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Construction : Interview | November 2015 | Source : Infrastructure Today

One has to be vigilant... PPP will survive if users are happy

Ajay Saxena, Public Private Partnership (PPP) expert and Officer on Special Duty, Government of Maharashtra, believes one doesn-¦t have to be an expert to design a project structured on a PPP model.

India has had a mixed experience with PPP projects. What is the perception among investors today?

First of all, when we talk about a project, it is not only about the project but the risks associated with it. When it is an Indian investor, the risks are lesser in nature. However, a foreign investor comes in looking at a lot of other risk factors as well. The first risk is with the country itself, whether they would like to have that country in their portfolio. I think that answer has turned positive.

Now, within India, where do they invest? They have the funds and the roads market is a mature market all over the world. PPPs in roads are known to all. In India too, we have done the maximum number of projects in roads. There is no rocket science. Everyone knows it has to be on toll, annuity or a performance-based contract. There-¦s nothing more to this that can come as a surprise to the structure of a project. Next, every investor would like to see what are the project financials as well as the regulatory environment and support available. India is now halfway through the maturity cycle in its roads PPP.

Can you identify the problem? Where does it go from here?
PPPs are earning bad names because of two-three reasons. One is the performance of the developer during the concession period. Most times, they are not conscious about the quality of services that deteriorate during the concession term. Let-¦s say a four-lane road was designed for a level of C and expected to remain so for the entire duration of the project. However, five-six years later, you find traffic jams and the road deteriorates. The developer did not factor this in his maintenance costs. He now says he will only do a regular maintenance that he had agreed to. This leads to people agitating and not wanting to pay because they are not getting a certain quality of service.

Is there a solution?
These things should be monitored. The annuity should be linked with the performance. If the capacity is fulfilled or the threshold achieved, then there should either be an investment or the concession should be terminated. Those provisions were there earlier also but they were not strictly followed. You don-¦t find many projects which have been terminated although lots of roads have gone over capacity. This is a major point of frustration with users. We should all agree that PPPs will survive only if the user remains happy. These are funded by users, not by the government. It is 40 per cent tax payers money, and 60 per cent users-¦ money. The user has to be happy. The lacuna is that we don-¦t monitor and we don-¦t even design at the planning stage to the extent we should.

Has it improved with the new government?
The whole PPP cycle is all about one and a half years of planning and bidding, followed by financial closure and the start of construction. From that viewpoint, we have yet to see the first project start after the new government. However, whatever the activities have to take place, are taking place, and things are moving. I, too, can feel the feel-good factor!

What are the major challenges?
There are two or three things. I still think that regulatory is the major concern. Nobody is clear if the toll will be totally stopped. What will happen if that is done? Maharashtra has taken a decision to have no tolls. If an investor has to come, he will certainly ask for some kind of sovereign guarantee as to how termination might be dealt with. The Indian Government-¦s documents with respect to termination terms are much more clear compared with the state government.

The main problem in the PPPs, and this is my personal view, is that it should not be treated as a business in the common sense. Yes, it is a business up to the process of bidding. After this, it should not remain like a business. Let me explain. If you are a telecom operator, you are free to operate in losses as well as with windfall gains. If you achieve your target of Rs 100 crore in the first year of operations, the government is not going to catch you and terminate you because there, you have perfect competition. Rs 100 crore in the first year means your services were good enough and people paid for it. The user is not forced to pay but is free to go to any telecom operator. In PPPs, it is monopolistic in nature. The monopolies are created by law. There is one road and you have a non-competing clause. You have to go through a road done on PPP. Then, user charges are collected as tax. If I don-¦t pay tax, I will be jailed. This makes the developer very powerful if you don-¦t monitor him because he has been assured for 15-20 years collection of user charges because of guarantees through Concession Agreement.

There are so many projects where you will find people complaining that the developer has earned windfall gains and already recovered his costs, and that too, when the asset conditions are not good. However, the concession remains for the entire duration. Why should this happen? Moreover, I am forced to pay for the deteriorating services.

There is no monitoring happening?
There is only a chapter written in the concession document.

Some toll-ways display the numbers scrolling on a board...
That was our initiative during the Anna Hazare movement. There was a committee constituted by the Public Works Department (PWD) and I was part of it. We designed this thing. We worked hard to put those cost numbers on the board and to my surprise, finally, it has taken a very different shape. We had said that there are certain things that are fixed such as cost, name of the banker, loan amount, etc. Data that is static should have been put up on the static board. We even decided on the colours and font sizes, etc.

We had agreed on three figures that should be highlighted - toll collected before the previous day, on the previous day and the toll to be collected. Our idea was that the payment collection should be linked with the PWD server finallt after some time.

However, if you go and see now, there are 20 different things that are scrolling and it defeats the purpose for what it was done. The developer is putting the figures he wants. Who is monitoring him to see whether those figures are correct or not as these are not connected to the Authority Server?
Even on NHAI roads, please tell me where is the monitoring of how much toll is collected and how much traffic is there. I haven-¦t seen many projects getting cancelled because of excessive traffic. The Anna Hazare movement was solely on this issue that the developer has recovered so much money and still doesn´t maintain the roads.

Again, what is the solution for this?
Developers know their own risk-taking capacity based on which they make bids. However, they would like a government assurance for the amount, and then, yes, link it to their performance. Make these clauses in black and white in the bid document itself. However, some authorities have failed on two counts. One is, not planning it correctly at the initial stages of design and project feasibility studies. The second is with respect to monitoring as I have just said. This is not because the officials at the higher levels are not aware, but because of the lower and middle rank and file where the documentation happens. The capacities of these people are not built to the extent required for project management.

You spoke of two or three problems. What is the third?
First, one should understand it is not the developer-¦s money. It remains the government-¦s money. If there is a lucrative proposition, the developer will increase his investment from Rs 100 crore to even Rs 150 or Rs 200 crore. Where else would he find a 16 per cent IRR in any other project? This is where the planning is required. If I have designed a road for level of C, a four-lane project that can be done in Rs 100 crore, the agency should enforce Rs 100 crore only. It should not allow more. If it is more, it should be at the developers-¦ risk. The government should not change the project contours. India, as a developing nation, requires funds. If you increase the scope of work here, it means you are depriving someone else. For instance, who will fund rural roads? Rural and district roads should be funded by the government because the money was already there. Where has that money gone? 10-15 years back, we were not doing PPP. Were roads not getting developed? The government was funding. Now, in the state of Maharashtra, the government is not funding majority of the highways. This means more needs to be done to the philosophy of PPP. This is where we lack.

So, what next? What is the way forward?
PPPs are not rocket science. You don-¦t have to be an expert to design a PPP structure. You have to be vigilant whatever you do. You should think of the possible risks in future and capture those in the beginning. PPPs are all about users. PPP will survive if users are happy.

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