IASbaba’s Daily Current Affairs – 1st January, 2016
** Wish you all a Very HAPPY & PROSPEROUS NEW YEAR – 2016 **
ECONOMICS
TOPIC:
General studies 3:
Infrastructure: Energy, Ports, Roads, Airports, Railways, etc.
Investment models.
General studies 2:
Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Kelkar panel to revive PPP in infra projects
Kelkar committee has proposed a series of recommendations with respect to revamping PPP in infrastructure projects.
The recommendations:
Clear-cut norms on resolving issues and clarifying norms on re-negotiation of contracts.
Infrastructure investments worth around Rs 12 lakh crore remained stuck at different stages as of end-December 2014 due to a variety of issues such as land acquisition, lack of clearances, unfavourable market conditions, and costly finances, according to a Assocham study.
This puts stress on banks and the developers’ balance sheet.
The Kelkar report has drawn up extensive guidelines regarding the re-negotiation of the terms of concession agreement, stipulating the reasons that form the basis for re-negotiation and those that should not be entertained as valid reasons.
For example, if the distress in the project is not caused by the private party and is likely to adversely affect the government or users, then that forms the basis for re-negotiation.
Similarly, if the project distress is due to material reasons and may result in default under the existing concession agreement, then the pact itself can be re-negotiated.
However, if the distress is due to reasons that were foreseeable at the time of signing the agreement, then no re-negotiation will take place.
Creation of multi-disciplinary expert institutions to address the problem of stalled PPP projects
The report talks about setting up an Infrastructure PPP Project Review Committee (IPRC) comprising at least one expert in finance and economics, law, and one or more sectoral experts, preferably engineers with a minimum of 15 years of experience in the industry in question.
It also recommends the creation of an Infrastructure PPP Adjudication Tribunal (IPAT) which is to be chaired by a former Supreme Court Judge or former High Court Chief Justice, with at least one technical and financial member.
Amend prevention of corruption act 1988
The government should take early action to amend the Prevention of Corruption Act, 1988 which does not distinguish between genuine errors in decision-making and acts of corruption.
Measures may be taken immediately to make only malafide action by public servants punishable, and not errors, and to guard against witch hunt against government officers and bureaucrats for decisions taken with bonafide intention.
Moving away from the one-size-fits-all approach to PPP model concession agreements (MCAs).
The committee recommends that MCAs for each sector be reviewed independently to capture the interests of all participating stakeholders — users, project proponents, concessionaires, lenders and markets.
Creation of dedicated institutions for PPP projects
“Every stakeholder, without exception, has strongly emphasised the urgent need for a dedicated institute for PPPs, as was announced in the previous budget.
The committee strongly endorses the 3P India (3PI), which can function as a centre of excellence, enable research, and review and roll out activities to build capacity.
Promote zero coupon bonds
The finance ministry should allow banks and financial institutions to issue zero-coupon bonds, which will also help to achieve soft landing for user charges in the infrastructure sector and its financing in longer term.
Sector specific recommendations:
Roads: Increase concession period for BOT projects
Introduce hybrid models, viable gap funding, part annuity, operation and maintenance grants, etc for non-BOT projects.
Relax exit norms.
Dispose pending cases between developers and NHAI.
Shift to electronic tolling in time-bound manner.
Ports: Move from pre-TAMP (tariff authority for major ports) to current-TAMP
Strengthen and accelerate environmental clearance.
Provide support infrastructure (including land, reliable access to utilities, dredging, rail, roads) to developer.
Railways: Take up simpler projects first to build credibility
Such projects can be brownfield — monetisation of existing stations — or, greenfield —development of new stations.
Set up regulatory authority to settle technical issues such as track-access charges.
Power: Not many power projects are under PPP. But the sector has a far-reaching impact on infrastructure PPPs
Immediately address power sector finances as they are hurting bank loans.
Airports: Prepare a policy that addresses the expected growth parameters of the sector and promotes PPPs
Concession agreement should stipulate important commercial parameters like return on equity, treatment of land for non-commercial purposes.
Develop brownfield and greenfield airports with defined structure, revenue sharing mechanisms.
Courtesy: Business standard
Some points of criticism by CAG in its various PPP reports and the possible solutions by Kelkar committee
PORTS CAG
Delays in majority of projects due to time taken in finalization of tenders, security clearances, concession agreement and tender process.
Delays in obtaining environmental clearance.
Delays in handing over of project sites and back up area.
KELKAR COMMITTEE
Urgent need to focus on strengthening the systems to speed up the overall environmental clearance process.
More institutions are required to be given authorization for conducting Coastal Regulation Zone demarcation.
Need to provide support infrastructure facilities including land, utilities, dredging, rail and road evacuation infrastructure through enforceable obligations.
ROAD
CAG
Inconsistency in adopting carrying capacity/tollable traffic as yardstick for determining the Concession Period by NHAI resulted in fixing higher concession period and higher toll burden on road users.
Projects were approved despite the known late realization of minimum threshold traffic.
The Total Project Cost (TPC) worked out by the concessionaires was higher as compared to TPC worked out by the NHAI. In 25 projects, TPC worked out by concessionaire was higher by 50%.
KELKAR COMMITTEE
In the case of BOT toll projects, focus on projects with longer concession period. NHAI, concessionaire can opt for revenue share on a case to case basis.
In case of projects that are not viable on BOT toll basis, options to fund through hybrid models, grant of VGF, part annuity, O&M grants, and debt instruments, maybe explored.
The concessioning authority may undertake detailed project development activities including demand assessment, soliciting stakeholder views on project structure and financial viability analysis to estimate a shadow bid, which could be used to compare actual bids received.
Courtesy : Business standard
Way ahead:
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 also to tap into the large pool of pension and institutional funds from aging populations in the developed countries.
Connecting the dots:
Critically examine the measures taken by government to revamp PPP in infrastructure development with special reference to Kelkar committee recommendations.
Economic survey 2014-15 pointed out to structural problems which have resulted in low economic growth over the past. What do you understand by structural problems? Explain the measures taken by government to overcome it.
The AIIB is ready for business- Asia’s infrastructure investment needs have grown exponentially, and the AIIB’s resources, quite simply, will increase the pool of multilateral resources available to help meet them
