3P India has its work more than cut out
Given India plans to double infrastructure spending to $1 trillion over the current Plan period, it is obvious the role for public private partnerships (PPP) has to increase significantly. The problem, however, is that PPP as a concept exists in just a handful of areas like roads and airports, and even here, it is floundering. It’s not just that, in the case of roads, there are a large number of projects that are badly stuck—due to environment clearances not happening and, more important, the projects not looking viable. In this case, the main executing authority, National Highways Authority of India (NHAI) is in favour of going back to the old EPC contracting as it argues this works faster. In the case of various power projects, there is a similar problem. The ultra-mega power projects (UMPPs), for instance, found themselves in serious trouble when, thanks to a rise in prices of Indonesian coal, they were no longer viable. For those who argue that independent regulators are the best way to deal with such tricky problems of what could be called post-tender negotiations, while the Central Electricity Regulatory Commission (CERC) agreed to hike tariffs for some of these UMPPs, the matter is stuck with various state electricity boards unwilling to accept the tariff hikes. In other cases like the various electricity distribution companies in the capital, with the regulator not agreeing to hike tariffs each year in keeping with the hike in costs, the three private companies are owed a whopping R27,000 crore.
Slice it any way you like, and the conclusion is PPPs as a viable alternative to government spending simply haven’t emerged. Which is where the Budget trying to come up with an institution called 3P India to, in its words, provide support for mainstreaming PPP is critical. It is not yet clear what this institution will be—is it just a think tank or will it also have some dispute resolution panels?—but it does have its work cut out. For one, PPP will have to be introduced in areas, like delivery of water, where it barely exists today. If this is to be done, how will these services be priced? Two, how do you ensure the risk-taking capacity of the private sector which has become a serious problem today. One way, obviously, is to allow costs to pass through in the way you would for a public sector project, but if this is to be done, how is it to be done without leading to a scam? What is clear is that till PPP is mainstreamed, India’s infrastructure rollout isn’t going to anywhere near what is required.