By Raja Iyer
Recently, GMR Infrastructure and GVK Power & Infrastructure exited from two mega road projects (that they agreed to set up under public private partnership [PPP] model) citing delay in environmental clearances. While GVK withdrew from an around Rs 3,000-crore Shivpuri-Dewas project in Madhya Pradesh, GMR abandoned its over Rs 6,000-crore Kishangarh-Udaipur-Ahmedabad project.
In this regard, it is worth studying the nature of the concession agreements in a PPP contract and the clauses that deal with uncertain events like delays.
In order to compensate the contractors for the delay in environment clearance, NHAI is discussing a plan to lengthen the duration of the concession agreement. The time horizon of a concession agreement should be long - ranging from 15-30 years or more- in order to enable the private party recoup its investment along with the return. It should be remembered that the spirit of partnership is the kernel of the PPP arrangement - and the provisions of a concession contract must reflect them. It must be appreciated that the NHAI, which is a public authority, is taking initiative to help out the private party to overcome the crisis. According to source-based information, the NHAI plans to waive the premiums that GMR and GVK have to pay for the projects. While GMR agreed to pay an annual premium of Rs 636 crore for its Kishangarh highway project, GVK agreed to pay Rs 180 crore for its Devas project.
It is advisable that the NHAI and the private companies renegotiate the contracts for the overall interests of the nation. Owing to the long tenure of the contract, a concession agreement specifies the conditions that allow the terms to be renegotiated, also what type of events could trigger renegotiation and how frequently the review could happen.
The success of a PPP requires that risk is shared equitably across different stakeholders. The concession agreement contains suitable provisions ensuring that risks are allocated to the party, which is best suited for managing the same and also the party bearing the risk is suitably compensated.
Having said this, a concession contract must be robust enough to withstand all the vagaries emerging during the long period of pendency of the concession. At the same, it should be flexible enough to mould itself to the changed environment.
Development of infrastructure like roads, power is an imperative for the overall economic progress. Keeping in mind the larger interest of the economy, all the stakeholders concerned must come to the discussion table and iron out wrinkles in the matter.