Public
private partnership (PPP): Definition, benefits, pre requisites and demerits
Infrastructure is the lifeline of an economy and the
major sectors that comprise of infrastructure are transportation, power, energy
and communication.
So when we say good infrastructure we mean :
Efficient public transport – that links all cities
of the nation. Ensures safe, affordable
and quick commute; Availability of adequate power and energy for all industrial
and domestic use etc.
For building an excellent infrastructure , we
require:
a. Massive
investment
b. Managerial
efficiency
c. Technological
competency etc
And the above mixture could be rightfully gained by
encouraging both public and private players work mutually. The ppp model was
started in oecd countries. Reliance on
ppp rose in 1990s and UK had the maximum no of
projects under this. Ppp have been include in the legislation of UK, USA
and industrial policies of France, Italy, Netherlands etc.
Ppp’s can be distinguished on the basis of the stages
in which partnership can be entered into:
1. BOT:
Build, operate, transfer
2. BOO:
Build, own, operate
3. BOOT:
Build, own, operate and transfer
4. DBFO:
Design, build, finance and operate
Looking at the benefits, India opened the
doors for private participation in infrastructure in the early 1990s, as part
of a wider economic liberalisation effort.
But ppp has to be clearly defined because just by
saying it is a collaboration of public
and private there is a lot of ambiguity. Ppps need to be given relaxations and financial
support in order to make it prosper. Thus a definition is vital.
The official definition of ppp can be broken into
the following essential parts :
1. Arrangement
of govt entity with Private Sector Entity
to provide
2. Public
asset or service for public benefit through
3. Investments
being made by and/or management undertaken by the private sector entity
(this allows projects of both with
investment and without investment)
4. Operations
or management for a specified period (this means the agreement with the pvt
entity comes to an end after a period)
5. Substantial
risk sharing with the private sector (this differentiates it from mere
outsourcing contracts)
6. Performance
linked payments
7. Conformance
to performance standards.
How does the govt extend support ?
Ø The Cabinet Committee on Economic
Affairs (CCEA) in its meeting of 27th October, 2005 approved the procedure for
approval of public private partnership (PPP) projects, a Public Private
Partnership Approval Committee (PPPAC) was set up
Ø The Committee would be serviced by
the Department of Economic Affairs, who has set-up a special cell for servicing
such proposals
Ø But many a times providing public
services become commercially unviable and unattractive to pvt players thus The
Scheme for Financial Support to Public Private Partnerships (PPPs) in
Infrastructure. (Viability Gap Funding Scheme) of the Government of India
provides financial support in the form of grants, one time or deferred,
to infrastructure projects undertaken through public private partnerships with
a view to make them commercially viable.
Ø Then there is ‘India Infrastructure
Project Development Fund’ (IIPDF), have been notified The IIPDF would assist
ordinarily up to 75% of the project development expenses. On successful
completion of the bidding process, the project development expenditure would be
recovered from the successful bidder.
Ø The total Viability Gap Funding
under this scheme will not exceed twenty percent of the Total Project Cost;
provided that the Government or statutory entity that owns the project may, if
it so decides, provide additional grants out of its budget, but not exceeding a
further twenty percent of the Total Project Cost.
VGF under
this scheme will normally be in the form of a capital grant at the stage of
project construction.
Implementation
comes with Constraints:
- Financial liability of the
projects. ( our financial markets cannot undertake such long term equity)
- Hindrances during the life of a
project due to bottlenecks in procedures.
- Diversified projects require
skilled man power in various diverse fields
- Lack of credibility of bankable
infrastructure projects used for financing the private sector.
- Managing all the stakeholders
of the projects
Despite constraints we
have world-class facilities and ambience that greet us when we go through
airports atDelhi,
Mumbai, Bangalore or Hyderabad. Several goods and
services are now being delivered more cost-effectively, thanks to better
infrastructure networks or gateways, having a substantial degree of private
participation.
Pre requisites
In order to provide to
come with successful projects several initiatives have been undertaken by
Government of India:
1.
It created PPP framework in
order to eradicate the above mentioned constraints.
2.
Various foreign as well as
private investments by waving off charges are encouraged.
3.
Framing of standardized
contractual documents for laying down the terminologies related to risks,
liabilities and performance standards have been devised.
4.
Approval schemes for PPPs in the central sector has been
streamlined through Public private partnership appraisal committee or PPPAC.
5.
A website has been launched for the purpose of virtual PPP
market serves as an online database for PPP projects.
The below given diagram
depicts the workflow of ppp in India.
1.
The left hand side blocks refer to the process of the ppp projects
which start with project identification, moves to screening report, getting an
approval from the authority, scanning internal and external environment,
developing a contractual agreement and the bidding process. At the end of
bidding a pvt entity is selected and the agreement signed. Thereafter execution
of project and financing.
2.
The right hand side indicated the involvement of ministry of
finance at different stages of the process.
Failures:
It is not just a success story everywhere, there are
grave failures as such :
1.
The
Vadodara-Halol Toll project suffered due to mistaken traffic projections, due
to which proposed government incentives were stripped off from the project,
thereby raising both policy and revenue risks for the involved parties.
2.
The
Delhi-Gurgaon expressway was a victim of mammoth red-tapism where the lack of
coordination of more than 15 civic bodies whose approvals were necessary came
out in the open in the shabbiest manner possible.
3.
In the same
lines, the Karnataka Urban Water Supply Improvements project suffered due to
continued lack of proper coordination between three bodies associated with the
project.
4.
The Delhi
Airport Metro Express was shutdown for 6 months when its operator Reliance
Infrastructure pointed out cracks that had developed on its metro pillar
structures. Then followed the typical blame game with the involved parties
blaming each other for the faults. So much so that Reliance even went on to
claim damages for losses incurred due to the closure of the project. Delhi
Metro authorities also claimed that they had had to ‘reject’ an offer from
Reliance to quit the whole project due to “financial non-viability
Demerits/ challenges:
The reasons for above failures can be stated as red
tapism, corruption, non transparent processes etc.
Apart from these there are certain challenges that
the ministry feels it is facing:
1.
Our ppps are basically built for those
who can pay for the services. Ex; airports, national highways but our ppps have
to become responsive and successful in sectors such as education, health, skill development,
rural infrastructure and job creation, mass housing and so on.
2.
Deteriorating infrastructure after
service. Our urban services such as roads are in poor condition due to
increasing population and usage.
By Soni Rachel Oommen
References:
1.
Indian Economy by Ramesh Singh
