PPP in Indian Parlance- Boom or Bust

“PPP projects take much time to complete and the government does not have to bear cost overruns. This will not only enable us to leverage our limited public resources but also improve efficiency of service delivery.”   - Prime Minister Dr. Manmohan Singh

Going by the words of Mr. Prime Minister Indian infrastructure requires a push for boosting of the sector. As these projects demands huge investments, higher skill of project management and long gestation period, it is of utmost importance to attract private investments. Roads and highways till now have the major share of PPP projects. It accounts for more than 50 percent of the total projects awarded on PPP mode.

Road sector is one of the major contributors for the economic development of India. The country is one of the fastest growing economies of the world and is next to US and China in terms of Road infrastructure. Present statistics of PPP in India shows that 758 projects costing INR 3, 833 billion has been awarded so far. Under this arrangement Concessionaire bears the risks for operation, construction, technical and maintenance and other vital risks related to traffic risk and toll collection threat are assigned to the sanctioned authority in the PPP mode.

Owing to the success of PPP at central level, many states namely Karnataka, Andhra Pradesh and Madhya Pradesh are repeating PPP experience in implementing projects at state level. Despite these positive moves the sector is not free from hassles. There are challenges involved in attracting bidders, financing projects, statutory clearances, and land acquisition and rehabilitation et al. Above all because of the delay in execution of projects approximately all projects face cost overrun of 20-25 percent which somehow hurts the private investors. The limited availability of sources of funding is one the bottleneck for the success of the PPP model. Recently major industrial conglomerates GMR and GVK refused to take up mega-highway projects on the issues of premium payment scheduling.

According to Twelfth Five Year Plan (2012-17), out of total planned investment of USD 1 Trillion in Indian infrastructure half of it is estimated to come from private sector.  Thus the road projects will account for around more than 60 percent of the total investment made under PPP mode. There is a huge untapped potential for investment in the sector, it just needs a spark to ignite it.

Few Recommendations:

·         For further boosting of domestic as well as foreign investors robust regulatory and policy

        framework is required

·         Technical and transaction advisor plays very important role in the development of PPP construction. Thus, it is essential that appointment of consultants is done with proper due diligence

·        At the Centre and state level the PPP nodal agencies are accountable for creating awareness about PPP program There should be proper training of employees in different departments working for PPP projects

·         There should be speedy clearances procedure for faster implementation of project for saving cost over runs

·         There should be independent PPP regulator for looking out project management issues

                                                                                                                                                                                                 
        Infraline Energy Roads Research Team