As Delhi Metro Rail Corporation (DMRC) took over the operations of Airport Express line from July 1, it has brought the problems related with public-private partnerships (PPP) model in India to the fore. The private partner, Reliance Infrastructure, has sought a penalty of Rs 795 crore from DMRC, leaving the project functioning and the taxpayers in a lurch.
This may be just the beginning. With India investing last 15 years in creating assets via the PPP route, whether it is airport, highway or port, it is now entering the point where it would be entering the operational phase of most of these projects. According to experts, this shift is leading to problems, primarily because in the absence of an institutional mechanism, the reworking of the agreement from time to time is virtually becoming impossible.
In contrast to India, China has shown that PPP model can be quite efficient and profitable. With an efficient bureaucracy, fewer corruption cases and minimal red tape, the PPP model has worked well. In fact, like in other nations, the PPP projects should optimally share risks with both the parties, rather than pushing it all on the private sector which makes it unviable.
Already, we have several PPP projects which are in troubled waters. Private entities have walked out of mega-highway projects and Delhi airport is asking for resets. Experts say there are several reasons for the failure of PPP projects. A primary reason they say is, lack of clear understanding of the proposed asset and prudent sharing of the risks and rewards associated with the asset.
According to a World Bank report on private participation in infrastructure, India ranks as the largest market for PPP in the developing world. The country accounted for over half of the total investments in new PPP projects in developing countries in 2011, when it implemented 43 projects which attracted total investments of $ 20 billion.
Experts point out that better preparation before bidding for PPP projects is very important. Availability of accurate technical data and its quality has been a serious cause of concern for these projects due to which flawed and inappropriate business models have been adopted. While there are no problems with the dynamics of the model but there are problems prevailing with the system in the country.
On one hand, we cannot forecast growth numbers correctly, it is surprising that the PPP projects base their assumptions on project cost, traffic, tariff etc as unchanging and stable for the period of project commission and operation. The bottom-line is policymakers should consider the fact that any private sector player would want the contracts they entered into, to be profitable during implementation as well. For, it is quite not possible for the public sector to develop and manage all projects alone.