National Public Private Partnership Policy

Draft for consultation

Department of Economic Affairs

Ministry of Finance

Government of India

2011

5. Institutional & Governance Mechanism  

5.1 Institutional Framework for PPPs

5.1.1 A strong and well defined institutional structure is a cornerstone for the development of a sustainable PPP programme. In addition to governance and due diligence functions, the institutional framework nurtures and encourages new models and innovation and develops capacities to successfully discharge changing roles and responsibilities that PPPs require.  

5.1.2 The Government has supported the creation of nodal agencies such as the PPP Cells at a State or sector level. The functions envisaged of a PPP nodal agency, such as a PPP Cell, are outlined below. The PPP Cells would be strengthened with appropriate resources and skilled manpower to achieve these roles.  

i. Identify, conceptualize and create a shelf of projects and recommend approval of suitable projects for implementation on PPP route.  

ii. Assist in preparing the pre-feasibility reports through consultants.

iii. Appoint / select consultants to develop the projects.  

iv. Ensure rigorous adherence to managing effective and transparent tendering processes.  

v. Create coordinated, efficient, machinery for PPPs whereby viable transactions are tendered to the market and the costs of each transaction are realizing economies of scale.  

vi. Develop internal evaluation guidelines in consultation with the respective departments to evaluate and assess the projects.  

vii. Act as the nodal agency for capacity building for PPP, through training and technical assistance, to increase the deal flow of eligible projects.  

viii. Ensure dissemination to consumers, investors and other government entities on the benefits and procedures for PPP in a given sector.  

ix. Inspect, visit, review and monitor PPP projects under implementation.  

5.2 Decision-Making Process for PPP  

5.2.1 In view of the initiatives by the Government of India to promote PPP projects and given the wide-ranging exposure that the Government could assume under a PPP project, the Government has established an appraisal mechanism for PPP projects. Hence, the Cabinet Committee on Economic Affairs of the Government has created the PPP Appraisal Committee (PPPAC), comprising of the following:

a. Secretary, Department of Economic Affairs (Chairman)  

b. Secretary, Planning Commission  

c. Secretary, Department of Expenditure;  

d. Secretary, Department of Legal Affairs; and  

e. Secretary of the Department sponsoring a project  

5.2.2 Every PPP project at the central government level, even where no capital subsidy is required, is expected to obtain clearance from the PPPAC3. The intent of the clearance process is to ensure that the projects that are bid out are commercially robust, the provisions in the contract document safe guard user and public interests and the contingent liabilities of the Government are capped.

5.2.3 The PPPAC encourages the utilisation of standardized contractual documents, which lay down the standard terms relating to allocation of risks, contingent liabilities and guarantees as well as service quality and performance standards, and standardised bidding documents such as Model Request for Qualifications and Model Request for Proposals that have been notified.  

5.2.4 The establishment of annual parameters and targets for the performance of the sectors, as well as decisions to enhance investments are taken by the Union Cabinet and its Committees.  

5.3 Audit Mechanisms  

5.3.1 To maintain transparency, equity and fairness in developing and implementing projects , the Government would continue to strengthen the governance processes and institutions that are accountable to the stakeholders. The financial management, accountability and audit obligations, to verify the robustness of the development, procurement processes adopted and functioning of the public sector entities would remain as per the applicable legislation.  

5.3.2 The oversight would extend to the manner of selection of the private entity, procedures observed in releasing payments from time to time, review / monitoring of quality of service and Value for Money analysis, with the view to ensure adherence to key performance indicators enshrined in the contract. The oversight would also extend to ensure that the terms of contract have been adhered to in terms of 3 or relevant authorities as per the Guidelines on Formulation, Appraisal and Approval of Public Private Partnership Projects issued by the Ministry of Finance. ensuring condition precedents, VfM performance assessments, imposition of penalties for non-performance, reckoning of termination payments, etc. Any post award negotiation and / or contract modification would remain a critical area focus during the oversight process.  

5.3.3 These provisions would not be applicable to the private sector entities (including the special purpose vehicles set up for provision of public assets and/ or related services), irrespective of whether any financial assistance (in the form of user charges, annuity, viability gap funding or any other form/ means) has been extended or not.  

5.4 Regulatory Mechanisms  

As provision of many public assets and/or related services has natural monopolistic characteristics, the same would be regulated to ensure that the interests of users and service providers are protected taking into consideration the affordability of the users and certainty of pricing and revenue stream to the private party. The regulation would be through independent (multi-sectoral, where applicable) regulators, wherever there is no sector specific regulator, regulation would be through contractual arrangements. Where the regulatory mechanism becomes operational subsequent to a PPP contract execution, Government commits to take cognizance of the contract provisions would prevail to minimize regulatory risk.

Public Private Partnership appraisal: centralized clearance and standardized contracts to ensure commercial robustness and capped contingent liabilities. A structured institutional framework requires strengthened PPP nodal agencies (PPP Cells) to identify and develop projects, commission consultants and pre feasibility studies, manage transparent tendering, develop evaluation guidelines, build capacity, disseminate information, coordinate transactions for efficiency, and monitor implementation. Central government PPP projects must obtain clearance from the PPP Appraisal Committee to ensure commercial robustness, capped contingent liabilities and protection of user and public interests, with encouragement to use standardized contractual and bidding documents allocating risks and setting performance standards. Oversight and audit obligations remain under applicable law, covering selection, payments, quality monitoring, Value for Money analyses and contract compliance, while regulation of natural monopoly services will be through independent regulators or contractual arrangements, respecting existing contract provisions.