Risks in a PPP project:

A number of key risks that need to be allocated and managed to ensure the successful financing of the
project are:

Development Risk

● Construction and Completion Risk

● Environmental Risk
● Social Risk

Commercial Risk

● Operating Risks
● Demand Risk
● Force Majeure and Change in Law
● Political and Regulatory Risk and Expropriation and Nationalization Risk

Financial Risk

● Tenor and Refinancing Risk

● Currency Exchange Risk
● Interest Rate Risk

Benefits of PPP-
https://ppp.worldbank.org/public-private-partnership/overview/ppp-objectives
Potential Benefits of Public Private Partnerships

For a detailed discussion on how PPPs can help, go to the ​PPP Knowledge Lab ​.

The financial crisis of 2008 onwards brought about renewed interest in PPP in both developed and
developing countries. Facing constraints on public resources and fiscal space, while recognizing the
importance of investment in infrastructure to help their economies grow, governments are increasingly
turning to the private sector as an alternative additional source of funding to meet the funding gap. While
recent attention has been focused on fiscal risk, governments look to the private sector for other reasons:

● Exploring PPPs as a way of introducing private sector technology and innovation in providing
better public services through improved operational efficiency
● Incentivizing the private sector to deliver projects on time and within budget
● Imposing budgetary certainty by setting present and the future costs of infrastructure projects
over time
● Utilizing PPPs as a way of developing local private sector capabilities through joint ventures with
large international firms, as well as sub-contracting opportunities for local firms in areas such as
civil works, electrical works, facilities management, security services, cleaning services,
maintenance services
 ● Using PPPs as a way of gradually exposing state owned enterprises and government to
increasing levels of private sector participation (especially foreign) and structuring PPPs in a way
so as to ensure transfer of skills leading to national champions that can run their own operations
professionally and eventually export their competencies by bidding for projects/ joint ventures
● Creating personification in the economy by making the country more competitive in terms of its
facilitating infrastructure base as well as giving a boost to its business and industry associated
with infrastructure development (such as construction, equipment, support services)
● Supplementing limited public sector capacities to meet the growing demand for infrastructure
development
● Extracting long-term value-for-money through appropriate risk transfer to the private sector over
the life of the project – from design/ construction to operations/ maintenance

Types of PPP
models-http://shodhganga.inflibnet.ac.in/bitstream/10603/50293/6/06_chapter%201.pdf
Diff between PPP and privatisation

The key difference between the PPP and privatization is that the responsibility for delivery and funding a
particular service rests with the private sector in privatization. The PPP, on the other hand, involves full
retention of responsibility by the government for providing the services. In case of ownership, while
ownership rights under privatization are sold to the private sector along with associated benefits and
costs, the PPP may continue to retain the legal ownership of assets by the public sector. The nature and
scope of the services under privatization is determined by the private provider, while it is contractually
determined between the parties in PPP. Under privatization, all the risks inherent in the business rest with
the private sector while, under the PPP, risks and rewards are shared between the government and the
private sector. Under the PPP format, the government role gets redefined as one of facilitator and
enabler, while the private partner plays the role of financier, builder, and operator of the service or facility.
PPPs aim to combine the skills, expertise, and experience of both the public and private sectors to deliver
higher standard of services to customers or citizens. The public sector contributes assurance in terms of
stable governance, citizens‟ support, financing, and also assumes social, environmental, and political
risks. The private sector brings along operational efficiencies, innovative technologies, managerial
effectiveness, access to additional finances, and construction and commercial risk sharing.

PPP Roads- ​https://www.pwc.in/assets/pdfs/publications-2012/the-road-ahead-highways-ppp.pdf

The highways sector has evolved over the past decade, especially in the national highways segment, and
is reaching the stage of maturity. So far, NHAI has awarded PPP projects under Build Operate and
Transfer (BOT-toll) and BOT (annuity). NHAI makes efforts to award projects under BOT (toll). In case the
project is not commercially viable, the BOT (annuity) mode is adopted. NHAI has also decided to award
some projects under the operation maintenance and transfer (OMT) mode. Recently, NHAI invited
requests for qualification for 21 OMT contracts and as many as 80 applications were received.

https://www.indianeconomy.net/splclassroom/what-is-hybrid-annuity-model-in-ppp/
Issues faced by bidders in metro project:

1. Not-standardized bidding document- RFP,RFQ

2. No dedicated contact.
3. Information Gap
4. Land acquisition issue
5. Regulatory issues
6. Dispute resolution issues
7. Environmental issues
8. Lack of information
PPP Maturity of Different projects

1. Airports are bigger investments and hence the feasibility is more challenging than roads. Hence,
private players are hesitant
2. Commercial risks are higher in airport sector- NAR estimation is difficult

Project Vs Corporate financing

http://www.academia.edu/15087234/CORPORATE_FINANCE_VERSUS_PROJECT_FINANCE

Factor Corporate financing Project financing

Collateral Assets of the company is the
collateral. Balance sheet is
looked into before lending
The projected cash flows are
generally looked at before
investing and project assets(
current or future) are used as
collateral

Moratorium period

Interest rate Relatively lower Relatively higher

Privatization experience in Railway
Delhi Airport Metro expressway

● Between delhi railway station and delhi airport

22.7 km with only 6 stations
•Estimated Project Cost: INR 5750 Cr.
•Hours of operation: 5:30 am to 11:30 pm.
•Frequency of Service: Every 20 minutes.
•Fare: INR ​150​ per trip (max).
•Required completion: October 2010

•Travel Time - 19 minutes

Key Learnings

•IMPROPER RISK SHARING

•maintenance risk was shared between parties which meant either party could blame the other

•AGGRESSIVE BIDDING

•DMRC knew that it would be difficult for private player to recover its investment still it accepted
aggressive bidding by Reliance

•ADMINISTRATIVE DECISION

•The operating time for Airport Line was kept from 6am to 11:30 pm which made it financially unviable

•BUILDING BLUNDERS

•Deadline of 30 months was too ambitious for such a project and expediting the process due to late
clearances resulted in further compromise

•IRRATIONAL ESTIMATES

•Reliance counted on lot of Real Estate upside and accounted that 70% of the revenue during initial years
would come from lease

Delhi Agra Expressway

•Popularly known as “Yamuna Expressway”, the Delhi-Agra Expressway is 205 km long access-controlled
expressway which connects Greater Noida with Agra.
•It is one of India’s longest six-lane controlled-access expressway.
•Increase in the number of tourist and devotees visiting Agra and Mathura.
● Increased industrial, commercial and agricultural development in the region
●
Concessionaire Jaypee Infratech Ltd. Sector – 128, Noida
(UP)

EPC Contractor/Toll Collection agent & O& M Jaiprakash Associates Ltd, Sector-128, Noida
Contractor (U.P)

Project Advisors to YEA RITES Ltd.

Wrong revenue estimated

/
 Mumbai-Metro
---MMOPL--BOOT-35 years Concession
-->Public Support For Project--Difficulty in land acquisition and road expansion
->Specification on asset Transfer--The concession agreement does not have clear and robust
specification, so there is a risk of difference in opinion between the concessionaire and
government
-->Delays in approval---Delay in obtaining approving for the over bridge from the railway
authorities
-->Assessing bid process is crucial:It took 2 years for choosing the successful bidder. This led to
a lesser number of bidders to bid for the project

Kandla Project
1. Over Capacity was already there. In Spite of this International Terminal was made
2. No manufacturing sector was near kandla project to contribute in bottomline
3. Old concession agreement was about Revenue sharing which was changed to royalty
sharing in new agreement

Navi Mumbai
1) Pre development challenges are big-land acquisition,hill blasting,ug cable laying,
2) Govt approval took 13 years and 4 years for bidding
3) Project costs have increased by 50% in comparison to feasibility study done in 2010
Dedicated Freight corridor
-not been able to meet completion schedules so far due to various reasons, including procedural wrangles,
land acquisition, environment clearances
- the delay in completing the project was mainly due to lack of proper planning and implementation
-crucial for Indian Railways as it faces a stiff competition from the road sector for goods movement. The shifting
of goods from roads to rail will also save precious fossil fuel which will be a boon for the environment
- not only would the trains be running by a strict timetable, but the contract would include a penalty clause if the
cargo reaches the destination late, as well as a bonus for railways if it reaches in time
Station Re-development:-
1) 45 years lease period to attract bidders
2) Consortium bidding for risk diversification
3) 100% FDI and encroachment free land