India has reached the second stage of PPP (public private partnership) maturity. The PPP policy and draft rules, which are in place, would remove all uncertainties and help attract a lot of investments of the proposed $500-billion in PPP projects, according to Ajay Saxena, PPP expert, Asian Development Bank. Only, there is a need for active involvement of lenders and financiers at the time of structuring of PPP projects so as to put mitigation tools in place, he said on Thursday.
The expert was talking to Business Standard on the sidelines of a conference on ‘Preparation of Bankable Projects’, organised by the Indian Merchants’ Chamber.
About the draft rule on PPP projects on revenue support released by the Planning Commission, Saxena said the government might consider providing soft loans to project developers in the wake of a shortfall in revenue. “Revenue support can be considered mostly for greenfield projects, where precedents or ground data are minimal. Debt and operation and maintenance obligations should be covered through a revenue shortfall loan,” he added.
Saxena admitted that PPP projects in the field of power, roads, urban infrastructure — to mention a few — were facing problems regarding availability if fuel, finances and necessary skillset. “The need of the hour is capacity building. Though a lot of things have taken place in PPP projects, the government, private sector, industry and business chambers besides the consulting agencies will have to pay attention on the matter,” he said.
Moreover, structuring of PPP projects should be done after considering the construction period risk, operation period risks, market and revenue risks, and finance and risks. Proper allocation of risks would be the best way to take forward PPP projects, he added.
“As far as possible, lenders wish the project company is an ‘empty box’. With all the risks reallocated elsewhere, lenders don’t want to accept any risks except the most limited (and clearly measurable) risks,” Saxena said. “If the public authority has pushed too many risks on to the project company, the risk arrangements have to be renegotiated when the lenders come into the picture.”
