Unless private investments are of good quality, they can become regressive and lead to crony capitalism, as it has happened all along in the PPP model, says EAS Sarma

EAS Sarma, former secretary of the Government of India, has said that public–private partnership (PPPs) are certainly not a substitute for good governance and as suggested by  United Nations Office on Drugs and Crime (UNODC) and others, unless there is total transparency, PPPs will tend to hurt the public interest. Consciously, the government should bring them within the purview of the Right to Information (RTI) Act, he said.

The former secretary, in a letter written to Montek Singh Ahluwalia, deputy chairman of Planning Commission, has said, “...the PPP route that the Planning Commission has so aggressively promoted all these years has opened doors to large-scale corruption in the country. The magnitude of the PPP scam is huge as the investments involved are large and the value of the public lands handed over to the private parties is enormous.”

There are around 758 PPP projects worth Rs4 lakh crore already taken up. They are largely in infrastructure sectors such as roads, energy, airports, ports and metros and in development sectors such as education, health and housing. The magnitude of investment in PPPs in India seems to be much higher than the global average. It amounts to 20%-30% of gross domestic product (GDP), whereas the global average is around 15%.

According to the UNODC report, in the absence of laws to govern either PPPs or public procurement procedures, the way these projects have been formulated and implemented has created an enormous scope for rent seeking and deficiencies in their outcomes.

“The General Financial Rules, 2005, are the rules followed for public procurement by government departments and ministries across the country. These rules do not have the status of legislation and violations do not attract much penalty. India currently has no clear rules for regulating PPP projects,” the report says.

In most cases, there was no competitive bidding for selecting the developers. Where there was competitive bidding, the tendering processes were rigged to select pre-determined bidders. The so called ‘independent’ consultants were not so independent, as many of them had a conflict of interest. In many cases, the companies were found to have colluded with the consultants. The bidders often misrepresented the facts to win the orders and misreported revenue to avoid revenue share to the government. The concerned government officials who were expected to ensure fairness in the selection of bidders and monitoring implementation awere either incompetent or outright corrupt.

In many PPP projects, public land is handed over to the private developer at a nominal rate and the suppressed value of the land is considered in computing the equity share of the government. As a result, the government becomes the minority shareholder. Had the market value of the land been considered, the equity share of the government in the PPP would have exceeded 50%, in which case it would have become a government company under the Companies Act.

As a result of undervaluation of the land and the consequent undervaluation of government equity, the PPP project surreptitiously avoids the rule of reservation for SCs/ STs/ OBCs. Since the government in such a case is only a minority shareholder, the private promoter often takes decisions not entirely consistent with the public interest. The government directors who are required to keep a watch over the affairs of the PPP have often become silent spectators or they have connived with the private promoter for personal gains.

“The Emaar MGF scam in AP is an example of this. In AP, there is a law, the AP Infrastructure Development Enabling Act of 2001which requires competitive bidding procedures to be followed in selecting the promoters of ‘mega’ projects but, rarely, has this law been complied with," Mr Sarma added.

There has been undue delay in the Centre enacting the Public Procurement Bill. One is not sure about the intentions of the government towards probity in procurement when ministries/departments such as coal, mines, telecom and atomic energy have openly defied all norms of transparency and competition in procurement by championing subjective procedures in allotment of coal and mineral blocks, sale of spectrum and placement of orders on multi-national companies (MNCs) on a nomination basis for nuclear power projects worth billions of dollars. The central ministries have in fact gone to the extent of swearing before the courts that such opacity and subjectivity are a necessity and a virtue.

Mr Sarma, the former secretary said, “I hope that the earlier IMF study on PPPs in 2006, my own EPW review of that study and the latest UNODC study wake up the government and the Planning Commission to the ground realities and trigger corrective steps before any further damage is caused.”

Here is the UNODC report on India: Probity in Public Procurement...