WWW.ABSTRACT.DISLIB.INFO
FREE ELECTRONIC LIBRARY - Abstracts, online materials
 
<< HOME
CONTACTS



Pages:   || 2 | 3 | 4 | 5 |

«OPTIMAL RISK ALLOCATION IN PUBLIC-PRIVATEPARTNERSHIP (PPP) PROJECTS IN INDIA Prof M Kakati Professor, and Former Dean, Department of Business ...»

-- [ Page 1 ] --

The 2016 WEI International Academic Conference Proceedings Boston, USA

OPTIMAL RISK ALLOCATION IN PUBLIC-PRIVATEPARTNERSHIP (PPP) PROJECTS IN INDIA

Prof M Kakati

Professor, and Former Dean, Department of Business Administration, Gauhati University, Guwahati, India

Mr Pallav Baruah

Former Manager(Technical), National Highway Authority of India, Executive Engineer, IIIT, Guwahati, India

Abstract

The risks involved in PPP projects are significant and need to be thoroughly analysed, researched and managed. The contractual misallocation of risks is the leading causes of disputes during construction and operation phases which in turn are leading to sub- optimal value-for-money in PPP projects. Hence, proper risk identification and allocation is a key to successful PPP project implementation and is important for the public client & the private bidders to assess all the potential risk through the whole project life. This paper analyses thirty PPP projects in India and identifies a plethora of risks faced by these projects, their frequency of occurrence during the development, construction and operation phases.

The paper also presents and discusses the perceptions/views of 62 experts (who have long experience in handling PPP projects) regarding (i) optimal risk allocation amongst the partners (private sponsors/promoter, government, lender, consultants etc) (ii) misallocation of risks and their consequences (iii) preferred risk mitigation strategies (iv) deficiencies in PPP project management (v) factors leading to success and factors hindering the performance of PPP projects (vi)changes of risks criticality over the whole project life(vii) preferred government supports and (viii) expected risk allocation framework. The perceptions of 62 experts were captured through three rounds of interviews.

These research findings will enable public sector clients to establish more efficient risk allocation frameworks in the early stage of project development and also private bidders (both local and foreign) to assess all the potential risks through the whole project life before bidding for the same; which in turn will minimise disputes & economic costs and maximize the value-for-money in PPP projects.

Key words: Risk allocation, PPP projects, risk criticality, risk severity, performance matrix, success factor, value-for-money Introduction India offers today the world’s largest market for PPP projects and is largest recipient of fund from abroad. The volume PPP projects completed & under implementation in India is 2563 with an investment of US $ 179.7 billion as on March 31, 2013. A number of initiatives taken during the tenth and eleventh five year plan had resulted in the award of a large number of PPP projects especially in sectors such as highways, urban infrastructure, airports, sea-ports, railways and power both in Central and State level. The twelfth five year plan (2012-2017) of India has envisaged US$ 819.8 billion investment in infrastructure projects of which the share of PPP projects is estimated at 48% i.e. US$ 393.5 billion. Information on a large number of projects in pipeline suggests huge opportunities for foreign and domestic investors to invest in PPP projects in various sectors across the country. PPP projects offer good return on investment especially to the sponsors (private party). However it is not sure whether good return is sufficient to compensate the high risk assumed by the sponsors.

The risks involved in PPP projects are significant and need to be thoroughly analysed, researched and managed to minimize disputes & costs and maximize value-for–money. The objective of this paper is to identify a plethora of risks faced by PPP projects in India, their frequency of occurrence during the development, construction and operational phases and also to discuss the perceptions/views of experts regarding (i) optimal risk allocation amongst the partners (private sponsors/promoter, government, lender, consultants etc) (ii) misallocation of risks and their consequences (iii) preferred risk mitigation strategies (iv) deficiencies in PPP project management (v) factors leading to success and factors hindering the performance of PPP projects (vi)changes of risks criticality over the whole project life (vii) preferred government supports and (viii) expected risk allocation framework.

Issues requiring further research works The studies related to PPP projects focuses on seven areas– risk management, integration research, governance issues, investment environment, procurement, economic viability and financial packages (Ezeldin et.

al., 2013). Amongst them, the risks associated with PPP along with their management techniques occupy a considerable percentage and is still considered an area of concern in PPP project management.

–  –  –

The following deficiencies/issues has been indentified where there is need to do further research works Many literatures have concentrated on identification of critical risks or risk criticality. However, none of the researches has focussed on how risk criticality changes over the different phases of project life (development, construction, and operation & maintenance phase)

• Most of the literatures have examined who are the best party (public or private agencies) to management the risk; but hardly examine the misallocation of risk for different categories of risk and how to share risk amongst the consortium of private partners





• The current literature has hardly attempted to establish the relationship between risk criticality of PPP projects and their influence on the success of PPP projects in reality.

• The success of PPP projects must be judged over a long period using different criteria. The existing literature is less focused on the criteria to be used.

This study is trying to address of the some issues highlighted above.

Methodology A mixed approach of on-site- observation, interviews, and questionnaire survey (among Government representatives, promoters/sponsor/developer, lenders, consultants ) and case studies were used for achieving the goals/above objectives of this research The design of the survey questionnaire followed the methodology adopted by by Thomas A. V. (2002), Ho Y. and Wang H. (2008), Maniar H. (2010).

Figure 1: Details of information gathering techniques used

The prepared questionnaires have been further subjected to test of reliability and validation with the help of standard statistical tools like Cronbach's alpha. Cronbach's alpha value for each group of respondents was found to be more than 0.60 indicating that data collected through the set of questionnaires/interview were fairly consistent.

Table 1: Cronbach's Alpha for different category of respondent

–  –  –

All India questionnaire surveys (in three stages) were conducted among four major stake holders/participants (Government representatives, promoters/developers, lenders and consultants) of Indian PPP projects. A detailed case study analysis of 30 infrastructure projects was also carried out and survey findings have been validated through the case study comparison. The category wise details of respondents of survey are presented in Table 2.

–  –  –

Risk can be classified on basis of allocation or mitigation strategy in an infrastructure project. Thus

there are:

• Transferrable risks, i.e., risks fully transferrable to the private sector.

• Retained risks, i.e., risks for which the government bears the costs, e.g., the risk of delay in gaining project approvals.

• Shared risks, i.e., risks that are shared based on a combination of the above two allocations due to the nature of the risk.

–  –  –

Unlike many studies, this research focuses more on assessment of risk criticality rather than just identifying risks factors and their primary allocation. Risk criticality is defined as the combined effect of the probability of occurrence and the impact of a risk event or a risk factor.

The index developed by Wang et. al. (2000) was used for measuring risk criticality.

Criticality index =

Where n1 = number of respondents who answered “Most Critical”: n2 = number of respondents who answered “Very Critical”: n3 = number of respondent who answered “Critical”: n4 = number of respondents who answered “Some What Critical”: and n5 = number of respondents who answered “Not Critical”.

–  –  –

Procurement process in Indian PPP projects The bidding process for item rate contracts ( i.e. EPC / traditional procurement process) and for PPP projects (both toll and annuity) in India is typically divided into two stages. In the first stage ( generally referred to as Request For Qualification-RFQ) ), eligible and prospective bidders are shortlisted based on technical and financial capability of the bidders(criteria used –(i) construction works undertaken (ii) revenues of BOT/BOLT/BOO from PPP projects already implemented by bidders and (iii) net worth of minimum 25% of the estimated project costs). In the second stage, which is generally referred to as the Request For Proposal(RFP) or invitation of final bids, shortlisted bidders are encouraged to submit their respective bids after visiting the project site and ascertaining for themselves the site conditions, traffic/demand, location, surroundings, climate, availability of power, water, and other utilities for construction, access to site, handling & storage of materials, weather data, applicable laws and regulations and any other matters considered relevant by them. The Government authority/agency acknowledges that the assumptions, assessment, statements and information contained in the bidding documents, especially Feasibility Report (supplied to bidders) may not be complete, accurate, adequate or correct. Each bidder should therefore conduct its own investigations and analysis, and should check the accuracy, adequacy, correctness, reliability and completeness of the assumptions, assessments, and information contained in RFP and obtained independent advices from the appropriate sources. The project is awarded to the highest bidders offering highest premium to the authority; and in the event that no bidder offers a premium, then project is awarded to the bidders seeking the lowest VGF (viability Gap Funding)/grants from the Government authority/agency.

–  –  –

Exhibit 1 : Procurement process in Indian PPP projects Number of final bidders should be optimal (neither very high nor very low) for ensuring real competition in bidding. A large number of shortlisted bidders is viewed as a factor that dampen participation by serious bidders, thus diluting competition, because credible investors are normally less inclined to spend the time & money necessary for making a competitive PPP bid if zone of consideration is unduly large. Restricting the list to best available bidders improve the chances of a successful PPP operation. It is also an international best practices to shortlist about three to four bidders for the final stage of bidding process. Considering all the factors, the Planning Commission of India suggested short listing of about six to seven bidders with a view to securing high quality and competitive financial bid.

Table-5 provides some of statistics related to bid for procurement process in public goods & services under different delivery modes (the statistic is based on limited amount information provided by NHAI).

–  –  –

Critical risk factors in PPP projects in India Out of the 61 risk factors considered in the study, 10 factors (table-6) have emerged as most critical and another 13 factors (table-7)emerged as very critical factors based on critical index (table-4)

–  –  –

The perception level towards a particular risk by all the respondent categories are not same, even though overall perceptions does not differ in a significant way. One of the reason behind this difference in perceptions is that each category of respondent have got his own set of interest in a PPP project (being a stack holder) and looks into an issue through his own interest.

The natures of some of the identified critical risks are explained below:

Demand/Revenue generation risk: The demand risk is defined as fluctuation of number of users associated with introduction of toll, market changes and the level of service provided. Before linearization, public services were offered either free of cost or at very low price. Even after 25 years of liberation, people at large expect public services at low cost or for free. Still there is public resistance to price hike or toll collection. Hence, commercial justification is a critical issue in PPP projects. For many projects, commercial justification needs people participation from the beginning. Nagpur water project and Latur water project’s success is due to people participation through the mechanism of public hearing in fixing the rate, consumer redressal cell, awareness and education for optimum use of water (thereby reducing the bills amount). User must be convinced that they are now getting much better services compared to service previously provided by the public agencies at lesser cost.

Some projects are difficult to justify commercially because of problem of hiking user rate, low demand and public resistance. In order to encourage such projects, GOI came up with VGF for financing such projects facing shortfall of required revenues.

Financial Risks: In Indian context, most of the promoters are not in a position to mobilize money from their current balance sheets and are primarily relying on project financing. Since the revenue from projects is in local currency, it is not sustainable to repay foreign investment (debt or equity) from domestic revenue for a long run.

Secondly, the Indian promoter are more dependent on the commercial bank rather than to borrow from institutional financier. As a result there is always a chance of asset liability miss-match in case of long term projects like PPP. In India, projects like Cochin International Airport, Delhi Noida Toll Bridge, Vododara Halol Toll Road etc. suffered severely from Financial Risk at different stage of the project operation.



Pages:   || 2 | 3 | 4 | 5 |


Similar works:

«MODULE 1 // SAVE MONEY. START NOW. SEMI-PRO: AGES 14-18 MODULE 1 // FINANCIAL SOCCER PROGRAM Financial Soccer is an educational video game designed to help students learn more about the fundamentals of personal finance. It was developed with the philosophy that games can be powerful teaching tools. Financial Soccer engages students in a fun, familiar activity, while educating them on topics essential to developing successful life skills. Financial Soccer features questions of varying difficulty...»

«A Research Study on The Revolution in Self-Service Channels in the Financial Services Sector by Industrial Statistics Research Unit Newcastle University and Business & Decision This Research Study has been co-produced by Industrial Statistics Research Unit Newcastle University and Business & Decision and is under copyright protection. Published 2009 With thanks to the authors: Ian Marshall, Business & Decision Aditya Parulekar, Business & Decision Business & Decision Acknowledgement Newcastle...»

«Meeting of Caribbean Small Business Entrepreneurs, GENERAL Organizations and Agencies LC/CAR/G.695 Rex Resorts, Saint Lucia 19 June 2002 3-5 April 2002 ORIGINAL: ENGLISH REPORT OF THE MEETING OF CARIBBEAN SMALL BUSINESS ENTREPRENEURS, ORGANIZATIONS AND AGENCIES Contents Meeting objectives and achievements Objectives Participants Achievements Working groups Conclusion Proceedings of the Meeting of Caribbean Small Business Entrepreneurs, organizations and agencies. 4 Opening session...»

«NBER WORKING PAPER SERIES ACCOUNTABILITY, ABILITY AND DISABILITY: GAMING THE SYSTEM David N. Figlio Lawrence S. Getzler Working Paper 9307 http://www.nber.org/papers/w9307 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 October 2002 We are grateful to Sheila Murray, Richard Rothstein, and Jim Wyckoff, as well as seminar participants at Iowa State University, the National Bureau of Economic Research, Stanford University, University of California-Davis, and...»

«2 STANDING COMMITTEE ON FINANCE (2014-15) SIXTEENTH LOK SABHA MINISTRY OF FINANCE (DEPARTMENTS OF ECONOMIC AFFAIRS, EXPENDITURE, FINANCIAL SERVICES AND DISINVESTMENT) SECOND REPORT LOK SABHA SECRETARIAT NEW DELHI December, 2014 / Agrahayana, 1936 (Saka) SECOND REPORT STANDING COMMITTEE ON FINANCE (2014-2015) (SIXTEENTH LOK SABHA) MINISTRY OF FINANCE (DEPARTMENTS OF ECONOMIC AFFAIRS, EXPENDITURE, FINANCIAL SERVICES AND DISINVESTMENT) DEMANDS FOR GRANTS (2014-15) Presented to Lok Sabha on 16...»

«English Ski Council Ltd (t/a Snowsport England/SSE) Minutes of the 35th Annual General Meeting 1st November 2014 10.30 am Sportpark, Loughborough Present:Jeremy Eaton Chairman Bryan Thomas Director, Finance Karen Richardson Director/Company Secretary Tania Barton Director Rob Robson Director/Chair ESSKiA Geoff Parsons Director Tim Fawke Chief Executive Officer Jan Doyle SSE Head of Development Julia Parker SSE Operations Manager Victoria Crampton Communications officer Ian Findlay SSE Talent...»

«Generic Pharmaceuticals and Sector Development Industry Challenges and Potential Solutions February 2006 Generic Pharmaceuticals and Sector Development: Industry Challenges and Potential Solutions February 28, 2006 THE PUBLIC POLICY FORUM Striving for Excellence in Government The Public Policy Forum is an independent, not-for-profit organization aimed at improving the quality of government in Canada through better dialogue between the public, private and voluntary sectors. The Forum's members,...»

«Example 1.1 Myths and Stereotypes Myths and Stereotypes Children and youth choose to enter the sex trade. Children in the commercial sex industry are “bad kids.” Children in the commercial sex industry like to have lots of sex. Children/youth lure and take advantage of unsuspecting men. All children/youth in the commercial sex industry are drug addicts. Sexual exploitation is work. Youth make a lot of money in the commercial sex industry. Being in “the life” can be exciting and...»

«Fordham International Law Journal Volume 24, Issue 4 2000 Article 1 The Mirage Becomes Reality: Privatization and Project Finance Developments in the Middle East Power Market Loren Page Ambinder∗ Nimali de Silva† John ‘. Dewar‡ ∗ † ‡ Copyright c 2000 by the authors. Fordham International Law Journal is produced by The Berkeley Electronic Press (bepress). http://ir.lawnet.fordham.edu/ilj The Mirage Becomes Reality: Privatization and Project Finance Developments in the Middle East...»

«ANNUAL REPORT NOTICE OF 2015 ANNUAL MEETING PROXY STATEMENT VISION CORE VALUES Underlying everything we do Our vision is to be the leading innovator in geoscience and engineering, creating PEOPLE Our people fuel our innovation. We strive to attract and develop the best talent in the business and to value for our customers, shareholders and support and inspire them to achieve their personal best. employees. COLLABORATION Delivering leading technologies requires collaboration and honest, open...»

«Board of Governors of the Federal Reserve System International Finance Discussion Papers Number 585 July 1997 INFORMATION SYSTEMS FOR RISK MANAGEMENT Michael S. Gibson NOTE: International Finance Discussion Papers are preliminary materials circulated to stimulate discussion and critical comment. References in publications to International Finance Discussion Papers (other than an acknowledgment that the writer has had access to unpublished material) should be cleared with the author. Recent...»

«MEIR STATMAN RESUME Department of Finance Leavey School of Business and Administration Santa Clara University Santa Clara, California 95053-0388 (408) 554-4147 EDUCATION Graduate School of Business, Columbia University, Ph.D., 1979 Hebrew University of Jerusalem, M.B.A., 1970 Hebrew University of Jerusalem, B.A., 1969 ACADEMIC AND ADMINISTRATIVE APPOINTMENTS 1998-Present Glenn Klimek Professor, Department of Finance, Santa Clara University 2009-2013 Visiting Professor, Tilburg University, the...»





 
<<  HOME   |    CONTACTS
2017 www.abstract.dislib.info - Abstracts, online materials

Materials of this site are available for review, all rights belong to their respective owners.
If you do not agree with the fact that your material is placed on this site, please, email us, we will within 1-2 business days delete him.