UNIVERSITY OF PETROLEUM & ENERGY STUDIES

SCHOOL OF LAW
BA.LL.B (HONS.)

SEMESTER-V

ACADEMIC YEAR: 2018-19 SESSION: JUL-DEC

ASSINGMENT
FOR
Economics of Surface & Maritime Transportation

ON
Study of Barriers in Implementation of PPP in India

Under the Supervision of: Mr. Vikas Singh Sengar

Name: Mudit Shukla, Kanishka Kandpal, Arushi Kumar

Sap ID: 500054597, 500054582, 500054846

Roll No: R450216056, R450216045, R450216020

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Index:

INTRODUCTION

MODELS IN PPP

CHALLENGES IN PPP

BARRIERS

AID TO BARRIERS CASE STUDY

CONCLUSION

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INTRODUCTION
Public Private Partnerships have become a significant practice of delivering infrastructure
projects in the last decade and are now used in many countries. The approval and implementation
of PPPs in less developed economies can pose unusual challenges to that of mature economies as
in a progressively more competitive global environment, governments approximately around the
world are focusing on new ways to fund projects, build infrastructure, and deliver services. The
government has started a number of schemes in joint cooperation with private sectors in order to
give national economy an impulse and thus enhancing the rate of economic growth. 1 PPPs plan is
to combine the skills, expertise and experience of both the public and private sectors to deliver
higher standard of services to the country The private sector is measured to be more capable in
resource acquirement and utilities deliverance than government and therefore it is further
bolstering government's good chance to communicate the related risks to the private section. The
liberalization and globalization of the economy in the 1990s boosted up our rate of economic
development as never before the decades of 1990s and 2000s saw us competing at a global level
though sustaining ourselves at a global level was and will always be a discouraging task in as
much that provision of sufficient and essential infrastructure almost becomes essential to the
economy.2 The need for PPP has been exacerbated by the public sector‘s recognition of the vital
role of modern infrastructure in economic growth, the demand for which is evidenced in this
conference through a variety of diverse projects and contexts across different countries.

The private sector is also skilled at integrating today's leading technology, while ensuring
designs can accommodate the disruptive technology of tomorrow whether it's big data, driverless
cars, or sophisticated information and communication systems. These partnerships can
fundamentally improve our nation's infrastructure by looking at long-term costs, deploying its
expertise, and shielding public partners from risk. They should be an integral part of any federal
infrastructure package.The Indian port sector has been plagued by several problems due to
inadequate capacity and operational inefficiencies. The main ports in India had capacity over-
utilization As a consequence of the capacity inadequacy, Indian seaport operations lagged behind
foreign counterparts. The operational inefficiency of Indian seaports resulted in higher through-

1
KarunendraPratap Singh, ‘Issues and Prospects Of Public Private Partnership In India’ Zenith International Journal
Of Multidisciplinary Research Vol.1 Issue 5, September 2011, ISSN 2231 5780
2
http://www.iima.edu.in/assets/snippets/workingpaperpdf/2010-11-03Ajay.pdf (18/11/2016)

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put and sea transport costs, which mean that cargo shipped from Indian seaports, were 45%-50%
costlier than the norm, thus becoming non-competitive in the international market. The first
guidelines for private sector participation in major seaports were announced by the Ministry of
Surface Transport Since then PPPs have been promoted for implementation of infrastructure
projects in India and Development of infrastructure will need manpower at various levels and
hence it will generate more employment opportunities for the people and They result in faster
project completions and reduced delays on infrastructure projects by including time-to-
completion as a measure of performance and therefore of profit and By increasing the efficiency
of the government's investment, it allows government funds to be redirected to other important
socioeconomic areas.3

Despite the huge recognition of PPPs and its increasing usage in infrastructure development, the
experience of both the public and private sector with PPP has not always been positive a number
of PPP projects are either held up or terminated particularly in developing countries due to
various reasons or barriers like Lack of suitable skills and experience, lengthy bidding and
negotiation process; lack of competition, and lack of well-established legal framework. 4 The
predominant role of large foreign contractors may both have political implications and may
directly affect the local contracting industry by restricting the implication of domestic players.
However, it is evident that PPP developers shall need to rely on a wide array of domestic
suppliers, contractors and consultants under sub-contracting arrangements.5 It is important to
categorize barriers to PPPs implementation because it is a very useful and widely used tool that
helps to understand wider business environment, and enables business leaders worldwide to
build their vision of the future.

It is thus evident that a number of drawbacks, or difficulties, barriers are impeding the
development of PPP programs. If they are to attract the private sector into infrastructure
provision and financing, governments need to fully recognize and address the drawbacks and
their related constraints in the development of a PPP program

3
Akintoye, A., Beck, M., and Hardcastle, C. Public Private Partnerships: managing Risks and Opportunities,
Blackwell: Oxford
4
http://www.pppinindia.com/
5
Kurniawan, Fredy. (2013). Public private partnership project implementation: Three case studies of Seaports
Projects in India. 10.13140/RG.2.1.1735.8247.

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MODELS IN PPP
These models operate on different conditions on the private sector regarding level of investment,
ownership control, risk sharing, technical collaboration, duration of the project, financing mode,
tax treatment, management of cash flows etc.6

Build Operate and Transfer (BOT)

This is the simple and conventional PPP model where the private partner is responsible to design,
build, operate (during the contracted period) and transfer back the facility to the public sector.
Role of the private sector partner is to bring the finance for the project and take the responsibility
to construct and maintain it. In return, the public sector will allow it to collect revenue from the
users. The national highway projects contracted out by NHAI under PPP mode is a major
example for the BOT model.

 Build-Own-Operate-Transfer (BOOT)

This is a variant of the BOT and the difference is that the ownership of the newly built facility
will rest with the private party here. The public sector partner agrees to ‘purchase’ the goods and
services produced by the project on mutually agreed terms and conditions.

 Lease-Develop-Operate (LDO):

Here, the government or the public sector entity retains ownership of the newly created
infrastructure facility and receives payments in terms of a lease agreement with the private
promoter. This approach is mostly followed in the development of airport facilities

 Build-Transfer-Lease (BTL)

It involves building an asset, transferring it to the Government, and leasing it back. Here the
private sector delivers the service and collects user charges.

https://bib.irb.hr/datoteka/686738.MANAGEMENT_MODELS_FOR_PUBLICPRIVATE_PARTNERSHIP_PROJ
6

ECTS.pdf

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CHALLENGES IN PPP
Though there are improvements in infrastructure development in the nation during the current
years but there exists a considerable gap between demand and supply of significant infrastructure
facilities and services, which has become a restriction on the rapid pace of economic
development. Infrastructure gap exists in almost all the sectors. Over the past few years, a
number of public private partnership (PPP) projects across various sectors have been in a stalled
state (Economic Survey 2017)7. In additional, private investment under the PPP investment
model has failed to come by due to various reasons. An examination of various reasons for issues
plaguing PPPs is as follows

 Political and Legal Problems: Changing Governments and major changes in law has
sometimes a very bad impact on PPP projects.
 Lack of coordination: As there are two or more parties involved in PPP there are
chances of misunderstandings.
 Corruption: PPP projects are always at the back the risk of corruption as there are too
many people and processes concerned in the completion of the project.
 Regulatory environment - There is no independent PPP regulator as of now. In order to
attract more domestic and international private funding of the infrastructure, a more
strong regulatory environment, with an independent regulator is essential.

 Finance - The long term finance for PPP projects has dried up due to excessive
dependence on banks and lack of suitable corporate bond market in the country. Banks
are more stressed due to high NPAs and governance issues.8

According to Economic Survey 2016, PPPs have positive inherent flaws in plan due to which
they have been stalled eventually no re-negotiation structures illegal risk allocation, lack of
meeting point of capable service provision.

KINDS OF BARRIER:
7
Economic Survey, 2016- 17 and various years, Department of Economic Affairs, Ministry of Finance, Government
of India.
8
Ananda S, (2012), ‘Effective Public Prvate Partnership for Infrastructure Deelopment: an Indian Experience’,
Buiness Spectrum, Vol. 2, No. 2, pp204-218.

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A circumstance or obstacle that keeps people or things apart or prevents communications or
progress is known as barriers.9 Here are some of the important barriers:

1) Social barriers
2) Legal barriers
3) Economic barriers
4) Environmental barriers
5) Political barriers
6) Technological barriers

1. Social barriers: The paper revealed social barriers, including public opposition, cultural
impediments, societal discontent against the private sector, public resentment due to tariff
increases, lack of confidence and mistrust in PPPs among others which is similar with
Gunnigan and Rajput (2010) that social and cultural norms within a nation are
significantly alter the behaviours of people, and ultimately affecting the PPPs operation
and structures, and public opposition has led to many cancellations, both before and after
the concession award. The finding is in contrast with Gibson and Davies, (2008) that
identified internal partnership relationships in mature economies. Therefore, it becomes
necessary that all the stakeholders’ for instance, primary stakeholders in PPPs
implementation in developing countries to identify the public interest goals before
embarking on any PPPs project.10
2. Legal barriers: The literature demonstrated inadequate coverage of PPP legal regime,
poor regulatory frameworks and weakness in enforcement of policy, lack of institutional
capacity and PPPs strategy, absence of PPP disputes resolving legal institute among others
as legal constraints for proper implementation of PPPs in most developing economies.
This indicates that some developing countries governments with less matured economies
execute PPPs even when overall PPP policies are absent, which drives towards improperly
established goals and objectives ultimately creating greater possibility of issues with

9
Mohammad Aalam,, Modelling Of Barriers Of PPP In Infrastructure, 04 IRJET 3475-3482 (2017).
10
Identification of Barriers to Public Private Partnerships Implementation in Developing Countries,
file:///C:/Users/500061838/Downloads/CIB_DC27636.pdf [accessed Nov19, 2018]

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 projects implementation. PPP generates exceptional pressure on the legal regime affecting
economic maturity, renaissance, and mechanism for developing infrastructure. Although
in PPP projects a large number of agreements and conditions are involved in documentary
lack of a proper package has become a barrier to proper implementation of PPP. PPP
involves a great deal of disputes among parties involved due to different interests of
stakeholders, for protection of public interests and legitimate rights of private sector.
According to Grimsey and Lewis (2004) and Satpathy and Das (2007) lack of well-
established legal framework, has given rise to number of disputes which are inevitable in
PPP.11
3. Economic barriers: Perceptions of developing countries as high risk economies by
foreign investors, inability of local institutions to provide long term financing, difficulty in
obtaining foreign exchange/foreign exchange risk, inadequate domestic capital markets
among others were identified as economic barriers to PPPs implementation in developing
countries. This finding is in contrast with Corbett and Smith (2006) and Chan et al. (2006)
that identified high transaction costs and high bidding costs as barriers to PPPs project
implementation. Therefore, it necessary for governments in developing countries to create
stable economic and financial supports with a view to inducing confidence in both local
and foreign PPP investors.12
4. Environmental barriers: Lack of coordination between national and regional
governments,(Corbett, P. and Smith, R. (2006) Limitation of Environmental liabilities
(Pirman (2012) Restrictions on transfer of rights in public assets to private sector operator
(PPPIRC (2013) Land acquisition difficult and time consuming (Babatunde, Perera,
Udeaja, & Zhou (2015) The prior studies have revealed that land acquisition problems,
lack of coordination between national and regional governments, lack of transparency and
accountability, and acquisition of land for project from third parties as environmental
barriers to PPP projects. There is no independent PPP regulator as of now. In order to
attract more domestic and international private funding of the infrastructure, a more robust

11
BARRIERS IN PROPER IMPLEMENTATION OF PUBLIC PRIVATE PARTNERSHIPS (PPP) IN SRI
LANKA,https://www.researchgate.net/publication/308166890_BARRIERS_IN_PROPER_IMPLEMENTATION_
OF_PUBLIC_PRIVATE_PARTNERSHIPS_PPP_IN_SRI_LANKA [accessed Nov 19 2018].
12
Identification of Barriers to Public Private Partnerships Implementation in Developing Countries,
file:///C:/Users/500061838/Downloads/CIB_DC27636.pdf [accessed Nov19, 2018]

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 regulatory environment with an independent regulator is essential. (Sudhansu Sekhar
Nanda 6 September 2015).13
5. Political barriers: Political reneging, politicization of the concessions, lengthy delays due
to political debate, lack of strong political commitment for PPPs among others were
identified as political barriers which is similar with Kwak et al. (2009) that inadequate
involvement and incapability of governments to manage PPP projects lead to project
failures in developing countries. The finding is in contrast with Gibson and Davies, (2008)
that identified local political opposition as a barrier to PPPs in mature economies.14
6. Technological barriers: The literature review has identified non-availability of model
concession agreements, Lack of suitable skills and experience, inconsistent risk
assessment and management, and shortage of expertise as technological barriers to PPPs.
Li et al., (2005) and Mahalingam (2010) stated absence of an enabling institutional
environment for PPPs. Thus it is significant that less mature economies are seeking
knowledge and resources from developed nations in structuring a proper PPP procedure
where PPP process not clearly being defined has become a barrier to proper
implementation. Absence of a well established institution has also being identified as a
barrier to PPP by Hamilton (2015). Uncertainty and lack of a clear project pipeline,
delayed communication of decisions and protracted procurement processes together with
complexity and relatively inflexible structures are also issues in implementing a proper
PPP in the real world scenario. Poorly designed and structured projects would also pull
back private sector investors from engaging in PPP projects in the future. 15

AIDS TO BARRIER:

13
Mohammad Aalam,, Modelling Of Barriers Of PPP In Infrastructure, 04 IRJET 3475-3482 (2017).
14
Identification of Barriers to Public Private Partnerships Implementation in Developing Countries,
file:///C:/Users/500061838/Downloads/CIB_DC27636.pdf [accessed Nov19, 2018]
15
(BARRIERS IN PROPER IMPLEMENTATION OF PUBLIC PRIVATE PARTNERSHIPS (PPP) IN SRI
LANKA,https://www.researchgate.net/publication/308166890_BARRIERS_IN_PROPER_IMPLEMENTATION_
OF_PUBLIC_PRIVATE_PARTNERSHIPS_PPP_IN_SRI_LANKA [accessed Nov 19 2018].

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 1) Finance Focused Programs: The government of India has constituted a Viability Gap
Fund that can be used in several urban sectors such as transportation, water supply,
sewerage, and solid waste management (Ministry of Finance 2005). This fund will
provide grants worth up to 40% of the total costs to projects that are not financially viable
on their own. The intention is that this grant will close the “viability gap” and make such
projects attractive to the private sector and hence amenable to procurement through PPPs.
State and urban governments have contended that they are often unable to bear the costs
of developing projects, hiring transactions advisors, and so on. In response, the central
government has instituted the India Infrastructure Project Development Fund
(IIPDF) (Department of Economic Affairs 2007c). Based on the quality of a PPP
proposal from the state or urban governments and the viability of the initial feasibility
studies, the IIPDF will provide local governments with funding to bear the costs of hiring
transaction advisors.
The government has earmarked an outlay of INR 500 billion for the urban upgrade of 63
selected Indian cities under the JNNURM scheme (Ministry of Urban Development
2004). The selected states and cities are expected to enact certain administrative reforms
and then craft detailed project reports for urban infrastructure projects to be funded under
this scheme. The level of funding will be proportional to the level of development already
present within the city, with the understanding that the shortfall between the project cost
and the JNNURM grant will be addressed by the cities themselves, preferably through the
use of private participation. It is hoped that due to the JNNURM grant acting as a project
subsidy, economically feasible urban infrastructure projects can be proposed that can be
undertaken through PPPs.
2) Capacity Strengthening Initiatives: To strengthen public sector capacity to develop and
implement PPPs, a “PPP cell” has also been created in each state and has been staffed
with an administrative officer (Department of Economic Affairs 2007d). Although the
roles and responsibilities of this cell are not clearly defined yet, the mandate for these
cells is to identify and create a “shelf of projects” that are necessary and are viable under
the PPP mode. These projects can span various sectors including physical infrastructure,
tourism, health, education, and so on.

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 Various nodal or coordination agencies such as the Gujarat Urban Development
Corporation, the Tamil Nadu Urban Development Fund, [e.g., Municipal Administration
and Water Supply Department (2005)] etc. have been created in many states to help
ULBs structure and finance infrastructure projects. These agencies are tasked with
carrying out a variety of activities ranging from arranging debt funding for infrastructure
projects to developing, structuring, managing the bid process, and overseeing the
implementation of urban infrastructure projects on behalf of the ULBs.
The central government has also identified a lack in capacity from within the local
governments in bidding out PPP projects, and has created a panel of transaction
advisors who have been selected based on their experience and expertise in formulating
and structuring PPP projects (Department of Economic Affairs 2007b). By allowing
urban governments to directly select from these empanelled organizations, the central
government has eliminated the need for the urban governments to call for bids for the
provision of consulting services, thereby greatly reducing the transaction costs involved
in preparing PPP project reports. ULBs have used the services of firms from within this
panel with great success. When the Chennai Municipal Development Authority decided
to privatize the solid waste management in the city, they first hired the Tamil Nadu
Industrial Development Corporation as the bid-process manager, and KPMG as the
consultants who analyzed project feasibility and successfully crafted the structuring of
the project.
3) Institutional Reforms: Urban governments have historically lacked the autonomy to
develop and implement projects themselves since several urban services come under the
purview of the state government (Infrastructure Development and Finance Company
Limited 2006). The recently enacted 74th constitutional amendment has devolved the
responsibility to raise finances and implement urban infrastructure projects and services
to the local municipal governments, thereby increasing the possibility of \relevant and
feasible PPP projects being structured and procured at the municipal level (National
Institute of Urban Affairs 1994).16

CASE STUDY
16
PPP Experiences in Indian Cities: Barriers, Enablers, and the Way Forward,
https://ascelibrary.org/doi/full/10.1061/(ASCE)CO.1943-7862.0000130?mobileUi=0& [accessed Nov 19, 2018]

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 Delhi Gurgaon Expressway
The National Highways Authority of India (NHAI), under the Ministry of Road Transport &
Highways (MoRT&H), was entrusted the responsibility for implementation of the Golden
Quadrilateral project (Highway Project connecting the four metro cities of New Delhi, Mumbai,
Chennai and Kolkata). As a part of this project, it proposed the conversion of a very busy section
of NH-8 connecting Delhi to Gurgaon into a 6/8 lane access controlled divided carriageway. The
then existing 4 lane, 27.7 km section of NH-8 between Delhi and Gurgaon with as many as 20
intersections, experienced high vehicular density (145,000 Passenger Car Units (PCUs)/day in
2000) and non-segregation of traffic that led to increase in accidents, acute congestion, wastage
of fuel and excessive pollution.

The project was awarded to the consortium of Jaypee Industries and DS Construction Ltd to
design, finance, construct, operate & maintain the facility for a concession period of 20 years. As
in a typical BOT highway project, the Concessionaire is allowed to collect toll from the users of
the project facility during the operation period to recover his investment and the expressway is
required to be transferred back to the Government at the end of the concession period. 17 This was
the first BOT project in India to have been awarded on negative grant basis where in the
concessionaire offered to pay an upfront fee to NHAI in return of the concession as against a
capital grant from the Government. In consideration of robust traffic projections, the selected
bidder offered to pay Rs. 61.06 crore to NHAI. The expressway was commissioned in January
2008 after much delay primarily owing to issues in land acquisition and changes in the scope of
work. It carries more than 180,000 PCUs per day as on date

PPP structure of the Project

The project was awarded to the consortium of Jaiprakash Industries Ltd and DS Construction
Ltd on Built-Operate-Transfer (BOT) basis for a period of 20 years. The selected concessionaire
offered to pay ` 61.06 crore upfront as negative grant to the NHAI. The Concessionaire was
required to design, construct, operate and maintain the expressway in accordance with the
specifications as approved by NHAI. The concession period included the construction period to
encourage the concessionaire to complete the construction early.18 A Special Purpose Vehicle
17
https://www.pppinindia.gov.in/toolkit/pdf/case_studies.pdf
18
Mr. G.P.S. Mann, Chief General Manager, Punjab Infrastructure Development Board

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called the Delhi Gurgaon Super Connectivity Ltd (formerly Jaypee DSC Ventures Ltd.), was
created for execution of the project. While at the time of bidding, Jaiprakash Industries had a
controlling stake of 51% and DS Constructions held 49%, during the course of project
implementation, Jaiprakash Industries reduced its stake in the SPV to about 1.2%. The SPV
entered into a fixed time-fixed price Engineering, Procurement & Construction (EPC) contract
with DS Constructions Limited for this project.

CONCLUSION

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The advent of PPP as an alternative procurement strategy offers opportunities and challenges to
public and private sectors. Some common problems such as time and cost overruns, low
productivity, and operational inefficiency, have been experienced by public sector asset
managers in developing economy nation like India, there exists an infrastructure gaps in all most
all the sectors, posing a grave threat to the growth momentum. The Government plays a major
role in any PPP. Hence it has to follow certain successful strategies in order to become a better
partner. The study shows that there have been major drawbacks in the evaluation and
implementation process of PPP projects as influenced by some important actors in India. It is on
this note that this paper identified and categorized into six the barriers to PPPs implementation in
developing countries this includes social barriers, legal barriers, economic barriers,
environmental barriers, political barriers, and technological barriers These obstacles need to be
resolved with more focused attention and strategy formulation by introducing more transparency,
development of national sense and growing above vested benefit.

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