S. Balakrishnan

PPPs-short for public-private partnerships. Many in decision-making positions in Government believe it's the magic solution to the inefficiencies of Government institutions in infrastructure – power, roads, ports, airports, etc.

‘We just don't have money for the huge investments', is a common refrain. Fair enough. Finding it in the budget is impossible. A different model is needed. Hence PPPs.

In between, the performing arms of Government have been quietly forgotten. These are the ‘mahanavaratnas', ‘navaratnas' and ‘mininavaratnas' in the public sector. Organisations such as BHEL, NTPC, SAIL, GAIL, ONGC – it can go on. Unbelievably, one could even add some State Government-owned companies such as GSFC and GNFC in Gujarat and TNPL in Tamil Nadu. And who makes the best cars in India? Maruti, started as an entirely Government entity.

So it's not axiomatic that Government ownership causes inefficiency. Public sector managers are as competent as those in private sector. In fact, one's guess is it's more – compare the scale of investment and technology in processes and products and the average private sector company is nowhere near.

Take the power sector. Even the unbundling of generation and transmission in electricity boards hasn't made much difference to their operating performance, capacity additions and viability. Free and subsidised power are the culprits.

Is PPP the solution? The only difference - and it's a major one - is that State Governments, in whose domain power falls, must featherbed the tariffs of private power producers, who will not invest without returns in the high teens and upwards. Even the advantage of the lower cost of electricity board power generation is gone. So the burden on the fisc only increases.

Myth

Private sector investment is also a myth. Even a cursory analysis of every private sector power project financing would prove most of the debt funding is from public sector banks and equity is from the market. What we seem to be paying for is the ‘managerial' expertise of a businessmen with the right connections who is ‘packaging' a project that can be done more cheaply in the public sector.

The same arguments apply to PPPs in roads and airports. In every case, Government and the public are paying prices and returns way above what's justified for costs and risks. (The climax is surely ‘airport user charges' to fund promoters' equity! One wonders why the paying passengers shouldn't be given those shares).

PPP - short for ‘arbitraging the system for risk-free profits'?

(This article was published in the Business Line print edition dated August 18, 2010)
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