Chapters :

Industry & Infrastructure – 10

Strategic Disinvestment

The Department of Investment and Public Asset Management (DIPAM) which comes under the Finance Ministry defines Strategic disinvestment as follows: “Strategic disinvestment would imply the sale of a substantial portion of the Government shareholding of a central public sector enterprises (CPSE) of up to 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.” The Cabinet Committee on Economic Affairs has approved strategic disinvestment of various CPSEs. Some of the include; Bharat Petroleum Corporation Ltd. Air India and its five subsidiaries and one JV Shipping Corporation of India Ltd. Container Corporation of India Ltd. Hindustan Prefab Limited Pawan Hans Ltd. Scooters India Limited Bharat Pumps & Compressors Ltd Bharat Earth Movers Ltd Cement Corporation of India Ltd Alloy Steel Plant, Durgapur; Salem Steel Plant; Bhadrawati units of SAIL In .. NIF (National Investment Fund)

Government had constituted the National Investment Fund (NIF) in November, 2005 into which the proceeds from disinvestment of Central Public Sector Enterprises were to be channelized. The corpus of NIF was to be of a permanent nature and NIF was to be professionally managed to provide sustainable returns to the Government, without depleting the corpus.Selected Public Sector Mutual Funds, namely UTI Asset Management Company Ltd., SBI Funds Management Private Ltd. and LIC Mutual Fund Asset Management Company Ltd. were entrusted with the management of the NIF corpus. As per this Scheme, 75% of the annual income of the NIF was to be used for financing selected social sector schemes which promote education, health and employment. The residual 25% of the annual income of NIF was to be used to meet the capital investment requirements of profitable and revivable PSUs.

The Government further approved inclusion of the following purposes also, to be financed from the NIF (21st February, 2013).
  1. Investment by Government in RRBs/IIFCL/NABARD/Exim Bank.
  2. Equity infusion in various Metro projects.
  3. Investment in Bhartiya Nabhikiya Vidyut Nigam Limited and Uranium Corporation of India Ltd.
  4. Investment in Indian Railways towards capital expenditure.
Public Private Partnership (PPP)

Definition

PPP is a mode of providing public infrastructure and services by Government in partnership with private sector. It is a long term arrangement between Government and private sector entity for provision of public utilities and services.
  • Public Private Partnership is a long term contract between a Public Sector Organization and a Private Sector Company.
  • To build a Public infrastructure (Ports, highways etc.) or.
  • To Provide a Public utility Service (electricity, gas, water, transport, health, etc.)
  • In such Public Private Partnership Contract the ownership, risks and rewards are shared between them.
  • Public Private Partnership can be for a Green field project eg. building a new airport.
  • For a Brownfield project eg. Upgrading the existing airports.
  • Public Private Partnership can be done by
  • Forming a Joint Venture (50:50) or Special Purpose Vehicle (a separate legal entity that is formed for a well – defined, sole and narrow purpose).
  • Government granting lease/permit (a legal right) to Private Company to design, develop, finance the project.
PPP mechanism is a major element of India’s infrastructure creation efforts as there is huge level of investment requirement in the sector. The twelfth plan targets to spend $1000 bn to expand infrastructure. PPP requires private sector participation in public asset creation through money, technology and management. For this, several models inviting thier participation were launched for different projects. Some of the commonly adopted forms of PPPs include build-operate-transfer (BOT) and its variants, build-lease-transfer (BLT), design-build-operate-transfer (DBFOT), operate-maintain-transfer (OMT), etc. INFRASTRUCTURE INVESTMENT MODELS

Infrastructure Projects require large amount of investment and odours job for any country. As, it involves huge investments, long gestation periods, procedural delays and returns spread over a long period of time. Such projects also require the level of technical expertise, management skills and professionalism that may not available in bureaucratic apparatus. Therefore, infrastructure investment has done through.
  • Private Partnership (PPP) such as Built Operate and Transfer (BOT), Build Own Operate Transfer (BOOT) models.
  • Non Public Private Partnership such as Engineering Procurement Construction models.
  • Mixture of both PPP and Non PPP models using Hybrid Annuity Model
Infrastructure Development Models: PPP
  1. Build – Operate – Transfer (BOT)
It is conventional PPP model in which private partner is responsible to design, build, operate (during the contracted period) and transfer back the facility to the public sector.
  • Private sector partner has to bring the finance for the project and take the responsibility to construct and maintain it.
  • Public sector will allow private sector partner to collect revenue from the users. The national highway projects contracted out by NHAI under PPP mode is a major example for the BOT model.
2.Build-Own-Operate (BOO): This is a variant of the BOT and the difference is that the ownership of the newly built facility will rest with the private party here. The public sector partner agrees to ‘purchase’ the goods and services produced by the project on mutually agreed terms and conditions. 3.Build Own Operate Transfer (BOOT): In this variant of BOT, after the negotiated period of time, project is transferred to the government or to the private operator. BOOT model is used for the development of highways and ports.
  1. 4. Build-Operate-Lease-Transfer (BOLT): In this approach, the government gives a concession to a private entity to build a facility (and possibly design it as well), own the facility, lease the facility to the public sector and then at the end of the lease period transfer the ownership of the facility to the government.
  2. Lease-Develop-Operate (LDO): Here, the government or the public sector entity retains ownership of the newly created infrastructure facility and receives payments in terms of a lease agreement with the private promoter. This approach is mostly followed in the development of airport facilities.
 
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