http://swarajyamag.com/economy/kelkar-ppp-report-saving-government-from-itself/
Sanjeev Ahluwalia is Advisor, Observer Research Foundation. He specializes in economic governance and institutional development.
6 Jan, 2016
The Kelkar Committee on PPPs, headed by former Finance Secretary, Vijay Kelkar submitted its report to the Finance Minister in November. The report was made public only last week though. What does it say are the problems with PPPs in India, and what solutions does it offer?
So what is a Public Private Partnership (PPP) model? And why have industry insiders declared it as broken even though India has 1200 such projects in operation (the largest number internationally for any economy) with a total investment of over Rs 7 lakh crores (US $ 100 billion)? And does it matter?
PPP defined
We really do not have a definitive peg to hang the definition of PPP on. This is where the report of the Vijay Kelkar Committee on Revisiting and Revitalising PPP Model made public last week does salutary service. It presents a simple definition:
“A PPP is a large project in which the government, or a subordinate authority of the government, has not more than a minority share; which provides a public good or service; which is operated for a defined time period – usually medium term – by a private firm, under a “concession”, which defines contractual, mutually binding obligations and provides to the concessionaire a market-determined revenue stream to ensure commercially viability.”
By proposing a definition, the report makes four important distinctions from what the practice is today.
First, it is high time India had a PPP policy duly presented to Parliament so that an appropriate regulatory regime could be specifically designed, possibly under a new legislation. The report is mindful of the current political economy, which has created an impasse in Parliament. This is why it recommends against an immediate resort to legislation to solve implementation problems, as has been the trend in recent times, albeit ineffectually.
Second, a PPP is designed to combine the relative comparative advantages of public and private ownership. This design advantage is completely subverted when government uses a notional PPP route to set up a special purpose vehicle with a state owned enterprise (SOE), even if the latter is incorporated under the Companies Act. The report implicitly acknowledges, what is internationally accepted, that SOEs are just not as efficient or nimble as a private firm. Nor would they be able to pull-in the additionality of managerial experience and private investment, which is one of the main objectives of a PPP.
Third, not all instances of public-private joint investment are PPPs. A firm producing steel and set up with an assured buy-back arrangement from government would not be a PPP because steel is a private, and not a public, good. This is how Tata Steel’s Jamshedpur plant was set up way back in 1907. But what of units proposed to be set up for defence equipment, under the “make in India” route, on a similar basis? This remains unclear and hence the need for a policy.
Lastly, by specifying the need for a “market-determined” revenue stream and commercial viability, the report deftly strikes a three-in-one blow for transparency, competition and efficiency. All three are hallmarks of a successful PPP. Related body blows are struck against crony capitalism and gold-plating through the emphasis on long term, high quality service as a monitored output linked to the revenue stream, rather than just one-time payment for construction of an asset.
What needs to be fixed?