Notes On MPL 157 Slide 2

Infrastructure-Meaning:

• Infrastructure facilities include public works or public infrastructural facilities

• Physical structures (such as bridges, roads, highways, ports, airports etc.)
• Systems (Electricity transmission system, Pipeline distribution system)
• Thus, term “infrastructure” includes power projects, roads, ports, water projects,
telecommunication projects, rail roads etc.
• Infrastructure is the general term for the basic physical systems of a business, region, or
nation. Examples of infrastructure include transportation systems, communication networks,
sewage, water, and electric systems. These systems tend to be capital intensive and high-cost
investments, and are vital to a country's economic development and prosperity.
• Projects related to infrastructure improvements may be funded publicly, privately, or
through public-private partnerships. In economic terms, infrastructure often involves the
production of public goods or production processes that support natural monopolies.

• Infrastructure is the basic systems that undergird the structure of the economy.
• Examples of infrastructure include transportation facilities, telecommunications
networks, and water supplies.
• Large scale infrastructure is usually produced by the public sector or publicly regulated
monopolies, but at smaller scales infrastructure can often be produced by private firms or
through local collective action.
• As an investment, infrastructure tends to be less volatile than some other asset classes and
is sometimes sought as an investment.

New Economic Policy- 1991:

New Economic Policy of India was launched in the year 1991 under the leadership of P. V.
Narasimha Rao. This policy opened the door of the India Economy for the global exposure for
the first time. In this New Economic Policy P. V. Narasimha Rao government reduced the import
duties, opened reserved sector for the private players, devalued the Indian currency to increase
the export. This is also known as the LPG Model of growth.

The NEP consisted of wide ranging economic reforms. The thrust of the policies was towards
creating a more competitive environment in the economy and removing the barriers to entry and
growth of firms. This set of policies can broadly be classified into two groups: the stabilisation
measures and the structural reform measures.

Public-private Partnership:
The public–private partnership (PPP or 3P) is a commercial legal relationship defined by
the Government of India in 2011[1] as "an arrangement between a government / statutory entity /
government owned entity on one side and a private sector entity on the other, for the provision of
public assets and/or public services, through investments being made and/or management being
undertaken by the private sector entity, for a specified period of time, where there is well defined
allocation of risk between the private sector and the public entity and the private entity receives
performance linked payments that conform (or are benchmarked) to specified and pre-
determined performance standards, measurable by the public entity or its representative".
The Government of India recognizes several types of PPPs, including: User-fee based BOT
model, Performance based management/maintenance contracts and Modified design-build
(turnkey) contracts. Today, there are hundreds of PPP projects in various stages of
implementation throughout the country.
As of November 2020, 1,103 PPP projects were launched in the country, representing a total of
$274,959,000,000 of committed investments.
nfrastructure in India is poor when compared to similarly developed nations. [3] The Government
of India identified public–private partnerships (PPP) as a way of developing the country's
infrastructure. In the 1990s, during India's first liberalization wave, there were various attempts
to promote PPPs. However, in some sectors – such as water and sanitation – it failed. India was
perceived as too risky and there was significant opposition to private sector involvement. It is
only in the first half of the 2000s that the first PPPs were signed and implemented. Construction
of infrastructure in India requires large capital outlays and there is a deficit in supply. Over fifty
percent of major infrastructure development projects in Maharashtra state are based on 3P.
Projects using the 3P model have also proceeded in Karnataka, Madhya Pradesh, Gujarat,
and Tamil Nadu state.
In August 2012, the Prime Minister of India, Manmohan Singh, lifted the ban on the transfer of
government-owned land, relaxed land transfer policy and did away with the need for Cabinet
approval for 3P projects in order to accelerate the building of infrastructure.
Models of PPP:
Commonly adopted model of PUBLIC PRIVATE Partnerships include Build-Operate-Transfer
(BOT), Build-Own-Operate (BOO), Build-Operate-Lease-Transfer (BOLT), Design-Build-
Operate-Transfer (DBFOT), Lease-Develop-Operate (LDO), Operate-Maintain-Transfer
(OMT), etc. This is a non-exhaustive list as there are many types and delivery models of public
private partnerships depending on the contractual terms.

These models differ from each other on modes of investment, ownership control, risk sharing,
technical collaboration, duration, financing etc.

 Build-Operate-Transfer (BOT): Under this model there is complete integration of the

project delivery, as the same contract governs the design, construction, operations,
maintenance, and financing of the project. As the name indicates, the private partner is
 responsible to design, build, operate (during the contracted period) and transfer back the
facility to the public sector. Thus the responsibility of bringing the finance and of
construction as well as maintenance is upon the private sector partner.

An example of BOT model is the contracting out of the national highway projects by
National Highway Authority of India (NHAI) under Public Private Partnership mode.

 Build-Own-Operate (BOO):  In this approach, public sector partner agrees to

‘purchase’ the goods and services produced by the project party, on mutually agreed terms
and conditions. Furthermore, ownership of the newly built facility or the project remains
with the private party and the private gets the benefits of any residual value of the project.

Some examples of BOO projects have come from the water treatment plants and even
mobile phone networks.

 Build-Operate-Own-Transfer (BOOT): This is a variant of the BOT model. Herein,

after the negotiated period of time, the project is transferred to the government or to the
private operator.

This model has been used in development of projects like highways, ports, and railway
transport and power generation.

 Build-Operate-Lease-Transfer (BOLT): Under this model, the government gives a

concession to a private entity to build a facility, and possibly design it as well, then to own
the facility and lease it to the public sector. Then, at end of the leasing period the ownership
of the asset as well as the operational responsibility is transferred to the government at a
previously agreed price.

 Design-Build-Operate-Transfer (DBFO): In this model, entire responsibility for the

design, construction, finance, and operation of the project for the period of concession lies
with the private party, under a long-term agreement. The owner, usually the public sector,
operates the facility.

 Lease-Develop-Operate (LDO): Under this type of investment model the public sector

entity retains ownership of the newly created infrastructure facility and receives payments
under the terms of a lease agreement with the private promoter.
Risks in PPP:
There have been a number of critics associated with Public Private Partnerships in India, in
particular related to the risks that come with such partnerships.
It has been argued that PPP involve greater costs that traditional government procurement
processes (because of the development, bidding and ongoing costs in PPP projects). Some have
questioned the value-for-money relevance of PPP projects in India.
The private sector does not provide a service that is not specifically outlined in the PPP contract.
It is thus critical that key performance indicators are precisely laid out in the contract and that the
government monitors closely the work of its private partner.
Furthermore, there is a cost attached to debt and while private sector can help access to finance,
it the customers or the government may end up bearing much of this cost.
Another critic of PPP projects is related to their social and political consequences, which can be
significant. For example, a PPP project may result in the transfer of civil servants to the private
sector, important tariff increases or resettlement issues to name a few.
Finally, PPPs often end up being renegotiated. This is due to the long-term nature of the PPP
projects (some run for up to 30 years) and their complexity. It is difficult to identify all possible
contingencies during project development and events and issues may arise that were not
anticipated in the documents or by the parties at the time of the contract.
Other major drawbacks encountered in 3P projects in India include poorly drafted contracts and
lack of understanding of contracts, inadequate resources, lack of managerial experience, breaches
of contract, failures in team building, lack of performance measures, corruption and political
interference.