The concession document needs a re-look

Jun 13 2014, 00:35 IST
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SummaryThe Hyderabad metro rail, among the largest elevated tracks in the world, is on course to be commissioned in 2017.

The Hyderabad metro rail, among the largest elevated tracks in the world, is on course to be commissioned in 2017. The creation of Telangana state has posed some problems especially with regard to passenger estimates for the city of Hyderabad. However, VB Gadgil, chief executive & MD, L&T Metro Rail (Hyderabad), is confident the metro will be up and running on time. In a conversation with Shobhana Subramanian, Gadgil expresses concerns about the structure of concession agreements that are drawn up between governments and developers, pointing out that a renegotiation clause must be built in. Excerpts:

What are your thoughts on the PPP model?

The model is viable, provided some corrective measures are built in. For instance, there should be preparedness on both sides and the project should not be started in a hurry. There needs to be a reasonable time given for the land to be acquired and the detailed project report should be as current as possible. If the project is implemented after a gap, the plan becomes old, not having taken into account certain new developments and the developer is in trouble. In an urban environment there are several agencies working with one another—water, electricity, sewerage—we need one agency to coordinate.

We also need to accept that there is a basic difference in the way the government and the private sector think for historical reasons—one is driven by commercial considerations, the other is not. The spirit of partnership needs to be stronger. For instance, even today, the concession agreement that is drawn up is more in the nature of a contract rather than a partnership agreement. Many of the older clauses are somewhat one-sided. Further, concessions these days are very long—25-30 years. So, if you want someone to take a gamble over such a long period, there must be some flexibility built in to address unforeseeable developments that are beyond the control of the concessionaire and the government and which could affect the fundamentals of the project. Today, there is only a dispute resolution mechanism, there is no renegotiation clause if the fundamentals change and this needs to be adequately addressed.

So, a renegotiation clause is needed…

If we are to look ahead for 30 years, we need some protection, otherwise developers will shy away from projects. What we need is not just a dispute resolution mechanism, we need to pencil in solutions for any changes in fundamentals—these cannot be left to

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