1 Introduction
The
term ‘Public Private Partnership’ or ‘PPP’ has become a buzzword of late in the
policy circles, and is being increasingly resorted to as a preferred medium for
provisioning of public services both within the industrialised and low-income
countries. While the PPPs are more commonly found in the transport
infrastructure sector, such as roads, airports, and ports (primarily due to the
commercial pricing models), they are also invoked in water supply and
sanitation, tourism, education, health, and other social sector programmes, albeit
to a lesser degree. A significant difference is however observed in the nature
of PPPs across these sectors. In many cases they appear to be glorified forms
of service level agreements rather than ‘partnerships’ as are defined in the
normative literature on PPPs.
Engagement
with the private sector for provisioning of infrastructure facilities has
become increasingly popular in the past few decades. India India Hyderabad
Against
this background, this article attempts to provide theoretical insights into the
concept of PPP, and analyses the reasons for its growth and acceptance as a
mode of service delivery in many countries.
2
Growth of PPPs
There have been instances of the State engaging with the private
sector towards provisioning of public services throughout the known history-
the case of Mathew, private tax-collector from the Bible; public street lamps
in 18th century England were cleaned by private contractors; the rail companies
of 19th century England and the US were privately owned; 82% of Sir Frances
Drakes fleet of 197 vessels, which conquered the Spanish armada, were owned by
contractors. Toll roads and toll bridges, privately owned and operated, has
been around since antiquity. Toll roads carry mention in writings of the Greek
historian and philosopher Strabo (63 BC-AD 21) in Geographia during the
time of Caesar Augustus, where he records existence of tolls on the Little
Saint Barnard Pass. Historical development of PPPs in infrastructure had its
beginning in Europe in the demand for mass
travel and long distance commerce in second half of 17th century. France
However, Public Private Partnerships as are known in their current
form started in the Organisation for Economic Co-operation and Development (OECD)
countries and the USA USA and Margaret
Thatcher in UK UK UK and USA ,
industrial policies of France ,
and economic development policies of Italy ,
Netherlands and UK Netherlands , Australia ,
Hungary , Italy , Japan ,
Korea , Spain and France
have had substantial experience in implementing infrastructure projects under
PPP, countries like Chile , Brazil , Singapore ,
India , and Canada
3
Understanding the context of PPPs
Different definitions and interpretations have been associated with the
term Public-Private Partnerships. These depend upon the
context within which they are initiated and operated. Simply put, the term PPP
traditionally implies engaging with the private sector for provisioning of
public services and infrastructure such as roads, airports, ports, health
services, garbage and waste management. Such services have been historically
provided by the government through public works agencies. According to some,
PPP is a framework for describing all cooperative ventures between the State and
the non-State agencies, both for profit and not-for-profit. Within the limited
context of transport infrastructure sector, PPP is defined as a long term
collaborative effort between the government and private agencies, wherein both
pool in their differentiated and specialised resources for planning, design,
construction, operation and maintenance of infrastructure services. They also share
investments, risks, benefits and responsibilities. This feature of the PPP has
been argued to form the crux of the partnership. The facility thus developed
eventually reverts back to the government after expiry of the concession
period. In India this period ranges from 20 to 30 years.
A common
misconception about PPPs is that they involve the private sector merely for
financial partnering. However, PPPs are more about a service procurement policy
rather than a capital asset management policy; they do not do away with public
investment but merely supplement it. Within a PPP the private partner is
involved in a broader ambit of ‘infrastructure investment’ where neither the
private sector nor the government is the only owner.
PPPs are perceived to provide public
services more efficiently than what the government could accomplish on its own.
In the classical literature on public administration, there is a distinct
divide between the roles and responsibilities between the State and the private
sector, often termed as ‘the market’. While some works were to be taken up by
the government agencies due to their social and economic mandate, some services
were delivered by the agencies. However, the traditional conceptualisation of
the state being the sole provider of services and goods for public welfare came
under sever strain in the decades since 1970s. In the 1970s and 1980s, as the
demand for public infrastructure grew and governments became increasingly fund
starved, due to deficit financing and populist pressures to hold prices below
costs, their capacity to provide sufficient and quality infrastructure was
found to be inadequate. The public utilities were therefore largely neglected. In
most of the developing low-income countries it was found that public finance
for infrastructure was generally inadequate and full cost recovery of
infrastructure charges was becoming more of an exception than a rule. In
addition to poor allocation of funds for development of infrastructure,
maintenance got even little, which was assumed to be funded by future budgets
which were typically insufficient. Traditional methods also left a number of
risks with the public sector, regarding the asset ownership. This is attributed
to its monopoly position with no incentive for competition, poor fiscal
discipline and limited fiscal autonomy to public bodies and managerial
inefficiency which increases production cost. Many governments attempted to
improve performance through corporatisation and performance contracts which
were largely unsuccessful.
Furthermore, the government in its controlling and regulating mode was
found to be outdated, path
dependent and inflicted with the
pathology of politicized bureaucracy. This
was attributed to bounded rationality of decision makers, predisposition toward
rigidity, extreme focus on rule rather than the outcome, and growing rent
seeking behaviour of policy makers. The government agencies came to be
widely perceived to be inefficient and inadequate because of their hierarchical
and vertical structures of management and incapable of delivery of quality
public services which could be sustained over a long period of time.
The private sector, on the other
hand, was seen as a better allocator of services, more efficient in delivery
and management of services, and innovative, flexible
and agile to respond to market changes. In the USA
In the more
recent discourses on PPPs, these have been viewed as new forms of governance.
They are being analysed as ‘governance
networks’ between the State and non-State actors aimed towards
collaboration, co-production, co-management and communicative governance. They
are being viewed as an alternative way of provisioning of public services that combines
the features of both the State and the market, and as a response to limitations
to markets and hierarchies with regard to allocation of resources and
provisioning of services. As a hybrid mix of the two forms, they typically mix
virtues of state, like accountability, probity, legitimacy and transparency,
and efficiency and quality attributes of the market.
Moreover, they are argued to represent a
relational dimension of the State where the State extends itself beyond its
theoretically determined boundaries, and partners with various agencies in
order to achieve its social and economic goals. PPPs also reflect the welfare
state being replaced by the ‘competition state’ which behaves more like a
market player and takes the lead in spearheading the structural transformation
of markets and brings about policy changes involving the private sector. This
shift is being attributed the changing meaning of what constitutes the ‘public’
and the ‘private’ sectors. The traditional divides between the two domains are
being blurred, and new forms of governance models are providing frameworks for
delivery of public services.
4
Categorising PPPs
PPPs are often classified into ‘economic’
and ‘social’ blocks and are further distinguished as ‘hard’ and ‘soft’. While roads,
railways, telecommunication and airports fall under the ‘hard economic’ category,
areas like vocational training, technology transfer and Research and
Development (R&D) facilitation are termed as ‘soft economic’. Water
treatment, housing and prisons and childcare are labelled as ‘hard social’
whereas social security, environment services and community services are included
in ‘soft social’ category.
PPPs are also distinguished on the basis
of stages in which partnership is entered into. It can be either in the
‘planning and design’ stage or at the ‘realisation’ stage. As financial
arrangements, PPPs have been observed to take different forms. There are
various terms for them, such as BOT (Build Operate Transfer), BOO (Build Own
Operate), Build Own Operate Transfer (BOOT), and Design Build Finance Operate
(DBFO). The DBFO model appears to be most preferred PPP model across the world.
5
Analysis of factors contributing to
growth of PPPs
Many factors have been identified for the growth of PPPs. These have been
varied across sectors and countries, depending on the context of the prevalent
structures within which PPPs operate. As mentioned earlier, on a larger canvas,
growth of PPPs is widely credited to the implicit assumption that the market
stands for better efficiencies in production and delivery of services, and
partnering with the market infuses reform, competition, discipline and
entrepreneurial spirit in the government. PPPs reflect larger ideological
changes in debates of governance and the transformation of the State-market
relationship where partnerships may not only be the result, but also the cause
of these changing equations.
PPPs have become the preferred alterative
of many ‘third way’[1]
governments which provides them an option to tread the middle path between
outright privatisation and nationalisation. Many governments attempt to fill
the ‘capability gap’ in areas where they lack technical expertise through these
alliances.
But the most significant reason for
opting for a partnership is the resource dependency between the two partners. The new theory of resource- interdependence is
based on the argument that to be effective, governments must blend their
capacities with those of the various non-governmental actors. PPPs enable
pooling of specialised complementary resources of the two partners. They
provide easy access to private finance, managerial knowledge and entrepreneurial
skills of the manpower in design, construction and management of assets and
facilities created. Specialisation of the private partner helps to reduce the
final total cost. This enhances the efficiency gains due to improved resource
allocation, effective organisation and innovative solutions for meeting demands
of specific segments of users. Furthermore, engaging with the private sector at
the stage of problem definition ushers in specialised knowledge in the decision
making and policy process. Working on design and execution of a joint project
ostensibly results in rapid dissemination of skills and information, reduced
development time and fewer errors.
PPPs also enable risk-sharing with the
private sector. Infrastructure projects often involve risks which though
unvalued, are purported to carry a cost. These are all the more in a PPP- the
multitude of actors, highly technical tendering, contract evaluation and
closure processes make PPPs a complex procurement and investment process. Some
of these risks can be transferred to the private sector, which is perceived to
be in a better position to identify, evaluate and mitigate it at the lowest
cost, thus lowering total project cost and resulting in cost-effective
services. Also, due to their more flexible and adaptable forms of management,
the private sector can respond more nimbly to threats and opportunities as compared
to the public sector.
Analysing this from the perspective of
collaborative governance, it is claimed that that no single actor has the
resources, knowledge or sufficient action potential to handle issues or
dominate unilaterally. All governments today face a vast array of interests,
and aggregation is seen as a functional requirement and reality. The new
meaning of governance does not point to state actors as the only
entities in policy making and allocation of resources. In this milieu, amorphous non-state agencies possessing differentiated expertise
inform the collective policy process. In this mode, the government
collaborates with other actors for both formulating and implementing policies.
As new forms of governance, collaboration and not competition is the central
them of partnerships; as joint ventures they stabilities the volatilities in
the market, and mitigate competitive pressures instead of exploiting them.
PPPs enable governments of the low-income
countries to tide over huge public debt and introduce innovation in design and
delivery of public service thereby ensuring its long term sustainability. The
economic perspective in favour of PPP is that they present an attractive
alternative to the market and contractualised relationships and are viewed to
be broader in scope than privatisation and a qualitative leap from traditional
contracting. Fiscal pressures have often led governments to look for innovative
solutions to maximise effectiveness in reallocating resources. Due to the ‘buy-now, pay-later’
attribute, PPPs are ‘off the balance sheet’. This means that PPP finances do not
appear as large capital expenditures in the year that they occur, but as series
of smaller revenue expenses over the life of the project. Evidence suggests
that this helps increase Value for Money (VFM) of the investment; keeps public
sector budgets, and especially budget deficiencies, in control; allows the
public sector to avoid up-front capital costs thereby, reducing expenditure on
large capital intensive projects. Moreover, the fiscal space created helps
boost medium-term growth and generate fiscal revenue in the future. Governments
can allocate resources to other policy priorities as PPPs are financed off the
balance sheet. According to few scholars, the partnership model has been
precipitated by economic globalisation which has structurally altered the
nature of the welfare State. Governments are forced to reduce capital spending
while still having social goals.
According to some authors, as a public
policy representing the government’s wider approach towards infrastructure
delivery, PPPs carry a significant political undercurrent. Promise of faster delivery
of infrastructure projects and an immediate cut in capital expenditure has
potential to generate significant political incentives, especially in the short
run. PPPs enable politicians to deliver more
projects in a short time, demonstrating policy achievement and acting as a tool
for harnessing short term political gains. Furthermore, politicians have a
tendency to argue their cases based on the successful cases rather than the
failures. Politicians are also seen to be gaining from the improved relations
with the construction business houses.
6
Conclusion
The article provided a brief description
of the growth of PPPs, and explained its basic features. The reasons behind the
acceptance and growth of PPPs as a new mode for delivery of public services
were explored and analysed. The perspectives of resource-dependency, economic
efficiency, political imperatives and new mode of governance were also examined.
- Dr. Manisha Verma
About
the author
Dr. Manisha Verma, a Civil Servant, is working
in the Government of India. She has a PhD from the Institute for Development
Policy and Management (IDPM) at the University of Manchester, UK.
She can be contacted at v.manisha@gmail.com
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