The Hindu Business Line : Public-private partnership projects — Stymied by planned appraisal procedure?

PUBLIC-PRIVATE Partnership (PPP) projects in India are just taking off and will come under closer scrutiny, especially their approval procedures and terms, as more infrastructure projects are taken up via this route.

A Public-Private Partnership Appraisal Committee on the lines of the Public Investment Board and consisting of members from various government departments will scrutinise major PPP projects before implementation.

Projects where the capital cost or the underlying value of the asset is more than Rs 100 crore would be brought before the Committee. Once cleared by the Committee, the project would be put up to the competent authority for final approval, according to sources.

For projects where the capital cost or the underlying value of the asset is less than Rs 100 crore, the Department of Expenditure would issue detailed guidelines for appraisal of concession agreements.

These projects would not require appraisal by, or approval of, the Committee, and would be cleared by the Expenditure Finance Committees (EFC) and the Standing Finance Committees (SFC), as applicable.

The Centre's move to have a Public-Private Partnership Appraisal Committee has, however, drawn flak from the shipping industry, including the Shipping Secretary, Mr D. T. Joseph.

"What is the need for this committee, which is an unnecessary hurdle for major infrastructure projects? On the one hand, the Centre is talking about attracting investors for infrastructure projects. On the other, such stringent procedural system will delay infrastructure projects," he told Business Line.

The Shipping Ministry was not consulted while formulating the Committee. "We have sent our objections to the Centre, and it has reached the Prime Minister level," he said.

The Appraisal Committee will be chaired by Secretary, Department of Expenditure, with the Planning Commission providing independent assessment through the Project Appraisal Division, followed by approval of the Cabinet/Cabinet Committee on Economic Affairs.

"This is a very elaborate system and PPP projects will take months to get clearance. It has come at a wrong time when infrastructure projects need to be speeded up to strenghten economic growth," according to an official of a major port.

As government shifts to development through Public Private Partnership, it would be necessary to establish approval mechanisms that aim at securing value for money. PPP projects in roads, ports, airports and urban infrastructure are not ordinary private sector projects, which are governed by competitive markets, where prices are determined competitively and government resources are not involved, says a government note available on the Internet on the need for an Appraisal Committee.

PPP projects require due diligence by the government because they involve transfer of public assets, including land (for example, an existing road or airport facility) and delegation of governmental authority to collect and appropriate user-charges.

Further, such projects involve provision of services to users in a monopoly or quasi-monopoly situation, which imposes a special obligation on the government to ensure adequate service quality, sharing of risks and contingent liabilities by the government — for example, when claims are made under the respective agreements or when the Centre has to provide guarantee in case of non-performance by the entity grantng the concession.

Even where an explicit guarantee is not included there is a danger that non-performance by State governments could attract claims under bilateral investment promotion agreements, the note says.

The Appraisal Committee would comprise Secretaries to the Planning Commission, and the Departments of Expenditure and Legal Affairs as also to the Department sponsoring a project.

The Committee would be part of the Department of Economic Affairs, which will set up a special cell for servicing such proposals.

The Finance Ministry will be the nodal Ministry responsible for examining concession agreements from the financial angle, deciding on guarantees to be extended, and generally assessing the risk allocation from the investment and banking perspectives.

It would also ensure that the projects are scrutinised from the perspective of government expenditure.

The Planning Commission will set up a PPP Appraisal Unit, which will prepare an appraisal note for the Committee providing specific suggestions for improving the concession terms.

The Ministry of Law and Justice's Department of Legal Affairs would be represented on the Appraisal Committee as the concession agreements would require legal scrutiny.

These arrangements enshrine an independent approval process. The administrative Ministry can adopt a "proactive" developmental approach while the Planning Commission can focus on due diligence, consistency with processes in other sectors and consideration of best practices.

The Finance Ministry can consider the extent of direct and indirect Central Government exposure and also act as an arbiter, says the government note.