1. Easier funding, separate law needed to boost PPP: Kelkar panel

Easier funding, separate law needed to boost PPP: Kelkar panel

With inadequate infrastructure choking economic growth, the high-level Kelkar committee has suggested easier funding of projects taken up under the public private partnership mode...

By: | New Delhi | Published: December 28, 2015 9:14 PM
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Kelkar committee also suggested setting up of an Infrastructure PPP Project Review Committee (IPRC) to deal with the problems being faced by such projects. (Reuters)

With inadequate infrastructure choking economic growth, the high-level Kelkar committee has suggested easier funding of projects taken up under the public private partnership mode, separate law for such ventures in health and urban transport and a dispute resolution tribunal.

The host of recommendations suggested by the eight-member Vijay Kelkar Committee, include review of the model concession agreements, allowing fund raising through zero coupon bonds and setting up of independent sectoral regulators.

Kelkar committee also suggested setting up of an Infrastructure PPP Project Review Committee (IPRC) to deal with the problems being faced by such projects.

“PPPs are an important policy instrument that will enable India to compress time in this journey towards economic growth and development. A successful and growing stream of PPPs in infrastructure will go a long way in accelerating the country’s development process,” said the report, which was made public by the Finance Ministry today.

The report was submitted by Kelkar to Finance Minister Arun Jaitley last month.

With regard to stalled PPP projects, the committee said: “There is an urgent need to evolve a suitable mechanism that evaluates and addresses actionable stress. Sector specific institutional frameworks should be developed to address these stalled infrastructure projects.”

The report said there should be a better identification and allocations of risks between the stakeholders and contracts for the PPP projects should focus more on service delivery instead of fiscal benefits.

The committee also proposed to set up an Infrastructure PPP Adjudication Tribunal (IPAT) chaired by a judicial member (former SC Judge or HC Chief Justice) with a technical and financial member.

It suggested the IPRC should consist of one expert each from economics background and one or more sectoral experts preferably engineers, and legal experts.

The mandate of the IPRC would be to evaluate and send its recommendations in a time-bound manner upon a reference being made of “actionable stress” in any infrastructure project developed in PPP mode beyond a notified threshold value.

A statutorily established empowered multi-disciplinary expert institutional mechanism should deal with the complex issues involved, it said.

As regards the funding of PPP projects, it said “the Finance Ministry should allow banks and financial institutions to issue zero coupon bonds, which will also help to achieve soft lending for user charges in infrastructure sector”.

The government, it said, “must move the PPP model to the next level of maturity and sophistication” and foster trust between private sector and public sector partners in implementing these projects.

It also suggested there should be a provision for monetisation of viable projects that have stable revenue flows after engineering, procurement and construction delivery.

The other suggestions include restrictions on number of banks in a consortium, building up of risk assessment and appraisal capabilities by banks and specific RBI guidelines to lenders for encashment of bank guarantees.

The report also underlined the need for review the Model Concession Agreement (MCA) and ensure speedier resolution of disputes.

As regards airports, it said the government should encourage PPP model in greenfield as well as brownfield projects.

It suggested an independent tariff regulatory authority for railways to help it tap PPP opportunities.

“The success of deploying PPP as an additional policy instrument for creating infrastructure in India will depend on the change in attitudes and mindsets of all the authorities including public agencies partnering the private sector, government departments supervising the PPPs, and auditing and legislative institutions providing oversight of the PPPs,” the report said.

Noting that some stalled PPP projects need to be kick started, the report said one of the key areas that requires urgent attention is evolving a suitable mechanism to expeditiously evaluate and address the circumstances that pose imminent threats to the economic foundation of any PPP project (actionable stress).

For strengthening policy, governance and institutional capacity, the committee has recommended setting up of an institution for invigorating private investment in infra, besides preparing a national PPP policy.

Since poorly designed PPP projects could result in huge direct costs, contingent liabilities, risks of litigation and delays in project delivery, it said the consultancy services may be periodically rated by rating agencies based on the variation between their projections vis-a-vis actuals in the initial five or six years of project operations.

The Kelkar committee said regulators of domestic pension, insurance and long-term funds may be encouraged to allow investment in PPP SPVs with a lower than ‘AA’ rating if developers access credit guarantee instruments.

“Active investment in take-out financing vehicles, including infrastructure debt funds (IDFs) and infrastructure investment trusts (InvITs), which de-risk returns, may also be encouraged,” it said.

Recalling the Budget 2014-15 had proposed setting up of an institution to provide support to mainstreaming of PPPs, the 3P-India, the committee expressed surprise to note that all such activities are undertaken by an understaffed PPP unit in the DEA.

“While current in-house effort by the DEA on periodic issues are commendable… professional support at a programmatic level is essential for policy implementation and regulatory assistance and also for delivery guidance at the project level,” it said.

A centre of excellence in PPPs, enabling research, activities to build capacity, more nuanced and sophisticated contracting models and developing a quick dispute redressal mechanism is overdue, it added.

“Every stakeholder without exception had underlined the urgent need for setting up the 3P-I institute for PPPs. The Committee strongly endorses this,” the report said.

It also called for speedy amendment to the Prevention of Corruption Act, Vigilance and Conduct rules applicable to government officers.

For scaling up finances, the report recommended the government must refrain from taking any retrospective decision or treatment in project financials or commercial terms (airport or port sectors), including decisions that risk the moral hazard of post-award change in bid conditions.

“State support agreements should be enforced and states asked to face punitive costs for not completing their obligations as part of centre-state initiatives,” it said.

Noting that some countries have a legal framework for PPPs, the committee recommended an assessment of whether enactment of PPP law will facilitate expansion of PPP into sectors including health, urban transport and other social sectors.

The Economic Survey 2014-15 had said that at the end of December 2014, the value of all projects, mostly in the infrastructure sector, that have been stalled, stood at Rs 8.8 lakh crore (7 per cent of GDP).

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