Predetermined rates for awarding contracts in power, ports and airports instead of the cost-plus model
The Narendra Modi government will re-visit the model concession agreements (MCAs) for public private partnership (PPP) projects across the sectors. This will be done in order to move from a cost-plus basis to predetermined rates while awarding contracts. This move is expected to be beneficial for the users because they will not have to end up paying excessive charges.
Currently the contracts for operational projects in sectors such as power, ports and airports are awarded on a cost-plus basis. This leads to high charges for the end users if projects are delayed. After this issue cropped up in Parliament, and discussions happened in changing the model, this move is thought about. The planning Minister Rao Inderjit Singh is keen to bring about the changes in the way the projects are awarded to the developers now.
In the discussion in the parliament, the minister has asked the infrastructure division to take a look at all the MCAs involving the cost-plus model. This is done because the escalation in user charges could become unmanageable going forward.
The sad news is that at least 110 central infrastructure projects have been delayed in the past due to regulatory hurdles. This had resulted in cost overruns of more than Rs 1.57 lakh crore.
A rough estimate suggests that the end-user charges on any infrastructure projects could drop by at least 25-30% if the government moves to pre-determined rates against the existing model of awarding contracts based on the cost-plus model.
However the infrastructure sector is not happy with this move as they fear that they will incur losses due to the pre-determined rates model as costs do escalate during the execution of the project due to inflation, labour costs, delays etc.
Source- The Economic Times
MCA, model concession agreement (MCA), Model concession agreements, Narendra Modi, Planning Minister, ports, Power, Public-Private Partnership projects, Rao Inderjit Singh
