Private investment and involvement in infrastructure occurs through the following three routes:
Private finance initiative, or PFI: These schemes introduce the benefits of private sector management and finance into public sector projects. This differs from privatisation since the responsibility of providing essential services to the public is not transferred to the private sector; nor is the asset-ownership transferred. As, for example, in solid waste management, electricity distribution franchising and so on.
Today, in India, PPP is generally used to broadly connote all these models of private sector involvement in the infrastructure arena. This is, holistically, PSP or “private sector participation”. PPP, though technically a subset of PSP, will be used in this article to denote PSP generally. It is too early in the game to split hairs on this issue when bigger issues are waiting to be resolved.
It could be argued that the PPP story began with private sterling investments in Indian railroads in the latter half of the 1800s. By 1875, about £95 million was invested by British companies in Indian “guaranteed” railways. Or we could trace it to the early 1900s, when private producers and distributors of power emerged in Kolkata (Calcutta Electric Supply Corporation) and Mumbai, with the Tatas playing a prominent role in starting the Tata Hydroelectric Power Supply Company in 1911.
|PPP INVESTMENTS IN INFRA ($ Billion)
||Approx infra sector
|11th Plan (Estimated)
|12th Plan (Projection)
Cut to the early 1990s, and one could postulate that it was then that the new-wave PPP movement started. A policy of opening electricity generation to private participation was announced by the central government in 1991, which set up the structure of independent power producers, or IPPs. The National Highways Act, 1956, was amended in 1995 to encourage private participation. In 1994, through a competitive bidding process, licences were granted to eight cellular mobile telephone service operators in four metro cities and 14 operators in 18 state circles.
But if one were to choose a date that would capture the essence of a clear historic shift, one could zero in on January 30, 1997, when the Infrastructure Development Finance Company was incorporated in Chennai under the initiative of the then Finance Minister P Chidambaram. The firm, promoted by the government of India, was set up on the recommendations of the “Expert Group on Commercialisation of Infrastructure Projects” under the chairmanship of Rakesh Mohan. And Deepak Parekh was chosen as the first chairman. The idea was that this would signal the government’s seriousness in channelling private sector capital, expertise and management in the nation’s infra development.
The period between 1997 and 2012, thus, marks a decade and a half of PPP.
So, what is it that we should be celebrating?
One, the huge contributions of the warp and weft of PPP into India’s infrastructure fabric. The table (see PPP investments in infra) shows the giant strides made.
Had someone in the late eighties asked about the future role of private capital and enterprise in Indian infra (when the state ran close to 100 per cent of public utilities and core infra) he would have received a look of bemused incredulity at such a possibility. Today, while China’s economy may be four times larger than India’s, our PPP market is 10 times larger than that of China’s. In fact, India is today easily the world’s largest PPP market. Across various shades of political opinion and different party lines, our political leadership, supported by a near-converted bureaucracy, managed to affect this tectonic shift across the geo-plates of India’s economy. Surely, on this score, they deserve our appreciation. So does the private sector that rose admirably to the occasion and responded with entrepreneurial energy, conviction and capital.
Two, let us acknowledge and salute the huge efforts made to create the right enabling environment for the PPP story to unfold rapidly. These relate to enacting new legislation — for example, the Electricity Act, 2003; the amended National Highways Authority of India Act, 1995; the Special Economic Zone Act, 2005; and the Land Acquisition Bill. As also the creation of new institutions like regulatory authorities in telecom, power and airports, implementing authorities like the National Highways Authority of India (NHAI), and financial institutions like the Infrastructure Development Finance Company, the India Infrastructure Finance Company and so on. A slew of model concession agreements across sectors created the template for private participation. Innovative financial interventions like viability gap funding, annuity models and stimulation of debt for infra have also added fiscal punch. The Planning Commission, the Department of Economic Affairs in the Ministry of Finance and the Prime Minister’s Office have all played a stellar role in “making PPP happen”. Many states, too – notably Punjab, Gujarat, Maharashtra, Delhi, Karnataka and Tamil Nadu – have built significant capacity to deliver on PPP.
Three, increasing transparency of the bidding-out process. Even as India still has a long way to go on the Transparency International list, it is indeed heartening to see that there has been a sharp fall in “crony capitalism” in the award of PPP projects. Recent times have seen practically no complaints from the slew of NHAI projects bid out. Power bids have been ferociously fought. And airport bids were examples in ultimate transparency. Even as a lot of governance issues still remain in execution and implementation, few will disagree that the average newspaper reader can easily discover the bid-criteria point at which a private player has been selected. E-auctions are adding to this credibility. The scams in telecom and other sectors have lead to “transparency alertness” in the media, the judiciary, civil society, and investigative and audit institutions. The largest PPP market in the world, India, can now lay claim to being the least crony capitalist.
So, a decade and a half of PPP. Three cheers to that!
The author is chairman of Feedback Infrastructure. These views are personal. firstname.lastname@example.org