Kelkar panel to revive PPP in infra projects

Kelkar committee has proposed a series of recommendations with respect to revamping PPP in
infrastructure projects.

The recommendations:

1. Clear-cut norms on resolving issues and clarifying norms on re-negotiation of contracts.

 Infrastructure investments worth around Rs 12 lakh crore remained stuck at different stages as of end-
December 2014 due to a variety of issues such as land acquisition, lack of clearances, unfavourable
market conditions, and costly finances, according to a Assocham study.
 This puts stress on banks and the developers’ balance sheet.

The Kelkar report has drawn up extensive guidelines regarding the re-negotiation of the terms of
concession agreement, stipulating the reasons that form the basis for re-negotiation and those that
should not be entertained as valid reasons.

 For example, if the distress in the project is not caused by the private party and is likely to adversely
affect the government or users, then that forms the basis for re-negotiation.
 Similarly, if the project distress is due to material reasons and may result in default under the existing
concession agreement, then the pact itself can be re-negotiated.
 However, if the distress is due to reasons that were foreseeable at the time of signing the agreement,
then no re-negotiation will take place.

2. Creation of multi-disciplinary expert institutions to address the problem of stalled PPP projects

 The report talks about setting up an Infrastructure PPP Project Review Committee
(IPRC)comprising at least one expert in finance and economics, law, and one or more sectoral
experts, preferably engineers with a minimum of 15 years of experience in the industry in question.
 It also recommends the creation of an Infrastructure PPP Adjudication Tribunal (IPAT) which is
to be chaired by a former Supreme Court Judge or former High Court Chief Justice, with at least one
technical and financial member.

3. Amend prevention of corruption act 1988

 The government should take early action to amend the Prevention of Corruption Act, 1988which does
not distinguish between genuine errors in decision-making and acts of corruption.
 Measures may be taken immediately to make only malafide action by public servants punishable, and
not errors, and to guard against witch hunt against government officers and bureaucrats for decisions
taken with bonafide intention.
4. Moving away from the one-size-fits-all approach to PPP model concession agreements (MCAs).

 The committee recommends that MCAs for each sector be reviewed independently to capture the
interests of all participating stakeholders — users, project proponents, concessionaires, lenders and
markets.

5. Creation of dedicated institutions for PPP projects

 “Every stakeholder, without exception, has strongly emphasised the urgent need for a dedicated
institute for PPPs, as was announced in the previous budget.
 The committee strongly endorses the 3P India (3PI), which can function as a centre of excellence,
enable research, and review and roll out activities to build capacity.

6. Promote zero coupon bonds

 The finance ministry should allow banks and financial institutions to issue zero-coupon bonds, which
will also help to achieve soft landing for user charges in the infrastructure sector and its financing in
longer term.

Sector specific recommendations:

1. Roads: Increase concession period for BOT projects

 Introduce hybrid models, viable gap funding, part annuity, operation and maintenance grants, etc for
non-BOT projects.
 Relax exit norms.
Dispose pending cases between developers and NHAI.
 Shift to electronic tolling in time-bound manner.

2. Ports: Move from pre-TAMP (tariff authority for major ports) to current-TAMP

 Strengthen and accelerate environmental clearance.

Provide support infrastructure (including land, reliable access to utilities, dredging, rail, roads) to
developer.

3. Railways: Take up simpler projects first to build credibility

 Such projects can be brownfield — monetisation of existing stations — or, greenfield —development
of new stations.
Set up regulatory authority to settle technical issues such as track-access charges.
4. Power: Not many power projects are under PPP. But the sector has a far-reaching impact on
infrastructure PPPs

 Immediately address power sector finances as they are hurting bank loans.

5. Airports: Prepare a policy that addresses the expected growth parameters of the sector and
promotes PPPs

 Concession agreement should stipulate important commercial parameters like return on equity,
treatment of land for non-commercial purposes.
 Develop brownfield and greenfield airports with defined structure, revenue sharing mechanisms.

Courtesy: Business standard

Some points of criticism by CAG in its various PPP reports and the possible solutions by Kelkar
committee

PORTS
CAG

 Delays in majority of projects due to time taken in finalization of tenders, security clearances,
concession agreement and tender process.
 Delays in obtaining environmental clearance.
 Delays in handing over of project sites and back up area.

KELKAR COMMITTEE

 Urgent need to focus on strengthening the systems to speed up the overall environmental clearance
process.
 More institutions are required to be given authorization for conducting Coastal Regulation Zone
demarcation.
 Need to provide support infrastructure facilities including land, utilities, dredging, rail and road
evacuation infrastructure through enforceable obligations.

ROAD

CAG
 Inconsistency in adopting carrying capacity/tollable traffic as yardstick for determining the
Concession Period by NHAI resulted in fixing higher concession period and higher toll burden on
road users.
 Projects were approved despite the known late realization of minimum threshold traffic.
 The Total Project Cost (TPC) worked out by the concessionaires was higher as compared to TPC
worked out by the NHAI. In 25 projects, TPC worked out by concessionaire was higher by 50%.

KELKAR COMMITTEE

 In the case of BOT toll projects, focus on projects with longer concession period. NHAI,
concessionaire can opt for revenue share on a case to case basis.
 In case of projects that are not viable on BOT toll basis, options to fund through hybrid models, grant
of VGF, part annuity, O&M grants, and debt instruments, maybe explored.
 The concessioning authority may undertake detailed project development activities including demand
assessment, soliciting stakeholder views on project structure and financial viability analysis to
estimate a shadow bid, which could be used to compare actual bids received.

Courtesy : Business standard

Way ahead:

 PPPs in infrastructure represent a valuable instrument to speed up infrastructure development in India.

 This speeding up is urgently required for India to grow rapidly and generate a demographic dividend
for itself and also to tap into the large pool of pension and institutional funds from aging populations
in the developed countries.

Connecting the dots:

 Critically examine the measures taken by government to revamp PPP in infrastructure development
with special reference to Kelkar committee recommendations.
 Economic survey 2014-15 pointed out to structural problems which have resulted in low economic
growth over the past. What do you understand by structural problems? Explain the measures taken by
government to overcome it.

Start Up India Stand Up India Scheme

Recently the government came up with the much awaited ‘Start Up India, Stand Up India’
scheme to promote entrepreneurship and encourage start up’s among the Indian masses.
Why need this scheme?

 The economy of any country depends on its countrymen.

 Larger the number of employed or working people, better be the economy.
 The Indian government realized that Indian people have the potential to work hardly, all
they need is, a promising start up.
 Many people dream of starting up their own business, but due to financial or other similar
issues are unable to do so.
 So, Indian government decided to offer a gift as a nation wise program“ Start Up India”.

Start Up India Scheme – From Job Seekers to Job Creators:

 “Start Up India” is a revolutionary scheme that has been started to help the people who
wish to start their own business.
 These people have ideas and capability, so the government will give them support to
make sure they can implement their ideas and grow.
 Success of this scheme will eventually make India, a better economy and a strong nation.

Start Up India Stand Up India Scheme – Action Plan in Detail

 E-registration will be done

 A self certification system will be launched
 A dedicated web portal and mobile app will be developed
 Arrangement of self certificate based complaints
 No inspection during the first 3 years
 80 percent reduction in the application fee of start up patent
 Easy exit policy
 Inclusion of Credit Guarantee Fund
 Relaxation in Income Tax for first three year
 Special Arrangement for Female applicants
 Introduction of Atal Innovation Mission. Innovation courses will be started for the
students.

Criteria for start up’s to get government incentives under start up India action plan
 The firm incorporated should be less than five years old
 Annual Revenue of less than Rs 25 crore
 Needs to get approval from inter-ministerial board to be eligible for tax benefits
 Get recommendation from an Incubator recognised by government, domestic venture
fund or have an Indian patent

Some criticisms the scheme faces:

1. Government’s restrictive definition of a start-up – “driven by technology or intellectual

property”

 Only those companies which satisfy the above definition will be termed as start up and
access to enabling environment is made possible.
 In addition, to be eligible for schemes, start-ups will have to show that their innovation
has “significantly improved” existing processes.

Oddly, there is no self-certification as to whether the “improvement” is “significant” –

allowing the bureaucrat to once again insert himself into the process.
It is thus possible that discretion to a start-up ecosystem – may have been built into the
scheme from the outset.

 It is unexplainable why benefits from any such scheme should not be extended to all start-
ups depending on criteria that are transparently laid down and objective.
 The government cannot target or identify innovation; only the market can.
 The government should focus on creating conditions for innovation.

2. Innovation and investments go hand in hand, but not enough was done by the
government for the latter.However not much was done for the latter as there was no
encouragement for investors.
3. Some probing questions have also been asked about the use of tax incentives for start-
ups. Exemption from income tax, of course, will only be available to those vetted by an
inter-ministerial panel. This clause has been targeted by certain economists who argue
that tax to GDP ratio will further reduce in India.

Way ahead:
 Overall, while the intent is praiseworthy and there are many laudable ideas in the policy,
much in the fine print needs attention if its goal is to be realised.
 Hopefully, the government will be quick in making any needed changes and in overseeing
Start-up India’s implementation.

Connecting the dots:

 Critically examine the need for innovation in India along with the measures taken by
government to promote innovation.
 Innovation and investments go hand in hand, but not enough has been done by the
government for the latter.Critically examine the above statement wrt the recently
launched start up India scheme.

NATIONAL

TOPIC:

 General studies 2:
o Separation of powers between various organs dispute redressal mechanisms and
institutions.
o Statutory, regulatory and various quasi-judicial bodies.

Discords emanating from the “Principles of Natural Justice”

Between the Competition Commission of India (CCI) and the Competition Appellate Tribunal
(Compat)—
Background Story:
CCI- Imposed an aggregate penalty of around Rs 6,300 crore on 11 cement companies for
cartelisation
Cement companies-

 Challenged this decision before Compat

 Argued that their oral arguments haven’t been heard and is thus, wrong to sign the
penalty order without hearing their side of the story
Compat- Post three years of deliberations and arguments has upheld the challenge on the
ground ofbreach of “natural justice” and has thus, remanded the matter back to CCI
CCI-

 Needs to re-hear the cartelisation complaint (originally filed in 2011)

 Hints towards Compat’s wide interpretation of “natural justice” may not be under the
prerogative of the regulator i.e., strict application of judicial rules to a regulatory setting
may not always be suitable

Competition Act, 2002—

 Devises a scheme where the decision-makers of CCI, its “members” meet in “meetings”
rather than in “benches” while exercising their quasi-judicial function of enforcing the Act.
 Section 22 of the Act: Provides that the business of CCI shall be conducted at “meetings”,
with a quorum of three members, where a decision shall be taken by a majority vote of
the members present and voting
 When the chairperson is unable to attend such a meeting, the senior-most “member”
shall preside over it

Consensus Model of decision-making at work “technically” blessed by the Supreme Court of

India when it declined a constitutional challenge to the Act in Brahm Dutt vs Union of India
(2005)
The absurdity of presumptions—Presumptions like that of common law concepts like
“natural justice” being self-explanatory to bureaucratic enforcement agencies and regulators
(Qn— Is bureaucracy master of the trade or any one subject per se?)
Therefore, India’s routinely ill-drafted regulatory statutes (under which the economic
regulators function) are to be blamed and concerns raised by the ex-chairman should be
taken as a call for a larger review of the Competition Act from a regulatory governance
perspective.

Why do we need better legislative drafting?

Let us explain with the help of an example from the Competition Act
Section 36(1) of the Act merely states— In the discharge of its functions, CCI shall
be guided by the“principles of natural justice”
Forgotten/Ignored defining the term “natural justice”– Left for the CCI to interpret
Section 36(2)– Gives CCI powers of a civil court while trying a suit in matters like:

 Summoning and enforcing attendance of any person,

 Requiring discovery and production of documents,
 Receiving evidence on affidavit etc.

However, no clear detailed procedure for imposition of penalty by CCI has been laid down in
the Act or in its schedules.

Let us draw a comparison with the UK laws—

Section 112 of the UK Enterprise Act, 2002: Deals with the procedure to be followed by
the UK’s Competition and Market Authority (CMA) while imposing penalties
Zero-usage of vague phrases like “natural justice” and concentrates instead upon laying
down theexact procedure of imposing penalties in plain English
For example: CMA has to

 Give notice as soon as possible; (ASAP)

 The contents of the notice are clearly laid down in the legislation itself;
 The procedure of serving the notice is also stated
 Section 90 and Schedule 10 of the Enterprise Act provides the procedure for passing
certain enforcement orders
 Paragraph 2 of Schedule 10 requires CMA to give notice to a person and hear his
representations before a ruling is made (with content of the notice and the process for
serving such notice- remember!)

Take-away’s:

 UK legislative drafting style is primarily principles-based drafting with their statutes often
requiring enforcement agencies to comply with detailed procedures rather than vague
common law notions like “natural justice”
 The very concept of “natural justice” is hardwired into the procedures in the schedules
with great clarity and simplicity implying that the bureaucratic agencies need to
just follow the procedures and automatically adhere to the principles of natural justice,
without having to know or interpret what “natural justice” may mean
IASbaba’s Views

 India needs to adopt comprehensive content-oriented and properly drafted lists of laws
and regulations containing within it the principles of “natural justice” as a foundation
 The need adopts an urgent intervention within a liberal market economy as economic
laws are meant to and should facilitate smoother transactions without having to always
resort to courts and judges
 Drafting Laws for the non-lawyers—
o Simplicity and clarity should be maintained while drafting laws for the non-lawyers
(bureaucrats, regulators and entrepreneurs)
o Jargons; Latin maxims and legal phrases should be avoided completely
o Best practices need to be studied and carefully implemented in statutory drafting for
all future laws
o Existing laws be reviewed to improve clarity to avoid unnecessary problems as the CCI-
Compat discord has revealed

Some advances made which should be followed henceforth—

 Indian Financial Code, 2015: Drafted by the Financial Sector Legislative Reforms
Commission
 Insolvency and Bankruptcy Bill, 2015: Drafted by the Bankruptcy Law Reforms Committee