Redevelopment of Asia’s Slum

Introduction

 The Dharavi Redevelopment Plan (DRP) was presented as a partnership between the public sector and private developers to devise a plan to transform the slum into a coveted resident and commercial area (Iyer et al., 2011, p. 6). The aim of the proposal was to split the Dharavi slum into five sectors that would be redeveloped by winners of the contract bid (Iyer et al., 2011, p. 4). The method was to create approximately forty million square feet of commercial space and thirty million square feet of residential development over a period of seven years (Iyer et al., 2011, p. 4). Developers were accountable for producing infrastructural conveniences such as schools, roads, hospitals, and cultural centers, while the government and non-profit organizations would execute public services such as education or health services (Iyer et al., 2011, p. 4). Developers would provide maintenance on the structures and public areas for the first fifteen years with specific terms for maintenance items (Iyer et al., 2011, p. 4). The public sector in this case would begin receiving revenue totaling three million dollars from the initiation of the application through project completion. The goal of this synopsis is to outline issues regarding the benefits and weaknesses of public-private agreements, the possible barriers to success, along with any factors that may work in favor of, or against the success of the DRP.

Contract Considerations

 When bargaining for projects under public-private partnership control, rewards of the parties involved must be worked out. Supplier, service, and government considerations must be examined prior to contract creation to assure the potential of accomplishing goals of the project (Iyer et al., 2011, p. 12). In the case of the DRP the government is willing to accept revenue up front from private developers for redeveloping the slum (Iyer et al., 2011, p. 4). In return the government is allowing private developers to construct additional properties with the benefit of selling them in the free market (Iyer et al., 2011, p. 4). The process may appear to be cut and dry, but there are many factors that could alter the process.

 Pliability on contract compensation and proposals for additional pledges and affirmations play a large role in the success of this partnership. For example, developing the slum in the Dharavi case will take the work of five contractors over a seven-year time frame. Although the developers will start the project simultaneously, there is no guarantee that the developers will complete construction at the same time. Another likely arrangement could deal with giving the developer the opportunity to generate revenue for construction prior to completion of rehabilitation projects. Dissimilarities such as these may cue petitions from developers for plans and alterations to actions and agendas that will make their job more effective and efficient (Bunch 2012, p. 53). Plans for the public-sector target adaptability, but they also must take into consideration provisions that assist the public such as public disclosure, public participation, a system of checks and balances, and other ethical considerations (Bunch 2012, p. 53).

Advantages of Contracting Out

  Often the government cannot manage funding and financially maintaining infrastructure projects. These projects benefit from a private partner designing, financing, operating, and maintaining these infrastructures because they have the capacity to generate profits that can in turn be used to maintain the structures (Murray 2007, p. 56). Costs and fees correlated with the infrastructure would not be determined by politicians but by the private sector for they have more resilience in financial situations (Murray 2007, p. 56). The private sector is also more innovative in commencing cost savings because they must save money to make more money (Murray 2007, p. 56).

 Another benefit of using public-private partnerships deal with supporting continuous innovation with the aim of promoting project benefits and reducing life cycle costs (Siemiatycki 2010, p. 47). Assertive rivalries between firms to win the bid, and the winner’s ambition to make profits over an extended running period are believed to supply the motivation to incite innovation (Siemiatycki 2010, p. 48). Cost declines using public-private partnerships are accomplished through an array of methods such as the mobilizing of new technologies, previous experience working on comparable projects, continuous private engagement during early stages of the project, stern management, and lower employee wages (Siemiatycki 2010, p. 48).

 Ambiguous responsibilities and unsatisfactorily coordinated strategies in the public sector are also good reasons to use public-private partnerships for infrastructure projects (Della Rocca n.d.). A lack of clarity amongst the public sector in relation to decision making and project administration often affects project delivery (Della Rocca n.d.). Lack of public sector support can also decline which often postpones implementation (Della Rocca n.d.). Public-private partnerships address this challenge by requiring the public sector to record and mediate the performance standards, risk distribution mechanisms, duties, compensation, and penalties in an understandable and commercially realistic fashion (Della Rocca n.d.). Since public-private partnerships are adequately examined, project commitments ideally will be coordinated with the approach of the public sector (Della Rocca n.d.).

 Past failed attempts at redeveloping Dharavi have occurred over time due to factors that can be cured by the using a public-private partnership. In the past funding for the slum was available, but the project made slow progress because of delays in releasing the funds (Iyer et al., 2011, p. 5). There were also concerns about residents being capable of affording annual maintenance and civic amenities cost of the new structures (Iyer et al., 2011, p. 5). When the public sector was charged with infrastructure planning, problems with assigning and capping profits along with other restrictions placed on development by the public sector resulted in its failure (Iyer et al., 2011, p. 5). Reasons such as these if why assigning a private developer and developing a contract would be the best option for the DRP.

Disadvantages of Contracting Out

There are disadvantages of contracting public-private partnerships for infrastructure development. Using short term funding received from the DRP at the expense of long term needs of Dharavi can potentially cause problems because of high borrowing costs (Bunch 2012, p. 44). Using public-private partnerships for infrastructure development may lead to higher financing costs than if a public entity engaged in the project on its own (Bunch 2012, p. 44). Private firms pay higher interest rates on borrowing because taxable debt is used instead of tax exempt debt distributed by state and local government. Escalated borrowing costs can cause financial difficulties for developers which could possibly affect job performance resulting in a less than efficient final product (Bunch 2012, p. 44). In the long run this can lead to insufficiently constructed infrastructure that the government will eventually have to pay to have redeveloped or demolished (Bunch 2012, p. 44).

Loss of government control and future flexibility is another drawback of contracting out to public-private partners (Bunch 2012, p. 43). The deep-rooted disposition of the relationship in the public-private partnership presents concern for the condition of the Dharavi community many years from now (Bunch 2012, p. 43). Major apprehensions in the public-private partnership that could alter government control deal with arrangements in the contract that hamper the public sector from any activity involving the infrastructure (Bunch 2012, p. 43). This could possibly result in the government purchasing infrastructure from the private partner that was meant to earn revenue which defeats the purpose of the partnership.

The final concern of contracting out to public-private partners is whether the government will be able to capture the true value of the project. There can be ambiguity associated with projections which makes it hard to anticipate revenues and costs associated with the DRP to place a value on the project (Bunch 2012, p.41). Normally capturing the true value is done by predicting future revenue and costs, and using those figures to calculate the present value (Bunch 2012, p. 42). Unfortunately, these approaches are overly positive due to factors such as economic downturns and future land use scenarios that have yet to occur (Bunch 2012, p. 42).

Cost and Price Analysis

The Dharavi Redevelopment Plan was proposed to provide a more persuasive sectoral plan of attack to redeveloping the area’s slum (Iyer et al., 2011, p. 6). Proposed costs for private developers to participate were estimated at three billion dollars in addition to the application fee, a security deposit, Indian bank guarantees, and proof of financial capability (Iyer et al., 2011, p. 4). Because of these inflated costs it is best for the public sector to contract the project out to a private partner. The public sector’s lack of available funds, heightened by a political opposition to taking on debt or raising taxes, have been key barriers to delivering new necessary infrastructure projects. (Siemiatycki 2010, p. 46). Public-private partnerships can give densely obligated or fiscally conservative governments the chance for private sector financing that would allow them to construct new infrastructure sooner than if fully funded by government sources (Siemiatycki 2010, p. 46). In the public-sector model of delivering infrastructure, responsible government agency and taxpayers cover the cost of most risks (Siemiatycki 2010, p. 47). However, when the private sector is heavily implicated in the planning, financing, and operation of an infrastructure project, there is the capacity to relocate certain supply and demand affiliated risks to the partner with the largest incentive and competence to manage them (Siemiatycki 2010, p. 47). Risks normally transferred include construction cost overruns, delays in opening the facility, facility availability and operational performance, and whether the development plan will be successful (Siemiatycki 2010, p. 47).

Ethical Concerns

 Ethical concerns the public sector should contemplate before and after entering a public-private partnership must include provisions for transparency (Bunch 2012, p. 53). The process for soliciting, evaluating, and awarding Dharavi Redevelopment Plan projects must be transparent and fair (Bunch 2012, p. 53). It is believed that lack of disclosure can negatively affect transparency which in turn affects public participation (Bunch 2012, p. 53). When an agreement is made with the private sector, all documentation involved should be available for public review (Murray 2007, p. 58). The public sector has the responsibility to its citizens to ensure their needs are met, and transparency is a good way to earn public trust (Murray 2007, p. 58). Limited transparency reduces significant community engagement in project planning (Siemiatycki 2010, p. 5). Essential community consultation and engagement in infrastructure investment decisions are crucial to making public planning accountable, increasing citizen support, and enhancing the policy outcomes of specific initiatives (Siemiatycki 2010 5). In the case of the Dharavi Redevelopment Plan, criticisms from the affected citizens postponed the implementation of the project (Iyer et al., 2011, p. 11). Citizens felt that several elements of the project were unclear such as infrastructure planning, environmental impact assessments, acquisition of land from private owners, and improving eligibility for housing (Iyer et al., 2011, p. 7). The creator of the development plan claimed to have produced all documentation in regards to the project available, but knew he must devise a plan for addressing the needs of the citizens (Iyer et al., 2011, p. 8). This was critical to the success of the project, so significant changes were made to the original plan to address concerns (Iyer et al., 2011, p. 10).

Conclusion

 Redeveloping the Dharavi slum can become a reality if the public-private partnership is handled properly. The public-sector mentality necessary for lucrative public-private partnerships is to welcome them as enterprises that require a careful combination of technical, legal, and commercial conditions (Garvin 2010, p. 410). The method is not the same as defining the requirements for a constructed facility but is more so authorizing the private sector to commence and manage an enterprise within the parameters of a contract (Garvin 2010, p. 410). A meticulous balance must be carried out between the project’s administration and construction arrangements so that the private partner is prosperous in meeting public sector objectives (Garvin 2010, p. 410).

References

• Bunch, B. (2012). Preserving the Public Interest in Highway Public-Private Partnerships: A Case Study of the State of Texas. Public Budgeting & Finance, 32(1), 36–57. https://doi.org/10.1111/j.1540-5850.2011.01001.x
• Della Rocca, M. (n.d.). The rising advantage of public-private partnerships. Paper presented at the McKinsey & Company: Capital Projects and Infrastructure, Philadelphia. Retrieved from https://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/the-rising-advantage-of-public-private-partnerships
• Garvin, M. J. (2010). Enabling Development of the Transportation Public-Private Partnership Market in the United States. Journal of Construction Engineering & Management, 136(4), 402–411. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000122
• Iyer, L., Macomber, J., & Arora, N. (2011). Dharavu: Developing Asia’s Largest Slum (A). Harvard Business School, 710-004, 1–26.
• Murray, E. (2007). Public Private Partnership in Transportation: The Case of the Washington State. Vikalpa: The Journal for Decision Makers, 32(2), 53–59. Retrieved from http://search.ebscohost.com.libauth.purdueglobal.edu/login.aspx?direct=true&db=bth&AN=25805470&site=eds-live
• Siemiatycki, M. (2010). Delivering Transportation Infrastructure Through Public-Private Partnerships: Planning Concerns. Journal of the American Planning Association, 76(1), 43–58. https://doi.org/10.1080/01944360903329295