Despite not having a formal PPP policy, India has a good framework for supporting public-private partnerships. The finance minister's announcement of the formulation of a comprehensive PPP policy is, thus, welcome, writesRanen Banerjee, Executive Director & Partner - Public Finance & Infrastructure and Government Reforms & Infrastructure Development, PwC. The projected investment in infrastructure for the 12th Plan is about $1,025 billion with at least 50 per cent expected to come from private sector. With such large investments to be channelled from the private sector, the private players would need comfort of a comprehensive PPP policy before opening their purse strings. Though we have made good strides in undertaking projects under PPPs, there have been several learning points and grey areas that have emerged. The announcement of the Finance Minister for formulation of a comprehensive PPP policy in his Union Budget speech is welcome. Despite not having a formal PPP policy, India has a good framework for supporting PPPs. These include the Empowered Committee on Infrastructure (ECOI) headed by the Prime Minister at the apex level; PPP Approval Committee (PPPAC) for appraisal of projects; PPP cells in central government ministries and state governments; Viability Gap Funding mechanism for financial support; programmes for capacity building of implementing agencies and IIPDF for project development; and IIFCL and infrastructure debt funds. According to the latest Economic Survey, there is a good pipeline of infrastructure PPP projects (including under bidding, construction and operational). However, majority of these PPPs are in the economic infrastructure sectors like energy, roads and highways, ports and airports. As the Indian economy has grown at a fast clip over the last decade, private investors have benefited from the upside due to increase in demand and have not been averse to assuming demand risk. However, health, education and urban infrastructure have seen little success as the upside potential from demand may be limited in these sectors. Global outlier in PPP India is an outlier by a huge margin when the quantum of private investment in infrastructure is compared across other similar sized economies relative to the level of GDP. However, it is likely that actual completion of projects may be less impressive. The graph shows that while the present policy framework has served well, translating the level of investment commitments into successful projects warrants a more comprehensive institutional framework that addresses critical challenges that plague PPPs in India. Despite the stellar performance, effort is required across several areas to further increase the pace of implementation of PPPs. Apart from the need for financial outlays, there are several other constraints which impede the timely execution of infrastructure projects-problems of tendering of unviable projects; bad planning at DPR stage; land acquisition delays and slow approval processes; especially environmental and forest clearances; weak project management in nodal agencies; and inadequate availability of skilled and semi-skilled manpower.
PPP reforms Government of India is seized on these challenges and this has led the Finance Minster to announce a comprehensive PPP policy as part of his 2011-12 budget speech. The following paragraphs highlight some of the areas that should be addressed under the PPP policy:  Treat complex projects differently: In complex PPP projects better discovery could happen through negotiated agreements. The Competitive Dialogue under Partnership Contract adopted in France involves shortlisting three to four competent parties and holding several rounds of negotiations with each of them. These negotiations are carried out over several rounds in a transparent manner wherein the initial proposals by each party may be available to all the prospective bidders. This allows the prospective bidders to define solutions that fit the project objectives and enables the implementing agency to award the project to the most economically viable one and not necessarily to the least cost criteria. Needless to say, sufficient safeguards are required for ensuring transparency and non-discriminatory behaviour.Provide necessary tools to implementing agencies: Tools like Public Sector Comparator (PSC) and Value for Money (VFM) have to be mainstreamed into the policy framework. These would help the implementing agencies answer three key questions- what is the PPP for (what is the objective i.e. for construction, financing, technology O&M or a combination); why is it necessary (rationale based on VFM and PSC); and how will it be executed (actual model of PPP and the entire bidding process). To make sure that PPP arrangements enjoy high credibility in public opinion, the Comptroller & Auditor General of India published the Public Auditing Guidelines for PPP projects in 2009. The same audit guidelines can be used for creation of reliable benchmark PSCs in sectors where PSCs are non-existent. Supporting availability based payments through multi-year budgetary commitments: The next generation of PPP policy has to significantly support social sector PPP projects. As private sector may be reluctant to take on substantial part of the demand risk, Availability Based Payment (ABP) mechanism could be considered. These involve compensating the service provider based on making the infrastructure available to meet a desired service level. The implementing agencies need to set up clear performance standards and also have capacity to monitor actual performance. Further, these contracts would involve annuity payments and the recent decision to impose a cap on annuity payments may limit the ability of the implementing agencies to do PPP projects. In South Africa, Treasury Regulation 16 issued under the Public Financial Management Act allows government agencies to undertake PPP projects based on current year allocations and projection of future allocations. This allows them to undertake multiyear PPP projects. Avoid regulatory confusion: India is at a crossroad of a regulatory revolution in infrastructure. On one hand, concession contracts are the most common regulatory instruments for governing PPP contracts. Yet several sectors like airports, ports etc. have an independent regulator who has significant powers to set tariffs. Effort is also on to set up water regulator at state level as well. When concession contracts lay out the tariff setting mechanism, it is not clear as to how much flexibility the regulator has in tariff setting. One option is that in sectors where concession contracts are in operation, the regulator could focus on setting standards, issue of licenses, set benchmarks, and oversee the tariff process as laid out in the concession agreement. This is similar to the role played by Conciliation and Arbitration Commission in Chile. From MCA to MCP: While Model Concession Agreements help in case projects are highly standardised, in practice each infrastructure project is unique. Several market commentators have opined that MCAs have hindered rather than promoted faster project implementation. There is a need to evolve Model Concession Principles (MCP) document outlining the risk sharing, payment mechanism, and the Concessionaire and sponsor responsibilities, and yet leave sufficient flexibility to adapt the contract document to unique project situation. Supporting local government PPPs: Specialised VGF guidelines may be required for urban infrastructure PPPs. Operating a separate window through the KFW funded PPP-UIF infrastructure fund could be the way ahead. Such a fund could effectively blend grant and loan funds to reduce the overall cost of resources. There may also be a separate channel for providing guarantee to debt taken by ULBs or PPP operators. Finally, the recommendations of the 13th Finance Commission to evolve a predictable pattern of devolution of funds should be addressed by state governments. Addressing land acquisition: There is a strong case for bringing in parity between the compensation package admissible under the Land Acquisition Act 1894 and that applicable to land acquisition under the National Highways Act 1956 to enable faster acquisition. It is also important that the 80 per cent minimum norm for physical acquisition of land before tendering should be strictly enforced through suitable disincentives. Also, a differential land acquisition policy which distinguishes between acquisition for pure public infrastructure like water, wastewater etc. and allows for greater sharing of benefits with land owners in case of economic infrastructure such as airports, SEZs etc. may be introduced. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Source: http://www.projectsmonitor.com/MISC/need-for-a-comprehensive-ppp-policy-in-infrastructure | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Showing posts with label Public Sector Comparator. Show all posts
Showing posts with label Public Sector Comparator. Show all posts
Friday, 1 April 2011
Need for a comprehensive PPP policy in infrastructure
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