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Smita Patil 1
 PUBLIC PRIVATE PARTNERSHIP (PPP)

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 Public Private Partnership (PPP)
 A public private partnership can be described as
 co-operation between the public and the private
sector
 government and the private sector carry out a project
together on the basis of an agreed division of tasks
and risks, each party retaining its own identity and
responsibilities
 PPP helps in bridging the financial gap in the
development of infrastructure.

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 Public Private Partnership (PPP)
• Public-private partnerships refer to the
– private sector financing,
– designing,
– building,
– maintaining and operating infrastructure assets
traditionally provided by the public sector.
• Government and a private corporation combine
to provide a public service through the creation
and use of new assets for a set time period.

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 Public Private Partnership (PPP)
• PPP…example
– Highway example – usual arrangements
– Government borrows money or Tax Public, pays to
get a Highway built, Public uses the facility for free
but pay in form of Increased Tax
– PPP
– Private firm borrows money, builds Highway, Public
pay fee to use the highway, Firm hands over the
property to Govt. after say 20 years

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 Public Private Partnership (PPP)
• Private Sector
• Customer Satisfaction
• Return on Investment
• Risk/Reward Evaluation
• Public Sector
• Responsibility
• Accountability
• Risk Avoidance
• Private Public
• Customer Satisfaction Responsibility
• Return on Investment Accountability
• Risk/Reward Evaluation Risk Avoidance
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 Public Private Partnership (PPP)
• Private Sector Strengths
– Management Efficiency
– Newer Technologies
– Workplace Efficiencies
– Cash Flow Management
– Personnel Development
– Shared Resources

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 Public Private Partnership (PPP)
• Public Sector Strengths
– Legal Authority
– Protection of Procurement Policies
– Broad prospective/balance the competing goals to
meet public needs
– Personnel – dedicated but constrained
– Capital resources

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 Evolution of PPP

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 Current Status of PPP
• The PPP India database (Department of
Economic Affairs, Ministry of Finance) indicates
that 758 PPP projects costing INR 3,833 billion is
awarded/underway status (in operational,
constructional or in various stages)
• There exists significant untapped potential for
the use of PPP model in e-governance, health
and education sectors.

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 Current Status of PPP
• Karnataka, Andhra Pradesh and Madhya
Pradesh are the leading states in terms of
number and value of PPP projects.
• At the central level, the National Highway
Authority of India (NHAI) is the leading user of
the PPP model.

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 Current Status of PPP

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 Public Private Partnership (PPP)
• Advantages of PPPs
– Maximizes the use of each sector’s strength
– Reduced development risk
– Reduced public capital investment
– Mobilizes excess or underutilized assets
– Improved efficiencies/quicker completion
– Better environmental compliance
– Improved service to the community
– Improved cost effectiveness
– Shared resources
– Shared/allocated risks
– Mutual rewards
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 Advantages of PPP
• Investments are based on Long term view
• Risk and value are transferred to the party which
is best able to manage it at the least cost,
achieving best value
• Projects go through a competitive pricing
process, meaning that the cost of public services
is benchmarked against market standards
• The timings and costings tend to be more certain
and therefore deliver better value for money.
Where PPPs are not completed to budget, the
private sector usually bears the costs.
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 Advantages of PPP
• Speedy, efficient and cost delivery of projects
• Optimal risk transfer and management
• Competition and greater construction capacity
• Accountability for the provision and delivery of
quality projects
• Innovation and diversity in the provision of public
services
• Infrastructure development more effectively and
efficiently

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 Advantages of PPP
• The cross transfer of public and private sector skills,
knowledge and expertise can create innovation and
efficiency.
• The private sector often brings with it a greater
construction capacity, labour capacity and resources
than would be available to the public sector.
• Payments to the private sector in PPP projects are
usually linked to how they perform, creating incentives
and efficiency.
• PPP projects are not subject to political interference
and deferred payments for the government.

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 Disadvantages of PPP
• The number of parties involved and the long
term nature of their relationships often result
in complicated contracts and complex
negotiations, and therefore high transaction
and legal costs. PPP projects can take years to
complete.
• There is a risk that the private sector party will
become insolvent or make large profits during
the course of project – this can cause political
problems for the public entity.
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 Disadvantages of PPP
• The long term nature of PPP project means debt
is incurred long before the benefits appear.
• Sometimes a public sector entity could borrow
more cheaply alone than it could via the private
sector. This has to balanced against the fact that
capital expenditure incurred by a public sector
body counts as government expenditure which at
certain stages of economic cycle will score against
the various statistical measures of the
government borrowing.

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 Public Private Partnership (PPP)
• Risk Factors for PPP…
– Lack of political leadership, vision and strategy
– Not implemented in a context of wider change/
administrative reform
– Poor costing or lack of resources – creeping commitments
– Inappropriate definition of project goals and scope
– Automation without process reengineering
– Hurried implementation
– Management of change-resistance from vested interest
– Use of untested fancy technology
– Inadequate attention to monitoring and evaluation
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 Models of PPP
Modified design – build (turnkey) contracts
• This yields benefits in the form of time and cost
savings, efficient risk-sharing, and improved
quality.
• The turnkey approach with milestone –linked
payments and penalties or incentives can be
linked to such kind of contracts.

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 Models of PPP
BOT (build operate transfer) models
• The BOT form of model and its variants is the
most common form of PPP model used in
India accounting for almost two-thirds of PPP
projects in the country.
• The two major forms of BOT models are:
• User- fee based BOT model
• Annuity – based BOT model

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 Models of PPP
• User- fee based BOT model: Commonly used in
medium to large scale PPPs for the energy and
transport sub sectors (road, ports, airports).
• Annuity – based BOT model: Commonly used in
sectors / projects not meant for cost recovery
through user charges such as rural, urban, health
and education sectors.

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 Variants of BOT
Design Build (DB) :
• Where Private sector designs and constructs at
a fixed price and transfers the facility.

Build Transfer Operate (BTO) :

• Where Private sector designs and builds the
facility.
• The transfer to the public owner takes place at
the conclusion of construction.
• Concessionaire is given the right to operate and
get the return on investment.

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 Variants of BOT
Build-Own-Operate (BOO) :
• A contractual arrangement whereby a Developer is
authorized to finance, construct, own, operate and
maintain an Infrastructure or Development facility
• The Developer is allowed to recover his total investment by
collecting user levies from facility users.
• Under this Project, the Developer owns the assets of the
facility and may choose to assign its operation and
maintenance to a facility operator.
• The Transfer of the facility to the Government, Government
Agency or the Local Authority is not envisaged in this
structure; however, the Government, may terminate its
obligations after specified time period.

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 Variants of BOT
Design-Build Operate (DBO) :
• Where the ownership is involved in private hands and a
single contract is let out for design construction and
operation of the infrastructure project.

Design Build Finance Operate (DBFO) :

• With the design–build–finance–operate (DBFO) approach,
the responsibilities for designing, building, financing, and
operating & maintaining, are bundled together and
transferred to private sector partners.
• DBFO arrangements vary greatly in terms of the degree of
financial responsibility that is transferred to the private
partner

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 Variants of BOT
Build- Operate- Transfer (BOT) :
• Annuity/Shadow User Charge : In this BOT
arrangement, private partner does not collect any
charges from the users.
• His return on total investment is paid to him by
public authority through annual payments (annuity)
for which he bids.
• Other option is that the private developer gets paid
based on the usage of the created facility.

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 Models of PPP
Performance based management/ maintenance
contracts
• The PPP model that lead to improved
efficiency are encouraged in an environment
that is constrained by the availability of
economic resources. The sectors meant for
such form of PPP models include water supply,
sanitation, solid waste management, road
maintenance etc.

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 THANK YOU

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