Structuring PPPs

The Delhi International Airport Limited has passed on to a newly-formed subsidiary its licence to develop the land it received as part of the Delhi airport privatisation. Company officials say that the deal involves up-front deposits rather than payments, hence the government is not entitled to a share of the money; Government officials differ, and say that according to the agreement, the government has to get a 46 per cent share of everything. On the other side of town, the Delhi Noida Toll Bridge Company too has assigned the rights to develop land near the bridge to a subsidiary. Logically, in both cases there should be no doubt that the revenues from the land would accrue to the parent firm and therefore be shared with the different shareholders in accordance with the agreement. Yet, there is a sense of disquiet. Even if the revenue is shared, how does the government ensure that the price bid is fair, for instance?

For a country which is hoping to invest $475 billion in its physical infrastructure over the next five years, much of it through public-private partnerships, this is not a happy state of affairs. If government bodies and concerned citizens have to keep a watch on each project each step of the way, over the 25-30 years of a concession period, progress is certain to be slow and possibly blocked by disputes. The way to prevent this is to have well-designed rules of engagement. For instance, if the guidelines said that there would have to be bids for all purchases/contracts above a certain value, this would ensure a certain level of transparency in the project's working. Similarly, if related party transactions were ruled out in works contracts, it would obviate the kind of concerns raised when, for instance, it was pointed out that the Anil Ambani-controlled BSES had given contracts to a group firm "" after all, under the BSES takeover of part of the erstwhile Delhi Vidyut Board, electricity tariffs are fixed in such a way as to guarantee it a fixed return over costs, which include the contracts given out. Similarly, to avoid the current controversy about the pricing of gas discovered by Mukesh Ambani's Reliance, the solution lies in laying down the way price discovery is to be done "" in the current case, Reliance's chosen method of asking a few gas-hungry firms to quote has been found to be unsatisfactory.

The short point is that while the government needs to be vigilant in all such cases, it would save itself a lot of trouble by laying down clear principles and well-constructed contract templates to govern the way PPPs function. If blame has to be apportioned for the current state of affairs, it is the government's policy of making the rules as it goes along.