PPP Model: Success Stories & Lessons from Failure Indo Italian Chamber of Commerce & Industries

Size: px

Start display at page:

Download "PPP Model: Success Stories & Lessons from Failure Indo Italian Chamber of Commerce & Industries"

Willa Clarke
6 years ago
Views:

1 PPP Model: Success Stories & Lessons from Failure Indo Italian Chamber of Commerce & Industries 1 July 2010

2 PPP is everywhere 2

3 Yet PPP is hardly understood and much misused 3

4 Presentation Structure PPP in India - Potential Case studies Learning from Success and Failure 4

5 Presentation Structure PPP in India Potential Case studies Learning from Success and Failure 5

6 HISTORICALLY, INVESTMENT IN INFRASTRUCTURE HAS BEEN LOW IN INDIA 11 % 9% Desired (same as China) Projected 5% E 6.1% E 7.5 % Likely 3.5 % 33 Year low 4.5% Average Morgan Stanley Research till F2003 LEADING TO A DEFICIT ACROSS SECTORS SUCH AS TRANSPORTATION, POWER, IRRIGATION AND WATER SUPPLY 6

FOR THE FIRST TIME A PERSPECTIVE PLAN FOR INFRASTRUCTURE

7 ELEVENTH PLAN ENVISAGES AN INVESTMENT OF ~500 BN USD IN INFRASTRUCTURE OVER THE NEXT 5 YEARS Sector-wise Investments FOR THE FIRST TIME A PERSPECTIVE PLAN FOR INFRASTRUCTURE DEVELOPMENT HAS BEEN OUTLINED, INCLUDING SOURCES AND SECTOR WISE SPEND PLANS 7

8 WHILE THE GOVERNMENT IS LIKELY TO FUND A LARGE SHARE OF THESE INVESTMENTS, PRIVATE SECTOR PARTICIPATION WILL ALSO SEE AN INCREASE X Plan XI Plan Source of funding US Bn % share US Bn % share Public sector % % Private sector 40 18% % TOTAL % % Strong political will towards infra spending development poll plank across parties Despite increasing fiscal deficit, low inflation to help pursue high growth IIFCL enabled to raise finances through taxfree bonds for PPP projects States allowed to raise additional market borrowings of 0.5% of GSDP ECB access for NBFCs lending to core sector No slow down in capex plans of PSUs like NTPC, Power Grid, AAI, NHAI etc 8 From An Approach to the XI Five Year Plan Investment in infrastructure will need to increase from 4.6% of GDP to between 7 8% in the 11th Plan period This will place a heavy burden on the public sector which will have to invest more in this area Since public sector resources are scarce, an aggressive effort at promoting public private partnership in infrastructure development will be needed. PPPs will not be feasible in all types of infrastructure but they are feasible in some areas and these should be exploited Source: RBI, Media

9 PPP MODELS HAVE STABILIZED IN ROADS AND ARE STILL EVOLVING IN OTHER SECTORS Development Introduction Growth Maturity Decline Roads Water Rail Urban Ports Infra Hydro Power Airports MRTS Time Most PPP projects are in Transportation, especially roads sector Concession agreements, especially in roads and ports have evolved over the last 4-5 years Private participation has not been forthcoming in railways due to systemic hurdles and implementation issues Water sector in India is least amenable for PPP due to political sensitivity of the sector 9

10 Presentation Structure PPP in India Potential Case studies Learning from Success and Failure 10

11 Case Study 1 Tirupur Water Supply Background Tirupur located in Tamilnadu is India s largest producer of cotton knitwear (accounting for 75% of the country s knitwear exports) Industries had turned to groundwater and private tankers to counter the lack of adequate water supply; Moreover, industry had polluted the groundwater with chemical dyes Municipal area also lacked a sanitation system (drainage, sewage collection and treatment) SPV and project sponsor: New Tirupur Area Development Corporation Limited (NTADCL) Water intake, transmission pipeline, master balancing reservoir (EPC Phase 1): Hindustan Construction Company Key Players Main feeder pipelines, distribution network, overhead and ground storage tanks, sewerage network (EPC Phase 2): Mahindra & Mahindra / Larsen & Toubro Joint Venture O&M contract: Mahindra Water Utilities Ltd. (a Mahindra / United Utilities JV) Other partner institutions: Tirupur Municipality, Tirupur Exporters Association (TEA), Infrastructure Leasing & Financial Services (IL&FS), Tamilnadu Corporation for Industrial Infrastructure Development (TACID),Indo US FIRE, USAID, World Bank Project status Operational (Water supply in mid-2005, sanitation by end Feb 2006) Once fully completed, project expected to supply the Tirupur area with 185 million litres of water per day (mld) and service nearly 1,000 textile units and more than 1.6 million residents 11

12 Case Study 2 - BMIC Conceived as a massive infrastructure/urban development scheme promoted by M/s Nandi Infrastructure Corridor Enterprise Ltd. (NICE) BMICP envisaged the construction of a 4-lane (expandable to 6) walled, toll expressway and 5 townships between Bangalore and Mysore India s first private road project-planned in 3 phases; as a BOOT project As early as 1997, an MoU was signed between the Karnataka Government and a Consortium of Indian and U. S. based firms supporting the systematic growth of Bangalore city In 2002, an agreement was signed with NICE for BMIC 12

13 Case Study 2 BMIC - Timelines Conceived as a 10-year construction and 30 year lease project later The project ran into troubled waters soon Opposition from various quarters, including political groups environmental bodies and NGOs was rife IN 2004, towards the end of the SM Krishnaled Congress Government s tenure, numerous PILs and writ petitions were filed against the project A committee was set up which submitted its report in October 2004 The project was not stopped, instead excess land was returned to rightful owners The matter was in and out of courts, till April 2006 when the Supreme Court gave the project a green signal and asked the state government to pay NICE Rs 5 lakhs for the flip-flops Work resumed, but now in August 2007, the August 2002 agreement allowing the sale of land by NICE is annulled by the government This would bring the project to a halt The government is keen to re-bid the project on a Swiss Challenge basis Global Infrastructure Consortium has offered to take the project forward and the Karnataka Government is set to sign an agreement 13

14 Case Study 2 BMIC Current Status Issues NICE acquired land far in excess of what was originally sanctioned by the government 30% private land was acquired in excess of requirement 37% land acquired for toll roads was in excess 158% land acquired for interchanges was in excess NICE misrepresented its legal status to the government The company acquired excess land at very low rates and used it for commercial purposes (as low as Rs 10/acre/year) ICICI funding of the project was in violation of the RBI directive stating that infrastructure projects cannot be financed based on guarantees issued by a state government There were alleged insertions in the 2002 agreement since the 1997 MoU to include land at the 10 major interchanges along the expressway Current Status The three-phase BMIC project is currently in its first phase, at the Bangalore end and only road work has been taken up Phase 1 includes a 41-km semicircular peripheral road very close to Bangalore and connecting stretches of three national highway. A 9-km link road and a township at Bidadi are part of it. NICE claims that 95 per cent of Phase 1 is ready and that it needs another 3,000 acres, including land for the township It currently has 7,000 acres in its possession, of them 700 acres is Government land transferred to it. Rs 1,500 crore spent till date 14

15 Case Study 3 - Noida Toll Bridge One of India s first major PPP project The US$100 mn project, Delhi Noida Bridge Project An 8 lane project, with 27 lanes 150 meter long toll plaza The project was conceived to provide connectivity between the capital, New Delhi and the satellite township (Noida) Implemented on a BOOT frame work for a 30 year concession In April 1992, IL&FS, NOIDA and the Delhi Administration signed the MOU for the construction and operation of the toll bridge The project was commissioned on February 7, 2001, almost 4 months ahead of schedule and broadly within the budget The MOU was signed in April 1992 and the Noida Toll Bridge Company was incorporated on 8 th April 1996 In Nov 1997 the concession agreement granting the right of building and operating the Delhi Noida toll bridge was awarded to NTBCL NTBCL appointed the Marubeni-Mitsui Consortium for construction of the toll bridge and the construction started in Dec 1998 O&M Contract awarded to M/s Intertoll, South Africa - sharing traffic risk with NTBCL The bridge is meters long with 27 lane 150 meter long toll plaza. The toll is paid by cash or by smart cards 15

16 Case Studies Takeaway PPP can be made successful with appropriate project structuring Political Instability can create problems for long duration infrastructure projects Land is a sensitive issue in most development projects Projects that involve land acquisition and public opinion building would invariably be opposed and create problems This would not be as much of a problem if the land were government owned It might make sense to steer clear of land concessions in places where land is known to be a sensitive issue and would need to be acquired Other concessions need to be analyzed and land should be a backup option; in case all other options are exhausted 16

17 Presentation Structure PPP in India Potential Case studies Learning from Success and Failure 17

Policy & Regulation Project Identification Interventions in the

18 Implementing projects on PPP Project Development Authority Bidding Screening & Selection Project Definition & Feasibility Policy & Regulation Project Identification Interventions in the key stages of privatization to smoothen the Govt. - developer interface 18

19 Managing the PPP process TRADITIONAL LACUNAE... THE VICIOUS CIRCLE Inchoate definition of projects Inadequate information Need for significant financial exposure for detailed project definition Lack of motivation for prospective developer(s) to invest in project definition Insufficient grounds for negotiations between developer(s) & Government 19

20 Conclusion (1/2) Planning for PPP Project Anchoring Funds for Project Preparation Identification of a Mega Project Project Champion IDB Department / CM Office Through Govt. Grant / III Model High Visibility Project Industrial Park Making Projects Happen Land Economics Entity Structure Concession Planning Terms and conditions of lease Operational viability, possibility of financial closure Roles and responsibilities of public and private sector entities Conditions precedent, sharing of risk and reward Implementation planning, contingency planning Anchoring and funding of project preparation key to making projects happen 20

21 Conclusion (2/2) PPP projects have seen mixed success in India Success stories include Hyderabad and Bangalore Airport and NHAI road projects BMIC experience however hasn t been successful Project structuring and Project Anchoring is extremely critical for success in PPP projects Way forward is to identify individual projects with high potential in States and provide support for project structuring to make them amenable for PPP 21

22 India s Leading Integrated Infrastructure Development Company 22

INFRASTRUCTURE PROJECTS IN PIPELINE

Now Available INFRASTRUCTURE PROJECTS IN PIPELINE Sector Analysis and Outlook; Opportunities and Projections Report (PDF) Data-set (Excel) 3 Quarterly Updates India Infrastructure Research Table of Contents