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8/12/2019 Dmf Privatisation Vikas
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Importance of Privatization & Outsource management
a new way to built urban infrastructure
Department of Architecture & Regional Planning Indian Institute of Technology, Kharagpur
Vikas Kumar Nirmal
08AR6031
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Importance of Privatization & Outsource Management
Development, Management & Finance
ABSTRACT:
This document is aimed at telling the modern ways to built urban infrastructure by privatization
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
are undertaken by corporate enterprises. This does not only provide better facilities to public but
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
private businessman into public works and generate revenue. The media world for advertising &
publicity also has a wide scope of capital earning which allows government organization to have
control over private sector.
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Importance of Privatization or Outsource Management
Development, Management & Finance Page 0
CONTENTS:
1. PRIVATIZATION
• How important is privatization in India?
2. NEED & OBJECTIVE OF PRIVATIZATION
3. BENEFITS FROM PRIVATIZATION
• Less investment cost
• Efficient management system
• Term Based Contracts
• No Operation & Maintenance Headache • Work done by Trained Professionals
• Bureaucracy & Corruption reduced
• Revenue Generation
4. DRAWBACKS OF PRIVATIZATION
• Control in Private Hands
• Social Welfare is Disregarded
• Work Coordination • Low Reliability of Long Run Benefit
• Reduce sovereignty of Government Institutions
• Need of PSUs is converted to Habit
5. BEST PRACTICES THROUGH PRIVATISATION
• Comprehensive Contract of Solid Waste Management in Ulhasnagar
• Lake Conservation by Multiple Stakeholders, Thane
• PPP for Street Lighting Energy Conservation, Bangalore
6. IS PRIVATISATION THE ONLY SOLUTION
7. BIBLIOGRAPHY
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Development, Management & Finance Page 1
1. PRIVATIZATION
Privatization and its value for the public works industry is required in all fields from surveys,
analysis, construction, execution etc. The present scenario of government organization in
public works department shows the inefficiency or ineffectiveness whether due to lack of fund, manpower or ill equipped condition. Most of these organizations are diseased with
corruption & irresponsible behavior of government officials. The recent trend of inviting
private sector in public works has seen quite a good number of results. Involvement of
private organization in public works has increased efficiency in public amenities like water
supply, solid waste management, road construction etc. These private sectors have also
benefited using public sector as a step for their business marketing & advertising policy.
There was a time when holding a government job used to be considered something
prestigious. Even a lineman in telecom department, earning a meager salary, used to be
looked up with respect. This was the time when government sector had the monopoly and
people from private sectors were totally dependent on them.
How important is privatization in India?
The first order issue is that of competition policy. Once competitive conditions are ensured,
there are, indeed, benefits from shifting labour and capital to more efficient hands through
privatization, but this is a second order issue.
The difficulties of governments that run businesses are well ‐known. PSUs face little "market
discipline". There is neither a fear of bankruptcy, nor are there incentives for efficiency and
growth. The government is unable to obtain efficiency in utilizing labour. There is a
fundamental loss of credibility when a government regulator faces PSUs in any sector.
When we look at various industries in India, the gains from privatization are quite
heterogeneous simultaneously there are hopelessly loss ‐making PSUs. These operate in
industries where private and foreign firms have been able to come in, and the PSU has been
left far behind the standards of quality and price set by the private sector. The PSUs should
ideally have been sold off long ago, but today, these firms are irrelevant for the competitive
dynamics of the industries that they operate in.
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2. NEED & OBJECTIVE OF PRIVATIZATION:
State and local governments increasingly are relying on the private sector as an alternative
to providing goods and services that traditionally have been their own responsibility. Part
of the solution to dealing with the perceived problems of redundancy, waste, inefficiency,
and ineffectiveness of an entrenched bureaucracy has been to privatize many services. Over
the years government has taken a great deal onto itself.
The objective is to provide the best possible infrastructure & other amenities to public in
minimum time distance. The motive is clear with huge number of private contractors
coming in to do job in public works with efficient labour and capital, even the local bodies
are not reluctant to entertain them as their own problem of ineffectiveness is been getting cured with the introduction of these private enterprises. Public ‐private going hand in hand
has been given importance because of growing population, urbanization, migration and
several other factors. The authorities are left with no choice as they have neither sufficient
manpower nor the money so approaching outsource consultancy firms to do the job is best
which is growing in faster trend as these corporate firms also wants to increase their
horizons to broader perspectives.
An example of a service successfully given back to the private sector is one of municipal
refuse and garbage services. The experience with contracting of municipal refuse and
garbage services has resulted in cost savings of 40% to 60% when local governments have
selected this alternative. Contracting has worked well with other municipal services, such
as wastewater and sewage treatment, in which the costs of contracting these functions
have been half of what they were when the municipality or local council provided them.
The cost of municipal hospitals has been significantly reduced by contracting out services
such as ambulance, maintenance, laboratories and food services. Municipal recreation
facilities such as golf courses, swimming pools and stadiums are desirable possibilities for
privatization through contract operation. Although the facilities still remain under
municipal ownership, the actual service provision is in the hands of a private contractor.
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3. BENEFITS FROM PRIVATIZATION
Less investment cost
• The investment from public sector reduced considerably as private sector comes with
capital & labour in their hand. • The revenue or tax collection directly comes to urban local bodies and they pay to
private consultancy firm accordingly.
• Privatization has boosted competition, which has further helped in improving the
quality of products, and at times, has reduced the cost also.
Efficient management system
• Privatization increases the efficiency in management of urban utilities.
• Better management, skillful personnel provides better hand in engineering services.
• Better utilities & amenities upgrade the quality of life in city.
• The better the work, more the money criteria of private sector has proper utilization
of time & manpower.
Term Based Contracts
• This actually gives flexibility to local authority to examine the standard of services
provided by different private enterprises as competition comes into play.
• The competition between various private firms also reduces the cost of services.
• Contracts & agreements are also term based as examining or private organization is
also done by local authorities if they feel that it’s not working efficiently then local
body anytime can cancel the contract and give to other organization.
• The main motive for term based contracts is to check market trend in service sector.
No Operation & Maintenance Headache • Operation & maintenance cost is barred by the contractor in most of cases as per the
agreement and local authority can be free from its headache.
• Purchasing of new equipments & appliances like vehicles is totally done by contractor
without any concern to local authority.
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Work done by Trained Professionals
• As we have seen most of the technicians opt for private organizations to work in
against government offices because of better pays & incentives provided by
corporate field so involvement of private sector bring skillful professional to work on
job rather than authorities employees who are jack of all trades.
• The work pattern of these professional is seen as the quality of service improves with
technicians offer modern & better techniques in all sectors.
Bureaucracy & Corruption reduced
• The bureaucracy and corruption is reduced which create hurdles in between process.
• The corruption from higher to lower order, from Chief In‐charge to clerks reduces to
great extent as private body does not concerns with internal issues prevailing inside
the local bodies work pattern.
Revenue Generation
Revenue generation through several methods:
• Advertisements at spaces such as bus stops, road side billboards/ hoardings.
• Shopping & eating outlets at bus stands, metro & railway stations & airports to
generate revenue which can be used as running & maintenance cost.
• Eateries, ATMs, custom shops besides petrol & gas pumps.
• Toll plazas on highways & expressways.
• Introduction of parking fees at public places.
• Selling of recyclable trash after treatment rather than disposing in landfills.
• Central & State governments are relaxed from major hike in funds & grants.
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4. DRAWBACKS OF PRIVATIZATION
Control in Private Hands
• All control in private hands actually doesn’t have any transparency towards public.
• This type of management system is prone to become capitalistic and profit ‐driven
policy which will be run by corporate and private consultancies.
Social Welfare is Disregarded
• Social welfare which is the prime agenda in providing urban amenities is the
secondary priority of outsource consultancy against main focus to profit generation.
• Ethical values and social responsibility towards people is neglected.
Work Coordination • Coordination between various outsource consultancies assigned separate works
create chaos in public places by activities such as earth digging, construction etc.
• Even the handling issues come in picture with different works assigned to different
organization there is a risk of proper management & finance
Low Reliability of Long Run Benefit
• The public works are carried out for long run & sustainable development Long time
benefits should also have high reliability on optimum standards of services.
• The unwillingness of government organizations to examine the private sector service
risk the execution of works as per norms and conditions discussed in the contract.
Reduce sovereignty of Government Institutions
The government institutions or PSUs lose their credibility as the private contractor
directly works for public welfare that too at cheap rate & quick time. Taking any case
such as case of banking, airlines, public works, health & education, private sectors have left PSUs far behind in process of execution of strategies.
Need of PSUs is converted to Habit
The need of the hour is getting converted to habit as in all fields they go for outsourcing
irrespective of attaining achieving efficiency with new techniques, policies & strategies.
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5. BEST PRACTICES THROUGH PRIVATISATION
I. COMPREHENSIVE” CONTRACT OF SOLID WASTE MANAGEMENT IN ULHASNAGAR
The initiative
Ulhasnagar Municipal Corporation has given out a comprehensive solid waste management contract for collection of waste at source, transportation, secondary storage and spreading
it on landfill site.
Features
• Entire investment in providing community bins, transport equipment, equipment for
leveling of waste on the landfill site, manpower etc is that of the contractor.
• The O & M of existing infrastructure at landfill site i.e., roads, lighting, water supply, sanitary
facility etc. and the operation of vehicles & leveling of waste is responsibility of contractor.
• A six‐month period was allowed for planning of operations; procurement of vehicles,
equipments or accessories and their commissioning.
• The work is carried out in two shifts and a third shift is allowed in exceptional cases.
Results
• The Municipal Corporation could achieve cleanliness without investing in the capital cost.
• Involvement of private operator has helped in solving the problem of lack of sufficient
Municipal staff and lack of resources to employ new staff for SWM activities.
• The capital investment and the deployment of staff for operation and maintenance was
completely borne by the contractor.
• Ulhasnagar is one of the few cities that have made provisions to segregate the waste at city
level in a comprehensive manner from door ‐to ‐door collection to landfill site.
II.
LAKE CONSERVATION
BY
MULTIPLE
STAKEHOLDERS,
THANE
The Initiative
The Thane Municipal Corporation (TMC) commissioned a unique project, ‘Lake
Conservation and Management Program ’ with the aim of Re‐development of lakes by
remediation, control of pollution and beautification. Constituents of projects are
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to sewerage ingress, indiscriminate dumping of solid waste and effluents, and idol
immersion.
Features:
• Partners like Thane Municipal Corporation, GOI through MOEF: Partial funding (varies for
different lakes), state government through the MMRDA: Financial assistance, NGOs, MLAs,
MPs and citizens: Awareness generation, monitoring committee.
• Private partner on BOT basis: maintenance of lakes. Use of lakes for recreational purposes.
Operation and maintenance services are borne by private provider and revenues are earned
from recreational activities.
• Restoration of lakes , Cost reduction, Dissemination of the latest technological trends.
Role of BOT contractors :
The financial allocation for the lake conservation project was Rs. 13 lakhs per ha. Out of this,
only Rs. 6.5 lakhs per ha have been utilized. The remaining funds have been used for
servicing more lakes and also to carry out beautification projects for the existing 36 lakes.
As the BOT contractors have taken up the entire capital investment and O&M, they share a
large part of the risk with the corporation. The contractors plan the activities around the
lakes with approval from TMC. According to TMC, the main reason for involving the private
contractors was not just cost saving, but better maintenance of these public places.
Outcome
• 10 lakes selected; four lakes remedied. Maintenance job leased out for 25 years.
• Restoration of lakes through bio ‐remedial system.
• Creating environment awareness in the society.
• Dissemination of the latest technological trend to the local educational institutes.
• Cost
reduction
in
lake
maintenance
and
beautification.
III. PPP FOR STREET LIGHTING ENERGY CONSERVATION, BANGALORE
Project Introduction
Re‐engineer or transform the technical management of street lighting infrastructure for
efficiency, improvement and energy conservation using state ‐ of ‐the ‐ art energy saving
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equipment. Elpro Energy executed the PPP project with the Bangalore Development
Authority for energy efficiency in the street lighting system.
Features:
• Encourage private participation in the state’s infrastructure development activities.
• Reduce the operational & maintenance costs of the street lighting system of 63 km long
Outer and Inner Ring Road around Bangalore, which currently has a total load of 1.1 MW.
Outcome
The project at ORR‐IRR for BDA Bangalore has generated energy savings to the tune of
40 ‐45% monthly and thus has satisfied the main objective of the project i.e energy savings.
The annual maintenance bill of the street lights themselves has reduced from approximately
Rs.60 Lakhs in the year 2004 ‐05 to Rs.29 Lakhs in the year 2005 ‐06.
Benefits to BDA
• Huge Energy savings annually.
• Excellent Central Operation and maintenance of Street Lights.
• Centralized monitoring of all streetlights.
• Less Labour costs.
• Less
Capital
Expenditure
on
lamps
and
fittings.
• Less Contract Charges and better Contractors’ monitoring.
• Improved public image as a cost conscious and efficient public service provider.
Conclusion :
PPP was considered an effective policy solution to help BDA to implement the energy
efficiency upgrades required for the street lighting infrastructure of the ORR. It was widely
agreed that development of Municipal energy infrastructure cannot be achieved based
solely on public financing and that PPP is expected to play a crucial role and make significant
contribution. With optimal role sharing between public and private sectors, PPP can be
applied to many developing towns and cities. BDA is estimated to save Rs.7.2 crores in the
next 10 years of the project life.
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6. IS PRIVATISATION THE ONLY SOLUTION
No, privatization is not the answer. What works is effective public ‐private partnership,
where the private players build and run the systems and the public sector remains in control of pricing. Water treatment systems, sewerage treatment plants, solid waste
disposal system cannot exist without subsidies and grants. Subsidies need to be given
initially to allow countries to secure proper physical infrastructure and better health
facilities. At this stage, due to growing urbanization trend the daily operation of all amenity
system is essential for smooth running or utilities & services.
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7. BIBLIOGRAPHY
Books:
• ITPI Readers volume ‐ Development & Management
Author: Professor N.S.Saini
Websites:
• www.bmrda.kar.nic.in
• www.niua.org
• www. wikipedia.com • www. google.com