What ails Public Private Partnerships in Highways in India?

Despite the tangible steps being taken by the government to bring the best out of PPP in roads sector, constraints still persists. Some of them are discussed as below:

Slow award of project

If we look at the target vs. achievement figures of National Highways development on a year on year basis, we will observe there has been a significant drop in the award of project. It point to greater malaise existing in the sector in form of lack of capacity, poor project development and lack of societal stakeholder’s involvement.

Delay in execution of Projects

Even progress on the projects that has been already awarded has not been significant. The delays are attributed to land acquisition issues, poor project management by developers and the authorities. From governance perspective stakeholders’ consideration and consultation is necessary to make a project success, in most of the cases land owners not willing to participate in the process is because of lack of efforts from the public private entities to consult and address the concerns of land owners. Land owners are consulted only in case of their confrontation during execution process by that time contract/concessions are already allotted and only available option is to let the project suffer in terms of delays.

Similarly delays arising out of utilities shifting, environmental and forest clearance are result of lack of involvement of different government agencies during project shaping phase.  Effective governance needs to create a mechanism wherein all the stakeholders affected by the project or likely to affect the interest of the project are taken into confidence, so that their protest or refusal to approve/sanction doesn’t become a hindrance causing delays.

Delay due to poor project management by public authorities & developers needs to be handled through creating capacity at the authority level and developer side.  A governance mechanism needs to be developed wherein past performance of the developer on timely delivery of services need to be considered as one of the factors while selection during project procurement phase. This will be a cognitive governance mechanism which will incentivize the developers due to reputational concerns and relational perspective under shadows of the future.

Dispute resolution concerns

More than 1600 projects are under litigation at different levels according to a PwC report. Disputes arises due to reasons like land issues, approval related issues, delays in submission and acceptance  of drawings and documents, deviations from agreed contractual terms and different interpretation of clauses on the concession. To address the governance issues arising out of that there is a need to create an institutional framework wherein speedy resolution of these disputes can take place. Opportunistic behavior and blame passing needs to be avoided in the interest of project. At both the interface of Public and private and public-private and societal stakeholders, a consultative, transparent, fair process needs to be implemented so as to avoid disputes.

Regulatory issues affecting the project viability

Long gestation period of infrastructure projects before profit is generated creates a viability risk in terms of recovery of capital invested.  Although concessions are shielded from changes in regulatory environment impact, it doesn’t protect project company from increase in rates of direct taxes. Even during period of tax holidays, a minimum alternative tax (MAT) is applicable, which has been increasing over the years and have put viability of a lot of projects at risk.

Contract Management Capabilities

There is a lack of contract administration and effective monitoring. Contractual governance and an effective institutional framework or mechanism needs to be created to achieve sound contract administration, performance monitoring, effective service delivery, and cordial relationship management. There is a lack of institutional capacity that taps learning from past and its implementation for the future projects, i.e. the draft PPP policy calls for VfM analysis but in absence of historical data for state highway projects will it will be a challenge.