Thursday, August 11, 2016

PPPs: Public Law Matters, Doesn’t It?

[The following post is contributed by Santanu Sabhapandit, who is pursuing his doctoral studies at Monash University, Melbourne, Australia]

The need for better infrastructure in India cannot be overemphasised. Availability of necessary funds, innovative skills and efficient implementation of projects are some of the key requirements if any of the targets for creating infrastructure facilities are to be achieved. The government’s emphasis on ensuring private sector participation is hence understandable. And Public Private Partnerships (PPPs) are being considered as one of the preferred modes of private sector participation in infrastructure.

Although, the advent of PPPs in India is not well documented, PPPs for provision of infrastructure facilities was first mentioned in the budgetary speech of finance minister in 2002, under various measures undertaken for supplementing public finance in the infrastructure sector. Since then the concept has steadily gained prominence. PPPs in India may be safely assumed as an extension of the overall policy focus since the 1991 reforms, on garnering economic efficiency through private sector participation. The conceptual underpinnings of PPPs lie in economic theories that stress the relative superiority of the private sector over public sector in efficiency. However, unlike privatization modes such as divestments or contracting out, PPPs have continued government involvement in implementation of projects. This is not only apparent from the very nomenclature that it is a ‘partnership’, but is perhaps also warranted by the fact that the infrastructure sector deals with facilities that are in the nature of public goods. The government involvement is not only in a supervisory capacity, but also through provision of public sector resources such as land, and in some cases direct or indirect finance. Where infrastructure facilities involve user charges, there is, arguably, further involvement of the public sector and citizens. Despite the articulate economic arguments that favour private sector participation, and contingencies that call for easing up of the regulatory framework to encourage private sector participation, public sector concerns, and in turn public law concerns, are not avoidable and perhaps should not be overshadowed by economics alone.    

The Kelkar Committee Report of November 2015 (hereinafter referred to as the “Committee” and “Report”) has emphasised that the government must move the PPP model to the next level of maturity and sophistication. While the primary focus of the Report is on the removal of various obstacles faced by private participants of PPP projects, there are recommendations that pertain to regulatory sphere. Some of them are:

1) Requirement for change in attitude and mind-set of all authorities dealing with PPPs, including public agencies partnering with the private sector, government departments supervising PPPs, and auditing and legislative institutions. The Committee emphasises the need to focus on the relationship rather than the transaction, and on building in an approach of “give and take” between private and public sector partners;

2) In view of the concerns raised by all stakeholders (government and private sector alike) on demand for developer books of account being subject to government audit, access under right to information and Article 12 of the Constitution, the Committee has recommended that the government should notify comprehensive guidelines on the applicability and scope of such activities. The Committee goes a step further to recommend that the process, to be laid down by the government, would enable review only of government internal systems, and not that of special purpose vehicles (SPVs). SPVs would need to follow best practices in corporate governance systems including provisions of the Companies Act, 2013.

The Committee is of the view that conventional audit by authority of private partner’s books per standard procurement process risks delivery of poor quality of service and public assets. It is not known if these views are based on concerns expressed by a limited group of stakeholders alone. However, from a regulatory perspective, the Committee’s recommendation for a “give and take” approach between private and public sector partners seem to suffer from a paradox. While the Committee seems content with SPVs complying with provisions of the Companies Act, 2013 (which they are ordinarily bound to comply), it is not apparent if the possibility of preserving some of the underlying public law principles that warrant provisions like public audit, right to information or judicial review in democratic societies, were considered before insisting on their waiver. While the time period since its introduction, as well as the number of projects implemented, may be valid sources of confidence in dealing with PPPs, it is important to note that the judiciary is yet to give its verdict (in some of the pending matters) on the legal status of PPPs. Also, unlike some of the developed countries, India does not have a long history of dealing with legal issues involved with contracting out public services or PPPs. Waiving judicial review, right to information or public audit may appear to provide ease of operation for the private sector. However, such a waiver may have major long term implications for public law principles. It may be prudent to have further policy deliberations before letting immediate economic concerns prevent a nuanced evaluation of public law principles in the context of PPPs.

- Santanu Sabhapandit


1 comment:

Digit Saikia said...

Very relevant and informative piece!