1 Asian Development Bank Assistance to Promote Public-Private Partnerships in India Presentation by Tetsu Ito, Senior Economist (Financial Sector) India Resident Mission, South Asia Regional Department, ADB February 2008

2 Outline I.Experiences - Achievements and Lessons II.Changing Operational Environment and Challenges Ahead III.Recent and Ongoing Initiatives

3 Experiences Overview of ADB’s Operations in India – Loan and Investment Approvals ($ million) Total Sovereign Operations 5, ,232.1 I. Infrastructure 4, Energy Transport 2, Urban Development II. Finance and Governance 1, Financial Intermediation Governance and others1, III. Others Total Non Sovereign Operations I. Loans II. Investment

4 Experiences Overview of ADB’s Operations in India – Loan Disbursements ($ million) (YTD) 1 Total 2, I. Infrastructure 2, Energy 1, Transport Urban Development II. Finance and Governance Financial Intermediation Governance and Others III. Others figures are updated as on 22 October 2007.

5 Experiences PPP-related Projects in India Case I: Private Sector Infrastructure Facility (PSIF) Key Project Data: Loan 1480-INDLoan 1481-IND Loan 1480-INDLoan 1481-IND Board Approval: November 1996November 1996 Loan Size: $150 million$100 million Borrower: ICICI (later, ICICI Bank)IFCI Guarantor: Government of India (GOI) GOI Expected Project Outcomes: i.Facilitate participation in infrastructure development. ii.Promote development of secondary market in debt securities.

6 Experiences PPP-related Projects in India Case I: PSIF (continued) Key Results: ICICI fully utilized the PSIF to finance six subprojects (3 power, 1 road, and 2 telecommunications). The loan closed in Nov 2001.ICICI fully utilized the PSIF to finance six subprojects (3 power, 1 road, and 2 telecommunications). The loan closed in Nov IFCI utilized 62.5 million to finance five subprojects (4 power and 1 port). The loan closed in May 2002.IFCI utilized 62.5 million to finance five subprojects (4 power and 1 port). The loan closed in May Subprojects in the power and port sub-sectors (i.e. Lanco Kondapali Thermal Power, Malana Hydro Power, and Mundra Port) performed generally well, leading to significant demonstration effects.Subprojects in the power and port sub-sectors (i.e. Lanco Kondapali Thermal Power, Malana Hydro Power, and Mundra Port) performed generally well, leading to significant demonstration effects. Road subproject, one of the first PPP initiatives in this sub-sector in India, showed mixed performance.Road subproject, one of the first PPP initiatives in this sub-sector in India, showed mixed performance. Ten of the 11 subloans under the PSIF were prepaid after the commencement of subproject operations.Ten of the 11 subloans under the PSIF were prepaid after the commencement of subproject operations. Outcomes in the area of corporate debt market was marginal.Outcomes in the area of corporate debt market was marginal. Sources: Project Completion Report (PCR) and Project Performance Evaluation Report (PPER)

7 Experiences PPP-related Projects in India Case II: Urban Environmental Facility (UEIF) Key Project Data: Board Approval: December 1999 Loan size: $80 million Borrower: ICICI (later, ICICI Bank) Guarantor: GOI Expected Project Outcomes: i.Support commercialization of urban and environmental infrastructure development, financing, and operation and maintenance. ii.Support decentralization and implementation of the Constitution (74 th Amendment) Act, iii.Enhance access of the urban poor to improved urban environment and urban services.

8 Experiences PPP-related Projects in India Case II: UEIF (continued) Key Results : Loan utilization was poor at 34% of the approved loan amount.Loan utilization was poor at 34% of the approved loan amount. Of the approved 7 subprojects, only two subproject contributed significantly to the project outcome.Of the approved 7 subprojects, only two subproject contributed significantly to the project outcome. i.Ahmedabad Municipal Corporation (AMC) - solid waste management project ii.Thane Municipal Corporation (TMC) - water distribution project Main reasons for underutilization:Main reasons for underutilization: i.Absence of an enabling environment and lack of capacity in municipal corporations/urban local bodies (ULBs) to process commercially viable projects ii.Change in the Borrower’s operational focus Source: Project Completion Report (PCR)

9 Experiences PPP-related Projects in India Case III: Private Sector Infrastructure Facility at State Level (PSIF II) Key Project Data: Loan 1871-INDLoan 1872-IND Board Approval:December 2001 December 2001 Loan Size: $100 million $100 million Borrower: IL&FSIDBI Guarantor: GOIGOI Expected Project Outcomes: Enhance private sector participation in infrastructure in four targeted states (Andhra Pradesh, Gujarat, Karnataka, and Madhya Pradesh). Tamil Nadu was also added in November 2004.

10 Experiences PPP-related Projects in India Case III: PSIF II (continued) Key Results : IL&FS utilized $50.4 million to finance 3 subprojects, and the loan closed in October 2007.IL&FS utilized $50.4 million to finance 3 subprojects, and the loan closed in October i.Ahmedabad-Mehsana Toll ii.New Tripur Area Development iii.West Gujarat Expressway IDBI used only $8.2 million and canceled the loan in 2003.IDBI used only $8.2 million and canceled the loan in Main reasons for underutilization (tentative findings):Main reasons for underutilization (tentative findings): i.Lack of bankable PPP projects, and weak capacity of state governments to manage the bidding process ii.Gaps between country’s/states’ and ADB’s social safeguard guidelines

11 Changing Operational Environment and Challenges Changes in Operational Environment:  Central Government’s initiatives in promoting PPPs  Macroeconomic conditions and policies Increased foreign reserves and tightening of external commercial borrowing (ECB) policy Increased foreign reserves and tightening of external commercial borrowing (ECB) policy Continued tight fiscal management under the Fiscal Responsibility and Budget Management (FRBM) Act Continued tight fiscal management under the Fiscal Responsibility and Budget Management (FRBM) Act  Financial sector landscape  National Rehabilitation and Resettlement Policy, 2007

12 Changing Operational Environment and Challenges Challenges Ahead:  Weakness in enabling policy and regulatory frameworks, and a lack of shelf of bankable infrastructure projects  Supply gap in long-term financing, a lack of innovative financial instruments, and slow progress in corporate debt market development  Lack of capacity in public institutions and officials to manage the PPP process, and the need for better understanding of various PPP options

13 Recent and Ongoing Initiatives Scope of ADB Assistance to Promote PPPs in India: 1.Awareness and capacity building 2.Technical support for policy and regulatory framework 3.Lending operations – a range of financing options pursued/developed under Innovation and Efficiency Initiative (IEI)

14 Recent and Ongoing Initiatives 1.Awareness Building:  Regional Workshop of Chief Secretaries on PPPs in June-September 2006 (Bangalore, Delhi, Kolkata, and Goa)  Workshop on Mainstreaming PPPs in the Urban Sector in October 2007 (Jaipur and Hyderabad)  Forthcoming workshop on PPPs in education and health sectors  Consolidating proceedings into publications for further dissemination

15 Recent and Ongoing Initiatives 2.Capacity Building and Policy Support:  Technical Assistance (TA) for Mainstreaming PPPs at State Level (ongoing)  TA for Mainstreaming PPPs at Central Line Ministries of GOI (ongoing)  TA for Innovative Financing Options for Municipal Infrastructure Sector (ongoing)  Support for bringing franchise-model for power distribution in Madhya Pradesh (discussions underway)  TA for Capacity Building of India Infrastructure Finance Company Limited –IIFCL (discussions under way)  Study on Mainstreaming PPPs in Education and Health Sectors (ongoing)

16 Recent and Ongoing Initiatives 3.Lending Operations:  India Infrastructure Project Financing Facility (approved in December 2007)  National Highways PPP Sector Investment Program (discussions underway)  Non-sovereign instruments to support both private sector and public sector entities, including ULBs (discussions under way)

17 For inquiries: Tetsu Ito Tel No.: Fax No.: Anouj Mehta Tel No.: + For inquiries: Tetsu Ito Tel No.: Fax No.: Anouj Mehta Tel No.: /5968 Fax No.: