The Truth about PPP: Heads They Win, Tails We Lose
Looking at some of my earlier battles for Right to Information (RTI), I remembered an interesting aspect of public private partnerships (PPPs). As information commissioner, I had come across many instances where PPPs clearly refused to accept that they were public authorities and hence subject to the RTI Act. 
 
Some of these agreements were scandalous and when I would order them to give information, since they were either controlled or substantially financed by the government, they would often get stays from courts. 
 
In one case the government department officially confirmed that they had no copy of the agreement! 
 
The Central information commission (CIC) sent a letter to the government in 2011 that it should include a clause in all PPP agreements that both parties acknowledged that these entities were public authorities and hence subject to the RTI Act. Unfortunately, at that time the government refused to do this. 
 
After retiring, I filed an RTI application with Mumbai Metro One Pvt Ltd, since I was aware that the government had 26% equity in it. They refused to provide information, claiming that it was a private company and not a public authority. I approached the Maharashtra information commission, which gave a clear order that Mumbai Metro One was a public authority and hence subject to the RTI Act. I then obtained the agreements, bid documents and other information. 
 
This also reveals a fascinating story.  The private company is Reliance Infrastructure Pvt Ltd (Reliance Infra) that has a French partner with minority stake. Reliance Infra got the right to make and operate the Mumbai Metro after a competitive bidding. Reliance Infra had committed that the project cost would be Rs2,356 crore and it would be completed within 60 months. It actually took 83 months and the company claimed that the project cost had gone up to Rs4,321 crore; an increase of 83.4%! 
 
In the agreement it was committed that the fare would be Rs6 to Rs10 notionally for 2004 with an 11% increase every four years. By that calculation, the fare should be Rs9 minimum and Rs15 maximum in 2020. There is no clause in the agreement for any other increase due to any cause. It appears to be a well-crafted agreement.
 
One of the key reasons for having PPP projects is said to be to get finance and expertise. In this project the government gave Rs650 crore as ‘viability gap funding’, land worth about Rs600 crore and Rs132 crore as equity. Thus, the total amount given by the government was about Rs1,382 crore, plus monopoly rights.
 
Reliance Infra contributed only Rs380 crore as equity. The rest came as loans mainly from public sector banks. Yet the equity share of Reliance Infra is 74% and 26% for the government.  
 
At present, the fare is Rs10 to Rs40. Reliance Infra claimed that since the investment has gone up, this too is unaffordable and fare should be Rs10 to Rs110 as decided by a wise fare fixing committee!  
 
Reliance Infra claims it is losing Rs1 crore per day. The original agreement is for Reliance to build and earn for 30 years after which it should be handed over to the government. 
 
The way this is going, it appears the government will probably give a subsidy to this project, or organise a loan waiver from all the banks and give the entire project to Reliance permanently, instead of for 30 years. It is also possible that all three may be done.
 
An international consultant, Louis Berger was appointed in May 2013 by the Mumbai Metropolitan Region Development Authority (MMRDA), the government agency, to evaluate the increased costs and delays claimed by Reliance Infra. 
It gave a report in the end of April 2014 stating that most of the claims for increase in project costs or fares by Reliance Infra were untenable and the government should not accept them. The report has clearly stated that most of the delays were due to Reliance Infra and many costs had been grossly underestimated while bidding by the company.
 
As an example, while bidding, Reliance Infra had estimated the cost of the car depot at Rs46 crore, but claimed that it spent Rs322 crore. 
 
The agreement did not have any provisions for cost escalations and yet a fare fixing committee has recommended a fare structure of Rs10 to Rs110.  
 
It is clear that at such a fare the ridership would go down significantly making the project completely unviable. Reliance had given a business plan when it bid for the project. 
 
It is apparent that the cost estimates and the business plan were not even reasonably correct. Since Reliance Infra’s contribution is less than 10% of the stated cost, the government has to make it work, unless it has the courage to take it back. 
 
Many of us have suspected that most PPP projects result in public resources being handed over to private businesses for a song. 
 
It is also believed that private parties often gold plate the project. If the business plan works well, the business makes great profits; if it does not, the public loses. 
This is the classic ‘heads I win, tails you lose’ in action. 
 
This article is not about Reliance Infra or any particular government. My perception is that the government agency, MMRDA, has made a valiant attempt to defend public interests, but is unlikely to succeed ultimately. 
 
In such PPP agreements, public resources are being given away almost as gifts to private business. The real loser is the poorest farmer in Vidarbha or the tribal in Gadchiroli whose resources are being given away as gifts. 
 
Is the design of our PPP agreements flawed? Or is this the consequence of a legal-judicial system which favours the powerful? 
 
I concede that the argument against PPPs has been lost a long time back. But it should be the endeavour of everyone in our nation to come up with agreements where the public’s interests are safeguarded and the tendering system becomes meaningful. 
 
In many cases, vital changes are made subsequently, making the tendering process a farce. 
 
I am hoping the government will at least make it mandatory that all PPP projects will be made subject to the RTI Act. They are public authorities as per the law, but take advantage of our dysfunctional legal system.  
 
Perhaps citizens will better monitor such projects far better than the government agencies.
 
(Shailesh Gandhi served as Central Information Commissioner under the RTI Act, 2005, during 18 September 2008 to 6 July 2012. He is a graduate in Civil Engineering from IIT-Bombay. Before becoming a full time RTI activist in 2003, he sold his packaging business. In 2008, he was conferred the Nani Palkhivala Memorial Award for civil liberties.)
Comments
Manoj
3 years ago
Must applaud you for your tireless fight against bilking of projects.

There is a lot of gaming of PPP projects, because they are inherently supposed to be more flexible that straight work contracts. Hence companies bid low to get the projects and then renegotiate the terms in their favour leveraging obliging politicians and bureacrats. The 3rd element of PPP - Public is neither represented nor even kept informed of what is being done in their name. Reliance is of course well known for making the government dance to it's tune, whichever be the party, but even reputed multinationals do this trick.

There are several far superior PPP models that have been used by countries like UK, China, Singapore etc, but these countries are nowhere as chaotic as indian government is in announcing badly thought out projects and policies at the drop of a hat. Put it down to poor education of the so-called educated class, and the high degree of criminality we prefer in politicians, or indifferent bureacracy, but public service, planning, project execution, careful use of community resources are non existent in India.
Veeresh Malik
3 years ago
There are all sorts of sanctimonious letters from assorted government departments to each other about how PPPs should come under the RTI Act. Likewise Public Grievance. I support your efforts but have no idea what to do anymore.
Nalla Rao
Replied to Veeresh Malik comment 3 years ago
Sir it was always like that all contracts with private companies in Govt and semi government organisations are skewed to favour the Private Operater.
Air India is cesspool of this .
I exposed Corruption by the CMD and others and was rewarded with a Termination.
Air India lawyers are upset that I have filed Criminal Cases against the CMD and other Criminal elements .
The Court has not responded as yet .
They obtain Stay orders behind my back and these lawyers grease the system and fatten their purses at the public Exchequer cost in crores of Rupees.
Manoj
Replied to Nalla Rao comment 3 years ago
Oops. Are we brothers in arms? Similar experiences in government. After a dozen years, I left for my sanity and integrity and have not been paid my dues for 15 years and counting. Wheels of justice grind exceedingly slowly in India, but please hang in there - there are some good folks too among the sleazy crowd in the government. Hope your case reaches one of them and you do get at least some of what you earned.
Free Helpline
Legal Credit
Feedback