PUBLIC PRIVATE PARTNERSHIP IN INDIA

Project report

Submitted byAshutosh Tyagi (GMP 4002) Kuldeep Kapil (GMP 4013) Ambrish Purohit (GMP 4021) Shrestha Shekhar (4037)

OVERVIEW
India - A fast growing free market democracy
Indias competitiveness from a natural and human resources standpoint is making it the destination of choice for investors. This highly diversified economy has shown rapid growth and remarkable resilience since 1991, when economic reforms were initiated with the progressive opening of the economy to international trade and investment. Events such as the Asian currency crisis, the dotcom (.com) bust and rising oil prices have had no significant impact on Indias growth; with the economy recording an average annual GDP growth of 6.5% over the past decade. Going forward, the country is targeting an annual GDP growth rate of 7-8%. India is in the global arena for increased foreign investment - both through the Equity markets - termed Foreign Institutional Investment (FII) - and Foreign Direct Investment (FDI). While its size and growth potential make India attractive as a market, the most compelling reason for investors to be in India is that it provides a high Return on Investment. India is a free market democracy with a legal and regulatory framework that rewards free enterprise, entrepreneurship and risk taking. While the India growth story is often plugged as the saga of corporate enterprise and innovation, the governments contribution to its making remains largely unsung. Be it in the form of policy reforms or development of infrastructure, the government, both at the central and the state levels, has been working in tandem to make India the second most attractive investment destination in the world. The latest AT Kearney report on FDI Confidence Index says that India is, in fact, more popular than US among manufacturing investors. The state governments have already embarked on a war path to make their respective states investment friendly. They are on a three-point agenda:

Providing basic infrastructure and encourage private sector participation in infrastructure provision Providing policy stability to businesses to encourage investment and growth Creating employment opportunities by developing the services sector

Infrastructural costraints
Infrastructure shortages are proving a key constraint in sustaining and expanding Indias economic growth and ensuring that all Indians are able to share in its benefits. To meet this challenge, the Government of India is committed to raising investment in infrastructure from its existing level of below 5% of GDP to almost 9%. This suggests that more than $450bn will be required to fund infrastructural development in India over the next five years. However, the scope for making improvements on this scale is fundamentally constrained by the state of public finances. The combined deficit of the central and state governments is roughly 10% of GDP and government borrowing is capped through the Fiscal Responsibility and Budgetary Management Act. This necessarily limits the capacity of the State to finance as much infrastructural development as is required and it is likely that at least one-third of the finance needed for infrastructural development over the next five years will be funded by the private sector. Responding to this challenge, the Government of India is actively promoting the expansion of Public Private Partnership (PPP) activities across all key infrastructure sectors including highways, ports, power and telecoms. To date, various PPP models have been tried in India, including public contracting; passive public investment (equity, debt, guarantee, grants); joint ventures; and long-term contractual agreements (BOT, BOOT, BOLT). Regardless of the model pursued, however, the overwhelming consensus is that PPPs are the primary means by which the Government of India will seek to overcome the infrastructure deficit.

PUBLIC - PRIVATE PARTNERSHIP (PPP)

Defining public private partnership
There is no widely accepted definition of a Public Private Partnership (PPP). In broad terms, PPP refers to an arrangement between the public and private sectors with clear agreement on shared objectives for the delivery of public infrastructure and/or public services. It is an approach that public authorities adopt to increase private sector involvement in the delivery of public services. In many countries, PPPs are now a central feature of ongoing efforts to modernise public services and infrastructure.

The Government of India defines PPPs as: A partnership between a public sector entity (sponsoring authority) and a private sector entity (a legal entity in which 51% or more of equity is with the private partner/s) for the creation and/or management of infrastructure for public purpose for a specified period of time (concession period) on commercial terms and in which the private partner has been procured through a transparent and open procurement system. (Department of Economic Affairs, Ministry of Finance, Government of India, 2007a) In some types of PPP, the government uses tax revenue to provide capital for investment, with operations run jointly with the private sector or under contract. In other types (notably the private finance initiative), capital investment is made by the private sector on the strength of a contract with government to provide agreed services. Government contributions to a PPP may also be in kind (notably the transfer of existing assets). In projects that are aimed at creating public goods like in the infrastructure sector, the government may provide a capital subsidy in the form of a one-time grant, so as to make it more attractive to the private investors. In some other cases, the government may support the project by providing revenue subsidies, including tax breaks or by providing guaranteed annual revenues for a fixed period. Typically, a private sector consortium forms a special company called a special purpose vehicle (SPV) to develop, build, maintain and operate the asset for the contracted period. In cases where the government has invested in the project, it is typically (but not always) allotted an equity share in the SPV. The consortium is usually made up of a building contractor, a maintenance company and bank lender(s). It is the SPV that signs the contract with the government and with subcontractors to build the facility and then maintain it. In the infrastructure sector, complex arrangements and contracts that guarantee and secure the cash flows, make PPP projects prime candidates for Project financing. A typical PPP example would be a hospital building financed and constructed by a private developer and then leased to the hospital authority. The private developer then acts as landlord, providing housekeeping and other non medical services while the hospital itself provides medical services.

Origin:
Pressure to change the standard model of Public Procurement arose initially from concerns about the level of public debt, which grew rapidly during the macroeconomic dislocation of the 1970s and 1980s. Governments sought to encourage private investment in infrastructure, initially on the basis of accounting fallacies arising from the fact that public accounts did not distinguish between recurrent and capital expenditure.

The idea that private provision of infrastructure represented a way of providing infrastructure at no cost to the public has now been generally abandoned, interest in alternatives to the standard model of public procurement persisted. In particular, it has been argued that models involving an enhanced role for the private sector, with a single private sector organisation taking responsibility for most aspects of service provisions for a given project, could yield an improved allocation of risk, while maintaining public accountability for essential aspects of service provision. Because of the focus on avoiding increases in public debt, many private infrastructure projects in the early 1990s involved provision of services at substantially higher cost than could have been achieved under the standard model of public procurement. The central problem was that private investors demanded and received a rate of return that was higher than the governments bond rate, even though most or all of the income risk associated with the project was borne by the public sector. A number of Australian studies of early initiatives to promote private investment in infrastructure reached the conclusion that, in most cases, the schemes being proposed were inferior to the standard model of public procurement based on competitively tendered construction of publicly owned assets (Economic Planning Advisory Commission (EPAC) 1995a,b; House of Representatives Standing Committee on Communications Transport and Microeconomic Reform 1997; Harris 1996; Industry Commission 1996; Quiggin 1996). One response to these negative findings was the development of formal procedures for the assessment of PPPs in which the central focus was on value for money rather than reductions in debt. The underlying framework was one in which value for money was achieved by an appropriate allocation of risk. These assessment procedures were incorporated in the private finance initiative and its Australian counterparts from the late 1990s onwards. Although the general view that governments should seek value for money has been widely accepted, there have been continuing disputes over whether the guidelines designed to achieve these goals are appropriate, and whether they have been correctly applied in particular cases. Much of the discussion has been based on debates over the UK private finance initiative. Public-Private Product Development Partnership (PDP): PDPs are a class of PPPs that focus on health product development for diseases of the developing world. PDPs have formed over the past decade to unite the public sectors commitment to international public goods for health with private industrys expertise in product development and marketing. These not-for-profit organizations bridge publicand private-sector interests, with a view toward resolving the specific incentive and financial barriers to increased industry involvement in the development of safe and effective products. An example of a successful PDP is the Medicines for Malaria Venture (MMV), a Swiss foundation whose mission is to bring public, private and philanthropic sector partners together to fund and manage the discovery, development

and delivery of new medicines for the treatment and prevention of malaria in diseaseendemic countries.

Promotion of PPP Projects: There came a time when the Infrastructure funding was underestimated, and the PPP projects were promoted. On May 25, 2007 (UNI) Planning Commission Deputy Chairman Montek Singh Ahluwalia placed the figure for projects under the public-private partnership at three percent of GDP in 2011 admitting that the Plan panel had underestimated the resource requirement for development of the infrastructure sector. With public sector resources being committed largely for the development of rural infrastructure and social sectors, the solution lies in promoting public private partnership in a much bigger way to meet the much bigger funding requirements of infrastructure, Dr Ahluwalia said inaugurating a conference on Public Private Partnership (PPP) in State Highways. Like the above mentioned examples, there were many such instances where the infrastructure funding was underestimated and the PPP projects were promoted. And today the time has come when PPP plays a significant role in the urban and rural development in India.

MAIN FEATURES OF PPPS:

1.
Cooperative and contractual relationships: PPPs represent cooperation between the government and the private sector. PPPs are not the same as privatization in that both public sponsors and private providers function as partners throughout project development and delivery, and often in operation and maintenance. The most successful partnership arrangements draw on the relative strengths of both the public and private sector in order to establish complementary relationships between them. PPP arrangements are long-term in nature, typically extending over a 15 to 30 year period. This is a factor which helps to which establish productive and lasting relations between the public and private sectors. Demonstrating an enduring public sector commitment to the provision of quality services to consumers, under terms and conditions agreeable to both the government and the private sector, PPPs are used to develop and operate public utilities and infrastructure. These collaborative ventures are built around the expertise and capacity of the project partners and are based on a

contractual agreement, which ensures appropriate and mutually agreed allocation of resources, risks, and returns 2. Shared responsibilities: While the specific responsibilities for delivery will vary according to each project, a key feature of PPPs is that these responsibilities will be shared between the public body and the private consortium. In some initiatives, this might require the private sector company to play a significant role in all aspects of delivery of the service, while in others its functions may be more limited. However, unlike instances of privatization, the overall role of government remains unchanged in a PPP: it is the government which remains ultimately accountable and responsible for the provision of high quality services that meet the public need. 3. A method of procurement: PPPs are instruments for government bodies to deliver desired outcomes to the public sector, by making use of private sector capital to finance the necessary assets or infrastructure. The private company is rewarded for its investment in the form of either service charges from the public body, revenues from the project, or a combination of the two. This renders affordable those projects that might not otherwise have been feasible, because the public body was unwilling or unable to borrow the requisite capital. PPPs allow the private sector to play a greater role in the planning, finance, design, operation and maintenance of public infrastructure and services than under traditional public procurement models. Moreover, where traditional procurement models begin with the question of what assets the public body has as its disposal and how these might be used to deliver required services, PPP arrangements place the emphasis on the desired service or outcome as identified by the public organization and how the private sector might help to make this happen. 4. Risk Transfer : A key element of PPPs is their potential to deliver public projects and services in a more economically efficient manner. At the beginning of the relationship, potential risks associated with the project are identified and each party adopts those which it is best equipped to manage. The public sector can therefore transfer appropriate risks to the private partner, who has the necessary skills and experience to manage them. For example, overall risk to the public sector can be reduced by transferring those associated with design, construction and operation to the private partner. The incentive for the private body comes in the form of higher rates of return related to high standards of performance. 5. Flexible Ownership: PPPs enable flexible arrangements between public and private bodies, where the public body may or may not retain ownership of the project or facility that is produced. In some cases, the private organization may be contracted only to construct facilities or supply equipment, leaving the public body as owners, operators and maintainers of the service. Alternatively, the public sector may decide it is more cost-effective not to own directly and operate assets, but to purchase these instead from the private entity. Services may be purchased for use by the government itself, as an input to provide another service, or on behalf of the end user.

Approval Procedures for PPP Projects:

The Central Government has in place an elaborate system for investment approval relating to Public sector projects revolving around the Public Investment Board (PIB) chaired by Secretary, Department of Expenditure with the Planning Commission providing independent appraisal through the Project Appraisal Division, followed by approval of the Cabinet/ CCEA. Expenditure on approved projects is governed by financial rules and delegation of powers. As government shifts to development through Public Private Partnership (PPP), it would be necessary to establish suitable approval mechanisms that aim at securing value for money. PPP projects in sectors such as roads, ports, airports and urban infrastructure are not ordinary private sector projects, which are governed by competitive markets, where prices are determined competitively and government resources are not involved. In the PPP projects, there would be need for due diligence by the government because the projects typically involve: a. Transfer of public assets, including land (e.g. an existing road or airport facility);

b. Delegation of governmental authority to collect and appropriate user charges that are levied by force of law and must therefore be reasonable;

c. Provision of services to users in a monopoly or semi-monopoly situation, which imposes a special obligation on the government to ensure adequate service quality; and

d. Sharing of risks and contingent liabilities by the government, e.g. when claims are made under the respective agreements or when the Central Government has to provide a backup guarantee for non-performance by the entity granting the concession. Even where an explicit guarantee is not included there is a danger that non-performance on the part of State Governments could attract claims under bilateral investment promotion agreements.

PPP Appraisal Committee: A PPP Appraisal Committee (PPPAC) on the model of the PIB will be set up comprising of the following:

Secretary, Department of Economic Affairs (in the Chair) Secretary, Planning Commission Secretary, Department of Expenditure; Secretary, Department of Legal Affairs; and Secretary of the Department sponsoring a project.

The Committee would be serviced by the Department of Economic Affairs, who will set up a special cell for servicing such proposals. The Committee may co-opt experts as necessary. The Ministry of Finance will be the nodal Ministry responsible for examining concession agreements from the financial angle, deciding on guarantees to be extended, and generally assesses risk allocation from the investment and banking perspectives. It would also ensure that projects are scrutinized from the perspective of government expenditure. The Planning Commission will set up a PPP Appraisal Unit (PPPAU), similar to the existing PAMD which appraises public sector projects). This unit will prepare an appraisal note for the PPPAC providing specific suggestions for improving the concession terms, where this is possible. Ministry of Law and Justice, Department of Legal Affairs, would also be represented on the PPP Appraisal Committee, as the concession agreements would require careful legal scrutiny. In view of the size and complexity of PPP projects, it may be necessary to secure the assistance of qualified legal, financial or technical experts to undertake the requisite due diligence. This may be necessary in order to protect government interest, particularly in the face of highly qualified expertise that the private sector participants may employ while negotiating these projects. Planning Commission and the Finance Ministry would engage the experts as necessary. Projects, where the capital cost or underlying value of the assets is more than Rs.100 crore would be brought before the PPPAC Appraisal Committee. Once cleared by the Committee, the project would be put up to the Competent Authority for final approval.

Project Formulation and Appraisal: The Ministry concerned may develop individual proposals using legal, financial and technical consultants and also avail the benefit of an inter-ministerial consultative group, if necessary. The proposal as formulated by the Ministry would be considered by the PPP Appraisal Committee for in principle clearance before inviting expressions of interest from prospective investors. Following the in principle clearance of the PPP Appraisal Committee, the concerned Ministry may invite expressions of interest and develop the documents further. Where necessary inter-ministerial consultations and pre-bid conferences with bidders may also be held. The concession agreements thus finalized for the purposes of inviting financial bids should be cleared by the PPP Appraisal Committee before technical and financial bids are invited. In cases where the PPP project is based on a duly approved Model Concession Agreement (MCA), in principle clearance by the PPP Appraisal Committee would not be necessary. In such cases, approval of the PPP Appraisal Committee may be obtained only before inviting the technical and financial bids. In case there are departures from the MCA which are not material or substantive, such departures may be cleared by the PPP Appraisal Committee with the approval of Finance Minister. Where the departures are material or substantive, approval of the authority that approved the MCA would be necessary. For projects where the capital costs or underlying value of the assets is less than Rs.100 crore the Department of Expenditure would issue detailed guidelines for appraisal of concession agreements. Such projects would not require appraisal/approval of the PPP Appraisal Committee and would be cleared by the EFC/SFC as applicable. The above arrangement enshrines an independent approval process. The administrative Ministry can adopt a pro-active developmental approach while the Planning Commission can focus on due diligence, consistency with processes in other sectors and consideration of best practice. The Finance Ministry can consider the extent of direct and indirect Central Government exposure and also act as an arbiter.

ROLE OF PPP
The private partner in a PPP may be a private company, a consortium of private interests, or a nongovernmental organisation (NGO). Most often, a PPP project will

comprise a public sector agency and a private sector consortium composed of contractors, maintenance companies, private investors, and consulting firms. The consortium will often bring into being a special purpose vehicle (SPV) to contract with the public authority as well as with the subcontractors whose task it is to build and maintain the facility in question. The various parties and their respective roles in

PPPs include: The Public agency: purchase The role of the public body is to specify clearly the desired outcomes or outputs, and to avoid identifying a particular means of delivering these. If services are delivered in accordance with the agencys performance standards, they then pay the PPP provider (most often, the SPV). Service providers: Design, construction, operation and maintenance Private actors have a crucial role in developing innovative solutions in order to meet the requirements of the PPP in an effective and efficient manner. Typically, the SPV will subcontract construction, operations and equipment supply to suitable providers, who may be the parent companies of the SPV and therefore, also equity investors in the project. The SPV also needs to raise the necessary capital to build the assets required for service delivery. Once service delivery has commenced, the payment it receives from the procuring agency can be used to pay suppliers and subcontractors and repay debts. Private financiers: Equity investment and debt provision Generally, the construction and operations companies which make up the SPV are also the equity investors. Equity stakes may also be taken by fund managers and other financial institutions. Because of their interest in generating a return on their outlay, equity investors have a strong incentive to ensure high standards of service performance. The PPP contract provides the sole source of revenue for the SPV and provided the latter meets the required standards, it will be paid by the public authority and so can service its debts. Consultants: Project advice Both the public body and the private sector consortium may decide to engage technical, legal and financial consultants to assist in structuring the tender or composing a viable PPP proposal. Experienced advisors can bring their knowledge and expertise to highlight best practices, as well as identify potential problems and pitfalls. Success Story:

In Thane the concept of Public Private Partnership has enabled to explore the spectrum of possible relationship between public and private actors for cooperative provision of infrastructure services. It has helped in enhancing the technical and managerial efficiencies. The mechanism has facilitated the corporation better responsiveness to consumer needs and satisfaction. PPP has enabled the corporation in providing viability gap funding with the objective of making the project commercially viable. This has further encouraged in creation of assets and their management and operation through private investments. The mechanisms of PPP is supporting the corporation in keeping the financial position intact and leverage the funds to take up additional investments towards creating greater infrastructure which will ultimately accelerate eco-growth of the city in an equitable and sustainable manner. December 23rd, 2008 NEW DELHI - Reliance Infrastructure, an Anil Dhirubhai Ambani Group company, became the sole bidder for a Rs.26.76-billion (Rs.2676-crore) greenfield expressway project in the national capital region, the company said Wednesday. The company emerged as the sole bidder for 135 kilometers greenfield Eastern Peripheral Expressway project, covering Haryana, Delhi and Uttar Pradesh on build, operate and transfer (BOT) basis, in spite of two extensions from NHAI (National Highway Authority of India), it said in a statement. Reliance Infrastructure is playing a major role in the PPP projects in India. Recently it has got a total of three PPP projects in India.

STRENGTHS & WEAKNESSES

Strengths:
1. Benefits to the public sector: The foremost benefit of PPPs, alluded to above, is the scope such partnerships allow for public authorities to raise capital for high priority works that might otherwise not be possible in the face of budgetary and borrowing constraints. Here, PPPs can draw on private sector expertise in order to deliver services and infrastructure efficiently and cost-effectively, and to bridge the gap between the resources required and those available from the public purse. Gains in efficiency and effectiveness can be realised in a number of ways. Most importantly, the PPP approach encourages private sector innovation by allowing government to delegate responsibility for service design and construction to the private contractor. This enables the public body to identify desired services, outcomes and outputs, while allowing room for the private contractor to innovate in the search for the most appropriate solution to meet those requirements. Additionally, PPPs can enable the optimum allocation of public resources in the pursuit of infrastructural development. Whereas traditional models of public procurement focus on achieving the lowest upfront costs in delivering infrastructural projects PPPs concentrate on delivering cost effectiveness over the duration of the asset including, in particular, those costs associated with operation and ongoing maintenance. This allows

the public sector to realise value for money for the entire life of the project or service, rather than just in its initial construction phase.

2. Benefits to the private sector: Engaging in PPPs offers private sector companies a wide range of business opportunities that were previously confined to public agencies. Given the long term nature of these relationships, undertaking work under PPP arrangements provides a stable foundation for the growth of the business. In addition, PPP arrangements encourage the private sector to engage in a broader spectrum of activities, throwing open the possibility of designing and delivering innovative solutions, rather than merely constructing assets to existing standards and designs. 3. Benefits to the public: By combining the skills and expertise of public and private partners, PPPs are able to provide services which meet the needs of the public in a more efficient and costeffective manner. When appropriately designed and implemented, PPPs can yield better quality services without compromising public policy objectives or broader public need. At the outset of the PPP relationship, the desired quality of service to be achieved from the development of the infrastructural asset is clearly specified, and the expectation is that high standards will be maintained throughout the duration of the project. This contrasts with traditional procurement methods, where the construction of assets is formally separated from operation and maintenance, and consequently, levels of service and conditions of assets will frequently decline over time.

Weaknesses (and risks):

1. management control with private sector. Firstly, there is the possibility that the public sector may lose managerial control of its services. Under PPPs, the management of outputs is transferred to the private sector, meaning that the public sector has very limited ability to intervene, as long as services are being delivered. The public body has no day-to-day control over the management of the project and is reduced in its capacity to change the project or cooperate with wider public sector services, and indeed may not be able to make use of its own expertise in the area. 2. time consuming and expensive process of PPP

In order for a PPP to be successfully realized, it is vital that before bidding starts, a detailed, clearly structured project appraisal and specification of desired outputs is drawn up. Although this is important to the development of projects that are affordable and provide value for money, it has the potential to make procurement a lengthy and costly procedure. 3. higher cost of finance in the private sector. The weighted cost of finance in the private sector, including both debt and equity, is typically between 1% and 3% higher than the public sectors cost of debt on a non- risk adjusted basis. This has the

effect of increasing the overall cost of PPP in comparison to traditional procurement methods, unless this can be offset by the increased cost efficiencies that the private sector should deliver. 4. inflexible instruments Fourthly, PPPs can sometimes prove to be rather especially given the long term nature of most PPP contracts. While there can be significant financial benefits in setting rigidly defined output specifications for the life of the PPP, these should be weighed against the inflexibility this inevitably brings. Under PPP arrangements, there is limited potential for modifying services or flexible spending. Certain sectors of service provision may require a much greater degree of flexibility and in these cases, an approach which makes use of long-term rigid specifications of outputs may prove difficult or counterproductive. 5. public criticism or hostility Fifthly, in some areas of public service provision there may be greater public demand for accountability and responsiveness than in others. This may give rise to towards PPP arrangements. Moreover, under PPP arrangements, lines of accountability can be less straightforward (and transparent) than under traditional methods of procurement where lines of accountability (for example, to government ministers) are more direct and immediate. In these circumstances, there may be a need for greater government involvement in the relationship, to ensure compliance and responsiveness to public concerns.

COMMON MISCONCEPTIONS ABOUT PPPS

Despite criticism of PPPs, there have been rather more successes than failures in this innovative field. Where failure can be identified, it is largely confined to the early years of PPP use. Moreover, many of the initial teething problems have been overcome as a more sophisticated understanding of how best to use PPPs has developed. A few of the most common misconceptions about PPPs are addressed below:

They are the same as privatization Public authorities lose control over service provision PPPs only apply to infrastructural projects The principal reason to follow a PPP route is to avoid public sector debt Service quality will decline Public sector staff will lose out The cost of the service will increase to facilitate private profit The public sector can finance services at a lower cost than the private sector

Case Studies: Tirupur Water and Sewerage Project: This case represents the first instance of a public-private partnership to access commercial funding for infrastructure project in the water sector in India. The case shows how the support of key stakeholders, including industry, the donor community, local government, and residents, was vital to the projects innovative financing structure and ultimate success. Support from government, industry, residents, and the donor community were marshaled effectively. Cochin International Airport Limited (CIAL): This case illustrates the direct connection between user interests and long-term profitability. As a PPP model for large, complex infrastructure projects, CIAL offers many lessons for what obstacles to expect and how they may be overcome. Its history reveals a formula for successfully implementing PPP projects within short time periods, at significantly lower cost, while retaining commercially viable levels of profitability. Reasons of Failure of some PPP projects: If a contract is inadequately managed, one or more of the following problems may occur and potentially render the project unworkable:

The provider may assume control, leading to unbalanced decisions that do not reflect the interest of the public sector; Decisions are made at inappropriate times; New business processes are unsuccessfully integrated with existing ones, and fail; People within either sector may fail to understand their roles and responsibilities; Disputes and misunderstandings may arise, some of which might be inappropriately escalated; Progress may be slow or there might be an inability to move forward; The desired benefits may not be achieved; Possibilities for improved performance or value for money might be lost.

There are a number of reasons why the public sector may fail to manage a PPP project successfully:

Poorly drafted contracts; Contract managers assigned insufficient resources; Lack of experience in either public sector or provider teams;

A failure to adopt an attitude towards partnership; Personality clashes between project team personnel; Lack of understanding of complexity, context and dependencies of contract; Unclear identification of authority and responsibility in relation to commercial decisions; Lack of measurement of performance; Focus on existing arrangements rather than emphasis on potential improvements, Inadequate monitoring and management of statutory, political and commercial risk.