18.vol 01 Issue 05 Karunendra Pratap Singh

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International Journal of Multidisciplinary Research

Vol.1 Issue 5, September 2011, ISSN 2231 5780
ISSUES AND PROSPECTS OF PUBLIC PRIVATE PARTNERSHIP IN

INDIA
KARUNENDRA PRATAP SINGH*
*Assistant Professor, Department of Business Administration,
Technical Education & Research Institute, Post Graduate College
Ghazipur, Uttar Pradesh, India.
ABSTRACT
It has been observed worldwide that it is difficult for the private sector to meet the financial
requirements of infrastructure in isolation at the same time tackling the risks inherent to building
infrastructure. Therefore, the PPP model has come to represent a logical, viable and necessary
option for the Government and the private sector to work together. Public Private Partnership
(PPP) project as per Government of India means a project based on a long term 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. The concession agreement is specifically targeted towards financing, designing,
implementing and operating infrastructure facilities and the collaborative ventures are built
around mutually agreed allocation of resources, risks and returns. In this paper author highlight
the concept and growth of Public Private Partnership, analysis of various Public Private
Partnership models as per industry requirements, advantages and disadvantages of Public Private
Partnership in developing economy like India, Investigating the problems of Public Private
Partnership model in India and suggesting probable solutions.
KEYWORDS: Economy, Infrastructure, PPP, Projects.
Public Private Partnership (PPP) project as per Government of India means a project based on a
long term 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
244
Public Private Partnership is a joint collaboration between public and private sectors so as
meet the paucity of capital investment to fulfill the requirement of infrastructural
development. To bridge the gap of the basic services the Government is using the concept
of PPP. The PPPs have come into existence from over a decade but it has been more
successful from past few years. PPPs are one of the best efforts that have been taken the
Government of India. Such measures are necessary for the growth and development of the
growing economies like India. It has been observed worldwide that it is difficult for the private
sector to meet the financial requirements of infrastructure in isolation at the same time tackling
the risks inherent to building infrastructure. Therefore, the PPP model has come to represent a
logical, viable and necessary option for the Government and the private sector to work together.
www.zenithresearch.org.in
INTRODUCTION
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on payment of user charges. The concession agreement is specifically targeted towards

financing, designing, implementing and operating infrastructure facilities and the collaborative
ventures are built around mutually agreed allocation of resources, risks and returns. These are
collaborative efforts, between private and public sectors, with clearly identified partnership
structures, shared objectives, and specified performance indicators for delivery of services. India
has seen real progress over the last 10 years in attracting private investment into the
infrastructure sectors. All levels of government are aiming to use public private partnerships
(PPPs) more intensively to help meet gaps in the provision of basic services. It involves
the private
enterprise (in
the
involvement
of
management
expertise
and/or monetary contributions) in the government projects aimed at public benefit. The
government remains actively involved throughout the projects life cycle. The private sector is
responsible for the more commercial functions such as project design, construction, finance and
operations. These schemes are sometimes referred to as PPP, P3, or P3.
In some types of PPP, the cost of using the service is borne exclusively by the users of the
service and not by the taxpayer. In other types (notably the private finance initiative), capital
investment is made by the private sector on the strength 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 also be in kind (notably the transfer of
existing assets). In projects that are aimed at creating public goods like in
the infrastructure sector, the government may provide a capital subsidy in the form of a onetime grant, so as to make it more attractive to the private investors. In some other cases, the
government may support the project by providing revenue subsidies, including tax breaks or by
providing guaranteed annual revenues for a fixed period.
Attribute
Responsibility
Public
Govt.
Privatization
Entrepreneur
PPP
Govt.
Ownership
Govt./Public
Private sector
Govt.
Nature of services
Govt.
Mutual agreement
Risk & reward
Govt./Public
Decided by private
operator
Private sector
Shared between Govt.&

Private party
Source: Report of Government of India Ministry of Finance Department of Economic Affairs,

November 2009
OBJECTIVE OF THE STUDY
The proposed paper work has been carried out with following broad objectives:
1. To study the concept and growth of Public Private Partnership.
TABLE 1: ATTRIBUTE COMPARISON BETWEEN PUBLIC, PRIVATE AND PPP
245
2. Analysis of various Public Private Partnership models as per industry requirements.
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3. To study advantages and disadvantages of Public Private Partnership in developing

economy like India.
4. Investigating the problems of Public Private Partnership model in India and suggesting
probable solutions.
GOVERNMENT EFFORTS FOR PROMOTION OF PPP IN INDIA
EFFORTS AT THE CENTRAL GOVERNMENT AND STATE LEVEL
Recognizing that strengthening the capacities of different
conceptualize, structure and manage PPPs will lead to more
facilitating mainstreaming PPP through Technical Assistance
objective is effective institutionalization of the PPP cells
through provision of 'in house' consultancy services to each
the Centre and State level.
levels of government to
and better PPPs, DEA is
from ADB. The primary
to deliver their mandate
of the selected entities at
TECHNICAL ASSISTANCE
The selected entities will be provided assistance for a period till December 2009 in the form of
One PPP Expert on an individual basis focusing on project financial analysis and risk
management
One Management Information Systems expert focusing on information management.
A panel of three legal experts on retainer basis to provide legal expertise on PPPs.
ELIGIBILITY
Develop a robust shelf of projects amenable for PPPs and adhere to the following set of
targets on the level of PPPs in the State:
During 2007-08 bid out at least 3 projects with a total cost of Rs. 750 cr or more in at
least two sectors
During 2008-09 bid out at least 5 projects with a total cost of Rs.1250 cr or morein at
least three sectors
246
Set up a PPP cell as the nodal agency for processing all PPP
projects in the State with a designated PPP Nodal Officer and defined
scope of work
The States wishing to avail this Technical Assistance are required to enter into an MOU with
DEA detailing steps that would be taken to promote PPPs in the State. The MOU requires the
State Government to:
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During 2009-10 bid out at least 5 projects with a total cost of Rs. 1500 cr or more in
at least four sectors
Commit to establish such policies and regulatory andgovernance frameworks in the

identified infrastructure sectors toenable a transparent and effective private sector
participation
Prepare a 'Plan of PPP projects' in conjunction with its Annual Plan.
COMMIT TO
Adopt standard concession agreements for PPP projects in defined infrastructure sectors
Adopt competitive bidding procedure for bidding and awarding of infrastructure projects
under defined rules and procedures according to best international commercial practices
and GOI guidelines
Designate a State-level dispute resolution mechanism for the speedy resolution of
disputes relating to PPP projects
Adopt formal State policies on environment, resettlement and social safeguards with
respect to the implementation of infrastructure projects, according to best international
commercial practices.
OUTCOMES
The Technical Assistance aims to:
Help the participating State to implement PPP schemes effectively and efficiently
Enhance capacity of PPP cells in participating entities to prepare, evaluate and appraise
PPPs in infrastructure.
Over the long term, an increase in private sector participation in infrastructure

development and management throughout the country.
INDIA INFRASTRUCTURE PROJECT DEVELOPMENT FUND:
Finance Minister in his Budget 2007-08 speech announced the setting up of IIPDF in DEA with
an initial corpus of Rs. 100 cr for supporting the development of credible and bankable PPP
247
Increase awareness among potential private sector partners about the project cycle of PPP
projects in infrastructure and the expectations of Government with respect to value for
money.
Significantly improve monitoring of overall progress in PPPs in infrastructure at both

central and state levels through well-knit databases.
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projects that can be offered to the private sector. The IIPDF will be available to the Sponsoring
Authorities for PPP projects for the purpose of meeting the project development costs which may
include the expenses incurred by the Sponsoring Authority in respect of feasibility Studies,
environment impact studies, financial structuring, legal reviews and development of project
documentation including concession agreement, commercial assessment studies (including
traffic studies, demand assessment, capacity to pay assessment) etc. required for achieving
technical close of such projects, on individual or turnkey basis, but would not include expenses
incurred by the Sponsoring Authority on its own staff.
ELIGIBILITY FOR IIPDF
Sponsors to include Central Government Ministries/Departments, State Governments,
Municipal or Local Bodies or any other Statutory Authority.
Necessary for the sponsoring authority to create and empower a PPP cell to not only
undertake PPP project development activities but also address larger policy and
regulatory issues to enlarge the number of PPP projects in its shelf.
The IIPDF will finance an appropriate portion of the Transaction Advisor costs on a PPP
Project where such Transaction Advisors are appointed by the Sponsoring Authority
through a transparent system of procurement under a contract for services.
GOVERNMENT SUPPORT FOR IIPDF
IIPDF will contribute upto 75% of the project development expenses to the Sponsoring
Authority as an interest free loan. 25% will be co-funded by the Sponsoring Authority.
On successful completion of the bidding process, the project development expenditure
would be recovered from the successful bidder. However, in the case of failure of the bid,
the loan would be converted into grant. In case the Sponsoring Authority does not
conclude the bidding process for some reason, the entire amount contributed would be
refunded to the IIPDF.
Streamline the tendering process for the engagement of transaction advisers for PPPs.
Enable fast access to firms that have pre qualified against relevant criteria.
Ensure transparency and accountability through clear definition of the processes and the
role and responsibilities of the agencies and the private sector.
248
The Government has pre-qualified a panel of firms through International Competitive Bidding.
The short listed consultants have been evaluated for their capability and experience in
discharging a lead role in PPP transactions. The panel is intended to:
TRANSACTION ADVISERS FOR PPP PROJECTS:
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This panel is available to all Central, State and Municipal Governments who are undertaking
PPP transactions. They would be able to select any of the consultants from this panel through a
limited financial bid without having to go through the lengthy and more complex technical bid.
Firms on the panel will contract directly with the agencies concerned for provision of transaction
management services. DEA would be kept informed on the use being made of the panel, and the
performance of panel members. States can draw upon IIPDF to incur expenditure on hiring of
Transaction Advisors.
DEVELOPMENT AND USE OF PPPS FOR DELIVERING INFRASTRUCTURE
SERVICES
Development and use of PPPs for delivering infrastructure services has now at least 11 years of
precedence in India, with the majority of projects coming in line in the last 5 years. Policies in
favor of attracting private participation as well as innovation with different structures have met
with varying degrees of success. Some sectors like power, and ports and roads, have done very
good progress compared to limited success in other sectors.
TABLE 2: TOTAL NUMBER OF PPP PROJECTS (STATE WISE)
S TATE
Total Number of Projects based on value of contracts

Total
Number
of
Project
s
63
2
14
4
9
2
27
2
6
95
11
37
Based
on 100
crore
Betwee
n 100 to
250
crore
Between
251 to
500
crore
More
than
500 crore
Value of
contacts
1062.93
4
15
70
95
30
130.06
0
131
980.39
114
1027.32
1554.27
0
0
304
0
220
277.22
0550
1692.55
112
1117.28
3188.53
418.04
0
464
408.2
0
3360.9
756
0
12203.31
615.5
2694.95
33473.7
0
0
0
10374
0
14943.71
0
0
24615.6
11131
2949
39279.43
422.04
15
838
10877.2
250
18711.89
756
681
39491.85
11972.5
7788.55
285
16
2
19
118.5
235.1
0
537.26
745.5
0
0
434.72
1099.84
500
419
572
32061.95
6888.34
1867
0
34025.79
7623.44
2286
1543.98
Andhra Pradesh
Bihar
Chandigarh
Chhattisgarh
Delhi
Goa
Gujarat
Haryana
Jharkhand
Karnataka
Kerala
Madhya
Pradesh
Maharashtra
Orissa
Pudducherry
Punjab
FIGURES
249
States
WIS E
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523.92
175.59
143.31
0
0
160.45
5638.8
3
Source: http://www.pppinindia.com/
Rajasthan
Sikkim
Tamil Nadu
Uttar Pradesh
West B engal
Inter-State
Total
49
24
30
5
5
13
450
783.79
558
555.6
0
200
195
9299.93
833
2669
6412.87
1458.57
1214.4
2294.67
41582.7
8
3112.7
13708
5340
649.21
641
5984
167739.2
1
5253.41
17110.59
12451.78
2107.78
2055.4
8634.12
224175.
8
TABLE 3: SECTOR WISE PPP PROJECTS

FIGURES
Based
on 100
crore
Betwee
n 100
to 250
crore
Between
251 to
500
crore
More
than 500
crore
Value
of
contacts
Airports
Total
Numbe
r of
Project
s
5
303
18808
19111
Education
93.32
93.32
Energy
24
175.59
558
2669
13708
17110.59
Ports
43
96
970
2440
62992.95
66498.95
Railways
102.22
905
594.34
1601.56
Roads
271
3162.5
5526.49
32861.87
60453.92
102004.7
Tourism
29
742.56
674.52
1050
2467.08
Urban
Development
Total
73
1283.86
1468.7
2403.91
10132
15288.47
450
5638.8
3
9299.93
41582.7
8
167739.2
1
224175.
8
We see that road projects account for 60% of the total number of projects and 45% by total value
because of the small average size of projects. Ports though account for 10% of the total number
of projects have a larger average size of project and contribute 30% in terms of total value. It is
noteworthy that if ports and central road projects are excluded from the total, there is in fact a
relatively small value of deal flow, at only Rs 55757.02 Crores in basic infrastructure PPPs todate, suggesting a significant potential upside for PPP projects across sectors where states and
municipalities have primary responsibility. The potential use of PPPs in e-governance and health
and education sectors remains largely untapped across India as a whole, though off-late there
have been some activities shaping in these sectors. Across states and central agencies, the leading
Sector
WIS E
250
S ECTO R
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users of PPPs by number of projects have been Karnataka, Andhra Pradesh, and Rajasthan, with
95, 63 and 49 awarded projects respectively and the National Highways Authority of India
(NHAI), with about 77 projects. In terms of main types of PPP contracts, almost all contracts
have been of the BOT/BOOT type (either toll or annuity payment models) or close variants. In
terms of approach to provider selection, almost all the projects in the sample were competitively
bid (either national or international competitive bidding) with the negotiated ones (through
MOUs) primarily coming from the railway PPP projects, which is understandable given the lack
of clear policy framework and standard contract still date. In terms of contract award method the
International Competitive Bidding yielded 39% of total investment in India followed by
Domestic Competitive Bidding with 33%.
TABLE 4: SECTOR WISE CONTRACT AWARD METHOD
SECTOR WISE CONTRACT AWARD METHOD
Total Number of Projects based on Contract
Award Method
Domestic
Competitive
Bidding
International
Competitive
Bidding
Airports
Education
Energy
Ports
Railways
Roads
5
1
24
43
4
271
0
93.32
100
4816
696.56
62779.2
18808
0
0
24037
0
34161.9
Tourism
Urban
Developm
ent
Total
29
73
1367.76
4645.83
982.32
9758.91
450
74583.67
87748.13
Negotiated
MOU
Value
of
Contra
cts (Rs.
Crore)
0
19111
0
93.32
16014.59 17110.59
34591.95 66498.95
905
1601.56
1259.2 102004.7
8
0
2467.08
15 15288.47
52785.74
224175.
8
The primary reason for project being implemented through PPP has been qualitative benefits
accrued from the project, it remains to be seen if these decisions are based on clear value-formoney calculations for the conceding authority. There is also relatively little available in terms
of information on the actual contracts used.
Total
Numb
er
of
Projec
ts
251
Sector
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DOMESTIC VERSUS FOREIGN PRIVATE PLAYERS PARTICIPATION IN PPP

PROJECTS
Private sector targeted towards financing, designing, implementing, and operating infrastructure
facilities and services that were traditionally provided by the public sector have been a success
story so far with the Government of India leading the process of promoting Public Private
Partnerships (PPPs) in India. The Central Government is working with the State Governments
and all other stakeholders to expand the horizon of PPPs in infrastructure development in the
country. It has created a favorable atmosphere, provided fiscal incentives and facilitated funding
of PPP projects. The Government now allows FDI in most infrastructure sectors to the extent of
100 percent. The crucial initiatives to operational and institutionalize the flow of private capital
for accelerated infrastructure development in the country through PPPs, has led to an investment
of Rs. 135871.42 crore as per the sample of 300 in the PPP database.
CHART 1: FOREIGN VS. DOMESTIC NUMBER OF PPP PROJECTS
Fore ign ve rs us dome s tic numbe r of PPP proje cts in India
7%
foreign investor
indian private investor
93%
Source: www.hm-treasury.gov.uk/ppp_index.htm
CHART 2: SECTOR WISE DOMESTIC PLAYER IN PPP PROJECTS
Sector-wise domestic player investment in PPP projects
17802, 13%
roads
51398, 39%
ports
airports
19111, 14%
energy
urban development
railways
43053, 32%
Source: www.hm-treasury.gov.uk/ppp_index.htm
1007, 1%
252
1775, 1%
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TABLE 5: DOMESTIC PLAYERS IN PPP PROJECTS

Domestic players in PPP projects
Domestic players
Investment by
private player
(Rupees in crore)
Number of
projects
Major domestic players

3497.95
10
Larsen & Toubro Transportation
Infrastructure Ltd.
1287.98
6
GMR Infrastructure Ltd.
936.6
4
IVRCL Infrastructure & Projects Ltd.
Small domestic players
319.42
4
DS Constructions
2085.68
11
Sadbhav Engineering Limited
238.84
15
MSK Projects (India) Limited
Total
8366.47
50
November 2009
TABLE 6: INVESTMENT IN PPP PROJECTS
Foreign versus domestic investment in PPP projects in India
Investor Type
Total
Investment
% of total
% of total
number of
project cost
projects
1725.85
7%
1%
Foreign Investor
134145.57
93%
99%
Indian Private Investor
Total
135871.42
100%
100%
November 2009
253
PPPs do not mean reduced responsibility and accountability of the Government. The
Government remains accountable for service quality, price certainty and cost-effectiveness
(value for money) of the partnership. Government's role is one of facilitator and enabler by
assuming social, environmental and political risks; private partner's role is one of financier,
builder and operator of the service or facility and it typically assumes construction and
commercial risk. Resources required by the project in totality along with the accompanying risks
and rewards/returns are shared on the basis of a pre- determined, agreed formula, which is
formalized through a contract. Since the private sector assumes the risk of non-performance of
assets and realizes its returns if the assets perform, the PPP process involves a full scale risk
appraisal. This results in better cost estimation and better investment decisions. PPPs deliver
efficiency gains and enhanced impact of the investments. PPP projects also lead to faster
PPP PROJECT CONTRIBUTIONS
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implementation, reduced lifecycle costs and optimal risk allocation. Private management also
increases accountability and incentivizes performance and maintenance of required service
standards. Finally, PPPs result in improved delivery of public services and also promote public
sector reforms. PPP does not involve outright sale of a public service or facility to the private
sector. Private Sector Company in a PPP means a company in which 51% or more of the
subscribed and paid up equity is owned and controlled by a private entity.
RISK & REVENUE SHARING
Construction/implementation risk, arising from:
delay in project clearance;
contractor default;
environmental damage
Market risk, arising from:
insufficient demand;
Impractical user levies.
Finance risk, arising from:
inflation;
change in interest rates;
increase in taxes
Change in exchange rates.
Operation and maintenance risk, arising from:
technology risk;
labour risk.
Legal risk, arising from:
changes in law;
changes in title/lease rights;
termination of contract;
254
insolvency of developer/service provider;
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change in security structure.

PPP PROJECT PROCESS
255
India has witnessed an absolute metamorphosis over the last decade. Sprawling cities, flourishing
businesses, higher standard of living are all indicators of unprecedented growth, globalization,
urbanization, expansion and diversification. Infrastructure modernization and development is
said to be the key driver of all the growth and economic activity. The public sectors alone cant
meet the required funds and technology for the projects. So the Government decided to
accomplish this business by collaborating with the sector which could provide this requirement
which was none other than the private parties. Thus PPP emerged as a joint collaboration of the
public and private sectors. The Indian infrastructure sector is at an inflection point and there are
immense opportunities for the private sector. The PPP has come in to existence from over a
decade but it has shown remarkable results in past 5-6 years. Almost every sector is covered
where PPP needs to be implemented. Many foreign companies also show their interests but their
participation is not much as the domestic private companies. The sectors covered in this research
are health, education, power and transport.
CONCLUSION
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Indian infrastructure growth has reached massive heights. Most PPPs have been restricted to the
roads sector. And the sector still has lot of scope and the measures are taken also by the PPPs to
achieve it. Ambitious project plans have been developed for various transport sectors to bridge
the infrastructure gap. The sectors are booming but there are hindrances and constraints persist
threatening to slow down growth in the smooth development of world-class infrastructure. This
is because the private sectors which are involved in the PPPs have the prime motive of profit
making rather than doing any social work. The companies which have the close contact with
political parties can also take up a project with a view of making lot of profits. If the project
reaches in the wrong hands that are if the tender is passed to a wrong person he may severely
cause problems. But the Government is controlling all these constraints to have successful
examples in PPP and heading towards the economic development of the country. It has taken
various steps to accomplish the projects successful.
REFERENCES
1. report of government of india ministry of finance department of economic affairs,
november 2009
2. www.pppinindia.com
3. www.hm-treasury.gov.uk/ppp_index.htm
4. www.ifc.org/ifcext/eastasia.nsf/Content/
5. Infrastructure
6. http://rru.worldbank.org/PapersLinks
7. http://rru.worldbank.org/Toolkits/
8. http://rru.worldbank.org/PublicPolicy
9. Journal
12. http://pppue.undp.org/toolkit/MOD112.
13. html
14. www.usaid.gov/our_work/economic_
15. growth_and_trade/eg/privatization.htm
256
11. www.ppiaf.org/
10. http://rru.worldbank.org/Privatization

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ZENITH

International Journal of Multidisciplinary Research

ISSUES AND PROSPECTS OF PUBLIC PRIVATE PARTNERSHIP IN

on payment of user charges. The concession agreement is specifically targeted towards

Risk & reward

Shared between Govt.&

Source: Report of Government of India Ministry of Finance Department of Economic Affairs,

TABLE 1: ATTRIBUTE COMPARISON BETWEEN PUBLIC, PRIVATE AND PPP

2. Analysis of various Public Private Partnership models as per industry requirements.

3. To study advantages and disadvantages of Public Private Partnership in developing

Commit to establish such policies and regulatory andgovernance frameworks in the

Over the long term, an increase in private sector participation in infrastructure

Significantly improve monitoring of overall progress in PPPs in infrastructure at both

TRANSACTION ADVISERS FOR PPP PROJECTS:

Total Number of Projects based on value of contracts

TABLE 3: SECTOR WISE PPP PROJECTS

DOMESTIC VERSUS FOREIGN PRIVATE PLAYERS PARTICIPATION IN PPP

TABLE 5: DOMESTIC PLAYERS IN PPP PROJECTS

Major domestic players

PPP PROJECT CONTRIBUTIONS

insolvency of developer/service provider;

change in security structure.

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