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    Key Issues and Challenges For PPP in India

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    Sukanya belel
    There are several key challenges and barriers to successful public-private partnerships (PPPs) in India. These include issues related to commercial viability of projects, contractual imbalances between public and private sectors, hidden long-term debt, long project gestation periods, risk transfer concerns, lack of focus on social and environmental impacts, weak policies and regulations, lack of long-term financing instruments, limited bankable projects, and limited public sector capacity to manage PPPs. Other barriers include a lack of political will, varied institutional frameworks between states, non-standard procurement procedures, balancing transparency and expediency, inadequate project development, and a need to address foreign investor risk and return concerns. Successful PPPs require building on models from other

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    Key Issues and Challenges For PPP in India

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    Sukanya belel
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    There are several key challenges and barriers to successful public-private partnerships (PPPs) in India. These include issues related to commercial viability of projects, contractual imbalances between public and private sectors, hidden long-term debt, long project gestation periods, risk transfer concerns, lack of focus on social and environmental impacts, weak policies and regulations, lack of long-term financing instruments, limited bankable projects, and limited public sector capacity to manage PPPs. Other barriers include a lack of political will, varied institutional frameworks between states, non-standard procurement procedures, balancing transparency and expediency, inadequate project development, and a need to address foreign investor risk and return concerns. Successful PPPs require building on models from other

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    There are several key challenges and barriers to successful public-private partnerships (PPPs) in India. These include issues related to commercial viability of projects, contractual imbalances between public and private sectors, hidden long-term debt, long project gestation periods, risk transfer concerns, lack of focus on social and environmental impacts, weak policies and regulations, lack of long-term financing instruments, limited bankable projects, and limited public sector capacity to manage PPPs. Other barriers include a lack of political will, varied institutional frameworks between states, non-standard procurement procedures, balancing transparency and expediency, inadequate project development, and a need to address foreign investor risk and return concerns. Successful PPPs require building on models from other

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    Download as docx, pdf, or txt
    76 views4 pages

    Key Issues and Challenges For PPP in India

    Uploaded by

    Sukanya belel
    There are several key challenges and barriers to successful public-private partnerships (PPPs) in India. These include issues related to commercial viability of projects, contractual imbalances between public and private sectors, hidden long-term debt, long project gestation periods, risk transfer concerns, lack of focus on social and environmental impacts, weak policies and regulations, lack of long-term financing instruments, limited bankable projects, and limited public sector capacity to manage PPPs. Other barriers include a lack of political will, varied institutional frameworks between states, non-standard procurement procedures, balancing transparency and expediency, inadequate project development, and a need to address foreign investor risk and return concerns. Successful PPPs require building on models from other

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    Key Issues and Challenges for PPP in India

    There are many challenges for implementation of public-private partnership projects:

    • Commercial Viability - Projects as water supply and sanitation projects are yet to
    demonstrate their commercial viability to the public

    • Contractual and Capacities Imbalance - Insufficient experience of the partners,


    particularly of the public sector while contracting such projects, where we can notice an
    informational asymmetry operating in favor of private companies, which naturally use
    their endeavor and potential to negotiate better conditions for themselves;

    • Hidden Debt - from the macro-economic point of view, we can see a substantial
    disadvantage in the fact that as a consequence of the long-term character of PPP
    projects, the mandatory expenses grow and the hidden debt arises, and this debt will
    exist for a lot of years, and thus it can affect negatively the fighting power of the future
    governments and burden significantly the future generations.

    • Long Gestation Period - generally the preparation of individual PPP Projects may take
    up to 23 years (depending on project size and complexity). This long gestation period
    along with its attendant uncertainties are a big dampener for private sector enthusiasm;

    • Breaking of Partnerships - considerably negative financial impacts in the case the


    partnership has to be repudiated;

    • Transfer of Risk - from the private sector to the public sector possible a new set of
    risks, e.g. possible risk of bankruptcy of the private player;

    • Focus on Economic Benefits - PPP Projects tend to focus on the economic aspects of
    the project, sometimes to the detriment of social and environmental aspects.

    Barriers to PPP
    Mr. P. Chidambaram (Finance Minister in 2006), in a major PPP Conference51 listed
    four major weaknesses in PPP development in India as.

    • Weakness in enabling policy and regulatory framework. Substantial work need to be


    done in making sector policies and regulations PPP friendly. A large number of these
    projects are in the States and without the active participation of the States it would not
    be possible to achieve satisfactory results.
    • Lack of Long Term Instruments The market presently does not have adequate
    instruments and capacity to meet the long-term equity and debt financing needed by
    infrastructure projects.

    • Lack of Bankable Projects Finding credible and viably structured projects continues to
    be a challenge. There is a lack of shelf of credible, bankable infrastructure projects,
    which could be offered for financing to the private sector. Some initiatives have been
    taken both at the central as well as the states’ level to develop PPP projects these tend to
    be isolated cases and have demonstrated a marked lack of consistency.

    • Limited Capacity to Manage PPP in Public Sector There is also lack of capacity in
    public institutions and officials to manage the PPP process. Since these projects involve
    long term contracts covering the life cycle of the infrastructure asset being created, it is
    necessary to manage this process to maximize returns to all the stakeholders.

    In addition to these, the other obstacles include:

    • Lack of Political Will – PPP contracts are often seen as government ‘selling its jewels’.
    This myth is perpetuated partly by the political parties for maintaining vested interests,
    and partly by inefficient or corrupt bureaucracy which is sometimes reluctant to part
    away with operational control. Paradoxically the honest bureaucrat finds that ‘selling’
    the PPP concept is more hard work than the actual implementation and also makes him
    / her vulnerable to charges of corruption and nepotism.

    • Varied Institutional Framework especially the regulatory framework developed by


    different states. States like Andhra Pradesh, Gujarat, and Punjab have legislation which
    clearly defines what infrastructure is and how these infrastructure projects are going to
    be executed by the private sector. Other states have differing administrative (instead of
    legislative) frameworks in place for decision-making. These divergent institutional
    frameworks, prevents fast tracking of projects since major clearances are still required
    from GOI who have to deal with this multiplicity.

    • Non Standardization of Procurement Procedures Prequalification, bidding, and


    procurement procedures are not standardized across States, sometimes not even across
    Ministries. This again slows down the clearances and approval procedures.

    • Need for Balancing Transparency with Expediency - demand for ensuring


    transparent relationships and transactions, whether while selecting a partner, or
    defining the terms and conditions, competences and responsibilities or while
    concluding contracts itself, makes the PPP contracts’ conclusion a very arduous and
    time consuming process. While RTI is an excellent means to ensure transparency, its
    misuse in some cases and the perceived threat of persecution, also delays PPP project
    design and implementation.
    • Absence of Rigorous Project Development: A key impediment to successful
    commercialization of projects in India has been the absence of rigorous project
    development. Many of the projects bid out by the government have been ill defined,
    inadequately structured, and unsuitable for PPP.

    • Public sector capacity to successfully execute PPPs – Perhaps the single biggest
    reason for delays and sub optimal framing of PPP projects has been the public sector’s
    limited skills set and experience in drafting balanced PPP contracts and concession
    agreements.

    • Need to Address the Risk and Return Concerns of Foreign Investors. Financing terms
    generally mean that PPP’s are more exposed to interest rate volatility— this causes
    concern in a period of rising rates and reduced liquidity.

    • Decentralization and Devolution: Water Supply and Sanitation (WSS) is a


    state/municipal subject in India, whereby the Constitution mandates that the
    responsibility of providing WSS services should vest with the respective city
    Government. However, given the traditional division of roles and responsibilities, and
    budget flow mechanisms, this responsibility has not been fullytransferred to local
    bodies in many states. This results in a multi-layered political structure being involved
    in decision-making in the sector. This is further complicated by political economy issues
    in the designing of PPP projects in the WSS sector.52

    • Inadequate Advocacy53 to create greater acceptance of PPP’s by the stakeholders.

    Key Learnings

    As per CBI, a few lessons identified for PPP markets around the world are54: 1. Build
    on models that other countries have tried and tested : 2. Develop high-quality,
    outcomes-focused public procurement managed by skilled professional staff 3.
    Understand the needs and capacity of the market 4. Ensure sustainable deal flows
    through managed markets to encourage new providers 5. Use innovation as a means of
    delivering service improvements and value for money 6. Create governance
    arrangements that are fit for purpose 7. Move towards a competitive neutrality model
    that establishes a level playing field for all providers

    . Benefits of PPP for the public entities

    2.1.1. Financial Public authorities holding limited and insufficient budgets need new
    resources and approaches for provision of statutory public services. As the society is
    generally against further taxes raising and possibilities of credits are limited, the public
    sector needs greater efficiency in the use of public resources. For the public sector, PPP
    brings:

    Additional capital for new investments;


    Cost savings can reach 17% on average, despite the private partner’s profit and
    higher cost of credit (source: Polish Agency for Enterprise Development). The savings
    are produced by: transfer of several risks to the private partner, know-how, more
    efficient long-term cost management, and innovative approach to the subject.

     Lower implementation costs, despite higher cost of capital for the private
    entities.

    . Non-financial

    Transfer of risks (especially economical risk). As a rule, risk is allocated to the partner
    that is better prepared to manage it;

    Transfer of new, effective technologies and know-how in possession of the private


    partner;

    More competitiveness compared to traditional public procurement because of long-


    term perspective and multi-purpose projects; Quicker investment completion.

    2.2. Benefits of PPP for the private sector 2.2.1. Financial Entrepreneurs seek profit
    opportunities in cooperation with the public entities under PPP scheme.

    Brand image improvement and/or promotion are the examples.

    Bina-Istra d.d., Croatia:

    The most positive experience is that we have built 100 km of highway in Istria, despite
    building roads by a private investor is unpopular. Bina-Istra is perceived in public as a
    serious and desirable partner, which is a huge benefit for us.

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