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Indian Journal of Finance and Banking; Vol. 4, No. 2; 2020 
                                       ISSN 2574-6081   E-ISSN 2574-609X 

Published by CRIBFB, USA 

17 

 

Failure of Operational PPP Projects in India Leading to Private Developer’s 
Apathy to Participate in Future Projects: A Case Study Based Analysis 

 
 

 
Sandeep Ganpat Kudtarkar 

Assistant Professor & PhD Scholar 
Aruna Manharlal Shah Institute of Management and Research 

AMSIMR, Near MTNL, Ghatkopar West 
Mumbai 400086, Maharashtra, India 

NMIMS University, Mumbai 400056 (PhD Scholar) 
E-mail: skudtarkar@amsimr.org 

 
 
Received: June 13, 2020       Accepted: June 30, 2020     Online Published: August 05, 2020 
 
doi: 10.46281/ijfb.v4i2.693        URL: https://doi.org/10.46281/ijfb.v4i2.693 
 
 
Abstract 
The goal of this study is to examine the failure of operational public-private partnership (PPP) infrastructure projects in 
India. The case study based analysis is done of eleven operational PPP projects from infrastructure subsectors like roads, 
metro rail, seaports, and power projects to investigate various risks faced during the life cycle of projects. The construction 
risks like land acquisition delay, change in scope, delay in financial closure resulting in time and cost overrun, revenue risk of 
not getting adequate revenue during operation phase and legal disputes between the authority and the concessionaire are 
prominent risks observed in these projects. Mitigating these risks through efficient life cycle contract management and 
appropriate allocation of risk creates adequate risk-adjusted financial returns to the private developers and value for money 
for the government. The study concludes that failure in contract and risk management in case of the majority of operational 
projects resulting in disappointing financial returns is the major reason for the private developer's apathy towards 
participation in a once successful PPP program in India.  
 
Keywords: PPP Projects in India, Financial Returns, Contract and Risk Management, Value for Money, Sponsor  
Risk, Dispute Risk. 
 
1. Introduction 
Before the advent of PPP, the government provided infrastructure services in India through public procurement, financed by 
the government budget. The PPP model was introduced in India in the year 1999 with great enthusiasm and expectations. 
A large number of concessions were signed in all the subsectors of infrastructure. By 2010, India became one of the largest 
markets of PPP projects in India, according to Infra scope Report 2015. But after 2015 onward, the number of PPP 
projects reduced drastically. A large number of already started projects were delayed, stalled, and terminated. The data 
analysis from the government database (www.pppindia.gov.in) suggests that only 48% of PPP projects were operational out 
of 1500 PPP projects initiated during the last two decades. Even the operational projects disappointed the private 
developers due to its failure in providing adequate financial returns which made them shying away from participating in 
PPP projects and even the lenders had restrained themselves from lending to PPP projects. All this resulted in zero 
participation by private developers in the year 2019 even if the government's desire to initiate new PPP projects. The 
objective of this research is to do the case studies based empirical study of operational PPP projects in India to understand 
the underlying economic, financial and institutional constraints faced by PPP projects and their life-long contract and risk 
management and to investigate the causes of the private developer's apathy toward participation in PPP program which 
makes once successful PPP program comes to standstill. 

The rest of the paper is structured as follows. The first section proposes a review of the literature on the relationship 
between financial success and risk and contract management of PPP projects. The second part describes the research design 
and applied methodologies. The third part discusses case studies. Finally, the last section summarizes the main findings. 
 
2. Literature Review 
The modern theory of incomplete contracts is discussed by Grossman and Hart (1986) and Hart and Moore (1990). In 
classic Principal-Agent theory, contracts are assumed to be complete as contingencies are expected for all states. In case of 
incomplete contracts, information is asymmetric leading to problems such as the moral hazard and adverse selection. A 
moral hazard problem occurs when the agent’s action cannot be verified, or when the agent receives private information after 
the relationship is established. In the case of informational asymmetry, the principal cannot check and control the actions of 

https://doi.org/10.46281/ijfb.v4i2.693


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the agent after signing of the contract. An adverse Selection happens as the agent possesses private information before the 
contract is signed. The PPPs are long term contracts wherein anticipating every contingency affecting the relationship over 
the contract period is impossible and even if all contingencies could be predictable, it will be costly to include all that in the 
contract. Hence the PPP contracts are incomplete. The renegotiations occur due to the incomplete nature of contracts 
(Grout, 1997; Bettignies & Ross, 2004).  

The incomplete contract theory described in detail by Grossman and Hart (1986), Hart and Moore (1990), Hart 
1995) is used for the analysis of contract design and risk transfer in PPPs. The complexity in contracts results in 
contractual incompleteness leading to underinvestment in projects due to the threat of ex-post hold-up. Grossman and Hart 
(1986), and Hart and Moore (1990) discuss asset ownership which gives residual rights of control over assets. Asset 
ownership motivates agents to invest due to the bargaining power ex-post since they retain control over assets they own in 
case of dispute and thus higher financial return on their investment. 

In PPP contracts, sharing of project risks among stakeholders is significant for the success of projects. The initial 
allocation of risk among the partners should be managed over the whole life of the project and modified when unforeseen 
risks arise ensuring that all partners would manage the risks effectively (Chan, Yeung, Yu, Wang, & Ke, 2011). The basis of 
achieving higher efficiency in a PPP project is to pass on the risk to the partner who can handle it effectively (Irwin, 2007). 
The project team should monitor the situation, balance the expectations of all stakeholders, and initiate proactive 
communication with all partners to ensure the success of the project. The inefficient monitoring of the contracts and failure 
in the contractual obligations results in loss of trust resulting in court cases reducing the intended public benefits and value 
for money for the government. Hence Sound contract management is crucial for the success of a PPP (Grimsey & Lewis, 
2004). 

The government entity transfers risks to the private sector as they are experts, technically competent, and experienced in 
managing complicated projects (Cheung, Chan, & Kajewski, 2012). The private partner manages and sufficiently price the 
risks assigned to them and the public authority mitigates risks that cannot be assigned to the private partner (Cheung, et al 
2012; Zhang, 2005). The allocation of risks among the stakeholders and associated compensation is decided and contracted 
during the project development and procurement phase (Abd Karim, 2011). 

The private sector investors prefer to invest in PPP projects wherein revenue risk is mitigated through certainty of the 
cash flow to cover the project's construction cost and generates the risk-adjusted returns while the government attempts to 
lower the cost of building infrastructure by transferring some of the risks to a private party (Grimsey & Lewis, 2004). The 
risk should be managed on the project life cycle basis by identifying risks in the initial stages of the project and proactively 
managing them by the partner who can control and manage them continuously (Zou, Wang, & Fang, 2008). In the Indian 
context, Indian authors Baruah and Kakati (2016), Laksmanan (2008), Mathur (2017), Pai, Patnaik, Mittal, and Anand 
(2018), Rajeswari (2014), Gupta (2015), Iyer and Zha (2006), Pathan and Pimpalkar (2013) have analyzed various issues 
of risks and contract management of Indian PPP projects like land acquisition delays, permission delays, disputes, 
litigations, and financially weak sponsors.  

Based on a thorough review of existing literature following hypothesis is constructed and shall be tested in this study. 
There is a positive relationship between operationally and financially successful PPP projects and their project lifelong 
efficient contract and risk management as PPP contracts are inherently incomplete due to a long time, substantial work to 
be provided, significant complexities, and high uncertainty of future events and occurrences. 
 
3. Research Design 
The conceptual model is developed based on the literature review. The data of all operational PPP projects in India is 
collected from government databases. Financially large projects with project cost more than USD 7m$ and having revenue 
history available for at least three years are selected for the study. A hypothetical financial model is developed to calculate 
the lifelong returns of the projects (PIRR and EIRR) based on which the projects are categories into the financially 
successful and failed projects. From each category information-rich cases selected to test the hypothesis.  
 
3.1 The Conceptual Framework 
The basic underlying economic theory for this study is the incomplete contract theory along with agency theory and 
property rights theory. The operational success of PPP projects depends on how various issues in PPP model such as 
adverse selection, moral hazard, asymmetry of information and hold up due to contract incompleteness and agency 
problems are addressed by project participants through the strong contract and risk management and ability to create value 
for money for the government, risk-adjusted returns for the private investors and creation of world-class infrastructure for 
the nation. 
 
3.2 Hypothetical Financial Model 
The Capital Asset Pricing Model (CAPM) of Sharpe (1964) is used to calculate the cost of equity, which is in line with the 
corporate financial theory to calculate financial returns on investment (Graham & Harvey, 2001; Treasury, 2012). The cost 
of debt is calculated by adding a risk premium to the yield of government security of the ten-year maturity of the year when 
financial closure of the project is achieved. Having got the cost of debt and the expected return on equity, the weighted 
average cost of capital (WACC) is calculated. The equity betas of listed infrastructure companies reflect the systemic risk of 
those companies. Hence, these betas are un-levered to calculate betas of an individual project as per their capital structure. 



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The WACC is used as the discount rate of the project.  This is standard practice for evaluating PFI projects in the UK 
(National Audit Office, 2012). The model calculates the free cash flow of a project to calculate project IRR and free cash 
flow to equity to calculate equity IRR. In the case of Toll/fee-based projects, assumptions are made for growth in revenue 
and operational cost based on past available time-series data of the same project and other projects in the sector. 
 
3.3 Case Study Based Analysis 
The qualitative studies using case studies are often viewed by academia as "non-scientific" due to alleged subjectivity and 
difficulty in generalizing the results. But as Bent Flyover quotes, "A social science should be problem-driven and not 
methodology-driven and should apply methods to investigate the research problem." The case studies are used in this 
research to study the PPP model of building infrastructure within its real-life context while explaining the mechanism and 
outcome of PPP phenomena. 

One single case study may blame as subjective since it disallows the use of analysis based on the comparison of multiple 
cases hence additional cases are selected till the point of redundancy. The case studies are selected based on the requirement 
of information needed to address every aspect of the research problem and how detailed analysis can be done at the level of 
each case. The cases containing useful insights in explaining the research problem, diversified with a high variation of causes, 
results, and contextual conditions of PPP phenomena and allow easy access to a large number of rich information are 
selected for the study. The case studies are selected by purposeful sampling method where an iterative approach of sampling 
and resampling is applied to draw an appropriate sample to make theoretical saturation based on the conceptual framework 
and addressing the research question for drawing clear inferences and credible explanations to generalize the conclusion of 
the study.  

The cases are selected to achieve literal replication which takes place when at least two cases give similar results and 
theoretical replication when at least two cases give contrary results. A pattern-matching approach to describe two patterns, 
one closely fitting the research hypotheses and an alternative one constituting a rival explanation is used. Then research data 
are compared to both patterns to see which explanation matches the data better.  

The basis of these case studies is a theoretical framework based on "Theory of incomplete contract" which guides the 
analysis and interpretation of the research topic. The quantitative data for case studies such as Project IRR is collected from 
a hypothetical financial model developed by author and qualitative data is collected through interviews, observations, 
newspaper articles, and the government official records. After analyzing individual case studies, the key findings and 
takeaways from all case studies are clubbed together connecting it back to the literature and theory and discussing how it fits 
into wider patterns or debates. 

 
3.4 Sample Size and Sources of Data 
Two cases from the category of financially successful operational PPP projects and nine cases from financially failed 
operational PPP projects are selected for this study. The data for the case study is collected from sources such as the annual 
report of the project sponsor companies and project SPVs, credit rating reports of project SPVs, corporate database Capital 
Line, Government of India's database of PPP projects www.ppinindia.gov.in,web sites of project authorities like NHAI, 
articles in periodicals and publications and filing by project sponsors on stock exchanges. 
 
4. Case Study Analysis 

Case1: Mumbai International Airport Limited  
(A case of financially successful operational PPP Airport project) 

Contractual and Financial details of Mumbai International Airport Limited  

State Maharashtra 

Project Specification International airport 

Commercial Operation Date February 2014 

Concession Ending Month May 2037 

Project Cost in INR crore 12300 

Credit rating CRISL AA 

PIRR 13.00% 

EIRR 9.00% 

 
 Excellent Project economics reduce revenue risk: The airport is strategically located in the heart of a key metro 

city, thereby attracting a strong flow of both domestic and international passengers. The attractive location and a 
large catchment area ensure strong traffic growth.   

 Strong Monitoring by Authority: Efficient Supervision by The project authority, Airport Authority of India 
(AAI) with its board presence, for strategic decisions and related-party transactions.  



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 Mitigation of bankruptcy risk: The presence of an escrow account with a payment waterfall mechanism ensuring 
debt repayment on time. The cash flows are ring-fenced. 

 Key Take away: The privatization of the Mumbai International Airport project is a success in the light of 
productive efficiency, the governance and financing of the airport. But significantly negative impact is observed on 
airlines and passengers due to higher charges.   

 
Case 2: Mumbai Nasik Expressway PPP Road Project 

(A case of financially successful operational PPP national Highway project) 

Contractual and Financial details of Mumbai Nasik Expressway 

State Maharashtra 

Project Specification National Highway Road 100 km 

Commercial Operation Date May 2010 

Concession Ending Month April 2026 

Project Cost in INR crore 770 

Cost Overrun in % 15 

Credit rating ICRA AA 

PIRR 17.00% 

EIRR 12.00% 

 
 Time and Cost overrun mitigated by excellent toll revenue: Even though the project delayed by 24 months and 

cost overrun of 15%, the project has given good financial returns due to excellent toll revenue during the operation 
phase. 

 The takeover of project By Brookfield from Initial sponsors: Brookfield Asset Management Company acquired the 
Mumbai Nasik Expressway from initial sponsors Gammon Infra in 2015. The deal was part of the selling of a 
bunch of assets by debt-laden Gammon Infrastructure. The deal could happen because the cabinet committee on 
economic affairs permitted 100 percent equity divestment after two years of construction/completion for all BOT 
projects, irrespective of year of the award. 

 Key Takeaway: Various Risks were observed during the life span of the project which resulted in cost and time 
overrun which impacted the economics of the project. Most of the risks were transferred to the concessionaire who 
managed the risks adequately due to sound toll revenue. The acquiring of this asset by Brookfield allows the debt-
laden initial sponsor to offload its equity and the project is saved from bankruptcy.  

 
Case 3: Mumbai Metro One Private Limited 

(A case of financially failed operational PPP Metro Rail project) 

Contractual and Financial details of Mumbai Metro One Pvt. Ltd. 

State Maharashtra 

Project Specification Metro Rail 

Commercial Operation Date June 2014 

Concession Ending Month May 2042 

Project Cost in INR crore 3012 

Cost Overrun in % 25 

Credit rating ICRD D 

PIRR -4.00% 

EIRR -2.00% 

 
 Time and cost overrun: The project was delayed by 39 months due to frequent and substantial changes in project 

planning and timelines on account of uncontrollable factors such as a highly constrained Right of Way. 

 The dispute between the Concessionaire and project authority about fair fixation: The High court of Bombay 
directed the constitution of the Fare Fixation Committee (FFC) for recommending the fare to be charged to 
passengers. The FFC recommended the metro fare in the range of INR 10 to INR 110.MMRDA challenged the 
recommendations of the FFC in the High court of Bombay to retain the fares as per the provisions of the 



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concession agreement. The High Court of Bombay set aside the recommendations of the FFC and allowed the 
company to continue with the present fare structure (INR10 to INR40). 

 The legal dispute between the concessionaire MMOPL and project authority MMRDA: MMOPL has filed 
various claims against MMRDA on account of damages incurred due to delays by MMRDA in handing over of 
unencumbered Right of Way and land, and additional cost incurred due to various changes in design to 
accommodate project encumbrances. The number of claims filed against MMRDA as on March 31, 2019 
aggregate INR 1,766.25 Crore. MMRDA has not accepted the said claims filed by MMOPL and hence 
MMOPL has initiated arbitration proceedings as per the provisions of the Concession Agreement.  

 The weak financial position of the Sponsor-Reliance Infrastructure Ltd.: In June 2019, rating agency India 
Ratings downgraded the sponsor of the project Reliance Infrastructure's long-term rating to default grade. The 

Reliance group incurred a net loss of₹2,426.82 crores during the year ended 31 March 2019. 

 Bank loan classified as NPA: The bank's loan of INR 2500 of MMOPL is classified as a non-performing asset 
(NPA) in 2018. The lead bank of the consortium Syndicate Bank is planning to seek legal advice for the 
resolution of its loans to MMOPL.  

 Material Uncertainty Related to Going Concern: The auditors of MMOPL have commented on the material 
uncertainty related to going concerned in respect of MMOPL in their audit report.   

 Key takeaway: The delay in the land acquisition had resulted in high time and cost overrun of the project during 
construction. The revenue of the project even though increasing every year but not sufficient enough to pay the 
interest and principal of the high debt taken which resulted in the lenders declaring the project as NPA. Due to a 
weak financial position, the sponsor Reliance Infrastructure Ltd. is not in a position to financially support the 
MMOPL. The dispute between the project authority and the concessionaire had added to the problems of the 
project. 

 
Case study 4: IRB Surat Dahisar Tollway Pvt. Ltd. 

(A case of financially failed operational PPP National Highway project) 

Contractual and Financial details of IRB Surat Dahisar Tollway Pvt. Ltd. 

State Maharashtra-and Gujarat 

Project Specification 239 km road 

Commercial Operation Date Feb-09 

Concession Ending Month Apr-20 

Project Cost in INR crore 2537 

Cost Overrun in % 49 

Credit rating IND BBB+ stable 

PIRR -0.10% 

EIRR -21% 

 
 Time and Cost overrun: The project observed cost overrun of 49% due to due to delay in handing over right of 

way by project authority NHAI which severely impacted the project economics.  
 Revenue Sharing Dispute: There had been a dispute between the NHAI and the concessionaire over the sharing of 

the toll revenue. According to NHAI, the concessionaire was to pay over INR32 crore as part of its "revenue 
share", which the concessionaire was unwilling to do. As per the Concession Agreement, the concessionaire was 
supposed to share 38 percent of the revenue in the first year of the contract which would increase by a percent 
every year. 

 Key Takeaway: The project has generated negative IRR both in terms of Project (PIRR) and Equity Investors 
(EIRR).The major risk the concessionaire observed was revenue risk which severely impacted its Equity Irate 
Company had lower-than-expected traffic growth and in turn, the toll collections subdued on the company's 
project stretch. The unrealistic traffic projections during the pre-bid stage phase of the project failed the project in 
terms of negative project IRR and Equity IRR.  

 
Case 5: PNG Tollway Private Limited 

(A case of Terminated National Highway Operational PPP project) 

Contractual and Financial details of PNG Tollway Private Limited 

State Maharashtra 

Project Specification 60 km road 

Commercial Operation Date May-14 



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Concession Ending Month March 2016  (Termination) 

Project Cost in INR crore 840  

Cost Overrun in % 25  

Credit rating ICRA D 

PIRR NA 

EIRR NA 

 
The project had recorded weak toll traffic volumes since the achievement of partial COD in October 2012 due to local 

protests and diversion of traffic near Nasik. The protests had continued in the form of political agitations demanding 
stoppage of tolling for local users. Despite the Maharashtra state government being a party to the tripartite State Support 
Agreement, there was no support for additional security to toll plazas which would have aided full tolling. According to the 
Writ Petition filed by the project SPV, the Bombay High Court had directed the District Administration to ensure law and 
order at the Toll Plaza and on the Project Highway. The said Directions of the court had not been implemented by the 
District Administration and the project SPV was forced to continue offering the discounted rates. Further, given that the 
toll rates notified post the partial COD in Oct-2012 were at ~30% of the applicable rates, the average daily revenue 
collections were significantly weaker than the initial estimates. Even after the revision in toll in May 2014, the average daily 
revenue collections had witnessed a sizable deficit vis-à-vis company's initial forecasts. As a result, the company had stopped 
paying the committed revenue share to NHAI. The concessionaire faced a revenue loss of almost INR100 crore. 

In March 2016 the concessionaire, the consortium of Ashoka Buildcon and L&T Infra served a termination notice to 
NHAI on the grounds of prevailing Force Majeure conditions in the absence of requisite State support citing “lack of State 
support” as a reason and the toll and maintenance operations was taken over by NHAI. In case the default is not cured and 
Termination notice is served, this is expected to be classified as an Indirect Political Event as per the Concession Agreement 
and the SPV will be eligible for termination payments to the extent of Debt Due & 110% of Adjusted Equity. In the event 
this is decided as an Authority Event of Default, the termination payment would be to the extent of Debt Due & 150% of 
Adjusted Equity. A payment of INR4.2b was made by the NHAI, which has been disputed and the same is under 
arbitration. 

Case 6: L&T Halol Shamlaji Tollway Limited 
(A case of terminated State Road operational PPP project) 

Contractual and Financial details of L & T Halol Shamlaji Tollway 

State Gujarat 

Project Specification 173 km road 

Commercial Operation Date Apr-12 

Concession Ending Month September 2028  

Project Cost in INR crore 1303 

Cost Overrun in % 61% 

Credit rating ICRA D 

PIRR NA 

EIRR NA 

 
Since the beginning of tolling operations, the traffic volume had been significantly lower than the initial estimates, due 

to the presence of a significant alternate route. This has resulted in lower-than-anticipated cash accruals. As per the 
concession agreement, the company has to share a part of the revenues generated from toll collections with the project 
authority Gujarat State Road Development Corporation Limited (GSRDCL). However, due to lower toll collections, the 
company was not able to pay the same. 

The Government of Gujarat had exempted car/jeep/van/state transport buses from the toll on state highways starting 
August 15, 2016. It planned to compensate revenue loss incurred from such toll exemption by way of monthly 
reimbursements for exempted vehicles. The toll exemption resulted in disputes as the quantum of compensation was not 
agreeable to the concessionaires. The project SPV served a termination notice to GSRDC in April 2016. The lenders had 
converted part of the outstanding debt into equity, post which the lenders hold a 51% stake in the company. 
 
 
 
 

Case 7: Ashoka Highways (Bhandara) Limited 



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(A case of financially failed National Highway Operational PPP project) 

Contractual and Financial details of Ashoka Highways (Bhandara) Limited  

State Maharashtra-Chhattisgarh 

Project Specification 80 km road 

Commercial Operation Date Oct-10 

Concession Ending Month Sep-27 

Project Cost in INR crore 535 

Cost Overrun in % 2% 

Credit rating CRISL BBB+ (SO) Stable 

PIRR 1.00% 

EIRR -6.00% 

 
The project completed on time and within budgeted cost. During the construction phase, the project authority, 

National Highways Authority of India (NHAI) delinked the last stretch of 7.9 km which is 10% of the total stretch from 
the scope of work as it was in a forest area, with no clearances from the forest department which became a matter of dispute 
and arbitration. The concessionaire had received arbitration award aggregating INR 168.01 crores inclusive of interest and 
declaratory award against various claims filed by the concessionaire before NHAI in January 2019. 

The commercial vehicles constituted a major portion of traffic on the road stretch along the Chhattisgarh-Maharashtra 
border but the traffic volume remained vulnerable to the slowdown in the economy. Traffic growth had been impacted in 
fiscal 2019 and 2020. Because of lower-than-expected traffic growth and in turn toll collections and subdued toll revenue 
growth on the project stretch throughput the operations phase. The 100% WPI-linked escalation in toll charges had 
limited the escalation in toll rates due to the prevailing lower inflation numbers.  

 
Case 8: Tamil Nadu Dindigul Karur Expressways Limited 

(A case of financially failed National Highway Operational PPP project) 

Contractual and Financial details of Tamil Nadu Dindigul Karur Expressways Limited 

State Tamilnadu 

Project Specification 68k km road 

Commercial Operation Date Nov-09 

Concession Ending Month Oct-26 

Project Cost in INR crore 374 

Cost Overrun in % 25% 

Credit rating ICRA D 

PIRR 2.00% 

EIRR -1.00% 

 
The project had a time overrun of twelve months and a cost overrun of 24.66%. The project had WPI-linked 

escalations. The toll collections remained significantly below expectations when compared to initial projected levels. The 
toll collections remained weak and insufficient to meet overall expenses and debt servicing requirements.  The continued 
underperformance of traffic had constrained the liquidity of the project SPV resulting in default (D) rating. 

The concessionaire failed to carry out maintenance of the road due to lack of funds and had approached lenders in 
February 2018 to raise additional term loans to carry out major maintenance (MM) works. As per the concession 
agreement, the first major maintenance (MM) was scheduled to happen in November 2014 delayed by 53 months due to 
poor toll collections and MM had started in January 2019 with an estimated cost of INR 70 crores. The funding for the 
same was happening through the project cash flows as banks did not sanction additional term loan for MM. This had 
resulted in a pile-up of debt obligation thereby turning the account into NPA. NHAI had levied penalties of INR 109 
crores for the delay in MM activity. The project SPV could not get support from the sponsor, Madhucon Projects Ltd due 
to a weak financial position. The credit rating agency ICRA had affirmed the default long-term rating of [ICRA] D of 
Madhucon Projects Limited. 
 

 
 

Case 9: GMR Ambala Chandigarh Expressways Private Limited 



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(A case of financially failed National Highway Operational PPP project) 

Contractual and Financial details of GMR Ambala Chandigarh Expressways  

State Punjab 

Project Specification 35 km road 

Commercial Operation Date Dec-08 

Concession Ending Month May-26 

Project Cost in INR crore 610 

Cost Overrun in % 104% 

Credit rating ICRA BB  stable 

PIRR -4.00% 

EIRR -7.00% 

 
The project had a time overrun of 18 months and a cost overrun of 104% which had severely impacted the economics 

of the project. The financials of the project SPV were constrained by the significantly lower-than-originally-envisaged toll 
collection in the project which had resulted in credit risk and dependence on promoter/Group support. The traffic on the 
project stretch post completion was significantly lower than initially envisaged due to the diversion of traffic to alternate 
routes. The sponsor GMR Group supported the project by way of fund infusion in the form of preference shares and 
unsecured loans. Further, the Group supported the funding of the periodic maintenance expenditure. 

In February 2010, the project SPV claimed compensation from NHAI on account of losses due to traffic diversion to 
alternate routes and invoked the arbitration clause in the concession agreement for the same. The arbitration tribunal was 
formed to resolve the dispute. A prolonged delay in realization of the compensation harmed the company's liquidity and 
credit metrics as the debt repayments are scheduled to increase sharply from FY2022 onwards. 
Restructuring of term loans in FY2016 helped to ease cash flow pressure over the medium term but the company’s cash 
flows remained insufficient to fund its major maintenance expenses in FY2019. This too is being supported by extension of 
credit from the sponsor GMR Infrastructure.  
 

Case 10: Karaikal Port Private Limited 
(A case of financially failed State-owned Operational Sea Port PPP project) 

Contractual and Financial details of Karaikal Port Private Limited 

State Puducherry 

Project Specification 173 km road 

Commercial Operation Date Apr-09 

Concession Ending Month Feb-42 

Project Cost in INR crore 2066 

Cost Overrun in % 11.66% 

Credit rating ICRA D 

PIRR -2.00% 

EIRR -7.00% 

 
After getting commissioned in 2009, the port ran into rough weather and struggled to service its debt. The project 

SPV’s term loan was restructured in FY13 with a two-year moratorium. The loans of the port were sold to Edelweiss ARC 
which currently holds over 95% of the port's outstanding debt. Edelweiss has converted part of the outstanding loan 
(interest haircut that it took) into equity and now holds around 11 percent stake in the company. Armed with equity stake 
and majority debt, the asset reconstruction company in September 2017 had taken over the day-to-day operations of the 
port from the sponsor Marg Ltd. 

As per the original concession agreement signed between the initial sponsor and the state government of Puducherry, the 
former is required to maintain a minimum 26% stake in the project. A change in ownership can be implemented only if the 
current promoter agrees to exit the project through a substitution agreement duly ratified by the Pondicherry government. 

 
 
 
 

Case 11: Coastal Gujarat Power Limited (Tata Mundra UMPP) 



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(A case of financially failed operational PPP Ultra mega power project) 

Contractual and Financial details of Coastal Gujarat Power Limited 

State Gujarat 

Project Specification 173 km road 

Commercial Operation Date Mar-12 

Concession Ending Month Apr-32 

Project Cost in INR crore 12000  

Cost Overrun in % 15  

Credit rating CRISIL D  

PIRR -18%  

EIRR -22 % 

 
Tata Mundra is the first Ultra Mega Power Projects (UMPP) commissioned in India.  It has a total installed capacity 

of 4,000 megawatts. The Project was awarded to Tata Power Ltd on 24th April 2007. The three 800 MW Units were 
commissioned in 2012. The coal for the project was contracted to source from Indonesia mines. The tariff consisted of 
55% non-escalable and 45% escalable fuel cost. In the year 2013 coal prices spiked internationally. The actual increase in 
coal prices was 150% to $120 from $50 at the time of the bid. It is against this background that the concessionaire 
requested the Central as well as the State Governments of the procuring states to look into the issues of imported fuels and 
resolved the issue by review of the PPAs to ensure the viability of the project. The project SPV CGPL had filed a petition 
with the CERC seeking intervention to establish an appropriate mechanism to offset in tariff the adverse impact of the 
unforeseen escalation in the imported coal price.  

CGPL in its submissions to CERC and APTEL had said that if a compensatory tariff were not awarded the project 
would lose INR 1,873 crores a year, totaling INR 47,500 crores over its entire 25-year period of expected operation. In 
2014, the CERC had awarded compensatory tariffs to CGP. The compensatory tariffs awarded amounted to INR 0.52 per 
unit for CGP. The award was challenged before APTEL by the discoms. APTEL then ruled that while some compensation 
was due to CGPL, the legal basis on which the CERC had awarded this was invalid.  The order by the Supreme Court, by 
setting aside the APTEL ruling effectively also set aside the CERC award. The Supreme Court’s order implied a huge 
earnings setback for CGPL. The court order results in a yearly loss of INR800 - INR1000 crores, if the company 
continues running their power-producing units at the minimum plant load factor, that is, at the minimum level needed for 
the plant to stay operational. The fact that the Supreme Court set aside the CERC award increases the probability of power 
plant at Mundra becoming economically unviable. 

 
5. Discussion and Findings 
Based on the analysis of two financially successful and nine financially failed project, following  risks and contract 
management related issues are observed in Indian PPP projects; 
 
5.1 Construction Risk and Time and Cost Overrun 
In the case of failed operational projects, the key execution challenges during construction were the acquisition of land and 
right of way, securing necessary clearances, and financial closure. As per model concession agreements, it was the 
responsibility of the government authority to hand over the required land and right of way to the concessionaire, failure of 
which resulted in the time and cost overrun of the projects. India is a federal state where land is a common subject for the 
central and state governments. It is the responsibility of the state government to make available land to central government 
projects. But there had been incidences where state authorities had not cooperated proactively to make available land or 
resolved land-related issues. 

As observed in the case of Mumbai metro rail and national highway projects, the concessionaire received delayed Right 
of Way to complete the construction work. A project's inability to acquire all statutory clearances before the 
commencement of construction activity resulted in construction risk and delay in the completion of the projects. In case of 
cost overrun, the private developer has to arrange the additional funds which severely impacted the financial returns of the 
developer and discourage them to participate in future projects. 

 
5.2 Revenue Risk 
The major risk observed in the case of most of the failed projects is lower-than-expected traffic growth and in turn, subdued 
toll/fee collections during the operation phase. The unrealistic traffic projections during the pre-bid stage phase of the 
project were the cause of this debacle. Although optimism bias is a common phenomenon in most public projects, it is 
essential to be realistic in assessing the market risk of a project as traffic projection is the key input in projecting tariff 
during operation has and it is directly linked to the revenues against which project cost and final returns are decided. In the 
absence of robust project preparation, many projects observed to face revenue risk. Proper attention was not given to the 
projection of traffic volume. 



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5.3 Financially Weak Sponsor Risk 
The financial strength of the sponsor is critical during financial closure and construction when the cost of the projects 
overshoots. It is observed that the financially weak sponsor could not support the project SPV in the time of need. Due to 
aggressive and inadvertent bidding without adequate due diligence in the quest for grabbing the project and subsequent time 
and cost overrun issues, the balance sheet of sponsor construction companies having a large portfolio of PPP projects 
became highly stressed. As a result, they failed in funding the mismatched cash flow and equity during construction due to 
cost overrun and during the operational phase when the revenue of SPVs was insufficient even to carry out major 
maintenance work as in the case of Dindigul expressway and Mumbai Metro rail project. 
 
5.4 Legal Dispute Risk 
The concession agreement enumerates various events like political, indirect political, non-political force majeure event, and 
the concessionaire event of default which triggers the termination of the concession agreement by both the project authority 
and the concessionaire. The prominent cause of the terminations of the operational projects like PNG Tollway and L&T 
Halol state road project was a dispute between the project authority and the concessionaire. 

The PPP contracts based on model concession agreements were very rigid and lacked provision to change as per market 
conditions. Due to long tenure of 20-30 years and a lot of contingencies that cannot be expected ex-ante while designing 
the contract, PPP contract is an incomplete contract where provision for dealing with all the contingencies in all the states 
of the world cannot be included. When the emergency occurs which is not defined in the contract, the question arises who 
and how will deal with that issue and who will bear the cost of managing the issue. Since there was no provision in the PPP 
contracts for renegotiation and due to fear of blame of a moral hazard, nobody including the contract management team 
decided to deal with the issues. This resulted in a delay in the projects, cost overrun, and ultimately financial failure of the 
projects. 
 
5.5 Regulatory Risk 
Since a PPP project has a long concession period, an independent regulator is needed to balance the interests between the 
public authority and the private partner. There is no such independent regulator for the Highway road sector which results 
in disputes, arbitration, and court cases between NHAI which is an implementation agency and the private concessionaires. 
As a result, NHAI did not receive any bid for its PPP road projects from the private developers in FY2020. As observed in 
the case of the Mumbai Airport project, the private operators must be regulated in terms of tariff and other charges to 
safeguard the stakeholders like passengers and airlines. 
 
6. Conclusion 
The case studies based analysis of operational PPP projects reveled in the fact that various risks had emerged and could not 
be mitigated in many projects in the absence of sound institutional, contractual and risk management framework 
culminating into negative risk-adjusted returns to the private investors (EIRR) and negative returns to all project 
stakeholders (PIRR) resulting into depleted value for the money. As a result of the disappointing performance of PPP 
projects, private developers who earlier enthusiastically participated in the PPP program of building the much-needed 
infrastructure in India stayed away from it and PPP model in India come to standstill. The results of the study support the 
research hypothesis that there is a positive relationship between operationally and financially successful PPP projects and 
their project lifelong efficient contract and risk management as PPP contracts are inherently incomplete due to a long time, 
substantial work to be provided, significant complexities and high uncertainty about future events and occurrences. 
 
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