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India's Third Giant Leap

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A Step Further Towards Revival in Infra Projects...
Tue, 9 Feb Pre-Open

One of the major reasons why India has not been able to achieve its growth potential is the delay in ramp up of infrastructure. This is because of many ills that afflict the sector. Projects are stuck due to various issues. Some are stalled, some are revived and there are those which have been abandoned. Disputes on land acquisition, environmental clearances, utility shifting, litigations, delayed decisions, and financial problems are some of the matters that can be blamed for this. However, it's not all bad. The government has been pushing for a while now to give a fillip to the creaky infrastructure in India. And the latest developments are said to be for PPP (public private partnership) contracts.

As per an article in Business Standard, the government appointed committee headed by Vijay Kelkar to overhaul PPP projects has laid out radical measures that could spur investments in the infrastructure sector. Specifically, the measures are concentrated towards the two most important issues in PPP projects - risk sharing and dispute resolution.

Risk Sharing - A Shift in the Paradigm

The problem for risk sharing is rooted in the model bidding documents. There is a lack of assessment as regards project-specific risks. Most of the implementation hurdles are due to the 'one-size-fits-all' approach for projects of different nature.

For this, the Kelkar committee has suggested that the allocation of risks to parties should be based on their ability to withstand it. Also, other project-specific details should be considered before finalising the risk sharing between parties. Foreign exchange and demand risks share be borne by both parties equally. Further, risks relating to financial, construction and cost overruns shall mostly be faced by the private sector.

Resolving the Dispute Resolution Structures

The committee has attempted to amend the dispute resolution issue. As per the committee, PPP contracts should have clearly articulated dispute resolution structures with enough room to restructure the contract within the commercial and financial boundaries of the project. Further, the projects shall be backed by sector-specific monitoring and regulatory committees.

The Crux for Implementation...

In order to implement the above suggestions, the committee has proposed a two-tier framework of dispute resolution with Infrastructure PPP Project Review Committee and Infrastructure PPP Adjudicatory Tribunal. Under this framework, once a stakeholder files a reference before the tribunal, no party or stakeholder would be allowed to approach any court of law. Further, all courts shall refrain from adjudicating upon any proceedings initiated that are related to the project in question.

The committee has also proposed enactment of a law under Article 323B of the Constitution. The law will lay down the guiding principles on the basis of which the committee and tribunal will exercise their functions.

In a Nutshell...

That the Modi government is striving to give infrastructure a big push is apparent. And the above developments can give further impetus. The suggested independent mechanism can lead to speedy redressal of disputes. This will, in turn, mean more projects being implemented successfully. Furthermore, the risk assessment will bring more prudency in classification of risks. How successfully all of this will be implemented will remain the key.

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