PPP model poorly designed, needs reformulating: Economic Survey

The government's Economic Survey 2014-15 Friday said the public-private partnership (PPP) model is poorly designed and requires restructuring.

According to the survey, which was tabled in the parliament by Finance Minister Arun Jaitley, many infrastructure projects are currently financially stressed due to the faulty partnership model and account for almost a third of the stressed assets in banks.

The survey said that due to the poor design of the PPP model new projects cannot attract sponsors, as seen in the recent National Highways Authority of India (NHAI) bids, and that banks are unwilling to lend.

"Given its riskiness, pension and insurance funds have sensibly limited their exposure to these projects. This current state of the PPP model is due to poorly designed frameworks, which need restructuring," the survey said.

The survey pointed out that the existing design of the PPP model was flawed as existing contracts focus more on fiscal benefits than on efficient service provision.

Secondly, these neglect principles allocating risk to the entity best able to manage it. Instead, unmanageable risks like traffic risk in highways, even though largely unaffected by their actions, are transferred to concessionaires, the Survey added.

"This is also true for railways and in part, for ports and airports. The default revenue stream is directly collected user charges," the Survey said.