Failed PPP's, and finally, a good model

With government-owned, and thereby incapacitated, "public utilities" (BESCOM, BMTC, BWSSB, etc in Bengaluru) unable to meet the burgeoning and varied demands of the fast-growing urban centres, the way out for managing them very clearly points to PPP's. Now, in the case of utilities, it is necessary that the 'social' objectives of the government too are given due consideration, even while providing for a satisfactory level of profit for the private player (particularly considering the huge amount and complexity of work involved), so that it becomes a win-win for all of the stake-holders concerned. That is where proper structuring comes in, and, if many of the PPP operations, in existence so far, have failed, it is largely on account of this aspect not being given sufficient advance thought.  

 

Looked at from that angle, I would think the PPP model put together, by the erstwhile Shiela Dikshit government in Delhi, for power distribution, quite the most appropriate one, from any stand-point, for a public utility. 

 

The whole of the city state was divided into four zones/ districts, to provide for effective competition (in an otherwise natural monopoly area), with the supply in three of them being tendered out to private players (Lutyen's Delhi was retained with the govt-run DVB - you can guess why!- check here), through a proper process. The model besides provides for a government stake of 49% (51% being with the private player, which allows it to appoint the MD and manage the operations), allowing for about three nominees on the company board; you then have the DERC (Delhi Electricity Regulatory Commission) drawing up the tariff recommendations, allowing for a nominal 10% return on equity, and carrying out all other regulatory functions, including of ensuring full disclosures on all performance parameters, on the net.

 

There were a few hick-ups initially, but they have all largely been sorted out, so much so, today, even the AAP govt has come to terms with it all, enjoying as it is the good-will of the people, on the reliability (near 100%) and low tariff factors (apart from phenomenal improvements on all other counts too - check table below and here), piggy-backing on the performance of the private players.

The same model can indeed be replicated in other areas too, with the necessary tweaking required based on the their individual peculiarities.

 

I would actually recommend that the equity holding by the government be reduced to 26%, which, while giving them enough powers to influence policy, reduces it's fiscal burden (and helps avoid conflict situations arising thereof, check here), the released funds becoming available for meeting other equally important needs of the government.

 

What is surprising is that, even with all of the information on TataPDDL's sterling performance being available from long back, not many cities have followed the model yet, even in the matter of power supply, whereas many cities abroad have adopted them - check here.

 

Now, Bengaluru is supposedly the tech capital of the country, and finds it's name listed in global rankings too; but tragically, its public utilities, run by the government, are far from what behoves the city of such standing. The moot question that arises is will the government wake up to the need to effect necessary changes, at least now, or continue to remain stuck in the crony Socialism of the present? 

 

Muralidhar Rao