Various Problems of PPP Contracts in India

The Public Private Partnership (PPP) model in India is mostly directed towards attracting private investment in infrastructure projects. Though India is one of the largest recipients of private investment in infrastructure, yet due to regulatory and policy issues among others, there have been a few hiccups in this area as well.

New challenges have cropped up in recent times. A few private companies have walked out of big projects and some others have been demanding renegotiation or are under arbitration. GMR and GVK that walked out of mega highway projects and Delhi Airport Metro Express are the cases in point.

An often cited criticism is that while the government and its agencies cannot even predict the macro-economic indicators accurately, the private sector is expected to be forecast all the issues that may crop up in the future and take risks. It is an unfathomable task in any case and becomes more so in the times of political indecisiveness coupled with policy paralysis. Thus the assumption that contracts once negotiated are never to be opened for renegotiation seems to be unfair to some. Moreover, articulation of any changes required attracts the charge of crony-capitalism.

However, renegotiation also opens up a can of worms. It is not without reason that renegotiation of project terms is resisted. Consider, for instance, the following:

• bidders who lost out could take government bodies to court saying the incentives arising out of renegotiation were not extended to them at the bidding stage and, thus, they were unfairly edged out;
  
• the sanctity of a bid-out contract is violated and may encourage many more project developers to expect post-win renegotiation;
  
• there is a moral hazard in that private bidders know their losses will be wiped clean by subsequent government largesse while their profits do not have to be shared;
  
• distinguishing between projects that are unviable because of genuine unforeseen developments and projects that are unviable because the bidders bid at predatory prices or made commercial errors of judgement, are difficult to sift.
  

In light of these it is fairly clear that renegotiation is easier said than done. Instead, the focus must be to define and establish legal and regulatory dispensation to address the issues relating to renegotiation and life-cycle management of PPP infrastructure assets. The state should urgently consider creating a credible, independent and impartial body that would be fully empowered to give quick dispensations on renegotiation of contracts. Sensing the mood of the industry, recently, the Prime Minister has also asked the Planning Commission to draft a legislation that would establish an institutional mechanism to resolve disputes in public contracts.