Letters to the editor

Written by The Financial Express | Updated: Oct 17 2014, 06:29am hrs
Bad diagnosis, worse remedy

Apropos of the column 'Powering PPPs in the infra sector' (October 14), seeking renegotiation of concessions mid-way through their life cycle is another poorly disguised attempt at privatising gains and nationalising losses. If a private developer is unwilling to accept the downside risk of its own investment decision, it has no business asking the government to underwrite the investment. It is acceptance of this risk that justifies the premium returns generated on private developer's equity. Further, the main failure of the Indian PPP experience over the past two decades has been the absence of owners and operators, with the space being captured by the contractors. Fact of the matter is that the interests of owners and contractors are not aligned in PPP projectsthe contractors are only interested in the up-front EPC work being executed at the cheapest possible cost, while owners would really want the total lifecycle costs to be optimised (which may mean higher up-front costs). It is because of this conflict that, globally, the owners of infrastructure are not primarily the contractors. The right solution(s) to address the potential failures of PPP are: adopt the right contractual structure and allocate risks fairly, e.g., if the private sector is unwilling to accept demand risk, then use the annuity or DBO model; insist of participation of credible O&M partner in the project equity, with arms length O&M contract; the main project developer MUST retain a significant skin in the game for at least 50% of the total concession periodinfrastructure is a long-term game, if you don't have the capacity to invest for long-term, then don't bid; the bids must all be fully underwritten at the time of bid submission i.e. debt financing must have been committed, subject only to contract signing and regulatory approvals and; finally, the bid bond and performance bond amounts must be increased to 5% and 10% of the investment value. There is no short cut to ensuring long-term success of PPPs. The projects must be prepared well before tendering. But, once tendered, only serious and credible players must be allowed to participate in the bidding process. Much is made of the need for having a vast number of bidders to ensure competitivenessglobal experience and PPP best practices have established that highly competitive outcomes can be achieved with 3-4 competent bidders. A larger pool just adds to the numbers and, if anything, take away from the credibility of the process as serious bidders consider a large number of bidders to be a sign of non-seriousness.

Rashi Agarwal, New Delhi

Active prime minister

The people of India should note well that Narendra Modi has proved himself to be the one of the most active prime ministers of India till date. He could balance easily between campaigning extensively in the rallies in Haryana and Maharashtra on the one hand and, on the other, take stock of the Hudhud cyclone-hit Andhra Pradesh and Odisha while simultaneously dealing with the developments at the border with Pakistan. He is well aware of taking the maximum advantage of the information technology while he talks of strengthening in traditional occupations. We are very fortunate to have such an active prime minister, perhaps for the first time in Indias history after Independence. There is every reason to appreciate his efforts and also be proud of exercising our electoral choice in the favour of the BJP under him in the Lok Sabha elections. The magic of the Modi wave will prevail across India if he retains his proactive attitude.

Hansraj Bhat, Mumbai

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