In his virtual lecture, Tamil Nadu’s Additional Chief Secretary Finance, defined Public Private Partnerships and described the challenges of this model
30 September, 2020, Bengaluru: Setting the context for his talk on Public Private Partnerships, S. Krishnan (IAS), Additional Chief Secretary, Finance, Government of Tamil Nadu, urged IIMB students to understand, fundamentally, what a PPP contract means, and what it does not. “We do not take the PPP route because we lack money. It (PPP) is not cheaper and, in the long run, you do not save money because nobody else has access to finance as cheaply as government does,” he explained in his virtual address.
So why a PPP then? “There is an efficiency factor, which the private sector brings. There is also the factor of upgradation of quality of services as you can specify result areas, performance indicators and performance standards, which means you achieve higher stakeholder satisfaction.” He further said PPPs help collect user charges as it allows government to dress it up as a private project and there is also the possibility of financing it off budget for a few years. “However, the sovereign responsibility for delivery of the services rests with the government. It is just that the agency through who we choose to deliver the service is a private player,” he emphasized.
Stating that the case which was made for PPPs some years ago is not very strong now, Krishnan explained that there are problems in raising finance, in finding private partners who can take on risks and with governments themselves of over promising and not delivering. “PPPs are not a panacea. However, we have learnt many lessons in our journey. We have learnt to adapt. We follow the bids system and we have developed a robust process of bidding – no sweetheart deals or MOUs,” he said.
The talk was organized by IIM Bangalore’s one-year fulltime Master of Management Studies (Public Policy) – the Post Graduate Programme in Public Policy & Management (PGPPM), this evening, as part of PGPPM’s event ‘Policy Speaks’, a Public Policy talk series.
“Unless there is a cost benefit and value addition, a PPP cannot be justified. On the question of transferring risk to the private sector, we realize that most of the NPAs we are saddled with today are from such a model from the past. So, we now choose models such as the hybrid annuity model,” Krishnan explained. “This is not to say that we see uniform success – we’ve had our challenges,” he said, citing instances where Tamil Nadu introduced legal elements in 2012-13 in their PPP contracts and got feedback from the private sector. “We realized that we must first prioritize the projects and then examine, on a case by case basis, which model works better – public sector or PPP.”
Pointing out that complexity of documentation can be a huge challenge unless capacity is built within the government, Krishnan shared his experience and learnings on PPPs as MD of the New Tirupur Area Development Corporation. “The need to monitor timely implementation and risks such as revenue projections are always there.”
Cautioning against ‘big idea’ moments that often lead to wanting to implement such ideas quickly with a PPP, he talked of the need to spend time on the drawing board. “We have built panels of consultants – engineering, marketing, legal, finance, etc. – to help us simplify and finetune the process of bidding and speed it up.” Referring to the water distribution system in Coimbatore, completed a year and a half ago through PPP, he said the lessons learnt there were about limits on transferring risk and enhancing revenue. “When the government does not raise water tariff, the private player cannot do it. So, you work on enhancing the number of connections, ensuring 100 per cent tariff collection, offer annuity etc. to reduce risk and protect revenue.”
Responding to a question on which areas lend themselves to the PPP model, he spoke of skill development, education, sports, and healthcare apart from infrastructure projects. On the subject of renegotiation of contracts, he agreed that it can be a complex process which at times becomes necessary to turn around projects. “However, if you put in the renegotiation clause in the contract, there is the risk of creating the moral hazard of the contractor saying issues will be dealt with as they come along!”
Discussing Centre-State fiscal relations on PPPs in the Q&A session with students, Krishnan said in the Constitutional scheme, the Centre’s ability to control the states is higher. “Looking at the Centre’s schemes closely, you will find that most of these ideas have come from states – old-age pension, payment for maternity benefit, etc. The states, when they have enough resources, respond to what popular requirements are in a certain manner. The concern is if states lose their fiscal autonomy, their ability to respond to local needs is lost significantly,” he explained.
About the speaker:
Mr Krishnan belongs to the 1989 batch of the Indian Administrative Service. At present, he holds the additional charge of M.D., New Tirupur Area Development Corporation.
He did his graduation from St. Stephen’s College, Delhi University, and Masters in Economics from Annamalai University. He has vast administrative experience spanning more than 30 years. He started his career as Sub-collector Cuddalore, T.N. Thereafter, as Deputy Secretary in the Finance department of the Govt. of Tamil Nadu, he helped prepare five state government budgets. He held the posts of M.D., Tamil Nadu Text Book Corporation, and Member Secretary, Sports Development Authority, T.N. He has served as District Collector, Virudhunagar and as Joint Secretary (Finance).
For four years, he served as a faculty member at the Lal Bahadur Shastri National Academy of Administration, Mussoorie (the academy that trains new entrants to the IAS). From 2004 to 2007, he served as Private Secretary to the Finance Minister, Government of India. From 2007 to 2010, he was Senior Advisor, Office of the Executive Director for India, Sri Lanka, Bangladesh and Bhutan, International Monetary Fund, Washington DC. Thereafter, he has also served as Commissioner of Commercial Taxes and Principal Secretary (Expenditure). He was Chairman, Fifth State Finance Commission, CEO, Tamil Nadu Infrastructure Board, and Principal Secretary, Planning, Development, Housing and Urban Development.
In his virtual lecture, Tamil Nadu’s Additional Chief Secretary Finance, defined Public Private Partnerships and described the challenges of this model
30 September, 2020, Bengaluru: Setting the context for his talk on Public Private Partnerships, S. Krishnan (IAS), Additional Chief Secretary, Finance, Government of Tamil Nadu, urged IIMB students to understand, fundamentally, what a PPP contract means, and what it does not. “We do not take the PPP route because we lack money. It (PPP) is not cheaper and, in the long run, you do not save money because nobody else has access to finance as cheaply as government does,” he explained in his virtual address.
So why a PPP then? “There is an efficiency factor, which the private sector brings. There is also the factor of upgradation of quality of services as you can specify result areas, performance indicators and performance standards, which means you achieve higher stakeholder satisfaction.” He further said PPPs help collect user charges as it allows government to dress it up as a private project and there is also the possibility of financing it off budget for a few years. “However, the sovereign responsibility for delivery of the services rests with the government. It is just that the agency through who we choose to deliver the service is a private player,” he emphasized.
Stating that the case which was made for PPPs some years ago is not very strong now, Krishnan explained that there are problems in raising finance, in finding private partners who can take on risks and with governments themselves of over promising and not delivering. “PPPs are not a panacea. However, we have learnt many lessons in our journey. We have learnt to adapt. We follow the bids system and we have developed a robust process of bidding – no sweetheart deals or MOUs,” he said.
The talk was organized by IIM Bangalore’s one-year fulltime Master of Management Studies (Public Policy) – the Post Graduate Programme in Public Policy & Management (PGPPM), this evening, as part of PGPPM’s event ‘Policy Speaks’, a Public Policy talk series.
“Unless there is a cost benefit and value addition, a PPP cannot be justified. On the question of transferring risk to the private sector, we realize that most of the NPAs we are saddled with today are from such a model from the past. So, we now choose models such as the hybrid annuity model,” Krishnan explained. “This is not to say that we see uniform success – we’ve had our challenges,” he said, citing instances where Tamil Nadu introduced legal elements in 2012-13 in their PPP contracts and got feedback from the private sector. “We realized that we must first prioritize the projects and then examine, on a case by case basis, which model works better – public sector or PPP.”
Pointing out that complexity of documentation can be a huge challenge unless capacity is built within the government, Krishnan shared his experience and learnings on PPPs as MD of the New Tirupur Area Development Corporation. “The need to monitor timely implementation and risks such as revenue projections are always there.”
Cautioning against ‘big idea’ moments that often lead to wanting to implement such ideas quickly with a PPP, he talked of the need to spend time on the drawing board. “We have built panels of consultants – engineering, marketing, legal, finance, etc. – to help us simplify and finetune the process of bidding and speed it up.” Referring to the water distribution system in Coimbatore, completed a year and a half ago through PPP, he said the lessons learnt there were about limits on transferring risk and enhancing revenue. “When the government does not raise water tariff, the private player cannot do it. So, you work on enhancing the number of connections, ensuring 100 per cent tariff collection, offer annuity etc. to reduce risk and protect revenue.”
Responding to a question on which areas lend themselves to the PPP model, he spoke of skill development, education, sports, and healthcare apart from infrastructure projects. On the subject of renegotiation of contracts, he agreed that it can be a complex process which at times becomes necessary to turn around projects. “However, if you put in the renegotiation clause in the contract, there is the risk of creating the moral hazard of the contractor saying issues will be dealt with as they come along!”
Discussing Centre-State fiscal relations on PPPs in the Q&A session with students, Krishnan said in the Constitutional scheme, the Centre’s ability to control the states is higher. “Looking at the Centre’s schemes closely, you will find that most of these ideas have come from states – old-age pension, payment for maternity benefit, etc. The states, when they have enough resources, respond to what popular requirements are in a certain manner. The concern is if states lose their fiscal autonomy, their ability to respond to local needs is lost significantly,” he explained.
About the speaker:
Mr Krishnan belongs to the 1989 batch of the Indian Administrative Service. At present, he holds the additional charge of M.D., New Tirupur Area Development Corporation.
He did his graduation from St. Stephen’s College, Delhi University, and Masters in Economics from Annamalai University. He has vast administrative experience spanning more than 30 years. He started his career as Sub-collector Cuddalore, T.N. Thereafter, as Deputy Secretary in the Finance department of the Govt. of Tamil Nadu, he helped prepare five state government budgets. He held the posts of M.D., Tamil Nadu Text Book Corporation, and Member Secretary, Sports Development Authority, T.N. He has served as District Collector, Virudhunagar and as Joint Secretary (Finance).
For four years, he served as a faculty member at the Lal Bahadur Shastri National Academy of Administration, Mussoorie (the academy that trains new entrants to the IAS). From 2004 to 2007, he served as Private Secretary to the Finance Minister, Government of India. From 2007 to 2010, he was Senior Advisor, Office of the Executive Director for India, Sri Lanka, Bangladesh and Bhutan, International Monetary Fund, Washington DC. Thereafter, he has also served as Commissioner of Commercial Taxes and Principal Secretary (Expenditure). He was Chairman, Fifth State Finance Commission, CEO, Tamil Nadu Infrastructure Board, and Principal Secretary, Planning, Development, Housing and Urban Development.