India’s showcase PPP project built by GMR-led DIAL has come under a CAG cloud. DIAL denies contract violation, but there’s no denying that a controversial levy has made domestic travel from here more expensive.
Problems With PPPs
Ask any mid-level government official in any department what is the last PPT (short for that ubiquitous tool, PowerPoint presentation) they have seen, and it’s more than likely it’ll have something to do with one or the other PPP or public-private partnership project. It’s become almost the default mode for bureaucrats, says an experienced infrastructure consultant, who worries how unquestioning people in government have become to PPPs, increasingly advanced as a one-stop mantra for India’s infrastructure needs. “Basic queries—like why go in for one—get an almost bewildered and reflexive response: why not?” says the consultant.
It’s not surprising the acronym—which trips off the tongue easily, with the promise of private expertise and capital working for the public good—has become the most-touted one today. Especially since the prime minister himself adds to the growing clamour for PPPs. In June, Manmohan Singh told the nation that considering that infrastructure needs over $1 trillion in the next five years, “the government alone cannot invest this amount. Therefore, importance is being given to PPPs.” Already they constitute a significant 14.7 per cent of the total project investment in the country, according to Shashikant Hegde of ProjectsToday, which tracks infrastructure projects.
However, in this haste to fish for private investment, some officials looking after PPPs admit that many new projects are being pushed through without any proper study of the objectives and the cost. “In long-term contracts,” states a senior CAG official involved in the audit of infrastructure projects, “the basic monetised value of government assets has to be known. It’s not happening in any case.” Concerns have therefore been raised that PPPs are the new conduit for rapacious governments or ministries to privatise public assets under the guise of bringing in private expertise.
Sure, there are some successful PPPs—like Belgaum’s water supply project, the Kolhapur sanitation project, Nagpur’s water and sanitation project, Indore’s city buses project or Ahmedabad Janmarg’s BRTts project. At the same time, there have been many recent examples that show how PPPs are floundering. Worryingly, in many cases, the end-users—the public—are paying higher user charges. The most recent examples, for instance, are CAG’s negative observations about GMR’s Delhi airport (more about that later); and the shutdown of the Delhi Metro airport line that has seen both Reliance Infrastructure and DMRC exchanging sharp words—and letters—each accusing the other of negligence and shoddy work. The project has ground to a halt within 16 months.
What is worrying is the almost blind faith the government has in the public-private vehicle. “Nobody questions whether PPP will be the answer for each project,” says Abhijit Bhaumik of Opus Advisory, an infrastructure consultancy. “It may be for some.” This brings us to a bigger question: are PPPs delivering on economic and social objectives? Supporters of partnerships brush aside this question, pointing to the wide network of highways and roads built over the last decade. But even within the government, there are many who question the way PPP projects are being pushed at a high cost to the exchequer and the public. Some even support the view that PPP ventures are a privatisation bid by the government as it seeks to withdraw from social commitments that serve the poor, often in inaccessible areas.
It’s easy to dismiss opposition to PPPs as being ideologically driven. Even if CPI(M) leader Tapan K. Sen reiterates the oft-quoted description of PPPs—“Where the investment is by the public and the profits are for the private sector”—it is true that political parties of every hue (including CPI-M) seem to be banking on PPPs to achieve inclusive growth objectives. “Three different governments at the Centre continued with this, so we cannot write it off,” says Rajesh Khullar, joint secretary, PPP cell in the finance ministry. “By 13th Plan (period), we plan to move into a gallop.” That’s why it’s crucial to look at the many issues around PPPs:
No Clarity On Terms: Take a recent example, the T-3 terminal of the Delhi airport, developed by the GMR-led DIAL. There is a lot of ambiguity about the terms given to the private developer. While GMR asserts that it went by the book and the government added projects post the contract, there is no doubt that DIAL overstepped boundaries in some areas. In its report on the project, CAG listed out a number of anomalies: the lack of valuation of government assets, the quantity of land given out at nominal rates, and no estimate of the benefit accruing to the public. While it has been argued that partner Airports Authority too benefits from revenues, there are other big concerns. For instance, the government granted an automatic extension of the lease for 30 years after the completion of the first 30 years, with no provision for performance review.
At a broader level, no lessons have been learnt from the hullabaloo over the Dabhol power project, which worked to the advantage of Enron during the first phase of operation and led to its shutdown in 2001 when the Maharashtra governments objected to the high power cost. A project can take up to 10 years or more to prove its success or failure. “If the project has to be redone, it is the government which loses,” says Professor Ashwin Mahalingam of IIT Madras, based on his study of PPPs in southern states, particularly Tamil Nadu. With the Dabhol project, renamed Ratnagiri, it was finally the government which had to pick up the huge tab for getting it restarted.
Lack Of Regulator: As the government pushes ahead with plans to bring more and more projects and services under the PPP umbrella, experts voice concerns about the lack of transparency on the terms of the contract even after it has been signed and sealed. “There is a need for concession agreements that set the right standards. Lack of independent regulators is a drawback, which hopefully will be addressed soon,” says a senior officer closely associated with PPP projects. Indeed, an independent regulator is urgently needed.
Though it is too early to write off many on-ground projects, there are clear signs of troubles ahead—companies bidding for ports and other infrastructure projects promise more than what they can deliver without compromising project viability. The result: tariff increases are sought before efficiencies gain has been demonstrated. Says Hemant Kanoria, managing director, SREI Infrastructure Finance, “Wherever there is aggressive bidding, we have found that concessionaires have overstretched themselves. So some of them are now facing problems.”
Abhay Kantak, director, Urban Practice, at CRISIL Risk & Infrastructure Solutions Ltd, which has done a detailed study of PPPs in urban infrastructure, calls it “still a new experiment in learning” where the focus should be on utilising private sector expertise. Their study of several projects, particularly in water and sanitation, has revealed that most cities today don’t know what the problem is. “So unless they define it, the PPP will not work,” says Kantak. Lack of accountability is another major flaw with PPPs, particularly in the social sector where most of the models depend on public assets and resources.
“As of now we are putting the system in place so that every ministry will have a central monitoring unit,” says Planning Commission deputy chairman Montek Singh Ahluwalia (see interview). That’s needed. In effect, the government push for PPPs in anticipation of private investments is based on flawed logic. Unless the private sector brings in efficiencies, the cost to the government and public will be high. Sadly, the government prefers to put money ahead of clear service goals and expertise. The result is many wrong kinds of projects are selected for PPPs, leading to failure.
By Lola Nayar with Arindam Mukherjee
Apropos your article on the controversial topic of PPPs (Public-Private Perplexity, Sep 17), nowhere in the world are capital-intensive projects like the metro profitable. Even China’s bullet trains don’t make profit. That’s why America does not have high-speed rails. Socialist Europe has. Infrastructure has a higher, nation-building purpose. So what if the government pours money into private hands? At least they get the work done.
A clearer picture of the true costs and benefits of the PPP model will emerge when land / real estate is taken out of the equation. Even when this was so clearly done for VSNL, the land bank almost got lost in the swirl.
“On account of high capital cost and high operational expenditure, metro projects are never financially viable. Hence they will not attract private investment unless attractive sweetnesses are extended ...,”
Nowhere in the world capital intensive projects like metro are profitable. China's bullet trains do not make profit. That's why America does not have high speed rails. Socialist Europe has. Infrastructure has higher purpose. So what if the government pours money to private investors. At least they get the work done, in general. Public sector does nothing. Because of dysfunctional public sector India needs far more PPP than anywhere in the world. CAG will keep screeming. Not just due to its current political agenda but because it is a government entity and has inborn conflict with the private sector. Any money going to private sector is their loss.
We at Outlookindia.com welcome feedback and your comments, including scathing criticism
1. Scathing, passionate, even angry critiques are welcome, but please do not indulge in abuse and invective. Our Primary concern is to keep the debate civil. We urge our users to try and express their disagreements without being disagreeable. Personal attacks are not welcome. No ad hominem please.
2. Please do not post the same message again and again in the same or different threads
3. Please keep your responses confined to the subject matter of the article you are responding to. Please note that our comments section is not a general free-for-all but for feedback to articles/blogs posted on the site
4. Our endeavour is to keep these forums unmoderated and unexpurgated. But if any of the above three conditions are violated, we reserve the right to delete any comment that we deem objectionable and also to withdraw posting privileges from the abuser. Please also note that hate-speech is punishable by law and in extreme circumstances, we may be forced to take legal action by tracing the IP addresses of the poster.
5. If someone is being abusive or personal, or generally being a troll or a flame-baiter, please do not descend to their level. The best response to such posters is to ignore them and send us a message at Mail AT outlookindia DOT com with the subject header COMPLAINT
6. Please do not copy and paste copyrighted material. If you do think that an article elsewhere has relevance to the point you wish to make, please only quote what is considered fair-use and provide a link to the article under question.
7. There is no particular outlookindia.com line on any subject. The views expressed in our opinion section are those of the author concerned and not that of all of outlookindia.com or all its authors.
8. Please also note that you are solely responsible for the comments posted by you on the site. The comments could be deleted or edited entirely at our discretion if we find them objectionable. However, the mere fact of their existence on our site does not mean that we necessarily approve of their contents. In short, the onus of responsibility for the comments remains solely with the authors thereof. Outlookindia.com or any of its group publications, may, however, retains the right to publish any of these comments, with or without editing, in any medium whatsoever. It is therefore in your own interest to be careful before posting.
9.Outlookindia.com is not responsible in any manner whatsoever for how any search engine -- such as Google, Bing etc -- caches or displays these comments. Please note that you are solely responsible for posting these comments and it is a privilege being granted to our registered users which can be withdrawn in case of abuse. To reiterate:
a. Comments once posted can only be deleted at the discretion of outlookindia.com
b. The comments reflect the views of the authors and not of outlookindia.com
c. outlookindia.com is not responsible in any manner whatsoever for the way search engines cache or display these comments
d. Please therefore take due caution before you post any comments as your words could potentially be used against you
10. We have an online thread for our comments policy:
You are welcome to post your suggestions here or in case you have a specific issue, to directly email us at Mail AT outlookindia DOT com with the subject header COMPLAINT