Retooling PPP for sustainable Infrastructure Development

The Infrastructure story in India took off in right earnest about 20 years ago with the National Highways Authority of India adopting the public-private partnership model for the development of highways. Till date, over 240 highway projects have been implemented by the NHAI through the PPP route, despite the exit of a few private developers from PPP projects in recent years. The popularity of public-private partnerships in the delivery of public services continues to grow and spread. In recent years, the demand for infrastructure has grown phenomenally making it difficult for the public sector and government agencies to fund big projects by themselves. It has therefore become increasingly common for the public sector to look up to the private sector to provide financial resources, innovation, and technical expertise through the enabling framework of a PPP contract. Out of the proposed allocation of Rs. 51 lakh crore towards infrastructure investment during the 12th Plan period (2012-17), 47% is expected to come from the private sector.

According to a World Bank report, India ranks as the largest market for PPP in the developing world. Currently, there are over 900 PPP projects in various stages of development. These projects are spread over various sectors such as power, water, health, education, energy, roadways, railways, airports, ports, tourism and urban development.

Private enterprises have developed metro airports in Bangalore, Hyderabad, Delhi and Mumbai. The concessions for the operation of container trains have been awarded under PPP. New milestones have been reached with different forms of PPP implementation – turning minor ports into major revenue sources, such as in the State of Gujarat. Budget 2014 has given a further fillip to PPP projects by announcing new infrastructure projects on a mega scale. Among the most prominent is the 15,000 km gas pipeline. The most promising initiative in terms of boosting infrastructure development has been to allocate Rs. 500 crore for 3P India, a new institution tasked with the responsibility of refurbishing the PPP model.

Planners and development experts agree that PPPs can bring about constructive and productive partnership between the public and private sectors, which can be particularly useful and beneficial for developing infrastructure. For instance, India’s largest public sector behemoth, Indian Railways, which needs huge capital investments to finance bulk of its future projects such as high-speed rail and more freight corridors, is looking to raise substantial resources through the PPP route. Disclosing that the government needs more than Rs.9 lakh crore to complete the Golden Quadrilateral Network and another Rs 60,000 crore to introduce one bullet train alone, railway minsiter DV Sadananda Gowda, while presenting the railway budget in Parliament asked the House, “Can I depend only on hiking fares and freight rates and burden the public to realise these funds? This is unrealistic. I need to explore alternate means of resource mobilisation.”

As per a report (India’s urban awakening) by McKinsey Global Institute (MGI), India needs to invest $ 1.2 trillion over the next 20 years to modernize urban infrastructure and keep pace with the speed of urbanization. The need to upgrade India’s infrastructure is especially acute in its huge cities with the urban population projected to reach 500 million by 2017 from 377 million, according to the 2011 Census. Projects such as mass transit systems, better rail connectivity, industrial corridors, smart cities, highways and expressways, energy investments, new airports, etc, will be needed to uplift the quality of living for people in the city and regions around it. It requires government and industry stakeholders to come together to promote and encourage PPP models as a way to financing and delivering capital projects more efficiently and effectively.

Successful PPP models not only create long term infrastructure for public use, they help to earn decent returns for investors while begetting revenue share for the government, which also stands to gain from ownership of assets at the end of the concession period.

Strengthening our institutional mechanisms for PPP is a pre-requisite to its successful implementation and the recent initiatives will help the PPP model to become more robust. As PPP models are complex structures, care has to be taken that we structure and design PPP projects in a way that helps to improve transparency, creates investment incentives and allows for expertise to develop and negotiate complicated contracts. To make the best use of the opportunities PPP offers for sustainable infrastructure development, we must focus on improving the transparency and the accountability of the projects. In this context, it is important to analyse the projects well before tendering. Global experience and PPP best practices have established that highly competitive outcomes can be achieved with 3-4 competent bidders.

At the same time there is an urgent need to modify our approach to the planning, bidding and execution of infrastructure projects, and how we approach issues of infrastructure maintenance, management and operation. To begin with, the interests of “owners” and “contractors” should be aligned in PPP projects. The focus should be on optimising the total lifecycle costs instead of only the up-front costs. It therefore becomes all the more necessary to adopt the right contractual structure and allocate risks fairly.

Acting on these fronts will ensure that partnerships for infrastructure development yield the expected fruits – for the investment partners and for the communities supposed to benefit from them. We hope that the new government, with its emphasis on establishing a climate of lasting trust and real partnership, will be able to make PPP an effective instrument for serving the wider public good. At a time when people are looking up to the government to deliver on the huge expectations it has helped to build, PPPs can be the right medium for improving the lives of the people through more inclusive and sustainable development partnerships.

About P. Sahel

As Vice Chairman of Lotus Greens, Sahel is responsible for giving directions on overall business strategy and key investments decisions of the firm. Being one of the founding members of Lotus Greens, Sahel has been instrumental in formulating various company policies, setting up systems and processes, and building a strong team of professionals. Prior to Lotus Greens, Sahel worked for more than 16 years in some of India’s largest and most respected real estate companies like Jones Lang LaSalle for 13 years as the Managing Director of the Markets & Solution Development and DLF prior to that. The views expressed are personal

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