1. Editorial: Getting PPP back on track

Editorial: Getting PPP back on track

Appellate tribunals, and revenue-sharing a good idea

By: | Published: January 4, 2016 12:30 AM

Given how a whole host of PPP projects have been stalled, resulting in not only precious capital being blocked, but also in the environment becoming vitiated by disputes between stakeholders, revisiting the rules was always warranted. The government had proposed an Infrastructure PPP Adjudicatory Tribunal (IPAT), which the Kelkar committee, tasked with reviewing the PPP model, believes could be a good platform through which to resolve legacy issues. Indeed, it can be a starting point with some umbrella guidelines being framed to deal with stressed projects. Though there are several Model Concession Agreements for various sectors, developers argue the lack of clear-cut guidelines to minimise disputes and, most of all, a dispute resolution mechanism. That has only caused friction, with stakeholders trading charges and ending up in court. Developers say they are forced to settle for lower amounts than they deserve because they want to end the litigation and free up capital, while the government believes they are gaming the system, resorting to predatory bidding and inflating claims.

The Kelkar committee has recommended several changes to the MCA, among them one which says the tendering process should not commence until at least 80% of the land has not been acquired. This is sensible since too many projects have been delayed because land hasn’t been acquired. The committee has also advocated a dispute resolution mechanism that is flexible enough to allow for restructuring within the commercial and financial boundaries of the project. More importantly, given how projects stretch over 20-30 years, it wants enough of a cushion for developers to protect them from events that are unanticipated and beyond their control. It feels they must be guarded from “obsolescing bargain” by which the government authority has the upper hand once the project is completed. This can be achieved by building in safeguards ab initio into the contract. These are important given how commodity cycles can be unpredictable; the sharp rise in the price of imported coal, for instance, turned out to be a nightmare for power producers like Tata Power and Adani Power, and certainly guidelines need to take into account such events. The committee believes that independent regulators for each sector are necessary. Though water-tight contracting is critical, that may not be such a bad thing since each sector does need close attention when things go wrong.

To help free up capital, the committee has recommended easier norms for equity to be sold off and monetising assets. That apart, it feels creating pools of assets that carry lower risk would help attract investors. The committee also feels that lenders, who are probably the worst sufferers, when a project fails to take off, should decide that a default is grave enough to warrant the concessionaire being substituted. Lenders might also be comfortable with the committee’s suggestion that a revenue-share model be adopted by NHAI and the concessionaire for roads projects with long gestation projects.

  1. D
    Divaker Kumar
    Jan 4, 2016 at 10:55 am
    can any Elaborate what is PPP projects ?
    Reply

Go to Top