Private Participation in Infrastructure

Between Devil and Deep Blue Sea

Anil Rawal, Reliance Infrastructure Ltd

Contents
Where is Devil and Deep Blue Sea in Infrastructure
Then why to enter in Deep Sea and face devil

Private Participation the structure and conflict within

Private Participation Modes and Models

Dichotomy of perception about private participation

Heart change of Devil

Take a Boat, negotiate the deep sea Reach next to light house, Take the nectar You will be blessed along with society Sent one of his angel to go unnoticed along and help in trouble

Angel turned negative out of vested interests

Where is Devil and Deep Blue Sea in Infrastructure

The Deep Blue Sea
The Challenges
o
o o

The Devil
The Policy Environment
o o o o o o o o o o o o Laws and Policies on Land and Environmental Lack of Single Window Clearances Licensing and regulatory delays Crowding out of Finances by Government High interest regime Half hearted opening of sectors with inbuilt protection to incumbents Lack of standardised contracts Harsh LD clauses Micromanagement Frequent and arbitrary changes in contracts No incentives for early executions Obligation beyond control of developers to be borne by them

o o o o o o

Achieving high and inclusive growth, Long gestation periods and high value investments, Global uncertainties and vulnerabilities, Lack of Skilled manpower, Lack of state of art equipments Effectiveness of deliveries, Execution Challenges Managing Finances in underdeveloped financial markets Money chasing the high returns

Then why to enter in Deep Sea and face devil

Govt. Sources

$ 500 Billion

$ 350 Billion

$ 150 Billion

Private Sources

$ 500 Billion
Procurement efficiency Construction management Design/construction/op eration management Monetizing investment profile Though fast moving technology (long-term contract) New sources FDI Local financial markets

Risk allocation

Innovation/te chnology

Finance

Private Participation the structure and conflict within

Optimal: efficient sharing of risks
Too little: no Value For Money Too much: project failure

Private Involvement

Risk Transfer

Public Sector

ROI =

(Net Income/ (Net Income/Benefit) x Pr S -----------------------------------------(Cost1 + Cost2)

Cost 1 cost of project borne by private sector Cost 2 Cost of project assumed by public sector S Support from the government either in terms of tax breaks, incentives, credit, subsidies etc. Pr - Probability of realizing the forecasted incomes
The objective of the govt. would be to get the project implemented with cost 2=0 and S=0, objective of private sector would be to max ROI by minimising Cost 1, increase S

Private Participation Modes and Models- EPC or PPP

High

Full Privatisation
High

Private Participation

Pure PPP structures

Operation Concessions Management Contracts
Risk Low

Low

Works and Service Contracts

Dichotomy of perception about private participation

Provide Value for Money and Capital Efficiency

Taking away the public ownership

Reduced life cycle cost of Projects vis a vis Govt

Skepticism instead of teaming

Using natural assets for profiteering motives

Service Quality

Heating up the market by excessive competition

Technololgical and Process Innovations

Short sighted gains, long term losses to Environment and Society

Heart change of Devil!!

I can negotiate the deep seas, you support both will reach together
Actions required from Policy makers-

Department or ministry mandated to cut any obstacles. Collapse a lot of ministries into it or house it in the PMO
Build national PPP Centres of Excellence Single window clearances and RoW and forest in scope of Government

Develop shadow private sector bid models and Standard Contracts and test them in Demos
Put realistic deadlines with sympathetic LD clauses, scope for negotiaions to parties who can bear them the best

Make commercial environment easy tax structure, GST, Long term infra bonds, take out financing,
Keep scope for Innovations and put less doctored specifications Time bound resolution of disputes

Seamless coordination between central and state governments

References and Acknowledgements

Private Participation in Infrastructure Report By Planning Commission
India Infrastructure Outlook 2011 by Fitch Ratings India Infrastructure reports by IDFC PPP Days 2010PPPs Lessons from the Last 18 MonthsRajiv B LallMarch 22, 2010 PwC report on PPP in Europe

anil.rawal@relianceada.com Certainly ! Thanks a lot