Public Private Partnership and Competitiveness

Dr. D.N.S.Kumar
Professor in Finance & Associate
Director
Centre for Research-Projects
Christ University, Bangalore, and
Management Consultant,
Rajat Financial Services
Bangalore

PPP and Comppetitiveness

 To build upon the resource by exploring a
resource through integration of sectors
across economic and non-economic activities

 To encourage ….,participants or stakeholders
in the idea to achieve a win-win results in
long run


i. Roads and bridges, railways, seaports, airports,
inland waterways;
ii. Power;
iii. Urban transport, water supply, sewerage, solid
waste management and other physical
infrastructure in urban areas;
iv. Infrastructure projects in Special Economic Zones;
and
v. International convention centres and other tourism
infrastructure projects;


Backbone Sector


 Irrigation Scheme across Bangalore-Bombay
Golden Quadrilateral Road


 Farmers

 Private Sector

 Government

 Society


 “Contractual three party arrangement between
government, private party and farmers for the
provision of assets, clearances, the delivery of services
and purchase that have been traditionally not provided
by anybody”

 “…. a cooperative venture between the public, private
and farmers sectors, built on the expertise of each
partner, that best meets clearly defined public needs
through the appropriate allocation of resources, risk
and rewards”

 … a P3 involves a sharing of risk, responsibility and
reward, and is undertaken in those circumstances when
there is value for money benefitand Comppetitiveness
PPP
to the taxpayers

Design-Finance-Build-Own-Operate-Maintain
(DFBOOM)


 Length of Road - 1000km

 No. of villages/cities and cities across the road –
200

 Population of above villages/cities – 1000000

 No of acres of land each village/city – 2500

 No. of acres of land non-irrigatted(50%) in such
villages/cities – 1250*200 =250000

 Current Income from agriculture- per acre Rs.
15000 – Rs. 20000 p.a. (average Rs. 17500/-)

 200 irrigation projects-units across the
roadside connecting all villages/cities

 Cost of each project Rs.15 crores

 Total cost of the entire project Rs. 3000
crores


 Multiple departmental approach- Commerce, Industry, Finance(DEA),
Agriculture, and Social Welfare

 Multi-Governmental Agro-Irrigation Park

 Special package(s), Benefits and Incentives

 Incentives for establishment of agro-oriented SEZs, Export promotion
schemes

 Monitoring by the apex committee of Ministries, NABARD etc.,

 International Participation

 Foreign Direct Investments

 Financial Institutions, such as, IDBI,ADB, SBI etc.,


 Private Company- for investment and
professional management

 Central and State Governments – for
subsidization and clearances

 Farmers associations – cooperation

 Political parties – to understand the significance
of well being of people and respective
states/constituencies


 Central Government(VG-grant) - 10%
 State Governments(grant) - 15%
 Private investors investment - 60%
 Capital to be raised from farmers - 7.5%
 Capital from other organizations(Debt) - 7.5%

Single window clearances be given by the
respective state/central government


 Total cost of Project - Rs. 3000 crores

 Grants from Govts - Rs. 750 crores

 Net cost of project - Rs. 2250 crores

 Expected Cost of Finance to investor – 12%
 Cost of debt - 18.5%
 Expected return by the investor - 18%


 Irrigation of 250000 acres of land

 Enhancement of Purchasing power of minimum
1000000 population

 Even if crop such as Maize is grown:
per acre income per year would be:
50 quintals(100KG)* two crops a year*
average price Rs.10 per KG= Rs. 100000/-

 Other products such as vegetables, fruits, tobacco,
sugarcane, groundnut, cotton etc., would give 2 -
2.5 times more income


 Current Income from 1250 acres:
250000*17500= 437.5 crores
 Expected Income
250000*100000= Rs. 2500 crores


 Life of project 20 years

 Royalty per acre Rs. 15000/- p.a.

 Cost of maintenance 5% of cost of project p.a

 Costs related to project:
◦ Cost of funds p.a - Rs.270 crores
◦ Cost of maintenance - Rs.150 crores
◦ Royalty 250000*Rs.15000 - Rs.375 crores


 Income from provision of water

◦ to corporates 20000 corporates *Rs.100000 p.a.
= Rs.200 crores
◦ Local bodies 1000000 population * Rs.500 p.a.
=Rs.50 crores


 Income:
◦ Royalty - Rs. 375 crores
◦ Provision of water - Rs. 250 crores
◦ Total - Rs. 625 crores
 Expenses:
◦ Cost of funds - Rs. 270 crores
◦ Cost of maintenance - Rs. 150 crores
◦ Total - Rs. 420 crores
◦ Net benefit - Rs. 205 crores


 Cash Inflows: (Net savings – Tax) + Depreciation
= (Rs.205crores – 0) + Rs.75crores
=Rs.280crores
*50% of cost of project is assumed as fixed investment

 Original net investment / net savings
Rs.2250crores/Rs.280crores

That is, 8 years


Fixed cost of project:
=Depreciation + Interest on debt
=Rs.75 crores +((2250*7.5%/100)*12%
=Rs. 90.25crores

Therefore, BEB = Fixed cost/ Royalty per unit
= Rs.90.25crores/(1250 a unit* Rs. 12000 p/a)
= 60 units


 High powered due to profit motive

 Benefits of coordinated decision-making- in Design,
Construction, Operation, financing etc.

 Complementarities with other parts of the given project

 Capacity to raise capital at low cost

 Brings efficiency improvement through inventions

 Ability to control costs

 On-going relationships, not spot market

 Sharing of authority for decision-making


 Increased revenue to government in the form of sales
tax

 Reduced pressure for subsidy

 Economic wellbeing of people

 Purchasing power improvement

 Economic development

 Reeducation in social tension

 Added business and enhanced competitiveness
among all economic activities/enterprises


dnsk2000@yahoo.com
dns.kumar@christuniversity.in
09342266072
08040129018(O)
08040988972( R )


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