FICCI Higher Education Summit 2009

Public-Private Partnerships (PPP’s) – Yes,

but how to make it work for both Partners?

Rationale and Justification

Allocation for Higher and Technical Education during the 11th Plan has been raised from Rs 9,600 Crore in 10th Plan to Rs. 84,943 Crore in 11th Plan; Out of which Rs. 30,682 Crore is for the new initiatives

Even such a massive increase in public investment would not be sufficient to meet the needs of the stated objectives; Public funding alone may not be sufficient to meet the resource gap

Resource requirements for new initiatives may be in excess of Rs 2.52 lakh Crore; Resource gap of more than Rs. 2.22 Lakh Crore

Public Private Partnership (PPP) may be an effective instrument to meet the resource gap; PPP offers other advantages also

PPP in Education – XI Plan

XI Plan has general and specific reference to PPP in education sector - Possibilities of PPP would be explored in

o setting up new institutions; o 20 IIITs ;o 300 Polytechnics;o 2500 model schools

PUBLIC-PRIVATE-PARTNERSHIP (PPP)

Arrangement between the Govt. and private sector (not-for-profit) in which partially or traditionally public activities are performed by the private sector.

Provides an opportunity for private sector participation in

•financing•designing•construction and•operation & maintenance

of public and social sector programmes. To forge a greater interface between the public

and the private sector in a wide range of activities in the country.

PPP Concept

A contractual relationship between government and private sector for a specific purpose/project

Responsibility of providing education rests finally with the government which continues to remains accountable for service quality, price certainty and cost effectiveness

Private sector partner provides Infrastructure and service delivery and shares risk and reward associated with the project

Private sector is vested with the responsibility of ‘designing’ ‘financing’, ‘building’ and ‘operating’.

Private sector recovers its investment through user charges, third party revenue and annualised payment from government.

Private Sector (a society or a trust) could be either an individual entity or as a consortium.

Consortium of contractor, maintenance, establishment, investor and a consulting organisation is gaining popularity consortium forms a Special Purpose Vehicle which, in turn, signs PPP contract with Government.

PPP and Privatization

Key differences between public-private-partnership and ‘privatization’

Responsibility: Under privatization the responsibility for delivery and funding a particular service rests with the private sector.

PPP, on the other hand, involves full retention of responsibility by the government for providing the service.

Ownership: While ownership rights under privatization are sold to the private sector along with associated benefits and costs,

in PPP the legal ownership of assets may continue to be retained by the public sector.

Nature of Service: While nature and scope of service under privatization isdetermined by the private provider, under PPP the nature and scope of service is contractually determined between the two parties.

Risk & Reward: Under privatization all the risks inherent in the business rest with the private sector. Under PPP, risks and rewards are shared between the government (public) and the private sector.

Private sector in Education

Help alleviate financial constraints by expanding the capacity of the sector

Supplement Public expenditure on HE Promote efficiency & effectiveness Encourage variety & innovation Overcome infrastructure & technology

constraints Ensuring quality through competition,

standards, and consistent polices. Flexible curriculum to suit market needs Addressing the mismatch between

demand & supply Providing training in soft skills & ICT

Advantages of PPP

Promotes cost-effectiveness through risk sharing and efficient use of

resources leading to higher productivity and optimal risk allocation;

Enhances access to modern technology leading to better project design, implementation,

operations and management; Promotes accountability through clear customer

focus Resulting in accelerated & improved delivery of

quality public service; Promotes institutional autonomy

by reducing dependence on public funds By reducing external interference in decision-

making

PPP Possibilities and Potential

PPP in Core activities: acquisition of facilities in support of core activities (teaching, laboratory, office space etc) through ‘design, build, finance and operate’ deals, in which the private sector partner is reimbursed by a regular single charge covering elements of availability, performance and usage or demand.

PPP in Non-core activities: transfer provisioning, management and maintenance of support and facilitative infrastructure (e.g. catering, recreation, sports, staff residence, hostel, convention centre, power backups etc). Private sector is expected to recover costs through user changes and third party revenue generation.

Misconceptions about PPP

Policy Framework is prohibitive Regulatory Mechanism is a

deterrent Absence of Profit Motives is a

deterrent PPP will work only in market-

oriented courses User Charges and Cost recovery

makes higher education inaccessible

Policy Framework prohibits PPP

If this was true, then the professional, technical, management and medical education would not have been dominated by private institutions

Policy framework provides for the establishment, maintenance and management of private institutions with the only rider that education has to be regarded as not-for-profit activity.

Major concern, however, is that the existing regulatory framework has encouraged large number of small institutions, often ill-equipped and bringing bad name.

What is needed is to have a policy framework that encourages and reward enlightened quality private investment in education.

Regulatory Mechanism deters PPP:

Largely true; Regulations and approval processes are major deterrents/impediments in attracting private participation.

Lack of transparency, cumbersome procedure and inordinate delays in getting approval dissuades sincere and genuine private initiatives.

Reputed foreign universities find regulatory mechanism thwarting-

May not like to enter as a deemed university. May not even want to seek private university

status under state legislature. Even if they want to, they may be disqualified

because of the insistence that the parent body be a Society or Trust registered under Indian law.

Absence of Profit Motive deters PPP:

Educational activities in India are to be undertaken as ‘Not-for-Profit’ activities.

Private initiatives are welcome but they have to be operated and managed by a Society registered under Societies Registration Act or by a Trust or by a NFP company registered under section 25 of Companies Act.

International experience indicate that reputed higher educational institutions are organized as Not for Profit institutions.

The PPP models has to be based on the premise of education being Not for Profit activity.

PPP would work only in market oriented courses:

As PPP engagement requires steady revenue stream for effective cost recovery, it is often assumed that it will work only in institutions/ programmes offering professional and technical higher education that attracts heavy demand.

The argument is largely valid but can also be seen as a blessing in disguise, as it may, in fact, correct prevailing imbalances in the public provisioning of higher and technical education which is dominated by general courses in arts, science and commerce courses.

User charges/cost recovery make higher education

inaccessible: This is a genuine concern in the country’s

socio-economic context and the overriding objective of equity, inclusion and social justice.

The PPP initiatives will, therefore, have to be supported by cross subsidization, means scholarship, student loan programme, industry sponsorship of students and other initiatives like earn-while-learn programme.

Further, the efficiency gains and possibilities of third party revenue generation can effectively reduce the operating cost of core educational activities and these need to be factored in while negotiating PPP engagement.

Criticism of PPP in Education

Objectives and interests of state and private sector are different - Will turn out to be “business deals” between weak state and strong private sector

Will change the role of government; Will reduce public funding drastically; Will lead to shrinking of state and expansion of private

sector; Will lead to gradual loss of Public good nature of education Will cause access barrier leading to inequities Will amount to subsidisation of private sector

with no corresponding benefit to public; Why at all go for PPP-

Just create an enabling framework for the private sector to setup institution;

They are only limited evidence of robust/well-functioning PPP globally-The assumptions underlying PPP and potential benefits

are highly exaggerated

Concerns of PPP in Education Sector

Issues of access and equity Sustainability Identifying viable models in the Indian

context Which model is best suited for different

types of educational institutions? Govt. must not abdicate its

responsibility of funding higher education

Probable Models in Indian Context

Model I – Basic Infrastructure Model: Private sector invests in infrastructure while

government runs the operations and management and make annualised payments to the private investor;

Model II – Outsourcing Model: Private sector invests in infrastructure and runs the

operations and management while responsibility of the government is to pay the private investor for the specified services;

Model III – Equity/Hybrid Model: Investments in infrastructure is shared between the

government and private sector while operations and management vests with the Private sector;

Model IV – Reverse Outsourcing Model: Government invests in infrastructure and the private

sector takes the responsibility of operations and management