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Business News/ Industry / No renegotiation on infra contracts: Centre
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No renegotiation on infra contracts: Centre

Finance secretary Arvind Mayaram says there is little evidence of such renegotiations being allowed elsewhere in the world other than Latin America

There are at least 900 PPP projects in various stages of development in India. Photo: Ramesh Pathania/MintPremium
There are at least 900 PPP projects in various stages of development in India. Photo: Ramesh Pathania/Mint

New Delhi: The finance ministry has expressed its disinclination to allow renegotiation of contracts for infrastructure projects, a frequently voiced demand by the private sector to make public-private partnership (PPP) model investor-friendly.

At an event organised on Wednesday by industry lobby group Federation of Indian Chambers of Commerce and Industry (Ficci), finance secretary Arvind Mayaram said there was little evidence of such renegotiations being allowed elsewhere in the world other than Latin America.

“Surprisingly and after very great hard work we discovered that renegotiations have only been done of contracts largely in Latin American countries and these renegotiations have all been questioned," he said.

“So there isn’t much literature or experience world over to show that while writing contracts renegotiation clause has been put in any contracts."

The comment comes amid calls for the government to revisit the PPP model.

While hesitant to incorporate a renegotiation clause within the contract, Mayaram said that the proposed institution called 3P India could provide solutions for addressing issues like contractual rigidities plaguing PPP projects in the country.

“(3P India) we are envisaging will be a kind of a PPP, which will look at the issues related to regulation, issues related to financing structures, stress in projects, management of contracts over a period of time and capacity building both in the public and private sector," Mayaram said.

In the Union budget presented on 10 July, finance minister Arun Jaitley had announced the setting up of 3P India to provide support to efforts to mainstream PPPs. The government has set aside a corpus of 500 crore for this.

There are at least 900 PPP projects in various stages of development in India.

Even as Ficci made a case for relief for the private sector in stuck or disputed projects, Mayaram tempered the expectations by clarifying that while the private sector can be derisked from sovereign risk (risk arising from government decisions or actions), it cannot be shielded from commercial risk.

“While saying that the entire risk should not be on the private sector, we cannot make a case to say that the entire risk should be transferred to the government. It’s a commercial business. Ultimately, the private sector’s skin in the game is the risk the private sector is taking. You cannot be derisked from commercial risk. The private sector should be derisked from the sovereign risk," Mayaram said.

Minister of road transport, highways and shipping Nitin Gadkari said at the same event that his ministry would push for timely decision-making to cut down on delays in project approvals, which in turn would address issues of cost escalation.

Gadkari also said that projects will not be opened for bids until 80% of the land required is acquired. “We will not float tenders for highways projects till 80% of the land is acquired," he said.

Gadkari said that he had started a process of seeking statutory clearances in advance for 300 road projects that could come up for bidding over the next five to 10 years in order to cut down on delays.

He said planning will help create “a shelf of projects in the pipeline with statutory clearances in place".

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Published: 23 Jul 2014, 11:37 PM IST
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