Views of Nitin Gadkari: “The PPP model is not capitalist in nature; it’s a socialist line of thought”

“The PPP model is not capitalist in nature; it’s a socialist line of thought”

At the India PPP Summit 2017, Nitin Gadkari, union minister, Ministry of Road Transport and Highways (MoRTH), shared his views on how the public-private partnership (PPP) model is instrumental in accelerating infrastructure development in the country…

Flawed MCAs left PPPs suffering

Budgetary constraints and the need for a sustained focus on rural development have inspired the government to focus on the PPP model of project execution. The PPP model is not capitalist in nature; it’s a socialist line of thought.

In May 2014, the MoRTH had inherited 403 stalled projects worth Rs 3.85 trillion. These included projects where only 20 per cent of the land had been acquired and forests and environmental clearances that were obtained were flawed. Issues facing PPP projects are attributable to one-sided model concession agreements (MCAs) of the National Highways Authority of India. Consequently, changes were made to the MCA.

The government’s efforts have resulted in improved transparency, faster environmental clearances and essentially hassle-free land acquisition.

The ministry has been able to solve problems with these projects and terminated contracts worth Rs 500 billion. This saved the banking sector from non-performing assets worth Rs 3 trillion. Another challenge is the delays in project appraisals by Indian banks. Besides, there is a huge difference between cost estimates prepared by us and those quoted to the banks in detailed project reports, leading to disputes between bankers and the government.

Success of the hybrid annuity model

The hybrid annuity model has met with a lot of success mainly due the government’s proactive stance in obtaining all the clearances before project award. Besides land acquisition, the ministry secures environment and forest clearances and all other requisite clearances. The project’s cost is funded through a 40 per cent grant from the government while the concessionaire has to bring in the remaining 60 per cent through a mix of debt and equity. The government will be responsible for toll collection. As a result, the concessionaire’s risk has come down significantly. The ministry has awarded 70-80 projects under this model.

Opportunities galore despite financial constraints

As a government representative, it is my duty to understand what the problem is. The government has attracted reasonable private sector interest. Recently, the ministry floated tenders for the Solapur-Bijapur road widening project which attracted six bidders.

Innovative means of financing are being explored. The ministry has taken a dollar-denominated loan from the State Bank of India (SBI) and the Development Bank of Singapore (DBS) to implement a road widening project at Jawaharlal Nehru Port Trust. In total, the ministry can take dollar-denominated loans worth Rs 500 billion. Plans are under way to develop 12 expressways, of which work has commenced on five to six projects. The soon-to-be-commissioned Eastern Peripheral Expressway will considerably reduce traffic and pollution in Delhi. Expressways are also coming up on the Delhi-Katra, Delhi-Jaipur, Mumbai-Vadodara, Hyderabad-Bengaluru and Vijayawada-Hyderabad sections.

The need of the hour

If the situation is to be improved further, NITI Aayog should hold consultations among stakeholders including bankers, contractors, investors and the government. This will result in the formation of a balanced MCA to support PPP projects. There is huge growth potential in the sector. The aim is to increase the national highway network to about 200,000 km and bring 80 per cent of the traffic on national highways. The stakeholders, however, need to think innovatively. The government is aware of the financial constraints and expects the benefits of the PPP model to be leveraged by domestic players and investors. This is a golden period of opportunities for the infrastructure sector.