From UPSC perspective, the following things are important :
Prelims level : NMP
Mains level : Paper 3- How NMP is different from PPP
The National Monetisation Pipeline (NMP), a bold initiative was recently announced by the Finance Minister.
PPP model and issues with it
- BOT: The PPP was about attracting private parties to build, operate and then transfer ‘greenfield’ or new infrastructure projects under build-operate-transfer (BOT) concession agreements.
- More risks for the private sector: The winning private bidder had to take not only the operating risk, but also the development and construction risk of the project, such as a toll road, from scratch.
- Why it was prone to delays?: It involved the acquisition of land. This process became controversial and was subject to delay.
- It involved securing environmental and other regulatory approvals. These proved challenging to obtain.
- Undermining the trust: Compliance with these became a source of friction between the concessioning authority and the concessionaire.
- All this undermined trust between the public and private parties and led to a huge volume of disputes for which there was no readily available resolution mechanism.
How NMP is different from PPP?
- Brownfield assets: The NMP is about leasing out ‘brownfield’ infrastructure assets such as an already operating inter-State toll highway under a toll-operate-transfer (TOT) concession agreement.
- No land acquisition: In such an arrangement no acquisition of land is involved.
- No construction risk: Nor does the concessionaire need to take any of the construction risk.
- It is also certain to attract a different class of private capital.
- To be successful in the BOT bids required a proven ability to navigate and manage the system.
- Under the NMP, what will be required is operational experience in running a particular class of infrastructure assets and a strong understanding of the potential cash flows generated over the life of the concession.
- This is certain to attract the largest global pension funds.
- Allow flexibility: Given the long tenure of these concession agreements, they must be designed to allow for some flexibility so that each party has the opportunity to deal with unforeseen circumstances (such as climate-related disasters).
- Performance standards: Contracts must also incorporate clear key performance indicators expected of the private party and clear benchmarks for assets as they are handed over by the government at the start of the concession.
- Ensure effective implementation: No matter how well a contract is crafted, it still needs to be implemented effectively.
- No opacity in concessional agreements: Experience shows that there is a tendency for government departments to inject opacity so that they have more power over the concessionaire.
- To avoid this, it would be useful if the responsibility for administering the concession agreements did not lie directly with the line ministries and/or their agencies.
- Dispute resolution mechanism: It is vital to put in place a robust dispute resolution mechanism.
- Institute for contracts: There is a strong case to set up a centralised institution with the skills and responsibility to oversee contract design, bidding and implementation.
- An institution such as ‘3 PPP India’, first mooted in the 2014 Budget, is needed.
- Set up tribunal: It would also be advisable to set up an Infrastructure PPP Adjudication Tribunal along the lines of what was recommended by the Kelkar Committee (2015).
- Start with predictable sectors: The government could start with sectors that offer the greatest cash flow predictability and the least regulatory uncertainty before expanding the experiment.
The NMP significantly differs from the PPP model and seeks to avoid its shortcomings through various changes.