1 Developing a PPP - Project Developing a PPP - Project Appraisal and Feasibility Studies Appraisal and Feasibility Studies Water PPPs : Training & Water PPPs : Training & Workshop Workshop Infrastructure Development Corporation (Karnataka) Infrastructure Development Corporation (Karnataka) Limited Limited February 2009 February 2009
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Infrastructure Development Corporation (Karnataka) Limited February 2009
Water PPPs : Training & Workshop. Infrastructure Development Corporation (Karnataka) Limited February 2009. Developing a PPP - Project Appraisal and Feasibility Studies. Reasons for Limited PPPs. Lack of adequate project development Projects not bankable - PowerPoint PPT Presentation
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Developing a PPP - Project Appraisal and Developing a PPP - Project Appraisal and Feasibility StudiesFeasibility Studies
Water PPPs : Training & Workshop Water PPPs : Training & Workshop
Infrastructure Development Corporation (Karnataka) LimitedInfrastructure Development Corporation (Karnataka) Limited
February 2009February 2009
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Reasons for Limited PPPs
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
Need for Project Development
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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
Need for Project Development
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The Need
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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Development ProcessDevelopment Process
Project Identification
Technical Feasibility
FinancialViability
ProjectStructuring
Options
Resolution ofImplementation
Issues
Contractual &Bid
documentationBid Process Feedback &
Monitoring
A. Project Conceptualisation
B. Bid Process Management
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The Objective of Project Development 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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Development Cycle 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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The Need Defined
Client’s ExplanationClient’s Explanation
SpecificationsSpecifications SupportSupport What Public wantedWhat Public wantedContractorContractorProject Project DocumentationDocumentation
Program writerProgram writerDesigner’s Designer’s Project Leader’s Project Leader’s understandingunderstanding
Business Consultant’s Business Consultant’s PlanPlan
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The Need 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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The Need
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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The Need 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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The Need
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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Why Risk Assessment?
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