Mainstreaming

Public Private
Partnerships in India

CUTS Institute for

Centre of Excellence
on Law & Economics Regulation & Competition
Mainstreaming
Public Private
Partnerships in India

CUTS Institute for

Centre of Excellence
on Law & Economics Regulation & Competition
Mainstreaming
Public Private Partnerships in India
Published by

Centre of Excellence
on Law & Economics

CUTS Institute for Regulation and Competition

R 75, 1st Floor, Greater Kailash I
New Delhi- 110048, India
Phone: +91-11-2646 3021, Telefax: +91-11-40535921
Email: circ@circ.in
Web: www.circ.in

Edited by:
Pradeep S. Mehta

Assisted by:
Hariprasad C.G.
Joymala Dutta

Designed by:
Sai Media Communication

Printed by:
Sai Media Communication

ISBN:
Citation: CIRC (2012), Mainstreaming Public Private Partnerships in India, Policy Document and Souvenir,
CIRC, New Delhi

© CUTS Institute for Regulation & Competition, 2012

Suggested Contributions Rs. 1000/US$50

 Contents
Acknowledgements i
Foreword ii
Editor’s Note iii
What is CIRC? v

1. Infrastructure Regulatory Framework for India 001

A.P.Bahadur,
ADB PPP Expert for Haryana Former Chief Engineer, MoRTH, Govt. of India

2. Institutionalisation of PPP Process in the Government 006

Arvind Mayaram,
Secretary, Economic Affairs, Ministry of Finance

3. Framework for PPP in Indian Ports - issues and emerging lessons 009
A. Balasubramanian,
Senior Director, IDFC is a lawyer and a financier with extensive experience in PPP and infrastructure.

4. Creative Financing of Urban Infrastructure in India through Market-based 014

Financing and Public-Private Partnership Options
Chetan Vaidya, Director, School of Planning and Architecture
Hitesh Vaidya,Urban Advisor IPE Global, a development sector consulting firm

5. Public Private Partnerships in National Highway - Overview of the framework 018

Gajendra Haldea, Additional Secretary, Advisor to DCH (Infrastructure)

6. Contours of Public-Private Partnership (PPP) Management Regime in 024

Decentralised Renewable Energy Systems in India1
Gopal K Sarangi, TERI University

7. Transforming Water Supply Regimes in India: Do Public-Private 027

Partnerships Have a Role to Play?
Govind Gopakumar, Assistant Professor, Concordia University

8. Few thoughts on policy changes in PPP in India 034

J.K. Dadoo, IAS

9. Public Private Partnership and Social Infrastructure 037

K.M. Mital and Vivek Mital, Institute for Integrated Learning in Management,
Financial Management and Derivatives Consultant,

10. Impact of Public Private Partnership in Infrastructure on Growth in India 043

P.Ambigadevi, Professor of Economics, Avinashilingam Institute for Home Science
and Higher Education for Women

11. Public Private Partnerships: Present experience, challenges and the way forward 047
Piyush Tiwari and Ranesh Nair, Associate Professor in Property,
Faculty of Architecture Building and Planning University of Melbourne

12. Public Private Partnerships: Some issues related to financing 051

Prabal Roy Chowdhury, Indian Statistical Institute
 Contents
13. Quality Infrastructure Good Regulatory Framework, the Key 053
Pradeep S. Mehta, Secretary General, CUTS International

14 . Revenue Sharing Models in a "Public Private Partnership" (PPP) Context 055

Pradeep Valsangkar, (MD & Chief Consultant), GCS Consulting Services Pvt. Ltd.

15. The Early Phases of Innovation: Opportunities and Challenges of Public-Private Partnership 059
Rajnish Tiwari, Institute of Technology and Innovation Management,
Hamburg University of Technology (TUHH)

16. Need for a comprehensive PPP policy in infrastructure 064

Ranen Banerjee, Partner at PwC

17. Competition & Regulation & the Competition Assessment Framework 067
Roger Nellist* with John Preston**
*Team Leader and Deputy Head, Growth and Investment Group,
Department for International Development, UK
**Commerce Commission, New Zealand

18. Risks & Audits of PPP Projects 071

Sharmila Chavaly , JS, Department of Economic Affairs

19. Public Private Partnership and the Institutional Considerations 074

Sharmistha Ghosh, Lecturer in Commerce, Shri Shikshayatan College

20. Quality of Regulation: Meaning, Determinants and Assessment 077

Siddhartha Mitra, Professor, Deptt. of Economics, Jadavpur University

21. Urban Governance and Service Delivery in Bangalore: Public-Private Partnership 079
Sangita S N, Head & Professor & Smitha K C, Doctoral student
(Centre for Political Institutions Governance and Development,
Institute for Social and Economic Change)

22. Public-Private Partnerships: Keeping Human Rights on the Radar 085

Surya Deva, Associate Professor, JD Programme Leader,
Faculty Editor, City University of Hong Kong Law Review
School of Law, City University of Hong Kong

23. Public Private Partnership in Infrastructure Sector in India 088

Dr. Sushil Kumar, Assistant Professor, Institute of Management Studies, Kurukshetra University

24. Public Private Partnership (PPP): Way Forward to Infrastructural Developments in India 095
Tarique Anjum, Chartered Accountant

25. Needed, a Water Policy that Taps Private Sector 100

Udai S Mehta, Associate Director, CCIER

26. Public Private Partnerships and Infrastructure Projects in Transition Economies 102
Yannis S Katsoulacos,Professor of Economics, Athens University of Economics and Business
 Acknowledgments
During the compilation of the Policy Document and Souvenir, significant contributions were also
made by CUTS/CIRC staff. It may be difficult to list all of them but some need special mention.

n Coordination n Contributors
A.P. Bahadur
Pradeep S. Mehta
Arvind Mayaram
Kamal Sharma
A. Balasubramanian
Hariprasad C.G.
Chetan Vaidya
Arvinder Kaur
Gajendra Haldea
Preeti Singh
Gopal K. Sarangi
Joymala Dutta
Govind Gopakumar
Wilson Tharakan
J.K. Dadoo
Krishna Mohan Mital & Vivek Mital
P. Ambigadevi
Piyush Tiwari & Ranesh Nair
Prabal Ray Chowdhury
Pradeep S. Mehta
Pradeep Valsangkar
Rajnish Tiwari
Ranen Banerjee
Roger Nellist
Sharmila Chavaly
Sharmistha Ghosh
Siddhartha Mitra
S.N. Sangita & K.C. Smitha
Surya Deva
Sushil Kumar
Tarique Anjum
Udai S. Mehta
Yannis S. Katsoulacos

This publication contains copyrighted material some of whose use has not been specifically
authorised by the copyright owners. CIRC is making these articles available in our efforts to advance
understanding of regulatory issues. We believe that this constitutes a ‘fair use’ of the copyrighted
material as provided for in Article 10 of the Berne Convention for the Protection of Literacy and
Artistic Works (Paris Text 1971) and in section 107 of the US Copyright Law. If anybody wishes to use
materials from this publication for purpose that go beyond ‘fair use’, she/he must obtain permission
from the copyright owner. CIRC will not draw any profit from this publication, since it is solely for
informative and educational purposes. Suggested contribution has been sought from the public for
printing and postage costs only.

i
 Nitin Desai

Foreword
Sustained growth of Indian economy is critical for equitable development in the country which can impact all strata of
society. The requirement for sustainable infrastructure development is paramount in order to provide the backbone for
economic activities as well as to ensure the efficient use of resources.

Public Private Partnerships or PPPs are seen to have a significant role in bringing in much needed investments as well as
efficiencies in utilization and management of resources. Indian government has taken a number of steps to encourage
private investment in infrastructure through public private partnerships. However it has been observed that while PPP
projects in some sectors have been successful in attracting huge private investments, several other sectors like Railways,
Power Transmission and Distribution achieved only limited success.

Project implementation, monitoring, time bound execution of PPP projects and financing are the key issues of the
infrastructure developers. Given the limitations of government resources to meet the investment gap, the contribution
through PPP has achieved paramount significance. However despite the established importance of PPPs as a valuable
instrument for infrastructure, there have been constant calls for a comprehensive National PPP Policy. Many state
governments have put in place an institutional framework for encouraging PPPs and others are in process of doing so.

The ability to detect the need for regulation, use regulatory tools discerningly and take appropriate action against anti-
competitive practices requires specialised knowledge and skills. These skills have to be developed through targeted
instructions and training which simulates reality. It is only then that such skills can be enhanced through learning by doing
and finally used for the benefit of the economy. CUTS Institute for Regulation and Competition (CIRC) has been conceived
with the objective of not only developing capacity in regulation but also that of various stakeholders who support and
provide strength to regulators.

This Policy Souvenir on PPPs contains insightful articles written by eminent experts of the subject based in India and
abroad focussing on the scope of National PPP Policy, existing frameworks and challenges for PPPs in India, key issues
relating to overlaps and ambiguity between Centre and the States, etc. and will bring forth the options or policy choices
which the proposed National PPP Policy can look at.

Through the Policy Souvenir on PPPs, CIRC envisage to provide inputs for the National PPP Policy and to generate
resources for development of short and long term professional courses on PPPs suiting different stakeholders.

This Policy document focusses on large number of important areas such as progression of PPPs, usage of PPPs in India,
existing framework & challenges for PPPs, State level experiences, best practices followed in other countries. The articles
will be accessible to all layman, Central and State Government officials, employees of infrastructure companies,
transaction advisors, consultants etc. The compilation of articles in the Policy document will be an important reference to
the concerned authorities while structuring their PPP projects and will serve as a benchmark to mainstream Public Private
Partnerships in India.

Nitin Desai
President, Governing Council
CUTS Institute for Regulation & Competition
 Pradeep S Mehta

Editor's Note
This is the second Policy Document and Souvenir brought out by CIRC. It may be recalled that the first one took a look at
how infrastructure and its growth enhancing effects can be promoted through better regulation. The appreciation it
received and the debate some of the essays therein were able to generate has encouraged us to look at a different side of
Public Private Partnerships this time. In his budget speech of 2011-12, the then Finance Minister, Dr. Pranab Mukherjee
mentioned the experience with PPP Model and announced Central Government's intent to come up with a comprehensive
policy for developing PPPs. Since then, deliberations are being organised towards drafting of the National PPP Policy. This
Policy Document and Souvenir envisages providing inputs for the proposed National PPP Policy in the form of policy
choices facing regulatory and operational dilemmas and generating resources for development of short and long term
professional courses on PPPs as desired by different stakeholders. The Policy Souvenir is a compilation of essays authored
by eminent PPP experts based in India and abroad and offers the readers comprehensive and candid analysis of how the
PPPs can be mainstreamed.
Each article contained herein is focused on a specific issue (and related sub-issues) and discuss merits/demerits of policy
options to address it. The articles touch upon the mentioned agenda from different angles.
A.P. Bahadur has written on the desirability of an effective and independent regulatory mechanism to harmonise the
interests of various stakeholders in PPP projects, for benefits of development to reach out all sections of society and for
protection of consumer interest. All these steps will be aimed to facilitate competition, promote investment, stabilise
market and prices, market structure, procurement process, quality and protect consumer interest. He opines that
regulatory mechanism has to act as the fourth arm of governance.
Arvind Mayaram states that PPPs form the most feasible option to attract private finance into the infrastructure sector. He
further enumerates in his article the list of constraints that restricts the use of PPPs and explains how these can be overcome.
In his article, ChetanVaidya goes on to enumerate the progress made in development of policy and legal framework for
local governments to access funds for development projects. PPP route, in his view, offer options to Local Bodies to access
project management expertise and financial structuring.
With regard to port sector, Balasubramanian traces the evolution of port legislation in India and has touched a few vital
aspects for this article. Balasubramanian's article outlines the overview of MPTA, 1963 enacted to administer ports locally.
The article further examines the framework for PPP in Indian port sector and raises the issues that emerge in governance of
federal port trust by MPTA. He goes on to suggest remedies which includes identification of a well drafted approach, port
policy and a new legislation to direct the port industry.
In the realm of the energy sector Gopal K Sarangi opines that excessive government interference have proved to have
generated multiple distortions and inefficiencies. He explains that decentralized renewable energy provision is the one
answer of the ill provisions of centralised energy systems.
Govind Gopakumar through his article highlights the dynamics of partnership efforts in different urban contexts and role
of partnerships in transforming existing infrastructure regimes. J.K. Dadoo while focussing on regulatory issues
highlighted the need for strong and independent regulators for the success of PPP. He advocates that PPP is a great idea for
solving the problem of poor infrastructure in India. His recommendations for creating a favourable environment to
encourage infrastructure development includes: PPP should keep public interest upper most and should work towards
facilitation of that public interest; Financial and technical parameters must be clear, feasible ;Evaluation process must be
transparent, unbiased etc.
With regard to highway sector, Gajendra Haldea in his article advocates the need for a comprehensive policy and a
regulatory framework for addressing the complexities of PPP. He goes on to elaborate the rationale behind the phased
development and explains how the idea of phased development can create a favourable regime to address the issues likely
to arise in financing and structuring of highway projects.
K.M. Mital through her article attempted to review a set of public private partnership models relevant for infrastructure
development and review problems and issues in different areas of social infrastructure including education, healthcare,
women empowerment, care of elderly etc. with the help of select case studies based on different public private partnership
models and information and communication technologies.
P Ambigadevi emphasized on the importance of infrastructure development and how a positive relationship exists
between economic growth and infrastructure development. He further claims that for proper development of
infrastructure it is very necessary to initiate public private partnership in infrastructure investment.
Piyush Tiwari discusses about the present experience of public private partnerships in India, certain successful PPP projects,
enumerates the various reasons for the slow pace of private sector participation and the way forward. Prabal Roy Chowdhury's
article deals with two finance related issues to do with public private partnerships- one whether the financial aspect of a project
should be delegated to the private partner or not and the other issue is with respect to the SHG- linkage program in micro finance.
Pradeep Valsangkar tries to bring out different revenue sharing models in a PPP deal between government and private
enterprise. Since the ability of the government to invest in to and run large e-governance projects may be limited, these
models present a very interesting mix of risk and reward for the government as well as the private vendor.
Pradeep S. Mehta writes on the key role played by regulation in infrastructure development, particularly to raise the
massive resources required for its overhaul. His recommendations for quality enhancement include: direct accountability
of regulators to the legislature, MoU between the line ministry and regulator to promote non-interference by the former in
the latter's functioning, use of consumer association as watchdogs, financial autonomy promoted through direct linkages
with the legislature and most importantly fair and competitive appointment of regulators.
Rajnish Tiwari in his article talks about the importance of innovation and proposed an “innovation coalition” comprising the
industry, the government and the academia that could enhance the innovation capacity of firms, especially SMEs in a given region,
country or industry sector. Using results of two empirical surveys, conducted with the author's involvement, it demonstrated the
opportunities and challenges of such a public private partnership in strengthening the innovativeness of firms.
Roger Nellist focuses on the competition aspects of regulation rather than those of commercial behaviour. A methodology is
elaborated for assessing the pro-competitive nature of sector regulation. Ranen Banerjee stresses on the need for a comprehensive
PPP policy in infrastructure while Sharmistha Ghoshargues for institutional amendments to secure effective implementation of
PPP Policy. In this regard Ghosh through her article tries to pinpoint those key issues and suggest ways to deal with it.
Smitha K.C. and Sangita S N explores through their article public private partnership in the light of persistent state failure,
institutional constraints and systematic weakness which impede the service delivery. Their study examines various types
of partnership at work for service delivery in metropolitan Bangalore.
Surya Deva giving a completely different flavour emphasized on devising a framework that can ensure that human rights
find a voice in all stages of the PPP process. He opines that there are sound legal and moral reasons to demand that both
public and private participants of PPP projects comply with universal human rights obligations and has suggested certain
steps to keep human rights on the radar of PPP Policy makers and participants.
Siddhartha Mitra's article focuses completely on sector regulation-the underlying objectives and the rationale. He
elaborates on “Regulatory Impact Assessment” as a tool to judge the status of implementation of regulations.
Sushil Kumar discusses about PPPs and infrastructure position in a broader light with emphasising on each core sector from
highways, railways, ports, airports, telecoms, power etc. Tarique Anjum opines in his article that world class infrastructure is
the key to a globally competitive economy and India's objective of sustained double digit growth can only be achieved through
a quantum growth in infrastructure sector. He looks at infrastructure as a key driver for steady growth of Indian economy and
goes on explaining how Public Private Partnerships (PPPs) can act as an effective means of developing infrastructure.
Udai S Mehta tries to envisage that given the scarcity of water resource it is pertinent to devise effective public private
partnership projects for supply and distribution of water. He goes on in his article about the very need for an overarching
Water Framework Law which will enable smooth implementation of the New National Water policy. Yannis S Katsoulacos
elaborates on how the arrangement of public private partnerships can be implemented in transition economics.
Through this note, the editor endeavours to provide a flavour of the diverse contributions to various categories. References
to various articles are necessarily brief and provide only a sketch of ideas. The attempt is to capture the essence of content
rather than the arguments made in entirety. The collection of articles compiled in this Policy Document and Souvenir
comprehensively deal with amongst others, sector specific issues, and endeavour to provide conceptual and practical
solutions to the issues presented.
The Souvenir will reach out to the Central and State Governments, Infrastructure development companies, banks and
other financial institutions, transaction of advisors/consultants, think tanks, civil society organisations, media etc. within
the country and abroad.

Pradeep S. Mehta
Chairman, Managing Committee,
CIRC, India
 CIRC- An Overview
What is CIRC?
Regulatory reforms are gaining pace in the developing world, with an increasing number of countries enacting
competition and sectoral regulatory laws. However, there is a severe shortage of institutional capacity to both implement
the reforms and facilitate the spread of knowledge on regulatory matters in developing countries.
There is a huge vacuum in this area and current efforts are largely piece-meal and fragmented. Adequate emphasis is not
given on learning from cross-sectoral and cross-country experiences. There is a clear gap in terms of research and its
utilisation in designing the course curriculum. Even the approach taken by the existing training programmes is not as
broad based as it should be.
CUTS has been working on economic policy issues since 1984 as a leading research, advocacy and networking group and thus, has
realized the importance of the issues involved. CUTS, therefore initiated the formulation of CUTS Institute for Regulation and
Competition (CIRC), which aims to fill in the prevailing gaps and enhance knowledge on regulatory issues. With this background
CIRC has been set up to offer research-based capacity building solutions to governments, regulators, private sector, civil society
and students. It focuses on two principal domains: Competition Policy and Law, and Economic Regulation. It's activities are
guided by a Board, which has prominent experts in these two fields, and is led by former UN Under Secretary General Nitin Desai.
CIRC within a very short span of time has started working with both government and non-government agencies in its focus areas.
CIRC is very pleased to announce that it has very successfully launched its first ever course in India on “Competition Policy
and Law” in partnership with National Law University, Delhi. It comprises a Certificate Course on the basics of
Competition Policy and Law of 6 months duration and a diploma course of 1 year duration which is an add on to the
certificate course.

The Perspective:
• To be a specialised, premier capacity building institute in the area of Infrastructure Regulation and competition policy & law;
• Create an intellectual and knowledge base on regulatory reforms including economic regulation & competition policy;
• Facilitate research to enhance understanding; bridge the gap in research and its utilisation in course curriculum;
• Offer consultancy services to governments, regulators, businesses, etc. and
• Cater to specific needs by offering customised training programmes.

Methodology:
It includes: interactive lectures, field visits, case studies, and simulation exercises to provide strategic understanding, developing core
skills and encouraging in-depth knowledge of the dynamics involved; local content in course curriculum (real life situations)are the
basis of the study material; global quality standards and inter-disciplinary approach forms the basis of or all disciplines; and a multi-
stakeholder approach while maintaining a rich tapestry of resources both in terms of faculty and institutional affiliations.
CIRC is on the way of introducing an online learning platform for all its courses. In doing so, the aim is to share knowledge
and build an extensive network of CIRC.

Activities Range:
• Certificate Courses and Diploma Courses
• Conferences/ Seminars/Workshops
• Capacity Building Training
• Bi-monthly publications-RegTracker
• Research Journals
• Policy Briefs
• Quarterly newsletter- CIRCular
The Guides:
CIRC offers a practical focus on learning. The faculty (part
and full time)on board explores the challenges involved in
relation to real life experiences. Emphasis is laid on the key
issues, supported by research. Visiting fellows, both
academics and practitioners, are available at the Institute
for delivering lectures, offering expert views on course
development, writing papers, developing training
modules and conducting training programmes. There is an
expert group formulated as per the two subject streams of
Competition Policy & Law and Economic Regulation.
CIRC will eventually have a core faculty for teaching,
research and training assignments.

Target Clientele:
Civil Servants; Academicians; Professionals; Businesses;
Civil Society Organisations; Regulatory bodies; Media; and
Career aspirants are the target clients of CIRC
Activities till Date:
Academic Lectures
• January 18, 2012, New Delhi- “Future of Online
• December 19, 2011, Magnolia Hall, India Habitat
Markets- Market Dynamics and Regulatory
Centre, New Delhi- Panel discussion on “Building
Challenges in India” by Prof Benjamin Edelman,
capacity for an Effective Competition Regime in India”
Harvard Business School
http://www.circ.in/InvitationLaunch_of_Course_on
• May 29, 2009, New Delhi- “Interface between the
_Competition_Policy_and_Law_Panel_Discussion_
Indian Competition Act 2002 and the IPR Laws in
on_Building_Capacity.htm
India” by Allan Asher, Board Member of the United
• November 24, 2011, New Delhi, India- Seminar on
Kingdom Office of Fair Tradinghttp://www.circ.in
Building 'Friends of Competition 'http://www.circ.in
/pdf/Backgrounder-Public_Lecture_By_Allan
/pdf/BackgrounderBuilding_Friends_of_Competitio
_Asher_29May2009.pdf
n_in_India.pdf
• July 07, 2008, New Delhi- How India should deal with
• November 11, 2011, New Delhi, India- Seminar on
Abuse of Dominance and Cartel Busting - Experiences
"Regulating Online Markets in India"
from Across the Globe” by Prof Allan
• November 10, 2011, Mumbai, India-"SME
Felshttp://www.circ.in/eventreportALS-09.htm.
Vulnerability & Resilience in the Online Economy"
• October 26, 2007, Jaipur Academic Lecture on'Current
• March 11, 2011, New Delhi, India- Competition Law
State of the Doha Round of Negotiations'by Prof.
workshop for Marketing Professionals “Understanding
Ahmed Farouk Ghoneim, Giza, Egypt.http://
Legal Boundaries and Facing Competition”
www.circ.in/erALS08.htm
• January 07, 2011, Yojana Bhawan, New Delhi, India-
• April 18, 2007, Mumbai 'Competition Policy &Law in
Interactive Meeting on Activating Open Access in
India' by Surendra Kanstiya. http://circ.in/pdf/ALS-07.pdf
Electricity Sector
• December 06, 2006, Mumbai 'Competition Policy&
• May 03-08, 2010, Bhopal, India- GTZ-DoCA Project on
Law in a Liberalising Economy' by H.D. Pithawalla.
Training of Consumer Advice Staff http://www.circ.in
http://circ.in/ALS-06.htm
/pdf/Report-GTZ-DoCA_Project_on_Training_of_
• August 26, 2006, Kolkata 'Evolution of Competition
Consumer_Advice_Staff_May2010.pdf
Law with respect to India' by Pradeep S. Mehta.
• April 26-May 01, 2010, Bhubaneswar India- GTZ-
http://circ.in/ALS05.htm
DoCA Project on Training of Consumer Advice
• July 04, 2006, New Delhi 'Trade Policy Making and
Staffhttp://www.circ.in/pdf/Report-GTZ-
Multi stakeholder Diplomacy' by Dr. Raymond Saner
DoCA_Project_on_Training_of_Consumer_Advice_St
& Dr Lichia Yiu. http://circ.in/ALS04.htm
aff_April2010.pdf
• May 15, 2006, Mumbai 'Intellectual Property and
• New Delhi, 25-26 November, 2009- International
Competition Law' by Professor Richard Whish.
Conference Interface between Competition Policy &
http://circ.in/er15may06.htm
Law and Business Strategy http://www.circ.in/pdf
• January 18, 2006, New Delhi 'Capacity Building for the
/IntConf-CPL_and_BusinessStrategy_25-
Indian Competition Regime with focus on Abuse of
26Nov09.pdf
Dominance' addressed by Dr Eleanor Fox.
• October 08-10, 2009, Mumbai, India- Training
http://circ.in/er-ALSCP01.htm
Programme on Anti-dumping, Anti-subsidy and
Safeguard Measures http://www.circ.in/pdf/
Training Programmes
Brochure-TRM0902.pdf
• April 27, 2012, India International Centre, New Delhi- • April 23-25, 2009, New Delhi, India- Trade Remedial
Competition Law workshop for Public Sector Enterprises. (Anti-Dumping and Safeguard Measures)http://
Http://www.circ.in/pdf/Workshop_PSE.pdf www.circ.in/pdf/Brochure-TRM0901.pdf
• March 28, 2009, New Delhi, India- “The Political
Economy of Regulation in India-What do we need to
do?”http://www.circ.in/pdf/Backgrounder-
RoundTable-Mar28-09.pdf
• February 16-20, 2009, New Delhi, India- Training
Programme for SERC Officials on Consumer
Protection Issues http://www.circ.in/pdf/Report
Training_Programme_for_SERC_Officials_Feb2009.pdf
• May 12-16, 2008, Addis Ababa Training programme
on 'Competition Law Enforcement for Ethiopia'.
• January 09-11, 2008, Jaipur - Training programme on
'Strengthening Skills on Commercial &
Economic Diplomacy' for Senior-level Civil Servants
and Executives. http://www.circ.in/erCDS04.htm
• October 22-26, 2007, Jaipur Training programme on
'Developing Skills on Commercial &
Economic Diplomacy' for Junior-level Civil Servants
and Executives. http://www.circ.in/CDS03
/cds03.htm
• August-September 2007 National Training Workshops
on 'Competition Policy & Law in Seven Eastern and
Southern African Countries for Government Officials'.
http://www.cuts-international.org/NTW/index.htm
• August 22-25, 2007, Jaipur Training programme on
'Building Skills on Commercial & Economic
Diplomacy' for Mid-level Civil Servants and
Executives. http://www.circ.in/CDS02/cds02.htm
• March 21, 2007, New Delhi Seminar on 'Competition
Policy & Law'. http://www.circ.in/CPS-07.htm
• February 15-17, 2007, Pretoria Africa Regional
Training Workshop on 'Competition Policy & Law
Administration'. http://www.circ.in/CPS-05.htm
• June 29-July 01, 2006, Bangkok Seminar on'
Competition Policy & Law'. http://circ.in/
fe29june06.htm
• June 28-July 01, 2006, New Delhi Seminar on'
Commercial Diplomacy' http://www.circ.in/
erCDS01.htm
• May 13, 2006, New Delhi Seminar on 'Competition
Law of India with focus on International Cartels'.
http://www.circ.in/erCDS04.htm
• March 29-30, 2006, Addis Ababa Seminar on
'Competition Policy & Law for the Ethiopian
Competition Authority'. http://www.circ.in/
er29mar06.htm
• March 20-24, 2006, New Delhi Five-day Seminar on '
Competition Policy & Law'. http://circ.in/er20mar
06.htm
Affiliations:
• CIRC and National Law University, Delhi (NLUD)
have signed a Memorandum of Understanding to
work jointly on capacity building activities and
educational programmes of mutual interest with
special reference to Competition Policy & Law and
Regulation
• CIRC and Competition and Regulation European
Summer School and Conference (CRESSE) have
signed a Memorandum of Understanding to work
jointly on capacity building activities and educational
programmes of mutual interest with special reference
to Competition Policy & Law and Regulation.
• CIRC and Institute for Transport Studies (ITS) have
signed a Memorandum of Understanding to work
jointly on capacity building activities and educational
programmes of mutual interest with special reference
to Economic Regulation and Infrastructure.
• CIRC and Centre for Socio-Eco-Nomic Development
(CSEND) have entered into collaboration to work on
capacity building activities and educational
programmes of mutual interest with special reference
to Commercial Diplomacy.
• CIRC and The Trade Policy Training Centre in Africa
(TRAPCA) have entered into a Memorandum of
Understanding (MoU) to cooperate in capacity
building activities and educational programmes on
issues relating to trade negotiations and Commercial
Diplomacy.
• CIRC and Institute for Trade and Commercial
Diplomacy (ITCD) have entered into a collaboration to
provide knowledge in developing negotiating skills
and capacity building activities.
• CIRC and British Institute of International &
Comparative Law (BIICL) have joined hands and are
going to work together in providing knowledge on
Competition Policy & Law, and Regulatory Policy and
Law.
• CIRC and American Antitrust Institute (AAI) have
established association to work jointly towards
enhancing knowledge on Competition and Antitrust
Policy and Law.
Governance:
CIRC has a compact governing structure, which includes
the governing council, a managing committee and an
academic council. It has a rich tapestry of a visiting faculty
along with that of the core faculty. These councils have
several eminent persons comprising economists, judges
and former civil servants.
Governing council comprises of Nitin Desai as the
President while C. Rangarajan as the President Emeritus,
Vikram Singh Mehta as the Vice President and Pradeep S.
Mehta, Isher Judge Ahluwalia, Vijay Kelkar, Kirit Parikh,
Rajendra S. Pawar, S.L. Rao, S. Sundar, B.K. Zutshi, Amit
Kapur, Ritu Anand, Bibek Debroy as its members.
Managing Committee comprises of Pradeep S. Mehta as
the Chairman and Nitin Desai, Amit Kapur, S.L. Rao, S.
Sunder, B.K. Zutshi as its members.
Academic Council comprises of TCA Anant, S. Chakravarthy,
R.S. Khemani, Devendra Kodwani, J.P. Lehmann, N.L.
Mitra, Richard Whish, B. K. Zutshi, and S. L. Rao.
Subject Expert Group:
The subject expert groups would focus on two subjects
relevant to our work: Economic Regulation, and
Competition Policy & Law. The expert group's guidance
would be sought primarily for: preparing and
commenting on course design and modules and
participating and brainstorming in meetings, as and
when convened.
 Competition Policy & Law
i. S Chakravarthy Advisor/Consultant on Competition
Policy & Law
ii. Aditya Bhattacharjea, Professor DSE, University of
Delhi
iii. T C A Anant, Professor, Delhi University
iv. Jaivir Singh, Assistant Professor, Jawaharlal Nehru
University (JNU)
v. Subhashish Gupta, Professor, Indian Institute of
Management, Bangalore(IIMB)
vi. H. D. Pithawalla, Advocate, Supreme Court of India
vii. Sudhir Krishnaswamy, Assistant Professor of Law,
National Law School of India University (NLSIU),
Bangalore

Given below are the names of experts subject wise:

Economic Regulation
i. S L Rao Chairman, Institute for Social and Economic
Change (ISEC)
ii. S Sundar, Distinguished Fellow, The Energy and
Resources Institute (TERI)
iii. Rajat Kathuria Professor of Economics, International
Management Institute (IMI)
iv. Sudha Mahalingam, Member, Petroleum and Natural
Gas Regulatory Board (PNGRB)
v. B K Zutshi, Former Indian Ambassador to General
Agreement on Tariffs and Trade (GATT)
vi. J L Bajaj, Former Chairman, Uttar Pradesh Electricity
Regulatory Commission(UPERC)
www.circ.in
Infrastructure
Regulatory Framework for India
A.P.Bahadur,
ADB PPP Expert for Haryana Former Chief Engineer, MoRTH, Govt. of India
1. Background
1.1 India has taken up a massive programme for
infrastructure development and an investment
of around US dollar one trillion (about
Rs. 5,00,000 cr) is expected to be made in the 12th
Plan (2012 2017) period, in order to achieve a
growth rate of 9 to 10 percent. Around 50 percent
of the required investment is likely to come from
the private sector. Traditionally the Government
institutions have been developing the
infrastructure and playing the role of policy
makers, implementers and regulators with
virtual monopoly. Now with greater involvement
of private sector and the people /users becoming
more aware and demanding, the concept of value for
money has become more significant for the
Government as well as for the people.
1.2 With the present approach of the Government to
involve more and more private sectors in
delivery of the public services and utility, so that
the benefits of progress reach to the poorest of
the poor, following issues gain importance:
• Government/Policy makers changing role of the
State from implementer / operator to facilitator
harmonizing the interests of various stake holders
and by addressing the issues of monopoly,
competition, safety, benefits to the users and
user charges.
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• Facilitation of making Indian industry globally
competitive.
• The benefits of progress and development
reaching to all sections of society.
• People as consumers getting the services which
are of the required and desired quality which
provides value for their money.
1.3 In this scenario, it becomes imperative that an
effective and independent regulatory
mechanism is put in position, to address above
issues and to the provide consumer protection.
2. International Practices
2.1 More than 200 infrastructure regulatory bodies
have emerged in the last 15 years for improving
the needs of consumers and investors and also to
create institutions which would encourage and
support stable and sustainable long term
economic and legal commitment by
Government as well as investors. Countries like
USA, UK and Australia have been having
infrastructure regulatory mechanism for a long
time. A brief on them is as below:-
2.1.1 USA have multi sectors regulator like Federal
Communication Commission and sector specific
regulators like Electrical Commission,
Transmission Infrastructure Regulator, US
 www.circ.in

Foods and Drug Administration, US Securities

and Exchange Commission, National Highway
Traffic Safety Administration etc. The
regulatory agencies are empowered to create
and enforce rules with the backing of the law
whereby individuals, business and public
private organizations can be fined, sanctioned,
forced to close and even imprisoned for
violation of federal regulations.
2.1.2 UK in the last two decades has created
regulators, governmental bodies and non
governmental organizations in many sectors to
carry out the states roles. They have regulatory
mechanism in privatised infrastructure industry
sectors of gas, energy, water and sewerage etc.
such as Office of telecommunication (Oftel),
Office of gas and electricity markets (Ofgem),
consolidated regulator for the communications consumer interest. It is defined by the
and broadcasting sectors (Ofcam), protection of combination of institution, laws and processes
the interests of water customers (Ofwat), Office that give a Government control over the
of rail regulator (ORR). UK regulators are not operating and investment decision of
necessarily backed by law for their functions and enterprises that supply the infrastructure services.
autonomy. However the convention and
tradition in UK are so strong that they take care 3.2 Regulatory governance involves decision on:-
of such shortcomings and have achieved • Autonomy, independence and accountability of
consolidation and maturity. the regulator
2.1.3 Australia has three tier regulatory structures. • Relationship between the regulator and policy
The Commonwealth or Central Government has makers.
control over competition policy for essential • Processes (formal and informal) by which
infrastructure with regulation to National decisions are made.
Networks in all sectors as well as in sectors of • Transparency of decision making by the
telecommunication, airports and national roads.
regulator or other entities making regulatory
The states regulate water, urban, transport,
decisions.
electricity, gas distribution and retail supply.
• Quality- of service standards.
Local Government regulates water services and
• Handling of consumer complaints.
local roads. Each regulator is established under
• Social obligations.
its own legislations which set out the objective
• Evaluating the effectiveness of Regulatory Systems
institutional framework and procedure.
3.3 For an effective regulatory governance,
Australian practice has been able to develop the
following key principles should be taken into
coordination between the Centre and State and
consideration:
common regulatory approach in some sectors.
2.1.4 Many countries in Europe, South America and
3.3.1 Independence
Asia have sector regulators with responsibility
Infrastructure regulators should, by law, is free
for promoting competition.
to make decisions within their scope of authority
2.2 Most of the East Asia and Pacific (EAP) countries
without having to obtain prior approval from
are in the process of reforming their
other officials or agencies of the government.
infrastructure sectors, focusing on
They need to be adequately insulated from
strengthening the regulatory framework and
short-term political pressure. Independence for
making the investment climate more
infrastructure regulators consists mainly of two
predictable. In this context assessing the status
elements:
of consumer participation in infrastructure
• An arm's-length relationship with regulated
regulation is also necessary to ascertain whether
service providers, consumers and political
regulatory reforms in the region are supported
authorities and
by adequate mechanisms to safeguard
• The organizational autonomy necessary to
consumer interests.
attract the required expertise to perform
regulatory functions effectively.
3. Regulatory System
The level of independence of a regulatory
3.1 Regulatory mechanism has to act as the fourth agency depends on the types of safeguards in
arm of governance for intervention for place to promote its autonomy. Following main
controlling market and industry, facilitate safeguards are key to achieving regulatory
competition, promote investment, stablise independence.
market and prices, market structure • Providing regulator with a distinct legal
procurement process, quality and protect mandate, free of ministerial control;

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• Right selection of right people with right
professional knowledge and for fixed terms and
protection from arbitrary removal;
• Involving both executive and legislative
branches in the appointment process;
• Exempting the regulating agency from civil
service salary rules that make it difficult to
attract and retain well-qualified staff;
• Providing the agency with reliable source of
funding usually earmarked levies on regulated
3.3.2 Accountability
Regulators need to be held accountable for their
actions. The mechanisms for ensuring
accountability include the following:
• Appeal rights for parties believing their interest
harmed by regulatory agency decisions that
have been make against the requirements in the
law either on process or on substance.
• Extensive transparency obligations (for
example, or regulatory decisions and their
justification).
• Setting up of bench marks with substantive
reporting and audit obligations.
3.3.3 Transparency and public participation
The entire regulatory process must be fair and
impartial and open to opportunity for public
participation. This can be achieved by following
actions with very limited exceptions.
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• All documents and information's used for
decision making should be available for public
inspection.
• All procedures by which and criteria upon
which decisions are made should be known in
advance and made publicly available.
• No major decision should be made without
being set down in a publicly available written
document.
3.3.4 Predictability
The regulatory system should provide reasonable
principles and rules that will be followed within
the overall framework:
• Changes should occur only after extensive
public notice and consultation so that
stakeholders have a meaningful opportunity to
provide feedback to decision makers before the
change is implemented.
• Regulatory decisions and policy determinations,
including laws and governing regulatory
decisions, should apply prospectively and never
retroactively.
• Consistent approach under similar conditions
3.3.5 Clarity of Roles
The role of the regulatory agency and that of
other sector agencies should be carefully defined
in law to avoid:
• Duplication of functions.
• Interagency conflicts.
• Policy confusion.
3.3.6 Completeness and Clarity in Rules
The regulatory system, through laws and agency
rules, should provide all stakeholders with clear
and complete timely advance notice of the
principles, guidelines, expectations,
responsibilities, consequences of misbehavior,
and objectives that will be pursued in carrying
out regulatory activities.
3.3.7 Proportionality
Regulatory intervention in the sector should be
proportionate to the challenges that the
regulators are addressing:
• Intervention should be minimum necessary to
remedy the problem being addressed and
should be undertaken only if the likely benefits
outweigh the expected economic and social costs.
• Regulators should have an array of powers and
remedies at their disposal in order to ensure that
they possess the ability to calibrate their actions
to the circumstances faced.
3.3.8 Appropriate Institutional Characteristic
• Regulatory agencies must be able to consistently
perform professionally, competently, and
thoroughly, which requires the following:
• A reliable, adequate, and independent source of
revenue and adequate budgets.
• The ability to retain outside consultants when
needed.

• Members who are appropriately insulated from
short-term political repercussion.
• All regulatory decisions should be subject to
final appeal to a single, impartial or
independent, legally designated court or
tribunal.
3.3.9 Requisite Powers
Regulatory agencies should, under the law,
possess all powers required to perform their
mission, with the authority to:
• Set tariffs for regulated entities.
• Establish, modify, and monitor market and
service quality rules.
• Investigate, as well as adjudicate or mediate,
consumer complaints.
• Provide dispute resolution facilities for the
regulated entities.
• Compel the provision of needed information.
• Monitor and enforce its decisions, and to
remedy problems
• Prohibition against bribes and gratuities of any
kind, conflicts of interest and any form of
preferential treatment
• Reasonable disclosure of financial interest.
• Prohibition of use of inside information for
personal gain.
3.3.10 Integrity
Strict rules governing the behavior of decision
makers should be in place so as to preclude
improprieties or any conduct appearing to be
improper. The rules governing behavior should
be fully, fairly, and vigorously enforced by
ethical rules. These should be:
• Prohibition against bribes and gratuities of any
kind, conflicts of interest and any form of
preferential treatment
• Reasonable disclosure of financial interest.
• Prohibition of use of inside information for
personal gain.
3.4 Role and responsibility of stake holders
besides regulatory institutions, the other
important stake holders are the government,
utilities agencies and consumers. Each needs
to play their roles to make the system effective
and successful. Their main roles are :
www.circ.in
3.4.1 Government
• Respect Regulatory
independence
• Right and timely
selection of regulators
• Competent and multi
member Regulatory
Commission
3.4.2 Utilities Agencies
• Regulatory Compliance
• Regulatory information
system
• Transparency in
dealing with Regulators
3.4.3 Consumers
• Active participation (Right to Information-RTI
could be potent and effective tool)
• Feedback on the performance of the players
4. Regulatory Institutions
4.1 Regulatory agencies should be set up with the mandate
to protect customers' interests, to minimize regulatory
costs so as to lower the overall cost of service, and make
it more affordable for the poor.
4.2 Regulatory agencies are expected to be professionally
competent, effective, a-political, and publicly credible,
with transparent procedures which are subject to
judicial review. However, in most countries - even the
most developed-regulation lacks some of these
desirable attributes.
4.3 Consumer protection especially from Monopoly,
unreasonable and non affordable tariff and sub
standard performance, should be the main objective
and concern on infrastructure Regulator. For this,
regulators must insure effective consumer participation
through :
• Informing consumers and there by raising awareness
• Resolving consumers complaints and follow up
to ensure consumer satisfaction
• Soliciting consumer inputs through consultation
and public meetings
• Strengthening consumer bodies
• Training and workshops for raising awareness
4.4 The issue as to whether there should separate
regulator for each sector or a joint one for the
combination of many sectors needs to be carefully
considered. The main argument in favour of a
separate regulator for each industry is the ability to
focus in depth on the specific attributes of the
industry and, consequently, to adopt the most
suitable “menu” of regulatory policy instruments. At
the same time, many infrastructure industries share
a common concern with certain economic issues
(e.g., the telecommunications and electricity
industries are both concerned with access
pricing of bottleneck services), and therefore
there could be one joint regulatory agency for electricity,
gas, and perhaps also water, and a separate agency for
telecommunications, which undergoes particularly
rapid technological change. In either case, multiplicity of
regulators should be avoided and synergy among
sectors be optimised.
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5. Development of Regulatory Mechanism for India
5.1 Traditionally the public services and utilities have
been provided by the Government agencies
responsible for that sector and the regulation has
been mostly through contract and or governmental
notifications. There has been not much separation
between the policy maker and implementer.
Presently only a few sectors such as ports, power,
and telecommunication have broad regulatory
institutional framework.
5.2 An effective an efficient infrastructure
development in the country, requires adoption
of appropriate public policies and its
implementation as also a regulatory mechanism
that provides stability, protect consumer
interest and guards against political interference
for consumers and operators, provide incentives
to the investors for efficient operation and
needed investments. The important challenge
for regulators is that the state agencies often do
Not operate on a commercial basis and have to
manage the conflicting situation of short term
social interest and the long term viability of the
enterprise. The situation is not different in many
developed countries as well. India needs to
evolve a consistent and coherent approach
towards independent regulatory mechanism.
5.3 Government should start acting as facilitator
rather than implementer. Issues relating to
regulator vis-à-vis Competition Commission
and speedier dispute resolution mechanism are
addressed for enhancing the confidence.
Following steps may facilitate creating the
enabling regulatory regime:
5.3.1 Create enabling appropriate legislation for
infrastructure regulatory regime with
• Clearly defined roles, powers, responsibilities
for Government and Regulator and enforcement
mechanism
• Clearly defined dispute resolution mechanism
with judicial and appellate review
• Defined sources of funding possibly through
• Budgetary sources (allocation), annual grant
• Fee to be recovered from stakeholders such as
service providers, consumers
5.3.2 Identify Sectors requiring independent
regulators. Challenge would be for social
sectors where consumer interests/ protection
require special attention. Considering the
present situation where regulatory mechanism
is in evolving stage, it would be prudent to have
sector specific approach restrict the number of
regulatory bodies, whereby one regulatory
body could be for entire sector, such as
• Energy to include electricity, coal, gas, petroleum,
non renewable energy
• Communication to include telecommunication,
cable, TV, print
• Transport to include road, rail, shipping, ports,
aviation
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• Urban roads, mass transport (rail and bus
based), water, sanitation, solid waste and other
city infrastructure
• Social health, education, housing,
• Rural roads, water, sanitation, waste
management, irrigation, agro, tourism, industry
5.3.3 Selection of Regulators
• The Regulatory Body should be compact with
multi disciplinary composition of professionals
having impeccable track record.
• It should have a chairman and eight members
with fixed tenure of 5-6 years and selected
trough pre-defined transparent process.
• At least half of them from non- governmental
sector and one third of members should be from
consumer protection, field specialist and
academician.
• In order to attract the best available talent,
remuneration/ compensation should be
comparable to the market. Facilities of house
and car are part of package.
6. Capacity Building
Capacity building for the regulators, its staff and other
stakeholders, on regulatory aspects would be the
crucial aspect for effectiveness of the system. The
present capacity is quite inadequate. There is dire need
of learning from experiences of other countries to take
care of possible pitfalls. Capacity building could be
done through existing institutions of repute till a
dedicated institution on Regulation is established.
Capacity building is an ongoing exercise and should be
initiated with :
• Facilitating and organizing structured training
programmes for skill development of Government
functionaries, regulators, utilities agencies and
consumer protection groups.
• Discussions on past experiences and best practices
• Institutionalise regular interaction amongst
stakeholders and sector experts and mechanism for
independent expert views.

Institutionalisation
of PPP Process in the Government
Arvind Mayaram,
Secretary, Economic Affairs, Ministry of Finance
“Whereas the initiatives have gone a long way in creating
greater awareness about PPPs within the central ministries
and state governments, there is still a long way to go before
Public Private Partnerships (PPPs) get mainstreamed in the
public spending process”
Globally, infrastructure spending is being seen as the
major driver for economic turnaround. National
governments are taking steps to increase liquidity in the
financial sector for increased lending that, it is expected,
would increase infrastructure spending, and in turn infuse
the economies with some confidence.
Even though Indian economy is likely to record a
growth rate of over seven percent in the current fiscal and
above six percent in the next, there is considerable diffidence
in the financial institutions and despite several rounds of
packages by the Reserve Bank of India (RBI) and the
government, requisite liquidity is not being injected in the
economy. Infrastructure projects are also facing the crunch.
It is estimated that Rs 20,01,776 crore (at 2006-07 prices)
or US $ 488bn would be required for investment in the
infrastructure sectors during the next five years. Although
significant share of this investment is expected from the
public sector, around 30 percent of the investment must
come from the private sector. Provided the process issues can
be resolved by the different arms of the government, PPPs
present the most viable option for attracting private capital.
www.circ.in
What prevents the private sector to invest and the
Financial Institutions (FIs) to lend to PPP projects?
The Government of India has identified six constraints:
A. Policy and regulatory gaps, specially relating to
specific sector policies and regulations;
B. Inadequate availability of long term finance both
equity and debt;
C. Inadequate capacity in public institutions and public
officials to manage PPP processes;
D. Inadequate capacity in the private sector both in the
form of developer/investor and technical manpower;
E. Inadequate shelf of bankable infrastructure projects
that can be bid out to the private sector; and
F. Inadequate advocacy to create greater acceptance of
PPPs by the public at large.
To address these constraints and create an enabling
framework for PPPs, several initiatives have been taken by
the government related to the policy and regulatory
environment. To address the financing needs of these
projects, various steps have been taken like the setting up of
India Infrastructure Finance Company and launching of a
Scheme for Viability Gap Funding (VGF) of PPP projects.
Setting up of infrastructure funds is also being
encouraged and multilateral agencies such as Asian
Development Bank (ADB) and International Finance
Corporation (IFC) have been permitted to raise Rupee
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www.circ.in

bonds and carry out currency swaps to provide long term and its benefits for the stakeholders, including the
debt to PPP projects. Recently, India Infrastructure Finance consumers and the public at large. An effective
Company Limited (IIFCL) has also been empowered to communication strategy is needed for a greater acceptance
provide refinance to FIs for infrastructure lending. of PPPs as part of public advocacy.

To meet the capacity building requirements in the
sector, necessary measures are being taken, with technical
assistance from the World Bank and the ADB, to provide
experts to the state governments and central ministries
who are working as part of the teams of the PPP nodal
officers. The Department of Economic Affairs (DEA) has
also notified a panel of technically qualified transaction
advisers to assist in PPP transaction management. In
addition, manuals on PPPs to guide the users are being
developed and training programmes for public officials
undertaken.
While quality advisory services are fundamental to
procuring affordable, value-for-money PPPs, the costs of
PPP transactions, and particularly the costs of transaction
advisers, are significant. Considering the risk of failure of
the bid, in which case the entire cost of project
development is to be written off, the sponsoring authorities
either depend on grossly inadequate internal resources to
manage the transaction, including preparing of legal
documents, or try to save on cost by hiring sub-standard
consultants.
For providing financial support for quality project
development activities 'India Infrastructure Project
Development Fund' (IIPDF), with an initial contribution of
Rs 100 crore has been created in the DEA.
Whereas, all these initiatives have gone a long way in
creating greater awareness about PPPs within the central
ministries and the state governments, there is still a long
way to go before PPPs get mainstreamed in the public
spending process. The work being done by the DEA and by
other agencies, such as the Planning Commission has only
scratched the surface, considering that PPPs need to be
internalised not only at the Central and the State level but
also by Municipal Governments.
One of the methods for implementing communication
strategy is to organise conferences and seminars where
policies related to PPPs in specific sectors can be discussed
and debated. As for wider communication with the public,
content must be developed for dissemination with the help
of media.
2. Capacity building
There is need for managing the entire gamut of
capacity building activities that include training needs
Assessment, content development, training of trainers,
working with state level and central training institutions,
and promoting autonomous organisations to develop
capacities in this area. The expertise developed in Indian
Institute of Managements (IIMs), Indian Institute of
Technologies (IITs) and other institutions, such as the PPP
Capacity Building Trust set up by the Infrastructure
Development Finance Company (IDFC) should be
leveraged. Given India's access to grant funding from
multilateral organisations, expertise can also be accessed
from different research institutes and universities.
3. Investment promotion
Attracting private developers to bid for PPP projects
from within the country and abroad would be a major
challenge, especially when the deal flow increases
considerably. There is need to develop a focused
investment promotion strategy for PPP projects and for
this the outreach of various apex industries associations,
and bilateral and multilateral platforms should be
leveraged for marketing projects in ports, roads, power,
airports, urban infrastructure and other sectors.

Public resistance to PPPs seen as another form of

privatisation and the fear that the “profit motive” would
drive up the cost of delivery of services has also slowed
down the main streaming of PPPs.

There is, therefore, need to provide focussed attention

to some of the following activities.

1. Advocacy
There is need for sustained policy advocacy for
creating environment conducive for PPPs through policy
research and advocacy. This would be necessary not only at
the Central government level but also at the state and the
local level. This would include area of legal and regulatory
reform and policy setting. This would also include
developing new accounting practices to factor PPPs in
public accounting.

It is also imperative that a sustained and intensive

campaign be undertaken to create awareness about PPPs

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4. Project implementation assistance
` Once the deal has been done and the private developer
has been given the projects, the process of getting statutory
and other approvals from different government agencies at
the central and the state level is complex, time consuming
and cumbersome. Recently, an excellent report has been
prepared by DEA on statutory clearances required for PPP
projects.
It is revealing how time consuming it still is to get the
approvals from the government agencies even though
most of the Model Concession Agreements (MCAs) put the
onus to getting these clearances on the sponsoring
authorities). There is need for also considering institutional
arrangement on lines of the Public Private Partnership
Appraisal Committee (PPPAC) that can help the private
sector partners through different ministries and
governments.
www.circ.in
5. PPP Statistics Cell
There is a need to collect and monitor data relating to
PPP projects in a systematic and useful manner. Although
the web enabled PPP database created by DEA captures
data on more than 40 parameters, there is need for more
comprehensive management of PPP data.
There is a massive task cut out for the Government of
India, and more specifically for the Finance Ministry as
PPPs entail contingent liabilities that need to be identified
and capped. Risk management over the concession period
is the essence of PPPs as an element of public finance.
Without a more defined strategy and time bound
implementation programme, it may be difficult to achieve
the targets that the government has set out for itself.
 www.circ.in
Framework for PPP in Indian Ports
- issues and emerging lessons
(This article is an abridged version of a larger article.)
A. Balasubramanian,
Senior Director, IDFC is a lawyer and a financier with extensive experience in PPP and infrastructure.
1. The Evolution of port legislation1 in India
Ports were harbours providing safe havens for ships
visiting sea ports for leisure or trade and there was a
need to conserve the ports so as to ensure safe
navigation and pilotage. Indian ports Act, 1908 was
conceived and enacted to ensure these arrangements.
Over a period of time, some of the harbours including
in Madras, Calcutta and Bombay were developed into
ports and passengers and each of these had separate
legislation ( Bombay Port Trust Act, 1879, Calcutta
Ports Act, 1890 and Madras Port Trust Act 1905)
providing the framework for their governance where
the port trusts administer the ports subject to the
control of the central government(Government of
India namely GoI) in certain specified matters. Later
the GoI set up the major ports in Cochin,
Visakhapatnam and Kandla under their direct
administration. Since decisions could not be taken
locally except by reference to GoI and also as trade
interests wanted a direct voice in the administration of
ports, a new legislation Major Port Trust Act 1963
(MPTA) was enacted and made applicable to these
new major ports and other new ports of the future. In
1974 the old ports of Bombay, Madras and Calcutta
were also brought under this act.
2. Do federal port trusts continue to be relevant?
MPTA was enacted to administer the ports locally with
representation of trade interests. In essence the Act constituted
local authorities to administer in trust for the trade.
1
The author has chosen to focus only on a few vital aspects relevant for this article as port legislation is broader.
2
MPTA vests ports in the Board of Trustees and not really in port trusts though the author uses these two terms interchangeably as in popular understanding.
Page 009
1. The ownership is diffused. The assets and liabilities
of the central government were transferred to the
Board of Trustees Port authorities vide Sec 29 of the
MPTA. In fact the preamble to the MPTA says that
it is an act to make provision for the constitution of
port authorities for certain major ports in India and
to vest the administration, control and management
of such ports in such authorities and for the
connected matters
2. Governance is overseen by GoI in all important
managerial decisions-
a. Board of Trustees2 has an unwieldy 17 or 19
members ( Sec 3)
b. Board includes trade interests (users who pay
for services such as ship owners, shippers) vide
Sec 3 who would be privy to commercial
proposals as tariff but would not vote on it but
the users who represent undertakings owned or
controlled by the government (say a steel PSU
being a prominent user with conflicting
interests) can still vote. Similarly the state
government (even it operates ports which
compete) or trade unions can still vote on
interested matters. ( Sec 19)
c. Filling up key positions, entering into contracts
to buy/sell property (sec 34) or for contracting
out (read BOT) or execution of major capital
expenditure work (Sec 93) require central
government approval.

d. Annual budget requires government approval
u/s 98. Annual performance report is called
administration report (Sec 106). U/s 107, every
year the Board of Trustees should submit a
statement of income and expenditure during the
year to arrive at operating surplus or deficit ( the
words profit or loss are excluded indicating that
the MPTA does not consider federal port trusts
as commercial entities)
e. Recognizing the important role of port rusts as
landlord cum operator, the Act empowers trust
to render ship and cargo related services
including by rail (vide Sec 42 (1)) and also has
enabled outsourcing of the said services with
prior GoI approval to any person ( read PPP)
vide 42 (3).
f. Recognizing the role as landlords, the Act has
empowered the trust with GoI approval to
develop infrastructure facilities for ports vide 42
(1) (f) and also to execute capital expenditure
works vide Sec 35 such as port civil and
mechanical facilities and equipment, hotels,
warehouses, bridges, buses, railways,
breakwater, etc within or outside port limits. Sec
46 enables execution of private wharves etc with
Board approval (read PPP enabled in
outsourcing construction )
In short, the MPTA empowers the Boards to play a
landlord role (within and outside port limits in port
and bus/rail connectivity and hotels3) cum operator
role including port and rail. It also enables outsourcing
construction or operations with prior GOI approval.
The MPTA has conferred a wider and enabling
business mandate but under a governance model
whose objective is to administer federal ports locally
under the direct control of the GoI.
Thus while significant changes in the competitive
landscape and in expectation from trust ports have
occurred since then, major Port Trusts felt that they do
not enjoy autonomy in decision making
commensurate with the business dynamics.
GoI responded by initiating amendments to MPT Act.
Sec 42(3A) was inserted in the year 2000 empowering
port trusts to enter into JV with any person or body
corporate for performing its services. Sec 88 which
defines areas of investment for port trusts was also
amended in 2000 by adding Sec 88 (d) and (e) to allow
port trusts to invest in joint ventures within own port
limits and in other major and other ports subject to
government approval. Technically this means that
major ports can diversify by investing in other ports to
mitigate respective hinterland risks .Major ports may
consider floating SPV (off Balance sheet ) and invest as
BOT investor in other ports and they may consider
hiving off unviable units to JV . In addition to these
amendments in the Act, IT Act (Sec 80 IA) was
amended to extend the Income tax benefits of
investment in infrastructure. As an experiment to the
demands for corporate style of autonomy, the GoI
Notified the new port of Ennore as a major port but it
was outside the ambit of the MPTA. Ennore was
incorporated as a limited company under the
3
MPTA is commendable as it has enabled multi modal investments including in hotels for passenger terminals.
4
U/s 5, every Board constituted under the MPTA is a body corporate and there is strictly no need to corporatize. What is meant then is converting the
Boards into stock corporate with equity share capital.
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Companies Act, 1956. But on the flip side, no
significant initiatives or investments have been made
so far leveraging on these legislative amendments
so far in spite of significant passage of time. To sum up,
while the statute allows them to forge joint ventures, to
invest in other ports and also offers tax rebate for their
investments in infrastructure and tax advantage in
borrowing, they are unable to leverage under the
existing legislation which requires GoI approval for
any/all decisions. In addition there is reluctance on
the part of port trusts also to change.
3. Is corporatization of federal port trusts the answer?
Now there is a proposal to corporatize4 port trusts on
the lines of Ennore ostensibly to improve autonomy
and commercial focus. Corporatization of the Port of
Singapore is a classic example of how corporatization
can transform an erstwhile public sector organization
and enable it to become nimble to respond fast to the
changing competitive landscape A corporatized port
would be free to pursue business models (e.g.:
passenger terminals, marina, SEZ, non port) and
practices which are customer driven. It would be foot
loose and not bound by local port limits. It would
diversify to other port locations and strive not be port
centric but logistic driven. It would for instance be able
to forge JV with right partners and be able to hive off
uncompetitive units and to unlock value from port
assets It would strive to find its own means of
financing investments from the market so as to achieve
financial Independence from the government. Projects
would be subject to investor due diligence and hence
efficient. It would hence be able to source resources
competitively from the market and stand the rigours of
due diligence by hard- nosed investors and seek listing
in stock exchanges similar to the Associated British
Ports or the erstwhile P&O. The threat of take-over
would deter managerial complacency in such ports. It
would seek no sovereign protection from the market
failure In short, freedom with commensurate
commercial accountability would make corporatization
worthwhile to pursue.
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Experience so far seems to suggest that these

assumptions are aggressive and are not tenable in the
current Indian political and economic context. While
there seems to be reluctance on the part of GoI to cede
control, federal port trusts also appear unwilling to
take the initiative as they have failed to take advantage
of favourable amendments including those in Sec 88
and the like so far as discussed in the earlier section of
this article. Also if the model of the only
corporatization namely the major port of Ennore is any
indication, corporatization is unlikely to change the
situation as the decision making is still in government
as most of the Board of Directors are from the
government or do not have a direct pecuniary or
meaningful stake in the entity . In Indian context, for
corporatization to succeed, induction of a strategic
private port operator appears vital. Continuation of
government ownership and management control even
post corporatization is unlikely to serve the intended
purpose.
Given that port services require business orientation
and customer focus on the lines discussed above,
corporatization in the current format as in case of
Ennore is futile. Ideally, federal port trusts should
relinquish their as service providers and remain as
landlords and port conservators. Service delivery in
federal ports in India would be best left to the private
sector whose incentives to cater to customer needs are
greater. In case public sector should continue to be in
charge of service delivery for whatsoever reason, the
existing port trusts should be unbundled into business
units and regulatory units. The business units should
be corporatized by inducting a strategic port operator
with significant equity stake and management control.
The residual regulatory unit may continue to be port
trust playing the role of the landlord but would require
significant capacity building in terms of playing
landlord role well. The typical landlord functions
include port marketing, property management,
project development and PPP management (bidding
process, project structuring and financial analysis,
negotiation of concession agreement) and more
important navigation and conservancy. But the
capacity and capabilities of existing staff are not
appropriate for playing landlord function effectively
particularly project development with serious
conflicts of interest as service providers or operator
today. In terms of governance, the Board in its current
statutorily mandated structure lacks industry
professionals as trustees; terms of contract are not
market driven with serious conflicts of interest
between the trustees and port. In addition they are not
empowered as commercial autonomy and
accountability are non existent as trusts with no power
to appoint key personnel, plan budget, take decisions
on investment and financing. Also the existing
framework (vide Sec 110,110 A and 111 of MPTA)
allows government intervention in PPP contracts
awarded, supervening terms of award of contract by
the port authority. In short, to play the landlord role
effectively, they have to be enabled and empowered.
This would mean that federal port trusts would need
significant investments in building capacity in terms of
training, recruitment of appropriately skilled staff and
amendments to MPTA to empower the managers to
take key decisions and to induct in the Board persons
with the right type of expertise and independence
under an equitable compensation structure.
4. Framework for PPP in Indian ports issues and
emerging lessons
a. Facilitating PPP by MPTA
In federal port trusts governed by MPTA, PPP
facilitation is indirect and inferred. PPP activities
(say BOT) would involve rendering “services” and
execution of certain “works”. Sec 42 (1)lists
“services” which Board can do and includes5
passenger transport by rail and feeding to/by rail
transport and provision of infrastructure facilities
(albeit with GoI approval) for ports .Sec 42 (3) allows
the Board to permit any person (read BOT operator)
to perform these with GoI approval.
While no time limit is specified for the same in the
MPTA, the executive arm of the GoI (namely PPP
Guidelines by GoI) limits it to 30 years on BOT basis.
In addition Sec 42 (3A) which was inserted in the
year 2000 permits the Board to enter into JV with
any person or body corporate (read private
operator) for performing the said services. While
these refer to services, “works” part is dealt with by
Sec 35 (2) which lists the works which Board could
execute on its own (wharves, etc) within the port
limits. Works include hotels, buses, rail rolling
stock, etc. But Sec 46 says that no person (read
private operator) can erect private wharves, etc
without Board approval and subject to terms Board
may specify. So a combined reading of Sec 35 (2)
and Sec 46 for the works and a combined reading of
Sec 42(1) and 42(3) for services and Sec 42 ( 3A) for
joint venture of the Board with private investors
enables PPP in the nature of BOT. However these
PPP decisions of the Board require approval from
the GoI as Sec 93 requires works exceeding set
limits to obtain GoI approval before execution
/contracting out (read BOT) by the Board. Similarly
Sec 34 requires GoI approval for sale or purchase of
property or lease of property beyond 30 years or for

5
The list of activities enabled is quite forward looking and flexible with multimodal transport perspective.

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contracts exceeding certain set limits BOT
arrangements of PPP may fall in these categories
and require compliance. An amendment of MPTA
in future should capture all the aspects of the PPP
together (instead of piece meal dealing as of now)
empowering the concessioning authority clearly for
investor comfort leaving no room for ambiguity.
5. Regulatory framework in retrospect and prospect
A. Independence of regulator:
Tariff authority for Major Ports (TAMP) was
constituted under Sec 47 A of MPTA (Port Law
Amendment Act, 1997) to frame scale of rates for
levy in major ports covered by MPTA including by
major port trust Boards and private terminal
operators in major ports. Earlier before PPP was
introduced, the Board of Trustees of each federal
port trust framed their tariff (called scale of rates) .
Pursuant to the first BOT transaction in Indian
private terminals in federal and state ports. TAMP6
adopts cost based tariff for regulations and private
investors in federal ports and federal port trusts are
subject to regulatory risk as TAMP sets/revises
tariff from time to time. At a different level, the
regulator also lacks independence and is subject to
the risk of intervention by the GoI, adding one more
layer of uncertainty for the private investor in
federal ports. To quote a few examples, vide Sec 111,
GoI is empowered to issue directions to TAMP on
questions of “policy” and GoI decision on whether a
question is one of policy or not shall be final (Sec
111). Also GoI is empowered vide Sec 110 A to
supersede TAMP in case of failure to “comply” with
the directions issued by GoI under Sec 111. Also
tariff orders of TAMP are not final and GoI can
modify/cancel rates in 'public interest” (Sec 54 of
MPTA). In addition the terms and conditions of
service of chairman or any member of TAMP are as
may be prescribed by the GoI (Sec 47 B) and Sec 47 D
empowers GoI to remove the chairman or any
member of TAMP . If TAMP is seen as a proxy for
control by GoI , private investors in federal ports are
apprehensive whether they will be treated at par
with federal port trusts which are administered
indirectly by GoI. It is noteworthy to observe the
lessons from the relatively successful PPP
experience in state ports. Tariff and commercial
freedom to develop the state ports have yielded
optimum results sometimes prompting private
investors to assume risks higher than in federal
ports such as in investing in connectivity ( rail as in
Pipavav and Mundra by private investors) and
assuming development risks of a higher magnitude
in the absence of traffic history and having to secure
project clearances from scratch in the absence of
existing infrastructure as in federal ports)
b. What should be the objective, approach and scope
of regulation ?
Tariff regulation at terminal level exists in very few
countries7 such as India where again only federal
ports are regulated. Terminal tariff is a minor
6
Nowadays bids are invited for new terminals from private investors in federal ports under a pre determined tariff ( inflation adjusted partially over time) so
as to insulate from regulatory risk but these are under executive guidelines pending review of MPTA.
7
Tariff is not framed in many countries. Only tariff guidelines are applied situation specific
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component of system costs but it is regulated. Ocean
f
reight and terminal handling charges levied by shipping
companies and cargo clearing and forwarding charges
charged by intermediaries are a higher component of
system cost to the importer/exporter but they are not
regulated. As per the study by the World Bank (1995) on
Indian ports, port tariff is not the issue of concern. It is the
system cost arising from delayed ship handling
and high intermediary costs which render Indian
trade uncompetitive.
Also tariff is not the only area of regulation in
international ports. Tariff is part of economic regulation
covering inter alia competition among terminals within
and across ports, dispute resolution between the
government/concessioning authority and the conditions
of service forming part of tariff package. Over time, tariff
determination in India should yield to economic
regulation whose objective is to check anti competitive and
restrictive trade practices.
Technical regulation- conservancy, pilotage, navigation,
compliance with international maritime convention, etc
Indian Ports Act, 1908 creates ports and their limits. It deals
with the powers and duties of the Government and port
officials, rules for port conservation and safety of shipping.
It defines major and other ports. Government means the
Federal (Central) government for major ports and
respective state government for other ports. The following
are the provisions regarding the government's role in
conservancy and technical regulation:
a. Federal/State Government is entitled to appoint
officer or body of persons (including private limited
companies ) as Conservator u/s7
a. The Conservator could delegate all powers to his
staff u/s 66
b. The Government enjoys indemnity against the acts
of Conservator or staff u/s 18
Conservator is responsible for conservancy finally
including the obligation for cleaner seas and safer
shipping under the onerous International Maritime
Organization (IMO) conventions and in addition the
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new international security codes to be complied
with. It is interesting to note that each port has its own
style of conservancy and thereception facilities at ports
are inadequate leading to illegal dumping of waste by
ships which are not properly equipped. As
conservancy entails huge costs and risks, there are not
sufficient economic incentives for thinly capitalized
private limited companies which could assume
conservancy role in state ports exposing the Indian
ports to significant risks of pollution and safety8. To
sum up, while it is in the nation's interest to make port
business free and competitive, port waters being
sensitive for national trade and security interests
should be subject to common conservancy code under
the monitoring of a technically competent authority.
In short, port business may be free but port waters are
not. The Indian Ports Act may codify the same.
8
The case of ship collisions arising from poor safety procedures causing maritime traffic to halt indefinitely or a single oil pollution can cause Indian waters
unfit for shipping for long are risks arising from poor conservancy.
9
Rightly so as the purpose of Courts is to interpret statutes as they stand and not as Courts think they should be as policy and law making are the prerogatives
ofthe government and/or legislature.
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6. Way forward
The author argues the case for a considered debate on
the strategic intent and direction of the port industry
and to identify the approach for the same before
initiating changes in port legislation especially
concerning PPP. As law can capture only the
intentions of the policy makers, a new legislation
however well drafted offers no panacea for PPP if the
policy objectives of PPP are not clear and consistent. A
well considered port policy including in PPP is all the
more important as Courts of law would refrain9 from
reviewing policy decisions of the government in case
of disputes entailing PPP .The author is conscious of
the potential of the executive guidelines on PPP
(besides sector legislation ) to influence the quality of
outcomes but these are beyond the scope of this article.
Needless to say, the author's views are personal and
do not necessarily reflect the views of his employer
namely IDFC Ltd.

Creative Financing of Urban Infrastructure in India
through Market-based Financing and Public-Private Partnership Options
(This article is an abridged version of a larger article.)
Chetan Vaidya,
Director, School of Planning and Architecture
Hitesh Vaidya,
Urban Advisor IPE Global, a development sector consulting firm
Abstract
Rapid urbanization has increased the demand for urban
infrastructure in India. Since public funds for these services
are inadequate. Urban organizations have to look for
alternative sources for financing their infrastructure needs.
Accessing capital markets and PPP have emerged as viable
options to finance urban infrastructure. In 1998, the
Ahmedabad Municipal Corporation issued India's first
municipal bond without state guarantee to finance a water
supply and sewerage project. To boost the municipal bond
market, the GOI decided to provide tax-free status to
municipal bonds. Only financially strong, large municipal
corporations are in a position to directly access capital
markets. To help small and medium local bodies to access
the market Government of India introduced the concept of
pooled financing. The Indo-US FIRE project helped the
State Governments of Tamil Nadu and Karnataka issue
municipal bonds by pooling municipalities. Based on the
success of these two issues, the Government of India
introduced a scheme for a Pooled Finance Development
Fund that will support small- and medium-sized local
bodies to access capital markets. Credit rating of a bond
issue provides investors with an independent third-party
evaluation of the credit strength or weakness of a particular
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issue. Over 80 urban local bodies in the country have either
obtained a credit rating or are in the process of obtaining one.
Several ULBs and utility organizations have issued bonds
and have so far mobilized over Rs. 12,000 million through
taxable bonds, tax-free bonds and pooled financing. A
number of PPP options have emerged and these include:
service contracts; performance-based service contract; joint
sector company to implement and finance the project; a
management contract for operations and maintenance; and
construction cum build-operate-transfer contract. Thus,
market access and PPP are important innovations in the
financing of urban infrastructure in the country.
Background
The urban population in India is 285 million (Census 2001)
and is likely to be twice its present level by 2030. . Rapid
urbanization has increased the demand for urban services.
The Steering Committee on Urban Development for
Eleventh Five Year Plan of India (2007-2012), has estimated
that total fund requirement for implementation of the Plan
target in respect to urban water supply, sewerage and
sanitation, drainage and solid waste management is Rs.
12,702 billion. The 74th Constitutional Amendment gave
urban local bodies (ULBs) the responsibility to provide
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these services. The sources of revenue devolved to ULBs
are, however, not sufficient and still depend on higher
levels of government. Traditionally, urban infrastructure
has been financed mainly through budgetary allocations.
Other financing has come from financial institutions like
Housing and Urban Development Corporation and
limited investments by the ULBs themselves through their
internal resources. Financial resources from all these
sources, however, fall far short of the urban sector's
estimated investment requirements. Since public funds for
these services are inadequate, ULBs have to look for
alternative sources for financing their infrastructure costs.
Market-based financing and Public-Private Partnership
(PPP) have emerged as a viable alternative to finance
infrastructure investments. This paper describes the
development of this new market-based urban
infrastructure financing system, emerging PPP options in
India and draws certain conclusions.
Public-Private Partnership Options
As a response to an insufficient provision of basic urban
services and a lack of access to finance and other resources
by ULBs that aim to increase access to these services, a
number of PPP options have emerged. These include:
service contracts; performance-based service contract; joint
sector company to implement and finance the project; a
management contract for operations and maintenance
(O&M); and construction cum build-operate-transfer
(BOT) contract.
It is pertinent to mention already at the beginning that the
Government of India has designed PPP guidelines to
sensitize state governments and urban local bodies to the
policy and procedural issues that need to be addressed so as to
reform urban water supply and sewerage issues. The new PPP
guidelines advocate the changed approach and can drive and
sustain comprehensive reform of urban water and sanitation
services. This approach will also strengthen the role of urban
organizations to provide the urban services more effectively
and support the decentralization objective of the Government.
In this improved environment, public-private participation
models for provisioning of various services would also
become feasible. Features of the PPP options are presented
below. Service Contract: The Chennai Metropolitan Water
Supply and Sewerage Board have made a significant advance
in use of service contracts for PPP in O&M of water supply and
sewerage systems in the city. Out of the 119 city sewerage
pumping stations 70 have, so far, been given to private
contractors for operation and maintenance. The system is
working very well which has resulted in an increase in the
contract period from one to three years. The Board has also
given service contracts for O&M of two sewage treatment
plants for a period of three years.
Performance-Based Service Contract: In the Navi Mumbai
Municipal Corporation (local body for a planned new city
close to Mumbai), core municipal services are managed by
the private sector on a labor contract basis. Of the forty-two
contracts in operation, nineteen performance-based
service (PBS) contracts were prepared for managing the
water distribution system and one PBS contract for the
transmission system. The basis for repackaging the
contracts was to increase the efficient operation of the
system, and take specific steps to: maximize the water that
is billed; reduce leakages in the system; detect illegal use of
water; and take similar steps to minimize the consumption

of power. The scope of work included: system operations;
operations based on schedule of rates; water audit; energy
audit; repairs and maintenance, and advice. The PBS
contract envisaged provision of services for 3 years with
annual performance reviews.
Operator Consultant: As part of the World Bank funded
Karnataka Urban Water Supply Improvement Project,
demonstration zones have been identified in the three cities
Belgaum, Gulbarga, Hubli-Dharwad and entrusted on a
performance based contract to a Private Operator
Consultant for carrying out water supply improvements in
the zones with the prime objective of demonstrating
provision of 24/7 water supply. The scope of the contract is
to undertake detailed technical investigations of the present
water supply in the Demo Zones and prepare a detailed
investment plan and undertake the rehabilitation of the
distribution zonal assets, provide operations, maintenance,
and customer services at agreed levels of service.
Management Contract: Jamshedpur Utilities and
Services Company (JUSCO) a wholly owned subsidiary
of the Tata Steels was formed in 2003 to provide and
maintain urban services in the city. This private
company provides very good urban services including
power to its 7 lakhs population. It has a management
contract for O&M of water supply and sewerage
services for Jamshedpur city.
Joint Sector Company: This option is adopted in
Tiruppr water supply project. Tiruppur city in the State
of Tamilnadu had a population of 3,500,000 in 2001. The
city produces more than 75 percent of the country's
knitwear exports. Realizing the need for an improved
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water supply to survive in a highly competitive
international market, the Tiruppur Exporters Association
supported by the state and local government decided to
involve the private sector in meeting the water demand. As
a result, a public limited company with private sector
participation, the New Tiruppur Area Development
Corporation, was formed to implement the project. When
operational, the water project will supply 185 million liters
of water per day and serve nearly 1,000 textile units and
residents in Tiruppur and its surrounding areas. The
project was implemented on BOT basis. The Project will
recover the total project cost along with realizing
reasonable returns through user charges. The estimated
cost of the project is Rs. 10,500 million. Construction-cum-
BOT Contract: Alandur Sewerage Project had a
construction contract for 120 KM sewage collection system;
whereas, the treatment plant of 24 MLD is with a BOT
contract. The total cost of the project is Rs. 340 million. The
operator is expected to make capital investment for the
treatment plant and recover it over a period of 14 years. The
local body will recover the costs through a combination of
sewerage tax, sewerage charge, connection charge, general
revenues and state government support.
There are several PPP projects in solid waste management.
Vaious ULBs are now taking help from private sector to
develop ater supply projects in PPP mode and some of
these initiatives in Latur, Nagpur, Mysore, Maduari,
Mandvi, etc. are now at different stages of project
development and implementation. The initial focus of new
investments on PPP of water supply projects was on
provision of bulk supply. However, BOT projects often did
not address problems of existing water supply and
sanitation systems such as high unaccounted for water,
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high expenditure on energy and low cost recovery. The
focus is slowly shifting to improved management of
existing systems. It may be mentioned here that most of
PPP projects in water supply sector are in pilot stages. Most
of them are not citywide, water supply tariff in India are
low, base data of exiting water supply systems are missing
and capacity of private operators is also inadequate. Unless
these issues are taken care it will not be possible to
undertake PPP projects in urban water supply and
sanitation sector.
Linkages with JNNURM
Acknowledging the critical role of cities in the country's
current economic context, GOI launched in December 2005
a flagship program, called Jawaharlal Nehru National
Urban Renewal Mission (JNNURM). The program aims at
providing incentives to cities to undertake institutional,
structural and fiscal reforms at state and local levels to
improve service delivery systems, boost local economic
performance and enhance quality of life. JNNURM has two
overarching goals, one relate to provision of urban
infrastructure and second reduction of poverty in cities.
Through this program, GOI is providing investment follow
up for cities undertaking comprehensive reform. The
JNNURM will disburse a total of at least Rs. 1,000 billion
over a seven-year period (2005-12). Of this, Rs. 500 billion
will be contributed by GOI and another Rs. 500 billion will
be contributed by states and ULBs. States and ULBs
accessing the JNNURM must complete a total of 22
reforms, some mandatory and some optional, during the
seven-year period (2005-12). The mandatory and optional
reforms of states/ULBs under the JNNURM include
decentralization of urban governance and empowering
urban local bodies, introduction of improved accounting
systems, improved revenue base, reform of rent control
acts, delivery of services to poor, etc. The JNNURM
encourages ULBs to access market-based financing and
Conclusion
Great progress has been made in developing the policy and
legal framework for local governments to access the capital
market to finance urban infrastructure. However, to
routinely access capital markets or invite private sector,
ULBs will have to have the capacity to develop
commercially viable projects. The most critical factor for
obtaining market finance will be a healthy municipal
revenue base. A market-based approach to financing urban
infrastructure linked with JNNURM will further
strengthen ULBs and help achieve the decentralization
objective of the 74th Constitutional Amendment. PPP for
urban infrastructure projects that are funded by the
Mission. The FIRE-D project assisted Nagpur and Thane
Municipal Corporations to prepare financial and resource
mobilization plans to fund their local contributions to
projects identified under JNNURM. The Nagpur
Municipal Corporation issued Rs.212 million municipal
bond in March 2007 to fund a WSS project under JNNURM.
The Thane Municipal Corporation is expected to access the
market for a Rs. 1,000 million bond to fund its local
contribution for a sewerage project under JNNURM. PPP
options were have been approved for 22 projects under
JNNURM and most of them are for solid waste
management in cities.
Thus, market-based financing is an important innovation
for urban infrastructure in the country.
As far as PPP options for urban infrastructure are
concerned, the entire notion of developing and
implementing projects in a commercial format is a
relatively new trend in India. These project require
considerable efforts in evolving project documentation,
developing institutional arrangements for project
structures, securing approvals and clearances from
stakeholders, financial structuring, selecting a contractor,
operator or concessionaire and ensuring overall financial
closure. A wide range of actors have to be involved in all
these processes, and consistent coordination is necessary.
In addition there is a constant need for the sponsor to
pursue project related activities to mitigate and minimize
risks. Both capacity and legitimacy are required to perform
these roles.
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Public Private Partnerships in National Highway

- Overview of the framework
Gajendra Haldea,
Additional Secretary, Advisor to DCH (Infrastructure)

The highways sector in India is witnessing significant interest from both

domestic as well as foreign investors following the policy initiatives taken
by the Government of India to promote Public Private Partnership (PPP)
on Build, Operate and Transfer (BOT) basis. However, the inflow of
investment will depend on a comprehensive policy and regulatory
framework necessary for addressing the complexities of PPP, and for
balancing the interests of users and investors. Moreover, the
transformation of rules must be accompanied by a change in the
institutional mind set. For sustaining investor interest in upgradation and
maintenance of highways on BOT basis, a precise policy and regulatory
framework is being spelt out in a Model Concession Agreement (MCA). A comprehensive
This framework addresses the issues which are typically important for
limited recourse financing of infrastructure projects, such as mitigation framework is
and unbundling of risks; allocation of risks and rewards; symmetry of
obligations between the principal parties; precision and predictability of a pre-requisite for
costs and obligations; reduction of transaction costs; force majeure; and
termination. It also deals with other important concerns such as user PPP
protection; transparent and fair procedures; and financial support from
the Government. The MCA also elaborates on the basis for
commercialising highways in a planned and phased manner through
optimal utilisation of resources on the one hand and adoption of
international best practices on the other hand. The objective is to secure
value for public money and provide efficient and cost-effective services to
the users.

Rationale for phased development

The four critical elements that determine the financial viability of a
highway project are traffic volumes, user fee, concession period and

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capital costs. As the existing highways have dedicated traffic and the
Government has prescribed the user fee for uniform application
across India, revenue streams for a Project Highway can be assessed
with a fair degree of accuracy. The concession period, on the other
hand, can be extended only marginally for improving project
viability as the growth of traffic would not permit very long
concession periods. In any case, the present value of projected
revenues after say, 15 years, is comparatively low from the
Concessionaire’s perspective. As three of the four above-stated
parameters are pre-determined, capital cost is the variable that will
determine the financial viability of a project. Bidders would,
therefore, seek an appropriate capital grant/subsidy from the
National Highways Authority of India (Authority) in order to reduce
the capital cost for arriving at an acceptable rate of return.

In the given scenario, higher the capital cost, greater would be the
compulsion of project sponsors to seek larger grants from the
Authority. This, in turn, would restrict the ability of the Government to
leverage a larger pool of extra-budgetary resources, including private
Phased
investment, and would hence result in a limited programme of
highway development. In view of the foregoing, it is important to rely
development will
on cost-effective designs and to combine them with a phased
investment programme to enable a more efficient and sustainable be affordable and
programme of highway development.
cost-effective
As a general principle, capacity augmentation of highways should be
based on the standards adopted by the Indian Roads Congress for
different bands of traffic volume. The emphasis should be on phased
development rather than on providing high cost roads for catering to the
projected growth in the long term. Where traffic intensity is
comparatively low, limited widening of highways should be undertaken
with further widening planned after 7-12 years depending on projected
traffic growth. Upgradation of designs and standards, construction of
bypasses in urban and semi-urban areas and other improvements may
also be planned in phases depending on traffic intensity. As an
alternative, comparatively shorter concession periods may be stipulated
so that the Authority can augment the capacity when it is due. These
issues would be subjected to in-depth examination and reflected in a
Manual of Standards and Specifications that would form part of the
standard documents associated with the MCA.
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Technical parameters
Unlike the normal practice of focussing on construction Technical
specifications, the technical parameters proposed in the MCA are
based mainly on output specifications, as these have a direct bearing parameters will
on the level of service for users. Only the core requirements of design,
construction, operation and maintenance of the Project Highway are focus on the
to be specified, and enough room would be left for the Concessionaire
to innovate and add value. Level of service
In sum, the framework focuses on the ‘what’ rather than the ‘how’ in for the users
relation to the delivery of services by the Concessionaire. This would
provide the requisite flexibility to the Concessionaire in evolving and
adopting cost-effective designs without compromising on the quality
of service for users. Cost efficiencies would occur because the shift to
output-based specifications would provide the private sector with a
greater opportunity to innovate and optimise designs in a way
normally denied to it under conventional input-based procurement
specifications.

Concession period
The guiding principle for determining project-specific concession Concession
period is the carrying capacity of the respective highway at the end of
the proposed concession period. As such, the concession period is Period will be
proposed to be determined on a project-specific basis depending on
the volume of present and projected traffic. Toll paying users should linked to projected
not be subjected to congested highways and the Concession should,
therefore, cease when full capacity of the road is reached, unless traffic
further augmentation is built into the MCA. The time required for
construction (about two years) has been included in the concession
period so as to incentivise early completion, implying greater toll
revenues

Selection of Concessionaire
Selection of the Concessionaire will be based on open competitive Competitive
bidding. All project parameters such as the concession period, toll
rates, price indexation and technical parameters are to be clearly bidding on single
stated upfront, and short-listed bidders will be required to specify
only the amount of grant sought by them. The bidder who seeks the parameter will be
lowest grant should win the contract. In exceptional cases, instead of
seeking a grant, a bidder may offer to share the project revenues with the norm
the Authority.

Grant
It is proposed that based on competitive bidding, the Authority
should provide a capital grant of up to a maximum of 20 per cent of
the project cost. This would help in bridging the viability gap of the
Grants to Bridge
PPP projects. Where such assistance is inadequate for making a
project commercially viable, an additional grant not exceeding 20 per
viability gaps
cent of the project costs may be provided for O&M support during the
period following the commissioning of the Project Highway.

Concession fee
Concession fee will be a fixed sum of Re. 1 per annum for the
concession period. Where bidders do not seek any grant and are Concession
instead willing to make a financial offer to the Government, they will
be free to quote a higher concession fee Fee should be
levied when
revenue streams
can sustain it

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Risk Allocation
As an underlying principle, risks have been allocated to the parties Risk alleviation
that are best suited to manage them. Project risks have, therefore,
been assigned to the private sector to the extent it is capable of and mitigation is
managing them. The transfer of such risks and responsibilities to the
private sector would increase the scope of innovation leading to critical to private
efficiencies in costs and services.
investment
The commercial and technical risks relating to construction, operation
and maintenance are being allocated to the Concessionaire, as it is best
suited to manage them. Other commercial risks, such as the rate of
growth of traffic, are also being allocated to the Concessionaire. The
traffic risk, however, is significantly mitigated as the Project Highway is
a natural monopoly where existing traffic volumes can be measured
with reasonable accuracy. On the other hand, all direct and indirect
political risks are being assigned to the Authority.

It is generally recognised that economic growth will have a direct

influence on the growth of traffic and that the Concessionaire cannot
in any manner manage or control this growth rate. By way of risk
mitigation, the MCA provides for extension of the concession period
in the event of a lower than expected growth in traffic. Conversely,
the concession period is proposed to be reduced if the traffic growth
exceeds the expected level. The MCA provides for a target traffic
growth and stipulates an increase of upto 20% in the concession
period if the growth rate is lower than projected. For example, a
shortfall of 5% in the target traffic after 10 years would lead to
extension of the concession period by 7.5% thereof. On the other
hand, an increase of 5% in the target traffic would reduce the
concession period by 3.75% thereof.

Financial Close
Unlike other agreements for private infrastructure projects which
Project
neither define a time-frame for achieving financial close, nor specify
the penal consequences for failure to do so, the MCA stipulates a time
implementation
limit of 180 days (extendable up to another 120 days on payment of a
penalty), failing which the bid security shall be forfeited. By prevalent
must commence as
standards, this is a tight schedule, which is achievable only if all the
parameters are well defined and the requisite preparatory work has
per agreed time
been undertaken.
frame
The MCA represents the comprehensive framework necessary for
enabling financial close within the stipulated period. Adherence to
such time schedules will usher in a significant reduction in costs
besides timely provision of the much needed infrastructure. This
approach would also address the problem of infrastructure projects
not achieving financial close for long periods.

User feeA balanced and precise mechanism for determination of user

fee has been specified for the entire concession period since this
would be of fundamental importance in estimating the revenue
streams of the project and, therefore, its viability. The user fee shall be
based on the rates to be notified by the Government.

The MCA provides for indexation of the user fee to the extent of 40 per
cent thereof linked to WPI. Since repayment of debt would be
virtually neutral to inflation, the said indexation of 40 per cent is
considered adequate. A higher level of indexation is not favoured, as
that would require the users to pay more for a declining (more
congested) level of service when they should be receiving the benefit
of a depreciated fee. A higher indexation would also add to
uncertainties in the financial projections of the project.

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Local traffic
Owing to the absence of an alternative road, highways should be Safety and quality
open to use by local residents without any payment of tolls until free
service lanes are provided. This would ensure local support for the of service must be
project and avoid legal challenges or local opposition arising out of
easement rights. Frequent users should be entitled to discounted ensured
rates, in accordance with the tolling policy.

Construction
Handing over possession of at least 80% of the required land and
obtaining of environmental clearances are being proposed as conditions
precedent to be satisfied by the Authority before financial close.
The MCA defines the scope of the project with precision and
predictability in order to enable the Concessionaire to determine his
costs and obligations. Additional works may be undertaken within a Maintenance
specified limit, only if the entire cost thereof is borne by the Authority.
Before commencing the collection of user fee, the Concessionaire will standards will be
be required to subject the Project Highway to specified tests for
ensuring compliance with the specifications relating to safety and enforced strictly
quality of service for the users.

Operation and maintenance

Operation and maintenance of the Project Highway is proposed to be
governed by strict standards with a view to ensuring a high level of
service for the users, and any violations thereof would attract stiff
penalties. In sum, operational performance would be the most
important test of service delivery. The MCA provides for an elaborate Lenders will have
and dynamic mechanism to evaluate and upgrade safety
requirements on a continuing basis. The MCA also provides for traffic the right of
regulation, police assistance, emergency medical services and rescue
operations. substitution
Right of substitution
In the highways sector, project assets do not constitute adequate
security for lenders. It is project revenue streams that constitute the
mainstay of their security. Lenders would, therefore, require Concessionaire will
assignment and substitution rights so that the concession can be
transferred to another company in the event of failure of the be protected against
Concessionaire to operate the project successfully. The MCA
accordingly provides for such substitution rights. political actions
Force majeure
The MCA contains the requisite provisions for dealing with force
majeure events. In particular, it affords protection to the
Concessionaire against political actions that may have a material Pre-determined
adverse effect on the project.
termination
Termination
In the event of termination, the MCA provides for a compulsory buy- payments should
out by the Authority, as neither the Concessionaire nor the lenders
can use the highway in any other manner for recovering their provide
investments.
Termination payments have been quantified precisely as compared predictability
to the complex formulations in most agreements relating to private
infrastructure projects. Political force majeure and defaults by the
Authority are proposed to qualify for adequate compensatory
payments to the Concessionaire and thus guard against any
discriminatory or arbitrary action by the Government or the A credible and
Authority. Further, the project debt would be fully protected by the
Authority in the event of termination, except for two situations, fair arrangement
namely, (a) when termination occurs as a result of default by the
Concessionaire, only 90 per cent of the debt will be protected, and (b) For supervision is
in the event of non-political force majeure such as Act of God
(normally covered by insurance), only 90 per cent of the debt beyond essential
the insurance cover will be protected.

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Monitoring and supervision

Day-to-day interaction between the Authority and the
Concessionaire has been kept to the bare minimum following a
‘hands-off’ approach, and the Authority shall be entitled to intervene
only in the event of default. Checks and balances have, however, been
provided for ensuring full accountability of the Concessionaire.
Monitoring and supervision of construction, operation and
maintenance is proposed to be undertaken through an Independent
Engineer (a qualified firm) that will be selected by the Authority
through a transparent process. Its independence would provide
added comfort to all stakeholders, besides improving the efficiency of
project operations. If required, a public sector consulting firm may
discharge the functions of the Independent Engineer. The MCA
provides for a transparent procedure to ensure selection of well-
reputed statutory auditors, as they would play a critical role in
ensuring financial discipline. As a safeguard, the MCA also provides
for appointment of additional or concurrent auditors. To provide
enhanced security to the lenders and greater stability to the project Support and
operations, all financial inflows and outflows of the project are
proposed to be routed through an escrow account. guarantees by the
Support and guarantees by the Authority Authority are
By way of comfort to the lenders, loan assistance from the Authority
has been stipulated for supporting debt service obligations in the essential
event of a revenue shortfall resulting from political force majeure or
default by the Authority. Guarantees have also been provided to
protect the Concessionaire from construction of competing roads,
which can upset the revenue streams of the project. Additional toll
ways would be allowed, but only after a specified period and upon An effective dispute
compensation to the Concessionaire by way of an extended
concession period. resolution
Miscellaneous mechanism is
A regular traffic census and annual survey has been stipulated for
keeping track of traffic growth. Sample checks by the Authority have critical
also been provided for. As a safeguard against siphoning of revenue
share by the Concessionaire, a floor level of present and projected
traffic has also been stipulated. The MCA also addresses issues
relating to dispute resolution, suspension of rights, change in law,
insurance, defects liability, indemnity, redressal of public grievances
Private
and disclosure of project documents.
participation should
Conclusion
Together with the Schedules, the proposed framework addresses the
improve efficiencies
issues that are likely to arise in financing of highway projects on BOT
basis. The proposed regulatory and policy framework contained in
and reduce costs
the MCA is a pre-requisite for attracting private investment with
improved efficiencies and reduced costs, necessary for accelerating
growth.

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Contours of Public-Private Partnership (PPP)
Management Regime in Decentralised Renewable Energy Systems in India
Gopal K Sarangi
TERI University
The unfettered belief that government knows what is best for
its citizens is gradually being demystified on the face of
increasing frequency of state failures in the management of
certain key strategic sectors. Excessive government
intervention is foundto be costly in many instances and
believed to have generated multiple distortions and
inefficiencies. In addition, two dissimilar forces i.e. shrinking
budgetary resources and growing private potential in
leveraging the valued financial resources and technical know-
hows, have urged policy makers and planners to look for
alternative resource management regimes. As a rational
response to the traditional resource allocation system, public
private partnership (PPP) management styles are prioritized
in many instances. Unlocking of private potential through PPP
modalities appears to be more sensible to weed out the
pervasive syndrome of soft budget constraints inextricably
associated with the management of public resources. In the top
of it, emergence of PPP forms of management is rationalized in
the context of growing commodification of erstwhile publicly
supplied goods and services like water, electricity etc.
Recent transformations in the energy policy landscape have
ushered new era of energy sector management. In the realm of
energy, decentrealized renewable energy systems have
emerged as potential ground for PPP asa viable and effective
mode of resource allocation and management. Interestingly,
the recent focus on decentralised renewable energy systems
grows out of simmering discontent with the highly
subsidise dcentralised fossil fuel energy supply regimes.
1
The piece of writing is a part of the on-going OASYS project funded by an EPSRC/ DfID research grant. The views expressed are personal.
www.circ.in
1
Centralised energy supply systems are argued to have
evolved out of misconstrued and ill-conceived wisdom. It is
contended that these systems have generated large scale
inequities, unbearable external debts and irreversible
environmental degradation and nurtured a culture of inertia
and inefficiency. In addition, ever increasing energy security
threats and growing scientific consensus about the perils of
climate change have questioned the relevance of centralised
energy supply systems in the current juncture and
emphasised the need for alternatives like decentralised
renewable energy supply systems. Centralised supply
systems are also ridiculed for being unable to address the
ever growing problem of energy access. To substantiate this,
recent statistics demonstrate that about 300 million Indian
are facing acute energy access problems reiterating the need
to transit to alternative energy supply regimes.
Decentralised renewable energy provisions are highly
emphasised for being capable of addressing the ill-effects of
centralised energy supply systems. Global consensus to this
has been echoed in United Nation's (UN) declaration of the
year 2012 as International Year of Sustainable Energy for All,
with its emphasis on possible business solutions to the
problem of energy access. The thrust has also been articulated
in changing policy directions in many countries with targeted
focus on decentralized renewable energy facilities as viable
mode of energy generation. For an instance, UK Department
for Trade and Industry envisages meeting 40-50 percent of
energy needs from micro-generation energy technologies.
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India also looks forward to this form of energy supply not
only as an additional source of energy, but also as an
instrument to improve rural economic conditions.
India's experience with decentralised energy systems as an
alternative source of energy has not been encouraging till
recent past. The entrenched belief that decentralised supply
systems at best are 'charity centric services', often advocated
by donor agencies and implicitly recognized by publicly
supported schemes, has resulted mass scale failure of such
projects in the past. In addition, ill-defined ownership
structures have generated the characteristic problem of
'tragedy of commons' undermining the stated goals of such
interventions. Community level conflicts and problems of
elite capture within the communities also have germinated
sub-optimal outcomes in many situations. However, with
change in policy, legislative, and regulatory landscapes
governing decentralised renewable energy regime in India, a
new era has been created with renewed focus to attract private
investors into the sector through all possible channels. There is
also an implicit understanding within policy circles that
misplaced incentives like those available to mega power
projects have yielded dampening effects on small scale
decentralised energy projects, hence strengthening the case
for policy change. Most important legal and legislative
enshrinements altering the operational dynamics of the
sector are the Electricity Act 2003 and the Rural
Electrification Policy 2006, among others. The legal
provisions like de-licensing of electricity generation in rural
areas and emphasis on micro-enterprising of such projects
have spurred the private spirit and transformed the sector as
an attractive business venture.
In addition, since decentralised electricity generation
segment has been out of the current regulatory control,
except for certain regulatory requirements (e.g.
provisions relating to technical standards and safety
measures),it offers additional freedom to private
generators to set their own standards and norms through
self-regulatory processes. Importantly, political
environment has matured enough in providing right
kind of impetus to bring in place this new form of
managerial acumen and skill. In addition, conventional
thinking on the market potential of rural economies has
undergone a transformation with fast changing business
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dynamics. The notion of 'bottom of pyramid' propounded
by C.K. Prahalad, and growing evidence of the viability of
'social enterprising' models have redefined the business
bottom lines and strengthened the business credibility of
this sector. Above all, fast changing local institutional
settings characterized by increasing credibility of banking
sector in this business, active community participation,
growing market linkages and supply chains, and proactive
user responses etc. have created the fertile ground for
private investors to venture into the field. Recent thrust on
environmental markets like carbon trading has also
become an additional attraction for private investors for
the sector. On the top of it, business sense of this rural
energy provisions has been well appreciated by
international bodies. International agencies like REDCO
Alliance and Energy Access Foundation (EAF) have been
pivotal in catalyzing the rapid growth of rural energy
business in many countries. It is believed that transition to a
market oriented approach becomes an essential ingredient
in the current scheme of arrangement. Estimates reveal that
decentralised renewable energy systems offer a business
potential of about 94 billion INR per year in India within
the current policy & programme focus.
A deeper introspection into the operational artefacts of PPP
models in decentralised energy systems in India
demonstrates some interesting insights. At first glance, it is
evident that various possible PPP variants have been tried
out in different parts of the country over last decade or so.
The emerging trends reflect multiplicity in the form of such
partnerships and heterogeneity in the approaches
followed. Institutional innovations in the form of various
combinations between public-private-NGOs-Donor
agencies have evolved over years. While each model is a
variant on its own, interestingly, the dominant pattern is
private led but public supported model. The available
documentation on PPP mode of decentralised rural
electrification demonstrates that the intervention styles are
characterized by social enterprising propositions where
social well being is delicately intertwined with the profit
motives of private entrepreneurs. Importantly, in order to
enhance the business viability of such projects; emphasis is laid
on creating productive activities. This has been unequivocally
emphasized in all types of interventions. In PPP form of
decentralised energy systems, public support comes through
multiple ways. While the dominant form of public support is
the provision of capital subsidy, side by side, a host of other
supports are also provided by government at multiple levels.
State renewable energy development agencies (SREDAs)
provide the needed institutional support to private investors.
In many cases, financial support for O & M of the plant,
technical guidance to operate the facility, capacity building
initiatives, are provided by government agencies to
supplement the private effort.
Evidences suggest that PPP style of social enterprising
models could effectively be built into variety of
decentralised renewable technical options starting from
solar home systems (SHS) to mini-grid based energy
facilities. In the field of SHS, SELCO has been fore runner
in building social enterprising models through wide scale
dissemination of home based decentralised energy
systems by tapping innovative financing schemes. Other

social enterprisers like Husk Power Systems (HPS), Saran
Renewables, SCATEC Solar, Sun edison have ventured into
the field of decentralised energy arena and successfully
operating the business for some time. Since most of these
ventures have capitalized the existing institutional
arrangements at the local level, the thrust has also been given
to create large pool of rural entrepreneurs to manage the
systems in franchising modes. Importantly, there is a clearly
defined ownership structure with this kind of intervention
with pre defined accountability framework. Realizing
capacity constraints, various training modules have been
designed to run the complex energy enterprises in the rural
contexts. Contrast to the publicly dominated systems, local
needs and contexts are effectively accommodated in the
entire process of project operation and management.
However, multiple inhibiting factors hold back PPP as a
promising management pattern for decentralised energy
systems. Often, the enthusiasms of private investors are
characterized by adhocism and partial engagements
subverting the stated goals of the sector. This is primarily
due to lack of sustainable business models to translate the
vision into executable business plans. Institutional
determinants like normative and cognitive constraints
often derail the process. Given the complexity of these
systems and numerous variants, it becomes difficult to
scale up a particular form in other institutional settings.
Often market creation is obstructed by information
asymmetry challenges, multi-level welfare causation
chains, and institutional lock in at local levels. Lack of
complementary conditions also acts as a deterrent.
Unavailability of complementary local infrastructures in
the rural settings like availability of water, communication
facilities, lack of education also create additional hurdles.
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Effective design and main streaming of PPP requires
painstaking effort of creating necessary institutional
structures keeping in mind the country requirements and
needs. It is also important to comprehend the nuances of
socio-economic dynamics of local settings as 'recipients' of
energy projects. Implanting it within the prevailing socio-
economic-cultural milieu is quite challenging. Complexity
also emerges from the existing grey areas in the legal arena.
There have been issues related to price considerations, risk
allocations, etc. In a successful PPP framework, most
important ingredient is the risk transfer, which depends on
appropriate level of competition and opportunity to
contest a bid. While the need for a ground for competition
has been articulated at the policy level, the practical
implementation frameworks do not offer adequate scope
to private entities to bid for a project. Associated
conditionalities and localized approach often hinder this
process. Another strategic consideration comes in terms of
negotiation between government or any delegated
agencies of government and the private partner. In
nutshell, while PPP form of resource management holds
promising potential for efficient resource allocation, there
is also a need to have a cautious and careful approach to
leverage the potential.
www.circ.in
Transforming Water Supply Regimes in India:
Do Public-Private Partnerships Have a Role to Play?
(This article is an abridged version of a larger article.
Please visit http://www.wateralternatives.org for the complete version of this article)
Govind Gopakumar
Assistant Professor, Concordia University
Abstract:
Public-private partnerships (PPP) are an important
governance strategy that has recently emerged as a
solution to enhance the access of marginalised residents to
urban infrastructures. With the inception of neo-liberal
economic reforms in India, in Indian cities too PPP has
emerged as an innovative approach to expand coverage of
water supply and sanitation infrastructures. However,
there has been little study of the dynamics of partnership
efforts in different urban contexts: What role do they play
in transforming existing infrastructure regimes? Do reform
strategies such as partnerships result in increased
privatisation or do they make the governance of
infrastructures more participative? Reviewing some of the
recent literature on urban political analysis, this article
develops the concept of water supply regime to describe
the context of water provision in three metropolitan cities
in India. To further our understanding of the role of PPP
within regimes, this article sketches five cases of water
supply and sanitation partnerships located within these
three metropolitan cities. From these empirical studies, the
article arrives at the conclusion that while PPP are always
products of the regime-context they are inserted within,
quite often strategic actors in the partnership use the PPP to
further their interests by initiating a shift in the regime
pathway. This leads us to conclude that PPPs do play a role
in making water supply regimes more participative but
that depends on the nature of the regime as well as the
actions of partners.
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Introduction
It is widely known that Indian cities, like many others in
developing countries, are conspicuous for their acute lack of
environmental wholesomeness. Numerous international,
national and regional groups have gathered at celebrated
conventions such as the UN Millennium Development
Goals, World Summit on Sustainable Development (WSSD)
in order to chart out possible pathways to rectify the
dysfunctional nature of urban services in less affluent cities.
Public-private partnerships (PPP) are an important
governance strategy that has recently emerged to enhance
the functionality of infrastructure flows, especially in
augmenting access to marginalised urban residents. With
the inception of economic reforms in India, in Indian cities
too PPP has emerged as an innovative approach to expand
coverage of water supply and sanitation (WSS) infrastructures.
Whereas in itself these innovations are significant for their
attempt to improve the urban environment, what is of interest
to scholars is to comprehend the effectiveness of these
partnerships - how they become enmeshed within the existing
political endowments in Indian cities and how these efforts
catalyse the transformation of water supply regimes. The
important question to ask is what is the role of partnership
efforts in transforming water supply regimes in India: Are
partnerships a means of privatising infrastructure regimes (as
many have suggested) or will it contribute to a more
participative infrastructure regime? In order to understand the
role that partnerships play, it is first necessary to fathom the
constitution of water supply regimes.

Urban political analysis is a useful point of departure for
such an exercise and in the next section we conduct a
selective review of some recent trends in urban political
analysis with a focus on "national infrastructures" (Sellers,
2005). However, as we shall note, urban politics alone
cannot sufficiently explain the presence of distinct patterns
of infrastructural provision. This requires some creative
conceptual integration. This article will attempt to do so by
developing the concept of water supply regimes. This
understanding will then be utilised for analysing the
politics of urban infrastructural partnerships from an
empirical study of five water supply and sanitation
partnerships in three metropolitan cities in India.1 The
article will conclude with some salient points regarding the
role of public-private partnerships in transforming existing
water supply regimes.
Dynamics of Public-private Partnerships
Cities in India continue to struggle to provide all its
19
As some scholars have noted, these efforts were at best partial in scope. BATF's tactics for gathering support were at the most partial in their scope. It was
noted that the mayor and elected councillors were conspicuous in their absence from the summit and from round table meetings (Vijaylakshmi, 2004; Ghosh,
2005). Vijaylakshmi has noted that none of the established political parties in Bengaluru - Congress, BJP or the JD(S) or JD(U) - considered BATF's contribution
significant to the city's infrastructure to warrant a mention in the 2002 city elections (Vijaylakshmi, 2004).
20
The Hindu. Government silent on BATF. 29 September 2005.
See Gopakumar, 2009a for a description of how the BATF effort failed to become durable.
www.circ.in
residents with water supply, despite most cities possessing
an entrenched regime for purveying potable water. Public
managers reason that access to universal, standardised
Water supply and sanitation is crucial for not only
improving local environmental conditions in Indian cities
but also creating settings conducive to healthier lives for
their inhabitants. In India, with infrastructure policy
reform, public-private partnerships (PPP) have become a
pervasive policy instrument to achieve these ends of urban
environmental improvement. Five cases of public-private
partnership were studied - the BATF and BWSSB cases in
Bengaluru, the Alandur and the TWAD Board cases in
Chennai and the Vypeen case in Kochi. From our previous
discussion of the independent significance of water supply
regimes we have seen that the three cities have differing
significance in their regional politics. This varying
significance gives partnership ventures differing political
valences, opportunities and constraints to operate within
the regime and change the regime. This article suggests
that reform efforts can proceed along three change
pathways - aligned, modified or interrupted. In an aligned
change pathway the reform effort does not significantly
alter the constitution of the water supply regime, and
infrastructural relations in the regime are largely
reproduced. In a modified change pathway, the reform
effort succeeds in bringing about a modification in the
constitution of the regime. Finally, reform efforts can be
disrupted and change pathways in the regime interrupted.
Bengaluru
Given the low autonomous significance of Bengaluru's
water supply regime in state politics, it is not surprising
that reform transitions initiated through cases of PPP have
very low political valence and so disrupting or modifying
reform transitions is quite easily accomplished by actors. A
close study of the BATF and the BWSSB cases reveals how
this was accomplished.
BATF: BATF, or the Bangalore Agenda Task Force, was
instituted as a public-private partnership in 1999. The
objective of the effort was not only to channel the technical
expertise located within Bengaluru's high technology
enterprise into the development of public infrastructure
but also to provide a venue for Bengaluru's burgeoning
"new middle classes" to showcase their intentions to
transform the city. The BATF launched several projects that
were to be models of technical excellence in infrastructural
development. One such project was the Nirmala Bangalore
Pay and Use Toilets. BATF constructed modern toilet
blocks that provided a vastly improved quality of service
compared to the standard public toilet blocks constructed
by the city government (Gopakumar, 2009a). In addition,
the BATF used venues such as the BATF Summit as
exercises to build allies. It was to be an arena to publicise its
role in guiding infrastructural development in Bengaluru
in front of media, voluntary organisations and the
citizenry.19 Despite BATF's technical and managerial
excellence, the reform transition was interrupted in 2004 by
the changed political circumstances after an election. The
new government, drawing support from a pro-farmers'
party, did not renew BATF's mandate.20 Due to a lack of
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appreciation for the fluid political context within which
Bengaluru is located, BATF's technological entrepreneurs
had few influential allies or strategies to rescue their
enterprise.21Their technical and managerial brilliance alone
was insufficient to heighten the significance of their
enterprise and prevent the dissolution of the partnership.
BWSSB: BWSSB, Bengaluru's water supply utility,
launched a public-private partnership to improve access to
water supply and sanitation in slums in the city.22 The
partnership between the utility, non- profit organisations
and slum residents was expected to provide slum
households with individual water and sewerage
connections. By providing individual connections water
utility engineers perceived the partnership to be a positive
exercise because it enhanced the revenue of the utility.
However, the perception of non-profit organisations and
slum residents involved in the partnership was very
different. They understood the partnership as a necessary
evil that would enhance access to water supply but would
impose the burden of paying user fees on residents. "So
meterisation of these people [slum dwellers] is also a step
towards privatisation Once they are all metered there is no
left and right to the people - they have to follow them
[BWSSB]".23 The response of non-profit organisations and
slum residents was to utilise the partnership as a means to
deploy strategies that would allow them to intervene at the
regime level. First, all slum partners were drafted into a
state-level slum dweller’s federation (KKNSS). By
connecting different slums in the city to the state slum
dwellers' federation, they not only enhanced their
associational presence but also sought to increase the
organisational capacity of slum residents to mobilise for
common causes through KKNSS we organised slum
residents and formed committees. In Bangalore city there
are 14 MLA [Member of Legislative Assembly]
constituencies.
In all constituencies we formed slum committees (...) So if
democracy believes in numbers then we will struggle in
large numbers by bringing people and hold urban poor
rally to pressurise government. And by asking and putting
our slum dweller's demands in front of all the political
Parties in the state we make them commit their support.24
This strategy has given slum residents and non-profit
organisations enormous protest capacity and the necessary
leverage to exert pressure upon the state government.
Given the low autonomous significance of Bengaluru's
water regime, it is notable that the organisational capacity
of the urban poor is directed at the state government. This
capacity was on display in 2004, when S. M. Krishna, Chief
Minister of Karnataka announced the Greater Bangalore
Water Supply and Sanitation Project (GBWASP) - a
comprehensive project to enhance water supply and
sanitation access to the residents of Greater Bengaluru
through private participation.25 At this stage, KKNSS

21
See Gopakumar, 2009a for a description of how the BATF effort failed to become durable.
22
Connors has suggested that the incentive to forge a partnership happened for two reasons in addition to the loss of revenue. In the first instance, a pilot project
launched under the AUS Aid scheme and secondly due to a financial package provided by the BMP for provision of water to slum dwellers (Connors, 2005).
However, senior engineers at BWSSB were unconvinced about the reasoning and suggested that the effort was an internal decision of the BWSSB (Interview
with ENG1, retired Chief Engineer, BWSSB, 12 July 2006).
23
Interview with Y., NGO partner, 12 August 2006.
24
Interview with Y., NGO partner, 12 August 2006.
25
The New Indian Express. Rupees 343 crore plan to supply water to CMCs by 2005. 8 January 2004; The New Indian Express. CM gifts Greater Bangalore
project to city. 6 February 2004.

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through the Campaign against Water Privatisation

Karnataka (CAWPKA) launched an agitation against the
"profit-making model" in the project with a series of
protests and marches in Greater Bengaluru that eventually
culminated in a massive protest rally by the urban poor in
the city.26 In the face of the spirited opposition to the project,
the Government of Karnataka backed down from
proceeding with the IFC-initiated project. Currently,
BWSSB has accepted the decision to implement the project
and operate the system (Ranganathan et al., 2009). This
effort reveals the capacity that urban poor have acquired in
the city partly through the BWSSB partnership.

The above discussion on the BATF and BWSSB

partnerships suggests that given the low autonomous
significance of Bengaluru's regime, any reform initiative is
very susceptible to interruption or at least weakening from
political and societal forces whose interests are threatened
by reforms. We see in the BATF case a conclusive
interruption of reform efforts while in the BWSSB case
reform efforts to privatise water supply in the peripheral
areas were weakened by civil society actors.
Kochi
As we have seen, Kochi's water supply regime has recently
acquired a greater autonomous significance that arises
from the rising political significance of the city in regional
politics, and the nascent predatory nature of its water
supply. The rising significance of the city has made the
existing water supply regime well entrenched, which has
made efforts to contend with this regime all the more
difficult. Vypeen: In the Vypeen case in Kochi, activist civil
society actors have succeeded in weakening the reform
transition initiated by public-private partnerships in
Vypeen only through developing an extensive
mobilisational capacity and through years of sustained
protests marked by some dramatic episodes of
confrontation. Vypeen is a large, densely populated island
offshore of Kochi city. Despite large amounts of rainfall,
Vypeen faces a shortage of drinking water because all local
sources of water on the island are saline from ingress of
seawater. As a result, water has to be piped onto the island
from the mainland. Before it gets to Vypeen however,
much of the water is diverted to the city of Kochi. Residents
of Vypeen have dealt with chronic shortages of water that
periodically intensify during summer. This has been the
cause for sporadic instances of protest. Forging public-
private partnerships for the creation of small-scale
desalination, and rainwater harvesting units are some of
the reform initiatives launched by government agencies to
enhance water availability on the island. Since 2000, Kerala
has witnessed an explosion of alternative decentralised
water production and collection partnership schemes such
as the Swajaladhara project, Varsha and the Jalanidhi.27
These partnerships were instituted between women's self-
help groups, island residents and some large non-profit
organisations. While these efforts theoretically do increase
the availability of water, they impose social and economic
costs on island residents rather than on the citizens of
Kochi. This disparity was the motivation for Vypeen
Drinking Water Protest (VKSS) movement organisers to
employ the women's self-help groups in these partnerships
as a means to increase the awareness among island
residents about water utilisation and the policies of the
government.28 Given the rising significance of the city,
protest movements on the island that arose against the
disparity of water availability between Kochi city and
Vypeen island, have found it exceptionally difficult to
upset the existing regime. Organisers have found it
necessary to mobilise for sustained confrontation with the
infrastructure regime in the city. In addition to numerous
minor episodes of protest, organisers demonstrated the
popular support for their cause by mobilising large
numbers of Vypeen island residents to participate in some
dramatic instances of protest when island residents laid
siege to Kochi city, bringing the arterial thoroughfares of
the city to a halt.29 As a result of this event, protest
organisers were successful in operationalising a dedicated
water pipeline to Vypeen that diverted water supply meant
for Kochi to the island.
The arrival of piped water supply on Vypeen island has
been interpreted by VKSS as a successful achievement of
the island-based mobilisation. The strategy of the VKSS by
successfully challenging Kochi's primary claim to water
piped to the greater metropolitan region has not only
initiated a transformation in Kochi's water supply regime
from one marked by resource appropriation to one of
resource-sharing but also weakened the reform transition
in the regime whereby piped public water was made
available only to urban elites in Kochi.
Chennai
In contrast with the Bengaluru and Kochi cases, Chennai's
high autonomous political significance and the extremely
entrenched and predatory nature of water supply have
created conditions that have muted the potential of partner
actors to question the structural solidity of reform.
Partnership actors, under such a condition, find it virtually
impossible to disrupt the water supply regime. At most,
they can make minor modifications to reform efforts as
seen in the Alandur case.
TWAD Board: The inability of partners to question or resist
the unequal, predatory nature of water supply is best

26
The New Indian Express. Drive against water privatisation soon. 20 November 2005.
27
"In the three panchayats of Elankunnapuzha, Njarakkal and Nayarambalam *in Vypeen+ alone, there are 650 Varsha [rain water harvesting units], that too in
the financial year 2004-05", in The Hindu. Poor response to Swajaladhara scheme. 1 December 2005.
28
with movement organiser and panchayath member, 29 May 2007.
29
Malayala Manorama (in Malayalam). Drinking water project: Vypeen residents blockade the city. 3 May 2005.

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evidenced in the structurally aligned reform transition in
the TWAD Board partnership. TWAD Board is the utility
that provides water supply and sanitation services to
settlements in Chennai's peripheral areas. In 2004, some
engineers within TWAD Board sought to change the
predominantly top- down approach to providing water
supply services to residents by focusing on the relation
between users and the utility.30 This organisational
initiative referred to as the Change Management Group
sought to forge partnerships between women's self-help
groups (WSHG), the local government and utility
personnel. This partnership was instituted in Pagalmedu
village in the periphery of Chennai's metropolitan area.
This village lies close to the well fields that pump
groundwater to meet the needs of the city. Between 2003
and 2004, Chennai suffered a severe episode of water
scarcity when all its reservoirs dried up and the city was
solely dependent on groundwater from its periphery. The
intensive exploitation of groundwater to meet Chennai's
needs deprived the small agriculturists in Pagalmedu of
water, leading to the collapse of their agrarian-based
economy. Given plentiful groundwater in the region,
farmers in Pagalmedu had typically cultivated water-
intensive crops such as rice. By the middle of 2004 however,
with the severe unavailability of water, agricultural efforts
had ceased to be productive. "That was a difficult time for
all of us. We had no water to drink. There was no water for
agriculture. In the crisis period, we had to walk long
distances for even drinking water".31
It was at this juncture that the TWAD Board partnership
was instituted to improve drinking water supply to the
village. In the absence of any external support for
infrastructural improvement, enhancing the availability of
water supply was contingent upon the revival of the
agrarian economy in the village. "Given the trouble we
were going through we wanted better supply. But the
engineer said that each of us would have to contribute
towards the improvement, [TWAD] Board will not be able
construct it for us. We told him, when we can't feed our
children how can you ask us to contribute".32 Two options
were available to the partnership to improve the agrarian
economy in the village - struggling against The engine of
groundwater exploitation that the village was trapped
within or adapting to the change and re-making the local
economy. Through the partnership, the predominantly rice
farmers in the village have adapted to their situation and
became drought-resistant flower cultivators. The yields
from floriculture have contributed to a marked
improvement in the local economy and made water supply
improvements financially viable. Two aspects about the
partnership are notable - the critical role of the engineer
from TWAD Board and the marginal role of elected
representatives of the village in leading the village. It was
the initiative of the engineer from TWAD Board in
consultation with the block development office that
facilitated WSHG in the village to make the switch to
floriculture. It is also through the engineer's intervention
that the elected representatives of the village have been
assigned as members of the village water supply
committee who monitor the operation of water supply in
the village. A second crucial point in the partnership is the
subsidiary role of the elected representatives (panchayath
president and members) in water supply decisions for the
village.33 Under such conditions of centralisation of power
and of Chennai's great regime significance, it is no surprise
that the partnership offers little scope for transforming
Chennai's water supply regime. This mode of water
extraction was justified by an old woman in the village who
said - "They are using the water for drinking. How can we
deny them the right to drinking water"?34 Given the large
significance of the Chennai's water regime in Tamil Nadu
politics, aligning with the existing situation of water
appropriation is the only path open. Resisting is not an
option that is available.
Alandur: Alandur, a suburban neighbourhood in
metropolitan Chennai, is notable for the project to create a
sewerage system through a public-private partnership.
The elected Municipal Chairman of Alandur, Mr. Bharathi
of the DMK party, initiated this partnership in 1996. The
partnership comprised Mr. Bharathi, the private-sector
company that constructed the sewerage project and,
importantly, the resident welfare association (RWA) in the
town of Alandur that contributed financially to the project.
The partnership was initiated during a period (1996-2001)
when the DMK government in power in Tamil Nadu
created an environment that was very conducive to rapid
infrastructural development. However, this was the time
when Mr. Bharathi as the legal secretary of the DMK Party
was personally involved in getting Ms. Jayalalithaa, leader
of the rival ADMK Party convicted of abuse of power and
corruption during her tenure in government between 1991
and 1996.35 This legal wrangle, that Mr. Bharathi initiated,
was instrumental in unseating Ms Jayalalithaa from the
office of Chief Minister of Tamil Nadu state after her party
won the 2001 state elections. Unfortunately for Mr.
Bharathi, an appeal to the High Court and Supreme Court
overruled the conviction and cleared the way for Ms
Jayalalithaa's reappointment as Chief Minister in 2002.
Due to Mr. Bharathi's personal involvement in the
conviction case, the period (2001-2006) created a very
hostile environment his infrastructural efforts in Alandur.
Major roadblocks by way of procedural delays, and
unreasonably high tariffs crept into the construction and,
later on, to the operation of the sewerage project
(Gopakumar, 2009). During this phase, due to the
prevailing political climate, Mr. Bharathi assumed a
secondary role even as the RWAs moved strategically to
use influence and apply pressure on the government to
ensure that residents' objectives for an affordable sewerage
system were not compromised.36 Given the pattern of
political contestation in Chennai, we have seen, there are

30
"Genesis of CMG". Available at http://cmgtn.com/history.asp, accessed 5 December 2007. Focus group
31
discussion with members of Women's SHG, Pagalmedu, 23 May 2007. "Focus group discussion with members of
32
Women's SHG, Pagalmedu, 23 May 2007.
33
Tamil Nadu is among the few states in India to have actively resisted decentralisation due to a perception among its political elites that making local
governments strong would result in the eventual weakening of the state government. The centralisation of power in the hands of the state government has
been achieved by efforts that have systematically weakened the standing of the local government. In fact, elected village panchayath presidents (VPPs)
although elected by villagers can be removed from office by the district administration if they are perceived to be in contravention of state laws (Natraj et al.,
2006). To add to the reduced standing of VPP, elections to panchayaths in Taminnadu are fought on a non-party basis. Being formally non-political positions
VPPs can rarely tap into bases of support extended by political party organisations. This often leaves the VPP a solitary figure negotiating a sea of powerful
officials with little social or political support.
34
Focus group discussion with members of Women's SHG, Pagalmedu, 23 May 2007.
35
The Frontline. The law and its potency. 17(22): 28 October-10 November, 2000.
36
The Hindu. Reduce maintenance fee, demand residents. 15 January 2004.

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few opportunities for civil society mobilisation to influence
the existing water supply regime. Through their role in the
partnership, and with Mr. Bharathi's support, RWAs in
Alandur were able to mobilise support to modify the role of
users in the regime. Thus, despite the high regime
significance, using its influence the RWAs have been
successful in effecting a moderate change in their favour.
As a result of specific political circumstances, the RWAs
have been able to modify the existing regime by bringing
some citizen considerations in an otherwise structurally
strong regime.
After comparing the outcomes of these cases on their
respective regimes we see that the cases initiate different
change pathways in the regime. In Bengaluru, a low regime
significance has created the condition whereby
infrastructural partnerships can be easily derailed while
reform transitions that seek to transform the water supply
regime have been interrupted or modified. In Kochi, a
medium significance for the water supply regime provides
a context whereby partnerships require extensive
mobilisation and strategy to modify the existing
infrastructure regime. In contrast, in the Chennai case, the
legacy of Chennai's high political significance and high
resource significance gives the regime a juggernaut-like
quality. It requires considerable political strategy and a
unique alignment of circumstances to even effect a slight
modification that can transform the regime as we saw in the
Alandur case. Given the solidity of the regime, aligning or
adapting to the regime is the easiest way as in the TWAD
Board example. Table 1 displays the political dynamics of
infrastructural partnerships in Bengaluru, Chennai and
Kochi. At the two extremes both the TWAD Board case in
Chennai and the BATF case in Bengaluru suggest that PPPs
are unsuccessful in making a change in the regime. In the
TWAD Board case, the regime is too significant to make a
change. In the BATF case, the regime has too low
significance again for the PPP to make a change in the
regime. However, in the three cases, Alandur, Vypeen and
BWSSB, the partnership was successful in bringing about a
modification in the regime. In the high significance regime
of Chennai, this modification was brought about by a
unique political circumstance. In Kochi's medium
significance regime, the Vypeen case brought about a
modification with sustained mobilisation. In Bengaluru's
low significance regime, some mobilisation was able to
bring about a modification in the regime.
Conclusion
Systems of water supply provision constitute one of the
most politicised infrastructures. Numerous urban,
regional and international struggles in the recent past have
coalesced around access and process issues associated with
water-supply and sanitation infrastructures. These
struggles have been particularly concerted in cities of the
developing world where the disparities over access have
been especially egregious. International development
agencies expect Public-Private Partnerships to improve
access to water supply infrastructure. Developing the
concept of water supply regime, this article empirically
37
It needs to be pointed out here that understanding regime significance in terms of political significance and resource significance is crucial, because this
allows evaluating regime significance across different types of infrastructure such as water, electricity or transportation. Thus within any given city, while
regimes share similar political significances, the significance of the resource varies considerably. While a resource like water has incredible political traction,
this is often missing in the case of electricity or transportation. This could possibly account for why privatisation of water supply is such a thorny process
although electricity or transportation services have been privatised with little opposition in several cities. A good example of this is Delhi where water
privatisation efforts have stalled while electricity services have been privatised
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Investigates whether PPP can indeed transform existing
systems of water supply provision using the example of
five PPP efforts in three cities in India. From the
investigation, we can draw out two important points. First,
water supply regimes vary considerably in characteristics
across cities. Given the local nature of water supply
infrastructure, there is a degree of local specificity to the
supply of the resource that does not exist in other
infrastructures. This accounts for the variation across
regimes. As a result, some cities possess regimes with a
greater significance while others possess a regime of much
lower significance within their respective regional/
political contexts. The significance of the regime in this
article is related to the significance of the water resource to
the city and to the autonomous significance of the city in
politics. In cities like Bengaluru that possess a regime of
low political significance and low resource significance, the
regime of water supply has low independent significance.
On the other hand, a city like Chennai possesses a regime of
high significance. The significance of the water supply
regime has a direct bearing on reform processes. Any
change process initiated in a regime of high significance is
extraordinarily difficult to interrupt or derail by civil
society efforts opposed to it. As a result, in a regime with a
high autonomous significance like Chennai's, reform
efforts such as PPP usually align with or reinforce the
dynamics of the existing water supply regime.
When civil society efforts seek to change the regime, they
require extraordinary circumstances or skill (such as we
saw in Alandur) to make even a minor modification. On the
other hand, in regimes with low independent significance,
like Bengaluru's, reform efforts can be upset with minimal
Effort (as we saw in the BWSSB case) with civil society
actors who mobilise to upset these efforts being usually
quite successful in their strategy. In other words,
arrangements that underpin how water supply is provided
in the city can be understood only in their historical
contexts.37
A second point concerns the role of PPP in transforming
existing water supply regimes in developing cities. By
bringing private actors and civil society groups into
infrastructural delivery the expectation is that partnership
efforts can make water supply systems more participative
and democratic, which in turn can enhance access of
different groups in society to essential services. It is true
that such a characterisation disregards the role of social and
political context that guides infrastructure regimes. PPP
efforts are always inserted within existing contexts. It is
these contexts that, to an extent, guide the role of PPP
efforts in transforming water supply regimes. Regimes that
have a lower autonomous existence are often usually more
accessible and participative of multiple interests. PPP
efforts within such contexts that seek to transform regimes
by granting them greater autonomous significance are
quite often successfully resisted and the regime change
interrupted. The BATF case demonstrates the success that
partners had in resisting transformations that would have
enhanced regime significance and made them less
participative. On the other hand, regimes that have a high
autonomous significance as in Chennai are
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hostile environments for genuine participative and The picture that emerges from this article is that PPP efforts
democratic urges since these regimes are insulated from do certainly play a role in initiating regime changes that
the desires or interests of different social groups. Under make them more participative or democratic. The
such a situation, PPP efforts (like the TWAD Board case) significance of the regime in which the PPP is launched
usually reproduce existing regime settings. In this case, a does guide to an extent the role PPPs play. But beyond that,
regime transformation toward a more participative regime strategic action by partners plays an important role in
is unlikely. However, the outcomes of PPP efforts are not initiating pathways of regime change. It is of course much
always guided by the regimes they are located within. easier for partners to initiate these pathways of change in
Under conditions, PPP efforts and the actions of partners regimes with lower significance as Bengaluru as opposed
can become critical for initiating regime change. We see to high significance regimes such as Chennai. But this does
that in all three water supply regimes we considered. not discount the vital role of strategic action in launching
However, the degree of modification is related to the directions of change in water supply regimes.
nature of the regime. In a high significance regime like
Chennai, it is only a unique set of political circumstances
that can ensure regime change in a participative direction.
Under other circumstances, regime alignment is the likely
outcome. In Kochi's intermediate significance regime,
partners require sustained mobilisation which can initiate
regime modification. Given Bengaluru's lower regime
significance, reform modification is achieved easier than in
Kochi or Chennai.

Few thoughts on policy changes
in PPP in India
(This article is an abridged version of a larger article.)
J.K. Dadoo,
IAS
(I) Regulatory Issues :
(a) Independence: A strong independent Regulator
is necessary for any objective decision making.
All regulators of PPP sectors should be
strong and independents and such people will
be selected, aided and advised by the private
sector.
(b) Absence of Regulator: In sectors where
Regulators do not exist, there is need to create a
Regulatory Authority like in Real Estate, Food
Processing etc. Absence of regulation does not
help specially when the vibrant public sector
does cut throat competition and the private
sector players look to the Government to
provide an objective referee.
(c) Jurisdiction: The Regulator must have effective
jurisdiction over all the stakeholders and no
segment or region should be left out due to any
vague definition of its jurisdiction.
(II) Policy :
(a) Central Vs. State Policies: Because of the
Constitutional provisions of a Central List, a
State List and a Concurrent List, the issue of State
v/s Centre normally should not arise. But,
wherever it does, the Constitutional provisions
are clear and they should be followed.
(b) Policy Overlaps and Ambiguity: The private
sector and the normal public do not understand
the functioning of the Government and,
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therefore, feel that there is a plethora of policies
in the country, creating ambiguity. For those
who are enlightened, they realize that such
policies are there in every country for different
sectors like Investment, Trade, Environment,
Land, Logistics, Infrastructure etc. Therefore,
these policies cannot be wished away. What is
important in the context of PPP is that there
should be transparent guidelines for tendering,
with clear technical parameters and financial
parameters so that a level playing field is
provided to all the concerned stakeholders. If
the guidelines are clear and the tender notices
are transparent, then PPP projects will not suffer
from any ambiguity.
(c) One Stop Service Policy an Option: To my
mind, any project for which the Government
cannot provide funds or which is not the task of
the Government, should be put on the PPP
mode. Therefore, it may not be a one stop
service solution but if a particular facility has to
be provided to the public and Government is
unable to do so efficiently and effectively, there
is no harm in resorting to the PPP mode
(d) Absence of Policies: PPP is gaining ground in
India and with more and more success in such
projects, more and more State Governments, and
the Central Government are taking up PPP
projects. A time will come when PPP will
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become a norm because infrastructure needs of
this country are too large for Government alone
to take care.
(III)Institutional :
(a) Lack of Legislation: There is really no lack of
legislation in this matter, because Planning
Commission has taken out several PPP manuals
for different sectors. Today, for any new sector,
there are consultants available who can prepare
the PPP document efficiently and effectively.
(b) Too much delay: When the players in the PPP
project play by the rules of the game and keep up
the pressure of transparency, the chances of
delay are very remote.
(c) Transaction Cost: A PPP project should be
undertaken only where normal funding is not
possible. The transaction cost of advertising the
tenders, processing the applications and
evaluating the same efficiently and effectively,
has to be met and this can be effectively done by
charging a small fee for the application form,
which covers the processing and evaluation costs.
(d) Lack of Transparency: Concession agreements
can be very transparent if the stakeholders agree
for such transparency. Lack of transparency is
very often a result of competing interest and
undue influence on the Government decision
makers.
(IV)Project :
(a) Appraisal/Economic Viability : A very detailed
appraisal of the project may not be required but
what is more important is to determine the
single or dual parameter on which the final
vendor will be selected. If there is clarity on this
point, then detailed appraisal is done by the
private sector partners who put numbers on
each cost and each return, and calculate the
bottom line.
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(b) Contract Standardization: Each PPP project in
different sectors is different and, therefore, a
model PPP contract for all projects is not feasible.
However, sector wise standardization has been
done by the Planning Commission.
(c) Government Guarantee: Government
guarantee should not be insisted for most PPP
projects because they bring laxity in decision
making. The private sector must do its due
diligence and keep up the pressure on the
Government for transparent decision making.
(d) Cost-time Overrun: There are four reasons for
cost and time overrun. (i) Any material defects or
mistakes in the tender document for which it has
to be re-written; (ii) enforced litigation by
mischievous vendors who do not want certain
parties to bid or to get the contracts; (iii) fierce
competition amongst bidders so that the losers
cannot gracefully exit but want to litigate; (iv)
any biased decision making by the
decision makers which leads to biased results. A
strong Regulator can ensure that this does not
happen frequently.
(e) Risk Allocation & Risk Assessment: A project
goes into PPP because of inherent risks and
returns. The job of the private vendors is to
assess this risk and to quote accordingly.
Government can transparently project the risks
and the returns, and let the market decide what
is the best offer that can come out with.
(f) Financial Structuring: Financial structuring can
be facilitated through the guidelines mentioned
in the financial parameters listed for decision
making.
(g) Protection against uncontrollable factors: This
escape clause is provided by the Government in
all PPP projects
(h) Implementation Strategy: For most PPP
projects, if due diligence had been done by both
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the decision makers and the private vendors, the (d) Competitive Dialogue Process: The
implementation plan will follow smoothly. competitive dialogue process at each stage of the
(i) Service Quality: Service quality again is a PPP project is the only way to remove doubts,
component which has to be clearly mentioned in confusion and trust deficiency. All questions are
the tender document. Fines and penalties for not answered and the entire proceeds are `in camera’.
observing the service quality should also be
clearly enunciated. In short, PPP is a great idea; it requires careful planning
of the tender document with transparent conditions; it
(V) Capacity and Trust : should keep public interest upper-most and should
(a) Lack of Capacity: This is a very important work towards facilitation of that public interest in all
point because capacity building for creating circumstances; the financial and technical parameters
must be clear, feasible and practical; the evaluation
PPP projects does not exist throughout the
process must be transparent, unbiased and in public
country. PPP training needs to be given to all
interest, the Regulator must oversee all this carefully
Civil Servants in their training Institutes and should be available for any consultation,
during probation period so that they clarification or communication.
understand the different processes, and are
able to formulate the PPP Projects when their If all these necessary conditions are met, PPP can be a
time comes. All Collectors in 600 districts need great provider of additional public service to the
to be sensitized about PPP because they are community.
probably the most focal point of decision
making for such projects.
(b) Lack of trust: Lack of trust is an issue which has
to be thrashed out at the stage of making the
tender conditions and discussing it with the
stakeholders. There can be no guarantee of trust
either way, and utmost vigilance on both sides is
necessary for success of any PPP.
(c) Concessions and Competitions: The decision
maker of the PPP project has full right to lay
down transparent tender conditions which
govern entry into the system.
www.circ.in
Public Private Partnership
and Social Infrastructure
(This article is an abridged version of a larger article.)
K.M. Mital,
Institute for Integrated Learning in Management
Vivek Mital,
Financial Management and Derivatives Consultant
Select Cases on Public Private Partnership and Social
Infrastructure Development Providing every child sound
education, say, up to high school level is desirable for social
and economic reasons. This would prepare more
children to access higher education and courses for
specialized qualifications. They would then be able to
participate in India's economic progress and its successful
engagement with the global markets (Kamath, 2006).
GOI has sought to universalize education traditionally by
setting up government schools both in urban and rural
areas. Many of these schools however at present lack
necessary infrastructure and adequate trained teachers
due to continuously rising population. This is often
discerned in terms of poor academic results and high drop-
out rates (Kamath, 2006). To fill the gap in elementary
education, a number of private schools have come as
education providers but with them too everything is not
ideal in terms of quality of education or infrastructure
facilities. There are apprehensions in achieving larger
development objectives through private schools. Whereas
on one hand private schools should accord development
priorities, parallel efforts should be directed in improving
government school system (Kamath, 2006).
ICICI Bank, a premier private bank in the country, as part
of its social objectives, has come out with several solutions
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to improve teacher performance in government schools. It
also provides loan facilities to private schools to expand
their infrastructure and capacity. It also provides loan
facilities including loan vouchers that allow low income
families to access the education of their choice, whether
public or private (Kamath, 2006).
Panchayats and Public Private Partnership
Traditionally, India's development planning has been at
macro level and top down that focused too much on big
picture such as a big dam or river linking project. During
the period of late Shri Rajiv Gandhi as Prime Minister
(1984-89) emphasis was placed on bottom up approach for
planning in which local bodies particularly village
panchayats would play greater role. This experiment was
conceived to meet the menace of drought with people
support and part financing belonged to the bottom up
approach for planning and poverty alleviation.
Panchayats can play important role in village cleanliness
and village sanitation. Maharashtra's experience with
panchayats to promote sanitation and hygienic
practices is a case-in-point (Iyer, 2006). In Maharashtra,
between 1997 and 2000, a record 1.7 million toilets were
constructed by the state government but hardly fifty per
cent of them were actually utilized by villagers with large

number converted into storage space by the unscrupulous
farmers. Arising out of constitutional amendments, the
Government of Maharashtra involved village panchayats
in their Clean Village Campaign (Sant Gagde Baba
Swachchta Abhiyan) and achieved impressive results in
proper use of the facility created.
Maharashtra government provided necessary
administrative, technical and financial support to the
panchayats for creating awareness among villagers
towards cleanliness. As an incentive to panchayats, it
introduced a cash prize of Rs. 2.5 lakh to be awarded to a
gram panchayat for pushing this programme, but with the
rider that the award money is to be used for improving
village infrastructure only (Iyer, 2006). Encouraged by the
results, Government of Maharashtra, increased its outlay
to Rs. 200 crores on sanitation for building more toilets in
next stage of its programme (Iyer, 2006). During water
crisis in eighties, Maharashtra faced severe drought when
fifty lakh people were on look out for alternative means of
occupation as it was not possible to go ahead with
agriculture without water. The only alternative source of
subsistence, which the state administration could think of
providing to farmers was stone breaking at a paltry rate of
Rs. 2 per day.
It occurred to Vilasrao and a group of rural entrepreneurs
struggling to earn livelihood that rural entrepreneurs
could instead divert their energies for conserving rain
water which could meet formidable challenge posed by
drought. Local authorities particularly the district collector
showed keen interest in building structures for water
storage and extended all possible support to the farmers for
building the local water bodies (Salunkhe, 2004).
Highly motivated rural entrepreneurs spared no efforts in
building scores of water storage structures in record two to
three months' time, and when the rains actually arrived,
huge storage capacity was already in place for storing rain
water. Initially, the pilot project was limited to 15 villages,
but later on structures were built practically in all areas that
were hard hit by the drought. If the experiment is
successful in one state, it can be replicated anywhere in the
country.
Realizing that land among farmers is not divided
according to family size but it is largely the result of
individual family circumstances, it occurred to Vilasrao
that if not land at least water could be allocated among poor
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farmers on the basis of family size. This new basis of water
allocation, motivation of rural entrepreneurs, and
continuous monitoring of activities by 'pani panchayat' led
to spectacular success of this novel experiment.
Several leading IT and Telecom companies are already
partnering with panchayats in distributing ICT services in
rural areas. Tata Teleservices, a cellular service provider, is
partnering with panchayats in distributing its services in
rural areas. Telecom industry associations like the
Cellular Operators Association of India and the
Association of Unified Service Providers of India are also
supporting panchayat-business or in more common-
terminology public-private partnership in rural sector.
Rural-urban divide in rural telephony is wide considering
that urban tele-density is 31 per cent while in rural areas it is
barely 2 per cent (with overall tele-density as 20 per cent in
June 2007). India as of 2006 had over 100 million mobile
users which may touch 200 million mark by 2007 and 500
million by 2010 (Monga and Philip, 2006). With
participation of several agencies including panchayats the
total number of telephone subscribers reached 225.21
million at the end of June 2007 as compared to 218.05
million in May 2007.
Intel, the world's largest semi-conductor company, is
planning to reach India's all villages with one lakh IT kiosks
through public private partnership. These kiosks to be
called as common service centre (CSC) provide various
services with the help of a personal computer and the
internet connectivity. Intel has entered into a
memorandum of understanding with the Infrastructure
Leasing and Financial Services (IL&FS), under which the
ILFS will provide technical know-how. Intel will also offer
advisory services for wireless implementation towards a
rural broadband programme. Intel, as a pilot project, has
already set up such centers in Karnataka, West Bengal and
Bihar. The CSCs are set up by individual entrepreneurs, to
be financed by financial institutions such as ICICI Bank,
while companies like HCL Technologies, HCL Infosystems
and Wipro Infotech shall make hardware supplies in public
private partnership mode.
As a case-in-point till 2006, Nagaland was facing a huge
problem of teacher absenteeism. Government of Nagaland
found a solution to this problem by introducing system of
'public scrutiny and management', under which the control
and management of government schools were handed
over to the people, through their village education
committees (VECs). Under this scheme of public private
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partnership, all 1500 primary schools in the state were
under the purview of public management, which resulted
in marked improvement in both teacher and student
attendance (Singh, 2006).
This public private partnership model through 'public
scrutiny and management' was not only used in education
but also in other sectors such as electric power supply,
water supply and rural tourism. This PPP model has
worked scheme of public management has worked well for
streamlining electricity revenue collection. The project is
managed by village electricity management boards
(VEMBs) set up under VCs. This was in aftermath of the
single-point metering (SPM) installed under Rajiv Gandhi
Grameen Vidyutkaran Yojna (RGGVY). Following SPM,
electricity revenue collection in Nagaland increased from
Rs.2, 41,302 annually to Rs. 4,48,534 annually with the
Kohima division registering the highest growth of 122 per
cent (Singh, 2006)..
VEMBs receive retail margins of 20 per cent for every unit
sold and employ personnel through the rebate they
receive. Several VCs are even engaged in generating
electricity and own and operate a micro-hydro power plant
at Chizami village and a Biomass Gasifier Project at
Pfutseromi village. The state government has sought
Planning Commission's approval to provide financial
grants to the private local bodies to allow them to function
as financial intermediaries to give cheap credit to local
farmers and artisans under public private partnership. The
VDBs already have substantial corpus, which requires to
be supplemented by grants from the government.
According to the state government, given the closely-knit
society and sound village administration, the VDBs/VCs
are in an advantageous position to ensure timely recovery
of such loans. This PPP cooperation backed by careful
monitoring and support of local people protects farmers
and artisans from the problems they otherwise face from
unscrupulous village money lenders, who charge
exhorbitant rates of interest prejudicial to the interests of
farmers and artisans (Singh, 2006).
NGOs and Social Infrastructure
Several leading NGOs such as CRY (Child Rights and You),
'Pratichi Trust' and Pratham and corporates such as Azim
Premji Foundation (APF) of Wipro Technologies are
providing helping hand to the government in its
mammoth task of providing elementary education to
country's large children population and improving literacy
levels of adults. With an annual disbursement of over Rs. 13
crore, CRY maintains five regional offices countrywide and
employs over 170 full time employees. Prof. Amartya Sen
for giving boost to social infrastructure including
elementary education and healthcare in South Asia, Prof.
Amartya Sen, India's Nobel Laureate in Economics, set up
'Pratichi Trust' in 1999, with some of his Nobel Prize
money, an NGO which is very active in India and
Bangladesh.
The Pratichi Trust works as driver of change to ensure that
social infrastructure operates with quality. In India, the
Trust has been so far more active in West Bengal and
Jharkhand. In 2001, Pratichi (India) Trust conducted surveys
on primary education, healthcare service and role of trade
unions in select areas, by holding discussions with all
stakeholders including parents, teachers, government officials
and society at large. In 2004, worked to improve the plight of
some 1200 schools and 250 Shishu Shiksha Kendras attended
by the poorest of the children whose parents include sex
workers, beggars and domestic help. In 2005, Pratichi Trust
with a local NGO, 'Ayo Aidari Trust' near Shantiniketan, to run
a healthcare centre at Kundaphari village near Dumka and has
managed to revive the once abandoned immunization
programme in the area (Majumdar, 2006).

In 2005, Pratichi tried to evaluate the effectiveness of 'mid-
day meal scheme' and its recommendations following
evaluation were later forwarded to the HRD Ministry. GOI
forwarded its recommendations to the Planning
Commission and all the district collectors. This was
followed by a meeting between select parents and teachers
at the state education department headquarters in Kolkata.
Following its recommendations, the West Bengal
Government, launched a massive advertisement scheme,
set up helplines through newspapers and incorporated
mothers' committee to involve parents. In 2006, it
conducted a survey of private schools in Birbhum, findings
of which were presented in a public meeting held at
Shantniketan, which was also attended by Prof. Amartya
Sen (Majumdar, 2006).
Pratham is another leading child welfare NGO in India
which has annual budget of over 36 crore, was launched in
1994 with a mission to ensure that every child is in school
and learning well. Pratham has played a major role in the
conceptualization of the Sarva Shiksha Abhiyan
(Education for All). It works on a tripartite partnership
between state governments, corporates and grass root
voluntary organizations.
During 12 years of its existence till 2006, it was operational
in eighteen states, it has made 5 lakh children literate
though application of its intensive 21 day reading and basic
mathematics programme. Based on survey of 485 districts,
vide its Annual Status of Education Report (ASER)-2005, it
reported that almost half of the students in class VII are
unable to exhibit the learning and comprehension levels
they should have achieved in class II. Apart from Pratham
and CRY, there are several other NGOs which are working
towards child welfare. Delhi-based NGO Pravah sensitizes
students and teachers on issues like communal harmony
and sexual harassment. A Delhi-based iDiscovery Centre
for Education and Research works on education-based
projects like innovative teaching, outdoor education and
leadership development for corporates. Prayas works for
protection of children and employment generation for the
marginalized.
Habitat-building and housing-repair create opportunities
to earn money and other micro-enterprise opportunities
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for the poor. Slum upgrade programme of the SEWA (Self
Employed Women's Association) in Gujarat found that 35
per cent of the households who availed the loan facility also
increased their weekly earnings by 35 per cent, due in part
to the benefits of loans for home improvement, electricity,
sanitation and piped water supply (Selvarajan, 2006).
Corporate Social Responsibility and Social Infrastructure
Corporates in the first instance should provide welfare
facilities for its employees such as education and health
care facilities including crèche facilities for working
women at its works. Corporates and NGOs under CSR
obligations can offer technological back-up support for
design of low cost housing, village drainage system,
sanitation, solid waste management, drinking water
supply, warehousing for grain and seed storage, crop
drying, decentralized energy systems, street lighting, etc.
depending on the type of expertise available with them,
which they may share under CSR obligations.
Contribution of private sector in GOI's flagship
programme 'Sarva Shiksha Abhiyan' under public private
partnership is showing impressive results. Several IT
companies including Wipro through APF, IBM, Microsoft,
NIIT, Hewlett Packard, and Aptech have made noted
contribution through computer-aided learning in
alternative and innovative education component of SSA.
The APF has emerged as a clear leader with its presence in
12 states. Madhya Pradesh, Karnataka, Maharashtra,
Tamil Nadu, West Bengal, Jharkhand and Haryana have
received maximum corporate support (Mukul, 2006).
Contribution of private sector has gone up from Rs. 40.36
crores in 2005-06 to Rs. 53.43 crore in 2006-07 benefiting
27,289 schools and 52.83 lakh children in IT-enabled
learning under their CSR initiatives. Microsoft invested Rs.
9.89 crore in 2006-07 as against Rs. 7.64 crore in 2005-06.
During 2005-06 and
2006-07 combine, APF spent Rs. 8.06 crore in Karanataka.
During 2006-07 APF spent Rs. crore 4.35 crore in Tamil
Nadu. Everonn Systems India Ltd. spent Rs. 6.15 crore in
2006-07 on computer-aided learning in Jharkhand (Mukul,
2006). Bill Gates, world's greatest IT wizard owning over
$50 million who evolved an extraordinary software and
gave new meaning to the word 'windows', has donated
more than half of his personal wealth to the 'Bill and
Melinda Gates Foundation', making it world's largest
philanthropic organization devoted to health and
education issues, especially in developing nations.
In June 2006, Warren Buffett, donated 85 per cent of his
personal net worth ($30 billion), largest philanthropic gift
in history, to the Bill and Melinda Gates Foundation.
When donating 85 per cent of his personal wealth to the
Melinda Gates Foundation, Warren Buffett observed that
he was applying the same principle to charity as he did to
business by 'entrusting money to where it would be put to
best use, with optimum efficiency.' (Nangia, 2006).
Warren Buffett's extraordinary deed has the potential to
spur a few more among the super rich to address the plight
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of the sick and uneducated. The ultra-rich may derive
inspiration from the Warren Buffett's famous quote, 'A rich
person leaves his kids enough to do something, but not
enough to do nothing.' Warren Buffett's lead in this
direction is indeed an act worth emulating by ultra-rich
anywhere in the globe (Bhat, 2007). Bill Gates is on record
having said that his three children will only get a small
portion of his personal wealth.
It is very gratifying that world's richest man Bill Gates, has
chosen to pursue philanthropy as the road ahead for his
rest of life. There are very few examples of likes of Bill Gates
and Warren Buffett donating their huge portions of
personal net worth for the cause of social welfare far
removed from their chosen fields of expertise (Bhat, 2007).
7. Concluding Remarks
India's capability wealth has made significant strides that
enabled country launch satellite into outer space, make
noted contributions in computer science and software
development, but it could not achieve matching success in
elementary education and primary healthcare. It is thus
appropriate only that RBI has asked states to spend more
on education, public health and family welfare (The
Economic Times, January 5, 2007). According to the recent
RBI guidelines, states need to accord much greater
allocation on social infrastructure than it made so far. Mr.
Sam Pitroda, Chairman, Knowledge Commission, has
recently come out with host of suggestions, to tap country's
knowledge base for country's all-round development.
Suggestions are wide-ranging starting from massive
expansion in higher education with 1500 new universities,
a national knowledge network with gigabit capabilities to
connect all university libraries, laboratories, hospitals and
agricultural institutions; independent regulatory authority
for higher education, 1.5 per cent of GDP allocation for
higher education, commercial utilization of the
universities' land for raising funds (Pitroda, 2007). Given
the substantial risks involved, private sector may not
be too enthusiastic about teaming with the bureaucracy to
provide and manage infrastructure facilities (Kabra, 2006).
In view of low economic returns, corporates may not be
interested in public private partnership projects in several
areas such rural connectivity, rural energy, rural
healthcare, rural housing, etc. but may evince more interest
in strategic CSR initiatives such as contract farming,
contract research or contract manufacturing. Education
and healthcare and other social infrastructure
development should thus be accorded much greater
priority by the government than made so far with support
of all including PRIs (Panchayati Raj Institutions), NGOs
and corporates. Contributions made by NGOs such as CRY
and Pratham and corporate entities like Azim Premji
Foundation in improving elementary education in the
country in supplementing government efforts on a large
scale are worth emulating by others. For success of PPP
models it is necessary that public capital (coming as it does,
tied-in with government control) and private capital (tied-
up with private sector efficiencies and incentives) have to
be utilized in most effective manner with minimum of red-
tapism or adhocism (Chatterjee, 2006). For best operating
results and resolving day-to-day conflicts, regulatory
authority such as AICTE (All India Council of Technical
Education) for technical and management education
projects, MCI (Medical Council of India) for healthcare
projects or TRAI (Telecom Regulatory Authority of India)
for telecom projects play very useful role. PPPs need
facilitative environment of independent regulatory
authorities that help resolve conflicts among stakeholders.
www.circ.in
Impact of Public Private Partnership
in infrastructure on growth in India
Dr. P. Ambigadevi
Professor of Economics,
Avinashilingam Institute for Home Science
and Higher Education for Women
Dr. S. Gandhimathi
Assistant Professor of Economics (SG)
Avinashilingam Institute for Home Science
and Higher Education for Women
ABSTRACT
Impact of Public Private Partnership in Infrastructure on
Growth in India
Infrastructure is an important component in the
development of an economy. How a positive relationship
exists between economic growth and infrastructure
development is brought out in various studies (World
Bank, 2009). Prior to 1991, it was the prerogative of the
government to invest in infrastructure as it demands huge
investment. But after the economic reforms of 1991, the
government changed its policy decision of the lone
provider of huge investment in infrastructure as it could
not meet the financial requirements of infrastructure with
the growing population and globalization. But care has to
be exercised in taking a decision on investing in
infrastructure avoiding the erroneous decisions taken by
Latin American and East Asian countries in the 1990s when
they faced financial crises.
Reducing investment in infrastructure turned out to be a
short-sighted fiscal solution, making it all the more difficult
for these countries to get out of recession. The XI plan
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document estimated that India has to double its
infrastructure spending. Hence it is imperative for the
government to change its stand and initiate the public
private partnership in infrastructure investment for
achieving higher growth rates. The current study is an
attempt to find out how public private partnership in
projects related to infrastructure leads to growth in GDP.
The findings of the study showed that increase in the
number of projects in infrastructure under public private
partnership would enhance the growth process...
Introduction
Infrastructure development is an indicator of the
development of an economy. Prior to 1991, investing in
infrastructure was primarily carried out by the
government, owing to its huge size. But with growing
population the government found it difficult to meet the
financial requirement of infrastructure and it started
inviting public private partnership in various fields. One
such area is in infrastructure. By sustaining its commitment
to infrastructure investment, India should also see that it
does not commit the mistakes made by many Latin
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American and East Asian countries in the 1990s when they
faced financial crises. In Latin America, one-half of the fiscal
adjustments in the 1990s came through cuts in public
infrastructure spending. A similar investment shortfall during
the Asian crisis led to similar decisions. For instance,
Indonesia's total public investment in infrastructure
dropped from about 7 percent of GDP in 1995-99 to 2
percent in 2000, and private investment fell from 2.5
percent of GDP to 0.09 percent during the same period.
Reducing investment in infrastructure turned out to be a

(Table-I)
Public Private Partnership In Infrastructure In India (2009-2010)

States Number of projects Percentage of projects Value of the projects(Rs) Percentage

Andhra Pradesh 96 12.66 66,918.30 17.46

Assam 4 0.53 391.2 0.10

Bihar 6 0.79 2,093.80 0.55

Chandigarh 2 0.26 75 0.02

Chhattisgarh 4 0.53 838 0.22

Delhi 13 1.72 11,316.60 2.95

Goa 2 0.26 250 0.07

Gujarat 63 8.31 39,637.20 10.34

Haryana 10 1.32 11,163.10 2.91

Jammu and Kashmir 3 0.40 6,319.80 1.65

Jharkhand 9 1.19 1,704.10 0.44

Karnataka 104 13.72 44,658.90 11.65

Kerala 32 4.22 22,281.50 5.81

Madhya Pradesh 86 11.35 14,983.40 3.91

Maharashtra 78 10.29 45,592.00 11.89

Meghalaya 2 0.26 762.1 0.20

Orissa 27 3.56 13,349.70 3.48

Puducherry 2 0.26 3,366.80 0.88

Punjab 29 3.83 3,562.50 0.93

Rajasthan 59 7.78 15,027.30 3.92

Sikkim 24 3.17 17,110.60 4.46

Tamil Nadu 43 5.67 18,628.60 4.86

Uttar Pradesh 14 1.85 26,595.80 6.94

Uttarakhand 2 0.26 521 0.14

West Bengal 30 3.96 6,617.10 1.73

Interstate 14 1.85 9,567.80 2.50

Total 758 100 383,332.1 100

Source : Department of Economic Affairs, Ministry of Finance, Government of India, 2010

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short-sighted fiscal solution, Making it all the more
difficult for these countries to get out of recession. By
contrast, China demonstrated 10 years ago that wisely
chosen infrastructure projects can create jobs while
building a foundation for productivity, growth,
employment generation, and poverty reduction. India
faces extraordinary challenges in achieving its medium-
term infrastructure investment programme, anchored in
the Government of India's XI Five-Year Plan (2007-12). The
plan has estimated that US$492 billion is needed over the
next five years in improving roads, railways, ports, power,
And water. (Over the X Plan period, infrastructure
spending was about US$200 billion). This would require
almost doubling infrastructure spending from its current 5
percent of GDP (XI plan document).In this backdrop, an
attempt was made to analyse the impact of public private
partnership on economic growth in India with the
following specific objectives
Objectives
1. To study the state wise distribution of projects in
infrastructure under public private partnership.
2. To assess the impact of public private partnership in
infrastructure on growth.
Methodology
Secondary data for the study were collected from
Economic Survey, 2009-2010 and Ministry of Finance, 2010.
To measure the impact of public private partnership in
infrastructure on growth, logit regression analysis was
employed for state wise data for the period 2009-2010. The
states were classified as states with presence of growth and
absence of growth based on state domestic product. The
states with net state domestic product (at constant prices)
above national net state domestic average were assumed
as states with presence of growth and the states with their
net state domestic product below national average were
treated as states absence of growth. The number of projects
under public private partnership and the value of the
projects under public private partnership were assumed to
determine the growth of the states. Hence these factors
were taken in the logit regression analysis. The logit
(Table-II)
Impact of Public Private Partnership in Infrastructure on Growth
In India - Logit Regression Analysis
Variables Logit Coefficients t value
Constant 2.1528
Number of projects under PPP 0.1486
Project value up to Rs 100 cr. -0.0081
Project value between Rs 100 cr. to 250 cr. 0.0223
Project value between Rs 251cr. to 500 cr. 0.0071
Project value above Rs 500 cr. 0.0009
Source: Estimated from the data, Department of Economic Affairs, Ministry of Finance, Government of India, 2010
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regression analysis was identified as more suitable than
the regression analysis which would be biased in the
present analysis. The following table-1 shows the results of
logit regression analysis. The equation used in the logit
regression analysis is
G*= z+e
where G = probability of a state with presence or absence of
growth.
Y = parameter co-efficient
Z = Number of projects in infrastructure under public
private partnership(Number), value of projects under
public private partnership up to Rs100 crore (projects
between Rs101- 250 crore , projects between Rs 251- 500
crore and projects More than Rs 500 crore . In the process of
analysis, the variable, projects more than Rs 500 crore was
excluded. The remaining variables are retained in the
analysis.
Results and Discussion
The development of PPPs in infrastructure started eleven
years back. Most of the projects were completed in the last 5
to 7 years. Policies in favour of attracting private
participation as well as innovation with different
structures had met with varying degrees of success. Some
sectors like telecommunications, power, and ports and
roads had very good progress compared to limited
success in other sectors. (Ministry of Finance, Government
of India, 2010).The development of states depends on
infrastructure. Hence an attempt was made to analyse the
distribution of projects under public private partnership.
The table -1 shows the distribution and percentage of
projects under public private partnership across states in
India in 2010.
The number of PPPs was higher in number in the states
of Karnataka, Andhra Pradesh, and Madhya Pradesh, with
104, 96 and 86 awarded projects respectively. The
percentage of projects distributed in these states was 13.72,
12.66 and 11.35 respectively. The highest value of the
projects was observed in the state of Andhra Pradesh
followed by Maharashtra and Karnataka.
Significance level
1.856 Significant at 10% level
1.978 Significant at 5% level
-0.985 In Significant
1.885 Significant at 10% level
0.154 In Significant
1.262 In Significant

To identify the impact of public private partnership in
infrastructure on growth, logit regression analysis was
employed for state wise data for the period 2009-2010. The
states were classified as states with presence of growth and
absence of growth based on net state domestic product.
The number of projects under public private partnership
and the value of the projects under public private
partnership were assumed to determine the growth of the
states. Hence these factors were taken in to logit regression
analysis. The table-2 shows the results of logit regression
analysis. The result shows that the estimated logit model
was statistically significant at 1% level. It could be
identified from the significant chi-square value (10.7621).
It implies that the selected variables together were
statistically significant to explain the model. Among the
selected factors, the number of projects under public
private partnership was statistically significant to
determine the growth of states. It had positive relationship
with growth. It implies that the increase in the number of
projects under public private partnership in infrastructure
could contribute to growth of states. The project value
between Rs. 100 crore and 250 crore was statistically
significant at 10% level. If the projects between Rs. 100 crore
and 250 crore had increased, the growth of the states could
be improved. Other factors turned out to be statistically
insignificant and could not contribute to growth of states.
Conclusion
Higher percentage in the number of projects under PPP
was observed in the states of Karnataka, Andhra Pradesh,
and Madhya Pradesh. The highest value of the projects was
observed in the state of Andhra Pradesh followed by
Maharashtra and Karnataka. The increase in the number of
projects in infrastructure under public private partnership
could bring growth in the states. If the projects between
Rs. 100 crore and Rs. 250 crore had increased, the growth of
the states could be improved.
www.circ.in
References
1. Government of India, (2010), Public Private
Partnership, India Data Base, Department of Economic
Affairs, Ministry of Finance, Government of India,
New Delhi.
2. Economic survey, 2010-2011, (2011), Government of
India Publication, New Delhi.
3. World Bank, (2006). India-Building Capacities for
Public-Private Partnerships, Washington, D.C.: World
Bank.
4. Government of India, Ministry of Finance,
Department of Economic Affairs, Web site of the
Committee on Infrastructure: www.infrastructure.gov.in
5. Government of India, Right to Information (RTI) Act
(2005), www.rti.nov.in
6. Government of India, Ministry of Finance,
Department of Economic Affairs, “Guidelines on the
Formulation, Appraisal and Approval of PPP
Projects” (2006), www.infrastructure.nov.in.
7. Government of India, Ministry of Finance,
Department of Economic Affairs, Scheme for
“Financial Support to Public-Private Partnerships in
Infrastructure” (2006), www.infrastructure.gov.in.
8. Government of India, Ministry of Heavy Industries
and Public Enterprises, Department of Public
Enterprises, “Guidelines on Corporate Governance for
Central Public Sector Enterprises” (2007),
http://dpe.nic,in/newsite/ncncpse.pdf
9. Infrastructure Public-Private Partnership (PPP)
Financing in India, Draft (2007)-Report by Price
Waterhouse Coopers for the World Bank
10. World Bank, (2002). “Improving India's Investment
Climate”, Washington, DC: World Bank.
11. The world Bank (2009), Report on financing public-
private partnerships in infrastructure through support
to the India infrastructure finance company limited.
Report No: 42132, Washington, DC: World Bank.
Page 046
www.circ.in
Public Private Partnerships:
Present Experience, Challenges And The Way Forward
Piyush Tiwari,
Associate Professor in Property,
Faculty of Architecture Building and Planning, University of Melbourne
Ranesh Nair,
IDFC, Policy Group
Large infrastructure requirement
India's burgeoning demand for infrastructure, the need to
catch-up on its infrastructure deficit at breakneck speed
and the limited capacity at government levels to deliver
complex projects have made Public-Private Partnerships
(PPPs) an interesting proposition for delivering India's
infrastructure needs.
The Planning Commission of India has projected the share
of infrastructure requirements to be about 9 per cent of
GDP by 201112, up from 5.75 per cent of GDP in 2007-08.
Infrastructure investment is projected to be US$ 1 trillion
for the period 2012-17, twice the figures from the current
Plan period. While still preliminary, some estimates
indicate that of the total investment in infrastructure over
the last 5 years, private sector contribution has been in the
range of 35-40 per cent. This is expected to reach US$ 500
billion (50 per cent of total) in the coming 5 years.
Growing role of private sector in infrastructure through PPPs
Still in its early years of evolution as a procurement model,
a range of public private partnership (PPP) models across a
Page 047
number of sectors have been experimented with over the
last decade. The pattern and extent of private sector
contribution have, however, varied across the sectors. The
exhibit highlights the contribution of the private sector in
different sectors.
India's road sector has been at the forefront of PPP activity
in the country. Since 2005, 86 per cent of the total national
highways development has been procured through PPPs
under the National Highway Development Programme.
Private intervention has been in the form of Build Operate
Transfer (BOT) contracts on a toll basis (with government
providing Viability Gap Funding for commercially
unviable projects), BOT contracts on an annuity basis (with
the government retaining the revenue risk), and special-
purpose vehicles (with limited equity or debt support from
the government). At the state level, close to 100 road
projects with capital costs totaling about US$1.4bn have
been implemented through PPPs, a further 155 road
infrastructure projects are either under implementation or
in the pipeline with required total capital investment of
about US$2.2bn. Air ports have seen an array of PPP
 www.circ.in

Exhibit 1: Projected Private Sector Investment in Infrastructure in India (2007-2012)

Total Investment Private sector investment as a % of total investment (RHS)

180 80
160 70
140 60
120
50
100
40
80
30
60
40 20

20 10
0 0

..
n

e
s

ns

ts

as
ity

d.
ge

ay

rt

ag
io

or

G
an
io

Po
ic

at
rid

ilw

or
irp
at
tr

rig

ly

St
ic
ec

Ra

A
dB

pp
un

Ir
El

an

Su
m
m
ad

er
co

at
Ro

le

W
Te

Source: Planning Commission, 2010

Models deployed ranging from up-gradation of existing
airports (examples Delhi and Mumbai) to Greenfield
airports development (examples Hyderabad, Bangalore,
Kochi). Delhi and Mumbai airports have been upgraded on
a Lease Develop Operate Transfer (LDOT) model,
Hyderabad and Bangalore greenfield airports on Build
Own Operate Transfer (BOOT), while Kochi airport was
procured on Build Own Operate (BOO) model. Multiple
revenue streams such as aeronautical services, aero related
services, revenues from terminal related commercial
activities such as advertising and shops; and other
commercial activities such as real estate development have
attracted private players to this sector.
PPP in the major sea ports, which are controlled by the
central government have been through leasing out existing
port assets and creation of additional assets such as
container terminals, jetties and berths on BOT toll,
examples include container berths at the Chennai, Kochi
and Kandla ports and bulk cargo berths at Haldia, Ennore,
and New Mangalore. At the state level, twenty minor sea
port projects with capital commitments of about US$4.3bn
have been delivered through PPP with a further 37 ports
currently under implementation necessitating capital
investment of US$11.2bn. Railways, which have started
procuring and delivering services through PPP recently,
has witnessed 4 projects with capital investment of over
US$1bn currently under implementation with a further 50
projects necessitating investment of circa US$19.5bn in the
project pipeline. At the state government level, rapid
expansion of PPPs within the power sector is projected. To
date, 7 power projects have been delivered through PPPs,
8 projects currently under implementation and a further 34
in the project pipeline.
But, PPPs in urban and social infrastructure have lagged
behind
While India has witnessed significant private sector
momentum in the major infrastructure sectors, the basic
infrastructure sectors like water and wastewater, urban
transport, rural infrastructure, education and healthcare
have yet to attract the same kind of private sector attention.
With the recent PPP successes in the major infrastructure
sectors and a healthy pipeline of projects, the focus should
also be on urban and social sectors which clearly have the
potential to attract private capital, provided they are
supported by the right administrative and regulatory
frameworks at the states and municipalities levels. Due to
prevalence of low user charges (inadequate even to cover
O&M of urban services) and lack of political will to
rationalize them has led to the belief that the revenue risk in
urban and social sector projects is too high to make them
commercially viable for private sector engagement.
The Jawaharlal Nehru National Urban Renewal Mission
(JNNURM) has seen momentum pick up in the urban
sector, including some activity in the PPP space. About 50
urban projects have been delivered in PPP model in India
since the start of the Mission. PPPs in the urban sector are
comparatively small in terms of capital cost. The average
deal size across the 50 urban PPPs completed to date is
about US$26m, by contrast the average deal size across the
20 sea port projects initiated at state level and delivered
through PPP is about US$214m, whilst the average deal
size within the power sector is about US$278m. The small
deal size has also limited private sector interest in urban
and social sectors.

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www.circ.in

There are a number of constraints for the PPPs

A number of reasons can be attributed to the slow pace of
private sector participation. Even when projects have been
awarded, project implementation has been stifled by the
absence of adequate project development leading to
protracted negotiations and delays. Procurement issues,
with projects based on negotiated contracts and not always
through a competitive bidding process are also observed.
The lack of credible baseline information has meant that
project costing are not accurate, with instances of huge data
errors identified after project commencement, impacting
project costing and leading to post-contract award
negotiations and delays. (Sathyanarayana and
Ramaswamy, 2011)

From a financial perspective, projects are not always

bankable, and this has hampered both private sector from
putting capital and banks lending to projects. Underlying
all this is the lack of security of payment to the private
Though there are some recent activities in urban and
social sectors operator given the weak financial position of government
bodies, especially in the urban sector. With state
Some of the successful PPP projects include the continuous guarantees not always being made available, private sector
water supply projects in the pilot zones of the 3 North has been hesitant to enter given the risks associated with
Karnataka cities of Hubli-Dharwad, Belgaum and timely payments. The lack of government support and
Gulbarga and the recently awarded contract for the full city political will in seeing the projects through is also a major
water distribution in Nagpur. A number of sewage impediment in the successful implementation of PPPs.
treatment plants have come up in the recent past in PPP PPPs that have been backed by strong political leadership,
mode, like in Navi Mumbai. The Municipal Solid Waste supported by the bureaucratic set up and implemented
2000 Act has provided a legal framework for the solid within a clear regulatory environment have shown better
waste management sector and with impetus under results.
JNNURM has seen a number of projects primarily on the
Way forward
collection and transportation part of the solid waste value
The key to success of PPPs in infrastructure creation is the
chain, with remuneration being in the form of tipping fees.
need to establish payment mechanisms that
Examples of SWM projects with PPP participation include
eliminate/lower revenue risk on projects. The success of
those at Delhi and Rajkot. A handful of projects like in
PPP models in the power sector, can in large, be attributed
Mysore and Bangalore have also come up on the treatment
to the power purchase agreements, which are irrevocable,
side. In the water projects, private sector operates the water
between the private producer and public sector. Similar
distribution network receiving revenue from user charges
has been the case with the national highways, annuity
or annuity payments from ULBs, with the downstream
payment agreements with national agency, NHAI. Projects
investments being made by the government. City bus
in urban sector and other sectors like social infrastructure
service projects requiring modest capital investments and
could attract private players, if arrangements that reduce
the ability to charge user fees and other revenue streams
revenue risk for the private sector could be thought
like commercial rents and advertisements, as in the case of
through.
Indore and Surat, have also resulted in PPPs.
The requirements in the urban and social infrastructure
Education and healthcare have also seen some projects
sectors are also large and attention should now be on up-
delivered through interesting PPP models. For example, in
scaling few pockets of success that the sector has seen. The
the case of the 46 aided primary schools of the Municipal
major constraint in the urban sector is the revenue risks
Corporation of Delhi, the private sector is responsible for
attached with the projects, given that most of them rely
design, finance, build and manage activities, with the
mainly on user charges as the major revenue stream and
delivery of education services resting with the public
these are subject to political pressures. In formulating PPP
sectors. In healthcare, the Rajiv Gandhi Super Specialty
arrangements, it might be worthwhile to separate pricing
Hospital in Raichur, Karnataka is an example of PPP where
risks from performance risks, with the onus on
the initial infrastructure (land, building, staff quarters and
performance delivery purely lying with the private
support infrastructure such as power, water and road
operator. Suitable payment guarantee mechanisms as tried
connectivity) is provided by the Government of Karnataka
out in the power and highway sectors are important
with Apollo Hospitals authorized to operate the hospital
instruments to attract private players. This should be
using private resources. In all these models, a combination
supplemented by government schemes and VGFs that can
of capital grant/subsidy and user charges is required. A
make projects bankable. The recommendation of the High
general problem with urban and social sector projects is the
Powered Committee on revenue sharing between state
limited revenue generation potential outside the core
governments and urban local bodies can provide the much
tariffs charged for the services except few projects where
needed predictable, guaranteed transfers which can also
advertising or real estate based revenue streams could be
serve as an important lever to tapping the debt markets for
exploited.
project financing.

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The huge investment needs and the recent successes in the
use of private participation in the delivery of infrastructure
projects provide ample pointers that PPP as a delivery
mechanism is a viable option. However, it is important to
not look at PPPs as purely financing instruments, but more
importantly as collaborative models (like work in progress
experiments that would require fine-tuning) that can
enhance operational efficiencies, deliver on time, adopt
latest technology, and address the capacity constraints in
the implementation of infrastructure projects. Moreover,
PPPs can help governments move towards better
management practices and financial discipline.
Some of the fundamental steps to creating a conductive
environment for PPPs like availability of accurate data and
standardized procurement processes must be carried out
on an urgent basis. Capacity building for PPPs need to be
carried out at all tiers of government as well as for private
players, both towards skill upgradation as well as on the
softer aspects of project management like communications
and community involvement. Delivery of urban
infrastructure and social infrastructure projects would
demand a great understanding of the local environment,
making small scale local players with entrepreneurial flair
ideal candidates to capitalize on opportunities that these
sectors offer, with large/multinational players stepping in
to provide technical expertise.
www.circ.in
Given the shortage that exists in infrastructure sector
investments, government would continue to play the
dominant role in the short term. Private sector could come
along where efficiency gains through their engagements
could be achieved. However, this would require certain
boundary conditions to be met such as good baseline data,
public sector capacity to conceive, structure and administer
PPPs and effective regulation (either through contracts or
through independent regulatory agencies). Also, not all
components of the value chain of infrastructure
development are attractive for PPPs. Those components
that are attractive for the private sector, some of which have
already been demonstrated, should be pursued. The last
decade has laid the groundwork for the use of PPPs in
infrastructure development. Provided visible
improvements in service delivery meeting specified
service standards are observed, equity considerations are
addressed and transparency in project award followed,
PPPs can help fast-track India's infrastructure
development.
References:
Planning Commission (2010), Investment in Infrastructure
during The Eleventh Five Year Plan. The Secretariat for
Infrastructure, Planning Commission, Government of
India: New Delhi.
Sathyanarayana and Ramaswamy, R. (2011), PPPs in the
Drinking Water and Irrigation Sectors: A review of Issues
and Options in India Infrastructure Report 2011, Water:
Policy and Performance for Sustainable Development,
Infrastructure Development Finance Company
(forthcoming).
www.circ.in
Public-private partnerships:
Some issues related to financing
Prabal Roy Chowdhury
Indian Statistical Institute
Introduction
This short note deals with two finance related issues to do
with public-private partnerships (henceforth PPPs). While
the first issue is a more general one regarding whether the
financial aspect of a project should be delegated to the
private partner or not, the second issue is a more specific
one that arises with respect to the SHG-linkage program in
micro-finance.
Delegating financial aspects to the private partner
The first issue is central to the debate on PPPs, as one of the
main reasons that governments opt for PPPs is because
they may be cash-strapped. In this context, it is often
argued that, compared to a private sector entity, the
government can access finance at a cheaper rate, since it is
in a better position to guarantee repayment. Starting from
such a position, it is then sometimes argued that
governments should not delegate financing to the private
partners, as this would lead to higher financing costs,
which would ultimately be passed on to the government,
and hence the public exchequer. A related point is that
PPPs may be a way of hiding government debt. While there
is some merit to both these arguments, our main contention
is that things are much more nuanced, and several caveats
need to be taken into account.
First, suppose it is the case that the government can borrow
at a lower rate of interest. Does this necessarily imply that
the cost to the public exchequer is lower if it is the
Page 051
government that does the borrowing? The answer to this is
not unambiguous because with private borrowing there
may be a significant default possibility, so that the private
borrower may be paying an interest that is ``effectively''
lower than the nominal one (once the default possibility is
factored in). While comparing the rate of interest, it is
therefore not clear if the government rates are necessarily
lower in comparison with the `effective' rate facing the
private sector.
Second, one should recognize that governments, in
particular sub-national ones, can also get into financial
difficulties and consequently face an upward sloping
supply curve of capital. In that case with an increase in
public borrowing, lenders charge a higher rate of interest,
not only for the current project, but also for all other
projects. Thus the effective cost of government borrowing
is much higher, as the additional costs on the other projects
must also be taken into account.
Third, the private rates also need not be too high, as the fact
that a firm has obtained a long term government contract,
will bring down the risk profile of the private partner. This
may allow it to access funding at a rate close to the risk free
one which may be available to the government.
Interestingly, in this case the private partner is leveraging
the government reputation for reliability and deep pocket
to its own advantage.
 www.circ.in

provide these loans. Here the NGOs are not at all involved
in the funding process, with the NGOs generally receiving
an agreed upon amount in case the loan is repaid. Once the
loans are made however, the NGOs may, or may not be
involved in the process (Roy and Roy Chowdhury, 2009,
Roy Chowdhury, 2012).

While the knee-jerk response may be that there is indeed a

case for such involvement, so as to tap into the NGOs'
undoubted expertise regarding the local economy, the
answer is not that straightforward. Interestingly, this is
because the NGOs may be too caring, or motivated. In such
a scenario the NGOs may select recipients not because they
are efficient, but because they are in some sense more
`deserving' (according to the NGOs' own criteria). In case
the NGOs are involved in the post-loan project also, then
the incentives for such distortions are even higher, as the
NGOs feel that in that case they can utilize their own
expertise to compensate for this inefficient selection of
borrowers.
Thus in this case it would appear that NGO involvement
would be desirable in case the area concerned does not
have too much inequality and the average income is not too
low, since the scope for such distortions would be less in
that case. Otherwise, there may be a case for curtailing
NGO involvement.

4. References

Roy, Jaideep and Roy Chowdhury, Prabal, 2009. "Public-

private partnerships in micro-finance: Should NGO
involvement be restricted?," Journal of Development
The final point is that shifting the financial aspect to the Economics, Elsevier, vol. 90(2), pages 200-208, November.
private sector partner has useful incentive properties, as
this will incentivise the private partner to finish the project Roy Chowdhury, Prabal, 2012. ``Microfinance: The SHG-
on time. This is of importance because typically it is the linkage Program.'' The Oxford Handbook of the Indian
private partner who has the greatest ability to prevent time Economy, pp. 149-162. Ed. Chetan Ghate. OUP, New York.
overruns.
To summarize, while it must be acknowledged that in some
cases delegating the financial aspect to the private partner
is just a way to cover up the extent of public debt, there may
be strong reasons why such delegation may make
economic sense, at least in some cases.
3. SHG-linkage program
We then examine a reverse scenario, where the
government uses private agencies, in particular NGOs, to
channelize credit to the rural poor. The most well known
example of such a mechanism is the SHG-linkage program
in India whereby funds from, for example, NABARD, are
channelized to the rural poor using NGOs as
intermediaries. In this case the issue is what is the best
possible mechanism for delivering this credit, in particular
should the NGOs be involved in all the stages of this
process, or not.
Typically, the NGOs play a role in selecting the borrowers,
who are then linked to some banks who provide them with
loans. This follows an initial waiting period, typically
around 6 months, when the potential borrowers make
regular savings, and the NGOs try to inculcate the
borrowers with financial discipline. The banks in turn may
receive incentives from the government in case they

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www.circ.in
Quality Infrastructure
Good Regulatory Framework, the Key
Pradeep S. Mehta
Secretary General, CUTS International
“During the last decade, the government has made a paradigm shift in its policies and
governance structure in some of the infrastructure sectors. Specialised regulatory
agencies have been established in telecom, electricity and oil and gas sectors”
To achieve a massive investment of around US$500bn over
the next five years or more for the creation of quality
infrastructure, we need money from home or abroad. And
to get this money, we need a quality infrastructural
regulatory framework, to ensure a predictable legal
environment and a level-playing field. Alas, we are moving
slow on this without understanding its costs. This is
despite the Planning Commission's exercise in developing
a policy paper to deliver the best regulatory framework.
Regulatory environment plays a vital role in
facilitating investment and operational efficiencies. The
importance of having regulatory institutions in place is
reflected from the statement of the President of India, while
addressing the Parliament on June 07, 2005, “Competition,
both domestic and external, will be deepened across the
industry with professionally run regulatory institutions in
place to ensure that competition is free and fair”.
During the last decade, the government has made a
paradigm shift in its policies and governance structure in
some of the infrastructure sectors. Specialised regulatory
agencies have been established in telecom, electricity and
oil and gas sectors.
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The regulatory agencies are mandated to enable
private investment and ensure development of the sector.
However, the outcomes so far do not match with the
expectations. Though in the telecom sector reasonable
success has been achieved, the situation could have been
far better. Private telecom companies are struggling with
several policies and regulations that are biased in favour of
the state-owned incumbent service providers.
The reasons of regulatory inefficacy in India are
manifold, as given below.
Interface with the government/line ministry
It is desirable to maintain an arm's length distance between
the regulators and the concerned line ministry to ensure
that the latter does not influence the former, unduly. At the
same time, it needs to be appreciated that the line ministry
is responsible for the overall development of the sector and
the regulator is instrumental in achieving the said
objective.
A mechanism needs to be developed to make the
regulators directly accountable to the legislature and the
same can be achieved by requiring the regulator to submit
activity and outcome reports to a designated legislative

committee, and also appear before
it to explain its actions. It would
also be desirable to have
appropriate processes in place to
facilitate consultations between
the line ministry and the
regulators, so that possible
compromise on regulatory
autonomy is avoided.
However, submission of
activity and outcome reports to the
legislature is not sufficient to
ensure accountability in real terms.
In practice, the legislature hardly
devotes the time and attention
required for analysing such reports. Addressing this
would require having systemic arrangement in place to
strike a desirable balance.
To that effect, mandating consumer organisations as
watchdogs may help to a large extent. This would require a
clear provision in the related legislation of such role to be
given to consumer groups. Further, as another measure to
enhance accountability, provisions could be made to carry
out Regulatory Impact Assessment (RIA) on a periodic
basis.
One way to achieve regulatory autonomy is the
introduction of an Memorandum of Understanding (MoU)
to be signed between the regulator and the line ministry.
The regulator is responsible for performing certain
functions and is accountable to the ministry as per the
terms of the MoU. Consultation between the regulator and
the line ministry is another good model. For example, the
Reserve Bank of India (RBI) holds regular consultations
with the Ministry of Finance, at formal and informal levels,
without compromising its autonomy. Thus, the RBI-
Ministry of Finance model could be replicated in sectors,
where it is feasible.
In addition to the above, the government has the
power to issue policy directives without prior consultation
with the regulators. Given the fact that the regulatory
agencies are instrumental in achieving the said policy
directives, the line ministry should defend and back the
regulators' decisions on the said policy directives before
the legislature, as and when required.
Financial autonomy
The regulator's dependence on the line ministry for getting
its budget approved is not desirable, because the provision
might limit the regulatory autonomy, indirectly. Presently,
no common practice is being followed across the sectors. The
Insurance Regulatory and Development Authority (IRDA)
and the Securities and Exchange Board of India (SEBI) have
been allowed to raise resources on their own, while other
regulatory agencies have not been allowed.
Across sectors, regulators should be allowed to present
their budget proposals to the Parliament to get direct grants
from the Consolidated Fund of India. For example, in Brazil,
the regulatory agencies propose their budget and seek the
approval of the legislature.
The regulatory agencies could also be allowed to
generate resources on their own through fee, cess, etc.,
wherever possible and be allowed to spend the same as well.
For example, the water regulator in Philippines is allowed to
raise resources by imposing levy/cess on the services.
www.circ.in
Selection process
At a recent research symposium to take a look at the political
economy of regulatory regimes organised by CUTS
International in New Delhi, in March 2007, Dr Bimal Jalan,
former Governor, RBI, said, “There is an important
distinction between regulation and control, but the former
should not degenerate into the latter”. The statement shows
his concern about the Indian regulatory bodies, which are
required to be 'professionally run', though they are being
manned by generalist retired bureaucrats.
In developing the quality of regulation, the quality of
people manning such bodies is very important. Thus, the
procedures related to the selection, appointment and
removal of regulators is crucial. The line ministry is
responsible for appointing the chairperson/ members of
the regulatory bodies.
The legislation provides for the appointment of
serving/retired bureaucrats and judges as regulators.
Attracting young blood and talent is the key to making
these institutions work in an effective manner. However,
the same cannot be achieved until the selection process is
made transparent and attractive compensation is offered.
In fact, regulatory laws in India do not provide for the
so-called 'independent regulator' to decide on the nature
and strength of its own staff and the compensation.
Consequently, talent and competent personnel prefer
joining the private sector, rather than the regulatory
authority, which reflects the latter's sub-optimal
performance and erodes credibility.
Fair and competitive appointment is one of the
concerns, and provisions related to ousting a regulator are
equally important. Expecting outstanding performance
from regulators would be too much in case their survival is
subject to the whims and fancies of the line ministry. For
instance, no investigation needs to be undertaken to oust a
member of the Telecom Regulatory Authority of India
(TRAI) if the executive sitting in the Sanchar Bhavan
perceives him to be working against 'public interest'.
Conclusion
There is lot to be done in order to have an effective
regulatory system in our country. The current regulatory
approaches need to be renovated and reinvented from time
to time to address new challenges. We have put forth few
suggestions, which could be further debated among the
policy makers, regulators and consumers in order to
develop a roadmap for effective implementation of
regulation system in place.
______________________________
This article first appeared in The Hindu Business Line, September 10, 2007
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Revenue Sharing Models
in a "Public Private Partnership" (PPP) Context
Pradeep Valsangkar
(MD & Chief Consultant), GCS Consulting Services Pvt. Ltd.
Introduction
Since the availability of funds with state governments to
implement e-governance initiatives is limited,
governments are looking for PPP models to implement
these projects. PPP initiatives not only save the costs for the
government but also inject the much needed private sector
efficiency in the government sector domain. While there is
a need to create PPP deals , these need to be structured to
ensure a win - win for all the stake holders. Some times it is
also ambiguous whether the proposed PPP contract is,
indeed in the PPP domain or not. For example, in one such
project, the vendor gets paid on a yearly plan linked to
certain productivity.
While the payments might have been staggered, the
model doesn't construe a PPP structure. So, how do we
exactly define Public Private Partnership?
While a number of definitions have been proposed for the
PPP projects; The one that equally apportions the risk and
reward to the government and the private vendor is
considered the most appropriate. It is important for the
governments and the private vendor in a PPP contract to
share the risk and the return on the project. The
governments should be ready to dilute their overall
control over the project and should be ready to share the
expected revenue with the private partner.
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The private partner, on the other hand, should invest in to
the project in anticipation of the expected revenue. E'Seva
kiosks for delivery of government services, toll payment
based construction projects in the roads sector are good
examples of well structured PPP projects. Projects where
future revenues can be predicted fairly reasonably are
likely to attract private partnership. If historical revenue
data in respect of such initiatives is available then it may be
in the interest of the project to share such data with the
prospective vendors To encourage them to participate in
PPP ventures with the governments.
A Public Private Partnership construes sharing of a
number of entities. These include the capital, working
capital, revenue, risk, responsibility, assets and authority.
However this paper essentially deals with models that
provide a basis for sharing of capital investment and
revenue. Revenue sharing models have to be based upon
the risk / return relationship principles of finance. Risks
can be measured in terms of financial, business, social and
administrative risks. Returns have to be in proportion of
the risk faced by the PPP partner.
This paper suggests a number of revenue share models in
running the PPP projects between the state government
and the private enterprise. The revenue share model looks
 www.circ.in

at the vendor, state government and the business as three 1.2.2 Model 1b (Variable Payoff variant)
different entities. The flow of capital, Fixed and variable
Run Business
costs for running the business and revenue sharing
through fixed and variable payoffs constitute the business State Govt. Vendor (SPV) Business
models. Accordingly different business models are being Part of Variable Pay off Revenue
postulated. Some of these are as shown below. The vendor
is presented with one of these models to decide upon the
Administrative Control Capital Investments
values of capital, fixed and variable costs and revenue
sharing through fixed and variable pay offs.
1 .3 Model - 2
In this model the capital investment is done by the
1.2 Model - I
This model basically relies on the private partner's ability government and the business is run by the private partner.
to fund the project and run it independently of the public This model is specially useful where the government
sector partner's intervention. The public enterprise wishes to utilize the efficiency of the private sector in
authority is vested with the private partner for a limited running important citizen services. However the capital
period of time. An effective Monitoring and evaluation costs are high enough for private enterprises to be in a
framework is needed for implementing such a model. position to invest in to the project. The governments ability
Invariably the business is run under strong business to invest high capital and the private vendors ability to run
related service level agreements. These SLA are monitored the business efficiently is combined to provide a best of
by the government through an effective M&E framework. breed solution.
This model is particularly suitable where the capital
This revenue model is as shown below:
investment is low and many private vendors can be
attracted to invest in to the venture. E-Sewa kiosks run
using this model. The model is pictorially depicted below. Fixed Pay off Run Business

State Govt. Vendor (SPV) Business

Fixed Pay off Run Business
Variable Pay off
State Govt. Vendor (SPV) Business
Revenue
Part of Variable pay off Revenue
Capital Investments

Administrative Control Capital Investments

Projects like e-procurement may be quickly implemented
and made operational using this model.
Risk Perception: While the vendor shares the entire
financial risk of the venture, the government shares the risk
of loss of administrative control leading to citizen
dissatisfaction. However, given the current low
satisfaction levels with government services amongst the
citizens , it is expected that this model will lead to
improvement in these levels rather than deterioration of
service levels. Accordingly it is considered appropriate for
the private vendor to have a larger share of the revenue in
this model of PPP.
Risk Perception: The entire financial risk in this model is
taken by the government. The government also incurs the
administrative risk of project failure and subsequent loss of
credibility amongst the citizens. Thus this model needs to
be run under strong Service Level Agreement.
Government needs to exercise close control over the
vendor in this model. Government also becomes the major
beneficiary of the revenue generated through this model.
Large facilities like Hotels and hospitals may be run using
this model. This model can also be used for running of large
airports, rail stations and ports.
Two variants of this model are as shown in the diagrams
below:

Two variants of this model can be created by having just a
fixed pay off by the vendor to the government or having
just a variable pay off. These are as shown below. Where
the revenues can be predicted with certainty, the fixed pay
off variant will be useful. However when revenue figures
are completely unpredictable Model 1b will be more
useful. Model 1 shown above should be used when the
revenue predictability is between the two extremes.
1.2.1 Model 1A: ( Fixed Pay off variant)
Fixed Pay off Run Business
In the first variant the vendor is paid a variable amount in
relation to the revenue generated. In the other model
vendor gets a fix sum for running the facility against laid
down SLAs. Invariably when revenue generation is not
linked to the services provided by the private vendor, the
fixed pay off model will be used. However when the
services provided by the private vendor directly impact the
revenue generation process, the variable pay off model
should be used.
1.3.1 Model 2A

State Govt. Vendor (SPV) Business State Govt. Variable Pay off Vendor (SPV) Run Business Business
Revenue

Revenue

Administrative Control Capital Investments Capital Investments

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1.3.2 Model 2B 1.4.2 Model 3B

Variable Pay off Run Business

State Govt. Variable Pay off Vendor (SPV) Run Business
State Govt. Vendor (SPV) Business

Revenue
Revenue
Administrative Control
Capital Investments Capital Investments

1.4 Model 3 The above models provide a basis for structuring PPP deals
in an e-governance scenario. Various Equity and revenue
Fixed Pay Off Run Business models can be envisaged. The government and the private
partner can either invest together or individually in to the
State Govt. Vendor (SPV) Business
project. Higher, the equity stake in the project, higher is the
Variable Pay off Revenue risk for the participant and hence higher should be the
Administrative Control entity's share of the over all revenue generated by the
Capital Investments facility created under the project.

Governments and private vendors can discuss the

This model is a true PPP model since it tries to divide the
risk and return between the PPP partners equally. Both
partners invest capital in to the project. Returns are shared
as per the original capital investment ratio as well as the
risk perception of the partners. It is advisable for the project
to be run by the private enterprise to draw upon its
efficiency and past experience of running similar business.
Projects requiring large capital like oil refining etc may fall
under this category of PPP revenue models.
percentages of equity / fixed pay off / variable pay off to
arrive at equitable distribution of wealth created under the
project.
This paper only touches the surface of different financial
models perceived in structuring a PPP deal in an e-
governance framework. Each of these models can be
investigated further for risk return patterns and
advantages gained to government and the private
enterprise to arrive at well structured PPP contracts.

Risk Perception: This model tries to equally distribute the

risk and return amongst the PPP partners. Invariably the
vendor will also have a large stake in the success of the
project. Thus the model is likely to work with fair degree of
autonomy to the vendor. Government may make initial
investments and then accrue annual revenue for their
investments.

Only a fixed pay off or only a variable payoff creates two

separate alternatives of this model. These are as shown
below

1.4.1 Model 3A
Fixed Pay Off Run Business

State Govt. Vendor (SPV) Business

Variable Pay off Revenue

Administrative Control

Capital Investments

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The Early Phases of Innovation:
Opportunities and Challenges of Public-Private Partnership
Rajnish Tiwari,
Institute of Technology and Innovation Management, Hamburg University of Technology (TUHH)
Abstract
Innovations have acquired a key-role in the growth and
competition strategies of firms in today's globalized world.
Governments in many, in developed as well as in
developing, countries recognize the need to promote
innovations and fund innovative projects; particularly
those carried out in cooperation with other public sector
institutions such as universities and specialized R&D
institutions. This public-private partnership seems
particularly useful in the early phases of innovation.
This article discusses how the cooperation between the
industry, the academia and the government may be
utilized in the early phases of innovation (idea generation,
evaluation and selection) to increase the innovative
capability of firms in a given region or sector. For the
purpose of identifying the opportunities and challenges of
such collaboration this paper presents selected findings of
two recent empirical surveys carried out at our institute.
The focus of attention is centred on the needs of small and
medium-sized enterprises (SME) which, on account of
resource constraints, are usually more dependent on
cooperation than big firms.
1. Introduction and Background
Innovations are increasingly seen as a source of economic
growth and simultaneously as a useful instrument to face
1
The term “government” in this paper includes also quasi-governments like the European Commission.
Page 059
the competition brought about by the forces of
globalisation. Not surprisingly, innovations have acquired
a key-role in the growth and competition strategies of firms,
as indeed of many countries and economic regions. They are
seen as an essential tool to stimulate growth, for instance by
generating additional demand, and stay ahead of
competitors. In developed countries they are thought to
provide a vital buffer against challenges from low-cost
providers from emerging countries such as China and India.
Governments1 across developed countries have recognized
the need for their firms to remain innovative and have
constituted various “innovation funds” to support
innovation-related activities of domestic firms. For
instance, the German chancellor Angela Merkel
announced at a recently held “National IT-Summit” an
innovation-support programme by German federal
government that will provide domestic firms in 17 “key
areas” by 2009 with up to 15 billion euros as a part of its
“high-tech strategy” [GFG, 2006a]. The key areas “include
health care, security, energy production, nano technology,
biotechnology, as well as information and communications
technologies” [GFG, 2006b]. Other European countries
have also set up similar programmes.
The attention is generally focused on certain industry
sectors or on certain geographical regions. An example of
 www.circ.in

Such measures are “Regional Innovation Strategies” (RIS)
programme of the European Union (EU). Hereby, special
attention is paid to small and medium-sized enterprises
(SMEs), which usually are a vital source of employment in
many countries. The SMEs are hereby encouraged to forge
cooperation with universities and specialised research and
development (R&D) institutions.2 The funding is however
not limited to SMEs alone, bigger concerns in developed as
well as developing countries are also reported to regularly
receive financial and other support for cutting-edge
innovative projects.
to seek cooperation with other firms/universities in order
to compensate the resources-crunch. This article therefore
places a special focus on SMEs, the findings are however by
and large as valid for bigger firms.
The article is structured on following lines: Section 2
introduces the concept of the innovation process and
defines the “early phases of innovation”. Section 3
introduces an “innovation coalition”. Sections 4 and 5,
respectively, deal with opportunities and challenges of
cooperation. The final section entails a brief summary.

Some developing countries, notably China and India, have
also started their own innovation-support programmes.
For instance, in India a “National Innovation Foundation”
has been established with government's participation “to
help India become an inventive and creative society and a
global leader in sustainable technologies”, as per
information provided on the foundation website.3
According to an OECD report, China is set to become the
second-largest R&D investor by spending 136 billion euros
on R&D in 2006 overtaking Japan (130 billion euros) and
way ahead of third-placed Germany (70 billion euros)
[OECD, 2006].
2. The Innovation Process and its Early Phases
Innovation may be defined as invention of new, or
betterment of existing, products, processes or services4. The
innovation process encompasses systematic steps,
beginning from problem/requirement analysis to idea
generation, idea evaluation, project planning, product
development and testing to finally product marketing
[Verworn et al, 2000/2006]. The steps may overlap each
other. These steps may be categorised into 3 broad phases,
which represent a simplified innovation process:

Universities, too, play an important role in strengthening

the innovativeness of firms by providing trained
researchers who are “familiar with the latest research
techniques and integrated in international research
networks” [Pavitt, 2005]. In return, universities receive
direct industrial funding of industrial research. Practice-
oriented education and research also help universities in
attracting (and eventually retaining) talents.

The resultant flurry of activities demands an efficient and

goal-oriented coordination of support efforts from all
players involved, i.e. the industry, the government and the
Figure 1: Simplified version of an innovation process
academia, so as to strengthen the innovation capacity of
firms in given country, geographical region or industry
This article focuses on the “early phases of innovation”,
sector. This article analyzes the role of cooperation between
which in the academic literature are often referred to as
these above mentioned players in removing barriers to
“fuzzy front-end of innovation”, “pre-development” or
innovation in early phases, which are crucial for the
“up-front activities” [Napp, 2006]. According to Khurana
purpose of idea generation, evaluation and selection. The
and Rosenthal [1998] the front-end includes product
article makes use of the results of two recent empirical
strategy formulation and its communication, opportunity
surveys carried out with the author's involvement at
identification and assessment, idea generation, product
Institute of Technology and Innovation Management,
definition and project planning etc. This phase is of
Hamburg University of Technology. The surveys
particular importance to this article, since:
examined the role of cooperation for innovation in SMEs in
• Innovations are unlikely to succeed if the process of
Germany. The first survey [see, Napp, 2006] had 76
requirement analysis and/or idea generation/
participants from the medical equipment manufacturing
evaluation does not run satisfactorily. Not
sector in Germany, the second survey [see, Herstatt et al,
surprisingly, 30% participants of a survey identified
2006] 70 SMEs from various technology-intensive industry
problems in the early phases as a “significant barrier to
sectors in the metropolitan area of Hamburg in Germany.
innovation” in their firm [Herstatt et al, 2006].
The respondents were senior-level managers who
answered a questionnaire on the issues concerned.
• The broad field of problem identification, opportunity
assessment and idea generation, evaluation provides a
Even while providing the lion’s share of employment in an
large scope for cooperation between public and
economy, SMEs are generally more affected by resource-
private sectors. The potential of this cooperation is,
constraints than big firms. They therefore are often forced
however, rarely utilized fully. 33% participants of a

2
For the sake of simplicity, all academic institutions including universities and specialized R&D institutions are hereafter jointly referred to as
“universities”
3
http://nifindia.org/mission.htm, site consulted 21.12.2006..
4
For detailed discussion on definition and scope of the term “innovation”, see amongst others [Biemens, 1992] and [Dangayach et al, 2005].

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survey identified managing cooperation as a
“significant barrier to innovation” [Herstatt et al,
2006].
• Particularly SMEs, on account of their limited
resources, are more dependent on cooperation to
identify and evaluate opportunities as well as to
reduce uncertainty of their innovation projects.
3. The Innovation Coalition
In practice, firms rarely innovate in isolation. They operate
in a given macro-economic environment, which in turn is
influenced by the socio-cultural environment of a
particular region. In a market economy firms often
innovate “in collaboration and interdependence with other
organizations” [Edquist, 2006], the reason being that such
collaboration generally includes intra-industry
cooperation, e.g. with customers, suppliers and
competitors5. But there are also significant collaborations
with non-firm entities such as universities and
government. For instance, universities are a significant
source of knowledge diffusion and technology transfer.
They may also produce/support spin-offs by their
students with new, innovative ideas. The government
may, while acting in concert with the industry and
academic experts, formulate rules and policies that are
conducive to innovation in a given region or industry
sector. Figure 2 demonstrates this “innovation coalition”,
in which the three partners influence the innovativeness of
firms in a given region or industry sector.
Macro-economic environment
Industry
Academia Govt.
Socio-cultural environment
Figure 2: The innovation coalition and its environment
This innovation coalition may be understood as a “system
of innovation” in a given region, country or sector.
Freeman [1987] defined a “national system of innovation”
as “the network of institutions in the public and private
sectors whose activities and interaction initiate, import,
and diffuse new technologies”. This definition may
however be well adapted for a regional or sectoral system
of innovation. According to Edquist [1997] these three
viewpoints national, sectoral and regional may be
grouped together as variants of a single generic “systems of
innovation” approach.
5
Cooperation with competitors is particularly useful for innovative projects so as to define common standards
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Having understood the systems of innovation we may now
turn our attention to the opportunities and challenges
arising out of this collaboration. The next section discusses
how cooperation may be utilized to strengthen innovations
in the early phases.
4. Opportunities Generated by Cooperation
Cooperation, be it within the industry or with other non-
firm entities, provides certain opportunities and incentives
for all partners. In the following we discuss how such
cooperation may contribute to the innovativeness of firms,
particularly SMEs, in the early phases of innovation. Figure
3 demonstrates the three main objectives that cooperation
ideally seeks to achieve in early phases of innovation, i.e. to
generate better ideas faster and cheaper.
Figure 3: Objectives of cooperation in early phases of innovation
Source: Adapted in a slightly modified form from [Napp, 2006, p.
36]
In the following we may have a look at these aspects
individually:
Better quality: The quality of ideas and concepts may be
measured in the probability of their successful realisation
and, at a later stage, successful marketing. In the case of
process innovation it would also mean the probability of a
successful implementation. Better quality in generation of
ideas and concepts may be achieved via cooperation that
may provide:
a) access to (complementary) know-how,
b) better knowledge of market (understanding of
demand and supply side factors),
c) a broader base for idea generation and evaluation,
d) access to physical resources (e.g. Laboratories),
e) enhancement of product portfolio
F) better acceptance in market
Less time: The innovation process may be accelerated, e.g.
by saving time through division of labour and by access to
complementary or specialized know-how.
Reduce costs: The cooperation between the academia, the
industry and the government also has a significant
financial advantage. For instance, the government may

reduce the risk of failure of an innovation project by
providing a partial (or full) funding of a promising idea
that has the potential of positively influencing public
welfare in a region. It might also provide easier and
cheaper access to capital. The government may also
provide “support for high-tech start-ups and innovative
SMEs through corporate tax reform and systematic
reduction of bureaucracy” [GFG, 2006b].
Governments play a key-role by formulating innovation-
friendly policies and promoting or restricting research in
certain fields. The German government for example is
financing with 280 million euros an innovation project to
develop a next-generation search engine called “Theseus”.
On the other hand restrictions in many countries, including
Germany, on research with cloning of human embryos are
well known. Governments may also set up laboratories to
do basic research, whose findings are made available to the
(domestic) industry or the public-at-large for free or on
subsidized rates.
Universities may provide complementary and/or
specialized know-how and reduce development costs
while sharing the possible profits in the event of success
and thereby strengthen their own resources. Alternatively,
they might also offer R&D services on cheaper (subsidized)
rates. In a survey of medical equipment manufacturer
SMEs in Germany [Napp, 2006], 51% of all participants
reported cooperation-projects with universities. However,
74% reported willingness to forge (further) cooperation
with academic institutions.
Figure 4 shows the areas of cooperation in early phases of
innovation. 95% of survey participants reported
cooperation (with diverse partners) while analyzing
requirements and 84% while generating new ideas [Napp,
2006].
Figure 4: Areas of cooperation in early phases of innovation
Figure 5 shows who was regarded as the “single most
important partner” in the early phases of innovation. Own
customers (65%) dominated the list. With 16%, universities
were second placed. The role of universities was thought to
be predominantly in enhancing the quality of the product
concepts and access to know-how (each 43%).
www.circ.in
Figure 5: Most important partner in early phases of innovation
The discussion above shows that there are various
potentials for cooperation, especially also for a public-
private partnership, in the early phases of innovation. This
potential remains largely untapped owing to certain
problems that negatively affect the (readiness for)
cooperation. We discuss these problems in the next section.
5. Challenges of Cooperation
Cooperation between two or more partners necessitates
coordination, which unto itself is a tedious task,
sometimes. The coordination between heterogeneous
entities, e.g. firms and non-firms (i.e. between profit-
oriented private sector firm and non-profit oriented public
sector entities) is even more difficult to manage, owing to
different working styles of the parties concerned.
A survey in Hamburg [Herstatt et al, 2006] found that SMEs
often have some typical problems while seeking
cooperation with universities. Asked to identify
cooperation partners with which they generally had a
particular type of problem, universities scored
unfavourably on following counts [Herstatt et al, 2006]:
a) Lack of effectiveness (50%),
b) Trouble finding right partners (38%),
c) Lack of financial resources (27%),
d) Coordination troubles (26%),
e) Communication problems, differing “time-horizons”
(23%).
Another Germany-wide survey of SMEs in the medical
equipment manufacturing sector returned comparable
results [Napp, 2006].
Figure 6: Obstacles in cooperation with universities
The problems in cooperation with governments may be
seen in a similar light, e.g. trouble finding right partners
and the differing work-style of governments. For instance,
47% of the surveyed SMEs in Hamburg reported
“bureaucracy” as a major hurdle for their innovation
activities [Herstatt et al, 2006].
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Further, it was revealed that resource-constrained SMEs are
usually not well-informed about various support
programmes and rarely try to receive state funding. While
42% of the surveyed SMEs reported aborting innovation
projects in the “early phases” owing to financial reasons,
over 50% said they were not aware of state-run support
programmes. On the other hand, in the same survey firms
with a turn-over of over 50 million euros did not report any
finance-related project-abortions and called themselves
“well-informed” about support programmes [Herstatt et al,
2006]. The above facts point to certain deficits in the
“innovation coalition” proposed above. The challenges
however can be mastered with concerted action and effort on
the part of the parties concerned. This paper proposes a
support structure for SMEs (see Figure 7) that would reduce
their problems in the early phases of innovation and generate
resources to make them more competitive and stable.
Figure 7: Ideal support structure for SMEs
The corner-stones of this structure are built by:
a) Providing better education infrastructure especially
in technical fields,
b) Installing a more efficient financial-support
infrastructure, and by
c) Providing guidance and support to SMEs in
internationalising their business and gain access to
global resources.
Each of these factors has a positive impact on improving
the competitiveness of firms. But these factors also benefit
from a certain interdependence and enforce each other
leading to a stable innovation capacity and global
competitiveness of domestic firms.
6. Summary
This paper analyzed the role of cooperation in the so-
called “early phases of innovation” (also known as
“fuzzy front-end of innovation”) and proposed an
“innovation coalition” comprising the industry, the
government and the academia that could enhance the
innovation capacity of firms, especially SMEs, in a given
region, country or industry sector. Using results of two
empirical surveys, conducted with the author's
involvement, it demonstrated the opportunities and
challenges of such a public-private partnership in
strengthening the innovativeness of firms.
Finally, it also proposed a support structure for SMEs that
can enhance their innovation capacity and thereby
competitiveness leading to a larger public welfare (e.g. via
growth and employment opportunities) in a region.
Page 063
References:
Biemens, W.G. (1992): Managing Innovation with Networks,
London: Routledge.
Dangayach, G.S., Pathak, S.C. and Sharma, A.D. (2005):
“Managing Innovation”, in: Asia Pacific Tech Monitor,
Vol. 22, Issue 3, pp. 30-33.
Edquist, C. (1997): “Systems of Innovation Approaches Their
Emergence and Characteristics”, in: Edquist, C. (Eds):
Systems of Innovation: Technologies, Institutions and
Organizations, London: Pinter, pp. 1-35.
Edquist, C. (2005): “Systems of Innovation: Perspectives and
Challenges”, in: Fagerberg et al (Eds): The Oxford
Handbook of Innovation, Oxford, a.o.: Oxford University
Press, pp. 181-208.
Freeman, C. (1987): Technology Policy and Economic
Performance: Lessons from Japan, London: Pinter, p. 1.
GFG (2006a): Aiming to make Germany a leader in the IT sector,
Press release by the Press and Information Office of
German Federal Government, dated 18.12.2006,
available online at: http:// www.bundesregierung.de/,
as on 20.12.2006.
GFG (2006b): High-tech strategy: growth through innovation,
Press release by the Press and Information Office of
German Federal Government, dated 30.08.2006,
available online at: http:// www.bundesregierung.de/,
as on 20.12.2006.
Herstatt, C., Buse, S. and Tiwari, R. (2006): Innovations
hemmnisse in Hamburger KMU: Ergebnisse einer
empirischen Untersuchung in ausgewählten Branchen,
Institute of Technology and Innovation Management,
Hamburg University of Technology, (unpublished).
Khurana. A. and Rosenthal, S.R. (1998): “Towards holistic
'front ends' in new product development”, in: Journal of
Product Innovation Management, Vol. 15, Issue 1, pp. 57-
74.
Napp, J.J. (2006): Kooperationen in den frühen Phasen des
Innovations prozesses: Potenziale für kleine und mittlere
Unternehmen, Study conducted under joint supervision
of Dr. Stephan Buse and Rajnish Tiwari, Institute of
Technology and Innovation Management, Hamburg
University of Technology, (unpublished).
OECD (2006): OECD Science, Technology and Industry
Outlook 2006, Organisation for Economic Co-operation
and Development, Paris.
Pavitt, K. (2005): “Innovation Processes”, in: Fagerberg et al
(Eds): The Oxford Handbook of Innovation, Oxford, a.o.:
Oxford University Press, pp. 86-114.
Verworn, B., Herstatt, C. and Nagahara, A. (2006): “The
impact of the fuzzy front end on new product development
success in Japanese NPD projects”, in: Proceedings of R&D
Management Conference 2006, Manchester, CD-ROM
version.
Verworn, B., Lüthje, C. and Herstatt, C. (2000):
Innovation smanagement in kleinen und mittleren
Unternehmen, Working Paper No. 7, Institute of
Technology and Innovation Management, Hamburg
University of Technology

Need for a comprehensive
PPP policy in infrastructure
Ranen Banerjee,
Partner at PwC
Despite not having a formal PPP policy, India has a good
framework for supporting public-private partnerships.
The finance minister's announcement of the formulation of
a comprehensive PPP policy is, thus, welcome, writes
Ranen Banerjee, Executive Director & Partner - Public
Finance & Infrastructure and Government Reforms &
Infrastructure Development, PwC.
The projected investment in infrastructure for the 12th Plan
is about $1,025 billion with at least 50 per cent expected to
come from private sector. With such large investments to
be channelled from the private sector, the private players
would need comfort of a comprehensive PPP policy before
opening their purse strings. Though we have made good
strides in undertaking projects under PPPs, there have
been several learning points and grey areas that have
emerged. The announcement of the Finance Minister for
formulation of a comprehensive PPP policy in his Union
Budget speech is welcome.
Despite not having a formal PPP policy, India has a good
framework for supporting PPPs. These include the
Empowered Committee on Infrastructure (ECOI) headed
by the Prime Minister at the apex level; PPP Approval
Committee (PPPAC) for appraisal of projects; PPP cells in
central government ministries and state governments;
Viability Gap Funding mechanism for financial support;
programmes for capacity building of implementing
agencies and IIPDF for project development; and IIFCL
and infrastructure debt funds.
www.circ.in
According to the latest Economic Survey, there is a good
pipeline of infrastructure PPP projects (including under
bidding, construction and operational). However, majority
of these PPPs are in the economic infrastructure sectors like
energy, roads and highways, ports and airports. As the
Indian economy has grown at a fast clip over the last
decade, private investors have benefited from the upside
due to increase in demand and have not been averse to
assuming demand risk. However, health, education and
urban infrastructure have seen little success as the upside
potential from demand may be limited in these sectors.
Global outlier in PPP
India is an outlier by a huge margin when the quantum of
private investment in infrastructure is compared across
other similar sized economies relative to the level of GDP.
However, it is likely that actual completion of projects may
be less impressive. The graph shows that while the present
policy framework has served well, translating the level of
investment commitments into successful projects warrants
a more comprehensive institutional framework that
addresses critical challenges that plague PPPs in India.
Despite the stellar performance, effort is required across
several areas to further increase the pace of
implementation of PPPs. Apart from the need for financial
outlays, there are several other constraints which impede
the timely execution of infrastructure projects-problems of
tendering of unviable projects; bad planning at DPR stage;
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Land acquisition delays and slow approval processes;
especially environmental and forest clearances; weak
project management in nodal agencies; and inadequate
availability of skilled and semi-skilled manpower.
Treat complex projects differently: In complex PPP
projects better discovery could happen through negotiated
agreements. The Competitive Dialogue under Partnership
Contract adopted in France involves short listing three to
four competent parties and holding several rounds of

Pipeline of PPP Projects

Sector Total Number Up to ` 100 Between ` 251 More than Value of

of Projects Crore and 500 crore ` 500 crore Contracts (` crore)
Airports 5 0 303 18808 19111
Education 1 93.32 0 0 93.32
Energy 24 733.59 2669 13,708 17,110.59
Health Care 2 217 0 0 217
Ports 47 866 4070.29 64,777.09 69,713.38
Railways 4 102.22 905 594.34 1601.56
Roads 324 8760.51 36,721.42 1,01,363.98 1,46,845.91
Tourism 30 1492.08 0 1050 2542.08
Urban Development 81 2996.13 3484.28 10132 16612.41
Total 518 15,260.85 48,152.99 2,10,433.41 2,73,847.25
Source: I&I Division, DEA, Ministry of Finance.

Negotiations with each of them. These negotiations are

PPP reforms
Government of India is seized on these challenges and this
has led the Finance Minster to announce a comprehensive
PPP policy as part of his 2011-12 budget speech. The
following paragraphs highlight some of the areas that
should be addressed under the PPP policy:
carried out over several rounds in a transparent manner
wherein the initial proposals by each party may be
available to all the prospective bidders. This allows the
prospective bidders to define solutions that fit the project
objectives and enables the implementing agency to award

1,20,000
Source: PPIAF & WDI

1,00,000 India
Total Investment Commitments, 2000-2009

80,000

China
60,000
(Mn USD)

40,000
Russian Federation

20,000
South Africa

2,000 4,000 6,000 8,000 10,000 12,000

Per Capita GDP, 2009 ( USD)
Total private investment commitments in infrastructure ($ Million)
during 2000-2009 compared to per capita GDP ($ US) during 2009

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the project to the most economically viable one and not
necessarily to the least cost criteria. Needless to say,
sufficient safeguards are required for ensuring
transparency and non-discriminatory behaviour.
Provide necessary tools to implementing agencies: Tools
like Public Sector Comparator (PSC) and Value for Money
(VFM) have to be mainstreamed into the policy framework.
These would help the implementing agencies answer three
key questions- what is the PPP for (what is the objective i.e.
for construction, financing, technology O&M or a
combination); why is it necessary (rationale based on VFM
and PSC); and how will it be executed (actual model of PPP
and the entire bidding process). To make sure that PPP
arrangements enjoy high credibility in public opinion, the
Comptroller & Auditor General of India published the
Public Auditing Guidelines for PPP projects in 2009. The
same audit guidelines can be used for creation of reliable
benchmark PSCs in sectors where PSCs are non-existent.
Supporting availability based payments through multi-
year budgetary commitments: The next generation of PPP
policy has to significantly support social sector PPP
projects. As private sector may be reluctant to take on
substantial part of the demand risk, Availability Based
Payment (ABP) mechanism could be considered. These
involve compensating the service provider based on
making the infrastructure available to meet a desired
service level. The implementing agencies need to set up
clear performance standards and also have capacity to
monitor actual performance.
Further, these contracts would involve annuity payments
and the recent decision to impose a cap on annuity
payments may limit the ability of the implementing
agencies to do PPP projects. In South Africa, Treasury
Regulation 16 issued under the Public Financial
Management Act allows government agencies to
undertake PPP projects based on current year allocations
and projection of future allocations. This allows them to
undertake multi year PPP projects.
is a need to evolve Model Concession Principles (MCP)
document outlining the risk sharing, payment mechanism,
and the Concessionaire and sponsor responsibilities, and
yet leave sufficient flexibility to adapt the contract
document to unique project situation.
Supporting local government PPPs: Specialised VGF
guidelines may be required for urban infrastructure PPPs.
Operating a separate window through the KFW funded
PPP-UIF infrastructure fund could be the way ahead. Such
a fund could effectively blend grant and loan funds to
reduce the overall cost of resources. There may also be a
separate channel for providing guarantee to debt taken by
ULBs or PPP operators. Finally, the recommendations of
the 13th Finance Commission to evolve a predictable
pattern of devolution of funds should be addressed by state
governments.
Addressing land acquisition: There is a strong case for
bringing in parity between the compensation package
admissible under the Land Acquisition Act 1894 and that
applicable to land acquisition under the National
Highways Act 1956 to enable faster acquisition. It is also
important that the 80 per cent minimum norm for physical
acquisition of land before tendering should be strictly
enforced through suitable disincentives. Also, a
differential land acquisition policy which distinguishes
between acquisition for pure public infrastructure like
water, wastewater etc. and allows for greater sharing of
benefits with land owners in case of economic
infrastructure such as airports, SEZs etc. may be
introduced.

Avoid regulatory confusion: India is at a crossroad of a

regulatory revolution in infrastructure. On one hand,
concession contracts are the most common regulatory
instruments for governing PPP contracts. Yet several
sectors like airports, ports etc. have an independent
regulator who has significant powers to set tariffs. Effort is
also on to set up water regulator at state level as well. When
concession contracts lay out the tariff setting mechanism, it
is not clear as to how much model flexibility the regulator
has in tariff setting. One option is that in sectors where
concession contracts are in operation, the regulator could
focus on setting standards, issue of licenses, set
benchmarks, and oversee the tariff process as laid out in the
concession agreement. This is similar to the role played by
Conciliation and Arbitration Commission in Chile.

From MCA to MCP: While Model Concession Agreements

help in case projects are highly standardised, in practice
each infrastructure project is unique. Several market
commentators have opined that MCAs have hindered
rather than promoted faster project implementation. There

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Competition & Regulation

& the Competition Assessment Framework
Roger Nellist*with John Preston**
*Team Leader and Deputy Head, Growth and Investment Group, Department for International Development,
UK **Commerce Commission, New Zealand

“The range of factors that may adversely impact competition is wide. Some problems for competition might
be readily apparent but, in practice, significant problems are frequently hidden. This is sometimes because
they are part of a long-standing pattern that is taken for granted or because they involve intermediate
products so that the impact on consumers is obscured”

Competition is central to the operation of a modern market
economy. Effective competition benefit consumers
directly, through lower prices and better quality, and
indirectly, through the higher rates of economic growth
that result from productivity improvements and
innovation fostered by vigorous competition. But, despite
the importance of competitive markets, barriers to effective
competition are pervasive.
The Department for International Development's (DFID),
UK mission is to help reduce world poverty. While grants
from donors and internal redistribution can make a modest
contribution to poverty reduction, substantial progress can
come only from real economic growth. The link between
competitive markets and economic growth, and the link
between growth and poverty reduction, is the basis for
DFID's interest in competition policy and regulation.
Competition assessment framework
Since 2000, DFID has supported a range of activities to
encourage the wider user of appropriate competition
policy in developing countries. In 2008, one of these
included the preparation and publication of the
Competition Assessment Framework (CAF).
The origins of the CAF have a close connection with India.
In the past three years, DFID and the World Bank have
partnered with the Competition Commission of India
(CCI) in conducting studies on the state of competition in
key sectors of the Indian economy. The Commission itself
funded additional studies, which include many important
infrastructure sectors and product markets: energy,
telecommunications, ports and railways, internal air
transport, road passenger transport, road goods transport
and manufacturing.
Respected research institutions in India have undertaken
these studies. Workshops were held in New Delhi to help
researchers plan their research strategies. It soon became
evident that there could be considerable value in developing

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a framework that would allow all significant influences on
competition to be considered, and that would lead to well-
structured advice to the Competition Commission.
The CAF was prepared partly in response to this need. It
was refined during the competition work in India, and on
the basis of DFID's competition work elsewhere. The CAF
is available in hard copy from DFID and also on to the
website: www.dfid.gov.uk.
What is CAF?
The CAF is a flexible diagnostic tool designed to help policy
makers and researchers identify markets in which
competition is weak, to find the causes, and select
appropriate remedies. The range of factors that may
adversely impact competition is wide, and the CAF takes a
holistic approach to examine markets.
Some problems for competition might be readily apparent
(although their magnitude might be unknown) but, in
practice, significant problems are frequently hidden. This
is, sometimes because they are part of a long-standing
pattern that is taken for granted, or because they involve
intermediate products so that the impact on consumers is
obscured.
Role and Functions of CAF
In addition to its continuing use for competition sector
studies in India, the CAF has an expanding role elsewhere.
It has been used in multi-country capacity building
competition workshops in Eastern and Southern Africa
(ESA). Competition researchers in Bangladesh are using it.
The competition authority in Vietnam has adopted the
CAF as the basis for its sector studies, and a Vietnamese
translation is being published to make it more widely
accessible there.
CUTS' national partners in the current 7Up4 project in
West Africa are using the CAF to assist in their research.
The CAF is the base of the methodology being used by the
London-based Overseas Development Institute (ODI) in its
innovative two-year research project on the effects of
competition in key product markets in certain countries of
Africa and Asia.
The CAF recommends that, to justify competition analysis,
markets should either be important to the economy or
consumer welfare. But, in addition, there should be at least one
element suggesting a possible lack of effective competition.
Elements to be considered include whether there is a high
level of market concentration (i.e. whether most of the
supply is controlled by a small number of firms), whether
new firms seeking to enter the market would be impeded
by high barriers imposed by the government or by other
firms, whether the sector has a history of anti-competitive
conduct, whether there have been expressions of concern
by consumers or competitors, or whether there are strong
vested interests opposed to change.
Government policies can strongly influence the level of
competition in markets. Relevant policies are not just those
of the national government, but include those of state
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governments in federal countries, and those of local
authorities. Where policies adversely affecting competition
are identified, the current justification for them must be
reassessed.
Sometimes, government policies limit the number of firms
permitted to enter a market or restrict how firms can
operate. Compulsory quality standards might be
unnecessarily high. Meeting the conditions needed to
obtain regulatory approval might be unpredictable, costly
or unnecessarily protracted. Sector regulators might be
captured.
If state-owned enterprises (SoEs) operate in the market, they
might have privileges that make it difficult for private
suppliers to compete. Public procurement can account for a
significant part of transactions in many markets, including in
infrastructure provision and unless it is conducted
transparently and fairly, competition can be severely
retarded. The level of competition can be affected also by the
trade or the industrial policies of the country concerned.
In the markets for some products there will be parties who are
opposed to more effective competition. At times, their
positions will be widely known. However, even if this is the
case, the competition assessment must identify their power
and influence. Politics, including funding for political parties,
might be involved. Quantifying the extent of the influence of
vested interests, and knowing why and how this influence is
exercised, will help to provide the basis for a realistic
assessment of what will be needed to modify any constraints
that exist, and to introduce more effective competition.
The ways in which firms in the market relate to their
competitors, suppliers and consumers must be reviewed to
see if there are signs of any anti-competitive conduct. There
might be cartels (undertaking activities, such as price
fixing, bid-rigging, or the division of markets between
competitors), the abuse of dominance by firms with strong
market power, or a pattern of mergers that reduces the
number of competitors. If there are signs of such conduct,
it is necessary to assess how significant the effects are likely
to be. The cement industry is one example that gives rise to
competition concerns in many countries, as the industry
appears prone to cartel formation.
Conclusion
The CAF helps guide an assessment of the above-
mentioned competition issues, and also lists possible
remedies ranging from the dissemination of information
to new legislation. What is appropriate in any given
situation would depend on the nature of the problems
identified, on the structure of national institutions and the
provisions of the national laws.
Recognition of the importance of competitive markets and
appropriate regulation in developing countries continues
to increase. We, in DFID, are pleased to have been able to
play some role in this. We are delighted to have this
opportunity to acknowledge the fine work on competition
and regulation that is being done by CUTS, which DFID
has partnered on many projects.
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Risks & Audits of PPP Projects
Sharmila Chavaly ,
JS, Department of Economic Affairs
One of the realities in India today is that there is limited
expertise in both government and the private sector in risk
evaluation in public private partnerships. This is partly
because of historical reasons as our PPP experience has been
of fairly recent origin and we are learning as we go along. It is
also because we tend to docket risks into the standard matrix
without putting them through a rigorous testing process
where there can be assessed, simulations built in and
probabilities assigned, leading to eventual valuation. Most
countries with well-established public private partnership
(PPP) programs have structured models that enable such a
process. In India, we have begun to standardize this in some
sectors (highways, for one) but also tend to over-rely on the
advice of consultants. While this is not in itself inadvisable,
the risk allocation exercise becomes a largely theoretical one
if consultants with hands-on experience are themselves rare,
as we generally find in India. Our experience with PPPs
being relatively limited, the repercussions of this have not
yet hit the spotlight.
The current risk "framework" is one that involves, in
most cases, the preparation of a risk allocation matrix that
identifies the risks at different stages of project
implementation. Whereas the risk profile keeps changing
during the process as in all project finance, it is this matrix
that forms the basis for estimating the probabilities and
costs of different risks. Prior to this, the risks are formally
"assigned", as the basic principle goes, to the party "best
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suited" to deal with each. The practice is fairly
standardized and conventional but there are some areas in
the extant PPP process that directly impact the evaluation
of risks in a project and may require attention by sectors
undertaking PPPs. A few of these are discussed below.
Firstly, we are yet to establish the Public Sector Comparator
(PSC) approach in all sectors. Prudent PPP programs
require a PSC to be prepared before any decision on going
in for a PPP is considered. Major risks in the traditional or
conventional approach to project delivery are to be
identified and a life-cycle costing done. In countries with
experience in PPPs, projects are first run through a filter to
judge "PPP-ability" - whether they are amenable to being
taken up as PPPs from the point of view the expected
outcomes, including financial cost estimates. In India,
however, as we are currently faced with a virtual paucity of
funds in the face of a critical shortfall in infrastructure, the
approach seems to be to decide upon the contours of a
project and as a first step, appoint consultants to bid it out
as a PPP. Market appetite, policy confusion and lack of
general preparedness and readiness for implementation
can often mean that the decision is delayed, the approach
shelved and avoidable expenditure incurred. Had the PSC
approach been taken, this could have been averted or the
risks anticipated to a reasonable degree. Further, even if a
project is successfully bid out, in the absence of a robust,
defendable PSC ex-ante, the decision to opt for a PPP could
result in justifiable audit concerns ex-post.
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The approach to assignment of the risks has not kept pace
with developments in infrastructure finance and the
economy. Often seen as an Us-vs-Them struggle,
conventional textbook approaches are resorted to by both
parties in automatically divvying up the risks. The problem
here is that some risks can derail a project significantly and
the partners may have to re-consider the merits of a whole
scale transfer of such risks and, instead, look for innovative
solutions that are within the rules and also allow for a clear
exposition of the logic behind this, which has to be placed on
record. For example, as a first principle all financing risks are
often routinely assigned to the private party. In a volatile
interest regime, however, if interest rate risk is fully assigned
to the private partner and rates sharply increase, the
resultant financing costs could spiral out of control and result
in either premature termination or the government bailing
out the project - the latter would be tantamount to an implicit
sovereign guarantee which was not costed up front. Both
these would immediately attract audit attention. Since
projects are usually implemented in four to five years, an
alternative could be to explore a cap-floor approach that,
while tapping into possible advantages of declining rates,
can also provide a measure of comfort when faced with
possible runaway increases. In general, all risks, including
financial, need to be viewed as either explicit or implicit, their
probabilities of occurrence assessed to qualify their priority,
alternatives studied and, finally, quantified in monetary
terms for inclusion in the project costs. This is to be done as
part of the project preparatory process, and not tacked on as
an after thought.
This brings us to the current framework of risk
assessment. The methods we use to measure risks are
fairly rudimentary. While, in the final analysis,
prediction of occurrence of a risk is more art than science,
there are well- established techniques conventional in the
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PPP world that do introduce an element of objectivity to the
process when combined with scenario testing and
sensitivity analyses. The process of determining,
prioritizing and then dealing with the risk is facilitated by
this. The main danger is the likelihood that poor risk
assessment will cause a setback to the PPP program in one
of two ways:
— By underestimating risks and, therefore, under-
provisioning for contingent liabilities, the
experience with a bellwether PPP project may
jeopardize an entire program in a sector as a knee-
jerk reaction.
— If the government has in place defined risk-
exposure thresholds, overestimating the likelihood
of some risks could result in alarm bells on the
estimated "real" cost of a project and make it
artificially unviable vis-à- vis an alternative. On the
flip side, if consequences of risks, measured in
monetary terms, are incompletely assessed, the
impact of the resulting spill-over may even
snowball into safety and environmental disasters
which would add to project costs.
Since there is a tendency even in our PPP training courses
to build up a large contingent of "practitioners" who are
exposed to the jargon and build up familiarity with the
process, insufficient effort is being paid to building up a
subset of core government experts, including in the Audit
and Vigilance cadres, who can assess, estimate and
examine risks in PPPs. The current framework was set in
place when the government was trying to mainstream
PPPs. Now that the concept has attained widespread
acceptance, perhaps it is time to restructure the training
approach.
 www.circ.in

PPPs entail the long-term alienation through contract of

some of the statutory rights of the public sector to provide
assets or services of an assured quality at a reasonable cost
to a party whose focus is on making a profit from the
transaction. While standard dangers in project
implementation like padding of costs, over-engineering
and unfair procurement practices can be detected even by
conventional methods, any assessment of the "correctness"
of risk allocation in a PPP project has to be based upon on a
proper appreciation of the following: that acceptance of
and comfort with the almost conflicting aims of the
principal parties to the contract is essential; that assessment
of whether value for money has been realized has to be seen
in a historical context, that is, when the initial decisions
were taken to proceed with the project on a PPP basis;, and
that risk allocation is always based upon assumptions and
can be objectively examined only with a degree of expertise
in the field. If this is simultaneously accompanied by
implementation of best technical practices in risk
allocation, valuation and regulation, it would help make
sectoral PPP programs sustainable.

_________________________
The author works for the government. The views
expressed are personal.

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Public Private Partnership
and the Institutional Considerations
Sharmistha Ghosh,
Lecturer in Commerce, Shri Shikshayatan College
Abstract:
Public Private Partnerships (PPP) have emerged as an
extensive tool for the government to bridge the gap between
public and private enterprises thereby enhancing the
efficiency in operations by using the expertise of the private
sector and the supportive functions of the government
sector. Hence in order to implement such a policy in a full
fledged manner, certain institutional amendments are
required. In this regard, this paper aims at pinpointing those
key issues and suggesting ways to deal with it.
1. Introduction
Public Private Partnership (PPP) is an innovative
entrepreneurial system in which both the state and
private individuals can contribute their share to
achieve an overall efficiency in operations in the
various sectors of industry. According to the
Department of Economic Affairs, Ministry of Finance,
Government of India, PPP is“a partnership between a
public sector entity (sponsoring authority) and a
private sector entity (a legal entity in which 51% or
more of equity is with the private partner/s) for the
creation and/or management of infrastructure for
public purpose for a specified period of time
(concession period) on commercial terms and in which the
private partner has been procured through a
transparent and open procurement system”. In the
MENA region, the recent share of different sectors that
have started its operations under the PPP regime can be
viewed from the following diagram.
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Figure (1):
PPP projects undertaken by different sectors in MENA region
1%
2%
0%
Power & Water
4%
4% Wasterwater
Education
Transport
89% Healthcare
Industry
Source: MEED
Hence it can be seen from the given figure that in the MENA
region PPP has been introduced in almost every
infrastructural sectors of the economy. In India, though this
strategy has already been adopted in some of the states in
selected sectors, its impact as a whole can only be felt when it
gets implemented widely in every sector of the economy. But
implementation or introduction of every new thing requires
certain things to be considered or amended. It may be
regarding its policy formulation, regulatory norms or
legislative alterations. In this perspective, this paper aims at:
• analysing the institutional amendments required to
implement PPP, and
• discussing the implication of the proposed
amendments.
In order to address the above objectives the remainder of the
paper is organised as follows. Section 2 draws the institutional
considerations required to implement PPP. Section 3 sketches
the implications of such amendments. The last section is
devoted to concluding observations and suggestions.

2. Institutional Considerations
For implementing the structure of Public Private
Partnership, the institutional amendments which may
be required are discussed under the following heads:
• Legislative considerations: A narrow concept of
PPP is intended to involve the private sector in
Public projects. Whereas a broad perspective of PPP
involves the public sector intervention into private
practices and operations as well as consultation and
dialogue in public decision making. In Kuwait,
broader PPP legislation has been undertaken.
Kuwait, Dubai and Jordan are increasing their focus
on implementing PPP projects by introducing
relevant legislations in addition to setting up
specialized government departments to handle
future PPPs. On the other hand, the most common
form of PPP in the UK is the Private Finance
Initiative (PFI) which was introduced in 1992 by a
cash trapped Conservative government that needed
to boost public investment without increasing
public borrowing. The great attraction of PFI is that
the projects are mostly off the public sector balance
sheet, enabling the government to keep within the
restrictions set by economic and stability pact as
well as defer payments to future. In India, the Model
Concession Agreements (MCAs) framed and
standardised by the Government though provide a
stable regulatory and policy framework, but in this
context, it is necessary to frame certain laws that will
bind the state and the private sector and help them
execute their plans jointly in an organised and
efficient manner. There needs a balance to be set up
between the fixed legal and regulatory framework
as well as there should be a flexible one which
conforms to the day to day developments. Before
zeroing on any particular legislation, some
experience from the countries who have already
adopted PPP should be taken into consideration
which may be done in a consultative manner by
taking advisory assistance from them. It will be
better if standardisation of laws are made across
sectors so that it is easily understandable for the
individual firms or rather the private sector that
how to initiate with the proceedings of PPP
implementation. Moreover, government officials
should be acquainted, and in fact trained
beforehand with the laws and execution procedure.
Figure (2): Inter-sectoral linkages in Public Finance and Private Finance
Public Finance
Government
Operating Contract Finance Contract
Operating Company Finance Providers
Construction
Contract
Construction Company
Source: Chongqing, 2009
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• Timing issues: Though PPP is a new development
for India, but a standard duration for project
approval as well as its implementation is required.
Otherwise, the same story of carrying forward the
cases pending in the court of law over the years will b e
the scenario. There should be a committee for
selection of viable projects, a committee for
approval and last, but not the least, another one to
follow up on the implementation of the projects
where the members of the committee must include
one expert from that particular sector or field. Since
resource is scarce, we cannot afford to loose out on
them. So proper coordination is to be maintained
between the public and the private sector through
well defined laws and regulation.
• Cost considerations: It will certainly involve a large
amount of expenditure to carry out the initial steps
of project sanctioning. Financial institutions should
come forward to provide assistance to viable
projects and design some new loan schemes for PPP
enterprises. In addition, the government should
also assure to share such financial burdens once the
project is sanctioned.
• Transparency: Transparency is a very crucial
element if full fledged private participation is
required. Transparency in creation of contracts is as
important as in case of project design. Any
information gap in these cases will discourage
private participation.
Now, this new trend in entrepreneurship which requires
the above mentioned considerations to be taken into
account has its own implications which may be discussed
in the next section.
3. Implications of the Proposed Amendments
Framing laws and training the officials in it require
considerable expenditure. Moreover successful
implementation of PPP calls for proper coordination
between the Government and the private
entrepreneur which can only be achieved if there is a
well defined set of norms and rules stating the power
and authority of both the sector in a PPP initiative so
that no one is exploited at the cost of the other. The
legislative body should not frame laws by being biased
to the government. The coordination between the
sectors may be illustrated in the following figure.
Private Finance
Government
Service Contract
Operating Contract Firm
Operating Company Construction
Contract
Construction Company
Finance Contract
Finance Providers
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There are some lacunas in the proposed PPP system
where it has not yet been clarified whether the private
entrepreneur share of income will be through sharing of
profits of the business or through some fees
payment structure for their services. Furthermore, the
capital contribution ratio between the two sectors has
also not been defined so far in India. The area where
most of the PPP projects concentrate, that is the
infrastructure sector involves a lot of risk for which the
private sector hesitate to come forward and participate in
those ventures. Here, the government should clarify
and share the risk with the private sector through some
kind of pre-defined mechanism. These are the places where
proper legislation and regulation is required to make the
entire process transparent enough for the People. It
obviously would help to better allocate the risk to the best
suited party in an optimal way. Private participation
should not be for profit motive alone. While framing laws,
the objective of social welfare with service motive should
also be kept in mind. Moreover, if the financial institutions
come forward with some well built schemes of lending
financial support to PPP schemes, this will enhance not
only the finance business but also it will act as a great
support to the upcoming PPP projects.
4. Concluding Observations
PPP should therefore be encouraged in India and
should be implemented with the supportive
institutional procedures and amendments. A broader
perspective of implementation of PPP is supposed to
reap greater benefits for the country. Hence a well phased
out plan taking into consideration all the sectors of the
economy should be prepared within a proper legislative
framework. PPPs can be mainstreamed by taking into
consideration the needs of the economy and its people. The
feasibility study of every project with respect to other
factors and constraints should be carefully done before
making commitment to any proposal. Apart from the
institutional considerations there are other considerations
as well, like the regulatory issues, project and policy related
considerations, and last but not the least, capacity and trust
related factors. It is necessary to standardize the core
policies & practices to ensure integration of services &
interaction between applications. So, along with the
amendments in institutional factors, necessary changes in
other factors also need to be implemented in order to make
PPP a successful endeavour.
References:
http:// www.adb.org
Http://www.google.com
http:// www.imf.org
http://www.infrastructure.gov.in
Http://www.pppindia.com

Quality of Regulation:
Meaning, Determinants and Assessment
Siddhartha Mitra
Professor, Deptt. of Economics, Jadavpur University
“The objective of regulation should be to produce desirable outcomes in the present
or future which might not otherwise occur or prevent undesirable outcomes which
might otherwise occur”
The quality of regulation of economic activity is judged
by the desirability of underlying regulatory laws/rules
and effectiveness in enforcing such laws/rules. The
objective of regulation should be to produce desirable
outcomes in the present or future which might not
otherwise occur or prevent undesirable outcomes which
might otherwise occur.
In other words, the purpose of regulation is to rein in the
free exercise of market forces and consumer and producer
impulses in cases where such a display can act as an
obstacle to the maximisation of societal well-being or to
remove externally applied obstacles to market forces when
their play is desirable. Undesirable regulatory laws
(regulation that is not required) therefore automatically
give rise to poor quality regulation irrespective of how
such laws are implemented.
For the sake of illustration, consider a law asking for an
excessive fee for registration/ licensing of business. It is
clearly undesirable as it prevents many firms from entering
the industry and hinders competition. Such a law will give
rise to poor quality regulation irrespective of how
efficiently it is implemented.
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Contrast this law with another that imposes heavy
penalties on cartels. The latter is obviously an example
of a desirable regulatory law. However, it constitutes
only a necessary condition for good quality regulation.
The quality of regulation might still be poor in this
case if this desirable regulatory law cannot be
enforced because of investigative incompetence or the
incidence of corruption. Success in enforcement often
depends on the institutional structure, i.e. the
composition of the regulatory body and the
ties/obligations that bind it to government, producers
and consumers.
The proximate determinants of regulation
Regulation is undertaken by various sectoral agencies with
different immediate objectives. The literature on regulation
highlights the following determinants of regulatory
quality the degree of independence of the regulator with
respect to the government and sectional lobbies,
consistency and timeliness in pronouncements, well
qualified staff, accountability etc. Empirical studies have
shown that these qualities are positively linked to the
desirability and effectiveness of regulation.
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Common sense also leads to the same conclusion unless a
regulator has a fair degree of independence it will not be
able to formulate and implement regulation in a manner
that is fair to all groups and consistent with the
maximisation of social welfare. If it is not prompt in its
pronouncements it will not be able to curb dangerous
excesses before they result in damage to the economy.
Without well-qualified staff it will have difficulty in
formulating regulation and also in implementing it.
Accountability ensures that regulations are formulated
and implemented with care after assigning due importance
to the welfare of all the stakeholders.
The factors mentioned so far are proximate determinants of
regulation. Delving further into the sources of regulatory
laws and activity enables us to determine the root/ultimate
determinants which drive these proximate determinants.
For example, no overlap in the functions of regulatory
agencies and clear delineation of powers lead to timeliness
of regulation. If the regulatory agency has its own training
facilities for generating man power then it results in
independence from the government and a steady flow of
well- qualified staff and consequently quality formulation
and implementation of regulation.
Own training facilities and sanction for generating
financial resources through taxes, fees and publications
result in both functional and financial autonomy from the
government. The existence of an option for regulated
entities to appeal against regulators in a tribunal ensures
the accountability of regulators.
Three processes of regulation
As different sectors have different objectives in adopting
regulations it is very difficult to develop an integrated and
holistic framework for assessing the quality of regulation.
However, any assessment of the quality of regulation
involves three processes: (a) determining whether
regulation is needed; (b) if it is needed then determining its
deviation from the optimal level of regulation; and (c)
determining the effectiveness of regulation in achieving its
objectives.
With regard to (a) regulation is usually needed when (i)
there is a natural monopoly (economies of scale exist so that
competition is not desirable); (ii) externalities exist so that
agents are often not charged by the market for the costs
they impose on others; and (iii) there are information
asymmetries among buyers and sellers implying that the
market does not constitute a level playing field.
If any of these characteristics are not found in a market to a
significant extent regulation is deemed to be unnecessary
and therefore of poor quality. With regarding to (b) a
technique called regulatory impact assessment (RIA) is
used for determining the sub-optimality of regulation. This
technique involves determination of the extent of
regulation at which net benefits (benefits minus cost) are
maximised. Note that a regulation involves both
administrative costs (salaries of staff, equipment costs etc.)
for the regulator and compliance costs for the regulated
parties (documentation and associated costs of staff etc.).
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The net benefit from regulation is, therefore, the welfare
gains from regulation less the costs mentioned above and is
a function of the stringency of regulation. When a
regulation is less stringent than that required to maximise
net benefit it is deemed as sub-optimal and the relevant
sector is said to be under-regulated. On the other hand over
regulation is said to occur if the stringency of existing
regulation is more than the level which maximise net
benefits.
While RIA is a good technique for determining the quality
of regulatory laws it might be inadequate for judging their
enforcement. The quality of regulatory enforcement can be
judged by reviewing the status of its proximate or ultimate
determinants mentioned above. While one or both classes
of determinants might be used the actual use might not be a
matter of choice. In certain cases, especially in developing
countries, the history of a regulatory body is so short at the
time of assessment that it is often not possible to have
adequately voluminous data on proximate determinants
which are usually performance indicators.
In such cases information on ultimate causes, such as the
availability of own training facilities and sources of funds,
which are input indicators might have to be used.
In general, it has been found that regulation is a task that
requires specialised skills and training. Regulatory regimes
in most developing countries are in an early stage of their
evolution and many of them suffer from lack of funds and
training facilities for their staff. They are, therefore, unable
to meet the demands of modern regulation. There is great
scope for multilateral intervention in this regard so that
economies of scale in training and development of skills
can be exploited and rewarding interaction among
countries on regulatory issues can be facilitated. Only then
can we raise the quality of regulation in the developing
world.
_____________________________
This article first appeared in the Newsletter of the ECPR
Standing Group on Regulatory Governance, July 2008,
Volume 1 (2).

Urban Governance and Service Delivery in
Bangalore: Public-Private Partnership
(This article is an abridged version of a larger article.)
Sangita S N**, Head & Professor,
Smitha K C*, Doctoral student,
(Centre for Political Institutions Governance and Development, Institute for Social and Economic Change)
Abstract
The paper explores public-private partnership in the light
of persistent state failure, institutional constraints, and
systemic weakness, which impede the service delivery.
The paper focus is on key issues: whether public-private
partnership facilitate innovation, and thereby enhance
quality services, and essentially pro- poor reflecting equity
concerns. The study examines various types of partnership
at work for service delivery in metropolitan Bangalore. The
paper is presented in five sections. The first section
presents conceptual understanding of PPP in urban
context while second section explores empirical evidence
of PPP models in Bangalore. The third section deals with
outcomes in terms of Efficiency and Equity issues. Final
section presents policy prescription.
Introduction
Bangalore: A City that beckons Bangalore is the sixth most
populous city in India and 43rd largest metropolis in the
world with a population of 60 lakhs spread across 595 sq.
kms geographical area (2001). It is the one of the fast
*
Doctoral student, Centre for Political Institutions Governance and Development, Institute for Social and Economic Change, Nagarabhavi, Bangalore.
**
Head & Professor, Centre for Political Institutions, Governance and Development, Institute for Social and Economic Change, Nagarabhavi, Bangalore.
www.circ.in
growing city and poised to become mega city with 88 lakhs
population and 1,000 sq. Kms in 2015. The city is a leading
science centre with its internationally comparable
educational and research institutes. It is a centre for India's
Space research and aviation technology. Bangalore is
emerged as 'Silicon Valley' of India with a booming IT
industry of over 125 multi-national companies, 1150
software export companies and 1,20,000 IT professionals.
The software exports from the city have been estimated to
be around US $2.5 billion in 2003.
1. Stress on Urban Infrastructure
With the increase of population and stimulated economic
growth there has been an enormous strain on the existing
infrastructure and service delivery. The problems related
to traffic, roads, water, sanitation, solid waste, electricity
8 and transport in urban areas are quite acute
(Sivaramakrishna and Kundu, 2005: 106; NIUA, 1995; GoI,
2005: 363). The government has neither capacity nor required
finances to cope with rising demand for public services. In this
context, many governance reforms have been initiated both
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by state and civil society to improve the quality of
governance and service delivery. The major reforms
include Public Private Partnership (PPP), privatization of
government activities, and partnership with civil society
organizations, transparency and accountability in
administration and so on. Against this backdrop, the study
examines the implications of governance reforms
particularly public private partnership on service delivery
in terms of efficiency and equity in Bangalore.
2. Public-Private Partnership for Service Delivery:
Conceptual Framework
There is lack of consensus over definition of PPP. PPP is
deferred as 'working arrangements based on a mutual
commitment between a public sector organization with
any organization outside of the public sector' (Gerrad 2001:
49; Bovaid 2004: 200). It is a contractual agreement formed
between a government agency and a private sector that
allows the latter in public service delivery towards
financing, designing, implementing (Peirre 1999:374;
Osborne 2000; Awortwi 2004: 213; Bovaid 2004: 200; DEA
and ADB 2006: 17; Hodge and Greve 2007:545; Rajan 2007: 2).
PPP is innovative, flexible collaborations in which the
partners are bound by shared values and mutual trust to
share cost, risks, and benefits (Batley 1996; Ghere 2001: 441;
Teisman and Klijn 2003: 197; Prosper Ngowi 2006: 3;
Bloomfield 2006:400). PPP is also understood in terms of
inherent power dynamics shared mutually among the
partners (Lister 2000:228). Power might be political
information, or organizational power. PPP is alternative
service delivery model to achieve efficiency and address
shortages, although unlikely to replace fully traditional
service deliver by governments. The partnership concept is
linked to the network forms of governance, in which public
actors co-opt other actors to solve the governance
problems. PPP therefore, represent a new way of doing
business to improve the quality and efficiency of public
services.
Typology of Public-Private Partnership
PPP encompasses a range of partnerships based on (i)
number of partnership involved (ii) governance level at
which partnership is evolved and (iii) the objectives or
purpose for which partnership is constituted (Sekar 2002:
5). Other classification include: type of partnership, size of
partner (measurable in terms of funding, revenue,
investments etc), extent of collaboration/level of
commitment, role and functions, stage of partnership, type of
actors involved, area of intervention for output, scope of
partnership, organizational form, capacity in partnership, and
geographic location. All these forms of partnership imply
some degree of complementarity or synergy or collaboration
or co-production, dialogue, contracting, co-ownership, market
friendly regulation and trust between public and civic actors in
pursuit of common set of social objectives (Robinson and
White 2001: 107; Sansom 2006:210)).
The classification includes public-public, public-private,
and public-civil society and International- development
partners as shown in the chart 1.

Chart 1: Typology, Nature and Purpose of Public-Private Partnership for Service Delivery

Purpose of Partnership

Nature of PPP Sector/Number Type of Role of Area of Scope

of Partnerships Partnership Partnership Partnership Partnership
Involved

Public- Public Intergovernmental Power sharing Supply Side Policy Vertical

or Inter-Municipal Objectives

Public-Private Public authority Contractual/ Demand Side Customer Mixed

with private sector Out Sourcing Focus/Quality Partnership
Services

Public- Third sector Dialogue/ Demand Empowerment/ Horizontal

Civil Society Contestation Side Citizen
Participation/
Monitoring

Public- Both private and Loose Mixed (both Social Mixed

Development civil society Network Supply & Inclusion Partnership
Demand side) or PPP

Public- Private sector Contractual Supply side Economic Mixed

International Productivity Partnership
Or PPP
Source: Complied from different sources

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Partnership between public-public is most common to
cooperate and coordinate in service delivery (Hall, et al,
2005: 7). The coordination between the Bangalore City
Corporation (BCC) and Karnataka Slum Clearance Board
(KSCB) can be mentioned in this regard. The partnerships
between local and central or state governments for power
sharing (for setting policy priorities, policy design or
planning and policy implementation) are also come under
this category.
PPP in partnership with 'private' sector include interalia
corporate bodies, consulting firms, contractors,
maintenance companies, private investors and so on. The
The public-private also include: service contracts,
operation and management contracts, Leasing-Buy-Build-
Operate (BBO), Lease-Develop-Operate (LDO), Wrap-
Around Addition (WAA), Build- Operate-Transfer (BOT),
Build. Own-Operate-Transfer (BOOT) etc. Most contracts
cover the finance, design, management, and maintenance
obligations. These contracts are usually financed by user
fees or tariffs or by government subsidies. The argument is
private participation results in better efficiency. The PPP
helps to raise resources (funds, techno- managerial skill
and expertise), innovation, cost saving and construction
and commercial risk sharing, entrepreneurial spirit and
improve services simultaneously. The partnership with
third sector such as local NGOs, community organizations,
trade unions and so on (Brinkerh off and Brinkerh off 2004)
is to achieve transparency, accountability, social equity
(Laquian 2005: 307). Partnership with NGOs or
Community Based Organizations also varies depending
whether primarily, a deepening role or stretching role
(Krishna, 2003: 365). Such engagements facilitate co-
production without undue interference of government
(Sansom 2006: 213).
These civic groups play a predominant role in mobilizing
services, pressing for micro-policy reforms, engage in mass
campaigns, demand for better services, monitor actual
provision and for ensuring accountability from service
providers (Chowdhury Roy 1999:1097; Jalal, 2000: 43;
Robinson and White 2001: 100; Paul, etal 2004:
933). The horizontal engagement of public civil society is
aimed to promote consultative process and prioritize
service options and widen the participatory democracy. In
fact, the process of decentralization has resulted in the
empowerment of the common people through local-level
planning and community resource mobilization. Norms of
such cooperation on networks of civic engagement among
ordinary citizens and public agencies are used for
developmental ends and serve as socialization agents of
partnership (Chowdhury Roy 1999:1098; Vigoda 2002:536;
Sangita, 2005: 75) and realize collective pressure to usher
policy changes. Instead of remaining passive recipients, the
participation of civic groups has in fact inspired the
undertaking of a unique state-citizen dialogue in a big way
by 'pressurizing' or 'lobbying' the existing state for change.
These structures are effective beyond their social role, by
linking the public issues at the grassroots into the
appropriate platform at the local level. The deliberative
structures hope to promote civic values, civility as a
precondition for governance and thereby determine their
own development paradigms. The state and international
partnership include a public authority from a country
(preferably high income country) enters into a partnership
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with a public authority with a lower income country
usually to assist the latter with its development projects
(Hall, et al, 2005: 7-8; Brinkerhoff and Brinkerhoff, 2004:
254).The second type of partnership is between
international partners when public authorities (Hall et al
2005: 6) from different countries work together to address
common set issues and agendas. These partnerships are
Important inter-organizational mechanism for delivering
international development assistance. For instance,
transnational agencies or international donor agencies like
World Bank, International Monetary Fund (IMF) or United
Nations Development Programme (UNDP) has major
funding or contribution for infrastructure such as water
supply; sanitation; energy or power sector.
Potential Drivers for Public-Private Partnership
There are many potential drivers for promoting
partnership in developing countries. First, glaring
infrastructure deficit, in the areas such as water supply,
sanitation, local transportation, and waste treatment compel
the government to opt private sector for financing,
design, construction, and operation (Lquian 2005: 312).
Partnership would help to overcome impediments posed by
state failure, institutional constraints, and distributing costs
and risk among partners. In addition, partnership
constitutes the most significant methods to generate
performance of essential services that tends to reflect the
incorporation of market-based principles and practices into
the public provisioning of services (Pinto 1998: 394). In the
field of local governance, the governmental organizations
are increasingly dependent on private or semi-private actors
for implementation of their policies and service delivery.
Objectives and Outcomes of Public-Private Partnership
Public-Private Partnership (PPP) is recognized as the most
innovative tool for resource generation, quality and better
services. PPP reduces the gap of meeting increasing
infrastructure needs and social exclusion. Partnership
further can bring creativity, dynamic, resilient, innovation,
energy, vibrant and capacity building to improve service
delivery. PPP is critical in promoting innovation in
technological, institutional, and organizational behaviors
and practices in service delivery.
The objectives of PPP in service delivery vary with wider
political and private interest. The PPP promotes clear
customer focus through reduced cost, faster services, and
improved service quality. Further, PPP promotes greater
efficiency in terms of improved coverage, access and
enhanced social service (Cook and Minogue 1990: 398;
Kaul 1997: 21; Brown and Potoski, 2006:657; Bloomfield,
2006:401). PPP ensures recovery of user charges by better
risk allocation and procure additional revenue streams.
Thus, PPP is seen as the best way, to govern the complex
relations and interactions in a modern network society
(Teisman and Klijn 2002: 198). The chart 2 clearly enumerates
the objectives.
PPP enable mobilization of resources and capacity building
(through sharing skill, management, expertise, new-
technology and training programs). PPP symbolizes market
driven competition, risk sharing, and transparency (Brown
and Potoski, 2006: 666; Bloomfield, 2006: 401). PPP ultimate
goal is to obtain more 'value for money' (Ranjan 2007: 2) and
thereby safeguard consumer and public interest.
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Chart 2: Objectives and Outcomes of PPP
Objectives
Service Efficiency or effectiveness
Mobilization and Capacity Building
Accountability and Transparency
Civic Participation and Citizen engagement
Equity of Services
Constraints for PPP
The major constraints for PPP are: fragmentation,
duplication, heterogeneity and uncertain outcomes.
Power relationship in partnership is often asymmetrical
and less ambivalence. The most vexed issues of a
partnership approach are fragmented structures and
processes, blurring responsibilities and accountability.
Effective coordination in partnership seems to be the area
Outcomes
a.Efficient mode of Improved service delivery
b.Improved coverage and access to services
c.Promotion of equity in service delivery
a .Public awareness programs and training methods
a . E-governance or e-services
b. Simplification of procedures
a . Consultative process with citizens and other
stakeholders
b. Public or interactive or redressal forums
a . Measured locally in terms of access,
standards, or level of services and affordability
of contention which includes: duplication of services,
heterogeneous approaches, competition for resources, lack
of integration, corruption, inter-institutional coordination,
bureaucratization, and dependence (Robinson and White
2001: 103; Krishna 2003: 368). Key concerns include poor
framework, lack of clarity, inadequate capacity to manage
the process, and an overly narrow transaction focus
(Ghere, 2000: 448; Bloomfield, 2006:410).

Public authority in partnership is eclipsed in its traditional
weakness of monitoring and evaluation. Public authorities
rarely have access to such resources leading to weak
relations. They also do not have adequate control over the
PPP, especially for local contracts with private sector
involved in the provisioning of urban services that likely to
result in higher cost to local taxpayers (Bloomfield,
2006:402;Hodge and Greve 2007: 553). The long-term
partnership entitling innovative methods of financing
public facilities are susceptible to transparency problems
(Ghere, 2000: 448; Bloomfiled, 2006: 403) and within-
partnership coordination costs are a major challenge to
successful PPPs. Staff reduction or downsizing leads to
mistrust and poor management. Tariff increase, layoffs,
and poor stakeholder's coordination have contributed for
its weakness. Further, private investors are basically profit-
oriented. PPPs tend to focus on markets where revenues
are easily generated. The poor are often excluded from
PPPs because of institutional constrains that prevent the
development of an attractive market that involves the poor
(Robinson and White 2001: 104; Laquian 2005: 312; Leung
and Hui 2005: 14).
Many PPPs have failed due to strong opposition from civil
society, local media, and other stakeholders. Even in the
absence of this bias, governments often lack the financial
resources and the technical capacities to provide services to
the poor. Partnership would be further marginalised the
poor as they focus on markets for profits. Further, the
availability of private financing for infrastructure projects
has essentially provided governments an opportunity to
use a 'mega-credit' card to charge on infrastructure deals
(Hodge and Greve 2007: 552). Lastly, the partnership
projects have generally undermined the significance of
local cultural ethos. Overcoming these institutional
constrains often require innovative solutions and an
inclusive partnership that will bring in all relevant
stakeholders.
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Enabling Conditions for Public-Private Partnership
The full potential of PPP can be achieved by careful
planning and application through a clear framework for
partnerships. Governments need to work on accountable
And transparent structures to formulate and enforce. First
the establishment of proactive mechanisms (such as
ombudsman, ethical training, and citizen grievances
processes) would ensure partnership legitimacy. Second,
PPP needs to do preparatory work defining procedure
(specificities), tasks, quality indicators and monitoring
process. Improved and more independent regulation of
public utilities is achieved by an effective entry point for
future well defined PPP contracts (Sansom 2006:215). Some
necessary pre-requisites include strong political
Commitment, transparency and consistency of policy,
effective regulation, careful design of the contract with
appropriate risk apportionment and attention to cost
recovery, and clearly defined stakeholder roles, project
financing, and extent of competition. And creation of a
good information base is also an important factor.
Feedback and consultations with citizens, labour unions,
relevant government agencies, private investors, civil
society organizations, and media will ensure support,
client focus, and overall improved implementation of PPP
and protect public interest.
Thus successful PPP stems from the nature of goods and
services produced and depends on transformation of
inputs into outputs and tradeoffs that partnership face
(Orts, 1996: 1080; Rudolph, 2000: 1768). Further, the
successful partnership depends on the form of rates paid to
public officials and the opportunity costs facing citizens for
inputs like knowledge, skills and time (Ostrom, 1996:
1081). Finally, effective conflict resolution, contradicting
social and political goals, complicated contractual
agreements, expertise, consultation, cooperation and
attending to their suggestions are all potential areas of
concern.
www.circ.in

Public-Private Partnership in Urban Context collection, rationalisation of service charges, simplifications

Cities of the world experience tremendous pressure in
terms of management and operation of urban systems as
well as service delivery. Important changes are taking
place in the governance of cities in developing countries,
one of the important being the proliferation of various
forms of networks and partnership between public-private
and civil society. Many urban reforms such as partnerships
with public-private and civil society organisations are
introduced to improve quality of governance and service
delivery. The broad stakeholders in this reform process
include differing in sectors and levels. Changes in rules,
norms and values, practices have been brought to facilitate
coordination among various agencies to improve
efficiency. Privatisation, decentralisation, restructuring of
departments and administrative procedures, laws and
regulations, social audit, e-governance, citizen charter, red
ressal grievances, transparency and sound personnel
policies constituted major strategies of urban governance
reform (World Bank, 2003). Many Urban Local Bodies
(ULBs) introduce innovations to improve billing and
of tax assessment system, computerization of services, and
improved accounting and financial management systems.
New Partnership Situation
The emergence of partnership and networks in urban
context can be shown in the following illustration.
1. The rising expectations of citizens challenged in the
existing service delivery processes both in terms of
participation and quality of services. The demands are
no longer met in isolation by government alone.
2. Numerous inter-governmental networks, alliances
and partnership arrangements are developed. These in
turn would create complex arrangements and
processes.
3. Due to private sector participation, alternative service
arrangements are defined and experiments are carried
out through partnerships.
4. Increase in multi-stakeholders partnership
representing people voice and dialogue.

Urban growth, Financial crisis, poor Rising expectations;

Increase infrastructure, demand for
population and increasing better/quality and
Consumerism supply-demand gap efficient Services

Increased
interdependency; need to
combined resources,
finances, technology and
skills

Increase complex
Creation of governance
networks; and Partnership
Networks and
arrangements
Partnership
arrangements

Stakeholders
Participation: Civil
Society like NGOs, Improved Service
CBOs and Voluntary Delivery
sector

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Public-Private Partnerships:
Keeping Human Rights on the Radar
Surya Deva,
Associate Professor, JD Programme Leader, Faculty Editor, City University of Hong Kong Law Review
School of Law, City University of Hong Kong

I. Context The contours of this public-private relationship have

The idea of public-private partnerships (PPP) is
gaining increasing recognition all over the world.
While the origin of PPP is generally traced to the last
decade of the 20th century, this might be a misnomer.
States (public) have formed partnerships with
companies (private) for centuries. The British East
India Company (Company) is a case in point: on 31
December 1600, Queen Elizabeth I issued a charter to
the Company to conduct monopolistic trade into the
East Indies1. Through subsequent charters, the
Company acquired rights to mint its own coin,
maintain army, manage overseas territories and collect
taxes;2 basically, in exchange for serving the economic
and colonial interests of the British Empire, the
Company can do everything that a sovereign state
would do. That early experiment of PPP failed, among
others, because neither the British government nor the
Company bothered to take responsibility to serve the
public good.
changed over the years in that justifications for PPP,
scope and regulatory framework of PPP, the nature
and extent of partners' contributions, modes of sharing
benefits, and the parameters of responsibility as well
as risk allocation have continued to evolve as per
diverse needs. Nevertheless, the basic postulate of the
PPP has remained the same: a partnership between
public and private sectors to achieve a mutually
beneficial goal by pooling in resources. PPP is now
used as a vehicle to run hospitals, operate
bridges, highways and tunnels, offer consular services,
provide security, fight wars, gather intelligence, run
prisons, and provide a range of public services.3It is
regretful, however, that the mistake of ignoring the
public good is being repeated again four-hundred
years down the road. In the current PPP discourse, the
focus with some exceptions4 is mostly on employing
PPP for achieving economic development and/or

1
John Keay, The Honourable Company: A History of the English East India Company (London: Harper Collins Publishers, 1991) 9, 39.
2
Alex Von Tunzelmann, Indian Summer: The Secret History of the End of an Empire (London: Pocket Books, 2008) 14-15.
3
Several factors underpin this push for PPP, e.g., resource crunch; general inefficiency of the public sector; new challenges and public expectations; optimising
strengths and gains by forging partnerships. See J Kwan, 'Public Private Partnerships; Public Private Dialogue', <http://www.civil.hku.hk/cicid/
3_events/32/papers/1.pdf>.
4
Apart from the UN Global Compact, one can refer to involving business in accomplishing the Millennium Development Goals (MDGs). See, e.g., UNDP,
UNDP and the Private Sector: Building Partnerships for Development (New York: UNDP, 2004).

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entities to protect a wide range of human rights

interests. Having ratified several international human
rights conventions, the Indian government is under a
duty to respect, protect and fulfil human rights. This
obligation remains undiluted even when the
government joins hands with a private entity to
achieve certain economic goals.

Nevertheless, in practice, there are numerous

examples of the government ignoring their human
rights obligations while establishing PPP. Let us
consider the memorandum of understanding (MoU)
signed between the state of Orissa and POSCO, a
Koran company.11 Under the MoU, the government
of Orissa undertook to do almost everything necessary
to help POSCO establish the steel plan and related
projects from acquiring land to procuring raw
materials, ensuring availability of water and power,
improving infrastructure5.India's 2011 Draft National securing environmental clearance and providing
Public Private Partnership Policy (Policy) is no overall security. The MoU, however, hardly gave any
exception6, as neither the objectives of PPP nor the attention to the human rights implications of the
principles governing PPP make any reference to project or allocated clear responsibility in this regard.
human rights7.Nor do one find in the Policy a This approach is problematic: it neither helps in
provision for the human rights impact assessment accomplishing the PPP project on time nor protects the
alongside economic, financial and affordability interests of the affected community.
assessment.8 In short, rather than embedding human
rights into the plans for harnessing the potential of The recently adopted UN Guiding Principles on
PPP, the Policy totally ignores and externalises the Business and Human Rights (GPs) rightly remind
human rights impacts of the PPP-driven development. states to take multiple measures to protect against
Against this background, this articles argues that both human rights abuses by business entities within their
states and companies have human rights obligations territory or jurisdiction.12Directly relevant to PPP are
flowing from national laws and/or international law Principles 5 and 6, which provide that states 'should
and that these obligations do not disappear simply exercise adequate oversight in order to meet their
because 'public' and 'private' social organs join hands international human rights obligations when they
to pursue certain economic goals. For the sake of contract with, or legislate for, business enterprises to
convenience, the term 'human rights' is used in this provide services that may impact upon the enjoyment
article to include not only human rights but also labour of human rights' and 'should promote respect for
rights and environmental rights. human rights by business enterprises with which they
conduct commercial transactions.' It is clear that
II. PPP And Human Rights India's Draft Policy is totally oblivious of these
Why human rights should matter for PPP Irrespective expectations articulated by the Gps.
of the fact whether the entity behind PPP is public,
private or a hybrid of public and private, it The GPs also provide that companies have a
has certain human rights obligations under both law 'responsibility to respect' all international human
and morality. In Indian context, the government as rights. Principle 15 lays down that in order to
well as 'other authorities' within its control are subject discharge this responsibility, companies should
express a policy commitment to respect human right,
to extensive list of fundamental rights enumerated in
conduct human rights due diligence and put in place
the Constitution. 9Moreover, certain fundamental
processes for remediation of any adverse impacts.
rights do apply, or have been interpreted to apply, to
Although the GPs are not legally binding on
private entities.10In addition, there are numerous
companies, they can ignore human rights only at
domestic laws that obligate both public and private
their peril, especially in view of the increasing
5
See World Bank Institute, 'Public-Private Partnerships Can Deliver Critical Infrastructure if Developing Countries Tackle Financing and Governance Issues',
Press Release No 2012/292/WBI (24 February 2012), <http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:23126724~
pagePK:64257043~piPK:437376~theSitePK:4607,00.html>.
6
Draft National Public Private Partnership Policy 2011, Preamble (para 1), <http://www.pppinindia.com/pdf/draftnationalppppolicy.pdf>.
7
Ibid, paras 2.1 and 2.2. Protecting the interests of 'project affected persons' and 'other stakeholders' is though listed as one of the principles to be kept in mind.
Ibid, para 2.2.4.
8
Ibid, para 3.4.2.
9
Constitution of India, article 12.
10
Ibid, articles 15(2), 17 and 23; Vishaka v State of Rajasthan AIR 1997 SC 3011. See also Mahendra P Singh, 'India: Protection of Human Rights against State and
Non-state Actors' in Dawn Oliver & Jörg Fedtke (eds.), Human Rights and the Private Sphere: A Comparative Study (London: Routledge, 2007), 180.
11
'Memorandum of Understanding between the Government of Orissa and M/S POSCO for Establishment of An Integrated Steel Plant at Paradeep' (22 June
2005), <http://www.orissa.gov.in/posco/POSCO-MoU.htm>.
12
Human Rights Council, 'Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework',
A/HRC/17/31 (21 March 2011).
13
Ibid, Principles 11 and 12.
14
See Surya Deva, 'Guiding Principles on Business and Human Rights: Implications for Companies' (2012) 9:2 European Company Law 101.

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Awareness-cum-activism on the part of consumers,
investors and the civil society. In other words, there is a
business case for complying with human rights.
Apart from legal and economic dimensions, it is also
arguable that companies should be subject to human
rights obligations because of their relation to and
position in society.15 First and foremost, companies are
social organs and their license to maximise profit is
neither absolute nor irrevocable. Complying with
human rights responsibilities should be a precondition
to conducting business, otherwise human rights
cannot be fully realised in an era of PPP and outsourcing.
Overcoming the challenges of PPP to human rights
PPP projects pose unique challenges to the realisation of
human rights. To begin with, human rights do not
generally feature on the radar of either states or companies
and consequently, economic gains often push other equally
important social goals to the background. The second
problem is that the regulatory framework might not clearly
outline who would bear the responsibility to respect,
protect and fulfil human rights. Third, even if human rights
responsibilities are clearly demarcated, the state in
question which ought to protect human rights might have
a vested interested in ignoring adverse human rights
impacts of PPP, especially if the involved company possess
economic clout. Fourth, since the institutions tasked to
monitor the implementation and enforcement of human
rights are still based on the public-private divide, they are
not equipped to deal with human rights abuses by a hybrid
PPP entity. Fifth, since PPP mostly relate to economic
projects, alternative dispute resolution (ADR) methods
such as arbitration and mediation are employed to settle
disputes, but these methods and the legal regimes
governing them do not always accord adequate
importance to human rights. Last but not least, if an
overseas company is involved in the PPP project, this raises
a whole set of jurisdictional and/or political problems in
fixing the responsibility.
It is not, however, impossible to overcome these
challenges. Several measures can be taken to ensure that
the PPP development projects do not ignore human rights.
The trick lies in integrating human rights into all PPP stages
from planning to approval, implementation and
performance monitoring. Before selecting any project, the
government should conduct wide consultation with all
relevant stakeholders as to the appropriateness of PPP for
the given project or area. Since companies opt for PPP
primarily for financial reasons, projects with doubtful
long-term financial profitability should be a 'no-go zone'.16
Nor should the government opt for PPP if irreparable harm
may potentially be caused to a given public good (such as
indigenous land or a historical site) by a project driven by
profit motives or if there is no guarantee that the PPP
would result in delivery of better service at an affordable
price. Apart from consultation, the human rights impact
assessment by an independent agency should be made
15
Surya Deva, Regulating Corporate Human Rights Violations: Humanizing Business (London: Routledge, 2012), 145-50.
16
See Kwan, above note 3.
17
See Christopher McCrudden, 'Corporate Social Responsibility and Public Procurement' in D McBarnet, A Voiculescu and T Campbell (eds.), The New
Corporate Accountability: Corporate Social Responsibility and the Law (Cambridge: Cambridge University Press, 2007), 93.
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mandatory and no PPP project should be approved unless
its human rights implications have been considered and
taken care of. Past human rights track record of companies
should be one of factors to select a successful bidder and
award procurement contracts. 17
Special care should be taken in acquiring land for PPP
projects: rather than merely satisfying the relevant legal
requirements, the aim should be to win the support and
confidence of affected land owners and other stakeholders,
otherwise significant delays in project completion are
inevitable. It is highly desirable that the MoU, if any, and all
relevant contracts contain explicit provisions as to individual
as well as collective human rights responsibilities of different
partners. The performance of PPP should be judged also
with reference to direct or indirect contribution to the
realisation of human rights. Project monitoring units should
be required to factor in non-economic variables in evaluating
the success of PPP projects and the experiences learned in
this process should be fed into the government nodal body in
charge of PPP.A mechanism should be set up to receive and
resolve at an early stage potential human rights grievances of
stakeholders arising out of PPP operations. Such a mechanism
should be complemented with ensuring effective access to
judicial mechanisms, including by extending their jurisdiction
to deal with human rights abuses taking place within the PPP
matrix. Preference for taking resort to ADR to resolve disputes
should not unduly limit the right of affected parties to
approach courts to seek relief against PPP project providers.
III. Conclusion
This article has pointed out that the idea of PPP, albeit
in different forms, has existed for centuries.
Considering that the relevance of PPP is likely to
deepen in years to come, it is critical that we devise a
framework that can ensure that human rights find a
voice in all stages of the PPP process. There are sound
legal and moral reasons to demand that both public
and private participants of PPP projects comply with
universal human rights obligations. While PPP
presents some unique challenges to the human rights
discourse, it is not impossible to overcome these. I have
suggested some steps to keep human rights on the
radar of PPP policy makers and participants.

Public Private Partnership
in Infrastructure Sector in India
Dr. Sushil Kumar,
Assistant Professor, Institute of Management Studies. Kurukshetra University
Abstract
The present article deals with the public and private sector
partnership in infrastructure in India. The Indian
infrastructure sector is one of the largest sectors of our
economy. Since the early 1990s, India has been looking to
the private sector to fill investment gaps in infrastructure
but investment in this sector has not lived up to
expectations. More investment is required in case of core
sectors like roads, railways, ports, airports, power and
telecoms. This article Suggests how infrastructure can be
improved with the help of public private partnership. This
article is divided into six major segments namely
introduction, meaning of public private partnership,
infrastructure position in India, core sectors in
infrastructure, Government of India and PPPs, suggestions
& concluding remarks and lastly references.
1. Introduction
With present state of physical infrastructure, India will be
hard pressed to sustain 9 per cent annual GDP growth over
the medium term. So there is massive and urgent need to
increase investment in core sectors like roads, railways,
ports, airports, power, urban facilities or even telecoms
Public Private Partnership is a way to build world class
infrastructure. International experiences show that
facilitating Public Private Partnership (PPPs) in
infrastructure is the one of the best idea for the betterment
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of infrastructure sector. Before further discussion on the
'Public Private Partnership' we should understand its
meaning.
2. Meaning of Public Private Partnership (PPP)
To understand the meaning of PPP we need to know about
the terms public, private and partnership.
2.1 Public- The term public indicates public sector and it is
that portion of economy which is controlled by national
and local governments, public corporations and quasi-
autonomous non-government organizations (QUANGO).
It includes services such as police, military, public road,
public transit, primary education and healthcare for the
poor. What we mean to say is that public sector might
provide services that non-payers cannot be excluded from
and it benefits to whole of the society rather than the
individual one and these services encourages equal
opportunities concept in society.
2.2 Private- Private sector is that part of an economy in
which goods and services are produced and distributed by
individuals and organizations that are not part of the
government or state bureaucracy. It is run for private profit
motivation only. It includes the personal sector
(households) and corporate sector (firms), and is
responsible for allocating most of the resources within an
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economy. Hereby activities are designed in such a manner

which restricts competition in order to keep prices
relatively high. The main types of businesses in the private
sector i.e. Sole trader, Partnership, Private Limited, Public
Limited Company shares are open to the public etc.

2.3 Partnership- A partnership is a type of business entity

in which two or more persons share with each other the
profits or losses of the business However, depending on the
partnership structure and the jurisdiction in which it
operates, owners of a partnership may be exposed to
greater personal liability than they would as shareholders
of a corporation. More generally, a relationship of two or
more entities conducting business for mutual benefit is
known as partnership.

2.4 Public Private Partnerships (PPPs)- Public Private

Partnership is that private sector does all management and
labor activities in any approved project but under the
control of public sector. When all costs have been covered
by private enterprises then it is handed over to
Government and the project is treated as a social project,
such as flyovers, roads, rivers, ports, power etc.

3. Infrastructure Position in India

India has since the early 1990s, been looking to the private
sector to fill investment gaps in infrastructure. Investment
here did not initially grow as rapidly as in Latin America or
East Asia, as policy reforms were slower. However, with
the increasing emphasis, over time, on public private
partnerships in key sectors, such as telecom and transport,
India has seen a increase in investment. The years 2004 and
2005 saw the highest level of investment to date.
Investment in infrastructure in India over the past two
decades has not lived up to expectations. The 1996 India
Infrastructure Report projected the need for an increase in
investment in infrastructure from levels of under 5 per cent
to about 8 per cent of GDP by 2005-06. In the Union Budget
2005, the Finance Minister reiterated the importance of
infrastructure for rapid economic development and noted
that, in the Government's view, 'the most glaring deficit in
India is the infrastructure deficit'. Efforts has also been
made, over the years, to strengthen the policy and
regulatory framework underpinning some of the key
infrastructure sectors, with notable success achieved in the
Telecommunications sector.
An overview of Investment in infrastructure sector by both
private and public investors displays that the investment
by public private partnership mode was only 3.75% of GDP
in 1991, has shown an increasing trends and touches to
approximate 4.5 % of GDP in 1994 goes to 3.75% of GDP in
1999. But in 2011 the total project cost through PPPs is
estimated to be about Rs. 383,332.06 Crore. While the
private sector investment in infrastructure has been
increased to 2.73 % of total investment in infrastructure in
2011 from (Source: World Bank WDI Database). Hence it is
clear that the part of investment of public sector is much
more than the private sector. But this trend is now going to
be in favor of private sector since public sector now coming
forward to help him.
4. Core Sectors in Infrastructure in India
4.1 Highways-
For a country of India's size, an efficient road network is
necessary both for national integration as well as for overall
socio-economic development. The National Highways
(NH), with a total length of 65,569 km, serves as the arterial
network across the country. The Committee on
Infrastructure adopted an Action Plan for development of
the National Highways network. In India, the central as
well as a few state governments have successfully
harnessed private sector partnership in road development.
At the central level, as part of the first and second phases of
the National Highways Development Project (NHDP) - a
flagship program with an estimated requirement of US$
5060 billion investment within five years- 66 projects with a
total value of about US$ 6 billion were implemented
through the Build-Operate-Transfer (BOT) route (42 toll
projects and 22 annuity projects). Since January 2006, the
Public-Private Partnership Appraisal Committee (PPPAC)
has granted approval to a total of 87 projects including 77
highway projects. The PPPAC approves the infrastructure
projects worth US$ 5.98 billion on November 2008. This
includes 21 highway projects to be taken up under NHDP
Phase III and V. An ambitious National Highway

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Development Programme (NHDP), involving a total
investment of Rs.2,20,000 crore (USD 45.276 billion) up to
2012, has been established.
Some Private Sector Participants are -
Reliance Energy, L&T inter-state Road Corridor Limited,
Jaiprakash Associates Ltd (JAL), Lanco Infratech, DS
Construction, Maytas Infra Private Limited and Nagarjuna
Construction Company Ltd (Joint Venture), Era
Constructions India Limited and Karam Chand Thapar &
Bros Limited etc.
4.2 Railways-
Indian Railway (IR) is the backbone of the socio-economic
growth of India. It is the second largest railway network in
the world with 63,122 route kilometer (rkm) operating out
of 16 zones and 67 divisions. But it is in distress. Unlike
other modes of transport, IR has failed to rise to the
challenge of being an efficient and reliable provider of
transport infrastructure. Political compulsions have forced
the IR to expand networks to commercially unviable areas,
highly subsidize passenger fares and raise freight tariffs to
a point where traditional long haul goods traffic in items
such as cement, iron and steel and petroleum has shifted to
roads or pipelines. These issues have severely eroded the
cost competitiveness of the railways and it finds itself in the
midst of financial distress. The market borrowings have
increased substantially, and are expected to be Rs.147.74
billion during the Tenth Plan.
There are many reform issues related to Indian Railways-
its serious financial state, inadequate investments in safety,
lines, signaling and rolling stock, and others. There are two
recommendations that are worth. International experience
suggests that the best way of doing this is by introducing at
least one- preferably two- other global sized competitors. It
is precisely here that the role of an independent regulator
would be critical.
India Railway had taken up one of the most ambitious
annual plans for 2008-09 with huge investment of about
USD 7.91 billion. The plan included a total budgetary
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support of USD 1.66 billion that includes USD 163.33
million from the Central Road Fund. This much ambitious
plan was eying massive profits of more than USD 20.447
billion for the year 2008-09 and onwards.
4.3 Ports-
With 12 major ports and 187 minor ports, 7,517 km long
Indian coastline plays a pivotal role in the maritime
transport helping in the international trade. Traffic
handled at major ports during April 2010 to January 2011
was recorded to be approximate 636686 units. The ports in
India offer tremendous scope for international maritime
transport both for passenger and cargo handling. Although
there have not been considerable reforms in this sector,
neither major nor minor ports have independent
regulatory authorities. TAMP has done a commendable job
in creating a fair play regarding tariffs and charges levied
on private service providers at major ports. However,
TAMP's remit is limited. The Government of India targets
to increasing the cargo handling capacity of major ports by
two folds to reach 1.5 billion metric tonnes (MT) by the year
2012. This will be achieved at an investment of around USD
25 billion through public-private partnerships. A Crisil
research on Indian ports and maritime transport estimates
that ports will grow by 160 per cent over the 201112 period.
Cargo handling at the major ports is projected to grow at
7.7% per annum (CAGR) till 2011-12 and the cargo traffic is
estimated to reach 877 million tonnes by 2011-12, whereas
the containerized cargo is expected to grow at 15.5%
(CAGR) over a period of 7 years. The New Foreign Trade
Policy envisages doubling of India's share in global exports
in next five years to Rs.675000 crore (USD 150 billion). A
large portion of the foreign trade to be through the
maritime route: 95% by volume and 70% by value.
4.4 Airports-
There are 449 airports/airstrips in the country. Of these,
126 airports- which include 11 international airports, 89
domestic airports and 26 civil enclaves- are owned,
managed and operated by the Airports Authority of India
(AAI) under the Ministry of Civil Aviation. The traffic flow
at these airports is very uneven. Six airports (Mumbai,
Delhi, Chennai, Bangalore, Kolkata and Hyderabad)
account for 90.5 percent of the total international passenger
traffic and 91.7 per cent of total passenger traffic. At
present, only 61 airports are being used by various airlines.
Most of the airports are underdeveloped and underutilized
while others have become overcrowded and are stretched
to capacity. A survey done by the International Air
Transport Association (IATA) in 1999 ranked the Mumbai
and Delhi airports amongst the three worst airports in the
Asia-Pacific region for all 19 service parameters included in
the survey. With a rating of 2.3 and 2.6 on a scale of 1 (very
poor) to (excellent) for Mumbai and Delhi airports
respectively, these airports were adjudged to offer the
lowest service levels in terms of overall satisfaction.
According to capital expenditure estimates presented by
the AAI to the Standing Committee of the Parliament in
2002 the investment needed is around Rs.191 billion.
Airports too have no independent regulatory authority.
The AAI is a creation of the Ministry of Civil Aviation.
Given the stated objective of privatizing facilities in
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Mumbai and Delhi airports as well as the approval of new
private airports in Bangalore and Hyderabad, it is
imperative that the government appoints an independent
regulatory authority for this sector. Besides this, the issue is
one of implementation. Enough reform policies have been
suggested in the report of the Naresh Chandra Committee
on civil aviation. It is time that the Ministry focuses on
implementing them quickly.
4.5 Telecoms-
The telecom sector in India is a case study of how the
interplay of competition and technology can radically
change the business landscape of infrastructure. Before
opening-up in 1994, 52 the sector was characterized by
under investment, outdated technology and limited
growth. In 1994, the waiting list for telephone connections
was as high as 2.2 million or almost 31 percent of the total
installed base. The constraint was not demand, but the lack
of resources of the public sector enterprises. Today, thanks
to the boom in cellular services, the number of telephone
subscribers in India increased to 926.53 Million at the end of
December, 2011 from 917.33 Million at the end of
November 2011, thereby registering a growth rate of 1.00%.
The share of Urban subscribers has declined to 65.97% from
66.11% whereas share of Rural subscribers has increased to
34.03% in the month of December 2011. With this, the
overall Teledensity in India reaches to 76.86 at the end of
December, 2011 from 76.18 of the previous month.
Subscription in Urban Areas grew from 606.47 million in
November, 2011 to 611.19 million at the end of December,
2011. Subscription in Rural Areas increased from 310.86
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million to 315.33 million during the same period. The
growth of Urban and Rural Subscription is 0.78% and
1.44% respectively.
These were serviced by 188 ISPs, again led by BSNL.
Regrettably, however, the domestic telecom instrument
manufacturing industry has not been able to keep pace
with the demands of the services sector. Today, bulk of the
telecom equipment is imported and the entire demand for
GSM and CDMA technologies are being met through
import. The target as set out in NTP 99 was to achieve a tele-
density of 7 per cent (75 million connections) by 2005 and 15
per cent (175 million connections) by 2010. In addition,
there has to be investment in broadband to provide high
speed, reliable, on demand internet connectivity with a
speed of at least 256 Kbps. Assuming 25 per cent annual
growth, and a tele-density of 25 per cent by 2010-11, the
investment needed is Rs.1,996 billion. To this should be
added an extra Rs.147 billion for broadband. The above
target is yet to be achieved. The 2G spectrum has spoiled
the image of telecom sector and increase government
challenge in the sector.
4.6 Power-
The most important aspect of power sector reform is to
recognize the fundamental truth of the maxim, “No money
no power”. No amount of economic or financial sophistry
can ensure funding for projects where consumers do not
Even pay for the marginal cost of a good or service sold. The
Electricity Act, 2003, is a welcome step in the right direction.
However it needs to be operationalzed at the level of each
state. Subject to the overriding issue of paying proper user
charges, the power sector is bedeviled with problems of
regulatory capture of the SERCs as well as frequent reneging
of escrows and PPAs by bankrupt state governments. This
requires intervention at the highest level, without which the
entire PPP framework for power and reforms envisaged by
the Electricity Act, 2003, will be under risk.
There is potential for private sector participation in
generation, transmission, distribution and rural
electrification. The private sector's interest is evident from
the results of the bidding for the two recently announced
ultra mega projects. Several state governments and the
private sector are assessing alternate options for public
private partnership in the urban areas in the distribution
business. Designing an equitable risk allocation framework
will be critical for the successful implementation of PPPs in
distribution. An important lesson learnt from the
involvement of the private sector in distribution has been
that focus on customer benefits must be addressed on a
priority basis. For sustainable change management,
employee concerns and an appropriate performance-
incentive framework must be addressed upfront in any
PPP model.
As of January 31, 2011, India had an installed capacity of
187549.62 MW, the bulk of which (44.5 per cent) is owned
by state governments and 24.58 is owned by private sector.
A further approximate 32 percent of the capacity was from
SOEs owned or controlled by the central government,
namely NTPC, National Hydro Electric Power
Corporation (NHPC), North Eastern Electric Power

Corporation (NEEPCO) and the Neyveli Lignite
Corporation (NLC). Privately owned enterprises account
for the remaining around 11.5 percent of the generating
capacity. Among these, the more notable players are
Reliance Energy, Tata Power, the RPG group and
Torrent.49 Both the SOEs and the independent power
producers (IPPs) have long term PPAs with specific SEBs,
or their transmission companies. By the year 2012, India
requires an additional 100,000 MW of generation capacity.
A huge capital investment is required to meet this target.
This has welcomed numerous power generation,
transmission, and distribution companies across the globe
to establish their operations in the country under the
famous PPPs programmes.
5. Government of India and Ppps: Experiences &
Expectations
The Honorable Minister of Civil Aviation recalled that the
country initiated the process of partnering with the private
sector in 1991, beginning with the power sector, and since
then achieved notable successes through PPPs in the
telecom, roads, ports and airports sectors. He affirmed that
the government is not only keen to continue to rely on
public private partnership in these sectors, but also to
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expand it to other sectors. In the civil aviation sector,
preparations are under way to engage the private sector in
non-aeronautical activities at 35 non-metro airports, and in
the development of Greenfield “merchant” airports and
about 300 airstrips.
According to him, some of the other areas in which the
government is envisaging greater scope for PPPs include
power, water and sanitation, tourism and hospitality
sectors. The Government of India is acutely conscious of
the need to make infrastructure services available to those
who need them but cannot afford to pay the full cost of
service provision. Here, too, the government sees a
substantive scope for leveraging its support through
engaging the private sector as a partner in its development
agenda. Citing an example of such initiative in the civil
aviation sector, the Honorable Minister noted that the
government was actively considering a proposal to
establish a fund to support airline and airport operations
that are not commercially viable but are considered
essential for national connectivity. As per our civil aviation
minister, in order to be able to attract private sector players,
the government would have to put in place appropriate
regulatory frameworks, credible dispute resolution
mechanisms, and satisfactorily resolve sensitive and
contentious issues like land acquisition. He cited the
phenomenal growth rates in sectors such as civil aviation
and telecom to make a case for tempering conservatism
with a more realistic assessment of growth prospects.
Although the government is committed to rely on PPPs
significantly in the provision of infrastructure services, it is
facing a variety of challenges- big and small- in translating
its intent into action. It was noted that, in trying to scale up
its program, India was facing the same challenges that
other countries have also faced, namely:
a) How to marry private sector motivation for profit with
public sector concern for public service (the need for
inclusiveness)
b) How to apportion risk in a manner that is fair, rational
and sustainable
c) How to manage the partnership through a tightly-
framed concession agreement over a 2030 year period,
in a rapidly changing environment
d) How to develop capacities in the concerned financial
institutions so that they are able to appraise projects
which have a life span of 1520 years. Since effective
due diligence by these institutions will be critical for
proper screening of PPPs proposals brought to them
by developers.
PPP Experiences of Chile and the United Kingdom:
Lessons for India
The experience of other countries suggests that it should be
possible to increase private investment in infrastructure in
India from its current level of 1% of Gross Domestic
Product (GDP) to 2% of GDP. For example, Chile has
succeeded in increasing its infrastructure investments to a
level of 5% of GDP, in good part through encouraging
private participation in almost all infrastructure sectors.
6. Sugessions and Concluding Remarks
1) The government could aid private sector participation
in PPPs through expeditious awarding of contracts,
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facilitating land acquisition and ensuring better
coordination between the centre and states. In
particular, large size PPP projects may be put out for
bidding after obtaining mandatory clearances and
approvals say, through a Shell Company/Special
Purpose Vehicle (SPV) as was recently done in the
case of the Ultra Mega Power Projects.
2) Information on the development of PPPs, prior to their
being bid out, would be appreciated by the private
sector, perhaps as part of a national database
3) The tax regime applicable to dividends paid out by
SPVs needs to be rationalized; currently, in cases
where a holding company is implementing multiple
projects through SPVs, dividends are being taxed
twice, first at the level of project-specific SPVs and
then at the holding company level
4) The entry of financial investors will introduce a
longer-term perspective than construction-oriented
concessionaires, and this can be encouraged by
allowing concessions to be more tradable
5) The government should take measures to deepen debt
markets and encourage insurance funds to invest in
infrastructure projects.
References
1. Akash Deep, “Public Private Partnership for
Financing Development, Harvard University
presentation, 2005.
2. Clive Harris, “Private Participation in Infrastructure
in Developing Countries: Trends, Impacts, and Policy
Lessons,” World Bank Working Paper Series No. 5,
Report no. 26526, 2003.
3. Public Investment and Public-Private Partnerships,
An IMF Publication ISBN 978-1-58906-478-2
4. Report on “Financing Infrastructure: Addressing
Constraints and Challenges” by The World Bank,
June, 2006
5. Report on “Meeting India's Infrastructure Needs with
Public Private Partnership-The International
Experience and Perspective” February 5-6, 2007, GOI,
Ministry of Finance, Department of Economic Affairs,
New Delhi.
6. http://www.answers.com/topic/public-sector, at 11
a.m., on February 2, 2010
7. http://adbi.org/scripts/download_file.pdf, at 11.30
a.m., on February 2, 2010
8. Http://www.businessdictionary.com/definition/
economy. html, February 2, 2010
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Public Private Partnership (PPP):

Way Forward to Infrastructural Developments in India

Tarique Anjum,
Chartered Accountant

"Provision of quality infrastructure is a pre-requisite for the economy to achieve a higher growth trajectory
on a sustained basis. World-class infrastructure is the key to a globally competitive economy and India's
objective of sustained double digit growth can only be achieved through a quantum growth in the
infrastructure sector. Today, there is a need to focus on enhancing the quantity as well as improving the
quality of infrastructure services provided in India."

Introduction supply, sanitation, sewage disposal, education and health.

Infrastructure is the backbone of any modern economy.
World-class infrastructure is the key to a globally
competitive economy and India's objective of sustained
double digit growth can only be achieved through a
quantum growth in the infrastructure sector. Provision of
public services and infrastructure has traditionally been
the exclusive domain of the government. However, with
increasing population pressures, urbanisation and other
developmental trends, government's ability to adequately
address the public needs through traditional means has
been severally constrained. This has led the Government's
across the world to increasingly look at the private sector to
supplement public investments and provide public
services through Public Private Partnerships.
Need for PPP
The quality of human life in the economy is immensely
impacted by the nature of primary services available which
can be categorised into whole physical infrastructure
covering road, transportation, power, communication etc.
through its backward and forward linkages facilitates
growth; or the other social infrastructure including water
Inadequate attention and poor investment in roads, ports,
airways and railways etc. render critical economic activities
uneconomical and lead to high inflation. Costs entailed due
to inadequate and inefficient infrastructure prevent the
economy from realizing its full growth potential and
considerably reduce the competitive edge of the economy.
In view of the above factors, channelization of long
term investments to infrastructure sector becomes a critical
policy measure, particularly for the developing economies.
The Government of India is acutely conscious of the need to
make infrastructure services available to those who need
them but cannot afford to pay the full cost of service
provision. Here, too, the government sees a substantive
scope for leveraging its support through engaging the
private sector as a partner in its development agenda.
Thus the government increasing looks at the private
sector involvement and thereby the activities of financing,
designing, implementing and operating infrastructural
facilities & services which were earlier taken by the
government traditionally shall henceforth be carried

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forward by contractual partnerships between the public
and the private sector. Public Private Partnerships (PPP)
present the most attractive option of meeting the above
targets, not only in providing resources to an extent but
also in upgrading the standards of delivery through
greater efficiency.
What is PPP ?
There is varying understanding amongst stakeholders as to
what constitutes a Public Private Partnership. While giving
a single definition of PPP would not be possible, this
arrangement may validly refer to any collaborative venture
which are built around the expertise and capacity of the project
partners and are based on a contractual agreement, which
ensures appropriate and mutually agreed allocation of
resources, risks, and returns. PPPs do not mean reduced
responsibility and accountability of the government. They still
remain public infrastructure projects committed to meeting
the critical service needs of citizens. The government remains
accountable for service quality, price certainty, and cost-
effectiveness of the partnership. Under the PPP format, the
government role gets redefined as one of facilitator and
enabler, while the private partner plays the role of financier,
builder, and operator of the service or facility.
3. Operations or management for a specified period:
Provides an element of time period after which the
arrangement with the private sector entity comes to a
closure. Hence, the arrangement is not in perpetuity.
4. Substantial risk sharing with the private sector: It is
typically specified to differentiate PPPs from mere
outsourcing contracts. For example, a facility service
contract is also an outcome based reward contract but
not a PPP.
5. Performance linked payments: It is to provide central
focus on performance and not merely provision of
facility or service. A mere deferred payment contract
should not get qualified as a PPP.
6. Conformance to performance standards: It is to
provide a strong element of service delivery aspect and
the concepts of quality and compliance to pre-
determined and measurable standards to be specified
by the sponsoring authority.

Thus, depending upon the infrastructural needs of the

economy, an umbrella definition of PPPs in Indian context
can be as follows : PPP means an arrangement between a
government or statutory entity or government owned
entity on one side and a private sector entity on the other,
for the provision of public assets and/ or related services
for public benefit, through investments being made by
and/or management undertaken by the private sector
entity for a specified time period, where there is a
substantial risk sharing with the private sector and the
private sector receives performance linked payments that
conform (or are benchmarked) to specified, pre-
determined and measurable performance standards.
PPP Vs. Privatisation
Basic elements to constitute PPPs An interesting query which may tinkle the mind of many is
A further surgery into this definition, thereby, reveals to whether PPP and privatisation are the same? The answer
some of the inherent characteristics of PPPs: to the same is "NO". PPPs are different from privatization.
While PPPs involve private management of public service
1. Arrangement with Private Sector Entity: The asset
through a long-term contract between an operator and a
and/or service under an arrangement will be provided
public authority, privatization involves outright sale of a
by the Private Sector Entity to the public.
public service or facility to the private sector. A typical PPP
2. Public asset or service for public benefit: Has the
example would be a toll expressway project financed and
element of facilities/ services being provided by the
constructed by a private developer. Thus all projects with
Government as a sovereign to its people. To better
private sector participation cannot be termed as PPP.
reflect this intent, two key concepts are elaborated
below:
Benefits of PPP
(a) 'Public Services' are those services that the State is The public sector contributes assurance in terms of stable
obligated to provide to its citizens (towards meeting governance, citizens' support, financing, and also assumes
the socio-economic objectives) or where the State social, environmental, and political risks. The private sector
has traditionally provided the services to its brings along operational efficiencies, innovative
citizens. For example, provision of security, law and technologies, managerial effectiveness, access to additional
order, electricity, water, etc. to the citizens. finances, and construction and commercial risk sharing.
(b)'Public Asset' is that asset the use of which is
Apart from enabling private investment flows, PPPs
inextricably linked to the delivery of a Public
also deliver efficiency gains and enhanced impact of the
Service. For example, public road which is linked to
investments. The efficient use of resources, availability of
public transportation or, those assets that utilize or
modern technology, better project design and
integrate sovereign assets to deliver public services.
implementation, and improved operations combine to

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deliver efficiency and effectiveness gains which are not
readily produced in a public sector project. PPP projects
also lead to faster implementation, reduced life cycle costs,
and optimal risk allocation. Private management also
increases accountability and incentivizes performance and
maintenance of required service standards. Finally, PPPs
result in improved delivery of public services and also
promote public sector reforms.
Various PPP forms and formats
As discussed, PPP is a blend of public sector agency and a
private sector consortium. Such private sector consortium
could comprise of contractors, maintenance companies,
private investors and consulting firms. The consortium
often forms a special company or a 'special purpose vehicle'
(SPV). The SPV signs a contract with the government and
with the subcontractors to build the facility and then
maintain it. In terms of terminology, the public body acts as
the "Conceding Authority" while the private company acts
a "Concessionaire". To enable the flow of private funds and
resources into public infrastructure and services, the PPP is
operationalized through a contractual relationship
between the two parties.
The public sponsor of the PPP decides the degree of
private participation required for the particular project.
This decision is usually based on the government's
objectives of undertaking the project, the degree of control
it desires, and the ability of the PPP consortium to deliver
the required service. It is also influenced by the provisions
of the existing legal and regulatory framework, the
structuring of the project to attract private resources, and
the potential to generate future cash flows.
This partnership could take many contractual forms,
which progressively vary with increasing risk, responsibility,
and financing for the private sector. However, the most
common partnership options are
• Service Contract;
• Management Contract/Lease;
• Build Operate Transfer (BOT);
• Concession;
• Joint Venture;
• Community-based Provision; etc
Key considerations in PPPs
Government recognizes that the private sector regards
infrastructure investments as inherently risky, on account
of their long gestation periods, low user charges in many
sectors, poor cost recovery, social & environmental risks
and the scope for policy reversals driven by political
considerations. Also, PPPs often involve complex planning
and sustained facilitation.
Thus when infrastructure is developed as PPPs, the
process is often characterized by detailed risk and cost
appraisal, complex and long bidding procedures, difficult
stakeholder management, and long-drawn negotiations to
financial closure. This means that PPPs are critically
dependent on sustained and explicit support of the
sponsoring government. To deal with these procedural
complexities and potential pitfalls of PPPs, governments
need to be clear, committed, and technically capable to
handle the legal, regulatory, policy, and governance issues.
Constraints and Initiatives
The overall response to promote PPPs as the preferred
mode for the execution of infrastructure projects, despite
apparent benefits to the governments in the States and
Central Government departments, has not yielded
satisfactory results. While encouraging PPPs, following
constraints can be broadly perceived;
Weakness in enabling policy and regulatory
framework. Substantial work needs to be done in making
sector policies and regulations PPP friendly.

A large number of these projects are in the States and
without the active participation of the States it would not be
possible to achieve satisfactory results.
The market presently does not have adequate
instruments and capacity to meet the long-term equity and
debt financing needed by infrastructure projects.
There is also a lack of shelf of credible, bankable
infrastructure projects, which could be offered for
financing to the private sector. Some initiatives have been
taken both at the central as well as the states' level to
develop PPP projects. These tend to be isolated cases and
have demonstrated a marked lack of consistency.
Therefore, a more aggressive approach is needed for
preparing a pipeline of credible, bankable projects that can
be offered to the private sector through competitive
bidding process.
There is also lack of capacity in public institutions
and officials to manage the PPP process. Since these
projects involve long term contracts covering the life cycle
of the infrastructure asset being created, it is necessary to
manage this process to maximize returns to all the
stakeholders.
Thus some of the main concerns involved in PPPs are
standardization of bidding and procurement procedures,
project pipeline creation, transparency requirements,
public sector capacity building, and enabling policy and
institutional frameworks for PPPs.
Government's Initiatives
The Government has taken meta-level initiatives to
enhance the flow of private funds to infrastructure apart
from other policy and regulatory reforms. The government
is keen to know what more needs be done to accelerate the
pace of private participation in infrastructure and is in its
constant endeavours to innovate solutions to address the
pitfalls witnessed in the entire PPP process. The
Government understands that the efficacy of private sector
participation in infrastructure development would be
contingent upon the capability to commercialize these
projects with a proper risk sharing inherent in such projects
between the government authorities and the private sector.
This would largely depend on the availability of expert
advisory services right from the stage of identification and
conception of projects to the stage of financial closure and
monitoring.
Steps to streamline PPP Mechanism
Government has taken measures to create enabling
framework for PPPs by addressing issues relating to policy
and regulatory environment. Progressively more sectors
have been opened to private and foreign investment, levy
of user charges is being promoted, regulatory institutions
are being set up and strengthened, fiscal incentives are
given to infrastructure projects, standardized contractual
documents including the Model Concession Agreement
are being notified, approval mechanism for PPPs in the
Central sector has been streamlined through setting up of
PPPAC. In order to develop the framework for PPPs and
build up capacities, the Government of India has taken
following steps;
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• Strengthening the regulatory and policy
framework, including the expansion of user fees;
The Union Finance Minister, in the Budget speech
for the year 2011-12 has announced to come up with
a comprehensive policy that can be used by the
Centre and the State Governments in further
developing Public-Private Partnerships. The
National PPP Policy 2011 has been put forth for
discussions, consultations and suggestions.
• To streamline the PPP Mechanism, the Planning
Commission is in its constant endeavours to evolve
"Guidelines" on various aspects of PPP to enshrine a
comprehensive PPP process.
• Preparation of standard documents such as Model
Concession Agreements, pre-bid qualification
methodology and procurement processes.
• Establishing PPP as the preferred mode in sectors
such as highways; Permitting FDI up to 100% on the
automatic route in several infrastructure sectors;
• Providing fiscal incentives in terms of "tax holiday"
to infrastructure projects and tax incentives to
investors providing long-term finance or investing
in equity capital;
• Setting up of infrastructure funds are also being
encouraged and multilateral agencies such as ADB
have been permitted to raise Rupee bonds and carry
out currency swaps to provide long term debt to
PPP projects
• Creation of PPP Cells in all central ministries and
state governments, and Public Private Partnership
Appraisal Committee (PPPAC) at the national level;
• A website exclusively devoted to PPPs has been
launched to serve as a virtual market place for PPP
projects.
• Conducting Research Studies to harness the benefit
of specialized and efficient dispute resolution and
arbitration mechanisms, as seen in Chile; the need to
adapt and develop institutions over time, of which
the UK is a good example; and how to build on the
achievements in one sector and broaden the
program, as has been seen in South Korea and the UK.
Highlights of Budget 2011-12 on Infrastructural Developments
The Union Finance Minister in his Budget Speech on
16th March, 2012 has yet again duly emphasised the
need for development of infrastructure in India. The
relevant extract on the topic is as under;
• During Twelfth Plan period, investment in
infrastructure to go up to Rs. 50 lakh crore with half
of this, expected from private sector.
• More sectors added as eligible sectors for Viability
Gap Funding under the scheme "Support the PPP in
infrastructure."
•Government has approved guidelines for
establishing joint venture companies by defence
PSUs in PPP mode.
• First Infrastructure Debt Fund with an initial size of
Rs. 8000 crore launched earlier in March 2012.
• Tax free bonds of Rs. 60,000 crore to be allowed for
financing infrastructure projects in 2012-13.
• A harmonised master list of infrastructure sector
approved by the Government.
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Conclusion Therefore, the way to the accelerated Infrastructural

To achieve consistent and steady growth rate of Indian
economy, there is a critical need to accelerate investments
in the infrastructure sector. In fact, infrastructure has
emerged as a key driver for sustaining the robust growth of
the economy and the government has been focusing on
development of infrastructure.
Development in India lies in tapping the immense
potentials of PPP mechanism (PPP) which undoubtedly is
the most attractive option not only in providing resources
to an extent but also in upgrading the standards of delivery
through greater efficiency.

Unlike the conventional belief that government

expenditure crowds out private investment in
economically productive activities, research studies over
the last decade have shown that Government expenditure
in infrastructure is a useful measure to attract private
investment in the sector. Since the government faces fiscal
constraints in providing the huge amount of funds
required, a larger role is contemplated for the private sector
for investment in infrastructure sector. Thus, the quantum
increase in investments in infrastructure warrants unique
interventions and the urgent creation of a pool of ready,
bankable projects using the various formats of PPPs to
enhance the quantity as well as improve the quality of
infrastructure services provided in India for the overall
development of the country.

Needed, a Water Policy that Taps
Private Sector
Udai S Mehta,
Associate Director, CCIER
“It is time the policymakers adopt effective independent regulatory body to devise effective Public-Private
Partnership projects for supply and distribution of water so as to supplement the government efforts”……
Water is a relatively scarce resource in India since we have 16
percent of the world's population and only 04 percent of the
usable fresh water. Daily wage earners pay up to 20 percent of
their incomes on water and slum-dwellers pay Rs. 5 for a can of
water. This is the true, but sad picture of water distribution in
India where the poor are forced to pay for water. Yet, the mere
talk of privatisation of water raises waves of protests as if it
should forever remain a free public good.
It is not only water but the shortage of almost every type of
infrastructure that is affecting the country's growth and
consumer welfare. For the 12th Five Year Plan, the Planning
Commission has suggested that investment in
infrastructure (road, rail, air and water transport, power
generation, transmission and distributiontelecommunication,
water supply, irrigation and storage) would need to be
increased from 08 percent of gross domestic product (GDP)
to around 10 percent. Since the state's resources are limited,
an aggressive effort at promoting private investment
through the PPP route is imperative.
Potential costs, benefits
However, the debate on potential costs and benefits
associated with the participation of the private sector in
water distribution is still on and not confined to India. In
the last decade, the private sector made forays into water
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supplies in several developing countries and the
experiences have been diverse. Planning Commission also
recognises that further efforts are needed to mainstream
PPPs in several areas such as power transmission and
distribution, water supply and sewerage and railways
where there is significant resource shortfall and also a need
for efficient delivery of services.
In some cases, private investors have brought in
operational efficiencies and benefits to consumers, in
others it led to manifold increase in tariffs without
perceived improvements in delivery. For instance, in
Buenos Aires, privatisation through a concession
agreement led to improvements in coverage, reliability and
reduced prices of water.
Driven by the profit motive, the private sector may not
always care to serve consumers who are not remunerative.
Though the private sector is expected to bring in
operational efficiencies and arguably better accountability
to consumers, in the absence of adequate incentives it may
not be inspired to meet the social obligations. Therefore,
attaining multiple policy objectives demands a careful
design of the PPP initiatives. Recent experience suggests
that government agencies often get into sub-optimal
contracts, imperilling the entire project.
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Opportunity abounds
At the conceptual level, the huge operational inefficiencies
in most public sector water utilities offer enough scope for
the private sector to earn attractive returns and also serve
disadvantaged consumers. In practice, this has not
happened in most cases.
In some instances, the efficiency gains were not passed on
to consumers, while in others the agreement was not
binding enough. However, by using performance-based
management contracts to outline the technical and
managerial skills of the private sector, public utilities could
enhance their ability to tackle operational inefficiencies
and improve their service.
One such success story is of Navi Mumbai, which has
improved water and sanitation services by using
performance-based contracts to manage its water
distribution and transmission system. There was an
increase of almost 45 percent in revenues and a substantial
drop in customer complaints. Performance-based
contracts helped the utility provide better service, even
while cutting operational costs.
Tirupur in Tamilnadu, was the first town to implement a
PPP water project. A thriving garments industry city,
Tirupur required huge volumes of water for industrial use.
A consortium of three private firms implemented the PPP
project to ensure sustained supply of water. The project
was designed on a Build-Own-Operate-and-Transfer
(BOOT) basis for 30 years, after which it is to be transferred
to the Government. Owing to the project, Tirupur residents
receive water everyday for four-six hours, as opposed to
receiving water on alternate days. The numbers of
household connections have increased by 8,000 and local
industries have a reliable source of water. In contrast to the
Tirupur case, the Delhi Jal Board (DJB) has been running
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into controversy, though privatisation has not happened as
yet. Lack of transparency in the process is a major concern
and the allocation of risks and potential rewards is drawing
heavy flak. At a time, when the DJB has a definite plan to
invest huge public money in the next couple of years to
improve supplies and reduce non-revenue water (NRW),
the privatisation move is being questioned.
Need for an Independent Regulator: Endorsed by
Planning Commission of India
Thus, there is a need to have an independent regulator in
place to set standards of service and to enforce the same.
12th Five year plan approach paper recommend that there is a
need for an overarching Water Framework Law that would
give teeth to the New National Water Policy. It is also
necessary to create regulatory bodies in different States to
resolve conflicts across different uses of water and between
users. The Centre should formulate and facilitate the
adoption by States of a model Water Resources Regulatory
Authority Bill. Whereas, Draft National Water Policy, 2012
from Ministry of Water Resources has already suggested that
a Water Regulatory Authority should be established in each
State. The Authority should fix and regulate the tariff
systems, regulating allocations, monitoring operations,
reviewing performance and suggesting policy changes, etc.
Water Regulatory Authority in a State may also assist in
resolving intra-State water-related disputes.
The Planning Commission's Working Group on Water
Governance has constituted a Sub Group on Model Bill for
State Water Regulatory Authority Act. The Draft Model Bill
envisages the Water Resources Department (WRD) as the
implementing or executive agencies. Two other governing
agencies are envisaged by the Bill, as the State Water
Resources Regulatory and Development Council (SC) and
the State Independent Water Expert Authority (SIWEA).
During the 12th Plan, there is also a proposal to set up a
National Water Commission (NWC) to monitor
compliance with conditionalities of investment and
environment clearance given to irrigation projects. At
present, there is no appropriate body that can provide a
rigorous and credible feedback to sanctioning authorities.
A multi-disciplinary, professionally capable and
independent NWC would have credibility with both
Centre and States and would function on the lines of what
has been attempted, for example, in Australia and become
a guide for further water resource development in India.
Surely, the private sector can play an important role in
supplying water, supplementing government efforts and
investments. The managerial capabilities of the private
sector can improve operational efficiencies and the quality
of services. However, the success of PPP projects would
depend largely on the capability of governments to
negotiate deals that take care of the interests of
disadvantaged consumers.
Transparency, the key
Maintaining transparency in the processes is another
important criterion for the successful implementation of
PPP projects. While the Government will have to create an
enabling regulatory milieu, the private sector needs to
demonstrate a willingness to accept business risks
associated with such projects.
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Public Private Partnerships

and Infrastructure Projects in Transition Economies
Yannis S Katsoulacos,
Professor of Economics, Athens University of Economics and Business

"The economic reform process in transition economies is that of transferring assets from the public to the
private sector. This transfer can take the form of full fledged privatisation or other “weaker” forms of
transfer. Among the latter, the most popular in most cases is that of Concessionary Agreements or Public
Private Partnerships (PPPs)”

A fundamental aspect of the economic reform process in
transition economies is that of transferring assets from the
public to the private sector. This transfer can take the form of
fully fledged privatisation or other “weaker” forms of
transfer. Among the latter, the most popular in some cases is
that of Concessionary Agreements or PPPs. These are
agreements through which the state transfers the right of
exploiting an economic asset to a private party for a number
of years (usually for infrastructural projects the maximum is
30 years) in return for the party investing and developing
that asset. The state remains the legal owner and can resume
management and operational responsibility after the end of
the concessionary agreement.
This form of transfer is chosen when the following conditions
are satisfied.
(ii) Unlike privatisation, in the long-run the state wishes to
keep open the option of maintaining control of the
asset. This could be the case if it is thought desirable to
control directly the long-run development of the
economic activity because it is associated with significant
externalities or because, when the activity is a Natural
Monopoly, it is not thought feasible to regulate
operations by an independent regulatory institution.
It is important to note that by far most of the important
cases in which state assets are transferred through PPPs or
concessionary agreements the markets in question are
monopolistic. This implies that the concessionaire is a
single operator monopolist who is operating without
regulatory constraints except in terms of the conditions
specified in the concessionary contract.

(i) The state is financially and/or managerial-skills
constrained. So it is not able (within the fiscal
constraints that it faces) to finance investment in the
development of the asset and lacks the managerial
capacity for running the operations associated with
economically exploiting the asset.
From this, it follows that an appropriate concessions
law and the processes of selection through competitive
tendering and of negotiations of the concessionary contract
are absolutely fundamental if the interests of society/
consumers are to be secured whenever concessionary
agreements are made.

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The European Commission (EC) has contributed
towards the establishment of standards in the area of
concessionary agreements and PPPs through its “Inter-
pretative Communication on Concessions under
Community Law” (2000), as well as the Green Paper and
the “Guidelines for Successful Public-Private
Partnerships” (2003).
Contributions have also been made by the UN and the
organisation for Economic Cooperation and Development
(OECD)1. Transition economies enforce national laws on
“concessions and participation of the private sector in
public services and infrastructure” in order to deal with
concessionary Agreements/Contracts of various forms:
Built-Operate-Transfer (BOT), Built-Own-Operate (BOO),
Leasing, Limited Financing, Management Contracts,
Service Contracts etc.
The case of 'concessionary agreements'
With the establishment of these laws, major concessionary
agreements can be implemented, which include:
(a) Mining (chrome and copper)
(b) Water industry
(c) Hydro power
(d) Port facilities and oil-storage
(e) Airports
(f) National road development
(g) Maintenance of major infrastructural facilities
Concessionary agreements are imple-mented by
authorised state committees involving representatives
from the relevant line ministries with one of them usually
given the primary responsibility for preparing
documentation and specifications, define conditions and
methods and evaluate bids.
However, several problems with concessionary
agreements have been identified in transition economies:
1. There is no overall policy framework for promoting
private sector participation and for ensuring that
agreements are in the national interest or the interest
of consumers.
2. Concessions law is not sufficiently developed
according to international standards it needs to be
developed further and a number of issues need to be
1
1OECD Basic Elements of a Law on Concession Agreements (1999-2000). UNCITRAL Model Legislative Provisions on Privately Financed Infrastructure
Projects (2003)
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clarified. For example, it is not clear what happens
after the BOT contracts run out. There is usually no
proper framework for PPPs but specifically mixed
forms of partnerships.
3. Selection procedures in particular are not
sufficiently developed (neither the pre-selection
procedure nor the procedure for requesting
proposals is usually regulated; no reference is made
to the publication/record of the concession award;
there are unclear grounds for direct negotiations
and regulation of unsolicited proposals; there is no
reference to the possible review procedures).
4. The provisions regulating the project agreement
and lenders' rights need to be improved
(termination/compensation provisions, possibility
for step-in rights) while certain things that may lead
to abuse of law (e.g. ability to sell shares of
concessionary company) must be revised and
possibly abandoned altogether.
5. Negotiations and preparation of the contract the
most fundamental aspect of the procedure after
selection is not given sufficient attention with the
result that it is usually left to ministry officials
without the appropriate expertise.
6. Laws should be amended to clarify their relation
with public procurement law, make specific
references to international arbitration and, when a
Competition Commission has been established,
specify the potential role of this Commission in the
procedures.
It should be noted that a recent European Bank for
Reconstruction and Development (EBRD) study examined
concessionary Agreements Policy and Law in 19 Balkan
and former Soviet Union Republics that have adopted
Concessions legislation. Countries were ranked in terms of
compliance to international standards in a number of
dimensions as having “Very High Compliance”, “High
Compliance”, “Medium Compliance”, “Low Compliance”
and “Very Low Compliance”.
However, it was found that many transition
economies were rated as “Very low compliance” countries
with regard to several criteria, such as their General Policy
Framework towards private sector participation or the
Selection of the Concessionaire.
Given this for most transition economies it is required to:
1. Develop, amend, and clarify the provisions of the law
on Concessions to deal with each one of the problems
identified and specified above thus ensuring selection
procedures that are transparent, efficient and do not
distort competition and that negotiations and contract
preparation give appropriate weight to social
welfare/consumers interests.
2. Assign one independent regulatory authority the
Competition Authority would seem one obvious and
appropriate candidate the task of monitoring the
processes and approving agreements under
conditions that ensure that there was no distortion of
competition and that the agreements are in the
national interest.