PPP Days 2010 PPPs Lessons from the Last 18 Months

Rajiv B Lall
March 22, 2010

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Private Sector Participation (PSP) in India

Works & Services Contracts

Management Contracts

Operation Concessions

Build Operate Transfer Concessions

Full Privatization

Asset Ownership Commercial Risk Typical Duration Sectors

Public Public 1-2 Years

Public Public 3-5 Years

Public Private 15-20 Years (depends on feasibility) City Bus Service

Public & Private Private 20-25 Years (depends on feasibility) Highways; Bus Terminals

Private Private Indefinite

Roads EPC; Sewerage Project

Toll Stations

Telecom, Power, Waste Processing

Low Extent of private sector participation

High

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PPP trends
After establishing themselves in Roads, Power and Telecom, PPPs foray into challenging Urban Infrastructure.
Contribution of private investment: National Highways: Close to half Power: Projected to double between 10th (01-06) and 11th (07-12) 5-Year plans and reach USD 40 billion. Telecom: 2/3rd of total investment in FY 08-09

Use of both traditional and innovative PPP structures

Traditional PPP highways, urban public transportation, airports Innovative power sector

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PPPs in all three components of Power

Generation Transmission
Central & State Utilities

Distribution
Utilities

MoU based PPAs

Competitive Bidding Ultra Mega Power Projects

GoI/Power Finance Corporation PPA Utilities SPV for project development Tariff based competitive bid Private Player

PSP Inter state & intra state

JV- Central/State Transmission Utility & private player o Tala transmission system Independent Power Transmission Corporation o Private sector awarded projects through tariff based bidding o 2 schemes under Western Region System Strengthening

Management Contract
Metering Billing Collection

Operation Concession
Distribution Franchisee Bhiwandi

Privatization
Delhi distribution business

Power Supply

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Huge upsurge in Road activity

Significant private sector interest

No of Length Project Projects (km) Cost (Cr.) From 1999 to March 2009: Projects awarded April - Dec 2009: Projects awarded/bids won Pipeline: Projects w/ likely bids 95 7,600 46,369

27 26

2,568 3,348

25,404 34,439

Jan-Feb 2010: Projects in RFQ stage 24 2,459 20,091 Source: NHAI (for Projects awarded from 1999 to March 2009); IDFC (rest)

Of the 47,000 kms earmarked for PPP development under NHDP, about 14,000 kms has been bid out in 122 PPP Concessions across the country for a total investment of about Rs. 70,000 crores. In FY 2010 we could do more in just PPP contracts than was awarded in EPC and PPP contracts together in the peak year of 2005-06 when 4,740 kms worth of road contracts were awarded.

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The Port Sector PPP model has been very successful

Share of Private Sector in Container Volume
FY2002
Private 52% Government 48% Government 23%

FY2009

Private Terminals Mumbai Kandla NSICT (DPW)

(000 TEUs)

Volume 2009 90 138 1,427 1,256 195 808 260 439 1,143 90 6,054 Total TEUs: 7,848 Private TEUs: 6,054
(000 TEUs) Private 77%

GTI (APMM) Pipavav (APMM) Mundra (DPW) Cochin (DPW) Tuticorin (PSA) Chennai (DPW) Vizag (DPW) Total (000 TEU)

Total TEUs: 2,885 Private TEUs: 1,385

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All major airports are PPP

Total Investment Rs Cr 6000 10225 2920 2400 Privatized airports Govt Govt. Govt. share Land grant/VGF Ownership of revenue Contribution Rs Cr % % Acres 26 38.7 1875 26 45.99 5060 107 26 4 5450 350 26 4 4000

Airport Mumbai Delhi Hyderabad Bangalore

Of the 2009 passenger capacity of 110 million, 56% is handled by

PPP airports.
In 2009, PPP airports handled 70% of freight by value.
Notes:

The investments refer to original investments and there have been significant cost overruns. Currently Mumbai cost is estimated around Rs. 9,800 Cr as per press reports. Government ownership is 26% in all 4 airports, in Delhi and Mumbai AAI holds 26%. In Hyderabad and Bangalore, AAI has 13%, with respective State Government holding 13%. In addition to the Grant of 107 Cr, GoAP has also given an interest free loan of Rs. 315 Cr to the Hyderabad airport.

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Urban PPP projects: Emerging models validating proof of concept

Urban Transportation: Intra city bus service (Indore) BRTS (Rajkot) MRTS (Mumbai Metro ONE Versova-Andheri-Ghatkopar Corridor) Bus terminals (Amritsar, Jalandhar) Water Distribution: Latur Water Distribution (infrastructure upgrade and water distribution) Karnataka Urban Water Supply Improvement Project (KUWASIP) Solid Waste Management: Rajkot solid waste processing plant (fully privately owned plant)

Electricity Distribution: Bhiwandi Delhi

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Electricity Distribution: Bhiwandi, Maharashtra

Description: Upgradation, operation and maintenance of the city electricity distribution network. PPP type: Performance linked O&M contract Project Structure: Government and private sector contribute to capex. Private sector purchases power from the government entity at a predetermined rate. The private sector is responsible for planning, O&M, metering, billing, collections, and need to achieve a minimum reduction in T&D losses; and increase in collection efficiency. Revenue Source: Revenues from users. AT&C loss reduction by 30%; DT failure rate by 32.5%, and DT losses by over 40%
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Bus Terminal, Amritsar, Punjab

Description: Renovation and expansion of existing inter-city terminal including construction of shops and amenities.

PPP type: BOT

Project Structure: Entire $47 million (43% equity, 57% debt) of construction cost borne by the concessionaire. Government provided the land. Revenue Source: Parking charges from halting buses; lease rentals from shops/offices; advertisement revenues. Actual revenues surpassed projections. For 1st 3 quarters of FY 09 bus charges constituted 68% of revenues, lease rents 23% and advertisement revenues 9%.
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City Bus Service, Indore, Madhya Pradesh

Description: Operate and manage intra-city bus service. PPP type: O&M contract Project Structure: A SPV (Indore City Transport Services Limited - ICTSL) provided common infrastructure (such as bus stops and terminals). Concessionaires provided buses and operate them. Revenue Source: Fares (daily fares, and daily and monthly passes) and advertising revenues. Concessionaire retains 60% of the advertisement revenue, 80% of pass revenue, and the 100% of daily fare collection. Rest passed on to ICTSL. Concessionaire also pays monthly premium to ICTSL.

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Karnataka Urban Water Supply Improvement Project

Description: 24x7 water supply in 5 demo zones of 3 cities (Belgaum, Gulbarga and Hubli-Dharwad) PPP type: Performance linked O&M contract Project Structure: Improvements to bulk water supply made by Karnataka Urban Water Supply and Drainage Board. Private sector upgraded the distribution network including installation of meters and tariff collection system. Revenue Source: Fixed plus performance-based payments. 60% of remuneration is quarterly fixed payment and the remaining 40% linked to targets in the preparatory and O&M periods. A bonus of up to $1.2 million can be earned for bettering performance targets or a maximum penalty of 10% of remuneration paid for failure. Water loss reduction from 50% to 7%.
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Waste Processing Plant, Rajkot, Gujarat

Description: 300 metric tonne (MT) waste processing plant PPP type: Build Own Operate (BOO) Project Structure: Land provided by the Rajkot Municipal Corporation (RMC). RMC also delivers 300 MT of garbage per day. Private sector constructed the plant. Revenue Source: Sale of waste by-products. 40 MT of bio fertilizer/compost; 70 MT of fluff (used as fuel); 15,000 bricks, recycled plastics and metals. Plant utilizes 85-90% of waste.

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Way forward.
Design & integrity of contracts Bid parameter Changes in contract Capacity Building: State and ULBs. I-CAP/IDFC/associated companies training programmes PPP cells in several states (such as Pradesh, Haryana, Orissa and Tamil Nadu) and Railways Minimizing fiscal cost of projects Control increase in VGF Remove implementation impediments Clearances Land acquisition
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Andhra