Public Private Partnership (PPP) involves a contract between a public sector authority and a private party, in which the private party provides a public service or undertakes a project and assumes substantial financial, technical and operational risk in the project. The PPP model became popular in the 1970s with Governments favouring it for infrastructure projects. This is despite inconsistent objectives of a Public Authority and a Private Enterprise; while the Public Authority’s focus is on public cause, a Private Enterprise’s focus is profit maximization.
So what brings the two together to tango? It is the need, capability and more importantly, availability of capital for projects that require substantial investments with extended gestation period.
This model is particularly suited to emerging nations where the Government has limited ability to raise substantial capital for creation and/or management of infrastructure for public purpose. Private parties invested around US$225B between 2007 and 2012 in India. Over 750 projects are underway or completed mainly Roads, ports and power projects.
Therefore, in an emerging nation like India that takes pride in its vibrant open market economy and where the private enterprises have the risk appetite, this model should be very attractive!
But that is not the case… value of the pipeline of new projects fell by 52% in the last fiscal year. The new airport terminal in Delhi completed as a PPP project is apparently losing money, the new express-train link connecting it to Delhi has been shut and the service operator says it is financially ruinous. Only a quarter of all projects are on or ahead of schedule.
So what ails PPP model in India? Reasons include red tapes, corruption and Government Departments not adhering to commitments made during the bidding process. The 4.7km long sea link connecting Bandra and Worli in Mumbai has become a landmark. However, this project took 10 years instead of originally planned 2.5 years. The original budget was US$74M but doubled. After construction began the cash starved road agency in charge, MSRDC, changed the plan from eight lanes to four and back to eight again; the council took an age to release the land needed to house machinery; Maritime rules banned work during the monsoon; Customs held up the import of a 5,400 tonne floating crane. Ofcourse, one can also attribute some failures to exaggerated bids by Private Enterprises during bidding leading to challenges and many of PPP contracts won during 2007-10 may never make profit!
So one wonders whether PPP projects would be feasible at all!
It is certainly possible but with political will. The Government of India’s definition of PPP includes “…the private partner has been chosen through a transparent and open procurement system” but more importantly the Government has to implement necessary mechanism to support single-window clearance and also support the partner to complete the project as per plan by enforcing coordination between all Government departments. Current mood in the business world does not augur well for infrastructure improvement in India and the spirit seems to be fading. The Government should re-kindle the interest to not only attract domestic private enterprises but also global enterprises to PPP projects. Else the target of US$1Trillion investment on infrastructure and an average GDP growth rate of 8% in the current 12th Five Year Plan shall remain only a distant dream.
PPP is certainly a boon for a nation like India. The author remains optimistic that there would be a spring around infrastructure similar to the Indian springs that erupted around corruption and women’s safety in the past year, to coerce the Government to evolve an efficient process.
ramls 
Ram,
interesting perspective on PPP, considering that, most of the infrastructure projects are on PPP model. It has to go beyond the road and air infrastructure – raliways, which badly needs investment as well as new ideas.
On making it attractive, as you rightly said, it is all about Government’s will, bureaucracy’s efficiency and private party’s resources.
While, fundamental research needs PPP badly, if India has to be a leader in the global context.
It is given that, State has to provide basic things like education and health, but even those areas require private-state partnership.
Hope your blog gets onto the radar of some of the forward looking policy makers, it will give them some ideas and reinforce optimism in them.
Good article Ram. Time and again i find few characteristic traits that appear in all the problems:
1. Corruption
2. Split of government into regional parties
3. the simple enormity of people needed to deal with for decision making
PPP is definitely a must as it also takes the game to the next level, with proper outlook. Fall of 52% in the last fiscal year is abyssmal, but hoping it would do better in 2013.
happy new year to you 🙂
Ram,
Very well written. Adding my two cents to PPP. In the Indian scenario, as the emerging country and embryonic economy, this is very much viable and achievable in theory. Putting to practice and implementation is not so easy because of the frequent change in administrations & managements, corruption, indefinite delays and ever changing deadlines.
Here is the website link from Finance Ministry, which has the database of all the PPP that are in progress/ pipeline. http://www.pppindiadatabase.com/
Me too is an eternal optimist, hope to see the projects listed to see the twilight of completion !
Best Regards,
Aruna
political will–that’s a biggy! If the governmental bureaucrats think less corruption and take it upon themselves to make things happen come what may, all kinds of coordination between governmental departments can happy in a jiffy! A change in culture and mindset is key!
An interesting article Ram , especially a much needed one that is affecting all of us in one way or the other.In my opinion since the Private sectors are involved a detailed study could be done the typical issues that PPP’s in India experience, how they could be dealt with and how some mistakes of the past could be avoided in future.Risks involved and Risk mitigation.Definitely not referring the “Big” problems here..
Regards,
Preeth.