Explain how Private Public Partnership arrangements, in long gestation infrastructure projects, can…

Question

Explain how Private Public Partnership arrangements, in long gestation infrastructure projects, can transfer unsustainable liabilities to the future. What arrangements need to be put in place to ensure that successive generations' capacities are not compromised?

Ghissu Editorial · Accepted Answer

PPPs in long-gestation projects can burden the future through off-budget guarantees, multi-year annuities, aggressive bids that end in bailouts and costly, run-down assets. Recording these liabilities in the budget, rigorous appraisal, balanced contracts with independent regulators as the Kelkar Committee (2015) urged, and long-tenor finance protect future generations.

**Introduction**

Long-gestation projects such as highways and metros repay over 20 to 30 years, so Public Private Partnerships (PPPs) can shift today's costs to future taxpayers and users. The Kelkar Committee (2015) warned against using PPPs merely to keep spending off the budget.

**How Long-Gestation PPPs Shift Liabilities to the Future**

SKETCH: iceberg | Hidden Cost of PPP
visible: Upfront capex saved, Quick asset creation
hidden: Contingent guarantees, Annuity payments, Termination payouts, Bank NPAs

1. **Contingent liabilities**: Guarantees and termination payments stay off the fiscal deficit until they fall due, as in the Delhi Airport Metro Express dispute.
2. **Pre-committed annuities**: Hybrid Annuity contracts spread payments over 15 years, binding future budgets.
3. **Bids and bailouts**: Over-optimistic 2009-12 highway bids fed the "twin balance sheet" problem (Economic Survey 2016-17), and the IL&FS default (2018) showed how infrastructure debt can turn systemic.
4. **Tolls and worn assets**: Indexed tolls burden future users, and weak handback norms return run-down assets; the UK ended new PFI deals in 2018.

**Arrangements to Protect Successive Generations**

1. **Fiscal disclosure**: Record guarantees and annuities in the budget on accrual principles, cap them under FRBM rules and screen projects with the IMF-World Bank PFRAM tool.
2. **Rigorous appraisal**: Value-for-money tests and independent traffic studies by the PPP Appraisal Committee weed out unviable bids.
3. **Balanced contracts**: Fair risk allocation, rule-based renegotiation and independent regulators, as the Kelkar Committee urged, limit opportunistic claims.
4. **Patient finance**: NaBFID (2021) and InvITs match long assets with long money.

**Conclusion**

Hidden guarantees, not PPPs themselves, burden the future. Transparent accounting and patient finance can make infrastructure an inheritance rather than a liability.

Explain how Private Public Partnership arrangements, in long gestation infrastructure projects, can transfer unsustainable liabilities to the future. What arrangements need to be put in place to ensure that successive generations' capacities are not compromised?

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