PPP framework

The government began to promote the PPP model for infrastructure projects by allowing the public private participation, about ten years ago.

Legal system and structure

The Constitution of India requires that each state registers a municipal corporation for each urban area: urban planning, construction and maintenance of roads and bridges, water supply, waste management and provision of other public services. Depending on the functions, powers and rights delegated to a municipal corporation by the state government, the municipal corporation may enter into a concession agreement with a private third party.

PPP projects are conducted on the basis of BOT and BOOT, and concessions are given for a fixed period of time. The concession agreement is the main document which sets out the rights and obligations of the concessionaire, along with tender documents. The Indian law on contracts of 1872 is the relevant legislation for the interpretation of the terms and conditions of the concession agreement.

There is no common law which would regulate PPP projects in India, and the mechanisms of PPP implementation are available at the state and central levels

The Constitution of India divides the law-making power between the Government of India and the governments of various states.

Budget rules

PPP unit of the Department of Economic Affairs (DEA) of the Ministry of Finance approved the detailed mechanism for PPP projects, covering all issues from project determination to its implementation:

The program of financial support of PPP projects – Viability gap funding

This program was first introduced in 2004 and is applicable to projects proposed by the Government of India, state governments or legal authorities. It is aimed at making financially more attractive infrastructure projects conducted by PPP models commercially viable by providing financial support in the form of Viability gap funding (VGF). VGF is provided during the construction of the project and may take up to 20% of the project costs, although in exceptional cases it may take up to 40%.

Implementation of the project and the contracting process

The Secretariat for Infrastructure in the Planning Commission deals with the adoption of the policy which would ensure the immediate creation of world-class infrastructure that would provide services corresponding to international standards, by developing structures that maximize the role of public-private partnerships (PPP) and by monitoring the progress of key infrastructure projects in order to ensure the achievement of the goals set.

The Planning Commission normally prepares an Approach Paper that lays out the main targets, main challenges in meeting them, and the broad approach to be applied to achieve the stated goals.

An Approach Paper is approved by the Cabinet and the National Development Council that includes all state ministers. It provides architecture specified in detail in the Plan.

Five-year plans are developed and approved.

Also more detailed annual plans are developed.

The typical life cycle of PPP:

Stage 1: PPP determination – During the strategic planning process a number of potential projects is defined, which includes an analysis of needs for infrastructure services and analysis of options for the provision of services (including whether assets are necessary). Potential PPs are then evaluated for their compliance for the development as PPP and a report on a preliminary feasibility study is drawn up. Internal permission is required before proceeding to the next stage.

Stage 2: A full feasibility study, PPP preparation and permission – A potential PPP, which is considered appropriate in the analysis at Stage 1, is studied in detail and an application for essential permission for proceeding to the stage of providing.