Essay on PPP Model of Infrastructure Development and Its Viability

intrduuction

Infrastructure development can be defined a pre-condition to achieve broad based and inclusive growth on continuous basis. The 12th Five Year Plan (2012–2017) has an ambitious goal of infrastructure investment at 1 trillion US dollars. The huge requirement of funds and limited availability of public resources made it necessary to explore new possibilities of funding infrastructure development.

One such possibility is PPP (Public Private Partnership), which has been accepted globally. PPP is the contract between a public sector authority and a private party, in which the private party offers a public service or project and take responsibility of important financial, technical and operational risk in the project. There are various models in PPP such as Design-Build (DB), Operation & Maintenance Contract (O&M), Build-Own-Operate-Transfer (BOOT), Build-Own-Operate (BOO) etc.

Benefits Associated with PPP

• It bridges the gap between demand and supply of funds for creation of infrastructure projects.

• It provides much needed expertise, operational competency and managerial efficiency of the private sector. • It brings in new and cost effective technology.

• It puts contractual accountability on the private party to ensure timely and quality infrastructure service to the end users.

• PPP is an ‘off-balance sheet’ method of financing the delivery of new or refurbished public sector assets. It is because project borrowing is done by the private sector.

Present Scenario

According to PPP India database, currently, 758 PPP projects has been awarded/ underway status whose costing is `3,833 billion. The leading states in terms of number and value of PPP projects are: Karnataka, Andhra Pradesh and Madhya Pradesh. The National Highway Authority of India (NHAI) is the leading user of the PPP model at the central level.

Government Initiative to Encourage PPP

• Setting up of the Public Private Partnership Appraisal Committee (PPPAC) responsible for the appraisal of PPP projects in the Central Sector.

• The Government has created a Viability Gap Funding Scheme for PPP projects. It provides financial support in the form of grants to make infrastructure projects commercially viable.

• The Government has set up India Infrastructure Finance Company Limited (IIFCL) with the mandate to provide long-term debt for financing infrastructure projects.

• The scheme for ‘India Infrastructure Project Development Fund’ (IIPDF) has been launched to finance the cost incurred towards development of PPP projects. The IIPDF supports up to 75 per cent of the project development expenses. • Web-based tool kits are available to improve decision-making for infrastructure PPPs in India.

• An infrastructure projects database (www.infrastructureindia.gov.in) was developed to provide key information on the status of infrastructure projects.

• The Public Private Partnership (PPP) Cell is responsible for matters concerning policy, schemes, programmes and capacity building.

• Government has also set up a Committee on Revisiting and Revitalising the PPP Model of Infrastructure under Dr. Vijay Kelkar. The committee has submitted its recommendations.

Challenges and Issues in PPP in India and Kelkar Committee

Regulatory Environment: Presently, no independent PPP regulator exist in India which led to private sectors losing bargaining control due to fluctuations in environment over time leading to Obsolescing Bargain. Further, a major number of PPP projects have been delayed by legal challenges relating to financial issues. According to the Economic Survey 2014–2015, the delayed projects added up to `8.8 trillion or 7 per cent of India’s GDP. This burdened banks with enormous amount of bad loans.

Lack of Information: The PPP programme lacks a complete database. The database includes feasible reports, agreements etc. regarding the projects/studies to be presented under PPP. In this situation, the committee has spoken against unwanted proposals (Swiss Challenge) as they bring information irregularities and result in lack of transparency and fair and equal treatment of potential dealers.

Lack of institutional Capacity:

One more issue associated with PPP is limited institutional capacity to accept large and complex projects at various stages hampers the PPP projects. There is the requirement of structured capacity building programmes for different stakeholders need to be advanced.

The Kelkar Committee recommends ‘3PI’ which has the ability to enable research, review and support cultured models of contracting and dispute redressal in addition to functioning as a centre of excellence in PPPs.

The committee also suggested structuring a host of other institutions like Infrastructure PPP Project Review Committee (IPRC), Infrastructure PPP Adjudication Tribunal (IPAT) and a national PPP policy.

Financing Availability: Raising debt for the PPP project is an issue, and private sector is dependent upon commercial banks. However, with commercial banks reaching the sectoral exposure limits, and large Indian Infrastructure companies being highly leveraged, funding the PPP projects is getting difficult.

For sourcing long-term capital at a low cost for PPP projects, the committee suggested that the government should encourage banks and financial bodies to issue zero coupon bonds or deep discount bonds.

Allocation of Risk: The possibilities of PPP failures can be disorganised and biased sharing of risk in PPPs. A balanced sharing of risks can be assumed in sector and project-specific backgrounds.

Conclusion

To speed up infrastructure development in India, PPPs in infrastructure represent a valuable tool. With huge young population that will need good jobs and a vast pool of global savings that can be selected for constructing infrastructure, India is currently in a win-win situation.

For the economic growth and development of the nation, PPP is the key policy. The government must move the PPP model to the next level of maturity and sophistication due to the urgency of India’s demographic transition and the experience India has already collected in managing PPPs.