The recently concluded FICCIs India PPP Summit 2014 saw deliberations and acknowledgment on the need to relook at the PPP model in India.
"There is a need to have a more sophisticated framework for Public Private Partnership (PPP) and we are working on it. A PPP framework has to be formulated in such a manner to allow flexibility due to change in circumstances spread over 20-25 years," Finance Secretary Arvind Mayaram said at FICCIs India PPP Summit 2014. He further underlined the need for bidding out projects only after all statutory clearances are available. The problem, he said, is not with the bidding process itself but arises due to very vigorous bidding by the private sector which overestimates its capacity and is unable to assess the potential of a project on a 30-year basis.
Acknowledging the need and relevance of PPP, the need for both private investment and private management was stressed upon by the industry leaders and representatives at the summit. Delivering the inaugural address, Minister of Road Transport and Highways and Rural Development Nitin Gadkari said around 300 road projects are to be bid out within the next 5-10 years after securing all necessary regulatory clearances. The Minister also announced that for the 300 new road projects, Detailed Project Reports will be procured in advance to cut down the vetting time. Alongside, a 10-year shelf of projects will be created to bring down time overruns which are mainly responsible for cost escalation, thereby affecting the commercial viability of projects. Gadkari also added that a Bank of Ideas and Innovation will be made operational in August, wherein the private sector can chip in with new ideas as to how to go about infrastructure development. He also said that the government is thinking about post qualification offinancial bids in PPP projects, which will add to transparency in the PPP framework. It was also shared by the minister that without 80 per cent land acquisition, no tenders will be given for the projects.
Another issue, Dr Mayaram said, was of overexposure of companies in project construction, and added that 12 to 14 companies repeatedly bid for projects, stretching their resources thinly in the process. In this context, he said there was a strong case for creation of joint ventures even with foreign companies as the portfolio of infrastructure projects was a huge $500 million. The Finance Secretary also called for definition of a stressed project, identification of the cause for stalling of projects and a methodology for stress assessment and risk apportionment. The budget proposal on 3P India will look at regulation, financial structure, stress, management of contracts and capacity building on the part of both the private sector and the government and this will go along with rejuvenating the PPP universe.
A report was released at the summit titled Public Private Partnerships in India: at the crossroads that talked about the present scenario, shortfalls and the challenges faced by the PPPs in India. The report mentions that while PPPs are essential for the growth of the infrastructure investment in the country, there are still a plethora of challenges from the planning to the operational stages. Viability related concerns are a big delaying factor apart from the clearances and land acquisitions. In their recommendations, apart from speeding up the clearances, it also mentions improvement in bidding provisions, rapid dispute resolution mechanism and implementation of mechanism for renegotiation of contracts.
Dr. (Ms.) Jyotsna Suri, Senior Vice President, FICCI, pointed out that one of the key challenges faced in promoting infrastructure projects is how to put in place appropriate policy, institutional and legal framework. Inadequacy of well-performing institutions can cause protracted negotiations between public and private partners, tardiness in reaching financial closure and consequent delays in many projects. Equitable distribution of risks and rewards between the partners with clear rules of engagement can help forge win-win partnership.
She suggested adoption of BOT Annuity Concession model for highway projects which are commercially unviable having an uncertain revenue stream from toll collections. This model holds significant potential to attract private capital especially when investors are shying away from bidding BOT (Toll) based projects due to shortage of funds. The annuity concession model is believed to be more attractive than BOT (Toll) from the perspective of private investors as they are able to recover their costs through series of fixed and periodical (annual) payments from the Government spread over the concession period, rather than expecting it to be recovered from the proceeds of toll collections. Dr. Suri welcomed the recent budget announcements for setting up of Infrastructure Investment Trusts and an institution called 3P India. "We are confident, these measures will provide impetus to private investment and promote PPPs in the country. Moreover, RBIs recent decision to ease norms for long-term funding for infrastructure is a positive step," she said.
Abhaya Agarwal, Partner & Leader - PPP, EY, stated that PPP in India witnessed tremendous growth in the last decade because of the thrust provided by the government to infrastructure development in the Tenth Five-Year Plan and Eleventh Five-Year Plan. The new government has announced its agenda to revive the growth of the sector. It plans to adopt a multipronged strategy to simplify procedures, expedite ongoing projects and develop new ones. The recent Union Budget 2014-15 has also laid emphasis on removing the bottlenecks in the infrastructure sector. The initiatives such as setting up of institutions to provide support to mainstreaming PPPs, Infrastructure Investment Trusts (InvITs) and permitting banks to raise long term funds for lending to infrastructure sector with minimum regulatory preemption bode well for the sector. He said that among the various infrastructure sectors, roads and highways, airports and ports have witnessed relatively more PPP projects, while the railways has recently opened up to the idea of private participation. Moreover, the governments decision to allow 100 per cent FDI in rail infrastructure projects such as the Mumbai elevated rail corridor and the dedicated freight corridors (DFCs) is expected to boost private participation. The government has already allowed FDI in rolling stock (locomotives and coaches) manufacturing units.
Infrastructure Today has been advocating a re-haul and a relook at the PPP model in India. With delays in clearances to land acquisition causing the private sector to rethink their participation in the PPP projects, there is a need for the government to actively step in to facilitate and speed up the clearances and create sufficient infrastructure to allow successful bidding of the projects.