PPPs: Public Law Matters, Doesn’t It?

[The following post is contributed by Santanu Sabhapandit, who is pursuing
his doctoral studies at Monash University, Melbourne, Australia]
need for better infrastructure in India cannot be overemphasised. Availability
of necessary funds, innovative skills and efficient implementation of projects
are some of the key requirements if any of the targets for creating
infrastructure facilities are to be achieved. The government’s emphasis on
ensuring private sector participation is hence understandable. And Public
Private Partnerships (PPPs) are being considered as one of the preferred modes
of private sector participation in infrastructure.
the advent of PPPs in India is not well documented, PPPs for provision of
infrastructure facilities was first mentioned in the budgetary speech of
finance minister in 2002, under various measures undertaken for supplementing
public finance in the infrastructure sector. Since then the concept has
steadily gained prominence. PPPs in India may be safely assumed as an extension
of the overall policy focus since the 1991 reforms, on garnering economic
efficiency through private sector participation. The conceptual underpinnings
of PPPs lie in economic theories that stress the relative superiority of the
private sector over public sector in efficiency. However, unlike privatization
modes such as divestments or contracting out, PPPs have continued government
involvement in implementation of projects. This is not only apparent from the
very nomenclature that it is a ‘partnership’, but is perhaps also warranted by
the fact that the infrastructure sector deals with facilities that are in the
nature of public goods. The government involvement is not only in a supervisory
capacity, but also through provision of public sector resources such as land,
and in some cases direct or indirect finance. Where infrastructure facilities
involve user charges, there is, arguably, further involvement of the public
sector and citizens. Despite the articulate economic arguments that favour
private sector participation, and contingencies that call for easing up of the
regulatory framework to encourage private sector participation, public sector
concerns, and in turn public law concerns, are not avoidable and perhaps should
not be overshadowed by economics alone.    
Committee Report
of November 2015 (hereinafter referred to as the “Committee”
and “Report”) has emphasised that the government must move the PPP model to the
next level of maturity and sophistication. While the primary focus of the
Report is on the removal of various obstacles faced by private participants of
PPP projects, there are recommendations that pertain to regulatory sphere. Some
of them are:
1) Requirement for change in attitude
and mind-set of all authorities dealing with PPPs, including public agencies
partnering with the private sector, government departments supervising PPPs,
and auditing and legislative institutions. The Committee emphasises the need to
focus on the relationship rather than the transaction, and on building in an
approach of “give and take” between private and public sector partners;
2) In view of the concerns raised by all
stakeholders (government and private sector alike) on demand for developer
books of account being subject to government audit, access under right to
information and Article 12 of the Constitution, the Committee has recommended
that the government should notify comprehensive guidelines on the applicability
and scope of such activities. The Committee goes a step further to recommend
that the process, to be laid down by the government, would enable review only
of government internal systems, and not that of special purpose vehicles (SPVs).
SPVs would need to follow best practices in corporate governance systems
including provisions of the Companies Act, 2013.
Committee is of the view that conventional audit by authority of private
partner’s books per standard procurement process risks delivery of poor quality
of service and public assets. It is not known if these views are based on
concerns expressed by a limited group of stakeholders alone. However, from a
regulatory perspective, the Committee’s recommendation for a “give and take”
approach between private and public sector partners seem to suffer from a
paradox. While the Committee seems content with SPVs complying with provisions
of the Companies Act, 2013 (which they are ordinarily bound to comply), it is
not apparent if the possibility of preserving some of the underlying public law
principles that warrant provisions like public audit, right to information or
judicial review in democratic societies, were considered before insisting on their
waiver. While the time period since its introduction, as well as the number of
projects implemented, may be valid sources of confidence in dealing with PPPs,
it is important to note that the judiciary is yet to give its verdict (in some
of the pending matters) on the legal status of PPPs. Also, unlike some of the
developed countries, India does not have a long history of dealing with legal
issues involved with contracting out public services or PPPs. Waiving judicial
review, right to information or public audit may appear to provide ease of
operation for the private sector. However, such a waiver may have major long
term implications for public law principles. It may be prudent to have further policy
deliberations before letting immediate economic concerns prevent a nuanced
evaluation of public law principles in the context of PPPs.

Santanu Sabhapandit

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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