The Hindu Business Line : Public-private partnership is the way to build infrastructure

The shift towards public-private partnerships is primarily driven by the inadequacy of budgetary resources. An enlarged role of PPPs also provides an opportunity to introduce competitive suppliers of infrastructure services, leading to improvement in the quality and services, and a reduction in costs. — DR MONTEK SINGH AHLUWALIA, DEPUTY CHAIRMAN, PLANNING COMMISSION

Infrastructure holds the key to sustaining the high growth of the economy, which has averaged more than 8 per cent the last four years. World-class infrastructure is crucial to a globally competitive economy. The consistently robust growth in the last couple of years has exerted an increasing strain on the extant physical infrastructure — power, roads, ports, airports and railways — that was anyway significantly in deficit. Experts have cautioned that the ongoing growth in the manufacturing and services sectors would be hobbled if infrastructure does not keep pace.

The UPA Government policy-makers are alive to the immense financing requirements of infrastructure as no amount of resource mobilisation within the public sector can meet the huge task ahead. Recourse to private capital is necessary as private participation is likely to bring in efficiency gains and cost reduction, besides sparing sparse public resources for other sectors where the private sector would be reluctant to go. It is against this backdrop that the Government is viewing public private partnerships (PPPs) for building infrastructure.

The Planning Commission is convinced that well-structured PPPs can marry the private sector's managerial expertise, financing flexibility, designing capabilities, innovation and technology to the Government's priority of developing world-class infrastructure. It was this conviction that led the Prime Minister, Dr Manmohan Singh, to set up a Committee on Infrastructure (CoI) under his chairmanship with the Finance Minister, the Planning Commission Deputy Chairman, and the Ministers in-charge of infrastructure Ministries, as key members.

In the last one year, this Committee has met frequently resulting in a marked difference to the pace of decision-making and implementation.

Thus, in the roads sector, the panel has focussed on completing the four-laning of the 5,900-km Golden Quadrilateral (GQ) connecting Delhi, Mumbai, Chennai and Kolkatta, and the ongoing four-laning of the 7,300-km North-South, East-West (NSEW) corridor, which is to be completed by December 2009.

The CoI has also gone beyond these projects to approve a greatly expanded road-building programme for the next seven years (2005-12) largely relying on PPPs for mobilising funds and implementation capabilities. The expanded programme envisages an outlay of about $50 billion.

Similarly, on airport, concession agreements have been signed and work begun to develop and modernise the Delhi and Mumbai airports through PPPs. Greenfield airports in Bangalore and Hyderabad, being built by the private sector, are to be completed by 2008. Other major projects such as Chennai are also likely to be taken up through the PPP route. The Airports Authority would develop the airport side of 35 non-metro airports but the city side, including cargo complexes, hotels, flight kitchens and parking, would be through PPPs. A sum of $9 billion is forecast for modernisation of the airport infrastructure. The experience of operating berths through PPPs at the major ports has been quite successful and the CoI has approved an expanded programme for new berth construction through PPPs. A model concession agreement is in the making.

Recently, a high-level Committee finalised the plan for improving rail-road connectivity of major ports, even as a plan for capital dredging has been initiated. All these measures are likely to bring in a total investment of $11 billion in the port infrastructure.

The Railways, on its part, is going ahead with corporatisation of some important activities with the proposed separation of rail from wheels presaging a paradigm shift in the functioning of the Indian Railways. The Railways has committed itself to a large capital outlay programme with a notable share coming from PPPs.

Against this backdrop, the Plan panel is holding a conference on "Building Infrastructure: Challenges & Opportunities" in New Delhi today (Saturday). The Planning Commission Deputy Chairman, Dr Montek Singh Ahluwalia, gave Business Line an insight into the conference and an idea of the Government's thinking in intensifying infrastructure activities.

Excerpts from the interview:

"One of the major thrusts of policy is improvement in infrastructure covering airports, ports, roads, railways and the new Special Economic Zone (SEZ) approach which is a means to provide infrastructure involving PPPs. The Ministries concerned have been working out policies which, in their view, will provide a credible framework for attracting private investment.

The conference will be an opportunity for the Prime Minister to signal the importance of our policies on infrastructure. The conference will seek to answer such questions as: Why do we believe that the policy framework will now be transparent and the interests of the consumers and the public, at large, will be taken care of in infrastructure areas; what do the Ministries have on offer that is attractive enough for the investors to take interest, etc. The conference will also provide a unique opportunity to engage Central ministers, senior officials, and representatives of States in a discussion on key policy directions and the challenges and opportunities in the infrastructure domain in India.

"The shift towards PPPs is primarily driven by the inadequacy of budgetary resources. However, an enlarged role of PPPs also provides an opportunity to introduce competitive suppliers of infrastructure services leading to improvement in the quality and services and reduction in costs.

" To create an enabling milieu to improve predictability and mitigate risks for PPPs and prune transaction costs and time, the Government is fostering institutional mechanism, besides modernising the policy and regulatory framework. A regulatory agency is not necessary for every PPP. PPPs can also be regulated through well-structured concession agreements. For example, there is no regulatory agency for the road sector. The PPPs are being driven by a model concession agreement.

"We have gone through a very transparent process of discussing the concession agreement and there has been a lot of public debate on it.

"The implementation of any project in the roads sector is guided by the terms of the concession agreement. So, when there are disputes, the legal system can easily take care.

"You necessarily need a regulatory agency where there is strong competition between different producers and the public sector. I believe that to be true in certain areas such as tariffs for major ports where you need a tariff fixing authority, or in telecom, where different suppliers compete against each other.

"The basic case for a regulatory authority is that if you can create a sufficiently credible independent authority, the public will accept whatever it pronounces. However, the fact is that to create such credible regulation takes many years."

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