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All India PT Mock Test (OMR Based) Across 20 Cities

will be conducted on 20th May, 2018. Click here for Test Schedule & Online admission.

Test Center List:

  1. Delhi
  2. Jammu
  3. Chandigarh
  4. Ahmedabad
  5. Bhopal
  6. Lucknow
  7. Allahabad
  8. Patna
  9. Ranchi
  10. Kolkata
  11. Bhubaneswar
  12. Raipur
  13. Jaipur
  14. Mumbai
  15. Pune
  16. Nagpur
  17. Hyderabad
  18. Chennai
  19. Coimbatore
  20. Bengaluru

Revisiting And Revitalising Public Private Partnership Model Of Infrastructure Dr. Vijay Kelkar Chairman

Introduction

Investment in infrastructure in India has posed a challenge in the last few years. Not only are there reports of delayed or stalled infrastructure projects but the rate of growth of gross fixed capital formation (GFCF) has also been disappointing.

 Inadequate acceleration in private sector projects has been attributed inter alia to unfavourable market conditions, lack of appetite for fresh investment by promoters and delays in obtaining environmental clearances. In the public sector, on the other hand, the slowdown in delivery of projects has been attributed to regulatory decisions, problems in land acquisition and scarcity of funds. 

The Union Finance Minister, in his Budget speech of 2015-16, has emphasized the need for increasing public investment in infrastructure. Simultaneously, while referring to the importance of drawing in the private sector, he emphasized the need for a review of the Public Private Partnership (PPP) model of infrastructure development, which harnesses private investment for providing public assets and services. 

Public Private Partnership has been accepted as an important policy instrument for central and state governments in the implementation of commercially viable projects. However, PPPs have played a limited though significant role in the infrastructure delivery mechanism in sectors over the last decade. 

The Department of Economic Affairs (DEA), Ministry of Finance, with support from the erstwhile Planning Commission of India, has been overseeing the development of public infrastructure through the PPP model across the country. 

The rollout of PPPs through these efforts has resulted in a portfolio of PPP projects, at various stages of delivery and operations, which surpasses all other countries today. 

This has also been accompanied by developments, which were not anticipated by either party in the PPP contract (the "Concession"). These developments have been due to macro-economic factors, sectoral regulatory meso-economic factors and micro-economic factors such as private sector specific. 

As a result, the DEA has issued a series of guidelines on: 

(i) building-in the required degree of flexibility in long-term PPP Concessions; and 

(ii)  strengthening public sector management of operational PPPs. 

However, other aspects remain that need to be addressed by all stakeholders, including the public authorities, lending community and private partners. 

As part of the government's efforts to revitalize private investment, a detailed review of risks in PPPs was considered essential to rebalance the allocation of risks, while in no way diluting the essence of a PPP structure. 

Building upon the strengths of the mature PPP landscape in the country, which has been acknowledged internationally, the government underlined its aim to:

(i) rekindle private sector interest and investment to augment public investment; 

(ii) address all issues and identify key takeaways, including global best practices; and

(iii) review and reorient the PPP model, keeping in mind the interests of all stakeholders. 

Emphasis was also laid on the need to ensure that government absorbs only those risks that cannot be borne by the private sector. 

Key recommendations:

Chapter 2- Revisiting PPPs: Achievements and Challenges 

a. Contracts need to focus more on service delivery instead of fiscal benefits.

b. Better identification and allocation of risks between stakeholders.

c. Prudent utilization of viability gap funds where user charges cannot guarantee a robust revenue stream. d. Improved fiscal reporting practices and careful monitoring of performance 

Chapter 3- Why it is Urgent for India to get Infrastructure PPPs Right 

The Committee feels strongly that maturing the PPP model in India is an urgent priority also to take advantage of this historical conjunction of India’s infrastructure needs and the availability of long-term funding 

Chapter 4- Re-balancing of Risk Sharing

a. An assessment needs to be carried out regarding the relative ease and efficiency of managing the risks by the entity concerned.

b. Cost effectiveness of managing the risk needs to be evaluated.

The final decision for a renegotiated Concession Agreement must be based on :

- Full disclosure of long-term costs, risks and potential benefits; 

- Comparison with the financial position for government at the time of signing the Concession Agreement;

- Comparison with the financial position for government at the time prior to renegotiation.

Chapter 5- Resolving Legacy Issues

a. An Infrastructure PPP Project Review Committee (“IPRC”) may be constituted to evaluate and send its recommendations in a time-bound manner upon a reference being made of “Actionable Stress” in any Infrastructure Project developed in PPPmode beyond a notified threshold value.

- An Infrastructure PPP Adjudication Tribunal (“IPAT”) chaired by a Judicial Member (former Judge SC/Chief Justice HC) with a Technical and/or a Financial member, where benches will be constituted by the Chairperson as per needs of the matter in question

5) Generic, Including Legacy Projects 

a. Sector specific institutional frameworks may be developed to address issues for PPP infrastructure projects . An entity should bear the risk that is in its normal course of its business (for instance, acquisition of land is a normal course of business for public entities).

b. Learnings from the Highways sector to be utilized for other sectors to customize and adopt such frameworks . 

c. Umbrella guidelines may be developed for stressed projects that provide an overall framework for development and functioning of the sector specific frameworks . 

d. DEA to finalize a national PPP Policy document .

e. Unsolicited Proposals (“Swiss Challenge”) to be discouraged to avoid information asymmetries and lack of transparency .

6. Chapter 6- Strengthening Policy, Governance and Institutional Capacity

a. Amend the Prevention of Corruption Act, 1988 to distinguish between genuine errors in decision-making and acts of corruption. 

b. Set up an institution for invigorating private investments in infrastructure, providing guidance for a national PPP policy and developments in PPP, developing a mechanism to capture and collate data for decision making, undertaking capacity building activities. 

The 3P-I institute for PPPs announced in 2014 may be set-up without delay.

c. An institutionalized mechanism like the National Facilitation Committee (NFC) to ensure time bound resolution of issues including getting timely clearances/approvals during implementation of projects for smooth running of such projects .

d. Ministry of Finance to coordinate with other implementing ministries may develop a policy to promote secondary market for operational assets .

e. Disallow statutory audit to books of SPVs governed by the provisions of the Companies Act. Ensure adoption of principles of good governance by the SPVs .

f. Ministry of Finance to allow banks and financial institutions to issue Zero Coupon Bonds which will also help to achieve soft landing for user charges in infrastructure sector . 

7. Chapter 7- Revitalising Contractual Processes  

a) Need for review of the MCAs .Sample suggestions for generic changes, including for resolution of disputes, and sector-specific changes  

8. Chapter 8 - Reinvigorating the Sectors 

a. Independent sector regulators essential.

b. Build upon maturing landscape in Roads and Ports PPP and move into the next phase:

Roads: avoiding delays, institutionalized dispute resolution, improved project development activity, monetization of operational assets, efficiency and transparency by electronic tolling, etc.

Ports: review of role and need of Tariff Authority for Major Ports (TAMP), review of MCA, quicker clearances, rationalized leases and stamp duties. 

Airport: PPPs to be encouraged where viable in Greenfield and brownfield projects, have policy that addresses potential demand for airport services in the country, notify a unified regulatory structure, clarity in delineation of Till policy, calculation of aeronautical and other cash flows essential .

c. Encourage use of PPPs in sectors like Railways, Urban, etc. Railways to have an independent tariff regulator, tap potentially useful PPP opportunities including brownfield assets 

9. Chapter 9- Fast Forward PPPs 

a. Set up an institute of excellence in PPP to inter alia guide the sector, provide policy input, timely advice and undertake sustainable capacity building 

b. Ensure integrated development of infrastructure with roadmaps for delivery of projects.

c. India’s demographic deadlines are staring at us. There are only two or three decades left to complete the transition from a country that has just attained middle-income status to that of a high-income and developed economy. 

Besides the basic problems for provision of adequate infrastructure, the middle-income trap is also to be averted. Without adequate infrastructure, this will simply not be possible. India is currently in a global win-win situation with a large young population that will need good jobs and a huge pool of global savings that can be tapped for building out our infrastructure. PPPs are an important policy instrument that will enable India to compress time in this journey towards economic growth and development. A successful and growing stream of PPPs in infrastructure will go a long way in accelerating the country’s development process.

 

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