The document is a dissertation on the topic Public-Private concession agreement scenarios in the infrastructure sector. At the end of the report, potential solutions are mentioned that can address the challenges existing in the sector
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PPP concession agreement scenario india and globe final report- Sukriti chawla.pdf
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Public Private concession agreement scenarios: India and the Globe
Minor Project Report
Submitted by:
Sukriti Chawla
In partial fulfillment for the
Degree of MBA (Business Sustainability)
Submitted to: Dr. Manipadama Dutta
Department of Business & Sustainability
TERI School of Advanced Studies
10, Institutional Area, Vasant Kunj
New Delhi, INDIA
September 2018
2. 1
DECLARATION
This is to certify that the work that forms the basis of this project “Public Private Partnership
concession agreement scenarios: India and the Globe” is an original work carried out by me and
has not been submitted anywhere else for the award of any degree.
I certify that all sources of information and data are fully acknowledged in the project Dissertation.
Signature:
Name: Sukriti Chawla
Date: September 13th
, 2018
6. 5
ACKNOWLEDGEMENT
I would like to pay my acknowledgement to IL&FS for providing me the opportunity to work
with the Policy Advisory and Strategy Group (PASG) under the guidance of Parity Dey, where I
had the opportunity to enhance my knowledge base of the Policy and Development Economics
and by the means of utilizing the same, I could comprehend the Public Private Partnership
concession agreement scenarios prevailing in India and the Globe.
I would also like to pay my acknowledgement to Prof. Manipadma Datta for his highly valuable
guidance.
7. 6
Table of Contents
ABSTRACT .............................................................................................................................. 7
MOTIVATION FOR THE STUDY....................................................................................................9
OBJECTIVE OF THE STUDY.................................................................................................. 9
METHODOLOGY................................................................................................................... 10
INTRODUCTION ................................................................................................................... 11
Approach: Achieving sustainable economic growth .......................................................... 11
Holistic view of PPP ......................................................................................................... 11
PPP concession agreements: comparative study of India with International experience ..... 15
Global context................................................................................................................... 16
KEY PROPOSALS ...........................................................................................................................23
INDEPENDENT AUTHORITY BODY ........................................................................... 23
MACROECONOMICS SHOCKS .................................................................................... 24
LAND ACQUISATION AND ENVIRONMENTAL CLEARNESS................................. 25
OPERATIONAL AND TIME AND COST OVERRUN ................................................... 26
FINANCIAL RISK........................................................................................................... 28
NATURAL DISASTER RISK.......................................................................................... 29
CONCLUSION........................................................................................................................ 33
REFERENCE ......................................................................................................................... 34
ANNEXURES ......................................................................................................................... 29
Annexure I: Stage maturity in PPP development…......................................................................36
Annexure II: Russia current need for investment in roads………………………………36
Annexure III: Infrastructure expenditure against total construction expenditures, US$ billion…37
Annexure IV: PPP Models…………………….…………………………………………38
List of tables
Table 1: Major stakeholders of policy framework …………………………………….…...........14
Table 2: Perspective of regulatory framework of PPP (India vs International) …............………17
Table 3: Inter-state perspective of regulatory framework of PPP…………………………..........21
Table 4: Land acquisition time process for acquiring the land, In the LARR Act, 2013 and
suggestions of change in process………………………………………………………………...26
Table 5: Type of Natural disasters can cover in the force majeure clause in concession……......30
Table 6: Disaster Recovery and Subsidy Systems for private player according to different
phenomena….…………………………………………………………………………………....31
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List of figures
Figure 1: History of PPP models………………………………………………………………13
Figure 2: Risk allocation between the private and public Party according to profitability……32
List of abbreviations
Public private partnership (PPP) - “a long-term contract between a private party and a
government entity, for providing a public asset or service, in which the private party bears
significant risk and management responsibility, and remuneration is linked to performance".
The LARR act, 2013-The Land Acquisition, Rehabilitation and Resettlement Bill, 2011 was
introduced in Lok Sabha. Two Bills on similar lines were introduced in Lok Sabha in
2007. These Bills lapsed with the dissolution of the 14th Lok Sabha.
J- Curve- 'J curve' refers to “the correlation between stability and openness.”
EBRD- European Bank for Reconstruction and Development is an international financial
institution founded in 1991. Work as a multilateral developmental investment bank
Force majeure- Unforeseeable circumstances that prevent someone from fulfilling a contract.
Quasi- judicial body- It is an entity such as an arbitrator or tribunal board, generally of a public
administrative agency, which has powers and procedures resembling those of a court of law or
judge, and which is obliged to objectively determine facts and draw conclusions from them so as
to provide the basis of an official action.
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ABSTRACT
The purpose of the report is to analyze the concession agreement scenarios in PPP
projects in India and comparison with the Australia, and Russia in order to gain insights
about the innovative practices being used in their PPP policies, specifically for the hard
infrastructure namely, roads, highways, railways, ports, airports etc.
To approach the set objectives, and concession agreements was studied in detail in order
to understand the gaps present in the Indian infrastructural scenario and to minimize the
gaps by finding the optimal solution, by going through the international framework, in
order to minimize the challenges that are present in infrastructure sector, which
discourages private participation and thereby hampering the economic growth.
The study in the end would try to propose an optimal solution or model that will try to
minimize the risks associated with the long-term infrastructural projects, from the
viewpoint of all the major stakeholder directly associated with the sector be it
government, private player, financial institutions.
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MOTIVATION FOR THE STUDY
The motivation for the study lies in the inevitable nature of Infrastructure for Economic
Growth, Jobs, and market accessibility which enable local businesses to grow and
expand.
Total length of India’s road network is approximately 48,65,394 Km. India ranks second
in the world after Germany when it comes to the road density, with almost 125 Km of
road per 100 sq. km. of land area.
India’s National Highways and Expressways bears 40% of the total road traffic but
constitutes only 1.9% of total length. Together, road sector contributes 4.73% to Indian
GDP.
Despite various policy and funding initiatives for the development of road sector being
initiated way back in 1997, from formulating National Highway Rules to the introduction
100% FDI, Income tax benefits on NHAI bonds, Creation of Central Road Fund there are
some major challenges faced by the stakeholders who are directly associated with the
development of infrastructure sector are arbitrations and litigations, delay & default
during Construction, declining participation of private sector, crowding out of reputed
developers, ineffective transfer of commercial risk. Transfer of commercial risk to private
sector has its own set of challenges in a country such as India.
To study the challenges associated with the infrastructure sector and evaluating the gaps
in order to propose an optimal solution or model intrigued me.
OBJECTIVE OF THE STUDY
To study the regulatory framework of Public Private Partnership (PPP) in roads and highways
sector, focused upon the stakeholder analysis. The major stakeholders identified for the study are
Government (center & states), Private investors, Financial institutions and Developers. This would
help in identifying the challenges present in India’s policy framework by comparing it with
Australia and Russia. These two countries have the best and the worst PPP policy frameworks
based upon a set of parameters being discussed in the methodology section. The comparative
analysis, in the later sections of the study would help in identifying the solutions, in the context of
India.
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METHODOLOGY
Regulatory framework of PPP in India was analyzed in comparison with Australia and Russia.
The two countries were selected based upon the PPP market maturity concept being proposed by
IISD reports. The report proposed that there are three stages of PPP market maturity, stage I
being the highly matured stage and stage III refers to the underdeveloped stage. Countries were
selected keeping in mind the three stages, stage I (Australia) and Stage III (Russia). Other
parameters were also taken into consideration for selection of these countries. For instance,
1. Political factors [Political stability index (Australia rank-32- 0.96 (Low), India rank-166-
(-0.95 relatively moderate) and Russia rank-161-0.89 (High). /Control on corruption
index Australia rank 15-1.77(high), India rank 99- (-0.30 moderate) and Russia rank 155-
(-0.86)
2. Economic factors [Economic growth] Australia rank 93-2.77(Moderate), India rank
99- (-0.30 moderate) and Russia rank 160- (-0.22). Nonbank financial institutions
assets to GDP Australia rank 23-6.57%(High), India rank (Nil) and Russia rank38-
(2.45%). Competitiveness index (1-7) Australia rank 21-5.19(High), India rank 39-
(4.59) and Russia rank 38- (4.64)
3. Social factors [ Social globalization index (1-100) Australia rank 20-83.39(High), India
rank 146- (45.23 Low) and Russia rank 90- (65.81 moderate) and Human development
index (0-1) Australia rank 2-0.949, India rank 130- 0.624 and Russia rank 49- 0.804
4. Legal factors [Rule of Law, Australia rank 11-1.75(High), India rank 90- (-0.7) and
Russia rank 152- (-0.80)
The above stated factors provided the rationale for selection of different countries required for
benchmarking. In addition to this, different PPP project case studies were also studied in order to
understand the Modern Concession Agreement, popularly known as MCA. These MCA(s)
helped in identifying the challenges present in the Indian policy framework such as, time and
cost overrun which occurs due to various key yet partially addressed factors including time
delays in land acquisition, absent or underdeveloped conflict resolution mechanism, natural
disaster risks, macroeconomic shocks. This report tried to study these factors in detail both at
national level as well as state level in order to minimize these essential risks.
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INTRODUCTION
Infrastructure is the fundamental facility and systems necessary for a state’s economy to
function. it has also been defined as "the physical components of interrelated systems providing
commodities and services essential to enable, sustain, or enhance societal living conditions.
There are two broad categories of infrastructure, hard or soft. Hard infrastructure refers to the
physical networks necessary for the functioning of a modern industry like roads, bridges,
railways, etc. soft infrastructure refers to all the institutions that maintain the economic, social,
and cultural standards of a country like educational programs, law enforcement agencies, and
emergency services.” The importance of infrastructure, in particular the physical infrastructure
can be highlighted by the importance achieving a stable economic.
Approach: Achieving sustainable economic growth.
Investments in transport, irrigation, energy and information and communications
technology have been crucial to driving economic growth and empowering communities
in many countries. The job multiplication effect of industrialization has a positive impact
on society. It has long been recognized that a strong physical network of industry and
communication can enhance productivity and incomes, and improve health, wellbeing
and education.
According to S&P Global rating report, August 2016 “It has been observed that increased
investment in infrastructure is critical for India to improve its manufacturing
competitiveness and achieve higher growth and India’s strong growth prospects over the
next three years, but also points to a few areas of concern, of which inadequate
infrastructure is the biggest.”
According to Indian government reports “it will need $1.15 trillion in infrastructure
investments over the next 10 years, but according to the report, this figure will only help
India meet the existing infrastructure shortfall. Investment in infrastructure equal to 1
percent of GDP will result in GDP growth of at least 2 percent as infrastructure has a
‘multiplier effect’ on economic growth across sector”.
The importance of hard infrastructure can also be conceptualized as a medium of
transportation of the goods form the manufacturing end to the consumer end. The lesser
is the lead time in delivering the goods, the lesser would be the time and cost overrun and
better would be the economic.
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Holistic view of PPP
Public-Private Partnerships is a generic name that is being applied to several different types
of concession agreements between the State and the private sector for the purpose of public
infrastructure development and services provision. Under PPP approach “the State becomes
the “buyer” rather than the supplier of services. As the word “partnership” suggests, the aim
is to create an infrastructure “dream team by combining the best capabilities of the public
(legislation, regulations, social concern) and private (innovation, efficiency, finances) sectors
to find a solution to infrastructure-related public needs.”
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Table 1 Major stakeholder for concession agreement
Type Stakeholder Indicators
Government (Centre)
Ministry of Roads, Transport &
Highways National Highways
Authority of India (NHAI)
NITI Aayog
Multiple Clearing, Fund allocation in
sector projects
Government (State) State Roads & Buildings department
State Highways Development Bodies
Public Works Department (PWD)
Environment clearness, Labour, land
acquisition, social assessment, project
facilities providers
Financial institutions Public & Private Sector Banks
Private equity
Commercial interest charges, Duration
of financing
Developers Private Developers, Public Sector
Enterprises e.g. NHAI
stall projects, number of private
developers
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PPP concession agreements: comparative study of India with International experience
Concession agreements cover the essential parameters of risks that are being undertaken by the
private players in collaboration with the government units. It legally binds the stakeholders with
transparency, accountability which mitigates the failure of projects and gives the optimal results
in terms of minimum cost. An analogy could be drawn from the regulatory conditions of the
Russian Federation in order to understand in a more detailed format that how a failure at end of
government in terms of poor quality of institutional capacity can literally destroy the PPP market
of a particular nation or can negatively affect the major stakeholders.
Russia
In Russia, private players have been demanding for amendments in the concession agreement,
since the agreements are extremely rigid which makes the deal highly risky and unattractive for
the developers, for the same reason they are constantly looking for the support at the legal and
regulatory fronts from the Russian federation. They are also demanding to initiate more PPP
projects in the country in order to increase the competition which would further increase the
money supply and reduce the risk. Certainly, the existing framework is posing a major difficulty
and requires fundamental transformation.
Major obstacles
Failure of federal law to satisfy the requirement
Low quality of project preparation.
High cost of finance
Insufficient number of market players for competition
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Challenges
Current regulatory framework which is insufficient to provide authority to an institution and
these policy frameworks are overly complex and fail to provide sufficient security and incentives
to investors in PPP arrangements.
Absence of conflict management systems or independent regulators.
Operational risks and time and cost overruns.
Land acquisition and environmental clearances issues.
Risks associated with natural disasters.
Financial risks.
Macroeconomic shocks.
Variations with cost savings.
GLOBAL CONTEXT
PPP concession agreements differ across economies, as the market conditions and the
overall investment climate. Although, the political, economic, social, and market
conditions vary across economies, the fundamental principles of PPP remain the same.
Such as, a PPP is always a long-term concession agreement between a government unit
and a private company; it must be financially sound for it to work; and risks must be
identified, mitigated and allocated effectively. The details of how these principles are
applied will vary depending on the regulatory and market conditions of each country
In order to compare the Indian PPP models with the international experience, we need to
analyze the different maturity stages of infrastructure with respect to the developed and
developing economies
18. 17
Table 2: Perspective of regulatory framework of PPP (India vs International)
Issues
Indian
Experience
International Example
Key Features
(Potential Model
Feature)
Absence of conflict
management
systems/Independent
Regulators
Not covered Chile’s Chacayes
Hydroelectric Project in
2012 included DBs
adopted by sectors of
important state industries.
In Chile, not all DB
decisions are binding; the
country provides for a
three-tiered system
created by Chile’s
Chamber of Industry and
Construction
Dispute Review
Boards (DRBs),
which issue
binding decisions
Dispute
Adjudication
Boards (DABs),
which also issue
binding decisions
Combined
Dispute Boards
(CDBs), which
issue decisions or
recommendations.
Since 2007, Codelco has
established the
mandatory use DRBs in
contracts for the
construction of
underground galleries for
copper exploitation worth
at least US$50 million,
where DRBs only issue
recommendations, which
the parties may reject
within a specific term. In
case of silence during
1.Set up a “one-stop
shop” for managing
PPP projects
2. Agency at the level
of central and state
level
19. 18
this period, the
recommendation
becomes mandatory for
the parties
Variations with cost
saving
Not covered Private party then cost
saving shared with Public
sector agency.
Government can give
incentive to private
player or can give credit
point’s certificate which
Help in performance
rating.
Operations Risk ,
Time & Cost
Overruns Risk
Delhi Gurgaon
Expressway:
1. Make compulsory to
hire only A+/A category
consultant for the Legal,
financial and pre-
project feasibility
reporting before
Bidding process report
submission.
1. Time and
cost overrun:
The project was
planned to be
completed by
July 2005 at an
estimated cost of
INR5.5 billion.
Factors, such as
delays in land
acquisition,
resulted in time
and cost
overruns. The
expressway
finally
commenced in
January 2008 at
an actual cost of
INR11.75
billion. Majority
of the cost was
borne by the
private player.
2.Provide Incentive for
Bidder who comes up
with innovative ideas
2. Traffic
management
challenges: The
project is facing
20. 19
severe
challenges in
managing traffic
at toll gate,
securitization of
revenues&
accident
management
Land acquisition
and Environmental
clearances issues
The MCA for
National
Highways states
that there is an
obligation on the
public-sector to
provide the site
within 150 days
of agreement or
a specified
penalty is
payable
In most examples the
land is made available
pre-Financial Close in
order to avoid risk
retained by the public-
sector
1.Government should
award the project only
after sufficient land
available for project
construction
E.g. Barwa
Adda and
Chhapra-
Hajipur
Expressway:
the amount of
land to be made
available pre-
financial Close
is 80% of the
total site for the
project. Failure
to provide the
80% gives rise
to one penalty,
failure to
provide the 20%
post financial
close gives rise
to another. No
right to further
compensation or
termination is
explicit and the
private party is
obliged to
e.g. Lane Cove Tunnel
(Australia)
2. There should be
timeline to environment
clearance according
categories by the project
in terms of Area, Cost.
21. 20
complete the
works before the
project
completion date
as long as the
compensation is
paid.
Under developed
dispute resolution
mechanism
Available at
states level
dispute
agreement
i) Chile has established a
standing technical panel
to hear disputes and
propose settlement
agreements prior to
formal arbitration.
Setting up a single
quasi-judicial authority
for all infrastructure
sectors
(ii) Melbourne Southern
Cross Station where a
settlement agreement was
used to avoid a formal
dispute
Natural Disaster
Risk
No provision. Japan’s DRM. Disaster risk
management
Macroeconomic
shocks
Not covered e.g. Lane Cove Tunnel
and Reliance Rail
Purchase of Equity by
government to enable
financing in crisis
(Renegotiation)
Lane cove Tunnel project
impacted by financial
crisis 2008. Which affect
the revenue of private
player
24. 23
KEY PROPOSALS
1. Absence/ underdeveloped conflict management system or independent regulatory
authority at national level.
Mediation and conciliation.
With some Quasi-judicial power relevant to resolve the infrastructure disputes.
Panel of expert as arbitrators with different sectors
Recommendation:An independent body for handling conflict and
dispute between Public and private party
Reason: There is no intependent PPP regulator or regulatory at
National Level.
Scope: It should have judical power to influnece decision, and
work as court system.or Non Judicial Resolution options such as
Arbitration, HIgh Level of negotations, Mediation, Independent
Expert Determination or Panel of experts
Strategy: Government should setup an indepedent conflict
management authority/system at National Level.
25. 24
2. Macroeconomic shocks
Macroeconomics shocks are detrimental to any PPP projects. Such as Currency risk or demand
risk could be major factors. E.g. in Mexico 1994 crisis the private toll road got impacted due to
actual and forecast traffic known as realization of demand risk. The government subsequently
bailed out of losing project.
Recommendation:Goverment should add a clause for macroecomic
shock risk cover in the case of national crisis (E.g.currencycrisis )
Reason: Private parties are not able to bear the macroeconomicshock
on their own. To mitigate the same, governmnet should intorduce tools
in terms of clauses to help recover the loss caused or become an insurer
to private party as a last resort.
Scope:There are no general provisions for macroeconomicshock in
india. there could be an introduction of a clause where government
becomes an insurer to the private party in case of money supply crunch
or curency crisis in general or inflation.
Strategy: Government should Take responibility for Macroeconomic
shocks and bail out to private party for the loss occuring from different
types of crisis at national level which impact the operational activity like
revenue from toll road due to decline the traffic at the toll plaza
26. 25
3. Land acquisition and environmental clearances issues
Time Limit can be reduced for the Land acquisition process
Consent Provision. Require 70% land owners’ consent in PPP project and 80% land owner’s
consent in case of private entity. The other 30% of consent can be acquired through the link of
market price
For Delay in Land acquisition
The land handed over to private party before financial closure is achieved. Otherwise
government is liable to pay for any delay after 120 days the accordingly or .1% on
Performance security.
For Example, Hyderabad metro. The government is liable to pay damages at a rate of 0.1
% of the Performance Security ( Rs. 240 crore) for each day of delay. If the GoAP is not
able to provide access to the remainder 10% of the land for reasons other than a Force
Majeure, it shall pay the Concessionaire damages of Rs. 1000 per day for every 500
square meters, commencing from the 91st day of the Appointed Date.
Recommendation: Change in process of Land acquisation
refernce of the the LARR act 2013 specifically in Timeline
for acquiasation of land
Reasons: To mitigate the time and cost overrun, which will
further lead to early financial close so as to start the
construction phase of project much earlier specifically for
the five project exempts.
Scope: It will reduce the time and cost for project.
Strategy: Change the process for land acquisation process
which will provide advantage in terms of time and cost.
overnment should take responsibilty for deley in land
acquisation and compensate to private party.
27. 26
Table 4: Land acquisition time process for acquiring the land, In the LARR Act, 2013 and
suggestions of change in process
28. 27
4. Operational risks and time and cost overruns.
Construction should be on Bill based of quantities with rigorous clauses related to cost
overrun and it should be determined (clause) at time of Bid process (It worked for the
Alandur Sewerage Project, Chennai).
Factors for operational risks, time and cost overrun risk.
Political situations
Material input prices
Economic instability
Time overrun is divided into two major phases- pre- execution phase and execution & closing
phase. In case of pre- execution phases comes the delays caused by land acquisition which
happens because of local community and poor compensation.
Cost overrun happens because of slow decision-making process due to complex structure of
approvals and poor design of project management system
Recommendation:Government should make a project
management team for monitoring the project progress
Reasons: Most of project failed beause of time and cost
overrun in india whereas avergae 20-30% cost increase
due to time and cost overrun.
Scope: It wil provide better monitoring system and will
update the main authority of project.
Strategy : More attention towards monitoring the project, stick
within the scope of project, develop a system where the
progress is monitored on a regular basis including the
availability of raw materials to the site.
29. 28
5. Financial risks
LIMITATIONS AND CONSTRAINT
Reasons
1
In developing economies 70% of the
investment is from Government, 20%
from private and 10 % from Multilateral
Development Banks (MDB).
2
In developed economies investments
scenario: 40% from government, 55%
from Private investment and 5% from
MDBs
Scope
1
These are the Long-term investments, which
provide the steady revenue growth, suitable
more for pension and insurance investors.
2
The infrastructure is less volatile in nature due
to predefined revenue by long-term contract
provided by government, which is a critical part
of revenue growth and it satisfies the investor.
3
3
In these contracts the government offers return
which will exceed the inflation, in order to
make it more attractive for investors
Barriers
J- Curve of infrastructure, profit profile
that shows there is a need for long term
investment in order to cherish the
revenue, which is not viable for them who
demand immediate returns.
1
2
Transaction cost – in developing
economies there is lack of skilled
consultant for different function
especially for financial and designing,
private player needs to hire international
consultant which increase the cost&
process time.
1
Setting up bankability standard
and bank institution should
provide technical assistance like
construction, financial assistance
for investors
Bank should work with PPP
authority to list the projects that
are worth considering.
2
Make financial product to
mobilize private capital.
Investors want that kind of
financial product that
minimize barriers.
Building the infrastructure
portfolio.
Strategy
30. 29
6. Natural Disaster Management (NDM)
NDM Function in force majeure for PPP model
Reducing uncertainties
Force majeure relief and mitigation.
Payment during force of majeure events.
Recommendation
Emergency agreement
Combination of Hard infrastructure (earthquake proof structure,) and soft infrastructure
(Weather satellites, warning system, and public media).
Analogy from Japan could be used to prepare a well- defined force majeure clause for
states prone to natural calamities depending upon the state’s risk profile
Recommendation:Make a Natural disaster management
team works for Infrastucutre project specially for force
majeure and Natural disaster at place of project.
Reasons: There is a constant risk of natural calamities
Scope:.More accurately defined policy for Natural disaster
catagorically like Flood intensity, extreme rainfalls, the
intensity of which will vary from state to state.
Strategy : Include in the Force majeure clause and with proper
parameter for diffreret sititution which also mitigate the private
risk from Force majeure with defined relief.
31. 30
Table 5: Type of Natural disasters can cover in the force majeure clause in concession
Disaster type
Events for which additional costs are borne by public
sector
Earthquake Damage based on normal social conventions
Heavy rain
Rainfall <= 80 mm or more in 24 hours • Even if the
rainfall is below the above standard, it is considered
heavy rain if the hourly rainfall is significant (20
millimeters or more), provided that the hourly rainfall is
observed at the nearest weather observation station
(managed by the public corporation) from the damaged
place.
Storm Wind speed <=15 meters per second or more
High tide, storm surge, tsunami
Extraordinarily high tide, storm surge, or tsunami caused
by a storm or its aftermath with relatively nonminor
damage
32. 31
Table 6: Disaster Recovery and Subsidy Systems for private player according to different
phenomena
33. 32
Figure 2: Risk allocation between the private and public Party according to profitability
Small Large
………………………………………………………………………………………………………
x
………………………………………………………………………………………………………
Project Characteristics Scope of force majeure and risk allocation
Scope of force majeure and risk allocation
Concession
(strong public nature
or low profitability)
Natural disaster risks will be
mainly borne by
the public for concessions
with strong public
nature or low profitability
Force majeure
Private Public
Concession
(high profitability)
Private parties bear risks, but
force majeure is
limited to the risks they will
be able to manage.
• Other large natural disaster
risks will be borne
by the public.
Private Public
Force majeure
Small Large
34. 33
CONCLUSIONS
After thorough Study of PPP at International and national level, it has been identified that
privatization in infrastructure projects is a necessary condition for dealing with the
inefficiencies of public sector, where private player takes the responsibility of providing
basic amenities in terms of innovative construction design, Finance, New technology etc.
As a well-established fact nothing is sufficient in this constantly fluctuating world without
the support of other. Same has been observed in case of privatization, because of which
government realized the need to create an all-together new position of Public Private
Partnership commonly known as PPP, where both parties are to come together as a single
entity in order to fulfill the societal needs.
After summarizing the whole scenario, the major point to highlight is that the PPP
engagement is possible only by the means of contract, it not only clearly delineates the
allocation of risk amongst its major stakeholders involved in the agreement but it also acts
as a tool to evaluate the aforesaid the problems mentioned while analyzing the gaps through
the means of regulatory framework analysis.
It has been analyzed after going through all the recommendations that there is a dire need
for an independent authority with judicial power which will help in reducing the time and
cost overruns for PPP project.
After the contract has been established between the parties, the biggest roadblock in any
infrastructure project is Land acquisition. We have studied the LARR (Land Acquisition
Rehabilitation and Resettlement) act, 2013, which was preceded by the Land Acquisition
Act, 1984. Undoubtedly this act came with a lot more ease in terms of acquiring land and
providing right and fair compensation for the land owners, but still after analyzing the act
in depth the study has analyzed a few flaws in the LARR Act. In order to rectify this
concern after going through the Kelkar committee 2015, there are five major project
exempts like defense, rural infrastructure, affordable housing, roads and railways and
industry corridor`s, which if incorporated can reduce the time limit straight away from 50
months to a highly ambitious yet achievable 42 months target for the whole process which
will include environmental clearances as well.
35. 34
As environment is rapidly changing and we are prone to a lot of natural calamities, there is
a genuine need to address this issue. It cannot be simply addressed by adding a force
majeure clause in the framework, but to establish a well-defined and structured disaster
management system which needs to be collaborated with the national disaster team in order
to have a first-hand experience from the experts working in this domain. Since different
locations have different sets of natural disaster challenges, so experts from different
disaster- prone areas needs to be on board.
After surpassing the initial hurdles, PPP project still fails majorly because of finance. This
risk can be mitigated through more investment in this sector and for this we need to create
trust worthy financial investment environment where every institution has that confidence
that their investment will get good return. The key proposal for the same would be that for
the major five exempt sectors discussed above, government should take guarantees or take
some responsibility or equity for at least 50 %, right now there is provision for only 40%
financial help with the provision of VGF.
36. 35
References
Abhaya Krishna Agarwal Ernst & Young LLP, India (2015), New Model of Indian Road PPP
Projects
Department of Economic Affairs Ministry of Finance Government of India (2011), National
Public Private Partnership Policy
Guidelines for Formulation, Appraisal and Approval of Central Sector Public Private
Partnership Projects
India PPP Summit 2017 revival of PPP momentum in the transport sector. (2017), FICCI and
EY
Public Private Partnership The next continuum (2017), FICCI and EY
Public private partnership projects in India (2010), World Bank and GoI economic and affairs
Ravi Bhamidipati, Amrit Pandurangi, Vishwas Udgirkar and Girish Mistry, PWC (2008),
Infrastructure in India A Vast land of construction opportunity
Resilient infrastructure Public-Private partnership (PPP): Contract and Procurement case of
Japan. (2018) World Bank DRM HUB.
ROAD, (2017) IBEF
Robert Phillips (2008), PPP in Infrastructure Resource Center for Contracts, Laws and
Regulations (PPPIRC), World Bank
Steve Kanowski (GHD) (2011), Case studies of recent Australian toll road projects (2016) PPP
Guide for Practitioners
United nations ESCAP PPP Policy (2016), Legal and Institutional Frameworks in Asia and the
Pacific
Vijay Pal Singh Gill (2014), PUBLIC PRIVATEPARTNERSHIP IN ROAD SECTOR (National
Highways in India)
37. 36
Annexure I: Stage maturity in PPP development
Source: PPP knowledge lab
Annexure II: Russia current need for investment in roads
Source: EBRD
39. 38
Annexure IV: PPP Models
Model Assets Ownership Duration
Capital and
investment focus Private role and risk Features
Build Lease Transfer (BLT) or Build-
Own-Lease-Transfer (BOLT)
Private 10-15 years Greenfield Low and mediun
Building and leasing out ot
govterment and transfering
facilty after recovering.
Build-Transfer-Lease (BTL) Public 10-15 years Greenfield High revenue and User charges
Involves building an assets,
transferring it to govternment
and leasing it back to party.
Collect the charges by private
party
Build-operate-transfer (BOT)/
Design-Build-Finance-Operate-Transfer
(DBFOT)
Public 20-30 years Greenfield High tariff revenue
Most common form of BOT
concession in India.
e.g. Nhava Sheva International
Container Terminal, Amritsar
Interstate Bus Terminal, Delhi
Gurgaon Expressway
Build-operate-transfer (BOT) Annuity Public 20-30 years Greenfield
Low
Annuity revenue /
unitary charge
This has been adopted for
NHAI highway projects in the
past. More recently, it is the
preferred approach for socially
relevant projects where
revenue potential is limited.
Hybrid Annuity Model (HAM) Public 10-15 years Greenfield Low
Build, operate and maintain the
road for a specified number of
years — say 10-15 years —
before transferring the asset
back to the government.