Public-private Partnership
By Dr Noman Ahmed
IN the second week of this month, the deputy chairman of the Planning Commission announced several measures under consideration by the government to facilitate the role of the private sector under partnership arrangements. The proposed sectors included energy, roads and highways, aviation and airports, ports and shipping as well as water and sewerage.
The emphasis on such a development management structure has evolved owing to several reasons. The capacity of public sector institutions has declined sharply, even in such domains where they were the sole players. Under the overwhelming influence of corporate and venture capitalists, the government has been forced to open up those sectors for entrepreneurship which were traditionally the spheres of public sector operation.
Above all, there is a drastic paradigm shift in the organisation and working of the state. It is reducing its role from a provider and custodian to that of a facilitator. The rules of the game obviously cannot be determined by the government alone. The rising influence of the private sector has led the country to reappraise the entire state structure. Many issues have become crucial in this respect.
The context and background of public-private partnerships has to be properly understood. A public-private partnership is an institutional concept introduced by international donor agencies as an alternative to public service provision. It exists in various forms depending upon the objectives of the project/programme, socio-economic conditions, and institutional capacities.
Public-private partnership, in a conventional sense, can be defined as a contractual arrangement between an agency or unit of the public sector and a private organisation for a defined scope of services.
There are several pre-conditions that can lead to public-private partnership as the choice for service delivery or enterprise development. One, it requires recognition at the macro level for it to be useful in service delivery. Two, it is normally effective in contexts where free market practices have an acceptable background. Three, it requires an aware clientele that considers the provision of an urban service to be a chargeable product depending upon the nature of production. Four, it needs a clientele that is socially and economically stable enough to pay for the services. Finally, it needs a capable private sector that has the capacity to efficiently provide and sustain the contracted part of the service to the identified clientele.
There are several pre-requisites to be considered before a public-private partnership approach can be adopted. Experts say that a favourable economic environment is a basic criterion. Low inflation rates, high GDP growth, rising real incomes and limited value of unemployment and inequality are the usual parameters.
But economists and experts from other domains also point out that stakeholders can twist and turn the value of these variables to suit their working agenda. Evidence from independent economic analysis has often validated this objection.
What is more objectionable is the manner of economic decision-making. Public-private partnerships can be successfully created, and function where the right institutions are involved in determining priorities and choices after obtaining inputs from the concerned stakeholders. However, when decisions are taken on a personalised basis that bypasses institutions, partnerships are not likely to be sustained.
At present, an extremely centralised and non-transparent decision-making process is involved where neither the institutional viewpoints are incorporated nor any recourse to the concerned laws taken.
A potential investor seeks a direct appointment with the prime minister. He arranges an attractive computer presentation for his proposed venture. If the prime minister or his representatives are satisfied, they send the investor/venture capitalist to the presidency. Once presidential approval is obtained, the decision is communicated to the concerned institutions, ministries and authorities to extend full cooperation to the approved venture in the shortest possible time.
Merit, transparency, rules and regulations are all mutilated in the name of investment and progress. While the entire country is flooded with projects approved in this manner, Karachi has borne the brunt of these products of short-sightedness and corruption.
Public-private partnerships require corresponding inputs from several interest groups to make them sustainable ventures. The foremost among them are public sector institutions. As a norm, partnerships are created in a bid to hand over certain roles, responsibilities, services and opportunities controlled by public institutions to private groups.
Institutional culture and psyche in our context is such that every public body wishes to acquire more and more control on various domains, even those that fall beyond their rational jurisdiction. We find port authorities making roads and underpasses, air force chiefs supervising and controlling the game of squash, housing authorities initiating desalination and power plants and the armed forces launching institutions of higher learning.
It becomes very painful for these institutions (and their heads) to part with control and authority. Whenever they are forced to do so, it is done with reluctance. Thus the spirit of partnership is violated.
As observed, the offers of partnerships emanate from aggressive venture firms with little association with the local private sector. The sustainability of these ventures is greatly questionable because after the foreign groups leave, the eventual responsibility to run the affairs automatically falls on the local private sector.
The rising interest shown by investors from Dubai, Malaysia and Singapore shows that they intend to exploit the most lucrative avenues with the maximum of state guarantees. The potential affectees in the process are not consulted in these decision-making exercises. Public criticism is on the rise with regard to almost all such deals and contractual arrangements. In other words, these partnerships are finalised as clandestine marriages of convenience rather than equal opportunity enterprises.
It is generally believed that by instituting a regulatory body at the national scale, a level playing field can be created for the participating stakeholders. This assumption has very little validity. The regulatory environment can be effective if it is a logical continuation of an integrated institutional set-up. There is little that a regulatory authority can do when the basic decisions are taken arbitrarily without involving the concerned institutions.
For instance, it is the mandate of the Planning Commission to review and recommend development proposals. As is routine, it is asked to rubber-stamp the recommendations of the prime minister or president without objective assessments. Most regulatory bodies are located and function in the capital. Projects and programmes are being undertaken all around the country. Thus, it is impossible for the common people and even certain stakeholders to visit and participate in the proceedings.
The true spirit of public-private partnerships can only be achieved when investment opportunities are worked out openly, decision-making is undertaken through public institutions, economic, social and environmental impacts are outlined clearly to identify the beneficiaries and those affected and the participants are made to accommodate the legitimate concerns of stakeholders.
The government may consider using the partnership approach in a strategic manner. The input of the private sector can be effective if applied to stimulate activity in dormant sectors. It can also be useful in creating solutions for non-conventional sectors such as housing for low-income groups. Merit in business and open competition are two attributes which can be made the virtues of public-private partnerships. Whenever any contractual arrangement has to be finalised, it must be done through the open invitation of proposals. This helps build up the trust of stakeholders, and breaks cartels and monopolies. It also strengthens the trust of ordinary private sector operators and leads to the scaling up of local entrepreneurs.
If the capacity and robustness of the local private sector is achieved, it would be a significant achievement of the partnership approach. The government may be convinced to use this mechanism for achieving long-term visions in need of innovative input. If handled appropriately, a worthwhile outcome can become a reality.
http://www.dawn.com/2007/04/28/ed.htm#4