera te T rans fe r (BOT) ; ( i v ) Concess ion , (v ) Jo in t

Venture ; and ( v i ) Co mmuni t y -b ased Prov is ion . Mo s t

c o n t r a c t s t a k e t h e f o r m o f C o n c e s s i o n a n d

Des ign , Bu i ld , F inance, and opera te con t rac ts , t o

c o v e r t h e f i n a n c e , d e s i g n , m a n a g e m e n t , a n d

maintenance o b l igat ions. These co nt racts are usual ly

f i n a n c e d b y u s e r f e e s o r t a r i f f s o r g o v e r n m e n t

s u b s i d i e s .

The p ub l i c sp onsor o f t he PPP d ec id es the degree o f

p r i v a t e p a r t i c i p a t i o n r e q u i r e d f o r t h e p a r t i c u l a r

p r o j e c t . T h i s d e c i s i o n i s u s u a l l y b a s e d o n t h e

government s ob jec t i ves o f under tak ing the p ro jec t ,

t he degree o f con t ro l i t des i res , and the ab i l i t y o f

the PPP co nsor t ium to d el iver the req ui red serv ice . It

i s a lso in f luenced by the p rov is ions o f t he ex is t ing

legal and regulatory f ramew o rk, the s t ruc tur ing of the

p rojec t to at t rac t p r ivate reso urces, and the po tent ia l

t o generate fu tu re cash f low s.

Figure 1: Trends of PPPs Sector-wise from 1990-2007

So u r c e : D r af t Re p o r t o f a Pr i c e W at e r h o u s e c o o p e r s st u d y , 2 0 0 7


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A Quarterly Journal

Status of PPPs and Initiatives of Indian Government

In early 19 th century India had PPPs but very few in numb ers.

The Great Ind ian Peninsular Railw ay Co mp any op eratingbetween Bombay (now Mumbai) and Thana (now Thane)

(1853), the Bombay Tramway Company running tramway

services in Bombay (1874) , and the p ow er generation and

d istributio n co mpanies in Bomb ay and Calcutta (no w Ko lkata).

Initial Experience

Effor ts to attract p rivate p articipation b egan in early 90s and

significant succ ess achieved in Telecommunication and select

Transp ort sub -secto rs. Indias PPP p rogram, w ith investment

co mmitments of o ver $10.5 b illion d uring 2006 and 20 07, is

already one of the largest in middle and low-income

co untries. In 2006, PPI investments in transpo rt and energy

amounted to 1.1 percent of GDP Investment commitments

to infrastructure p rojec ts w ith private p articipation in Ind ia

are nearly tw ice o f tho se in Brazil and China.PPI flow s w ere

slow in sectors outside telecom and energy. But now steep

inc reasing trend is noted in transpo rt PPPs Sec to r-w ise PPI,

1990 -2007 : Telecom - 45 p ercent; Energy 35 p ercent;

Transpo rt 20 p ercent.

Since the op ening of the ec ono my in 1991 there have b een

several cautious and tentative attempts at PPP in India.

How ever, most PPPs have b een restricted to the ro ads secto r.

Large-scale private financing in w ater sup p ly has so far been

limited to a few cities like Visakhap atnam and Tirup ur. Most

PPPs in water supply projects have been through municipal

b ond s in cities such as Ahmed abad, Ludhiana, and Nagpur.

West Bengal has reco rded significant succ ess in housing and

health sectors. The housing projects coming up on the

outskirts o f Ko lkata City are a goo d example o f w hat a PPP

model can deliver in terms of quality housing and quality

living co nditions to the lo w er midd le class and the midd le

class. Gujarat and Maharashtra have had success especially in

ports, roads, and urban infrastructure. Karnataka also has done

well in the airport, power, and road sector. Punjab has had

PPPs in the road sector.

How ever, successfu lly w o rking PPP mo d els can b e

understoo d b est with these instances, like The Tirupur p rojec t

in Tamil Nadu is regarded as a BOO T p rojec t, the first p rivately

financed water and sewerage project in India, executed

through an SPV. The project took more than ten years from

co ncep t to financial closure. The US$10 0 million Delhi-NOIDA

Bridge Project, implemented on a BOOT framework on the

basis of a 30-year concession, is the other major PPP initiative.The NOIDA to ll bridge, Tirupur w ater supp ly pro ject, national

highways, po rt d evelop ment, teleco m industry, the strategic

alliance mod el for b uilding transmission infrastructure through

IFCs sub -national finance w indo w and involves a joint w orld

b ank- IFC.

Domestic versus Foreign Private Players

Participation in PPP Projects

PPPs have been financing, designing, implementing and

op erating infrastructure facilities and services w hich w ere

p reviously p rovid ed by the pub lic secto rs in Ind ia. The Central

Government is working with the State Governments and all

other stakeholders to expand the horizon of PPPs in

infrastructure development of the country. It has created a

favourable atmosphere, provided f iscal incentives and

facilitated funding of PPP projects. The Government of India

has now allow ed FDI in most infrastructure secto rs to the

extent of 100 percent. The crucial initiatives to operational

and institutionalize the flo w of p rivate cap ital has increased

the infrastructure development in the country through PPPs,

and the investment of Rs. 135871 .42 c rore.

Participation of Domestic Players

Succ essful PPP p ro jec ts ind icate that they have a clear

bound aries and measurab le per formance fo r the private p arty,

sufficiently large scale o f o p erations, co mpetitive market for

provisioning of the services, significant service delivery, and

ability for the private sector to control factors for which it is

responsible.

On average, the domestic players have dominated the PPP

p rojec ts bo th in terms of numb ers and investment. Fig. 2

shows the sample of 300 pro jec ts 278 pro jec ts wi th

investment o f Rs.13 414 5.57 cro re. The road secto r has

dominated investment by domestic players with aggregate

investment o f Rs.51,39 8 cro re. The po rt secto r w ith total

d omestic p layer investment o f Rs.23931 crore co mes seco nd

and airp o rts at Rs.19 ,111 cro re. The energy space that

inc ludes hydro based power p lants is dominated by

d omestic p rivate p layers of Rs.17,802 c rore.


5/11


A Quarterly Journal

Figure 2: Sector-wise Domestic Player Investment in PPP Projects

Sourc e: Wo rld Bank and PPIAF, PPI Pro jec t Datab ase

Table 1: Domestic Player in PPP Projects

Source : PWC Analysis

Domestic Players Investment by Private Number of

Pl ay er ( Ru pe es i n Pr oj ec ts

crore)

Major Domestic Players

Larsen and To ub ro Transp o r tat io n Inf rast ruc ture Ltd . 3497.95 10

GMR Inf rast ruc ture Ltd . 1287.98 6

IVRCL Infrast ruc ture and Pro jec ts Ltd . 936 .6 4

Small Domestic Players

DS Co nst ruc t io ns 319.42 4

Sad b hav Engineering Limited 2085.68 11

MSK Pro jec ts ( Ind ia) Limited 238.84 15

To tal 8366.47 50

Amo ng the b ig domestic p layers Larsen and Toub ro lead w ith

a total investment o f, bo th in existing and unde r construction

p roject s, to talling Rs.349 8 c rore mo stly in road p roject s. It is

fo llow ed w ith GMRand IVRCL Infrastructure and Projec ts Ltd .,

w ith to tal investment o f Rs.1288 and Rs.937 respect ively.

In case of small domestic projects on BOT basis Sadbhav

Engineering Limited w ith investment in 11 p roject s with to tal

i n v e s t m e n t o f 2 0 8 5 . 6 8 c r o r e l e a d s t h e d o m e s t i c

scene. The Delh i based DS Const ruct ions L imi ted is

se c o n d , w i t h t o t a l in v e st m e n t o f Rs .3 2 0 c r o r e .

Mumb ai based MSK Projec ts ( India) L imi ted is th i rd in

t e r m s o f i n v e s t m e n t , w i t h 1 5 p r o j e c t s a n d t o t a l

investment o f Rs.238.84 c ro re . Amo ng these th ree

p layers they shared 30 p ro jec t s ou t o f 300 sample

pro jec ts in t ab le 1 .


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A Quarterly Journal

Foreign Player Participation in PPP Projects

Ac co rding to the reco rds availab le, in sample of 30 0, foreign

multinationals have equity participation only in 22 PPP projects.Malaysian companies are leading investors in public private

partnership (PPP) projects in India, involving nearly six major

infrastructure ventures. Follow ed by the United Kingdo m w ith

four p rojec ts, Mauritius (three), tw o each fo r France, Germany,

United Arab Emirates and the Philipp ines, and o ne each fo r

the United States and Sw itzerland . Foreign eq uity participation

of 27 foreign companies in PPP projects was only at

Rs.1,725.85 cro re w hich is meagre one p ercent o f the tot al

p rojec t investment. Prominent PPP p rojec ts w here fo reign

companies have an equity stake include modernisation of

Mumbai and Delhi international airports, Delhi-Noida tollbridge, Pipavav port, Bangalore international airports and JNPT

co ntainer terminal etc. Mauritius-b ased ACSA Glob al (A irpo rts

Comp any South Africa), for example, has Rs.160 cro re equity

stake in mod ernization of Mumbai international airpo rt p roject .

Ap o llo Enterp rises from UK has eq uity stakes o f Rs.48 cro re

and Rs.11 c rore in Lucknow -Sitapur road p roject and Raip ur

Durg expressway respectively.

Figure 3: Share of Indian Private Investors and Foreign Investors

S ou r c e : Wo r l d B ank and PPI A F, PPI Pro j ec t Da t ab as e

Table 2: Sector-wise Total Domestic and Foreign Investments

S o u r c e : P W C A n a l y s is

Foreign versus Domestic Investment in PPP Projects in India

Investor Type Total % of Total Number % of Total

Investment of Projects Project Cost

Fo reign Investo r 1725.85 7% 1%

Ind ian Private Investo r 134145 .57 93% 99%

To tal 135871.42 100% 100%

Sector-wise Break-up of Foreign Investor Participation in PPP Projects

Foreign Investor Versus Sector No. of Investment % of Total

Projects Project Cost

Po r t s 9 416 .5 24%

Ro ad s 9 256 .22 15%

A irp o r ts 4 1053 .13 61%

To tal 22 1725.85 100%


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A Quarterly Journal

Table 3: Statewise Total No. of PPP ProjectsSource: PWC Analysis

STATE-WISE FIGURES

Total Number of Projects based on value of contractsTotal Based Between Between More Value

State Number on 100 100 to 251 to than 500 of contacts

of Proje ct s c rore 2 50 c rore 5 00 c rore c rore

And aman & Nic o b ar Island s 1 I 85

A nd hra Prad esh 36 1? 5 8 6 10818

Bihar 2 1 1 422

Chhat t isgarh 4 1 2 1 853

Delhi 8 5 1 2 9813

Gujarat 2? 5 3 9 11 17700

Haryana 4 3 1 658Jharkhand 6 2 3 1 681

Kamataka 28 18 2 4 4 5252.7

Kerala 9 1 2 2 4 12463

Mad hya Prad esh 25 14 2 8 1 4SS6

Maharasht ra 25 2 5 3 15 31140.79

O rissa 4 1 3 3730

Pud d uc herry 3 1 1 1 2346

Punjab 20 14 2 4 1339

Rajasthan 37 33 2 2 1 2538.68

Sikkim 24 6 4 7 7 17110.59

Tamil Nad u 26 5 5 14 5 9948

Ut tar Prad esh 6 1 6 2 2108

West Bengal 5 1 3 1 2055.4

To tal 300 127 38 78 64 135876

Table 4: Sector-wise Total No. of Investment and Value of ContractsSource:Correa and Others 2006

SECTOR-WISE FIGURES

Total Number of Projects based on value of contractsSector Total Based on Between 100 Between 251 More than Value

Number 100 crore to 250 crore to 500 crore 500 crore of

of Projects contacts

A irp o r t s 6 1 5 20041

Po r t s 38 4 5 6 23 43053

Railw ays 3 1 2 1007

Ro ad s 186 86 23 54 23 47756

Urb an Develo p ment 35 28 4 1 2 6218

Energy 32 13 4 7 8 17802

To tal 300 131 37 71 61 135876


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A Quarterly Journal

Delivering infrastructure services through Public Private

Partnership (PPP) has garnered substantial pace since year

2000. Government of India have taken crucial initiatives to

op erationalize and institutionalize PPP p o licy to p romo te theflow of private capital for the accelerated infrastructure

development in the country. In 20 states in India, in 300

projects, government is having an active promotion of PPP in

the sec to rs such as t ranspor t , power , por t s , u rban

infrastruc ture, to urism and railw ays w here investments is

estimated to be Rs.1358 76 cro res. Some states have engaged

in mo re PPPs than o thers w ith an extensive use o f PPPs in

some secto rs than o thers.

It is evident from the ab ove Tables 3 and 4 that road secto r is

d ominating in projects, w ith 62 p ercent of total projects (35

percent of total project investment due to smaller average

size of projects). Ports come second in terms of number of

projects, i.e., 13 percent, which is 32 percent in terms of

value of projects.

It is noteworthy that if ports and central road projects are

exclud ed from the to tal, there is in fact a relatively small value

o f d eal flow, at o nly Rs.45067 cro re in b asic infrastructure

PPPs till date, suggesting a significant potential upside for PPP

p roject s acro ss sectors w here states and municipalities have

primary responsibil ity. The potential use of PPPs in e-

governance, health and education sectors remains largely

untapp ed across Ind ia as a w hole, tho ugh off-late there havebeen some activities shaping in these sectors. Another

add ition to t he datab ase is the energy sector w hich indicates

32 p rojects with a total investment of Rs.17802 cro re. Out o f

32 projects in energy sector, 28 of them are hydro based

p ow er projec ts on BOO T basis w hich were negotiated MoUs

between the state and the private parties.

Ac ross states o f Ind ia and cent ral agencies, Rajasthan, Andhra

Pradesh, Karnataka and Tamil Nadu, w ith 37 , 36, 28 and 26 are

leading users of PPP and, in t he ro ads secto r, and the National

Highways Authority of India (NHAI), with about 77 projects.

The main types of PPP contracts, almost all contracts have

been of the BOT/BOOT type (either toll or annuity payment

models) or close variants. In terms of approach to provider

selection, all the 300 sample o f railway and p or ts secto r w ere

co mpetitively bided . From the table 5 the to tal numb er of

p rojects allocated in all secto rs w ere 271 and out o f that 36

were domestic and 22 were international and 34 were

negotiated for MoUs and to tal value o f co ntracts amounted

to Rs.12768.32 cro re.

Table 5: Sector wise Contracts AwardedSource: Wor ld Bank Ana lys is

Sector-wise Contract Award Method

Sector Total

Nu mb er of Total Number of Projects based on Contract Award Method

Projects

Domestic International Negotiated Value of

Competitive Competitive MOU Contracts

Bidding Bidding (Rs.Crore)

A irp o r ts 4 4 18308

Po r t s 28 5 12 11 39998.95

Ro ad s 179 46385.07

Urb an Develo p ment 29 22 6 1 4689.48

Railw ays 3 1 2 1007.22

Energy 28 8 20 16793.59

To tal 271 36 22 34 127682.31


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A Quarterly Journal

Pros and Cons of PPP

Since the 1990s, there has been a rapid growth of PPPs

around the world. Governments in developing as well as

develop ed co untries are using PPP arrangements fo r imp roved

delivery of infrastructure services. Governments are building

transport (roads, railways, toll bridges), education (schools

and universities), healthcare (ho sp itals and clinics), w aste

management (co llection, w aste-to -energy plants), and w ater

(co llection, treatment, and d istribution) infrastructure through

PPP. PPP is bec oming the b est method fo r pub lic p roc urement

of infrastructure and infrastructure services projects across

the w orld.

Benefits and Strengths

PPP emerged as a mechanism bridging the potent ial

infrastructural gap. PPPs primarily represent value for money in

public procurement and eff icient operation. Apart from

provid ing private investment flow s, PPPs also d eliver efficiency

gains and enhanced impact of the investments. The efficient

use of resources, availability of modern technology, better

p roject d esign and imp lementation, and improved op erations

co mbine to deliver efficient and effective gains w hich are not

readily available in a public sector project. PPP projects also

lead to speedy implementation, diminished lifecycle costs,

and op timal risk allocation. Private management also increasesacco untability and incentives p erformance and maintenance

of req uired service standards. Finally, PPPs result in imp roved

delivery o f p ublic services and pro mote p ublic sector reforms.

Major Propelling Factors towards PPPs

Limitations of Go vernment Resourc es and Cap acity to meet

the Infrastructure Gap: Glob ally, governments are increasingly

co nstrained in mo b ilizing the required financial and technical

resourc es and the executive capacity to c ope w ith the rising

demand for water supply, sewerage, drainage, electricity

sup p ly, and solid w aste management. Rapid eco nomic

growth, growing urban population, increasing ruralurban

migration, and all-round social and economic development

have compounded the pressure on the existing infrastructure,

and increased the demandsupply gap in most of the

d evelop ing wo rld. Countries and governments, esp ecially in

the developing world, are experiencing increasing pressure

from their citizens, civil soc iety organizations, and the med ia

to p rovide accessible and afford able infrastructure and b asic

services. While the infrastructure gap is rising, government

budgetary resources are increasingly constrained in financing

this d eficit. The pressure has also c ome from the international

compact on Millennium Development Goals (MDGs), under

which country progress in terms of access to safe drinking

w ater, sanitation, health, etc. is being mo nito red . Rising co sts

of maintaining and operating existing assets, inability to

increase revenue and cut c o sts and w aste, and rising

const ra ints on budgets and borrowing, do not a l low

governments to make the req uired investments in upgrading

or rehabilitating the existing infrastructure or creating new

infrastructure.

Need For New Financing And Institutio nal Mechanisms: The

political economy of infrastructure shortages, constrained

p ublic resources, and rising pressure from c itizens and civilsoc ie t y have combined to push governments and

policymakers to explo re new w ays of financing and managing

these services. Governments have b een p ushed to exp loring

new and innovative financing method s in which p rivate secto r

investment can be attracted through a mutually beneficial

arrangement. Since neither the p ublic secto r nor the p rivate

sector can meet the financial requirements for infrastructure

in isolation, the PPP model has come to represent a logical,

viable, and necessary option for them to work together.

Limitations of PPPs

Despite the growing interest in and adoption of PPPs, they

have been facing criticism from civil society organizations,

p ublic interest group s, med ia, and ot her stakehold ers. Wide

pub licity of some o f the p rob lematic PPPs has raised co ncerns

abo ut the ro le of the p rivate secto r in pub lic services. Lack of

trust in the p rivate secto r w ith p ublic service, tariff increases,

layoffs, and p oo r stakeho lder management have contributed

to these concerns. The detractors also accuse PPPs of high

p roc urement costs, which d eter small comp anies and cur tail

competition. However, many PPP experts attribute the failure

of some o f these p rojects to faulty, rushed , non-co mpetitive,

and no n-transparent app lication of the PPP p rinciples.

Conclusion

The above study brings a rationale and significance of PPP

projects for faster economic growth especially in India. It is

acknowledged that rapid economic growth, growing urban

population, increasing ruralurban migration, and all-round


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A Quarterly Journal

soc ial and ec ono mic develop ment have put the tremendous

p ressure on the infrastructural d evelop ment and b ecause o f

this countries and governments, espec ially in the d evelop ing

w orld, are experienc ing an increasing pressure from their

p eop le, civil soc iety organizations, and the media to p rovide

accessible and affordable infrastructure and basic utility

services. And as a result PPP emerged as a saviour for these

nations especially India saving it from severe budgetary

constraints.

How ever, PPPs are no t far from the share of critic ism from civil

society organizations, public interest groups, media, and

other stakeholders. Wide p ublicity of some o f the p rob lematic

PPPs has raised concerns about the role of the private sector

in pub lic services. Lack of trust in the p rivate secto r w ith

p ub lic service, tariff increases, layo ffs, and p oor stakeholde r

management have contributed to these concerns.

Despite its limitations, the emergence of PPPs is seen as a

sustainab le financing and institutional mec hanism w ith the

potential of bridging the infrastructure gap. PPPs primarily

represent value for money in pub lic p rocurement and efficient

op eration. Ap art from enabling p rivate investment flow s, PPPs

also deliver efficiency gains and enhanced impact of the

investme nts. PPP enab les a p rivate investment inflo w

enhancing the ec ono mic grow th.

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