Monday, 30 June 2014

Public Private Partnerships: The Road Ahead

The debate on public-private partnerships has largely evoked partisan views. As many developed nations now look at public private partnerships to fund major infrastructure projects, there has been a renewed interest in PPPs not only in India but also worldwide. A public-private partnership offers a wide scope for project financing and innovative delivery approaches through access to capital markets, implementation of new technologies, expedition of project delivery in time-bound phased manners, operations and maintenance in cost-effective ways.
India’s experiment with PPP has been around for roughly 20 years where the focus has been predominantly on asset creation. There is no surprise that most of the PPP concessions have been given to development of national highways and ports. The World Bank cited in its 2011 report that private participation was highly concentrated only in India. It ranks India as the largest market for PPP in the developing world, accounting for over half of the total investments in new PPP projects mapped across developing countries when it implemented 43 projects which attracted a total investment of $20 billion.
The general drivers for interest in PPPs are the use of private finance to provide investment that the public sector otherwise cannot afford, maximising value-for-money through appropriate risk allocations between the private and public sector, attaining greater efficiency, lower costs, higher quality and faster delivery of public infrastructure projects, building capacity of the private sector and promotion of innovation not only in technical and operational matters but also in financial and commercial arrangements.
The country’s first PPP project in railways was the Reliance Infrastructure-led concessionaire Airport Express Line of the Delhi Metro. The Delhi Metro Rail Corporation (DMRC) had built the basic civil infrastructure and took over operations upon Reliance’s withdrawal. The project had been deep in controversies like failed safety clearances and technical glitches which led to a turf war between Reliance Infrastructure and DMRC on the issue of penalty for delays.
One of the key elements of successful PPP projects is a clear understanding of the proposed asset and prudent risk sharing and rewards associated with the project. Due to inaccuracies in these, risk-sharing and mitigation measures prove inadequate and inappropriate. Better preparation before the bidding process for a PPP project is the key point. It is a known fact that technical data availability and its quality has been a constraint in the way PPP projects are planned across India. Another reason can also be that consultants who are often ill-equipped are selected through the lowest bids.
Public-private partnerships in India fail mainly due to poor preparations, flawed risk sharing, inappropriate business models and poor fiscal uncertainties which are often linked to vested interests thus leading to the rise of a skewed qualification criteria. The solution, therefore, lies in clear understanding of the proposed asset and a careful sharing of risks and rewards associated with the asset to ensure key elements to ensuring a successful PPP project. It is not appropriate to dismiss an entire concept of PPP on the basis of a few failures as each project and the demand it brings forward is different in each sector.
The road ahead for PPP projects in India is proper integration wherein the lesson to learn is that designs and construction should be taken care on the life cycle basis. Better preparation before the process of bidding and transparency with regard to dissemination of technical data and its quality and the elimination of ill-equipped consultants will go a long way to revive investor confidence. Ensuring clearances especially for projects that have led to a slowdown due to delays in decision making. The new government at the helm of affairs in Delhi should mend the problem of delayed decision making and implement projects which have been stuck due to slowdowns even more aggressively.
The time is ripe for initiating adequate safeguards and strict regulatory supervision. Indian cities must draw lessons from the failures of the Delhi Airport Express Line and the subsequent PPP projects like Manila and Kuala Lumpur and must follow it up with effective monitoring and safeguards such that it does not place high-cost public transport projects at risk. 
P.S.: This post was originally written for Centre Right India, a policy research think-tank.  This post was originally published on June 28. You might want to read this post in its unabridged avatar here

No comments: