Wednesday, May 27, 2015

Know your PPP

Use them only when there is reason to expect they will deliver superior infrastructure.

A PPP is not a decree of the government. Nor is it just any juxtaposition of public and private efforts. (Source: PTI photo) A PPP is not a decree of the government. Nor is it just any juxtaposition of public and private efforts. (Source: PTI photo)
Published on:July 22, 2014 12:02 am

By Akash Deep

Public-private partnerships, or PPPs, received unprecedented attention in this year’s Union budget. Finance Minister Arun Jaitley pointed to the 900 PPP projects under development in India, making it the world’s largest PPP market. But he wants many more PPPs to solve all sorts of problems: from urban renewal to “rurban development”, from airports and metro rails to gas  grids, from research centres to convention centres, and even to set up the Hast Kala Akademi. But while India might be a leader in contrivance, it remains a laggard in consequence.

India still lacks infrastructure —  roads and rail, ports and airports, power, water and sanitation, communications technology, schools and hospitals —  and as it grows, the large infrastructure deficit is becoming painfully evident. Simple tinkering in the quest for a more nuanced and sophisticated approach for PPPs will not bridge this gap. Fundamental changes in the understanding of PPPs —  what they are and aren’t —  must come first. To get results, the government must ensure that PPPs are deployed only where the three Ps —  suitable and economically viable projects able to attract proficient private partners in engineering and finance through transparent, competitive processes —  are present

A PPP is not a decree of the government. Nor is it just any juxtaposition of public and private efforts. A PPP is a partnership between the government and a private entity based on a long-term contract that requires the private entity to deliver services in exchange for compensation from the government or users, tied to their quantity and quality. All the activities necessary to provide these services —  typically design, construction, finance, operation and maintenance of the underlying infrastructure asset —  are the responsibility of the private concessionaire. A PPP represents a radically different and demanding approach for procuring infrastructure services compared to traditional public procurement.
Why are policymakers in India and many other places so enamoured with PPPs for building infrastructure? Because they see PPPs as an ingenious method to obtain large infrastructure investment without making a dent in the public budget. Our railway minister announced a Rs 60,000 crore bullet train while allocating only Rs 100 crore from the railway budget. Where does he expect the balance to come from? In right earnestness, from PPPs. That, after he has got PPPs to also pay for foot overbridges, escalators and lifts; boundary walls around stations; dual display fare repeaters at ticket counters; port connectivity; passenger amenities; and private freight terminals.

But the ingenuity of PPPs lies not in private money but in private efficiency. The job of government is not to hanker after private cash but to draw out private competence to achieve public goals. …continued »

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