Posted: April 29th, 2018

Strategies for Attracting Foreign Investment into Maritime Infrastructure Projects along the Arabian Sea and Red Sea Coasts

Strategies for Attracting Foreign Investment into Maritime Infrastructure Projects along the Arabian Sea and Red Sea Coasts
1. Introduction
At present, the Arabian Sea and Red Sea regions are receiving increased international attention due to their strategic locations and the prospect of earning high returns by investing in maritime infrastructure. Both seas are major routes for east-west and north-south shipping, facilitating high growth rates in trade. The region also contains a number of oil-producing states whose riches are creating rapid growth in energy production and export. This results in the prospect of substantial revenue in the future to be gained by investing now in infrastructure. Unfortunately, not all of this investment is being channeled appropriately. While Middle Eastern countries have focused on their own national infrastructure, they have made little effort to facilitate investment in the greater portion of the maritime infrastructure now used by international interests. Meanwhile, other countries looking to invest in infrastructure, including aid donors who provide assistance to many states in the region, lack adequate information on which areas are best to invest in. This results in a mismatch between potential investment and actual requirements for infrastructure improvement.
The specific problem addressed by the present study is a lack of information on maritime infrastructure investment opportunities along the Arabian Sea and Red Sea coasts, preventing a good match between investors and projects. This can be attributed to a number of factors including:
– Difficulty for potential investors to find reliable information on infrastructure requirements and opportunities, due to wide disparities between different coastal states in the levels of their own research and capability in this area.
– A lack of coherent policy on the higher levels of government in some states, as to whether it is best to invest in maritime infrastructure, and if so, which areas to target.
– A mismatch between the timescales of future infrastructure requirements and the expected lifetimes and profitability of various maritime investments.
The sum extent of this problem is difficult to quantify. We propose to conduct a series of case studies focused on specific problem areas and/or states, aiming to exemplify the issues faced and identify the best solutions.
1.1 Background
When it comes to foreign investors, a major issue is always the uncertainty of economic and political factors. An investment may be thought to be good today, but no one can guarantee about tomorrow. Recent stub of cases such as abrupt change in power tariffs by competitive bidding states, power off-take and finance crises, these incidences have shaken the confidence of the investor community. It is already known that the debt investor always avoids investing in infrastructure because there is no solution for debt or sou moto off take to repay at the time default in a project. He sees it as a high risk and so there is an evident recent inclination to change from BOO (Built, Own, Operate) models to EPC models. The simple reason is that there is no dispute on the fact that the government is the best paymaster.
Though India has various multilateral and bilateral international treaties with respect to investments, it still needs to do something over and above to attract foreign investors. It is really a tough task to attract foreign investments into infrastructure. These investors not only look for good returns on investment but also want the whole investment process to be risk-free and stress-free. In relation to this, it is highlighted that the performance of private sector companies in various infrastructure projects in the recent past has not been very good. There are issues of unlawful termination of contracts, disputes, claims, and in some cases, unwelcome intervention of law. This has really created a negative impact for investment in Indian infrastructure.
In the last ten years or so, the concept of infrastructure emerged in India as a priority sector. With the new government in place, there have been a slew of initiatives aimed at reviving public and private investment in the infrastructure sector. The maritime infrastructure sector is one of the key focused areas for the overall development of the economy. The maritime sector has direct linkage with the development of the other two sub-sectors of the infrastructure, i.e. the port sector and shipping sector. Around 95% of India’s trade by volume and 70% by value is moved through maritime transport, thus developments in the maritime sector will have a significant impact on efficiency and cost of the trade. The steps such as, and not limited to, the Sagarmala project, new port development, increased tonnage movement, and developing strategic trade routes, all represent a positive intent towards the maritime sector. This, in totality, will translate into the demand for more and better maritime infrastructure. With the emergence of PPP (Public Private Partnership) models for infrastructural development and increased FDI limit in various sectors, there is an urgent need to channel and attract foreign investments into the maritime infrastructure sector.
1.2 Research Objectives
Globalisation has made the free movement of goods and supplies a prerequisite for the economic progress and development of a nation. It is perceived by the process of liberalisation and is essentially dependent on unhindered access and exit ability to and from a specific region or country. The liberalisation policies adapted by several nations in Latin America, Africa, and Asia have led to increased Foreign Direct Investment (FDI) inflow. FDI is considered as a catalyst that quickens the pace of higher economic growth in the developing countries. It is often a very imperative resource for building infrastructure and enhances the service network that helps to elevate the production and exports of goods and services (Agarwal, 2002). Given this scenario, the public sector has found it increasingly difficult to cope with the vast funds required to improve a nation’s port and transportation infrastructure. And when FDI is necessarily needed to displace or complement public finance, there are various modes and channels available which are often complex and dictated by the investor as to where he wants to invest and in what form (UNCTAD, 1996). This attempt to understand FDI in the port sector is taken in the context of recent major policy changes in channeling FDI into various countries and sectors. Understanding the modes and channels available in the context of sea ports and port infrastructure will be valuable to the seafaring and port development nations.
This research aims to establish frameworks and strategies that could draw foreign funding in port and port-related infrastructure along the eastern seaboard of the Arabian and Red Sea. This objective is to be pursued in light of the changing global and regional economic scenario and complex and often volatile geopolitical concerns, which appear to work concurrently in shaping the socio-economic and political destiny of this region.
1.3 Significance of the Study
The purpose of this study is to provide such an analysis, as well as to uncover the current shipping opportunities in the Arab world and to assess the prospects for a revival of foreign investment in shipping in the Middle East. The entire Arab world will be considered, though special attention will be given to the largest and financially most important PECs. The first task undertaken will be to build an overall model of the shipping investment decision for a foreign firm considering entry into a PEC shipping industry. This will be done in Chapter 2. Subsequent chapters will pinpoint the shipping investment deterrence that has occurred since 1973, and changes in the shipping opportunities that have resulted from it. Step by step improvements Simplify your article with bullet points.
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For shippers, shipbuilders, and shipping investors throughout the world, these developments in the Arab world could generate some attractive business opportunities. Unfortunately, a dramatic change in the political economy of the region since the October War has produced a sort of “investment deterrence.” The string of nationalizations and expropriations, culminating with the Suez Canal closing and the loss of over 100 ships, led to a marked deterioration of the investment climate for foreign shipping and investment interests in the Middle East and the Arab world. In general, the PECs are now less eager to seek foreign participation in their development programs, and are more interested in obtaining goods and acquiring technology on a “turnkey” basis. The present low level of oil prices has also made the PECs less willing to commit large sums of capital to shipping and other non-oil industries. All of this is viewed as a “problem” by various firms and groups with shipping and investment interests in the PECs. Yet an explicit delineation of the factors which now deter foreign investment in shipping in the Middle East is lacking, as are assessments of the shipping opportunities that still exist in the region today.
Spurred by the precipitous rise in oil revenues in the 1970s, the Arab world has begun a series of ambitious industrialization and development programs. Cement, steel, desalination plants, and a host of other industrial facilities are being planned or constructed in nearly all of the Arabic-speaking countries. Since these countries lack the technology and skilled personnel to carry out these projects by themselves, a massive infusion of foreign goods, technology, and expertise will be required. Implementing many of these projects will also necessitate a huge increase in the amount of shipping to and from the region. And finally, in order to invest their earnings, the petroleum exporting countries (PECs) will attempt to recycle a portion of their petrodollars into profitable shipping and shipbuilding ventures.
2. Literature Review
Maritime transport is an essential component of a nation’s economic development and its access to world markets. Ships carry over 90% of the world’s trade and the volume of international seaborne trade is expected to double from its current volume by 2020. This expansion of trade makes it an attractive proposition for developing countries to invest in the development of their port and shipping infrastructure. A port is not only an essential part of the supply chain in getting goods to and from the country, but also serves as a focal point for economic activity in the related areas. Ports generally produce high levels of income and employment, and a well-run port can stimulate sustained economic prosperity for its region. Due to the importance of the port and shipping sector, investing in the development of its infrastructure is seen as a strategic long-term investment with high returns. Port development projects typically have high potential for revenue generation and are normally based on a build-operate-transfer (BOT) or public-private partnership (PPP) model.
2.1 Overview of Maritime Infrastructure Projects
The literature review will provide an overview of the maritime infrastructure projects and their characteristics, the importance of foreign investment in these projects for the host country and overseas investors, and also discuss the critical success factors (CSFs) and the typical risk factors involved when attracting foreign investment. The review will then highlight any current trends or best practice identified in the area.
2.1 Overview of Maritime Infrastructure Projects
Maritime infrastructure is an important part of a country’s infrastructure, which includes ports, harbours, and inland waterways. It plays a critical role in facilitating trade in a region such as the Arabian Peninsula and the Horn of Africa, where the majority of global trade is conducted by sea. Efficiencies in maritime transportation technology, improvements to logistical supply chain networks, and the development of intermodal transportation solutions will shape the future form of the maritime infrastructure sector. The strategic importance of the Red Sea and the Arabian Sea stems from their location as the primary outlet to the Indian Ocean, a sea which has become, over the past 30 years, the world’s most used and most fiercely contested maritime domain. The Indian Ocean provides a strategic link between the major economies of East Asia, the Indian subcontinent, the Middle East, and Africa, all of whom will benefit greatly from increased trade.
The majority of existing maritime infrastructure projects within the regions are state-funded. Public sector financing and management have often meant that these projects have not been based on sound commercial principles. They lack vision and a clear mission statement, tend to be used for political patronage, have incurred large amounts of debt, and have been a burden to the taxpayer. The long-term opportunity cost of tying up public funds into projects such as these can be significant. This mentality is now changing as local governments seek to diversify their funding options and, in some cases, look to privatize existing port facilities.
2.2 Importance of Foreign Investment in Maritime Infrastructure
Foreign investments in the maritime sector involve the transfer of capital, technology, and know-how for the construction or improvement of facilities and services related to maritime activities. This can include shipyards, cargo handling and storage facilities, marine insurance and financing, and shipping. Foreign investment is still quite beneficial in that it can finance facilities and services too costly for domestic capital, but vital to the functioning of the capital goods provided by foreign investors, i.e. shipbuilding, or offshore oil and gas extraction. This, in turn, can enhance the efficiency, safety, and productivity of maritime activities, in both the short and long terms. However, it is still difficult to accurately measure the spillover effects of such investments on other related industries. Foreign investments at times have been accused of initiating social and environmental unrest and has long been related to corrupt practices in many host countries. This, it is not clear whether these investments are beneficial for the host country in the long run.
The concept of globalization is characterized by an ever-increasing movement of goods and capital between nations. One result of this ongoing process is an increasing desire by local governments to access foreign capital and sources of funding for development projects. Outward foreign investments by many countries have also increased substantially over the past 20 years, in many cases exceeding growth in GDP and other economic indicators. Foreign investment now exceeds $7.1 trillion worldwide, up from $500 billion in 1970. This is especially relevant to the Asian and Middle Eastern regions, as they are home to some of the world’s fastest-growing economies. The importance of foreign investment in these regions is widely recognized. It represents and often means debt-free, non-diluting, and long-term equity financing reflects confidence in the concerned country and its economic policies, infrastructure development, and foreign investment has also been related to productivity growth, which can in turn lead to improvements in income and living standards.
2.3 Factors Affecting Foreign Investment in Maritime Infrastructure
Political risks have often been a major deterrent for foreign direct investment (FDI) in developing countries. These risks come in the form of a breach of contract by the host government, where they impose a change in investment terms. The risk of expropriation and nationalization of the investment is always present when dealing with large-scale infrastructure projects, regardless of the country’s past history in relation to FDI. This is due to the fact that governments can be influenced by certain interest groups to regain control of an asset that has been privatized through an investment contract. The results of September 11 and the subsequent events have also had an adverse impact on FDI in developing countries. The general increase in global risk has led to many investors adopting a more defensive strategy by investing in less risky, developed countries. In the maritime industry in particular, the recent increases in piracy acts on shipping cargo and the taking hostage of ships and personnel have increased the risk to an investment in a particular area.
2.4 Current Trends and Best Practices
While telecommunications and power have been the primary recipients of private infrastructure investment, there have been growing concerns over the environmental and social impacts of some projects. Environmental concerns and local community opposition have derailed many projects in infrastructure sectors such as oil, gas, mining, and large hydro. This has caused firms in these sectors to take a new look at the policy and institutional environment for their investment. The International Finance Corporation, the private sector arm of the World Bank, has played a significant role in promoting foreign investment in infrastructure through the direct financing of private projects and through initiatives to improve the policy and institutional environment for such investment. Part of the motivation for this has been to ensure that its member countries open their infrastructure markets to foreign investors, following a series of trade negotiations in the WTO and its predecessor the GATT, which have resulted in agreements to liberalize and open various infrastructure sectors to foreign investment.
Foreign direct investment has become increasingly important to infrastructure financing over the last two decades. In the 1970s and early 1980s, much of the world’s infrastructure was financed directly by the public sector or by public sector entities such as utilities, national airlines, or state-owned enterprises. This situation began to change dramatically in the mid-1980s. The fiscal constraints facing many developing countries and the enormous development needs in these countries, combined with the wave of privatization in the developed world, led to many attempts to increase private investment in infrastructure, including foreign investment. The result was frequently disappointing because the policy and institutional environment was not conducive to such investment. In some cases, the result was a rash of poorly structured and lightly regulated concessions to private investors. The success of the telecommunications privatization and the widespread regulatory reforms in the sector have increased investment substantially and a new breed of well-structured and regulated concessions.
3. Methodology
The research is aimed at understanding the why, what, and how of the specific issues involved in both regions. Therefore, it was decided that the issues should be examined from the perspective of the key players. This is explained further below in the choice of case studies. To understand the issues, the investment climate, and the attitudes of the key players, it was decided that the most appropriate source of data would be interviews and surveys. This data would be collected from industry experts and decision makers and would provide relevant insights and direct opinions on the specific issues. An understanding of the investment climate would also require an analysis of both FDI and portfolio investment. This data is best found in secondary sources such as investment reports, and therefore it was decided that a contemporary and historical analysis of investment patterns would be conducted.
3.1 Research Design
The methodology consists of three stages: research design, data collection and analysis, and case studies. The choice of methodology was dictated by the research problems and research objectives. The research is aimed at a better understanding of the political and the foreign investment climate in the two regions as well as understanding the potential opportunities and risks that investors might consider. Therefore, the research places its main emphasis on identifying and understanding the specific issues involved. This kind of applied research involves an analysis of a contemporary issue that has implications for policy or decision making. In order to do this, the research relies on data collected from a variety of sources. The research must be both reliable and valid if the right conclusions are to be drawn and the work has value. Therefore, methodologies were chosen that would allow for the rigor as well as relevance of the research. This approach is heavily influenced by the work of Heloise and J.N. Hudson who have advocated structured and understanding-focused research in the discipline of political science.
3.1 Research Design
Between-case analysis will be used to compare the two different regions. Data and information on the LNG terminal project in Pakistan and the Pakhoed terminal in East Malaysia has already been identified through the researcher’s association with these projects. Data collection for the Shell project and the LNG terminal will be done primarily through document analysis and interviews since these are RM’s specifications. For the Pakistan project, more general information because of greater time depth and for the East Malaysia project, direct experience and MNE specific knowledge, will facilitate the use of more primary sources of information. Data from these four projects will be used to make formal comparisons and add depth to the preliminary study on the Pakistan and Malaysia regions. Step by step comparisons will be made at all pertinent stages in project development and operation to determine why private involvement in the Pakistan and case was short-lived and purely MNE driven in comparison to the more influx project development and continued involvement in East Malaysia. Success and failure of these various ventures will be defined by their subsequent influence on private sector infused efficiency and cost effectiveness in comparison to the previous renditions of public sector lead development and operation.
The research will take a cross-sectional comparative approach by using both within-case and between-case research units. Within-case analysis will be employed to determine why specific projects succeeded or failed. This will be done by defining a ‘success’ or ‘failure’ project in terms of the long-term establishment of a private operation. A hydrocarbon storage terminal operated by Royal Dutch Shell will be taken as a ‘success’ in comparison to a similar project by the same company in the same location in the form of a liquefied natural gas (LNG) receiving and re-gasification terminal which was abandoned. Success and failure will be evaluated by how well each project matches the intentions of the initiator in terms of completion to cost, cost effectiveness, and later operation. The specific reasons for the differing outcomes of the two ventures will be determined by comparing the enabling and constraining policy and the characteristics and reactions of the public sector in each case.
The research will identify the factors that make the Arabian Sea and Red Sea coasts attractive to foreign investors, the constraints to investment posed by government policy, and the characteristics of successful maritime infrastructure projects in the two regions. Competitive scope for private investment will be considered within the broader framework of the regional economic and political environment. The ultimate output is a set of guidelines based on comparisons between ‘success’ and ‘failure’ projects in the two regions.
3.2 Data Collection and Analysis
The data collection stage is considered the most critical in compiling valuable research, and so the selection of appropriate methodology is essential. In the case of attracting foreign investment, relevant data is scarce and existing data is general and often outdated. The complex, intangible, and highly variable nature of both FDI and maritime infrastructure further complicates the collection of relevant data. These factors make qualitative methods of inquiry, such as case studies, interviews, and content analysis, beneficial in furthering our understanding in this area. The varying experiences and opinions of key stakeholders in foreign investment and infrastructure development can be best captured through interviews, and the causal relations and processes lend well to exploration in a case study. Due to the large number of variables and low quantifiability in determining the success of attracting FDI or the impact of developed infrastructure, it is difficult to generate findings with strong statistical power. In saying this, the limitations in resources and time required in conducting survey or experimental research make it an unfeasible exercise in an area so heavily reliant on the analysis of global trends and prospective scenarios. An all too often used method in simply employing statistical data on levels of FDI or trends in infrastructure development, it is of limited use unless specific and current data can be found. And even then, it is the analysis of the data through means of qualitative research which provides the most use in informing policy and strategy.
3.3 Case Studies
Second, a case study approach lends itself to triangulation across varied sources of empirical evidence. This is important due to unearthing the factors that enhance/deter foreign investment requires an understanding of the investors (or potential investors) perspective on the variable political and economic conditions in these countries. With this in mind, data will need to be collected from both government and private sector representatives and in some instances informal discussions in non-formal settings will be of greater value. This mixed access to players from varied sectors is more feasible with a case study approach and will help to form a more complete understanding of the topic under investigation.
The rationale of employing a case study approach to conduct this cross-national comparison is based on the following:
Both Saudi Arabia and Pakistan are still in the transitional phase of moving from a public sector lead development toward a successful public private partnership (PPP) model, with India and Egypt being marginally ahead having already adopted the PPP model. The case study method will provide an in-depth understanding of how each of these countries are currently trying to implement their respective models to gain foreign investment within the maritime infrastructure sector. This form of investigation is best conducted by a case study approach due to the complexity of the political and economic milieu will require in-depth analysis of the context and influence of the specific and surrounding factors.
This paper outlines a qualitative methodology revolving around a multiple case study analysis. The use of a multiple case study based research design is a reflective analysis of investigating contemporary phenomenon encompassed by two undefined boundaries; focusing on strategies to attract foreign investment in maritime infrastructure along the Arabian Sea and Red Sea coasts.
4. Strategies for Attracting Foreign Investment
Policy and regulatory frameworks are generally the first steps that a country takes towards attracting foreign investments. All nations will have some regulatory framework in place; however, it may not be the ideal ground for foreign investments. SES identifies that regulatory changes need to be an ongoing process with the need to ensure that there is zero tolerance for non-compliance, which is a significant disincentive from an investor’s perspective. In this regard, the Regulatory Reform Review in 2001 was an excellent initiative by the Australian federal and state governments which agreed to a ’10-year reform strategy to improve the responsiveness and efficiency of regulatory arrangements to enhance Australia’s international competitiveness, the quality of its business environment, and community well-being’. This should be the approach to tread the fine line between appropriate regulation for the protection of public and national interests and creating a favorable investment destination.
Investor confidence and perception of risk are critical factors in considering investment in a foreign country. A specific program promoting investment into a particular area can be very effective in altering investor perceptions and providing necessary information on the nation’s conditions and available opportunities. This is most effectively done through a collaborative approach with private sector agencies and investors. Investments in infrastructure and resource sectors are often highly capitalized, long-term commitments that are facilitated in the assumption of a stable and predictable economic, legal, and political climate. These investments are particularly sensitive to government policy and are usually postponed or relocated in response to changes in these areas. SES recognizes the need for a stable and predictable climate and suggests that investors will seek a ‘binding commitment’ from the government on the policy, legal, and regulatory arrangements that will apply to the project over its life cycle. This measure instigates both parties to a formal agreement and provides a mandate for government responsibility.
An often contentious issue across the developing world is the ‘nationalization’ of an investment or industry, an action that can potentially lead to expropriation without fair compensation. SES recognizes that governments still view ownership restrictions as a primary mechanism for preventing ‘harmful’ foreign investment, although history has demonstrated that investment and technology bans in certain sectors and or equity caps often simply drive investors to alter their investment mixing or even to exit the country. With specific reference to the SEA and Arabian coastlines, it should be noted that energy infrastructure development is a prime target for foreign capital and technology transfer which stands to gain these nations immense wealth and knowledge in the long term. Measures and guarantees that assure investors’ asset security and full or fair compensation in the event of expropriation, privatization is a clear method of preventing sovereign breaches of government. In adherence to the UNCITRAL rules for international arbitration, a stable government-to-government partnership and or an agreement for the resolution of disputes through international arbitration can minimize overall political risk perception.
4.1 Policy and Regulatory Framework
Policies and regulations are necessary to provide a framework for investment. As a complex, high cost, long term utilization enterprise, maritime infrastructure requires a secure and stable political environment with strong government commitment to provide policy certainty for potential investors. The policy and regulatory framework should be aimed at liberalizing the investment environment as opposed to protecting national interests through restrictive regulations and foreign ownership constraints. In the initial stages, simple and transparent fiscal and financial incentives targeted specifically at foreign funded projects would generate interest. These would primarily constitute investment allowances and reduced tax rates for a fixed time period. Caution must be exhibited when using risk guarantee schemes and non-commercial risk insurance. This essentially involves the government underwriting the political and/or economic risks for investors. While these can be very persuasive in certain situations, they are generally expensive and can create issues related to affirmative action and political risk becoming self-fulfilling due to moral hazard. Careful evaluation needs to be undertaken at both ends to ensure that these provisions actually benefit the investment and infrastructure without creating dependencies on the insurance rather than self-sufficiency. The application of procedures to avoid or mitigate trade disputes between the host and home country of the investor is also a necessary provision. This will serve to ensure political stability in the investment by avoiding the risk of host government opportunism and arbitrary action on the investment and its resources. A fundamental part of fostering a stable political environment is to create an equal and fair industry playing field with minimal adverse discrimination between foreign and domestic investment. Measures such as these will all assist in reducing the political and regulatory risk perceived by foreign investors. A stable commitment to these policies and maintaining consultation with private industry will give assurance and confidence to prospective investors. The final and most effective means of promoting policy and regulatory change is through bottom up pressure from the private sector itself.
4.2 Investment Promotion and Marketing
Unfortunately, not all countries have strong capabilities in investment promotion and marketing. This is a boon for the niche industry of investment promotion consultancy. These firms offer their expertise and often possess a wealth of knowledge on what investors are looking for when they decide to invest. They also usually have vast networks to decision makers in multinational corporations. The service provided by investment promotion consultancies can range from advising the country on the strategies and approaches to repackaging and relaying information to potential investors and introducing them through a network to targeted investors. Although the benefits of employing investment promotional consultancies are apparent, this approach may be expensive and there is still no guarantee that the investment will come.
In this increasingly competitive environment for investment, many countries have set up investment promotion agencies in order to attract investment. These agencies employ various techniques which often focus on marketing the country’s comparative advantage with respect to the infrastructure project. Techniques employed in investment promotion and marketing include hosting national and international investment conferences sweet study bay and seminars, carrying out direct mail campaigns to potential investors, producing high quality promotional materials, and the use of the internet. Investment promotion in the context of the infrastructure project can be channeled through a dedicated unit set up specially for the purpose, or it may be part of the marketing effort conducted by the line ministry or the implementing agency. The bottom line is that the better and more effectively a country promotes its attributes and potential to investors, the better its chances of attracting quality investment.
4.3 Infrastructure Development Plans
The BOT projects are also being encouraged to exploit private sector efficiency to deliver countries’ infrastructure requirements. Under BOT concept, the private developer is granted the concession by the government to develop, build, and operate a project for a specified period. At the end of the concession period, the ownership of the project is transferred back to the government. This concept is being widely used in port projects and the recent award of the Vizhinjam port to the Adani group is the best example. The Sagarmala project is being developed on the same lines and aims to develop port infrastructure to enhance the throughput of the ports. The private finance initiative (PFI) is also similar to the BOT concept. Through the development of new models of contracts and institutional framework, the government is trying to build a conducive environment to attract private investments into the infrastructure sector.
The basic infrastructure facility is highly essential for industrial and economic development. Infrastructure development through construction of ports, roads, rails, airports, storage facilities, etc. are essential for promoting exports and imports. Owing to the limitations of the public funds and lack of technology to build efficient infrastructure facilities, increased private sector participation is being encouraged in India. Development of port sector on landlord concept is the best way to increase private sector participation. Under this concept, the ownership of land and development of basic marine infrastructure is retained by the government or port authority. The private developer is responsible for the creation of the superstructure and operation and maintenance of the asset created. The developer will get exclusive rights to use the asset created for an agreed period. This concept is more suitable in the Indian context and many projects have already taken off and many more are in the pipeline.
4.4 Public-Private Partnerships
Under BOT schemes, a facility is constructed and operated by a private consortium under concession from the government, usually for a period of 20-30 years. At the end of the concession period, the facility is transferred back into government ownership, and the private consortium is generally responsible for raising the finance for the project and takes revenue from the operation of the facility. This is an attractive option for governments who are cash-strapped and wishing to avoid public borrowing, as the risk is transferred to the private sector and the cost will not appear on the government’s balance sheet. A variation on this theme is the BOOT scheme, where the private sector assumes full responsibility for the facility and its revenue stream, accepting transfer to the government only if revenue targets are not met. This remains a high-risk option for the private sector and is generally only applicable to revenue-generating ventures.
The idea of involving the private sector in infrastructure development projects is relatively recent and is founded on the theoretical and empirical observation that the private sector is often more efficient in providing infrastructure. Public-private partnerships cover a wide range of collaborative ventures, but for the purposes of this discussion, it will revolve around private sector involvement in the financing, construction, and operation of infrastructure facilities. The most basic form of private sector involvement is the outsourcing of specific services traditionally provided by the public sector, such as cargo handling or tug services. This is a relatively low-risk, low-cost option for both parties, which can bring about substantial efficiency gains. However, it is the more ambitious Build Operate Transfer (BOT) and Build Own Operate Transfer (BOOT) schemes that are of the most relevance to infrastructure development.

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