We discussed issues related to public private partnerships, their pros and cons in class. It is clear that ultimately it is the taxpayer's money that goes into building or maintaining any kind of public service. PPP's can be seen as a means to involve private capital in infrastructure building for a long time. In traditional contract based projects also, it is private player that builds the infrastructure and hand it to government. It was only short term induction of private capital. In a project where private player retrieves his investment from tariffs, government is not getting that revenue in future but the effective benefit to the govt is that much needed infrastructure is getting built in advance which improves the general well being.
Since it is believed that private operator is better at providing quality, instead of a PPP we can go for other types of contract where private player operates(maintenance of a facility) for a fixed fee. But it only means direct investment by the government all the time. So, a PPP effectively involves private capital for long time. Apart from problems that arise in initial stages of PPP's such as procuring permits, land acquisition, many problems with PPP's arise because they are longterm. some of them are Political uncertainities, Inflation, apparent complete privatization(perception of general public) of basic provisions by the government and foreign exchange risks if global players are involved.
Another difficult or perhaps the most important challenge is to bring institutional change in general public about government has responsibility to provide all amenities absolutely free. With the advent of the PPP, the problem became more pronounced since public is reluctant to pay more tariffs(example : water). Is it reasonable to conclude that many problems faced by PPP projects are because they are longterm?
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I agree with you that PPPs are long term projects involving private capital, but attributing the problems to just its time scale alone is not acceptable perhaps. For example, most of our existing NHs were built with out PPP, they were also long term projects and were successful. And as you mentioned bringing in the change in mind set of public is the most onerous task and which also is primary need as it is the public at the end who are paying for utilizing the asset built by these PPPs.
To state that the Govt. has the responsibility to provide all amenities absolutely free is not quite acceptable. If that is the case, what is the source of income for the govt., which has already being suffered from corruption, lack of funds, lack of technology compared to that of developed world and so on? Even what the GoI is doing is that, it heavily subsidizing than providing it for free, with very low tariffs leading to low revenue and hence low investment.
I feel, it is reasonable to say that many problems that are faced by PPPs are due to lack of persistent political commitment, public mind set to pay for utilizing an asset along with the long time period of the project.
PPP's are long term, no doubt and this question to my knowledge has been raised by the investors and stakeholders as well. It is stated to be difficult to plan for long term projects in today's world of uncertainity apart from the issues already existing down the line. Bhagat has commented on the political commitment required to 'make a difference', as to how these projects are perceived. I am at this juncture reminded of the finance minister's speech on the Union Budget 2009-2010.I present one of his statement:
"The investment in infrastructure for the growth of economy is critical. I have urged my colleagues in the Central and State Governments to remove policy, regulatory and institutional bottlenecks for speedy implementation of infrastructure projects. I, on my part, will ensure that sufficient funds are made available for this sector."
Isn't the fact that the institutional bottleneck being recognised and acknowledged itself a stepping stone for a positive change in our political system paving way for higher committment.
Sobha,
I respect your comment and I would be pleased, if it happens as stated by our Hon. Finance Minister. But, mere identification of bottlenecks may not ensure accomplishment of these projects. Even though it was stated so, I personally don't believe that its that easy to over come the traditional bureaucratic red-tape provisions. Over and above that, the reliance on fickle statements of politicians is close to be said as ridiculous in Indian context, most of the time, if not always.
Nevertheless, as at least it was stated by our Hon. Finance Minister that they were aware of the impasse, lets hope it works…!
Bhagat,
I did not mean to say that government has responsibility to provide amenities for free. What I meant is that public has such a perception and that kind of mindset(institutional change) has to go away gradually. With PPP's the problem because of that kind of mindset became clear. Government's focus should be more on improving public capacity but not over subsidizing services. But this is a gradual process.
Avinash,
Now I got your point clearly.
Avinash,
I agree with your view for having a change in the mindset of the people regarding PPPs. As in the long run, these PPPs are very cost effective. But still, there are millions of people in India who aren't capable of paying taxes on certain facilities they have been using even though Government has subsidized those facilities. So, how could they pay more tarriffs on the facilities provided by a PPP project. Many a times this leads to conflicts as we will see in the case study of Cochabamba PPP project.
Ya, that was my point as well bhagat.
PPP is just an option for getting the asset built first and the paying for it later gradually, when the govt. is not having enough funds or efficiency or innovative thinking etc. but its not necessarily the only way that we have. If people are really incapable of paying, may be PPP is not a good option, unless the govt. is ready to pay as in the case of BOT-annuity, where the risk of paying the money is on govt. , annually or semi-annually, regardless of toll being collected sufficiently from the users or not. Even in this context let me remind you one thing...initially the BOT-toll roads concept was not accepted by the users, but however they recognized their benefits in saving time, fuel consumption, and joy of riding so on and accepted it gradually, albeit late.
And in the context of Water Supply, here comes another aspect predominantly, SOCIAL aspect, as generally people tend to think that "access to water is my fundamental right and why should I pay for it?” It's really a tough question or problem to be addressed.
As we have discussed in today's class, increasing tariff gradually in compliance with the level of service being provided is one option to convince the public and make them to pay. Another is to make a pilot project in small scale and show it as an example, in case it is successful.
If in case, nothing is going to work, the govt. has to provide the facility for free, and O&M should be shouldered by the users, otherwise absolutely free, which may be funded by the taxpayer's money. It’s just my opinion.
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