The government is seeking to regulate joint venture (JV) agreements between agencies of the Central government and private companies. To avoid litigation and other unforeseen liabilities,it has drawn out a set of guidelines for JVs in public-private partnership (PPP) for infrastructure projects. The guidelines,prepared by the Planning Commission,are to be submitted for the Cabinet approval soon.
One of the key guidelines prohibits a 50-per cent JV agreement so as to avoid management-related problems. The guidelines clearly state that the JV partner for a project must be sought through a competitive process alone. Moreover,the government should enter into a JV only if the viability gap funding route is not feasible in the concerned project. Only when a project is financially unviable then public sector pours in money,which is outside the scope of a JV. Therefore a grant should be considered in such cases, the guidelines state.
There are a lot of complexities when a government-created special purpose vehicle (SPV) or a public sector undertaking (PSU) enters into a JV with a private party. The public sector here becomes both the regulated and the regulator. This is unlike other JVs because here the private company is bound by a model concession agreement and the government also has a certain responsibility to ensure towards the new entity, a senior government official told The Indian Express.
The proposed parameters also state that all assets that might come under the ambit of the JV should be evaluated and their status decided well before either of the party signs on the dotted line. The same principle should also be applied to liabilities that may come to the government by way of the JV.
In addition,the guidelines stipulate that all procurement by such a JV entity should be made in lines with government procurement rules,and the new entity should not allow the private sector party to misuse the governments position in procurement processes. All processes as well as project development reports would have to be approved and appraised by both the parties irrespective of the shareholding pattern,the proposal further states.