India’s PPP Juggernaut

The UPA government is aggresively pushing public-private partnerships (PPP) in infrastructure development. The Planning Commission estimates that PPP will account for 30% of the estimated $1.5 trillion infrastructure investment required in the 11th and 12th Plans. The desired PPP share comes to Rs 2 trillion a year, or six billion rupees a day. This is larger than the Union Government’s Plan budget this year.

There is no question that private sector participation will be required to meet India’s infrastructure needs. But PPP is not just a new way of financing India’s infrastructure deficit, it is a fundamental rewiring of the relationship between the state and the market. A World Bank report on private participation in highways states, “in the development of PPP projects, five types of constraints must be overcome: political and bureacratic, legal and regulatory, financial, methodological and implementation.” In short, pretty much every aspect of government functioning!

Given the magnitude of this impact, we cannot rush headlong into a love affair with PPP without the necessary checks and balances - the benefits of private-sector efficiencies will come at a price.

Let me offer two examples where we need to re-think how we develop PPPs. The first, with greenfield international airports. Since Bangalore’s international airport agreement was signed in 2004, unanticipated air traffic growth is raising genuine capacity questions, and the need to retain the current airport without disturbing the economics for the airport consortium, BIAL. They are, rightfully in their interest, not only suggesting that the contract is cast in stone, but that India will suffer reputational risk in renegotiation.
The government is finding it difficult to play what is clearly a sovereign role of the state in protecting the public interest, because its commercial stake in the airport has compromised its position. A report on PPP workshops for State Chief Secretaries conducted by ADB and the Department of Economic Affairs states, “A key lesson learnt from international experiences is that governments often get overenthusiastic to get private sector participation by offering excessively concessional terms to the project company.” Incidentally, there were more than seventy modifications to the the concession agreement for the Lima Airport in Peru in just three years, arising out of changes to the “rules of the game” or failures in the original contract design.

The second example is with SEZs. Here, the damage is even worse. States are taking minority stakes in SEZs, for which they are willing to cede access to one of the most powerful weapons in the arsenal of government – eminent domain, the ability to notify and accquire private land for public purpose. The revised SEZ guidelines and the Land Acquisition Act amendment in Parliament don’t go far enough in creating sufficient checks. Put crudely, these examples are nothing short of bartering the sovereign role.

Jerold Oppenheim, who worked for the United States Attorney General’s office for three decades, writes in a report he co-authored, titled “Democracy and PPP”, “States should be cautious about any cession of control to private for-profit interests. The American experience shows (a) very difficult path that requires very strong public, labour, and other NGOs to advance public interests of quality, safety, reasonable and affordable price, transparency and democracy.”

Even China - yes China! – has learnt that PPP projects require consultation. In a PhD thesis titled “Governing Urban Water Flows in China”, Lijin Zhong writes of the impact of public hearings on water tariffs, “Public hearings made government decision-making processes more transparent and legitimized, and difficult decisions as price increases more acceptable.”

Beyond pointless hand-wringing, is there anything concrete that can be done? Yes. We need State Governments to establish full-fledged PPP departments, replacing the wishy-washy “PPP cells” that are being contemplated today – PPP isn’t about cells, its about the entire organism. Let these PPP departments be mandated with developing the core competencies, policy framework and public discourse necessary for calibrated PPP to succeed. This is the best interest of all – those who want to push ahead with projects, but also those who want thoughtful engagement.

Here we need mature, nuanced debates, not pugilistic rhetoric that gets thrown across entrenched corners of the ideological boxing ring. The reality is that India’s majority is in the middle – acknowledging that while government must cede to market forces in certain areas, we cannot see a complete capitulation of the state.

The cautionary note is especially relevant for India. After all, we have experience with the largest PPP initiative in history. It was called the British East India Company.

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The author is Co-Founder of Janaagraha.