ADB’s Assistance for PPP’s in India On-Going & Proposed Initiatives Anouj Mehta Senior Infrastructure Finance Specialist (Public Private Partnerships) ADB’s Assistance for PPP’s in India On-Going & Proposed Initiatives 26-27 February 2009, Bhopal,

BACKGROUND: Growth Fuelled Infrastructure Pressures Years of Investment Lags Rapid economic growth Rapid Urbanisation POWER Severe Capacity Pressures On All Sectors Population, Income & Consumption Levels Growth WATER TRANSPORT GDP Growth at 8.7% average last 5 years in India Railways grew at 9% freight / 8% passenger traffic last 3 years SECTORS SOCIAL

BACKGROUND: Huge Investment Needs Estimated at US$ 500 billion over next 5 years Sectors US $ billion Sectoral Shares (%) Sector-wise Public (%) Sector-wise Private (%) ELECTRICITY 150.37 30.2 73.6 26.4 ROADS 81.24 16.3 66.2 33.8 TELECOMS 65.12 13.1 RAILWAYS 62.20 12.5 83 17 PORTS 18.03 3.6 26.3 73.7 AIRPORTS 8.46 1.7 25.8 74.2 WATER SUPPLY & SANITATION 48.57 9.8 97.3 2.7 IRRIGATION 52.98 10.7 100 -- OTHER – Storage / Gas 10.46 2.1 50/82.4 50/17.6 TOTAL 497.55 100.0 70.8 29.2 70,000 MW Capacity / Coverage expansion 6,500 km Golden Quadrilateral / North-South and East-West corridors / 11,113 km Nat. Highways / 1,000 km Expressways / 7,616 km National Highways in North East Dedicated freight corridors 10,300 kms of new railway lines 21 stations’ modernisation 485 MT in major ports Over 2007 - 2012 A huge ask of private sector

Not Just Funds…….but also EFFICIENCIES Poor Tariffs, Cost Recoveries & Financial Sustainability Poor Institutional Structures SUSTAINABLE INFRASTRUCTURE Outdated MIS and FM Systems DIVERSE FUNDING SOURCES EFFICIENT USAGE OF ASSETS EFFICIENT DEMAND MANAGEMENT OF RESOURCES Weak Incentives IDEAL Majority Public Large T&D / NRW Losses Large Wastages REALITY Parts of India 1 million irrigation wells added each year Groundwater withdrawals exceeding annual recharges Increased salinity Fluoride & arsenic contamination Deepening wells Increasing impact on natural resources which are fast depleting Interlinked – Efficient, predictable, financially sustainable enterprises will attract diverse funding options

Typical Situation Implications Less than 135 lpcd supplied – even the above 100 lpcd hugely un-even Coverage poor Sewerage situation even worse WILL GET WORSE as population increases Bulk water sources under severe pressure – looking for sources 50 kms away from city now Investments of Rs 500 + crores required in BWS, Distribution etc Even the 4 buckets a day will fall to 2 if nothing is done!!

Funding?? Normal focus will be To enhance bulk water Find investments from government for capex JNNURM – limited supply Commercial finance – limited SUSTAINABILITY is the key – both JNNURM and banks want that for lending Certainly not sustainable!!

Phase in a PPP Solution Focus is not just funds but IBM: PPP Phase in Institutional ring fencing and efficient delivery Benchmarking and measuring performance improvements Managing for MAINTENANCE not just CAPEX PPP Phase in Short term for technical baseline development, institutions development and revenue enhancements - for improving financials and confidence Medium term for expansion and larger capex investments

ADB Assistance for PPPs

PPP is seen as one key solution Need for an Enabling Environment Attract FRESH FUNDS into sector Develop Utility Institution’s EFFICIENCIES Need for an Enabling Environment P S S T Faster response to CONSUMERS P Policy Strengthening S Strong Stakeholder Capacities S Supply of long term funds T Trust Amongst ALL Stakeholders Policy for private – domestic & foreign investment Regulation & Monitoring Incentives for PPP’s User charges policies Viability support Local and central government capacities to contract with and monitor PPPs Good transaction advisory support Good domestic contractors / operators Long term to match long gestation infrastructure Competitive and risk based Strong domestic funding institutions with risk analysis ability Awareness for all – ee’s, consumers, private players Transparency in process Participatory processes Government of India is quite far seeing in many of these areas and there is already a strong interest from regional governments in trying to understand the wealth of initiatives that govt of India is taking for PPPs ADB is supporting several of these initiatives at the request of Government of India

ADB’s Support to Government of India for Mainstreaming PPPs Follows the Value Chain Technical Assistance (TA) - Funds - Expertise Catalytic Lending Products - With & Without Recourse Co-financing Credit enhancement products Awareness & Capacity Building Sector Specific PPP Policy Development PPP Project Structuring – Demonstration Projects Lending Window for PPP Projects Non / Sub Sovereign Facility For all stakeholders Frameworks for PPP Good early precedents Catalytic risk sharing funds

ADB Initiatives: Capacity Building - State Level TA 4890: Mainstreaming PPP at State Level (on-going) SCOPE $ 3 million Technical Assistance program Further $2 million in final stage of Board approval – approved already by President Focused on 15 states FOCUS: Strengthening PPP Cells and Capacities by a) providing PPP and MIS in-house consultants for an extended period and b) access to legal advisory services PREPARATORY: PPP constraints identification, PPP Frameworks and policies development CAPACITY DEVELOPMENT: Training, manuals, good practices, improving systems for bid document and project appraisals, risk management systems INSTITUTIONALISATION: MIS development, consultations with stakeholders, quality checks and improvements on PPP/bid documents, project pipeline conceptualisation and supervision of projects

ADB Initiatives: Capacity Building - State Level TA 4890: Mainstreaming PPP at State Level (contd.) STATUS 13 PPP Specialists – 12 states and DEA 14 MIS specialists appointed – 14 states and DEA A Legal Advisory Panel A large number of activities are taking place within the PPP Cells: Workshops and training activities – including on risk, capacity development, sector focus (urban, health, education), etc Exposure Visits and consultations with private sector and international governments Value added assistance being provided by cells to projects from across sectoral departments and ministries in project risk structuring, improving bid documents Assistance being provided for financial closure including VGF applications Development of action plans for project pipeline development – urban, health, education Several project concepts for PPP projects are being developed within the states for further DEA / ADB assistance Tremendous Response from States

ADB Initiatives: Capacity Building - Central Level TA 4993: Mainstreaming PPP at Central Line Ministries (on-going) SCOPE $ 2 million Technical Assistance program Focused on 6 line ministries Strengthening PPP Cells and Capacities FOCUS Strengthening PPP Cells and Capacities by a) providing PPP and MIS in-house consultants for an extended period and b) access to legal advisory services PREPARATORY: PPP constraints identification, PPP Frameworks and policies development CAPACITY DEVELOPMENT: Training needs assessments, training, good practices inculcation, improvement in systems for project appraisals and bid processes INSTITUTIONALISATION: MIS development, consultations, quality checks and improvements on PPP/bid documents, project pipeline conceptualisation and supervision of projects

ADB Initiatives: Sector Specific PPP Policy Assistance Health & Education PPP Frameworks (TA 4890 Related) SCOPE Assistance provided for developing a PPP Framework for Health and Education KPMG Consultants recruited Cross sector-division ADB team worked with DEA (SAGF, SAUD, SANS) ACTIVITIES Consultation Visits with 5 states - T.N., Orissa, Uttarakhand, Rajasthan, A.P. ADB-KPMG Consultants Report Produced 6 PPP Models Identified Framework for PPP development outlined Consultation Workshops on Draft Report held - Ahmedabad & Panjim (February and April) 2008 Workshop to evolve project concepts held - Panjim, April 08 – leading to a proposed concept pipeline of 20 projects Assisted by PPP Cells in co-ordination and workshops – now assisting on project proposal development Meetings being held with DEA and ADB for structuring projects and taking to market Urban PPP workshops for all states held in Jaipur and Hyderabad in October 2007 (cross ADB divisions) States developed action plans for PPP projects Follow up activities co--ordinated by PPP Cells leading to pipeline of over 20 PPP project proposals from states Tremendous interest from states in developing projects further in a challenging area

ADB Initiatives: PPP Project Structuring Assistance TA PPP Pilot Projects Initiative CONCEPT Projects being evolved in the PPP Cells and across states and sectors Need for assisting in structuring good pilot PPP projects Create “demonstration” models Allows for replication across country ADB presence will improve risk perception Catalyse private sector involvement List of potential projects for TA already identified by DEA with assistance from PPP Cells – further can be added on TA will leverage ADB TA funds with GOI development funds (IIPDF) to quickly provide transaction advisory and project preparation assistance to PPP proposals Flexible, value added, quick response modality – first such TA from ADB

THANK YOU For inquiries: Anouj Mehta Tel No.: +632 632-5930/5968 Fax No.: +632 636-2337 Email: anoujmehta@adb.org