Projects run the risk of getting derailed in the absence of an institutional mechanism for renegotiation
The 15-year history of public-private partnership (PPP) in India is mainly about creating an enabling environment to get private capital to invest in infrastructure assets. So, a plethora of instrumentalities from model concession agreements, viability gap funding, definitions of infrastructure and specialised financing have focused on asset creation. The happy result is that we now have a fairly large basket of operating assets. The flip side is that we have begun facing the problems associated with operating contracts.
These contracts are for periods ranging from 15 to 60 years. The problem is there is an ostrich-like belief that once negotiated, ground conditions will continue to hold forever; that the terms of the agreement between the private party and the state are cast in stone; and that any changes required can only attract charges of crony capitalism. So, even while economists find it extremely difficult to predict growth and inflation for the next quarter, assumptions on project cost, traffic, tariff, input costs, et al that go into preparing a winning bid, are expected to be inviolate and unchanging. The world moves on, but the concession agreement is frozen in time. Why? Because, simply put, it is the job of the private sector to forecast the future and take risk. That may indeed ring true for a wide range of market goods, where there is flexibility to morph, enter and exit. But for strait-jacketed, lumpy, fixed infra projects in regulated environments, the truth is that the task of forecasting for PPP bids gets highly complex often, just intelligent guesswork packaged professionally. Read more
Source : www.business-standard.com