PPP Report by London

|A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Public Private Partnerships in India

Lessons from Experiences
I|P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
April 2012
All Rights Reserved, Athena Infonomics

The information contained in this report prepared by Athena Infonomics India Pvt.
Ltd. is furnished for information purposes only. While every effort has been made to
ensure the accuracy of information presented in the report, Athena Infonomics India
Pvt. Ltd. makes no representations or warranties regarding the accuracy or
completeness of such information and expressly disclaims any liabilities based on such
information or on omissions there from. The material presented in the report can be
used in academic or professional work with appropriate citation.
II | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
This report has been prepared with support from the British High Commission,
through its Prosperity Fund India Programme
III | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
IV | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s

Public Policy Team, Athena Infonomics
April 2012
V|P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
VI | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
Contents
Abbreviations ................................................................................................. VII
List of Exhibits ............................................................................................ IX
List of Figures .............................................................................................. IX
Preface ............................................................................................................ XIII
Executive Summary ................................................................................
XV
Section I
Need for Private Sector Participation in Creation of
Public Assets and Provision of Public Services ............................................ 3
Section II
Public Private Partnerships as an Important Mechanism to
Facilitate Private Sector Investment ............................................................. 9
Section III
Seven Key Success Factors for Effective PPPs ......................................... 14
Section IV
Conclusion and Measures for the Future
................................................ 44
Appendix .......................................................................................................... 45
References ........................................................................................................ 59
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Abbreviations
AAI
ALM
AP
BHC
BOT
BOO
BOOT
BWSL
CA
CO2
CSR
DBFOT
DFC
DIPP
DPR
DEA
EAC
EIA
EIRR
EMP
EPC
EGoM
FAO
FIRR
GDP
GOI
ICICI
IDBI
ICT
IFC
IIFCL
JICA
MCA
MoEF
NGO
NO2
NH
NHAI
NOIDA
NSICT
O&M
PPP
PRIs
PURA
R&R
RFP
SO2
RFQ
SPV
SSA
TAMP
ToR
UK
ULB
Airport Authority of India

Asset-Liability Mismatch
Andhra Pradesh
British High Commission
Build Operate Transfer
Build Own Operate
Build Own Operate Transfer
Bandra Worli Sea Link
Concession Agreement
Carbon Dioxide
Corporate Social Responsibility
Design, Build, Finance, Operate & Transfer
Dedicated Freight Corridor
Department of Industrial Policy & Promotion
Detailed Project Report
Department of Economic Affairs
Environment Appraisal Committee
Environmental Impact Assessment
Economic Internal Rate of Return
Environment Management Plan
Engineering & Procurement Contract
Empowered Group of Ministers
Food and Agricultural Organisation
Financial Internal Rate of Return
Gross Domestic Product
Government of India
Industrial Credit and Investment Corporation of India
Industrial Development Bank of India
Information & Communication Technology
International Finance Corporation
India Infrastructure Finance Corporation Limited
Japanese International Cooperation Agency
Model Concession Agreement
Ministry of Environment & Forest
Non-Governmental Organization
Nitrogen Dioxide
National Highway
National Highway Authority of India
New Okhla Industrial Development Authority
Nhava Sheva International Container Terminal
Operations & Management/Maintenance
Public Private Partnerships
Panchayati Raj Institutions
Provision of Urban Amenities in Rural Areas
Relief & Rehabilitation
Request for Proposal
Sulphur Dioxide
Request for Qualification
Special Purpose Vehicle
State Support Agreement
Tariff Authority for Major Ports
Terms of Reference
United Kingdom
Urban Local Bodies
VIII | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
UMPP
UNEP
USA
USD
VGF
WUA
WFSL
Ultra Mega Power Projects

United Nations Environment Programme
United States of America
United States Dollar
Viability Gap Funding
Water Users Association
Western Freeway Sea Link
IX | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
List of Exhibits
Page
Exhibit 1.1:
Growth Drivers and Bottlenecks of the Indian Economy
Exhibit 2.1:
Types of Private Sector Participation
Exhibit 2.2:
Comparative Analysis of Features of Different PPP Definitions
11
Exhibit 2.3:
Comparison of Costs, Risks, Returns and Incentives of Different

Stakeholders
12
Exhibit.2.4:
State-Wise PPP Intensity
13
Exhibit 3.1:
Seven Success Factors for PPP Projects
15
Exhibit 3.2:
Foreign Participation in PPP Projects in India
23
Exhibit 3.3:
Allocation of Risk and Mitigation Measures in PPP Projects
33
Exhibit 3.4:
Status of Provision of Basic Amenities to Public in India
37
Exhibit 3.5:
Taxonomy of Provision of Public Services
38
Exhibit 3.6:
Environmental Acts by MoEF
40
Exhibit 3.7:
Impact of Development of Different Infrastructure Projects on

Environment
41
List of Figures
Fig. 1.1:
Trend GDP Growth Rates of Select Developing Countries and

the World
Fig. 1.2:
Projected Trend Growth Rates in Key Economies
Fig. 1.3:
Human Development Index (Trends from 1980 to Present)
Fig. 1.4:
Annual Number of Mobile Subscriptions (In thousands)
Fig. 1.5:
Annual Air Passenger Traffic in India (In thousands)
th
th
Fig. 1.6:
Infrastructure Spending during the 11 and 12 Plan Period
Fig. 2.1:
Sector-wise PPP Maturity Number of Projects
12
Fig. 3.1:
Debt Requirement for the 11th Plan Period
29
Fig. 3.2:
Regionwise CO2 Emissions by Power Sector in India

(In million tonnes)
43
X|P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
List of Boxes
Page
Box 3.1
Mumbai & Delhi International Airport
17
Box 3.2
Nhava Sheva International Container Terminal
21
Box 3.3
Vizhinjam International Container Terminal
24
Box 3.4
Mundra Ultra Mega Power Project
26
Box 3.5
Delhi Noida Toll Bridge (DND Flyway)
28
Box 3.6
Byrraju 4P Model of Drinking Water Supply
39
Box 3.7
Navi Mumbai Airport
42
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XII | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
Foreword
The approach paper to the Twelfth Five Year plan clearly spells out the enlargement in the role
of Public Private Partnerships (PPP) in development. Until the end of the Eleventh Plan, these
initiatives had been focused on building infrastructure, on the argument that private sector
management, expertise and project development skills could be leveraged through Government
concessions to achieve a more rapid development of infrastructure. The results have been
mixed, yet the experience gained has given sufficient confidence to move the concept to the
social sectors as well. This is being attempted in the Twelfth Plan. There are two reasons for
this. First, there is genuine apprehension that public expenditure for capital works will be
constrained by the state of finances at the centre as well as the states. Second, in areas like water
supply, education and health, the private sector is already playing an important role, although
entirely for commercial benefits. It therefore appears relevant to merge the twin reasons of
need and availability into a national programme of using PPPs for enlarging the pace of
development in the social sectors.
However, the social sectors are not easily amenable to standardisation in terms of financing,
execution and revenue recovery. The current paper is part of a project to develop some
guidelines for implementing PPPs in three selected sectorswater, waste management and skill
development. This paper is an analysis of the experience in infrastructure sectors, to draw
lessons and to develop suggestions for the social sectors. The outputs would feed into further
work on development of feasible models for the selected sectors.
This is the output of painstaking and diligent research work, interviews and analysis, by the
team consisting of Arslan, Deepa, Ankit and Saloni of the Public Policy team at Athena.
Dr. S. Narayan, IAS (retd.)

President, Athena Infonomics
Former Finance Secretary, Govt. of India
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XIV | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
Preface
This report is the outcome of a six-month-long research activity undertaken by the Public
Policy Team at Athena Infonomics, supported by the British High Commission. This
represents the first phase of a larger research plan with the objective of identifying bottlenecks
in the Public Private Partnerships (PPP) implemented across social sectors and arriving at
policy recommendations to catalyze activities that can create social impact.
India now stands at a major crossroad in its journey towards economic and social development.
The last two decades of economic liberalization has resulted in improved infrastructure,
standard of living and social indicators. However, these gains are heavily distorted. PPPs have
now become the preferred mode of investment especially in infrastructure, which is one of the
primary requirements of our economy. This report analyzes the public private partnerships
undertaken in four commercial infrastructure sectors, i.e., roads, airports, ports and power, to
draw out 7 key factors for a successful PPP project.
Methodology
We began with an extensive review of existing literature on issues and experiences of PPPs at
both national and international level. We also collected data on several national PPP projects in
the commercial infrastructure sectors. From this, our team identified 40 projects for further
analysis. In order to conduct an in-depth investigation, key features of the PPP were identified
Next, the different stakeholders and their respective roles and responsibilities, incentives, costs,
risks and returns were mapped out.
Brief case studies were created for eight PPP projects, two each in road, airport, ports and
power sectors. A Round Table discussion on issues and challenges faced by PPPs was
conducted on 10th November, 2011 at Chennai, Tamil Nadu which was attended by twenty-five
experienced stakeholders and experts. The meeting included financiers, developers, consultants,
bureaucrats and academicians. Issues that occur while executing PPP projects were discussed
and possible solutions were identified.
Our team handed out questionnaires to the Round Table participants and other experts and we
received 25 detailed responses. In order to get a detailed perspective on the issues involved in
PPP projects, several expert interviews were conducted. This report documents the outcome of
the above mentioned activities that we have used to create a framework for identifying the
formulae for a successful PPP project.
Public Policy Team

Arslan Aziz
Deepa Karthykeyan
Ankit Kumar Chatri
Saloni Ketan Shah
XV | P u b l i c P r i v a t e P a r t n e r s h i p s : L e s s o n s f r o m E x p e r i e n c e s
Acknowledgements
This report would not have been possible without the cooperation of the experts and
practitioners of the various Public Private Partnerships in India. Their willingness to share their
experiences and opinions has helped us ground this report in practical insights.
In particular we would like to thank Mr. V. Ravichandar, Chairman, Feedback Consulting; Mr.
B.S. Sudhanvan, Vice President -Technical Services, GVK Power & Infrastructure Ltd.; Mr. R.
Raghuttama Rao, Managing Director, ICRA Management Consulting Services Ltd.; Mr.
Karthikeyan T.V., Vice President-Development Projects, Larsen & Toubro Ltd.; Dr. G.
Raghuram, Indian Railways Chair Professor, IIM Ahmedabad; Mr. B.S. Chakravarthy,
Executive Director, Capital Fortunes Private Ltd.; Mr. Prashant Gupta, Associate Vice
President Transaction Advisory Services, E&Y; Mr. Harsh Agarwal, Executive Director,
Morgan Stanley; Mr. Anumolu Rajasekhar, Executive Director, International Infrastructure
Consultants Ltd.; Mr. Madhu Krishnamoorthy, General Manager, Water Health India; Mr.,
Arvind Sagar, President- Corporate Initiatives and Planning, Marg Ltd.; Mr. R. Narayan,
Regional Head Investment Banking, HDFC Bank; Ms. Thangam S., Chairperson, NTADCL;
Mr. Selvaraj, Former Chairperson, Madras Port Trust; Mr. K. Rajivan, Former Chairperson
TNUDF; and Commodore R. S. Vasan, Head - Strategy & Security Studies, Centre for Asia
Studies.
We thank our Director, Dr. S. Narayan for his constant advice and support in our work. We
would also like to thank our advisors, Mr. S. Parthasarathy, former Director ICRISAT, Ms.
Revathy Ashok, CEO and Founder, Iris Consulting, and Dr. A. Mahalingam, Assistant
Professor, Department of Civil Engineering, IIT Madras for their guidance.
We would also like to thank the British High Commission for their financial support for
carrying out this study. In particular we thank Ms. Aarti Kapoor, Programme Manager, BHC,
New Delhi for her constant encouragement and guidance during the project.
XVI | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Executive Summary
Section I: Need for Private Sector
Participation in creation of public
assets and provision of public services.
Rapid economic growth
High and sustained pace of economic
growth is estimated for the foreseeable
future. Key drivers of economic growth
would be strong demand fuelled by a young
demography with rising incomes. Supply
side
constraints
like
inadequate
infrastructure, governance and slow pace of
economic reforms are critical bottlenecks.
performance linked returns, (iv) asset

transfer back to government, (v) public
nature of service, (vi) partnership tenure
and (vii) outcome specifications.
Analyzing Public Private Partnerships
Comparison of costs, risks and returns of
different stakeholders in a PPP reveals a
complex web of interactions and incentives
that must be carefully managed to ensure
smooth coordination and functioning of
the project. Risks must be allocated to the
stakeholder who is best able to manage that
particular risk and returns must be
commensurate with the investment and risk
undertaken by the stakeholder.
Inclusion
Poverty alleviation and provision of basic
services to the poor remain high on the
governments agenda. India has a dismal
position in most human development and
quality of life indicators. Progress on social
indicators has been poor. Private sector
participation to address the issues of access,
efficiency and quality are essential.
To meet the dual objectives of fast and
inclusive growth, investments of USD 1
trillion in infrastructure are envisaged
in the 12th five year plan.
Section II: Public Private Partnerships

are an important mechanism to
facilitate private sector investment.
Different models of Private Sector
Participation
Several different models of private sector
participation are possible for the provision
of public infrastructure. It is important to
understand the specifics of PPP
arrangements in the Indian context in
comparison with global practices. Features
of PPP that distinguish it from other forms
of private sector participation are (i) private
sector investment, (ii) risk sharing, (iii)
Section III: Seven key success factors

for
effective
Public
Private
Partnerships.
Seven key success factors have emerged for
the effective functioning of a PPP project.
1. Strong public sector capacity to
identify, structure and monitor PPP
projects.
This would include - a mature rationale
that focuses on private sector bringing in
efficiency rather than implementing a
project through PPP simply because of a
lack of public funds; sustained and strong
political and bureaucratic commitment;
clarity of role and coordination between
different government authorities; technical
competence for project identification,
enlisting appropriate consultants and
experts to conduct techno-economic
feasibility studies and manage the bidding
process efficiently, monitor progress and
settle disputes; and consensus building
across users, affected communities and civil
society.
XVII | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
2. Private sector capacity

For private sector developers, technical
competence and financial ability to design,
construct and operate projects is essential.
Efficiency of operations, commitment to
take the project to its completion and
ensuring adequate service delivery, focus
on innovation and consensus building to
partner with government and NGOs to
enable buy-in from different stakeholders
are other requirements.
For technical consultants, technical
competence to structure PPP projects
efficiently is the most important
requirement. Objectivity of the evaluation
committees and alignment of incentives
to include consultants as partners in the
eventual success of the projects are also
essential.
3. Community participation
Panchayats and Urban Local Bodies
(ULBs) must be involved in the planning
and budgeting of the projects, while public
opinion must be sought for identifying
models and appropriate service standards.1
Adequate compensation must be provided
to project affected people and end-users
must be consulted before setting user
tariffs.
4. Financing & Commercial viability
Availability of adequate equity and long
term debt to finance infrastructure projects
is an essential requirement. Commercial
viability of different sectors varies, and the
governments budgetary support must be
commensurate to the commercial viability
of the sector.
Panchayats refer to a system of governance

prevalent in rural India since ancient times. The
73rd Constitutional Amendment Act, 1992
conferred constitutional status to Panchayats.
It is the third tier of government below the
state government.
1
5. Risk sharing
The long gestation period of infrastructure
projects makes management of risks
especially
challenging.
Exhaustive
identification of risks throughout the
project lifecycle, allocation to appropriate
entity, pricing of risks and mitigation
mechanisms are necessary.
6. Social inclusion
Universal access to drinking water,
sanitation, primary education & public
health that is affordable to people of all
economic strata is necessary. While this is
less of a concern for commercial
infrastructure projects, past experiences
have emphasized the importance of
incorporating social inclusion in a projects
planning and implementation especially for
projects in the social sector.
7. Sustainability
While provision of adequate infrastructure
is essential, it is also important that this
provision is done in a sustainable manner,
without compromising the environment for
the current population or future
generations.
Section IV: Conclusion and Next

Steps.
While evidence of the success of PPPs is
mixed, they still have the potential to play
an important role in delivering much
needed public infrastructure and services.
Realised results vary from potential due to
structural and institutional inefficiencies
that need to be addressed. Potential of PPP
in addressing the issues of access, quality
and equity for social services needs to be
evaluated.
1|A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s

Section I
Need for Private Sector Participation in the Creation
of Public Assets and Provision of Public Services
India embarked upon major economic reforms in 1991 following the balance-of-payments
crisis that was the result of decades of Protectionism, License Raj, Import Substitution, State
intervention and Central Planning. The solution adopted for the balance-of-payment crisis was
to start a long-term process of fundamentally restructuring the economy, i.e. opening sectors
for international trade and investment, deregulation, initiating privatization, tax reforms and
inflation-controlling measures.
Rapid Economic Growth

As a consequence of the economic reforms, India witnessed a period of sustained economic
growth. Since the turn of the century, Indias GDP growth rate has been varying between 6.5 to
8.5 %, consistently outpacing the world average, and thus elevating itself to the 9th position in
terms of absolute GDP and 4th position in Purchasing Power Parity terms.
Fig. 1.1: Trend GDP Growth Rates of Select Developing Countries and the World
16
14
12
10
8
6
4
2
0
-2
-4
2000
2001
2002
2003
India
2004
Brazil
2005
2006
China
2007
2008
2009
2010
World
Source: GDP growth (annual %) from 2000 to 2010, World Bank national Accounts data, and OECD National Accounts data files,
World Development Indicators, World Bank Data, World Bank.
The targeted GDP growth for the Eleventh Plan (2007-08 to 2010-11) was 9 %, but in the first
four years of the Eleventh Plan, the GDP growth averaged 8.2 %. This drop in the expected
growth has been explained as the impact of the global recession in 2009. However, compared
to other countries, the impact of the recession was much lower in India. This suggests that
Indias GDP growth is fuelled by the domestic consumption of a large and growing workforce
and one of lowest dependency rates in the world.2
This growth is expected to continue for the next couple of decades if backed by strong
macroeconomic fundamentals. Continued economic reforms, development of a dynamic
private sector and development of skills for the young and growing population are other factors
2
The Government of India aims to reduce dependency ratio to 0.59 by 2011, from 0.73 in 2001. Please
refer
to
http://www.financialexpress.com/news/lower-dependency-ratio-more-jobs-for-one-andall/278352/ for further details.
that would ensure this trend growth. According to studies conducted by experts, India is stated
to be the worlds 3rd largest economy by 2025.3
Fig. 1.2: Projected Trend Growth Rates in Key Economies
2049
2047
2045
2043
2041
2039
2037
2035
2033
2031
2029
2027
2025
2023
2021
2019
2017
2015
2013
2011
2009
2007
% Real GDP Growth
India
China
Brazil
Russia
US
UK
Japan
Source: Hawksworth, John &Gordon Cookson, Fig. 3- Projected Trend Growth Rates in Key Economies, P. 10, The World in
2050 Beyond the BRICs: a broader look at emerging market growth prospects
Exhibit 1.1: Growth Drivers and Bottlenecks of the Indian Economy

Growth Drivers
- Strong Macroeconomic Fundamentals
- Impact of economic reforms
- Growth of a vibrant private sector
- Development of human resources
Bottlenecks
- Availability of energy
- Slow improvement of farm output
- Lack of sufficient infrastructure for industry and public
- Land acquisiton difficulties for infrastructure and industry
- Lack of governance, transparency and political will
Inclusive Growth
While performance in terms of the pace of growth has been satisfactory in the last decade, it
has been weak at best in terms of inclusiveness. The difficulty begins with defining
inclusiveness itself. Inclusiveness has many components and it is hard to have a single number
Please see, http://articles.economictimes.indiatimes.com/2011-08-22/news/29915163_1_gdp-largesteconomy-growth-target.
3
that measures it. At the very least, it consists of the alleviation of poverty, access to adequate
healthcare and education, employment opportunities and access to basic amenities like
electricity, water, sanitation and housing. Other dimensions of inclusiveness would include
socio-economic integration of historically deprived castes and communities with the
mainstream, gender equality for women and respect for rights of children, senior citizens and
the differently-abled.
Comparing Indias performance on the Human Development Index4 (HDI) demonstrates two
features the size of the gap between Indias score and the world average, and the persistence
of this gap. India has made little progress in catching up with the rest of the world in terms of
human development.
Fig.1.3: Human Development Index (Trends from 1980 to Present)
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011
India
Medium human development
World
Source: HDI Report, UNDP (2011)
There are several factors responsible for the continued poor performance of India in the
human development indicators. One of the main reasons would be the inherent beliefs,
customs and cultural traditions of the people that have evolved and survived through centuries
and hence are usually resistant to modernity or else take a long time to change. It is sometimes
uncertain whether the amount of money spent by the government on creating social
programmes, schemes and initiatives for levelling the playing field for all citizens, irrespective of
caste, gender and socio-economic status really brings about the expected changes in the society.
Yet there are other aspects of inclusiveness that are more easily addressable and amenable to
change, such as creation of social infrastructure to provide access to electricity, water,
sanitation, healthcare and education. However, even these services have seen a great level of
disparity - with the economically well-off sections of the society having more access to such
amenities while people at the base of the economic pyramid struggle to survive without these
basic necessities. For example, while private schools and hospitals provide excellent services to
4
HDI is a composite index that measures average achievement by an individual in three basic dimensions
of human development a long and healthy life, knowledge, and a decent standard of living. See, HDI
Report 2011, UNDP, for further details.
those who are able to pay for them, the government-run schools and hospitals, upon which a
very large section of the population depend, are characterized by rampant absenteeism and lack
of accountability.
Role for Private Sector

The argument against the participation of private sector in providing basic services such as
water, sanitation, healthcare and education is that they would charge high prices for such
services because they are profit-driven. This would make them unaffordable to a large segment
of the population.
Experience, however, has been different in some cases, e.g., opening up the aviation and
telecom sector to the private sector. Earlier, both airlines and telecom were state monopolies
and were characterized by limited capacity, poor services and high prices.
But with the entry of private sector operators, there has been an unprecedented growth in
mobile coverage and penetration across economic and geographic strata. Competition within
private sector operators for price sensitive customers has resulted in cost efficiencies being
created and passed on to customers with the result that India has one of the lowest call rates in
the world.
Fig. 1.4: Annual Number of Mobile Subscriptions (In thousands)

6,00,000
5,00,000
4,00,000
3,00,000
2,00,000
1,00,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Number of Mobile Subscriptions from 2000 to 2009, International Telecommunication Union,
World Telecommunication/ICT Development Report and database, World Development Indicators,
World Bank Data, The World Bank.
The aviation sector has seen a similar growth in reach and increase in affordability. Domestic
carriers have multiplied and witnessed competition for attracting customers by offering better
services and cheaper fares.
Fig. 1.5: Annual Air Passenger Traffic in India (in Thousands)5
60,000
50,000
40,000
30,000
20,000
10,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Air Transport (Passengers Carried) from 2000 to 2009, Civil Aviation Statistics of the world and ICAO staff
estimates, World Development Indicators, World Bank Data, The World Bank.
The cases of the telecom and aviation sector clearly illustrate that contrary to popular
perception, the private sector can deliver substantial improvement in reach, affordability and
quality of service if they are properly organized. Yet there are caveats to expecting such
performance in the delivery of public services. Both telecom and aviation are characterized by a
high degree of competition and low switching costs for the consumers. Also, the nature of
competition for providing public services is substantially different. Competition can occur
amongst various private developers for winning different projects by offering services at the
lowest cost, but once a project is won, the private developer has a monopoly over the public
asset for the duration of the concession period.
Need for Private Sector Investment
The government has recognized the importance of private sector investment in infrastructure
and social sectors. This is reflected in two significant changes in the 12th Five Year Plan from
the 11th Five Year Plan (i) the total outlay for infrastructure in the 12th Five Year Plan is twice
that of the outlay in the 11th Five Year Plan, and (ii) the percentage share of private sector
investment is expected to grow to 50 % in the 12th Plan compared to 30 % in the 11th Plan.
Air Passengers carried include both domestic and international aircraft passengers of air carriers
registered in the country.
5
Fig. 1.6: Infrastructure Spending during 11th and 12th Plan Period
11th plan
INR Lakh Crore
Sector-wise breakup
Gas
20.6
Telecommunications
7.7
6.7
Total
Central
State
6.2
Private
.
Power
Airport 956,510
Ports
666,525
Roads
Water,
Sanitation &
Irrigation
Railways
12th plan
INR Lakh Crore
Sector-wise breakup
Gas
42.7
12
9.7
21
Power
Telecommunication
2,265,307
Airport
Total
Central
State
Private
Ports
Water, Sanitation & Irrigation
1,289,946
Roads
Railways
Source: 11th Five Year Plan and Draft 12th Five Year Plan documents, Planning Commission, GOI.
There is, thus, a growing acceptance of the need for private sector participation in
infrastructure and social sectors. In the next section of the report, we will discuss the features
and advantages of PPP that makes them an attractive mode for private sector participation.
Section II
Public Private Partnerships : A Crucial
Mechanism to Aid Private Sector investment
Different models of PPP
Private sector participation in public services can take many forms. Each form differs in the
degree of responsibilities shared by the private and the public sector. They vary from service
contracts where the private operator is assured of a fixed payment on providing a service, to
full-fledged divestitures where erstwhile public sector companies have been privatized.
Some of the many parameters on which such modes of participation vary are design, build,
finance, own, operate and tenure. In Exhibit 2.1, we plot the different models of private sector
participation on two parameters ownership and operation between public and private sector.
Exhibit 2.1: Types of Private Sector Participation
Public Private Partnerships Features: Comparison with Global Practices

A survey of different definitions and policies regarding PPP shows that although there are
several common features in most of the definitions, some of them are customized to fit certain
constraints and objectives of the entity formulating the definition. In this section, we have listed
seven features of the Indian definition of PPP drawing attention to the particular nuances that
are distinct or receive special attention in policy documents. At the end of the section, we have
compared the emphasis on these seven features in other international definitions of PPP.
10 | A n a l y s i s o f P P P s i n I n d i a : L e s s o n s f o r S o c i a l S e c t o r s
Private Sector Investment

The most compelling feature of PPP is its potential to mobilize private capital to overcome the
shortage of public funds and meet the investment needs in commercial infrastructure and social
sectors. The Indian definition, however, does not require that the private sector investment be
necessarily financial. Non-financial investments, through management expertise or intellectual
property are also viewed as investments, and hence fall within the ambit of PPPs. This opens
up a range of PPP modes, with varying degrees of private sector participation, and this
flexibility makes PPPs applicable and viable for a variety of sectors.
For example, providing drinking water supply to the poor, either urban or rural, is not a
commercially viable scheme, if the cost of sourcing, treating and distributing water, are to be
recovered from the public. Instead, in such cases, a PPP annuity model can be implemented,
where the government selects and transfers this responsibility of providing drinking water to a
private operator at a free or subsidized rate. The government then provides the operator a fixed
annual payment for this service. The private operator uses his own resources financial,
managerial, technical and human - which can be viewed as investments, to provide water.
Risk Sharing
Transfer of risk to the private sector is another important feature of PPPs that makes it
attractive for public sector entities. Yet, the focus should be on risk sharing instead of
transferring risk, with risks being allocated to the entity best able to manage or mitigate that
risk. While policies and definitions emphasize the importance of efficient and effective risk
sharing, the gap between these policies and its implementation remains particularly large.
Effective risk sharing is one of the factors for the success of a PPP project. This aspect is
covered in detail in the next chapter.
Performance-Linked Returns
The difference between a service being contracted out to a private contractor and a PPP is the
aspect of performance-linked returns in PPPs. A fixed service contract prevents the private
contractor from exceeding the minimum performance benchmarks specified in the contract.
On the other hand, a contract that links returns to performance incentivizes the private
contractor to exceed minimum benchmarks and get rewarded for additional value generated.
Transfer of Asset Back to the Government

A PPP project is characterized by a fixed tenure for which the rights to develop a particular
public asset and provide public services are assigned to a private developer. At the end of this
tenure, known as the concession period, the private developer must necessarily transfer the
ownership of the asset back to the public sector entity.
The length of the concession period is a parameter that is usually prescribed by the project
sponsoring authority, and is usually range-bound for a particular sector. For example, longer
concession periods are typical of assets that have a long life e.g., roads, so that the recovery of
the project costs can be spread over a longer period.
Public Nature of Service

PPPs are typically limited to sectors and services that are defined as public goods. In the Indian
context, goods and services that have traditionally been supplied by the government, or are
expected to be supplied by the government, are included within the ambit of PPPs. However,
there have been experiences of public sector support in the creation of assets and provision for
services that are primarily for private use examples include captive power plants, IT parks and
tourism projects that are owned and operated by private companies.
Exhibit 2.2: Comparative Analysis of Features of Different PPP Definitions
Source: Compiled from Approach Paper on Defining Public Private Partnerships- Discussion Note,
MoF, DEA, GOI, (2010), Promoting Infrastructure Development through PPPs: A Compendium of
State Initiatives, MoF, DEA, GOI.
Analyzing Public Private Partnerships

An important issue in PPPs is the multitude of stakeholders with often differing incentives that
need to collaborate and coordinate their actions to ensure the success of the project. A lack of
commitment, absence of clarity of role or a lack of technical competence of any one of the
stakeholders can jeopardize the project, and adversely affect all the other stakeholders.
The government, while being a partner in the project, must play a more central role than the
other stakeholders. This additional burden of duty falls on the government due to the fact that
the responsibility of providing public goods resides traditionally with the government. It is the
governments duty to ensure that if this responsibility is shared with other agents then the
outcomes achieved should be beneficial for the public. The government also has the ability to
regulate and govern the other stakeholders by its law-making authority.
Exhibit 2.3: Comparison of Costs, Risks, Returns and Incentives of Different Stakeholders
Public Sector
Lenders
Cost Incurred
Return/Benefit
Project Identif ication

Monitoring
Fulf ilment of mandate

to provide public
inf rastructure
Risk Borne
Cost Incurred
Return/Benefit
Cost of capital
Opportunity Cost
Financial viability risk

Currency Risk?
Asset liability tenure
mismatch
VGF
Risk
Debt Protection
Political Risk?
Regulatory Risk?
Residual Asset value
risk
Tax
Debt
Public/User
Tax
User charges
Displacement
Return/Benefit
Cost Incurred
Return/Benefit
Risk Borne
Repayments
Private developer
Cost Incurred
Return on investment
Environmental/ social
impact
Exclusion
Usage of quality
inf rastructure
Time and cost savings
Employment
opportunities
Improved living
standard
Access
User charges
Opportunity cost of
investment
Debt repayments
Technical & human
resources
Risk Borne
Return on investment
Increased technical
competence
Enhanced brand equity
Financial risk
Development risk
Operation risk
Technology risk
Non-political force majeure
risk
Current Status of Public Private Partnerships

India has seen varied traction in developing projects through PPP modes. In some sectors, such
as roads, PPPs have been established as the preferred mode of development, and several
projects are in the pipeline.
Fig. 2.1: Sector-Wise PPP Maturity Number of Projects
Source: Compiled from data available in Status of implementation of PPP projects in India as of July
2011.
Geographically too, there has been a wide disparity between PPP investments. Mapping the
PPP Investment Per Capita (which measures the PPP intensity), shows that the southern and
western regions have greater investments in PPPs. North eastern states of India have low PPP
intensity, although Sikkim is an exception due to the existence of a large number of micro-hydel
power projects.
Low-income states have a PPP investment per capita of ` 3,907 which is almost half of the
average for the rest of India.
Exhibit 2.4: State-Wise PPP Intensity
Source: Compiled from data available in Status of implementation of PPP projects in India as of July
2011.
This disparity among PPP investments is due to several factors that are required for successful
development of projects in the PPP mode. In the next section, we have listed seven key success
factors of successful PPP projects.
Section III
Seven Success Factors For Effective PPPs
Even though we have established that the private sector participation in commercial and social
infrastructure is necessary and that the PPPs are an important mechanism of structuring such
participation, it is essential to recognize that PPPs are not the only solution for Indias
infrastructure woes. The responsibility of providing infrastructure lies primarily with the
government and PPPs must not be viewed as a mechanism for transferring that responsibility
to the private sector.
PPPs, by their very nature, involve cooperation and coordination among several entities whose
interests and objectives often diverge. PPP projects themselves are highly challenging as they
include long gestation period and project life with numerous risks involved that keep changing
over the projects lifecycle. PPPs also involve multiple dependencies across stakeholders and
uncertainty in forecasting demand, which makes the management and execution of a successful
PPP project very demanding.
A committed government, an informed and active community and a competent private sector
with financial and managerial capability are the primary ingredients for a successful partnership
program. Availability of long-term funds, exhaustive identification and optimal allocation of
risks and appropriate pricing are essential for smooth coordination amongst stakeholders.
Finally, the social and environmental impact of the project must be carefully managed.
The key success factors identified and presented in this section are categorized into three types:
1. Stakeholders Roles responsibilities, competencies and commitment of the public
sector, private sector, financiers, consultants, end-users, community and civil society.
2. Interaction financing, revenue generation and risk-sharing among stakeholders.
3. Project Impact social inclusion and environmental sustainability.
Exhibit 3.1: Seven Success Factors for PPP Projects
1. Strong Public Sector Capacity and Commitment to Identifying, Structuring

and Governing of PPP Projects
The responsibility of providing public infrastructure and services is entrusted primarily to the
government. With the emergence of a strong and vibrant private sector over the past two
decades, there is a need for a strategic shift in the role of the government in implementing PPP
projects. Instead of being driven by financial constraints, the government should position itself
as a partner as well as an overseer of the activities being undertaken. For such a role, the
government needs to strengthen its governance capabilities which include accurate
identification, proper structuring and vigilant monitoring of the projects.
We have listed out five features that characterize strong public sector capacity:
(i) Mature Rationale
The initial need for implementing PPPs was due to the lack of public funds for investment in
infrastructure. PPPs presented an attractive, and in many cases, the only route for raising
money for public infrastructure. External support was given by funds received from multilateral
agencies that were conditional on the involvement of private sector through a partnership
model. Since then, commercial infrastructure sectors have matured considerably. Though the
main reason for implementing PPPs is still the shortage of public funds, there is now an
additional motive, which is to enhance the quality being delivered through implementing a
project through the PPP mode. This is also to gain a footing among policy makers and
bureaucrats. A focus on efficiency, quality of service and appropriate allocation of risk can
deliver value for money.
Private sector participation, however, is more expensive compared to the governments as
government can raise funds from markets at a lower cost compared to private sector due to the
absence of any associated risk with governments borrowings. This means that the higher cost
of private sector participation must be compensated by harnessing the operational and
managerial efficiency of the private sector in order to improve the quality of the product or
service created for the public.
The inclusive growth objective of the government calls for providing quality services to the
most economically and socially deprived sections of the country. Social sectors, like water
supply and sanitation, public health, solid waste management, and education are plagued by
poor infrastructure facilities and services.6 PPPs can be harnessed to improve access and quality
of basic amenities and other services. It must nevertheless be noted that the involvement of
PPPs in the social sector is still at a nascent stage.7
Implementing projects in the PPP mode for social sectors must be done for two reasons first
to provide widespread access and second, to improving the quality of services. Given the
essential nature of these services and the vast discrepancies in the purchasing power of different
The country faces a shortage of around 2,433 doctors of 23,673 required for total; 6148 positions were
lying vacant as on 31st March, 2010. Please see State-wise Number of Allopathic Doctors at Primary
Health Centres (PHCs) in India, Ministry of Health & Family Welfare, GOI, (2010). The teacher-student
ratio in lower primary schools and middle schools was 42 and 34 respectively in 2005. Please see Access
to Elementary Education in India: Country analytical Review, R. Govinda et al. NUEPA, (2008).
7 As on 31st July, 2011, only 17 and 8 projects were awarded on PPP mode in education and health care,
respectively with a combined total project cost of ` 3,683 crore. See PPP Projects Status Report, on
PPPs in India, DEA, Ministry of Finance, GoI, 2011.
6
socio-economic segments, it is essential that the government play a more prominent role in
financing these projects through budgetary support8. The current expenditure of these services
is expected to increase significantly in the forthcoming period of the 12th plan. As discussed
before, PPPs should be seen as a mechanism to increase the efficiency and effectiveness of this
expenditure by leveraging private sectors technical and managerial expertise.9
Box 3.1 Mumbai & Delhi International Airport
July - AAI
Amendment Bill for
modernisation of
Airports was
passed
Dec Appointment
of ABN Amro as a
Financial Consultant
2003
Sep .Approval by
GoI for a Joint
Venture to be
formed
June 4th as the last

submission date for EoI
On 15th, the new Govt made policy
changes (FDI of 49% within 74%)
Appointment of Global Transaction
Advisor, Legal Consultant and
Accounts & Tax Advisor
June
Final Bids
to be
submitted
2004
Feb
Invitation to
register for
Expression of
Interest (EoI)
Jul yExtended
dates of
submission
Sept
Bid Date
extended
Dec. Revised Evaluation

Constitution of
Committee of
Secretaries and Group
of Eminent Technical
Experts (GETE)
2005
April Request for
Proposal and
Transaction
Documents issued to
Pre-Qualified Bidders
Aug
Transaction
Documents
finalised
Feb Allegations
against AAI and
Union of India by
Reliance Airport
Developers Pvt
Ltd.
2006
Nov - Evaluation
Committee
reported the Planning Commission
Jan
Submission
of reports by
GETE
Privatisation and modernization of the Mumbai and Delhi International Airports was being
discussed by the government since 1996. In 2003, Airport Authority of India finally agreed
to modernize them, following which the bidding process was initiated. This project is one
of the initial steps undertaken by the government towards the privatisation of the airport
sector. Earlier the Cochin International Airport was developed in 1991. However, in the
case of Delhi and Mumbai, the lack of experience in this sector resulted in issues during the
bidding phase. A greater emphasis was laid on the financial parameters of the bidders
instead of the technical expertise.
Moreover, the RFP and other bid documents were not clear on several aspects. This
resulted in multiple pre-bid meetings, though carrying out several meetings with bidder is
helpful as it reduces occurrence of disputes in future like the different interpretation of
legal terms by contracting parties. Further, bias of the Evaluation Committee towards
some private sector companies was also reported in the media. However, some curative
measures were taken later, and a model RFP was provided and procedures for selection of
Evaluation Committee were undertaken.
(ii) Sustained Political and Bureaucratic Commitment

Infrastructure projects are complex owing to the long project life and different kinds of risks
involved in the different phases of a project. Even the period from the announcement of a
project to its approval can take several months. It has been observed that any political regime
change can cause severe delays or even termination of projects. Hence, a sustained commitment
from the government is necessary to ensure that the projects are not put at risk due to the
difference in political ideologies of different ruling parties. The Airport Authority of India
(AAI) board approved the modernization of Delhi International Airport in 2003, but change in
the Central government delayed the implementation of this project as the Empowered Group
of Ministers (EGoM) was reconstituted in 2004. The project was finally approved only in 2006.
See Box 3.1.
The draft National PPP Policy, 2011 states that annuity models would be undertaken in social sectors.
Please see p.6 of the Draft National PPP Policy, 2011, DEA, Ministry of Finance, GoI.
9 Please see, http://www.thehindu.com/opinion/Readers-Editor/article2311139.ece
8
Infrastructure should be built based on a robust and well-planned vision document. This will
help to adopt a coherent and comprehensive action plan for the integrated development of
infrastructure across all sectors. Gujarat has a vision documents titled Big 2020 which attempts
to put together a comprehensive view of programmes and projects which are aimed to raise the
state to a new level of development. The document goes beyond the five year planning process
and links individual projects of each department into an integrated program for the state. It also
schedules projects in line with the states priorities.10 If such vision documents could be
prepared for each state and for the centre, it could help in creating an infrastructure agenda for
the entire country that is to some extent predictable by the stakeholders.
Several state governments and the central government have been putting appropriate
institutional and regulatory framework towards this end. The draft National PPP Policy aims to
create a comprehensive framework for formalizing PPPs as the preferred form in sectors like
roads, airports, power, etc. where such partnerships have earlier been successful.
At the state level, varying degrees of commitment towards PPPs can be observed. The disparity
in the presence of PPP policy/guidelines, financial support to PPP projects by governments
and in the presence of operational PPP projects in different states show the different levels of
commitment that the different state governments have towards PPPs.
Some states, like Gujarat, Maharashtra and Andhra Pradesh have both PPP acts/policies and
several PPP projects that are either in the implementation or in the operational stage. A few
states like Uttar Pradesh do not have a PPP Act or Policy but still have PPP projects. Other
states like Mizoram have neither a PPP law nor a state PPP project.
Some of the delays faced while executing PPP projects include, land acquisition delays, delay in
obtaining environmental and other clearances and delays in the release of funds.11 These issues
can be solved if there is a consistent, sustained, political and bureaucratic commitment from the
government.
There has been a trend of increasing commitment from the central government towards PPPs.
This can be determined from the fact that the central government has set a progressively
increasing target of financing total infrastructure needs through private participation including
PPPs during each subsequent Five Year Plan. The 10th Plan had targeted 20 % of the
investment in infrastructure projects to be mobilized by the private sector which grew to 30 %
in the 11th Plan and 50 % in the 12th Plan.
(iii) Capability
It is necessary that the strong commitment of the government is supported by its strong
implementation capability. This should be duly reflected in its ability to identify the project, its
technical expertise to rightly structure the project, and put in place suitable governance and
monitoring mechanisms.
Please refer to Review of Blueprint for Infrastructure in Gujarat (BIG 2020) Final Report, GIDB,
(2009).
11 For example, Sasan Ultra Mega Power Project was delayed as the captive mines allotted to it were
under the MoEF No-Go zone. Similarly, progress on Navi Mumbai International Airport was delayed
as construction of an airport in Navi Mumbai was not a permissible activity under Coastal Regulation
Zone notification of 1991. Further, the construction of the airport would have resulted in a loss of 98
hectares of mangroves.
10
The projects identified should fit the countrys overall sectoral strategy and policy framework. It
is also important to identify the need for a particular project rather than identify the project itself,
especially when it involves the social sector. A large number of projects, mostly in the
commercial infrastructure sectors are identified through a top-down approach where the state
identifies projects and implements them with limited consideration of the needs and aspirations
of the people. In order to prevent this, a bottom-up approach could be adopted, where the
demand for projects comes from the people and government executes them with the
involvement of the people. For example, the people can decide if a metro rail or a fleet of highcapacity buses would be more helpful in addressing their transportation problem. A holistic
plan would be a combination of both the top-down and the bottom-up approach which could
be connected to the national/state level master plan.
In order to prevent and eliminate unplanned and impractical plans, the project identification
process should be properly structured. This could also prevent the haste in awarding projects
for political gains. A list of identified projects should be made public so that people themselves
can agree upon the kind of approach required to undertake the project. Moreover, it would also
enable the private sector to assess the potential market.
The PPP arena in the country has witnessed a mix of successful and failed projects which has
raised concerns about the usefulness of such projects. There are successful projects that could
be emulated like the Bhiwandi Electricity Distribution Franchise, Alandur Sewerage Project,
Amritsar Inter-City Bus Terminal etc. However, projects like Delhi-Noida Tollway, DelhiGurgaon Expressway, Vadodara-Halol Toll Road Yamuna Expressway, Nhava-Sheva
International Container Terminal, Gangavaram Port, Vizhinjam Port etc., encountered
problems during project preparation and development phases.12 This is primarily because the
government adopted a project-based approach towards PPPs. The lack of planning and
integration of the project plan with the regional plan and other plans have resulted in a mixture
of both successful and failed projects. It is always good to look at the big picture and formulate
projects using a programmatic approach. For instance, power generation projects often face
operational delays because of delays in supplying the required transmission and distribution
mechanisms or establishment of appropriate fuel linkages. Another example would be the
Bangalore International Airport where the road connecting Bangalore city to the airport was
not ready even though the airport was ready for operations.
Poor structuring of a project is one of the primary reasons for its failure. The current method
of structuring projects is based on the preparation of a Detailed Project Reports (DPRs) by
consultants selected and appointed by the government. It is therefore, crucial that the
government maintains objectivity and transparency in selecting consultants who have the
required sectoral expertise. While selecting consultants it is important to see if the consultants
have a track record of successfully structuring projects. The financial bid should be of
secondary importance. In India, the project development cost is much lower compared to
global standards. In India, only 2 % of the project cost is spent on the Detailed Project Report
whereas it is around 5 % and between 6-9 % in UK and USA respectively.13 This cost should be
increased to ensure that the project does not suffer due to cost-cutting in the project structuring
phase.
See, toolkit.pppinindia.com/highways/module3-roiewp-intro.php?links=roiewp1&links1=roiewp2.
Please refer to Building India: Accelerating Infrastructure Projects, McKinsey & Company, 2009, for
further details.
12
13
Government should also be capable enough to evaluate the inputs provided by the appointed
consultants. It should have adequate technical expertise in appropriately structuring the legal
documents pertaining to the project. This would ensure that the government officials
successfully negotiate the terms of the concession agreement with their counterparts in the
private sector. Standardization of contracts at the national and state level based on international
standards would allow interpretations of the contracts in a consistent way thereby leading to
lesser occurrences of disputes. Rigorous training of government officials at all levels who are
associated with PPP projects is important.
Monitoring & Governance
For effective governance, the regulators should be empowered sufficiently. If the regulatory
authorities only have the power to determine tariff rates and no power to set and enforce
performance standards or other measures in order to protect the users interest, then their role
is limited and of little help to the society. Please refer to Box 3.2 for an illustration. Thus the
government also has the responsibility of establishing strong regulatory bodies. Though there
are regulators in the commercial infrastructure sectors, their independence is often questioned,
as the government is both the stakeholder and the regulator. There have been suggestions that
the government should not be part of the governance mechanism to prevent a conflict of
interests. In social sector projects, there is no regulatory body at the apex level. If PPPs are to
be adopted at an increasing rate in these sectors, there is a need to establish independent
regulatory bodies at the apex level to standardize the development of projects.
Proper monitoring mechanisms ensure accountability of both the private and public sector. At
present, the monitoring of projects, in many cases is entrusted to different agencies and it is not
clear what aspect of the monitoring is done by which agency. For example, in a state sponsored
project, where some component of the Viability Gap Funding (VGF) is also supported by the
central government, the monitoring is done by the PPP cell at both the central and state level.
However, the division of monitoring responsibility is not very clear to the stakeholders.
Normally, an Independent Engineer (a consultancy firm) is the monitoring authority entrusted
with the responsibility of a fair, amicable and quick settlement of disputes. The selection of an
independent engineer should also be based on a transparent and competitive process. The
responsiveness of the monitoring authority in the social sector projects is even more critical
than that in the commercial sectors. Also, wherever possible, community or civil society
representatives like the Resident Welfare Organizations or Aanchal Samities, should be
encouraged to be a part of the monitoring process.14
Aanchal Samiti also called as Intermediate Panchayat is the second tier of Panchayati Raj System in
India. Its members are elected members of the public. For further details see,
http://arunachalpradesh.nic.in/panchayat/html/pachayat.htm
14
Box 3.2 Nhava Sheva International Container Terminal
The Nhava Sheva International Container Terminal, a major container handling facility on the
western coast of India is the first private container terminal of the country. The events that
unfolded during the development of the landmark project highlighted the need for a strong
regulator. The Tariff Authority for Major Ports (TAMP) the apex body for major ports failed
to review port tariff and was not able to monitor the private consortiums revenue flow that
resulted in accrual of monopoly rents to the latter.
The private player enjoyed benefits by passing the burden to the users. TAMP was seen to be a
weak regulator as its role was restricted to setting tariffs and revising them. It was not entrusted
with the task of assessing performance of the private player and securing interests of the users.
(iv) Clarity of Role

Very often, different bodies from different levels of the government are involved in the various
stages of a project. This necessitates exact specification of the roles of the involved bodies,
especially their roles in legislative and other powers. Delays in getting regulatory approvals are
often caused due to the lack of adequate information among the departments. The construction
of the Yamuna Expressway faced substantial delays in obtaining regulatory clearances as the
three government bodies, the government of Delhi, the government of Uttar Pradesh and New
Okhla Industrial Development Authority (NOIDA), a local authority, involved in this project
lacked proper co-ordination. The Provision of Urban Amenities in Rural Areas (PURA)
program for rural development that has been re-launched during the 11th Plan also requires
effective coordination among the government bodies involved.15 This program is a converging
point for the schemes proposed by the Ministry of Rural Development, and other ministries
like the Ministry of Renewable Energy, Ministry of Panchayati Raj etc. For successful operation
of PURA, it is essential that each ministry and department is aware of its role and responsibility.
(v) Consensus Building
While there is a broad consensus on the need for PPPs in commercial infrastructure sectors, the
appropriateness of PPPs in social sectors, like water supply, solid waste management, and
public health are still a point of debate in public perception. Even if a PPP project is
implemented, it is the responsibility of the government to bring the issues involved with the
project in a public forum. Most of the projects are identified by the ministries concerned at
The PURA program was initially launched by Central Government in 2003 in 7 villages as pilot
projects.
15
both central and state level and are evaluated by an apex body constituted for the purpose.
Currently, the government starts interaction with the public only at the onset of land acquisition
process by way of issuing notices to the landowners.
It would be more appropriate if the government first interact with the users about the projects,
and dispel the doubts of the people regarding the potential loss of land and livelihood. It is
important to share the plan with the public, seek suggestions and incorporate changes if
necessary. ICT has greatly enhanced the scope of interaction between the government and the
public. Apart from reducing the time and cost of interaction, it is also user friendly. Now the
government can make increasing use of this medium to seek suggestions, feedback and
grievances from different stakeholders and take the required decisions based on this
information. A very contemporary example is of the NHAI using Facebook as a platform to
address the concerns of users by giving an opportunity for developer-user interaction. The
Planning Commission has also initiated an online forum to invite suggestions and opinions
from common people on planning priorities.
2. Private Sector Capacity

Infrastructure development in India has demonstrated the competence of the private sector
over the last two decades. Though capacity building is a continuous process, the private sector
has displayed its ability in sectors like road, airports, power and ports. Despite this, there have
been instances of failure and the underlying causes need to be addressed to prevent such cases.
The government has initiated several steps to provide a conducive environment to the private
sector in these areas. For instance, the government has adopted the competitive bidding
process to give equal opportunity to all companies in the private sector. It has also attempted to
standardize the PPP procurement framework by issuing Model Concession Agreements
(MCAs) for the commercial infrastructure sectors that serves as guidelines for sharing of
responsibilities between the government and the private sector. India Infrastructure Finance
Corporation Limited (IIFCL) has been set up to look after the financial needs of the PPP
projects.
Private sectors must convert these opportunities to benefit themselves and the users. Moreover,
their involvement in infrastructure development should not just be for the bottom-line but
should also focus on the socio-economic development of the country in a sustainable and
inclusive manner.
a)
Private Developers
i.
Technical Competence:
The scale of investment is usually very large in infrastructure projects, with returns spread over
a long horizon. The private sector should have the ability to manage the financial risks arising
out of the long gestation period of projects. At present, the competence of the private
developers varies across sectors. In the roads sector, domestic competence has been established
to an extent, but airports and ports also involve participation of foreign companies for either
technical or financial reasons. Some such examples are the Hyderabad Airport, Ganagavaram
Port and Jegurupadu Phase I Power Project.
Exhibit 3.2: Foreign Participation in PPP Projects in India
S/N
Project
Foreign Partner
Primary Reason
1.
Delhi International
Airport (P) Ltd.
Frankfurt Airport Services Worldwide

Malaysia Airport Holdings Behrad
Technical
2.
NSICT
3.
Gangavaram Port
4.
DND Flyway
P&O Australia Ports

Konsotium Perlapalan Behrad
DBC Group of Companies
Warburg Pincus (30%)
Asian Infrastructure Mezzanine
Capital Fund
Technical
Financial
Financial
Source: Compiled from various reports, case studies, and newspaper articles.
ii.
Engineering Efficiency
An increasing number of complex projects are being undertaken in the PPP mode. Apart from
the enormous budget required to execute these projects, there is also a need for sophisticated
and state-of-the-art technology. Some of the complex projects undertaken by PPP include the
Metro Rail projects, International Airports, Ultra Mega Power Projects (UMPP), etc.
Compared to the international standards, Indian private developers have weak skill set in risk
management, engineering, procurement and construction. Also, the application of value
engineering and lean construction principles is very low in India.16
iii.
Social Commitment
Commitment of the private sector towards the project is vital for establishing a reliable longterm partnership. The commitment of the developer needs to be an all-inclusive one from
efficient delivery of the project within stipulated cost and time to adequate R&R measures for
both natural and human resources. In the case of Vizhinjam Port Development project, the
private developer backed out of the project at a very late stage which led to re-starting of the
entire bidding process resulting in loss of both time and money. See Box 3.3.
16
Building India Accelerating Infrastructure Projects McKinsey & Company, 2009.
Box 3.3 Vizhinjam International Container Terminal

Aug An Indo-Chinese firm
which won the bid was denied
security clearance by Central
Govt.
2006
April Pre bid
meeting with 40
Private sector
developers.
July- Strategic
Advisor and
Technical
Consultant
appointed.
2007
Oct 18th was the last

day to submit bids.
Extended to 15th Dec.
Further extended to 31st
Jan.
June Consortium
led by Lanco won
the bid.
2008
June / July Consortium
led by Zoom Developers
challenged Govts
decision
Bidding process extended to

carry out Environmental
Impact Study .
Central Govt refused to aid
the State owned Major Port.
Lanco backs out of

the project.
2009
2010
2011
Govt considered various options :

MoU with Spanish Govt
SCI Expressed Interest
SBT to fund the project .
Vizhinjam International Seaport was a major project initiated by the Government of Kerala.
The project was important because of its strategic location and its capacity to boost India's
trade and commercial activities. The government made several efforts since 2006 to select a
suitable private developer. Despite the potential of the project, it attracted interest from only a
few bidders although bidding was undertaken three times. It was finally in 2008, that Lanco
was selected to undertake this project. However, the company later backed out of the project
claiming that the project was facing legal issues although some sources state that the developer
backed out due to the lack of financial capability to implement the project. This further
delayed the project. Even the government had difficulty in arranging funds for the project,
which was an additional problem that caused further delay. The government later explored
various options to fund the project. It also considered various MoUs, but has been
unsuccessful till now.
iv.
Consensus Building
Private players have an important role to play in building a favorable opinion of the project
. among the users and the project affected people. Especially in social sector projects, the
support of the community is critical to the success of a project. It is therefore important for
the developers to engage in a comprehensive dialogue process with the various segments of
the public and inform them of the positive as well negative aspects of the project and about
the measures that would be undertaken to mitigate the negative aspects.
So far the project developers, especially in the port and power sector, have made very little
efforts to engage the public in their plans. On many occasions exhaustive mapping of the
people affected by the project or a detailed environment assessment was not undertaken. For
instance, in the Coastal Gujarat Power Ltd. UMPP, the fishing community was excluded
from the list of project-affected people. See Box 3.4 for an illustration. This was a violation
of the Performance Standard Social and Environmental Assessment and Management
System. Landowners are often informed about a particular project by way of notices or
advertisements only after the project has been decided. In the Krishnapatnam Port project,
the livelihood of the Yandis, (a local community in the Krishnapatnam area) was severely
impacted due to the project and they did not even receive any compensation or rehabilitation
for this.
(b) Consultants
Consultants are responsible in guiding the government in identifying the right project as well
as the right bidder. The objectivity of the consultants is essential during the entire life of a
project. The selection of a right consultant that has sound knowledge and experience in the
sector concerned paves the way for the selection of the right projects. Here adequate
emphasis should be placed on the technical expertise of the consultant in a particular sector.
Compromising on the quality of consultants can result in poor structuring of the project. For
example, in the Delhi-Gurgaon Expressway, the original scope of the project was changed
substantially and the final scope was issued to the concessionaire just days before the original
scheduled completion date of the project. In the case of the Vadodara-Halol Toll road, the
actual level of traffic did not match the expected traffic levels as per the traffic study because
the traffic estimates were based on the assumption that incentives for industrial development
in Halol area would continue over the long term. However, the incentives were withdrawn by
the government in later years. A high-level committee on National Highway Development
Program (NHDP), set up by government, stated that several road projects resulted in
disputes, as the DPRs were not carefully prepared.17 These examples show that engaging
consultants with sound knowledge and experience is essential in preparing DPRs.
Low investment in planning and engineering aspects often results in higher implementation
costs in the form of transaction costs and settlement of financial claims arising due to
disputes. Such disputes involve a lot of time and money jeopardizing the benefits of PPPs.
There are instances where commercially unviable projects were tendered initially and later
terminated. Significant differences in the total project costs estimates by National Highways
Authority of India (NHAI) and the private developers have also been reported.18
There is also a need to increase the number of Transaction Advisors (TA) empanelled by the
Central government for PPP projects. At present, there are only 11 TAs available for central
government projects. Now that an increasing number of projects are being planned, it is
important to expand the list of empanelled consultants.
3. Community Participation
The end-users of any public infrastructure are the common public, who also ultimately bear the
cost of developing that infrastructure, either directly, through user charges, or indirectly,
through taxes. There is hence a need for involving representatives of the local community. This
could be done either through Non-Governmental Organizations (NGOs), civil societies, or
through members of Gram Panchayat/Zilla Parishad etc.19 A forum should be created for the
community to communicate their needs to the government through channels like small group
meetings, Round Tables, Kisan Mahapanchayats, online public forums, etc.20 Such a forum
shall address the concerns, apprehensions and acceptability of the various categories of
stakeholders and the government on its part should endeavor to consider these issues while
preparing the project.
However, current efforts in this direction have been less than satisfactory. There have been
cases where projects have created an adverse impact on the local community. Apart from
environmental issues, there has been insufficient rehabilitation of people during the land
acquisition phase in many cases. The Sasan Ultra Mega Power Project in Madhya Pradesh has
displaced 6000 people in the region and has reduced them to extreme poverty. As a
consequence of such incidents, projects such as Girye Ultra Mega Power Project have
Please refer to Second Report on Faster Implementation of NHDP, B. K. Chaturvedi, Member,

Planning Commission, (2010) for further details.
18 Please refer to the Times of India, 28.11.2011.
19 Gram Panchayat, Intermediate Panchayat and Zilla Parishad are lowest, intermediate and highest tiers
of the Panchayat system in India, respectively.
20 Kisan is the Hindi word for a farmer.
17
prompted mango farmers and others to conduct marches and hunger strikes to prevent the
Government from acquiring their agricultural lands and setting up a power plant.21
Box 3.4 Mundra Ultra Mega Power Project
Ministry of Power
proposes
UMPPs
Jan. 2006
Successful bidder identified

Letter of Intent issued
Feb. 2006 Dec. 2006
Invitation for EOI
Revised date for

Commercial Operation of
Unit I as per CA
Apr. 2008
Sep. 2011
Scheduled date for

Commercial Operation of
Unit I as per CA
June 2012
Financial Closure achieved
Mundra Ultra Mega Power Project is one of the 16 UMPPs envisaged by the Government
of India to address the growing need for power in the country. The project has
demonstrated some positive aspects of PPPs as it had been scheduled to commission ahead
of its time and the bidding process was completed within 10 months.
However, violation of Ministry of Environment & Forests (MoEF) regulations e.g., use of
potable water for construction activities was reported in the media. The developer did not
undertake a comprehensive assessment of all the project-affected people. The fishing
community, an important group that was severely affected by the power project, was
excluded from the list of directly affected people.
For projects in commercial infrastructure sectors, the government can initiate projects,
distribute information, and then seek public opinion especially on matters like alternative site
locations, R&R packages, etc. Here, the role of the community is limited to the project
identification phase as it may be difficult to involve them during the governance or monitoring
of the projects. Lately, some regulators like the Tariff Authority for Major Ports (TAMP) have
initiated involvement of users in determination of port tariff. This is a healthy development as it
would help protect the users interests.
In social sector projects, the involvement of the users/community is even more crucial. The
public must be a part of the entire project governance instead of just being involved during the
identification stage. For instance, municipal schools adopted by NGOs under the PPP mode
have representatives of the Parents-Teacher Association (PTA) as members of the School
Management Committee. Similarly, members of the Intermediate Panchayat represent the
community who are also members of the management committee of Primary Health Centres in
Arunachal Pradesh. Such an inclusive approach, centered on mobilizing communities as active
agents of their own development, is essential to the larger development process.
4. Financing and Commercial Viability

(i) Commercial Viability
It is crucial to ensure that projects offer returns that are attractive enough to the private sector.
Robust and reliable traffic estimates, appropriate and acceptable user fee, commercialization of
supplementary assets like the development and usage rights of real estate and government
Please refer to http://www.grist.org/coal/2011-05-27-down-with-coal-the-grassroots-anti-coalmovement-goes-global. See also http://www.powermin.nic.in/whats_new/pdf/ultra%20mega%20project.pdf /
http://pacificenvironment.org/downloads/Sasan%20Power%20Project%20FactsheetFinal.pdf
21
grants in the form of VGF, are important in ensuring commercial viability of the projects.
There have been instances where projects offered for bidding were not found economically
viable. For example, a bypass road proposed around Coimbatore through Build-OperateTransfer (BOT) arrangement did not attract any private sector developer to bid for the project.
Similarly, in Chennai a solid waste management project did not attract bidders during the initial
round of bidding as the waste generated from the associated zones was not enough to generate
profit from the project.22 Many projects, especially those in the transportation sector, have
dedicated traffic and a uniform fee structure regime, which leave little leeway for adjustments.
Further, the concession period cannot be extended indefinitely to allow recoupment of
investments made. Under such circumstances, awarding projects on a competitive basis reduces
the quantum of VGF sought by the developers. Instilling competition, in turn, compels the
private sector players to be efficient and innovative so that the project margins do not fall
below their desired level. The shift towards output specification of the projects instead of the
traditional input specification approach has been aimed at inducing the private developers to
use the best management practices e.g., applying lean construction principles, etc. to reduce
project cost and improve margin.
[Traffic * User Fee]* Concession Period VGF = Total Cost + Return
In recent times, a large number of projects in the road sector have been awarded on negative
grant basis, where the private developer offers to pay the sponsoring authority in return for the
right to develop and operate the project for the concession period.
Providing other assets for commercial exploitation to the concessionaire, in the form of
development rights for real estate near the project site, has been one approach to ensure the
commercial viability of projects that do not break-even based on traffic estimates. Appropriate
bundling of project features is therefore important to such projects. Integrating an upcoming
project with an existing project to increase traffic can be yet another way to improve
attractiveness of the project for the developer. For example, integrating Bandra-Worli Sea Link
(BWSL) with the Western Freeway Sea Link (WFSL) was recommended as one of the measures
to make the project commercially viable. In the Hyderabad Metro Rail project, a plan was set up
to have feeder buses along the metro route apart from integrating bus routes of state road
transport.
At present, the emphasis is typically on the FIRR (Financial Internal Rate of Return) rather than
on the Economic Internal Rate of Return (EIRR). Some international lending agencies like the
Japan International Cooperation Agency (JICA) require establishment of EIRR as a necessary
pre-condition for going ahead with projects. There is a need to make EIRR mandatory for large
scale projects if not for all projects.
Please refer to PPP Experience in Indian States: Bottlenecks, Enablers and Key Issues, by
Mahalingam, A., Indian Institute of Technology Madras, 2008.
22
Box 3.5 Delhi-Noida Toll Bridge (DND Flyway)

Financial
Closure
Achieved
Memorandum of
Understanding
signed
1992
Company undergoes
debt-restructuring
Toll hike uncertainty

(10 % vs. 25 %)
1998
1997
2001
Concession
Agreement
Executed
Project Commissioned
(construction time: 25
months 4 months ahead)
2005
2006
2011
Losses incurred due

to revenue shortfall
during initial years
(2001-2005)
The Delhi NOIDA Toll Bridge was awarded through direct negotiation. Being one of the
early PPP projects, the Concession Agreement was poorly structured. The concession
agreement provided for extending the concession period on a recurrent basis till the project
cost and a pre-determined return on investment made by the concessionaire was recovered
completely. Further, revenue projects were not undertaken robustly as during the
operational phase, proportion of heavy commercial vehicles was very low. This affected the
commercial viability of the project. To compensate for the loss, the concession period is
now slated to be for around 70 years.
Such poor structuring of contracts, results in inadequate sharing of risks. With poor realized
demand and an indefinite concession period, the burden has been ultimately passed on to
the road users with the concessionaire bearing no risk at all.
The project is also affected due to disputes between the government and concessionaire
over determination of toll. The concession agreement provided the concessionaire with the
right to determine toll which can potentially jeopardize the interest of users.
(ii) Availability of Finance

Budgetary Support
Well-structured and important projects should not be delayed due to the lack of availability of
adequate finance. The support of the government in the form of VGF can make a large
number of commercially unviable projects feasible. The government should be capable of
generating adequate resources through both budgetary and extra-budgetary measures for
meeting the requirements of the infrastructure sector. In the Krishna Water Supply project in
Andhra Pradesh, the government failed to meet the funding gap, which caused the project to
experience several glitches. Further, within the infrastructure sector, there should be efficient
allocation and utilization of funds based on certain pre-specified priorities.
The Finance Ministry should provide project-wise, ministry-wise and sector-wise information
on PPPs in supplementary documents to the annual budget. Currently, there is no consolidated
information on financial support to the PPPs by the government made available to the public.
At present the maximum support from the government in terms of VGF is 40 % of the total
project cost. Such threshold limits may work for projects in commercial infrastructure sector
where the commercial viability can be established by assigning other rights to the developer,
like development rights of real estate near the project site23, conferring advertisement rights
In the Hyderabad Metro Rail project, the concessionaire was allowed to develop real estate around the
metro rail facilities at three depots and above the parking areas at about 33 stations.
23
along the highways to the developer etc.24 However, in social sectors, where establishing
commercial viability is difficult, bulk of the financial support would have to come from the
government. In the early years of the development of PPPs in these sectors, BOT annuity
would be preferred model as stated in the draft National PPP Policy.
Equity
The government has allowed 100 % Foreign Direct Investment (FDI) in several infrastructure
sectors like roads to attract foreign capital. Despite this, the level of FDI received has been low;
around 11 % of the total investments in 2008. Promoters equity is the main source of equity
for projects in the country. However, given the enormity of finance required to fund
infrastructure projects in the coming years, promoters equity is going to be limited. Hence,
there is a need to ensure availability of institutional equity or development capital for
infrastructure projects.
Debt
Commercial banks in India, especially those in the public sector have been the main source of
debt for PPP projects.25 The conversion of erstwhile long-term lending financial institutions
like Industrial Development Bank of India (IDBI), Industrial Credit and Investment
Corporation of India (ICICI), into commercial banks has led to the problem of availability of
long-tenure debt for the infrastructure projects. At present, two-third of the total debt
requirement of the PPP infrastructure projects is financed by the public sector banks. These
banks are faced with the problem of Asset-Liability Mismatch (ALM) and most of them are
already operating at their exposure ceilings for the infrastructure sector. The absence of a
developed corporate bond market in the country has made it difficult for the developers to raise
the required debt. We require a deep, liquid bond market with a wide array of sophisticated
investors and products to provide long-term finance and distribution of risks at a much wider
level. Further, pre-emption of funds by the infrastructure sector may limit the availability of
banking funds to other important sectors.
Fig. 3.1: Debt Requirement for the 11th Plan Period
Source: Projections for Investment in Infrastructure during the 11 th Plan, Planning Commission, 2008
IL&FS, the developer of the DND Flyway was conferred the advertisement rights along the toll road
as a part of the concession agreement.
25 Commercial Banks fund around 80 % of the debt requirement of the PPP projects in India. See,
Discussion Paper On Financing Requirements Of Infrastructure and Industry, DIPP, GOI, 2011.
24
Fig. 3.2 points to the inadequate availability of debt requirement during the 11th plan period. A
total of ` 8,25,539 crore would be available as debt against the total requirement of ` 9,88,035
crore implying a gap of ` 1,62,496 crore (20 %). As can be observed, domestic bank credit is the
major source of debt followed by Non-Banking Financial Companies (NBFCs) and pension
funds. Further, debt constitutes around 50 % of the total investment required in infrastructure.
However, the normal capital structure of a project is 30 % equity and 70 % debt. This
aggravates the shortage of finance for infrastructure projects in the coming years.
5. Risk Management
(A) Risk Identification and Allocation
It is important that all risks associated with the projects are thoroughly identified. Several
projects have faced disruptions at later stages because the possible occurrences of many glitches
that were not taken into consideration while framing the concession agreements. In order to
minimize any uncertainty involved in the long gestation of PPP projects, a whole-life cycle
approach needs to be pursued. This will help to identify the entire gamut of financial and other
risks that may jeopardize the viability of the project. Further, strong measures for risk
alleviation should be inbuilt into concession agreements so that even disputes during the course
of the projects are resolved amicably. This will also reduce the number of litigations.
Risks are critical to PPP projects as they indicate the probable occurrence of events that may
cause changes in socio-economic, political and natural environment faced by the projects.26
Allocation of risks is important to increase efficiency, reduce project-related costs and achieve
improved value for money. The parties involved in a project can affect the amount of risk by:
The level of information they have about the present and future which will help them
avoid or tackle unforeseen events
The level of influence they have over events which will enable them to take actions and
determine outcomes
The MCAs (Model Concession Agreements) for different sectors, attempt to address the
unbundling and allocation of risks and propose associated risk mitigation measures based on
the above mentioned parameters. MCAs mention that as an underlying principle, risks have
been allocated to the parties best suited to manage them.27 Technical risks such as
construction, operation and maintenance are allocated to private sector developers as transfer
of such risks is likely to increase the scope of adoption of the best available technology and
spur innovative practices, which in turn would bring in cost efficiency and better service
delivery. Commercial risks such as the demand risks are also allocated to the concessionaire
under BOT Toll projects whereas direct and indirect political risks are allocated to the
government agency or the contracting authority implementing the project. A detailed table of
the different types of risks that have been identified in a PPP project development phase, as
provided in MCA is given in Exhibit 3.2. However, the following features of risk allocation are
observed in practice:
Please see, Risk A critical focus of PPP Design, PPP Toolkit for Improving PPP Decision Making
Processes, Public Private Partnerships in India, Ministry of Finance, Government of India as retrieved
from http://toolkit.pppinindia.com/
27 Model Concession Agreement for National Highways, Secretariat for Infrastructure, Indian Planning
Commission, Government of India as retrieved from
http://infrastructure.gov.in/pdf/OverviewMCA.pdf
26
(i) Risks are often allocated to stakeholders not best suited to manage them
In many cases, the social and environmental risks and those associated with land acquisition are
directly or indirectly borne by the concessionaire. Such responsibilities, if given to the private
sector either cause delays in the project implementation and / or create negative impact on the
biodiversity.
The Hyderabad Outer Ring Road Project had faced delays because the private
developer had difficulties in acquiring land due to objections by the surrounding
community, especially farmers.
In the Gangavaram Port project, the risk of social impact was allocated to the private
sector developer. The port authorities had promised the fishing community in the
village nearby that they would provide the fishermen with jobs since the construction
of the port would affect their livelihood. However, the fishing community alleged that
the port authorities gave them only 292 jobs out of the 600 jobs promised. Several
people were denied jobs. Allocating the responsibility of providing employment to the
private developer might leave the community vulnerable to risk.
The Dhamra Port Project is located to the north of Gahirmatha Marine Sanctuary,
where around 2 to 5 lakh female Olive Ridley turtles nest every year. Although the port
site is not a nesting area, environmentalists are worried that the regular dredging
activities and industrial pollution could ruin the habitat of these turtles. Greenpeace
activists are also demanding the private developer to stop construction of the port.
These examples prove that the risks involved in land acquisition and other social and
environmental risks should be assessed and solved by the government.
(ii) Stakeholders fail to handle risks that are appropriately allocated to them.
Although concession agreements outline the allocation of risks to a specific partner, there are
cases where the partner fails to handle the allocated risk.
In Vizhinjam Port, the private developer (a foreign company) was responsible to get
statutory clearance from the Central Government for developing the project. However,
when it failed to get approval, the State Government attempted to get the necessary
statutory clearance for the private developer but was not successful.
The Concession Agreement for the Yamuna Expressway was executed in February
2003, but there was a 5-year delay in land acquisition. There was also failure on the part
of the state government to provide the private developer with project land on time.
In several Greenfield ports, traffic growth is often over-estimated. Private developers
face a high-demand risk due to lack of hinterland port connectivity. In some instances,
demand shortfall had to be compensated by further undertaking last mile connectivity
through feeder links in form of road and rail connectivity projects.28
(iii) Lack of uniformity among state governments in allocation of risks.
Initiatives taken by the state governments to build capacities for PPP, in the form of an act,
policy or a set of guidelines should also include identification of various project risks. The
Please see, Background Paper on Port Connectivity in Gujarat, Deloitte Touche Tohmatsu India Pvt.
Ltd., (2009)
28
details of the risks undertaken by state governments or the local authorities of various states are
given in Appendix I. Some inferences are based on these are given below:
(a) Some of the major risks are identified and borne directly by the state governments. These
include:
Facilitating the developer to obtain the clearances (statutory and environmental) from
state and central government as per the requirement of the project.
Provisions for rehabilitation and resettlement of the affected families.
Facilitating water and power requirements at the project site.
Facilitating land acquisition (wherever required).
(b) Though there is lack of uniformity among state governments in the allocation of risks, the
Karnataka Infrastructure Policy 2007 is an exception. It provides a detailed identification of
risks involved during project life cycle (of a BOT model), its allocation to parties best able to
handle them and the respective mitigation measures. It specifically emphasizes that the
government would acquire the land required for the project in case the private investors could
not obtain it. There is a clear distinction in the role of the Karnataka Government, compared to
the other state governments where the risk of land acquisition is initially transferred to private
developers. It is only when a private developer is not able to acquire the required land that the
government steps in to undertake the responsibility of land acquisitions and hence bear the
associated risks.
(c) A provision has been made by the Andhra Pradesh and Bihar government to assist the
developer to securitize the project asset and project receipts/revenue in favor of lenders to
safeguard the completion of the projects. Such a provision to identify debt risk is not included
in the policies, act or guidelines formulated by the other state governments.
Exhibit 3.3: Allocation of Risk and Mitigation Measures in PPP Projects

S/N
1.
2.
Risks
Project
Development
Risk
Construction
Period Risk
Examples
Selection of right
bidder
Statutory Clearance
Land Acquisition
Right of Way
(Associated delay)
Risk of Inadequacy
[Error in the Request
For
Quotation
(RFQ)]
Project Design Risk

Risk of Innovation
Contractor Default
Damages to 3rd Party
Cost & Time
Overrun
Change
Scope
DemandinRisk
Revenue Risk
Maintenance
Standards
3.
Operation
Risk
Injuries to Users
Environmental Risks
Termination Risks
4.
Financial Risk
5.
Government/
Concessionaire
Engineering Procurement
Construction (EPC)
Contractor/
Concessionaire
Operation & Maintenance

(O&M)
Contractor/Contractor/
Insurance Company
Government/Public
(CA)/Concessionaire/ Lead
Financial Institution
Sponsoring
Authority/Investors
Debt
Lead Financial Institution
Interest Rate/
Currency Risk/
Inflation
Concessionaire
Concessionaire, Lead
Financial Institution,
Government
Direct Political
Force Majeure
Termination of
Concession by the
Government.
Risk Mitigation Measures

Selection of developer and
transaction advisors through
international/domestic
competitive bidding
Consulting Professional
Experts for preparing bid
documents.
Encumbrance free land and
Right of Way provided by
government
Output specification instead of

input specification
Sub-contracting individual
components of project
Concessionaire
Equity
VGF Disbursement
Regulatory
Risk
Risk Assigned/Risk
Bearer
Government/CA
Revision of user charges

Extension of concession period
Moratorium on
construction/operation of
competing projects by
government or implementing
agency.
Developer provided with the
right to first refusal
Project monitoring by lenders.

Lenders provided with the
right to substitute the
developer
Termination payment by the
government/implementing
agency
State Support Agreement

signed between implementing
agency, concerned state
government and private
developer.
Source: Compiled from Modal Contract Agreements, Manuals and Guidelines on different sectors,
DEA, Planning Commission, (GOI); various issues
Note: EPC: Engineering, Procurement & Construction; O&M: Operations & Management; CA:
(B) Risk Mitigation

As discussed above, identification of risks and allocation of risk alleviation in an appropriate
manner is the first step to mitigate project risks. A robust concession agreement is required to
provide measures that will manage and lessen risks involved at each stage of a project. For
instance, upward or downward revision of user charges and/or extension of concession period
by a certain number of years if actual traffic growth happens to be less than the expected
growth in traffic. Such steps assure either party some degree of certainty in recovery of costs
incurred and initiation of steps to rectify shortfalls, if any. Thus, the private sector is protected,
as the extension of concession period would allow it to recover its investments along with
returns. Also, the government need not explore alternative measures to bail out the failed
projects. It is therefore important that adequate measures are inbuilt into the concession
agreements that balance risks to all stakeholders. However, it is equally necessary that the riskmitigating measures do not conflict with the basic features of a project and concession
agreement. For example, in a road project, if a concession agreement provides for an indefinite
extension of concession period and if the total project cost and returns is not recovered, then
the entire financial burden of the project is shifted to the users. It also defers the transfer of
project asset back to government at the end of concession period. More importantly, it disincentivizes efficiency and cost management, which should be the primary benefits to accrue
due to a PPP.
Exhibit 3.3 classifies overall project risks into five broad categories, namely project
development, construction, operations, financial and regulatory risks and associated risk
mitigation measures.
Project development risks are normally shared between government, developers and the
consultants. Government bears the risk of identifying an appropriate project and selecting the
right bidder. Competitive bidding and consulting professional experts while preparing the bid
documents will minimize risks associated with poor structuring. Developers must bear the risks
of designing projects in line with the projected demand and other user requirements like service
quality and change in the scope of the project during later stages. Consultants will assist
government in preparing the project, the feasibility reports and also in scrutinizing detailed
project reports (DPRs) submitted by developers. They should also highlight the merits and
demerits of each proposal. Consultants face risk of penalty if they do not exercise adequate
diligence while preparing DPRs.
By assigning construction risks to private developers, the risks associated with time and cost
overruns are moved away from the government. The developers in turn lessen the construction
risks by sub-contracting part of the construction work to other private contractors. It is the
governments duty to transfer the encumbrance-free land including right of way to developers
before the construction due date. The risk of construction delay due to delay in transfer of land
by government is mitigated by providing monetary compensation to the developers. Further,
the SSA (State Support Agreement) between an implementing agency like NHAI, the state
government and the developer addresses the regulatory risks associated with the projects.
Government or the implementing agency also assists developers in obtaining all the necessary
infrastructure facilities and utilities, including water, electricity and telecommunication facilities.
The operational phase of a project covers the maximum length of the concession period and
hence involves a lot of uncertainty. A shortfall in demand is often a primary concern for
developers and there have been instances where actual demand fell short of the projected
levels. Two popular examples for this are the Tirupur Water Supply Project and the VadodaraHalol Expressway. If government decides to build a competing project, the concession
agreement stipulates compensation to the concessionaire of the existing project in case of

revenue loss. For example, the Concession Agreement of National Highway (NH) 45 Padalpur
Road Project, states that any additional toll way that is envisaged by government in future shall
not be opened for traffic before expiry of 8 years from the appointment date of current project.
It further specifies that, if additional toll way is commissioned after 8 years from the
appointment date, then the concession period shall be increased by half the number of years by
which such commissioning precedes the expiry of the concession period.29
Successful operation of a project by developer is crucial for safeguarding the interest of the
lending institutions. In order to protect lenders against the failure of developers to successfully
operate projects, concession agreements provide lenders with a right to substitute the
developer. Further, monitoring rights assigned to lenders enable smooth functioning of
projects. There are provisions for the termination of payment to lenders in the event of default
by government or due to force majeure like a non-political event or an indirect political event.
However no termination payment is made by government to the lenders in the event of default
by concessionaire.30
From studying the experiences in risk identification, allocation and mitigation in the
PPPs of commercial sectors, the following lessons can be drawn:
In the early stages of PPP projects in these sectors, government should be willing to
undertake major responsibilities in terms of budgetary support and other assistance.
The identification of risks should be made by taking into consideration the impact of
the project on all the stakeholders involved.
The allocation of the risks to the party best suited to manage them should be made
explicit in the DPR. This will allow the private and public sector to recognize their
roles and responsibilities before entering into a concession agreement. They will
further be able to decide upon their ability to influence the events of the project and
make provisions for alleviate unforeseen events.
The risk of land acquisition and statutory clearances should be taken by the
government. It should also take care of the risks of social and environment impact and
its clearance. This will lower the time delays and cost overruns.
User charges should be determined in a manner that balances the issue of access to
weaker sections of the society and the profit motives of the private developer. Further,
revision of user charges should be undertaken in a manner that protects the most
vulnerable sections of the society.
In case of the inability of the respective party to mitigate the risk, alternative measures
should be identified in consultation with the other involved stakeholders.
Please refer to Concession Agreement for Design, Engineering, Construction, Development, Finance,
Operation and Maintenance of 4 Laning of Existing 2 Lane Section from KM. 285 (Near Padalpur) to
KM 325 (Near Trichy) on NH-45 in the State of Tamil Nadu on Build Operate Transfer Basis, NHAI,
Government of India, (2006).
29
6. Social Inclusion
True development must be inclusive of all vulnerable groups. The state has to keep in mind the
principles of justice - social, economic and political that is enshrined in the Constitution, if it is
to deliver the peoples rights and entitlements. The Planning Commission, in the 11th Five Year
Plan stated that a persons individual endowment in the form of capital, labour and skill, along
with the access to public resources has a direct bearing on his/her current welfare in the short
run while determining his/her economic opportunities in the long run. In India, 25.7 % and
41.8 % of the population live below the poverty line in the urban and rural areas, respectively.31
The incidence of poverty is high among certain marginalized groups, e.g. scheduled castes and
tribes. With a significant proportion of people surviving at below subsistence level, there is an
urgent need to provide minimum needs to the poorest of the people.
Exhibit 3.4 describes the condition of the people, especially those who are socially and
economically marginalized in terms of access to basic amenities. There is an urgent need to
accelerate efforts to create an all-inclusive development strategy. As mentioned earlier, the
Planning Commission explicitly emphasized the need for inclusiveness in the countrys growth
strategy in its 11th Five Year Plan document. Inclusiveness was meant to mobilize the marginalized
and make them active agents of their own development. They could play a key role in the very
design of the development process and can assist in bringing people in the mainstream of
development strategy. Expenditure by the government in areas like public health, water supply
and sanitation, and education has been increasing over the years but it is still not sufficient
compared to actual requirements.32 Even in these sectors the governments current resources
may not be adequate to finance the overall requirement; hence additional resources may have to
be obtained from private participation through PPPs. Water and health within the social
sectors are sensitive issues as they are associated with an individuals survival and hence require
a differential approach. Water being essentially a public and social good; every human being has
a right to water. Treating water as a commodity and pricing it based on market principles can
potentially jeopardize the basic human right to life especially of the most vulnerable sections of
the society. In order to ensure full realization of these human rights and guarantee welfare of all
citizens, the state obligation in necessary in delivering services in water and other social sectors.
Dwindling water resources in the country also call for the efficient use of water that may
require effective management of water resources through private initiatives. Hence, there is a
need to balance the cost recovery principle and profit motives with human rights. PPPs when
undertaken based on holistic perspective can possibly play an important role in addressing
issues concerning access, equity and quality of services.
PPPs in social sectors can enhance access to basic public amenities. Such partnerships should
be aimed primarily at efficient delivery of services from the existing government infrastructure
facilities. In order to make a long-term impact on the lives of the people, PPPs should be
undertaken through models that are sustainable as well as scalable. At present a large number of
NGOs are working in social sectors to enhance access to basic services by the people.
However, most of them are charity/donor based models and hence have limited scope for mass
implementation.
Please refer to Report of the Expert Group to Review the Methodology for Estimation of Poverty,
Planning Commission, GOI, 2009, for further details.
32 Government Expenditure on Higher Education has been projected to increase from 1.12 % during the
11th Plan period to around 1.5 % of GDP during the 12 th Plan period. Similarly, govt. expenditure on
Public Health is expected to increase from around 1.2 % during 11th Plan period to around 2.5 % of
GDP during the 12th Plan period. Government expenditure on Water Supply & Sanitation has been
targeted to increase from ` 1,43,730 Crore to ` 1,73,730 Crore during the same period. Please see 11th &
12th Five Year Plan document, GoI.
31
Exhibit 3.4: Status of Provision of Basic Amenities to Public in India

Sector
Status
Water Supply &

Sanitation
Only 14.44 % of the rural habitations have pipe water supply

facility.33
Only 30 % of the total sewage generated in the country is actually
treated before being dumped into available water bodies.34
55 % of households have no access to toilet facilities (74 % in
rural areas and 17 % in urban areas).35
Public Health
The Central and State governments together spend just 1.2 % of

the GDP on public health with a target to increase it to around 2.5
% of the GDP during the 12th Five Year Plan period and gradually
increase it to 3 % of the GDP by 2022.36
The availability of allopathic doctors, nurses and midwives is a
mere 1.29 per 1,000 persons.37
There is a shortage of 19,590 sub centres, 4,252 PHCs and 2,115
CHCs.38
Infant mortality rate is as high as 50 per 1,000 live births.39
Education
Combined expenditure of the centre and state governments on

education is only around 3.6 % of the GDP.40
Exhibit 3.5 attempts to classify provisioning of infrastructural services to the people on three
broad categories. The first category refers to the non-subsidized services that are priced to
cover the total cost of providing such services. Examples include telecom services, toll roads,
etc. End users are the source of revenue for such services. The second category includes
partially subsidized services with funds sourced from government, users and private sector.
Such cross-subsidized services are largely provided in sectors like health and education. Private
hospitals, where services to those who can afford it are provided at full-cost recovery pricing
whereas services to poor are provided at a subsidized rate with government compensating
private hospital for its loss of revenue. Lastly, completely subsidized services fall in the third
category wherein public health, primary education, waste collection services, etc. are provided
free of cost to people. Services in the third category are financed chiefly by government,
philanthropic and Corporate Social Responsibility (CSR) activities of private sector.
See, Results Framework Document, Department of Drinking water and Sanitation, Ministry of Rural
Development, 2011-12.
34 Please see, Draft 12th Five Year Plan Document, Planning Commission, GOI.
35 Please refer to State Environment Report, MoEF, GoI, 2009.
36 See, p.14, of High Level Expert Group Report on Universal Health Coverage for India, Planning
Commission, GOI, 2011.
37 See, High Level Expert Group Report on Universal Health Coverage for India, Planning
Commission, GOI, 2011.
38 Please refer to Draft 12th Five Year Plan Document, Planning Commission, GOI.
39 See, http://planningcommission.nic.in/data/datatable/0211/data%20112.pdf
40 See, 11th Five Year Plan Document, Planning Commission, GOI.
33
Exhibit 3.5: Taxonomy of Provision of Public Services
I
I, II
II, III
Type
Description
Nonsubsidized
II
Partially
subsidized
Other users
Government
Private sector
Health,
Education
Fully
subsidized
Government
Private sector
philanthropists,
donor
foundations,
CSR etc
Primary
Health,
Primary
Education,
Waste
collection
III
Source of funds
Paid by the end user
Sectors
Transport,
Utilities
With reference to Exhibit 3.5, the challenge is to identify existing as well as conceptual models
of PPP that can help the government to focus on the most deprived sections of society and
provide them basic services that are of good quality, within their reach and also affordable.
One model that can be potentially scalable is the Byrraju Foundations 4P (Panchayat PublicPrivate Partnership) model of drinking water supply. With the 73rd and 74th amendments,
drinking water and sanitation are included in the list of subjects to be devolved to Panchayats.
Box 3.6 makes an attempt to map the stakeholders, their responsibilities and participation and
the functioning of the model.
The 4P model is a step ahead of the normal PPP model as Gram Panchayats (local village selfgovernments) are involved in this partnership. The contribution from government is in the
form of provisions for free land, permission to draw raw water, subsidized power connection
and other regulatory approvals. The Byrraju Foundation bears around 50 % (sometimes 100 %)
of the cost for the equipments used for water treatment. It also trains the local people to
operate the plant. Technological aspects of the equipment are modified to allow the community
to operate the plant. Gram Vikas Samiti (Village Development Committee), comprising of 9
volunteers representing different sections of the society, monitors the activities of the project
on behalf of the community at the village level. (Purified water is provided to people at around
20-30 paise per liter.41 Hence, sustainability is ensured by collection of user charges for
operations and maintenance of the project.
41
One paise is the hundredth part of Indian Rupee.
Box 3.6: The 4P Byrraju Model of Drinking Water Supply

The 4P model is a step ahead of the normal PPP model as Gram Panchayats (local village selfgovernments) are involved in this partnership. The contribution from government is in form of
provision of free land, permission to draw raw water, subsidized power connection and other
regulatory approvals. The Byrraju Foundation bears around 50 % (sometimes 100 %) of the cost of
equipment for water treatment and also trains the local people to operate the plant. Technological
aspects of the equipment are modified to allow the community to operate the plant. Gram Vikas
Samiti (Village Development Committee), comprising of 9 volunteers representing different sections
of the society monitors activities of the project on behalf of community at the village level. (Purified
water is provided to people at around 20-30 paise per liter. Hence, sustainability is ensured by
collection of user charges for operations and maintenance of the project.
With limited financial powers with local bodies to raise resources through taxation or other means,
such models can be useful in addressing the basic needs of the public like drinking water. There is a
need to provide enabling support and environment for Panchayati Raj Institutions (PRIs)/ local
communities to manage their own drinking water sources and systems, and sanitation in their villages.
With limited financial powers and with local bodies to raise resources through taxation or other
means, such models can be useful in addressing the basic needs of the public like drinking
water. There is a need to provide support and environment for PRIs or local communities to
manage their own drinking water sources and systems, and sanitation in their villages.
7. Sustainability
The Eleventh Plan followed a strategy to meet the infrastructure needs by supplementing the
public sector resources with that of the private sector in the form of PPPs. The Twelfth Plan
continues to implement the strategy and also emphasises the need to further explore the scope
of PPPs in the development of the social sectors. While infrastructure has its benefits of rapid
and inclusive growth, it also has another facet of creating pressures on environment. Exhibit 3.6
lists the Acts that govern the environmental impact of projects.
Exhibit 3.6: Environmental Acts by MoEF
The Air (Prevention and Control of Pollution) Act 1981,amended 1987
Forest (Conservation) Act 1980, amended 1988
The Environment (Protection) Act 1986, amended 1991
The Public Liability Insurance Act 1991, amended 1992
The National Environment Tribunal Act, 1995
The National Environment Appellate Authority Act, 1997
The Wild Life (Protection) Amendment Act, 2002
Biological Diversity Act, 2002
(i) Details of EIA and the Process of Environmental Clearance

In 1994, Environment Impact Assessment (EIA) notification imposed restrictions and
prohibitions on the expansion and modernization of any activity or new projects being
undertaken in any part of India unless environmental clearance has been accorded by the
Central Government or the State Government in accordance with the procedure specified in
that notification.42
EIA is an important tool to ensure the optimal use of natural resources for infrastructure
projects. Its purpose is to identify, examine, evaluate and lessen the adverse impacts of a
proposed project on the environment and carry out remedial activities.
The general format of an EIA in the infrastructure sector is as follows:
1) Scoping of the Project: Where the Environment Assessment Committee (EAC)
addresses a detailed Terms of Reference (ToR) providing all the relevant environmental
concerns that a project may face based on its scope, which is categorized as
modernization, expansion or Greenfield. All these concerns are broadly realized, sectorwise, by the EIA Guide. A brief of these have been detailed in Exhibit 3.7.
2) Public Consultation: It refers to the process by which the concerns of the people
affected by the project and others who have a plausible stake in the environmental impact
of the project are consulted to understand their existing and future concerns.
3) Appraisal: It includes detailed scrutiny by the EAC of the application of the project and
other related documents submitted for the grant of environmental clearance.
Appendix III gives further details regarding the contents of an EIA report.
Environment Impact Assessment Notification, Ministry of Environment and Forest, the 27 th January
1994, New Delhi - http://moef.nic.in/divisions/iass/notif/notif.htm
42
Exhibit 3.7: Impact of Development of Different Infrastructure Projects on Environment
Sector
Air
Airports
Growing aircraft traffic

associated with growing
emissions of CO2.
Emissions from
construction equipment,
work vessels, trucks and
other vehicles used cause
air pollution.
Ports43
Roads44
Power
Water
Supply
SWM45
Ships are a possible

source of airborne
emissions such as gases,
smoke, soot and fumes.
NO2 and SO2 are typical
pollutants generated by
ships while both
maneuvering and berthing
and may affect air in the
hinterland.
GHG emissions across
sectors (comparison
between road and rail).
Hence, use of low carbon
transport. Shift from
passenger vehicles to
public transport.
CO2 emissions by the
power sector. Its
percentage compared to
the total CO2 emissions.
NA
Water
Land
Not Available (NA)
NA
Deposition of
construction work
causes an increase
in the level of
suspended solids
and reduces the
sunlight penetration
for the organisms.
Use of potable
water for power
projects (Mundra
and Barmar)
Availability of water
in India
Use of water for
different purposes
Domestic,
Industrial, Irrigation
and Others.
Growing
population and
growing demands
for drinking water
supply.
Growing air traffic,

growing amount of
noise pollution
Discharges from the

ships cause damage to
the marine and
coastal ecology.
Sand erosion
Discharges and
spills from Ships
such as oils,
lubricants, fuels,
sewage and garbage.
NA
Biodiversity
Dust dispersion on
land due to
construction may
change the terrestrial
habitat, affect the
health of the port
workers and the local
people engaged.
NA
NA
NA
NA
NA
NA
Different categories
of wastes dumped
on land.
Percent of total GHG
emissions by waste p.
24 of IPC CC Report
Waste water
generation.
Solid waste
generated in major
cities of India
associated with
growing population.
NA
Please refer to (http://www.unescap.org/ttdw/Publications/TFS_pubs/Pub_1234/pub_1234_ch2.pdf).

Please refer to (http://planningcommission.nic.in/reports/genrep/Inter_Exp.pdf).
45 Please refer to (http://moef.nic.in/soer/2009/SoE%20Report_2009.pdf).
43
44
Even though, a comprehensive framework has been laid down by the state and central
government as per the outline provided by the MoEF to provide environmental clearances,
there have been some projects which cannot be considered to be environmentally sustainable.
For instance, the Tirupur Water Supply and Sewerage Project did not pay adequate attention
towards environmental concerns. The project did not integrate the effluent treatment of
industrial discharge that is fundamental to prevent further damage to water bodies and
environment. Used water from textile units with high salt content was discharged directly into
River Noyyal, which adversely impacted the agricultural lands in the surrounding areas.
Effluents were also discharged into River Nallar that stagnated in the riverbeds and percolated
into the groundwater. Moreover, Orthupalayam Dam that used to irrigate around 500 acres of
agricultural land has now been reduced to storing industrial waste from textile units.46
Box 3.7 Navi Mumbai Airport
CIDCO submitted
the report
Asked to carry out
the simulation study
to establish conflict
free operation of the
two airports
Technical Economic
Feasibility Study carried
out
MoCA examined the
locations
1997
2000
Committee
recommended for
international airport
with two runways
Sept. - CIDCO
revised its proposal
2001
The Union Cabinet granted in

principal for development of
Greenfield airport at Navi Mumbai
on PPP
Made application to Ministry of
environment and forest (MoEF)
for environmental clearance
2006
Simulation Study
carried out by
Technical Cooperation Bureau
(TCB)
2007
Fresh application of
ToR to carry out
EIA was done
2008
GoM approved
CIDCO as the
nodal agency
2009
2010
Nov. EAC and
CRZ clearance
granted
The Navi Mumbai Airport suffered primarily due to environmental issues and lack of clarity in
the scope of the project. The airport took more than three years to get environment clearance.
The project was stalled as potential environmental losses were substantial. Destruction of
mangroves, threat to the recourse of the Ulwe River and noise pollution affecting avian
population of the Karnala and Matheran Hills, were the prominent concerns.
Amendments were made in the Coastal Regulation Zones notifications to accommodate the
implementation of the airport accompanied by the mitigation of environmental risks faced by the
surrounding ecosystems. Amending existing environmental laws are certainly not the best way to
mitigate threats to environment. Several visits were made by the MoEF and the Expert Appraisal
Committee to get detailed insights into the impact of noise pollution on the aviation habitat of
the Karnala and Matheran hills, on the recourse of the Ulwe River, mangrove forests and the
revised quality of water and ecology.
However, attempts were made to incorporate the needs of the public addressed in a public
hearing conducted on the development of the port. Since their livelihood was going to be
affected, attempts were made to resettle them.
(ii) Water
There have been instances where potable water is used for construction purposes. This has
caused ground water to deplete by 4 cm/year between 2002 and 2008 in the Northern States of
India. There is lack of coordination between the competing uses of water and there is no
regulation on ground water use. Absence of rational pricing of water has increased its misuse.
Also, the Water Users Associations (WUA) members are not adequately involved in solving
matters relating to the use of water.
Please see, Tirupur Water Supply and Sanitation Project: An Impediment to Sustainable water
Management? R. Madhav, IELRC Working Paper 2008-01. One international acre is equal to
4046.85 square metres.
46
(iii) Air
The State of Environment Report, 2009 issued by the MoEF has emphasized the further rise of
Carbon Dioxide emissions in India which would continue over the next few decades. The
major cause of these emissions is the power sector and its large dependence on coal (about 78
% of countrys total production). Nearly 70 % of the electricity produced in India is via thermal
units and coal continues to be the main fuel source.
In 2006-07 India emitted 492.53 million tonnes of Carbon Dioxide compared to 382.32 million
tonnes in 2000-01. Although, Indias share in global CO2 emissions was 5 % in 2007, which is
minimal as per her population size, there is still a need to explore alternative sources of energy
generation.
Fig. 3.2: Regionwise CO2 Emissions by Power Sector in India (in million tonnes
180
160
140
120
100
80
60
40
20
0
2000-01
2001-02
North
2002-03
East
2003-04
South
2004-05
West
2005-06
2006-07
North-East
Source: Table 2.2.3: Total Absolute Emissions of Co2 (Million Tonnes/ Year) From the Power Sector by
Region for 200-01 to 2006-07, State of Environment Report - India, 2009, MoEF
(iv) Forest
According to The Food & Agricultural Organization (FAO), the annual rate of deforestation in
India in the past decade (2001-10) has fallen to 5.2 million hectares, compared to 8.3 million
hectares in 1991-2000. Some countries like China, Norway and India and have increased the
area under forest cover at an annual rate of 1.6 %, 0.8 % and 0.5 %, respectively.47
Mangroves are important for the countrys ecology as they form not only a habitat for diverse
marine and terrestrial flora and fauna, but also in a socio economic context that is by
provisioning timber wood, fodder, medicines and honey to people. However, the area under
mangroves cover reduced from 4737 sq. km in 1997 to 4581 sq. km in 2005.
Other Initiatives
The National Urban Transport Policy, 2006 emphasizes on the different modes of transport,
mainly public transport (and the use of electrical transport) developed through cleaner
technologies to reduce the vehicular pollution. The policy has also been stressed on in the State
of Environment Report 2009 by the MoEF. United Nations Environment Program (UNEP)
has named India as the second largest contributor of CO2 emissions from the transport system.
An initiative is being made by UNEP, keeping into account the countrys goals on Climate
Change to promote low carbon transport in India.
The Economist Online, The State of the Worlds Forests, February 11th 2011, GMT 11:01 http://www.economist.com/blogs/dailychart/2011/02/worlds_forests
47
Section IV
Conclusion and Future Measures
India has come a long way from its earliest attempts at bringing in private participation in
infrastructure and public services. As discussed in this report, the first PPPs were instituted
primarily to bring in funds from the private sector to finance much needed infrastructure. This
experience has enabled a gradual maturing of the rationale of PPPs as a mode to leverage
private sector capacity to innovate and deliver higher quality of service, especially in social
sectors like health and education that desperately need an injection of quality in delivery.
Evidence of success of PPP projects is mixed at best both within India and at an international
level. Yet it is important to realize that PPPs still have the potential to play an important role in
delivering much needed public infrastructure and services. Results vary in potential due to the
structural and institutional inefficiencies that needs to be addressed. This report attempts to
capture the lessons that can be drawn from existing experiences in commercial infrastructure
sectors. This is the first phase of our larger research projects that attempts to build guidelines
for enhancing the quality and efficiency of the next wave of PPPs one that is likely to address
more complex sectors, involve greater stakeholder participation, more scrutiny and greater
impact.
The next phase of our research project by Athena Infonomics involves identifying the potential
for PPP in select social sectors skill development, water and solid waste management.
Through a mix of detailed case studies mapping different models, interviews, conferences,
workshops and secondary research, a set of issues and challenges faced by these sectors would
be identified. Next, we intend to use the principles and success factors developed in this report
and apply them to solve the challenges that have been identified for each sector. We are
cognizant that some of the problems facing these sectors pricing for water, for example are
entrenched in the sector specific context that is perhaps not amenable to a solution through
only a PPP approach. The key point is that PPPs are not a panacea for all ills facing a variety of
sectors, but instead, simply a tool, albeit a powerful one, to unlock critical bottlenecks that have
caused a chronic deficit in the quality of service delivery in these sectors.
Appendix I
Issues and Challenges faced by Public Private Partnerships
Public Private Partnerships have increasingly emerged as a preferred and viable mode for
building much needed infrastructure in the country. As part of our study on understanding the
issues and challenges faced by Public Private Partnerships and identifying lessons that can be
drawn from existing experiences, we would appreciate if you could fill in the following brief
questionnaire
Respondents Profile
Name
Designation
Company/Organization
Email
Mobile
Section A: Common Questions
1) Please score the stages of a PPP Project based on the criticality of the issues faced.
(From 1 to 5, 1 being the most critical and 5 being the least critical)
1
Project
Identification
Bidding
Financial
Closure
Construction
Operations &
Management/
Maintenance
2) Please tick the top five critical issues faced by you during a PPP Project lifecycle
Obtaining clarification on bidding parameters
Output specification of the project
Coordinating with the Government
Poor coordination among the central and state agencies
Securing finance for the projects
Availability of foreign currency denomination funds
Determination of user free/ tariff
Poor project governance
Land acquisition and other obtaining mandatory clearances
Dispute settlement mechanism
Lack of independent regulatory authorities in some sectors
Slow progress of ancillary set ups
Others : __________
3) Please rate the sectors on a scale of 1 to 5 based on their commercial viability.

(A score of 1 implying least viability and 5 being highly viable)
S/N
i.
ii.
iii.
iv.
v.
vi.
Sector
Roads
Ports
Airports
Power
Railways
Telecom
Score
S/N
vii.
viii.
ix.
x.
xi.
Sector
Tourism
Water Supply & Sanitation
Waste Management
Education
Health Care
Score
4) Please assign a score to the following states based on their investment attractiveness for
PPPs (A score of 1 implying least attractive and 5 being most attractive)
States
Andhra Pradesh
Gujarat
Karnataka
Kerala
Madhya Pradesh
Score
States
Maharashtra
Rajasthan
Sikkim
Uttar Pradesh
Tamil Nadu
Score
5) Please identify the different roles/ initiatives of carried out by the government during a PPP
project that needs improvement to make the PPP environment more private-sector friendly:
Draft National Public Private Partnership Policy
Broader shelf of projects across sectors/ states
Provision of Model Concession Agreements for all sectors
Provision of Guidelines to select Consultants
Provision of Bid Documents Request for Qualification / Proposal
Enhanced Role of PPP Appraisal Committee
Access/ Timely Disbursement of VGF
Monitoring & Evaluation
6) How useful do you find the MCA in drafting the actual terms of contract?
Very Useful
Useful
Neutral
Not Useful
No Opinion
7) Is fast track approval accorded to projects that adhere to the MCA as promised by the
Government?
Yes
No
Dont Know
8) Should the Swiss Challenge Approach (SCA) restriction be relaxed by the Central
Government for certain sectors?
Yes
No
No Opinion
9) Have output based specifications enabled better delivery of service?
Yes
No
Dont Know
10) How satisfied are you with the handling of disputes by the government?
Very Satisfied
Satisfied
Neutral
Dissatisfied
Strongly Dissatisfied
11) In the Water Sector, which areas are most likely to attract private sector investments?
Bulk water supply in industrial and city areas
Water supply in rural areas
Water supply on user charge basis
Water supply on annuity basis
Others
12) In the Education sector, which areas are most likely to attract private sector investments?
Primary Education
Higher Education
Research and Development
Skill Development
Others
13) In the Health Sector, which areas are most likely to attract private sector investment?
Primary Health Centres
Managed Hospitals
Diagnostic Services
Others
14) Do you consider that the Draft National PPP Policy recognizes the different nature of PPP
Projects in the social sectors?
Yes
No
No Opinion
15) Is the VGF criterion of 40 % sufficient to attract private sector in Social Sectors?
Yes
No
No Opinion
Section B: For Financial Institutions

1) Which is the most severe constraint faced by the banks when it comes to lending for
infrastructure projects under the PPP mode?
Information Asymmetry
Collateral requirement
Exposure ceilings stipulated by the RBI
Repayment risk
Asset Liability Mismatch
Lack of developed bond market
Other : _____________
2) How timely is the disbursement of VGF from the government?
On time
Usually on time
Sometimes delayed
Delayed
No opinion
3) In the event of a default by the concessionaire, is it easy to revoke the right of
substitution?
Yes
No
Dont know
4) In the event of a default by the concessionaire, is it easy to revoke the right of
substitution
Yes
No
Dont know
5) Do you prefer projects with VGF funding?
Yes
No
No opinion
Fig 1: Criticality of Issues Faced during different Stages of a PPP Project
Not critical
Less Critical
Neutral
Critical
Most Critical
Project
Identification
Bidding
Financial
Closure
Construction Operations &

Maintenance /
Management)
Fig 2: Attractiveness of Private Investments towards various areas of Health

Sector
Managed Hospitals
Diagnostic Services
Primary Health Centres
Others
0%
10%
20%
30%
40%
50%
60%
70%
80%
Fig 3: Attractiveness of Private Investments towards Various Areas of Water

Sector
Bulk Water Supply in Industrial & City Areas

Treatment of Water
Distribution of Water
Water supply in Rural Areas
Others
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Fig 4: Attractiveness of Private Investments towards Various Areas of Education

Sector
Higher Education
Skill Development & Training
Primary Education
Research & development
Others
0%
10% 20% 30% 40% 50% 60% 70% 80% 90%
Fig 5: Investment Attractiveness towards Various States
Gujarat
Tamil Nadu
Karnataka
Maharashtra
Rajasthan
Andhra Pradesh
Madhya Pradesh
Uttar Pradesh
Sikkim
Kerala
0
Fig 6: Usefulness of the MCAs
Fig 7: Impact of Output based Specifications on Better Delivery of Services
Fig 8: Fast Track Approval to Projects
Fig 9: Relaxation of Swiss Challenge Approach
Fig 10: Experiences of Private Sector in Handling Disputes with Government
Fig. 11: Recognition of the Social Sectors in Draft PPP Policy
Fig. 12: Sufficiency of 40 % as VGF to Attract Private Investments in Social Sectors
Fig. 13: Commercial Viability of various Sectors

Roads
Telecom
Ports
Power
Tourism
Airports
Railways
Health Care
Education
Water Supply & Sanitation
Waste Management
0
0.5
1.5
2.5
3.5
4.5
Fig. 14: Most Critical Issues Faced by PPP Projects

Land acquisition and other obtaining
Poor coordination among the central and
Obtaining clarification on bidding parameters
Determination of user fee/ tariff
Poor project governance
Others
Availability of foreign currency denomination
0%
50%
100%
Fig. 15: Initiatives Taken by the Government that Needs Improvement

Greater clarification of bid documents -
Draft National Public Private
Provision of Model Concession
Broader shelf of projects across sectors/
Enchanced Monitoring & Evaluation
Access/ timely disbursement of VGF
Enhanced role of PPP Appraisel
Others
Provision of Guidelines to select
0% 10% 20% 30% 40% 50% 60% 70% 80%
Fig. 16: Difficulties in Financing Social Sector Projects
Availability of appropriate financial

instruments
Lack of prior exposure/ experience
Sustainability issues
Sensitivity of the sectors
Commercial Viability
0%
10%
20%
30%
40%
50%
60%
70%
80%
Appendix II
Risk Sharing Mechanism A Review of Select States
State
Governments
Act/ Policy/
Guideline
Andhra Pradesh
Infrastructure
Development Enabling
Act, 2001
Assam Policy on Public

Private Partnership in
Infrastructure
Development
Bihar Infrastructure
Development Enabling
Act,2006
Identification of Risk, Allocation & Mitigation

(Clause 28-31)
The State Government Agency or the local authority would provide all facilities to
the developer in obtaining statutory clearances, water and power required; and
provides best effort support to obtain central government clearances and assistance
in rehabilitation and resettlement activities.
Disclosure of Generic risks and allocation will be provided in the concession
agreement.
The State Government may facilitate the developer to securitize project revenues
and assets in favor of lenders to safeguard successful completion of the project
The lenders will be given the right to cover dues from the developer in the form of
user charges and upon default by the developer, can substitute the developer upon
consent from the government.
(Clause 8 State Support Agreement)
Political Support/ commitment from the government that the project and its assets
will not be nationalized during the concession period.
Facilitate acquiring of the land necessary for project.
Assistance in R&R of affected families.
Facilitate in obtaining state and central government clearances.
Facilitate provision of supply of power and water at project site.
Same as that of Andhra Pradesh
(Schedule I & II)
The policy very comprehensively identifies the risks for each of these stages of a
PPP Project, to whom this risk is allocated and ways to mitigate the following:
Project Development Period, Construction Period, Operations Period, Financing
Risks &Other Risks.
Karnataka Infrastructure
Policy, 2007
Guidelines for Public

Private Partnership
Projects in the State of
Madhya Pradesh
Orissa Public Private

Partnership Policy 2007
The role and responsibilities of each institution has been outlaid very specifically,
namely
Government of Karnataka (GoK)
Infrastructure Development Department, GoK
High Level Committee
Single Window Agency
PPP Cell & District PPP Cell
Infrastructure Development Corporation (Karnataka) Limited
(Clause 9)
Implementing Agency will meet the cost of the following items
Feasibility Study and preparation of Project Report
Land for Right of Way and enroute facilities
Clearance of the Right of Way: Relocation of utility services, R&R and affected
establishments
Environmental Clearances
(Clause 7.2)
State Government shall offer necessary administrative support
Facilitate obtaining state and central government clearances
Facilitate R&R
Provision of supply of power and water at projects
Facilitate acquiring land
Appendix III
Generic Structure of the Environmental Impact Assessment Document
Category
Project Description
Analysis of
Alternatives
Description of
Environment
Impact Analysis
and Mitigation
Measures
Environmental
Monitoring
Program
Socio Economic
Project Benefits
Environmental
Management Plan
Features
Location of the project with various geographical aspects
(latitudes, district, natural resources, etc )
Activities to be undertaken for development of the project
Existing traffic and future predictions
Details of the SPV, project cost &PPP type
Status of land Acquisition
Facilities or services to be provided
Rehabilitation and resettlement of the existing community
and wildlife
Evaluation of the alternative use of natural resources,
technology and site
Existing quality of land, water and air
He used to have a beautiful biological environment (Eco
system and the respective habitat)
Socio-economic environment
Waste management
Prediction of the impact during construction and operational
phase and risk analysis
Avoid/ mitigate/ control adverse environmental impact
Provide remedies and disaster management plans
Technical aspects of monitoring the mitigation measuresParameters of monitoring
Frequency of measurement
Analysis of environmental impact
Submission of the environmental statement semi-annually
Provision for additional employment and revenue generation
Triggering growth in the region and improvement in the
quality of life
Development of ancillary industries and trade centers
Safety awareness
A separate environmental cell to oversee implementation of the
EMPMonitor the effectiveness of mitigation measures
Ensure efficient operation of mitigation measures
Establish systems and procedures for this purpose
Take any necessary action when unforeseen impact occurs
References
Asian Development Bank, Methodology for Estimating Carbon Footprint of Road ProjectsCase Study: India, (2010).
Deloitte Touche Tohmatsu India Private Limited, Background Paper on Port Connectivity in
Gujarat, (2009).
Department of Drinking Water and Sanitation, Results Framework Document, Ministry of
Rural Development, Government of India, (2011).
Department of Economic Affairs, Ministry of Finance, Government of India
PPP Projects Status Report on PPPs in India, (2011).
Draft National PPP Policy, (2011).
Risk A critical focus of PPP Design, PPP Toolkit for Improving PPP Decision Making
Processes,
Public
Private
Partnerships
in
India,
retrieved
at
http://toolkit.pppinindia.com/highways/module1-racfopd.php?links=risk1
Department of Industrial Policy and Promotion, Discussion Paper on Financing Requirements
of Infrastructure and Industry, Government of India, (2011).
Gujarat Infrastructure Development Board, Review of Blueprint for Infrastructure in Gujarat
(BIG 2020) Final Report, Government of Gujarat, (2009).
Mahalingam, A., PPP Experience in Indian States: Bottlenecks, Enablers and Key Issues, IIT
Madras, (2008).
Mahadev, R., Tirupur Water Supply and Sanitation Project: An Impediment to Sustainable
Water Management? IELRC, Working Paper No.1, (2008).
McKinsey & Company, Building India: Accelerating Infrastructure Projects, (2009).
National Highway Authority of India, Concession Agreement for Design, Engineering,
Construction, Development, Finance, Operation and Maintenance of 4 Laning of Existing 2
Lane Section from KM. 285 (Near Padalpur) to KM 325 (Near Trichy) on NH-45 in the State
of Tamil Nadu on Build Operate Transfer Basis, Government of India, (2006).
Planning Commission, Government of India
Chaturvedi, B.K., Second Report on Faster Implementation of NHDP, (2010)
Draft 12th Five Year Plan Document, (2011)
Eleventh Five Year Plan Document, (2008)
High Level Expert Group Report on Universal Health Coverage for India' (2011).
Model Concession Agreement for National Highways, Secretariat for Infrastructure, Indian
(2009).
Pargal S., Concession for Delhi Noida Bridge, (2007).
Report of the Expert Group to Review the Methodology for Estimation of Poverty (2009)
P. Pangotra, Case Study of Delhi Mumbai Freight Corridor (IIMA), National Strategy for
Promoting Low Carbon Transport in India, (2011).
R. Govinda et al., Access to Elementary Education in India: Country Analytical Review,
NUEPA, (2008)
State of Environment Report India 2009, Ministry of Environment & Forests, Government
of India, (2009)
The State of Environment India 2001, Ministry of Environment and Forests, Government of
India, (2001)
World Bank, The Nexus between Infrastructure and Environment, (2007)
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Public Private Partnerships in India

All Rights Reserved, Athena Infonomics

Public Private Partnerships in India

Public Policy Team, Athena Infonomics

Airport Authority of India

Ultra Mega Power Projects

Growth Drivers and Bottlenecks of the Indian Economy

Types of Private Sector Participation

Comparative Analysis of Features of Different PPP Definitions

Comparison of Costs, Risks, Returns and Incentives of Different

State-Wise PPP Intensity

Seven Success Factors for PPP Projects

Foreign Participation in PPP Projects in India

Allocation of Risk and Mitigation Measures in PPP Projects

Status of Provision of Basic Amenities to Public in India

Taxonomy of Provision of Public Services

Environmental Acts by MoEF

Impact of Development of Different Infrastructure Projects on

Trend GDP Growth Rates of Select Developing Countries and

Projected Trend Growth Rates in Key Economies

Human Development Index (Trends from 1980 to Present)

Annual Number of Mobile Subscriptions (In thousands)

Annual Air Passenger Traffic in India (In thousands)

Infrastructure Spending during the 11 and 12 Plan Period

Sector-wise PPP Maturity Number of Projects

Debt Requirement for the 11th Plan Period

Regionwise CO2 Emissions by Power Sector in India

Mumbai & Delhi International Airport

Nhava Sheva International Container Terminal

Vizhinjam International Container Terminal

Mundra Ultra Mega Power Project

Delhi Noida Toll Bridge (DND Flyway)

Byrraju 4P Model of Drinking Water Supply

Navi Mumbai Airport

Dr. S. Narayan, IAS (retd.)

Public Policy Team

performance linked returns, (iv) asset

Section II: Public Private Partnerships

Section III: Seven key success factors

2. Private sector capacity

Panchayats refer to a system of governance

Section IV: Conclusion and Next

Public Private Partnerships in India

Rapid Economic Growth

% Real GDP Growth

Exhibit 1.1: Growth Drivers and Bottlenecks of the Indian Economy

Medium human development

Source: HDI Report, UNDP (2011)

Role for Private Sector

Fig. 1.4: Annual Number of Mobile Subscriptions (In thousands)

INR Lakh Crore

Exhibit 2.1: Types of Private Sector Participation

Public Private Partnerships Features: Comparison with Global Practices

Private Sector Investment

Transfer of Asset Back to the Government

Public Nature of Service

Exhibit 2.2: Comparative Analysis of Features of Different PPP Definitions

Analyzing Public Private Partnerships

Project Identif ication

Fulf ilment of mandate

Financial viability risk

Current Status of Public Private Partnerships