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Govt’s new PPP strategy seen boosting infrastructure creation

LiveMint logoLiveMint 02-10-2017 Utpal Bhaskar

New Delhi: The National Democratic Alliance (NDA) government has given a fresh lease of life to the public-private partnership (PPP) projects across sectors such as housing, railways, roads, aviation, power distribution, mining and even school education and health services.

PPPs relate to the delivery of public services by private entities, and are awarded through a competitive bidding process. These projects are typically run on the lines of build-operate-transfer, build-operate-own-transfer or build-operate-own models and are favoured by governments globally to make up for a shortfall in investment spending.

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Experts say the PPP strategy holds promise for infrastructure creation if the financing piece is tied up.

“The government’s renewed focus on PPP will hold infrastructure sector in good stead. For these PPP projects to materialize, the next critical path item will be financing. As most public sector lenders and Indian developers are stretched, the government will need to take proactive measures to facilitate financing for these projects,” said Srishti Ahuja, director at consulting firm EY.

The PPP model has delivered mixed results in India, given problems on account of overextended balance sheets, contract disputes, land acquisition problems and lack of a dispute resolution mechanism. Stalled projects, in turn, have saddled banks, especially public sector lenders, with large bad loans.

A panel headed by former finance secretary Vijay Kelkar mandated to redraw the contours of the country’s public private partnership (PPP) model in December 2015 recommended ending a one-size-fits-all approach in dealing with project-specific risks and advocated independent regulators.

Some believe that a raft of new project launches is evidence that a new beginning has been made.

“The issues with original PPPs have been substantially addressed to a large extent with the introduction of annuity and hybrid annuity models and the recognition by the government that certain risks which are contrary to businesses and need to be addressed at a social level come under the government’s ambit,” said Sanjay Garg, partner and leader, capital projects, at PricewaterhouseCoopers.

Some of the key PPP projects are in the physical infrastructure space. The Union government in August announced a new metro policy wherein it will approve and aid metro rail projects only if they have private participation and ensure last-mile connectivity for users. Also, a new PPP was announced last month to promote private investments in affordable housing to help achieve the “housing for all” target by 2022.

For futuristic projects such as pod taxis—driverless vehicles that run along a predetermined course—as well, the government plans to adopt the PPP model because these projects are capital-intensive.

While India’s mines ministry’s 2008 national mineral policy revamp may allow PPPs in mining, states such as Rajasthan have awarded PPP contracts for electricity distribution in the districts of Kota and Bharatpur.

After the privatization of the Delhi and Mumbai airports in 2006, the PPP approach has been adopted for airports across the country. While the new airports in Navi Mumbai and Goa have been won by GVK Power and Infrastructure Ltd and GMR Infrastructure Ltd respectively, the state owned Airports Authority of India (AAI) has won the right to build the new Bhogapuram airport in Andhra Pradesh.

In addition, the government is also working to farm out operations at Jaipur and Ahmedabad airports on a PPP basis. “Depending on how this model works, AAI will consider farming out other airports (as well),” said an AAI official requesting anonymity.

With the provision of universal healthcare in India continuing to be a challenge, the government is leveraging PPPs to bridge that gap by giving hospital services to the private partner for management for a fee to be paid out of the revenue. “For better service delivery, we need huge funding. We are promoting PPP as the private sector can support the government in building capacities,” said C.K. Mishra, health secretary.

While India has experimented with healthcare PPPs for various services, the successful ones involve laboratory services, mobile medical units, primary healthcentre management, telemedicine services and hospital maintenance.

The government also announced model contracts to increase the role of private hospitals in treating non-communicable diseases in urban India. This is the way ahead given that the National Health Policy (NHP) 2017 specifically calls for PPPs to create successful healthcare solutions.

With health being a state subject, there are also several successful PPP examples across the country such as a boat health service in the dense Sunderbans, free drugs for below-poverty-line patients in Rajasthan, Karnataka’s telemedicine programme and Uttarakhand’s voucher scheme for institutional deliveries.

Experts say that PPPs have a very important role to play in India’s healthcare architecture. “The scope and meaning of PPPs must be expanded against the current public health landscape of the country—partnerships that bring together strengths of each partner to what best they can deliver and not in fact merely a contract of convenience between public and private stakeholders who may have ideological disagreements must be advocated widely,” said Srinath Reddy, president, Public Health Foundation of India.

Neetu Chandra Sharma, Jyotika Sood, Tarun Shukla and Gireesh Chandra Prasad contributed to this story.

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