Public private partnership

Definition PPP Private Public Public-private partnership {PPP, 3P, P3} between a government agency and private-sector company can be used to finance, build and operate projects, such as public transportation networks, parks and convention centers. Financing a project through a public-private partnership can allow a project to be completed sooner or make it a possibility in the first place.

Acc. To economic and social commission………. PPP built on the appropriate allocation of:- Resources Risk Responsibilities Rewards It includes the projects like:- Transport Energy Real estate Urban infrastructure Social & rural infrastructure

PPP, Conventional & Privatisation Sources of funding Procurement are funding directly via. Public budget. Funding via. Private financial resources without public sector’s explicit guarantee. Funding via. Private financial resources without implicit or explicit public sector guarantee. Impact Immediate impact on public sector financial position. Impact on public budget spread over the duration of the concession. No impact on the level of public sector expenditure. Risk Born by public sector. Allocated to parties which can manage them most efficiently. Born by private sector. Public sector involvement Extensive involvement. Through enforcement of pre-agreed KPI,s. Govt. acts as regulator.

Conventional PPP Privatisation Relation with private contractor Short term Long duration Applicability Applicable for projects with high socio-economic returns and those justified on strategic consideration With commercial viability. With high commercial viability

Rationale for PPP Harness for private sector expertise. Access to capital resources. Cost overruns avoided by the private sector. Payment after delivery of services. Attractive investment option for private sector. Private sector contribution to development.

advantages Increases investment in infrastructure. Based on long term view. Risk & work are transferred. Public service cost and market standards. Innovation & efficiency. Greater construction capacity, labour capacity & resources. No political interference.

disadvantages As no. of parties involves the %age of complications & chaos increases. Project may take no. of years. Private party may bear loss {become insolvent} or may earn a large amount of profit. Long term nature means that debt is incurred long before the benefit appears.

Bottlenecks to PPP Projects Stringent Labour laws – The labour laws should become more business friendly without hurting the interests of the labourers. Red Tapism – An infrastructure project has to go through multiple level of clearances.The red tapism introduces unnecessary procedural delays. Lack of Transparency – This can be overcome by ensuring that the terms of concession agreements are transparent and protective of public interest. Fiscal Imbalance – High inflation, wide fiscal and current account deficits would lead to a fall in investments in India.

Lack of Environment Clearance Policies – Since each project requires the environment clearance, the lack of clear policy creates unnecessary delays. Land Acquisition – It is the government which should acquire the land before handing over the project to the private sector. Scattered Regulatory Approach – In order to attract more investment a more robust and International regulatory framework is needed. Inability to Assess Market Accurately – A project under PPP is based on assessment with respect to the expected demand for the use of the project when once implemented.

Lack of Conducive Operating Environment – PPP projects sometimes face problems in the operational phase. Absence of Clear Cut Legislation on PPP at State Level – In some states, the policies for PPPs exist but they always run risks of being re-written by succeeding governments.

Evolution and Growth of PPP in India….. PHASE I:- from 19th century to the beginning of 20th century. The Great Indian Peninsular railway in 1853, the Bombay Tramway Company’s Tram services in 1874 PHASE II:- from mid 1991 and 2006 86 projects were awarded 340 billion USD, most of the projects were in bridges and roads sector, maximum amount of financing taking place in Vishakhapatnam and Tirupur PHASE III:- from 2006 till date In the year 2014-2015 no. of PPPs is 20 having a value of 10,104.47Cr., value of PPP projects has significantly risen since 2010

Models of PPP SCHEMES MODALITIES Build-own-operate (BOO) Build-develop-operate (BDO) Design-construct-manage-finance (DCMF) The private sector designs, builds, owns, develops, operates and manages an asset with no obligation to the government. These are variants of Design-build-finance-operate(DBFO) schemes Buy-build-operate (BBO) Lease-develop-operate (LDO) Wrap-around-addition (WWA) The private sector buys or leases an existing asset from the govt., renovates, modernises or expands it and then operates the asset, again with no obligation to transfer ownership back to the govt.

SCHEMES MODALTIES Build-operate-transfer (BOT) Build-own-operate-transfer (BOOT) Build-rent-own-transfer (BROT) Build-lease-operate-transfer (BLOT) Build-transfer-operate (BTO) the private sector designs and builds an asset, operates it and then transfers it to the govt. when the operating contract ends, or at some other pre-specified time. The private partner may subsequently rent or lease the asset from govt.

Build-Operate-Transfer (BOT) BOT is a model of PPP wherein a private firm or consortium finances and develops a new infrastructure project or a major component according to performance standards set by the government.

Major Participants in BOT Projects Principal – In a BOT project, the principal is usually a govt. agency, a local or federal govt. body that recognizes the need for a public facility but is unable to financially support the project. The Concessionaire – The concessionaire, usually a consortium of companies, undertakes the financing and development of the project. Investors – The investors includes both shareholders and lenders from the private sector. Lenders may include banks, insurance companies and bond holders. Contractor -The contractor is entrusted the task of the construction of the facility. He is appointed by the concessionaire.

Operator – The operator is also in the concessionaire’s service and manages the operational stage of the facility. Often the operator is supported by a government agency or in some cases, is the agency.

Model Stages of BOT Design-Bid-Award: In this kind of project the asset are owned by the public sector. The private sector prepares a design and builds it for a fee. The operation and management of the project is in the hands of the govt. Design Build (DB): Where private sector designs and constructs at a fixed price and transfers the facility. Build Operate (BO): A contractual arrangement whereby a developer is authorized to finance, construct, operate and maintain an Infrastructure or development facility from which the developer is allowed to recover his total investment by collecting user levies from facility users.

Build-Operate-Transfer (BOT): Annuity/ Shadow User Change: In this BOT arrangement, private partner does not collect any charges from the users. His return on total investment is paid to him by public authority through annual payments(annuity) for which he bids.

Advantages of BOT Effective in attracting private finance. Cost reduction Increased profits

Disadvantages of BOT Regularity capacity Long and complex tenders Monopoly of service

BUILD OWN LEASE TRANSFER (BOLT) It is a non-traditional procurement method of project financing whereby a private or public sector client gives a concession to a private entity to build a facility (and 140 nirali shukla et al possibly design it as well), own the facility, lease the facility to the client, then at the end of the lease period transfer the ownership of the facility to the client. As a system of project financing this procurement method has a number of advantages the major one being that the private entity, contracted by the client, has the responsibility to raise the project finance during the construction period.

COMPLETION OF CONCESSION PERIOD STRUCTURE OF BOLT MODEL GOVT./ PUBLIC BODY GOVT./ PUBLIC BODY PRIVATE BODY PROJECT IDENTIFICATION FINANCE CONSTRUCTION COMPLETION OF CONCESSION PERIOD (CONCESSION PERIOD) LEASE FINAL OWNERSHIP OWNERSHIP OPERATIONS AND MAINTENANCE PRIVATE BODY PRIVATE BODY

ADVANTAGES OF BOLT MODEL Separate the use of facilities from the ownership of the facilities. Remove the burden of raising finance. Help in taking tough management decisions. Public authority receive stable cash flow.