As India moves on with its ambitious infrastructure goals, adopting these reforms is critical to avoid future delays and cost overruns and to set the groundwork for long-term economic growth.

India’s infrastructure sector is facing tremendous challenges. Over 40 percent of large projects in the country are delayed, resulting in a whopping ₹5 lakh crore cost overrun. The old Public-Private Partnership (PPP) concession agreements, which frequently fail to keep up with today’s complicated regulatory environment and developing project needs, play a significant role in these setbacks.

According to data from the Ministry of Statistics and Programme Implementation (MoSPI), around 800 of over 1800 current Union government projects worth over ₹150 crore are behind schedule as of April 2024. These data highlight the urgent need to rethink and revise concession agreements, which currently fall short in managing regulatory difficulties, cost escalation, and fair risk allocation.

Why Reform is Essential

Concession agreements, the backbone of public-private collaboration in large-scale infrastructure, must evolve, according to industry experts and stakeholders. Key areas for reform include:

Clearer Regulatory Guidelines: Agreements should specify who is responsible for obtaining regulatory permissions and environmental clearance.  There must be clear deadlines and reasonable compensation for delays caused by regulatory impediments.

Flexible Financial Models: Revenue-sharing frameworks must be adaptive to changing market conditions while ensuring the financial sustainability of initiatives.

Balanced Risk Sharing: Both public and private parties should have a fair and transparent framework for sharing risks resulting from unforeseen circumstances.

Room for Flexibility: Modern infrastructure projects require more adaptability to changing technological, environmental, and market factors, necessitating more flexible agreement structures.

Learning from experience

Real-world examples demonstrate how strict and obsolete agreements can derail projects, whereas more flexible frameworks can help them get back on track.

Addressing Regulatory Risks in Concession Agreements: The Rural Electrification Project instance illustrates the dangers of insufficient regulatory clearances in concession contracts. It emphasises the importance of moving beyond basic standards and incorporating clear procedures to address regulatory uncertainties, particularly in developing economies. Strengthening agreements through balanced risk allocation and flexibility can improve project resilience, safeguarding both governments and concessionaires while guaranteeing successful infrastructure development.

The Impact of Project Structuring and Viability: Another example is an Urban Finance Infrastructure Development Corporation project that experienced setbacks due to rigid contract terms and external intervention, highlighting the importance of stakeholder participation and flexibility.  Early engagement during the Request for Proposal (RFP) phase may have reduced risks, preventing delays and cost increases. Proactive seminars and feedback sessions would have resulted in market-appropriate phrases. The instance also emphasises the importance of seamless coordination in bundling tactics and tailoring tariff and structural terms to market realities in order to attract concessionaires and ensure project success.

The Path Ahead: Working Together

Overcoming India’s infrastructure difficulties requires a collaborative effort from the government, private sector entities, and financial institutions. Open communication and the willingness to revise obsolete concession agreements are critical for completing large-scale projects efficiently and on time.

“If India is serious about achieving its ambitious infrastructure goals, we need to rethink how these agreements are structured. By adopting a consultative approach and flexible concession frameworks, we can reduce delays, manage costs effectively, and create a stable environment for all stakeholders,” says a senior industry expert.

As India moves on with its ambitious infrastructure goals, adopting these reforms is critical to avoid future delays and cost overruns and to set the groundwork for long-term economic growth.