Poorly designed PPP model needs restructuring: Economic Survey

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

 

According to the survey, published in the parliament by Finance Minister Arun Jaitley lighted the fact that many infrastructure projects are presently financially stressed. The reasons behind are the defective partnership model and account for almost a third of the stressed assets in banks.

 

Due to the poor design of the PPP model new projects cannot interest 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 also raised a question about the existing design of the PPP model and the existing contracts which focus more on economic benefits than on effectual service endowment.

 

Secondly, these neglect principles giving 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.