Urban Infrastructure

Development Conclave
Public Private Partnership- The Learning Curve
Urban infrastructure development
An agenda for action

Urban infrastructure development

Contents
Trends in urbanisation

Models of urbanisation

Advantages of competitively bid PPP

11

PPP product identification and maturing

13

References

16

Urban infrastructure development

Abbreviations
LIG

: Low Income Group

EWS

: Economically Weaker Section

O&M

: Operation & Maintenance

FAR

: Floor Area Ratio

ULB

: Urban Local Bodies

NCT

: National Capital Territory (usually used as NCT Delhi)

SBD

: Sub Business District

MCA

: Model Concession Agreement

VGF

: Viability Gap Funding

World urban population

Urban infrastructure development

Trends in urbanisation


The worlds urban population surpassed the rural population this year, meaning
the urban population crossed 50% led by China and India.



The diversity amongst countries though is stark, with the developed countries
having an urban population of 74%, the newly developed at 43% and the
underdeveloped at 27% (1). Indias urban population is 29% compared to the
USA at 81%, Europe at 72% and Australia & New Zealand at 87% (2).



The growth in urban population in the newly developed countries has been
and would be a key challenge by any standards. China has increased its urban
population from 20% to 36%, a whooping 16% increase between 1980 to 2000
and has added the equivalent of the urban population of 2/3rds of North America
in two decades. India would add the equivalent of another North American total
urban population over the next 25 years.

Urban population in millions

Comparision of increase in urban population (2005-30)



1200
1000

113

800

341

600
400
200
0

273

898
532

317
India

China

Developed regions

To put it in perspective, India will increase its total urban population in the next
two and half decades what North America added in over a century.



Clearly this scale and magnitude of urbanisation as in India and China has not
been witnessed in the history of mankind. However there is no way that this
phenomenon can be stymied, instead it is prudent to prepare for the march of
urbanisation.



The requirements stemming from urbanisation therefore are unprecedented. At

the end of the 10th plan, the shortage in housing stock was estimated at around
25 million, with 99% of this shortage pertaining to LIG and EWS. The 11th plan
has further estimated that the total housing requirement in 2012 will be to the
tune of 27 million units with an estimated investment requirement of INR 3,160
billion in the sector alone (3).

Urban infrastructure development

Models of Urbanisation


Countries have followed distinct models of urbanisation and the requirements for
transportation, urban roads and its O&M, utilities including power, sewerage and
water stem from the model of urbanisation followed.



This is not to imply that India as a country should follow a specific model. The
implication is that states, or indeed regions within states need to have unique
models of urbanisation depending on the certain criteria elaborated subsequently.



In the Shanghai model or the Monocentric to Polycentric model, there are new
satellite towns that are self sustainable. The population density in the city centre is
1000 persons per hectare and rapidly decreases to below 50 persons per hectare
15 km from the city centre. The satellite towns mimic the same characteristics
as the Central city. The average travel time to work is about 20 minutes in the
satellite towns and the Central city with about 70% of the population depending on
public transport. Land prices in the city centre and the satellite towns are high.



The implications for policy makers is the cost of building infrastructure in these
satellite cities, the road networks, the public transport and utilities in addition to the
inter satellite city and to main city transportation.



In the European model or the Polycentric territorial development model, the crux
of the development is efficient rail and road links to the city centre. The population
density tapers off gradually from about 300 persons per hectare 1 km from the city
centre to 250 persons per hectare 10 km from the city centre. Only about half the
population use public transport. A majority of people drive about 30kms to work in
about half an hour.



The cost of providing road and rail infrastructure is high and therefore the
implication for policy makers is to provide this infrastructure as well as utilities at a
larger radius from the city centre.



The third model of urbanisation is the High Density Development of Hong Kong.
There is great stress on vertical use with population densities of 6160 persons per
hectare in a 1 km radius from the city centre to 3500 persons per hectare at a 5 km
radius. About 90% of the population uses public transport which is easily accessible
and the journey to work is short and fast typically by metro. Land prices in the
downtown and the periphery are high.

Urban infrastructure development



There are economies of scale for transport and utilities in this model. The implication for
policy makers is to encourage vertical use with high FARs and reasonable free space.



The chart below sums up the various models and the requirements for each:

Parameters

Mono centric to Poly

centric Shanghai - China

Polycentric territorial
development - Europe

High density Cities - Hong Kong

Development
model

New satellite towns built

with all kinds of facilities self sustainable

Development surrounding
the main city- connected
through road and rail links

Shortage of land - Vertical land

use pattern

Density (Persons/
ha.)
(Distance from
city center)

1 km distance from city

centre - 1000 persons/ha.
5 km distance from city
centre- 400 persons/ha.

1 km distance from city

centre - 300 persons/ha.
5 km distance from city
centre- 250 persons/ha.

1 km distance from city centre 6160 persons/ha. 5 km distance

from city centre- 3500 persons/
ha.

Distance and
travel time to
work place

Average travel time - 20

min within the city, within
the satellite town

Average around 30 km.

(30 min.) from territorial
region to city centre

Short journeys to work - high

accessibility

% of population
depends on public
transport

70%

50%

90%

Land price

City centre - high

Satellite towns - high

City centre - high

Territorial areas - low

City centre - high

Peripheral areas - high

Amount of
investment
required
(utilities and
infrastructure)

New investment required

altogether to create new
satellite towns

Low - Economies of scale

High - Providing
for utilities and transport
infrastructure for utilities
and transport infrastructure infrastructure



The nature and amount of investment requirement for urbanisation is keenly dependent on
the model of development. This is NOT to suggest that the country as a whole has a single
model of urbanisation. The drivers for the model to be adopted vary across regions and the
criteria for determining the model of urbanisation in regions is discussed below.



Availability of land for urbanisation, the population impacted and the urbanisation push
amongst the rural population are the key factors for determining the urbanisation model.

Urban infrastructure development



The proxy used for land availability in rural areas is the % of rural area under double
cultivation. As the chart below shows that it varies from a high of 83.7% in Punjab to
8.7% in Gujarat.
Percentage of double cropped land to total rural land

90%

83.7%

Percentage of cropped land to rural

80%
70.0%

68.4%

70%
60%
50%
40%

32.9%
30%
22.2%

21.4%

20%

12.2%

8.8%

8.7%

10%

11.8%

0%
India

Gujarat Maharashtra

Haryana

Punjab

Rajasthan

West
Bengal

Kerala

Karnataka

Andhra
Pradesh

States



Even a state may be too large a unit for determining the urbanisation model or for
analysis of this proxy. To take the example of Gujarat, some regions like Ahmedabad
have low double crop and proximity to urban centres as the chart below shows.
Gujarat % double cropped land to total rural land

35%

33.2%
30.5%

30%
25.0%
25%
21.2%
19.6%

20%

14.7%

15%

12.3%

10%
6.0%

7.3%

7.1%
5.3%
3.6%

5%

11.8%

4.1%
2.4%

2.7%

0.4%

0.4%

0.0%



Urban infrastructure development

Valsad

The Dangs

Surat

Double cropped rural land could also be a proxy for the inclination amongst the rural
populace to urbanise given the implication on low productivity in these areas.

Bharuch

Vadodara

Panch Mahals

Kheda

Bhavnagar

Amreli

Junagadh

Jamnagar

Rajkot

Surendranagar

Ahmedabad

Gandinagar

Sabar Kntha

Mahesana

Banas Kantha

Kachch

0%



The second proxy for land availability is the population density in the rural areas.
High rural densities coupled with high areas under double crop are clearly regions
where the Shanghai model may not be amenable.
Rural density/sq km

1,800
1,600
1,400
1,200
985

1,000

991

800
600
400

371

376
252

249

239



Andhra
Pradesh

Karnataka

Kerala

Rajasthan

Punjab

Haryana

Maharashtra

Gujarat

India

337

158

200

West Bengal

400

Gujarats example again shows that almost all districts of Gujarat have both low
double cropped cultivation coupled with low population densities and possibly most
suited for creating new satellite towns referred to as the Shanghai model in this
document. This is further reinforced by the low rural population densities and low
areas under double cropped cultivation near the existing urban areas.

Gujarat Density per sq km

1800

1665

1600
1400
1200
1000
800
600
354

400
228
200

177

166

137

174

224
141

289
187

313

409

336

198

306
198

42

Urban infrastructure development

Valsad

The Dangs

Surat

Bharuch

Vadodara

Panch Mahals

Kheda

Bhavnagar

Amreli

Junagadh

Jamnagar

Rajkot

Surendranagar

Ahmedabad

Gandinagar

Sabar Kntha

Mahesana

Banas Kantha

Kachch



While states and regions within the states require to adopt one of the above or an
amalgamation of these models, existing urban institutions and systems need to be
strengthened. The case made out in the subsequent pages is that the key advantage of
PPP is improving governance as much as augmentation of funds for urbanisation.



Improving governance by robust institutional and contractual structures improves

project delivery and ensures adherence to superior and pre-designated standards
of quality.



The challenge is to disaggregate the requirements of urbanisation, systematically

identify the PPP products, structure them, fulfil the requirements in terms of the
technical studies and manage a competitive bid process for award. The key issues are
addressing the regulatory requirements and developing the capacity of the ULBs and
Urban development agencies.

10

Urban infrastructure development

Advantages of Competitively bid PPP



The advantages of competitively bid Public Private Partnership (PPP) in Infrastructure

has been well documented and are reiterated below.



Augmenting Funds: The requirement of funding for infrastructure in fast

developing countries of South Asia is immense in India for example the
requirement for infrastructure over the next 5 years has been estimated at USD
500 billion. Governments more often than not are unable to meet this level of
funding and look to augment this by private sector investments.



Superior project delivery is seen to be more potent an objective of government

than augmentation of funds. PPP structuring of infrastructure projects is much
more rigorous compared to those executed by government. Financial closure,
project commencement and project completion schedules are typically built into
the agreements with penal clauses for non adherence. Measurable parameters for
project quality and maintenance are documented in the agreements and deviations
are typically penalised.



The Indian Prime Minister Dr. Manmohan Singh summed up the above succinctly
by stating that the PPP approach is best suited for the infrastructure sector. It
supplements scarce public resources, creates a more competitive environment and
helps to improve efficiencies and reduce costs. Our experience shows that competition
and PPPs can help in improving infrastructure.



There are two critical components in the above message. The first is that PPP improves
efficiencies, through rigorous and disciplined governance. The second critical aspect is
the more competitive environment that helps to improve efficiencies and reduces costs.
In the absence of competition PPP alone is infructuos and perhaps counterproductive
and there are several infamous examples of PPP without competitive bidding like the
Dabhol electricity plant in India by the erstwhile Enron Corporation.



There has been some debate internationally amongst PPP professionals as to what
constitutes a PPP product. The answer is as simple as it is profound, any product that
can be structured so as to have a preset milestones for project completion, measurable
quality of output that meets public objectives and pre determined measurable
performance parameters over the life of the asset, and attracts threshold investor
participation, can be structured as a PPP product.

Urban infrastructure development

11



There are obvious complexities in every element of the above definition, public
objectives itself has wide connotation, pre determined measurable performance
parameters for social services might be complex and threshold investor participation
itself is keenly dependent on the solicitation process.



However a generic appreciation of the issues in PPP and understanding of the gamut
or spectrum would accelerate cross sectoral competitively bid PPP by utilising the vast
body of PPP learning and implementation knowledge from sectors like transportation
and from states across India.

12

Urban infrastructure development

PPP Product Identification and maturing



The challenge is to disaggregate the requirements of urbanisation, systematically

identify the PPP products, structure them, fulfil the requirements in terms of the
technical studies and manage a competitive bid process for award. The key issues
are addressing the regulatory requirements and developing the capacity of the
ULBs and Urban development agencies.



The first objective is to disaggregate the requirements for urbanisation and identify
the products where private participation is advantageous. The Technical Secretariat
has to play a stellar role to fulfil this objective. Every stage of the project pipeline
from identification, to structuring, to approval, to technical studies, to pre
qualification to bid process and solicitation would ideally be full with projects. The
gains of PPP should not be restricted to either a few sectors or a small geography.
There has to be a systematic methodology for identification of projects and
maturing them and therefore building up capacity in these departments to identify
PPP projects continuously. There are literally tens projects being identified and
matured in states that have embarked on PPP systematically like Delhi and Orissa.
Critically all of them are identified by the user departments.



The first phase stage in the institutional arrangement therefore is coordination

with respective departments to identify a robust shelf of projects. The project shelf
has to be a robust so that there is no stop start meaning that there has to be a
continuous flow of projects in the pipeline.



The culmination of this stage is a shelf of PPP projects: A shelf of projects is not
merely a list of projects, it is a systematic and exhaustive method of identifying
projects by the user departments against a set criterion. There is considerable
rigor and discipline in the methodology and it fleshes out the regulatory, policy and
institutional arrangements required.



As the project spectrum widens there are sectors where the prerequisites for PPP
are involved. Utilities require base level studies, price determination either through
a regulatory or independent process, Standards of Quality metrices are not only
required for a non discriminatory selection process but are often breaking issues
for investors.

Urban infrastructure development

13



The shelf of projects is NOT a listing of projects. It is a detailed note on the

prerequisites and the requirements for the project. The prerequisites typically contain
the regulatory and policy issues. The requirements are the technical studies for
preparation of a PPP feasibility report. The technical reports have to investor focused
and not technology focused, therefore the formats and focus of the technical studies
have to be closely controlled.



Best practices that are focused and relate to specific elements in the bid process
are intrinsic to the decision process. States like Orissa hardly had any institutional
arrangement for PPP. Today all decisions are compared against global examples. NCT
Delhi is gearing up for this milieu.



Standardisation accelerates the PPP process dramatically, first because processes

become replicable and second and critically because the approval process gets
streamlined.



Standardisation is most critically required in the Urban sector.

While product and process standardization has evolved robustly in the infrastructure
sector, standardization is woefully inadequate in the Urban sector.



Product standardization includes structuring the product and the standards of quality
that not only meet the public parties objectives but also ensures that the process
becomes non discriminatory and reduces the uncertainty, and therefore risk, of the
private sector provider.



Not only do SBDs and MCAs facilitate the bid process by ease of approvals by
departments, but an MCA and SBD has the national best practices built into it
in addition to the local issues and therefore the document is robust and has the
experience of decades and international/national experience incorporated into it.



While several states have an Infrastructure Fund, a dedicated Urban Fund for the
Technical studies, bid process management and VGF for the Urban sector is typically
an important requirement. Design, structuring, funds flow rules and administration
rules are to be established. The management of the Fund in the initial period is crucial
to ensure the Fund meets its desired objectives.

14

Urban infrastructure development



While policy and regulatory issues are stressed, a breaking issue is the capacity
building of the ULBs and Urban development agencies for PPP. Most often the
absence of this capacity is the greatest impediment for PPP. Often given the
complexity and degree of difficulty this aspect is ignored. The Technical Secretariat
in the Urban department or sometimes in large ULBs is the central repository of
PPP knowledge. As volumes increase manifold, PPP transactions become more
complex and are in varied sectors, NOT only does the identification, maturing
and evaluation become more complex, the capacity requirement of each sector
becomes much more involved.



Transactions are interactive, the best learning is in managing the complete life
cycle alongwith the advisors. The capacity building methodology constitutes of the
following activities.
Experience: Activities that impart the opportunity to put knowledge into practice
particularly in the domain of expertise
Learning: Formal learning through a structured and customized curriculum that
imparts the skills and knowledge required
Coaching: Meaningful interaction that coupled with day to day feedback, counselling
and mentoring transforms experience and learning into practice



Summing up, the challenge is to disaggregate the requirements of urbanisation,

systematically identify the PPP products, structure them, fulfil the requirements
in terms of the technical studies and manage a competitive bid process for award.
Consequently there would be full pipeline of projects in various stages of maturity
continuously. This is also because high quality investors require a continuous
stream of projects to focus on geography. The pipeline is NOT only a one line
identification but the prerequisites and requirements for a shelf of projects,
addressing the prerequisites, maturing them and finally bidding them out with the
assistance of advisors. Critically it is the user departments who are intensively
involved in the process. Capacity building of the User departments is intrinsic to the
process because transactions are extremely interactive and while there would be
learnings and coaching, experiencing is critical.



In addition there are issues over facilitating the overarching milieu by standard
documentations that accelerates the PPP process dramatically. Also just as
developed countries take decisions based on global and national best practices
states need to structure a decision process assisted by global and national inputs.

Urban infrastructure development

15

References
(1) Urban and Rural Areas 2005- United Nations, www.unpopulation.org
(2) Urban and Rural Areas 2005- United Nations, www.unpopulation.org
(3) Housing Needs National Urban Housing and Habitat Policy, 2007
(4) All the double crop related data and graphs are extracted from Agricultural Land use

section of www.indiastat.com

(5) All the rural density related data and graphs are extracted from Rural Population

16

section of www.indiastat.com

Urban infrastructure development

Contact
Mr. Jayesh Desai

Mr. Siddhartha Das

National Director

PPP Practice Leader

Infrastructure, Real Estate &

Infrastructure, Real Estate &

Government

Government

Golf View Corporate Tower B,

22, Camac Street

Sector 42, Sector Road,

Block C, 3rd Floor

Gurgaon, Haryana 122002, India

Kolkata 700 016, India

Phone 1: +91 124 464 4550

Phone 1: +91 33 6615 3501

Phone 2: +91 124 464 4000

Phone 2: +91 33 6615 3400

Fax

Fax

: +91 33 2281 7750

Mobile

: +91 98310 14940

: +91 124 464 4050

jayesh.desai@in.ey.com

siddhartha.das@in.ey.com

www.ey.com/india

www.ey.com/india

CII
Headquarters

Infrastructure Department

Confederation of Indian Industry (CII)

Confederation of Indian Industry (CII)

The Mantosh Sondhi Centre

249-F, Sector 18, Udyog Vihar, Phase - IV

23, Institutional Area, Lodi Road

Gurgaon 122015 (Haryana)

New Delhi - 110 003 (INDIA)

Phone : +91 124 4014060-67

Phone : +91 11 24629994-7

Fax

: +91 124 4014538, 4014080

Fax

: +91 11 24626149 / 24633168

Email

: babu.khan@ciionline.org

Web

: www.cii.in

Web

: www.cii.in

Urban infrastructure development

17

Notes

18

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