While the recently announced National Infrastructure Pipeline is a step in the right direction, there are a few other areas which need to be addressed on a priority basis given the global experiences in PPPs.
The National Infrastructure Pipeline (NIP), which was published on December 31 by the Department of Economic Affairs, Government of India, fleshes out India’s infrastructure investment requirements till 2025 in terms of individual sectors and projects. As per the NIP, the total investment in infrastructure development has been estimated at over Rs. 100 lakh-crore till 2025.
With the primary focus being on quality on life and ease of living, sectors such as roads (estimated investment of Rs 20 lakh-crore), urban and housing (Rs 17 lakh-crore), railways (Rs 14 lakh-crore), conventional power (Rs 12 lakh-crore) and renewable energy (Rs 9 lakh-crore) together account for over 70 per cent of the total envisaged investment. With continuing budgetary pressures on the fiscal deficit front, the private sector share of investment has been estimated at 22 per cent or around Rs 22 lakh-crore, which reflects the need for continued focus on public private partnerships (PPPs).
Over the last few years, a number of important steps have been initiated by the government to provide a boost to infrastructure PPPs. One of the most significant has been the setting up of National Infrastructure Investment Fund (NIIF), an alternate investment fund for infrastructure projects, with the government contributing around Rs 20,000 crore.
A number of policy-related measures aimed at improving liquidity in infrastructure investments have also been taken, including the announcement of Infrastructure Investment Trust guidelines by SEBI in September 2015, promulgation of the Insolvency & Bankruptcy Code, 2016 and the November 2018 directive by SEBI to large corporates to fund at least 25 per cent of their borrowings through the corporate bond market with effect from FY19-20.
A nodal Credit Guarantee Enhancement Corporation for infrastructure projects, with an authorised capital of Rs 20,000 crore, has also been proposed in the Budget 2019-20 to extend guarantees to select infrastructure projects, thereby improving their risk rating for attracting investments from pension funds and insurance companies. While these initiatives are definitely in the right direction, there are a few other areas which need to be addressed on a priority basis given the global experiences in PPPs.
First, there is a need to consolidate and update the existing PPP guidelines based on the experience gained across individual sectors over the last few years, as well as best practices in other countries.
The consolidated policy, parts of which may need to be in the form of a binding legislation, should specify the various types of PPP arrangements which can be used for different sectors, steps to be followed for selecting the private partner, guidelines for risk-sharing, contractual terms, etc.
With many of the projects particularly in sectors such as power, roads (state highways), urban and housing, etc. falling under state and local government, the policy should extend to these tiers of government. It should clearly specify the institutional ecosystem for PPPs in different tiers of government.
A designated nodal agency to provide technical and implementation support across sectors and individual government agencies, as has been adopted in countries such as the United Kingdom and Australia, can potentially play an important role in implementation.
Formulating an enabling framework to renegotiate existing concession agreements is the second area which merits attention.
Most concession arrangements extend over 20-25 years and face significant uncertainties around interest rates, traffic volumes, potential changes in technology-impacting costs, and larger macro-economic and policy-related issues. Such issues can impact project cash flows both positively and negatively, which can be addressed only if the concession can be renegotiated. Most of the countries with a relatively mature PPP ecosystem, like South Korea, the UK, and Australia, have well-defined guidelines for renegotiation of concessions.
With the NIP stressing on transfer of existing assets and concessions to financial investors and asset aggregators for monetisation, the provision for renegotiation would need to apply to both existing as well as upcoming concessions.
Finally, there is an urgent need for a dispute-resolution process specifically for PPP arrangements, as long-pending disputes are seen to have significantly adverse financial impact and act as a deterrent for private partners. Any such dispute-resolution mechanism would need to factor in issues such as the current load on the judicial system, activating and leveraging the mechanisms set up under the Commercial Courts Act 2015, use of non-judicial dispute resolution options such as high-level negotiations, mediation, expert determination and arbitration, issues around jurisdiction and sovereign impunity of the public partner, etc.
While the NIP does mention most of the above measures, timely and effective implementation would be critical for India to increase its attractiveness as a mature PPP market.Arindam Guha is Partner, Lead- Government & Public Sector, Deloitte India. Views are personal.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.