Over the last decade PPP has become the buzzword for addressing India?s infrastructure deficit. Sectors like roads, power and telecom have seen reasonable success in private participation. However, other sectors, like water supply and sanitation, street lighting and urban roads, are dominated by government-owned service providers, either by government departments, para-statal agencies or local bodies.
The situation is complicated by the requirement of the 74th Constitutional amendment, which mandates that certain services should be devolved to the local level. While the private sector may be keen to get into these sectors in large cities, the small and medium-sized towns will remain the responsibility of government institutions in the foreseeable future.
It will be necessary to evolve a mechanism by which public institutions that have the experience and expertise in delivering basic urban services are strengthened and made accountable for delivering these services with minimal institutional disruption. For example, while the local body should be responsible for setting tariffs and providing gap funds for meeting operation & maintenance (O&M) expenses, the public health & engineering department (PHED) should be responsible for delivering the service under a transparent, contractual framework.
There is an emerging body of literature on how public-public-partnership (PUPs) can solve some failures of PPPs. Most importantly, PPP seldom addresses capacity building of government institutions even though this is one important objective of bringing in private sector expertise. There is inherent conflict between increasing the capacity of government institutions and the opportunity for the private operator. Public entities, on the other hand, may find it easier to collaborate.
Further, there are many successful examples, primarily in the water supply sector, of state-owned water supply corporations serving public interest in a commercial viable manner. Rand Water in South Africa is responsible for bulk water supply to many municipalities and also takes on retail level distribution through a contractual arrangement with local authorities. K-Water in South Korea is a public utility responsible for water resource management, including bulk water. It also provides retail distribution services and gets into partnerships with local bodies that face financial stress and uses its expertise to improve efficiency of operations. In one such case, K-Water reduced non-revenue water from 47% to 30% within four years without a tariff increase.
Such arrangements without the strict contractual framework have been witnessed in India. In the past, Chennai had a twinning arrangement with a French utility company. More recently, in Kerala the local body has an MoU with Kerala Water Authority for implementation of water supply projects as well as O&M. In Orissa, Public Health and Engineering Organisation and urban local body (ULB) have entered into an MoU, which lays out that PHEO will be accountable to ULB for delivery of water supply and sewerage services at pre-determined standards. However, the issues of tariff setting and the responsibility for meeting the O&M gap are not clearly captured. These examples constitute good starting points to build on.
Successful implementation of such PUPs require several steps. Firstly, the contractual framework should have a set of inbuilt incentives and penalties. For example, if PHED meets its targets there should be greater financial and operational autonomy. Also, it should also reward performing public servants.
Secondly, there should be credible financial ring-fencing. For example, funds may be transferred to the local body and held in an escrow account monitored by an independent agency. If the local body wants to charge a lower tariff from its customers, it should allocate sufficient resources from its general revenues.
Thirdly, citizens should bring sufficient pressure on their elected representatives and demand improvement in quality of services. Fourthly, this arrangement may require fiscal and regulatory reforms such that government can set policy but not tariff. Finally, development agencies like WB and ADB should draw upon their rich international experience to support such arrangements.
Similar agreements can be extended to areas like public transport, street lighting and urban roads. The transport department could have an MOU with the local body for operation of the public transportation system.
?The writer is senior manager, infrastructure practice, PwC India