the NHAI portfolio has come from public sector banks in which the government owns more than 50 percent of capital shares. The large number of cancellations in the NHAI portfolio have contributed to the rising number of nonperforming assets in India’s banking sector. The State Bank of India, which holds the greatest nominal amount of Indian highway-related debt, reported that about 20 percent of loans to ports and highways were in nonperforming status by the end of 2016, with the trend increasing in 2016 (ADB and others 2018).

The likelihood of cancellation increases with the length of the highway. The finding that longer highways are more likely to be canceled is consistent with the observation that many of the cancellations have been related to the government having problems with securing the right of way.

# **6. Concluding remarks and policy recommendations**

The fiscal risks from the current infrastructure PPP programs in South Asia are not negligible for some countries. Under a severely adverse scenario, the fiscal risks from early termination in 2020– 2021 amount to 2.9-4.0 percent of the government revenues in Bangladesh, India, Nepal, and Pakistan. The pipeline of PPP projects in South Asia is quite large, particularly in Bangladesh, which has the same number (30) of infrastructure projects in the pipeline as it has active projects. Such an expansion of the PPP program can lead to a significant increase in fiscal risks. Therefore, an important agenda in South Asia is improving the design and management of infrastructure PPPs to mitigate the corresponding fiscal risks while ensuring financially responsible and timely implementation of infrastructure protects to address the infrastructure deficit.

The analysis identifies five overarching lessons from the global PPP data. First and foremost, several factors that increase the risk of early termination of PPP projects are related to the financing risk of the project. Governments may alleviate some of the financing risk of PPPs by providing support through capital grants, revenue subsidies or in-kind transfers, which lead to reduced rates of early termination. Second, the sector in which a PPP project operates, and the size of a project, in terms of its physical investment, matter in evaluating riskiness of a project. PPPs in the power and seaport sectors are less likely to experience early termination than PPPs in the other infrastructure sectors analyzed. Large physical investments lead to increased rates of early terminations. Third, delegating PPP contracting and monitoring to state and local governments should be considered when it is institutionally and economically possible because PPPs show lower probability of early termination when they are contracted and monitored by state and local entities. Fourth, PPPs tend to have reduced rates of early termination when the contract is executed in a country with stronger constraints on executive power. Fifth, macro-financial shocks are an important cause of early termination of PPPs, highlighting the importance of macroeconomic management in enabling sustainable funding and financing of PPP projects.

In India, contractual obligations that put the private sponsor under large financial commitments are associated with a higher chance of early terminated national highway PPPs. Namely, PPPs for national highways were more likely to terminate early if the contract put the private sponsor under larger financial commitments through higher premium payments to the government, or lower capital grants or annuity payments from the government. The reason behind this result could be exposure to demand risk and a perverse incentive structure that encourages overoptimistic bids on 30