PUBLIC PRIVATE PARTNERSHIP

(PPP)
OVERVIEW & BASIC CONCEPTS
RAJEEV RANJAN SINGH
PPP OVERVIEW
• Infrastructure contributes significantly to economic development
• Elasticities of output with respect to various stocks of infrastructure indicate that:
• the transport and communication sectors play a dominant role in explaining the variations in
GDP and its sub-sectors.

• The index of industrial production is also found to track closely the movements in the
composite index of infrastructure industries during the 1980s and the 1990s.
• Infrastructure development in India came to be explicitly recognised as part of State
responsibility during the regime of Emperor Sher Shah (1540-1545),
• Another major turning point in the history of infrastructure development was the
flagging off of the Indian Railways in 1853 during the British Raj.
• The implementation of the National Highway Development Project, coupled with the
Prime Minister’s Gram Sadak Yojana (The Prime Minister’s Rural Roads Plan) will perhaps
mark a similar milestone in this, the 21st century.
• The role of the State in putting in place an infrastructure network was also emphasized
by the National Planning Committee (1938) and the Bombay Plan (1944) in pre-
independent India.
WHAT IS PPP IN INFRASTRUCTURE?

• Physical infrastructure, such as roads, water and sanitation networks, and transportation
systems, involve large investments that can put a strain on the public purse.
• This strain is especially great for countries, such as India, whose economies are
undergoing rapid development and urbanisation and have a great need for expanded
infrastructure.
• Public-private partnerships (PPPs) are increasingly being used by governments and public
sector authorities throughout the world as a way of increasing access to infrastructure
services for their citizenry and economies at a reduced cost.
PPP

PPP is a contractual arrangement between a

Government or statutory entity on the one side and a

private sector company on the other side, for

delivering an infrastructure service.

PPP

“A PPP means an arrangement between Government or statutory entity or Government owned entity

on one side and a private sector entity on the other, for the provision of public assets and/or related

services for public benefit, through investments being made by and/or management undertaken by the

private sector entity for a specified period of time, where there is a substantial risk sharing with the

private sector and the private sector receives performance linked payments that conform (or are

benchmarked) to specified, pre-determined and measurable performance standards.”

THE OBJECTIVES OF A PPP IN
INFRASTRUCTURE ARE TO:
• Increase the availability of infrastructure services
• To do so with greater efficiency (lower cost for the level of services provided) than could
be achieved using the traditional public sector approach
• PPPs make this possible because:
• PPPs allow access to the substantial financial resources of the private sector
• PPPs enable the public sector to benefit from private sector technical expertise, experience
and efficiency
• PPPs enable the public sector to transfer project-related risks to the private sector
STAKE HOLDERS
STAKEHOLDERS

• Public entity – means all Governments Departments & Directorates, Government

sponsored boards, societies, Municipal or Local Bodies, Panchayats,
Government sponsored education, research and knowledge management
institutions, Public Sector Undertakings, Government owned companies, statutory
authority and other entities, which are under the administrative control of the State
Government.
• Private partner – includes any entity other than the Public entity.
STAKEHOLDERS

• Concessionaire – refers to the private partner awarded the tender for the implementation of the
PPP project.
• Special Purpose Vehicle (SPV) - is simply an entity created to act as the legal manifestation of a
project consortium, with no historical financial or operating record which Government can
assess. An SPV is a legal entity with no activity other than those connected with its borrowing.
Typically, a private partner forms a special company called a "Special Purpose Vehicle" (SPV)
which contracts with Government. The SPV to develop, build, maintain and operate the asset
for the contracted period. In cases where the Government has invested in the project, it is
typically (but not always) allotted an equity share in the SPV. The consortium is usually made up
of a Developer, Operator and bank lender(s). It is the SPV that signs the contract with the
Government and with subcontractors to build the facility and then maintain it.
STAKEHOLDERS

• Transaction Advisors – are consultants hired through a transparent system of procurement by

the sponsoring authorities to assist them in designing the project and/or providing technical,
financial and legal input for the project design, and providing advice for the management of the
process of procuring the private sector partner for the PPP project
• Lead Bank/ Lender – is the financial institution (FI) that is funding the infrastructure project by
providing debt to an extent not less than 25 percent (twenty five percent) of the total project
debt and designated as such by an inter-institutional group or consortium of financial institution.
• Lead Financial Institution - means the FI that is funding the PPP project, and in case there is a
consortium of FIs, the Fl designated as such by the consortium.
STAKEHOLDERS

• Independent Engineer – is a consultant appointed for supervision and monitoring quality

of the project (different from TA). Usually, Independent Consultant is appointed after the
project has been awarded and the Concession Agreement has been signed. The
Independent Consultant ensures that the project work goes as per schedule and as per
the quality criteria specified in the agreement.
• Users – End users of the infrastructure created or in other terms project beneficiaries.
PROCESS MAP
STAGES
FINANCIAL RATIOS
FINANCIAL RATIO

• Debt to Equity Ratio (DER)

• Debt to Equity Ratio = Total Long Term Liabilities / (Equity + Quasi-equity)
• Long Term Liabilities include all liabilities in the nature of loans and debts that the SPV undertakes.
Please note that the Long Term Liabilities do not include share capital, reserves and surplus, and
current liabilities.
• Higher DER implies higher risks for lenders
FINANCIAL RATIO

• Annual Debt Service Cover Ratio (ADSCR)

• This ratio signifies the ability of project’s cashflows to meet the annual debt service
requirements.
• ADSCR = Available Cashflow for Debt Service / (Principal + Interest Payment)
• Higher Debt Service Coverage Ratio reduces risks for lenders.
FINANCIAL RATIO

• Loan Life Coverage Ratio (LLCR)

• This reflects the ability of the project to cover debt service over the entire period of loan.
• The LLCR enables an appraiser to understand that even if debt is not repaid in one period it
could be recovered over the remaining life of the loan.
• LLCR= NPV of Available Cashflow For Debt Service over the Debt Period / Total Debt
• Technically a LLCR greater than 1 times means that the loan can be recovered.
FINANCIAL RATIO

• Project Life Coverage Ratio (PLCR)

• This reflects the ability of the project to cover debt service over the entire duration of
project.
• PLCR= NPV of Available Cashflow For Debt Service over the Project Period ÷ Total Debt
RISKS
RISKS
RISKS
RISKS
THANKS
rajeevrsingh15@gmail.com
M: 8171614177