Current Public Administration Magazine (May - 2014) - "Polity, Constitution and Governance"

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Polity, Constitution and Governance

Public Private Partnership

There is no single definition of Public-Private Partnership (Pmeets clearly defined public needs through appropriate allocation of:

Resources
Risks
Rewards
Responsibilities

The allocations of these elements and other aspects of PPP projects such as, details of implementation, termination, obligations, dispute resolution and payment arrangements are negotiated between the parties involved and are documented in written contract agreement(s) signed by them.

As per the Scheme for Financial Support to Public Private Partnerships in Infrastructure, of the Government of India,

“The Public-Private Partnership (PPP) Project means a project based on contract or concession agreement between a Government or statutory entity on the one side and a private sector company on the other side, for delivering an infrastructure service on payment of user charges.”

FAQ

Q1. What does PPP in infrastructure means?

Public Private Partnership (PPP) Project means a project based on a contract or concession agreement, between a Government or a statutory entity on the one side and a Private Sector Company on the other-side, for investing in construction and maintenance of infrastructure asset and / or delivering an infrastructure service.

Q2. What is Public-Private- Partnership Database?

The PPP database is collection of project information on PPP projects under taken in India. The database maintains, on regular basis, data initially on the following sectors:

• Airports
• Education
• Health Care
• Ports
• Power
• Railways
• Road
• Tourism
• Urban Development

The data for the same is collected and collated from various PPP nodal agencies of the government and from project owners or investors.

Q3. What does the database contain?

The database contains general information about the project like, location, sector, type of PPP project, status, , bidding information (such as contract award method, contract signing date, financial closure etc.), project benefits and costs, legal instruments and financial information about investor holdings and, total debt and equity etc The database captures all the PPP projects on the sectors below from 1996 in India and is updated regularly with any new development in the existing and under-construction projects. The new projects are updated as and when they are in the public domain. The database covers only those projects that are approved by the Government of India, State governments or local bodies.

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Q4. Has the government formed any approval committee for PPP projects?

The Cabinet Committee on Economic Affairs (CCEA) in its meeting of 27th October, 2005 approved the procedure for approval of public private partnership (PPP) projects. Pursuant to this decision, a Public Private Partnership Approval Committee (PPPAC) was set up comprising of the following:

• Secretary, Department of Economic Affairs (in the Chair)
• Secretary, Planning Commission
• Secretary, Department of Expenditure;
• Secretary, Department of Legal Affairs ; and
• Secretary of the Department sponsoring a project.

The Committee would be serviced by the Department of Economic Affairs, who has set-up a special cell for servicing such proposals. The Committee may co-opt experts as necessary.

Q5. Has government provided any guidelines for appraisal/ approval of PPP projects?

Different guidelines for different categories of central sector PPP projects have been issued by the government from time to time.

These are:

a. Guidelines for formulation, appraisal and approval of Public Private Partnership (PPP) Projects costing less than Rs.100 Crore
b. Guidelines for formulation, appraisal and approval of Public Private Partnership (PPP) Projects

(i) Of all sectors costing more than Rs.100 crore and less than Rs.250 crore
(ii) Under NHDP costing Rs.250 crore or more and less than Rs.500 crore

c. Procedure for approval of PPP Projects and Guideline for formulation, appraisal and approval of Public Private Partnership (PPP) Projects in Central Sector

Q6. How is the project identified for appraisal/ approval?

The sponsoring Ministry will identify the projects to be taken up through PPPs and undertake preparation of feasibility studies, project agreements etc. with the assistance of legal, financial and technical experts as necessary.

Q7. Does the government extend financial support for PPP projects?

The Scheme for Financial Support to Public Private Partnerships (PPPs) in Infrastructure. (Viability Gap Funding Scheme) of the Government of India provides financial support in the form of grants, one time or deferred, to infrastructure projects undertaken through public private partnerships with a view to make them commercially viable. It is a Plan Scheme administered by the Ministry of Finance. Suitable budgetary provisions are made in the Annual Plans on a year-to- year basis for the scheme.

Q8. Has the government provided any funds for the scheme?

To address the financing needs of these projects, various steps have been taken like setting up of India Infrastructure Finance Company and launching of a Scheme to meet Viability Gap Funding (VGF) of PPP projects. Setting up of infrastructure funds are also being encouraged and multilateral agencies such as Asian Development Bank have been permitted to raise Rupee bonds and carry out currency swaps to provide long term debt to PPP projects.

Q9. What is India Infrastructure Project Development Fund?

For providing financial support for quality project development activities for PPP projects to the the Central and the State Governments and local bodies, Scheme and Guidelines of of ‘India Infrastructure Project Development Fund’ (IIPDF), have been notified The IIPDF would assist ordinarily up to 75% of the project development expenses. On successful completion of the bidding process, the project development expenditure would be recovered from the successful bidder.

Q10. What is the purpose of the IIPDF fund?

The procurement costs of PPPs, and particularly the costs of transaction advisors, are significant and often pose a burden on the budget of the Sponsoring Authority. Department of Economic Affairs (DEA) has identified the IIPDF as a mechanism through which Sponsoring Authority will be able to source funding to cover a portion of the PPP transaction costs, thereby reducing the impact of costs related to procurement on their budgets. From the Government of India’s perspective, the IIPDF must increase the quality and quantity of ‘bankable projects’ that are processed through the Central or States’ project pipeline.

Q11. What is Viability Gap Funding scheme?

The scheme aims at supporting infrastructure projects that are economically justified but fall short of financial viability. Support under this scheme would be available only for infrastructure projects where private sector sponsors are selected through a process of competitive bidding. The total Viability Gap Funding under this scheme will not exceed twenty percent of the Total Project Cost; provided that the Government or statutory entity that owns the project may, if it so decides, provide additional grants out of its budget, but not exceeding a further twenty percent of the Total Project Cost.

Q12. How is the government funding done under Viability Gap Funding (VGF)?

The government will provide a Viability Gap Funding (VGF) which shall not exceed 20 per cent of the Total Project Cost; provided that the Government or statutory entity that owns the project may, if it so decides it will provide additional grants out of its budget, but not exceeding a further 20 per cent of the Total Project Cost.

VGF under this scheme will normally be in the form of a capital grant at the stage of project construction. Proposals for any other form of assistance may be considered by the Empowered Committee and sanctioned with the approval of Finance Minister on a case-to-case basis.

VGF up to Rs. 100 crore for each project may be sanctioned by the Empowered Institution subject to the budgetary ceilings indicated by the Finance Ministry.

Q13. What are the eligibility criteria for getting support under the VGF scheme?

In order to be eligible for funding under VGF Scheme, a PPP project should meet the following criteria:

(a) The project should be implemented i.e. developed, financed, constructed, maintained and operated for the Project Term by a Private Sector Company to be selected by the Government or a statutory entity through a process of open competitive bidding; provided that in case of railway projects that are not amenable to operation by a Private Sector Company, the Empowered Committee may relax this eligibility criterion.
(b) The PPP Project should be from one of the sectors mentioned above (See question 4)
(c) The project should provide a service against payment of a pre-determined tariff or user charge.
(d) The concerned Government/statutory entity should certify, with reasons:

• That the tariff/user charge cannot be increased to eliminate or reduce the viability gap of the PPP;
• That the Project Term cannot be increased for reducing the viability gap; and
• That the capital costs are reasonable and based on the standards and specifications normally applicable to such projects and that the capital costs cannot be further restricted for reducing the viability gap.

Provided that the Empowered Committee may, with approval of the Finance Minister, add or delete sectors/sub-sectors from the aforesaid list.

Q14. What is the procedure for getting Viability Gap funding?

Project proposals may be posed by a Government or statutory entity which owns the underlying assets. The proposals shall include the requisite information necessary for satisfying the eligibility criteria specified above.
Projects based on standardized/model documents duly approved by the respective Government would be preferred. Stand-alone documents may be subjected to detailed scrutiny by the Empowered Institution.
The Empowered Institution will consider the project proposals for Viability Gap Funding and may seek the required details for satisfying the eligibility criteria.

Within 30 days of receipt of a project proposal, duly completed as aforesaid, the Empowered Institution will inform the sponsoring Government/statutory entity whether the project is eligible for financial assistance under this Scheme. In case the project is based on standalone documents (not being duly approved model/standard documents), the approval process may require an additional 60 (sixty) days.

In the event that the Empowered Institution needs any clarifications or instructions relating to the eligibility of a project, it may refer the case to the Empowered Committee for appropriate directions.

Notwithstanding the approvals granted under this scheme, projects promoted by the Central Government or its statutory entities are approved and implemented in accordance with the procedures specified from time to time.

In cases where viability gap funding is budgeted under any on-going Plan scheme of the Central Government, the inter-se allocation between such on-going scheme and this scheme is determined by the Empowered Committee.

Q15. When is VGF disbursed?

The VGF is disbursed only after the private sector company has subscribed and expended the equity contribution required for the project and is released in proportion to debt disbursements remaining to be disbursed thereafter.

Q16. How is the grant/subsidy disbursed for the approved projects?

(1) A Grant under the VGF scheme is disbursed only after the Private Sector Company has subscribed and expended the equity contribution required for the project and is released in proportion to debt disbursements remaining to be disbursed thereafter.
(2) The Empowered Institution releases the Grant to the Lead Financial Institution as and when due, and obtain reimbursement thereof from the Finance Ministry.
(3) The Empowered Institution, the Lead Financial Institution and the Private Sector Company enter into a Tripartite Agreement for the purposes of this scheme. The format of such Tripartite Agreement is prescribed by the Empowered Committee from time to time.

Q17. What is the aim of establishing India Infrastructure Finance Company (IIFC)?

The need for providing long-term debt for financing infrastructure projects that typically involve long gestation periods is imminent since debt finance for such projects should be of a sufficient tenure that enables cost recovery across the project life. Indian capital markets, however, are deficient in long-term debt instruments. Therefore IIFC is set-up to bridge this gap.

Q18. Has the government given any guidelines for approval/ appraisal of PPP projects?

Different guidelines for PPP projects below Rs. 100 crore, above Rs 100 crore but below Rs. 250 crores and NHDP projects above Rs. Rs. 250 crores but below Rs. 500 crores have been notified by the government time to time.

Q19. What is the applicability of the guidelines issued by Finance Ministry?

These guidelines apply to all PPP projects sponsored by Central Government Ministries or Central Public Sector Undertakings (CPSUs), statutory authorities or other entities under their administrative control. The procedure specified herein will apply to all PPP projects with capital costs exceeding Rs.100 crore or where the underlying assets are valued at a sum greater than Rs.100 crore. For appraisal/ approval of PPP projects involving a lower capital cost/ value, detailed instructions are issued by the Department of Expenditure.

Q20. Who are not covered under these guidelines?

Ministry of Defense, Department of Atomic Energy and Department of Space are not covered under the purview of these guidelines.

Q21. What is the procedure for approval of Central sector PPP projects below Rs. 100 crore?

The sponsoring Ministry identifies the projects to be taken up through PPPs and undertake preparation of feasibility studies, project agreements etc, with the assistance of legal, financial and technical experts as necessary.
A Request for proposals (RFP) along with copy of all the agreements that are proposed to be entered with the successful bidder is sent by the Administrative Ministry to SFC/EFC for seeking approval before financial bids are invited.

The proposal seeking clearance of SFC/EFC is circulated to all the members of SFC/EFC in the format specified along with copies of all draft project agreement and project report.

Planning Commission appraises the project proposal and forward its appraisal Note to the Administrative Ministry. Ministry of Law and any other Ministry/ Department involved will also forward written comments to the Administrative Ministry within the stipulated time period. The SFC/EFC takes a view on the Appraisal Note and on the comments of different ministry and the Administrative ministry.

SFC/EFC either recommends the proposal for approval of the competent authority (with or without modifications or requests the Administrative Ministry to make necessary changed for further considerations of SFC/EFC.
Once cleared by the SFC/EFC, the project is put to the competent authority for approval.

Q22. What is the procedure for approval of PPP projects above Rs. 100 crore but less than Rs. 250 crore and project under NHDP costing Rs. 250 crore but less than Rs. 500 crore?

The Government vide notification No. 10/32/2006-inf dated April 2, 2007 modified the guidelines for approval as given under the notification vide No.2/10/2004-Inf dated November 29, 2005.
Accordingly, RFP (Request for Proposals), i.e. invitation to submit financial bids must include a copy of all the agreements that are proposed to be entered into with the successful bidder. After formulating the draft RFP, the Administrative Ministry would seek clearance of the SFC.

The proposal for seeking clearance of SFC is circulated to all members of SFC in the format specified along with copies of all draft project agreements and the Project Report within one week of receipt.

Planning Commission appraises the project proposal and forwards it’s Appraisal Note to the Administrative Ministry. Ministry of Law and any other Ministry/Department involved also forward written comments to the Administrative Ministry. The SFC takes a view on the Appraisal Note and on the comments of different Ministries, along with the response from the Administrative Ministry.

SFC either recommends the proposal for approval of the Committee or requests the Administrative Ministry to make necessary changes for further consideration of SFC.

Once cleared by the SFC, the project is put up for approval of the Committee mentioned below. The Committee either recommends the proposal for approval of the competent authority or requests the Administrative Ministry to make necessary changes for further consideration of the Committee. Once cleared by the Committee, the project is put up to the competent authority for approval.

Financial bids are invited after approval of the competent Authority has been obtained. The competent authority for each Project will be the same as applicable for normal investment proposals costing more than Rs.100 crore. However, pending approval of the Competent Authority, financial bids can be invited after the approval/clearance by the Committee.

Q23. For projects above Rs. 100 crore but less than Rs. 250 crore who will approve/appraise the projects?

For appraisal of PPP projects of all sectors of cost greater than Rs.100 crore but less than Rs.250 crore, a Committee has been set up comprising of the following:

(a) Secretary, Department of Economic Affairs
(b) Secretary of the Ministry /Department sponsoring the project

Q24. For projects above Rs. 250 crore but less than Rs. 500 crore who will approve/appraise the projects?

For appraisal of projects under NHDP of cost Rs.250 crore or more but less than Rs.500 crore the Committee is as follows:

(a) Secretary, Department of Economic Affairs
(b) Secretary, DORTH

Initially the projects will be appraised by the Standing Finance Committee (SFC). The composition of SFC is as follows:

Secretary of the Administrative Ministry Chairman
Financial Adviser Member
Joint Secretary of the concerned Division Member
Representative of the Department of Legal Affairs Member

Representative of Planning Commission and any other Ministry/Department are also invited, if required. SFC either recommends the proposal for approval to the Committee as given above or requests the Administrative Ministry to make necessary changes for further consideration of SFC

Source- http://www.pppindiadatabase.com/frmFAQ.aspx#q1