India is yet to mature to global standards in terms of being a public-private partnership (PPP) market. A number of projects implemented in the PPP mode have failed to bring in desired results. Revisiting the model has thus become a necessity, rather than a choice, for infrastructure development. The quantum of funds required by the infrastructure sectors may only be met through active participation by the private sector. The need of the hour is that government must focus on bolstering the PPP ecosystem by trying to eliminate contractual issues. Across infrastructure sectors, there have been mixed results with respect to project implementation in PPP mode. Sectors such as roads, which started off in the PPP mode quite well now have only a handful of successful PPP projects, while in others such as railways, PPP projects are still at a very nascent stage.
In a recent attempt to revamp the PPP model, a 10-member committee was constituted under the chairmanship of Dr Vijay Kelkar, chairman, governing body, National Institute of Public Finance and Policy. The mandate of the committee was to review and revitalise the PPP mode of infrastructure development.
Indian Infrastructure discusses the key recommendations made by the Kelkar Committee in its recently submitted report
Rebalancing of risk sharing
The committee has highlighted the need to allocate risks symmetrically between stakeholders. Towards this end, an assessment is required regarding the relative ease and efficiency of managing risks by the entity concerned. Further, the Department of Economic Affairs (DEA) must sharpen its skills in the use of sophisticated modelling techniques to assess the probabilities of risks and manage risks cost effectively. 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 of the government at the time of signing the concession agreement.
- Comparison with the financial position of the government prior to renegotiation.
Resolving legacy issues
The committee has recommended that a statutorily established and empowered multidisciplinary expert institutional mechanism be put in place to deal with the complex issues involved. In this regard, an Infrastructure PPP Project Review Committee may be constituted to evaluate and send its recommendations in a time-bound manner in the case of “actionable stress” in any PPP infrastructure project be-
yond a notified threshold value. Similarly, an Infrastructure PPP Adjudication Tribunal may be formed to resolve legal issues. Further, in case procurement of land or clearances are pending from government authorities for more than the prescribed number of days, the outstanding work should be de-scoped, and the rest of the activities should be allowed on completed scope. The balance of the work can be completed on a cash-contract basis, provided land and required clearances are in place.
It has been suggested that a mechanism be created for cancelling and rebidding projects that have not achieved a prescribed percentage of progress on the ground. Such projects can be completed through the use of public funds, or bid out for operations and management.
Scaling up finance
- The committee has suggested that the Re-serve Bank of India review and provide guidelines to lenders on the encashment of bank guarantees in line with associated norms.
- Monetisation of viable projects that have stable revenue flows after engineering, procurement and construction delivery has been recommended.
- Equity in completed, successful infrastructure projects may be divested by offering it to long-term investors.
- The Ministry of Finance can allow banks and financial institutions to issue zero coupon bonds, which will help in achieving soft landings for user charges in the infrastructure sector.
- There must be a restriction on the number of banks in a consortium.
- Banks need to build up their own risk assessment/appraisal capabilities.
Generic, including legacy, projects
The committee has underlined the need to encourage sector-specific institutional frameworks with a view to addressing the issues of stressed PPP projects. Learnings from the experience of the highway sector in this regard should be utilised for other sectors to customise and adopt such frameworks. The DEA must also issue threshold guidance in order to ensure that PPP structures are not adopted for very small projects in view of the high transaction costs involved. At the same time, the DEA should finalise a national PPP policy document. Further, unsolicited proposals (“Swiss Challenge”) must be actively discouraged as they lead to information asymmetries in the procurement process and result in a lack of transparency.
Strengthening policy, governance and institutional capacity
There is a need to set up an institution for invigorating private investment in infrastructure; prepare and provide guidance for a national PPP policy; develop a mechanism to capture and collate data for decision-making; and undertake capacity building activities, including preparation of knowledge modules for different stakeholders.
In order to develop a broad, robust and diversified portfolio of PPP projects at the central, state and local self-government levels, it is essential to have an agency with a mandate to promote better PPP practices. The committee has recommended having an institutionalised mechanism like the National Facilitation Committee to ensure time-bound resolution of issues including getting timely clearances/approvals during implementation of projects for smooth running of PPP projects. The 3P-I institute for PPPs announced in 2014 must be set up without delay.
To address concerns raised by stakeholders regarding the demand for the books of accounts of developers to be subjected to government audit, the committee has laid down a process to enable review only of government internal systems and not those of special purpose vehicles (SPVs); however, SPVs need to follow best practices in corporate governance including those in related party transactions, financial disclosures, etc. as laid down in the Companies Act, 2013.
Other recommendations include amendment of the Prevention of Corruption Act, 1988 to distinguish between genuine errors in decision-making and acts of corruption; coordination between the Ministry of Finance and other implementing ministries to develop a policy to promote a secondary market for operational assets; and discouragement of government participation in SPVs that implement PPP projects unless strategically essential. The DEA needs to issue guidance on government participation in such joint ventures/SPVs.
Reinvigorating the sectors
Having recognised that sector-specific recommendations require domain expertise and need a much longer-term view than is given to them, the Kelkar Committee has provided a list of suggestions (see table).
Fast forward PPPs
There must be an institute of excellence in PPP to inter alia guide the sector and provide policy input, and timely advice as well as undertake sustainable capacity building. At the same time, emphasis must be laid on integrated development of infrastructure with roadmaps for delivery of projects.
Conclusion
India’s success in deploying PPP as an instrument for creating infrastructure will depend on fostering trust between private and public sector partners in implementing such projects as well as in the speedy implementation of PPP projects.
As recommended by the Kelkar Committee, the periodic review of PPPs is a must to help address issues before they become endemic. There is an urgent need to rebuild India’s PPP capacities and to further strengthen the three key pillars of PPP frameworks – governance, institutions and capacity. The government needs to address the challenge of implementation issues in order to successfully turn policy intent into action.
