Falling through cracks
9 Feb 2013 11:54 PM GMT
Indian policymakers had been daydreaming all along that the public-private partnership (PPP) model could solve all the infrastructural deficiencies of India. In reality, the resounding thrust on PPP has backfired and has even choked the prospects of this model.
Against India’s poor infrastructural backdrop, PPP had been exponentially scaled up in the last 10 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 government’s mission and policy. In the 11th Five Year Plan for example, the government’s estimation of investment on the country’s infrastructure between 2007 and 2012 was pegged at $320 billion. In this context, 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. All this seems good; but then, a deeper scrutiny reveals how PPP projects are getting stalled and delayed. The inherent curse of red-tapism and power struggle between different agencies as well as between the private sector and government are looming threats for the 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, with AAI extremely dissatisfied at the government’s ‘decision’ to handover the terminals to private parties. Interestingly, this project had failed to meet deadlines over a dozen times in the last four years. 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 Delhi-Gurgaon Expressway was a victim of mammoth red-tapism where the lack of coordination of more than 15 civic bodies came out in the open in the shabbiest manner possible. The Delhi Airport Metro Express was shutdown for six 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. 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. 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. 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 subsidised inputs! No wonder India ranks a lowly 132 out of 185 countries surveyed in the World Bank’s ‘Ease of Doing Business’ report!
However, the problems perhaps don’t lie with the dynamics of the model but more to do with the dynamics of India’s political and economic settings. For instance, in China, the consequent results of the PPP model are quite efficient and profitable. China’s 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 (Special Purpose Vehicles (SPV), 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 centres, a feat that seems decades away from India. The bottom-line is that China provides clean, hassle-free, uncomplicated, and prompt governance. These clearly cannot be expected in India, 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! 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 service delivery, the way they do in the US.
In summary, if we really need the model to work, then India has to internalise lessons from both America and China in implementing the same – this is the only magic that can make the Indian version of PPP work!
The author is a management guru and director of IIPM Think Tank
Against India’s poor infrastructural backdrop, PPP had been exponentially scaled up in the last 10 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 government’s mission and policy. In the 11th Five Year Plan for example, the government’s estimation of investment on the country’s infrastructure between 2007 and 2012 was pegged at $320 billion. In this context, 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. All this seems good; but then, a deeper scrutiny reveals how PPP projects are getting stalled and delayed. The inherent curse of red-tapism and power struggle between different agencies as well as between the private sector and government are looming threats for the 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, with AAI extremely dissatisfied at the government’s ‘decision’ to handover the terminals to private parties. Interestingly, this project had failed to meet deadlines over a dozen times in the last four years. 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 Delhi-Gurgaon Expressway was a victim of mammoth red-tapism where the lack of coordination of more than 15 civic bodies came out in the open in the shabbiest manner possible. The Delhi Airport Metro Express was shutdown for six 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. 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. 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. 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 subsidised inputs! No wonder India ranks a lowly 132 out of 185 countries surveyed in the World Bank’s ‘Ease of Doing Business’ report!
However, the problems perhaps don’t lie with the dynamics of the model but more to do with the dynamics of India’s political and economic settings. For instance, in China, the consequent results of the PPP model are quite efficient and profitable. China’s 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 (Special Purpose Vehicles (SPV), 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 centres, a feat that seems decades away from India. The bottom-line is that China provides clean, hassle-free, uncomplicated, and prompt governance. These clearly cannot be expected in India, 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! 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 service delivery, the way they do in the US.
In summary, if we really need the model to work, then India has to internalise lessons from both America and China in implementing the same – this is the only magic that can make the Indian version of PPP work!
The author is a management guru and director of IIPM Think Tank
Next Story
