Governance mechanisms for infrastructure public-private partnerships : focus on India

Abstract

Infrastructure PPPs encounter unexpected changes in the technological, economic, social and political environments over their long lifetimes. They require governance frameworks that enable them to continue to deliver services efficiently and effectively when faced with such uncertainties. This thesis compares and contrasts alternative governance mechanisms that have been tried and tested over time and across geographies, with a focus on India. The usual governance mechanisms based on contracts or independent regulatory agencies appear to be insufficient in the face of turbulence. Contractual frameworks, wherein the public and private partners enter into long-term contracts that allocate risks, specify performance levels, tariffs and other terms of agreement, are effective in soliciting investment from the private sector. However, since all possible future scenarios and associated contingencies cannot be specified a priori, contracts are incomplete and contractual governance by itself inadequate. Regulatory frameworks, wherein independent regulators exercise discretion in setting tariffs and service levels in order to respond to changes over time are expensive and inefficient Moreover, they are inadequate by themselves in the complex institutional environments that characterize infrastructure in countries such as India. Most critically, the thesis finds that governance based on contracts and regulation seems to emphasize, institutionalize and reinforce antagonistic relationships between public and private 'partners'. To respond to unforeseen changes, however, it is necessary to move the focus away from arms-length relationships towards structures that emphasize real partnership. Based on case studies of successful PPPs in India, the thesis identifies best practices in engaging public sector partners and key stakeholders in projects, for instance through financial partnerships or representation on the project companies' Board of Directors. It finds that such structural mechanisms are effective supplements to the usual governance frameworks. Finally, the thesis proposes that the model of infrastructure delivery using Independent Public Authorities holds promise for infrastructure delivery in India. The ability of IPAs to mobilize private investment, engage public sector partners and internalize negotiations calls for further exploration of their suitability in Indian conditions.