ECONOMICS HANDOUT (Lecture No.

6)
by Jayant Parikshit
PUBLIC PRIVATE PARTNERSHIP (PPP):
1. Meaning
2. Need for PPP
3. Types of PPP
4. Build-Operate-Transfer (BOT)
5. Build-Own-Operate-Transfer (BOOT)
6. Design-Build-Finance-Operate (DBFO)
7. Toll-Operate-Transfer (ToT)
8. Hybrid-Annuity Model (HAM)
9. Sectoral Spread of PPPAC Proposal
10. Problems with PPP in India
11. Report of the Committee on Revisiting & Revitalising the PPP Model of Infrastructure
Development Chaired by Dr.V.Kelkar
12. Airports in India
13. Government initiatives to improve policy environment in aviation pertaining to PPP
14. Why did India go for PPP model in Airport Development?
15. What are some of the important measures to improve the PPP in airports in India?

MULTIPLE CHOICE QUESTIONS (MCQs) FOR PRACTICE

Question-1: Consider the following statements about PPP in India:

1. PPP applies to a contractual arrangement between government one side and a government-
owned entity on the other side.
2. Only public assets like infrastructure are provided through PPP in India.
3. The private sector is given rights over the entire life of the project called the “concession”
period.
4. Commercial returns are not guaranteed for the private partners in PPP projects.

Choose the correct option:

a. Only1
b. Only2
c. Only3
d. Only4

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e. Both 1&2
f. Both 2&3
g. Both 2&4
h. 1,2,3&4
i. None of these

Question-2: Consider the following statements with respect to PPP & Privatisation:

1. PPP can be called as partial privatisation.

2. The responsibility of provisions of assets or services under PPP lies both with private sector &
public sector.

Choose the correct statement:

a. Only1
b. Only2
c. Both1&2
d. None of these

Question-3: Consider the following facts regarding investment in India in past few decades:

1. 22% of the total infrastructure investment during tenth five year plan came from private sector.
2. The share of private investment in total infrastructure investment in India rose to 36% in
eleventh five year plan.
3. The share of private investment in total investment exceeded the target and reached 39% in the
twelfth five year plan.

Choose the correct option:

a. Only1
b. Only2
c. Only3
d. Both1&2
e. Both1&3
f. Both2&3
g. 1,2,3
h. None of these

Question-4: Consider the following about BOT Model:

1. The private sector has the responsibility of design, construction and operation of the project.
2. The finance is taken care by government.
3. Private sector is given the authority to collect the toll or be paid annuity fee.
4. The private sector transfers the facility to government at the end of concession period.

Choose the incorrect statement:

a. Only3
b. Only4
c. Both1&2
d. None of these

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Question-5: Consider the following about EPC (Engineering-Procurement & Construction)
contracts:

1. The private sector designs the project, procures all equipment and materials, and then
constructs the project.
2. In EPC road projects, NHAIentirely pays private players to lay roads.
3. The government has no role in the road’s ownership, toll collection or maintenance.
4. The EPC contract has fixed time, fixed price and as such heavy penalties are imposed for non-
performance.

Choose the correct option:

a. Only1
b. Only2
c. Both1&3
d. Both1&2
e. Both2&3

Question-6: Consider the following about the Hybrid Annuity Model (HAM):

1. HAM is a mix of engineering procurement and construction (EPC) Model&build, operate and
transfer (BOT) models in the ratio 60:40.
2. The private sector raises its share of 40% of projects cost from the market.
3. Under HAM, toll collection is the responsibility of private sector with the help of NHAI.
4. Here, the financial risk is equally divided between government & private sector.

Choose the incorrect answer:

a. Only1
b. Only2
c. Only3
d. Only4
e. Both1&2
f. Both2&3
g. Both1&4
h. Both3&4
i. 1,2,3&4
j. None of these

Question-7: Consider the following facts about Toll-Operate-Transfer (TOT) Model:

1. It is based on the concept of asset recycling.

2. The government identifies the viable non-operational projects, leases it out to private sector for
operations and management.
3. The project’s ownership is ultimately transferred to the private sector after the concession
period.
4. The projects which have been non-operation for atleast two years are considered under TOT
model currently in India like road projects stuck for 2 years.

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Choose the correct option:

a. Only1
b. Only4
c. Both2&3
d. Both3&4
e. 1,2,3&4

Question-8: Consider the following about BOOT Model:

1. The private sector builds, designs, owns & operates the project.
2. The finance is arranged by government agencies.
3. The government &private sector recoups its investment through toll or user charges.
4. At the end of concession period, the project is transferred to the government

Choose the correct answer:

a. Only1
b. 1,3&4
c. 2,3&4
d. 1,2,3&4

Question-9: Consider the following about BOO Model:

1. The private sector designs, builds, and finances the infrastructure.

2. The private sector owns, operates and maintains the infrastructure.
3. There is no obligation on government to purchase the infrastructure from private sector.
4. The lenders have only the project’s expected cash flows to indicate its viability.

Choose the incorrect statement:

a. Only2
b. Only3
c. Only4
d. Both2&4
e. Both3&4
f. 2,3,4

Question-10: Consider the following about DBFO Model:

1. The private sector designs, builds, operates & finances a facility for a defined period.
2. The public sector pays for the assets upon completion & the services when provided.
3. DBFO is an output focussed contract.

Choose the correct option:

a. Only1
b. Only2
c. Only3
d. Both1&2
e. Both2&3

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Question-11: In terms of the risk & responsibilities shared between government & private sector
in the PP projects, please arrange the following PPP models in terms of overall increasing private
responsibilities:

1. BOT
2. BOOT
3. BOO

Choose the correct answer:

a. BOT, BOO, BOOT

b. BOO, BOT, BOOT
c. BOOT, BOT, BOO
d. BOT, BOOT, BOO
e. BOO, BOOT, BOO
f. BOOT, BOO, BOT

Question-12: Viability Gap Funding (VGF) is used to help the funding of PPP projects in India.
Consider the following statements with regard to VGF:

1. The maximum funding limit under VGF is 20% of the total project cost.
2. VGF only provides funds to the projects which are economically & financially justified & viable.

Choose the correct statement:

a. Only1
b. Only2
c. Both 1&2
d. None of these

Question-13: In the report of the Committee on “Revisiting & Revitalising the PPP model of
infrastructure development” chaired by Dr.V.Kelkar, recommendations were made for PPP.
Consider the following recommendations:

1. 3PI should be revived and established as the single regulator of PPP in India.
2. A standard PPP model concession agreement (MCA) should be designed so that PPP in all sectors
can have similar standard contracts.
3. Government must create provisions to protect itself from loss of bargain power from private
sector in PPP projects.
4. Government should amend the “Prevention of Corruption Act, 1988” to distinguish between
genuine errors in decision-making and cases of graft.

Choose the correct option:

a. Only1
b. Only2
c. Only3
d. Only4

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e. Both1&2
f. 1,2&3
g. 1,2,3&4

QUESTIONSFOR MAINS:
Question-1: Define “Public private partnership (PPP)”. What are their aims? And what are its key
features in India?

Question-2: Distinguish between privatisation & PPP. Discuss the general trend of evolution of PPP in
India. Highlight some of the recent developments.

Question-3: Why did government go for PPP in airport development in India? Examine its efficacy.

Question-4: PPP can revamp our health sector, especially the primary and secondary health care
system in India. Discuss.

Question-5: What do you mean by Hybrid-Annuity-Model (HAM)”? What are its key advantages? Has
it succeeded in India?

Question-6: Discuss some of the recent developments of PPP in the health sector &Metro Rail
Projects (i.e. Indian Railways).

PPP DEFINITION & MEANING

 PPPs are long term contracts between the government, or a government-owned entity on one
side and a private company on the other, for the provision of public assets or public services.

 The private firm may typically provide for the financing, construction, operation and
maintenance under a single firm or a consortium.

 This is done through investments made and management undertaken by the private sector
entity for a specified period of time, with a well-defined allocation of riskbetween the private
sector and the public entity.

 The ultimate purpose of the collaboration between public and private sectors is added value; a
qualitatively better product for less cost, better accountability and promotion of private sector
innovation.

 Under PPP, there is contractual accountability on the private party to ensure timely and quality
infrastructure service to the end users.

NEED FOR PPP IN INDIA:

1. Rapid urbanization and industrial growth led to demands for basic infrastructure, such as,
water supply & sanitation, transportation and energy.
2. Rapid growth in purchasing power in the rural areas simultaneously - need for improving
connectivity and services

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3. Budgetary Constraints and public sector capacity considerations
4. Infrastructure leads to better economic growth.

TYPES OF PPP
There is a broad range of options for involving the private sector in the financing, construction and
operation of infrastructure projects traditionally the domain of the public sector.

Build-Operate-Transfer (BOT):

 BOT is a private sector participation model in which the private sectortakes care of the finance,
design, construction and operation of the facility for the contract period.
 At the end of the concession period, the facility is transferred to the government free of charge
and in good operating condition.
 Here, the government is taking no direct cost risk.
 The twomajor forms of BOT models are:
1. BOT-Toll-Model:Under it, private party collects the toll revenue to recover his investments.
(Example: road, ports and airports)
2. BOT-Annuity-Model:Under it, private player is paid a pre-fixed annuity fee and the toll risk is
taken by the Government. (Example: health and education sectors)

Build-Own-Operate-Transfer (BOOT)

 Under BOOT, the private sector is given the responsibility tofinance, design, build and operate a
facility for a specified period, after which ownership is transferred back to the public sector.
 The BOOT model is very common for new (greenfield) projects.
 The private sector recoups its investment costs and makes a profit through a user charge or toll.
 At the end of the concession period, the project is transferred to the government in a condition
defined in the concession contract.

Design-Build-Finance-Operate (DBFO)

 A DBFO contract is a long-term contract usually entered into between a Government Agency
and a private party with defined responsibilities–consisting of a design and build (DB), finance (F)
and operation and maintenance (service) (O).
 In DBFO contracts the private sector provides assets, arranges financing for the cost of the asset
and on-going operation and maintenance services in respect of the assets but the public sector
pays for the asset on completion and for the services when provided.
 Example: Power Sector, Railways Catering

INDIA’S THRUST ON INFRASTRUCTURE SECTOR (LIKE ROADS, HIGHWAYS ETC.)

 Construction of National Highways has more than doubled from 12 km /day in 2014-15 to 32
km/day in 2018-19 and the total investments in the sector has increased by 2.5 times compared
to 2014-15.

 This significant leap in the National Highways award and construction was achieved through
multiple policy initiatives taken by the Ministry like the Hybrid Annuity Model, Toll Operate

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 Transfer Model (TOT), increased threshold for project appraisal and approval, support for
languishing projects, enhanced inter-ministerial coordination etc.

TOLL-OPERATE-TRANSFER MODEL (TOT MODEL)

 While PPP project implementation grew aggressively from 2001 to 2010, project awards
dropped sharply between 2011 and 2015.

 In November 2015, a report by the Committee on Revisiting and Revitalizing Public Private
Partnership Model of Infrastructure recommended monetizing operational projects with a
formidable record of revenue generation, which can then be doled out to private parties for
operation and maintenance (O&M).

 GoI in the budget for 2016-17,decided that without transferring its ownership in operational
assets such as roads, ports and airports, will allow private parties to undertake long term O&M
obligations.

 In November 2016, the National Highways Authority of India, under the aegis of the Ministry of
Road Transport and Highways, initiated the implementation of asset recycling in India, with 75
operational road projects being bid out under the toll-operate-transfer (TOT) model.

 Under TOT model, highway projects which have been operational for at least two years, and
which have been generating a steady stream of revenue, are to be leased out to largeinvestors
for carrying out O&M operations in consideration of the highest bid upfront concession fee.

 Under the TOT model, the concession period 25 to 30 years is contemplated.

HYBRID ANNUITY MODEL (HAM)

 The government has decided to introduce Hybrid Annuity Model (HAM) to revive PPP (Public
Private Partnership) in highway construction. Introduced in January 2016 to revive investments
in road infrastructure projects, HAM has seen good success.

The HAM Model:

 HAM’s a hybrid — a mix of the EPC (engineering, procurement and construction)and BOT
(build, operate, transfer) models.

a. Under the BOT model, private players have an active role — they build, operate and
maintain the road for a specified number of years — say 10-15 years — before transferring
the asset back to the government.The privateplayer arranged all the finances for the
project, while collecting toll revenue or annuity fee from the Government, as agreed. The
annuity fee arrangement is known as BOT-Annuity; essentially, the toll revenue risk is taken
by the government, while the private player is paid a pre-fixed annuity for construction and
maintenance of roads.
b. EPC: EPC contract carries out the detailed engineering design of the project, procure all
equipment and materials, and then construct to deliver a functioning facility or asset to the

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 government as prescribed by them in the agreed period. Under the EPC model, NHAI pays
private players to lay roads. The private player has no role in the road’s ownership, toll
collection or maintenance (it is taken care of by the government). The EPC contract has fixed
time, fixed price and as such heavy penalties are imposed for non-performance.

 HAM combines:
a. EPC (40 per cent) and
b. BOT-Annuity (60 per cent)

 Funding Pattern:
a. On behalf of the government, NHAI releases 40 % of the total project cost. It is given in five
installments linked to milestones.
b. The balance 60 %is arranged by the developer. Here, the developer usually invests not more
than 20-25 % of the project cost (as against 40 % or more before), while the remaining is
raised as debt.

 There is no toll right for the developer. Under HAM, Revenue collection would be the
responsibility of the National Highways Authority of India (NHAI).

 Advantage of HAM is that it gives enough liquidity to the developer and the financial risk is
shared by the government. While the private partner continues to bear the construction and
maintenance risks as in the case of BOT (toll) model, he is required only to partly bear the
financing risk.

 Government’s policy is that the HAM will be used in stalled projects where other models are not
applicable.

Need/Advantages of this model:

1. The BOT model ran into roadblocks with private players not quite forthcoming to invest.

2. The private player had to fully arrange for its finances. NPA-riddled banks were becoming wary
of lending to these projects.

3. Also, if the compensation structure didn’t involve a fixed compensation (such as annuity),
developers had to take on the entire risk of low passenger traffic. Based on past experience,
they are unwilling to commit large sums of money in such models.

4. HAM is a good trade-off, spreading the risk between developers and the Government. Here, the
government pitches in to finance 40 per cent of the project cost. This helps cut the overall debt
and improves project returns. The annuity payment structure means that the developers aren’t
taking ‘traffic risk’.

EVOLUTION OF PPP IN INDIA

 The growth in the number of PPP projects during the last 15 years has made India a leading PPP
market in the global arena.

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 The database maintained by GoI indicates that there are currently over 1,200 PPP projects in
various stages of development and implementation, with an estimated investment of Rs 7.2 lakh
crores.

SECTORAL SPREAD OF PPPAC PROPOSAL

 PPP Appraisal Committee (PPPAC)-2006
(PPPAC) is a wing under Department of Economic Affairs
(DEA) in Ministry of Finance. It was created in 2006 and is responsible for appraisal of PPP
projects in the central sector.

 PPP projects above Rs 1000 cr in value are sent to PPPAC and then to the cabinet for final
approval.

 Current Status:The
The government wants to dismantle it and hand over the responsibility to
NitiAayog to speed up PPP approval. The final decision is yet to come.

 PPPAC approved 287 Proposals in the Central Sector (2006-07

(2006 to 2015-16)
16) valued at INR
327196.96 crore

PROBLEMS WITH INDIAN PPP

1. Poor planning towards implementation of the PPP model has led to faulty contractual
structures and absence of remedial tools.

2. The failure of various PPP projects is a major reason for the books of the banks being saddled
with non – performing assets.

3. The economic slowdown across the world and the credit crisis affected the infrastructure sector
significantly.
4. Overlap in the functions of regulatory agencies has led to problems in certain cases.

5. PPP projects have also been affected by factors such as delays in land acquisition and clearanc
clearances,
shifting of utilities, and right of way issues, leading to time and cost overruns.

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Report of the Committee on Revisiting & Revitalising the PPP
Model of Infrastructure Development Chaired by Dr.V.Kelkar
(For general/casual reading)

Dr.Kelkar Committee was appointed by the Union Finance Ministry in the Union Budget 2015-16.

Highlights of the Report

1. Public Private Partnerships (PPPs) in infrastructure refer to the provision of a public asset and
service by a private partner who has been conceded the right for the purpose, for a specified
period of time, on the basis of market determined revenue streams, that allow for commercial
return on investment.

2. PPPs in infrastructure represent a valuable instrument to speed up infrastructure development

in India. This speeding up is urgently required for India to grow rapidly and generate a
demographic dividend for itself and also to tap into the large pool of pension and institutional
funds from aging populations in the developed countries.

3. India offers today the world’s largest market for PPPs. It has accumulated a wealth of experience
in getting to this premiere position. As the PPP market in infrastructure matures in India, new
challenges and opportunities have emerged and will continue to emerge. Periodic review of
PPPs, as in the present Committee's remit, are a must to help address issues before they
become endemic and to mainstream innovations and foster new ones that improve the
successful delivery of PPP projects.

4. India’s success in deploying PPPs as an important instrument for creating infrastructure in India
will depend on a change in attitude and in the mind-set of all authorities dealing with PPPs,
including public agencies partnering with the private sector, government departments
supervising PPPs, and auditing and legislative institutions providing oversight of PPP’s.

5. The Government may take early action to amend the Prevention of Corruption Act, 1988 which
does not distinguish between genuine errors in decision-making and malafide action. Measures
may be taken immediately to make only malafide action by public servants punishable, and not
errors, and to guard against witch hunt against government officers and bureaucrats for
decisions taken with bonafide intention. The government may speed up amendment of the
Prevention of Corruption Act, Vigilance and Conduct rules applicable to government officers.

6. Experience has also underlined the need to further strengthen the three key pillars of PPP
frameworks namely Governance, Institutions and Capacity, to build on the established
foundation for the next wave of implementation.

7. In addition to changing mind-sets, there is an urgent need to rebuild India’s PPP capacities. The
need for a national level institution to support institutional capacity building activities must be
explored. The Committee strongly endorses the “3PI” which can, in addition to functioning as a
centre of excellence in PPPs, enable research, review, roll out activities to build capacity, and

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 support more nuanced and sophisticated models of contracting and dispute redressal
mechanisms. A dynamic 3PI can support a dynamic process of infrastructure design, build, and
operate in India and thereby help deliver on the promise of reliable infrastructure services for all
citizens.

8. The Committee cannot overstate the criticality of setting up of independent regulators in sectors
that are going in for PPPs. The Committee recommends setting up these independent regulators
with a unified mandate that encompasses activities in different infrastructure sub sectors to
ensure harmonized performance by the regulators.

9. The Committee welcomes the current review and amendment of the Arbitration Act, and
strongly endorses the need for time limits on hearings.

10. The dominant, primary concern of the Committee was the optimal allocation of risks across PPP
stakeholders. Inefficient and inequitable allocation of risk in PPPs can be a major factor in PPP
failures, ultimately hurting the citizens of India. The Committee notes that the adoption of the
Model Concession Agreement (MCA) has meant that project specific risks are rarely addressed
by project implementation authorities in this “One-size-fits- all” approach. A rational allocation
of risks can only be undertaken in sector and project-specific contexts.

11. DEA, or preferably the 3PI, should deploy sophisticated modeling techniques that exist to assess
risk probabilities and the need to provision for them; and there should be ex-ante provisioning
for a renegotiation framework in the bid document itself.

12. Typically infrastructure PPP projects span over 20-30 years and a developer often loses
bargaining power related to tariffs and other matters in case there are abrupt changes in the
economic or policy environment which are beyond his control. The Committee feels strongly
that the private sector must be protected against what have been called “Obsolescing Bargain”-
the loss of bargaining power over time by private player in PPPs-through various mechanisms
including the setting up of Independent Sector Regulators.

13. PPP projects can become distressed when risks emerge that may not have been contemplated at
the time of signing. This could give rise to a call for amending the terms of the Concession
Agreement to reflect new project realities better. The Committee has suggested benchmarks to
be applied to each proposed renegotiation as well as set out a set of conditions that should not
be accepted as valid reasons for a request for amendment of a concession agreement.

14. The Committee notes that a number of stalled PPP projects need to be kick started. There is an
urgent need to evolve a suitable mechanism that evaluates and addresses “actionable stress”-
using stress and adversity to deal with the underlying systemic problems.

15. Sector specific institutional frameworks should be developed to address these stalled
infrastructure projects. The Committee is of the view that only a statutorily established credible

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 empowered multi-disciplinary expert institutional mechanism may be able to deal with the
complex issues involved.

16. The Committee recognizes the need for a quick, equitable, efficient and enforceable dispute
resolution mechanism for PPP projects. It is suggested that PPP contracts have clearly articulated
dispute resolution structures that demonstrate commitment of all stakeholders and provide
flexibility to restructure within the commercial and financial boundaries of the project.

17. In the wake of new project proposals emerging in various infrastructure sectors, the Committee
recommends that appropriate legal frameworks be developed against which these can be
evaluated.

18. The authorities may be advised against adopting PPP structures for very small projects, since the
benefits of delivering small PPP projects may not be commensurate with the resulting costs and
the complexity of managing such partnerships over a long period. The transaction costs of well-
structured PPP projects are significant, including essential but expensive expert advisory
services.

19. Unsolicited Proposals may be actively discouraged as they bring information asymmetries into
the procurement process and result in lack of transparency and fair and equal treatment of
potential bidders in the procurement process.

20. Inherent in the concept of PPP is the role of a “Private Sector Partner” that will implement the
project, based on the need to leverage private sector financing and also the managerial and
operational efficiencies of the private sector party. It is in this context that the Committee is of
the view that since state owned entities SoEs/PSUs are essentially Government entities and
work within the government framework, they should not be allowed to bid for PPP projects.

21. The authorities should not treat PPPs as an off-balance sheet funding method for the
government’s responsibility of providing reliable infrastructure services to its citizens. PPPs
should not be used as the first delivery mechanism without checking its suitability for a
particular project. States and other agencies should also not treat Central PPP VGF as a source of
additional grants that can be accessed by adopting a PPP delivery mode for projects that are not
suitable for such a long-term financing structure.

22. There have been concerns raised by all stakeholders (Government and Private Sector alike) on
the demand for developer books of account being subjected to government audit and for access
under RTI. Conventional audit by authority of private partner’s books as per standard
procurement process risks delivery of poor quality of service/ public asset provision if there is no
certainty of processes in the medium term. To address this, the Committee recommends that
the government notify comprehensive guidelines on the applicability and scope of such
activities.

23. Equity in completed, successful infrastructure projects may be divested by offering to long-term
investors, including overseas institutional investors as domestic and foreign institutional

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 investors with long-term liabilities are best suited for providing such long-term financing, but
have a limited appetite for risk. Cash generated out of divestment of equity would be available
for the creation of new infrastructure projects in the country

24. It is necessary to explore options for sourcing long term capital at low cost. Towards this, the
Committee recommends, encouraging the banks and financial institution to issue Zero Coupon
Bonds (ZCB). These will not only lower debt servicing costs in an initial phase of project but also
enable the authorities to charge lower user charges in initial years.

25. Some countries have a legal framework for PPPs in the form of PPP Act/Law/Policy. MoF may
develop and publish a national PPP Policy document. Ideally, such a policy Report of the
Committee on Revisiting and Revitalising the PPP Model of Infrastructure document should be
endorsed by the Parliament as a policy resolution to impart an authoritative framework to
implementing executive agencies as well as to legislative and regulatory agencies charged with
oversight responsibilities. The Committee recommends an assessment of whether formulating
and enacting a PPP Law will facilitate successful expansion of PPP into new sectors, including
health, other social sectors, and urban transport.

26. In the final analysis, the success of deploying PPP as an additional policy instrument for creating
infrastructure in India will depend on the change in attitudes and mindsets of all the authorities
including public agencies partnering the private sector, government departments supervising the
PPPs, and auditing and legislative institutions providing oversight of the PPPs. The PPP reflects a
paradigm shift involving the private sector. It means moving away from “transaction to
relationship,” accommodating “give and take” between private and public sector partners, and
finally accepting uncertainties and appropriate adjustments inherent in implementing long-time
contracts. The Committee urges all parties concerned to foster trust between the private sector
and public sector partners in implementing PPP. PPP is an additional policy instrument to enable
India to save time. Since the “demographic dead-lines” are staring at us, there is need to
accelerate growth. By all accounts, there are only two or three decades left for India to complete
the transition from a low-income country to a high-income and developed economy by
overcoming the “middle income trap”
a. Contracts need to focus more on service delivery instead of fiscal benefits
b. Better identification and allocation of risks between stakeholders
c. Prudent utilization of viability gap funds where user charges cannot guarantee a robust
revenue stream
d. Improved fiscal reporting practices and careful monitoring of performance
e. Given the urgency of India’s demographic transition, and the experience India has already
gathered in managing PPPs, the government must move the PPP model to the next level of
maturity and sophistication.

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AIRPORTS & PPP IN INDIA
 Government’s focus on PPP durin during the 11thFYP (2007-2012) has borne results
results. During the
Eleventh FYP, the private sector played an unprecedented role in the area of airport
development. Five international airport projects were successfully completed through the
public–private partnership (PPP) mode, viz.
1. Greenfield
reenfield development of Hyderabad and Bengaluru international airports and
2. Modernisation
odernisation of Kochi, Delhi and Mumbai international airports

 In recent years, airport modernization in the country has taken a new form, with private players
bringing in new technologies that not only improve airport operations but also enhance
customer experience.

Note: Lease Develop Operate Transfer (LDOT): In this his type of PPP arrangement, assets are leased
out to the private sector under specific terms, to operate and maintain the asset for the term of the
concession period, after which the assets are transferred to the authority.

Government initiatives to improve

ve policy environment in aviation pertaining to PPP

 PPP mode for airport development: PPP mode will enable privatization and modernization of
airports in metro as well as non
non-metro
metro cities, and will give priority to the development of
regional and remote connectivity
nnectivity in the country.

 Simplification of building rules near the airport: The Government has approved changes in the
byelaws regulating building activities around airports. The changes are expected to bring
increased transparency and efficiency in the
the processes of approval for constructio
construction of buildings
around airports.

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Why did India go for PPP model in Airport Development?
 Airports provide access to and interlink regional, national and international markets. This makes
investment in existing or new airport infrastructure essential to economic development.
Traditionally, airports were owned, managed and operated by governments but there has been
a worldwide trend towards private sector involvement with varying degrees of private
ownership and responsibilities, including the use of public-private partnership (PPP) models.

 In the early 90’s the government and Airport Authority of India (AAI) had invested substantial
resources in the development of airport and navigation services infrastructure. However, this
was a significant strain on Government finances, more so as the aviation sector had not taken
off. This gap in supply-demand necessitated the influx of private capital to build capacity and
drive traffic.

 After the privatization of the Delhi and Mumbai airports in 2006, the PPP approach has been
adopted for airports across the country.

 In addition, the government is also working to farm out operations at Jaipur and Ahmedabad
airports on a PPP basis. Depending on how this model works, AAI will consider farming out other
airports (as well).

 The volume of passenger traffic has almost trebled in the last ten years, and independent
reports predict a multiple increase in the coming decade or two, with most metro airports fast
crossing their existing capacities, and requiring new facilities. Such growth numbers cannot be
achieved with conventional procurement options, and there is a need to selectively utilize PPP
frameworks in airport development.

What are some of the important measures to improve the PPP in airports in India?

 It would be inadvisable to adopt sector-wide implementation approaches without basing them

on viability of individual projects.

 The structure of contracts and concessions need to be designed keeping in view experiences of
implemented projects on PPP frameworks. The development of brownfield and greenfield
airports with defined structure, revenue share mechanisms, standards, specifications and
collaboration could be planned in advance to meet the impending needs.

 Suggestions have been made by various stakeholders, including the AAI, for an appropriate PPP
mechanism. It is recommended that the project development mechanism be evolved to
encourage private participation by including the following elements:
1. Develop a bidding criteria in tune with project economics.
2. Provide guidance norms for design and costs in line with prevailing best practices and
standards.
3. Set out financial structuring norms and acceptable practices for assessing revenues, costs,
source of funds and other elements that have a bearing on project delivery standards.

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