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The PPP-EPC Cycle

The PPP-EPC Cycle

Periodically alternating between promoting PPP-led projects and more controlled EPC may circumvent investor interest uncertainty.

A truly reformist government must invest in enabling businesses while keeping social and developmental costs and pricing in its radar. However, the rule of capitalistic thumb clearly has its boundaries and dimensions. The limitations of going overboard on Public-Private Partnership (PPP) is a fresh discussion that's not happening. We do not want a situation that the infrastructure sectors have just experienced, whereby developer interest declines in an ostrich-like reaction to policy and economy setbacks.

Stuck between the Comptroller-Auditor General (CAG), the Supreme Court and the Kelkar Committee Report, the government will probably feel obligated to continue to minimise its role in development of natural resources and infrastructure. The Kelkar report unsurprisingly tells the government what it has already been attempting to do: reduce government spending as a proportion of the GDP.

Identification of natural minerals and resources for mining cannot be one such. The new Mining Bill (MMDR 2011) to be introduced for Parliament approval advocates auction rather than first-come-first-served basis, but in the case of deep-seated minerals, for example, experts confer that auction is not the best route. The Supreme Court has already made it clear this year that auction is not the only method for sale of natural resources and on a case to case basis methodology could be adopted. However, the only limitation of the auction route is that during a period of economic boom, bids at unsustainable levels maybe received which may make the product accessible at a high cost to consumer, thereby denting the benefit to the consumer. In most cases, online auctions in a single step maybe the most appropriate and fair mechanism.

Crisil is helping the government's identified 54 coal blocks to be allocated. Crisil will provide methodology for calculating reserve price, floor price for all these coal block allocations. It would add share lock-in clause in the auction or allocation policy to see that there is a correct use of these coal blocks.

A deft combination of PPP and controlled privatisation is the answer, and although it should be a no-brainer, only a few ministries seem to have fully understood this chain. Appropriately, Roads and Highways is the pioneer in this holistic approach. Premium gains from aggressively bid brownfield highway development projects will be utilised this (12th) Five Year Plan for development of two-lane and other less viable roads under Engineering, Procurement, Construction (EPC). This deployment will ensure that the government does not lose control of time, costs and quality-which are sometimes at stake in PPP. Rather than trying to arrest expenditure, therefore, the government is now poised to increase it on development projects, triggering the economy and therefore investor interest.

This process, therefore, is cyclical, where intervention is required at times when investors are wary of investing in India due to heightened political and economic risks. The PPP-EPC cycle can be a redoubtable answer when national progress depends excessively on private initiative alone. Other ministries, especially the Ministries of Shipping, Urban Development and Power should study the new model EPC contract drawn up by the Ministry of Road Transport and Highways. This new version (see Cover Story in this issue) aims to fortify quality standards while making the contractor more accountable. And any positive move in the direction of accountability in this country deserves an applause.

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