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					Public Service Delivery -Urban Infrastructure

Shailesh Pathak, Director - Investments
October 4, 2007

Numbers
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$ 320 – 350 billion, now $ 475 billion Rs 144000 crores minimum-Highly conservative forecast Transport, Energy, Urban (not Telecom) 70% from public funding; 10% from international donors 20% from PPP- $ 70 bn, Rs 315,000 crores

Is Finance available?
 Rs

crores- 120536 vs 121300, JNNURM vs Airtel  no shortage of money for PPP  Progress wherever monopolies replaced by competition

Setting the tone

 Birth

certificate story  DIAL solid waste management story  Power of PPPs

A tale of two cities- 1
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Dehradun ISBT- land 10.5 acres, ISBT 8.5 acres; commercial area 2 acres Project cost Rs 13 crores ISBT, 63 bus bays; land from MDDA Rs 1 crore; commercial – Rs 14 cr 20 year concession period, extendable by another 10 years; after which both ISBT and commercial area revert to MDDA MDDA inflow for 16 years Rs 81 lacs p.a.; no operational/maintenance costs: borne by Concessionaire High level of customer satisfaction- ‘poor man’s airport’standards laid down in bid Process- consultant appointed January 2003, Agreement signed with successful bidder July 2003, operations started June 2004- total 18 months

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A tale of two cities- 2
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Guwahati ISBT- sanctioned Jan 1998, work started 2001, original completion 03-04; agency Assam State Transport Corpn ; Leading Contractor Approved cost 14.99 crores, released 18.03 crores (North Eastern Council 6/06 statement) ‘ISBT complete- ISTT 20% remaining’ BUT have buses started? Operation & Management will be a recurring responsibility of Government Government procurement vs. PPP

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Asset vs.Service: Contractor vs. Concessionaire

PPP options – risk and reward

Works & Management & Services Contracts Maintenance Contracts

Operation & Maintenance Concessions

Build Operate Transfer Concessions

Full Privatization

Low Extent of private sector participation

High

Infrastructure sectors included by GoI
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Roads & Bridges Railways, seaports, airports, inland waterways Power Urban transport, Bus terminals, water supply, sewerage, solid waste management & other urban infrastructure SEZ infrastructure projects International convention centres, other tourism infrastructure projects Others
Source- Viability Gap Funding guidelines and IIFCL Scheme, GoI

Government of India and PPP
         

decided to promote flow of private capital infrastructure actively encouraging PPPs in all sectors India Infrastructure Project Development Fund Panel of 11 Transaction Advisors Capacity Building in States for PPPs ADB TA – PPP Cells Viability Gap Funding Scheme India Infrastructure Finance Company (IIFC) India Infrastructure Financing Initiative Streamline the approval process for PPPs in Central Sector – PPPAC
Source – www.pppinindia.com ; http://infrastructure.gov.in/

in

PPP according to GoI
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Public Private Partnership (PPP) Project means a project based on a contract or concession agreement, between a Government or statutory entity on the one side and a private sector company on the other side, for delivering an infrastructure service on payment of user charges (Viability Gap Funding guidelines and IIFCL Scheme, GoI) Private Sector Company to be selected through a process of open competitive bidding- no MoUs or sweetheart deals- negotiated deals not efficient Payment of user charges essential- for only such sectors where such user charge is possible Contract or concession agreement- legal backing Can be with Government (including state and local governments) or statutory entity, genuine risk transfer Private money in Public Infrastructure, not vice versa Ergo, PPPs prioritized by Government, not the private company

PPP Issues- Government
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WHY  Why shouldn’t we do it ourself?  Public interest demands Government do it!  If they do it, what will our staff do?  They will/are making too much profit!

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HOW  To be sure that they are not hoodwinking us?  To ensure quality of service, and measure customer satisfaction ?  HOW DO WE DO THE PPP TRANSACTION?

Public Systems Reform?
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If we can improve Public Systems, by all means!! Best solution!! improvement in Public Systems better than all PPP put together But well meaning individuals have limited success in changing an input-oriented system

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For cost and time minimization,
While striving to improve public systems, Also need to think about how to utilize additional strategies – PPP where possible

Urban PPPs

(with inputs from Secretary, Urban Development’s presentation, New Delhi)

Urban Infrastructure Sectors
 Let

us list out

 Infrastructure

is extremely pro-

poor

Management Issues
 Let

us list out

Statements
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Urbanization going to increase in India Investment requirements for urban areas very high Not all of this can be financed from budgetary resources PPPs can get in additional money from private sector PPPs can improve efficiencies in service delivery, and reduce time and cost over-runs PPPs can lead to better realization of user charges PPPs can provide technologically advanced projects with potential to avail of carbon credits

Questions
1. 2. 3. 4. 5.

What are possible areas for Urban PPPs What are good examples for Urban PPPs in India What are current constraints in Urban PPPs implementation How to implement PPPs How can Government of India help you in Urban PPPs

1. Possible areas for Urban PPPs
1. 2. 3.

Outsourcing of municipal services Solid Waste Management Urban Transport and Bus Terminals
1. 2. 3.

Traffic corridor publicly funded Rolling stock on PPP Efficient Bus Terminals – capture value

4. 5. 6. 7. 8.

E-governance for city governments, including call centers Land & Building redevelopment- Urban renewal & redensification Development Authorities/Housing Boards Urban Roads & Bridges Heritage & Public spaces renewa; & development
1. 2.

3.

Parks-cum-commercial centres Museums & Libraries; aquariums Convention centres -

9. 10. 11. 12.

Water supply Sewerage, drainage, sanitation HEALTH AND EDUCATION And other sectors, including railway stations and airports

2. Examples of Urban PPPs in India
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Solid Waste Management  MCD Delhi, Bangalore, Chennai, Jodhpur, Sirsa Urban Transport  Bus Terminals at Dehradun, Amritsar, many other locations coming up  Public Transport – Indore Bus Transport system, Procurement, operations & maintenance of modern semi-low floor buses at a cost of Rs.16.0 crore.  Metros in Mumbai and Hyderabad ; Versova- AndheriGhatkopar Metro corridor in Mumbai: Out of total project

cost of Rs. 2356 crore, Rs. 650 crore asked for as viability – gap fund by private sector partner, Rs 1700 crores from private sector

2. contd Examples
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Land & Building redevelopment- Urban renewal & regeneration
City centre regeneration – Bhopal and Gwalior  Office buildings – MCD, Minto Road  relocation and redevelopment of Jails etc in several cities to ease congestion & release land, Surat, Baroda, Jaipur
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Urban Roads & Bridges
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Thiruvananthpuram city roads

2. contd Examples
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Water supply Sewerage, drainage, sanitation Tirupur Water Supply and Sewerage Project , India PPP consortium established to develop the water supply infrastructure on a BOOT basis to draw raw water and distribute it to industrial and domestic users. Alandur Under Ground Sewerage Scheme (UGSS) Public Participated in the sewerage scheme by financial contribution for the project structuring by taking service connections with an upfront payment Desalination Plant at ChennaiChennai Water Desal Ltd. Is the SPV set up to implement the 100 MLD Sea Water Reverse Osmosis on a DBOOT basis for 25 years. And other sectors

3. Constraints in Urban PPPs
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No regulatory or policy enabling framework for PPPs Lack of standardized documents and procedures Poor capacity to structure projects and execute contracts for City/State Governments Little progress on preparing bankable and financially sustainable projects, considering the opportunity and risks involved Lack of legislative framework & political will Need to rationalize tariffs and user charges Weak financial position of City Governments Complexity in unbundling urban service delivery

4. How to implement PPPs
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Dynamic project pipeline, not static ‘shelf of projects’ Project preparation & Partner selection Appoint Consultants for this Adequate project preparation and documents Float Bids Select private sector partner Get infrastructure project implemented

You may like to focus only on project preparation and bid process management Private sector will come in wherever there is an opportunity

5. GoI support for Urban PPPs
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Three broad themes
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Document standardisation
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Model concession agreements Tariff policies Guidelines for PPP procurements Capacity Building Regulatory environment facilitation – model municipal law

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Capacity Building for City Governments and State Governments  Help Desk for on-call advice and guidance

GoI Actions so far
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GOI has formulated PPP Guidelines on Urban Infrastructure, particularly Water Supply and Sanitation – circulated to States on 23rd March, 2004

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Technical Assistance facility by ADB provided for promoting PPP at State level  shall create at least 5 projects at ULB level to serve as model projects.  US $ 2 million (Rs. 80 crores) in pipeline for establishing PPP Cell in MOUD for supporting 3 to 4 pilot PPP projects.
JNNURM, with reform driven and part-grant finance at the macro level and at the micro level with projects, is congenial for PPP in urban sector. JNNURM grants may be used for tariff reforms, escrow structures, good debt-equity structures, creation of SPVs and or shadow tariffs.

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JNNURM projects under PPP so far
Sector Number Cost of Project (Rs. in Cr.) 246.61 31.47 873.91 476.15 1628.16

Water Supply 3 (Project related) Sewerage SWM MRTS Total 1 (Project related) 17 ( O & M) 1(Project related) 22

This can be done
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JNNURM projects that can be taken up on PPP should be taken up on PPP JNNURM funding can be used to finance the viability gap of 20% to come from sponsoring government Each City and State can leverage JNNURM funding to leverage large additional investment in Urban PPPs

Real Life Examples – Sept 12, 2007
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Passports  Lease 5 acres- Kolkata Municipal Corporation  75 Volvo Buses free to BEST, Mumbai  Education City, Chandigarh  Flying Training Institutes, Punjab  Crawford Market, Mumbai  Jodhpur land auction

What is holding infra back? 1
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Government processes take their own time In most publicly funded projects,  time and cost over-runs,  irregular cash flows from Budgets,  Departments bloated, not effective for outcomes,  Budget dependent- no incentive to generate cash inflows in future quality issues,  non-economic allocation criteria,  shortage of good people,  Low user charges- cannot be justified on economic grounds, unless great economic value, e.g. rural roads, In PPP projects, decisions on bidding come agonizingly slowly; projects put out to bid even more slowly

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What is holding infra back? 2
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Comparisons- China, first world, Asian Tigers- good for learning best practices, however, not replicable for the most Therefore, changes in delivery mechanism- processes, institutional and incentive structures NHAI/ Rural Roads vs. PWD – possible to reform public sector execution with institutional strengthening AND PPP wherever possible: ISBT Dehradun vs Bus Terminal at a Tier IV city Supply side constraints, enough demand at reasonable prices Public System reform always important in Infrastructure, PPP or non-PPP

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Hypothesis  

Concerns- Government
The following four problems emerge as common issues in all Governments  Preparing project reports that do not get translated into action- ‘consultant funding programme’  Governments not being able to commit resources, whether human or financial, in developing a project in a PPP format to attract bidders, high upfront costs  Project development taking far too long from start to execution, impatience of decision makers vis-à-vis usual tender route
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Perhaps most significantly, allegations of malpractices being leveled by various stakeholders, and hence risk aversion of officers – e.g. bidding for Delhi airport

Process QDM
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Which IAS officer does not want to perform? Government has very bright officers, who are honest, sincere, output focussed, but Risk averse decision-making; analysis paralysis Processes incentivized; outcomes disincentivized Vigilance, media, NGOs/CSOs, story of the lamb Search for precedent – CYA, 4 Cs Poor incentive structures in the government / public sector, sp. for individual officers Incentives and disincentives
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Government officials Concessionaires/Contractors

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Lenders Can we de-risk such decision-making Bidding out for contractors/concessionaires- Model Concession Agreements vs Laws 11 consultants for process management- empanelment- JNNURM model Issue
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how to quicken decisions

Conclusions
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Infrastructure finance in India available for good projects Telecom, Aviation have not lacked funding Funding not an issue for viable projects- UMPP model

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Financial Institutions, Banks and NBFCs, Private Equity, Funds, Capital market

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No shortage of demand for good infrastructure How can project pipeline be accelerated to enhance supply? Non PPP by reforming public systems PPP by using additionality from GoI

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Sectors where good progress mostly in Government of India domain Great opportunity for State Governments Both appointed and elected officials can make a difference

Way ahead
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How can we increase competition levels? Finance Minister’s list of issues
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Capacity building Project Pipeline Enabling environment Innovative Financing

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How about Political will to deliver outcomes? You can help generate it Bias for action

Thank You

shailesh.pathak@iciciventure.com +91 98193 27777


				
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