Understanding Public Private Partnerships

A lot has been said and debated about Public Private Partnerships, but for many individuals this just serves as a term used to describe an obscure idea of development occurring in our nation. It is important for the citizens of India to be involved in decisions being made within our democracy and for that to occur they must be educated in the intricacies of something as impactful as the creation of a partnership between the public and private sector.

 

In the context of infrastructure development what is PPP?

As is the case with most countries, governments face the challenging task of providing new infrastructure services and assets such as electricity supply or a new highway. Even with 2013-2014 witnessing a gross tax collection of ₹13.64 trillion (US$210 billion) India struggles to create adequate systems. Funds raised through taxes and regulatory fees are massive yet limited, due to multiple expenses such as scientific research, agricultural support and militarydefense, to name a few.

 

In such a scenario, partnering with the private sector provides an attractive solution towards creating a new supply source for infrastructural improvements. 

 

How does PPP work?

A legal contract binds partners in a PPP to share the responsibility for the implementation, operation, management and monitoring of the infrastructure project. Emphasis is laid on each partner's skill and their ability to fulfil public needs through the efficient allocation of resources and risks in return of rewards.

 

What advantages PPPs may provide?

To better understand the advantages of a PPP we spoke to Mr. Arun Lakhani, MD of Vishvaraj Infrastructures Limited. "Governments worldwide are increasingly turning to the private sector to help provide services in communication, energy and power, water and transport sectors. Streamlined and efficient methods usually adopted by corporates are the reason for this"

 

In addition, there are several other reasons which encourage governments to collaborate with private players.

 

1)   The access to additional resources that can be utilised to match the exponentially increasing needs of the public
2)   Availability of extra investments through local and international players
3)   State-of-the-art technology employed for the operation and management of these services

Reduced cost in the form of better executed planning and development of each project is a large benefit that is often considered. A profitability driven approach ensures better screening of options, structuring of projects and choice of technology. 

 

"The Indian Government can benefit from an increase in services, without spending immediate cash, avoiding major risks by transferring them to the private sector and ensuring timely delivery of projects", added Mr. Lakhani.

 

PPP are often misunderstood to be simple construction projects by the masses. However, in reality, there are differences between a traditional construction project and a PPP in terms of development, implementation and management. The objective of the PPP is to deliver a specific service and not simply build an asset. Most importantly PPP contracts are more complex and have a much longer tenure than a construction contract. An understanding of this is necessary not just for the partners but also for the general public interested in the development of the country.

 

Countries around the world have experimented with different forms of PPP. In India, there are 6 major models, Service Contract, Management Contract, Lease Contract, Concessions, Build-Operate-Transfer and Joint Ventures. The government usually analyses the need for a PPP and then decides upon the model through which to achieve it's goal. A great example of a PPP model in our country is the Nagpur 24x7 water project.

 

Nagpur, due to rapid urbanisation across the last two decades, has faced severe water supply challenges. The availability of water has been highly inconsistent ranging from a few hours a day to a few minutes . Mismanagement of water distribution lead to losses of upto 60%. Quality of water was frequently found to be below drinking standards.

 

In 2012, in order to overcome this gigantic challenge the Nagpur Municipal Corporation chose to enter in to a Public Private Partnership, a landmark move in the history of the Government working hand-in-hand with the private sector. Nagpur essentially opened it's doors and mind to an opportunity that would help build a streamlined and efficient model which could be replicated in the future.