JANUARY 15, 2016

By Naresh Minocha, Our Consulting Editor

"SOME countries have a legal framework for PPPs. The Committee recommends an assessment of whether enactment of PPP law will facilitate expansion of PPP into sectors including health, urban transport and other social sectors," says the Committee on Revisiting and Revitalizing Public Private Partnership (PPP) Model of Infrastructure headed by Dr. Vijay Kelkar, Chairman, National Institute of Public Finance and Policy.

This innocuous observation by the Committee shows that it has failed to capture the big and true picture of the state of PPP in the country. The fact is that PPP has already become the rage in the health sector with its reach extending from multi-specialty surgery camps in the countryside to intensive care unit (ICU) in Government hospitals.

Invitation to private sector entities to set up diagnostic centres, hemodialysis units and cardiac units within Government hospitals has become fashionable. So are efforts to upgrade and operate existing hospitals as PPP multi-specialty centres. The governments and their appendages are also not found wanting in promoting greenfield hospitals under different PPP formats.

Similarly, PPP has made inroads into the education sector with National Skill Development Corporation (NSDC) being the disgusting example of all that is wrong with PPP.

The PPP concept has already established a foothold in urban transport with metro rail being an obvious instance in point. The reliance on PPP is also visible in other social sectors including water and sewerage systems in urban areas. PPP has even been offered under Provision of Urban Amenities in Rural Areas (PURA) Scheme.

PPP is kicking in other areas as long-term or medium-term outsourcing of a major chunk of business operation in several industries.

A case in point is the practice of among both companies owning mining rights to assign mine development and operation (MDO) to private entities. MDO has, in fact, become the norm among both public and private sector companies that have had bagged coal mines for captive coal mining.

Even coal mining war horses, Coal India Limited & Singareni Collieries Company (SCCL), are getting hooked to MDO concept. A variant of it is Technology Provider cum Operator (TPO).

Another major PPP example is the assignment of operation and maintenance (O&M) of process plants by core sector companies. This is a common practice among power generating companies.

Some companies even lease their plants for medium to long term under PPP format. The Durgapur Projects Limited (DPL), a West Bengal Government utility, for instance, is scouting for a PPP partner that would renovate its Coke Oven Group of Plants, operate them for 10 years and later transfer them back to DPL.

Certain other public sector enterprises have invited industries to set up utility plants for supply of industrial gases to their refineries under long-term outsourcing contracts. Outsourcing implies PPP spirit. It at times manifests as strategic equity stake.

All such developments foretell a mega-trend of concentration of technology, skills and economic power in the hands of PPP operators. Mining companies, which mined themselves, are now emerging as mere mining rights owners. Manufacturing companies, which once chanted backward integration, now don't mind even hiving off operations that once formed integral part of their core business.

Manufacturing both in the public and private sector is going the telecom services way. Telecom Services providers, which once operated their own networks, now function as mere license holders-cum-marketers. They have left the operation of switches, routers etc to equipment manufacturers and transmitters to tower companies. Even ailing public sector entities, BSNL and MTNL, are embracing their private companies' operations model.

What impact this split-up of integrated business models into skill and managerial clusters have on the cost, quality and reliability of services and products?

Another megatrend is the marginalization of the governments' governance and entrepreneurial skills. The Central and State Governments have certainly lost their appetite for public sector investments. They can't think of anything else other than PPP as a channel for investment of funds from the exchequer.

A case in point is abandonment of scheme of setting up chain of medical colleges by Employees' State Insurance Corporation (ESIC) as adjunct to hospitals that it operates. ESIC drew curtains over this less than 5-year initiative in December 2014 after investing Rs 1021.72 crore on setting up of 16 medical colleges.

Faced with problems in implementation and with project cost soaring from Rs 8611.94 crore to Rs 11997.15 crore, ESIC felt medical education was not its core function. It has decided to hand over upcoming colleges to State Governments and to private companies under PPP format.

PPP mania can thus prove counterproductive to objectives of National Policy for Skill Development and Entrepreneurship and National Competition Policy in the long run.

The State (both the Centre and the States) is thus shrinking its role as entrepreneur and its direct responsibility as direct provider of healthcare and other welfare activities. It is happy in its emerging avtar as revenue collect-cum funds dispenser.

The State loves to doles out money to entrepreneurs and NGOs as minority equity, soft loans and grants under PPP. Is this subsidy properly accounted and aggregated in Government accounts? Has any committee evaluated the impact of diffused outflow of money from the exchequer as compared to returns-yielding investment in public sector as equity and loan? What is the trade-off between PPP investment and public sector investment? Is PPP not increasingly disproportionately the cost of services and goods delivered to the consumers?

Why can't public sector be given a level-playing field with the private and PPP entities to enable it to excel? And how the PPP and outsourcing-induced megatrends would impact the technological and economic efficiency of the country?

All these PPP-related concerns should have been examined by Kelkar Committee. It could have at least made a passing reference to such issues.

It played safe by confining its discourse and recommendations within the mandate assigned by Finance Ministry. The Government should consider reactivating this Committee or set up a new one to study the entire gamut of PPP including absence of national PPP policy and a unified PPP law.

It is indeed unfortunate that the Committee did not ponder over grave issues mentioned by Comptroller and Auditor General (CAG) in its reports on PPP projects. CAG has done commendable job in exposing the rot in PPP domain sectors such as roads, airports and ports. These three sectors constitute infrastructure, which came within the Committee's purview.

The concerns relating to safe and reliable delivery of vital services to the public require elaboration. And it can be best illustrated by taking a few cases from the healthcare and education sectors.

Consider an expression of interest (EOI) invited by Himachal Pradesh Government in mid-2015 from private entities to organize Multi-Specialty Surgical Camps at 51 sites.

EOI says the camps will focus on "General Surgeries (Elective and Emergency), OBG. and Gyane Surgeries (Elective, Emergency and MTPs and Family Planning) and ANC check-up and Eye Surgeries."

State Government has offered financial support of Rs. 6.25 lacs per camp to PPP operator for Non-Tribal areas and Rs. 7.00 lacs for Tribal areas. Each camp will be of 7 days' duration. Private surgeons will conduct minimum 60 Major surgeries at each camp. The Government has specified additional remuneration to PPP operator for each extra surgery.

HP has provided for a mish-mash of facilities and manpower from both the Health and Family Welfare Department and the private camp organizer. The latter would provide surgeon, surgery consumables and medicines.

Imagine if the surgeries go wrong as they often in eye surgery and sterilization camps organized by NGOs and Government hospitals. Would there not be buck-passing if operated patients get infections, which might have originated due to unclean Government's operation theatre or due to sub-standard drugs administered by private camp organizer?

Best medical outcomes are obtained when there is a synergy between diagnostic, clinical and para-medical professionals. The integration of teams of two diverse cultures and capabilities is not easy to achieve.

And this concern would haunt even large Government hospitals where certain units are manned by private entities under PPP contracts and others by Government staff.

Turn now to education sector. After NDA Government came to power in May 2014, it reviewed UPA's scheme of promoting 6000 model schools. Of these, 2500 were to be set up under PPP format. It scrapped the list of private entities that were short-listed during UPA regime for setting up PPP model schools.

It is not clear what led Modi Government to scrap the short-list and transfer the entire central scheme of centrally sponsored model schools to States.

Had Kelkar Committee looked into this scheme, it might have recommended clarity and credibility in implementation of PPP in education sector.

When the Committee was drafting its report in October 2015, news appeared about a draft CAG report pointing alarming irregularities in the working of NSDC.

CAG report, which was tabled in Parliament on 18th December, is an eye-opener. It shows how a grandiose PPP initiative can turn out to be splurging of tax-payers money with no Government accountability and with hardly any monetary contribution from private sector.

Though Government has made 99.78% of total investment in NSDC with 49% equity stake, it plays second fiddle to the private sector nominees on the Board of the company. NSDC, which is a not-for-profit company, paid its CEO salary, which was more than twice paid to CEO of ONGC, a public sector super profit earner.

NSDC doled out grants, soft loans and equity to private training entities with no Government oversight and with blanket exemption from RBI regulations. It was converted from a public limited company to a private limited company in 2011. This further weakened the governance mechanism of NSDC.

NSDC scam is not an isolated case in PPP domain. There are several more red lines including privatization of Delhi and Mumbai airports and post-contract favours given to airport operators.

Post-contract changes and certain deficiencies in contracts have reduced PPP into a new symbol of crony capitalism. Modi Government, which came to power on anti-corruption wave in the country, has preferred to keep its eyes shut on PPP scams.

The national exchequer and the public is thus paying high price for authorities' laxity and complicity in PPP irregularities.