Project Report on Financing of PPP Infrastructure Projects in India
Dissertation Writing Help on Constraints and Recommendations- Financing of PPP Infrastructure Projects in India
Infrastructure
projects are complex, capital intensive, having long gestation period and
involve multiple risks to the project participants. In many countries shortage
of public funds have forced the government to enter into a long-term
contractual agreement for financing construction and operation of
infrastructure projects. A Public-Private Partnership (PPP) can be defined as
private sector financiers of construction and operation of infrastructure
projects, which would have been otherwise provided by the public sector. PPP
structures are typically more complex than the traditional public procurement
projects, and their complexity is due to the number of parties involved and the
mechanism used to share the risk.
PPP projects are characterized by
non-recourse or limited-recourse financing, where lenders are repaid from only
the revenues generated by the projects. The concessionaire is a special purpose
vehicle in which the sponsoring entities are not responsible for the repayments
of loans. These projects have a capital cost during constructions and a low operating
cost afterwards, which implies that the initial financing costs are very large compared
to the total cost. Further, a mix of financial and contractual arrangements
amongst the multiple parties including the commercial banks, project
sponsorers, domestic and international financial institutions and government
agencies makes it further complex.
Recommendations
for Private Financing to Infrastructure
PPPs can play
much important role in bridging the financial gap for building the requisite infrastructure.
Suggestions for mitigating the key constraints to private financing of infrastructure are given as under:
• Facilitating
equity financing by improving exit policy and better corporate governance to protect
minority shareholder rights.
• Removing
interest rate caps on External Commercial Borrowings (ECBs) to encourage
foreign investors to use innovative financing instruments like mezzanine and
take-out financing.
• Developing a
well developed government bond market.
• Investment
policy and regulatory guidelines to insurance companies, pension funds, mutual
funds and other financial institutions for participation in infrastructure
financing.
• Fiscal
concessions by reducing custom duties on capital goods and machineries which
are critical to construction of infrastructure projects and provision of other tax
concessions and tax holidays.
• Government
should provide clear policy frameworks to reduce uncertainties and set up high
level committees to resolve inter-ministerial issues involving multiple clearances
for various sectors. The government should develop domestic capabilities of
financial institutions and government officials to manage and participate in
PPP projects. Recent step by the central government to fund through the
Viability Gap Funding (VGP) up to 40% is a welcome step. However, it will
require proper institutional capacities to manage, participate in/and monitor
PPP.
• Make
transactions transparent, clear, predictable and competitive.
• Government
should create a stable, transparent and fast acting regulatory environment.
Conclusion
India faces
large financing gap which can be bridged only by active private participation in
building the necessary infrastructure. Reforms that facilitate the use of
various financing nstruments by investors are needed. However, the funding
issues are closely linked to sector policies and regulatory frameworks and
therefore, private investment will also require that the fiscal barriers, red
tape and professional inefficiencies should also be addressed properly. Increased
private financing for infrastructure on a sustained basis will require
government’s proactive role and policies to provide wide spread reforms in
infrastructure that will go beyond the financial sector.
If you want ProjectsReports on Infrastructure Financing,
than contact PhD Writers providing Research Help, and read Case Studieson PPP Projects in India. Also read
Funding the Infrastructure Investment Gap written by Mahasagar Publications.
