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Public Private Partnerships In India

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Public Private Partnership or PPP is a subject being given the increasing attention that it has been receiving in context of the sweeping changes in India's economic policies. We are all aware, along with the dismantling of the license permit raj a greater role is envisaged for the private sector in these new policies. Now it seems that, the private sector is not only to be facilitated in its growth, but there it can be taken on board as a partner by the government in the provision of public services. This of course, is the purpose of PPP. For those of us who have had a long innings in Government, such thinking represents a paradigm shift from the way things were always done.

I am aware of the fact that some expertise has been built up, in the country, on PPP techniques. The India Infrastructure Report 2004, brought out by the 3-I network, IDFC, IIMA and IIT Kanpur, had devoted an entire section to PPP. Previous Infrastructure Reports have also have had chapters devoted to various PPP issues. Indeed there are many projects in the country, which have been based on public private participation. PPP is being recommended not only for provision of infrastructure, but also for e-governance initiatives, and services in the social sector like health and education. But the point I would like to bring out again is that the large majority of administrators, is not aware of PPP techniques and may therefore be wary of using them in projects under their charge. This is where a source book, which outlines the basic concepts, and clearly shows the pros and cons of the method, would provide an extremely useful input for civil service probationers as well as for junior and middle level officers who attend in-service courses at LBSNAA. You will agree with me, that our job as trainers at LBSNAA, is to ensure that the knowledge developed in the field and in academic institutions is transferred on to as great a number of officers as possible. Of course, such a book will have to cover all the basic concerns administrators may have about PPP - the rationale behind it, methods of financing, the legal aspects, to mention a few. I am sure that the participants assembled here today are the most appropriate persons to comment comprehensively on these issues. They are people from diverse fields, administration, law, finance, the social sector, and so on, who bring with them a wealth of practical experience.

As I said earlier, I am not an expert on the subject, but I would like to share with you some of my concerns on the subject. It may be of some value to you in your deliberations.

As I see it the need for public private partnership stems from the pressure on Government to deliver public services that meet certain standards of performance, and the increasing needs of our population. People are demanding services that are of a quality that are comparable with those anywhere in the world. They are also not prepared to wait for too long for the provision of these services. There is a shortage of public funds to meet the various demands, and many of our state governments are indeed seriously strapped for cash. The impetus for PPP therefore comes from the expectation that the private sector will bridge the fund gap that government faces in the provision of infrastructure, and also that it will bring in more appropriate skills for maintaining and running the facilities efficiently, than are found in government. There is also a view that PPP is emerging as a successful vehicle for attracting foreign direct investment in the infrastructure and utilities sectors in developing countries. This, of course is only the way government sees the situation. The private sector on the other hand will expect a good return for their investment, besides smooth processes of investment and operation, and a certain degree of safety for their investments. In other words, PPP, whatever the form it takes, would essentially revolve around contractual agreements of shared ownership, whereby a private and public agency pool resources and share risks and rewards, to create efficiency in the production and provision of public goods or services in an equitable manner. The key words seem to be rewards and risks.

Having said this, I may state that this scenario gives rise to a host of issues to the mind of a practical administrator. Some of them would be on these lines:

* Firstly, when should a public project opt for PPP? Does the project lend itself to the model, or indeed justify sharing of the rewards with the private sector. The U.K. was one of the first countries to go into partnership with the private sector for providing public services. They have been fairly successful in this respect. One of their PPP models is called the Public Finance Initiative (PFI), wherein the government contracts to purchase services on a long term basis from a private provider, who may build, maintain and operate infrastructure. The costs may be met from user charges, along with state subsidies, which are a form of "viability gap funding". However while implementing the PFI program, the U.K. government had issued guidelines on the types of projects that needed to be taken up under it. These guidelines stated that "PFI is appropriate where there are major and complex capital projects with significant and ongoing maintenance requirements. Here the private sector can offer project management skills, more innovative design and risk management expertise that can bring substantial benefits." In other words it is clear that PPP can be considered only for a certain kind of activity. I understand that there



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