New Delhi, March 12
Governments should identify appropriate areas for Public Private Partnership (PPP) prior to roping in the private sector to build various infrastructure required to accelerate the pace of economic development, Rakesh Mohan, former chairman of the National Transport Development Committee of India, said today.
“Implementation of not all PPP projects is easy,” Mohan told the conference on ‘Advancing Asia: Investing for the Future’ organised here by the International Monetary Fund (IMF), adding, “Successful PPP projects in India could be found in power, telecom, port and airport sectors as they have clear revenue sources. On the other hand, PPP in development of roads, irrigation projects and urban infrastructure, including water supply and railway projects, has not always produced desired outcomes.”
Mohan’s comments come at a time when Nepal has introduced the PPP Policy and is drafting the PPP Act to pave the way for development of various infrastructure projects under the PPP model.
Lately, many countries facing fiscal constraints have started turning towards PPP to build physical infrastructure, as this development model does not require the government to mobilise all the financial resources or expertise required to complete the projects.
Once completed, these projects are used by private developers for a certain number of years, during which they recover investment and generate some profit, before handing them over to the government for free and in good working condition.
Despite these benefits, many governments have not been able to implement these projects in a dispute-free manner.
For instance, India is developing 1,300 projects under PPP — the largest in the world. “But many of these projects are stalled or are disputed; and in many cases (private parties involved in implementation of the PPP projects) had to be replaced,” Indian State Minister for Finance Jayant Sinha said.
Japan, one of the earliest countries in the world to adopt this model, has not produced excellent results either. “They (implementation of PPP projects) have not been fully successful,” said Masatsugu Asakawa, Japanese deputy vice minister of International Affairs.
The case is the same with Indonesia, which has emulated the Indian PPP model for infrastructure development.
Yet, Indonesia is not mulling over veering off the PPP track, citing PPP is not limited to development of physical infrastructure.
“PPP is also a means to improve the governance in the country, especially in procurement,” Indonesian Finance Minister Bambang Brodjonegoro said, adding, “Good governance will encourage foreign investors to come into the country.”
Other aims of PPP are to ensure maximum utilisation of entrepreneurship, capacity, efficiency, technology and effectiveness of the private sector for development, reconstruction, operation and management of public infrastructure and services in the country.
But to achieve these gains, the governments have to generate private sector’s interest in the project that they are trying to build, Japanese Deputy Vice Minister Asakawa said. “For this, equity finance by the government is necessary and so is viability gap funding. Also, the government should ensure that the off-taker (the buyer of the service) does not refuse to purchase the service.”
In order to ease the process of implementing PPP projects, the IMF, in cooperation with the World Bank, is soon coming up with PPP fiscal risk management strategy, which will try to quantify fiscal risks associated with PPP projects and create policy framework to settle the disputes.
However, Indian State Minister Sinha said practical solutions, rather than theories, are required to implement PPP projects in a successful manner.
A version of this article appears in print on March 12, 2016 of The Himalayan Times.