Download developers` expectation

Developer’s Perspective in PPP:
An Indian Experience
A presentation by Anand Srivastava, SARPS, NDO
Fiduciary Forum 2008
NCC, Lees Berg Mar 26-27, 2008
Structure
• Infrastructure: Key to growth
• Public Private partnership (PPP)
• Issues Galore: Developer’s Perspective
Infrastructure: Key to Growth
Growing Indian Economy
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The GDP growth ranges between 8 % to 9%
GDP expected to touch double digit growth during XI Five
Year Plan (2007-12)
Goldman Sach’s BRIC report projects India as one of the
fastest growing economy in first half of 21st century
Infrastructure Bottleneck
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Infrastructure is the biggest bottleneck in ‘India Growth Story’:
Dampening growth by 1.5% to 2%
Transport system has severe capacity constraints: highways, city
roads/MRTS, airports, seaports and railways
Urban and Utility infrastructure has collapsed: huge demandsupply-quality gap in drinking water, sewerage system, drainage
and power supply
India needs US$ 494 billion investment in the XI FYP
Government alone can not bring the desired investment : need for
Public Private partnership (PPP) to augment resources and
efficiency
Upto 25% of investment planned with PPP: Investment of US$ 124
bn by private sector in just 5 years
Public Private Partnership
PPP Approach
Goal
• Attract private investments for
Need
• Lack of Budgetary Resources
• Need to improve efficiency in service delivery
PPP
approach
infrastructure projects
• Private Sector contribution for:
-
Financial investments
Best Management practices
Efficiency in service delivery
Efficient use of capital resources
• Public Sector contribution limited to:
- Providing institutional commitment to project
- Project Development
- Transparent & Unbiased Selection of Developer
- Viability gap funding (VGF), if any
Projects Amenable to PPP
FIRR
EIRR
Private
Investment:
Commercially
Viable projects
Govt. to provide
Viability Gap
Fund for nonviable projects
FIRR: Financial IRR (commercially viable)
EIRR: Economic IRR
Issues Galore:
Developer’s Perspective
1. Mindset
CURRENT SITUATION
1. Owner-EPC contractor
relationship
2. Contracts made with several
issues left at Govt. discretion
3. Short term contracts
4. Delays in approvals and
clearance to Private sector
(Pvt.) partner
DEVELOPERS’ EXPECTATION
1. PPP intent is of Developing
partnership for efficient
project/service delivery
2. Comprehensive Concession
Agreement covering all rights and
obligations of both partners with
clear termination clauses and
Force Majeure
3. Long term partnership with
alignment of objectives to meet
the project goals
4. Develop amicable relationship
between the partners
2. Shelf of Projects
CURRENT SITUATION
1. Inadequate Project Development
(PD)
DEVELOPERS’ EXPECTATION
1. Bankable Project Development
2. Low/no budget for Project
Development
2. Create Adequate & Dedicated PD
fund to enable diligent PD efforts
3. PD efforts run by staff having low
exposure to PPP
3. Train the Government Officials
and for the initial period engage
competent & experienced
professional bodies for
developing
– Adequate Technocommercial details
– Risk analysis, allocation and
management
– Project Structuring & Bid
Structuring
– Concession and other
agreements
3. Environmental & Other Statutory Clearances
CURRENT SITUATION
1. Obligation of Private Developers
(even for large projects e.g. Port
& Hydro/Thermal power)
DEVELOPERS’ EXPECTATION
1. Obligation of the Government
Entity (proponent/anchor of the
project)
– To be obtained before start
of bidding process (else can
be kept as a Condition
Precedent for Concession
Agreement)
4. Land acquisition
CURRENT SITUATION
1. Act provisions ambiguous,
practice varies from state to
state
DEVELOPERS’ EXPECTATION
1. Uniform and transparent National
level policies and act (to be fully
adapted by all the states)
2. Definition of public purposes
weak
3. Private developer left to the
mercy of the political and social
forces resulting in time & cost
over-runs & adversely affecting
viability
2. Infrastructure Projects under PPP
to be included as public purpose
3. The land acquisition to be
completed by the Govt. project
proponent/anchor in advance.
Land to be handed over to pvt.
developers free from
encroachment and encumbrances
5. Standardisation
CURRENT SITUATION
1. Some amount of standard process
& documentation is followed by
very few organizations like NHAI
2. Time Constrained Procurement
Process, Inadequate
understanding of project
development cycle
3. Sometimes bids invited with
inadequate project development
DEVELOPERS’ EXPECTATION
1. Std Docs & Process to be
developed & followed by all
Govt. agencies
– Model RFQ & RFP docs
– Model Concession agreement
– Model Performance
Specifications
2. Use Two stage competitive
bidding to ensure competent &
serious bidders
– RFQ (Request for
Qualification)
– RFP (Request for Proposal)
3. Speedy & adequate project
development & providing enough
time for bid preparation
6. Streamlining
CURRENT SITUATION
1. No national body to devise &
monitor process & standard
documentation
DEVELOPERS’ EXPECTATION
1. National Secretariat for Publicprivate Partnership
2. Non-uniformity at state levels
2. State PPP Secretariat under
admin control of the national PPP
secretariat
3. No disclaimer clause –
Government/ Project Anchor
should consider to own
responsibility for data & results
in PIM
3. Disclaimer clause in Project
Information Memorandum (PIM)
dilutes reliability of data
7. Confidence Building
CURRENT SITUATION
1. No third party opinion taken on
Infrastructure projects
2. The Prequalification process does
not define a clear qualification
criteria
3. The Judicial process fraught with
delays and favors the
Government on frivolous grounds
DEVELOPERS’ EXPECTATION
1. Government to fund Independent
rating to for realistic risk
assessment
2. An upfront and clearly defined
objective qualification criteria
will improve competition
3. Set-up pre-award and post-award
PPP arbitration tribunals with
subject matter experts
8. Viability Gap Funding
CURRENT SITUATION
1. Only a few projects can wait for
cumbersome process plagued
with several rounds of to-and-fro
movements of files
DEVELOPERS’ EXPECTATION
1. Process to be simplified &
streamlined
– Professional body to be
empowered to take fast
decision to make the scheme
meaningful
9. Continuation of Government Policies,
decisions & agreement concluded
CURRENT SITUATION
1. Policies modified with change in
leadership and political
formations
DEVELOPERS’ EXPECTATION
1. Consistency in policies. Protection
against “change in leadership” akin to
“change in Law”
2. Lack of Regulators exposes
Developers to the lack of focus
and conflicting socio-political
interests of the Government
2. Bring in Regulator, ensure end users
rationally pay for the services availed
– Long-term tariff notifications &
part of CA
3. Existing Concession Agreements
(CA) some times overlooked
while announcing new projects
3. Exclusivity rights to be maintained as
per CA
–
–
Government to Champion the cause
of PPP: Project to be awarded in
Time, delay in award should attract
penal provisions
issues related to strike, unions lock
out best handled by the Govt.
10. Shifting of utilities
CURRENT SITUATION
1. Left to private developer with
little/no coordination by state
DEVELOPERS’ EXPECTATION
1. To be Government’s obligation –
including the interdepartmental
coordination
2. Results in Time & Cost over-runs
affecting viability
2. To be time bound with provision
of penalty for delay in
completion
11. Shortage of Trained Human Capital
CURRENT SITUATION
1. Quality, competent, multi-skilled
& experienced PPP professionals
in shortage
2. Construction Engineers’ Shortage
3. Skilled Construction workers
(Carpenter, Barbender, Masons
and Plumbers etc)
DEVELOPERS’ EXPECTATION
1. Start High level training
programmes/ Institutes. Allow
private sectors to set-up
education cities akin to SEZ
2. Set-up Engineering colleges and
provide VGF & land to private
sector
3. Set-up ITIs and provide Viability
Gap Funding (VGF) & land to pvt.
Sector to set-up vocational
institutes
12. Other issues
CURRENT SITUATION
1. Artificial shortage of qualified
developers with relevant
experience
DEVELOPERS’ EXPECTATION
1. Qualification criteria should be
looked differently than in EPC
Contracts
2. Model RFQ allows short listing of
just 5 (or 6) bidders based on a
variable qualifying criteria
2. The pass-fail criteria should be
declared upfront
• Developers filed a suit in court
of law, protesting this will
lead to cartelization
3. Legal framework not standardised
3. To be standardised
4. Risk Pricing not fully appreciated
by project proponents/anchors
4. To be thoroughly understood to
minimise the risk and thus
maximise the benefits to
Government
To do the same old thing the same old way
And to expect some new outcome…..
That is madness
-Einstein
Thank you
BACK-UP
Project Development
Project Development Process
Track 2
PROJECT
DEVELOPMENT
DEVELOPER SEARCH
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
Techno-Economic &
Market Assessment
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
Legal
Documentation
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Policy amendments
and notification
Contractual and
Institutional
Framework

Expression of
Interest
Request for Proposal
(RFP)
MARKETING &
COMMUNICATION
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One-to-one meetings
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Direct Mailers
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Media release

Road Shows
Pre-Bid Conferences
Proposal Evaluation
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Finalisation of
Developer
Investor’s
Conferences
 Facilitating Consortia
Government
 Finalisation of
formation
Approvals,
Agreements
Facilitation &
Decision Making
Factors of Success of PPP
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Demand for the services/goods where PPP is invited
Political commitment to the project and PPP
Regulatory framework
Judicial and a well defined arbitration framework
Administrative framework and readiness to meet requirements
Partnership of Public (Government) with Private Sector rather than ownercontractor relationship
Cont..2
Factors of Success of PPP
• Adequate project development – resulting in Bankable Projects
– provide information required to take informed decision, reduce risks
and uncertainty
– level of project development depends on the intrinsic strength and
viability of the project
– technical, environmental, social, financial, legal aspects, risk
identification and mitigation
– risk identification and mitigation
– bankability of project and project documents