Framework on re-negotiating PPP contracts expected soon

New Delhi: The government is likely to make public its new framework on re-negotiation of public-private partnership (PPP) contracts in a month’s time.

The new framework will allow renegotiations based on sector-specific issues, especially for national highways and ports, and will provide greater flexibility to the parties involved.

This comes even as another PPP initiative, the proposed Public Utility Resolution of Disputes (PPP) Bill, has been put on the back burner as the Centre has gone slow on its upcoming legislative agenda.

Finance Minister Arun Jaitley had announced a comprehensive review of renegotiations of PPP projects in his 2016-17 Budget speech. He had also spoken of introducing a new Bill to deal with resolution of PPP disputes.

The new framework on renegotiation of such projects is partly based on the recommendations of the panel headed by former finance secretary Vijay Kelkar, and will distinguish quantified bid percentages and qualitative 'materiality' type considerations.

“The new framework will include thresholds on the size, cost and time projections of a project. For example, shorter term and lower cost projects might not be up for renegotiation,” said a senior government official.

The Kelkar panel report, made public in December last year, says projects above a certain monetary and time threshold may only be re-negotiated if there is evidence that the project is distress material and is likely to result in default under the concession agreement at some future point, and that it could cause adverse outcomes for the government and users of the concession assets.

The framework is also likely to make it clear that a project cannot be renegotiated if any event of distress was foreseeable at the time of financial closure, any event that would affect the concessionaire just as any other company in its ordinary course of business, like a change in law, any impact arising directly or indirectly from the performance, action or inaction of the concessionaire, and any failure of any associated party for concessionaire to perform or provide financing.

“The work on the framework is complete. It is doing the rounds of various ministries for their comments,” said the official quoted above, who added the matter might not require Cabinet approval.

However, sources said the proposed Public Utility (Resolution of Disputes) Bill announced by Jaitley is unlikely to be introduced even in the upcoming monsoon session of Parliament.

“A Public Utility (Resolution of Disputes) Bill will be introduced during 2016-17 to streamline institutional arrangements for resolution of disputes in infrastructure related construction contracts, PPP and public utility contracts,” Jaitley had said in his Budget speech.

It is believed that faced with a disruptive Opposition in the Rajya Sabha, the government might cut back on its legislative agenda over the coming sessions and, instead, focus more on better implementation of existing laws.

KEY TAKEAWAYS

• Government completing work on new framework
• Draft framework being circulated for inter-ministerial feedback
• Framework to partly incorporate Kelkar panel suggestions
• Sector-specific issues to be dealt with
• Proposed public utility Bill on the back burner for now

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.