PUBLIC PRIVATE PARTNERSHIP IN INDIA

Hyderabad International Airport (case study)

Submitted By

Praveen mukati 141109029Kavita gupta 141109035

MEANING A public-private partnership is a contractual agreement between a public

agency (federal, state or local) and a private sector entity. Through this agreement, skills and assets of each sector (public and private)

are shared in delivering a service or a facility for the use of the general public. Each party shares risks and rewards potential in the delivery of the service

and/or the facility. The public partners in a PPP are government entities, including Ministries,

departments, municipalities, or state-owned enterprises. The private partners could be local or international and may include businesses

or investors with technical or financial expertise relevant to the project. PPP broadly refers to long term, contractual partnerships between public and

private sector agencies, specially targeted towards financing, designing, implementing, and operating infrastructure facilities services that were traditionally provided by the public sector.

PPPs may also include non-government organizations (NGOs) and/or community-based organizations (CBOs) who represent stakeholders directly affected by the project.

Effective PPPs recognize that each of the partners -the public and the private sectors have their comparative advantages in performing specific tasks.

The government‘s contribution to a PPP may take the form of capital for investment (available through tax revenue), a transfer of assets, or other commitments or in-kind contributions that support the partnership. The government also provides social responsibility, environmental awareness, local knowledge, and an ability to mobilize political support.

The private sector‘s role in the partnership is to make use of its expertise in commerce, management, operations, and innovation to run the business efficiently. The private partner may also contribute investment capital depending on the form of contract. The structure of the partnership should be designed to allocate risks amongst the partners based on their capabilities to manage those risks and thus, minimize costs while improving performance.

In a PPP, each partner, usually through legally binding contract(s) or some other mechanism, agrees to share responsibilities related to implementation and/or operation and management of a project. This collaboration or partnership is built on the expertise of each partner that meets clearly defined public needs through appropriate allocation of:ResourcesRisksRewardsResponsibilitiesCommon elements of PPP includes:a contract or an arrangement;the provision of public infrastructure or services;the transfer of risk from the public sector to the private sector;a reward system based on performance or output; anda focus on service delivery.

DEFINITIONAccording to IMF(International Monitory Fund):

“Public-private partnerships refer to the private sector financing, designing, building, maintaining and operating infrastructure assets traditionally provided by the public sector.”

According to National PPP Policy, 2011“Public Private Partnership means an arrangement between a government or statutory entity or government owned entity on one side and a private sector entity on the other, for the provision of public assets and/or public services, through investments being made and/or management being undertaken by the private sector entity, for a specified period of time, where there is well defined allocation of risk between the private sector and the public entity and the private entity receives performance linked payments that conform (or are benchmarked) to specified and pre-determined performance standards, measurable by the public entity or its representative.”

The Planning Commission of India has defined the PPP in a generic term as “the PPP is a mode of implementing government programmes/schemes in partnership with the private sector. It provides an opportunity for private sector participation in financing, designing, construction, operation and maintenance of public sector programme and projects”.

PPP APPROACH Goal: Attract private investments for infrastructure projects. Need: Lack of Budgetary Resources Need to improve efficiency in service delivery. 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 & Selection of Developer Viability gap funding (VGF), if any

Project Development ProcessPROJECT DEVELOPMENT

Techno-Economic & Market Assessment

Legal Documentation

Policy amendments and notification

Contractual and Institutional Framework

DEVELOPER SEARCH

Expression of Interest

Request for Proposal (RFP)

Pre-Bid Conferences

Proposal Evaluation

Finalisation of Developer

Finalisation of Agreements

MARKETING & COMMUNICATION

One-to-one meetings

Direct Mailers

Media release

Road Shows

Investor’s Conferences

Facilitating Consortia formation

PPP Model on the basis of Participation

Supply and management contracts Supply of equipment, raw materials, energy and power, and

labour are typical examples of supply or service contract. Government provide license for supply of particular

services/inputs. The main purpose of such licensing is to ensure the supply of the

relevant service at the desired level of quantity and quality. Examples of such an arrangement include, catering services for

passengers on railway systems (the Indian Railways).

Turnkey projects Turnkey is a traditional public sector procurement model for

infrastructure facilities. A private contractor is selected through a bidding process. The private contractor designs and builds a facility for a fixed fee, rate

or total cost, which is one of the key criteria in selecting the winning bid.

The contractor assumes risks involved in the design and construction phases.

The scale of investment by the private sector is generally low and for a short-term.

In this type of arrangement there is no strong incentive for early completion of a project.

This type of private sector participation is also known as Design-Build. The primary benefits of DB contracts include time and cost savings,

efficient risk-sharing and improved quality.

Lease types of arrangements In this category of arrangement an operator (the leaseholder) is

responsible for operating and maintaining the infrastructure facility and services, but generally the operator is not required to make any large investment.

In this types of arrangements, the operator takes lease of both infrastructure and equipment from the government for an agreed period of time. Generally, the government maintains the responsibility for investment and thus bears investment risks.

The operational risks are transferred to the operator. Under a lease, the operator retains revenue collected from

customers/users of the facility and makes a specified lease fee payment to the contracting authority.

Concessions type In this form of PPP, the Government defines and grants specific

rights to an entity (usually a private company) to build and operate a facility for a fixed period of time.

The Government may retain the ultimate ownership of the facility and/or right to supply the services.

In concessions, payments can take place both ways: concessionaire pays to government for the concession rights and the government may also pay the concessionaire, which it provides under the agreement to meet certain specific conditions.

Example of this type of agreement is BOT (Build-Operate-Transfer) and its variation

BOT (Build-Operate-Transfer) A model that entails a concession company providing the finance,

design construction, operation, and maintenance of a privatized infrastructure project for a fixed period, at the end of which the project is transferred free to the host government.

The granting of a concession by the government to a private promoter, known as the concessionaire, who is responsible for the financing, construction, operation, and maintenance of a facility over the concession period before finally transferring the fully operational facility to the government at no cost

Variation of BOT model includes: BOO = Build-Own-OperateBLT = Build-Lease-TransferBOOM= Build-Own-Operate-MaintainBOOT = Build-Own-Operate-TransferBOOTT = Build-Own-Operate-Train-Transfer BTO = Build-Transfer-OperateDBFO = Design-Build-Finance-OperateDBO = Design-Build-OperateDBOM = Design-Build-Operate-MaintainDOB = Design-Operate-TransferROO = Rehabilitate-Own-OperateROT = Rehabilitate-Operate-Transfer

Preference of PPP Model in India

pre-liberalisation

Need of PPP in Agriculture Slow growth rate of agriculture in India (average growth rate

of 2.7% per year) Agriculture is the primary source of livelihood for about 58 per

cent of India’s population the country accounted for 2.07 percent of global agricultural

trade in 2012 India, the second-most populated country in the world, has to

meet food consumption needs of around 1,210 million people. This is a key demand driver of agricultural growth in the country.

India’s consumption expenditure is likely to reach USD3.6 trillion by 2020, up from an estimated USD1.0 trillion in 2010

Development of Hybrid and genetically, modified seeds, mechanisation, irrigational facilities needed which requires more institutional credits.

Source: Census of India 2011, Asian Development Bank

Need of PPP in Agriculture Challenge to make agriculture and allied sectors more profitable, and to

ensure that rural population has a larger income to share.. The role of technology in meeting challenge is critical. So the need for

new technologies with potential to provide holistic solutions, and the issues that relate to their dissemination and commercialization.

Government has limited resources. Innovation and knowledge are critical factors for achieving sustainable

competitiveness. We become involved in partnerships to gain access to knowledge and technologies and to develop innovations that otherwise would be more costly for us to obtain or develop.

The growing complexity of technologies, the knowledge necessary to develop chains and segments, and the scarcity of resources mean research cannot be carried out in isolation, whether by science and technology organizations or enterprises from the productive sector.

Teamwork increases the quality and relevance of the results and the synergic effects that occur when we collaborate with actors who have knowledge and resources that we do not.

Need of PPP in AgricultureThere is a need of PPP in agriculture sector for following reasons:Increasing focus on research and Development in agricultureRising MSP incentivize farmingInstitutional credit for farmersGrowing yield and use of quality seedsIncreasing mechanization of farmingGrowing area under irrigationFood securing for increasing populationAgricultural inputs (Crop protection, Agricultural services, Seeds and fertilizers)

“What takes the government 50 years to achieve can be done by the private sector in a tenth of the time”

- Milton Friedman.

Advantages

Advantages

Advantages

Challenges of PPP

Challenges of PPP

Challenges of PPP

PRESENT STATUS According to the Department of Economic Affairs (DEA), around

758 PPP projects with a total value of USD71.7 billion were operative in India by mid-2011 across various sectors.

India Infrastructure Finance Company Limited (a non-banking financial company) was established to provide financial support for projects with long gestation period.

To further simplify the compliance process, a Public Private Partnership Committee (PPPAC) was formed. Since 2006 till date, PPPAC has granted approval to 204 projects with a total project cost of USD37.5 billion.

PPP in India : pre-liberalisation to the present time

Source: The Department of Economic Affairs (DEA)

Sector wise PPP projects in India

Source: 12th Five Year Plan Document, PPP India database

Some examples of PPP Project Project Golden RayPPP between the Government of Rajasthan and MIL which aims at

improving economic self-sufficiency of tribal maize farmers by enhancing maize yields and incomes in five districts; Banswara, Dungarpur, Udaipur, Pratapgarh and Sirohi.

e-Choupal, (run by ITC, a private sector entity) shows how mutual cooperation

between ITC, rural entrepreneurs, state agricultural universities and the Indian government's extension machinery has served to bolster the farmer's expertise and day-to-day awareness of what needs to be done to cope with myriad agricultural needs.

Project Management Agency (PMA): Small Farmer’s Agri-business Consortium (SFAC), an organization promoted by Ministry of Agriculture, Govt. of India has appointed AFC as a Project Management Agency for Publicity and Awareness Building Plan to support Venture Capital Assistance Scheme (VCAS) during XII Five Year Plan(2012-2017).

To promote organic farming, AFC India Limited has been given the opportunity to implement the organic farming project named as “Adoption and Certification of Organic Management System with online Traceability for Facilitation Domestic Retail Chains and Export in Gujarat, Chhattisgarh, Orissa and Haryana”.

Maharashtra government has initiated a Private-Public Partnership (PPP) for Integrated Agriculture Development (PPP-IAD) project under the World Economic Forum’s (WEF) “New Agriculture Initiative”. The idea is to create a value-chain in agriculture by involving corporates that will work with farmers’ groups or associations from production to marketing stage. Twenty-two companies, 12 of them private sugar mills, have been selected and have agreed to partner with such group in everything — from inputs and processing to marketing. They will be working in seven categories of produces — sugar, cotton, oilseed, pulses, fruits, vegetables and poultry.

PPP in Health Public-Private Partnership or PPP in the context of the health sector

is an instrument for improving the health of the population. PPP is to be seen in the context of viewing the whole medical

sector as a national asset with health promotion as goal of all health providers, private or public.

The Private and Non-profit sectors are also very much accountable to overall health systems and services of the country.

Therefore, synergies where all the stakeholders feel they are part of the system and do everything possible to strengthen national policies and programmes needs to be emphasized with a proactive role from the Government.

Health Project on PPP mode

Yeshasvini Health scheme in Karnataka Arogya Raksha Scheme in Andhra Pradesh Contracting in Sawai Man Singh Hospital, Jaipur The Uttaranchal Mobile Hospital and Research Center (UMHRC) Emergency Ambulance Services scheme in Tamil Nadu Urban Slum Health Care Project, Andhra Pradesh Rajiv Gandhi Super-specialty Hospital, Raichur, Karnataka Community Health Insurance scheme in Karnataka

PPP in Education In the case of education, PPP has been proposed as an important strategy in the

Eleventh Five Year Plan. Among many things, the Eleventh Plan has proposed the setting up of 6,000 new

model schools in secondary education, affiliated to the Central Board of Secondary Education.

Of these, 2,500 are to be under the PPP model. The intention is to set up these schools in the backward regions and remote areas where good schooling facilities do not exist, so that quality education is accessible in the backward regions as well.

According to the model finalised by the Planning Commission in consultation with the private sector, these schools will be set up by 2014 and will have the capacity to educate 65 lakh students, of whom 25 lakh will be from the deprived sections.

Each school will have about 2,500 students, 1,000 of whom will be from deprived sections and charged a token fee. Fifty per cent of the 1,000 students will be from the Scheduled Castes, the Scheduled Tribes and the Other Backward Classes.

They will be required to pay a monthly fee of Rs.25 each. The rest of the children, who will be from other deprived sections — non-income tax paying families — will be required to pay a fee of Rs.50 a month . The remaining costs of these students, estimated to be Rs.1,000 to Rs.1,200 a head per month, will be reimbursed by the Union government to the schools.

Project Name HYDERABAD INTERNATIONAL AIRPORT (CASE STUDY) 

State  : Andhra pradesh Location : Shamshabad in Ranga Reddy District

of Andhra PradeshAbout 20 km south of the present Hyderabad airport at Begumpet

Sector : Airports Capacity/Size  : Initial phase to have capacity of 5 mppa (million

passengers per annum).Ultimate development as per Master Plan caters for 40 mppa.

Type of PPP : BOOT ( build , own , operate , transfer ) Type of Nodal Department : CENTRE Contracting Authority : Ministry of Civil Aviation, Government of

India  Contract Period : 30 yrs. IT’S A GREEN FIELD PROJECT Its constructed on unused land where there is no need to re model

or demolish and existing structure ..

PARTNERS IN THIS PROJECT GMR group

Malasiya airports holding s berhad ( MAHB)

Government of andhra pradesh

Airport Authority of india (AAI)

SHARE The project is a public-private joint venture between GMR Group, 

Malaysia Airports Holdings Berhad and the government of Andhra Pradesh and Airports Authority of India (AAI). GMR Group holds 63% of the equity, MAHB 11%, while the government of Andhra Pradesh and Airports Authority of India each hold 13%

It is being developed in three phases, and when completed will provide infrastructure for 40 million passengers annually

 The airport is expected to be the largest in terms of area and will provide world-class facilities.

After the first phase of development, it will accommodate 10 million passengers a year.

FINANCE The cost of the project is INR 24.7 billion (US$560 million). The

airport is being built on an area of 5,400 acres (2,200 ha). It was designed by the UK engineering design firm Arup, which designed Dubai Terminal 3 and Beijing Terminal 3.

EFFICIENCY OF RESOURCE USE

Built on the waste piece of land All the facilites required have been taken care of in minimum

utilization of space Link road construction from city Fully ready by dead line-efficient use if time

CONTRACTORS

The main EPC contractors were Larsen & Toubro for airside and landside works, and China State Construction & Engineering (Hong Kong) for the construction of the passenger terminal building and the ATC Tower. Menzies Aviation Plc was chosen for the development and operation of cargo facilities. The in-flight catering contract was awarded to LSG Sky Chef and Sky Gourmet

PPP – ADVANTAGES

Easing budgetary Constraints Value -for- Money issues A realistic control of costs Transfer of Technology Social benefits Project stability

PPP – DISADVANTAGES

As with any contract between a public entity and a private firm, both partners are seeking to gain from the relationship.

The pubic authority is looking to maximize the socio-economic profitability of public sector investment

The private sector operator is looking to maximize its financial profits i.e. increased return on capital out lay. Thus the user has to pay toll/ user charges for a service which the user had been availing free of cost in the past.

Suggestion for further: Need to introduce a course on agricultural regulations at graduation

level so that student are familiarized with the complexities of managing agricultural business.

Need for transparency and trust for mid-term review and for bilateral agreement for developing new technologies.

Clear laws for transfer of technology and sabbatical provisions for scientists to work with industry need to be established.

There is a need to create awareness among the stakeholders regarding various Government Schemes.

Moreover, to mitigate high risk in the sector, the investment proposal/schemes should include sufficient incentives to attract private entrepreneurs.

Collective action is needed for fulfill the needs of resource poor farmers and food‐insecure consumers.

In order to increase this share, policymakers should look at setting up an independent institutional structure for PPP handling, sector-specific regulatory mechanisms and higher level of transparency of information for PPP.