Public Private Partnership (PPP) Concept

Public Private Partnership (PPP) Concept

“Public Private Partnership” (PPP) Partnership between a public sector entity (Sponsoring (PPP) authority) and a private sector entity (a legal entity in which 51% or more of equity is with the private partner/s) for the creation and/or management of infrastructure for public purpose for a specified period of time (concession period) on commercial terms and in which the private partner has been procured through a transparent and open procurement system

Traditionally, private sector participation has been limited to separate planning, design or construction contracts on a fee for service basis – based on the public agency’s specifications.

Expanding the private sector role allows the public agencies to tap private sector technical, management and financial resources in new ways to achieve certain public agency objectives such as greater cost and schedule certainty, supplementing in-house staff, innovative technology applications, specialized expertise or access to private capital. The private partner can expand its business opportunities in return for assuming the new or expanded responsibilities and risks.

PPPs provide benefits by allocating the responsibilities to the party – either public or private – that is best positioned to control the activity that will produce the desired result. With PPPs, this is accomplished by specifying the roles, risks and rewards contractually, so as to provide incentives for maximum performance and the flexibility necessary to achieve the desired results.

Some of the primary reasons for public agencies to enter into public-private partnerships include:

• Accelerating the implementation of high priority projects by packaging and procuring services in new ways;
• Turning to the private sector to provide specialized management capacity for large and complex programs;
• Enabling the delivery of new technology developed by private entities;
• Drawing on private sector expertise in accessing and organizing the widest range of private sector financial resources;
• Encouraging private entrepreneurial development, ownership, and operation of highways and/or related assets; and
• Allowing for the reduction in the size of the public agency and the substitution of private sector resources and personnel

                                            PPP Models in practice

There are range of PPP models that allocate a responsibilities and  risks between the public and private partners in different ways. The following terms are commonly used to describe typical partnership agreement.

(a)Build Operate and Transfer (BOT) : a contractual arrangement whereby the concessionaire undertakes the construction, including financing, of a given infrastructure facility, and the operation and maintenance thereof. The concessionaire operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals, and charges not exceeding these proposed in its bid or as negotiated and incorporated in the contract to enable the concessionaire to recover its investment, and operating and maintenance expenses in the project. The concessionaire transfers the facility to the Government Agency or Local Government unit concerned at the end of the fixed term.

(b)Build-Own-Operate-and-Transfer (BOOT) : a project based on the granting of a concession by a Principal (the Union or Government or a local authority) to the concessionaire, who is responsible for the construction, financing, operation and maintenance of a facility over the period of the concession before finally transferring the facility, at no cost to the Principal, a fully operational facility. During the concession period the promoter owns and operates the facility and collects revenue in order to repay the financing and investment costs, maintain and operate the facility and make a margin of profit.

(c)Build-and-Transfer (BT) : a contractual arrangement whereby the concessionaire undertakes the financing and construction of a given infrastructure or development facility and after its completion turns it over to the Government Agency or Local Government unit concerned, which shall pay the proponent on an agreed Schedule its total investments expended on the project, plus a reasonable rate of return thereon. This arrangement may be employed in the construction of any infrastructure or development project, including critical facilities which, for security or strategic reasons, must be operated directly by the Government.

(d)Build-Own-and-Operate (BOO) : a contractual arrangement whereby a concessionaire is authorized to finance, construct, own operate and maintain an infrastructure or development facility from which the proponent is allowed to recover its total investment , operating and maintenance costs plus a reasonable return thereon by collecting tolls, fees, rentals or other charges from facility users.

(e)Build-Lease-and-Transfer (BLT) : a contractual arrangement whereby a concessionaire is authorized to finance and construct an infrastructure or development facility and upon its completion turns it over to the government agency or local government unit concerned on a lease arrangement for fixed period after which ownership of the facility is automatically transferred to the government agency or local government unit concerned.

(f)Build-Transfer-and-Operate (BTO) : a contractual arrangement whereby the public sector contracts out the building of an infrastructure facility to a private entity such that the concessionaire builds the facility on turn-key basis, assuming cost overrun, delay and specified performance risks. Once the facility is commissioned satisfactorily, title is transferred to the implementing agency. The private entity however, operates the facility on behalf of the implementing agency under an agreement

(g)Design Built Finance Operate (DBFO) : a contractual arrangement whereby the concessionaire is authorized to detailed design work, which will reduce time and money required for project preparation.  The states could then bid the project based on the Feasibility Report instead of the Detailed Project Report.  For this, appropriately drafted TOR for Feasibility Report consultants and also a Manual of Specification and Standard for BOT Projects needed to be adopted by the States.

(h)Contract-Add-and-Operate (CAO): a contractual arrangement whereby the concessionaire adds to an existing infrastructure facility which it is renting from the government. It operates the expended project over an agreed franchise period. There may, or may not be, a transfer arrangement in regard to the facility.

(i)Develop-Operate-and-Transfer(DOT) : a contractual arrangement whereby favourable conditions external to anew infrastructure project which is to be built by a private project proponent are integrated into the arrangement by giving that entity the right to develop adjoining property, and thus, enjoy some of the benefits the investment creates such as higher property or rent values.

(j)Lease Management Agreement : an agreement whereby the State Government, the government agency or the specified agency leases a project owned by the state government, the government agency, or, as the case may be, the specified government agency to the person who is permitted to operate and maintain the project for the period specified in the agreement.