Public oversight of PPP concessions: engaging with a Pandoras Box

Written by Sandeep Verma | Updated: Jan 28 2010, 02:11am hrs
Picture the government selecting a public-private partnership (PPP) concessionaire at will. Such stakeholder concerns with arbitrary award of PPP contracts were addressed by the Supreme Court last year in the Ravi Development vs Shree Krishna Pratishan & others case. The court ruled that award of public infrastructure projects, particularly through the unsolicited proposals (Swiss Challenge) route, must fulfil essential requirements of transparency and competition. While state governments are yet to align their contract-award policies with the courts mandate, the chief information commissioner buttressed the transparency prong by permitting third-party disclosure of PPP contracts in the Shri Navroz Mody vs Mumbai Port Trust case.

Now, envisage an even more real and complex scenario a concessionaire acting improperly in allocating costs and profits to the public partner, or acting in a seemingly arbitrary and non-transparent manner in selecting its subcontractors. Proper cost-allocation in PPP contracts, or permissible cost-recoveries in production-sharing contracts is relatively simpler to resolve, for there can be little doubt that such allocations must remain within the contractual confines. Useful tools in this context are concurrent audit and cost-monitoring by the contracting agency, and post-facto audit by the CAG or state auditors. The corresponding regulatory framework in India was recently strengthened by the Planning Commissions Guidelines for Concurrent Monitoring of PPP Projects and the CAGs Public Auditing Guidelines for Audit of PPP Infrastructure Projects.

The vitally important matter in selecting subcontractors by a concessionaire being open to public scrutiny remains to be resolved. It came under scrutiny in a Bombay High Court judgement of June 2008, and in a Karnataka High Court judgement of December 2008issues that are likely to be resolved by the Supreme Court in the near future.

One view argues that if a PPP concessionaire is assumed to be just another instrumentality of the state at par with a PSUwith concomitant liabilities about the openness of its commercial decisions to possible challenge on grounds of perceived arbitrariness or unfairnessthen such treatment would entail substantial litigation risk that may virtually put the brakes on infrastructure growth in the country. There is an inherent and inevitable efficiency versus accountability aspect on account of justifiable concerns that greater oversight with PPP contracts could mean less efficiency in their implementation. This view assumes that normal competition laws are sufficient to prevent anti-competitive behaviour of PPP concessionaires and any extension of the constitutional fairness and equality obligations of the state to include commercial decisions of PPP concessionaires in their selection of sub-vendors would be economically inefficient and legally precarious.

Overall, while it may be a strong argument, it is far from being perfect, and may, therefore, require closer scrutiny and fine-tuning. For instance, a PPP concession is essentially a time-limited legal arrangement; and normal rights of government to intervene during contract performance need to prevail to the extent that contractual decisions of a concessionaire have the potential to affect government risks, costs and obligations outside the contracted time-duration.

Public policy implications become more pronounced with bundled PPP concessions, where a core public service (to be outsourced) is bundled with other collateral, purely commercial arrangements in order to make the project viable overall (for instance, a heritage property being developed through the PPP route while allowing commercial development rights on nearby public lands). While sub-contracts related to the core public service(s) could be shielded from oversight in the interests of concessionaire-efficiency, there may be a need to disallow such protection in subcontracting with respect to collateral commercial arrangements to prevent monopolistic behaviour in the disbursal of public goods.

The PPP route has undoubtedly injected innovation and vitality in the provisioning of public infrastructure in India. However, there may be justifiable policy rationale in designing narrowly-defined oversight mechanisms and carving-out equally narrow legal exceptions to permissible commercial decisions of concessionaires that yield desired levels of economy and accountability without compromising their relative flexibility and efficiency.

Sandeep Verma is an IAS officer and holds an L.L.M. with specialisation in Government Procurement Law. He runs www.BuyLawsIndia.com, a website dedicated to advancing public procurement law research in India. Views expressed are purely academic and personal