CII for more PPPs to solve problems of infrastructure sector

The Confederation of Indian Industry (CII) believes that public-private partnerships (PPPs) could provide efficient solutions to the problems that have been plaguing the infrastructure sector despite problems in the existing PPP initiatives.

A CII note on 'PPPs in Infrastructure in Southern Region States-Issues and Concerns' suggests steps that could smoothen the functioning of a PPP initiative.

A PPP is a partnership between the public and the private sector for the purpose of delivering a project or service traditionally provided by the public sector.

State governments with limited financial resources cannot meet the growing demand for infrastructure services acting alone. PPP is thus essentially an arrangement to mobilise financial resources and benefits from private sector efficiencies to meet the growing demand for infrastructure services.

Despite PPP being a positive alternative, delays have characterised implementation of some projects. One of the best known examples is the New Tiruppur Water Supply project which was conceived in 1993 by the government of Tamil Nadu and the Tiruppur Exporters's Association (TEA).

Although the project idea was conceived a decade ago, and the project commenced operations only in April 2004, it is yet to reach a stage where it could be declared to be successful experiment, said the CII report.

CII has therefore suggested key parameters that the government needs to look at to avoid the delays of earlier projects.

Key suggestions are the need to clearly define the roles of both the partners and their institutional structure and the need to form special purpose vehicle (SPV) to attract private investment. The SPVs need to be project specific, investor friendly and also have commercial value.

CII has also suggested that other three state governments implement the Infrastructure Development Enabling Act on the lines of the one implemented by the Andhra Pradesh government.

The act is expected to provide for rapid development of physical and social infrastructure in the state, and attract private sector participation in the designing, financing, construction, operation and maintenance of the infrastructure projects.

This will also help in reducing administrative and procedural delays, identify generic project risks, explain in detail various incentives and project delivery process.

The report adds that project risks need to be identified up-front. The risks should be distributed among stakeholders with mitigation mechanism.

For capital-intensive projects, governments should consider providing guarantees towards foreign exchange risk on behalf of the sponsor so that project cost is minimised on account of interest cost.

The other factors will be of grading of developers and contractors by reputed rating agencies and the pre-qualification should be based on technical and financial evaluation.