FE Editorial : Making PPPs work

Nov 16 2012, 02:50 IST
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SummaryThe good news first for air travellers in the capital: never mind the state of the dispute between Reliance Infrastructure’s Delhi Airport Metro Express Pvt Ltd and the Delhi Metro Rail Corporation, once the repaired civil structure is certified as fit, DAMEPL will have to start operating the line that has been shut since July 8.

The good news first for air travellers in the capital: never mind the state of the dispute between Reliance Infrastructure’s Delhi Airport Metro Express Pvt Ltd (DAMEPL) and the Delhi Metro Rail Corporation, once the repaired civil structure is certified as fit, DAMEPL will have to start operating the line that has been shut since July 8. Under the terms, once an arbitration notice has been served, the concessionaire has to operate the line till the arbitration is complete. The arbitration, and a two-member committee report next fortnight on who was to blame, will decide the eventual future of the project. While DAMEPL blames Delhi Metro for faulty civil work, Delhi Metro says DAMEPL was supposed to report any defects within one year of handover and, in any case, the repair work took just 100 days and R12 crore or so, hardly enough reason for DAMEPL to serve a termination notice. While Delhi Metro will have to pay DAMEPL 130% of the company’s equity and 100% of the debt in case it is found to be at fault in the arbitration process, it will have to pay DAMEPL 80% of the debt if the latter is found to be at fault (this is to protect the interests of lenders to the project).

But with so many PPPs in legal dispute, there is a larger issue of how PPPs are structured. If the traffic was much lower than projected in the case of the airport express, it was dramatically higher in the case of the Delhi Gurgaon expressway where, as a result, the expressway is woefully under-designed; in the case of UMPPs, the government asked companies who have difficulty giving 3-month guidance to take a 20-year call on what fuel prices and exchange rates would be. While it is easy to argue the private players are out to make an easy buck, the fact is that PPPs get restructured the world over, banks restructure loans all the time in even India, and the government bails out PSUs like Air India and BSNL without batting an eyelid—so why should resetting PPPs be taboo? Obviously, there has to be a method to ensure the restructuring is bona fide, but given how many PPPs are certain to land in a soup, it’s a good idea to look at a permanent committee whose job is doing this. Perhaps PPPs need to do some scenario-building into the

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