Yogima Seth Sharma, ET Bureau

(“We are doing some analysis internally as to what are the kinds of problem that PPPs face. To illustrate these problems, which the government is worried about, we are doing a detailed study of four PPP projects and will come out with a paper,” Montek Singh Ahluwalia, deputy chairman of the Planning Commission said.)

The government plans to give a fresh impetus to public-private partnership by overhauling the framework for such projects on the basis of a study being undertaken by the Planning Commission, which is likely to submit its recommendations within a month. The move comes after a few big PPP projects in infrastructure sector fell apart while those in the power sector have been struggling to sail through.

“We are doing some analysis internally as to what are the kinds of problem that PPPs face. To illustrate these problems, which the government is worried about, we are doing a detailed study of four PPP projects and will come out with a paper,” Montek Singh Ahluwalia, deputy chairman of the Planning Commission said. Ahluwalia, however, refused to name the projects identified by the plan panel.

According to a senior government official, who is involved in the exercise, two infrastructure projects and two power sector projects have been identified for the exercise. “We hope to come up in a month’s time with the paper, which will also have recommendations on how to make the entire PPP more attractive,” said the official, who did not wish to be named.

This year, GMR and GVK walked out of mega-highway projects worth 10,700 crore envisaged with the National Highways Authority of India while Reliance Infrastructure recently pulled out of the 5,800 crore Airport Express Line of the Delhi Metro. Problems are also brewing at the Gurgaon Expressway while Tata Power and Reliance Power are struggling to transform their imported coal-based ultra mega power projects into profit-making ventures due to the rise in input costs.

Even as the government sees PPP as a viable concept that has been accepted by central and state governments across sectors such as roads, ports, airports, power plants and solid waste management, the industry has been clamouring for easier exit options and flexibility of re-negotiations in the contracts that range from 15 to 60 years. The plan panel has asked the industry lobby Confederation of Indian Industry to give its inputs on the subject, a CII official said. “We will submit a detailed paper to the Planning Commission shortly on the problems associated with the PPP projects, most prominent being the inability of the parties involved to renegotiate these long-term contracts,” said the official, on the condition of anonymity.

Though the private sector’s participation in infrastructure PPP projects has grown substantially from 10% in the 10th Five-Year Plan to 37% during the 11th plan, the government feels it will be difficult to attract the estimated 50% of the $1 trillion investment in infrastructure in the country during the 12th plan period from private players unless the contractual issues are resolved

Source-http://articles.economictimes.indiatimes.com

In a bid to revive the road sector and also insulate the National Highways Authority of India from heavy financial claims and disputes, the government will now allow harmonious substitution of the concessionaire in ongoing and completed national highway projects awarded under Public Private Partnership on Build-Operate-Transfer mode.

The measure has been initiated taking into account the subdued investment climate in which there is lack of interest on the part of highway developers to bid for projects under Public Private Partnership and also the difficulties being faced by concessionaires in achieving financial closure for many of the projects awarded in the recent past.

The proposal for substitution of the concessionaire in ongoing and completed national highway projects was approved by the Cabinet Committee on Economic Affairs last month.

The decision permitting substitution of the existing concessionaire is applicable to ongoing two-laning and four-laning national highway projects where financial closure has been achieved by the concessionaire but Commercial Operation Date not yet declared by NHAI, Six-laning national highway projects where financial closure has been achieved by the concessionaire but project completion certificate not yet issued by NHAI, completed two-laning/four-laning/six-laning national highway projects awarded under Public Private Partnership on BOT mode and all new national highway projects under Public Private Partnership on BOT mode that are yet to be bid out.

A concessionaire seeking substitution has to make a written representation to the lender’s representative with a copy to NHAI. The lender’s representative, in turn, would ask for approval from NHAI for substitution.

Upon receiving the request from the concessionaire, the lender’s representative would assess as to whether substitution by a nominated company is in the interest of the project. If satisfied, the lender’s representative in consultation with the concessionaire would invite, negotiate and procure offers either by private negotiations or public auctions or tenders for takeover and transfer of the project including the concession to the nominated company.

Selection of the nominated company and valuation of equity is to be done by mutual consent of the lender’s representative and the concessionaire.

The NHAI, upon receiving the proposal of the lender’s representative, would satisfy itself about the credentials of the substituting entity and give its decision regarding the substitution. It may levy a penalty, subject to a maximum of 1 percent of the Total Project Cost, on the concessionaire seeking substitution for any default. No penalty, however, would be levied if the concessionaire had been unable to fulfill his obligations because of delays on NHAI’s part in land acquisition and obtaining statutory and regulatory approvals.

The nominated company would have to form a special purpose vehicle for taking over the project along with the rights and obligations of the concessionaire.

Subsequent to the substitution, in case of completed projects, the leading substituting entity is required to maintain at least 51 percent holding in the project SPV.

Substitution would be permitted only once during the construction period.

Highway developers are opposed to the provision that allows NHAI to levy a penalty on the concessionaire in case of any default.

“It won’t be appropriate to penalize the concessionaire,” said M. Murali, Director General, National Highways Builders Federation.

“In case of completed projects where toll collection has already commenced, it is obvious that the concessionaire fulfilled his obligations. Therefore, there is no cause for levying penalty. Even for projects at the execution stage, a penalty would place additional financial burden on the outgoing concessionaire. It must be kept in mind that many projects under execution have been impacted because of lack of equity. With the penalty clause, it is going to be very difficult to attract investors,” he added.

Source –http://www.projectsmonitor.com

India, at present, faces a grave economic crisis due to low growth, high inflation, high fiscal deficit and highest ever trade and current account deficit. No doubt the slowing down of the global economy has had a significant impact on the country but the present economic adversity is largely attributable to domestic factors such as excessive monetary tightening, delays and uncertainty over key economic legislations, project delays on account of stalled environmental clearances and land acquisition hurdles, pause in reforms and lack of willingness to take decisions in the government.

“The decision of the MoRTH to adopt the EPC mode raises the question as to where the funds are going to come from in the prevailing economic scenario,” a source associated with the road sector told Projectmonitor.

“On one hand, the government is trying to cut costs by imposing various restrictive measures, and on the other, it adopts the EPC mode for construction of national highways. In case of PPP projects, even when viability gap funding is sought, the concessionaire meets minimum 60 percent of the cost. At present, the MoRTH is relying heavily on just EPC mode for meeting its targets but this may not be feasible in the long run because of various constraints. The focus, instead, should be on both modes, PPP as well as EPC, for boosting the highway sector,” he added.

The EPC mode is different from the conventional item rate contract. Unlike in item rate contract, which is prone to excessive time and cost over runs, the EPC mode assigns the responsibility of investigation, design and construction to contractors for a lump sum price awarded through competitive bidding with provision for index-based price variation.

In a bid to ensure smooth implementation of national highway projects under the EPC mode, the MoRTH, of late, has initiated a number of measures. Included among them is the decision to conduct review meetings for national highway works in respective states. Earlier, the review meetings with officials of state Public Works Departments were held in New Delhi. Under the new initiative, a month-wise schedule for holding the review meetings, starting from June 12th, 2013, has been worked out for the current year. The concerned Chief Engineers are required to convene review meetings for national highways and Central Road Fund works in states under their jurisdiction in accordance with the schedule.

Plans have also been drawn to organize training programmes covering the EPC mode of construction for state PWD officials, concerned officials in National Highways Authority of India and the MoRTH, consultants and contractors.

Source-http://www.projectsmonitor.com