Context: Recently, Union Ministry revised model concession agreement 2021 for public private partnership projects at major ports.

• The new MCA will be applicable to all the future PPP projects at major ports.
• It will include projects which are already approved by the government but are still under bidding stage.
• It will bring more developers, investors and lenders and other stakeholders in the Ports sector and catalyze the investment in the sector.
• There are more than 80 public private partnership (PPP) projects in the sector with investment of over Rs 56,000 crores.

Major provisions of the revised MCA

• Provision of change in cargo has been introduced for the first time.
• Due to external factors, traffic for a particular commodity has dropped during the concession period.
• It will provide the flexibility to undertake change in cargo in such situation and reduces risk for the concessionaire.
• Provision has been made for providing flexibility to the concessionaires to fix their tariff based on market conditions
• It will allow level playing field for the private terminals at major ports to compete with private ports for cargo.
• To reduce risk to the lenders provision of compensation for concessionaire's event of default before Commercial Operations Date (COD) has been added.

What is Model Concession Agreement?

• MCA is a legal contract that forms the basis of public private partnership (PPP) projects in India.
• It lays down the terms and conditions for executing a road project till a private firm operates.
• It states the policy and regulatory framework for implementation of a PPP project.

MCA addresses all issues related to a PPP framework like

• Mitigation and unbundling of risks
• Allocation of risks and returns
• Symmetry of obligations between the principal parties
• Precision and predictability of costs & obligations
• Reduction of transaction costs and termination.

The model is available for various sectors like National Highways, State Highways, Urban Rail Transit System and Ports.
About Public Private Partnership

• Public-private partnerships involve collaboration between a government agency and a private-sector company to finance, and operate projects, like public transportation networks, parks, and convention centers.
• It often involves concessions of tax, protection from liability, partial ownership rights over nominally public services and property to private sector, for-profit entities.

Merits

• Ensure necessary investments into public sector and effective public resources management.
• Ensure higher quality and timely provision of public services.
• A private entity is granted the opportunity to obtain a long-term remuneration.
• Private sector expertise and experience are utilized in PPP projects implementation.
• PPP project risks allocation enables to reduce the risk management expenditures.

Demerits

• Infrastructure or services delivered could be more expensive
• The service procurement procedure is longer and more costly in comparison with traditional public procurement.
• The project agreements are long-term, and inflexible because of impossibility to envisage events that could influence the future activity.