Finding a way back

Private-public partnerships in roads must work

Faced with poor private response, the union road transport ministry has decided to abandon, at least for the rest of the current financial year, the build-operate-transfer (BOT) route for awarding 5,000 km of road projects. This is a severe setback for the whole idea of public-private partnership (PPP) in infrastructure development. The government's own resources being limited, relying entirely on the EPC (engineering, procurement and construction) mode for building highways that depend on 100 per cent government funding is not the most desirable and sustainable option, if growth is to be restored. Without better roads (essential for efficient supply chains and logistics), India's productivity growth will slow, hurting its long-term prospects. And less road-building means fewer construction jobs when these have played a key role in raising minimum wages and reducing poverty.

The government has said that it is open to the PPP idea for road projects in the next financial year (2014-15); but this cannot happen unless it sets its own house in order. The National Highways Authority of India (NHAI) is to be blamed for delay on as many as three fronts - making land available, getting all the official clearances and completing due processes. It has sometimes taken five years to start work on an awarded project. This delay must be eliminated. NHAI has to learn how to eliminate outlying bids - those that have been guilty of irrational exuberance unaligned with realistic cost assessments and known management capabilities. The latter shows that the private sector also has to take a large share of the blame. Today nobody wants to bid because so many have burnt their fingers by taking an over-optimistic view of future traffic flows at a time when the economy was booming.

There is a way out. Rebidding troubled projects might mean huge delays. But reworking and rescheduling (back-loading) the premium payable on traffic and revenue clocked after securing an adequate return on capital employed is an option. Unfortunately, this runs into questions of moral hazard; it violates the sanctity of the bidding process. At a time when the government is being universally attacked over corruption, renegotiating payment schedules can raise issues of favouritism and create a feeling among bidders that they can again renegotiate at a future date. Still, the state system is still learning the ropes, and renegotiation of such processes at such a stage is not uncommon - it happened extensively in Latin America. What is important is to remember that private investment in infrastructure is a must. Once the government sets its own house in order - most importantly through a regulator for roads - things will move, and good private players will push out those interested only in gaming the system.