Getting water from public private partnerships

The paper explores contractual types of public private partnerships that would deliver maximum value in the Indian context. Under incomplete contracts social institutions, tailored to the specific context, can contribute to effective governance. We first draw out some implications of contract theory, then examine recent international experience with PPP in water supply, and finally draw upon all these to illustrate how services from public utilities, specifically from Mumbai's water supply, can be improved, with cost saving through the reduction of waste. While assets should continue to be in public hands, well-designed service contracts would improve coverage, consumer orientation and low level accountability which is missing in public provision; reduce wastage; encourage competition and entrepreneurship; achieve financial viability; and develop a thick network of low-risk credit-customers for banks and financial institutions. They would, however, require support from price reform, independent regulators, and user groups. Citizen groups can use voting power to motivate politicians to shift from direct subsidies and hidden costs to the delivery of quality services. Some specific issues in water supply reform are that the easy availability of quantity rationing in public water supply perpetuates low quality and distorted prices, and heavy use of non-transparent taxes and fixed charges lowers efficiency and welfare. It follows that re-balancing between fixed and volume charges would contribute to welfare and improve quality.