ImportanceofPrivatization& Outsourcemanagement

a new way to built urban infrastructure

DepartmentofArchitecture&RegionalPlanning IndianInstituteofTechnology,Kharagpur
VikasKumarNirmal 08AR6031

ImportanceofPrivatization&OutsourceManagement

ABSTRACT: Thisdocumentisaimedattellingthemodernwaystobuilturbaninfrastructurebyprivatization and outsourcing or public works. The involvement of corporate world in urban facilities has made the amenities more efficient with many facilities like banking, education and even in physical infrastructure like road construction, telecommunication, solid waste management etc areundertakenbycorporateenterprises.Thisdoesnotonlyprovidebetterfacilitiestopublicbut also huge revenue to government. The entry of private enterprises in public works makes public amenities more efficient and hence simultaneously overcome the shortcomings of government organizations. The lack of money, manpower & equipments and basic infrastructure in government organizations draws the interest of private enterprises in public works as the private sectors tries to broaden their field of areas in order to increase their business. Outsourcing of various works like road construction, sewerage & sanitation engineering, solid waste management has given lot of freedom to government sector to invite more & more privatebusinessmanintopublicworksandgeneraterevenue.Themediaworldforadvertising& publicityalsohasawidescopeofcapitalearningwhichallowsgovernmentorganizationtohave controloverprivatesector.

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CONTENTS: 1. PRIVATIZATION
HowimportantisprivatizationinIndia?

2. NEED&OBJECTIVEOFPRIVATIZATION

3. BENEFITSFROMPRIVATIZATION
Lessinvestmentcost Efficientmanagementsystem TermBasedContracts NoOperation&MaintenanceHeadache WorkdonebyTrainedProfessionals Bureaucracy&Corruptionreduced RevenueGeneration

4. DRAWBACKSOFPRIVATIZATION
ControlinPrivateHands SocialWelfareisDisregarded WorkCoordination LowReliabilityofLongRunBenefit ReducesovereigntyofGovernmentInstitutions NeedofPSUsisconvertedtoHabit

5. BESTPRACTICESTHROUGHPRIVATISATION ComprehensiveContractofSolidWasteManagementinUlhasnagar LakeConservationbyMultipleStakeholders,Thane PPPforStreetLightingEnergyConservation,Bangalore

6. ISPRIVATISATIONTHEONLYSOLUTION

7. BIBLIOGRAPHY
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1. PRIVATIZATION Privatizationanditsvalueforthepublicworksindustryisrequiredinallfieldsfromsurveys, analysis,construction,executionetc.Thepresentscenarioofgovernmentorganizationin publicworksdepartmentshowstheinefficiencyorineffectivenesswhetherduetolackof fund,manpowerorillequippedcondition.Mostoftheseorganizationsarediseasedwith corruption&irresponsiblebehaviorofgovernmentofficials.Therecenttrendofinviting privatesectorinpublicworkshasseenquiteagoodnumberofresults.Involvementof privateorganizationinpublicworkshasincreasedefficiencyinpublicamenitieslikewater supply,solidwastemanagement,roadconstructionetc.Theseprivatesectorshavealso benefitedusingpublicsectorasastepfortheirbusinessmarketing&advertisingpolicy. Therewasatimewhenholdingagovernmentjobusedtobeconsideredsomething prestigious.Evenalinemanintelecomdepartment,earningameagersalary,usedtobe lookedupwithrespect.Thiswasthetimewhengovernmentsectorhadthemonopolyand peoplefromprivatesectorsweretotallydependentonthem. HowimportantisprivatizationinIndia? Thefirstorderissueisthatofcompetitionpolicy.Oncecompetitiveconditionsareensured, thereare,indeed,benefitsfromshiftinglabourandcapitaltomoreefficienthandsthrough privatization,butthisisasecondorderissue. Thedifficultiesofgovernmentsthatrunbusinessesarewellknown.PSUsfacelittle"market discipline".Thereisneitherafearofbankruptcy,norarethereincentivesforefficiencyand growth.Thegovernmentisunabletoobtainefficiencyinutilizinglabour.Thereisa fundamentallossofcredibilitywhenagovernmentregulatorfacesPSUsinanysector. WhenwelookatvariousindustriesinIndia,thegainsfromprivatizationarequite heterogeneoussimultaneouslytherearehopelesslylossmakingPSUs.Theseoperatein industrieswhereprivateandforeignfirmshavebeenabletocomein,andthePSUhasbeen leftfarbehindthestandardsofqualityandpricesetbytheprivatesector.ThePSUsshould ideallyhavebeensoldofflongago,buttoday,thesefirmsareirrelevantforthecompetitive dynamicsoftheindustriesthattheyoperatein.
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2. NEED&OBJECTIVEOFPRIVATIZATION: Stateandlocalgovernmentsincreasinglyarerelyingontheprivatesectorasanalternative toprovidinggoodsandservicesthattraditionallyhavebeentheirownresponsibility.Part ofthesolutiontodealingwiththeperceivedproblemsofredundancy,waste,inefficiency, andineffectivenessofanentrenchedbureaucracyhasbeentoprivatizemanyservices.Over theyearsgovernmenthastakenagreatdealontoitself. Theobjectiveistoprovidethebestpossibleinfrastructure&otheramenitiestopublicin minimumtimedistance.Themotiveisclearwithhugenumberofprivatecontractors comingintodojobinpublicworkswithefficientlabourandcapital,eventhelocalbodies arenotreluctanttoentertainthemastheirownproblemofineffectivenessisbeengetting curedwiththeintroductionoftheseprivateenterprises.Publicprivategoinghandinhand hasbeengivenimportancebecauseofgrowingpopulation,urbanization,migrationand severalotherfactors.Theauthoritiesareleftwithnochoiceastheyhaveneithersufficient manpowernorthemoneysoapproachingoutsourceconsultancyfirmstodothejobisbest whichisgrowinginfastertrendasthesecorporatefirmsalsowantstoincreasetheir horizonstobroaderperspectives. Anexampleofaservicesuccessfullygivenbacktotheprivatesectorisoneofmunicipal refuseandgarbageservices.Theexperiencewithcontractingofmunicipalrefuseand garbageserviceshasresultedincostsavingsof40%to60%whenlocalgovernmentshave selectedthisalternative.Contractinghasworkedwellwithothermunicipalservices,such aswastewaterandsewagetreatment,inwhichthecostsofcontractingthesefunctions havebeenhalfofwhattheywerewhenthemunicipalityorlocalcouncilprovidedthem. Thecostofmunicipalhospitalshasbeensignificantlyreducedbycontractingoutservices suchasambulance,maintenance,laboratoriesandfoodservices.Municipalrecreation facilitiessuchasgolfcourses,swimmingpoolsandstadiumsaredesirablepossibilitiesfor privatizationthroughcontractoperation.Althoughthefacilitiesstillremainunder municipalownership,theactualserviceprovisionisinthehandsofaprivatecontractor.
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3. BENEFITSFROMPRIVATIZATION

Lessinvestmentcost Theinvestmentfrompublicsectorreducedconsiderablyasprivatesectorcomeswith capital&labourintheirhand. Therevenueortaxcollectiondirectlycomestourbanlocalbodiesandtheypayto privateconsultancyfirmaccordingly. Privatizationhasboostedcompetition,whichhasfurtherhelpedinimprovingthe qualityofproducts,andattimes,hasreducedthecostalso.

Efficientmanagementsystem Privatizationincreasestheefficiencyinmanagementofurbanutilities. Bettermanagement,skillfulpersonnelprovidesbetterhandinengineeringservices. Betterutilities&amenitiesupgradethequalityoflifeincity. Thebetterthework,morethemoneycriteriaofprivatesectorhasproperutilization oftime&manpower.

TermBasedContracts Thisactuallygivesflexibilitytolocalauthoritytoexaminethestandardofservices providedbydifferentprivateenterprisesascompetitioncomesintoplay. Thecompetitionbetweenvariousprivatefirmsalsoreducesthecostofservices. Contracts&agreementsarealsotermbasedasexaminingorprivateorganizationis alsodonebylocalauthoritiesiftheyfeelthatitsnotworkingefficientlythenlocal bodyanytimecancancelthecontractandgivetootherorganization. Themainmotivefortermbasedcontractsistocheckmarkettrendinservicesector.

NoOperation&MaintenanceHeadache Operation&maintenancecostisbarredbythecontractorinmostofcasesasperthe agreementandlocalauthoritycanbefreefromitsheadache. Purchasingofnewequipments&applianceslikevehiclesistotallydonebycontractor withoutanyconcerntolocalauthority.

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WorkdonebyTrainedProfessionals Aswehaveseenmostofthetechniciansoptforprivateorganizationstoworkin againstgovernmentofficesbecauseofbetterpays&incentivesprovidedby corporatefieldsoinvolvementofprivatesectorbringskillfulprofessionaltoworkon jobratherthanauthoritiesemployeeswhoarejackofalltrades. Theworkpatternoftheseprofessionalisseenasthequalityofserviceimproveswith techniciansoffermodern&bettertechniquesinallsectors.

Bureaucracy&Corruptionreduced Thebureaucracyandcorruptionisreducedwhichcreatehurdlesinbetweenprocess. Thecorruptionfromhighertolowerorder,fromChiefInchargetoclerksreducesto greatextentasprivatebodydoesnotconcernswithinternalissuesprevailinginside thelocalbodiesworkpattern.

RevenueGeneration Revenuegenerationthroughseveralmethods: Advertisementsatspacessuchasbusstops,roadsidebillboards/hoardings. Shopping&eatingoutletsatbusstands,metro&railwaystations&airportsto generaterevenuewhichcanbeusedasrunning&maintenancecost.

Tollplazasonhighways&expressways. Introductionofparkingfeesatpublicplaces.

Eateries,ATMs,customshopsbesidespetrol&gaspumps.

Sellingofrecyclabletrashaftertreatmentratherthandisposinginlandfills. Central&Stategovernmentsarerelaxedfrommajorhikeinfunds&grants.
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4. DRAWBACKSOFPRIVATIZATION

ControlinPrivateHands Allcontrolinprivatehandsactuallydoesnthaveanytransparencytowardspublic. Thistypeofmanagementsystemispronetobecomecapitalisticandprofitdriven policywhichwillberunbycorporateandprivateconsultancies.

SocialWelfareisDisregarded Socialwelfarewhichistheprimeagendainprovidingurbanamenitiesisthe secondarypriorityofoutsourceconsultancyagainstmainfocustoprofitgeneration. Ethicalvaluesandsocialresponsibilitytowardspeopleisneglected.

WorkCoordination Coordinationbetweenvariousoutsourceconsultanciesassignedseparateworks createchaosinpublicplacesbyactivitiessuchasearthdigging,constructionetc. Eventhehandlingissuescomeinpicturewithdifferentworksassignedtodifferent organizationthereisariskofpropermanagement&finance

LowReliabilityofLongRunBenefit Thepublicworksarecarriedoutforlongrun&sustainabledevelopmentLongtime benefitsshouldalsohavehighreliabilityonoptimumstandardsofservices. Theunwillingnessofgovernmentorganizationstoexaminetheprivatesectorservice risktheexecutionofworksaspernormsandconditionsdiscussedinthecontract.

ReducesovereigntyofGovernmentInstitutions ThegovernmentinstitutionsorPSUslosetheircredibilityastheprivatecontractor directlyworksforpublicwelfarethattooatcheaprate&quicktime.Takinganycase suchascaseofbanking,airlines,publicworks,health&education,privatesectorshave leftPSUsfarbehindinprocessofexecutionofstrategies.

NeedofPSUsisconvertedtoHabit Theneedofthehourisgettingconvertedtohabitasinallfieldstheygoforoutsourcing irrespectiveofattainingachievingefficiencywithnewtechniques,policies&strategies.

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5. BESTPRACTICESTHROUGHPRIVATISATION

I. COMPREHENSIVECONTRACTOFSOLIDWASTEMANAGEMENTINULHASNAGAR Theinitiative UlhasnagarMunicipalCorporationhasgivenoutacomprehensivesolidwastemanagement contractforcollectionofwasteatsource,transportation,secondarystorageandspreading itonlandfillsite. Features Entireinvestmentinprovidingcommunitybins,transportequipment,equipmentfor levelingofwasteonthelandfillsite,manpoweretcisthatofthecontractor. TheO&Mofexistinginfrastructureatlandfillsitei.e.,roads,lighting,watersupply,sanitary facilityetc.andtheoperationofvehicles&levelingofwasteisresponsibilityofcontractor. Asixmonthperiodwasallowedforplanningofoperations;procurementofvehicles, equipmentsoraccessoriesandtheircommissioning. Theworkiscarriedoutintwoshiftsandathirdshiftisallowedinexceptionalcases.

Results TheMunicipalCorporationcouldachievecleanlinesswithoutinvestinginthecapitalcost. Involvementofprivateoperatorhashelpedinsolvingtheproblemoflackofsufficient MunicipalstaffandlackofresourcestoemploynewstaffforSWMactivities. Thecapitalinvestmentandthedeploymentofstaffforoperationandmaintenancewas completelybornebythecontractor. Ulhasnagarisoneofthefewcitiesthathavemadeprovisionstosegregatethewasteatcity levelinacomprehensivemannerfromdoortodoorcollectiontolandfillsite.

II. LAKECONSERVATIONBYMULTIPLESTAKEHOLDERS,THANE TheInitiative TheThaneMunicipalCorporation(TMC)commissionedauniqueproject,Lake ConservationandManagementProgramwiththeaimofRedevelopmentoflakesby remediation,controlofpollutionandbeautification.Constituentsofprojectsare

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tosewerageingress,indiscriminatedumpingofsolidwasteandeffluents,andidol immersion. Features: PartnerslikeThaneMunicipalCorporation,GOIthroughMOEF:Partialfunding(variesfor differentlakes),stategovernmentthroughtheMMRDA:Financialassistance,NGOs,MLAs, MPsandcitizens:Awarenessgeneration,monitoringcommittee. PrivatepartneronBOTbasis:maintenanceoflakes.Useoflakesforrecreationalpurposes. Operationandmaintenanceservicesarebornebyprivateproviderandrevenuesareearned fromrecreationalactivities. Restorationoflakes,Costreduction,Disseminationofthelatesttechnologicaltrends. RoleofBOTcontractors: ThefinancialallocationforthelakeconservationprojectwasRs.13lakhsperha.Outofthis, onlyRs.6.5lakhsperhahavebeenutilized.Theremainingfundshavebeenusedfor servicingmorelakesandalsotocarryoutbeautificationprojectsfortheexisting36lakes. AstheBOTcontractorshavetakenuptheentirecapitalinvestmentandO&M,theysharea largepartoftheriskwiththecorporation.Thecontractorsplantheactivitiesaroundthe lakeswithapprovalfromTMC.AccordingtoTMC,themainreasonforinvolvingtheprivate contractorswasnotjustcostsaving,butbettermaintenanceofthesepublicplaces. Outcome 10lakesselected;fourlakesremedied.Maintenancejobleasedoutfor25years. Restorationoflakesthroughbioremedialsystem. Creatingenvironmentawarenessinthesociety. Disseminationofthelatesttechnologicaltrendtothelocaleducationalinstitutes. Costreductioninlakemaintenanceandbeautification.

III. PPPFORSTREETLIGHTINGENERGYCONSERVATION,BANGALORE ProjectIntroduction Reengineerortransformthetechnicalmanagementofstreetlightinginfrastructurefor efficiency,improvementandenergyconservationusingstateoftheartenergysaving

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equipment.ElproEnergyexecutedthePPPprojectwiththeBangaloreDevelopment Authorityforenergyefficiencyinthestreetlightingsystem. Features: Encourageprivateparticipationinthestatesinfrastructuredevelopmentactivities. Reducetheoperational&maintenancecostsofthestreetlightingsystemof63kmlong OuterandInnerRingRoadaroundBangalore,whichcurrentlyhasatotalloadof1.1MW.

Outcome TheprojectatORRIRRforBDABangalorehasgeneratedenergysavingstothetuneof 4045%monthlyandthushassatisfiedthemainobjectiveoftheprojecti.eenergysavings. Theannualmaintenancebillofthestreetlightsthemselveshasreducedfromapproximately Rs.60Lakhsintheyear200405toRs.29Lakhsintheyear200506. BenefitstoBDA HugeEnergysavingsannually. ExcellentCentralOperationandmaintenanceofStreetLights. Centralizedmonitoringofallstreetlights. LessLabourcosts. LessCapitalExpenditureonlampsandfittings. LessContractChargesandbetterContractorsmonitoring. Improvedpublicimageasacostconsciousandefficientpublicserviceprovider.

Conclusion: PPPwasconsideredaneffectivepolicysolutiontohelpBDAtoimplementtheenergy efficiencyupgradesrequiredforthestreetlightinginfrastructureoftheORR.Itwaswidely agreedthatdevelopmentofMunicipalenergyinfrastructurecannotbeachievedbased solelyonpublicfinancingandthatPPPisexpectedtoplayacrucialroleandmakesignificant contribution.Withoptimalrolesharingbetweenpublicandprivatesectors,PPPcanbe appliedtomanydevelopingtownsandcities.BDAisestimatedtosaveRs.7.2croresinthe next10yearsoftheprojectlife.

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6. ISPRIVATISATIONTHEONLYSOLUTION No,privatizationisnottheanswer.Whatworksiseffectivepublicprivatepartnership, wheretheprivateplayersbuildandrunthesystemsandthepublicsectorremainsin controlofpricing.Watertreatmentsystems,seweragetreatmentplants,solidwaste disposalsystemcannotexistwithoutsubsidiesandgrants.Subsidiesneedtobegiven initiallytoallowcountriestosecureproperphysicalinfrastructureandbetterhealth facilities.Atthisstage,duetogrowingurbanizationtrendthedailyoperationofallamenity systemisessentialforsmoothrunningorutilities&services.

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7. BIBLIOGRAPHY Books: ITPIReadersvolumeDevelopment&Management

Author:ProfessorN.S.Saini Websites: www.bmrda.kar.nic.in www.niua.org www.wikipedia.com www.google.com

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