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Kelkar panel suggests easier funding for PPP projects

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Press Trust of India New Delhi
Last Updated : Dec 28 2015 | 4:13 PM IST
A committee on reviving PPP model has suggested the government should encourage development of infrastructure sectors, including airports, ports and railways under the public private partnership mode by ensuring easier funding for projects with long gestation period.
The host of recommendations suggested by the Vijay Kelkar Committee, include review of the model concession agreements, raising of funds through zero coupon bonds and setting up of independent sectoral regulators.
"PPPs are an important policy instrument that will enable India to compress time in this journey towards economic growth and development. A successful and growing stream of PPPs in infrastructure will go a long way in accelerating the country's development process," said the report, which was made public by the Finance Ministry today.
The report was submitted by Kelkar to Finance Minister Arun Jaitley last month.
With regard to stalled PPP projects, the committee said it needs to be kick started.
"There is an urgent need to evolve a suitable mechanism that evaluates and addresses actionable stress. Sector specific institutional frameworks should be developed to address these stalled infrastructure projects," it said.

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The report said there should be a better identification and allocations of risks between the stakeholders and the contracts for the PPP projects should focus more on service delivery instead of fiscal benefits.
The government, it said, "must move the PPP model to the next level of maturity and sophistication" and foster trust between private sector and public sector partners in implementing the PPP projects.
As regards the funding of PPP projects, it said "the finance ministry should allow banks and financial institutions to issue zero coupon bonds, which will also help to achieve soft lending for user charges in infrastructure sector".
The other suggestions include restrictions on number of banks in a consortium, building up of risk assessment and appraisal capabilities by banks and specific RBI guidelines to lenders for encashment of bank guarantees.
It also suggested there should be a provision for monetisation of viable projects that have stable revenue flows after engineering, procurement and construction delivery.
The report also underlined the need for review the Model Concession Agreement (MCA) and ensure speedier resolution of disputes.
(REOPENS DCM 49)
The committee urged all the parties concerned to foster
trust between private sector and public sector partners for making PPP model a success.
"The success of deploying PPP as an additional policy instrument for creating infrastructure in India will depend on the change in attitudes and mindsets of all the authorities including public agencies partnering the private sector, government departments supervising the PPPs, and auditing and legislative institutions providing oversight of the PPPs," the report said.
Noting that some stalled PPP projects need to be kick started, the report said one of the key areas that requires urgent attention is evolving a suitable mechanism to expeditiously evaluate and address the circumstances that pose imminent threats to the economic foundation of any PPP project (actionable stress).
The committee suggested only a statutorily established empowered multi-disciplinary expert institutional mechanism should deal with the complex issues involved.
It proposed an Infrastructure PPP Project Review Committee (IPRC) with one expert each from economics background and one or more sectoral experts preferably engineers, and legal experts.
The mandate of the IPRC would be to evaluate and send its recommendations in a time-bound manner upon a reference being made of "actionable stress" in any infrastructure project developed in PPP mode beyond a notified threshold value.
The committee also proposed to set up an Infrastructure PPP Adjudication Tribunal (IPAT) chaired by a Judicial Member (former SC Judge or HC Chief Justice) with a technical and financial member.
For strengthening policy, governance and institutional capacity, the committee has recommended setting up of an institution for invigorating private investment in infra, besides preparing a national PPP policy.
Since poorly designed PPP projects could result in huge direct costs, contingent liabilities, risks of litigation and delays in project delivery, it said the consultancy services may be periodically rated by rating agencies based on the variation between their projections vis-a-vis actuals in the initial five or six years of project operations.

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First Published: Dec 28 2015 | 4:13 PM IST

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