Solutions to PPP challenges in infrastructure sector

By Amit Ronald Charan and Rashi Arora, HSA Advocates

India is potentially the largest global market for public-private partnerships (PPP) thanks to the growing number of PPP projects in the past 15 years. Policy measures designed to bring about private participation in infrastructure projects have not met with significant success. Infrastructural gaps exist in almost all sectors, posing a serious threat to sustained growth. While the PPP model has been successful in sectors such as roads, ports and electricity generation, it has yet to take off in railways, civil aviation, and social sectors. Further, the geographical distribution of PPPs is not uniform and states such as Madhya Pradesh, Andhra Pradesh and Maharashtra are ahead of others. The Asian Development Bank has estimated that it will cost US$4.36 trillion by 2030 to overcome India’s infrastructure deficit.

Amit Ronald Charan
HSA Advocates

A combination of factors may have led to the recent slowdown of PPP projects. These include the global economic slowdown, weak regulatory and institutional frameworks, inadequate diligence and appraisal by lenders, delay in the issue of clearances, financing issues, inappropriate risk allocations, one-size-fits-all approaches to model concession agreements (MCAs), aggressive bidding by developers, contractual issues, inadequate dispute resolution mechanisms and environmental issues.

The increasing number of non-performing assets (NPAs) held by domestic lenders, and the Infrastructure Leasing & Financial Services crisis has restricted funding options. While the international credit and financing market is an option, few high-quality sponsors and assets remain. The global economic slowdown and the credit crisis has slowed the demand for goods and services across the spectrum of business activity. This has affected the infrastructure sector significantly, and impacted PPP projects.

Key areas requiring immediate action for revitalizing PPPs include the strengthening of lending institutions such as the India Infrastructure Finance Company, infrastructure debt funds and the International Finance Corporation (IFC), setting up of 3P India (a proposed government institution with a ₹5 billion (US$70 million) corpus to support PPPs), and reforming the viability gap funding (VGF) scheme to meet market challenges.

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Amit Ronald Charan is a partner and Rashi Arora is an associate at HSA Advocates.


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