Public Private Partnerships (PPP) is a key model for fast-growing economies, especially in developing countries. With private ownership of public assets being controversial and the subject of criticism with respect to corruption, PPP model comes as a respite. World Bank defines PPP model as:
"a long-term contract between a private party and a government entity, for providing a public asset or services, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance."1
Under this PPP model, the Govt. of India and many others have adopted the approach of granting concession agreements to private entities for provision of public assets or service. Concession agreements provide the most economically feasible way for mobilization of private capital for augmenting scarce public resources2.
As of March 2020, a total number of 1824 PPP projects worth USD 327 Billion are on different stages of implementation in India3 out of which 57% of the projects relate to the transportation sector. With such large portions of the development projects falling in the domain of PPP model, there arose a need to standardise the implementation and the modus operandi of PPP model. Thus, the Planning Commission introduced Model Concession Agreements with the clear intent to standardise the documents and processes under the PPP model. The standardisation of the documents and processes in turn brings about the accelerated development process which is the need of the hour in fast-growing economies such as India. However, the Model Concession Agreements have faced enough backlash for being rigid and leaving very little to no scope for negotiation. Furthermore, since the concession agreements are long term agreements the lack of flexibility fails to incorporate the ever dynamic technological, commercial, financial, economic, and legal developments leading to multiple litigations and underperformance by the private entities4.
In comparison Australia which at one point depended extremely on such standardized agreements and evolved and adopted a completely revolutionised approach whereby, the government entity only provides a set of commercial principles that are applied while entering contracts with private entities for such projects5.
Through this article we intend to understand some of the key aspects of concession agreements and further, to understand the impact of the prevalent pandemic i.e., Covid19 on the ongoing infrastructure development through these PPP models.
A concession agreement is a license awarded by a government authority to a private entity for the execution and implementation of a public service. The license granted are some rights pertaining to the project granted to the private entity for a limited period which originally resides with the government. The crucial aspect, however, is that there is no transfer of ownership. By way of concession agreements, the government authorities enter into long term agreements with private entities, and thereafter, in lieu of the works and development done by the private entity the government authority transfer certain rights for a limited period. The benefit for the government lies is the fact that certain operating and financial risks are transferred to the private entity.
Concession Agreements do not create any interest for the private entity in the given project. The rights granted under a concession agreement are for a limited purpose and after the purpose is achieved the rights are transferred back to the government authority.
For the sake of illustration, let us assume a certain construction and maintenance of a highway is granted to ABC party by National Highways Authority of India (NHAI). NHAI while entering into a concession agreement will grant rights to ABC party to collect toll from the users of the Highway for a certain number of years till the economic viability of the project is achieved. Once the ABC party has collected enough revenue to make the investment into the project economically viable all rights with respect to the collection of tolls and the project are transferred back to NHAI.
However, since a majority of the PPP model agreements are in the transport-related sector for example highways or railways the same has been adversely affected by the ongoing pandemic Covid 19. The economic viability of these infrastructure projects is hanging by the thread as far lessor people are using transport facilities considering the pandemic and lockdowns. Thus, the private entities are suffering and the Model Concession Agreements which do foresee epidemics as a force majeure condition fail to provide for any economic concession or economic relief to the private entities. Thus, the lack of vision in the Model Concession Agreements to provide for economic reliefs in such unprecedented times jeopardize the economic viabilities of not just the private entities but also the projects in totality.
4. Report of the Committee on Revisiting and revitalizing Public Private Partnership Model of Infrastructure headed by Mr. Vijay Kelkar, November, 2015 issued by DEA (Kelkar Report)
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