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Public Private Partnerships IIFCL project

Public Private Partnerships IIFCL project. Fiduciary Forum. Ashish Bhateja March 2008. India ’ s PPP agenda is expanding. Expansion of PPPs in transport (ports, airports, roads) Pilots in power transmission Center interested in pursuing PPPs in health and education

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Public Private Partnerships IIFCL project

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  1. Public Private Partnerships IIFCL project Fiduciary Forum Ashish Bhateja March 2008

  2. India’s PPP agenda is expanding • Expansion of PPPs in transport (ports, airports, roads) • Pilots in power transmission • Center interested in pursuing PPPs in health and education • Experimentation by state governments: • Irrigation (UP, Maharashtra) • Urban water (Maharashtra, Karnataka) • Rural water (AP) • Bulk water transmission (Rajasthan) • Metros, urban transport (Maharashtra, AP, Karnataka) • Private sector becoming increasingly creative in packaging projects (e.g. with land) to achieve financial viability • More than 117 PPP deals closed in the last three years when compared to 104 in the previous 8 years

  3. Framework for PPPs in India • In 2006, the Ministry of Finance issued Guidelines on the Formulation, Appraisal and Approval of PPP Projects • Model RFQ & RFP documents have also been issued in 2007 • MCA available for roads & ports (others under preparation) • Mandated for Central PPPs and recommended for States

  4. Institutional structure to support • GoI has setup Public Private Partnership Appraisal Committee (PPPAC) • Department of Economic Affairs (DEA), which has set up a special cell (PPPAC Secretariat) for servicing such proposals • MoF is the nodal Ministry responsible for examining concession agreements from the financial angle, deciding on guarantees to be extended, and assess risk allocation from the investment and banking perspectives • PPP Appraisal Unit (PPPAU, under Planning) has responsibility of preparing appraisal notes for PPPAC providing specific suggestions for improving the concession terms • Ministry of Law and Justice, Department of Legal Affairs, is represented on the PPPAC, as concession agreements require careful legal scrutiny

  5. PPP process in India Line ministry identifies projects Seeks ‘in principle’ approval of PPPAC Inviting public entity seeks expression of interest (RFQ) Shortlist prepared pre-qualification RFP prepared Approval of PPPAC Invite financial bids

  6. Role of IIFCL in PPPs • Addresses the need for providing long-term debt for financing infrastructure projects that typically involve long gestation periods • Indian markets, however, are deficient in long-term debt instruments (most of the available debt is of seven to twelve years’ maturity) • Assistance through long term debt; either by way of refinance to banks and financial institutions or by direct lending to project companies. • It will lend up to 20% of the capital costs of a project • IIFCL will raise funds from both domestic as well as external markets on the strength of government guarantees, which will be extended as necessary

  7. Design of IIFCL project Government Authority awards contract to: Project Development Company (SPV) IBRD Long-term funds through line of credit & technical assistance (US $ 500mn) On-lends IBRD line to eligible sub-projects (SPV) Other Banks & FIs Other funds

  8. Challenges related to Procurement • Concessionaire must be selected using ICB acceptable to the Bank • Neither Bank nor Borrower is in picture when concessionaire selection is done • Technical inputs have been given to GoI on the selection process, but some differences remain (compared to Bank requirements) • National process cannot be changed because Bank may only finance some PPPs

  9. Options under consideration • Discussions with GoI on: • Ways to incorporate Bank FCC, right to audit • Remove disclaimer stating that issuing authority does not accept its own mistakes in RFQ/RFP • Remove requirement from bidders to waive right to challenge any decision of the authority • Ring-fence Bank funded PPPs to avoid situations where: • Bids are modified after bid submission deadline • L2,L3 etc are invited to match L1 price if L1 defaults • Technical evaluation (procedure not defined in National guidelines)

  10. Options under consideration • Seek Bank exception: • Limitation on number of bidders to be pre-qualified • Building capacity of IIFCL: • Review of process of concessionaire selection • Identify ‘eligible projects’ for Bank funding

  11. Learn more www.infrastructure.gov.in India related PPP case studies National guidelines GoI model documents

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