Certain government projects like road projects are partially funded by incentives by

government schemes. For example, the National Highway Authority of India (NHAI) offers
an annuity to successful bidders (and bidding is on the annuity required from NHAI) and the
Solar Energy Corporation of India (SECI) for solar projects grants viability gap funding
(VGF) to project developers (although this VGF has not been successful in the solar industry
in India).

Different type of infrastructure projects

Private-public partnerships are a common mechanism used while creating infrastructure

projects. In general, a public-private partnership involves a joint venture between a
government body and a private corporation. However, there are several different ways in
which it is possible for these two types of companies to collaborate. In some types of
contracts, the government bodies play a dominant role, whereas, in other types of contracts,
the private parties play a dominant role. In this article, we will list down the types of
contracts which are commonly used as well as their features.

Operation and Maintenance Contracts

Operations and Maintenance contracts are a very common mechanism used in infrastructure
projects. Under this mechanism, the facility to be maintained is owned by the government.
The private party is given periodic contracts in order to maintain these facilities in proper
working condition. There are multiple ways in which this arrangement is carried out. For
instance, in one type of arrangement, the government could provide a fixed fee to a contractor
in exchange for maintaining the facilities. On the other hand, there are leasing contracts, in
which the government leases the facility out to a private party. Hence, the government
receives a fixed sum as revenue from the project. The private party is then given the right to
collect money from the general public when they use the facilities.

From a private party’s point of view, the risk involved in this project is minimal. This is
because all the money and the assets which are going to be used in the project belong to the
government. However, this also means that the government is the dominant counterparty, and
hence, they have maximum control over the project’s operation as well as its finances.

Rehabilitation Contracts

In many parts of the world, the infrastructure already exists. However, with the passage of
time, it has become old and worn out. The revamping and rehabilitation of such infrastructure
projects require a lot of capital to be invested upfront. Governments all over the world are
generally short of money. As a result, such projects end up getting delayed.

Rehabilitation contracts offer a great mechanism to ensure that these projects do not get
delayed and that no additional burden is added to the government’s finances. Under these
contracts, the government cedes control of a publicly owned asset for a predefined period of
time. In return, the private party invests money in order to rehabilitate the asset. Normally, a
rehabilitated asset creates greater cash flow. The private party is then entitled to this
increased cash flow for the next few years.