Arun Lakhani on Policies and Processes - Countries That Suceeded

Much before Public Private Partnerships (PPP) became a buzzword in past ten years or so, it has had a long history. Thinking of an example? How do private schools aided by the government sound?

If we dig deeper we will find a long list of such ventures. But this article is not about them, it is about the policies and processes that govern PPP. On that front sadly we do not have much to cheer about and quite often the main issue is related to policies and processes that govern these partnerships.

So how do we rectify such a situation? The solution could be looking at successful PPP ventures outside of India.

To understand how other countries around the world are dealing with Public Private Partnerships we spoke to Mr. Arun Lakhani – MD Vishvaraj Infrastructure and leading authority on PPP model in India. Mr. Lakhani himself has led and executed various successful PPP projects with the Government of India such as Nagpur 24*7 water supply and Warora - chandrapur - Ballarpur Project.

Let's take a look at some countries that have mastered the PPP model for development

1. South Africa:
   The main thrust fordevelopment in South Africa came in 1997 when it started its own PPP program. Three years later, in 2000, the country created a dedicated PPP Unit in its nation treasury. The main goal of this unit is to closely observe all the proposed and ongoing PPP projects. Besides, this unit also offers guidance to those involved in such ventures so that they know the rules and regulations.
   
   
   Following are the main responsibility of this unit:
   
   
   • Approval of the PPP Feasibility Study
   • Approval of draft bid documents
   • Approval of the results
   • Approval of the negotiated PPP contract


2. Australia:
   Another country that is reaping huge rewards through PPP is Australia. A major contributor to this success is the state of Victoria. In fact, the base of current PPP initiative by Australian government is based on the Victoria model.
   
   
   There is a fixed cap of AU$50million (max) for PPP ventures in Australia. The spectrum of these projects is quite huge; ranging from economic to social to infrastructure. The rules and regulations pertaining to PPP have been drafted by the Federal Government. These projects are governed by National PPP Policy and Guidelines by a joint partnership of Federal Government and the Partnerships Victoria Requirements.
   
   
   Any PPP project that needs to be started undergoes a stringent evaluation and due diligence including
   
   
   • Case submission
   • Benefits.
   • Costs.


3. United States:
   One of the brightest examples of well governed PPP policies and processes is the United States of America. USA started the National Council for Public-Private Partnerships in 1985 for PPP with the following goals
   
   
   • Have full and open participation by public and private members
   • Assist both, public and private sectors with regards to analysis and implementations.
   • Educate people on PPP.


4. United Kingdom:
   In order to ensure financial stability of PPP, UK introduced something called Private Finance Initiative (PFI). This initiative was started in the year 1992. The primary objective of PFI is to organize private funding foreconomic and infrastructureprojects.
   
   
   Thanks to this channelized approach, this initiative has gone on to become one of the biggest PPP programs in the world. Its estimated valuation runs into tens of billions of pounds.

Having a dedicated governmental department or authority solely responsible for governing policies and frameworks to ensure that such ventures are adequately managed and executed is a must says Lakhani. It is important that the Government creates strong policies and is ideologically invested in the success of these projects without being a hindrance to actual execution.

Arun Lakhani Talks about Reusing and Recycling Waste Water

Water is a fundamental life component and a valuable resource. Around the globe various countries are facing water related issues, not the least India with its rapidly growing population and urbanization.

Unfortunately as the population of India increases, the scarcity of water has become a deadly challenge. The challenge lies in dealing with water scarcity while at the same time managing increasing consumption due to the growing population.

It is not as though we cannot fight this issue. One of the best ways is to reuse and recycle waste water.

The problem that we face today
One of the areas where we can start is agriculture. Using the drip irrigation method, efficient management of waste water is quite possible. A major obstacle in implementing this method is the un-organised nature of this sector. On top of that, the number of small land holdings is quite large that makes it more complicated and challenging to put into practice such efficiency measures.

At the other end of the spectrum urbanization has led to massive migrations form rural areas to towns and cities intensifying the problem of managing water requirements. The ever growing human density, lack of efficient conservation measures, industrialization and changing ecological environment is leading to an unprecedented change in water consumption patterns and the balance of demand & supply.

One of the reasons for such a situation is the lack of budget for local bodies to implement any waste water management methods. In addition to it, urban areas are becoming industrial hubs which have resulted in disproportionate usage of water. The conflict between agriculture & industry and rural and urban with agricultural sector is thus complicating the waste water management issue.

Probable solution:
To find a sustainable solution we spoke to Mr. Arun Lakahani, MD VIL and leading expert in PPPs for waste water management.

Lakhani says the way forward is to look at countries such as Singapore, Korea and even USA, not to copy their methods but to customize available technology to suit out ecosystem and requirements. These countries have adopted efficient and effective methods for waste water management which if used smartly would greatly benefit India.

One of the successful methods involves waste water being given tertiary treatment that will make it usable (in this case drinkable). This not only ensures that waste water is managed well but also utilized effectively & productively.

"Now, if we try to fit this process in India as it is, it will be difficult; more because of cultural acceptability rather than any other thing." Says Lakhani

So maybe the way to work around this is to take the treated water and divert it towards industrial use and conserving fresh water for domestic usage.

Arun Lakani on Developing a Robust Framework to Make PPP Work

Private Public Partnerships are a great way to boost the development of a nation. A partnership beneficial to all the parties involved including the public. A lot of things go into making a successful venture. One of these is policies associated with such partnerships.

Recently we spoke to Mr. Arun Lakhani, MD Vishwaraj Infrastructure Ltd. and noted PPP expert on his experience in setting up successful PPP ventures such as the Nagpur 24x7 water project.

Here are some of the insight we gleaned on setting up the right kind of policy framework, to govern projects of the scope and complexity that generally entails a Public-Private Partnership.

Build a framework to identify potential partnership areas
The most important thing even before considering PPP is to identify which are the areas that require such ventures. This is important because failing to do so means great loss of resources, manpower, time and money.

One of the ways to do so is to know analyse which areas are facing demand and supply issues. An in-depth study will give a clear idea where such partnerships can contribute positively.

Stand together & support each other
Any partnership is tricky at best, add to that politics, media, extremists and there is a storm brewing. In such a scenario it is important that both parties support each other and policies made are effective, accountable and fair to all the stakeholders involved.

Since the operational and execution risks are almost always undertaken by private player, government must ensure it offers its complete support to them. By taking care of approvals, licences and paper work, the government body can take the burden off the shoulder of its partner.

Project Ownership is a joint responsibility
PPP is a joint venture and hence there are bound to be issues related to management, responsibility and accountability and when working with the government, it seems to be the norm to have bureaucratic hold ups, red tapism and lackadaisical attitudes.

However, Mr. Arun Lakhani here chose to disagree. He talks about the classic example of Yeola town development as a part of the BOT road contract and how it helped in winning over the people of the town bringing down natural resistance to toll road projects, as a testament to what can be achieved when responsibility and accountability are jointly shared for the better of society.

Stakeholder Protection:
It is a fact that even though PPPs are a joint venture, there is no denying that private partners are the more vulnerable party. With such a cloud of uncertainty hanging over their head, there needs to be a provision to protect their interests. Government takes the least risk in PPP and hence has very little to lose. In such a scenario the rights of private partners must be protected as they are operating at maximum risk. For example an untimely termination of PPP can result in a serious loss as they invest huge amount of money and resources.

Here though Mr Lakhani warns that the contractual conditions must be very clearly spelled out and there should not be any scope for manoeuvring by private operators.

To conclude we would like to say PPPsare very rarely short term associations. They are like a double edged sword; especially for private partners. Hence it is important that both, the government and private sector, prove themselves to be an able partner for the other. And this can be done only when there is clarity and transparency between the two.

Arun Lakhani on Minimizing Risks in PPP

Big projects follow big challenges and big challenges follow big risks. Though, effective planning and proper implementation can reduce risk and can lead to the maximum ROI. According to Economist Kent Buse, the biggest risk in PPP is misalignment of partnership missions and objectives with government policies.

Mr Arun Lakhani, MD Vishwaraj Infrastructure Limited, one of the pioneers in India in the field of Public-Private-Partnerships, says most of the partners want quick results which just isn't fair in a PP model. There are n numbers of factors that need to be considered while working on such projects like environmental sustainability, execution & implementation and maintaining timelines; where government agendas usually focus on improving systemic issues and delivery mechanisms.

We discussed a few insights with Mr. Lakhani, gained from extensive work in PPP projects such as Nagpur 24x7 water supply and Warora- Chandrapur - Ballarpur Road Project. Let's take a look at his philosophy for sustaining and implementing PPP projects.

1. Pre-execution Stage -
   
   
   • Set clear and specific goals - One has to be very specific about the project they are going to execute. First of all, you have to identify whether PPP is appropriate for this project or not. There has to be mature understanding between partner's expectations and government priorities. As two separate entities are collaborating for a common goal it is important that trust is built right at the start and there is a mutual understanding of expectations, and transparent methods of accountability.
   
   
   • Identify right partners - There needs to be a process to set up the right alliance. Stakeholders need to ask questions such as does the partner have the capability to execute the plan? What values your partner can add? A due diligence process and selection criteria is imperative for the future success of the project.
   
   
• Good governance - Create a board of management with equal participation of both the parties. Also, invite some experts as mentors that aren't directly involved with any party in the project. Clarify the roles and responsibilities of everyone for efficient execution. It will help in reducing duplication of work and identification of benefits, risks, costs and duties of each partner. Healthy communication always adds more points.


2. Execution Stage -
   
   
   • Standard Operating Procedures - Developing and executing standard operating procedures and processes for delivery is imperative for the smooth execution of any project.
     
     
     Each department needs to be aware of working methodology, timelines and deliverables. Working in an efficient manner with open and reliable communication channel goes a long way in hassle free execution.. Proper hierarchy is important in all types of organization irrespective of the project size and domain. How could PPP project be an exception for that? Above all, do not forget to ensure the smooth access to information, whenever needed.
   
   
   • Monitoring & Execution - Performance evaluation must be a continuous activity here. Internal and external performance analysis would be highly profitable and will lead to great results. Decision making is always a crucial part and maintaining balance of all stakeholders in this process is important. Nothing is like availability of experts on time. The secret of success lies within it.


3. Sustainability and Exit -
   
   
   • Set clear and specific goals - One must ensure the support from government agencies as well as corporates. Incorporate all levels of stakeholders in program implementation and delivery. Improve the easy access of delivery channels for best outputs.
   
   
   • Exit - Keeping the terms crystal clear from the day one is very important for maintaining healthy relationships. There must be simple and clear exit strategy for all the parties.

"Public private partnership projects aremuch more important than any normal profit making organization, though their work is going to affect public life and ultimately on the country's growth. It must handle with extra care." Arun Lakhani

Innovations in Pubic Private Partnerships

The BJP led NDA government has made it clear that Public Private Partnership (PPP) is the preferred mode for driving major infrastructure development projects. In light of this major push towards the PPP model we spoke to Mr. Arun Lakhani, Chairman & Managing Director Vishvaraj Infrastructure Ltd, one of the leading authorities on the PPP model.

Vishwaraj Infrastructure's various PPP projects such as the Nagpur 24X7 water supply project and Warora- Chandrapur - Ballarpur Road Project have given them the opportunity to bring about innovations in the PPP model and set up best practices.

We wanted to understand different working models for Public Private Partnerships and here are some interesting insights gleaned from our talks with Mr. Lakhani.

1. Service Contract:
   Under this structure, Government (which is a public entity) will hire a private entity. The aim behind this hiring is to utilise the potential of the private entity to carry out certain tasks or services for a set amount of time.In this type of PPP model, the Government will be the main provider of the investment and the infrastructure associated with the project. The private entity with which the Government has partnered with will be under a contractual obligation to complete the project within a set time for a set cost.


However, VIL under the leadership of Mr. Lakhani chose to do it differently for its 24X7 water projects. Under these the initial investment is brought in by the operator, the annuity is paid by the client over the contract period and the revenue generated by selling treated water is shared by both.


2. Lease Contract:
   Under a lease contract the role of the government is to lease out a service to a contractor/private entity, with the role of the Government body being limited to awarding of the service to the private body and maintaining a check on quality and delivery.


The private partner will be completely responsible for management of finance, operations, delivery and quality provided under the project. Financial risk associated with operation, maintenance is complete responsibility of the private partner.


The duration of this type of contract is usually longer than that of Service contract. A Lease contract usually has duration of 10 years with an option to extend to 20 years.


3. Joint Venture:
   Under this partnership model, the infrastructure is co-owned and is operated by both the partners (private and public). Partners either create a completely new company or become joint owners of an existing organization.


A key factor in making this type of PPP structure successful is that the corporate governance must be quite good. This means that since Government is a regulator and also part owner, the running of the project must be kept independent from its interference.


Another huge advantage is that since Government too has its own interests in the project (profits, sustainability) it will help out with official hurdles faced during the project.


4. Management Contract:
   Unlike service contract, this contract involves the Government body giving out either all or some services to a private sector entity. These include supply and service contract, maintenance management and operational management.


Even then the service provision is still in public domain. Private partner is given out responsibilities related to daily management of the project. Quite the private partner puts in the working capital but does not finance the project.


Government pays the private partner pre-decided payment for its labour and other costs related to the project.


5. Concessions:
   Under this type of partnership, the private partner is completely responsible for delivering all the services assigned to it. These services include operation, maintenance, collection, management, and construction and rehabilitation of the system.


Unlike the management contract, the private partner is now in-charge and responsible for all the capital investment related to the project.


There is also the option for the Government to make a capital investment in the project to enhance commercial viability of the project.


The role of Government in this is all about regulating the price and quality of service. This involves setting standards for performance and make sure that private partner meets these standards.This type of contract is generally used in case where there is a need for creating new facilities or rehabilitation facilities.


It is quite obvious that PPP is a format for the Government to improve infrastructure with the help of private partners. The final goal is to deliver quality projects by bringing in accountability and manageability from the private sector.


"Whatever the chosen model for PPP the final decision should be based on a creating holistic project structures, designed keeping the socio - economic scenarios of the project areas in focus, thereby increasing the sustainability factor of the projects." Arun Lakhani.