If a private sector partner goes wrong on business assumptions, it should not be the govt or the consumer who pays
T N Ninan / New Delhi Nov 07, 2009, 01:34 IST
In the age of public-private partnerships (or PPP), the question has to be answered: What if the final reality differs radically from the initial plan? Who bears the pain of negative outcomes, and who enjoys the gain of positive ones? The question acquires urgency because of developments in areas as diverse as airport development and the Commonwealth Games. In the case of the Games, the government is busy shoveling out large dollops of extra cash, since the cost has more than doubled from Rs 767 crore to Rs 1,620 crore. The Cabinet decided on Thursday to allow the new cost, in return for the promise by the Organising Committee (which one might describe somewhat generously as a quasi-government body) of Rs 1,708 crore as revenue. So who carries the can if the promised revenue does not materialise? In other words, does anyone pay the price — or is this a free ride on the back of public money? Remember that a part of the cost must be the bail-out given to a real estate company that is building the Games Village. The original idea was that the flats in the Village would be sold to pay for the construction, but it is now the government that is buying the flats — at substantially more than market price — possibly for occupation later by the same officialdom that approved the deal (as happened in the Asian Games Village). Public pain and private gain?
Or take the privatised airports, all PPP projects. The new Bengaluru airport went into operation 18 months ago. It cost Rs 2,500 crore to build, and in a sale of shares has just been valued at Rs 4,000 crore — or a 65 per cent valuation gain in next to no time. What if the same thing were to happen at the Mumbai and Delhi airports, both of which have seen a 65 per cent increase in capital cost (from a combined Rs 12,000 crore to Rs 20,000 crore) since the airports were handed over less than four years ago? At the moment, passengers are paying the price in terms of a development fee that will raise Rs 1,500 crore annually for the airport companies. Mumbai airport has also asked the Maharashtra government for a tax waiver that might work out to Rs 150 crore. All this is fine, but what if Mumbai airport’s valuations were to climb shortly after completion to 65 per cent more than its project cost, as Bengaluru’s has done? One more case of public pain and private gain?
This is not an argument against the idea of PPP; many projects would simply not get off the ground if they were kept in the public sector. And they cannot be in the private sector because, when it comes to natural monopolies (like airports), some measure of public shareholding and, therefore, scrutiny/accountability is considered desirable. But is greater accountability, in fact, the end result? If so, how come there is a 65 per cent increase in project cost at the airports?
At its root, the issue is one of capture of the state. It does not help that the Airport Economic Regulatory Authority has just been set up, and that a new natural gas highway development authority will replace the existing one. Regulators should be in place before contracts are given and businesses get under way. The real failure, though, is the failure to protect the public interest — if a private sector partner goes wrong on business assumptions, it should not be the government or the consumer who pays, while the private sector partner enjoys a safety net while remaining free to capture the upside.
The Audacity that these activities are beyond the understanding of the majority voter - the "aam admi " , emboldens these people to do these things. Makes me feel sick of the politics being practised in the present age.
Good to see some one bringing out the facts. Most Indian companies don't have future vision and run on government support when they fail. Real entrepreneurs in the country are pulled down by people in power.
Posted by: sushstocks
November 12 , 2009, 08:14 IST
people like A Raja gets away making scams after scams, amassing PUBLIC money into their pockets-They should be punished with stringent measures.
Our legal system of punishing public-politicians-materialists-celebrities should CHANGE. Media take their side whosoever is funding them.
Posted by: Indian
November 09 , 2009, 14:27 IST
this is what is the great indian robbery of the exchequer
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