Sunday, April 29, 2012

Successful PPP models hold significant promise for essential services

Successful PPP models hold significant promise for essential services

India has seen several successful Public Private Partnership projects in the recent years across central, state and urban local bodies for providing various essential public services. These successful projects, spread across a wide variety of sectors such as healthcare, education, public transport and infrastructure hold significant promise for providing essential services of acceptable standards to large sections of the population. This can be achieved without seriously denting the fiscal situation of the Government, which is already under considerable stress as recently observed by Standard & Poor’s, when rating outlook for India was revised from “Stable” to “Negative”. Some of the successful PPP models are discussed here.

Healthcare sector has seen reasonably successful PPP models in several states.  The typical model envisages providing healthcare to weaker sections of the society, through health insurance schemes and co-opting both government and private sector hospitals for providing quality healthcare delivery. The insurance premium is shared between the Central and State governments. While this is seen as draining much needed resources from the public healthcare system, the hitherto low penetration of health insurance and the creaking public health infrastructure of India make a strong case for a PPP model in this sector.  The popularity of such schemes in recent years and the resultant political mileage has kindled high interest across several states for this model.

Urban infrastructure is another area that is highly amenable to PPP models.  Multilevel car parks in congested urban localities, public transport through buses, garbage collection and disposal, developing tourism destinations and related services such as adventure sports or hop-on / hop-off services, etc. are highly successful PPP models in several countries and India has also started witnessing early success in these initiatives.

Education is a controversial sector where allowing ‘for profit’ entities to provide good quality education is viewed with considerable skepticism.  However, this sector has also seen successful PPP models in Rajasthan, Karnataka and a few other states where non-profit private sector entities have partnered with state governments to improve the quality of education imparted in public schools.

Roads, ports, airports and other large infrastructure sectors have already witnessed successful PPP models, benefiting all the stake holders viz. the public who use these services, the concessionaire who invests to earn decent returns and the government which gets robust revenue share besides ownership of assets at the end of the concession period. 

India is in a critical juncture where the capital starved Governments may not be able to meet the growing demand for these services, while private sector has accumulated significant capital, awaiting decent investment opportunities.  A proactive policy framework for PPP models, transparent award of concessions, appropriate structuring to capitalize on innovative revenue streams and clear rules of the game without any surprises/shocks can help India leapfrog on several essential services without having to wait for government allocations.

 N. Muthuraman is ex-Director Ratings, CRISIL and Co-founder of RiverBridge Investment Advisors Pvt. Ltd., a boutique financial advisory firm.

This is the blog of the Print Version published in Business Line dated 30th April 2012

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