What is Public-Private-Partnership (PPP)? What are the advantages of Public-Private Partnership (PPP)? What are the various types of Public Private Partnership (PPP) Models? Read further to know more.
Investment is the process of putting money in assets for increasing production or financial gains. The investment models can speak about how to put the money in assets.
Investing in productive assets can be in the form of Public Sources (Government), Private Sources (Corporate) or Combined Sources (Public Private Partnership or PPP).
What is Public-Private Partnership (PPP)?
A public-private partnership (PPP) unites the public and private sectors to carry out a project or offer a service that is typically handled by the public sector.
Public-private partnerships (PPPs) come in a variety of shapes and sizes, depending on the private party’s level of involvement and risk tolerance. Normally, the conditions of a PPP are outlined in a contract or agreement to specify the obligations of each partner and allocate risk.
When private-sector technology and creativity are combined with public-sector incentives to finish projects on schedule and within budget, these collaborations are successful.
Advantages of Public-Private Partnership (PPP)
- The benefit of a PPP is that when appropriate cooperative agreements between the public and private sectors are employed, the management abilities and financial savvy of private enterprises may result in better value for money for taxpayers.
- When a project is funded through a public-private partnership, it can either be completed sooner or become feasible because investments are made by the private sector entity for a predetermined amount of time.
- Public services may become more effective, efficient, and competitive as a result of PPP. In a situation when there are budgetary constraints, it can raise additional funding and supplement the limited public sector capacities.
- PPP does not constitute privatisation because it entails the government’s complete retention of responsibility for delivering the services. The division of risk between the public institution and the private sector is clearly defined.
- The private company is chosen through an open, competitive bidding process and is compensated depending on performance.
- In developing nations when governments are constrained in their ability to borrow money for significant projects, the PPP approach may be an alternative.
- It may also provide the necessary knowledge for large-scale project planning or execution.
Public-Private Partnership (PPP) models
Commonly adopted models of PPPs include Build-Operate-Transfer (BOT), Build-Own-Operate (BOO), Build-Operate-Lease-Transfer (BOLT), Design-Build-Operate-Transfer (DBFOT), Lease-Develop-Operate (LDO), Operate-Maintain-Transfer (OMT), etc.
These models are different on the levels of investment, ownership control, risk sharing, technical collaboration, duration, financing etc.
- It follows a standard PPP paradigm where the private partner is in charge of designing, constructing, operating (during the agreed-upon period), and handing back the facility to the public sector.
- The project’s private sector partner must provide the funding and assume responsibility for its construction and upkeep (usually a greenfield project).
- The public sector will permit business partners to charge users for services.
- A key illustration of the BOT concept is the national highway projects that NHAI has leased out under the PPP form.
- According to this approach, a private entity will retain ownership of the newly constructed facility.
- The public sector partner consents to “buy” the goods and services delivered by the project on mutually acceptable terms and circumstances.
- In this BOT form, the project is turned over to the government or a private operator after the agreed-upon period.
- Highway and port construction utilises the BOOT concept.
- The asset is leased to the public entity for a medium duration and is owned by the private company.
- In this case, the public entity is in charge of financing the investment.
- In this strategy, the government grants a building concession to a private company (and possibly designs it as well).
- The facility may be owned by a private business, which may then lease it to the public sector and transfer ownership of the facility to the government after the lease term.
- According to this approach, the private party is solely responsible for the project’s design, building, financing, and operation throughout the concession period.
- In this kind of investment arrangement, the public sector organisation or the government keeps ownership of the newly built infrastructure facility and receives payments under the conditions of a lease with the private promoter.
It is primarily used for developing airport facilities.
- A private partner is in charge of designing, constructing, operating (during the agreed-upon period) and handing over the facility to the public sector. This is a typical public-private partnership model.
- DBOT is a variant of the build-operate-transfer (BOT) contract model where the contractor is responsible for both the project’s design and construction. Because it identifies a single point of accountability for delivering the project and seeing it through to operation, this approach may be appealing to some clients.
- The DBOT contract is different from a design build finance and operations (DBFO) contract, in which the contractor also finances the project and leases it to the client for a predetermined amount of time (perhaps 30 years), after which the development reverts to the customer.
- In this case, the asset is constructed and run by the private sector for a predetermined time. This time frame can range from 20 to 50 years. For renting out the asset at that time, the Government pays the contractor.
- By diverting public spending from significant infrastructure development projects, this model may help establish funding sources for other public initiatives.
- The following are some examples of DCMF PPP models: jails, courts, public hospitals, etc.
- The OMT model is comparable to the BOT model, with the exception that, unlike the BOT model, OMT does not call for the concessionaire for a project.
- For a predetermined amount of time, the concessionaire is responsible for maintenance under the OMT model.
Some other types of Public-private-partnership (PPP) Models
Different types of PPP include Concessions, Leases / Affermage, Full Divestiture, Contract Plans, and Performance Contracts.
Management Contract Model
- In this model, a public facility or service is managed, either entirely or in part, by a private organisation.
- In this approach, the public body (government) retains ownership of the asset or facility, but a private firm takes over the day-to-day management of the facility.
- The private entity’s risk exposure is minimal because it is not obligated to make any capital expenditures and is permitted to charge a set fee.
Lease Contract Model
- According to this concept, the asset is leased, depending on the circumstance, to either a private organisation or a public entity.
- The private organisation is permitted to generate income through operations.
- This technique is used to construct roadways, mostly for NHAI projects where the possibility for revenue generation is low.
- The asset must be designed, constructed, managed, and maintained by the private business. The private entity’s risk is minimal, though, as it consistently receives a fixed amount as an annuity from the public entity throughout the contract.
- In this model, the asset is designed, financed, and constructed by the private entity.
- The public agency that built the asset eventually receives ownership of it. The public entity pays the private entity a lump amount in exchange for playing the role; the private business is not responsible for operations and management.
- The NHAI is constructing highways with the use of this model.
Hybrid Annuity Model (HAM)
- In this arrangement, the private company is required to invest the remaining 40% of the project cost after paying 40% of it from the public entity.
- The public company continues to be in charge of ownership and operations; the private business is simply required to contribute engineering knowledge.
Vijay Kelkar Committee Report on Revisiting and Revitalising Public-private-partnership (PPP) Model
- In the Union Budget 2015–16, the Finance Minister stated that the PPP method of infrastructure development has to be reviewed and reinvigorated.
- In response to this declaration, Dr Vijay Kelkar served as the chair of the Committee on Revisiting & Revitalizing the PPP Model of Infrastructure Development.
The Government of India defined the public-private partnership (PPP or 3P) as a commercial legal relationship in 2011. The User-fee based BOT model, Performance-based management/maintenance contracts, and Modified design-build (turnkey) contracts are three examples of PPPs that are recognised by the Indian government.
Numerous PPP projects are now being implemented across the nation at various stages. PPPs are actively being promoted by the Indian government in many different economic sectors.
Article written by Aseem Muhammed