PPP failures termed as failure of Privatisation - Is the narrative right ?

Privatization / PPPs in Utilities is mostly commented upon through ideological lenses, the outcome of which is often in the binary – Either it is sold as a panacea or demeaned as a complete disaster. The embedded video in this article somehow attempts to strike a balance between the two narratives, even though the headline screams “Failure of UK Railroad privatization”. The headline makes a similar mistake of substituting form with the structure. It’s not the privatization that fails or succeeds; it is the structure of the public-private partnership that fails or succeed.

Come out of the ideological lens and you would find that it is not private participation per-se, but the structuring between the Government and the entity that would determine the success and failure of the initiative. It follows that it would be grossly wrong to attribute the success and failure of the measure to “privatisation” as a concept. Even the Video embedded in this article (The UK's failed experiment in Rail Privatisation https://youtu.be/DlTq8DbRs4k) somehow is a little sparing on the concession arrangements rather than that of licensing. However, both concession and licensing are PPPs, and therefore, there is no reason why it is the privatization as a measure that has failed in this case.?

In fact, if at all there is a diabolical necessity to ascribe the success and failure on some head, it would but be fair to ascribe it on the public side of the PPP. Afterall, the public side was the one that conceptualized, created, and implemented an arrangement that failed. No doubt, the private implementing partner was also a partner in the crime of failure, but then, it was the “Public Side” that was the principal right from the word go.

The structuring of the PPP must depend on the complexity of the ecosystem in which the monopoly operates. There is a golden rule however that can be followed. Making complicated PPP structures in high complexity systems is a sure shot recipe for failure. The level of complexity in structuring the arrangement can however be higher in areas having relatively simpler systems. Therefore, “keeping it simple, especially in complex domains’ is a good rule to follow.?

The question now comes to – What exactly is complex? Here again there could be golden rules. If you could model the ecosystem as inter-twining positive reinforcement wicked problem loops that closely interact with each other, the system is complex. For example, if two different service levels desired have connections between their performance loops, the system is a complex system. For example, safety of train operations, traffic projections, service levels, and tariffs that can be charged from consumers are four different parameters which have their own input-output loops, but they have clear interconnections and inter-dependencies between them and also with external environments. The complexity increases with the number of such interacting loops as well as with the increasing non-linearity of the intra and inter loop connections. If these parameters are either a bid parameter, or are well-defined SLAs in the structuring, we can be sure of either of these problems on hand – either the private sector will default and exit; or it would have a windfall (in which case, it may have to exit again due to public uproar) – the bottom-line is failure. The way out could be a structuring of a contract that steers clear of several of such inter-twined parameters, especially the ones that are tied up in positive reinforcement loops.

One thing is sure - any attempt to constrain the operation of such a complex ecosystem through multiple scaffoldings would simply not work. In fact, the more such scaffoldings are placed, the more unintended consequences would be observed. Come to think of it; if a single butterfly flapping her wings in South America can cause a tornado in Texas, imagine the consequences in Texas, if multiple butterflies across Europe, Asia and Australia start flapping their wings together.?

Demanding certainty in an inherent uncertain environment is yet another mistake in structuring PPP arrangements. For example, you cannot fix the traffic projections of the future. No modelling Alchemist or traffic fortune teller can tell you what the future traffic would be like 25 years down the line. The reason is simple – traffic outcomes have several thousands of underpinnings, one of which is also whether much of the humanity will be able to survive the consequences of a real bad pandemic – its that diverse and uncertain. Any attempt to modelling traffic projections at best pure and simple quackery. Carrying out simulation and sensitivity tests is only a part of the solution. The real solution lies in living with the fact that traffic variations will definitely happen, and provide win-win mitigative actions in the RFP for post contractual treatment of such a situation.

We make mistakes in very obvious things every single day. We mistake stock with flow, and form with structure. In domains that are inherently monopolies that affect almost everyone or have been generally serviced by public sector in the past, one must exhibit care. Utilities are not like normal businesses, where entities can come, conquer, and then perish. They don’t need an efficiency precipice; they need stability of effectiveness and resilience.?

Let’s not make mistakes here. Let’s not believe that privatization is a failure; at the same time, let’s not believe that privatization is a panacea. Let’s agree to believe that to succeed in the private utility domain, we will have to be very diligent in defining that exact place on the public-private spectrum where we would be able to balance and stabilize the private efficiency with public benefits.?

Do watch - The UK's failed experiment in Rail Privatisation https://youtu.be/DlTq8DbRs4k