Developer’s Perspective in PPP: An Indian Experience

A presentation by Anand Srivastava, SARPS, NDO

Fiduciary Forum 2008NCC, Lees Berg Mar 26-27, 2008

• Infrastructure: Key to growth• Public Private partnership (PPP)• Issues Galore: Developer’s Perspective

Structure

Infrastructure: Key to Growth

Growing Indian Economy

• The GDP growth ranges between 8 % to 9%• GDP expected to touch double digit growth during XI

Five Year Plan (2007-12)• Goldman Sach’s BRIC report projects India as one of

the fastest growing economy in first half of 21st century

Infrastructure Bottleneck Infrastructure is the biggest bottleneck in ‘India Growth

Story’: Dampening growth by 1.5% to 2% Transport system has severe capacity constraints:

highways, city roads/MRTS, airports, seaports and railways Urban and Utility infrastructure has collapsed: huge

demand-supply-quality gap in drinking water, sewerage system, drainage and power supply

India needs US$ 494 billion investment in the XI FYP Government alone can not bring the desired investment :

need for Public Private partnership (PPP) to augment resources and efficiency

Upto 25% of investment planned with PPP: Investment of US$ 124 bn by private sector in just 5 years

Public Private Partnership

PPP Approach

•Lack of Budgetary Resources•Need to improve efficiency in service

deliveryNeed

PPP approach

•Attract private investments for infrastructure projects

Goal

•Private Sector contribution for: - Financial investments - Best Management practices - Efficiency in service delivery - Efficient use of capital resources

•Public Sector contribution limited to: - Providing institutional commitment to

project - Project Development - Transparent & Unbiased Selection of

Developer - Viability gap funding (VGF), if any

EIRR

FIRR

Projects Amenable to PPP

Govt. to provide Viability Gap Fund for non-viable projects

Private Investment: Commercially Viable projects

FIRR: Financial IRR (commercially viable)

EIRR: Economic IRR

Issues Galore: Developer’s Perspective

1. Mindset

CURRENT SITUATION1. Owner-EPC contractor

relationship2. Contracts made with several

issues left at Govt. discretion

3. Short term contracts

4. Delays in approvals and clearance to Private sector (Pvt.) partner

DEVELOPERS’ EXPECTATION1. PPP intent is of Developing

partnership for efficient project/service delivery

2. Comprehensive Concession Agreement covering all rights and obligations of both partners with clear termination clauses and Force Majeure

3. Long term partnership with alignment of objectives to meet the project goals

4. Develop amicable relationship between the partners

2. Shelf of Projects CURRENT SITUATION

1. Inadequate Project Development (PD)

2. Low/no budget for Project Development

3. PD efforts run by staff having low exposure to PPP

DEVELOPERS’ EXPECTATION1. Bankable Project Development

2. Create Adequate & Dedicated PD fund to enable diligent PD efforts

3. Train the Government Officials and for the initial period engage competent & experienced professional bodies for developing– Adequate Techno-commercial

details– Risk analysis, allocation and

management – Project Structuring & Bid

Structuring– Concession and other

agreements

3. Environmental & Other Statutory Clearances

CURRENT SITUATION1. Obligation of Private

Developers (even for large projects e.g. Port & Hydro/Thermal power)

DEVELOPERS’ EXPECTATION1. Obligation of the Government

Entity (proponent/anchor of the project) – To be obtained before

start of bidding process (else can be kept as a Condition Precedent for Concession Agreement)

4. Land acquisition

CURRENT SITUATION1. Act provisions ambiguous,

practice varies from state to state

2. Definition of public purposes weak

3. Private developer left to the mercy of the political and social forces resulting in time & cost over-runs & adversely affecting viability

DEVELOPERS’ EXPECTATION1. Uniform and transparent

National level policies and act (to be fully adapted by all the states)

2. Infrastructure Projects under PPP to be included as public purpose

3. The land acquisition to be completed by the Govt. project proponent/anchor in advance. Land to be handed over to pvt. developers free from encroachment and encumbrances

5. Standardisation

CURRENT SITUATION1. Some amount of standard process

& documentation is followed by very few organizations like NHAI

2. Time Constrained Procurement Process, Inadequate understanding of project development cycle

3. Sometimes bids invited with inadequate project development

DEVELOPERS’ EXPECTATION1. Std Docs & Process to be

developed & followed by all Govt. agencies– Model RFQ & RFP docs– Model Concession agreement– Model Performance

Specifications2. Use Two stage competitive

bidding to ensure competent & serious bidders– RFQ (Request for

Qualification)– RFP (Request for Proposal)

3. Speedy & adequate project development & providing enough time for bid preparation

6. Streamlining

CURRENT SITUATION1. No national body to devise &

monitor process & standard documentation

2. Non-uniformity at state levels

3. Disclaimer clause in Project Information Memorandum (PIM) dilutes reliability of data

DEVELOPERS’ EXPECTATION1. National Secretariat for

Public-private Partnership

2. State PPP Secretariat under admin control of the national PPP secretariat

3. No disclaimer clause – Government/ Project Anchor should consider to own responsibility for data & results in PIM

7. Confidence Building

CURRENT SITUATION1. No third party opinion taken

on Infrastructure projects

2. The Prequalification process does not define a clear qualification criteria

3. The Judicial process fraught with delays and favors the Government on frivolous grounds

DEVELOPERS’ EXPECTATION1. Government to fund

Independent rating to for realistic risk assessment

2. An upfront and clearly defined objective qualification criteria will improve competition

3. Set-up pre-award and post-award PPP arbitration tribunals with subject matter experts

8. Viability Gap Funding

CURRENT SITUATION1. Only a few projects can wait

for cumbersome process plagued with several rounds of to-and-fro movements of files

DEVELOPERS’ EXPECTATION1. Process to be simplified &

streamlined – Professional body to be

empowered to take fast decision to make the scheme meaningful

9. Continuation of Government Policies, decisions & agreement concluded

CURRENT SITUATION1. Policies modified with change

in leadership and political formations

2. Lack of Regulators exposes Developers to the lack of focus and conflicting socio-political interests of the Government

3. Existing Concession Agreements (CA) some times overlooked while announcing new projects

DEVELOPERS’ EXPECTATION1. Consistency in policies. Protection

against “change in leadership” akin to “change in Law”

2. Bring in Regulator, ensure end users rationally pay for the services availed – Long-term tariff notifications &

part of CA

3. Exclusivity rights to be maintained as per CA– Government to Champion the

cause of PPP: Project to be awarded in Time, delay in award should attract penal provisions

– issues related to strike, unions lock out best handled by the Govt.

10. Shifting of utilities

CURRENT SITUATION1. Left to private developer with

little/no coordination by state

2. Results in Time & Cost over-runs affecting viability

DEVELOPERS’ EXPECTATION1. To be Government’s

obligation – including the interdepartmental coordination

2. To be time bound with provision of penalty for delay in completion

11. Shortage of Trained Human Capital

CURRENT SITUATION1. Quality, competent, multi-

skilled & experienced PPP professionals in shortage

2. Construction Engineers’ Shortage

3. Skilled Construction workers (Carpenter, Barbender, Masons and Plumbers etc)

DEVELOPERS’ EXPECTATION1. Start High level training

programmes/ Institutes. Allow private sectors to set-up education cities akin to SEZ

2. Set-up Engineering colleges and provide VGF & land to private sector

3. Set-up ITIs and provide Viability Gap Funding (VGF) & land to pvt. Sector to set-up vocational institutes

12. Other issues

CURRENT SITUATION1. Artificial shortage of qualified

developers with relevant experience

2. Model RFQ allows short listing of just 5 (or 6) bidders based on a variable qualifying criteria

3. Legal framework not standardised

4. Risk Pricing not fully appreciated by project proponents/anchors

DEVELOPERS’ EXPECTATION1. Qualification criteria should be

looked differently than in EPC Contracts

2. The pass-fail criteria should be declared upfront • Developers filed a suit in

court of law, protesting this will lead to cartelization

3. To be standardised

4. To be thoroughly understood to minimise the risk and thus maximise the benefits to Government

To do the same old thing the same old way And to expect some new outcome…..

That is madness

-Einstein

Thank you

BACK-UP

Project Development

Government Approvals,

Facilitation & Decision Making

PROJECT DEVELOPMENT

Techno-Economic & Market Assessment

Legal Documentation

Policy amendments and notification

Contractual and Institutional Framework

Track 2DEVELOPER

SEARCH

Expression of Interest

Request for Proposal (RFP)

Pre-Bid Conferences

Proposal Evaluation

Finalisation of Developer

Finalisation of Agreements

Project Development ProcessMARKETING &

COMMUNICATION

One-to-one meetings

Direct Mailers

Media release

Road Shows

Investor’s Conferences

Facilitating Consortia formation

Factors of Success of PPP• Demand for the services/goods where PPP is invited• Political commitment to the project and PPP• Regulatory framework• Judicial and a well defined arbitration framework• Administrative framework and readiness to meet requirements• Partnership of Public (Government) with Private Sector rather than

owner-contractor relationship

Factors of Success of PPP• Adequate project development – resulting in Bankable Projects

– provide information required to take informed decision, reduce risks and uncertainty

– level of project development depends on the intrinsic strength and viability of the project

– technical, environmental, social, financial, legal aspects, risk identification and mitigation

– risk identification and mitigation– bankability of project and project documents