Revised Guidelines PPP

7/29/2019 Revised Guidelines PPP

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Guidelines

For

Public Private Partnership

(PPP)In

Haryana

PPP Cell

Finance Department

Government of Haryana


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GUIDELINES ON PPP IN HARYANA

1. BACKGROUND

1.1 Haryana is amongst the richest States in India and one of the preferred investmentdestinations in the country. It is a leading centre for the manufacture of automobilesand its components, the preferred investment destination in IT and IT enabled. It has

been attracting handsome investments mainly in construction sectors, electricity,manufacturing and services. Haryana aspires to be the number one State in thecountry in terms of investments and in the quality of life of its people. To achieve this,the State would need to bring about substantial improvement in its physical and socialinfrastructure so as to bring about further improvements.

1.2 State would require huge financial resources, managerial capabilities andmanpower in bringing about the substantial improvement in delivery system of

physical and social infrastructure. Private Sector can play a significant role inaugmenting the efforts of the Government. Government of India has been seeking,

increased private sector investments in infrastructure to cover the deficit ininfrastructure services. It has taken a number of steps to create enabling and

conducive environment to attract private investment through a mutually beneficialarrangement under Public Private Partnership (PPP) approach (Appendix I).

1.3 State Governments have also recognized the benefits of PPP and have adopted thisas preferred mode of delivery of pubic services. There are around 300 projects on PPPin various sectors in different States. Road sector accounts for major share at 64%,followed by Ports at 13%, Urban Development at 10%, Energy at 10%, Airports at2% and Railways at 1%.

1.4 Government of Haryana (GoH) recognizes that a partnership approach under

Public Private Partnership (PPP) should be one of the tools to deliver public servicesto improve the assets and services. The stated policy of Haryana Government (officialwebsite: haryana.gov.in), implicitly and explicitly, recognizes the role of privatesectors in physical and social infrastructure sectors such as IT, Education, Industriesand Tourism etc. Government has also brought out the Policy for Public PrivatePartnership (PPP) in Haryana as enabling measure.

2. DEFINITIONS OF PUBLIC-PRIVATE PARTNERSHIP (PPP)

2.1 A Public-Private Partnership (PPP) is a long term contractual agreement betweena public agency (federal, state or local) and a private sector entity for providing a

public asset or service in which the private party bears significant risk and

management responsibility.

2.2 PPP has been defined by various institutions as given below:-

Government of India:PPP means an arrangement between a government or statutory entity orgovernment owned entity on one side and a private sector entity on the other,

for the provision of public assets and/ or related services for public benefit,

through investments being made by and/or management undertaken by the


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private sector entity for a specified time period, where there is a substantial

risk sharing with the private sector and the private sector receives

performance linked payments that conform (or are benchmarked) to specified,

pre-determined and measurable performance standards.

(Department of Economic Affairs, Ministry of Finance, Government of India,2010).

The earlier definition was A partnership between a public sector entity(sponsoring authority) and a private sector entity (a legal entity in which 51%or more of equity is with the private partner/s) for the creation and/ormanagement of infrastructure for public purpose for a specified period of time(concession period) on commercial terms and in which the private partner has

been procured through a transport and open procurement system.

The International Monetary Fund (IMF):Public-private partnerships (PPPs) refer to arrangements where the private

sector supplies infrastructure assets and services that traditionally have beenprovided by the government. (IMF 2004,)

The World Bank:PPP programs are projects that are for services traditionally provided by the

public sector, combine investment and service provision, see significant risksbeing borne by the private sector, and also see a major role for the publicsector in either purchasing services or bearing substantial risks under the

project. (World Bank 2006, p13)

The Asian Development Bank (ADB):PPPs broadly refer to long-term, contractual partnerships between the publicand private sector agencies, specifically targeted towards financing, designing,implementing, and operating infrastructure facilities and services that weretraditionally provided by the public sector (ADB 2006, p15)

The European Union:A PPP is the transfer to the private sector of investment projects that

traditionally have been executed or financed by the public sector

(EuropeanCommission 2003, p96)

3. MAIN FEATURES OF PPPS3.1 Cooperative and Complementary Relationship: PPPs represent thecooperation between government and private sector. Most successful partnershiparrangements draw on the strengths of both the public and private sector in order to

establish complementary relationships between them. PPP arrangements are long termin nature, typically extending over a 15 to 30 year period. This factor helps to

establish productive and lasting relations built around the expertise and capacity ofboth the partners based on contractual agreement which ensures appropriate and

mutually agreed allocation of resources, risks and returns.

3.2 Shared Responsibilities: The responsibilities in a PPP project are sharedbetween the public body and private enterprise. However the Government stillremains accountable and responsible for the provision of high quality services thatmeet the public needs.3.3 Risk Transfer: A key element of PPPs is their potential to deliver publicservices in more economically efficient manner. At the beginning of the relationship,


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potential risks associated with the project are identified and each party adopts thosewhich it is best equipped to manage. The public sector can therefore transferappropriate risks to the private partner, who has the necessary skills and experience tomanage them. The delegation of risks depends on the type of mode adopted for PPPas depicted in Fig. 1.

Fig. 1: Delegation of Risk in PPP

Concessions

Build-Operate-Transfer

(back to Government)

Leases

ManagementContracts

Service contracts

5 10 15 20 30

years

Delegation of risk to private sector, level of commitment required

Ownership

100% private

100% public

Enabler/

regulator

Role of Government

Provider

Build-

Operate-

Own

Divestitures

3.4 Flexible ownership: PPPs enable flexible arrangements between public andprivate bodies, where the public body may or may not retain ownership of the projector facility that is produced. In some cases, the private organisation may be contractedonly to construct facilities or supply equipment, leaving the public body as owners,operators and maintainers of the service. Alternatively, the public sector may decide itis more cost-effective not to own directly and operate assets, but to purchase theseinstead from the private entity. Services may be purchased for use by the governmentitself, as an input to provide another service, or on behalf of the end user.

3.5 The information given on historical background to PPP in Appendix II, onlessons learnt from PPP programmes in Appendix III, on some facts about PPP inAppendix IV, on strength and weakness on PPP in Appendix V, on common

misconceptions on PPP in Appendix VI, on PPP and conventional procurement inAppendix VII, on enabling environment for PPP in Appendix VIIII, on projectfinancing in Appendix IX may be referred for further details. Various models of PPP,generally in practice, are given in Appendix X which may provide guidance inselection of appropriate model.


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3.6 The main players in a PPP project are : public sector private sector financial players insurance and export credit agencies international institutions

Users

4. PPP IS NOT

Simple outsourcing where substantial financial, technical and operationalrisks retained by the Institutions

Donation by Private Party for Public good

Privatisation or Divesture of State assets and/or liabilities

Commercialistion of a public function by creation of a state owned enterprise Constitute borrowing by the state

5. DEVELOPMENT OF PPP PROGRAMMEFollow specific guidelines should be considered before launching PPP program:

5.1 When starting from a low base of PPP development, the aim should be toincorporate key principles of good governance but not necessarily to have a completePPP framework in place. A complete PPP framework can be worked towards whilesome projects are being developed and experience gained.

5.2 Develop a proper PPP policy and consult widely on it. Take into account viewswhere they do not ultimately endanger the key concepts of transparency/ competitionand benefits.

5.3 Build capacity in the public sector institutions and help develop capacity in the

private sector. Convince the private sector that doing PPPs well means more andbetter business for them.

5.4 The policy should encompass a flexible approach that fits the political, financial,economic social situation/conditions in each country. A comprehensive and rigidapproach from day one is neither desirable nor essential.

5.5 If, in the initial stages, a pipeline of PPP projects is difficult to prepare, ring fenceseveral good projects and develop as PPPs, flexibly, but incorporating key minimumconditions for PPP.

5.6 Work towards a pipeline of good i.e. bankable PPP projects.

5.7 Develop good projects, with help of multilaterals/good advisors, with the basicPPP principles of;

Good project preparation including sound draft tender documentsincorporating the principles of competition and transparency.

Consider a range of highway projects; bridges, tunnels, new motorways,Brown field upgrading, maintenance, rural roads, port and airport accesses.

Consider a range of PPP modalities PBC, Concessions, BOT, Annuities etc.


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Select projects that are reasonably large but not too complex or risky and ifpossible those that need little or no government financial support.

Understand and integrate risk management (identification, allocation andmitigation) principles in the selected projects.

5.8 Obtain commitment at all levels, starting at the most senior across the board and

within the line Departments/ Local Bodies/ Public Undertakings.

5.9 Prepare projects on a realistic schedule-keep up pressure but not cutting corners tofast track.

5.10 Work towards, have a view to the development of, in the medium-term a morecomprehensive framework of laws, regulations and regulatory bodies. Regulate bycontract initially.

5.11 Appropriately and effectively address the major concerns of concessionaires andinvestors, which are:

Cost, time, and quality of the PPP bid process.

Availability of required land and environmental clearances Clarity and stability of the legal and regulatory framework

Criteria for evaluating bids

Quality of the public sector project team, its advisers and decision making Security of the projects income stream (demand, bankability of public

sector obligations)

Deliverables and assessment of performance: What are they expected todeliver, and how will their performance be measured?

Status and availability of connecting infrastructure and availability ofinputs and terms of supply

Effectiveness and enforceability of the PPP contract and related

agreements Wider operating environment for private capital

Returns commensurate with the risks they are asked to assume

Effectiveness with which the public sector will manage the contract andmake decisions

Opportunities to refinance the debt or sell the investment.


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6. PPP PROJECT IMPLEMENTATION PROCEDURE

6.1 Figure 2 gives main steps to be followed for the implementation of PPP projects inthe State

Fig. 2: Main Steps in PPP Project Implementation

Identification of Sector for Focus and

Preparation of Long List of Possible Projects

Engagement of Transition Advisor

Feasibility Study and Bid Documents

PQ of Bidders

Issue RFP

Pre Bid Meeting

Final RFP for Bidders

Bid Evaluation

Agreement Signing

Project Identification and Prioritization

based on Pre-feasibility Study

Consultation with

client and marketing

Approval of CoSI for

PQ documents

Approval of CoSI for

RFP document

Constitution of

Evaluation Committee

Approval of CoSI or

CCI, depending Upon

the size of projectAppointment of

IndependentConsultant if required

Bidders

attend and

seek

clarification

Bidders

Submit

Proposal

Bidders

Apply for PQ

Possible

Investors

Conference

Committee under FCF

in consultation withconcerned

Departments and

assisted by PPP Cell

FD may engage

consultant for aboveexercise

Sector Focused Units

Action on LA etc

Standardization of

documents

Public SectorPrivate Sector

6.2 Procedure for Approval of PPP projects

Following procedure shall be followed for implementation and approval of PPPprojects:

A Committee under Financial Commissioner & Principal Secretary, Finance shallidentify the infrastructural (physical and social) Sector(s)/ areas of focus. ThisCommittee shall be assisted by the PPP Cell in Finance Department. FinanceDepartment may engage consultant (either on retainer basis or sector specific) toassist in identification of projects and their prioritisation based on pre-feasibilitystudy. The concerned Administrative Departments or State Public SectorUndertaking(s) or Municipalities or Urban Local Bodies or other Governmentstatutory authorities or other entities under their administrative control (Authority)shall be consulted in this exercise. The prioritised list for sectors shall be brought


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before CoSI for approval, to be taken up on PPP. A meeting of the CoSI will beconvened within one month to consider the proposal(s) for 'in principle' approval.

Prioritised list of possible PPP projects shall then be sent to the concernedAdministrative Departments or State Public Sector Undertaking(s) orMunicipalities or Urban Local Bodies or other Government statutory authorities orother entities under their administrative control (Authority) for taking forward the

process of implementation of project(s) on PPP in accordance with the Policy. Authority shall identify an officer or team for implementing the identified

project(s).

Authority would engage a Transaction Advisor (TA) through competitiveselection process and with the approval of the concerned Administrative

Secretary. The Template of the RFP for engagement of TA as available on theweb site: pppinharyana.gov.in should be used with modifications done to meet the

sector specific requirements.

The TA shall prepare Feasibility Study (also including project structuring,financial analysis, bid process), RFQ, RFP and Concession Agreement, and assistthe Authority in procurement of private partner. For initiating the procurement,RFQ document shall be submitted by the sponsoring Authority, to the PPP Cell,for seeking approval of CoSI. The meeting of CoSI would be fixed within a monthtime, on submission of the document to PPP Cell. The Authority would thencirculate the agenda and memoranda (giving brief of the project particulars) to themembers of CoSI. CoSI will either approve or request the Authority to makenecessary changes for further consideration of CoSI.

After the requisite approval, the Authority would invite applications forQualification (RFQ) for two stage bid process. Prequalification would involve

pre-proposal conference for any clarification etc, issue of response to them,

receipt of RFQ application, and their evaluation and due intimation to prequalifiedapplicants. TA shall assist the Authority in these exercises. The Authority shall

constitute an Evaluation Committee with members, keeping in view the

requirements of the project. It would be advisable to have at least one sectorexpert as one of the members.

The TA shall also prepare RFP with draft Agreement. The Authority shall submitthese bid documents to the PPP Cell for seeking approval of CoSI. The meeting ofCoSI shall be convened within one month. On approval, these documents,Authority shall issue them to the qualified applicants for bid submission. Forsingle stage bid process, RFP with draft Agreement shall be submitted to CoSI,through PPP Cell, and got approved as above and bids invited through openinvitation

After evaluation and selection of bidders the final proposals with finalized bidshall be submitted to PPP Cell for seeking approval of CoSI/ CCI ( as the casemay be, depending upon the project cost and period of concession, according to

the provisions of PPP Policy). The Authority shall take further action to award the work, shall sign the

Agreement and implement the project.

6.3 Project IdentificationThe starting point in originating PPP project ideas should be the broader infrastructureor sector planning process, or a strategic assessment of where PPPs may add mostvalue.The Committee under FCF would first identify sectors requiring attention; andreference may be useful to the study Report on Haryana Infrastructure Vision 2030


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for sectors of water supply, sanitation, solid waste management, urban transport, ruralinfrastructure got done by the State with assistance from Department of EconomicAffairs (DEA) Ministry of Finance, Government of India and Asian DevelopmentBank (ADB). The PPP Toolkit for Improving Decision Making Process developed bythe PPP Cell in DEA, (pppinindia) provides guidance for project identification andcan be utilised. The project identification would also depend on the priority that the

specific sector requires and possible candidate PPP projects based on an assessment ofviability, affordability and provision of value for money compared to other options. Itmay be advisable to have a pre-feasibility study/ assessment got done, for theavailability of some of the necessary requirements such as land, shifting of utilities ifany, possibility of getting environmental clearances etc. It would be desirable thatshelf of projects are created which could be offered on PPP. A committee under FCFshall identify sectors for focus and possible projects on PPP. These shall be brought

before CoSI for approval and for taking further actions. The list of such projects thenshall be passed on to the Administrative Departments or State Public SectorUndertaking(s) or Municipalities or Urban Local Bodies or other Governmentstatutory authorities or other entities under their administrative control (Authority) fortaking forward the process of implementation of project(s) on PPP in accordance with

the Policy.

6.4Setting up the project teamPPP projects generally need complex skills and therefore it is advisable to have a team

base management approach. The team may not necessarily be a large one. TheAuthority should identify an officer at middle level for project handling andimplementation. This action should also be accompanied by capacity building effortsin the Authority. System should be developed whereby officers regularly participatein trainings, seminars and workshops etc so that nuances of the PPP project are wellappreciated in the Authority for smooth and speedy project implementation

6.5 Mistakes to be AvoidedWhile developing a project on PPP, following common mistakes should be avoided Lack of clarity by the Authority regarding what it wants from the project

Lack of project ownership and leadership Poorly resourced project (and programme) teams

Selection of advisers on the basis of cost rather than quality and experience Lack of effective engagement with stakeholders Lack of understanding of and contact with the private sector at senior levels

and poorly conducted market sounding Expectations that the private sector will deal with issues, such as the

acquisition of land, that are better handled by the public sector Lack of clarity about the public authoritys legal powers to enter into the

public-private partnership contract Conflict between the procurement process and procurement regulations Overly ambitious project preparation timetables Release of incomplete project information.

6.6 Engagement of Transaction Advisor (TA)Having identified the project to be taken up on PPP and setting up the projectimplementation team or officer, the next steps are the project structuring (type of PPPmode) and preparation of bid documents for inviting proposals and selection of


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private partner. This can be done eitherin-house or outsourced. PPP projects requireinputs and expertise in the disciplines of finance, legal and sector specific technical.Since such skills may not necessarily be available within the Authority, it would beadvisable to engage a consultancy firm as Transaction Advisor (TA). The Authoritywould undertake the procurement of services of TA in a transparent manner throughcompetitive bidding process with the approval of the Administrative Head. The

advertisement for this should be published in at least one National and one Regionalnewspaper. A Template of the RFP for engagement of TA is available on the website;

pppinharyana.gov.in, which should be used after doing the project specificmodifications. The composition of core team or key personnel from TA would dependupon project specific requirements (The Key Personnel and their respective maximummarks may be suitably modified to address project-specific requirements). Since thecomposition of the team and its key members is crucial for successful implementationof the project, the quality-cum-cost base selection (QCBS) should be adopted where

by a weight age of 70/30 or 80/20 (where the intellectual and design content iscomparatively higher). should be given. The TA is expected to perform/ assist theclient in, main activities in project implementation as discussed in succeeding

paragraphs.

6.7Preparation of Feasibility ReportTA would produce a comprehensive Feasibility Study Report, in close liaison with theAuthority. For most of the PPP projects, Feasibility Report should meet therequirements (it also provides window for innovation and application of new conceptsand technologies); however, depending upon the project requirement, venturing intoaltogether new area and its complexity, Authority may choose to have a DetailedProject Report (DPR) to fine tune the spelling out of the core requirements of the

project. The Feasibility Report should provide answer to following key questions:

Is the project affordable? What of the key risks and their managements strategy.

Would the project offer value for money. What would be financing sources? Is the project viable on PPP. The viability of a PPP project depends on

revenue generation along with expected growth, user fee rates and onestimated project cost which normally includes cost of civil works, interestduring construction, financing charges, contingencies, expenses on operation,maintenance and management etc. (excluding cost of land, as, cost of landand other pre-construction activities are to be borne by the ImplementingAgency), operation & maintenance cost and VGF.

The Feasible Report would essentially indicate project structuring, mode of PPP tobe adopted, cost estimation, risk allocations, commercial and financial analyses,optimal procurement methodology. Value for Money (VfM) assessment, and

identification of the issues to be addressed by the Authority. The feasible studyprepared by TA would be appropriately considered by the Authority and accepted fortaking further procurement steps. It may be helpful to have power point presentationof the main features of the Report and issues for consideration of Authority in order tofacilitate process.The Feasibility Report should either be provided along with the RFPor at least 45 days prior to the Bid Due Date.


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6.8Stake Holders ConsultationThe TA would be required to maintain close liaison with the Authority. Various stakeholders shall be formally and informally consulted, in the process of preparingfeasibility report and project structuring so that their concerns get adequatelyaddressed and project runs without objections. TA would also undertake marketsurvey to identify potential partners and to sell the project.

6.9 Preparation of Request for Qualification (RFQ).The TA shall prepare the Request for Qualification (RFQ) and assist the Authority in: Conduct of pre-application meeting,

Evaluation of qualification applications and Short-listing eligible applicants.

Bidding documents shall be issued, against the prescribed fee, to all those firms whorequest for the same.The cost of RFQ may be determined at the rate of Rs. 10,000 forevery Rs. 100 crore or part thereof comprising the estimated Project Cost. Thus thecost of an RFQ document for a project of Rs. 500 crore shall be Rs. 50,000.The technical qualification threshold to be prescribed should be that the bidder has

done in the last 5 years, relevant Project(s) and other core sector (physical or social, asthe case may be) of sum total of more than equivalent to twice the Estimated Cost ofthe Project for which bids are being invited. Where deemed necessary, for examplesector is new for PPP and participation could be low, the Authority mayincrease/decrease this amount by one half of the Estimated Project Cost.The Financial capability threshold should be:

Parameter Value

Net Worth in the preceding year Minimum 25% of project cost

Average Turnover for last 5 years Minimum 100% of project cost

The document would also give the time schedule as below:Stage Date

1. Last date for receiving queries [25 days from date of RFQ]2. Pre-Application Conference [30 days from date of RFQ]3. Authority response to queries latest by [35 days from date of RFQ]4. Application Due Date [45 days from date of RFQ]5. Announcement of short-list Within 30 days of Application Due DateA model document of RFQ is available on the website;http://infrastructure.gov.in/pdf/PreQualif_bidders.pdf, which may need modificationsto meet the project specific requirements. The pre application meeting would be held

where prospective applicant can seek clarifications. Based on the discussions in thismeeting, the Request for Proposal can be modified, if considered necessary. TheAuthority shall constitute a Bid Evaluation Committee for evaluation of qualificationapplications and the bids. The Authority would seek CoSI approval for RFQdocument through PPP Cell.

6.10 Preparation of Request for Proposal (RFP)TA shall prepare the RFP document including the Concession Agreement which shall

be issued to the qualified applicants for two stage bid process and to all for singlestage bid process. The model document for RFP document for bidders is available onthe website: http://infrastructure.gov.in/pdf/Model_REQ.pdf which may needmodifications to meet the project specific requirements. The RFP document mainly


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comprises:

Instruction to Bidders

Draft Concession Agreement (DCA) Schedules to DCA

In deciding on the bid parameter in the RFP, it needs to appreciate that three factorsare important; one is the period of Concession (Agreement, based on financial

analysis of the project), the other is return on investment through user fee throughdirectly or through user based payment (shadow fee); the third factor is the financialsupport that the project requires to make it finically viable and implementable. The

bidding parameter for financial bid should be one of these factors for simplicity ofevaluation. Normally it is either financial support (grant from the Government; therecould be a premium also offered by bidder to the Government in case revenue returnsare very healthy) or period of Concession. In case of Annuity projects, the bid

parameter is the Annuity amount quoted by bidders.

The RFP document would invariably make provision for pre-bid conference whichwould provide an opportunity to the client to make assessment of the market responseand to the prospective bidders any clarification or possible suggestive modification.The out come of this bidders conference would be the necessary writtenclarifications. It would also specify the date of submission and bidding schedule; assuggested below:

Event Description Date1. Last date for receiving queries [25 days from the date of RFP]2. Pre-Bid meeting-1 [To be specified]3. Client response to queries latest by [35 days from the date of RFP]4. Bid Due Date [To be specified]6. Opening of Bids On Bid Due Date [at least 45

days from the date of RFP]

7. Letter of Award (LOA) Within 30 days of Bid Due Date8. Validity of Bids 120 days of Bid Due Date9. Signing of Concession Agreement Within 30 days of award of LOA

The Concession Agreement has to be carefully drafted so that all financial, legal andproject specific technical requirements are addressed in the manner that disputescould be eliminated.

The Draft Agreement should cover the following topics at the minimum:

scope of the project

rights and obligations of the parties; risk allocation, right to some compensation, breaches, events of defaults and

penalties; grant of concession Operation & Maintenance (O&M) requirements

Standards and Specifications

service performance standards and targets, which need to be objective andmeasurable;

procedure for permitted modifications, as well as their scope and nature;


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payment mechanisms (e.g. tariffs, subsidies, grants/ premium ) andadjustments to payments in response to various contingencies;

penalties (and possibly bonuses) which have financial consequences or giverise to warning notifications (eventually leading to termination of the PPPcontract);

security and performance bonds;

project insurances; terms of the PPP contract; provision of escrow account and agreement, as per project requirement

the conditions for termination (categorised by party and type of event) andcompensation upon termination (for each type);

step-in rights (both for lenders and, in emergency situations, the Authority);

the definition and impact of force majeure and changes in law; and

the dispute resolution procedure.

schedules describing in detail some of these requirements

The RFP document shall be taken to CoSI, through PPP Cell, for its approval before

the same is duly issued. Any modification in the RFP either consequent to pre- bidconference or otherwise shall also be got approved by CoSI.

6.11 Pre-bid conferenceIn PPP projects, pre- bid conference is desirable as it play a very useful role in

providing opportunity for clarifying the queries that prospective bidders may like toseek in regard to the provisions of bidding documents and other details. It shouldnormally be held one month prior to deadline for submission of Bids. Queries raised

by various firms/ bidders shall be discussed in the Pre-Bid Conference/Clarification.Based on those discussions, the Authority shall issue clarifications and or modify theRFP if considered necessary. If modified RFP is issued then Authority may considerrevising the bid due date. The concerned Authority would keep on consulting PPP

Cell in the process.

6.12Authority web siteThe Authority should also host all its project advertisements, documents for RFQ,RFP, clarifications, modifications and any project related information on bid processon the Authoritys web site for wide dissemination and transparency. For realising thedocument/ bid processing fee etc. guidance can be provided that the same shall be

payable while submitting the document, if downloaded from the website.

6.13 Award of ConcessionOn receipt of bids (single stage or two stage bid process), they would be evaluated byan Evaluation Committee, constituted by the Authority, duly assisted by the TA, if

appointed. One or combination of one or more of the following criteria should beconsidered for selection through competitive bidding depending upon the bid

parameter

Lowest bid in terms of the present value of user fees; Highest revenue share to the Government

Highest up front fee offered by bidder

Shortest concession period Lowest present value of the subsidy


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Lowest capital cost and Operation & Management cost for Projects having adefinite scope;

Highest equity premium Quantum of State Support solicited in present value

Such other suitable selection criteria as the CoSI/ CCI may allow ordetermine.

Based on the evaluation done and got approved by Administrative Secretary/Competent Authority, the proposal shall be put up to CoSI (through PPP Cell, theSecretariat for CoSI) for approval which shall consider the same to be placed beforeCCI, depending upon project cost and period of concession as per the Policy.After the final approval, Authority shall issue the Letter of Acceptance (LAO) to thesuccessful bidder. The LAO should include the requirements to be fulfilled including

any securities/ performance guarantees etc to be furnished before signing of theAgreement.

6.14 Signing of Concession/ Contract Agreement

The Concession/ Contract Agreement shall then be signed by the authorisedsignatories of the bidder (depending upon their legal status, ie. consortium, SPC, JV

etc.) and the Authority. The role of TA should normally end at this stage unless theAuthority wants their services till financial closure for the project.

6.15 Treatment of Sole BidIn case of the competitive bidding process resulting into a Sole Bid, the Authorityshall decide the matter only with the approval of CoSI.

6.16Treatment of Limited ResponseIn case the competitive bidding process does not generate sufficient of response and ifeven a sole bid is not received, then the Authority shall, with the approval of CoSI,

either modify the pre-qualification criteria and / or the risk sharing provisions andrestart the bid process; or may cancel the competitive bid process.

6.17Monitoring of the ProjectsCoSI will monitor the progress of PPP projects. All the Departments/Agencies(Authority) carrying out PPP projects will keep the PPP Cell informed regarding the

latest development. The Nodal of the Authority shall update the status of theproject(s) every month on the window of www.pppinharyana.gov.in. The Nodal

officer shall periodically review the progress/ status of PPP project underimplementation, in pipeline.

6.18 Unsolicited Proposals

Unsolicited proposals for infrastructure projects from private investors can introduceinnovative ideas but is fraught with risks. It can introduce the element of lack oftransparency and the loss of cost benifits of competitve bidding process. There is alsorisk that the fairness of the contract award could be challanged at a later stage bydissappointed potantial bidder. In many cases, unsolicited proposals may requireGovernment gaurenties and land grants. Two ways have been generally tried toaddress transparency and competitiveness issues; one is to buy the project concept andadopt competitive bidding (known as Swiss Challange) and the other is to giveadvantage (eg. Bonus) to the origianl project proponent in bidding. But it is not easy


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to find the right balance between incentives to propose benificial projects andincentives for third parties to submit counter proposals. One way to reduce publicsector corruption and opportunistic behaviour by private proponents of projects is toforbid all unsolicited proposals.Considering the risks involved in considering unsolicited proposals and doubtful

benefits as brought out above and the possibility of more time taken (resulting in

avoidable delays), to address the issues of transparency and competitiveness, it wouldnot be prudent to entertain unsolicited proposals till the situation gets matured.

7. MAIN FEATURES OF PPP PROJECT REQUIRING ATTENTION

7.1Main Features of a PPP ProjectPPP Project is a project based on a contract or Concession Agreement between aGovernment or statutory entity and a private sector company, with the followingessential elements:

Fixed Concession period Pre-determined user charges/tariff Pre-determined scope of work for the Concessionaire

Pre-determined bidding parameters, i.e., VGF/ Premium/Revenue Sharing/ LeaseRent

All conditions, specifications, and project agreements frozen prior to inviting finalbids

Key Performance Indicators and measurable parameters

Mechanism for return on investment

Dispute resolution mechanism Independent agency for ensuring of project implementation in accordance with

agreed terms and conditions

Land required for the project available with the Implementing Agency

7.2Implementing Agency (Authority) Support

7.2.1 Implementing Agency (Authority) will meet the cost of following items :-

Feasibility Study and preparation of Project Report, either in-house or throughTA.

Land for the project requirement (Right of Way) and en-route facilities. Environmental Clearances. Clearance of the Right of Way (land):

relocation of utility services cutting of trees resettlement/rehabilitation of affected establishments

Authority may, however, involve the private sector in these activities to minimizedelay in their completion.7.2.2 Authority may provide Grant/Subsidy to the Concessionaire, depending on thefinancial viability of a project, the amount of which will be determined solely on the

basis of competitive bidding. Depending on viability of the project, there may be anegative grant /premium to be paid by the Concessionaire to the ImplementingAgency, which shall be decided on the basis of competitive bidding.


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7.3Concession PeriodThe Concession Period is the duration for which the agreement has been signed andcomprises the construction period which will be project specific, and the periodduring which the private partner is permitted to levy fee and is liable for operating,

maintaining and managing the facility, which will be determined on the basis ofviability of a project and may be up to a maximum of 30 years as prescribed byGovernment of India. However, in cases where the returns might take a long time, alonger concession period may be considered to make the project viable subject toapproval by CCI. On expiry of the concession period, the Concessionaire has to handover the property created under the project to the Agency/Government in its originalcondition/shape as when it was constructed. The concession period may be extendedsuitably, to cover any Force Majeure Conditions. If the Concessionaire completesconstruction of project before expiry of the period specified in the contract, it will beentitled to collect user fee for the period saved in construction, in addition to thenormal operation period. In case of delay in construction beyond the specified time-limit, the fee collection period will get reduced correspondingly, along with damages

payable by the Concessionaire. This may be seen as the returns on investments to bemade by the Concessionaire. For this calculation, estimated project cost and futurerevenue will be taken into consideration.Concession Period is decided based on reasonable profit expected, IRR (should bemore than 13% depending upon bank interest rates on debt) and on the return onequity investment made which should be in the range of 15-20%.Based on the above, Profitability Statement, Cash Flow, Return on Equity, IRR,Payback period etc. are to be calculated with different concession periods anddifferent percentage amounts of VGF.

7.4Viability Gap Funding (VGF)Some projects may need financial support to make them finically viable. To offer

proper financial support to such projects, GoI has devised a scheme known as VGF(Viability Gap Funding). Under this, a grant of 20% of the total project cost is madeavailable by GoI and the balance grant up to 20% grant (of the total 40% grant limit

prescribed by GoI) shall be given by Government of Haryana as prescribed in PPPPolicy for Haryana. Thus, through VGF, a seemingly unviable project can becomefinancially viable and attractive to the private sector. The procedure for seeking VGFfrom GoI is given in paragraph 3.2 of Appendix I.

VGF is normally in the form of a capital grant at the stage of project construction. Forprojects involving VGF, the Concessionaire needs to be selected through a transparentand open competitive bidding process. The criteria for bidding will be the amount of

VGF required by the bidder, when all of the other parameters are comparable.

7.5Financial ClosureFor PPP projects, Financial Closure is an important milestone which refers to the tie-up and fulfilment of all condition precedent to the initial availability of the funds forthe Project from Lenders, Banks, Fls, etc. under the financing arrangements.


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7.6 Bidding ProcessThe bid process for PPP projects should be fair, efficient, effective, competitive andtransparent. Though, there are various processes for procurement of goods andworks, but for PPP projects, either of the two process are generally adopted. These areSingle Stage two cover system andTwo Stage- two cover system.

7.6.1Single Stage Two Cover SystemIn cases where the project size is small (less than Rs. 50 crores), project requirements/configuration is simple, practices/ technologies for the sector have matured and/ orthere is some urgency for procurement, single stage bid process can be adopted,where Qualification Proposal (Technical and Financial capability of the bidder) andFinancial Proposal are invited simultaneously but in two separate covers through openinvitation by advertisement, in at least one National and one Regional news paper and

by hosting on the related web site. Request for Proposal (RFP) need to clearlyprescribe the criteria for Technical and Financial capability of bidders and the biddingparameters for Financial Proposal. Firstly the Technical and Financial capability ofthe bidder is evaluated as the prescribed criteria. The Financial Proposals of onlythose bidders are opened who possess Technical and Financial capability as per the

Bid Document. Generally, the Technical capability reflects the project experience inlast five years, equal to twice of the estimated project cost. Financial capability isassessed in terms of :

Parameter Value

Net Worth in preceding year Minimum 25% of project costAverage Turnover for last 5 years Minimum 100% of project cost

These are indicative threshold conditions and may be decided on project specific case.The Financial proposal is then evaluated on least cost basis as mentioned in the biddocuments.

7.6.2Two Stage Two Cover SystemIn the case of contracts for large complex facilities or works of a special nature orturnkey contracts or complex information and communication technology, it may beundesirable or impractical to prepare complete technical specifications in advance. Insuch cases, a two-stage bidding procedure may be used, under which first un pricedtechnical proposals on the basis of a conceptual design or performance specificationsare invited, subject to technical as well as commercial clarifications and adjustments,to be followed by amended bidding documents and the submission of final technical

proposals and priced bids in the second stage.A two stage bidding process shall broadly comprise of the following two stages:(i) 1st Stage Bidding (Technical and financial capability assessment, without prices)

(ii) 2nd Stage Bidding (Price Bids)In the first Stage, proposals would be invited for prequalification of bidders. Proposalsshall generally be invited through publication of the Invitation of Bids in newspaper,at least in one National and one Regional and by hosting on relevant web site. TheRequest for Qualification (RFQ) document prepared eitherin-house or by engagingTransaction Advisor shall give the background of the project, bid process, criteria forevaluation and general instructions. In the second stage, the RFP document includingthe draft Concession Agreement shall be issued to those who had qualified in the firststage.


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7.7Bid Security/Performance SecurityBids for the project shall be accompanied by a Bid Security/Earnest Money in theform of Demand Draft or Bank Guarantee of amount specified in the RFQ/BidDocuments. Normally, Bid Security shall be an amount equivalent to 1% of theEstimated Project Cost. However, the Authority may, in its discretion, prescribe a

higher Bid Security not exceeding 2% of the Estimated Project Cost. In case of aproject having an Estimated Project Cost of Rs. 2,000 cr. or above, the Bid Security,amount could be reduced but not less than 0.5% of the Estimated Project Cost in anycase.The selected bidder (Concessionaire) will furnish Performance Security in the form ofBank Guarantee. Performance Security shall be for an amount equal to 5% of theEstimated Project Cost.

7.8 Procurement of projects through PPP mode involves some changed steps andsome additional steps from those for procurement through traditional method asindicated in flow chart shown in Fig. 3.

Fig. 3: Flow Chart Showing change in some steps in PPP Project Procurement


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Project Identification

Assessment of PPP

Suitability

Project Appraisal

PPP Assessment

Statutory Process

Assessment

Procurement

Procedure Selection

Project Management

StakeholdersConsultation

Statutory process risk with

contracting authority

Statutory Process Elements of StatutoryProcessRetained by

Public Sector

Preparation of ContractDocumentation Preparation of Contract

Documentation

Tendering Process

Tendering Process

Contract and PerformanceManagement of

Construction and Operation

Contract Management ofPlanning Phase

Elements of StatutoryProcess Transferred to

Contract and Performance

Management of Constructionand Operation

Statutory process risk with

private sector

Key

No Change toExisting process

Changes toExisting process

New Stage forPPP projects


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8. ENABLING PROVISIONS BY GOVERNMENT OF HARYANA

8.1 The Government of Haryana has been taking up projects on PPP in various sectorssuch as roads, industry, education, power, agri- business, solid waste management,tourism etc. The stated policies of sectors such industry, IT, Tourism, education andspecial economic zones include PPP as mode of delivery of infrastructure and

services.

8.2 The Government of Haryana has notified the Policy for PPP in Haryana tofacilitate more and more projects to be taken up on PPP. Full policy document can beseen on the web site: www.pppinharyana.gov.in. Main features are given insucceeding paragraphs.One of the main provisions of the Policy is the constitution of institutional mechanismwith two levels of approvals for implementation of PPP projects.

8.2.1 Cabinet Committee on Infrastructure (CCI):The projects under PPP mode having concession period of more than 10 years and / orinvolving investment of more than Rs. 25 crore, shall be considered by the Cabinet

Committee on Infrastructure (CCI) and approved on the basis of recommendations ofthe Committee of Secretaries on Infrastructure (CoSI).

8.2.2 A Committee of Secretaries on Infrastructure (CoSI), consisting of a group ofSecretaries under the Chairmanship of the Chief Secretary, Government of Haryanafor facilitating infrastructure development in the State under PPP. The other membersof CoSI are the Principal Secretary to Chief Minister (CM), AdministrativeSecretaries of Finance & Planning, Revenue, Law & Justice, Town & CountryPlanning, Industries, Building & Roads, Forest and the concerned Department.Principal Secretary, Finance is the convener of this Committee. The Chairman ofCoSI may co-opt / invite any other officer / expert to be a member of CoSl and/ or to

participate in its meeting.The powers and functions of CoSI are to:

consider and formulate policy directives for facilitation and acceleration of PPPmode of delivery of public services in the State.

consider and provide in principle approval for project to be taken up on PPP.P determine most preferred and optimal method, based on the detailed analysis

presented on alternatives for procuring the public services / utilities.Wherever,

Govt. of India has prescribed specific procedures for sector /scheme or projects,the same would be followed and in case of any gap, theprovisions of this Policy

would be adopted. The key issue would be as to which method of procurementwould provide the best Value for Money (VfM), while determining the mostappropriate method of delivery,

consider and approve projects under PPP mode having concession period up to 10years and/or involving investment up to Rs. 25 crore.

consider and recommend PPP projects (including those requiring VGF), to theCabinet Committee on Infrastructure.

approve sectoral policies and model contract principles, bid documents, risksharing principles, dispute resolution mechanism and bid processes.

resolve issues relating to project approval process.


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approve to prepare road map for project development. identify inter-sectoral linkages and provide enablers for projects. exercise authority for accepting or rejecting sole bid if received and/ or limited

bids, for any project

prescribe time limits for clearances for any project.

decide issues pertaining to user levies including but not limiting to prescribingmechanism and procedure for setting, revising, collecting and/or regulating userlevies and to decide and settle disputes relating to user levies.

recommend en-actment of special legislation for formation of appropriateregulatory mechanism / robust grievance redressal mechanism as may be required.

inspect, review and monitor implementation, execution, operation andmanagement of PPP Projects.

8.2.3 PPP Cell

The Finance Department, Haryana shall be the Nodal Department dealing with allpolicy matters relating to PPP, in the State. Financial Commissioner and Principal

Secretary Finance would act as the State PPP Nodal Officer. Haryana Bureau ofPublic Enterprises (HBPE) in the Finance Department shall act as the PPP Cell underthe State Nodal Officer. The PPP Cell shall act as the Secretariat of CoSI and hasfollowing functions:-

Serve as the repository of knowledge and information relating to PPP includingbest practices, guidelines, schemes etc.

Identify and prioritize sectors and sub sectors for PPP projects and seek inprinciple approvals if required.

Assist various Government Departments in preparation of feasibility / projectreport by themselves or through consultant.

Standardise procedures and bid documents. Advise, if required, Departments in their recommendations of final bids of the

projects for approval of the CoSI, keeping in view the considerations of PublicSector Comparator (PSC) and Value for Money (VfM).

Coordinate with GoI and line Departments of the State on all issues related toprivate investment in the infrastructure sectors, including PPP. RelevantDepartments/Ministries in the State will coordinate with PPP Cell at all stages of

project and the PPP Cell would keep itself informed of the status of the PPPproposals.

Assess fund requirements for the development of projects, Viability Gap Funding(VGF) and any other related purpose for furthering the objectives of this policy.

Organize trainings, workshops, seminar and conduct / recommend exposure visitsfor capacity building.

8.2.4 A PPP Nodal Officer shall be designated in each infrastructure-centric Ministry/Department/ Govt. Entity of the State (Authority), to interact / coordinate with PPPCell and to act as the contact point for PPP projects.

8.3 A web site on PPP in the State has been hosted on the internet, having the addressas:pppinharyana.gov.in.


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It has web based Management Information System (MIS) software which allows theuser Department (Authority) to capture various aspects of data at each step of projectlifecycle and generates reports which help in decision making.The overall goal of this comprehensive Management Information System is to enabledecision support system through complete management of information. The keyfeatures of the computerized system, being covered by this software are mentioned

below. Online and Real Time: All transactions are updated instantly in all pertinentdata files as soon as the data is entered by the end user. This integrated softwareeliminates the need for error prone and times consuming clerical work, as allnecessary reports are available online. Total Integration: This software utilizes a single consolidated database servingas a core of the system. As a result, the management is provided with an updated viewof information related with PPP projects under various sectors facilitating inmanagements analytical and planning functions. Data Security: This software has been developed using MS-SQL Database.The entire application and database resides on the server placed in NIC Data Centerwith complete security features and ensures that right person has access to right

information. Flexibility in implementation: This software has a total of eight entry modules.The end user is not required to feed information in all eight modules at a singleinstance. The end user can feed information module by module as is convenient tohim. This helps in planned and smooth implementation. Openness: These software enables various query handling reports as desired

by the user. It also allows user to take the reports in word or excel software.This website provides information on policies and acts, PPP projects in Haryana. PPPToolkit etc.The web site also provides guidance on the use of MIS. For that, the user should clickon core user group option given on the top right corner of the home page. Theopened window would ask for User ID and Password. User ID to be given as adminand password is minda123. The opened window shall give an option of help at itstop right corner. Clicking on help shall give User Manual, which can be used toobtain the guidance on MIS.

9. KEYS TO SUCCESSFUL PPPSThere are some critical components of any successful Public-Private Partnership:

9.1 Statutory and Political EnvironmentA successful partnership can result only if there is commitment from "the top".

The most senior public officials must be willing to be actively involved and taking aleadership role in supporting the concept of PPPs. A well-informed political leader

can play a critical role

9.2 Public Sectors Organized StructureOnce a partnership has been established, the public-sector must remain

actively involved in the project or program. On-going monitoring (on daily, weekly,monthly or quarterly basis) of the performance of the partnership is important inassuring its success.


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9.3Detailed ContractA carefully developed plan (often done with the assistance of an outside expert in

this field) will substantially increase the probability of success of the partnership. Thisplan most often will take the form of an extensive, detailed contract, clearlydescribing the responsibilities of both the public and private partners. In addition toattempting to foresee areas of respective responsibilities, a good plan or contract will

include a clearly defined method of dispute resolution (because not all contingenciescan be foreseen).

9.4 Guaranteed Revenue StreamWhile the private partner may provide the initial funding for capital

improvements, there must be a means of repayment of this investment over the longterm of the partnership. The income stream can be generated by a variety andcombination of sources (fees, tolls, shadow tolls, tax increment financing, or a widerange of additional options), but must be assured for the length of the partnership.

9.5Stakeholder SupportMore people will be affected by a partnership than just the public officials and

the private-sector partner. These would be affected employees, the portions of thepublic receiving the service, the press, appropriate labour unions and relevant interestgroups. It is important to communicate openly and candidly with these stakeholders tominimize potential resistance to establishing a partnership.

9.6 Careful Partner SelectionThe "lowest bid" is not always the best choice for selecting a partner.

The "best value" in a partner is critical in a long-term relationship that is central to asuccessful partnership. The experience in the specific area of partnerships beingconsidered is an important factor in identifying the right partner. (PPP). While there isnot a set formula or an absolute foolproof technique in crafting a successful PPP, eachof these keys is involved in varying degrees

9.7 Optimal Risk AllocationInfrastructure projects have inherent risk and management of risks is the key to

the success of PPP project. There must be a well thought & thorough definition ofrisks and structure for risk allocation. Risks should be allocated to the party best ableto manage them. Fig. 4 shows the process of risk management.


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Fig. 4: Risk Management in PPP

n Identify all relevant risks to the project

n Assess consequences and financialimpact

n Undertake Quantitative and Qualitativeanalysis

n Share risks between partiesn Focus on Optimal risk transfer

n Actions to reduce risk occurrences

n Monitor and manage risks during theproject life cycle

Risk Identification

Risk Assessment

Risk Allocation

Risk Mitigation

Review & Monitoring


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Appendix I

PUBLIC PRIVATE PARTNERSHIP (PPP) IN INDIA

1 Government in India embarked upon the route of economic progress in earlyNineties and infrastructural deficiencies were recognised as major constraint.

Development and improvement of infrastructure therefore became a priority. Thelevel of efforts and investment required was quite huge and it was not possible to bemet from the normally available resources of the Government. Estimate by variousagencies had indicated the investment requirement of the order of US$ 500 (Rs.25,00,000 cr) in XI Plan period which is expected to increase to the requirement ofUS$ 1 trillion (Rs 50,00,000 cr) during XII Plan period, in order to sustain thetargeted growth rate of 9% to 10%. It was and is, therefore, necessary to involve

private sector to supplement the efforts of the Government in provision of improvedinfrastructure.

2 The PPP mode of delivery public utilities and services has matured to a great extentin India. A recent study commissioned by ADB has given fourth rank to India (Fig. 5)after Australia,UK and Korea in South Pacific Region, in readiness and capacity toimplement and sustain PPP projects for infrastructure improvements.

Fig. 5: PPP Projects in Countries

3 Government of India (GOI) has launched several institutional initiatives forfacilitating private sector participation in infrastructure improvement through PPPs.These include:

3.1 Setting up a Committee on Infrastructure (CoI), chaired by the Prime Ministerin August 2004. Its functions were to initiate policies, develop structures for PPPs,


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and oversee the progress of key infrastructure projects. This has now been substituted,in July 2009, by the Cabinet Committee on Infrastructure (CCI), under theChairmanship of the Prime Minister. The CCI approves and reviews policies andmonitors implementation of programmes and projects across infrastructure sectors.Besides various innovative schemes have been initiated to promote PPP mode ofdelivery of public services/ utilities.

3.2Financial support to PPP in infrastructure under the Viability Gap Funding

Scheme (VGF)Scheme

3.2.1 In order to make infrastructure projects commercially viable, Government ofIndia has the Viability Gap Funding Scheme for providing financial support in theform of grants, one time or deferred. The Scheme is administered by the Ministry ofFinance.

3.2.2. Government has constituted an Empowered Committee and EmpoweredInstitution for approving financial assistance to such projects which satisfies all theeligibility criteria indicated in the Scheme.

The composition of Empowered Committee will be as follows:

i. Secretary {Economic Affairs)ii. Secretary (Planning Commission)

iii. Secretary (Expenditure)iv. Secretary of the line Ministry dealing with the subject

The Empowered Committee will:

Sanction Viability Gap Funding up to Rs. 200 crore (Rs. Two hundred crore)for each project subject to the budgetary ceilings indicated by the FinanceMinistry. Amounts exceeding Rs. 200 crore may be sanctioned by theEmpowered Committee with the approval of Finance Minister;

Determine the appropriate formula that balances needs across sectors in amanner that broad bases the sect oral coverage and avoids pre empting, offunds by a few large projects;

Determine the inter-se allocation between any on-going Plan Schemeproviding viability gap funding and this Scheme; and,

Provide clarifications or instructions relating to eligibility of a project for suchsupport as and when requested by Empowered Institution.

The Composition of the Empowered Institution is as follows:

i. Additional Secretary (Economic Affairs)ii. Additional Secretary (Expenditure)

iii. Representative of Planning Commission not below the rank of Joint Secretaryiv. Joint Secretary in the line Ministry dealing with the subject (v) Joint Secretary

(FT), DEA -- Member Secretary

The Empowered Institution will sanction projects for Viability Gap Fundingupto Rs. 100 crore (Rs. One hundred crore) for each eligible project subject to


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the budgetary ceiling indicated by the Finance Ministry. EmpoweredInstitution will also consider other proposals and place them before theEmpowered Committee.

3.2.3 The total VGF under the Scheme shall not exceed 20% of the total project cost.The (State) Government or statuary entity owning the project may, if it so decides,

provide additional grants out of its budget up to further 20% of the total project cost.VGF under the Scheme is normally in the form of a capital grant at the stage of

project construction. Proposals for any other form of assistance can be considered byEmpowered Committee along with approval of Finance Minister on a case to case

basis.

3.2.4 In order to be eligible for funding under this scheme, a PPP project shall meetfollowing criteria:

(a) The project shall be implemented ie. Developed, financed, constructed, maintainedand operated for the Project Term by a Private Sector Company to be selected by theGovernment or a statutory entity through a open competitive bidding.

(b) The PPP Project should be from one of the following sectors:

(i) Roads and bridges, railways, seaports, airports, inland waterways;

(ii) Power;

(iii) Urban transport, water supply, sewerage, solid waste management andother physical infrastructure in urban areas;

(iv) Infrastructure projects in Special Economic Zones; and

(v) International convention centres and other tourism infrastructure projects;

(vi) Modern storage capacity including cold chains and post harvest sorage

Provided that the Empowered Committee may, with approval of the Finance Minister,add or delete sectors/sub-sectors from the aforesaid list.

(c) The project should provide a service against payment of a predetermined tariff oruser charge.

(d) The concerned Government/statutory entity should certify, with reasons that;

(i) the tariff/user charge cannot be increased to eliminate \ or reduce theviability gap of the PPP;

(ii) the Project Term cannot be increased for reducing the viability gap; and

(iii) the capital costs are reasonable and based on the standards andspecifications normally applicable to such projects and that the capitalcosts cannot be further restricted for reducing the viability gap.


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3.3 India Infrastructure Finance Company Limited (IIFCL) is the companyfloated by Ministry of Finance to provide long-term capital to help finance PPPs, aswell capacity building and other forms of assistance. IIFCL renders financialassistance through:

Direct lending to eligible projects Refinance to banks and Financial Institutions for loans with tenor of five years

or more Any other method approved by GOI

Some other salient features of financing and development include:

Loans assistance from SPV ordinarily shall not exceed 20 percent of theproject cost; the Company shall also syndicate loans, in addition to itsassistance

A project awarded to a private sector company for development, financing andconstruction through PPP shall have overriding priority.

3.4 India Infrastructure Project Development Fund (IIPDF) within theDepartment of Economic Affairs (DEA) is to provide financial support for quality

project development activities. Its role is to promote the development of credible andbankable PPP projects. The proposals for assistance under the scheme would besponsored by Central Government Ministries/ Departments, State Governments,Municipal or Local Bodies or any other statuary authority. IIPDF will ordinarily fundup to 75% of the project development expenses as an interest free loan. Balance 25%will be co-funded by the Sponsoring Authority. On successful completion of the

bidding process, the project development expenditure would be recovered from thesuccessful bidder. The IIPDF will be administered by the Empowered Institution. Thecomposition of the Empowered Institution will be as under:

a. Additional Secretary, DEA- Chairpersonb. Additional Secretary (Expenditure)c. Representative of Planning Commission not below the rank of Joint Secretaryd. Joint Secretary in the line Ministry dealing with the subjecte. Joint Secretary, DEA Member Secretary

The Public Private Partnership (PPP) Cell of the Department of Economic Affairs(DEA), Government of India will provide support functions to the EmpoweredInstitution to examine the applications received for assistance under IIPDF.To seek financial assistance from the IIPDF it would be necessary for the Sponsoring

Authority to create and empower a PPP Cell to undertake PPP project developmentactivities and to address policy and regulatory issues. Assistance under IIPDF fundingwill require co-funding by the Sponsoring Authority generally to the extent of 25

percent of the total project development cost, which would include the cost of pre-feasibility study to determine whether a project is amenable to PPP. The assistancefrom the IIPDF would ordinarily be released after the share of the SponsoringAuthority has been released. Only in exceptional circumstances, the EmpoweredInstitution (EI) may relax this condition of co-funding by the Sponsoring Authority.


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The web site: www.pppinindia.com should be referred for detailed guidelines, inorder to avail this facility. Annexes I,II and III give the guidelines, application formcontents of the preliminary report to be furnished for availing this facility.

3.5 Pilot Projects Initiative and IIPDFThe Pilot Projects Initiative Under the Initiative, an innovative project development

funding scheme has been jointly established between the GOI's IIPDF scheme andADB TA funds. This is aimed at developing projects in especially challenging sectorsand providing hand-holding from the central DEA and ADB PPP units to projectsponsors from concept development to bid award. Project sponsors are thus able toaccess funds for engagement of transaction advisors for developing projects andundertaking bid processes. The facility has had a significant impact on thedevelopment of the challenging sectors' project pipeline at the states and uptake forespecially challenging projects has been growing over the last year since itsestablishment.

3.6 PPP Cell within the Department of Economic Affairs (DEA) in the Ministry ofFinance, whose tasks are to organise activities promoting the use of PPPs, and

administer proposals; and to act an inter-ministerial secretarial assistance for PublicPrivate Partnership Appraisal Committee (PPPAC).

3.6.1 Panel of Transaction Advisors for PPP ProjectsGovernment had prequalified a Panel of firms through International CompetitiveBidding (ICB) as Transaction Advisors (TAs), so as to meet the needs of StateGovernments and its agencies for the assistance in creation of shelf of projects and to

prevent hiring of TAs on nomination basis. The Panel was intended to

Streamline the tendering process for the engagement of Transaction Advisorsfor PPPs

Enable fast access to the firms that have pre qualified against relevant criteria Ensure transparency and accountability through clear definition of the process

and the role and responsibilities of the agencies and the private sector.Following steps were to be taken for using the Panel of TAs

Confirm proposed project is eligible Develop specific terms of reference (TOR) and request for proposal (RFP)

for the assignment Seek proposals from panel members in accordance with RFP Evaluate proposals from Panel members Sign contract for provision of transaction services with selected Panel

members Service commences Evaluate and report to DEA on performance of selected Panel memberThis panel is no longer valid.

3.6.2 PPP ToolkitThe Government of India in the Department of Economic Affairs, Ministry of Financehas designed the PPP Toolkit, a web-based resource, to help improve decision makingfor infrastructure PPPs in India. Toolkit covers five infrastructure sectors, namely,State highways, Water and Sanitation, Ports, Solid Waste Management, and Urban


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Transport (Bus Rapid Transport Systems). The Toolkit may be accessed athttp://toolkit. pppinindia.com. The web site also provides guidance to use the toolkit.

Annex I

Memorandum for Consideration

Under Guidelines for IIPDF

1. IntroductionThe MFC is an application to be made by the Sponsoring Authority to seek projectdevelopment funding from the India Infrastructure Project Development Fund set up

by the Department of Economic Affairs, Ministry of Finance. The information soughtin the MFC and the rationale is given below. Annexure II includes an ApplicationForm to be completed for the MFC and Annexure III provides a typical Table of

Contents for the Preliminary Report to accompany the MFC.

2. Project ProposalThe Sponsoring Authority, with the aid of the PPP Cell or otherwise, will highlightthe broad contours of the project and issues related to its implementation frameworkin the proposed PPP option. The proposed project development\ activities, budget andtime lines will form a part of the report.

a. Technical Information: The technical information will include the need for theproject, the components, their preliminary capacity/sizing and block cost estimatesfor investment sought through PPP options. In case of PPP options like Service,Management or Lease Contracts, the investment required for rehabilitation or

efficiency improvement measures need to be stated, the absence of which willhinder structuring performance based contracts.

b. Environmental and Social Aspects: On one hand, the information must list theapplicable steps required to obtain environmental clearance under theEnvironmental Rules and Regulations issued by competent authority from time totime. On other hand, the information should also bring out if there are anyenvironmental or social risks that can impact/delay/ hinder the project deliverablesfrom considerations of efficient use of assets created under a PPP framework. Thisshould be addressed from an investment risk perspective.

c. Financial Analysis: Financial analysis of the investment proposed for the landed

cost of the project (see definitions given in the guidelines, the project cost toinclude cost of project development funding and returns thereon) must highlightthe sources of investment, drawdown period, the revenues over the projectcontract period (due to tariffs for services and/or due to savings arising out ofefficiency gains) and Internal Rate of Return (IRR) on Economic/Project/EquityIRR considerations. In case of non-revenue generating projects, the EconomicIRR must be mentioned.


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d. Legal Aspects: This must bring out the provisions under the relevant Acts/Rulesthat grant authority to the Sponsoring Agency for developing and implementingthe project under the proposed PPP option and the proposed decision-makingsteps to award the PPP contract. The objective is to ensure that the SponsoringAuthority by itself or through an identified Competent Authority has the necessaryauthority to approve the proposed project development and implementation

framework. In case of any need to amend the legal framework, the same must bementioned.

e. Risk Identification: A preliminary assessment of the project risks during differentphases of the project-development, construction and implementation-must besummarized. This will form the basis for structuring possible mitigationmeasures/structures in detail during project development, hence an indicativesummary is considered adequate at the preliminary stage. This is to ensure that thecost of capital/investment sought from the private sector investor is minimal and

based on informed risk mitigation structures rather than perceived risks withmitigation measures not mentioned.

f. Proposed PPP Implementation Structure: Typically, the intent of systematic project

development with funding support is to seek private sector investment andmanagement skills so that the Sponsoring Authority can structure performance

based service delivery, while allowing the private sector to recover the investmentwith appropriate returns. In case of Greenfield projects, options such as Build, Own,Operate & Transfer (BOOT), BOT and its variants or Concession or LeaseContracts are possible. However, in case of existing projects, where significantrehabilitation or replacement of assets is necessary for asset performanceimprovement, management or service contracts (that bring in private sectorefficiency and management skills with investment mostly by the public sector) may

be the first step toward establishing efficient asset base and operational systems forthe project assets for subsequently enabling larger investments through BOOT typecontracts. Hence, the financiability of the proposed PPP option must be highlighted.

g. Regulatory Aspects: The preliminary report accompanying the MFC must mentionthe existing regulatory mechanism, as applicable, in case tariffs are to bestructured in the PPP options. In the absence of regulatory mechanism, proposedsteps for regulation by contract must be indicated.

h. Project Development Cycle: The information will include the proposed projectdevelopment activities and time lines starting from the appointment of consultantsand advisors culminating in the selection of the private sector partner through atransparent and competitive procurement process. The role of differentgovernment agencies, role of consultants and advisors should be briefly included.

3. Budget for Project DevelopmentThe budget for project development should include an estimate of:

Surveys and investigation expenses.

Consultant fees covering technical, environmental & social, legal,financial studies and project documentation, as may be needed.

Fee for grading of projects, if any.

Transaction Advisor fees. Consultant fees covering risk assessment/identification.


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Out of pocket expenses for procurement process documentation,advertising, marketing road shows/investor meetings, etc.

It would not include expenses incurred by the Sponsoring Authority on itsown staff, etc.

4. Duration of Funding and Drawdown Requirements

An indicative quarterly budget with milestone-linked payments for each projectactivity should be indicated.

5. Plan for RecoveryPlan for Recovery of Project Development funding with Returns should be indicated.

Annex II

Memorandum For Consideration (MFC) Application Form

Nature of Assistance : Project Development funding for Rs. ______Is Viability Gap Fund (VGF) also sought separately?

Yes/NoProject Name :Sector :Sponsoring Authority :Location/(State/District/Town) :

Implementing agency (ifdifferent from above as incase of SPV)) :

Need for the Project :

Brief Project Description :

PPP structure for Project : BOOT/BOT (its variants)/Concession/LeaseImplementation Management/Service/EPC along with Performance

based O&M Contract

Project ImplementationMilestones : List key milestones

Likely impact(s) of theProject :

Project Financial Structure : A) Details of Project Cost


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Item Rs. LakhsLandBuildingEquipmentsAny other (Specify)

Total Project Cost

B) Proposed means of financing

Source Rs. lakhsPrivate Sector

State GovernmentSponsoring AuthorityGovt. of India (VGF)Any Other (Specify)

Total

IRR Estimations (asapplicable) : Economic IRR

Project IRREquity IRR

Estimated ProjectDevelopment Expenses Item Rs. lakhs

Surveys and InvestigationsConsultancy fees:

TechnicalEnvironmental & SocialLegalFinancial

Any otherTotal Consultancy FeesTransaction Advisory FeesMarketing and ProcurementRelated ExpensesAny other

Total Estimated ProjectDevelopment ExpensesIIPDF contribution @75%

Enclosures :

Signatures and Nameof the Authorised Signatory of the

Sponsoring Authority


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Annex III

Table of Contents of the Preliminary

Report accompanying the MFC

1. Introduction

2. Existing Project Scenario(including need for rehabilitation, up gradation, improvement and/orincremental investments-to bring out the need of the project)

3. Project Proposal(covering broad project concept and components, block cost estimates,revenue structures, etc.-See Annexure I)

4. Preliminary Project Assessment

4.1 Technical feasibility4.2 Environment and social acceptability4.3 Financial & commercial viability4.4 Legal framework4.5 Risks (during development, construction and operation implementation)4.6 Contractual & implementation structures 1 5

5. Project Development Activities5.1 Project development cycle5.2 Timelines5.3 Surveys and investigations5.4 Technical/Environmental & Social/Financial/Legal consultants, their scope of

work5.5 Transaction Advisors, their scope of work5.6 Marketing5.7 Procurement process5.8 Others (Please specify)

6. Funding Requirements for Project Development6.1 Budget for Project Development expenses6.2 Drawdown (indicative quarterly budget and estimated milestone linked payment

for each activity)

7. Plan for RecoveryPlan for Recovery of the Project Development funding with Returns

8. Recommendations

BOT= build-operate-transfer, O&M= Operation and maintenance

Source: ADB, Public-Private-Partnership Handbook; Heather Skilling and KathleenBooth 2007.


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Appendix II

HISTORICAL BACKGROUND

The beginnings of partnership between private and public sectors can be traced as farback as the Roman Empire two thousand years ago in Europe. A network of postal

stations was developed to accompany the vast expansion of the highway system underthe Roman legions. During the 16th and 17th centuries, European sovereigns,

particularly France, began much more expansive public works concession programsin canal construction, road paving, waste collection, public lighting, mail distributionand public transportation. In early 20

th. prior to 1982 there was very limited private

financing of transport infrastructure in developing or transition countries. Throughoutthe industrialized and developing world, there has been a renewed move toliberalization and privatization of infrastructure activities which increaseddramatically into the 1990s forging a systematic Public Private Partnership (PPP).

The United Kingdom's Private Finance Initiative (PFI), which began in 1992, had

projects in most key infrastructure areas. Other countries with significant PPPprograms include Australia, Ireland, United States, France, Italy, Spain, Finland,Germany, Greece, the Netherlands and Portugal. Reflecting a need for infrastructure

investment on a large scale, but weak fiscal positions, a number of countries inCentral and Eastern Europe, including the Czech Republic, Hungary, and Poland,have embarked on PPPs. There are also fledgling PPP programs in Canada and Japan.PPPs in most of these countries are dominated by road projects. In Latin America,Chile, Colombia, and Mexico have used PPPs to promote private sector participationin public investment projects. In Africa, South Africa has embarked upon developingPPPs in a number of sectors. In Asia, the use of PPPs is continuing to develop with awell established program in South Korea, an extensive investment program in China,although with varying degrees of implementation and success, in Indonesia, the

Philippines and Singapore. In India, PPP is now being used widely in improvement ofphysical and social infrastructure.


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Appendix III

LESSONS LEARNT FROM PPP PROGRAMS

The establishment and implementation of PPP programs worldwide has providedseveral lessons, particularly from the poor performing PPP programs.

Such lessons include:1 Countries without a proper policy and full commitment across the Ministries/Departments involved, (Finance and Development, Planning), fail to instil confidence

in the private sector. The result is that either the private sector is not interested orprefers to use unsolicited tenders to avoid a competitive and transparent framework.

2 Projects are often insufficiently prepared, sometimes for financial reasons,

sometimes for time reasons. Ultimately, poorly prepared projects either fail or takemuch longer, sometimes years longer than the advocated PPP process or result in

financial (and political) liabilities for governments in later years.

3 Inconsistent laws and regulations can be worse than limited or no laws, whereregulation by contract can operate at least initially.

4 Even where projects are well developed and frameworks are in place, relativelyminor defects in concession contracts can lead to weak and uncompetitive tenders.

5 Without clear policy regarding unsolicited bids, the private sector may prefer thisapproach, which could result in poorer deals for the government and longer time takento implement than the standard PPP route.

6 Ad hoc projects, rather than a properly developed pipeline of projects, may result indifficult projects which either fail to be implemented or take years to be developed.

Difficult

projects are generally those that require large subsidies, are risky, often notready and have too many negative impacts.

7 Consultation and explanation of PPPs is often insufficient to convince/inform public

sector officials, senior staff and general public of their advantages and how they work,generating a lot of misunderstanding and opposition to PPPs. Many of these lessons

provide the basis for the policy and strategy development in the present section.

8 PPP is not the only method to deliver project financing and realisation. It does notprovide a miracle solution nor a quick fix and should only be used whereappropriate and where it is able to deliver clear advantages and benefits.

9 Each type of PPP has inherent strengths and weaknesses which need to berecognized and integrated into project design.

10 One of the fundamental causes of project failure, for both traditional public sectorprocurement and PPPs, is often a lack of clarity on the part of the public authorityregarding the exact scope and requirements of the project. The other reasons arerevenue or market forecasts being wrong, failure of technology, insolvency ofsubcontractors, or excessive exchange rate fluctuations.


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11 PPP seems likely to be appropriate if: Service outcomes can be clearly specified and measured There exists the potential, and the incentives to introduce, design innovations andoperational changes that can raise efficiency Payment mechanisms are devised that give the operators the motivation to maintainservice quality

Value for money is able to be demonstrated, after allowing for costs of projectdevelopment and costs of monitoring the contract

An integrated service can be provided with close working relationships and goodcommunication between service providers

There are transparent accountability procedures and a due regard for the public

12 The review of international best practice in PPPs suggests a number of core issuesthat public authorities must address when considering the use of PPPs for producing

public infrastructure projects. These include:

Whether PPP arrangements will result in better value for money thanconventional pro