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  1. Kelkar panel suggests easy funding for PPP projects in infra sector

Kelkar panel suggests easy funding for PPP projects in infra sector

The Kelkar committee that reviewed the public-private partnership (PPP) model for infrastructure projects has recommended several measures for easy financing of these.

By: | New Delhi | Updated: December 29, 2015 11:10 AM
 Kelkar committee

The Kelkar committee highlighted the need to resolve the “legacy issues” in various sectors and recommended independent regulators in sectors that are going in for PPPs.

A committee that reviewed the public-private partnership (PPP) model for infrastructure projects has recommended several measures for easy financing of these, including issuance of zero coupon bonds by banks to developers, equity divestment by the government from completed projects and removing bars on monetisation of viable projects after the engineering, procurement and construction (EPC) work is finished.

The committee, headed by former finance secretary Vijay Kelkar,  recommended that that next generation of PPP contracts should have an ex-ante provision for  renegotiation in the bid document itself and suggested a thorough assessment of risk probabilities to be undertaken by either department of economic affairs or the proposed PPP institute for specific Model Concession Agreements.

It may be noted that in the highway and power-sector PPPs, the original contract terms came up for review following lower-than-anticipated toll incomes and the  spike in prices of imported coal. The Central Electricity Regulatory Commission has proposed compensatory tariff in case of the power plants of Adani Power and Tata Power in Gujarat as the Indonesian coal prices bought by the units under long-term contracts skyrocketed.

The Kelkar committee highlighted the need to resolve the “legacy issues” in various sectors and recommended independent regulators in sectors that are going in for PPPs. Further, it has suggested a review committee (IPRC) for such projects to evaluate and send recommendations in a time-bound manner upon a reference being made of ‘actionable stress’ for a project beyond a notified threshold value.  said.”An Infrastructure PPP Adjudication Tribunal (IPAT) chaired by a Judicial Member (former Judge SC/chief justice HC) with a technical and financial member, where benches will be constituted by the chairperson as per needs of the matter in question.”

The report also recommended amendment in the Prevention of Corruption Act, 1988 while explaining the need for change in attitude and in the mind-set of all authorities dealing with PPPs. “Measures may be taken immediately to make only malafide action by public servants punishable, and not errors, and to guard against witch hunt against government officers and bureaucrats for decisions taken with bonafide intention,” the report said.

According to the panel,  deep discount bonds would lower debt servicing costs for infrastructure projects and enable the authorities to charge lower user charges in initial years. It argued that monetisation of projects with stable revenue stream at the EPC stage would be able to attract relatively risk averse long-term funding institutions like pension and other institutional investors. “Cash generated out of divestment of equity would be available for the creation of new infrastructure projects in the country,” the report made public by the finance ministry on Monday said.

The committee favoured reviewing the model concession agreements (MCAs) in different sectors as it felt “that project specific risks are rarely addressed by project implementation authorities in the current ‘one-size-fits- all’ approach.”

On the institutional front, the report strongly recommended a PPP institute called 3P-I, which was announced in 2014, which can, in addition to functioning as a centre of excellence in PPPs, enable research, review, roll out activities to build capacity,” the report said.

The committee also favoured disallowing statutory audit into the books of special purpose vehicle formed under the companies act and recommended that pubic sector units be discouraged from participating in the PPP projects unless strategically essential as they negate the idea of involving the private sector in such projects.

On the specific sectors, the report broadly referred to the larger changes recommended but suggested that the roads projects should move to electronic tolling to bring in transparency. The recommendations included a tariff regulator for Railways and PPPs in both greenfield and brownfield airports.

Kelkar’s prescriptions
* Encourage banks to issue zero coupon bonds
* Equity divestment by government from stable projects
* Amend Prevention of Corruption Act to shield officials from errors originating from bonafide intentions
* Review model concession agreements (MCAs) to ensure equitable risk distribution
* Provide provision of renegotiation of MCAs in documents itself
* Set up sector specific regulators, PPP institute and tribunal
* Discourage PSUs from PPP projects unless strategically necessary

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