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Great Expectations: Public-Private Partnerships in Urban India Jessica Seddon1 Ashwin Mahalingam2

Introduction Urbanization will be one of the defining transitions of the twenty-first century, presenting opportunities for sustainable, equitable development as well as potentially having the opposite effect. Countries and cities infrastructure investment choices, implementation capacity, and ability to manage increasingly complex combinations of infrastructure and services will play a key role in shaping urbanisations impact. Infrastructure mediates economic and social integration of urban areas, peri-urban, and the surrounding regions. It affects economic geography and the prospects for inclusive labor markets; energy use and the extent of emissions. Infrastructure and services determine the openness of access to opportunities to move out of poverty. The financial, institutional, organizational, and political challenges inherent in planning and delivering this basic scaffolding for sustainable, inclusive urban development, however, are daunting. Indias urban agenda is especially challenging. While the historical rate of urbanization has been slow in comparative context, the absolute magnitude of the urban population is striking. Roughly 17% of Indias population lived in urban areas in 1951; today India is now over just over 31% urban. A third of the population still means nearly 380 million people in urban areas, however, and some have estimated that as many as 200 million more people live in near-urban conditions on the periphery of metropolitan areas or in large towns that other countries might classify as urban areas. Observable changes in land cover and business location suggest that substantial growth in population and economic activity is taking place in peri-urban areas that are considered rural in the census, but are functionally urban. 3 If one uses the urban agglomeration index developed by Uchida and Nelson (2010), for example, India was 52% urban as of the 2001 census, and it appears that the
1

Corresponding Author. Okapi Research & Advisory, Villgro Innovations Foundation, Indian Institute for Human Settlements. jseddon@okapia.co 2 IIT Madras, Okapi Research & Advisory. 3 IIHS (2011). Urban India 2011: Evidence. Available at www.iihs.co.in.

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large near urban population is expanding. This pattern of rapid growth in smaller cities and towns, many of which are institutionally unprepared to manage infrastructure, services, ecosystem services, and social safety nets, will test the ability of policymakers and institutions at all levels of government to adapt. India requires substantial infrastructure investment, and policymakers are increasingly seeking to draft the private sectors collaboration in financing, creating, and managing urban infrastructure. The Rakesh Mohan Committee Report on Infrastructure (1996) was one of the first to highlight the need for private financial and other contributions to infrastructure to grow, with specific attention to urban infrastructure in order to meet development targets, but these calls have only intensified. The Eleventh Five Year Plan called for 30% of the overall (rural and urban) investment target to come from the private sector and achieved 38% of the plan target from private sources. The draft Twelfth Five Year Plan document expects 48% of the Plan investment to come from private sources, conditional on several national policy initiatives to restore investor confidence.4 Indias Urban Awakening, an influential report published by McKinsey Global Institute in 2010, calls for $1.2 trillion of investment in urban infrastructure by 2030, to be financed by monetizing land assets, leveraging debt and public-private partnerships (PPPs), and accessing private finance (enabled and encouraged by policy reforms) in addition to more public investment. The Government of Indias High Powered Expert Committee Report (referred to here as the Ahluwalia Committee Report) calls for Rs. 39.2 lakh crores of investment in urban infrastructure over a similar time period, with increasing private financing and reliance on public-private partnerships. The draft Twelfth Five Year Plan echoes the emphasis on public-private partnerships in urban transport, water and sanitation, solid waste management, and other infrastructure. Is this realistic? What kinds of policy reforms and institutional capacities will this vision of public-private collaboration require? This paper analyzes the current state of private contribution in constructing, maintaining, and managing urban infrastructure as well as organizational and institutional reforms that will be required for public-private partnerships to contribute significantly to Indias urban development. While much of the current discussion of PPPs in urban India (and India in general) focuses on the number and value of projects, we emphasize a different measure of success: the extent to which PPPs in urban India are able to augment management
4

Paragraph 1.87.

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capacity, share risks, enhance operational efficiencies, and serve as institutional structures that create performance and reform incentives.5 Our approach echoes the global framework for PPPs as a form of risk-sharing and capacity building as well as a vehicle for private finance of public infrastructure. Starting in the 1930s, governments across the world entered into PPP agreements in infrastructure in order to supplement a lack of public sector capacity and to accelerate economic growth. Governments relied on regulation to drive socially beneficial outcomes. Post 1950, urban governments particularly in the USA and the UK, invited the private sector to assist with local development both from a need to augment public sector finances and a growing belief that local business and civil society stood to benefit from, and thus needed to play a key role in urban development. This ideology was then replaced by the New Public Management (NPM) approach in the 1980s, which stressed government failure and the virtues of marketinduced competition as the key drivers for private sector involvement. This view led to the creation of programs such as the Private Finance Initiative in the UK. More recently, in the 1990s, the collaborative strategic advantage of working with the private sector under the presence of strong accountability systems, heightened transparency and citizen participation has developed into a defensible rationale for PPPs. The logic of PPPs has, in some sense, moved from being a tool to compensate for public sector inadequacies to one wherein synergies between public and private operators can lead to improved service delivery. (Bovaird, 2010) Access to finance is actually one of the weaker reasons to enter into PPPs. Governments are generally able to access finance at lower cost than private companies, and any departure from this norm may be due to distortions in intergovernmental relations that should be directly addressed rather than alleviated by market borrowing.6 Private borrowing also creates long-term economic liabilities that may be difficult to justify if private sector efficiencies do not reduce the overall financing required relative to public finance and implementation (Hellowell, 2010; World Bank, 2007). We seek to unravel some of the factors that have limited private participation in urban infrastructure and to indicate policies that might increase the volume of PPPs in the urban sector and, more importantly,
5

We have previously used this definition as the benchmark for success in more policyoriented work for the Government of India, Ministry of Finance, on building PPP capacities. See Mahalingam, Rajan, Seddon, et al 2011. 6 Evaluations of privately financed programs such as the PFI in the UK have shown an excess cost of private finance of the order of 2.4 percent (PwC-Franks, 2002), for example.

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ensure that they meet their potential for improving infrastructure creation and service delivery. We argue that the recent attention to building public sector capacity through training individuals and providing standardized project templates, as highlighted in the Ahluwalia Committee Report and draft Twelfth Plan among other places, is a step in the right direction. However, these efforts need to build a broader range of organizational capacities than is currently envisioned as well as address how newly trained individuals will be incorporated into urban institutions. Second, while there is good reason to believe that relieving capacity constraints will support a continued increase in the number and value of PPPs, the present federal context for cities will limit the potential for PPPs in urban India to achieve the broader goals of efficient, effective service and infrastructure delivery. The discussion is organized as follows: following this introduction, the next section discusses the urban PPP record in India. The following section lays out a typology of the challenges PPPs face in Indias urban governance and socio-economic setting. While some of the observed urban PPP failures can arguably be traced to weaknesses in individual-level capacities such as contract drafting, project design, and assessment of political risks, addressing these capacity gaps, however, will not be enough. Indias urban economic, political, and institutional context is forbidding and may discourage PPPs from even being attempted without significant and costly inducements that ultimately defeat the purpose of partnering with the private sector in the first place. The next few sections review the history of PPP enabling efforts in India and draw on international experience as well as economic and institutional logic to suggest some potential ways that obstacles to urban PPPs in India can be overcome.

2. Urban PPPs in India An Overview

Public-Private Partnerships started to be promoted as a potential delivery mode for infrastructure services in a variety of sectors in the 1990s.7 The roads sector took the lead by utilizing PPPs as a part of the National Highways Development Program (NHDP), resulting in an initial wave of private sector involvement in infrastructure development. Following this, several other sectors have experimented with PPPs, and the particular
7

See Seddon and Singh (2012), for a more detailed description of the transition in the transport sector, for example.

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potential for PPPs in higher-income urban areas (with more potential for costrecovery through user charges) has been noted. Much of the current policy impetus for state and local governments to enter into public-private partnerships (PPPs) appears to stem from the general pressure to raise funds for infrastructure. The national Plans and urban flagship investment schemes - the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and the Urban Infrastructure Development for Small and Medium Towns (UIDSSMT) - call for urban governments to consider PPPs in the same breath as private investment in infrastructure and services. The draft Twelfth Plan, for example, states that Traditionally, infrastructure development used to occur through the public sector. However, given the scarcity of public resources, and the need to shift scarce public resources into health and education, efforts have been made to induct private participation in the development of infrastructure. (Para 1.86) Performance is measured in terms of the number and value of PPPs underway.8 According to these metrics, PPPs in urban India has been progressing. Government departments appear to use varying definitions of project and to calculate financial commitments differently, but all sources show an increase in numbers and value. The Minister of Urban Development, Shri Kamal Nath reported that 548 urban PPP projects had been sanctioned and 127 completed as of March 14, 2012 in his response to a Lok Sabha question that day. The Ministry of Finances Department of Economic Affairs (DEA)s PPP Database lists a total of 181 Urban Development PPP projects. Most of these are relative recent projects: 49 of the listed projects are in operation, 88 under construction. The remainder are listed as in the Bidding or Expression of Interest stage.9 The Planning Commission figures are higher than those of the DEA: 197 urban projects as completed or underway and 228 Urban Development PPP projects were in the pipeline as of March 31, 2011. The total value of projects listed as underway or in the pipeline, at Rs. 107,000 crore, is more than twelve times the value of completed projects in this database, even without including figures for some of the higher-value projects that did not have complete records in the database. The Gujarat International Financial Tech City (GIFT), one of the projects with value not indicated, is reportedly valued at over Rs 72,000 crore.
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See, for example: http://www.urbanindia.nic.in/DMU/UIDSSMT/DMU-UIDssmt.pdf, accessed 19 September, 2011. The draft 12th Plans first chapter also notes that India is first in the race for PPPs in terms of value. 9 http://www.pppindiadatabase.com/, database last accessed April 2, 2012; search engine currently not functioning.

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While the increase in the number and value of projects is encouraging, as is the shift in project type, financial commitments are at best a partial indicator of success. Public-Private-Partnerships (PPPs) go beyond simply channeling private finance into public projects to require public-private collaboration in constructing and managing infrastructure and services. How successful has this collaboration been in contributing to infrastructure? India is home to some of the more ambitious urban PPP projects in the world, including the Hyderabad, Delhi, and Mumbai Metros, some of the highestvalue transport projects in the world. Details of the Hyderabad Metro PPPs financing were documented as a featured project in the World Banks September 2012 newsletter on sectoral trends in PPPs. The project, which just started construction, has also been selected as one of the Global 100 strategic projects for the Global Infrastructure Leadership Forum in MarchApril 2013. Yet nearly half of the completed projects, as of March 2011, in terms of value, were in various forms of real estate development such as residential developments, hotels, commercial complexes, amusement parks, or malls and office complexes. These areas of infrastructure typically do not feature in the global rankings such as the World Banks Private Participation in Infrastructure Database, and are often limited as partnerships outside of the initial construction of the building or complex. The nature of partnerships is evolving from real estate development to include more traditional public infrastructure and services such as solid waste management, bus stations, parking garages, and water supply and treatment, but this trend varies from state to state. Andhra Pradesh and Tamil Nadu were early leaders in water supply and water treatment projects and Gujarat and Madhya Pradesh followed with projects currently under implementation, but no other state had any water-related projects listed as anything other than in the pipeline.10 A number of states have ventured into PPPs in bus shelters, but Gujarat and Punjab are only one listed with PPPs in more sophisticated transport nagars, larger bus terminals, or ongoing O&M of these facilities. Gujarat, Assam, Andhra Pradesh, Tamil Nadu have larger-scale solid-waste management PPPs and other states have specialized bio-medical waste facilities, but most states have not ventured into PPPs in the area. Gujarat is the only state with PPPs that go deeper into
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The Planning Commission dataset listed a tertiary treatment wastewater recycling plant valued at Rs 200 crore as under implementation in Rajasthan (Jaipur), but there is no other evidence that this project has proceeded. Ministry of Urban Development presentations on wastewater recycling in India from as late as February 2012 do not mention any such project nor do government of Rajasthan websites.

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municipal process re-engineering, with an energy efficiency PPP project currently under implementation across 159 municipalities as a partnership with IL&FS and USAID. Real estate development-type projects still accounted for nearly 30% of the value of projects under implementation as of March 2011 and sixty-nine out of 228 projects listed as in the pipeline were in real estate development.11 The next few subsections discuss some of the lessons learned from infrastructure projects that are perhaps more representative of the hopes for PPPs than are the current collection of commercial and office complexes. Many of the infrastructure projects are relatively technologically simple projects, particularly those that have been implemented outside of state capitals and larger cities. While this is a reasonable adaptation to the kinds of investment context that we describe in Section 3, it is not commensurate with the expectations for the role of public-private collaboration in infrastructure. Solid Waste Management (SWM) Several municipalities across India have undertaken PPP efforts in the SWM sector. While the basic tasks involved in solid waste management are common across the sector, the PPP forms vary considerably. In certain cases, the private operator is in charge of waste collection, while in other cases they are tasked with managing the collected waste. In still other instances, private operators are asked to provide Integrated Solid Waste Management (ISWM) solutions, involving collection, transportation and treatment of solid waste. At this stage, it is difficult to comment on the success of these PPP programs given that they have only been in existence for a few years, but in some cases it does appear that opening up this sector to competition and market forces has led to a reduction in the cost of solid waste management. SWM projects are generally relatively straightforward candidates for PPPs. They are relatively low-technology and most parts of the business do not require intensive sunk capital investment. Both factors make it difficult for either partner to hold up the other over the long run. Impasses do happen: A strike by the private companys workforce in Chennai led to a piling up of garbage and raised questions on whether PPPs were robust enough to secure the interests of citizens against the vagaries of the private sector. Private sector gaming in terms of mixing solid waste with other waste in order to
11

The tally for value of projects in the pipeline is hazy since many of the largest projects do not list financial value.

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boost collection volumes and therefore revenue is another risk that this sector often faces. The strategy adopted by Alandur in Tamil Nadu to address this issue is noteworthy. Rather than paying the operator based on the amount of waste collected, payments were tied to certificates of performance awarded by the residents. This ensured participation and ownership by the citizens of Alandur and also ensured that the projects objective of keeping streets clean was met. The short-term nature of contracts, at least on the collection side, also ensures that these arrangements can be re-bid relatively frequently, thus avoiding the potential contextual hazards of monopolies forming among private providers and limiting either public or private expectations of longterm commitments that transcend political cycles. Still, embeddedness of cities in a federal context creates hazards that need to be addressed in contracts. In Tirupur, the introduction of new national MSW Rules in 2000 and the consequent need to segregate waste prior to collection changed the economics of the project. The public sector had to segregate a much larger quantity of waste in order to meet its contractual obligations regarding the amount of waste to be passed on to the private operator for processing. Transport The urban transportation sector is home to PPPs at both ends of the complexity spectrum. Simpler projects have fared well. The construction and maintenance of technologically simple assets such as bus shelters has been attempted in cities in 11 states. These arrangements represent the simplest form of contracting-out. Costs can easily be estimated, risks are evident and manageable, and advertising revenue removes any financial interface with the users of the service. More complex PPPs have not performed as well. PPPs in urban roads, for example, have run into problems with land acquisition as well as mistakes in projected demand. The case of the Karur toll bridge has been highlighted earlier. A bypass around of the town of Coimbatore ran into problems of lessthan-expected demand the project had to be refinanced a more general problem across roads contracts in India. However, when these arrangements are de-risked and the government bears most of the land acquisition and demand risks through the payment of an annuity such as in the Chennai Outer Ring Road partnerships appear to last longer. The need for the public sector to assume nearly all risk calls one of the main benefits of PPPs risk sharing into question.

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High-profile PPP metro rail projects are underway in Hyderabad and Mumbai, but both offer mixed results. Work on the Hyderabad metro, for instance, has been delayed due to land acquisition issues. Work was scheduled to begin in March 2011 began only in summer 2012. The private partner (Indian company Larson & Toubro) declined to start work until right of way issues were resolved.12 The Mumbai metro-rail, another ambitious project by global comparison, has also been significantly delayed due to challenges in securing the right of way as well as in construction of metro-related infrastructure. The project design and financing arrangements have also been through several rounds of revision by various authorities ranging from metropolitan development to the national government13 and Indian Bank also had to restructure the loan account in 2012 due to project delays. Other smaller metro projects such as the Delhi metro-airport link have also run into problems with resolving disputes between public and private partners. Service on the airport-metro link began in February 2011 after at least a years delay, but was closed in summer 2012 when the private partner alleged that the structure was unsafe due to default in the Delhi Metro Rail Corporations civil works. Many observers speculated that lowerthan-anticipated passenger demand also played a role in the private operators decision to suspend service after the construction had passed other inspections by the Commissioner of Metrorail Safety and been used for a year. Service remains suspended at the time of writing. To be fair, metro-rail projects are complex. High fixed and operating costs almost inevitably necessitate fare increases in order to provide for cost recovery. In Bangkok for instance, this led to the metro being too costly for a particular segment of the population to use, thus affecting ridership and the socio-economic benefits. Furthermore, the technological differences between building a metro (which requires in-depth knowledge in areas such as tunneling, civil, electrical and mechanical construction) and operating one (requiring knowledge of logistics, running train systems, fare collection and so on) raise the question of whether both of these tasks can be bundled into one package, even if it makes sense in principle to link these to ensure builders incentives to deliver a maintainable project. The PPP mode has drawn unfavorable comparisons with the Engineering,
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According to B.V. Shivshankar, Metro rail: Hyderabad Metro Rail Limited proposes, L&T disposes, in Times of India. April 1, 2012. Accessed online April 2, 2012. 13 See, for example, Sudhir Badami (2012). Mumbai Metro project attracts modifications by Centre, in Moneylife, March 13, 2012 for a journalists account.

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Procurement, and Construction contracts used for most of the Delhi metro system. Bangalores metro began as a PPP project but authorities moved to an EPC after difficulties designing a mutually agreeable contract with the concessionaire. The next line of the Mumbai metro will reportedly be under EPC rather than PPP.14 Chennais metro-rail is being built by a joint venture between centre and state government. Its director reportedly considered partnering with the private sector to operate the metro but then decided that the public sector could operate the metro at lower cost.15 Chennais monorail may be launched through PPP. Indias experience in transportation reinforces the conventional wisdom that dispute resolution is an essential foundation for more complex PPPs. Water Supply Water and sanitation has long been the focus of efforts to bring in private involvement. It is also one of the sectors in which urban PPPs have tended to be more successful internationally. Studies focusing on developing countries show that private sector participation leads to enhanced connectivity, increased productivity, improved quality and reduced losses. Similarly, PPPs have also led to a larger proportion of citizens being connected to sanitation networks (Marin, 2009). Projects such as the Sofia Water and Wastewater Concession project in Bulgaria, adjudged as the Best International PPP project in the Public Private Finance Awards in 2001, stand as testimony to these views. This particular project was characterized by detailed feasibility studies, a clear and transparent bidding process, strong political commitment and a partnership philosophy which involved post-award negotiation and government shareholding in the concession vehicle (Grimsey and Lewis, 2004). However, observed outcomes in India thus far are not encouraging. Take the case of the water supply PPP scheme proposed in the city of Tirupur in the 1990s. The presence of a thriving water-intensive textile industry coupled with poor rainfall persuaded the Government of Tamil Nadu and the municipality of Tirupur to enter into a PPP agreement with a private operator to provide water. Given that the project was the first of its kind, considerable time was spent in bringing it to financial closure, as might be expected. However, once the project became operational, problems surfaced, mostly due to poor characterization/allocation of risks. Industrial users were
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"Ministry rejects Plan for Mumbai Metro-3". Daily Pioneer. 17 August 2012. Retrieved 30 December 2012. 15 K. Rajaramam, cited in RIPPP, The Economist. December 15, 2012.

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expected to pay a higher fee in order to cross-subsidize domestic users. In the end analysis, revenues generated were a fraction of what was expected, throwing the financial calculations off-balance. Smaller industrial providers unwillingness to pay for water treatment, good rainfall in the postconstruction years and an inability to enforce the prevention of groundwater extraction led to lower revenue receipts. The resulting project economics clash with the states environmental objectives: the price per 1000 liters of water was cut in half in the first year, and incentives were given to use more water than contracted even as the Tamil Nadu High Court urged industries to reduce net water use. The project also gave the private partner the exclusive right to develop, treat, and distribute water in the service area; which meant that the state and local governments have not been able to strengthen services in the face of new court-ordered environmental standards and increasing local demand.16 A similar industrial water supply scheme in Vishakhapatnam met with similar revenue-related challenges basically unwillingness to pay at a level where cost-recovery would be possible - and the government took over the project. There have been several cases of urban water supply PPPs being proposed but not tendered due to political and social opposition. In many cases the cause of cancellation is often the unwillingness to charge on the part of the government as opposed to unwillingness to pay on the part of the citizens. In other cases, pilot projects have been undertaken with some success the 24x7 water supply initiatives in Hubli-Dharwad, Belgaum and Gulbarga in northern Karnataka are cases in point. However, these projects currently cover only 10% of the population in each of these cities and scaling up these efforts is proving to be difficult.17 Replicating success has also been difficult. Nagpurs 24x7 scheme, for example, started work in March 2012, originally the month in which it was to have been completed. Costs of the projects have reportedly escalated by 46% from when it was first approved in 2009.18 Housing Very little has been attempted in India by way of PPPs for urban development and housing. However the RAY Guidelines issued by the
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Madhav, Roopa (2008). Tirupur Water Supply and Sanitation Project, International Environmental Law Research Centre Working Paper 2008-1. 17 WSP (2010) notes that the sections were chosen to represent a cross-section of consumers. Media reports, other sources, and the general spatial patterns of poverty in Indian cities suggest that these are, in general, more affluent areas. 18 Anjaya Anparthi. (2012). What is the Exact Cost of the 24x7 water project?, Times of India December 27, 2012. Accessed online December 28, 2012.

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Ministry of Housing and Poverty Alleviation state that Given the massive needs for affordable housing and the capacity constraints faced by public agencies like housing boards, urban development authorities and municipalities to take up group housing on a large scale, it is necessary to involve private sector entities in the creation of affordable housing stock on ownership, rental or rental-cum-ownership basis and in scaling up the programme to the desired scale.19 Once again, there are no inherent problems with PPPs in housing. PPPs for affordable housing have been undertaken in various parts of Asia (e.g. the Philippines and Malaysia) and Latin America (e.g. Guyana and Guatemala) with moderate success. It must be noted that in almost all of these cases, governments have provided private developers with lands, grants or development rights in order to incentivize housing development for the poor. Low-income housing is unlikely to be self-sustaining. Therefore, unless a compromise between the housing and development authorities can be worked out, and unless a policy on development rights can be evolved, PPPs in this sector may not be sustainable. Regulatory intervention is key in this sector as land rights, the rights of squatters and settlers, resettlement and rehabilitation are particularly contentious issues. If such issues are not resolved prior to embarking upon project development through PPPs, the transactions costs and the risk premium sought by the private developer is likely to be extremely high. Taken together, a pattern seems to emerge with regards to the success of urban PPPs in the Indian context. Projects that are technologically simple, span smaller time horizons, have clear output specifications, and where the majority of the preparatory and demand risks are borne by the public sector such as the case of the bus shelter or SWM projects appear to deliver on their expectations. On the other hand, projects such as those in the water and sanitation sector that are beset with concerns regarding equitable access, where revenue streams are uncertain, and where the transaction complexity is high are considerably more challenging to govern. While this might lead us to the conclusion that simple forms of PPP transactions might be more suitable for the Indian environment, the fact remains that Indias urban infrastructure requirements are complex and demand considerable investment in transportation, housing, and water and sanitation infrastructure. There is also a temptation among public officials to
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http://mhupa.gov.in/w_new/RAY%20Guidelines-%20English.pdf, Accessed September 19, 2011.

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deliver larger projects through PPPs due to the ability to shift the financing of this asset off the more visible parts of the balance sheet (though not the ultimate public sector liability). In order to solve this paradox, Indias institutional environment needs to be strengthened to support more complex types of PPPs. We now turn to a discussion of this issue in the next section. PPP Challenges in Indias Urban Context The first part of this section discusses the challenges involved in a) PPPs in general, b) PPPs in less developed countries (in other words, countries with lower incomes and more recent deliberate 20 efforts to involve the private sector in infrastructure provision, c) PPPs in urban areas, and d) PPPs in urban areas in India. We examine how PPPs of varying complexity might be expected to fare in these contexts. In principle there are many logical explanations for why we have seen few PPPs in urban India and why the ones that we have seen not always been resounding successes. Each additional adjective describing a PPP location in a developing country, urban infrastructure, urban India - adds new challenges. As discussed above, the number of urban PPPs in India is limited, suggesting that some partnerships were simply never attempted due to the inhospitable context. This pattern has two implications: First, that there is substantial room to improve the prospects for relatively simple PPPs though building individual and organizational capacity to write contracts that adequately foresee and manage risks as well as clearly specify performance criteria. Second, while these first steps may ensure success for simpler projects, ensuring sustained success for more complex PPPs is likely to require more in-depth reforms. The challenges posed by urban Indias political, economic, and social context suggests that institutional changes in the relationship between urban governments and the rest of the federal system will be important to support a wider range of more ambitious PPPs. The following sections discuss some approaches. There are two key challenges that PPPs face in general, irrespective of sector or environment the first is to ensure that the private service provider, once selected, does not hold-up the project due to the monopolistic nature of most infrastructure services or due to the prohibitively high transaction costs of cancelling and re-tendering the contract. The second relates to the obsolescing bargain problem (Vernon, 1971). Here the challenge is to
20

We use the word deliberate to distinguish policy efforts to attract private investment and private partners from de facto private provision of services to cope with gaps in public provision.

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ensure that the public sector sponsor does not expropriate the asset, once the private sector has sunk in its investment to create it. The key to meeting these challenges is to be able to allocate risk equitably in the concession agreement, and the ability to enforce contractual provisions. However, PPPs are long-term contracts that are often drawn under conditions of great uncertainty, thus necessarily rendering them incomplete (Williamson, 1979; Hart 2003). It is therefore either impossible or prohibitively expensive to predict and mitigate all of the challenges that such projects face. Even in stable institutional environments with strong judicial systems, exogenous events can lead to a change in project parameters that can affect the returns of one or more parties engaged in a PPP. Garvin and Mahalingam (2011) illustrate this in the case of road transportation projects in the US, where a decrease in demand after the award of PPP concessions for the development of interstate highways, and the consequent reduction in toll revenues, led to the private sector facing great difficulties in continuing to operate projects. These issues are compounded in the developing country context where institutions that enforce contracts are unreliable. Indeed, institutions that draw up contracts are often unreliable, non-transparent and unpredictable leading to an erosion of private sector confidence. In the first instance, this can lead to a poor response to a call for bids. In recent road transportation PPPs in Karnataka for instance, the average number of bidders per project was just over one, indicating reduced private sector confidence (Mahalingam, Rajan, Seddon et al, 2011). Consequently, it is likely that private sector capacity to develop large, complex projects may also not exist in these contexts. The threat of project expropriation and project cancellation looms large. Woodhouse (2006) and Henisz and Zelner (2005) have noted large numbers of cancelled Independent Power Producer projects in many parts of Asia. A newly elected Tamil Nadu state government cancelled a fourteen year toll concession that the Karur Municipality had given a local private developer to construct and maintain a toll bridge.21 Such experiences also serve to increase the risk premium that private investors place on projects thereby increasing project costs. In many cases these premia can be high enough that they effectively cancel out efficiency gains brought in by the private sector, making it more efficient to execute these
21

The contract between the Municipality and the private developer was cancelled when the approach road to the bridge was damaged during a flood in 2005. The government said that the private developer had not fulfilled their obligation to maintain the bridge; the developer argued that it had not been given the chance to repair the road after the floods. A December 2008 Tamil Nadu Government Order (No. 250) found in favor of the company and ordered compensation for the foregone toll revenues. Available at http://www.tn.gov.in/gorders/maws/maws_e_250_2008.pdf, accessed December 24, 2012.

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projects in the public domain. Another issue related to executing PPPs in the developing country context relates to the financing of the project and the ability to recover costs. Given that the ability to pay in developing environments might be low, PPPs may be able to survive only if the transactions are structured creatively. Consequently one often observes land development rights being thrown into PPP contracts for projects in India, to sweeten the deal. Urban environments create additional challenges. Theoretically, the rationale for PPPs is based on efficiency and thus better quality of service that can be provided by the private sector, but urban areas challenge the incentives to provide better quality of service since it is hard to exclude non-paying customers in densely populated areas. The fact that water supply, sanitation, and other services are important for public and private goods in urban areas means that basic market mechanisms are unlikely to motivate the optimal level of investment. Complex cross-subsidy arrangements that public providers have historically used can be difficult to untangle, while new arrangements combining public subsidies with commercial models require additional design expertise.22 Private providers are often tempted to cater to the more affluent sections of urban societies, and tight, outcome based specifications are necessary to prevent cherry-picking of customers or exclusion of poorer sections of society. The geography of cities also affects the scale of infrastructure projects and thus the extent of opportunities for leaders to learn over time. Urban infrastructure projects such as an airport, a metro-rail, a landfill and waste management system, or a water treatment plant are often large single-shot undertakings. These are high-value public projects where the partnership must work the first time. Third, the consequences of failures in urban infrastructure and service provision are more obvious than the consequences of failure in rural PPPs: traffic jams when roads and transport are inadequate; epidemics when sanitation and solid waste management doesnt work, for example. Finally, governance capacity for PPPs seems to be lower at the municipal level than at other higher levels of government. This is particularly problematic since urban PPPs are often more complex (due to the technological innovations required to develop projects in congested areas,
22

Annez (2006)s study of lessons from global experience in private provision of infrastructure focuses in particular on the challenges of cost-recovery for infrastructure with public good characteristics.

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integrate existing investments and minimize disruption to daily activities), more politically sensitive (PPPs in water for instance are highly contested), and provide for very visible failures or success. Projects such as the Cochabamba water concession in Bolivia showcase the difficulties in structuring urban PPPs in developing countries, particularly in the water sector (Nickson and Vargas, 2002). Heavy rioting led to the cancellation of that concession and underscored the perils of structuring a project without community participation, particularly in the face of ideological opposition and tariff increases. Indias urban areas are particularly challenging terrain for public-private partnerships. First, local government, both urban and rural, is constitutionally under the states jurisdiction. State governments, historically jealous of their political, financial, and bureaucratic powers, determine the roles, responsibilities, and revenues that local governments have. The 74th Amendment recognized urban local bodies and a list of possible responsibilities was added to the lists of state and union government responsibilities, but states have been slow to devolve funds, functions, and functionaries, as the rallying cry goes. State governments still substantially control the politics, finance, and administration of urban areas in spite of various efforts to motivate them to devolve more power, including linking some of the centre-state transfers to levels of devolution. Urban areas, particularly the increasing number of urban agglomerations, are also fragmented jurisdictions. The Kolkata Municipal Corporation, for example, oversees just 31% of the population in the Kolkata Urban Agglomeration, and the Mumbai Municipal Corporation covers 68% of the Urban Agglomeration. The peri-urban areas most in need of infrastructure and service improvements are often under separate administrative arrangements from the core city and overarching planning bodies such as the Metropolitan Development Authorities. ULBs, state-level infrastructure and service providers (parastatals), and state industrial development bodies are still negotiating their de facto domains. This half-devolution and fragmented authority, well-known and oft-decried in analyses of urban development and governance in India, affects the autonomy of ULBs as well as states as partners in urban PPPs. The shift from management to contracting is especially problematic in a setting such as urban Indias governance, where infrastructure and service provision is determined, financed, maintained, and monitored by multiple agencies across three levels of government in addition to an increasingly vigilant and

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demanding public. Urban local bodies in India still have limited own-source revenue23 and even own revenues are also substantially affected by state policies regarding the property tax base, method of assessment and state provision of resources for improving tax administration. The collection ratios are often low as is the elasticity of property tax revenue to property value. These factors make it difficult for local bodies to independently commit resources as well as to structure projects so that partners can recoup part of the property value gains that their investments enable. Indias civil service rules and structure also affect the ability to build capacity at urban levels. Not only are cities at a disadvantage compared to national or state governments in attracting skilled professionals, but current civil service norms complicate lateral hiring. States and ULBs tend to hire experts as consultants rather than full time employees. Finally, city administrators from the Indian Administrative Service and state civil services often rotate through jobs and cities leaving little room for building up institutional memory. This discussion illustrates some of the challenges that urban PPPs in India face. PPPs are often selected ideologically. Obtaining concurrence from the various government agencies involved is a time-consuming process, often requiring regulatory change. The Rajiv Gandhi Salai (Road) or IT Corridor PPP in Chennai is a testament to this the first stretch opened three years behind the scheduled completion and project costs have tripled as various agencies involved have issued permissions. Land acquisition can be problematic. Project structuring is often a long-drawn out process that is influenced by weak ULB capacity. The duration of the construction phase is often lengthy due to the physical challenges involved in building in congested areas. The willingness to pay, the ability to pay and the willingness to charge are often low, leading to returns that are at the margin of acceptability to private investors, given the risks that these projects phase. In summary, urban PPPs in India are feasible, yet unnecessarily complicated by the context. In several cases ostensibly simple projects have failed due to some of the concerns highlighted here. The Chennai Metropolitan Development Authority, for example, attempted several PPPs to modernize
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Data collected by the Thirteenth Finance Commission show an average of just 40% of urban local body revenues are from own sources.

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bus terminals and metropolitan rail stations. Issues regarding the procurement of development permissions, the uncertain nature of demand, the capacity of the private developers to execute, and relatively low internal rates of return all led to a failure to award technically uncomplicated projects. Creating an Institutional Environment for Urban PPPs: Existing Efforts. The initial approach to developing PPPs in India across sectors was to create and showcase pilot PPP projects as a proof of concept. Many of the initial PPP attempts, with the exception of those undertaken by the NHAI were stand-alone, ad-hoc, champion-led projects. In some cases, such as the Alandur underground sewerage project, this non-programmatic approach succeeded despite institutional constraints, mainly due to the leadership shown by officials who championed this project. In several other cases the Coimbatore bypass project and the Tirupur water supply project to name a few significant challenges arose, particularly in the urban context, and merited a re-think of this strategy to focus more on establishing conditions under which PPPs could survive even when not showcased/accelerated as pilots. (Mahalingam and Orr, 2008). The next generation of efforts to create a favorable institutional environment for PPPs in India has focused primarily on creating legal/policy frameworks, capacity building initiatives and providing financial support for PPPs (Mahalingam, 2010). Taken together, Indias approaches to strengthen an institutional environment for PPPs are quite typical of what is generally advocated when countries start their PPP programs. Most commentators on urban PPPs in developing countries allude to formal PPP enablers such as the presence of a robust legal environment, the creation of transparent and fair processes, the presence of PPP coordination units and so on, as critical success factors for urban PPP programs. The United Nations (2002) and the American Chamber of Commerce (2002) suggest with particular reference to emerging markets, that appropriate legislative frameworks must be established, that experienced practitioners are needed and that financing needs for PPPs must be met. The National Audit Office in the UK emphasizes the need for standardized procurement processes (NAO, 2001), while a report commissioned by the Treasury Task Force (Arthur Anderson, 2000) points to risk management as one of the key drivers of successful PPP projects. We briefly review the various categories of actions that have been undertaken in India thus far.

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Policy environment: state actions Experts agree that PPPs must appear as a legitimate mode of project procurement in order for public sector officials to opt for PPPs without fear of recrimination from Audit and Vigilance committees (e.g. Noumba Um, 2010). Simultaneously, legitimization of PPPs would also infuse confidence into the private sector to enter into PPP arrangements with the government due to the perception that a formal apparatus would exist to resolve potential disputes if any, and protect their interests. Accordingly there has been a thrust towards developing legislation around the use of PPPs. Some Indian states notably Gujarat and Andhra Pradesh have successfully undertaken this exercise. In the absence of legislation, several states have resorted to the development of a detailed policy and associated guidelines for the use of PPPs, to fulfill the same need. Although not as legally binding as legislation, policies serve several of the same needs identified above. Some states are in the process of upgrading these into legislation and/or combining them with existing Infrastructure Acts. Capacity-building: various models In addition to setting out a legal/policy framework that defines PPPs, the boundaries of their intended use, roles and responsibilities, and a dispute resolution framework, much attention has been given in the Indian context to the development of capacities to undertake PPPs (Dutz, 2007). Three separate sets of strategies have been popularly undertaken to develop capacities or to fill in expertise-voids: Developing detailed model documents and guidelines, setting up of PPP Cells, and conducting training programs. Considerable effort has been spent in developing detailed Model Concession Agreements (MCAs) for a variety of sectors including areas such as water and sanitation.24 These MCAs, which require context- and project- specific modifications, are intended to reduce the time required to prepare project documentation, bridge the experience/knowledge gap in an urban services department where the expertise to develop a PPP agreement may not exist, and to achieve a standardized risk allocation scenario that the private sector can strategize upon while submitting bids, thereby reducing transactions costs with regards to document preparation and negotiations. However, this approach has come with its own share of problems. Government departments may directly use MCAs without appropriate
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Many of these are available on the PPP website maintained by the Planning Commission: www.infrastructure.gov.in

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customization and without a thorough understanding of the content of these documents. Projects are thus often poorly structured and there is a perception among sponsoring government agencies that all risks are taken care of ex-ante. When issues surface as the project progresses, government departments often find themselves ill-equipped to handle them. The Alandur underground sewerage PPP is a case in point. After the project was awarded, the Tamil Nadu Urban Development Fund the agency that had helped structure the project handed the project over to Alandur municipality. When a dispute arose on who was to provide the last-mile connectivity to the sewage system, the municipality found that they were unaware of the contractual provisions and unable to deliver their obligations.25 Much attention has also been given to the subject of risk allocation and project structuring, particularly in training programs that have been organized. Deriving from Knights (1921) typology of calculable risks and non-calculable uncertainties, it is widely accepted that PPPs are subject to considerable uncertainties over their long-term life span that cannot easily be quantified (Grimsey and Lewis, 2004). Yet, most of the treatment focuses on conceptualizing uncertainties as risks and applying probabilistic calculations to assess the impact of these risks on the project, ultimately leading to the design of the financial structure of the project. We have observed earlier that PPP contracts are necessarily incomplete. While awarding construction contracts, the degree of completeness often dictates the type of contract that can be awarded. Where uncertainties are less, and eventualities are known, fixed-price contracts are often awarded, since such contracts can lead to a reduction of costs in the face of competitive behavior. This is usually the case in the Indian construction industry. On the other hand, when uncertainties abound, cost-plus contracts which are more relational in nature can be used. Given the incomplete nature of PPPs, a mindset-shift is again required from viewing contracts as fixed-outlay, zerosum games, to a more relational approach. In addition, local governments must figure out how to structure these relational contracts such that they achieve cost-minimization and expected social outcomes simultaneously. In addition to these efforts, PPP Cells have been set up within each state government and at the level of the central government in order to enable
25

The global IWA Water Wiki cites Alandur an example of the importance of building deep local capacity for PPP governance rather than developing projects based on transplantedthen-removed PPP expertise. See http://www.iwawaterwiki.org/xwiki/bin/view/Articles/StructuringandGoverningtheUseofPublic PrivatePartnershipsinWater, accessed December 29, 2012.

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line agencies to develop PPP projects. These cells have been set up with the assistance of the Asian Development Bank and consist, at the minimum of a PPP and an Information Systems Expert along with a nodal officer from the concerned government. The cells mandate is to help agencies identify and develop projects and to contribute to the institutional strengthening of the state as a whole through a combination of vetting documents, crafting guidelines and organizing training programs. Various state governments have also undertaken organizational strengthening measures by organizing several training programs on PPPs, often in conjunction with the PPP cells. Although most of these programs are not sector-specific they draw in representatives from urban departments and provide an overview of the need for and definition of PPPs, how PPPs can be identified and ways in which they can be structured. These efforts are not focused purely on the urban sector and represent a set of necessary conditions to promote PPPs in infrastructure service delivery. Certainly the presence of legislation or capacity building initiatives is advantageous. However, PPPs are also part art and part science. They involve embracing a culture of uncertainty and a philosophy of transferring roles that were hitherto held by the public sector, to the private sector in order to create a partnership with shared goals and objectives. The capacity to conceptualize PPPs in this fashion and to modify actions to suit this paradigm is therefore of paramount importance to the successful implementation of PPPs. Unfortunately, most capacity building measures thus far, be they the training programs or the documents and guidelines that are issued by central government ministries, are focused more on the mechanics of project structuring and process compliance, and do not address the broader, underlying issues of creating a culture that would facilitate partnering with the private sector on contractual arrangements fraught with uncertainty. We now explore this issue further. Next Steps: Deepening Capacity-Building The first step towards more effective capacity-building involves broadening the range of capacities under consideration. As we have observed, many of the capacity-building efforts under discussion focus on project preparation ability, not without good reason. Setting tariffs such that cost recovery is possible while at the same time meeting the needs of the urban poor and not affecting performance incentives on the margin is an important mechanism

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design skill that should be incorporated into capacity building initiatives that focus on the urban sector. In addition, training also needs to build capacity to identify PPPs. Such a shift could then lead to PPPs being selected rationally as opposed to ideologically, and being monitored towards their logical end, while delivering value to the citizens who use the services that the PPP arrangement provides. Private sector capacity and willingness must be appraised before entering into PPP arrangements, and PPPs can only deliver when they are shown to provide better value for money. PPPs are an appropriate choice when contestability exists in the market, when asset specificity and size are not high, and when the ability to specify quality exists. When there is high political discontent and a lack of competition, monitoring capability and citizen engagement, turning towards PPPs might prove to be a costly choice. Central to this debate is the issue of whether or not services need to be bundled or whether it is economically beneficial to unbundle urban services and award them as separate contracts. In order to ensure that the right decisions are taken, it is important that PPPs become a policy option and are not the only game in town. Capacity to take such decisions should be built. A related capacity is that of monitoring projects post-award. Noumba Um (2010) in a review of the World Banks experiences with PPPs in developing countries suggests that one of the key reasons for project failure is the inability to develop and monitor outcome based contracts. Parker and Figuera (2010) observe that Latin America has attracted much more private investment in urban services than Sub-Saharan Africa despite a greater need for infrastructure in African cities. While income is probably an important factor, they attribute this to the fact that in addition to possessing formal rules and procedures, several Latin American states have also developed good project oversight institutions that can adequately govern incomplete PPP contracts and focus on service delivery metrics. We have already noted that the monitoring processes involved in governing PPP contracts will vary widely from monitoring schemas in traditional procurement arrangements due to the incomplete nature of PPP contracts and the consequent relational strategy that must be adopted. This is often due to the fact that design and in some cases operational responsibilities are taken by the private provider leading to the need to shift from measuring outputs to measure outcomes. One of the critical elements of monitoring PPP contracts therefore involves the setting up of service specifications and the assessment of service delivery (Sclar, 2000; Siegal, 1999) taking into

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account the uncertain and incomplete nature of the arrangements as well as the ability to monitor service level parameters. This exercise is often very different from the contract management undertaken in traditional engineerprocure-construct contracts. Several scholars emphasize the fact that the government should engage in relational contracting in order to ensure that monitoring is an ongoing process (Kavanagh and Parker, 1999; Sclar, 2000). Furthermore, studies have found that contract monitoring costs in PPPs are often as much as 20% of the total project costs (Pack, 1989; Prager, 1994). However, hardly any attention has been paid to developing project monitoring capabilities in the Indian environment thus far. Franceys and Weitz (2003) also point to community partnerships being a key to PPP success in urban Asia. Building such partnerships may require new political and diplomatic skills. Service delivery of urban infrastructure touches the lives of people who use these services. The incorporation of the voice of citizens into the planning and delivery of these services is therefore crucial to the success of these projects. Kay and Reeves (2004) discuss how the deficit of such debate undermines the legitimacy of PPP programmes and how public sector accountability to citizens is compromised if meaningful stakeholder involvement is absent. They emphasize the importance of communication strategies for PPPs. Hefetz and Warner (2004) point out that successful PPPs often involve government bodies that are de-politicized and are run by professional managers, who in turn recognize the need for public engagement in service delivery. In general successful PPPs feature government bodies with decision makers who can address issues such as citizen interests, political opposition and market management They balance technical and political concerns to secure public value (Hefetz and Warner, 2004, 2011). Sanderson (1998) echoes this view and suggests that citizen voice is important. However, there is a general consensus that this is often not taken into consideration when contemplating PPPs (Warner and Hefetz, 2002). Once again, training programs and broader sensitization campaigns in the Indian context have thus far focused mainly on civil servants and elected representatives and have ignored communities-atlarge. Capacity building needs to move beyond augmenting individual capacity to enhancing organizational capacity. PPPs change the provision of infrastructure from a management problem within an organization to a contracting problem between organizations, with consequent managerial implications. Infrastructure provision by delegation, especially within the public sector (even when a private firm is contracted to build the asset),
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rarely rests on firm, detailed ex-ante project plans. To the extent that a project plan exists to meet statutory requirements, it is subject to change through negotiation within the organization. PPPs, on the other hand, require project plans and resources to be laid out in advance, along with clear role assignments. Changing these requires an agreement by several parties, rather than intra-organization accommodation. Similarly, PPPs require project risks to be laid out in advance and assigned to the contracting parties. It also changes the dynamics of action on traditional projects, public sector implementers can unilaterally cancel a project if unfavorable scenarios are realized; this is harder to do when part of a partnership. Contracting also creates a public relationship between two organizations that is subject to greater scrutiny and possibly suspicion as compared to internal managerial relationships within the public sector. In short, moving from delegation by management to delegation by contract requires new skills for managing uncertainty and risk. In traditional methods of contracting wherein the public sector provides a specific service that may be implemented by a private contractor, most of the risks, with the possible exception of construction risks such as time overruns are borne by the public sector. The contracting interface with the private sector is therefore short-term and is restricted to the monitoring of well-defined specifications and milestones. The public sector then manages the asset. Over the years, public and private organizations in India have enhanced their competencies to work within these arrangements. At the other end of the spectrum, when public agencies contemplate full privatization, risks are almost completely transferred to a private provider, significantly reducing the contracting and monitoring role that public agencies play. Public Private Partnerships on the other hand, lie between these two extremes where a greater portion, but not all project risks are transferred to the private sector (for instance, financing and operational risks in addition to design and construction). Public sector accountability however, continues to be a major concern. Managing PPPs therefore present a unique set of challenges since the approach can neither be as control-oriented as in the case of traditional public sector procurement, nor can it be as armslength as in the case of privatization of services. A series of capabilities to meet these challenges must therefore be developed. Stability of tenure is perhaps one key aspect of administrative reform that can help create this shared culture of PPPs. Otherwise, while some knowledge may be imparted, real learning on dealing with PPPs may be impeded. Furthermore, frequent transfers of officials often undermine the training imparted during capacity

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building programs. Finally, steps must be taken to address the institutional vagaries of being urban in India. Institutional reforms that make the urban India phenomenon more typical of developing country PPPs rather than a special risk class of its own would play an important role in enabling urban leaders to seek PPPs to serve their constituents. Urban India will inevitably be a challenging site for PPPs because of variation in income levels and overall relatively low mean income, relatively inexperienced policymakers and a limited history of PPPs, but the level of fragmentation of responsibility could be reduced, the autonomy and own revenue sources could be improved through changes in tax assignment or the terms of the State Finance Commissions, and state Municipal Finance Acts, among other changes that would lead to simpler environment and therefore increase the chances for successful PPP implementation. Conclusion We began by highlighting the difference between the need for and the rhetoric on urban PPPs in India on the one hand, and the actual numbers of PPPs that had been awarded in the urban sector on the other. We then turned to discuss the quality of infrastructure and services provided under PPPs. Indias experience has been mixed. Overall, the international evidence on the extent to which PPPs have delivered their potential benefits is mixed. A Standard & Poor survey in 2005 found that 88% of the PPPs under surveillance (across a variety of sectors, most in developed countries) were delivered on time and budget. Several reports from the National Audit Offices in the UK have also found PPPs to perform better as compared to projects under traditional procurement (NAO 2000,2001). On the other hand, several studies in the UK and elsewhere also find that privatization has been unable to bring about several of the benefits promised (e.g. Hellowell and Pollock, 2009; Greve, 2003). Estimo (2007) supports the latter view with particular reference to water supply in Asia. India must follow two sets of strategies simultaneously in order to ensure that PPPs are not only a viable solution in urban areas, but that their benefits are optimized as well. On the one hand, structural changes in urban administration such as passing legislation relating to PPPs, setting up PPP units and so on must be pursued. At the same time, considerable emphasis must be given to the development of softer capabilities such as the ability to work in partnership with private operators, the ability to meaningfully
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consult stakeholders and so on. Grimsey and Lewis (2004) contend that government bodies must change their mindset to view PPPs as the purchase of services as opposed to the purchase of an asset, and where risk and responsibilities are shared. Furthermore, it is imperative that the mindset towards PPPs is relational and embraces iteration and negotiation, in contrast to the traditional competitive mindset that is present on most infrastructure projects. Given that risks are shared, and that theoretically, risks have been allocated to the party best able to manage these risks, both the public and the private sector must work together in partnership to negotiate risks that arise and ensure that value is delivered to the end-user of the services. However, as Klijn and Teisman (2004) point out, such partnerships are very difficult to achieve in practice, since fundamental goal incongruities exist between public and private organizations. As Jacobs (1992) notes, public organizations are characterized by a guardian syndrome and are committed to protecting the public interest, while private organizations are characterized by a commercial syndrome where they are intent on maximizing profits. A culture of trust between public and private organizations must therefore be built in order to achieve the ideals of PPPs. Our recent study commissioned by the Department of Economic Affairs (DEA) on the characteristics of an ambient environment that can support PPPs highlighted similar issues. We identified stakeholder acceptance, project governance and political willingness as capabilities that need to be present in the environment in order to sustain successful PPP programs (Mahalingam, Rajan, and Seddon, 2011). Despite the growing literature on these issues, scant attention has been paid to developing these capabilities within the Indian context. This has been exacerbated by the fact that the current culture of contracting, inclusion and monitoring is deeply rooted in historically-shaped work-practices. These practices are highly resistant to change and considerable effort will be required to develop these capabilities. Of late, the DEA has acknowledged these issues and some efforts have been taken in this direction. For instance, an extensive capacity building program focused on project monitoring, as well as a communications manual on PPPs have been commissioned. While these efforts are creditable, more will be required to ensure that these capabilities diffuse deep into the institutional structures that govern the development and management of PPPs. Investor interest and financial commitments do appear to be increasing, the challenge will be to convert

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these early prospects into successful development of infrastructure for the public good. More interventions along these lines and others identified in this chapter are necessary to successfully leverage private participation to meet Indias urban infrastructure and service needs. References Annez, Patricia Clarke (2006). Urban Infrastructure Finance from Private Operators: What Have We Learned from the Experience, World Bank Policy Research Working Paper 4045, November 2006. Bovaird, T. (2010). A brief intellectual history of the public-private partnership movement in International Handbook on Public-Private Partnerships, Hodge, G.A, Greve, C. and Boardman, A.E. Eds, Edward Elgar, UK. Estimo, R.F. (2007) The curse of the MWSS water utility privatization in the Philippines, Kyoto: Maynilad Water Supervisors Association Franceys, R. and Weitz, A. (2003) Public-private community partnerships in infrastructure for the poor, Journal of International Development, 15, 108398 Garvin, M.J. and Mahalingam, A. 2011. Project Delivery and Financing: Conventional and Alternative Methods in Organization Management in Construction, Chinowsky, P. and Songer, A. Eds. Spon Press, UK Greve, C. (2003) When Public-Private Partnerships Fail. The Extreme case of the NPM-inspired local government of Farum in Denmark, In: the EPGA Conference, Oerias, Portugal, Sep. 3-6 2003. Grimsey, D. and Lewis, M.K (2004) Public-Private Partnerships: The Worldwide Revolution in Infrastructure Provision and Project Finance, Cheltenham, UK: Edward Elgar Hart, O. (2003). Incomplete contracts and public ownership: remarks, and an application to public-private partnerships, Economic Journal, 113 (486), 6976 Hefetz, A and Warner, M. (2004) Privatization and its Reverse: Explaining the Dynamics of the Government Contracting Process, Journal of Public Administration Research and Theory, 14(2), 171-90 Hefetz, A and Warner, M. (2011) Contracting or Public Delivery? The Importance of Service, Market and Management Characteristics, Journal of

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Public Administration Research and Theory Hellowell, M. (2010). The UKs Private Finance Initiative: history, evaluation, prospects in International Handbook on Public-Private Partnerships, Hodge, G.A, Greve, C. and Boardman, A.E. Eds, Edward Elgar, UK. Hellowell, M. and Pollock, A.M. (2009) The private financing of NHS hospitals: politics, policy and practice, Economic Affairs, 29(1), 13-19 Henisz, W.J and Zelner, B.A. (2005) Legitimacy, Interest Group Pressures and Institutional Change in Emergent Institutions: The case of foreign investors and home country governments . Academy of Management Review , 30(2): 361-82 Jacobs, J. (1992) Systems of Survival : A dialogue on moral foundations of commerce and politics. Random House Kavanagh, I. and Parker, D. (1999) Managing the contract: A transaction cost analysis of externalization, Local Government Studies, 26(4):1-22 Kay, M. and Reeves, E. (2004). Making PPPs Accountable: The case of Ireland in Public-Private Partnerships: Policy and Experience, Ghobadian, A., Gallear, D., ORegan, N. and Viney, H. Eds. Palgrave Macmillan, UK

Klijn, E-H. and Teisman, G.R. (2004). Public-Privaet Partnerships: The Right Form at the Wrong Moment? An Analysis of Institutional and Strategic Obstacles in Public-Private Partnerships: Policy and Experience, Ghobadian, A., Gallear, D., ORegan, N. and Viney, H. Eds. Palgrave Macmillan, UK Knight, F. (1921) Risk, Uncertainty and Profit, Houghton Mifflin: Boston, MA Mahalingam, A, 2010. PPP Experiences in Indian Cities: Barriers, Enablers, and the Way Forward, ASCE Journal of Construction Engineering and Management, Vol. 136, No. 4, April 2010, Pp 419-429 Mahalingam, A., and Orr, R. 2008. Confronting Indias Infrastructure Bottleneck: Practical, Collaborative Solutions to Increasing the Flow and Success of PPP Projects in Gujarat, Tamil Nadu and Uttar Pradesh, published as the proceedings of the CRGP-IITM Roundtable on Public Private Partnerships held on 4-5 April, 2008 at IIT-Madras Mahalingam, A., Rajan, T., and Seddon, J., with Santosh, V., and Srinivasan, S. (2011) Creating an Enabling Ambient Environment for PPPs, Report to the

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Department of Economic Affairs, Ministry of Finance, Government of India. IIT-Madras & Centre for Development Finance, Chennai, India. Marin, P. (2009) Public-Private Partnerships for urban water utilities. A Review of Experiences in Developing Countries, World Bank PPIAF paper, 2009 Trends and policy options No. 8. National Audit Office (2000), Examining the Value for Money of Deals under the Private Finance Initiative, London Nickson, A., and Vargas. C. (2002). The limitations of water regulation: The failure of the Cochabama concession in Bolivia. Bulletin of Latin American Research 21(1): 99-120. Noumba-Um P. (2010). Empirical evidence of infrastructure public-private partnerships: lessons from the World Bank Experience in International Handbook on Public-Private Partnerships, Hodge, G.A, Greve, C. and Boardman, A.E. Eds, Edward Elgar, UK. Parker, A. and Figuera, C. (2010) PPPs in developed and developing economies: what lessons can be learned? in International Handbook on Public-Private Partnerships, Hodge, G.A, Greve, C. and Boardman, A.E. Eds, Edward Elgar, UK. Pricewaterhouse Coopers and Franks, J. (2002) Study into Rates of Return Bid on PFI projects, The office of Government Commerce, London: The Stationary Office. Sanderson, I. (1998). Beyond performance measurement? Assessing value in local government. Local Government Studies, 24(4): 1-25 Sclar, Elliot. D. (2000) You dont always get what you pay for. Ithaca, NY: Cornell University Press. Seddon, Jessica, and N.K. Singh. (2012). Moving India: Policies and Priorities in Indias Transport Sector Reform, Nicholas Hope, Anjini Kochar, Roger Noll, T.N. Srinivasan, eds. Economic Reform in India: Challenges, Prospects, Lessons. New York: Cambridge University Press. Siegal, Gilbert, B. (1999) Where are we on local government contracting? Public productivity and Management Review 22(3): 365-88 Uchida, Hirotsugu and Andrew Nelson (2010). Towards a New Measure of Urban Concentration, UNU-Wider Working Paper No. 2010/29 Warner, M.E. and Hefetz A. (2002) Applying market solutions to public
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Urban Affairs

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