India: The Andhra Pradesh Infrastructure Development Enabling Act, 2001

Last Updated: 10 September 2002
Article by Hitesh Sanghvi

Background

The State Government of Andhra Pradesh is keen to develop the level of physical and social infrastructure in the State. This pioneering legislation has been enacted by the Andhra Pradesh State Government with a view to enable and thereby encourage and promote the private sector to invest in the development of the infrastructure sector in the State of Andhra Pradesh. Infrastructures like airports, ports, highways require huge investments. The State Government alone cannot provide for such huge investments, In that circumstances, the development of such infrastructure can be achieved with private sector participation and Foreign Direct Investment (FDI) on varied arrangements which include but are not limited to Build-and-Transfer (BT), Build-Lease-and-Transfer (BLT), Build-Operate-and-Transfer (BOT), Build-Own-and-Operate (BOO), Build-Own-Operate-Transfer (BOOT), Build-Transfer-and-Operate (BTO), Contract-Add-and-Operate (CAO), Develop-Operate-and-Transfer (DOT), Rehabilitate-Operate-and-Transfer (ROT), Rehabilitate-Own-and-Operate (ROO)amongst others .

With a view to protect the interests of the investing community and the developers and for reducing administrative and procedural delays, identifying generic project risks, detailing various incentives, detailing the project delivery process and the procedures for reconciliation of disputes, an enabling legal framework has been evolved by enacting the Andhra Pradesh Infrastructure Development Enabling Act, 2001.

Statutory provisions

Some important provisions in the Andhra Pradesh Infrastructure Development Enabling Act, 2001 ("the Act") are discussed below:

1. The Act applies to the whole of the State of Andhra Pradesh.

2. All Infrastructure Projects implemented through Public Private Partnership in the Sectors enumerated in the Schedule III of the Act and to such other sectors as may be notified by the State Government under the Act from time to time will fall within the purview of this Act.

Provided, the Act does not apply to any Infrastructure Project which is undertaken by any joint venture between the State or Central Government Departments or between the State or Central Government and any statutory body or between any statutory bodies or between the State or Central Government or statutory body and any Government Company or any Infrastructure Project which may be taken over by any private party or private sector undertaking upon privatization or disinvestment by the State or Central Government or Government Agency or by any statutory corporation or any Government Company or any Infrastructure Project which does not involve fresh, new, additional Investment being made by a Private Sector Participant or any Infrastructure Project which is expressly notified to be excluded from the provisions of the Act by the State Government.

3. Section 3 of the Act provides for the constitution of "the Infrastructure Authority". It states that the Infrastructure Authority shall be a body corporate having perpetual succession and a common seal, with power to acquire, hold and dispose off property both movable and immovable and to do all the things incidental to and necessary for the purposes of this Act and also to contract.

4. Section 13 of the Act provides for the facilitation of any private sector participant to participate in the financing, construction, maintenance, operation and management of Infrastructure Projects covered under the Act. However, section 14 of the Act provides that it will be upto the Infrastructure Authority or the Government Agency or the Local Authority to decide the identification of any project as an Infrastructure Project.

5. Section 19 of the Act states that the Government Agency or the Local Authority may adopt appropriate Developer selection process including Direct Negotiations, Swiss Challenge Approach and Competitive Bidding to select appropriate Developers for Infrastructure Projects.

6. Under Section 20 of the Act, if a model contract for a Sector has not been adopted or in a case where any discrepancies exist in the proposed contract vis-à-vis the approved model contract for a Sector, then, the Infrastructure Authority will have the sole right to formulate or approve the contract principles, as the case may be.

7. Section 29 of the Act provides for the securitisation of Project receivables and Project assets in favour of the Lenders by a Developer. This will provide the much-needed liquidity to the Developer(s).

8. An important provision under the Act is Section 30. The rights of the Lenders have been expressly secured in terms of Section 30 of the Act.

9. Chapter V of the Act provides for the establishment and functioning of the Conciliation Board for the amicable settlement of any dispute, claim or difference arising out of or in connection with or in relation to any Concession Agreement or contract between the Government Agency or Local Authority on one side and the Developer on the other side. It provides for the application of the provisions of section 66 of the Arbitration and Conciliation Act, 1996 to the Board so far as the Code of Civil Procedure, 1908 and the Indian Evidence Act, 1872 is concerned. When it appears to the Board that there exists a possibility of a settlement, the Board shall formulate the terms and conditions of the possible settlement with the consent of either parties. Either parties shall then sign the settlement agreement and the Conciliation Board shall authenticate the same.

It is important to note that the settlement agreement will have the same status and effect as if it is an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal under Section 30 of the Arbitration and Conciliation Act, 1996.

10. Section 50 of the Act prohibits the commencement of any arbitral or judicial proceedings in respect of any dispute, claim or difference arising out of or in connection with or in relation to any contract or Concession Agreement, without first initiating the conciliation proceedings and commencing the conciliation proceedings by sending to the other party a written invitation to conciliate and file the same with the Board.

11. Section 54 of the Act calls for the State Government to establish a Fund to be called the "Infrastructure Projects Fund". The State Government shall contribute a sum of Rs.100 lakhs to the Fund as initial corpus. The Government will make such further contributions to the Fund, as it may deem appropriate from time to time. The Infrastructure Authority will utilize the Fund for achieving objects and purposes of this Act and for financing the activities of the Infrastructure Authority for realizing the objects and purposes of the Act.

12. Though there are encouragement for the Developers, similarly there are stringent penalties for default on the part of such Developers. Section 63 of the Act provides for the levy of penalty on the Developer called as "Abuser Charges" if any Developer abuses the rights granted to him under the Concession Agreement. However the Infrastructure Authority shall give an opportunity of not less than fifteen days from the date of service of a notice to the Developer to show cause in writing, why such Abuser Charges should not be levied on him, before passing the order under this section.

13. An important provision under the Act is the conservation and preservation of environment. The Act confers on the Infrastructure Authority wide powers to levy Polluter Charges on the Developer for polluting the environment. If the Developer pollutes the environment and/or does not adhere to the specified mitigation measures as provided in the Concession Agreement in terms of Section 64 of the Act, such Polluter Charges will be levied.

14. Another important provision under the Act is indemnity. Section 66 of the Act provides that the Developer shall be bound to indemnify the Government Agency or the Local Authority against any defect in design, construction, maintenance and operation of the Project and shall undertake to reimburse all costs, charges, expenses, losses and damages in that behalf.

15. Under Section 76 of the Act, the High Court shall have exclusive jurisdiction. Section 76 of the Act provides that any order or proceedings under the Act including but not limiting to any notification of a Project as Infrastructure Project, categorization or prioritization of Projects, Concession Agreement, bid process, selection of Developer, modification of any proposal, sanction of any proposal, implementation and execution of any Project, actions of Infrastructure Authority, actions of the Government or the Government Agency or the Local Authority, actions of the Board, grievance or objection of any party or person or group in respect of any Infrastructure Project, validity, legality, efficacy of any action or decision in respect of any Infrastructure Project of Infrastructure Authority or the Government or the Board, dispute settlement or dispute resolution in respect of any matters under the Act shall be heard only by the High Court and by no other court or courts subordinate to the High Court.

16. The Act has an overriding effect on any other State laws then prevailing. In terms of Section 81 of the Act, if any provision contained in any State Act is repugnant to any provision contained in the Act, the provision contained in the Act shall prevail and the provision contained in any such State Act shall to the extent of repugnancy be void.

17. The sectors, which have been included as the Infrastructure Sectors, are enumerated under the Schedule III of the Act. These are:

(i) Roads (State Highways, Major District Roads, Other District Roads & Village Roads), Bridges and Bypasses

(ii) Health

(iii) Land reclamation

(iv) Canals, Dams

(v) Water supply, treatment and distribution

(vi) Waste management

(vii) Sewerage, drainage

(viii) Public Markets

(ix) Trade Fair, Convention, Exhibition and Cultural Centres

(x) Public buildings

(xi) Inland water transport

(xii) Gas and Gas Works

(xiii) Sports and recreation infrastructure, public gardens and parks

(xiv) Real Estate

(xv) Any other Projects or sectors as may be notified by the Government.

Conclusion

The State Government of Andhra Pradesh has hit the chord by enacting the Andhra Pradesh Infrastructure Development Enabling Act, 2001 in providing the right regulatory framework and thereby attracting private sector investment and Foreign Direct Investment (FDI) into the infrastructure sector. Will other State Governments take a cue?

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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