1. Revitalising PPP

Revitalising PPP

Proper action on the report will spur infra growth

Published: January 6, 2016 12:02 AM

Public Private Partnership (PPP) was supposed to be a panacea for the gigantic funding needed by India for transforming its moribund infrastructure and accelerating the economic growth of the country. However, PPP as a mechanism to fund and build large scale infrastructure seemed to have lost steam, with investors having had adverse experiences.

KPMG India estimates that India’s infrastructure funding needs for its current infrastructure aspirations, would be to the tune of $7 trillion. This is almost 10% of the global GDP. Given the enormous appetite that India has for infrastructure, it would be a challenge to meet this requirement without reviving PPP as a credible option. Hence it is imperative to revive and revitalise PPP as a tool for funding, building and operating large infrastructure in India.

This is the objective of the report of the Committee on Revisiting & Revitalising the PPP Model of Infrastructure Development, chaired by Dr. V. Kelkar. The report’s timing could not have been better as government-initiated infrastructure projects are just beginning to accelerate in the form of roads, railways, smart cities, urban infrastructure investments, housing for all etc. All of these projects envision using PPP as a significant mechanism for creating the targeted infrastructure. In fact, India is now the world’s largest market for PPP in the world.

The Kelkar committee report has significant recommendations for reviving PPP in India. One of the key recommendations is to amend the Prevention of Corruption Act, 1988 which does not distinguish between genuine errors in decision-making and malafide action by public servants. This would ring-fence government officers and bureaucrats for their decisions taken with bonafide intention. This in itself would allow bureaucrats to adopt PPP more vigorously.

The report also recommends that contracts should be more focused on service outcomes than mere fiscal benefits and calls for further strengthening of the three key pillars of PPP frameworks namely Governance, Institutions and Capacity. It also stresses on further capacity building of all stakeholders. The report recommends setting up of independent regulators for each sector that adopts PPP, with a unified mandate.

One of the critical reasons for PPP going out of favour was the limited focus on realistic risk assessment and building mitigation strategies. The report therefore recommends revisiting the Model Concession Agreement (MCA), for a more rational assessment of risk across the stakeholders.

Many PPP projects become distressed due to unforeseen reasons such as delay in not being able to acquire land.

These projects could potentially be salvaged by renegotiating the terms of the concessionaire agreement. The report recommends benchmarks to be applied to each proposed renegotiation as well as setting out conditions that should be accepted as valid reasons for a request for amendment of a concession agreement. The report also recommends mechanisms for protecting concessionaires from the loss of bargaining power over time (Obsolescing Bargain).

The report comprehensively addresses the key issues that have hindered PPP adoption in the infrastructure space, large or small. If its recommendations are accepted, it would lead to significant uptake of PPP as a mechanism for funding infrastructure in India in the near term.

By Jaijit Bhattacharya

The author is Partner–Infrastructure and Government Services, KPMG in India

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