Work is required on a speedy dispute resolution system

U nless the private sector is able to see a good return on investment and stability in the schemes proposed by the government, it would be difficult to attract further investment, says Anand Pattani, Country Manager and Managing Director, Black & Veatch Private Limited.

What steps need to be taken to make infrastructure projects a more bankable proposition for the private sector?
Contracts need to be well balanced with equitable risk allocation on the party that is best suited to manage the risk. In addition, the purchaser needs to have some flexibility within contractual guidelines and reasonable guardrails to take decisions in the best interest of the project during execution, as often, contracts cannot envisage all issues that may come up during execution. In the absence of such flexibility, the purchaser interprets issues in a very conservative manner which is often detrimental to the contractor, resulting in delays and subsequent cost overruns.

A speedy dispute resolution system is one of the areas in which work is required, so disputes between the parties to the contract can be redressed in a time-bound manner. Though the government has recently amended the Arbitration and Conciliation Act 1996, and introduced a timeline for the arbitral awards – and specified fees – in order to make arbitration more competitive and attractive to the litigating parties as a dispute resolution mechanism, much depends on the successful implementation of these amendments.

The Insolvency and Bankruptcy Code recently passed by Parliament is a welcome overhaul of the existing framework dealing with insolvency of corporates, individuals, partnerships and other entities. The code paves the way for much-needed reforms while focusing on creditor-driven insolvency resolution. The code also creates a new institutional framework – consisting of a regulator, insolvency professionals, information utilities and adjudicatory mechanisms – that will facilitate a formal and time-bound insolvency resolution process and liquidation. A swift implementation of the code is to be welcomed.

What are the GST implications for infrastructure developers and EPC contractors with first indicators suggesting a higher-than-expected effective GST tax rate?
The GST implications for infrastructure developers and contractors (EPC) are mixed. For some sectors it is positive and for others it´s negative – depending upon on the nature of products and services. The consensus on GST rates and cess, and the assessment of service providers, is yet to be reached though we anticipate an effective GST rate higher than the present service tax rate, and we will thereafter access the implications across the each of the sectors we operate in.

By when will the infra market space in India become mature enough for private sector players to participate and bid projects on a PPP model? Are hybrid annuity models here to stay?
A feasibility study conducted by an experienced and qualified agency that can predict realistic costs and schedules is imperative to make infra projects bankable. Quite often, time and cost overruns occur especially when the original schedule and budget were not realistic to begin with. In addition, the question addresses the commercial risks involved in setting up infrastructure projects. Issues that should be addressed include single-window clearance to be obtained for projects. Infrastructure projects involve several nodal agencies and coordination between these agencies could become cumbersome.

Other challenges include right of way and land acquisition – single-window clearances could help fast track infra projects and allow a private developer to maintain his original schedule.

The private sector is already involved in infrastructure projects, and quite a few toll highways operate on the BOO or BOOT model. Unless the private sector is able to see a good return on investment and stability in the schemes proposed by the government, it would be difficult to attract further investment.

Hybrid annuity is the new buzzword in the market – there´s lots of excitement around it. Meanwhile, the experience with this form of project financing is limited and many developers are cautiously watching the developments. While the hybrid annuity model aims at reducing risk exposure of PPP developers, there is still some level of uncertainty about the annuity part, as the source of the annuity payments needs to be well defined. It is imperative to strike the right balance between attracting private investments and reducing risks for private developers. Internationally, another model we see in infrastructure is EPC Financing where the EPC contractor arranges financing as part of the bidding process.

Could you identify the pain areas that still need resolution before the new GST regime comes into force?
The following are the pain areas:

• Potential increase in overall project cost due to implementation of GST and the implications, if any, on project feasibility.
• Modalities on Input Tax Credit while transformation from various indirect taxes to GST.
• Restructuring of ongoing EPC contracts and the associated implications on tax credit/expenses.