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Econ. survey 2015 16 PPP new model doubt

LPVR contract  (least present value revenue )contact in ppp.
What is it?
How in LPVR contact there is shift of usage risk to contact duration risk.
How Risk of contact duration more manageable by financial institutions.
please help
First attempt in 2014 - couldn't clear prelims, second to be in 2018
Optional - medical sciences

Comments

  • Lets say highway...govt either fix time and the bidder bid over price or govt may fix price then bidder bid for time...but if suppose traffic is not there so no revenue. The result will be renegotiation and defection.
    Answer is lpvr where govt fix the maximum toll and bidder bid for min present value thy want to realise(of course at a discounted rate).
    Now if the traffic is low , length period /franchise will increase . on the other hand if traffic is high franchise length will decrease..so in this way risk shift to duration.
    For financial institution there will be no NPA like situation as risk is distributed over a period of time with assure return.
  • LPVR has drawbacks too
    ......As the concessionaire is ensured to receive its claimed revenue, he has no incentive to promote the use of
    infrastructure. This means that users may end up receiving a poor service from the infrastructure operator. In other words, the concessionaire may not maintain adequate quality and safety standards.
    ......For large projects the amount of required investments is usually high, and the period needed to recover
    them will be typically long. Although at the end of the concession the firm will have obtained its total requested revenue, it might experience some cash-flow shortages during intermediate periods,
    which might affect its ability to repay debts. A necessary condition for a smooth performance of flexible-term concessions is the existence of well-developed capital markets, which allow concessionaires to obtain ‘bridge loans’ for such periods.
    ........In a simple LPVR concession, bidders are concerned with construction costs, and are indifferent to the duration of the concession. However, when the concessionaire faces annual expenses to operate an infrastructure, longer periods imply higher costs that might affect its profitability and, in extreme cases, may even require contract renegotiation.
    मैं खड़ा हूँ उसी दोराहे पे, आज भी इंतज़ार में तेरे !
    या तो ज़िन्दगी आये तेरे लिबास में! या मैं चलूँ फिरदौस की तलाश में !!
  • Lets say highway...govt either fix time and the bidder bid over price or govt may fix price then bidder bid for time...but if suppose traffic is not there so no revenue. The result will be renegotiation and defection.
    Answer is lpvr where govt fix the maximum toll and bidder bid for min present value thy want to realise(of course at a discounted rate).
    Now if the traffic is low , length period /franchise will increase . on the other hand if traffic is high franchise length will decrease..so in this way risk shift to duration.
    For financial institution there will be no NPA like situation as risk is distributed over a period of time with assure return.
    But if on a highway there was low or no traffic, then the duration of the loan repayment will increase .won't it increase the liabilities in a relative manner if not in absolute form ( like bankruptancy of concessionaire): won't it come under the stressed assets of the bank. How's this mode of ppp can be free of NPA problem.
    Did i got u wrong @shaitaan_hu_mein

    First attempt in 2014 - couldn't clear prelims, second to be in 2018
    Optional - medical sciences
  • Hi @jatsab
    1. As the concessionaire is ensured to receive its claimed revenue, he has no incentive to promote the use of
    infrastructure. This means that users may end up receiving a poor service from the infrastructure operator. In other words, the concessionaire may
    not maintain adequate quality and safety standards. ----
    A.Why we are inviting private partners to work in a ppp project if without EXTRA incentives they can't sustain their operations.
    B. Shouldn't these bidders consider their incentives in advance while bidding below a sustainable level.
    C. The purpose to select a bidder with least demand is to in a way promote efficiency and thus force the private player to grab the opportunity but at the cost of compromising with its margin.
    First attempt in 2014 - couldn't clear prelims, second to be in 2018
    Optional - medical sciences
  • @jatsab
    ...For large projects the amount of required investments is usually high, and the period needed to recover
    them will be typically long. Although at the end of the concession the firm will have obtained its total requested revenue, it might experience some cash-flow shortages during intermediate periods,
    which might affect its ability to repay debts. A necessary condition for a smooth performance of flexible-term concessions is the existence of well-developed capital markets, which allow concessionaires to obtain ‘bridge loans’ for such periods.-----
    A. I agree here with you, but what would be the process of getting its part of revenue while managing the project -- is it annual revenue share or lump at the last? At any pre announced rate? Any other way?
    B. Can u suggest some changes changes in this model which might help smoothen these can flows for the private partner.
    Thanks
    First attempt in 2014 - couldn't clear prelims, second to be in 2018
    Optional - medical sciences
  • Lets say highway...govt either fix time and the bidder bid over price or govt may fix price then bidder bid for time...but if suppose traffic is not there so no revenue. The result will be renegotiation and defection.
    Answer is lpvr where govt fix the maximum toll and bidder bid for min present value thy want to realise(of course at a discounted rate).
    Now if the traffic is low , length period /franchise will increase . on the other hand if traffic is high franchise length will decrease..so in this way risk shift to duration.
    For financial institution there will be no NPA like situation as risk is distributed over a period of time with assure return.
    But if on a highway there was low or no traffic, then the duration of the loan repayment will increase .won't it increase the liabilities in a relative manner if not in absolute form ( like bankruptancy of concessionaire): won't it come under the stressed assets of the bank. How's this mode of ppp can be free of NPA problem.
    Did i got u wrong @shaitaan_hu_mein

    see even sovereign bonds are not free of risk...this model just bring predictability.
    It is better to extend loan for long period rather than creating NPA ,but in infrastructure bond became necessary due to long gestation period.
    The question here is of better deal thn before rather than full proof system,which is not possible in financial system due to interplay of various factor. Try to see is relatively. If there is no traffic then no infrastructure will be created ,even if u try to build a house in jungle human guest will rarely visit u . so traffic ,finance , infrastructure creating decision are taken keeping the benefit , revenue and relevance in mind.

  • edited March 2015
    Thanks @shaitaan_hu_mein now i get it
    First attempt in 2014 - couldn't clear prelims, second to be in 2018
    Optional - medical sciences
  • Bro @jatsab plz enlighten us....
    First attempt in 2014 - couldn't clear prelims, second to be in 2018
    Optional - medical sciences
  • @Dr_rrrrohit014 daktar saab
    1) Its not abt sustainability, its abt service which end user will get. From project pt of view it wud be sustainable but not from service pt of view. As there is no incentive attached with the quality of service.

    2) Eco survey also talked abt the midway funding issue it as lender thinks project is मलाईदार so money is in safe hand whereas the concessionaire thinks now i have money but if there is any lack of fund बैंक तो अपने घर का है कभी भी ले लेंगे and assumed that they could renegotiate in the event of negative shocks.
    so end result, the project will suffer. so survey also highlighted this issue.

    मैं खड़ा हूँ उसी दोराहे पे, आज भी इंतज़ार में तेरे !
    या तो ज़िन्दगी आये तेरे लिबास में! या मैं चलूँ फिरदौस की तलाश में !!
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