SM Assignment

Submitted by Group-1

Sarbani Sahu

Anjali Parakh

Shubham Shibasis Garnaik

Anshul Maheshwari

Himanshu Shende

Homal Ivnati

1)How did such a promising project based on public-private-partnership go wrong?

The new bus terminal service that had to accommodate growing inter-regional bus terminal
had a decrease in the profit and suffered from 4 unexpected problems which are divided on
the basis of PESTEL analysis:

Legal Aspect-Illegal and Competing terminals: PTPK faced competition from illegal
terminals within the city irrespective of the concession contract where it is mentioned the
terminal would be the exclusive terminal for the city.

Political Aspect- Although the Mayor tried to be eliminate the illegal terminals, the
corruption level among the low-level municipal staff was very high

Ecological Aspect-Earthquake-A 6.3 Richter scale magnitude earthquake hit Yogyakarta that
killed 5000 people and made 100000 people.

Economical Aspect-Low cost airlines-At the same time low cost no-frill airlines came into
picture that grew at the rate of 20 percent per year.

Social Aspect-Changes in passengers’ activities-The commercial services that were available

in the terminal were more reliant on the general public rather than the bus terminals. The
revenue from the terminal was not sufficient for PTPK as a return to equity investment.

2) Should the Mayor accept PTPK’s announcement to withdraw from the concession? 

No, the mayor should not accept PTPK’s announcement to withdraw from the concession.
Already the city was a huge success with bus passengers and the project was successful in the
short run but not in the long run because of the revenue which barely sufficient to cover
operating costs and debt service, very little profit was left as a return to PTPK’s equity
investment. Problems like the illegal terminals were not terminated which was a competition
for PTPK and it also reduced the passengers. The contracts were poorly negotiated which
resulted in lack of commercial realism. But now the government can intervene to compensate
the market failure. Government can help in provides houses to the earthquake affected people
(nearly 100000) whose contract can be given to PTPK. This can also attract Matahari
departmental store. It can target student population. Routes can be managed that is it can
provide city trip to students from airport or it can also provide city tour trips. Policies can be
implemented to ensure private industrial participation.

c)Identify and describe how have the risks been taken care of by both the parties –
PTPK and the City Authority?

The risk faced by PTPK and city authority and the ways in which these risks are/can be taken
care of are segregated in following ways:

PTPK- Without having previous experience of build-operate transfer (BOT) concessions or

bus terminal, PTPK went with the spirit that” Jogjanese invest for Jogja development “. This
led to outstanding success of the terminal by increase in cash flow and tripling the direct
revenue to the city government (Bargaining Power of the Supplier)

City Authority- This project would attract private investment in the commercial sector. As
PTPK was a trusted company working on government project and to accommodate growing
inter-regional bus traffic, the company was trusted based on engineering and financial
criteria.(Buyer’s Bargaining Power) Entry of low cost airlines was a threat but that risk could
be removed by the Mayor with the help of promoting to support such good initiatives and
assigning infrastructure projects to PTPK. (Threat of new entrants) Illegal terminals, Jombor
terminals and a legal bus terminal that were constructed just outside Yogyakarta were the
threat to PTPK. That can be mitigated if government makes stricter industrial policy, good
governance strategy and revised legal framework (Threat of substitute).