Scribd
Upload
73 views

Water PPPS: Training & Workshop

The document discusses the need for proper project development for public-private partnership (PPP) projects in the water sector. It outlines three main needs: 1) defining the desirable technical configuration, resolving environmental and social issues, and estimating project costs; 2) assessing financial viability and structuring the project; and 3) compiling necessary data and preparing bidding documents to attract bidders. Effective project development is needed to reduce risks for private partners and ensure successful PPP projects.

Uploaded by

Shreya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
73 views

Water PPPS: Training & Workshop

The document discusses the need for proper project development for public-private partnership (PPP) projects in the water sector. It outlines three main needs: 1) defining the desirable technical configuration, resolving environmental and social issues, and estimating project costs; 2) assessing financial viability and structuring the project; and 3) compiling necessary data and preparing bidding documents to attract bidders. Effective project development is needed to reduce risks for private partners and ensure successful PPP projects.

Uploaded by

Shreya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 23

Water

Water PPPs
PPPs :: Training
Training &
& Workshop
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
4
project
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 Resolution of
Project Technical Financial
Structuring Implementation
Identification Feasibility Viability
Options Issues

B. Bid Process Management

Contractual &
Feedback &
Bid Bid Process
Monitoring
documentation

6
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 Leader’s Designer’s Program writer Business Consultant’s


understanding Plan

9 Support
Project Specifications Contractor What Public wanted
Documentation
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 ?

10
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

11
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


 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
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 term finances in domestic market

14
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)

16
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.

18
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
 New technologies in wastewater/ energy/ metering
 Infrastructure
 Old/ theft (leakage)
 Environmental
 Benign
21
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

23

You might also like