No CAG for PPP PDF Print E-mail
Monday, 03 October 2011 00:00
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Given the volume of projects, from airports to roads and metros with a lot thrown in between, that have been completed under the public-private partnership (PPP) route over the past several years, it does come as a surprise that the finance ministry should be coming up with a national PPP policy, a draft of which has now been put out in the public domain for a public discussion. It is, of course, true that some of the high-profile PPP projects have generated a lot of controversy—the large hike in the capital costs of the Delhi airport, for instance—but there are by now solutions that have been worked out for these. In most areas, pretty rigorous model concession agreements have been drawn up, for instance. In other areas, there are regulatory lessons that have been drawn. So, the natural conclusion to draw from the finance ministry's draft policy is that the ministry also wants to be seen as a decision maker in the PPP space. Nothing gained perhaps but nothing lost either.


Not surprisingly, the policy doesn’t break startlingly new ground, but it still makes points that bear repeating. So, it says that the risk allocation has to be optimal, where the party best suited to bear a risk is assigned that risk—one of the reasons why several high-profile power projects are facing a problem today is that the long-term fuel risk is being borne by private firms that have no capacity to bear such risk. Similarly, instead of technical specifications for assets, the draft policy says it is better to specify outputs, as in the number of cars that the road should be able to handle at peak traffic, say.

There are some parts that are curious. In the box on robust legal contracts, the policy recommends that the contracts give the private parties the rights to seek revision in the charges in the concession agreement to facilitate business planning and financing. To be sure, several PPP projects do get renegotiated, but to put this in as a clause in the PPP agreements seems to be granting approval to this practice. Even more problematic is the paragraph under “audit mechanisms”, which seems to suggest that the audit process, by CAG for instance, will not be applicable to private sector entities, including the SPVs set up to implement the PPPs. Although private sector players are understandably wary of CAG audits, the fact that high-profile PPP projects have had huge cost overruns suggests it would be prudent to allow a CAG audit, if need be. Perhaps there will be some more clarity on this by the time the comments and discussion phase is over.

Last Updated ( Friday, 25 November 2011 12:31 )

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