A joint study conducted by the Federation of Indian Chambers of Commerce and Industry (Ficci) and EY
stated that there is an urgent need to address and seek resolution for the multiple factors dampening the interest of the private sector in terms of making investments in the transport sector.
The study titled ‘Revival of PPP momentum in the transport sector’ calls for key interventions to remove the roadblocks to the public private partnership (PPP) model, besides suggesting an acceleration of such projects.
These interventions would include policy actions, regulatory changes and pushing reforms
agenda, all of which would create a conducive environment for bringing investments into the sector.
The Union Minister for Road Transport, Highways and Shipping, Nitin Gadkari
unveiled the study in New Delhi
on Wednesday. Among the major recommendations made by the study were the strengthening of lending institutions, greater participation of insurance and pension funds, establishment of infrastructure PPP Project Review Committee (IPRC) and the Infrastructure PPP Adjudicatory Tribunal (IPAT).
The report further emphasised on the need for independent regulators, the passing and enactment of pending bills, laying a strong emphasis on performance-based contracts, better preparation of the detailed project report (DPR) and revisiting the Viability Gap Funding (VGF) scheme.
It said, despite the creation of other lending institutions such as IIFCL, IDFs, and IFCs, commercial banks continue to remain a major source of debt financing of PPP projects in India.
Companies need access to long-term funds for infrastructure projects with long gestation periods.
There is an urgent need in India
to tap such markets to fund its infrastructure requirement. However, there are regulatory constraints on insurance and pension funds that restrict investments in the infrastructure sector.
The study recommended that the government should promote and issue rupee denominated Zero Coupon Bonds (ZCB). This will also help promote the general bond market in the country and attract investments from certain categories of investors such as pension funds and insurance companies.
It also urged the government to put in place a mechanism to check aggressive bidding in projects.
“Aggressive bidding is a major cause of concern in PPP projects. Developers bid aggressively to bag projects on account of a booming economy in order to capture a significant portion of the market share. Any adverse situation in the economy results in huge losses to the developers, who then become incapable of raising funds and executing projects within the stipulated timelines,” it added.
A study of road sector projects suggests that there is an inverse relationship between spending on DPR preparation and cost overruns, with regard to a project. It is observed that a low investment in planning and engine engineering in India
generally leads to high costs of implementation.
Hence, it is recommended that the government adopt a value engineering mindset to project design by building strong in-house value engineering teams, putting in place the right performance tracking and incentive mechanisms, and enforcing value engineering in all steps of the design process.