Public Private Partnership (PPP) project, which is based on a contract or concession agreement between a government or statutory entity on one side and a private sector company on the other side, for delivering an infrastructure service on payment of user charges. The goal is to combine the best capabilities of the public and private sectors for mutual benefit. PPPs are used to build new and upgrade existing public facilities. Compared with traditional procurement models, in PPP the private sector assumes a greater role in the planning, financing, design, construction, operation, and maintenance of these facilities.
For a country of India’s size, provision of quality infrastructure becomes a must to maintain and continue towards higher growth trajectory. To meet this need, the government has stepped up investments towards infrastructure through PPP. The Eleventh Five Year Plan has set an ambitious target of increasing total investment in infrastructure from around 5% of GDP in the base year of the plan 2006-07 to 9% by the terminal 2011-12. Around 30% of the required investment of around Rs 2,056,150 crore will have to come from private capital.
The confluence of rising infrastructure needs and social demands, combined with tight governmental budgets and public resistance to additional tax increases, has made it essential for public authorities to turn to the innovative qualities and access to operating capital possessed by the private sector in order to fulfill responsibilities.
TYPES OF PPP PROJECTS
- Design-Build (DB):
Under this model, the government contracts with a private partner to design and build a facility in accordance with the requirements set by the government. After completing the facility, the government assumes the responsibility for operating and maintaining the facility. This method is also referred to as Build-Transfer (BT)
- Build Own Operate (BOO):
The government grants the right to finance, design, build, operate and maintain a project to a private entity, which retains ownership of the project. The private entity is not required to transfer the facility back to the government.
- Build Operate Transfer (BOT):
The private business builds and operates the public facility for a significant time period. At the end of the time period, the facility ownership transfers to the public.
- Build-Own-Operate-Transfer (BOOT):
The government grants a franchise to a private partner to finance, design, build and operate a facility for a specific period of time. Ownership of the facility is transferred back to the public sector at the end of that period.
- Buy Build Operate (BBO):
The government sells the facility to the private business. The private business refurbishes and operates the facility.
- Design Build-Operate (DBO):
A single contract is awarded to a private business which designs, builds, and operates the public facility, but the public retains legal ownership.
- Design-Build-Maintain (DBM):
This model is similar to Design-Build except that the private sector also maintains the facility. The public sector retains responsibility for operations.
- Build-Develop-Operate (BDO):
The private business buys the public facility, refurbishes it with its own resources, and then operates it through a government contract.
- Build-Own-Lease-Transfer (BOLT):
The government grants the right to finance and build a project which is then leased back to the government for an agreed term and fee. The facility is operated by the government. At the end of the agreed tenure the project is transferred to the government.
- Contract Add and Operate (CAO):
CAO can be said to be a contractual agreement whereby the project developer adds to an existing infrastructure facility which it rents from the government and operates the expanded project over an agreed as a period franchise. There may or may not be a transfer arrangement with regard to the added facility provided by the project developer.
- Develop Operate and Transfer (DOT):
DOT can be said to be a contractual arrangement whereby favourable conditions external to the new infrastructure project which is to be built by a private developer are integrated into the arrangement by giving that entity the right to develop adjoining property, and thus, enjoy some of the benefits created by the investment such as higher property or rent values.
- Rehabilitate Operate and Transfer (ROT):
ROT can be said to be a contractual arrangement whereby an existing facility is turned over to a private entity to refurbish, operate and maintain for a specific period as a franchisee, on the expiry of which, the legal title to the facility is turned over to the government. The term is also used to describe the purchase of an existing facility from abroad, refurbishing, erecting and consuming it within the host country.
- Rehabilitate Own and Operate (ROO):
ROO can be said to be a contractual arrangement whereby an existing facility is turned over to the private sector for refurbishing and operation with no time limit on ownership. As long as the operator has not violated the franchise, it can continue to operate the facility in perpetuity.
- Lease Renovate Operate and Transfer (LROT):
LROT can be said to be a contractual arrangement whereby an existing infrastructure facility is handed over to private, parties on lease, for a particular period of time for the specific purpose of renovating the facility and operating it for a specific period of time; on such terms and conditions as may be agreed to with the government for recovering the costs with an agreed return and thereafter, transferring the facility to the government. The Ministry of Power has adopted this route for the renovation of existing power plants.
- Design-Build-Operate (DBO):
Under this model, the private sector design and builds a facility on the turn-key basis. Once the facility is completed, the title for the new facility is transferred to the public sector, while the private sector operates the facility for a specified period. This model is also referred to as Build-Transfer-Operate (BTO).
- Design-Build-Finance-Operate/Maintain (DBFO, DBFM or DBFO/M):
Under this model, the private sector designs, builds, finances, operates and/or maintains a new facility under a long-term lease. At the end of the lease term, the facility is transferred to the public sector. In some countries, DBFO/M covers both BOO and BOOT.
BENEFITS OF PPP:
The issue of private sector participation is high on the political, economic, and social agenda of many countries, with the key challenge being to devise arrangements that are predictable and sustainable, while delivering better services. Infrastructure is essential to supporting economic growth.
Private sector participation in this sector offers clear benefits, as follows:
· Stimulate economic growth
· Improved and expanded infrastructure services that would not be there otherwise
· Technology transfer, training of local personal and development of national capital markets
· Competition and innovation
· Improved efficiency
· Faster implementation
· Relieving the government budget and borrowing
· Providing a benchmark with which to judge the public sector’s performance
· Better allocation of risk between the public and private sectors
· Improve service delivery
· Improve cost-effectiveness
· Increase investment in public infrastructure
· Reduce public sector risk
· Deliver capital projects faster
· Improve budget certainty
· Make better use of assets
Private sector participation brings with it a more commercial approach to infrastructure provision, reducing political intervention. Governments, distanced from their responsibility of providing the infrastructure service itself, can tackle other issues such as tariff reform.