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Public-private-peoples’ partnership: A long way to go

The public sector has had its hits and misses, which makes a case for public-private-peoples’ partnerships to ensure that projects are executed within the time frame and not subjected to pressures of any kind
 

The immediate post independence era saw the rise of the commanding heights of the public sector, primarily because of the lack of big-ticket private sector investments for projects with long gestation periods in remote backward areas like Koraput, Rourkela, Bhilai and Digboi et al. The Soviet-styled Planning Commission chaired by the then prime minister Jawaharlal Nehru committed public funds for large scale plants in the initial years of the country’s initial Five Year Plans.

 

Later on the private sector was incentivized by union and state government tax breaks and other sops like concessional land acquisitions, exemptions or holidays for income, sales tax and excise, subsidized water and power has came into its own. Thus enthused the private sector spread its wings still wider and moved all over the country, but essentially in the metro areas.

 

The funds requirements of both the public and private sectors still remain insatiable. They certainly cannot come out exclusively either from only the state exchequer or private individual or corporate equity and debt investments. There is a need for both to chip in together. The PPP (public-private-partnership) kicks in here.  

 

With need of time and changing circumstances, the governments raised funds from the investing public at large by issuing bonds. The liberalization brought in the continuing disinvestment process with the state gradually off-loading its holdings in PSUs selectively.  Many of these PSU Navratnas are today’s sizzling Sensex toppers sidelining the private sector giants.

 

At the same time the private sector also has been collecting funds in addition to public issues by drawing on governmental development finance institutions and commercial public sector banks for working capital. Now the Indian investor public has opportunities for equity participation in PSUs via listed shares. India Inc too has large equity investments from governmental institutions like Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). Undoubtedly the great deal of cross-holding and investment of both the public as well as private individuals and entities simply cannot be wished away or simply ignored for all practical purposes.

 

There is no doubting the success of the private sector participation in telecom and power where both the private and public sectors independently operate and co-exist in perfect harmony. India’s tele-density has attained 80% of the population primarily because of its private players while state-owned Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone Nigam (MTNL) continue to operate successfully too.

 

 The private sector accounts for over half the power generation capacity added in the last two years. The record of transmission & distribution (T&D) losses of the state-owned power entities to say the list is dismal because of its much inefficiency. The massive July 2012 power outages in the entire North, East and North-East speaks for itself.

 

The record of PPPs has been mixed in highways projects. There is an urgent need to effectively utilize inland waterways for transportation under the PPP model as it is proven an inexpensive and efficient mode of transport. While  neighbouring Bangladesh transports 30% of its goods, Germany 20%, the US roughly 14% and China has demonstrated the success of inland waterways, India with a navigable length of 14,500 km only a third is being used by mechanized vessels making it just 0.15% domestic surface transport. Though there is a tremendous potential estimated by the National Waterways—even shifting just 1 billion tonne/km out of Ganga’s 50 billion/tonne km would reduce fuel cost by Rs25 crore and transportation costs by Rs45 crore and reduce pressure on rail and road as bulk carriers. There is an urgent need to fast track the Varanasi-Haldia stretch of the Ganga in Bengal, the Brahmaputra in Assam to transport coal, foodgrain and fertilizers and promote tourism in the inland stretch in Kerala. Inland waterway transportation can enhance tremendous fuel efficiencies; it is an eco-friendly and cost effective mode of transporting over dimensional hazardous and bulk cargoes

 

This makes for a strong case for kick-starting greater PPP in all sectors of the economy more particularly in the infrastructure projects involving large positive externalities or where capital expenditure costs take longer to recoup.  It is beyond any private sector operator on its own. The metro rail network not only enables people to travel, it also helps reduces congestion on roads and leads to less pollution and deaths due to accidents all of which cannot be quantified or priced. This holds true even for rural roads and irrigation that have natural public good factor that are positive externality-creation characteristics making them less suited for execution by the private sector alone thus making substantial public sector or joint sector/PPP investment inevitable.         

 

But it has been far from inspiring in the case of metro railways and airports where they face troubled existence culminating in ‘temporary’ suspension of services. Though the Kolkata and Delhi metros have done well, those of Bengaluru and Mumbai are still undergoing teething troubles. The Hyderabad Metro construction has just begun under a new promoter, four long years after it started. The move to handover the Chennai airport to private firms just after the Airport Authority of India spend over Rs2,100 crore on completing its revamp is being questioned. The other international airports across the country have had to hike user fees to defray the extremely high expenditure in modernization making them rather pricey.

 

The ideal situation for the success of the PPP-P—added with the fourth ‘P’ for people—means and includes dedicated individuals, professionals, retired experts and civil society groups to bring in an ideal match with the public sector or local bodies like municipal corporations who are found to be sitting on extensive real estate and premises, infrastructure like roads, empty building premises and facilities which they have already spent crores on development over the years on the one hand and the expert administrative and managerial capabilities of professional manager from the private sector by way of a dedicated band of managers chipping in with their talents .

 

Over the years the public sector acquiring near monopoly market conditions essentially in mining, telephones, airlines got mired in massive inefficiencies, indulged  in corrupt practices, got subjected to political pulls and pressures more particularly in the matters of procurement and personnel  appointments. The success of joint sector entities like the Delhi Metro and Konkan Railways are attributable more to the incorruptible personalities of veterans heading them like E Sridharan and Rajaram Bojji respectively that kept them out of the suffocating conditions suffered by the PSUs to effectively deliver quality systems on schedule and bring in home-grown innovations like the Konkan Railway’s Anti-Collision Device.

 

Not that everything is gung-ho with the capitalistic private sector. The financial meltdown that began in the US in 2008 has bared the chinks in the armour of the so-called free market economics which are now found to be everything but truly free coupled with regulatory failures all over. The post-IPO insider trading, siphoning funds by over-invoiced procurements, ghost employees a la Satyam, dubious transfer pricing for imports, questionable accounting practices are some of the common transgressions attributed to the private sector.

 

The PPPP model with the effective oversight of national watch dogs like the Central Information and Vigilance Commissions subjected to audit by the CAs and the Comptroller & Auditor General of India (CAG) can certainly help mitigate much of the shortcomings. The audit by independent statutory auditors also overseen by the CAG makes for an effective double check.

 

The public authorities, be it the municipal corporations, railways, airports, PSUs or defence cantonments are sitting on massive idle lands and structures. All these and related infrastructural facilities  can be put to effective use as public stake/contribution/equity participation with the people and private sector piping in with their superior intellectual and managerial talents in addition to agreed financial stakes. At the same time it should be ensured to safeguard the property and premises by taking care to see that they do not under any circumstances fall victim to scams. This was curbed to a great extent by Shailesh Gandhi when he was a Central Information Commissioner.

 

In October 2011, in their suggestions & comments on the National PPP Policy Moneylife Foundation had made a submission to the ministry of finance (MOF) that the entire PPP process should be placed on the website, the assets of the PPP should be held in the name of people/project, time frame for holding and revenue sharing on BOT, open to Right to Information (RTI) information scrutiny and CA/CAG audited.  

 

The success story of the multi-specialty hospital-cum-retirement home for senior citizens-orphanage Matru Chhaya, at Bengaluru run by the Canara Bank sponsored trust is a classic case of the good of PPPP in action.

 

Only last week the Mumbai Municipal Corporation has approved the proposal to hand over management and administration of its primary schools running from their vast premises across the city.  It is hoped that the drop-out rates will be brought down by better school management.

 

(Nagesh Kini is a Mumbai based chartered accountant turned activist.)

 

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