internal controls

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Scope of this interaction. Introduce the concept, need and basic terms to increase familiarity with the subjectTake the case of a road project to discuss the issues relating to PPP Consider the issue from different stand points

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1. India’s Infrastructure Challenges Experimenting with the Public Private Partnership Route 1. 1.

2. Scope of this interaction Introduce the concept, need and basic terms to increase familiarity with the subject Take the case of a road project to discuss the issues relating to PPP Consider the issue from different stand points – government, private sector, financiers, project affected parties and citizens Share PPP experiences from your countries Clarify any doubts if they arise after this session or on the email later on OK with this format?OK with this format?

3. Traditional Model -Budgetary Support Public good - Public Function Highly capital intensive Long gestation period Uncertain returns Plan expenditure Why change the mode ? 1, Proportion of annual budget to infra in 2000 and 2008 2. maintenance expenditure1, Proportion of annual budget to infra in 2000 and 2008 2. maintenance expenditure

4. PPP Model More funds will be available for construction and maintenance Greater efficiency through competition Scope for Innovation International best practices and knowledge transfer Government can focus on merit goods where there are no private takers What is PPP- the defining factor Different degrees of risk transfer State PWDsWhat is PPP- the defining factor Different degrees of risk transfer State PWDs

5. Fundamental concepts What is a PPP? Is it the same as subsidy? What are the types of PPP? (Management contract/Lease) (BOT/BOO/BOOT/BOLT) (DBFO)

6. What is the role of Government experts in PPP? Determining which projects can be taken up through PPP- are they bankable? Facilitation at the design stage- project preparation – detailed feasibility report Facilitation in the pre-construction stage Providing avenues for long term finance Understanding contingent liabilities Ensuring quick and effective dispute resolution mechanism Ensuring transparency and fair play through adequate regulation and disclosure Building effective and sustainable partnerships

7. Optimum Apportioning of Risk Project risks Technology/Design risk Construction risk Operating risk Market risk Foreign exchange risk Macro-economic risks Political or Regulatory Risk Environmental risk Force Majeure risk checkcheck

8. Building Capacity in Public /Private Sector –Guardians of Public Money Viability Gap Funding PPP Cells - PPP Appraisal Committee Transaction Advisors Training/Information kits Standard Bidding Procedures Model Concession Agreement Railways, roads, ports co-ordination issues State Support AgreementsRailways, roads, ports co-ordination issues State Support Agreements

9. Changing Public Opinion Change the command mindset Demonstrate excellent and trouble free delivery Educate people on getting value for money in public expenditure Re-train Public sector employees

10. External Control- Regulatory Bodies Why is independent regulation necessary?

11. Venture Capital for pre-operative expenses India Infrastructure Project Development Fund Huge upfront transaction cost + high risk corpus Rs.1000 million, up to 75% project dev cost – interest free loan to be recovered from successful bidders State Govts and local bodies eligible If no interest by bidders – converted to grant

12. Facilitating Finance India Infrastructure Finance Company Ltd. -raises resources under Govt. guarantees - up to 20% of project cost and then on-lends to viable projects -Long term tenor (10 + years)

13. India Infrastructure Financing Initiative (IIFI) Equity and debt funding for viable state sector projects Partners 5 billion corpus IIFCL Citigroup IDFC Blackstone Group Holdings

14. PPP in the Road Sector EPC vs item-rate contract BOT (Annuity)/BOT (Toll) O&M contracts Toll Policy Major concerns Poor quality of contractors Land acquisition and R&R Capacity of NHAI and State PWDs Environment/Forest Traffic vs connectivity Apathy to paying toll Land acquisition, R&R,lack of good contracting capacity,public resentment,political rationale, neglect of the pedestrianLand acquisition, R&R,lack of good contracting capacity,public resentment,political rationale, neglect of the pedestrian

15. Internal Controls Define all terms Conditions precedent (Escrow account, Applicable permits,performance security, Financing Agreements) Detailed account of obligations of concessionnaire Obligations of Authority Representations and Warranties Mandatory Disclosure

16. Internal Controls International Competitive Bidding Bid security/performance security Outcome specification Completion Certificate If there is a change of scope? O&M obligations Safety requirements Independent Engineer Dispute Resolution Mechanism

17. Accounts and Audits Concessionnaire to appoint a Statutory Auditor from a list of mutually agreed panel Articles and schedules provided in the MCA

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