PPP EXPERIENCES IN INDIAN STATES:

BOTTLENECKS, ENABLERS AND KEY ISSUES

Ashwin Mahalingam1
ABSTRACT
Recent studies indicate that India must invest close to USD 400 Billion over the next five years
in infrastructure development, at least 40% of which must be developed through Private Public
Partnerships (PPPs). Since 1991, several sectors have experimented with PPPs for infrastructure
development in India, particularly at the National level with mixed results. However there have
been relatively fewer instances of PPPs at the state and local levels. This is mainly due to
bottlenecks to PPPs at the Institutional, Organizational and Project level in Indian states. In
response, the Indian government has initiated several schemes to enable state governments to
implement infrastructure projects via PPP. However the efficacy of these schemes cannot be
judged yet since they have only been established relatively recently, and also since several
contentious issues relating to infrastructure development are yet to be resolved. This paper uses
archival information, learnings from case studies and a Roundtable discussion on PPPs to
analyze the bottlenecks and enabling factors that affect State-level PPP projects in India, and
discusses the challenges that Indian infrastructure faces in moving forward, by outlining some
key debates and research issues that need to be addressed.
KEYWORDS: India, Infrastructure, Private Public Partnerships, Bottlenecks, Strategies
INTRODUCTION
The fact that economic growth is well-correlated with infrastructure development has
been well documented (e.g. Queiroz, 1994). Over the past few years, the Indian economy, as
measured by its GDP, has been growing at the rate of 8% per annum. In order to sustain this
growth, a recent study done by the Committee on Infrastructure Financing, constituted by the
Government of India, has indicated that India must invest close to USD 400 Billion in
infrastructure development and maintenance over the period ranging from 2006-2011
(Committee on Infrastructure Financing, 2007). Given the large sum of money involved as well
as the vast amount of infrastructure that is to be built, it is clear that the participation of the
private sector will be necessary, both in terms of financing and in terms of implementation of
infrastructure. Public Private Partnerships (PPP) are therefore considered to be inevitable in the
prevailing Indian Infrastructure context and are estimated to constitute 40% of new infrastructure
development over the next four years (Department of Economic Affairs, 2007a). The private
sector too is increasingly becoming interested in participating in infrastructure projects. In the
roads sector for instance, PPP projects attract more bidders today than they did 5 years ago
(Department of Economic Affairs, 2007a).
There are several advantages in engaging with the private sector for infrastructure
procurement. Foremost amongst these are (a) the ability of the private sector to finance
1

Assistant Professor, Indian Institute of Technology, Room 225, Building Sciences Block, Department of Civil
Engineering, IIT-Madras, Chennai 600036, India; mash@iitm.ac.in

infrastructure that cash-strapped governments are unable to provide and (b) the expectation that a
profit-motivated private operator can bring about enhanced operational efficiencies (GomezIbanez et al, 2004).
However PPP projects also encounter several risks that often lead to cancellations and/or
significant renegotiations. The evidence from developing countries indicates that actual or
perceived rise in tariffs, macroeconomic fluctuations in currency or purchasing power,
inadequate regulatory and institutional environments, societal discontent against the private
sector and political reneging are some of the key reasons for the failure of PPP projects (Harris,
2003; Gomez-Ibanez et al, 2004; Vernon, 1971; Klein and Roger, 1994).
In this paper I explore facets of the Indian PPP experience. I aim to look at the Indian
PPP environment, the enabling factors that attempt to tap the advantages of partnering with the
private sector, and the context-specific bottlenecks that have contributed to project failure and
which threaten the success of the PPP model in India. Infrastructure projects in India are
conceptualized and enacted at two distinct levels (a) at the national level by the central
government or its affiliated agencies and (b) at the state level by the respective state governments
or their associated nodal agencies. Projects at the local/municipal level fall, in most cases, under
the purview of the state governments. Due to restrictions in space, I will elaborate on the Indian
PPP scenario at the state level, since relatively little work has been done in this area. I will also
provide a brief overview of the Indian infrastructure scenario at the national level which has
been the main point of discussion in recent times in academia and in practice - but will not
provide a great amount of detail.
I have used three sources of data to substantiate my arguments. My first source of data is
publicly available documents on the policies that shape Indian infrastructure, and the experiences
of projects in various sectors. Second, I will draw upon a series of case studies of PPP projects in
the state of Tamil Nadu that our research group at IIT-Madras has recently documented. Finally,
I will incorporate some of the insights that arose from a recently concluded Roundtable
discussion on Indias PPP infrastructure bottlenecks, co-hosted by IIT-Madras and Stanford
University, in Chennai, India. This Roundtable was attended by senior Indian and international
representatives from the government of India, leading academic institutions, consulting firms,
financiers, project sponsors and infrastructure construction companies. The participants
deliberated on current bottlenecks in Indian infrastructure at the state level, and the way forward.
In the next section I briefly describe the Indian infrastructure scenario for projects
supported at the national level. I will then discuss the Indian infrastructure scenario at the state
level, by presenting existing bottlenecks, enabling policies and institutions and the experiences of
specific projects. Finally I will conclude by discussing the challenges that Indian infrastructure
faces in moving forward, and outlining some key debates and research issues that need to be
addressed.
INDIAN PPP EXPERIENCE AT THE NATIONAL LEVEL
Private participation in Infrastructure is not new to India. For instance, prior to obtaining
independence from British rule in 1947, 65% of power generation was done by private
companies. Post independence, a wave of nationalization swept across the country, and the role
of the private sector in infrastructure provision was soon marginalized. For the most part, private
firms were limited to being contractors, and in some cases operators of infrastructure services,
particularly in key infrastructure segments such as transportation, power, telecommunications
and urban infrastructure. In 1991 the government of India embarked on reforms to liberalize the

Indian economy and to provide for greater participation from the private sector. These policies,
as well as directed efforts on the part of the government to promote PPPs have influenced
various infrastructure sectors, although the response and the experiences have been quite varied.
Transportation
The national road transportation sector has been the frontrunner in adopting PPPs for
Indian infrastructure. A survey done in 2005 found that 74% of all Indian PPP infrastructure
projects were in the roads and bridges category, at the national level2. The National Highways
Authority of India (NHAI) is the agency responsible for the development of national roads and
has outlined a series of National Highway Development Programs (NHDPs) to create and renew
road infrastructure. Based on their experiences with PPPs over the past 15 years, the NHAI has
also decided to implement as many future NHDP projects as possible through Build-OperateTransfer (BOT) contracts and to limit the use of lump-sum or item-rate construction contracts to
economically unviable stretches.
Attempts have been made to standardize the form of the BOT contract on road projects,
and Model Concession Agreements (MCA) have been created. However earlier versions of
MCAs were flawed in that risks were not allocated equitably between the government and
private companies, leading to disputes, delays and renegotiations. NHAI has currently released
the third version of the MCA, which seeks to allocate risks to the party best placed to bear these
risks. However the response to this document, although encouraging, has not been
overwhelming. For instance, the current MCA directs that the government must procure 80% of
the required land prior to project commencement. Due to land acquisition being an onerous task
in the Indian context a point that I will elaborate upon in a later section there is a likelihood
that such projects might be considerably delayed, and therefore such a clause must be debated
further.
The roads sector has also embraced several innovative methods of project structuring. In
projects where revenue risks are likely to present, contracts are awarded on an Annuity basis as
opposed to using a traditional toll collection revenue formula. In an Annuity contract the private
concessionaire finances the road and receives a guaranteed payment on a periodic basis (usually
half-yearly), subject to meeting certain quality standards in the operation of the facility. Also, in
cases where road stretches are not economically viable, the NHAI has introduced a scheme for
Viability Gap Funding (VGF) wherein the private operator can collect a toll and seek an up-front
VGF grant to balance any projected deficits between the cost of the project and the expected
revenues. The value of the VGF is limited to a maximum of 40% of the total project cost. In a
competitive bidding scenario, the winning bid is often the one that requests the minimum VGF.
In some cases, where stretches of roadway can be extremely profitable, this sector has also
embraced the concept of negative grants, wherein firms bidding for the project will offer the
government a grant, in return for being awarded the concession for the project. The winning bid
is then selected based on the party that is willing to offer the highest negative grant. On a recent
project that connected the cities of Bharuch and Surat in the state of Gujarat, the successful
bidder offered the government a negative grant of INR 5.04 Billion, on a project that was
expected to cost INR 4.92 Billion to construct!
Other transportation sectors airports, ports and railways are also seeing increased
levels of private involvement. New ports are being developed on a BOT basis, and a Model
2

http://infrastructure.gov.in . Accessed June 2007

Concession Agreement for this sector is being prepared. A regulator is already in place for this
sector. In the railways sector, private participation is being sought in track-laying, freight
services and railway maintenance. Two Greenfield airports have been recently constructed in
Bangalore and Hyderabad, and mark the first instances of the use of PPPs in the Indian airport
sector. The Mumbai and Delhi airports are being modernized and will be operated under
concession agreements with the private sector. Furthermore, the government proposes to build 35
new airports across the country, with most of these projects to be undertaken under the PPP
route.
Despite the optimism shown towards using PPPs to develop airports, this sector has had
its fair share of teething problems. The award of the contract for the Bangalore airport was
delayed due to the lack of enabling PPP legislation, since the existing laws mandated that the
Airports Authority of India (AAI) be the sole owner of all national airports. The recently
completed Hyderabad Airport has suffered from problems of poor connectivity with the rest of
the city. In addition, in the wake of the inauguration of the new airport, the previously
functioning airport, operated by the AAI was to be shut down. This has led to strikes and protests
from public-sector employees concerned about employment security. PPPs to expand and
modernize airports in Chennai and Calcutta have also been put on hold due to social unrests and
agitations against private sector involvement.
Telecommunications
The privatization of the Indian telecommunications sector represents a success story in
terms of the potential for private operators to improve the efficiency of service delivery. Prior to
1991, all telecommunication services were government owned and regulated and it often took
several years to obtain a telephone connection. Two policies the National Telecom Policy of
1994, and the National Telecom Policy of 1999 that addressed some of the shortcomings of the
earlier policy then paved the way for the entry of the private sector to provide telephone,
mobile and internet services. The Telecommunications Authority of India (TRAI) was set up as
an independent regulator for this sector in 1997. Although there continues to be a debate on the
level of independence accorded to TRAI and its ability to function as an effective regulator, the
advent of the private sector and the consequent competition between several firms has led to a
rapid decrease in prices and an increase in connectivity and tele-density, particularly in the
mobile phones segment. As a comparison, in 1998, the average mobile tariff was approximately
INR 14 per minute, and the total subscriber base was of the order of a million subscribers. In
2005, the average effective charge was close to INR 1 per minute, with a subscriber base in
excess of 60 million (Infrastructure Development and Finance Company, 2006). Thus far,
privatization in the telecommunications sector in India has yielded beneficial results from a
consumers perspective, but the sector faces several challenges ahead in refining the role of the
regulator, formulating policies for allocation of spectrum for 3G services and so on.
Power
As mentioned earlier, there was significant private sector involvement in the power sector
prior to 1947. Post 1947 however, state-owned organizations took control of the operations in
this sector. Currently, most Indian states are faced with power shortages. Transmission and
Distribution losses are close to 40% and State Electricity Boards (SEBs) that are in charge of
power distribution, are realizing negative returns on investments due to state-mandated subsidies

on power, that make power tariffs lower than the operating costs (Infrastructure Development
and Finance Company, 2004). Several reforms are therefore being enacted in this sector. These
include the unbundling of generation, transmission and distribution services, the corporatization
of the SEBs, and incentive schemes given to SEBs to improve their efficiency. One such reform
effort - the Electricity Act of 2003, served as a key piece of enabling legislation that encouraged
the re-entry of private companies into power generation and transmission.
In particular, the government has set up an innovative scheme to involve the private
sector in the development of Ultra Mega Power Projects (UMPPs) projects that will generate
power in excess of 4000MW. The Power Finance Corporation (PFC) a government owned
organization is charged with selecting sites for the UMPP projects, and creating a special
purpose vehicle (SPV) that will serve as a shell company that performs a due-diligence analysis,
acquires land, obtains the necessary clearances and permits and ties up off-take agreements with
potential buyers. This SPV will then be given out to private organizations on a BOT contract, on
the basis of a competitive bidding procedure with the winner selected based on the least amount
of tariff charged. This scheme would reduce transaction costs and eliminate several risks often
faced by private firms in the conceptualization phase of a PPP project, and is therefore likely to
attract a lot of private interest. A total of 12 UMPPs have currently been planned or approved.
The PPP experience in power has not been without its fair share of challenges. One of the
early attempts at involving the private sector in power generation undertaken at Dabhol in
Maharashtra in the early 1990s turned into a high-profile failure, when a change in government
accompanied by a perception that the tariffs were very high and that the process of concession
award was not transparent, led to the government reneging and cancelling the contract.
(Ramamurthi, 2003). One of the early UMPP projects originally awarded to Lanco Infratech also
had to be cancelled and re-tendered since a change of ownership within the winning consortium,
post award, led to the consortium being disqualified. Despite such setbacks, the reforms and
schemes enacted to involve private organizations in this sector hold much promise.
The PPP experience in Indian infrastructure at the national level has not been particularly
smooth and there have been several instances of projects being cancelled and renegotiated. In
addition, further institutional reforms need to be enacted, such as the appointment of an
independent regulator in several sectors, the setting up of dispute resolution mechanisms and so
on. Such reforms will give added confidence to the private sector to participate in building,
owning and operating Indian infrastructure and will ease the adoption of PPPs as a model for
infrastructure development. Nevertheless, as the discussion above illustrates, great strides in
policy have been made over the last two decades and several schemes and incentives have been
put in place to enable PPPs. We can therefore expect to see more Indian infrastructure projects at
the National Level undertaken via PPPs with greater amounts of success as we move forward.
INDIAN PPP EXPERIENCE AT THE STATE LEVEL
Despite a lot of thought and effort being put into facilitating PPPs for creating national
level infrastructure, relatively less attention has been given to PPPs in sectors that come under
the purview of the state governments such as urban amenities, state highways, minor ports etc.
This has resulted in a much lower level of private involvement in the states. A cursory glance at
the information available on the India Infrastructure website indicates that only 144 PPP projects

have been or are being undertaken in the entire country3, a majority of which are in the
transportation sector. This is a relatively small fraction of the total number of infrastructure
investments and projects that are being undertaken in India. I will first analyze the existing
bottlenecks that restrict the success of PPPs in Indian states, and will then move on to describe
the factors that have been put in place to enable PPPs.
Bottlenecks in Procuring State Level Infrastructure through PPPs
Figure 1 below describes the various bottlenecks that have hindered the use of PPPs in
Indian states.

Figure 1: Bottlenecks to PPPs in State Infrastructure

These bottlenecks can be classified to occur at three levels at the level of the
institutional environment that envelopes these projects, at the level of the organizations that
participate in implementing these projects and at the level of the specific project itself.
Bottlenecks at the Institutional Level
Several PPP proposals for projects at the state level face roadblocks due to the lack of
enabling PPP legislation. In some cases, the existing legislations mandate that only the public
sector be allowed to provide a given set of infrastructure services. For instance, the municipality
of Alandur in the state of Tamil Nadu was interested in bringing about a PPP arrangement in the
sanitation sector in the late 1990s to collect and process the municipalitys sewerage. However,
the government ordinances clearly stated that only the municipality could provide sewerage
services and that the private sector could not be involved. A special ordinance had to be
promulgated in order to allow private participation in Sewerage projects in the state of Tamil
Nadu, before the project could proceed, resulting in the loss of a few years.
Even when there is no explicit law that prevents the private sector from participating in
infrastructure, the lack of enabling legislation on PPPs also implies that state government
3

http://www.pppinindia.com/projects.asp Accessed May 2008

officials and bureaucrats who encourage private sector participation are doing so at their own
discretion due to their own personal beliefs of the advantages of partnering with the private
sector. This in turn leaves such personnel open to investigation from anti-corruption agencies,
which acts as a further deterrent towards soliciting involvement from the private sector. On the
other hand the presence of pro-PPP legislation would provide considerable reassurance and
recourse to the public officials.
Some states have framed policies for PPPs, but unless these policies are enshrined as
laws, they always run the risk of being re-written by succeeding governments. Furthermore when
legislation is enacted, it is enacted in a piecemeal manner, to accommodate a particular project,
as in the case of Alandur. This then leads to several legislations that need to be enacted
periodically across other sectors. A more holistic approach that anticipates concerns across
sectors and can lead to the enactment of broader legislation, could therefore be an asset.
The institutional bottlenecks outlined above result in a considerable increase in
transaction costs to plan, approve and execute PPP projects which in turn leads to extended
delays, changes in project viability and in some cases, project cancellations.
Organizational Bottlenecks
PPPs in India are a relative recent phenomenon and therefore are not well understood in
both the public and private spheres at the state level. Historically the public sector in the states
has focused on conceptualizing projects and managing contractors who have been selected to
execute the works under standardized contractual conditions. These officials therefore are not
trained in areas such as finance that are key to structuring PPP projects. In addition, many
government organizations are not used to the new kinds of contractual arrangement that are
typical of PPPs, where risk and responsibility are shared between the private and the public
sectors. As a result, relatively few proposals for PPP projects are put forward by the states. For
instance, in 2004 the government recently proposed a scheme titled the Jawaharlal Nehru
National Urban Renewal Mission (JNNURM) wherein partial grants are provided to state
governments for specific projects in the expectation that these governments will raise the
remaining amount through private sources. However till date, hardly any projects under this
scheme have been implemented via PPP, with state and municipal authorities preferring to use
budgetary funds to bridge the financing gap.
Some state governments such as the government of Gujarat, and multilateral agencies
such as the ADB have attempted to create a shelf of projects that can then be shaped and bid
out to private parties. However, such attempts have not yielded much by way of response from
the various state-run organizations.
In some cases, government offices have enlisted the services of various public or private
sector organizations in order to help them structure PPP projects. When the Chennai Municipal
Development Authority decided to privatize the solid waste management in the city, they first
hired the Tamil Nadu Industrial Development Corporation (TIDCO) as the bid-process manager,
and KPMG as the consultants who would analyze the feasibility and craft the structuring of the
project. Although this is a viable option for capacity-strapped units, it increases the costs of the
project and leads to potential misunderstandings due to the multitude of organizations involved.
At the political level there is a lack of clarity in several states on the practical usefulness
of PPPs in developing infrastructure. Although there have been several instances of private
sector participation in infrastructure, some of which have been successful, several failed attempts
coupled with a lack of analysis or documentation of the projects undertaken has led to some

apprehensions on whether PPPs are indeed as efficient or optimal as they are proposed to be. In
addition, governments or coalitions in several states such as Tamil Nadu, Kerala and West
Bengal that have representations from left-wing factions are often strongly opposed to the entry
of the private sector to provide essential services. A lack of support from the political machinery
is therefore also a reason for the lack of PPPs at the state levels.
In the PPP Roundtable held at IIT-Madras, political will was considered as one of the key
determining factors to the success of PPP projects. In instances where PPPs have had complete
political backing projects have been more likely to be completed successfully. In the case of the
Alandur sewerage project mentioned above, the municipal commissioner the elected political
leader of Alandur personally pursued the involvement of the private sector and was able to
obtain the consent of the opposition parties and the public at large. Despite encountering several
bottlenecks this project was ultimately completed successfully. On the other hand, the Tamil
Nadu governments reluctance to involve the private sector led to the an impasse in the
realization of an economically viable proposal to involve the private sector in the development of
old prison land in the city of Chennai. In such cases where elected officials have not responded
favourably to the involvement of private players as a result of a lack of information, confidence
and policy, PPP projects have not made much headway.
The private sector is also grappling with capacity issues to execute infrastructure projects.
Traditionally infrastructure project construction has been labour intensive and has employed adhoc project planning and control techniques. With the exponential growth of the Indian
construction industry and the increase in scale and complexity of the projects, manpower is now
a scarce resource and systematic project planning, management and control are now required.
Several projects therefore face delays in execution as the private sector strives to acquire these
competencies. These issues are not limited to the construction phase alone. A lack of experience
with PPPs on the part of the private sector has led to fiascos in the conceptualization and
structuring of projects as well. For instance, in the case of Chennais solid waste management, at
the end of the first concession period, a private consultant re-tendered the contract and awarded
the concession to a different firm. However, this transition process was not planned or monitored
well enough and resulted in a period of time where neither firm claimed responsibility for
processing the citys waste, which in turn led to a piling up of garbage along the streets.
A final organizational issue that has hampered PPP projects at the state level is the lack of
trust between the private and the public sectors. Most PPP projects are therefore not true PrivatePublic Partnerships but merely Private-Public mixes. The private sector is often reluctant to
engage with the public sector due to the fear that after the expiry of the ruling partys term, a new
government could renege on the contract, and that dispute resolution mechanisms are excessively
bureaucratic and biased, making the pursuit of justice an uphill battle for the private sector. In a
recent toll bridge project in Karur in Tamil Nadu, the new government cancelled the concession
agreement on a flimsy pretext of a damaged approach road without compensating the
concessionaire. Such instances vindicate the private sectors stance and add to the private sectors
inhibitions. The public sector on the other hand has often tended to view the private sector with
suspicion. The private sector is perceived as being overly profit minded, to the detriment of the
society and the citizens that it is expected to serve. Both the private and public sectors therefore
need to build more confidence in their collective abilities, in order to embrace PPPs as a
sustainable approach to infrastructure development.

Project level Bottlenecks

Another set of reasons for the relative lack of PPPs at the state level stem from project
specific factors. Foremost amongst these is the fact that several projects that are brought to the
table are not economically viable from a private sector perspective. Recently, a Bypass road was
proposed around the city of Coimbatore through a BOT arrangement. However, the inadequate
rate of return expected through collection of toll revenues deterred the private sector from
participating. In the case of Chennais solid waste management described above, the city of
Chennai initially selected a set of zones for privatization. However the waste generated from
these zones was not large enough for the private sector to operate profitably. As a result, the first
round of bidding yielded no private bids. The project then had to be restructured so that only a
set of zones would be bid out for privatization, in order to elicit responses from private firms.
Finally, the town of Tirupur in Tamil Nadu decided to privatize its water supply. However the
projected demand has not manifested and as a result the private operator has been unable to
recoup their investment.
Social pressures also lead to impasses and difficulties in implementing PPP projects. In
some cases, social activists protest against the displacement of poor people, environmental
degradation, loss of jobs and income, inequitable resettlement plans, distributional inefficiencies
that result from the projects and so on. In other cases, the intended users of the project may resist
tariff increases that result through privatization. In the case of the Coimbatore bypass road
described above, the government of Tamil Nadu decided to toll a neighbouring bridge and
include the toll revenues as part of the financial equation for the bypass road project. However
users of the bridge were upset at a toll being charged for a facility that they had used for free
previously, and refused to pay. In particular, state-run buses that were subsidized by their
governments lobbied for and won a decision to lower the tariff rates, which in turn placed
enormous pressure on the concessionaire to break-even on this project. The potential for societal
protests and economic weaknesses in project structuring deters the private sector and further
inhibits the use of PPPs at the state level.
A plethora of local bodies are usually involved in the implementation of a project. In
order for a private sector player to proceed with the development of a project, each of these
agencies will need to be involved in order to procure permits, approvals and so on. The lack of a
single window system to obtain project clearances considerably increases the transaction costs
of a project and often necessitates the exchange of bribes in order for the project to move
forward. Although these institutional arrangements differ from project to project, the overall
effect is to hamper the participation of the private sector. The PPP Roundtable at IIT-Madras,
also raised the issue of inequitable contracts that lead to failed or non-starting PPP projects. In
the views of the participants, the initial version of a PPP contract is drawn up in favour of the
private player. Under the influence of public pressure, the government agencies are then forced
to renegotiate the contracts in order to make them more equitable, but this process is perceived as
a reneging of the earlier agreement, and therefore breeds mistrust and a lack of confidence in
PPPs. Although there is some effort that is being put into crafting equitable and standardized
contractual agreements for various state sectors, these agreements are currently not robust
enough, leading to disagreements based on the contractual terms and conditions outlined.
Finally, the occupational and organizational cultures of the Indian private and public sectors
differ with the public sector being relatively bureaucratic and more process focused and the
private sector being more results oriented, leading to conflicts in the day to day operations of

projects. All of these concerns have contributed to a relative lack of PPPs in Indian infrastructure
at the state levels.
Factors Enabling the Procurement of State Level Infrastructure through PPPs
The Government of India has recognized the relative lack of PPPs at the state level, and
its implication on economic and societal growth. In response several schemes have been
launched to incentivize the use of PPPs at the state level. One such scheme is the JNNURM
scheme mentioned earlier wherein the government has earmarked an outlay of INR 500 Billion
for the urban upgradation of 63 selected Indian cities. The selected states and cities are expected
to enact certain administrative reforms and then craft Detailed Project Reports (DPRs) for urban
infrastructure projects. The JNNURM program can then sanction funds to be allocated as grants
to selected projects. The level of funding will be proportional to the level of development already
present within the city, with the understanding that the shortfall between the project cost and the
JNNURM grant will be addressed by the cities themselves, preferably through the use of private
participation. It is hoped that due to the JNNURM grant acting as a project subsidy,
economically feasible urban infrastructure projects can be proposed that can be undertaken
through PPPs.
A PPP Cell has also been created in each state and has been staffed with an
administrative officer. Although the roles and responsibilities of this cell are not clearly defined
yet, the mandate for these cells is to identify and create a shelf of projects that are necessary,
and are viable under the PPP mode. These projects can span various sectors including physical
infrastructure, tourism, health, education and so on.
The central government has also identified a lack in capacity from within the state
governments in analyzing and preparing detailed project proposals. State governments therefore
are likely to recruit private consulting firms to perform these tasks. To ease this process, the
central government has created a panel of transaction advisors who have been selected based on
their experience and expertise in formulating and structuring PPP projects (Department of
Economic Affairs, 2007b). Currently 12 firms constitute this panel. State governments seeking to
develop detailed documents for a PPP project can directly select any of these transaction advisors
to help them in performing feasibility studies, preparing detailed project reports, and in
managing the bid process and performance of the private parties. By allowing governments to
directly select these empanelled organizations, the central government has eliminated the need
for the state governments to call for bids for the provision of consulting services, thereby greatly
reducing the transaction costs involved in preparing PPP project reports.
The state governments have contended that they are often unable to bear the costs of
hiring these transaction advisors. In response, the central government has instituted the India
Infrastructure Project Development Fund (IIPDF) (Department of Economic Affairs, 2007c).
Based on the quality of a PPP proposal from the state government and the viability of the initial
feasibility studies, the IIPDF will provide state governments with grant funding to bear the costs
of hiring transaction advisors. If the project is successful, the grant amount can then be paid back
from project revenues. Otherwise, the state run organizations in charge of implementing the
projects are under no obligation to repay the IIPDF. These are some innovative mechanisms that
have been proposed to increase PPP deal-flow at the state levels, by making it easier to create
projects where the public and the private sector can partner to provide added value to society.

ISSUES AND DEBATES IN INDIAN INFRASTRUCTURE AT THE STATE LEVEL

Although the government has initiated several schemes to incentivize PPPs at the state
level, it is unclear as to how successful these initiatives are likely to be, since most have been
initiated in the very recent past. Several debates still need to be resolved and strategic responses
must be crafted. In this section, I present some of the ongoing debates that were highlighted
during the PPP Roundtable held at IIT-Madras, that also represent critical research questions that
must be answered in the current Indian infrastructure context.
Institutional Arrangements
Despite the fact that the government has put in place several institutional mechanisms to
enable PPPs at the state level, the nature and role of these institutional mechanisms and their
interactions are still the subject of intense debate. For instance, there are several unanswered
questions regarding the roles of PPP cells in each state. To what extent should these cells focus
on identifying projects versus preparing projects for implementation versus implementing
projects directly? What resources will be made available to each of these cells?
In terms of resources available for implementing PPP projects, the Ministry of Finance
has set up a website at the National level for Private Public Partnerships in India4. In the future,
this website is expected to have details of all PPP projects undertaken at the national level and in
various states, as well as case studies, policy documents and so on. The question facing us
therefore is how can PPP knowledge best be represented on sites such as this in order to guide
and encourage government agencies or private players to plan and implement PPP projects?
In addition to this knowledge centre, several coordination or nodal agencies are present at
the national and state levels. These agencies, such as the Tamil Nadu Urban Infrastructure
Financial Services Limited (TNUIFSL), or the Gujarat Urban Development Company Limited
(GUDC) can themselves be PPPs or can be government sponsored organizations, that assist the
state governments in preparing policies and guidelines for PPPs, appraising, implementing and
monitoring PPP projects etc. The mandates, powers and independence of each of these agencies
varies considerably. It is therefore important to understand what the roles and responsibilities of
such agencies should be so as to promote effective infrastructure development. A related and
relevant question also addresses the sustainability of such agencies, whether they have a longterm role to play, or whether they are fulfilling a temporary need and must be replaced by
broader structural reforms.
An institutional environment that enables successful implementation of PPP projects will
consist of several interlocking and interdependent pieces. It is necessary to understand and shape
how these various pieces such as coordination agencies, knowledge centres and PPP cells will
interact in the short term, how they should evolve in the long term and how PPP related policies
will influence and catalyze these arrangements into promoting PPPs.
Implementation Strategies
In terms of implementing projects, one of the key debates is on whether to utilize a
program based approach, where performance targets are set for a large region, and are achieved
through a series of projects (e.g. achieving 24x7 supply of water across an entire state), or an adhoc project based approach where PPPs are planned and executed one at a time, based on
4

http://www.pppinindia.com/

localized needs. The program based approach is often more likely to lead to wide institutional
change, and to sustained project implementation and improvement. However, given the long
time spans over which such programs need to function, there is a large likelihood of changes in
the government, and consequentially, termination of these programs. Given this background,
shorter-term one-off projects, though less optimal are more likely to lead to successful
implementation. What then is the optimal mix of projects vs. programs in India?
Even while preparing a single PPP project, it is often the case that projects are brought to
the bidding table without all the uncertainties being resolved. A case in point is in land
acquisition - one of the chief risks in implementing infrastructure projects in India. Given the
populous nature of the country and the fact that a large majority are employed in the agricultural
sector, it is likely that most new infrastructure development will lead to the displacement of a
large number of people and to the appropriation of farmland. A question to be addressed here
relates to the kinds of monetary and non-monetary compensation that should be paid to these
project-affected stakeholders. Currently, landowners are compensated based on the value of land
prior to development. This often leads to a feeling of injustice and social protests when, postdevelopment, the value of the same land increases multi-fold. Suggestions have been made to
develop financial instruments such as options that can also be given to the landowners as
compensation, the values of which are tied to the value of the land under development. However
the question then arises as to who would be financially liable for these options. Nevertheless, the
creation of such innovative instruments is an area that must be addressed.
Several projects are given out to bid, before such controversies regarding land acquisition
are resolved. One point of view is to delay the project preparation process until strategies are
formed to address all uncertainties. However, a counter point of view is that the duration of such
a process might be likely to span across political changes, leading to a higher probability of the
project being abandoned. The question therefore arises as to what amount of preparatory work
needs to be done in the Indian context and when projects should be put forth to private entities.
It is sufficiently clear that political will is paramount to the success of PPP efforts, be
they project or program based. This then leads to the question of how political will can be
developed and channelled to promote PPPs, or at least, not to affect their deployment. Part of the
answer might be through educating politicians on the benefits of PPP via knowledge centres, or
through the creation of PPP advocacy groups at a governmental level that span sectors and can
provide informal stewardship for PPPs. However, mechanisms must also be developed to decouple the political machinery from the implementation of PPP projects. How these mechanisms
will function is an unresolved question.
Finally, in terms of successfully implementing projects, guidelines need to be evolved on
how to design equitable contracts that are accepted by both the private and public sectors. One of
the key debates in this arena relates to what the role of the public sector should be, and what
kinds of services and resources the public sector must offer to the PPP project. Having identified
the role of the public sector, the next set of research issues relate to determining how contracts
and standardized Model Concession Agreements can be written to apportion risks in a manner
that facilitates smooth implementation of a project and where the probability of risk mitigation is
the highest. Since it is nearly impossible to predict every socio-economic or political eventuality
that will occur over the course of a PPP concession, contract renegotiation cannot be avoided.
How then can the effects of this renegotiation be minimized? Can hierarchical forms of contracts
be developed that can suggest strategies to be used in cases of projects undergoing turbulence

that was not accounted for in the original form of the contract? These and related questions need
to be addressed.
Capacity Building
Finally, it is clear that both the public and the private sectors need to acquire competencies in
planning and developing PPP projects. These capacities are at two levels at a technical level
organizations engaging in PPPs need to understand the fundamentals of topics such as finance
and become familiar with newer engineering technologies that will be required in a more
complex, mechanized construction environment. However, organizational or managerial
competencies also need to be acquired in bid-process management, project management,
managing private-public relationships and so on. Only by developing these latter sets of
competencies can issues of cultural differences between the public and private sector styles of
management, the ills of the worlds largest bureaucracy and so on, be negated on a project. Only
then can true partnerships arise that can be managed through the duration of a concession
agreement.
What precisely are the capacities that organizations in India need to develop and how are
they to do so? Training and education and partnership with academic institutions are one set of
solutions. However, some of these competencies can be outsourced by government agencies to
coordination agencies and the like. In the long run, it is important to determine which of these
competencies can be outsourced, which need to be nurtured in house and how this can be done.
Issues of capacity have been recognized as one of the foremost bottlenecks to Indias
infrastructure growth by the Government of India and several private agencies.
CONCLUSION
Given Indias infrastructure needs, PPPs are a necessity and not just an option. However there
are a myriad of issues that need to be addressed and resolved in order to facilitate a better
understanding on how to develop infrastructure efficiently and seamlessly via PPPs. The
previous section has identified some of these research questions of immediate importance. To
answer these research questions we require inputs and insights from engineering, management
economics, sociology, political science and other disciplines of social science. We also require
passionate and dedicated minds to solve the issues identified above. I invite scholars working in
these areas to take advantage of the natural laboratory that Indian infrastructure offers, to
conduct applied and pure research that can help ease Indias infrastructure constraints. As a
research community we have the potential to contribute to Indias development.
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Department of Economic Affairs. (2007b). Panel of Transaction Advisors for PPP Projects: A
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