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#dnaEdit: Not a panacea

Wednesday, 23 July 2014 - 5:05am IST | Agency: dna

Three of C&AG reports on railways, pricing of petroleum products and civil aviation point to private sector players introducing distortions and discrepancies in the system

The public sector versus the private sector debate has never been conclusive. Then came the third way, propounded by British sociologist Anthony Giddens and embraced by that Teflon opportunist of the late 1990s, Britain’s Labour Prime Minister Tony Blair, where the public-private partnership was seen as the ideal solution to unmanageable state-administered sectors of the economy and the unbridled market-directed sectors. A few years after the 1991 economic reforms fanfare, Indian policy wonks and politicians too began to toy with the PPP idea and it soon found its way into the infrastructure projects.

On Friday, three of Comptroller and Auditor General reports on railways, on pricing of petroleum products and civil aviation brought light to some of the problems inherent in the PPP way. In the matter of railways and civil aviation — a straight case of government-owned entities getting into a tie-up with private players — the audit reports show these did not work out the way they were intended to have, and also show that there are no smooth solutions to difficult problems. Projects like converting gauge between two points or in constructing new railways lines, or the expansion of the Mumbai airport did not produce the desired results. The report on the pricing of petroleum products revealed the very complicated interplay of public sector units and private sector participants, and how the private players end up having an economic advantage in terms of raking in profits without contributing to the efficiency of the system as such.

There are three issues with regard to the PPP path. First, the terms of partnership have to be worked out fairly in each case. There is the inevitable danger that the obligations entailed in a contract between the public sector unit and the private player may either constrict the private player’s flexibility which would be self-defeating. Or, it could favour the private player in the name of incentives that the public sector partner is reduced to bear. For instance, the financial and managerial burdens of the project. The PPP railway projects did not result in their quick completion. In the case of  modernisation of Mumbai airport, the project got tied up in knots due to bad planning. The petroleum products sector scenario is a little more complicated and it seems to be a case of faulty cross-connections. The final result is an unenviable financial mess.

The problems that the PPP mode presents need not be a reason for dumping it altogether. Or reverting to either the cocooned public sector or entering the unstable private sector bubble. It would be better to recognise that there is room as there is need for all the three options. And that each one of them displays strengths and weaknesses, benefits and follies and it will be necessary for governments to work with all the three modes for the sake of public weal. It is not enough to chant the mantra of PPP in the hope that it would remove all the obstacles. What is needed is a realistic assessment of PPP. Applying the criterion of feasibility and viability which are used for any commercial venture. It has to be acknowledged that the State unfortunately has to play the role of stabiliser in PPP projects. The private players feel  assured by the presence of the State as a guarantor. And for this reason alone the private sector will be more keen to participate in PPP projects.

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