Measures to rejuvenate public-private partnerships 

News: Recently, the New Monetisation Pipeline (NMP) and the National Infrastructure Pipeline were launched by the central government.

As a result, Public-private partnership (PPP) models have come under the focus as various projects will be funded under PPP.  

What have been the Indian expereince with various PPP models? 

(A) Indian experience: 

Almost all Indian companies and commercial lending institutions are concerned of investing in greenfield PPP projects. In fact, foreign investors also prefer to invest in the brownfield assets.  

In recent years, the government has received poor responses from private players in PPP bids.

– For example: (1) the Indian Railway could not attract many private players for passenger-train operations, and (2) The Bharat Broadband Nigam Ltd (BBNL) cancelled a tender for connecting villages due to the lack of participation of eligible bidders.  

Various PPP models including the Build-operate-transfer (BOT) and the Engineering, Procurement and Construction (EPC) have been examples of classic failure of PPP model in India.

– For example, the share of the BOT model in road investments in India declined from 85% in 2013 to almost zero in 2020.  

PPP Models have performed well in sectors like telecom, ports, airports, electricity transmission and renewable energy. 

(B) International xeperience: 

Recently, Britain renationalised the British Rail, after being operated on a PPP model after a period of 25 years.

What are the suggestions for PPP reforms?  

Kelkar Committee submitted a report titled as “Revisiting and Revitalizing PPP Model of Infrastructure Development” (2015). It recommended some of the following measures in this regard 

(1) The report recommended setting up “3P India”. It would function as a centre of excellence in PPPs. 

(2) The report proposed to address complex issues like renegotiation, independent regulation, equitable risk-allocation, amendments to Prevention of Corruption Act, 1988, and expeditious redressal of disputes.  

Regulatory bodies can be established for administration of PPPs. Such bodies have also been established in other countries.

– For example, there is the Infrastructure Concessions Regulatory Commission in Nigeria, the PPP Advisory Unit in Ghana, the PPP Centre in the Philippines and the PPP Unit in South Africa, and the National Infrastructure Commission of the United Kingdom 

A Special Purpose Vehicle (SPV) which is 100% owned by the government can be established for the PPP project. It can perform the sovereign function like land acquisition and securing all permissions. Subsequently, the SPV’s share will be sold to the highest private bidder. It will reduce the development risk.  

The Least Present Value Method (LPVM) can be adopted. In this, the time-period of a concession is kept open-ended and flexible. It helps the concessionaire who bid with the lowest amount of revenue share. It will remove the revenue risk in the long term PPP projects to a substantial level. 

In addition, a bespoke credit-rating system can be adopted. It requires embracing the “expected loss” (EL) approach instead of the “probability of default” approach.  

Way Forward 

In response to the latest Budget speech, the Department of Economic Affairs is required to take a fresh approach for “capacity building” for PPPs.  

Source: The post is based on an article “Measures to rejuvenate public-private partnerships” published in the Business Standard on 6th Apr 22.