City Development Plan for Bangalore
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Transcript City Development Plan for Bangalore
Water PPPs : Training & Workshop
Developing a PPP - Project Appraisal and
Feasibility Studies
Infrastructure Development Corporation (Karnataka) Limited
February 2009
1
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”)
2
Need for Project Development
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
pertaining3 to the project
Need for Project Development
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
4
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
5
Development Process
A.
Project Conceptualisation
Project
Identification
B.
Technical
Feasibility
Financial
Viability
Project
Structuring
Options
Bid Process Management
Contractual &
Bid
documentation
Bid Process
6
Feedback &
Monitoring
Resolution of
Implementation
Issues
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…
7
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
8
The Need Defined
Client’s Explanation
Project
Documentation
Project Leader’s
understanding
Specifications
Designer’s
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Contractor
Program writer
Support
Business Consultant’s
Plan
What Public wanted
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
12
The Need
Assess project viability and finalise project structure
Compile data pre-requisites necessary for bidding
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
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
13
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 term14finances in domestic market
Risky List!
Construction/ Completion
Operation Risk
Environmental
Regulatory
Forex
Interest
Demand
Credit
Political/ Social
15
Principles of Risk Allocation
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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17
Project Issues - Financial
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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Financial Accuracy
19
Risk Mitigation
PRAYER !!!!
Proper Allocation Of Risks
Insurances
Hedging/ Options/ Swaps
Third Party Guarantees
PRAYER !!!!
20
Risk Factors
Supply
Hydrology/ rainfall patterns/ quality/ water access contracts
Distribution monopoly vs trucked; user fees; desire to avoid
retail revenues
Operating
Infrastructure
New technologies in wastewater/ energy/ metering
Old/ theft (leakage)
Environmental
Benign
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Risk Factors
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
22
Thank You
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