NICMAR / SODE OFFICE

ASSIGNMENT ON

1. Course No. : GPQS 12

2. Course title :
Management of PPPs
3. Assignment No. : 1
4. Date of Dispatch : 19 - 01 -
2017
5. Last date of Receipt : 15 - 02 -
2017
Of assignment at SODE
Office

SUBMITTED BY: JIJO B RAJ

REG NO : 216-09-27-12673-2174

1
SUBMITTED TO: NICMAR (Pune), SODE.

2
Contents

PUBLIC PRIVATE PARTICIPATIONS SCHEMES.................5

PARTIES INVOLVED IN PPPs.......................................12
FINANCIAL STRUCTURING OF PPPs...........................23
IS PPPs IDEAL FOR INFRASTRUCTURE
DEVELOPMENT?...........................................................27
REFERENCES:..............................................................31

3
ASSIGNMENT:
The term public private
partnership describes a range of
possible relationships among public
and private entities in the context
of infrastructure and other services.
Other terms used for this type of
activity include private sector
participation (PSP) and privatization.
Under PPP principle, a private
entrepreneur is given a concession
(by a contract) to build, operate (or
own / lease / rent / manage) for an
agreed duration and then transfer
the asset to the Govt. organization.
Based on the study material supplied
to you explain:
Different Public Private Partnership
schemes.
Parties involved in Public Private
Participation and their roles.
Financial structuring of public
private partnership projects.
4
 Do you think this system is deal
for infrastructure development?
Discuss.
Public- Private Partnership-
Definition:
The term publicprivate
partnership describes a range of
possible relationships among public and
private entities in the context of
infrastructure and other services. Other
terms used for this type of activity
include private sector participation (PSP)
and privatization.
PPPs present a framework that
while engaging the private sector
acknowledge and structure the role for
government in ensuring that social
obligations are met and successful
sector reforms and public investments
achieved.
The advantage of privatization
or entry of private sector in domains
5
which were normally controlled by
Govt. / GOVT. organizations, were
realized and entry of private sector
by way of private investment to
undertake infrastructure development
was accepted by way of of build,
operate, transfer (BOT) or similar other
models.

PUBLIC PRIVATE
PARTICIPATIONS SCHEMES

There are different variants with mior

modifications under the same
principles, some of which are
described as follows:

1. B.O.O. Build, Own, Operate:

BOO is a contractual
arrangement whereby, a project
developer is authorized of finance,

6
construct, own, operate and maintain
an infrastructure or development
facility, from which the developer is
allowed to recover the total
investment, operating and
maintenance costs, plus a reasonable
return thereon, by collecting tolls,
fees, rentals or other charges from
facility users. Under this project, the
developer who owns the assets of
the facility may assign its operation
and maintenance to a facility
operator.

2. BOT Build Operate Transfer:

BOT is a contractual
arrangement whereby the projects
developer undertakes the construction
of a given infrastructure facility, and
the operation and maintenance
thereof. The project developer
operates the facility over a fixed

7
term during which one is allowed to
charge facility users appropriate tolls,
fees, rentals and charges not
exceeding those proposed in its bid,
or , as negotiated and incorporated in
the contract to enable the project
developer to recover the investment,
and operating and maintenance
expenses in the project. The project
developer transfers the facility to the
government agency or local
government unit concerned at the
end of the fixed term. This may
include a supply and operate
situation which is contractual
arrangement whereby, the supplier of
equipment and machinery for a given
infrastructure facility, if the interest of
the government so requires, operates
the facility.
3. BT Build Transfer:
Build and transfer can be
described as a contractual
8
arrangement thereby the project
developer undertakes the financing
and construction of a given
infrastructure development facility.
After its completion, the government
agency or the local government unit,
pays the developer its total
investment expended on the project
on an agreed schedule, plus a
reasonable rate of return, thereon.
This arrangement may be employed
in the construction of any
infrastructure or development project,
including critical facilities which, for
security or strategic reasons must be
operated directly by the government.

4. BLT Build Lease Transfer

Operate Power Projects:
BLT is a contractual
arrangement thereby the project
developer is authorized to financing

9
and construction of a given
infrastructure development facility.
Upon its completion, the developer
turns its over to the government
agency or the concerned local
government on a lease arrangement
for a fixed period, after which,
ownership of the facility is
automatically transferred to the
government agency or the concerned
local government.

5. BTO - Build Transfer and

Operate-Sewage Treatment Pants,
Water Treatment Plants:
BTO is a contractual
arrangement whereby the government
contracts out the construction of an
infrastructure facility to a private
entity such that the contractor builds
the facility on a turn key basis,
assuming cost overturns, delays and

10
specified performance risks. Once the
facility is commissioned satisfactorily,
the title is transferred to the
implementing agency, the private
entity, however, operates the facility
on behalf of the implementing
agency under the agreement.

CAO- Construct Add and Operate:

CAO is a contractual
agreement whereby the project
developer adds to an existing
infrastructure facility which it rents
from the government and operates
the expended project over an
agreed period as a franchise. There
may or may not be a transfer
arrangement with regard to the addd
facility provided by the project
developer.

DOT Develop Operate Transfer:

11
 DOT is a contractual
arrangement whereby favorable
conditions external to the new
infrastructure project which is to be
built by a private developer are
integrated into the arrangement by
giving that entity to develop
adjoining property, and thus, enjoy
some of the benefits created by the
investment such as higher property
or rent values.
ROT Rehabilitate Operate
Transfer:
ROT is a contractual
arrangement whereby an existing
facility is turned over to a private
entity to refurbish, operate and
maintain for a specified period as a
franchisee, on the expiry of which,
the legal title to the facility is
turned over to the government. The
term is also used to describe the

12
purchase of an existing facility from
abroad, and refurbishing.
ROO Rehabilitate Own Operate:
ROO is a contractual
arrangement whereby an existing
facility is turned over to the private
sector for refurbishing and operation
with no time limit on ownership. As
long as the operator has not violated
the franchise, it can continue to
operate the facility in perpetuity.

LROT Lease Renovate Operate

Transfer:
LROT is a contractual
arrangement whereby an existing
infrastructure facility is handed over
to private parties on lease, for a
particular period of time for the
specific purpose of renovating the
facility and operating it for a specific
period of time, on such terms and
13
conditions as may be agreed to with
the government for recovering the
costs with an agreed return and
thereafter, transferring the facility to
the government. The frame work
should provide for clear
consequences of termination
particularly with respect to the
government, which should include the
determination.

BOOT Build Own Operate

Transfer:
In this case the ownership
rights are also vested in
entrepreneur. Thus he can decide
whom to allow entry and use the
assets as security for financing.

PARTIES INVOLVED IN PPPs

14
The parties involved in Public Private
Participation are generally as follows:
a. The government
b. Sponsors
c. Lenders Financing
agency
d. Investors
e. Contractors
f. Project Vehicle Special
purpose
g. Users / Consumers
h. Regulator
i. Other authorities (NHAI,
AAI etc.)
1.Government:
The government is represented
either through a ministry or a
government body with its own body
of authorized personnel empowered
to negotiate and take decisions
regarding the implementation of the
project. The main interest of the
government in relation to the

15
implementation of the infrastructure
project by a private entity should be
to ensure that only necessary and
required projects are authorized and
the projects that are authorized are
indeed implemented within the time
frame and at the costs that ensure
their viability not only at a
commercial level but also at a
social/public level. This would entail
that an adequate and balanced
frame work is provided to ensure the
speedy implementation of the
projects. This also ensures that the
facility is built to the required
standards and within the reasonable
costs estimated at the time of
authorization of the project.

2. Sponsors:
The concerned group from the
non-government sector that is

16
seeking or that has been selected
to implement the project are
commonly referred to as the
sponsor or developers.

3. Lenders- Financing Agency.

He is not a share holder:
The group of legal entities,
institutions, companies and other
persons that provide the dept
financing for the development of the
project are referred to as the
leaders.

4. Investors:
The persons who invest money
into the development of the project
are referred to as the investors. The
main difference between lenders and
investors is that lenders do not look
towards acquiring a participatory
17
interest in the implementation of the
project and its consequent returns, but
only seek to lend money on
commercial terms in order to ensure
an adequate increase in the amounts
lent through the payment of periodic
interest on the amount till of the
amount borrowed. This difference in
the nature of their interests in
financing the implementation of the
project distinguishes the amount of
risk that the lenders are willing to
accept regarding the project. It is
regarding the project. It is common
to find the same entity being an
investor with regard to certain
amounts, and, at the same time, being
a lender with regard to another
amount. The differentiating factor
between the two is the risk the
entity is undertaking in relation to
the specified sums and the manner

18
in which its interests in relation to
the sums forwarded are protected.

5. Contractors:
As an infrastructure project
involves expertise that is seldom
present within the capacity of any
single sponsor or contractor, there
are various groups of contractors
selected by the sponsors to
implement the various segments of
the project. The contractors are
commonly identified by the nature of
the responsibilities they undertake.
Generally the main contractor
involved in the implementation of an
infrastructure project is the contractor
undertaking to construct the facility.
This contractor is identified on the
basis of the scope of work actually
being sought to be contracted out.

19
One of the prevalent methods is to
contract out the entire scope of work
relating to engineering, procurement
and construction of an infrastructure
facility to one contractor who is
referred to as the EPC contractor.
Another method is to contract out
the work of formulating the design
of the facility to a contractor distinct
from the contractor undertaking to
consult the facility. This method is
not preferred as it causes
complication regarding the allocation
of responsibility for any defect
detected in the facility at a later
stage.
The operation and maintenance of
the facility upon completion of
construction is contracted out to
contractors specializing in the
operation and maintenance of the
particular facility. It is very common
to find the work of operation of the
20
facility being contracted to a
contractor distinct from the one to
whom the responsibility of the
maintenance of the facility is
allocated.

6. Project Vehicle-Special
purpose vehicle:
The particular entity vested
with the right to implement the
project is commonly referred to as
the project vehicle or the special
purpose vehicle. Sponsors generally
seek to implement a project through
a specific legal entity formed by
them. The reason for such structuring
is to transfer the risks to a specific
purpose company/vehicle rather than
undertake it themselves. The
documentation relating to the
implementation of the project is
ultimately decided only after an

21
analysis of the project documents
and the finance documents. The
shareholders agreement, between the
shareholders of the project vehicle,
becomes a critical document in
relation to the implementation of the
project. The shareholders agreement
generally provides for the allocation
of responsibilities and distribution of
risks between the sponsor
themselves. It also ensures equity
funding of the project and sponsor
participation and provide the
framework for the management of
the implementation of the project
and mechanism for the settlement of
disputes between the sponsors.

7. Users / Consumers:
The users of an infrastructure
facility or consumers of the
infrastructure facility service are

22
generally members of the common
public and may be, at times, be
represented by a public interest
forum or a consumer body. In India,
generally the users of the facility are
represented by the government itself.
However, it is not uncommon to find
that at times, an infrastructure facility
is designed for use for a clearly
identified and defined set of users or
even a single user. In such
circumstances the facility is referred
to as a captive use facility or a
facility having captive consumption.
In cases of captive facilities the
defined set users are represented
directly by their representatives who
actively participate in the
documentation of the project.

8.Regulator (Like TRAI):

23
 The body vested with the
authority and powers to regulate the
development and provision of the
related infrastructure service, if in
existence, would also be a participant
in the development of an
infrastructure project. Ideally, prior to
opening of any infrastructure sector
to private participation, a regulatory
body for that sector should be first
constituted in order to regulate the
conflict of interests from the various
participants, so involved in the
development of the project. In India,
however there has been no such
planned opening of infrastructure
sectors. Till the date of writing this
chapter, only two such infrastructure
regulatory bodies had been
constituted, and that too, much after
the opening of the concerned sectors
to private participation.

24
The existing infrastructure regulatory
bodies are the Telecommunications
Regulatory Authority of India(TRAI)
which had been constituted pursuant
to the TRAI 1997, to regulate the
provision of telecommunication
services by the various licenses and
the electricity regulatory commissions
established at central and state
levels pursuant to the Electricity
Regulatory Commissions Act 1998 and
a few state electricity reform
legislations which seek to regulate
the electricity sector under their
jurisdiction.

9. Other Authorities (NHAI, AAI

etc.,):
Apart from the regulatory
authorities there are certain other
authorities that have been
established for the purposes of

25
providing specific infrastructure
services. In the sectors where such
development authorities have been
established, it is these authorities that
would, subject to the relevant
legislation, grand the rights to private
developers for implementation of the
project. Such authorities are the arms
of the government and are
authorities to control and develop a
specific infrastructure. Examples of
such authorities are, the Airport
Authority of India established under
the Airport Authority of India Act
1998, which is in charge of the
development, operation and
maintenance of airports in India, the
National Highways Authority of India
established under National Highways
Authority of India 1988, which is in
charge of the development, operation
and maintenance of the National
Highways that have been notified to

26
be under its control, the various port
trusts established pursuant to the
Major Port Trust Act 1963 which have
control over the development,
operation and maintenance of the
specific major ports for which they
have been under the Major Port
Trust Act 1963.

FINANCIAL STRUCTURING OF
PPPs

27
 Project financing is a specific
type of financing used in P3s, through
which an expected future revenue
stream generated from users of a
projector committed by a public agency
is the primary means for repaying the
upfront investment needed to fund it. It
is necessary to establish the
appropriate mix of debt, equity and
mezzanine financing.
In order to make a clear
separation between the members of the
consortium and the project itself, a
Special Purpose Vehicle (SPV) or project
company known as the concessionaire.
By using project financing, the
concessionaire raises funds from
investors and lenders based on the
projects future revenue stream or cash
flows. The projects net cash flows
(after deducting operating costs and tax
payments) must be sufficient to service

28
and repay debt and provide a return to
equity.
Cost component of the
project:

I. Pre-investment Costs: The costs

incurred by sponsors in
developing the project concept
and preliminary design.

II. Bidding & Procurement Costs:

The costs involved in collecting
sufficient information for
bidding documents and bids.

III. Project Development Costs: The

costs involved in further
developing and refining the
scheme.

IV. Construction Costs: Construction

cost for the development of
the asset.

29
 V. Operation Costs: The costs
involved in operation and
maintenance of the facility till
transfer.

VI. Termination Cost: The cost

involved in bringing the asset
to the acceptable standards at
the time of transfer.

Regulation of interests:
Development of infrastructure
through private financing involves
appropriate regulation and balancing
of interests of various participating
agencies. Since in most of the cases,
the Government is the Original
Services Provider and Owner,
Government has authority in vesting
rights, determining terms and
conditions for development. As such
there is likelihood of conflict of
30
interests between the two roles of
government viz, as a Regulator /
Licensor and as a Service Provider.

It is thereof necessary to
establish a separate independent,
experienced quasi judicial regulator
with expertise and with necessary
authority and powers to look into the
issues related to infrastructure
development. The regulator also helps
redressal of the grievances of the
users consumers. Such regulator
mechanism will create an atmosphere
of independent or qualified analysis
of the project. It would avoid delays
due to suspension of work due to
litigations. It will give greater sanctity
to contractual obligations, provide
greater credibility for long time
investments. This results in availability
of finance at lower costs. It is the
general view taken by the courts
31
that unless a specific case that the
order of any regulatory body is
perverse, not based on evidence,
misreading of evidence the decision
of the regulatory body will not be
interfered by court.

IS PPPs IDEAL FOR

INFRASTRUCTURE
DEVELOPMENT?
According to my opinion,
definitely YES. The PPPs system is
ideal for the future infrastructure
development in India.
PPP or Public-Private-Partnership
is a unique concept which involves
coming together of public and private
sector with a purpose to develop public
32
assets or for provision of public services.
It is an elaborate arrangement between
a state body and a privately owned
entity which serves to promote private
capital investment in public projects,
especially those connected with
infrastructure development. The
agreement also includes sharing of
assets and skills between state and
privately owned bodies to be able to
achieve the best possible outcome. The
private entity receives performance
linked payments based on a specific set
of criteria.
A basic feature of any PPP
scheme is that the project under
consideration is usually a high priority
one and is well-planned by the
government. Another essential aspect is
that both the sides assume some
amount of risk and mutual value for the
project. Some of the infrastructure
projects usually covered under PPP
33
model include building of highways,
ports, airports, developing railways
infrastructure, telecom facilities, power
generation projects, sanitation, water
and waste management projects.
In India, the PPP model was
introduced by UPA Government at the
Centre for developing some of the major
facilities including airports and metros.
The model worked well in some cases
but in some others, there arose a
number of issues which could not be
addressed properly. Considering the
infrastructural growth needed to drive
the economy further, the newly formed
NDA Government has also come up with
a number of proposals in the current
Union Budget in which PPP model would
be implemented to help achieve better
and faster results.

34
 Finance Minister laid stress that
with more than 900 infrastructure
projects are underway in the country,
PPP model holds great potential for us
but we must work to remove the
inefficiencies in its implementation and
develop a responsive dispute redressal
mechanism. To this end, he announced
the setting up of an exclusive institution
called 3P India with a budget allocation
of Rs 500 crore which would be
responsible for resolving any disputes
and issues arising in the planning and
implementation of Public-Private-
Partnership model.
There are several areas in which
the government is looking forward to
implement this model including high-
end metro projects, rural and urban
development projects. The main issues
faced with proper implementation of this
model is that infrastructure projects are
usually long-term ones and a number of
35
factors including cost of materials,
policies and even economic conditions
can change while the project is
underway. If the initiative to set up a
sophisticated mechanism for resolving
such issues in implementation of PPP
model is successful, it can attract big
investments from private sector and
lead to fast-paced development of
infrastructure.

So considering all the above facts,

YES. The PPPs system is rightly ideal
for the infrastructure development.

36
REFERENCES:
IDM 12: Management of PPPs
http://www.adb.org/sites/default/files/
pub/2008/Public-Private-
Partnership.pdf

37