Revisiting & Revitalising The PPP Model Of Infrastructure Development

Economic Affairs Investment Models

KEY RECOMMENDATIONS OF THE REPORT

1. Revisiting PPPs: Achievements and Challenge

Contracts need to focus more on service delivery instead of fiscal benefits.
Better identification and allocation of risks between stakeholders.
Prudent utilization of viability gap funds where user charges cannot guarantee a robust revenue stream.
Improved fiscal reporting practices and careful monitoring of performance.

2. Why it is Urgent for India to get Infrastructure PPPs.

There is very fast demographic transition in India.
Availability of long term fund.
PPPs have the potential to deliver infrastructure projects both faster and better.

3. Re-balancing of risk Sharing:

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.

4. Resolving Legacy Issues

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 PPP mode 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
In case procurement of land or clearance is pending from government authorities for more than prescribed number of days, the outstanding work should be discontinued(under the provisions of Change in Law of Concession Agreement), and allow rest of activities for completed work.
Balance work could be completed on a cash-contract basis, provided land and required clearances are in place.
Cancel projects that have not achieved a prescribed percentage of progress on the ground.

5. Generic, Including Legacy Projects

Learning from the Highways sector to be utilized for other sectors to customize and adopt such frameworks.
Umbrella guidelines may be developed for stressed projects that provide an overall framework for development and functioning of the sector specific frameworks.
DEA to finalize a national PPP Policy document. e. Unsolicited Proposals (“Swiss Challenge”) to be discouraged to avoid information asymmetries and lack of transparency.
PPP structures not to be adopted for very small projects in view of the transaction costs involved.

6. Strengthening Policy, Governance and Institutional Capacity

Amend the Prevention of Corruption Act, 1988 to distinguish between genuine errors in decision-making and acts of corruption.
Build up capacity in all stakeholders, including regulators, authority, consultants, financing agencies, developers.
Set up an institution for invigorating private investments in infrastructure.
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.
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 Generic, Including Legacy.
Essential to set up independent Regulators in sectors going in for PPP.
Discourage government participation in SPVs that implement PPP projects unless strategically essential.

7. Scaling- Up Finance

Restrict the number of banks in a consortium.
Banks to build up their own risk assessment/appraisal capabilities.
Check list of items listed as a guidance for lenders.
RBI may provide guidelines to lenders on encashment of bank guarantees in line with ICC norms.
Monetization of viable projects that have stable revenue flows after EPC delivery should be considered.
Equity in completed, successful infrastructure projects may be divested by offering to long-term investors.
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.

8. Revitalising Contractual Processes

Sample suggestions for generic changes, including for resolution of disputes, and sector-specific changes.

9. Reinvigorating the Sectors:

Independent sector regulators essential.
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,

10 .Fast Forward PPPs

Set up an institute of excellence in PPP to inter alia guide the sector, provide policy input, timely advice and undertake sustainable capacity building.
Ensure integrated development of infrastructure with roadmaps for delivery of projects.

Analysis:

India’s demographic deadlines are going to be at its peak. 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

Dialing…mains(General Study III : Investment and infrastructure)

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