PPP Days 2010 PPPs Lessons from the Last 18 Months

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PPP Days 2010 PPPs Lessons from the Last 18 Months Rajiv B Lall March 22, 2010 1

Private Sector Participation (PSP) in India Works & Services Contracts Management Contracts Operation Concessions Build Operate Transfer Concessions Full Privatization Asset Ownership Commercial Risk Public Public Public Public & Private Private Public Public Private Private Private Typical Duration 1-2 Years 3-5 Years 15-20 Years (depends on feasibility) 20-25 Years (depends on feasibility) Indefinite Sectors Roads EPC; Sewerage Project Toll Stations City Bus Service Highways; Bus Terminals Telecom, Power, Waste Processing Low High Extent of private sector participation

PPP trends After establishing themselves in Roads, Power and Telecom, PPPs foray into challenging Urban Infrastructure. Contribution of private investment: National Highways: Close to half Power: Projected to double between 10 th (01-06) and 11 th (07-12) 5-Year plans and reach USD 40 billion. Telecom: 2/3 rd of total investment in FY 08-09 Use of both traditional and innovative PPP structures Traditional PPP highways, urban public transportation, airports Innovative power sector

PPPs in all three components of Power Generation Transmission Distribution MoU based PPAs Central & State Utilities Utilities Competitive Bidding Ultra Mega Power Projects GoI/Power Finance Corporation Utilities Power Supply PPA Private Player SPV for project development Tariff based competitive bid PSP Inter state & intra state JV- Central/State Transmission Utility & private player o Tala transmission system Independent Power Transmission Corporation - oprivate sector awarded projects through tariff based bidding o2 schemes under Western Region System Strengthening Management Contract Metering Billing Collection Operation Concession Distribution Franchisee Bhiwandi Privatization Delhi distribution business

Huge upsurge in Road activity Significant private sector interest No of Projects Length (km) Project Cost (Cr.) From 1999 to March 2009: Projects awarded 95 7,600 46,369 April - Dec 2009: Projects awarded/bids won 27 2,568 25,404 Pipeline: Projects w/ likely bids 26 3,348 34,439 Jan-Feb 2010: Projects in RFQ stage 24 2,459 20,091 Source: NHAI (for Projects awarded from 1999 to March 2009); IDFC (rest) Of the 47,000 kms earmarked for PPP development under NHDP, about 14,000 kms has been bid out in 122 PPP Concessions across the country for a total investment of about Rs. 70,000 crores. In FY 2010 we could do more in just PPP contracts than was awarded in EPC and PPP contracts together in the peak year of 2005-06 when 4,740 kms worth of road contracts were awarded.

The Port Sector PPP model has been very successful Share of Private Sector in Container Volume FY2002 FY2009 Government 48% ( 000 TEUs) Total TEUs: 2,885 Private TEUs: 1,385 Private 52% Private Terminals Volume 2009 Mumbai 90 Kandla 138 NSICT (DPW) 1,427 GTI (APMM) 1,256 Pipavav (APMM) 195 Mundra (DPW) 808 Cochin (DPW) 260 Tuticorin (PSA) 439 Chennai (DPW) 1,143 Vizag (DPW) 90 Total ( 000 TEU) 6,054 Government 23% ( 000 TEUs) Total TEUs: 7,848 Private TEUs: 6,054 Private 77%

All major airports are PPP Privatized airports Total Investment Govt grant/vgf Govt. Ownership Govt. share of revenue Land Contribution Airport Rs Cr Rs Cr % % Acres Mumbai 6000-26 38.7 1875 Delhi 10225-26 45.99 5060 Hyderabad 2920 107 26 4 5450 Bangalore 2400 350 26 4 4000 Of the 2009 passenger capacity of 110 million, 56% is handled by PPP airports. In 2009, PPP airports handled 70% of freight by value. Notes: The investments refer to original investments and there have been significant cost overruns. Currently Mumbai cost is estimated around Rs. 9,800 Cr as per press reports. Government ownership is 26% in all 4 airports, in Delhi and Mumbai AAI holds 26%. In Hyderabad and Bangalore, AAI has 13%, with respective State Government holding 13%. In addition to the Grant of 107 Cr, GoAP has also given an interest free loan of Rs. 315 Cr to the Hyderabad airport.

Urban PPP projects: Emerging models validating proof of concept Urban Transportation: Intra city bus service (Indore) BRTS (Rajkot) MRTS (Mumbai Metro ONE Versova-Andheri-Ghatkopar Corridor) Bus terminals (Amritsar, Jalandhar) Water Distribution: Latur Water Distribution (infrastructure upgrade and water distribution) Karnataka Urban Water Supply Improvement Project (KUWASIP) Solid Waste Management: Rajkot solid waste processing plant (fully privately owned plant) Electricity Distribution: Bhiwandi Delhi

Electricity Distribution: Bhiwandi, Maharashtra Description: Upgradation, operation and maintenance of the city electricity distribution network. PPP type: Performance linked O&M contract Project Structure: Government and private sector contribute to capex. Private sector purchases power from the government entity at a predetermined rate. The private sector is responsible for planning, O&M, metering, billing, collections, and need to achieve a minimum reduction in T&D losses; and increase in collection efficiency. Revenue Source: Revenues from users. AT&C loss reduction by 30%; DT failure rate by 32.5%, and DT losses by over 40%

Bus Terminal, Amritsar, Punjab Description: Renovation and expansion of existing inter-city terminal including construction of shops and amenities. PPP type: BOT Project Structure: Entire $47 million (43% equity, 57% debt) of construction cost borne by the concessionaire. Government provided the land. Revenue Source: Parking charges from halting buses; lease rentals from shops/offices; advertisement revenues. Actual revenues surpassed projections. For 1 st 3 quarters of FY 09 bus charges constituted 68% of revenues, lease rents 23% and advertisement revenues 9%.

City Bus Service, Indore, Madhya Pradesh Description: Operate and manage intra-city bus service. PPP type: O&M contract Project Structure: A SPV (Indore City Transport Services Limited - ICTSL) provided common infrastructure (such as bus stops and terminals). Concessionaires provided buses and operate them. Revenue Source: Fares (daily fares, and daily and monthly passes) and advertising revenues. Concessionaire retains 60% of the advertisement revenue, 80% of pass revenue, and the 100% of daily fare collection. Rest passed on to ICTSL. Concessionaire also pays monthly premium to ICTSL.

Karnataka Urban Water Supply Improvement Project Description: 24x7 water supply in 5 demo zones of 3 cities (Belgaum, Gulbarga and Hubli-Dharwad) PPP type: Performance linked O&M contract Project Structure: Improvements to bulk water supply made by Karnataka Urban Water Supply and Drainage Board. Private sector upgraded the distribution network including installation of meters and tariff collection system. Revenue Source: Fixed plus performance-based payments. 60% of remuneration is quarterly fixed payment and the remaining 40% linked to targets in the preparatory and O&M periods. A bonus of up to $1.2 million can be earned for bettering performance targets or a maximum penalty of 10% of remuneration paid for failure. Water loss reduction from 50% to 7%.

Waste Processing Plant, Rajkot, Gujarat Description: 300 metric tonne (MT) waste processing plant PPP type: Build Own Operate (BOO) Project Structure: Land provided by the Rajkot Municipal Corporation (RMC). RMC also delivers 300 MT of garbage per day. Private sector constructed the plant. Revenue Source: Sale of waste by-products. 40 MT of bio fertilizer/compost; 70 MT of fluff (used as fuel); 15,000 bricks, recycled plastics and metals. Plant utilizes 85-90% of waste.

Way forward. Design & integrity of contracts Bid parameter Changes in contract Capacity Building: State and ULBs. I-CAP/IDFC/associated companies training programmes PPP cells in several states (such as Andhra Pradesh, Haryana, Orissa and Tamil Nadu) and Railways Minimizing fiscal cost of projects Control increase in VGF Remove implementation impediments Clearances Land acquisition