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PPPs in India – will they regain their former glory?

Deblina Saha's picture

Photo: Adam Cohn | Flickr Creative Commons

India, until recently the fastest growing economy in the world, realized long ago the need for developing infrastructure to fuel its growth. The government also realized that doing so with public funds would not be sufficient. Hence, India rolled out one of the largest Public-Private Partnership (PPP) programs in the world over the first decade of the 21st century.

But India’s massive program also brought with it some challenges, which eventually slowed down the growth of PPPs over the last five years. Yet, this was not the end of the program or our national infrastructure ambitions. This was a learning period, and the relevant government agencies have been efficient in mapping out the constraints that plagued the PPP market and are working on policies to remedy them. It remains to be seen whether or not the implementation of these corrective measures will put the jewel back in the crown of Indian PPPs, but it is a step in the right direction.

The rise of PPPs in India

India saw an unprecedented surge in the number of infrastructure projects being implemented through PPPs during its 11th five-year plan, especially in the transport and power sectors.

According to World Bank data on the Private Participation in Infrastructure (PPI) Database, India was the top recipient of PPI activity from 2008 to 2012. India alone accounted for almost half of the investment in new PPI projects in developing countries during 2011. This was the result of propitious policy, and regulatory and institutional initiatives undertaken by the relevant government institutions. The establishment of the apex committee—the Public Private Partnership Appraisal Committee—under the chairmanship of the erstwhile Prime Minister, coupled with the adoption of standardized bidding documents, helped in dramatically streamlining the appraisal and approval of projects. The government provided innovative financing support mechanisms, for example viability gap funding or establishment of institutes like the India Infrastructure Project Development Fund (IIPDF) for funding project preparation and the India Infrastructure Finance Company Limited (IIFCL) for long-term project financing, which signaled other lenders to invest in a project. Some sector-focused initiatives like the Jawaharlal Nehru National Solar Mission and various phases of the National Highways Development Project also led to large-scale mobilization of private sector financing through PPPs.

The slowdown of PPPs in India

According to the PPI Database, in 2015, PPI investment in India fell for the fifth consecutive year, hitting a 10-year low at $3.9 billion. While the global economic slowdown played a role in the slowdown of infrastructure investment through PPPs in India, other major issues also contributed. On the government side, PPPs have been affected adversely by factors such as delays in land acquisition and clearances, shifting of utilities, right of way issues, leading to time and cost overruns. Additionally, on the private sector side, inadequate due-diligence by project developers as well as project finance banks also resulted in many bank loans being rendered as non performing. Infrastructure loans were a major contributor to the rising non-performing assets (NPAs) in the country, mostly the ones approved by the state-owned Public Sector Undertaking (PSU) banks. Capital markets are inadequately developed and are dominated by a safe asset class of quasi-government entities leaving virtually no appetite for infrastructure projects that are perceived as risky assets.

Reinvigorating PPPs in India

The time to revitalize PPPs in India is now, and by looking back and applying the lessons for the last two decades, the country will be able to accelerate its infrastructure agenda by leveraging private financing. Already, the Kelkar Committee has made robust recommendations to revitalize the PPP architecture in India, which if followed through gives India a shot not at just regaining its former glory in the field of PPPs, but ensuring their long-term viability. Some of the latest government initiatives tackle the biggest challenges head on and show the commitment of the different government agencies, for example:

  • The establishment of the National Investment and Infrastructure Fund (NIIF), a quasi-sovereign wealth fund, as a catalyst for supporting commercially viable projects, including stalled projects.
  • Procedures for obtaining environment and forest clearances have been expedited and simplified and is now an online process.
  • In the roads sector, a new hybrid annuity model has been launched with good response from private players.
  • The National Highways Authority now awards projects only after 80% of the project land has been acquired.
More still needs to be done. The enabling framework for PPPs needs to be strengthened, especially developing sector-specific institutional frameworks with independent regulators. In terms of transactions, India needs to focus on sectors other than transport and power and customize the PPP architecture to suit each sector.

A quick, efficient and unambiguous dispute resolution mechanism should be built into the PPP contracts, so that disputes don’t drag on for ages, crippling projects. A dispute resolution body should be appointed for expeditiously resolving disputes in existing projects, as each day’s delay costs the public.

Given the slowdown in bank lending, impetus should be provided to monetizing viable assets with stable cash flows, as well as refinancing projects to optimize on the rate of interest and tail period. Alternate financing instruments like Zero Coupon Bonds could lower the debt servicing costs in the initial phase of projects.

India should move forward with zeal, knowing that it built some of the finest airports in the world through PPPs in Mumbai and Delhi.

A little bump in the road shouldn’t derail India from its PPP fast track.

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Submitted by Dr. Mohamed Taher Abdelrazik Hamada,Ph.D on

As a continuation of my comments on the article "Innovative Financing : The case
of India Infrastructure Finace Company " by it's Author Anna Roy, the Author of this above article Deblina Saha raised some serious complementary issues about the role of PPPS in India, in my humble comment on these two article certainly there is
a lot of challenges , that have been overcome through the cooperation between PPPS and the state.
One can conclude that local agencies and domestic institutions in India were very collabrovative with the PPPS representatives as illustrated by the World Bank , but there should be more brilliant steps forward to overcome any obstacles to help to restore full efficency and full equity of workable mechanisms.
Yours Very Respectfully,
Dr. MOhamed Taher Abdelrazik Hamada, Ph.D
Retired Professor at Strayer University, USA

Submitted by Richard Kupisz on

One area that still seems to be thriving (judging by the number of invitations I get to bid for advisory mandates) is the railway sector. They also seem quite imaginative in what they are putting up for potential PPPs, focusing on stuff thats doable (stations) rather than stuff that isnt (tracks and trains)

Submitted by MANOJ K KAMRA on

PPP audit manual 2009, PPP toolkits (in papers only) are entirely being ignored in major PPP projects in india. National highway authority of india phase-IV (NHDP-IV) of widening of two lane roads(7m carriageway) to two lane roads with paved shoulder (10 m carriageway) is most corrupt project in PPP history of india. Such little widening from 7m to 10m for extortion of toll of amount 70percent of 4-lane highway need 1/3 amount compared to 4-lane road but toll rate is 70 percent of 4-lane road. This is plunder of public money in the name of forcible PPP. One example is NH-11 and stretch of 50km from dungergarh to Ratangarh is having very very poor traffic. On the other hand, portion of 35 km having heavy traffic have not been made 4-lane and widened to 10m only.(Fatehpur to Sikar NH-11). There are several such corrupt activities which are aimed at benefitting big investors by plundering public in the name of PPP.

PPp audit manual necessitates control over total cost, concession period(not to exceed decade in normal cases) etc. which are entirely ignored.

In NHDP-IV , roads having scarce traffic forcibly put in PPP mode by exaggeration of traffic figures to 8000 PCU (minimum required for PPP) .

Submitted by Phani Prasad Mandalaparthy on

You are quite right. Two lane plus paved shoulder projects are a financial drain as well as a safety hazard since it is the most accident prone configuration. This arrangement does not increase the traffic carrying capacity of an existing two lane road but and yet somehow warrants charging a toll fee.

Submitted by Stanley on

The PPPs, should be one of the vehicles to deliver Development. It may not work in all cases, however, due diligence, vigilance during project preparation and subsequent implementation are things to take to mind. I admire the efforts India has made so far. I have noted before that every project, is unique in its own right, it should be handled with flexibility.

lty therefore.

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