Economic Research institute for ASEAN and East Asia

(ERIA)
PPP Framework Workshop

PPP Framework update

By
Adil Zaidi
Associate Director,
Government & Transaction Advisory
Services
Ernst & Young Pvt Ltd, India

Agenda
1. Introduction to PPP in India
2. Institutional framework
Institutional structure for approval of PPP projects
Time required for approval of projects
Measures to strengthen implementation capacity
3. Challenges to be addressed
4. Initiatives under consideration to catalyze PPP projects
5. Summary of enhancement of PPP institutional
framework
6. Case studies
7. Concluding remarks
March, 2012

Page 2

Infrastructure provision in India The story

so far.
Less than USD 20 million
Between USD 20 million to
USD 50 million
Between 50 million to 100
million
More than 100 million
Source: Various database, as of July 2011

India at present spends around 5 6% of the GDP on infrastructure development, but

aims to increase investments to 9% of the GDP by 2014
Significant untapped potential in e-governance, health & education sectors
In order to ensure PPP model succeeds and attract private investors, Govt. of India
has developed various policies & regulatory frameworks addressing rational risk
allocation between Public and Private sector

March, 2012

Page 3

PPP the preferred mode for infrastructure

provision
Government of India, has envisaged that about 50 percent of infrastructure
investment in the country during the 12th five year plan (2012 2017) will
come from private sector primarily through PPP route

1200

Infrastructure investments across various five year

plan
(in USD billion)

1000
800

510

Total estimated investment in

infrastructure by Public & Private

600

Sector during 2012 2017 :

400

USD 1,020 billion

149
510

200

45

262

138
0
10th plan (actual)

11th plan (estimated) 12th plan (projected)

Private investment

March, 2012

Public investment

Page 4

Institutional framework

Institutional framework to catalyze projects

being implemented on PPP

Project Appraisal Division, under Planning Commission provides independent

appraisal of the projects which is followed by approval of the Cabinet
Committee on Economic Affairs (CCEA)

CCEA has set up a dedicated committee named as Public Private

Partnership Appraisal Committee (PPPAC) to expedite appraisal and
approval of the projects to be implemented on PPP

PPPAC constitutes of

Secretary, Department of Economic Affairs (in the Chair)

Secretary, Planning Commission

Secretary, Department of Expenditure

Secretary, Department of Legal Affairs and

Secretary of the Department sponsoring a project

Apart from PPPAC, departments that are involved are:

Ministry of Finance

Ministry of Law and Justice

March, 2012

Page 6

Institutional structure for approval of PPP

projects
Appraisal of PPP projects of
all sectors where capital costs
or underlying value of assets
are more than USD 50 million
or more and less than USD
100 million
Under
National
Highway
Development
Program
(NHDP) where capital costs or
underlying value of assets are
more than USD 100 million

For appraisal of PPP projects of all

sectors of cost greater than USD 20
million but less than USD 50 million

Administrative
Ministry

Administrative
Ministry
SFC

For appraisal of projects costing

less than USD 20 million
Project Cost

Appraisal
agency

Upto USD 1
million

Relevant
ministry

USD 1 million
but less than
USD 5 million

Standing
Finance
Committee
(SFC).

USD 5 million
and above but
less than USD
20 million

Expenditure
Finance
Committee
(EFC)

Administrative
Ministry
PPPAC
Committee

SFC / EFC

March, 2012

Page 7

Time required for procurement process for PPP

projects
PPP procurement process in India varies based on the project size and the sector

- larger and complex projects take more time as compared to smaller projects
Based on the trends so far, the approval time can vary from one year to two and

half years
Stage

Time Line

1.

Technical feasibility study and its approval

4 to 6 months

2.

Approval of project structure and bid parameter

1 month

3.

Preparation of draft bid documents comprising of RFQ,

RFP and Concession Agreement

1 month

4.

In- principle and final approval by Public Private

Partnership Appraisal Committee (PPPAC)

1.5 months to 2.5 months (if the

documents are based on model
documents, it may take 1.5 months, else
up to 2.5 months)

5.

Invitation of the RFQ and short listing

1.5 to 2 months

6.

Invitation of the RFP and issue of letter of award

2 to 2.5 months

7.

Signing of the Concession Agreement

1 month

8.

Financial closure

Up to 6 months

March, 2012

Page 8

Measures to strengthen implementation

capacity

Capacity Building

Established 25 PPP cells in state and national government departments

Nodal agencies at state and national level

Training and knowledge sharing workshops across various departments with ADB
assistance

Regulation

March, 2012

Independent Regulatory Authority in most of the sectors:

Airport Economic Regulatory Authority (AERA),

Tariff Authority for Major Ports (TAMP),

Telecom Regulatory Authority of India (TRAI),

Central Electricity Regulatory Commission (CERC) etc

Page 9

Measures to strengthen implementation

capacity (contd.)

Developing shelf of projects and facilitating financing

Viability Gap Funding (VGF) scheme

India Infrastructure Finance Company Limited (IIFCL)

India Infrastructure Project Development Fund (IIPDF)

Standard transaction documents for each sector

Preparing model formats for RFQ, RFP, Concession Agreement

Increasing Sub-national government involvement

State Support Agreement for getting state involved

Sub-national governments to fund a part of VGF in some cases

March, 2012

Page 10

Challenges to be addressed
Absence of
independent
regulator

In order to attract more domestic and international

private funding in Indian Infrastructure, a more robust
regulatory environment, with an Independent
Regulator is essential

Lack of
Institutional
Capacity

The limited Institutional capacity to undertake large

and complex projects at various Central ministries
and more importantly at State and Local bodies level,
hinder the translation of targets into projects.

Lack of proper
information for
State
Government and
local bodies

An online data base consisting of all the project

documents including feasibility reports , concession
agreements and status will be helpful to all
State/Central govt. departments to take lessons

March, 2012

Page 11

Challenges to be addressed
Inadequate
planning by
implementing
agencies

Financing
Availability

March, 2012

The Project development activities viz, detailed

feasibility, land acquisition, environmental/forest
clearances etc are not given adequate importance by
the Concessioning Authorities.
The absence of adequate project development by
authorities leads to lesser interest by Private sector,
mispricing and successive delays at the time of
execution.

The private sector is dependent upon commercial

banks to raise debt for the PPP projects. With
commercial banks reaching sectoral exposure limits,
and large Indian Infrastructure companies being
highly leveraged, funding PPP projects is getting
difficult.
Page 12

Financing Challenge is the biggest hurdle

in
meeting
targets

Share of bank finance extended

to infrastructure sector as a
percentage of gross bank credit
has increased from 2.2% in 2001
to around 13.4% in 2011

Bank lending to infra. sector

120
In USD billion

Commercial
lending
to
infrastructure sector grew from
USD 22.60 billion in 2006 to USD
105.30 billion in 2011 registering
a CAGR of ~36%

100
80
60
40
20
0
2006

2007

2008

2009

2010

Source: Handbook of Statistics on Indian Economy 2010-11

Longer duration loans financed by shorter duration borrowings

Banks are reaching sector wise exposure limits.

March, 2012

Page 13

2011

Summary of enhancement of PPP

institutional framework in India
Understanding the need for PPP Institutional Reforms which is to be consistent with good
governance principles to improve the PPP Legislative Framework

PPP Act

PPP Process
Government Support
Identification of Key Risks
Nodal Authority
Conciliation Process

Sector Policies
Extent and form of PSP

Stand of identified risks

Extent of Government support

Regulatory Framework
Legal Enablers

Model Concession Agreement

Contractual allocation of Roles, Responsibilities and Risks

Projects, Projects and More Projects on PPP

March, 2012

Page 14

Initiatives under consideration to catalyze

PPP projects

Draft PPP policy

The Government of India intends to formalize PPPs as preferred implementation models

based on the experience of implementing these models so far.

The policy aims to ensure that a value-for-money rationale is adopted with optimal risk
allocation in project structuring with life cycle approach

To develop governance structures to facilitate competitiveness, fairness and transparency in

procurement and attaining appropriate public oversight and monitoring of PPP projects

In order to instill transparency in PPP, it envisages to:

Publish separate mandatory disclosures and fair practices policy,

Set up dedicated dispute resolution mechanism,
Develop new market-based products (e.g., pre-bid rating), and
Explore possibilities of setting up web-based PPP market place.

Draft land acquisition policy

Applicable to all land acquisition whether it is done by the central government of India, or
any state government of India

Private companies shall have to provide for rehabilitation and resettlement if they purchase
or acquire land

A maximum of five per cent of irrigated multi-cropped land may be acquired in a district, with
certain conditions

Every acquisition requires a Social Impact Assessment (SIA) by an independent body

March, 2012

The compensation for the land acquired

Page 15 shall be significantly higher than current levels

Initiatives under consideration to catalyze

PPP projects (contd)

Setting up of Infrastructure debt fund through PPP for long term funding of
infrastructure projects

March, 2012

Two private sector banks (ICICI Bank, Citi Bank) and two public sector undertaking (Bank
of Baroda, LIC of India) participating to start the fund

Page 16

Case studies

Case study 1: Delhi-Gurgaon Expressway

Entities National Highway Authority Of India (Concessioning Authority) and consortium of Jaypee Industries and DS
Construction (Concessionaire). The concessionaire formed a SPV known as Delhi Gurgaon Super Connectivity Ltd.

First BOT project in India to have been awarded on negative grant basis where in the concessionaire offered to pay an
upfront fee to NHAI in return of the concession as against a capital grant from the Government. In consideration of
tolling rights, the selected bidder offered to pay USD 12.2 million to NHAI.

Role of private partner

Responsible for construct, operate and maintain the expressway

Responsible for clearances, approvals, permits etc. from various government agencies.

To collect toll from the users of the expressway during the operation period. (The toll has to be shared with NHAI if
daily traffic is more than 130,000 PCUs are tolled on the expressway.)

Role of NHAI

Undertake land acquisition, provide necessary environmental clearances, permits etc. , shifting of utilities and
related expenses ,operation and maintenance of the highway during development period

PPP format Build Operate Transfer (BOT)

Concession period 20 years

Bid parameter Capital Grant

Project details Eight laning of 27.7 km of road with project cost of USD 110 million (original estimation)

March, 2012

Page 18

Case study 2: Vadodara Bharuch

Highway

Entities National Highway Authority Of India (Concessioning Authority) and L&T Infrastructure Development Projects
Ltd. (Concessionaire). The concessionaire formed a SPV know as Vadodara Bharuch Tollway Ltd.

The project entailed six-laning of stretch between Vadodara and Bharuach on BOT (Toll) basis. It invovled construction
of main 6 lane highway along with service roads and installation of Integrated Highway Traffic Management System
(IHTMS). In consideration of tolling rights, the selected bidder offered to pay USD 94 million to NHAI.

Role of Concessionaire

Responsible for design, construct, operate and maintain the highway stretch

Responsible for clearances, approvals, permits etc. from various government agencies.

To collect toll from the users of the expressway during the operation period.

Installation of four-layered backup infrastructure for equipment, photo sensors, CCTVs etc

Role of Concessioning Authority

Undertake land acquisition, provide necessary environmental clearances, permits etc. , shifting of utilities and
related expenses ,operation and maintenance of the highway during development period

PPP format Build Operate Transfer (BOT) Toll basis

Concession period 15 years

Bid parameter Capital Grant

Project Details Six laining 83.3 kms of road stretch with project cost of USD 290 million

March, 2012

Page 19

Key differentiators - (1/2)

Sl.
No

Description

Delhi - Gurgaon Expressway

Vadodara Bharuch Highway

Feasibility study /
DPR

Concessioning Authority (NHAI) relied

on outdated traffic study leading to
faulty project structuring and also
the road design (road geometry, toll
plazas etc)

The project was awarded on Design

Build Finance Operate (DBFO)
eliminating design risk to some extent

Project structuring

The project was structured on negative

grant / premium to be paid by the
concessionaire to the Authority

The project was structured on negative

grant / premium to be paid by the
concessionaire to the Authority

The tolling rights were given to the

Concessionaire in lieu with the
investments for road development

The tolling rights were given to the

Concessionaire in lieu with the
investments for road development

Concessionaire was insulated from the

demand risk (downside) by contract
provision for sharing toll revenue only
beyond a threshold daily traffic level

Since the project was based on robust

and current traffic study, the demand
risk was completely transferred to
Concessionaire

The bid parameter for the project was

capital grant to be sought or to be paid
to the Authority (Selected bidder quoted
USD 12.2 million negative grant)

The bid parameter for the project was

capital grant to be sought or to be paid
to the Authority (Selected bidder quoted
USD 94 million negative grant)

March, 2012

Page 20

Key differentiators - (2/2)

Sl.
No
3

Description
Risk allocation

Delhi - Gurgaon Expressway

Due to outdated traffic study, demand
risk (only downside) was assumed by
the Concessioning Authority.
The contract has a provision for sharing
of fee realized through toll beyond a
threshold daily traffic level

Project management

The Concessioning Authority committed

land for the project prior to actual
acquisition. This led to huge time over
run when land was unavailable for the
project indicating lack of project planning
skills on authorities part
As the project was based on out dated
traffic study, substantial change in scope
of work to the original design was
required to accommodate the revised
traffic. This led to cost and time over run.
Again the lack of project planning
skills on part of authorities is evident

March, 2012

Project approval process were delayed

because of involvement of several
government departments (17
departments across two states) and due
to lack of coordination between these
multiple agenciesPage 21

Vadodara Bharuch Highway

The demand risk was partly transferred
to Concessionaire by structuring the
project on DBFO model as against
earlier plain vanilla BOT (Toll) model

The project was planned efficiently and

entire process of land acquisition,
approvals among other condition
precedent were well within anticipated
time
The designing of road was responsibility
of Concessionaire (DBFO), hence the
time taken for this task was reduced
drastically

Concluding Remarks

Lack of capacity (project planning) mainly at sub-national level

Poor coordination among agencies leading to

Lack of shelf of projects which are viable

Project compete with each other

Complementing projects are missing/uncertain

Time and cost overrun in projects under implementation

Dispute settlement tribunal yet to set up in all sectors

While institutional separation of policy, regulation, and judiciary exist
in structure, practically movement of individuals between policy and
regulation make the segregation blur
Time taken by sponsoring agencies in taking decisions are very large,
delaying the project execution/conceptualization substantially

March, 2012

Page 22

Thank you