Meaning of PPP
PPP (Public-Private-Partnership) is a broad term that is generally applied to a management contract between the public (government) and the private sector that includes funding, planning, building, operation, maintenance and ownership of anything such as projects and services. Under neo-liberalism, with right-wing economic philosophy and neoconservative policies being on the offensive, and state-owned public sector is fast dwindling based on the dictum of ‘downsizing and rollback of the state’, PPP has become an ‘accepted’ funding model for the building up of projects the world over. Obviously, the ‘public partner’ is represented by the government at the national, state and local levels. The ‘private partner’ can be a privately-owned business, corporate company or consortium of businesses with claimed expertise in specific fields.
Depending on the modalities of the partnership between the public or government sector and the private corporate sector, different models of PPP are envisaged:
1. Design-Build (DB): The private sector partner designs and builds the infrastructure to meet the public-sector partner’s specifications.
2. Operation & Maintenance Contract (O & M): The private sector partner, under contract, operates a publicly-owned asset for a specific period of time.
3. Design-Build-Finance-Operate (DBFO): The private sector partner designs and constructs the infrastructure component and operates it under a long-term lease. The infrastructure component is transferred to the public sector when the lease is up.
4. Build-Own-Operate (BOO): The private sector partner, builds, owns and operates the infrastructure component in perpetuity.
5. Build-Own-Operate-Transfer (BOOT or BOT): The private sector partner is granted authorization to design, build and operate an infrastructure component and to charge user fees for a specific period of time, after which ownership is transferred back to the public sector partner.
6. Buy-Build-Operate (BBO): The publicly-owned asset is legally transferred to the private sector partner for a designated period of time.
7. Build-Lease-Operate-Transfer (BLOT): The private sector partner designs, finances and builds a facility on leased public land. The private sector partner operates the facility for the duration of the land lease. When the lease expires, assets are transferred to the public sector partner.
8. Operation License: The private sector partner is granted a license or other expression of legal permission to operate a public service, usually for a specified term (this model is often used in IT projects).
Among the above, the BOOT or what is often called the ‘BOT’ (build, own and transfer) has become the most conventional PPP project model today. Here a private organization conducts a large development project under contract to the government. Here’s how the BOT model works: The public sector partner or government contracts with a private developer – typically a large corporation or consortium of businesses with specific expertise – to design and implement a large project. The government provides ‘limited’ funding and other facilities such as land, ‘access’ to the site, water and electric supply and other basic infrastructure requirements essential for initiating the project together with tax exemptions or tax holiday status, etc., but the private sector partner undertakes planning, constructing, operating and maintaining the project for a specified time period. During that time, the ‘developer’ or the PPP-BOT firm or the service provider charges ‘user fees’ on customers or people who use the infrastructure or service that has been built to realize his/her profit. At the end of the specified period, the BOT company transfers ownership to the government, either for free or for an amount stipulated in the original contract. Such contracts are typically of a long-term term nature and may usually extend to 40, 60 or more years.
The Route towards PPP
During the quarter century of neo-colonialism that followed World War II, on account of the confluence of several economic, political and ideological factors, international finance capital was compelled to allow the direct intervention of the state in the development of entrepreneurial activity in both imperialist and neo-colonial countries leading to an increase in the role of public sector in the economy at a global level. The setting up of public sector undertakings that provided the essential infrastructure and social and economic overheads such as roads, railways, ports, airports, etc., and social services such as education, health, etc., and communications, energy, banking and so on, ultimately set the stage for the smooth functioning of corporate capital.
This was carried out under the Keynesian umbrella that also ensured the accumulation of significant share of wealth in the state treasury through progressive taxation and deficit financing. In several countries, along with the growth of the so-called welfare state, bourgeois governments also increased their share in the economy by nationalization of certain branches of industry. By pursuing a system of progressive taxation, the state also mobilized a significant share of national income to substantially increase public expenditure. According to various estimates, as a proportion of Gross Domestic Product (GDP), in several capitalist countries, especially in Scandinavian countries, by the late Sixties, government spending had become more than 50 percent while central government expenditures in the so called developing countries such as India rose from 15 percent in 1960 to almost 33 percent of GDP by mid-Eighties, and started declining steeply thereafter. Of course, in spite of this predominance of public sector under Keynesianism, production relations under neo-colonialism have many surreptitious ways of channelling surplus value created by workers into the pockets of the corporate financial elite.
But on account of the inherent logic of finance capital, this arrangement could not continue for long. Progressive taxation by the state for running infrastructural projects and public spending on social security and workers’ welfare had been a drain on surplus value extraction by the financial aristocracy and its rate of profit accumulation. As a result, when the capital accumulation process on account of its own inherent contradictions started confronting severe crises starting with the stagflation of the Seventies, taking advantage of the setbacks suffered by the Left, finance capital everywhere strived to re-establish its direct domination over erstwhile public enterprises through a process of denationalization, disinvestment and privatization together with a rollback and downsizing of the state from infrastructure and social overheads.
As a result, all strategic and key sectors including infrastructure, which were hitherto reserved for public sector in the name of state-led development and welfare capitalism, were gradually opened up for penetration by corporate capital. To speed up the process of downsizing of the state, taxation as a proportion of GDP has been substantially reduced in the guise of incentives and stimulus packages to speculative capital. For instance, in India, as a proportion of GDP, tax collection fell from around 14 percent in the 1980s to less than 10 percent in the first decade of the 21st century. As a consequence, during 2005-2014 alone, as revealed by budget documents, the central government had granted a tax exemption of almost Rs.35 lakh crore to corporate big businesses whose principal form of accumulation in the neoliberal period primarily takes place in the sphere of speculation rather than production. Under the cover of the fiscal constraint deliberately created thus, an important aspect of the neoliberal strategy has been the sell-out of infrastructure projects pertaining to roads, ports, airports, etc. and public utilities and social overheads to corporate capital as PPP-BOT schemes with the imposition of user charges on the people.
PPP as Neo-liberal Mode of
Thus the PPP model of building up infrastructure and provision of social services is to be situated in the transformation of the state’s role from that of an initiator of economic activities under erstwhile Keynesianism to that of a facilitator of corporatization under today’s neo-liberalism. India is no exception to this general rule and the affinity of the comprador ruling classes and their political representatives, both under the ten-year Congress-led UPA rule and under the present BJP-led NDA rule, to PPP projects is a corollary of the complete repudiation of the erstwhile Nehruvian state-led development policies. Thus, India with its first phase of PPP started during the first NDA regime led by Vajpayee has under the Modi regime become the “biggest PPP market” in the entire world. It now runs almost 1000 PPP projects. And in tune with Modi’s ultra-rightist, high profile ‘Make In India’ initiative that envisages pro-corporate and ‘investor friendly’ measures as demanded by both Indian and international businesses, the PPP-BOT model has become the key component in all budgetary and extra-budgetary measures taken up by the central government.
The series of anti-labour and anti-environment laws coupled with the notorious Land Acquisition Bill facilitating corporate land grab and pro-corporate GST extending a unified pan-Indian commodity and capital market to corporate giants, all initiated by the Modi regime at a frightening speed, aimed at laying red carpet for the various PPP projects, are inexhaustible sources of wealth accumulation by crony capitalists today. In particular, in the guise of development, the PPP projects are now used as a tool by the Modi-Jaitley combine in its shameless justification of corporate land grab for which the new Land Acquisition Bill is put forward. Thus, along with the complex set of predatory speculative devices that have been developed in the sphere of stock and money markets for surplus value extraction, the PPP-BOT projects have become one of the most lucrative sources of corporate plunder by rapacious finance capital today.
As usual, the blueprint for PPP-BOT route for infrastructure development that enriches corporate monopolies has already been laid down by World Bank in its neoliberal guideline for infrastructural development. As such, every infrastructural project, whether it is port, road or bridge, should be on a PPP basis, the cost of which should be recovered by the operating party from the people through the imposition of user fees (such as toll collection in the case of roads). The government’s partnership involves the provision of land and basic amenities and the provision of a certain percentage of the estimated cost as grant and ‘viability gap fund’ in advance.
For instance, at present, in road projects, this grant component comes to around 40 percent of the ‘estimated’ cost. Though finding out the remaining part of the cost is the responsibility of the corporate partner, with the connivance of the pro-corporate regime, public sector banks and development financial institutions with immense funds at their disposal would already be put in the queue, offering large credits without any guarantee of repayment by the private partner except the usual backing of what is called mere ‘goodwill’. After completion of the project, mostly by people’s tax money and public funds and resources with which the government could have easily completed the project on its own, the private party is free to own and operate the project for the period (which can be extended further to the satisfaction of the corporate partner) as stipulated in the agreement, collecting toll or user fees from the public.
As neo-liberalism demands, the role of the government here apart from the initial funding and granting provision of amenities will be that of a mere ‘facilitator’ of the whole arrangement by ensuring the required favourable conditions including necessary police functions wherever and whenever required for the smooth operation of the project to the satisfaction of the private partner.
As the PPP-BOT schemes everywhere have become the norm of corporate development and “economic success”, the corporate-politician-bureaucrat nexus (defined as crony capitalism) has appropriately transformed into PPP-BOT lobbies in respect of every infrastructural sphere. Today, right from the conceptualization of a project and drafting of the project report, this unholy PPP lobby manipulates everything. As a result, the cost of the project is inflated several times than its real cost and there is an oligopolistic collusion (this is one of the usual methods resorted to by the Adanis and Ambanis who can easily manipulate the regime in their favour) to keep out the lowest bidders at the outset. And the public contribution or government grant for the project is also on the basis of this inflated cost. Often, this government grant, say 40 percent, may itself be sufficient to build the project. In that case, the remaining 60 percent of the money (that too from various public sources) mobilized in the name of the project can be gobbled up by the PPP lobby or cronies. Take, for instance, the case of projects pertaining to road construction which today top the list of PPP-BOT projects in India.
According to National Highways Authority estimates, the construction of one kilometre of average NH road in India needs an investment of Rs 6-7 crores. But as per the PPP-BOT project lobby’s estimate the same requires around Rs 21-23 crores. Since the government’s financial contribution is 40 percent of the latter figure, this will be sufficient for the completion of the project. Thus the 60 percent mobilized by the corporate partner from public sector banks and financial institutions with government guarantee invariably becomes a source of predatory plunder in addition to the naked loot to the tune of tens of thousands of crores of rupees worth of wealth it can accumulate even from a single project.
The fact of the matter is that even with the existing resource mobilization efforts and without imposing user charges or toll collection, the government itself can complete most of the infrastructure projects including roads, as was the case during the erstwhile Keynesian period. Hence, the user-fee/toll collection in respect of the mega road projects in India nowadays by PPP-BOT mafia is a naked loot of the people engineered by the so called ‘crony capitalism’ or corporate-politician-bureaucrat nexus. No doubt, with the firm backing of all the judicial, executive and legislature wings of the comprador state, as already said, the PPP-BOT model road projects have become a fabulous source of corporate plunder in the neoliberal period. And, as already noted, the 40-60 year toll/user fee collection from PPP roads will be a thousand times more than the original investment (actually made by the govt and not by the private party) required for them.
There is another gruesome aspect also. The long term speculative interests of the PPP/BOT lobby also lies in relation to the land that can be acquired in excess of the requirements of the concerned project. The BOT lobby who themselves are also notorious “land developers” and hence related to real estate mafia are equally interested in grabbing the land in surrounding and adjacent places by forcibly displacing people from their habitats (for instance, the first thing that the PPP in relation to the mining projects accomplish is the total displacement of adivasis from their habitats) and the marginalized sections like street vendors, petty traders and even retail merchants and all other oppressed sections from their livelihoods.
For example, the usual trend that can be seen when express highways are constructed by demolishing the existing roads is the displacement of a vast number of retail traders adjacent to old roads on the one hand, and the emergence of big malls and supermarkets by the side of PPP roads and highways owned by corporate MNCs or their junior partners or by the PPP-BOT companies themselves. No doubt, there is a direct correlation between the Modi regime’s affinity to FDI in retail on the one hand, and mushrooming PPP-BOT road projects on the other.
A most recent example of how the PPP model of corporatization can make a mockery of the entire people is the proposed PPP for the construction of the Vizhinjam Container Terminal in Kerala. Taking advantage of the degeneration of the CPI (M) that leads the parliamentary opposition in Kerala into apologists of the PPP model, the UDF regime led by Congress leader Oommen Chandy, the running dog of corporate mafia and BOT lobby, has entered into a deal with Adani who succeeded in multiplying his wealth mainly through PPP by 13 times over a span of a decade when Modi was the chief minister of Gujarat.
According to the PPP contract for developing the Vizhinjam Container Terminal Port with Adani, the total investment requirement of the project is worth Rs. 7525 crore. Out of this, the Kerala government’s contribution is Rs 4253 crore and Modi government at the centre on account of its obvious nexus with Adani shall provide Rs 818 crore as special ‘viability gap fund’. Therefore Adani’s contribution to the project is only Rs 2454 crore or 32.61 percent of the total, which, as usual, will not come from Adani’s pocket but from the hard-earned savings of Indian people deposited in public sector banks.
But as per the PPP contract entered into by Ommen Chandy with Adani who was the only bidder (!), the central and state governments which have an investment share of 68 percent will get a profit share of only 1 percent, and that too from the 20th year of the operation of the Terminal onward. That is, despite being a minority partner having to his credit only 32 percent of the investment (which invariably will be from public funds in banks and financial institutions), 100 percent of the profit from the first 20 years and 99 percent of the profit thereafter goes straight to the coffers of Adani. And in all probability, in consonance with the ruling regime’s (irrespective of whether led by erstwhile Congress or present BJP or some other ruling clique) approach to the so called “non-performing assets” of banks, Adani’s loan from banks will be written off in course of time, while the Kerala government in search of alternative funds to finance Adani will be pushed further into the debt trap.
While this PPP model with Adani is an economic tsunami for Kerala, Adani’s “success story” will continue in another form. That is, one-third of the 351.19 acres of prime land given to Adani for port construction by the government can be diverted by him for real estate business as per the PPP contract. Adani can even sub-lease the land to other small sharks for speculative purposes. Nowhere in the world can there be such stories except in the case of this new avatar called PPP !
Worse Things to Happen
Various PPP projects such as Amana’s KG-D6 gas field, one of the biggest of its kind in the world, Adani’s Port Development in Gujarat including Mudra Power Project, Gurgaon Industrial Projects, Noida Real Estate Development, Mumbai-Pune Express Highway, etc., which are under different levels of implementation in India, have already earned a notoriety of their own in view of the epic proportions of corporate plunder and cronyism involved in all of them. From the ascendancy of Modi to power and with his “Make in India” hype – which is essentially a call for foreign capital (both FDI and FII) dependent PPP model of corporatization– what emerges is the anti-national or traitorous undertone of PPP and the fact that the whole set of problems pertaining to PPPs is going from bad to worse.
Apart from the series of PPP schemes already announced by previous regimes, all the new PPP-BOT projects announced in the ‘Make in India ‘programme in various sectors such as industrial, commercial, urban infrastructure, transport and real estate development ranging from SEZs, Industrial Parks, IT Parks, Corridors, Residential and Commercial Development, Smart Cities, Townships Entertainment and Tourism, Health, Education, Rural Infrastructure, Water Supply, Sewerage, Irrigation, Waste Management, National Highways, State Roads, City Roads, Ports and Airports to even Railways, which until recently has been a departmental undertaking of the central government, will have a qualitative shift in orientation. That is, henceforth FDI or MNCs from various imperialist countries shall play the role of the ‘private partner’ in all the PPPs.
It was following Modi’s whirlwind tour of major imperialist countries such as USA, China, Japan, etc. laying red carpet for unhindered entry and exit of crisis-ridden foreign corporate capital to India that imperialist centres led by World Bank started unleashing the global propaganda characterizing India as a “bright spot” and “world’s biggest PPP market.” And to appease foreign speculators, in May 2015, Jaitley announced the appointment of the Kelkar Committee to review the PPP policy and suggest a better risk-sharing mechanism between private developers and the government as the current PPP model was not robust enough to reduce risk for the private companies to increase investment in infrastructure. He has advocated increased public spending and promised to look into ways to resolve issues hampering the so-called public-private-partnership model. And to the satisfaction of the corporate giants, the government has envisaged a public investment of around Rs 70000 crores on infrastructure during the financial year 2015-16. As is obvious, this fund shall directly flow into corporate coffers as form of government’s contribution to the PPP that is owned and operated mainly by MNCs.
To enthuse the corporate thugs further, the Modi regime has also set up a new National Investment and Infrastructure Fund with an investment of Rs.12000 crore per year to kick-start PPPs, ensuring that all the investment risks will be assumed by the state. Sweeping investor-friendly tax holidays and other exemptions are also announced in the budget for foreign PPP partners.
The PPP model is thus an essential component of neoliberal corporate loot. It does not lead to any genuine development or job-oriented production and even the industrial projects envisaged under PPP are mainly infrastructure that balloon the money-spinning businesses, real estate, land grab and plunder of natural resources. Whatever employment is generated under PPP will lead to further casualisation and informalization of the workforce. While the PPP model yields super-profits to corporate investors, it will be detrimental to common people in the form of growing deindustrialization, strengthening of disparities in inter-personal and interregional inequalities, ecological catastrophe and rapid growth of corruption, cronyism and speculation. While taking a political position on PPP on the basis of the foregoing analysis, people’s resistance against it should be built up on the basis of a concrete study and education of the masses taking into consideration the specificities of each project.