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Why the public-private partnership model has failed in India

26/01/16, 15:57

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Why the public-private partnership model has failed in India


ARINDAM CHAUDHURI | New Delhi, February 7, 2013 13:56

Indian policymakers had been daydreaming all along that the public-private
partnership (PPP) model could solve all the infrastructural deficiencies of India
a clear case of vision that had turned into wishful thinking. In reality, the
supposedly resounding thrust on PPP has backfired and has even choked the
prospects of this model. It is true that there is promise in the model, which had
raised the hopes of the nation, especially in the areas of mega-infrastructural
development projects. The entire nation had started to envision our metros
becoming the equivalents of Shanghai or New York in the years to come. And
why not? The drumbeats and glitter associated with the PPP model have been
quite profound. If we compare the beaming airports of Delhi or Hyderabad (built
through the PPP model) to the shoddy government achievements showcased in
the quite ordinary looking Chennai and Kolkata airports, the point does gets
proved.
Against Indias poor infrastructural backdrop, PPP had been exponentially scaled
up in the last ten years under a blind faith that it would produce nothing short of a
miracle. Private participation has been consequently rising in PPPs in sync with
governments mission and policy. In the 11th Five Year Plan for example, the
governments estimation of investment on the countrys infrastructure between
2007 and 2012 was pegged at $320 billion. In this context, the World Bank had
earlier assessed that as much as 20 per cent of this could be sourced through PPPs. Astonishingly, the figure rose to 37
per cent with the major contribution coming in the telecom sector.
On hindsight, everything may seem good; but then, a deeper scrutiny reveals how PPP projects are getting stalled and
delayed. What get missed in the larger picture are the latent problems that are getting accumulated beneath the surface.
No doubt, the PPP model has constructed numerous state-of-the-art infrastructure projects, but they are still inferior in
comparison to the output that developed nations have been achieving through the same model. The inherent curse of redtapism and power struggle between different agencies as well as between the private sector and government are looming
threats for the prospects of the Indian PPP model. Add to this, the inevitable scenario of corruption and resultant artificial
price hike of the resources that are gradually making PPP an unviable business model.
For example, in the case of the new Chennai airport, the
tussle between Airports Authority of India (AAI) and the
private consortium on controlling rights has become a case in
point. The impediments faced while inaugurating the new
Chennai airport throw open more questions than answers.
The governments decision to hand over the terminals to
private parties has made the AAI extremely dissatisfied
because they were and are striving for having a complete
control! Further, as mentioned above, the ubiquitous red tape
played its usual role in delaying the project that consequently
failed to meet deadlines not once or twice but over a dozen
times in the last four years. Like I said, this one case study of
the mismanaged show at the Chennai airport more or less is
symbolic of the problems that encompass the entire PPP
domain across the country. And running parallel to this, corruption has no lesser a role to play either. From power
companies to telecom giants, wherever there is involvement of private companies in sync with the government, the unholy
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Why the public-private partnership model has failed in India

26/01/16, 15:57

trail of corruption can be seen decaying the best of models.


The Vadodara-Halol Toll project suffered due to mistaken traffic projections, due to which proposed government incentives
were stripped off from the project, thereby raising both policy and revenue risks for the involved parties. The DelhiGurgaon expressway was a victim of mammoth red-tapism where the lack of coordination of more than 15 civic bodies
whose approvals were necessary came out in the open in the shabbiest manner possible. In the same lines, the
Karnataka Urban Water Supply Improvements project suffered due to continued lack of proper coordination between three
bodies associated with the project. The Delhi Airport Metro Express was shutdown for 6 months when its operator
Reliance Infrastructure pointed out cracks that had developed on its metro pillar structures. Then followed the typical
blame game with the involved parties blaming each other for the faults. So much so that Reliance even went on to claim
damages for losses incurred due to the closure of the project. Delhi Metro authorities also claimed that they had had to
reject an offer from Reliance to quit the whole project due to financial non-viability. Such wayward grandstanding and
brinksmanship aside, even as the Airport Metro Express was reopened last month, the high-speed corridor envisaged
earlier was debarred by the office of CMRS (Commissioner for Metro Rail Safety) that reduced the speed limit to a mere
50 kilometers per hour. Talking about railways, the two Dedicated Freight Corridor (DFC) lines that were targeted to be
completed by 2017 are also currently stuck up due to land acquisition issues, lack of funding tie-ups and re-tendering of
construction contracts, and other similar problems. The Dedicated Freight Corridor Corporation of India (DFCCIL) has
apparently been able to acquire only around 70 per cent of the total land required for the corridors! Moving on to another
area, the National Maritime Development Plan (NMDP) that involves 390 projects (worth over Rs.1,000 billion) has been
awaiting environmental clearances; and subsequently, more than 80 per cent of the listed projects are on a standstill
mode.
The stalled/delayed/off-track PPP projects list is a long one and ever
expanding. Most of the operators jumped on to the PPP bandwagon
due to cheaper inputs like energy and fuel (which are under
government control) but then, they have later found the entire project
financially unviable due to delays in land acquisition and other
bureaucratic clearances issues that have skyrocketed costs in
various PPP projects to levels that have negated the advantage of all
subsidized inputs! A simple glance over the Ease of Doing Business
report by the World Bank would be enough to gauge the predicament
we rank a lowly 132 out of 185 countries surveyed!
However, the problems perhaps dont lie with the dynamics of the
model but more to do with the dynamics of Indias political and
economic settings. For instance, in China, the consequent results of
the PPP model are different and efficiently profitable for the parties
involved due to the abovementioned political and economic settings
being conducive to the same. Chinas efficient bureaucracy, fewer
corruption cases, zero or minimal red tape and cheap resources make
them a benchmark case study for understanding PPP projects.
Resultingly, numerous SPVs (Special Purpose Vehicles; corporations
set up to manage PPP projects) are efficiently bolstering the rapid
growth and success of PPP projects in that country. By 2015, it is
estimated that more than half of the Chinese population would reside in
urban centers, a feat that seems decades away from India. The
bottom-line of Chinas success in building world class infrastructure is that they provide clean, hassle-free, uncomplicated,
and prompt governance. These clearly cannot be expected in India, a nation which is the epitome of corruption. In such a
scenario, the Build-Operate-Transfer (BOT) model that the Delhi Metro has followed is perhaps the only way to ensure
sustainable standards and quality over the long run in India. Delhi Metro has been a case in point, but then, it is not
making money the way a private player would have wanted to make for business viability. This is where we need to follow
a bit of the Western model too! As I said earlier, in the current scenario, the State must singularly start building most of the
projects (thus, dodging the public-private coordination delays that may create hurdles) as they do in China; and later, they
should auction the same to private players for efficient management and effective service delivery, the way they do in the
US.
In summary, if we really need the model to work, then India has to internalize lessons from America and China in
implementing the same this is the only magic that can make the Indian version of PPP work!

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Why the public-private partnership model has failed in India

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