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Whither Governance-Public Private Partnerships in Tourism-Dec 2011

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Whither Governance-Public Private Partnerships in Tourism-Dec 2011 Whither Governance? Public Private Partnerships in Tourism1 EQUATIONS September, 2011 Introduction As tourism development has slowly shifted from the informal economy to public management, corporations have been actively lobbying the government for a larger role in the planning, implementation and evaluation of tourism activities. So far the government has consulted with private sector players and invited their representatives on planning boards and policy initiatives, through which the largest tourism companies have been able to influence government priorities. Now there is a major thrust toward formalising this relationship and legitimising it in ways that need to be probed. In light of the importance placed upon public-private partnerships (PPPs) in the management of natural resources, development planning, and social services – erstwhile responsibilities of the government – this report interrogates the significance of PPPs for the future of governance. Specifically, the report aims to shed light on the implications of PPPs for democratic community control and for the much-touted power of tourism development for the poor. Drawing upon a variety of secondary sources, this paper seeks to address the following three themes in relation to PPPs: 1. Meanings, motivations and modalities; 2. Institutional management of tourism through PPPs; 3. Transformation of governance implied at different levels; Accordingly, it charts in Section one, the key features of PPPs, their modalities and the roles of different players in order to highlight their strengths and weaknesses. Section two covers the institutional framework that has emerged in India to introduce and facilitate a greater level of private sector participation in public service delivery. This is followed, in Section three, by an exploration of tourism PPPs and state-level legislation which has accompanied them. In Section four, the report proposes areas for further investigation through empirical research aimed at an assessment of the socio-cultural, environmental and economic impact of tourism PPPs on local communities. Meanings, Motivations and Modalities Defining PPPs Broadly, PPP refers to “an arrangement between the public and private sectors with clear agreement on shared objectives for the delivery of public infrastructure and/or public services.” Research Republic LLP (2008: 13). The Department of Economic Affairs (DEA, 2008), Ministry of Finance, Government of India defines PPPs as: A partnership between a public sector entity (sponsoring authority) and a private sector entity (a legal entity in which 51% or more of equity is with the private partner/s) for the creation and/or management of infrastructure for public purpose for a specified period of time (concession period) on commercial terms and in which the private partner has been procured through a transparent and open procurement system. International agencies which have promoted PPPs use similar, functional definitions of PPPs. Public Private Partnerships are defined as: “Arrangements where the private sector supplies infrastructure assets and services that traditionally have been provided by the government.” The International Monetary Fund (IMF, 2004: 4) those that “are for services traditionally provided by the public sector, combine investment and service provision, see significant risks being borne by the private sector, and also see a major role for the public sector in either purchasing 1 services or bearing substantial risks under the project.” The World Bank (2006: 13) “Long-term, contractual partnerships between the public and private sector agencies, specifically targeted towards financing, designing, implementing, and operating infrastructure facilities and services that were traditionally provided by the public sector.” The Asian Development Bank (ADB) (2006: 15) “Agreements that transfer investment projects to the private sector that traditionally have been executed or financed by the public sector. To qualify as a PPP, the project should concern a public function, involve the general government as the principal purchaser, be financed from non-public sources and engage a corporation outside the general government as the principal operator that provides significant inputs in the design and conception of the project and bears a relevant amount of the risk.” The European Union (EU) (2010: 262) Although definitions of PPPs abound, five characteristics can be identified in common (Research Republic LLP, 2008). First, they are based upon cooperative and contractual relationships between the government and the private sector intended to draw upon the strengths of the two sectors. PPP agreements are long-term in nature, typically extending over a 15 to 30 year period. Second, PPPs can be distinguished from privatisation by the shared responsibilities between public sponsors and private providers throughout the project development and delivery, and often also in operation and maintenance. It is generally understood, however, that the government “remains ultimately responsible and accountable for the provision of high quality services that meet the public need” (Research Republic LLP, 2008: 14). Third, PPPs are a form of procurement that allows private agencies a greater role in the planning, finance, building, operation and maintenance of public infrastructure and services than traditional procurement methods. Rather than starting with the question of how the government will deliver the necessary services within its means, PPPs begin with a focus on the desired service identified by the public sector and how the private sector can play a part in its delivery. Fourth, PPPs are praised for the ability of the public sector to transfer risks associated with the project, eg. design, construction and operation, to the private sector which is perceived as better equipped to handle them, with the incentive of higher rates of return related to high standards of performance. This is seen to result in more economically efficient public projects and services. Finally, PPPs allow the public sector to decide whether or not it is more cost-effective to own and operate assets directly than to buy these from the private agency which has been contracted to build the facilities or supply equipment. With flexible ownership intrinsic to PPPs, services may be bought by the government, for itself, as an input to provide another service, or on behalf of the end user. These five basic characteristics of PPP, which constitute a long term collaboration and transfer of risk and responsibility from the public to the private sector, need to be considered in a wider context of the Indian economy’s trajectory since the formal launch of the New Economic Policies in 1991. PPP represents another notch in the Indian government’s efforts to open up the economy to the private sector and foreign direct investment, while limiting its role to the bare minimum as facilitator of growth. As the very nature of PPP has grave implications for a democratic and accountable governance system, the following section delves deeper into its associated roles and modes of functioning before turning to an examination of its strengths and weaknesses vis-à-vis community development. Roles and Modalities A PPP generally comprises a public sector agency and a private partner, which may be a private company, a consortium of private interests, or a non-governmental agency (NGO). Typically, a consortium consists of contractors, maintenance companies, private investors or financiers, and consulting firms. The roles of each are as follows (Research Republic LLP, 2008): • Public agency – (Purchaser) to specify the desired outcomes or outputs, and pay the private partner if the assets and services are delivered in accordance with the defined performance standards; 2 • Private partner – (Service Providers) usually come together as a ‘special purpose vehicle’ (SPV) to contract with the public agency and with subcontractors to design, construct, operate and maintain the facility. In order to achieve this, the SPV will need to raise the necessary capital (IMF, 2004); • Private financiers – (equity investors and debt providers) provide the initial outlay either through equity stakes in the project or through loans from fund managers and other financial institutions; • Consultants – (Project advisors) provide technical, legal or financial advice to the public agency in structuring the tender or to the private partner in composing a viable PPP proposal. In addition to these players, multilateral agencies have been playing instrumental roles in creating “effective enabling conditions for private sector participation” in public service delivery in India (ADB, 2006: 68). They have been doing this in collaboration with the Government of India (GoI) by disseminating research reports, conducting technical skills workshops and providing major funding. Early in India’s foray into PPPs, for instance, the World Bank (2006) interpreted country-level experience of PPPs and made several recommendations to improve India’s performance on the PPP front. Most of the Bank’s following recommendations have been executed by the GoI: to develop a policy rationale for PPPs; to adopt legal frameworks for the procurement, development and regulation of PPPs, especially at the state level; Information dissemination and guidance materials in terms of standard contracts and clauses to increase the confidence of bureaucrats; Dedicated PPP units at the national and state levels; and additional resources
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