Panel refuses ‘Swiss Challenge’; wants changes in corruption law

n expert panel led by former Finance Secretary, Vijay Kelkar, has called for swift amendments to the anti-corruption law and an endorsement from the Parliament for a new policy for public private partnerships or PPPs that balances risk-sharing between private and public partners, in order to spur infrastructure building.

The report, submitted to the government on Monday, said rebooting PPPs is an urgent priority to take advantage of the ‘historical conjunction of the country’s infrastructure needs and the availability of long-term funding’, adding it is critical for India to make the leap from a low-income country to a high-income one in two to three decades, else it risks falling into a ‘middle income’ trap. Significantly, the Kelkar panel has asked the government to actively ‘discourage’ the ‘Swiss Challenge’ for auctioning infrastructure projects, under which any bidder can offer to improve upon a project proposal submitted by another player. This model has been adopted by the government since July to redevelop 400 railway stations.

“Unsolicited proposals (“Swiss Challenge”) may be actively discouraged as they bring information asymmetries in the procurement process and result in lack of transparency and in the fair and equal treatment of potential bidders in the procurement process,” according to the report.

The report, submitted nearly a year and a half after the government committed to formulate an alternative framework for public private partnerships or PPPs to build infrastructure and deliver public services, has strongly endorsed finance minister Arun Jaitley’s announcement in Budget 2014-15 to create a new institution for overseeing PPPs, P3 India. The Budget had even allocated Rs. 500 crore for the new body.

The panel called for urgent changes to the Prevention of Corruption Act of 1988 as well as government’s vigilance and conduct rules in order to distinguish “genuine errors” in decision-making by public servants from acts of corruption, the panel has emphasised the need to guard officers against ‘witch hunt’ while taking immediate measures to punish malafide actions. The government has introduced amendments to the law in the Rajya Sabha and the Bill has been referred to a parliamentary panel this month.

State-owned entities

State-owned entities or public sector units should not be allowed to bid for PPP project and authorities should be discouraged from treating PPPs “as off-balance sheet funding methods and using PPP as the first delivery mechanism without checking its suitability for a particular project.”

Noting that risk allocations in India’s PPP projects over the past 15 years are inefficient and inequitable, the panel blamed it on a “one-size-fits-all” approach to model concession agreements or contracts signed for such projects.

“A rational allocation of risks can only be undertaken in sector and project-specific contexts. This arrangement has to only be developed by the project proponents concerned in collaboration with other stakeholders,” according to the panel.

Importantly, it emphasised upon the need to establish independent sector regulators for faster implementation of infrastructure projects and swifter dispute resolution mechanisms, including renegotiating terms for projects mid-way through the contract term. “Over 50 per cent of PPP projects require some kind of re-negotiations across their lifespan so the point is how can a credible permanent renegotiation commission be established that has credibility and powers to reset the contracts without any charge of crony capitalism,” said Vinayak Chatterjee, Chairman of Feedback Infra told The Hindu , reacting to the PPP recommendations.

The panel led by Mr. Kelkar has mooted ‘umbrella guidelines’ for dealing with stalled projects and even suggested cancelling projects don’t achieve a prescribed progress threshold on the ground. “Re-bid such projects once issues have been resolved or complete them through public funds and if viable, bid out for Operations and Maintenance,” according to the report.

On the issue of PPP developer’s account books being open to government audit and the Right To Information law, the Kelkar panel has asked for comprehensive guidelines to be framed, adding that the private sector must be protected against the loss of bargaining power over time. While stopping short of recommending an overarching PPP law, the panel has suggested formulating a national PPP policy and seeking Parliament’s backing for it to be effective. The policy should lay down how the infrastructure market should evolve with respect to other countries, how to allocate resources for better value addition, a rigorous framework for project selection, development and monitoring.

Panel calls for changes in conduct rules in order to distinguish “genuine errors” in decision-making