1.

Introduction

A Public-Private Partnership (PPP) is a partnership between a public sector entity (sponsoring 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.(Department of Economic Affairs, Ministry of Finance, Government of India, 2007) In some types of PPP, the government uses tax revenue to provide capital for investment, with operations run jointly with the private sector or under contract (see contracting out). In other types (notably the private finance initiative), capital investment is made by the private sector on the strength of a contract with government to provide agreed services. Government contributions to a PPP may also be in kind (notably the transfer of existing assets). In projects that are aimed at creating public goods like in the infrastructure sector, the government may provide a capital subsidy in the form of a one-time grant, so as to make it more attractive to the private investors. In some other cases, the government may support the project by providing revenue subsidies, including tax breaks or by providing guaranteed annual revenues for a fixed period. Typically, a private sector consortium forms a special company called a special purpose vehicle (SPV) to develop, build, maintain and operate the asset for the contracted period. In cases where the government has invested in the project, it is typically (but not always) allotted an equity share in the SPV. The consortium is usually made up of a building contractor, a maintenance company and bank lender(s). It is the SPV that signs the contract with the government and with subcontractors to build the facility and then maintain it. In the infrastructure sector, complex arrangements and contracts that guarantee and secure the cash flows, make PPP projects prime candidates for Project financing. A typical PPP example would be a hospital building financed and constructed by a private developer and then leased to the hospital authority. The private developer then acts as landlord, providing housekeeping and other non medical services while the hospital itself provides medical services.

2. Basic PPP structure-: PPP structure can be quite complex involving contractual arrangements between a number of parties, including the government, project sponsor, project operator, financiers, suppliers, contractors, engineers, third parties (such as an escrow agent), and customers. The creation of a separate commercial venture called a Special Purpose/Project Vehicle (SPV) is a key feature of most PPPs.

Fig13: PPP structure

The various parties and their respective roles in PPPs include: Public agency: purchase The role of the public body is to specify clearly the desired outcomes or outputs, and to avoid identifying a particular means of delivering these. If services are delivered in accordance with the agencys performance standards, they then pay the PPP provider (most often, the SPV).

Service providers: Design, construction, operation and maintenance Private actors have a crucial role in developing innovative solutions in order to meet the requirements of the PPP in an effective and efficient manner. Typically, the SPV will subcontract construction, operations and equipment supply to suitable providers, who may be the parent companies of the SPV and therefore, also equity investors in the project. The SPV also needs to raise the necessary capital to build the assets required for service delivery. Once service delivery has commenced, the payment it receives from the procuring agency can be used to pay suppliers and subcontractors and repay debts.

Private financiers: Equity investment and debt provision Generally, the construction and operations companies which make up the SPV are also the equity investors. Equity stakes may also be taken by fund managers and other financial institutions. Because of their interest in generating a return on their outlay, equity investors have a strong incentive to ensure high standards of service performance. The PPP contract provides the sole source of revenue for the SPV and provided the latter meets the required standards, it will be paid by the public authority and so can service its debts. Consultants: Project advice Both the public body and the private sector consortium may decide to engage technical, legal and financial consultants to assist in structuring the tender or composing a viable PPP proposal. Experienced advisors can bring their knowledge and expertise to highlight best practices, as well as identify potential problems and pitfalls.

3. Main features of PPP Cooperative and contractual relationships PPPs represent cooperation between the government and the private sector. PPPs are not the same as privatization in that both public sponsors and private providers function as partners throughout project development and delivery, and often in operation and maintenance. PPP arrangements are long-term in nature, typically extending over a 15 to 30 year period. This is a factor which helps to which establish productive and lasting relations between the public and private sectors. Demonstrating an enduring public sector commitment to the provision of quality services to consumers, under terms and conditions agreeable to both the government and the private sector, PPPs are used to develop and operate public utilities and infrastructure. Shared responsibilities While the specific responsibilities for delivery will vary according to each project, a key feature of PPPs is that these responsibilities will be shared between the public body and the private consortium. In some initiatives, this might require the private sector company to play a significant role in all aspects of delivery of the service, while in others its functions may be more limited. However, unlike instances of privatization, the overall role of government remains unchanged in a PPP: it is the government which remains ultimately accountable and responsible for the provision of high quality services that meet the public need. Method of procurement PPPs are instruments for government bodies to deliver desired outcomes to the public sector, by making use of private sector capital to finance the necessary assets or infrastructure. The private company is rewarded for its investment in the form of either service charges from the public body, revenues from the project, or a combination of the two. This renders affordable those projects that might not otherwise have been feasible, because the public body was unwilling or unable to borrow the requisite capital. PPPs allow the private sector to play a greater role in the planning, finance, design, operation and maintenance of public infrastructure and services than under traditional public procurement models. Risk Transfer A key element of PPPs is their potential to deliver public projects and services in a more economically efficient manner. At the beginning of the relationship, potential risks associated with the project are identified and each party adopts those which it is best equipped to manage. The public sector can therefore transfer appropriate risks to the private partner, who has the necessary skills and experience to manage them. For example, overall risk to the public sector can be reduced by transferring those associated with design, construction and operation to the private partner. The incentive for the private body comes in the form of higher rates of return related to high standards of performance. Flexible Ownership PPPs enable flexible arrangements between public and private bodies, where the public body may or may not retain ownership of the project or facility that is produced. In some cases, the private organization may be contracted only to construct facilities or supply equipment, leaving the public body as owners, operators and maintainers of the service.

3. Requirement of PPP for Slum Rehabilitation The investments for creating and augmenting urban infrastructure comes from various sources Government of India, State Government, Financial Institutions, External Development agencies, internal accruals of Urban Local Bodies and private entities. Investment by Government of India is routed through Jawaharlal Nehru National Urban Renewal Mission (JNNURM), but even in that program, the funds fall short of the investment requirements. A preliminary analysis of the projects submitted to the Ministry of Urban Development for approval under JNNURM shows the following pattern:

Fig14: Graph showing cost of City Development Plan

Therefore for investment requirements other than the projects submitted for approval under JNNURM the funds will be limited. In such a situation it becomes imperative for the Urban Local Bodies to look for alternate sources of investment like financial institutions, external assistance and PPPs. This has become the basis for growing interest of PPP among all levels of administration. 3.1. Benefits to the Private Party The rehabilitation programme which is implemented through Public Private Partnership (PPP) is designed in such a manner that the private companies invest money in return for commercial benefits from the special FSI concessions given to them under this programme. In this manner, private and Government agencies could work together for the social upliftment of the slum dwellers and thus help in reconstructing the city and in turn build a new India.

4. Conclusion Slums play a number of essential roles in a city life. As a place of residence for lowcost labour, they keep the wheels of the city moving in many different ways. As a first stopping point for immigrants, they provide the affordable housing that enables them to save for their future absorption. Slums play a significant role in producing the services and commercial activities that the formal sector fails to provide through the mobilization of local enterprises and industry. Moreover, slums are places where different cultures get a platform to mix among them resulting in new forms of artistic expression. However, on the negative side, slums are home to toxic and harmful industrial activities, waste materials, ill health, crime, and polluted land. The slums have mostly poor quality housing and residential infrastructure. Having said this, when 40% of the of the urban population lives in slums, it becomes extremely important to recognize both these aspects of slum behaviour so that they are awarded their rightful place in the centre of policies and politics The PPP mechanism is facilitating the governments better responsiveness to consumer needs and satisfaction. PPP is enabling the government in providing viability gap funding with the objective of making the project commercially viable. This is further encouraging in creation of assets and their management and operation through private investment.

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