Public private partnership model

  • PPPs are formal arrangements between public and private counterparties to share risks and rewards in the delivery of public services and infrastructure
  • These partnerships work well when private sector technology and innovation combine with public sector incentives to complete work on time and within budget
  • PPP involves full retention of responsibility by the government for providing the services, and it doesn’t amount to privatization
  • Private entity is chosen on the basis of open competitive bidding and receives performance linked payments
  • PPP route can be alternative in developing countries where governments face various constraints on borrowing money for important projects

Public private partnership (PPP) Models

  • The major types of PPP model are:
    • Management Contract Model
      • Under this model, a private entity is given the contract to manage, either in part or in whole, a public facility or a service
      • In this model, Ownership of the asset, or facility, remains with the public entity (government); while the day-to-day operations of such facility are transferred to the private entity
      • The risk exposure for the private entity is low since it is not required to make any capital investments and the private entity is allowed to collect a fee which is predetermined
    • Lease Contract Model
      • Under this model, the asset is leased, either to the private entity or to the public entity, depending on the situation
      • The private entity is allowed to earn revenue from operations
      • Build-Lease-Transfer model
        • The asset is owned by the private entity and is leased to public entity for medium term
        • Here, public entity is responsible for making the capital investment
      • Build-Operate-Transfer (BOT) Model
        • In BOT model, the public entity retains the ownership while the private entity bears the responsibility of construction(usually a greenfield project)
        • In second type, known as Under this model, the asset is leased, either to the private entity or to the public entity, depending on the situation
        • BOT Annuity
          • This model is adopted for the building highways, mainly for those projects where the potential for generating revenues is limited, by the NHAI
          • The private entity is responsible for designing, building, managing, and maintaining the asset. However, the risk for the private entity is low as it receives a fixed sum as annuity from the public entity at regular intervals throughout the duration of the contract
        • Other related PPP models
          • Engineering-Procurement-Construction(EPC) Model
            • In this model, the private entity is responsible for designing, financing and building the asset
            • After building the asset, it is transferred to the public entity which remains the owner. The private entity does not have the responsibility of operations and management and receives a lump-sum money from the public entity for its role. This model is being used for the construction of highways by the NHAI
          • Hybrid Annuity Model(HAM)
            • In this model, the public entity finances 40% of the project cost, and private entity has to finance the remaining 60%
            • The ownership, as well as operations, remain the responsibility of the public entity while the private entity only has to provide the engineering expertise