Revitalizing Public Private Partnerships in Infrastructure

Infrastructure deficit is a significant constraint to achieving high economic growth. For the past few years, India has been suffering from a high gap in the sector. As per an Asian Development Bank Report, India will require investments worth US$5.15 trillion till 2030. With the private sector emerging as a key player across various infrastructure segments, a valuable instrument for boosting infrastructure is through Public Private Partnership (PPP) mode.

PPPs in infrastructure refer to a mechanism for Government to procure and implement public facilities combining the skills and resources of both the public and private sectors through mutual sharing of risks and responsibilities. The limited availability of public resources for investment in infrastructure and projected fund requirements have made it necessary for the Government to explore avenues through a combination of public investment and PPP. However, the current status of PPP is hamstrung due to regulatory bottlenecks.

In Union Budget 2015-16, Finance Minister Shri Arun Jaitley announced the need for revitalizing and revisiting the PPP mode of infrastructure development. Following the announcement, a committee was formed, chaired by Dr. Vijay Kelkar, former chairman, 13th Finance Commission, to look into measures for improving capacity building of Government for effective implementation of PPP projects, review the experience of the policy, analyse risks involved in such projects in different sectors and devise an existing framework of sharing of such risks between the Government and developers. The Committee submitted the Report on Revisiting and Revitalizing PPP model of infrastructure to the Finance Minister on November 19, 2015.

Some of the major recommendations of the report are as below –

For rebuilding India’s PPP capacities and supporting a dynamic process of infrastructure design, the committee strongly endorsed the setting up of a Public Private Partnership Institute –“3PI”. In addition to functioning as a centre of excellence in PPP, the institute would also enable research, review, and roll out of activities for enhanced capacity building along with supporting more sophisticated models of contracting and dispute redressal mechanisms.

The committee also emphasised on the vital importance of setting up of independent regulators for PPP projects in various sectors. Further, to ensure harmonized performance by the regulators, the committee recommended the setting up of such independent regulators with a unified mandate that encompasses activities in different infrastructure subsectors.

PPP projects can become distressed when risks emerge that may not have been contemplated at the time of signing the concession agreement[1]. Keeping in view the long-term and uncertain nature of contracts, the committee recommended that guidelines must be issued for renegotiation of the concession agreement and that there should be ex-ante provisioning for a negotiation framework in the bid document itself.

The committee recognized the need for a quick, equitable, efficient and enforceable dispute resolution mechanism for PPP projects. It recommended that a clearly articulated dispute resolution structure must be in place for all PPP projects that would demonstrate the commitment of all stakeholders and would provide the flexibility to restructure traditional risk allocation formats, with the commercial and financial boundaries of the project.

The committee suggested the adoption of a transparent and competitive bidding process based on the suitability to the context and nature projects. Further, project implementing authorities must explore international and best practises and adopt the best method suited to the projects without compromising transparency and competitiveness.

As PPP projects have become the preferred mode of developing infrastructure projects today, the recommendations of the Kelkar Committee are relevant for the overall growth of the economy. Given that infrastructure is a primary growth driver and the current situation of requirement of investments, the adoption of the Kelkar Committee Recommendations may go a long way in boosting the sector. Keeping this in mind, the Confederation of Indian Industry (CII) has also suggested that the Kelkar Committee recommendations on Revisiting and Revitalizing the PPP model of Infrastructure be speedily considered and implemented. This would create new opportunities for the private sector to contribute effectively to the nation’s infrastructure mission.

[1] The contract that specifies the allocation of risks across PPP stakeholders

Kelkar Committee Report Link: http://bit.ly/2F4yH0Q 

 

 

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