What is Infrastructure? The basic system that allows a country or economy to function.

Examples of infrastructure include roads, train tracks, telephone lines, and so forth. Infrastructure is often, but not always, provided by the government. Infrastructure must meet a certain minimum standard to allow commerce to occur. For example, one is unlikely to drive to the store if the roads are so muddy that they are impassable. Likewise, the more advanced infrastructure is, the more efficiently an economy functions. For example, the existence of a telephone allows an investor to make orders quickly while also performing other tasks. References to the infrastructure of a community might also include basic services, such as fire and police protection, schools, and libraries. Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function. It can be generally defined as the set of interconnected structural elements that provide framework supporting an entire structure of development. The term typically refers to the technical structures that support a society, such as roads, water supply, sewers, electrical grids, telecommunications, and so forth, and can be defined as "the physical components of interrelated systems providing commodities and services essential to enable, sustain, or enhance societal living conditions." Viewed functionally, infrastructure facilitates the production of goods and services, and also the distribution of finished products to markets, as well as basic social services such as schools and hospitals; for example, roads enable the transport of raw materials to a factory. In military parlance, the term refers to the buildings and permanent installations necessary for the support, redeployment, and operation of military forces. Many infrastructure activities have the characteristics that they are not use-specific or user-specific: the same telephone system may be used in numerous productive activities, either (a) simultaneously if sufficient capacity is available, or (b) sequentially if there is crowding or congestion. "Hard" versus "soft" infrastructure In this article, "hard" infrastructure refers to the large physical networks necessary for the functioning of a modern industrial nation, whereas "soft" infrastructure refers to all the institutions which are required to maintain the economic, health, and cultural and social standards of a country, such as the financial system, the education system, the health care system, the system of government, and law enforcement, as well as emergency services. Types of hard infrastructure Transportation infrastructure: Road and highway ,Mass transit systems, Seaports and lighthouses, Airports, Bicycle paths and pedestrian walkways Railways, Canals,

Energy infrastructure: Electrical power network, Natural gas pipelines, Petroleum pipelines, Electric vehicle networks for charging electric vehicles. Water management infrastructure: Drinking water supply, Sewage collection, and disposal of waste water, Drainage systems , Major irrigation system, Major flood control systems, Large-scale snow removal, Coastal management Communications infrastructure: Postal service, Telephone networks, Mobile phone networks, Television and radio, Internet, Communications satellites, Undersea cables Solid waste management: Municipal garbage and recyclables collection, Solid waste landfills, Solid waste incinerators and plasma gasification facilities, Materials recovery facilities, Hazardous waste disposal facilities Earth monitoring and measurement networks: Meteorological monitoring networks, Tidal monitoring networks, Stream Gauge networks, Seismometer networks, Earth observation satellites, Geodetic benchmarks, Global Positioning System, Spatial Data Infrastructure Types of soft infrastructure

Governance infrastructure: government and law enforcement, Emergency services, Military infrastructure Economic infrastructure: financial system, Major Agricultural, forestry and fisheries infrastructure. business logistics, manufacturing infrastructure,

Social infrastructure: health care system, educational and research system, Social welfare systems, Cultural, sports and recreational infrastructure. The urban India Infrastructure needs are: Urban housing, Business premises, Power, Urban transport, Water supply, Sewerage, Airports, Railways, Seaports, Roads, Bridges, Tourism infrastructure, Solid waste management, Projects in SEZ, Health care, Entertainment, Communications The rural India Infrastructure needs are: Rural housing, Roads, Healthcare, Education, Irrigation, Drinking Water, Power, Telecommunication, Composition of Infrastructure Projects: (a) Construction ,(b) Electricity generation, transmission and distribution,(c) Gas generation and distribution through pipes,(d)Water works and supply,(e) Non-conventional energy generation and distribution, (f) Railway tracks, signalling system and stations,(g) Roads and bridges, runaways and other airport facilities, (h) Telephone lines and telecommunications network,(i) Pipelines for water, crude oil, slurry, etc., (j) Waterways,(k) Port facilities,(l) Canal networks for irrigation,(m) Sanitation and sewerage Characteristics and issues of infrastructure projects: (a) Natural monopoly, (b) High-sunk costs, (c) Non-tradability of output (d) Non-rival ness (up to overcrowding limits) in consumption, (e) Possibility of price exclusion, and (f) Bestowing externalities on society (g) Large networks (h) Huge capital requirement (i) Highly risky (j) Needs regular maintenance and continual development (k) Regulatory pressures and approval of authority (l) Long life and perpetual existence (m) Needs high level technical support, etc. State of Infrastructure in India State of Infrastructure in India include transportation, agriculture, water management, telecommunications, industrial and commercial development, power, petroleum and natural gas, housing and other segments such as mining, disaster management services, technology-related infrastructure. Important sectors in Infrastructure in India: Within the Infrastructure of India, the transportation sector is the most important, including the aviation, ports, roads, rail system and logistics. The agriculture sector comprises infrastructurerelated storage facilities, construction relating to agro-processing projects and reservation and storage of perishable goods. Among others essential sectors, real-estate development, including industrial parks, special economic zones, tourism and entertainment centers, educational institutions and hospitals and solid waste management systems, also play significant role in Indian economy. Finance for Infrastructure in India: The rules for government-owned infrastructure companies for raising funds through initial share offerings are made flexible by the Securities and Exchange Board of India, which naturally will increase the flow of investment in the Infrastructure of India. To bridge the wide gap between the potential demand for infrastructure for high growth and the available supply, there is urgent need for a close partnership between the public and private sectors, with a vital role reserved for foreign capital. In India infrastructure sector itself is becoming an attractive investment area for FDIs. To encourage foreign funds flow into the Infrastructure in India, the Indian Finance Ministry has allowed Foreign Institutional Investors (FIIs) also to invest in unlisted companies. FIIs now can invest 100 per cent of

their funds in the Infrastructure in India. In order to make the core sector more attractive for FDI, the Cabinet Committee on Foreign Investment has modified the 49 percent cap on foreign equity in the infrastructure sector to make fund mobilization easier. The major policy decision which will indirectly raise the foreign equity investment in infrastructure sector to well over 51 percent. Besides, even if allocation in the Infrastructure in India is raised with a greater inflow of FDI and a large participation of private sector, the immediate problem will still remain, since, infrastructure is subjected to long gestation period. Consequently, the inadequacy of Infrastructure in India will continue for quite some time, unless technology upgradation can be done in the infrastructure production, including construction activities, for reducing the gestation lags and simultaneously improving the quality of products. With this infrastructure limitation any indiscriminate growth may lead the economy of the country to a situation of over-heating and a further rise in inflation. Under the Infrastructure in India the most essential field in which there should be development is in the urban infrastructure. Except for a few large projects in a handful of cities, paucity of urban infrastructure projects is a standing problem. Although city mass transport systems and airports have found place in developmental plans, essential services such as roads, drinking water, sewerage management, drainage, and primary health are still greatly under developed. However, with the economy growing at more than at the rate of 8 per cent, the government is aiming at an economic growth rate of 8 per cent during the Eleventh Plan (200812), for which the government is taking necessary steps to develop the Infrastructure in India. India Infrastructure Report gives a detailed view on the infrastructural facilities of India. The commercialization of infrastructure is not progressing fast enough still it can be said that the ingredients for rapid economic growth and poverty reduction in India have started already. India Infrastructure Report exhibits that there are changes in technology in the telecom sector, while development in the power and transport sectors is slowing down. Again within the transport sector there are sub-sectors which have flourished rapidly. Regarding, urban infrastructure there are some important projects which are in progress and some face the consequences of long-term policy failure. From the India Infrastructure Report 2006 the risks limiting the infrastructure projects are recognized, like the long gestation period, high costs and budget constraints. In order to overcome these limitations the government has proposed a flexible funding scheme, which will find support from budgetary allocation to fund public-private-partnerships for infrastructure projects. For this the government has proposed India Infrastructure Finance Company and formulated a scheme to support public-private-partnerships in infrastructure. The scheme covers roads, railways, seaports, airports, inland waterways, power, infrastructure projects in special economic zones, international convention centers and other tourism infrastructure projects, urban transport, water supply, sewerage, solid waste management and other physical infrastructure projects in urban areas. PUBLIC-PRIVATE PARTNERSHIPS A Public-Private Partnership is a contractual agreement between a public agency (federal/central, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facility. KEYS TO SUCCESSFUL PUBLIC-PRIVATE PARTNERSHIPS There are six critical components of any successful Public-Private Partnership (PPP). While there is not a set formula or an absolute foolproof technique in crafting a successful PPP, each of these keys is involved in varying degrees. POLITICAL LEADERSHIP: A successful partnership can result only if there is commitment from "the top". The most senior public officials must be willing to be actively involved in supporting the concept of PPPs and taking a leadership role in the development of each given partnership. A well-informed political leader can play a critical role in minimizing misperceptions about the value to the public of an effectively developed partnership. Equally important, there should be a statutory foundation for the implementation of each partnership. PUBLIC SECTOR INVOLVEMENT: Once a partnership has been established, the public-sector must remain actively involved in the project or program. On-going monitoring of the performance of the partnership is important in assuring its

success. This monitoring should be done on a daily, weekly, monthly or quarterly basis for different aspects of each partnership (the frequency is often defined in the business plan and/or contract). A WELL THOUGHT-OUT PLAN: You must know what you expect of the partnership beforehand. A carefully developed plan (often done with the assistance of an outside expert in this field) will substantially increase the probability of success of the partnership. This plan most often will take the form of an extensive, detailed contract, clearly describing the responsibilities of both the public and private partners. In addition to attempting to foresee areas of respective responsibilities, a good plan or contract will include a clearly defined method of dispute resolution (because not all contingencies can be foreseen). A DEDICATED INCOME STREAM: While the private partner may provide the initial funding for capital improvements, there must be a means of repayment of this investment over the long term of the partnership. The income stream can be generated by a variety and combination of sources (fees, tolls, shadow tolls, tax increment financing, or a wide range of additional options), but must be assured for the length of the partnership. COMMUNICATIONS WITH STAKEHOLDERS: More people will be affected by a partnership than just the public officials and the private-sector partner. Affected employees, the portions of the public receiving the service, the press, appropriate labor unions and relevant interest groups will all have opinions, and frequently significant misconceptions about a partnership and its value to all the public. It is important to communicate openly and candidly with these stakeholders to minimize potential resistance to establishing a partnership. SELECTING THE RIGHT PARTNER: The "lowest bid" is not always the best choice for selecting a partner. The "best value" in a partner is critical in a long-term relationship that is central to a successful partnership. A candidate's experience in the specific area of partnerships being considered is an important factor in identifying the right partner. The listing of National Commission on PPP members (provided under Council Members on this site) provides a logical starting point for the identification of potential partners or services that might be required in the development of a partnership. TYPES OF PUBLIC-PRIVATE PARTNERSHIPS Build/Operate/Transfer (BOT) or Build/Transfer/Operate (BTO): The private partner builds a facility to the specifications agreed to by the public agency, operates the facility for a specified time period under a contract or franchise agreement with the agency, and then transfers the facility to the agency at the end of the specified period of time. In most cases, the private partner will also provide some, or all, of the financing for the facility, so the length of the contract or franchise must be sufficient to enable the private partner to realize a reasonable return on its investment through user charges. At the end of the franchise period, the public partner can assume operating responsibility for the facility, contract the operations to the original franchise holder, or award a new contract or franchise to a new private partner. The BTO model is similar to the BOT model except that the transfer to the public owner takes place at the time that construction is completed, rather than at the end of the franchise period. Build-Own-Operate (BOO): The contractor constructs and operates a facility without transferring ownership to the public sector. Legal title to the facility remains in the private sector, and there is no obligation for the public sector to purchase the facility or take title. A BOO transaction may qualify for tax-exempt status as a service contract if all Internal Revenue Code requirements are satisfied. Buy-Build-Operate (BBO): A BBO is a form of asset sale that includes a rehabilitation or expansion of an existing facility. The government sells the asset to the private sector entity, which then makes the improvements necessary to operate the facility in a profitable manner. Contract Services Operations and Maintenance: A public partner (federal, state, or local government agency or authority) contracts with a private partner to provide and/or maintain a specific service. Under the private operation and maintenance option, the public partner retains ownership and overall management of the public facility or system.

Operations, Maintenance, & Management: A public partner (federal, state, or local government agency or authority) contracts with a private partner to operate, maintain, and manage a facility or system proving a service. Under this contract option, the public partner retains ownership of the public facility or system, but the private party may invest its own capital in the facility or system. Any private investment is carefully calculated in relation to its contributions to operational efficiencies and savings over the term of the contract. Generally, the longer the contract term, the greater the opportunity for increased private investment because there is more time available in which to recoup any investment and earn a reasonable return. Many local governments use this contractual partnership to provide waste-water treatment services. Design-Build (DB): A DB is when the private partner provides both design and construction of a project to the public agency. This type of partnership can reduce time, save money, provide stronger guarantees and allocate additional project risk to the private sector. It also reduces conflict by having a single entity responsible to the public owner for the design and construction. The public sector partner owns the assets and has the responsibility for the operation and maintenance. Design-Build-Maintain (DBM): A DBM is similar to a DB except the maintenance of the facility for some period of time becomes the responsibility of the private sector partner. The benefits are similar to the DB with maintenance risk being allocated to the private sector partner and the guarantee expanded to include maintenance. The public sector partner owns and operates the assets. Design-Build-Operate (DBO): A single contract is awarded for the design, construction, and operation of a capital improvement. Title to the facility remains with the public sector unless the project is a design/build/ operate/transfer or design/build/own/operate project. The DBO method of contracting is contrary to the separated and sequential approach ordinarily used in the United States by both the public and private sectors. This method involves one contract for design with an architect or engineer, followed by a different contract with a builder for project construction, followed by the owner's taking over the project and operating it. A simple design-build approach creates a single point of responsibility for design and construction and can speed project completion by facilitating the overlap of the design and construction phases of the project. On a public project, the operations phase is normally handled by the public sector under a separate operations and maintenance agreement. Combining all three passes into a DBO approach maintains the continuity of private sector involvement and can facilitate private-sector financing of public projects supported by user fees generated during the operations phase. Developer Finance: The private party finances the construction or expansion of a public facility in exchange for the right to build residential housing, commercial stores, and/or industrial facilities at the site. The private developer contributes capital and may operate the facility under the oversight of the government. The developer gains the right to use the facility and may receive future income from user fees. While developers may in rare cases build a facility, more typically they are charged a fee or required to purchase capacity in an existing facility. This payment is used to expand or upgrade the facility. Developer financing arrangements are often called capacity credits, impact fees, or extractions. Developer financing may be voluntary or involuntary depending on the specific local circumstances. Lease/Develop/Operate (LDO) or Build/Develop/Operate (BDO): Under these partnerships arrangements, the private party leases or buys an existing facility from a public agency; invests its own capital to renovate, modernize, and/or expand the facility; and then operates it under a contract with the public agency. A number of different types of municipal transit facilities have been leased and developed under LDO and BDO arrangements. Lease/Purchase: A lease/purchase is an installment-purchase contract. Under this model, the private sector finances and builds a new facility, which it then leases to a public agency. The public agency makes scheduled lease payments to the private party. The public agency accrues equity in the facility with each payment. At the end of the lease term, the public agency owns the facility or purchases it at the cost of any remaining unpaid balance in the lease. Under this arrangement, the facility may be operated by either the public agency or the private developer during the term of the lease. Lease/purchase arrangements have been used by the General Services Administration for building federal office buildings and by a number of states to build prisons and other correctional facilities. Sale/Leaseback: This is a financial arrangement in which the owner of a facility sells it to another entity, and subsequently leases it back from the new owner. Both public and private entities may enter into a sale/leaseback arrangement for a variety of reasons. An innovative application of the sale/leaseback technique is the sale of a public

facility to a public or private holding company for the purposes of limiting governmental liability under certain statues. Under this arrangement, the government that sold the facility leases it back and continues to operate it. Tax-Exempt Lease: A public partner finances capital assets or facilities by borrowing funds from a private investor or financial institution. The private partner generally acquires title to the asset, but then transfers it to the public partner either at the beginning or end of the lease term. The portion of the lease payment used to pay interest on the capital investment is tax exempt under state and federal laws. Tax-exempt leases have been used to finance a wide variety of capital assets, ranging from computers to telecommunication systems and municipal vehicle fleets. Turnkey: A public agency contracts with a private investor/vendor to design and build a complete facility in accordance with specified performance standards and criteria agreed to between the agency and the vendor. The private developer commits to build the facility for a fixed price and absorbs the construction risk of meeting that price commitment. Generally, in a turnkey transaction, the private partners use fast-track construction techniques (such as design-build) and are not bound by traditional public sector procurement regulations. This combination often enables the private partner to complete the facility in significantly less time and for less cost than could be accomplished under traditional construction techniques. In a turnkey transaction, financing and ownership of the facility can rest with either the public or private partner. For example, the public agency might provide the financing, with the attendant costs and risks. Alternatively, the private party might provide the financing capital, generally in exchange for a long-term contract to operate the facility. Mix of Government Support and Regulations As reliance on Public Private Partnerships (PPPs) for building and operating infrastructure projects grows across sectors, it is essential to establish institutional structures necessary for managing this paradigm shift. Since PPP projects are aimed at providing efficient services at competitive costs, their essence lies in ensuring that these objectives are fully realized. It is equally important to protect the public exchequer from any unintended misuse or claims from concessionaires. The Guidelines for Monitoring of PPP Projects have, therefore, been issued with the objective of enabling project authorities to evolve institutional arrangements for monitoring and supervision of their respective projects. PPP projects normally empower the concessionaire to use public assets for building infrastructure projects and also to levy and collect user charges for the use of such public assets. In effect, PPP infrastructure projects are public projects in which private capital is being deployed for the benefit of the economy and the users. In case services of requisite standards are not provided to the public, it would give rise to legitimate criticism of the Government which always remains responsible and accountable for delivery of services to the users. The Guidelines contained in this volume respond to the direction of the Empowered Sub-Committee of the Committee on Infrastructure (ESCOI) to establish an institutional framework which would ensure compliance with the terms of the respective concession agreements. The Guidelines suggest an institutional framework that would be capable of ensuring that the concessionaire carries out its obligations in accordance with the concession agreement for the project. A two-tier mechanism for monitoring PPP projects has been proposed. A PPP Monitoring Unit has been recommended at the project level while a PPP Performance Review Unit has been suggested at the level of the Ministry or State Government, as the case may be. The Guidelines provide for a reporting mechanism by way of periodic reports which should clearly bring out the compliance of the concessionaire with respect to the obligations included in the concession agreement. These reports would have particular focus on identifying and curing any non-compliance relating to the provisions of the relevant contract, especially in terms of the standards of performance or any loss to the public exchequer and the users. It is expected that the concerned departments and project authorities will create the required institutional arrangements based on these Guidelines and enforce the same for ensuring the success of PPP projects in providing efficient and cost effective services. In the absence of such a mechanism, private entities could short-change user and government interests, thus compromising the very purpose of inviting private participation. It is, therefore, critical to ensure that PPPs do not drift away from their intended objective and this can only be ensured if the project authorities enforce the terms of their respective contracts, in letter and spirit. Institutional Framework The monitoring mechanism for overseeing implementation of the agreed terms and delivery of specified services should be capable of ensuring that the concessionaire carries out its obligations in accordance with the concession agreement,

especially with regard to the provisions that affect user interests and the public exchequer. It should also be ensured that the medium and long-term objectives are clearly identified and pursued. To enable a concessionaire to perform its obligations, a concession agreement also provides for certain obligations to be performed by the Project Authority. The monitoring mechanism should also oversee the performance of the obligations of the Project Authority with a view to ensuring that it is not in breach of the contract. The Project Authorities may create a two-tier mechanism for monitoring the performance of PPP Projects. This should consist of: (i) PPP Projects Monitoring Unit (PPP PMU) at the Project Authority level; and (ii) PPP Performance Review Unit (PPP PRU) at the Ministry or State Government level, as the case may be. The PPP PMU and PPP PRU should be involved in the respective PPP projects as early as possible, preferably at the award stage itself. PPP projects are typically based on long-term concession agreements which specify clear and distinct outputs, such as quality of service and quantifiable performance standards that have a direct bearing on the users of such projects. These agreements normally empower the concessionaire to use public assets for building infrastructure projects. The concessionaire is also empowered to levy and collect user charges for the use of public assets. However, the Government always remains responsible and accountable for delivery of services to the users. These projects, therefore, require close monitoring by the Government with a view to ensuring that the provisions of the respective concession agreements and the applicable laws are enforced. Role of Government The primary responsibility for providing services to the users would always rest with the Government and the Concessionaire can only be regarded as a grantee of the Government for delivery of specified services on behalf of the Government. This is especially so because infrastructure projects typically provide nondiscriminatory services that are regarded as public goods. Moreover, such projects are often monopolistic in character and, therefore, require government intervention for preventing user exploitation. In effect, PPP infrastructure projects are public projects in which private capital is being deployed for the benefit of the economy and the users. In case services of requisite standards are not provided to the public, it would give rise to legitimate criticism of the Government and even allegations of collusion between the project authority and the concessionaire. In managing a PPP Project, it is critical for the Government to ensure that the services being delivered to the users meet the agreed time, cost, quantity and quality standards. It is, therefore, necessary to create a well-defined institutional structure that oversees contract performance. For this purpose, the requirements of monitoring and enforcement of the contract need to be fully understood and addressed prior to the execution of the concession agreement. Oversight during implementation For ensuring that the ultimate objective of a PPP project is achieved, implementation of the terms of the concession agreement needs to be monitored and enforced. While detailed guidelines have been laid down for award of PPP projects, the institutional mechanism for monitoring and enforcement of PPP contracts is yet to be specified. Such monitoring must address the two phases of a PPP contract viz. (a) construction phase; and (b) operations or O&M phase. During the construction phase, project authorities are typically assisted by an Independent Engineer who inspects the project regularly and submits its reports. While this arrangement helps in monitoring the construction aspect, it may not address some of the other important obligations of the concessionaire. Arrangements for regular monitoring during the operations phase are also deficient, and even non-existent in many cases. Experience suggests that in many cases, the Project Authorities do not pay adequate attention to the monitoring and enforcement of the respective agreements with a view to safeguarding the public exchequer and the user interest. This is compounded by the fact that the project teams often change after execution of the concession agreement and the new teams do not have sufficient time, knowledge or expertise to enforce compliance of contractual terms. Nature and content of oversight Among the contractual obligations specified in the respective concession agreements, the following deserve to be identified and enforced on priority: (i) satisfying the conditions precedent and milestones, as laid down in the concession agreement; (ii) construction of the project as per specified time-schedule and agreed standards; (iii) levy of user charges strictly within the limits specified in the concession agreement; (iv) protection of user interests by ensuring that performance standards, safety and other requirements are adhered to; (v) preventing misuse of public assets transferred to the concessionaire; (vi) preventing any leakage, diversion or misclassification of government revenues; (vii) imposing and

recovering penalties for breach of contract; (viii) operating the escrow account in accordance with the terms of the concession agreement; (ix) effective communication and exchange of information for monitoring and enforcement of obligations; (x) placing all relevant information relating to user and performance standards in public domain; (xi) overseeing the redressal of user grievances; and (xii) supervision of the functioning of the Independent Engineer with a view to ensuring that it is discharging all its duties. Dissemination of Information Infrastructure projects provide public goods and services. As such, the project documents have a direct bearing on public and user interests. The MCAs, therefore, require all the project documents to be placed in public domain. In addition to the above, the Project Authorities should also disseminate information relating to compliance with agreed performance standards so that the users are aware of the compliance of agreed standards for which they are paying user charges. Once the data flow builds up, the Project Authorities may also get the performance rated by independent agencies and place it on their website. These guidelines should be followed for monitoring all Public Private Partnership (PPP) projects which are based on a concession agreement between a Government or statutory entity on the one side and a private sector company on the other side, for delivering an infrastructure service on payment of user charges, tariffs or annuity from the government. These Guidelines may also be adopted for PPP projects in social sectors where similar monitoring and enforcement is considered necessary. The Guidelines shall apply to all PPP projects sponsored by Central Government Ministries and statutory authorities. The proposed mechanism should also be followed for State projects that seek Viability Gap Funding from the Central Government. Institutional Framework As the PPP programme develops across sectors, a mechanism to monitor and enforce implementation of the agreed terms and delivery of services would need to be institutionalized. The mechanism should be capable of ensuring that the Project Authority and the concessionaire carry out their respective obligations in accordance with the concession agreement with a view to safeguarding the user interests and the public exchequer. It should also be ensured that the medium and longterm objectives are clearly identified and pursued. A two-tier mechanism for monitoring the performance of PPP projects should be adopted as under: (i) PPP Projects Monitoring Unit (PPP PMU) at the project authority level; and (ii) PPP Performance Review Unit (PPP PRU) at the Ministry or State Government level, as the case may be. The PPP PMU and PPP PRU should be involved in the respective projects as early as possible, preferably at the award stage itself. The above structure is in addition to the Independent Engineer who is expected to function independently and provide inspection reports for further action by the project authority and the concessionaire. PPP Project Monitoring Unit A PPP Project Monitoring Unit (PPP PMU) should be created at the project level for monitoring each PPP project. The PMU should be created at the level of the Project Authority or the government department which has granted the concession. The PMU should have sufficient capacity, resources and skills to oversee and monitor implementation of the PPP contract assigned to it. It may hire consultants to provide the requisite assistance as necessary. Where a number of projects are being executed, the Project Authority may choose to club 2-3 projects under a single PMU. Monitoring by PMU should, inter alias, cover the following aspects to be summarized in a monthly PPP Project Monitoring Report which should be submitted to the PPP Performance Review Unit within 15 days of the close of the relevant month: (a) Compliance of the conditions precedent and achievement of financial close within the period specified in the concession agreement; (b) adherence to the time lines and other obligations specified in the concession agreement; (c) streamlining of, and adherence to, the reporting procedures between the concessionaire and the Project Authority, which may also include an MIS; (d) assessment of performance against laid down standards; (e) remedial measures and action plan for curing defaults, especially when performance standards are not fulfilled; (f) imposition of penalties in the event of default; (g) levy and collection of user charges based on approved principles; (h) progress of on-going disputes and arbitration proceedings, if any; and (i) compliance with the instructions of the Project Authority or Independent Engineer, as the case may be.

At the beginning of each financial year, the PPP PMU, with the approval of PPP PRU, should finalize a format in which it shall submit its monthly report for each project. The format should be carefully prepared to include all the obligations of the concessionaire and the Project Authority, as specified in the concession agreement. It should serve as a check-list for ensuring that the provisions of the concession agreement are being complied with, in letter and spirit. The Monthly Report should clearly bring out the compliance of the concessionaire and the Project Authority with respect to each and every item included in the aforesaid format and the concession agreement. The Monthly Report should also contain a summary which should highlight the items where a default has occurred or is likely to occur. The proposed action for rectifying the default should also be included in the summary. The intention should be to ensure that both the parties, public and private, perform their respective obligations in accordance with the concession agreement. The PPP PMU should be manned by at least three officers, of which, at least one should be from the finance discipline. The head of the PPP PMU should be an officer of, at least, the rank of a Director/Deputy Secretary/ Superintendent Engineer. The other two personnel could either be officers or consultants. It should be ensured that the personnel of PPP PMU spend at least two days at the project site during every two months and must interact with user representatives during such visits. As an indicative norm, each PPP PMU may oversee two or three PPP projects with an aggregate project cost not exceeding Rs. 2,500 crore. In case of a large project, the PMU should only look after a single project. The respective Ministries may establish their own norms keeping in view the size and complexity of their projects. PPP Performance Review Unit A Performance Review Unit (PPP PRU), headed by an officer not below the rank of Joint Secretary should be set up at the level of the Central Ministry / State Government/ statutory entity for reviewing the monitoring of all PPP projects within its jurisdiction. In case a PPP cell exists in the respective Ministry/Department, it could be suitably strengthened for serving as the PRU. In case the PPP PRU is to review a number of PPP projects, it should preferably have a dedicated team with no other functions. The PRU may also hire consultants as necessary. The PPP PRU should review the PPP Projects Monitoring Report submitted by the different PMUs and oversee or initiate action for rectifying any defaults or lapses. The PRU should also prepare quarterly reports on the status of the PPPs. These reports should have particular focus on any non-compliance relating to the provisions of the relevant contract, especially in terms of the standards of performance or loss to the public exchequer and the users. It should clearly indicate the steps taken or required to be taken by the Project Authority in accordance with the provisions of the relevant contract. The PRU will submit its quarterly report to the competent authority. The quarterly report should include: (a) a compliance report regarding implementation of the various PPP projects as per the provisions of the respective contracts; (b) an Exception Report highlighting issues where remedial action is to be taken for enforcing the provisions of the respective contracts; (c) a review of the grievances of users and the manner and extent of their redressal; and (d) matters affecting the interests of the public exchequer in relation to the expenditures and revenues arising from the PPP project. The PPP Performance Review Unit should cause to be conducted an evaluation of the project performance including a social audit, wherever applicable, once every two years. PPPs are long-term commitments by the concessionaires and Project Authorities. Their successful delivery will depend entirely on the performance of their respective obligations by the concessionaire and the authority. A sound and robust contract will fail to meet the desired objectives if it is not managed and monitored effectively. Moreover, documentation of the relevant communications, follow-actions and decisions relating to contract execution are critical to the delivery of these agreements since they help to ensure the accountability of the entire process. Inadequate attention to timely and appropriate action can not only compromise government and user interests, it can also give rise to disputes and claims in arbitration proceedings and courts of law. The process of performance monitoring needs to be dynamic and under constant review because project circumstances undergo a change over time due to the long duration of PPP contracts. The above guidelines provide the mechanism by which this objective can be achieved.