1. 1 PPP PROJECT FINANCING – CHALLENGES AND OPTIONS Dr. S.D. Nanda Associate Vice President India Infrastructure Finance Company Ltd. 26 th February 2009

2. 2 2 PUBLIC-PRIVATE PARTNERSHIP (PPP)- PPP LANDSCAPE IN INDIA Public-Private Partnership (PPP)- how to use the strength of both the parties. Growth rate of PPP projects by value in the last three years is 104% More than 300 PPP deal* - Roads – 186 - Ports - 38 - Energy – 32 - Airports - 6 25 PPP projects in Madhya Pradesh, out of which 24 are in Roads and 1 is in Urban Development. PPP in roads have a maximum value but have lower average size Increasingly larger PPP projects are reaching financial closure. * Source: www.pppindiadatabase.com- data upto 2008.www.pppindiadatabase.com

3. 3 3 Advantages of PPP –Rigorous risk appraisal and optimum allocation. –Robust and dynamic structure; –Government in an enabler role; –Government ownership is high; –Governance structure ensures consumer and public interests are safeguarded; –Commercial interest protected; –Allocation of risks to parties that are well equipped to deal with them; –Transparent and well-conceived contracts; –Documentation recognizes rights and responsibilities of all project-related parties; –Concerns of all stakeholders addressed- involves participation of a large number of institutions: government, politicians, banks, financial institutions, investors, contractors, consumers, NGOs, etc.

4. 4 4 GENERAL CHALLENGES RELATING TO PPP Lack of viable PPP projects - Structuring credible and bankable projects as first priority. - Need for Project Development Facility (PDF) - Absence of PPP pipeline No Regulators in Infrastructure except Power. Transparency during the entire PPP Project cycle is a key factor for success of PPP - Customized procedure with clarity of fundamental steps lacking Rating of Infrastructure Project- lack of history of Project Company Lack of proper consultation with stakeholders- - Land Acquisition - Environmental and Rehabilitation issues Monitoring of implementation of PPP- - Construction Period - Operation Period Public benefit at what cost- Issue of Tariff

5. 5 5 SPECIFIC ISSUES RELATING TO PPP At Statutory Authority - Proper Designing & Development of EOI, RFP and Concession Agreement - Pre-fix the role of each party - Single window for all approvals – is still missing At Sponsors - Fewer players - Delay in bringing Equity - Cost overrun in the Project. At Syndicator - Again fewer players - Crucial Role for developing term sheet balancing the interest of all parties - What is its stake At Lenders- Fourth Level of Appraisal - Commercial banks have been primary movers - Asset-liability mismatch for Bankers - Underdeveloped corporate bond market At SPV- - Shell Company - actual arranger/ implementer of Project. At EPC Contractors - Right expertise, manpower & machinery for implementation of the contract - is sometimes missing. - Lack of transparency in its working.

6. 6 6 GOVT. MEASURES Guidelines by the Govt. for PPP Projects. PPP Appraisal Committee established as the nodal forum in Planning Commission. Hiring consultants through a panel of Transaction Advisors. Standardization of contractual documents & Model Concession Agreements (MCAs)- Roads, Port Sectors. Opening up of more sectors for private & foreign investment. Tax benefits. Launching Viability Gap Funding (VGF). Setting up of IIFCL.

7. 7 7 INDIA INFRASTRUCTURE FINANCE COMPANY LTD. (IIFCL)  IIFCL gives overriding priority to PPP that are implemented by private sector that are selected through competitive bidding  IIFCL raises Funds from external and domestic markets.  As part of the first fiscal stimulus package, IIFCL has been allowed to raise Rs10,000 crore by way of tax free bonds  Out of these, the company has already raised Rs7369 crore in the first trache through a private placement issue. The second trache for Rs 2631 (approx) through private placement issue is open for subscription.  As part of another major initiative, the GoI, has approved the refinance scheme of IIFCL, whereby IIFCL plans to raise Rs 30, 000 crore in the next financial year. The funds so raised are planned to be used to provide refinance to the Banks to augment their liquidity condition.  The refinance facility by IIFCL is aimed at mitigating asset liability mismatch of banks while lending to infrastructure sector

8. 8 8 WHAT IIFCL HAS DONE SO FAR SectorNo of PPP projects Loan Sanctioned Rs. crore Project cost Rs. crore Roads57606335,293 Power23991393,241 Airport2215014,716 Seaport55803,772 Urban infra 11470 Total8818,7201,47,092

9. 9 9  Setting up Subsidiary at UK  Participation in Special Funds- PMDO, IIIF  DMIC- Western Corridor- pass through Loan from JBIC  MOUs with 28 banks/ FIs for backward & forward linkages – for Project Development, Syndications, Debt, Equity.  Refinance Scheme for Banks. INDIA INFRASTRUCTURE FINANCE COMPANY LTD. - INITIATIVES

10. 10 WAY AHEAD At Statutory Authority Level- –Document the role, responsibilities, risks & rewards for each party. –Consultation with stakeholders –Transparency in its working. –Model Concession Agreement to be developed for all infrastructure sectors At Sponsor Level –To bring /arrange the committed equity timely –Have financial strength to meet cost overrun without recourse to lenders. –Limited recourse till COD. –Rating of Sponsors. At SPV Level –No data is available for rating. –Allotment of the contracts for EPC/ Sub EPC Contract as per the procurement guidelines –Require transparency in its working- viz-a-viz EPC Contractor/ Sponsor..

11. 11 At Syndicator Level –Term Sheet should be just and reasonable with practical approach for timely implementation of project including Environmental & Rehabilitation issues, Procurement issues, etc. –Rate of Interest, its Reset & Tenure of loan should be reasonable. –Let Syndicator be lender also At Lead Bank Level –Proper appraisal of the Sanction& Disbursement ( Disbursement v/s Milestones achieved) –Proper monitoring of Escrow Account –Monitoring of implementation of project- Overdependence on LIE, LLC & LII- may be reduced –Proper Coordination and meaning participation with other lenders/ investors. WAY AHEAD

12. 12 At Lender’s Level- –Reduce overdependence for sanction, disbursement and Monitoring on Syndicator, Lead Bank and independent consultants. –Develop system for Monitoring of project viz-a-viz milestone defined in Concession Agreement Site visits - High risk till COD. –Manage Asset Liability Mismatch by Internal Generations/ Deposits/ investment. Refinance from IIFCL. WAY AHEAD

13. 13 WAY AHEAD At EPC Contractor Level –Proper assessment of technical & Financial strength for executing the contract. –Follow procurement guidelines for availing services/ work contract from sub - EPC contractors At Public / Stakeholders Level- –Adequate public notice and opportunity for participation for consultation. –Consultation required at designing/ development of project. –Acquisition of land –Environment & Rehabilitation Issues –Rate of Fee Charges Lenders are ready to give loans, Investors are willing to invest, but for bankable projects.

14. 14 WAY AHEAD At State Government Level - to develop guidelines by the Govt. for PPP for the state projects. - to develop the policy for acquisition of land, e.g. Gujarat. - to c reate awareness of govt policies on PPP amongst stakeholders. - To organise events for developing platforms for discussions and giving opportunity for private investment and FDI e.g vibrant Gujarat. - to develop pipeline/ shelf of PPP Projects- creating awareness, advertisement, - To develop single window for approvals in time bound manner for PPP Projects. - To develop International Financial centre- off shore entity as source of wealth for host state/ country. - To develop innovative solutions Visit our website : iifcl.org

15. 15 THANK YOU