Public Private Partnerships and Competitiveness

Dr. D.N.S.KumarProfessor in Finance & Associate

DirectorCentre for Research-Projects

Christ University, Bangalore, and Management Consultant,

Rajat Financial ServicesBangalore

PPP and Comppetitiveness

} To build upon the resource by exploring a resource through integration of sectors across economic and non-economic activities

} To encourage ….,participants or stakeholders in the idea to achieve a win-win results in long run


i. Roads and bridges, railways, seaports, airports, inland waterways;

ii. Power;iii.Urban transport, water supply, sewerage, solid

waste management and other physical infrastructure in urban areas;

iv.Infrastructure projects in Special Economic Zones; and

v. International convention centres and other tourism infrastructure projects;


Backbone Sector


} Irrigation Scheme across Bangalore-Bombay Golden Quadrilateral Road


} Farmers

} Private Sector

} Government

} Society


} “Contractual three party arrangement between government, private party and farmers for the provision of assets, clearances, the delivery of services and purchase that have been traditionally not provided by anybody”

} “…. a cooperative venture between the public, private and farmers sectors, built on the expertise of each partner, that best meets clearly defined public needs through the appropriate allocation of resources, risk and rewards”

} … a P3 involves a sharing of risk, responsibility and reward, and is undertaken in those circumstances when there is value for money benefit to the taxpayers


Design-Finance-Build-Own-Operate-Maintain(DFBOOM)


} Length of Road - 1000km

} No. of villages/cities and cities across the road –200

} Population of above villages/cities – 1000000

} No of acres of land each village/city – 2500

} No. of acres of land non-irrigatted(50%) in such villages/cities – 1250*200 =250000

} Current Income from agriculture- per acre Rs. 15000 – Rs. 20000 p.a. (average Rs. 17500/-)


} 200 irrigation projects-units across the roadside connecting all villages/cities

} Cost of each project Rs.15 crores

} Total cost of the entire project Rs. 3000 crores


} Multiple departmental approach- Commerce, Industry, Finance(DEA), Agriculture, and Social Welfare

} Multi-Governmental Agro-Irrigation Park

} Special package(s), Benefits and Incentives

} Incentives for establishment of agro-oriented SEZs, Export promotion schemes

} Monitoring by the apex committee of Ministries, NABARD etc.,

} International Participation

} Foreign Direct Investments

} Financial Institutions, such as, IDBI,ADB, SBI etc.,


} Private Company- for investment and professional management

} Central and State Governments – for subsidization and clearances

} Farmers associations – cooperation

} Political parties – to understand the significance of well being of people and respective states/constituencies


} Central Government(VG-grant) - 10%} State Governments(grant) - 15%} Private investors investment - 60%} Capital to be raised from farmers - 7.5%} Capital from other organizations(Debt) - 7.5%

Single window clearances be given by the respective state/central government


} Total cost of Project - Rs. 3000 crores

} Grants from Govts - Rs. 750 crores

} Net cost of project - Rs. 2250 crores

} Expected Cost of Finance to investor – 12% } Cost of debt - 18.5% } Expected return by the investor - 18%


} Irrigation of 250000 acres of land

} Enhancement of Purchasing power of minimum 1000000 population

} Even if crop such as Maize is grown:per acre income per year would be:50 quintals(100KG)* two crops a year* average price Rs.10 per KG= Rs. 100000/-

} Other products such as vegetables, fruits, tobacco, sugarcane, groundnut, cotton etc., would give 2 -2.5 times more income


} Current Income from 1250 acres:250000*17500= 437.5 crores

} Expected Income 250000*100000= Rs. 2500 crores






} Life of project 20 years

} Royalty per acre Rs. 15000/- p.a.

} Cost of maintenance 5% of cost of project p.a

} Costs related to project: ◦ Cost of funds p.a - Rs.270 crores◦ Cost of maintenance - Rs.150 crores◦ Royalty 250000*Rs.15000 - Rs.375 crores


} Income from provision of water

◦ to corporates 20000 corporates *Rs.100000 p.a.= Rs.200 crores◦ Local bodies 1000000 population * Rs.500 p.a.

=Rs.50 crores


} Income:◦ Royalty - Rs. 375 crores◦ Provision of water - Rs. 250 crores◦ Total - Rs. 625 crores

} Expenses:◦ Cost of funds - Rs. 270 crores◦ Cost of maintenance - Rs. 150 crores◦ Total - Rs. 420 crores◦ Net benefit - Rs. 205 crores


} Cash Inflows: (Net savings – Tax) + Depreciation = (Rs.205crores – 0) + Rs.75crores =Rs.280crores

*50% of cost of project is assumed as fixed investment

} Original net investment / net savings Rs.2250crores/Rs.280crores

That is, 8 years


Fixed cost of project: =Depreciation + Interest on debt =Rs.75 crores +((2250*7.5%/100)*12%=Rs. 90.25crores

Therefore, BEB = Fixed cost/ Royalty per unit= Rs.90.25crores/(1250 a unit* Rs. 12000 p/a)= 60 units


} High powered due to profit motive

} Benefits of coordinated decision-making- in Design, Construction, Operation, financing etc.

} Complementarities with other parts of the given project

} Capacity to raise capital at low cost

} Brings efficiency improvement through inventions

} Ability to control costs

} On-going relationships, not spot market

} Sharing of authority for decision-making


} Increased revenue to government in the form of sales tax

} Reduced pressure for subsidy

} Economic wellbeing of people

} Purchasing power improvement

} Economic development

} Reeducation in social tension

} Added business and enhanced competitiveness among all economic activities/enterprises


[email protected]@christuniversity.in

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Public Private Partnerships and Competitiveness