Madhya Pradesh Housing & Infrastructure Development Board: affordable housing via public–private partnership mode

• Author: Ganesh Kumar Nidugala,Rashmi Shukla
• Published date: 01 November 2017
• DOI: http://doi.org/10.1002/pa.1623
• Date: 01 November 2017

PRACTITIONER PAPER

Madhya Pradesh Housing & Infrastructure Development Board:

affordable housing via public–private partnership mode

Ganesh Kumar Nidugala

1

|Rashmi Shukla

2

1

Indian Institute of Management Indore,

Indore, India

2

School of Business Management, SVKM’s

Narsee Monjee Institute of Management

Studies University, Mumbai, India

Correspondence

Rashmi Shukla, School of Business

Management, SVKM’s Narsee Monjee Institute

of Management Studies University, Mumbai,

India.

Email: rashmi.shukla@nmims.edu

The Madhya Pradesh Housing & Infrastructure Development Board (MPHIDB) is a state‐owned

entity in Madhya Pradesh State of India with the mandate of providing housing for citizens, par-

ticularly for those in the low‐income segment. MPHIDB has been constructing houses on its own

using the traditional engineering and procurement contract (EPC) model. In July 2015, it was

exploring the possibility of creating affordable housing units via public–private partnership

(PPP). The advantage of involving private sector is that MPHIDB can tap into creative energy

and construction efficiency of the private sector and deliver the best results within the given

set of time and resource constraints. The proposed structure of PPP is that the private partner

will be given a portion of land in lieu of the affordable housing units that it will build and transfer

to MPHIDB. However, there are trade‐offs involved in doing the project in PPP mode instead of

EPC mode. The main advantages of a government body like MPHDIB doing the project on its

own are as follows: (a) It is able to better manage regulatory risks in terms of getting clearances,

land acquisition, and so forth; (b) it can raise finances at lower interest rates than what is charged

for private sector entities; and (c) the entire land parcel is available to construct houses, and

hence it can get more housing units per unit of land. The Commissioner (CEO) of MPHIDB had

to decide whether to go for PPP or EPC model, and if he opted for PPP, how should the PPP

be structured?

1|INTRODUCTION

On July 1, 2015, Mr. Nitesh Vyas, Commissioner, Madhya Pradesh

Housing & Infrastructure Development Board (MPHIDB), invited the

senior management representatives of selected private infrastructure

companies to a special meeting with the agenda of showcasing one

of his dream projects, the first public–private partnership (PPP) in

affordable housing segment in Madhya Pradesh. This meeting would

help him to check the interest level of the private sector in the pro-

posed project and also to get feedback about the project feasibility in

PPP mode. MPHIDB was facing multiple issues in commissioning the

project: whether to go for PPP‐based model or do the project on their

own through the traditional engineering and procurement contract

(EPC)

1

model? How should the project be structured? Will the project

be profitable for the private sector? What should be the bidding

parameter for the PPP?

Housing sector is subject to market demand conditions. If

MPHIDB builds a large number of houses, they have to do the

marketing, and if units are left unsold, they have to manage the

inventory. If it builds smaller lots of houses, they would not be

economical on a per unit basis, and quality could be an issue as

reputed private sector builders may not be interested in smaller

projects. Either way, it will end up distorting the MPHIDB’s

finances. Mr. Vyas believed that the creative energy and the con-

struction efficiency of the private sector can deliver the best results

within the given set of time and resource constraints. However, the

decision to go for PPP model is not a straightforward one for

MPHIDB.

2

1

EPC model involves preparing tendering document for the project, inviting bids,

and awarding the contract to generally the bidder who bids the lowest price (L1).

Once the project is completed, it is handed over to the government/government

agency. Maintenance of the asset is the responsibility of the government/gov-

ernment agency.

2

Authors acknowledge the suggestions and support from Commissioner Mr.

Nitesh Vyas and his team at MPHIDB, Transaction Advisors to the project from

ICF International, and Meghraj India group of consultants. This case draws

heavily from their report submitted to MPHIDB.

Received: 19 July 2016 Accepted: 11 August 2016

DOI: 10.1002/pa.1623

J Public Affairs. 2017;17:e1623.

https://doi.org/10.1002/pa.1623

Copyright © 2016 John Wiley & Sons, Ltd.wileyonlinelibrary.com/journal/pa 1of8