Is PPP overrated?

The industry may be disappointed with the Food Security and Land Acquisition Bills, seeing them as a step back into the era of subsidies and socialism. In many ways-lets’s face it, so would be protectionism of domestic businesses against the onslaught of Chinese power equipment manufacturers, but we don’t hear as much as a murmur from the industry against that development. The US has gone as far as to file a complaint with the World Trade Organisation against India against the protectionist measures.

Somehow or the other, politics runs through decision-making processes, and those revolving around schemes such as PPP are no different. Regardless, governments must find solutions to make things work. Our Group Executive Editor Shashidhar Nanjundaiah recently posted on a LinkedIn Group three inherent or solvable project issues and how policymakers may be trying to address them: 1. RBI’s move to allow projected project revenues as security for finance, 2. Lack of norm to check overcompetitive bidding, 3. Concession periods of 25-30 years that force bidders to project revenues for periods that are economically impossible to foresee. He headlined this post "Lessons from India’s PPP".

Surprisingly, the responses he received-all of them from international players-smacked of disappointment at the levels of corruption in India (not one of the three issues invoked). One lamented that the bidding process is "not transparent, very ambiguous and not fair to overseas investors wanting to put good money into India", while another, chairman of a UK-based infrastructure capital management company, said that with the various serious fines levied against banks by the US and the UK authorities, "there is a huge move away from all but the most transparent countries and projects", (citing JP Morgan Chase and HSBC as examples of banks taking rather harsh steps to de-risk, and adding that all blame for lack of investment in essential infrastructure (especially in PPPs) should be entirely attributed to the corrupt politicians that are daily harming their countries’ future and their people.)

The churning process of cleaning up public systems can, as Fareed Zakaria pointed out in his news programme on CNN recently, appear "messy" in the short term, but is in fact a good thing. The responses to the LinkedIn question seem like a natural reaction to the recent groundswell in India, which the media picked up and disseminated with great force. Yet these are not insurmountable problems-especially if "opaque" ways to speed things up is a design, not merely some social malaise. And in India’s infrastructure sectors, lack of transparency is often a convenient design whereby policymakers see private players’ ability "by hook or crook" to get things done as the exact tool they seek. Corruption does not exist in public-to-public transactions, and exists to a very limited degree in private-private transactions. To that end, you would expect that PPP projects are cleared, monitored and executed faster.

Obviously, that logic doesn’t hold up in practicality. As we are now aware, one of the biggest problems with our PPP projects is delays, and while the Land Acquisition Bill may do no good to that problem, setting timelines fairly to both partners and having genuine checks and balances to PPP alone can help. Just as the Land Acquisition Bill purports, as our cover story says, to correct a historical wrong to sections of society, corruption, too, must be addressed in a decisive manner, not by allowing it in the name of a necessary evil to speed projects up.

To private players, speed of action is as important as viability. Can Reliance Infra or L&T Metro Rail raise metro rail ticket prices if they are bleeding? Can tolls on roads be raised unilaterally? Although the power sector has seen some success in managing such issues, a lot is in the pipeline.

The private sector is anxious to get a move on in order to keep the much-needed rotation and cash flow alive. But if the PPP programme has not been able to avert delays despite private interests and crony capitalism, it deserves a rehaul or a relook. Its acid test is on the anvil-that of putting social interests over profit motives when it comes to the crunch.