Physical substructure is an indispensable portion of growing of an economic system and provides cardinal services that public need in their day-to-day life. The part of substructure to economic development is good acknowledged both in scholastic and policy arguments. Well developed physical substructure provides first pecuniary services economically, develops the fight, enlarges imperative support to hardworking sectors, creates high end product and maintains strong economic growing. PPP has become a catch phrase in Indian substructure development.
India ‘s ascent in recent old ages is a most well-known betterment in the universe economic system. This vigorous augmentation has placed a lifting emphasis on the physical substructure such as airdromes, roads power and ports which were transporting a momentous deficit from the yesteryear. As a consequence the Indian authorities is committed to construct first substructure for recovering the excellence of life and bettering fight of the economic system ( Committee on Infrastructure Financing, 2007 ) .
The support demands of substructure are so immense that no sum of resource administration within the public sector can run into this challenge. Recourse to private investing is therefore foreseeable for keeping the growing drift. In add-on, private engagement is anticipated to maneuver competency additions and decline in disbursals. As such, the authorities looks upon PPPs for turn toing some of these blink of an eyes, and this has led to a paradigm move in favor of PPPs.
The authorities has instigated intensive steps for doing an enabling policy and autocratic environment that would pull the necessary degrees of private investing. This incorporates well-designed PPP models joined with financial and fiscal support. Presently, the usage of PPPs for supplying substructure services has about 11 old ages of experience in India, with the greater figure of undertakings coming in the last 4-5 old ages ( Geethanjali, 2010 ) .A
This chapter reviews the assorted PPP strategies adopted by Indian Government for substructure development. In add-on, this subdivision looks at two instance surveies: Pipavav Railway Corporation and Hyderabad International Airport. From these experiences it is expected that some lessons can be extracted for the hereafter PPP undertakings.
4.2 Government Policy on PPPs
4.2.1 Background
Indian Government is enthusiastically prosecuting PPPs to viaduct the substructure shortage in the state. Several strategies have been taken during the last five old ages to promote PPPs in sectors like main roads, railroads, airdromes, power and other urban substructure undertakings. Under the overall supervising of the committee of Infrastructure administered by the Prime Minister, the PPP docket has been finalized and the operation of the diverse schemes is being closely supervised by the constitutional Departments under this programme ( Mahalingam, 2010 ) .
To turn to different restrictions in the PPP theoretical account, assorted enterprises have been adopted by the Indian Government to make a permitting model for PPPs by discoursing issues associating to autocratic and policy environment. With clip, more sectors have been opened to private and abroad financess. Levy of consumer charges is being promoted, autocratic establishments are being set up and strengthened fiscal strategies are given to infrastructure undertakings. Consequently the authorities has come out with diverse strategies which are described below.
4.2.1.1 Viability Gap Funding ( VGF )
The VGF Scheme provides financial support in the signifier of support to substructure undertakings carried out on PPP manner ; it is a support at the stage of undertaking building. These financess are besides one clip deferred footing, and are steadfastly confined for the ground of making the undertakings commercially feasible. The ministry of finance supervises this strategy. This strategy confines its cogency to substructure installation which includes airdromes, roads, havens, railroads, and other physical substructure undertakings. An extra stipulation of the strategy is that the undertaking provides the substructure service against the expense of preset user charge. Under this strategy the authorities ‘s support does non excel 20 % of the entire undertaking spending ( Infrastructure subdivision, 2005 ) .
4.2.1.2 Indian Infrastructure Finance Company Limited ( IIFCL )
The IIFCL strategy has been instigated with the peculiar authorization to take portion as a catalytic map in the substructure sector by offering long-run support to substructure undertakings in India. IIFCL takes in fundss both from the domestic and exterior markets on the authority of the authorities confidence. IIFCL besides finances those PPP undertakings, which turn out to be executable after acquiring the VGF. IIFCL confine it ‘s imparting to simply undertakings executed i.e. , funded, developed and operated for the undertaking period by a public sector house.
Under this strategy, the existent loaning is administered by appraisal of the lead bank before fiscal closing. The lead bank is accountable for regular supervision and episodic appraisal of undertaking conformance with concurred marks and public presentation phases peculiarly with regard to payment of IIFCL financess ( Department of Economic Affairs, 2008 ) . For smooth public presentation, IIFCL enters into a tripartite agreement with the undertaking company and the lead bank for every person undertaking.
4.2.1.3 Indian Infrastructure Project Development Fund ( IIPDF )
IIPDF is corpus fund unit for the purpose of supplying financial support for undertaking betterment activities. This has been formulated in the subdivision of economic personal businesss for back uping the betterment of bankable and dependable PPP undertakings that can be given to the private sector. IIPDF is the strategy for funding to cover a part of the PPP dealing disbursals, therefore cut downing the encroachment of costs associated to procurement on their resources ( Department of Economic Affairs 2007a ) .
IIPDF is non intended to run as a beginning of provide support for the patrons but to back up the patrons with 75 % of their undertaking development costs. Therefore, IIPDF is to assist out the undertaking that closely back up the best ways in PPP undertaking designation and readying.
4.3 Pipavav Railway Corporation Case Study
4.3.1 Background
Pipavav Railway Corporation Limited ( PRCL ) is a 50:50 Joint Venture ( JV ) company between Gujarat Pipavav Port Ltd. ( GPPL ) and Ministry of Railways ( MOR ) .In 1992, it was decided extend the railroad line and to develop the Port Pipavav as an all conditions installation for managing majority, liquid and container lading. Subsequently a Particular Undertaking Vehicle ( SPV ) called PRCL was formed to transport out the undertaking.
General lading managing operations at the Port started in November 1996 followed by container managing operations in 1998. Presently, the container Terminal provides direct services to US East Coast, Europe, Far East and China. The port is being developed for managing 19 million metric tons of lading per Annum including 13 million metric tons of containerized lading. Port Pipavav is today identified as one of the major gateways on the West Coast of India ( Mamuni, 2003 ) .
The Undertaking was being developed on Build Operate Transfer ( BOT ) footing and the grant period is 33 old ages. This new undertaking represents integrating for full wide gage rail connectivity between Indian Railways web and the Pipavav Port. This joint venture annunciated the PPP theoretical account of Railway undertakings in India.
Figure 4.1: Pipavav Rail Connectivity Map ( Pipavav railway, 2007 )
4.3.2 Undertaking Profile
The full length of undertaking line is about 270 kilometer. A metre gage ( MG ) railroad line existed between Rajula and Surendranagar Junction. This stretch was converted to wide gage.
The wide gage rail line was constructed tantrum for a maximal velocity of 100 kmph. The undertaking involved building of 197 Bridgess: 31 major and 166 minor Bridges on the gage transition path and 2 major and 15 minor Bridgess on the New line subdivision between Rajula and Pipavav. In the gage transition between Rajula and Surendranagar, the bing station edifices were used and two new Stationss were built, one each at Pipavav and Rajula. There are 36 Railway Stationss on the rail path from Pipavav and Surendranagar ( Pipavav railway, 2007 ) .
4.3.3 PRCL ‘s Promoters and Contractual Structure
PRCL was promoted by the GPPL and Ministry of Railways ( Govt. of India ) .
Ministry of Railways: Railwaies are a fully fledged Ministry with a Minister of Cabinet rank keeping charge. Indian Railways ( IR ) is wholly owned by the Government of India, managed by Railway Board. IR the 4th largest railroad web in the universe, has a path length of 64,500 kilometer. IR has 1.6 million workers running over 8,000 rider trains and 5,600 cargo trains every twenty-four hours. It moves over 18 million riders and 2.5 million metric tons of goods daily ( Indian Railways, 2010 ) .
Gujarat Pipavav Port Limited: Gujarat Pipavav Port Limited ( GPPL ) is one of the first private sector ports in India. It was incorporated in 1992, as a joint venture between Sea King Infrastructure Limited ( SKIL ) and Gujarat Maritime Board for developing and runing an all conditions port for managing, liquid, majority and container lading at Pipavav, in the province of Gujarat.
The figure 4.2 shows the contractual construction and assorted understandings associated in the undertaking
Figure 4.2: Contractual Structure of PRCL ( Pradeep, 2006 )
4.3.4 Funding Agreements
The Project line has been funded through a mix of debt and equity. The Entire undertaking cost of INR. 3730 million was met by equity of INR.1960 million and a debt of INR.1730 million. The completion cost was lower at INR 3670 million. The debt equity proportion was approved at 2:1 but truly it was maintained at 0.86:1 ( Pipavav railway, 2007 ) . The means of finance are given in the tabular array below:
Undertaking Development Phase: The gauge transition of the Rajula to Surendranagar MG line was a permitted work of the WR to be completed at railroads cost. However, it was non a precedence line and therefore annually fund allotments were really bare. In normal class, if the WR were to finish the transition, it might take between 10-15 old ages. It was non fiting with the port development programs and therefore the demand for GPPL to lend to the gage transition cost ( National degree substructure, 2005 ) .
Construction Phase: The building stage started on the day of the month of subscribing the building understanding on13th March 2002. Till so WR had been transporting out opening plants on the erstwhile sanctioned Railway Gauge Conversion Project which preponderantly related to the strengthening of constructions and Bridgess for BG trains.
The followers are some of the Innovative characteristics which were used in the execution of the undertaking ( Pradeep, 2006 ) .
Procurement of all the stuff was done on lines followed by the private sector in acquiring finest monetary values without compromising on quality. This was censured by first technically measure uping the best contractor and so negociating on monetary values. There was an agreement of inducements to back timely supplies.
Staffing the line operations and care maps was benchmarked to outdo patterns and norms of manning. A elaborate survey was conducted to repair these norms. This resulted in cutting down work force demands by half of what gets on IR system.
Care was mechanized every bit far as executable. Appropriate tools were given to the staff on line to make away with uneconomical patterns, such as manual boring, as passenger car of stuffs etc.
Multitasking of the employees was introduced to cut out wastage of clip in directing varied individuals for different little undertakings like repairing telephone mistakes, Changing electric bulbs etc.
Road vehicles were deployed to quickly transport care stuffs and staff to sites alternatively of waiting for rider trains.
4.3.6 Revenue Stream
Bulk traffic for PRCL chiefly consists of fertilisers and coal. The MOR reports the trade good wise duty rate for all railroad lines across the state. The duty rates are based on the telescopic rate as set by the railroads whereby the rate is fixed as per the lead distance anticipated to be travelled by the lading. The telescopic menus are attuned for the terminal burden and unloading charges and the net menu is allocated between the entire lead distance and undertaking distance ( Anupam,2004 ) .
4.3.7 Strengths of the Undertaking
Both stockholders, viz. , GPPL and MOR have gained well by the Joint Venture agreement of execution. The followers are some of the successes and strengths which were identified from the undertaking ( The Energy and Resources Institute, 2009 ;
David, 2005 ) .
Undertaking was finished within one twelvemonth of subscribing the building understanding and there were no outgo overruns.
Manpower demands were scaled down to 50 % of railroad norms and latest criterions of care patterns were pioneered.
The undertaking was finished in less than 2 old ages of lending equity capital and started paying grosss to MOR as cargo.
MOR was losing INR. 200 million per twelvemonth on operating this excessively expensive subdivision line. Losingss of three old ages would pass over out the Accumulative loss of INR. 600 million. Consequently, MOR recovered the whole part made for the undertaking in less than three old ages.
MOR got an confidence of 6 Million Tonnes ( MT ) of traffic in the first three old ages and later a confidence of 3MT every twelvemonth. This would non hold been accomplishable without the JV agreement.
Land acquisition for new line was accelerated as it was done by WR as a agency of Government of India. For a private sector, it would hold taken much longer.
4.3.8 Failings of the Undertaking
There were jobs encountered during the executing, most of which were new both to the private investor every bit good as to the Railways, as it was the first joint venture. The bulk of obstructions related to the sign language of understandings with Railways which involved delaies. Major hold was in the sign language of building understanding with the WR which took over one and half twelvemonth ( Raghuvansi, 2006 ) .
This was the first large rail venture under private sector and most rail undertaking contractors had committed supplies to IR. Bing behind agenda for supplies to Indian Railway, they were non able to commit timely bringings to PRCL. The Problem was chiefly critical for securing tracks of which there was merely one provider in the state, viz. , Bhilai Steel Plant of SAIL ( Steel Authority of India Ltd ) . Other than the lack of stuffs, there were other decisive issues such as non-availability of path machines for the freshly laid path, railroad waggons for transporting tracks, etc.
The repair of the constituents of fixed costs to be salaried to WR for Operating the line was the foremost concern. Each portion of care had to be evaluated and bench marked with the finest patterns. There were problems of redeploying otiose staff. The process of redisposition was commenced early in 2001 and by 2004 it was likely to rearrange most of the excess staff ( Prasanna, 2009 ) . This manning regulation and pattern became a point of mention besides for the future undertakings of WR.
4.3.9 Lessons Learned
The undermentioned points are the of import lessons learned from the above instance survey.
There was terrible hold in make up one’s minding the building understanding with the WR. It took one and half twelvemonth to acquire it signed.
The verification of Operations and Maintenance ( O & A ; M ) understanding with the besides took long.
There was a terrible job and hold in corroborating the order for tracks ; first Railways concurred to provide, so withdrew the offer. Consequently, after 6 months of arrest, Railways agreed to the deliver the tracks from Bhilai steel works.
The most serious disadvantage of the undertaking was its incapableness to acquire the projected traffic. Even assured traffic of 1,2and3 MT in the first three old ages correspondingly did non turn up. This created a job of incapacity to serve the debt.
The new disposal of GPPL hesitated in honoring the confidences made by GPPL toward expense of traffic warrants.
A first spread in equity support happened since GPPL did non convey in the full equity in clip.
The port development was delayed and even bulk traffic like fertilisers and coal could non be handled resulting in decreased materialisation of traffic.
4.4 Hyderabad International Airport Case Study
4.4.1 Background
Hyderabad International Airport Limited ( HIAL ) is a joint venture company sponsored by the GMR Group in partnership with Malaysia Airports Holdings Berhad ( MAHB ) , Airports Authority of India ( AAI ) and Government of Andhra Pradesh. The Company was incorporated to finance, design, physique and run a universe category airdrome at Hyderabad, India.
The airdrome has been designed to finally provide to about 40 million riders per annum. The first stage of the airdrome was commenced in a record clip of 31 months in March 2008 with a preliminary capacity of 12 million riders per annum and 100,000 dozenss of cargo managing capacity per annum. The airdrome has the greatest taxi strip and track in the state with a length of 4260m ( Hyderabad International Airport Ltd, 2005 ) .
The airdrome is the 2nd PPP Project in the Indian airdrome substructure. The undertaking is bided out on Built Own Operate and Transfer ( BOOT ) theoretical account and the grant period for the undertaking is 30 old ages. The Bidders were selected through International Competitive Bidding ( ICB ) footing.
A
This is the first venture in the state to hold been rewarded the Leadership Energy and Environment Design, Ag scaling for its eco-friendly design. The entire cost of the first stage of the undertaking is INR 24780 million. This airdrome was opened to the commercial traffic in March 2008, provides universe category service and substructure in concurrency with International Civil Aviation Organisation ( ICAO ) criterions.
Figure 4.3: Position of Hyderabad International Airport
4.4.2 Undertaking Plan
The first stage consists of building of a 105,300 square meters terminal edifice, designed to manage about 12 million riders per annum. The terminal edifice contains 12 contact and 30 remote bases for aircraft parking. The other constructions include Cargo Section, Air Traffic Control Tower ( ATC ) , Technical Building, Cargo Section, Maintenance Repair and Overhaul ( MRO ) , and services holding a entire country of about 35,000 square meters. The undertaking was constructed on a entire country of approximately 5,495 estates ( Satish, 2005 ) .
4.4.3 HIAL ‘s Promoters and Contractual Structure
In the twelvemonth 2003, a Particular Undertaking Vehicle ( SPV ) was launched by the Andhra Pradesh State Government and the Civil Aviation Ministry of India and the under the name of HIAL ( Net Resources International, 2007 ) . As the command was won by GMR Group, MAHB, this undertaking was basically a Joint Venture ( JV ) between GMR Group ( 63 % ) , MAHB ( 11 % ) , AAI ( 13 % ) and the Government of Andhra Pradesh ( 13 % ) .
GMR Group: GMR group is one of the best turning substructure groups in the state with involvements in Airports, Highways, and Urban Infrastructure and Energy sectors. Using the PPP theoretical account, the Group has fruitfully implemented assorted substructure undertakings in India.
Malaysia Airports Holding Berhad: MAHB was incorporated in 1991 in the Malayan Parliament. The first activities of the company include the operation, care and direction in add-on to development of airdromes, with primary significance being placed on the operational competency, safety and security of riders ‘ lading and aircraft operations.
The figure 4.4 shows the contractual construction and assorted organisations involved in undertaking.
Figure 4.4: Contractual Structure of HIAL
4.4.4 Funding Agreements
The entire worth of the undertaking for the first stage is INR 24780 million.The fiscal instruments used in this undertaking that is the debt/equity ratio was kept at 84:16. The means of finance and per centum of portion are given in the tabular array below ( PPP India database, 2008 ) .
4.4.5 Implementation Procedure
For the initial stage building, HIAL used international competitory stamp method for EPC ( Engineering Procurement Construction ) stamps for presenting the assorted contracts. Responses were received from 34 companies from 11 states. Ultimately in the choice of stamps, seven companies were succeeded for ALS plants and six for PTB plants. The entire building clip is 30 months, of which 27 months is for building and 3 months is for airdrome operation tests and enfranchisement. The following are the three types of contract which were implemented in the undertaking ( Net Resources International, 2007 ) .
Airside and Landside ( ALS ) Works Contract
The contract for the ALS plants was awarded to M/S Larsen and Toubro ( L & A ; T ) Limited. The scope of plants for this contract includes building of tracks, taxi strips to manage broad bodied aircrafts. Besides, L & A ; T besides constructed roads, air power water faucet system, security fencing and Gatess, drainage system, cargo terminal edifice and assorted other edifices.
Passenger Terminal Buildings ( PTB ) Contract
The contract for the PTB plant was awarded to the Hongkong based China State Construction Engineering ( CSCE ) . The range for the PTB works include the hard-on of the operational terminus edifice over 100,000 square meters in add-on to building of the edifice constructions, Air Traffic Control Tower ( ATC ) , all civil and finishing plants and rider embarkation Bridgess.
Operationss and Maintenance ( O & A ; M ) Contract
Reliance Industries Limited ( RIL ) was given the contract to run and keep the unfastened entree of developing the fuel farm inside the HIAL.The Novotel Group and Accor Group were given the contract to run and keep a Five Star Business hotel to provide to the desires of the theodolite and concern riders.
4.4.6 Income Stream
HIAL ‘s income is chiefly generated from aeronautical or traffic related activities and non-aeronautical or commercial beginnings. As airdromes turn into hubs of commercial activity with a push on rider comfort, non-aeronautical grosss add up to a high portion of the entire airdrome gross. The targeted gross portion for HIAL well differs from the AAI and is in line with the planetary tendency.
With the lifting significance to non-aeronautical grosss, it seems that airdrome ownership and operation will be most appropriate for private sector investing, because of its privileged efficiencies and installation way as compared to that of the public sector.A In the first twelvemonth of the operations, the rider managing capacity in the HIAL is about two times
that of the older airdrome ( Balaraman and Malhotra, 2008 ) . With India going a cardinal point in the universe fiscal system at present and more and more American indians fascinating to the skies, there has been resiliency in air traffic growing in recent old ages.
4.4.7 Strengths and Success factors
The followers are some of the strengths and success factors which were identified from the undertaking ( Balaraman and Malhotra, 2008 ; Kurmanath, 2009 ; Vogt, 2009 ) .
This undertaking being the first Greenfield airdrome undertaking in India, the SPV used the EPC Contract method by which the undertaking was finished in record clip of three old ages.
Modern and imaginative schemes were utilised to suppress the operational challenges and the lifting Air Turbulence Fuel ( ATF ) ; three mega storage armored combat vehicles for the fuel storage were constructed on the lines of an Open Model Fuel Farm.
To call off out the lifting costs due to the design alterations, HIAL used External Commercial Borrowing ( ECB ) and obtained another debt of sum INR 7180 million.
World Renowned programs were employed in constructing the care, fix and inspection and repair ( MRO ) installation to service aeroplanes. By welcoming the Lufthansa Technik and Indian Airlines to run the MRO, excess costs of taking the aircrafts abroad was evaded. This installation can be employed by the air hoses runing in other international airdromes of India, therefore, going a beginning of extra income.
HIAL anticipates that the rider traffic growing would lift by 25 per centum in the first twelvemonth. The riders ‘ figure is expected to mount from bing 8 million to 9.4 million per annum.
HIAL has received VAT ( Value added revenue enhancement ) alleviation from the Andhra Pradesh Government. This Schedule includes a list of 51 goods that do non pull the revenue enhancement. This would profit travelers both at the domestic and international terminuss.
Success Factors
The three types of success factors which were identified from this undertaking are described below.
First, the HIAL have adopted a PPP construction that is suited for an airdrome undertaking. Since airdromes have well-built public good features and besides organize a division of planned national assets. Besides BOOT construction is the most disposed as the authorities can take over the ownerships at the terminal of the grant period.
Second, though the bulk shareholding in this undertaking is with the private sector, authorities has a hardy presence. Government has a shareholding of 26 per centum, the smallest threshold degree required to retain important patron rights.
Third, the contractual construction has proper characteristics to guarantee better public presentation and lessen timeserving behavior. Further, the grant understanding has obviously stated the criterions for public presentation. After the termination of the grant understanding, the ownerships revert to the authorities.
4.4.8 Failings of the Undertaking
The troubles faced by the HIAL during the building and operation of the undertaking are described below.
Land acquisition for the undertaking was badly opposed by the populace as it resulted in striping a set of people the quality of life and their support. During the procedure of land acquisition entire information about the country of land required was kept hidden from the civic. HIAL faced a assortment of hazards such as gross and regulative hazards. The gross hazard was due to demand intuitions and pricing ( Balaraman and Malhotra, 2008 ) .The regulative hazards were due to uncertainness in licensing, duty arrested development and gross sharing.
The other jobs faced by HIAL is that several private Airlines were non fascinated in traveling to the new airdrome from the old airdrome, but finally the functionaries from the Department of Civil Aviation have proclaimed that the old airdrome would be closed wholly for Civil Aviation operations. In add-on there was a hold in the building of elevated express manner which connects to the new airdrome and opposition from the populace for increasing the user charges ( Bradley, 2008 ; Lalith, 2009 ) .
4.4.9 Lessons Learned
The undermentioned points are the of import lessons learned from the above instance survey.
5450 estates of Land: Voices were raised by the populace for the allocation of 5450 estates of land for the airdrome in the preliminary phases.
Resistance to switch the Airport: In the beginning at that place was batch of resistance and unfavorable judgment from the work force and the general populace to switch the old airdrome. There was batch of force per unit area to run both the airdromes at the same time.
P.V. Narasimha Rao Elevated Expressway: This Expressway connects the chief metropolis to the new airdrome. This is non completed by the clip the airdrome opened to the traffic in March 2008. The work is still taking topographic point for one twelvemonth after gap of the airdrome. Due to this batch of trouble is caused to the general populace and besides to the airdrome users.
Resistance for increasing the user charges: There was batch of resistance and unfavorable judgment for imposing the user charges. With huge sum of influence and obliging user charges are now being levied.
4.5 Drumhead
This chapter has studied the execution of PPPs in India by analyzing the two instance surveies: Pipavav Railway Corporation in Gujarat and Hyderabad International Airport in Andhra Pradesh. It was found that the execution procedure of the two undertakings was accomplished successfully. The strengths and obstructions encountered in both the instances have been highlighted. It was found that public substructure undertakings should be carried out by the most appropriate procurance method and gross watercourse from the undertaking should be an imperative facet for presenting the undertakings successful. It is supposed that through the of import lessons learned from both the instances, PPP substructure undertakings can be better implemented in future.
