GOVERNMENT INITIATIVES

The policy decision of the Government in India is governed by the principal of creating a social welfare state and thus the infrastructure contracts are drafted in such a way so that minimal risk is imposed on the state. Further as the financial risks involved in these projects are very high, both the government and the private parties seek a binding and functional contract. The contracts governing these infrastructure projects are generally based on model contracts drafted years earlier and may need to be reworked and redrafted in the context of the present day when the law itself has evolved and reshaped itself over time.

Given the expanse of the scope of work awarded in case of infrastructure projects, execution of projects may face delays and hindrances. Many a times, such delays could be attributable to non-fulfilment of reciprocal promises by either party. In such circumstances, the project cost escalates multi-fold and invariably disputes arise between the private contractor executing the project and the principal which is a public sector entity or authority. This not only leads to further delay in the projects but also to increases the cost burden on the parties.

The usual modes of dispute resolution undertaken are resolution of disputes before a Dispute Adjudication Board (DAB) which is generally an adjudicatory process through experts appointed by the principal and is based on internal rules formulated by the principal, and then ultimately, arbitration under the Arbitration and Conciliation Act, 1996.

The Union Government, being aware of the problems plaguing most of the infrastructure contracts, is trying to remedy the situation by way of implementation of new policies and statutes. The Ministry of Finance has instituted a committee under Vijay Kelkar to look into the existing problems of PPP models. The committee has submitted a detailed report and has recommended various changes in the present scenario:

• Optimal risk allocation across all stakeholders keeping in mind that the risk is allocated to the entity that is best suited to manage the risk – generic risk monitoring and evaluation framework to be developed covering all aspects of a project’s lifecycle.
• The terms of the PPP contracts should be modified and/or renegotiated to protect the bargaining power of the private party throughout the span of the project.
• Formulation of a PPP law and a national PPP policy by the Ministry of Finance.
• Setting up of a national level institution to support institutional capacity building activities, and encouraging private investments with regard to PPPs – independent regulators must be set up in sectors that are opting for PPPs.
• Setting upon Infrastructure PPP Project Review Committee to evaluate PPP projects.
• Constitution of an Infrastructure PPP Adjudication Tribunal for quick, efficient, and enforceable dispute resolution mechanism.

Presently the Kelkar Committee report has not been fully implemented by the Government. The Government has allocated a corpus of INR 500 Crores to 3P India Institute which will provide support to mainstreaming of PPPs. The institute is supposed to function as a centre of PPP and develop new models of contract and dispute resolution mechanisms. Moreover the Government has announced a bill for resolution of disputes in public utility sector, which will solve the disputes in a timely manner through a uniform process.

Recently the NITI Aayog, after examining the dispute resolution process of infrastructure contracts, has observed that the present procedure does not provide for rapid disposal of the disputes. Presently majority of the pending arbitrations are against the Government and an estimated amount of INR 70,000 Crores are tied up in these arbitrations, which get settled in an average time of seven years. The NITI Aayog has therefore recommended the Government to shift the existing arbitrations to the time bound mechanism of the amended Arbitration and Conciliation Act, 1996, on consent of the contractor/concessionaire. The NITI Aayog has formulated a policy that if an arbitration award arising out of a dispute pertaining to infrastructure contracts is challenged by the public sector entity in PPP contracts, then 75% of the award value has to be deposited while going to appeal in order to make available more funds to the private entity. Such funds are to be injected into other existing PPP projects by the private player through a mechanism of escrow, until the challenge to the award is finally decided. The NITIA ayog has further suggested drafting of new bid documents and model contracts and for provision of conciliation board comprising of individual subject experts in case of infrastructure contracts.3 The Union Cabinet has given an approval to these reforms suggested by NITI Aayog which have been successfully implemented in many existing contracts and/or disputes pending in arbitration or before Courts of Law.

Such positive measures and reforms undertaken by the Government will ensure consistent growth of the Indian economy and additionally, timely implementation of the suggestions of the Kelkar committee and the NITI Aayog for infrastructure contracts shall bring forth sustained growth of the infrastructure sector and consequently, the Indian economy