Public services, since independence, have been Government monopolies, subject to specific exemptions. Consequently, the provision of public service by any entity that was not an instrument of the State or public entity required specific authorisation under applicable laws and this is why an adequate legal framework is essential to attract long term private sector participation and investment.

A clear legal framework relating to the grant of enforceable rights and allocation of risks not only promotes and protects the private investor but also brings in investment for the development of infrastructure. Unless a project is developed in conformity with existing law, it may be challenged at any time in the courts. There are many examples of amendments having been brought in to facilitate private investment in the development of a project.

Amendment or enactment to facilitate private participation

The National Highways Act, 1956, governing the national highways in India, was amended in June 1995 to attract private investment in road development, maintenance and operation. The amendment allowed the private sector to levy, collect and retain fees from road users and empowered them to regulate traffic on highways in terms of the provision of the Motor Vehicle Act, 1988.

Similarly, in the power sector, the Central Government has taken a number of steps to include private sector participation. The enactment of the Electricity Act, 2003, is important in this regard. It provides for the entry of private licensees in transmission and in distribution through an independent network. The enactment has de-licenced power generation completely(except for hydro-power projects over a certain size).

Functions relating to solid waste management, water supply, provision of civic amenities etc., have traditionally been considered municipal duties and the municipal bodies/urban local bodies have been vested with powers to undertake them under the respective municipal acts governing them. There are many examples of municipal bodies/urban local bodies having implemented projects in these sectors through the PPP mode.

Although municipal acts do not have a specific provision to enable private sector participation, the general power to contract vested with these municipal bodies/urban local bodies enabled this kind of arrangement. Generally, in situations where the law pertaining to the project is silent, it might be useful to introduce a law to justify the basis of the project. The legislature at the Central or the State level, depending upon which list the project falls under, could introduce an amendment to existing legislation or introduce legislation to validate the legal basis for the assignment.

There still exist certain areas in which there are no proper laws governing the implementation of PPP projects.

Grey Areas on the Issues of legal coverage

'Railways' is a subject covered under the Union List - only the Central Government has the power to legislate on the matter. Under the Railways Act, 1989, the Central Government is the competent authority as far as the development of railways in India is concerned and the States have no role to play.

However, the subject 'Tramways' falls in the State List and States are competent authorities in so far the development of tramways located within a municipal area is concerned. Although the division of responsibilities is clear in terms of which entity would be involved in the development of railways and tramways, there is little clarity on the subject in a case where the development of a metro rail passes through more than one municipal area.

The Delhi Metro Rail Corporation Ltd. and the Bangalore Metro Rail Corporation Ltd. are Government-owned companies constituted under the Companies Act, 1956 for implementation of the Metro rail projects in Delhi and Bangalore respectively. The Metro Railways (Construction of Works) Act, 1978 and the Metro Railway (Operation and Maintenance) Act, 2002 provide the legal basis for metro construction and operation.

However, in the 1978 Act, there is not much scope for implementing the project through the PPP mode, as this legislation does not provide for either a non-Governmental metro railway or metro railway through the PPP model. Initially, the Bangalore Metro network was conceived in 1993 as a PPP; however, it could not make headway for almost a decade because it was not clear how it could be implemented under the PPP model. After prolonged wrangling, Bangalore Metro followed a path similar to that taken in the case of the Delhi Metro development. The Bangalore Metro Rail Corporation Ltd was formed with the Central and the State Government sharing an equal stake in the project.

This issue could be particularly contentious if a State intends to develop a rail link passing through more than one municipal area. Passing a specific legislation in this regard to facilitate private investment or amending the existing Tramway Act could be a step towards promoting PPP projects in this sector.

It is necessary for both the public entity and the private partner to comply with the existing legal framework at every stage of the project development process. Therefore, in instances where the law is silent, neutral or unclear, it is always advisable to obtain legal clarity before going ahead in the project development process.