- 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
- Engineering-Procurement-Construction(EPC) Model
- Management Contract Model