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Report of the Committee on Revisiting & Revitalising the PPP Model of Infrastructure Development Chaired by Dr. V.Kelkar Released

Dated:- 28-12-2015 - Press Information Bureau Government of India Ministry of Finance 28-December-2015 15:05 IST The Report of the Committee on Revisiting & Revitalising the PPP model of Infrastructure Development chaired by Dr. V. Kelkar has been issued and also uploaded on the Ministry of Finance s website (finmin.nic.in). In the Union Budget 2015-16, the Finance Minister Shri Arun Jaitley had announced that the PPP mode of infrastructure development has to be revisited and revitalised. In .....

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ucture refer to the provision of a public asset and service by a private partner who has been conceded the right (the Concession ) for the purpose, for a specified period of time, on the basis of market determined revenue streams, that allow for commercial return on investment. 2. PPPs in infrastructure represent a valuable instrument to speed up infrastructure development in India. This speeding up is urgently required for India to grow rapidly and generate a demographic dividend for itself and .....

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ecome endemic and to mainstream innovations and foster new ones that improve the successful delivery of PPP projects. 4. India s success in deploying PPPs as an important instrument for creating infrastructure in India will depend on a change in attitude and in the mind-set of all authorities dealing with PPPs, including public agencies partnering with the private sector, government departments supervising PPPs, and auditing and legislative institutions providing oversight of PPP s. 5. The Gover .....

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amendment of the Prevention of Corruption Act, Vigilance and Conduct rules applicable to government officers. 6. Experience has also underlined the need to further strengthen the three key pillars of PPP frameworks namely Governance, Institutions and Capacity, to build on the established foundation for the next wave of implementation. 7. In addition to changing mind-sets, there is an urgent need to rebuild India s PPP capacities. Structured capacity building programmes for different stakeholder .....

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lence in PPPs, enable research, review, roll out activities to build capacity, and support more nuanced and sophisticated models of contracting and dispute redressal mechanisms (Chapter 6, paragraph 6.1.4). A dynamic 3PI can support a dynamic process of infrastructure design, build, and operate in India and thereby help deliver on the promise of reliable infrastructure services for all citizens. 8. The Committee cannot overstate the criticality of setting up of independent regulators in sectors .....

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s PPP stakeholders. Inefficient and inequitable allocation of risk in PPPs can be a major factor in PPP failures, ultimately hurting the citizens of India. The Committee notes that the adoption of the Model Concession Agreement (MCA) has meant that project specific risks are rarely addressed by project implementation authorities in this One-size-fits- all approach. A rational allocation of risks can only be undertaken in sector and project-specific contexts. 11. For the next generation of PPP Co .....

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sk management structure. 5) DEA, or preferably the 3PI, should deploy sophisticated modeling techniques that exist to assess risk probabilities and the need to provision for them; and (6) there should be ex-ante provisioning for a renegotiation framework in the bid document itself (Chapter 4, paragraph 4.1.6). 12. Typically infrastructure PPP projects span over 20-30 years and a developer often loses bargaining power related to tariffs and other matters in case there are abrupt changes in the ec .....

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all for amending the terms of the Concession Agreement to reflect new project realities better (Chapter 4, paragraph 4.3.2). The Committee has suggested benchmarks in Chapter 4 to be applied to each proposed renegotiation as well as set out a set of conditions that should not be accepted as valid reasons for a request for amendment of a concession agreement (Chapter 4, paragraphs 4.3.6 and 4.3.7). 14. The final decision on a renegotiated concession agreement must be based on 1) full disclosure o .....

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r the future of the concession (Chapter 4, paragraphs 4.3.8 and 4.3.9). 15. The Committee notes that there a number of stalled PPP projects need to be kick started. There is an urgent need to evolve a suitable mechanism that evaluates and addresses actionable stress -using stress and adversity to deal with the underlying systemic problems (Chapter 5, paragraph 5.3.3). Sector specific institutional frameworks should be developed to address these stalled infrastructure projects. The proposed Tribu .....

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tracts have clearly articulated dispute resolution structures that demonstrate commitment of all stakeholders and provide flexibility to restructure within the commercial and financial boundaries of the project, (Chapter 8, paragraph 8.2.1). 17. In the wake of new project proposals emerging in various infrastructure sectors, the Committee recommends that appropriate legal frameworks be developed against which these can be evaluated (Chapter 6, paragraph 6.2.1). 18. The authorities may be advised .....

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into the procurement process and result in lack of transparency and fair and equal treatment of potential bidders in the procurement process (Chapter 6, paragraph 6.2.7). 20. Inherent in the concept of PPP is the role of a Private Sector Partner that will implement the project, based on the need to leverage private sector financing and also the managerial and operational efficiencies of the private sector party. It is in this context that the Committee is of the view that since state owned entit .....

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GF as a source of additional grants that can be accessed by adopting a PPP delivery mode for projects that are not suitable for such a long-term financing structure (Chapter 6, paragraph 6.2.8). 22. There have been concerns raised by all stakeholders (Government and Private Sector alike) on the demand for developer books of account being subjected to government audit and for access under RTI and Article 12 of Constitution. Conventional audit by authority of private partner s books as per standar .....

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d party transactions, financial disclosures etc as in the Companies Act, 2013. 23. Monetisation of viable projects that have stable revenue flows after EPC delivery may be considered. This should be seen as a monetisation opportunity that can attract risk averse long-term funding like pension and institutional investors. By providing O&M PPP opportunities, the authority will be able to free up budgetary funds for fresh EPC and start a virtuous cycle of fresh investment fed by additional reve .....

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PPP project s risk profile so that it is more suitable for overseas and domestic long-term investors can be accomplished through partial recourse to credible third-party institutions. This could be implemented through a partial credit guarantee or cash flow support mechanisms (Chapter 6, paragraph 6.2.12). 26. It is necessary to explore options for sourcing long term capital at low cost. Towards this, the Committee recommends, encouraging the banks and financial institution to issue Deep Discoun .....

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be endorsed by the Parliament as a policy resolution to impart an authoritative framework to implementing executive agencies as well as to legislative and regulatory agencies charged with oversight responsibilities (Chapter 6, paragraph 6.2.2). The Committee recommends an assessment of whether formulating and enacting a PPP Law will facilitate successful expansion of PPP into new sectors, including health, other social sectors, and urban transport (Chapter 10, paragraph 10.1.1). 28. In the final .....

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e and take between private and public sector partners, and finally accepting uncertainties and appropriate adjustments inherent in implementing long-time contracts. The Committee urges all parties concerned to foster trust between the private sector and public sector partners in implementing PPP. As mentioned earlier in the report, PPP is an additional policy instrument to enable India to save time. Since the demographic dead-lines are staring at us, there is need to accelerate growth. By all ac .....

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a robust revenue stream (Paragraph 2.5.5, viii). d. Improved fiscal reporting practices and careful monitoring of performance (Paragraph 2.5.5, viii). a. Given the urgency of India s demographic transition, and the experience India has already gathered in managing PPPs, the government must move the PPP model to the next level of maturity and sophistication (Paragraph 3.1.7). B. KEY RECOMMENDATIONS 1. Revisiting PPPs: Achievements and Challenges a. Contracts need to focus more on service deliver .....

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it is Urgent for India to get Infrastructure PPPs. a. Given the urgency of India s demographic transition, and the experience India has already gathered in managing PPPs, the government must move the PPP model to the next level of maturity and sophistication (Paragraph 3.1.7). b. The Committee feels strongly that maturing the PPP model in India is an urgent priority also to take advantage of this historical conjunction of India s infrastructure needs and the availability of long-term funding c. .....

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ted (Paragraph 4.1.6). c. Sophisticated modelling techniques are prevalent to assess probabilities of risks and the need to provision for them. DEA may hone its skills in this and provide guidance to project authorities (Paragraph 4.1.6). d. The final decision for a renegotiated Concession Agreement must be based on (Paragraph 4.3.8): - Full disclosure of long-term costs, risks and potential benefits; - Comparison with the financial position for government at the time of signing the Concession A .....

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ture Project developed in PPP mode beyond a notified threshold value. - An Infrastructure PPP Adjudication Tribunal ( IPAT ) chaired by a Judicial Member (former Judge SC/Chief Justice HC) with a Technical and/or a Financial member, where benches will be constituted by the Chairperson as per needs of the matter in question b. In case procurement of land or clearance is pending from government authorities for more than prescribed number of days, the outstanding work should be descoped (under the .....

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ctor specific institutional frameworks may be developed to address issues for PPP infrastructure projects (Chapter 5, paragraph 5.3.15). An entity should bear the risk that is in its normal course of its business (for instance, acquisition of land is a normal course of business for public entities).Overriding considerations/ stipulations of each entity to be factored in prior to implementation of risk management structure (Chapter 4, paragraph 4.1.6). b. Learnings from the Highways sector to be .....

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6, paragraph 6.2.7). f. PPP structures not to be adopted for very small projects in view of the transaction costs involved. DEA to issue a threshold guidance (Chapter 6, paragraph 6.2.6). 5. Chapter 6- Strengthening Policy, Governance and Institutional Capacity a. Amend the Prevention of Corruption Act, 1988 to distinguish between genuine errors in decision-making and acts of corruption (Paragraph 6.1.6). b. Build up capacity in all stakeholders, including regulators, authority, consultants, fin .....

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at short notice (Paragraph 6.4.3). e. Revive the PPP Cells supported by the DEA over the last decade in Infrastructure Ministries and State Governments (Paragraph 6.1.5). f. An institutionalized mechanism like the National Facilitation Committee (NFC) to ensure time bound resolution of issues including getting timely clearances/approvals during implementation of projects for smooth running of such projects (Paragraph 6.2.5). g. Ministry of Finance to coordinate with other implementing ministries .....

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quirements of audit till point of award (public books) and post-construction discharge by Authority of monitoring and oversight of project operations as per the concession agreement (public books) to be in the purview of statutory/government audit agencies (Paragraph 6.2.3). j. Essential to set up independent Regulators in sectors going in for PPP (Paragraph 6.1.8). k. Discourage government participation in SPVs that implement PPP projects unless strategically essential. 7. Scaling- Up Finance a .....

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re projects may be divested by offering to long-term investors. g. Ministry of Finance to allow banks and financial institutions to issue Zero Coupon Bonds which will also help to achieve soft landing for user charges in infrastructure sector (Paragraph 7.1.5). 8. Revitalising Contractual Processes a) Need for review of the MCAs (Paragraph 8.1.1). b) Sample suggestions for generic changes, including for resolution of disputes, and sector-specific changes (Paragraph 8.1.4 and 8.2.1) 9. Reinvigora .....

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