CONCESSIONAIRE'S PERSPECTIVE

The concessionaire, who enters into concession agreement with the granting authority, participates in PPP projects in order to pursue their business interests and for financial gains. The concessionaire willingness to participate in the PPP project depends on getting a reasonably high return on their investment, commensurate with the high degree of risk transferred to them as they are delegated with the responsibilities for design, construction, and operation and maintenance of the project facilities.

The Indian PPP market has witnessed various Indian corporate houses entering into concession with the government agencies in the form of concessionaire. Some of the major corporate houses worth mentioning that have set up subsidiary companies in order to facilitate them to act as concessionaire such as Gammon India Limited, L&T ECC, GMR, GVK, and Reliance Industries Limited, and IL&FS. For example, for the Delhi Airport modernization through PPP route, the GMR Group set up a subsidiary company, Delhi International Airport (Private) Limited, to which the Airports Authority of India (AAI) awarded the concession to operate, manage, and develop the Indira Gandhi International Airport. Delhi International Airport (Private) Limited (DIAL), which is the concessionaire for the project, also comprises of other investors other than GMR such as AAI, and Fraport and Malaysia Airports Holdings Berhad.

The concessionaire comprises of different class of investors with diverse business interests. In the concessionaire team, there is a group of key investors (known as sponsors) that takes the responsibility for bidding, development and managing the project and fund the initial expenditures which occurred before draw downs of loans from lenders. These key investors are the one who have made investment in the project as part of the strategy for securing other business as subcontractors to the project company. The subcontractors providing the construction, and operation & maintenance services, who will sign EPC, and O&M contracts with the concessionaire, respectively, are amongst the key investors who participate in PPP projects in order to expand their business and to compensate for the loss of other public-sector construction and O&M businesses. The profit from the subcontracting work they undertake and the return on the investment in project company, thus become the overall return for the subcontractors.

The construction subcontractors may only be interested in the limited phase (i.e. construction phase) of the project and once the project is built, they would prefer to dispose of the investment in the project company. However, some of the construction contractors transformed into infrastructure development companies that hold long-term interests in infrastructure projects. These infrastructure development companies focus on the business relating to development of infrastructure projects such as project conceptualization, project structuring, and bid process management. On the other hand, the O&M contractor will normally maintain long-term interest in the project and hence make investment in the project company for the entire concession period.

In addition to the active investors, there are other entities such as specialised PPP funds and banks interested only in the investment and not in ancillary business as subcontractors. The passive investors normally invest in infrastructure projects to diversify the portfolio of investments in various sectors. PPP funds provide fairly secure low-risk return over a long period of time and such funds are attractive to life insurance companies and pension funds that have long-term liabilities which are in line with the maturity profile of the investment in infrastructure projects.