Chapters :

Industry & Infrastructure – 11

Rehabilitate-Operate-Transfer (ROT):

Under this approach, the governments/local bodies allow private promoters to rehabilitate and operate a facility during a concession period. After the concession period, the project is transferred back to governments/local bodies. DBFO (Design, Build, Finance and Operate): In this model, the private party assumes the entire responsibility for the design, construction, finance, and operate the project for the period of concession. Non – PPP: The private player is not given ownership of infrastructure or right to collect toll / user fee at any point of time. So, they are called non PPP. Examples are:
  1. Engineering, procurement and construction (EPC)
  2. Outsourcing
Engineering Procurement and Construction (EPC):

Under this system the entire project is funded by the government. The EPC entails the contractor build the project by designing, installing and procuring necessary labour and land to construct the infrastructure, either directly or by subcontracting. Under EPC model the contractor is legally responsible to complete the project under some fixed predetermined timeline and may also involve scope for penalty in case of time overrun. In EPC as all the clearances, land acquisition and regulatory norms have to be completed by the government itself and the private players do not have to get itself involved in these time taking procedures.

HYBRID ANNUITY MODEL = Mix of PPP + Non PPP (BOT + EPC)

HAM is a mix of BOT Annuity and EPC models. As per the design, the government will contribute to 40% of the project cost in the first five years through annual payments (annuity). Whereas the remaining 60% is raised by developer from equity or loan as variable depending upon the value of assets created. Under HAM, Revenue collection would be the responsibility of the National Highways Authority of India (NHAI).The developer doesn’t have right to collect revenue. Swiss challenge Model A Swiss Challenge is a method of bidding, often used in public projects, in which an interested party initiates a proposal for a contract or the bid for a project. The government then puts the details of the project out in the public and invites proposals from others interested in executing it. On the receipt of these bids, the original contractor gets an opportunity to match the best bid. Assume that Company A wins the first round of bidding by a quoting a price of ₹5,000 crore for a power plant. This will be made public and a second set of bids invited. If Company B quotes ₹5,500 crore, Company A will be offered a second opportunity to match it. If it refuses, Company B would be declared the winning bidder. If Company A steps up, then it will bag the power plant at ₹5,500 crore.

Problems with this model

  1. Scope for non-transparency / collusion between the private players.
  2. It can foster Crony capitalism.
Vijay Kelkar committee on PPP reforms suggested not doing it. Vijay Kelkar Committee Report: Revisiting and Revitalizing the PPP Model of Infrastructure Development. Few of its Recommendations are:
  1. Governance, Institutions and capacities are 3 pillars of PPP frame work.
  2. May develop a PPP law with endorsement from parliament.
  3. For Sourcing long term capital at low cost, banks and Financial institutions showed encourage to issue zero coupon bonds.
  4. “One size fits all” approach should be avoided and project-specific risk Assessment should be undertaken.
Viability Gap Funding Sometimes, the project is justifiable from Social Welfare / human development point of view but it’s not financially profitable or viable. Eg: installing solar panels in remote villages The Union Government provides grants (not loans) up to 20 percent of the total cost of PPP projects. Infrastructure Funds
  1. Global Infrastructure facility (2004)
  2. Launched by World Bank
  3. Facilitates the preparation and structuring of complex infrastructure PPPs of enable mobilization of private sector and institutional investor capital.
iii.    To help emerging economics and developing countries.
  1. National Investment Fund: (2005)
  2. The amount received from disinvestment was transferred to this fund to finance various social sector schemes, projects, PSB recapitalization.
  3. It is kept out of the consolidated fund of India.
India Infrastructure project Development Fund: (2007)

Set up in Dept. of Economic Affairs with Rs.100 crores to help PPP projects. National Investment and Infrastructure Fund: (2015) National Investment and Infrastructure Fund Limited (NIIFL) is a collaborative investment platform for international and Indian investors, anchored by the Government of India. NIIFL invests across asset classes such as infrastructure, private equity and other diversified sectors in India, with the objective to generate attractive risk-adjusted returns for its investors. NIIF Limited manages over USD 4.4 billion of equity capital commitments across its three funds – Master Fund, Fund of Funds and Strategic Opportunities Fund, each with its distinct investment strategy. NIIF Master Fund primarily invests in operating assets in core infrastructure sectors such as transportation and energy.
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