The Hindu : Public-private partnership for infrastructure

Online edition of India's National Newspaper
Friday, Mar 07, 2003

Opinion

Opinion - Editorials

Public-private partnership for infrastructure

THE UNION BUDGET has, quite predictably, given a thrust to physical infrastructure. Building of roads has been given special attention, with 48 new roads, covering a distance of over 10,000 km at an estimated cost of around Rs. 40,000 crores, planned. Interestingly, these will be outside the targets set for the ambitious golden quadrilateral project, which has made headway. The Railways too will have their share of Government finances over and above what has been provided under the Railway budget: projects worth Rs. 8,000 crores under the National Rail Vikas Yojana will be taken up. Two airports, Mumbai and Delhi, and two seaports, the Jawaharlal Nehru Port Trust (JNPT) at Navi Mumbai and the Kochi Port, are to be modernised to international standards. As part of the infrastructure initiatives, the Government will help in establishing two world class international convention centres at an estimated cost of Rs. 1,000 crores and help the private sector build two new airports at Bangalore and Hyderabad.

Since mere announcements in the budget speech evoke scepticism, the Government has done well in outlining a broad policy and financial framework for making the above projects viable. There are indications as to how the money will be found. A cess of 50 paise per litre of diesel and petrol has already been levied to raise about Rs. 2,600 crores for road development. Other financing proposals are less clear at this stage but the Government is planning to rely heavily on certain relatively new concepts to bring about the required infrastructure development. While public investment will continue to be critical, the private sector will be encouraged to participate in a much bigger way, through some innovative moves. In essence, public money is to be leveraged more meaningfully through private partnership. The Government will also avoid the common pitfalls of infrastructure funding so far. For instance, open-ended guarantees of the type that cost it very dearly in the power sector will be avoided. The festering legal fracas over the Dabhol project, which collapsed in the wake of the inability of the State and Central Governments to honour their legal commitments, cannot obviously be forgotten. The Government will therefore share the risks more equitably with the private sector and closely monitor the release of public money for specific projects coming up in partnership with the private sector. Elaborating on a theme that is going to be very relevant for public finances, the Government will ensure the implementation of modern, prudent financial practices for furthering infrastructure. Thus, roads funded on a build-operate-transfer basis (BOT) will get Government subsidy only in the form of an annuity flow to meet the shortfall between anticipated receipts and payments. And market borrowings that are necessary for the new railway projects will be retired by earmarking a portion of the receipts. It is hoped that the new guidelines will be followed in letter and spirit. Only then will the desired thrust to infrastructure take place.

The budget closely follows the initiatives taken by the Government over the past few years and by the RBI recently. For the private sector to participate more comprehensively, the projects will have to be made bankable. Incentives to the mainline financial system to prop up funding have already been given. Among the other areas that deserve an equal and immediate attention are regulatory concerns and the need to educate the users of infrastructure services on weighty matters such as the payment of user charge. As the experience in the telecom arena indicates, it is never easy to address critical issues brought in by competition. The power infrastructure, for which the budget had disappointingly few messages, is expected to progress only after the passage of the Electricity Bill by Parliament. Public-private partnerships, common in the developed world, can spur India's infrastructure only if there is a proper understanding of the concept and the common concerns of all the stakeholders — the users, the private promoters as well as the Government — are taken note of.

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