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Kelkar committee recommends easy funding for PPP projects in infra sector

29 Dec 2015 Evaluate

The eight member committee headed by former finance secretary Vijay Kelkar that reviewed the public-private partnership (PPP) model for infrastructure projects has recommended for easy financing of these, including issuance of zero coupon bonds by banks to developers, equity divestment by the government from completed projects, review of the model concession agreement, setting up of independent sectoral regulators and removing bars on monetisation of viable projects after the engineering, procurement and construction (EPC) work is finished.

The committee in its report titled “Report of the Committee on Revisiting and Revitalising the PPP Model of Infrastructure” has suggested that the government should encourage development of infrastructure sectors, including airports, ports and railways under the PPP mode by ensuring easier funding for projects with long development period. The report said that PPPs are an important policy instrument that will enable India to compress time in this journey towards economic growth and development. A successful and growing stream of PPPs in infrastructure will go a long way in accelerating the country's development process.

The panel also stated that finance ministry should allow banks and financial institutions to issue zero coupon bonds, which will also help to achieve soft lending for user charges in infrastructure sector. The report said there should be a better identification and allocations of risks between the stakeholders and the contracts for the PPP projects should focus more on service delivery instead of fiscal benefits. The committee said that there is an urgent need to evolve a suitable mechanism that evaluates and addresses actionable stress. Sector specific institutional frameworks should be developed to address these stalled infrastructure projects.

The Kelkar committee highlighted the need to resolve the legacy issues in various sectors and recommended independent regulators in sectors that are going in for PPPs. Further, it has suggested a review committee (IPRC) for such projects to evaluate and send recommendations in a time-bound manner upon a reference being made of actionable stress for a project beyond a notified threshold value. The report also recommended amendment in the Prevention of Corruption Act, 1988 while explaining the need for change in attitude and in the mind-set of all authorities dealing with PPP.

The other suggestion in the report includes 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 report also underlined the need for review the Model Concession Agreement (MCA) and ensures speedier resolution of disputes. It suggested an independent tariff regulatory authority for railways to help it tap PPP opportunities.

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