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2016

Review on Kelkar Committee

Manoj Bisht
Rajesh Pant
Jitendra Tripathi
Dinesh Mohan Gupta
Ravindra Singh Anand

REPORT OF VIJAY KELKAR COMMITTEE


ON REVISITING & REVITALIZING PPP
MODEL
ABOUT COMMITTEE
The Union Ministry of Finance on 28 December 2015 released the report of the Committee on Revisiting and
Revitalizing Public Private Partnership (PPP) Model. The 9-member committee was headed by former
Finance Secretary Vijay Kelkar and submitted its report on 19 November 2015.
The committee was constituted on 26 May 2015 to review the experience of PPP Policy and suggest
measures to improve capacity building in Government for their effective implementation.

PPP?
More importantly, the committee recognized the PPP Model in infrastructure as a valuable instrument to
speed up infrastructure development in India.
Hence, it called for PPP contracts need to focus more on service delivery instead of fiscal benefits alone.
The recommendations of the committee are of relevance to the overall growth of the economy as PPP
projects have become the preferred mode to develop large scale infrastructure projects.
PPPs relate to public services delivery by private entities, and are awarded through a competitive bidding
process. They are typically very high-value contracts, often with huge capital and operating costs, making it
difficult for their developers to cope with any financial losses.
Given the long-term nature of PPPs, a perfect contract is rare as the situation is apt to change during a
projects lifetime. The emergence of risks not foreseen at the time of signing the agreement exposes such
projects to potential distress, making them unviable for the developers and prompting demands for a
renegotiation of the original terms.
At present, over 12007 PPP projects are under implementation across the country, involving about 7.2 lakh
crore rupees worth of investment. A significant number of PPP projects have been stalled by legal disputes
relating to financial issues. Not only is this posing a drag by accentuating infrastructure bottlenecks, the
stalled projects have also saddled the banking sector, especially public sector banks, with a large burden of
bad loans.

KEY RECOMMENDATIONS OF THE COMMITTEE


Speeding up of the PPP model is urgently required for India to grow rapidly and generate a demographic
dividend for itself and also to tap into the large pool of pension and institutional funds from aging
populations in the developed countries.

Indias success in deploying PPPs as an important instrument for creating infrastructure will depend on a
change in attitude of all authorities dealing with PPPs-public agencies, government departments
supervising and auditing and legislative institutions.

The Government may take early action to amend the Prevention of Corruption Act, 1988 which does not
distinguish between genuine errors in decision-making and acts of corruption. Measures may be taken
immediately to make only malafide action by public servants punishable, and not errors, and to guard
against witch hunt against government officers and bureaucrats for decisions taken with bonafide intention

Experience has also underlined the need to further strengthen the three key pillars of PPP frameworks
namely Governance, Institutions and Capacity, to build on the established foundation for the next wave of
implementation.

The Committee strongly endorsed setting up of the 3PI which can, in addition to functioning as a centre
of excellence in PPPs, enable research, review and roll out activities to build capacity, etc.

Independent regulators should be set up with a unified mandate that encompasses activities in different
infrastructure sub sectors to ensure harmonized performance by the regulators.

Model concession agreements be issued only when 80 per cent of the land for a project has been
acquired.

The committee advised against adopting PPP structures for very small projects, since the benefits of
delivering small PPP projects may not be commensurate with the resulting costs and the complexity of
managing such partnerships over a long period. PPPs should not be used as the first delivery mechanism
without checking its suitability for a particular project. States and other agencies should also not treat
Central PPP VGF (viability gap funding) as a source of additional grants that can be accessed by adopting
a PPP delivery mode for projects that are not suitable for such a long-term financing structure
Unsolicited Proposals (Swiss Challenge) may be actively discouraged as they bring information
asymmetries into the procurement process and result in lack of transparency and fair and equal treatment
of potential bidders in the procurement process.

Since state owned entities SoEs/PSUs are essentially Government entities and work within the government
framework, they should not be allowed to bid for PPP projects.

The Committee recommended the government to notify comprehensive guidelines on the applicability
and scope of access to, under RTI and Art 12 of the Constitution, and auditing of financial related matters in
order to avoid any delays in public asset provision.
The demand for developer books of account being subjected to government audit and for access under
RTI and Article 12 of Constitution To address this, the committee recommends that the government notify
comprehensive guidelines enable review only of government internal systems, and not that of SPVs, but
SPVs would need to follow best practices in corporate governance systems

Banks and financial institution should be encouraged to issue Deep Discount Bonds or Zero Coupon Bonds
(ZCB) to mobilize long term capital at low cost. The other suggestions include restrictions on number of
banks in a consortium, building up of risk assessment and appraisal capabilities by banks and specific RBI
guidelines to lenders for encashment of bank guarantees.

The committee observed that given the urgency of Indias demographic transition and the experience
the country has already gathered in managing PPPs, the government must now tweak the model by

incorporating lessons learnt so far and making it more sophisticated. Ministry of Finance may develop and
publish a national PPP Policy document and it should be endorsed by the Parliament to impart an
authoritative framework to implementing executive agencies as well as to legislative and regulatory
agencies charged with oversight responsibilities.
For the highways sector, which is the most dispute-ridden, the committee recommended that all pending
disputes including change of scope, delayed land handover, delayed commercial operation dates,
termination, cost overruns, delayed payments, penalties and claims may be disposed of in a time-bound
manner through an independent body with representatives from the National Highways Authority of India,
developers, lenders and an independent chairman.
The committee also recommended building a host of other institutions such as Infrastructure PPP Project
Review Committee (IPRC), Infrastructure PPP Adjudication Tribunal (IPAT) and a national PPP policy. An IPRC
is expected to evaluate and send its recommendations in a time-bound manner when stress is reported in
any PPP project while an IPAT chaired by a judicial member (former judge of the Supreme Court or a high
court chief justice) is expected to mediate on disputes among stakeholders in a PPP.

CRITICAL REVIEW

After all, public-private partnership with the Kelkar Committee has made some clear recommendations. Since the early 2000s the
private sector has been demanding that the private public partnership (PPP) projects to provide equal opportunity but no one
listened to them. Now it has been recommended that an autonomous independent regulator for the sector must be formed.
In terms of the private sector, he has consistently argued that the PPP should have the balance of power in conflict. But his hearing
was not addressed. In report it is said that the National Facilitation Committee set up to address issues in projects.
Now it is suggested that Disputes framework in PPP contracts should be clearly mentioned. It is possible that such events cannot
be predicted about. The scope of changes in the terms of the agreement should remain.

During the decade of 2000, the private sector, it is recommended that PPP should be an institution for the integrated approach.
Whether it be central, state level or the department. But they did not hear them. This committee is now suggesting that dealt very
firmly with the Institute of 3P to go ahead without delay. such an institution should not be set up under the government. It should
be an autonomous body so that it can think like and act like the private sector .The Hon'ble Finance Minister in his budget
announcement arguably agreed upon it.
Private sector repeatedly proposed the reversed 'BOT (build, operate, transfer) "model. He gave the example of Mumbai-Pune
Expressway, but no one listened them. Report now supported this and recommended monetization of existing infrastructure
projects, owned by the government. Many construction projects will have chance to involve the private sector in such cases.
The private sector has constantly been saying that it is much relevant that appropriate commercial decisions are not taken because
the bureaucracy is afraid of investigations. This gave rise to the policy paralysis. Yet no one listened. This report also recognized
this and sought to amend prevention Act, 1988.

About Renegotiation committee has made it clear that the in the long-term PPP projects there is always the risk of being a victim
of unforeseen risks. Subjected to conditions this give rise to the need to renegotiation. All sides must take this into harmony. The
Committee advocated a permanent system on PPP renegotiation although framework is not much clear in this report. Chief
Economic Advisor in the previous Economic Survey also suggested that an independent commission for PPP renegotiation should
be constituted. Renegotiation of PPP projects is not going to be easy because as it will involve substantial financial outflow.
Committee has taken negative stance on the Swiss challenge (way of procurement) because it has failed the test of transparency
and good governance. This comes at a time when the cabinet has approved developing 400 railway stations next fiscal through the
Swiss challenge formula under which a private entity identifies a project and approaches the government with a proposal to
develop it.

There is always issue of approval in PPP bidding process as much of the pressure is being done in haste without overall approval.

Land acquisition is not the only case other permissions, environment, various utilities, defense and local government should also
take care before finalizing the bid process. Although this condition prior to bidding is difficult but necessary for success of PPP.
This report makes valid suggestions, implementation will be key. Despite these issues, the progress of the PPP, as well as
new issues will arise. Meanwhile it is clear that the Kelkar Committee will be helpful to inject new life into the PPP is an
essential help.
It is clear that Kelkar committee will be a milestone in the history as well as the country's infrastructure.