Kelkar Committee on PPP in Infrastructure

In the Union Budget 2015-16, Finance Minister announced that the PPP mode of infrastructure development has to be revisited, and revitalized.  

• The Economic Survey 2014-15 had said that at the end of December 2014, the value of all projects, mostly in the infrastructure sector, that have been stalled, stood at Rs 8.8 lakh crore (7 per cent of GDP).

In pursuance of this announcement, a Committee was constituted under the chairmanship of Vijay Kelkar named as "Committee on Revisiting & Revitalizing the PPP model of Infrastructure Development".

The Terms of Reference of the Committee were as follows:

(i)      Review of the experience of PPP Policy, including the variations in contents of contracts and difficulties experienced with particular variations/conditions, if any,

(ii)    Analysis of risks involved in PPP projects in different sectors and existing framework of sharing of such risks between the project developer and the Government, thereby suggesting optimal risk sharing mechanism,

(iii)   Propose design modifications to the contractual arrangements of the PPP based on the above, and international best practices and our institutional context, and

(iv)  Measure to improve capacity building in Government for effective implementation of the PPP projects.

Some of the recommendations of the Committee are :-

• Review of the model concession agreements (MCAs)
• Allowing fund raising through zero coupon bonds
• Setting up of independent sectoral regulators in different infrastructure sectors like ports, railways, roads etc.
• Setting up of an Infrastructure PPP Project Review Committee (IPRC) to deal with the problems being faced by infra projects.The mandate of the IPRC would be to evaluate and send its recommendations in a time-bound manner upon a reference being made of "actionable stress" in any infrastructure project developed in PPP mode beyond a notified threshold value.
• The committee also proposed to set up an Infrastructure PPP Adjudication Tribunal (IPAT) chaired by a judicial member (former SC Judge or HC Chief Justice) with a technical and financial member.
• The report said there should be a better identification and allocations of risks between the stakeholders and contracts for the PPP projects should focus more on service delivery instead of fiscal benefits.
• It also suggested there should be a provision for monetisation of viable projects that have stable revenue flows after engineering, procurement and construction delivery.
• 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.
• As regards airports, it said the government should encourage PPP model in greenfield as well as brownfield projects. 
• It suggested an independent tariff regulatory authority for railways to help it tap PPP opportunities.
• The Kelkar committee said regulators of domestic pension, insurance and long-term funds may be encouraged to allow investment in PPP SPVs with a lower than 'AA' rating if developers access credit guarantee instruments.
• Active investment in take-out financing vehicles, including infrastructure debt funds (IDFs) and infrastructure investment trusts (InvITs), which de-risk returns, may also be encouraged.
• A centre of excellence 3-P institute in PPPs, enabling research, activities to build capacity, more nuanced and sophisticated contracting models and developing a quick dispute redressal mechanism is overdue.