Infrastructure Engineering Notes

Lecture Notes
for
Infrastructure Engineering
Osmania University
UNIT-I
AN OVERVIEW OF INFRASTRUCTURE ENGINEERING

Syllabus
Urban infrastructure and Rural infrastructure in general, An introduction to Special Economic

Zones, Organizations and Players in the field of Infrastructure, the stages in an infrastructure
project, Concept of lifecycle, etc., An overview of infrastructure projects in power sector, water
supply and sanitation sector, road, rail, air and port transportation sectors and
telecommunications.
1.1 Introduction
“Infrastructure” is a term used in a variety of disciplines, there is no single definition for

the term.
The “Merriam Webster” Dictionary defines infrastructure as “The underlying foundation

or basic framework (as of a system or organization)
It can also be defined as the basic physical and organizational structures and facilities
(e.g. buildings, roads, power supplies) needed for the operation of a society or enterprise.
1.2 Attributes of Infrastructure
Rather than describing infrastructure through a single definition, it might be more helpful
to describe infrastructure through a set of characteristics that are attributed to it. Some
of these characteristics that are popularly associated with infrastructure are:
 Infrastructure facilities are generally available to large groups of people

 Infrastructure helps deliver essential services for the functioning of an organization
or society
 Infrastructure helps achieve economic and social objectives
 Infrastructure is the base upon which society and its activities rest
 Examples of infrastructure are waterways, roads, etc.
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1.3 Types of Infrastructure
Several systems can be characterized as infrastructure – including Computer Systems

that network and serve data and applications, educational curriculum and so on.
For the purpose of this course, we will narrow down our perception of infrastructure and
restrict it to PHYSICAL INFRASTRUCTURE of the following types
 Transportation Infrastructure
e.g.: Roads, Bridges, Airports, Ports, and Waterways
 Water and Sanitation Infrastructure
e.g.: Water Supply Systems, Sewage treatment systems
 Energy Infrastructure
e.g.: Dams, power plants, power distribution and transmission facilities, pipelines
 Telecommunication Infrastructure
 Housing, Facilities and Recreation
1.4 The Role of Infrastructure
The importance of infrastructure is two-fold
 Infrastructure is instrumental in promoting economic growth

 Infrastructure also plays a role in alleviating poverty
1.5 Infrastructure and Economic Growth
 In the following figure a graph is presented that clarifies the role of infrastructure
in economic development (Source: Queiroz et al, 1992 – World Bank Working
Paper).
 This figure shows a plot of the length of paved roads that a country has versus its
GNP
 98 countries were surveyed to plot this graph
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 A clear correlation emerged between the Length of paved roads (LPR) and the
per-capita GNP (PGNP) according to the following equation
o PGNP = 1.39 (LPR)
 This indicates that the more physical infrastructure a country has (in this example
we consider only transportation infrastructure, but this relationship holds true for
other types of infrastructure as well), the greater the economic stability and vice
versa.
Infrastructure, Economic Growth and poverty reduction
Economic Growth Poverty Reduction
Transportation Faster access to More reliable access to

destinations, increase in markets so that fresher
productivity goods can be sold at lower
wastage levels
Water and Sanitation Incentives for construction Improved health, reduction

of facilities, infrastructure in health related spending,
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and residential potential increase in

infrastructure, which in turn income savings
promote economic growth
Telecommunications Improved access and Increased access to

transfer of data, leading to information leading to
reduced travel times and improved ability to make
increases in productivity decisions on issues like
selling price of produce etc.
Energy Reliable and abundant 24 hour electricity increase

power the duration of the
productive working day,
enables setting up of
thereby augmenting
industries and residences
income, increasing
that create jobs,
agricultural yields etc.
manufacture products and
promote economic growth
1.6 The Infrastructure Crisis
 Despite the importance of infrastructure for economic and social well-being, we

are faced with several problems
 Infrastructure in developed countries is old, unreliable, inefficient and in need of
replacement.
o The USA is embarking on a major plan relating to infrastructure spending
 In developing countries, infrastructure is often not available
o Large portions of urban and rural populations in developing countries have
inadequate access to water and sanitation
o Power supply is non-existent or unreliable and people are faced with
frequent power-cuts
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o Quality of road infrastructure is often bad, leading to long travel times and
increased vehicle maintenance costs. Width of roads is also often a
constraining factor leading to traffic jams and blocks.
 Several of these problems currently hold true for many areas in India as well.
 This is therefore a golden opportunity for engineers with technical as well as
managerial and policy level knowledge of these issues, since there is a huge
demand for such people to enter the workforce and solve the worlds infrastructure
inadequacies.
Why do we have so many problems with infrastructure?
This particular question and ways in which to solve it will the focus of this entire course.
It is therefore impossible to answer this question right away. Before we conclude this
session, we list out a few of the causes for the failure to provide adequate infrastructure
 Lack of funds
 Lack of implementation and management capabilities
 Corruption, bureaucracy and unfair competition
 Land acquisition issues involving dealing with displaced people and special interest
groups etc.
1.7 Urban Infrastructure and Rural Infrastructure in General
1.7.1 Urban Infrastructure Scenario
India’s urban population will grow from 26% to 36% of total population by 2011. By
2025, 50% of India’s population will live in cities, half of them in slums
This will place great stress on existing infrastructure for water, power, urban transport,
and sanitation etc. – more infrastructure has to be built and existing infrastructure has to
be upgraded. Increase in the sales of vehicles due to this trend is shown below
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1.7.2 Urban Water Supply Scenario
As the charts below taken from the India Infrastructure Report indicate, water availability
in urban settings has been decreasing over the years
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Quality of Service
The chart on the previous page is also taken from the India Infrastructure Report and
depicts the urban water scenario in Bangalore
As the chart indicates, in addition to quantity, quality of service has also decreased over
the last decade. Per capita availability of water has become lesser, leakages have
increased etc.
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1.7.3 Urban Governance – 3 Tier System
 Traditionally, the state government had a major

influence on urban infrastructure. No clear
demarcation of powers existed between state and
local (municipal) levels and so state governments
ended up taking most of the decisions regarding
urban infrastructure
 The Central Government has also had a role to
play, but this role mainly deals with providing tax
concessions, training and guidelines and dovetailing
central plans such as the National Urban Transport
Policy with schemes such as the Jawaharlal Nehru
National Urban Renewal mission
 The chart on the left graphically depicts the level
of influence held by various tiers of government, with
the municipal governments having the least powers
Problems with the earlier model
 Funding for urban areas comes from the center or the state
 Due to lack of on-the-ground knowledge on the part of these agencies, the wrong
groups or wrong projects often get funded
 Conflicting programs at the state and central level do not align, leading to
misdirected flow of funds
 Bureaucracy at these levels stymies progress
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New Model for Urban Governance
 In the earlier model, quality of

services are likely to suffer and a
preferable approach would be for
Urban Local Bodies (ULBs) or
municipalities to make their own
decisions based on their needs.
 ULBs could be democratically elected
and could raise their own funds to
provide services such as urban
planning, water supply, roads,
bridges, Urban amenities such as
parks etc.
 This new model is currently being
adopted in policy planning circles and
is depicted in the adjacent figure
74th CAA (12th Schedule)
The 74th Constitutional Amendment Act, seeks devolution of powers to local bodies.
ULBs will be in charge of the functions depicted in the box in the next figure, which has
been taken from the India Infrastructure Report
The 74th Amendment gives more power, responsibilities, and the ability to raise funds,
to control revenues and to deliver projects, to municipalities
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1.7.4 Municipal Finance
Main sources of finance for municipalities are taxes (Land + Building taxes)
 State Govt mandates the tax rates
Another source of finances are fund Transfers from States and the Center
 This can happen at the discretion of state Govt
State Finance Commission (SFC) is a body with responsibilities to ensure that

municipalities have adequate revenues for their operations
The diagram on the next page from the India Infrastructure Report, shows various ways
in which central and state governments can fund ULBs. Funding from the Center can be
direct to the ULB, or can come through the state governments
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1.7.5 Money flow from the Center – 12th Finance Commission
 The diagram on the left taken from

the India Infrastructure Report
indicates the criteria used by States to
decide the amount of funds allocated
to various municipalities within the
state
 Some of the parameters considered
are size, population, economic
stability, income sources
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1.7.6 Current Municipal Finances
1.7.7 State of Municipal Finances
 Despite the existence of the various financing arrangements described earlier, the
previous images show that municipal finances are on average in poor shape
 Most municipalities rely heavily on grants to fund their operations and raise only a
small percentage of their expenses
 They are therefore unable to spend adequately on infrastructure and services
 As the graph shows, a large portion of their expenditure is towards paying salaries
 Unless municipal governments have greater control over raising money and
deploying it, it will be difficult to improve the urban infrastructure scenario
 The 74th CAA and other policy approaches are a step in this direction
1.7.8 Municipal Reforms
A Model Municipal Law (MML) has been mooted. Under this law, municipalities should be
granted powers and responsibilities for the following items:
 Municipal bodies must have elected representatives and not nominees

 Municipal bodies must have executive powers
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 Guidelines for financial management such as preparing balance sheets, training on

debt limitation policies should be provided. Accounting for different sectors should
be maintained separately
 Raising funds through taxes
 Implementing infrastructure and services
 Approving small projects
 Regulatory oversight
1.7.9 Other reforms
 E-governance initiatives have been introduced in several states to make the

process of interaction with government easier, and to increase transparency and
accountability of the government
 UIDSSMT – Urban Infrastructure Development Scheme for Small and Medium
Towns was initiated to improve urban infrastructure
 JNNURM - Jawaharlal Nehru National Urban Renewal Mission was launched
recently to enable cities to improve their urban infrastructure. This program
provides both funding and incentives for improvement
JNNURM:
 The major themes of JNNURM are Infrastructure renewal, improved governance

and pro-poor policies
 The scheme currently covers 63 Cities spread over 3 Tiers. An outlay of INR 1,
00,000 Cr is envisaged
 The Infrastructure Mandate extends to the following public services
o Urban transportation
o Water supply
o Sanitation
o City beautification and so on
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JNNURM Financing:
 The Ministry of Urban Development can fund projects in the selected cities under
the JNNURM scheme
 As indicated in the previous figure, the amount of funding is dependent on the size
of the project and the city in question
o Tier 1 cities will be funded only up to the tune of 50% and will have to raise
the remaining funds by themselves
o For Tier 2 cities it is 30% and 10% for Tier 3 cities
 This funding is contingent on enacting a set of reforms
 Cities are therefore incentivized to raise funds themselves and are encouraged to
explore the private public partnership route in this regard
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Mandatory Reforms to be enacted by States/ULBs in order to be eligible for JNNURM

grants:
1. Use of Modern accounting systems

2. Use of E- governance, GIS
3. Reform of property tax so that ULBs get more revenue
4. Levy of user charges for services
5. ULBs must be made in charge of local infrastructure delivery
6. Decentralization and implementation of 74th CAA
7. Enactment of a Public disclosure law
8. Enactment of a Community participation law
9. Introduction of regulators
10. Repealing of Urban land ceiling acts, rent control etc.
Optional Reforms that need not be enacted immediately but must be undertaken in the
near future
 Streamlining approvals and permit procedures.

 Rainwater harvesting bye laws
 Encouraging PPPs
 Administrative and structural reforms
Process for approving projects and obtaining funding under JNNURM
MoA
CDP between
DPR
(RCA) City, State
and Center
First an overall city development plan is created.
Based on this, a series of detailed project reports for specific projects are created
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Based on these projects an MoA under JNNURM can be signed between the center, the
state and the city for funding contingent on reforms
Preliminary views on JNNURM:
Many cities are raising money required through issuing bonds (e.g. Ahmedabad)
Others are looking at PPP (e.g. Onyx for Solid Waste Management in Chennai). However
such cases are relatively fewer
Overall – Municipal finances are still in pretty poor shape and the 74th CAA and other
reforms have still not had much effect.
The Road Ahead – Systemic Change is required
 Mere reforms on paper are not enough

 We need to ensure that
o Too many agencies do not handle the same sector (no duplication or
fragmentation)
o Regulator, implementer and policy makers exist and they are independent
o Stakeholders are involved
o Capacity is built at Municipal level
o Performance incentives and org. restructuring are emphasized
o Reforms and Municipal independence are promoted
There needs to be independence between the policy makers, the implementers and the
regulators to ensure transparent functioning. Overlaps such as those shown below are
not desirable when structuring urban agencies
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An ideal framework can be the following which is adapted from the India Infrastructure
Report. Fiscal flows are assured, institutions are strengthened, the public is involved, and
services are decentralized
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1.8 RURAL INFRASTRUCTURE
1.8.1 Statistics of Rural India
 71% of Indians live in rural areas

 89% have no access to telephones
 52% do not have access to power
 10% have no access to drinking water, 91% have no access to toilet facilities
 Average distance to all weather roads is 2 km
 244 million rural people are “poor”
o Compared to 80 million urban poor
Can infrastructure help the rural poor?
 Several studies (e.g. Songco, Deichman et al and Roller et al) show that
infrastructure is indeed correlated to economic growth in rural areas also.
 Studies (e.g. Bery et al) also show that low per capita income correlates with lack
of infrastructure
 Therefore infrastructure, which can be a driver of rural growth, is often not
available in rural areas
How can Infrastructure Help?
 Findings from a survey in Nigeria indicate the infrastructure in rural areas can
 Increase employment and income
 Increase efficiency and productivity
o For instance time saved due to improved transportation infrastructure can
be used on other activities
 Increase access to resources
 Improve health and therefore productivity
o For instance, if water supply is augmented, water-related health diseases
can be reduced
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Is there any empirical evidence to support these propositions?
 Provision of power and irrigation infrastructure in rural areas of India and

Bangladesh has improved productivity, increased income and savings
 Water and Sanitation infrastructure in rural Thailand has led to more jobs, better
health, increased school attendance, tourism benefits
Roads in rural Vietnam, Ghana and Morocco have led to
 Increased income as middlemen are cut out and farmers can transport the produce
directly to the market
 Change in crop patterns leading to more income. Earlier, perishable crops could
not be grown as the transportation time was large. Now these crops could also be
added
 Lots of secondary benefits such as health, national pride, growth in secondary
industries
There is therefore enough evidence to show that rural infrastructure does indeed promote
growth
1.8.2 Issues unique to Rural Areas
1. Rural Population Density is very Low

o 15.75 times lower than urban areas in the case of India
 As a result, economies of scale cannot work in rural areas, since the fixed costs
(costs of installation) are very high and the variable costs (costs per user) are quite
low
o For instance, since there are fewer telecom users who are spread very far
apart, many more telecommunication towers will be needed.
o The low number of users per tower makes this an uneconomic proposition
2. Population Size is in rural areas is Low
o More than 20 times lower than urban areas in the Indian context
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 Due to this reason also, economies of scale cannot work in rural areas, since
although the fixed costs (costs of installation) can be low sue to lesser
infrastructure that needs to be installed, the variable costs (costs per user) are
also quite low
o To take the telecommunications example again, one would need to install
only a few towers due to small population size, but variable costs are low
users are not many and therefore revenue will not be much
3. Purchasing Power is also low
Categorization of rural infrastructure
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Willingness to Pay
 The previous two figures indicate that the purchasing power of rural people is also
quite low due to reduced income. In many cases it is as much as 3 times lesser
than in urban areas
 However, as the previous table taken from the India Infrastructure Report shows,
this does not imply that the poor are not willing to pay for infrastructure – they
will be able to pay up to their income capacity
 Also, there are some rural infrastructure sectors, where scale economies exists,
and others where investment costs are low
What are the implications of these findings?
 We need to look for “Local Solutions” in rural areas and not large “Network Based”
solutions
 Septic tanks, Mobile Phones, local power generators etc. will work better in rural
areas give the scale of investment and use
 Sanitation and Treatment plants, phone lines and power grids might not work since
the costs might outweigh the demand
 Subsidies are needed to achieve break-even for investments in rural areas due to
lack of economies of scale and reduce consumption power
 Micro-finance and micro-lending can play a part in generating finances for small
scale projects that will make a difference in rural areas
1.8.3 Government’s role in developing Rural Infrastructure
 73rd Constitutional Amendment Act has been enacted to empower panchayats

 Bharat Nirman Program has been introduced to provide infrastructure in rural
areas
o Rs. 186,900 Crores outlay planned in 2006
 Other schemes such as the Pradhan Mantri Gram Sadhak Yojana for rural roads,
the Accelerated Rural Water Supply Program for rural water and sanitation, the
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Rajiv Gandhi Vidyukranthi Yojana for rural electrification etc. have been
introduced.
o Objectives include giving power to 125,000 villages
o 4000Cr outlay is planned to connect rural roads
 Universal Service Obligations (USO) exists in the Telecom sector to raise funds for
rural phone connectivity
o Target for rural Tele-density is 15% or greater. An 8000Cr outlay has been
proposed for this.
 NREGS (National Rural Employment Guarantee Scheme) has been floated to
provide at least 100 days of guaranteed employment to improve the economic
conditions of some people in rural areas
 PURA scheme has been floated to Provide Urban Amenities in Rural Areas
 Rural Infrastructure Development Fund (RIDF) has been setup by NABARD to the
tune of 60,000Cr
Bharat Nirman:
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Five year plan targets:
Conclusion - The Governments role:
 The previous two figures taken from the India Infrastructure Report and the
approach paper to the 11th 5 year plan, indicate other programs and targets set
by the government to improve rural infrastructure and growth
 Overall there is no dearth of policies from the government to improve rural
infrastructure. The key issue is how well these policies are implemented.
Potential ways to raise funds for rural infrastructure:
 Central Govt grants

 Micro Finance Institutions and NGOs
 Multilateral Bank loans
 Community pooling of resources
 Commercial Bank loans
Are there other options other than government spending for rural
infrastructure?
 Private partnerships
o Evidence from Chile and Argentina suggests that the private sector could
play a role.
o What advantages does privatization provide?
 Productive efficiency
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 Allocative efficiency
 Dynamic efficiency
o Will it work in rural areas?
 It is possible, under certain circumstances
1.8.4 Features of a new partnership model for rural infrastructure

development
 Government grants and subsidies should be provided to make up for economic

deficiencies
 Encouragement of private sector to provide rural infrastructure
 Taxes and collection of user fees to finance the infrastructure
 Community participation to create a shared sense of ownership
 Community resource pooling
 NGO involvement
 The figure below shows a framework and a roadmap that may enable
infrastructure delivery in rural areas
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How is this discussion different if we consider an urban context?
 Poor people exist in an Urban context also

 Land is scarce in Urban areas and this is a unique issue here
 However population density and population size are quite high, as can also be the
case with purchasing power
 These issues make it easier to provide infrastructure to the urban poor rather than
the rural poor
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1.9 Introduction to Special Economic Zones (SEZ)
 These are the zones where business and trades laws differ from the rest of the
country. Broadly, SEZs are located within a country's national borders.
 The aims of the zones include: increased trade, increased investment, job creation
and effective administration.
 To encourage businesses to set up in the zone, financially libertarian policies are
introduced. These policies typically regard investing, taxation, trading,
quotas, customs and labour regulations. Additionally, companies may be
offered tax holidays.
 The creation of special economic zones by the host country may be motivated by
the desire to attract foreign direct investment (FDI).
 The benefits a company gains by being in a Special Economic Zone may mean it
can produce and trade goods at a globally competitive price.
1.9.1 Special economic zones in India
India was one of the first in Asia to recognize the effectiveness of the Export Processing
Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965.
With a view to overcome the shortcomings experienced on account of the multiplicity of
controls and clearances; absence of world-class infrastructure, and an unstable fiscal
regime and with a view to attract larger foreign investments in India, the Special
Economic Zones (SEZs) Policy was announced in April 2000.
This policy intended to make SEZs an engine for economic growth supported by quality
infrastructure complemented by an attractive fiscal package, both at the Centre and the
State level, with the minimum possible regulations. SEZs in India functioned from
1.11.2000 to 09.02.2006 under the provisions of the Foreign Trade Policy and fiscal
incentives were made effective through the provisions of relevant statutes.
To instill confidence in investors and signal the Government's commitment to a stable

SEZ policy regime and with a view to impart stability to the SEZ regime thereby generating
greater economic activity and employment through the establishment of SEZs, a
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comprehensive draft SEZ Bill prepared after extensive discussions with the stakeholders.
A number of meetings were held in various parts of the country both by the Minister for
Commerce and Industry as well as senior officials for this purpose. The Special Economic
Zones Act, 2005, was passed by Parliament in May, 2005 which received Presidential
assent on the 23rd of June, 2005. The draft SEZ Rules were widely discussed and put on
the website of the Department of Commerce offering suggestions/comments. Around 800
suggestions were received on the draft rules. After extensive consultations, the SEZ Act,
2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for
drastic simplification of procedures and for single window clearance on matters relating
to central as well as state governments.
The main objectives of the SEZ Act are:
1. generation of additional economic activity

2. promotion of exports of goods and services;
3. promotion of investment from domestic and foreign sources;
4. creation of employment opportunities;
5. development of infrastructure facilities;
It is expected that this will trigger a large flow of foreign and domestic investment in
SEZs, in infrastructure and productive capacity, leading to generation of additional
economic activity and creation of employment opportunities.
The SEZ Act 2005 envisages key role for the State Governments in export promotion and
creation of related infrastructure. A single SEZ approval mechanism has been provided
through a 19 member inter-ministerial SEZ Board of Approval (BoA). The applications are
duly recommended by the respective State Governments/UT Administration are
considered by this BoA periodically.
All decisions of the Board of Approval are with consensus.
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The SEZ Rules provide different minimum land requirement for different class of SEZs.
Every SEZ is divided into a processing area where alone the SEZ units would come up
and the non-processing area where the supporting infrastructure is to be created.
1.9.2 The SEZ Rules provide for:
 "Simplified procedures for development, operation, and maintenance of the Special

Economic Zones and for setting up units and conducting business in SEZs;
 Single window clearance for setting up of an SEZ;
 Single window clearance for setting up a unit in a Special Economic Zone;
 Single Window clearance on matters relating to Central as well as State
Governments;
 Simplified compliance procedures and documentation with an emphasis on self-
certification.
1.9.3 Approval mechanism and Administrative set up of SEZs
Approval Mechanism:
The developer submits the proposal for establishment of SEZ to the concerned State
Government. The State Government has to forward the proposal with its recommendation
within 45 days from the date of receipt of such proposal to the Board of Approval. The
applicant also has the option to submit the proposal directly to the Board of Approval.
Administrative set up:
The functioning of the SEZs is governed by a three tier administrative set up. The Board
of Approval is the apex body and is headed by the Secretary, Department of Commerce.
The Approval Committee at the Zone level deals with approval of units in the SEZs and
other related issues. Each zone is headed by a Development Commissioner, who is ex-
officio chairperson of the Approval committee.
Once an SEZ has been approved by the Board of Approval and Central Government has
notified the area of the SEZ, units are allowed to be set up in the SEZ. All the proposals
for setting up of units in the SEZ are approved at the Zone level by the Approval
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Committee consisting of Development Commissioner, Customs Authorities and

representatives of State Government. All post approval clearances including grant of
importer-exporter code number, change in the name of the company or implementing
agency, broad banding diversification, etc. are given at the Zone level by the
Development Commissioner. The performance of the SEZ units are periodically monitored
by the Approval Committee and units are liable for penal action under the provision of
Foreign Trade (Development and Regulation) Act, in case of violation of the conditions of
the approval.
1.9.4 Facilities and Incentives
Incentives and facilities offered to the SEZs:
The incentives and facilities offered to the units in SEZs for attracting investments into
the SEZs, including foreign investment include:
 Duty free import/domestic procurement of goods for development, operation and

maintenance of SEZ units
 100% Income Tax exemption on export income for SEZ units under Section 10AA
of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50%
of the ploughed back export profit for next 5 years.
 Exemption from minimum alternate tax under section 115JB of the Income Tax
Act.
 External commercial borrowing by SEZ units up to US $ 500 million in a year
without any maturity restriction through recognized banking channels.
 Exemption from Central Sales Tax.
 Exemption from Service Tax.
 Single window clearance for Central and State level approvals.
 Exemption from State sales tax and other levies as extended by the respective
State Governments.
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The major incentives and facilities available to SEZ developers include:
 Exemption from customs/excise duties for development of SEZs for authorized

operations approved by the BOA.
 Income Tax exemption on income derived from the business of development of
the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax
Act.
 Exemption from minimum alternate tax under Section 115 JB of the Income Tax
Act.
 Exemption from dividend distribution tax under Section 115O of the Income Tax
Act.
 Exemption from Central Sales Tax (CST).
 Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).
There were about 143 SEZs (as of June 2012) operating throughout India, by June 2013
this had risen to 173. 634 SEZs have been approved for implementation by the
Government of India (as of June 2012).
Export Performances:
Exports from the operational SEZs during the last nine years are as under:
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1.9.5 List of operational SEZ’s in Telangana
 M/s Telangana Industrial Infrastructure Corporation Ltd. Nanakramguda Village,

Serilingampalli Mandal, Ranga Reddy District, Telangana IT/ITES
 CMC Limited Ranga Reddy District, Hyderabad, Telangana IT/ITES
 DivyaSree NSL Infrastructure Private Limited Ranga Reddy District, Hyderabad,
Telangana
 DLF Commercial Developers Ltd Ranga Reddy District, Hyderabad,
Telangana IT/ITES
 Hyderabad Gems SEZ Ltd. Ranga Reddy District, Hyderabad, Telangana Gems and
Jewellery
 Fab City SPV(India) Pvt. Ltd. R R District Telangana IT/ITES
 L&T Phoenix Infoparks Pvt. Ltd. Mandal, Telangana IT/ITES
 Maytas Hill County SEZ Pvt Ltd-Bachupally Bachupally Village, Mandal IT/ITES
 Serene Properties Pvt Ltd. Pocharam Vil1age, Hayathna Gar, Taluka
Ghatkesar Mandal IT/ITES
 Sundew Properties Pvt. Limited Madhapur, RR District IT/ITES
 Wipro Limited-Manikonda Manikonda, Mandal, RR IT/ITES
 Lanco Hills Technology Park Pvt Ltd., SEZ - IT & ITE's, Hyderabad,
 Infosys Technologies Hyderabad SEZ, Pocharam
 Mind space
1.20 Organizations and Players in the Field of Infrastructure

1.20.1 Organizations Involved in Infrastructure Projects
 Governments and Government Agencies

 EPC Contractors
 Financiers
 Project Affected Communities and NGOs
 Insurance and Guarantee Providers
 Project Sponsors
 Regulators
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1.20.2 Players in an Infrastructure Project
 Infrastructure Projects are often more complex than conventional civil engineering
projects such as residential and commercial structures and as a result involve a
multitude of players
 The figure below describes the various players and the relationships between them
Government Agencies:
 Government Agencies are often key players in infrastructure projects

 They can be involved directly in procuring the infrastructure, or they can act as
concession granting authorities that authorize private sector players to procure
and maintain infrastructure
 Government agencies involved in infrastructure could be at the national level –
e.g. the NHAI (National Highways Authority of India), at the state level (e.g. State
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Government and Line Agencies) or at the Urban level (e.g. Water and Sewerage
Boards, municipalities).
 Government agencies sign various agreements with other organizations for the
procurement of infrastructure such as
o Engineer-Procure-Construct Contracts with construction firms
o Concession Agreements, Power Purchase Agreements, Annuity
o Agreements with private sponsors
o Loan and Equity agreements with financiers
Engineer-Procure-Construct (EPC) firms:
 EPC firms are typically engineering and construction firms that help design and/or
construct the infrastructure facility
 They may be contracted by the government agency, or by private parties in charge
of providing the infrastructure
 Typically they take on completion, construction delay and construction cost-
overrun risks
 Leading construction firms such as Larsen & Toubro, HCC etc. perform EPC
contracts in India
Financiers:
 Infrastructure projects are often financed through a mixture of grants, debt

(loans), equity (investments) and user charges
 Debt lines of credit are often raised through the regular banking system.
 Debt is often also provided by multilateral agencies such as the World Bank, the
Asian Development Bank, and the Japanese Bank for International Cooperation
etc.
 Equity is often provided through a variety of sources including large organizations
in the infrastructure space, Foreign Institutional Investors, Private Equity houses
etc.
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 Grants for infrastructure projects are often provided through programs such as the
Jawaharlal Nehru National Urban renewal mission
Project Affected Communities and NGOs:
 Any infrastructure project affects the surrounding community in multiple ways

o It promises to yield benefits to these communities (e.g. improving the water
supply or the transportation infrastructure)
o It might need to displacement of some families (e.g. in cases of widening
of roads and highways)
 Sustainable Infrastructure Development must be equitable and must yield benefits
to the community. As a result the impact of infrastructure on these communities
must be carefully assessed
 Very often NGOs are the “voice” of these communities to ensure that their needs
are met.
 Stakeholder consultations and socio-economic analysis of infrastructure must
therefore be conducted to ensure that infrastructure development is equitable.
Insurance and Guarantee Providers:
 Several kinds of insurance and guarantees are taken on infrastructure projects

 Insurance relating to the construction phase, force Majeure events, and insurance
during the operation of the facility are often provided
 In the case of Private participation in infrastructure, government guarantees are
often given to private players
 Third party Political Risk Insurance is also taken to insure against government
reneging on a contract with a private sector.
o MIGA and OPIC are two organizations that provide PRI, subject to meeting
certain criteria
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Project Sponsors and Consultants:
 Project Sponsors are private organizations that take on the responsibility of

providing infrastructure
 Project sponsors sign “concession agreements” with government agencies that
describe the term for which they will operate the infrastructure, quality standards
that they will need to maintain, revenue generation opportunities and so on
 Project sponsors may either develop the projects themselves or may sign contracts
(such as EPC contracts) with other companies
 Both project sponsors and government agencies hire consultants to perform
feasibility analysis, structure projects and to manage the process of selecting
sponsors and contractors.
Regulators:
 Regulators are present when private firms are allowed to function in an

infrastructure sector –e.g. in the case of Telecom in India, TRAI acts as a regulator
 Regulators are intended to be independent bodies that can potentially impartially
assess the performance of private firms.
 Regulators regulate tariffs set by private firms, the quality of service that they
provide to ensure that they are performing as prescribed in the terms of their
respective contracts, to the collective benefit of society.
Indian Players:
 Government – Planning Commission, Ruling parties, NHAI etc.

 Consultants – Feedback Ventures, PwC, KPMG
 Financiers – IDFC, IL&FS, ICICI, IIFC
 Sponsors – TNRDC
 EPC Firms – L&T ECC, HCC
 Regulators - TRAI
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1.21 Stages in an Infrastructure Project
1.21.1 Introduction to the Infrastructure Process
 Infrastructure Planning can be conceived as a multistage process.

 The infrastructure Planning Process must take into account the local context
o Local needs should be satisfied
o The project should comply with the existing institutional and legal
frameworks
o The project should align with political objectives and ideology
o The project should be technically and economically feasible
Operation
Construction
Contracting and
Procuring
Detailed
Services
Studies and
Preliminary
Project
Feasibility
Structuring
time
Description of Stages:
 The preliminary feasibility stage of the project establishes the need for the project.
Existing information as well as field visits are conducted to substantiate the need
for a project. This phase also determines the kinds of detailed studies that need
to be undertaken
 The Detailed Studies and Project Structuring stage is often the most time-
consuming.
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o Technical Studies (e.g. geotechnical studies, land surveys) need to be

undertaken to help design the infrastructure.
o Economic and Market studies (e.g. Willingness to pay studies) must also be
undertaken.
 Other studies that are undertaken are
o Environmental Compatibility and Environmental Impact Assessment
o Socio Economic Cost Benefit Analysis
o Financial Analysis
 At the conclusion of this stage, a Detailed Project Report (DPR) is also prepared
with detailed technical specifications
 Financial Engineering and Structuring must also be done during this stage
o Lenders, Terms of Loan (Tenors and Rates of Interest), mix of debt and
equity, and user charges can all be modelled to determine the financial
viability of the project
 For Private participation in infrastructure, the private sector may be tasked with
many of these studies
 Once the DPR is prepared, the project can be contracted out.
o Expressions of Interest are sought
o Requests for Proposals are sought
o Pre-bid conferences are held to clarify terms of the project
o Proposals are evaluated and a successful bidder is selected
 The successful bidder then proceeds with the construction of the project. Material,
manpower and productivity risks must be managed in this phase.
 Once the project has been built and commissioned, operations can commence and
the infrastructure service can be availed by the citizens
 An Operations and Maintenance Contract can be given to a separate party.
Maintenance Parameters can be fixed well in advance
o Technical Maintenance and quality issues, Revenue generation issues and
Administrative risks must be considered in this phase
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 In the case of Private Provision of Infrastructure, a winning bidder is selected

based on their ability to build and operate the infrastructure
 Each of these stages varies induration as described in the figure on the next figure.
 The greater the time spent on project preparation and structuring, the more likely
it is that the project can be implemented smoothly and in a cost-effective manner.
 Hasty project preparation often leads to rework of documents, leads to false or
missing information, and leads to project delays.
1.21.2 Project Lifecycle
The nature of the Project Process
 Infrastructure project development is seldom a linear or a deterministic process.

 At all stages, the developing agency must work in partnership with several
stakeholders.
o For successful projects, this partnership is vital.
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 The figure below indicates some of the “fuzzy” aspects of infrastructure planning.
These will be revisited in more detail in a later class.
1.21.3 Stages in the Planning Process
Steps in the Planning Phase:
1. Upon identifying a need and performing economic analysis, the sponsoring agency
might feel the need to build a coalition and seek external expertise to successfully
complete a project. A process of coalition building might then be put into place
2. Government and Political buy-in must be secured at all levels, and the project can
be modified in order to ensure this
3. “Emerging Fears” from residents of the local communities, including environmental
and social groups can then be confronted and alleviated both by transparent
consultations and further modifications to the project
4. Project Financing can be obtained and the project can proceed to completion
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1.22 An Overview of Infrastructure Projects in Power Sector
As the above figure indicates, the power sector is normally divided into three sub-systems
 Power Generation which is done at power plants or stations

 Power Transmission which describes the process of transferring the generated
power to a distribution system
 Power distribution which involves conveying the transmitted power to individual
homes, commercial areas etc.
However such a system need not always be followed
 Generated power can directly be transmitted to Industries

 Industries can themselves have power generation plants
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1.22.1 Power Generation Modes
Power generation falls into four broad categories
 Thermal power, which is often produced through centralized thermal power plants
using coal as a fuel
 Hydropower that is often produced by trapping river flows via the construction of
dams and hydroelectric power stations
 Nuclear Power
 Renewable sources of power such as Wind Energy, Solar Energy, and Tidal Power
etc.
Renewable sources of energy are the most environment-friendly, while thermal energy
often causes the greatest amount of pollution
1.22.2 Power in India – a brief timeline
 Pre-Independence: In this era, 65% of power generation was done by the private
sector
 1947-1975: After independence, the involvement of the public sector increased,
and SEBs (State Electricity Boards) were set up in each state as Public Sector
Entities tonnage and distribute power within states
 1975-1991: During this era, the trend of moving away from the private sector
towards the public sector continued in the power industry. This phase was
characterized by greater involvement from the Central government. Centralized
organizations such as the National Thermal Power Corporation (NTPC). The
National Hydro Power Corporation (NHPC), the National Power Trading
Corporation(NPTC) etc. were set up at the central level
 Post 1991: After the liberalization of the Indian Economy, there has once again
been greater involvement of the private sector in the power industry, and a rapid
growth of this industry as well
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Power Sector at a Glance
2.1 13.3
15.2
0.4 60.5
8.7
Coal Gas Oil Hydro Nuclear RES
Renewable Energy Sources (RES) include SHP, BG, BP, U&I and Wind Energy SHP= Small
Hydro Project, BG= Biomass Gasifier, BP= Biomass Power, U & I=Urban & Industrial
Waste Power, RES=Renewable Energy Sources
1.22.3 Power Sources in India
 India currently generates 281,423 MW of power (As on 30.11.2015)

 As Indicated in the previous figure, most of India’s power is currently generated
through thermal Power Plants that use coal as a fuel
 Hydropower sources also account for a non-trivial amount of power generated in
India
 As per India’s current policies, a lot of emphasis is being given to developing hydro,
nuclear and renewable sources of power
1.22.4 Performance of the Power Sector
 Power supply position in the country has generally improved during the current
year (2014-15)
 During the current year (April, 2014 to November, 2014), the energy shortage has
reduced to 4% from 4.5% during the corresponding period of the previous year.
 The peak shortage in the country increased to 4.7% in the current year compared
to 4.2% during the corresponding period of the previous year.
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 Aggregate Transmission and Distribution (AT&C) losses are up to 27%

 Average Return on Investment for State Electricity Boards (SEBs) is -26%,
indicating that several SEBs are loss making agencies
 As per current 5 year plan estimates, we do not have the generating capacity to
meet our current needs if we plan to grow at 8-9% p.a. This implies that there
should be more investment in power generation
1.22.5 Power targets
 Emphasising the need to generate more electricity from clean energy sources, the
government announced a renewable power production target of 1, 75,000 MW in
the next seven years.
 Solar power is to have the lion's share of the renewable energy target at 1,
00,000MW, followed by 60,000MW of wind energy, 10,000MW biomass and
5,000MW of small hydro projects of up to 25MW each. Solar power generation
capacity right now stands at 3,000MW, accounting for 6.5% of the electricity mix.
1.22.6 Subsidies in the Power Sector
 Costs of power generation are typically higher than the costs at which power is
sold
 This is partially due to subsidies – for instance, farmers get power at virtually no
cost
 Although industry is expected to cross-subsidize the farmers, the costs to industry
are so high that many firms prefer to set up their own captive plans that generate
power. As a result, SEBs are deprived of potential revenues
 This in turn has led to several SEBs making losses
 As a result, they have insufficient funds to invest in capital renewal, upgradation
and maintenance, leading to a negative cycle of poor performance, large losses
and in turn, a greater loss of revenue
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1.22.7 Reforms and Policies
 The Electricity Act of 2003 is one of the key policy acts in the Power Sector
 This act encourages private sector involvement in Generation, Transmission and
Distribution
o Open Access Provisions are provided in the Act wherein private generators
can sell directly to consumers
 Privatization and Corporatization of SEB’s is encouraged
o State Governments pay off or write-off the debts of the SEB’s
 Competition is promoted in Generation and Distribution
 Unbundling of Generation, Transmission and Distribution is proposed in order to
increase the number of players in this sector and thereby promote efficiency,
consumer choice and satisfaction
 Cross subsidies will be reduced and State governments will pay SEBs the subsidies
they mandate. SEBs can also set appropriate tariffs so that they are financially
viable
 Multi-year Regulation through CERC (Central Electricity Regulatory Commission)
and SERC (State Electricity Regulatory Commission) have been established to
monitor activity in this sector
 Although these reforms have been well intended, the current taxation structure
and government bureaucracy have not allowed these reforms to have their
intended effect
 APDRP – Accelerated Power Development and Reform Program. Some highlights
are
o States unbundle Generation, Transmission and Distribution, and take over
SEB debts
o States agree to an audit, use of IT and Metering
o Investment is provided to upgrade infrastructure
 Preference is given to programs aimed at removing commercial
losses
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 Funding is contingent on whether targets were met for previous

projects
o Incentives provided for improved reliability, loss reduction, billing and
metering
 Incentive amount is pegged to reduction in difference between cost
of production and revenue
 Bottom Line – there were initial improvements in some SEBS like WB, AP. However,
now enthusiasm to implement reforms has decreased
 Hydropower projects are being encouraged - particularly through the Private Public
Partnership mode
 Indo-US Nuclear agreement is being explored in order to enhance our fuel security
by obtaining power from nuclear fuel.
 Power Transfer Corporation (PTC) has been set up to increase power trading
across states, so as to balance supply and demand mismatches
 Rajeev Gandhi Grameen Vidyukranti Yojana has been proposed to generate funds
for rural electrification
 SEBs and Power departments are being computerized. This will lead to greater
transparency and accountability and improved service to citizens.
 Large emphasis has been placed towards privatization of Generation, Distribution
of power
1.22.8 Power Privatization
 IPP - Independent Power Producers, Private agencies that generate power

 PPA - Power purchase agreement, an agreement that an IPP or another private
entity might have with a buyer such as the government to buy a certain quantity
of power at certain rates.
 IPPs take on the capital costs of generating power, and recoup these costs by
selling to the SEBs in accordance to the PPAs. The SEBs can themselves transmit
and distribute the power, or they can privatize this function also.
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 In general, transmission efficiency depends on economies of scale and as a result

it is difficult to have more than one transmission agency for a given area.
Transmission thus has monopolistic characteristics in contrast to power generation
and distribution.
 A regulator is often necessary for this sector in order to control power prices from
becoming too high, and to foster competition in this sector.
1.22.9 Ultra-Mega Power Projects (UMPP)
 Power plants of capacity >= 4000 MW are considered as UMPPs. The government
has come up with a separate policy for these plants in order to encourage power
generation in the country.
 Power Finance Corporation (PFC) will do the groundwork, create a Special Purpose
Vehicle (SPV), acquire land, permits etc. This SPV will then be sold to private
vendors who will build and operate the power plant, and supply power.
 5 plants of 4000 MW have been proposed initially at an outlay of INR 3,20,000 Cr
for the Indian government
 Four UMPPs namely Sasan in Madhya Pradesh, Mundra in Gujarat, Krishnapatnam
in Andhra Pradesh and TIlaiya in Jharkhand have already been awarded to the
successful bidders and are at different stages of development. A brief details of
these projects are as below:
Levellised
Sl. Date of Successful
Name of UMPP Type tariff(in ₹ per
No Transfer developer
kWh)
1 Mundra, Gujarat Coastal 23.04.2007 2.264 Tata Power Ltd.
Sasan, Madhya Reliance Power
2 Pithead 07.08.2007 1.196
Pradesh Ltd.
Krishnapatnam, Reliance Power
3 Coastal 29.01.2008 2.333
Andhra Pradesh Ltd.
Reliance Power
4 Tilaiya, Jharkhand Pithead 07.08.2007 1.77
Ltd.
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1.23 An Overview of Infrastructure Projects in Water Supply and Sanitation

Sector
 The W&S sector can be considered in three parts/phases listed below

1. Water harvesting/storage
2. Water supply (piping and distribution from the reservoir to the consumer)
3. Waste management and sanitation
 This sector also has monopoly and economies of scale characteristics. As a result,
it is not feasible for several W&S firms to co-exist in the same area
 Social issues play a very important role in guiding the policies and the performance
of this sector. There is a perception that water is a basic human right. This puts
pressure on public agencies to ensure good quality of service in this sector.
o Pricing of water is also a very contentious issue since it is considered a basic
human right from some quarters. This makes it very difficult to privatize
water supply services.
1.23.1 How is India doing?
 50% urban households do not have a piped connection

 44% of households have no sanitation at all
 Unaccounted For Water (UFW) - water that is lost or stolen during transmission is
as high as 25-50% of stored water.
 Water is not available all day in most places
o 2,80,000 rural people are partially or fully not covered
o Another 2,17,000 face severe quality problems
o Another 60,000 are exposed to arsenic etc.
 The price of water is artificially low due to the social issues mentioned. This affects
the profitability of local water boards and therefore the quality of service.
 Very often, the urban and rural poor are not connected to the municipal water
supply systems. Asa result, they often purchase water from water tankers at rates
that are higher than what the average, connected citizen pays. The poor therefore
pay more for water
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 The W&S scenario in India is in need of considerable improvement.
1.23.2 Policies in the W&S sector
 Water Harvesting
o NWP (National Water Policy) in 1987 has laid down groundwater recharge
guidelines
o NWP 2002 has laid down guidelines on rainwater harvesting, watershed
management etc. These policies should help augment our water storage
 Water Supply
o 11th 5 year plan discusses improving distribution and efficiency of water.
The plan indicates that an initially outlay of INR 80,000 Cr is required and
that all rivers are to be “bathing class”
o RGNWDM (Rajiv Gandhi National Water Development Mission) and the
ARWSP (Accelerated Rural Water Supply Program) are two centrally funded
schemes set up to improve the efficiency of water supply. As per the
ARWSP, the State provides matching grant funds for rural infrastructure
upgradation. In addition, capacity building and community participation is
also given importance. Reduction in subsidies, shifting of government role
from direct service delivery to planning, policy formulation, partial financing
etc., ensuring community participation and management, and school
sanitation are other thrust areas of this program
 10th 5 year plan and Urban Reforms Incentive Fund (URIF)
o The URIF encourages urban bodies to reform, increase operational
efficiency and reduce subsidies. The plan mandates providing water access
to the urban poor, setting tariffs to discourage overuse, introducing water
efficient flushes etc., providing drinking water to all, increasing community
participation and NGO participation and so on. In return, funding and
financial incentives are given to urban bodies
 AUWSP (Accelerated Urban Water Supply Program)
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o This program is promoted by the Ministry of Urban Development (MoUD)

and provides funds for providing water connections to smaller urban cities.
Launched in 93-94, INR 2000 crore was spent by 2001.
 Central support for sanitation has also been increased since many people die due
to water-borne diseases
1.24 An Overview of Infrastructure Projects in Transportation Sector
 India is having the 2nd largest road networks in the world with over 4.24
million km
 Roads carry 61% of freight and 85% of passenger traffic
 We have spent Rs 18,000 Cr annually on roads
 Flagship projects
o Golden Quadrilateral (GQ) - National Highways Development Program
(NHDP) Phase 1
o North South East West Corridor (NSEW) - NHDP Phase 2
 Both these projects are behind schedule due to Finance and Implementation
Issues
 Both projects are nearing completion
1.24.1 National Highways
Key players
 NHAI (National Highways Authority of India - a Government backed organization)

 MoSRTH (Ministry of Surface Road Transportation and Highways - a Government
ministry)
Key Programs
 NHDP (National Highways Development Program - conducted in seven stages)

 Central Road Fund
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1.24.2 National Roads – What is proposed?
National Highways Development Programme (NHDP)
The NHDP – the largest highway project ever undertaken by the country, which is being
implemented by the NHAI, consists of the following components:
 Cabinet Committee on Economic Affairs on 12/01/2000 approved

o NHDP Phase-I: Four laning of 6,359 km. At a cost of Rs. 30,300.00 Cr and
on 18/12/2003 approved
o NHDP Phase-II: Four laning of 6,702 km. At a cost of Rs. 34,339 Cr in
December, 2003.
o These two phases comprise of Golden Quadrilateral (GQ), North-South and
East-West Corridors (NS-EW), Port Connectivity and other projects.
o The GQ (5,846 km) connects the four major cities of Delhi, Mumbai,
Chennai and Kolkata.
o The NS-EW Corridors (7,300 km) connect Srinagar in the North to
Kanyakumari in the South, including a spur from Salem to Kochi and
Silchar in the East to Porbandar in the West.
 CCEA on 12/04/2007 approved upgradation of 12,109 km under NHDP Phase
III at an estimated cost of Rs. 80,626 Cr.
 CCEA on 18/06/2008 approved upgradation/strengthening of 20,000 kms of
national highways to 2/4 lane with paved shoulders on EPC/ BOT (Toll/Annuity)
basis under NHDP Phase –IV.
 CCEA on 05/10/2006 approved six laning of 6,500 km of national highways
comprising 5,700 km of GQ and balance 800 km of other sections under
NHDP Phase-V at a cost of Rs 41,210 Cr.
 CCEA in November 2006 approved construction of 1000 km of expressways with
full access control on new alignments at a cost of Rs.16,680 Cr under NHDP-
Phase VI.
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 CCEA in December 2007 approved construction of ring roads, bypasses,

grade separators, flyovers, elevated roads and tunnels at a cost of Rs.16,680 Cr
under the NHDP Phase-VII.
Some Government Reforms
 NHAI given more independence to select and implement projects in order to aid
speedy development of infrastructure
 100% Foreign Direct Investment permitted
 100% income tax exemption for a period of 10 years
 Automatic tolling proposed to reduce operational costs on toll-roads
 Planning for Expressways undertaken in 11th plan
1.24.3 Private Public Partnerships (PPP) in Roads
 NHDP Phase I and II were publicly financed through fuel cess and federal grants
 NHDP Phase III to VII will be undertaken in PPP mode. Toll collections will be used
to finance the project
 Viability Gap Funding (VGF)
o If the project is not commercially viable through collection of tools and other
revenue generation mechanisms, VGF funding will be provided as a grant
to bridge the gap between revenue generated and outlay
o Total value of VGF can be 40% of the total project cost
o Contracts will be awarded to the firm/consortium that requires the least
amount of viability gap funding
 Negative Grants
o This is the opposite of VGF
o If a project is expected to be very profitable, the firm/consortium that is
planning to bid for the project might offer a portion of the profits to the
government, thereby providing revenue to the government. This is the
negative grant
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o There is no limit to the negative grant. Firms/consortia will be awarded the

contract based on the highest negative grant that is proposed
o E.g. 504 Cr -ve grant for the Bharuch-Surat Highway project costing 492Cr
1.24.4 Private Sector Participation in Roads
 Model Concession Agreement (MCA)

o MCA has evolved over several iterations and is now used as a standardized
contract
o Private and Public partners share risks
o Standardized agreement increases the speed of awarding the contract
 Government subsidies and alternate arrangements in India
o Shadow tolls where users do not pay toll directly, but the government pays
the sponsor an amount equivalent to the toll collected from vehicles using
a designated stretch of roadway
o Annuity payments where the government pays a fixed annual or semi-
annual amount to the project developer so that costs can be recouped. Toll
is not charged to users directly
1.24.5 State Roads
 Often receive less attention as compared to National or Rural roads

 Multilateral funding has been provided for some states
o WB is giving $348 million to TN Govt to improve the quality of 750 km of
road, maintain 2000km and construct 14 bypasses. Govt will provide $102
mill
o In MP, ADB is investing 180 million, State Govt $160 million to upgrade
1900km worth of roads.
 Central Road Fund (CRF) was set up to finance state roads
o CRF is not working well - funds are not being used
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1.24.6 Rural Roads
 A large part of Rural India (40%) are not yet connected by roads
 Several Plans afoot to do so
o 1000 habitations to be connected to all weather roads in 11th 5 year plan
o 1.72 lakh unconnected habitations will be connected in the 11th plan
o Pradhan Mantri Gram Sadhak Yojana (PMGSY) has been set as a centre-
funded scheme to provide funds for rural roads
o Rural Infrastructure Development Fund (RIDF) has also been set up to
provide funds for rural road development
1.24.7 Issues/Challenges with Roads
 Land Acquisition for road alignment

o This involves the political will to acquire tracts of land, compensate the
existing landholders adequately and handover the land to the project
developers. Very often this process is time-consuming and leads to delays
 Environmental and Societal Concerns regarding displacement of people,
deforestation etc.
o NGOs and Special Interest Groups often raise these issues, (e.g.in the NICE
corridor project in Karnataka) and this leads to delays if these concerns are
not effectively mitigated
 Ridership concerns, Tariffs
o The exact tariff that should be charged according to varying categories of
consumers is a difficult decision that must be made. In addition, there are
always risks that by adding a toll charge the ridership on the road might
decrease leading to an infeasible project
1.24.8 Airport Sector
 The Airports Authority of India (AAI) plans to revive and operationalize around 50
airports in India over the next 10 years to improve regional and remote air
connectivity.
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 Gujarat is expected to get a second international airport at Dholera. The state

government has formed Dholera International Airport Co. Ltd. and is obtaining
approvals from the union government.
 AAI has developed and upgraded over 23 metro airports in the last five years
 Over 30 airport development projects are under progress across various regions
in Northeast India.
 Increasing use of development fees by airport developers and operators, for
example, Delhi and Mumbai Airports used Airport Development fee to fund
expansion; while, Hyderabad and Bengaluru Airports used User Development Fee
for maintenance.
 Privatization in airports
o Investment in airports is encouraged under the PPP Policy of Government
of India.
o Till March 2015, five airports have already been developed on PPP basis.
o Investment made by the private sector during the 12th FYP is projected to
grow at a CAGR of about 30 per cent during FY2013-17.
o Currently, 60 per cent of airport traffic is handled under the PPP model,
while the remaining 40 per cent is managed by the AAI.
 AAI is planning to spend USD1.3 billion on non-metro projects over the five years
(2013-17 mainly focusing on the modernization and up gradation of airports.
1.24.9 Issues in the Airport sector
 Huge Growth of 24% in this sector and lots of delays and bottlenecks in air travel
due to inadequate infrastructure
 Airports authority of India is the key governmental agency in charge of developing
this sector
 Bangalore airport faced some problems initially
o Airport PPP policies had not been evolved and AAI policies indicated that
private ownership was not possible in this sector
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o These policies have since been modified and the route has been cleared for
private investment in this sector
 In terms of PPP
o Major portion of the revenue accrues from leasing airport space to retail
outlets as compared to revenues from airlines
o Landside and airside operations can be privatized, but air traffic control
cannot be privatized
 A new regulator is being mooted for this sector to oversee the interactions between
AAI, the private airport operator and the airlines
1.24.10 Port Sector
 A Large Increase in Port Handling Capacity is planned

o More ports have been and are to be added
o Increase in Container terminals to the tune of INR 10,000 Crore is planned
o JNPT (Jawaharlal Nehru Port Trust) alone is planning to spend 3000 Cr in
expanding capacity.
 Since the plan is to attract a larger volume of maritime traffic, the objectives in
the port sector are to increase capacity of existing ports and to add new ports in
order to decrease turnaround time of ships berthed and to increase productivity
 Focus is on increasing Private Sector Participation
o Model Concession Agreement is being prepared
o Fees will be collected on a licensing and revenue-sharing model
 During the year 2013-14, sixteen (16) PPP projects were awarded at an estimated
cost of Rs. 18,640.8 crores for capacity addition of 159 MT in the Major Ports
comprising construction of berths and terminals, mechanization of existing berths,
etc. In addition to the development of ports and terminals, the private sector has
extensively participated in port logistics services.
 TAMP (Tariff Authority for Major Ports) is the regulator in this sector and does a
good job specifying fair tariffs
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 Plans are afoot to improve Road and Rail connectivity to ports thereby reducing
transportation costs on goods and making the port sector more attractive
 Plans are being made to Corporatize Ports to increase operational efficiency
o Will lead to independence from a Central Authority like Port Trust of India
o Finds favour with port operators
1.24.11 Railways
 Until very recently this sector made huge losses, suffered from gross inefficiencies
and was not the preferred mode of choice for freight or passengers
Some Key interventions
1. Increasing the utilization of existing capacity (bogeys) by cutting costs/fares

2. Tying up with private players to run trains, depots to improve quality and
operational efficiency
3. Offering Volume based discounts to boost sales
4. Developing owned land and generating profits through these developments
5. Computerizing operations to improve transparency and efficiency
6. Lower passenger prices
Rail reforms on the Anvil
 A New Investment (60,000 Cr in current plan) for a dedicated Mumbai-Delhi freight

corridor is in the works
o Other dedicated corridors may come up soon
 Private participation is being sought in track laying, freight, maintenance etc.
(through the National Rail Vikas Yojana scheme)
 In December 2012, the Cabinet approved the new policy of Participative models
for rail-connectivity and capacity augmented projects.
 The policy addressed private investors’ concerns, which included ownership of the
railway line and repayment of investment. The policy led to renewed investor
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interest in the rail sector. This is also in line with Government’s 12th FYP, wherein,
it intends to raise investments worth USD14.8 billion through PPP route.
 Areas proposed for private investment during this period would include elevated
rail corridor in Mumbai, some parts of dedicated freight corridor, freight terminals,
redevelopment of stations and power generation/energy saving projects.
 Under the PPP route, approval has been granted for seven ports amounting to
USD0.7 billion.
 Development of the major stations to equip them with international level of
amenities and services is also being implemented through PPP.
 In addition, the MoR proposed to set up five wagon factories under the JV/PPP
model. For FY14, the Rail budget proposes to mobilize USD1.1 billion through the
PPP route.
 Plans are being formulated to bring in world class trains, and stations are to be
built to standards that will compete with air-travel
1.25 An Overview of Infrastructure Projects in Telecommunication Sector
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 Prior to 1980s
o State owned players and infrastructure dominated this sector. In many
cases the equipment used was outdated and the reach of
telecommunications services was poor. Tele-density – the number of
telephone connections per 1000 people was very low as was connectivity in
rural areas.
 1980s
o Private sector was allowed to enter this sector. However, in the initial stages
they were only allowed to manufacture equipment
 1990s
o After the liberalization of the Indian economy, the Private sector was also
allowed to provide services. This led to a sharp decrease in prices,
improvement in service quality and increased access to telephony services
1.25.1 National Telecom Policy (NTP)-1994
 This policy paved the way for the entry of the private sector and opened up both
the Cellular market and the landline market for competition
 Another defining feature of this plan was the concept of a Universal Service
Obligation (USO) designed at providing infrastructure and telephony services to
rural areas
 However this policy had some problems
o An Auction system was used to select players and to allocate spectrum.
However, the fixed license fees bid by the bidders were too high and
uneconomic, leading to requests for renegotiations
o Competition was also inadequate
1.25.2 National Telecom Policy 1999
 The shortcomings of NTP 1994 were addressed issues in NTP 1999

 A Revenue sharing model was introduced as opposed to a fixed license fee
approach.
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 More competition was introduced which in turn led to falling prices

 Rs 500 Billion of Investment was slated for this sector
 National and International Long Distance were opened up to private players in
2001
 BSNL, the state owned telecom provider was Corporatized in 2001 and now
competes with other private firms for revenues and market share
 USO fund was set up for rural connectivity. As opposed to having private players
directly provide connectivity in rural areas, an alternate approach was adopted
whereby private operators contributed a portion of the revenues to a USO fund,
which would then be used by BSNL to provide rural connectivity
1.25.3 National Telecom Policy (NTP) 2012
The main highlights of this policy announced by the Government in 2012 are;
 Increasing rural teledensity to 100 per cent by 2020;

 Broadband for all at a minimum download speed of 2Mbps;
 Unified Licensing One Nation, One License across services and service areas;
 One Nation-Full Mobile Number Portability and work towards One Nation Free
Roaming;
 Various other aspects such as simplifying Merger & Acquisition regime and
transition to new Internet Protocol (IPv6) by 2020
1.25.4 Telecommunications Regulatory Authority of India (TRAI)
 TRAI was set up in 1997 as a Regulator. Due to a large number of private players
entering this industry, an independent regulator was necessary to ensure that
consumers were treated fairly
 Initially TRAI was set up with few powers but was subsequently given more power
to
o Manage spectrum licenses
o Regulate prices
 Most experts feel that TRAI can be given more independence
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o For instance, the regulator can be given a decision making role on issues
such as the convergence of technologies, allocation of spectrum etc.
1.25.5 Digital India
Launched by the GoI in August 2014, Digital India focuses to transform India into a digital
empowered society and knowledge economy. The program involves various projects
worth around Rs. 1 lakh crore and is planned to be implemented in phases from 2014 to
2018. Some of the key projects identified are:
 Building broadband highways across 25,000 Gram Panchayats with a CAPEX of Rs.
32,000 crores;
 Universal access to mobile connectivity involving a CAPEX of Rs. 16,000 crores for
providing coverage to approximately 42,300 uncovered villages;
 Developing the National Information Infrastructure by integrating State Wide Area
Networks (SWAN), National Knowledge Network (NKN), and National Optical Fibre
Network (NOFN) at a cost of Rs. 15,686 crores.
1.25.6 Key Players in the Telecommunications Sector
 BSNL – a public sector player in the local, long distance, cellular, and internet
communications space
 MTNL – a public sector player active in Delhi and Mumbai as regards local
telephony, and active across India in the cellular space
 VSNL – a public sector player in the Internet and long distance space
 Private providers
o Bharti, Reliance, TATA, Vodafone, Aircel etc.
o They provide landline, cellular and internet services
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References:
1. Annual Report 2013-14 National Highways Authority of India, Ministry of Road

Transport and Highways, Government of India. available from
<http://nhai.gov.in/writereaddata/Portal/Images/pdf/annual-
Reports/NHAI%20AR%20-%20ENG%202013-14.pdf>
2. Annual Report 2014-15, Ministry of Urban Development
<http://mohua.gov.in/publication/annual-reports.php>
3. Changing rules of Indian power sector: Empowering the economy, MP 387 - August
2015 <https://www.pwc.in/assets/pdfs/publications/2015/changing-rules-of-
indian-power-sector-empowering-the-economy.pdf>
4. Course on “Infrastructure Planning and Management” by IIT, Madras
<https://nptel.ac.in/courses/105106115/>
5. Draft toolkit for Public cycle sharing systems, Institute for Transportation and
Development Policy (ITDP), Ministry of Urban Development, 2011.
6. McKenzie, David, and Isha Ray. "Urban water supply in India: status, reform
options and possible lessons." Water Policy 11.4 (2009): 442-460.
7. Nallathiga, R., and 3iNetwork. "India Infrastructure Report 2010–Infrastructure
development in a low carbon economy." India infrastructure report (2010): 355-
373.
8. Nirmal, Mohanty, Runa Sarkar, and Ajay Pandey. "India Infrastructure Report
2009: Land–A Critical Resource for Infrastructure." (2009).
9. Pal, Animesh. "Power sector in India: Growth, policies and challenges."
International Journal of Emerging Technology and Advanced Engineering 3.3
(2013): 527-536.
10. Power Sector in India: White Paper on Implementation Challenges and
Opportunities. For release at the Energy Summit, Nagpur (2010).
11. Sahoo, Pravakar. Transport Infrastructure in India: Developments, Challenges and
Lessons from Japan. Institute of Developing Economies, Japan External Trade
Organization, 2011.
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[email protected]
12. The Special Economic Zones Act, 2005 Part II – Section I, Ministry of Law and
Justice (Legistlative Department), New Delhi, 2005
13. World Bank. 2014. Running Water in India's Cities : A Review of Five Recent Public
Private Partnership Initiatives. Washington, DC. © World Bank.
https://openknowledge.worldbank.org/handle/10986/18738 License: CC BY 3.0
IGO.
14. http://sezindia.nic.in/ accessed on 31/12/2015
15. 3iNetwork (India). India Infrastructure Report 2011: Water: Policy and
Performance for Sustainable Development. Oxford University Press, 2011.
16. 3iNetwork (India). India infrastructure report, 2007: Rural Infrastructure. Oxford
University Press, 2007.
17. 3iNetwork (India). India Infrastructure Report 2006: Urban Infrastructure. Oxford
University Press, USA, 2006.
62
UNIT-II
PUBLIC & PRIVATE SECTOR ROLE IN INFRASTRUCTURE

DEVELOPMENT
Syllabus
A historical overview of Infrastructure privatization, The benefits of Infrastructure privatization,

Problems with Infrastructure privatization, Challenges in Privatization Water Supply, Power,
Infrastructure, Road Transportation Infrastructure in India – Case studies preferable.
2.1 A historical overview of Infrastructure privatization
The history of privatization dates from ancient times, when governments contracted out
almost everything to the private sector. In more recent times say, 17th, 18th, 19th
centuries, the infrastructure was managed by the private players, for e.g., railroads and
power networks in the U.S. The reason behind this was that the governments did not
have much money, especially pre-industrial revolution. The Suez Canal which was built
in 1969 is a good example for a PPP model.
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M. A. Azeem Public & Private Sector Role in Infrastructure Development
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The history of the canal
In 1854 and 1856, Ferdinand de Lesseps obtained a concession from Sa'id Pasha, the
Khedive of Egypt and Sudan, to create a company to construct a canal open to ships of
all nations.
The company was to operate the canal for 99 years from its opening.
15 December 1858 – de Lesseps establishes the "Compagnie Universelle du Canal

Maritime de Suez", with Said Pasha acquiring 22% of the Suez Canal Company; the
majority is controlled by French private holders
17 November 1869 – The canal is opened, owned and operated by Suez Canal Company.
In the early parts of 20th century, there was a shift in infrastructure provision due
to the communist ideology, wars, depression, changing social sentiments which led to
public sector being in-charge of infrastructure.
View 1: The privatization – nationalization cycle
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 The previous figure indicates that in many countries the responsibility for
infrastructure provision has been cyclic in nature.
 Private entrepreneurs have undertaken infrastructure provision, but there has
been a decline in services and the state has then taken over the provision of
infrastructure
 This public takeover has once again resulted in inefficiencies that have then called
for the re-takeover of the private sector and so forth
View 2: The evolutionary model
 The evolutionary model is an alternate view of the evolution of PPPs in

infrastructure
 In this view, a large amount of initial private activity in infrastructure was in the
form of wholly owned private entrepreneurial enterprise (e.g., railroads in the US)
 This was then succeeded by a large scale nationalization of infrastructure around
the world, based on rational, scale models
 Starting from the 1970s there has been yet another gradual change to Private-
Public Partnerships with mixed responsibilities and adequate contractual
governance, for the provision of infrastructure.
2.2 Private Public Partnerships (PPP)
 In the PPP mode, the private sector takes some, but not necessarily all, of the risk
and ownership of an infrastructure project
 The following figure shows some of the options for PPPs
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The Spectrum of PPP
 As indicated in the previous figure there is a spectrum of PPP options

 The government can start by corporatizing a public sector entity so that it acts as
an autonomous corporation
 The next stage is for the government to give out Operations and Maintenance
Contracts to the private sector on a performance based contracting mode
 Further down the spectrum is the popular BOT or Build-operate transfer approach
where the private sector entity (known as the concessionaire) builds and operates
infrastructure for a specified period of time (known as a concession period), and
then transfers the infrastructure back to the government. During this period the
private sector can recoup its investment either through user charges or through
payments made by the government
 Finally, the government could turn over the ownership of the asset to the private
sector and allow the private sector to build, operate and maintain the infrastructure
How to Privatize
1. First the government needs to decide whether the situation merits privatization
i) Are there public sector ills and private sector benefits that can be identified?
2. Second the government should determine the kind of PPP arrangement to be used
i) One factor is the potential revenue that can be generated
ii) Social issues and the voice of society can also be considered
3. The government can then ask private players to bid to own and operate a project.
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i) The project should not be over-engineered - the private sector should be

allowed to bring its creativity to the table.
ii) The private players should bid on a “bid variable” such as the amount of tariff
they will charge
4. The government can then monitor to ensure that the private operator meets
societal needs
Role of Private Players in BOT
1. Procure financing
2. Plan, Design, Construct the facility
3. Operate and Maintain the facility
4. Manage the infrastructure throughout the concession period
5. Ensure service to people
Role of the Government in BOT
 To provide the climate for private infrastructure players to work

 To provide guarantees and commitments to encourage the private sector to
execute infrastructure projects
 To steer and not to row
 Since the private sector absorbs financial and performance risks in BOT projects,
the government should not control or decide actions. They should merely enable
the private sector to perform to the best of their ability by clearing regulatory
bottlenecks and introducing incentives in favor of the project.
Government’s tasks
 Planning
o Create and monitor a Masterplan
o Land Acquisition, formation of shell companies
 Competition
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o Introduce competition so that tariffs are low and private monopolies do not
come into existence
 Prices
o Monitor tariff levels in the interest of the public
 Contracts, Legal Frameworks
o Prepare clear terms and specifications regarding capital leases, concessions,
assets
o Provide conflict resolution mechanisms, anticompetitive legislation
 Regulation
o Provide an Independent regulator to monitor performance and to facilitate
renegotiation of the contract if any
 Social Issues
o Increasing Acceptability for the PPP project through conducting stakeholder
participation events
2.3 Benefits of infrastructure Privatization
 The Public sector often has some shortcomings

 Finance - in some cases the public sector does not have financial resources to build
infrastructure
 Projects are often heavily subsidized leading to an increasing burden on the
exchequer
 There is sometimes a lack of expertise in the Public sector when it comes to
executing large and complex projects
 Public sector projects are sometimes characterized by poor quality of work,
frequent service disruptions, low levels of motivation and incentives, corruption,
leakage and theft, selection bias, parochialism, vested interests and power politics
 Finance – can mobilize private funds or funds from capital markets (larger source)
o Reducing National debt and expenses
o Allows the public sector to channel more funds to healthcare, education etc
o Increases state cash inflows due to taxes on the private infrastructure!
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 The private sector is often motivated by profit. Since they can be replaced, and
thereby lose revenue, if they do not provide good quality service, the private sector
is likely to be motivated to bring about improvements in efficiency and quality of
service
 The private sector has to potential to provide fair (reduced) price of services
o Cannot hike prices since they can be replaced and will lose market share
o Prices can be higher than govt. controlled prices
 Private sector efficiency can lead to high customer satisfaction and higher volumes
of service, since reaching out to more people can mean greater profitability
 Construction can be fast and of high quality
o Fewer bureaucratic hurdles are present
o Innovative techniques are often adopted
 Innovation in selecting, designing and developing projects is likely
 More resources – external manpower and experience are often brought in
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2.4 Pitfalls with Private Participation
 Despite these advantages, PPPs have experienced turbulence in the past.

 The following two figures graphically describe the recent worldwide trends with
respect to PPPs
o As the graphs indicate the number of PPPs gradually increased but have
been falling in recent times.
 A large number of PPP projects have been renegotiated
o Although not many cancellations/expropriations
o This might have affected investor confidence
Privatization Trends
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2.5 Problems faced by Private provision of Infrastructure
 Raise in Tariffs - Very often, in order for the project to be economically feasible,
the
private sector is forced to raise user charges from preceding levels, leading to
unrest.
 Unemployment - The private sector often operates with a reduced but more
efficient
workforce, leading to a loss of jobs.
 Unequal Access to the Poor - Since the poor are often not capable of paying for
services, the private sector may not see the value in including them in, say, water
provision, as a result the poor may be un connected and might suffer.
 Ideological issues - Citizens often perceive the responsibility of delivering
infrastructure to be with the government and therefore ideologically oppose
privatization of infrastructure.
 Due to a lack of indigenous expertise, several foreign firms are often called on to
help build infrastructure in several developing countries. This has led to cultural
problems, suspicions of wealth being drained away to foreign organizations, and
economic problems due to currency fluctuations. These issues have often led to
project failure.
 In some cases, political expropriation wherein a government agency reneges on a
contract and expropriates a privately built asset has also led to a loss in confidence
on the part of private investors. This has also partly been due to the lack of a fair
and independent regulator in sectors that are opened up for privatization.
 PPP contracts are often spread over 20-30 years and several political, economic
and social shocks arise over this period. Such unforeseen events fundamentally
alter the economics of the project and are very difficult to anticipate. These shocks
have often led to project cancellation or renegotiation.
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Disillusionment with Infrastructure
 A study of over 1000 infrastructure privatizations in Latin America and the

Caribbean between 1982 and 2000 found that 75% of all W&S and 55% of
Transportation projects had to be renegotiated within a few months
(Guasch, 2002)
 Investor interest has reduced due to failures in the past, poor performance of
previous
projects, pessimism, political and other risks that they have to consider
Overall Verdict on Privatization
 PPPs are not a universal panacea. However, if used judiciously, PPPs can lead to
the efficient delivery of infrastructure.
 In order to ensure the success of PPPs, issues to consider are
o Economic feasibility of the project
o Social and political acceptability
o Creating flexible and hierarchical contracts
o Addressing Pricing issues
o Introducing Competition
o Establishing a Regulatory and Institutional
2.6 Challenges in privatization of water supply in India
Several state governments and agencies have tried to engage the private sector,
particularly for drinking water services with limited success. This could be primarily
attributed to the following reasons:
 Lack of adequate project development.

 Projects not being bankable.
 Most of the earlier projects being operator-led rather than government/ULB-led,
which in the absence of adequate project development, has led to protracted
negotiations and stifled successful project implementation.
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 Procurement issues—projects based on negotiated contracts and not through a

competitive bidding process.
 Security of payments to private operator.
 Low tariff regime.
 Lack of credible information.
 Lack of government support and political will.
Among these reasons, the private sector perceives availability of credible information,
payment (including termination payment) guarantee structures, and the presence of a
business case for the project (robust revenue model, risks on tariff, or otherwise) as the
most important aspects that affect their decisions on participation in PPP projects.
Risks Related to Availability of Information:
Before putting out the project bid for private participation, it is important for a
procurement entity to prepare updated information that is relevant so as to facilitate a
private operator to take informed decisions on whether to bid for the project or not, and
to formulate its proposal. Insufficient or inaccurate data makes it difficult for a private
operator to make a realistic assumption of capital, O&M costs, and revenues for a project.
Payments to Operator:
One of the primary risks, which the private sector perceives today relates to the security
of project returns, in turn linked to tariff increases and adequate connection charges.
Payments to the operator would need to be ensured as most ULBs do not have adequate
resources to meet this expenditure. Therefore, a suitable payment guarantee mechanism
needs to be created to increase the comfort level of the developer and the lenders. For
instance, structures could include escrow of water charges, devolutions from the state
government, property tax, and other revenues collected by the ULB, a letter of credit
based structure, and so on.
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Experience shows that if the viability of a project solely depends upon future increases in
water tariff, the private sector has expressed reservations to undertake such a project as
tariff related decisions are prone to political and local exigencies.
Framework for Fixing and Collection of Water Rates:
Increasing water charges prior to demonstration of service usually result in consumer

resentment. For instance, there was strong opposition when the Tiruppur Municipality
increased water rates from Rs 4 per kilolitre to Rs 6 per kilolitre for residential consumers
even before the water supply started, whereas a residential consumer in Coimbatore
district was paying Rs 3.50 per kilolitre. Rates for commercial establishments were also
increased from Rs 6 per kilolitre to Rs 10 per kilolitre.1 Experience shows that usually
municipal laws do not have specific provisions giving rights to the commissioner or chief
municipal officer to delegate the collection responsibility to private contractors.
Capital Risk:
With a growth in population, extension of the municipal area over a period of time, and
the addition of different categories of consumers, there will be need for lumpy
investments during the contract period. There should be a mechanism for addressing this
kind of investment. This may be done either by sharing the investment between the ULB
and the private operator or making a provision for the private operator investing on its
own and recovering this through a suitable contractual mechanism.
Revenue Risk:
 Typically, the operator likes to know whether the ULB will provide a payment
guarantee with a minimum amount for new work (for example, extension of the
service coverage area and the resultant increase in revenue thereof) in a pre-
estimated timely manner as well as any financial support for undertaking such
additional work (capital investments) during the contract period.
 Usually, obligations are cast upon the operator to pay penalties for non-compliance
of environmental regulations in the event of deterioration in the quality of treated
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wastewater. Similarly, if the project area is a sub-division of a city/town, the

operator’s responsibility for satisfactory disposal of wastewater is to be spelt out
in clear terms. Also past liabilities, if any, relating to the operations of water and
sewage have to be on the account of the ULB and not passed on to a private
operator.
 The operator may seek an assurance from the ULB/government that the users are
prohibited from using groundwater and water from the project must be the only
source of water to be supplied to the consumers.
 Though developers are willing to take risk of collection, they would need legal and
administrative support to address defaults in payments. In such case, the contract
could provide for recourse taken to a ULB to recover money from defaulting
consumers or whether there could be a back to back agreement for payment of
such dues by the ULB directly.
 Regarding illegal use and unauthorized connections, the contract needs to clearly
set out the administrative support that would be provided to the operator.
Incentives to the operator may be considered for detecting illegal and
unauthorized use of water by the citizens.
O&M Risk:
Risk of power charges increase in the future should be adequately addressed either by
means of passing through or carrying out periodic energy audits so as to reduce the
consumption of power.
Private Operator’s Right to Disconnect Nonpaying Customers and Powers to Re-connect:
Unless provided in specific terms under the municipal law, it is the commissioner or chief
municipal officer who has the power to cut-off the water connection of a defaulting
consumer. The same is the case for reconnecting the water supply. Therefore, even under
PPP arrangements, the ULB official has to specifically authorize disconnection and re-
connection and only then will the private operator will be in a position to take appropriate
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action in this regard. Suitable covenants are required to be incorporated in the PPP
contract in this regard.
Opportunity to Negotiate during Bid Process:
Typically, tenders floated by ULBs for PPP arrangements do not allow bidders the option
of marking up or otherwise submitting comments on the draft contract, except during
pre-bid meetings. Often some suggested changes to the draft contract desiring transfer
of certain risks to the authority are not accepted. Negotiations with a successful bidder
prior to the execution of the PPP agreement are also not envisaged. In international PPP
projects it is common for the tender process to allow for negotiations on key contract
conditions. This allows the bidders to suggest alternative risk allocation, which could
result in a more competitive bid price. It may also allow for practical issues in the
agreement to be refined throughout the process. The complexity of a PPP project usually
demands a more bilateral approach.
Performance Security:
It is common practice to seek a performance security from the operator so as to ensure

that in case of default or delays, certain deductions could be made towards liquidated
damages. It must be ensured that the security is as objective and as clear as possible
and preferably relates to material rather than trivial failures by the operator. Secondly,
the value of the security should be kept as low as possible. The authority should consider
its ‘genuine pre-estimate of loss’ if the operator breaches the terms of the contract.
Other Issues:
Typically, in water PPPs, especially short-term contracts,2 it is expected that employees

of the ULB will acquaint themselves with the technological and operational improvements
made by a private operator in a project during the contract period and subsequently this
learning will be put to use in the post-contract period. To enable this, PPP contracts
usually envisage deputation of ULB employees to a private operator. The contract
conditions in this regard must be strictly adhered to by the ULB and employees deputed
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to a private operator in a timely manner and for the agreed period so that they are able
to retain the knowledge acquired during the contract period and impart training to other
ULB employees so as to achieve longer term benefits.
2.7 Recent developments and challenges in power sector in India
 The capacity addition target for Eleventh Five Year Plan (April 2007 - March 2012)
was set as 78,700 MW, which was later revised to 62,374 MW during mid-term
review. But, only 54,964 MW was added during this period.
 India experienced energy and peak shortage of around 7.5 percent and 10.3
percent respectively during the Financial Year (FY) 2010-11. Prolonged power cut
in different states across the country is a routine phenomenon, which severely
affects industrial productivity. Hence, energy deficiency is a key hindrance to
sustained economic growth.
 At the end of 2010-11, 79% of the generating stations were owned by central and
state utilities. By the end of 12th Plan, the demand for grid power is estimated to
grow at 6% per annum.
 To achieve the ambitious capacity addition target of around 1,00,000 MW,
significant private investments are required considering limited public financing
capabilities.
 Central and state governments have initiated series of measures to encourage
private investments in generation, transmission and distribution. 100 percent
Foreign Direct Investment (FDI) is allowed under the automatic route in
generation, transmission, distribution and power trading except nuclear
generation.
 In the last five years, different IPPs (Independent Power Producers) expressed
their interest for investments in generation sectors, especially in thermal and some
areas of non-conventional resources. Hence, private share in generation has
increased over time.
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 In FY 2010-11, FDI was around US$ 1.5 billion in power sector including non-
conventional generations. However, hydel generation and distribution are the
areas of reluctance for private investors considering the poor assurance of return.
 Different power projects initiated by IPPs and public utilities encounter several
challenges. Especially, the new entrants having no prior experience in this sectors,
face several difficulties like land acquisition, environmental clearance, fuel supply,
financial closure, power equipment supply, project execution, human resources
constraint, etc.
 Land acquisition appears to be an increasingly significant challenge for power
projects in India. Delays in acquiring land and obtaining environmental and other
requisite clearances cause significant delay in different projects. The new Land
Acquisition, Rehabilitation and Resettlement Bill proposes that project developers
need to acquire a minimum of 70 percent of the required land. The respective
state government may acquire maximum 30 percent area at their discretion.
Otherwise, developers need to acquire the entire land for that project. However,
the bill continues to face political opposition. It is also reported that even after
acquiring the land in the name of public interest with an assurance of
direct/indirect employment for the affected people, the project has not been
completed after several years due to other delays and hence, credibility of industry
and government is eroded. Therefore, it is imperative to meet the project affected
persons’ expectations in terms of rehabilitation and resettlement. Several
proposals for power project are halted due to supply constraint of fuels. Supply of
domestic coal continues to be limited due to lack of development of new mines
 In FY 2011-12, planned target of domestic coal production was 554 million metric
tons (MMT), whereas only 539 MMT were achieved. This is due to the slow
development of captive coal mines, which were allocated to many developers. Out
of 195 coal blocks having storage of 44,230 MMT, allocated to different developers,
a majority are not yet operational due to land acquisition, permit delays,
infrastructure problem and also lack of diligent effort from the developers.
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 To augment the generation capacity rapidly, Government of India has initiated to

set up a few Ultra Mega Power Projects (UMPP), each having capacity of 4000
MW. Financial closure for such big project, each costing about INR 16,000 Crore,
is a big constraint. Additionally, considering high financial stakes involved in private
investments, delay in payments may cause severe pressure on developers &
suppliers to meet the project schedule.
 Equipment shortages were a significant reason for India missing its capacity
addition targets in 10th Five Year Plan (April 2002 – March 2007). Though, the
shortage was primarily in major equipment like boilers, turbines and generators,
lack of supply of Balance of Plant (BOP) equipment was also experienced. Due to
lack of adequate domestic manufacturing capacities, the country is largely
dependent on imported equipment for BTG areas
 During the 10th Five Year Plan, various reasons have been identified like
inadequate preparedness of projects, shortage of equipment supply, financial
closure, etc. However, the delay in supply by equipment manufacturer has been
identified as a major reason for slippage of targets in 10th Plan.
 The shortage of talent pool in the construction industry is a concern since long
time and this affects the project’s cost and schedule severely. There is a gradual
decline of talent pool in construction and power industries as professionals prefer
more lucrative career options. The engineering and management institutions are
not able to feed the required number of skilled professionals to these industries in
various domains like engineering, estimation, contract & project management,
erection, testing and commissioning, etc.
 More collaboration is required between industry, institute and government to
attract more talent to these industries to keep the growth momentum. Investment
in employees in the form of specialized training as per best international practices
is an important factor to have a better career prospects. Also, lucrative salaries
can be considered as an option to attract more talent to these industries.
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2.8 Challenges in privatization of road transportation in India
 In spite of all these concessions, private sector exposure has been below the
expected levels. This is primarily due to reasons like reluctance of the private
sector to participate in long-term projects, land acquisition problems and difficulty
in toll collection in the operating phase in certain stretches.
 Although the Indian transportation infrastructure is one of the largest in the world,
it is far from being the best. The population of the country is almost four times
that of the U.S. and has one of the highest growth rates in the world. The existing
transportation system is not adequate to sustain the current rates of economic and
industrial development in the country. Demand has constantly outstripped the
supply of transportation over the last fifty years. Compared to the U.S., the amount
of freight traffic carried by highways in India is quite meager. This is partially due
to poor surface quality of the roads. The Indian automobile industry today
manufactures a large variety of multi-axle vehicles with turbo charged engines,
but most of these are currently exported. The Indian industry needs large
freighters to transport goods. The automobile industry has necessary facilities to
manufacture them in sufficient quantities. The inadequate road infrastructure
hence acts as an economic bottleneck impeding growth of both these industries.
References
1. Bid Document for Providing Integrated Management System, Study, Design,

Analysis, Rehabilitation and Transforming the existing intermitted water supply
distribution system to continuous pressurized 24x7 distribution network, including
operation and maintenance for West Distribution Operating Zone in Mysore City –
Under Remodeling of Water Supply Distribution Network in Mysore City under
JNNURM
2. Concession agreement for Hyderabad Metro Rail Project between the Government
of Andhra Pradesh and M/s L&T Hyderabad Metro Rail Private Limited, dated
September 4, 2010.
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3. Concession agreement between Coimbatore Municipal Corporation and M/s BEIL-

UPL for Integrated Municipal Solid Waste Management Project (IMSWMP) for
Coimbatore.
5. Krishna Drinking Water Supply Project – Phase II under JNNURM
6. Shah, Mihir. Urban water systems in India: a way forward. No. 323. Working Paper,
Indian Council for Research on International Economic Relations, 2016.
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UNIT-III
INFRASTRUCTURE PLANNING AND IMPLEMENTATION

Syllabus
Mapping and Facing the Landscape of risks in Infrastructure projects, Core Economic and Demand
Risks, Political Risks, Socio-environmental risks, Cultural risks in International Infrastructure
Projects, Legal and Contractual Issues in Infrastructure, Challenges in Construction and
Maintenance of Infrastructure – Case studies preferable.
3.1 Mapping and Facing the Landscape of risks in Infrastructure projects
Success of an infrastructure projects is greatly influenced by proper management of the

risks associated with the project. Proper management of risks assumes more importance
in case of PPP projects wherein most of the roles and responsibilities which were under
the domain of public sector have been transferred to private investor. In addition to this,
the private sector willingness to invest in the project is depended on whether a proper
framework for risk management has been established for equitable allocation of risks
between public agency and private sector.
Risk management is increasingly a critical success factor for major infrastructure projects.
Risk management is often governed by the principle that it should be borne by the party
most capable of controlling it. The sources of funding of Infrastructure projects may by
public/private or both. Risk is something that is understood to have a range of possible
outcomes and known probabilities can be attached to the outcome. Risk is different from
uncertainty. In case of uncertainty there exists more than one possible outcomes but the
probability for a particular outcome to occur is not known. A risk left unidentified is difficult
to mitigate in later stages of the projects so the concept of risk management starts with
identifying the potential risks. Often private stakeholders are very much interested in
clearly defining and mitigating the risk and protecting themselves from those possible
risks and will charge a premium for bearing the risk. The risks associated with a project
will vary with the type of infrastructure sector as each of the sectors has unique operating
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environment and characteristics. So identifying risks and mitigating has some uniqueness
in every project even though lessons learnt from the experiences of other projects help
in identifying them. The following discusses the risk profile of the projects in some of the
key infrastructure sectors.
3.2 Risk Profile of Various Infrastructure Sectors
The various infrastructure sectors have unique operating environment and sectoral
characteristics. These result in different risk profiles of the infrastructure sectors. The
different profiles mean the various risks associated with projects which constitute the risk
profile though remain the same but the severity of the risks will vary from sector to
another. The risk profiles and operating environment of two of the infrastructure sectors,
power and transportation sectors, wherein private sectors have been actively involved
are discussed below.
Power Sector: In power sector, governments have privatized this sector and
discontinued the monopoly of state utilities by inviting private sector in the form of
Independent Power Producers (IPPs) who build generating plants initially on BOO
(Build/Own/Operate) basis and on BOT basis, later on. The IPP then fed the electricity
generated from their plants into state controlled distribution and transmission networks.
Then, an off-taker, usually the state or provincial utility board purchases the electricity
on a wholesale basis from the IPP via a Power Purchase Agreement (PPA). This
mechanism ensures a regular stream of incomes otherwise the IPP will face a fluctuating
demand and will not be able to meet the financial obligations. In spite of such an
arrangement possible loss of income may occur though illegal connection to the
transmission system, especially in developing countries but such an arrangement assign
the demand risk to the government, as private sector is reluctant to assume this risk.
The output from the power project is sold to a public entity unlike other sectors such as
highway where the infrastructural services is consumed by several users. However, the
multiplicity of IPPs in a country also creates the problem of volatility of power prices since
keen completion may lower tariffs. There may also be chances of refusal by the public
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entity to buy the power in spite of entering into power purchase agreement if the power
generated is not meeting the agreed specification.
The power plants are often subjected to technical and environmental risk where careful
consideration is necessary. The construction process of power plant is often complex
resulting in completion risk. Besides the technical complexity, the project sponsor need
to set up adequate transportation facility from the point of production of raw material
such as coal, and gas to power plant to ensure uninterrupted supply for continuous
generation of power in case of fuel/gas fired and thermal power plants. In addition, other
major risk that may be evident in case of power sector is the fluctuation of the production
due to variation in cost and availability of fuel where IPP is committed to a take-or-pay
fuel supply contract. In case of take or pay contractual agreement, one party agrees to
purchase a specific amount of another party's goods or services or to pay the equivalent
cost even if the goods or services are not needed.
Transport sector: Transport industry includes road transport (i.e. highways, tunnels,
and bridges), railed transport (i.e. railway subway, and light rail transit systems), airport
and ports. Even within the transportation sector, the risk profile varies with the mode of
transportation. For instance, highway construction is relatively less complex then tunnels
and bridge, but they are exposed to risks that come from competing facilities and issues
like toll collection and user pattern need to be taken into account while evaluating the
viability. These may even hold true in case of rail transport if not identical but are quite
different when considered in the case of airports and ports in terms of risk exposure in
these parameters like toll collection.
Risks in Road Transport: In case of road projects, the investment made by the private
investors is recouped using the toll collection from users. As a result, the most critical
risks in road transport are mostly due to fluctuation of actual traffic from the forecasted
traffic volume. In general, the traffic volumes are forecasted with certain level of
subjectivity and takes economic growth, traffic induction, modal split (change of mode
from say bus to monorail), individual values of time, vehicle ownership and the behavior
of people with respect to tolls i.e. their acceptance levels into account. Any deviation of
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the forecasted traffic from the actual traffic or inaccurate forecast due to poor
workmanship may cause deficiency in cash flows which are difficult to cover or cope up
unless a certain level of guarantees are ensured by the host or the government so that
the investments of investors and debt of lenders are secured.
Cost overruns and delays are other major sources of the risk due to the constraints such
as geographical disadvantages while constructing in difficult terrains such as hilly terrains
or may be due to delay in the land acquisition, where especially for a road project it is
both expensive and can be slow. The right of way disputes also hamper the work progress
leading to cost overruns. The foreign exchange risk is one of the risks encountered in
case of tunnel and bridge projects which use sophisticated technology with important
equipment.
Tunnel and bridge: Tunnels can be either land borne or water borne. Water borne tunnel
can be either immersed or submerged tunnels. Land borne tunnel and immersed tunnels
are prone to geological risks as they have to be excavated or drilled through uncertain
rock mass and soil. Safety at work and disturbance to surface traffic are major concerns
especially in municipal areas. Health risks are also encountered if the compressed air has
to be used for stability and ground water control. In case of submerged tunnel, the
stability of the seabed is an issue at stake during operation stage which could lead to
traffic accidents and fire breakouts. This can be a critical risk in case of long tunnels which
demands the need for the prevention of it while undertaking the physical design and
management of the facilities. In case of bridges, hydrological and weather conditions may
impose severe constraints besides the restrictions due to geological conditions. All these
could pose technical and design challenges which ultimately affect the completion of
project on time and within budget.
Railed transport: Railway systems especially electrified mass transits; typically involve
expensive rolling stock and control system. These are normally procured with export and
credit financing which is sensitive to political risks.
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Airports and ports: Business associated with aviation has to keep pace with ever
increasing demand for speed efficiency and new technology. The commercial success of
airports also depends heavily on regional or international trader prosperity. Integration
with other connecting facilities such as domestic airports and highways is important as
delay in the completion of these can affect the projected revenues.
Ports and container terminals need an integrated infrastructure to support its operation.
Operation may be adversely affected by the lack of adequate adjoin land for expansion.
Throughput (an amount of material or items passing through a system or process)
capacity may be affected by the breakdown of cranes forklifts and other equipment labor
disputes and extreme weather condition such as typhoons. Ports are prone to changes in
tariff regulation and quotas, which affect the shipment of goods for exports. Ports and
airports often face political risk as it represents symbols of national pride.
3.3 Classification of Risk
Infrastructure projects are associated with various types of risks. These risks are common
to most of the projects under various infrastructure sectors. In order to facilitate
management of these risks, they are categorized into groups under various classification
schemes. One of the most common classification schemes is to categorize the risks into
project risks, financial, and political risks.
Project risks include various risks such as completion risks, performance risks, operation
& maintenance risks, financing risks, revenue risks, and input supply risks. Completion
risks refer to the risk that project will not be completed on time or within budget. The
failure to complete the project on time could be due to other risks such as delay in land
acquisition risk or due to permit risk.
Permit risk is the risk that necessary permits, approvals, and licenses for construction,
investment and financing, and operating could not be obtained on time. Failure to
complete the project on time could be due to third party risks, the risks that the project's
third parties (i.e. public authority) fail to perform their obligations such as providing
connection and utilities for the project or relocation of utilities.
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Performance risk is the risk that the project fails to perform as expected on completion.
The sources for performance risk could be due to poor design or adoption of inadequate
technology.
O&M risks refer to the risks associated with the need for increased maintenance of
assets or machinery over the term of the project in order to meet performance
requirements leading to cost overruns and reduce the availability of the project.
PPP projects are financed with equity capital from investors and debt from lenders.
Financing risk refers to the risk that sufficient finance will not be available for the project
at reasonable cost either due to changes in market conditions or credit availability
resulting in increase in cost of capital of the projects.
The risk of not being able to raise enough equity by the project promoter results in equity
risk. The other equity investors will not be willing to provide funding for PPP projects if
the project promoter has not proven its financial capability.
If the lenders are not able to fulfill its commitment to any financial transaction on the due
date, then it is known as credit risk.
Revenue risk is the risk the project may not earn sufficient revenue to service its
operating costs and debt and leave adequate return for investors. The main sources of
revenue risk are volume risk and price risk.
Volume risk is the risk that actual demand for the project services is far less than the
projected demand of the project services.
Price risk is the risk that the actual price at which the service is sold is different from
the projected price.
Input supply risk is the risk that supply of raw materials for the project may get
interrupted or the raw material may not be available on an appropriate price basis.
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Financial risks such as inflation risk, interest rate risk, and currency exchange risk are
the risks which are not directly related with the project but related with the environment
in which the project operates.
Inflation will be a risk during the construction period when it leads to higher project
cost than the projected cost leading to cost overrun. Similarly, inflation will be a risk
during the operation period when it leads to higher operating costs than the projected
level.
Interest rate is the risk of fluctuation in the interest rate leading to the need to pay
extra cost while servicing the debt to lenders.
Currency exchange risk exists in project when the currency for project cost is in one
currency and the funding is in another currency or revenues are in one currency and
financing is in another currency. Fluctuation in exchange rate may lead to increase in
project cost if the currency in which cost is incurred appreciates. If the exchange rate
fluctuates leading to depreciation of the currency in which the project collects revenues,
then it will lead to reduction in net revenues available for debt servicing, which is to be
repaid in another currency.
Political risks: Political support is required for PPP projects in order to complete the
construction successfully and to continue its operation successfully. Various actions of the
government could lead to changes in the political support thereby introducing political
risks to PPP projects.
The projects may be exposed to political risks on account of:
1. the restrictions imposed on convertibility of currency and transfer,
2. expropriation of the project assets by the government, and
3. internal political stability causing physical damage to project or preventing its

operation.
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The government may introduce changes in the law which provides the stable legal and
regulatory environment for the project resulting in change in law risk.
Cultural risks: People are influenced by the perceptions of others around them, making
sense of the world in collaboration with other people in social situations. This reliance on
community as a source of perceptions is worsened when there is not much information
or knowledge about a risk or when there is mistrust in external regulators who have the
responsibility to provide that information. Adding to this, cultural theory has shown that
people form into groups of common objectives and perceptions, assigning particular
meanings to risk events. That is, people rely on patterns of habit and socialized
reinforcement of their values and behaviors in order to make sense of the world. In this
way, risks are perceived and responded to according to principles that are imbedded in
particular forms of social organization. For example, from a cultural perspective,
arguments about a construction project would not be just concerned about choosing a
safer technology, design or production process, but would be linked to fundamental
questions about the social and political meaning of technologies to societies and to their
broader societal implications.
Local communities can affect projects in ways that do not just influence permit
procedures. Native populations, for example, can have formal or informal veto rights over
such projects within their territories; action groups can organize protests that prompt
politicians to withdraw permission, and so on. Community/cultural risk is especially high
if the project involves land expropriations or relocation of local inhabitants.
Socio – environmental risks: The key socio-environmental risks in infrastructure

projects are loss of natural habitat, impacts to cultural property, land acquisition leading
to loss of access to source of livelihood, involuntary resettlement (IR) requiring relocation
of populations and associated compensation, political and litigious issues, effects tourism
industry of the locality, security of operations (human rights violation – encouraging child
labour, terrorism and social unrest), bribery and corruption (especially in developing
countries with weak governances), climate change by long term depletion of ozone layer
and emission of greenhouse gases (GHG), and for small scale infrastructure projects
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disruption of other users during construction (roads, etc.). Large scale lenders (like World
Bank, IIFCL etc.) and investors have to look upon these critical issues very strictly as they
are directly involved with the public and it affects their reputation or credit rating.
Mitigation measures: To avoid the social and environmental risks, the project has to
get acceptance by the society. Some of the dimensions of social acceptance are socio-
political acceptance of the technologies and policies by the public, key stakeholders and
policy makers, community acceptance of facilities, and market acceptance of investments
in these facilities by the investors.
It has to be made mandatory for infrastructure projects to carry out the Environmental
Impact Assessment (EIA) and Social Impact Assessment (SIA) and come out with an
action plan for mitigating the measures as per the proper legal framework which has to
be framed by the government and the lending banks and other investors to protect their
credit ratings.
Other suggestions for mitigating the risks are by incorporating environmental and social
safeguard conditions in the construction contracts/O&M contracts, proper agreements
should be signed with the project contractor or developer for Enterprise Project
Management (EPM) or Resettlement Action Plan (RAP) implementing measures,
maintaining legal covenants to ensure responsibilities regarding environmental and social
safeguard issues.
Elemental and Global risks: The risks can also be categorized as elemental and global
risks. The elemental risks are the risks which originate from sources within the project
structure. The elemental risks are considered to be manageable by elements within the
project, such as through proper risk allocation in the concession agreement. Risks such
as completion risk, performance risk, financing risk, revenue risk, and input supply risk
are elemental risks. On the other hand, global risks are those risks which are exerted
externally to the project environment and are generally not controllable by the project
participants. They are also called force majeure risks. They include floods earthquakes
and other natural disaster. When a project is entirely sponsored by private participants
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then the political risk in a global risk and on the other hand if the host government is
involved in the project as a co-sponsor then political risk is an elemental risk.
The risks associated with PPP projects can also be categorized based on the occurrence
of the risk in a particular phase of the project lifecycle. The lifecycle of PPP projects
comprises of development, construction, and operation phase. The development phase
of the project is associated with risks such as delay in land acquisition risk, permit risk,
third parties risk, financing risk, equity risk, and credit risk. Risks such as completion risks,
financial risks, and performance risks are observed in construction phase. Revenue risks
and O&M risks are two major risks associated with the operation phase of the project. In
addition to this, the operation phase may also be exposed to input supply risk and
financial risks. There are other categories which may be associated with any phase of the
PPP project lifecycle. These include risks such as force majeure risks, and change in law
risk.
3.4 Ideal Risks Bearers
Economic Risks - Shareholders, lenders and Government
Socio-Political Risks - Government
Regulatory Risks - Regulator, Government and Legal advisors
Market Risks - Operator, Shareholders and Regulators
Development Risks - Contractors, shareholders, Insurers
Start-up & Operating Risks - Operator, Shareholders, Insurers
Force Majeure - Insurers, Shareholders and Govt.
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There are 4 major categories of risks in infrastructure projects:
Political risks Economic risks
Risk of Expropriation Currency Devaluations

Contract Reneging Inflation and lowering of purchasing
Cancellations power
Delays in Permits and Approvals Demand Forecast Errors
Socio-economic risks Technological risks
Community Protests Construction Delays

Unwillingness to Pay Inefficiencies in Operations and
Maintenance
3.5 Core risks
 Regulatory framework
 Demand
 Pricing of services
 Revenue
3.5.1 Regulatory framework
Risk
Commercial operations will be feasible only if regulations permit
 Construction and ownership of facilities
 Imposition and revision of price for services provided
 Retention and appropriation of profits by PSP
 Creation of charge on Project Assets/Facility and receivables
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Mitigation
It is necessary to:
 Conduct legal due diligence to identify regulatory deficiencies
 Obtain state commitment to necessary change of law and make government liable
for risks change of change in law.
3.5.2 Demand
Risk
 Demand estimates may not be there in a green field project (NGHC

Project in Ranchi, Jharkhand) or be unrealistic as usually they are derived
from macro-economic and demographic projections.
 The establishment of a competing facilities can affect demand adversely.
Mitigation
 Provide for extension of Concession Period in case Project IRR is not achieved/
state support to tariff as sub-debt.
 Provision not to establish a competing Facility –but restriction should be

reasonable- for specified period or in specified area.
 Upfront offtake commitment from consumers - take or pay contract.
3.5.3 Pricing of Services
Risks
Risk lies in:
 Losing consumers/ collective resistance historically infrastructure has been a free

or underpriced pubic good
 Securing regulatory approval.
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Mitigation
 Make consumers aware of price of existing or competing facilities or services,

savings available by use of facility
 Price discrimination-higher prices for commercial or industrial users, lower prices
 for weaker sections/frequent users
 Willingness to pay surveys to be carried out to establish price elasticity
3.5.4 Revenue Support
Risk
 Risk of inadequate return is high, demand is uncertain, PSP may not free to
determine prices on commercial basis or be required to provide free or cheaper
services to target groups.
Mitigation
 Government has to under write a minimum rate of return, through the following
Fiscal incentives
 waivers of stamp duties and registration charges, tax exemptions etc.,
 Compensation to PSP in cash or by extension of Concession Period if PSP is

required to provide free good/service - In Road Projects compensation in case of
addition to exempted category.
 Revenue Shortfall Support by way of loan from Government to meet debt service
and O&M Expenses.
 Non competing facilities restricted or regulated.
 Development Rights
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3.6 CONSTRUCTION RISKS
 DESIGN
 CONSENTS
 CONSTRUCTION COST
 CONSTRUCTION TIME
 DEFECTS IN CONSTRUCTION
3.6.1 Design
Risk
 The Project Design is usually prepared by private sector participant with approval
by the Government or Independent Engineer.
Mitigation
 This risk is allocated to Concessionaire with a pass through to the EPC

Contractor.
 No liability on Government for review or failure to review by Government or

Independent Engineer.
3.6.2 Consents
 Approvals needed from Competent Authorities (Central, State or local bodies).

Some affected areas are:
o Environmental Clearances, particularly for forests, coastal zones etc.
o Land Development –Statutory Approvals of Master Plans etc.
o Regulation by PSP- Traffic on the Project Road
o Various Construction and O&M activities
o Acquiring land, shifting of utilities or removal of encroachments
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o Rehabilitation of PAPs
 The allocation of this risk between PSP and State should be clearly defined. State
typically agrees for best effort assistance but should be made responsible for
providing clearances within its control and power and provide facilitation of
others
Mitigation
 A general principle for effective allocation would be to:
o Allocate responsibility for clearances/consents on technical, commercial

and financial issues to PSP. There may be a pass through to the EPC
Contractor.
o Allocate responsibility for land acquisition, shifting utilities, removing

encroachments, rehabilitation, environment to the State entity.
 Risks of delays in obtaining approval and implication of that on cost needs to be

assessed.
 In Punjab, GOP has agreed to pay for damages in case of delays in providing
unencumbered possession of site with caps and for removal of utilities by the
PSP.
3.6.3 Construction Cost
 Preferably a single EPC Contractor to avoid interface risks
 Use of lumpsum turnkey contracting basis to obtain fixity of cost
 Clearing state circumstances under which the Concessionaire may claim

additional remuneration, which should be: i.e., Change of Scope
 Inflation risk etc. should be factored in the lump sum price
 contingent funding provision should be made
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 Relief should be given for cost overruns due to default or delay of public partner
or non-insurable Force Majeure Events –this could be in cash or extension of
Concession Period.
3.6.4 Construction Time
 Is time the essence of the contract?
 Monitor time more closely for the essential public components and leave it to PSP
for commercial components in which profit sense will motivate PSP
 Pre-qualification and bid evaluation process (technical capacity, financial strength

and track record) to establish the PSP’s ability for implementation of Project,
including timely completion
 Implementation Schedule should be clearly delineated with milestones for sub-

activities.
 Time extension on payment of liquidated damage for delay. After which State
entitled to terminate.
 Periodic reporting and inspection by Monitoring Agency
 Commercial incentive for early completion – COD achieved earlier and therefore
longer Operations Period.
3.6.5 Defects in Construction
 Clearly stated Specifications and Standards to determine performance
 Testing requirements to be detailed
 Defects Liability Period
 LDs for failure to meet performance parameters
 Performance Security and/or retention of payments
 Insurances
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3.7 OPERATION & MAINTENANCE RISKS
 PERFORMANCE
 COST
 SECURITY OF FACILITIES
3.7.1 Operational Performance
 Periodic Reporting and Monitoring of performance.
 Performance Standards should be outlined clearly.
 Liability on PSP to remove, repair, replace the defects or defaults.
 Performance Security
 LDs for failure to meet performance parameters
 Circumstances in which performance standards may be relaxed may be outlined

– i.e., lane closure for repairs or under government orders.
 Insurances
3.7.2 Cost of O&M
 The Operator will be bound to contracted fixed cost and will carry risk of
variation, subject to suitable index linkage to compensate for inflation. indexation
basis must be aligned to factors affecting cost of operations
 Operator may be given incentives for performance in form of revenue share in

which case the Operator may be willing to absorb the cost risk
 GENERALLY, the construction and O&M risks are allocated to the PSP unless the
same are due to the public partner. It is desirable to make the contractor and
operator a stakeholder in the Project SPV.
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3.8 FINANCIAL RISKS
 LIQUIDITY
 INTEREST RATE
 EXCHANGE RATE
 DEBT SERVICE RISK
3.8.1 Liquidity Risk
 Achievement of Financial Close prior to construction commencement. (Wet and

Dry Financial Closure).
 Agreement to be bankable- step in rights, substitute entity, creation of securities

in favour of lenders, cross default provision, escrowing of receivable.
 Matching of payment obligations with draw down from lenders and investors
 Contingent financing commitments from sponsors/promoters to cover overrun

obligations.
 Billing and collection to be benchmarked and monitored (redressal of complaints,

fast track resolution of billing disputes, rebates for down payment or to early
birds, loyalty bonus, security deposit from consumers etc.)
3.8.2 Interest Rate & Foreign Exchange Risk
 Where the Concession is structured on a fixed rate of return on total cost of

project, the project borrowings must be contracted on corresponding fixed rate
basis. Interest rate swaps should be considered to hedge any floating rate
exposure.
 a judicial mix of fixed rate and floating rate instruments may be used.
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 Project could be subject to exchange rate risk on account of foreign currency

denominated payment obligations to Contractor or Operator or debt servicing of
foreign currency borrowings
 Where project revenue accrues entirely in local currency, exchange risk should
be eliminated through swaps and forward cover
3.8.3 Debt Servicing
 A debt service reserve to be maintained to ensure debt servicing
 Access to standby line of credit.
3.9 Environmental Risks
 Legislation relating to environment protection has been enacted by the Central

as well as State Governments
 The law specifies
o Impact assessment requirements for proposed projects
o Review and clearance process and authority
 Change of law during project construction or operation could increase project

cost or prevent operation of facilities altogether
 Specialized consultants must be used to carry out the EIA and develop the EMP
 An implementation monitoring framework must be established as part of EMP
3.9.1 Management of Environmental Risks
 Support commitment of the government sponsor to facilitate the process of

obtaining requisite clearances and exemptions
 Change of regulations having a material adverse effect to be treated as a force

majeure risk to be underwritten by the government partner
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 The risk of additional costs necessitated by change in regulation may require

tariff revision by pass through.
3.10 Social Risks
 Social risks arise out of:
o Displacement of persons from project sites
o Loss or impairment of livelihood
o Loss of access rights etc.
3.10.1 Framework for Managing Social Risks
 Land and right of way acquisition and rehabilitation of displaced persons must be
the obligation of the state sponsor
 Effective monitoring of implementation plan for rehabilitating PAPs must be

established.
 Local Law provisions to be explored- Maharashtra
 Projects involving large scale displacement populations may not be amenable to

commercialization.
3.11 FORCE MAJEURE & TERMINATION
 FORCE MAJEURE
 POLITICAL
 NON POLITICAL
 TERMINATION
3.11.1 Force Majeure
 Political Force majeure
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o Nationalization; Political Agitations; Riots; Change in Law; Court Order;

Acts of State Authorities
 Non Political Force Majeure
o Earthquake, Cyclone, Floods; Fire, Explosion; Epidemic;

War; Labour Disputes
Mitigation
 This risk is mitigated through insurance and back stop by

government
3.11.2 Termination
 Government Event of Default

– Material Breach of Obligations
– Change in Law
– Defective Title, Ownership & Possession of Project Site
– Delay or Omissions
 Concessionaire Event of Default

– Material Breach of Obligations
– Omissions, Delay
– Liquidation, Winding-up, Re-organization
– Abandonment of Project
 Force Majeure
Mitigation
 Defaulting party liable for termination payments to the extent the same are not
covered by insurance.
 The Government invariable bears the political and sovereign risks; non-insurable
political force majeure risks.
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 Government required to back stop
3.12 Legal and Contractual Issues in Infrastructure
When planning and developing infrastructure projects, the existing legal, regulatory and
social environment of the country must be considered:
 A project agreement, no matter how well drafted, may be unenforceable and/ or

irrelevant if it is inconsistent with the country's laws and regulations.
 The existing laws/ regulations may prohibit or impede the proposed project and
so the project may need to be adapted to fit within them.
 It may be appropriate to embark on more fundamental reforms of the

institutions in the country such as reform of the judiciary/ establishment of a
regulatory regime.
References:
1. Annual Report 2013-14 National Highways Authority of India, Ministry of Road

Transport and Highways, Government of India. available from
<http://nhai.gov.in/writereaddata/Portal/Images/pdf/annual-
Reports/NHAI%20AR%20-%20ENG%202013-14.pdf>
2. Changing rules of Indian power sector: Empowering the economy, MP 387 - August
2015 <https://www.pwc.in/assets/pdfs/publications/2015/changing-rules-of-
indian-power-sector-empowering-the-economy.pdf>

4. Loosemore, Martin. "Managing stakeholder perceptions of risk and opportunity in

social infrastructure projects using a multimedia approach." International Journal
of Project Organisation and Management 3.3-4 (2011): 307-315.
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5. Pal, Animesh. "Power sector in India: Growth, policies and challenges."

International Journal of Emerging Technology and Advanced Engineering 3.3
(2013): 527-536.
6. Sahoo, Pravakar. Transport Infrastructure in India: Developments, Challenges and
Lessons from Japan. Institute of Developing Economies, Japan External Trade
Organization, 2011.
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UNIT-IV
ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENT

ASPECTS
Syllabus
Categories, Attributes and Parameters, Identification of Environmental and Social Impacts over
Project Area and over Project Cycle, Special Considerations Involving Land and Water
Interrelationships – Environmental Laws and Regulations, Introduction to B-O-T, BOOT projects
& PPP projects.
4.1 Introduction
Environmental impact assessment is an activity designed to identify and predict the

impact of the project on bio-geo-physicochemical environment and on human health so
as to recommend appropriate legislative measures, programs, and operational
procedures to minimize the impact.
EIA is an exercise carried out before any project or major activity is undertaken to ensure
that it will not in any way harm the environment on a short-term or long-term basis. Any
developmental activity requires not only the analysis, the monetary costs and benefits
involved and of the need of such a project but also most important, it requires a
consideration and detailed assessment of the effect of a proposed development on the
environment.
An impact can be defined as ant change in the physical, chemical, biological, cultural or
socio-economic environmental system as a result of activities relating to a project.
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Major impacts of typical Land Clearing Activities (L. C. A) project on the environment are
shown below:
TYPICAL IMPACTS OF LCA PROJECTS IN FOREST AREAS
Physical Resources
Hazard of soil erosion loss without proper resurfacing, resulting in impairment of
downstream water use values as noted below.
Hazard of soil fertility loss from physical stresses in clearing and levelling.
Loss of rain water infiltration, which normally occurs under forest conditioned.
Micro-effects on increasing temperature (important for resort areas).
Ecological
Loss of forest resource, which is cleared and of associated wildlife habitat.
Encroachment hazards for nearby forests stemming from agricultural
development.
Hazards from pesticides and other agricultural toxics of forest ecosystems.
Human use values

Impairment of downstream water quality and of beneficial water uses form sit
runoff, including community water supply, fisheries, etc. and sedimentation and
flooding hazards.
Quality of life values
Loss of forest tourism/aesthetic values.

Hazard of impairment of downstream water quality, aesthetic values
Disruption of local forest population socio-economics.
Insect vector disease hazards to farmer population.
Increased sanitation disease hazards due to increased population densities.
Some major impacts of typical LCA project on environment
In India prior to Jan 1994, EIA was carried out under administrative guidelines which
required the proponents of major irrigation projects, river valley projects, power valley
projects, power stations, ports etc., to secure a clearance from the union ministry of
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environments and forests (MoEF). The procedure required the project authority to submit
environmental information to the MoEF by filling out questionaries’ or checklists. The
environmental appraisal was carried out by the ministries environmental appraisal
committees. These communities held discussions with the project authority. Based on
these deliberations, the project was either approved or rejected. When approved, the
project clearance was generally made conditional to specified safeguards.
4.2 Salient Features of EIA
a). The EIA procedure identifies the possible positive and negative impacts to the
environment resulting from a proposed project. These impacts are identified over both
‘short term’ and ‘long term’ time frame
b). The EIA provides for a plan, which upon implementation, will reduce or offset the
negative impacts of a project resulting in a minimum level of environmental degradation.
This minimization may be a result of implementation of a project alternative or project
modifications or environmental protection measures, which simply reduces the number
or magnitude of negative impacts. The plan may also result in utilization of positive
impacts for enhancement measures which offset negative impacts;
c). To measure the level of plan implementation and the degree of effectiveness of the
above environmental protection provisions, the EIA provides a monitoring programme.
This programme will be also designed so that it identifies the parameters of uncertainty
and measures the related impacts.
4.3 Classification (Categories) and Prediction of Impacts:
Impact Types
Environment impacts arising from any development projects fall into three categories
i). Direct impacts,
ii). Indirect impacts, and
iii). Cumulative impacts.
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These three groups can be further broken down according to their nature, into
a). Positive and negative impacts,
b). Random and predictable impacts,
c). Local and widespread impacts and
d). Short and long term impacts.
An interdisciplinary approach helps in assessing environmental impacts. The analysis

considers potential consequences which may be long-term and short-term: direct and
indirect, secondary, individual and cumulative; beneficial and adverse. Environmental
issues are inter disciplinary, interactive, biological and probabilistic.
Indirect, or secondary effects are those that may occur remote as they are in distance or
time from the actual proposed project. An example is the construction of a major
employment center, which may have direct effects related to aesthetics in the area, traffic
at nearby intersections, removal of natural vegetation, or interference with natural water
ways. Additional employment opportunities in the location, however, may prompt
additional housing or commercial uses to support employees. Potential impacts of this
housing or additional business activity would then be a secondary, or indirect effect of
the construction of the employment center and should be evaluated to the best extent
possible in the environmental analysis.
Cumulative impacts occur in those situations where individual projects or actions may not
have a significant effect, but when combined with other projects or actions, the individual
project's incremental contribution of adversity may cause an overall adverse cumulative
effect.
Impacts of some typical projects are discussed below for clear understanding.
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4.4 Examples of Various Types of Impacts that Occur in a Typical Road

Development Project
Direct Impacts
Direct impacts are caused by the road itself- that is to say, by road building processes
such as land consumption, removal of vegetation, and severance of farmland. For
example, the removal, of gravel material from a borrow pit, for use in surfacing the road,
is an obvious direct impact of road construction. In this case, the land area in which the
pit site is located has been directly affected by activities associated with the road project.
Direct impacts are generally easier to inventory, assess and control than indirect impacts,
since the cause effect relationship are usually obvious.
Indirect Impacts
Indirect impacts (also known as secondary, tertiary , and chain (impacts) are usually
linked closely with the project, and may have more profound consequences on the
environment than direct impacts. Indirect impacts are more difficult to measure, but can
ultimately be more important. Over time they can affect largest geographical areas of the
environment than anticipated. Examples include degradation of surface water quality by
the erosion of land cleared as a result of a new road (as shown in figure below) and urban
growth near a new road. Another common indirect impact associated with new roads is
increased deforestation of an area, stemming from easier (more profitable) transportation
of logs to market, or the influx of settlers. In areas where wild game is plentiful, such as
Africa, new roads often lead to the rapid depletion of animals due to poaching.
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Indirect Impacts: Example of land clearing
Cumulative Impacts
The process of cumulative environmental change can arise from any of the four following
types of events:
i. Single large events. i.e., a large project;

ii. Multiple interrelated events. i.e., road project with a region;
iii. Catastrophic sudden events, i .e., a major landslide into a river system: and
iv. Incremental, widespread, slow change, such as a poorly designed culvert or
drainage system along a long road extending through a watershed.
These can generate additive, multiplicative or synergetic effects, which can then result in
damage to the function of one or several ecosystems (such as the impairment of the
water regulation and filtering capacity of a wetland system by construction of a road
across it). or the structure of an ecosystem (such as placement of a new road through a
forest, leading to in-migration or land clearing which results in severe structural loss to
the forest).
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A cumulative impact, in the context of road development, might be the de-vegetation and
eventual erosion of a roadside pull out. Roadside vegetation is damaged by vehicle and
foot traffic, and the soil is left unprotected. Subsequent rainfall causes erosion and
siltation of the land.
As this example, illustrates, cumulative effects assessment is a complex process which

requires extensive knowledge of ecological principles and ecosystem response
mechanisms.
 Temporal and spatial boundaries for the assessment have been defined;
 Measurable variables have been chosen; and
 The relationships between the chosen variables have been established
Cumulative Impacts: Example of a stream
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The cumulative effects of the proposed road project on the local environment can then
be evaluated by
 Compiling a list of activities that are part of the proposed project;

 Estimating the changes that will occur in the measurable variables as a result of
these activities; and
 Estimating the effects that the changes in each of the measurable variables will
have within the area defined by the spatial and temporal boundaries.
Cumulative effects assessment is an effective impact assessment tool, but it must be

carried out properly in order to produce reliable results.
Ecosystem Function Impacts
Technically a subset or variant of cumulative impacts, ecosystem function impacts, which

disable or destabilize whole ecosystems are the most dangerous and often the least likely
to manifest themselves over a short period of time. Many road-related examples deal
with roads which need to traverse watersheds in which surface and subsurface water
movement is complex. One striking example is the high way constructed across a
mangrove forest (100 ha in size) along the Caribbean coast. It was not fully understood
at the planning stage to what extent the fresh and sea water needed to mix in order for
the healthy forest to survive on both sides of the road. As a result, most of the forest has
died off on one side the waters were not saline enough, and on the other there was not
enough mixing with fresh water. The effect on the ecosystem was devastating and the
impact on the local population which used the mangrove forest area was severe. Almost
certainly, no sign of this impact appeared until two to three years after the road was built.
A second example could develop in situations where roads bisect wildlife migration routes,
which can inflict stress on the migratory population for many generations, or even
permanently, and cause instability increased mortality, and possibly catastrophic decline.
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4.5 Analytical functions associated with the EIA
Analytical functions associated with the EIA are:
a) Defining scope of a EIA

a. Important issues and concern,
b. Areas of less concern for the present acts, and
c. Regulations requirement
b) Identification
a. Description of the existing environment system
b. Determination of the components of the Project, and
c. Definition of the environment modified by the project (including all
components of the projects)
c) Prediction
a. Identification of the environmental modifications that may be significant,
b. Forecasting of the quantity and spatial dimensions of change in
environment identified, and
c. Estimation of the probability that the impact will occur.
d) Impact evaluation and analysis
a. Evaluation of least environmentally damaging alternatives
b. Critical assessment of impacts, and
c. Preparation of draft and final impact statements.
4.6 Attributes (Characteristics) of Environmental and Social Impacts:
1. Nature: It involves positive negative direct, indirect, and cumulative impact

2. Magnitude: Estimating the magnitude of the impact is of primary importance,
typically, it is expressed in terms of relative severity, such as major, moderate or
low severity, as opposed to size also takes account of other aspects of impact
magnitude, notably whether or not an impact is reversible and the likely rate of
recovery.
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3. Extent / Location: The spatial extent or zone of impact influence can be predicted
for site specific versus regional occurrences. Depending on thy type of impact, the
variation in magnitude will need to be estimated. For example, alterations to range
or pattern of species or dispersion of air and water pollution plumes. This is much
easier for direct impacts but can be attempted for other types of impacts.
4. Timing: Impacts arising from all the stages of the line cycle of the project should
be considered (i.e., during construction, operation and decommissioning some
impacts will occur immediately while others may be delayed, sometime by many
years. These impact characteristics should be noted in the EIA (Environment
Impact Assessment) report.
5. Duration: Some impacts may be short term such as the noise arising from the
operation of equipment during construction other may be long term such as the in
undulation of land during the building of reservoir certain impacts such as blasting
may be intermittent, whereas others such as electromagnetic field caused by
power lines, may be continuous impact magnitude and duration classification can
be cross referenced for example, major but short term (less than one year) low
but persistent ( more than 20 years).
6. Significance: The evaluation of significance at stage of EIA will depend on the
characteristics of the predicted impact and its potential importance for decision
making. Significance is usually attributed in terms of an existing standard or criteria
of permissible change for example as specified in a standard, policy objective or
plan.
4.7 Classification of Environmental Parameters
Most EIA guidelines follow the relatively simple methodology in which environmental
resources or values are classified into four general categories, namely
a) Natural physical resources,

b) Natural ecological resources,
c) Human/economic development resources, and
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d) Quality-of-life values including aesthetic and cultural values which are difficult to
assess in conventional terms.
Some of the environmental parameters are crop productivity, air quality, water quality of
aquatic resources, nutrient statues of water, drinking water quality, vegetation, solid
waste facilities, soils and local geology, energy and natural resources etc.
Some of the social parameters are economic and occupational, social pattern or lifestyle,
health, personal security, regional and traditional beliefs etc.
4.8 Special considerations involving land and water inter-relationships
4.8.1 Identification of Activities, Which Will Have Different Types of lmpacts

on Soil and/or Groundwater Quantity – Quality
Direct Land-Use Impacts on Land
1. Landforms: Unique or important physical features that have special importance,

as recreational educational or scientific interests may be present in the project
area. They may be unique locally or unique in a larger area. Examples are rock out
crops, river gorges, sandy beaches and lagoons. Such features may also influence
local climate.
2. Soil profile: The soil profile is related to the chemical and physical nature of the
soil and the prevailing climate and therefore has a direct bearing on land capability
for agricultural or other purpose. Erosion is the principal process which may alter
the soil profile and it can have a direct effect on existing or potential land use, and
an indirect effect, through siltation on water quality, fishing, land use downstream.
3. Soil composition: The chemical and mineral composition of the soil influences its
engineering and agricultural capability. Changes in soil composition can occur
either by subtraction e.g., acid or alkali leaching or by addition e.g., cation
exchange extraction, nitrogen fixation.
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4. Slope stability: Rock slopes are inherently stable. The environmental effects of
slope instability are similar to those for erosion. The scale of the effects are larger
in this case.
5. Seismicity: Stress, vibration, due to explosions and deep well injection operations
can have an effect on the stress-strain equilibria on fault planes. Renewed or
increased activity can have major environmental effects for the project site.
6. Subsidence and compaction: Subsidence and compaction occur naturally but
generally as a gradual and almost imperceptible process. The process can be
accelerated however, by underground excavation, vibration or loading. The major
effect is on land capability but drainage, groundwater behaviour and landscape
could be affected.
7. Flood plains Swamps: Flood plains and swamps are an important part of the
drainage pattern as they admit peak flows into the drainage system. Reclamation
on natural flood plains or swamps may result in flooding and siltation of other
areas during peak flow. Major engineering of a drainage system may either
decrease the amount of agricultural land available or may destroy wetland habitats
of fish, birds etc.
8. Land use: The existing land use and the compatibility with existing or planned use
of adjacent land are important components of the environment. Careful site
selection is the principal means of controlling them but many mitigating or
abatement measures may also be available.
9. Mineral or engineering resources: The occurrence of mineral or engineering
resources is of strategic and economic importance. Loss of such resources either
through wasteful use or through development incompatible with subsequent
mining or quarrying proposal can result in long-term economic or social impacts
on the community.
10. Buffer Zones: Buffer zones are spaces, which provide natural environmental
protection from drainage by external events. They are usually vegetated,
depending on the purpose and can provide windbreaks, erosion control, sediment
traps, wildlife shelter, sound insulation and visual screening.
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Some projects or actions, by their very nature, have direct and obvious impacts of land
use by physically destroying or clearing land and implementing a new use. Here are some
examples of this kind of direct land-use revision:
a) A highway project with a 300 right-of-way width converts whatever the existing
land use is to a transportation land- use within that right-of-way width.
b) A dam constructed to create a reservoir for water supply and recreational use
directly converts the previous land use to recreational use.
c) A regional park constructed on land previously used as pasture directly changes
the number of acres of the park into a different use.
d) A city block of low-income housing structures is demolished to construct a
shopping mall, directly converting that land to commercial use.
4.8.2 Environmental Impacts on soil and ground water- A typical Example:

Road Construction Project
Impacts and Setting
Soil is an important component of the natural environment, and is a primary medium for
many biological and human activities, including agriculture. Its protection in relation to
road development deserves considerable attention.
In the road itself, in borrow pits, or around rivers and streams, there are many places
where damage might occur. Losses can be considerable for the road agency and others.
This includes farmers losing crops and land, fishers losing income because of
sedimentation in rivers and lakes and road users being delayed when road embankments
or structures collapse. The costs of correcting these problems are often many times
greater than the costs of simple preventive measures.
Loss of Productive Soil
The most immediate and obvious effect of road development on soil is the elimination of
the productive capacity of the soil covered by roads. Unfortunately, the best sites for road
development (flat and stable) also tend to be ideal for agriculture. The narrow, linear
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character of roads makes the impact of lost land seem minimal, but when the width of
the right-of-way is multiplied by its length, the total area of land removed from production
becomes much more significant. Soil productivity can also be reduced significantly as a
result of compaction with heavy machinery during construction.
Erosion
When natural conditions are modified by the construction of a road, it marks the start of
a race between the appearance of erosion and the growth of vegetation. Disturbance
during construction can upset the delicate balance between stabilizing factors, such as
vegetation and others which seek to destabilize, such as running water. In some cases,
erosion might result in cumulative impacts far beyond the road itself, affecting slopes,
streams, rivers and dams at some distance from the initial impact.
Destabilization of Slopes
Slope stability can be upset by the creation of road cuts or embankments. Excessive
steepness of cut slopes, deficiency of drainage, modification of water flows and excessive
slope loading can result in landslides. Some soils such as shale and quick clays are known
for being difficult to drain and particularly unstable.
Side Tipping of Spoil Materials
Spoil materials from road cuttings can kill vegetation and add to erosion and slope stability
problems. Large amounts of spoil can be generated during construction in mountainous
terrain. Sometimes it is difficult to design for balances between cut and fill volumes of
earth at each location, and haulage to disposal sites may be expensive. This creates a
need for environmental management of tipped material.
Water Flow Diversions
Diversion of natural surface water flows is often inevitable in road projects. Diversion
results in water flowing where it normally would flow.
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Engineering measures
In many cases, vegetation alone may not be enough to prevent erosive damage to slopes
and various engineering measures may be needed to compliment or replace it (as shown
in figure below). The use of slope retaining techniques may be necessary when
 Slopes are unstable because they are too high and steep;
 Climate conditions are such that establishment of vegetation is slow or impossible;
 There is a risk of internal erosion or localized rupture because of drainage
difficulties; and
 It is necessary to decrease the amount of earthwork because the road width is
limited.
Examples of combined techniques for slope protection
Well established engineering measures for slope protection include:
 Intercepting ditches at the tops and bottoms of slopes. Gutters and spillways are
used to control the flow of water down a slope;
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 Terraced or stepped slopes to reduce the steepness of a slope. A berm (or

risebern) is the level section between slope faces;
 Riprap or rock material embedded in a slope face, sometimes combined with
planting;
 Retaining structures, such as gabions (rectangular wire baskets of rocks), cribs
(Interlocking grid of wood or concrete beams, filled with earth or rock), or other
types of wooden barricades and grid work, usually battered back against the slope;
 Retaining walls, more substantial engineering structures able to resist bending and
with a footing designed to withstand pressures at the base of the slope;
 Reinforced earth, embankment walls built up as the earth fill is placed, with
anchors compacted into the fill material and
 Shotcreting and geotextiles, generally more expensive options with specific
applications.
4.9 Preliminary Procedure for General Projects
An appropriate initial activity when analyzing a proposed project or activity is to consider

what types of soil and/or geological disturbances might be associated with the
construction and/or operational phases of the proposed project, and what quantities of
potential soil contaminants are expected to occur.
''Impact trees" or "networks" can be used to delineate potential impacts on the soil and
geological environments.
Regarding the identification of potential soil pollutants, a list of the materials to be utilized
during the project and those materials which will require disposal could be developed.
Examples of materials that may result in soil contamination include fuels and oils,
bituminous products, insecticides, fertilizers, chemicals, and solid and liquid wastes. As
an initial step, a simple checklist of the types and quantities of chemicals associated with
each activity could be prepared and utilized. Transport and effects information on key
chemicals could also be included. It may also be appropriate to consider the quality of
leachates from waste materials disposed on land.
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Environmental problems in land conservation in the following can be analysed using

systems analysis techniques:
1. The degradation of soil fertility due to increase in concentration of sodium, caused

by water logging and application of chemical fertilizers.
2. Physical loss of soil through accelerated erosion due to the action of water and
wind
3. Impact of the conversion of good farm lands into reservoirs and dwelling areas
4.10 Examples of types of projects and associated impacts
1. Land subsidence which can occur as a result of over-pumping of ground-water

resources or oil gas resources in a given geographical area or which can occur as
a result of surface or sub-surface mining activities associated with mineral
extraction.
2. The impacts associated with the identification and usage of construction material
for major projects, with such material coming from identified burrow areas. (There
may be changes in local surface water hydraulics and erosional patterns as a result
of construction material).
3. Construction practices in general can create some concerns related to the potential
for increased soil erosion in the construction area. This increase in soil erosion
could lead to specific mitigation requirements, such as, the creation of sediment
retention basins or the planting of rapidly growing vegetation.
4. Landslides, caused by inappropriate slope stability, which can occur as a result of
over development on particular soil types within the areas having certain
topographic features.
5. The potential concerns associated with constructing and operating nuclear power
plants, chemical production plants, waste-disposal facilities, and/or large storage
tank facilities in areas characterized by seismic instability and excessive earthquake
potential. (This can influence siting decisions and decisions associated with
construction and operation activities).
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6. Strip-mining operations for coal extraction, or other mineral resource extraction

wherein the land surface is to restore the original landscape, possibly in some type
of alternative topographic arrangement.
7. The construction of jetties along coastal areas in order to control beach erosion
and littoral drift.
8. Projects which may create acid rain in localized area, with the acid rain, in turn,
having an impact on soil chemistry and potentially, on sub-surface groundwater
resources.
9. Projects wherein the site characteristics in terms of soil and geological features are
incorporated as components in the selection process examples of such site
selection oriented projects, sludge-disposal projects, and upland locations for
dredged-material disposal.
10. Projects that involve developments along the coastal areas wherein coastal erosion
problems may either be increased by the project, or may influence the proposed
project itself. Examples of such projects include the coastal marins and associated
secondary developments, industrial development projects with associated port and
boat mooring facilities, and projects, which involve the development of ports and
harbours.
11. The construction and operation of surface water reservoir projects, with the
purposes of the projects ranging from the single purposes of providing flood
control to multiple purposes, including hydro-electric power development provision
of water supply, and so on. There are two key environmental concern relative to
soil and geological issues, the first is related to sedimentation within the reservoir
and the provision of appropriate sediment - storage capacity in terms of the project
lifetime; the second is related the potential effects of such surface water reservoir
projects on the subsurface environment, including changes in soil, ground water
and geological features that lie underneath the water pool of the reservoir.
12. Projects associated with permits for grazing leases or other leases related to
agricultural uses, where the subsequent grazing or agricultural developments
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could lead to changes in soil characteristics such as erosion patterns and soil
chemistry.
13. The potential effects of soil characteristics on buried pipelines, with examples
including the potential loss of the physical integrity of the pipeline as a result of
acid or corroding soils.
4.11 Environmental laws and regulations
The post-independence era, until 1970, did not see much legislative activity in the field
of environmental protection. Two early post-independence laws touched on water
pollution. The Factories Act of 1948 required all factories to make effective arrangements
for waste disposal and empowered State Governments to frame rules implementing this
directive. Under the River Boards Act of 1956, river boards established are empowered
to prevent water pollution of inter-state rivers. To prevent cruelty to animals, the
Prevention of Cruelty of Animals Act was framed in 1960.
Some States took initiative in the field of environmental protection, viz., Orissa River
Pollution Prevention Act, 1953, and, Maharashtra Prevention of Water Pollution Act, 1969.
While the Orissa Act was confined only to rivers, the Maharashtra Act extended to rivers,
watercourses, whether flowing or for the time being dry, inland water both natural and
artificial, and subterranean streams.
Thus, there were scattered provisions for checking pollution of air, water, etc., but there
was no unified effort in developing any policy concerning the pollution emanating from
these areas. This position went up to the seventies. Meanwhile concern arose over, inter-
alia, population increase, greater pollution levels; human impact on animal populations
and natural landscapes and other aspects of resource depletion. It was the Stockholm
Declaration of 1972 which turned the attention of the Indian Government to the boarder
perspective of environmental protection. The government made its stand well known
through five year plans as well as the legislations enacted subsequently to curb and
control environmental pollution.
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After 1970, comprehensive (special) environmental laws were enacted by the Central
Government in India.
The Wildlife (Protection) Act, 1972, aimed at rational and modern wild life management.
The Water (Prevention and Control of Pollution) Act, 1974, provides for the establishment
of pollution control boards at Centre and States to act as watchdogs for prevention and
control of pollution.
The Forest (Conservation) Act, 1980 aimed to check deforestation, diversion of forest
land for non-forestry purposes, and to promote social forestry.
The Air (Prevention and Control of Pollution) Act,1981, aimed at checking air pollution
via pollution control boards.
The Environment (Protection) Act, 1986 is a landmark legislation which provides for single
focus in the country for protection of environment and aims at plugging the loopholes in
existing legislation. It provides mainly for pollution control, with stringent penalties for
violations.
The Public Liability Insurance Act, 1991, provides for mandatory insurance for the
purpose of providing immediate relief to person affected by accidents occurring while
handling any hazardous substance.
The National Environment Tribunals Act, 1995, was formulated in view of the fact that
civil courts litigations take a long time (as happened in Bhopal case). The Act provides
for speedy disposal of environmental related cases through environmental tribunals.
Under the Act, four benches of the tribunal will be set up in Delhi, Calcutta, Madras and
Bombay and 8,000 of the most Hazardous industrial units in the country will be brought
under its security.
The National Environment Appellate Authority Act, 1997, provides for the established of
a National Environment Appellant Authority (NEAA) to hear appeals with respect to
restriction in areas in which any industries, operations or processes shall not be carried
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out or shall be carried out subject to certain safeguards under the Environment
(Protection) Act, 1986.
The Biological Diversity Act, 2002, is a major legislation intervention effected in the name
of the communities supposed to be involved in the protection of biodiversity around them.
The Act intends to facilitate access to genetic materials while protecting the traditional
knowledge associated with them.
Recent Legislative Measures: During the nineties, some steps have been taken by
the Central Ministry of Environment to provide legal and institutional basis for
management and protection of environment by way of rules, notification of standards,
delegation of powers, identification of agencies for hazardous chemicals management
and setting up of Environmental Councils in some states.
A new chapter regulating hazardous industrial processes was introduced into the
Factories Act. In the area of delegated legislation, effluent and emission standards were
specified for 24 industries and general standards for effluent discharge and for noise
pollution have been prescribed under the Environment Act. For the analysis of water and
air samples, about seventy environmental laboratories were established across the
country. Rules for the manufacture and transport of hazardous substances and
microorganisms and for the management of toxic wastes were issued. Coastal Zone
Regulations (CZR) were issued in 1991.
A Gazette notification on environmental audit has been issued, whereby environment

audit has been made compulsory for all industries requiring environmental clearance
under the Water Act, 1974 or The Air Act, 1981, etc., Further, in 1996, the Central
Government framed the Chemical Accidents (Emergency, Planning, Preparedness and
Response) Rules to Supplement the Hazardous Chemical Rules of 1989. In 1998, the
Central Government issued the Bio-Medical Waste (Management and Handling) Rules to
regulate bio-medical waste.
The Central Ministry of Environment issued a notification in 1994 making Environment

Impact Assessment statutory for 29 different activities in industries, mining, irrigation,
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power, etc. A new dimension was added in 1997, to the Environment Impact process in
India, by an amendment. The State Pollution Control Boards had nothing to do in the
assessment process so far. They were now given a new role to play. Further, in the case
of certain categories of thermal power plants, responsibility of environmental clearance
is now conferred on the State Government.
Further, the Central Government enacted the Prevention and Control of Pollution
(Uniform Consent Procedure) Rules, 1999, requiring all industries listed in Schedule VIII
of the Environment Act, 1986 to obtain consent from the State Board or the Pollution
Control Committee. For the purpose of „consent management‟, the industries are
categorized as “red‟, “orange‟ and “green‟. The Environment (Sitting for Industrial
Projects) Rules, 1999, prohibit setting up of certain industries (including hazardous
industries) in certain areas such as within the municipal limits of all Municipal
Corporations/ Councils and Nagar Panchayats and a 25 km belt around the cities having
population of more than 1 million; the periphery of the wetlands, national parks,
sanctuaries and bio-reserves.
Recently, the Central Government framed the Recycled Plastic Manufacture and Usage
Rules, 1999. The Rules prohibit vendors of foodstuffs from packing their wares in bags
or containers made from recycled plastics. If foodstuffs are to be sold in plastic bags, the
carry bag must be made of virgin plastic.
The Municipal Solid Wastes (Management and Handling) Rules, 2000, apply to every
municipal authority responsible for collection, segregations, storage, transportation,
processing and disposal of municipal solid wastes. While the nodal responsibility to
enforce these rules lies on the municipality, the Secretary-in-charge of the Dept. of Urban
Development of the concerned State, the District Magistrate/Deputy Commissioner shall
have the overall responsibility. The Central/ State Pollution Control Boards have been
made responsibility to monitor the compliance of the standards regarding ground water,
ambient air quality and the compost quality.
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The Battery (Management and Handling) Rules, 2000, provides for specific categories of
wastes such as battery, waste oil, etc. These rules shall apply to every manufacturer,
importer, re-conditioner, assembler, dealer, recycler, re-smelter, auctioneer, consumer
and bulk consumer involved in manufacturer, processing, sale and purchase of batteries.
For the purposes of these rules, they are under the broad control of the State Pollution
Control Boards.
In 2000, the Noise Pollution (Regulation and Control) Rules, framed by the Central
Government under the Environment Protection Act, 1986, came into effect. These Rules
prescribed ambient air quality standards in respect of noise for industrial, commercial and
residential areas as well as designated „silence zones‟. In the same year, the Central
Government enacted the Ozone Depleting Substances (Regulation and Control), rules,
2000 under the Environment Protection Act. The producers, dealers, users engaged in
the manufacture/use of ozone depleting substances such as CFCs, Halon, Carbon
tetrachloride (CCI4), etc., are required to compulsorily register under the Rules.
Thus, in recent decades India employed a range of regulatory instruments to preserve

and protect its natural resources. These new laws are impressive in their range covering
hitherto unregulated fields, such as noise, hazardous waste, hazardous micro-organisms,
environment impact assessment, etc. the new legislation has spawned new enforcement
agencies and strengthened the older ones.
References:
1. Anjaneyulu, Yerramilli, and Valli Manickam. Environmental impact assessment

methodologies. BS Publications, 2011.
2. Kapur, Devesh & Ramamurti, Ravi (2002). Privatization in India: The Imperatives
and Consequences of Gradualism, Proceedings of the conference on Policy reform
in India, Stanford University, June 3-4, 2002.
3. Kousadikar, Anant, and Trivender Kumar Singh. "Advantages and disadvantages
of privatisation in India." International Journal of Advanced System and Social
Engineering Research 3.1 (2013): 18-22.
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4. Lawrence, David P. Environmental Impact Assessment: Practical Solutions to

Recurrent Problems. John Wiley & Sons, 2003.
5. Nallathiga, Ramakrishna, and Mona Shah. "Public Private Partnerships in Roads
Sector in India." Public Private Partnerships: The Need of the Hour (2014): 241-
263.
6. Nataraj, Geethanjali. Infrastructure Challenges in India: The Role of Public-Private
Partnerships. Observer Research Foundation, 2014.
7. Razaki, Khalid A., Raymond Pollastrini, and Robert J. Moreland. "Privatization of
infrastructure assets: financial structures, participant motivations, and lessee tax
benefits." Journal of Finance and Accountancy 12 (2013): 1.Tsunokawa, Koji, and
Christopher Hoban, eds. Roads and the environment: a handbook. The World
Bank, 1997.
8. https://www.pppinindia.gov.in/ accessed on 9/1/2015
Legislations:
1. The Air (Prevention and Control of Pollution) Act, 1981.

2. The Biological Diversity Act, 2002.
3. The Energy Conservation Act, 2001.
4. The Environment Protection Act, 1986.
5. The Forest Conservation Act, 1980.
6. The Indian Forest Act, 1927.
7. The National Environment Appellate Authority Act, 1997.
8. The National Environment Tribunal Act, 1995.
9. The Water (Prevention and Control of Pollution) Act, 1974.
10. The Water (Prevention and Control of Pollution) Act, 1977.
11. The Wild Life (Protection) Act, 1972.
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UNIT-V
STRATEGIES FOR SUCCESSFUL INFRASTRUCTURE

PROJECT IMPLEMENTATION
Syllabus
Risk management framework for Infrastructure Projects, Shaping the planning phase of
Infrastructure Projects, Governments’ role in Infrastructure Implementation, An Integrated
framework for successful Infrastructure Planning and Management – Infrastructure
Management Systems and Future Directions.
5.1 Risk management framework for Infrastructure Projects
Risk is the chance that an event would occur which will lead to change in the project
circumstances that were assumed while forecasting the project costs and benefits and
will have an impact on project objectives. To ensure that these events do not lead to
failure of the projects, there is a need to manage the risks associated with the projects
through adoption of appropriate risk management framework. In order to successfully
manage the risk, it is necessary to know: what event will trigger the risk, the probability
(or likelihood) of occurrence of the risk event, and the consequences of the risk event if
it occurs. The concept of risk management, therefore, deals with identifying the risks
associated with the project, assessing their probability of occurrence and their potential
impact on critical project performance measures, and employing direct and indirect
means for either reducing the exposure of the underlying project activities to these risks
or shifting some of the exposure to other.
The following sections focus on the concept of risk management process and the benefits
of risk management.
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5.2 RISK MANAGEMENT PROCESS
Risk management is an ongoing process which continues through the lifecycle of a PPP
project. The risk management process takes place in the following stages:
 Risk identification: The process of identifying all the risks associated with the project,
whether during its development phase, or its construction or operational phase.
 Risk assessment: The process of determining the likelihood of the identified risks
materializing and the magnitude of their consequences if they do materialize.
 Risk allocation: The process of allocating responsibility for dealing with the consequences
of each risk to one of the project stakeholders, or agreeing to share the risks.
 Risk mitigation: The process of attempting to reduce the likelihood of the risk occurring
and the degree to its consequences for the risk-taker
The successful implementation of the various stages of the risk management process
requires putting in place an effective plan for communication and consultation with both
the project's external and internal stakeholders in order to ensure that those responsible
for implementing risk management and those with vested interest understand on what
basis decisions are made and why particular actions are required. This consultative
approach helps to define the context appropriately, to help ensure risks are identified
effectively, bringing different areas of expertise together in analyzing risks, ensuring
different views are appropriately considered in evaluating risks. This approach also instils
a sense of ownership of risk to the managers and the stakeholders.
It is also necessary to define the context within which the risks must be managed so as
to set the scope for the risk management process. The context includes the external
environment in which the organization operates and key areas of internal context such
as organizational culture and structure, internal stakeholders. The external environment
of a project may include the business, social, regulatory, financial, and political
environment. The perceptions and values of the external stakeholders should be taken
into consideration while development the risk management plan. Defining the internal
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context will help in understanding the capabilities of the organization in terms of

resources (such as people, systems, processes, and capital), goals and objectives, and
strategies that are in place to achieve them.
After putting in place the risk management process, the process should be monitored and
reviewed on an ongoing basis. This is necessary as the factors that may affect the
likelihood and consequences of a risk event may change. Similarly, the factors that may
affect the suitability or cost of the risk mitigation options may also change. Monitoring
and reviewing on an ongoing basis will provide the necessary inputs to introduce the
necessary changes in the risk management process in a systematic manner.
Risk management should not be considered as a process established at the beginning of

the project conceptualization but it is a continuous process which has to be carried in all
the phases of project lifecycle. The key milestone points in the project lifecycle when risk
management should be done are while carrying out feasibility analysis, preparing
business case before launching the tendering process, interacting with bidders during the
procurement process, and at the time of contract award. The objectives of the risk
management process though changes as the project evolves over the lifecycle. During
feasibility analysis, the objective of risk management is on preliminary identification and
assessment of project risks, primarily using qualitative risk analysis technique. During
business case, the objective of risk management is to thoroughly identify, analyses, and
quantify the risks to determine the appropriate risk treatment strategies. Risks identified
during this phase are included in project's financial models prepared by conceding
authority so as to make it comparable with private sector's model. The objective of risk
management during procurement process is to further refine the risk management
analysis and strategy in the light of the feedback and input from private sector on project
risk profile and risk transfer issues. Undertaking risk management during procurement
process also provide an opportunity to analyze and negotiate the risks between the
conceding authority and private sector. Finally, the risk management objective at the time
of contract award is refinement of the risk analysis undertaken, taking into account the
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negotiated positions of the public sector and private sector on risk allocation and
treatment.
5.3 BENEFITS OF RISK MANAGEMENT
A PPP project gets various benefits on undertaking an effective risk management exercise
in a structured manner. Effective risk management will lead to improvement in financial
management, and governance and operational management. A comprehensive risk
management exercise will help in making informed decision while undertaking scenarios
or option analysis as part of the financial decision making. Identification and assessment
of risks will also help them to plan the mitigation mechanisms well in advance and reduce
the financial costs associated with losses due to service interruption, litigation, and even
poor investment decisions. The risk management also make the stakeholders aware of
each party's tolerance to risk and to what extent they are able to assume them. Allocating
the risks to the parties best able to manage the risks will prevent unreasonably pricing of
the risk premium thereby enabling effective allocation and use of both the public and
private sector resources. Effective management of risk on time will also enhance the
managerial control and the project can rely less on crisis management. Identification of
risks well in advance will provide an opportunity to the PPP project management team to
improve their capacity to manage the risk in the face of the competing obligations and
help in setting high standards of accountability and help in promotion of innovation to
overcome the adverse effects of the risk.
Risk management also play a role in strategic decision making for the project stakeholders
by improving the strategic management through selection of better objectives and
associated targets as a result of risk identification, analysis, evaluation, treatment and
monitoring process. This provides them a clear idea of the realistic objectives and targets
and can help them to prepare to deliver against objectives and associated targets. The
risk management process brings in transparency and makes it very clear for the decision
makers on the risks associated with the project and actions that can be taken to treat
and monitor them.
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Comprehensive risk management results in effective allocation of risk between the

contractual parties leading to maximization of the project's value for money. Effective risk
allocation will result in allocating the risk to the party best able to manage it. Optimal
allocation reduces risk premiums and the overall cost of the project as the party in the
best position to manage the risk will be able to manage the risk at the lowest price.
5.4 Shaping the planning phase of Infrastructure Projects
Refer UNIT – I pg. 36 to 39
5.5 Governments’ role in Infrastructure Implementation
Governments need to play a very important role in making PPP projects successful. After
transferring the responsibilities for the financing, designing, construction and operation
to private sectors, the role of the host government is not limited only to supervision and
monitoring but need to play an active role in the preconstruction phase of a project. It is
the responsibilities of the government to initially approve the use of BOT project and then
identifies sectors in which private sector will be involved. The government also decides
the procurement process, manages the procurement proceedings and defines the criteria
of selection. Besides, playing the role of facilitator it is of utmost importance for
governments to develop proactive policy to stimulate private sector participation in
infrastructure projects. Therefore, in order to facilitate private sector participation,
governments need to establish an enabling environment consisting of:
 Credible legal framework to facilitate infrastructure projects development through

PPP
 An administrative framework to expedite implementation of PPP projects; and
 Government incentives and other forms of support to encourage private sector in
PPP projects.
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5.5.1 LEGAL FRAMEWORK
Setting up of a credible legal and regulatory framework is critical to the success of PPP
projects as it deals with the fundamental legal issues such as enforcement of contracts,
private ownerships, security arrangements, taxes, remittance of foreign exchange and
profits. Inadequate legal & regulatory framework undermines the strength and
effectiveness of contracts in PPP projects, and reduces the attractiveness of the project
to private investors. This section discusses the seven basic elements of legal and
regulatory framework to control the legal issues while implementing a successful BOT
strategy.
1. Basic legislative authority for awarding BOT projects: Government should

provide basic legal authority to private sector to build and operate a given
infrastructure project. Its basic role is to procure and implement BOT project. It
also includes passing regulations that defines the responsibilities of government
agencies and ministries for development and implementation of the projects, the
insurance of licenses & permits, central government approvals and mechanisms of
administrative coordination. Similar kind of legislative arrangement has been set
up by Government of India to facilitate procurement of BOT projects in the form
of National Public Private Partnership Policy.
2. Enabling public legislation: The legal authorities should enact enabling public
legislation to foster competition in areas previously under the exclusive control of
the public sector such as land acquisition, in order to control delays in land
acquisition & related matters. Enabling public legislation has been established by
the Government of India to foster private sector participation in various
infrastructure sectors. For example, in National Highways sector, Indian
Government first enacted National Highways Authority of India Act, 1988 which
paved the way for formation of NHAI. The government further reformed the legal
framework by amending National Highway Act, 1956 in June 1995, which paved
the way for private sector participation in development of National Highways.
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3. Security legislation: This legislation is meant to legally protect the security

package of the project. The security package includes security of lenders assets
against land mortgages, interest on loan, inventory & equipment. In addition to
this, additional kinds of security measures are also included in project agreements
such as offshore revenue and retention accounts, performance undertakings from
government of the public agency obligations, assignment of various contracts to
lenders, lenders' rights to cure any defaults by Project Company within reasonable
time, right to take over the project and assurance of equity owners' stock. This
security package is normally designed to safeguard the interests of the financial
institutions extending debt financing to projects. Though separate legislation has
not been enacted for PPP projects in India but similar provisions to ensure security
to lenders are included in Model Concession Agreements (MCAs) developed by
Government of India for various sectors. The MCAs provide for collateral of
concessionaire' assets other than the specific project assets and assignment of
rights and obligations covered by the substitution agreement as per which lenders
could substitute a defaulting concessionaire.
4. Legislation to promote Foreign Direct Investment (FDI): Most developing
countries have enacted foreign investment codes to encourage and facilitate FDI.
This legislation deals with FDI related issues like; right to exchange local currency
into foreign currency; free transfer of funds abroad of foreign currency; full
repayment of loans and investment compensation upon any government-
mandated transfer of a project before the end of the project period; right to bring
in foreign nationals needed for construction, operation and maintenance; right of
foreign investors to establish companies in the host country; and tax regimes for
foreign investment.
5. General business legislation: The general business legislations are legislations
that are not directly related to BOT but supportive to BOT. Ideally, countries
general business legislation should be compatible with government BOT
objectives. The general business legislation includes laws protecting property
rights (ownership of land & project facilities); laws providing protection of property
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rights against expropriation and nationalization; law for contract enforceability;

bankruptcy legislation, corporate laws for private ownership of public facilities;
legislation on leasing and franchising, and environmental and labour laws.
6. Special legislation: In certain countries, special legislation to address the
specific needs of BOT projects is enacted. This special legislation addressed most
of the legal issues relating to BOT projects procurement, such as authorization;
required government approvals; preferential tax treatment; procurement issues
and framework for BOT project agreements. Governments enact such special
legislation with the intention to send out a clear and positive signal to potential
investors of the government's commitment to develop BOT projects; foreign
investors able to find main legal provisions with relative ease and in one place;
readily available answers to essential issues; and legal effects to support and
incentives to be provided by governments. Countries such as Indonesia, and
Philippine have enacted special BOT laws to motivate private sector participation
in infrastructure development. Similarly, some of the states in India have enacted
special legislation for infrastructure development. For instance, Government of
Andhra Pradesh enacted the Andhra Pradesh Infrastructure Development Enabling
Act, 2001 to provide for comprehensive legislation and reduce administrative and
procedure delays in rapid development of physical and social infrastructure in the
state and attract private sector participation in design, financing, construction,
operation and maintenance of infrastructure projects in the state.
5.5.2 ADMINISTRATIVE FRAMEWORK
The government must establish a credible and efficient administrative framework to

streamline planning & coordination, and administration of BOT projects. Establishing an
efficient administrative framework is essential for successful implementation of BOT
project as it has been cited that complicated bureaucratic procedures and lack of authority
for administrators to make decision are amongst the obstacles to BOT operations. In
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addition to this, efficient administrative framework will also considerably accelerate

private sector investments in BOT projects.
The two critical functions of administrative framework are planning & co-ordination, and
administration, which are discussed in detail below.
Planning and Co-ordination: At the institutional level, most of the governments have
appointed an internal focal point to formulate and coordinate their BOT policy. The
implementing ministry such as ministry of public works or the centralized planning agency
such as Planning Commission could become the focal point of the institutional
arrangement that lead the BOT strategy. The responsibilities of the agency holding the
institutional focal point in BOT policy are as follows:
 Formulating government BOT policy and selecting sectors suitable for BOT
projects.
 Proposing legislation and setting up administrative regulations to promote and
monitor BOT projects.
 Setting up rules to rationalize and coordinate administrative procedures with
ministries, government agencies, and local authorities.
 Ensure proper economic and financial analysis of BOT projects.
 Initiating drafting of model project agreements and approving any deviations from
such agreements.
 Identifying and prioritizing appropriate BOT projects in cooperation with
implementing ministries, government agencies and local authorities.
 Deciding the procurement method to be applied to BOT projects and initiating and
approving the drafting of procurement regulations for BOT projects.
Administration: BOT project require approvals, permits and consents from several
ministries, public agencies and local authorities, it is desirable for the host government to
coordinate in advance the policies and responsibilities of those entities. Most of the
countries have adopted single window system as most efficient approach to the
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administration of BOT projects. Under such system, Project Company needs to deal with
only one government office to obtain and renew all necessary approval, permit and
consents for construction and operation of project.
5.5.3 GOVERNMENT INCENTIVES AND OTHER FORMS OF SUPPORTS
Government provide different types of incentives and various direct and indirect supports
in almost all BOT projects to make the projects attractive to private sector and balance
the risk transferred with the expected return. The extent and type of supports varies
considerably depending among the other things on country and project risks. Government
provides following incentives and supports to private sector.
Tax incentives and concessions: The tax regime of host country greatly influences
the financing of BOT projects. Taxes have the effects of reducing the project cash flow.
Governments normally provide various types of tax concessions to improve the financial
viability of the projects. Tax concessions, though, are not a direct infusion of capital, but
giving incentive in form of the following tax exemption results in availability of additional
operating revenue:
 Exemption from corporate tax for concession period.

 Exemption from income tax for foreign project staff.
 Exemption from or reduction of real estate tax.
 Exemption from or reduction of import duties on equipment, raw materials and
components for construction, O & M. of the project.
 Tax concession on royalties.
 Tax refunds for foreign investors reinvesting their profits in new infrastructure
projects in the country.
 Capital allowances in the form of depreciation and amortization.
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Land and other logistical facilities: In most of the BOT projects, host government
provide the following supports relating to land and logistical facilities in one or more of
following forms:
 Government, normally, provides land on which the project is to be built.

 Government constructs associated infrastructure facilities, including access roads,
transmission lines and communications in some infrastructure projects.
 Government may also ensure availability of labours and building materials and raw
materials during construction and operation stages.
Contribution of existing assets: In some PPP projects, government structured the

project by bundling the scope for construction of new project facilities with operation and
maintenance of an existing project asset. This arrangement enables the project sponsors
to operate the existing assets and earn revenues from existing assets during the
construction phase of the project.
Government guarantees and stand-by financing: In some cases, government

provides indirect guarantees and stand-by financing to advance the project. It includes:
 Indirect guarantee of operating income and stand-by loans: Government providing

guaranteed minimum income from traffic tolls and government ready to extend
loans for servicing senior debt project cash flow is insufficient owing to force
majeure events.
 Protection against the loss of expected revenues due to competing projects.
 Guarantee of commercial freedom, i.e. Right to determine its tariffs, tolls etc.
 Currency exchange protection.
 Interest rate reimbursement during period of high inflation and reimburse if
interest rate crosses stipulated percentage during project period.
 Protection against uninsurable force majeure events by either providing contract
period extension or bearing the economic effects of uninsurable force majeure
events exceeding equity investment.
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Loans and equity contributions: Direct equity investment from the governments or
by their agencies or local authorities has been adopted in some PPP projects. Such
participation in project equity may have the advantage of assuring government
involvement in the project and providing support for implementation and operation of the
project. It may also help to strengthen the government's monitoring of the projects.
Completion and performance incentives: Incentives to motivate the project

company to meet the obligations and achieve, if possible, higher level of performance
than forecast should be structured in PPP projects. One way to achieve these objectives
is to include bonus arrangement in the project agreements, wherein bonus is given to
Project Company based on the degree to which Project Company exceeds projections.
The following bonus incentives, which can be lump sum or percentage payments, could
be included in the bonus arrangement of PPP projects:
 Signature bonus: Lump sum amount payable if project agreement is signed by

a stipulated date.
 Completion bonus: Sum payable if construction of project facility is completed
before the stipulated date in the project agreement.
 Performance bonus: Amount payable if the output of the project exceeds
stipulated performance level.
5.6 INFRASTRUCTURE MANAGEMENT SYSTEMS
Managers and engineers need clear guidelines for life-cycle management of infrastructure
systems for water, sewer, and storm water services. Managing these systems as business
assets will hold costs down and improve performance. Failure rates will increase as
systems age, and capital needs will increase when water, sewer, and storm water systems
need renewal at the same time. Water supply, wastewater, and storm water are essential
public services that require complex and expensive infrastructure systems. These
infrastructure systems require effective care over their life cycles to produce good service
and high return on assets.
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Without this care, service will suffer and costs will rise; in the worst case, the utility may
suffer regulatory sanctions (problems) and customers may experience health problems,
poor service, and possibly property damage.
Infrastructure is the set of physical systems that provides public services. In water,
sewer, and storm water infrastructure systems, the physical components are pipes,
buildings, pumping plants, treatment plants, and other capital- intensive facilities.
Because the infrastructure value of these facilities is responsible for high annual revenues,
they are said to be “capital-intensive” services.
An Infrastructure Management System is an integrated framework for infrastructure

through its life cycle “from the cradle to the grave.”
5.6.1 Data-centered infrastructure management system
Four lines of organizational activity converge on a common database. Organizations have

always been shaped to some extent by access to information; and with different utility
departments using the same data, future management systems will look like this ﬁgure.
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Abbreviations
Capital Improvement Program CIP
Design and Construction D&C
Maintenance Management System MMS
Operations Management System OMS
Asset Management System AMS
Needs Assessment NA
Supervisory Control and Data Acquisition SCADA
Environmental Protection Agency EPA
Safe Drinking Water Act SDWA
State Revolving Fund SRF
5.6.2 Benefits of infrastructure management systems
The benefits of infrastructure management systems are clear, for example:
When infrastructure works well, society has efficient transportation, safe water, reliable
and affordable energy, a clean and attractive environment, and other essential support
systems. When it does not work, people waste hours in traffic, have bad water or no
water, lack electricity, and live in unhealthy conditions. As public works employees know,
if infrastructure works well, people take it for granted. If not, they suffer and complain
quickly
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Infrastructure management systems therefore propose multiple benefits by providing

information-based tools to:
 Offer better customer service

 Prepare and manage capital improvement program
 Control costs for infrastructure management and operation
 Publish and achieve approval for capital improvements
 Guide operations and maintenance practices
 Comply with regulations and improve service
5.6.3 Infrastructure integrity
 Integrity of infrastructure is an integrated indicator that measures the quality of

equipment, original construction, and current condition.
 The relationship between the original quality and the current condition is easy to
see.
 Well-constructed systems last longer and perform better.
 Integrity produces better reliability, improved service, lower risk, greater safety,
improved public health and environment, and protection against ﬂood damages.
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 Infrastructure condition curve relates condition to time.

 The curve shows that the condition of a facility will hold up in its early years, but
as it ages, more maintenance is required.
 Restoring the facility to its original condition may require only a little investment
in its early years, but later on it takes much more attention, perhaps even
replacement.
 In the case of pipelines, replacement may only be needed after many years, and
might even be achieved using trenchless technologies.
 Treatment plants are usually “works-in-progress,” with renewal going on
continually.
 The condition curve obviously depends greatly on the quality of original
construction. If original condition is poor, the starting point on the curve is lower.
5.6.4 Life-cycle management framework
Infrastructure should be managed on a “life-cycle” basis; not simply built, then replaced
when it wears out. Implementing this approach requires more attention to operations,
maintenance, and renewal activities
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References:
1. Akintoye, A., Beck, M., & Hardcastle, C. (Eds.). (2003). Public-Private Partnerships
- Managing risks and opportunities. Oxford: Blackwell Science Limited.
2. Finnerty, J. D. (1996). Project financing - Asset-based financial engineering. New
York: John Wiley & Sons, Inc.
3. Kreydieh, A. (1996). Risk management in BOT project financing. Diss.
Massachusetts Institute of Technology.
4. Kurowski, L., & Sussman, D. (2011). Investment project design - A guide to
financial and economic analysis with constraints. New Jersey: John Wiley & Sons.
5. Merna, T., & Njiru, C. (2002). Financing infrastructure projects (First ed.). London:
Thomas Telford.
6. Nevitt, P. K., & Fabozzi, F. J. (2000). Project financing (7 ed.). London, UK:
Euromoney Books.
7. Pretorius, F., Lejot, P., McInnis, A., Arner, D., & Hsu, B. F.-C. (2008). Project
finance for construction and infrastructure: Principles and case studies. Oxford:
Blackwell Publishing.
8. Rastogi, Anupam, Prem Kalra, and Ajay Pandey. "India Infrastructure Report
2008—Business Models of the Future." By 3iNetwork: Infrastructure Development
Finance Company (2008).
9. Raghuram, G., Jain, R., Sinha, S., Pangotra, P., & Morris, S. (2000). Infrastructure
Development and Financing: Towards a Public-Private Partnership: MacMillan.
10. Tinsley, R. (2002). Project Finance in Asia Pacific: Practical Case Studies. London,
UK: Euromoney Books.
11. UNIDO. (1996). Guidelines for infrastructure development through Build-Operate-
Transfer (BOT) projects. Vienna: UNIDO.
12. Walker, C., & Smith, A. J. (1995). Privatized infrastructure: the Build Operate
Transfer approach. London: Thomas Telford.
13. Yescombe, E. R. (2002). Principles of Project Finance. California: Academic Press.
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Lecture Notes

AN OVERVIEW OF INFRASTRUCTURE ENGINEERING

Urban infrastructure and Rural infrastructure in general, An introduction to Special Economic

“Infrastructure” is a term used in a variety of disciplines, there is no single definition for

The “Merriam Webster” Dictionary defines infrastructure as “The underlying foundation

1.2 Attributes of Infrastructure

 Infrastructure facilities are generally available to large groups of people

1.3 Types of Infrastructure

Several systems can be characterized as infrastructure – including Computer Systems

e.g.: Roads, Bridges, Airports, Ports, and Waterways

 Water and Sanitation Infrastructure

e.g.: Water Supply Systems, Sewage treatment systems

1.4 The Role of Infrastructure

The importance of infrastructure is two-fold

 Infrastructure is instrumental in promoting economic growth

1.5 Infrastructure and Economic Growth

Infrastructure, Economic Growth and poverty reduction

Economic Growth Poverty Reduction

Transportation Faster access to More reliable access to

Water and Sanitation Incentives for construction Improved health, reduction

and residential potential increase in

Telecommunications Improved access and Increased access to

Energy Reliable and abundant 24 hour electricity increase

1.6 The Infrastructure Crisis

 Despite the importance of infrastructure for economic and social well-being, we

Why do we have so many problems with infrastructure?

1.7 Urban Infrastructure and Rural Infrastructure in General

1.7.1 Urban Infrastructure Scenario

1.7.2 Urban Water Supply Scenario

1.7.3 Urban Governance – 3 Tier System

 Traditionally, the state government had a major

Problems with the earlier model

New Model for Urban Governance

 In the earlier model, quality of

74th CAA (12th Schedule)

1.7.4 Municipal Finance

 State Govt mandates the tax rates

 This can happen at the discretion of state Govt

State Finance Commission (SFC) is a body with responsibilities to ensure that

1.7.5 Money flow from the Center – 12th Finance Commission

 The diagram on the left taken from

1.7.6 Current Municipal Finances

1.7.7 State of Municipal Finances

1.7.8 Municipal Reforms

 Municipal bodies must have elected representatives and not nominees

 Guidelines for financial management such as preparing balance sheets, training on

1.7.9 Other reforms

 E-governance initiatives have been introduced in several states to make the

 The major themes of JNNURM are Infrastructure renewal, improved governance

Mandatory Reforms to be enacted by States/ULBs in order to be eligible for JNNURM

1. Use of Modern accounting systems

 Streamlining approvals and permit procedures.

Process for approving projects and obtaining funding under JNNURM

First an overall city development plan is created.

Preliminary views on JNNURM:

The Road Ahead – Systemic Change is required

 Mere reforms on paper are not enough

1.8 RURAL INFRASTRUCTURE

1.8.1 Statistics of Rural India

 71% of Indians live in rural areas