New Delhi: Road developers should be allowed to fully exit projects if they are unable to raise debt in the absence of equity under current market conditions and the government should address issues of coal linkages and fuel supply agreements for ensuring that private power sector developers are able to function optimally, the Economic Survey said today.

As for public private partnership (PPP) projects, there is only one mantra: there should be flexibility built into these agreements so that the contract can be withdrawn and put up for a re-bid if the private party under performs.

In short, the survey tabled in Parliament today says the government should make every effort to enhance investments in infrastructure by private sector.

According to the 12th plan estimates, a $1 trillion needs to be invested in India’s infrastructure sector between 2012-17, of which half should come from the private sector. So the survey has stressed on solutions which encourage more private sector investment in roads, ports, telecom, energy and civil aviation sectors. It wants the red carpet treatment for private sector infrastructure players.

Let’s begin with roads first.

“Exit conditions need to be eased in such a manner that promoters can sell equity positions after construction, passing on all benefits and responsibilities to entities that step in to take over the project. Promoters can then use the equity thus released for new projects,” the survey says.

Till now, the Ministry of Road Transport and Highways has been mulling a proposal to allow developers to exit projects after construction, but no decision has been taken.

According to a recent report in the Hindu BusinessLine, there are several limitations on developers exiting projects as of now.

“For instance, in road projects awarded before 2009, developers who originally bagged the highway projects, are required to maintain 26 per cent stake through the entire project life,” the report said.

The Ministry is also yet to take a call on whether developers can sell equity after achieving commercial operations.

The survey has also said new financing products need to be developed so the developers are not saddled with undue burdens – it has suggested concepts like traffic trigger and re-equilibrium discounts. The first term means the concessionaire is obliged to increase road capacity after a certain traffic volume is reached. The second term means reduction in tariff when performance parameters are not being met.

On power developers, the survey says “private developers may not be able to finance projects if coal linkage issues are not resolved and there are delays in finalisation of FSAs. While some decisions have been taken on restructuring discoms’ finances, these may need to be monitored and implemented in spirit”.

It has also spoken of sustained reforms of state electricity boards while pointing out that the power sector cannot deliver on its social commitments unless it is commercially viable.

The survey also points to the need for a better policy on spectrum management through sharing and trading of this scarce commodity. It has also suggested a separation of telecom networking from services.

 

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