Public Private Partnership in Roads in India

Provision of transport infrastructure such as road projects have long been regarded as the domain of the public sector because of massive investment requirement, long gestation period, uncertainty of return and presence of significant externalities. However, with the opening up of the economy and the consequent pressure to contain government expenditure, public sector resources are not be enough to develop an adequate road network for a rapidly growing economy. Therefore, to raise resources and complete the projects at a faster pace, the government of India is encouraging private sector participation in the development, maintenance and operation of national highways.

The origin of PPP can be traced back to Europe in the period of macro economic dislocation of 1970 and 80s. It was argued that models which involved an enhanced role of private sector in infrastructure provision could result in improved efficiency, improved allocation of risk while maintaining public accountability for essential aspects of public provision. The main advantage of PPP was that projects were mostly off public sector balance sheet enabling the government to keep within the restrictions set by economic and stability pact as well as defer payments to future.

In India, several reforms and initiatives have been introduced in India to create an enabling framework for private sector participation in development of National Highways. Constitution of NHAI was the first step in this direction. NHAI is responsible for the development, maintenance, and operation of the National Highways. Several institutional reforms and fiscal incentives have been introduced. The Government of India has undertaken various initiatives to meet the financing needs of infrastructure projects. The key ones are the Viability Gap Funding scheme (VGF) and creation of IIFCL to provide long term capital and capacity building assistance.

PRIVATE SECTOR INVESTMENT IN ROADS IN INDIA

India has attracted most of the investment commit­ments to infrastructure projects with private participation in the South Asian region due to its sustained efforts to attract investment. Private investment in infrastructure has been steadily increasing since the opening up of the economy in 1991 and reached a record high in 2007.

Given that India is huge country with uneven development it is natural that all parts of the country are not equally favoured by the private sector. Across states and central agencies, the leading users of PPPs by number of projects in the road sector are Rajasthan, Andhra Pradesh, Karnataka and Madhya Pradesh, with 43, 37, 64 and 31 awarded projects respectively.

The states which have received highest number of PPP investments in the road sector are the states which have taken maximum steps to attract the private sector and build an adequate legal and administrative set up to encourage PPP.

Andhra Pradesh is a pioneer in enacting the Infrastructure Authority Act. The legislation aims to facilitate developers in securing the mandatory administrative approvals and lays down provisions for arbitration and fiscal regulation.

In Karnataka the project development studies have been funded entirely by line departments and the Infrastructure Development Department. Project development activities have been funded by the Infrastructure Development Corporation Karnataka Limited (IDeCK), a joint venture of the state Govt., IDFC and HDFC.

The Madhya Pradesh infrastructure Fund Board was constituted in 2000. The Finance Department has been assigned the responsibility of PPP under Rules of Business.

Rajasthan was the first state to formulate a policy for BOT projects in 1994. The Rajasthan road development act, 2002, encourages PSP in the construction of financially viable bridges, bypasses, rail over-bridges, tunnels, etc. New initiatives include creation of nonlapsable State Road Fund (SRF) and the Road Infrastructure Development Company of Rajasthan (RIDCOR).

The under developed states of Bihar, Orissa, Jharkhand and the North Eastern states have failed to attract private investment. Lessons from global experience also prove that the government has a very important role to play in a successful PPP programme.

Mexico
· The government of Mexico announced a Highway Development program in 1989. The selection criteria adopted by the government was the shortest concession period. The result was that the average concession period was 8 – 15 years and unaffordably high level of tolls. The concessioned roads were obligated to have a parallel toll free road, therefore the newly built toll roads were empty while the non toll roads were congested. The tolls had to be lowered due to public outrage and the contractors and financiers had to be bailed out.

Chile
· In the early 1990s, Chile decided to develop 2,000 km of intercity expressway networks in BOT mode. The Chilean government introduced a number of credit enhacement measures such as (i) minimum revenue guarantee (ii) least present value of revenue scheme and (iii) foreign exchange risk guarantee. The prompt action of the government enabled award of all contracts by mid 1990s and construction was completed by 1998 – 2002.

Governments with weaker public finances and limited fiscal space may be especially attracted to PPPs. But PPP schemes are useful even in the absence of such constraints, as a way to achieve greater value for money than the government can achieve in providing goods and services on its own But first the Government will need to close the infrastructure policy deficit, manifested in many sectors in distorted pricing, poor gover­nance and accountability, and weak financial and operational performance.