This refers to Rajiv Lall's article "Turn the PPP model on its head" (January 4). Although the writer has made some excellent observations in the article, the solution suggested reveals the weakness of the public-private partnership (PPP) approach itself. If the government has to take all the project risks and fund the infrastructure projects, then the speed of growth will be seriously impeded since the government just does not have enough resources. Of course, government banks will be forced or cajoled into financing a major part of the projects, which raises the issues of adverse selection, tenure risk management and breaching prudential sector limits.
The writer has not focused on the primary problems with private ownership of infrastructure projects: the lack of financial strength of the private sector and the ability and willingness of potential users of the facilities to pay a reasonable price. We have seen this in the Delhi Airport Metro link, in electricity distribution, toll roads and bridges. There is just no assurance that once the infrastructure facilities are built, there will be enough private sector companies to buy the government out or accept a high valuation because the risks have come down. Overseas pension funds can't be owner-managers since they have internal norms regarding country, sector and project exposures. They will also need assurances on dollar-indexed returns and of easy liquidity when they plan to exit.
The bottom line is that the government must continue to build and own some infrastructure assets - particularly ports, railways, roads, bridges and so on.
P Datta, Kolkata
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