P3 woes in India
Economic Survey: Reduce tariff if toll road operators don’t deliver
Times of India
July 10, 2014
NEW DELHI: In a move to ensure that toll roads are maintained well and expanded to meet the growing traffic, the latest Economic Survey has recommended to the government to examine whether the contract can provide for "reduced tariff" if the operator fails to meet the promised services.
The report has recommended that international practices such as 'traffic trigger' and 're-equilibrium discount' could be examined to address some of the problems faced in the sector. A 'traffic trigger' clause in the contract implies that once a certain volume of traffic is reached, the concessionaire is obligated to increase the capacity so that minimum level of service is maintained. The 're-equilibrium discount' is used to reduce tariff when performance parameters are not met. In such case a table of discounts is pre-defined in the contract.
Considering the major problem in the execution of road projects on public-private partnership (PPP) mode, the Survey has recommended an alternative strategy. It said government agencies can award projects as engineering contracts to build the asset in which the construction company is protected from political and regulatory risks. In such cases, the government bodies would bear the cost of construction.
Soon after the construction is over, a second contract can be given out to a private firm to toll the asset for one year and produce data about present levels of toll revenue. "This could set the stage for a long-term, say contract combining tolling and maintenance. These projects would be able to absorb a high level of long-term bond-market financing, and thus yield low tolls," the Survey said.
It said these firms would generate cash flows for the government which would offset the original expenditure for constructing the asset.
For all infrastructure sectors, the Survey has said lack of consistency in policies needs to be addressed urgently apart from removing procedural bottlenecks. "Removing procedural bottlenecks, improving governance, and above all maintaining consistency in government infrastructure policies are some issues that need to be urgently addressed," the report said.
The document highlighted how as many as 110 out of 239 central sector infrastructure projects, each costing Rs 1,000 crore or above, have reported delays, which range up to 26 months in cases of steel, coal, power and petroleum projects.
The total original cost of implementation of these projects was about Rs 7.4 lakh crore and their anticipated completion cost is likely to be Rs 8.98 lakh crore, implying an overall cost overrun by 21.3%, it said.
The Survey mentioned that while growth in power and fertilizers segments was higher, sectors like coal, steel, cement and refinery witnessed lower growth.