Chennai: Over the past few years, through a number of projects involving the private sector and the subsequent framing of best practices and model frameworks, the PPP (public-private partnership) scene in Indian infrastructure has crossed its infancy, opines Ms Latha Ramanathan, Executive Director, Government, Reforms & Infrastructure Development (GRID) Practice, PricewaterhouseCoopers Pvt Ltd, Chennai (www.pwc.com). However, one of the key pain areas that still remain is the sources of infrastructure financing, she adds, during the course of a recent email interaction with Business Line.
The projected investment in the infrastructure sector as envisaged in the Eleventh Five Year Plan is around $500 billion, reminds Ms Ramanathan. “Out of this, private investment is expected to be around 30 per cent, i.e. around $150 billion. It has been estimated that the total requirement of debt by the public and private sectors is likely to be around $247 billion.” With the availability of debt financing for infrastructure during the Eleventh Plan estimated at $206 billion, there is a funding gap of at least $41 billion for the debt component, she explains.
Excerpts from the interview.
What are alternative sources that can close the infrastructure funding gap?
Financing of PPP projects in India has largely been through plain vanilla debt. Developing a vibrant bond market, creating the policy framework for investment in infrastructure by insurance and pension funds are potential options.
At the moment, pension/ insurance funds are permitted to invest in infrastructure projects only to a very limited extent and through limited instruments. The government needs to come up with an appropriate legislative framework to facilitate all of this.
Are there workable models available from around the world for this?
Most mature markets such as Canada and the US have Pension Funds that invest in infrastructure such as the Ontario Municipal Employees Retirement System (OMERS), the Ontario Teachers Pension Plan (OTPP), the Washington State Pension Plan, etc.
The big US pension fund, CalPERS, adopted a new investment policy in 2008 with a target of 3 per cent or $7.2 billion in infrastructure. The major Dutch pension fund APG has a target of 2 per cent for infrastructure in its Strategic Investment Plan for 2007-2009, which amounts to about €6 billion.
Recently, the China Insurance Regulatory Commission (CIRC) has issued a notification permitting life insurance companies to invest as much as 6 per cent of their total assets, based on statistics at the end of last quarter, on infrastructure projects, while property insurance companies have been permitted to invest up to 4 per cent of their total assets. We can certainly study these models and examples and adapt them to best suit the Indian conditions.
Has the overall implementation of PPP been as quick as desired?
Over the years, by adopting different models of PPP, we have developed quite a few options for overcoming inherent challenges of the model, such as: marrying the profit motive of the private sector with the inclusiveness and developmental motive of the public sector, fair risk apportionment, development of mutually agreeable concession agreements etc. In parallel, many commendable steps have been taken to strengthen and develop PPP capacity building in government institutions (such as the setting up of PPP cells at state levels), and as a result, PPP has now gained acceptance across different levels in the government.
However, given the scale and size of our country, the pace has been understandably slow. Large-scale initiatives such as rollout of a nationwide capacity building and training programme for grass-root level officials can be a positive step in this direction.
Source:The Hindu