PUBLIC PRIVATE PARTNERSHIPS

IN INDIAN RAILWAYS:
LOOKING WHILE WE LEAP

- SANJHI JAIN1

Public-private partnerships (PPPs) in India have been the primary

contributors of world class infrastructure in areas such as aviation,
power/energy and telecommunications. PPPs are now being increasingly
employed in railway sector which was hitherto considered to be largely a
public-sector undertaking. However, besides being reserves of funds for
infrastructure projects, PPPs also present interesting albeit crucial legal
issues. Through the lens of PPPs in Indian railways, this paper explores
questions of delegation of authority to the private player, certainty and
freedom of a PPP contract and rights and liabilities of parties. The absence of a
definite and distinct regulatory framework governing the PPPs, and the costs
of the same are highlighted by comparison with the position in other
countries. The existent legal mechanism which is primarily in the form of
guidelines does not ensure enforceability and is restricted to a few states. The
paper closes with suggestions for a plausible law on PPPs covering aspects
such as the concession agreement, flexibility of a PPP contract and judicial
enforcement of the same.

1
Student, III Year, B.A. LL.B (Hons.), NALSAR University of Law, Hyderabad, Andhra Pradesh,
India Email: sanjhi.nalsar@gmail.com
03 PUBLIC PRIVATE PARTNERSHIPS IN INDIAN RAILWAYS: LOOKING WHILE WE LEAP

INTRODUCTION

“Independent India presented itself as a mixed economy, partaking of both

socialism and capitalism ... It had grown too slowly to qualify as a 'capitalist'
economy, and by its failure to eradicate illiteracy or reduce inequalities had
forfeited any claims of being 'socialist'.”2

No institution can remain static for an indefinitely long period. As economy

changes, economic system also experiences a corresponding change. Owing to
the rapid growth in several sectors, the state was driven to seek the help of the
private players in providing quality services to the consumer public. Hence was
born the idea of public private partnerships (here after “PPP”). A PPP may be
defined as a 'joint venture' between the public and private sectors for the setting
up and operation of essential infrastructure in order to facilitate efficient
delivery of public services.3

The nature of PPPs is not the same as that under the Indian Partnership Act,
1932 which governs the relationship between persons who have started a
business primarily for profit. The principal aim of a public-private partnership,
on the other hand, is public welfare and efficiency in public services. Profit of
the parties is only incidental. The reason why these agreements are called
partnerships may be deduced from another definition given by the National
Council for Public-Private Partnership (NCPPP), an American body according
to which, public-private partnerships are contractual agreements between the
Government or a public agency and a private entity.

2
Ramachandra Guha, India After Gandhi: The History of the World’s Largest Democracy 469
(Picador India Macmillan 2008).
3
Michael B. Gerrard, Public-Private Partnerships, online at http://www.imf.org/
external/pubs/ft/fandd/2001/09/gerrard.htm (visited July 22, 2008). See Deborah Ballati,
Privatizing Governmental Functions (Law Journal Press 2001), online at
http://books.google.co.in/books?id=d_hBCEWtTBcC&pg=RA1-PA8-IA39&lpg=RA1-
PA8IA39&dq=Deborah+Ballati,+Privatizing+Governmental+
Functions&source=bl&ots=JgRemVzJT_&sig=_y3u2nSZIvXZR6q4FCPI86gbz-
Y&hl=en&ei=2qtiSviXJIL8tgeU_s36Dw&sa=X&oi=book_result&ct=result&resnum=1 (visited
July 19, 2009).
The GNLU Law Review - Volume 2 | Issue 1 | October 2009 03

The main purpose of the PPPs is to “fill budget holes”4 and “infrastructure
deficit”5 in public projects, provide alternative sources of capital and ensure
certainty of outcomes through on time delivery of projects. However in a PPP,
the ownership is not transferred to the private sector. Unlike privatization, the
PPPs are constrained by the obligations laid down in the contract between the
public and the private sector and not the economic forces of the market. All
risks of designing, building and operating are transferred to the private sector
and the Government shares the political and social risks.

I. PUBLIC-PRIVATE PARTNERSHIPS IN INDIA

The growth of public-private partnerships in India has been one of

immense success. Found primarily in six major sectors of Railways, Highways
(Roadways), Power or energy distribution, Ports, Airports and
Telecommunications, the PPPs have proved to be a smooth ride for the public
sector in terms of efficiency and implementation. These have also found place
in the development of urban infrastructure in the form of sewage, waste
management and water supply.

A. Transport

Success in the aviation sector is evident in the Cochin International Airport,

the first airport to be developed by way of public-private partnership and the
recently opened Rajiv Gandhi International Airport at Shamshabad in
Hyderabad. The Pipavav Port and the Mundra port are examples of world class
infrastructure by way of these partnerships. As a result of the development of
the Mundra port, a Special Economic Zone (SEZ) has also come up in that area.
The largest incursion of the PPPs is found in the development of National and
State Highways. These Highways charge Toll tax which forms the revenue for
the partnership. The best instance of the success of these partnerships in this

4
Aleksiz Muzina, Normative Regulation of Public-Private Partnership in Slovenia, 2 PPLR NA70-
78 at 3 (2006).
5
Robin Wilson, Private Partners and the Public Good, 53 N Ir Legal Q 454, 456 (2002).
The GNLU Law Review - Volume 2 | Issue 1 | October 2009 03

sector is the Mumbai-Pune Expressway, which is a first-rate infrastructure in

this sector.

B. Telecommunications

In the Telecommunications sector, public and private entities, like BSNL

and Reliance Communications respectively, have been the major investors for a
long time, particularly in mobile technology. However, the first occurrence of a
public-private partnership in the telecom sector is evident in the decision of the
Department of Telecom (DoT) to set up seven Telecom Centres of Excellence in
collaboration with the Indian Institutes of Technology, the Indian Institute of
Science and the Indian Institutes of Management along with major telecom
service providers in different parts of the country.6

C. Power/Energy

In the Power Sector, the National Hydro Electric Power Corporation and
Reliance Energy are major public and private players respectively. The
Electricity Act, 2003 governs all transactions relating to power production and
distribution.

The purpose of this article is to show that PPPs need to be regulated through
the force of law. Because of the very nature of the interaction involved between
public and private bodies and their conflicting interests, unregulated PPPs
present an impediment to the rights and duties of almost everyone involved
with these projects, whether provider or beneficiary. The Indian Railways is
chosen as the area where the operation of PPPs is analysed and inadequacy of
adequate legal measures to deal with the associated problems is analysed.

II. PPPS IN THE RAIL SECTOR AROUND THE WORLD

A. The European Union

The European Union (EU) countries have begun forays into the realm of
PPPs to enhance and develop their rail infrastructure. Describing PPPs as a
6
Unprecedented Growth of Telecom Sector in 2007, online at http://
sunmediaonline.com/indiachronicle/feb08/investmentupdate.html (visited July 27, 2008).
The GNLU Law Review - Volume 2 | Issue 1 | October 2009 03

rewiring between the State and the market and a paradigm-shifting tool from
'public service to service to the public',7 EU is now considering PPPs a desirable
source of investment. The following are the notable PPP projects in railways in
EU: Infrabel's Liefkenshoek Rail Connection seeks to improve the Port of
Antwerp's linkage to the main rail network. RFF, the French Infrastructure
Manager is exploring private investment to develop the South Europe Atlantic
Link project, which is expected to reduce journey time from Bordeaux to Paris,
and thereby provide easy access to the Iberian Peninsula.

The London Underground (LU) or the Tube and its assets in rolling stock,
stations, tracks, tunnels and signals are largely managed by private
infrastructure companies under 30-year PPP contracts which are reviewed
every 7 ½ years.8 The Transport for London (TfL), a local government body,
supervises the functioning of LU.

While Latin American countries such as Brazil and Argentina have

extensive presence of PPPs in the rail sector, the North America, particularly
the United States of America, has witnessed significant increase in PPP
endeavours. In these countries, the rail freight is almost entirely in private
hands.

III. THE INDIAN RAILWAYS IN PPPS

In India, public-private partnership in railways is a major factor behind its

immense growth. The construction of High Speed Passenger Corridor and
Freight Corridor, and the building of the Surendranagar-Pipavav Gauge
Conversion are important milestones in the history of PPPs in the Indian
railways. Proposals have been presented in the Railway Budget 2008-2009 to
develop the New Delhi, Mumbai, Patna and Secundrabad railway stations into

7
European Commission and the Railways Promote Public-Private Partnerships in Rail
Infrastructure (Press Release Feb 2009), online at http://www.cer.be/
index.php?option=com_publications&task=category&id=58&order=&direct=&Itemid=71&limit
=5&limitstart=20 (visited Sept 5, 2009).
8
Transport for London, online at http://www.tfl.gov.uk/corporate/modesof
transport/londonunderground/management/1580.aspx (visited Sept 5, 2009).
The GNLU Law Review - Volume 2 | Issue 1 | October 2009 03

world-class stations.9 Karnataka has established the Karnataka Rail

Infrastructure Development (K-RIDE) Corporation to deal with public private
partnerships in the rail sector. Proposals were also made to resort to open and
competitive bidding in place of the Special Purpose Vehicle (SPV)10 set up under
a Memorandum of Understanding (MOU) to award contracts to the private
entities.

In 2007, concession11 agreements were signed with 14 container operators

as a result of which the monopoly of the Container Corporation of India has
now come to an end. Through the Viability Gap Fund Scheme, the public agency
seeks to save those projects which may commercially be unviable but which
have high economic benefit.12 The India Infrastructure Company Limited
(IIFCL) is a Government owned company to render financial assistance to
infrastructure projects in furtherance of the concept of the Viability Gap
Funding.13 Budget 2009-2010 announced that the IIFCL will refinance 60% of
the commercial banks that provide loans for PPPs in the infrastructure sector.14
In the Eleventh Five Year Plan (2007-2012), a Rs. 500,000 crore ($ 100 billion)
outlay is proposed for railway up gradation and private sector is expected to

9
Budget Speech 2008-2009 of the Railways Minister, 24 http://www.
scjudgments.com/display.aspx?15ea5fb4-d26c-4d34-8a04-ad2ca4e14200 (visited Aug 26,
2008).
10
SPV is a company with liabilities and assets only for the purpose of carrying out the project which
is the subject of public-private partnership. Such a subsidiary company is tax neutral. The risks and
possibility of bankruptcy of the original company is not transferred to the SPV. See online at
http://www.rbi.org.in/ scripts/PublicationReportDetails.aspx?UrlPage=&ID=164 (visited Aug 5,
2008).
11
When the private entity is given the right to charge the public for the use of the infrastructure
developed by the private entity and thus earn profit, the private entity is said to have a right of
concession.
12
Financial Support to Public-Private Partnership - Recent Govt Initiatives (Conference of Chief
Secretaries on PPP in Infrastructure), online at www.infrastructure.gov.in/index.html (visited Nov
2, 2008).
13
The Official Website of India Infrastructure Finance Company Limited Online at
http://www.iifcl.org (visited Nov 12, 2008).
14
IIFCL to Refinance 60% of Commercial Bank Loans for PPP Projects, Press Information Bureau,
Government of India, July 6, 2009, online at http://pib.nic.in/release/release.asp?relid=49765
(visited July 19, 2009)
The GNLU Law Review - Volume 2 | Issue 1 | October 2009 03

contribute about 60% of this huge amount. According to analysts, this plan is a
scale of railway PPPs hitherto unprecedented around the world.15

An essential point to note is that the Railways (Amendment) Act, 2005

prohibits operation of the railways by private sector. The private sector is
involved only in the development and maintenance of railway tracks or
arranging transport of goods from railway stations to ports. Electrification,
signaling and rolling stock16 are other areas where PPPs operate in the railways
sector in India.

IV. QUESTIONS OF CONCERN IN PPPS IN RAILWAYS SECTOR IN INDIA

The issues of concern in the area of public private partnerships in the

railway sector can be characterised into three, questions of delegation of
authority, freedom and certainty of contract, and liabilities of the parties
entering into a contract of public-private partnership.

Similar to the Electricity Act, 2003, the operations of the Railways Sector
are regulated by the Railways (Amendment) Act, 2005 (hereafter the Act). The
Act nowhere mentions the concept of public-private partnership. This is a
rather curious omission since public private partnerships have been know to be
existent in the railway sector ever since the rail lines first began to be laid in
British India. However, the simultaneous existence of the partnerships with the
Act raises several issues of concern which are outlined below.

A. Delegation of Authority

In the Republic of Finland, under the Rail Network Act, 2006, the National
Rail Administration is the only authorised body to collect fee from train
operators. A state of anxiety prevails in the sphere of public-private

15
George Tharakan and Nupur Gupta, World Bank Support of Railways Concessioning and
Bidding: Roundtable on Railways PPPs 21, online at
http://siteresources.worldbank.org/INTSARREGTOPTRANSPORT/Resources/Indian_Railway
_PPP_Concessioning_final.pdf (visited Aug 1, 2008).
16
Rolling stock is defined under § 2(37) of the Railways (Amendment) Act, 2005. It includes
locomotives, lenders, carriages, wagons, rail-cars, containers, trucks, trolleys and vehicles of all
kinds moving on rails.
The GNLU Law Review - Volume 2 | Issue 1 | October 2009 03

partnerships in the railways sector there as without change in the existing law,
the private entity which is the operator of train services under the concession
agreement cannot collect taxes.17 Similarly, in India, the Railways
(Amendment) Act, 2005, under Section 11, authorizes only the railway
administration18 to build and operate infrastructure which would include
construction and maintenance of railway tracks, containers and rolling stock.
During the construction of railway lines, the railway administration may alter
the course of any stream, river, etc., construct or demolish those buildings as it
thinks proper and erect or repair any telegraph and telephone lines. Since
under PPPs, today, the private entity is being entrusted with the construction of
rail infrastructure, the nature of the job requires undertaking all activities
mentioned above that under the Act only the railway administration is
authorised to undertake. The issue at hand is how these powers can be
transferred or shared with the private entity. As the Act is silent on this aspect,
the PPPs seem to pose a direct conflict with the Act.

Under Chapter II-A, the Act enables the establishment of the Rail
Development Authority (RDA) for the development of railway land for
commercial use. According to Section 4D (2)(iv), the authority can carry out
any other work or function as may be entrusted to it by the Central
Government. The question that arises is what the criteria should be for
determining if the functions have to be entrusted to a private entity through
pubic private partnership or to the RDA, which is a statutory body. The law is
unclear on the Central Government's power to enter into a PPP for the
development of railway land. At this juncture, comparison may be made with
the Public Private Partnership Act, 2004 of the Republic of Mauritius,

17
Kimmo Mettala, Public/Private Partnerships - Issues from a Finnish Perspective, Bus L Intl 252,
258 (2000).
18
The Act, in § 2(32) defines railway administration to include: “(b) [in relation to] a non-
Governmental railway, means the person who is the owner or lessee of the railway or the person
working the railway under an agreement”. However, all railway operations in India are under the
control of the Ministry of Railways under the Government of India. Thus, the erstwhile private
railways in India are no longer a reality.
The GNLU Law Review - Volume 2 | Issue 1 | October 2009 03

according to Sections 5(2)(b)(ii) and 5(2)(d) of which, the extent to which the
functions entrusted to the public entity can be performed by the private entity
in terms of an agreement must be clearly laid down.19

B. Certainty and Freedom of Contract

According to Section 21 of the Act, permission of the Central Government is

required before the opening of any railway for public use. The Central
Government conducts an enquiry through the Commissioner appointed under
Section 5 of the Act and based on the Report of the Commissioner, grants or
refuses permission. If a public-private partnership is entered into by the
Central Government, the above provision raises questions regarding the
contractual freedom and certainty with respect to the private entity. If such a
provision is to be applicable to the public-private partnerships, the unilateral
power of the termination of the contract lies in the hands of the public agency. A
similar concern has been raised as regards the Central Government's power to
close the railways if the same is harmful to or is not serving the public interest.20
The use of rolling stock can also be discontinued. Here again, the
Commissioner is the sole authority to determine whether a railway is fit for
reopening. In a PPP, the private player would thus have no role regarding the
opening of railways, a crucial aspect for the realisation of her contractual rights.

C. Rights and Liabilities of Parties

Under Section 4E of the Act, the Railway Land Development Authority

(RDLA) is empowered to enter into contracts on behalf of the Central
Government and execute them. Chapter IIA contains extensive details on the
powers and composition of the RDLA. However, it contains nothing on the
rights of the party who enters into contracts with the RDLA. For instance,
consider that a particular land is designated as railway land by the RDLA and a

19
§ 5(2)(d): “explain the capacity of the contracting authority to effectively enforce the agreement,
including the ability to monitor and regulate project implementation and the performance of the
private party in terms of the agreement”.
20
§ 25, the Act.
The GNLU Law Review - Volume 2 | Issue 1 | October 2009 03

private entity is given the project of infrastructure construction on that land.

However, the piece of land is later discovered to be a private property. If the
owner of that land brings legal action against the private entity, what exactly are
the rights and liabilities of the private entity and the owner of the land? Would
the Central Government represented by the RDLA be liable to compensate the
private player?

Several questions relate to factual situations that might arise during the
implementation of a public-private partnership and the liability of the parties
for the same. Under Section 124 of the Act, the railway administration is liable
to pay compensation in case of loss of human life during an accident whether or
not the accident was caused due to its wrongful act, neglect or default. Thus, for
instance, if an accident is caused due to the negligence of the train driver or
some technical defect in the wagons, the railway administration would be liable
to pay damages but the extent of the liability of the private player is unclear
though any defect in the wagons would be the contractual liability of the private
player. Similarly, under Section 84(2) of the Act, if an unclaimed consignment
of non-perishable nature is found and instead of serving a notice, the
consignment is sold, who is to be held liable? Further, Section 15(1) of the Act
exempts the railway administration from being sued for the recovery of any
amount for any damage or loss caused in the exercise of its powers under
Sections 11-14. Thus, whether or not compensation is to be paid is at the whims
and fancies of the railway administration, though after the administration in
fact decides to tender payment of this amount, appeal lies to the District judge
under Section 15(2) regarding the dispute about the amount of compensation.
These provisions make the private players even more vulnerable to
compensation-seeking litigation, which in some situations may not be entirely
their liability.
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V. EXISTENT REGULATORY MECHANISM

The realm of public-private partnerships is largely governed by the

concession agreement entered into by the public and the private entity. There
have been several guidelines issued by various public agencies which deal with
the essentials of a concession agreement that must be present in every public-
private partnership for it to be successful. For instance, the Committee on
Infrastructure has issued guidelines regarding two and four laning of Highways
through the public-private partnership.21 Though there is no central legislation
on the point of public-private partnerships, several States have enacted laws to
govern such partnerships within the jurisdiction of their respective States.
Examples are Gujarat Infrastructure Development Act, 1999, and the Andhra
Pradesh Infrastructure Development Enabling Act, 2001. Thus, the existent
regulatory mechanism in India is either in the form of guidelines which are not
compulsory to be followed and thus have no legal enforceability or in the form
of legislations which are restricted to certain States.

VI. NEED FOR A LEGISLATION TO REGULATE PUBLIC PRIVATE PARTNERSHIPS

In the wake of the absence of clear, binding and enforceable rules, the
importance of a well-structured contract in the realm of public private
partnerships can be realised from the experiences of other countries. For
instance, the power sector in Turkey lost about US$7 billion per year as a result
of badly structured contracts.23 In contrast, countries like Brazil and Finland
have tapped into the commercially viable and beneficial recourse of public
private partnerships by supplementing and supporting it with active legal
instruments. The European Community has also realized the significance of

21
Official website of Secratariat for Infrastructure, Planning Commission, online at
http://www.infrastructure.gov.in (visited July 27, 2008)
22
The Gujarat Infrastructure Development Act, 1999, Gujarat Act No. 11 of 1999 Online at
http://www.gmbports.org/pvt_botlaw.htm (visited July 27, 2009).
23
See note 15.
The GNLU Law Review - Volume 2 | Issue 1 | October 2009 03

the role of law in promoting efficient PPPs by introducing a Green Paper on

Community Law on Public Contracts and Concessions.24

An example closer home is found in the much-acclaimed Gujarat

Infrastructure Development Act, 1999,22 which is one of the many reasons for a
resounding success of infrastructure development in Gujarat. The object of the
Act is to provide for a framework for effective participation of persons other
than the Government in the area of expansion of infrastructure in the state.
This legislation clearly defines terms ranging from concession agreement to
user charges. Contents of the concession agreement, its termination and the
method of selection of the private players are also succinctly detailed.
Constitution, members and powers of the Infrastructure Development Board
which is the regulatory body under the statute is provided for in the Act. This
broad frame of enforceable rules and not mere guidelines is the key factor
behind the flourishing infrastructure in Gujarat.25

In the early months of 2004, “the Government had toyed with the idea of
enacting legislation on public-private partnership, but appears to be having a
re-think on this now. The Government feels there is no need for legislation and
merely drawing up guidelines will do”, so reported the prestigious business
newspaper the Hindu Business Line.26 This change in stance might have been
effected due to the fact that there exist, besides guidelines and rules (as
mentioned above), several judicial pronouncements which safeguard the

24
Green Paper on Public-Private Partnerships and Community Law on Public Contracts and
Concessions, online at http://eurlex.europa.eu/smartapi/cgi/sga_
doc?smartapi!celexplus!prod!DocNumber&lg=en&type_doc=COMfinal&an_doc=2004í_doc=3
27 (visited July 28, 2009). This paper makes a difference between a purely contractual PPP and one
of institutionalised nature and different rules and regulations for the same thus providing for a
comprehensive legal scheme.
25
The Tata Nano Car Project, after being ousted from West Bengal, India was relocated in Gujarat.
In the race to grab the project, various states including Karnataka and Andhra Pradesh made
different proposals to the Tata Group. However, Gujarat’s turned out to be the most efficient one,
packed with tax sops and conducive atmosphere for industry growth coupled with enforceable
laws, unlike West Bengal. See Tatas to drive Nano Project to Gujarat, online at
http://www.hinduonnet.com/businessline/blnus/02071230.htm (visited Feb 22, 2009).
26
Online at http://www.thehindubusinessline.com/2004/04/03/stories/20040
40301231700.htm (visited July 28, 2009).
The GNLU Law Review - Volume 2 | Issue 1 | October 2009 03

interests of the private players and ensure that the government does not
practice an arbitrary hand. Instances include the ruling in Union of India v
Indo-Afghan Agencies Ltd27 quoted in later cases such as U.P. Power
Corporation Ltd and Another v Sant Steel Alloys (P) Ltd and Others28 and
Kusumam Hotels (P) Ltd v Kerala State Electricity Board and Ors29, where it
has been held that “[t]he Government cannot claim to be immune from the
applicability of the rule of promissory estoppel and repudiate a promise made
by it on the ground that such promise may fetter its future executive action.”30
Further, it was said that “[i]n order to keep the faith of the people, the
Government or its instrumentality should abide by their commitments.”31

The courts have, thus, taken a view favourable to the interests of the private
players at least with regard to the rule of promissory estoppel. However, the
judiciary steps in only at the stage after the contract between the public and
private player has been breached, which is the end point.32 The need for a
legislative framework addresses the requirements of an effective and complete
contract at the stage of entering into the contract which is the starting point for
the whole process. Thus, presence of several judicial decisions which have the
effect of regulating the PPPs in some manner is no argument against the
necessity of legislation to govern this sphere of activity that is burgeoning with
every passing day.

VII. SUGGESTIONS FOR A LEGISLATIVE FRAMEWORK

A. The Concession Agreement

The key factor in any public private partnership contract is the concession
agreement. A carelessly drafted or an incomplete concession agreement

27
[1968] 2 SCR 366.
28
AIR 2008 SC 693.
29
AIR 2008 SC 2796.
30
See note 28.
31
See note 29.
32
See generally, M.A. Sujan, Law Relating to Government Contracts (Universal Law Publishing
2003 3rd ed with supplement).
The GNLU Law Review - Volume 2 | Issue 1 | October 2009 03

entails, besides social losses, big monetary losses for both the public and
private entities, hence the following points33 may be made mandatory
specifications while laying down the broad structure of a concession
agreement:

• Extent and duration of the concession to be granted

• Specification of standards to be followed by the private entity while

developing the infrastructure

• Penalty for violation of the above infrastructural standards

• Extent of punitive damages in case of breach of contract

• Method of dispute resolution

• Scope of application of Doctrine of Executive Necessity

• Compensation/indemnity to the concessionaire in the event of

termination of the contract due to unforeseeable circumstances or a
change in the law or some adverse action by the public authority. This
aspect is given fundamental importance in concession agreements in
France where doctrines relating to compensation to the private party
go by the name of Théorie de l'Imprévision' and Fait du Prince.34

An efficient regulatory framework, capable of long term functioning not only

requires punitive regulatory provisions but also means to a fair distribution of
the positive outcomes of the public private partnership contract. In this
context, India can take a cue on the following from the Federative Republic of
Brazil where a public private partnership law was enacted in 2004:35
33
Several of these points have been emphasised upon by the Organisation for Economic
Cooperation and Development (OECD) as indispensable for a legislative structure particularly in
the developing countries. See Public-Private Partnerships at the sub-national level (Global Forum
on Governance Rio de Janeiro Oct 2007), online at http://www.oecd.org/dataoecd/
11/44/39610585.pdf (visited Sept 4, 2009).
34
Infrastructure & Public Finance Ratings, Public Private Partnerships 27 (Global Credit Surveys
2005 Standard & Poor’s May, 2005), online at http:// www.ibtta.org/files/PDFs
/PPP%20Credit%20Survey_2005.pdf (visited Sept 4, 2009).
35
Text of the legislation online at http://en.brazilny.org/images/secomfiles/
Projeto_Lei_PPP_eng.pdf (visited Sept 5, 2009).
The GNLU Law Review - Volume 2 | Issue 1 | October 2009 03

• Recognising and ascertaining possible circumstances that can lead to

termination of the contract before the term of the contract has ended
and determination of criteria for calculating compensations

• Giving the public entity its share of the economic gains that might arise
from a change in the financial conditions after the contract has been
entered into, for example, if the price of steel goes down, the private
entity may make obvious profits.

• Defining clear accounting rules

• Coordination and sharing of information among different agencies of

the government who are stakeholders in the PPP project. For instance,
in developing the Paradip port in Orissa, and its links with the
hinterland through railways, synchronisation between the port
authorities and the rail department is critical to the success of the PPP
project.36

B. Flexibility of contract

Consider the example of a private entity whose capital stock consists largely
of shares, and loans, concessions and its deposits in banks. Then, if a financial
crisis of the current magnitude were to happen in India, such an entity would
suffer irreparable loss and may be unable to meet its obligations under the
contract of public private partnership. Renegotiation and flexibility of
contracts become important issues in such unforeseeable situations as these
facets are crucial to “adapt contractual framework to unanticipated
contingencies and to create incentives for cooperative behaviour.”37

36
See note 15.
37
Laure Athias and Stéphane Saussier, Contractual Flexibility or Rigidity for Public Private
Partnerships? Theory and Evidence from Infrastructure Concession Contracts, online at
http://mpra.ub.uni-muenchen.de/10541/1/ MPRA_paper_10541.pdf (visited Sept 5, 2009).
The GNLU Law Review - Volume 2 | Issue 1 | October 2009 03

C. Judicial Enforcement

According to the Brazilian law referred to above, the private entity does not
have the right to contest its claim in a court of law.38 Such a framework is
undesirable in India. As has been described above, in the absence of any specific
or binding regulations, the judiciary as an institution has acted as a source of
relief and certainty in PPP contracts. Thus, despite the mode of dispute
resolution the parties might prescribe for themselves, judicial enforcement of
contractual rights under a PPP should always be open to either party.

CONCLUSIONS

An efficient regulatory framework complete with enforceable rights is

important not only for the successful working of the existing PPPs but for
attracting future private participation and for inspiring the confidence
necessary for adequate long-term investment.39

As has been shown in the discussion on the Indian railways above, PPPs are
the modern vehicles of growth and economic empowerment. However, several
issues with respect to rights and liabilities of the parties in a PPP are left
unconsidered when the only manner of regulation is through the sole contract
entered into between them. Further, absence of a clear, certain and binding
regulatory framework acts as an impediment to any kind of private investment,
let alone foreign investments since no one much less a private player likes to get
“stuck in approvals and bureaucracy”.40 The example of the Indian railways

38
Sole paragraph to Art 7 of the 1994 law on PPP.
39
International Conference on meeting India’s Infrastructure needs with Public Private
Partnerships: The International Experience and Perspective, online at
http://www.pppinindia.com/pdf/conference_meeting_indias_infrastructure_needs_with_pub
lic_private_patnerships.pdf (visited July 19, 2009). See also Piyush Joshi, Law Relating To
Infrastructure Projects 85 (Lexis Nexis Butterworths 2003). See generally, Tim Harford, The
Undercover Economist (Oxford University Press 2005). Harford explains how lack of adequate
legal infrastructure discourages foreign private investment in the Republic of Cameroon and
thereby inhibits its potential growth.
40
Soma Banerjee, The worst is behind us: L N Mittal (The Economic Times July 21, 2009, Opinion
Section) http://economictimes.indiatimes.com/Opinion/ Interviews/The-worst-is-behind-us-L-
N-Mittal/articleshow/4800994.cms (visited July 29, 2009).
The GNLU Law Review - Volume 2 | Issue 1 | October 2009 03

sector is thus an attempt to demonstrate that the sphere of public private

partnerships needs regulation in terms of binding legislation and enforceable
rights and duties. It is possible that similar concerns exist in other areas where
PPPs are employed. The policy question of the most efficient framework to
achieve this goal and questions of single or separate legislations for each sector
are best left to the wisdom of the legislature.

“In the 21st century, when there is global economy, the question of faith is
very important.”41 The impending need of the hour is to get an obligatory
structure immediately in place to ensure we continue to ride smoothly on our
successes with public-private partnerships.

41
See note 28, at ¶ 35.