Kelkar Panel recommends comprehensive restructuring to revive the PPP model

The Finance Ministry appointed Vijay Kelkar Committee on revisiting PPP model in infrastructure (Committee on Revisiting and Revitalizing Public Private Partnership Model of Infrastructure) has made several far reaching recommendations for the restructuring of the PPP model.

A notable element throughout the findings of the committee was that it has put tremendous confidence in the capability of the PPP model in fulfilling the country’s infrastructure demands at this high growth phase.

Kelkar Committee’s remedies were anxiously awaited by the government and infrastructure sector players as the PPP model was jammed into a standstill because of many legal issues related to project implementation.

Rising need and faster generation of quality infrastructure demanded that the country should settle infrastructure development problems as quickly as possible.

Over the last few years, several billions of rupees is stuck because of the hurdles faced by PPP projects and many public sector banks were having heavy NPAs in their books for financing the stalled projects.  

The Committee has made several suggestions that necessitate total restructuring of the existing way in which PPP model in infrastructure is experimented. Following are the major suggestions:  

  1. The committee advised the government to end one –size fits all approach in dealing with infrastructure projects. The government has to follow Model Concession Agreements (MCA) on a project basis. Generalized approach to project design, financing, evaluation and monitoring is not suitable because each project has unique risk and financial commitments. The MCA for each sector be reviewed to consider the interests of all stake holders- users, project proponents, developers, lenders and markets.
  2. The Committee recommended independent regulators for each sectors because of the specific nature of the projects. To sort out the delicate issue of graft, the committee suggested amendment to the Prevention of Corruption Act to clarify the difference between real and fraud decisions.
  3. The committee advised against adopting PPP structures for very small projects. Here, the committee observed that the benefits may not be matched with the costs.
  4. The committee strongly supported the Finance Minister’s brain child – 3P India, an infrastructure think-tank proposed in the budget last year. According to the committee, “the 3PI can function as a centre for excellence, enable research, and review and roll out activities to build capacity.”
  5. Final decision for a renegotiated concession agreement must be based on full disclosure that include all factors – long-term costs, risks and potential benefits, a comparison with the financial position for the government at the time of signing the concession agreement and at the time of renegotiation.
  6. For the dispute ridden highways sector, the committee recommended that all pending disputes may be disposed of in a time-bound manner through an independent body that includes representatives from the National Highways Authority of India, developers and lenders. The independent body can have a chairman.
  7. The “Unsolicited Proposals or the “Swiss Challenge” mechanism is to be discouraged as they bring information asymmetries into the procurement process and result in lack of transparency and fair and equal treatment of potential bidders in the procurement process.
  8. Creation of institutions to support PPP: A major recommendation of the committee is creation of facilitating institutions for the model. The committee recommended creating Infrastructure PPP Project Review Committee (IPRC), Infrastructure PPP Adjudication Tribunal (IPAT). Besides a national PPP policy is helpful. The responsibility of IPRC is to evaluate and send its recommendations in a time-bound manner when a PPP project is facing stress. The IPAT should be chaired by a judicial member (former judge of the Supreme Court or a high court chief justice) and is expected to mediate on disputes among stakeholders in a PPP.
  9. Financial instruments like zero coupon bonds by financial institutions to finance infrastructure projects: Government should encourage banks and financial institutions to issue financial instruments like zero coupon bonds or deep discount bonds for mobilizing long-term capital at low cost for PPP projects.

The committee has also made several other suggestions including measures to address the concerns of the banks and better risk calculating measures on projects. It is expected that the government will come out with follow-up actions soon and may accommodate the proposals while framing the next budget.