Public private partnerships in India
WilliamKittredge
26,390 views
58 slides
Jan 03, 2014
Slide 1 of 58
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
About This Presentation
Public private partnerships are becoming increasing important as governments harness the expertise and flexibility of the private sector to make investments they could not otherwise afford. The long-term nature of these partnerships makes them different from conventional procurements or privatisatio...
Slide Content
(c) William P. Kittredge 2013 1
Leadership Development Program
for Public Utility Managers
Public-Private Partnerships I
Presented by the Asian Institute of Technology
William P. Kittredge, Ph.D.
Visiting Scholar in Residence
Leadership Development Program
for Public Utility Managers
Public-Private Partnerships I
Presented by the Asian Institute of Technology
William P. Kittredge, Ph.D.
Visiting Scholar in Residence
(c) William P. Kittredge 2013 3
Excludable Non-excludable
Rival
Non-rival
Public Goods & Services
Common Pool Goods & Services
Private Goods & Services
Club Goods and Services
Excludable Non-excludable
Rival
Non-rival
Public Goods & Services
Common Pool Goods & Services
Private Goods & Services
Club Goods and Services
(c) William P. Kittredge 2013 4
Externalities
A cost or benefit which results from an activity or
transaction and which affects an otherwise uninvolved
party who did not choose to incur that cost or receive that
benefit.
Negative externalities e.g. water pollution, call for
government intervention at the appropriate level to match
the authority with the scope of the externality.
Usually thought of as negative, that is a 'cost' justifying
government intervention, there are also positive
externalities, e.g. the bee keeper who wants only honey
providing pollination for an apple orchard and the flowers
around your house.
Externalities
A cost or benefit which results from an activity or
transaction and which affects an otherwise uninvolved
party who did not choose to incur that cost or receive that
benefit.
Negative externalities e.g. water pollution, call for
government intervention at the appropriate level to match
the authority with the scope of the externality.
Usually thought of as negative, that is a 'cost' justifying
government intervention, there are also positive
externalities, e.g. the bee keeper who wants only honey
providing pollination for an apple orchard and the flowers
around your house.
(c) William P. Kittredge 2013 5
Equity
Issues of equity result from a subjective assessment of
what is, and what is not, a fair distribution of resources. A
political consensus is generally the standard. Hence,
access to public education (a merit good) regardless of
ability to pay might be an equity issue.
Social efficiency is an allied concept. Social efficiency is
achieved at the point where the marginal benefits to
society for either production or consumption are equal to
the marginal costs of either production or consumption,
which is a fancy way of saying that if we expend money on
public education, the economic benefit to the society
should justify the expense.
Equity
Issues of equity result from a subjective assessment of
what is, and what is not, a fair distribution of resources. A
political consensus is generally the standard. Hence,
access to public education (a merit good) regardless of
ability to pay might be an equity issue.
Social efficiency is an allied concept. Social efficiency is
achieved at the point where the marginal benefits to
society for either production or consumption are equal to
the marginal costs of either production or consumption,
which is a fancy way of saying that if we expend money on
public education, the economic benefit to the society
should justify the expense.
(c) William P. Kittredge 2013 6
Efficiency in the Public Sector
Allocative efficiency = whether goods and services are
allocated to the people who value them most
Productive efficiency = whether goods and services are
produced using best practices
You can improve public welfare by boosting either type of
efficiency!
Efficiency in the Public Sector
Allocative efficiency = whether goods and services are
allocated to the people who value them most
Productive efficiency = whether goods and services are
produced using best practices
You can improve public welfare by boosting either type of
efficiency!
Public Private Partnerships (PPP)
Provision and Production
Production
●
A government agency responds to public demand for a
service by hiring government workers, purchasing
equipment, making capital investment, and establishing
a program
Provision
●
A government agency may provide the same service by
partnering and/or contracting with a private entity
–Individual (technical expert e.g. attorney)
–For-profit corporation
–Social business
–Non-profit organisation
(c) 2013
Provision and Production
Production
●
A government agency responds to public demand for a
service by hiring government workers, purchasing
equipment, making capital investment, and establishing
a program
Provision
●
A government agency may provide the same service by
partnering and/or contracting with a private entity
–Individual (technical expert e.g. attorney)
–For-profit corporation
–Social business
–Non-profit organisation
(c) 2013
(c) 2013
Source: KPMG
Public Private Partnerships (PPP)
Source: KPMG
Public Private Partnerships (PPP)
Public Private Partnerships (PPP)
Definitions
PPP involves a contract between a public sector authority
and a private party in which the private party provides & or
produces a public service, or project, and may assume
substantial financial, technical or operational risks.
The variations on this theme are almost endless and are
constantly being expanded around the world – India is
arguably the world's leading PPP implementer.
(c) 2013
Definitions
PPP involves a contract between a public sector authority
and a private party in which the private party provides & or
produces a public service, or project, and may assume
substantial financial, technical or operational risks.
The variations on this theme are almost endless and are
constantly being expanded around the world – India is
arguably the world's leading PPP implementer.
(c) 2013
Public Private Partnerships (PPP)
Definitions
PPP refers to an arrangement between the public and private
sectors with clear agreement on shared objectives for the
delivery of public goods (e.g. infrastructure) and/or public
services (e.g. ambulance services).
Not the same as privatisation.
It is an approach that public authorities adopt to increase private
sector involvement in the delivery of public services to:
•Increase total investment in public goods & services
•Reduce costs
•Access expertise.
(c) 2013
Definitions
PPP refers to an arrangement between the public and private
sectors with clear agreement on shared objectives for the
delivery of public goods (e.g. infrastructure) and/or public
services (e.g. ambulance services).
Not the same as privatisation.
It is an approach that public authorities adopt to increase private
sector involvement in the delivery of public services to:
•Increase total investment in public goods & services
•Reduce costs
•Access expertise.
(c) 2013
Public Private Partnerships (PPP)
Definitions
The Government of India defines a PPP as "a partnership
between a public sector entity (sponsoring authority) and a
private sector entity (a legal entity in which 51% or more of
equity is with the private partner/s) for the creation and/or
management of infrastructure for public purpose for a
specified period of time (concession period) on commercial
terms and in which the private partner has been procured
through a transparent and open procurement system." Source:
Department of Economic Affairs, Ministry of Finance, Government of
India. 2007.
(c) 2013
Definitions
The Government of India defines a PPP as "a partnership
between a public sector entity (sponsoring authority) and a
private sector entity (a legal entity in which 51% or more of
equity is with the private partner/s) for the creation and/or
management of infrastructure for public purpose for a
specified period of time (concession period) on commercial
terms and in which the private partner has been procured
through a transparent and open procurement system." Source:
Department of Economic Affairs, Ministry of Finance, Government of
India. 2007.
(c) 2013
Public Private Partnerships (PPP)
Main Features
Long-term (10-60 years) contractual relationships – enduring
relationships create opportunities & may create problems
Shared responsibilities – relative roles depend on situation
A method of procurement - emphasis on the desired outcome
Risk transfer – somewhat problematic
Flexible ownership – myriad of options to suit individual situations
(c) 2013
Main Features
Long-term (10-60 years) contractual relationships – enduring
relationships create opportunities & may create problems
Shared responsibilities – relative roles depend on situation
A method of procurement - emphasis on the desired outcome
Risk transfer – somewhat problematic
Flexible ownership – myriad of options to suit individual situations
(c) 2013
Public Private Partnerships (PPP)
Elements
Design and Build – these are usually integrated
with at least one of the other elements;
Operation and Maintenance – in some projects,
these two elements are kept separate from each
other. For each PPP arrangement, the public sector
must decide whether the private sector company
should have responsibility for both operation and
maintenance of the asset or service, or whether it
would be preferable for it to be operated by the
public sector and maintained by the private;
(c) 2013
Elements
Design and Build – these are usually integrated
with at least one of the other elements;
Operation and Maintenance – in some projects,
these two elements are kept separate from each
other. For each PPP arrangement, the public sector
must decide whether the private sector company
should have responsibility for both operation and
maintenance of the asset or service, or whether it
would be preferable for it to be operated by the
public sector and maintained by the private;
(c) 2013
Public Private Partnerships (PPP)
Elements
Finance – typically, in pursuit of the optimum
means of financing the costs of public
infrastructure projects, PPP make use of a
combination of public and private sector funds.
The private sector raises capital funding for a
project through equity and debt finance, to be
recovered either from members of the public
through user charges, or from the sale of the
service to the public sector, or from a
combination of the two where the public sector
subsidises the service to make it affordable to the
end user;
(c) 2013
Elements
Finance – typically, in pursuit of the optimum
means of financing the costs of public
infrastructure projects, PPP make use of a
combination of public and private sector funds.
The private sector raises capital funding for a
project through equity and debt finance, to be
recovered either from members of the public
through user charges, or from the sale of the
service to the public sector, or from a
combination of the two where the public sector
subsidises the service to make it affordable to the
end user;
(c) 2013
Public Private Partnerships (PPP)
Elements
Ownership – when entering into a PPP, the
public authority must decide whether the
government or the private company should
own the facility that is developed. In some
arrangements, the land and facility will be
owned by the private sector, whereas in
others the asset will revert to public ownership
after construction.
(c) 2013
Elements
Ownership – when entering into a PPP, the
public authority must decide whether the
government or the private company should
own the facility that is developed. In some
arrangements, the land and facility will be
owned by the private sector, whereas in
others the asset will revert to public ownership
after construction.
(c) 2013
Public Private Partnerships (PPP)
(c) 2013
Traditional Procurement PPP Model
(c) 2013
Traditional Procurement PPP Model
Public Private Partnerships (PPP)
Variations
Private Finance Initiative - capital investment is made by
the private sector on the basis of a contract with government
to provide agreed services and the cost of providing the
service is borne wholly or in part by the government.
Government contributions to a PPP may be in kind (e.g.
transfer of existing assets, including land).
(c) 2013
Variations
Private Finance Initiative - capital investment is made by
the private sector on the basis of a contract with government
to provide agreed services and the cost of providing the
service is borne wholly or in part by the government.
Government contributions to a PPP may be in kind (e.g.
transfer of existing assets, including land).
(c) 2013
Public Private Partnerships (PPP)
Variations
Public Goods Projects - In projects that are aimed at
creating public goods (e.g. major infrastructure investments)
the government may provide a capital subsidy in the form of:
●
One-time grants
●
Revenue subsidies
●
Tax abatements (sometimes tradeable)
●
Guaranteed minimum annual revenues
In most cases, the last three are for some stipulated period of
time and may contain 'claw-back' provisions.
The intent is to make the investment more attractive to the
private investors.
(c) 2013
Variations
Public Goods Projects - In projects that are aimed at
creating public goods (e.g. major infrastructure investments)
the government may provide a capital subsidy in the form of:
●
One-time grants
●
Revenue subsidies
●
Tax abatements (sometimes tradeable)
●
Guaranteed minimum annual revenues
In most cases, the last three are for some stipulated period of
time and may contain 'claw-back' provisions.
The intent is to make the investment more attractive to the
private investors.
(c) 2013
Public Private Partnerships (PPP)
Variations
Typically, a private sector consortium [e.g. a construction or
maintenance company, consultants, and lender(s)] is formed
to develop, build, maintain and/or operate the asset for the
contracted period.
These special purpose companies are named ‘special
purpose vehicle’ (SPV).
In cases where the government has invested in the project
(including in-kind investments), it is typically (but not always)
allotted an equity share.
(c) 2013
Variations
Typically, a private sector consortium [e.g. a construction or
maintenance company, consultants, and lender(s)] is formed
to develop, build, maintain and/or operate the asset for the
contracted period.
These special purpose companies are named ‘special
purpose vehicle’ (SPV).
In cases where the government has invested in the project
(including in-kind investments), it is typically (but not always)
allotted an equity share.
(c) 2013
Public Private Partnerships (PPP)
Variations
It is the SPV that signs the contracts with the government and
the subcontractors to build the facility and/or maintain it.
In the infrastructure sector, complex arrangements and
contracts that guarantee and secure the cash flows make
PPP projects prime candidates for project financing.
For example, a hospital building financed and constructed by
a private developer is leased to the hospital authority. The
private developer then acts as landlord, providing
housekeeping and other non-medical services while the
hospital itself provides medical services. (Barlow, 2013)
(c) 2013
Variations
It is the SPV that signs the contracts with the government and
the subcontractors to build the facility and/or maintain it.
In the infrastructure sector, complex arrangements and
contracts that guarantee and secure the cash flows make
PPP projects prime candidates for project financing.
For example, a hospital building financed and constructed by
a private developer is leased to the hospital authority. The
private developer then acts as landlord, providing
housekeeping and other non-medical services while the
hospital itself provides medical services. (Barlow, 2013)
(c) 2013
Public Private Partnerships (PPP)
Variations
Product development partnerships (PDP) are a class of
public–private partnerships that focus on scientific research
and commercialization. For example, pharmaceutical product
development for diseases of the developing world. These
include preventive medicines such as vaccines and
microbicides, as well as treatments for otherwise neglected
diseases. PDPs were first created in the 1990s to unite the
public sector's commitment to international public goods for
health with industry's intellectual property, expertise in
product development, and marketing.
(c) 2013
Variations
Product development partnerships (PDP) are a class of
public–private partnerships that focus on scientific research
and commercialization. For example, pharmaceutical product
development for diseases of the developing world. These
include preventive medicines such as vaccines and
microbicides, as well as treatments for otherwise neglected
diseases. PDPs were first created in the 1990s to unite the
public sector's commitment to international public goods for
health with industry's intellectual property, expertise in
product development, and marketing.
(c) 2013
Public Private Partnerships (PPP)
Critiques
A common problem with PPP projects is that investors
obtain a rate of return that was higher than the
government’s bond rate, even though most or all of the
income risk associated with the project was borne by the
public sector.
(Barlow, 2010)
From an economic perspective, this means that investors got a
risk premium for project risk that the government assumed. As a
result, the cost to the government was above the cost if the
government borrowed the money itself by selling bonds.
(c) 2013
Critiques
A common problem with PPP projects is that investors
obtain a rate of return that was higher than the
government’s bond rate, even though most or all of the
income risk associated with the project was borne by the
public sector.
(Barlow, 2010)
From an economic perspective, this means that investors got a
risk premium for project risk that the government assumed. As a
result, the cost to the government was above the cost if the
government borrowed the money itself by selling bonds.
(c) 2013
Public Private Partnerships (PPP)
Critiques
A number of Australian studies of early infrastructure PPP
concluded that, in most cases, the schemes being proposed
were inferior to the standard model of public procurement
based on competitively tendered construction of publicly
owned assets (EPAC 1995; House of Representatives Standing
Committee, 1997; Harris 1996; Industry Commission 1996; Quiggin
1996).
(c) 2013
Critiques
A number of Australian studies of early infrastructure PPP
concluded that, in most cases, the schemes being proposed
were inferior to the standard model of public procurement
based on competitively tendered construction of publicly
owned assets (EPAC 1995; House of Representatives Standing
Committee, 1997; Harris 1996; Industry Commission 1996; Quiggin
1996).
(c) 2013
Public Private Partnerships (PPP)
Critiques
In 2009, the New Zealand Treasury, released a report on
PPP schemes that concluded that "there is little reliable
empirical evidence about the costs and benefits of PPP" and
that there "are other ways of obtaining private sector
finance", as well as that "the advantages of PPP must be
weighed against the contractual complexities and rigidities
they entail". (The New Zealand Herald)
(c) 2013
Critiques
In 2009, the New Zealand Treasury, released a report on
PPP schemes that concluded that "there is little reliable
empirical evidence about the costs and benefits of PPP" and
that there "are other ways of obtaining private sector
finance", as well as that "the advantages of PPP must be
weighed against the contractual complexities and rigidities
they entail". (The New Zealand Herald)
(c) 2013
Public Private Partnerships (PPP)
New Model
The Public–Private Community Partnership (PPCP) model,
wherein both the government and private players work
together for social welfare, eliminating the prime focus of
private players on profit – dovetailing nicely with the
movement for Corporate Social Responsibility (CSR) & social
business concepts.
This model is being applied more in developing nations such
as India.
(c) 2013
New Model
The Public–Private Community Partnership (PPCP) model,
wherein both the government and private players work
together for social welfare, eliminating the prime focus of
private players on profit – dovetailing nicely with the
movement for Corporate Social Responsibility (CSR) & social
business concepts.
This model is being applied more in developing nations such
as India.
(c) 2013
PPP in India
History of PPP in India can be traced back to 1853 and The
Great Indian Peninsular Railway Company (source: PPP in India
website)
Roads and urban development comprise the vast majority of
the projects ~ 73% (source PPP India database as of July 31, 2011)
Growing since 1998 and significant acceleration since 2006,
both as a result of legislative & regulatory changes, &
increased political will.
(c) 2013
History of PPP in India can be traced back to 1853 and The
Great Indian Peninsular Railway Company (source: PPP in India
website)
Roads and urban development comprise the vast majority of
the projects ~ 73% (source PPP India database as of July 31, 2011)
Growing since 1998 and significant acceleration since 2006,
both as a result of legislative & regulatory changes, &
increased political will.
(c) 2013
PPP in India
“Prime Minister Manmohan Singh today set an investment
target of Rs 1.15 lakh crore in PPP (public private
partnership) projects across infrastructure sectors in rail, port
and power in the next six months.” (Firstpost online Jun 29,
2013)
"Increasingly, in India, PPPs are emerging preferred mode of
investment for publicly managed construction. (The Times of
India website accessed: Jun 23, 2013, 07.43PM IST)
“Prime Minister Manmohan Singh today set an investment
target of Rs 1.15 lakh crore in PPP (public private
partnership) projects across infrastructure sectors in rail, port
and power in the next six months.” (Firstpost online Jun 29,
2013)
"Increasingly, in India, PPPs are emerging preferred mode of
investment for publicly managed construction. (The Times of
India website accessed: Jun 23, 2013, 07.43PM IST)
Public Private Partnerships (PPP)
Driving Forces in India
Rapidly growing economy's demand for infrastructure
Public deficit constrains government's ability to fund infrastructure
and government borrowing is capped through the Fiscal
Responsibility and Budgetary Management Act.
As a result, one-third of the finance needed for infrastructural
development over the next five years [i.e. 2009-13] will be
funded by the private sector (Research Republic LLP. 2008)
(c) 2013
Driving Forces in India
Rapidly growing economy's demand for infrastructure
Public deficit constrains government's ability to fund infrastructure
and government borrowing is capped through the Fiscal
Responsibility and Budgetary Management Act.
As a result, one-third of the finance needed for infrastructural
development over the next five years [i.e. 2009-13] will be
funded by the private sector (Research Republic LLP. 2008)
(c) 2013
Public Private Partnerships (PPP)
Driving Forces in India
Government of India is actively promoting the expansion of
Public Private Partnership (PPP) activities across all key
infrastructure sectors including highways, ports, power and
telecoms.
To date, various PPP models have been tried in India, including
public contracting; passive public investment (equity, debt,
guarantee, grants); joint ventures; and long-term contractual
agreements of various types.
(c) 2013
Driving Forces in India
Government of India is actively promoting the expansion of
Public Private Partnership (PPP) activities across all key
infrastructure sectors including highways, ports, power and
telecoms.
To date, various PPP models have been tried in India, including
public contracting; passive public investment (equity, debt,
guarantee, grants); joint ventures; and long-term contractual
agreements of various types.
(c) 2013
Public Private Partnerships (PPP)
Design-Build (DB)
Build-Transfer (BT)
Build-Transfer-Operate
(BTO)
Design-Build-Operate
(DBO)
Build-Operate-Transfer
(BOT)
Build-Own-Operate-
Transfer (BOOT)
The private sector designs
and builds an asset, and
then transfers it to the
government. The private
sector may also operate it,
and then transfers it to the
government when the
operating contract ends.
The private partner may
subsequently rent or lease
the asset from the
government for a specified
period.
(Taxonomy by IMF 2004)
(c) 2013
Design-Build (DB)
Build-Transfer (BT)
Build-Transfer-Operate
(BTO)
Design-Build-Operate
(DBO)
Build-Operate-Transfer
(BOT)
Build-Own-Operate-
Transfer (BOOT)
The private sector designs
and builds an asset, and
then transfers it to the
government. The private
sector may also operate it,
and then transfers it to the
government when the
operating contract ends.
The private partner may
subsequently rent or lease
the asset from the
government for a specified
period.
(Taxonomy by IMF 2004)
(c) 2013
Public Private Partnerships (PPP)
Wrap Around Addition
(WAA)
Lease-Develop-Operate
(LDO)
Buy-Develop-Operate
(BDO)
(Taxonomy by IMF 2004)
The private sector
buys or leases an
existing asset from
the government,
renovates,
modernizes, and/or
expands it, and then
operates the asset,
with no obligation to
transfer ownership
back to the
government.
(c) 2013
Wrap Around Addition
(WAA)
Lease-Develop-Operate
(LDO)
Buy-Develop-Operate
(BDO)
(Taxonomy by IMF 2004)
The private sector
buys or leases an
existing asset from
the government,
renovates,
modernizes, and/or
expands it, and then
operates the asset,
with no obligation to
transfer ownership
back to the
government.
(c) 2013
Public Private Partnerships (PPP)
Design-Build-Finance-
Operate (DBFO)
Design-Build-Finance-
Maintain (DBFM)
Build-Own-Operate (BOO)
Build-Develop-Operate
(BDO)
Design-Construct-Manage-
Finance (DCMF)
These are variants of
Design-Build-Finance-
Operate (DBFO)
The private sector
designs, builds, finances,
owns, develops, operates
and manages an asset
with no obligation to
transfer ownership to the
government.
(Taxonomy by IMF 2004)
(c) 2013
Design-Build-Finance-
Operate (DBFO)
Design-Build-Finance-
Maintain (DBFM)
Build-Own-Operate (BOO)
Build-Develop-Operate
(BDO)
Design-Construct-Manage-
Finance (DCMF)
These are variants of
Design-Build-Finance-
Operate (DBFO)
The private sector
designs, builds, finances,
owns, develops, operates
and manages an asset
with no obligation to
transfer ownership to the
government.
(Taxonomy by IMF 2004)
(c) 2013
PPP in India
The BOT form, including its variants, is the most common
form of PPP model used in India accounting for almost two-
thirds of PPP projects in the country. (PPP in India website)
The two major forms of BOT models are:
●User-fee based BOT model: Commonly used in medium-
to large-scale PPP for the energy and transport sub-
sectors (road, ports and airports).
●Annuity-based BOT model: Commonly used in
sectors/projects not meant for cost recovery through
user charges such as rural, urban, health and education
sectors
(c) 2013
The BOT form, including its variants, is the most common
form of PPP model used in India accounting for almost two-
thirds of PPP projects in the country. (PPP in India website)
The two major forms of BOT models are:
●User-fee based BOT model: Commonly used in medium-
to large-scale PPP for the energy and transport sub-
sectors (road, ports and airports).
●Annuity-based BOT model: Commonly used in
sectors/projects not meant for cost recovery through
user charges such as rural, urban, health and education
sectors
(c) 2013
PPP in India
Modified design-build (turnkey) contracts
The design-build contracts yield benefits in the form of time
and cost savings, efficient risk-sharing and improved quality.
The turnkey approach with milestone-linked payments and
penalties or incentives can be linked to such kind of contracts.
(c) 2013
Modified design-build (turnkey) contracts
The design-build contracts yield benefits in the form of time
and cost savings, efficient risk-sharing and improved quality.
The turnkey approach with milestone-linked payments and
penalties or incentives can be linked to such kind of contracts.
(c) 2013
PPP in India
Performance based management/maintenance contracts
The PPP models that lead to improved efficiency are
encouraged in an environment that is constrained by the
availability of economic resources.
The sectors most commonly employing this form of PPP
include water supply, sanitation, solid waste management,
and road maintenance.
(c) 2013
Performance based management/maintenance contracts
The PPP models that lead to improved efficiency are
encouraged in an environment that is constrained by the
availability of economic resources.
The sectors most commonly employing this form of PPP
include water supply, sanitation, solid waste management,
and road maintenance.
(c) 2013
PPP in India
While there do exist build-own-operate (BOO) models, they
are not supported by the GoI due to its finite resources
and the complexities in imposing penalties in case of non-
performance and estimation of value of underlying assets
in case of early termination.
The GoI does not recognize the engineering-procurement-
construction (EPC) contracts and asset divestitures as PPPs.
(c) 2013
(Ernst & Young 2012)
While there do exist build-own-operate (BOO) models, they
are not supported by the GoI due to its finite resources
and the complexities in imposing penalties in case of non-
performance and estimation of value of underlying assets
in case of early termination.
The GoI does not recognize the engineering-procurement-
construction (EPC) contracts and asset divestitures as PPPs.
(c) 2013
(Ernst & Young 2012)
Public Private Partnerships (PPP)
Caveats
It is important to understand that PPP are not catch-all solutions
to the persistent difficulties of under-investment and lack of
resources for development. As the World Bank (2006) pointed
out, in regard to Indian infrastructural development,
PPPs represent a claim on public resources that need to be
understood and assessed in each case.
They often involve complex transactions, needing a clear
specification of the services to be provided and an
understanding of the way risks allocation between the public
and private sector.
(c) 2013
Caveats
It is important to understand that PPP are not catch-all solutions
to the persistent difficulties of under-investment and lack of
resources for development. As the World Bank (2006) pointed
out, in regard to Indian infrastructural development,
PPPs represent a claim on public resources that need to be
understood and assessed in each case.
They often involve complex transactions, needing a clear
specification of the services to be provided and an
understanding of the way risks allocation between the public
and private sector.
(c) 2013
Public Private Partnerships (PPP)
Caveats
Moreover, the long-term nature of many PPP means that
government has to develop and manage a relationship with
private providers
Address the unexpected events that can disrupt even the best
contracts.
Ultimately,PPPs always involve projects for which, in the eyes of
citizens, government ultimately bears responsibility – even
if the task of delivery has been contracted out.
(c) 2013
Caveats
Moreover, the long-term nature of many PPP means that
government has to develop and manage a relationship with
private providers
Address the unexpected events that can disrupt even the best
contracts.
Ultimately,PPPs always involve projects for which, in the eyes of
citizens, government ultimately bears responsibility – even
if the task of delivery has been contracted out.
(c) 2013
PPP in India
Cautions & Concerns
“UN warns India against disaster risks in major PPP projects”
(The Times of India website accessed: June 23, 2013, 07.43PM IST)
“These partnerships do not necessarily lead to improved
disaster risk assessment and management, and may
underplay disaster risks or lead to their transfer as shared
costs to the public sector or to city residents." (UN GAR 2013
quoted in The Times of India website accessed: Jun 23, 2013, 07.43PM
IST)
“It has been much debated as to whether water should be
privatized since it is a public good and a utility essential for
life.” (Lanjekar, 2010)
(c) 2013
Cautions & Concerns
“UN warns India against disaster risks in major PPP projects”
(The Times of India website accessed: June 23, 2013, 07.43PM IST)
“These partnerships do not necessarily lead to improved
disaster risk assessment and management, and may
underplay disaster risks or lead to their transfer as shared
costs to the public sector or to city residents." (UN GAR 2013
quoted in The Times of India website accessed: Jun 23, 2013, 07.43PM
IST)
“It has been much debated as to whether water should be
privatized since it is a public good and a utility essential for
life.” (Lanjekar, 2010)
(c) 2013
Public Private Partnerships (PPP)
Common Reasons for Failure (Source: Ministry of Finance, Singapore 2004)
Poorly drafted contracts;
Contract managers assigned insufficient resources;
Lack of experience in either public sector or provider teams;
A failure to adopt a partnership attitude;
Personality clashes between project team personnel;
(c) 2013
Common Reasons for Failure (Source: Ministry of Finance, Singapore 2004)
Poorly drafted contracts;
Contract managers assigned insufficient resources;
Lack of experience in either public sector or provider teams;
A failure to adopt a partnership attitude;
Personality clashes between project team personnel;
(c) 2013
Public Private Partnerships (PPP)
Common Reasons for Failure (Source: Ministry of Finance, Singapore 2004)
Lack of understanding of complexity, context and
dependencies of contract;
Unclear identification of authority and responsibility in relation
to commercial decisions;
Lack of measurement of performance;
Focus on existing arrangements rather than emphasis on
potential improvements;
Inadequate monitoring and management of statutory, political
and commercial risk.
(c) 2013
Common Reasons for Failure (Source: Ministry of Finance, Singapore 2004)
Lack of understanding of complexity, context and
dependencies of contract;
Unclear identification of authority and responsibility in relation
to commercial decisions;
Lack of measurement of performance;
Focus on existing arrangements rather than emphasis on
potential improvements;
Inadequate monitoring and management of statutory, political
and commercial risk.
(c) 2013
Public Private Partnerships (PPP)
Signs of Inadequate Management
The provider may assume control, leading to unbalanced
decisions that do not reflect the interest of the public sector;
Decisions are made at inappropriate times;
New business processes are unsuccessfully integrated with
existing ones, and fail;
People within either sector may fail to understand their roles
and responsibilities;
(c) 2013
Signs of Inadequate Management
The provider may assume control, leading to unbalanced
decisions that do not reflect the interest of the public sector;
Decisions are made at inappropriate times;
New business processes are unsuccessfully integrated with
existing ones, and fail;
People within either sector may fail to understand their roles
and responsibilities;
(c) 2013
Public Private Partnerships (PPP)
Signs of Inadequate Management
Disputes and misunderstandings may arise, some of which
might be inappropriately escalated;
Progress may be slow or there might be an inability to move
forward;
The desired benefits may not be achieved;
Possibilities for improved performance or value for money
might be lost.
(c) 2013
Signs of Inadequate Management
Disputes and misunderstandings may arise, some of which
might be inappropriately escalated;
Progress may be slow or there might be an inability to move
forward;
The desired benefits may not be achieved;
Possibilities for improved performance or value for money
might be lost.
(c) 2013
Public Private Partnerships (PPP)
Contract Renegotiation
Recently, the realisation that the long contract lives imply
changing conditions.
This is especially true in a rapidly developing economy in
which rural residence and agricultural employment is
expected to decline; urbanisation increase; and GDP increase
significantly.
While financing contracts are impacted, the main concern
being raised is in operating contracts.
(c) 2013
Contract Renegotiation
Recently, the realisation that the long contract lives imply
changing conditions.
This is especially true in a rapidly developing economy in
which rural residence and agricultural employment is
expected to decline; urbanisation increase; and GDP increase
significantly.
While financing contracts are impacted, the main concern
being raised is in operating contracts.
(c) 2013
Public Private Partnerships (PPP)
Contract Renegotiation
In a recent Business Standard article, the issue was
discussed in some detail and makes an interest topic for
discussion.
The author sites several recent incidents in which changing
circumstances have caused what may become major
disruptions.
“GMR and GVK have walked out of recently-won mega-
highway projects. The Gurgaon Expressway is in trouble.
Delhi Airport Metro Express is under arbitration.” (Chatterjee,
2013)
(c) 2013
Contract Renegotiation
In a recent Business Standard article, the issue was
discussed in some detail and makes an interest topic for
discussion.
The author sites several recent incidents in which changing
circumstances have caused what may become major
disruptions.
“GMR and GVK have walked out of recently-won mega-
highway projects. The Gurgaon Expressway is in trouble.
Delhi Airport Metro Express is under arbitration.” (Chatterjee,
2013)
(c) 2013
Public Private Partnerships (PPP)
Contract Renegotiation
An overview of more than 1,000 PPP studied by the World
Bank Institute in Latin America (1985-2000) reveals:
41.5 per cent have undergone renegotiation;
Out of the total concessions in the transport infrastructure
sector, 55 per cent of the concessions underwent
renegotiation;
85 per cent of renegotiation occurred within four years of
concession awards, and 60 per cent occurred within three
years;
Renegotiation occurred mostly in concessions awarded
through competitive bidding;
In 61 per cent of cases, the concessionaire requested
renegotiation.(Ibid)
(c) 2013
Contract Renegotiation
An overview of more than 1,000 PPP studied by the World
Bank Institute in Latin America (1985-2000) reveals:
41.5 per cent have undergone renegotiation;
Out of the total concessions in the transport infrastructure
sector, 55 per cent of the concessions underwent
renegotiation;
85 per cent of renegotiation occurred within four years of
concession awards, and 60 per cent occurred within three
years;
Renegotiation occurred mostly in concessions awarded
through competitive bidding;
In 61 per cent of cases, the concessionaire requested
renegotiation.(Ibid)
(c) 2013
Public Private Partnerships (PPP)
Contract Renegotiation
Taking the last two into special consideration, let's
discuss the questions the author poses:
Can bidders who lost in the competitive process take
government bodies to court claiming that the
renegotiation creates material changes to the tender that
were not extended to them during the bidding stage?
If the material conditions of a PPP contract awarded
through the bid process are changed by renegotiation,
does this encourage many more project developers to
anticipate post-award renegotiations?
(c) 2013
Contract Renegotiation
Taking the last two into special consideration, let's
discuss the questions the author poses:
Can bidders who lost in the competitive process take
government bodies to court claiming that the
renegotiation creates material changes to the tender that
were not extended to them during the bidding stage?
If the material conditions of a PPP contract awarded
through the bid process are changed by renegotiation,
does this encourage many more project developers to
anticipate post-award renegotiations?
(c) 2013
Public Private Partnerships (PPP)
Contract Renegotiation
A moral hazard exists if PPP SPV bidders know, or
believe, that losses will be reimbursed by post facto
government action, whilst profits do not have to be
shared. How could the incentives be structured to avoid
the moral hazard?
Distinguishing between services or projects that become
unviable because of genuine unforeseen developments
and projects that are unviable in the first instance,
perhaps as a result of predatory bid pricing or
commercial judgement errors, a normal business risk,
will be difficult. In your environment, how would you
distinguish?
(c) 2013
Contract Renegotiation
A moral hazard exists if PPP SPV bidders know, or
believe, that losses will be reimbursed by post facto
government action, whilst profits do not have to be
shared. How could the incentives be structured to avoid
the moral hazard?
Distinguishing between services or projects that become
unviable because of genuine unforeseen developments
and projects that are unviable in the first instance,
perhaps as a result of predatory bid pricing or
commercial judgement errors, a normal business risk,
will be difficult. In your environment, how would you
distinguish?
(c) 2013
PPP in India
PPP is, and for the foreseeable future, a dominant model for
infrastructure investments and may become more common in
the service delivery arena as time goes on.
India has entered into long-term agreements that will continue
to have fiscal, social, environmental, and political effects for
at least the next three decades.
We will not turn to examine some cases of Indian PPP and
discuss them in light of the information above.
(c) 2013
PPP is, and for the foreseeable future, a dominant model for
infrastructure investments and may become more common in
the service delivery arena as time goes on.
India has entered into long-term agreements that will continue
to have fiscal, social, environmental, and political effects for
at least the next three decades.
We will not turn to examine some cases of Indian PPP and
discuss them in light of the information above.
(c) 2013
PPP Process Case Examples
Comprehensive Due Diligence Studies
Vadodara Halol Toll Road Case
Traffic estimates, and therefore toll revenue forecasts, were
based on the assumption that the industrial incentives
would continue indefinately.
When the incentives were withdrawn, traffic volume, and
therefore toll revenue, was almost 50% lower than forecast.
Delhi Gurgaon Expressway experience just the opposite
problem.
Due Diligence, including Life Cycle Cost Sensitivity Analysis,
was not faithfully conducted.
(c) 2013
Comprehensive Due Diligence Studies
Vadodara Halol Toll Road Case
Traffic estimates, and therefore toll revenue forecasts, were
based on the assumption that the industrial incentives
would continue indefinately.
When the incentives were withdrawn, traffic volume, and
therefore toll revenue, was almost 50% lower than forecast.
Delhi Gurgaon Expressway experience just the opposite
problem.
Due Diligence, including Life Cycle Cost Sensitivity Analysis,
was not faithfully conducted.
(c) 2013
PPP Process Case Examples
Dealing with Speculative Bids
Hyderabad Metro Case
Winning bid was wildly better than the SPV other
submissions.
Due to investor reluctance, the project was not able to
achieve financial closure.
The government finally had to withdraw its award and re-
launch the bid process, causing delays in entire schedule and
loss of social welfare.
Kittredge's Rule: If something seems to good to be true, it
probably is...
(c) 2013
Dealing with Speculative Bids
Hyderabad Metro Case
Winning bid was wildly better than the SPV other
submissions.
Due to investor reluctance, the project was not able to
achieve financial closure.
The government finally had to withdraw its award and re-
launch the bid process, causing delays in entire schedule and
loss of social welfare.
Kittredge's Rule: If something seems to good to be true, it
probably is...
(c) 2013
PPP Process Case Examples
Robust & Simple Bid Criteria
Gangavaram Port Case
Initial tender evaluation criteria were internally inconsistent,
creating speculative bid incentives.
The criteria scoring favored larger commitments, even if
unrealistic.
While the government eventually decided to terminate the
process, BUT the situation could have resulted in an
unsustainable project.
KISS
(c) 2013
Robust & Simple Bid Criteria
Gangavaram Port Case
Initial tender evaluation criteria were internally inconsistent,
creating speculative bid incentives.
The criteria scoring favored larger commitments, even if
unrealistic.
While the government eventually decided to terminate the
process, BUT the situation could have resulted in an
unsustainable project.
KISS
(c) 2013
PPP Process Case Examples
Robust & Simple Bid Criteria
Nhave Sheva Integrated Container Terminal Case
A single bid evaluation criterion of the highest royalty
payment NPV was simple but insufficient.
The lacking a method to assess royalty payouts to the
licensor and
The problems arising from the interaction of the royalty with
the tariff level created a number of issues in the subsequent
operations phase.
Cover all the necessary issues
(c) 2013
Robust & Simple Bid Criteria
Nhave Sheva Integrated Container Terminal Case
A single bid evaluation criterion of the highest royalty
payment NPV was simple but insufficient.
The lacking a method to assess royalty payouts to the
licensor and
The problems arising from the interaction of the royalty with
the tariff level created a number of issues in the subsequent
operations phase.
Cover all the necessary issues
(c) 2013
PPP Process Case Examples
Land Acquisition Risk
Mumbai Metro Case
The the PPP agreements included the government's land
acquisition schedule commitment.
The land was under disputed private ownership exposing the
government to land acquistion risk & construction delay costs.
The issue was eventually resolved, but it would have been
more efficient to address it before signing the PPP agreement
or addressing the issue in the documents.
Land acquisition is project critical. As a core issue, it should
be comprehensively addressed during Due Diligence studies.
(c) 2013
Land Acquisition Risk
Mumbai Metro Case
The the PPP agreements included the government's land
acquisition schedule commitment.
The land was under disputed private ownership exposing the
government to land acquistion risk & construction delay costs.
The issue was eventually resolved, but it would have been
more efficient to address it before signing the PPP agreement
or addressing the issue in the documents.
Land acquisition is project critical. As a core issue, it should
be comprehensively addressed during Due Diligence studies.
(c) 2013
PPP Process Case Examples
Co-Ordination of Approvals
Delhi Gurgaon Expressway Project Case
The project involved the States of Delhi and Haryana,
requiring approvals from over fifteen agencies.
The complex caused significant, and expensive, delays
during construction.
Similar problems were experienced during the Karnataka
Urban Water Supply Improvement project.
In cases like this, my experience tells me that your best
approach is to get them all in a single room & hammer out the
problems in batches.
(c) 2013
Co-Ordination of Approvals
Delhi Gurgaon Expressway Project Case
The project involved the States of Delhi and Haryana,
requiring approvals from over fifteen agencies.
The complex caused significant, and expensive, delays
during construction.
Similar problems were experienced during the Karnataka
Urban Water Supply Improvement project.
In cases like this, my experience tells me that your best
approach is to get them all in a single room & hammer out the
problems in batches.
(c) 2013
PPP Process Case Examples
Well Defined Scope of Work
Delhi Gurgaon Expressway Project Case
The DGE experienced significant time and cost overruns due
to changes in the concessionaire’s scope of work issued days
before original project completion date.
NHAI initiated substantial changes in the original design to
address future requirements.
These matters should have been incorporated into the bid
process.
Very costly in time and money.
(c) 2013
Well Defined Scope of Work
Delhi Gurgaon Expressway Project Case
The DGE experienced significant time and cost overruns due
to changes in the concessionaire’s scope of work issued days
before original project completion date.
NHAI initiated substantial changes in the original design to
address future requirements.
These matters should have been incorporated into the bid
process.
Very costly in time and money.
(c) 2013
PPP Process Case Examples
Tariff Determination Clarity
Nhava Sheva Integrated Container Terminal Case
The PPP agreement lacked clarity regarding the royalty
payment calculation.
The port tariff calculation method did not clearly specify the
characterisation of the royalty payment in the SPV's
accounts.
–Royalty payment could be classified as either a cost or
a share in the SVP profit
Failure to examine the calculation methods is a common
mistake, especially when one hurries.
(c) 2013
Tariff Determination Clarity
Nhava Sheva Integrated Container Terminal Case
The PPP agreement lacked clarity regarding the royalty
payment calculation.
The port tariff calculation method did not clearly specify the
characterisation of the royalty payment in the SPV's
accounts.
–Royalty payment could be classified as either a cost or
a share in the SVP profit
Failure to examine the calculation methods is a common
mistake, especially when one hurries.
(c) 2013
(c) William P. Kittredge 2013 58
References
Chatterjee, V; “Renegotiating PPP contracts” The Business Standard
Online. June 22, 2013 accessed: May 20, 2013
Barlow, J., Roehrich, J.K. and Wright, S. (2013). “Europe Sees Mixed
Results From Public-Private Partnerships For Building And Managing
Health Care Facilities And Services”. Health Affairs. 32(1):146-154
Barlow, J. Roehrich, J.K. and Wright, S. (2010). De facto privatisation or a
renewed role for the EU? Paying for Europe’s healthcare infrastructure in
a recession. Journal of the Royal Society of Medicine. 103:51-55.
Economic Planning Advisory Commission (EPAC) (1995), ‘Final Report of
the Private Infrastructure Task Force’, Australian Government Publishing
Service, Canberra.
House of Representatives Standing Committee on Communications
Transport and Microeconomic Reform 1997 Australian Government
Publishing Service, Canberra.
References
Chatterjee, V; “Renegotiating PPP contracts” The Business Standard
Online. June 22, 2013 accessed: May 20, 2013
Barlow, J., Roehrich, J.K. and Wright, S. (2013). “Europe Sees Mixed
Results From Public-Private Partnerships For Building And Managing
Health Care Facilities And Services”. Health Affairs. 32(1):146-154
Barlow, J. Roehrich, J.K. and Wright, S. (2010). De facto privatisation or a
renewed role for the EU? Paying for Europe’s healthcare infrastructure in
a recession. Journal of the Royal Society of Medicine. 103:51-55.
Economic Planning Advisory Commission (EPAC) (1995), ‘Final Report of
the Private Infrastructure Task Force’, Australian Government Publishing
Service, Canberra.
House of Representatives Standing Committee on Communications
Transport and Microeconomic Reform 1997 Australian Government
Publishing Service, Canberra.
(c) William P. Kittredge 2013 59
References
Lanjekar, P. (2010). Public-Private Partnerships and Urban Water
Security : Issues and Prospects in Mumbai , India. Ritsumeikan Asia
Pacific University.
New Zealand Herald, The. "Brian Rudman: Promised electric trains
derailed by misguided enthusiasm". 1 June 2009. Retrieved 21 February
2010
Quiggin, J. (1996), ‘Private sector involvement in infrastructure projects’,
Australian Economic Review, 1st quarter, 51–64
Research Republic LLP. (2008). Developing India’s Infrastructure through
Public Private Partnerships. London England: City of London.
S.S. Raju (2011). "A Successful Indian Model". The Hindu Survey of
Indian Industry 2011.
References
Lanjekar, P. (2010). Public-Private Partnerships and Urban Water
Security : Issues and Prospects in Mumbai , India. Ritsumeikan Asia
Pacific University.
New Zealand Herald, The. "Brian Rudman: Promised electric trains
derailed by misguided enthusiasm". 1 June 2009. Retrieved 21 February
2010
Quiggin, J. (1996), ‘Private sector involvement in infrastructure projects’,
Australian Economic Review, 1st quarter, 51–64
Research Republic LLP. (2008). Developing India’s Infrastructure through
Public Private Partnerships. London England: City of London.
S.S. Raju (2011). "A Successful Indian Model". The Hindu Survey of
Indian Industry 2011.
Categories
GeneralDownload
Download Slideshow Get the original presentation fileQuick Actions
Statistics
- Views 26,390
- Slides 58
- Favorites 25
- Age 4350 days
Related Slideshows
22
Pray For The Peace Of Jerusalem and You Will Prosper
RodolfoMoralesMarcuc
30 views
26
Don_t_Waste_Your_Life_God.....powerpoint
chalobrido8
32 views
31
VILLASUR_FACTORS_TO_CONSIDER_IN_PLATING_SALAD_10-13.pdf
JaiJai148317
30 views
14
Fertility awareness methods for women in the society
Isaiah47
29 views
35
Chapter 5 Arithmetic Functions Computer Organisation and Architecture
RitikSharma297999
26 views
5
syakira bhasa inggris (1) (1).pptx.......
ourcommunity56
28 views