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With the first wave of infrastructure investment in India grounded in "an array of design flaws", the National Democratic Alliance (NDA) government has stressed on the need for radical restructuring to prevent failure of contracting parties in meeting their contractual obligations.
The new government's first Economic Survey, however, blamed lower-than-expected demand for services and a sharp rise in input costs for the inability of contracting parties to meet their obligations under the public-private partnership (PPP) agreements.
As a result, the infrastructure gap has widened over the past few years, it said. "The ability of PPPs to become an efficient means of delivering public services will also crucially depend on the intention and spirit of all contractual parties to honour their respective commitments."
Besides, a model that depends on private capital might be difficult to implement if the companies executing infrastructure projects are financially stressed and not in a position to raise more funds, in the absence of radical restructuring. Further, the execution, operation and maintenance capacities of implementing agencies also need to be assessed and strengthened, said the Survey.
The role of banks and financial institutions also needs a relook from the due diligence and appraisal perspective.
Under a traffic trigger clause, if a certain volume of identified traffic is reached, the concessionaire is obligated to increase roadway capacity in order to maintain a minimum level of service to users. When performance parameters are not met, the re-equilibrium discount is used to reduce tariff. A table of discounts is pre-defined in the contract. The discounts represent the resources that are not invested as a result of a failure to meet performance parameters.
The Survey said since companies are unable to raise new equity, exit conditions need to be eased in such a manner that promoters can sell equity positions after construction, passing on all benefits and responsibilities to entities that step in to take over the project.
For coal, the other trouble spot in infrastructure, the survey suggested swift changes in law to permit private sector entry into coal mining. "Since mining involves huge sunk cost, the government should allow only limited number of large domestic companies with proven track record to compete with Coal India." It also said the process of restructuring Coal India should be hastened on the lines of TL Shankar committee report
In telecommunication, the Survey favours bringing down cost of spectrum through better management, trading and sharing of spectrum.
The real challenge in infrastructure, the Survey said, is not only to identify a core set of projects that are crucial for accelerating overall economic growth but also to ensure channelisation of investment for viable infrastructure projects and expedite their implementation by addressing issues like delays in regulatory approvals, land acquisition and rehabilitation in fast-track mode.
Allegations of corruption and interventions by investigating authorities and courts have interrupted many projects and adversely affected firms. But over the years, the Survey expects large-scale assets in the hands of operating companies while infrastructure developers with small balance sheets pursue new projects each year.
