C P Nair, a senior PPP specialist who was associated with Asian Development Bank and World Bank, is of the opinion that rebooting the Cabinet Committee on Investments was a major decision by this government, along with digitally monitoring PPP projects across India.
Is there a fundamental understanding within the government on PPP implementation?
Indeed. From the mid-1990s, where we started with private sector involvement with power generation, and subsequently into mobile telephony and transport sector in the mid-2010s, we are easily the world´s largest PPP market. India has travelled a long way.
It is to be admitted that it was more or less hands-on learning or on-the-job training with an excellent line of bureaucrats who made it happen. They have developed a thorough understanding on the PFI in the UK and Australia and attempted to bring out our own model for private partnership. We also had timely facilitation from multilateral entities, viz., Asian Development Bank and World Bank extending financial support and technical expertise to make this happen.
Right now, we have the Central PPP Cell in the Ministry of Finance along with network PPP Cells in ministries and states leading the drive. Though the national PPP policy and PPP rule are under review, many States have their own policy and interpretation in developing projects. The government has come up with a series of policy documents which have facilitated in creating an enabling environment. A series of model concession agreements across sectors, financial interventions like viability gap funding, annuity models and stimulation of debt have facilitated this form of project development. The Centre and states have undertaken extensive capacity building drives and developed toolkits for making it comfortable for officers in approaching PPPs.
How are we placed on policy and framework?
The slowdown and lack of interest had to be turned around to recreate an enabling environment to bring in investment. Over the last couple of years, we have definitely moved ahead from the lull during 2012/13.
The most important of them was rebooting of the Cabinet Committee on Investments (CCI). There were two major initiatives. The first was to set up a monitoring mechanism to find out the ´actual investment´ since the clearance and the second was to focus on making things happen on the ground rather than giving approvals. The CCI was revived to monitor all projects stuck in red tape at the ground level, digitising all clearance processes and make a one-stop clearance system.
The slowdown and the revamping of CCI helped in relooking the issues centering around PPPs and enabled the government to work around them. The rigidity of the Model Concession Agreements (MCAs) was brought out especially on lack of focus on efficient service delivery, neglect in the principles of efficient risk allocation, no room for renegotiation and over dependence on markets. Many of these have been addressed or are being addressed, extending leverage to investors and authorities.
How about improvement on contractual obligations?
Another avenue of improvement implemented was monitoring of the contractual obligations. There was a lacuna in discharging the contractual obligations by the concessionaire and effective enforcement of the same by the implementing authority. The government has issued detailed guidelines, institutional arrangements and formats for monitoring of PPP projects. While many authorities have commenced the monitoring exercise, a few agencies are yet to align with the same.
Financing and related issues were closely identified, especially for stressed projects, which caused shrinking of equity and project delays, turned bank loans into NPAs and limited further lending, leading to overleveraging of investor balance sheets. As a solution to these situations, the National Investment and Infrastructure Fund (NIIF), was set up with a purse of Rs.20,000 crore by the government. The government is also looking into avenues of leveraging more funds through provident funds, pension, insurance and also expansion of bond markets. Further, there are active dialogues on restructuring of non-performing assets of banks, refinancing of existing debt, government guarantees, etc.
How will the government´s new entity 3P India help in clearing the PPP logjam?
The government is in the process of incorporating 3P India, a new entity to extend support for streamlining PPPs and to focus on accelerating and delivering efficient PPPs. The new entity will look into restructuring of the PPP contracts and develop appropriate models to enable private investments in the social and educational sectors. This has been incorporated and announced in the last budget speech.
The government has come up with guidelines for post-award contract management for PPP contracts, as well as toolkits for post-award contract management for PPP concessions, apart from a standard PPP guide for practitioners, enabling streamlining of the PPP practice in the country. These efforts will fructify in a short span of time, resulting in a vibrant PPP market.
From no involvement of private investment in infrastructure in the early nineties to an astounding 37 per cent by 2012 and a projected 48 per cent share of PPP in the period 2012-17, we have come a long way in infrastructure development with private investment. As we are getting into second-generation PPPs, we need to look into some critical aspects which could extend more confidence and ease to the investor community.
What are these critical aspects?
Obtaining essential clearances to kick start a project has become the most difficult hurdle in putting together a PPP project. The situation becomes all the more difficult if it is forest, environment or defence clearances, and sometimes approvals from local authorities. It would be most appropriate if the permission for bidding is granted only if such clearances are in place, making the project development proposition much easier. Though it is a long shot, it will be best for PPP if there can be a one-stop shop for granting all clearances, making life much simpler for investors.
So aggressive bidding was responsible for the slowdown in PPP projects?
Yes, one of the reasons for the possible slowdown in PPPs during 2012/3 was irrational bidding. A well thought-out mechanism needs to be devised to prevent such approaches which will hamper the efforts of nation-building. As the PPP bidding cycle extends from an average of 8-10 months, identification of such bids, cancellation and inviting fresh bids will again delay a project by a year, which will be a great loss to the economy.
As investors foray into an unknown zone, as PPP projects have longer project periods, it would be appropriate to have an avenue for discussions and negotiations. A foolproof mechanism for renegotiations will do a lot of good to all the stakeholders of the project and this needs to be worked out so that renegotiation is invoked only in critical situations. An independent body will be incorporated for the same, looking into specifics of PPP projects.
The lessons learnt from PPP in the core physical infrastructure sector may be replicated in other sectors as well. It would be appropriate if we can look into social, health and housing sectors, leading to inclusive development of people in all strata of the economy.
As you mentioned, there was a stark difference between state and Central PPP policy...
The states need to be very much in line with the Central policy and strategies in harnessing PPPs. This is very critical as many states have their own policy and the national policy is yet to be put in place. We need to create a mechanism to garner and integrate the best practices, novel ideas and project strategies that can be replicated in other parts of the country.
I believe that as in many developed and developing economies, it will be appropriate to designate a Ministry for Infrastructure Development to spearhead the initiatives and work more like a project organisation. The MoI should be entitled to discharge end-to-end responsibilities from policy development to project execution and project monitoring as well as attract and manage funds from all possible stakeholders.
- RAHUL KAMAT