The reasons for the failure of PPP projects in India are many:
- Poor preparations,
- Flawed risk-sharing,
- Inappropriate business models and
- Fiscal uncertainties
- Vested interests leading to development of skewed qualification criteria
- Technical data availability and its quality
- With the economy not growing as projected earlier, traffic projections have gone wrong, leading to issues of financially viability
The nature of problems being faced by PPP projects varies from one project or sector to another. For example:
- Airport express line– construction and operation was done by 2 different entities
- Roads – delayed clearances and aggressive bidding
The PPP model, especially in infrastructure currently followed was under stress due to structural reasons and budget offers following amendments to revitalize it:
- Coming forward to take more risk in a PPP contract than the private partner to encourage private sector to invest.
- Willingness to renegotiate the already finalized PPP contracts through Independent Renegotiation Committee as few PPP projects have become unviable due to delays in land acquisition, legal procedures, environmental clearances etc.
- On an encouraging note, to reduce the stress of NPA’s on banks and thus a possible legal hassle for players involved in long gestation infrastructure projects, government proposed to institute a National Investment and Infrastructure Fund (NIIF) with an annual inflow of Rs 20,000 crore to finance infrastructure projects.
- A promise on new Bankruptcy law for early recognition of stress to refinance them and also enabling an early exit for private players in case on un-viability will increase the private sector confidence to partner in PPP projects for infrastructure.
- Decision to increase the capital expenditure of PSU’s to develop infrastructure.
Challenges to these proposals:
- Greater commitment to finance infrastructure may undermine fiscal credibility of government in short and medium term.
- Respecting Land Acquisition, environmental and other laws while continuing with fast paced infrastructure growth is challenging.
- Renegotiation of contracts should not completely take-off risk and responsibility from private players.
The previous version of public-private partnership (PPP) has been hailed both as huge success and failure. In order to revive this investment model and make it successful again, what needs to be done? Discuss. (200 Words)
PPP has had its share of success and failures. The huge infrastructure projects across the country are testament to their success whereas the large number of stalled projects are proof of their failure.
Steps for revival:
- PPP needs to be transformed into FPTP i.e. first public than private. Public investment upfront during the high risk period and then private investment during the low risk period
- Need to develop our corporate bond market for long term financing.
- Recapitalization of PSBs with stringent measure to ensure the folly of NPAs doesn’t return.
- Indian economic diplomacy of attracting foreign investment presently is in the right direction and should be followed by ensuring “ease of doing business”. Diversifying source of funding, from banks to other source such as pension and insurance funds, mutual bonds and share market, liberalising FII and FDI norms for accessing foreign cash and grants from WB, ADB, AIIB, NDB etc.
- Plug & Play Model: bidding post approval of all required clearances from the concerned union & state ministries.
- To cater to dynamic needs of the infrastructure projects setting up hassle free institutional mechanism like Renegotiation Commission.
- A system of rating of private partners should be undertaken by the regulatory authority which would be of immense help in future contracting
Nice.Short and sweet.