Public Private Partnership Contracts: Indian Infrastructure Perspective

Abstract

Indian Infrastructure Sector have evolved a lot and is growing with a fast pace. Government today and tomorrow have to diligently take care for growth towards Infrastructure Sectors. Considering these projects to be high capital intensive and having long gestation period, both financial institutions and the equity investors take very deep dive in these contracts analysis. Lots of these sectors are highly regulated and concepts like Return on Equity (RoE) plays very important role, wherein, RoE of approximately 15% (post-Tax) is allowed in all sectors. Unlike Debt agencies, Private Equity firms also put its money in these types of projects. These, PE players found comfort with yield generating operating assets after already burnt their figures with greenfield/under-construction projects. Equity-Lockingconditions in these types of PPP contracts are very important for them, so that they can have an easy exit options. These are being taken care upto certain extent considering international contracts like FIDIC, but, government entities are required to be more liberal towards these giving an easy exist option at any point of time. There are lot of bitter experiences of funding agencies and Equity investors for these types of projects because of various reasons, predominantly being Red-Tapis and Land Acquisition. So, all these look after an appropriate remuneration in case of Termination Payment because of Event of Default (may be because of Government Entity or because of the Concessionaries) and also in the case of Termination Payment because of Force Majeure events. There are various types of Corporate Bonds available in the market for these sectors, like Masala bond, Green bond, Municipal Bond, etc. which are not hit show till now in country, but are expected to be very good source of funding for theses long gestation PPP contracts. Thus, PPP in Infrastructure Sector is evolving a lot in terms of Contracts which is expecting to invite interest globally and domestically leading to growth of the country.

Keywords: Return on Equity (RoE), Termination Payment, Equity Lock-in, Force Majeure.

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