Ensuing Problems in Urban Transportation PPP Projects

I happened to read this article in the Economic times on PPP projects in the Urban Transportation sector in India, and I believe it is relevant to our discussion yesterday about the Vadodra Halol Toll Road Case study.  

Link: (http://economictimes.indiatimes.com/news/economy/infrastructure/ppp-projects-face-flak-experts-call-for-review/articleshow/16681219.cms)

I think the article summarizes the main problem with the Vadodra Halol road, i.e the demand estimations were way too optimistic. However, as we know, most of the urban transportation projects in the country have this in-built concern right from the moment the project is conceptualized.  The ridership estimations on almost all of the major Urban Transportation projects executed till date have been  much higher than the actual demand (Kolkata Metro is an excellent example in this regard). However, in projects executed under the PPP mode, these risks are generally, more as a rule than an exception, borne by the private player involved, which makes the returns on the investment very dicey.

We in India, have not implemented more Private-sector friendly” revenue models (like the Annuity toll model) extensively, and hence this risk continues to be a major concern for urban transportation projects executed with a Public-Private partnership. Private players, already rather wary of the multitudes of risk involved with PPPs  further get discouraged from bidding on these projects, and hence almost all of the “competitive advantage” that the PPP mode is supposed to bring in is lost at the very first step. The Mumbai MRTS project line II is a case in point, where no Private player bid for the project, and the contract was then given to Reliance Infra in light of its previous association with the MMRDA in the Line I of the same MRTS project ( a la IL&FS joint venture story seems to be emerging out of this practice, like Ashwin Sir mentioned in class yesterday). A perfect example of the private sector getting more and more disillusioned with these lopsided contractual terms in highly risky projects is Reliance Infra’s recent decision to exit many of the non-metro brownfield airport projects, citing unsubstantial returns as one of the major causes.

(Link: http://articles.economictimes.indiatimes.com/2012-09-07/news/33677051_1_airport-projects-reliance-infrastructure-lalit-jalan)

Hence, I believe it is time that the government of India take pro-active steps to refine the framework and policies enshrining PPPs in the country, and refine the contractual terms on these projects to have a Public-Private Partnership, rather than merely a Public-Private Mix, as Ashwin Sir’s research paper on the PPP experience in India mentions. Merely giving land-development rights as a sweetener and possible safeguard against lower than expected revenues is clearly not enough, as the Hyderabad MRTS project has shown us. It is high time that the government takes a firm stand on these issues, and with its new found confidence in face of increasing political pressure, finally remedies the major roadblocks plaguing the PPP chapter of the Indian Infrastructure story.