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Public-private partnership (PPP) is widely recognised as a robust mechanism for the government to procure and implement public infrastructure and services using the resources and expertise of the private sector. In such an arrangement, the public and private sectors bring in specific strengths and share risks and responsibilities. Of late, however, the efficacy of the PPP model has been questioned in many countries around the world. PPPs, especially in core municipal infrastructure such as water, have come under criticism, leading to the rise of ‘remunicipalisation’.
The practice of PPPs dates back several centuries. The United Kingdom (UK),Britain, the United States (US), and China successively used the model in building highways and bridges, using tolls to generate revenue streams. The Thatcher government in the UK took PPPs to their extreme end in the 1980s. Public industries and utilities underwent complete divestment and were transferred from the public sector to private ownership and operation. After 1990, the World Bank actively pushed for the privatisation of water utilities.
The need for PPPs in municipal infrastructure has been felt for a long time, especially in India. The ULBs (urban local bodies) are obligated to provide a large number of public goods and services. Many of these functions are not adequately funded. Furthermore, there are deficiencies inof capacity. A sensible way out of such a situation is building partnerships with organisations outside of the ULBs that have the ability to make up for one or more of the ULB’s shortfalls.
The need for PPPs in municipal infrastructure has been felt for a long time, especially in India. The ULBs (urban local bodies) are obligated to provide a large number of public goods and services. Many of these functions are not adequately funded.
However, In India, while PPPs have had great success in the roads and transportation sector, in airports and aviation, ports and railways, private sector involvement in municipal infrastructure and services has not witnessed the same order of achievement. Earlier, such infrastructure was considered the domain of public monopoly. However, urbanisation has continued to march ahead, and a significant rise in the number of metropolitan cities (cities with populations above 1 million) has happened, holding a very large percentage of India’s total urban population. This has left them panting to catch up with the ever-expanding demand for municipal infrastructure. Essentially, therefore, urbanisation is spawning an unrelenting flood of jobs.
Despite a massive basket of municipal jobs not likely to be undertaken by municipalities on account of a severe cash and capacity crunch, private sector participation in core municipal infrastructure (such as water, sewerage, solid waste, traffic and transportation) is surprisingly small. For instance, decades of effort in the privatisation of water supply in the country have witnessed sluggish progress. Many water projects attempted in the PPP mode were abandoned, such as in Pune and Goa, because of local political opposition, the lack of guarantees, or weak internal revenues. Other core areas of municipal infrastructure services tell a similar story. The ULB-level PPPs are small and generally outside the core municipal services despite the large number of metropolitan cities and other ULBs.
Despite a massive basket of municipal jobs not likely to be undertaken by municipalities on account of a severe cash and capacity crunch, private sector participation in core municipal infrastructure (such as water, sewerage, solid waste, traffic and transportation) is surprisingly small.
Higher degrees of private participation require a longer period of contract, larger private investments and greater private responsibility and accountability. At the same time, they need to be accompanied by a transfer of greater authority from the public to the private and revenue streams and tariffs that are more robust than earlier to enable the private operator to recover investment and make due profits. The municipal authorities are unprepared for both. They do not feel comfortable to let go of power and control. They are also wchary of the political backlash that higher tariffs are likely to generate in an atmosphere of rock-bottom rates that they have promoted over several decades. These reasons have combined to defeat the attempts at making PPPs a robust model for municipal infrastructure.
Meanwhile, a somewhat anti-PPP situation has gained ground. Countries and cities that were at the forefront of privatisation are pulling back and pushing out the private sector in favour of in-house service delivery, labelled as ‘remunicipalisation’, to control the substantive cost escalation of privatisation and overcome the private sector’s inability to deliver assured quality and efficiency. ULBs are increasingly corporatising to overcome the traditional weaknesses of the public, rendering the public corporations more business-like.
In 2010, for instance, Paris annulled the privatisation of water services and reverted to public ownership since citizens thought they would be better off with public ownership as water would be available at cheaper rates. Berlin and Hamburg in Germany abandoned the privatisation of power in the face of public campaigns. Remunicipalisation was not restricted to Europe. Countries like Indonesia, Malaysia, the Philippines, Germany, Norway, the US, Chile and Canada have recorded 835 cases of remunicipalisation of public services comprising more than 1,600 cities in 45 countries. While these reversals are especially marked in certain municipal sectors – water, transportation, waste management, housing and electricity – remunicipalisation has also happened in education, health care and management sectors.
In the health sector, for instance, several healthcare systems were privatised over the last 40 years, seeking strength from the flexibility and patient-centric approach of the private sector. However, a study has found that privatisation added costs as well as profits. Moreover, privatised healthcare facilities indulged in the selective intake of patients by preferring profitable patients, over-prescribing services, discharging patients prematurely and reducing staff, leading to overall poor health outcomes for patients.
In India, PPP in core municipal infrastructure is still struggling to establish itself. The major stumbling block appears to be the fact that while privatisation may bring in efficiency and quality, it is weak in handling the issue of equity. Core municipal services in India are widely seen in terms of universality and affordability. Hence, all PPP initiatives have to be seen on how they impact the poor. Even here, strategies could make unviable projects viable by suitably clubbing them with viable ones. The viability gap funding scheme of the government of India can come in handy. Higher financial support (60 percent of the total project cost) is now available for social sector projects such as water, wastewater, solid waste, and health and education projects. A whole range of PPPs is possible in these sectors. However, most ULBs lack the capacity in this area. It may be a good idea to prepare standard contractual documents for specific municipal services and create a state-level organisation to manage these for smaller ULBs.
In India, PPP in core municipal infrastructure is still struggling to establish itself. The major stumbling block appears to be the fact that while privatisation may bring in efficiency and quality, it is weak in handling the issue of equity.
While Western cities have adopted the road of ‘remunicipalisation’, that option is not available to Indian ULBs because of their weak in-house technical capacity and frail finances. Neither is time in their favour as multiplying populations exert an enormous infrastructure overload that they are completely unequipped to fulfil. The situation is made worse by a large inflow of poor migrants, who provide vital services to the city’s economy but need basic municipal services at affordable rates to live a decent quality of life. Hence, methods will have to be devised at the level of the states and the centre to step in and handhold municipalities. This would be a combination of managerial, funding and poverty assistance. Without such backing and support, PPP in core infrastructure appears a difficult mountain to climb.
Ramanath Jha is a Distinguished Fellow at the Observer Research Foundation.
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Dr. Ramanath Jha is Distinguished Fellow at Observer Research Foundation, Mumbai. He works on urbanisation — urban sustainability, urban governance and urban planning. Dr. Jha belongs ...
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