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October 5, 2011

PPP in Infrastructure – Economic Times

PUBLIC PRIVATE PARTNERSHIP

When private sector’s enthusiasm and execution speed is married with power and will of the state, it lays down a red carpet for socio-economic development. Public Private Partnership (PPP), a relatively new funding model for creating public infra-structure, is being adopted rapidly in the country. The Union Government is framing a national policy and has just published the Draft National Public Private Partnership Policy, which is now open for citizens and private entities to provide their suggestions.

With India forecast to see leapfrogging eco-nomic development, PPP will come up as a prime funding model. While many state and central departments have started rolling out projects on the PPP model, the society, corporates, and many government officials are yet unclear about it, and in some places even confused.

To clear the air, The Economic Times had organised a conference on Public Private Part-nership at Nagpur getting all stakeholders in Maharashtra’s second capital. Nagpur Im-provement Trust, Maharashtra Airport De-velopment Corporation and Nagpur Municipal Corporation were knowledge partners repre-senting the government, while private entities a’XYKno, a transaction advisor and Vishvaraj Infrastructure Ltd, an infrastructure develop-ment company, supported the event.

Nagpur Improvement Trust (NIT) has a man-date of developing around half part of Nagpur city, after being appointed as the Special Plan-ning Authority for Nagpur Metropolitan Area. Pravin Darade (IAS), Chairman, NIT stated that NIT had executed 15 infrastructure projects worth Rs 135 crore on the PPP model. “We have lined up 31 projects worth Rs 645 crore, which are now in various stages of planning or bid preparations. We will invite offers for most of them shortly. I expect that these projects will be up and ready in the next two and a half years.”

Saurabh Rao, commissioner of Nagpur Mu-nicipal Corporation (NMC), in his presentation said the corporation had planned capital in-vestments worth Rs 16,670 crore, across water supply, waste management, traffic, road, trans-port, sewage management, among others. The corporation is aiming to have Rs 3000 crore worth of work done through the PPP model, while it has not yet identified the source of funding for more than Rs 10,000 crore. A large chunk of it is available for private partners to participate.

Nagpur is the geographical centre of India; the zero milestone of India is in this city. All ma-jor highways NH-7 (Varanasi – Kanyakumari) & NH-6 (Mumbai – Sambalpur – Calcutta) and ma-jor railway routes (Mumbai, Chennai, Howrah, Delhi) pass through the city. It is the second cap-ital of Maharashtra and the winter sessions of the state assembly are conducted here. Many central and State Government departments and institutions have zonal offices in Nagpur. Fringe areas like Kamptee, Hingna, Wadi, Khapri, Buti-bori and Kalmeshwar are places of industrial development in the recent times.

MIHAN or Multi-modal International Hub Airport at Nagpur is a new integrated develop-ment underway in the city over 4454 hectares, including special economic zone over 2086 hectares. Expansion of the existing airport is underway, which includes a new 4-km runway and new terminal building over 3 million square feet. Maharashtra Airport Development Company or the MADC is developing MIHAN. The project was a bit delayed mainly on land acqui-sition issues. However Mr Darade, also the joint managing director of MADC said that acquisi-tion of the last 143 hectares of the requirement is underway and will be completed soon. The project will start functioning seamlessly after that. Soon 14 companies will be operating in MI-HAN, which includes Boeing, HCL Technolo-gies, Bharat Petroleum, DLF, TCS, Wipro, among others. The project is open for companies will-ing to set up operations here, with land in SEZ available at Rs 60 lakh per acre with a 1.5 FSI/FAR, to be allotted on first come first serve basis. Open and international bidding process will decide the land price in the non-SEZ zone. Mr Darade stated that the MADC is open for pri-vate participation in the development of MI-HAN, where MADC will pitch in with equity par-ticipation 26% to a maximum of 49% inclusive of land, and ensure approvals and clearances.

The Maharashtra government is also in the process of setting up a guideline framework for PPP projects in the state. The Asian Devel-opment Bank, of which India is a founding member and its fifth largest shareholder, has given a grant to Indian government to support PPP and also sent its officials to work with the state governments. Ajay Saxena, an ADB offi-cial, works with the Maharashtra government, to provide guidance support to various state departments. Mr Saxena, who was present at conference organised by The Economic Times, guided the participants on the implementation of PPP projects and most importantly dispelled confusion and myths.

He stated that in PPP projects, the private companies are not contractors, but co-owners, sharing equal authority and responsibility. It is also not privatisation in any sense, he said. He however cautioned that the for effective im-plementation, the public sector has to retain the responsibility of planning, management and regulation of public service provision, while the public service supply has to be handed over to the private sector. “The public sector should be very diligent in preparing the contracts and setting the legal and regulatory framework. The contracts should also specify well defined exit routes and effect of termination. The monitor-ing should also rest in the hands of the public sector with right to penalise or reward the pri-vate entity for underperformance or over per-formance. The private partner should get due recognition and the contract should have pro-vision for re-negotiation after certain period. However, it is paramount that no projects should be undertaken unless there is a clearly identi-fied public need,” Mr Saxena said.

Echoing his perspective, Arun Lakhani, chairman and managing director, Vishvaraj In-frastructure Ltd said, “Time has come to ex-tend PPP to PPPP by adding the fourth P for ‘People’ in order to evolve partnership in true sense.” He stated that developers should change their mindset from ‘small contracts executed as contractors’ to ‘long term PPP contracts ex-ecuted as co-owners’.

While the government and private devel-opers are the executors in a public private partnership, their seamless integration is brought about by transaction advisors, who not only advice the government agencies on the implementation, but also contribute with the feasibility analysis of the project. The a’XYkno Group, empanelled with some state governments, is advising certain projects in Nagpur, along with other areas. R Vishwanath Iyer, Co Founder, a’XYkno Group, said, “Suc-cess of any project on Public Private Part-nership (PPP) basis rests on three legs of a tripod – Technical, Financial & Legal. Essence of any PPP project is to offer a win-win situ-ation to all the stakeholders.

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