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Failed PPP's, and finally, a good model

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murali772 - 5 August, 2018 | Bangalore | governance | PPP | Citizen Reports | Economy | efficiency | sustainable development | outsourcing, privatisation | inequity | urban governance | public utilities

With government-owned, and thereby incapacitated, "public utilities" (BESCOM, BMTC, BWSSB, etc in Bengaluru) unable to meet the burgeoning and varied demands of the fast-growing urban centres, the way out for managing them very clearly points to PPP's. Now, in the case of utilities, it is necessary that the 'social' objectives of the government too are given due consideration, even while providing for a satisfactory level of profit for the private player (particularly considering the huge amount and complexity of work involved), so that it becomes a win-win for all of the stake-holders concerned. That is where proper structuring comes in, and, if many of the PPP operations, in existence so far, have failed, it is largely on account of this aspect not being given sufficient advance thought.  
 
Looked at from that angle, I would think the PPP model put together, by the erstwhile Shiela Dikshit government in Delhi, for power distribution, quite the most appropriate one, from any stand-point, for a public utility. 
 
The whole of the city state was divided into four zones/ districts, to provide for effective competition, in an otherwise natural monopoly area, with the supply in three of them being tendered out to private players (Lutyen's Delhi was retained with the govt-run DVB - you can guess why!- check here), through a proper process. The model besides provides for a government stake of 49% (51% being with the private player, which allows it to appoint the MD and manage the operations), allowing for about three nominees on the company board; you then have the DERC (Delhi Electricity Regulatory Commission) drawing up the tariff recommendations, allowing for a nominal 10% return on equity, and carrying out all other regulatory functions, including of ensuring full disclosures on all performance parameters, on the net.
 
There were a few hick-ups initially, but they have all largely been sorted out, so much so, today, even the AAP govt has come to terms with it all, enjoying as it is the good-will of the people, on the reliability (near 100%) and low tariff factors (apart from phenomenal improvements on all other counts too - check table below and here), piggy-backing on the performance of the private players.
The same model can indeed be replicated in other areas too, with the necessary tweaking required based on the their individual peculiarities.
 
I would actually recommend that the equity holding by the government be reduced to 26%, which, while giving them enough powers to influence policy, reduces it's fiscal burden (and helps avoid conflict situations arising thereof, check here), the released funds becoming available for meeting other equally important needs of the government.
 
What is surprising is that, even with all of the information on TataPDDL's sterling performance being available from long back, not many cities have followed the model yet, even in the matter of power supply, whereas many cities abroad have adopted them - check here.
 
Now, Bengaluru is supposedly the tech capital of the country, and finds it's name listed in global rankings too; but tragically, its public utilities, run by the government, are far from what behoves the city of such standing. The moot question that arises is will the government wake up to the need to effect necessary changes, at least now, or continue to remain stuck in the crony Socialism of the present? 
 
Muralidhar Rao 

COMMENTS

Getting the ratio wrong

murali772 - 19 October, 2018 - 14:01

I was at a discussion session convened by the Environment Support Group, Bengaluru, a few months back, on the subject of "Getting the ratio right- Peoples' participation in a climate of Privatisation". The invite stated that the main participants would be Prof Michael Goldman of Minnesota University, Dr Kshitij Urs, GreenPeace, Mr Leo Saldanha, representing the host organisation, and Prof Sudhir Krishnaswamy, Director, School of Policty and Governance, Azim Premji University, Bengaluru. I have had enough of inter-actions (largely on the net; but, a few direct too) with all, except Prof Sudhir Krishnaswamy, and holding as I am views that are almost totally contrarian to those of all three, first-named, my interest was largely in hearing out what Prof Sudhir Krishnaswamy had to say, more so since I have been a keen follower of the subject from long, and blogged extensively on it too. 
 
But, as it turned out, Prof Sudhir Krishnaswamy dropped out, for reasons quite unclear to me, leaving me wondering whether I should participate at all, or drop out too. Well, having gone that far, I decided whatever to hang on to see if there was anything new in the thinking of the lot. Well, nothing has changed, and since that was what I was expecting, anyway, I was not disappointed either. 
 
The meeting started off with a tirade against the proposed 'privatisation' (actually, it can only be outsourcing, if at all) of the maintenance of the "Church Street". From there, it went on to a 'tirade' against the street 'upgradation' project itself (declared a 'failure') - about the non-transparency, lack of public consultation, 'enormous cost', lack of greenery, lack of facilitation for vendors, cobbled stones (paving tiles) coming loose, etc etc. The next target was the "TenderSure" jobs, on similar counts, and about how the foreign media had taken all the inputs from the project proponents themselves while publishing their reports 'extolling' the job on the whole.
 
This went on for about half an hour, the main participants being Kshitij and Leo, with many others contributing with tit-bits on the damage to the flora & fauna, forests, ecology, climate, all of what you'll normally hear in such a meet. After a lot of failed attempts, I finally 'almost butted in' to say that I have a contrarian view, and if the audience is interested, I'd like to state it; otherwise I'd like to go, since I'm not hearing anything new. Leo very 'kindly obliged' me, and I first went on to talk about how, even if there perhaps were some 'flaws' with both Church street and TenderSure jobs, they were a welcome change from the 'hosa billu; halae kallu' regime of the past, and, gaining from the learnings, perhaps future jobs could be improved upon. 
 
And, as for privatisation per se, I talked about the transformation that TataPDDL had brought about in Delhi in power supply (scroll above to read opening post), and asked what anyone can have against such a PPP arrangement. I went on to add that I'd consider it a model for similar arrangements for all public utilities too. 
 
Apparently, for want of anything better to say, Leo went on to ask if "public consultation" had happened before going in for 'privatisation'. I said I had no idea; but, it was a government (led by Madame Sheila Dikshit) that had overthrown an earlier regime, promising better quality of life, and they had decided on this route to keep up the promises, and they had more than met them too, at least on this score.
 
Perhaps, I needed to add that, if the public consultations were to be held now to ask whether to go back to DESU/ DVB of old, and if the 'janata' said they were quite happy the way things are presently, would that satisfy him. Also, would he then recommend the model to other cities, more particularly to Bengaluru, too. 
 
Now, while Leo, and a few others too, were generous enough to concede a roll for the private sector (which came out in the course of various statements made by them), there was one particular johnny (don't know the name) who was vocal in rejecting it in it's entirety. And, he seemed to have some backers too. Well there was no arguing with him, and I just gave up.    
 
Prof Michael Goldman then took over and went on to give a discourse on how 'capitalism' was behind everything that's wrong with this world, ignoring totally my question of what anyone could find wrong with the Delhi power PPP model. Actually, I could have done a better job of listing all that's wrong with capitalism - it's all here. But, my argument is that the 'pseudo-Socialism' that these worthies are preaching is far worse than even 'capitalism'. Besides, what I am advocating is a well-structured PPP model.
 
Realising that there was no future to my carrying on there, I quietly slipped out.  

 

argument against PPP's lost

murali772 - 19 October, 2018 - 14:12

I concede that the argument against PPPs has been lost a long time back. But it should be the endeavour of everyone in our nation to come up with agreements where the public’s interests are safeguarded and the tendering system becomes meaningful. In many cases vital changes are made subsequently, making the tendering process a farce. I am hoping the government will at least make it mandatory that all PPP projects will be in RTI. They are public authorities as per the law, but take advantage of our dysfunctional legal system.  Perhaps citizens will better monitor such projects far better than the government agencies.
 
Above are the excerpts from an opinion column on PPP's (more particularly with reference to Mumbai Metro One Pvt Ltd) by former Information Commissioner, Sri Shailesh Gandhi, in "The Logical Indian". For the full text, click here.
 
Can't quite disagree with any of the points raised by Mr Gandhi. But, what interested me more are the above excerpts where he seems to suggest that PPP's (needless to add - well-structured) are the way forward. In fact, I intend to ask him his opinion on the Delhi power PPP model (outlined in my opening post).

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