Relevance: GS-3: Infrastructure: Energy, Ports, Roads, Airports, Railways, etc.
Key Phrases: public-private partnership (PPP) model, Indian ports, Sagarmala Programme, the Major Port Authorities Act, 2021, Build-Operate Transfer; Build-Own-Operate-Transfer, Build-Own-Lease-Transfer.
Why in News?
- It’s been 25 years since the public-private partnership (PPP) model was introduced in India’s major ports. The Centre and all the major ports are celebrating this landmark.
- In July 1997, the Jawaharlal Nehru Port entered into the first agreement with the private player Nhava-Sheva International Container Terminal within the Jawaharlal Nehru Port in Mumbai.
Public Private Partnership (PPP) Projects
- Public-private partnerships involve collaboration between a government agency and a private-sector company that can be used to finance, build, and operate projects, such as public transportation networks, parks, and convention centres.
- Financing a project through a public-private partnership can allow a project to be completed sooner or make it a possibility in the first place.
- Different Models of PPP:
- Commonly adopted the model of PPPs include Build-Operate-Transfer (BOT), Build-Own-Operate (BOO), Build-Operate-Lease-Transfer (BOLT), Design-Build-Operate-Transfer (DBFOT), Lease-Develop Operate (LDO), Operate-Maintain-Transfer (OMT), etc.
- These models are different in level of investment, ownership control, risk sharing, technical collaboration, duration, financing, etc.
Advantages of PPP:
- Access to private sector finance
- Efficiency advantages from using private sector skills and from transferring risk to the private sector
- Potentially increased transparency
- Enlargement of focus from only creating an asset to delivery of a service, including maintenance of the infrastructure asset during its operating lifetime
- This broadened focus creates incentives to reduce the full life-cycle costs (ie, construction costs and operating costs)
PPP disadvantages:
- Infrastructure or services delivered could be more expensive;
- Payment obligations postponed for the later periods can negatively reflect future public sector fiscal indicators;
- PPP service procurement procedure is longer and costlier in comparison with traditional public procurement;
- PPP project agreements are long-term, complicated, and comparatively inflexible because of the impossibility to envisage and evaluate all particular events that could influence future activity.
PPP projects
- The PPP investment numbers are mind-boggling in the port sector with nearly 300 PPP projects costing ₹3,47 lakh crore taken up as of December 2019.
- The Sagarmala Programme has identified 123 PPP projects at an estimated investment of ₹2.63 lakh crore.
- Of this, 29 PPP projects with an investment of ₹44,961 crores have been completed and additional 31 PPP projects worth ₹50,942 crores are currently under implementation.
- Remaining projects are at various stages of development. The Ministry of Ports, Shipping, and Waterways have identified 81 PPP projects costing ₹42,300 crores till 2024-25 for developing major ports’ berths, terminals, and oil jetties.
Impact of the PPP Projects in the Port Sector
- The PPP has enabled managing port operations and new port infrastructure development that was exclusively the functions of the government.
- The port sector was constrained by limited capacity, traditional infrastructure, and poor equipment levels. These were resolved by roping in the private sector to make ports globally competitive.
- PPP has a significant economic impact on the port sector as it leads to the creation of jobs and can mobilize more financing techniques for infrastructure and multi-payment options.
Do you know?
- Jawaharlal Nehru Port (JNP) has become the first major port of the country to become a 100% Landlord port having all berths being operated on the PPP model.
The success of the PPP model in India:
- The PPP model brought in a paradigm change with port business becoming competitive; more terminals chasing users.
- The World Bank too praised India’s PPP model, saying the country witnessed considerable growth in PPPs in the last one and a half decades.
- India has emerged as one of the leading PPP markets in the world, due to several policies and institutional initiatives taken by the central as well as many state governments.
- PPPs are now seen as the preferred execution mode in many sectors such as highways, ports, and airports.
- The PPP model has been a success in every infrastructure sector such as the maritime, roads, airports, and power sectors.
Government initiatives:
- Over the last few years, the government has taken several initiatives to
attract private investments into the ports sector. These include:
- Permitting 100 percent Foreign Direct Investment (FDI) under the automatic route
- Allowing income tax incentives under the Income Tax Act, 1961
- Formation of joint ventures between major ports and foreign ports, non-major ports, and private companies
- Standardisation of bidding documents such as Request for Qualification (RFQ), Request for Proposal (RFP), and the Concession Agreement
- Replacement of the Major Port Trusts Act, 1963 with the Major Port Authorities Act, 2021.
Conclusion:
- Reforms in PPP projects in the ports sector are of great significance in the context of making Indian ports more competitive and thereby strengthening India’s position in the international supply chain.
- Major changes are required to reshape PPP agreements in the Indian port sector and to better understand the enormous potential these projects offer for India's trade, i.e., in meeting the soaring domestic demand and giving critical impetus to the export-oriented industry.
Source: The Hindu BL
Mains Question:
Q. The public-private partnership model has been a revolutionary step in making ports globally competitive. Critically examine the statement.
