NITI Aayog’s chief executive officer Amitabh Kant shared his views on the performance of and potential for public-private partnerships (PPPs) in the country’s infrastructure sector at the recent India PPP Summit 2017 organised by the Federation of Indian Chambers of Commerce and Industry…
The country has created outstanding infrastructure through PPPs. There was a time when close to 50 per cent of the capital outlay was through PPPs. The Delhi and Mumbai airports were developed on this basis through a transparent competitive bidding process. The crux of a PPP project is symmetric risk allocation. While the government must take certain risks, market risks must be borne by the private sector.
How PPPs lost vibrancy
My belief is that a part of the problem is that many projects were bid out without adequate homework being done. I have always advocated that when a PPP project is bid out, a special purpose vehicle should be formed which houses all the clearances. This will get the government huge returns since almost 30-35 per cent of the project value is locked in timely approvals. Project development and structuring is not the core competence of the private sector; only the government is capable of doing this.
The private sector is no saint
In the past, the private sector made irrational bids and then backed out of projects. Private players need to realise that by doing so they cause themselves pain in the long run. The compulsion of the government to develop projects stems from the fact that the private sector has performed very badly. It bids aggressively and then is not able to complete the projects. This has been common in the road and coal sectors. A case in point is the Delhi-Jaipur highway where the private sector has delayed the project since it has not been able to raise resources. It is thus the responsibility of the private sector to ensure that in the long run top-class infrastructure is created and for that players bid sensibly and complete projects in a time-bound manner.
New areas of PPP like reverse BOT need to be explored
While the government has undertaken many projects, it is not good at operations and maintenance (O&M). Reverse build-own-operate (BOT) is a good model in the short run when growth in PPPs is slow.
After completion of projects, we must get the private sector to undertake O&M for a period of 30-40 years. This is the fastest way to bring private sector money back into infrastructure. The country needs to move into new areas of PPP. There is no reason why jails, schools and colleges should be run by the government. The experience of many countries including Canada and Australia shows that the private sector is capable of creating social infrastructure.
Better project structuring required
The model concession agreement needs to be structured in such a manner that risks are well apportioned between parties. Disputes need to be sorted out quickly. There may be external
exigencies which force projects to get held up, not because of the concession but due to external factors and there needs to be an inbuilt mechanism to quickly resolve these disputes.
Government should create a shelf of derisked and well-structured projects
While there is no shortage of money, there is “poverty” of well-structured projects. There is a huge amount of money available across the world to be invested in well-structured projects. The challenge is to create derisked projects, market them well, and have good operators take them up. If a project entailing the modernisation of 500 railway stations is structured well, we will be able to revive the whole Indian economy. The economy will grow by another 2 per cent if we are able to sell off a number of projects which the government is operating inefficiently.
Huge opportunity in store
A lot of work is going on across sectors in India right now. About 500 railway stations will be modernised. There is a lot of work under way in the port sector as well, under Sagarmala. The dedicated freight corridors (DFCs) will make a huge difference to the country once they are operationalised by 2018. Today, it takes 14 days for goods to reach ports in western coastal India, but by 2018, goods will reach within 14 hours. However, there’s no rationale at all for Indian Railways to run the DFCs. So while we will be creating a huge amount of opportunity in the days to come, my view is that the government should not execute projects but ensure that we are able to market them well to get good bidders.