Public-Private Partnerships in the Globalised World

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by Harpreet Kaur, UILS, Panjab University, Chandigarh.

p3 partnership

In the era of liberalization, privatization and globalization; Public-private partnerships have become essential in creating growth, development and progress especially in third world countries. Public-private partnership is a collective action of public and private sectors, aimed at implementation of projects or provision of services provided by public sector hitherto. It is a contract between a public authority and one or more private parties to provide a public service that assumes substantial financial, technical and operational risk. In a public-private partnership, a private sector consortium formed as a special company known as “special purpose vehicle” is given the task to develop, build, maintain and operate the asset for the contracted period. This consortium usually contains a building contractor, a maintenance company and a bank lender. It is the special purpose vehicle that signs the contract with government and sub-contractors to build facility and then maintain it as mentioned in the contract. This represents the overall framework of a public-private partnership model.

The first public-private partnership model under the program of private finance initiative (PFI) was commenced in 1992 in United Kingdom; it was a comprehensive program that covered state-owned enterprises. Under PFI, the public sector became a purchaser of services provided by a corporation, while the latter provided the necessary fixed assets for their implementation. A similar model was taken in France during 1990’s by the name of delegation de service public where revenue was raised from fees of users of the infrastructure managed and maintained by the concessionaire. Australia’s ‘partnerships Victoria’ started in 2000 is a well known public-private partnership model, which is a whole new set of government approach to provision of public infrastructure and related ancillary services.

Public-private partnership has various models which are as follows:

  1. Management contract: In this form of public-private the government owns the assets, invests capital and bears the capital risks. The private company is responsible for the day to day functioning and maintenance.
  2. Lease: In this arrangement, the lease holder pays a rent to the government and in return he creates revenue for recovering his initial investment as well as further profit. The leasing of land by government of India in case of Delhi and Mumbai airports for modernizing is one such form of public-private partnership.
  3. Service contract: It is similar to the management contract, except that in this form the government contracts out a service to a private sector enterprise for a contractual period. The government is nevertheless responsible for the operation and maintenance of the asset as well also bears the commercial risk.
  4. Concession: A private company such as Special Purpose Vehicle is given a concession or franchise by the government to build, operate and transfer or build, operate, own and transfer a public service. The company has the right to collect toll or tariff for the prescribed period until the facility is transferred to the government. Various expressway and national highways in India are based on this type of public-private partnership.

In the current scenario in India where a unique situation of stagflation exists due to the combined effect of decline in growth and a lateral inflation, public-private partnerships can become blessings in disguise. To mitigate the economic repercussions of stagflation, the government needs to create development in all the sectors at a fast pace, the recent decision by the union government towards forming a infrastructure development fund (IDF) to be structured on the lines of non-banking financial company with a consortium of four financial companies, including the ICICI group, LIC, Citicorp Finance India and Bank of Baroda is a positive step in this direction. Public-private partnerships are subservient in completing projects in more efficient, effective and expeditious way, which is actually the need of the hour in order to secure the momentous growth India had accomplished in the past fiscal years.

The new projects to be completed under the public-private partnership format investment from IDF in various sectors such as ports, railways, highways and other infrastructure assets will lead to a expansion in commodity market, employment and industrial growth, henceforth reducing the deleterious effects of stagflation on the economy and taking it to the path of growth and progress once again. The role of public-private partnership is much larger in pursuing growth in the current scenario as compared to the economic boost to be presumed from foreign direct investment (FDI) in various sectors.

Merits of public-private partnership:

  1. Since the public-private partnership is more like an outsourcing of public goods and services, it has the factor of cost effectiveness attached to it as for the same price better services are availed.
  2. There is synergy in public-private partnership arrangements, as the accountability and responsibility of public agencies are cardinally combined with the efficient and effective managerial skills of the private companies. In a way both complement each other leading to a more empowered citizen.
  3. Public-private partnerships promote competition not only among the private companies but also among the government agencies, as a result the final beneficiary is the customer who will enjoy the quality of service.
  4. Public-private partnerships even though a complex arrangement between the two parties, i.e, the government and private player leads to a more SMART (simple, moral, accountable, responsive, transparent) governance.
  5. Productivity as well as value for money of taxpayer’s income is significantly raised by public-private partnership models.
  6. Since public interest and customer satisfaction is the ultimate aim of creating projects under public-private partnership, citizen satisfaction can be to a certain extend guaranteed.
  7. There is a wide scope of innovation and improvisation in public-private partnership; private companies have dedicated departments for research and development compared to government agencies.

Demerits of public-private partnership:

  1. Public-private partnership can create burden on the customer as he has to pay higher tariffs for the service rendered as private companies charge higher cost compared to public sector for the services provided.
  2. Accountability can become an issue, as neither the private company nor the government will be ready to take the responsibility in case of any cost overruns or delay.  Both blame each other for any irregularities that occur during the project.
  3. Ensuring a proper and systematic monitoring and evaluation on the private company is a predicament in public-private partnership projects due to men and machine involved entirely belonging to the private firm with no much government influence and inspection.
  4. It is generally observed that such projects overrun their time and cost limits, which is serious concern in public-private partnerships. This is a widespread occurring phenomenon especially in India. The government needs to strengthen its regulatory mechanism.

To conclude, public-private partnership is an effective way of completing various projects within a short time frame in an efficient manner. Numerous successful public-private partnership models in India such as Hyderabad metro, solid waste management of Guwahati, Delhi airport, container terminal at Jawahar port etc. have set a benchmark for future projects to be envisaged on the same lines. In the context of Indian economic environment public private partnership arrangements can have an instrumental role in creating indigenous growth and development. It is imperative in the era of globalization that the public sector and private sector share responsibility in ensuring development and progress as the government alone cannot execute the duties of the state single handedly. Moreover, the progress of nation ensures that all its sectors enjoy, the benefits of development hence a higher GDP will ultimately affect the private sector. Public-private partnership is one such collective action where such goal can be sustainably, inclusively and effectively achieved without explicitly disturbing the overall economic structure of the country as could be the case in context of FDI.

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