Timely renegotiation of contracts is a win-win: Ramesh Vaidyanathan

The case for a fully empowered independent body in India for public-private partnership (PPP) contract monitoring, intervention and renegotiation cannot be overstated.

Unfortunately in our country the journey beyond contract signing is a solitary one for the private participant. While I don't want to take anything away from our trophy PPP assets (Delhi and Mumbai airports are good examples of these), many would argue that the high project costs that the users are saddled with could have been mitigated with a more involved 'partner role' played by the government. The hundreds of projects stuck in different stages of development with thousands of crores in sunk costs also bear testimony to this unfortunate reality.

The dispute resolution process has never been a solution for this in any part of the world - leave alone the protracted legal process in India that is so terribly out of sync with business exigencies and intricacies. The dispute resolution process no doubt throws up a winner and a loser, but smart and timely contract renegotiation could potentially pave way for a win-win.

Problems start when the bid itself is predicated on incomplete and inaccurate project description and site availability. Even assuming that the government gets this right at the contract execution stage, the basis on which the bids were made by the private party and the concessions awarded by the government could fundamentally change over the 30 or 60 year long lifecycle of the concession. Unfortunately, a highly combative political opposition and an overzealous media make sure that contract changes invariably attract the charge of crony capitalism. These changes (on traffic, new taxes, tariff, et al) could not have been fully anticipated by any prudent business. Given the peculiar characteristics of an infrastructure project (such as, front-loaded costs, long gestation period), it is never easy to manage unbudgeted risk. It is therefore critical that the government does not fight shy of renegotiating particular contracts in special circumstances, and a rigid approach may in fact be counterproductive.

Currently India does not have a defined legal and regulatory dispensation to address the issues relating to renegotiation and life-cycle management of PPP infrastructure assets.

Many countries in the world have created successful institutional framework for this very purpose, which we can easily learn from.

Ramesh Vaidyanathan
Managing Partner, Advaya Legal