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Cultura Documentos
ON
A CRITICAL STUDY OF PUBLIC PRIVATE
PARTNERSHIP FOR INFRASTRUCTURE
DEVELOPMENT IN INDIA:WITH SPECIAL REFERENCE TO
MAHARASHTRA STATE
(1997-2007)
Submitted to
Rastrasant Tukadoji Maharaj Nagpur University, Nagpur
for Registration for the Degree of Doctor of Philosophy
in the Faculty of Commerce
Researcher
RAJESH I. CHOUKSEY
BE, MBA
Supervisor
Dr. MUKUL A. BURGHATE
BE, MBA, SET, Ph.D.
CONTENTS
Chapter
1
2
3
4
5
TITLE
Introduction
Objectives of the study
Plan of Work
Research Methodology
Chapter Schemes
Bibliography
PAGE NO
1-18
19
20-21
22-26
27-28
29-31
1. INTRODUCTION
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.
Government of India (GOI) has decided to actively pursue the Public Private
Partnership (PPP) model to meet the gaps in provision of basic infrastructure
services. Ministry of Finance has undertaken a programme of capacity building for
PPPs in the State Governments and Central Ministries.
As long-term economic growth requires investments in infrastructure,
government face a growing need to find alternative ways to finance infrastructure.
To meet this need in the face of scarce financial resources, governments may find it
optimal to focus on formulating public policies rather than building the needed
infrastructure. Indeed, the evidence clearly shows that governments have been
largely unsuccessful in providing independently the much-needed infrastructure and
public goods to support economic growth. At the same time, private firms cannot be
relied upon to build and deliver these public infrastructures independently. For these
reasons, mutually beneficial partnerships between public and private sectors can be
important.1
Attracting private capital in this critical sector is recognized as a key strategy
to meet the resource deficit. Consequently, Public Private Partnership (PPPs) are
being encouraged as the preferred mode for execution and operation of
infrastructure projects. PPPs offer a number of advantages in terms of enhancing the
ability to take a larger shelf of infrastructure investments, introducing specialized
expertise and cost reducing technology as well as bring in efficiencies in operation
and maintenance.2
Public Private Partnership (PPP) Project means a project based on a contract
or concession agreement, between a Government or statutory entity on the one side
and a private sector company on the other side, for delivering an infrastructure
service on payment of user charges. Private Sector Company means a company in
which 51% or more of the subscribed and paid up equity is owned and controlled by
a private entity.
PPPs are broadly refer to long-term, contractual partnerships between the
public and private sector agencies, specifically targeted towards financing,
designing, implementing, and operating infrastructure facilities and services that
were traditionally provided by the public sector. These collaborative ventures are
built around the expertise and capacity of the project partners and are based on a
contractual agreement, which ensures appropriate and mutually agreed allocation of
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.
resources, risks, and returns. This approach of developing and operating public
utilities and infrastructure by the private sector under terms and conditions agreeable
to both the government and the private sector is called PPP or P3 or Private Sector
participation (PSP).
1.1 ROLES AND RESPONSIBILITIES
PPPs do not mean reduced responsibility and accountability of the
government. They still remain public infrastructure projects committed to meeting
the critical service needs of citizens. The government remains accountable for
service quality, price certainty, and cost-effectiveness (value for money) of the
partnership. Government remains actively involved throughout the projects life
cycle. Under the PPP format, the government role gets redefined as one of facilitator
and enabler, while the private partner plays the role of financier, builder, and
operator of the service or facility. PPPs aim to combine the skills, expertise, and
experience of both the public and private sectors to deliver higher standard of
services to customers or citizens. The public sector contributes assurance in terms of
stable governance, citizens support, financing, and also assumes social,
environmental, and political risks. The private sector brings along operational
efficiencies, innovative technologies, and managerial effectiveness, access to
additional finances, and construction and commercial risk sharing.3
1.2 THE SALIENT FEATURES OF A PPP
Not all projects with private sector participation are PPP projects.
Essentially, PPPs are those ventures in which the resources required by the project in
totality, along with the accompanying risks and rewards/returns, are shared on the
basis of a predetermined, agreed formula, which is formalized through a contract.
PPPs are different from privatization. While PPPs involve private management of
public service through a long-term contract between an operator and a public
authority, privatization involves outright sale of a public service or facility to the
private sector. A typical PPP example would be a toll expressway project financed
and constructed by a private developer.
A PPP project is essentially based on a significant opportunity for the private
sector to innovate in design, construction, service delivery, or use of an asset. To be
viable, PPPs need to have clearly defined outputs, avenues for generating
Fundamental qualities of a PPP project
HIGH PRIORITY TO GOVERNMENT-PLANNED PROJECT: The project must have emerged from a government-led planning and
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.
Service Contract;
(ii)
Management Contract/Lease;
(iii)
(iv)
Concession;
(v)
(vi)
Community-based Provision.
Most contracts take the form of Concession and Design, Build, Finance,
and operate contracts, to cover the finance, design, management, and maintenance
obligations. These contracts are usually financed by user fees or tariffs or by
government subsidies. The public sponsor of the PPP decides the degree of private
participation required for the particular project. This decision is usually based on the
governments objectives of undertaking the project, the degree of control it desires,
and the ability of the PPP consortium to deliver the required service. It is also
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.
influenced by the provisions of the existing legal and regulatory framework, the
structuring of the project to attract private resources, and the potential to generate
future cash flows.
1.3 THE KEY CONSIDERATIONS IN PPPS.
PPPs
often
involve
complex
planning
and
sustained
facilitation.
Infrastructure projects such as roads and bridges, water supply, sewerage and
drainage involve large investment, long gestation period, poor cost recovery, and
service standards. Finally, PPPs result in improved delivery of public services and
also promote public sector reforms.
1.5 ACCESS TO PROJECT FINANCE.
The foremost benefit of adopting the PPP route is the ability to access capital
funding from the private sector, considering that funding is getting increasingly
limited from public sector budgets. Thus, PPPs allow governments to overcome their
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.
budgetary and borrowing constraints and raise finance for high-priority public
infrastructure projects. Essentially, governments are able to use private finance
through PPPs to build infrastructure projects that would previously have been built
by the public sector using public sector finance. PPP projects also leverage available
public capital by converting capital expenditure into flow-of-service payments.
The high degree of economic externality of public infrastructure, and the
commercial and socioeconomic risks involved in developing and operating them,
has made it difficult to appropriate returns from infrastructure investments. The long
gestation period of infrastructure projects also requires sustainable financial and
operational capacity. Therefore, there is increasing reluctance in both the public and
private sectors to absorb all the costs and assume all the risks of building and
operating these assets alone. Since the private sector assumes the risk of
nonperformance of assets and realizes its returns if the assets perform, the PPP
Process involves a full-scale risk appraisal. This results in better cost estimation and
better investment decisions.5
1.6 KEY CONSTRAINTS TO PRIVATE FINANCING OF
INFRASTRUCTURE:
Financial sector constraints to private financing of infrastructure projects are
complex, capital intensive, long gestation projects that involve multiple and often
unique risks to project financiers. Infrastructure projects are characterized by nonrecourse or limited recourse financing, i.e., lenders can only be repaid from the
revenues generated by the project. This limited recourse characteristic, and the scale
and complexity of an infrastructure project makes financing a tough challenge,
which is further compounded by two factors. First, a combination of high capital
costs and low operating costs implies that initial financing costs are a very large
proportion of the total costs. Second, infrastructure project financing calls for a
complex and varied mix of financial and contractual arrangements amongst multiple
parties including the project sponsors, commercial banks, domestic and international
financial institutions (FIs), and government agencies.
Key constraints in the financial sector relate to the following:
Raising adequate equity finance tends to be the most challenging aspect of
infrastructure project financing, as equity typically shoulders the greatest
level of operational, financial and market risk. However, at present, limited
exit options for investors limits equity financing.
Other constraints include a shallow capital market (albeit continuously
improving), and weaknesses in corporate governance (primarily minority
shareholder protection rights).
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.
(ii)
Fiscal barriers
An enabling fiscal environment is a prerequisite for attracting private sector
players to inherently high risk ventures. There are some fiscal issues
particularly in relation to Sections 10(23G) and Section 80IA of the Income
Tax Actthat need to be ironed out in order to give further fillip to
infrastructure sectors. Also, the fact that nearly all states suffer from serious
fiscal imbalances and are ridden with huge debt obligations does not make
them the most bankable business partners for the private sector.6
1.7.2.
DEFICIENT
INFRASTRUCTURE
IS
BINDING
Scheme
are
Transportation
(roads,
railways,
seaport,
airport);
Scheme. These include Roads and Bridges, Airports and Seaports, Commuter Rail,
Urban Transit and Parking; Water Supply and Wastewater System; Electricity and
Gas Distribution; Municipal Solid Waste/Biomedical Waste Collection and Disposal;
Convention Center; and Waterfront Redevelopment.
1.11 ELIGIBILITY CRITERIA.
To avoid shortcomings in project proposal and thereby avoid delays in the
approval process, the Viability Gap Funding Scheme has the following criteria:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(ii)
(iii)
India to address the lack of authentic and credible information relating to PPPs. It
will be a dynamic database, with monitoring of ongoing projects. The public sector
PPP agencies will be required to provide data inputs to keep the database updated.
The format is being finalized and the project is being outsourced to a database
management agency. The database and the website will together act as an
information clearing house/ exchange for all public and private sector stakeholders
to access information related to Government of India
A key reason for the slow pace of generation and submission of PPP project
proposals from the states has been lack of expertise in the project sponsoring agency
to structure and evaluate PPP proposals. The government has also recognized that
there is a dearth of projects. To overcome this constraint, the Government of India
has been targeting states for capacity building efforts and has stepped up these
efforts. It is providing assistance for the creation of PPP cells in various state
governments as a nodal agency. The PPP toolkit, information database, and training
workshops are directed at rapidly building up states capacity to mobilize PPP
projects. The Government of India, through the regional workshops and other
interactions, is also identifying the capacity building needs of state governments and
is geared to supporting any state initiatives on building their capacity on PPP. An
Inter-Ministerial Group (IMG), chaired by the Additional Secretary, Department of
Economic Affairs, is working on providing assistance to state governments in
building capacity for PPPs. Arrangements are being finalized under which state
governments would be able to avail of consultancy support for developing PPP
projects. Institutions like the Infrastructure development Finance Company Limited
and the Asian Development Bank could take a lead in this. India Infrastructure
Finance Company Limited (IIFCL): In January 2006, the Government of India
established India Infrastructure Finance Company Limited under the Companies
Act, 1956, as a wholly government owned company with an authorized capital of
Rs 1000 crore and paid-up capital of Rs 10 crore. The special purpose vehicle was
set up following the announcement by the Finance Minister in February 2005, and
Cabinet approval in November 2005. The India Infrastructure Finance Company
Limited has been set up to fill the gap for long-term infrastructure finance that banks
are not in a position to address, owing to concerns relating to mismatches in assets
and liabilities. It caters for the burgeoning gap in long-term financing of
infrastructure projects in the public sector, PPP, or the private sector. Infrastructure
projects have a long gestation and often need long-term debt (+10 years) which
financial institutions are unable to provide due to asset liability mismatch and the
long-term debt funds being at a nascent stage. India Infrastructure Finance Company
Limited will ease this asset-liability mismatch through refinance; lower long-term
debt cost due to sovereign guarantees; and set benchmarks for market borrowings by
other organizations. India Infrastructure Finance Company Limited will borrow
long-term funds on Government of India guarantees from multilateral organizations
and others and lend to identified infrastructure projects in six sectors either directly
or through refinance of long-term debt9.
process. Memories of how the Enron issue was handled have also kept investors
away.
Foreign investors look for the fundamentals of an investment opportunity.
This covers the risk-return balance, market potential, and other competing
Opportunities. For project-specific considerationsthe same as the domestic
investors concernsthey look out for unmet demand, revenue potential,
demonstrated project viability, and political commitment to the project. But, most
importantly, they look for opportunities that balance risks and rewards between
public and private partners. However, the situation is expected to change, and the
government needs to take cognizance of the kind of PPPs that could be attractive to
foreign investors.
1.16 BUILD GENUINE AND MUTUALLY REWARDING PARTNERSHIPS.
PPPs represent partnerships in action with huge stakes for both the public
sector and private sector agencies to succeed collectively. It is important that the
public and private sectors work together, keeping the project and outcomes in focus
and not seeking primarily to maximize self-interest, collaborating for mutually
enduring value. It is important that the legacy of mistrust and patronage gives way to
genuine partnerships with the realization that PPPs represent a new way of doing
business, and are not about command and control. Ultimately, the project partners
need to remember that PPPs are not merely about finance, they are also about
improving the quality and efficiency of public services.
1.17 OPPORTUNITIES IN INDIAN INFRASTRUCTURE SECTOR:
The following table shows the opportunities exist in the key infrastructure area in
India:
OPPORTUNITIES IN
OUTLOOK
INFRASTRUCTURE
Over 90,000 MW of new generation capacity is
required
by 2012.
A corresponding investment is required in
transmission and distribution networks.
10
POWER
Power costs need to be reduced from the
current high of 8-10 cents/ unit by a combination
of lower AT & C losses, increased generation
efficiencies and added low cost generating
capacity.
India expected to be among the fastest growing
telecom markets in the world.
TELECOMMUNICATIONS11 Projected growth of 30-40% p.a. to reach 250
million subscribers by 2009-2010.
Over 3 million new users are added every
month mostly in wireless.
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.
OPPORTUNITIES IN
INFRASTRUCTURE
ROADS12
OUTLOOK
Annual growth projected at 12-15% for passenger
traffic, and 15-18% for cargo traffic.
Over $5060 billion investment is required over
the next 5 years to improve road infrastructure.
PORTS13
PETROLEUM &
NATURAL GAS15
Plan of Work
Duration
1.
Literature Review
3 Months
2.
Fact Finding
6 Months
3.
3 Months
4.
Field Work
3 Months
5.
3 Months
6.
6 Months
Total 24 Months
RESEARCH METHODOLOGY
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.
4
.
financing
methods
in
which
private
sector
Hypothesis:
HI: Public Private Partnership is vital in the overall infrastructure
development of Nagpur region in Maharashtra State.
HII: Public Private Partnership is successful in bringing economic
development in Nagpur region of Maharashtra state.
HIII: Public Private Partnership reduces responsibility and accountability
of the Government.
Sampling Techniques:
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.
Sample size:
The sample pertains to the study Public Private Partnership in
infrastructure sector of Nagpur region in Maharashtra state. This region
contains upcoming project of Multi Modal International Hub Airport at
Nagpur. This study covers a period of 10 years commencing from 1997. A
sample of 20 officials from Public and Private Organizations shall be selected
randomly from each Infrastructure sector which comprise of Roads, Rail,
Power, Telecommunication, civil Aviation & Airports.
Sources of Data:
Primary Data:
The primary data may be collected from public representatives and
Government officials through schedules interview and questionnaires.
Secondary Data:
The secondary data can be traced from office records, journals, annual
reports and other documents of the corporation.
Presentation of Data:
For Presentation of data, simple quantitative techniques will be used.
For better understanding diagrams, graphs, pie diagrams, etc., will be used at
relevant places.
5. CHAPTER SCHEMES
Chapter 1. INTRODUCTION
This chapter will provides overview of the Public Private
Partnership in infrastructure of India. It will highlight the concept and
history of Public Private Partnership. It will cover issues in
development of infrastructure through Public Private Partnership with
the focus on physical infrastructure sectors like electricity, roads,
ports, urban infrastructure, and water. This chapter will cover legal
framework underlying Public Private Partnership and appropriate
frameworks to understand and structure partnerships including
private finance initiatives. It will also highlight the nature of risks in
varieties of Public Private Partnership.
BIBLIOGRAPHY
This section will provide references taken from the books,
journal and web sites while doing the research.
BIBLIOGRAPHY
BOOKS
3i-Network, India Infrastructure Report 2008, Business Models of the Future OXFORD
university press, IIM Ahemdabad, Edition May 2008
Sharma Y, Public Private partnership in Infrastructure, Vitasta Publishing Pvt. Ltd.,
New Delhi, Edition 2007
P. Jegadish Gandhi and M.J. Joseph, Public-Private Partnership in Nation Building,
Deep and Deep publications, New Delhi, 2005
Akintola Akintoye, Matthias Beck and Cliff Hardcastle, Public Private partnership in
Infrastructure- Managing Risks and Opportunities, Blackwell Publishing, USA,
February 2003
WEB SITE
URL
HTTP://WWW.PPPININDIA.COM
DATE
7th June, 2008
TIME
7:30 PM
http://WWW.INFRASTRUCTURE.GOV.IN
7:45 PM
http://WWW.INVESTMENTCOMMISSION
12:30 PM
.IN
HTTP://POWERMIN.NIC.IN
5:30 PM
HTTP://WWW.DOTINDIA.COM
11.00 AM
HTTP://WWW.TRAI.GOV.IN
11.15 AM
HTTP://MORTH.NIC.IN
11.30 AM
HTTP://WWW.NHAI.ORG
11.45 AM
th
HTTP://SHIPPING.NIC.IN
22 June, 2008
11.55 AM
HTTP://CIVILAVIATION.NIC.IN
12.15 AM
th
http://www.airportsindia.org.in/aai/main.htm
22 June, 2008
12.30 AM
HTTP://PETROLEUM.NIC.IN
1.00 PM
References
1 Mona Hammami, Jean-Francois Ruhashyankiko, and Etienne B. Yehoue , IMF
working paper Determinants of Public-Private-Partnerships in Infrastructure April
2006 p. 6
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.
RAJESH CHOUKSEY
Researcher