Financing constraints of public–private partnership projects in India

Abstract

PurposeThe purpose of this paper is to identify the problems faced by banks, lenders, financial institutions, public authority, developers and concessionaires in course of financing of public–private partnership (PPP) road projects. Subsequently, the reasons that contribute to these problems were analyzed to come up with recommendations for mitigation of these problems.Design/methodology/approachThe methodology adopted is based on identification of financing problems and the reasons thereof, from a systematic and critical review of literature. Financing details including problems faced and reasons behind were extracted from details of one port, one airport and one road project. Data pertaining to financing of PPP road projects have been collected for completed (five projects) as well as projects under implementation (five projects) during a time interval of four months, starting from December 2018 to March 2019. The chosen three projects for case studies were executed in airport project at Kolkata in four years, offshore container terminal at Mumbai port in six years and Tuni Ankapali road project in three years. This period attains importance, as simultaneous progressive development and innovation in the PPP mode of project execution was taking place rapidly.FindingsThe commercial banks in India dominate in providing debt to the PPP infrastructure projects, especially in the road sector. The non-banking financial companies and other intermediaries were still in their infancy then, and a corporate bond market was growing steadily, though slowly. Financing problems faced by the developers resulted in unwarranted time and cost overruns emanating from delay in land acquisition and grant of approvals, with these being the two major barriers to private sector participation. Even schedule overrun finally resulted in increased construction and financing cost.Originality/valueDemand for upgradation, building and expansion of transportation infrastructure (roads) exists to keep pace with economic development. Problems like lack of a developed market for financing, inadequate institutional capacity, lack of personnel having domain expertise and absence of exclusive legislation to govern the implementation of PPP road projects are encountered by the sponsors and developers. Delay in land acquisition and environment clearance inhibits any decisive action by the lenders and investors, as these two are integrally linked to the decisions to be taken with respect to the financing of projects. Investors and bankers are generally apprehensive of their investment getting locked in or ending up as non-performing assets. Identification and proposed mitigation of these problems may likely smoothen the rough edges for the financing of projects, resulting in smoother implementation.