Public-private partnership is more about dividing: risks go to the public agency, profits to the private
India is witnessing a big wave of public-private-partnership projects in various sectors to quicken the pace of infrastructure development.
The current impetus on such partnerships comes due to several factors that have shifted the responsibility of infrastructure development from public agencies to private enterprises.
The first is the desire to be counted as a developed country by, say, 2020. Therefore we need better infrastructure: roads, airports, power supply, water and sewage system. But both the Union and state governments do not have funds for the purpose: Rs 20 lakh crore over a period of five years. So the Eleventh Five Year Plan document envisages that about 30 per cent of the investment would come from the private sector through public private partnership (ppp). The Centre is promoting ppp through schemes like Jawaharlal Nehru National Urban Renewal Mission.
Let us have a brief look at the antecedents of this model. A couple of decades ago, the direct privatization model, called private sector participation (psp), was pushed in developing countries of Latin America, Africa and South East Asia as a solution to the ills of the public utilities, especially in the water sector. psp held promises of capital investments, efficiency, better service, updated technology and reduced tariffs that public agencies were unable to provide. The model was also required since markets and sectors in developed countries were saturating.
The experiences of the last two decades, however, proved that privatization of public services was no panacea. Privatized water projects in Cochabamba (Bolivia), Buenos Aires (Argentina), Atlanta (usa), Hamilton (Canada), Manila (The Philippines) and Nkonkobe (South Africa) and many others failed to deliver on the promises. They were dogged by huge price hikes and poor service delivery. Public utilities were exposed to international currency fluctuations and armtwisting by private companies. The private companies in water sector like Veolia, Suez and saur demanded more guarantees, incentives and support from international financial institutions and governments to do business in developing countries. Their failure led to social and political backlash in several countries. Many projects were cancelled and the companies told to go back.
These developments prompted the governments and financial institutions to re-think their method of pushing private companies in vital sectors. They tried to find mechanisms to cater to the demands of the companies at the same time protecting them from social and political backlash. This led to model ppp, which is supposed to be a partnership between a public agency and a private company to deliver public services.
ppps are similar to their forebears in terms of contracts, but with a major difference: the public agencies are required to cover financial investments, revenue guarantees, incentives, risks, responsibilities, transparency and accountability aspects. Only the construction and service delivery components are handed over to the private operator to earn profits from public service delivery.
In India much of the capital investments come from public agencies or banks. For example, the water sector projects in Tiruppur, Mysore, Khandwa and Bhopal; international airport projects in Delhi, Mumbai and Bengaluru; and Metro, road and hydel projects. Even if a private company manages to raise funds the interest rates are so high that the project cost shoots up.
Studies show there is not a significant difference between the efficiency of private and public utilities, even though private companies charge more. The governance aspects of ppp projects are a concern as they can hamper participation, transparency and accountability. ppp projects also increase social inequity since they are based on principles like financial sustainability, cost recovery and user-pay charges. These principles lead to the exclusion of a large section of society that is poor and not able to pay.
Gaurav Dwivedi works with Manthan Adhyayan Kendra in Madhya Pradesh
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