To address the disputes arising in public-private partnership (PPP) contracts, the Budget has talked of providing a legal framework for dispute resolution in such projects and public utility contracts.
In addition, the finance minister said that the country’s “private sector plays an important role in the development of infrastructure, many of which are implemented in the PPP mode”. The new initiatives, he said, were to “reinvigorate” this sector.
Acknowledging that disputes arising in public contracts take long to resolve, and involve high costs, the finance minister said that the government proposes to introduce a Public Contracts (Resolution of Disputes) Bill 2016-2017 to streamline the institutional arrangements for resolution of such disputes. The preliminary draft Bill was made public by the government in June last year.
According to the draft, the scope of the Act will include providing resolution of disputes arising from contracts entered into by a public authority for construction and infrastructure projects including the ones undertaken under PPP. The finance minister said that the government is in the process of finalising the draft Bill which would be introduced in Parliament in the budget session 2016-17. He further added that the government will issue guidelines for renegotiation of PPP concession agreements, keeping in view the long term nature of such contracts Also, a new credit rating system for infrastructure projects which gives emphasis to various in-built credit enhancement structures will be developed, instead of relying upon a standard perception of risk which often result in mis-priced loans.
Industry experts gave a thumbs-up to these measures, and await their implementation. Ashish Agarwal, director (infrastructure), Equirus Capital says, “Institutional framework to renegotiate concession agreements and standardisation of asset risk evaluation through formulation of a new credit rating system will usher in financial transparency in the sector”.