Everyone knows that India faces a severe infrastructure deficit and that the government doesn't have the money to build it on the scale needed. Everyone is also agreed that more than anything else, it is this that will keep the growth rate in India down. Ergo, everyone is also agreed that the private sector will have to be let into the infrastructure business. The only question is how.
The accepted way, internationally, has come to be called public-private-partnership (PPP). India has been trying hard to get these partnerships going. If you measure success against the backdrop of what is needed, it hasn't been very successful.
Still, perseverance pays and, over the last couple of years, the wagon has at last begun to roll. Several PPP projects are now working. Funding through PPP and borrowings is expected to be of the order of $18 billion during the 11th Plan. The bait to get this money in is the policy of financial support to PPPs through a viability-gap-funding up to 20 per cent by the central government and an additional 20 per cent by the state government.
But no has got around yet to assessing, in a sector-specific manner, how these PPP projects are working. The latest issue of the Asian Journal* seeks to make good this gap. Most of the articles are case studies which aim to highlight the problems that have been identified in the last few years, and offer solutions to them.
The key issue to emerge is that PPPs must satisfy everyone - governments, private players, users, financial institutions, etc. This means risk allocation has to keep in view long-term consequences. This, in turn, calls for transparent and stable government policy, especially non-pecuniary externalities exist.
The Railways lead in PPPs, at least in financial terms. Learning from past failures, they have now begun to focus on schemes that supplement and complement existing capacity because private funding is more easily attracted to them. They have also identified a large number of non-transport businesses such as container trains, stations, multimodal logistics parks, rail-side warehousing facilities, commodity-specific freight terminals, agri-retail hubs and outlets, budget hotels and commercial complexes.
In most of this, it will be seen that the idea is to use railway land. The question that immediately arises when one sees what the Railways are doing is why can't the municipalities do the same in respect of the schools they run? Their schools are poorly run and have low enrolments, but are sitting on prime real estate. Why not get into PPPs to increase the supply of education?
Another lesson to emerge is that the same agency can't and must now play all the roles, namely, of the concessioning authority, project promoter, construction contractor, operator, collector of user charges and tariff regulator. There is a tendency in government departments to keep all the power and control in their hands and this can really get in the way because having the power is one thing but to be unable to use it, or use it incompetently (or in a corrupt way), is something else altogether.
Then there are the case studies of the Pipavav Rail Corporation, the Hasan Mangalore Rail Development Company and the Kutch Railway Company. An examination of these shows that you have to get everything completely clear at the outset so that escalations in the project costs (and the resulting disputes) can be avoided. Anyone who has built a house knows this. So how come the johnnies in the government don't?
Lack of space doesn't allow a full discussion of all the issues raised by this issue of the Journal. But for those interested in PPPs, it is a must read.
*Published by the Asian Institute of Transport Development and available on request from asianinstitute.del@gmail.com
