PUBLIC PRIVATE PARTNERSHIPS FOR MUNICIPAL SERVICES

The combined efficiency of both the public and private sector players in any field of vocation has potential of making miracle. The enhanced efficiency and effectiveness of the private management and the public service spirit of public sector agencies can be galvanized into a strategy called Public Private Partnership (PPP). After the liberalization, privatization and globalization of India economy since 1992 has resulted in increasing focus on Public-Private Partnerships for Municipal Services.

  Several Cities across the world and in India too have forged partnerships with private sector for delivery of various services.

The need for Municipal Partnerships for the delivery of municipal services emerges from four basic facts

(i)     The gap in the services is fairly high;

(ii)  There are significant leakages in the delivery of Municipal Services in terms of both technial and financial management.  Therefore, the efficiency needs to be improved;

(iii)  Municipal resources are limited and are not growing in real terms;

(iv)   Increasing role of municipal services in the overall context of productivity, equity and poverty alleviation.

 

Gap in the Municipal Services

 Around one third of urban population do not have access to in-house water connections, water supply is abnormally low being less than half the minimum desirable level of 135 lpcd. The extent of leakages is fairly high being 20 to 40% of installed capacity.  Almost half the urban population does not have access to safe sanitation and sewage facility.

 

Almost one-third garbage is not regularly collected; most of the garbage is disposed of through uncontrolled tipping or open dumping.  Deployment of sanitary workers, availability of dustbins for garbage collection is fairly low.

Municipal roads are highly congested and suffer from inadequate maintenance and repair, street lighting is not regularly maintained, community services and public conveniences are not provided as per requirements.  All these lead to congestion, pollution and other environmental implication

 

INTER-SECTORAL LINKAGES OF MUNICIPAL SERVICES

It is now well recognised that municipal services play key role in the macro-economic development, urban poverty alleviation, promotion of safe environment and quality of life.

·        Availability of services have a multiplier effect on the urban economy and promotes activities pertaining to business, industry and trade.  The urban sector is contributing almost 2/3rd of national income.  Therefore, any efforts to achieve macro-economic development have to also focus on adequacy of municipal services at desirable level.

·        Municipal Services due to their nature of preventive health measures also enable the poor to have better health status and produce more for higher productivity.  Besides this poverty alleviation is now considered a municipal function.

 

·        Promotion of safe environment and quality of life is yet another area which is included among overall municipal functions.  Pollution, congestion and Pre-native Health activities are closely linked with municipal services.

 

Limited Municipal Resources

In line with the physical backlog, the fiscal gap in the municipal infrastructure is enormous.  The low investments finally lead to a low equilibrium trap, which means low recovery, low investments and low levels of services.

It is against this background that municipal bodies are not in a position to bridge the gap in the services through their own funds or conventional budgetary support; the partnerships have emerged as a strong alternative arrangement for providing municipal services.  During last one decade, the partnerships have been developed gradually and are being increasingly recognised as a necessary method of serving the policy objectives of urban governance, decentralisation and poverty reduction.

 

Municipal Functions, Issues and Need for Partnerships                

The need for partnership in the overall context of major municipal functions is given in the Table below.  It covers functions, respective issues and the need for partnerships. 

Sector-wise Issues and Need for Partnerships

Function	Issues	Need for Privatisation
Municipal Roads and street lighting	§  Huge backing §  Lack of funds for investment §  Insignificant recovery §  Declining O&M levels	§  Insufficient institutional and financial capacity §  Roads linked to human health, environment, congestion/noise pollution and quality of life
Municipal Water Supply	§  Low supply §  High leakages/poor O&M §  Poor quality water §  Insufficient access to poor §  Low recovery	§  Linkages with Environment, Health and Quality of Life §  Low availability of funds for O&M and investments with municipal sector and other public institutes §  Wide scope for community potential
Sanitation	§  Poor coverage of Safe sanitation §  Poor maintenance §  Poor Recovery §  Almost nil treatment	§  Shortage of Public funds §  Insufficient public/municipal institutional capacity §  Enormous potential of Private Sector including community §  Linkage with environment, human health and productivity
Solid Waste Management	§  Low collection §  Almost insignificant treatment §  Lack of municipal staff §  Low recycle and reuse	§  Shortage of public funds §  Linkages with environment (Air, water), health and productivity. §  Cost effectiveness with private sector involvement §  Existence of community potential
Community services	§  Limited resources (both physical and financial) §  Declining Maintenance of assets	§  Private sector potential §  Recovery potential §  Efficiency in the O&M

Emerging Environment in India 

A proper policy and environment on partnerships is gradually emerging in India at various levels which has included a series of actions aimed at promoting partnerships. These include:

·        74^th Constitution Amendment Act and its focus on municipal functional domain and decentralisation have placed emphasis on involvement of various stakeholders in the provision and delivery of municipal infrastructure and services.

·        With the creation of Infrastructure Wing within HUDCO in 1989, HUDCO has taken up agenda to reach out to a large number of local governments through direct lendings and through lendings from other intermediaries including state level financing institutions and private sectors which are involved in municipal infrastructure.

·        HUDCO has modified covenants to facilitate lendings for business partnerships in municipal infrastructure.

·        The Government of India set up a working group on Commercialisation of Infrastructure (1992).  The group has suggested that government should devise a series of fiscal incentives and concessions to promote a facilitator role for urban infrastructure.

·        FIRE-D (Financial Institutions Reform and Expansion for Development of Debt Market) was also set up in 1992 under Indo-US Cooperation.  HUDCO and ILFS are actively involved in FIRE to promote commercially viable projects which also involve various stakeholders at different stages of project initiation and absorption including O&M.

·        Package of fiscal incentives was announced by Government of India under successive budgets which included relief under Section 80-1(A), 88, 54G of Income Tax Act.

·        The fiscal incentives also included amendments under Section 10(15)(vii) of the Income Tax Act to allow for issue of Tax Free Bonds by Urban Local Bodies (ULB).

·        Hitherto Foreign Investment Promotion Board (FIPB) allowed direct investment in providing urban services on a case to case basis.  The scenario has changed with the decision of the Ministry of Commerce & Industry to allow FDI (Foreign Direct Investment) up to 100% for development of integrated townships, including housing, commercial premises, hotels, resorts, city and regional level urban infrastructure facilities such as roads and bridges, mass rapid transit systems; and manufacture of building materials.

·        Municipal Capacity Building efforts taken up under bilateral and multilateral funding from World Bank, Asian Development Bank (ADB), United Nations Centre for Human Settlements (UNCHS), United States Agency for International Development (USAID), Department for International Development (DFID), German Agency for International Cooperation (GTZ), etc.

·        Several state governments have signed MOU (Memorandum of Understanding) to specify modalities to streamline the ‘partnerships’ in the delivery of municipal service largely in the area of solid waste management.

·        Several state governments have also encouraged municipal governments to raise funds through municipal bonds to fund requirements of municipal infrastructure

OPPORTUNITIES FOR PARTNERSHIPS

As a result of enabling environment for partnerships, a series of partnerships have emerged among Indian cities.  Partnership does not mean a partnership between municipal and corporate sector or the private firms alone.  It really means participation by a wider spectrum of stakeholders who have specific interest in the development of urban sector.  Broadly the stakeholders include:

·        All the three layers of governments,

·        Public sector agencies,

·        Urban local governments,

·        Corporate sector,

·        Households and firms,

·        Corporation,

·        Informal sector and bilateral/multilateral agencies.

 

Besides these, networking also has recently emerged as a platform to pool together various stakeholders to promote partnerships within the network and outside.  Partnerships emerging in the municipal sector have by and large included divestiture, contracting out, financing and convergence of resources.

 

·        BOOT (Build Own Operate and Transfer) and its several variants have emerged.

·        Contracting out has included service contracts, management contracts etc. to reduce direct role of municipal governments in the delivery of service.

·        Convergence has also occurred by pooling together various resources including community, business, industry, trade, and constituency fund of public representatives etc. to provide municipal services.

 

Many cities have involved partnerships in the delivery of services.  A few examples, which by and large cover the typology of partnerships, are given in the table below:

Selected examples of partnerships in urban services/infrastructure provision
City	Service facility	Form of partnership
Delhi/ New Delhi	Link bridge transport Solid waste processing Bus Q Shelter Round abouts Community toilets Parking places Community Toilets (use and pay)	BOT privatisation of routes BOT Franchise Leasing BOT BOT, Contracting out BOT
Indore	Link road (Pitampur) Road construction and social forestry	BOT Commonly resources
Hyderabad	Light rail transit system	Joint stock company
Visakhapatnam	Water supply	Large private financing
Tirpur	Water supply	Private financing/ BOT
Chennai	Solid waste collection Solid waste recycling O&M Water supply and sewerage including revenue collection	NGO (EXNORA) Private company Service Contract Service contract
Baroda	Solid waste	Divestiture (BOT cooperative societies)
Nasik	Octroi post Sewerage	Auction Financing through Bonds (100 crores)
Pune	Solid waste	Divestiture (BOT)
Jaisingpur	By pass	Franchise
Bangalore	Streets/roads	Financing through Bonds (125 crores)
Ahmedabad	Water supply Services in slum	Financing through Bonds (100 crores) Resources from community, business industry and trade as part of ‘Parivartan’ Programme
Ludhiana	Water supply Solid waste	Financing through Bonds (10 crores)
Nagpur	Water supply	Financing through Bonds (50 crores)
Madurai	Road	Financing through Bonds (30 crores)
Alandur	Sewage	Divestiture
Hubli-Dharwad	Street light	Contracting out
Karur	Tool Road	BOT

Source: The Websites of Different Municipal Bodies in India

Several cities are experiencing business partnerships in the municipal infrastructure.  These include specific tasks pertaining to Solid Waste Management (Collection, Transportation and Disposal), Water Supply (Pumping, Tankers), Roads (toll, O&M in lieu of advertisement rights), Street Lights, Recreation and Public Conveniences (Advertisement rights, use and pay and management contracts) and raising revenue through municipal bonds (Ahmedabad Ludhiana, Nasik, Madurai, Nagpur and Bangalore).

 

SCOPE FOR MUNICIPAL PARTNERSHIPS

Existing Barriers

Despite several cases of partnerships emerging among the municipal governments, there exists a range of barriers which inhibit a wider explicability.  At the same time efforts are also missing to ensure sustainability of partnership arrangements.  A systematic strategy is needed to overcome the barriers.  The key barriers are as follows:

 

• Most of the current projects are low-key projects meaning that low investment, low return and low risk.
• Regulatory framework for PPP is still fairly weak.  Model contracts, regulatory authorities, risk analysis and mitigation etc. are not taken up to build a safety net to promote PPP.
• The Partnerships are implemented in isolation from each other, are not documented and disseminated for wider information and replication.
• The existing initiatives are not examined as feedback for a policy formulation on promotion of business partnerships for municipal infrastructure.
• Local Governments lack the capacity to perform specific and specialised tasks namely identification of services, mode for partnerships, invitation and assessment of bids, award of contracts, monitoring and evaluation feedback.

Way Ahead

The emerging environment and incidence of partnerships are missing a systematic sustainable and wide spread support system for the provision of partnerships. Special efforts are needed to encourage private sector and build capacities among Municipal Governments to apply business partnerships. Specific actions are needed at different levels to stimulate partnerships.  The key areas for a systematic support system include:

• Formulation of a Municipal Business Partnership Policy (MBPP).
• Enactment of Guiding Act at Central Level and Specific Acts at State Level to clearly specific areas amendable for business partnerships and subsequent guidelines.
• Development of fiscal and financial package to encourage partnerships and diversify and mitigate risks at different levels of project implementation.
• Agenda/Action profile on regulatory framework should focus on Availability of loan finance; Tax concession; and Insurance cover.
• Development of Regulator and Regulatory Authorities to promote a system for Safety net; Pricing control; Performance monitoring; Contract compliance and Customer/user satisfaction

• Creation of nodal agency at Central and State levels to facilitate a vision and State Level Policy; develop a regulatory framework and carry out impact assessment and evaluation studies.
• Take up Capacity Building of municipal bodies through documentation of case studies, evaluation and impact assessment studies, model contracts and enforcement mechanism for contract monitoring and compliance.

• Take up networking for information, collection and dissemination.
• Encourage private sector to foster partnerships through a package of incentives.
• Listing of private sector involved in the delivery of urban infrastructure
• Development of a resource centre for infrastructure, education and communication on PPP incidence on municipal infrastructure in India.
• Liaison with Central and State Governments for the formulation for MBPP (Municipal Business Partnerships Policy), Creation of nodal agencies at central and state levels as well as enactment of Central Model Act and State Acts.
• Guide the government for promotion of private sector for business partnerships through equity participation and insurance cover for risk mitigation and guarantee system.
• At the same time, Capacity Building of Municipal Governments is also essential to expedite partnerships.
• Promotion of SPV (Special Purpose Vehicle) to deal with ‘operator’/consortium for assigning BOT, BOOT Projects.
• Promotion of inter-municipal cooperation among smaller town to attract private sector for a relatively wider scale.
• Undertaking policy and action oriented research, case study documentation, evaluation and impact assessment studies on different aspects of business partnerships.
• Promotion networking for exchange of information and skills among various stakeholders such as bi-lateral and multi-lateral agencies, other international professional agencies, private sector operators/consortiums, Central Governments/State Governments and other public sector agencies, Local Governments, Association of Municipalities/Mayors.
• Development of suitable training material which should include guidelines, manuals, checklists, model contracts and MOUs (Memorandum of Understanding) to apply partnerships etc.

Finally, the municipal infrastructure sector in India has enormous potential for public private partnerships.  The existing cases and environment in this regard is encouraging and paves a way for various stakeholders to join hands to develop a platform for useful interaction and cooperation among themselves.

By Shashikant Nishant Sharma