U8 - Topic 1.4 - Air Transport

Air Transport

Aviation as an infrastructure segment has played vital role in facilitating the growth of business and economy in India. A robust civil aviation set-up is key to seamless flow of investment, trade and tourism, with significant multiplier effects through the economy.

 Public Private Partnership in Transport Sector

Meaning
• Public Private Partnership means an arrangement between a government / statutory entity / government owned entity on one side and a private sector entity on the other, for the provision of public assets and/or public services, through investments being made and/or management being undertaken by the private sector entity, for a specified period of time, where there is well defined allocation of risk between the private sector and the public entity and the private entity receives performance linked payments that conform (or are benchmarked) to specified and pre-determined performance standards, measurable by the public entity or its representative.

Different types of PPP
1. BOT-Toll (Build Operate Transfer – Toll) : The private entity meets the upfront cost of design, construction and recurring cost on operation and maintenance. The Private entity recovers the entire cost along with the interest from collection of user utilization during the agreed concession period. Capital infusion is available from the public entity. A risk sharing model is predominant in this model.

2. BOOT (Build Operate Own Transfer) : This engagement model is similar to the “Build Operate Transfer” model except that the private entity has to transfer the facility back to the public sector

3. Joint Venture (JV) : In a PPP arrangement commonly followed in our country (such as for airport development), the private sector body is encouraged to form a joint venture company (JVC) along with the participating public sector agency with the latter holding only minority shares. The private sector body will be responsible for the design; construction and management of the operations targeted for the PPP and will also bring in most of the investment requirements. The public sector partner’s contribution will be by way of fixed assets at a pre-determined value, whether it is land, buildings or facilities or it may contribute to the shareholding capital. It may also provide assurances and guarantees required by the private partner to raise funds and to ensure smooth construction and operation.

4. Management Contract (MC) : A management contract is a contractual arrangement for the management of a part or whole of a public enterprise by the private sector. Management contracts allow private sector skills to be brought into service design and delivery, operational control, labour management and equipment procurement. However, the public sector retains the ownership of facility and equipment. The private sector is provided specified responsibilities concerning a service and is generally not asked to assume commercial risk. The private contractor is paid a fee to manage and operate services. Normally, payment of such fees is performance-based. Usually, the contract period is short, typically two to five years. But longer period may be used for large and complex operational facilities such as a port or airport.

5. BOT (Build Operate Transfer) : The private business builds and operates the public facility for an agreed period of time. Once the facility is operational as agreed, or at the end of the time period, the private entity transfers the facility ownership to the public, here it may be construed as Government. Under this category, the private partner is responsible to design, build, operate (during the contracted period) and transfer back the facility to the public sector. The private sector partner is expected to bring the finance for the project and take the responsibility to construct and maintain it. The public sector will either pay a rent for using the facility or allow it to collect revenue from the users. The national highway projects contracted out by NHAI under PPP mode is an example. This model is a classic example for IT industry

6. BOT – Annuity (Build Operate Transfer – Annuity): This model though is globally accepted one does not have the favour of the Planning Commission of India. In case of annuity model, the cost of building the entity is paid to the private entity or the developer annually after the starting commercial operations of the facility.

7. DBFOT (Design Build Finance Operate Transfer): These are other variations of PPP and as the nomenclatures highlight, the private party assumes the entire responsibility for the design, construct, finance, and operate or operate and maintain the project for the period of concession.

8. BOO (Build Own Operate): In a BOO project, ownership of the project usually remains with the Private entity. The government grants the rights to design, finance, build, operate and maintain the project to a private entity, which retains ownership of the project. In BOO the private entity is usually not required to transfer the facility back to the government

9. BOOST (Build Operate Own Share Transfer): This model is very similar to the BOOT model, except that there exists an arrangement or sharing the revenue to the private entity for a longer time even after the rights of the private entity are transferred to the public entity.

10. Hybrid Annuity Model: Under this model, the government will provide 40 per cent of the project cost to the developer to start work while the remaining investment has to be made by the developer. The main objective of the approval is to revive highway projects in the country by making one more mode of delivery of highway projects. Under this, all major stakeholders in the PPP arrangement — the Authority, Lender and the Developer, Concessionaire would have an increased comfort level resulting in revival of the sector through renewed interest of private developers/investors in highway projects and this will bring relief thereby to citizens/travelers in the area of a respective project.

Advantages of PPP model
a. Better quality since the concessionaire (private sector) is to maintain the road for the period of concession.
b. Early completion of the project, since the concessionaire could save interest and earn early toll (in the case of BOT project) / additional annuity installments (in the case of Annuity project).
c. No costs overrun (price escalation).
d. The Client (Government/NHAI) does not have the burden of maintaining the highways.
e. Involving the private sector leads to greater efficiency.
f. The private sector has more flexible procurement and decision-making procedures and therefore, it can speed up implementation efforts.

 

AIR Spotlight Summary on: “Various Aspects of Energy Conservation”

Introduction

• Energy is life, without energy the modern lifestyle or even to survive an ordinary lifestyle cannot be imagined. So energy is very vital for the existence of human being. Oil is one of the conventional age old energy sources which are finite. The total oil stock of the planet is been estimated to linger 65 years more. There will be some time less than a century where there will be no oil at all. There are certain scientific operations and activities for which oil is essential. Renewable energy cannot replace oil in these scientific operations.
• For the first 7 months in the current financial year, the petrol and diesel consumption in India posed a growth of 9.2% and 5% respectively. This shows that our demand for oil is growing on a daily basis. The population is increasing, our living standards is improving, average human expectations are rising, so in such a situation we are aspiring for more comfortable lifestyle for which energy is very vital.

Renewable Energy

• Renewable energy is more preferred these days because of no carbon emission and no Green house gases. Government has taken a pledge to reduce 10% of oil imports by 2022and India being oil deficient country, the conservation becomes very vital. This is not very ambitious target and 10% reduction is feasible. Whatever we require for our sustenance and for meaningful objective is welcome, but wasting oil cannot be tolerated. It pinches in financial terms and also affects our future generation.
• India also committed at international level its renewable energy target of having 175 GW capacity by 2022, which includes 100 GW Solar, 60 GW Wind, 10 GW Biomass and 5 GW Small Hydro. Renewable energy in such a big way along with massive nuclear plants can help reduce 10% of oil imports by 2022.

Electric Vehicles

• The government is aspiring to move towards electric vehicles where it wants only electric vehicles to run on its roads by 2030. Many say it is futuristic, but it is not. The charging points, battery components need to be in place. When the source of the electricity is from fossil fuels, then electric vehicles will also generate green house gases.

Oil Conservation

• Oil conservation week is celebrated every year, from 4^thof January to the 10^th of January, by the people worldwide in order to increase the awareness all across the world regarding the importance of conservation of the petroleum products. Since oil is a finite resource, it needs to be conserved on a finite basis. In traffic signals when the signal is red, the vehicles need to be switched off, so that unnecessary wastage of fuel can be avoided. In cooking, heat is to be conserved and recycled. In industrial processes, the heat can be recycled and so energy can be recycled. A lot of capacity building, training, and tree plantation at local level are required because if people are not able to conserve energy, no one can conserve it as government alone cannot do everything. People in their own interest for their own existence need to protect the planet.
• Clean energy measures like ethanol blending or bio fuel mixing are very vital. Oil from bio fuel sources are environmental friendly and don’t create more emissions.
• Energy conserved means energy generated. By conserving energy we will be saving the precious resources for the future generation and it will be beneficial on the financial front also. India must aim for less oil dependence and depend more on clean and renewable energy.