Infrastructure is the lifeline of an economy and the
major sectors that comprise of infrastructure are transportation, power, energy
and communication.
So when we say good infrastructure we mean :
Efficient public transport – that links all cities of the nation. Ensures safe, affordable and quick
For building an excellent infrastructure , we require:
a. Massive
investment
b. Managerial
efficiency
c. Technological
competency etc
And the above mixture could be rightfully gained by encouraging both public and private players work mutually. The ppp model was started in oecd countries. Reliance on ppp rose in 1990s and UK had the maximum no of projects under this. Ppp have been include in the legislation of UK, USA and industrial policies of France, Italy, Netherlands etc.
PPP’s can be distinguished on the basis of the stages in which partnership can be entered into:
1. BOT: Build,
operate, transfer
2. BOO: Build,
own, operate
3. BOOT: Build,
own, operate and transfer
4. DBFO: Design,
build, finance and operate
Looking at the benefits, India opened the
doors for private participation in infrastructure in the early 1990s, as part
of a wider economic liberalisation effort.
But ppp has to be clearly defined because just by
saying it is a collaboration of public and private there is a lot of
ambiguity. Ppps need to be given relaxations and financial support in order to
make it prosper. Thus a definition is vital.
The official definition of PPP can be broken into
the following essential parts :
1. Arrangement of
govt entity with Private Sector Entity to provide
2. Public asset
or service for public benefit through
3. Investments
being made by and/or management undertaken by the private sector entity
(this allows projects of both with investment and without investment)
4. Operations or
management for a specified period (this means the agreement with the pvt entity
comes to an end after a period)
5. Substantial
risk sharing with the private sector (this differentiates it from mere
outsourcing contracts)
6. Performance
linked payments
7. Conformance to
performance standards.
How does the Govt extend support ?
- The Cabinet Committee on Economic Affairs (CCEA) in its meeting of 27th October, 2005 approved the procedure for approval of public private partnership (PPP) projects, a Public Private Partnership Approval Committee (PPPAC) was set up.
- The Committee would be serviced by the Department of Economic Affairs, who has set-up a special cell for servicing such proposals
- But many a times providing public services become commercially unviable and unattractive to pvt players thus The Scheme for Financial Support to Public Private Partnerships (PPPs) in Infrastructure. (Viability Gap Funding Scheme) of the Government of India provides financial support in the form of grants, one time or deferred, to infrastructure projects undertaken through public private partnerships with a view to make them commercially viable.
- Then there is ‘India Infrastructure Project Development Fund’ (IIPDF), have been notified The IIPDF would assist ordinarily up to 75% of the project development expenses. On successful completion of the bidding process, the project development expenditure would be recovered from the successful bidder.
- The total Viability Gap Funding under this scheme will not exceed twenty percent of the Total Project Cost; provided that the Government or statutory entity that owns the project may, if it so decides, provide additional grants out of its budget, but not exceeding a further twenty percent of the Total Project Cost.
VGF under this scheme will normally be in the form
of a capital grant at the stage of project construction.
Implementation comes with Constraints:
- Financial
liability of the projects. ( our financial markets cannot undertake such
long term equity)
- Hindrances
during the life of a project due to bottlenecks in procedures.
- Diversified
projects require skilled man power in various diverse fields
- Lack
of credibility of bankable infrastructure projects used for financing the
private sector.
- Managing
all the stakeholders of the projects
Despite constraints we have world-class facilities
and ambience that greet us when we go through airports at Delhi,
Mumbai, Bangalore or Hyderabad. Several goods and
services are now being delivered more cost-effectively, thanks to better
infrastructure networks or gateways, having a substantial degree of private
participation.
Pre requisites
In order to provide to come with successful projects
several initiatives have been undertaken by Government of India:
1. It created
PPP framework in order to eradicate the above mentioned constraints.
2. Various
foreign as well as private investments by waving off charges are encouraged.
3. Framing
of standardized contractual documents for laying down the terminologies related
to risks, liabilities and performance standards have been devised.
4. Approval
schemes for PPPs in the central sector has been streamlined through Public
private partnership appraisal committee or PPPAC.
5. A
website has been launched for the purpose of virtual PPP market serves as an
online database for PPP projects.
The below given diagram depicts the
workflow of PPP in India.
1. The left hand
side blocks refer to the process of the ppp projects which start with project
identification, moves to screening report, getting an approval from the
authority, scanning internal and external environment, developing a contractual
agreement and the bidding process. At the end of bidding a pvt entity is
selected and the agreement signed. Thereafter execution of project and
financing.
2. The right hand
side indicated the involvement of ministry of finance at different stages of
the process.
Failures:
It is not just a success story everywhere, there are
grave failures as such :
1. The
Vadodara-Halol Toll project suffered due to mistaken traffic projections, due
to which proposed government incentives were stripped off from the project,
thereby raising both policy and revenue risks for the involved parties.
2. The
Delhi-Gurgaon expressway was a victim of mammoth red-tapism where the lack of
coordination of more than 15 civic bodies whose approvals were necessary came
out in the open in the shabbiest manner possible.
3. In the same
lines, the Karnataka Urban Water Supply Improvements project suffered due to
continued lack of proper coordination between three bodies associated with the
project.
4. The Delhi
Airport Metro Express was shutdown for 6 months when its operator Reliance
Infrastructure pointed out cracks that had developed on its metro pillar
structures. Then followed the typical blame game with the involved parties
blaming each other for the faults. So much so that Reliance even went on to
claim damages for losses incurred due to the closure of the project. Delhi
Metro authorities also claimed that they had had to ‘reject’ an offer from
Reliance to quit the whole project due to “financial non-viability
Demerits/ challenges:
The reasons for above failures can be stated as red
tapism, corruption, non transparent processes etc.
Apart from these there are certain challenges that
the ministry feels it is facing:
1. Our ppps are
basically built for those who can pay for the services. Ex; airports, national
highways but our ppps have to become responsive and successful in sectors such
as education, health, skill development, rural infrastructure and job creation,
mass housing and so on.
2. Deteriorating
infrastructure after service. Our urban services such as roads are in poor
condition due to increasing population and usage.
Corruption can be seen everywhere especially when it comes to creating project for the infrastructure industry where bidding is present. Even the paper writing service such as top paper writing service are not safe from corruption, people will always find ways to sustain their bad deeds.
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