Wednesday, December 08, 2004
My Crisil Young Thought Leader Dissertation
View the Winning Dissertation here { By Sonia Chawla of XLRI Jamshedpur}
A
Dissertation
on
Public Private Partnership
Has India learnt from its experience of over a decade?
Submitted
By
Anand N Krishnan.
Narsee Monjee Institute of Management Studies.Contents:
What are PPP’s?
Types of PPP’S
Relevance of PPP’s
Evaluation of PPP’s in various sectors in INDIA
Infrastructure
Roads
Ports
Power
Slum Rehabilitation (Mumbai)
Potential new areas for PPP’s
Gas Pipeline
Healthcare
Education
A case study of PPP: Tamil Nadu
Framework
Conclusion
Executive Summary:
"We will surely get to our destination if we join hands."
Aung San Suu Kyi
PPP, a relatively new approach to public welfare, attempts to merge the welfare oriented public sector with the efficiency and profit minded private sector so as to deliver benefits to the society at large. In this dissertation, I have attempted to study the types of PPP’s, the critical success factors for them.
I have also attempted to evaluate some of India’s more prominent adventures into PPP and analyse the reasons for their success or failure. I have also recommended a few sectors which I feel have been neglected as far as PPP’s are concerned but show considerable promise. At the end of the dissertation, I have included a framework for creating more successful PPP’s in India.
What is a Public Private Partnership?
A public private partnership is a partnership between at least one private for profit organization and at least one nonprofit civil service or government and public organization to undertake a venture with a specific output in return for a benefit typically in the form of financial remuneration. The nonprofit civil service or public organization also includes international and regional development groups like the World Bank, the International Monetary Fund, the Asian Development Bank, any arm of the United Nations or the International Society Of The Red Cross.
A Public Private Partnership entails a substantial transfer of all forms of project life cycle risk to the private sector. The public sector retains a significant role in the partnership project either as the main purchaser of the services provided or as the main enabler of the project.
Why use Public-Private Partnership’s?
· Operational Gains – ensuring that one delivers better or more services for the same price; or by making savings, that one releases money for investment elsewhere. Operational gains can be achieved by focusing on outputs rather than processes; by generating economies of scale through more inventive use of assets and better project identification.
.
Strategic Clarity – by focusing departmental resources on strategic management and ensuring that key services are delivered effectively
Reduce project cost by virtue of the synergies and innovative approaches that the private sector can bring to the project.
Using private finance rather than public finance does not mean that more expenditure can be afforded as, in the long run, the cost of private borrowing is normally higher than conventional government borrowing. Since government can normally borrow more cheaply, the gains from the private operator’s efficiency must exceed the difference in borrowing cost if a PPP project is considered. The real benefit of PPPs is the value for money derived from the operational and strategic benefits mentioned above.
Critical success Factors for a PPP:
An operational need for private sector skills to deliver the service
An identifiable market of private sector bidders prepared to compete for the project
The appropriate allocation of risk. Risk should be allocated to the party best suited to manage that risk. Typically the public body undertakes to manage statutory and policy risk while the private body manages operational risk and business risk.
Types of Public Private Partnerships:
Design and Build.
Design, Build and Operate.
Operation and Maintenance.
Design build operate and finance.
Joint ventures.
Relevance of PPP’s
The concept of the PPP’s has become more relevant especially in then emerging world in the last few years because of the following reasons.
Public problems are being pushed into the global arena by civil organizations. When the market fails to deliver essential goods and services to the public who need it the most, a PPP is an innovative way of ensuring that it reaches these people.
Globalization. With globalization, new technologies come quickly to market and spread across rich countries, while the persistent lack of access in poor countries creates a stark and tragic contrast. This gap in access can create dramatic differences in morbidity and mortality, as shown by the unequal access to anti-AIDS drugs in the 1990s.
Larger fiscal troubles have urged governments to reduce spending sometimes curbing essential development work. A PPP allows governments to undertake such development work without public spending.
Forming a PPP would force a certain undertaking under government control to shed its bureaucratic inhibitions and adopt a faster approach to completion because of availability of better managers and/or resources in the private sector.
Evaluation of Public Private Partnerships in India over the last decade
An effort to quantify reforms undertaken by the World Economic Forum shows that roads and ports are the most advanced when it come to number of reforms undertaken. Hence for evaluation of PPP’s, I have considered these two sectors of infrastructure.
Roads
Criteria for evaluation of PPP’s in these areas are:
Ability of project to meet initial expectations regarding traffic.
Ability to complete project on schedule.
Cost overruns
For the roads sector, I have considered two projects and evaluated them on the above criteria. They are the
· Mumbai-Pune Expressway
· Partly completed Golden Quadrangle
Golden Quadrangle Project: the project is an ambitious project attempting to link the north-south-east-west corridors of the country. The Golden Quadrangle project works on the build operate transfer scheme of Public-Private Partnerships. Following are the stages of completion on each phase of the project.
Projects
Quantity
Phases running ahead of Schedule
8
Phases running on schedule
7
Phases running behind schedule
58
*Source: NHAI and news compilations.
As is visible from the table, the golden quadrilateral has significant phases running behind schedule with an average delayed time of approximately a year. The ministry of road and surface transport has estimated that contracts worth over 70 per cent of the total project cost of Rs 172.75 billion are spilling over beyond the December 2003 deadline.
The Mumbai Pune Expressway: The Mumbai Pune Expressway was built to connect the cities of Mumbai and Pune. The project cost was estimated to be 148.8 Bn rupees. As regards to cost overruns and on schedule completion of the expressway, the project was a thumping success because of some very innovative clauses put in by the Maharashtra State Road Development Corporation (MSRDC). While partnering with private contractors for different stretches of the road, it inserted bonus and penalty clauses in the agreements to ensure timely completion. To ensure quick and efficient working, MSRDC provided several facilities to contractors and consultants. These facilities include sops to the project partners. The expenditure on extra services/facilities did not, however, increase production costs – it reduced them by 8-10% as a result of speedy project completion and reduction in delay-induced cost overruns.
However the traffic on the expressway did not match initial forecasts made in 1997, and the expressway ran into cash flow problems. The toll collections were estimated considering that around 40 -50 % of the traffic on the National Highway(NH4) would divert to the expressway. The majority of users were expected to be trucks and Multi axle vehicles and they would contribute a significant amount of revenue. Accordingly the toll rates for the expressway had been designed. These heavy truckers are however highly sensitive to the toll charges and are not interested in using expressways.
More imaginative means of finding the revenues should, therefore, be considered in case the project should really kick-start the economy of the State
Ports: In India, reforms were undertaken in the port sector in 1990 first. For evaluation of the impact of ports, I have considered two factors primarily:
Decrease in turnaround time at port.
Increase in container traffic.
Potential investments in the port.
The following two public private ports have been considered
Mundra Port
Pipavav Port
Mundra Port:
Adani Port Limited formed a joint sector company with Gujarat Port Infrastructure Development Co Ltd. to float Gujarat Adani Port Ltd. the company has a rather ambitious target for expansion. The port is projected to handle 40 mtpa by 2010, 60 mtpa by 2015, 100 mtpa by 2020 and 150 mtpa by 2025 up from 11 million tonnes of cargo per annum (mtpa) in 2003. The turnaround time at Mundra is less than five days (for a Panamax vessel) as compared to more than 9 days for the other major ports. In its first three years, the port has handled over 700 vessels and more than nine Mn tonnes of cargo.
Gujarat Pipavav Port:
GPPL was jointly promoted by Sea King Infrastructure Limited (SKIL) and state owned Gujarat Maritime Board (GMB) in 1995. However GMB divested its stake in the year 1998. The port has handled about 8.5 mtpa per year and plans to add another 6 Mn tonnes in annual capacity. It has also entered into a JV with Indian Railways to convert a 250 km meter gauge to broad gauge to effect faster removal of cargo from its port. An additional 260 crore is to be invested in the port to convert it into one of the most modern ports.
Power:
India it appears to be handicapped by a shortage of power. There is no better example of this than the capital state of Delhi. The state produces about 1400 MW while the demand is 3450 MW. The dismantling of distribution in the state has been mixed with only NDPL meeting the criteria for reducing losses. Again it is only NDPL which has fulfilled obligations on capex spending. Both Rajdhani Power and Yamuna Power have missed these targets. These PPP’s have also resulted in private sector monopolies. The most egregious example of power PPP’s gone bad is Dabhol. However could Dabhol charge such exploitive returns in a competitive market needs to be seen. Even the case of Orissa’s dismantling of SEB’s failed miserably. Overall the PPP’s in the power sector has been dismal.
Slum Rehabilitation Mumbai:
The slum rehabilitation program is a urban infrastructure project aimed at cleaning up the city’s huge slum colonies. India’s tallest skyscrapers, twin sixty storied buildings, were to be erected or this purpose. The project is a PPP with the Pallonji Mistry Group and the MUIP1. However the project is still stuck in a morass of legal and state governmental stays.
Potential new areas for development of PPP’s
Gas Pipelines: India’s gas sector is dominated by the public sector. But private partnership both Indian and foreign is required not only to increase competition but also to provide capital for upstream and downstream network development especially in the area of last mile coverage. The government needs to do a hard re-look into the National Gas Grid policy so as to allow private sector to build up the nation’s pipeline network.
Healthcare: For most of India’s 1 billion population, healthcare remains a luxury. Perhaps a PPP with a specialty heart clinic to provide basic cardio care needs to be looked into. Even the outsourcing of certain functions like radiology at stressed out public hospitals could be worth a look.
Education: India has dismal literacy standards. PPP’s need to be forged in this domain as well. I believe that the concept of Education for Profit is grossly undervalued in India and can be exploited to increase levels of education. It remains to be seen what business models and viable PPP models can be developed.
A Case Study Tamil Nadu
Tamil Nadu one of India's most urbanized states faces the challenge of providing its citizens with adequate and efficient infrastructure. Following are some of the issues faced by the state.
· Only 30% of the state has access to adequate drinking water and less than 40% have house connections.
· Only 16 % of urban local bodies have sewerage systems. Most of the sewerage is collected but there are no adequate disposal facilities.
· Less than 50% of the roads have storm water drains.
To tackle this problem, Tamil Nadu is implementing a string of public private partnerships. These pioneer initiatives will in their own way have established the viability of private participation in developing the urban infrastructure sector. Dynamic institutions have been set up to identify critical market opportunities and private sector partners. Three important umbrella institutions have been set up in partnership with the private sector: Tamil Nadu Water Investment Company, Tamil Nadu Urban Infrastructure Financial Services Ltd. (TNUIFSL), and Tamil Nadu Road Development Company. Each has been innovatively structured, with wide ranging mandates allowing the conception and development of a whole array of projects with private sector participation. Combined the three account for nearly 260 Mn. $ of infrastructure projects. The Tirupur project is likely to have significant impact on health and sanitation. The urban infrastructure deals will bring financial benefits to Tamil Nadu. The East Coast Road will fawn better tourism sector in the state. The projects have also demonstrated
IL&FS
Tamil Nadu Government
TWIC
TNUIFSL
TNRDC
IL&FS
World Bank
Tirupur Sanitation Project:
Cost: 220Mn
First Pvt Sanitation project in country
Assist municipal and local bodies raise capital and structure infrastructure deals
East Coast Road: A 113 km road betn Chennai and Pondicherry.
Benchmark in construction & maintenancethe high level of financial leverage that cash strapped governments can use to promote investments. The following is a map of the bold initiatives undertaken.
A framework for successful PPP in India
PPP’s fail primarily because public and private partners are challenged by fundamentally different incentives. Some of the other issues that need to be addressed are
Tariff/cost recovery: Both the public and the private partners should agree on how the cost revenues would come through and the division of the benefits (to be) accrued.
The issue of regulatory risk and collection risk. For a PPP to succeed, it is imperative that the parties assign risk that might emerge, to the party that it is best suited to handle that risk. In most cases the public undertaking should handle the regulatory risk while the private party should handle the operational risk. A clear allocation of roles that have to be fulfilled by each party must also be made.
Arbitration and Dispute Settlement
The issues of subsidies/concessions and who will finance them.
Service Obligations, for e.g. a minimum number of telephones to be provided by basic telephone operators, quality of dial up Internet.
It is best for a PPP to be subjected to competition. The presence of competition prevents the creation of private sector monopolies like in the case of Delhi’s Discoms. The PPP’s should then be allowed to bid for projects. The government enforces a minimum set of standards that must be adhered to.
It would also be advantageous to have a central PPP effort to coordinate PPP efforts at a central/state/ local body level.
Infrastructure, social, healthcare and educational PPP’s should be especially encouraged.
Private Sector Responsibilities
Provision of services – at least to standards set by the public sector agency/contract
Provision of facilities
Tariff/Revenues collection
Local and operational service planning and coordination
Adjustment of services within parameters set by public sector in response to market demands
Public Sector Responsibilities
A clear legal and regulatory framework
An Authority for planning, regulation, procurement, monitoring and enforcement
A mechanism for realistic tariff setting & periodic revision
A competitive environment for service provision
Contractual arrangements with the private operators for repayment of fare concessions
Contractual arrangements with operators for provision of “social” or other services that are not commercially viable
Road Map for PPP’s:
Stage 1: Project Identification. Relevant sectors are identified which is of critical public importance.
Stage 2: Assessment of project viability: Cash flows, profits and viability of the project as a whole need to be addressed.
Stage 3: Project Appraisal
Stage 4: Assessment of PPP viability: If the project can be undertaken as a PPP is identified.
Stage 5: Procedure Selection: Various procedures like regulation and procurement should be assessed.
Stage 6:Project Management
Stage 7: Stakeholder Consultation. The views of various stakeholders like public (through NGO’s) etc can be solicited.
Stage 8:Tender process should be undertaken
Stage 9:Selection of Public/private partner
Stage 10:The actual contracting of various elements takes place and performance management is undertaken.
Conclusion:
All said and done, India’s PPP performance of the last decade has been dismal with the possible exception of roads and ports. A number of vital sectors have been ignored primarily education, healthcare and urban development. Indian policymakers should give a special emphasis on project management skills as a number of projects are running behind schedule and are causing an increase in interest costs. Also, the spread of economic benefits to the country depend on the quality of infrastructure both physical and more importantly the often neglected social infrastructure. India, it appears has made some progress on the physical front but none on the social front. PPP offers a wonderful opportunity to develop this social infrastructure. If we fail to seize this opportunity the doors of prosperity could forever close on a majority of India’s population.
Bibliography:
www.worldbank.org : A case study on Tamil Nadu.
www.ppp.ie
Frontline magazine
National Highway Authority of India.
www.indiaport.org
Business World India article on Corporate Social Responsibility.
Author’s Profile:
The author is a final year student of the Narsee Monjee Institute of Management Studies with his majors in Finance and minor in Information Systems. He has done his Bachelors in Industrial Engineering from the University of Pune. He has done his summers with IndiaInfoline Pvt Ltd on “A Sectoral Analysis of the Indian Oil and Gas Sector”. He enjoys quizzing and reading about technology.
Ph No: 09820272578
Email: krishnananandn@gmail.com
Kan411@yahoo.com
View the Winning Dissertation here { By Sonia Chawla of XLRI Jamshedpur}
A
Dissertation
on
Public Private Partnership
Has India learnt from its experience of over a decade?
Submitted
By
Anand N Krishnan.
Narsee Monjee Institute of Management Studies.Contents:
What are PPP’s?
Types of PPP’S
Relevance of PPP’s
Evaluation of PPP’s in various sectors in INDIA
Infrastructure
Roads
Ports
Power
Slum Rehabilitation (Mumbai)
Potential new areas for PPP’s
Gas Pipeline
Healthcare
Education
A case study of PPP: Tamil Nadu
Framework
Conclusion
Executive Summary:
"We will surely get to our destination if we join hands."
Aung San Suu Kyi
PPP, a relatively new approach to public welfare, attempts to merge the welfare oriented public sector with the efficiency and profit minded private sector so as to deliver benefits to the society at large. In this dissertation, I have attempted to study the types of PPP’s, the critical success factors for them.
I have also attempted to evaluate some of India’s more prominent adventures into PPP and analyse the reasons for their success or failure. I have also recommended a few sectors which I feel have been neglected as far as PPP’s are concerned but show considerable promise. At the end of the dissertation, I have included a framework for creating more successful PPP’s in India.
What is a Public Private Partnership?
A public private partnership is a partnership between at least one private for profit organization and at least one nonprofit civil service or government and public organization to undertake a venture with a specific output in return for a benefit typically in the form of financial remuneration. The nonprofit civil service or public organization also includes international and regional development groups like the World Bank, the International Monetary Fund, the Asian Development Bank, any arm of the United Nations or the International Society Of The Red Cross.
A Public Private Partnership entails a substantial transfer of all forms of project life cycle risk to the private sector. The public sector retains a significant role in the partnership project either as the main purchaser of the services provided or as the main enabler of the project.
Why use Public-Private Partnership’s?
· Operational Gains – ensuring that one delivers better or more services for the same price; or by making savings, that one releases money for investment elsewhere. Operational gains can be achieved by focusing on outputs rather than processes; by generating economies of scale through more inventive use of assets and better project identification.
.
Strategic Clarity – by focusing departmental resources on strategic management and ensuring that key services are delivered effectively
Reduce project cost by virtue of the synergies and innovative approaches that the private sector can bring to the project.
Using private finance rather than public finance does not mean that more expenditure can be afforded as, in the long run, the cost of private borrowing is normally higher than conventional government borrowing. Since government can normally borrow more cheaply, the gains from the private operator’s efficiency must exceed the difference in borrowing cost if a PPP project is considered. The real benefit of PPPs is the value for money derived from the operational and strategic benefits mentioned above.
Critical success Factors for a PPP:
An operational need for private sector skills to deliver the service
An identifiable market of private sector bidders prepared to compete for the project
The appropriate allocation of risk. Risk should be allocated to the party best suited to manage that risk. Typically the public body undertakes to manage statutory and policy risk while the private body manages operational risk and business risk.
Types of Public Private Partnerships:
Design and Build.
Design, Build and Operate.
Operation and Maintenance.
Design build operate and finance.
Joint ventures.
Relevance of PPP’s
The concept of the PPP’s has become more relevant especially in then emerging world in the last few years because of the following reasons.
Public problems are being pushed into the global arena by civil organizations. When the market fails to deliver essential goods and services to the public who need it the most, a PPP is an innovative way of ensuring that it reaches these people.
Globalization. With globalization, new technologies come quickly to market and spread across rich countries, while the persistent lack of access in poor countries creates a stark and tragic contrast. This gap in access can create dramatic differences in morbidity and mortality, as shown by the unequal access to anti-AIDS drugs in the 1990s.
Larger fiscal troubles have urged governments to reduce spending sometimes curbing essential development work. A PPP allows governments to undertake such development work without public spending.
Forming a PPP would force a certain undertaking under government control to shed its bureaucratic inhibitions and adopt a faster approach to completion because of availability of better managers and/or resources in the private sector.
Evaluation of Public Private Partnerships in India over the last decade
An effort to quantify reforms undertaken by the World Economic Forum shows that roads and ports are the most advanced when it come to number of reforms undertaken. Hence for evaluation of PPP’s, I have considered these two sectors of infrastructure.
Roads
Criteria for evaluation of PPP’s in these areas are:
Ability of project to meet initial expectations regarding traffic.
Ability to complete project on schedule.
Cost overruns
For the roads sector, I have considered two projects and evaluated them on the above criteria. They are the
· Mumbai-Pune Expressway
· Partly completed Golden Quadrangle
Golden Quadrangle Project: the project is an ambitious project attempting to link the north-south-east-west corridors of the country. The Golden Quadrangle project works on the build operate transfer scheme of Public-Private Partnerships. Following are the stages of completion on each phase of the project.
Projects
Quantity
Phases running ahead of Schedule
8
Phases running on schedule
7
Phases running behind schedule
58
*Source: NHAI and news compilations.
As is visible from the table, the golden quadrilateral has significant phases running behind schedule with an average delayed time of approximately a year. The ministry of road and surface transport has estimated that contracts worth over 70 per cent of the total project cost of Rs 172.75 billion are spilling over beyond the December 2003 deadline.
The Mumbai Pune Expressway: The Mumbai Pune Expressway was built to connect the cities of Mumbai and Pune. The project cost was estimated to be 148.8 Bn rupees. As regards to cost overruns and on schedule completion of the expressway, the project was a thumping success because of some very innovative clauses put in by the Maharashtra State Road Development Corporation (MSRDC). While partnering with private contractors for different stretches of the road, it inserted bonus and penalty clauses in the agreements to ensure timely completion. To ensure quick and efficient working, MSRDC provided several facilities to contractors and consultants. These facilities include sops to the project partners. The expenditure on extra services/facilities did not, however, increase production costs – it reduced them by 8-10% as a result of speedy project completion and reduction in delay-induced cost overruns.
However the traffic on the expressway did not match initial forecasts made in 1997, and the expressway ran into cash flow problems. The toll collections were estimated considering that around 40 -50 % of the traffic on the National Highway(NH4) would divert to the expressway. The majority of users were expected to be trucks and Multi axle vehicles and they would contribute a significant amount of revenue. Accordingly the toll rates for the expressway had been designed. These heavy truckers are however highly sensitive to the toll charges and are not interested in using expressways.
More imaginative means of finding the revenues should, therefore, be considered in case the project should really kick-start the economy of the State
Ports: In India, reforms were undertaken in the port sector in 1990 first. For evaluation of the impact of ports, I have considered two factors primarily:
Decrease in turnaround time at port.
Increase in container traffic.
Potential investments in the port.
The following two public private ports have been considered
Mundra Port
Pipavav Port
Mundra Port:
Adani Port Limited formed a joint sector company with Gujarat Port Infrastructure Development Co Ltd. to float Gujarat Adani Port Ltd. the company has a rather ambitious target for expansion. The port is projected to handle 40 mtpa by 2010, 60 mtpa by 2015, 100 mtpa by 2020 and 150 mtpa by 2025 up from 11 million tonnes of cargo per annum (mtpa) in 2003. The turnaround time at Mundra is less than five days (for a Panamax vessel) as compared to more than 9 days for the other major ports. In its first three years, the port has handled over 700 vessels and more than nine Mn tonnes of cargo.
Gujarat Pipavav Port:
GPPL was jointly promoted by Sea King Infrastructure Limited (SKIL) and state owned Gujarat Maritime Board (GMB) in 1995. However GMB divested its stake in the year 1998. The port has handled about 8.5 mtpa per year and plans to add another 6 Mn tonnes in annual capacity. It has also entered into a JV with Indian Railways to convert a 250 km meter gauge to broad gauge to effect faster removal of cargo from its port. An additional 260 crore is to be invested in the port to convert it into one of the most modern ports.
Power:
India it appears to be handicapped by a shortage of power. There is no better example of this than the capital state of Delhi. The state produces about 1400 MW while the demand is 3450 MW. The dismantling of distribution in the state has been mixed with only NDPL meeting the criteria for reducing losses. Again it is only NDPL which has fulfilled obligations on capex spending. Both Rajdhani Power and Yamuna Power have missed these targets. These PPP’s have also resulted in private sector monopolies. The most egregious example of power PPP’s gone bad is Dabhol. However could Dabhol charge such exploitive returns in a competitive market needs to be seen. Even the case of Orissa’s dismantling of SEB’s failed miserably. Overall the PPP’s in the power sector has been dismal.
Slum Rehabilitation Mumbai:
The slum rehabilitation program is a urban infrastructure project aimed at cleaning up the city’s huge slum colonies. India’s tallest skyscrapers, twin sixty storied buildings, were to be erected or this purpose. The project is a PPP with the Pallonji Mistry Group and the MUIP1. However the project is still stuck in a morass of legal and state governmental stays.
Potential new areas for development of PPP’s
Gas Pipelines: India’s gas sector is dominated by the public sector. But private partnership both Indian and foreign is required not only to increase competition but also to provide capital for upstream and downstream network development especially in the area of last mile coverage. The government needs to do a hard re-look into the National Gas Grid policy so as to allow private sector to build up the nation’s pipeline network.
Healthcare: For most of India’s 1 billion population, healthcare remains a luxury. Perhaps a PPP with a specialty heart clinic to provide basic cardio care needs to be looked into. Even the outsourcing of certain functions like radiology at stressed out public hospitals could be worth a look.
Education: India has dismal literacy standards. PPP’s need to be forged in this domain as well. I believe that the concept of Education for Profit is grossly undervalued in India and can be exploited to increase levels of education. It remains to be seen what business models and viable PPP models can be developed.
A Case Study Tamil Nadu
Tamil Nadu one of India's most urbanized states faces the challenge of providing its citizens with adequate and efficient infrastructure. Following are some of the issues faced by the state.
· Only 30% of the state has access to adequate drinking water and less than 40% have house connections.
· Only 16 % of urban local bodies have sewerage systems. Most of the sewerage is collected but there are no adequate disposal facilities.
· Less than 50% of the roads have storm water drains.
To tackle this problem, Tamil Nadu is implementing a string of public private partnerships. These pioneer initiatives will in their own way have established the viability of private participation in developing the urban infrastructure sector. Dynamic institutions have been set up to identify critical market opportunities and private sector partners. Three important umbrella institutions have been set up in partnership with the private sector: Tamil Nadu Water Investment Company, Tamil Nadu Urban Infrastructure Financial Services Ltd. (TNUIFSL), and Tamil Nadu Road Development Company. Each has been innovatively structured, with wide ranging mandates allowing the conception and development of a whole array of projects with private sector participation. Combined the three account for nearly 260 Mn. $ of infrastructure projects. The Tirupur project is likely to have significant impact on health and sanitation. The urban infrastructure deals will bring financial benefits to Tamil Nadu. The East Coast Road will fawn better tourism sector in the state. The projects have also demonstrated
IL&FS
Tamil Nadu Government
TWIC
TNUIFSL
TNRDC
IL&FS
World Bank
Tirupur Sanitation Project:
Cost: 220Mn
First Pvt Sanitation project in country
Assist municipal and local bodies raise capital and structure infrastructure deals
East Coast Road: A 113 km road betn Chennai and Pondicherry.
Benchmark in construction & maintenancethe high level of financial leverage that cash strapped governments can use to promote investments. The following is a map of the bold initiatives undertaken.
A framework for successful PPP in India
PPP’s fail primarily because public and private partners are challenged by fundamentally different incentives. Some of the other issues that need to be addressed are
Tariff/cost recovery: Both the public and the private partners should agree on how the cost revenues would come through and the division of the benefits (to be) accrued.
The issue of regulatory risk and collection risk. For a PPP to succeed, it is imperative that the parties assign risk that might emerge, to the party that it is best suited to handle that risk. In most cases the public undertaking should handle the regulatory risk while the private party should handle the operational risk. A clear allocation of roles that have to be fulfilled by each party must also be made.
Arbitration and Dispute Settlement
The issues of subsidies/concessions and who will finance them.
Service Obligations, for e.g. a minimum number of telephones to be provided by basic telephone operators, quality of dial up Internet.
It is best for a PPP to be subjected to competition. The presence of competition prevents the creation of private sector monopolies like in the case of Delhi’s Discoms. The PPP’s should then be allowed to bid for projects. The government enforces a minimum set of standards that must be adhered to.
It would also be advantageous to have a central PPP effort to coordinate PPP efforts at a central/state/ local body level.
Infrastructure, social, healthcare and educational PPP’s should be especially encouraged.
Private Sector Responsibilities
Provision of services – at least to standards set by the public sector agency/contract
Provision of facilities
Tariff/Revenues collection
Local and operational service planning and coordination
Adjustment of services within parameters set by public sector in response to market demands
Public Sector Responsibilities
A clear legal and regulatory framework
An Authority for planning, regulation, procurement, monitoring and enforcement
A mechanism for realistic tariff setting & periodic revision
A competitive environment for service provision
Contractual arrangements with the private operators for repayment of fare concessions
Contractual arrangements with operators for provision of “social” or other services that are not commercially viable
Road Map for PPP’s:
Stage 1: Project Identification. Relevant sectors are identified which is of critical public importance.
Stage 2: Assessment of project viability: Cash flows, profits and viability of the project as a whole need to be addressed.
Stage 3: Project Appraisal
Stage 4: Assessment of PPP viability: If the project can be undertaken as a PPP is identified.
Stage 5: Procedure Selection: Various procedures like regulation and procurement should be assessed.
Stage 6:Project Management
Stage 7: Stakeholder Consultation. The views of various stakeholders like public (through NGO’s) etc can be solicited.
Stage 8:Tender process should be undertaken
Stage 9:Selection of Public/private partner
Stage 10:The actual contracting of various elements takes place and performance management is undertaken.
Conclusion:
All said and done, India’s PPP performance of the last decade has been dismal with the possible exception of roads and ports. A number of vital sectors have been ignored primarily education, healthcare and urban development. Indian policymakers should give a special emphasis on project management skills as a number of projects are running behind schedule and are causing an increase in interest costs. Also, the spread of economic benefits to the country depend on the quality of infrastructure both physical and more importantly the often neglected social infrastructure. India, it appears has made some progress on the physical front but none on the social front. PPP offers a wonderful opportunity to develop this social infrastructure. If we fail to seize this opportunity the doors of prosperity could forever close on a majority of India’s population.
Bibliography:
www.worldbank.org : A case study on Tamil Nadu.
www.ppp.ie
Frontline magazine
National Highway Authority of India.
www.indiaport.org
Business World India article on Corporate Social Responsibility.
Author’s Profile:
The author is a final year student of the Narsee Monjee Institute of Management Studies with his majors in Finance and minor in Information Systems. He has done his Bachelors in Industrial Engineering from the University of Pune. He has done his summers with IndiaInfoline Pvt Ltd on “A Sectoral Analysis of the Indian Oil and Gas Sector”. He enjoys quizzing and reading about technology.
Ph No: 09820272578
Email: krishnananandn@gmail.com
Kan411@yahoo.com
