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Poor public pays


The Planning Commission recently conducted a study to see how road projects had shaped up. The results would not surprise many. Roads built directly by the government had seen huge time and cost overruns and the average completion period was 60 months.

In contrast, highways where the private sector had been roped in as a partner were built in 30 months. "It made sense to the developer to do it within the stipulated timeframe and collect toll for an additional 30 months, " says a Planning Commission official as he reeled out advantages of private sector participation.

From faster execution to better maintenance and service, the advantages are clearly visible across the national highways and at the four private sector-built and run airports. "Until a few years ago, we had to travel through a mosquito-infested Bangalore airport. Now we have a swanky new airport, but our expectations have also increased, " says Manish Agarwal, executive director at consulting firm PricewaterhouseCoopers.

Critics, including several in the government, would be more than eager to tell you that infrastructure development through the public-private partnership (PPP) route has come at a huge cost.

A website of the government's committee on infrastructure itself provides several such instances.

For instance, a study says that Mumbai's Nhava Shiva International Container Terminal (NSICT) has seen "excessive and unlawful gains" at the expense of port users, who paid 80 per cent more than what was due.

"The 30-year concession period awarded to NSICT Ltd for a port terminal at JNPT (Jawaharlal Nehru Port Trust) has affected the public exchequer and user interest in several ways. The role played by TAMP (Tariff Authority for Major Ports), the independent regulator responsible for fixing tariff, led to NSICT extracting inadmissible returns of Rs 524 crore during 2002-05 which translated into returns of over 100 per cent on its equity as against the permissible 20 per cent, " the study said.

While a port may sound distant, the Delhi-Noida toll bridge, which has seen traffic grow manifold since it was opened nearly a decade ago, would look more familiar.

Another story on the website details how the concessionaire got a deal where it was assured 20 per cent return and any shortfall resulted in increased project cost.

So, the initial cost of Rs 408 crore of what is popularly called the DND Flyway has doubled to Rs 953 crore and since the amount has to be recovered - with returns - during the concession period, the operator now gets to run the facility for 70 years, instead of the original 30-year period. And, all these years, individuals will continue to pay the toll, which keeps rising, and the concessionaire also gets real estate development rights.

If there is the DND Flyway on the city's east, there is the Delhi-Gurgaon Expressway connecting south Delhi with Haryana. Here, the contractor has managed to recover the cost much faster than what was originally projected, yet users see the toll rise and the toll gate continues to be crowded as ever. Despite the traffic projection having been met, there is no move to actually widen or upgrade the expressway.

Another analysis showed how the project cost for highways across the country shot up (at times, almost doubled), resulting in a huge increase in cost that was funded through bank loans. While the toll rates did not rise, there was certainly a burden on the exchequer.

The story is much the same at airports, where flyers are routinely subjected to increased development fees, a practice unheard of until a few years ago. There are controversies surrounding real estate development as well.

The ultra-mega power projects such as the one being developed by Anil Dhirubhai Reliance Power Sasan are also facing scrutiny given how coal from the captive mine is proposed to be used.

"The moment you give it to the private sector, it is profit motive that drives the operation. Given that infrastructure projects in most cases are monopolies, the private sector is getting to do what the government did a few years ago, " says a government official. What adds to the woes is the regulatory set-up with almost all regulatory bodies manned by former bureaucrats who get these post-retirement jobs by lobbying with ministers.

Still, there seems to be no going back on PPP. "Airports or roads are natural monopolies and you cannot introduce competition since there will be no returns in such a situation, " says an official in the Planning Commission, an ardent supporter of the PPP model.

Shailesh Pathak, a former bureaucrat who now works for the private sector, points to the experience in the UK where of the over 900 PPP projects, only around 50-odd were related to infrastructure, with 68 per cent in health and education. "We should focus on using PPP for improving quality of service delivery rather than creating greenfield infrastructure. PPPs for services in health and education should be implemented at the earliest. Brownfield infrastructure, such as widening existing roads, is also suitable for PPPs, " he says.

Even the Planning Commission concedes there is a problem with the way things happened in a large number of cases. A top official associated with the committee on infrastructure says that projects are often designed faultily or are not transparent and, in several cases, adequate oversight is not maintained to ensure that the government is getting the revenues it was promised.
"A very successful PPP is Indian Railways, which saw a substantial roll-out between 1860 and 1900. Private companies got right of way from the government and a five per cent guaranteed return. These companies raised their own money and completed construction. However, in current PPPs, post-bid renegotiation as well as questionable bidding is raising concerns, " adds Pathak.
"It's a learning process and over a period of time, things have improved, " says an official associated with the power sector. But till problems are fixed, PPP will have one connotation - poor public pays.

Reader's opinion (1)

Muizvhora Oct 24th, 2011 at 13:15 PM

For every PPP project a commission of govt officials must be formed.Govt should not leave the whole project to the pvt sector till the contract period.Govt must regulate the revenues pvt sector takes and the contract should be based on % funds recovered or period of operation whichever is earlier.

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