First it was the road to Gurgaon (NH-8) and now it is the road to Noida (DND Flyway)! The early PPP projects in the country seem to be falling apart like a pack of cards, but only after an ugly public spat. In both these projects, the public played a major role in demolishing them. In the NH-8 case, it was public outrage against the traffic jams at the toll booth on Delhi Gurgaon border that eventually compelled the government to force an out of court settlement among the stakeholders. In the case of the DND Flyway, the public directly took up toll collection issues with court, and won court room battles in both the High Court and the Supreme Court. The paradox lies in our attempts to raise the countries ranking on the index of doing business in India[1], while we work around contracts or set them aside through courts.

However, these two projects do not represent the transport PPP projects in the country. Both these projects had been conceived in the early stages of the countries PPP journey, they had experienced good demand, and have practically no monopoly rights. As early stage projects they had faulty conceptualization. In the case of NH-8 the fault lay in the assumption that we could operate an access controlled road within city limits, while in the case of DND Flyway it was the contractual promise for 20% return on project cost (and not on the equity invested). Since then transport planning and contractual clauses have evolved significantly, addressing these conceptual errors. NH-8 had faced good traffic demand from the first day due to the boom in Gurgaon, whereas DND was slow to pick-up but finally it did could attract good traffic. This is in sharp contrast to most other road projects in the country which suffer because of optimism bias in traffic estimates. Both roads have numerous alternatives such that monopoly returns are not possible, unlike most highways which are the only ones connecting two cities. In retrospect those fighting for removal of the toll plazas claim that these projects should have been done by the government itself in the first place, leaves one to wonder where would the Indian PPP journey stand today had this been the case! We need recognize that these projects helped us learn a lot, and learning happens at a cost!

Beyond the obvious contextual similarities, the projects are also similar in two additional assumptions regarding the role of the public and the private agencies in a PPP.  The first being an assumption about foresightedness of the government, and it quick decisions, none of which ever happens in real-life. Understandably, this also does not raise eyebrows, as it is expected that the government would falter on these aspects. However, our core argument here focuses on the other assumption — opportunistic behaviour by the private sector. Once again, this should not raise any eyebrows as private sector is expected to act in an opportunistic fashion. This is where our argument differs. PPPs are different! Different in regards to the public service that they involve and the public asset that they create. However, we are seldom able to fully comprehend what this entails.

PPPs are not operated in a free market. Here the risks and rewards do not solely lie with the private sector to enjoy and suffer! PPPs are about optimal risk sharing. Businesses do not take up all the risks, the evidence of which lies in the numerous appeals by the industry for loan refinances, bank guarantees, deferments of loans, single window clearances, allowances for non-performing assets, new PPP models and the like, all aimed at forcing the government to bail out bad business decisions. But, when it comes to rewards, the private sector closes its doors—this is my money and I am free to pocket it, and this is as per the contract.

This is what had happened in these two cases. The concessionaire capitalized all future toll revenues in the NH-8 project and picked up a loan of Rs 1600 cr, but made no sincere efforts to address the toll booth traffic jams or maintain the expressway. The same happened, when NTBCL (the concessionaire for DND Flyway) kept adding its 20% assured return to bargain for extended life for the project and giving veiled threat for staking its claim for the land that it had been promised as part of the contract, but not yet been handed over. In the case of NH-8, the industry further repeatedly warned the government not to attempt a project takeover, as it would disrupt the investment sentiment of the country. Every trick in the book was tried to ensure that every paisa that one is entitled to as per the contract, is pocketed!

As the conceptual motivation behind PPP projects lies in leveraging private sector efficiencies, hence wringing the inflows to extract the last drop should be acceptable. However, what remains unclear is the extent to which one can behave opportunistically, while working in a public service context! An example of a hospital project in UK comes to my mind i.e., Norfolk & Norwich University Hospital that opened as a PPP in 2001. Like NH-8 and DND Flyway projects, which were one of the first in the Indian transport sector, it was also one of the first sizeable PPP deals in the UK health sector. The government, which was very keen to attract the private sector for infrastructure investments, bent over backwards to get the private sector to commit in the project and gave it a very favourable deal. The concessionaire within two years of running the hospital got a cheaper mortgage and made a gain of  £116 million. The shareholders of the concessionaire were pressurized to contribute to the hospital out of this abnormal gain, but the only one to respond to this call was a maintenance and catering staff of the hospital who held a small number of shares in the concessionaire’s parent company. Finally, the concessionaire did handover £34 million to the hospital trust, though it was not required to make any such payments contractually. The concessionaires recognized the limit of opportunism that they could get away with!

PPPs are not Apple! When the project fails, private sector is not the only loser. The externalities associated with the project rope in the public and force it to bear a part of the loss directly or indirectly. So, when projects succeed, why is the public not pulled in to be a part of the gains.

While, the argument about private sector’s accountability and responsibility to the public in general may be convincing to some, other do not buy it! For them a contract is a contract. Why should the private sector pay, if it is not required to. However, firstly they fail to recognize that the public context has its nuances. It needs to be given its due for the unique contributions that it brings in. For those uninitiated, these lie in easy policy frameworks, interest free loans, investment tax holidays etc. initially or bail outs, waivers of loans, accountal of non-performing assets, debt refinancing etc., when disaster strikes! Secondly, business management repeatedly argues for stakeholder management and underscores the need for stakeholder involvement and satisfaction. Hence, even if one views the contract as being sacrosanct, and would only like to work within its framework, one cannot avoid stakeholder management, and specially while working with the public sector.

Hence, there is a limit to private sector opportunism when it takes up work in public sector. Specially, in the PPP context the risk allocations and attributions through expected to be optimal, they are unlikely to be so. Sharing risks, one may need to come to the aid of the other and accommodate one another. While contracts would remain sacrosanct and need to be rigidly adhered to, if one does not indulge in adequate stakeholder management (and here one does not refer to bribing) one should be prepared to be manhandled: set aside by the courts in public interest, or forced into out of court settlements.  This is also a warning sign for all those who bank on the helping hand of the government! The government hand of support comes with a lot of written and unwritten agendas, and one should be ready to service these agendas before one decides to take this helping hand!

[1] One of the doing business aspects is “Enforcing contracts”, where India ranks 178/190.