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SYNOPSIS

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.

DR. PANJABRAO DESHMUKH INSTITUTE OF


MANAGEMENT TECHNOLOGY AND REASEARCH, DNC,
CONGRESS NAGAR , NAGPUR-12.
(2008)

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.

prioritization process. The project must be such that, regardless of the


source of public or private capital, the government would still want the
project to be implemented quickly.
GENUINE RISK ALLOCATION: - Shared risk allocation is a
principal feature of a PPP project. The private sector must genuinely
assume some risk.
MUTUALLY VALUABLE: - Value should be for both sides, which
means government should also genuinely accept some risks and not
transfer the entire risk to the private sector, and vice versa. Viability Gap
Funding Scheme nongovernmental revenue and sufficient capacity in the
private sector to successfully deliver project objectives.
The various PPP forms and formats: In a PPP, the private partner could be a
private company, a consortium, or a nongovernmental organization (NGO).
Typically, a PPP project involves a public sector agency and a private sector
consortium which comprises contractors, maintenance companies, private investors,
and consulting firms. The consortium often forms a special company or a special
purpose vehicle (SPV). The special purpose vehicle signs a contract with the
government and with the subcontractors to build the facility and then maintain it.
To enable the flow of private funds and resources into public infrastructure
and services, the PPP is operationalized through a contractual relationship between a
public body (the conceding authority) and a private company (the concessionaire).
This partnership could take many contractual forms, which progressively vary with
increasing risk, responsibility, and financing for the private sector.
However, the most common partnership options are
(i)

Service Contract;

(ii)

Management Contract/Lease;

(iii)

Build Operate Transfer (BOT);

(iv)

Concession;

(v)

Joint Venture; and

(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

construction, social, and environmental risks. When infrastructure is


developed as PPPs the process is often characterized by detailed risk and cost
appraisal, complex and long bidding procedures, difficult stakeholder
management, and long-drawn negotiations to financial closure. This means
that PPPs are critically dependent on sustained and explicit support of the
sponsoring government. To deal with these procedural complexities and
potential pitfalls of PPPs, governments need to be clear, committed, and
technically capable to handle the legal, regulatory, policy, and governance
issues.4
1.4 BENEFITS AND STRENGTHS:
The emergence of PPPs is seen as a sustainable financing and institutional
mechanism with the potential of bridging the infrastructure gap. PPPs primarily
represent value for money in public procurement and efficient operation. Apart from
enabling private investment flows, PPPs also deliver efficiency gains and enhanced
impact of the investments. The efficient use of resources, availability of modern
technology, better project design and implementation, and improved operations
combine to deliver efficiency and effectiveness gains which are not readily produced
in a public sector project. PPP projects also lead to faster implementation, reduced
lifecycle costs, and optimal risk allocation. Private management also increases
accountability and incentivizes performance and maintenance of required

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.

Mezzanine financing, which is critical in funding infrastructure projects in


developed countries, is also limited in India. The reasons for this are many,
notably:
(i)

The lack of a sufficiently large and varied pool of


infrastructure projects, which leads to a preference among
funding institutions to opt for more straightforward loans
(rather than hybrids); and

(ii)

Interest rate caps on external commercial borrowing (ECBs),


which prevent the pricing of different debt or quasi-equity
instruments (like mezzanine financing) commensurately with
the risks associated with them.

Interest rate caps pose a constraint to attracting external commercial


borrowing, but an even greater constraint in utilizing foreign currency loans
is the lack of a sufficiently deep forwards market in foreign exchange.
Infrastructure projects require long tenor loans, and if financed through
foreign currency borrowings these need to be adequately hedged against
currency risks since few infrastructure projects have forex earnings to serve
as a natural hedge. Inability to hedge long term currency risk in a market
which is limited to one years forward cover poses a big challenge to the use
of foreign currency loans in these projects.
Underdeveloped debt markets are yet another key constraint to infrastructure
financing, given that most infrastructure projects begin to generate profits in
10-15 years and require longer term debt. The lack of size and depth in
Indias corporate bond market is associated partly with the lack of depth in
the government bond market and the absence of a yield curve for
government bonds which could serve as a benchmark for corporate bond.
Beyond that, corporate debt markets are constrained by cumbersome primary
issuance guidelines; inadequate credit information; inefficient clearing and
settlement mechanisms; poor and lengthy enforcement laws relating to
default proceedings; inefficiencies arising from weaknesses in regulation,
including poor coordination among the various agencies involved in
corporate debt market regulation; and the absence of long term investors.

DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

A host of regulatory and institutional problems facing financial institutions


(FIs) constrain their participation in infrastructure projects. A fundamental
factor limiting the participation of all types of FIs in infrastructure financing
relates to regulatory uncertainty, which raises the risk-profile of
Infrastructure sectors, and makes FIs reluctant to finance infrastructure,
particularly in the early stages, where project risks are concentrated.
Restrictive government policies and regulatory guidelines have further
constrained the participation of insurance companies and pension funds in
infrastructure. For example, Insurance Regulatory and Development
Authority (IRDA) requires insurance companies to invest in debt paper with
a minimum credit rating of AA, which automatically excludes investment
by insurance companies in debt paper of most private infrastructure
sponsors. Insufficient knowledge and appraisal skills related to infrastructure
projects also pose a constraint.

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 RELEVANCE OF PPPS FOR INDIA


1.7.1 MASSIVE DEFICIT IN INFRASTRUCTURE SERVICES: Despite
becoming the second fastest growing and the fourth largest economy of the
world, India continues to face large gaps in the demand and supply of
essential social and economic infrastructure and services. Rapidly growing
economy, increased industrial activity, burgeoning population pressure, and
all-round economic and social development have led to greater demand for
better quality and coverage of water and sanitation services, sewerage and
drainage systems, solid-waste management, roads and seaports, and power
supply. Increased demand has put the existing infrastructure under
tremendous pressure and far outstripped its supply.

DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

1.7.2.

DEFICIENT

INFRASTRUCTURE

IS

BINDING

CONSTRAINT: The infrastructure shortages are proving to be the leading


binding constraint in sustaining, deepening, and expanding Indias economic
growth and competitiveness.7 This has also been emphasized in the mid-term
appraisal of the Tenth Five Year Plan. It is widely believed that lack of good
quality infrastructure is costing India 12% growth in gross domestic product
(GDP) every year. Good quality infrastructure has been the main enabler of
higher level of economic growth in developed as well as developing
countries like USA, Russia, Malaysia, and China
1.7.3 POVERTY REDUCTION: Lack of infrastructure is preventing the
sectoral, regional, and socioeconomic broadening of the economy and its
benefits, and is affecting inclusive growth in India. The benefits of
accelerated growth of the last decade have not been shared by large sections
of the population which are labor dependent, low skilled, rural based, and
working in agriculture and manufacturing sectors. Infrastructure shortages
have slowed the growth of manufacturing industries and agriculture, which
are the labor-absorbing markets for the low skilled. Poverty levels remain
significant, with about one-fourth of the population living in poverty.
1.8 STATUS OF PPPS AND KEY GOVERNMENT INITIATIVES
India had a few notable PPPs as early as the 19th century. The Great Indian
Peninsular Railway Company operating between Bombay (now Mumbai) and Thana
(now Thane) (1853), the Bombay Tramway Company running tramway services in
Bombay (1874), and the power generation and distribution companies in Bombay
and Calcutta (now Kolkata) in the early 20th century are some of the earliest
examples of PPP in India.
1.9 COMMITTEE ON INFRASTRUCTURE.
The GOVERNMENT OF INDIA

constituted, on August 31, 2004, the

Committee on Infrastructure (CoI), chaired by the Prime Minister. The Committee


on Infrastructure is tasked with steering initiating policies that would ensure time-

bound creation of world-class infrastructure delivering services matching


international standards, developing structures that maximize the role of PPPs, and
monitoring progress of key infrastructure projects to ensure that established targets
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

are realized. The Committee on Infrastructure is supported by the Empowered


Subcommittee, which formulates, reviews, and approves policy papers and
proposals for submission to Committee on Infrastructure, and monitors and follows
up on implementation of the decisions of Committee on Infrastructure. The
Committee on Infrastructure has also formed a Committee of Secretaries to prepare
and implement an Action Plan for providing adequate road and rail connectivity for
Indias major ports. Guidelines, schemes, and action plans. The government has
published several key documents on Rail Road Connectivity of Major Ports;
Guidelines for Financial Support to Public Private Partnerships in Infrastructure;
Guidelines on Formulation, Appraisal and Approval of Public Private Partnership
Projects; Scheme for Financing Infrastructure Projects through the India
Infrastructure Finance Company; Financing of the National Highway Development
Programme (NHDP), and Model Concession Agreement for PPP in Highways.
1.10 VIABILITY GAP FUNDING (VGF) SCHEME.
Viability Gap Funding Scheme is a special facility to support PPP projects.
This facility is housed in the Department of Economic Affairs. Infrastructure
projects are often economically justifiable but not viable commercially, at least in
the initial years, due to long gestation periods and economic externalities. In largescale infrastructure projects, the commercial viability is difficult to establish,
especially at the beginning of the project. Therefore, there is a need for providing
some upfront assistance to make the project commercially or financially viable if it
is otherwise economically viable or desirable for the state. The Government of India
therefore has operationalized Viability Gap Funding Scheme to provide grant
support to such PPP projects. Financing the Viability Gap Funding Scheme provides
funding for state or central PPP projects implemented by the private sector developer
on a BOT basis (selected through a process of competitive bidding). Funding is
available for 20% of the project cost. If required, an additional 20% can be made
available by the sponsoring Ministry/ agency or it can come from the state
government or any sponsoring statutory agency like local bodies. An Empowered
Committee has been set up for quick processing of cases. In-principle approval has
been granted for five projects. Eligible sectors. Sectors eligible for Viability Gap
Funding

Scheme

are

Transportation

(roads,

railways,

seaport,

airport);

Power/Energy; Urban Infrastructure (water supply, sewerage, solid-waste disposal);


Tourism (international convention centers); and Special Economic Zone. Any other
sector can be added with the prior approval of the Finance Minister. A wide variety
of PPP proposals have been provided by the states under the Viability Gap Funding
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

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)

Government or a statutory entity should make the proposal and not


the private party. The key to making PPPs acceptable is to create an
environment where PPPs are seen to be a way of attracting private
money into public projects, not putting public resources into private
projects. (Approach Paper to the Eleventh Plan)

(ii)

The proposal should be made to the PPP cell of the Department of


Economic Affairs in prescribed proforma.

(iii)

The project needs to be implemented, i.e. developed, financed,


constructed, maintained, and operated for the project term, which is
the concession period, by the private sector company.

(iv)

The private sector company is to be selected by government or a


statutory entity through a transparent and competitive bidding
process; which means that the project has to be identified by the state
as desirable and then bid out.

(v)

The project should provide service against a predetermined tariff or


user charge.

(vi)

The government/statutory entity concerned should certify within


reason that
(a) The tariff/user charge would not be increased to eliminate
or reduce the viability gap;
(b) The project term will not be increased to reduce the
viability gap;
(c) The capital costs are reasonable and based on standards
and specifications usually applicable to such projects; and
(d) The capital costs will not be further restricted to reduce
the viability gap.

1.12 APPROVAL MECHANISM AND PROCESS.

DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

An Empowered Committee has been set up for quick processing of cases.


The approval mechanism being followed is:
(i)

Viability Gap Funding Scheme funding up to Rs 100 crore for each


project will be sanctioned by the Empowered Institution, which is
chaired by the Additional Secretary, Economic Affairs;

(ii)

Proposals up to Rs 200 crore will be sanctioned by the Empowered


Committee, which is chaired by Secretary, Economic Affairs; and

(iii)

Amounts exceeding Rs 200 crore will be sanctioned by the


Empowered Committee with the approval of the Finance Minister.

The central government is also working on a number of initiatives to assist


and encourage capacity building at the state and central level. An Inter-Ministerial
Group (IMG), under the Finance Secretary, has been formed to determine
prequalification of bidders under PPP to avoid fly-by-night operators. A PPP Cell
has been established in the Department of Economic Affairs to administer various
PPP proposals and coordinate various activities to promote PPPs. The Government
of India is also working to streamline the approval process for PPPs in the central
sector. Knowledge management and dissemination. A committee under Joint
Secretary (Infrastructure), Department of Economic Affairs, is preparing PPP
toolkits for various sectors. The toolkit comprises model concession agreements and
prequalification criteria for different sectors, standard terms and conditions, and
project preparation manual. These guiding documents and manuals are aimed at the
use of standardized procurement and appraisal procedures, resulting in increased
transparency and stable policy environment for the private sector. The Government
of India

is also building a centralized database and a website on PPP projects in

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

policies and initiatives,

standard documentation, best practices, database of PPPs, monitoring information,


business opportunities, global vendors, project development facilities, consulting
firms, PPP lenders/financial institutions, and other investors.8
1.13 CAPACITY BUILDING AT STATE LEVELS.

DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

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.

DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

Sectors eligible for India Infrastructure Finance Company Limited funding


are: Roads and bridges, railways, seaports, airports, inland waterways, and other
transportation projects; Power; Urban transport, water supply, sewerage, solid-waste
management, and other physical infrastructure in urban areas; Gas pipeline
infrastructure projects in SEZs; and international convention centers and other
tourism infrastructure projects. Any project awarded to a private sector company for
development, financing, and construction through PPP will have overriding priority
under the scheme. India Infrastructure Finance Company Limited will not ordinarily
undertake any appraisal, which would be done by the lead bank. Loan assistance
from special purpose vehicle will not exceed 20% of the project cost. All
disbursements and recoveries would be undertaken through the lead bank. The
lending norms of India Infrastructure Finance Company Limited are:
The company may render financial assistance through direct lending to
eligible projects or refinance to banks and financial institutions for loans with a
tenure of ten years or more. Ten proposals have been received but no funding has
taken place Way forward. Streamline approval process for PPPs on the lines of
Government of India notification; Infrastructure and PPP be entered as subjects
in the Rules of Business Transaction and assigned to one Department for focus; PPP
Cells be created; one Secretary-level officer be declared the Nodal Officer for
dealing with the subject and coordination with Government of India ; Legal and
institutional framework towards an Infrastructure Act; Infrastructure departments to
set own financial Status of PPPs and Key Government Initiatives 35 targets of
attracting private investment through PPP; these be monitored and reviewed as Plan
outside of Planas part of the Eleventh Plan; finality in government decisionmaking (Revisiting decision regarding PPP erodes credibility); extend support to the
Government of India initiative on database management and website.
The Finance Ministry has also begun consulting state governments and
central ministries and departments to create a shelf of projects which could be
taken up for execution under PPP and Viability Gap Funding Scheme schemes.
There is a massive scope for expansion of the use of PPPs in nearly every sector.
India is in a position to build on successes in the transport and communications
sectors. The role of PPP, as another way of promoting better services, is not limited
to infrastructure. In health, education, and even in the implementation of poverty
reduction programs there are promising ways to use the empowerment generated by
allowing people to make their own choices by channeling funds to the people first
rather than to the providers.
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

1.14 PRIVATE SECTOR PERSPECTIVE


The private sector perspective was presented by representatives from the
Infrastructure Leasing and Financial Services Limited (ILFS), Infrastructure
development Finance Company Limited (IDFC), Feedback Ventures, Bank world
and Price Waterhouse Coopers. The participants covered a broad range of issues
related to the scope of the business opportunity represented by PPPs in India,
standardization of bidding and procurement procedures, project pipeline creation,
Transparency requirements, public sector capacity building, and enabling policy and
Institutional frameworks for PPPs. Based on the emerging experience, they
highlighted what governments should and should not do, and the rules governments
should avoid breaking. The key themes and messages from the private sector are
summarized below. PPPs represent enormous, long-term business opportunity. PPPs
are seen as a growing, and potentially enormous, business opportunity for largescale private investment in infrastructure and economic development of the country.
Indias enormous unmet infrastructure needs, combined with the PPP approach, offer
an unprecedented investment opportunity with the potential of attractive returns.
Significant opportunities are seen in the telecommunication, transportation,
commercial, and industrial infrastructure and energy sectors. PPPs have generated
all-round interest of the private sector, which is expected to grow as more and more
successful PPP projects are created. Government of Indias PPP initiatives are
welcome and much appreciated. The private sector has welcomed the Government
of Indias growing emphasis on private sector-led growth and investment, especially
its endorsement of PPPs as mentioned in the Tenth Plan, the approach paper to the
Eleventh Plan, and other policy documents. It has also welcomed the policy and
institutional steps being initiated by the Government of India.
1.15 ADDRESS THE RISK AND RETURN PERCEPTIONS OF FOREIGN
INVESTORS.
Indias economic growth is creating opportunities for foreign investors.
Foreign Direct Investment has so far focused on ports, airports and, to some extent,
roads. Foreign investors have not invested and have stayed away because of small
project size, discomfort with existing legal and regulatory frameworks, currency
risks and market risks, and also because of PPP opportunities in the markets of
North America, Europe, Australia, and Japan. Foreign investors have stayed away
also due to perceptions about country risks, commercial risks, and the procurement

DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

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

Cargo handling at all the ports is projected to


grow at 7.7% p.a. till 2013-14 with Minor ports
growing at a faster rate of 8.5% compared to 7.4%
for the Major ports .
Traffic estimated to reach 960 million tonnes by
2013-14
Containerized cargo is expected to grow at 17.3%
over the next 9 years.
The New Foreign Trade Policy envisages
doubling of Indias share in global exports in next
five years to $150 billion.
A large portion of the foreign trade to be through
the maritime route: 95% by volume and 70% by
value.

CIVIL AVIATION &


AIRPORTS14

Passenger traffic is projected to grow at a CAGR


of over 15% in the next 5 years.
To cross 100 million passengers p.a. by 2010.
Cargo traffic to grow at over 20% p.a. over the
next five years .
To cross 3.3 million tonnes by 2010.
Major investments planned in new airports and up
gradation of existing airports..

PETROLEUM &
NATURAL GAS15

High GDP growth rate, rapidly growing vehicle


population and better road infrastructure will drive
consumption of petroleum products.
Industry is expected to grow at a CAGR of about
8% to 10% .
Over 190 MMT of refining capacity required by
2010.
Over 120MMSCMD of additional demand for
Natural Gas in the next five years.
Recent gas finds and increased use of gas for
power generation, petrochemicals, fertilizers and
city gas distribution.

DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

2. OBJECTIVES OF THE STUDY

The main objective of the study is to investigate PPP in selected


Infrastructure Development Undertaken by Government of India in
Maharashtra State. More specifically the study aims to examine the following
aspects of the selected undertaking.
1. To evaluate role of Public Private Partnership in India for
infrastructure developments.
2. To study the risk involved in Public Private Partnership.
3. To study the legal perspective in Public Private Partnership.
4. To study the status of the Public Private Partnership in the
Maharashtra region with special emphasis on Special
Economic Zone of Multi Modal International Hub Airport at
Nagpur.
5. To predict the future developments with reference to Public
Private Partnership in the field of Infrastructure in Nagpur
region of Maharashtra state.

DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

3. PLAN OF THE WORK


Literature Review: A literature review surveys scholarly articles, books and
other sources (e.g. dissertations, conference proceedings) relevant to the issue,
area of research, providing a description, summary, and critical evaluation of
each work. The purpose is to offer an overview of significant literature
published on the topic.
Fact Finding: Under this section all the facts available, will be correlate with
the objective under study. Depend upon the facts, it leads to the next phase
which is Research Design Formulation.
Research Design Formulation: A research design is a framework or
blueprint for conducting the research. It details the procedures necessary for
obtaining the required information, and its purpose is to design a study that
will test the hypotheses of Interest, determine possible answers to the research
questions, and provide the information needed for decision making.
Field Work: Field work or Data collection involves proper techniques to
collect the raw data from the various sources with prime objectives to
minimize the data-collection errors.
Data Preparation & Analysis: It involves the editing, coding, transcription
and verification of data.
Report Preparation & Presentation: The finding should be presented in a
comprehensible format.
Sr. No.

Plan of Work

Duration

1.

Literature Review

3 Months

2.

Fact Finding

6 Months

3.

Research Design Formulation

3 Months

4.

Field Work

3 Months

5.

Data Preparation & Analysis

3 Months

6.

Report Preparation & Presentation

6 Months
Total 24 Months

RESEARCH METHODOLOGY
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

4
.

Importance and Need of the Study:


Growing popularity:-Since the 1990s, there has been a rapid rise
of PPPs across the world. Governments in developing as well as
developed countries are using PPP arrangements for improved
delivery of infrastructure services. Governments are building
transport (roads, railways, toll bridges), education (schools and
universities) and healthcare (hospitals and clinics), to waste
management (collection, waste-to-energy plants), and water
(collection, treatment, and distribution). PPP is becoming the
preferred method for public procurement of infrastructure and
infrastructure services projects throughout the world.
Limitations of government resources and capacity to meet the
infrastructure gap:- Globally, governments are increasingly

constrained in mobilizing the required financial and technical


resources and the executive capacity to cope with the rising
demand for water supply, sewerage, drainage, electricity supply,
and solid-waste management. Rapid economic growth, growing
urban population, increasing ruralurban migration, and allround social and economic development have compounded the
pressure on the existing infrastructure, and increased the
demandsupply gap in most of the developing world. Countries
and governments, especially in the developing world, are
experiencing increasing pressure from their citizens, civil
society organizations, and the media to provide accessible and
affordable infrastructure and basic services. While the
Infrastructure gap is rising; government budgetary resources are
increasingly constrained in financing this deficit. The pressure
has also come from the international compact on Millennium
Development Goals (MDGs), under which country progress in
terms of access to safe drinking water, sanitation, health, etc. is
being monitored. Rising costs of maintaining and operating
existing assets, inability to increase revenue and cut costs and
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

waste, and rising constraints on budgets and borrowing, do not


allow governments to make the required investments in
upgrading or rehabilitating the existing infrastructure or creating
new infrastructure.
Need for new financing and institutional mechanisms:- The
political economy of infrastructure shortages, constrained public
resources, and rising pressure from citizens and civil society
have combined to push governments and policymakers to
explore new ways of financing and managing these services.
Governments have been pushed to exploring new and
innovative

financing

methods

in

which

private

sector

investment can be attracted through a mutually beneficial


arrangement. Since neither the public sector nor the private
sector can meet the financial requirements for infrastructure in
isolation, the PPP model has come to represent a logical, viable,
and necessary option for them to work together.

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.

Universe of the Study:


The study is limited to Infrastructure sector of Nagpur region in
Maharashtra state.

Sampling Techniques:
DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

It is proposed to use random sampling methods. Pre-determined


questionnaires shall be circulated to obtain the responses. The survey
technique shall be supplemented in interviews with the Government officials.
It would be ensured that the sample would represent the universe.

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.

Data collection Tools:


The data shall be collected through interview and questionnaire. A set
of open ended and close ended question will prepared to collect the data.

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.

Limitations of the study:


DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

The present investigation, though carried out on scientific lines, suffers


from the following limitations. All of them born out of nature and magnitude
of the study.
1. The primary data will be collected through questionnaire from public
representatives and Government officials. The elicited information will
be completely based on their personal experience.

2. The information that will be expressed by the public representatives


and Government officials will also be restricted to experiences with
respective infrastructure sector.
3. Since the data will be collected from more than one source, there may
be slight discrepancies between one source and the other.
4. While computing the percentages and averages the figures will be
approximated. Sometimes the totals may not exactly tally.
5. There may be discrepancies in the secondary data on account of their
incorrect reporting.

DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

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.

Chapter 2. RESEARCH METHODOLOGY


This chapter will provide the methodology designed for this
research work. It will provide in depth information about the
importance of the study and objectives of the study. It will also focus
on the sampling techniques, tools and sample size which will be used
for research. It is necessary to design a suitable methodology for
undertaking systematic & scientific study.

Chapter 3. DATA COLLECTION


The data will be collected from various sources which can be
classified as primary source and secondary source. It involves proper
techniques to collect the raw data from the various sources with
prime objectives to minimize the data-collection errors. The data
collected shall be processed systematically & presented in tabular
form according to the stated objectives of the study.

DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

Chapter 4. STATISTICAL EVALUATION OF THE DATA


Statistical data analysis provides hands on experience to
promote the use of statistical thinking and techniques to apply in
order to make decisions in the research problem. Under this chapter
analysis of the data will be done on the basis of various statistical
techniques. The interpretation will be based on the analysis. Tables,
graphs, figures and other statistical data will be included at the time
of presentation

Chapter 5. DISCUSSION, FINDINGS AND CONCLUSIONS


After statistically evaluating the collected data, it will
interpreted against the stated objectives of the research in this
chapter. The information gathered and interpreted will be summarized
and concluded.

Chapter 6. RECOMMENDATIONS AND SUGGESTIONS


Based on the gathered information and findings using statistical
techniques, detail recommendations and suggestions will be given in
this chapter by considering the researchers own opinion drawn on
the analysis.

BIBLIOGRAPHY
This section will provide references taken from the books,
journal and web sites while doing the research.

DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

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

7th June, 2008

7:45 PM

http://WWW.INVESTMENTCOMMISSION

8th June, 2008

12:30 PM

.IN
HTTP://POWERMIN.NIC.IN

14th June, 2008

5:30 PM

HTTP://WWW.DOTINDIA.COM

22th June, 2008

11.00 AM

HTTP://WWW.TRAI.GOV.IN

22th June, 2008

11.15 AM

HTTP://MORTH.NIC.IN

22th June, 2008

11.30 AM

HTTP://WWW.NHAI.ORG

22th June, 2008

11.45 AM

th

HTTP://SHIPPING.NIC.IN

22 June, 2008

11.55 AM

HTTP://CIVILAVIATION.NIC.IN

22th June, 2008

12.15 AM

th

http://www.airportsindia.org.in/aai/main.htm

22 June, 2008

12.30 AM

HTTP://PETROLEUM.NIC.IN

22th June, 2008

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.

2 Brochure of Government of India, Ministry of Finance, Department of Economic


Affairs, Creating and enabling environment for state projects March 2007, p 1.
3 Department of Economic Affairs (DEA), Ministry of Finance, Government of
India and Asian Development Bank (ADB), December 2006, Workshop Report, p18.
4 Department of Economic Affairs (DEA), Ministry of Finance, Government of
India and Asian Development Bank (ADB), December 2006, Workshop Report,
p.19.
5 Department of Economic Affairs (DEA), Ministry of Finance, Government of
India and Asian Development Bank (ADB), December 2006, Workshop Report, p.
22.
6 World Bank Report (2006) on Financing Infrastructure Constraints and
Challenges, p. 11
7 The World Bank Report , June2006 on India Development Policy Review, p.12
8 Ministry of Finance, Department of Economic Affairs, Government of India,
Scheme for Financial Support to Public Private Partnerships in Infrastructure, p.6
9 Brochure of Government of India, Ministry of Finance, Department of Economic
Affairs, Scheme for Financing Viable Infrastructure Projects through Special
Purpose Vehicle, p.10
10 http://www.investmentcommission.in and Ministry of Power, Central Electricity
Regulatory Commission, State Electricity Regulatory Commission
(http://powermin.nic.in)

11 www.investmentcommission.in and Department of Telecommunications,


Ministry of Information Technology & Communications (http://www.dotindia.com),
Telecom Regulatory Authority of India (http://www.trai.gov.in)
12 www.investmentcommission.in and Department of Road Transport and
Highways, Ministry of Shipping, Road Transport and Highways
(http://morth.nic.in), National Highways Authority of India (http://www.nhai.org)
13 www.investmentcommission.in and Department of Shipping, Ministry of
Shipping, Road Transport & Highways (http://shipping.nic.in)

DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.

14 www.investmentcommission.in and Ministry of Civil Aviation


(http://civilaviation.nic.in), Airport Authority of India
http://www.airportsindia.org.in/aai/main.htm)
15 www.investmentcommission.in and Ministry of Petroleum & Natural Gas
(http://petroleum.nic.in)

Dr. MUKUL A. BURGHATE


Supervisor

RAJESH CHOUKSEY
Researcher

DR. PANJABRAO DESHMUKH INSTITUTE OF MANAGEMENT TECHNOLOGY AND REASEARCH, NAGPUR-12.