We have toyed with Public-Private Partnership (PPP) in the past, mostly through the BOT (build, operate, transfer) mode. Now PPP seems to be getting mainstreamed. Both Punjab and Sindh have dedicated PPP units that already have a few PPP projects under their belt. The KPK is trying to follow suit, and no doubt Balochistan will not remain far behind.
In theory, the concept is quite seductive: private sector expertise (and capital?) to deliver public services, economically and efficiently, something that the government agencies do not or cannot do.
The growth of PPP is said to be the product of new public management of the late 20th century and globalization pressures. Between 1990 and 2009 there were 1440 PPP contracts done in the EU, representing a capital value of 260bn Euro. Post-2008; however, enthusiasm for PPP has waned.
The Public Sector is perceived to be a languorous giant with feet of clay. It moves slowly and consumes too much. It is a victim of its cumbersome processes. In the name of transparency and accountability we have copious 'codal formalities', mana to the bureaucrats and misery to the contractors- and a sure recipe for time and cost over-runs, without much semblance of transparency and accountability. PPP has a history; and it has been controversial.
In its essence, PPP is as old as history - and not without its share of scams, one of the earliest being the concession to Luis de Bernam in 1438 to charge fees for goods transported on the Rhine; or the one given in 1792 for water distribution in Paris to brothers Perrier (think of the lovely green bottles with pricy sparkling water!)
The first systematic programme to lend discipline to PPP was UK's Private Finance Initiative (PFI). The cash strapped John Major government - the sun now setting on Thatcherism - saw PFI as a means to reduce Public Sector borrowing, even if the effect on public accounts was largely illusory. Roads, subways, prisons, national defence, healthcare, all came within the PFI ambit but the most daring initiatives were Channel Tunnel and the later rail link add-on.
In terms of using PPP as a policy tool, the US has been something of a latecomer to the party. The effort has been largely led by fiscally constrained city and local governments with huge infrastructure restoration and replacement demands.
An innovative approach has been the West Coast Infrastructure Exchange (spanning California, Oregon, Washington, and British Columbia) that uses business case evaluations to connect private investment with public infrastructure opportunities.
The challenge of PPP is balancing private sector motivations with public policy objectives. A high incidence of inordinate private sector financial returns in several reported cases tends to suggest that PPP is not always a fair bargain, particularly when the private sector contributes only token equity. Also, it has not always been possible to confirm if public interests were properly addressed.
To be fair, it is just as difficult to evaluate a PPP project as it is to structure one. Ideally, a PPP project should meet the 'triple bottom line' criteria: financial, economic (social), and environmental (sustainability). There are well-established tools to work out financial returns, but not for the other two. Little surprise, then, the financial internal rate of return dominates the decision making process.
The World Bank, IFC, ADB, and a host of other champions of PPP have been trying to develop robust appraisal and evaluation tools - so far not with much success, except that many a career has been built on this 'work in progress' and many lucrative consultancies awarded. They also have to ward off charges of PPP being the Trojan horse of privatisation: PPP, and contracting out of government services, does bear more than a passing resemblance.
At the heart of the debate is 'risk allocation', which in the PPP lexicon is not about the risk-reward equation but which of the two parties is better equipped to handle a particular risk. Typically, the risks allocated to the private partner consist of design and construction, service provision, maintenance and renewal, and quality of service. The Public partner assumes the regulation and policy risk, and this is where the tilt becomes invidious: the public sector has to virtually 'guarantee' the private sector against any possible policy and regulatory changes that might impact the internal rate of return.
The world has moved on and now it is 'value for money' (VFM) test that bears on appraisal and evaluation. A long list of VFM factors has been developed but the difficulty is in their application, particularly at the appraisal stage.
Coming back to Punjab and Sindh, we see two knots that are not easy to untie.
First, there are no set criteria to determine which public sector projects and services are better candidates for PPP. This makes the selection process highly subjective and prone to 'supplier-led' interventions. Also, the line departments are generally loath to abdicate their suzerainty, and all that comes with it, to the hyperactive PPP unit in search of a justification for its existence.
Second, the motivation for increasing PPP focus on services (as against infrastructure) seems to emanate from the governance issues. We have something to worry about if PPP is conceived as a cure for governance failures. This kind of 'governing coalition' will take the eye off the festering sore of poor governance (like it did with private schooling and health facilities, water tankers, generators, and security guards; solutions that catered to the elite but left the awam worse off than before). Also, if finding a solution to the governance issues is beyond our leaders how long before it also infects the PPP? The best of due diligences may be a frail defence.
The choice is between waiting for governance to improve or continue to suffer poor services. The choice is between the hide-bound public sector and an agile private sector, without worrying that the latter's presumed efficiency may cost us our hides.
So, Hamlet like, we ponder to have or not to have PPP.
We are suckers for hope. Besides, better short term and shallow than more of the same. Let's go for PPP - and pray for its benign effects to permeate the government, instead of the wraith of poor governance putting its tentacles around PPP to take as its own. It is a risk worth taking.
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