Managing Risks for PPP

Risk can be said to be chance of a particular event happening; often a bad one. Every business is bound to have certain risks attached with it. Public Private Partnerships (PPP) is no different. But what makes it different from others is that the private partner is the one who often ends up taking risks.

To understand how to mitigate risks in Public Private Partnership we spoke to Mr. Arun Lakhani, leading PPP expert with the BJP government.

Lakhani says the first step towards an efficient mitigation plan is identifying and classifying the risks involved.
This should be done even before commencing procurement stage. It greatly helps in having a clear picture of where risks can be minimized to the maximum. It also helps the private partners to be ready for any eventuality that might occur and avoid last minute patch solutions.

Based on how PPP works, risks can be classified into multiple sections. Some of the major areas are:

• Production: This involves risks associated with planning, design, maintenance, repairs, construction, environmental etc.

• Commercial: Mainly involves risks related to demand, collection, capacity availability, policy changes, technological changes.

• Contextual: It consists of risks related with finance, rules & regulations.

In addition at the time of contract preparation it is important that both the partners must know about the risks associated with the project. Every risk associated with the project must be clearly explained. Besides, the causes that can lead to such risks occurring must also be slept out. This will help partners to be ready with the solution in case any such situation arises. It is very important that both partners are aware of the possibility of risks and their corresponding impact. The contract stage is a key stage in PPP and is an ideal time to execute such acts.

The second important step according to Lakhani is Risk Allocation.
It is crucial that risks are allocated between the partners so that neither suffers unjust losses due to unforeseen risks.This would help private partners in PPP to minimise the risk and also get work done at the same time.

Third and most important step is identifying solutions for risk minimization says Lakhani.
Now that the risks have been identified, it is also important that solutions for them are also in place for any contingency. After carefully studying the risks, the PPP partners must develop strategies that minimize them. It would be even better if these probable solutions are documented as it will help in future. Even better would be to take these risk minimising measures even before the contract is assigned.

In conclusion the true success of any PPP venture is when it becomes a win-win situation for both parties involved in it. In order to have a long lasting partnership, it is important the project is done with utmost transparency. Identifying, assessing and fair allocation of the risks involved with the project is one of the best ways to achieve it.

"More than that, it will establish trust between both parties that is so crucial for business venture" Arun Lakhani.

Need to Understand Chemistry of Political Challenge to "PPP"

A Public Private Partnership (PPP) by default is a political project, and has associated political challenges. This kind of challenge does not exist only in developing countries, but it still shows its presence in most developed countries as well. In fact in terms of number of projects that are being built in most advanced countries on PPP Model, are much more than what group of newly developing countries might have been planned.

Thus, way of dealing with such challenges might be different but one thing is certain that corporate companies associated with implementation of PPP Projects have to study the ways to address the political challenges if any. On many occasions these kinds of challenges are imaginary and do not exist as we think of them to be.

We spoke to Mr. Arun Lakhani, one of the key PPP experts with the BJP government to understand political influence on PPP projects. He explained his point of view with a small example illustrated below-

Once the Regional Manager of a nationalized bank in INDIA was directed by its head office that the Hon Chief Minister, in whose native village they said bank was going to open new branch especially for agricultural financing, should be invited for inauguration. Earlier that village was being serviced by same bank for almost a decade, from another nearby branch having adopted that village. The entire infrastructure like building, interior decoration of proposed branch with all required installation was in place. Even the entire staff was posted and joined the proposed new branch aviating to commence functioning. The Regional manager of the bank had a friend who was quite close with the CM and promised him that he will fix time to meet HON CM. Accordingly; he arranged the meeting between HON CM and the Regional Manager of the said bank to give personal invitation for inaugurating proposed branch. The Regional manager went as per appointment given by HON CM. Just as the Regional manager of bank and his friend were called in CM chamber, formal talks and introduction session took few minutes.

There after the real business started. Hon CM asked the purpose for which duo had come. The regional Manager of the bank explained the purpose and wished that HOM CM should suggest date and time for the inaugural function depending on availability of the time for HON CM. In fraction of seconds HON CM sent message to his PA to check on which day the function can be fixed. Until the PA could verify appointment schedules of HON CM, some casual discussion went on for few more minutes. Suddenly HON CM remembered ‘something’ and re-enquired the name of the Bank. He then said that, few years back there was an incidence when he had forwarded a few [about ten numbers] tractor loan proposals to the bank by the applicant farmers which expressed little dissatisfaction. The Regional Manager had recently taken charge and was unaware and became all most panicky suspecting that he might not have privilege of opening new branch at the hands of HON CM. HON CM immediately read what was being thought in the mind of the Regional manager as also read his face that may have been like—"shabda vachuni kalale sare shabdancha palikadale" [[English spelt Marathi words]]. HON CM broke the ice. He said that he could have understood if few proposals earlier recommended by him might have been Non Viable. He had concern that perfectly viable proposals also were rudely rejected by then the bank management and all proposals then were brushed aside which had hurt him.

YET

HON CM suggested to the Regional manager that if he can promise to review proposals freshly and arrange to disburse only viable proposals, HON CM would come and be the chief guest function. The function was smoothly conducted and the common friend who also came had told the Regional manager that HON CM had told him to convey to the bank that persons in politics have to do things like recommending loans etc but it is never intended to imply that authorities should over rule the set norms. Political masters have to show concern to general public at large when they are approached in group by public. What executive wings or for that matter anybody coming in their association, should understand that even Political person be understood in non political fashion.

The moral of the story

"Political challenges can be at gram sabha level, nagar palika level, maha nagar palika level, state level or at national level, there are ways to understand political minds at all these levels. The chemistry would be similar no political person wants to be inimical" says Lakhani.

While anybody deals in completion of projects, especially of the PPP MODEL, he or she has to understand the chemistry of politics in matured and dispassionate manner. Understanding publically functioning is the challenge that one can only unfold with little bit of psychological mind set. This can make win- win situation for not only for PPP MODEL but also for Political figure and People –two more P letters in our new way of life in developing nations.

The Ganga Story: Balancing Environment & Efficiency

It is undeniable that no matter the size of a PPP project, it will always have some level of impact on environment around it.But the sad part is that quite often environmental sustainability is the last thing in the mind of developers. As a result more harm is done to it than good. Hence it is always stressed upon that outcome of a PPP project must be more than just a physical entity.

It thus becomes very important that development and protection of environment must go hand in hand. Besides, it must also achieve a vision of a just and sustainable world.

One of the prime examples where balancing efficiency and environment is a must is river Ganga says Arun Lakhani, MD Vishvaraj Infrastructure Ltd. and leading expert on PPP and water conservation.

The Ganga Story:
Perhaps there is no other river in the world that is as revered, spoken about and controversial as the Ganga.

Although the current government has started an initiative to restore the legendary river to its glory, there is much more that needs to be done says Lakhani.

It starts with PPP projects around Ganga. One of the biggest mistakes that are made is to underestimate their contribution to pollution of the river.Under the surface of Ganga flows huge, in fact millions of gallons, of industrial waste, effluents. This happens due to lack of planning.

It cannot be denied that starting and finishing the project in quickest time possible is what most PPP project are all about. Environmental factors are given least preference (until it happens to be around heritage sites or forest or similar zones).

The outcome of such lethargic attitude is shocking. The least of these is the spread of waterborne diseases. The polluted water has affected the free flow of river water making it stagnant.

So bad is the condition that even cleansing of river will be a monumental task; but it must be done.

The Solution:
River Ganga is in dire condition and it needs immediate attention.

It begins with inculcating a habit of making environmental sustainability a core consideration in the Ganga Cleanup initiative (or anywhere else for that matter).

Policies need to be drafted to prevent any further deterioration of the river. Extra care needs to be taken when any new projects are given the green light.

"Given the poor waste management record until now near Ganga, there must be stricter policies that ensure it does not remain so. In fact, it would be better if there can be projects that can minimise or even better remove the current problems that ails the river Ganga" says Lakhani.

Water is a priceless resource. It is the duty of those parties involved to ensure that it is utilised wisely (not only by themselves but also by the people who visit Ganga).

It is not as though river Ganga is the only one facing such problems. There are multiple such instances around the world. But our priority is must be to repair the damages done to it and remove it from the state of degradation and crisis.

Arun Lakhani on Policies and Processes - Countries That Suceeded

Much before Public Private Partnerships (PPP) became a buzzword in past ten years or so, it has had a long history. Thinking of an example? How do private schools aided by the government sound?

If we dig deeper we will find a long list of such ventures. But this article is not about them, it is about the policies and processes that govern PPP. On that front sadly we do not have much to cheer about and quite often the main issue is related to policies and processes that govern these partnerships.

So how do we rectify such a situation? The solution could be looking at successful PPP ventures outside of India.

To understand how other countries around the world are dealing with Public Private Partnerships we spoke to Mr. Arun Lakhani – MD Vishvaraj Infrastructure and leading authority on PPP model in India. Mr. Lakhani himself has led and executed various successful PPP projects with the Government of India such as Nagpur 24*7 water supply and Warora - chandrapur - Ballarpur Project.

Let's take a look at some countries that have mastered the PPP model for development

1. South Africa:
   The main thrust fordevelopment in South Africa came in 1997 when it started its own PPP program. Three years later, in 2000, the country created a dedicated PPP Unit in its nation treasury. The main goal of this unit is to closely observe all the proposed and ongoing PPP projects. Besides, this unit also offers guidance to those involved in such ventures so that they know the rules and regulations.
   
   
   Following are the main responsibility of this unit:
   
   
   • Approval of the PPP Feasibility Study
   • Approval of draft bid documents
   • Approval of the results
   • Approval of the negotiated PPP contract


2. Australia:
   Another country that is reaping huge rewards through PPP is Australia. A major contributor to this success is the state of Victoria. In fact, the base of current PPP initiative by Australian government is based on the Victoria model.
   
   
   There is a fixed cap of AU$50million (max) for PPP ventures in Australia. The spectrum of these projects is quite huge; ranging from economic to social to infrastructure. The rules and regulations pertaining to PPP have been drafted by the Federal Government. These projects are governed by National PPP Policy and Guidelines by a joint partnership of Federal Government and the Partnerships Victoria Requirements.
   
   
   Any PPP project that needs to be started undergoes a stringent evaluation and due diligence including
   
   
   • Case submission
   • Benefits.
   • Costs.


3. United States:
   One of the brightest examples of well governed PPP policies and processes is the United States of America. USA started the National Council for Public-Private Partnerships in 1985 for PPP with the following goals
   
   
   • Have full and open participation by public and private members
   • Assist both, public and private sectors with regards to analysis and implementations.
   • Educate people on PPP.


4. United Kingdom:
   In order to ensure financial stability of PPP, UK introduced something called Private Finance Initiative (PFI). This initiative was started in the year 1992. The primary objective of PFI is to organize private funding foreconomic and infrastructureprojects.
   
   
   Thanks to this channelized approach, this initiative has gone on to become one of the biggest PPP programs in the world. Its estimated valuation runs into tens of billions of pounds.

Having a dedicated governmental department or authority solely responsible for governing policies and frameworks to ensure that such ventures are adequately managed and executed is a must says Lakhani. It is important that the Government creates strong policies and is ideologically invested in the success of these projects without being a hindrance to actual execution.

Arun Lakhani Talks about Reusing and Recycling Waste Water

Water is a fundamental life component and a valuable resource. Around the globe various countries are facing water related issues, not the least India with its rapidly growing population and urbanization.

Unfortunately as the population of India increases, the scarcity of water has become a deadly challenge. The challenge lies in dealing with water scarcity while at the same time managing increasing consumption due to the growing population.

It is not as though we cannot fight this issue. One of the best ways is to reuse and recycle waste water.

The problem that we face today
One of the areas where we can start is agriculture. Using the drip irrigation method, efficient management of waste water is quite possible. A major obstacle in implementing this method is the un-organised nature of this sector. On top of that, the number of small land holdings is quite large that makes it more complicated and challenging to put into practice such efficiency measures.

At the other end of the spectrum urbanization has led to massive migrations form rural areas to towns and cities intensifying the problem of managing water requirements. The ever growing human density, lack of efficient conservation measures, industrialization and changing ecological environment is leading to an unprecedented change in water consumption patterns and the balance of demand & supply.

One of the reasons for such a situation is the lack of budget for local bodies to implement any waste water management methods. In addition to it, urban areas are becoming industrial hubs which have resulted in disproportionate usage of water. The conflict between agriculture & industry and rural and urban with agricultural sector is thus complicating the waste water management issue.

Probable solution:
To find a sustainable solution we spoke to Mr. Arun Lakahani, MD VIL and leading expert in PPPs for waste water management.

Lakhani says the way forward is to look at countries such as Singapore, Korea and even USA, not to copy their methods but to customize available technology to suit out ecosystem and requirements. These countries have adopted efficient and effective methods for waste water management which if used smartly would greatly benefit India.

One of the successful methods involves waste water being given tertiary treatment that will make it usable (in this case drinkable). This not only ensures that waste water is managed well but also utilized effectively & productively.

"Now, if we try to fit this process in India as it is, it will be difficult; more because of cultural acceptability rather than any other thing." Says Lakhani

So maybe the way to work around this is to take the treated water and divert it towards industrial use and conserving fresh water for domestic usage.

Arun Lakani on Developing a Robust Framework to Make PPP Work

Private Public Partnerships are a great way to boost the development of a nation. A partnership beneficial to all the parties involved including the public. A lot of things go into making a successful venture. One of these is policies associated with such partnerships.

Recently we spoke to Mr. Arun Lakhani, MD Vishwaraj Infrastructure Ltd. and noted PPP expert on his experience in setting up successful PPP ventures such as the Nagpur 24x7 water project.

Here are some of the insight we gleaned on setting up the right kind of policy framework, to govern projects of the scope and complexity that generally entails a Public-Private Partnership.

Build a framework to identify potential partnership areas
The most important thing even before considering PPP is to identify which are the areas that require such ventures. This is important because failing to do so means great loss of resources, manpower, time and money.

One of the ways to do so is to know analyse which areas are facing demand and supply issues. An in-depth study will give a clear idea where such partnerships can contribute positively.

Stand together & support each other
Any partnership is tricky at best, add to that politics, media, extremists and there is a storm brewing. In such a scenario it is important that both parties support each other and policies made are effective, accountable and fair to all the stakeholders involved.

Since the operational and execution risks are almost always undertaken by private player, government must ensure it offers its complete support to them. By taking care of approvals, licences and paper work, the government body can take the burden off the shoulder of its partner.

Project Ownership is a joint responsibility
PPP is a joint venture and hence there are bound to be issues related to management, responsibility and accountability and when working with the government, it seems to be the norm to have bureaucratic hold ups, red tapism and lackadaisical attitudes.

However, Mr. Arun Lakhani here chose to disagree. He talks about the classic example of Yeola town development as a part of the BOT road contract and how it helped in winning over the people of the town bringing down natural resistance to toll road projects, as a testament to what can be achieved when responsibility and accountability are jointly shared for the better of society.

Stakeholder Protection:
It is a fact that even though PPPs are a joint venture, there is no denying that private partners are the more vulnerable party. With such a cloud of uncertainty hanging over their head, there needs to be a provision to protect their interests. Government takes the least risk in PPP and hence has very little to lose. In such a scenario the rights of private partners must be protected as they are operating at maximum risk. For example an untimely termination of PPP can result in a serious loss as they invest huge amount of money and resources.

Here though Mr Lakhani warns that the contractual conditions must be very clearly spelled out and there should not be any scope for manoeuvring by private operators.

To conclude we would like to say PPPsare very rarely short term associations. They are like a double edged sword; especially for private partners. Hence it is important that both, the government and private sector, prove themselves to be an able partner for the other. And this can be done only when there is clarity and transparency between the two.

Arun Lakhani on Minimizing Risks in PPP

Big projects follow big challenges and big challenges follow big risks. Though, effective planning and proper implementation can reduce risk and can lead to the maximum ROI. According to Economist Kent Buse, the biggest risk in PPP is misalignment of partnership missions and objectives with government policies.

Mr Arun Lakhani, MD Vishwaraj Infrastructure Limited, one of the pioneers in India in the field of Public-Private-Partnerships, says most of the partners want quick results which just isn't fair in a PP model. There are n numbers of factors that need to be considered while working on such projects like environmental sustainability, execution & implementation and maintaining timelines; where government agendas usually focus on improving systemic issues and delivery mechanisms.

We discussed a few insights with Mr. Lakhani, gained from extensive work in PPP projects such as Nagpur 24x7 water supply and Warora- Chandrapur - Ballarpur Road Project. Let's take a look at his philosophy for sustaining and implementing PPP projects.

1. Pre-execution Stage -
   
   
   • Set clear and specific goals - One has to be very specific about the project they are going to execute. First of all, you have to identify whether PPP is appropriate for this project or not. There has to be mature understanding between partner's expectations and government priorities. As two separate entities are collaborating for a common goal it is important that trust is built right at the start and there is a mutual understanding of expectations, and transparent methods of accountability.
   
   
   • Identify right partners - There needs to be a process to set up the right alliance. Stakeholders need to ask questions such as does the partner have the capability to execute the plan? What values your partner can add? A due diligence process and selection criteria is imperative for the future success of the project.
   
   
• Good governance - Create a board of management with equal participation of both the parties. Also, invite some experts as mentors that aren't directly involved with any party in the project. Clarify the roles and responsibilities of everyone for efficient execution. It will help in reducing duplication of work and identification of benefits, risks, costs and duties of each partner. Healthy communication always adds more points.


2. Execution Stage -
   
   
   • Standard Operating Procedures - Developing and executing standard operating procedures and processes for delivery is imperative for the smooth execution of any project.
     
     
     Each department needs to be aware of working methodology, timelines and deliverables. Working in an efficient manner with open and reliable communication channel goes a long way in hassle free execution.. Proper hierarchy is important in all types of organization irrespective of the project size and domain. How could PPP project be an exception for that? Above all, do not forget to ensure the smooth access to information, whenever needed.
   
   
   • Monitoring & Execution - Performance evaluation must be a continuous activity here. Internal and external performance analysis would be highly profitable and will lead to great results. Decision making is always a crucial part and maintaining balance of all stakeholders in this process is important. Nothing is like availability of experts on time. The secret of success lies within it.


3. Sustainability and Exit -
   
   
   • Set clear and specific goals - One must ensure the support from government agencies as well as corporates. Incorporate all levels of stakeholders in program implementation and delivery. Improve the easy access of delivery channels for best outputs.
   
   
   • Exit - Keeping the terms crystal clear from the day one is very important for maintaining healthy relationships. There must be simple and clear exit strategy for all the parties.

"Public private partnership projects aremuch more important than any normal profit making organization, though their work is going to affect public life and ultimately on the country's growth. It must handle with extra care." Arun Lakhani