‘Regulator needed’ to deal with disputes in public-private road projects

September 25, 2013

OUR BUREAU |Mamuni Das

 

Govt officials cannot deal with such projects: Mayaram

Arvind Mayaram, Secretary, Department of Economic Affairs, stressed the need to have a regulator for the road sector to handle disputes in public-private-partnership (PPP) projects.

He said Government officials do not have the capacity to deal with PPP projects where contracts between the Government and private sector span 20-30 years, thus requiring constant interaction and adjustment between the two parties based on the changing circumstances.

“Traditionally, we were used to paying the private sector to do a job in two-three years, after which the relationship ended. How to manage relationships in post award framework is an area where there is scope for improvement,” Mayaram said speaking at a FICCI conference here on Monday.

The regulator can help manage when the Government’s relationship with the private sector gets rocky, said Mayaram.

Omnibus Bill

Incidentally, the Planning Commission has taken a stance against the idea of having a road sector regulator to deal with such issues. It has rather supported the idea of an omnibus Bill, which will spell out ways for dealing with disputes in PPP projects.

Infrastructure

The Government has been increasingly wooing the private sector to build infrastructure through public private partnership basis.

In 2005, it decided to bid out all road projects on BOT-toll mode first, where the private developer designs, finances and builds a road, maintains it, collects toll from users for a long-term period. Vijay Chhibber, Secretary, Road Transport and Highways, said the Ministry is working on a proposal to have a regulator, as was announced in the Finance Minister P. Chidambaram’s Budget speech this year.

Advisory role

The regulator would have an advisory role on renegotiation of existing contracts, setting of service standards, project entry and exit options, tariff structuring and toll mechanism and knowledge management, according to the proposal under the consideration of the Road Ministry.

It would also have an adjudicatory role on contract dispute resolution, renegotiation of future contracts and enforcement of contractual provisions.

This is for the first time that the Highways Ministry has officially spelled out its detailed proposal for the regulator.

Source- http://www.thehindubusinessline.com

Government plans fresh impetus to ‘public-private partnership’ to push growth

August 19, 2013

 

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

 

PM sets Rs 1.15 lakh cr investment target for PPP projects

July 30, 2013

PTI

NEW DELHI, JUNE 28:

 

In a bid to ramp up investor sentiment, Prime Minister Manmohan Singh today set an investment target of Rs 1.15 lakh crore in PPP (public private partnership) projects across infrastructure sectors in rail, port and power in the next six months.

The proposals include Mumbai elevated rail corridor (Rs 30,000 crore), two international airports in Bhubneshwar and Imphal (Rs 20,000 crore) and power and Transmission projects (Rs 40,000 crore).

The decisions were taken at a meeting Prime Minister held here to finalise infrastructure projects for 2013—14 which was attended by Finance Minister P Chidambaram, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Ministers of Power, Coal, Railways, Roads, Shipping and Civil Aviation.

The meeting decided that the proposal for creating a rail tariff authority will be accelerated and brought before the Cabinet soon.

The Prime Minister highlighted the need for ramping up investment in infrastructure to revive investor sentiment.

“For this purpose, a target of rolling out PPP projects of at least Rs 1 lakh crore in the next six months was set. A steering group is being formed to monitor the award and implementation of projects on priority basis,” said a PMO release.

(This article was published on June 28, 2013)

Highways Ministry can award PPP projects of Rs 500 cr

July 30, 2013

MAMUNI DAS

For projects implemented on public-private partnership basis, which involved investments from the private sector, the Highways Ministry had to wait for approval from the Cabinet Committee on Economic Affairs.
(For projects implemented on public-private partnership basis, which involved investments
from the private sector, the Highways Ministry had to wait for approval from the Cabinet
Committee on Economic Affairs.)

 

NEW DELHI,

The Cabinet Committee on Economic Affairs (CCEA) has delegated powers to the Highways Ministry to approve all road projects of up to Rs 500 crore irrespective of the mode of implementation.

At present, there is dichotomy in the approval process followed for award of projects of up to Rs 500 crore.

For those projects which were implemented on an engineering procurement contract (EPC) basis, which are entirely funded by the Government, the Highways Ministry had power to approve projects of up to Rs 500 crore.

But for projects implemented on public-private partnership basis, which involved investments from the private sector, the Highways Ministry did not have similar powers.

According to an official release, “At present, projects of Rs 500 crore or above require investment approval of the Cabinet Committee on Economic Affairs (CCEA) but projects below Rs 500 crore have varying appraisal and approval levels, depending on the source of funding and mode of implementation of projects.”

The CCEA approved the proposal for a change in the delegation of powers for appraisal and approval of National Highways projects. This will simplify the appraisal and approval of the National Highway projects, it added.

 

Source -http://www.thehindubusinessline.com

(This article was published on June 13, 2013)

The new highway

July 30, 2013

The NHAI must revert to the older model of funding projects and leaving construction to private players.

The Government’s move to allow developers of highways under the public-private-partnership (PPP) route the leeway to exit from projects immediately after they are commissioned will help infuse some liquidity into a sector where companies are struggling to raise funds. The majority of highway developers in India are contractors whose core strengths are in engineering, procurement and construction (EPC), and not in assuming the financial risks of operating and collecting toll from completed projects over a 20-30 year concession period. In contrast, are those investors with sufficient resources — from private equity firms to sovereign wealth funds — wanting to acquire road projects, but unwilling to take the risks of construction. By permitting developers to shed their entire equity, even in projects awarded on a build-operate-transfer (BOT) basis right after commissioning, the Government has essentially facilitated the sharing of risks — between those in a position to bear them until construction is complete and others only interested in managing the operational assets. In other words, a perfect fit.

 

The above ‘exit’ flexibility should, in fact, have been granted much earlier, ever since PPPs were made the preferred mode of executing highway projects. The shift to PPPs led to a situation where erstwhile EPC contractors, who undertook work on projects directly funded and bidded out by the National Highways Authority of India (NHAI), suddenly became full-fledged BOT developers. This was a job they were really not equipped for, made worse by onerous restrictions that forced them to stay invested right through the concession period of projects. In a scenario of high interest rates and tightening of lending norms by banks, the inability to divest stakes even in existing projects only compounded the liquidity problems of developers. The ultimate casualty here was the highway programme. With developers having no money to bid for new projects, the NHAI could award just 1,116 km of roads under PPP in 2012-13 as against 6,491 km the previous year.

Exiting from completed projects may help generate the much-needed liquidity for developers. But it will still not be enough to restore the kind of investor interest in highway development witnessed until a couple of years ago. The fact that a large number of PPP projects bidded out in 2011-12 are yet to achieve financial closure highlights the seriousness of the crisis in the sector. For the time being, the Government has little option but to go back to the older EPC model where the NHAI funded the projects and handed out construction contracts to private players. If nothing else, it will keep the highway building programme going and inject liquidity amongst contractors who may be enthused to bid for PPP/BOT projects as and when the overall economic situation improves. The NHAI must be made to speed up its process of awarding EPC contracts and the Government should untangle the regulatory thicket — particularly, in the environmental sphere — coming in the way of project implementation.

(This article was published on June 24, 2013)
Source -http://www.thehindubusinessline.com

CCEA approves 4-laning of Dimapur-Kohima highway in Nagaland

June 19, 2013

 

(The government on Thursday approved the 4-laning of Dimapur-Kohima National Highway in Nagaland at a total cost of Rs 1,089.87 crore.) 

NEW DELHI: The government on Thursday approved the 4-laning of Dimapur-Kohima National Highway in  Nagaland at a total cost of Rs 1,089.87 crore.”The Cabinet Committee on Economic Affairs today approved the implementation of the project of 4-laning of the Dimapur-Kohima section from 124.1 km to 172.9 km of NH-39,” Finance Minister P Chidambaram said at a press briefing.

This project is under the special Accelerated Road Development Programme (SARDP-NE) in North Eastern Region, he said.

The total length of the road will be 42.8 km with total project cost of Rs 1,089.87 crore (excluding land acquisition and pre-construction).

The concessionaire will make all expenditure to complete the project and will charge the annuity from the Government.

“The main object of the project is to expedite the improvement of infrastructure in Nagaland. It will facilitate reducing the time and cost of travel for traffic playing between Dimapur to Kohima. It will also increase the potential of employment to local labourers for project activities,” he said.

This project was delayed due to delay in land acquisition process in the state.

At present, Nagaland has 494 km of National Highways.

Source-http://economictimes.indiatimes.com

 

 

 

 

Road Ministry to approach CoS on GMR highway project in 2 weeks

June 19, 2013

By PTI

NEW DELHI: The Road Transport Ministry will approach the Committee of Secretaries for an amicable way out for the Kishangarh-Ahmedabad Highway project which is stalled after GMR’s exit.GMR Infrastructure BSE 0.50 % early this year had walked out of the project citing difficulties in taking up the project due to regulatory hurdles, including delays in environment clearance and land acquisition.

According to sources, GMR Infrastructure was ready to restart the project with some preconditions, including making piece-meal payments.

The Law Ministry, however, had already rejected the developer’s preconditions, including piece-meal payments, for resuming work on the project.

“We are going to the Committee of Secretaries (CoS) on the matter,” Road Secretary Vijar Chibber told reporters here. He said the meeting of CoS may take place in the next 10-15 days. The CoS is headed by Cabinet Secretary Ajit Kumar Seth.

The company has also said it would pay about 50 per cent of the amount to restart the work on project at present and pay the remaining sum including interest in subsequent years.

The Ministry and the company are already in discussions to rescue the project.

Sources added that the proposal from the Ministry is to ask the company to make requisite payments in time and to seek its guarantee to ensure that the project is not abandoned mid-way, leading to financial burden falling on government.

The project is estimated to have required an investment of Rs 5,387 crore. The Bangalore-based group had won the project in western India through international competitive bidding in September 2011 at Rs 636 crore annual premium for 26 years.

NHAI had said that the company exited the project on account of financial hurdles in arranging finance for the project and not due to lack of regulatory clearances.

It is to be implemented through the Public Private Partnership (PPP) model on Design, Build, Finance, Operate and Transfer basis.

 

Source-http://economictimes.indiatimes.com

 

Road Ministry to take up GMR Infra project issue with Committee of Secretaries

June 19, 2013

By PTI |

GMR Infrastructure was ready to start the project with some preconditions, including making piece-meal payments.

(GMR Infrastructure was ready to start the project with some preconditions, including making piece-meal payments.)

 

 

 

 

NEW DELHI: In a bid to salvage the stalled Kishangarh-Udaipur-Ahmedabad highway project of GMR Infrastructure, the Ministry of Road Transport and Highways will soon approach the Committee of Secretaries for the matter.

“The matter will go to the Committee of Secretaries, we want that the net present value of the project does not change,” a Road Ministry official told reporters.The difference between the present value of cash inflows and the present value of cash outflows is the net present value of a project.
The Ministry and the company are already in discussions to rescue the project.According to sources, GMR Infrastructure BSE 0.76 % was ready to start the project with some preconditions, including making piece-meal payments.The company has also said it would pay about 50 per cent of the amount to restart the work on project at present and pay the remaining sum in the subsequent years, including interest.The official added that the proposal from the Ministry is to ask the company to make the requisite payments in time and to seek its guarantee to ensure that the project is not abandoned mid-way, leading to the financial burden falling on the the government.
Earlier this year, GMR Infrastructure walked out of the Kishangarh-Udaipur-Ahmedabad project 16 months after securing the order.The project is estimated to have required an investment of Rs 5,387 crore. The Bangalore-based group had won the project in western India through international competitive bidding at Rs 636 crore annual premium for 26 years.It is believed that the company terminated the contract on account of difficulties in taking up the project due to regulatory hurdles, including delays in environment clearance and land acquisition.However, NHAI had said that the company exited the project on account of financial hurdles in arranging finance for the project and not due to lack of regulatory clearances.The company had won the project in September, 2011, through the international competitive bidding route. It is to be implemented through the Public Private Partnership (PPP) model on Design, Build, Finance, Operate and Transfer basis.
Source-http://economictimes.indiatimes.com

Pune mulls Mumbai model to speed up metro project

June 17, 2013

Radheshyam Jadhav, TNN |

 PUNE: The Pune metro project may follow the Mumbai model of public private partnership (PPP) which means increased involvement of the Centre in the funding process.

The Maharashtra government and the Pune Municipal Corporation (PMC) are mulling over Mumbai metro model of Public Private Partnership (PPP) involving central funds to expedite the Pune metro project.

The recent meeting of the state urban development department (UDD) with PMC officials concluded that the Union government’s PPP model would help the Pune metro project raise the required funds.

A PMC official said that urban transport is inter-twined with urban development and is under the purview of the state government. The concerned state and the city implementing urban transport project need to work on financial model and hence the state government is tapping options for Pune metro funding. The PPP model involving central funding has been adopted for the Hyderabad metro project (71.16 km) and Mumbai metro line 1 with length of 11.40 km and line 2 with length of 31.871 km. According to the state and PMC officials this model would help to avoid any further delay to start the project.

In June last year, the state cabinet gave its assent to the much-awaited Pune metro rail project, approving the 14.925-km elevated route from Vanaz to Ramwadi. The cabinet also decided to form the Pune Metro Rail Corporation (PMRC) for implementing the project, which is planned to be completed within the next four years. The cabinet nod for the metro project had come close on the heels of the union urban development ministry’s decision to consider metros in cities with a population of more than 20 lakh.

The overarching model for Pune metro will be Delhi Metro Rail Corporation’s (DMRC) proposed model, where 10% of the project cost will be contributed by the PMC while the state and Centre will contribute 20% each.

The remaining 50% will be raised by a special purpose vehicle (SPV) using various options like build-operate-transfer (BOT) and public private partnership (PPP).

The PPP model opted by Hyderabad and Mumbai has helped these cities get substantial Union government funding along with the PPP investment, said the state officials in the meeting. The PMC has been asked to work on a proposal to be submitted to the Union government.

The Metro Story

THE START

In 2006, Union minister Sharad Pawar told the PMC and the PCMC to submit a plan for a metro. DMRC’s expertise was sought and the corporation recommended its model.

COST FACTOR

The corporation suggested setting up of a Pune Metro Rail Corporation to oversee all options. Completion target set for 2014-15 at a cost of Rs 8,401 crore for the first corridor from Pimpri-Chinchwad to Swargate and Rs 9,534 crore for second corridor from Vanaz to Ramwadi.

MONEY MATTERS

10% of the total project cost to be contributed by the PMC while the state and Centre to give 20% each. The remaining 50% will be raised by the special purpose vehicle (SPV) using options like Build-Operate-Transfer (BOT) and Public Private Partnership (PPP).

 

Source-http://timesofindia.indiatimes.com

 

PPP projects still out of hawk vision

May 14, 2013

By SPS Pannu in New Delhi

THE government has been dragging its feet over the Comptroller and Auditor General’s ( CAG) proposal to bring public- private partnerships ( PPPs) under the ambit of the DPC Act, which gives the top auditor unfettered access to audit the finances of such projects.

According to sources, the proposal was first moved by CAG Vinod Rai in 2009.But despite repeated reminders, the finance ministry has not taken action.

Rai, who hangs up his boots on May 22 after an eventful career, will not have the satisfaction of realising one of his key objectives. According to sources, the embarrassment that the United Progressive Alliance government had to face after the CAG’s audit teams blew the lid off mega scams in the telecom sector, the allocation of coal blocks and the Commonwealth Games may be responsible for the go- slow attitude on the issue.

Sources disclose that for the record, the government has maintained that the states are also being consulted on the issue and response is still awaited from some of them.

The government had itself referred the privatisation of the Delhi Airport under the PPP mode to the CAG, which discovered that private operator GMR had managed to get hold a huge tract of prime land in the Capital for commercial use with an insignificant investment. CAG’s report had also exposed that GMR had not being paying the Airports Authority of India the full share of revenue that it had committed itself in the contract.

Similarly, the audit of the eastern offshore KG Basin gas fields operated by Reliance Industries Ltd had revealed major irregularities in contracts given out by the private company. This had inflated the cost of development of the gas fields and adversely impacted the government’s share of the revenue.

A senior officer of the Indian Audit and Accounts Service said, “ This ground experience clearly shows that there is a need to audit PPP projects in order to ensure transparency in the running these ventures.” Interestingly, the Prime Minister while addressing the Accountants General Conference as far back as 2008 had himself stated, “ Public private partnership projects are becoming increasingly common in key infrastructure sectors of transport, power, urban infrastructure, tourism and Railways. Audit needs new skills to evaluate these complex arrangements.” A senior official said that in order to meet this objective, a new set of guidelines for audit of PPP projects which at once reflects the best practices world over and yet is rooted in our experience of auditing government operations over the years has already been drawn up by the CAG. “ However, the government needs to amend the DPC Act so that PPP projects are formally brought under its ambit,” he added.

Rai had in his note to the government stated that PPPs, while bringing in private capital and experience, also involve transfer of valuable public assets as well as foregoing future revenue in the form of concessions. To ensure that such arrangements always enjoy high credibility in the public eye, due diligence, transparency, objectivity and probity of the entire decision making process are all paramount if these arrangements are to succeed and continue for future projects.

The rationale of the exercise is that the role of public auditors becomes critical in assessing whether such arrangements are truly in public interest and are also fair and balanced in sharing of risks as well as rewards.

PROPOSAL ON THE BACKBURNER

CAG Vinod Rai had proposed to bring PPP projects under the ambit of the DPC Act in 2009

The Act gives the top auditor unfettered access to audit the finances of such schemes

The government needs to amend the DPC Act so that PPP projects are formally brought under its ambit

Rai had said PPPs bring in private capital and experience but also involve transfer of valuable public assets as well as foregoing future revenue as concessions

The rationale of the exercise is that the role of public auditors becomes critical in assessing whether such arrangements are truly in public interest

Source-http://epaper.mailtoday.in

« Previous PageNext Page »