NO MORE 50:50 JVS IN PPP CORE PROJECTS, NEW RULES FIX RESPONSIBILITY ON MAIN PARTNER

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THE government has barred equal joint ventures in public-private partnerships (PPPs) in the infrastructure sector as it looks to fix responsibility on the majority partner to ensure timely implementation of such projects.

A newly-issued set of guidelines for infrastructure PPPs also prohibits regulators from entering directly into such partnerships and bars government employees from becoming chairpersons of projects majority held by private partners, a finance ministry official said.

“The guidelines have been considered by a committee of secretaries and approved by the finance minister and deputy chairman of Planning Commission. It would now apply to all central ministries and departments, statutory entities and central public sector undertakings,” said the official, requesting anonymity.

The bar on equal partnerships between private and public entities and also public and public entities in the infrastructure space aims to prevent a deadlock on matters of public interest by fixing responsibility of the project with the majority owner.

The move impacts a number of existing ventures in the power and transport sectors, including Delhi Metro Rail Corporation, a 50:50 joint venture between the central government and Delhi government.

The rules also prohibit regulators and entities such as Port Trust, Airports Authority of India, Indian Railways and National Highways Authority of India that have regulatory functions from undertaking construction and management of PPP projects.

They have to create a separate project-implementing entity to implement any future PPP projects.

The new rules have also barred consultants and advisors of public sector entities from being engaged in similar roles in the private entity created through a joint venture.

Also, the public sector equity support should be avoided for unviable projects and the government should restrict itself to providing grants for such projects.

The guidelines also said the selection of private sector partners should be done in an open and competitive process. “It (the new set of rules) addresses issues relating to conflict of interest, accountability of public sector entities, valuation of assets, contingent liability, exit and termination clauses,” said the official. 

It is observed that the 50:50 shareholding pattern creates confusion over accountability and escapes scrutiny from government agencies.
 
CORE ISSUES 
  • No equal joint venture between private firm and a govt company.
  • Equity stake to define public or private character of JV
  • Regulators and govt entities can't undertake construction & management of PPP projects through JVs.
  • 50:50 JV between public entities barred.
  • Selection of private sector partners should be done in an open and competitive process
  • Govt officials can't be chairperson in a JV where shareholding of private entities is 50% or more
  •  Public sector equity support into JVs should be avoided for unviable projects.

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