New MCA will have four changes, including dispute resolution

BK Chaturvedi, Member of the Planning Commission of India, is in the hot seat. It was his draft of the original MCA in roads that made all the difference to PPP in roads. Now it´s time to debug that document, he tells Garima P.

Have investors been withdrawing on account of the existing Model Concession Agreement (MCA) for highways?
Quite a few people have been attacking the MCA saying that provisions need to be changed. Now that the economy is not doing well, it is easy to blame the MCA for failures. There is no cause and effect in this. A lot of changes have taken place in consultation with the stakeholders, only 2-3 years back. Now we can´t really keep on changing the model concession agreements frequently. These are agreements that have certain degree of longevity and that fact should be respected.

What are some of the issues in the current MCA?
According to the industry´s proposal there are four main suggestions: First, a good exit clause without a time limitation (instead of two years currently), so that roads can be given for OMT.

Second, companies should be able to sell their stake without limit (earlier, a minimum stake of 26 per cent) to enable better rotation of money.

Third, a good dispute resolution mechanism. A lot of money is stuck with the NHAI and the methods of dispute resolution are not very good.

Fourth, a government policy on changing the terms of contract renegotiation. They say globally this has been the practice.

Will you revisit each of these clauses in the new MCA?
Very much so. Take the question of renegotiations. We had a presentation recently from a global authority sponsored by the World Bank, made to the Planning Commission, CII, FICCI, and concerned ministries. We looked at the global experience and it was found that globally around half the contracts are being renegotiated, but under various conditions. As per the study, in case you renegotiate, it could be an invitation for people to aggressive bidding and then go back on it.

To discourage this, they have suggested a set of policies and conditions under which to renegotiate. Tax impositions, international conditions [of import, for example], slump in traffic, and so on. It is up to the regulator to assess the change. And to discourage aggressive bidding, we should cancel the contract, and then the message will go out clearly.

Is the Planning Commission also considering limiting the number of bidders in a project?
Both points of views have been there. On one hand, it may not be fair because you come off as trying to help some big guns. Surely for smaller contracts, you should not limit the number. On the other hand, for large contracts with specialised knowledge as a requirement, you must limit the number of players to attract good competition. A third view is that players automatically eliminated once you make the qualifications more stringent. And that was our experience also.

As a clause in the MCA, as you believe land should be leased and not acquired outright? As land acquisition gets increasingly difficult, leasing land is a good idea. We have also done it in the case of power projects.

How will the dispute resolution bill impact or probably trigger the road projects? Will you be including certain mechanisms which might probably ease the process of resolution?
The intention is that the bill should enable faster resolutions of disputes than we have now. In the draft, we have merged the arbitration proceedings and so on, so that now the pre-resolution process will have only one stage. We hope that this would enable faster resolution. But my point is that we should watch out for a year or two. The jury should be out on how the whole thing will work, before we can assess how the bill has worked. The reform on dispute resolution will figure as part of the new MCA.

Do you think that the bill should take shape on the basis of experience in the road sector based on the new MCA?
Well, the point is that in dispute resolution, we have a separate Arbitration Act. So, first of all, the parties have to agree on which process they will go through. But in the absence of the bill they can´t really agree.

What timeframe are you giving the revised MCA? By when can we expect it to be revised and implemented?
Based my experience, we will take about six months after the consultation. We´re still at the consultation stage with various stakeholders on this. Additionally, [several of] the states have also pointed out certain issues in response to the opinion we sought. We´re having a look at that now.

Is the MCA being satisfactorily and effectively applied at the state levels?
Yes, very much. State PPPs apply the MCA with greater vigour because they don´t have the technical capability at their level to draft these agreements. States like Madhya Pradesh and Rajasthan have especially done a lot of work in this area, and a number of roads have been built based on this MCA.

Not all states have been successful in building roads on BOT or other forms of PPP. How can the Planning Commission help perhaps though training or consultancy?
It is very interesting to note that the number of ,  done in the states far exceeds those by the central agencies. The capability they don´t have is to design their own MCAs. It is very important that each of these states has a PPP Cell responsible for identifying areas where private investments and PPP can be promoted. That cell should then develop capabilities and the Planning Commission would be happy to impart training, as we have been doing it in certain states in some cases.

This can be further strengthened. Today we live in a country where our economy is such that we have 80 per cent private investments and 20 per cent public investments. If private investment must be promoted, we must promote PPP in a big way. India is rated as the second largest PPP destination in the world. But the question is whether it works or not. The problem is that we have to see what we need to do because our requirements are huge and clearly the work so far is not very much and not good enough. We need to do much more now.

Do you agree that monitoring has been a big problem in BOT projects because there are two different kinds of parties involved? The owner is not monitoring enough?
I will not say that monitoring is the bug there. I will say that in many of these cases the problem has been the way we have tried to move forward at a very fast pace without taking into account the ground realities. It was said that we must have 80 per cent of the land in possession before bidding out, and it turns out we did not have 80 per cent of the land. Environment clearance and a whole lot of difficulties emerged as well. All these issues led to huge amount of delays.

Second, the problem is that many of the developers feel that now that this has come when they can be a part of it, so they tried to bid in a way which subsequently they found that they were unable to implement and this was followed unfortunately and subsequently by a slowdown in the economy. So, all these factors have contributed to it. In India, the impression is that the problem is implementation. But in this case implementation has been compounded by the structuring of the scheme and economy.