A quarter century of public-private partnership

Source: The post is based on an article “A quarter century of public-private partnership” published in The Business Standard on 1^st September 2022.

Syllabus: GS 3 – Privatization and liberalization

Context: This article discusses the PPP model and concerns associated with it.

History of PPP

The early 1990s witnessed the growth of public–private partnership or PPP before it mainstreamed into economic policy.

Spectrum’s Kakinada and GVK’s Jegurupadu power plants were two of the eight fast-track projects approved by the government in 1992.

However, the fiscal 1996-97 can be regarded to be the official starting year of PPP.

An expert group on Commercialization of Infrastructure Projects submitted a path-breaking report advocating a significant role for private capital. The private sector allowed into ports through an amendment to the Major Port Trusts Act and National Highways Authority of India’s capital base was widened to Rs. 500 crores.

This report helped the formation of various organizations such as The Infrastructure Development Finance Corporation.

The Planning Commission recognized a significant intra deficit. It planned to raise the Gross Capital Formation (GCF) in infrastructure to 9 per cent of GDP by the terminal year of the 11th Plan (2007-12).

The India Infrastructure Finance Company Ltd (IIFC) was set up in 2006 to provide long-term financial assistance to PPP projects.

The share of private capital moved up from 22 per cent in the 10^th Plan period to 37 per cent in the 11^th Plan.

PPP started lowering from 2012 onwards due to inappropriate risk-allocation, aggressive bidding, twin balance-sheet problems, mounting non-performing assets, and lack of dispute resolution.

Almost all Indian corporations and commercial lending institutions are careful of investing in greenfield PPP projects and foreign investors prefer operating brownfield assets.

What were the steps taken by government to revive PPP?

The Budget of 2014 proposed to set up an institution called 3P India with allocation of Rs 500 crore.

In May 2015, the government constituted a nine-member committee which submitted its report “Revisiting and Revitalizing PPP Model of Infrastructure Development”.

The committee endorsed setting up “3P India”.

3P India would deal with complex PPP issues like renegotiation, independent regulation, equitable risk-allocation, and amendments to Prevention of Corruption Act 1988, expeditious redress of disputes, and capacity building.

The annuity and hybrid annuity models that sought to substantially reduce the risk of private investment were adopted.

New sectors like ropeways and effluent treatment plants were brought into the PPP ambit.

PPP is back with 100 percent of the National Monetization Pipeline target of Rs 6 trillion and 40 percent of the National Infrastructure Pipeline target of Rs 111 trillion expected to be funded under PPP formats.

The finance ministry in July announced the setting up of a new body called the Infrastructure Finance Secretariat (IFS) which is expected to play an integrative role in the revival of the PPP ecosystem.