PPP in Indian Infrastructure Sector Study

7/24/2019 PPP in Indian Infrastructure Sector Study

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Abhishek Kumar

PGP30065

PPP in IndianInfrastructureSector Study


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12th five year plan, from 2012-2017, plans to spend INR 40,992 billion, 50% ofrom Private Sector.

Role of Private Sector in the Indias Economic Growth

Increasing need of non bank source as lending sources

Best Practices Brazil and Philippines

State Case Studies where PPP have succeeded and what can be learnt from t

Financial and Risk Evaluation Framework and Sources of Funding

Private Players in Indian Infrastructure

The Focus Area - Urban Infrastructure Development

Recommendations

Introduction


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Evolution of PPP in India

A PPP is an agreement between a private player and the government for the provisioning ofor essential and non-essential public services.

Phase 1 is characterized by primarily railway proje`cts -The Great Indian Peninsular Raiin 1853 and The Bombay Tramway in 1874 Mumbai and Kolkata witnessed PPI model in power generation in early 1900s Phase 2 saw big ticket investments in bridges and road sector, with total number of PPP p

time period being limited to 86, worth INR 340 billion Phase 3 saw increase the rate at which PPP projects are being undertaken, with more than

in pipeline currently, worth INR 5921 billion


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Forms of PPP ModelGenerally, there are three models being used in India: Design-Build Contracts (Also BOT (Build-Operate-Transfer) Model and Performance based management or maint


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The PPP India Database, maintained by Economic Affairs Department, shows a total of more thprojects with invested amount of Rs. 5921 billion and a potential of Rs. 12000 billion, more thancurrent value.

Current PPP status in India

Projects under Construction: By Number Projects under Construction: By Value, S

Projects in Pipeline: By Number Projects in Pipeline: By Value, So

Infrastructure consists of 91% of all PPPprojects in India , with highways androads comprising of under projectsconstruction of more than Rs. 220476Crores, 47% of PPP value! Power isanother focus area with 24% of valueand 15% of numbers.

However, the projects in pipeline showa different story. Shift of Focus fromroads to Urban Development, with 39%of projects in this sector. The totalnumber of projects in pipeline is 1076with a value of Rs. 592120 Crores.


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Current PPP status in India

Evolution of Projects, by Number Evolution of Projects, by Value, Source: PP

A marked shift in the type of projects being taken in the PPP model in the Infrastructuterms of both numbers and value is being observed, with 558% increase in the value obeing undertaken now.

While roads and highways have seen marked decrease in interest among the players,development is the new focus area


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Urban Infrastructure Development

Urban Roads

44%

Urban Transport

11%

Renewal and

Redevelopment including

Slums

10%

Water Supply

8%

Sewerage

6%

Storm Water Drains5%

Capacity Building

6%

Others

10% The urban infrastructure requirements till 2031has been estimated to be around INR 39,186billion.

The Ministry of Urban Development also plans toset up a PPP Urban Infrastructure Fund tosupplement the fund needs as well as meeting thesmart cities vision as envisaged by the currentgovernment.

Report on Indian Urban Infrastructure andServices, High Powered Expert Committee

Completed Projects Slow Speed ofAdoption, Slow Execution

Ambitious Plan for next 5 years Abasic framework

Challenges to be Recognized Sources, Information Asymme

of Independent PPP regul


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Current Policy Framework National PPP policy, drafted by Ministry of Finance - Result of need of a broad policy fr

required in light of exponentially growing PPP trends Aims to streamline the needs and responsibilities of all the four stakeholders in a PP

Institutions, Developers, Equity Providers and the Financiers (Debt Providers)

Major policy steps taken are: Setting PPP Appraisal Committee to speed up the appraisal and approval timelines PPP Toolkit preparation to improve and facilitate decision making process, Establishing transparent and competitive bidding process Enhancing financial support through VGF, user charge reforms and other means.

Another key policy reform- Establishment of MIS for real time monitoring of projects un Laying down proper appraisal mechanism Setting up of nodal agencies at state or sub sector levels

Policy recommends, in Infrastructure projects, PPP should be a four stage process, withbeing monitoring and maintaining the project:

PPP Cell under the Department of Economic Affairs


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Sources of Funding

12th five year plan, from 2012-2017, plans to spend INR 40,992 billion, majority of it comi

the private sector. Around 50% of the funding is expected to come from private players, a35.8% in 11th five year plan

Sources of funding is increasingly becoming a cause of worry. As it can be seen above, thoquantum of commercial lending by banks have been increasing, the rate of increase has dsharply from 43% in 2008-09 to 2014-15

Underdeveloped Bond Markets, Regulatory Issues regarding Pension Investments, Lack oExternal Commercial Bonding, FIIs and Multilateral Agencies such as ADB

VGF cost in the current fifth year plan is estimated to be around INR 76.53 billio20%, with additional 20% possible


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PPP Challenges in India

Financing Availability

Dependence on Commercial Banks and they have reached sectorial exposure limits

Lack of Independent PPP regulatory body

Lack of a comprehensive PPP database, a more robust regulatory environmentis essential to attract more domestic as well as private funding

Absence of adequate feasibility studies

The studies are not given adequate importance by the concessioning authorities.Leads to mispricing, delays and subsequent lack of interest by private players

Lack of a comprehensive PPP database

This is, at the most basic level, lack of information. Setting up of MIS withinformation regarding concessional agreements and status of various clearances


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State level governments are a major stakeholder in the PPP model - Top 5 stateof total value of PPP in India

Andhra Pradesh Accounts for more than 18% of the total value of PPP projects in India

HITEC city, Hyderabad, Rajiv Gandhi International airport and major ports

The highlight of PPP model in the state is the major bridge across Godavari, worth INbasis, through Competitive Bidding, 25 Years Concession periods

Reasons for Success

Direct financial support from the govt. in the form of viability gap funding Not so in UP an Tax exemptions, asset based support and administrative support from the govt.

AP was the first state to enact an Infrastructure Development Enabling Act, 2001

State Case Studies and Experience inimplementing PPP ModelBest Practices

The major defining factors are strong regulatory support and clear policy frameworks, in spiwith political stability on account of demands of a new state and constantly changing govt.

Karnataka, Gujarat - the first state to build a regulatory framework in 1995 (Gujarat Development Board) for PPP, Jharkhand and Chhattisgarh Turnaround States


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The countries of Brazil and Philippines, being at a similar stage of infrastructureIndia, is far more developed. Especially in Brazil, most of the major infrastructur

by this route.

Brazil

Railways and highways are predominantly built under the private concessions. PPP mstrong regulatory framework, something missing in India. The Concessions Law (1995Private Partnership Law (2004) have been highly effective in promoting PPP model in provide for part or full funding of projects as well as alternative mechanisms for dispuas arbitration.

Philippines

Philippines has seen govt, push to develop PPP projects as early as 1987, with focus arTransportation. The govt. has been very proactive and has allocated more than US$ 7.4budget to smoothen the preparation and structuring of PPP projects.

International ExperienceBest Experience

United Kingdom and Australia are other two countries with good history of P


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The major value addition by including private players come in the form higheskill development, developing urban infrastructure and health care services.

However, a private player has limited amount of capital to be invested in such l

and a lack of interest from big private player in projects where cash flows are uterm in nature is anticipated.

This again calls for developing bond markets and using pension funds.

Private Players in Indian Infrastructure

Players Investments

(INR billion)

No. of

Projects

L&T Infrastructure Ltd. 35 10

Sadbhav Engineering Ltd. 21 11

DS Constructions 3 4

MSK Projects ( India ) Ltd 2 11

Total 61 36

Pro

Lessinterest

Wh


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Financing Recommendations

Developing a vibrant corporate as well as retail Bond Market

Usage of pension funds and insurance companies funds

PE investments and it needs to be incentivized adequately with good return

ECBs, need to be made more lucrative with currency hedging by both RBI and theGovernment.

Policy Recommendations

Setting up an objective and independent institution to handle PPP projects with adequate

technical and financial knowhow The best practice from Gujarat, of setting up of sector specific regulatory body and

mechanism should be followed on central level

Development of proper MIS database systems for information transparency

Recommendations

Capacity building measure needs to be developed in light of better project deve

Documents

PPP in Indian Infrastructure Sector Study