Public-private partnerships: A long way to go for people’s participation

The PPPP model with the effective oversight of constitutionally mandated national watch dogs like the Central Information and Vigilance Commissions and subjected to concurrent audit by the CAs and CAG can certainly help mitigate much of the shortcomings

The immediate post-independence era saw the rise and fall of the commanding heights of public sector primarily because of the lack of big ticket private sector investments forprojects with long gestation periods in remote backward areas like Koraput, Rourkela, Bhilai and Digboi et al in the immediate post-independence era. The Soviet-styled Planning Commission chaired by then Prime Minister Jawaharlal Nehru committed public funds for large scale plants in the initial years of the country’s initial Five Year Plans.

Later on the private sector incentivised by the union and state government tax breaks and other concessions like quick land acquisitions, exemptions or holidays for income, sales tax and excise, subsidised water and power has came into its own. Thus enthused, the private sector to spread its wings still wider and moved all over the country, but essentially around the metro areas.

The funds requirements of both the public and private sectors still remain insatiable. They certainly cannot come out exclusively either from only the state exchequer or private individuals or corporate equity and debt investments. There is need for both to chip in together. The PPP puts in its appearance at this point in time. 

With the needs of time and the changing circumstances, the government raised funds by issuing bonds to the investing public at large. The post liberalization-era brought in the continuing disinvestment process with the state gradually off-loading its holdings in public sector units (PSUs) selectively.

Many of the PSU Navratnas are today’s sizzling Sensex toppers sidelining the private sector giants. I for one firmly believe that the government should consider allotting the disinvested shares only and exclusively to resident Indian nationals. There is a precedent in the SEBI practice for reserving a quota for retail investors.  

At the same time the private sector also has been collecting funds. It is a fact that governmental development finance institutions, public sector institutions, banks and LIC/GIC have been providing large funds by investing in and also providing advances for working capital as well as term loans. Now the Indian investor public has opportunities for equity participation in PSUs via listed shares. The India Inc too has large equity investments from governmental institutions like LIC and GIC. Undoubtedly the great deal of cross holding and investment of both the public as well as private individuals and entities simply cannot be wished away or simply ignored for all practical purposes.

Success Stories of peaceful co-existence

Oil

There is no doubting the success of the private sector participation in telecom and power where both the private and public sectors independently operate and co-exist in perfect harmony. India’s tele-density has attained 80% of the population primarily because of its private players while BSNL and MTNL continue to operate successfully alongside too. We have IOC, Oil India, ONGC, BPCL and HPCL co-exist peacefully with private oil giants.

Power

The private sector accounts for over half the power generation capacity added in the last two years. The record of transmission & distribution (T&D) losses of the state-owned electricity boards, to say the least, is dismal because of their own gross inefficiencies. The massive July 2012 power outages hitting the entire north, east and north-east speaks for itself.

Surface transport—metro railways         

But it has been far from inspiring in the case of metro railways and airports where they face troubled existence culminating in ‘temporary’ suspension of services. Though the Kolkata and Delhi metros have done well, those of Bengaluru and Mumbai are still undergoing teething troubles. The Hyderabad Metro construction has just begun under a new promoter, four long years after it started. The move to handover the Chennai airport to private firms just after the Airport Authority of India expended over Rs2,100 crore on completing its revamp is being questioned. The other international airports across the country have had to hike user fees to defray the extremely high expenditure in modernisation making them rather pricey.

Transportation essentially in water

The record of public-private partnership (PPP) has been a mixed bag in highway sector. Nevertheless, there is an urgent need to effectively utilise inland waterways for transportation under the PPP model as it is a proven inexpensive and efficient mode of transport. While  neighbouring Bangladesh transports 30% of its goods, Germany 20%, the US roughly 14% and China have demonstrated its success, India with a navigable length of 14,500km, only a third, is being used by mechanised vessels making it just 0.15% domestic surface and coastal transport. Though there is a tremendous potential estimated by the National Waterways—even shifting just 1 billion tonne/km out of Ganga’s 50 billion tonne/km would reduce fuel cost by Rs25 crore and transportation costs by Rs45 crore to reduce pressure on rail and road as bulk carriers. There is an urgent need to fast track the Varanasi—Haldia stretch of the Ganga in Bengal, the Brahmaputra in Assam to transport coal, food grains and fertilizers and promote tourism in the inland stretch in Kerala and Goa. Inland waterway transportation can enhance tremendous fuel efficiencies; it is the most eco-friendly and cost effective mode of transporting over-dimensional hazardous and bulk cargoes.

Infrastructure    

There is a strong case to kick-start greater PPP in all sectors of the economy particularly in infrastructure projects involving large positive externalities or where capital expenditure costs take longer to recoup. It is beyond any private sector operator investing on its own. The metro rail network not only enables people to travel, it also helps reduce congestion on roads and leads to lesser pollution and deaths due to accidents all of which cannot be quantified or priced.  This holds true even for rural roads and irrigation that have natural public good factor that are positive externality-creation characteristics making them less suited for execution by the private sector alone thus making substantial public sector and/or joint sector/PPP investment inevitable.

The success story of the multi-specialty hospital-cum-retirement home for senior citizens-orphanage Matru Chhaya, at Bengaluru run by the Canara Bank sponsored trust is a classic case of the good of PPP in action.

Need to add the fourth ‘P’ to PPP

The ideal situation for the success of the PPP-P – the fourth ‘P’ added for People; this means oversight by dedicated individuals, professionals, retired experts and civil society groups to bring in an ideal match with the public sector or local bodies like municipal corporations who are found to be sitting on extensive real estate and premises, infrastructure like roads, empty building premises and facilities which they have already spent crores on creation over the years, on the one hand and the expert administrative and managerial capabilities of professional manager from the private sector by way of a dedicated band of  both public and private sector managers chipping in with their talents.

Vast scope for putting to use large stretches of idle public lands

Over the years the public sector attaining near monopoly market conditions essentially in LIC, railways, mining, telephones, airports, dockyards, army cantonment boards have gotten mired in  massive inefficiencies,  indulging  in corrupt practices, subjected to political pulls and pressures more particularly in the matters of procurement and personnel appointments. The Hindu Business Line reports of a new six-storey building on 10.75 acres of prime government land in New Delhi’s tony Maharani Bagh lying vacant for four years as the recent CAG reports “lack of due diligence” leading to a badly drafted PPP agreement.

PPP success is essentially personality driven

The success of joint sector entities like the Delhi Metro and Konkan Railways are attributable more to the incorruptible personalities of veterans heading them like Mr Sridharan and B Rajaram, respectively that kept them out of the suffocating conditions suffered by the PSUs to effectively deliver quality systems on schedule and bring in homegrown innovations like the Konkan Railway’s Anti-Collision Device. Dr Varghese Kurien and the Amul success story is the best case of grassroots PPPP!

Private sector has nothing great to crow about

All these and related infrastructural facilities  can be put to effective use as public stake/contribution/equity participation with the people and private sector piping in with their superior intellectual and managerial talents in addition to agreed financial stakes. Not that everything is gung-ho with the capitalistic private sector. The financial meltdown that began in the US in 2008 has bared the chinks in the armour of the so-called free market economics which are now found to be wanting in everything but truly free coupled with regulatory failures all over. The post-IPO insider trading, siphoning funds by over-invoiced procurements, ghost employees a la Satyam, dubious transfer pricing for imports, questionable accounting practices are some of the most common transgressions practiced by the unscrupulous private sector.

At the same time public property and premises should be adequately safeguarded by taking care to see that they do not fall victim to scams. This was curbed to a great extent by Shailesh Gandhi, when he was a Central Information Commissioner.

The PPPP model with the effective oversight of constitution mandated national watch dogs like the Central Information and Vigilance Commissions and subjected to concurrent audit by the CAs and Comptroller & Auditor General (CAG) can certainly help mitigate much of the shortcomings. The audit by independent statutory auditors also overseen by the CAG makes for an effective double check. At the same time it should be ensured to safeguard the public property and premises by taking care to see that they do not under any circumstances fall victim to scams. This was curbed to a great extent by Mr Gandhi when he was a Central Information Commissioner.

In October 2011, Moneylife Foundation in their suggestions and comments on the National PPP Policy made a Submission to the Ministry of Finance (MoF) calling that the entire PPP process should be placed on the website, the assets of the PPP should be held in the name of people/project, ensuring a time frame for holding and revenue sharing on BOT, open to RTI information scrutiny and CA/CAG audit, explicitly defined issues of land acquisition, toll gathering, user charges with built-in escalation clauses, criteria for recovery of costs, overheads and operating margins, minimal collection of cash through smart and effective audit trails.  

A paper by the IIM-B Public Policy Programme has rightly laments most of our states do not have in place effective mechanisms to deal with the complexities of PPP projects more particularly on project-level governance issues and approach to contain deficiencies. It makes a first ever comparative assessment of the clarity and capacity of each state to plan and oversee PPPs, the comprehensiveness of policy framework and guidelines, their numbers and values, foreign and public investments/funding, political stability and business climate. This study assumes significance in the context of plans to invest over $1 trillion over the next five years to bridge the infrastructure gap—the Planning Commission projects that a major chunk, as much as 48%, will come from the private participants in PPP projects.

Only last week the Mumbai Municipal Corporation has approved the proposal to hand over management and administration of their primary schools running from their vast premises across the city to private sector. It is hoped that the drop-out rates will be brought down by better school management. This is a simple case of making available idle infrastructural facilities of this space-starved metro to conduct better educational models.

 
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