Role of PPP models in development of road and rail infrastructure in India

By

K. REDDI DILEEP

2016048

Xth Semester

Name of the Program: 5 year (B.A., LL.B. / LL.M.)

Name of the Faculty Member: Dr. N. BAGHYA LAKSHMI

Date of Submission: 08/03/2021

DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

NYAYAPRASTHA “, SABBAVARAM,
VISAKHAPATNAM – 531035, ANDHRA PRADESH

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 ACKNOWLEDGEMENT

“I am using this opportunity to express my gratitude to everyone who supported me

through the course of the project. I would like to thank our teacher who encouraged, guide
and supported me for doing this project. And sincerely grateful to them for sharing their
truthful and illuminated views on the issues related to the project. I express my warm
thanks to Dr. N. BAGHYA LAKSHMI madam for his support and guidance to the project
without his help it would be difficult task for us .I have no valuable words to express my
thanks, but my heart is still full of the favour received from you. .It was all my pleasure to
have you as my teacher and guider throughout this project for this I am thanking you from
my heart.”

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Aims and objective

The main aim and objective of this project is to know the institutional framework of Public
private partnership (PPP’s) in roadways and railways. To know the role of PPP’s in road and
rail infrastructure.

Research Methodology:

Research Methodology used was doctrinal methodology. Descriptive and analytical type of
study is done in this project. Doctrinal Methodology includes doing research from primary
sources such as books, articles, journals, case study, and also taking the help of web articles.

Research question:

1. Whether the Public Private Partnership (PPP’s) are benefitable in the sectors of road
and railways?
2. How far the framework of PPP’s is in worth to attract the investments?
3. Whether the privatisation of IR is benefitable?

Significance:

“Public Private Partnerships (PPP) have emerged as one of the major approaches for
delivering infrastructure projects effectively and efficiently. In recent years it has created
various success stories whether it is infrastructure sector, agriculture, education or health care
sector and the benefits of that is be enjoyed by the Indian economy. It is creating various
employment opportunities as well as it helping in developing the economy. After Twelfth
Five plan GoI has taken various initiatives in infrastructure development via PPP and up to a
great extent it is successful in attaining that. The projects are undertaken at national level as
well as state level. This paper will focus on how the various projects via PPP in transportation
sector is helping in the development of world class infrastructure and the various projects
ongoing and completed and it will also concentrate on the various issues and challenges faced
by them.”

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 CONTENTS

1. Introduction
2. Public Private Partnerships (PPP’s)
3. Basis of Public Private Partnerships
4. Public private partnership & current environment in India
5. Types of Public Private Partnerships
6. Requisites for Public Private Partnerships
7. Public Private Partnerships models in development of Road and rail infrastructure
 Road
8. Institutional Frame work
9. Private Sector Participation in Road development
10. Public Private Partnership models in road development
 Railways
11. Public Private Partnership in railways
12. Government Policy on Public Private Partnerships in Railways
13. Challenges
14. conclusion

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 Role of PPP models in development of road and rail infrastructure in India

Introduction:

Public-private partnerships (PPPs) have become one of the main methods for the
effective and efficient execution of infrastructure projects. In recent years, be it in the
infrastructure sector, agriculture, education or the health sector, it has created several success
stories, and the Indian economy has also benefited from it. It is creating various job
opportunities and helping to develop the economy of the country. After the “Twelfth Five
Year Plan (12th five year plan)”, the Government of India has taken various initiatives in
infrastructure development through PPP and has achieved this goal to a great extent. These
projects are carried out at the national and state level. This article will focus on how various
projects in the transport sector with respect to the road and rail through PPP help to develop
world-class infrastructure and various ongoing and completed projects, and will also focus on
the various problems and challenges they face. Since the 1980s, PPPs have emerged around
the world to respond to infrastructure shortages and the need to upgrade existing
infrastructure services. Many countries (emerging markets)1 began to participate in
infrastructure projects with national and international partners. The form and process of
establishing associations and organizational structures depend on national policies.

In India, after economic liberalization in the 1990s, with the implementation of

friendly private and foreign investment policies, the economy developed rapidly. Many
infrastructure sectors have already received large investments. In emerging utility markets,
investment policies and procedures are designed to circumvent public budget constraints.
Infrastructure is an important aspect of the economic growth and inclusive growth of a
country.

Today, the development of physical infrastructure has become one of the

government's top priorities. Therefore, public-private partnerships have become the
appropriate answer to represent the reasonable, feasible and necessary options of the
government. The government announced a PPP plan to implement infrastructure and service
projects through PPPs. The Government of India is formulating various PPP assistance
programs like PPPAC, IIPDF, VGF, IIFCL, and has made many efforts to achieve
comprehensive social, economic, political, cultural and national development of its people.

1
Countries whose economies are undergoing a significant transition through a series of reform

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Public Private Partnerships (PPP’s):

Public private partnership (PPP) means arrangements for the provision of public
assets and/or public services, by way of investments made and/or management carried out by
the private sector company, for a specified period, where the allocation is well determined
and between government-owned entities on the one hand and a private sector-organized
company on the other. In general, The public-private partnership (PPP or 3P or P3) is the
relationship between the public sector and the private sector. In this relationship, private
organizations / managements play a functional role in public projects through long-term
contracts with public institutions. It helps provide governments and local authorities with
alternative ways to raise funds and implement various types of projects, thereby gaining
momentum for global development.

“The rise of PPP can be dated back to 1980s, when the government in countries like
United Kingdom and Chile, post success of privatization in sectors like electricity,
telecommunication and sanitation, sought to extend benefits of privatization to sectors
deemed exceedingly difficult to privatize, such as transportation, schools, and hospitals under
suitable PPP models.”2

Huge infrastructure investment needs, fiscal constraints, and rising debt have forced
governments to consider innovative methods of financing and developing infrastructure.
State-owned infrastructure utilities have low labour productivity, poor quality of service,
theft, low income, underinvestment, and deterioration of equipment. In the last two decades,
far-reaching reforms have been implemented, structural adjustments have been made, private
participation has been encouraged, and new regulatory methods have been established for the
infrastructure sector.3 The basic purpose of PPPs is to encourage the private sector to commit
to the ability to raise funds, complete projects on time, and budget for the well-being of the
community without sacrificing profit motives. At the same time, the public sector will
continue to take responsibility for providing goods and services to the public at affordable
prices. In fact, this arrangement requires intelligent decision-making methods and emphasizes
the need for a framework that allows private sector partners to obtain a reasonable return on
investment under the premise of non-dilutive standards. The key to the success of a PPP
project is the fair and equitable distribution of risks and benefits among partners, as well as

2
NITI Aayog Blog- Aman Hans, Rebooting Public Private Partnership in India 2017
3
Kessides, 2004

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maintaining transparency and accountability in all transactions related to the award and
management of contracts.

Basis of Public Private Partnership (PPP):

The definition of the national purchasing power parity policy defines some basic
conditions that mark public-private agreements. Although each PPP contract is a unique
contract depending on the situation, each PPP contract still relies on some inherent
characteristics that such contracts share. However, there are some other conditions that must
be met in good and fair purchasing power parity. These conditions are related to the
following aspects: assumption of risks, payment method, if the payment is made through the
cash flow of the public sector based on the performance or if it should be charged for the
performance. Consumers use penal, incentive and service-based structures in their
agreements to ensure that the private sector uses the provision of services as a benchmark for
determining minimum technical specifications without affecting the possibility of innovation
and the designated project or timing of project transfer. Implementation of private sector
entities.4

Public Private Partnership (PPP) and the current environment in India:

Although private participation may be related to some errant models during the
British era and post-independence period, the current argument is that the true APP
movement began in the 1990s when power generation was opened to the public. The private
sector licensed eight circular mobile phone service operators, and subsequently made major
amendments to the 1956 National Highway Law in 1995 to allow private participation. But
that was in 1997, when infrastructure development financing the reason for the establishment
of the company is that the movement has been affected, and it also shows that the
government attaches great importance to the use of capital, management and experience of
the private sector in the construction of the country's infrastructure.5

These achievements must also be attributed to the correct favourable environment

created by our country. In addition to the above examples, many new laws were enacted after
1990, making the environment in our country very conducive to public and private
participation. Various bills, such as the Electricity Act of 2003; the amended National
Highways Authority of India Act, 1995; the Special Economic Zone Act, 2005 and the land

4
International Journal Of Core Engineering & Management (IJCEM) Volume 2, Issue 6, September 2015
5
‘PPP in India-The story so far’, Business Standard- May 14,2012

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acquisition bill was approved, and many new institutions such as the regulatory agencies of
telecommunications, electricity and airports, as well as the state like The national Highway
Authority of India (NHAI) and financial institutions such as infrastructure development
finance company, the Indian infrastructure finance company were established in our country.

A series of innovative financial interventions such as Viability Gap Funding (VGF),

annuity models and stimulating the availability of debt have further encouraged the private
sector to invest in infrastructure through PPP projects. The Planning Commission, the
Ministry of Finance, the Ministry of Economic Affairs and the Prime Minister's Central
Office, as well as several states such as Punjab, Gujarat, Maharashtra, Delhi, Karnataka and
Tamil Nadu, have also played an important role in development of capacities the support and
role of PPPs in "Making PPPs a reality"6

Types of Public Private Partnerships (PPP’s):

Broadly speaking, PPPs can be divided into institutionalized PPPs and contractual
PPPs. Institutional PPPs are typically a joint venture (JV) between public and private sector
stakeholders, whose objective is to carry out PPP projects through risk-sharing and long-term
public service provision. Examples of this type are Noida Toll Bridge Company (NTBC) and
Bangalore International Airport Limited (BIAL). On the other hand, contractual PPP is a
franchise model, in this case the relevant public sector unit provides convenience to private
sector partners, who generally design, build and operate PPP projects within a specified
period of time. Under certain circumstances, the operation of the facility can be outsourced to
another private party. In both categories, users pay for available facilities and these fees must
be paid by joint ventures or private sector partners.

Models:

Build, Operate and Transfer (BOT):

In this category, the private partner is responsible for the design, construction,
operation (within the contract period) and then the transfer of the facility to the public sector.
Private sector partners are expected to raise funds for the project and be responsible for the
construction and maintenance of the project. The public sector will pay the rent for the use of
the facility or allow it to collect revenue from users. The national highway project contracted
by NHAI under the PPP model is an example.

6
Singh, S. P. (2013). What is wrong with PPP in India? Retrieved 2016

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Lease, Operate and Transfer (LOT):

As its name implies, in this type of PPP, the existing and operational facilities will be
entrusted to private sector partners to operate efficiently, subject to the terms and conditions
agreed between the two parties. The contract will be for a specified period, but long enough,
and the assets will be handed over to the government at the end of the contract. Under
predetermined conditions, an office building or a hospital, together with the employees and
all the facilities, can be leased to the private sector through entrusted management and control
bodies, which may belong to this category.

Build, Own, Operate (BOO) or Build, Own, and Operate and Transfer (BOOT):

This is a variant of the BOT model, except that the ownership of the new facility will
be owned by the private party Own, Operate and for the term of the contract. This will result
in the transfer of most of the risks related to the planning, design, construction and operation
of the project to private partners. However, public sector partners will sign contracts to "buy"
the goods and services produced by the project according to mutually agreed terms and
conditions. However, in the latter case (BOOT), the facilities / projects built under PPP will
be transferred back to the government department or agency at the end of the contract period,
usually with residual value, and after the private partner recovers the investment and is
reasonable, in accordance with the return of the contract.7

Design, Build, Finance and Operate (DBFO) or Design, Build, Finance, Operate and
Maintain (DBFOM):

These are other variants of PPP and terminology. The financing also emphasizes that
the private party assumes full responsibility for the design, construction, financing, operation
or operation and / or design, construction and maintenance of the project during the
concession period. These are "finances", also called "franchises". Private participants who
participate and maintain the project will recoup their investment and return on investment
(ROI) through concessions granted or through annuity payments. It should be noted that most
of the project risks related to design, financing and construction will be transferred to private
partners. The public sector can provide guarantees to financial institutions, help obtain land

7
Govt of India (2012), Report of the Working Group of 11th Five year Plan on Roads, Government of India,
New Delhi

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and help obtain legal and environmental permits and approvals, and can also secure obtain
reasonable returns in accordance with established regulations or industry practices.8

Operations Concession:

This is a general term used to clarify PPP agreements. PPP agreement authorization
Private partners that recoup their investment and the expected return on investment through
concessions granted within a specified period of time (calculated based on demand and
growth projections) are called operating concessions (CO). In this case, the public sector
(department or institution) responsible for providing services to the public and collecting
revenue through user fees, tolls, fees, etc., cedes its legal or statutory rights to a private
partner in exchange for this The latter is in charge of the execution of the project and the
responsibility of maintaining the required quality. Concessions can be made through the
collection of tolls and user fees, or through the public sector on a regular basis. Annuity or
monthly / quarterly / semi-annual payment charge fees based on certain assumptions, such as
shadow tolls.

Joint Ventures:

In the PPP agreements that my country often follows (for example, for airport
development), private sector agencies are encouraged to form joint ventures (JVC) with
participating public sector agencies, with the latter having only one minority stake. Private
sector institutions will be responsible for the design, construction and management of PPP
companies and will also contribute most of the investment needs. The public sector partner's
contribution will be made through fixed assets of predetermined value, whether land,
buildings or facilities, and / or may increase the share capital. It can also provide guarantees
and guarantees required by private partners to raise funds and ensure smooth construction and
operations. The entity will provide public services for the establishment of a joint venture
under certain pre-established conditions and in accordance with the required quality
parameters and specifications. For example, international airports (Hyderabad and
Bangalore), ports, etc.

The above mentioned are some of the models which are currently practising in India
in order to develop the entire infrastructure with respect to the rail, road, and many. The
Government of India, the Ministry of Finance and the department of Expenditure issued
8
The term concession is used rather loosely to describe generically the various types of PPP arrangements as
most of these bestow on the private sector partner the right to collect and keep in full or part the project revenue
over a specified period called ‘Concession Period’.

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guidelines for the establishment of joint ventures in the infrastructure sector at the coalition
government level in July 2009.9 When auditing joint ventures of state government PPPs, the
Public auditors should consider these guidelines as best practices for which the state
government has not proposed such guidelines.

Requisites for Public Private Partnerships (PPP’s):

The signing of a PPP contract will not reduce the responsibility and accountability of
public sector agencies and related public officials. On the other hand, seeing that this type of
arrangement managed to safeguard public interests through an economic, effective and
efficient management of public-private cooperation, and they have a great responsibility.
Therefore, it is essential to plan and implement PPPs effectively and carefully, and to avoid
obstacles. In this case, it would be useful to rethink the characteristics and requirements of
the successful PPP.

International experience is that public-private partnerships are difficult to implement,

especially in an environment with insufficient legislative and judicial institutions. PPPs
require the competent authority to develop healthy contractual relationships, processes and
procedures to develop them effectively. According to the United Nations Economic
Commission for Europe, many countries lack well-functioning institutions. This is reflected
in the following aspects: long negotiations between public and private partners, slowness to
reach agreements, inflexibility in risk distribution and elimination of risk-taking mechanisms.
Many projects have produced all the waste.

It is worth noting that the Indian government is aware that the key characteristics of the
success of PPP in India include:

 Both the center and the states have stronger regulatory and regulatory frameworks.
 It is necessary to develop adequate market tools and capacities to obtain long-term
capital and debt.
 A package of bankable purchasing power parity projects.
 The capacity to manage public-private partnership projects is being strengthened.10
9
The Government of India, Ministry of Finance, Department of Expenditure vide OM No.24(24)/PF-II/2009
dated 21st July 2009 have laid down a clear set of Guidelines for establishment of Joint Venture Companies in
infrastructure sector. Under these guidelines, issues of conflict of interest, accountability of public sector entity,
extent of government shareholding, selection of JV partner, chairmanship of JV, evaluation of assets, appraisal
and approval process, exit and termination of the JV have been covered. These guidelines have been reproduced
at Annexure V of this volume.
10
Mr.P.Chidambaram, Former Finance Minister at the International Conference on PPP in India, 2007, Ministry
of Finance.

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Obviously, before initiating any PPP plan, public institutions are expected to carry out
comprehensive grassroots work, including clearly defining deliverables, comparison costs, a
reasonable understanding of the legal framework, factors affecting selection of the business
model, the initial requirements, the cost and the income. forecasts, the extent of force majeure
and other game-changing situations. In this case, the role of independent consultants in the
direction and control of public institutions that try to participate in the PPP becomes crucial.
Large-scale PPPs can trap multiple stakeholders in a complex web of interdependent JVs. It
can include the main sponsor PPP, which is usually made up of groups that form a group of
legal persons or a special vehicle for unincorporated groups (SPV), because each of these
groups can play its own advantages, for example, finance, knowledge technical or project
management skills, one of which may be the lead partner. In addition to government / public
institutions, there are other stakeholders such as financiers, investment bankers, salespeople,
transaction consultants, insurance companies, legal experts, and public interest groups.

Objectives and role of PPP’s:

To conduct audits in an objective and impartial manner, public auditors must have a
thorough knowledge and understanding of the basic objectives of public-private joint
ventures. In the words of the "Australian PPP Policy Framework" (December 2008), the PPP
policy provides a framework for the public and private sectors to jointly improve public
service delivery through the provision of public infrastructure and related services by from
the private sector.

According to the previous framework, the objectives of PPPs are:

1. Encourage the participation of the private sector in public infrastructure and the like.
It can clearly reflect the government's value-for-money services manifestation.
2. Foster the provision of innovative infrastructure and related services delivery.
3. Encourage strict management of project selection and competition award the contract.
4. Clearly express responsibility for the results.

In short, PPP projects aim to provide "enhanced" public services by sharing risks in a
balanced way. These also aim to bring greater "profitability" to relevant public institutions
through cost-effective design and technology and better project management. These goals can
be achieved by following fair and transparent selection procedures, fair and reasonable
incentives for all stakeholders, ensuring profitability, and achieving these goals through long-
term contracts. Innovation is the key to the success of PPP projects.

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 “The role of private sector partners in PPP projects is mandated and requires careful
evaluation. It must be accepted that private entrepreneurs are primarily motivated by profit
and enter the PPP deal to pursue their own business prospects, which only prompts them to
take on the risks associated with PPPs. However, these agreements involve a significant
public interest, and both parties to the agreement must uphold this interest, and public sector
partners will retain responsibility to ensure this. This does not mean that they compete with
each other, but rather work together as partners and colleagues in the development of the
country. When reviewing PPP projects, public auditors should appreciate the respective roles
of each partner and focus on the realization of final results and compliance with established
rules and procedures at all stages of the project.”11

Not only must private sector partners bring the necessary funding and the right
technology to the project, but they must also innovate in methods. There should be no
tendency to "over-design" projects and pay full capital expenditures. They must also have
excellent project management and O&M capabilities, and you must be able to demonstrate
your commitment to the association. Not only should they expect to make a profit at all costs,
they should also be committed to providing customers with high-quality and sustainable
services. The APP agreement must be essentially provide VFM to relevant government or
public sector partners. The public auditor is always expected to pay attention to the fact that
private sector partners should also benefit from it, because it brings improvements and
innovations.

Ideally, the objectives of the public and private participants in a public-private

partnership agreement are somewhat contradictory. They must be resolved within the
framework of a public-private partnership based on common risks and returns. Therefore,
disputes affecting public services should not arise at any time. During the execution of the
contract. This objective can best be achieved by establishing clear and transparent
specifications and establishing clear and specific contractual relationships before establishing
a PPP.

PPP models in development of road and rail infrastructure:

Road:

“IT IS NOT WEALTH THAT BUILT THE ROADS

11
CAG report, Government of India

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 BUT, ROADS THAT BUILT OUR WEALTH”-J.F. Kennedy

As the country progresses, the highway is an important asset of the country. In India, roads
account for about 65% of freight traffic and 85% of passenger traffic. Road traffic is
estimated to grow at a rate of 7-10% each year. Among roads, highways are considered more
important because they connect different areas of the country and other border countries. The
national highway (NH) may represent only 2% of the total road network, but it can cover
almost 40% of road traffic. Highway development is considered to be one of the major
breakthroughs leading to the economic structure and prosperity of a country. In addition,
roads provide mobility for people and roads provide much-needed infrastructure for the
transport of goods and services, so that the supply of roads can meet demand points.12

Therefore, road development should play an important development role in the following
areas:

 Provide important support for the movement of people from one place to another.
 Provide vital support for the transport of goods from one place to another.
 Provide contacts with the main regions of the country, thus promoting the enthusiasm
of the people to support domestic (international) trade and foreign (international)
trade

In fact, some countries are said to be struggling on the world market due to poor road
networks and conditions. Poor road connectivity makes it very costly (due to the long time,
high risk, and a lot of labor time spent on transportation), and sometimes even producers
cannot ship their goods to the international market. Similarly, poor road quality can also
obstruct the flow of goods and services across the country. Countries in Africa and Latin
America are good examples of how poor road networks (connectivity and conditions) have
made them successful. Almost impossible or very expensive, unable to penetrate the global
market.13

India's road network (including highways) is one of the most extensive, with a total
length of approximately 3.34 million kilometers, including national highways (65, 569
kilometers), national highways (130,000 kilometers) and other roads (main roads, rural roads

12
Ministry of Roads and Surface Transport, Govt of India (webpage)
13
It is estimated in a Study by the World Bank way back in 1992 that the cost of poor roads ridden with
potholes in Zambia cost more than $ 14,999 per truck per year in spare parts alone without accounting for the
losses due to extra fuel consumption, accidents, downtime for repair and damage to freight inside the vehicle.

14 | P a g e
and highways and urban roads) Roads (3.14 million) Governments at all levels complete most
of the road development work:

 Central government (through the Ministry of Land Transport and Roads)

 State government (through the department of public works / transportation)
 Special vehicles (highway development company)
 Local government (town hall and municipality)

Institutional Frame Work:

After the 1990s, through the establishment of an independent agency -NHAI- to

implement the NHDP, road development in India has been a high priority. The approach to
the highway development program through NHDP has paid dividends in accelerating
highway development. But with him, the involvement of other big players is just as
important.

Development Institutions:

 NAHI (National Highways Authority of India)

 MoSRTH (Ministry of Surface Road Transportation & Highways,
Government of India)
 State Highways & Transportation Departments
 Special Agencies- Road development corporations
 Private developers and contractors
 Material and equipment suppliers

Financial Institutions:

 Central Road Fund

 Central and State Governments through budgets
 Banks and financial institutions
 Specialised institutions- IDFC, IIFCL, LIC
 General Public/ investors
 Private debt financiers
 Infrastructure Debt Fund

Private Sector Participation in Road Development:

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 For decades, government departments and agencies (central and state) have fully used
government funds (central and state) to build roads. The results of this arrangement are
limited and fraught with operational and budgetary problems. With the establishment of
NHAI, the opening of private roads began with the development of highways. Although the
first and second phases of the NHDP are publicly funded through fuel taxes and federal
grants and using the traditional contract model, NHDP Phases III to VII are carried out in
PPP mode. The grant funding model was replaced by a fee-based income model to raise
funds for the project. The Indian government offers good incentives to private developers to
make road development an attractive option for them.14

A number of measures have been taken to engage the private sector and make it
attractive to private sector participants, such as the following (also explained below):

 Viability Gap Funding for Highway development projects

 Models of concession agreements for small and large road projects.
 Project development fund, used to pay DPR preparation costs
 PPP Advisory Committee for the Review and Settlement of Projects
 Special Project grants

Public Private Partnership Models in Road Development:

Following incentives to attract the private sector to the road sector, various models
have been adopted to promote public-private partnerships (PPPs), which provide a means to
accelerate development. Purchasing power parity has become an important means of
investment entry and project execution in various sectors. The Indian government formulated
a national purchasing power parity policy in 2001 to further emphasize its role. The technical
definition of PPP as follows:

“Public Private Partnership (PPP) is an arrangement through a legally binding

contract or some other mechanism to implement, operate and maintain infrastructure
services/assets with the involvement of private sector in the provision of services/functions,
which were hitherto provided by a public agency”

PPPs have become a tool to take advantage of the private and public sectors, so the speed of
infrastructure development can be much faster than traditional tender-based procurement

14
National Highway Authority, Government of India

16 | P a g e
methods. From regular contracts to concessions, there can be multiple agreements between
the two partners. Several APP models have emerged and differ in the following aspects:

 Ownership of capital assets

 Investment liability
 Take risks and
 The duration of the contract.

“The PPP model has been widely used in a wide range of infrastructure projects in many
countries / regions, and their experience is also very different. The experience or success of a
PPP project depends on many factors related to the host country's government (political /
governance system), economic conditions, legal and financial frameworks, and the
occurrence of natural disasters. Furthermore, the response / response of the private sector to
the project is also important.”15

Role:

Although the PPP framework was formulated as early as 1997, it was only adopted after
2001. The advantages inherent in the contract structure of the franchise model in APP allow
the government will adopt a highway / highway development policy in the third phase of
NHDP on the basis of BOT only. Under the BOT model, there have been many cases of
private sector involvement in road development in India, including

Engineering, Procurement and Construction (EPC) model

 BOT toll model

 BOT-Annuity Model
 BOT-Hybrid fee / annuity model

By adopting the PPP model in the early stages of road development, India has made
considerable progress in road development in terms of the laid network. It clearly shows that
the length of India's road / highway network has increased significantly after policy changes
(made in 1997) to invite the private sector to establish partnerships and adopt the PPP
framework. The impact of PPPs is particularly obvious in development stage III-VII, when
most projects adopted the PPP route. This can be seen in the following achievements. The
Government of India (2009) evaluated each of the above-mentioned PPP models.
15
Nallathiga, R. (2007), Improving the State of Mumbai’s Roads: Reform Agenda and Strategic Framework,
NICMAR Journal of Construction Management and Research XXII(III): 24-34

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 “In the BOT Projects segment, 32 projects of Rs 4,692 cores has been undertaken
under BoT (toll based) projects, Of them 22 have been completed and 10 under progress.
In the Annuity Projects segment, 8 projects valued at Rs 2,354 crores has been awarded on
annuity bases and in progress. Special Purpose Vehicles (SPV) route has been taken and
SPVs were established in some cases. About 12 projects of Rs 2,266 crores were identified
under SPV, of which 5 were completed and 7 under progress.”16

Since several new projects are planned in the 11th plan, such as roads, ring roads, ring
roads, RoB and other central infrastructure, private investment in the road sector may
increase. In addition, the Government of India has also formulated other supporting
provisions such as streamlining the project approval process through the APP Evaluation
Committee and forming a APP unit to support the adoption of the APP model. All these
measures and the preferential treatment granted by the government should promote the
adoption of PPP projects. The road development PPP craze began in the 1990s. Armed with a
deeper understanding of concepts such as value for money and risk-sharing frameworks,
Indian and state governments are challenging themselves. themselves testing new APP
models. In several states, the PPP model has been used to develop highways. For example,
the National Highway Authority of India (NHAI) has granted partial operation, maintenance
and transfer rights. Madhya Pradesh has awarded developers a PPP project combining the
revenue streams of BOT (tolls) and BOT (annuities), while states like Karnataka are trying to
use co-financing to convert viability gap funds (VGF) The hybrid model combined with
annuities the payment comes from the World Bank and the Asian Development Bank.

The Ministry of Roads has also tested a similar model

Transport and Road (MoRTH). Some states, including Andhra Pradesh and Karnataka, have
experimented with performance-based extended maintenance contracts. Several projects have
been started, some of which are being considered under the PPP model. As of March 2014,
India has completed 100 PPP projects and 165 are ongoing. Common types of APP models
used on highway projects are Build Operate Transfer (BOT) fees and BOT annuities. As of
March 2015, the project value is Rs. A grant of Rs 1.97045 million was obtained through the
PPP model. In the next five years, NH's investment through APP is expected to reach
approximately US $ 31 billion. (International Project Financing, 2016)

Railways

16
Ministry of Roadways, government of India

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The state-owned Indian Railways Corporation of the Ministry of Railways has been the
backbone of India's mass public transport network for decades. India's railway network is one
of the largest in the world and with the continued development of urbanization and
nationalization; the government has an urgent need to modernize the railway sector. This
opens up more investment areas for public and private sector companies, banks and financial
institutions.

“The Finance Minister, Smt. Nirmala Sitharaman, in her maiden budget speech in
2019, announced that the public-private partnership model (PPP) will be used to bring
about faster development of the railways including rolling stock manufacturing and the
delivery of freight.”

“In 2014, the government proposed the largest rail spending plan in history, totaling 654
billion rupees ($ 9.1 billion). He also proposed the introduction of bullet trains on the
Mumbai-Ahmedabad network. The government has increased spending to Rs 1.2 trillion in
the ongoing budget and introduced ultra-fast trains with on-board services. The government
also established the India Railway Station Development Corporation (IRSDC), a node agency
whose responsibility is to rebuild stations in India. According to the Adarsh Station Plan
(ASS), Indian Railways has identified 1,253 stations, of which 1,103 have been rebuilt. In the
2019 budget, the government allocated more than Rs 30 billion for rail passenger transport
facilities. In order to improve the quality of travel and provide world-class services, the
government has decided to build modern trains, such as train 18 or Vande Bharat train, and
plans to put 109 trains of this type into use in the near future for replace the train. Shatabdi
and Rajdhani express trains.”17

The Asian Development Bank has signed an agreement to provide US $ 750 million
for the electrification of Indian railways. In addition, it has also decided to grant a loan of US
$ 926 million for the Mumbai metro project (657 kilometers of metro network have been put
into operation nationwide). However, most of the funds provided to the Indian Railways are
borne by the Indian Railways Finance Corporation (IRFC), which was established in 1986.
The IRFC has been registered with the Reserve Bank of the United States. India as a
systemically important non-bank financial institution. business. India. IRFC funds exceeded
Rs 1.8 trillion in 2017. IRFC has provided loans to various entities in the railway sector, such

17
https://www.mondaq.com/india/government-contracts-procurement-ppp/898934/ppp-model-for-railways-
the-viable-future-option

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as Rail Vikas Nigam Limited, Railtel, Konkan Railway Corporation Limited, Pipavav
Railway Corporation Limited, etc.

Public Private Partnership in Railways:

In recent years, as the economy has grown at a rapid pace, the current level of poor
infrastructure has come under tremendous pressure. The Prime Minister's Infrastructure
Committee has been specially formulated to greatly promote the development of
infrastructure such as roads, railways, ports, air, electricity and irrigation. Railways need a
large investment to keep up with the growth rate of 8% economic growth rate. The rail
industry recognizes the need for a great deal of financial capital and technical expertise in
building infrastructure and freeing up its valuable resources. For this reason, the railway
sector has begun to seek and encourage the private sector to become more involved in this
large-scale activity. In addition, competition with roads and aviation has also promoted
railway to improve its infrastructure.

“The Indian Railways Act stipulates that no private sector participation can be
invited in the operations of the trains. Hence the same is not open to the private sector.”18

Government Policy on PPP in Railways:

Comparing the scale of the projects that are implemented through PPP and IR, it is
concluded that PPP will not even form a decline in the ocean in which it operates. From an
optimistic point of view, it also shows that the scope of the PPP is infrared is very great. In
the "Eleventh Five Year Plan" (2007-2012), India needs to invest USD 456 billion in
infrastructure at current prices (approximately USD 80 billion) to keep up with its economic
growth. It should be noted that although investor relations are in urgent need of financing and
the nature of their surplus is limited, investor relations continue to take an overly cautious
approach to inviting the private sector to participate in Indian railways. The reasons for the
same have been identified as follows:

1. There exists no clear roadmap for implementation of PPP in railways:

When interacting with senior rail officials, it is easy to conclude that RI is
forced to seek financial and technical management skills. What we have is a
list of projects that have been selected urgently, but there is no description or a
clear official plan.

18
The railway act, 1989

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 2. Political Climate:
Obviously, in our country, politics dominates decision-making related to
economic policy. In the words of the senior rail official in charge of the PPP:
“We live in a political economy. Therefore, the political sensitivity of the time
will affect the economic policy at that time. We do not want to encounter
major obstacles in the future. Not only must we be transparent, but Y must be
transparent. There will be no blind privatization, so the private sector should
only be invited to participate in areas that require immediate attention and only
where it has the ability to reduce costs and improve service quality.
3. Enforceability of the contract:
PPPs can only be successful if the government can ensure that some private
companies comply with disciplines to enforce contracts and achieve expected
goals. A senior rail official revealed the real reason: “We lack experience in
handling such complex situations, so progress is slow because we don't want
anything. It will go wrong. "Obviously, IR does not have the necessary
management skills that today's complex business environment requires.
4. Threat of Private monopolies:
“Another reason for the slow approach is the fear of emergence of private
monopolies (in the place of state monopoly) in case right policies are not
adopted. In the words of a senior railway official “The characteristics of the
railways are such that private monopolies will mushroom in place of state
monopoly in case the right policy is not adopted.”19

Challenges:

1. According to the feasibility of the specific situation, most of the PPP projects have
been approved / approved. This leaves too much subjectivity / determinism for the
railroad and gives developers a sense of injustice.
2. The regional and sub-regional management departments have shown a hasty attitude
towards these projects and the problems of the developers. Different departments
often work in their own way, making it difficult for the same department to function
properly.

19
National Public Procurement Policy Unit, National Public Procurement Policy Framework, Ministry of Finance
(Government of India) (2005).

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 3. The model concession contract on all aspects of asset construction was recently
drawn up. Before, there was no such documentation, so developers often felt
inadequate and bureaucrats became overly cautious.
4. The regulatory agency lacks discretionary decisions to make, such as solutions to
problems. Price, the revenue share between different stakeholders, Abnormal events
such as poor and excessive traffic Furthermore, the absence of dispute resolution
bodies also hampers their development.

Conclusion:

There is no doubt that PPPs are becoming increasingly important in India, but there
are other aspects that illustrate the challenges they face. Before approving a PPP project,
various economic, social, political, legal and administrative aspects must be carefully
evaluated. One of the best examples of PPP failure was Reliance's withdrawal from the
Airport Express, after which DMRC assumed full responsibility. The country has now
entered a turning point in PPPs, from asset creation to project operation. This change has led
to the lack of institutional mechanisms like other countries to address the issue of
renegotiation. Suddenly, there were a series of PPP projects that needed to be renegotiated.
GMR and GVK have already pulled out of the big highway projects they have recently won.
There was an accident on the Gurgaon highway and the Delhi airport had been asking for the
plane to be restarted.

In the process of establishing a PPP model to develop railways, Indian Railways also
plans to select private operators to operate trains on select routes such as Lucknow and New
Delhi. Given that the current government is making strenuous efforts, it is foreseeable that the
Indian Railway Corporation is moving in the direction of privatizing the railway
infrastructure. To achieve this goal, large infrastructure companies can propose plans to reach
PPPs with financial institutions and banks, and take this opportunity to develop Indian
railways through profitable and safe projects.

Surprisingly, private banks and financial institutions are not interested in directly financing
the country's rail infrastructure. Banks and financial institutions can make loans to private
participants who can reach agreements with the government through the PPP model to
develop the railway infrastructure.

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When the government plans to introduce the PPP model in the rail sector, it is interesting to
see which model the government will adopt, be it a joint venture model, a build, operate and
transfer model, a customer model or an annuity model.

Bibliography:

1. Comptroller and auditor general (CAG) report, Government of India

2. Lakshmanan, L. (2008). Public-Private Partnership in Indian Infrastructure
Development: Issues and Options . Reserve Bank of India Occasional Papers , 29.
3. World Bank Group. (2015, July 5). Public Private Partnership in Infrastructure
Resource Center (PPPIRC). Retrieved 2016, from Public Private Partnership in
Infrastructure Resource Center (PPPIRC): http://ppp.worldbank.org/public-
privatepartnership/sector/transportation/airports
4. World Bank Group. (2015, July 5). Public Private Partnership in Infrastructure Resource
Center (PPPIRC). Retrieved 2016, from Public Private Partnership in Infrastructure Resource
Center (PPPIRC): http://ppp.worldbank.org/public-
privatepartnership/sector/transportation/airports
5. Ministry of Finance (Government of India), Observation Note: Approach Paper on
Defining Public Private Partnership, (2010)

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