Before revitalising PPP model, Kelkar committee can re-look Swiss Challenge model to boost smaller infra projects

The recent Vijay Kelkar committee report on revisiting and revitalising the PPP model of infrastructure development makes interesting recommendations but the one ticking off Swiss challenge model as a substitute or foil for PPP is likely to raise maximum eyebrows.



Its vehement disavowal of the Swiss challenge system (SCS) is primarily on account of its alleged opaqueness, information asymmetry and inequality. For the benefit of readers new to the concept, SCS represents a private initiative approach to infrastructure building.

Anyone bursting with an idea and imbued with vision and plan of action can propose to build an infrastructure project say a road, airport, seaport or even a railway station spelling out his terms of doing so. Lest the government is accused of promoting crony capitalism, it goes public with this information and calls for better terms.

The one offering better terms is not automatically awarded the project because the government gives the originator/ideator to offer terms better than the ones offered by the Johnny-come-lately, so to speak, and bag the project failing which it goes to the challenger.

In 2009, the Supreme Court gave its thumbs up to SCS, and many states including Gujarat have incorporated it in their infrastructure development laws. As recently as in June 2015, the central government threw open 400 railway stations to be built under the SCS model.

In the event, the disavowal of the model by the Kelkar Committee is bound to raise eyebrows though the objections set out above are not entirely baseless. SCS has a distinct tilt in favor of the originator/ideator.

To wit, if the ideator had asked for 20 year road concession and the challenger settles for 18, the ideator has to do what is laughably simple---offer 19 and bag the road contract! But then it can be looked in a positive way---reward for forward and out of the box thinking.

Be that as it may but the committee while holding brief for the PPP model goes out of the way to humor the private party by suggesting midcourse revision of contract to reflect the current realities. This is not kosher because if SCS is innately fostering of crony capitalism, equally midcourse correction in PPP is also conducive to discretionary favors being shown to a private party by the government of the day.

The only revision permitted ought to be price escalation clause and the resultant consequent revisions in the contract because cost inflation cannot be accurately anticipated and factored in especially in contracts spanning 20 to 30 years.

In my humble view both PPP and SCS should go hand in hand with the latter being innately suited for smaller projects. Youngsters design apps and start start-ups. There is no reasons why youngsters and the experienced alike should not be encouraged to do their mite for infrastructure building.

In fact far from ticking off SCS, the government must give sufficient publicity to this potentially constructive disruptive ideation scheme. If MPs and MLAs can be trusted with crores of rupees for local area development schemes, there is nothing wrong in encouraging private initiative in infrastructure projects under SCS.

SCS for example can play a role in clean India project also. A particular garbage dump may give off offensive smell due to over piling causing health hazards in the vicinity. An enterprising person may offer to install a sensor atop the dump which would let off beeps to a distant municipal office. And they in turn would send a truck in a jiffy to clear of the overflowing bin.

If the ideator should be prepared to go the whole hog and not be content with a small reward for ideation, he should be prepared to do some municipal functions like deployment of trucks for periodic emptying of the bin and throwing them in distant landfills or to agencies mandated to separate biodegradable wastes from others. Sky is the limit for such direct interface of enterprising people with the government.

Funding would be a source of worry whether it is PPP or SCS. As it is, PPPs are responsible for the burgeoning NPAs of public sector banks with the debt equity ratio permitted being 7:3. The specialized infrastructure financing agencies like IDFC and IIFC also choose to lurk behind by asking banks to initiate financing preferring to step in when things are hunky dory which seldom is the case. The same problem can beset our financial architecture even when SCS become a rage. That would be discussed in a subsequent article.

Updated Date: Jan 05, 2016 16:54 PM

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