PPPs: Partnerships for prosperity

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Are PPPs the Panacea to India's Infrastructure Woes?

THIS WEEK: Are Public Private Partnership projects the panacea to India's infrastructure woes?

INTRODUCTION: Public Private Partnership (PPP) projects in India have come a long way since the first wave of liberalization in 1991. Today, it is hard to imagine a major project being taken up in any of the key infrastructure sectors – be it highway construction, port expansion, airport modernization, E-Governance or capacity building in our power grid – without the involvement of the private sector. With the burgeoning demands of a rapidly growing economy that has historically underinvested in its social and physical infrastructure, it is likely that we are only going to see an acceleration of this trend. Proponents have argued that the country has benefited from the private sector's efficiency, technical knowhow and access to capital from global markets. But are PPP projects the panacea to India's infrastructure woes? Critics have argued that badly crafted contracts, misaligned incentives and hastily taken decisions on project revisions mean that the taxpayers overpay for the services, bear disproportionate downside project risk and give away super normal profits to private players. We examine some of the nuances of this critical element of our economy which can underpin the success or failure of the next wave of our country's economic growth.

ARJUN GUHA: Partnerships for Equitable Prosperity

Public Private Partnerships (PPPs) will remain an important engine of growth for multiple sectors and will enable strong economic progress in India over the next several years. PPPs utilize public assets by leasing them to the private sector through a time-bound and limited concession intended to provide a public service to citizens. Engaging the private sector to provide a public service brings with itself a wide array of technical expertise, access to different sources of capital, appropriate sharing of risk and cost efficiency in addition to the proliferation of best practices in project design, construction and operation.

Arjun Guha

A comprehensive infrastructure study, sponsored by the Australian government, has shown that on average, significant cost overruns and completion delays are perceived in only 24% of PPP projects compared to 73% of public sector projects. Although this report is not completely applicable to the Indian context, the fundamental reasons behind the improvement in efficiency should be understood. One reason for the stark difference in performance is that the risks of cost overruns and completion delays are borne largely by the private sector parties who are much more cognizant of their bottom line.

The private financing of infrastructure projects in the form of debt or equity brings with it increased scrutiny of project execution as well as performance based project financing. The resulting system aligns the goals and incentives of the government, the concessionaire as well as the financier in terms of the service to be provided and the minimum standard at which it must be provided. This system has the propensity to serve as a self enforcing loop in which inappropriate actions are corrected promptly. In effect, the private sector partner who traditionally profited from cost overruns can now be hurt by overruns under the contractual framework that the PPP system enables.

Keynesian economics says the best way out of a recession is a government-led fiscal expansionary policy. Part of the fiscal stimulus of 2008-09 included additional allowances for PPPs to support the tenements of the Eleventh Five Year Plan (2007-12) "towards faster and more inclusive economic growth." However, having entered into 2010, Indian PPPs may be impacted by a possible reduction in viability gap funding as the finance minister designs the union budget to adhere to the goals of the FRBM Act of 2005.

The expectable manifestation of a fiscal pullback will be shrinkage in the viability gap of subsequent PPPs and an increase in projects which are closer to financial self sufficiency. Undoubtedly, this reduction in government subsidy will force project sponsors to realise revenue through tolls and usage charges. There is significant opposition to the concept of charging citizens for the use of a national asset; however, the alternative to usage charges would be to not provide the service at all, or to raise tax rates, impacting even the non users of the service rendered.

The PPP model enables a significantly more efficient use of national resources due to its inherent nature of bringing in the private sector into a collaborative, shared incentive driven relationship compared to a traditional contract agreement. If the government were to initiate a public service project like an overpass network with the traditional model of private contracting, it is quite possible that the project may get held up if a political party with tangential development and budget goals comes into power. In a PPP, the private sector and citizens' interests can be sufficiently protected from such eventualities by contractual robustness, commercial insurance against such risks and the presence of a dedicated public sector task force to ensure continuity.

Historical data compiled by the Australian study shows that a growing majority of PPPs has benefited the higher economic strata of populations much more than the disadvantaged. Looking ahead into the role of PPPs towards India's inclusive growth plans, we will see PPP projects with greater financial viability being concentrated in urban centers of development where users have the capability and willingness to pay for services rendered. On the other hand, projects which serve economically disadvantaged communities will need government subsidy for the foreseeable future on our path to becoming a robust, sectorally diversified economy.

Golconda Fort

Term 1 at ISB is finished and the (far) out of towners are stuck on campus with either the conference to volunteer for or LDP on the weekend.

Manish, Raj and I headed off to Golconda Fort after several rounds of discussions between ourselves and MANY others regarding schedules and inclinations. We wanted to see the sunset over Hyderabad from the ramparts of the Golconda Fort.

A brisk auto ride brought us to the outer walls of the fortified city and immediately a feeling of

 history came upon us. This was the very marketplace, village and warground that the Kakatiyas, Tughlaks and Mughals passed through.

The fact that the Kohinoor and Hope Diamonds had emerged from this very soil was in the back of my mind.

Along the entrance we hired on a guide boy who would have beaten the best of ISB’s CP/ACP’ers. He started us off at the 15 foot entrance dome where a single clap reverberates 5-6 times. The inner dome has a series of cleaves designed to echo and project the sound of a clap to the top of the 120 meter high fort. A watchman at the top of the fort would be able to signal for the gateman below to close the gates and vice versa.

7 Tombs: 

On the way to the Fort, we had seen several “Gumbaz” which reminded me of the Lodhi area of Delhi. The guide told us that those were the resting spots for 6 Qutub Shahis. A royal dead body was not allowed to pass through the gates of Golconda so they built underground tunnels to each gumbaz and those routes are now closed for safety.

The seventh Gumbaz does not have a dome. Each Shahi, by custom started construction of his resting spot during his reign and when he did eventually die, the final dome was put into place. The last Qutub Shahi was apparently deposed from Golconda before his death and the seventh tomb remains incomplete.

While huffing and puffing through the 350 or so steps to the top of the fort, we caught some good glimpses of Hyderabad and the following Fort landmarks.

Durbar: In the durbar of the common people, the king used to have a vantage point which was in a blind spot of the public below. He could see everyone and pass judgement but it was apparently very hard to see the king.

The domed ceiling of the durbar hall is designed to echo and magnify the sound of a knife being unsheathed so as to give advance warning to the king’s guards. The guide started flapping his shirt fabric and the reverberations in the dome were like that of a drum.

Whispering walls:

There is a corridor in the fort where secret messages can be passed. In every chamber, there are 4 corners, and a message whispered in one corner can be heard as clear as a bell in the diagonal corner 20 feet away.

Sound and light show

The show starts off with the booming voice of Amitabh Bacchan welcoming us to the fort and a ghazal by Jagjit Singh. Invariably there is always a small kid in every show to spoil the best parts. Somehow we managed to get him to shut his trap and enjoyed most of the show. It ran through the whole history of the fort and ended off with another lovely ghazal by Jagjit…yeh kila usi shaan ki nishani hai….

Puerto Princesa Day 1

In 1994, the judges of the Miss Universe competition in Manila asked this of Miss Philippines in the final round: How many islands are there in your country?

Charlene Gonzales had replied: 7107 islands during high tide, 7108 during low tide

A budding Mother Teresa won the contest that year....

Philippine Airlines flight PR 591 flew us over several islands that looked like island #7,108 to Puerto Princesa Airport on the island of Palawan.

This island is the only segment of the Philippines which is part of the Chinese tectonic plate and it is believed to have been connected to Borneo and Malaysia by ancient overland routes. This is also the only island in the country without a single volcano!

Around 11am we reached our first hotel, the D'Lucky Garden Inn And Apartelle but we didnt find the view too good so we decided to move to the Hotel Fleuris which was more centrally located and had a view of the mountains and the sea from the room.

The primary mode of private transport here is the tricycle which consists of a tri seater canopy attached to a standard motorcycle. Mayor Edward Hagedorn's face is plastered on all the business licenses of Puerto Princesa and he is credited to have driven the effort to make Puerto Princesa the "Cleanest City in the Philippines". We were already beginning to believe the reason for this accolade.

A very eager tricycle driver called "Jun" took us to a mangrove area to the BadJao Seafood Restaurant. This is a large bamboo hut built on stilts right in the middle of a mangrove and a view of the open ocean sweeps across three sides of the restaurant.

We feasted on Calamares, Blue Marlin Steak and Lemon Chicken and headed back to our hotel for the customary afternoon nap.

In the evening, we headed to the Seawalk..the name for the local boardwalk by the bay. Seems like the whole city gathers there in the evenings and theres lots of food and drink stalls apart from the bi-cycle rentals.

Closer to sunset the sun dissappears behind the mountain range flanking the bay and the bright lights come on. 2009 is the official year of Astronomy on the island of Palawan and we saw Mayor Hagedorn inaugurate the event with a little reception and a video of the wonders of universe.

Puerto Princesa Day 2

Today we had planned to visit the Subterranean River and ride into the underground caves by boat. This national park is the Philippines official entry to the voting for the new 7 Natural Wonders of the World.

We had to wake up at 5:30 am for our tour van pick up and we wer the first to be picked up. The other party in our van was a couple from the USA and the basketball player gentleman was probably the biggest human the islanders had ever seen.

The 2 hour drive to the ferry spot was a mix between riding full speed on a lame horse and free back massage. There was more waiting at the ferry spot before we loaded up on a Bangka boat for the half hour ride to the island which housed the St Paul Limestone Mountains and the caves underneath those.

At the island there was a pleasant surprise...a pair of monitor lizards were searching for food near the vacationers. We mistook them for Komodo Dragons initially....

The underground river is around 8 km long and houses a variety of bat habitats.

We get on to our 8 seater boat with another overeager tour guide/boatman and I am in charge of running the battery powered search light to guide our way and to highlight interesting formations along our way.

The entrance to the cave is eerily dark and we slowly row our way into virtually, the belly of the beast. Around us

we start seeing bats nesting and veins of different ores in the walls of the cave.

Claustrophobics..please avoid this particular location.

Further in the cave, the guide points out some rock formations that resemble: The Man on the Mountain, Nativity/Pieta, The Shroud of Turin and Sharon "Stone" (a likeness of a womans posterior lovingly referred to as Sharon Stone, a.k.a. our boatmans girlfriend).

Midway into the trip, our searchlight battery died and I must say, its a superb feeling to be left lightless in a bat infested cave, with a mountain above you and razor sharp stalactites flanking you on all sides. Soon, another boat comes along and we follow it all the way watching more cave formations toPublish Post the furthest possible point allowed for tourists.

Underwater shots

This post compiles some of the underwater shots I took around Hawaii

Hawaii Day 1: Aloha Honolulu!!

December 6, 2008

After a nice long pair of flights from Washington through Atlanta, I finally land in the land of Aloha called Hawaii.

The city of Honolulu is the capital of the state of Hawaii and is located on the third biggest island in the Hawaiian chain called Oahu. When I look at the world map, I realize that I am almost halfway home to the Philippines and Delhi!

For most Indian youth of my age, one of the first exposures to the term "Hawaii" came from a movie called Mr. India in 1987 and the related soundbite is noted in this youtube clip for people who aren't in the know on this topic. Needless to say this song was humming in my head as I landed in Honolulu !!

PS: Sridevi's dancing is nothing like the Hawaiian Luau Dance

Bus # 19/20 takes me from the airport through the Business district and the residential complexes to my hotel in the Waikiki Beach district, the heart of downtown Honolulu. This plce is full of Japanese and Pacific Islanders and I really wonder how this place is still classified as part of the USA.

Going down to Waikiki beach I see a huge amount of residential skyscrapers and these are virtually 50 feet from the ocean. Someday if the sea level rises, I would dread to think of the fate of these high end hotels and homes.

Reached fairly late in the evening so I walked down the beach street Kalakaua Avenue to a place called Kapiolani park and back to my hotel for a good nights rest.

Hawaii Day 3: Hanauma Bay

Bus route #22 takes me to Hanauma Bay, a marine reserve park. I'm really excited about this trip because Elvis shot his movie Blue Hawaii in this location. The bus stops and we are treated to a sweeping panorama of snorkel ready waters and a pristine white beach lined by palm trees.

10 minutes of orientation video later, we walk down a hill for 10 minutes to the beach. The sand and weather are absolutely spectacular.

P.S. There's a Telugu couple selling Coke, Pepsi at the Bay saying Aloha Aloha to tourists!! Andhra folks, take this as a compliment, but I must say here that you have penetrated every corner of the civilised world!!

My first round of snorkeling in the middle of the bay finds me only the standard fish species and I take a few underwater photos of fish and Ocean Cucumbers. The volcanic rock is less than a foot below the waters surface and I end up scraping my hands and legs several times.

The second round of snorkeling is at the right end of the beach and this also only reaps views of spanning volcanic rock below the waters surface.

The third round is near the left side of the beach (as advised by the lifeguard) where the water lashes itself loudly on rocky outcrops. Have to be careful near these places as the chances of having an accident are very high but the water is very nice and clear.

Turtle sighting!!

This third round proves to be the best. Another snorkeler gestures me over to where he is and points out a majestic adult green turtle feeding on the moss that grows on underwater rocks and corals. Turtles are very shy creatures and tend to stay away from larger human populations.

This kind of sighting is very rare and I feel very fortunate to be this close to an animal this beautiful. We are very careful about harassing the turtle as per Hanauma Bay's preservation laws and try to keep an acceptable distance from it. The turtles swimming motion consists of only its two front fins flapping like an eagles. It occasionally pops its head up from the water to manifest its surroundings.

We take turns photographing each other with the turtle and this shot alongside is of me and the turtle about 12 feet underwater.

After some time swimming with the turtle, Ive already gotten two more serious scrapes on coral and decide to swim back to the shore and back to the hotel in Honolulu.

The front desk has upgraded my room to the penthouse on the 14th floor; to my left I can see the Ala Wai Golf course and to the right is the Waikiki Beach (albeit plastered by soaring scyscraper condos).