Hungry bellies

In the last decade, India has moved a long way on adoption of PPP as a preferred format for creation of infrastructure assets and provision of infrastructure services. In fact, the government clearly prefers PPP as the primary option to be considered before agreeing for bringing in public financing for infrastructure creation.

A lot of good progress has also been made in improving the capacity of the public sector in the procurement of PPP service providers. Regulatory frameworks and institutions have also been set up in several sectors such as telecom, airports and power. The government of India has targeted US$1trn of infrastructure investment in 2012-17 with 50% coming from private sector through PPPs.

The roads and highways sector has clearly led the fast pace of infrastructure development during the last five to ten years with a number of transactions closed and many stretches of road now operational. Many of these have been won by emerging Indian private sector developers, in some cases with active support from international infrastructure players. The story is the same in the airport sector where the big metro city airports such as Delhi, Mumbai, Bangalore and Hyderabad have been given out to the private sector in through PPP. The model used in the airport sector is slightly different from the road sector format where the government acts as a minority joint venture partner in building and operating the airports.

Significant progress has also been made in the port sector where a number of international and domestic players have actively participated in PPP transactions and have moved them into the operational stages.

However, not all infrastructure sectors have moved at the same pace or at the same level of PPP participation. For example, the railway sector is still experimenting with PPP and has not been particularly successful thus far. Similarly, the government is still in the early stages of evolving the right model of PPP for education, health and social sectors. The attempts to bring in PPP in sectors such as urban water and urban transport are also in very early stages, while plans for high speed rail through public funding or PPP are still on the drawing board.

Many projects in these emerging sectors are still in project preparation stage with inadequate clarity on the final formats to be adopted. The size of the projects in many of these emerging sectors (with the exception of urban metro-transport) continues to be medium or small. This is a key factor that deterring international developers from taking a larger role in the development of infrastructure PPPs. Of course, international developers invariably attach a larger risk to the country specific issues of uncertainty in policies and regulations.

Since the Indian market is extremely price competitive, international developers also find it difficult to compete in projects that do not require high technology or that do not have much complexity. However, there are plenty of opportunities for international companies to partner with well experienced Indian corporates to bid and execute the several infrastructure PPP projects that are coming up.

The economy is growing well at 6 to 8% with a rapidly growing number of young consumers. International companies looking for a major role in infrastructure PPP markets should look at the Indian market as a heterogeneous market, varying vastly from region to region and from sector to sector, with some long-term opportunities. The strong financing available from local financial institutions and good legal framework could be considered as very compelling reasons to look seriously at India.

Of course, the government expects private players to take the market risk in most projects but that should not be a major concern in a growing economy. International players also have to learn that India always adopts an “Indian model” and therefore they should not look for familiarity in practices they are accustomed to elsewhere.