3.16 Although some states have developed policies that advocate the use of PPPs, the underlying policy rationale is by and large one of using PPPs to substitute for capital investments by the state. PPPs have therefore been used more in situations where substantial capital investments are required, and where user fees can be accessed to defray much of the costs. To the extent that it is possible, user fees should be used to pay for projects. However, purely seeing PPPs as a substitute for public investment has drawbacks. It can be illusory, since many of these PPPs will have fiscal costs, as noted above. It can also lead to inconsistent signals to private developers, as arises when governments have reduced or scaled back PPP programs when additional funding - for example provided by multilateral agencies - has become available for public investments.
3.17 In some cases, PPPs are overseen by regulatory agencies, such as in the ports sector, where TAMP, the sector regulator sets tariffs for port services for the major ports. In most cases however, the PPPs are regulated through the contract between the government agency and the service provider. Here the need will not be for a regulatory authority with substantial discretion, but rather for an efficient method for settling the disputes between the contracting parties that are likely to arise in even well-designed contracts. Monitoring by consumer and stakeholder groups of the performance of PPPs has been tested in India and is one way of supplementing the capacities of the government to oversee contractor performance.
3.18 There have been some efforts by state governments and central agencies to develop standard contracts. At the state level, as highlighted in the Table 2 above and in greater detail in the Institutional Framework table in the Annex, Gujarat and AP have developed cross-sectoral model contracts and Punjab as well to a more limited extent. Madhya Pradesh has developed some standard documents in the road sector. At the central level, NHAI has developed model contracts and standard documents for the road sector.
3.19 There have not been systematic attempts to develop and use methodologies to evaluate whether particular projects are best done through a PPP route or through traditional public procurement. Tools such as Public Sector Comparators (PSCs) have not been used very widely in India so far, even on a simplified basis. The lack of an adequate baseline on the actual costs of delivery by the public sector admittedly makes such comparisons more difficult, but undertaking these comparisons would help ensure that the PPP route is best for the priority project. Moreover, anecdotal evidence from other countries suggests that PSCs are useful in clarifying approaches to risk allocation, and the expected benefits of this, in the contracting agencies.