Business Model Choices for Government

1. Business Model Choices for Government IIIT-H

4. How do Governments govern ? • GOI - Ministries and Departments are organized on the basis of the Allocation of Business Rules. Schedule I of the Business Rules lists out 80+ Ministries and Departments. • [Council of ministers in 1947 – 16 members] • http://cabsec.nic.in/allocation_firstschedule.php • USA – 15, UK - 23

5. Advantages of focusing attention and resources vs inability to adopt integrated approach • Transport • Ministry of civil aviation • Ministry of Railways • Ministry of Shipping • Ministry of road transport, highways • Ministry of urban development • Energy • Power, coal, Petroleum, Atomic energy Should Governments be involved in, say, civil aviation at all?

6. Deciding whether or not a service should be delivered by the Govt Three core questions: • which part or parts of the proposed service should government itself deliver to its citizens? (the ‘core services’ question) • for all aspects of the service and supporting physical infrastructure, which model delivers the best value for money? (the ‘value for money’ question) • does that model satisfy the public interest criteria?

7. Three kinds of efficiency – [efficiency is the ability of economy to convert lower-valued inputs into the greatest amount of higher-valued outputs] • Allocative efficiency • Competitive markets drive prices toward cost levels and then using those prices separate buyers from non-buyers • Productive efficiency • Competitive markets reward more efficient firms with higher profits and encourage the exit of less efficient producers • Dynamic efficiency • demands optimal investment in new product / service developments and process improvements

8. Govt. Intervention [railways] What if the Costs are VERY high? A form of a tool • Allocative efficiency • Driving prices toward cost levels • separate buyers from non-buyers • Productive efficiency • reward more efficient firms withhigher profitsDynamic efficiency • optimal investment in new developments What about Not-ABLE buyers ? PDS What if higher profits derivedfrom citizens are not socially desirable? A form of a tool Subsidies A form of a tool Aakash?

9. Choices of Tools of Government

10. Tools…

11. Growth in the Third-party government • Transformation in the scale and scope of Government action and in its form • Third Parties – Commercial banks, insurance agencies, Hospitals, educational institutions etc play a role in delivering public services

12. An example from Maharashtra

13. Tools… PPP

14. Public Private Partnership • long-term arrangements in which the governments purchases services under a contract either directly or by subsidizing supplies to consumers …the government bears substantial risks - for example, by guaranteeing revenue or returns - on projects that sell directly to consumers World Bank

15. Various Models for Private Sector Participation Conventional Outsource Government Control PPP Privatise Risk Transferred to the Private Sector Source NISG

16. Type of Contract Duration (years) What the Private Contractor Receives Nature of Private Contractor Performance Examples Service Contract (outsourcing) 1-3 Fee from government for performing a non-core service Definitive, often technical type of service Website design and management, ICT Capacity Building Management Contract 3-8 Fee from government for the service and a performance-based incentive Manage the operation of a government service Call center staffing; Seat Management, Parking enforcement, regional water supply management Lease 8-15 All revenues, fees or charges from consumers for the provision of the service; the service provider rents the facility from government Manage, operate, repair, and maintain (and maybe invest in) a service to specified standards and outputs Land for ICT Infrastructure Development, Existing airport or port facilities BOO & BOOT 15-25 The government mostly pays the service provider on a unit basis Construct and operate, to specified standards, the facilities necessary for service provision ICT Infrastructure; e-procurement systems; e-business portals; Network of Kiosks Concession 15-30 All revenues from consumers service provision; the service provider pays a concession fee to the government and may assume existing debt Manage, operate, repair, maintain and invest in public service infrastructure to specified standards Telecom operations and expansion, New airport or seaport facilities, toll road or bridge Common PPP Structures:

17. Behaviour of Actors • Pluriformity - Govt engage diverse range of organisations many of which have limited experience in cooperating with each other and limited knowledge of each other’s operating styles • Self-referentiality– each actor has own interests and frame of reference and hence incentives • Asymmetric interdependencies–govt and 3rd parties are dependent but rarely in a fully symmetrical form

18. Interest in Allocative efficiency • Government Vs Private • Interest in Productive efficiency • Government Vs Private • Interest in Dynamic efficiency • Government Vs Private

19. Tools and “actors” give rise to risks… • Risk of a project is unpredictable variation in the total value of the project, taking into account value accruing to project owners / sponsors, customers, the government, and other stakeholders.

20. Risks • Who will bear the costs of land and buildings for State Data Centers? • Who is responsible for allotment/ procurement of land? • Who is responsible for design, delivery and maintenance issues relating to eGov solutions? • What is the guarantee that CSCs will have a minimum “volume” of business? • What if the prices rise – due to inflation etc?

21. Typical Risks • Demand (volume) • Policy • Residual value • Inflation • Regulatory • Taxation • Force Majeure • Changes in requirement • Land acquisition, planning and permissions • Design • Construction • Commissioning • Latent defects • Operating performance • Operating and maintenance costs

22. Risk effects • Increase in costs • Delays • Resource constraints • Loss of revenue • Political consequences