Infrastructure Development Corporation (Karnataka) Limited
February 2009
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 Lack of adequate project development
 Projects not bankable
 Operator led projects, than Government led projects
 Procurement Issues – MoU vs Competitive bidding
 Lack of credible information
 Lack of political will
 Resistance to “Privatisation” –experience in most cities
 Who bears revenue risk? (“tariff setting”)
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 Infrastructure projects typically have a number associated issues which need to be resolved to ensure successful implementation and operationalisation
 Project viability
 Technical
 Financial
 Legal issues (eg. Statutory guidelines)
 Environmental and Social implications (eg. clearance from the MoEF, estimation of land acqusition required)
 Government interface (eg. whether the project has been approved by the government taking into account the above issues)
… Need for proper project definition to resolve all issues pertaining to the project
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 Historical practice of selection of developer through MoU route is no longer the preferred alternative
 Selected developer funds requisite studies which would form the basis for future negotiations and signing of agreement
 Also the bone of contention leading to failure in taking off of projects
 Current practice of selection of developer through a transparent bidding process
 However, investment in project definition/resolution of all issues pertaining to the project by all interested bidders both infeasible and sub-optimal - leads to lack of participation
…
Need for Government to invest in requisite technical, market, financial viability studies to reduce project risks and attract bidders to the project
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 Finalise desirable technical configuration
 Identify and resolve Environment and Social issues
 Estimate inputs for project viability assessment
 Assess project viability and finalise project structure
 Compile data pre-requisites necessary for bidding
 Preparation of bidding documents
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A.
Project Conceptualisation
Project
Identification
Technical
Feasibility
Financial
Viability
Project
Structuring
Options
Resolution of
Implementation
Issues
B.
Bid Process Management
Contractual &
Bid documentation
Bid Process
Feedback &
Monitoring
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 To reduce “unknowns” and “assumptions”
 Identify and allocate risk, responsibility
 Create a complete documentation archive
 Set in place a set of contract documents
 Detail payments/ rewards/ penalties
 Project development does NOT mean creating a Feasibility Report and bidding for a developer
 Any issue that can derail a project should be addressed, including land,
R&R…
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 Step 1 - Sector Study
 Demand/Supply - Current & Projected - returns from the asset, maintenance
 Tariffs/ Pricing - Current and Projected
 Regulation - Entry criteria, Competition, Price/ Tariff Control
 Implementation Structure - Government, Private Sector, joint venture..
 Policy framework
 Enabling Legal and Contractual Framework
 Should result in a well-defined strategy
 Step 2 - Project Identification
 Better utilise Existing Assets or Create New Assets or a Combination
 Where to start - bulk or retail or both - the dilemma in water, sewage
 Technology: Broad Indication
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Client’s Explanation
Project Leader’s understanding
Designer’s
Program writer
Business Consultant’s
Plan
Project
Documentation
Specifications
Support
What Public wanted

 What is desirable technical configuration
 A good technical configuration, during the bidding phase, should provide sufficient room for innovativeness for bidders while sufficiently covering the essentials
 Water : Minimum investment amount, specific facilities, design and construction approval
  Applicable guidelines and major equipment specifications
 Output based Specifications are the key to PPP projects – Can the government become purchaser of services rather than service provider ?
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 Identify and resolve Environment and Social issues
 Extent of land acquisition and cost thereof
 Private land/government land
 Agricultural land/barren land
 Forest land
 Built-up structures
 Extent of utility relocation and cost thereof
 Environment Impact Assessment and Mitigation Measures
 Develop R&R plan
 However, at times private sector has been able to manage the issues more effectively with facilitator role played by the government
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 Estimation of inputs for project viability assessment
 Demand Estimation - volume, composition and growth
 Construction Cost and Project Cost
 Operations and maintenance cost
 Input into financial viability – impacts structuring decision
 Reflected in the Concession Agreement – impacts Termination Payments
 Often operations and maintenance costs are ignored, which in many projects of the government could be more than the capital investment
 Solid waste management
 Small airports
 Operations and maintenance costs are under-estimated by departments
 Roads
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 Assess project viability and finalise project structure
 Aim is to minimize Grant/Annuity Payments –variables being
 Concession Period
 Packaging of additional O&M stretch
 However, critical to get key input parameters right
 Compile data pre-requisites necessary for bidding
 Obviate need for multiple investigations by bidders
 Preparation of bidding documents
 Finalise pre-qualification criteria and hurdle numbers
 Incorporate project specific issues, if any. For example -
 Bypass road : banning entry into town
 Construction phasing
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 Huge upfront capital costs and low margins
 Returns typically back ended - long term in nature
 No tangible security
 No. of participants
 Long term finance
 Long gestation periods
 Non completion operations affect many
 Limited or no recourse
 Low Appetite for long term finances in domestic market
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 Construction/ Completion
 Operation Risk
 Environmental
 Regulatory
 Forex
 Interest
 Demand
 Credit
 Political/ Social
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 Allocate project-specific risks to parties best able to bear them
 Control performance risks through incentive contracts
 Use market-hedging instruments (derivatives) for covering market-wide risks (interest and exchange rate fluctuations)
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 What is the price level for making the project viable? Would the users be willing to pay this user charge?
 Are there any additional sources of income for the project? (e.g.. land development etc.)
 In case the project is not financially viable at an acceptable user charge, how much of government grant is required?
 Should the government grant be one-time or spread across years?
 What should be the time frame for which the project is handed over to the private developer?
 Typically, with pricing / cost comparatively quantifiable entities, often the softer issues get sidelined, in most PPP projects.
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 PRAYER !!!!
 Proper Allocation Of Risks
 Insurances
 Hedging/ Options/ Swaps
 Third Party Guarantees
 PRAYER !!!!
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 Supply
 Hydrology/ rainfall patterns/ quality/ water access contracts
 Distribution monopoly vs trucked; user fees; desire to avoid retail revenues
 Operating
 New technologies in wastewater/ energy/ metering
 Infrastructure
 Old/ theft (leakage)
 Environmental
 Benign
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 Political
 Privatization trends/ pricing controls/ rationing
 Force majuere
 Maintenance/ buffers
 Foreign Exchange
 Local currency revenues and costs
 Funding
 Long term
 Engineering
 Standard
 Completion
 Ongoing large capex throughout
 Legal
 Concession life/ defaults
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