Developing a Framework for Renegotiation of PPP Contracts

Department of Economic Affairs is developing a framework for renegotiation of Public Private Partnership (PPP) Contracts (Concession Agreements), with a particular focus on the National Highway and Major Port Concessions. This report presents fact-based approach towards renegotiating the terms of Concession Agreements, by establishing reasonable objectives. Prime tenets that have been considered are ascertainable cost, risk and social benefit neutrality (or benefit). The report, based on stakeholder inputs and a comparison of concession agreements with international good practice, identifies 34 issues in six categories and compares the manner of dealing with them across international comparator countries of Australia, South Africa, the United Kingdom and Chile. The four international comparator countries match well with India. Each country examined has struggled with exactly the same issues that India. Each has made significant changes to its PPP policy, frameworks and contractual arrangements as part of the evolution of the PPP programme. Each of these four countries permits amendments to their PPP Agreements and to varying degrees has a regulatory framework that specifies how this should be done.

The report carries out a detailed analysis of the issues, and particularly the major issues related to amendment of the concession agreements. It concludes that, in order to deal with the issues identified, changes need to be made in the contractual and institutional environment such that the government has the option to amend concession agreements in a structured manner where decisions are based on a understanding and or quantification of causation and fault; materiality; changes in risks, financial costs; adverse consequences and public economic benefits.

The report suggests that existing governance and oversight arrangements used for the approval of concessions prior to signature will suffice to provide an objective institutional arrangement for amendments of concessions. The report also identifies a useful mechanism used in Chile whereby disputes can be avoided through the use of independent technical expert panels. Finally the report suggests that changing the bid evaluation criteria to require financially underwritten bids and to permit the exclusion of speculative bids will assist in minimizing the need to amend concession agreements.