Abstract

In India, the Public Private Partnerships (PPP) growth has been one of the vast success. Primarily, PPPs are found in six major sectors like Railways, Roadways, Power/Energy Distribution, Ports, Airports and Telecommunications and smooth ride have been proved by PPP in terms of efficiency and implementation of services for the public. Indian railways being the backbone of the country’s mass public transportation network since decades thus, it becomes crucial for the government to develop the railway sector to provide the quality services to the public at large. However, it opened the area for the PPP to expand their projects in this field. The paper discusses the requirement of legal enforcement to regulate the infrastructural projects so it can develop smoothly without any obstacles and to attract private entity for their participation in this sector. Thus, in absence of framework in railway sector it can give rise to litigation issues.

Keywords:- Public Private Partnerships, Indian Railways, Private Entity, Legal Enforcement

Introduction

In India, Public Private Partnership (PPP) has played the role of primary contributors in infrastructure in different areas like aviation, power/energy and telecommunications. For past few decades, railway sector is increasingly employed by the PPP which was until now largely considered to be a public sector understanding. Outstanding to the rapid growth in various sectors, the state is required to seek the support from the private players to provide the quality services to the public consumers. Thus, the idea of the Public Private Partnership was born to supply the services to the public at large.

A PPP could be defined as a ‘joint venture’ between the public and private sectors for the purpose of setting up and operation of vital infrastructure to ease the efficient delivery of the public services. [1] The PPPs main purpose is to “fill budget holes” [2] and “infrastructure deficit” [3] in public projects, providing alternative capital sources and making certainty of outcomes by delivering the projects on time. Different areas of railway can be transformed by the help of the PPP approach like comprising from ticketing, station construction and upkeep, rolling stock manufacturing, etc.

Apart from reserves of funds for infrastructure projects, although PPPs presents crucial legal issues. Taking into account the scenario of PPPs in Indian railways, this paper focuses on the areas of delegation of authority to the private player, certainty and freedom of a PPP contract and rights and liabilities of parties. Also, it will look upon whether there is clear and distinct legal mechanism to regulate the public private partnerships.

PPPs Model Lifeline of Indian Railways

In India, the major element behind the railways immense growth is the Public Private Partnerships. The PPP’s history in the Indian Railways where the construction of High-Speed Passenger Corridor and Freight Corridor and the building of Surendranagar-Pipava Gauge Conversion are essential milestones.

In 2020, the Railway Budget has presented the proposals to redevelop the 4 Railway Stations at Gwalior, Nagpur, Amritsar and Sabarmati by PPP mode for which private sector shall be responsible for construction, redevelopment and maintenance. [4] Moreover, there are implementing to run 150 private trains on the Indian Railways network and to ‘actively pursue’ the Mumbai-Ahmedabad High Speed project funded by Japan International Cooperation Agency. It even planned to develop long due Bengaluru suburban rail network. Also, working on other issues like Solar Power Plants along with railways tracks, Wi-Fi, introducing Tejas Express semi-high-speed network. [5]

It is pertinent to note that the monopoly of the Container Corporation of India was ceased, when the concession agreements were signed with 14 container operators in 2007. With the support of the Viability Gap Fund Scheme, those projects are saved by the public agency which would be commercially unfeasible but can have high economic benefit. [6] In furtherance to the concept of the Viability Gap Funding, India Infrastructure Company Limited (IIFCL) a government owned company renders financial assistance to infrastructure projects. The IIFCL will refinance 60% of commercial banks for furnishing loans to PPPs in infrastructure projects as per 2009-10 Budget. [7]
However, private sector is forbidden to operate railways according to the Railway Act, 1989.It mentions that PPP scan only operate in the development, maintenance of railways tracks, arranging transport of goods from railway station to ports, electrification and rolling stock. Therefore, the ambit of private entity to operate in railway sector is limited to some extent.

PPPs in Railway Sector: Disguised Advantages

No doubt PPP plays a vital role in the modernization as well as in expansion of Indian Railways but the area also raises concerns viz. raising questions of delegation of authority, freedom and certainty of contract & party’s liabilities to enter into a contract of PPP.

The mechanism of railways sector is regulated by the Railway Act, 1989.The concept of PPP is nowhere mentioned in the Act. This is a peculiar omission as the PPPs have been existing in the railway sector since long. Thus, the concurrent existence of PPPs with the Act give rise to various issues which are discussed here.

Delegation of Authority

Section 11 of the Act, 1989 entitles the railway administration only to build and operate infrastructure which includes construction and maintenance of railway tracks, containers and rolling stock. As per PPPs, private entities are entrusted for the development of railway infrastructure and only railway administration is authorized to undertake the job which require stickling of all activities under the Act. Now, the point is that how these powers can be shared or transferred with the private entity. Thus, direct conflict seems to happen between PPPs and the Act, as it is silent on this position.

The Act allows the establishment of Rail Land Development Authority (RLDA)to develop the railway land for commercial use. The authority could carry out any other work or function as may be entrusted to it by the Central Government (CG). The point is that what is the criteria for determining whether the functions have to be entrusted to private entity or to the RLDA. Thus, the law is ambiguous on CG’s power to develop the railway land through PPP.

Certainty and Freedom of Contract

Central Government’s permission is mandatory prior to the opening of any railway for public as laid down in Section 21 of Railways Act. If PPP is entered into by the CG, the issues related to contractual freedom and certainty especially with the private entity is raised. This gives unilateral power to the public sector for the termination of the contract if such provision is applicable to the PPP. Moreover, the power of CG to close the railways if the public interest is not served. [8]

Rights and Liabilities of Parties

RLDA is empowered to enter contracts on behalf of the CG according to Section 4E and to execute them. But there’s nothing relating to the rights of the party, entering the contracts with the RLDA. Suppose if there is clash between the title of the railway land given to the private entity for the construction of the infrastructure which is later known to be a private property. If legal action is brought against private entity, what will be the rights and liabilities of the private entity and owner of land? Whether RLDA representing the CG be liable for compensation to private entity?

A Glance of Present Regulatory Mechanism

The domain of PPPs is substantially governed through the concession agreements entered by both the parties i.e. public and private entity. Several guidelines have been issued from various public agencies to deal with the requisites of concession agreement which must be available in each PPP to be successful. [9] Several States have enacted laws to govern the PPPs within their State’s jurisdiction viz. Gujarat Infrastructure Development Act, 1999 and Andhra Pradesh Infrastructure Development Enabling Act, 2001, Tamil Nadu Infrastructure Development Act, 2012, Maharashtra Infrastructure Development Enabling Authority Act, 2018.Moreover, present regulations are in the form of guidelines which unfortunately lacks mandatory enforcement or in certain States are in form of legislations applicable to their jurisdiction only. Therefore, there is a serious absence of any enforceable central legislation to regulate this.

Legislation to Regulate PPPs: An Inevitable Need

From the above discussion, the significance of well-structured law is realised in the sector of PPP while entering the contract due to the lack of clear and enforceable rules.

The benefits of well-structured framework can be witnessed in the state of Gujarat where the major reason behind the tremendous achievement of infrastructure development is due to the Gujarat Infrastructure Development Act, 1999. [10] Furnishing a framework for the purpose of effective engagement of persons other than government for the enlargement of infrastructure in the state’s jurisdiction is the sole object of the Act. The terms have been unambiguously defined by the legislation like, concession agreement, user charges etc. It has precisely defined the details regarding the mode of selection of private entities, requisite contents of concession agreement and its termination. The Act also provides the details of the regulatory body like the composition, members and powers of the Infrastructure Development Board under the statute. States like Tamil Nadu, Gujarat and many others have flourishing infrastructure development in their respective states due to the nature of rules which are enforceable and not just mere guidelines as a significant factor for their development.

However, in the absence of well-framed legislation, judicial pronouncements have a hand to ensure that the interests of private entities are not hampered and take note that government does not practice arbitrariness in contracts. In U.P. Power Corporation Ltd. v. Sant Steels & Alloys Ltd.(P), [11] it was held that:

The Government can’t claim exemption from the rule of promissory estoppel and repudiate promise on the ground that such promise may fetter its future executive action.

Again, in Kusumam Hotels (P) Ltd. v. Kerala State Electricity Board, [12] it was observed that “in order to keep the faith of the people, the Government or its instrumentality should abide by their commitments”. But this does not seem to happen as same because of the badly drafted concession agreement.

In Arshiya Rail Infrastructure Ltd. & KRIBHCO Infrastructure Ltd. v. Ministry of Railways, [13] it was alleged that railway entities have abused their dominant position by prohibiting transportation of four commodities i.e., ores, minerals, coal and coke and arbitrarily increasing the haulage and stabling charges. It was held that Indian Railways was not dominant and accordingly no abuse of dominance was found. However, these allegations raised the concerned on the policy design for incentivizing the private participation.

No doubt with the help of judicial decisions, PPPs can be regulated but the void can’t get filled completely. Therefore, there is a requirement to enact a legislative framework so the contracts can be effective and complete at the initial stage and essential to avoid the future consequences.

Suggestions for Efficient Regulatory Framework

Legislative framework must be such that it encourages private entity to participation in infrastructure development so, few suggestions are listed below which are essentials to attract private entities in public projects.

Concession Agreement

Concession agreement plays a major role in any PPP contract for the implementation of the project. Large amount of monetary loss can be suffered by both the entities i.e. public and private if the concession agreement is incomplete or not well drafted. Thus, at the time of drafting a concession agreement the below-mentioned requisites can be used as mandatory specifications to achieve the better results [14]:

i. Time period for the concession and its extent.
ii. Requisites specification of standards at infrastructure development.
iii. Penalty clauses.
iv. If contract gets breached then punitive damages clause. [15]

Flexibility of Contract

Suppose, a private entity whose capital stock comprises of loans, shares, concessions and deposits in banks and if financial crisis occurs due to which irrevocable loss would be suffered by private entity, which creates hurdle before them to fulfil their responsibilities according to the contract. Therefore, there should be some scope for the renegotiation and flexibility of contracts which acts as an essential factor in unforeseeable circumstances. This aspect is crucial to adapt in contractual framework for any unpredictable situations which leads to encourage cooperative behaviour between the parties and attracts much more private investment in the public sector. [16]

Judicial Enforcement

As we have discussed above that in absence of any regulations or mandatory enforcement, judiciary had always played its part in seeking reliefs in PPP contracts. Thus, the option for judicial enforcement of contractual rights should be left to the either of the parties under PPP contracts despite having opted for any mode of dispute resolution for the future issues. [17]

Conclusion

Indian Railways has been operating in the core sector of economy. It has been the mass transportation network for the public so now it requires efficient regulatory framework with enforceable rights which helps the PPP to complete their work successfully without any difficulties. Today, PPPs are the mode of rapid growth and economic empowerment but along with this several issues are unaddressed in PPP like party’s rights and liabilities and the only mode for regulation of the infrastructure projects is through the contract between the entities. Even the contracts are not well-drafted which gives rise to the future consequences.

Thus, sector of Indian Railways is an area which expresses the need to have a binding legislation and enforceable rules in sphere of PPPs. In other sectors, such concerns might exist where PPPs are participating or employed. Since it’s a policy decision, it is the prerogative of the legislature to decide whether a comprehensive legislation or special legislation for each sector is best suited. Therefore, it’s an alarm to have a well-structured framework to guarantee the smooth move for the flourishing infrastructure development with the support of PPP.

About the Author

Akshay Anurag is an Associate at Singh and Associates- Advocates and Solicitors. He is an alumnus of National University of Study and Research in Law (NUSRL), Ranchi.

Editorial Team

Managing Editor: Naman Anand

Editor-in-Chief: Akanksha Goel

Senior Editor: Aakansha Arya

Associate Editor: Mitali Kshatriya

Junior Editor: Janvi Johar

Preferred Method of Citation  

Akshay Anurag, “Public-Private Partnership in Indian Railways: An Eye on Existing Legal Mechanism” (IJPIEL, 13 March 2021) 

<https://ijpiel.com/index.php/2021/03/12/public-private-partnership-in-indian-railways-an-eye-on-existing-legal-mechanism/?et_fb=1&PageSpeed=off>

Endnotes

[1] Michael B. Gerrard, Public-Private Partnerships, 38 INTERNATIONAL MONETARY FUND (2001). See Deborah Ballati, Privatizing Governmental Functions, LAW JOURNAL PRESS (2001).

[2] AleksizMuzina, Normative Regulation of Public-Private Partnership in Slovenia, 2 PPLR NA 70-78 (2006).

[3] Robin Wilson, Private Partners and the Public Good, 53 N IR LEGAL Q 454, 456 (2002).

[4] DEPARTMENT OF ECONOMIC AFFAIRS, PPP CELL, INFRASTRUCTURE DIVISION, PUBLIC PRIVATE PARTNERSHIPS IN INDIA, available at: https://www.pppinindia.gov.in.

[5] Srinand Jha, India Announces $US 22.4bn 2020-21 Rail Budget, INTERNATIONAL RAILWAY JOURNAL (2020).

[6] DEPARTMENT OF ECONOMIC AFFAIRS, MINISTRY OF FINANCE, GOVERNMENT OF INDIA, Scheme for Financial Support to Public-Private Partnership in Infrastructure: Viability Gap Funding (VGF) Scheme (2013).

[7] PRESS INFORMATION BUREAU, GOVERNMENT OF INDIA, IIFCL to Refinance 60% of Commercial Bank Loans for PPP Projects(2009), available at http://pib.nic.in/release/release.asp?relid=49765.

[8] Section 25 of the Railway Act, 1989.

[9] GOVERNMENT OF INDIA, PLANNING COMMISSION, SECRETARIAT FOR THE COMMITTEE ON INFRASTRUCTURE (2008), available at: https://niti.gov.in/planningcommission.gov.in.pdf

[10] GUJARAT INFRASTRUCTURE DEVELOPMENT BOARD, available at http://www.gidb.org/acts-policies-gid-act

[11] 28 (2008) 2 SCC 777.

[12] 29 (2008) 13 SCC 213.

[13] Case No. 64/2010 & 02/ 2011, decided on 14th August 2012.

[14] Organisation for Economic Cooperation and Development (OECD) Principles for the Public Governance of Public-Private Partnerships, OECD (2012).

[15] Francois-Guilhem Vaissier, France, THE PUBLIC-PRIVATE PARTNERSHIP LAW REVIEW (2020).

[16] Laure Athias and Stephane Saussier, Contractual Flexibility or Rigidity for Public Private Partnerships? Theory and Evidence from Infrastructure Concession Contracts, MUNICH PERSONAL REPEC ARCHIVE (2008).

[17] DEPARTMENT OF ECONOMIC AFFAIRS, MINISTRY OF FINANCE, GOVERNMENT OF INDIA, Final Report on Developing a Framework for Renegotiation of PPP Contracts (2014).